Brown Advisory US Smaller Companies

Brown Advisory US Smaller Companies PLC (the 'Company')

Legal Entity Identifier: 549300HKKL9K1NY4TW55

Annual Financial Results for the year ended 30 June 2021

Financial Highlights for the year ended 30 June 2021

Ordinary Share Performance

Ten year record

Stephen White, Chairman, Brown Advisory US Smaller Companies commented:

"The US market was generally buoyant over the last year and in turn the Company produced strong absolute returns for shareholders, with the NAV per share rising 35.8%. In particular we are pleased with the performance since Brown Advisory took over management. Portfolio Manager Christopher Berrier's rigorous approach to stock selection with a focus on quality is an ever more important consideration and results in a portfolio that is markedly different to the benchmark which is reflected in the share price outperformance. The case for an allocation to an active US small-cap portfolio is rooted in fundamental financial principles, not on the ebbs and flows of the small-cap universe. We believe the recent dislocations in the market enhance potential opportunities for investors over the long-term."

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Chairman's Statement

Dear Fellow Shareholder

The US market was generally strong over the last year and in turn the Company produced strong absolute returns for shareholders. In the twelve months to 30 June 2021, the net asset value ('NAV') per share rose 35.8% to 1,516.34 pence from 1,116.35 pence.

As a result of narrowing the discount from 15.6% to 5.2% the share price improved by 52.6% from 942 pence to 1,437.50 pence.

These improvements compare to a rise of 45.1% in the Company's benchmark, the sterling adjusted Russell 2000 Total Return Index.

During the year the Company bought back 1,025,101 shares at an average discount of 12.7% which enhanced the asset value by £1,575,328, equivalent to 13.2 pence per share based on the shares in issue (excluding treasury shares) at the year end.

Change of Portfolio Manager

Following the retirement of Jupiter fund manager Robert Siddles, the Board appointed Brown Advisory LLC as Portfolio Manager with effect from 1 April 2021. During a comprehensive manager selection process, Brown Advisory stood out in a competitive field for its strong track record of investing successfully in small-cap US companies for more than two decades. Christopher Berrier, as manager of the Brown Advisory US Small-Cap Growth strategy, has built an admirable track record and has a well-established philosophy and rigorous process, supported by the significant experience of Brown Advisory's investment team.

While maintaining the existing objective of investing primarily in the shares of quoted US smaller and medium-sized companies possessing above-average growth potential, Brown Advisory quickly aligned the Company's portfolio with Christopher Berrier's long-standing US Small-Cap Growth Strategy.

Christopher Berrier, who has more than 20 years of investment experience, 15 of which have been spent with Brown Advisory, is based in the firm's Baltimore office. He is supported by associate portfolio manager George Sakellaris, who has worked closely with Christopher since joining Brown Advisory in 2014, and an experienced team of equity research analysts.

The Company has been renamed Brown Advisory US Smaller Companies PLC to reflect the identity of its new Portfolio Manager and to assist in marketing the Company under its new management.

Performance

Although the Company generated a strong absolute return over the year, it lagged the benchmark in relative terms as the previous portfolio manager's conservative value style remained out of favour for much of the period. Following the change in manager at the beginning of April 2021, the Company has outperformed its benchmark, predominantly as a result of positive stock selection.

Market Review

Recent record market returns conceal important changes in the composition of the US small-cap universe. The profitability of US small-cap indices has deteriorated dramatically since the onset of the COVID-19 pandemic and companies with no earnings and the smallest of the small (penny) stocks have posted strong returns. Junk rallies occur from time to time and can have an outsized impact on relative returns in the short run. If history and common sense are any guide, the case for small-cap investing remains as valid as ever, and maybe even more so in light of the dislocations caused by this junk rally, which has created an attractively priced cohort of high-quality stocks. Christopher Berrier's approach focuses on high-quality companies and mitigating downside risks which results in a portfolio notably different from the benchmark which should enable investors to capitalize on the long-term potential found in US small-cap stocks.

Discount Management

The Board remains committed to its policy of using share buybacks with the intention that over a period and in normal market conditions the market price of its shares is limited to around 10% discount to NAV per share.

