Annual Report JPMorgan European Smaller Companies Trust plc › ... ›...

JPMorgan European Smaller Companies Trust plcAnnual Report & Accounts for the year ended 31st March 2015

Annual Report2015

European Smaller 4pp cover_Layout 1 26/05/2015 16:58 Page 2

Features

Contents

1 Financial Results

Strategic Report

2 Chairman’s Statement5 Investment Managers’ Report9 Summary of Results10 Performance11 Ten Year Financial Record12 Ten Largest Investments13 Portfolio Analyses 14 Investment Activity 15 List of Investments17 Business Review

Governance

22 Board of Directors24 Directors’ Report27 Corporate Governance Statement33 Directors’ Remuneration Report36 Statement of Directors’

Responsibilities

37 Independent Auditors’ Report

Financial Statements

42 Income Statement43 Reconciliation of Movements in

Shareholders’ Funds44 Balance Sheet45 Cash Flow Statement46 Notes to the Financial Statements

Shareholder Information

65 Shareholder Analysis66 Notice of Annual General Meeting69 Glossary of Terms and Definitions71 Where to buy J.P. Morgan Investment

Trusts73 Information about the Company

Objective Capital growth from smaller European companies (excluding the United Kingdom).

Investment Policies – To invest in a diversified portfolio of smaller companies in Europe, excluding theUnited Kingdom.

– To manage liquidity and borrowings to increase potential returns to shareholders.The Board’s current gearing policy is to be between 20% net cash and 20% geared.

– To emphasise capital growth rather than income. Therefore shareholders shouldexpect the dividend to vary from year to year.

Risk It should be noted that the Company invests in the shares of smaller companies,which tend to be more volatile than those of larger companies. The Company alsoemploys gearing to generate greater returns. The Company’s shares should thereforebe regarded as carrying greater than average risk.

Further details on investment policies and risk management are given in theBusiness Review section of the Strategic Report on pages 17 to 21.

Benchmark Euromoney Smaller European Companies (ex UK) Total Return Index in sterlingterms.

Capital Structure At 31st March 2015, the Company’s issued share capital comprised 160,147,885ordinary shares of 5p each. There were no shares held in Treasury.

Management Company The Company employs JPMorgan Funds Limited (‘JPMF’ or the ‘Manager’) as itsAlternative Investment Fund Manager. JPMF delegates the management of theCompany’s portfolio to JPMorgan Asset Management (UK) Limited (‘JPMAM’).

Association of Investment Companies (‘AIC’)The Company is a member of the AIC.

Website The Company’s website, can be found at www.jpmeuropeansmallercompanies.co.uk andincludes useful information about the Company, such as daily prices, factsheets andcurrent and historic half year and annual reports.

FCA Regulation of ‘Non-Mainstream Pooled Investments’The Company currently conducts its affairs so that the shares it issues can berecommended by Independent Financial Advisers to ordinary retail investors inaccordance with the rules of the Financial Conduct Authority (‘FCA’) in relation tonon-mainstream investment products, and intends to continue to do so for theforeseeable future.

The shares are excluded from the FCA’s restrictions which apply to non-mainstreaminvestment products because they are shares in an investment trust.


JPMorgan European Smaller Companies Trust plc. Annual Report & Accounts 2015 1

Financial ResultsTotal returns (includes dividends reinvested)

Performance (%)for periods ended 31st March 2015

–1.4%Return to shareholders1

(2014: +43.6%)

3.2pDividend(2014: 2.9p)(2014 comparative restated for stock split)

+0.3%Return on net assets2

(2014: +40.6%)

+0.1%Benchmark return3

(2014: +32.8%)

A glossary of terms and definitions is provided on pages 69 and 70.

1Source: Morningstar.2Source: J.P. Morgan.3Source: Euromoney. The Company’s benchmark is the Euromoney Smaller European Companies (ex UK) Index in sterling terms.

JPMorgan European Smaller Companies – return to shareholders1

JPMorgan European Smaller Companies – return on net assets2

Benchmark return3

–1.4 0.3 0.1

70.8 64.652.4

70.958.0 39.9

239.9 236.2

145.5

–50

0

50

100

150

200

250

10 Year Performance5 Year Performance3 Year Performance1 Year Performance

European Smaller_pp01_21 26/05/2015 09:12 Page 1

JPMorgan European Smaller Companies Trust plc. Annual Report & Accounts 20152

Dear Shareholder,

I am pleased to present the Company’s results for the year ended 31st March 2015.

Performance

During the year ended 31st March 2015, performance was flat with a net asset valuetotal return of +0.3% compared with the benchmark return of +0.1%. Theperformance for the year continues the Company’s long term outperformance of theindex with the three, five and ten years also generating a higher return than theindex.

The performance analysis on page 5 shows that the Investment Managers’ excessreturns came through positive asset allocation, currency effects and the beneficialuse of gearing. A review of the market and more details on performance are given inthe Investment Managers’ Report on pages 5 to 8. The discount of the Company’sshare price to net asset value widened slightly over the year from 11.3% to 13.0% atthe year end, resulting in a total return to shareholders of –1.4%.

Investment Manager

As required under the Alternative Investment Fund Managers Directive (‘AIFMD’),with effect from 1st July 2014, the Company appointed JPMorgan Funds Limited asits Alternative Investment Fund Manager under a new investment managementagreement. Portfolio management is delegated by JPMorgan Funds Limited toJPMorgan Asset Management (UK) Limited, thus retaining Jim Campbell andFrancesco Conte as the Investment Managers to the portfolio. The Company hasappointed Bank of New York Mellon as its Depositary (an appointment also requiredunder the AIFMD) and custody services continue to be provided by JPMorgan.

During the year a new management fee was negotiated. This became effective on1st April 2015 and has been changed from 1.3% of market cap per annum to 1.0% ofnet assets.

Revenue and Dividends

The Company’s objective is to provide shareholders with capital growth, resulting ina variable level of income received by the Company each year. Net revenue return forthe year amounted to £5.5 million (2014: £5.0 million). The Board’s policy is to pay outthe vast majority of the revenue available each year. An interim dividend of 1.2 penceper share was paid on 14th January 2015. Subject to shareholder approval at theforthcoming Annual General Meeting, a final dividend of 2.0 pence per share will bepaid on 15th July 2015 to shareholders on the register at the close of business on5th June 2015 (ex dividend date 4th June 2015).

Share Repurchases

The Board continues to monitor the level of the discount carefully and seeks to useits ability to repurchase shares for cancellation to minimise short term volatility in thelevel of the discount. No shares were repurchased for cancellation during the year.

Strategic ReportChairman’s Statement



Gearing

The Company renewed its existing €50 million revolving credit facility for a furthertwo years in January 2015 at a reduced margin of 0.825%. Total gearing availableremains €100 million and the Investment Managers actively manage the gearinglevel of the Company within a framework set by the Board that is currently between20% net cash and 20% geared. Gearing contributed slightly to performance duringthe year under review.

Corporate Governance

At the Board’s strategy review meeting held during the year, the focus points wereInvestment Strategy and Process and how best to market the Company.

The Nomination and Remuneration Committee evaluated the operations of theBoard, individual Directors and the Chairman during the year, in addition to therebeing an externally facilitated evaluation of the Board as part of the recruitmentexercise for a new Director. In line with corporate governance best practice, allDirectors seek annual reappointment. We were pleased to announce earlier thismonth that Nicholas Smith had been appointed as a Director. He has been appointedto replace Anthony Davidson who will retire from the Board following the AnnualGeneral Meeting. Nicholas Smith is a chartered accountant with a long term careerin investment banking and, from 1993 to 1997 as CFO of Jardine Fleming.

On behalf of the Board and the Investment Managers, I would like to record ourthanks and appreciation to Anthony Davidson for his wise counsel and detailedcommitment to the workings of the Board and in leading the Audit Committeethroughout his tenure as a Director of our Company.

During the year, the Management Engagement Committee undertook a formalreview of the Manager, covering the investment management, company secretarial,administrative and marketing services provided to the Company. The review tookinto account the Manager’s investment performance record, management processes,investment style, resources and risk control mechanisms. I am pleased to report thatthe Board agreed with the Committee’s recommendation that the continuedappointment of the Manager is very much in the interests of shareholders as a whole.

Sub-Division of the Company’s Share Capital

During the year, following shareholder approval, a sub-division of the Company’sshare capital took place on five for one basis which increased the number of ordinaryshares in issue by a factor of five.

Annual General Meeting

The Company’s Annual General Meeting will be held at 60 Victoria Embankment,London EC4Y 0JP, on Friday, 10th July 2015 at 12 noon. The Investment Managers willmake a presentation covering the past year and give their outlook for the currentyear. Shareholders are invited to join the Investment Managers and the Board for



lunch following the Annual General Meeting, when there will be opportunities forinformal questions.

If at any other time you wish to contact the Chairman or any other member of theBoard, please write c/o the Company Secretary at 60 Victoria Embankment, LondonEC4Y 0JP. I can assure you that all correspondence is forwarded accordingly.

Outlook

European economic activity is improving and our Investment Managers report thatcompany profit forecasts are increasing and that valuations of European smallercompanies offer good value but we need to remain vigilant as to how the expectedrise in US interest rates may affect valuations of global equity markets.

Carolan DobsonChairman 26th May 2015

Strategic Report continuedChairman’s Statement continued



Performance attribution for theyear ended 31st March 2015 % %Contributions to total returns

Benchmark total return 0.1

Asset allocation 1.4Stock selection –0.7Gearing/cash effect 0.2Currency effect 0.6

Investment Managers’ contribution 1.5

Portfolio total return 1.6

Management fee/other expenses –1.3

Other effects –1.3

Return on net assets 0.3

Return to shareholders –1.4

Source: Xamin/Datastream/JPMAM/Morningstar.

All figures are on a total return basis.

Performance attribution analyses howthe Company achieved its recordedperformance relative to its benchmark index.

A glossary of terms and definitions isprovided on pages 69 and 70.

Investment Scope and Process

The objective of the Company is to achieve capital growth from a portfolio of quotedsmaller companies in Europe, excluding the United Kingdom. The investmentuniverse is defined at the time of purchase by the countries and market capitalisationrange of the constituents of the benchmark index, the Euromoney Smaller EuropeanCompanies (ex UK) Index. At the end of March 2015 the index consisted of 1,000companies with a market value of between £51 million and £3.3 billion across15 countries. This universe of potential investments is screened using a proprietarymulti-factor model to the results of which we apply fundamental analysis.

The investment process is driven by bottom-up stock selection with a focus onidentifying market leading growth companies with a catalyst for outperformance.Stock position sizing is determined by investment conviction and trading liquidity.Investments are sold when there is a fundamental negative change in businessprospects or the market capitalisation has outgrown significantly the benchmarkindex. The Board has set a liquidity range of between 20% cash and 20% gearingwithin which the Investment Managers may operate. The policy is not to hedge thecurrency exposure of the portfolio’s assets.

Market Review

The two halves of the Company’s 2014/15 year were marked by a sharp contrast inreturns for investors in European equities. The six months to the end of Septemberwitnessed renewed concerns over economic recovery in Europe, with the impact ofsanctions against Russia at the forefront, and the German government ten year bondyield fell to a new low of 0.95%.

However, two factors were at play to support the prospects for European corporateearnings going into 2015. The price of oil had collapsed with Brent Crude falling by halfin the 12 months to March 2015, thereby significantly reducing energy costs across theeconomy. Equally importantly, the value of both the Euro and the Swedish Kroneagainst the US Dollar fell by over 20% in the same period, providing a significant boostto European competitiveness. Combined with January 2015’s European Central Bankannouncement of an 18 month programme of €60 billion per month of quantitativeeasing, this led to a sharp recovery in European equities in the first quarter of 2015.

In the 12 months to March 2015 the large company MSCI Europe (ex UK) Index roseby 10.1% in sterling. Smaller companies failed to rebound as strongly from the firsthalf sell-off and the benchmark Euromoney Smaller European Companies (ex UK)Index increased by only 0.1%.

Portfolio Performance

Over the year, the net asset value total return of the Company performed a touchahead of the benchmark index with a rise of 0.3% thanks largely to a positivecontribution from asset allocation by being underweight Norway as the oil priceslumped. Stock selection was marginally negative; positive contributors includedFrench recreational vehicle manufacturer Trigano on recovering demand, Swisssemiconductor supplier AMS on continued strong operational momentum and Dutchanimal and fish feed producer Nutreco following a takeover bid. Stocks which failedto deliver expected returns included Italian auto components manufacturer Sogefion weak demand in Brazil, Dutch construction group Bam on cost overruns and Swissonline travel business Bravofly Rumbo following a disappointing IPO. Active use ofgearing made a small positive contribution to performance.

Jim Campbell

Francesco Conte

Investment Managers’ Report



Portfolio Positioning

The portfolio retained a bias towards cyclically sensitive sectors and ended the yearwith industrial engineering, household goods and auto components as three of thetop positive active positions. Within engineering, aside from strong performancefrom such holdings as the aforementioned Trigano, in Germany we added worldleading manufacturer of automotive paint systems Duerr and industrial fastenerproducer Norma and in Switzerland we added lock manufacturer Kaba. Newholdings in Italian outerwear brand Moncler and the IPOs in Italian fashion retailerOVS and the Belgian manufacturer of disposable personal hygiene products Ontexled to personal products becoming the second most overweight sector. Oil services,pharmaceuticals and real estate remained the sectors to which the portfolio has themost underweight exposure.

–8% –6% –4% –2% 0% 2% 4% 6% 8% 10%

Pharmaceuticals & Biotechnology

Real Estate Investment &Services

Oil Equipment, Services &Distribution

Gas, Water & Multiutilities

Industrial Transportation

Electronic & Electrical Equipment

Support Services

Software & Computer Services

Automobiles & Parts

Industrial Engineering

–8% –6% –4% –2% 0% 2% 4% 6% 8% 10%

Real Estate Investment &Services

Pharmaceuticals & Biotechnology

Oil Equipment, Services &Distribution

Support Services

Food Producers

Automobiles & Parts

Mobile Telecoms

Household Goods & Construction

Personal Goods

Industrial Engineering

Top 10 Sector Active Positions

March 2014 March 2015

Source: JPMorgan Asset Management, Factset, Euromoney.

Strategic Report continuedInvestment Managers’ Report continued

-10% -6% -2% 2% 6% 10%

Norway

Sweden

Finland

Austria

Denmark

Germany

Greece

France

Netherlands

Italy

–10% –6% –2% 2% 6% 10%

Norway

Spain

Austria

Finland

Portugal

Germany

Sweden

Netherlands

Italy

France

Top 10 Country Active Positions

March 2014 March 2015



The biggest shift at a country level was the move from underweight to overweight inSweden thanks to strong performance from such stocks as the portfolio’s sole realestate holding Fastighets Balder and polymer producer Hexpol and new positions inpackaging materials manufacturer BillerudKorsnas and online gaming softwaredesigner Net Entertainment. France, Italy and the Netherlands remained theportfolio’s most overweight countries.

The level of gearing was reduced from 12.6% at the start of the Company’s year to anet cash position of 2.5% in September, reflecting the weaker market environment.This was redeployed somewhat in the second half of the Company’s year as thestimuli from a weak oil price, more competitive currencies and quantitative easingbecame evident and the portfolio ended the year with gearing of 7.5%.

Cheap

Expensive

–40%

–35%

–30%

–25%

–20%

–15%

–10%

–5%

0%

5%

10%

1996 1999 2002 2005 2008 2011 2014

Small Cap/Large Cap

–1 Stdev

+1 Stdev

Avg.

–1 stdev

+1 stdev

Avg.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1996 1999 2002 2005 2008 2011 2014

European Smaller Company Valuations

Relative Valuations – Price/Book* Absolute Valuations – Price/Book

Source: European Quantitative Research, Citigroup Investment Research. Data as at 31st March 2015. Past performance is not an indication of future performance. *Price-To-Book is aratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest Quarter’s book value per share.

Outlook

For the first time in four years Eurozone companies are receiving upgrades to analystearnings forecasts, according to UBS. Whereas the high energy exposure of the UKmarket has negatively impacted earnings and Switzerland has had to contend withcurrency revaluation, Eurozone companies have benefited from improving leadingindicators, a lower oil price and a more competitive currency. That the earningsupgrade momentum is being driven by cyclical sectors provides support for theportfolio’s positioning. Moreover, the latest ECB Bank Lending Survey points to a2% - 3% credit impulse to GDP. Following growth of 0.9% in 2014, Euroland GDP isforecast by Deutsche Bank to accelerate to 1.5% this year and next, led by Germany,Spain and Ireland, with growth in non-Euroland Sweden forecast at closer to 3.0%.

Smaller companies in Europe are in good shape with strong balance sheets and animproving earnings outlook. The revival of the European IPO market can expect tobe complemented by an increase in merger and acquisition activity. Whilst smallercompany valuations are in-line with their long term average price/book multiple,



Strategic Report continuedInvestment Managers’ Report continued

following a year when large companies enjoyed meaningful outperformance, smallercompanies are now trading towards the lower end of their relative valuation range.The improving economic backdrop provides the opportunity for us to continue tofind high quality businesses with positive operating momentum and attractivevaluations in which to invest.

Jim CampbellFrancesco ConteInvestment Managers 26th May 2015



2015 2014

Total returns for the year ended 31st MarchReturn to shareholders1 –1.4% +43.6%Return on net assets2 +0.3% +40.6%Benchmark return3 +0.1% +32.8%

% change

Net asset value, share price, discount and market data at 31st MarchShareholders’ funds (£’000) 429,727 433,493 –0.9Net asset value per share 268.3p 270.7p4 –0.9Share price 233.5p 240.0p4 –2.7Share price discount to net asset value per share 13.0% 11.3% Shares in issue 160,147,885 160,147,8854 Euromoney Smaller European Companies (ex UK) Index in sterling terms

(capital only)5 394.3 399.7 –1.4

Revenue for the year ended 31st MarchGross revenue return (£’000) 8,586 8,016 +7.1Net revenue available for shareholders (£’000) 5,519 5,047 +9.3Revenue return per share 3.45p 2.99p4 +15.4Dividend per share 3.2p 2.9p4

Gearing at 31st March6 7.5% 12.6%

Ongoing Charges7 1.32% 1.31%


1Source: Morningstar.2Source: J.P. Morgan.3Source: Euromoney. The Company’s benchmark is the Euromoney Smaller European Companies (ex UK) Total Return Index in sterling terms.4Comparative figures for the year ended 31st March 2014 have been restated due to the sub-division of each existing ordinary share of 25p into five ordinary shares of 5p each on23rd July 2014.5Source: Euromoney.6Gearing represents the excess amount above shareholders’ funds of total assets expressed as a percentage of the shareholders’ funds. Total assets include total investments and netcurrent assets/liabilities less cash/cash equivalents and excluding bank loans of less than one year. If the amount calculated is negative, this is shown as a ‘net cash’ position.7Ongoing charges represents the management fee and all other operating expenses, excluding finance costs, expressed as a percentage of the average of the daily net assets duringthe year and are calculated in accordance with guidance issued by the AIC in May 2012.

Summary of Results



Performance Relative to BenchmarkFigures have been rebased to 100 at 31st March 2005

Source: Morningstar.

JPMorgan European Smaller Companies – share price total return.

JPMorgan European Smaller Companies – net asset value total return.1

Benchmark.

Ten Year PerformanceFigures have been rebased to 100 at 31st March 2005

Source: Morningstar/Euromoney.



Benchmark.

