JPMorgan Russian Securities plc … · The Company is a member of the AIC. Website The Company’s...

JPMorgan Russian Securities plc Half Year Report & Financial Statements for the six months ended 30th April 2019

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K E Y F E A T U R E S

J P M O R G A N R U S S I A N S E C U R I T I E S P L C . H A L F Y E A R R E P O R T & F I N A N C I A L S TAT E M E N T S 2 0 1 9

Your Company

Investment Objective To maximise total return to shareholders from a diversified portfolio of investments primarily in quoted Russian securities.

Investment PoliciesTo maintain a diversified portfolio of investments primarily in quoted Russian securities or other companies which operate principally inRussia. The Company may also invest up to 10% of its gross assets in companies that operate or are located in former Soviet Union Republics.

Investment Limits and RestrictionsThe Board seeks to manage some of the Company’s risks by imposing various investment limits and restrictions.• No more than 10% of the Company’s gross assets are to be invested in companies that operate or are located in former

Soviet Union Republics.• The Company will not normally invest in unlisted securities.• At the time of purchase, the maximum permitted exposure to each individual company is 15% of the Company’s gross assets.• The Company will not normally invest in derivatives.• The Company will utilise liquidity and borrowings in a range of 10% net cash to 15% geared in typical market conditions.• No more than 15% of gross assets are to be invested in other UK listed investment companies (including investment trusts).

BenchmarkThe RTS Index in sterling terms (RTS).

Capital Structure At 30th April 2019, the Company’s share capital comprised 47,728,734 ordinary shares of 1p each.

Continuation Vote and TenderA resolution that the Company continue as an investment trust will be put to Shareholders at the Annual General Meeting in 2022 andevery five years thereafter.If the next continuation vote in 2022 is approved, the Board has committed to making a tender offer to shareholders for up to 20% ofthe outstanding share capital at NAV less costs and less a discount of 2% if, over the five years from 1st November 2016, the Company’snet asset value total return in sterling on a cum income basis is below the total return of the benchmark in sterling terms.

Discount ControlSubject to market conditions the Board will buyback at least 6% of its issued share capital per annum.

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

FCA regulation of ‘non-mainstream pooled investments’The Company currently conducts its affairs so that the shares issued by JPMorgan Russian Securities plc can be recommended byindependent financial advisers to ordinary retail investors in accordance with the Financial Conduct Authority (FCA) rules in relation tonon-mainstream investment products and intends to continue to do so for the foreseeable future.The shares are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in aninvestment trust.

Association of Investment Companies (AIC)The Company is a member of the AIC. www.theaic.co.uk

WebsiteThe Company’s website, which can be found at www.jpmrussian.co.uk, includes useful information on the Company, such as daily prices,factsheets, current and historic half year and annual reports and how to buy shares in this Company.

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C O N T E N T S

C O N T E N T S

Half Year Performance 3 Financial Highlights

Chairman’s Statement 6 Chairman’s Statement

Investment Review 9 Investment Managers’ Report

12 Sector Analysis

13 List of Investments

Financial Statements 15 Statement of Comprehensive Income

16 Statement of Changes in Equity

17 Statement of Financial Position

18 Statement of Cash Flows

19 Notes to the Financial Statements

Interim Management 23 Report

Shareholder Information 25 Glossary of Terms and Alternative

Performance Measures (‘APMs’)

27 Where to buy J.P. Morgan Investment Trusts

29 Information about the Company

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Half Year Performance

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1 Source: Morningstar.2 Source: Morningstar/J.P. Morgan, using cum income net asset value per share.3 The Company’s benchmark is the RTS Index in sterling terms (RTS). Prior to 1st November 2016, the Company’s benchmark was the MSCI Russian 10/40 Equity Indices Indexin sterling terms.

AAlternative Performance Measure (‘APM’)

A glossary of terms and APMs is provided on page 25.

TOTAL RETURNS (INCLUDING DIVIDENDS REINVESTED) TO 30TH APRIL 2019

3 Years 5 Years 10 Years 6 Months Cumulative Cumulative Cumulative

Return to shareholders1,A

Return on net assets2,A

Benchmark return1,3

Net asset returncompared tobenchmark return

+16.1% +83.9% +82.7% +171.8%

+9.5% +79.5% +84.8% +187.4%

+9.4% +67.9% +84.1% +146.4%

+0.1% +11.6% +0.7% +41.0%


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SUMMARY OF RESULTS

30th April 31st October % 2019 2018 change

Shareholders’ funds (£’000) 319,847 303,189 +5.5

Net asset value per share 670.1p 617.6p +8.51

Share price 574.0p 500.0p +14.82

Share price discount to net asset value per shareA 14.3% 19.0%

Revenue return per share 3.21p 29.58p

Shares in issue 47,728,734 49,093,384

Gearing/(net cash)A (0.2)% (1.3)%

Ongoing chargesA 1.27% 1.33%

1 % change, excluding dividends paid. Including dividends, the returns would be +9.5%.2 % change, excluding dividends paid. Including dividends, the return would be +16.1%.AAlternative Performance Measure (‘APM’)

A glossary of terms and APMs is provided on pages 25.

