# JPMorgan UK Smaller Companies Investment Trust plc Annual Report & Financial Statements for the year ended 31st July 2021 ![img-0.jpeg](img-0.jpeg) J.P.Morgan Asset Management --- KEY FEATURES # Your Company ## Objective Capital growth from UK listed smaller companies. ## Investment Policies - To provide capital appreciation for shareholders from a diversified portfolio of UK listed small companies, emphasising capital rather than income growth. - Liquidity and borrowings are managed with the aim of increasing returns to shareholders. - Further details on investment policy are contained in the Strategic Report on page 18. ## Gearing A flexible low cost £40 million borrowing facility was in place and available for the investment manager to utilise at the year-end and this was increased to £50 million (with an accordion facility of £10 million) with effect from 1st October 2021. At 31st July 2021, £35 million was drawn down on the facility with the gearing level being 8.9% at that date. ## Company Name and Ticker The Company changed its name from JPMorgan Smaller Companies Trust plc to JPMorgan UK Smaller Companies Investment Trust plc on 21st September 2021. The Company's London Stock Exchange stock ticker symbol (JMI) remains unchanged. ## Benchmark The Numis Smaller Companies plus AIM (excluding Investment Companies) Index. Prior to 1st January 2019, the Company's benchmark was the FTSE Small Cap Index (excluding investment trusts). ## Capital Structure - UK Domiciled. - Premium listing on the London Stock Exchange. - As at 31st July 2021, the Company's share capital comprised 79,611,410 ordinary shares of 5p each, including 1,559,741 shares held in Treasury. ## Continuation Vote In accordance with the Company's Articles of Association, the Directors are required to propose an ordinary resolution that the Company shall continue in existence at the AGM in 2023 and in every third year thereafter. ## Management Company and Company Secretary The Company employs JPMorgan Funds Limited ('JPMF' or the 'Manager') as its Alternative Investment Fund Manager and Company Secretary. JPMF delegates the management of the Company's portfolio to JPMorgan Asset Management (UK) Limited ('JPMAM'). ## Environment, Social and Governance ('ESG') Considerations ESG considerations are fully integrated into the stock selection process. JPMAM research teams compile proprietary ESG analyses on companies as well as using external vendor research to rank them. Following in-depth strategic and financial analysis, these ESG rankings and factors are also taken into consideration as part of the investment case. In addition, the Manager, together with stewardship specialists, engages with investee companies on specific ESG issues. JPMAM is a United Nations Principles of Responsible Investment ('UN PRI') signatory and is rated A+. JPMAM endeavours to vote at all of the meetings called by companies in which your portfolio invests. An ESG report is on pages 10 to 12. ## Financial Conduct Authority ('FCA') regulation of 'non-mainstream pooled investments' and MiFID II 'complex instruments' The Company currently conducts its affairs so that the shares issued by JPMorgan UK Smaller Companies Investment Trust plc 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 shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because they are shares in an investment trust. The Company's ordinary shares are not classified as 'complex instruments' under the FCA's revised appropriateness criteria adopted in the implementation of MiFID II. ## Association of Investment Company's ('AIC') The Company is a member of the AIC. ## Website The Company's website, which can be found at www.jpmuksmallercompanies.co.uk, includes useful information on the Company, such as daily prices, factsheets and current and historic half year and annual reports. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- CONTENTS # Strategic Report 3 Financial Highlights 5 Chairman's Statement 8 Investment Managers' Report 10 Environmental, Social and Governance ('ESG') Report 13 Ten Year Record 15 Portfolio Information 18 Company Purpose, Investment Objective, Policies and Guidelines 21 Principal and Emerging Risks 24 Long Term Viability 25 Duty to Promote the Success of the Company # Directors' Report 28 Board of Directors 29 Directors' Report 31 Corporate Governance Statement 36 Audit Committee Report # Directors' Remuneration 39 Report # Statement of Directors' 43 Responsibilities # Independent Auditor's 45 Report # Financial Statements 53 Statement of Comprehensive Income 54 Statement of Changes in Equity 55 Statement of Financial Position 56 Statement of Cash Flows 57 Notes to the Financial Statements # Regulatory Disclosures 74 Alternative Investment Fund Managers Directive ('AIFMD') Disclosures (unaudited) 75 Securities Financing Transactions Regulation ('SFTR') Disclosures (unaudited) # Shareholder Information 77 Notice of Annual General Meeting 80 Appendix to Notice of Annual General Meeting 82 Glossary of Terms and Alternative Performance Measures ('APMs') (unaudited) 84 Where to buy J.P. Morgan Investment Trusts 85 Information about the Company CONTENTS --- # Strategic Report --- FINANCIAL HIGHLIGHTS # TOTAL RETURNS (INCLUDING DIVIDENDS REINVESTED) for the year ended 31st July | | 2021 | 2020 | 3 Years Cumulative | 5 Years Cumulative | | --- | --- | --- | --- | --- | | Return to shareholders^{1,A} | +79.4% | +3.7% | +79.8% | +204.9% | | Return on net assets^{2,A} | +68.1% | +3.8% | +65.4% | +159.4% | | Benchmark return^{3} | +50.3% | -8.7% | +31.2% | +65.4% | | Net asset return performance compared to benchmark return^{3} | +17.8% | +12.5% | +34.2% | +94.0% | | Dividend per share | 5.7p | 5.5p | | | 1. Source: Morningstar. 2. Source: Morningstar/LP. Morgan, using cum income net asset value per share. 3. Source: Morningstar. The Company's benchmark is the Numis Smaller Companies plus AIM Index (excluding Investment Companies). Prior to 1st January 2019, the Company's benchmark was the FTSE Small Cap Index (excluding Investment Trusts). The benchmark index returns quoted above for 3 and 5 year cumulative returns are a composite of the two indices. 4. Alternative Performance Measure ('APM'). A glossary of terms and APMs is provided on pages 82 and 83. STRATEGIC REPORT | 3 --- FINANCIAL HIGHLIGHTS ## SUMMARY OF RESULTS | | 2021 | 2020 | % change | | --- | --- | --- | --- | | Total returns for the year ended 31st July | | | | | Return to shareholders^{1,4} | +79.4% | +3.7% | | | Return on net assets^{2,4} | +68.1% | +3.8% | | | Benchmark return^{3} | +50.3% | -8.7% | | | Net asset value and share price at 31st July | | | | | Shareholders’ funds (£’000) | 346,291 | 209,937 | +64.9 | | Net asset value per ordinary share^{4} | 443.7p | 269.0p | +64.9 | | Ordinary share price | 408.0p | 232.0p | +75.9 | | Shares in issue (excluding shares held in Treasury) | 78,051,669 | 78,051,669 | | | Ordinary share price premium/(discount) to net asset value per ordinary share^{4} | | | | | At 31st July | (8.0)% | (13.8)% | | | Highest during the year | (16.5)% | (29.1)% | | | Lowest during the year | 4.5% | (0.6)% | | | Average during the year | (6.2)% | (11.5)% | | | Revenue for the year ended 31st July | | | | | Net revenue available for shareholders (£’000) | 3,418 | 2,965 | +15.3 | | Revenue return per ordinary share | 4.38p | 3.80p | +15.3 | | Dividend per ordinary share | 5.7p | 5.5p | | | Gearing at 31st July^{4} | 8.9% | 8.6% | | | Ongoing Charges at 31st July^{4} | 0.91% | 1.01% | | 1. Source: Morningstar. 2. Source: Morningstar/J.P. Morgan, using cum income net asset value per share. 3. Source: Morningstar. The Company's benchmark is the Numis Smaller Companies plus AIM Index (excluding Investment Companies). 4. Alternative Performance Measure ('APM'). A glossary of terms and APMs is provided on pages 82 and 83. 4 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- CHAIRMAN'S STATEMENT ![img-1.jpeg](img-1.jpeg) Andrew Impey Chairman # Investment Performance I am most pleased to report that your company made sustained progress over the financial year to deliver a second consecutive year of strong performance. During the year the Company's total return on net assets (with net dividends reinvested) rose by 68.1% which compares very favourably to the return of +50.3% for the Company's benchmark, the Numis Smaller Companies plus AIM Index (excluding Investment Companies). The return to shareholders was +79.4% reflecting a narrowing of the discount level over the year as a whole from 13.8% to 8.0%. Since the year-end, the discount has widened to 10.0% as at 8th October 2021. The return on net assets was -3.4% compared to an increase in the benchmark of +0.1% and the return to shareholders was -5.6%. Your Investment Managers are to be congratulated as they have kept cool heads and negotiated the evolving pandemic with skill and an eye to opportunity. Their many years of experience and robust investment process have enabled them to capitalise on the strong recovery as lock-down restrictions have eased, fuelled by continued government and central bank stimulus. In their report they provide further detail on portfolio performance and attribution, together with a commentary on markets. # Revenue and Dividends Despite a reasonable recovery, the level of dividends paid by companies in general remains considerably lower than two years ago. This means that the company has not produced enough income, after costs, to cover fully a maintained dividend. However, the company retains an amount of undistributed net income from previous years known as a Revenue Reserve which is also available for distribution. Consequently, the Directors are recommending a final dividend of 5.7p (2020: 5.5p) per share, an increase of 3.6%. If approved, the dividend will be paid on 6th December 2021 to shareholders on the register at close of business on 29th October 2021. In arriving at this recommendation, the Directors considered the Manager's revenue projections which forecast a considerable recovery in revenue in the current financial year. Whilst the dividend will not be fully covered by income, after costs, the Directors have confidence in strong revenue growth and believe that the increase is an appropriate use of revenue reserves. # Gearing The Board believes that a moderate level of gearing is an efficient way to enhance long-term shareholder returns, particularly in the current low interest rate environment, albeit at the cost of a small increase in short-term volatility. The level of gearing is regularly discussed with the Manager and is adjusted by them, to reflect short-term considerations, within parameters set by the Board. Due the significant rise in your Company's assets, the borrowing facility with Scotiabank was increased during the financial year from £25 million to £40 million (with an option to increase the commitment by £10 million to £50 million) in order that your Managers could retain the flexibility to maintain gearing up to the maximum permitted level. On 1st October 2021, following the financial year-end and after continued growth in the Company's assets, the borrowing facility with Scotiabank was renewed and further increased to £50 million for a period of 24 months. The current facility will expire on 1st October 2023. There is a further option to increase borrowings to £60 million subject to certain conditions. At the year-end, £35 million (2020: £21 million) was drawn on the loan facility with the gearing level of 8.9% (2020: 8.6%) of net assets. As at 8th October 2021, gearing was 9.4%. # Share Repurchases and Issuance At last year's Annual General Meeting ('AGM'), shareholders granted the Directors authority to allot new shares and to repurchase the Company's shares for cancellation or to be held in Treasury for possible re-sale. During the financial year the Company did not repurchase or allot any shares as the discount narrowed. Currently 1,559,741 shares are held in treasury and are available for reissuance. This amount represented 1.96% of the issued Ordinary share capital at the beginning of the year. Treasury shares will only be sold at a premium to net asset value thus enhancing shareholder value. STRATEGIC REPORT | 5 --- CHAIRMAN'S STATEMENT As in previous years, the Board's objective is to use the repurchase and allotment authorities to manage imbalances between the supply and demand of the Company's shares, with the intention of reducing the volatility of the discount. To date the Board believes this mechanism has been helpful and therefore proposes and recommends that powers to repurchase up to 14.99% of the Company's shares (less shares held in Treasury) and the allotment of new shares or sale of shares out of Treasury up to approximately 10% as at the date of the AGM be renewed. ## Board of Directors and Succession Planning During the year, the Board employed Lintstock to facilitate an evaluation of the Board and its Committees. At the most recent Nomination Committee meeting it was agreed that all the Directors will stand for reappointment at the forthcoming AGM, in accordance with good corporate governance practice. Next year, Frances Davies will retire from the Board at the AGM in 2022 having completed nine years of service as a Director. Your Board, via the Nomination Committee, will shortly commence the search for a new candidate who will succeed her. Looking further into the future, potential changes to regulation currently under discussion may, amongst other things, necessitate an increase in the number of Directors on the Board thus incurring increased costs. The Board believes that some of these changes are not appropriate for Investment Companies and is fully supportive of the AIC in its efforts to ensure that additional obligations are targeted appropriately. ## Name Change Following a Board review and consultation with the Managers and the Company's Broker, it was decided to change the Company's name to JPMorgan UK Smaller Companies Trust plc. This is intended to clarify its purpose and aid promotion of the Company. ## Marketing and Promotion In conjunction with the Manager, the Board has initiated an enhanced marketing programme. The objective is to benefit all shareholders by generating sustained new interest in the Company's shares, with a focus on retail investors, both directly and via platforms. We are encouraged by initial results, which have been supported by the Company's strong performance in 2021. Since the year end, following a review, the Board has appointed Panmure Gordon as the Company's broker. The Board believes that they will bring an energetic and fresh approach. ## Environmental, Social and Governance Statement ('ESG') Last year an ESG statement by the Manager was included for the first time. This aspect of investment rightly deserves attention and is of growing importance to investors. The Board has reviewed the Manager's process and has concluded that it is appropriate for your Company. In particular, the Board strongly supports the Manager's policy of engagement with investee companies in order to educate and influence their behaviour. The Board believes that this is especially appropriate for smaller companies. ## Annual General Meeting Unfortunately, COVID-19 restrictions prevented the holding of the Company's AGM in 2020 in the usual format. The Directors were disappointed not to be able to have the usual interaction with shareholders at this forum. However, current indications are that a more traditional format for the AGM may be permissible in November this year and, to that end, the Company's thirty-first AGM is scheduled to be held on Tuesday, 23rd November 2021 at 3.00 p.m. at 60 Victoria Embankment, London EC4Y 0JP. The Board hopes to welcome as many shareholders as possible. We do of course strongly advise all shareholders to consider their own personal circumstances before attending the AGM in person. For shareholders wishing to follow the AGM proceedings but choosing not to attend, we will be able to welcome you through conferencing software. Details on how to register together JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- CHAIRMAN'S STATEMENT with access details can be found on the Company's website: www.jpmuksmallercompanies.co.uk, or by contacting the Company Secretary at invtrusts.cosec@jpmorgan.com. As is normal practice, all voting on the resolutions will be conducted on a poll. Due to technological reasons, shareholders viewing the meeting via conferencing software will not be able to vote on the poll and we therefore encourage all shareholders, and particularly those who cannot attend physically, to exercise their votes in advance of the meeting by completing and submitting their form of proxy. Shareholders are encouraged to send any questions ahead of the AGM to the Board via the Company Secretary at the email address above. We will endeavour to answer relevant questions at the meeting or via the website depending on arrangements in place at the time. The formal business of the AGM will include the adoption of new articles of association of the Company. The Company's Articles of Association, the document that specifies the regulations for a company's operations and defines a company's purpose, was last amended following shareholder approval in 2015. Resolution 13 within the Notice of Meeting, which will be proposed as a special resolution, seeks shareholder approval to adopt new Articles of Association (the 'New Articles') in order to update the Company's current Articles of Association (the 'Existing Articles'). A summary of the principal amendments being introduced in the New Articles is set out in the Appendix to the Annual General Meeting Notice within this 2021 Annual Report. One of the main proposed amendments, relates to the various formats of AGM that the Company may choose to use. This is a topic brought into stark focus by the social distancing rules introduced by the COVID-19 pandemic. Last year's AGM took place and was attended by the minimum requisite number of shareholders. The Directors are seeking permission to be able to hold, in extremis, a virtual AGM if the then situation makes that prudent to do so. Once again, there is no intention to hold such a meeting, but as the past 18 months have demonstrated, events can unfold in a wholly unpredictable manner and the Board would like to have maximum flexibility to deal with unexpected circumstances. Other amendments, which are of a minor, technical or clarifying nature, have not been summarised in the Appendix. Your Board would encourage shareholders to support these and the other more procedural changes that are proposed. If there are any changes to the above AGM arrangements, the Company will update shareholders through the Company's website and, as appropriate, through an announcement on the London Stock Exchange. ## Outlook The UK stock market has performed strongly in response to various measures including the success of the vaccination programme, financial stimuli and renewed consumer spending. Whilst such a strong recovery is unlikely to continue in a straight line the valuation of smaller companies, on current forecasts, remains attractive and points to the potential for further gains. Furthermore, smaller companies are attractively valued in relation to their larger counterparts. Against this, it is difficult to judge how strong economic growth will be once the catch-up phase has been completed. The huge debts amassed over the past two years will have to be reduced and the Government and Bank of England will need to tread a fine line in order not to kill the recovery. As you will see in their report, your managers believe that there is good potential for continued strong performance. The portfolio has been positioned to take full advantage of the opportunities that they perceive and it is encouraging to note the renewed interest in smaller UK companies after some lean years. Andrew Impey Chairman 12th October 2021 STRATEGIC REPORT | 7 --- INVESTMENT MANAGERS' REPORT ![img-2.jpeg](img-2.jpeg) Georgina Brittain Investment Manager ![img-3.jpeg](img-3.jpeg) Katen Patel Investment Manager # Performance and Market Background Your Company's financial year to July 2021 was inevitably dominated by COVID-19. Further lock-downs post the initial one in the Spring of 2020 continued to wreak havoc on the UK economy, although they were notably less damaging than the first lock-down. The arrival of vaccines in November 2020 and the UK's subsequent success in its vaccination roll-out programme opened the path to recovery - and the stock market reacted accordingly. Further positive news on Christmas Eve was the signing of a trade deal with the EU, putting an end to five years of uncertainty. The Bank of England's recent forecasts are for UK GDP growth of 7.25% in 2021, followed by 6% in 2022, as the economy rebounds from the 10% GDP decline in 2020. Against this backdrop, your Company produced a very pleasing total return on net asset value of +68.1% in the financial year, compared to a return of +50.3% for the Numis Small Cap plus AIM (ex Investment Companies) Index. The share price total return was notably higher at +79.4%, as the wide discount of the share price relative to net assets was significantly reduced, due to renewed interest in the UK equity market, and in particular to the more domestically focused smaller companies arena. # Portfolio Over the last 18 months we have described in detail our investment approach during the pandemic. We sought to maintain a balance within the portfolio between more defensive investments suffering minimal or no impact from COVID-19 and lock down measures, and those companies which were heavily affected by the pandemic, but which we believed would come out the other side as stronger companies with better competitive positions. This can be neatly seen in the broad spread of holdings that contributed to the very strong returns in the year. These included Future, a media company, Reach, a news publisher, Ergomed, a global provider of services to the pharmaceutical sector and Luceco, a manufacturer of wiring accessories and LED lighting products. Additional contributors included COVID-19 exposed holdings such as OSB (buy-to-let mortgages), Jet2 (a package holiday business) and Vistry (a householder). Our decision to add to a number of these companies as share prices fell was validated through the year. | PERFORMANCE ATTRIBUTION | | | | | | --- | --- | --- | --- | --- | | | 12 months to 31st July 2021 | | 12 months to 31st July 2020 | | | | % | % | % | % | | Contributions to total returns | | | | | | Benchmark return | 50.3 | | -8.7 | -4.4 | | Sector and stock selection | 13.4 | | 14.9 | 1.1 | | Gearing/net cash | 5.6 | | -1.4 | -0.8 | | Investment Managers' contribution | 19.0 | | 13.5 | 0.3 | | Benchmark differentials | -0.3 | | -0.1 | -0.4 | | Portfolio total return | 69.0 | | 4.7 | -4.5 | | Management fee/other expenses | -0.9 | | -1.0 | -1.2 | | Repurchase of shares for cancellation | - | | 0.1 | 0.5 | | Other effects | -0.9 | | -0.9 | -0.7 | | Return on net assets^{4} | 68.1 | | 3.8 | -5.2 | | Impact of change in discount | 11.3 | | -0.1 | 1.8 | | Return to shareholders^{4} | 79.4 | | 3.7 | -3.4 | | Source: JPMAM/Morningstar. All figures are on a total return basis. Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark. * Alternative Performance Measure ('APM') A glossary of terms and APMs is provided on pages 82 and 83. | | | | | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- INVESTMENT MANAGERS' REPORT On the negative side, the only two notable holdings which detracted from performance were Dunelm and Serco, despite strong operational performance, and we retain both in the portfolio. In addition, the bid for William Hill, a company we did not own, also detracted from overall performance. The last year saw a number of bids in the smaller companies arena, and we benefitted from three - Codemasters and Sumo, both video gaming companies, and Augean, a company dealing in hazardous waste management. It was also a notable year for IPOs. A large number of new companies came to the market, and after extensive due diligence we participated in several, including Victorian Plumbing (online bathroom retailer), Bytes (value-added tech reseller), Tinybuild (video gaming) and Big Technologies (a provider of technologies for the remote personal monitoring industry). We are excited by what we believe to be high quality and high growth new companies currently coming to the market. Other new additions to the portfolio over the year included Joules (retailer), Sanderson Design (maker of fabrics and wallpapers), Rank (casino company), and Norcros and Brickability (two companies benefitting from the building/DIY renaissance). Exits from the portfolio included Spirent due to its size, D4T4 on valuation grounds, and Avon Protection and Sabre Insurance on weaker than expected operational performance. ## Outlook At the start of 2021 we laid out in our Interim Report our reasons for being positive on the UK economy, and the more domestically biased smaller companies arena. To date the economic recovery has been even stronger than we expected, the vaccination roll-out has been impressive, and the British public have shown a willingness to return to a more normal way of life. Government support towards UK companies over the last 18 months has been well designed and we believe this has contributed to the pace of recovery. In addition, current unemployment levels are much lower than feared. Other positives include the strong purchasing managers' data (a good lead indicator), rock bottom interest rates, and the growing propensity of the stalwart UK consumer to spend again. Recent Barclaycard consumer spending data indicated that non-essential spending in August recorded its fourth consecutive month of growth, and was 16% ahead of spending in August 2019. This had been part of our thesis on the roadmap to recovery. UK households significantly increased their savings last year, to the tune of over £150 billion excess savings, and this led us to tilt the portfolio to a significant overweight to the UK domestic economy and the UK consumer in particular. As a counter to this positivity, first and foremost in all of our minds are the mutating strains of COVID-19, which have seen case numbers rise again in the UK and elsewhere in recent months. However, the link between cases and hospitalisations has decoupled significantly compared to the peak in the UK, due to the 80% of the adult population that have been double-vaccinated. Looking at the most recent statistics, some of the euphoria post lockdowns and Freedom Day has waned, and there have been a few signs of the recovery in the UK economy slowing somewhat. It is our view that this was to be expected. Global and local headwinds are evident, ranging from the current inflationary pressures, both domestically and globally, semi-conductor chip shortages, other supply chain and logistics issues, to the magnitude of the UK's debt, and at some point the inevitable end of Central Banks' asset purchases and the normalisation of interest rates. While we continue to take these risks into account, our thesis of a strong UK recovery remains intact. We continue to remain very positive on the outlook for our companies and the recent results season demonstrates the on-going strength in current trading that they are enjoying. It is our view that the smaller companies area of the market remains undervalued, despite the very strong rise in the index over the last year. The index is now on a P/E ratio of 14.1 x for 2022. However, median earnings are forecast to grow 18% this year and 19% next as the recovery continues to come through - and we believe this growth is not being fully valued. Normality beckons, and is coming closer. A stronger economic rebound than expected, a consumer willing to spend, better than expected results from a large number of our portfolio companies, (largely) repaired balance sheets, all provide a strong platform for growth and we expect this to lead to continued strong performance from our companies. Georgina Brittain Katen Patel Investment Managers 12th October 2021 STRATEGIC REPORT | 9 --- ENVIRONMENTAL, SOCIAL AND GOVERNANCE ('ESG') REPORT # Manager's Approach to ESG and JPMorgan UK Smaller Companies Investment Trust plc ## Introduction ESG is an acronym which stands for Environmental, Social and Governance. It describes the broad field of sustainability in the corporate sector and is widely used when assessing the environmental impact of businesses, when considering how companies acquit themselves in respect of their broad social responsibilities and when reviewing the practices and standards followed by companies in their own management. Awareness of these issues has increased significantly in recent years within the asset management industry, including the investment managers responsible for the Company's portfolio, among the Board members of your Company, among shareholders and potential shareholders in the Company and, indeed in society at large. ## The basics: what is ESG? **E is for Environmental.** This component considers a company's impact on the world we live in, relating to the quality and functioning of the natural environment and natural systems. **S is for Social.** Social factors address the way that companies act within society; this includes the way that employee interests are managed, and the broader impact a company has on society. **G is for Governance.** This component relates to how companies are managed. It considers the measures that protect shareholder interests as well as the way any company meets regulatory and other external obligations. As Investment Managers of the Company's portfolio we think of these factors as additional inputs that help us make better investment decisions and so we follow an approach that integrates a consideration of ESG factors into our investment process. We believe this will benefit shareholders by helping to deliver enhanced risk-adjusted returns over the long run. ## Why do we integrate ESG into our investment processes? Whilst the Company does not have an ESG aligned investment objective, considerations of sustainability have long been intrinsic to our approach to managing the Company's portfolio. When we invest the Company's capital we have to make judgements about future risks and rewards of any investment which have always included ESG factors, because all of them have the potential to affect the future value of a company and its shares. A business that produces huge amounts of carbon emissions or plastic waste, for example, is likely to find itself the subject of scrutiny from regulators and consumers and failure to anticipate this and to change will likely lead to a loss of value for shareholders in the long run. The same is true of businesses that neglect their social responsibilities, or fail in matters of governance. Of course, a more explicit integration of ESG factors brings with it other benefits. The market in which we invest is increasingly paying attention to these factors when assessing sectors and companies, discriminating starkly between companies which are offering compelling narratives of transition to a low-carbon approach, and those which have yet to do so. So ESG has had to become a bigger and more important part of any investment judgement. Finally, as investment managers we have responsibilities and obligations, not only to the Board and shareholders of the Company, but as a social actor in a broader sense. We have a duty not just to produce good investment outcomes for our clients, but to be responsible corporate citizens. ## ESG Integration within the Company's portfolio For us, ESG integration does not simply involve paying external vendors for ESG information; it rests heavily on our own proprietary research, on both a fundamental and a quantitative basis. In addition, a quantitative-led ESG score uses third-party ESG data, to the extent it is available, weighted according to our own views on materiality. While we do not explicitly exclude individual stocks on ESG criteria, ESG factors influence our level of conviction and thus impact a stock's position size within the portfolio. We also work with a central stewardship team which sets priorities for corporate engagement both in terms of issues and in terms of significant individual investments held in portfolios. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- ENVIRONMENTAL, SOCIAL AND GOVERNANCE ('ESG') REPORT # Engagement Active engagement with companies has long been an integral part of our approach to our investment and to ESG. We use it not only to understand how companies consider issues related to ESG but also to try to influence their behaviour and encourage best practices, for the purpose of enhancing returns for our clients. We engage with all companies in the portfolio on a regular basis, often several times in the course of a year. Our long history of active management and experience in good stewardship practices enables us to have longer term dialogue directly with portfolio companies' management teams and so encourage companies to implement best practices on ESG matters. Alongside this direct engagement, we endeavour to vote at all of the meetings called by companies in which your portfolio invests. Examples of our recent activity with regard to stewardship and engagement with stocks in the Company's portfolio at the end of the year are provided below: We discussed a number of environmental topics with Central Asia Metals (CAML), ranging from greenhouse gas and energy to water and deforestation, as well as social subjects. Towards the end of 2020, the company engaged with consultants to help create an emission reduction strategy and, in due course, they aim to be reporting under the Task Force on Climate-Related Financial Disclosures (TCFD). They believe that they have a good understanding of the risks and shared a number of positive emission-reduction initiatives related to energy efficiency, the use of renewable power by solar studies, the use of electric vehicles underground in place of buying diesel, and tree planting in countries of operation. From a social point of view, the company has appointed a lead manager to ensure consistency in processes between their two major sites. The creation of this new role has led to the launch of more effective and appropriate trainings for new hires and rising star initiatives focused on developing future leaders. Although the company does not want to introduce specific targets, it has expressed willingness to look at how to be a more attractive employer in terms of hiring and maintaining a diverse workforce. We met with Bytes Technology Group following the announcement of their full year results in May 2021. We wanted to gain a greater understanding of both their financial results and their ESG credentials, and to talk specifically through diversity on the board. From an environmental point of view the company has a target of achieving net zero, both through carbon reductions in their own operations and through purchasing carbon offsets. $1\%$ of the company's net profit is contributed to charities, focused on key initiatives. We discussed their current board composition from the point of view of both diversity and independence. Currently three out of the six board members are independent. One is not considered independent as their tenure is greater than 20 years. While the CEO and CFO are not independent, this is balanced by the independent Chairman. They reported that they are in the process of recruiting an additional independent non-executive director and are targeting a female to improve their gender diversity (currently only one of six is female). # Proxy Voting J.P. Morgan Asset Management exercises the voting rights of shares held in client portfolios, where entrusted with this responsibility. We seek to vote in a prudent and diligent manner, based exclusively on our reasonable judgement of what will best serve the financial interests of our clients. We aim to vote at all meetings called by the companies in which we are invested, unless there are any market restrictions or conflicts of interests. We believe that corporate governance is integral to our investment process. We examine the share structure and voting structure of the companies in which we invest, as well as the board balance, oversight functions and remuneration policy. For full details, please see the J.P. Morgan Asset Management Corporate Governance Policy & Voting Guidelines, copies of which are available on request, or to download from our website. STRATEGIC REPORT | 11 --- ENVIRONMENTAL, SOCIAL AND GOVERNANCE ('ESG') REPORT JPMorgan UK Smaller Companies Investment Trust plc: Voting at shareholder meetings over the year to 31st July 2021 | | For | Against | Abstain | Against/Abstain Total | Total Items | % Against | | --- | --- | --- | --- | --- | --- | --- | | Routine Business | 349 | 1 | 0 | 1 | 350 | 0.3% | | Director Related | 536 | 18 | 0 | 18 | 554 | 3.2% | | Capitalisation | 325 | 2 | 0 | 2 | 327 | 0.6% | | Re-organisation and Mergers | 13 | 0 | 0 | 0 | 13 | 0.0% | | Non-salary Compensation | 103 | 12 | 0 | 12 | 115 | 10.4% | | Anti-takeover Related | 49 | 1 | 0 | 1 | 50 | 2.0% | | TOTAL | 1,375 | 34 | 0 | 34 | 1,409 | 2.4% | Examples of our recent voting activity are provided below. J.P. Morgan Asset Management voted against director elections at CLS Holdings Plc due to concerns over the lack of board independence. Following the AGM less than half of the board, excluding the Chair, will comprise independent directors. These practices deviate from the recommendations of the UK Corporate Governance Code. J.P. Morgan Asset Management voted against approving the remuneration report and remuneration at Cineworld Group Plc due to concerns over the 2021 LTIP which provided a significant block award to executives that is subject to vest on the achievement of share price performance and performance targets that we did not believe were sufficiently demanding. These practices deviate from the recommendations of the UK Corporate Governance Code. ## The Future In investing your Company's assets we have always looked for companies with the ability to create value in a sustainable way. That scrutiny remains firmly embedded in our process and we know that the Directors of the Company, shareholders and potential investors, view attention to ESG factors as important in their assessment of us as Investment Managers. We expect ESG to remain a major theme in the Company's portfolio and the course being taken by regulators suggests that its importance will only increase in years to come. The research we do and the approach we take in investing the Company's assets will continue to reflect that and to evolve as necessary. J.P.Morgan Asset Management JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- TEN YEAR RECORD # TEN YEAR PERFORMANCE ![img-4.jpeg](img-4.jpeg) FIGURES HAVE BEEN REBASED TO 100 AT 31ST JULY 2011 1. Source: Morningstar. 2. Source: Morningstar/LP.Morgan, cum income net asset value per share. 3. Source: Morningstar. The Company's benchmark is the Numis Smaller Companies plus AIM Index (excluding Investment Companies). Prior to 1st January 2019, the Company's benchmark was the FTSE Small Cap Index (excluding Investment Trusts). The benchmark index returns quoted above for the year to 31st July 2019 are a composite of the two indices. # TEN YEAR PERFORMANCE RELATIVE TO BENCHMARK ![img-5.jpeg](img-5.jpeg) FIGURES HAVE BEEN REBASED TO 100 AT 31ST JULY 2011 1. Source: Morningstar. 2. Source: Morningstar/LP.Morgan, cum income net asset value per share. 3. Source: Morningstar. The Company's benchmark is the Numis Smaller Companies plus AIM Index (excluding Investment Companies). Prior to 1st January 2019, the Company's benchmark was the FTSE Small Cap Index (excluding Investment Trusts). The benchmark index returns quoted above for the year to 31st July 2019 are a composite of the two indices. STRATEGIC REPORT | 13 --- TEN YEAR RECORD ## TEN YEAR FINANCIAL RECORD | At 31st July | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Shareholders’ funds (£’000) | 120,126 | 107,282 | 154,116 | 165,229 | 179,597 | 160,633 | 207,285 | 227,108 | 207,740 | 209,937 | 346,291 | | Undiluted net asset value per Ordinary share (p)¹ | 128.9 | 117.4 | 169.2 | 181.6 | 207.8 | 189.8 | 242.4 | 285.0 | 264.4 | 269.0 | 443.7 | | Diluted net asset value per Ordinary share (p)¹,²,⁴ | 128.9 | 117.4 | 169.2 | 181.6 | 203.6 | 188.6 | 242.4 | 285.0 | 264.4 | 269.0 | 443.7 | | Share price (p)¹ | 107.6 | 89.6 | 138.2 | 149.4 | 168.9 | 150.0 | 188.4 | 243.0 | 229.0 | 232.0 | 408.0 | | Share price discount (%)⁴ | 6.5 | 23.7 | 18.3 | 17.8 | 17.0 | 20.5 | 22.3 | 14.7 | 13.4 | 13.8 | 8.0 | | Subscription share price (p)² | – | – | – | – | 41.0 | 11.0 | – | – | – | – | – | | Gearing (%)⁴ | 7.3 | 7.5 | 8.4 | 9.3 | 9.3 | 5.7 | 8.1 | 9.1 | 8.7 | 8.6 | 8.9 | ## Year ended 31st July | Gross revenue attributable to shareholders (£’000) | 2,525 | 2,594 | 2,937 | 3,151 | 3,606 | 4,284 | 5,183 | 6,244 | 6,447 | 3,980 | 4,575 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Revenue return per share (p)¹ | 1.70 | 1.80 | 2.08 | 2.00 | 2.44 | 3.66 | 4.85 | 6.14 | 6.33 | 3.80 | 4.38 | | Dividend per share (p)¹ | 1.70 | 1.80 | 1.90 | 1.92 | 2.20 | 3.66 | 4.60 | 5.40 | 5.50 | 5.50 | 5.70 | | Ongoing Charges (%)⁴ | 1.16 | 1.21 | 1.15 | 1.13 | 1.19 | 1.17 | 1.12 | 1.03 | 1.11 | 1.01 | 0.91 | ## Rebased to 100 at 31st July 2011 | Total return to shareholders⁴,⁶ | 100.0 | 85.0 | 133.4 | 146.0 | 167.3 | 150.3 | 193.4 | 255.0 | 246.4 | 255.5 | 458.5 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Total return on net assets⁵,⁶ | 100.0 | 92.5 | 135.3 | 146.8 | 166.4 | 155.8 | 204.1 | 244.3 | 231.7 | 240.6 | 404.4 | | Benchmark total return⁶ | 100.0 | 93.8 | 139.4 | 160.5 | 177.5 | 181.2 | 223.6 | 228.4 | 218.4 | 199.3 | 299.6 | ## Total returns for the year ended 31st July | Return to shareholders (%)⁴,⁶ | +49.0 | -15.0 | +57.0 | +9.4 | +14.6 | -10.1 | +28.7 | +31.8 | -3.4 | +3.7 | +79.4 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Return on net assets (%)⁵,⁶ | +39.3 | -7.5 | +46.3 | +8.5 | +13.4 | -6.4 | +31.0 | +19.7 | -5.2 | +3.8 | +68.1 | | Benchmark return (%)⁶ | +21.1 | -6.2 | +48.5 | +15.2 | +10.5 | +2.1 | +23.4 | +2.1 | -4.4 | -8.7 | +50.3 | | Net asset return performance compared to benchmark return (pp) | +18.2 | -1.3 | -2.2 | -6.7 | +2.9 | -8.5 | +7.6 | +17.6 | -0.8 | +12.5 | +17.8 | ¹ All comparative figures from 2011 to 2019 have been restated due to the sub-division of each existing ordinary share of 25p into five ordinary shares of 5p each on 30th November 2018. ² Assumes that all outstanding Subscription shares were converted into Ordinary shares at the year end. As at 31st July 2021, there was no dilution effect due to the expiry of the Subscription shares, their rights having lapsed on 30th June 2017. ³ On 25th February 2015, the Company issued Subscription shares as a bonus issue to the Ordinary shareholders on the basis of one Subscription share for every five Ordinary shares held. These shares expired and their new rights lapsed on 30th June 2017. ⁴ Source: Morningstar. ⁵ Source: Morningstar/LP. Morgan, cum income net asset value per share. ⁶ Source: Morningstar. The Company’s benchmark is the Numis Smaller Companies plus AIM Index (excluding Investment Companies). Prior to 1st January 2019, the Company’s benchmark was the FTSE Small Cap Index (excluding Investment Trusts). The benchmark index returns quoted above for 2019 are a composite of the two indices. ⁷ Alternative Performance Measure ('APM'). A glossary of terms and APMs is provided on pages 82 and 83. 14 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- PORTFOLIO INFORMATION # TEN LARGEST INVESTMENTS AT 31ST JULY | Company | Sector¹ | 2021 Valuation | | 2020 Valuation | | | --- | --- | --- | --- | --- | --- | | | | £'000 | %² | £'000 | %² | | Future | Consumer Discretionary | 16,033 | 4.3 | 10,074 | 4.4 | | Watches of Switzerland³ | Consumer Discretionary | 13,755 | 3.6 | 1,329 | 0.6 | | Luceco³ | Industrials | 12,904 | 3.4 | 1,512 | 0.7 | | Games Workshop | Consumer Discretionary | 11,701 | 3.1 | 9,834 | 4.3 | | Ergomed³ | Health Care | 10,845 | 2.9 | 5,087 | 2.2 | | Reach³ | Consumer Discretionary | 10,516 | 2.8 | 663 | 0.3 | | Dunelm | Consumer Discretionary | 10,460 | 2.8 | 9,353 | 4.1 | | Halfords³ | Consumer Discretionary | 10,312 | 2.7 | 1,334 | 0.6 | | SDI³ | Industrials | 10,143 | 2.7 | 1,226 | 0.5 | | Vistry³ | Consumer Discretionary | 9,540 | 2.5 | 3,721 | 1.6 | | Total | | 116,209 | 30.8 | | | ¹ Effective 19th March 2021, all FTSE Russell indexes have adopted the newly-enhanced ICB structure. The 2020 figures have been restated to reflect these changes. ² Based on total investments of £377.1m (2020: £228.1m). ³ Not included in the ten largest equity investments at 31st July 2020. At 31st July 2020, the value of the ten largest equity investments amounted to £75.4 million representing 33.1% of total investments. The difference between the 2021 and 2020 valuation reflects purchases and sales during the year, as well as market movements. STRATEGIC REPORT | 15 --- PORTFOLIO INFORMATION # PORTFOLIO ANALYSIS AT 31ST JULY | Sector | 2021 Portfolio Benchmark | | 2020 Portfolio Benchmark | | | --- | --- | --- | --- | --- | | | %¹ | % | %¹² | %² | | Consumer Discretionary | 45.2 | 20.3 | 38.9 | 19.7 | | Industrials | 19.3 | 23.7 | 13.7 | 17.8 | | Financials | 13.7 | 13.8 | 15.7 | 14.1 | | Technology | 9.1 | 8.6 | 10.7 | 9.8 | | Health Care | 3.6 | 7.7 | 3.9 | 7.3 | | Real Estate | 2.6 | 6.7 | 3.7 | 4.5 | | Basic Materials | 2.2 | 6.7 | 2.9 | 9.3 | | Consumer Staples | 2.1 | 4.4 | 3.0 | 5.1 | | Energy | 1.4 | 4.2 | 2.0 | 6.1 | | Utilities | 0.5 | 2.3 | 0.6 | 2.0 | | Telecommunications | 0.3 | 1.6 | 4.9 | 4.3 | | Total | 100.0 | 100.0 | 100.0 | 100.0 | ¹ Based on total investments of £377.1m (2020: £228.1m). ² Comparative data for 2020 has been restated due to a change in the classifications. # HOLDINGS BREAKDOWN BASED ON MARKET CAPITALISATION AS AT 31ST JULY 2021 ![img-6.jpeg](img-6.jpeg) Number of Companies ![img-7.jpeg](img-7.jpeg) Total Value of Companies (£m) JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- PORTFOLIO INFORMATION LIST OF INVESTMENTS AT 31ST JULY 2021 | Company | Valuation £'000 | | --- | --- | | CONSUMER DISCRETIONARY | | | Future | 16,033 | | Watches of Switzerland | 13,755 | | Games Workshop | 11,701 | | Reach | 10,516 | | Dunelm | 10,460 | | Halfords | 10,312 | | Vistry | 9,540 | | Team17^{1} | 8,581 | | CVS^{1} | 6,360 | | Pets at Home | 5,988 | | JET2^{1} | 5,458 | | Dixons Carphone | 4,910 | | 888 | 4,836 | | National Express | 4,665 | | Next Fifteen Communications^{1} | 4,510 | | Victorian Plumbing^{1} | 4,412 | | Restaurant Group | 4,007 | | Mitchells & Butlers | 3,621 | | Tremor International^{1} | 2,948 | | Inspecs^{1} | 2,775 | | Watkin Jones^{1} | 2,720 | | Rank | 2,496 | | MJ Gleeson | 2,483 | | Saga | 2,400 | | Joules^{1} | 2,381 | | Marston's | 1,869 | | Cineworld | 1,763 | | Sumo^{1} | 1,520 | | Churchill China^{1} | 1,415 | | Keywords Studios^{1} | 1,407 | | Best of The Best^{1} | 1,351 | | Sanderson Design^{1} | 1,315 | | Moonpig | 1,061 | | Gear4Music^{1} | 863 | | | 170,432 | | INDUSTRIALS | | | Luceco | 12,904 | | SDI^{1} | 10,143 | | Oxford Instruments | 6,628 | | Wincanton | 6,394 | | Morgan Sindall | 6,084 | | Serco | 4,366 | | Company | Valuation £'000 | | --- | --- | | INDUSTRIALS CONTINUED | | | Keller | 3,608 | | Somero Enterprises^{1} | 3,338 | | FDM | 2,782 | | Judges Scientific^{1} | 2,646 | | Brickability^{1} | 2,496 | | Volex^{1} | 2,103 | | Mpac^{1} | 1,993 | | Robert Walters | 1,980 | | Fonix Mobile^{1} | 1,750 | | Norcros | 1,509 | | Elixirr International^{1} | 1,494 | | Clipper Logistics | 422 | | | 72,640 | | FINANCIALS | | | Alpha FX^{1} | 8,965 | | CMC Markets | 8,765 | | OSB | 6,534 | | Liontrust Asset Management | 5,643 | | Impax Asset Management^{1} | 4,281 | | Polar Capital^{1} | 3,824 | | Brewin Dolphin | 3,357 | | Tatton Asset Management^{1} | 2,928 | | Mortgage Advice Bureau^{1} | 2,620 | | Provident Financial | 2,451 | | Bank of Georgia | 2,322 | | | 51,690 | | TECHNOLOGY | | | Learning Technologies^{1} | 6,781 | | Computacenter | 5,848 | | Cerillion^{1} | 5,084 | | Bytes Technology | 5,063 | | Big Technologies | 4,410 | | Tinybuild^{1} | 3,336 | | Softcat | 2,126 | | Auction Technology | 1,559 | | | 34,207 | | HEALTH CARE | | | Ergomed^{1} | 10,845 | | Indivior | 2,803 | | | 13,648 | | Company | Valuation £'000 | | --- | --- | | REAL ESTATE | | | LSL Property Services | 4,000 | | CLS | 2,616 | | Urban Logistics REIT^{1} | 1,265 | | Palace Capital | 1,109 | | Savills | 1,032 | | | 10,022 | | BASIC MATERIALS | | | Hill & Smith | 2,891 | | Central Asia Metals^{1} | 2,487 | | Treatt | 2,236 | | Heiq | 650 | | | 8,264 | | CONSUMER STAPLES | | | Premier Foods | 5,471 | | Hilton Food | 2,105 | | Supreme^{1} | 445 | | | 8,021 | | ENERGY | | | Serica Energy^{1} | 2,815 | | Jadestone Energy^{1} | 2,310 | | | 5,125 | | UTILITIES | | | Augean^{1} | 2,103 | | | 2,103 | | TELECOMMUNICATIONS | | | Calnex Solutions^{1} | 988 | | | 988 | | TOTAL INVESTMENTS | 377,140 | 1 AIM listed, totalling 35.8% of total investments. STRATEGIC REPORT | 17 --- COMPANY PURPOSE, INVESTMENT OBJECTIVE, POLICIES AND GUIDELINES The aim of the Strategic Report is to provide shareholders with the ability to assess how the Directors have performed their duty to promote the success of the Company during the year under review. To assist shareholders with this assessment, the Strategic Report sets out the structure and objective of the Company, its investment policies and risk management, investment limits and restrictions, performance and key performance indicators, share capital, the Company's environmental, social and ethical policy, principal and emerging risks and how the Company seeks to manage those risks, and finally its long-term viability. ## The Company's Purpose, Values, Strategy and Culture The purpose of the Company is to provide capital appreciation for shareholders from a diversified portfolio of UK listed small companies, emphasising capital rather than income growth, and which outperforms its benchmark index over the longer term. In fulfilling its purpose, the Board takes account of wider issues including environmental, social and governance. To achieve this, the Board of Directors is responsible for employing and overseeing an investment management company that has appropriate investment expertise, resources and controls in place to meet the Company's investment objective. To ensure that it is aligned with the Company's purpose, values and strategy, the Board comprises Directors who have a breadth of relevant experience and contribute in an open boardroom culture that both supports and challenges the investment management company and its other third party suppliers. ## Structure and Objective of the Company The Company's existing investment objective and investment policy are set out below and came into effect from 1st January 2019 following approval at the AGM in November 2018. JPMorgan UK Smaller Companies Investment Trust plc is an investment trust company that has a premium listing on the London Stock Exchange. The Company's objective is to achieve capital growth from UK listed smaller companies by out-performance of the Company's benchmark index, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index and a rising share price over the longer term by taking carefully controlled risks. In seeking to achieve this objective the Company employs JPMF to actively manage the Company's assets. The Board has determined an investment policy and related guidelines and limits as described below. The Company is subject to UK and European legislation and regulations including UK company law, Financial Reporting Standards, the UKLA Listing, Prospectus, Disclosure Guidance and Transparency Rules, Market Abuse Regulation, taxation law and the Company's own Articles of Association. Since 31st December 2020, new autonomous UK regulations became effective and the UK no longer applies EU regulations. The potential impact of the UK's withdrawal from the EU is uncertain. However, those EU regulations that were relevant to the Company have been incorporated by UK regulations and therefore there has been no change in practice from last year. The Company is an investment company within the meaning of Section 833 of the Companies Act 2006 and has been approved by HM Revenue & Customs as an investment trust (for the purposes of Sections 1158 and 1159 of the Corporation Tax Act 2010) for the year ended 31st July 2013 and future years. The Directors have no reason to believe that approval will not continue to be obtained. The Company is not a close company for taxation purposes. A review of the Company's activities and prospects is given in the Chairman's Statement on pages 5 to 7, and in the Investment Managers' Report on pages 8 and 9. ## Investment Policy In order to achieve the investment objective, the Company invests in a diversified portfolio of small companies, emphasising capital rather than income growth. Investment risks are managed by investing in a diversified portfolio of UK listed smaller companies. The Company seeks to manage its risk relative to its benchmark index by limiting the active portfolio exposure to stocks and sectors. The Company invests in smaller companies which tend to be more volatile than larger companies and the investment policy should therefore be regarded as carrying greater than average risk. Liquidity and borrowings are managed with the aim of increasing returns to shareholders. The Company makes use of borrowings to increase returns. In accordance with the Listing Rules of the Financial Conduct Authority ('FCA') the Company will not invest more than 15% of its gross assets in other UK listed closed-ended investment funds and will not invest more than 10% of its gross assets in companies that themselves may invest more than 15% of gross assets in UK listed closed-ended investment funds at the time of acquisition. ## Investment Restrictions and Guidelines The Board seeks to manage the Company's risk by imposing various investment limits and restrictions. - No investment in the portfolio will be greater than 10% of the Company's gross assets. - The Company will not normally invest in unlisted securities. - The Company will not normally invest in derivative instruments. - The Company will not normally invest greater than 50% of its gross assets in AIM stocks. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- COMPANY PURPOSE, INVESTMENT OBJECTIVE, POLICIES AND GUIDELINES - The number of investments in the portfolio will normally range between 60 and 120. - The Company's gearing policy is to operate within a range of -10% to +15% invested in normal markets. - The maximum exposure to an investment will normally range between +/-5% relative to the benchmark index. - The maximum exposure to an ICB (Industry Classification Benchmark) sector will range between +/-20% relative to the benchmark index. All of the above restrictions and guidelines are kept under review by the Board. Compliance with the Board's investment restrictions and guidelines is monitored continuously by the Manager and is reported to the Board on a monthly basis. ## Performance In the year ended 31st July 2021, the Company produced a total return to shareholders of +79.4% and a total return on net assets of +68.1%. This compares with the total return on the Company's benchmark index of +50.3%. As at 31st July 2021, the value of the Company's investment portfolio was £377.1 million. The Investment Managers' Report on pages 8 and 9 includes a review of developments during the year as well as information on investment activity within the Company's portfolio. ## Total Return, Revenue and Dividends Gross total return for the year amounted to £143,495,000 (2020: £10,121,000) and net total return after deducting interest, administration expenses and taxation amounted to £140,647,000 (2020: £7,632,000). Distributable income for the year amounted to £3,418,000 (2020: £2,965,000). The Directors recommend a final dividend of 5.7p (2020: 5.5p) per share payable on 6th December 2021 to holders on the register at the close of business on 29th October 2021. This distribution will cost £4,449,000 (2020: £4,293,000). Following payment of the final dividend, the revenue reserve will amount to £869,000 (2020: £1,900,000). ## Gearing The Board sets the overall gearing policy. During the year, a £25.0 million unsecured floating rate borrowing facility (with a £10.0 million accordion facility) was in place with Scotiabank which was increased to £40.0 million during the year and expired on 1st October 2021. Under the terms of this agreement the Company had the option to increase the facility commitment amount to £50.0 million in two increments of £5.0 million subject to certain conditions. On 1st October 2021, the facility was then renewed with Scotiabank for a further two years on new terms and increased to £50.0 million (with a £10 million accordion facility). This facility is highly flexible and is used with the aim of enhancing returns. As at 31st July 2021, £35 million had been drawn on the facility. Further details about the loan facility are given in note 13 on page 65. ## Key Performance Indicators ('KPIs') The Board uses a number of financial KPIs to monitor and assess the performance of the Company. The principal KPIs are: - Performance against the benchmark index This is the most important KPI by which performance is judged. Information on the Company's performance is given in the Chairman's Statement and the Investment Managers' Report. Also, please refer to the graphs on page 13. The Company outperformed its benchmark index in the year ended 31st July 2021. Performance has been strong, with the Company outperforming its benchmark over the short (one year), medium (three years) and long term (ten years). The principal objective is to outperform the benchmark. However, the Board also considers the performance relative to a broad range of competitor funds. - Performance attribution The purpose of performance attribution analysis is to assess how the Company achieved its performance relative to its benchmark index and to understand the impact on the Company's relative performance of the various components such as sector allocation and stock selection. Details of the attribution analysis for the year ended 31st July 2021 are given in the Investment Manager's Report on page 8. - Share price premium/(discount) to net asset value ('NAV') per share The Board operates a share repurchase and issuance programme that seeks to address imbalances in supply and demand for the Company's shares within the market and thereby reduce the volatility of the share price discount to NAV per share at which the Company's shares trade. In the year to 31st July 2021, the premium/(discount) ranged between 4.5% premium and 16.5% discount, with an average discount of 6.2% based on daily data. The Company's year-end discount figure was 8.0% (2020: 13.8%). The Board at its regular meetings, undertakes reviews of marketing/investor relations and sales reports from the Manager. It also considers their effectiveness as well as measures of investor sentiment. STRATEGIC REPORT | 19 --- COMPANY PURPOSE, INVESTMENT OBJECTIVE, POLICIES AND GUIDELINES ## Discount Performance ### BASED ON MONTH END DATA FROM 31ST JULY 2016 ![img-8.jpeg](img-8.jpeg) Source: Morningstar. JPMorgan UK Smaller Companies Investment Trust plc – share price discount to cum income net asset value (month end data). Please note the graph above is based on month end data only. Therefore, the graph may not reflect the highest or lowest discount values in any given financial year. ## Ongoing Charges The ongoing charges represent the Company's management fee and all other operating expenses excluding interest, expressed as a percentage of the average daily net assets during the year. The ongoing charges for the year ended 31st July 2021 were 0.91% (2020: 1.01%). The Board reviews each year an analysis which compares the Company's ongoing charges and its main expenses with those of its peers. ## Share Capital The Directors have authority on behalf of the Company to repurchase shares in the market either for cancellation or into Treasury and resell shares from Treasury or issue new Ordinary shares in the market for cash at a premium to net asset value per share. During the year, the Company repurchased a total of nil Ordinary shares for cancellation and nil Ordinary shares into Treasury. Resolutions to renew the authority to repurchase shares for cancellation or to hold in Treasury and issue new shares will be put to shareholders for approval at the forthcoming Annual General Meeting. The full text of these Resolutions is set out in the Notice of Meeting on pages 77 and 78. ## Board Diversity At 31st July 2021, there were two male Directors and two female Directors on the Board. The Company has no employees. When recruiting a new Director, the Board's policy is to appoint individuals on merit. Diversity is important in bringing an appropriate range of skills and experience to the Board. When completing a review of the skills and experience of Directors, the Board feels that they are equipped with the necessary attributes required for the sound stewardship of the Company and that their knowledge sets allow for lively and engaging debates. Please refer to page 33 for more information on the workings of the Nomination Committee. The Board's policy on diversity, including gender, is to take account of the benefits of this during the appointment process. The Board remains committed to appointing the most appropriate candidate and complies with the Hampton-Alexander recommendation of having 33% female representation on the Board (the figure is currently 50% for this Company). ## Employees, Social, Community and Human Rights Issues The Company has a management contract with JPMF. It has no employees and all of its Directors are non-executive. The day-to-day activities are carried out by third parties. There are therefore no disclosures to be made in respect of employees. ## Environmental, Social and Governance ('ESG') The Board notes JPMAM's global policy statements in respect of Environmental, Social and Governance issues, as highlighted in italics: JPMAM believes that