Board Composition

We believe that independence of directors and the mix of skills on the Board is critical but tenure alone is not a valid criterion for determining independence.

Peter Barton who was appointed to the Board in February 1998 will be retiring at the AGM. During his time as a Director the Company has benefited hugely from his knowledge as both a lawyer and an investment banker, and from his innate wisdom. He was also a very able Chairman of the Audit Committee for several years. We wish him the very best in the future.

In October, I succeeded Gordon Grender as Chairman. Mr Grender has been a Director of the Company since 1993 and Chairman since 1998. Mr Grender will retire at the AGM and on behalf of the Board and of shareholders I thank him for his invaluable contribution to the long-term success of the Company.

Annual General Meeting

This year's AGM will be held on Monday, 29 November 2021 at 2:00 p.m. at the offices of ICAEW, Chartered Accountants' Hall, Moorgate Place, London EC2R 6EA and will include a short presentation via video-link by Christopher Berrier, Portfolio Manager covering performance of the Company over recent months, as well as an outlook for the future. The Board and Portfolio Manager would welcome questions which shareholders may submit to:

[email protected] 

Subject to confidentiality, we will respond to any questions submitted either directly or by publishing our response on the Company website.

Electronic proxy voting is now available and shareholders are encouraged to submit voting instructions using the web-based voting facility at www.eproxyappointment.com and www.proxymity.io for institutional shareholders. In order to use electronic proxy voting, shareholders will require their shareholder registration number, control number and pin. If you do not have access to these details please contact the Company's Registrar, Computershare.

COVID-19

The COVID-19 outbreak had little effect on the running of the Company. The managers were able to work from home with access to the usual systems and the Board met remotely when necessary.

Outlook

We are pleased with the improved performance following Brown Advisory's appointment and look forward to Christopher's approach playing out over the long term. His focus on quality is an ever more important consideration alongside his rigorous approach to stock selection which results in a portfolio that is markedly different to the benchmark. The case for a dedicated allocation to an active US small-cap portfolio is rooted in fundamental financial principles and, if anything, the recent dislocations we have witnessed in the market only enhance potential opportunities for thoughtful, long-term investors.

Finally, I feel very honoured to have taken on the role of Chairman. I believe that our Company is at a new and exciting stage of its development and I look forward to working with the Board, our new Portfolio Manager and our shareholders in order to promote its success.

Stephen White

27 October 2021

Portfolio Manager's Review

The Company produced strong absolute returns for shareholders over the 12 months to 30 June 2021. The Net Asset Value (NAV) per share rose 35.8% to 1,516.34 pence from 1,116.35 pence. This review will focus in detail on the period following the change in Portfolio Manager: 1 April to 30 June 2021.

Brown Advisory's Investment Approach

The Company's objective is to achieve long-term capital growth by investing in a diversified portfolio, primarily of quoted US smaller and medium-sized companies.

Brown Advisory is pleased to have been appointed to manage the Company and we look forward to the opportunity to deliver attractive returns to shareholders over time. Our investment philosophy is disciplined and grounded in a careful analysis of the fundamentals of each business relative to its share price. Underpinning this philosophy are our three core tenets:

-       To think and act differently;

-       To exploit market inefficiencies; and

-       To focus on businesses that possess what we describe as "3G" qualities.

o  Durable growth;

o  Sound governance; and

o  Scalable go-to-market strategies

We seek to mitigate risk within the strategy through diversification across sectors, business models and economic sensitivities. Christopher Berrier has managed this strategy at Brown Advisory for more than 15 years and historically his approach has yielded a portfolio which is markedly different to the benchmark. While our attention to valuation and portfolio diversification certainly aids in producing these characteristics, the lion's share is likely due to the higher-than-average quality of our individual portfolio holdings. Business attributes such as a strong and diverse board of directors, capable and shareholder-friendly management teams, above-average gross margins, strong prospective returns on investor capital, low capital intensity and responsibly constructed balance sheets are all things we seek out. This positively skews the "quality" of our portfolio compared to the average small-cap company and it shows up in our relative short-term performance.