HISTORIC DIVIDENDS

Pence per Share

2013 2014 2015 2016 2017 2018

Interim — — — 6.0 15.0 20.0

Final 15.3 13.0 17.0 8.0 6.0 6.0

Total 15.3 13.0 17.0 14.0 21.0 26.0


Chairman’s Statement

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Performance

I am pleased to report that in the first half of the Company’s financial year to 30th April 2019 politicalrelations between Russia and the West have proved to be relatively uneventful, certainly when comparedwith the previous period. The overall economic performance in Russia has remained positive with Russiabeing the best performing major emerging market in the period. This has benefitted the Company’sportfolio which consists of companies with strong balance sheets, able to support substantial dividendpay-outs. During the six months ended 30th April 2019 the Company’s net asset value on a total returnbasis increased by 9.5%. The Company’s return to shareholders on a total return basis was positive 16.1%,taking into account the stock price movement and dividend paid over the period. Both these measures wereahead of the Company’s benchmark (RTS index) which returned 9.4% on a total return basis.

The Company’s discount to net asset value has remained disappointingly wide, although it ended the periodnarrower at 14.3% (at the end of the Company’s last financial year the discount was 19.0%) contributing tothe very positive move in shareholder total return. The average discount over the period was 16.5%.However as I have commented before this is not surprising given the continuing sanctions against Russiaand the negative sentiment that persist between Russia and many other major nations. At the time ofwriting there have been no significant political developments, although as we are all very aware eventsalways have the potential to arise unexpectedly. JPMorgan Asset Management’s compliance functionmonitors the Company’s investments and provides assurances of compliance with the current sanctionsregime. In addition JPMorgan and the Board closely monitor both economic and political risks to theCompany. The Investment Managers Report includes further comment on the economic and politicalimpacts on the Russian market.

The Board have also reviewed the work undertaken by JPMorgan on environmental, social and governancematters (ESG) in relation to the portfolio your Company is invested in. An increasingly broad spectrum ofinvestors now rightly focus on ESG issues when considering their investments. The Company is aware of thistrend. For many years the Company’s Investment Managers have taken them into account in theirinvestment process, particularly governance factors to ensure that shareholder and managers interests areas closely aligned as possible. The Investment Managers regularly engage on ESG issues in meetings withcompany management. We believe that companies that address ESG issues and adopt sustainable businesspractices are better placed to generate sustainably strong performance and create enduring value forshareholders. The Manager also exercises the Company’s proxy votes in a prudent and diligent manner inthe interests of our shareholders. Further details of the Company’s approach to Proxy Voting andStewardship / Engagement can be found in the Company’s Corporate Governance and Voting Policy, whichis included in the Company’s Annual Report and Financial Statements.

Discount Control

The Board’s objective remains to use the share repurchase authority to assist in managing any imbalancebetween supply and demand for the Company’s shares, thereby reducing the volatility of the discount.During the period the discount ranged from 19.0% to 14.3%. As referred to in previous years statements,the Board has committed to buying back, subject to market conditions, at least 6.0% of its issued sharecapital per annum. During the course of the six month period 1,364,650 shares were bought back,approximately 2.9% of the Company’s issued share capital at 30th April 2019. This added 0.5% to theCompany’s NAV return in the period. The average discount at which these shares were bought back was16.6% and these buybacks represented approximately 17.7% of traded market volume during the period inwhich they were undertaken. The policy was initiated in January 2018. Although the discount has generallynarrowed over the period, the discount remains wider than the Board would like to see, but we have torecognise that sentiment towards investment in Russia remains cautious, so limiting the demand for thecompany’s shares.

Gill NottChairman


C H A I R M A N ’ S S T A T E M E N T

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Revenue, Earnings and Dividend

Revenue for the six month period to 30th April 2019 after taxation was £1,554,000 (30th April 2018:£2,188,000) and the return per share, calculated on the basis of the average number of shares in issue was3.21 pence (30th April 2018: 4.22 pence) per share. The Company’s dividend income for the half year to30th April 2019 is lower than the half year to 30th April 2018, mainly because the Company’s portfolio nowcontains more companies that pay annual dividends later in the Company’s financial year. In comparison, inthe previous year the portfolio included more companies paying semi-annual and quarterly dividendsearlier in the Company’s financial year. This can be regarded as a timing difference and not an indication ofreduced dividend flows for the financial year. Whilst the level of income expected from a company is notthe key driver of the investments managers’ choice of investments, it is an important indication of thecompanies’ financial strength and prospects, and their commitment to delivering shareholder value.

The Company’s current income forecast for the full year indicates continuing growth in dividend income.Following the pattern of the previous year, the Company’s interim dividend is expected to be considered bythe Board for declaration in September 2019 and is likely to represent the large majority of the total annualdividend, with a significantly smaller final dividend being recommended for approval by the shareholders atthe Annual General Meeting for payment in March 2020.

Board of Directors

As detailed in the announcement of 8th March 2019, the appointment of Philippe Delpal as a non-executivedirector of the Company was postponed due to personal circumstances. George Nianias kindly agreed tobe reappointed at the Company’s Annual General Meeting on 12th March 2019. However, as Philippe Delpalcontinued to be unavailable for appointment, the Board decided to withdraw its offer made to him andrecommence the search for a non-executive director to replace George Nianias, in line with itsSuccession Plan.

Investment Manager

Oleg Biryulyov and Habib Saikaly continue to be the Company’s Investment Managers supported byJPMorgan Asset Management’s Emerging Markets and Asia Pacific equities team (EMAP), which consists ofgrowing number of investment professionals, now in excess of 100. The Board meets the investmentmanagers regularly so as to understand and question their investment strategy and the portfolio choices.It also reviews the performance of all the other services provided by the Investment Manager each year.

