Annual Report JPMorganJapanSmaller …...2015 and 30thNovember 2016 at 243 pence per share. A total...

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Annual Report 2015 JPMorgan Japan Smaller Companies Trust plc Annual Report & Accounts for the year ended 31st March 2015

Transcript of Annual Report JPMorganJapanSmaller …...2015 and 30thNovember 2016 at 243 pence per share. A total...

Page 1: Annual Report JPMorganJapanSmaller …...2015 and 30thNovember 2016 at 243 pence per share. A total of 9,255,764 Subscription shares were duly allotted in December 2014 and, from 30th

Annual Report2015JPMorgan Japan Smaller

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

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Features

Contents

1 Financial Results

Strategic Report

2 Chairman’s Statement5 Investment Managers’ Report11 Summary of Results12 Five Year Financial Record13 Ten Largest Investments14 Sector Analysis15 List of Investments 17 Business Review

Governance

22 Board of Directors24 Directors’ Report28 Corporate Governance Statement34 Directors’ Remuneration Report37 Statement of Directors’

Responsibilities

38 Independent Auditor’s Report

Financial Statements

41 Income Statement42 Reconciliation of Movements in

Shareholders’ Funds43 Balance Sheet44 Cash Flow Statement45 Notes to the Financial Statements

Shareholder Information

62 Notice of Annual General Meeting65 Glossary of Terms and Definitions67 Details of Subscription Shares68 Where to buy J.P. Morgan Investment

Trusts69 Information about the Company

ObjectiveLong-term capital growth through investment in small and medium-sized Japanesecompanies.

Investment Policies - To maintain a portfolio almost wholly invested in Japan.- To obtain this exposure, investment is permitted in Japanese quoted companies otherthan the largest 200 measured by market capitalisation; Japanese domiciled unquotedcompanies; Japanese domiciled companies quoted on a non-Japanese exchange; andnon-Japanese domiciled companies which have at least 75% of their revenues derivedfrom Japan. Investment is also permitted in UK and Japanese government bonds.

- To utilise borrowings to enhance shareholder returns.- To operate within a range of 5% net cash to 15% geared in normal market conditions,subject to Board review, within an overall limit of 10% net cash to 25% geared.

- To invest no more than 15% of gross assets in other UK listed investment companies(including investment trusts).

Further details on investment policies and risk management are given in the Directors’Report on page 22.

BenchmarkS&P/Citigroup Japan Extended Market Index (Total Return Net) in sterling terms.Comparison of the Company’s performance is made with the benchmark as stated,although investors should note that there is no recognised benchmark that closelyreflects the Company’s stated investment policy.

Capital Structure As at 31st March 2015, the Company’s issued share capital comprised 46,692,082Ordinary shares of 10p each, of which 409,500 were held in Treasury, and 9,252,478Subscription shares of 0.1p each.

CurrencyThe Company does not currently hedge the currency exposure that arises from havingassets and bank debt denominated in Japanese yen.

Management CompanyThe 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 (Japan) Limited through JPMorganAsset Management (UK) Limited.

Association of Investment Companies (‘AIC’)The Company is a member of the AIC and complies with both the AIC Code of CorporateGovernance and the Financial Reporting Council’s UK Corporate Governance Code.

WebsiteThe Company’s website can be found at www.jpmjapansmallercompanies.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 so conducts its affairs 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.

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

Financial Resultsas at 31st March

Total returns

JPMorgan Japan Smaller Companies Returns1(returns for the year ended 31st March 2015)

+30.9%Diluted return on net assets1,3

(2014: +3.6%)

+35.9%Ordinary share price return5

(2014: +0.6%)

+22.4%Benchmark return4

(2014: –4.1%)

A glossary of terms and definitions is provided on pages 65 and 66.1Source: J.P. Morgan.2Return on net assets calculated using the undiluted net asset value.3The diluted net asset value per Ordinary share assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the period end.4Source: Datastream. The Company’s benchmark is the S&P/Citigroup Japan Extended Market Index (Total Return Net) in sterling terms.5Source: Morningstar.6Excludes 409,500 (31st March 2014: 409,500) shares held in Treasury.7The 31st March 2015 figure relates to the new Subscription shares issued on 16th December 2014, the 31st March 2014 figure relates to the old Subscription shares issued on5thMarch 2009 which had a final exercise date of 31st March 2014.

0

5

10

15

20

25

30

35

40

Ordinary share price return

Benchmark return4Diluted returnon net asssets

Portfolioreturn

+22.4

+34.6

%

+30.9

+35.9

+34.6%Portfolio total return net offees and expenses1,2

(2014: +3.9%)

Financial Data31st March 2015 31st March 2014 % change

Shareholders’ funds (£’000) 132,232 86,692 +52.5

Ordinary shares in issue6 46,282,582 39,494,749

Undiluted net asset value per Ordinary share 285.7p 219.5p +30.2

Diluted net asset value per Ordinary share3, 7 278.6p 212.8p +30.9

Ordinary share price 250.0p 184.0p +35.9

Ordinary share price discount to diluted net asset value per Ordinary share7 10.3% 13.5%

Subscription share price7 26.6p 6.5p

Subscription shares in issue7 9,252,478 6,784,547

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Investment Performance

The Company’s undiluted total return on net assets (or portfolio return) for the yearended 31st March 2015 was +30.2%. This comfortably exceeded the return of theCompany’s benchmark, the S&P/Citigroup Japan Extended Market Index (TotalReturn Net), which rose by +22.4%. The Company’s diluted return on net assets, whichassumes that all of the Subscription shares in issue were exercised at the rate of243 pence per share was +30.9%. Over the same period, the Company’s Ordinaryshare price increased by +35.9%, reflecting a narrowing of the discount to the dilutednet asset value per share from 13.5% to 10.3%.

Review of Services Provided by the Manager

Your Board is pleased that the Portfolio management arrangements put in place in2012 continue to work effectively. Your Board has again reviewed the performance ofthe Manager and has concluded that the continued engagement of the Manager onthe existing terms remains the best option for the management of the Company’sassets.

Gearing

The Company has a Japanese yen 3.0 billion credit facility with ING which gives theInvestment Managers the ability to gear tactically. The Company’s investment policypermits gearing within a range of 10% net cash to 25% geared. However the Boardrequires the Company, in normal market conditions, to operate in the range of 5%cash to 15% geared. The level of gearing is reviewed by the Directors at each Boardmeeting. During the year the Company’s gearing level ranged between 9.2% and12.7% and finished the fiscal year at around 10.3%.

Subscription Shares

The final date for the exercise of the conversion rights attached to the Subscriptionshares issued in March 2009 was 31st March 2014. On 1st April 2014, 4,030,780Ordinary shares were issued following the exercise of conversion rights byuncertificated shareholders and, on 14th April 2014, 6,028 Subscription shares heldby certificated holders were converted into Ordinary shares. As a result, 2,747,739Subscription shares remained outstanding after the final exercise and a Trustee wasappointed and the decision was taken to exercise the Subscription rights attaching tothese outstanding Subscription shares. This resulted in an issue of a further 2,747,739Ordinary shares. These Ordinary shares were then sold and, after the deduction ofthe conversion price of 174 pence per share, together with all associated fees, costsand expenses (including brokerage commission), 7.55 pence per Subscription sharewere distributed to the Subscription shareholders on whose behalf the Trustee hadexercised the Subscription share rights.

In November 2014, the Board decided to recommend a further bonus issue toOrdinary shareholders of one Subscription share for every five Ordinary shares held.Shareholder authority was duly received on 12th December 2014. The conversionrights attached to these Subscription shares are exercisable between 30th January2015 and 30th November 2016 at 243 pence per share. A total of 9,255,764Subscription shares were duly allotted in December 2014 and, from 30th January

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

Strategic ReportChairman’s Statement

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 3

2015 to 31st March 2015, 3,286 Ordinary shares were issued following receipt ofvalid notices of exercise from Subscription shareholders. Between 1st April 2015and the date of this report, a further 553,294 Ordinary shares have been issued onthe same basis.

Share Issues and Repurchases

The Company did not repurchase any Ordinary shares into Treasury or forcancellation during the year under review. No Ordinary shares were reissued fromTreasury during that period and no Ordinary shares were issued other than theOrdinary shares issued as a result of the exercise of conversion rights attached to theSubscription shares.

Your Board believes that the ability to issue new Ordinary shares and reissue sharesfrom Treasury at a premium and repurchase shares for cancellation or into Treasuryat a discount is in the interests of shareholders in assisting the Company in managingany imbalance between the supply and demand for the Company’s shares and inreducing the volatility of the discount. Accordingly, the Board will be seekingshareholders’ approval to renew these authorities at this year’s Annual GeneralMeeting. Further details are given on pages 62 and 63 of this report.

Board of Directors

In accordance with the Company’s Articles of Association, Chris Russell and I will seekreappointment at the forthcoming Annual General Meeting due to our length ofservice. Robert White, having last been reappointed in 2012 will also seekreappointment. The Nomination Committee has met to consider the attributes andcontributions of each of the Directors and, following this review, recommends theirreappointment.

As part of the Board’s succession plan, we were delighted to welcome DeborahGuthrie as a new Director on 1st April 2015. Ms Guthrie seeks reappointment at theforthcoming Annual General Meeting. She is an experienced Japanese equityresearch sales specialist with Pelham Smithers Associates based in London and hasheld senior Japanese equity sales roles for Hoare Govett, Smith New Court and MerrillLynch.

After twelve years of service to your Company, Bernard Grigsby will retire followingthe Annual General Meeting and is not seeking reappointment. Ben has been anoutstanding independent director and has brought his very considerable experienceof Japan and the region to bear for the benefit of all Shareholders over those pastyears. The Board, and I personally, shall miss his wise counsel.

The Board is seeking shareholder approval to increase the maximum aggregateamount of fees payable per annum from £150,000, which was set in 2006, to£200,000 to accommodate Board transitional periods and future fee increases.

Alternative Investment Fund Managers Directive (‘AIFMD’)

As detailed in my half year statement, with effect from 1st July 2014, the Companyappointed JPMorgan Funds Limited as its Alternative Investment Fund Manager asnewly required under the AIFMD under a new investment management agreement.Portfolio management is delegated by JPMorgan Funds Limited to JPMorgan AssetManagement (Japan) Limited through JPMorgan Asset Management (UK) Limited,

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thus retaining previous portfolio management arrangements. The management feeand notice period arrangements remain unchanged. The Company appointed BNYMellon Trust & Depositary (UK) Limited to act as the Company’s Depositary, a newrequirement under AIFMD. JPMorgan Chase Bank, NA remains the Company’sCustodian, but as a delegate of the Depositary. JPMorgan Funds Limited was alsoappointed as Company Secretary to the Company on 1st July 2014, though personnelarrangements remain unchanged.

Auditor

Deloitte LLP retired as Auditor to the Company following the last Annual GeneralMeeting and were replaced by Grant Thornton UK LLP. You will find their first Auditreport on pages 38 to 40 of this report and I would encourage you to read it.

Annual General Meeting

After feedback received from shareholders as to the timing of previous AnnualGeneral Meetings, this year’s Annual General Meeting will be held at 60 VictoriaEmbankment, London EC4Y 0JP on Friday, 17th July 2015 at the later time of 2.30 p.m.In addition to the formal proceedings there will be a presentation by one of yourInvestment Managers, who will review the past year and comment on the outlook forthe current period. I look forward to seeing as many of you as possible at themeeting. If you have any detailed questions, you may wish to raise these in advancewith the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP or via theCompany’s website at www.jpmjapansmallercompanies.co.uk. Shareholders who areunable to attend the Annual General Meeting in person are encouraged to use theirproxy votes. Shareholders who hold their shares through CREST are able to lodgetheir proxy votes electronically. More details are given in the notes to the Notice ofMeeting on pages 63 and 64.

Outlook

Shareholders have enjoyed strong returns over the past three years and I amoptimistic that the current favourable position of the Japanese equity market willagain foster a satisfactory performance by our Company in the period ahead. OurManagers set out their own views of the prospects in the next report and I canconfirm that your Board shares their confidence in the outlook for Japanese earnings.Valuations, meanwhile, are not unduly stretched and companies are beginning torespond positively to the emerging higher requirements for Corporate Governance inJapan, which should ultimately lead to much better returns on capital. The overalleconomic and financial background remains constructive and both government andmunicipal pension funds are showing an increased appetite for equities. There arerisks to this encouraging picture but your Managers will undoubtedly seek tonavigate through these using their well-tested, disciplined and successful investmentprocess.

Alan CliftonChairman 15th June 2015

Strategic Report continuedChairman’s Statement continued

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 5

Market Review

The Japanese equity market continued its ascent during the fiscal year that ended inMarch 2015. The Nikkei Index, a bellwether for the broader market including largecap stocks, surpassed the 18,000 yen in March, a level which it briefly traded abovebefore the financial crisis sent the global economy and share prices into freefall. TheJapanese yen continued to decline against sterling and US dollar, but strengthenedagainst the euro. For the fiscal year, the fund delivered an undiluted total return of+30.2% in sterling terms, compared to the benchmark return of +22.4%.

The rally in the Japanese market was supported by strong corporate fundamentalsand attractive valuations. Prime Minister Shinzo Abe and his Liberal Democratic Partycontinued to enjoy strong support, and won another landslide victory in theNovember election. The administration took advantage of the strong mandate topostpone the second increase in the consumption tax from October 2015 to April2017. Because the domestic economy struggled to recover from the first increase inApril 2014, this decision was positively received by the market. Equally importantly,Mr Abe looks set to stay in office until 2018, and possibly beyond.

On the 31st October, the Bank of Japan (BOJ) surprised the market by announcinga second round of quantitative easing. On the same day, the Government PensionInvestment Fund (GPIF), the largest pension fund in the world, announced that itwould target a 25% allocation to domestic equities under its revised strategy. This isa significant increase from the existing target of 12%. Although this change had beenwidely anticipated, the official announcement was greeted with excitement by themarket. As a result of these two developments, the yen fell and the equity marketrose to a new high.

Another important development has been corporate governance reform. There areencouraging signs that Japanese companies are starting to improve shareholderreturns and corporate governance. This has come about thanks to, amongst otherfactors, the following developments:

• The introduction of a Stewardship Code the aim of which is to improve dialoguebetween companies and institutional investors. Over 180 institutional investors,including JPMorgan Asset Management, have signed up to the Code.

• The introduction of a Corporate Governance Code.

• The introduction of the JPX400 Index which places greater emphasis on return onequity (ROE) than do other traditional benchmarks. GPIF has started to allocatesome of its assets to this benchmark.

In the fiscal year that ended in March 2015, aggregate dividends paid by listedcompanies are likely to be the highest in history; ahead of the previous peak markedjust before the global financial crisis. We believe that the total payout – the sum ofdividends and share buybacks – will make a new record in the fiscal year that has juststarted.

Shoichi Mizusawa, lead manager, is Headof the Pacific Regional Group’s Japanteam. Based in Japan, he joinedJPMorgan Asset Management (Japan)Limited in 1997.

Nicholas Weindling, Co-manager, is aninvestment manager with the Japanteam in the Pacific Regional Group. Hejoined JPMorgan Asset Management(Japan) Limited in 2006.

Naohiro Ozawa, Co-manager, is aninvestment manager with the Japanteam in the Pacific Regional Group. Healso joined JPMorgan Asset Management(Japan) Limited in 2006.

Investment Managers’ Report

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While the equity market has continued to perform strongly, the macro environment,both domestic and abroad, has been mixed. The domestic economy failed to gaintraction as the consumption tax increase in April 2014, combined with importedinflation as a result of the weaker Yen, caused consumption to stagnate. Although theUS economy maintained a healthy growth rate of above 2% in real terms, other largereconomies, most notably China and Europe, continued to struggle. This pooreconomic performance has forced a number of central banks, including those inEurope and China, to ease monetary policy, which in turn led to a dramatic fall in theyields of many government bonds. Until recently, German government bonds up toseven years in maturity had been priced at negative yields. Even in the US where theFederal Reserve Bank is preparing for the first rate increase in a decade, longer-datedtreasuries have refused to climb in yields, or fall in prices. This has made equitiescheap relative to fixed income, supporting equity bull markets in many parts of theworld. Within equities, investor preference for bond-like characteristics: namelyearnings stability, balance sheet strength and reasonable dividend income, becameincreasingly pronounced. As a result, pharmaceuticals, consumer staples and utilitieshave continued to outperform broader markets across the world. On the other hand,stocks which are in cyclical sectors such as commodities and financials haveunderperformed.

Outlook

The TOPIX Index, the index most widely followed by institutional investors, hasgained over 100% since the trough in November 2012. It is therefore important toreassess whether the risk/reward for investing in Japanese equities is still attractive.We believe the answer is “yes” for the following reasons:

Earnings outlook is strong

We believe aggregate earnings will continue to grow in 2015 and 2016. There are atleast four factors that support our view.

• The currency tailwind. The average Yen/Dollar rate for FY2014 was circa 112 yen.At the current rate of circa 125 yen, exporters will enjoy a positive year-over-yearcurrency effect.

• Our bottom-up research suggests companies are finally starting to increasecapital expenditure in a meaningful manner. This is consistent with varioussurveys that show capacity utilisation is high and therefore companies should beable to enjoy strong operational leverage to top line growth. In addition, there aretentative signs that exporters are bringing some production from overseas toJapan.

• The lower oil price is a positive for domestic companies and exporters alike.

• After-tax profit and earnings per share (EPS) are likely to outgrow pre-tax profit in2015 thanks to a cut in the rate of corporation tax.