Performance Review

We believe the investment environment we currently inhabit is absolutely extraordinary. The unprecedented economic uncertainty of the past 18 months has had an enormous impact on public equity markets. We are fascinated by the "risk-on, risk-off" dynamics, "meme" stocks (whereby stocks have gained viral exposure online, drawing the attention of retail investors), the explosion of the US Federal Reserve's balance sheet, the erratic movement of the 10-year Treasury yield, and the eye-popping headline (and underlying) inflation data being witnessed. However, we strive to remain wholly focused on our core objective-that is finding, evaluating and owning attractive businesses at the right price. These are businesses that we believe over a multi-year time frame can make the difficult journey from small- to mid- to large-cap status.

The Company posted positive absolute and relative returns for the first three months under our new management. These gains were driven predominantly by stock selection. Stylistically, the portfolio netted strong results for the first half of the period when "quality" mattered, but it faced a late-June headwind as low-quality market leadership re-emerged.

We believe there is no better indicator as to what is happening in the small-cap market of late than the sizeable waves of retail investment in stocks such as AMC Entertainment and others. Their surge corresponded almost perfectly with the broad change in market leadership from high-quality to low-quality in the middle of May. We have seen, or better yet endured, these manic swings over the better part of the last twelve months. Whilst it is less-than-smooth sailing, we still believe economist, professor and investor Benjamin Graham - widely known as the "father of value investing" - was correct. He noted that "in the short term, the market is a voting machine," underscoring the success of firms that are popular versus unpopular. However, in the long term it is a weighing machine, meaning that it assesses the value, substance and worth of a company.

Two of our largest contributors for the quarter also represent two of our largest holdings in the portfolio. Charles River Laboratories International continues to execute at a very high level as the leading pre-clinical contract research organization (CRO), supporting hundreds of well-funded biotech assets. Strategic mergers and acquisitions (M&A) in the high-growth and exciting areas of cell and gene therapy persisted during the quarter and investors continued to gain confidence in this next phase of growth. Meanwhile, Workiva reported accelerating bookings on broad-based demand. The company also announced an ESG-specific reporting product that markedly expands the company's addressable market opportunity. Based on our research, numerous growth drivers appear intact over the next few years, which provides us with comfort in this position despite meaningful multiple expansion since we invested in Workiva. Agilon Health, a recent IPO, possesses a highly scalable, value-based care model that partners and enables leading primary care groups to assume full financial risk for their Medicare patients, enhancing both quality of care and practice economics. Our allocation on the deal was sizeable as we built a relationship with the company's management team and sponsors whilst it was private.

Establishment Labs Holdings continues to garner more investor attention following several new and novel product announcements that dramatically expand its total addressable market. The management team executed well during the pandemic, and the business appears well positioned to benefit as global economies reopen.

As ever, there were some disappointments during the period. Bright Horizons Family Solutions shares pulled back following strong share price appreciation earlier in the year as investors began to focus on the number of centres that remain closed due to the lingering effects of the pandemic. CMC Materials was a detractor to performance during the period as the company reported a somewhat disappointing quarter in early May. Despite the near-term expectations miss, management still raised guidance for the full year as the company's core electronic materials segment is seeing accelerating trends looking into the back half of the year. We think Iovance's tumour-infiltrating lymphocyte (TIL) therapy technology and its efficacy remain impressive, but we have increased concerns around the pathway for approval, competitive dynamics, and patent protection. Our concerns became acute after the CEO's recent unexplained departure, which prompted us to exit the holding. Hain Celestial Group's stock stalled in 2Q21 as the company faces difficult comparisons from its COVID-induced demand surge last year. We continue to believe that the management team's restructuring and growth initiatives still stand to have a positive impact over the intermediate term, although our position size has been reduced recently.

Portfolio Review

At the beginning of the quarter we initially implemented a restructuring of the portfolio from the previous Portfolio Manager, which resulted in a complete reshaping of the Trust in line with Brown Advisory's US Small-Cap Growth strategy.

