2009 Annual Report - J.P. Morgan

JPMorgan Fleming Japanese Smaller Companies Investment Trust plc

Annual Report & Accounts for the year ended 31st March 2009

Annual Report09

Features

Contents

About the Company

1 Financial Results2 Chairman’s Statement

Investment Review

5 Investment Managers’ Report8 Summary of Results9 Performance10 Five Year Financial Record11 Ten Largest Investments12 Sector Analysis13 List of Investments

Directors’ Report

15 Board of Directors16 Directors’ Report23 Corporate Governance

Accounts

27 Directors’ Remuneration Report28 Directors’ Responsibilities in Respect

of the Accounts29 Independent Auditors’ Report31 Income Statement32 Reconciliation of Movements in

Shareholders’ Funds33 Balance Sheet34 Cash Flow Statement35 Notes to the Accounts

Shareholder Information

50 Information about the Company51 Shareholder Analyses 53 Notice of Meeting56 Glossary of Terms

Objective

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

Investment Policies

- To maintain a portfolio almost wholly invested in Japan.- To restrict the Company’s investment universe to all Japanese quoted companies

excluding the largest 200 measured by market capitalisation.- To utilise borrowings to enhance shareholder returns.- To operate a gearing policy for the Company to within a range of 90% to 120%

invested.- 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 theDirectors’ Report on page 16.

Benchmark

S&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.

Capital Structure

The Company has an authorised share capital of 100,000,000 Ordinary shares of10p each (of which 39,309,423 were in issue as at 31st March 2009, including 396,000shares held in Treasury) and 10,000,000 Subscription shares of 1p each (of which7,798,873 were in issue as at 31st March 2009).

Management Company

The Company employs JF Asset Management Limited (‘JFAM’) to manage its assetsand JPMorgan Asset Management (UK) Limited (‘JPMAM’) as Secretary.

JPMorgan Fleming Japanese Smaller Companies Investment Trust plc. Annual Report & Accounts 2009 1

Financial ResultsTotal Returns (capital plus income)

–35

–30

–25

–20

–15

–10

–5

0

JPMFJSC IT**Peer Group6Jasdaq5TSE25MSJSCI*5Benchmark4

–2.4 –2.9–4.8

–8.8

–31.0–32.2

Japanese Smaller Companies Indices(returns for the year ended 31st March 2009)

–34.4%Return to shareholders1

(2008: –33.9%)

–32.2%Return on net assets2,3

(2008: –28.1%)

–2.4%Benchmark return4

(2008: –19.1%)

* Morgan Stanley Japanese Small Cap Index.

**JPMorgan Fleming Japanese Smaller Companies Investment Trust plc.

A glossary of terms and definitions is provided on page 56.

1Source: Morningstar/J.P. Morgan.2Source: J.P. Morgan.3Assumes that the 396,000 shares held in Treasury at 31st March 2009 were reissued in accordance with the Board’spolicy on the reissuance of Treasury shares.

4Source: Datastream. The Company’s benchmark is the S&P/Citigroup Japan Extended Market Index (Total Return Net)in sterling terms.5Source: Bloomberg.6Japanese smaller companies sector median. Source: Fundamental Data.

JPMorgan Fleming Japanese Smaller Companies Investment Trust plc. Annual Report & Accounts 20092

Chairman’s Statement

Investment Performance

Performance for the year to 31st March 2009 was very poor. The Company’s totalreturn on net assets fell 32.2%, which, when compared to a fall of 2.4% in theCompany’s benchmark, the S&P/Citigroup Japan Extended Market Index (TotalReturn Net) in sterling terms, reveals an underperformance of 29.8%. That theCompany’s peer group of comparator funds also performed poorly is of no greatcomfort. Nor is the fact that the market environment was difficult. This is a deeplydisappointing outcome, especially when the Company has seen underperformance inthe previous two financial years. Your Board is extremely concerned to ensure thatthis pattern of underachievement does not continue.

The Investment Managers, both last year and before, have sought to build a portfolioof generally well managed, financially secure companies with comparatively strongoperating performances. Growth companies such as these are invariably the choiceof other active foreign investors, too. When such investors seek to reduce theirpositions in the smaller companies section of the Japanese market, voluntarily orotherwise, it is just these types of stocks which experience persistent selling pressure.During recent past periods of poor market conditions in Japan, growth stocks havesuffered exceptional down-gradings as a consequence, notwithstanding theirgenerally robust operating results. Compared with such unwanted volatility, ourinvestigations show that a large proportion of the shares in our benchmark index aremade up of illiquid stocks which appear not to have traded in any meaningful wayand have not fallen as far as those growth stocks favoured by our own and otheroverseas managers.

Looking ahead, there are increasing signs of a better market outlook which leads usto believe that we should continue with our market positioning and not be temptedto change tack now. The Company’s net asset value has risen in both April and Mayand has outperformed the benchmark. We have a good degree of confidence that theCompany can begin to rebuild its longer term record.

The Investment Managers’ Report on pages 5 to 7 gives a more detailed review of theCompany’s performance and future outlook.

Gearing

The Company has a yen 2.5 billion credit facility with ING Bank which gives theinvestment managers the ability to gear tactically. The facility is due to expire on 28thAugust 2009 and is in the process of being renewed. The Board has given theinvestment managers the flexibility to set gearing within the range of 90% to 120%invested. During the year the investment managers operated between a gearingrange of 98% and 110% and at the time of writing the Company was 118% geared.

Corporate Governance

The Company operates in accordance with corporate governance best practice andthe Board is committed to high standards of corporate governance applicable underthe Combined Code and the ‘Association of Investment Companies’ (‘AIC’) Code ofCorporate Governance for Investment Trusts. Comprehensive compliance statementscan be found in the Corporate Governance section of this report on pages 23 to 26.


In January 2009, the Nomination Committee of the Board met and carried out anevaluation of the Directors, the Chairman, the Board itself and its Committees, theresults of which were satisfactory. The Board takes this review seriously and viewsit as an effective means of evaluating the ongoing efficacy of the Board.

Review of Services Provided by the Manager

During the year, the Board carried out a formal review of the investmentmanagement, company secretarial, administrative and marketing services providedby the Manager, JF Asset Management (‘JFAM’) and the Company Secretary,J.P. Morgan Asset Management (‘JPMAM’). The review encompassed the investmentperformance record, management processes, investment style, resources and riskcontrol mechanisms as well as noting the Company’s performance against its peers,performance against the benchmark, discount to net asset value, performanceattribution and total expense ratio. Despite the recent poor performance, the Boardconcluded that the continued appointment of the Manager and Company Secretaryis in the best interests of shareholders as a whole. Details of the Company’sManagement Agreements with JFAM and JPMAM can be found on page 19.

Subscription Shares

Following the passing of all the resolutions proposed at the Company’s GeneralMeeting held on 2nd March 2009 the Company issued 7,798,873 Subscription shareson 5th March 2009 as a bonus issue to the Ordinary shareholders on the basis of oneSubscription share for every five Ordinary shares held. Each Subscription shareconfers the right (but not the obligation) to subscribe for one Ordinary share on anybusiness day during the period from 1st April 2009 to 31st March 2014 (both datesinclusive) when the rights under the Subscription shares will lapse.

At the time of writing, the Company has issued 10,639 Ordinary shares following theconversion of Subscription shares into Ordinaries, amounting to proceeds of £14,363.Further details of the Subscription shares, including the bonus cost for the calculationof taxation, can be found on page 18 of this report and on the Company’s website atwww.jpmfjapanesesmallercompanies.co.uk

Share Issues and Repurchases

At the General Meeting held on 2nd March 2009, shareholders also gave the Boardauthority to repurchase up to 14.99% of the Company’s Ordinary and Subscriptionshare capital for cancellation. As previously stated, repurchases will only be made inthe market at prices below the prevailing net asset value per share. Repurchases ofSubscription shares will be made at the discretion of the Board and only when marketconditions are appropriate.

At the Annual General Meeting in 2008, shareholders gave the Board authority toallot up to 10% of the Company’s Ordinary share capital and to re-issue Treasuryshares at a discount to NAV, subject to certain limits and restrictions.

Since the share repurchase and issuance authorities were granted, the Companyhas repurchased a total of 396,000 Ordinary shares into Treasury for a totalconsideration of £492,000. The Company has not issued any new Ordinary sharesunder this authority nor issued any shares out of Treasury.


The Board believes that the ability to issue new Ordinary shares, repurchase Ordinaryand Subscription shares for cancellation and to hold and reissue Ordinary sharesfrom Treasury, is in the interests of shareholders in assisting the Company inmanaging any imbalance between the supply and demand for the Company’s sharesand in reducing the volatility of the discount. Accordingly, the Board will be seekingshareholders’ approval to renew these authorities at this year’s Annual GeneralMeeting. The Board is aware that the authority to reissue shares out of Treasury ata discount to NAV continues to be a controversial matter for certain groups ofshareholders and, in view of this, it will apply certain limits and restrictions. Shareswill only be reissued out of Treasury at a discount narrower than the weightedaverage of those currently held in Treasury, and the aggregate dilution associatedwith any re-issuance from Treasury will not exceed 0.5% of the net asset value overthe one year period of the authority. Furthermore, shares issued out of Treasury willbe limited to 5% of the total Ordinary shares in issue. This, in the Board’s view,represents a balanced and considered approach to this matter.

Board of Directors

During the year, the Directors appointed Robert White to the Board as anindependent Non-Executive Director of the Company. Robert has already madesignificant contributions to the Board’s deliberations and I am confident that he willcontinue to add value. In accordance with the terms of the Combined Code, havingbeen appointed during the year, Robert will retire and stand for election at theforthcoming Annual General Meeting.

In accordance with the Company’s Articles of Association, Chris Russell will retireby rotation at the forthcoming Annual General Meeting and offers himself forre-election. The Nomination Committee has met to consider the attributes andcontributions of Chris and, following this review, has no hesitation in recommendinghis re-election at the forthcoming Annual General Meeting.

Annual General Meeting

This year’s Annual General Meeting will be held at The Armourers’ Hall, 81 ColemanStreet, London EC2R 5BJ on Wednesday 22nd July 2009 at 11.30 a.m. In addition tothe formal proceedings, the investment managers will review the past year andcomment on the outlook for the current year. I look forward to seeing as many of youas possible at the meeting. If you have any detailed questions, you may wish to raisethese in advance with the Company Secretary at Finsbury Dials, 20 Finsbury Street,London EC2Y 9AQ or via the Company’s website. Shareholders who are unable toattend the Annual General Meeting in person are encouraged to use their proxyvotes. Shareholders who hold their shares through CREST are able to lodge theirproxy votes electronically. More details are given in the notes to the Notice of Meetingon page 55.

Alan CliftonChairman 17th June 2009

Chairman’s Statement continued


Investment Managers’ Report

The year to 31st March 2009 was an exceptionally challenging one, marred by theglobal financial crisis and a slump in domestic demand in Japan. At the start of ourfinancial year we believed that Japanese smaller companies already looked goodvalue in that they were trading at close to their underlying net asset values. Theperiod ended, however, with those same companies trading 40% lower – a recordlow level – and typically at around 60% of their attributable net worth. What was analready cheaply priced asset class became extremely cheap. Institutional investorswere major sellers of smaller company stocks throughout the year as they shranktheir appetite for risk taking. This heavy selling resulted in many widely held stocksbeing amongst the very worst performers regardless of valuation or business quality.We believe that this leaves the Japanese smaller companies market looking moreattractive than at any time since the 2002/3 trough and this is especially the casewhere good companies have been pushed down excessively by heavy sellingpressure.

In the dire investing environment of last year investors focused on company balancesheets. However, as the global situation stabilises, we expect that the focus will returnto companies medium term earnings prospects. It is for this forward lookingenvironment that we have positioned the portfolio. Having endured the forced sellingand drawn out de-rating of many of our portfolio holdings over the last few years, webelieve that we should now begin to enjoy the benefits of those – often long held –investments.

Our performance was extremely disappointing. Smaller company fund managersacross the board suffered compared to the benchmark index. You may, rightly,wonder why fund managers have struggled quite so much. One of the major driversof this performance relates to investment flows. Fund managers deliberately seek outattractive places to invest money: companies with strong business models; highprofitability; and attractive valuations. However, when markets suffer aggressiveoutflows, as Japanese smaller companies have over the past year, investors can onlysell what they own, not what they want to. Last year, especially, amongst the veryworst performing factors associated with stock price performance were high businessquality, profitability and cheap earnings. However, the single worst performing factorwas a high level of institutional ownership. These factors together reflect theconcerted and prolonged selling of those fundamentally attractive businesses. Clearlyfor managers focusing on profitable and attractive businesses at cheap prices it was aperfect storm as these growth businesses normally trade at a premium to the rest ofthe market but as a result of this exceptionally aggressive de-rating process they nowstand at a discount of 50%. This reflects an extreme divergence from the average andthe first time in 45 years that a very substantial discount for future growth exists.These stocks have become not just cheap but generationally cheap.

Over the long term, cheaply priced stocks based on earnings in Japan have steadilyoutperformed albeit with periods of sharp underperformance. During the mostrecent recovery phase the best performing factor in 2003 was low earnings basedvaluation measures; in 2004 it was low earnings based valuation, and in 2005 it waslow earnings valuation. The positive return was more than 30% annually. This is invery stark contrast to the latest year. Just as these measures have led the marketdown this year, we expect them to generate strong returns going forwards. Priorperiods, where cheaply priced stocks have lagged sharply, have tended to last at leasttwo years so the recent bear market is in line with that period. The forced liquidation

David Mitchinson

Nicholas Weindling


of stock and record cheapness combined with their prolonged weakness suggest thatthis is the time to be actively seeking out and investing in those highly attractivebusinesses with cheaply priced earnings. We anticipate that as investors regain theirconfidence they will look at earnings streams more favourably again and reverse thehistoric cheapness. We have used the distress selling as an opportunity to increaseweightings and to bargain hunt very attractive stocks.