Outlook

The Company’s objective remains to maximise total return to shareholders from a diversified portfolio ofinvestments primarily in quoted Russian securities. As mentioned above dividends increasingly play animportant part in this and we are generally optimistic that this trend will continue. The outlook for theRussian economy is by no means universally positive with domestic demand looking rather weak and hencethe investment manager has reduced some of the company’s holdings exposed to the domestic market.However, it is expected that major exporters will continue to do well, particularly the energy companieswhich form just over 50% of our portfolio, as they should benefit from the firm oil price The Board believesthat the investment approach adopted by the Investment Managers’ is the correct one for the Russianmarket, focussing as it does on well capitalised companies with strong business models, good managementand a positive attitude to shareholders interests. Investing in Russia is likely to remain something of a rollercoaster for the foreseeable future. However, for those with the stomach for the ride, given thefundamentals of the market and the fact that it remains relatively undervalued compared with other keyemerging markets, there is a strong case for investment.

Gill NottChairman 21st June 2019


Investment Review

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Oleg I. BiryulyovInvestment Manager

Habib SaikalyInvestment Manager

Market review – and tentative signs of recovery

As we look back at the six-month period to 30th April 2019, it is apparent that global equity markets havesurprised on the upside so far this year, recovering ground after a tricky end to 2018. Markets areseemingly less preoccupied by stagnant economic growth around the world and ongoing politicaluncertainty than they were in 2018 – even though both issues remain unresolved. Equity markets haverisen this year, and global investors have become more upbeat, perhaps partly responding to central banksaround the world pressing the ‘pause’ button on interest rate rises.

For Russia, the thorny topic of sanctions has not gone away and remains fluid but, a year on from thesurprise US announcement of additional sanctions that hit the market with such force last April, the worstof the storm may already have been weathered. Moreover, the spotlight of attention has shifted to theongoing trade wrangles between the USA and China so that Russian investment markets have been able toprogress relatively unhindered. After all the negative sanctions noise directed at Russia in recent years, thisvast country’s economy appears to be showing tentative signs of recovery, with more recent stability in oiland currency prices both positive indicators. Dividend pay-outs from Russian companies have alsomaintained their positive trajectory.

Global politics remain an issue. Of all the simmering international challenges that could threaten to boilover into something more troublesome, the Russia-Ukraine stalemate is one that we continue to monitorclosely. This story has taken a new turn following the landslide election of former comedian and novicepolitician Volodymyr Zelensky, who was inaugurated as President in May 2019. We are sceptical that thischange in leadership will ease tensions between the two countries. Indeed, tensions grew towards the endof the review period as the Russian government made it easier for Ukrainian citizens to obtain a Russianpassport.

Oil prices, so pivotal to the fortunes of the Russian economy, have seesawed over recent months. With thedirection of travel for the global economy uncertain, oil price volatility is inevitable. That said, oil pricesrecovered over the period, providing support for the economy and we expect firmer prices throughout2019. To temper our optimism, however, recent statistics have revealed sluggish economic growth of just0.5% in the first quarter of 2019, which was much weaker than expected. An unpopular hike in VAT, whichtook effect from January, is likely to have been a key drag on growth, dampening consumer demand, albeitmost likely a temporary stumbling block.

Against a rather more benign yet still uncertain backdrop, Russian markets have outperformed otheremerging markets over the review period. Over the six months to 30th April 2019, the Company’s net assetvalue was up 9.5% on a total return basis, just ahead of the benchmark, the RTS Index, which rose by 9.4%on a net asset value total return basis. The total return to shareholders was a pleasing 16.1% in sterlingterms, partly reflecting a narrowing of the discount over the period, as explained in the Chairman’sStatement.

Our approach and commitment to uncovering value

As a reminder, ours is the only investment trust providing pure exposure to the ongoing transformation ofthe Russian economy and we strive to uncover the value in Russian equities. We aim to build a balancedportfolio of stocks from across the Russian market, with a focus on companies that demonstrate the bestlong-term growth opportunities. To do this, we actively manage the portfolio and continue to build upinternal research capabilities and a growing team of analysts with deep expertise in this complex andunder-researched market.

We base our decisions on a proven investment process that analyses the specific characteristics of stocks.We believe that an active approach makes sense when investing in Russia, given the market concentrationand corporate governance issues.


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How have specific stocks and sectors fared?

Over 50% of the Company’s portfolio is invested in the Energy sector, where an improved outlook forenergy prices – albeit prone to short-term volatility – has contributed to relative returns over the period.

The most notable positive contributor – and the largest holding in our portfolio – was our exposure toLUKOIL, one of the world’s largest oil and gas companies, which reported better-than-expected results forits 4th quarter of 2018. Its profits for the year were up almost 50% year-on-year.

When rising energy consumption demands are coupled with production capacity constraints (for whateverreason) this propels energy prices upwards. However, prices were very erratic and we witnessed this in thelatter part of 2018, when crude oil prices fell. This impacted on another of our largest Energy holdings, theworld’s largest publicly traded petroleum company Rosneft which detracted from returns. Of our otherholdings within the Energy sector, we trimmed our position in Inter RAO, on the back of a decliningearnings outlook and management indications for an increase in capital expenditure.

Stock selection within the Materials sector was strong. Our holding in Polyus, the largest gold producer inRussia and one of the top 10 gold producers globally, was notable. The stock significantly outperformed thebroader market on the back of rising gold prices. Additionally, our exposure to Polymetal International,a precious metals mining company, also boosted relative returns. During the period, the company reportedstrong second half results for 2018, in line with market expectations. Additionally, investors wereencouraged as dividend yields came in higher than expected whilst total cash costs came in at the lowerend of what had previously been provided by management, which also boosted investor sentiment.

First-hand knowledge of the complex Russian market drives our investment decisions. Our investment inPhosAgro demonstrates this. We trimmed our exposure to this chemicals company and producer offertilizer, phosphates and feed phosphates, as a result of a meeting with management. We weredisappointed by the company’s outlook for free cash flow and dividends.