50

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250

300

350

20152014201320122011201020092008200720062005

90

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130

140

150

20152014201320122011201020092008200720062005

Strategic Report continuedPerformance

1Based on cum income NAV; prior to 30th June 2008 capital only NAV.




At 31st March 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total assets less current liabilities (£’m) 225.9 373.0 450.2 394.0 270.1 415.9 477.4 342.3 366.0 474.8 473.1

Net asset value per share (p)1 84.4 141.8 175.4 161.6 114.7 181.5 219.5 170.8 195.1 270.7 268.3

Share price (p)1 74.0 127.2 161.0 136.0 92.0 147.0 186.0 144.4 169.8 240.0 233.5

Share price discount (%)2 12.3 10.3 8.2 15.8 19.8 18.7 15.2 15.5 13.0 11.3 13.0

Gearing/(net cash) (%)3 4.9 3.8 (3.8) (1.6) (1.9) 0.2 16.7 7.6 12.9 12.6 7.5

Ongoing Charges (%)4 1.20 1.25 1.21 1.33 1.27 1.21 1.21 1.27 1.26 1.31 1.32

Year ended 31st March

Gross revenue return (£’000) 4,218 4,898 7,767 6,149 10,067 8,431 9,241 10,215 8,481 8,016 8,586

Net revenue/(loss) available forShareholders (£’000) 91 216 1,279 (376) 7,363 2,167 2,369 7,055 6,134 5,047 5,519

Return/(loss) per share (p)1 0.03 0.08 0.50 (0.15) 3.08 0.93 1.07 3.42 3.29 2.99 3.45

Total dividend(s) per share (p)1 — — — — — 0.6 0.8 3.4 3.2 2.9 3.2

Rebased to 100 at 31st March 2005

Share price total return5 100.0 172.0 217.8 183.9 124.5 198.9 252.8 199.0 240.0 344.7 339.9

Net asset value total return5,6 100.0 168.5 208.0 190.6 134.2 212.8 259.4 204.2 238.3 335.2 336.2

Benchmark7 100.0 150.1 178.4 163.3 100.2 175.5 200.4 161.1 184.7 245.3 245.5


1Comparative figures have been restated due to the sub-division of each existing ordinary share of 25p into five ordinary shares of 5p each on 23rd July 2014.2From 2006 onwards discount figures have been sourced from Bloomberg and are calculated using the net asset value at the year end, excluding the current year revenue accountbalance. Prior years have not been restated.3Gearing represents the excess amount above shareholders’ funds of total assets expressed as a percentage of the shareholders’ funds. Total assets include total investments and netcurrent assets/liabilities less cash/cash equivalents and excluding bank loans of less than one year. If the amount calculated is negative, this is shown as a ‘net cash’ position.4Management fee and all other operating expenses, excluding finance costs, expressed as a percentage of the average of the daily net assets during the year (2009-2012: TotalExpense Ratio: Management fee and all other expenses, excluding finance costs, expressed as a percentage of the average of the month end net assets during the year; 2008 andprior years: the average of the opening and closing net assets). Ongoing charges are calculated in accordance with guidance issued by the AIC in May 2012.5Source: Morningstar.6Based on cum income NAV; prior to 30th June 2008 capital only NAV.7Source: Euromoney. The Company’s benchmark is the Euromoney Smaller European Companies (ex UK) Total Return Index in sterling terms.

Ten Year Financial Record



2015 2014 Valuation ValuationCompany Business £’000 %2 £’000 %2

Trigano Recreational vehicle manufacturer 10,964 2.3 9,268 1.9

Husqvarna4 Garden maintenance equipment 9,563 2.0 — —

Drillisch Telecoms service provider 9,485 2.0 11,170 2.4

BillerudKorsnäs4 Containers & Packaging 9,455 2.0 — —

Hexpol3 Rubber & Plastic 9,442 2.0 5,200 1.1

Sunrise Communications4 Telecoms service provider 8,998 1.9 — —

Recordati4 Speciality Pharmaceuticals 8,885 1.9 — —

Viscofan4 Containers & Packaging 8,850 1.9 — —

Kaba4 Access security systems 8,817 1.9 — —

Haulotte Group Material handling manufacturer 8,783 1.9 10,450 2.2

Total5 93,242 19.8

1Excluding the holding in the JPMorgan Euro Liquidity Fund, which is held as an alternative to cash.2Based on total assets less current liabilities of £473.1m (2014: £474.8m).3Not included in the ten largest investments at 31st March 2014.4Not held in the portfolio at 31st March 2014.5At 31st March 2014, the value of the ten largest investments amounted to £106.7m, representing 22.5% of total assets less current liabilities.

Strategic Report continuedTen Largest Investments1

at 31st March



Portfolio Analyses

31st March 2015 31st March 2014 Portfolio Benchmark Portfolio BenchmarkGeographical Analysis %1 % %1 %

France 21.7 13.1 14.9 12.9Italy 16.4 12.5 19.8 12.3Germany 15.0 13.4 14.8 12.9Sweden 15.0 11.4 6.0 10.7Switzerland 9.7 11.0 9.5 10.0Netherlands 7.6 4.2 9.7 4.6Belgium 3.4 4.2 3.3 4.3Spain 3.3 7.7 7.5 7.7Denmark 2.7 3.6 2.9 3.6Finland 2.1 4.9 2.8 4.9Ireland 1.4 1.6 1.0 1.2Norway — 4.7 — 6.0Austria — 3.9 2.1 3.6Greece — 1.9 4.5 2.5Portugal — 1.9 3.8 2.3United States2 — — — 0.4Luxembourg — — — 0.1

Total equities 98.3 100.0 102.6 100.0Liquidity fund 2.1 — 2.1 —Net current liabilities (0.4) — (4.7) —

Total 100.0 100.0 100.0 100.0

1Based on total assets less current liabilities of £473.1m (2014: £474.8m). 2European companies listed in the United States.

31st March 2015 31st March 2014 Portfolio Benchmark Portfolio BenchmarkSector Analysis %1 % %1 %

Industrials 28.0 25.5 38.1 24.1Consumer Discretionary 21.7 14.6 21.0 14.8Information Technology 14.4 7.1 12.6 8.2Financials 9.7 21.0 11.2 19.8Materials 7.9 7.4 7.0 7.6Telecommunication Services 5.9 2.5 5.1 2.3Consumer Staples 5.7 6.0 4.5 6.1Health Care 3.3 9.7 3.1 9.1Utilities 1.7 2.8 — 3.7Energy — 3.4 — 4.3

Total equities 98.3 100.0 102.6 100.0Liquidity fund 2.1 — 2.1 —Net current liabilities (0.4) — (4.7) —

Total 100.0 100.0 100.0 100.0

1Based on total assets less current liabilities of £473.1m (2014: £474.8m).



Value at Changes Value at 31st March 2014 Purchases Sales in value 31st March 2015 £’000 % £’000 £’000 £’000 £’000 %

France 70,679 14.9 97,048 (67,508) 2,306 102,525 21.7

Italy 93,840 19.8 113,665 (122,028) (7,698) 77,779 16.4

Germany 70,443 14.8 135,342 (142,230) 7,482 71,037 15.0

Sweden 28,915 6.0 176,540 (143,847) 9,217 70,825 15.0

Switzerland 44,963 9.5 101,417 (110,932) 10,325 45,773 9.7

Netherlands 46,103 9.7 35,292 (44,830) (500) 36,065 7.6

Belgium 15,554 3.3 20,309 (20,386) 618 16,095 3.4

Spain 35,662 7.5 57,506 (71,626) (6,126) 15,416 3.3

Denmark 13,700 2.9 44,489 (44,273) (1,062) 12,854 2.7

Finland 13,161 2.8 29,832 (32,985) 98 10,106 2.1

Ireland 4,724 1.0 11,320 (8,572) (726) 6,746 1.4

Greece 21,447 4.5 4,830 (21,698) (4,579) — —

Portugal 17,945 3.8 10,014 (24,285) (3,674) — —

Austria 10,208 2.1 4,621 (8,409) (6,420) — —

Norway — — 33,253 (28,396) (4,857) — —

Total portfolio 487,344 102.6 875,478 (892,005) (5,596) 465,221 98.3

Liquidity fund 10,003 2.1 163,216 (160,941) (2,286) 9,992 2.1

Total assets 497,347 104.7 1,038,694 (1,052,946) (7,882) 475,213 100.4

Net current liabilities (22,518) (4.7) — — 20,441 (2,077) (0.4)

Total assets less current liabilities 474,829 100.0 1,038,694 (1,052,946) 12,559 473,136 100.0

Strategic Report continuedInvestment Activityduring the year ended 31st March 2015



ValuationCompany £’000

FranceTrigano 10,964Haulotte Group 8,783Euronext 8,205Rubis 8,087Havas 7,805Saft Groupe 7,538Ubisoft 7,492Teleperformance 7,008Korian-Medica 6,709Faiveley Transport 6,268Alten 5,603Altran Technologies 5,340ID Logistics 4,988Lectra 3,821Sopra 3,267Manitou 647

Total 102,525

ItalyRecordati 8,885OVS 8,765Brembo 8,478Banca Generali 8,301Banca Popolare dell’Emilia Romagna 8,151Geox 8,112Moncler 7,848Cementir 7,157Credito Emiliano 7,031Datalogic 5,051

Total 77,779

GermanyDrillisch 9,485Duerr 8,180Dialog Semiconductor 8,140Stroeer Media 7,773Norma Group 6,756CTS Eventim 5,572Rational 5,376Freenet 4,772Tele Columbus 4,736SAF Holland 4,413GFT Technologies 3,275Wacker Neuson 2,559

Total 71,037


SwedenHusqvarna 9,563BillerudKorsnäs 9,455Hexpol 9,442Loomis 8,341JM 8,238Fastighets Balder 7,825Haldex 5,746Net Entertainment 4,934Indutrade 4,112Granges 3,169

Total 70,825

SwitzerlandSunrise Communications 8,998Kaba 8,817Forbo 8,683Fischer (Georg) 7,348Autoneum 6,633Ascom 5,294

Total 45,773

NetherlandsAalberts Industries 8,098TKH 7,843IMCD 7,627Arcadis 7,446Corbion 5,051

Total 36,065

BelgiumMelexis 8,211Ontex Group 7,884

Total 16,095

SpainViscofan 8,850Bolsas Y Mercados Espanoles 6,566

Total 15,416

DenmarkNNIT 7,523Royal Unibrew 5,331

Total 12,854

List of Investmentsat 31st March 2015




FinlandHuhtamaki 8,094Asiakastieto Group 2,012

Total 10,106

IrelandKingspan 6,746

Total 6,746

Liquidity FundJPM Euro Liquidity Fund 9,992

Total 9,992

Total Investments 475,213

Total investments comprise £465,221,000 in equity shares and£9,992,000 in a liquidity fund.

Strategic Report continuedList of Investments continued



The aim of the Strategic Report is to provide shareholders withthe ability to assess how the Directors have performed theirduty to promote the success of the Company during the yearunder review. To assist shareholders with this assessment, theStrategic Report sets out the structure and objective of theCompany, its investment policies and risk management,investment limits and restrictions, performance and keyperformance indicators, share capital, principal risks and howthe Company seeks to manage those risks, the Company’senvironmental, social and ethical policy and finally its futuredevelopments.

Business of the Company

JPMorgan European Smaller Companies Trust plc is aninvestment trust company that has a premium listing on theLondon Stock Exchange. Its objective is to achieve capitalgrowth from smaller European companies (excluding theUnited Kingdom). In seeking to achieve this objective, theCompany employs JPMorgan Funds Limited ('JPMF’ or the‘Manager’) to actively manage the Company’s assets. TheBoard has determined an investment policy and relatedguidelines and limits as described below.

The Company is subject to UK and European legislation andregulations including UK company law, UK Financial ReportingStandards, the UK Listing, Prospectus, Disclosure andTransparency Rules, taxation law and the Company’s ownArticles of Association.

The Company is an investment company within the meaning ofSection 833 of the Companies Act 2006 and has beenapproved by HM Revenue & Customs as an investment trust(for the purposes of Sections 1158 and 1159 of the CorporationTax Act 2010). As a result the Company is not liable for taxationon capital gains. The Directors have no reason to believe thatapproval will not continue to be retained. The Company is not aclose company for taxation purposes.

Investment Policies and Risk Management

In order to achieve its investment objective and to seek tomanage investment risks, the Company invests in a diversifiedportfolio of smaller companies in Europe, excluding the UnitedKingdom. The investment universe is defined at the time ofpurchase by the countries and market capitalisation range ofthe constituents of the benchmark index which, at the end ofMarch 2015, consisted of 1,000 companies with a market valueof between £51 million and £3.3 billion across fifteen countries.

The Company manages liquidity and borrowings with the aimof increasing potential sterling returns to shareholders. TheCompany borrows in euros in order to hedge the currency risk

in respect of the geared portion of the portfolio. The Companydoes not normally hedge the foreign currency exposure of theremainder of the portfolio.

The investment policy emphasises capital growth rather thanincome and shareholders should therefore expect dividends tovary from year to year.

The Board has set no minimum or maximum limits on thenumber of investments in the portfolio but, in the year underreview, the number of investments ranged betweenapproximately 64 to 93. To gain the appropriate exposure,the Investment Managers are permitted to invest in pooledfunds. JPMF is responsible for management of theCompany’s assets. On a day-to-day basis the assets aremanaged by two investment managers based in London,supported by a 45-strong European equity team.

It should be noted that the Company invests in the shares ofsmaller companies which tend to be more volatile than thoseof larger companies and the Company’s shares shouldtherefore be regarded as having greater than average risk.

Investment Restrictions and Guidelines

The Board seeks to manage the risks facing the Company byimposing various limits and restrictions. The Company mustdemonstrate that it has policies in place to spread investmentrisk.

• The Company will not invest more than 12.5% of its totalassets in any one individual stock at the time of acquisition.

• The Company does not normally invest in unquotedinvestments and to do so requires prior Board approval.

• No more than 25% of the Company’s assets may beinvested in the aggregate of: (i) securities not listed on arecognised exchange; and (ii) holdings in which theCompany has 20% or more of the issued equities. It isunlikely that the Company would invest in companies thatfall into either of these categories and did not do so in theyear under review.

• In accordance with the Listing Rules of the UK ListingAuthority, the Company will not invest more than 15% of itsgross assets in other UK listed investment companies andwill not invest more than 10% of its gross assets incompanies that themselves may invest more than 15% ofgross assets in UK listed investment companies.

• The Board has set a normal gearing range of 20% net cashto 20% geared.

Business Review



• The Company does not normally enter into derivativetransactions and to do so requires prior Board approval.

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

Monitoring of Compliance

Compliance with the Board’s investment restrictions andguidelines is monitored continuously by the Manager and isreported to the Board on a monthly basis.

Performance

In the year ended 31st March 2015, the Company produced atotal return to shareholders of –1.4% and a total return onnet assets of +0.3%. This compares with the return on theCompany’s benchmark index of +0.1%. As at 31st March 2015the value of the Company’s investment portfolio was£475.2 million. The Investment Managers’ Report onpages 5 to 8 includes a review of developments duringthe year as well as information on investment activitywithin the Company’s portfolio.

Total Return, Revenue and Dividends

Gross return for the year amounted to £7.8 million (2014:£136.3 million) and net total return after deducting themanagement fee, other administrative expenses, financecosts and taxation amounted to £0.9 million (2014:£129.6 million). Net revenue return on ordinary activitiesafter taxation for the year amounted to £5.5 million (2014:£5.0 million). An interim dividend of 1.2p per share (2014: 6.0p(or 1.2p when restated for the stock split)) was paid during theyear, costing £1.9 million. The Directors have proposed a finaldividend of 2.0p (2014: 1.7p) per share. This dividend will cost£3,203,000 and the revenue reserve would have amounted to£3,077,000 had the dividend been accounted for in the year.

Key Performance Indicators (‘KPIs’)

At each Board meeting the Directors consider a number ofperformance measures to assess the Company’s success inachieving its objectives. The principal KPIs are performanceagainst the benchmark index, performance against theCompany’s peers, performance attribution, share pricediscount to net asset value per share and ongoing charges.Unless there is a particular reason for the Board to change theKPIs (which would require an explanation to shareholders),consistency is maintained to provide continuity. Further detailsof the principal KPIs are given below:

• Performance against the benchmark index This is the most important KPI by which performance is

judged. Information on the Company’s performance isgiven in the Chairman’s Statement and the InvestmentManagers’ Report on pages 2 and 5.

Performance Relative to Benchmark IndexFigures have been rebased to 100 at 31st March 2005




The benchmark is represented by the grey horizontal line.


Ten Year PerformanceFigures have been rebased to 100 at 31st March 2005

Source: Morningstar/ Euromoney.



Benchmark.


90

100

110

120

130

140

150

20152014201320122011201020092008200720062005

50

100

150

200

250

300

350

20152014201320122011201020092008200720062005

Strategic Report continuedBusiness Review continued



• Performance against the Company’s peers The principal objective is to achieve capital growth relative

to the benchmark. However, the Board also monitors theperformance 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 relativeto its benchmark index, i.e. to understand the impact on theCompany’s relative performance of the variouscomponents such as asset allocation and stock selection.Details of the attribution analysis for the year ended31st March 2015 are given in the Investment Managers’Report on page 5.

• Share price discount to net asset value (‘NAV’) per share The Board recognises that the possibility of a widening

discount can be a key disadvantage of investment truststhat can discourage investors. The Board has for severalyears operated a share repurchase programme whichseeks to address imbalances in supply of and demand forthe Company’s shares within the market and thereby seekto manage the volatility and absolute level of the discountto NAV per share at which the Company’s shares trade. Inthe year ended 31st March 2015, the discount rangedbetween 8.3% and 14.3%, (using month end data, with debtat par value). More information on the Board’s sharerepurchase policy is given in the Chairman’s Statement onpage 2.

Discount

Source: Datastream (month end data).

JPMorgan European Smaller Companies – share price discount to net asset valueper share.

• Ongoing Charges The ongoing charges represent the Company’s

management fee and all other operating expenses,excluding any finance costs, expressed as a percentage ofthe average of the daily net assets during the year. Theongoing charges for the year ended 31st March 2015 were1.32% (2014: 1.31%). Each year the Board reviews ananalysis which shows a comparison of the Company’songoing charges and its main expenses with those ofits peers.

Share Capital

The Company has the authority both to issue new shares, orreissue shares out of Treasury, for cash at a premium to netasset value and to repurchase shares in the market forcancellation (or to be held in Treasury) at a discount to netasset value.

During the year, the Company did not issue or repurchase anyshares and, at the time of writing, has not done so since theCompany’s year end (2014: 1,970,000 ordinary shares of25 pence each repurchased for cancellation and an additional1,782,346 ordinary shares of 25 pence each sharesrepurchased for cancellation as the result of a tender offer).The Company does not have authority to reissue shares fromTreasury at a discount to net asset value and will not seek suchauthority at the forthcoming Annual General Meeting. It willhowever, seek to renew its authority to reissue shares fromTreasury at a premium to net asset value.

Resolutions to renew the authority to issue new shares andreissue shares from Treasury and repurchase shares forcancellation or to be held in Treasury will be put toshareholders at the forthcoming Annual General Meeting. Thefull text of these resolutions is set out in the Notice of Meetingon pages 66 and 67.

During the year a stock split on a five for one basis wasundertaken, resulting in an issued share capital of 160,147,885ordinary shares of 5 pence each. Further details may be foundin the Chairman’s Statement.–25

–20

–15

–10

–5

20152014201320122011201020092008200720062005



Principal Risks

With the assistance of the Manager, the Board has drawn up arisk matrix, which identifies the key risks to the Company.