companies should act in a socially responsible manner. Although our priority at all times is the best economic interests of our clients, we recognise that, increasingly, non-financial issues such as social and environmental factors have the potential to impact the share price, as well as the reputation of companies. Specialists within JPMAM's environmental, social and governance ('ESG') team are tasked with assessing how companies deal with and report on social and environmental risks and issues specific to their industry. JPMAM is also a signatory to the United Nations Principles of Responsible Investment, which commits participants to six principles, with the aim of incorporating ESG criteria into their processes when making stock selection decisions and promoting ESG disclosure. The Manager has implemented a policy which seeks to restrict investments in securities issued by companies that have been identified by an independent third party provider as being involved in the manufacture, production or supply of cluster munitions, depleted uranium ammunition and armour and/or anti-personnel mines. Shareholders can obtain further details on the policy by contacting the Manager. A comprehensive ESG statement is included on pages 10 to 12. ## Greenhouse Gas Emissions The Company is managed by JPMF with portfolio management delegated to JPMAM. It has no employees and all of its Directors are Non-executive, the day to day activities being carried out by third parties. There are therefore no disclosures to be made in respect of employees. The Company has no premises, consumes JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- PRINCIPAL AND EMERGING RISKS no electricity, gas or diesel fuel and consequently does not have a measurable carbon footprint. As a low energy user under HMRC guidelines it is not required to disclose energy and carbon information. JPMAM is also a signatory to the Carbon Disclosure Project. JPMorgan Chase is a signatory to the Equator Principles on managing social and environmental risk in project finance. ## The Modern Slavery Act 2015 (the 'MSA') The MSA requires companies to prepare a slavery and human trafficking statement for each financial year of the organisation. As the Company has no employees and does not supply goods and services, the MSA does not apply directly to it. The MSA requirements more appropriately relate to JPMF and JPMAM. JPMorgan's statement on the MSA can be found on the following website: https://www.jpmorganchase.com/about/ourbusiness/human-rights ## Corporate Criminal Offence The Company maintains zero tolerance towards tax evasion. Shares in the Company are purchased through intermediaries or brokers, therefore no funds flow directly into the Company. As the Company has no employees, the Board's focus is to ensure that the risk of the Company's service providers facilitating tax evasion is also low. To this end it seeks assurance from its service providers that effective policies and procedures are in place. ## Principal and Emerging Risks The Directors confirm that they have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The risks identified and the ways in which they are managed or mitigated are summarised below. With the assistance of the Manager, the Board has completed a robust risk assessment and drawn up a risk matrix, which identifies the key risks to the Company. The risks identified and the broad categories in which they fall, and the ways in which they are managed or mitigated are summarised below. The AIC Code of Corporate Governance requires the Audit Committee to put in place procedures to identify emerging risks. The key emerging risks identified are also summarised below. | Principal Risk | Description | Mitigating Activities | | --- | --- | --- | | Corporate Strategy | The corporate strategy, including the investment objectives and policies, may not be of sufficient interest to current or prospective shareholders. Other factors, such as the size of the Company and level of liquidity in its shares, may also deter shareholder interest, resulting in the shares trading at an increased discount to net asset value. | The Board regularly reviews its strategy, and assesses, with its brokers, shareholder views. | | Investment and Performance | Poor investment performance, for example due to poor stock selection, asset allocation or an inappropriate level of gearing, may lead to under-performance against the Company's benchmark index and peer companies, resulting in the Company's shares trading on a wider discount. | The Board manages these risks by diversification of investments through its investment restrictions and guidelines which are monitored and reported on. The Manager provides the Directors with timely and accurate management information, including performance data and attribution analyses, revenue estimates and liquidity reports. The Board monitors the implementation and results of the investment process with the Investment Manager, who attend Board meetings, and reviews data which shows statistical measures of the Company's risk profile. The Investment Manager employs the Company's gearing, within a strategic range set by the Board. | | Discount | A disproportionate widening of the discount relative to the Company's peers could result in loss of value for shareholders. | In order to manage the volatility of the Company's discount the Company operates a share repurchase programme and the Board regularly discusses discount management policy and has set parameters for the Manager and the Company's broker to follow. The Board receives regular reports and is actively involved in the discount management process. | STRATEGIC REPORT | 21 --- PRINCIPAL AND EMERGING RISKS | Principal Risk | Description | Mitigating Activities | | --- | --- | --- | | Smaller Company Investment | Investing in smaller companies is inherently more risky and volatile, partly due to a lack of liquidity in the shares, plus AIM stocks are less regulated. | The Board discusses these risk factors at each Board meeting with the Investment Managers. The Board has placed investment restrictions and guidelines to limit these risks. | | Political and Economic | Changes in financial or tax legislation, uncertainty about the UK's future relationship with the EU, and changes in government policies may each adversely affect the Company. | The Manager makes recommendations to the Board on accounting, dividend and tax policies, and seeks external advice where appropriate. | | Investment Management Team | Investment performance may suffer if the designated investment managers were to leave. | The Board considers that, though there may be short-term disruption, the risk would be mitigated by the substantial investment management resources of JPMorgan, and the use of an established investment methodology. | | Market | Market risk arises from uncertainty about the future prices of the Company's investments. It represents the potential loss that the Company might suffer through holding investments in the face of negative market movements. | The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines, which are monitored and reported on by the Manager. The Board monitors the implication and results of the investment process with the Manager. | | Accounting, Legal and Regulatory | In order to qualify as an investment trust, the Company must comply with Section 1158 of the Income and Corporation Tax Act 2010 ('Section 1158'). Details of the Company's approval are given on page 18. Should the Company breach Section 1158, it may lose its investment trust status and as a consequence capital gains within the Company's portfolio would be subject to Capital Gains Tax. | The Section 1158 qualification criteria are regularly monitored by the Manager and the results reported to the Board each month. The Company must also comply with the provisions of The Companies Act 2006 and, as its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure and Transparency Rules ('DTRs'). A breach of the Companies Act 2006 could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA Listing Rules or DTRs may result in the Company's shares being suspended from listing which in turn would breach Section 1158. The Board relies on the services of its Company Secretary, JPMFL and its professional advisers to monitor compliance with all relevant requirements. | | Corporate Governance and Shareholder Relations | Details of the Company's compliance with Corporate Governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement on pages 31 to 35. | The Board receives regular reports from the Manager and the Company's broker about shareholder communications, their views and their activity. | | Operational and Counterparty Failure | Disruption to, or failure of, the Manager's or a counterparty's accounting, dealing or payments systems or the Depositary or Custodian's records may prevent accurate reporting and monitoring of the Company's financial position. | Under the terms of its agreement, the Depositary has strict liability for the loss or misappropriation of assets held in custody. See note 21(c) for further details on the responsibilities of the Depositary. Details of how the Board monitors the services provided by JPMF and its associates and the key elements designed to provide effective risk management and internal controls are included within the Risk Management and Internal Controls section of the Corporate Governance Statement on pages 34 and 35. | 22 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- PRINCIPAL AND EMERGING RISKS | Principal Risk | Description | Mitigating Activities | | --- | --- | --- | | Cyber Crime | The threat of cyber attack, in all its guises, is regarded as at least as important as more traditional physical threats to business continuity and security. In addition to threatening the Company's operations, such an attack is likely to raise reputational issues which may damage the Company's share price and reduce demand for its shares. | The Board has received the cyber security policies for its key third party service providers and JPMF has assured Directors that the Company benefits directly or indirectly from JPMorgan's Cyber Security programme. The information technology controls around the physical security of JPMorgan's data centres, security of its networks and security of its trading applications are tested by an independent third party and reported every six months against the AAF Standard. | | Financial | The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. | Counterparties are subject to daily credit analysis by the Manager. In addition the Board receives reports on the Manager's monitoring and mitigation of credit risks on share transactions carried out by the Company. Further details are disclosed in note 21 on pages 68 to 72. | | Global pandemics | The emergence and spread of coronavirus (COVID-19) is a global pandemic risk that poses a significant risk to the Company's portfolio. COVID-19 has highlighted the speed and extent of economic damage that can arise from a pandemic. While current vaccination programme results are hopeful, the risk remains that new variants may not respond to existing vaccines, may be more lethal and may spread as global travel opens up again. | Time after time, markets have recovered, albeit over varying and sometimes extended time periods, and so the Board does have an expectation that the portfolio's holdings will not suffer a material long-term impact and should recover. The Board receives reports on the business continuity plans of the Manager and other key service providers. The effectiveness of these measures have been assessed throughout the course of the COVID-19 pandemic and the Board will continue to monitor developments as they occur and seek to learn lessons which may be of use in the event of future pandemics. Should the virus become more virulent than is currently the case, it may present risks to the operations of the Company, its Manager and other major service providers. Should efforts to control a pandemic prove ineffectual or meet with substantial levels of public opposition, there is the risk of social disorder arising at a local, national or international level. Even limited or localised societal breakdown may threaten both the ability of the Company to operate, the ability of investors to transact in the Company's securities and ultimately the ability of the Company to pursue its investment objective and purpose. | | Emerging Risk | Description | Mitigating Activities | | Climate change | Climate change, which barely registered with investors a decade ago, has today become one of the most critical issues confronting asset managers and their investors. Investors can no longer ignore the impact that the world's changing climate will have on their portfolios, with the impact of climate change on returns now inevitable. Financial returns for long-term diversified investors should not be jeopardised given the investment opportunities created by the world's transition to a low-carbon economy. | The Board is also considering the threat posed by the direct impact on climate change on the operations of the Manager and other major service providers. As extreme weather events become more common, the resiliency, business continuity planning and the location strategies of our services providers will come under greater scrutiny. | STRATEGIC REPORT | 23 --- LONG-TERM VIABILITY # Long-Term Viability Taking account of the Company's current position, the principal and emerging risks of the Company and their potential impact, on its future development and prospects, the Directors have assessed the prospects of the Company, to the extent that they are able to do so, over the next five years. The Company has no loan covenants or liabilities that cannot be readily met and the Directors have reviewed income and expense projections and the liquidity of the investment portfolio in making their assessment. The Directors have made their assessment by considering those principal and emerging risks, including the lower liquidity and high volatility of smaller company shares, in the light of the Company's investment objective and strategy, the investment capabilities of the Manager and the current outlook for the UK economy and its equity markets. They have examined the robustness of these base case estimates using further severe but plausible scenarios, including the market contractions caused by the 2008 financial crisis and the ongoing COVID-19 pandemic. In determining the appropriate period of assessment the Directors had regard to their view that, given the Company's objective of achieving long-term capital growth, shareholders should consider the Company as a long-term investment proposition. The Directors also take account of the inherent uncertainties of equity markets and the existence of a continuation vote every three years. As a result of all these deliberations, the Directors consider five years to be an appropriate time horizon to assess the Company's viability. The Directors confirm that they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years until 31st July 2026. This reasonable expectation is subject to there being no significant adverse change to the regulatory or taxation environment for investment trusts; and subject to there being no sustained adverse investment performance by the current or any successive investment manager, that may result in the Company not being able to maintain a supportive shareholder base. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- DUTY TO PROMOTE THE SUCCESS OF THE COMPANY # Duty to promote the success of the Company Section 172 of the Companies Act 2006 requires that a Director must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members (i.e. shareholders) as a whole and in doing so, have regard (amongst other matters) to the likely consequences of any decision in the long term; the need to foster the Company's business relationships with suppliers, customers and others; the impact of the Company's operations on the community and the environment; the desirability of the Company maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company. The Board is responsible for all decisions relating to the Company's investment objective and policies, gearing, discount management, corporate governance and strategy, and for monitoring the performance of the Company's third party service providers, including the Manager. The Board's philosophy is that the Company should foster a culture where all the Company's stakeholders are treated fairly and with respect and the Board recognises the importance of acting fairly between them, which is front of mind in its key decision making. As an externally managed investment company with no employees, the Board considers that the Company's key stakeholders are its shareholders, its Manager, its investee companies, and its other professional third party service providers (corporate broker, registrar, auditor, custodian and depository) and wider society. The Board believes the best interests of the Company are aligned with those of these key stakeholders as all parties wish to see and ultimately benefit from the Company achieving its investment objectives whilst carrying on business in compliance with the highest possible regulatory, legal, ethical and commercial standards. The table below sets out details of the Company's engagement with these stakeholders: | Stakeholder Engagement | | --- | | Shareholders | | Continued shareholder engagement is critical to the continued existence of the Company and the successful delivery of its long term strategy. The Board is focused on fostering and maintaining good working relationships with shareholders and understanding the views of shareholders in order to incorporate them into the Board's strategic thinking and objectives. To ensure continuing engagement with shareholders, the Manager conducts a significant number of shareholder meetings each year and provides the Board with ongoing feedback. Under normal operating circumstances shareholders are encouraged to attend the Company's Annual General Meeting. Shareholders can contact Directors via the Company Secretary. | | Manager | | The principal supplier is the Manager, in particular the investment management team who are responsible for managing the Company's assets in order to achieve its stated investment objective. The Board maintains a good working relationship with the Manager, who also provides administrative support and promotes the Company through its investment trust sales and marketing teams. The Board monitors the Company's investment performance at each Board Meeting in relation to its objective and also to its investment policy and strategy. The Board also maintains strong lines of communication with the Manager via its dedicated company secretary and client director whose interactions extend well beyond the formal business addressed at each Board and Committee meeting. This enables the Board to remain regularly informed of the views of the Manager and the Company's shareholders (and vice versa). | | Investee companies | | The Board is committed to responsible investing and actively monitors the activities of investee companies through its delegation to the Manager. In order to achieve this, the Manager has discretionary powers to exercise voting rights on behalf of the Company on all resolutions proposed by the investee companies. In respect of the year under review, the Manager voted at all of the annual general meetings and extraordinary meetings held during the year by the Company's portfolio companies (full details can be found in the ESG report on page 12). The Board monitors investments made and divested and questions the Manager's rationale for exposures taken and voting decisions made. | | Other key service providers | | The Board ensures that it promotes the success of the Company by engaging specialist third party suppliers, with appropriate capability, performance records, resources and controls in place to deliver the services that the Company requires for support in meeting relevant obligations and safeguarding the Company's assets. For this reason, the Board considers the Company's Custodian, Depositary, Registrar, Auditor and Broker to be stakeholders. The Board maintains regular contact with its key external service providers, either directly, or via its dedicated company secretary or client director, and receives regular reporting from these providers at Board and Committee meetings. The Management Engagement Committee meets annually to review and appraise its key service providers. | STRATEGIC REPORT | 25 --- DUTY TO PROMOTE THE SUCCESS OF THE COMPANY ## Wider society and the Environment Whilst strong long term investment performance is essential for an investment trust, the Board recognises that to provide an investment vehicle that is sustainable over the long term, both it and the Manager must have regard to ethical and environmental issues that impact society. Hence environmental, social and governance ('ESG') considerations are integrated into the Manager's investment process and will continue to evolve. Further details of the Manager's integrated approach to ESG can be found on pages 10 to 12. The Directors confirm that they have considered their duty under Section 172 when making decisions during the financial year under review. Key decisions and actions during the year which have required the Directors to have regard to applicable section 172 factors include: ## Key Decisions and Actions ### Broker Following the year-end, the Board evaluated the provision of Corporate Broking and Corporate Finance services from potential candidates. As a result, the Board appointed a new Broker, Panmure Gordon, to provide broking and advisory services to the Company with effect from 17th September 2021. ### Name Change Following the year-end, the Board took the decision to change the Company name to JPMorgan UK Smaller Companies Investment Trust plc (with effect from 21st September 2021) as it believed that this would be beneficial from a search perspective as having UK in the name would support the retail investor and increase traffic to the Company's website. ### Increasing the Profile of the Company As investors begin to feel more confident about investing in the UK, it is important that the Company remains front of mind with both institutional and retail investors. The Board employs Kepler to provide research notes for the Company twice a year and has also signed an enhanced marketing contract which has additional marketing distributional benefits. ### Borrowings and Gearing Given an increase in the Company's asset base over the year the Company increased its borrowing capacity both during the year to £40 million, and post the year end by increasing the amount under its loan facilities to £50 million (with an accordion facility of £10 million). The introduction of the additional debt permits the maintenance of the relative gearing level of the Company which the Board believes will enhance returns to shareholders over the long term. ### Miscellaneous In addition, the Directors have kept under review the competitiveness of the management fee and the Company's other operating costs; continued to hold the Manager to account on investment performance; undertaken a robust review of the principal and emerging risks faced by the Company; and continued to encourage the Manager to enhance its sales and marketing efforts. Furthermore, throughout the course of the COVID-19 pandemic the Board has been in regular contact with the Manager, receiving regular updates on the operational effectiveness of the Manager and key service providers and on areas such as portfolio activity, portfolio liquidity, gearing and the discount to NAV at which the Company's shares trade. By order of the Board Lucy Dina, for and on behalf of JPMorgan Funds Limited Company Secretary 12th October 2021 JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- Directors' Report --- BOARD OF DIRECTORS ![img-9.jpeg](img-9.jpeg) # Andrew Impey*† (Chairman of the Board, Nomination and Management Engagement Committee) A Director since March 2015. Last reappointed to the Board: 2020. Current remuneration: £38,000. He is currently a consultant at Rathbones Investment Management and was previously a partner of Albion Capital Group LLP and joint managing director at OLIM Limited. He has over 30 years' fund management experience including UK smaller companies and investment trusts. Prior to joining OLIM in 2009, he was Chief Investment Officer at Singer & Friedlander Investment Management. He is a charity trustee and on a number of investment committees including HMS Victory Preservation Company. Connections with Manager: None. Connections with other Directors: None. Shareholding in Company: 25,000. ![img-10.jpeg](img-10.jpeg) # Gordon Humphries*† (Chairman of the Audit Committee) A Director since July 2020. Appointed to the Board: 2020. Current remuneration: £31,500. He is a director of Foresight VCT plc and Maven Income & Growth VCT 5 plc. He has more than 30 years of investment trust experience. He is a chartered accountant. Connections with Manager: None. Connections with other Directors: None. Shareholding in Company: 9,000. ![img-11.jpeg](img-11.jpeg) # Frances Davies*† (Chair of the Remuneration Committee and Senior Independent Director) A Director since March 2013. Last reappointed to the Board: 2020. Current remuneration: £27,500. Since 2007, she has been a partner of Opus Corporate Finance, a corporate finance advisory business providing independent strategic advice to businesses across Europe. She is a director of Aviva Life's With Profits Committee, Aegon Investments Ltd and HICL plc. She is also a member of the appointments committee of Hermes Property Unit Trust. Connections with Manager: None. Connections with other Directors: None. Shareholding in Company: 4,045. ![img-12.jpeg](img-12.jpeg) # Alice Ryder*† A Director since February 2017. Last reappointed to the Board: 2020. Current remuneration: £26,000. She is a partner of Stanhope Capital LLP and Head of Stanhope Consulting. She is a non-executive director of BlackRock North American Income Trust PLC and a member of the Investment Committee for the Royal Academy Trust. Connections with Manager: None. Connections with other Directors: None. Shareholding in Company: 5,000. * Considered independent by the Board † All Directors are members of the Audit, Nomination, Remuneration and Management Engagement Committees JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- DIRECTORS' REPORT The Directors present their report and the audited financial statements for the year ended 31st July 2021. ## Management of the Company The Manager and Company Secretary is JPMorgan Funds Limited ('JPMF'), a company authorised and regulated by the FCA. The active management of the Company's assets is delegated by JPMF to an affiliate, JPMorgan Asset Management (UK) Limited ('JPMAM'). The Manager is a wholly-owned subsidiary of JPMorgan Chase Bank which, through other subsidiaries, also provides accounting, banking, dealing and custodian services to the Company. JPMF is employed under a contract terminable on three months' notice, without penalty. If the Company wishes to terminate the contract on shorter notice, the balance of remuneration is payable by way of compensation. The Board, through the Management Engagement Committee, conducts a formal evaluation of the Manager on an annual basis. The evaluation includes consideration of the investment strategy and process of the Investment Managers, the performance against the benchmark over the long-term, and the support that the Company receives from JPMF. As a result of the evaluation process, the Board confirms that it is satisfied that the continuing appointment of the Manager is in the interests of shareholders as a whole. ## The Alternative Investment Fund Managers Directive ('AIFMD') JPMF is the Company's alternative investment fund manager ('AIFM'). It is approved as an AIFM by the FCA. For the purposes of the AIFMD the Company is an alternative investment fund ('AIF'). JPMF has delegated responsibility for the day-to-day management of the Company's portfolio to JPMAM. The Company has appointed Bank of New York Mellon (International) Limited ('BNY') as its depositary. BNY has appointed JPMorgan Chase Bank, N.A. as the Company's custodian. BNY is responsible for the oversight of the custody of the Company's assets and for monitoring its cash flows. The AIFMD requires certain information to be made available to investors in AIFs before they invest and requires that material changes to this information be disclosed in the annual report of each AIF. An Investor Disclosure Document, which sets out information on the Company's investment strategy and policies, leverage, risk, liquidity, administration, management, fees, conflicts of interest and other shareholder information is available on the Company's website at www.jpmuksmallercompanies.co.uk. There have been no material changes (other than those reflected in these financial statements) to this information requiring disclosure. Any information requiring immediate disclosure pursuant to the AIFMD will be disclosed to the London Stock Exchange through a primary information provider. The Company's leverage and JPMF's remuneration disclosures are set out on page 74. ## Management Fee The management fee is paid by monthly instalments based on the total assets less current liabilities at the beginning of each month and during the year under review was charged at a rate of 0.75% per annum on gross assets up to £200 million; thereafter, 0.65% on gross assets over £200 million. Loans that are drawn down under a loan facility with an original maturity date of one year or more are not classified as current liabilities for the purpose of the management fee calculation. If the Company invests in funds managed or advised by the Manager or any of its associated companies, the investments are excluded from the calculation and therefore attract no fee. The Company invests any surplus liquidity into a non-charging class of the JPMorgan Sterling Liquidity Fund and this Fund is therefore not excluded from the management fee calculation. ## Directors The Directors of the Company who held office at the end of the year are as detailed on page 28. Details of Directors' beneficial shareholdings may be found in the Directors' Remuneration Report on page 40. No changes have been reported to the Directors' shareholdings since the year end. All Directors will be standing for reappointment at the Company's forthcoming Annual General Meeting. The Board recommends to shareholders the reappointment of those Directors. Please refer to page 32 for more information. ## Director Indemnification and Insurance As permitted by the Company's Articles of Association, the Directors have the benefit of a deed of indemnity which is a qualifying third party indemnity, as defined by Section 234 of the Companies Act 2006. The indemnities were in place during the year and as at the date of this report. An insurance policy is maintained by the Company which indemnifies the Directors of the Company against certain liabilities