In our investment report to 31st October 2018, we commented on our off-benchmark holding in Ros Agro,one of Russia’s largest agricultural companies, and a major producer of pork, fats and sugars. The companywas experiencing tough times and had made a negative contribution to performance. However, we keptfaith with RosAgro’s investment strategy, and it has been one of the leading contributors to returns duringthe current review period. At its recent ‘Analyst Day’, investors were encouraged by the outlook for futureearnings. The company is expected to benefit from higher grain, sugar and pork prices, while margins inthe oil and fats business are expected to be close to record levels.

Within Financials, our exposure to TBC Bank, headquartered in Tbilisi, Georgia, weighed on relative returns.The stock was hurt during the period due to slowing loan growth in the Georgian market. Although weconsider TBC very well run, we trimmed our position as we expect the current business environment willlikely lead to earnings downgrades.

On a more positive note, we initiated a position in Qiwi, a leading provider of online payments and financialservices. The company has been described as Russia’s equivalent to PayPal and has approximately50 million customers and processes approximately US$40 million of payments a day.

Finally, within the Real Estate space, we took profits in Etalon, Russia’s oldest and largest residential realestate developer, on the back of record sales performance and associated share price movements.



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Outlook

It is easy to forget that Russia’s economy only returned to economic growth in 2017 after sufferingtwo years of recession. 2018 may have been a surprisingly positive year overall for Russian equities, butthere was a wide dispersion in returns achieved across the market which plays to our strengths as stockpickers. Our investment approach, and our focus on identifying long-term growth opportunities fromindividual stocks, has delivered robust returns to shareholders over recent reporting periods, even thoughthe underlying economic and geopolitical landscape has been challenging and changeable.

Our current thinking has not shifted materially since our January 2019 report. On a short-term view, theeconomic picture is undeniably mixed, with sluggish global growth likely to weigh heavily on the outlook forRussia. Domestically, the economy has not been improving as we would have hoped and, as things stand,we do not expect domestic consumption to be the main driver of returns in the next 12 months. We willtherefore remain cautiously underweight domestic stories and will concentrate our attention onexport-focused businesses.

Looking further out, we are confident that economic recovery in Russia remains on track and wepassionately believe that Russian equities provide a long-term investment opportunity. We expect to see:

• Firmer oil prices, driven by production cuts and politics, which will be positive for the earnings ofRussian companies.

• Interest rates to fall by 1 to 1.5% over the next 18 months, an expectation made more likely by themost recent set of statistics that showed lacklustre economic growth.

• Rising dividend payments and dividend yields expected to remain strong, highlighting the attractivevaluations available. With local Russian investors becoming bigger participants in the equity market,we expect the search for yield to become more prevalent.

• The rouble continuing to be volatile, but with the possibility of less intervention from the CentralBank who had been aiming to keep the currency relatively weak but is now under less pressure tobuild reserves.

• The environment around sanctions remaining fluid, and we will continue to monitor the situation.However, there is every possibility that relationships with the West will thaw rather than worsen.

• Likelihood of capital flows to the Russian economy – and to investment markets – as a result ofgovernment reforms and its privatisation programme, i.e. selling off state-owned enterprises thatwould trigger higher dividends.

Naturally, investing in Russia is not without its challenges but investing in any single country brings with ita series of specific risks. For those investors prepared to accept these risks, we believe the fundamentalsfor investing in Russia remain compelling and our ability and resources to uncover well-managedcompanies with robust balance sheets is both proven and remains strong.

We are very selective about the companies we invest in. We still believe the market is attractively valued,with particular value to be found in certain sectors. We will continue to base our investment decisions onrelatively strong and improving fundamentals, which we believe will reassert themselves as the primarydrivers of returns over time. For now, however, we will stick to our investment process and look beyondshort-term volatility, spurred on by the reasonable company valuations we are seeing and in anticipationof sentiment towards Russia becoming more positive.

Oleg I. BiryulyovHabib SaikalyInvestment Managers 21st June 2019


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SECTOR

30th April 2019 31st October 2018 Portfolio Benchmark Portfolio Benchmark %1 % %1 %

Energy 52.1 50.6 50.8 52.1

Materials 17.6 16.5 17.6 15.4

Financials 16.6 18.4 15.8 18.4

Communication Services 4.0 6.1 3.5 6.0

Information Technology 2.7 — 1.0 —

Consumer Discretionary 2.0 0.9 2.6 0.9

Real Estate 1.9 — 2.5 —

Consumer Staples 1.1 4.7 1.9 4.2

Health Care 1.1 — 1.4 —

Industrials 0.9 0.5 0.7 0.6

Utilities — 2.3 2.2 2.4

Total 100.0 100.0 100.0 100.0

1 Based on total investments of £319.3m (2018: £299.1m).


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ValuationCompany £’000



ENERGYLukoil, ADR 52,164

Gazprom, ADR 46,697

Novatek, GDR 25,613

Rosneft Oil, GDR 17,766

Tatneft Preference 17,186

Surgutneftegas Preference 4,511

Gazprom Neft 2,336

166,273

MATERIALSMMC Norilsk Nickel, ADR 24,229

Alrosa 8,824

Polyus, GDR 6,933

Novolipetsk Steel, GDR 4,221

Severstal, GDR 3,160

Magnitogorsk Iron & Steel Works 2,809

Highland Gold Mining 2,494

Polymetal International 1,774

PhosAgro, GDR 1,759

56,203

FINANCIALSSberbank of Russia Preference 40,686

TCS, GDR 4,786

Moscow Exchange MICEX-RTS 4,223

TBC Bank 3,323

53,018

COMMUNICATION SERVICESYandex 12,653

12,653

INFORMATION TECHNOLOGY

EPAM Systems 4,534

QIWI, ADR 4,205

8,739

CONSUMER DISCRETIONARYDetsky Mir 4,092

Sollers 1,453

OR 929

6,474

REAL ESTATELSR, GDR 3,297

Etalon, GDR 2,874

6,171

CONSUMER STAPLESRos Agro, GDR 3,489

3,489

HEALTH CAREMD Medical Group Investments, GDR 3,474

3,474

INDUSTRIALS

Globaltrans Investment, GDR 1,489

Globaltruck Management 1,349

2,838

TOTAL INVESTMENTS 319,332

See glossary of terms and APMs on page 25 fordefinition of ADR and GDR.