After enduring a three year bear market it is worth reviewing where we stand onwhat makes Japanese smaller companies perform. The smaller company market inJapan is driven by two concurrent cycles: economic and valuation. These conspire tocreate a volatile asset class where deviations from intrinsic value can be profound.Currently, we are at the lowest ebb of the economic cycle. The overleveragedfinancial system drove industrial production down exceptionally sharply last year. Inthe fourth quarter of 2008 Japanese industrial production fell at an annualised rateof 30%. Our meetings with companies suggest a steady improvement in conditionssince February. Companies exposed to Chinese and Indian demand are faringespecially well. Given these circumstances we expect a continued improvement in theeconomy, though the recovery path is likely to be bumpy.

The second cyclical component is a valuation cycle. Whichever smaller companyindex we look at we can see that the valuations reached in the last year are atunprecedented low levels. Since the market bottom we have seen a moderaterecovery but that still leaves many companies trading at, or below, previous marketbottom valuation levels. The smaller company market currently offers outstandingvalue for investors based on extremely low price to book and price to earningsmeasures. Taking both the depressed state of the economy and valuations together,provides a very substantial scope for stock performance to improve as the economybegins to recover. It is this factor that lies behind our optimism on the smallercompany market outlook.

Over the last few months we have gradually repositioned the portfolio to benefit froma recovering market. We are continuing to emphasise companies that we believe cangrow their business scale over the medium term in a profitable way. Currently thesestocks are very out of favour with investors. The dire economy has also pushed somecompanies to seriously restructure their businesses and in many cases the difficultiesof one business unit have hidden the strong performance of other divisions – oftencausing a large mispricing in the stock. Additionally, we have been increasing theholdings in companies that will benefit from the recovering economy and market.This repositioning has been funded by reducing healthcare and defensive stockholdings which we expect will underperform in a better market environment. Finally,we have also increased the gearing of the Company to reflect our positive outlook.

As an example of the type of company we have been investing in we would highlightlogistics company Trancom. This company has steadily grown from yen 12 billion insales 10 years ago to more than yen 65 billion today. Profits have grown alongsidethis as the company has rolled out its logistics business to more customers. Thestable customer base includes many food companies, whilst the economic crisis hasspurred many other companies to look for ways to reduce their distribution costs;new customers are joining at a rapid rate. Despite the long track record of profits and

Investment Managers’ Reportcontinued


sales increases, Trancom trades on a below market rating of a six times price toearnings ratio this year. This strikes us as being much too low for such a stronglymanaged and profitable business.

Another company example would be Yokogawa Electric. We have followed thebusiness for some time but only recently felt that the timing was right to invest. Thecompany has a globally competitive industrial controls business that is especiallystrong in China and the Middle East and a very weak semiconductor testing business.The management team was slow to realise that the semiconductor business had lostcompetitiveness and it has suffered very high losses for the past few years. Thisdivision is finally being closed and the remaining control business trades on less thana quarter of the valuation of global competitors. For us, the valuation gap isenormously attractive. Not only will the losses from semiconductors drop away butthe company will also be able to put all of its energy into the successful, high profitcore business.

Our final company example is Japan’s only listed securities exchange – OsakaSecurities Exchange. This company is the centre for trading in the Nikkei 225 futurescontract but has expanded the product line up to include exchange traded options,mini-futures, and Exchange Traded Funds. Last year it acquired the Jasdaq marketand will integrate that with its own stock trading business. This should produce a veryquick payback given the huge cost savings that can be made. The depressed marketlevel means that both futures and stock trading levels are currently low; any increasein stock trading activity will flow directly to their bottom line. This is a market play butis outstandingly well placed to benefit from a recovery in the Japanese stock market.

The last few years have been undeniably challenging for Japanese smallercompanies. A combination of steady de-rating, accompanied by a domesticslowdown and then a major global financial crisis have pushed smaller companies torecord lows. The economy has also struggled. These two factors are now beginning toreverse as the economy gradually recovers and the extremely cheap valuations ofmany smaller companies attract investors’ attention. Within the portfolio we havebegun to position ourselves more positively using the opportunity of cheap prices tobuild weightings in attractive businesses; exploiting the large mispricing of somerestructuring firms and running some long held successful companies that have beenvictims of the long bear market but are now poised to recover very strongly.

David MitchinsonNicholas WeindlingInvestment Managers 17th June 2009


2009 2008

Total Returns for the year ended 31st March

Return to shareholders1 –34.4% –33.9%Return on net assets2 –32.2% –28.1%Benchmark return3 –2.4% –19.1%

Net Asset Value, Share Price and Discount at 31st March % change

Shareholders’ funds (£’000) 51,306 76,276 –32.7Net asset value per share 131.8p 194.0p –32.1Net asset value per share assuming reissuance of Treasury shares4 131.6p 194.0p –32.2Ordinary share price 108.5p 169.5p –36.0Discount of share price to net asset value assuming reissuance of

Treasury shares 17.6% 12.6%Ordinary shares in issue 39,309,4235 39,309,423Subscription share price 13.5p —Subscription shares in issue 7,798,873 —

Revenue for the year ended 31st March

Gross revenue return (£’000) 1,421 1,404 +1.2Net loss attributable to shareholders (£’000) (385) (508)Loss per share (0.98)p (1.29)p

Actual Gearing Factor at 31st March6 98.3% 109.5%

Total Expense Ratio (‘TER’)7 1.99% 1.80%


1Source: Morningstar/J.P. Morgan.2Source: J.P. Morgan.3Source: Datastream. 4Source: Net asset value assuming the 396,000 shares held in Treasury at 31st March 2009 were reissued in accordance with the Board’s policy on the reissuance of Treasury shares. 5Includes 396,000 shares held in Treasury (2008: nil).6Actual gearing represents investments expressed as a percentage of shareholders’ funds.7Management fees and all other operating expenses, excluding interest and subscription share costs, expressed as a percentage of the average of the opening and closing net assets.Further details are given in the glossary of terms and definitions on page 56.

Summary of Results


Performance

Five Year PerformanceFigures have been rebased to 100 at 31st March 2004

Source: Standard & Poor’s – www.funds.morningstar.com/Fundamental Data – www.funddata.com/Datastream.

JPMorgan Fleming Japanese Smaller Companies – Ordinary share price

JPMorgan Fleming Japanese Smaller Companies – Net asset value

Benchmark

0

50

100

150

200

200920082007200620052004

Performance Relative to BenchmarkFigures have been rebased to 100 at 31st March 2004

Source: Standard & Poor’s – www.funds.morningstar.com/Fundamental Data – www.funddata.com/Datastream.

JPMorgan Fleming Japanese Smaller Companies – Ordinary share price


Benchmark

40

60

80

100

120

200920082007200620052004


As at 31st March 2004 2005 2006 2007 2008 2009

Total assets less current liabilities (£m) 123.3 103.4 160.0 106.3 76.3 51.3

Net asset value per share (p) 273.9 249.9 405.9 269.7 194.0 131.8

Ordinary share price (p) 252.0 227.0 387.5 256.5 169.5 108.5

Discount of Ordinary shares (%)1 8.0 9.2 4.5 4.9 12.6 17.6

Actual gearing factor (%) 114.0 98.2 115.9 115.7 109.5 98.3

Subscription share price — — — — — 13.5

Year ended 31st March

Revenue attributable to shareholders (£’000) 974 1,023 1,266 1,447 1,404 1,421

Loss per Ordinary share (p) (2.11) (1.89) (1.61) (2.14) (1.29) (0.98)

Total expense ratio (%)2 1.58 1.56 1.46 1.54 1.80 1.99

Rebased to 100 at 31st March 2004

Ordinary share price total return3 100.0 90.1 153.8 101.8 67.7 43.3

Net asset value total return4 100.0 91.2 149.0 99.0 72.0 48.8

Benchmark5 100.0 103.9 150.6 121.7 98.0 95.6


1Assumes that shares held in Treasury were issued in accordance with the Board’s policy on the reissuance of Treasury shares. 2Management fees and all other operating expenses, excluding interest and subscription share costs, expressed as a percentage of the average of the opening and closing net assets.3Source: Morningstar.4Source: J.P. Morgan.5Source: Datastream.

Five Year Financial Record


2009 2008Valuation Valuation

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

Moshi Moshi Hotline (4708) Services 2,104 3.4 2,658 3.2Provides marketing services utilising telephone, fax and electronic mail. TheCompany, an affiliate of Mitsui & Co., also provides customer services, marketresearch and sales promotion services for businesses.

GMO Internet (9449) Information and 1,435 2.3 1,917 2.3Provides server rental services and internet domain name Communicationregistration services. The Company’s services include internet infrastructureservices and internet advertising services via electronic mails.

Osaka Securities Exchange (8697)2 Other Financing 1,424 2.3 1,350 1.6Provides and operates a market place for the trading of equities, Businessfutures and options. The Company manages the trading, as well as administerslisted stocks and registered members.

Disco (6146)2 Machinery 1,403 2.3 — —Manufactures abrasive and precision industrial machinery for cutting and grindingpurposes. The Company’s products are applied in the semiconductor, electronicsand construction industries for producing consumer goods such as personalcomputers, digital cameras, video game systems and Digital Video Disc (DVD)players.

Nitori Co (9843)2 Retail Trade 1,361 2.2 1,126 1.3Is based in Hokkando and operates a furniture retail chain. The Company sellsliving room furniture, storage furniture, dining furniture, office furniture, beds andinterior goods. Nitori also sells original brand and imported merchandise.

Aeon Delight (9787) Services 1,360 2.2 3,201 3.8Is a building maintenance company. The Company provides services such ascleaning, security and equipment management for buildings.

Towa Pharmaceutical (4553)2 Pharmaceuticals 1,329 2.1 — —Produces generic drugs mainly for the elderly. The Company also wholesalesmedicine and medical products of other pharmaceuticals.

Trancom (9058)2 Warehouse & 1,293 2.1 1,457 1.7Provides freight transportation services in the Tokai region. The Harbour TransportationCompany transports products for Sharp Corp., other consumer electronics makersand cosmetic and food producers. Trancom also operates warehousing businessand offers distribution information services.

Gree (3632)2 Information and 1,283 2.1 — —Operates a Social Network Service for PC and mobile users. The website Communicationprovides online communities and games to its members. The Company also sellsadvertising space through adveritising agencies.

EPS (4282)2 Services 1,182 2.0 1,101 1.3Provides clinical testing services to contract research organisations who are in thepharmaceutical industry in Japan. The Company’s services range from planning,monitoring and analysing study and clinical testing for development of new drugs.EPS also develops systems and provides data management as well as patentregistration.

Total3 14,174 23.0

1Based on total assets less current liabilities of £61.9m (2008: £83.7m) other than loan balances falling due within one year.2Not included in the ten largest investments as at 31st March 2008.3As at 31st March 2008, the value of the ten largest investments amounted to £24.5m representing 29.2% of total assets less current liabilities other than loan balances falling duewithin one year.

Ten Largest InvestmentsYear ended 31st March


31st March 20091 31st March 2008Portfolio Benchmark Portfolio Benchmark

% % % %

Services 14.0 4.5 14.4 4.8Retail Trade 11.8 8.8 10.4 7.4Information & Communication 11.3 4.7 15.1 3.9Machinery 7.5 6.4 5.1 7.8Real Estate 4.5 5.7 1.2 7.2Pharmaceuticals 4.5 2.9 5.3 2.7Other Financing Business 3.7 1.2 1.8 1.7Foods 3.4 5.3 — 5.7Land Transportation 3.2 3.0 1.6 2.2Metal Products 2.2 1.8 — 1.3Warehouse & Harbour Transportation 2.1 0.7 1.9 1.3Nonferrous Metals 1.9 1.7 — 1.7Construction 1.7 5.1 8.5 3.5Glass & Ceramics Products 1.7 1.4 0.4 1.8Transportation Equipment 1.4 2.5 4.9 3.1Electric Appliances 1.4 7.8 6.2 9.0Wholesale Trade 1.4 5.3 10.2 4.5Iron & Steel 1.3 1.7 — 2.8Precision Instruments 0.7 0.9 — 1.3Securities & Commodity Futures 0.7 1.3 — 1.0Chemicals 0.7 7.7 7.6 8.2Other Products 0.3 2.6 0.3 2.4Banks — 10.7 3.0 8.5Textiles & Apparels — 2.6 1.9 2.4Pulp & Paper — 1.1 — 0.6Rubber Products — 0.7 — 0.9Fishery Agriculture & Forestry — 0.7 — 0.5Electric Power & Gas — 0.6 — 0.7Marine Transportation — 0.3 — 0.5Mining — 0.1 — 0.1Oil & Coal — 0.1 — 0.1Insurance — 0.1 — 0.4Net current assets 18.6 — 0.2 —

Total 100.0 100.0 100.0 100.0

1Based on total assets less current liabilities of £61.9m (2008: £83.7m) other than loan balances falling due within one year.