These key risks fall broadly under the following categories:

• Investment Underperformance and Strategy: Aninappropriate investment strategy, for example excessiveconcentration of investments, asset allocation, the level ofgearing or the degree of portfolio risk, may lead tounderperformance against the Company’s benchmarkindex and peer companies, which may result in theCompany’s shares trading on a wider discount.

The Board manages these risks by diversification ofinvestments through its investment restrictions andguidelines which are monitored and reported on by theManager. JPMF provides the Directors with timely andaccurate management information, including performancedata and attribution analyses, revenue estimates, liquidityreports and shareholder analyses. The Board monitors theimplementation and results of the investment process withthe Investment Managers, who attend all Board meetings,and reviews data which show statistical measures of theCompany’s risk profile. The Board sets strategic guidelinesfor gearing as well as investments. Once those are agreed,decisions on levels of gearing are delegated to theInvestment Managers, whose decisions are subject tochallenge by the Board. The Board holds a separatemeeting devoted to strategy each year.

• Market and Currency: Market risk arises from uncertaintyabout the future prices of the Company’s investments. Itrepresents the potential loss that the Company might sufferthrough holding investments in the face of negative marketmovements. The Board considers asset allocation, stockselection and levels of gearing on a regular basis and hasset investment restrictions and guidelines, which aremonitored and reported on by JPMF. The Board monitorsthe implementation and results of the investment processwith the Manager. The majority of the Company’s assets,liabilities and income are denominated in euros rather thanin the Company’s functional currency of sterling (in which itreports). As a result, movements in the euro:sterlingexchange rate may affect the sterling value of those items.Therefore, there is an inherent risk from these exchangerate movements. The fair value or future cash flows of afinancial instrument held by the Company may fluctuatebecause of changes in market prices. This market risk

comprises three elements – currency risk, interest rate riskand other price risk. Information to enable an evaluation ofthe nature and extent of these three elements of marketrisk is given in note 21(a) on pages 57 to 62 of this report,together with details of how the Board manages theserisks.

• Accounting, Legal and Regulatory: In order to qualifyas an investment trust, the Company must complywith Section 1158 of the Corporation Tax Act 2010(‘Section 1158’). Details of the Company’s approval aregiven under ‘Business of the Company’ above. Were theCompany to breach Section 1158, it may lose investmenttrust status and, as a consequence, gains within theCompany’s portfolio would be subject to capital gains tax.The Section 1158 qualification criteria are continuallymonitored by JPMF and the results reported to the Boardeach month. The Company must also comply with theprovisions of the Companies Act 2006 and, since its sharesare listed on the London Stock Exchange, the UKLA ListingRules, Disclosure and Transparency Rules (‘DTRs’) and, asan investment trust, the Alternative Investment FundManagers Directive (‘AIFMD’). A breach of the CompaniesAct could result in the Company and/or the Directors beingfined or the subject of criminal proceedings. Breach of theUKLA Listing Rules or DTRs could result in the Company’sshares being suspended from listing which in turn wouldbreach Section 1158. Failure of the Manager to comply withthe AIFMD could lead to the Manager losing its status as anAlternative Investment Fund Manager (‘AIFM’) and theCompany would then need to change its AIFM. The Boardrelies on the services of its Company Secretary, theManager and its professional advisers to ensurecompliance with the Companies Act, the UKLA ListingRules, DTRs and AIFMD.

• Corporate Governance and Shareholder Relations: Detailsof the Company’s compliance with corporate governancebest practice, including information on relations withshareholders, are set out in the Corporate GovernanceStatement on pages 27 to 32.

• Operational: Loss of key staff by the Manager, such as theInvestment Managers, could affect the performance of theCompany. Disruption to, or failure of, the Manager’saccounting, dealing or payments systems or the Depositaryor Custodian’s records may prevent accurate reporting andmonitoring of the Company’s financial position. Details ofhow the Board monitors the services provided by JPMF and

Strategic Report continuedBusiness Review continued



its associates and the key elements designed to provideeffective risk management and internal controls areincluded within the Risk Management and Internal Controlssection of the Corporate Governance Statement on page 31.

• Going concern: Pursuant to the Sharman Report, Boardsare now advised to consider going concern as a potentialrisk, whether or not there is an apparent issue arising inrelation thereto. Going concern is considered rigorously onan ongoing basis and the Board’s statement on goingconcern is detailed on page 24.

• Financial: The financial risks arising from the Company’sfinancial instruments include market price risk, interestrate risk, liquidity risk and credit risk. Further details aredisclosed in note 21 on pages 57 to 63.

Board Diversity

When recruiting a new Director, the Board’s policy is toappoint individuals on merit. Diversity is important in bringingan appropriate range of skills and experience to the Board andthe Board is diverse on a number of bases, namely gender,race and nationality. As at 31st March 2015, there were fourmale Directors and one female Director on the Board.

Employees, Social, Community and Human Rights Issues

The Company has a management contract with the Manager.It has no employees and all of its Directors are non-executive.The day to day activities are carried out by third parties. Thereare therefore no disclosures to be made in respect ofemployees. The Board notes the policy statements of JPMAMin respect of Social, Community and Environmental andHuman Rights issues, as highlighted in italics:

Social, Community, Environmental and Human Rights

JPMAM believes that companies should act in a sociallyresponsible manner. Although our priority at all times is the besteconomic interests of our clients, we recognise that, increasingly,non-financial issues such as social and environmental factors havethe potential to impact the share price, as well as the reputation of

companies. Specialists within JPMAM’s environmental, social andgovernance (‘ESG’) team are tasked with assessing how companiesdeal with and report on social and environmental risks and issuesspecific to their industry.

JPMAM is also a signatory to the United Nations Principles ofResponsible Investment, which commits participants to sixprinciples, with the aim of incorporating ESG criteria into theirprocesses when making stock selection decisions and promotingESG disclosure. Our detailed approach to how we implement theprinciples is available on request.

Greenhouse Gas Emissions

The Company is managed by JPMF with delegation of theactive management of the Company’s assets to JPMAM. JPMFacts as Company Secretary and provides administrativesupport. The Company has no employees, all of its Directorsbeing non-executive, the day to day activities being carried outby third parties. There are therefore no disclosures to be madein respect of employees. The Company itself has no premises,consumes no electricity, gas or diesel fuel and consequentlydoes not have a measurable carbon footprint. JPMAM is asignatory to the Carbon Disclosure Project and JPMorganChase is a signatory to the Equator Principles on managingsocial and environmental risk in project finance.

Future Developments

Clearly, the future development of the Company is muchdependent upon the success of the Company’s investmentstrategy in the light of economic and equity marketdevelopments and the continued support of its shareholders.The Investment Managers discuss the outlook in their reporton pages 7 and 8.

For and on behalf of the Board Carolan Dobson, Chairman 26th May 2015



Federico Marescotti

A Director since December 2005.

Last reappointed to the Board: 2014

Other directorships: Executive Chairman of Vela Capital, Italy. A Director of DunedinEnterprise Investment Trust plc. A Director of the Illy Group of companies, Italy, and anAdviser to ADCO International GMBH, Germany.

Connections with Manager: None

Shared Directorships with other Directors: None

Carolan Dobson (Chairman)

A Director since September 2010. Appointed Chairman in 2013.


Other directorships: Chairman of Aberdeen Smaller Companies High Income Trust plc,Non-Executive Director of Brunner Investment Trust plc, Schroder UK Growth Fund plcand the Nest Corporation. She has a wealth of investment experience, havingpreviously been a Director of Abbey Asset Managers, Head of Investment Trusts atMurray Johnstone and fund manager of Murray Income plc.


Shared Directorships with any other Trust Directors: None

Anthony Davidson (Chairman of the Audit Committee)

A Director since May 2005.


Other directorships: Chairman of Shires Income PLC. Director of a number of lifecompanies within the Phoenix Group, namely Phoenix Life Assurance Limited, NationalProvident Life Limited and Phoenix Life Limited. Formerly Chief Executive of ProvincialInsurance plc.

Connections with Manager: Formerly Chairman of JPMorgan Fleming WorldwideIncome Investment Trust plc.


GovernanceBoard of Directors

European Smaller_pp22_36_European Smaller_pp22-36 26/05/2015 09:15 Page 22


All Directors are members of the Audit, Management Engagement and Nomination andRemuneration Committees and are considered by the Board to be independent of theManager.

Ashok Gupta

A Director since 1st January 2013.


Other directorships: Non-executive Chairman of AA Insurance Services Limited andeValue. Non-executive Director of New Ireland Assurance plc and a member of the FRCActuarial Council. Formerly advisor to the Group Chief Executive Officer at Old Mutualplc and formerly Director of The Pensions Regulator, J Rothschilds Assurance and thePearl Group.

Connections with the Manager: None


Stephen White

A Director since 1st April 2012.


Other directorships: Head of European and US equities at British Steel Pension Fund,responsible for the day to day management of the Fund’s Europe ex-UK and US equityportfolios. Director of New India Investment Trust plc and formerly a director of GlobalSpecial Opportunities Trust Plc, Head of European Equities at F&C Asset Managementand Manager of Foreign & Colonial Eurotrust PLC and Deputy Manager of the Foreign &Colonial Investment Trust Plc.



Nicholas Smith

A Director since 1st May 2015.

Seeks first reappointment at the 2015 Annual General Meeting.

Other directorships: Non-executive Chairman of Ophir Energy PLC and Aberdeen NewThai Investment Trust plc and non-executive Director of Schroder Asia PacificInvestment Fund. A Chartered accountant with a long-term career in investmentbanking and from 1993 to 1997 as CFO of Jardine Fleming.

Connections with the Manager: None




The Directors present their report and audited financialstatements for the year ended 31st March 2015.

Management of the Company

The Manager of and Company Secretary to the Company isJPMorgan Funds Limited (‘JPMF’). JPMF is employed under acontract which can be terminated on six months’ notice,without penalty. If the Company wishes to terminate thecontract on shorter notice, the balance of remuneration ispayable by way of compensation. The active management ofthe Company’s assets is delegated to JPMAM through JPMF.

The Manager is a wholly owned subsidiary of JPMorgan ChaseBank which, through other subsidiaries, also providesaccounting, banking, dealing and custodian services to theCompany.

The Management Engagement Committee conducts a formalevaluation of the performance of the contractual relationshipwith the Manager on an annual basis. Part of this evaluationincludes a consideration of the management fees and whetherthe service received is value for money for shareholders. TheCommittee has thoroughly reviewed the performance of theManager in the course of the year. The review coveredconsideration of the investment strategy and process of theManager, resources and risk controls, performance against thebenchmark over the long term and the quality of support thatthe Company received including the marketing supportprovided. The latest evaluation of the Manager was carried outin early 2015. As a result of that process, the Board confirmsthat it is satisfied that the continuing appointment of theManager is in the interests of shareholders as a whole.

The Alternative Investment Fund Managers Directive (‘AIFMD’)

JPMF has been appointed as the Company’s alternativeinvestment fund manager (‘AIFM’). JPMF has been approvedas an AIFM by the Financial Conduct Authority (‘FCA’). For thepurposes of the AIFMD the Company is an alternativeinvestment fund (‘AIF’).

The Company entered into a new investment managementagreement with JPMF on 1st July 2014. JPMF has delegatedresponsibility for the day to day management of theCompany’s portfolio to JPMAM. JPMF is required to ensure thata depositary is appointed to the Company. The Companytherefore has appointed BNY Mellon Trust and Depositary (UK)Limited (‘BNY’) as its depositary. BNY has delegated itssafekeeping function to the custodian, JPMorgan Chase Bank,

N.A. BNY remains responsible for the oversight of the custodyof the Company’s assets and for monitoring its cash flows.

The AIFMD requires certain information to be made availableto investors in AIFs before they invest and requires thatmaterial changes to this information be disclosed in the annualreport of each AIF. An Investor Disclosure Document, whichsets out information on the Company’s investment strategyand policies, leverage, risk, liquidity, administration,management, fees, conflicts of interest and other shareholderinformation is available on the Company’s website atwww.jpmeuropeansmallercompanies.co.uk.

There have been no material changes (other than thosereflected in these financial statements) to this informationrequiring disclosure. Any information requiring immediatedisclosure pursuant to the AIFMD will be disclosed to theLondon Stock Exchange through a primary informationprovider. As an authorised AIFM, JPMF will make the requisitedisclosures on remuneration levels and polices to the FCA atthe appropriate time.

Management Fee

For the year ended 31st March 2014, the management fee wascharged at the rate of 1.3% of the value of the Company’smarket capitalisation. From 1st April 2015 this has changed to1% of net assets. It is calculated and paid monthly in arrears.An adjustment is made to exclude from the calculationinvestments in funds on which the Manager charges amanagement fee. In addition, the Company reimburses theManager for the costs of administering its shareholders whohold their shares through the JPMorgan savings products.

Going Concern

The Directors believe that, having considered the Company’sinvestment objective (see page 17), risk management policies(see page 17), liquidity risk, capital management policies andprocedures (see pages 62 to 64), the nature of the portfolioand expenditure and cash flow projections, the Company hasadequate resources, an appropriate financial structure andsuitable management arrangements in place to continue inoperational existence for the foreseeable future. For thesereasons, they consider that there is reasonable evidence tocontinue to adopt the going concern basis in preparing theaccounts.

Governance continuedDirectors’ Report



Directors

With the exception of Nicholas Smith appointed on 1st May2015, all Directors served throughout the year and their detailsare included on pages 22 and 23. Details of their beneficialshareholdings may be found in the Directors’ RemunerationReport on page 34.

In accordance with corporate governance best practice, allDirectors (with the exception of Anthony Davidson) will retireat the forthcoming Annual General Meeting and, being eligible,will offer themselves for reappointment by shareholders.Anthony Davidson will retire at the close of the Annual GeneralMeeting.

The Nomination and Remuneration Committee, havingconsidered their qualifications, performance and contributionto the Board and its Committees, confirms that each Directorstanding for reappointment continues to be effective anddemonstrates commitment to the role and the Boardrecommends to shareholders that they be reappointed.

Director Indemnification and Insurance

As permitted by the Company’s Articles of Association, eachDirector has the benefit of an indemnity which is a qualifyingthird party indemnity, as defined by Section 234 of theCompanies Act 2006. For the Directors who served during theyear under review, these indemnities were in place throughoutthe year and as at the date of this report. The effective date ofthe indemnity concerning Nicholas Smith was 1st May 2015, thedate of his appointment, and remains in place at the date ofthis report.

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

Disclosure of Information to Auditors

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

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

(b) each of the Directors has taken all the steps that he/sheought to have taken as a Director in order to make himself/herself aware of any relevant audit information (as defined)and to establish that the Company’s Auditors are aware ofthat information.

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

Independent Auditors

In line with emerging best corporate governance practice, weundertook a formal review and tender of audit services in2014. PricewaterhouseCoopers LLP were retained as theCompany’s Auditors and have expressed their willingness tocontinue in office as Auditors. A resolution to reappoint themand authorise the Directors to determine their remunerationfor the ensuing year will be proposed at the Annual GeneralMeeting.

Section 992 Companies Act 2006

The following disclosures are made in accordance withSection 992 Companies Act 2006.

Capital Structure At 31st March 2015, the Company’s share capital comprised160,147,885 ordinary shares of 5p each. This follows a stocksplit on a five for one basis in July 2014. This was to assist withthe practicalities of investors choosing to invest throughplatforms, regular savings schemes or by way of dividendreinvestment as they are now left with a smaller potential cashbalance following any investment. It was expected that thiswould increase the attractiveness of the Company’s shares topotential investors and may also increase the liquidity in themarket for the Company’s shares. There were no shares held inTreasury. The ordinary shares have a premium listing on theLondon Stock Exchange.

Voting Rights in the Company’s Shares Details of the voting rights in the Company’s shares as at thedate of this report are given in Note 16 to the Notice of AnnualGeneral Meeting on page 68.

Notifiable Interests in the Company’s Voting RightsAt the end of the financial year, the following had declared anotifiable interest in the Company’s voting rights:

Number of Shareholders voting rights %

Lazard Asset Management LLC1 20,954,091 13.1Investec1 8,025,625 5.0

1Indirect holding.

Since the year end no further notificable interests have beendeclared and no changes to the above holdings had beennotified as at the date of this report.


Governance continuedDirectors’ Report continued


The Company is also aware that as at 31st March 2015,approximately 12.1% of the Company’s total voting rights wereheld by individuals through savings products managed byJPMorgan and registered in the name of Chase NomineesLimited. If those voting rights are not exercised by thebeneficial holders, in accordance with the terms andconditions of the savings products, under certaincircumstances JPMorgan has the right to exercise those votingrights. That right is subject to certain limits and restrictions andfalls away at the conclusion of the relevant general meeting.

The rules concerning the appointment, reappointment andreplacement of Directors, amendment of the Company’sArticles of Association and powers to issue or repurchase theCompany’s shares are contained in the Articles of Associationof the Company and the Companies Act 2006.

There are no restrictions concerning the transfer of securitiesin the Company; no special rights with regard to controlattached to securities; no agreements between holders ofsecurities regarding their transfer known to the Company;no agreements to which the Company is party that affect itscontrol following a takeover bid; and no agreements betweenthe Company and its Directors concerning compensation forloss of office.

Annual General Meeting

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

Resolutions relating to the following items of specialbusiness will be proposed at the forthcoming Annual GeneralMeeting. The full text of the resolutions is set out in the Noticeof Meeting on pages 66 and 67:

(i) Authority to allot new shares and to disapply statutorypre-emption rights (resolutions 11 and 12)

The Directors will seek renewal of the authority at the AnnualGeneral Meeting to issue new ordinary shares for cash or byway of a sale of Treasury shares up to an aggregate nominalamount of £400,369.70, such amount being equivalent toapproximately 5% of the issued share capital (excludingTreasury shares) as at the latest practicable date before thepublication of this document or, if different, the number ofordinary shares which is equal to 5% of the Company’s issuedshare capital (excluding Treasury shares) as at the date of thepassing of the resolution. This authority will expire at the

conclusion of the Annual General Meeting of the Company in2016 unless renewed at a prior general meeting.

Resolution 12 will enable the allotment of ordinary sharesotherwise than by way of a pro rata issue to existingshareholders. It is advantageous for the Company to be ableto issue new shares (or to reissue shares from Treasury) toparticipants purchasing shares through the JPMorgan savingsproducts and also to other investors when the Directorsconsider that it is in the best interests of shareholders to do so.Any such issues would only be made at prices greater than thenet asset value (‘NAV’), thereby increasing the NAV per shareand spreading the Company’s administrative expenses, otherthan the management fee which is charged on the value of theCompany’s net assets, over a greater number of shares. Theissue proceeds would be available for investment in line withthe Company’s investment policies. No issue of shares will bemade which would effectively alter the control of the Companywithout the prior approval of shareholders in general meeting.

(ii) Authority to repurchase the Company’s shares (resolution 13) The authority to repurchase up to 14.99% of the Company’sissued share capital, granted by shareholders at the 2014Annual General Meeting, will expire on 7th January 2016 unlessrenewed at the forthcoming Annual General Meeting. TheDirectors consider that the renewal of this authority is in theinterests of shareholders as a whole, as the repurchase ofshares at a discount to the underlying NAV enhances the NAVof the remaining shares.