Following the initial restructuring we found more exciting opportunities for new investments during the quarter:

-       Agilon Health partners with primary care groups to have immediate impact on downstream costs and share in created savings, while enabling them to practice more complete, tailored primary care. The company went public in mid-April 2021 to meaningful investor interest.

-       DigitalBridge Group owns and operates a wide variety of digital infrastructure (towers, data centres, and fibre etc.) and should be a durable grower through the 5G build and beyond. The company is in a turnaround as new CEO Marc Ganzi, whom we have known as a private CEO for a number of years, has mostly shed the legacy assets and is focused on growing the digital infrastructure asset base.

-       H.B. Fuller Company is an adhesives manufacturer with underappreciated revenue growth and margin improvement levers. Management's revenue growth and margin targets are attainable as they gain share through innovation and continue to improve their operational efficiency. The company trades at low valuation relative to such growth and margin expansion opportunity.

-       Leslie's, Inc. is the leading direct-to-consumer pool supply company in the U.S. The company has a strong history of 57 consecutive years of positive sales growth, industry-leading unit economics and multiple growth drivers across their omni-channel platform.

-       Lifestance Health Group is the only scaled, national provider of mental health services. They are uniquely positioned with over 3,200 employed mental health care providers and national evergreen contracts with 200+ commercial insurers. The company went public in early June 2021 to notable investor interest. We received a meaningful allocation and have continued to prudently size the positions.

-       Vimeo spun out of IAC during the quarter. Vimeo is a leading provider of video production, delivery and storage tools with significant revenue from both self-serve customers and enterprises. We expect durable self-serve growth from a combination of subscriber growth and pricing optimization as Vimeo expands the product offering and invests in go-to-market resources.

We eliminated some positions in the quarter, such as:

-       Aspen Technology, a provider of software and services to manufacturers, was eliminated due to our longer-term concerns around the health of the end markets Aspen serves.

-       We lost faith in FibroGen after it emerged they had been unknowingly presenting false cardiovascular safety data for its lead asset, Roxadustat, for a couple of years now. Not only does the updated 'true' data look worse than what we had previously been shown, making Roxadustat's road to approvability in the U.S. a little harder and lowering our peak market share estimates, but it also leaves us wondering how the company could have been oblivious to this in the first place and for so long.

-       We still like Iovance's tumour-infiltrating lymphocyte (TIL) therapy and the efficacy is impressive. However, we have increased concerns around the pathway for approval, competitive dynamics and patent protection for TIL therapy. Our concerns became more acute after the CEO's recent unexplained departure.

Outlook

Focusing on high-quality companies is an ever more important consideration amid the deterioration in the overall quality of the small-cap universe. Market dislocations, such as the ones experienced over the past year, can generate an environment that is typically favourable to our style of investing. We believe that there are three key pillars to capitalizing on the broad opportunity set offered by US small-caps over the long term:

1.     High active share. We believe that low-turnover, relatively concentrated portfolios that reflect our best thinking create the best opportunities for outperformance over a full market cycle. Only by being different from the broader market can we achieve attractive returns and avoid ebbs and flows of the benchmark, which can be hazardous in absolute terms.

2.     Consistent high-quality bias. As long-term investors, we harness the power of compounding and therefore seek small-cap companies with the ability to scale into much larger business franchises in the future. Our philosophy naturally embeds a quality bias. For each investment, we seek out durable growth, sound governance and scalable go-to-market strategies. With our thinking anchored as long-term business owners as opposed to renters of stocks, we establish a high hurdle to enter the portfolio. For this reason, we tilt more towards companies with quality characteristics than our most often quoted benchmark.

3.     Mitigate downside. Our portfolio construction is built on a holistic diversification that considers many different variables, including sector, subsector, cyclicality, profitability, valuation and balance sheet strength. This is intended to damp down the top-down (or beta) effects of the portfolio, enabling our excess return to be driven by our bottom-up security selection. In addition, we follow a strict valuation discipline, which requires us to understand risk/return trade-off in every investment, and size positions accordingly. Investment, fundamentally, is about the price you pay for the value you get.