Valuations are not stretched

The TOPIX Index trades on a prospective price to earnings ratio (PER) of circa 16xbased on consensus forecasts. This is below the multiples commanded by the US and

Performance attribution for theyear ended 31st March 2015

% %

Contributions to total returns

Benchmark total return +22.4

Sector allocation +0.7Stock selection +8.1Gearing/cash +3.4

Investment Managers’contribution +12.2

Portfolio total return +34.6

Management fee/other expenses –1.5

Exercise of Subscriptionshares –2.9

Net asset value total return (undiluted) +30.2

Subscription share dilution effect +0.7

Net asset value total return (diluted) +30.9

Share price total return +35.9

Source: Factset, JPMAM UK, Morningstar and Datastream.

All figures are on a total return basis.

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

A glossary of terms and definitions isprovided on pages 65 and 66.

Strategic Report continuedInvestment Managers’ Report continued

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Europe despite the fact that Japan offers stronger earnings growth. ROE is expectedto approach 10% in 2015. This is only slightly below the average in Europe, and yetJapan trades on 1.4x book value compared to 1.6x for Europe.

The outlook for the domestic economy has improved

This is because we believe wages will grow faster than last year. The base wagegrowth for larger corporations is almost twice as fast as last year. There are alsosigns that wages are starting to rise for those employees who work for small andmedium-sized enterprises. A number of statistics show that the labour market isalready very tight. We believe consumption will pick up in 2015. It suffered triplenegatives in 2014 of: (1) consumption tax increase; (2) unusually poor weatherthroughout the year; and (3) lacklustre wage growth.

Improving prospects for good corporate governance

We believe this is one of the most important developments in Japan. What we meanby ‘good’ corporate governance includes the following:

• Efficient capital structure – In aggregate, Japanese listed companies haveexcessive cash on their balance sheets. Both the Stewardship Code and theCorporate Governance Code are means to address this inefficiency. At JPMorganAsset Management, we have for many years tried to engage in constructivediscussions with the management of companies to improve capital structure and,as a result, shareholder returns. Over the last six months, we have beenapproached by an increasing, although still a small number, of companies whoseek our opinion about their corporate governance standards.

• Investment for growth – We want companies to invest for the future; either in theform of capital expenditure, R&D, M&A or a combination of the three, providedthat the expected returns adjusted for risks exceed their cost of capital and as aresult increase the value of the company.

• Focus on core businesses – Often, Japanese companies have diversified into toomany different businesses where they do not possess competitive advantage orwhere there are few synergies available.

While we believe the overall trend is positive, the pace is slow and the majority ofcompanies are yet to embrace this change. In the meantime, we believe thisdivergence in attitudes creates opportunities for active managers such as ourselvesto pick winners and avoid losers. Indeed, corporate governance is one of the keydiscussion points when we conduct company research.

Risks

Two risks that we highlighted in last year’s annual report remain. Firstly, although webelieve that the global economy will continue to recover, it is still far from standing ona sound and sustainable footing. Despite continued increases in US employment,wage growth remains anaemic. The Eurozone is yet to resolve the issue of Greekdebt. The Chinese economy is continuing to slow down, although this is partly a resultof the authorities’ desire to rebalance the economy. The geopolitical background isone of continued uncertainties. Secondly, the Abe administration needs to address

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structural reform – the third arrow of Abenomics – more forcefully than before.Although this particular issue is unlikely to have material impact in the short run, itwill have profound consequences in the longer term. Japan is still faced with adeclining as well as ageing population and has an unsustainable level of public debt.

Portfolio Review and Strategy

We are pleased to report that the performance for the fiscal year is ahead of thebenchmark. The fund generated an undiluted total return of +34.6% in sterling terms,and outperformed the benchmark S&P Japan Small Cap Index by +7.8%. This wasachieved primarily through our bottom-up stock selection. The gearing also addedover 3% to the performance. We maintained the gearing at above 10% throughoutmost of the period, and finished the fiscal year at around 10.3%.

Stocks that contributed most positively to the excess return include InvincibleInvestment Corp. (real estate), Anicom Holdings (insurance), Asahi Intecc (health careequipment & services), Misumi (capital goods) and Nippon Shinyaku(pharmaceuticals, biotechnology & life sciences).

Invincible Investment Corp. is a Real Estate Investment Trust (‘REIT’) that hasincreased exposure to hotels through acquisitions. The REIT has continued toperform strongly, supported by rising hotel revenues. The hospitality industry isenjoying strong demand from an increasing number of inbound tourists, in particularfrom Asia. Anicom provides pet insurance, a market which is still in its infancy inJapan and continuing to grow strongly. The ageing population is a tailwind for thecompany as an increasing number of older people live with pets and they have a highpropensity to spend on them. Asahi Intecc designs and manufactures medicalequipment. Its main products include percutaneous transluminal coronaryangioplasty guide wires and catheters. Supported by growth in end demandcombined with market share gains, Asahi Intecc has delivered a 16.2% compoundannual growth rate in revenue over the last 10 years. We believe that there remainlarge opportunities for the company to continue to grow strongly over the next10 years and beyond. Misumi is a leading supplier of factory automation equipmentand moulding components in Japan. It has grown strongly overseas, where sales haverisen from 14.3% of total in 2005 to 44.4% in 2013. Another growth driver is its ‘VONA’e-commerce site for consumable goods used at manufacturing facilities. As wagesrise in emerging countries and the working population shrinks in developedcountries, the need for automation will intensify. Nippon Shinyaku, meanwhile, ralliedafter the announcement that one of its new drugs showed good results in phase 3clinical trials.

On the other hand, Teikoku Electric Manufacturing (capital goods), Tokyo Tatemono(real estate) and Fuji Seal International (materials) were among stocks that detractedfrom performance.

Teikoku Electric is a manufacturer of industrial pumps. The company is wellpositioned to benefit from rising investments in chemicals plants in the US.In addition, its customer base is focusing increasingly on environmental issues. This

Strategic Report continuedInvestment Managers’ Report continued

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provides a tailwind for Teikoku Electric since its products help reduce adverse impacton the environment. The stock had previously performed strongly and suffered fromprofit taking. We reduced the position in Teikoku Electric in early April followingstrong performance. Tokyo Tatemono, together with most other real estate stocks,underperformed the broader market after a strong run in 2013. Although thefundamentals of the real estate market improved with rising property prices in largercities and falling vacancy rates, the pace of improvement was disappointingly slow.The share price of Fuji Seal International had moved sideways for the past 12 monthsdue to lack of earnings momentum. The company had been busy restructuring itsEuropean operations since it acquired a local company in May 2012. We believe FujiSeal is well positioned to grow in overseas markets over the medium term andtherefore that its shares are substantially undervalued.

The aggregate contribution of our sector allocation was marginally positive,excluding the positive impact of the gearing, which added over 3%. The topcontributors include insurance (overweight) and real estate (overweight). Theinsurance sector performed strongly thanks to the largest constituent Anicom, whichwe owned. The performance of the real estate sector was supported by REITs. On thenegative side, the overweights in diversified financials and telecommunicationservices detracted most. Their negatives were more than offset by our positive stockselection within these sectors such that the overall contribution of our sectorpositioning was significantly positive.

We did not make large changes to the overall structure of the portfolio, as reflected inthe low turnover of 30% for the year. We have maintained a bias towards quality, asopposed to cyclical, companies. This is based on our belief that under the sub-parglobal growth and low interest rate environment, growth and quality shouldcommand increasingly premium valuations. In addition, the growth bias of theportfolio reflects our desire to invest in companies with durable competitiveadvantage and thus long-term growth in earnings and shareholder returns. Wecontinued to allocate a large part of the capital to our long-lasting investmentthemes, including factory automation and e-commerce/mobile internet. We also owna number of companies which we believe will benefit from increasing demand fordomestic infrastructure investments. The infrastructure of Japan is increasingly inneed to replacement as much was built around the time of the last Olympics games inTokyo in 1964. The Tokyo Olympics of 2020 is the catalyst for such demand tomaterialise.

We also maintained a bias towards domestic companies at the expense of exporters.This is primarily because we can find more attractive bottom-up opportunities in theformer than in the latter. In addition, the aggressive monetary policy by the BOJ willbenefit such domestic sectors as financials and real estate.

We continued to avoid companies that operate in industries plagued by excesssupply. A number of commodities and commodity-related goods and services fall intothat category. Consumer durables such as TVs, white goods and even mobile devicesare examples.

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201510

Strategic Report continuedInvestment Managers’ Report continued

The investment cases for all of the above themes are still intact, and we aremaintaining the growth bias of the portfolio. This strategy has served us well overthe last three years. However, this also means that growth stocks command largervaluation premiums over cyclical stocks than three years ago. If global growthaccelerates and/or interest rates rise significantly, the valuation premium is likely tocome under pressure. Although such a scenario is not our central case, we recognisethe need to remain flexible and will make changes when the balance of risk andreward is no longer compelling. We are therefore committed to maintaining ourvaluation discipline and keeping the portfolio well diversified.

At JPMorgan we have a large team based on the ground in Tokyo trying to identifysignificant changes in sectors and companies. Being based locally is becomingunusual in the international asset management industry and we expect this to be asource of continued competitive advantage. Overall, we are positive on the outlookfor the Japanese economy, market, active fund management and the performance ofthe Trust.

Shoichi Mizusawa Nicholas WeindlingNaohiro OzawaInvestment Managers 15th June 2015

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 11

Total returns for the year ended 31st March 2015 2014

Ordinary share price return1 +35.9% +0.6%‘Unit’ return to shareholders2,4 +34.6% –0.9%Benchmark return3 +22.4% –4.1%Undiluted return on net assets4,5 +30.2% +3.9%Diluted return on net assets6 +30.9% +3.6%

Net asset value, share price anddiscount as at 31st March % change

Shareholders’ funds (£’000) 132,232 86,692 +52.5Undiluted net asset value per Ordinary share 285.7p 219.5p +30.2Diluted net asset value per Ordinary share7 278.6p 212.8p +30.9Ordinary share price 250.0p 184.0p +35.9Ordinary share price discount to diluted net asset value per

Ordinary share7 10.3% 13.5%Ordinary shares in issue, excluding shares held in Treasury 46,282,582 39,494,749Subscription share price7 26.6p 6.5pSubscription shares in issue7 9,252,478 6,784,547

Revenue for the year ended 31st March

Gross revenue return (£’000) 1,640 1,242 +32.0Net revenue attributable to shareholders (£’000) (441) (534)Loss per Ordinary share – diluted7 (0.95)p (1.36)p

Gearing as at 31st March8 10.3% 13.6%

Ongoing Charges9 1.52% 1.59%

A glossary of terms and definitions is provided on pages 65 and 66.

1Source: Morningstar.2A Unit comprises 5 Ordinary shares and 1 Subscription share.3Source: Datastream. The Company’s benchmark is the S&P/Citigroup Japan Extended Market Index (Total Return Net) in sterling terms.4Source: J.P. Morgan.5Return on net assets calculated using the undiluted net asset value. 6Return on net assets calculated using the diluted net asset value, which assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the yearend.

7The 31st March 2015 figure relates to the new Subscription shares issued on 16th December 2014, the 31st March 2014 figure relates to the old Subscription shares issued on5thMarch 2009 which had a final exercise date of 31st March 2014.8Gearing represents the excess amount above shareholders’ funds of total assets less cash/cash equivalents, expressed as a percentage of the shareholders’ funds. If the amountcalculated is negative, this is shown as a ‘net cash’ position.

9Ongoing charges represent the management fee and all other operating expenses, excluding finance costs and any performance fee payable, expressed as a percentage of theaverage of the daily net assets during the year and are calculated in accordance with guidance issued by the AIC in May 2012.

Summary of Results

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201512

As at 31st March 2010 2011 2012 2013 2014 2015

Total assets less current liabilities (£m) 75.0 65.6 65.9 82.5 104.2 149.1

Undiluted net asset value per Ordinary share (p) 192.6 166.2 167.1 211.2 219.5 285.7

Diluted net asset value per Ordinary share (p)1,2 182.8 163.2 164.0 205.4 212.8 278.6

Ordinary share price (p) 159.0 145.0 147.0 183.0 184.0 250.0

Ordinary share price discount to diluted net asset value per Ordinary share (%) 13.1 11.2 10.4 10.9 13.5 10.3

Gearing/(net cash) (%)3 17.3 1.5 6.1 6.3 13.6 10.3

Subscription share price (p)(2009 Subscription shares) 37.5 41.5 20.0 19.8 6.5 n/a

Subscription share price (p) (2014 Subscription shares) n/a n/a n/a n/a n/a 26.6

Year ended 31st March

Gross revenue return attributable to Ordinary shareholders (£’000) 1,044 1,223 1,296 1,261 1,242 1,640

Revenue (loss)/return per Ordinaryshare – diluted (p) (1.45) (1.11) (0.42) 0.04 (1.36) (0.95)

Ongoing Charges (%)4 1.96 1.96 1.87 1.61 1.59 1.52

Rebased to 100 as at 31st March 2010

Ordinary share price total return5 100.0 91.2 92.4 115.1 115.7 157.2

Diluted net asset value total return5 100.0 89.4 89.8 113.9 118.0 154.5

Benchmark6 100.0 103.2 109.4 128.2 123.0 150.5

A glossary of terms and definitions is provided on pages 65 and 66.

1The diluted net asset value per Ordinary share assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the year end and any shares held inTreasury at the year end were reissued in accordance with the Board’s policy on the reissuance of Treasury shares, where this has a dilutive effect. Further details are given in note 13on page 52. 22015 figure relates to the new Subscription shares issued on 16th December 2014; 2010 to 2014 figures relate to the old Subscription shares, issued on 5thMarch 2009 which hada final exercise date of 31st March 2014.3Gearing represents the excess amount above shareholders’ funds of total assets less cash/cash equivalents, expressed as a percentage of the shareholders’ funds. If the amountcalculated is negative, this is shown as a ‘net cash’ position.4Management fee and all other operating expenses, excluding finance costs and any performance fee payable, expressed as a percentage of the average of the daily net assets duringthe year (2009 to 2012: Total Expense Ratio (‘TER’): the average of the month end net assets).

5Source: Morningstar.6Source: Datastream. The Company’s benchmark is the S&P/Citigroup Japan Extended Market Index (Total Return Net) in sterling terms.

Strategic Report continuedFive Year Financial Record

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 13

2015 2014Valuation Valuation

Company and Japanese Company Code Sector £’000 %1 £’000 %1

Invincible Investment REIT (8963)3 Real Estate 4,416 3.0 — —A real estate investment trust (REIT) which invests in securitised real estate products.Invests in income-producing residential and office buildings.

Asahi Intecc (7747) Precision Instruments 3,605 2.5 1,847 1.9Manufactures medical tools as well as both medical and industrial-use stainless wirerope. The company’s main products include catheters, guidewires, and miniature coilsfor endoscopic devices.

Anicom (8715)2 Insurance 3,489 2.4 801 0.8A holding company which was established through the merger of Anicom Insurance,Anicom Frontier and Anicom Pafe. The Company provides health insurance policies forpets and operates an insurance agency through the internet, as well as personalvisiting.

CyberAgent (4751) Services 3,188 2.2 2,593 2.7Operates a blog media website, Ameba. The company also operates an internetadvertising agency, a foreign exchange trading website, and creates PC and mobilecontent such as advertisements and games. The company invests in companies withinternet related business.

Sohgo Securities (2331)2 Services 3,062 2.1 1,526 1.6Operates around the clock security services. The company provides home and officesecurity systems, an armoured car security service, and a network security solutionservice.

Aida Engineering (6118) Machinery 2,920 2.0 1,781 1.8 Produces manufacturing equipment such as automatic presses and transfer presssystems. The company also produces non-press equipment including industrial robotsand Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM)systems.

M3 (2413) Services 2,896 2.0 1,994 2.1Supplies medical information services for doctors through the internet. The companyalso supports marketing of pharmaceutical companies and medical equipmentmanufacturers.

H.I.S. (9603) Services 2,701 1.8 1,747 1.8A travel agency dealing with overseas bookings, package tours, and air courierservices. The company also sells discount airline tickets. The company operatessubsidiaries in the United States, the United Kingdom, and Germany.

Misumi (9962)2 Wholesale Trade 2,613 1.8 1,678 1.7Distributes precision machinery parts by mail order. The products include a variety ofcomponents for press-dies, plastic moulds, automated machinery, PC and network,and wiring. The company also sells supplies for factories, hospitals, and restaurantsand supplies semi-conductors by mail order

Aica Kogyo (4206) Chemicals 2,439 1.7 1,957 2.0Manufactures adhesives, melamine boards, and housing materials. The company alsoproduces printed circuit boards through subsidiaries.

Total4 31,329 21.5

1Based on total investments of £145.7m (2014: £97.3m).2Not included in the ten largest investments as at 31st March 2014.3Not held in the portfolio as at 31st March 2014.4As at 31st March 2014, the value of the ten largest investments amounted to £19.9m representing 20.4% of total investments.