arising in the conduct of their duties. There is no cover against fraudulent or dishonest actions. ## Disclosure of information to Auditor In the case of each of the persons who are Directors of the Company at the time when this report was approved: (a) so far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the Company's auditor is unaware; and (b) each of the Directors has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and DIRECTORS' REPORT | 29 --- DIRECTORS' REPORT to establish that the Company's auditor is aware of that information. The above confirmation is given and should be interpreted in accordance with the provision of Section 418 of the Companies Act 2006. ## Independent Auditor Ernst & Young LLP have expressed their willingness to continue in office as Auditor to the Company and a resolution proposing their reappointment and to authorise the Directors to agree their remuneration for the ensuing year will be put to shareholders at the forthcoming Annual General Meeting. ## Companies Act 2006 Requirements The following disclosures are made in accordance with Section 992 Companies Act 2006. ### Capital Structure The Company's capital structure is summarised on the inside front cover of this report. The Ordinary shares have a premium listing on the London Stock Exchange. ### Voting Rights in the Company's shares Details of the voting rights in the Company's shares as at the date of this report are given in note 17 to the Notice of AGM on page 79. ## Notifiable Interests in the Company's Voting Rights At the financial year end the following had declared a notifiable interest in the Company's voting rights: | Shareholders | Number of voting rights | % | | --- | --- | --- | | JPMorgan Asset Management Holdings Inc. | 7,758,114 | 9.94 | | Border to Coast Pension | 4,953,497 | 6.35 | | City of Bradford West Yorkshire | | | | Pension Fund | 4,272,500 | 5.47 | | Legal & General Group Plc | 3,910,790^{1} | 5.01 | | Rathbones Brothers Plc. | 3,540,026 | 4.54 | | Royal London Asset Management Limited | 2,543,405 | 3.26 | 1 This figure has been adjusted following the subdivision of shares in 2018. The last holding in the Company declared prior to this was 782,158. Since the year-end, as at the date of this report, the holding of Rathbones Brothers plc. has increased to 3,682,602 (4.72%). In addition, the holding of Border to Coast Pension is now 4,584,444 (5.87%). No further changes to these holdings had been notified as at the date of this report. The rules concerning the appointment and replacement of Directors, amendment of the Articles of Association and powers to issue or buy back the Company's shares are contained in the Articles of Association of the Company and the Companies Act 2006. There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; no agreements which the Company is party to that affect its control following a takeover bid; and no agreements between the Company and its Directors concerning compensation for loss of office. ## Listing Rule 9.8.4R Listing Rule 9.8.4R requires the Company to include certain information in a single identifiable section of the Annual Report or a cross reference table indicating where the information is set out. The Directors confirm that there are no disclosures to be made in this regard. ## Annual General Meeting NOTE: THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you should seek your own personal financial advice from your stockbroker, bank manager, solicitor or other financial advisor authorised under the Financial Services and Markets Act 2000. Resolutions relating to the following items of special business will be proposed at the forthcoming AGM: ### (i) Authority to issue new shares and disapply pre-emption rights (Resolutions 10 and 11) The Directors will seek renewal of the authority at the AGM to issue up to 10% of the present issued share capital (excluding Treasury shares) or sell shares held in Treasury, other than by a pro-rata issue to existing shareholders. The full text of the resolutions is set out in the Notice of Annual General Meeting on page 77. It is advantageous for the Company to be able to issue new shares (or to sell Treasury shares) to investors when the Directors consider that it is in the best interests of shareholders to do so. Any such issues would only be made at prices greater than the NAV, thereby increasing the assets underlying each share and spreading the Company's administrative expenses, other than the management fee which is charged on the value of the Company's gross assets, over a greater number of shares. The issue proceeds would be available for investment in line with the Company's investment policies. ### (ii) Authority to repurchase the Company's ordinary shares (Resolution 12) The authority to repurchase up to 14.99% of the Company's issued share capital, granted by shareholders at the 2020 AGM, will expire on 23rd May 2022. The Board remains committed to a stable discount, although recognising the need to balance the short term benefit of buying shares back for cancellation or holding in Treasury with the long term liquidity implications. The Board will therefore seek shareholder approval at the AGM to renew this JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- CORPORATE GOVERNANCE STATEMENT authority which will last until 22nd May 2023 or until the whole of the 14.99% has been acquired, whichever is the earlier. The full text of the resolution is set out in the Notice of Annual General Meeting on pages 77 and 78. Repurchases will be made at the discretion of the Board, and will only be made in the market at prices below the prevailing NAV per share as and when market conditions are appropriate. (iii) Adoption of new Articles of Association (resolution 13) Resolution 13, which will be proposed as a special resolution, seeks shareholder approval to adopt new Articles of Association (the 'New Articles') in order to update the Company's current Articles of Association (the 'Existing Articles'). The proposed amendments being introduced in the New Articles primarily relate to changes in law and regulation and developments in market practice since the Existing Articles were adopted and, most notably, include provisions enabling the Company to hold virtual shareholder meetings using electronic means (as well as physical shareholder meetings or hybrid meetings). Other proposed amendments include: (i) removal of the provisions in the Existing Articles which expressly prohibit the distribution of capital profits such that the Company will have the ability to pay dividends from the Company's realised capital profits going forward where the Board considers it is in the best interests of shareholders to do so; and (ii) changes in response to the introduction of international tax regimes requiring the exchange of information, including FATCA and CRS. The amendments reflect current best practice and are intended to relieve certain administrative burdens on the Company. A summary of the principal amendments being introduced in the New Articles is set out in the appendix to the AGM Notice (on pages 80 and 81 of this document). Other amendments, which are of a minor, technical or clarificatory nature, have not been summarised in the appendix. Whilst the proposed New Articles would permit shareholder meetings to be conducted using wholly electronic means, the Board has no intention of holding a virtual-only meeting if it can be reasonably avoided. The Board is committed to ensuring that future general meetings (including AGMs) incorporate a physical meeting when law and regulation permits and where shareholders can meet with the Board face to face. The potential to hold a general meeting through wholly electronic means is intended as a solution to be adopted as a contingency to ensure the continued smooth operation of the Company in extreme operating circumstances where physical meetings are prohibited or cannot reasonably be held. Nothing in the New Articles will prevent the Company from holding physical shareholder meetings. Recommendation The Board considers that resolutions 10 to 13 are likely to promote the success of the Company and are in the best interests of the Company and its shareholders as a whole. The Directors unanimously recommend that you vote in favour of the resolutions as they intend to do in respect of their own beneficial holdings which amount in aggregate to 43,045 shares representing approximately 0.06% of the voting rights of the Company. Corporate Governance Statement Compliance The Board is committed to high standards of corporate governance. It has considered the principles and provisions of the AIC Code of Corporate Governance published in 2019 (the 'AIC Code'), which addresses the principles and provisions set out in the UK Corporate Governance Code (the 'UK Code') published in 2018, as they apply to investment trust companies. It considers that reporting against the AIC Code, therefore, provides more appropriate information to the Company's shareholders. Through ongoing advice throughout the year from the Company Secretary and the use of a detailed checklist the Board confirms that the Company has complied with the principles and provisions of the AIC Code, in so far as they apply to the Company's business, throughout the year under review. As all of the Company's day-to-day management and administrative functions are outsourced to third parties, it has no executive directors, employees or internal operations and therefore has not reported in respect of the following: - the role of the executive directors and senior management; - executive directors' and senior management remuneration; - internal audit; and - the workforce Copies of the UK Code and the AIC Code may be found on the respective organisations' websites: www.frc.org.uk and www.theaic.co.uk Role of the Board A management agreement between the Company and the Manager sets out the matters over which the Manager has authority. This includes management of the Company's assets and the provision of accounting, company secretarial, administrative and some marketing services. All other matters are reserved for the approval of the Board. A formal schedule of matters reserved to the Board for decision has been approved. This includes determination and monitoring of the Company's investment objectives and policy and its future strategic direction, gearing policy, management of the capital structure, appointment and removal of third party service providers, review of key investment and financial data and the Company's corporate governance and risk control arrangements. The Board has procedures in place to deal with potential conflicts of interest and, following the introduction of The Bribery Act 2010, has adopted appropriate procedures designed to DIRECTORS' REPORT | 31 --- CORPORATE GOVERNANCE STATEMENT prevent bribery. It confirms that the procedures have operated effectively during the period under review. The Board meets at least four times during the year and additional meetings are arranged as necessary. Full and timely information is provided to the Board to enable it to function effectively and to allow Directors to discharge their responsibilities. There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company's expense. This is in addition to the access that every Director has to the advice and services of the Company Secretary, JPMF, which is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. ## Board Composition The Board is chaired by Andrew Impey, and consists of four non-executive Directors. All of the Board are regarded as independent of the Company's Manager, including the Chairman. The Directors have a breadth of investment, business and financial skills and experience relevant to the Company's business and brief biographical details of each Director are set out on page 28. A review of Board composition and balance is included as part of the annual performance evaluation of the Board, details of which may be found below. The Senior Independent Director, Frances Davies, leads the evaluation of the performance of the Chairman. The Senior Independent Director is also available to shareholders if they have concerns that cannot be resolved through discussion with the Chairman. The Board's policy on diversity, including gender, is to take account of the benefits of this during the appointment process. The Board remains committed to appointing the most appropriate candidate and seeks to ensure that it does not unwittingly exclude any group. Therefore, no targets have been set against which to report. ## Reappointment of Directors The Directors of the Company and their brief biographical details are set out on page 28. The skills and experience that each Director brings to the Board, and hence why their contributions are important to the long term success of the Company, are summarised below. All Directors will stand for reappointment at the Annual General Meeting. Resolution 5 concerns the reappointment of Frances Davies. She joined the Board in March 2013 and has served for eight years as a Director. Frances is a partner of Opus Corporate Finance LLP, a corporate finance advisory business providing independent strategic advice to businesses across Europe. She currently holds a number of non-executive positions and held many senior business management positions in investment companies during her career. For details of her current directorships, please refer to page 28 of the Report. Resolution 6 concerns the reappointment of Gordon Humphries. He joined the Board in July 2020 and has served for one year as a Director. He assumed the role of Audit Committee Chairman from Andrew Robson in November 2020. Gordon is a director and chairman of the audit and remuneration committees of Foresight VCT plc and a director and chairman of the audit and risk committees of Maven Income & Growth VCT 5 plc. He has more than 30 years of investment trust experience, including responsibilities in the areas of risk management and controls processes, company secretarial and corporate finance. For details of his current directorships, please refer to page 28 of the Report. Resolution 7 concerns the reappointment of Andrew Impey. He joined the Board in March 2015 and has served for six years as a Director and was appointed as Chairman in 2019. Andrew is a consultant at Rathbones Investment Management and was previously a partner of Albion Capital Group LLP and joint managing director at OLIM Limited. He has held a number of other executive, non-executive and advisory positions and has over 30 years' fund management experience including UK smaller companies and investment trusts. For details of his current directorships, please refer to page 28 of the Report. Resolution 8 concerns the reappointment of Alice Ryder. She joined the Board in February 2017 and has served for four years as a Director. Alice is a partner at Stanhope Capital LLP and holds a number of non-executive positions. She has more than 28 years of investment experience, a good part of which included the management of smaller UK companies. For details of her current directorships, please refer to page 28 of the Report. The Board confirms that each of the Directors standing for reappointment at the forthcoming Annual General Meeting continue to contribute effectively and recommends that shareholders vote in favour of their reappointment. ## Tenure Directors are initially appointed until the following Annual General Meeting when, under the Company's Articles of Association, it is required that they be appointed by shareholders. Thereafter, a Director's appointment is subject to the performance evaluation carried out each year and the approval of shareholders at each annual general meeting, in accordance with corporate governance best practice. The Board does not believe that length of service in itself necessarily disqualifies a Director from seeking reappointment but, when making a recommendation, the Board takes into account the ongoing requirements of the AIC Code, including the need to refresh the Board and its Committees. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- CORPORATE GOVERNANCE STATEMENT The Board has adopted corporate governance best practice and all Directors will stand for annual re-election. The terms and conditions of Directors' appointments are set out in formal letters of appointment, copies of which are available for inspection on request at the Company's registered office and at the Annual General Meeting. A schedule of interests for each Director is maintained by the Company and reviewed at every Board meeting. New interests are considered carefully, taking into account the circumstances surrounding them and, if considered appropriate, are approved. A list of potential conflicts of interest for each Director is maintained by the Company. These are considered carefully, taking into account the circumstances surrounding them, and, if considered appropriate, are approved. ## Training and Appraisal On appointment, the Manager and Company Secretary provide all Directors with induction training. Thereafter, regular briefings are provided on changes in law and regulatory requirements that affect the Company and the Directors. Directors are encouraged to attend industry and other seminars covering issues and developments relevant to investment trust companies. Regular reviews of the Directors' training needs are carried out by the Chairman by means of the evaluation process described below. The Nomination Committee undertakes an annual performance evaluation, as described below, to ensure that all members of the Board have devoted sufficient time and contributed adequately to the work of the Board. ## Meetings and Committees The Board delegates certain responsibilities and functions to Committees. Details of membership of Committees are shown with the Directors' profiles on page 28. The table below details the number of Board and Committee meetings attended by each Director during the year. There were four full Board meetings, including a private meeting of the Directors to evaluate the Manager, two Audit Committee meetings, two Nomination Committee meetings, two Management Engagement Committee meetings and one Remuneration Committee meeting. | Director | Board Meetings Attended | Audit Committee Meetings Attended | Nomination Committee Meetings Attended | Management Engagement Committee Meetings Attended | Remuneration Committee | | --- | --- | --- | --- | --- | --- | | Andrew Robson¹ | 2 | 1 | - | - | - | | Frances Davies | 4 | 2 | 1 | 1 | 1 | | Andrew Impey | 4 | 2 | 1 | 1 | 1 | | Alice Ryder | 4 | 2 | 1 | 1 | 1 | | Gordon Humphries¹ | 4 | 2 | 1 | 1 | 1 | ¹ Retired on 24th November 2020. ² Appointed 1st July 2020. As well as the formal meetings detailed above, the Board meets and communicates frequently by email or telephone to deal with day-to-day matters as they arise. ## Board Committees ### Nomination Committee The Nomination Committee is chaired by Andrew Impey. The Committee consists of all the independent Directors and meets at least annually to ensure that the Board has an appropriate balance of skills and experience to carry out its fiduciary duties and to select and propose suitable candidates for appointment when necessary. The appointment process takes account of the benefits of diversity, including gender. The Board's policy on diversity is set out on page 32. The Committee has a succession plan to refresh the Board in an orderly manner over time. The Committee conducts an annual performance evaluation of the Board, its committees and individual Directors to ensure that all Directors have devoted sufficient time and contributed adequately to the work of the Board and its Committees. The evaluation of the Board considers the balance of experience, skills, independence, corporate knowledge, its diversity, including gender, and how it works together. Questionnaires, drawn up by the Board, with the assistance of the Manager and Lintstock Ltd, a firm of independent consultants, are completed by each Director. The responses are collated and then discussed by the Committee. The evaluation of individual Directors is led by the Chairman. The Senior Independent Director leads the evaluation of the Chairman's performance. ### Remuneration Committee The Remuneration Committee, chaired by Frances Davies, reviews Directors' fees and makes recommendations to the Board as and when appropriate in relation to remuneration policy and implementation. This takes into account the level of fees paid to the directors of the Company's peers and within the investment trust industry generally to ensure that high quality people are attracted and retained. ### Management Engagement Committee During the year the Board established a Management Engagement Committee, chaired by Andrew Impey, which consists of all of the Directors and meets annually to review the performance of the Manager. The Committee conducts a formal evaluation of the Manager on an annual basis. The evaluation includes consideration of the investment strategy and process of the Investment Manager, noting outperformance of the benchmark over the long term, and the quality of support that the Company receives from JPMF. The Committee also reviews the Company's agreements with other major service providers. As a result of the evaluation process, the Board confirms that it is satisfied that the continuing appointment of the Manager is in the interests of shareholders as a whole. DIRECTORS' REPORT | 33 --- CORPORATE GOVERNANCE STATEMENT ## Audit Committee The report of the Audit Committee is set out on pages 36 and 37. ## Terms of Reference The Nomination, Remuneration, Management Engagement and Audit Committees have written terms of reference which define clearly their respective responsibilities, copies of which are available for inspection on request at the Company's registered office, on the Company's website and at the Company's AGM. ## Relations with Shareholders The Board regularly monitors the shareholder profile of the Company. It aims to provide shareholders with a full understanding of the Company's activities and performance and reports formally to shareholders by way of the Annual Report and Financial Statements and the Half Year financial report. This is supplemented by the daily publication, through the London Stock Exchange, of the net asset value of the Company's shares, the weekly publication of the Company's level of gearing and the monthly publication of a Company factsheet. In normal circumstances all shareholders have the opportunity, and are encouraged, to attend the Company's Annual General Meeting at which the Directors and representatives of the Manager are available in person to meet with and answer shareholders' questions. In addition, a presentation is given by the Investment Managers who review the Company's performance. During the year the Company's brokers and the Investment Managers hold regular discussions with shareholders. The Directors are made fully aware of their views. The Chairman and Directors make themselves available as and when required to address shareholder queries. The Directors may be contacted through the Company Secretary whose details are shown on page 85. The Company's Annual Report and Financial Statements are published in time to give shareholders at least 20 working days' notice of the AGM. Shareholders wishing to raise questions in advance of the meeting are encouraged to write to the Company Secretary at the address shown on page 85. A formal process is in place for all letters to the Chairman or other Directors to be forwarded immediately. As part of this process, any feedback from shareholders is also communicated to the Board. Details of the proxy voting position on each resolution will be published on the Company's website shortly after the AGM. ## Risk Management and Internal Control The AIC Code requires the Directors, at least annually, to review the effectiveness of the Company's system of risk management and internal control and to report to shareholders that they have done so. This encompasses a review of all controls, which the Board has identified as including business, financial, operational, compliance and risk management. The Directors are responsible for the Company's system of risk management and internal control which is designed to safeguard the Company's assets, maintain proper accounting records and ensure that financial information used within the business, or published, is reliable. However, such a system can only be designed to manage rather than eliminate the risk of failure to achieve business objectives and therefore can only provide reasonable, but not absolute, assurance against fraud, material misstatement or loss. Since investment management, custody of assets and all administrative services are provided to the Company by JPMF and its associates, the Company's system of risk management and internal control mainly comprises monitoring the services provided by the Manager and its associates, including the operating controls established by them, to ensure that they meet the Company's business objectives. There is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company (see Principal and Emerging risks on pages 21 to 23). This process has been in place for the year under review and up to the date of the approval of the annual report and accounts and it accords with the Financial Reporting Council's guidance. Given the foregoing, and in common with most investment trust companies, the Company does not have an internal audit function of its own. The Manager's internal audit department conducts regular and rigorous reviews of the various functions within its asset management business. Any significant findings that are relevant to the Company and/or the Manager's investment trust business are reported to the Board. The key elements designed to provide effective internal control are as follows: - **Financial Reporting** Regular and comprehensive review by the Board of key investment and financial data, including management accounts, revenue projections, analysis of transactions and performance comparisons. - **Management Agreements** Appointment of a manager and custodian regulated by the Financial Conduct Authority (FCA), whose responsibilities are clearly defined in written agreements. - **Management Systems** The Manager's system of risk management and internal control includes organisational agreements which clearly define the lines of responsibility, delegated authority, control procedures and systems. These are monitored by the Manager's Compliance department which regularly monitors compliance with FCA rules and reports to the Board. - **Investment Strategy** Authorisation and monitoring of the Company's investment strategy and exposure limits by the Board. The Board, either directly or through the Audit Committee, keeps under review the effectiveness of the Company's system of internal control by monitoring the operation of the key operating controls of JPMAM and its associates as follows: JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- CORPORATE GOVERNANCE STATEMENT - reviews the terms of the management agreement and receives regular reports from the Manager's Compliance department; - reviews reports on the internal controls and the operations of its custodian, JPMorgan Chase Bank, which is itself independently reviewed; - the Board reviews every six months a report from the Company's Depositary, Bank of New York Mellon (International) Limited ('BNYM'), which summarises the activities performed by the Depositary during the reporting period; and - the Board reviews every six months an independent report on the internal controls and the operations of JPMF's investment trust department. ## Depositary The Board has appointed BNYM as depositary, with responsibilities for safe keeping of custodial assets and oversight of the records and cash flows. By the means of the procedures set out above, the Board confirms that it has reviewed, and is satisfied with, the effectiveness of the Company's system of internal control for the year ended 31st July 2021, and to the date of approval of this Annual Report and Accounts & Financial Statements. During the course of its review of the system of internal control, the Board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore, a confirmation in respect of necessary actions has not been considered appropriate. ## Corporate Governance and Voting Policy The Company delegates responsibility for voting to JPMAM through the Manager. The following is a summary of the JPMAM's policy statements on corporate governance, voting policy and social and environmental issues, which has been reviewed and noted by the Board. Details on social and environmental issues are included in the Strategic Report on page 20. ## Corporate Governance JPMAM believes that corporate governance is integral to our investment process. As part of its commitment to delivering superior investment performance to our clients, it expects and encourages the companies in which it invests to demonstrate the highest standards of corporate governance and best business practice. JPMAM examines the share structure and voting structure of the companies in which it invests, as well as the board balance, oversight functions and remuneration policy. These analyses then form the basis of JPMAM's proxy voting and engagement activity. ## Proxy Voting JPMAM manages the voting rights of the shares entrusted to it as it would manage any other asset. It is the policy of JPMAM to vote in a prudent and diligent manner, based exclusively on our reasonable judgement of what will best serve the financial interests of our clients. So far as is practicable, JPMAM will vote at all of the meetings called by companies in which we are invested. ## Stewardship/Engagement JPMAM believes effective investment stewardship can materially contribute to helping build stronger portfolios over the long term for our clients. At the heart of JPMAM's approach lies a close collaboration between our portfolio managers, research analysts and investment stewardship specialists to engage with the companies in which JPMAM invests. Regular engagement with JPMAM's investee companies through investment-led stewardship has been a vital component of JPMAM's active management heritage. JPMAM continues to exercise active ownership through regular and ad hoc meetings, and through its voting responsibilities. JPMAM's formal stewardship structure is designed to identify risks and understand its portfolio companies' activities, in order to enhance value and mitigate risks associated with them. JPMAM has identified five main investment stewardship priorities it believes have universal applicability and will stand the test of time: governance; strategy alignment with the long term; human capital management; stakeholder engagement; and climate risk. Within each priority area, JPMAM identified related themes it is seeking to address over a shorter time frame. These themes will evolve as JPMAM engages with companies to understand issues and promote best practice. This combination of long-term priorities and evolving, shorter-term themes provides JPMAM with a structured and targeted framework to guide its investors and investment stewardship teams globally as JPMAM engages with investee companies around the world. JPMAM is also committed to reporting more widely on our activities, including working closely with the Financial Reporting Council ('FRC') on the best practices laid out in the UK Stewardship Code and on embodying those principles. While JPMAM is not yet a signatory to the recently revised 2020 Stewardship Code, its current focus is on ensuring its reporting to the FRC reflects the most robust standards. JPMAM's Voting Policy and Corporate Governance Guidelines are available on request from the Company Secretary or can be downloaded from JPMAM's website: https://am.jpmorgan.com/uk/institutional/corporate-governance, which also sets out its approach to the seven principles of the FRC Stewardship Code, its policy relating to conflicts of interest and its detailed voting record. By order of the Board Lucy Dina, for and on behalf of JPMorgan Funds Limited, Company Secretary 12th October 2021 DIRECTORS' REPORT | 35 --- AUDIT COMMITTEE REPORT ## Audit Committee Report ### Composition and Role The Audit Committee, chaired by Gordon Humphries and whose membership is set out on page 28, meets at least twice each year. The members of the Audit Committee consider that they have the requisite skills and experience to fulfil the responsibilities of the Committee. At least one member of the Committee has recent and relevant financial experience and the Committee as a whole has competence relevant to the sector in which the Company operates. The Committee reviews the actions and judgements of the Manager in relation to the half year and annual accounts financial statements and the Company's compliance with the AIC Code. It examines the effectiveness of the Company's internal control systems. It monitors the Company's key risks and controls relating to those risks. It receives controls reports on the Manager and the custodian and monitors the controls and service levels at the Company's other key third party suppliers. It also receives information from the Manager's Compliance department and reviews the scope and results of the external audit, its cost effectiveness and the independence and objectivity of the external auditor. The Audit Committee has reviewed the independence and objectivity of the auditor and is satisfied that the auditor is independent. At the request of the Board, the Audit Committee provides confirmation to the Board as to how it has discharged its responsibilities. ### Going Concern In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, including its COVID-19 guidance, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Board has, in particular, considered the impact of heightened market volatility since the COVID-19 outbreak but does not believe the Company's going concern status is affected. The Company's assets, the vast majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly under all stress test scenarios reviewed by the Board and reviews of the impact of market factors, structural and financial factors and operating factors. These factors are also referenced in the Company's Long Term Viability Statement on page 24. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. Furthermore, the Directors are satisfied that the Company and its key third party service providers have in place appropriate business continuity plans and confirm they have been able to maintain service levels through the pandemic. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters, including the impact of the coronavirus pandemic, that the Company will continue in operational existence for a period of at least 12 months. The Committee assesses the Company's ability to continue as a going concern to 31st October 2022 and makes recommendations to the Board to approve the going concern concept for preparation of the financial statements. The Company's longer-term viability is considered in the Viability Statement on page 24. ## Financial Statements and Significant Accounting Matters During its review of the Company's financial statements for the year ended 31st July 2021, the Audit Committee considered the following significant issues, including those communicated by the Auditor during their reporting: | Significant issues | How the issues were addressed | | --- | --- | | Valuation, existence and ownership of investments | The valuation of investments is undertaken in accordance with the accounting policies, disclosed in note 1(b) to the accounts on page 57. Controls are in place to ensure that valuations are appropriate and existence is verified through Custodian reconciliations. Given the portfolio comprises smaller companies, the Audit Committee also considers the liquidity of investee company shares, and any impact that it might have on valuation. | | Recognition of Investment Income | The recognition of investment income is undertaken in accordance with accounting policy note 1(d) to the accounts on pages 57 and 58. The Board regularly reviews subjective elements of income such as special dividends and agrees their accounting treatment. | | Compliance with Sections 1158 and 1159 | Approval for the Company as an investment trust under Sections 1158 and 1159 for financial years commencing on or after 1st August 2013 has been obtained and ongoing compliance with the eligibility criteria is monitored by the Board on a regular basis. | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- AUDIT COMMITTEE REPORT | Significant issues | How the issues were addressed | | --- | --- | | The risk that the global economic disruption caused by the ongoing COVID-19 will affect the Company's ability to continue in operation due to the impact on the share price of portfolio companies or the ability of key service providers (including the Manager, the Depositary, the Custodian, the Fund Accountant, the Brokers and the Registrar) to maintain business continuity and continue to provide appropriate service levels | The Audit Committee has reviewed the impact of market volatility related to the continuing COVID-19 pandemic on the Company's portfolio and receives regular updates on portfolio performance from the portfolio manager. The Audit Committee has also reviewed recent portfolio liquidity and updated revenue and expense forecasts in light of the ongoing COVID-19 pandemic and its anticipated impact on portfolio liquidity, revenue and market valuations and considers that the Company's business model remains viable and that the Company has sufficient resources to continue in operation and to meet all liabilities as they fall due. The Audit Committee has further reviewed the Company's borrowing facility and considers that the Company has continually met its financial covenants in respect of these facilities and has a wide margin before any relevant thresholds are reached. The Audit Committee is confident that the Company has appropriate controls and processes in place to manage the principal risks and uncertainties identified above and to maintain its operating model, notwithstanding the global economic challenges posed by the continuing COVID-19. The Audit Committee has received representations and updates from the Company's key service providers in respect of their business continuity plans to address the issues posed by COVID-19 and are confident that all such providers will be able to continue to provide the required level of service for the foreseeable future. | The Board was made fully aware of any significant financial reporting issues and judgements made in connection with the preparation of the financial statements. ## Risk Management and Internal Control The Directors' statement on the Company's system of internal control is set out on pages 34 and 35. ## Auditor Appointment and Tenure The Audit Committee has a primary responsibility for making recommendations to the Board on the reappointment and removal of the external auditor and their fee. Representatives of the Company's Auditors attended the Audit Committee meeting at which the draft Annual Report & Financial Statements were considered and also engage with Directors as and when required. The current audit fee is £32,500 (2020: £25,000). The Committee recognises there have been changes in audit requirements in recent years and further changes are anticipated. It accepts that increases in audit fees in the sector are inevitable. It also recognises the quality of the audit provided by EY. Having reviewed the performance of the external Auditors, including assessing the quality of work, proposed fee, timing of communications and work with the Manager, the Committee considered it appropriate to recommend their reappointment. The Board supported this recommendation which will be put to shareholders at the forthcoming Annual General Meeting. The Board reviews and approves any non-audit services provided by the independent auditors and assesses the impact of any non-audit work on the ability of the auditors to remain independent. Details of the auditors fees paid are disclosed in note 6 on page 61. There were no non-audit fees incurred during the year. Ernst & Young LLP was appointed at the AGM in 2017 following an audit tender. The Company's year ended 31st July 2021 is the current Audit Partner's fourth of a five year maximum term. ## Fair, Balanced and Understandable Having taken all available information into consideration and having discussed the content of the Annual Report with the AIFM, the Investment Managers, the Company Secretary and other third party service providers, the Committee has concluded that the Annual Report for the year ended 31st July 2021, taken as a whole, is fair, balanced and understandable and provides 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. The Board's conclusions in this respect are set out in the Statement of Directors' Responsibilities on page 43. For and on behalf of the Board Gordon Humphries Audit Committee Chairman 12th October 2021 DIRECTORS' REPORT | 37 --- # Directors' Remuneration Report --- DIRECTORS' REMUNERATION REPORT The Board presents the Directors' Remuneration Report for the year ended 31st July 2021, which has been prepared in accordance with the requirements of Section 421 of the Companies Act 2006. An ordinary resolution to approve this report will be put to the members at the forthcoming Annual General Meeting. The law requires the Company's auditor to audit certain of the disclosures provided. Where disclosures have been audited they are indicated as such. The auditor's opinion is included in their report on pages 45 to 51. ## Directors' Remuneration Policy The law requires that the Directors' Remuneration Policy is subject to a triennial binding vote. However, the Board has resolved that for good governance purposes, the policy vote will be put to shareholders every year. Accordingly, a resolution to approve this policy will be put to shareholders at the 2021 AGM. The policy subject to the vote, is set out in full below and is currently in force. The Board's policy for this and subsequent years is that Directors' fees should properly reflect the time spent by the Directors on the Company's business and should be at a level to ensure that candidates of a high calibre are recruited to the Board. The Chairman of the Board, the Chairman of the Audit Committee and the Senior Independent Director are paid higher fees than the other Directors, reflecting the greater time commitment involved in fulfilling those roles. The Remuneration Committee, comprising all Directors, reviews fees on a regular basis and makes recommendations to the Board as and when appropriate. Reviews are based on information provided by the Manager and industry research on the level of fees paid to the directors of the Company's peers and within the investment trust industry generally. The involvement of remuneration consultants has not been deemed necessary as part of this review. The Company has no Chief Executive Officer and no employees and therefore, no consultation of employees is required and there is no employee comparative data to provide in relation to the setting of the remuneration policy for Directors. All of the Directors are non executive. There are no performance related elements to their fees and the Company does not operate any type of incentive, share scheme, award or pension scheme and therefore no Directors receive bonus payments or pension contributions from the Company or hold options to acquire shares in the Company. Directors are not granted exit payments and are not provided with compensation for loss of office. No other payments are made to Directors, other than the reimbursement of any reasonable out of-pocket expenses incurred in attending the Company's business. At the start of the year under review, Directors' fees were paid at the following rates: Chairman £36,000 per annum; Chairman of the Audit Committee £30,000 per annum; Senior Independent Director £26,500 per annum; and the other Directors £25,000 per annum. Following a review, on 1st August 2021, fees were increased to Chairman £38,000 per annum; Chairman of the Audit Committee £31,500 per annum; Senior Independent Director £27,500 per annum and the other Directors £26,000 per annum. The Company's Articles of Association currently stipulate that aggregate fees must not exceed £200,000 per annum and provide that any increase in the maximum aggregate annual limit on Directors' fees requires both Board and shareholder approval. The Company has not sought shareholder views on its remuneration policy. The Remuneration Committee has considered any comments received from shareholders on remuneration policy on an ongoing basis and will take account of these views if appropriate. The Directors do not have service contracts with the Company. The terms and conditions of Directors' appointments are set out in formal letters of appointment which are available for review at the Company's AGM and the Company's registered office. Details of the Board's policy on tenure are set out on pages 32 and 33. The Company's Remuneration policy also applies to new Directors. ## Remuneration Policy Implementation Report The Directors' Remuneration Policy Implementation Report is subject to an annual advisory vote and therefore an ordinary resolution to approve this report will be put to shareholders at the forthcoming AGM. There have been no changes to the policy during this financial year compared with the year ended 31st July 2020 and no changes are proposed for the year ending 31st July 2021. At the AGM held on 24th November 2020, of votes cast, 99.8% of votes cast were in favour of (or granted discretion to the Chairman who voted in favour of) the Resolutions to approve both the Directors' Remuneration Policy and the Directors' Remuneration Report and 0.2% voted against both Resolutions. Details of voting on both the Remuneration Policy and Remuneration Policy Implementation Reports from the 2021 AGM will be given in the annual report for the year ending 31st July 2022. Details of the implementation of the Company's remuneration policy are given below. No advice from remuneration consultants was received during the year under review. DIRECTORS' REMUNERATION REPORT | 39 --- DIRECTORS' REMUNERATION REPORT # Single total figure of remuneration The single total figure of remuneration for the Board as a whole for the year ended 31st July 2021 was £127,500. The single total figure of remuneration for each Director is detailed below together with the prior year comparative. ## Single total figure table¹ | | Total fees² | | | --- | --- | --- | | | 2021 £ | 2020 £ | | Michael Quicke³ | n/a | £11,996 | | Andrew Robson⁴ | £11,984 | £29,667 | | Frances Davies | £26,500 | £26,250 | | Andrew Impey⁵ | £36,000 | £32,313 | | Alice Ryder | £25,000 | £25,000 | | Gordon Humphries⁶ | £28,016 | £2,083 | | Total | £127,500 | £127,309 | ¹ Audited information. Other subject headings for the single figure table as prescribed by regulations are not included because there is nothing to disclose in relation thereto. ² Directors' remuneration comprises an annual fee only. ³ Retired on 2nd December 2019. ⁴ Retired on 24th November 2020. ⁵ Assumed position of Chairman on 2nd December 2019. ⁶ Appointed on 1st July 2020 and assumed position of Audit Committee Chairman on 24th November 2020. # Annual Percentage Change in Directors' Remuneration The following table sets out the annual percentage change in Directors' fees for the year to 31st July 2021: | Directors' Name | Percentage change on prior year | | --- | --- | | Andrew Robson¹ | -59.6% | | Frances Davies | +1.0% | | Andrew Impey² | +11.4% | | Alice Ryder | – | | Gordon Humphries³ | +12.1% | ¹ Retired on 24th November 2020. ² Assumed position of Chairman on 2nd December 2019. ³ Appointed on 1st July 2020 and assumed role of Audit Committee Chairman on 24th November 2020. For ease of comparison, the % increase shown for Mr Humphries assumes that he was a Director for the whole of the financial year ended 31st July 2020. A table showing the total remuneration for the Chairman over the five years ended 31st July 2021 is below: ## Remuneration for the Chairman over the five years ended 31st July 2021 | Year ended 31st July | Fees | Performance related benefits received as a percentage of maximum payable¹ | | --- | --- | --- | | 2021 | £36,000 | n/a | | 2020 | £36,000 | n/a | | 2019 | £35,000 | n/a | | 2018 | £33,000 | n/a | | 2017 | £33,000 | n/a | ¹ In respect of one year period and periods of more than one year. ## Directors' Shareholdings¹ There are no requirements pursuant to the Company's Articles of Association for the Directors to own shares in the Company. The beneficial shareholdings of the Directors who held office at the year-end are detailed below. | Directors' Name | 31st July 2021 | 31st July 2020 or as at date of appointment | | --- | --- | --- | | Ordinary shares | | | | Andrew Robson² | n/a | 18,975 | | Frances Davies | 4,045 | 4,045 | | Andrew Impey | 25,000 | 25,000 | | Alice Ryder | 5,000 | 5,000 | | Gordon Humphries³ | 9,000 | – | | Total | 43,045 | 53,020 | ¹ Audited information. ² Retired on 24th November 2020. ³ Appointed on 1st July 2020. As at the latest practicable date before the publication of this document, there have been no changes to the Directors' shareholdings in the Company. The Directors have no other share interests or share options in the Company and no share schemes are available. In accordance with the Companies Act 2006, a graph showing the Company's share price total return compared with its benchmark, the Numis Smaller Companies plus AIM Index (excluding Investment Companies) over the last ten years, is shown below. The Board believes that this index is the most appropriate for the Company's performance comparison purposes because it most closely reflects the Investment Managers' investment universe. 40 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- DIRECTORS' REMUNERATION REPORT # Ten Year Share Price and Benchmark Total Return Performance to 31st July 2021 Figures have been rebased to 100 from 2011. ![img-13.jpeg](img-13.jpeg) Source: Morningstar. - Share price total return. - Benchmark total return. A table showing actual expenditure by the Company on remuneration and distributions to shareholders for the year and the prior year is below: Expenditure by the Company on remuneration and distributions to shareholders | | Year ended 31st July | | | --- | --- | --- | | | 2021 | 2020 | | Remuneration paid to all Directors | £127,500 | £127,309 | | Distribution to shareholders | | | | - by way of dividend | £4,293,000 | £4,293,000 | | - by way of share repurchases | - | £1,142,000 | For and on behalf of the Board # Andrew Impey Chairman 12th October 2021 DIRECTORS' REMUNERATION REPORT | 41 --- # Statement of Directors' Responsibilities --- STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards), comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that, taken as a whole, the annual report and accounts are fair balanced and understandable and provide the information necessary, for shareholders to assess the Company's performance, business model and strategy, and that they give a true and fair view of the state of affairs of the Company and of the total return or loss of the Company for that period. In preparing these financial statements, the Directors are required to: - select suitable accounting policies and then apply them consistently; - state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements; - make judgments and accounting estimates that are reasonable and prudent; and - prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business. and the Directors confirm that they have done so. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The accounts are published on the www.jpmuksmallercompanies.co.uk website, which is maintained by the Company's Manager. The maintenance and integrity of the website maintained by the Manager is, so far as it relates to the Company, the responsibility of the Manager. The work carried out by the auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditor accepts no responsibility for any changes that have occurred to the Annual Report since it was initially presented on the website. The Annual Report is prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions. Under applicable law and regulations the Directors are also responsible for preparing a Strategic Report, a Directors' Report and a Directors' Remuneration Report that comply with that law and those regulations. The Strategic Report and the Directors' report include a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face. Each of the Directors, whose names and functions are listed in Directors' Report confirm that, to the best of their knowledge: - the Company's financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and - the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. The Board confirms that it is satisfied that the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. For and on behalf of the Board Andrew Impey Chairman 12th October 2021 STATEMENT OF DIRECTORS' RESPONSIBILITIES | 43 --- # Independent Auditor's Report --- INDEPENDENT AUDITOR'S REPORT # INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC (PREVIOUSLY KNOWN AS JPMORGAN SMALLER COMPANIES INVESTMENT TRUST PLC) ## Opinion We have audited the financial statements of JPMorgan UK Smaller Companies Investment Trust plc ('the Company' and previously known as JPMorgan Smaller Companies Investment Trust plc) for the year ended 31st July 2021 which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes 1 to 23, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice). In our opinion, the financial statements: - give a true and fair view of the Company's affairs as at 31st July 2021 and of its profit for the year then ended; - have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and - have been prepared in accordance with the requirements of the Companies Act 2006. ## Basis for opinion 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 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 sufficient and appropriate to provide a basis for our opinion. ## Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included: - Confirmation of our understanding of the Company's going concern assessment process and engagement with the Directors and the Company Secretary to determine if all key factors were considered in their assessment. - Inspection of the Directors' assessment of going concern, including the revenue forecast, for the period to 31st October 2022 which is at least 12 months from the date these financial statements were authorised for issues. In preparing the revenue forecast, the Company has concluded that it is able to continue to meet its ongoing costs as they fall due. - Review of the factors and assumptions, including the impact of the COVID-19 pandemic, as applied to the revenue forecast and the Directors' liquidity assessment of investments. We considered the appropriateness of the methods used to calculate the revenue forecast and the liquidity assessment and determined, through testing of the methodology and calculations, that the methods, inputs and assumptions utilised were appropriate to be able to make an assessment for the Company. - In relation to the Company's borrowing arrangements, our inspection of the Directors' assessment of the risk of breaching the debt covenants as a result of a reduction in the value of the Company's portfolio. We recalculated the Company's compliance with debt covenants in the scenarios assessed by the Directors and reviewed the Directors' reverse stress testing in order to identify what factors would lead to the Company breaching the financial covenants. - Consideration of the mitigating factors included in the revenue forecast and covenant calculations that are within the control of the Company. We reviewed the Company's assessment of the liquidity of investments held and evaluated the Company's ability to sell those investments to cover the working capital requirements should revenue decline significantly. - Review of the Company's going concern disclosures included in the annual report in order to assess whether the disclosures were appropriate and in conformity with the reporting standards. INDEPENDENT AUDITOR'S REPORT | 45 --- INDEPENDENT AUDITOR'S REPORT Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for the period to 31 October 2022, which is at least twelve months from when the financial statements are authorised for issue. In relation to the Company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company's ability to continue as a going concern. ## Overview of our audit approach | Key audit matters | • Risk of incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue or capital items in the Statement of Comprehensive Income • Risk of incorrect valuation or ownership of the investment portfolio | | --- | --- | | Materiality | • Overall materiality of £3.46 million which represents 1% of shareholders' funds. | ## An overview of the scope of our audit ### Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the Company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the Company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the audit engagement team. ### Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- INDEPENDENT AUDITOR'S REPORT | Risk | Our response to the risk | Key observations communicated to the Audit Committee | | --- | --- | --- | | Incomplete or inaccurate revenue recognition, including the classification of special dividends as revenue or capital in the Statement of Comprehensive Income (as described on page 36 in the Audit Committee's Report and as per the accounting policy set out on page 57). | We have performed the following procedures: | The results of our procedures identified no material misstatement in relation to the risk of incomplete or inaccurate revenue recognition, including classification of special dividends as revenue or capital items in the Statement of Comprehensive Income. | | The total revenue for the year 31st July 2021 was £4.57 million (2020: £3.98 million), consisting primarily of dividend income from listed investments. | We obtained an understanding of the processes and controls surrounding revenue recognition by performing walkthrough procedures. For all dividends received and accrued we recalculated the dividend income by multiplying the investment holdings at the ex-dividend date, traced from the accounting records, by the dividend per share, which was agreed to an independent data source. For a sample of dividends received and all dividends accrued we agreed amounts to bank statements and where applicable, agreed the exchange rates to an external source. | | | The Company received £0.29 million special dividends, all classified as revenue (2020: £0.67 million classified as revenue). | For dividends accrued, we obtained that the investee Company announcements to assess whether the dividend obligations arose prior to 31st July 2021. | | | There is a risk of incomplete or inaccurate recognition of revenue through the failure to recognise proper income entitlements or to apply the appropriate accounting treatment. | To test completeness of recorded income, we tested that expected dividends for each investee Company held during the year had been recorded as income with reference to investee Company announcements obtained from an independent data vendor. | | | In addition to the above, the Directors are required to exercise judgement in determining whether income receivable in the form of special dividends should be classified as 'revenue' or 'capital' in the Statement of Comprehensive Income. | For all investments held during the year, we compared the type of dividends paid with reference to an external data source to identify those which were 'special'. We confirmed nine special dividends, amounting to £0.29 million, were received during the year. We have tested six special dividends, amounting to £0.24 million, by recalculating the amount received and assessing the appropriateness of classification as revenue. | | INDEPENDENT AUDITOR'S REPORT | 47 --- INDEPENDENT AUDITOR'S REPORT | Risk | Our response to the risk | Key observations communicated to the Audit Committee | | --- | --- | --- | | Incorrect valuation or ownership of the investment portfolio (as described on page 36 in the Audit Committee's Report and as per the accounting policy set out on page 57). | We performed the following procedures: | The results of our procedures identified no material misstatement in relation to the risk of incorrect valuation or ownership of the investment portfolio. | | The valuation of the investment portfolio at 31st July 2021 was £377.14 million (2020: £228.05 million) consisting of listed investments. | We obtained an understanding of the processes and controls surrounding investment title and the pricing of listed securities by performing our walkthrough procedures. | | | The valuation of the assets held in the investment portfolio is the key driver of the Company's net asset value and total return. Inappropriate investment pricing, or a failure to maintain proper legal title of the investments held by the Company could have a significant impact on the portfolio valuation and the return generated for shareholders. | For all investments in the portfolio, we compared the market prices and exchange rates applied to an independent pricing source and recalculated the investment valuations as at the year-end. | | | The fair value of listed investments is determined by reference to stock exchange listed market bid prices at close of business on the reporting date. | We inspected the stale pricing reports produced by the Administrator to identify prices that have not changed around the year end and verified whether the listed price is a valid fair value through review of trading activity. | | | | We agreed the Company's investments to the independent confirmations received from the Company's Custodian and Depositary at 31st July 2021. | | In the prior year, our auditor's report included a key audit matter in relation to the impact of COVID-19. The impact of COVID-19 on going concern continued to be relevant to our audit of the Company and we considered this as part of our overall work on going concern which is set out under 'Conclusions relating to going concern'. The other elements of the prior year key audit matter have not been included as a separate key audit matter as it was determined that they did not have a significant impact on our audit strategy for this year's audit. ## Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. ## Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the Company to be £3.46 million (2020: £2.10 million), which is 1% (2020: 1%) of shareholders' funds. We believe that shareholders' funds provide us with materiality aligned to the key measure of the Company's performance. ## Performance materiality The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. On the basis of our risk assessments, together with our assessment of the Company's overall control environment, our judgement was that performance materiality was 75% (2020: 75%) of our planning materiality, namely £2.60 million (2020: £1.57 million). We have set performance materiality at this percentage due to our past experience of the audit that indicates a lower risk of misstatements, both corrected and uncorrected. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- INDEPENDENT AUDITOR'S REPORT Given the importance of the distinction between revenue and capital for the Company we also applied a separate testing threshold for the revenue column of the Statement of Comprehensive Income of £0.17 million (2020: £0.16 million) being our reporting threshold. ## Reporting threshold An amount below which identified misstatements are considered as being clearly trivial. We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.17 million (2020: £0.11 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. ## Other information The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. ## Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: - the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and - the strategic report and directors' reports have been prepared in accordance with applicable legal requirements. ## Matters on which we are required to report by exception In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or directors' report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: - adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or - the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or - certain disclosures of directors' remuneration specified by law are not made; or - we have not received all the information and explanations we require for our audit. INDEPENDENT AUDITOR'S REPORT | 49 --- INDEPENDENT AUDITOR'S REPORT ## Corporate Governance Statement The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Company's compliance with the provisions of the UK Corporate Governance Code specified for our review. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: - Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 57; - Directors' explanation as to its assessment of the Company's prospects, the period this assessment covers and why the period is appropriate set out on page 24; - Directors' statement on fair, balanced and understandable set out on page 37; - Board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 21; - The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 35; and - The section describing the work of the audit committee 36. ## Responsibilities of directors As explained more fully in the directors' responsibilities statement set out on page 43, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. ## Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. ## Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company and management. - We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and determined that the most significant are FRS 102, the Companies Act 2006, the Listing Rules, UK Corporate Governance Code, the Association of Investment Companies' Code and Statement of Recommended Practice, Section 1158 of the Corporation Tax Act 2010 and The Companies (Miscellaneous Reporting) Regulations 2018. We understood how the Company is complying with those frameworks through discussions with the Audit Committee and Company Secretary, and review of Board minutes the Company's documented policies and procedures. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- INDEPENDENT AUDITOR'S REPORT - We assessed the susceptibility of the Company's financial statements to material misstatement, including how fraud might occur by financial statements. We identified a fraud risk with respect to incomplete or inaccurate revenue recognition through incorrect classification of special dividends as revenue or capital items in the Statement of Comprehensive Income. Further discussion of our approach is set out in the key audit matter above. - Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures involved review of the Company Secretary's reporting to the directors with respect to the application of the documented policies and procedures and review of the financial statements to ensure compliance with the reporting requirements of the Company. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report. ## Other matters we are required to address - Following the recommendation from the audit committee, we were appointed by the Company on 28th November 2017 to audit the financial statements for the year ending 31st July 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is four years, covering the years ending 31st July 2018 to 31 July 2021. - The non-audit services prohibited by the FRC's Ethical Standard were not provided to the company and we remain independent of the company in conducting the audit. - The audit opinion is consistent with the additional report to the audit committee. ## Use of our report This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Caroline Mercer (Senior Statutory Auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Edinburgh 12th October 2021 INDEPENDENT AUDITOR'S REPORT | 51 --- # Financial Statements --- STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST JULY 2021 | | Notes | Revenue £'000 | 2021 Capital £'000 | Total £'000 | Revenue £'000 | 2020 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | --- | | Gains on investments held at fair value through profit or loss | 3 | – | 138,923 | 138,923 | – | 6,130 | 6,130 | | Net foreign currency (losses)/gains | | – | (3) | (3) | – | 11 | 11 | | Income from investments | 4 | 4,572 | – | 4,572 | 3,940 | – | 3,940 | | Interest receivable and similar income | 4 | 3 | – | 3 | 40 | – | 40 | | Gross return | | 4,575 | 138,920 | 143,495 | 3,980 | 6,141 | 10,121 | | Management fee | 5 | (635) | (1,481) | (2,116) | (520) | (1,215) | (1,735) | | Other administrative expenses | 6 | (425) | – | (425) | (393) | (66) | (459) | | Net return before finance costs and taxation | | 3,515 | 137,439 | 140,954 | 3,067 | 4,860 | 7,927 | | Finance costs | 7 | (83) | (210) | (293) | (83) | (193) | (276) | | Net return before taxation | | 3,432 | 137,229 | 140,661 | 2,984 | 4,667 | 7,651 | | Taxation | 8 | (14) | – | (14) | (19) | – | (19) | | Net return after taxation | | 3,418 | 137,229 | 140,647 | 2,965 | 4,667 | 7,632 | | Return per share | 9 | 4.38p | 175.82p | 180.20p | 3.80p | 5.98p | 9.78p | A final dividend of 5.7p per share (2020: 5.50p per share) is proposed in respect of the year ended 31st July 2021 amounting to £4,449,000 (2020: £4,293,000). Further information on dividends is given in note 10(a) on page 63. The 'Total' column of this statement is the profit and loss account of the Company and the 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. Net return/(loss) after taxation represents the profit/(loss) for the year and also Total Comprehensive Income. The notes on pages 57 to 72 form an integral part of these financial statements. FINANCIAL STATEMENTS --- STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST JULY 2021 | | Called up share capital £'000 | Share premium £'000 | Capital redemption reserve £'000 | Capital reserves £'000 | Revenue reserve^{1} £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | At 31st July 2019 | 3,981 | 25,895 | 2,903 | 167,440 | 7,521 | 207,740 | | Repurchase of shares into Treasury | — | — | — | (1,142) | — | (1,142) | | Net return | — | — | — | 4,667 | 2,965 | 7,632 | | Dividends paid in the year (note 10) | — | — | — | — | (4,293) | (4,293) | | At 31st July 2020 | 3,981 | 25,895 | 2,903 | 170,965 | 6,193 | 209,937 | | Net return | — | — | — | 137,229 | 3,418 | 140,647 | | Dividends paid in the year (note 10) | — | — | — | — | (4,293) | (4,293) | | At 31st July 2021 | 3,981 | 25,895 | 2,903 | 308,194 | 5,318 | 346,291 | 1 This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors. The notes on pages 57 to 72 form an integral part of these financial statements. 54 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- STATEMENT OF FINANCIAL POSITION AT 31ST JULY 2021 | | Notes | 2021 £'000 | 2020 £'000 | | --- | --- | --- | --- | | Fixed assets | | | | | Investments held at fair value through profit or loss | 11 | 377,140 | 228,054 | | Current assets | 12 | | | | Debtors | | 2,291 | 531 | | Cash and cash equivalents | | 3,077 | 5,025 | | | | 5,368 | 5,556 | | Current liabilities | 13 | | | | Creditors: amounts falling due within one year | | (36,217) | (23,673) | | Net current liabilities | | (30,849) | (18,117) | | Total assets less current liabilities | | 346,291 | 209,937 | | Net assets | | 346,291 | 209,937 | | Capital and reserves | | | | | Called up share capital | 14 | 3,981 | 3,981 | | Share premium | 15 | 25,895 | 25,895 | | Capital redemption reserve | 15 | 2,903 | 2,903 | | Capital reserves | 15 | 308,194 | 170,965 | | Revenue reserve | 15 | 5,318 | 6,193 | | Total shareholders' funds | | 346,291 | 209,937 | | Net asset value per ordinary share | 16 | 443.7p | 269.0p | The financial statements on pages 53 to 72 were approved and authorised for issue by the Directors on 12th October 2021 and signed on their behalf by: Andrew Impey Chairman The notes on pages 57 to 72 form an integral part of these financial statements. The Company is registered in England and Wales No. 2515996. FINANCIAL STATEMENTS --- STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST JULY 2021 | | Notes | 2021 £'000 | 2020 £'000 | | --- | --- | --- | --- | | Net cash outflow from operations before dividends and interest | 17 | (2,566) | (1,994) | | Dividends received | | 4,414 | 4,168 | | Interest received | | 4 | (94) | | Overseas tax recovered | | 29 | – | | Interest paid | | (291) | (346) | | Net cash inflow from operating activities | | 1,590 | 1,734 | | Purchases of investments | | (142,657) | (94,402) | | Sales of investments | | 129,424 | 100,601 | | Net cash (outflow)/inflow from investing activities | | (13,233) | 6,199 | | Dividends paid | | (4,293) | (4,293) | | Repurchase of shares into Treasury | | – | (1,171) | | Litigation expense | | (14) | – | | Fees in relation to aborted CULS issue | | – | (33) | | Repayment of bank loans | | – | (13,000) | | Drawdown of bank loans | | 14,000 | 10,000 | | Net cash inflow/(outflow) from financing activities | | 9,693 | (8,497) | | Decrease in cash and cash equivalents | | (1,950) | (564) | | Cash and cash equivalents at start of year | | 5,025 | 5,589 | | Exchange movements | | 2 | – | | Cash and cash equivalents at end of year | | 3,077 | 5,025 | | Decrease in cash and cash equivalents | | (1,950) | (564) | | Cash and cash equivalents consist of: | | | | | Cash and short-term deposits | | 250 | 303 | | Cash held in JPMorgan Sterling Liquidity Fund | | 2,827 | 4,722 | | Total | | 3,077 | 5,025 | The notes on pages 57 to 72 form an integral part of these financial statements. RECONCILIATION OF NET DEBT | | As at 31st July 2020 £'000 | Cash flows £'000 | Other non-cash charges £'000 | As at 31st July 2021 £'000 | | --- | --- | --- | --- | --- | | Cash and cash equivalents: | | | | | | Cash | 303 | (55) | 2 | 250 | | Cash equivalents | 4,722 | (1,895) | – | 2,827 | | | 5,025 | (1,950) | 2 | 3,077 | | Borrowings | | | | | | Debt due within year | (21,000) | (14,000) | – | (35,000) | | | (21,000) | (14,000) | – | (35,000) | | Total | (15,975) | (15,950) | 2 | (31,923) | 56 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST JULY 2021 1. Accounting policies (a) Basis of accounting The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fair value, and in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ('UK GAAP'), including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' (the 'SORP') issued by the Association of Investment Companies in November 2014, and updated in October 2019. All of the Company's operations are of a continuing nature. The financial statements have been prepared on a going concern basis. In forming this opinion, the directors have considered the potential impact of COVID-19 pandemic on the going concern and viability of the Company, including the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience, particularly in light of COVID-19. The Directors have reviewed the compliance with loan covenants in assessing the going concern and viability of the Company. The Directors have reviewed income and expense projections to 31st October 2022 and the liquidity of the investment portfolio in making their assessment. The policies applied in these financial statements are consistent with those applied in the preceding year. (b) Valuation of investments The Company has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments. The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. The portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy and information is provided internally on that basis to the Company's Board of Directors. Accordingly, upon initial recognition the investments are designated by the Company as held at fair value through profit or loss. They are included initially at fair value which is taken to be their cost, excluding expenses incidental to purchase which are written off to capital at the time of acquisition. Subsequently the investments are valued at fair value, which are quoted bid prices for investments traded in active markets. For investments which are not traded in active markets, unlisted and restricted investments, the Board takes into account the latest traded prices, other observable market data and asset values based on the latest management accounts. All purchases and sales are accounted for on a trade date basis. (c) Accounting for reserves Gains and losses on sales of investments are dealt with in capital reserves within 'Gains and losses on sales of investments'. Increases and decreases in the valuation of investments held at the year end are accounted for in capital reserves within 'Investment holding gains and losses'. The cost of repurchasing ordinary shares including stamp duty and transaction costs are included in the Statement of Changes in Equity and dealt with in capital reserves within 'Gains and losses on sales of investments'. (d) Income Dividends receivable from equity shares are included in revenue on an ex-dividend basis except where, in the opinion of the Board, the dividend is capital in nature, in which case it is included in capital. Special dividends are looked at individually to ascertain the reason behind the payment. This will determine whether they are treated as revenue or capital. Where the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised in revenue. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital. Underwriting commission is recognised in revenue where it relates to shares that the Company is not required to take up. Where the Company is required to take up a proportion of the shares underwritten, the same proportion of commission received is deducted from the cost of the shares taken up, with the balance taken to revenue. FINANCIAL STATEMENTS --- NOTES TO THE FINANCIAL STATEMENTS ## 1. Accounting policies continued ### (d) Income continued Interest receivable is taken to revenue on an accruals basis. Interest from non-convertible fixed interest debt securities is recognised on an accounts basis using the effective yield basis which takes account of the amortisation of any discount or premium arising on the purchase price, compared to the final maturity value, over the remaining life of the security. ### (e) Expenses All expenses are accounted for on an accruals basis. Expenses are allocated wholly to revenue with the following exceptions: - The management fee is allocated 30% to revenue and 70% to capital, in line with the Board's expected long-term split of revenue and capital return from the Company's investment portfolio; and - Expenses incidental to the purchase and sale of an investment are charged to capital. These expenses are commonly referred to as transaction costs and comprise brokerage commission and stamp duty. Details of transaction costs are given in note 11 on page 64. ### (f) Finance costs Finance costs are accounted for on an accruals basis using the effective interest method. Finance costs are allocated 30% to revenue and 70% to capital, in line with the Board's expected long-term split of revenue and capital return from the Company's investment portfolio. ### (g) Financial instruments Cash and cash equivalents may comprise cash including demand deposits which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Liquidity funds are considered cash equivalents as they are held for cash management purposes as an alternative to cash. Other debtors and creditors do not carry any interest, are short-term in nature and are accordingly stated at nominal value, with debtors reduced by appropriate allowances for estimated irrecoverable amounts. Bank loans are classified as financial liabilities measured at amortised cost. They are initially measured at proceeds net of direct issue costs and subsequently measured at amortised cost using the effective interest method. Interest payable on the bank loan is accounted for on an accruals basis in the Statement of Comprehensive Income. ### (h) Taxation Current tax is provided at the amounts expected to be paid or received. Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. Deferred tax liabilities are recognised for all taxable timing differences but deferred tax assets are only recognised to the extent that it is more likely than not that taxable profits will be available against which those timing differences can be utilised. Tax relief is allocated to expenses charged to capital on the 'marginal basis'. On this basis, if taxable income is capable of being entirely offset by revenue expenses, then no tax relief is transferred to the capital column. Deferred tax is measured at the tax rate which is expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates that have been enacted or substantively enacted at the balance sheet date and is measured on an undiscounted basis. ### (i) Value added tax ('VAT') Expenses are disclosed inclusive of the related irrecoverable VAT. Recoverable VAT is calculated using the partial exemption method based on the proportion of zero rated supplies to total supplies. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS ## (j) Foreign currency The Company is required to identify its functional currency, being the currency of the primary economic environment in which the Company operates. The Board, having regard to the currency of the Company's share capital and the predominant currency in which its shareholders operate, has determined that sterling is the functional currency. Sterling is also the currency in which the financial statements are presented. Transactions denominated in foreign currencies are converted at actual exchange rates at the date of the transaction. Monetary assets, liabilities and equity investments held at fair value, denominated in foreign currencies at the year end are translated at the rates of exchange prevailing at the year end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included in the Statement of Comprehensive Income as an exchange gain or loss in revenue or capital, depending on whether the gain or loss is of a revenue or capital nature. ## (k) Dividends Dividends are included in the financial statements in the year in which they are approved by shareholders. ## (l) Repurchase of Ordinary shares for cancellation The cost of repurchasing ordinary shares, including the related stamp duty and transactions costs, is charged to 'Capital reserves' and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. The nominal value of ordinary share capital repurchased and cancelled is transferred out of 'Called up share capital' and into 'Capital redemption reserve'. ## (m) Repurchase of shares into Treasury The cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs, is charged to 'Capital reserves' and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. Where shares held in Treasury are subsequently cancelled, the nominal value of those shares is transferred out of 'Called up share capital' and into 'Capital redemption reserve'. Should shares held in Treasury be reissued, the sales proceeds will be treated as a realised profit up to the amount of the purchase price of those shares and will be transferred to capital reserves. The excess of the sales proceeds over the purchase price will be transferred to share premium. ## (n) Share issue costs The costs of issuing shares are charged against the share premium account. ## 2. Significant accounting judgements, estimates and assumptions The preparation of the Company's financial statements on occasion requires the Directors to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance. The Directors do not believe that any accounting judgements or estimates have been applied to this set of financial statements, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities at the balance sheet date. FINANCIAL STATEMENTS | 59 --- NOTES TO THE FINANCIAL STATEMENTS 3. Gains on investments held at fair value through profit or loss | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Realised gains on sales of investments | 46,235 | 6,844 | | Net change in unrealised gains/(losses) on investments | 92,701 | (703) | | Other capital charges | (13) | (11) | | Total capital gains/(losses) on investments held at fair value through profit or loss | 138,923 | 6,130 | 4. Income | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Income from investments | | | | UK dividends | 4,115 | 3,973 | | Overseas dividends | 354 | 72 | | UK interest¹ | 1 | (134) | | Property income distribution | 102 | 29 | | | 4,572 | 3,940 | | Interest receivable and similar income | | | | Interest from liquidity fund | 3 | 40 | | | 3 | 40 | | Total income | 4,575 | 3,980 | ¹ 2020: Includes adjustment relating to holding in Constellation Healthcare Technologies Inc. (Letter of Entitlement). Please see note 11 for further details. 5. Management fee | | Revenue £'000 | 2021 Capital £'000 | Total £'000 | Revenue £'000 | 2020 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Management fee | 635 | 1,481 | 2,116 | 520 | 1,215 | 1,735 | Details of the management fee are given in the Directors' Report on page 29. 60 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS 6. Other administrative expenses | | Revenue £'000 | 2021 Capital £'000 | Total £'000 | Revenue £'000 | 2020 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Directors' fees^{1} | 126 | – | 126 | 127 | – | 127 | | Depositary fees^{2} | 42 | – | 42 | 35 | – | 35 | | Auditor's remuneration for audit services^{3} | 39 | – | 39 | 30 | – | 30 | | Printing costs | 13 | – | 13 | 19 | – | 19 | | Professional fees | 26 | – | 26 | 26 | 66^{4} | 92 | | AIC Subscription | 12 | – | 12 | 15 | – | 15 | | Registrar fees | 15 | – | 15 | 12 | – | 12 | | Postage | 1 | – | 1 | 3 | – | 3 | | Broker fees^{5} | 44 | – | 44 | 44 | – | 44 | | FCA and Stock Exchange fees^{6} | 25 | – | 25 | 17 | – | 17 | | Administrative expenses^{7} | 82 | – | 82 | 65 | – | 65 | | | 425 | – | 425 | 393 | 66 | 459 | 1 Full disclosure is given in the Directors' Remuneration Report on pages 39 to 41. 2 Includes £7,000 (2020: £5,000) irrecoverable VAT. 3 Includes £7,000 (2020: £5,000) irrecoverable VAT. 4 2020: Estimated litigation expense in relation to the Orion Health Corporation and Constellation Healthcare Technologies case. Please see note 13 for further details. 5 Includes £7,000 (2020: £7,000) irrecoverable VAT. 6 Includes £3,000 (2020: £2,000) irrecoverable VAT. 7 Includes £15,000 (2020: £22,000) irrecoverable VAT. 7. Finance costs | | Revenue £'000 | 2021 Capital £'000 | Total £'000 | Revenue £'000 | 2020 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Interest on bank loans and overdrafts | 83 | 194 | 277 | 83 | 193 | 276 | | Loan arrangement fee | – | 16 | 16 | – | – | – | | | 83 | 210 | 293 | 83 | 193 | 276 | 8. Taxation (a) Analysis of tax charge for the year | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Overseas withholding tax | 14 | 19 | | Total tax charge for the year | 14 | 19 | FINANCIAL STATEMENTS --- NOTES TO THE FINANCIAL STATEMENTS ## 8. Taxation continued ### (b) Factors affecting total tax charge for the year The tax charge for the year is lower (2020: lower) than the Company's applicable rate of corporation tax of 19% (2020: 19%). The factors affecting the total tax charge for the year are as follows: | | Revenue £'000 | 2021 Capital £'000 | Total £'000 | Revenue £'000 | 2020 Capital £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Net return/(loss) before taxation | 3,432 | 137,229 | 140,661 | 2,984 | 4,667 | 7,651 | | Net return before taxation multiplied by the Company's applicable rate of corporation tax of 19% (2020: 19%) | 652 | 26,074 | 26,726 | 567 | 887 | 1,454 | | Effects of: | | | | | | | | Non Taxable capital gains | – | (26,395) | (26,395) | – | (1,167) | (1,167) | | Non taxable UK dividends | (782) | – | (782) | (755) | – | (755) | | Non taxable overseas dividends | (67) | – | (67) | (14) | – | (14) | | Unrelieved expenses | 197 | 321 | 518 | 202 | 280 | 482 | | Overseas withholding tax | 14 | – | 14 | 19 | – | 19 | | Total tax charge for the year | 14 | – | 14 | 19 | – | 19 | ### (c) Deferred taxation The Company has an unrecognised deferred tax asset of £9,768,000 (2020: £6,924,000) based on a prospective corporation tax rate of 25% (2020: 19%). In the March 2021 Budget, the Chancellor announced an increase to the main rate of corporation tax to 25% from 1st April 2023. This increase in the standard rate of corporation tax was substantively enacted on 24th May 2021 and became effective from 2nd June 2021. The deferred tax asset has arisen due to the cumulative excess of deductible expenses over taxable income. Given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been recognised in the financial statements. Due to the Company's status as an investment trust company and the intention to continue meeting the conditions required to maintain such status in the foreseeable future, the Company has not provided for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments. ## 9. Return per share | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Revenue return | 3,418 | 2,965 | | Capital return | 137,229 | 4,667 | | Total return | 140,647 | 7,632 | | Weighted average number of shares in issue during the year | 78,051,669 | 78,102,148 | | Revenue return per share | 4.38p | 3.80p | | Capital return per share | 175.82p | 5.98p | | Total return per share | 180.20p | 9.78p | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS # 10. Dividends (a) Dividends paid and proposed | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Dividend paid 2020 final dividend of 5.5p (2019: 5.5p) per share | 4,293 | 4,293 | | Dividend proposed 2021 final dividend proposed of 5.7p (2020: 5.5p) per share | 4,449 | 4,293 | All dividends paid and proposed in the period have been and will be funded from the revenue reserve. The dividend proposed in respect of the year ended 31st July 2021 is subject to shareholder approval at the forthcoming AGM. In accordance with the accounting policy of the Company, this dividend will be reflected in the financial statements for the year ending 31st July 2022. (b) Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 ('Section 1158') The requirements of Section 1158 are considered on the basis of dividends declared in respect of the financial year, shown below. The revenue available for distribution by way of dividend for the year is £3,418,000 (2020: £2,965,000). The revenue reserve after payment of the final dividend will amount to £869,000 (2020: £1,891,000) | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | 2021 final dividend of 5.7p (2020: 5.5p) per share | 4,449 | 4,293 | 11. Investments held at fair value through profit or loss | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Investments listed on a recognised stock exchange | 377,140 | 228,054 | FINANCIAL STATEMENTS --- NOTES TO THE FINANCIAL STATEMENTS ## 11. Investments held at fair value through profit or loss continued | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Opening book cost | 174,242 | 171,135 | | Opening investment holding gains | 53,812 | 54,638 | | Opening valuation | 228,054 | 225,773 | | Movements in the year: | | | | Purchases at cost | 141,223 | 95,031 | | Sales proceeds | (131,073) | (98,768) | | Effective yield adjustment^{1} | – | (123) | | Gains/(losses) on investments held at fair value through profit or loss | 138,936 | 6,141 | | | 377,140 | 228,054 | | Closing book cost | 230,627 | 174,242 | | Closing investment holding gains | 146,513 | 53,812 | | Total investments held at fair value through profit or loss | 377,140 | 228,054 | ¹ 2020: Relates to amortisation of the holding in Constellation Healthcare Technologies Inc. (Letter of Entitlement) calculated using the effective yield method, (see note 1(d)), with the income side being included within UK interest (see note 4). In 2020, the Letter of Entitlement was deemed to have zero value and the likelihood of receiving any income from this was deemed to be highly unlikely. As a result, the effective yield adjustments made in 2019 and 2018 have been reversed in 2020. Transaction costs on purchases during the year amounted to £476,000 (2020: £396,000) and on sales during the year amounted to £92,000 (2020: £75,000). These costs comprise mainly brokerage commission. The company received £131,073,000 (2020: £98,768,000) from investments sold in the year. The book cost of these investments when they were purchased was £84,838,000 (2020: £91,924,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. ## 12. Current assets | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Debtors | | | | Securities sold awaiting settlement | 1,993 | 349 | | Dividends and interest receivable | 285 | 171 | | Other debtors | 13 | 11 | | | 2,291 | 531 | The Directors consider that the carrying amount of debtors approximates to their fair value. ## Cash and cash equivalents Cash and cash equivalents comprise bank balances, short-term deposits and liquidity funds. The carrying amount of these represents their fair value. 