Resolution 13 gives the Company authority to repurchase itsown issued ordinary shares in the market as permitted by theCompanies Act 2006 (the ‘Act’). The authority limits thenumber of shares that could be purchased to a maximumnumber of ordinary shares, representing approximately14.99% of the Company’s issued ordinary shares as at the latestpracticable date before the publication of this document or, ifless, the number of ordinary shares which is equal to 14.99% ofthe Company’s issued share capital (excluding Treasury shares)as at the date of the passing of the resolution. The authorityalso sets minimum and maximum prices.

If resolution 13 is passed at the Annual General Meeting, theBoard may repurchase the shares for cancellation or hold themin Treasury pursuant to the authority granted to it for possiblereissue at a premium to NAV. Repurchases will be made at thediscretion of the Board and will only be made in the market atprices below the prevailing NAV per share, thereby enhancingthe NAV of the remaining shares as and when marketconditions are appropriate. This authority will expire on9th January 2017, or when the whole of the 14.99% has been



acquired, whichever is the earlier, however it is the Board’sintention to seek renewal of the authority at the 2016 AnnualGeneral Meeting.

Recommendation

The Board considers that resolutions 11 to 13 are likely topromote the success of the Company and are in the bestinterests of the Company and its shareholders as a whole. TheDirectors unanimously recommend that you vote in favour ofthe resolutions as they intend to do, where voting rights areexercisable, in respect of their own beneficial holdings which,as at the year end, amounted in aggregate to 64,789 sharesrepresenting approximately 0.04% of the voting rights in theCompany.

Corporate GovernanceCompliance

The Company is committed to high standards of corporategovernance. This statement, together with the Statement ofDirectors’ Responsibilities on page 36, indicates how theCompany has applied the principles of good governance ofthe Financial Reporting Council’s UK Corporate GovernanceCode (the ‘UK Corporate Governance Code’) and theAssociation of Investment Companies’ (‘AIC’) Code of CorporateGovernance (the ‘AIC Code’), which complements theUK Corporate Governance Code and provides a framework ofbest practice for investment trusts.

Copies of the UK Corporate Governance Code and the AIC Codemay be found on the respective organisations’ websites atwww.frc.org.uk and www.theaic.co.uk.

The Board is responsible for ensuring the appropriate level ofcorporate governance and considers that the Company hascomplied with the best practice provisions of the UK CorporateGovernance Code, other than the appointment of a SeniorIndependent Director, insofar as they are relevant to theCompany’s business, and the AIC Code throughout the yearunder review.

Role of the Board

A management agreement between the Company and JPMFsets out the matters which have been delegated to theManager. This includes management of the Company’s assetsand the provision of accounting, company secretarial,administration and some marketing services. All other mattersare reserved for the approval of the Board. A formal scheduleof matters reserved to the Board for decision has beenapproved. This includes the determination and monitoring of

the Company’s investment objectives and policy and its futurestrategic direction, gearing policy, management of the capitalstructure, appointment and removal of third party serviceproviders, review of key investment and financial data and theCompany’s corporate governance and risk controlarrangements.

At each Board meeting, Directors’ interests are considered.These are reviewed carefully, taking into account thecircumstances surrounding them, and, if consideredappropriate, are approved. It was resolved that there were noactual or indirect interests of a Director which conflicted withthe interests of the Company which arose during the year.

Following the introduction of The Bribery Act 2010, the Boardhas adopted appropriate procedures designed to preventbribery. It confirms that the procedures have operatedeffectively during the year under review.

The Board meets at least five times during the year andadditional meetings are arranged as necessary. Full and timelyinformation is provided to the Board to enable it to functioneffectively and to allow Directors to discharge theirresponsibilities.

There is an agreed procedure for Directors to takeindependent professional advice, if necessary, at theCompany’s expense. This is in addition to the access that everyDirector has to the advice and services of the CompanySecretary, which is responsible to the Board for ensuring thatBoard procedures are followed and for compliance withapplicable rules and regulations.

Board Composition

The Board, chaired by Carolan Dobson, normally comprisesfive non-executive Directors (currently six to facilitatesuccession planning, although it will revert to five after theAnnual General Meeting), all of whom, including the Chairman,are regarded by the Board as independent of the Company’sManager. The Directors have a breadth of investmentknowledge, business and financial skills and experiencerelevant to the Company’s business and brief biographicaldetails of each Director are set out on pages 24 and 25. Therehave been no changes to the Chairman’s other significantcommitments during the year under review.

A review of Board composition and balance is included as partof the annual performance evaluation of the Board, details ofwhich may be found below. The Board has considered whethera senior independent director should be appointed and hasconcluded that, due to the Company’s nature of business as aninvestment trust and because the Board is comprised entirely




of non-executive Directors, this is unnecessary at present.However, the Chairman of the Audit Committee leads theevaluation of the Chairman and may be contacted byshareholders if they have concerns that cannot be resolvedthrough discussions with the Chairman.

Tenure

Directors are initially appointed until the following AnnualGeneral Meeting when, under the Company’s Articles ofAssociation, it is required that they be reappointed byshareholders. Pursuant to the Company’s policy on Boardcomposition and succession planning, followingreappointment of shareholders at the first Annual GeneralMeeting after appointment, a Director’s continuedappointment will be subject to the performance evaluationcarried out each year, Board approval and shareholderreappointment. The Board has adopted corporategovernance best practice and all Directors must stand forannual reappointment. The Board believes that Directorsshould serve more than nine years only in exceptionalcircumstances, except in the case of a serving Chairmanwhere the Chairman’s second term of three years wouldresult in the nine year limit being exceeded; a Chairmanshould serve more than six years in the role only inexceptional circumstances and the total tenure of aChairman having previously been a Director should be nomore than twelve years.

To ensure adequate succession planning and continuity ithas been agreed that Anthony Davidson, Federico Marescottiand Carolan Dobson will retire at the conclusion of the 2015,2016 and 2018 Annual General Meetings respectively.The Board does not believe that length of service in itselfnecessarily disqualifies a Director from seekingreappointment but, when making a recommendation, theBoard will take into account the requirements of the UKCorporate Governance Code and the AIC Code, including theneed to refresh the Board and its Committees periodically.

The terms and conditions of Directors’ appointments are setout in formal letters of appointment, copies of which areavailable for inspection on request at the Company’s registeredoffice and at the Annual General Meeting.

Induction and Training

On appointment, the Manager and Company Secretary provideall Directors with induction training. Thereafter, regularbriefings are provided on changes in law and regulatory

requirements that affect the Company and the Directors.Directors are encouraged to attend industry and otherseminars covering issues and developments relevant toinvestment trust companies. Regular reviews of the Directors’training needs are carried out by the Chairman by means of theevaluation process described on page 29.

Meetings and Committees

The Board delegates certain responsibilities and functions toCommittees. Details of the membership of these Committeesare shown with the Directors’ profiles on pages 24 and 25.

The table below details the number of formal Board andCommittee meetings attended by each Director. During theyear there were five Board meetings, three Audit Committeemeetings, one Management Engagement Committee meetingand one Nomination and Remuneration Committee meeting.These meetings were supplemented by additional meetingsheld to cover procedural matters and formal approvals. Inaddition, there is regular contact between the Directors andthe Manager and Company Secretary throughout the year.

Meetings Attended

Nomination and Management Audit Remuneration EngagementDirector Board Committee Committee Committee

Anthony Davidson 5 3 1 1Carolan Dobson 5 3 1 1Ashok Gupta 5 3 1 1Federico Marescotti 5 3 1 1Nicholas Smith1 n/a n/a n/a n/aStephen White 5 3 1 1

1Appointed 1st May 2015.

Board Committees

Nomination and Remuneration Committee The Nomination and Remuneration Committee, chaired byCarolan Dobson, consists of all of the Directors and meets atleast annually to ensure that the Board has an appropriatebalance of skills and experience to carry out its fiduciary dutiesand to select and propose suitable candidates for appointmentwhen necessary. The appointment process takes account of thebenefits of diversity, including gender. An independent thirdparty, Trust Associates, was engaged to conduct the search fora new Director, which resulted in the appointment of NicholasSmith on 1st May 2015. Trust Associates undertook an external



evaluation of the Board as part of the recruitment process.Trust Associates have no other connection with the Board orthe Manager.

The Board’s policy on diversity, including gender, is to takeaccount of the benefits of these during the appointmentprocess. However, the Board remains committed to appointingthe most appropriate candidate, regardless of gender or otherforms of diversity. Therefore, no targets have been set againstwhich to report.

The Committee conducts an annual performance evaluation ofthe Board, its Committees and individual Directors to ensurethat all Directors have devoted sufficient time and contributedadequately to the work of the Board and its Committees. Theevaluation 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 anda firm of independent consultants, are completed by eachDirector. The responses are collated and then discussed by theCommittee. The evaluation of individual Directors is led by theChairman who also meets with each Director. The AuditCommittee Chairman leads the evaluation of the Chairman’sperformance.

The Committee also reviews Directors’ fees and makesrecommendations to the Board as and when appropriate inrelation to the remuneration policy. This review forms only aminimal part of discussions and therefore it is felt to beappropriate for Carolan Dobson to act as Chairman to theCommittee.

Audit Committee The Audit Committee, chaired by Anthony Davidson, consistsof all of the Directors and meets at least twice each year. Themembers of the Audit Committee consider that they have therequisite skills and experience to fulfil the responsibilities ofthe Audit Committee. At least one member of the AuditCommittee has recent and relevant financial experience andthe qualifications of the members of the Audit Committee aredisclosed on pages 24 and 25. The Board has taken thedecision that Carolan Dobson should be a member of the AuditCommittee. This is permitted under corporate governancerules because the Chairman was deemed to be independent onappointment.

The Committee reviews the actions and judgements of theManager and the Secretary in relation to the half year andannual accounts and the Company’s compliance with the UKCorporate Governance Code.

During its review of the Company’s financial statements forthe year ended 31st March 2015, the Audit Committeeconsidered the following significant issues, including thosecommunicated by the Auditors during their reporting:

Significant issue How the issue was addressed

The valuation of investments isundertaken in accordance with theaccounting policies, disclosed in note 1to the accounts on page 46. Controlsare in place to ensure that valuationsare appropriate and existence isverified through Custodianreconciliations.

The recognition of investment incomeis undertaken in accordance withaccounting policy note 1(d) to theaccounts on page 46. The Boardregularly reviews subjective elementsof income such as special dividendsand agrees their accounting treatment.

Approval for the Company as aninvestment trust under Sections 1158and 1159 for financial yearscommencing on or after 1st April 2013has been obtained and ongoingcompliance with the eligibility criteriais monitored on a regular basis.

Having taken all available information into consideration andhaving discussed the content of the annual report andaccounts with the AIFM, the Investment Managers, theCompany Secretary and other third party service providers,the Audit Committee has concluded that the annual report forthe year ended 31st March 2015, taken as a whole, is fair,balanced and understandable and provides the informationnecessary for shareholders to assess the Company’sperformance, business model and strategy, and has reportedon these findings to the Board. The Board’s conclusions inthis respect are set out in the Statement of Directors’Responsibilities on page 36.

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

The Audit Committee examines the effectiveness of theCompany’s internal controls systems and receivesinformation from the Manager’s Compliance department.

Valuation, existenceand ownership ofinvestments

Recognition ofinvestment income

Compliance withSections 1158 and 1159of the CorporationTaxes Act 2010



The Directors’ statement on the Company’s system of RiskManagement and Internal Controls is set out on page 31. TheAudit Committee also reviews the scope and results of theexternal audit, its cost effectiveness, the balance of audit andnon-audit services and the independence and objectivity ofthe external Auditors. In the Directors’ opinion the Auditorsare independent. The Audit Committee also has a primaryresponsibility for making recommendations to the Board onthe reappointment and removal of external Auditors.

Representatives of the Company’s Auditors attend the AuditCommittee meeting at which the draft annual report andaccounts are considered and also engage with the Directorsas and when required. Having reviewed the performance ofthe external Auditors, including assessing the quality of work,timing of communications and work with the Manager, theCommittee considered it appropriate to recommend theirreappointment. The Board supported this recommendationand a resolution will be put to shareholders at theforthcoming Annual General Meeting.

The current audit firm has audited the Company’s financialstatements since 1998. The Company’s year ended 31st March2015 is the current Audit Partner’s fifth of a five yearmaximum term. Details of the fees paid for audit services areincluded in note 5 on page 49. As part of its review of thecontinuing appointment of the Auditors, the Audit Committeeconsidered the length of tenure of the audit firm, its fee, itsindependence from JPMF and the Investment Managers andany matters raised during the audit.

A formal tender exercise was undertaken in 2014, whichinvolved presentations from audit partners and auditmanagers from three firms of auditors, covering auditapproach, audit style, use of technology, engagement termsand fees. The presentations were given to the full AuditCommittee. The Audit Committee was particularly impressedwith the demonstration of the investment in and use oftechnology by PricewaterhouseCoopers LLP, as a result ofwhich PricewaterhouseCoopers LLP were retained asAuditors to the Company and the new Audit Partner’s firstaudit will be in respect of the year ending 31st March 2016.The Board reviews and approves any non-audit servicesprovided by the independent Auditors and assesses theimpact of any non-audit work on the ability of the Auditors toremain independent. No such work was undertaken duringthe year.

The Audit Committee reviews and approves any non-auditservices provided by the independent Auditors and assesses

the impact of any non-audit work on the ability of the Auditorsto remain independent. No such work was undertaken duringthe year.

Management Engagement Committee The membership of the Management Engagement Committeeconsists of all the independent Directors and is chaired byCarolan Dobson. The Committee meets at least once a year toreview the terms of the management agreement between theCompany and the Manager, to review the performance of theManager, to review the notice period that the Board has withthe Manager and to make recommendations to the Board onthe continued appointment of the Manager following thesereviews.

Terms of ReferenceAll of the Committees have written terms of reference whichdefine clearly their respective responsibilities, copies of whichare available for inspection on the Company’s website, onrequest at the Company’s registered office and at theCompany’s Annual General Meeting.

Relations with Shareholders

The Board regularly monitors the shareholder profile of theCompany. It aims to provide shareholders with a fullunderstanding of the Company’s activities and performanceand reports formally to shareholders twice each year by way ofthe annual report and accounts and the half year report. Theseare supplemented by the daily publication, through theLondon Stock Exchange, of the net asset value of theCompany’s shares and the Company’s level of gearing.

All shareholders have the opportunity and are encouraged toattend the Company’s Annual General Meeting at which theDirectors and representatives of the Manager are available inperson to meet shareholders and answer their questions. Inaddition, a presentation is given by the Investment Managerswho review the Company’s performance.

During the year the Company’s brokers, the InvestmentManagers and JPMAM hold regular discussions with largershareholders. The Directors are made fully aware of their views.The Chairman and Directors make themselves available as andwhen required to support these meetings and to addressshareholder queries. The Directors may be contacted throughthe Company Secretary whose details are shown on page 73, orvia the Company’s website.

The Company’s annual report and accounts are published intime to give shareholders at least twenty working days’ notice




of the annual general meeting. Shareholders wishing to raisequestions in advance of the meeting are encouraged to do sovia the Company’s website or write to the Company Secretaryat the address shown on page 73. A formal process is in placefor all letters to the Directors to be immediately forwarded. Aspart of this process, any feedback from shareholders is alsocommunicated to the Board.

Details of the proxy voting position on each resolution will bepublished on the Company’s website shortly after the AnnualGeneral Meeting.

Risk Management and Internal Controls

The UK Corporate Governance Code requires the Directors, atleast annually, to review the effectiveness of the Company’ssystem of risk management and internal controls and to reportto shareholders that they have done so. This encompasses areview of all controls, which the Board has identified asincluding business, financial, operational, compliance and riskmanagement.

The Directors are responsible for the Company’s system of riskmanagement and internal controls which is designed tosafeguard the Company’s assets, maintain proper accountingrecords and ensure that financial information used within thebusiness, or published, is reliable. However, such a system canonly be designed to manage rather than eliminate the risk offailure to achieve business objectives and therefore can onlyprovide reasonable, but not absolute, assurance against fraud,material misstatement or loss.

Since investment management, custody of assets and alladministrative services are provided to the Company by theManager and its associates, the Company’s system of riskmanagement and internal controls mainly comprisesmonitoring the services provided by the Manager and itsassociates, including the operating controls established bythem, to ensure they meet the Company’s business objectives.There is an ongoing process for identifying, evaluating andmanaging the significant risks faced by the Company (seePrincipal Risks on pages 20 and 21). This process has been inplace for the year under review and up to the date of theapproval of the annual report and accounts, and it accords withthe Turnbull guidance. Whilst the Company does not have aninternal audit function of its own, the Board considers that it issufficient to rely on the internal audit department of theManager. This arrangement is kept under review.

The key elements designed to provide effective internalcontrols are as follows:

Financial Reporting – Regular and comprehensive review bythe Board of key investment and financial data, includingmanagement accounts, revenue projections, analysis oftransactions and performance comparisons.

Management — Appointment of a manager and depositary,regulated by the FCA, whose responsibilities are clearlydefined in written agreements.

Management Systems – The Manager’s system of riskmanagement and internal controls includes organisationalagreements which clearly define the lines of responsibility,delegated authority, control procedures and systems. Theseare monitored by the Manager’s Compliance departmentwhich regularly monitors compliance with FCA rules.

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

The Board, either directly or through the Audit Committee,keeps under review the effectiveness of the Company’s systemof risk management and internal controls by monitoring theoperation of the key operating controls of the Manager and itsassociates as follows:

• reviews the terms of the management agreement andreceives regular reports from the Manager’s Compliancedepartment;

• reviews reports on the risk management and internalcontrols and the operations of its Depositary, BNY MellonTrust & Depositary (UK) Limited and its Custodian,JPMorgan Chase Bank, the latter of which is itselfindependently reviewed; and

• reviews every six months an independent report on therisk management and internal controls and the operationsof the Manager.

By means of the procedures set out above, the Board confirmsthat it has reviewed the effectiveness of the Company’s systemof risk management and internal controls for the year ended31st March 2015 and to the date of approval of this annualreport and accounts.

The Board confirms that any failings or weaknesses identifiedduring the course of its review of the system of riskmanagement and internal controls were not significant and didnot affect the Company.


32 JPMorgan European Smaller Companies Trust plc. Annual Report & Accounts 2015

Corporate Governance and Voting Policy

The Company delegates responsibility for voting to JPMAMthrough the Manager. The following is a summary of JPMAM’spolicy statements on corporate governance, voting policy andsocial and environmental issues, which has been reviewed andnoted by the Board. Details on social and environmental issuesare included in the Strategic Report on page 21.

Corporate Governance JPMAM believes that corporate governance is integral to our investmentprocess. As part of our commitment to delivering superior investmentperformance to our clients, we expect and encourage the companies inwhich we invest to demonstrate the highest standards of corporategovernance and best business practice. We examine the share structureand voting structure of the companies in which we invest, as well as theboard balance, oversight functions and remuneration policy. Theseanalyses then form the basis of our proxy voting and engagementactivity.

Proxy Voting JPMAM manages the voting rights of the shares entrusted to it as it wouldmanage any other asset. It is the policy of JPMAM to vote in a prudent anddiligent manner, based exclusively on our reasonable judgement of whatwill best serve the financial interests of our clients. So far as is practicable,we will vote at all of the meetings called by companies in which we areinvested.

Stewardship/EngagementJPMAM recognises its wider stewardship responsibilities to its clients as amajor asset owner. To this end, we support the introduction of the FRCStewardship Code, which sets out the responsibilities of institutionalshareholders in respect of investee companies. Under the Code,managers should:

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

– disclose their policy on managing conflicts of interest;

– monitor their investee companies;

– establish clear guidelines on how they escalate engagement;

– be willing to act collectively with other investors where appropriate;

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

– report to clients.