Fortunately, it does appear that "quality" may be due for a rebound and we have started to see this trend play out early in the third quarter of 2021. Whether it is sustainable or a temporary direction in our yo-yo market is an open question. It would appear that only time, and possibly inflation, will tell. As Warren Buffett stated in his 1981 'Berkshire Hathaway Letter to Shareholders': "Punishment is inflicted by an inflationary environment upon the owners of the 'bad' businesses". This is one of the many reasons why we believe rigorously following our long-term oriented philosophy and process remain the best route to generating solid risk-adjusted returns over time.

Portfolio Manager

Brown Advisory LLC

27 October 2021

Strategic Review

The Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

The Strategic Report seeks to provide shareholders with the relevant information to enable them to assess the performance of the Board during the period under review.

Business and Status

During the year the Company carried on business as an investment trust with its principal activity being portfolio investment. The Company has been approved by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the eligibility conditions of sections 1158 and 1159 of the Corporation Tax Act 2010 ('CTA 2010') and the ongoing requirements for approved companies as detailed in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011.  In the opinion of the Directors, the Company has conducted its affairs in the appropriate manner to retain its status as an investment trust.

The Company is an investment company within the meaning of section 833 of the Companies Act 2006.

The Company is not a close company within the meaning of the provisions of the CTA 2010 and has no employees.

The Company was incorporated in England & Wales on 15 January 1993.

Except as detailed in this report, there has been no significant change in the activities of the Company during the year to 30 June 2021 and the Directors anticipate that the Company will continue to operate in the same manner during the current financial year.

Gearing

Gearing is defined as the ratio of a company's debt less cash held, compared to its equity capital, expressed as a percentage. The effect of gearing is that, in rising markets, the Company will benefit to the extent that the growth of the Company's investment portfolio exceeds the cost of paying interest and charges to lenders and other creditors. Conversely, in falling markets the Company suffers more if the Company's investment portfolio underperforms the cost of such interest and charges.

During the year, the Company ceased to be geared upon the termination on 15 September 2020 of the loan facility with Scotiabank.

Key Performance Indicators

At quarterly Board meetings, the Directors consider a number of performance indicators to assess the extent to which the Company is meeting its objective. The key performance indicators used to measure the performance of the Company over time are as follows:

·      Net Asset Value changes;

·      The discount or premium of share price to Net Asset Value;

·      A comparison of the absolute and relative performance of the Ordinary share price and the Net Asset Value per share relative to the return on the Company's Benchmark Index and of its peers;

·      Ordinary share price movement; and

·      The Company's ongoing charges ratio.

A history of the Net Asset Value, Ordinary share price and Benchmark Index are shown on the monthly factsheets which can be viewed on the Portfolio Manager's website www.brownadvisory.com/basc

Discount to Net Asset Value

The Directors regularly review the level of the discount or premium between the closing price of the Company's Ordinary shares and the Net Asset Value. The Company will issue shares when there is sufficient demand. Such issues are always at a price which is in excess of the NAV. No shares were issued during the year under review.

The Board will continue to apply its policy of buying back shares at appropriate times with a view to limiting any discount in the longer term to around 10%. The Directors had powers granted to them at the last Annual General Meeting ('AGM') held on 22 December 2020 to purchase Ordinary shares and either cancel or hold them in treasury as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

The Company repurchased 1,025,101 Ordinary shares during the year under review at an average discount of 12.7%.

Under the Listing Rules, the maximum price that may be paid by the Company on the repurchase of any Ordinary shares is 105% of the average of the middle market quotations for the Ordinary shares for the five business days immediately preceding the date of repurchase. The minimum price will be the nominal value of the Ordinary shares. The Board is proposing that its authority to repurchase up to approximately 14.99% of its issued share capital (excluding treasury shares) be renewed at the AGM. The new authority to repurchase will last until the conclusion of the AGM of the Company in 2022 (unless renewed earlier). Any repurchase made will be at the discretion of the Board in light of prevailing market conditions and within guidelines set from time to time by the Board, the Companies Act, the Listing Rules and the Market Abuse Regulation.