Ten Largest Investmentsas at 31st March

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201514

31st March 2015 31st March 2014Portfolio Benchmark Portfolio Benchmark

%1 % %1 %

Services 16.2 6.3 16.2 5.9Real Estate 11.9 8.0 12.1 8.4Retail Trade 9.3 8.3 10.8 8.2Machinery 7.1 8.5 6.8 4.1Chemicals 6.4 7.0 5.6 7.0Electric Appliances 6.3 7.8 2.7 8.0Information & Communication 5.5 4.2 6.8 8.0Construction 4.5 5.7 5.9 5.6Precision Instruments 4.4 1.9 3.3 1.7Wholesale Trade 3.6 5.4 5.5 5.4Other Products 3.6 2.8 1.7 2.5Transportation Equipment 3.2 3.7 3.6 4.1Other Financing Business 2.8 1.8 4.3 1.6Banks 2.7 6.8 2.9 7.0Pharmaceuticals 2.5 3.3 1.5 3.1Insurance 2.4 0.1 1.0 —Metal Products 2.1 1.4 1.9 1.5Glass & Ceramics Products 1.6 1.2 2.1 1.5Nonferrous Metals 1.6 1.5 1.7 1.8Foods 0.9 3.2 1.1 3.8Rubber Products 0.8 0.7 — 0.6Iron & Steel 0.6 1.2 1.7 1.1Commerce & Industry — 0.1 — 0.1Electric Power & Gas — 0.4 — 0.4Financial Services — 0.1 — —Fishery Agriculture & Forestry — 0.5 — 0.3Land Transportation — 2.1 — 1.9Marine Transportation — 0.6 — 0.5Mining — 0.1 — 0.2Oil & Coal — 0.1 — 0.1Pulp & Paper — 0.7 — 0.8Securities & Commodity Futures — 1.8 0.8 2.0Textiles & Apparels — 2.1 — 2.2Warehouse & Harbour Transportation — 0.6 — 0.6

Total 100.0 100.0 100.0 100.0

1Based on total investments of £145.7m (2014: £97.3m).

Strategic Report continuedSector Analysis

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 15

ValuationCompany and Japanese Company Code £’000

ServicesCyberAgent (4751) 3,188Sohgo Securities (2331) 3,062M3 (2413) 2,896H.I.S. (9603) 2,701Relo (8876) 2,108Resorttrust (4681) 1,829Tokyo Individualized Educational (4745) 1,432Wellnet (2428) 1,319Cookpad (2193) 1,314SMS (2175) 937Infomart Corporation (2492) 896Nihon M&A Center (2127) 730Kakaku (2371) 640Firstlogic (6037) 602

Total Services 23,654

Real EstateInvincible Investment REIT (8963) 4,416Tokyo Tatemono (8804) 2,177Park 24 (4666) 1,925Industrial & Infrastructure REIT (3249) 1,802Hulic REIT (3295) 1,321Nippon Prologis REIT (3283) 1,192GLP J-REIT (3281) 1,160Leopalace (8848) 997Star Mica (3230) 855Arealink (8914) 820Kenedix Retail REIT (3453) 666

Total Real Estate 17,331

Retail TradeDon Quijote (7532) 1,904MonotaRO (3064) 1,822SAN-A (2659) 1,815Cosmos Pharmaceutical (3349) 1,812Komehyo (2780) 1,531Seria (2782) 1,508Shimamura (8227) 1,274Amiyaki Tei (2753) 1,173Asahi (3333) 774

Total Retail Trade 13,613

ValuationCompany and Japanese Company Code £’000

MachineryAida Engineering (6118) 2,920Harmonic Drive Systems (6324) 1,853Disco (6146) 1,780Nittoku Engineering (6145) 1,346Asahi Diamond Industrial (6140) 850Shibuya Kogyo (6340) 806Teikoku Electric (6333) 800

Total Machinery 10,355

ChemicalsAica Kogyo (4206) 2,439FP (7947) 2,072Kansai Paint (4613) 1,937Daicel (4202) 1,702Nifco (7988) 1,235

Total Chemicals 9,385

Electric AppliancesCasio Computer (6952) 2,344Iriso Electronics (6908) 2,285Obara Group (6877) 1,525Nohmi Bosai (6744) 1,373Sanken Electric (6707) 994Optex (6914) 654

Total Electric Appliances 9,175

Information & CommunicationOkinawa Cellular (9436) 1,907Otsuka (4768) 1,300Digital Garage (4819) 1,251DTS (9682) 1,223Fuji Soft (9749) 1,182GMO Payment Gateway (3769) 1,118

Total Information & Communication 7,981

ConstructionSho-Bond (1414) 2,108Toshiba Plant Systems (1983) 1,720Sumitomo Densetsu (1949) 1,644Raito Kogyo (1926) 1,069

Total Construction 6,541

List of Investmentsas at 31st March 2015

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201516

ValuationCompany and Japanese Company Code £’000

Precision InstrumentsAsahi Intecc (7747) 3,605Nakanishi (7716) 1,196Cyberdyne (7779) 1,189Topcon (7732) 475

Total Precision Instruments 6,465

Wholesale TradeMisumi (9962) 2,613Daiichikosho (7458) 1,720Yokohama Reito (2874) 918

Total Wholesale Trade 5,251

Other ProductsFuji Seal International (7864) 1,818Shoei (7839) 1,563Snow Peak (7816) 943Yonex (7906) 861

Total Other Products 5,185

Transportation EquipmentUnipres (5949) 1,257Shinmaywa Industries (7224) 1,215Press Kogyo (7246) 1,190Musashi Seimitsu Industries (7220) 941

Total Transportation Equipment 4,603

Other Financing BusinessMitsubishi UFJ Lease & Finance (8593) 1,763Hitachi Capital (8586) 1,235Credit Saison (8253) 1,036

Total Other Financing Business 4,034

BanksSuruga (8358) 1,961Seven Bank (8410) 1,928

Total Banks 3,889

ValuationCompany and Japanese Company Code £’000

PharmaceuticalNippon Shinyaku (4516) 2,258Peptidream (4587) 1,376

Total Pharmaceutical 3,634

InsuranceAnicom (8715) 3,489

Total Insurance 3,489

Metal ProductsSanwa (5929) 1,807Yokogawa Bridge (5911) 1,266

Total Metal Products 3,073

Glass & Ceramics ProductsTaiheiyo Cement (5233) 1,476Maruwa (5344) 881

Total Glass & Ceramics Products 2,357

Nonferrous MetalsDowa (5714) 1,317UACJ (5741) 1,011

Total Nonferrous Metals 2,328

FoodsKikkoman (2801) 1,307

Totals Foods 1,307

Rubber ProductsToyo Tire & Rubber (5105) 1,157

Total Rubber Products 1,157

Iron & SteelToyo Kohan (5453) 923

Total Iron & Steel 923

Total Portfolio 145,730

The portfolio comprises 94 equity investments.

Strategic Report continuedList of Investments continuedas at 31st March 2015

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 17

Business ReviewThe 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 Japan Smaller Companies Trust plc is an investmenttrust company that has a premium listing on the London StockExchange. Its objective is to achieve long-term capital growththrough investments in small and medium-sized Japanesecompanies. In seeking to achieve this objective, the Companyemploys JPMorgan Funds Limited (‘JPMF’ or the ‘Manager’)which, in turn, delegates the active management of theCompany’s assets to JPMorgan Asset Management (Japan)Limited (‘JPMAM Japan’) through JPMorgan Asset Management(UK) Limited (‘JPMAM UK’). The Board has determined aninvestment policy and related guidelines and limits asdescribed 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 meaningof Section 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 manageinvestment risks, the Company invests in a diversified portfolioemphasising capital growth rather than income.

To obtain this exposure, investment is permitted in Japanesequoted companies other than the largest 200 measured bymarket capitalisation, Japanese domiciled or unquoted

companies, Japanese domiciled companies quoted on anon-Japanese exchange and non-Japanese domiciledcompanies which have at least 75% of their revenues derivedfrom Japan. Investment is also permitted in UK and Japanesegovernment bonds.

The Company manages liquidity and borrowings with the aimof increasing returns to shareholders. The assets are managedby a team of three Investment Managers, led by ShoichiMizusawa, who are all based in Tokyo and supported by thewider Japanese team, which we believe is a significantcompetitive advantage.

The Board regularly reviews the number of investments in theportfolio but in the year under review, the number ofinvestments ranged between 89 and 101.

It should be noted that the Company invests in smallercompanies which tend to be more volatile than largercompanies and the Company’s shares should thereforebe 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 5% of its totalassets in any one individual stock at the time of acquisition.

• The Company’s gearing policy is to operate within a rangeof 5% net cash to 15% geared in normal market conditionswith maximum levels of 10% cash or 25% gearing.

• All currency hedging transactions are subject to the priorapproval of the Board. The Company does not generallyhedge its foreign currency exposure and did not enter intoany such arrangements during the year.

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 anundiluted return on net assets of +30.2%, a diluted total returnon net assets of +30.9% and a total return to Ordinaryshareholders of +35.9%. This compares with the return on the

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Company’s benchmark index of +22.4%. As at 31st March 2015,the value of the Company’s investment portfolio was£145.7 million. The Investment Managers’ Report on pages 5to 10 includes a review of developments during the year aswell as information on investment activity within theCompany’s portfolio.

Total Return, Revenue and Dividends

Gross total return for the year amounted to £36.0 million(2014: £5.2 million) and the net total return after deducting themanagement fee, other administrative expenses, finance costsand taxation amounted to £34.0 million (2014: £3.4 million).The revenue loss for the year amounted to £0.4 million(2014: £0.5 million). There is no dividend for the year (2014: nil).

Key Performance Indicators (‘KPIs’)

The Board uses a number of financial KPIs to monitor andassess the performance of the Company. The principal KPIs are:

• Absolute performanceThe Company seeks to provide long-term capital growththrough investment in small and medium-sized Japanesecompanies. Positive absolute returns are an essentialprerequisite for achieving this objective.

• Performance against the Company’s peers and the benchmarkindexThe principal objective is to achieve capital growth.The Board monitors performance relative to both thebenchmark and a broad range of competitor funds. Thefollowing chart details the Company’s performance againstits benchmark.

Performance Relative to Benchmark IndexFigures have been rebased to 100 as at 31st March 2010

Source: Morningstar (total return).

JPMorgan Japan Smaller Companies – Ordinary share price.

JPMorgan Japan Smaller Companies – diluted net asset value per Ordinary share.

The benchmark is represented by the grey horizontal line.

Five Year PerformanceFigures have been rebased to 100 as at 31st March 2010

Source: Morningstar/Datastream (total return).

JPMorgan Japan Smaller Companies – Ordinary share price.

JPMorgan Japan Smaller Companies – diluted net asset value per Ordinary share.

Benchmark.

• Share price discount to net asset value (‘NAV’) per shareThe Board recognises that the possibility of a wideningdiscount can be a key disadvantage of investment truststhat can discourage investors.

The Board therefore has a share repurchase programmewhich seeks to address imbalances in the supply of anddemand for the Company’s shares within the market. Itsaim is to manage the volatility and absolute level of thediscount to the NAV per share at which the Company’sshares trade in relation to its peers in the sector. In the yearended 31st March 2015, the discount ranged between 8.2%and 19.0% to the diluted net asset value per Ordinary share.

Discount Performance

Source: Datastream (daily data).

JPMorgan Japan Smaller Companies – share price discount to diluted net assetvalue per Ordinary share.

• Performance attribution The purpose of performance attribution analysis is toassess how the Company achieved its performance relativeto its benchmark index, i.e. to understand the impact onthe Company’s relative performance of the variouscomponents such as asset allocation and stock selection.

80

85

90

95

100

105

110

201520142013201220112010

60

80

100

120

140

160

201520142013201220112010

-20.0

-17.5

-15.0

-12.5

-10.0

-7.5

-5.0

Mar-15Jan-15Nov-14Sep-14Jul-14May-14Mar-14

Strategic Report continuedBusiness Review continued

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Details of the attribution analysis for the year ended31st March 2015 are given in the Investment Managers’Report on page 6.

• Ongoing chargesThe ongoing charges represent the Company’s managementfee and all other operating expenses, excluding any financecosts, expressed as a percentage of the average of the dailynet assets during the year. The ongoing charges for the yearended 31st March 2015 were 1.52% (2014: 1.59%). Each yearthe Board reviews an analysis which shows a comparison ofthe Company’s ongoing charges and its main expensesagainst those of its peers.

Share Capital

The Company has the authority both to repurchase shares inthe market for cancellation (or to be held in Treasury) ata discount to net asset value and to issue new shares, or reissueshares out of Treasury, for cash at a premium to net asset value.

Shares would not be reissued out of Treasury at a discount tonet asset value.

The Company did not repurchase any shares for cancellationor to be held in Treasury during the year and has not done sosince the year end. The Company did not issue any sharesduring the year other than those issued following the exerciseof Subscription shares and has not done so since the year end.

During the year, the Company issued 6,784,547 Ordinaryshares for a total consideration of £11.8 million following theexercise of Subscription shares issued in 2009 and 3,286Ordinary shares for a total consideration of £8,000 followingthe exercise of Subscription share issued in 2014. Since theyear end further Ordinary shares have been issued followingthe exercise of Subscription shares issued in 2014 and detailsmay be found in the Directors’ Report on pages 25 and 26.

Resolutions to renew the authorities to issue new shares,reissue shares from Treasury for cash and to repurchase sharesfor cancellation 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 62 to 64.

Principal Risks

With the assistance of the Manager, the Board has drawn upa risk 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. The Manager provides the Directors with timelyand accurate management information, includingperformance data and attribution analyses, revenueestimates, liquidity reports and shareholder analyses.The Board monitors the implementation and results of theinvestment process with the Investment Managers, whoattend Board meetings, and reviews data which showstatistical measures of the Company’s risk profile. TheInvestment Managers employ the Company’s gearingtactically, within a strategic range set by the Board. Inaddition to regular Board meetings, the Board visits theoffices of JPMAM Japan in Tokyo on an annual basis todiscuss strategy and consider all other relevant aspectsof the Investment Management operations.

• 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 the Manager. The Boardmonitors the implementation and results of the investmentprocess with the Manager. The majority of the Company’sassets, liabilities and income are denominated in yen ratherthan in the Company’s functional currency of sterling (inwhich it reports). As a result, movements in the yen: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 riskcomprises 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 page 59 of this report, togetherwith details of how the Board manages these risks.

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• Liquidity: This is the risk that the Company will encounterdifficulty in meeting obligations associated with financialliabilities that are settled by delivering cash or anotherfinancial asset. Details of how the Board manages theserisks can be found in note 21(b) on pages 59 and 60.

• Credit: Credit risk is the risk that the failure of thecounterparty to a transaction to discharge its obligationsunder that transaction could result in loss to the Company.Details of the Company’s exposure to credit risk and howthe Board manages this risk can be found in note 21(c) onpage 60.

• Discount: A widening of the discount results in loss of valuefor shareholders. In order to try to manage the Company’sdiscount, which can be volatile, the Company operates ashare issuance and repurchase programme. The Boardregularly discusses discount policy and has set parametersfor the Manager and the Company’s broker to follow.

• 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’ on page 17.Were the Company to breach Section 1158, it may loseits investment trust status and, as a consequence, gainswithin the Company’s portfolio would be subject to capitalgains tax. The Section 1158 qualification criteria arecontinually monitored by the Manager and the resultsreported to the Board each month. The Company mustalso comply with the provisions of the Companies Act2006 and, since its shares are listed on the London StockExchange, the UKLA Listing Rules, Disclosure andTransparency Rules (‘DTRs’) and, as an investment trust,the Alternative Investment Fund Managers Directive(‘AIFMD’). A breach of the Companies Act could result inthe Company and/or the Directors being fined or thesubject of criminal proceedings. Breach of the UKLAListing Rules or DTRs could result in the Company’sshares being suspended from listing which in turn wouldbreach Section 1158. The Board relies on the services of itsCompany Secretary, the Manager and its professionaladvisers to ensure compliance with the Companies Act,the UKLA Listing Rules, DTRs and AIFMD.

• Corporate Governance and Shareholder Relations: Detailsof the Company’s compliance with corporate governance

best practice, including information on relations withshareholders, are set out in the Corporate GovernanceStatement on pages 28 to 33.

• Operational: 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 andits 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 onpages 32 and 33.

• Loss of Investment Team: A sudden departure of membersof the investment management team could result in ashort-term deterioration in investment performance. TheManager takes steps to retain key personnel as well asensuring appropriate succession planning and the adoptionof a team-based approach.

• Political and Economic: Administrative risks, such as theimposition of restrictions on the free movement of capital.These risks are discussed by the Board on a regular basis.

• Going Concern: The Board considers going concern as apotential risk, whether or not there is an apparent issuearising in relation thereto. The Board’s statement on goingconcern is detailed on page 25.

Board Diversity

When recruiting a new Director, the Board’s policy is to appointindividuals on merit. Diversity is important in bringing anappropriate range of skills and experience to the Board andthe Board is diverse on the bases of race, gender andnationality. As at 31st March 2015, there were five maleDirectors and no female Directors on the Board. However, as at1st April 2015, there were five male Directors and one femaleDirector on the Board following the appointment of DeborahGuthrie.

Employees, Social, Community and Human Rights Issues

The Company has a management contract with the Manager,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 of

Strategic Report continuedBusiness Review continued

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employees. The Board notes the policy statements of JPMAMUK in respect of Social, Community and Environmental andHuman Rights issues, as highlighted in italics:

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

JPMAM UK is also a signatory to the United Nations Principles ofResponsible Investment, which commits participants to six principles,with the aim of incorporating ESG criteria into their processes whenmaking stock selection decisions and promoting ESG disclosure. Ourdetailed approach to how we implement the principles is available onrequest.