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

JPMAM’s Voting Policy and Corporate Governance Guidelinesare available on request from the Company Secretary or canbe downloaded from JPMAM’s website:http://www.jpmorganinvestmenttrusts.co.uk/governance,which also sets out its approach to the seven principles of theFRC Stewardship Code, its policy relating to conflicts of interestand its detailed voting record.

By order of the Board Rebecca Burtonwood, for and on behalf of JPMorgan Funds Limited, Company Secretary

26th May 2015



The Board presents the Directors’ Remuneration Report for theyear ended 31st March 2015 which has been prepared inaccordance with the requirements of Section 421 of theCompanies Act 2006 as amended.

The law requires the Company’s Auditors to audit certain of thedisclosures provided. Where disclosures have been auditedthey are indicated as such. The Auditors’ opinion is included intheir report on pages 37 to 41.

Remuneration of the Directors is considered by theNomination and Remuneration Committee on a regular basis.The Committee makes recommendations to the Board as andwhen appropriate.

Directors’ Remuneration Policy

The Directors’ Remuneration Policy is subject to a triennialbinding vote, however, a decision has been taken to seekapproval annually, and therefore an ordinary resolution toapprove this policy will be put to shareholders at theforthcoming Annual General Meeting. The policy subject to thevote is set out in full below and is currently in force.

The Board’s policy for this and subsequent years is thatDirectors’ fees should properly reflect the time spent by theDirectors on the Company’s business and should be at a levelto ensure that candidates of a high calibre are recruited to theBoard and retained. The Chairman of the Board and theChairman of the Audit Committee are paid higher fees than theother Directors, reflecting the greater time commitmentinvolved in fulfilling those roles.

Reviews are based on information provided by the Manager,and industry research carried out by third parties on the levelof fees paid to the directors of the Company’s peers and withinthe investment trust industry generally. The involvement ofremuneration consultants has not been deemed necessary aspart of this review. The Company has no Chief Executive Officerand no employees and therefore no consultation of employeesis required and there is no employee comparative data toprovide, in relation to the setting of the remuneration policyfor Directors.

All of the Directors are non-executive. There are noperformance-related elements to their fees and the Companydoes not operate any type of incentive, share scheme, award

or pension scheme and therefore no Directors receive bonuspayments or pension contributions from the Company or holdoptions to acquire shares in the Company. Directors are notgranted exit payments and are not provided withcompensation for loss of office. No other payments are madeto Directors, other than the reimbursement of reasonableout-of-pocket expenses incurred in attending the Company’sbusiness.

In the year under review, Directors’ fees were paid at thefollowing rates: Chairman £35,500; Chairman of the AuditCommittee £29,000; and other Directors £23,500 (allunchanged from the prior year except in respect of theChairman of the Audit Committee).

With effect from 1st April 2015, the fees have been increased tothe following rates: Chairman £36,000; Chairman of the AuditCommittee £29,500; and other Directors £24,000.

The Company’s Articles of Association provide that anyincrease in the maximum aggregate annual limit on Directors’fees, currently £175,000, requires both Board and shareholderapproval.

The Company has not sought shareholder views on itsremuneration policy. The Nomination and RemunerationCommittee considers any comments received fromshareholders on remuneration policy on an ongoing basis andtakes account of those views.

The terms and conditions of Directors’ appointments are setout in formal letters of appointment which are available forreview at the Company’s Annual General Meeting and theCompany’s registered office. Details of the Board’s policy ontenure are set out on page 28.

Directors’ Remuneration Policy Implementation

The Directors’ Remuneration Report, which includes details ofthe Directors’ remuneration policy and its implementation, issubject to an annual advisory vote and therefore an ordinaryresolution to approve this report will be put to shareholders atthe forthcoming Annual General Meeting. There have been nochanges to the policy compared with the year ended31st March 2014 and no changes are proposed for the yearending 31st March 2016.

Directors’ Remuneration Report

33JPMorgan European Smaller Companies Trust plc. Annual Report & Accounts 2015



At the Annual General Meeting held on 8th July 2014, of votescast in respect of the Remuneration Policy, 99.3% were infavour (or granted discretion to the Chairman who voted infavour) and 0.5% were against. Abstentions were receivedfrom 0.2% of the votes cast. Of votes cast in respect of theRemuneration Report, 99.4% were in favour (or granteddiscretion to the Chairman who voted in favour) and 0.4%were against. Abstentions were received from 0.2% of thevotes cast.

Details of the implementation of the Company’s remunerationpolicy are given below.

Single total figure of remuneration

The single total figure of remuneration for each Director isdetailed below together with the prior year comparative.

Single total figure table1

Total fees2

2015 2014

Anthony Davidson £29,000 £26,000Carolan Dobson £35,500 £35,500Ashok Gupta £23,500 £23,500Federico Marescotti £23,500 £23,500Nicholas Smith3 n/a n/aStephen White £23,500 £23,500

Total £135,000 £132,000

1Audited information. Other subject headings for the single figure table as prescribed byregulation are not included because there is nothing to disclose in relation thereto.

2Directors’ remuneration comprises in annual fee only. Directors are also reimbursed forout of pocket expenses incurred in attending to the Company’s business.


A table showing the total remuneration for the Chairman overthe five years ended 31st March 2015 is below:

Remuneration for the Chairman over the five years ended31stMarch 2015

Year ended 31stMarch Fees

2015 £35,5002014 £35,5002013 £34,0002012 £34,0002011 £31,000

Directors’ Shareholdings1

There are no requirements pursuant to the Company’s Articlesof Association for the Directors to own shares in the Company.The Directors’ shareholdings are detailed below. All shares areheld beneficially.

In July 2014, a stock split was undertaken resulting in fiveshares for every one previously held.

31st March 31st MarchDirectors’ Name 2015 2014

Anthony Davidson2,3 15,946 3,146Carolan Dobson2 10,000 2,000Ashok Gupta2 7,500 1,500Federico Marescotti2,4 6,343 1,251Nicholas Smith5 n/a n/aStephen White2 25,000 5,000

Total 64,789 12,897

1Audited information.2Increase due/partly due to stock split.3Automatic dividend reinvestment into 25 shares prior to the stock split; automaticdividend reinvestment into 91 shares after the stock split.

4Automatic dividend reinvestment into 10 shares prior to the stock split; automaticdividend reinvestment into 38 shares after the stock split.


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

The Directors have no other share interests or share options inthe Company and no share schemes are available.

In accordance with the Companies Act 2006, a graph showingthe Company’s share price total return compared with itsbenchmark, the Euromoney Smaller European Companies(ex UK) Total Return Index, over the last six years is shownbelow. The Board believes that this Index is the mostrepresentative comparator for the Company, because theCompany’s investment universe is defined at the time ofpurchase by the countries and market capitalisation rangeof the constituents of the Euromoney Smaller EuropeanCompanies (ex UK) Total Return Index.

Governance continuedDirectors’ Remuneration Report continued



Six year share price and benchmark totalreturn to 31st March 2015


Share price total return.

Benchmark total return.

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

Expenditure by the Company on remuneration and distributions toshareholders

Year ended 31stMarch 2015 2014

Remuneration paid to all Directors £135,000 £132,000Distribution to shareholders

— by way of dividend £5,125,000 £4,669,000— by way of share repurchases1 £nil £39,893,000

1Including tender offer.

For and on behalf of the Board Carolan Dobson Chairman

26th May 2015

100

150

200

250

300

2015201420132012201120102009



The Directors are responsible for preparing the annual reportand accounts in accordance with applicable law andregulations.

Company law requires the Directors to prepare financialstatements for each financial year. Under that law, theDirectors have elected to prepare the financial statements inaccordance with United Kingdom Generally AcceptedAccounting Practice (United Kingdom Accounting Standardsand applicable law). Under company law the Directors mustnot approve the financial statements unless they are satisfiedthat, taken as a whole, the annual report and accounts are fair,balanced and understandable, provide the informationnecessary for shareholders to assess the Company’sperformance, business model and strategy and that they give atrue and fair view of the state of affairs of the Company and ofthe total return or loss of the Company for that period. In orderto provide these confirmations, and in preparing thesefinancial statements, the Directors are required to:

• select suitable accounting policies and then apply themconsistently;

• make judgements and accounting estimates that arereasonable and prudent;

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

• prepare the financial statements on a going concern basisunless it is inappropriate to presume that the Company willcontinue in business

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accountingrecords that are sufficient to show and explain the Company’stransactions and disclose with reasonable accuracy at any timethe financial position of the Company and to enable them toensure that the financial statements comply with theCompanies Act 2006. They are also responsible forsafeguarding the assets of the Company and hence for takingreasonable steps for the prevention and detection of fraud andother irregularities.

The accounts are published on thewww.jpmeuropeansmallercompanies.co.uk website, which ismaintained by the Company’s Manager. The maintenance andintegrity 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 Auditors does not involveconsideration of the maintenance and integrity of this websiteand, accordingly, the Auditors accept no responsibility for anychanges that have occurred to the accounts since they wereinitially presented on the website. The accounts are preparedin accordance with UK legislation, which may differ fromlegislation in other jurisdictions.

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

Each of the Directors, whose names and functions are listed onpages 22 and 23 confirm that, to the best of their knowledge:

• the financial statements, which have been prepared inaccordance with United Kingdom Generally AcceptedAccounting Practice (United Kingdom AccountingStandards and applicable law), give a true and fair view ofthe assets, liabilities, financial position and return or loss ofthe Company; and

• the Strategic Report includes a fair review of thedevelopment and performance of the business and theposition of the Company, together with a description of theprincipal risks and uncertainties that it faces.

The Board confirms that it is satisfied that the annual reportand accounts taken as a whole are fair, balanced andunderstandable and provide the information necessary forshareholders to assess the strategy and business model of theCompany.

The Board also confirms that it is satisfied that the StrategicReport and Directors’ Report include a fair review of thedevelopment and performance of the business, and theposition of the Company, together with a description of theprinciple risks and uncertainties that the Company faces.

For and on behalf of the Board Carolan DobsonChairman

26th May 2015

Governance continuedStatement of Directors’ Responsibilities



Independent Auditors’ Reportto the Members of JPMorgan European Smaller Companies Trust plc

Our opinion

In our opinion, JPMorgan European Smaller Companies Trust plc’s financial statements (the ‘financial statements’):

• give a true and fair view of the state of the Company’s affairs as at 31st March 2015 and of its net return and cash flows for theyear 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.

What we have audited

The JPMorgan European Smaller Companies Trust plc’s financial statements comprise:

• the Balance Sheet as at 31st March 2015;

• the Income Statement for the year then ended;

• the Cash Flow Statement for the year then ended;

• the Reconciliation of Movements in Shareholders’ Funds for the year then ended; and

• the notes to the financial statements, which include a summary of significant accounting policies and other explanatoryinformation.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financialstatements. These are cross-referenced from the financial statements and are identified as audited.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law andUnited Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Our audit approach

OverviewMateriality:

• Overall materiality: £4,300,000 which represents 1% of net assets.

Audit scope:

• The Company is a standalone Investment Trust Company and engages JPMorgan Funds Limited (the ‘Manager’) to manage itsassets.

• We conducted our audit of the financial statements at JPMorgan Corporate & Investment Bank (the ‘Administrator’) to whomthe Manager has, with the consent of the Directors, delegated the provision of certain administrative functions.

• We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of thethird parties referred to above, the accounting processes and controls, and the industry in which the Company operates.

Areas of focus:

• Income from investments.

• Valuation and existence of investments.

The scope of our audit and our areas of focus

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’).

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. Asin all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether therewas evidence of bias by the Directors that represented a risk of material misstatement due to fraud.



Independent Auditors’ ReportcontinuedThe risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort,are identified as ‘areas of focus’ in the table below. We have also set out how we tailored our audit to address these specific areasin order to provide an opinion on the financial statements as a whole, and any comments we make on the results of ourprocedures should be read in this context. This is not a complete list of all risks identified by our audit.

Area of focus How our audit addressed the area of focus

Valuation and existence of investments

Refer to page 29 (Directors’ Report), page 46 (AccountingPolicies) and page 52 (Notes to the Financial Statements).

The investment portfolio at the year-end principally comprisedlisted equity investments and totalled £475 million.

We focused on the valuation and existence of investmentsbecause investments represent the principal element of thenet asset value as disclosed on the Balance Sheet in thefinancial statements.

We tested the valuation of the investment portfolio by agreeingthe prices used in the valuation to independent third partysources.

No misstatements were identified by our testing whichrequired reporting to those charged with governance.

We tested the existence of the investment portfolio byagreeing the holdings for listed investments to an independentcustodian confirmation from JPMorgan Chase Bank, N.A.

No differences were identified.

Income from investments

Refer to page 29 (Directors’ Report), page 46 (AccountingPolicies) and page 49 (Notes to the Financial Statements).

ISAs (UK & Ireland) presume there is a risk of fraud in incomerecognition because of the pressure management may feel toachieve income and capital growth in line with the objective ofthe Company.

We focused on the accuracy and completeness of dividendincome recognition and its presentation in the IncomeStatement as set out in the requirements of The Association ofInvestment Companies Statement of Recommended Practice(the ‘AIC SORP’).

This is because incomplete or inaccurate income could have amaterial impact on the Company’s net asset value.

We assessed the accounting policy for income recognition forcompliance with accounting standards and the AIC SORP andperformed testing to check that income had been accounted forin accordance with this stated accounting policy.

We found that the accounting policies implemented were inaccordance with accounting standards and the AIC SORP, andthat income has been accounted for in accordance with thestated accounting policy.

We understood and assessed the design and implementation ofkey controls surrounding income recognition.

In addition, we tested dividend receipts by agreeing thedividend rates from a sample of investments to independentthird party sources.

No misstatements were identified by our testing which requiredreporting to those charged with governance.

To test for completeness, we tested that the appropriatedividends had been received in the year by reference toindependent data of dividends declared for a sample ofinvestment holdings in the portfolio.

Our testing did not identify any unrecorded dividends.

We tested the allocation and presentation of dividend incomebetween the income and capital return columns of the IncomeStatement in line with the requirements set out in the AIC SORP.We then tested the validity of income and capital specialdividends to independent third party sources.

We did not find any special dividends that were not treated inaccordance with the AIC SORP.



How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financialstatements as a whole, taking into account the types of investments within the Company, the involvement of the Manager andAdministrator, the accounting processes and controls, and the industry in which the Company operates.

The Company’s accounting is delegated to the Administrator who maintain their own accounting records and controls and reportto the Manager and the Directors.

As part of our risk assessment, we assessed the control environment in place at both the Manager and the Administrator to theextent relevant to our audit. This assessment of the operating and accounting structure in place at both organisations involvedobtaining and reading the relevant control reports issued by the independent auditor of the Manager and the Administrator inaccordance with generally accepted assurance standards for such work. We then identified those key controls at theAdministrator on which we could place reliance to provide audit evidence. We also assessed the gap period of five monthsbetween the period covered by the controls report and the year-end of the Company. Following this assessment, we appliedprofessional judgement to determine the extent of testing required over each balance in the financial statements, includingwhether we needed to perform additional testing in respect of those key controls to support our substantive work. For thepurposes of our audit, we determined that additional testing of controls in place at the Administrator was not required becauseadditional substantive testing was performed.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extentof our audit procedures and to evaluate the effect of misstatements, both individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality £4,300,000 (2014: £4,335,000).

How we determined it 1% of net assets.

Rationale for benchmark applied We have applied this benchmark, a generally accepted auditing practice for investment trustaudits, in the absence of indicators that an alternative benchmark would be appropriate andbecause we believe this provides an appropriate and consistent year-on-year basis for ouraudit.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £215,000(2014: £216,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Going concern

Under the Listing Rules we are required to review the Directors’ statement, set out on page 24, in relation to going concern. Wehave nothing to report having performed our review.

As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the Company’s financialstatements using the going concern basis of accounting. The going concern basis presumes that the Company has adequateresources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the financialstatements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate.

However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Company’sability to continue as a going concern.



Independent Auditors’ ReportcontinuedOther required reporting

Consistency of other informationCompanies Act 2006 opinionIn our opinion:

• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financialstatements are prepared is consistent with the financial statements.

ISAs (UK & Ireland) reportingUnder ISAs (UK & Ireland) we are required to report to you if, in our opinion:

Adequacy of accounting records and information and explanations receivedUnder the Companies Act 2006 we are required to report to you if, in our opinion:

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

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branchesnot visited by us; or

• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with theaccounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remunerationDirectors’ Remuneration Report – Companies Act 2006 opinionIn our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with theCompanies Act 2006.

• information in the Annual Report is:

− materially inconsistent with the information in theaudited financial statements; or

− apparently materially incorrect based on, or materiallyinconsistent with, our knowledge of the Companyacquired in the course of performing our audit; or

− otherwise misleading.

We have no exceptions to report arising from thisresponsibility.

• the statement given by the Directors on page 36, inaccordance with provision C.1.1 of the UK CorporateGovernance Code (the ‘Code’), that they consider theAnnual Report taken as a whole to be fair, balanced andunderstandable and provides the information necessaryfor members to assess the Company’s performance,business model and strategy is materially inconsistent withour knowledge of the Company acquired in the course ofperforming our audit.


• the section of the Annual Report on pages 29 and 30, asrequired by provision C.3.8 of the Code, describing thework of the Audit Committee does not appropriatelyaddress matters communicated by us to the AuditCommittee.




Other Companies Act 2006 reportingUnder the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remunerationspecified by law are not made. We have no exceptions to report arising from this responsibility.

Corporate governance statementUnder the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company’scompliance with ten provisions of the UK Corporate Governance Code. We have nothing to report having performed our review.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the DirectorsAs explained more fully in the Statement of Directors’ Responsibilities set out on page 36, the Directors are responsible for thepreparation of the financial statements and for being satisfied that they give a true and fair view.

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

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance withChapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assumeresponsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing.

What an audit of financial statements involvesAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonableassurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes anassessment of:

• whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied andadequately disclosed;

• the reasonableness of significant accounting estimates made by the Directors; and

• the overall presentation of the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to providea reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantiveprocedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies withthe audited financial statements and to identify any information that is apparently materially incorrect based on, or materiallyinconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparentmaterial misstatements or inconsistencies we consider the implications for our report.

Jeremy Jensen (Senior Statutory Auditor)for and on behalf ofPricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLondon

26th May 2015



2015 2014 Revenue Capital Total Revenue Capital Total Notes £’000 £’000 £’000 £’000 £’000 £’000

(Losses)/gains on investments held at fair value through profit or loss 2 — (8,060) (8,060) — 126,985 126,985

Net foreign currency gains — 7,229 7,229 — 1,261 1,261Income from investments 3 8,448 — 8,448 7,986 — 7,986Other interest receivable and similar income 3 138 — 138 30 — 30

Gross return/(loss) 8,586 (831) 7,755 8,016 128,246 136,262Management fee 4 (1,336) (3,117) (4,453) (1,314) (3,067) (4,381)Other administrative expenses 5 (694) — (694) (762) — (762)

Net return/(loss) on ordinary activities before finance costs and taxation 6,556 (3,948) 2,608 5,940 125,179 131,119

Finance costs 6 (290) (676) (966) (267) (623) (890)

Net return/(loss) on ordinary activities before taxation 6,266 (4,624) 1,642 5,673 124,556 130,229

Taxation 7 (747) — (747) (626) — (626)

Net return/(loss) on ordinary activities after taxation 5,519 (4,624) 895 5,047 124,556 129,603

Return/(loss) per share1 9 3.45p (2.89)p 0.56p 2.99p 73.76p 76.75p

1Comparative figures for the year ended 31st March 2014 have been restated due to the sub-division of each existing ordinary share of 25p into five ordinary shares of 5p each on23rd July 2014.