AT 30TH APRIL 2019


Financial Statements

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S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E

FOR THE SIX MONTHS ENDED 30TH APRIL 2019

(Unaudited) (Unaudited) (Audited)Six months ended Six months ended Year ended30th April 2019 30th April 2018 31st October 2018

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

Gains on investments held atfair value through profitor loss — 26,124 26,124 — 5,069 5,069 — 19,505 19,505

Net foreign currencygains/(losses) — 37 37 — (55) (55) — 111 111

Income from investments 2,750 — 2,750 3,102 — 3,102 19,170 — 19,170Interest receivable and similar

income 36 — 36 17 — 17 37 — 37

Gross return 2,786 26,161 28,947 3,119 5,014 8,133 19,207 19,616 38,823Management fee (604) (905) (1,509) (313) (1,253) (1,566) (620) (2,482) (3,102)Other administrative expenses (347) — (347) (395) — (395) (1,012) — (1,012)

Net return on ordinaryactivities before financecosts and taxation 1,835 25,256 27,091 2,411 3,761 6,172 17,575 17,134 34,709

Finance costs — — — — (1) (1) — — —

Net return on ordinaryactivities before taxation 1,835 25,256 27,091 2,411 3,760 6,171 17,575 17,134 34,709

Taxation (281) — (281) (223) — (223) (2,498) — (2,498)

Net return on ordinaryactivities after taxation 1,554 25,256 26,810 2,188 3,760 5,948 15,077 17,134 32,211

Return per share (note 3) 3.21p 52.15p 55.36p 4.22p 7.24p 11.46p 29.58p 33.62p 63.20p

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

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

The net return on ordinary activities after taxation represents the profit for the period and also the total comprehensive income.


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Called up Capital share redemption Other Capital Revenuecapital reserve reserve reserves1 reserve1 Total£’000 £’000 £’000 £’000 £’000 £’000

Six months ended 30th April 2019 (Unaudited)At 31st October 2018 491 110 30,438 262,988 9,162 303,189 Repurchase and cancellation of the Company’sown shares (14) 14 (7,247) — — (7,247)

Net return on ordinary activities — — — 25,256 1,554 26,810 Dividend paid in the period (note 4) — — — — (2,905) (2,905)

At 30th April 2019 477 124 23,191 288,244 7,811 319,847

Six months ended 30th April 2018 (Unaudited)At 31st October 2017 523 78 46,838 245,854 7,068 300,361 Repurchase and cancellation of the Company’sown shares (12) 12 (6,420) — — (6,420)

Net return on ordinary activities — — — 3,760 2,188 5,948 Dividend paid in the period (note 4) — — — — (3,119) (3,119)

At 30th April 2018 511 90 40,418 249,614 6,137 296,770

Year ended 31st October 2018 (Audited)At 31st October 2017 523 78 46,838 245,854 7,068 300,361 Repurchase and cancellation of the Company’sown shares (32) 32 (16,400) — — (16,400)

Net return on ordinary activities — — — 17,134 15,077 32,211 Dividends paid in the year (note 4) — — — — (12,983) (12,983)

At 31st October 2018 491 110 30,438 262,988 9,162 303,189

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



S T A T E M E N T O F F I N A N C I A L P O S I T I O N

AT 30TH APRIL 2019

(Unaudited) (Unaudited) (Audited)30th April 2019 30th April 2018 31st October 2018

£’000 £’000 £’000

Fixed assets Investments held at fair value through profit or loss 319,332 294,504 299,101

Current assetsDerivative financial assets — 1 —Debtors 192 1,659 1,221Cash and cash equivalents 402 1,789 2,997

594 3,449 4,218 Current liabilitiesCreditors: amounts falling due within one year (79) (1,183) (130)

Net current assets 515 2,266 4,088

Total assets less current liabilities 319,847 296,770 303,189

Net assets 319,847 296,770 303,189

Capital and reservesCalled up share capital 477 511 491Capital redemption reserve 124 90 110Other reserve 23,191 40,418 30,438 Capital reserves 288,244 249,614 262,988Revenue reserve 7,811 6,137 9,162

Total shareholders’ funds 319,847 296,770 303,189

Net asset value per share (note 5) 670.1p 581.5p 617.6p


F 1 8 | J P M O R G A N R U S S I A N S E C U R I T I E S P L C . H A L F Y E A R R E P O R T & F I N A N C I A L S T A T E M E N T S 2 0 1 9

S T A T E M E N T O F C A S H F L O W S



£’000 £’000 £’000

Net cash outflow from operations before dividends andinterest (note 6) (1,908) (2,007) (3,937)

Dividends received 3,450 3,426 16,228 Interest received 36 17 37 Overseas tax recovered/(paid) 13 — (6)Interest paid — (1) —

Net cash inflow from operating activities 1,591 1,435 12,322

Purchases of investments (16,182) (40,515) (86,415)Sales of investments 22,110 48,845 105,236 Settlement of forward currency contracts 39 (9) (60)