Greenhouse Gas Emissions

The Company is managed by JPMF, with a delegation of theactive management of the Company’s assets to JPMAM Japanthrough JPMAM UK. JPMF acts as Company Secretary and

provides administrative support. The Company has noemployees, all of its Directors being non-executive Directors,the day to day activities being carried out by third parties.Therefore there are no disclosures to be made in respect ofemployees. The Company itself has no premises, consumes noelectricity, gas or diesel fuel and consequently does not have ameasurable carbon footprint. JPMAMUK is a signatory to theCarbon Disclosure Project and JPMorgan Chase is a signatoryto the Equator Principles on managing social andenvironmental risk in project finance.

Future Developments

The future development of the Company is dependent uponthe success of the Company’s investment strategy in the light ofeconomic and equity market developments and the continuedsupport of its shareholders; the Investment Managers discussthe outlook in their report on pages 5 to 10.

By order of the Board Rhys Williams, for and on behalf of JPMorgan Funds Limited, Company Secretary

15th June 2015

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Alan Clifton (Chairman of the Board and the Nomination Committee)

A Director since 2003.

Last reappointed to the Board: 2014.

He is Chairman of Schroder UK Growth Fund plc and of International BiotechnologyTrust plc, a Director of Invesco Perpetual Select Trust plc and a Director of several otherinvestment companies. From 1990 until 2001 he was Managing Director of Morley FundManagement (now Aviva Investors), the asset management arm of Aviva plc, the UK’slargest insurance group.

Connections with Manager: None.

Shared directorships with other Directors: Macau Property Opportunities Fund Limited.

Bernard Grigsby

A Director since 2003.

Last reappointed to the Board: 2014.

He has more than 30 years’ experience in investment banking and international capitalmarkets and is currently the principal of Rockbridge Advisors, a private advisory andconsulting practice. Prior to retiring in December 2005 from the Swiss Re Group, wherehe latterly served as Vice Chairman of Swiss Re Capital Management and Advisory,he was joint Chief Executive Officer of Tokai Bank Europe Ltd and from 1990-93, theChief Executive Officer/Managing Director of BZW Securities (Japan) Ltd. He serveson a variety of boards and advisory committees, including the Boards of LIM AsiaMulti-Strategy Fund and various funds managed by Tudor Investment Corp.

Connections with Manager: None.

Shared directorships with other Directors: None.

Deborah Guthrie

A Director since 2015.

Last reappointed to the Board: Seeks first reappointment at the 2015 Annual GeneralMeeting.

She is an experienced Japanese equity research sales specialist with Pelham SmithersAssociates. She began her career working in the Finance and Environment Branches ofthe Hong Kong Government. Between 1984 and 1995 she held senior Japanese equitysales roles for Hoare Govett and Smith New Court before joining Merrill Lynch asdirector, yen equity sales, a role she held from 1995 to 2011.

Connections with Manager: None.

Shared directorships with other Directors: None.

GovernanceBoard of Directors

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Robert White

A Director since 2008.

Last reappointed to the Board: 2012.

He is currently a Partner of Oldfield Partners LLP, responsible for their Japaneseinvestments. He has investment experience in the Japanese market spanning morethan 30 years during which time, inter alia, he was Senior Representative of WarburgInvestment Manager Japan Limited, President of INVESCO MIM Asset Management(Japan) Limited and a Partner of Dalton Strategic Partnership LLP.

Connections with Manager: None.

Shared directorships with other Directors: None.

All Directors are members of the Audit and Nomination Committees and are consideredindependent of the Manager.

Yuuichiro Nakajima

A Director since 2014.

Last reappointed to the Board: 2014.

He founded Crimson Phoenix K.K. in Japan in 2003 and subsequently establishedCrimson Phoenix Limited in London in 2012. Crimson Phoenix is a specialistcross-border advisory firm, providing advice on Japan-related M&A transactions, privateequity investments and a range of corporate strategy initiatives, from its offices in theUnited Kingdom and Japan. He is involved with the Asian Football Confederation andJapan Football Association. Formerly a member of the Executive Board of the BritishChamber of Commerce in Japan, he spent ten years with S.G.Warburg (later SBCWarburg) and four years with PricewaterhouseCoopers.

Connections with Manager: None.

Shared directorships with other Directors: None.

Chris Russell

A Director since 2006.

Last reappointed to the Board: 2012.

He is a Non-Executive Director of a number of listed and unlisted investment andfinancial service companies in the UK, Guernsey and Asia. These include London listedF&C Commercial Property Trust Ltd, of which he is Chairman, HICL InfrastructureCompany Ltd and the Macau Property Opportunities Fund Limited. He is a DeputyChairman of the Association of Investment Companies. He was formerly Head ofOverseas Businesses at Gartmore Investment Management plc which includedGartmore’s two businesses in Japan. From 1990-1997 he was a Director of the JardineFleming Group in Asia after being Head of Research and of International Broking forJF Securities in Tokyo.

Connections with Manager: None.

Shared directorships with other Directors: Macau Property Opportunities Fund Limited.

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

Management of the Company

The Manager of and Company Secretary to the Company isJPMF. Active management of the Company’s assets isdelegated to JPMAM Japan through JPMAM UK. The Managerand Company Secretary are employed under a contractterminable on six months’ notice, without penalty. If theCompany wishes to terminate the contract on shorter notice,the balance of remuneration is payable by way ofcompensation.

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

The current Management Agreement was entered into witheffect from 1st July 2014 following the implementation of anumber of changes required by the AIFMD.

The Board conducts a formal evaluation of the performance of,and contractual relationship with, the Manager on an annualbasis. Part of this evaluation includes a consideration of themanagement fees and whether the service received is valuefor money for shareholders. No separate ManagementEngagement Committee has been established because allDirectors are considered to be independent of the Managerand, given the nature of the Company’s business, it is felt thatall Directors should take part in the review process. The Boardhas thoroughly reviewed the performance of the Manager inthe course of the year. The review covered the performanceover the long term of the Manager, its management processes,consideration of the investment strategy, resources and riskcontrols and the quality of support that the Company received,including the marketing support provided. The latestevaluation was carried out in early 2015. As a result of thatprocess, the Board confirms that it is satisfied that thecontinuing appointment of the Manager and the CompanySecretary 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 approved as

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 the Company’sportfolio to JPMAM. JPMF is required to ensure that a depositaryis appointed to the Company. The Company therefore hasappointed BNY Mellon Trust and Depositary (UK) Limited (‘BNY’)as its depositary. BNY has delegated its safekeeping function tothe custodian, JPMorgan Chase Bank, N.A. BNY remainsresponsible for the oversight of the custody of the Company’sassets and for monitoring its cash flows. The AIFMD requirescertain information to be made available to investors in AIFsbefore they invest and requires that material changes to thisinformation be disclosed in the annual report of each AIF. AnInvestor Disclosure Document, which sets out information onthe Company’s investment strategy and policies, leverage, risk,liquidity, administration, management, fees, conflicts ofinterest and other shareholder information is available on theCompany’s website at www.jpmjapansmallercompanies.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 2015, the management fee wascharged at 1% per annum of gross assets, calculated and paidmonthly. A secretarial fee is paid to the Company Secretary outof this management fee. If the Company invests in fundsmanaged or advised by the Manager or any of its associatedcompanies that charge an underlying fee, those investmentsare excluded from the calculation and therefore attract noadditional fee.

In addition, the Company reimburses the Manager for the costsof administering its shareholders who hold their sharesthrough the JPMAM UK savings products.

Governance continuedDirectors’ Report

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Going Concern

The Directors believe that, having considered the Company’sinvestment objective (see page 15), risk management policies(see page 15), liquidity risk, capital management policies andprocedures (see pages 59 and 61), the nature of the portfolioand expenditure and cashflow 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.

Directors

With the exception of Deborah Guthrie, appointed on 1st April2015, 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 35.

In accordance with the Company’s Articles of Association, theDirectors retiring at the forthcoming Annual General Meetingwill be Alan Clifton and Chris Russell, due to length of serviceas Directors, and Robert White, who was last reappointed in2012. Being eligible, all of them offer themselves forreappointment. Deborah Guthrie as a new Director will alsostand for reappointment at the forthcoming Annual GeneralMeeting. After twelve years of service to the Company, BernardGrigsby will retire following the Annual General Meeting and isnot seeking reappointment.

The Nomination Committee, having considered theirqualifications, performance and contribution to the Board andits Committees, confirms that each Director standing forreappointment continues to be independent, effective anddemonstrates commitment to the role. The Boardrecommends to shareholders that those Directors seekingreappointment 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 those Directors who served during

the year under review, these indemnities were in placethroughout the year and as at the date of this report. Theeffective date of the indemnity concerning Deborah Guthriewas 1st April 2015, the date of her appointment, and remainedin place as at the date of this report.

An insurance policy is maintained by the Company whichindemnifies the Directors of the Company against certainliabilities arising in the conduct of their duties. There is nocover against fraudulent or dishonest actions.

Disclosure of Information to Auditor

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

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

(b) each of the Directors has taken all the steps that he or sheought to have taken as a Director in order to make him orherself aware of any relevant audit information (as defined)and to establish that the Company’s Auditor is aware of thatinformation.

The above confirmation is given and should be interpreted inaccordance with the provision of Section 418 of the CompaniesAct 2006.

Independent Auditor

Further to a review of audit services in 2014, Deloitte LLPretired as the Company’s Auditor at the 2014 Annual GeneralMeeting. Grant Thornton UK LLP were appointed Auditor of theCompany in their place. Grant Thornton UK LLP have expressedtheir willingness to continue in office as the Auditor and aresolution to reappoint Grant Thornton UK LLP and authorisethe Directors to determine their remuneration for the ensuingyear will be proposed at the Annual General Meeting.

Capital StructureAt 31st March 2015, the Company’s share capital comprised46,692,082 Ordinary shares of 10 pence each, of which409,500 were held in Treasury, and 9,252,478 Subscriptionshares of 0.1 penny each. The Ordinary shares have a premiumlisting on the London Stock Exchange. The Subscription sharesissued in 2014 have a standard listing on the London Stock

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Governance continuedDirectors’ Report continued

Exchange. The standard listing of the Subscription sharesissued in 2009 was suspended following the final exercise dateand subsequently cancelled.

On 5th March 2009 the Company issued 7,798,873 Subscriptionshares as a bonus issue to Ordinary shareholders on the basisof one Subscription share for every five Ordinary shares heldon 3rd March 2009. Each Subscription share conferred theright (but not the obligation) to subscribe for one Ordinaryshare at predetermined prices on any business day during theperiod from 1st April 2009 until 31st March 2014.

On 1st April 2014, 4,030,780 Ordinary shares were issuedfollowing the exercise of conversion rights by uncertificatedshareholders and on 14th April 2014, 6,028 Subscriptionshares held by certificated holders were converted intoOrdinary shares.

As a result, 2,747,739 Subscription shares remained outstandingafter the final exercise and a Trustee was appointed to considerthe decision whether or not to exercise the Subscription rightsattaching to these outstanding Subscription shares. Theexercise of these Subscription shares resulted in an issue of afurther 2,747,739 Ordinary shares. These Ordinary shares werethen sold and, after the deduction of the conversion price of174 pence per share, together with all associated fees, costsand expenses (including brokerage commission), 7.55 penceper Subscription share was distributed to the Subscriptionshareholders on whose behalf the Trustee had exercised theSubscription share rights.

In December 2014, the Company issued 9,255,764 Subscriptionshares as a bonus issue to Ordinary shareholders on the basis ofone Subscription share for every five Ordinary shares held. EachSubscription share conferred the right (but not the obligation)to subscribe for one Ordinary share at the predetermined priceof 243 pence per share on any business day during the periodfrom 30th January 2015 until 30th November 2016. From30th January 2015 to 31st March 2015, 3,286 Subscription shareswere exercised, resulting in an issue of 3,286 Ordinary shares.

From 1st April 2015 to the date of this report, a further 553,294Ordinary shares were issued following the exercise ofconversion rights by Subscription shareholders.

Voting Rights in the Company’s sharesDetails of the voting rights in the Company’s shares as at thedate of this report are given in Note 16 to the Notice of Meetingon page 64.

Notifiable Interests in the Company’s Voting Rights

As at 31st March 2015, the following had declared a notifiableinterest in the Company’s voting rights:

Number of %Shareholders voting rights voting rights1

Lazard Asset Management LLC2 11,541,329 24.91607 Capital Partners2 5,597,606 12.0South Yorkshire Pension Authority3 2,651,550 5.7LIM Asia Multi-Strategy Fund Inc3,4 2,401,372 5.2Derbyshire County Council2 2,250,000 4.9

1At the time of announcement.2Indirect holding.3Direct holding.4Bernard Grigsby is a Director of LIM Asian Multi-Strategy Fund. However, he is notinvolved in any investment decisions on behalf of that fund.

Since the year end, South Yorkshire Pension Authority hasannounced an increase in its holding to 6.7% and 1607 CapitalPartners has announced a decrease in its holding to 10.5%.

The Company is also aware that as at 31st March 2015,approximately 3.1% of the Company’s total voting rightswere held by individuals through the savings productsmanaged by JPMorgan and registered in the name of ChaseNominees Limited. If those voting rights are not exercisedby the beneficial 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 repurchasethe Company’s shares are contained in the Articles ofAssociation 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.

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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 special businesswill be proposed at the forthcoming Annual General Meeting.

The full text of the Resolutions is set out in the Notice ofMeeting on pages 62 and 64:

(i) Authority to allot new Ordinary shares and to disapply statutorypre-emption rights (Resolutions 9 and 10)

The Directors will seek renewal of the authority at the AnnualGeneral Meeting to issue new Ordinary shares for cash, orreissue Ordinary shares from Treasury, up to an aggregatenominal amount of £472,497, such amount being equivalent toapproximately 10% of the present issued Ordinary sharecapital (including Treasury shares) as at the last practicabledate before the publication of this document or, if different, thenumber of Ordinary shares which is equal to 10% of theCompany’s issued share capital (including Treasury shares) asat the date of the passing of the Resolution. This authority willexpire at the conclusion of the Annual General Meeting of theCompany in 2016 unless renewed at a prior general meeting.

Resolution 10 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 able to issue newOrdinary shares, or reissue Ordinary shares from Treasury, toparticipants purchasing shares through the JPMorgan savingsproducts and also to other investors when the Board considersit in the best interests of shareholders to do so. Any such issueswould only be made at prices greater than the net asset value(‘NAV’), thereby increasing the NAV per share and spreadingthe Company’s administrative expenses, other than themanagement fee, which is charged on the value of theCompany’s gross 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 11) The authority to repurchase up to 14.99% of the Company’sissued Ordinary shares, granted by shareholders at the 2014Annual General Meeting, will expire on 24th January 2016unless renewed at the forthcoming Annual General Meeting.The authority to repurchase up to 14.99% of the Company’sissued Subscription shares, granted by shareholders at theGeneral Meeting held in December 2014, will expire on11th June 2016 unless renewed at the forthcoming AnnualGeneral Meeting. The Directors consider that the renewal ofthese authorities is in the interests of shareholders as a whole,as, in the case of Ordinary shares, the repurchase of Ordinaryshares at a discount to the underlying NAV enhances the NAVof the remaining Ordinary shares. The repurchase ofSubscription shares reduces the potential dilutive impact.

Resolution 11 gives the Company authority to repurchase itsown issued Ordinary shares and Subscription shares in themarket as permitted by the Companies Act 2006. The authoritylimits the number of shares that could be purchased to amaximum of: (i) 7,021,346 Ordinary shares; and (ii) 1,303,359Subscription shares, representing approximately 14.99% of theCompany’s issued Ordinary shares (excluding Treasury shares)and issued Subscription shares respectively as at the latestpracticable date before the publication of this document or, ifdifferent, the number of Ordinary shares which is equal toapproximately 14.99% of each of the Company’s issuedOrdinary share capital (excluding Treasury shares) andSubscription share capital as at the date of the passing of theResolution. The authority also sets minimum and maximumprices.

As at 12th June 2015 (being the latest practicable date prior tothe publication of this document), there were no warrants oroptions over Ordinary shares in the capital of the Company,other than the 8,694,858 Subscription shares in issue (each ofwhich gives the holder thereof the right to subscribe for onenew Ordinary share) which represent 18.6% of the Company’sissued Ordinary share capital. If the authority to purchase theCompany’s Ordinary shares was exercised in full (and theauthority to purchase Subscription shares not exercised at all)then the Subscription shares would represent 21.8% of theCompany’s issued Ordinary share capital.

If Resolution 11 is passed at the Annual General Meeting, theBoard may repurchase shares for cancellation or hold themin Treasury pursuant to the authority granted to it for possible

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Governance continuedDirectors’ Report continued

reissue at a premium to NAV. Repurchases will be made at thediscretion of the Board and will only be made in the marketat prices below the prevailing NAV per share, thereby enhancingthe NAV of the remaining Ordinary shares, or reducing thepotential dilutive impact in respect of the Subscription shares,and when market conditions are appropriate. This authority willexpire on 16th January 2017, or when the whole of the relevant14.99% has been acquired, whichever is the earlier, however it isthe Board’s intention to seek renewal of the authority at the2016 Annual General Meeting.

(iii) Increase of the maximum aggregate of Directors’ fees payableto £200,000 per annum from £150,000Directors’ fees have been unchanged for the years ended31st March 2014 and 31st March 2015 and no increase wasmade with effect from 1st April 2015. However, toaccommodate future increases and periods during which theremay be more than five Directors on the Board to assist withsmooth succession, the Board is seeking an increase in themaximum aggregate amount of fees payable per annum.