64 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS ## 13. Current liabilities | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Creditors: amounts falling due within one year | | | | Bank loan | 35,000 | 21,000 | | Securities purchased awaiting settlement | 1,057 | 2,491 | | Loan interest payable | 23 | 21 | | Litigation expense accrual | 52 | 66 | | Other creditors | 85 | 95 | | | 36,217 | 23,673 | The Directors consider that the carrying amount of creditors falling due within one year approximates to their fair value. The Company had a £40.0 million loan facility with Scotiabank at the year-end which expired on 1st October 2021. Under the terms of this agreement the Company had the option to increase the facility commitment amount to £50.0 million in two increments of £5.0 million subject to certain conditions, or the equivalent in euros, at an interest rate of the interbank offer rate for the relevant currency and period, plus a margin per annum, plus the mandatory cost, which is the lender's cost of complying with certain regulatory requirements of the Bank of England, FCA, or the European Central Bank. At 31st July 2021, the Company had £35.0 million drawn down on the facility at an interest rate of 0.7%. (2020: 0.6%). This facility with Scotiabank was renewed on 1st October 2021 for two years (maturing on 1st October 2023) at an increased amount of £50.0 million (with a £10.0 million accordion facility) and a margin of 1.14% per annum for Sterling compounded rate loans. The Company is one of numerous defendants in a litigation brought by the liquidating trustee of Orion HealthCorp, Inc. and related debtors (the 'Plaintiff') arising from a merger in early 2017 involving Constellation Healthcare Technologies ('CHT'). The Company was a shareholder of CHT at the time of the merger and received monies as a result of the merger. Although there are no allegations of wrongdoing made against the Company, the Plaintiff seeks to recover the monies distributed to the Company (and other CHT shareholders) as a result of the merger. The Company and the Plaintiff have entered into a Settlement Agreement which will settle all claims asserted against the Company by the Plaintiff and will not result in any payment by the Company to the Plaintiff and is expected to have a negligible impact on the Company's Net Asset Value. The legal costs incurred by the Company in connection with the litigation amount to £66,000. During the year £14,000 (2020: nil) was paid and the remaining £52,000 (2020: £66,000) has been accrued in the current financial year and is disclosed in the note above. ## 14. Called up share capital | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Ordinary shares allotted and fully paid: | | | | Opening balance of 78,051,669 (2020: 78,565,886) shares of 25p each | 3,903 | 3,929 | | Repurchase of nil (2020: 514,217) shares of 5p each into Treasury | – | (26) | | Subtotal of 78,051,669 (2020: 78,051,669) shares excluding shares of 5p each held in Treasury | 3,903 | 3,903 | | 1,559,741 (2020: 1,559,741) shares of 5p each held in Treasury | 78 | 78 | | Closing balance of 79,611,410 (2020: 79,611,410) shares including shares of 5p each held in Treasury | 3,981 | 3,981 | Further details of transactions in the Company's shares are given in the Strategic Report on page 20. FINANCIAL STATEMENTS --- NOTES TO THE FINANCIAL STATEMENTS # 15. Capital and reserves | | Called up share capital £'000 | Share premium £'000 | Capital redemption reserve £'000 | Capital reserves | | Revenue reserve¹ £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Gains and losses on sales of investments £'000 | Investment holding gains and losses £'000 | | | | Opening balance | 3,981 | 25,895 | 2,903 | 117,153 | 53,812 | 6,193 | 209,937 | | Net foreign currency losses on cash and cash equivalents | – | – | – | (3) | – | – | (3) | | Realised gains on sale of investments | – | – | – | 46,235 | – | – | 46,235 | | Net change in unrealised gains and losses on investments | – | – | – | – | 92,701 | – | 92,701 | | Management fee and finance costs charged to capital | – | – | – | (1,691) | – | – | (1,691) | | Other capital charges | – | – | – | (13) | – | – | (13) | | Retained revenue for the year | – | – | – | – | – | 3,418 | 3,418 | | Dividend paid in the year | – | – | – | – | – | (4,293) | (4,293) | | Closing balance | 3,981 | 25,895 | 2,903 | 161,681 | 146,513 | 5,318 | 346,291 | ¹ This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors. # 16. Net asset value per share | | 2021 | 2020 | | --- | --- | --- | | Net assets (£'000) | 346,291 | 209,937 | | Number of shares in issue | 78,051,669 | 78,051,669 | | Net asset value per ordinary share | 443.7p | 269.0p | # 17. Reconciliation of net return before finance costs and taxation to net cash outflow from operations before dividends and interest | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Net return before finance costs and taxation | 140,954 | 7,927 | | Less capital return before finance costs and taxation | (137,439) | (4,860) | | (Increase)/decrease in accrued income and other debtors | (116) | 114 | | Decrease in accrued expenses | (18) | (1) | | Effective Interest Rate (EIR) Adjustment¹ | – | 123 | | Management fee charged to capital | (1,481) | (1,215) | | Tax on unfranked investment income | (43) | (19) | | Dividends received | (4,414) | (4,168) | | Interest received | (4) | 94 | | Realised (loss)/gain on foreign exchange transactions | (5) | 11 | | Net cash outflow from operations before dividends and interest | (2,566) | (1,994) | ¹ 2020: Relates to amortisation of the holding in Constellation Healthcare Technologies Inc. (Letter of Entitlement) (see note 11). As this was a non-cash item, it was removed for the preparation of the Statement of Cash Flows. 66 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS ## 18. Contingent liabilities and capital commitments At the balance sheet date there were no contingent liabilities or capital commitments (2020: nil). ## 19. Transactions with the Manager and related parties Details of the management contract are set out in the Directors' Report on page 29. The management fee payable to the Manager for the year was £2,116,000 (2020: £1,735,000) of which £nil (2020: £nil) was outstanding at the year end. During the year £nil, including VAT, was payable to (2020: £nil) the Manager for the administration of savings scheme products, of which £nil (2020: £nil) was outstanding at the year end. Included in administration expenses in note 6 on page 61 are safe custody fees amounting to £4,000 (2020: £4,000) payable to JPMorgan Chase of which £3,000 (2020: £1,000) was outstanding at the year end. The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm's length. The commission payable to JPMorgan Securities Limited for the year was £2,000 (2020: £nil) of which £nil (2020: £nil) was outstanding at the year end. The Company also holds cash in the JPMorgan Sterling Liquidity Fund, which is managed by JPMorgan. At the year end this was valued at £2.8 million (2020: £4.7 million). Interest amounting to £3,000 (2020: £40,000) was receivable during the year of which £nil (2020: £nil) was outstanding at the year end. Handling charges on dealing transactions amounting to £13,000 (2020: £11,000) were payable to JPMorgan Chase during the year of which £10,000 (2020: £2,000) was outstanding at the year end. At the year end, total cash of £250,000 (2020: £303,000) was held with JPMorgan Chase. A net amount of interest of £nil (2020: £nil) was receivable by the Company during the year from JPMorgan Chase of which £nil (2020: £nil) was outstanding at the year end. Full details of Directors' remuneration and shareholdings can be found on page 40 and in note 6 on page 61. ## 20. Disclosures regarding financial instruments measured at fair value The fair value hierarchy disclosures required by FRS 102 are given below. The Company's financial instruments within the scope of FRS 102 that are held at fair value comprise its investment portfolio. The investments are categorised into a hierarchy consisting of the following three levels: (1) The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date (2) Inputs other than quoted prices included within Level 1 that are observable (i.e.: developed using market data) for the asset or liability, either directly or indirectly (3) Inputs are unobservable (i.e.: for which market data is unavailable) for the asset or liability Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. Details of the valuation techniques used by the Company are given in note 1(b) on page 57. All of the Company's investments are categorised as Level 1 (2020: same). FINANCIAL STATEMENTS | 67 --- NOTES TO THE FINANCIAL STATEMENTS ## 21. Financial instruments' exposure to risk and risk management policies As an investment trust, the Company invests in equities for the long term so as to secure its investment objective stated on the 'Features' page. In pursuing this objective, the Company is exposed to a variety of financial risks that could result in a reduction in the Company's net assets or a reduction in the profits available for dividends. These financial risks include market risk (comprising interest rate risk and other price risk), liquidity risk and credit risk. The Directors' policy for managing these risks is set out below. The Company Secretary, in close cooperation with the Board and the Manager, coordinates the Company's risk management policy. The objectives, policies and processes for managing the risks and the methods used to measure the risks that are set out below, have not changed from those applying in the comparative year. The Company's financial instruments are as follows: - investments in equity and preference shares of UK companies, which are held in accordance with the Company's investment objective; - cash held within a liquidity fund; - short-term debtors, creditors and cash arising directly from its operations; and - loan facilities, the purpose of which are to finance the Company's operations. ## (a) Market risk The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises two elements - interest rate risk and other price risk. Information to enable an evaluation of the nature and extent of these two elements of market risk is given in parts (i) and (ii) of this note, together with sensitivity analyses where appropriate. The Board reviews and agrees policies for managing these risks and these policies have remained unchanged from those applying in the comparative year. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. ### (i) Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits, the liquidity fund and the interest payable on variable rate borrowings when interest rates are reset. #### Management of interest rate risk The Company does not normally hold significant cash balances. Short term borrowings are used when required. The Company may finance part of its activities through borrowings at levels approved and monitored by the Board. The possible effects on cash flows that could arise as a result of changes in interest rates are taken into account when the Company borrows on the floating rate loan facility. However, amounts drawn down on this facility are for short-term periods and therefore there is limited exposure to interest rate risk. #### Interest rate exposure The exposure of financial assets and liabilities to floating interest rates using the year end figures, giving cash flow interest rate risk when rates are reset, is shown below. | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Exposure to floating interest rates | | | | JPMorgan Sterling Liquidity Fund | 2,827 | 4,722 | | Cash and short-term deposits | 250 | 303 | | Bank loan | (35,000) | (21,000) | | Total exposure | (31,923) | (15,975) | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS Interest receivable on cash balances, or paid on overdrafts, is at a margin below or above LIBOR respectively (2020: same). The target interest earned on the JPMorgan Sterling Liquidity Fund is the 7 day Sterling London Interbank Bid Rate. Details of the bank loan are given in note 13 on page 65. ## Interest rate sensitivity The following table illustrates the sensitivity of the return after taxation for the year and net assets to a 1% (2020: 1%) increase or decrease in interest rates in regards to the Company's monetary financial assets and financial liabilities. This level of change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivity analysis is based on the Company's monetary financial instruments held at the balance sheet date with all other variables held constant. | | 2021 | | 2020 | | | --- | --- | --- | --- | --- | | | 1% increase in rate £'000 | 1% decrease in rate £'000 | 1% increase in rate £'000 | 1% decrease in rate £'000 | | Statement of Comprehensive Income - return after taxation | | | | | | Revenue return | (74) | 74 | (13) | 13 | | Capital return | (245) | 245 | (147) | 147 | | Total return after taxation for the year | (319) | 319 | (160) | 160 | | Net assets | (319) | 319 | (160) | 160 | In the opinion of the Directors, this sensitivity analysis may not be representative of the Company's future exposure to interest rate changes due to fluctuations in the level of cash balances, cash held in the liquidity fund and amounts drawn down on the Company's loan facility. ## (ii) Other price risk Other price risk includes changes in market prices, other than those arising from interest rate risk or currency risk, which may affect the value of equity investments. ## Management of other price risk The Board meets on at least four occasions each year to consider the asset allocation of the portfolio and the risk associated with particular industry sectors. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance with the Company's investment objectives and seeks to ensure that individual stocks meet an acceptable risk/reward profile. ## Other price risk exposure The Company's total exposure to changes in market prices at 31st July comprises its holdings in equity investments as follows: | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Investments held at fair value through profit or loss | 377,140 | 228,054 | The above data is broadly representative of the exposure to other price risk during the current and comparative year. FINANCIAL STATEMENTS --- NOTES TO THE FINANCIAL STATEMENTS ## 21. Financial instruments' exposure to risk and risk management policies continued ### (a) Market risk continued #### (ii) Other price risk continued ##### Concentration of exposure to market price risk An analysis of the Company's investments is given on page 17. This shows that all of the investments' value is in the UK. Accordingly there is a concentration of exposure to that country. However, it should be noted that an investment may not be entirely exposed to the economic conditions in its country of domicile or of listing. ##### Other price risk sensitivity The following table illustrates the sensitivity of the return after taxation for the year and net assets to an increase or decrease of 10% (2020: 10%) in the market value of equity investments. This level of change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivity analysis is based on the Company's equities, adjusting for changes in the management fee but with all other variables held constant. | | 2021 | | 2020 | | | --- | --- | --- | --- | --- | | | 10% increase in fair value £'000 | 10% decrease in fair value £'000 | 10% increase in fair value £'000 | 10% decrease in fair value £'000 | | Statement of Comprehensive Income - return after taxation | | | | | | Revenue return | (74) | 74 | (48) | 48 | | Capital return | 37,542 | (37,542) | 22,694 | (22,694) | | Total return after taxation for the year | 37,468 | (37,468) | 22,646 | (22,646) | | Net assets | 37,468 | (37,468) | 22,646 | (22,646) | ### (b) Liquidity risk This is the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities that are settled by delivering cash or another financial asset. #### Management of the risk Liquidity risk is not significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding requirements if necessary. Short-term flexibility is achieved through the use of overdraft facilities. The Board's policy is for the Company to remain fully invested in normal market conditions and that short-term borrowings be used to manage short-term liabilities and working capital requirements and to gear the Company as appropriate. #### Liquidity risk exposure Contractual maturities of the financial liabilities, based on the earliest date on which payment can be required are as follows: JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTES TO THE FINANCIAL STATEMENTS | | 2021 | | | | | --- | --- | --- | --- | --- | | | Three months or less £'000 | More than three months but no more than one year £'000 | More than one year £'000 | Total £'000 | | Creditors: | | | | | | Securities purchased awaiting settlement | 1,057 | – | – | 1,057 | | Other creditors | 85 | – | – | 85 | | Bank loan including interest | 35,067 | – | – | 35,067 | | Litigation expense accrual | 52 | – | – | 52 | | | 36,261 | – | – | 36,261 | | | 2020 | | | | | --- | --- | --- | --- | --- | | | Three months or less £'000 | More than three months but no more than one year £'000 | More than one year £'000 | Total £'000 | | Creditors: | | | | | | Securities purchased awaiting settlement | 2,491 | – | – | 2,491 | | Other creditors | 95 | – | – | 95 | | Bank loan including interest | 21,078 | – | – | 21,078 | | Litigation expense accrual | 66 | – | – | 66 | | | 23,730 | – | – | 23,730 | The liabilities shown above represent future contractual payments and therefore may differ from the amounts shown in the Statement of Financial Position. ## (c) Credit risk Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transaction could result in loss to the Company. ## Management of credit risk ### Portfolio dealing The Company invests in markets that operate Delivery Versus Payment ('DVP') settlement. The process of DVP mitigates the risk of losing the principal of a trade during the settlement process. The Manager continuously monitors dealing activity to ensure best execution, a process that involves measuring various indicators including the quality of trade settlement and incidence of failed trades. Counterparty lists are maintained and adjusted accordingly. ### Cash and cash equivalents Counterparties are subject to regular credit analysis by the Manager and deposits can only be placed with counterparties that have been approved by JPMAM's Counterparty Risk Group. The Board regularly reviews the counterparties used by the Manager. ### Exposure to JPMorgan Chase JPMorgan Chase Bank, N.A. is the custodian of the Company's assets. The Company's assets are segregated from JPMorgan Chase's own trading assets. Therefore these assets are designed to be protected from creditors in the event that JPMorgan Chase Bank, N.A. were to cease trading. The Depositary, Bank of New York Mellon (International) Limited, is responsible for the safekeeping of all custodial assets of the Company and for verifying and maintaining a record of all other assets of the Company. However, no absolute guarantee can be given on the protection of all the assets of the Company. FINANCIAL STATEMENTS --- NOTES TO THE FINANCIAL STATEMENTS ## 21. Financial instruments' exposure to risk and risk management policies continued ### (c) Credit risk continued #### Credit risk exposure The amounts shown in the Statement of Financial Position under debtors and cash and cash equivalents represent the maximum exposure to credit risk at the current and comparative year ends. ### (d) Fair values of financial assets and financial liabilities All financial assets and liabilities are either included in the Statement of Financial Position at fair value or the carrying amount is a reasonable approximation of fair value. ## 22. Capital management policies and procedures The Company's debt and capital structure comprises the following: | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Debt: | | | | Bank loan | 35,000 | 21,000 | | Equity: | | | | Called up share capital | 3,981 | 3,981 | | Reserves | 342,310 | 205,956 | | Total debt and equity | 381,291 | 230,937 | The Company's capital management objectives are to ensure that it will continue as a going concern and to maximise the income and capital return to its equity shareholders through an appropriate level of gearing. The Board's policy is to limit gearing within the range of 10% net cash to 15% geared. | | 2021 £'000 | 2020 £'000 | | --- | --- | --- | | Investments held at fair value through profit or loss | 377,140 | 228,054 | | Net assets | 346,291 | 209,937 | | Gearing | 8.9% | 8.6% | The Company does not have any external capital requirements. The Board, with the assistance of the Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: - the planned level of gearing, which takes into account the Manager's views on the market; - the need to buy back equity shares for cancellation, which takes into account the share price discount or premium; and - the opportunity for issues of new shares. ## 23. Subsequent events The Directors have evaluated the period since the year end and have not noted any subsequent events deemed necessary to report. 72 | JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- Regulatory Disclosures --- REGULATORY DISCLOSURES # ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE ('AIFMD') DISCLOSURES (UNAUDITED) ## Leverage For the purposes of the Alternative Investment Fund Managers Directive ('AIFMD'), leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and is calculated on a gross and a commitment method in accordance with AIFMD. Under the gross method, exposure represents the sum of the Company's positions without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated after certain hedging and netting positions are offset against each other. The Company's maximum and actual leverage levels at 31st July 2021 are shown below: | | Gross Method | Commitment Method | | --- | --- | --- | | Leverage exposure | | | | Maximum limit | 175% | 175% | | Actual | 110% | 110% | JPMorgan Funds Limited (the 'Management Company') is the authorised manager of JPMorgan UK Smaller Companies Investment Trust plc (the 'Company') and is part of the J.P. Morgan Chase & Co. group of companies. In this section, the terms 'J.P. Morgan' or 'Firm' refer to that group, and each of the entities in that group globally, unless otherwise specified. This section of the annual report has been prepared in accordance with the Alternative Investment Fund Managers Directive (the 'AIFMD'), the European Commission Delegated Regulation supplementing the AIFMD, and the 'Guidelines on sound remuneration policies' issued by the European Securities and Markets Authority under the AIFMD. The information in this section is in respect of the most recent complete remuneration period (the 'Performance Year') as at the reporting date. This section has also been prepared in accordance with the relevant provisions of the Financial Conduct Authority Handbook (FUND 3.3.5). ## Remuneration Policy A summary of the Remuneration Policy currently applying to the Management Company (the 'Remuneration Policy Statement') can be found at https://am.jpmorgan.com/gb/en/asset-management/gim/per/legal/emea-remuneration-policy. This Remuneration Policy Statement includes details of how remuneration and benefits are calculated, including the financial and non-financial criteria used to evaluate performance, the responsibilities and composition of the Firm's Compensation and Management Development Committee, and the measures adopted to avoid or manage conflicts of interest. A copy of this policy can be requested free of charge from the Management Company. The Remuneration Policy applies to all employees of the Management Company, including individuals whose professional activities may have a material impact on the risk profile of the Management Company or the Alternative Investment Funds it manages (the 'AIFMD Identified Staff'). The AIFMD Identified Staff include members of the Board of the Management Company (the 'Board'), senior management, the heads of relevant Control Functions, and holders of other key functions. Individuals are notified of their identification and the implications of this status on at least an annual basis. JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- REGULATORY DISCLOSURES The Board reviews and adopts the Remuneration Policy on an annual basis, and oversees its implementation, including the classification of AIFMD Identified Staff. The Board last reviewed and adopted the Remuneration Policy that applied for the 2020 Performance Year in June 2020 with no material changes and was satisfied with its implementation. ## Quantitative Disclosures The table below provides an overview of the aggregate total remuneration paid to staff of the Management Company in respect of the 2020 Performance Year and the number of beneficiaries. These figures include the remuneration of all staff of JP Morgan Asset Management (UK) Ltd (the relevant employing entity) and the number of beneficiaries, both apportioned to the Management Company on an Assets Under Management ('AUM') weighted basis. Due to the Firm'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. However, for context, the Management Company manages 30 Alternative Investment Funds (with 5 sub-funds) and 2 UCITS (with 40 sub-funds) as at 31st December 2020, with a combined AUM as at that date of £21.4 billion and £22.5 billion respectively. | | Fixed remuneration | Variable remuneration | Total remuneration | Number of beneficiaries | | --- | --- | --- | --- | --- | | All staff of the Management Company (US$’000s) | 19,241 | 11,862 | 31,103 | 139 | The aggregate 2020 total remuneration paid to AIFMD Identified Staff was USD $63,330,000, of which USD $5,620,000 relates to Senior Management and USD $57,710,000 relates to other Identified Staff.¹ ¹ Since 2017, the AIFMD identified staff disclosures includes employees of the companies to which portfolio management has been formally delegated in line with the latest ESMA guidance. ## SECURITIES FINANCING TRANSACTIONS REGULATION ('SFTR') DISCLOSURES (UNAUDITED) The Company does not engage in Securities Financing Transactions (as defined in Article 3 of Regulation (EU) 2015/2365, securities financing transactions include repurchase transactions, securities or commodities lending and securities or commodities borrowing, buy-selling back transactions or sell-buy back transactions and margin lending transactions) or Total Return Swaps. Accordingly, disclosures required by Article 13 of the Regulation are not applicable for the year ended 31st July 2021. REGULATORY DISCLOSURES | 75 --- # Shareholder Information --- NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the thirty-first Annual General Meeting of JPMorgan UK Smaller Companies Investment Trust plc will be held at 60 Victoria Embankment, London EC4Y 0JP at 3.00 p.m. on Tuesday, 23rd November 2021 for the following purposes. 1. To receive the Directors' Report, the Annual Accounts and the Independent Auditor's Report for the year ended 31st July 2021. 2. To approve the Directors' Remuneration Policy. 3. To approve the Directors' Remuneration Report for the year ended 31st July 2021. 4. To approve a final dividend of 5.7p per Ordinary share. 5. To reappoint Frances Davies a Director of the Company. 6. To reappoint Gordon Humphries a Director of the Company. 7. To reappoint Andrew Impey a Director of the Company. 8. To reappoint Alice Ryder a Director of the Company. 9. To reappoint Ernst & Young LLP as Auditor of the Company and to authorise the Directors to determine their remuneration. ## Special Business To consider the following resolutions: ### Authority to allot new shares – Ordinary Resolution 10. THAT the Directors of the Company be and they are hereby generally and unconditionally authorised (in substitution of any authorities previously granted to the Directors) pursuant to and in accordance with Section 551 of the Companies Act 2006 (the 'Act') to exercise all the powers of the Company to allot relevant securities (within the meaning of Section 551 of the Act) up to an aggregate nominal amount of £390,258, representing approximately 10% of the Company's issued share capital (excluding Treasury shares) as at the date of this notice provided that this authority shall expire at the conclusion of the AGM of the Company to be held in 2022 unless renewed at a general meeting prior to such time, save that the Company may before such expiry make offers, agreements or arrangements which would or might require relevant securities to be allotted after such expiry and so that the Directors of the Company may allot relevant securities in pursuance of such offers, agreements or arrangements as if the authority conferred hereby had not expired. ### Authority to disapply pre-emption rights on allotment of new shares – Special Resolution 11. THAT subject to the passing of Resolution 10 set out above, the Directors of the Company be and they are hereby empowered pursuant to Sections 570 and 573, of the Companies Act 2006 (the 'Act') to allot equity securities (within the meaning of Section 560 of the Act) pursuant to the authority conferred by Resolution 10 or by way of a sale of Treasury shares as if Section 561(1) of the Act did not apply to any such allotment or sale, provided that this power shall be limited to the allotment or sale of equity securities for cash up to an aggregate nominal amount of £390,258, representing approximately 10% of the issued share capital as at the date of this notice at a price of not less than the net asset value per share and shall expire, upon the expiry of the general authority conferred by Resolution 10 above, save that the Company may before such expiry make offers, agreements or arrangements which would or might require equity securities to be allotted after such expiry and so that the Directors of the Company may allot equity securities in pursuance of such offers, agreements or arrangements as if the power conferred hereby had not expired. ### Authority to repurchase the Company's shares – Special Resolution 12. THAT the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with Section 701 of the Companies Act 2006 (the 'Act') to make market purchases (within the meaning of Section 693 of the Act) of its issued shares on such terms and in such manner as the Directors may from time to time determine. ## PROVIDED ALWAYS THAT (i) the maximum number of ordinary shares hereby authorised to be purchased shall be 11,699,945, or if less, that number of Ordinary shares which is equal to 14.99% of the Company's issued share capital (less shares held in Treasury) as at the date of the passing of this resolution; (ii) the minimum price which may be paid for an Ordinary share shall be 5 pence; (iii) the maximum price which may be paid for a share shall be an amount equal to the highest of: (a) 105% of the average of the middle market quotations for an Ordinary share taken from and calculated by reference to the London Stock Exchange Daily SHAREHOLDER INFORMATION | 77 --- NOTICE OF ANNUAL GENERAL MEETING Official List for the five business days immediately preceding the day on which the Share is purchased; or (b) the price of the last independent trade; or (c) the highest current independent bid; (iv) any purchase of shares will be made in the market for cash at prices below the prevailing net asset value per share (as determined by the Directors); (v) the authority hereby conferred shall expire on 22nd May 2023 unless the authority is renewed at the Company's AGM in 2022 or at any other general meeting prior to such time; and (vi) the Company may make a contract to purchase shares under the authority hereby conferred prior to the expiry of such authority which contract will or may be executed wholly or partly after the expiry of such authority and may make a purchase of shares pursuant to any such contract. ## Adoption of New Articles of Association – Special Resolution 13. THAT the Articles of Association produced to the meeting and signed by the Chairman of the meeting for the purposes of identification be approved and adopted as the Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association with effect from the conclusion of the meeting. By order of the Board Lucy Dina, for and on behalf of JPMorgan Funds Limited, Company Secretary 12th October 2021 ## Notes These notes should be read in conjunction with the notes on the reverse of the proxy form. 1. If law or Government guidance so requires at the time of the Meeting, the Chairman of the Meeting will limit, in his sole discretion, the number of individuals in attendance at the Meeting. In addition, the Company may still impose entry restrictions on certain persons wishing to attend the AGM in order to secure the orderly and proper conduct of the Meeting. 