Net cash inflow from investing activities 5,967 8,321 18,761

Repurchase and cancellation of the Company’s own shares (7,247) (6,142) (16,402)Dividends paid (2,905) (3,108) (12,972)

Net cash outflow from financing activities (10,152) (9,250) (29,374)

(Decrease)/increase in cash and cash equivalents (2,594) 506 1,709

Cash and cash equivalents at start of period/year 2,997 1,281 1,281 Exchange movements (1) 2 7 Cash and cash equivalents at end of period/year 402 1,789 2,997

(Decrease)/increase in cash and cash equivalents (2,594) 506 1,709

Cash and cash equivalents consist of:Cash and short term deposits 356 519 2,665 Cash held in JPMorgan US Dollar Liquidity Fund 46 1,270 332

Total 402 1,789 2,997




1. Financial statements

The information contained within the financial statements in this half year report has not been audited or reviewed by theCompany’s auditors.

The figures and financial information for the year ended 31st October 2018 are extracted from the latest published financialstatements of the Company and do not constitute statutory accounts for that year. Those financial statements have beendelivered to the Registrar of Companies and including the report of the auditors which was unqualified and did not containa statement under either section 498(2) or 498(3) of the Companies Act 2006.

2. Accounting policies

The financial statements have been prepared in accordance with the Companies Act 2006, FRS 102 ‘The Financial ReportingStandard applicable in the UK and Republic of Ireland’ of the United Kingdom Generally Accepted Accounting Practice(‘UK GAAP’) and with the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies andVenture Capital Trusts’ (the revised ‘SORP’) issued by the Association of Investment Companies in November 2014 and updatedin February 2018.

FRS 104, ‘Interim Financial Reporting’, issued by the Financial Reporting Council (‘FRC’) in March 2015 has been applied inpreparing this condensed set of financial statements for the six months ended 30th April 2019.

All of the Company’s operations are of a continuing nature.

The accounting policies applied to this condensed set of financial statements are consistent with those applied in the financialstatements for the year ended 31st October 2018.

Changes in allocation of expense

With effect from 1st November 2018, management fees incurred by the Company have been allocated 60% to capital and 40%to revenue. In previous periods, these charges were allocated 80% to capital and 20% to revenue. In line with the guidanceprovided in the SORP, this change is not considered to be a change of accounting policy and consequently no prior periodrestatements have been made.

3. Return per share


£’000 £’000 £’000

Return per share is based on the following:Revenue return 1,554 2,188 15,077Capital return 25,256 3,760 17,134

Total return 26,810 5,948 32,211

Weighted average number of shares in issue 48,427,728 51,899,865 50,961,280

Revenue return per share 3.21p 4.22p 29.58p Capital return per share 52.15p 7.24p 33.62p

Total return per share 55.36p 11.46p 63.20p

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S


F


4. Dividends paid


£’000 £’000 £’000

2018 final dividend of 6.0p (2017: 6.0p) 2,905 3,119 3,1192018 interim dividend of 20.0p (2017: 15.0p) — — 9,864

Total dividends in the period/year 2,905 3,119 12,983

All dividends paid in the period/year have been funded from the revenue reserve.

The 2019 interim dividend is expected to be payable in October 2019.

5. Net asset value per share


Net assets (£’000) 319,847 296,770 303,189Number of shares in issue 47,728,734 51,035,669 49,093,384

Net asset value per share 670.1p 581.5p 617.6p

6. Reconciliation of net return on ordinary activities before finance costs and taxation to net cashoutflow from operations before dividends and interest


Net return on ordinary activities before finance costand taxation 27,091 6,172 34,709

Less capital return on ordinary activities before financecost and taxation (25,256) (3,761) (17,134)

Decrease/(increase) in accrued income and other debtors 994 564 (432)(Decrease)/increase in accrued expenses (51) (14) 1 Management fee charged to capital (905) (1,253) (2,482)Overseas withholding tax (294) (223) (2,498)Dividends received (3,450) (3,426) (16,228)Interest received (36) (17) (37)Realised loss on foreign exchange transactions (27) (96) (11)Realised gain on liquidity fund 26 47 175

Net cash outflow from operations before dividendsand interest (1,908) (2,007) (3,937)





7. Fair valuation of investments

The fair value hierarchy analysis for financial instruments held at fair value at the period end is as follows:


Assets Liabilities Assets Liabilities Assets Liabilities£’000 £’000 £’000 £’000 £’000 £’000

Level 1 319,332 — 294,504 — 299,101 —

Total value of investments 319,332 — 294,504 — 299,101 —


Interim Management Report

I

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I N T E R I M M A N A G E M E N T R E P O R T | 2 3

I N T E R I M M A N A G E M E N T R E P O R T

The Company is required to make the following disclosures in its half year report.

Principal Risks and Uncertainties

The principal risks and uncertainties faced by the Company remain unchanged and fall into the following broad categories: investing inRussia; share price discount and Net Asset Value per share; investment underperformance and strategy; failure of investment process;loss of investment team and Manager; operational and cyber crime; board relationship and shareholders; political and economicregulatory and legal market and financial. Information on each of these areas is given in the Business Review within the Annual Reportand Accounts for the year ended 31st October 2018.

Related Parties Transactions

During the first six months of the current financial year, no transactions with related parties have taken place which have materiallyaffected the financial position or the performance of the Company during the period.

Going Concern

The Directors believe, having considered the Company’s investment objectives, risk management policies, capital management policiesand procedures, nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriatefinancial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future and,more specifically, that there are no material uncertainties pertaining to the Company that would prevent its ability to continue in suchoperation existence for at least twelve months from the date of the approval of this half yearly financial report. For these reasons, theyconsider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts.