Recommendation

The Board considers that Resolutions 9 to 12 are likely topromote the success of the Company and are in the bestinterests of the Company and its shareholders as a whole.The Directors unanimously recommend that you vote in favourof the Resolutions as they intend to do, where voting rights areexercisable, in respect of their own beneficial holdings which,as at the date of this report, amounted in aggregate to164,000 Ordinary shares with voting rights representingapproximately 0.35% of the voting rights of the Company.

Corporate Governance Compliance The Company is committed to high standards of corporategovernance. This statement, together with the Statement ofDirectors’ Responsibilities on page 37, indicates how theCompany has applied the principles of good governance of theFinancial Reporting Council’s UK Corporate Governance Code(the ‘UK Corporate Governance Code’) and the Association ofInvestment Companies’ (‘AIC’) Code of Corporate Governance(the ‘AIC Code’), which complements the UK CorporateGovernance Code and provides a framework of best practicefor investment trusts. Copies of the UK Corporate GovernanceCode and the AIC Code may be found on the respectiveorganisations’ websites at www.frc.org.uk andwww.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 theUK Corporate Governance Code, other than in respect of theprovision relating to 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 schedule ofmatters reserved to the Board for decision has been approved.This includes determination and monitoring of the Company’sinvestment objectives and policy and its future strategicdirection, gearing policy, management of the capital structure,appointment and removal of third party service providers,review of key investment and financial data and the Company’scorporate governance and risk control arrangements.

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 quarterly 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, and 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.

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Board Composition The Board, chaired by Alan Clifton, comprises six non-executiveDirectors, all of whom, including the Chairman, are regarded bythe Board as independent of the Manager. Bernard Grigsby willretire from the Board following the Annual General Meeting,resulting in the Board, once again, comprising five Directors.The Directors have a breadth of investment knowledge,business and financial skills and experience relevant to theCompany’s business and brief biographical details of eachDirector are set out on pages 22 and 23. There have been nochanges to the Chairman’s other significant commitmentsduring 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 entirelyof 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. Thereafter, Directors are required to submitthemselves for reappointment at least every three years. AnyDirectors with more than nine years’ service are required tosubmit themselves annually for reappointment. Subject to theperformance evaluation carried out each year, the Boardagrees whether it is appropriate for the Director to seek anadditional term. The Board does not believe that length ofservice in itself necessarily disqualifies a Director from seekingreappointment but, when making a recommendation, theBoard will take into account the ongoing requirements of theUK Corporate Governance Code and the AIC Code, includingthe need to refresh the Board and its Committees.

The Board recommends the reappointment of Alan Clifton andChris Russell who both have a wealth of experience in thefinancial sector and make a valuable contribution to theworkings of the Board.

Robert White, last reappointed at the 2012 Annual GeneralMeeting, seeks reappointment at the forthcoming AnnualGeneral Meeting.

Having faithfully served the Company since August 2003, andin light of best practice codes of governance, Bernard Grigsbyhas decided to not seek reappointment to the Board and willretire at the conclusion of the Annual General Meeting.

Deborah Guthrie, appointed to the Board on 1st April 2015,seeks reappointment at the Annual General Meeting.

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 TrainingOn appointment, the Manager and the Company Secretaryprovide all Directors with induction training. Thereafter,regular briefings are provided on changes in law andregulatory requirements that affect the Company and theDirectors. Directors are encouraged to attend industry andother seminars covering issues and developments relevant toinvestment trust companies. Regular reviews of training needsare carried out by the Chairman by means of the evaluationprocess described below.

Meetings and Committees The Board delegates certain responsibilities and functions toCommittees. All Directors are members of the Committees.

The table below details the number of formal Board andCommittee meetings attended by each Director. During theyear there were eight Board meetings, which included aprivate session of the Directors to evaluate the Manager and anoverseas visit to the offices of JPMAM Japan in Tokyo to discussstrategy, four Audit Committee meetings and one NominationCommittee meeting. These meetings were supplemented byadditional meetings held to cover procedural matters andformal approvals. In addition, there was a Board strategymeeting and regular contact between the Directors, theManager and the Company Secretary throughout the year.

Meetings Attended Audit NominationDirector Board Committee Committee

Alan Clifton 8 4 1Bernard Grigsby 8 4 1Deborah Guthrie1 n/a n/a n/aYuuichiro Nakajima2 7 4 1Chris Russell 8 4 1Robert White 8 4 1

1Appointed 1st April 2015.2Meeting dates for 2014 set prior to Mr Nakajima’s appointment.

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Board Committees

Nomination Committee The Nomination Committee, chaired by Alan Clifton, consists ofall of the Directors, and meets at least annually to ensure thatthe Board has an appropriate balance of skills and experienceto carry out its fiduciary duties and to select and proposesuitable candidates for appointment when necessary.

The appointment process takes account of the benefits ofdiversity, including gender.

Due to the specialist nature of experience required, DeborahGuthrie was identified through industry contacts rather thanthrough the use of a recruitment agency or use of openadvertising.

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 for the Board, with the assistance ofthe Manager and a firm of independent consultants, arecompleted by each Director. The responses are collated andthen discussed by the Committee. The evaluation of individualDirectors is led by the Chairman who also meets with eachDirector. The Audit Committee Chairman leads the evaluationof the Chairman’s performance.

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 Alan Clifton to act as the Chairman of theCommittee.

Audit Committee The Audit Committee, chaired by Chris Russell, comprises allDirectors and meets at least twice each year. The members ofthe Audit Committee consider that they have the requisiteskills and experience to fulfil the responsibilities of theCommittee. At least one member of the Audit Committee hasrecent and relevant financial experience. The Board has takenthe decision that Alan Clifton should be a member of the AuditCommittee because he is independent.

The Audit Committee reviews the actions and judgements ofthe Manager and Secretary in relation to the half year andannual accounts and the Company’s compliance with theUK Corporate Governance Code and the AIC Code. It meets toconsider the terms of the management agreement betweenthe Company and the Manager to review the performance ofthese parties, the notice period in place and to makerecommendations to the Board on the continued appointmentof the Manager and the Company Secretary following theseassessments.

Significant Financial Reporting JudgementsDuring 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 Auditor during its reporting:

Significant issue How the issue was addressed

The valuation of investments was undertaken inaccordance with the accounting policies, disclosedin note 1(b) to the accounts on page 45. Controlswere in place to ensure that valuations wereappropriate and existence was verified through theDepositary and the Custodian reconciliations.

The recognition of investment incomewasundertaken in accordance with accounting policynote 1(d) to the accounts on page 45. The Boardregularly reviewed subjective elements of incomesuch as special dividends and agreed theiraccounting treatment.

Approval for the Company as an investment trustunder Sections 1158 and 1159 for financial yearscommencing on or after 1st April 2012 was obtainedand ongoing compliance with the eligibility criteriawasmonitored on a regular basis.

Valuation, existenceand ownership ofinvestments

Recognition ofinvestment income

Compliance withSections 1158 and1159 of theCorporation Tax Act2010

Governance continuedDirectors’ Report continued

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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 in thisrespect are set out in the Statement of Directors’Responsibilities on page 37.

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 reviews the terms of the ManagementAgreement between the Company and the Manager,reviews the performance of the Manager, reviews thenotice period that the Board has with the Manager and makesrecommendations to the Board on the continued appointmentof the Manager following these reviews, examines theeffectiveness of the Company’s internal controls systems andreceives information from the Managers’ Compliancedepartment. The Directors’ statement on the Company’ssystem of Risk Management and Internal Controls is set out onpages 32 and 33. The Audit Committee also reviews the scopeand results of the external audit, its effectiveness and costeffectiveness, the balance of audit and non-audit services andthe independence and objectivity of the external Auditor. Inthe Directors’ opinion the Auditor is independent. The AuditCommittee also has a primary responsibility for makingrecommendations to the Board on the reappointment andremoval of the external Auditor.

Representatives of the Company’s Auditor 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 Auditor, including assessing the quality of work,timing of communications and work with the Manager, theCommittee considered it appropriate to recommend theAuditor’s reappointment. The Board supported thisrecommendation and a resolution will be put to shareholdersat the forthcoming Annual General Meeting.

As part of its review of the continuing appointment of theAuditor, the Audit Committee considered the length of tenureof the audit firm, its fee, its independence from JPMF and theInvestment Managers and any matters raised during the audit.A formal tender exercise was undertaken in 2014, as a result ofwhich Grant Thornton UK LLP was appointed in place ofDeloitte LLP. The Company’s year ended 31st March 2015 istherefore the new Audit Partner’s first of a five year maximumterm. The Board reviews and approves any non-audit servicesprovided by the independent Auditor and assesses the impactof any non-audit work on the ability of the Auditor to remainindependent. No such work was undertaken during the year.Details of the fees paid for audit services are included in note 5on page 48.

The Audit Committee reviews and approves any non-auditservices provided by the independent Auditor and assessesthe impact of any non-audit work on the ability of the Auditorto remain independent. No such work was undertaken duringthe year.

Terms of ReferenceThe Nomination Committee and the Audit Committee havewritten terms of reference which define clearly their respectiveresponsibilities, copies of which are available on theCompany’s website and for inspection on request at theCompany’s registered office and at the Company’s AnnualGeneral 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 a year by way of theannual report and accounts and the half year report. These aresupplemented by the daily publication, through the LondonStock Exchange, of the net asset value of the Company’sOrdinary shares and the Company’s level of gearing.

All shareholders have the opportunity, and are encouraged,to attend the Company’s Annual General Meeting at which theDirectors and representatives of the Manager and Secretaryare available to meet shareholders and answer their questions.In addition, a presentation is given by the InvestmentManagers who review the Company’s performance.

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Governance continuedDirectors’ Report continued

During the year, the Company’s brokers, the InvestmentManagers and JPMF hold regular discussions with largershareholders. The Directors are made fully aware of theirviews. The Chairman and Directors make themselves availableas and when required to support these meetings and toaddress shareholder queries and consult major shareholderson an annual basis. The Directors may be contacted throughthe Company Secretary whose details are shown on page 69.The Chairman may also be contacted via the Company’swebsite.

The Company’s Annual Report and Accounts are published intime to give shareholders at least twenty working days’ noticeof 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 69.

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,at least 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 encompassesa review 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 and

managing the significant risks faced by the Company (seePrincipal Risks on pages 19 and 20). 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 accordswith the Turnbull guidance.

Whilst the Company does not have an internal audit function ofits own, the Board considers that it is sufficient to rely on theinternal audit department of the Manager. This arrangement iskept 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 depositaryregulated by the FCA, whose responsibilities are clearlydefined in a written agreement.

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, the latter of which is itself independentlyreviewed; and

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

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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 systems of riskmanagement and internal controls were not significant and didnot impact the Company.

Corporate Governance and Voting Policy

The Company delegates responsibility for voting to theManager. The following is a summary of the policy statementsof JPMAM UK 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 pages 20 and 21.

Corporate GovernanceJPMAM UK believes that corporate governance is integral to ourinvestment process. As part of our commitment to delivering superiorinvestment performance to our clients, we expect and encourage thecompanies in which we invest to demonstrate the highest standards ofcorporate governance and best business practice. We examine the sharestructure and voting structure of the companies in which we invest, aswell as the board balance, oversight functions and remuneration policy.These analyses then form the basis of our proxy voting and engagementactivity.

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

Stewardship/EngagementJPMAM UK recognises its wider stewardship responsibilities to its clientsas a major asset owner. To this end, we support the introduction of theFRC Stewardship Code, which sets out the responsibilities 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 UK 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 UK’s Voting Policy and Corporate GovernanceGuidelines are available on request from the CompanySecretary or can be downloaded from JPMAM UK’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.

Japanese Stewardship and Corporate Governance Codes

The Japanese Stewardship Code was introduced in February2014. Asset owners and institutional investors are expected toengage in constructive dialogue with investee companies toenhance corporate value.

JPMAM Japan has adopted the Japan Stewardship Code.Engagement with companies is a key part of JPMAM Japan’sprocess and regular, systematic and direct contact with seniorcompany management, both executive and non-executive isregarded as crucially important.

A Corporate Governance Code was introduced in June 2015.Reforms to the Japanese Companies Act are also expected. TheAbe administration’s focus on corporate governance is part ofits efforts to revitalise the Japanese economy and improvecorporate profitability.

By order of the Board Rhys Williams, for and on behalf of JPMorgan Funds Limited, Company Secretary

15th June 2015

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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 Auditor to audit certain of thedisclosures provided. Where disclosures have been audited,they are indicated as such. The Auditor’s opinion is included inits report on pages 38 to 40.

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

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 tothe vote 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 commitment andresponsibilities involved in fulfilling those roles.

Reviews are based on information provided by the Managerand 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 policy forDirectors.

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, awardor pension scheme and therefore no Directors receive bonuspayments or pension contributions from the Company or hold

options 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 £30,000; Chairman of the AuditCommittee £24,500; and other Directors £21,500. These feelevels had been retained for the prior year.

With effect from 1st April 2015, Directors’ fees have remainedunchanged.

The Company’s Articles of Association provide that any increasein the maximum aggregate annual limit on Directors’ fees,currently £150,000, requires both Board and shareholderapproval. Shareholder approval is being sought to increase themaximum aggregate annual limit to £200,000 at theforthcoming Annual General Meeting, as detailed in theChairman’s Statement.

The Company has not sought shareholder views on itsremuneration policy. The Nomination Committee considersany comments received from shareholders on remunerationpolicy on an ongoing basis and takes 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 29.

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.

At the Annual General Meeting held on 25th July 2014, of votescast in respect of the Remuneration Policy, 99.85% of votescast were in favour (or granted discretion to the Chairman whovoted in favour) and 0.10% voted against. Abstentions werereceived from 0.05% of the votes cast. In respect of the

Governance continuedDirectors’ Remuneration Report

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Remuneration Report, 99.85% of votes cast were in favour (orgranted discretion to the Chairman who voted in favour) and0.10% voted against. Abstentions were received from 0.05% ofthe votes 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 2014Directors’ Name £ £

Alan Clifton 30,000 30,000John Gibbon3 n/a 7,200Bernard Grigsby 21,500 21,500Deborah Guthrie4 n/a n/aYuuichiro Nakajima5 21,500 n/aChris Russell 24,500 24,500Robert White 21,500 21,500

Total 119,000 104,700

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 an annual fee only. Directors are also reimbursedfor out of pocket expenses incurred in attending the Company’s business.

3Retired following the Annual General Meeting on 16th July 2013. 4Appointed 1st April 2015.5Appointed 1st April 2014.

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 £30,0002014 £30,0002013 £28,0002012 £28,0002011 £28,000

Directors’ Shareholdings1

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

31st March 2014 31st March or as at date ofDirectors’ Name 2015 appointment

Ordinary shares heldAlan Clifton 17,000 15,000Bernard Grigsby2 60,000 50,000Deborah Guthrie3 n/a n/aYuuichiro Nakajima4 nil n/aChris Russell 66,000 60,000Robert White 21,000 10,000

Subscription shares held5

Alan Clifton 3,400 2,000Bernard Grigsby2 12,000 10,000Deborah Guthrie3 n/a n/aYuuichiro Nakajima4 nil n/aChris Russell 13,200 6,000Robert White 4,200 11,000

1Audited information.2Held indirectly.3Appointed 1st April 2015.4Appointed 1st April 2014.5Conversion rights attached to Subscription shares held at 31st March 2014 exercisedresulting in Ordinary shares being allotted on 1st April 2014. Subscription shares held at31st March 2015 were issued in December 2014.

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

The Directors have no other share interests or share options 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 S&P/Citigroup Japan Extended Market Index(Total Return Net) in sterling terms, over the last six years isshown below. Because this Index is the adopted benchmarkfor the Company, it is deemed by the Board to be the mostrepresentative comparator. Although the Investment Managers

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do not track this Index, and there is no formal benchmark thatclosely reflects the Company’s stated investment policy, this isthe nearest match available.

Six Year Ordinary Share Price andBenchmark Total Return to 31st March 2015

Source: Morningstar/Datastream.

Ordinary share price.

Benchmark.

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 £119,000 £104,700

Distribution to shareholders— by way of dividend £nil £nil— by way of share repurchases £nil £nil

For and on behalf of the Board Yuuichiro NakajimaDirector

15th June 2015

100

130

160

190

220

250

2015201420132012201120102009

Governance continuedDirectors’ Remuneration Report continued

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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.jpmjapansmallercompanies.co.uk website, which ismaintained by the Company’s Manager. The maintenance and

integrity of the website maintained by the Manager is, so far asit relates to the Company, the responsibility of the Manager.The work carried out by the Auditor does not involveconsideration of the maintenance and integrity of this websiteand, accordingly, the Auditor accepts 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 performance, strategy and businessmodel of the Company.

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 BoardYuuichiro NakajimaDirector

15th June 2015

Statement of Directors’ Responsibilities

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201538

Independent Auditor’s Reportto the Members of JPMorgan Japan Smaller Companies Trust plc

Our opinion on the financial statements is unmodified

In our opinion the financial statements:

• give a true and fair view of the state of the Company’saffairs as at 31st March 2015 and of its profit for the yearthen ended;

• have been properly prepared in accordance with applicablelaw and United Kingdom Accounting Standards (UnitedKingdom Generally Accepted Accounting Practice); and

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

Who we are reporting to

This report is made solely to the Company’s members, as abody, in accordance with Chapter 3 of Part 16 of the CompaniesAct 2006. Our audit work has been undertaken so that wemight state to the Company’s members those matters we arerequired to state to them in an auditor’s report and for no otherpurpose. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than theCompany and the Company’s members as a body, for our auditwork, for this report, or for the opinions we have formed.