A final dividend of 2.0p per share (2014: 1.7p1 per share) is proposed in respect of the year ended 31st March 2015, costing£3,203,000 (2014: £2,723,000). More details can be found in note 8(b) on page 51.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired ordiscontinued in the year.

The ‘Total’ column of this statement is the profit and loss account of the Company and the ‘Revenue’ and ‘Capital’ columnsrepresent supplementary information prepared under guidance issued by the Association of Investment Companies. The Totalcolumn represents all the information that is required to be disclosed in a Statement of Total Recognised Gains and Losses(‘STRGL’). For this reason a STRGL has not been presented.

The notes on pages 46 to 64 form an integral part of these accounts.

Financial StatementsIncome Statementfor the year ended 31st March 2015



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

At 31st March 2013 8,946 1,312 6,690 326,476 5,683 349,107Repurchase and cancellation of the

Company’s own shares (938) — 938 (39,893) — (39,893)Net return from ordinary activities — — — 124,556 5,047 129,603Dividends appropriated in the year — — — — (5,324) (5,324)

At 31st March 2014 8,008 1,312 7,628 411,139 5,406 433,493Expenses incurred due to stock split — — — (16) — (16)Net (loss)/return from ordinary activities — — — (4,624) 5,519 895Dividends appropriated in the year — — — — (4,645) (4,645)

At 31st March 2015 8,008 1,312 7,628 406,499 6,280 429,727


Reconciliation of Movements in Shareholders’ Funds



2015 2014 Notes £’000 £’000

Fixed assets Investments at fair value through profit or loss 465,221 487,344Investment in liquidity fund held at fair value through profit or loss 9,992 10,003

Total investments 10 475,213 497,347

Current assets Derivative financial instruments 11 — 3Debtors 6,322 19,179Cash and short term deposits 1,300 5,434

7,622 24,616

Current liabilities 12 Creditors: amounts falling due within one year (9,699) (47,134)

Net current liabilities (2,077) (22,518)

Total assets less current liabilities 473,136 474,829

Creditors: amounts falling due after more than one year 13 (43,409) (41,336)

Net assets 429,727 433,493

Capital and reserves Called up share capital 14 8,008 8,008Share premium 15 1,312 1,312Capital redemption reserve 15 7,628 7,628Capital reserves 15 406,499 411,139Revenue reserve 15 6,280 5,406

Total equity shareholders’ funds 429,727 433,493

Net asset value per share1 16 268.3p 270.7p

1Comparative figures for the year ended 31st March 2014 have been restated due to the sub-division of each existing ordinary share of 25p into five ordinary shares of 5p each on23rd July 2014.

The accounts on pages 42 to 64 were approved and authorised for issue by the Directors on 26th May 2015 and were signed ontheir behalf by:

Carolan DobsonDirector


Company registration number: 2431143.

Financial Statements continuedBalance Sheetat 31st March 2015



2015 2014 Notes £’000 £’000

Net cash inflow from operating activities 17 2,084 1,491

Returns on investments and servicing of finance Interest paid (974) (879)

Net cash outflow from returns on investments and servicing of finance (974) (879)

TaxationOverseas tax recovered 518 389

Capital expenditure and financial investment Purchases of investments (1,047,145) (1,415,395)Sales of investments 1,065,882 1,452,545Other capital charges (207) (193)

Net cash inflow from capital expenditure and financial investment 18,530 36,957

Dividends paid (4,645) (5,324)

Net cash inflow before financing 15,513 32,634

Financing Net (repayment)/drawdown of loans (20,585) 12,681Repurchase and cancellation of the Company’s own shares — (39,894)Expenses incurred due to stock split (16) —

Net cash outflow from financing (20,601) (27,212)

(Decrease)/increase in cash for the year 18 (5,088) 5,422


Cash Flow Statementfor the year ended 31st March 2015



1. Accounting policies

(a) Basis of accounting The financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted

Accounting Practice (‘UK GAAP’) and with the Statement of Recommended Practice ‘Financial Statements of Investment TrustCompanies and Venture Capital Trusts’ (the ‘SORP’) issued by the AIC in January 2009. All of the Company’s operations are ofa continuing nature.

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified bythe revaluation of investments and derivative financial instruments held at fair value through profit or loss.

The policies applied in these financial statements are consistent with those applied in the preceding year.

(b) Valuation of investments 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. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, inaccordance with a documented investment strategy and information is provided internally on that basis to the Company’sBoard of Directors. Accordingly, upon initial recognition, the investments are designated by the Company as at ‘held at fairvalue through profit or loss’ (‘FVTPL’). They are included initially at fair value which is taken to be their cost, excludingexpenses incidental to purchase which are written off to capital at the time of acquisition. Subsequently the investments arevalued at fair value which are quoted bid market prices for investments traded in active markets.

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

(c) Accounting for reserves Gains and losses on sales of investments including the related foreign exchange gains and losses, realised gains and losses on

foreign currency cash balances and loans, management fee and finance costs allocated to capital and any other capitalcharges, are included in the Income Statement and dealt with in capital reserves within ‘Gains and losses on sales ofinvestments’. Increases and decreases in the valuation of investments held at the year end, including the related foreignexchange gains and losses, are included in the Income Statement and dealt with in capital reserves within ‘Investment holdinggains and losses’. Unrealised gains and losses on foreign currency contracts or foreign currency loans are included in theIncome Statement and dealt with in capital reserves within ‘Investment holding gains and losses’.

(d) Income Dividends receivable are included in revenue on an ex-dividend basis except where, in the opinion of the Board, the dividend

is capital in nature, in which case it is included in capital.

Overseas dividends are included gross of any withholding tax.

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

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

Stock lending income is taken to revenue on a receipts basis.

Financial Statements continuedNotes to the Financial Statementsfor the year ended 31st March 2015



(e) Expenses All expenses are accounted for on an accruals basis. Expenses are allocated wholly to the revenue column of the Income

Statement 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 ofrevenue and capital return from the Company’s investment portfolio.

– Expenses incidental to the purchase of an investment are included within the cost of the investment and those incidentalto the sale are deducted from the sale proceeds. These expenses are commonly referred to as transaction costs andcomprise brokerage commission and stamp duty. Details of transaction costs are given in note 10 on page 52.

(f) Finance costs Finance costs are accounted for on an accruals basis using the effective interest method and in accordance with the

provisions of FRS 25 ‘Financial Instruments: Presentation’ and FRS 26 ‘Financial Instruments: Measurement’.

Finance costs are allocated 30% to revenue and 70% to capital, in line with the Board’s expected long term split of revenueand capital return from the Company’s investment portfolio.

(g) Financial instruments Cash and short term deposits may comprise cash and demand deposits which are readily convertible to a known amount of

cash and are subject to insignificant risk of changes in value.

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

Derivative financial instruments, including short term forward currency contracts, are valued at fair value, which is the netunrealised gain or loss, and are included in current assets or current liabilities in the balance sheet in accordance with FRS 26:‘Financial Instruments: Measurement’.

Bank loans are recorded as the proceeds received net of direct issue costs and finance costs are accounted for on an accrualsbasis using the effective interest method.

(h) Foreign currency In accordance with FRS 23: ‘The effects of changes in Foreign Currency Exchange Rates’ the Company is required to nominate

a functional currency, being the currency in which the Company predominantly operates. The Board, having regard to thecurrency of the Company’s share capital and the predominant currency in which its shareholders operate, has determinedthat sterling is the functional currency. Sterling is also the currency in which the accounts are presented.

Transactions denominated in foreign currencies are converted at actual exchange rates as at the date of the transaction or,in the case of forward currency contracts, at contractual rates. Monetary assets and liabilities denominated in foreigncurrencies at the year end are translated at the rates of exchange prevailing at the year end, or at the related forwardcurrency contract rate.

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



Financial Statements continuedNotes to the Financial Statements continued

1. Accounting policies continued

(i) Taxation Current taxation is provided at the amount expected to be paid or recovered.

Deferred taxation is accounted for in accordance with FRS 19: ‘Deferred Tax’.

Deferred taxation is provided on all timing differences that have originated but not reversed by the balance sheet date.Deferred taxation liabilities are recognised for all taxable timing differences but deferred taxation assets are only recognisedto the extent that it is more likely than not that taxable profits will be available against which those timing differences can beutilised.

Deferred taxation is measured at the tax rate which is expected to apply in the periods in which the timing differences areexpected to reverse, based on tax rates that have been enacted or substantively enacted at the Balance Sheet date and ismeasured on an undiscounted basis.

(j) Value Added Tax (‘VAT’) Irrecoverable VAT is included in the expense on which it has been suffered. VAT recoverable is calculated using the partial

exemption method based on the proportion of zero rated supplies to total supplies.

(k) Repurchases 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 Reconciliation of Movement in Shareholders’ Funds. Share repurchase transactions areaccounted for on a trade date basis. The nominal value of ordinary share capital repurchased and cancelled is transferred outof ‘Called up share capital’ and into ‘Capital redemption reserve’.

(l) Dividends payable In accordance with FRS 21: ‘Events after the Balance Sheet Date’, dividends are included in the accounts in the year in which

they are paid.

2015 2014 £’000 £’000

2. (Losses)/gains on investments held at fair value through profit or loss Gains from investments held at fair value through profit or loss based on historical cost 311 109,054Amounts recognised as unrealised in the previous year (62,195) (40,748)

(Losses)/gains on sales of investments based on carrying value at previous balance sheet date (61,884) 68,306Net movement in investment holding gains 54,002 58,874Other capital charges (178) (195)

Total capital (losses)/gains on investments held at fair value through profit or loss (8,060) 126,985



2015 2014 £’000 £’000

3. Income Income from investmentsDividends from investments listed overseas 8,427 6,553Scrip dividends — 1,415Dividends from liquidity fund 21 18

8,448 7,986

Other interest receivable and similar incomeStock lending income 138 29Deposit interest — 1

138 30

Total income 8,586 8,016

2015 2014 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000

4. Management fee Management fee1 1,336 3,117 4,453 1,314 3,067 4,381

1Details of the management fee are given in the Directors’ Report on page 24.

2015 2014 £’000 £’000

5. Other administrative expensesAdministration expenses 378 455Directors’ fees1 135 132Savings scheme costs2 157 151Auditors’ remuneration for audit services3 24 24

694 762

1Full disclosure is given in the Directors’ Remuneration Report on pages 33 to 35. 2Paid to the Manager for the marketing and administration of savings scheme products. 3Includes £4,000 (2014: £4,000) irrecoverable VAT.


6. Finance costs Interest payable on bank loans and overdrafts 290 676 966 267 623 890




7. Taxation (a) Analysis of tax charge for the year

2015 2014 £’000 £’000

Overseas withholding tax 747 626

Current tax charge for the year 747 626

(b) Factors affecting current tax charge for the year The tax assessed for the year is lower (2014: lower) than the Company’s applicable rate of corporation tax for the year of 21%

(2014: 23%). The factors affecting the current tax charge for the year are as follows:


Net return/(loss) on ordinary activities before taxation 6,266 (4,624) 1,642 5,673 124,556 130,229

Net return/(loss) on ordinary activities before taxation multiplied by the Company’s applicable rate of corporation tax of 21% (2014: 23%) 1,316 (971) 345 1,305 28,648 29,953

Effects of:Non taxable capital losses/(gains) — 175 175 — (29,497) (29,497)Non taxable overseas dividends (1,676) — (1,676) (1,507) — (1,507)Non taxable scrip dividends — — — (325) — (325)Overseas taxation 747 — 747 626 — 626Unrelieved expenses and charges 360 796 1,156 527 849 1,376

747 — 747 626 — 626

(c) Deferred taxation The Company has an unrecognised deferred tax asset of £8,739,000 (2014: £7,638,000) based on a prospective corporation tax

rate of 20% (2014: 20%). The deferred tax asset has arisen due to the cumulative excess of deductible expenses over taxableincome. Given the composition of the Company’s portfolio, it is not likely that this asset will be utilised in the foreseeable futureand therefore no asset has been recognised in the accounts.

Given the Company’s status as an investment trust company, and the intention to continue meeting the conditions required toobtain approval, the Company has not provided deferred taxation on any capital gains or losses arising on the revaluation ordisposal of investments.



8. Dividends(a) Dividends paid and proposed

2015 2014 £’000 £’000

Dividends paid 2014 final dividend of 1.7p1 (2013: 2.0p)1 per share 2,723 3,378Interim dividend of 1.2p (2014: 1.2p)1 per share 1,922 1,946

Total dividends paid in the year 4,645 5,324

Dividend proposed Dividend proposed of 2.0p (2014: 1.7p)1 per share 3,203 2,723 1Dividend rates have been restated due to the sub-division of each existing ordinary share of 25p into 5p each on 23rd July 2014.

The dividend proposed in respect of the year ended 31st March 2015 is subject to shareholder approval at the forthcomingAnnual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in theaccounts for the year ending 31st March 2016.

The dividend declared in respect of the year ended 31st March 2014 amounted to £2,722,514 (2014: £3,578,192). The amountactually paid was the same (2014: £3,377,958 due to shares repurchased and cancelled after the balance sheet date but priorto the dividend record date).

(b) Dividends 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, shownbelow. The revenue available for distribution by way of dividend for the year is £5,519,000 (2014: £5,047,000).

2015 2014 £’000 £’000

Interim dividend of 1.2p (2014: 1.2p)1 per share 1,922 1,946Final dividend of 2.0p (2014: 1.7p)1 per share 3,203 2,723

5,125 4,669 1Dividend rates have been restated due to the sub-division of each existing ordinary share of 25p into 5p each on 23rd July 2014.

9. Return per share

The revenue return per share is based on the revenue attributable to the ordinary shares of £5,519,000 (2014: £5,047,000)and on the weighted average number of shares in issue during the year of 160,147,885 (2014: 168,859,770).

The capital loss per share is based on the capital loss attributable to the ordinary shares of £4,624,000 (2014: £124,556,000return) and on the weighted average number of shares in issue during the year of 160,147,885 (2014: 168,859,770).

The total return per share is based on the earnings attributable to the ordinary shares of £895,000 (2014: £129,603,000) andon the weighted average number of shares in issue during the year of 160,147,885 (2014: 168,859,770).

Comparative figures for the year ended 31st March 2014 have been restated due to the sub-division of each existing ordinaryshare of 25p into five ordinary shares of 5p each on 23rd July 2014.




2015 2014 £’000 £’000

10. InvestmentsInvestments listed on a recognised stock exchange 465,221 487,344Investments in liquidity funds 9,992 10,003

475,213 497,347

Opening book cost 432,274 361,187

Opening investment holding gains 65,073 46,947

Opening valuation 497,347 408,134

Movement in the year:Purchases at cost 1,038,694 1,426,828Sales – proceeds (1,052,946) (1,464,795)(Losses)/gains on sales of investments based on the carrying value at the previous balance sheet date (61,884) 68,306

Net movement in investment holding gains and losses 54,002 58,874

475,213 497,347

Closing book cost 418,333 432,274Closing investment holding gains 56,880 65,073

Total investments held at fair value 475,213 497,347

Transaction costs on purchases during the year amounted to £1,483,000 (2014: £1,979,000) and on sales during the yearamounted to £1,034,000 (2014: £1,483,000). These costs comprise mainly brokerage commission.

During the year, prior year investment holding gains amounting to £62,195,000 have been transferred to gains on sales ofinvestments as disclosed in note 15 on page 54.



2015 2014 £’000 £’000

11. Current assetsDerivative instruments held at fair value through profit or lossForward foreign currency contracts — 3

— 3

DebtorsSecurities sold awaiting settlement 5,859 18,795Dividends and interest receivable 138 —Overseas tax recoverable 293 354Other debtors 32 30

6,322 19,179

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

Cash and short term depositsCash and short term deposits comprise bank balances and cash held by the Company, including short term deposits. Thecarrying amount of these represents their fair value. Cash balances in excess of a predetermined amount are placed on shortterm deposit at market rates of interest.

2015 2014 £’000 £’000

12. Current liabilities Creditors: amounts falling due within one year

Bank loan — 28,935Securities purchased for future settlement 9,564 18,015Other creditors and accruals 135 184

9,699 47,134

Further details of the Company’s loan facilities are given in note 21(a)(ii) on page 60.

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

2015 2014 £’000 £’000

13. Creditors: amounts falling due after more than one year Floating rate loan facility with Scotiabank Ireland 7,235 —Fixed rate loan facility with Scotiabank Europe 36,174 41,336

43,409 41,336

Further details of the Company’s loan facilities are given in note 21(a)(ii) on page 60.




2015 2014 £’000 £’000

14. Called up share capital Issued and fully paidOpening balance of 32,029,577 ordinary shares of 25p each (2014: 35,781,923) 8,008 8,946Repurchase of nil (2014: 3,752,346) shares for cancellation — (938)Sub-division of 32,029,577 shares of 25p each into 160,147,885 shares of 5p each — —

Closing balance, represented by 160,147,885 (2014: 160,147,885)1 ordinary shares of 5p each 8,008 8,008 1The 2014 closing balance of 32,029,577 shares of 25p each has been restated as a result of the five for one sub-division of shares.

Further details of transactions in the Company’s shares are given in the Business Review on page 19.

Capital reserves Gains and Investment Capital losses on holding Share redemption sales of gains and Revenue premium reserve investments losses reserve £’000 £’000 £’000 £’000 £’000

15. Reserves Opening balance 1,312 7,628 345,255 65,884 5,406Net foreign currency gains/(losses) on cash and short term deposits — — 954 (2) —Losses on sales of investments based on the carrying value at the previous balance sheet date — — (61,884) — —

Net movement in investment holding gains and losses — — — 54,002 —Transfer on disposal of investments — — 62,195 (62,195) —Expenses incurred due to stock split — — (16) — —Unrealised foreign currency gains on loans — — — 5,162 —Realised gains on repayment of loans — — 1,115 — —Transfer on loans repaid in period — — 1,012 (1,012) —Management fee and finance costs allocated to capital — — (3,793) — —Other capital charges — — (178) — —Dividends appropriated in the year — — — — (4,645)Retained revenue for the year — — — — 5,519

Closing balance 1,312 7,628 344,660 61,839 6,280

16. Net asset value per share

The net asset value per share is based on the net assets attributable to the ordinary shareholders of £429,727,000 (2014:£433,493,000) and on the 160,147,885 (2014: 160,147,885) shares in issue at the year end.

Comparative figures for the year ended 31st March 2014 have been restated due to the sub-division of each existing ordinaryshare of 25p into five ordinary shares of 5p each on 23rd July 2014.



2015 2014 £’000 £’000

17. Reconciliation of total return on ordinary activities before finance costs and taxation to net cash inflow from operating activities

Net return on ordinary activities before finance costs and taxation 2,608 131,119Add: capital loss/Deduct: (capital return) on ordinary activities before finance costs and taxation 3,948 (125,179)Scrip dividends received as income — (1,415)(Increase)/decrease in dividends and interest receivable (138) 906(Increase)/decrease in other debtors and VAT recoverable (2) 1(Decrease)/increase in accrued expenses (11) 24Overseas withholding tax (1,204) (898)Management fee allocated to capital (3,117) (3,067)

Net cash inflow from operating activities 2,084 1,491

Exchange 2014 Cash flow movements 2015 £’000 £’000 £’000 £’000

18. Analysis of changes in net debtCash and short term deposits and bank overdrafts 5,434 (5,088) 954 1,300Bank loans falling due within one year (28,935) 27,820 1,115 —Bank loans falling due after more than one year (41,336) (7,235) 5,162 (43,409)

Net debt (64,837) 15,497 7,231 (42,109)

19. Transactions with the Manager

Details of the management contract are set out in the Directors’ Report on page 24. The management fee payable to theManager for the year was £4,453,000 (2014: £4,381,000) of which £nil (2014: £nil) was outstanding at the year end.