Sector Analysis


ValuationCompany and Japanese Company Code £’000

ServicesMoshi Moshi Hotline (4708) 2,104Aeon Delight (9787) 1,360EPS (4282) 1,182Pacific Golf Group (2466) 967Kakaku.com (2371) 907Nichii Gakkan (9792) 875Daiseki (9793) 511Prestige International (4290) 445Cmic (2309) 169Outsourcing (2427) 155

Total Services 8,675

Retail TradeNitori Co (9843) 1,361Toridoll (3397) 1,147Ozeki (7617) 930Point (2685) 825ABC-Mart (2670) 806K’s Holdings (8282) 634Sugi (7649) 453Growell Holdings (3141) 356Okuwa (8217) 332Cosmos Pharmaceutical (3349) 225Daikokutenbussan (2791) 108Chimney (3362) 91Ain Pharmaciez (9627) 60

Total Retail Trade 7,328

Information & CommunicationGMO Internet (9449) 1,435Gree (3632) 1,283IT Holdings (3626) 863Access (4813) 854Digital Garage (4819) 759Hikari Tsushin (9435) 641Eacess (9427) 605GameOn (3812) 337Digital Arts (2326) 148Hudson Soft (4822) 74

Total Information & Communication 6,999


MachineryDisco (6146) 1,403Shinkawa (6274) 964NTN (6472) 606Nippon Pillar Packing (6490) 573Mars Engineering (6419) 294Nippon Thompson (6480) 277Amada (6113) 256Union Tool (6278) 251

Total Machinery 4,624

Real EstateTokyo Tatemono (8804) 820Japan Prime Realty Investment (8955) 569Global One Real Estate Investment (8958) 434Japan Excellent (8987) 410Sankei Building (8809) 409Kenedix Realty Investment Trust (8972) 135

Total Real Estate 2,777

PharmaceuticalsTowa Pharmaceutical (4553) 1,329Kissei Pharmaceutical (4547) 733Nichi-Iko Pharmaceutical (4541) 558Fuji Pharma (4554) 145

Total Pharmaceuticals 2,765

Other Financing BusinessOsaka Securities Exchange (8697) 1,424Japan Securities Finance (8511) 730Osaka Securities Finance (8512) 154

Total Other Financing Business 2,308

FoodsToyo Suisan Kaisha (2875) 873Snow Brand Milk Products (2262) 755Oenon (2533) 487

Total Foods 2,115

List of Investmentsat 31st March 2009



Land TransportationHamakyorex (9037) 978Seino (9076) 591Hitachi Transport System (9086) 412

Total Land Transportation 1,981

Metal ProductsMimasu Semiconductor Industry (8155) 1,031Sumco (3436) 360

Total Metal Products 1,391

Warehouse & Harbour TransportationTrancom (9058) 1,293

Total Warehouse & Harbour Transportation 1,293

Nonferrous MetalsFurukawa Electric (5801) 548Toho Zinc (5707) 545Hitachi Cable (5812) 89

Total Nonferrous Metals 1,182

ConstructionKyowa Exeo (1951) 576Taihei Dengyo Kaisha (1968) 487

Total Construction 1,063

Glass & Ceramics ProductsTaiheiyo Cement (5233) 1,052

Total Glass & Ceramics Products 1,052

Transportation EquipmentShowa Aircraft Industry (7404) 886

Total Transportation Equipment 886


Electric AppliancesFunai Electric (6839) 744Axell (6730) 141

Total Electric Appliances 885

Wholesale TradeAutobacs Seven (9832) 848

Total Wholesale Trade 848

Iron & SteelHitachi Metals (5486) 786

Total Iron & Steel 786

Precision InstrumentsAsahi Intecc (7747) 374Noritsu Koki (7744) 49

Total Precision Instruments 423

Securities & Commodity FuturesKabu.com Securities (8703) 417

Total Securities & Commodity Futures 417

ChemicalsMiraial (4238) 411

Total Chemicals 411

Other ProductsPigeon (7956) 200

Total Other Products 200

Total Portfolio 50,409

The portfolio comprises all equity investments.

List of Investments continued


Board of Directors

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

A Director since March 2003 and appointed Chairman in June 2003.

He is Chairman of Schroder UK Growth Fund plc and a Director of several other investment companies.From 1990 until 2001 he was Managing Director of Morley Fund Management, the asset managementarm of Aviva plc, the UK’s largest insurance group.

John Gibbon (Chairman of the Audit Committee)

A Director since March 2003.

He is Chairman of BDT Invest Funds plc. He was Chief Investment Officer of BAE SYSTEMS Pension Fundfrom 1983 to 2001 and is now an advisor to a number of pension funds and charities.

Bernard Grigsby

A Director since August 2003.

He has more than 30 years experience in investment banking and international capital markets and is currentlythe principal of Rockbridge Advisors, a private advisory and consulting practice. Prior to retiring from the SwissRe Group in December 2005, he was Chief Executive Officer of Swiss Re’s Capital Management & Advisorydivision in London from 2001 to 2004, becoming Vice Chairman in 2004. He serves on a variety of boards andadvisory committees, including the Board of Trustees of Washington & Lee University, and the Boards of LIM-Asia Multi-Strategy Fund, various funds managed by Tudor Investment Corp, VinaCapital Vietnam OpportunityFund, and Corney & Barrow Group Ltd.

Chris Russell

A Director since January 2006.

He is a Non-Executive Director of a number of listed and unlisted investment and financial servicecompanies in the UK, Guernsey, US and Asia. These include London listed Candover plc and the New Yorklisted Korea Fund Inc. He is currently a Director of the Association of Investment Companies and anassociate of GaveKal Research in Hong Kong. He was formerly Head of Overseas Businesses at GartmoreInvestment Management plc which included Gartmore’s two businesses in Japan. From 1990-1997 he was aDirector of the Jardine Fleming Group in Asia after being Head of Research and of International Broking forJF Securities in Tokyo.

Robert White

A Director since October 2008.

He is currently a Partner of Oldfield Partners LLP, responsible for their Japanese investments. He hasinvestment experience in the Japanese market spanning more than 30 years during which time, interalia, he was Senior Representative of Warburg Investment Manager Japan Limited, President of INVESCOMIM Asset Management (Japan) Limited and a Partner of Dalton Strategic Partnership LLP.

All Directors are members of the Audit and Nomination Committees and are considered independent of theManager.


The Directors present their report for the year ended31st March 2009.

Business Review

Business of the CompanyThe Company carries on business as an investment trust andwas approved by HM Revenue & Customs as an investmenttrust in accordance with Section 842 of the Income andCorporation Taxes Act 1988 for the year ended 31st March2008. This is subject to review, should there be any subsequentenquiry under Corporation Tax Self Assessment. In the opinionof the Directors, the Company has subsequently conducted itsaffairs so that it should continue to qualify. The Company willcontinue to seek approval under Section 842 of the Incomeand Corporation Taxes Act 1988 each year.

The Company is an investment company within the meaning ofSection 833 of the Companies Act 2006. The Company is not aclose company for taxation purposes.

A review of the Company’s activities and prospects is given inthe Chairman’s Statement on pages 2 to 4, and in theInvestment Managers’ Report on pages 5 to 7.

ObjectiveThe Company’s objective is to achieve long term capital growththrough investments in small and medium sized Japanesecompanies.

Investment Policies and Risk ManagementIn order to achieve its investment objective and to seek tomanage risk, the Company invests in a diversified portfolio ofinvestments in the stock markets of Japan, emphasising capitalgrowth rather than income. The Company’s investmentuniverse is restricted to all Japanese quoted companiesexcluding the largest 200 measured by market capitalisation,at the time of investment.

The Company manages liquidity and borrowings with the aimof increasing returns to shareholders. The assets are managedby two Investment Managers based in Tokyo, supported by a 16strong Japanese equity team.

The Board has set no minimum or maximum limit on thenumber of investments in the portfolio but in the year underreview, the number of investments ranged between 63 to 86.

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 greater than average risk.

Investment Restrictions and Guidelines The Board seeks to manage the Company’s risk by imposingvarious limits and restrictions:

• As an investment trust, the Company cannot invest morethan 15% of its assets in any one investment, at the time ofacquisition.

• 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 90%-120% invested in normal market conditions.

• All currency hedging transactions are subject to the priorapproval of the Board. The Company did not enter any sucharrangements during the year.

These limits and restrictions may be varied by the Board at anytime at its discretion. Compliance with the Board’s investmentrestrictions and guidelines is monitored continuously by theManager and is reported to the Board on a monthly basis.

PerformanceIn the year to 31st March 2009, the Company produced a totalloss to shareholders of 34.4% and a total loss on net assetsof 32.2%. This compares with the loss on the Company’sbenchmark index of 2.4%. As at 31st March 2009, the valueof the Company’s investment portfolio was £50.4 million.The Investment Managers’ Report on pages 5 to 7 includes areview of developments during the year as well as informationon investment activity within the Company’s portfolio.

Total Return, Revenue and Dividends Total gross loss for the year amounted to £22,672,000 (2008:loss of £27,922,000) and distributable revenue after deductinginterest, administrative expenses and taxation amounted to adeficit of £385,000 (2008: deficit of £508,000).

Key Performance Indicators (‘KPIs’) The Board uses a number of financial KPIs to monitor andassess the performance of the Company. The principal KPIs are:

Directors’ Report

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

• Performance against the benchmark index Another KPI is the Company’s performance against itsbenchmark index.

Performance Relative to Benchmark IndexFigures have been rebased to 100 at 31st March 2004

Source: Standard & Poor’s – www.funds.morningstar.com/Fundamental Data – www.funddata.com

JPMorgan Fleming Japanese Smaller Companies – Ordinary Share price


The benchmark is represented by the grey horizontal line

Five Year PerformanceFigures have been rebased to 100 at 31st March 2004

Source: Standard & Poor’s – www.funds.morningstar.com/Fundamental Data – www.funddata.com

JPMorgan Fleming Japanese Smaller Companies – Ordinary Share price


Benchmark

• Discount to net asset value (‘NAV’)The Board has a share repurchase programme which seeks

to address imbalances in supply of and demand for theCompany’s shares within the market. This minimises thevolatility and absolute level of the discount to NAV at whichthe Company’s shares trade in relation to its peers in thesector. In the year to 31st March 2009, the shares tradedbetween a discount of 4.4% and 27.0%.

Discount Performance

Source: Datastream (month end date)

JPMorgan Fleming Japanese Smaller Companies – Discount

• 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.

• Total expense ratio (‘TER’)The TER represents management fees and all otheroperating expenses excluding interest and subscriptionshare costs, expressed as a percentage of the average ofthe opening and closing net assets. The TER for the yearended 31st March 2009 was 1.99% (2008: 1.80%). TheBoard reviews the TER of the Company regularly. On anannual basis it compares its TER against other companieswith similar investment objectives and policies.

Share CapitalThe Company has the authority both to purchase shares in themarket for cancellation and to issue new shares for cash. Inaddition, the Company has authority to repurchase shares intoTreasury and to reissue shares out of Treasury at a discount toNAV, subject to limits and restrictions, as authorised byshareholders at the 2008 Annual General Meeting.

During the year, the Company repurchased a total of 396,000Ordinary shares of 10p each, into Treasury, for a totalconsideration of £492,000. The Company did not issue any

–30

–25

–20

–15

–10

–5

0

Mar-09Jan-09Nov-08Sep-08Jul-08May-08Mar-08

0

50

100

150

200

200920082007200620052004

40

60

80

100

120

200920082007200620052004



Directors’ Report continued

Ordinary shares during the year nor issue any Ordinary sharesout of Treasury. Resolutions to renew the authority to issuenew shares for cash, to reissue shares out of Treasury at adiscount to NAV and to purchase shares for cancellation aredue to be put to shareholders at the forthcoming AnnualGeneral Meeting. The full text of these resolutions is set out inthe Notice of Meeting on pages 53 and 54.

Subscription SharesFollowing the passing of all the resolutions proposed at theCompany’s General Meeting held on 2nd March 2009 theCompany issued 7,798,873 Subscription shares on 5th March2009 as a bonus issue to the Ordinary shareholders on thebasis of one Subscription share for every five Ordinary sharesheld. Each Subscription share confers the right (but not theobligation) to subscribe for one Ordinary share on any businessday during the period from 1st April 2009 to 31st March 2014(both dates inclusive) when the rights under the Subscriptionshares will lapse. The conversion prices of the Subscriptionshares, calculated as at the close of business on 27th February2009 and based on the Company’s net asset value of 133.53pence, per share are as follows:

• If exercised between 1st April 2009 and 31st March 2010,135 pence;

• If exercised between 1st April 2010 and 31st March 2012, 147pence; and

• If exercised between 1st April 2012 and 31st March 2014, 174pence.

Since the year end and at the time of writing, the Company hasissued 10,639 Ordinary shares following the conversion ofSubscription shares into Ordinaries, amounting to proceeds of£14,363. Following these conversions the Company’s issuedshare capital consists of 39,320,062 Ordinary shares (of which396,000 are held in Treasury) and 7,788,234 Subscriptionshares.

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 ofcapital gains, they do require shareholders to reallocate thebase costs of their Ordinary shares between Ordinary sharesand Subscription shares received. At the close of business on5th March 2009 the middle market prices of the Company’sOrdinary shares and Subscription shares were as follows:

Ordinary shares 101.75p

Subscription shares 7p

Accordingly, an individual investor who, on 4th March 2009,held five Ordinary shares (or a multiple thereof) would havereceived a bonus issue of one Subscription share (or therelevant multiple thereof) and would apportion the base costof such holding 98.64% to the five Ordinary shares and 1.36%to the Subscription shares.

Principal RisksWith the assistance of the Manager, JF Asset ManagementLimited (‘JFAM’), and Secretary, JPMorgan Asset Management(UK) Limited (‘JPMAM’), the Board has drawn up a risk matrix,which identifies the key risks to the Company. These key risksfall broadly under the following categories:

• Investment and Strategy: An inappropriate investmentstrategy, for example excessive concentration ofinvestment, asset allocation or the level of gearing, maylead to under-performance against the Company’sbenchmark index and peer companies, which may result inthe Company’s shares trading on a wider discount. TheBoard manages these risks by diversification of investmentsthrough its investment restrictions and guidelines whichare monitored and reported on. JPMAM provides theDirectors with timely and accurate managementinformation, including performance data and attributionanalyses, revenue estimates, liquidity reports andshareholder analyses. The Board monitors theimplementation and results of the investment process withthe Investment Managers, who attend all Board meetings,and reviews data which shows statistical measures of theCompany’s risk profile. The Investment Managers employthe Company’s gearing tactically, within a strategic rangeset by the Board. In addition to regular Board meetings, theBoard visits the offices of JF Asset Management in Tokyo onan annual basis to discuss strategy.

• Discount: In order to manage the Company’s discount,which can be volatile, the Company operates a shareissuance and repurchase programme.

• Market: Market risk arises from fluctuations in the fair valueor future cash flows from the Company’s investments dueto changes in the market prices. It represents the potentialloss that the Company might suffer through holdinginvestments in the face of negative market movements. TheBoard considers asset allocation, stock selection and levelsof gearing on a regular basis and has set investmentrestrictions and guidelines, which are monitored andreported on by JPMAM. The Board monitors theimplementation and results of the investment process withthe Manager.