Treasury Shares

In accordance with the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (the 'Regulations') which came into force on 1 December 2003 any Ordinary shares repurchased, pursuant to the above authority, may be held in treasury. These Ordinary shares may subsequently be cancelled or sold for cash. This gives the Company the ability to reissue shares quickly and cost effectively and provides the Company with additional flexibility in the management of its capital.

At 30 June 2021 there were 6,258,715 Ordinary shares held in Treasury.

Management

The Company has no employees and most of its day-to-day responsibilities are delegated to Brown Advisory LLC which acts as the Company's Portfolio Manager and FundRock Partners Limited which acts as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary.

J.P. Morgan Europe Limited ('JPMEL') acts as the Company's Depositary. The Company has also entered into an outsourcing arrangement with J.P. Morgan Chase Bank N.A. ('JPMCB') as Custodian and for the provision of accounting services.

Viability Statement

In accordance with Provision 36 of the Code of Corporate Governance as issued by the Association of Investment Companies in February 2019 (the 'AIC Code'), the Board has assessed the prospects of the Company over a longer period than the twelve months required by the 'Going Concern' provision, reviewing the next three years until the next required vote on the continuation of the Company at the 2023 AGM. The Company's investment objective is to achieve long-term capital growth by investing in a diversified portfolio primarily of quoted US smaller and medium-sized companies. The Board regards the Company's shares as a long-term investment.

The Board has considered the Company's business model including its investment objective and investment policy, the principal and emerging risks and uncertainties that may affect the Company, the size threshold below which the Company would be considered uneconomic or unviable, and the Company performance and attractiveness to investors in the current environment. The Board has noted that:

·      the Company holds a liquid portfolio invested predominantly in US listed equities;

·      the Company is not geared;

·      the Company has maintained a reasonable performance and share price discount to NAV;

·      the portfolio management fee is the most significant expense of the Company. It is charged as a percentage of the Company's net asset value and so would reduce if the market value of the portfolio were to fall. The remaining expenses are modest in value and predictable in nature;

·      no significant increase to ongoing charges or operational expenses is anticipated; and

·      the Board is satisfied that Brown Advisory LLC and the Company's other key third-party suppliers maintain suitable processes and controls to ensure that they can continue to provide their services to the Company.

The Board has also considered the market outlook, both for US smaller company equities and for investment trusts, and has concluded that these remain an attractive opportunity for investors.

The Board has therefore concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years.

Principal and Emerging Risks and Uncertainties

The principal and emerging risks and uncertainties that may affect the Company are described below:

Investment policy and process - Inappropriate investment policies and processes may result in under performance against the prescribed Benchmark Index and the Company's peer group. The Board manages these risks by ensuring a diversification of investments and regularly reviewing the portfolio asset allocation and investment process.

Investment Strategy and Share Price Movement - The Company is exposed to the effect of variations in the price of its investments. A fall in the value of its portfolio will have an adverse effect on shareholders' funds. It is not the aim of the Board to eliminate entirely the risk of capital loss, rather it aims to seek capital growth. The Board reviews the Company's investment strategy and the risk of adverse share price movements at its quarterly board meetings considering the economic climate, market conditions and other factors that may have an effect on the sectors in which the Company invests.

Liquidity Risk - The Company may invest in securities that have a very limited market which will affect the ability of the Portfolio Manager to dispose of securities when it is no longer felt that they offer the potential for future returns. However, investments in unlisted securities must not exceed 5% of total assets at the time of investment and any such investments require prior Board approval.

Also, the Company's shares may experience liquidity problems when shareholders are unable to realise their investment in the Company because there is a lack of demand for the Company's shares.

At its quarterly meetings, the Board considers the current liquidity in the Company's investments when setting restrictions on the Company's exposure. The Board also reviews, on a quarterly basis, the Company's buy-back programme and in doing so is mindful of the liquidity in the Company's shares.