During the year £157,000 (2014: £151,000), including VAT, was payable to the Manager for the marketing and administration ofsavings scheme products, of which £nil (2014: £nil) was outstanding at the year end.

Included in administration expenses in note 5 on page 49 are safe custody fees amounting to £64,000 (2014: £116,000)excluding VAT of which £13,000 (2014: £33,000) was outstanding at the year end. These fees were paid to third partycustodians by the Manager on behalf of the Company and reimbursed to the Manager.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out atarm’s length. The commission payable to JPMorgan Securities for the year was £89,000 (2014: £115,00) of which £nil (2014:£nil) was outstanding at the year end.

During the year the Company made purchases and sales of units in the JPMorgan Euro Liquidity Fund, which is managed byJPMAM. At the year end, the Company’s investment in this fund amounted to £10.0 million (2014: £10.0 million) or 2.1%(2014: 2.1%) of the Company’s investments. Dividends amounting to £21,000 (2014: £18,000) were receivable from thisinvestment during the year of which £nil (2014: £nil) were outstanding at the year end.

Stock lending income amounting to £138,000 (2014: £29,000) was receivable by the Company during the year. JPMAMcommissions in respect of such transactions amounted to £24,000 (2014: £6,000).

Handling charges on dealing transactions amounting to £178,000 (2014: £195,000) were payable to JPMorgan Chase duringthe year of which £14,000 (2014: £42,000) was outstanding at the year end.

At the year end, a bank balance of £1,300,000 (2014: £5,434,000) was held with JPMorgan Chase. A net amount of interest of£nil (2014: £1,000) was receivable by the Company during the year from JPMorgan Chase of which £nil (2014: £nil) wasoutstanding at the year end.




20. Disclosures regarding financial instruments measured at fair value

The Company’s financial instruments within the scope of FRS 29 that are held at fair value comprise its investment portfolioand derivative financial instruments. The Company’s liabilities are not held at fair value.

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

Level 1 – valued using quoted prices in active markets.

Level 2 – valued by reference to valuation techniques using observable inputs other than quoted market prices includedwithin Level 1.

Level 3 – valued by reference to valuation techniques using inputs that are not based on observable market data.

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

Details of the valuation techniques used by the Company are given in note 1(b) on page 46.

The following table sets out the fair value measurements using the FRS 29 hierarchy at 31st March:

2015 Level 1 Level 2 Level 3 Total £’000 £’000 £’000 £’000

Financial instruments held at fair value through profit or lossEquity investments 465,221 — — 465,221Liquidity funds 9,992 — — 9,992

Total 475,213 — — 475,213

2014 Level 1 Level 2 Level 3 Total £’000 £’000 £’000 £’000

Financial instruments held at fair value through profit or lossEquity investments 487,344 — — 487,344Liquidity funds 10,003 — — 10,003Derivative financial instruments: Forward foreign currency contracts — 3 — 3

Total 497,347 3 — 497,350

There have been no transfers between Levels 1, 2 or 3 during the year (2014: nil).



21. Financial instruments’ exposure to risk and risk management policies

As an investment trust, the Company invests in equities and other securities for the long term in order to secure itsinvestment objective stated on the ‘Features’ page. In pursuing this objective, the Company is exposed to a variety of risksthat could result in a reduction in the Company’s net assets or a reduction in the profits available for dividends. These risksinclude market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. TheDirectors’ policy for managing these risks is set out below. The Company Secretary, in close co-operation with the Board andthe Manager, co-ordinates the Company’s risk management strategy.

The objectives, policies and processes for managing the risks and the methods used to measure the risks that are set outbelow, have not changed from those applying in the comparative year.

The Company’s financial instruments may comprise the following:

– investments in equity shares of European companies and a Euro liquidity fund which are both held in accordance with theCompany’s investment objective;

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

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

– loan facilities, the purpose of which are to finance the Company’s operations.

(a) Market risk The fair value of future cash flows of a financial instrument held by the Company may fluctuate because of changes in marketprices. This market risk comprises three elements – currency risk, interest rate risk and other price risk. Information to enablean evaluation of the nature and extent of these three elements of market risk is given in parts (i) to (iii) of this note, togetherwith sensitivity analyses where appropriate. The Board reviews and agrees policies for managing these risks and thesepolicies have remained unchanged from those applying in the comparative year. The Manager assesses the exposure tomarket risk when making each investment decision and monitors the overall level of market risk on the whole of theinvestment portfolio on an ongoing basis.

(i) Currency risk Certain of the Company’s assets, liabilities and income are denominated in currencies other than sterling which is theCompany’s functional currency and the currency in which it reports. As a result, movements in exchange rates may affectthe sterling value of those items.

Management of currency risk The Manager monitors the Company’s exposure to foreign currencies on a daily basis and reports to the Board, whichmeets on at least five occasions each year. The Manager measures the risk to the Company of the foreign currencyexposure by considering the effect on the Company’s net asset value and income of a movement in the rates of exchangeto which the Company’s assets, liabilities, income and expenses are exposed. Foreign currency borrowing may be used tolimit the Company’s exposure to anticipated changes in exchange rates which might otherwise adversely affect thesterling value of the portfolio of investments. This borrowing is limited to currencies and amounts commensurate with theasset exposure to those currencies. Income denominated in foreign currencies is converted to sterling on receipt. TheCompany may use short term forward currency contracts to manage working capital requirements.

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




21. Financial instruments’ exposure to risk and risk management policies continued

(a) Market risk continued(i) Currency risk continued

Foreign currency exposure continued 2015 Swiss Swedish Danish Norwegian US Euro francs krona krone krone Dollar Total £’000 £’000 £’000 £’000 £’000 £’000 £’000

Investments held at fair value through profit or loss that are monetary items 9,992 — — — — — 9,992

Current assets 5,006 429 2,231 154 67 1 7,888Creditors (51,526) (194) (1,460) (154) — — (53,334)

Foreign currency exposure on net monetary items (36,528) 235 771 — 67 1 (35,454)

Investments held at fair value through profit or loss that are equities 335,769 45,773 70,825 12,854 — — 465,221

Total net foreign currency exposure 299,241 46,008 71,596 12,854 67 1 429,767

2014 Swiss Swedish Danish Norwegian US Euro francs krona krone krone Dollar Total £’000 £’000 £’000 £’000 £’000 £’000 £’000

Investments held at fair value through profit or loss that are monetary items 10,003 — — — — — 10,003

Current assets 21,995 384 1,510 718 276 — 24,883Creditors (85,125) (324) (2,483) (518) (207) — (88,657)

Foreign currency exposure on net monetary items (53,127) 60 (973) 200 69 — (53,771)

Investments held at fair value through profit or loss that are equities 388,286 50,424 34,934 13,700 — — 487,344

Total net foreign currency exposure 335,159 50,484 33,961 13,900 69 — 433,573

In the opinion of the Directors, the above year end amounts are broadly representative of the exposure to foreigncurrency risk during the year.

Foreign currency sensitivityThe following tables illustrate the sensitivity of return after taxation for the year and net assets with regard to theCompany’s monetary financial assets and financial liabilities and exchange rates. The sensitivity analysis is based on theCompany’s monetary currency financial instruments held at each balance sheet date and the income receivable in foreigncurrency and assumes a 10% (2014: 10%) appreciation or depreciation in sterling against the Euro, Swiss francs, Danishkrone, Swedish krona and Norwegian krone to which the Company is exposed, which is considered to be a reasonableillustration based on the volatility of exchange rates during the year.



If sterling had strengthened by 10% this would have had the following effect:

2015 2014 £’000 £’000

Income statement return after taxationRevenue return 845 799Capital return (3,545) (5,377)

Total return after taxation for the year (2,700) (4,578)

Net assets (2,700) (4,578)

Conversely, if sterling had weakened by 10% this would have had the following effect:

2015 2014 £’000 £’000

Income statement return after taxationRevenue return (845) (799)Capital return 3,545 5,377

Total return after taxation for the year 2,700 4,578

Net assets 2,700 4,578

In the opinion of the Directors, the above sensitivity analysis is broadly representative of the whole year.

(ii) Interest rate risk Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on theCompany’s variable rate cash borrowings.

Management of interest rate risk The Company does not normally hold significant cash balances. Short term borrowings are used when required. TheCompany 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 theCompany borrows on the floating rate loan facility. However, amounts drawn down on this facility are for short termperiods and therefore there is limited exposure to interest rate risk.

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

Interest rate exposure The Company has a loan carrying a fixed rate of interest and the exposure is therefore already quantifiable. The exposureof financial assets and liabilities to floating interest rates using the year end figures, giving cash flow interest rate riskwhen rates are reset, is shown below.





(a) Market risk continued(ii) Interest rate risk continued

Interest rate exposure continued 2015 2014 £’000 £’000

Amounts exposed to floating interest rates: Cash and short term deposits 1,300 5,434JPMorgan Euro Liquidity Fund 9,992 10,003

Creditors: amounts falling due within one yearBank loans — (28,935)

Creditors: amounts falling due after more than one yearBank loans (7,235) —

Total exposure 4,057 (13,498)

Interest receivable on cash balances or payable on overdrafts is at a margin below or above LIBOR respectively.

The target interest earned on the JPMorgan Euro Liquidity Fund is the 7 day Euro London Interbank Bid Rate.

In January 2012, the Company arranged a Euro 50 million 1 year Floating Rate Loan Facility with Scotiabank Ireland.Under the terms of the amended agreement, the Company was able to draw down up to Euro 50 million, or itsequivalent in another currency, at an interest rate of LIBOR as offered in the market for the relevant currency and loanperiod, plus a margin of 0.9% per annum plus the Mandatory Cost Rate, which is the lender’s cost of complying with theregulatory requirements of the Bank of England or European Central Bank during the term of the advance. This facilitywas unsecured but was subject to restrictions which are customary for a credit facility of this nature. This facility wasrenewed in January 2013 for a further year on the same terms with the exception of the margin which was negotiated ata reduced level of 0.875%. In January 2014, this facility was repaid following the entering into and the drawing down infull of a 3 year fixed rate loan with Scotiabank Europe. The all inclusive fixed interest rate is 1.605%. This loan matureson 20th January 2017.

In January 2012, the Company also arranged a Euro 50 million 3 year Floating Rate Loan Facility with ScotiabankIreland. Under the terms of this agreement, the Company may draw down up to Euro 50 million, or its equivalent inanother currency, at an interest rate of LIBOR as offered in the market for the relevant currency and loan period, plusa margin of 1.5% per annum plus the Mandatory Cost Rate. This facility is unsecured but is subject to the customarycredit restrictions. This facility was renewed in January 2015 for a further two years on the same terms with theexception of the margin which was negotiated at a reduced level of 0.825%. The Company had Euro 10 million drawndown on this facility at the year end.

Interest rate sensitivityThe following table illustrates the sensitivity of the return after taxation for the year and net assets to a 1% (2014: 1%)increase or decrease in interest rates with regard to the Company’s monetary financial assets and financial liabilities. Thislevel of change is considered to be a reasonable illustration based on observation of current market conditions. Thesensitivity analysis is based on the Company’s monetary financial instruments held at the balance sheet date, with all othervariables held constant.



2015 2014 1% increase 1%decrease 1% increase 1% decrease in rate in rate in rate in rate £’000 £’000 £’000 £’000

Income statement – return after taxationRevenue return 91 (91) 68 (68)Capital return (50) 50 (203) 203

Total return after taxation for the year 41 (41) (135) 135

Net assets 41 (41) (135) 135

In the opinion of the Directors, the above sensitivity analysis may not be representative of the Company’s future exposureto interest rate changes due to the fluctuation in the level of cash balances, investment in the JPMorgan Euro LiquidityFund, and amounts drawn down on the Company’s loan facilities.

(iii) Other price risk Other price risk includes changes in market prices, other than those arising from interest rate risk or currency risk, whichmay affect the value of equity investments.

Management of market price risk The Board meets on at least five occasions each year to consider the asset allocation of the portfolio and the riskassociated with particular industry sectors. The investment management team has responsibility for monitoring theportfolio, which is selected in accordance with the Company’s investment objectives and seeks to ensure that individualstocks meet an acceptable risk/reward profile.

Market price risk exposure The Company’s exposure to changes in market prices at 31st March comprises its holdings in equity investments as follows:

2015 2014 £’000 £’000

Equity investments held at fair value through profit or loss 465,221 487,344

The above data is broadly representative of the exposure to market price risk during the year.

Concentration of exposure to market price risk An analysis of the Company’s investments is given on pages 15 and 16. This shows that all of the investments’ value is inEuropean companies and there is no concentration of exposure to any one country. It should also be noted that aninvestment may not be entirely exposed to the economic conditions in its country of domicile or of listing.

Market price risk sensitivity The following table illustrates the sensitivity of the return after taxation for the year and net assets to an increase ordecrease of 10% (2014: 10%) in the fair value of the Company’s equities. This level of change is considered to be areasonable illustration based on observation of current market conditions. The sensitivity analysis is based on theCompany’s equities and adjusting for change in the management fee, but with all other variables held constant.





(a) Market risk continued(iii) Other price risk continued

Market price risk sensitivity continued 2015 2014 10% increase 10% decrease 10% increase 10% decrease in fair value in fair value in fair value in fair value £’000 £’000 £’000 £’000

Income statement – return after taxationRevenue return (140) 140 (190) 190Capital return 46,196 (46,196) 48,291 (48,291)

Total return after taxation for the year and net assets 46,056 (46,056) 48,101 (48,101)

The management fee arrangements for the fund will change with effect from 1st April 2015. Details are set out on page 24.

(b) Liquidity risk This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that aresettled by delivering cash or another financial asset.

Management of the risk Liquidity risk is not significant as the Company’s assets comprise readily realisable securities, the liquidity of which in normalmarkets is frequently tested by the Investment Managers and which can be sold to meet funding requirements if necessary.All of the Company’s assets are considered to be realisable within one month. Short term flexibility is achieved through theuse of overdraft facilities. The Board’s policy is for the Company to remain fully invested in normal market conditions and thatshort term borrowings be used to manage short term liabilities and working capital requirements. Details of the current loanfacilities are given in part (a)(ii) to this note on page 60.

Contractual maturities of the financial liabilities at the year end, based on the earliest date on which payment can be requiredare as follows:

2015 2014 More than More than three three months months Three but not Three but not months more than More than months more than More than or less one year one year Total or less one year one year Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

CreditorsBank loans, including interest 172 482 43,929 44,583 310 29,720 42,537 72,567Securities purchased awaiting settlement 9,564 — — 9,564 18,015 — — 18,015Other creditors and accruals 121 — — 121 161 — — 161

9,857 482 43,929 54,268 18,486 29,720 42,537 90,743



(c) Credit risk Credit risk is the risk that the counterparty to a transaction fails to discharge its obligations under that transaction which couldresult in loss to the Company.

Management of credit risk Portfolio dealingThe Company invests in markets that operate Delivery Versus Payment (‘DVP’) settlement. The process of DVP mitigates therisk of losing the principal of a trade during the settlement process. The Manager continuously monitors dealing activity toensure best execution, a process that involves measuring various indicators including the quality of trade settlement andincidence of failed trades. Counterparty lists are maintained and adjusted accordingly.

CashCounterparties are subject to daily credit analysis by the Manager and trades can only be placed with counterparties thathave been approved by both the JPMorgan Counterparty Risk Group and the Board.

Exposure to JPMorgan ChaseJPMorgan Chase Bank, N.A. is the custodian of the Company’s assets. The custody agreement grants a general lien over thesecurities credited to the securities account. The Company’s assets are segregated from JPMorgan Chase’s own trading assetsand are therefore protected from creditors in the event that JPMorgan Chase were to cease trading.

Credit risk exposure The amounts shown in the balance sheet under investment in liquidity fund, debtors and cash and short term depositsrepresent the maximum exposure to credit risk at the current and comparative year ends. The liquidity fund has an AAA(2014: AAA) credit rating.

Cash and short term deposits comprise balances held at banks that have a minimum credit rating of A1/P1 (2014: A1/P1) fromStandard & Poor’s and Moody’s respectively.

The aggregate value of securities on loan at 31st March 2015 amounted to £10.8 million and the maximum value of stock onloan during the year amounted to £45.0 million. Collateral is obtained by JPMorgan Asset Management and is called in on adaily basis to a value of 102% of the value of the securities on loan if that collateral is denominated in the same currency asthe securities on loan and 105% if it is denominated in a different currency.

(d) Fair values of financial assets and financial liabilitiesAll financial assets and liabilities are either included in the balance sheet at fair value or the carrying amount in the balancesheet is a reasonable approximation of fair value.



22. Capital management policies and procedures

The Company’s debt and capital comprise the following: 2015 2014 £’000 £’000

DebtBank loans 43,409 70,271

EquityEquity share capital 8,008 8,008Reserves 421,719 425,485

Total equity 429,727 433,493

Total capital 473,136 503,764

The Company’s capital management objectives are to ensure that it will continue as a going concern and to maximise theincome and capital return to its equity shareholders through an appropriate balance of equity capital and debt.

The Board’s policy is to limit gearing within the range of 20% net cash to 20% geared. Gearing for this purpose is defined asthe excess amount above shareholders’ funds of total assets less cash/cash equivalents, and excluding bank loans of less thanone year, expressed as a percentage of shareholders’ funds. If the amount calculated is negative, this is shown as a ‘net cash’position. At 31st March 2015, gearing calculated on this basis was 7.5% (2014: 12.6%).

2015 2014 £’000 £’000

Investments excluding liquidity fund holdings 465,221 487,344Current assets excluding cash 6,322 19,182Current liabilities excluding bank loans (9,699) (18,199)

Total assets 461,844 488,327

Net assets 429,727 433,493

Gearing 7.5% 12.6%

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

– the planned level of gearing, which takes into account the Manager’s views on the market;

– the need to repurchase equity shares, either for cancellation or to hold in Treasury, which takes into account the shareprice discount or premium;

– the opportunity for issues of new shares, including issues from Treasury (where applicable); and

– the level of dividend distributions in excess of that which is required to be distributed.




Number of shares % Holding

Pension Funds 31,252,915 19.5Mutual Funds 19,741,447 12.3Insurance Companies 7,350,656 4.6Fund of Funds 2,338,439 1.5JPMorgan Elect plc 1,932,830 1.2Other Institutions 14,069,770 8.8

Total Institutions 76,686,057 47.9

Market Trading Accounts 1,156,487 0.7

Retail investors holding shares directly or through nominee orprivate client broker accounts1 62,924,131 39.3

Individuals in the JPMorgan Investment Trust Investment Account/ISA/SIPP 19,381,210 12.1

Total Retail Holdings 82,305,341 51.4

Total Shares in issue 160,147,885 100.0 1Includes shares below threshold of 10,000 shares.

Source: Richard Davies Investor Relations.

Nominee accounts have been allocated to their appropriate category.