• Accounting, Legal and Regulatory: In order to qualify asan investment trust, the Company must comply withSection 842 of the Income and Corporation Taxes Act1988 (‘Section 842’). Details of the Company’s approvalare given under “Business of the Company” on page 16.Should the Company breach Section 842, it may lose itsinvestment trust status and as a consequence gains withinthe Company’s portfolio would be subject to CorporationTax. The Section 842 qualification criteria are continuallymonitored by JPMAM and the results reported to theBoard each month. The Company must also comply withthe provisions of The Companies Act 1985 and 2006 and,since its shares are listed on the London Stock Exchange,the UKLA Listing Rules. A breach of the Companies Actscould result in the Company and/or the Directors beingfined or the subject of criminal proceedings. Breach of theUKLA Listing Rules may result in the Company’s sharesbeing suspended from listing which in turn would breachSection 842. The Board relies on the services of itsCompany Secretary, JPMAM, and its professional advisersto ensure compliance with The Companies Acts and TheUKLA Listing Rules.

• Corporate Governance and Shareholder Relations: Detailsof the Company’s compliance with Corporate Governancebest practice, including information on relations withshareholders, are set out in the Corporate Governancereport on pages 23 to 26.

• Operational: Loss of key staff by JFAM or JPMAM, such asthe investment managers, could affect the performance ofthe Company. Disruption to, or failure of, JFAM’s or JPMAM’saccounting, dealing or payments systems or the custodian’srecords may prevent accurate reporting and monitoring ofthe Company’s financial position. Details of how the Boardmonitors the services provided by JFAM, JPMAM and itsassociates and the key elements designed to provideeffective internal control are included within the InternalControl section of the Corporate Governance report onpage 25 and 26.

• Financial: The financial risks faced by the Company includemarket price risk, interest rate risk, foreign currency risk,liquidity risk, gearing and credit risk. Bank counterpartiesare subject to daily credit analysis by the Manager andregular consideration at meetings of the Board. In addition,the Board receives regular reports on the Manager’s

monitoring and mitigation of credit risks on sharetransactions carried out by the Company. Further detailsare disclosed in note 19 on pages 43 to 48.

• Political and Economic: Administrative risks, such as theimposition of restrictions on the free movement of capital.

Future Developments Clearly the future development of the Company is muchdependent upon the success of the Company’s investmentstrategy in light of economic and equity market developments;the Investment Managers discuss the outlook in their report onpages 5 to 7.

Management of the Company

The Manager of the Company is JFAM. JPMAM, the Londonbased Manager for the investment trust range of J.P. Morgan,acts as Secretary and provides administrative support.Investment advice is provided to JFAM by JF Investment Trustand Advisory Company Limited (‘JFITAC’) in Tokyo. JFAM andJPMAM are employed under a contract terminable on sixmonths’ notice, without penalty. If the Company wishes toterminate the contract on shorter notice, the balance ofremuneration is payable by way of compensation.

JFAM and JPMAM are wholly owned subsidiaries of J.P. MorganChase Bank which, through other subsidiaries, also providesbanking, dealing and custodian services to the Company.

The Board has evaluated the performance of the Manager andSecretary and confirms that it is satisfied that the continuingappointment of the Manager and Secretary is in the interestsof shareholders as a whole. In arriving at this view, the Boardconsidered the investment strategy and process of theManager and the support that the Company receives fromJFAM and JPMAM.

Management Fee

The management fee is charged at the rate of 1.25% per annumon the first £115 million of the Company’s gross assets and1% per annum on any amount exceeding £115 million of grossassets (save that in relation to cash and near cash assets above125% of net assets, a reduced fee of 0.25% per annum ispayable). A secretarial fee is paid to JPMAM out of thismanagement fee. If the Company invests in funds managed oradvised by JFAM or JPMAM or any of its associated companies,



those investments are excluded from the calculation andtherefore attract no additional fee.

Going Concern

The Directors believe that having considered the presentmarket uncertainties, the Company’s investment objective (seepage 16), risk management policies (see pages 43 to 48), capitalmanagement policies and procedures (see page 49), nature ofthe portfolio and expenditure projections, that the Companyhas adequate 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.

Payment Policy

It is the Company’s policy to obtain the best terms for allbusiness and therefore there are no standard payment terms.In general the Company agrees with its suppliers the terms onwhich business will take place and it is the Company’s policy toabide by these terms. As at 31st March 2009, the Company hadno outstanding trade creditors (2008: none).

Directors

The Directors of the Company who held office at the end of theyear, together with their beneficial interests in the Company’sissued share capital, were:

31st March 1st April2009 2008

Ordinary Subscription OrdinaryDirectors Shares Shares Shares

Alan Clifton 10,000 2,000 10,000John Gibbon 5,000 1,000 5,000Bernard Grigsby 50,000 10,000 50,000Chris Russell 35,000 7,000 35,000Robert White1 5,000 1,000 —

1Appointed as a Director of the Company on 1st October 2008.

At the time of writing, no changes in the above holdings havebeen notified since the year end.

In accordance with the Company’s Articles of Association, theDirector retiring by rotation at the forthcoming Annual GeneralMeeting (‘AGM’) will be Chris Russell who, being eligible, offershimself for re-election by shareholders.

In accordance with the terms of the Combined Code, RobertWhite, having been appointed during the year, will retire andstand for election.

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 Auditors

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

(a) so far as each of the Directors is aware, there is no relevantaudit information of which the Company’s auditors areunaware, and

(b) each of the Directors has taken all the steps that he oughtto have taken as a Director in order to make himself awareof any relevant audit information and to establish that theCompany’s auditors are aware of that information.

The above confirmation is given and should be interpreted inaccordance with the provision of S234 ZA of the Companies Act1985.

Section 992 Companies Act 2006

The following disclosures are made in accordance with Section992 Companies Act 2006.

Capital StructureThe Company’s capital structure is summarised on the insidefront cover of this report.

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 11 to the Notice of Meetingon page 55.

Notifiable Interests in the Company’s Voting RightsAt the date of this report, the following had declared anotifiable interest in the Company’s voting rights:


Shareholders Number of voting rights %

Lazard Asset Management LLC1 6,334,700 16.3Asset Value Investors1 5,145,579 13.2

Included within this is:British Empire Securities and

General Trust plc 2,887,809 7.4Midas Capital plc 2,880,000 7.4JPMorgan Asset Management (UK) Limited 2,575,006 6.61607 Capital Partners 2,046,495 5.3Legal & General Investment Management 1,588,524 4.1Wesleyan Assurance Society 1,183,500 3.0

1Non-beneficial.

The rules concerning the appointment and replacement ofDirectors, amendment of the Articles of Association andpowers to issue or repurchase the Company’s shares arecontained in the Articles of Association of the Company andthe Companies Acts 1985 and 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 which the Company is party to that affect itscontrol following a takeover bid; and no agreements betweenthe Company and its Directors concerning compensation forloss of office.

Independent Auditors

Deloitte LLP have expressed their willingness to continue inoffice as auditor to the Company and a resolution proposingtheir re-appointment and authorising the Directors todetermine their remuneration for the ensuing year will be putto shareholders at the Annual General Meeting.

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 advisor 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:

(i) Authority to allot new shares for cash and disapply pre-emptionrights (Resolutions 6 and 7)

The Directors will seek renewal of the authority at the AGM toissue up to 3,932,006 new Ordinary shares for cash up toan aggregate nominal amount of £393,200, such amount beingequivalent to approximately 10% of the present issuedOrdinary share capital.

It is advantageous for the Company to be able to issue newshares to participants purchasing shares through the JPMAMsavings products and also to other investors when theDirectors consider that it is in the best interests of shareholdersto do so. Any such issues would only be made at prices greaterthan the NAV, thereby increasing the assets underlying eachshare and spreading the Company’s administrative expenses,other than the management fee which is charged on the valueof the Company’s net assets, over a greater number of shares.The issue proceeds would be available for investment in linewith the Company’s investment policies. The full text of theresolutions can be found in the Notice of Meeting on page 53.

(ii) Authority to repurchase the Company’s shares (resolution 8) The authority to repurchase up to 14.99% of the Company’sissued share capital, renewed by shareholders at a GeneralMeeting on 2nd March 2009, will expire on 31st January 2010unless renewed at the forthcoming Annual General Meeting.The Directors consider that the renewing of the authority is inthe interests of shareholders as a whole, as the repurchase ofshares at a discount to the underlying NAV enhances the NAVof the remaining shares.

The full text of the resolution is set out in the Notice of Meetingon pages 53 and 54. Repurchases will be made at the discretionof the Board, and will only be made in the market at pricesbelow the prevailing NAV per share as and when marketconditions are appropriate.

(iii) Treasury shares/disapplication of pre-emption rights(resolutions 9 and 10)

The Company is permitted to purchase up to 10% of its ownshares into Treasury (for sale or cancellation at a future date) asan alternative to immediate cancellation. The Board considersthat circumstances could arise in which it would be inshareholders’ interests for such powers to be exercised. This10% would form part of the 14.99% referred to in (ii) above.


The Board continues to believe that the effective use ofTreasury shares assists the Company in managing anyimbalance between supply and demand, thereby minimisingthe volatility and absolute level of the discount at which theCompany’s shares trade to their net asset value for the benefitof shareholders.

Accordingly, shareholders will also be asked at the AnnualGeneral Meeting to approve resolutions 9 and 10 whichwill allow the Company to sell shares from Treasury at adiscount to net asset value and disapply the statutorypre-emption rights respectively. This will enable the Companyto sell shares held in Treasury without having to first make apro rata offer to existing shareholders.

Should the resolutions be passed by shareholders, shareswould only be sold from Treasury when market demand isidentified and would be limited to 5% of the total Ordinaryshares in issue. This 5% would form part of the 10% issueauthority referred to in (i) above. Sales would only be made at adiscount narrower than the weighted average discount of theshares held in Treasury at that time. This process ensures thatthe enhancement in net asset value associated with sharepurchases exceeds the dilution in net asset value associatedwith the sale of Treasury shares at a discount.

The Board is mindful that shareholders may be concernedabout the dilution in net asset value associated with the sale ofTreasury shares at a discount. It is therefore proposed that thesale of shares from Treasury at a discount be limited so that inthe year to the Company’s 2010 Annual General Meeting, theaggregate dilution in net asset value per share arising on suchsales does not exceed 0.70 pence per Ordinary share, beingapproximately 0.5% of the net asset value per Ordinary shareat 31st March 2009. The full text of the resolutions can be foundin the Notice of Meeting on page 54.

Recommendation

The Board considers that resolutions 6 to 10 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 in respect of their ownbeneficial holdings which amount in aggregate to 105,000shares with voting rights representing approximately 0.3% ofthe voting rights of the Company.

By order of the Board Andrew Norman, for and on behalf of JPMorgan Asset Management (UK) Limited, Secretary 17th June 2009



Compliance

The Company is committed to high standards of corporategovernance. This statement, together with the Directors’Responsibilities in Respect of the Accounts on page 28indicates how the Company has applied the principles ofrecommended governance of the Financial Reporting CouncilCombined Code (the ‘Combined Code’) and the AIC’s Code ofCorporate Governance, (the ‘AIC Code’), which complementsthe Combined Code and provides a framework of best practicefor investment trusts.

The Board is responsible for ensuring the appropriate level ofcorporate governance and considers that the Company hascomplied with the best practice provisions of the CombinedCode, other than in respect of the provision relating to a SeniorIndependent Director, and the AIC Code throughout the yearunder review.

Role of the Board

A management agreement between the Company, JFAM andJPMAM sets out the matters over which the Manager hasauthority. This includes management of the Company’s assetsand the provision of accounting, company secretarial,administration and some marketing services. The Companydelegates responsibility for voting investee shares to JPMAM.Details of JPMAM’s Voting Policy and Corporate GovernanceGuidelines are available from JPMAM on request or can beaccessed at www.jpmorganassetmanament.co.uk/institutional.Within the ‘Commentary & Analysis’ tab there is a section onCorporate Governance.

All other matters are reserved for the approval of the Board.A formal schedule of matters reserved to the Board fordecision has been approved. This includes determination andmonitoring of the Company’s investment objectives and policyand its future strategic direction, gearing policy, managementof the capital structure, appointment and removal of third partyservice providers, review of key investment and financial dataand the Company’s corporate governance and risk controlarrangements.

The Board has procedures in place to deal with potentialconflicts of interest and confirms that the procedures haveoperated effectively during the year under review.

The Board meets at least quarterly during the year andadditional meetings are arranged as necessary. Full and timely

information 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 take independentprofessional advice if necessary and at the Company’s expense.This is in addition to the access that every Director has to theadvice and services of the Company Secretary, JPMAM, whichis responsible to the Board for ensuring that Board proceduresare followed and that applicable rules and regulations arecomplied with.

Board Composition

The Board, chaired by Alan Clifton, consists of fivenon-executive Directors, all of whom are regarded bythe Board as independent, including the Chairman. TheDirectors have a breadth of investment, business and financialskills and experience relevant to the Company’s business andbrief biographical details of each Director are set out onpage 15.

A review of Board composition and balance is included as partof the annual performance evaluation of the Board. The Boardhas considered whether a Senior Independent Director shouldbe appointed and has concluded that, as the Board consistsentirely of Non-Executive Directors, this is unnecessary.

Tenure

Directors are initially appointed until the following AnnualGeneral Meeting when, under the Combined Code, it isrequired that they be elected by shareholders. Thereafter,a Director’s appointment will run for a term of three years.Subject to the performance evaluation carried out each year,the Board will agree whether it is appropriate for the Directorto seek an additional term. Any Director who has served for aperiod of more than nine years will submit himself for annualre-election thereafter.

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.

The Board confirms that Chris Russell, who retires by rotationat this year’s Annual General Meeting, continues to be aneffective Director and demonstrates commitment to his role,and therefore recommends his re-election. Furthermore,

Corporate Governance


Corporate Governance continued

having been appointed during the year, Robert White will retireand stand for election.