Directors’ Responsibilities

The Board of Directors confirms that, to the best of its knowledge:

(i) the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance withFRS 104 ‘Interim Financial Reporting’ and gives a true and fair view of the state of affairs of the Company and of theassets/liabilities, financial position and net return/loss of the Company, as at 30th April 2019 as required by the UK ListingAuthority Disclosure and Transparency Rule 4.2.4R; and

(ii) the interim management report includes a fair review of the information required by 4.2.7R and 4.2.8R of the UK ListingAuthority Disclosure and Transparency Rules.

In order to provide these confirmations, and in preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed andexplained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continuein business;

and the Directors confirm that they have done so.

For and on behalf of the Board

Gill NottChairman 21st June 2019


Shareholder Information

S


S H A R E H O L D E R I N F O R M A T I O N | 2 5

GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES ( ‘APMs’ )

Return to Shareholders (APM)

Total return to the shareholders, on a last traded price to last traded price basis, assuming that all dividends received were reinvested,without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend.

Six months endedTotal return calculation Page 30th April 2019

Opening share price (p) 4 500.0 (a)

Closing share price (p) 4 574.0 (b)

Total dividend adjustment factor1 1.011215 (c)

Adjusted closing share price (p) (d = b x c) 580.4 (d)

Total return to shareholders (e = d / a – 1) 16.1% (e)

1 The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the last tradedprice quoted at the ex-dividend date.

Return on Net Assets (APM)

Total return on net asset value (‘NAV’) per share, on a bid value to bid value basis, assuming that all dividends paid out by the Companywere reinvested, without transaction costs, into the shares of the Company at the NAV per share at the time the shares were quotedex-dividend.

Six months endedTotal return calculation Page 30th April 2019

Opening cum-income NAV per share (p) 4 617.6 (a)

Closing cum-income NAV per share (p) 4 670.1 (b)

Total dividend adjustment factor2 1.009424 (c)

Adjusted closing cum-income NAV per share (p) (d = b x c) 676.4 (d)

Total return on net assets (e = d / a – 1) 9.5% (e)

2 The dividend adjustment factor is calculated on the assumption that the dividends paid out by the Company are reinvested into the shares of the Company at the cum-incomeNAV at the ex-dividend date.

Benchmark Return

Total return on the benchmark, on a closing-market value to closing-market value basis, assuming that all dividends received werereinvested, without transaction costs, in the shares of the underlying companies at the time the shares were quoted ex-dividend.

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


S


GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES ( ‘APMs’ )

Gearing/(net cash) (APM)

Gearing represents the excess amount above shareholders’ funds of total investments, expressed as a percentage of the shareholders’funds. If the amount calculated is negative, this is shown as a ‘net cash’ position.

30th April 2019 31st October 2018Gearing calculation Page £’000 £’000

Investments held at fair value through profit or loss 17 319,332 299,101 (a)

Net assets 17 319,847 303,189 (b)

Gearing/(net cash) (c = a / b – 1) (0.2)% (1.3)% (c)

Ongoing charges (APM)

The ongoing charges represent the Company’s management fee and all other operating expenses excluding finance costs payable,expressed as a percentage of the average of the daily cum-income net assets during the year and is calculated in accordance withguidance issued by the Association of Investment Companies.

The figure as at 30th April 2019 is an estimated annualised figure based on the figures for the six months ended 30th April 2019.

30th April 2019 31st October 2018Ongoing charges calculation Page £’000 £’000

Management Fee 15 3,018 3,102 Other administrative expenses1 15 871 1,012

Total management fee and other administrative expenses 3,889 4,114 (a)

Average daily cum-income net assets 305,626 308,626 (b)

Ongoing charges (c = a / b) 1.27% 1.33% (c)

1 Dividend charges are a significant component of other administrative expenses. The timing of the dividend receipts is heavily-weighted towards the second half of thefinancial year. To ensure greater comparability of ongoing charges across reporting periods, the annualised dividend charges used in the calculation of ongoing charges as at30th April 2019 is determined as the actual expenditure for the six months to 30th April 2019 plus 50% of the dividend charges for the preceeding year-end audited financialstatements.

.Share price discount/premium to Net Asset Value (‘NAV’) per share (APM)

If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. The discount isshown as a percentage of the NAV per share. The opposite of a discount is a premium. It is more common for an investment trust’sshares to trade at a discount than at a premium (page 6).

ADR/GDR

American Depositary Receipts (ADR) and Global Depositary Receipts (GDR).

ADRs are certificates that are traded on US stock exchanges representing a specified number of shares in a non-US company. ADRs aredenominated and pay dividends in US dollars and may be traded like regular shares of stock.

GDRs are similar to ADRs. GDRs are certificates that are traded in multiple countries representing a specified number of shares ina foreign company.


S H A R E H O L D E R I N F O R M A T I O N | 2 7

W H E R E T O B U Y J . P . M O R G A N I N V E S T M E N T T R U S T S

J.P. Morgan investment trusts are eligible investments withina stocks & shares individual savings account (ISA) and Junior ISA.For the 2019/20 tax year, from 6th April 2019 and ending5th April 2020, the annual ISA allowance is £20,000 and theJunior ISA annual allowance is £4,368.

You can invest in J.P. Morgan investment trusts through thefollowing;

1. Via a third party provider

Third party providers include:

Please note this list is not exhaustive and the availability of theCompany’s shares may vary depending on the provider. Thesewebsites are third party sites and the Company does not endorseor recommend any. Please observe each site’s privacy and cookiepolicies as well as their platform charges structure.