What we have audited

JPMorgan Japan Smaller Companies Trust plc’s financialstatements comprise the income statement, the reconciliationof movements in shareholders’ funds, the balance sheet, thecash flow statement and the related notes.

The financial reporting framework that has been applied intheir preparation is United Kingdom Generally AcceptedAccounting Practice.

Our assessment of risk

In arriving at our opinions set out in this report, we highlightthe following risks that are, in our judgement, likely to be mostimportant to users’ understanding of our audit.

Investments

The risk: The Company’s objective is the achievement oflong-term capital growth through investment in small andmedium-sized Japanese companies. The investment portfolioat £146million is the most quantitatively significant amount of

the Company’s net assets at the year-end and the main driverof the Company’s performance. We therefore identified thevaluation, existence and ownership of the investment portfolioas a risk that requires particular audit attention.

Our response: Our audit work included, but was not restrictedto, the following:

• We obtained an understanding, through reading thecontrols report on the description, design and operatingeffectiveness of controls at the investment manager, for thesole purpose of our risk assessment procedures, of theprocesses in place to value investments, record allinvestment transactions and reconcile the investments heldagainst the custodian’s statements. In addition, we read thecontrols report on the description, design and operatingeffectiveness of controls at the custodian, for the solepurpose of our risk assessment procedures, to confirm thecontrols over safekeeping of assets.

• We confirmed the ownership and existence of investmentsthrough checking the holdings listed in the portfolio at yearend to an independent confirmation we received directlyfrom the Company’s custodian.

• We independently priced all the listed equity portfolio byobtaining the bid prices from independent market sources.

• To test that investments are actively traded for fair valuedetermination and liquidity test, we extracted a report oftrading volumes around year end from an independentmarket source for the equity investments held.

The Company’s accounting policy on the valuation ofinvestments is included in note 1 (b), and disclosures aboutinvestments held at the year-end are included in note 9.Valuation, existence and ownership of investments was alsoidentified as a significant issue by the Audit Committee in itsreport on page 30, where the Committee also describes how itaddressed this issue.

Investment income

The risk: Investment income is the Company’s major source ofrevenue and a significant balance in the income statement.Accordingly, the recognition of investment income is a risk thatrequires particular audit attention.

Our response: Our audit work included, but was not restrictedto, the following:

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• We assessed whether the Company’s accounting policy forrevenue recognition is in accordance with United KingdomGenerally Accepted Accounting Practice and the Statementof Recommended Practice ‘Financial Statements ofInvestment Trust Companies and Venture Capital Trusts’(the ‘SORP’) issued by the AIC in January 2009.

• We obtained an understanding of management’s processfor recognising revenue in accordance with the Company’sstated accounting policy. We tested that incometransactions were recognised in accordance with the policyby selecting a sample of quoted investments and agreeingthe relevant investment income receivable for thoseinvestments. Also, for the selected investments, weobtained the respective dividend rate entitlements fromindependent sources and checked against the amountsrecorded in the Company’s accounting records maintainedby the administrator. In addition, we agreed the receipt ofthe dividend income to bank statements.

• We performed, on a sample basis, a search for corporateactions on the equity investments held during the year tocheck whether dividend income attributable to thoseinvestments has been properly recognised.

The Company’s accounting policy on the recognition of incomeis shown in note 1 and the components of that revenue areincluded in note 3. Recognition of investment income was alsoidentified as a significant issue by the Audit Committee in itsreport on page 30, where the Committee also describes how itaddressed this issue.

Our application of materiality and an overview of the scope of ouraudit

MaterialityWe define materiality as the magnitude of misstatement in thefinancial statements that makes it probable that the economicdecisions of a reasonably knowledgeable person would bechanged or influenced. We determined materiality for the auditof the financial statements as a whole to be £1,332,000 which is1% of net assets value. This benchmark is considered the mostappropriate because total assets are fundamental to theperformance and financial position of the business. We use adifferent level of materiality, performance materiality, to drivethe extent of our testing and this was set at 75% of financialstatement materiality.

We also determine a lower level of specific materiality forcertain areas such as the revenue column of the incomestatement, directors’ remuneration and related partytransactions.

We determined the threshold at which we will communicatemisstatements to the audit committee to be £66,600. Inaddition we will communicate misstatements below thatthreshold that, in our view, warrant reporting on qualitativegrounds.

Overview of the scope of our auditWe conducted our audit in accordance with InternationalStandards on Auditing (ISAs) (UK and Ireland). Ourresponsibilities under those standards are further described inthe ‘Responsibilities for the financial statements and the audit’section of our report. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basisfor our opinion.

We are independent of the Company in accordance with theAuditing Practices Board’s Ethical Standards for Auditors, andwe have fulfilled our other ethical responsibilities inaccordance with those Ethical Standards.

Our audit approach was based on a thorough understanding ofthe Company’s business and is risk-based. The day-to-daymanagement of the Company’s investment portfolio, thecustody of its investments and the maintenance of theCompany’s accounting records is outsourced to third-partyservice providers.

Accordingly, our audit work was focussed on obtaining anunderstanding of, and evaluating, relevant internal controls atboth the Company and third-party service providers. Thisincluded obtaining and reading the internal controls reports onthe description, design and operating effectiveness of internalcontrols at relevant third-party service providers. We thenidentified the controls that would impact upon the financialstatements to ensure that no exceptions or deficiencies werenoted in these areas. We undertook substantive testing onsignificant transactions, balances and disclosures, the extent ofwhich was based on various factors such as our overallassessment of the control environment, the designeffectiveness of controls over individual systems and themanagement of specific risks.

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Other reporting required by regulations

Our opinion on other matters prescribed by the Companies Act2006 is unmodifiedIn our opinion:

• the part of the Directors’ Remuneration Report to beaudited has been properly prepared in accordance with theCompanies Act 2006; and

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

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following:

Under the ISAs (UK and Ireland), we are required to report to you if, in

our opinion, information in the annual report is:

• materially inconsistent with the information in the auditedfinancial statements; or

• apparently materially incorrect based on, or materiallyinconsistent with, our knowledge of the Company acquiredin the course of performing our audit; or

• otherwise misleading.

In particular, we are required to report to you if:

• we have identified any inconsistencies between ourknowledge acquired during the audit and the Directors’Statement that they consider the annual report is fair,balanced and understandable; or

• the annual report does not appropriately disclose thosematters that were communicated to the audit committeewhich we consider should have been disclosed.

Under the Companies Act 2006 we are required to report to you if, in

our opinion:

• adequate accounting records have not been kept, orreturns adequate for our audit have not been received frombranches not visited by us; or

• the financial statements and the part of the Directors’Remuneration Report to be audited are not in agreementwith the accounting records and returns; or

• certain disclosures of directors’ remuneration specified bylaw are not made; or

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

Under the Listing Rules, we are required to review:

• the Directors’ Statement, set out on page 25, in relation togoing concern; and

• the part of the Corporate Governance Statement relating tothe Company’s compliance with the ten provisions of theUK Corporate Governance Code specified for our review.

Responsibilities for the financial statements and the auditWhat an audit of financial statements involves:

A description of the scope of an audit of financial statements isprovided on the Financial Reporting Council’s website atwww.frc.org.uk/auditscopeukprivate.

What the directors are responsible for:

As explained more fully in the Statement of Directors’Responsibilities set out on page 37, the directors areresponsible for the preparation of the financial statements andfor being satisfied that they give a true and fair view.

What we are responsible for:

Our responsibility is to audit and express an opinion on thefinancial statements in accordance with applicable law andInternational Standards on Auditing (UK and Ireland). Thosestandards require us to comply with the Auditing PracticesBoard’s Ethical Standards for Auditors.

Julian BartlettSenior Statutory Auditorfor and on behalf of Grant Thornton UK LLPStatutory Auditor, Chartered AccountantsLondon

15th June 2015

Independent Auditor’s Reportcontinued

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 41

2015 2014Revenue Capital Total Revenue Capital Total

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

Gains on investments held atfair value through profit or loss 2 — 33,784 33,784 — 2,340 2,340

Net foreign currency gains — 609 609 — 1,632 1,632Income from investments 3 1,640 — 1,640 1,242 — 1,242

Gross return 1,640 34,393 36,033 1,242 3,972 5,214Management fee 4 (1,233) — (1,233) (1,018) — (1,018)Other administrative expenses 5 (414) — (414) (402) — (402)

Net (loss)/return on ordinary activitiesbefore finance costs and taxation (7) 34,393 34,386 (178) 3,972 3,794

Finance costs 6 (270) — (270) (246) — (246)

Net (loss)/return on ordinary activitiesbefore taxation (277) 34,393 34,116 (424) 3,972 3,548

Taxation 7 (164) — (164) (110) — (110)

Net (loss)/return on ordinary activitiesafter taxation (441) 34,393 33,952 (534) 3,972 3,438

(Loss)/return per Ordinary share – undiluted 8 (0.95)p 74.32p 73.37p (1.36)p 10.13p 8.77p

(Loss)/return per Ordinary share – diluted1 8 (0.95)p 74.32p 73.37p (1.36)p 9.95p 8.59p

1The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using the oldSubscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

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 45 to 61 form an integral part of these accounts.

Financial StatementsIncome Statementfor the year ended 31st March 2015

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Called up Capitalshare Share redemption Other Capital Revenuecapital premium reserve reserve reserves reserve Total£’000 £’000 £’000 £’000 £’000 £’000 £’000

At 31st March 2013 4,021 764 1,836 314,775 (226,611) (12,249) 82,536Repurchase of shares into Treasury1 — — — — (1) — (1)Conversion of Subscription shares into

Ordinary shares (4) 4 — — — — —Issue of Ordinary shares on exercise of

Subscription shares 41 678 — — — — 719Net return/(loss) on ordinary activities — — — — 3,972 (534) 3,438

At 31st March 2014 4,058 1,446 1,836 314,775 (222,640) (12,783) 86,692Bonus issue of Subscription shares 9 (9) — — — — —Conversion of Subscription shares into

Ordinary shares2 (68) 68 — — — — —Issue of Ordinary shares on exercise of

Subscription shares3 679 10,909 — — — — 11,588Net return/(loss) on ordinary activities — — — — 34,393 (441) 33,952

At 31st March 2015 4,678 12,414 1,836 314,775 (188,247) (13,224) 132,232

1Relates to prior year stamp duty.2Comprises £67,455 for conversion of the remaining 6,784,547 old Subscription shares of 1p each issued on 5th March 2009, plus £3 for the conversion of 3,286 new Subscriptionshares of 0.1p each issued on 16th December 2014.3Comprises £11,805,112 received upon the conversion into Ordinary shares of the remaining 6,784,547 old Subscription shares of 1p each issued on 5th March 2009, plus £7,985received upon conversion into Ordinary shares of 3,286 new Subscription shares of 0.1p each issued on 16th December 2014, less the costs associated with the bonus issue of newSubscription shares in December 2014 of £225,324.

The notes on pages 45 to 61 form an integral part of these accounts.

JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201542

Financial Statements continuedReconciliation of Movements in Shareholders’ Funds

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2015 2014Notes £’000 £’000

Fixed assetsInvestments held at fair value through profit or loss 9 145,730 97,287

Current assetsDebtors 10 690 1,473Cash and short-term deposits 3,252 5,649

3,942 7,122Creditors: amounts falling due within one year 11 (589) (244)

Net current assets 3,353 6,878

Total assets less current liabilities 149,083 104,165

Creditors: amounts falling due after more than one year 12 (16,851) (17,473)

Net assets 132,232 86,692

Capital and reserves Called up share capital 13 4,678 4,058Share premium 14 12,414 1,446Capital redemption reserve 14 1,836 1,836Other reserve 14 314,775 314,775Capital reserves 14 (188,247) (222,640)Revenue reserve 14 (13,224) (12,783)

Total equity shareholders’ funds 132,232 86,692

Net asset value per Ordinary share – undiluted 15 285.7p 219.5p

Net asset value per Ordinary share – diluted1 15 278.6p 212.8p

1The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using the oldSubscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

The accounts on pages 41 to 61 were approved and authorised for issue by the Directors on 15th June 2015 and were signed ontheir behalf by:

Yuuichiro NakajimaDirector

The accompanying notes on pages 45 to 61 form an integral part of these accounts.

The Company’s registration number is 3916716

Balance Sheetas at 31st March 2015

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2015 2014Notes £’000 £’000

Net cash outflow from operating activities 16 (242) (302)

Returns on investments and servicing of financeInterest paid (268) (137)

Net cash outflow from returns on investments and servicing of finance (268) (137)

Capital expenditure and financial investmentPurchases of investments (52,369) (45,963)Sales of investments 38,913 37,645Other capital charges (6) (5)

Net cash outflow from capital expenditure and financial investment (13,462) (8,323)

Net cash outflowbefore financing (13,972) (8,762)

Financing Net drawdown of loans — 13,411Issue of Ordinary shares on exercise of Subscription shares1 11,813 719Costs in relation to issue of shares (225) —Repurchase of shares into Treasury — (208)

Net cash inflow from financing 11,588 13,922

(Decrease)/increase in cash in the year 17 (2,384) 5,160

1Comprises £11,805,112 received upon the conversion into Ordinary shares of the remaining 6,784,547 old Subscription shares of 1p each issued on 5th March 2009, plus £7,985received upon conversion into Ordinary shares of 3,286 new Subscription shares of 0.1p each issued on 16th December 2014.

The accompanying notes on pages 45 to 61 form an integral part of these accounts.

JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201544

Financial Statements continuedCash Flow Statementfor the year ended 31st March 2015

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1. Accounting policies

(a) Basis of accountingThe financial statements are prepared in accordance with the Companies Act 2006, United Kingdom Generally AcceptedAccounting 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 of acontinuing nature.

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified bythe revaluation of investments at fair value. The disclosures on going concern on page 25 of the Directors’ Report form partof these financial statements.

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

(b) Valuation of investmentsInvestments are designated as at fair value through profit or loss (‘FVTPL’) in accordance with FRS 26: ‘Financial Instruments:Measurement’.

The Company’s business is investing in financial assets with a view to profiting from their total return in the form of incomeand 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 FVTPL. They areincluded initially at fair value which is taken to be their cost, excluding expenses incidental to purchase which are written off tocapital at the time of acquisition. Subsequently the investments are valued at fair value which are quoted bid market prices forinvestments 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 onforeign currency cash balances and loans and any other capital charges, are included in the Income Statement and dealt within capital reserves within ‘Gains and losses on sales of investments’. Increases and decreases in the valuation of investmentsheld at the year end, including the related foreign exchange gains and losses, are included in the Income Statement and dealtwith in capital reserves within ‘Investment holding gains and losses’. Unrealised gains and losses on foreign currency loans areincluded in the Income Statement and dealt with in capital reserves within ‘Other revaluation reserve’.

(d) IncomeDividends receivable from equity shares are included in revenue on an ex-dividend basis except where, in the opinion of theBoard, 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.

(e) ExpensesAll expenses are accounted for on an accruals basis. Expenses are allocated wholly to revenue except for expenses incidentalto purchases and sales of investments which are written off to capital. These expenses are commonly referred to astransaction costs and comprise mainly brokerage commission. Details of transaction costs are given in note 9 on page 50.

Notes to the Financial Statementsfor the year ended 31st March 2015

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Financial Statements continuedNotes to the Financial Statements continued

1. Accounting policies continued

(f) Finance costsFinance costs, including any premiums payable on settlement or redemption and direct issue costs, are accounted for on anaccruals basis using the effective interest rate method and in accordance with FRS 25 ‘Financial Instruments: Presentation’and FRS 26 ‘Financial Instruments: Measurement’.

Finance costs are allocated wholly to revenue.

(g) Financial instrumentsCash and short term deposits may comprise cash and demand deposits.

Other debtors and creditors do not carry any interest, are short term in nature and are accordingly stated at cost as reducedby appropriate allowances for estimated irrecoverable amounts.

Bank loans and overdrafts are recorded initially at the proceeds received net of direct issue costs. Loans are subsequentlyrecorded at amortised cost using the effective interest method.

The Company has not utilised any derivative instruments in the current or comparative year.

(h) Foreign currencyIn accordance with FRS 23: ‘The effects of changes in Foreign Currency Exchange Rates’ the Company is required to nominatea 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 determined thatsterling 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.Assets and liabilities denominated in foreign currencies at the year end are translated at the rates of exchange prevailing atthe year end.

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 or capitalnature.

(i) Taxation Current tax is provided at the amounts expected to be paid or received.

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

(j) Value Added Tax (‘VAT’) Expenses are disclosed inclusive of the related irrecoverable VAT. Recoverable VAT is calculated using the partial exemptionmethod based on the proportion of zero rated supplies to total supplies.

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(k) Repurchase of shares to hold in TreasuryThe cost of repurchasing shares into Treasury, including the related stamp duty and transaction costs is charged to capitalreserves and dealt with in the Reconciliation of Movements in Shareholders’ Funds. Share repurchase transactions areaccounted for on a trade date basis. Where shares held in Treasury are subsequently cancelled, the nominal value of thoseshares is transferred out of called up share capital and into the capital redemption reserve.