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 Board, Audit Committeeand Nomination Committee meetings attended by eachDirector. During the year there were 7 Board meetings, whichincluded a private session of the Directors to evaluate theManager and an overseas visit to the offices of JF AssetManagement in Tokyo to discuss strategy, 2 Audit Committeemeetings and 3 Nomination Committee meetings.

Audit NominationBoard Committee Committee

Meetings Meetings MeetingsDirector Attended Attended Attended

Alan Clifton 7 2 3John Gibbon 7 2 3Bernard Grigsby 7 2 3Chris Russell 7 2 3Robert White1 3 1 1

1Appointed as a Director of the Company on 1st October 2008.

Training and Appraisal

On appointment, the Manager and Company Secretary provideall Directors with induction training. Thereafter regularbriefings are provided on changes in regulatory requirementsthat affect the Company and Directors. Directors areencouraged to attend industry and other seminars coveringissues and developments relevant to investment trusts.

The Board conducts a formal evaluation of the Manager, itsown performance and that of its Committees and individualDirectors. Questionnaires, drawn up by the Board, arecompleted by each Director. The responses are collated andthen discussed at a private meeting. The evaluationof individual Directors is led by the Chairman. The NominationCommittee evaluates the Chairman’s performance. The Boardas a whole evaluates the Manager, its own performance andthat of its Committees.

Board Committees

Nomination Committee The Nomination Committee, chaired by Alan Clifton, consists ofall of the Directors, and meets at least annually to ensure that

the Board has an appropriate balance of skills and experienceto carry out its fiduciary duties and to select and proposesuitable candidates for appointment when necessary. Varioussources, which may include the use of external searchconsultants, are used to ensure that a wide range of candidatesare considered.

The Committee undertakes an annual performance evaluation,as described above, to ensure that all members of the Boardhave devoted sufficient time and contributed adequately to thework of the Board. The Committee also reviews Directors’ feesand makes recommendations to the Board as and whenappropriate.

Audit Committee The Audit Committee, chaired by John Gibbon, consists of all ofthe Directors, and meets at least twice each year. The membersof the Committee consider that they have the requisite skillsand experience to fulfil the responsibilities of the Committee.Brief biographical details of each Director are set out onpage 15.

The Committee reviews the actions and judgements of theManager and Secretary in relation to the half year and annualaccounts and the Company’s compliance with the CombinedCode. It reviews the terms of the management agreementand examines the effectiveness of the Company’s internalcontrol systems, receives information from the Manager’sCompliance department and reviews the scope and results ofthe external audit, its cost effectiveness and theindependence and objectivity of the external auditors. In theDirectors’ opinion the auditors are considered independent.Representatives of the Company’s auditors attend theCommittee meeting at which the draft annual report andaccounts are considered.

The Directors’ statement on the Company’s system of internalcontrol is set out on pages 25 and 26.

Terms of ReferenceBoth the Nomination Committee and the Audit Committee havewritten terms of reference which define clearly their respectiveresponsibilities, copies of which are available on the Company’swebsite, on request at the Company’s registered office and atthe Annual General Meeting.

Relations with Shareholders

The Board regularly monitors the shareholder profile of theCompany. It aims to provide shareholders with a fullunderstanding of the Company’s activities and performanceand reports formally to shareholders quarterly each year by


way of the annual report and accounts, the half year financialreport and two interim management statements. This issupplemented by the daily publication, through the LondonStock Exchange, of the net asset value of the Company’s shares.

All shareholders have the opportunity, and are encouraged, toattend the Company’s Annual General Meeting at which theDirectors and representatives of the Manager and Secretaryare available in person to meet with shareholders and answerquestions. In addition, a presentation is given by theinvestment managers who review the Company’s performance.During the year the Company’s brokers, the investmentmanagers and the Secretary hold regular discussions withlarger shareholders. The Directors are made fully aware of theirviews. The Chairman and Directors make themselves availableas and when required to address shareholder queries andconsult major shareholders on an annual basis. The Directorsmay be contacted through the Secretary whose details areshown on page 50.

The Company’s Annual Report & Accounts is published in timeto give shareholders at least 20 working days’ notice of theAnnual General Meeting. Shareholders wishing to raisequestions in advance of the meeting are encouraged to submitquestions via the Company’s website or write to the CompanySecretary at the address shown on page 50 or via the website.

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

Internal Control

The Combined Code requires the Directors, at least annually,to review the effectiveness of the Company’s system of internalcontrol and to report to shareholders that they have done so.This encompasses a review of all controls which the Board hasidentified as including business, financial, operational,compliance and risk management.

The Directors are responsible for the Company’s systemof internal control which is designed to safeguard theCompany’s assets, maintain proper accounting records andensure that financial information used within the business,or published, is reliable. However, such a system can only bedesigned to manage rather than eliminate the risk of failureto achieve business objectives and therefore can only providereasonable, but not absolute, assurance against fraud, materialmis-statement or loss.

Since investment management, custody of assets and alladministrative services are provided to the Company by JFAM,

JPMAM and its associates, the Company’s system of internalcontrol mainly comprises monitoring the services providedby JFAM, JPMAM and its associates, including the operatingcontrols established by them, to ensure they meet theCompany’s business objectives. The Company does not havean internal audit function of its own, but relies on the internalaudit department of JFAM and JPMAM, which reports anymaterial failings or weaknesses. This arrangement is keptunder annual review. The key elements designed to provideeffective internal control 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 Agreement – Appointment of a Manager andcustodian are regulated by the Financial Services Authority(FSA), whose responsibilities are clearly defined in a writtenagreement.

Management Systems – The Manager’s system of internalcontrol includes organisational agreements which clearlydefine the lines of responsibility, delegated authority, controlprocedures and systems. These are monitored by JFAM andJPMAM’s compliance department which regularly monitorscompliance with FSA 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 internal control by monitoring the operation of the keyoperating controls of the Manager and its associates as follows:

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

• reviews the report on the internal controls and theoperations of its custodian, JPMorgan Chase Bank, which isitself independently reviewed; and

• the Directors review on a regular basis an independentreport on the internal controls and the operations of JFAMand JPMAM.

By the means of the procedures set out above, the Boardconfirms that it has reviewed the effectiveness of theCompany’s system of internal control for the year ended31st March 2009, and to the date of approval of this AnnualReport & Accounts.


During the course of its review of the system of internal control,the Board has not identified nor been advised of any failings orweaknesses which it has determined to be significant.

Corporate Governance and Voting Policy

The Company delegates responsibility for voting to JPMAM.The following is a summary of JPMAM’s policy statement oncorporate governance and voting policy which has been notedby the Board. The full policy is available from JPMAM onrequest, or can be downloaded from the internet as follows: goto www.jpmorganassetmanagement.co.uk/institutional andwithin the “Commentary & Analysis” tab you will find a sectionon Corporate Governance.

“JPMAM is committed to delivering superior investmentperformance to its clients worldwide. We believe that one ofthe drivers of investment performance is an assessment of thecorporate governance principles and practices of thecompanies in which we invest our clients’ assets and we expectthose companies to demonstrate high standards of governancein the management of their business.

Proxy voting is an important part of the corporate governanceprocess, and we view seriously our obligation to manage thevoting rights of the shares entrusted to us as we would manageany other asset. It is the policy of JPMAM to vote in a prudentand diligent manner, based exclusively on our reasonablejudgement of what will best serve the financial interests of ourclients. So far as is practicable we will vote at all of themeetings called by companies in which we are invested.

In order to do this we have formulated detailed guidelines foreach region, which set out our stance on a variety of keycorporate governance issues, including disclosure andtransparency, board composition and independence, controlstructures, director independence and remuneration, as well associal and environmental issues. These guidelines form thebasis of our proxy voting decisions, although it should be notedthat JPMAM makes all of its voting decisions on a case by casebasis, taking into account the individual circumstances of eachvote.”

Corporate Governance continued


The Board has prepared this report in accordance with therequirements of Schedule 7A to the Companies Act 1985. Anordinary resolution to approve this report will be put to themembers at the forthcoming Annual General Meeting.

The law requires the Company’s auditors to audit certain of thedisclosures provided. Where disclosures have been auditedthey are indicated as such. The auditors’ opinion is included intheir report on pages 29 and 30.

Directors’ fees were last adjusted on 1st April 2006 and for theyear under review they were paid at the fixed rate of £25,000for the Chairman, £20,000 for the Chairman of the AuditCommittee and £17,500 for the other Directors:

Directors’ Remuneration1

2009 2008Directors Name £ £

Alan Clifton 25,000 25,000John Gibbon 20,000 20,000Bernard Grigsby 17,500 17,500Chris Russell 17,500 17,500George Long2 — 5,586Robert White3 8,750 —

Total 88,750 85,586

1Audited information.2Retired as a Director of the Company on 25th July 2007.3Appointed as a Director of the Company on 1st October 2008.

The total Directors’ fees of £88,750 (2008: £85,586) in respectof aggregate emoluments have been paid to Directors. Withinthis amount fees of £nil (2008: £5,586) have been paid to thirdparties for making available the services of the Directors.

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. The Chairman of the Board and the Chairman of theAudit Committee are paid higher fees than the other Directors,reflecting the greater time commitment involved in fulfilingthese roles.

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 when

appropriate. Reviews are based on information provided by theSecretary, JPMAM, and relevant third parties on the level offees paid to the directors of the Company’s peers and withinthe investment trust industry generally. The Directors’ fees arenot performance-related. The Articles stipulate that aggregatefees must not exceed £150,000. Any increase in this amountrequires both Board and shareholder approval.

The Company does not operate any type of incentive orpension scheme and therefore no Directors receive bonuspayments or pension contributions from the Company or holdoptions to acquire shares in the Company. Directors are notpaid compensation for loss of office. No other payments aremade to Directors, other than the reimbursement ofreasonable out-of-pocket expenses incurred in connection withattending the Company’s business.

A graph showing the Company’s Ordinary share price totalreturn compared with its benchmark, the S&P/Citigroup JapanExtended Market Index (Total Return Net) in sterling terms,over the last five years is shown below.

Five Year Share Price and Benchmark TotalReturn to 31st March 2009

Source:Datastream/Standard & Poor’s – www.funds.morningstar.com

Ordinary share Price Total Return

Benchmark Total Return


0

50

100

150

200

200920082007200620052004

Directors’ Remuneration Report


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

Company law requires the Directors to prepare accounts foreach financial year. Under that law, the Directors have electedto prepare the financial statements in accordance with UnitedKingdom Generally Accepted Accounting Practice (UnitedKingdom Accounting Standards and applicable law). Theaccounts are required by law to give a true and fair view of thestate of affairs of the Company and of the profit or loss of theCompany for that period. In preparing these financialstatements, the Directors are required to:

• select suitable accounting policies and then apply themconsistently;

• make judgements and estimates that are reasonable andprudent;

• state whether applicable accounting standards have beenfollowed, subject to any material departures disclosed andexplained in the accounts; and

• prepare the accounts on the going concern basis unless itis inappropriate to presume that the Company will continuein business.

The Directors confirm that the accounts comply with the aboverequirements.

The Directors are responsible for keeping proper accountingrecords which disclose with reasonable accuracy at any timethe financial position of the Company and enable them toensure that the financial statements comply with theCompanies Act 1985. 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.jpmfjapanesesmallercompanies.co.uk website, whichis maintained by the Company’s Secretary, JPMorgan AssetManagement (UK) Limited (‘JPMAM’). The maintenance andintegrity of the website maintained by JPMAM is, so far as itrelates to the Company, the responsibility of JPMAM. The workcarried out by the auditors does not involve consideration ofthe maintenance and integrity of this website and, accordingly,the auditors accept no responsibility for any changes that haveoccurred to the financial statements since they were initiallypresented on the website. The financial statements areprepared in accordance with UK legislation, which may differfrom legislation in other jurisdictions

Statement under the Disclosure & Transparency Rules 4.1.12

The Directors each confirm to the best of their knowledge that:

(a) the accounts, prepared in accordance with applicableaccounting standards, give a true and fair view of theassets, liabilities, financial position and return or loss of theCompany; and

(b) this Annual 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 they face.

For and on behalf of the Board Alan Clifton, Chairman 17th June 2009

Directors’ Responsibilities inRespect of the Accounts


Independent Auditors’ Report to the shareholders of JPMorganFleming Japanese Smaller Companies Investment Trust plc

We have audited the financial statements of JPMorgan FlemingJapanese Smaller Companies Investment Trust plc for the yearended 31st March 2009 which comprise the Income Statement,Reconciliation of Movements in Shareholders’ Funds, BalanceSheet, Cash Flow statement and the related notes 1 to 20.These financial statements have been prepared under theaccounting policies set out therein. We have also audited theinformation in the Directors’ Remuneration Report that isdescribed as having been audited.

This report is made solely to the Company’s members, as abody, in accordance with section 235 of the Companies Act1985. Our audit work has been undertaken so that we mightstate to the Company’s members those matters we arerequired to state to them in an auditors’ 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.

Respective responsibilities of directors and auditors

The Directors’ responsibilities for preparing the Annual Report,the Directors’ Remuneration Report and the financialstatements in accordance with applicable law and UnitedKingdom Accounting Standards (United Kingdom GenerallyAccepted Accounting Practice) are set out in the Statement ofDirectors’ Responsibilities.

Our responsibility is to audit the financial statements and thepart of the Directors’ Remuneration Report to be audited inaccordance with relevant legal and regulatory requirementsand International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financialstatements give a true and fair view and whether the financialstatements and the part of the Directors’ Remuneration Reportto be audited have been properly prepared in accordance withthe Companies Act 1985. We also report to you whether in ouropinion the information given in the Directors’ Report isconsistent with the financial statements. The information givenin the Directors’ Report includes that specific informationpresented in the Investment Manager’s Report that is cross

referred from the Business Review section of the Directors’Report.

In addition we report to you if, in our opinion, the Company hasnot kept proper accounting records, if we have not received allthe information and explanations we require for our audit, or ifinformation specified by law regarding Directors’ remunerationand other transactions is not disclosed.