2. Through a professional adviser

Professional advisers are usually able to access the products of allthe companies in the market and can help you find an investmentthat suits your individual circumstances. An adviser will let youknow the fee for their service before you go ahead. You can findan adviser at unbiased.co.uk

You may also buy J.P. Morgan investment trusts throughstockbrokers, wealth managers and banks.

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

Information for J.P. Morgan Investment Account,Stock & Shares ISA account holders

On 8th April 2019, J.P. Morgan Asset Management informedholders of J.P. Morgan investment accounts and stocks & sharesISA savings products that it had decided to cease managing theseaccounts. Investors are able to remain invested in J.P. Morganmanaged investment trusts by transferring to another serviceprovider.

Information regarding the transfer arrangements has beenprovided, detailing the options to; transfer to an alternative thirdparty provider, re-register the investment into certificated formor sell the investment. Where no alternative instruction isreceived the account will be transferred later in the year, in linewith the correspondence sent by J.P. Morgan on 8th April 2019.

For full details of all the options available to investors, pleaserefer to correspondence sent by J.P. Morgan on 8th April 2019,contact your financial adviser or contact J.P. Morgan’s ClientAdministration Centre on 0800 20 40 20/+44 (0) 1268 44 44 70.

AJ BellAlliance Trust SavingsBarclays Smart InvestorCharles Stanley DirectFundsNetwork

Hargreaves LansdownInteractive InvestorSelftradeThe Share Centre



S H A R E H O L D E R I N F O R M A T I O N

Avoid investment fraud1 Reject cold calls

If you’ve received unsolicited contact about an investment opportunity, chances are it’s a high risk investment or a scam. You should treat the call with extreme caution. The safest thing to do is to hang up.

2 Check the FCA Warning List The FCA Warning List is a list of �rms and individuals we know are operating without our authorisation.

3 Get impartial advice Think about getting impartial �nancial advice before you hand over any money. Seek advice from someone unconnected to the �rm that has approached you.

Report a ScamIf you suspect that you have been approached by fraudsters please tell the FCA using the reporting form at www.fca.org.uk/consumers/report-scam-unauthorised-�rm. You can also call the FCA Consumer Helpline on 0800 111 6768

If you have lost money to investment fraud, you should report it to Action Fraud on 0300 123 2040 or online at www.actionfraud.police.uk

Find out more at www.fca.org.uk/scamsmart

Investment scams are designed to look like genuine investmentsSpot the warning signs

Have you been:

• contacted out of the blue• promised tempting returns

and told the investment is safe• called repeatedly, or• told the offer is only available

for a limited time?

If so, you might have been contacted by fraudsters. Remember: if it sounds too good to be true,

it probably is!

Be ScamSmart


21

I N F O R M AT I O N A B O U T T H E C O M PA N Y

HistoryThe Company was launched in December 2002 by a placing and offer forsubscription. It is the successor Company to The Fleming Russia Securities FundLimited, a closed-ended investment company incorporated in Jersey and listed onthe Irish Stock Exchange. The Company adopted its present name on 1st March2006.

DirectorsGill Nott (Chairman and Nomination Committee Chairman) Robert Jeens (Audit Committee Chairman)Alexander EastonGeorge NianiasTamara Sakovska

Company NumbersCompany registration number: 4567378

Ordinary SharesLondon Stock Exchange Sedol number: 0032164732ISIN: GB0032164732Bloomberg ticker: JRS LNLEI: 549300II3MHI98ZLVH37

Market InformationThe Company’s shares are listed on the London Stock Exchange. The marketprice is shown daily in the Financial Times, The Times, The Daily Telegraph,The Scotsman and on the JPMorgan website at www.jpmrussian.co.uk where theshare price is updated every fifteen minutes during trading hours.

Websitewww.jpmrussian.co.uk

Share TransactionsThe Company’s shares may be dealt in directly through a stockbroker orprofessional adviser acting on an investor’s behalf.

Manager and Company SecretaryJPMorgan Funds Limited

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

For company secretarial and administrative matters, please contact Paul Winshipat the Company’s registered office.

DepositaryThe Bank of New York Mellon (International) Limited1 Canada SquareLondon E14 5AL

The Depositary has appointed JPMorgan Chase Bank, N.A. as the Company’scustodian.

RegistrarsEquiniti LimitedReference 2610 The CausewayWorthing,West Sussex BN99 6DA Telephone number: 0371 384 2030

Lines open 8.30 a.m. to 5.30 p.m. Monday to Friday. Calls to the helpline will costno more than a national rate call to a 01 or 02 number. Callers from overseasshould dial +44 121 415 0225.

Notifications of changes of address and all enquiries regarding certificates shouldbe sent to the Registrar quoting reference 2610.

Registered shareholders can obtain further details on individual holdings on theinternet by visiting www.shareview.co.uk

Independent AuditorErnst & Young LLP Statutory Auditor1 More London PlaceLondon SE1 2AF

BrokersNumis Securities LTDThe London Stock Exchange Building,10 Paternoster Square,London, EC4M 7LT

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

FINANCIAL CALENDAR

Final results announced January

Annual General Meeting March*

Final dividend paid March

Half year end 30th April

Half year results announced June

Interim dividend paid October

Financial year end 31st October

A member of the AIC

S H A R E H O L D E R I N F O R M AT I O N | 2 9

*2020 Annual General Meeting scheduled to be held at the Company’s registered office on 2nd March at 2.30 p.m.

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

GB I123 | 06/19

J.P. MORGAN HELPLINE

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

www.jpmrussian.co.uk

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