Discount to Net Asset Value - If the price at which the Company's shares trade is at a discount to Net Asset Value shareholders will be unable to realise the true underlying value of their investment. The Directors had powers granted to them at the last Annual General Meeting to purchase Ordinary shares as a method of controlling the discount to Net Asset Value and enhancing shareholder value.

Regulatory Risk - The Company operates in a complex regulatory environment and faces a number of regulatory risks. A breach of section 1158 of the CTA 2010 could result in the Company being subject to capital gains tax on portfolio movements. Breaches of other regulations such as the Listing Rules, could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers such as the Portfolio Manager could also lead to reputational damage or loss. The Board relies on the services of its Portfolio Manager, Company Secretary, AIFM and professional advisers to ensure compliance with, amongst other regulations, the Companies Act 2006, the FCA Listing Rules and Disclosure Guidance and Transparency Rules, and the Alternative Investment Fund Managers Directive. The Portfolio Manager is contractually obliged to ensure that its conduct of business conforms to applicable laws and regulations.

Credit and Counterparty Risk - The failure of the counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

Loss of Key Personnel - The day-to-day investment management of the Company has been delegated to the Portfolio Manager. Loss of the Portfolio Manager's key personnel could affect investment return. The Board is aware that the Portfolio Manager has implemented competitive remuneration practices and succession planning for the purposes of operational resiliency. The Portfolio Manager has a substantial team of investment professionals and the Board believes that this should provide adequate cover in the event of an emergency.

Operational - Failure of the core accounting systems, or a disastrous disruption to the Portfolio Manager's business, that of the AIFM, or that of JPMCB, could lead to an inability to provide accurate reporting and monitoring.

Financial - Inadequate financial controls could result in misappropriation of assets, loss of income and debtor receipts and inaccurate reporting of Net Asset Value per share. The Board annually reviews the AIFM's and Portfolio Manager's reports on their internal controls and procedures.

Details of how the Board monitors the operational services and financial controls of Brown Advisory LLC, FundRock Partners Limited and J.P. Morgan are included within the Risk Management and Internal Control section of the Report of the Directors.

Enterprise risk is reviewed biannually by the Board, taking into its remit emerging risks as they become immediate, while maintaining a long-term perspective where they are evolving.

COVID-19 - The outbreak of the COVID-19 pandemic poses additional risks to the Company beyond the risks described under market risks above. They include liquidity risks to markets and business continuity risks for the AIFM and the Portfolio Manager. Each of these risks is being assessed on a regular basis by the AIFM and the Portfolio Manager.

Directors

At 30 June 2021 the Board comprised two female and four male directors.

Employees, Environmental, Social and Human Rights issues

The Company has no employees and, therefore no disclosures need to be made in respect of employees. The Board has delegated the day-to-day management and administration functions to the Portfolio Manager, the AIFM, J.P. Morgan and other third-party service providers.

Integration of Environmental, Social and Governance ('ESG') considerations into the Portfolio Manager's Investment Process

A report from the Portfolio Manager is included in the Annual Report & Accounts for the year ended 30 June 2021.

Modern Slavery Act

The Modern Slavery Act 2015 requires certain companies to prepare a slavery and human trafficking statement. As the Company has no employees and does not supply goods and services, no statement is required.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from its operations as its day-to-day management and administration functions have been outsourced to third parties and it neither owns physical assets or property nor has employees of its own. It therefore does not have responsibility for any emissions-producing sources under the Companies Act 2006 (Strategic Report on Directors' Reports) Regulations 2013.

Section 172 Statement

Under Section 172 ('S172') of the Companies Act 2006, the Directors have a duty to act in good faith and to promote the success of the Company for the benefit of its shareholders as a whole. This includes taking into consideration the likely consequences of their decisions in the long-term and in respect of the Company's stakeholders such as its shareholders, employees and suppliers, while acting fairly as between shareholders.

The Directors must also consider the impact of the Company's decisions on the environment, the community and its reputation for maintaining high standards of business conduct.