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

2015 2014£’000 £’000

2. Gains on investments held at fair value through profit or loss Gains on investments held at fair value through profit or loss based on historical cost 1,736 10,249Amounts recognised in investment holding gains and losses at the previous year end in respect of investments sold during the year (328) (6,922)

Gains on sales of investments based on the carrying value at the previous balance sheet date 1,408 3,327

Net movement in investment holding gains and losses 32,380 (982)Other capital charges (4) (5)

Total gains on investments held at fair value through profit or loss 33,784 2,340

2015 2014£’000 £’000

3. Income Income from investmentsOverseas dividends 1,640 1,242

2015 2014£’000 £’000

4. Management fee Management fee 1,233 1,018

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

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Financial Statements continuedNotes to the Financial Statements continued

2015 2014 £’000 £’000

5. Other administrative expensesAdministration expenses1 240 244Directors’ fees2 119 105Savings scheme costs3 31 26Auditor’s remuneration for audit services 24 22Auditor’s remuneration for all other services — 5

414 402

1This figure includes out of pocket expenses reimbursed to Directors.2Full disclosure is given in the Directors’ Remuneration Report on pages 34 to 36.3These fees were paid to the Manager for the marketing and administration of savings scheme products.

2015 2014 £’000 £’000

6. Finance costs Interest payable on bank loans and overdrafts 270 246

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

2015 2014£’000 £’000

Overseas withholding tax 164 110

Current tax charge for the year 164 110

(b) Factors affecting current tax charge for the yearThe 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:

2015 2014Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Net (loss)/return on ordinary activities before taxation (277) 34,393 34,116 (424) 3,972 3,548

Net (loss)/return on ordinary activities before taxation multiplied by the Company’s applicable rate of corporation tax of 21% (2014: 23%) (58) 7,223 7,165 (98) 914 816

Income taxed in different periods (5) — (5) (3) — (3)Non taxable overseas dividends (300) — (300) (265) — (265)Non taxable capital losses — (7,223) (7,223) — (914) (914)Unrelieved expenses 363 — 363 366 — 366Overseas withholding tax 164 — 164 110 — 110

164 — 164 110 — 110

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(c) Deferred taxationThe Company has an unrecognised deferred tax asset of £3,846,000 (2014: £3,676,000) based on a prospective corporationtax rate of 20% (2014: 21%). The deferred tax asset has arisen due to the cumulative excess of deductible expenses overtaxable income. Given the composition of the Company’s portfolio, it is not likely that this asset will be utilised in theforeseeable future and 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 requiredto obtain approval, the Company has not provided deferred tax on any capital gains or losses arising on the revaluation ordisposal of investments.

2015 2014£’000 £’000

8. (Loss)/return per Ordinary share (Loss)/return per Ordinary share is based on the following:Revenue loss (441) (534)Capital return 34,393 3,972

Total return 33,952 3,438

Weighted average number of Ordinary shares in issue during the year usedfor the purpose of the undiluted calculation 46,279,583 39,200,194

Weighted average number of Ordinary shares in issue during the year usedfor the purpose of the diluted calculation1 46,279,583 39,929,867

UndilutedRevenue loss per share (0.95)p (1.36)pCapital return per share 74.32p 10.13p

Total return per share 73.37p 8.77p

Diluted1

Revenue loss per share (0.95)p (1.36)pCapital return per share 74.32p 9.95p

Total return per share 73.37p 8.59p

1The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using theold Subscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

The diluted return/(loss) per Ordinary share represents the return/(loss) on ordinary activities after taxation divided by theweighted average number of Ordinary shares in issue during the year as adjusted in accordance with the requirements ofFinancial Reporting Standard 22 ‘Earnings per share’.

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Financial Statements continuedNotes to the Financial Statements continued

2015 2014£’000 £’000

9. Investments Investments listed on a recognised stock exchange 145,730 97,287

Opening book cost 83,362 66,659Opening investment holding gains 13,925 21,829

Opening valuation 97,287 88,488Movement in the year:Purchases at cost 52,703 44,964Sales – proceeds (38,048) (38,510)Gains on sales of investments based on the carrying value at the previous balance sheet date 1,408 3,327

Net movement in investment holding gains and losses1 32,380 (982)

145,730 97,287

Closing book cost 99,753 83,362Closing investment holding gains 45,977 13,925

145,730 97,287

1During the year, prior year revaluation gains amounting to £328,000 have been transferred to realised losses as disclosed in note 14 on page 52.

Transaction costs on purchases during the year amounted to £39,000 (2014: £45,000) and on sales during the year amountedto £28,000 (2014: £33,000). These costs comprise mainly brokerage commission.

2015 2014£’000 £’000

10. Current assetsDebtors Securities sold awaiting settlement — 865Dividends and interest receivable 639 551Other debtors 51 57

690 1,473

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 short term deposits. The carrying amount of these represents theirfair value. Cash balances in excess of a predetermined amount are placed on short term deposit at market rates of interest.

2015 2014£’000 £’000

11. Creditors: amounts falling due within one year Securities purchased awaiting settlement 406 72Other creditors and accruals 183 172

589 244

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

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2015 2014 £’000 £’000

12. Creditors: amounts falling due after more than one year Bank loan 16,851 17,473

The Company has a ¥3.0 billion unsecured three year term loan with ING Bank N.V. at an interest rate of 1.529% plus a yen fixedfunding rate of 0.279%, which will expire in November 2016. The Directors consider that the carrying amount of creditorsfalling due after more than one year approximates to their fair value.

2015 2014£’000 £’000

13. Called up share capital Issued and fully paid share capital:Ordinary sharesOpening balance of 39,494,749 (2014: 39,081,638) Ordinary shares excluding shares held in Treasury 3,949 3,908

Issue of 6,784,547 (2014: 413,111) Ordinary shares on conversion of Subscription shares1 679 41Issue of 3,286 (2014: nil) Ordinary shares on conversion of Subscription shares2 — —

Subtotal 4,628 3,949409,500 (2014: 409,500) Ordinary shares held in Treasury 41 41

Closing balance3 4,669 3,990

Subscription sharesOpening balance of 6,784,547 (2014: 7,197,658) Subscription shares of 1p each 68 72Exercise of 6,784,547 (2014: 413,111) Subscription shares into Ordinary shares (68) (4)Issue of 9,255,764 (2014: nil) Subscription shares of 0.1p each 9 —Exercise of 3,286 (2014: nil) Subscription shares into Ordinary shares — —

Closing balance4 9 68

Total called up share capital 4,678 4,058

1The old Subscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.2The new Subscription shares issued on 16th December 2014.3Represented by 46,692,082 (2014: 39,904,249) Ordinary shares including 409,500 (2014: 409,500) Ordinary shares held in Treasury.4Comprises 9,252,478 Subscription shares of 0.1p each (2014: 6,784,547 Subscription shares of 1p each). The Subscription shares were issued as a bonus issue to the Ordinaryshareholders on 16th December 2014 on the basis of one Subscription share for every five Ordinary shares held. Each Subscription share confers the right (but not theobligation) to subscribe for one Ordinary share on any business day during the period from 1st January 2015 to 30th November 2016 (inclusive) when the rights under theSubscription shareswill lapse. During the year holders of 6,784,547 Subscription shares exercised their right to convert those shares into Ordinary shares at a price of 174.0p pershare respectively, giving a total consideration received of £11,805,000. Holders of 3,286 Subscription shares exercised their right to convert those shares into Ordinary sharesat a price of 243.0p per share respectively, giving a total consideration received of £8,000.

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Financial Statements continuedNotes to the Financial Statements continued

Capital reserves

Gains andCalled Capital losses Investment Other

up share Share redemption Other on sales of holding gains revaluation Revenuecapital premium reserve reserve1 investments and losses reserve reserve Total

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

14. Reserves Opening balance 4,058 1,446 1,836 314,775 (238,065) 13,925 1,500 (12,783) 86,692Foreign currency losses on cash andshort term deposits — — — — (13) — — — (13)

Unrealised foreign currency gains on loan — — — — — — 622 — 622Gains on sales of investments based onthe carrying value at the previousbalance sheet date — — — — 1,408 — — — 1,408

Unrealised gains on investments — — — — — 32,380 — — 32,380Transfer on disposal of investments — — — — 328 (328) — — —Bonus issue of Subscription shares 9 (9) — — — — — — —Exercise of Subscription shares into Ordinary shares2 (68) 68 — — — — — — —

Issue of Ordinary shares on exercise ofSubscription shares3 679 10,909 — — — — — — 11,588

Other capital charges — — — — (4) — — — (4)Net loss for the year — — — — — — — (441) (441)

Closing balance 4,678 12,414 1,836 314,775 (236,346) 45,977 2,122 (13,224) 132,232

1The share premiumwas cancelled in the opening period ended 31st March 2001 and redesignated as ‘other reserve’ for the purpose of financing share buybacks.2Comprises £67,455 for conversion of the remaining 6,784,547 Subscription shares of 1p each issued on 5th March 2009, plus £3 for the conversion of 3,286 Subscription sharesof 0.1p each issued on 16th December 2014.3Comprises £11,805,112 received upon the conversion into Ordinary shares of the remaining 6,784,547 Subscription shares of 1p each issued on 5th March 2009, plus £7,985received upon conversion into Ordinary shares of 3,286 Subscription shares of 0.1p each issued on 16th December 2014, less the costs associated with the bonus issue ofSubscription shares in December 2014 of £225,324.

15. Net asset value per Ordinary share

2015 2014

UndilutedOrdinary shareholders’ funds (£’000) 132,232 86,692Number of Ordinary shares in issue 46,282,582 39,494,749Net asset value per Ordinary share 285.7p 219.5p

Diluted1

Ordinary shareholders’ funds assuming exercise of dilutive Subscription shares andreissuance of any dilutive Treasury shares (£’000) 154,715 98,497

Number of potential dilutive Ordinary shares in issue 55,535,060 46,279,296Net asset value per Ordinary share 278.6p 212.8p

1The 31st March 2015 dilution has been calculated using the new Subscription shares issued on 16th December 2014. The 31st March 2014 dilution has been calculated using theold Subscription shares issued on 5th March 2009 which had a final exercise date of 31st March 2014.

The diluted net asset value per Ordinary share assumes that all outstanding dilutive Subscription shares were converted intoOrdinary shares at the year end and all shares held in Treasury at the year end were reissued, where this has a dilutive effect.The Company policy on the reissuance of Treasury shares is that Treasury shares will only be reissued at a premium to netasset value per share. Hence, the shares held in Treasury at 31st March 2015 had no dilutive effect (2014: nil).

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2015 2014£’000 £’000

16. Reconciliation of net return on ordinary activities before finance costs and taxation to net cash outflow from operating activities

Net return on ordinary activities before finance costs and taxation 34,386 3,794Less capital return before finance costs and taxation (34,393) (3,972)Increase in accrued income (88) (10)Decrease/(increase) in other debtors 6 (2)Increase/(decrease) in accrued expenses 11 (2)Overseas withholding tax (164) (110)

Net cash outflow from operating activities (242) (302)

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

17. Analysis of changes in net debtCash and short term deposits 5,649 (2,384) (13) 3,252Bank loan falling due in more than one year but not more than five years (17,473) — 622 (16,851)

Net debt (11,824) (2,384) 609 (13,599)

18. Capital commitments and contingent liabilities

At the balance sheet date there were no capital commitments or contingent liabilities (2014: none).

19. Transactions with the Manager, affiliates of the Manager and related party transactions

Details of the management contract are set out in the Directors’ Report on page 24. The management fee payable for the yearwas £1,233,000 (2014: £1,018,000) of which £nil (2014: £nil) was outstanding at the year end.

During the year £31,000 (2014: £26,000) was payable to the Manager for the marketing and administration of savings schemeproducts, of which £nil (2014: £nil) was outstanding at the year end.

Included in other administration expenses in note 5 on page 48 are safe custody fees payable to JPMorgan Chase groupsubsidiaries amounting to £14,000 (2014: £15,000) of which £4,000 (2014: £4,000) was outstanding at the year end.

The Manager carries out some of its dealing transactions through group subsidiaries. These transactions are carried out atarm’s length. The commission payable to J.P. Morgan Securities for the year was £3,000 (2014: £72) of which £nil (2014: £nil)was outstanding at the year end.

Handling charges payable on dealing transactions undertaken by the Manager’s group subsidiaries on behalf of the Companyduring the year amounted to £4,000 (2014: £4,000) of which £nil (2014: £1,000) was outstanding at the year end.

At the year end, a bank balance of £3,252,000 (2014: £5,649,000) was held with JPMorgan Chase. A net amount of interest of£91 (2014: £125) was receivable by the Company during the year from JPMorgan Chase of which £nil (2014: £nil) wasoutstanding at the year end.

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Financial Statements continuedNotes to the Financial Statements continued

20. Disclosures regarding financial instruments measured at fair value

The Company’s financial instruments within the scope of FRS 29 that are held a fair value comprise its investment portfolio.The Company currently holds no derivative financial instruments and its 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 45.

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

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

Financial instruments held at fair value through profit or lossEquity investments 145,730 — — 145,730

Total 145,730 — — 145,730

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

Financial instruments held at fair value through profit or lossEquity investments 97,287 — — 97,287

Total 97,287 — — 97,287

There have been no transfers between Levels 1, 2 or 3 during the year (2014: none).

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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 so as to secure its investmentobjective stated on the ‘Features’ page. In pursuing this objective, the Company is exposed to a variety of risks that couldresult in a reduction in the Company’s net assets. These risks include market risk (comprising currency risk, interest rate riskand other price risk), liquidity risk and credit risk. The Directors’ policy for managing these risks is set out below. The CompanySecretary, in close co-operation with the Board and the 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 comprise the following:

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

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

– a yen denominated bank loan, the main purpose of which is to finance the Company’s operations.

(a) Market risk The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in 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 these policieshave remained unchanged from those applying in the comparative year. The Manager assesses the exposure to market riskwhen making each investment decision and monitors the overall level of market risk on the whole of the investment portfolioon an ongoing basis.

(i) Currency risk The Company’s assets, liabilities and income are denominated primarily in yen. The Company’s functional currency andthe currency in which it reports are sterling. As a result, movements in the sterling/yen exchange rate will affect thesterling value of those items.

Management of currency risk The Manager monitors the Company’s exposure to the yen on a daily basis and reports to the Board, which meets on atleast four occasions each year. The Manager measures the risk to the Company of this exposure by considering the effecton the Company’s net asset value and income of a movement in the sterling/yen rate of exchange to which the Company’sassets, liabilities, income and expenses are exposed. Yen borrowing may be used to limit the exposure of the Company’sportfolio of investments to changes in the exchange rate. This borrowing is limited to an amount commensurate with theasset exposure to the yen. Income denominated in yen is converted to sterling on receipt. The Company may use shortterm forward currency contracts to manage working capital requirements.

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

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Financial Statements continuedNotes to the Financial Statements continued

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

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

2015 2014Yen exposure £’000 £’000

Securities sold awaiting settlement, dividends and interest receivable 639 1,415Cash and short term deposits 1,715 5,078Bank loan (16,851) (17,473)Securities purchased awaiting settlement (406) (72)

Foreign currency exposure on net monetary items (14,903) (11,052)Investments held at fair value through profit or loss that are equities 145,730 97,287

Total net foreign currency exposure 130,827 86,235

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

Foreign currency sensitivity The following tables illustrate the sensitivity of the 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 foreign currency exposure at each balance sheet date and the income received in foreign currency andassumes a 10% (2014: 10%) appreciation or depreciation in sterling against the yen, which is deemed a reasonableillustration based on the volatility of exchange rates during the year.

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

2015 2014£’000 £’000

Income statement return after taxation:Revenue return 164 124Capital return (1,490) (1,105)

Total return after taxation for the year (1,326) (981)

Net assets (1,326) (981)

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

2015 2014£’000 £’000

Income statement return after taxation:Revenue return (164) (124)Capital return 1,490 1,105

Total return after taxation for the year 1,326 981

Net assets 1,326 981

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

Management of interest rate risk The Company does not normally hold significant cash balances. There is an overdraft facility available from JPMorganChase, if required, bearing interest at a market rate on the terms on which JPMorgan Chase makes similar overdraftsavailable.

The Company has a ¥3.0 billion unsecured three year loan with ING Bank N.V. at a fixed interest rate of 1.529% plus a yenfixed funding rate of 0.279%, which will expire in October 2016.

Interest rate exposure The exposure of financial assets and liabilities to floating interest rates, giving cash flow interest rate risk when rates arereset, is as follows:

2015 2014£’000 £’000

Amounts exposed to floating interest rates:Cash and short term deposits 3,252 5,649

Total exposure 3,252 5,649

Interest receivable on cash balances or paid on overdrafts is at a margin below or above LIBOR respectively (2014: same).

The exposure to floating interest rates has fluctuated during the year between net cash balances as follows:

2015 20141

£’000 £’000

Maximum credit interest rate exposure to floating rates – net cash balances 6,967 7,651Minimum credit/(maximum debit) interest rate exposure to floating rates – net cash/(net loan) balances 2,420 (8,622)

1Prior year figures have been restated to exclude the fixed rate loan facility.

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Financial Statements continuedNotes to the Financial Statements continued

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

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

Interest rate sensitivity The following table illustrates the sensitivity of the revenue 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 20141% increase 1%decrease 1% increase 1%decrease

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

Income statement – return after taxation:Revenue return 33 (33) 56 (56)

Net assets 33 (33) 56 (56)

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.

(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 ofmarket price risk The Board meets on at least four 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 total exposure to changes in market prices at 31st March comprises its holdings in equity investments asfollows:

2015 2014£’000 £’000

Equity investments held at fair value through profit or loss 145,730 97,287

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

Concentration of exposure tomarket price risk An analysis of the Company’s investments is given on pages 15 to 16. This shows that all of the investments’ value is inJapanese equities. Accordingly, there is a concentration of exposure to that country. However, it should be noted that aninvestment may not be entirely exposed to the economic conditions in its country of domicile or of listing.