We review whether the Corporate Governance Statementreflects the Company’s compliance with the nine provisions ofthe 2006 Combined Code specified for our review by theListing Rules of the Financial Services Authority, and we reportif it does not. We are not required to consider whether theBoard’s statements on internal control cover all risks andcontrols, or form an opinion on the effectiveness of theCompany’s corporate governance procedures or its risk andcontrol procedures.

We read the other information contained in the Annual Reportas described in the contents section and consider whether it isconsistent with the audited financial statements. We considerthe implications for our report if we become aware of anyapparent misstatements or material inconsistencies with thefinancial statements. Our responsibilities do not extend to anyfurther information outside the Annual Report.

Basis of audit opinion

We conducted our audit in accordance with InternationalStandards on Auditing (UK and Ireland) issued by the AuditingPractices Board. An audit includes examination, on a test basis,of evidence relevant to the amounts and disclosures in thefinancial statements and the part of the Directors’Remuneration Report to be audited. It also includes anassessment of the significant estimates and judgments madeby the Directors in the preparation of the financial statements,and of whether the accounting policies are appropriate to theCompany’s circumstances, consistently applied and adequatelydisclosed.

We planned and performed our audit so as to obtain all theinformation and explanations which we considered necessaryin order to provide us with sufficient evidence to givereasonable assurance that the financial statements and thepart of the Directors’ Remuneration Report to be audited are

Independent Auditors’ Report


free from material misstatement, whether caused by fraud orother irregularity or error. In forming our opinion we alsoevaluated the overall adequacy of the presentation ofinformation in the financial statements and the part of theDirectors’ Remuneration Report to be audited.

Opinion

In our opinion:

• the financial statements give a true and fair view, inaccordance with United Kingdom Generally AcceptedAccounting Practice, of the state of the Company’s affairs asat 31st March 2009 and of its total return for the year thenended;

• the financial statements and the part of the Directors’Remuneration Report to be audited have been properlyprepared in accordance with the Companies Act 1985; and

• the information given in the Directors’ Report is consistentwith the financial statements.

DELOITTE LLPChartered Accountants and Registered AuditorsLondon, United Kingdom 17th June 2009

Independent Auditors’ Reportcontinued


Income Statementfor the year ended 31st March 2009

2009 2008Revenue Capital Total Revenue Capital Total

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

Losses on investments held at fair value through profit or loss 2 — (22,282) (22,282) — (28,224) (28,224)

Net foreign currency losses — (1,811) (1,811) — (1,102) (1,102)Income from investments 3 1,215 — 1,215 1,215 — 1,215Other interest receivable and

similar income 3 206 — 206 189 — 189

Gross return/(loss) 1,421 (24,093) (22,672) 1,404 (29,326) (27,922)Management fee 4 (945) — (945) (1,321) — (1,321)Other administrative expenses 5 (585) — (585) (320) — (320)

Net loss on ordinary activities before finance costs and taxation (109) (24,093) (24,202) (237) (29,326) (29,563)

Finance costs 6 (191) — (191) (186) — (186)

Net loss on ordinary activities before taxation (300) (24,093) (24,393) (423) (29,326) (29,749)

Taxation 7 (85) — (85) (85) — (85)

Total loss on ordinary activities aftertaxation (385) (24,093) (24,478) (508) (29,326) (29,834)

Loss per share 8 (0.98)p (61.45)p (62.43)p (1.29)p (74.50)p (75.79)p

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 35 to 49 form an integral part of these accounts.


Called up Capitalshare Other redemption Capital Revenue

capital reserve reserve reserves reserve Total£’000 £’000 £’000 £’000 £’000 £’000

At 31st March 2007 3,940 315,620 1,784 (204,835) (10,206) 106,303Shares bought back and cancelled (10) (193) 10 — — (193)Net loss from ordinary activities — — — (29,326) (508) (29,834)

At 31st March 2008 3,930 315,427 1,794 (234,161) (10,714) 76,276Shares bought into Treasury — (492) — — — (492)Bonus issue of Subscription shares 78 (78) — — — —Net loss from ordinary activities — — — (24,093) (385) (24,478)

At 31st March 2009 4,008 314,857 1,794 (258,254) (11,099) 51,306

The notes on pages 35 to 49 form an integral part of these accounts.

Reconciliation of Movements inShareholders’ Funds


2009 2008Notes £’000 £’000

Fixed assetsInvestments held at fair value through profit or loss 9 50,409 83,522

Current assets 10Debtors 1,499 1,723Cash at bank and in hand 12,042 1,161

13,541 2,884Creditors: amounts falling due within one year 11 (12,644) (10,130)

Net current assets/(liabilities) 897 (7,246)

Total assets less current liabilities 51,306 76,276

Total net assets 51,306 76,276

Capital and reserves Called up share capital 12 4,008 3,930Other reserve 13 314,857 315,427Capital redemption reserve 13 1,794 1,794Capital reserves 13 (258,254) (234,161)Revenue reserve 13 (11,099) (10,714)

Shareholders’ funds 51,306 76,276

Net asset value per share 14 131.8p 194.0p

The accounts on pages 31 to 49 were approved and authorised for issue by the Directors on 17th June 2009 and were signed ontheir behalf by:

Alan Clifton Chairman

The accompanying notes on pages 35 to 49 form an integral part of these accounts.

Balance Sheetas at 31st March 2009

2009 2008Notes £’000 £’000

Net cash inflow/(outflow) from operating activities 15 17 (355)

Returns on investments and servicing of financeInterest paid (180) (201)

Net cash outflow from returns on investments and servicing of finance (180) (201)

Capital expenditure and financial investmentPurchases of investments (92,588) (173,973)Sales of investments 102,721 185,055Other capital charges (15) (17)

Net cash inflow from capital expenditure and financial investment 10,118 11,065

Net cash inflow before financing 9,955 10,509

Financing Net repayment of loans (376) (11,473)Repurchase of ordinary shares — (193)Shares bought into Treasury (428) —

Net cash outflow from financing (804) (11,666)

Increase/(decrease) in cash in the year 16 9,151 (1,157)

The accompanying notes on pages 35 to 49 form an integral part of these accounts.

Cash Flow Statementfor the year ended 31st March

34 JPMorgan Fleming Japanese Smaller Companies Investment Trust plc. Annual Report & Accounts 2009


1. Accounting policies

(a) Basis of accountingThe accounts are prepared in accordance with the Companies Act 1985, United Kingdom Generally Accepted AccountingPractice (‘UK GAAP’) and with the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies’(the ‘SORP’) issued by the AIC in January 2009. All of the Company’s operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by therevaluation of investments at fair value. The disclosures on going concern on page 20 of the Directors’ Report form partof these financial statements.

(b) Valuation of investmentsInvestments are designated as ‘held at fair value through profit or loss’ 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 ‘held at fair valuethrough profit or loss’. They are included initially at fair value which is taken to be their cost, excluding expenses incidental topurchase which are written off to capital at the time of acquisition. Subsequently the investments are valued at fair valuewhich is bid market price for listed investments.

Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included incapital within ‘Gains/(losses) on investments held at fair value through profit or loss’. Gains and losses on sales of investmentsand exchange differences of a capital nature are accounted for in capital reserves within ‘Gains and losses on sales ofinvestments’. Increases and decreases in the valuation of investments held at the year end are accounted for in capitalreserves within ‘Investment holding gains and losses’.

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

(c) IncomeDividends receivable from equity shares are included in the revenue column of the income statement on an ex-dividend basisexcept where, in the opinion of the Board, the dividend is capital in nature, in which case it is included in the capital column.

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 the revenue column of the income statement. Any excess in the value of theshares received over the amount of the cash dividend is recognised in the capital column.

Deposit interest receivable and stock lending income are taken to revenue on an accruals basis.

(d) 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 broker commission. Details of transaction costs are given in note 9 on page 39.

(e) 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.

Notes to the Accountsfor the year ended 31st March 2009


Notes to the Accounts continued

(f) Financial instrumentsCash at bank and in hand may comprise cash and demand deposits which are readily convertible to a known amount of cashand are subject to insignificant risk of changes in value.

Other receivables and payables do not carry any interest, are short term in nature and are accordingly stated at cost asreduced by 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 rate method.

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

(g) Foreign currencyIn accordance with FRS23: ‘The effects of changes in Foreign Currency Exchange Rates’ the Company is required to nominate afunctional 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 the 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. Gains and losses on investments arising from a change in exchange rates are included in gains/(losses) on investmentsheld at fair value through profit or loss.

(h) Deferred Taxation Deferred taxation is accounted for in accordance with FRS 19: ‘Deferred Tax’.

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

2009 2008 £’000 £’000

2. Losses on investments held at fair value through profit or loss Losses on investments held at fair value through profit or loss based

on historical cost (17,949) (32,519)Amounts recognised in investment holding (losses)/gains in previous year in respect of

investments sold during the year (1,572) 2,866

Losses on sales of investments based on the carrying value at the previous balance sheet date (19,521) (29,653)Net movement in investment holding gains or losses (2,746) 1,449Other capital charges (15) (20)

Total losses on investments held at fair value through profit or loss (22,282) (28,224)


2009 2008 £’000 £’000

3. Income Income from investmentsDividends from investments listed overseas 1,215 1,215

Other interest receivable and similar incomeDeposit interest 7 5Stock lending fees 199 184

206 189

Total income 1,421 1,404

2009 2008 £’000 £’000

4. Management fee Management fee 945 1,321

Details of the management fee are given in the Directors’ Report on pages 19 and 20.

2009 2008 £’000 £’000

5. Other administrative expensesOther administration expenses 194 183Directors’ fees1 89 86Savings products2 19 32Subscription share costs 260 —Auditors’ remuneration for audit services 17 15Auditors’ remuneration for all other services 6 4

585 320

1Full disclosure is given in the Directors’ Remuneration Report on page 27.2These fees were paid to JPMAM for the marketing of ‘Wrapper' products.

2009 2008 £’000 £’000

6. Finance costs Interest on bank loans and overdrafts 191 186



2009 2008 £’000 £’000

7. Taxation (a) Analysis of tax charge in the year UK corporation tax — —Overseas withholding tax 85 85

Current tax charge for the year 85 85

2009 2008 Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

(b) Factors affecting current tax charge for the yearNet loss on ordinary activities before taxation (300) (24,093) (24,393) (423) (29,326) (29,749)

Net loss on ordinary activities before taxation multipliedby the standard rate of corporation tax of 28% (2008: 30%) (84) (6,746) (6,830) (127) (8,798) (8,925)

Income taxed in different periods 37 — 37 — — —Non taxable capital losses — 6,746 6,746 — 8,798 8,798Unrelieved expenses 47 — 47 127 — 127Overseas taxation 85 — 85 85 — 85

85 — 85 85 — 85

The Company has an unrecognised deferred taxation asset of £3,048,000 (2008: £3,181,000). This has arisen from deductibleexpenses exceeding taxable income. Given the composition of the Company’s portfolio, it is not likely that this asset will beutilised in the foreseeable future.

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

8. Loss per shareThe revenue loss per share is based on the revenue loss attributable to the Ordinary shares of £385,000 (2008: £508,000 loss)and on the weighted average number of 39,207,211 (2008: 39,361,346) shares in issue throughout the year, excluding 396,000(2008: nil) shares held in Treasury.

The capital loss per share is based on the capital loss attributable to the Ordinary shares of £24,093,000 (2008: £29,326,000loss) and on the weighted average number of 39,207,211 (2008: 39,361,346) shares in issue throughout the year, excluding396,000 (2008: nil) shares held in Treasury.

The total loss per share is based on the total loss attributable to the Ordinary shares of £24,478,000 (2008: £29,834,000 loss)and on the weighted average number of 39,207,211 (2008: 39,361,346) shares in issue throughout the year of 39,207,211excluding 396,000 (2008: nil) shares held in Treasury.


2009 2008 £’000 £’000

9. Investments Investments listed on a recognised investment exchange 50,409 83,522

Opening book cost 81,114 124,884Opening revaluation gains/(losses) 2,408 (1,907)

Opening valuation 83,522 122,977Movement in the year:Purchases at cost 91,765 174,827Sales – proceeds (102,611) (186,078)Losses on sales of investments based on the carrying value at the previous balance

sheet date (19,521) (29,653)Net movement in revaluation gains/losses1 (2,746) 1,449

50,409 83,522

Closing book cost 52,319 81,114Closing revaluation (losses)/gains (1,910) 2,408

50,409 83,522

1During the year, prior year revaluation losses amounting to £1,572,000 have been transferred to realised losses as disclosed in note 13.

Transaction costs on purchases during the year amounted to £111,000 (2008: £210,000) and on sales during the yearamounted to £102,000 (2008: £198,000). These costs comprise mainly broker commission.

2009 2008 £’000 £’000

10. Current assetsDebtors Securities sold for future settlement 939 1,049Dividends and interest receivable 489 613Other debtors 71 61

1,499 1,723

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

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



2009 2008 £’000 £’000

11. Creditors: amounts falling due within one year Bank loans 10,595 7,430Securities purchased for future settlement 1,796 2,619Shares bought into Treasury for future settlement 64 —Subscription share costs 40 —Other creditors and accruals 149 81

12,644 10,130

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

The Company has arranged a yen 2.5 billion floating rate loan facility with ING Bank N.V., expiring on 29th August 2009. Interestis payable at yen LIBOR at the time of the draw down, as offered in the market for the loan period, plus a margin of 0.85%.At 31st March 2009 the Company had drawn down yen 1.5 billion on this facility at an interest rate of 1.486%. At 31st March2008, the Company had drawn down yen 1.47 billion on a similar loan facility with the Royal Bank of Scotland Plc.