2. A member entitled to attend and vote at the Meeting may appoint another person(s) (who need not be a member of the Company) to exercise all or any of his rights to attend, speak and vote at the Meeting. A member can appoint more than one proxy in relation to the Meeting, provided that each proxy is appointed to exercise the rights attaching to different shares held by him. However, please note that, in the light of the ongoing COVID-19 pandemic and associated Government guidance, it may be the case that your vote will not be counted where a proxy other than the Chairman of the Meeting is appointed as additional third parties may not be permitted entry to the meeting. 3. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Your proxy could be the Chairman, another director of the Company or another person who has agreed to attend to represent you. Details of how to appoint the Chairman or another person(s) as your proxy or proxies using the proxy form are set out in the notes to the proxy form. If a voting box on the proxy form is left blank, the proxy or proxies will exercise his/their discretion both as to how to vote and whether he/they abstain(s) from voting. Your proxy must attend the Meeting for your vote to count. Appointing a proxy or proxies does not preclude you from attending the Meeting and voting in person. However, please note that in the current circumstances, your vote may not be counted where a proxy other than the Chairman of the Meeting is appointed as additional third parties may not be permitted entry to the meeting. 4. Any instrument appointing a proxy, to be valid, must be lodged in accordance with the instructions given on the proxy form no later than 3.00 p.m. two business days prior to the meeting (ie. excluding weekends and bank holidays). 5. You may change your proxy instructions by returning a new proxy appointment. The deadline for receipt of proxy appointments (see above) also applies in relation to amended instructions. Any attempt to terminate or amend a proxy appointment received after the relevant deadline will be disregarded. Where two or more valid separate appointments of proxy are received in respect of the same share in respect of the same Meeting, the one which is last received (regardless of its date or the date of its signature) shall be treated as replacing and revoking the other or others as regards that share; if the Company is unable to determine which was last received, none of them shall be treated as valid in respect of that share. 6. To be entitled to attend and vote at the Meeting (and for the purpose of the determination by the Company of the number of votes they may cast), members must be entered on the Company's register of members as at 6.30 p.m. two business days prior to the Meeting (the 'specified time'). If the Meeting is adjourned to a time not more than 48 hours after the specified time applicable to the original Meeting, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for the purpose of determining the number of votes they may cast) at the adjourned Meeting. If however the Meeting is adjourned for a longer period then, to be so entitled, members must be entered on the Company's register of members as at 6.30 p.m. two business days prior to the adjourned Meeting or, if the Company gives notice of the adjourned Meeting, at JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- NOTICE OF ANNUAL GENERAL MEETING the time specified in that notice. Changes to entries on the register after this time shall be disregarded in determining the rights of persons to attend or vote at the Meeting or adjourned Meeting. 7. Entry to the Meeting will be restricted to shareholders and their proxy or proxies, with guests admitted only by prior arrangement. 8. A corporation, which is a shareholder, may appoint an individual(s) to act as its representative(s) and to vote in person at the Meeting (see instructions given on the proxy form). In accordance with the provisions of the Companies Act 2006 (as amended by the Shareholder Rights Directive 2009, each such representative(s) may exercise the same powers as the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares. It is therefore no longer necessary to nominate a designated corporate representative. However, please note that, in the light of the COVID-19 pandemic and associated Government guidance, including the rules on physical distancing and limitations on public gatherings, it is unlikely that your vote will be counted where a representative other than the Chairman of the Meeting is appointed as additional third parties are unlikely to be permitted entry to the meeting. Representatives should bring to the Meeting evidence of their appointment, including any authority under which it is signed. 9. Members that satisfy the thresholds in Section 527 of the Companies Act 2006 can require the Company to publish a statement on its website setting out any matter relating to: (a) the audit of the company's accounts (including the auditor's report and the conduct of the audit) that are to be laid before the AGM; or (b) any circumstances connected with an auditor of the company ceasing to hold office since the previous AGM; which the members propose to raise at the meeting. The Company cannot require the members requesting the publication to pay its expenses. Any statement placed on the website must also be sent to the Company's Auditor no later than the time it makes its statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required to publish on its website pursuant to this right. 10. 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. 11. 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. 12. A copy of this notice has been sent for information only to persons who have been nominated by a member to enjoy information rights under Section 146 of the Companies Act 2006 (a 'Nominated Person'). The rights to appoint a proxy can not be exercised by a Nominated Person: they can only be exercised by the member. However, a Nominated Person may have a right under an agreement between him and the member by whom he was nominated to be appointed as a proxy for the Meeting or to have someone else so appointed. If a Nominated Person does not have such a right or does not wish to exercise it, he may have a right under such an agreement to give instructions to the member as to the exercise of voting rights. 13. In accordance with Section 311A of the Companies Act 2006, the contents of this notice of meeting, details of the total number of shares in respect of which members are entitled to exercise voting rights at the AGM, the total voting rights members are entitled to exercise at the AGM and, if applicable, any members' statements, members' resolutions or members' matters of business received by the Company after the date of this notice will be available on the Company's website www.jpmuksmallercompanies.co.uk 14. The register of interests of the Directors and connected persons in the share capital of the Company is available for inspection at the Company's registered office during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted). It will also be available for inspection at the AGM. No Director has any contract of service with the Company. 15. You may not use any electronic address provided in this Notice of Meeting to communicate with the Company for any purposes other than those expressly stated. 16. As an alternative to completing a hard copy Form of Proxy/Voting Direction Form, you can appoint a proxy or proxies electronically by visiting www.sharevote.co.uk. You will need your Voting ID, Task ID and Shareholder Reference Number (this is the series of numbers printed under your name on the Form of Proxy/Voting Direction Form). Alternatively, if you have already registered with Equiniti Limited's online portfolio service, Shareview, you can submit your Form of Proxy at www.shareview.co.uk. Full instructions are given on both websites. 17. As at 11th October 2021 (being the latest business day prior to the publication of this Notice), the Company's issued share capital (excluding Treasury shares) consists of 78,051,669 Ordinary shares of 5 pence each, carrying one vote each. Therefore the total voting rights in the Company are 78,051,669. 18. A copy of the proposed new articles of association of the Company, together with a copy showing all of the proposed changes to the existing articles of association, will be available for inspection on the Company's website, www.jpmuksmallercompanies.co.uk, and at the offices of J.P. Morgan Asset Management, 60 Victoria Embankment, London EC4Y 0JP between the hours of 9.00am and 5.00pm (Saturdays, Sundays and public holidays excepted), from the date of the AGM Notice until the close of the AGM, and will also be available for inspection at the venue of the AGM from 15 minutes before and during the AGM. ## Electronic appointment - CREST members CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the Meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. See further instructions on the proxy form. SHAREHOLDER INFORMATION | 79 --- APPENDIX TO NOTICE OF ANNUAL GENERAL MEETING # Summary of the principal amendments to the Company's Articles of Association Set out below is a summary of the principal amendments which will be made to the Company's Existing Articles through the adoption of the New Articles if Resolution 13 to be proposed at the AGM is approved by shareholders. This summary is intended only to highlight the principal amendments to the Existing Articles. It is not intended to be comprehensive and cannot be relied upon to identify amendments or issues which may be of interest to all shareholders. This summary is not a substitute for reviewing the full terms of the New Articles which will be available for inspection on the Company's website, www.jpmuksmallercompanies.co.uk, and at the offices of J.P. Morgan Asset Management, 60 Victoria Embankment, London EC4Y 0JP between the hours of 9.00am and 5.00pm (Saturdays, Sundays and public holidays excepted), from the date of the AGM Notice until the close of the AGM, and will also be available for inspection at the venue of the AGM from 15 minutes before and during the AGM. # Virtual and hybrid shareholder meetings The New Articles permit the Company to hold shareholder meetings on a virtual basis, whereby shareholders are not required to attend the meeting in person at a physical location but may instead attend and participate using electronic means. A shareholder meeting may be virtual-only if attendees participate only by way of electronic means. While the New Articles (if adopted) would permit shareholder meetings to be conducted using wholly electronic means, the Directors have no intention of holding a virtual-only meeting if it can be reasonably avoided. The Board is committed to ensuring that future general meetings (including AGMs) incorporate a physical meeting when law and regulation permits and where shareholders can meet with the Board face to face. The potential to hold a general meeting through wholly electronic means is intended as a solution to be adopted as a contingency to ensure the continued smooth operation of the Company in extreme operating circumstances where physical meetings are prohibited or cannot reasonably be held. Nothing in the New Articles will prevent the Company from holding physical shareholder meetings. # Payment of dividends from capital The proposed New Articles allow for the payment of dividends from the Company's realised capital profits. The Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012 removed the requirement that the articles of association of an investment company must prohibit the distribution of capital profits. In compliance with the previous statutory regime, the Company currently has provisions in its Existing Articles which expressly prohibit the distribution of capital profits. In the light of the amended statutory rules and in order to provide the Board with increased flexibility in relation to the payment of dividends in the future, the Board no longer considers it appropriate to have such a prohibition in the Company's articles and therefore proposes that it is removed. The proposed New Articles therefore reflect this change and remove all references to the prohibition of the distribution of capital profits. The Investment Manager remains positive about the dividend generation from the Company's investments and the Board does not presently intend to change its approach to the payment of dividends by utilising this new power to pay dividends out of the Company's realised capital profits. However, the Board may seek to use this power in the future where it considers it is in the best interests of shareholders to do so. # International tax regimes requiring the exchange of information The Board is proposing to include provisions in the New Articles to provide the Company with the ability to require shareholders to co-operate in respect of the exchange of information in order to comply with the Company's international tax reporting obligations. The Hiring Incentives to Restore Employment Act 2010 of the United States of America (commonly known as the Foreign Account Tax Compliance Act) and all associated regulations and official guidance ('FATCA') imposes a system of information reporting on certain entities including foreign financial institutions such as the Company following the enactment of the UK International Tax Compliance (United States of America) Regulations 2013 on 1st September 2013 (as replaced by the International Tax Compliance Regulations 2015 (the 'Regulations')). The Existing Articles are being amended to provide the Company with the ability to require shareholders to co-operate with it in ensuring that the Company is able to comply with its obligations under the Regulations in order to avoid being deemed to be a 'Nonparticipating Financial Institution' for the purposes of FATCA and consequently having to pay withholding tax to the US Internal JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- APPENDIX TO NOTICE OF ANNUAL GENERAL MEETING Revenue Service. The Existing Articles will also be amended to ensure that (i) the Company will not be liable for any monies that become subject to a deduction or withholding relating to FATCA, as such liability would be to the detriment of shareholders as a whole and (ii) the Company has the ability to require shareholders to co-operate and provide further information in respect of the broader obligations under the OECD (Organisation for Economic Co-operation and Development) Common Reporting Standard for Automatic Exchange of Financial Account Information. ## The Alternative Investment Fund Managers Directive (2011/61/EU) ('AIFMD') as implemented in the UK The Board is proposing to take this opportunity to make amendments to the Existing Articles in response to the AIFMD and all applicable rules and regulations implementing that Directive in the UK. The proposed new provisions are as follows: (i) The Existing Articles will be amended to provide that the net asset value per share of the Company will be calculated at least annually and be disclosed to shareholders from time to time in such manner as may be determined by the Board. The amendment will have no bearing on current practice and simply articulates the minimum requirements of the AIFMD as implemented in the UK. (ii) The AIFMD as implemented in the UK requires that prior to any new or existing investor making an investment in the Company, certain prescribed information is to be made available to them. Therefore, the New Articles will include language with the effect that such information shall be made available to prospective and existing shareholders in such manner as may be determined by the Board from time to time (including, in certain cases, on the Company's website or by electronic notice). (iii) The New Articles stipulate that the valuation of the Company's assets will be performed in accordance with prevailing accounting standards, in line with guidance from the Financial Conduct Authority. This reflects best practice, has no bearing on current practice and simply articulates the minimum requirements of the AIFMD as implemented in the UK. (iv) The Existing Articles will be amended to provide that the Company's annual report and accounts may be prepared either in accordance with generally accepted accounting principles of the United Kingdom or such other international accounting standards as may be permitted under English law. The amendment will have no bearing on current practice and simply articulates the minimum requirements of the AIFMD as implemented in the UK. ## Minor amendments The Board is also taking the opportunity to make some additional minor or technical amendments to the Existing Articles, including: (i) providing the Directors with the ability to postpone general meetings of the Company; (ii) the inclusion of a procedure in the event an insufficient number of Directors are re-elected at an annual general meeting of the Company; (iii) clarifying that the consideration (if any) received by the Company upon the sale of any share which is forfeited by a shareholder pursuant to the New Articles will belong to the Company; (iv) simplifying the procedure in relation to the untraced shareholders procedure by removing the requirement for the Company to publish newspaper advertisements and clarifying that the consideration (if any) received by the Company upon the sale of any share pursuant to the untraced shareholder provisions will belong to the Company; (v) allowing the Company to pay dividends through bank transfers instead of by way of cheques with the further ability to retain cash payments where bank details are not provided by a shareholder; and (vi) removing the provisions relating to subscription shares as these are no longer relevant. These changes reflect modern best practice and are intended to relieve certain administrative burdens on the Company. SHAREHOLDER INFORMATION | 81 --- GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES ('APMs') (UNAUDITED) ## Return to Shareholders (APM) Total return to shareholders, on a last traded price to last traded price basis, assuming that all dividends received were reinvested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend. | Total return calculation | Page | Year ended 31st July 2021 | Year ended 31st July 2020 | | | --- | --- | --- | --- | --- | | Opening share price (p) | 4 | 232.0 | 229.0 | (a) | | Closing share price (p) | 4 | 408.0 | 232.0 | (b) | | Total dividend adjustment factor^{1} | | 1.020221 | 1.023555 | (c) | | Adjusted closing share price (p) (d = b x c) | | 416.3 | 237.5 | (d) | | Total return to shareholders (e = d / a - 1) | | 79.4% | 3.7% | (e) | 1 The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the last traded price quoted at the ex-dividend date. ## Return on Net Assets (APM) Total return on net asset value ('NAV') per share, on a bid value to bid value basis, assuming that all dividends paid out by the Company were reinvested, without transaction costs, into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend. | Total return calculation | Page | Year ended 31st July 2021 | Year ended 31st July 2020 | | | --- | --- | --- | --- | --- | | Opening cum-income NAV per share with debt at par value (p) | 4 | 269.0 | 264.4 | (a) | | Closing cum-income NAV per share debt at par value (p) | 4 | 443.7 | 269.0 | (b) | | Total dividend adjustment factor^{1} | | 1.018875 | 1.020359 | (c) | | Adjusted closing cum-income NAV per share (p) (d = b x c) | | 452.1 | 274.5 | (d) | | Total return on net assets (e = d / a - 1) | | 68.1% | 3.8% | (e) | 1 The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the cum-income NAV at the ex-dividend date. ## Net asset value per share (APM) The value of the Company's net assets (total assets less total liabilities) divided by the number of ordinary shares in issue. Please see note 16 on page 66 for detailed calculations. ## Benchmark return Total return on the benchmark, on a closing-market value to closing-market value basis, assuming that all dividends received were reinvested, without transaction costs, in the shares of the underlying companies at the time the shares were quoted ex-dividend. The benchmark is a recognised index of stocks which should not be taken as wholly representative of the Company's investment universe. The Company's investment strategy does not follow or 'track' this index and consequently, there may be some divergence between the Company's performance and that of the benchmark. ## Share Price Discount/Premium to Net Asset Value ('NAV') per Ordinary Share (APM) If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. The discount is shown as a percentage of the NAV per share. The opposite of a discount is a premium. It is more common for an investment trust's shares to trade at a discount than at a premium (page 4). JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES ('APMs') (UNAUDITED) ## Gearing/(Net cash) (APM) Gearing represents the excess amount above shareholders' funds of total investments, expressed as a percentage of the shareholders' funds. If the amount calculated is negative, this is shown as a 'net cash' position. | Gearing calculation | Page | Year ended 31st July 2021 £'000 | Year ended 31st July 2020 £'000 | | | --- | --- | --- | --- | --- | | Investments held at fair value through profit or loss | 55 | 377,140 | 228,054 | (a) | | Net assets | 55 | 346,291 | 209,937 | (b) | | Gearing (c = [a / b] - 1) | | 8.9% | 8.6% | (c) | ## Ongoing charges (APM) The ongoing charges represent the Company's management fee and all other operating expenses excluding finance costs payable, expressed as a percentage of the average of the daily cum-income net assets during the year and is calculated in accordance with guidance issued by the Association of Investment Companies. | Ongoing charges calculation | Page | Year ended 31st July 2021 £'000 | Year ended 31st July 2020 £'000 | | --- | --- | --- | --- | | Management Fee | 53 | 2,116 | 1,735 | | Other administrative expenses | 53 | 425 | 459 | | less: one-off expense | | — | (66) | | Total management fee and other administrative expenses | | 2,541 | 2,128 | | Average daily cum-income net assets | | 278,319 | 211,217 | | Ongoing Charges (c = a / b) | | 0.91% | 1.01% | ## Performance attribution Analysis of how the Company achieved its recorded performance relative to its benchmark. ## Performance Attribution Definitions: ### Stock/Sector selection Measures the effect of investing in securities/sectors to a greater or lesser extent than their weighting in the benchmark, or of investing in securities which are not included in the benchmark. ### Gearing/(net cash) Measures the impact on returns of borrowings or cash balances on the Company's relative performance. ### Management fee/Other expenses The payment of fees and expenses reduces the level of total assets, and therefore has a negative effect on relative performance. ### Repurchase of shares Measures the enhancement to net asset value per share of buying back the Company's shares for cancellation, or repurchases into Treasury, at a price which is less than the Company's net asset value per share. SHAREHOLDER INFORMATION | 83 --- WHERE TO BUY J.P. MORGAN INVESTMENT TRUSTS You can invest in a J.P. Morgan investment trust through the following: 1. Via a third party provider Third party providers include: AJ Bell You Invest Barclays Smart Investor Charles Stanley Direct EQi Fidelity Personal Investing Halifax Share Dealing Hargreaves Lansdown Interactive Investor Please note this list is not exhaustive and the availability of individual trusts may vary depending on the provider. These websites are third party sites and J.P. Morgan Asset Management does not endorse or recommend any. Please observe each site's privacy and cookie policies as well as their platform charges structure. The Board encourages all of its shareholders to exercise their rights and notes that many specialist platforms provide shareholders with the ability to receive company documentation, to vote their shares and to attend general meetings, at no cost. Please refer to your investment platform for more details, or visit the Association of Investment Companies' ('AIC') website at www.theaic.co.uk/aic/shareholder-voting-consumer-platforms for information on which platforms support these services and how to utilise them. 2. Through a professional adviser Professional advisers are usually able to access the products of all the companies in the market and can help you find an investment that suits your individual circumstances. An adviser will let you know the fee for their service before you go ahead. You can find an adviser at unbiased.co.uk You may also buy investment trusts through stockbrokers, wealth managers and banks. To familiarise yourself with the Financial Conduct Authority (FCA) adviser charging and commission rules, visit fca.org.uk Be ScamSmart Investment scams are designed to look like genuine investments Spot the warning signs Have you been: - contacted out of the blue - promised tempting returns and told the investment is safe - called repeatedly, or - told the offer is only available for a limited time? If so, you might have been contacted by fraudsters. Avoid investment fraud 1 Reject cold calls If you've received unsolicited contact about an investment opportunity, chances are it's a high risk investment or a scam. You should treat the call with extreme caution. The safest thing to do is to hang up. 2 Check the FCA Warning List The FCA Warning List is a list of firms and individuals we know are operating without our authorisation. 3 Get impartial advice Think about getting impartial financial advice before you hand over any money. Seek advice from someone unconnected to the firm that has approached you. Remember: if it sounds too good to be true, it probably is! Report a Scam If you suspect that you have been approached by fraudsters please tell the FCA using the reporting form at www.fca.org.uk/consumers/report-scam-unauthorised-firm. You can also call the FCA Consumer Helpline on 0800 111 6768 If you have lost money to investment fraud, you should report it to Action Fraud on 0300 123 2040 or online at www.actionfraud.police.uk Find out more at www.fca.org.uk/scamsmart FCA JPMORGAN UK SMALLER COMPANIES INVESTMENT TRUST PLC. ANNUAL REPORT & FINANCIAL STATEMENTS 2021 --- INFORMATION ABOUT THE COMPANY ## FINANCIAL CALENDAR | Financial year end | 31st July | | --- | --- | | Final results announced | October | | Half year end | 31st January | | Half year results announced | March | | Dividend on ordinary shares paid | December | | Annual General Meeting | November/December | ## History The Company was formed in June 1990 as River & Mercantile Smaller Companies Trust plc and raised £25 million by a public offer of shares. Its original policy was to invest in a diversified portfolio of investments in UK and foreign smaller companies. Its name was changed to The Fleming Smaller Companies Investment Trust plc in April 1996, and again in November 2002 to JPMorgan Fleming Smaller Companies Investment Trust plc and JPMorgan Smaller Companies Investment Trust plc in 2006. The Company adopted its present name in September 2021. ## Directors Andrew Impey (Chairman of the Board, Nomination Committee and Management Engagement Committee) Frances Davies (Chairman of the Remuneration Committee), (Senior Independent Director) Gordon Humphries (Chairman of the Audit Committee) Alice Ryder ## Company Numbers Company registration number: 2515996 LEI: 549300PXALXXUMU9JM18 London Stock Exchange SEDOL: 0741600 Bloomberg code: JMI LN ISIN: GB00BF7L8P11 ## Market Information The Company's unaudited net asset value ('NAV') is published daily, via the London Stock Exchange. The Company's shares are listed on the London Stock Exchange. The market price is shown daily in the Financial Times, The Times, The Daily Telegraph, The Scotsman and on the JPMorgan website at www.jpmuksmallercompanies.co.uk, where the share price is updated every 15 minutes during trading hours. ## Website www.jpmuksmallercompanies.co.uk ## Share Transactions The Company's shares may be dealt in directly through a stockbroker or professional adviser acting on an investor's behalf. ## Manager and Company Secretary JPMorgan Funds Limited. ## Company's Registered Office 60 Victoria Embankment London EC4Y 0JP Telephone number: 020 7742 4000 For Company Secretarial and administrative matters please contact Lucy Dina at the above address. ## Depositary The Bank of New York Mellon (International) Limited 1 Canada Square London E14 5AL The Depositary has appointed JPMorgan Chase Bank, N.A. as the Company's custodian. ## Registrars Equiniti Limited Reference 1139 Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone number: 0371 384 2341 Lines open 9.00 a.m. to 5.00 p.m. Monday to Friday. Calls to the helpline will cost no more than a national rate call to a 01 or 02 number. Callers from overseas should dial +44 121 415 0225. Notifications of changes of address and enquiries regarding share certificates or dividend cheques should be made in writing to the Registrar quoting reference 1139. Registered shareholders can obtain further details on their holdings on the internet by visiting www.shareview.co.uk. ## Independent Auditors Ernst & Young LLP Statutory Auditor Atria One 144, Morrison Street Edinburgh EH3 8EX ## Brokers Panmure Gordon One New Change, London, EC4M 9AF aic The Association of Investment Companies A member of the AIC --- GB A125 | 10/21 J.P.Morgan Asset Management # CONTACT 60 Victoria Embankment London EC4Y 0JP Tel +44 (0) 20 7742 4000 Website www.jpmuksmallercompanies.co.uk