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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.

2015 201410% increase 10%decrease 10% increase 10%decreasein fair value in fair value in fair value in fair value

£’000 £’000 £’000 £’000

Income statement – return after taxation:Revenue return (146) 146 (97) 97 Capital return 14,573 (14,573) 9,729 (9,729)

Total return after taxation and net assets 14,427 (14,427) 9,632 (9,632)

(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, which can be sold to meetfunding requirements if necessary. Short term flexibility is achieved through the use of overdraft facilities.

The Board’s policy is for the Company to remain fully invested in normal market conditions and that short term borrowings beused to manage short term liabilities, working capital requirements and to gear the Company as appropriate. Details of thecurrent loan facility are given in part (a)(ii) to this note on page 57.

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

2015More than

Three three monthsmonths but not more More thanor less than one year one year Total£’000 £’000 £’000 £’000

Creditors:Bank loan including interest 173 194 16,996 17,363Securities purchased awaiting settlement 406 — — 406Other creditors and accruals 74 — — 74

653 194 16,996 17,843

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Financial Statements continuedNotes to the Financial Statements continued

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

(b) Liquidity risk continued2014

More thanThree three months

months but not more More thanor less than one year one year Total£’000 £’000 £’000 £’000

Creditors: Bank loan including interest 174 201 17,890 18,265 Securities purchased awaiting settlement 72 — — 72Other creditors and accruals 64 — — 64

310 201 17,890 18,401

(c) Credit risk Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transactioncould result in loss to the Company.

Management of credit risk Portfolio dealingThe Company invests in markets that operate DVP (Delivery Versus Payment) 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 that havebeen appointed 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 debtors and cash and short term deposits represent the maximum exposureto credit risk at the current and comparative year ends.

There has been no stock lending during the year.

(d) Fair values of financial assets and financial liabilities All 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.

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22. Capital management policies and procedures

The Company’s debt and capital structure comprises the following:

2015 2014£’000 £’000

DebtBank loan 16,851 17,473

EquityShare capital 4,678 4,058Reserves 127,554 82,634

Total equity 132,232 86,692

Total debt and equity 149,083 104,165

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

The Board’s gearing policy is to operate within a range of 5% net cash to 15% geared in normal market conditions. Gearing forthis purpose is defined as Total Assets (including Net Current Assets/Liabilities) less cash/cash equivalents and excluding bankloans, expressed as a percentage of net assets.

2015 2014£’000 £’000

Investments held at fair value through profit or loss 145,730 97,287Current assets excluding cash 690 1,473Current liabilities excluding bank loans (589) (244)

Total assets 145,831 98,516

Net assets 132,232 86,692

Gearing 10.3% 13.6%

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 buy back equity shares, either for cancellation or to hold in Treasury, which takes into account the share pricediscount or premium; and

– the opportunity for issues of new shares, including reissues from Treasury.

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JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 201562

Notice is hereby given that the fifteenth Annual GeneralMeeting of JPMorgan Japan Smaller Companies Trust plc willbe held at 60 Victoria Embankment, London EC4Y 0JP onFriday, 17th July 2015 at 2.30 p.m. for the following purposes:

1. To receive the Directors’ Report and Accounts and theAuditor’s 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 reappoint Alan Clifton as a Director of the Company.

5. To reappoint Chris Russell as a Director of the Company.

6. To reappoint Robert White as a Director of the Company.

7. To reappoint Deborah Guthrie as a Director of theCompany.

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

Special Business

To consider the following resolutions:

Authority to allot newOrdinary shares – Ordinary Resolution9. THAT the Directors of the Company be and they are hereby

generally and unconditionally authorised (in substitution ofany authorities previously granted to the Directors),pursuant to and in accordance with Section 551 of theCompanies Act 2006 (the ‘Act’) to exercise all the powers ofthe Company to allot equity securities in the Company andto grant rights to subscribe for, or to convert any securityinto, Ordinary shares in the Company (‘Rights’) up to anaggregate nominal amount of £472,497 or, if different, theaggregate nominal amount representing approximately10% of the Company’s issued Ordinary share capital(including shares held in Treasury) as at the date of thepassing of this resolution providing that this authority shallexpire at the conclusion of the Annual General Meeting ofthe Company to be held in 2016 unless renewed at ageneral meeting prior to such time, save that the Companymay before such expiry make offers, agreements orarrangements which would or might require equitysecurities to be allotted or Rights to be granted after suchexpiry and so that the Directors of the Company may allot

equity securities and grant Rights in pursuance of suchoffers, agreements or arrangements as if the authorityconferred hereby had not expired.

Authority to disapply pre-emption rights on allotment of relevantsecurities – Special Resolution10. THAT subject to the passing of Resolution 9, the Directors of

the Company be and they are hereby empowered pursuantto Sections 570 and 573 of the Act to allot equity securities(within the meaning of Section 560 of the Act) for cashpursuant to the authority conferred by Resolution 9 or byway of a sale of Treasury shares as if Section 561(1) of theAct did not apply to any such allotment, provided that thispower shall be limited to the allotment of equity securitiesfor cash up to an aggregate nominal amount of £472,497 or,if different, the aggregate nominal amount representingapproximately 10% of the total Ordinary share capital(including shares held in Treasury) as at the date of thepassing of this resolution at a price of not less than the netasset value per share and shall expire upon the expiry ofthe general authority conferred by Resolution 9, save thatthe Company may before such expiry make offers,agreements or arrangements which would or might requireequity securities to be allotted after such expiry and so thatthe Directors of the Company may allot equity securities inpursuance of such offers, agreements or arrangements as ifthe power conferred hereby had not expired.

Authority to repurchase the Company’s shares – Special Resolution11. 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 issued Ordinaryshares and Subscription shares on such terms and in suchmanner as the Directors may from time to time determine.

PROVIDED ALWAYS THAT

(i) the maximum number of Ordinary shares andSubscription shares hereby authorised to be purchasedshall be 7,021,346 and 1,303,359 respectively or, if less,that number of Ordinary shares or Subscription shareswhich is equal to 14.99% of the Company’s issued sharecapital (less shares held in Treasury) of the relevant shareclass as at the date of the passing of this Resolution;

(ii) the minimum price which may be paid for an Ordinaryshare and Subscription share shall be 10 pence and0.1 pence respectively;

Shareholder InformationNotice of Annual General Meeting

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(iii) the maximum price which may be paid for a share shallbe an amount equal to the highest of: (a) 105% of theaverage of the middle market quotations for a sharetaken from and calculated by reference to the LondonStock Exchange Daily Official List for the five businessdays immediately preceding the day on which the shareis contracted 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 NAV pershare (as determined by the Directors);

(v) the authority hereby conferred shall expire on16th January 2017 unless the authority is renewed atthe Company’s Annual General Meeting in 2016 or atany other general meeting prior to such time; and

(vi) the Company may make a contract to purchase sharesunder the authority hereby conferred prior to the expiryof such authority which contract will or may beexecuted wholly or partly after the expiry of suchauthority and may make a purchase of shares pursuantto any such contract notwithstanding such expiry.

Authority to increase the maximum aggregate of Directors’ feespayable12. THAT the maximum aggregate fees payable to Directors

per annum be increased to £200,000 per annum.

By order of the Board Rhys Williams, for and on behalf of JPMorgan Funds Limited, Company Secretary

15th 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 2.30 p.m. two business days prior to the Meeting (i.e.excluding weekends 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 thesame share in respect of the same Meeting, the one which is lastreceived (regardless of its date or the date of its signature) shall betreated as replacing and revoking the other or others as regardsthat share; if the Company is unable to determine which was lastreceived, none of them shall be treated as valid in respect of thatshare.

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.

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Shareholder Information continuedNotice of Annual General Meeting continued

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 as thecorporation could exercise if it were an individual member of theCompany, provided that they do not do so in relation to the sameshares. It is therefore no longer necessary to nominate 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) theaudit of the Company’s accounts (including the Auditor’s reportand the conduct of the audit) that are to be laid before the Meeting;or (b) any circumstances connected with the Auditor of theCompany ceasing to hold office since the previous Annual GeneralMeeting, which the members propose to raise at the Meeting. TheCompany cannot require the members requesting the publicationto pay its expenses. Any statement placed on the website must alsobe sent to the Company’s Auditor no later than the time it makes itsstatement available on the website. The business which may bedealt with at the Meeting includes any statement that the Companyhas been required to publish on its website pursuant to this right.

9. Pursuant to Section 319A of the Companies Act 2006, the Companymust cause to be answered at the Meeting any question relating tothe business being dealt with at the Meeting which is put by amember attending the Meeting except in certain circumstances,including if it is undesirable in the interests of the Company or thegood order of the Meeting or if it would involve the disclosure ofconfidential 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 constitution orotherwise); (b) it is defamatory of any person; or (c) it is frivolous orvexatious. 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 issix clear weeks before the Meeting, and (in the case of a matter to

be included 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 exercise votingrights at the Meeting, the total voting rights members are entitledto exercise at the Meeting and, if applicable, any members’statements, members’ resolutions or members’ matters ofbusiness received by the Company after the date of this Notice willbe available on the Company’s websitewww.jpmjapansmallercompanies.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). They will alsobe available 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 purposes otherthan 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 12th June 2015 (being the latest business day prior to thepublication of this Notice), the Company’s issued share capital(excluding Treasury shares) consists of 46,840,202 Ordinaryshares, carrying one vote each and 8,694,858 Subscription sharescarrying no votes. Therefore the total voting rights in the Companyare 46,840,202.

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.

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Return to Shareholders

Total 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.

Diluted Net Asset Value (‘NAV’) Per Ordinary Share

The diluted NAV per Ordinary share assuming that alloutstanding dilutive Subscription shares were converted intoOrdinary shares at the year end and all shares held in Treasuryat the year end were reissued where this has a dilutive effect.

Undiluted Return on Net Assets

Return on the undiluted NAV per Ordinary 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.

Diluted Return on Net Assets

Return on the diluted NAV per Ordinary 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.

Benchmark Return

Total 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 strategy doesnot ‘track’ this index and consequently, there may be some

divergence between the Company’s performance and that ofthe benchmark.

Gearing/Net Cash

Gearing represents the excess amount above shareholders’funds of total assets (including net current assets/(liabilities))less cash/cash equivalents, expressed as a percentage ofshareholders’ funds. If the amount calculated is negative, thisis shown as a ‘net cash’ position.

Ongoing Charges

The ongoing charges represent the Company’s management feeand all other operating expenses, excluding interest payments,expressed as a percentage of the average of the daily net assetsduring the year.

Share Price Discount to DilutedNAVPer Ordinary Share

If 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.

Return/(Loss) Per Ordinary Share – Diluted

The diluted return/(loss) per Ordinary share represents thereturn/(loss) on ordinary activities after taxation divided byweighted average number of Ordinary shares in issue duringthe year as adjusted in accordance with the requirements ofFinancial Reporting Standard 22 ‘Earnings per share’.

Return/(Loss) Per Ordinary Share – Undiluted

The undiluted return/(loss) per Ordinary share represents thereturn/(loss) on ordinary activities after taxation divided by theweighted average number of Ordinary shares in issue duringthe year.

Glossary of Terms and Definitions

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Shareholder Information continuedGlossary of Terms and Definitions continued

Performance Attribution

Analysis of how the Company achieved its recordedperformance relative to its benchmark.

Performance Attribution Definitions:

— Stock Selection/Sector AllocationMeasures the effect of investing in securities/sectors to agreater or lesser extent than their weighting in thebenchmark, or of investing in securities which are notincluded in the benchmark.

— Gearing/Cash Measures the impact on returns of borrowings or cashbalances on the Company’s relative performance.

— Management Fee/Other Expenses The payment of fees and expenses reduces the level of totalassets and therefore has a negative effect on relativeperformance.

— Exercise of Subscription SharesMeasures the negative impact on the Net Asset Value (‘NAV’)per share arising from the exercise of Subscription sharesinto Ordinary shares at a price less than the NAV per share.

— Subscription Share Dilution EffectMeasures the dilutive effect of the potential conversion ofall outstanding Subscription shares at the year end.

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 method and a commitment method, in accordancewith AIFMD. Under the gross method, exposure represents thesum of the Company’s positions without taking into accountany hedging and netting arrangements. Under thecommitment method, exposure is calculated after certainhedging and netting positions are offset against each other.

Alternative Investment Fund Managers – Leverage

The Company is required to state its maximum and actualleverage levels, calculated as prescribed by the AIFMD, as at31st March 2015, which gives the following figures:

Gross Commitment Leverage Exposure Method Method

Maximum limit 200.00% 200.00%Actual 124.99% 124.99%

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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

1 6

7

8

9

10

2

3

4

5

Beware of share fraud

How to avoid share fraud

Report a scam

In association with:

Financial Conduct Authority

On 16th December 2014 the Company issued Subscriptionshares as a bonus issue to the Ordinary shareholders on thebasis of one Subscription share for every five Ordinary sharesheld. Each Subscription share conferred the right (but not theobligation) to subscribe for one Ordinary share on anybusiness day during the period from 30th January 2015 to30th November 2016, after which the rights on theSubscription shares will lapse.

For the purposes of UK taxation, the issue of Subscriptionshares is treated as a reorganisation of the Company’s sharecapital. Whereas such reorganisations do not trigger achargeable disposal for the purposes of the taxation of capitalgains, they do require shareholders to reallocate the base costsof their Ordinary shares between Ordinary shares andSubscription shares received.

At the close of business on 16th December 2014 the middlemarket prices of the Company’s Ordinary shares andSubscription shares were as follows:

Ordinary shares: 200.50p

Subscription shares: 15.50p

Accordingly an individual investor who on 16th December 2014held five Ordinary shares (or a multiple thereof) would havereceived a bonus issue of one Subscription share (or therelevant multiple thereof) and would have apportioned 98.48%of the base cost of such holding to the five Ordinary shares and1.52% to the Subscription shares.

The remaining Subscription shares in issue may be exercised atany time up to and including 30th November 2016 at a price of243 pence per share. Notice of the exercise of the Subscriptionshare rights may be given at any time up to 30th November2016 and the Ordinary shares arising on conversion will beissued within ten business days of the first business day of thecalendar month following the month in which the relevantnotices are received by the registrars.

For further details on how to exercise the Subscription sharerights please refer to the Company’s website atwww.jpmjapansmallercompanies.co.uk or contact theCompany Secretary on 020 7742 4000.

Details of Subscription Shares

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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

Shareholder Information continuedWhere to buy J.P. Morgan Investment Trusts

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HistoryThe Company and its predecessor, JF Fledgeling Japan Limited, havebeen investing in Japanese smaller companies since 1984. In early2000, JF Fledgeling Japan Limited was placed into voluntaryliquidation and JPMorgan Fleming Japanese Smaller CompaniesInvestment Trust plc was incorporated and took over its assets andundertakings. Dealings in the new Company began on the LondonStock Exchange on 11th April 2000.

The Company changed its name to JPMorgan Japan Smaller CompaniesTrust plc on 27th July 2010.

Company NumbersCompany registration number: 3916716

Ordinary SharesLondon Stock Exchange Sedol number: 0316581ISIN: GB0003165817Bloomberg code: JPS LN

Market InformationThe Company’s net asset value (‘NAV’) per share is published daily, viathe London Stock Exchange. The Company’s Ordinary shares are listedon the London Stock Exchange and are quoted daily in the FinancialTimes, The Times, The Daily Telegraph, The Scotsman and on theJ.P. Morgan website at www.jpmjapansmallercompanies.co.uk, wherethe Ordinary share price is updated every fifteen minutes duringtrading hours.

Websitewww.jpmjapansmallercompanies.co.uk

Share TransactionsThe Company’s shares may be dealt in directly through a stockbrokeror professional adviser acting on an investor’s behalf. The Company’sOrdinary shares 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 number: 020 7742 4000

For company secretarial and administrative matters, please contactRebecca Burtonwood.

Depositary BNY Mellon Trust and Depositary (UK) Limited BNY Mellon Centre160 Queen Victoria StreetLondon EC4V 4LA

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

RegistrarsEquiniti LimitedReference 2093Aspect HouseSpencer RoadLancingWest Sussex BN99 6DATelephone: 0871 384 2539

Calls to this number cost 8p per minute plus network extras. Linesopen 8.30 a.m. to 5.30 p.m., Monday to Friday. The overseas helplinenumber is +44 121 415 0225.

Notifications of changes of address and enquiries regarding sharecertificates or dividend cheques should be made in writing to theRegistrar quoting reference 2093. Registered shareholders can obtainfurther details on individual holdings on the internet by visitingwww.shareview.co.uk

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

BrokersCanaccord Genuity Limited 88 Wood Street London EC2V 7QR

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

Information about the Company

Financial CalendarFinancial year end 31st MarchFinal results announced JuneHalf year end 30th SeptemberHalf year results announced NovemberAnnual General Meeting 17th July 2015

JPMorgan Japan Smaller Companies Trust plc. Annual Report & Accounts 2015 69

A member of the AIC

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Page 72: Annual Report JPMorganJapanSmaller …...2015 and 30thNovember 2016 at 243 pence per share. A total of 9,255,764 Subscription shares were duly allotted in December 2014 and, from 30th

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

Your telephone call may be recorded for your security

www.jpmjapansmallercompanies.co.uk

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