2009 2008 £’000 £’000

12. Called up share capital Authorised share capital:100,000,000 (2008: 100,000,000) Ordinary shares of 10p each 10,000 10,00010,000,000 (2008: nil) Subscription shares of 1p each 100 —

Issued and fully paid share capital:Ordinary sharesOpening balance of 39,309,423 (2008: 39,409,423) Ordinary shares 3,930 3,940Buyback of nil (2008: 100,000) Ordinary shares — (10)396,000 (2008: nil) Ordinary shares bought into Treasury (40) —

Subtotal 3,890 3,930396,000 (2008: nil) Ordinary shares held in Treasury 40 —

Closing balance1 3,930 3,930

Subscription sharesIssue of 7,798,873 (2008: nil) Subscription shares of 1p each 78 —

Closing balance2 78 —

Total called up share capital 4,008 3,930

1Represented by 39,309,423 (2008: same) Ordinary shares including 396,000 (2008: nil) Ordinary shares held in Treasury.2Comprises 7,798,873 Subscription shares of 1p each (2008: nil). The Subscription shares were issued as a bonus issue to the Ordinary shareholders on 5th March 2009 on thebasis of one Subscription share for every five Ordinary shares. Each Subscription share confers the right (but not the obligation) to subscribe for one Ordinary share on anybusiness day during the period from 1st April 2009 to 31st March 2014 (both dates inclusive) when the rights under the Subscription shares will lapse. The conversion priceshave been determined as follows:

(a) if exercised between 1st April 2009 and 31st March 2010 – 135p(b) if exercised between 1st April 2010 and 31st March 2012 – 147p(c) if exercised between 1st April 2012 and 31st March 2014 – 174p


Capital reserves

Gains andCapital losses Investment

Other redemption on sales of holding gains Unrealised Revenuereserve1 reserve investments and losses reserve reserve

£’000 £’000 £’000 £’000 £’000 £’000

13. Reserves Opening balance 315,427 1,794 (236,373) 2,408 (196) (10,714)Foreign currency exchange gains on cash and short

term deposits held during the year — — 1,730 — — —Realised exchange losses on yen loan — — (518) — — —Unrealised exchange losses on yen loan — — — — (3,023) —Unrealised exchange gains on yen loan now realised — — (76) — 76 —Losses on sales of investments based on the carrying

value at the previous balance sheet date — — (19,521) — — —Net movement in investment holding gains and

losses — — — (2,746) — —Transfer on disposal of investments — — 1,572 (1,572) — —Other capital charges — — (15) — — —Shares bought into Treasury (492) — — — — —Bonus issue of Subscription shares (78) — — — — —Net revenue loss for the year — — — — — (385)

Closing balance 314,857 1,794 (253,201) (1,910) (3,143) (11,099)

1The share premium has been cancelled and redesignated as 'other reserve' for the purpose of financing share buybacks.

14. Net asset value per share

The net asset value per share is based on the net assets attributable to shareholders of £51,306,000 (2008: £76,276,000) andon the 38,913,423 (2008: 39,309,423) shares in issue at the year end, excluding shares held in Treasury.

2009 2008 £’000 £’000

15. Reconciliation of total loss on ordinary activities before finance costs and taxation to net cash inflow/(outflow) from operating activities Total loss on ordinary activities before finance costs and taxation (24,202) (29,563)Add back capital loss before finance costs and taxation 24,093 29,326Decrease in accrued income 124 —Increase in other debtors (10) (24)Increase/(decrease) in accrued expenses 97 (9)Overseas taxation (85) (85)

Net cash inflow/(outflow) from operating activities 17 (355)



Exchange 2008 Cash flow movement 2009£’000 £’000 £’000 £’000

16. Analysis of changes in net (debt)/fundsCash at bank and in hand 1,161 9,151 1,730 12,042Bank loans and overdrafts falling due within

one year (7,430) 376 (3,541) (10,595)

Net (debt)/funds (6,269) 9,527 (1,811) 1,447

17. Capital commitments and contingent liabilities

At the balance sheet date there were no capital commitments or contingent liabilities (2008: none).

18. Transactions with J.P. Morgan

Details of the management contract are set out in the Directors’ Report on pages 19 and 20. The management fee payable forthe year was £945,000 (2008: £1,321,000) of which £66,000 (2008: £nil) was outstanding at the year end.

During the year £19,000 (2008: £32,000) was payable to JPMAM for the marketing of ‘wrapper’ products, of which £2,000(2008: £nil) was outstanding at the year end.

Included in other administration expenses in note 5 on page 37 are safe custody fees payable to JPMAM group subsidiariesamounting to £11,000 (2008: £14,000) of which £3,000 (2008: £7,000) was outstanding at the year end.

JPMAM carries out some of its dealing transactions through group subsidiaries. These transactions are carried out at arm’slength. The commission payable to J.P. Morgan Securities for the year was £10,000 (2008: £11,000) of which £nil (2008: £nil)was outstanding at the year end.

Handling charges payable on dealing transactions undertaken by JPMAM group subsidiaries on behalf of the Company duringthe year amounted to £15,000 (2008: £20,000) of which £10,000 (2008: £13,000) was outstanding at the year end.

The Company received £199,000 (2008: £184,000) from stock lending transactions during the year. JPMAM receivedcommissions amounting to £50,000 (2008: £46,000) in respect of these transactions.

At the year end, a bank balance of £12,042,000 (2008: £1,161,000) was held with JPMorgan Chase. A net amount of interest of£7,000 (2008: £4,000) was received by the Company during the year from JPMorgan Chase.


19. 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 could resultin a reduction in the Company’s net assets. These risks include market risk (comprising currency risk, interest rate risk andother price risk), liquidity risk and credit risk. The Directors’ policy for managing these risks is set out below. The CompanySecretary, in close cooperation with the Board and the Manager, coordinates 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 price risk is given in parts (i) to (iii) of this note,together with sensitivity analyses where appropriate. The Board reviews and agrees policies for managing these risks, whichpolicies have remained unchanged from those applying in the comparative year. The Manager assesses the exposure tomarket risk when making each investment decision and monitors the overall level of market risk on the whole of theinvestment portfolio on an ongoing basis.

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



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

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.

2009 2008 Yen Yen

£’000 £’000

Investments held at fair value through profit or loss that are monetary items — —Securities sold for future settlement, dividends and interest receivable 1,428 1,662Cash at bank and in hand 12,042 1,161Bank loans (10,595) (7,430)Securities purchased for future settlement (1,796) (2,619)

Foreign currency exposure on net monetary items 1,079 (7,226)Investments held at fair value through profit or loss that are equities 50,409 83,522

Total net foreign currency exposure 51,488 76,296

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

Foreign currency sensitivityThe following tables illustrate the sensitivity of return after taxation for the year and net assets with regard to theCompany’s monetary financial assets and financial liabilities and exchange rates. The sensitivity analysis is based on theCompany’s foreign currency exposure at each balance sheet date and the income received in foreign currency andassumes a 10% (2008: 5%) 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 this would have had the following effect:

2009 2008 £’000 £’000

Income statement revenue after taxation:Revenue return 122 61Capital return 108 (361)

Total revenue after taxation for the year 230 (300)

Net assets 230 (300)


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

2009 2008 £’000 £’000

Income statement revenue after taxation:Revenue return (122) (61)Capital return (108) 361

Total revenue after taxation for the year (230) 300

Net assets (230) 300

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

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

Management of interest rate risk The Company does not normally hold significant cash balances. Short term borrowings are used when required.

The Company finances part of its activities through borrowings at levels approved and monitored by the Board.

The possible effects on cash flows that could arise as a result of changes in interest rates are taken into account when theCompany borrows on the yen loan facility. However, amounts drawn down on this facility are for short term one monthperiods and therefore there is limited exposure to interest rate risk.

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

Interest rate exposure The Company has no financial assets or liabilities carrying fixed rates of interest. The exposure of financial assets andliabilities to floating rates, giving cash flow interest rate risk when rates are re-set, is as follows:

2009 2008 £’000 £’000

Amounts exposed to floating interest rates:Cash at bank and in hand 12,042 1,161Creditors: amounts falling due within one yearBank loans (10,595) (7,430)

Total exposure 1,447 (6,269)

Interest receivable on cash balances or paid on overdrafts is at a margin below or above LIBOR respectively (2008: same).

The Company has arranged a yen 2.5 billion floating rate loan facility with ING Bank N.V., expiring on 29th August 2009.Interest is payable at yen LIBOR at the time of the draw down, as offered in the market for the loan period, plus a margin of0.85%. At 31st March 2009 the Company had drawn down yen 1.5 billion on this facility at an interest rate of 1.486%. At31st March 2008, the Company had drawn down yen 1.47 billion on a similar loan facility with the Royal Bank of Scotland Plc.




The exposure has fluctuated during the year as borrowings were drawn down and repaid as follows:

2009 2008 £’000 £’000

Maximum absolute interest rate exposure to floating rates – net loan balances (6,832) (15,483)Minimum absolute interest rate exposure to floating rates – net cash/(loan) balances 525 (1,405)

Interest rate sensitivity The following table illustrates the sensitivity of the revenue after taxation for the year and net assets to a 1% (2008: 1%)increase or decrease in interest rates in regards to the Company’s monetary financial assets and financial liabilities. This levelof change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivityanalysis is based on the Company’s cash and loan balances held at the balance sheet date, with all other variables heldconstant.

2009 20081% 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 14 (14) (63) 63

Net assets 14 (14) (63) 63

In the opinion of the Directors, the above sensitivity analysis is not representative of the whole year as the levelof exposure changes frequently as borrowings are drawn down and repaid during the year. During the year, the highestand lowest amounts drawn down on the Loan Facility amounted to yen 2.5 billion and yen 1.47 billion respectively and theinterest rate fluctuated between 1.1% and 1.8%.

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

Management of other 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.

Other price risk exposure The Company’s total exposure to changes in market prices at 31st March comprises its holdings in equity investments asfollows:

2009 2008 £’000 £’000

Equity investments held at fair value through profit or loss 50,409 83,522

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


Concentration of exposure to other price risk An analysis of the Company’s investments is given on pages 13 and 14. This shows that all of the investments’ value is inJapanese equities. Accordingly there is a concentration of exposure to that country. However, it should also be noted thatan investment’s country of domicile or of listing does not necessarily equate to its exposure to the economic conditions inthat country.

Other price risk sensitivity The following table illustrates the sensitivity of net assets to an increase or decrease of 10% (2008: 10%) in the fair value ofthe Company’s equities. This level of change is considered to be a reasonable illustration based on observation of currentmarket conditions. The sensitivity analysis is based on the Company’s equities and adjusting for change in themanagement fee, but with all other variables held constant.

2009 200810% Increase 10% Decrease 10% Increase 10% Decrease

in fair value in fair value in fair value in fair value£’000 £’000 £’000 £’000

Income statement – return after taxation:Revenue return (63) 63 (104) 104Capital return 5,041 (5,041) 8,352 (8,352)

Total revenue after taxation and net assets 4,978 (4,978) 8,248 (8,248)

(b) Liquidity risk This is the risk that the Company will encounter difficulty in settling financial liabilities as they fall due.

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 pages 45 and 46.

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:

2009 2008Three months Three months

or less Total or less Total £’000 £’000 £’000 £’000

Creditors: amounts falling due within one yearBank loans 10,595 10,595 7,430 7,430Securities purchased for future settlement 1,796 1,796 2,619 2,619Shares bought into Treasury for future settlement 64 64 — —Subscription share costs 40 40 — —Other creditors and accruals 149 149 81 81

12,644 12,644 10,130 10,130




(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 havea minimum rating of A1/P1 from Standard & Poor’s and Moody’s respectively.

Exposure to JPMorgan ChaseThe Company’s assets are clearly ring-fenced in client designated accounts. Therefore, in the event that JPMorgan Chase wereto cease trading, these assets would be protected.

Credit risk exposure The amounts shown in the balance sheet under debtors and cash at bank and in hand, represent the maximum exposure tocredit risk at the current and comparative year ends.

There were no securities on loan at 31st March 2009 (2008: £13,135,000). The highest value of securities on loan during theyear amounted to £17,619,000. Collateral, with a fair value equivalent to a minimum of 105% of the outstanding value ofsecurities on loan is obtained by JPMorgan Chase & Co. as agent to the Company. Collateral acceptable under the StockLending Agreement may comprise: cash, British Government Stock, sterling Issues by foreign governments, SterlingCertificates of Deposit and other securities with a similarly high credit rating.

(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.


20. Capital management policies and procedures

2009 2008 Composition of the Company’s Capital £’000 £’000

DebtAmount drawn down on the loan facility 10,595 7,430

EquityShare capital 4,008 3,930Reserves 47,298 72,346

51,306 76,276

Total debt and equity 61,901 83,706

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

2009 2008 £’000 £’000

Investments held at fair value through profit or loss 50,409 83,522Net assets 51,306 76,276

Gearing 98.3% 109.5%

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 need for issues of new shares, including issues from Treasury.


HistoryThe Company and its predecessor, JF Fledgeling Japan Limited,have been investing in Japanese smaller companies since 1984.In early 2000, JF Fledgeling Japan Limited was placed intovoluntary liquidation and JPMorgan Fleming Japanese SmallerCompanies Investment Trust plc was incorporated and took overits assets and undertakings. Dealings in the new Company beganon the London Stock Exchange on 11th April 2000.

Company NumbersCompany registration number: 3916716

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

Subscription SharesLondon Stock Exchange Sedol number: B3Q7DL7ISIN: GB00B3Q70L73Bloomberg ticker: JPSS

Market InformationThe Company’s net asset value (‘NAV’) is published daily, via theLondon Stock Exchange. The Company’s Ordinary shares are listedon the London Stock Exchange and are quoted daily in theFinancial Times, The Times, The Daily Telegraph, The Scotsman,The Independent and on the J.P. Morgan website atwww.jpmfjapanesesmallercompanies.co.uk, where the ordinaryshare price is updated every fifteen minutes during trading hours.

The Company’s Subscription share price is listed on the LondonStock Exchange and quoted daily in the Financial Times and on theJ.P. Morgan website at www.jpmfjapanesesmallercompanies.co.uk,where the subscription share price is updated every fifteenminutes during trading hours.

Websitewww.jpmfjapanesesmallercompanies.co.uk

Share TransactionsThe shares may be dealt in directly through a stockbroker orprofessional adviser acting on an investor’s behalf. They may also bepurchased and held through the Investment Trust Share Plan,Individual Savings Account (‘ISA’), and the Pension Account.

Manager JF Asset Management Limited.

Secretary JPMorgan Asset Management (UK) Limited.