Shareholder InformationShareholder Analysisat 31st March 2015

European Smaller_pp65_72_European Smaller_pp63_72 26/05/2015 09:24 Page 65


Shareholder Information continuedNotice of Annual General Meeting

Notice is hereby given that the twenty-sixth Annual GeneralMeeting of JPMorgan European Smaller Companies Trust plcwill be held at 60 Victoria Embankment, London EC4Y 0JPon Friday, 10th July 2015 at 12 noon for the following purposes:

1. To receive the Directors’ Report, the Annual Accounts andthe Auditors’ Report for the year ended 31st March 2015.

2. To approve the Directors’ Remuneration Policy.

3. To approve the Directors’ Remuneration Report for theyear ended 31st March 2015.

4. To declare a final dividend of 2.0 pence per share.

5. To reappoint Carolan Dobson as a Director of the Company.

6. To reappoint Ashok Gupta as a Director of the Company.

7. To reappoint Federico Marescotti as a Director of theCompany.

8. To reappoint Stephen White as a Director of the Company.

9. To reappoint Nicholas Smith as a Director of the Company.

10. To reappoint PricewaterhouseCoopers LLP as Auditors tothe Company and to authorise the Directors to determinetheir remuneration.

Special Business

To consider the following resolutions:

Authority to allot new shares – Ordinary Resolution11. THAT the Directors of the Company be and they are hereby

generally and unconditionally authorised, (in substitutionof any authorities previously granted to the Directors),pursuant to and in accordance with Section 551 of theCompanies Act 2006 (the ‘Act’) to exercise all the powersfor the Company to allot shares in the Company and togrant rights to subscribe for, or to convert any security into,shares in the Company (‘Rights’) up to an aggregatenominal amount of £400,369.70 or, if different theaggregate nominal amount representing approximately 5%of the Company’s issued ordinary share capital (includingTreasury shares) as at the date of the passing of thisresolution, provided that this authority shall expire at theconclusion of the Annual General Meeting of the Companyto be held in 2016 unless renewed at a general meetingprior to such time, save that the Company may before suchexpiry make offers, agreements or arrangements whichwould or might require shares to be allotted or Rights to be

granted after such expiry and so that the Directors of theCompany may allot shares and grant Rights in pursuance ofsuch offers or agreements as if the authority conferredhereby had not expired.

Authority to disapply pre-emption rights on allotment of relevantsecurities – Special Resolution 12. THAT subject to the passing of Resolution 11 set out above,

the Directors of the Company be and they are herebyempowered pursuant to Sections 570 and 573 of the Act toallot equity securities (within the meaning of Section 560 ofthe Act) for cash pursuant to the authority conferred byResolution 11 or by way of a sale of Treasury shares as ifSection 561(1) of the Act did not apply to any suchallotment, provided that this power shall be limited to theallotment of equity securities for cash up to an aggregatenominal amount of £400,369.70 or, if different theaggregate nominal amount representing approximately 5%of the issued share capital as at the date of the passing ofthis resolution (including Treasury shares) at a price of notless than the net asset value per share and shall expireupon the expiry of the general authority conferred byResolution 11 above, save that the Company may beforesuch expiry make offers or agreements which would ormight require equity securities to be allotted after suchexpiry and so that the Directors of the Company may allotequity securities in pursuance of such offers, agreementsor arrangements as if the power conferred hereby had notexpired.

Authority to repurchase the Company’s shares – Special Resolution 13. THAT the Company be generally and, subject as hereinafter

appears, unconditionally authorised in accordance withSection 701 of the Act to make market purchases (withinthe meaning of Section 693 of the Act) of its issuedordinary shares in the capital of the Company on suchterms and in such manner as the Directors may from timeto time determine.

PROVIDED ALWAYS THAT

(i) the maximum number of ordinary shares herebyauthorised to be purchased shall be the number ofordinary shares which is equal to 14.99% of theCompany’s issued share capital (less shares held inTreasury) as at the date of the passing of thisResolution;

(ii) the minimum price which may be paid for an ordinaryshare shall be the nominal value of such ordinary share;



(iii) the maximum price which may be paid for an ordinaryshare shall be an amount equal to the highest of:(a) 105% of the average of the middle marketquotations for an ordinary share taken from andcalculated by reference to the London Stock ExchangeDaily Official List for the five business days immediatelypreceding the day on which the ordinary share iscontracted to be purchased; or (b) the price of the lastindependent trade; or (c) the highest currentindependent bid;

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

(v) the authority hereby conferred shall expire on9th January 2017 unless the authority is renewed at theCompany’s Annual General Meeting in 2016 or at anyother general meeting prior to such time; and

(vi) the Company may make a contract to purchaseordinary shares under the authority hereby conferredprior to the expiry of such authority which contract willor may be executed wholly or partly after the expiry ofsuch authority and may make a purchase of ordinaryshares pursuant to any such contract.

By order of the BoardRebecca Burtonwood, for and on behalf of JPMorgan Funds Limited, Company Secretary

2nd June 2015

Notes

These notes should be read in conjunction with the notes on thereverse of the proxy form.

1. A member entitled to attend and vote at the Annual GeneralMeeting (the ‘Meeting’) may appoint another person(s) (who neednot be a member of the Company) to exercise all or any of hisrights to attend, speak and vote at the Meeting. A member canappoint more than one proxy in relation to the Meeting, providedthat each proxy is appointed to exercise the rights attaching todifferent shares held by him.

2. A proxy does not need to be a member of the Company but mustattend the Meeting to represent you. Your proxy could be theChairman, another Director of the Company or another personwho has agreed to attend to represent you. Details of how toappoint the Chairman or another person(s) as your proxy orproxies using the proxy form are set out in the notes to the proxyform. If a voting box on the proxy form is left blank, the proxy orproxies will exercise his/their discretion both as to how to vote andwhether he/they abstain(s) from voting. Your proxy must attendthe Meeting for your vote to count. Appointing a proxy or proxiesdoes not preclude you from attending the Meeting and voting inperson.

3. Any instrument appointing a proxy, to be valid, must be lodged inaccordance with the instructions given on the proxy form no laterthan 12 noon two business days prior to the Meeting (i.e. excludingweekends and bank holidays).

4. You may change your proxy instructions by returning a new proxyappointment. The deadline for receipt of proxy appointments (seeabove) also applies in relation to amended instructions. Anyattempt to terminate or amend a proxy appointment received afterthe relevant deadline will be disregarded. Where two or more validseparate appointments of proxy are received in respect of the sameshare 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 asreplacing and revoking the other or others as regards that share; ifthe Company is unable to determine which was last received, noneof them shall be treated as valid in respect of that share.

5. To be entitled to attend and vote at the Meeting (and for thepurpose of the determination by the Company of the number ofvotes they may cast), members must be entered on the Company’sregister of members as at 6.00 p.m. two business days prior to theMeeting (the ‘specified time’). If the Meeting is adjourned to a timenot more than 48 hours after the specified time applicable to theoriginal Meeting, that time will also apply for the purpose ofdetermining the entitlement of members to attend and vote (andfor the purpose of determining the number of votes they may cast)at the adjourned Meeting. If, however, the Meeting is adjourned fora longer period then, to be so entitled, members must be enteredon the Company’s register of members as at 6.00 p.m. twobusiness days prior to the adjourned Meeting or, if the Companygives notice of the adjourned Meeting, at the time specified in thatnotice. Changes to entries on the register after this time shall bedisregarded in determining the rights of persons to attend or voteat the Meeting or adjourned Meeting.

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



7. 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 theprovisions of the Companies Act 2006, each such representative(s)may exercise (on behalf of the corporation) the same powers asthe corporation could exercise if it were an individual member ofthe Company, provided that they do not do so in relation to thesame shares. It is therefore no longer necessary to nominate adesignated corporate representative.

Representatives should bring to the Meeting evidence of theirappointment, including any authority under which it is signed.

8. Members that satisfy the thresholds in Section 527 of theCompanies Act 2006 can require the Company to publish astatement on its website setting out any matter relating to:(a) the audit of the Company’s accounts (including the Auditors’report and the conduct of the audit) that are to be laid beforethe Meeting; or (b) any circumstances connected with Auditorsof the Company ceasing to hold office since the previousMeeting, which the members propose to raise at the Meeting.The Company cannot require the members requesting thepublication to pay its expenses. Any statement placed on thewebsite must also be sent to the Company’s Auditors no laterthan the time it makes its statement available on the website.The business which may be dealt with at the Meeting includesany statement that the Company has been required to publishon its website pursuant to this right.

9. Pursuant to Section 319A of the Companies Act 2006, theCompany must cause to be answered at the Meeting any questionrelating to the business being dealt with at the Meeting which isput by a member attending the Meeting except in certaincircumstances, including if it is undesirable in the interests of theCompany or the good order of the Meeting or if it would involvethe disclosure of confidential information.

10. Under Sections 338 and 338A of the 2006 Act, members meetingthe threshold requirements in those sections have the right torequire the Company: (i) to give, to members of the Companyentitled to receive notice of the Meeting, notice of a resolutionwhich those members intend to move (and which may properly bemoved) at the Meeting; and/or (ii) to include in the business to bedealt with at the Meeting any matter (other than a proposedresolution) which may properly be included in the business at theMeeting. A resolution may properly be moved, or a matter properlyincluded in the business unless: (a) (in the case of a resolution only)it would, if passed, be ineffective (whether by reason of anyinconsistency with any enactment or the Company’s constitutionor otherwise); (b) it is defamatory of any person; or (c) it is frivolousor vexatious. A request made pursuant to this right may be in hardcopy or electronic form, must identify the resolution of whichnotice is to be given or the matter to be included in the business,must be accompanied by a statement setting out the grounds forthe request, must be authenticated by the person(s) making it andmust be received by the Company not later than the date that is sixclear weeks before the Meeting, and (in the case of a matter to beincluded in the business only) must be accompanied by astatement setting out the grounds for the request.

11. A copy of this Notice of Meeting has been sent for information onlyto persons who have been nominated by a member to enjoyinformation rights under Section 146 of the Companies Act 2006(a ‘Nominated Person’). The rights to appoint a proxy cannot beexercised by a Nominated Person: they can only be exercised bythe member. However, a Nominated Person may have a rightunder an agreement between him and the member by whom hewas nominated to be appointed as a proxy for the Meeting or tohave someone else so appointed. If a Nominated Person does nothave such a right or does not wish to exercise it, he may have aright under such an agreement to give instructions to the memberas to the exercise of voting rights.

12. In accordance with Section 311A of the Companies Act 2006, thecontents of this Notice of Meeting, details of the total number ofshares in respect of which members are entitled to exercisevoting rights at the Meeting, the total voting rights members areentitled to exercise at the Meeting and, if applicable, anymembers’ statements, members’ resolutions or members’matters of business received by the Company after the date ofthis Notice of Meeting will be available on the Company’s websitewww.jpmeuropeansmallercompanies.co.uk.

13. The register of interests of the Directors and connected persons inthe share capital of the Company and the Directors’ letters ofappointment are available for inspection at the Company’sregistered office during usual business hours on any weekday(Saturdays, Sundays and public holidays excepted). It will also beavailable for inspection at the Meeting. No Director has anycontract of service with the Company.

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

15. As an alternative to completing a hard copy Form of Proxy/VotingInstruction Form, you can appoint a proxy or proxies electronicallyby visiting www.sharevote.co.uk. You will need your Voting ID,Task ID and Shareholder Reference Number (this is the series ofnumbers printed under your name on the Form of Proxy/VotingInstruction Form). Alternatively, if you have already registered withEquiniti Limited’s online portfolio service, Shareview, you cansubmit your Form of Proxy at www.shareview.co.uk. Fullinstructions are given on both websites.

16. As at 22nd May 2015 (being the latest business day prior to thepublication of this Notice), the Company’s issued share capitalconsists of 160,147,885 ordinary shares, carrying one vote each.Therefore the total voting rights in the Company are 160,147,885.

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

Shareholder Information continuedNotice of Annual General Meeting continued



Return to ShareholdersTotal return to the investor, on a mid-market price tomid-market price basis, assuming that all dividends receivedwere reinvested, without transaction costs, into the shares ofthe Company at the time the shares were quoted ex-dividend.

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

In accordance with industry practice, dividends payable whichhave been declared but which are unpaid at the balance sheetdate are deducted from the NAV per share when calculatingthe return on net assets.

Benchmark ReturnTotal return on the benchmark, on a mid-market value tomid-market value basis, assuming that all dividends receivedwere reinvested, without transaction costs, into the shares ofthe underlying companies at the time the shares were quotedex-dividend.

The benchmark is a recognised index of stocks which shouldnot be taken as wholly representative of the Company’sinvestment universe. The Company’s investment strategydoes not ‘track’ this index and consequently, there may besome divergence between the Company’s performance andthat of the benchmark.

Benchmark Index The Company’s investment universe is defined at the time ofpurchase by the countries and market capitalisation range ofthe constituents of the benchmark index, the EuromoneySmaller European Companies (ex UK) Total Return Index(formerly known as the HSBC Smaller European Companies(ex UK) Total Return Index). At 31st March 2015, the indexconsisted of 1,000 companies with a market capitalisation ofbetween £51 million and £3.3 billion across fifteen countries.

Gearing/Net CashGearing represents the excess amount above shareholders’funds of total assets, expressed as a percentage of theshareholders’ funds. Total assets include total investments andnet current assets/liabilities less cash/cash equivalents and

excluding bank loans of less than one year. If the amountcalculated is negative, this is shown as a ‘net cash’ position.

Ongoing ChargesThe ongoing charges represent the Company’s managementfee and all other operating expenses, excluding finance costs,expressed as a percentage of the average of the daily netassets during the year and is calculated in accordance withguidance issued by the Association of Investment Companies.

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

Performance AttributionAnalysis of how the Company achieved its recordedperformance relative to its benchmark.

Leverage

For the purposes of the Alternative Investment Fund ManagersDirective (‘AIFMD’), leverage is any method which increases theCompany’s exposure, including the borrowing of cash and theuse of derivatives. It is expressed as a ratio between theCompany’s exposure and its net asset value and is calculatedon a gross and a commitment method, in accordance withAIFMD. Under the gross method, exposure represents the sumof the Company’s positions without taking into account anyhedging and netting arrangements. Under the commitmentmethod, exposure is calculated after certain hedging andnetting positions are offset against each other.

The Company’s maximum and actual leverage levels at31st March 2015 are shown below:

Gross CommitmentLeverage exposure method method

Maximum limit 200.00% 200.00%Actual 121.55% 121.55%

Premium ListingThe listing of the Company’s ordinary shares on the LondonStock Exchange.

Glossary of Terms and Definitions



Shareholder Information continuedGlossary of Terms and Definitions continued

Performance Attribution Definitions:

Stock Selection/Asset AllocationMeasures the effect of investing in securities/sectors to a greateror lesser extent than their weighting in the benchmark, or ofinvesting in securities which are not included in the benchmark.

Currency EffectMeasures the effect of currency exposure differences betweenthe Company’s portfolio and its benchmark.

Management Fees/Other ExpensesThe payment of fees and expenses reduces the level of totalassets and therefore has a negative effect on relativeperformance.

Share RepurchasesMeasures the positive effect on relative performance ofrepurchasing the Company’s shares for cancellation, orrepurchases into Treasury, at a discount to their net asset value(‘NAV’) per share.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Beware of share fraud

How to avoid share fraud

Report a scam

In association with:

Financial Conduct Authority



Savings Plan

The Company participates in the J.P. Morgan Investment TrustsSavings Plan, which facilitates both regular monthlyinvestments and occasional lump sum investments in theCompany’s ordinary shares. Shareholders who would likeinformation on the Savings Plan should call J.P. Morgan AssetManagement free on 0800 731 1111 or visit our website athttps://am.jpmorgan.co.uk/investor/guidance-and-planning/guides/regular-savings-made-simple-guide.aspx

Stocks & Shares Individual Savings Accounts (ISA)

The Company’s shares are eligible investments withinJ.P. Morgan’s Stocks & Shares ISA. For the 2015/16 tax year,from 6th April 2015 and ends 5th April 2016, the total ISAallowance is £15,240. Details are available from J.P. MorganAsset Management free on 0800 731 1111 or via our website athttps://am.jpmorgan.co.uk/investor/isas/what-is-a-stocks-and-shares-isa.aspx.

There are a number of ways that you can buy shares ininvestment trust companies; you can invest throughJ.P. Morgan WealthManager+ or on the following:

Fund supermarkets:

Alternatively you can invest through an InvestmentProfessional (e.g. a Financial Adviser) on the following3rd party platforms:

Ascentric Nucleus Avalon Praemium Axa Elevate TransactNovia

Please note that these websites are third party websites andJ.P. Morgan Asset Management does not endorse orrecommend any of them. This list is not exhaustive and issubject to change. Please observe each site’s privacy andcookie policies as well as their platform charges structure.

You can also buy investment trusts through stockbrokers,wealth managers and banks.

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

AJ BellAlliance TrustBarclays StockbrokersBestinvestCharles Stanley DirectHalifax Share Dealing ServiceHargreaves Lansdown

Interactive InvestorJames Brearley James HaySelftradeTD DirectThe Share Centre Transact

Where to buy J.P. Morgan Investment Trusts


HistoryOn 24th April 1990, the Company acquired the undertakingand assets of Fleming European Fledgeling Fund Limited(the ‘Fund’) in exchange for the issue of its shares andwarrants. The Fund was an open-ended, unquoted investmentcompany based in Jersey and formed in June 1987 with thesame objectives and investment policies as the Company.The Company adopted its present name in July 2010.

Company NumbersCompany registration number: 2431143 London Stock Exchange number: 0341969 ISIN: GB00BMTS0Z37Bloomberg code: JESC LN

Market InformationThe Company’s net asset value (‘NAV’) per share is publisheddaily, via the London Stock Exchange. The Company’s sharesare listed on the London Stock Exchange. The market price isshown daily in the Financial Times, The Times, The DailyTelegraph and The Scotsman and on the Company’s website atwww.jpmeuropeansmallercompanies.co.uk, where the shareprice is updated every fifteen minutes during trading hours.

Share TransactionsThe Company’s shares may be dealt in directly through astockbroker or professional adviser acting on an investor’s behalf.They may also be purchased and held through the J.P. MorganInvestment Account, J.P. Morgan ISA and J.P. Morgan SIPP. Theseproducts are all available on the online wealth manager service,J.P. Morgan WealthManager+ available atwww.jpmorganwealthmanagerplus.co.uk

Manager and Company SecretaryJPMorgan Funds Limited

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

For company secretarial issues and administrative matters,please contact Rebecca Burtonwood.

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

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

RegistrarsEquiniti LimitedReference 1083Aspect HouseSpencer RoadLancingWest Sussex BN99 6DATelephone number: 0871 384 2325

Calls to this number cost 8p per minute plus network extras.Lines open 8.30 a.m. to 5.30 p.m., Monday to Friday. Theoverseas helpline number is +44 (0)121 415 0225.

Notifications of changes of address and enquiries regardingshare certificates or dividend cheques should be made in writingto the Registrar quoting reference 1083.

Registered shareholders can obtain further details on theirholdings on the internet by visiting www.shareview.co.uk

Independent AuditorsPricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors7 More London Riverside London SE1 2RT

BrokersCenkos Securities plc 6.7.8 Tokenhouse Yard London EC2R 7AS

Savings Product AdministratorsFor queries on the J.P. Morgan Investment Account, J.P. MorganISA and J.P. Morgan SIPP, see contact details on the back coverof this report.

Information about the Company

Financial CalendarFinancial year end 31st March Final results announced May/June Half year end September Half year results announced November Annual General Meeting 10th July 2015

A member of the AIC



J.P. Morgan HelplineFreephone 0800 20 40 20 or +44 (0)20 7742 9995

Your telephone call may be recorded for your security

www.jpmeuropeansmallercompanies.co.uk


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