Company’s Registered OfficeFinsbury Dials20 Finsbury StreetLondon EC2Y 9AQTelephone: 020 7742 6000

For company secretarial and administrative matters, pleasecontact Andrew Norman.

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

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

AuditorsDeloitte LLP Stonecutter Court 1 Stonecutter Street London EC4A 4TR

BrokersCollins Stewart Europe Limited 88 Wood Street London EC2V 7QR

Savings Product AdministratorsFor queries on the J.P. Morgan ISA, Share Plan or Pension Account,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 NovemberInterim Management Statements announced July and JanuarySubscription shares exercise dates 1st April 2009 to 31st March 2014Annual General Meeting July/August


Shareholder Analysesat 31st March 2009

Ordinary Shares Number of shares % Holding

Unit Trusts 13,453,636 34.2

Investment Trusts1 6,234,330 15.9

Pension Funds 5,168,084 13.2

Other Institutions 3,861,014 9.8

Insurance Companies 1,650,968 4.2

Charities 3,000 0.0

Total Institutions 30,371,032 77.3

Private Client Brokers 3,944,128 10.0

Retail investors holding shares directly or through nominee accounts2 3,368,132 8.6

Individuals in the Investment Trust Share Plan3 674,329 1.7

Individuals in the Investment Trust Individual Savings Account3 395,292 1.0

Individuals in the Investment Trust Pension Account3 160,510 0.4

Total Retail Holdings 8,542,391 21.7

Treasury Shares4 396,000 1.0

Total Shares in Issue 39,309,423 100.0

1Includes 1,045,000 shares held by JPMorgan Elect plc.2Includes shares below threshold of 10,000 shares. 3Savings products managed by J.P. Morgan.4Shares held in Treasury do not carry any voting rights.

Source: Thomson Reuters.


Subscription Shares Number of shares % Holding

Unit Trusts 2,636,896 33.8

Investment Trusts1 1,246,866 16.0

Pension Funds 978,707 12.5

Other Institutions 783,185 10.0

Insurance Companies 315,955 4.1

Charities 600 0.0

Total Institutions 5,962,209 76.4

Private Client Brokers 641,542 8.3

Retail investors holding shares directly or through nominee accounts2 967,283 12.4

Individuals in the Investment Trust Share Plan3 116,679 1.5

Individuals in the Investment Trust Individual Savings Account3 79,058 1.0

Individuals in the Investment Trust Pension Account3 32,102 0.4

Total Retail Holdings 1,836,664 23.6

Total Shares in Issue 7,798,873 100.0

1Includes 209,000 shares held by JPMorgan Elect plc.2Includes shares below threshold of 10,000 shares. 3Savings products managed by J.P. Morgan.

Source: Thomson Reuters.

Shareholder Analyses continuedat 31st March 2009


Notice is hereby given that the ninth Annual General Meeting ofJPMorgan Fleming Japanese Smaller Companies InvestmentTrust plc will be held at The Armourers’ Hall, 81 Coleman Street,London EC2R 5BJ on Wednesday 22nd July 2009 at 11.30 a.m.for the following purposes:

1 To receive the Directors’ Report, the Annual Accounts andthe Auditors’ Report for the year ended 31st March 2009.

2 To approve the Directors’ Remuneration Report for theyear ended 31st March 2009.

3 To re-elect Chris Russell a Director of the Company.

4 To elect Robert White a Director of the Company.

5 To re-appoint Deloitte LLP as Auditors to the Company andto authorise the Directors to determine their remuneration.

Special Business

To consider the following resolutions:

Authority to allot new shares – Ordinary Resolution6 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 Section 80 of the Companies Act 1985 (the ‘Act’)to exercise all the powers for the Company to allot equitysecurities up to an aggregate nominal amount of £393,200,representing approximately 10% of the Company’s issuedOrdinary share capital as at the date of the passing of thisresolution and shall expire at the conclusion of the AnnualGeneral Meeting of the Company to be held in 2010 unlessrenewed at a general meeting prior to such time, 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 authority conferred hereby had not expired.

Authority to disapply pre-emption rights on allotment of new shares– Special Resolution7 THAT subject to the passing of Resolution 6, the Directors of

the Company be and they are hereby empowered pursuantto Section 95 of the Companies Act 1985 (the ‘Act’) to allotequity securities (within the meaning of Section 94 of theAct) pursuant to the authority conferred by Resolution 6 as

if Section 89(1) of the Act did not apply to any suchallotment, provided that this power shall be limited to theallotment of equity securities for cash up to an aggregatenominal amount of £393,200, representing approximately10% of the total Ordinary share capital as at the date of thepassing of this resolution at a price of not less than the netasset value per share and shall expire at the conclusion ofthe Annual General Meeting of the Company to be held in2010 unless renewed at a general meeting prior to suchtime, save that the Company may before such expiry makeoffers, agreements or arrangements which would or mightrequire equity securities to be allotted after such expiry andso that the Directors of the Company may allot equitysecurities in pursuant of such offers, agreements orarrangements as if the power conferred hereby had notexpired.

Authority to repurchase the Company’s shares – Special Resolution8 THAT the Company be generally and subject as hereinafter

appears unconditionally authorised in accordance withSection 166 of the Companies Act 1985 (the ‘Act’) to makemarket purchases (within the meaning of Section 163 of theAct) of its issued ordinary shares and subscription shares

PROVIDED ALWAYS THAT (i) the maximum number of Ordinary shares and

Subscription shares hereby authorised to be purchasedshall be 5,834,716 or 1,167,456 respectively, or ifdifferent, that number of Ordinary shares andSubscription shares which is equal to 14.99% of theCompany’s issued share capital (less shares held inTreasury) of the relevant share class as at the date of thepassing of this resolution;

(ii) the minimum price which may be paid for an Ordinaryshare and Subscription share shall be 10 pence and1 pence respectively;

(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 purchased, or (b) the price of the last independenttrade; or (c) the highest current independent bid;

(iv) any purchase of shares will be made in the market for

Notice of Meeting


Notice of Meeting continued

cash at prices below the prevailing NAV per share (asdetermined by the Directors);

(v) the authority hereby conferred shall expire on21st January 2011 unless the authority is renewed at theCompany’s Annual General Meeting in 2010 or at anyother 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 and may make a purchase of sharespursuant to any such contract notwithstanding suchexpiry.

Authority to sell shares from Treasury – Special Resolution 9 THAT the Directors of the Company be authorised, for the

purposes of paragraph 12.6 of the Listing Rules of theUnited Kingdom Listing Authority, to reissue Ordinaryshares of 10 pence each in the capital of the Company ata price below the NAV per share of the existing shares inissue, provided always that such issue will be limited to:

(i) up to an aggregate nominal amount of £196,600,representing approximately 5% of the total Ordinaryshares in issue as at the date of the passing of thisresolution;

(ii) the sale of shares which, immediately before suchreissue, were held by the Company as Treasury shares;and

(iii) the discount to NAV being narrower than the weightedaverage discount of the shares held in Treasury at thetime of sale; and

(iv) such number of Ordinary shares and such sale pricesthat, in the year to the Company’s 2010 Annual GeneralMeeting, the aggregate dilution associated with all the

sales does not exceed 0.70 pence per Ordinary share,being approximately 0.5% of the NAV per Ordinaryshare as at 31st March 2009.

Authority to disapply pre-emption rights on the sale of shares fromTreasury – Special Resolution 10 THAT subject to the passing of resolution 9, the Directors of

the Company be and they are hereby empowered pursuantto Section 95 of the Act to allot (within the meaning ofSection 94 (3A) of the Act) equity securities (within themeaning of Section 94(2) of the Act) wholly for cash as ifSection 89(1) of the Act did not apply to any such sale,provided that this power shall be limited to the allotment(within the meaning of Section 94(3A) of the Act) of equitysecurities for cash out of Treasury up to an aggregatenominal amount of £196,600, representing approximately5% of the Company’s total Ordinary shares in issue as at thedate of the passing of this resolution and shall expire on theearlier of the conclusion of the Annual General Meeting ofthe Company to be held in 2010, save that the Companymay before such expiry make offers, agreements orarrangements which would or might require equitysecurities to be allocated after such expiry and so that theDirectors of the Company may allot equity securities inpursuance of such offers, agreements or arrangements as ifthe power conferred hereby had not expired.



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 Meeting may appointanother person(s) (who need not be a member of the Company) toexercise all or any of his rights to attend, speak and vote at theMeeting. A member can appoint more than one proxy in relation tothe Meeting, provided that each proxy is appointed to exercise therights attaching to different 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 person whohas agreed to attend to represent you. Details of how to appointthe Chairman or another person(s) as your proxy or proxies usingthe proxy form are set out in the notes to the proxy form. If a votingbox on the proxy form is left blank, the proxy or proxies willexercise his/their discretion both as to how to vote and whetherhe/they abstain(s) from voting. Your proxy must attend theMeeting for your vote to count. Appointing a proxy or proxies doesnot preclude you from attending the Meeting and voting in person.If you attend the Meeting in person, your proxy appointment willautomatically be terminated.

3 A copy of this notice has been sent for information only to personswho have been nominated by a member to enjoy informationrights under section 146 of the Companies Act 2006 (a ‘NominatedPerson’). The rights to appoint a proxy can not be exercised by aNominated Person: they can only be exercised by the member.However, a Nominated Person may have a right under anagreement between him and the member by whom he wasnominated to be appointed as a proxy for the Meeting or to havesomeone else so appointed. If a Nominated Person does not havesuch a right or does not wish to exercise it, he may have a rightunder such an agreement to give instructions to the member as tothe exercise of voting rights.

4 Any instrument appointing a proxy, to be valid,must be lodged inaccordance with the instructions given on the proxy form.

5 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 lastsent shall be treated as replacing and revoking the other or others.

6 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 days prior to the Meeting(the ‘specified time’). If the Meeting is adjourned to a time not morethan 48 hours after the specified time applicable to the originalMeeting, that time will also apply for the purpose of determiningthe entitlement of members to attend and vote (and for thepurpose 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. two daysprior to the adjourned Meeting or, if the Company gives notice ofthe adjourned Meeting, at the time specified in that notice.

7 Entry to the Meeting will be restricted to shareholders, with guestsadmitted only by prior arrangement.

8 A corporation, which is a shareholder, may appoint individuals toact as its representatives and to vote in person at the Meeting (seeinstructions given on the proxy form). In order to facilitate votingby corporate representatives at the Meeting, arrangements will beput in place at the Meeting so that (i) if a corporate shareholder hasappointed the Chairman of the Meeting as its corporaterepresentative with instructions to vote on a poll in accordancewith the directions of all of the other corporate representatives forthat shareholder at the Meeting, then on a poll those corporaterepresentatives will give voting directions to the Chairman and theChairman will vote (or withhold a vote) as corporate representativein accordance with those directions; and (ii) if more than onecorporate representative for the same corporate shareholderattends the Meeting but the corporate shareholder has notappointed the Chairman of the Meeting as its corporaterepresentative, a designated corporate representative will benominated, from those corporate representatives who attend, whowill vote on a poll and the other corporate representatives will givevoting directions to that designated corporate representative.Corporate shareholders are referred to the guidance issued by theInstitute of Chartered Secretaries and Administrators on proxiesand corporate representatives (www.icsa.org.uk) for further detailsof this procedure. The guidance includes a sample form ofrepresentation letter if the Chairman is being appointed asdescribed in (i) above.

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

9 The register of interests of the Directors and connected persons inthe share capital of the Company is available for inspection at theCompany’s registered office during usual business hours on anyweekday (Saturdays, Sundays and public holidays excepted). It willalso be available for inspection at the Annual General Meeting.

10 No Director has any contract of service with the Company.

11 As at 16th June 2009 (being the latest business day prior to thepublication of this Notice), the Company’s issued share capitalconsists of 39,320,062 Ordinary shares (of which 396,000 are heldin Treasury), carrying one vote each and 7,788,234 Subscriptionshares with no voting rights. Therefore the total voting rights in theCompany are 38,924,062. (The shares held in Treasury do not carryvoting rights).

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.


Return to Shareholders

Return to the investor, on a mid-market price to mid-marketprice basis, including both the Ordinary and Subscriptionshares on a weighted basis.

Return on Net Assets

Return on net asset value (‘NAV’) per share, on a bid value tobid value basis, assuming that all shares held in Treasury werereissued in accordance with the Board’s policy on thereissuance of Treasury shares.

Net Asset Value per share assuming reissuance of Treasury shares

The resulting ‘diluted’ NAV per share assuming all shares heldin Treasury have been reissued in accordance with the Board’spolicy on the reissuance of Treasury shares. The Board will onlyreissue shares out of Treasury if the share price discount toNAV is narrower than the weighted average discount of theshares held in Treasury at the time of the sale.

Benchmark Return

Total return on the benchmark, on a mid-market value to mid-market value basis, assuming that all dividends received (net oftax) were reinvested in the shares of the underlying companiesat the time the shares were quoted ex-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 follow or ‘track’ this index and consequently, there may besome divergence between the Company’s performance andthat of the stated index.

Actual Gearing Factor

Investments expressed as a percentage of shareholders’ funds.This shows the effect of gearing on the NAV if the market valueof the portfolio was to increase by 100%.

Total Expense Ratio (‘TER’)

Management fees and all other operating expenses excludinginterest and Subscription shares costs, expressed as apercentage of the average of the opening and closing netassets.

Discount/Premium

If the share price of an investment company is lower than theNAV per share, the Company’s shares are said to be trading at adiscount. The discount is shown as a percentage of the NAV.The opposite of a discount is a premium. It is more common foran investment trust Company’s shares to trade at a discountthan a premium.

Glossary of Terms

JPMorgan HelplineFreephone 0800 20 40 20 or 020 7742 99999.00 am to 5.30 pm Monday to Friday

JPMorgan Pension HelplineFreephone 0800 41 31 76 or 0172 241 48889.00 am to 5.00 pm Monday to Friday

Your telephone call may be recorded for your security

www.jpmfjapanesesmallercompanies.co.uk

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2009 Annual Report - J.P. Morgan

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