The Company ensures that the Directors are able to discharge this duty by providing them with relevant information and training on their duties. The Company also ensures that information pertaining to its stakeholders is provided, as required, to the Directors as part of the information presented in regular Board meetings in order that stakeholder considerations can be factored into the Board's decision-making. The Directors' responsibilities are also set out in the schedule of matters reserved for the Board and the terms of reference of its audit committee, both of which are reviewed regularly by the Board. At all times the Directors can access, either collectively or individually, advice from its professional advisers including the Company Secretary and independent external advisers.

The Company's investment objective, to achieve long-term capital growth by investing in a diversified portfolio primarily of quoted US smaller and medium-sized companies, supports the Directors' statutory obligations to consider the long-term consequences of the Company's decisions. How the long-term focus of the Company is achieved, is set out in more detail in the Annual Report & Accounts for the year ended 30 June 2021 including in the above section on the Portfolio Manager's approach to ESG considerations. This approach is fundamental to the Company achieving long-term success for the benefit of all stakeholders.

The Company is aware of its own potential impact on the environment and has practical policies in place to reduce that impact. Examples include the use and sharing of electronic Board materials and the provision of electronic copies of the annual report and accounts to shareholders and via the Company website. Where physical copies of the annual and half yearly financial reports are made, materials and processes are used which are designed to both minimise the environmental impact and to maximise the recycling potential as described in more detail on the inside back cover of this document.

Engagement with suppliers, customers and others and the effect on principal decisions

The Shareholders - The shareholders of the Company are both institutional and retail and details of those with substantial shareholdings are provided in the Annual Report & Accounts for the year ended 30 June 2021.

The Board believes that shareholders have a vital role in encouraging a higher level of corporate performance and is committed to listening to the views of its shareholders and giving useful and timely information. The Board provides open and accessible channels of communication including those listed below.

The AGM - The Company encourages participation from shareholders at its AGMs where they can communicate directly with the Directors and Portfolio Manager, subject to any applicable legislation implemented in response to the COVID-19 pandemic. The AGM will include a short presentation via video-link by the Portfolio Manager on the performance of the Company over the past year, as well as an outlook for the future. The Board and Portfolio Manager welcome questions which shareholders may submit to [email protected]. Subject to confidentiality, we will respond to any questions submitted either directly or by publishing our response on the Company website. All views of the shareholders will be taken into consideration and action taken where appropriate.

Online Information - The Company website contains the Annual and Half Yearly Financial Report along with monthly factsheets and commentaries from the Portfolio Manager. The daily NAV per share, monthly top ten portfolio listings and other regulatory announcements can be found on the regulatory news service of the London Stock Exchange.

Shareholder Communications

Shareholders can raise issues or concerns at any time by writing to the Chairman or the Senior Independent Director at the Registered Office.

The AIFM and the Portfolio Manager

Prior to 1 April 2021, Jupiter Asset Management was appointed as the Company's AIFM and portfolio manager. With effect from 1 April 2021, Brown Advisory LLC has been appointed as the Company's Portfolio Manager and FundRock Partners Limited has been appointed as the Company's AIFM.

The portfolio management function is critical to the long-term success of the Company. The Board and the Portfolio Manager maintain an open and constructive relationship, with meetings taking place a minimum of four times per annum, with monthly updates and additional meetings as required.

The 'Management of the Company' section details the Board's consideration of the Portfolio Manager's performance, its terms of appointment and their annual assessment of its continued stewardship of the portfolio and its oversight of the administrative functions.

The Audit Committee meets at least twice a year and as part of its role considers the internal controls put in place by the Portfolio Manager.

The AIFM also supplies company secretarial services to the Company. The AIFM oversees the activities of the Company's other third-party suppliers on behalf of the Company and maintains open and collaborative relationships to maintain quality, efficiency and cost control through regular communication with operational teams. The Board regularly reviews reports from the Portfolio Manager, the AIFM and Company Secretary, the depositary, the Company's broker, the investor relations research provider and the Independent Auditors.

These provide vital information concerning changes in market practice or regulation which affect the Company and assist the Board in its decision-making process. Representatives from these providers attend Company Board meetings and give presentations on a regular basis enabling in depth discussions concerning their findings and performance.

Other Third-Party Service Providers

As an externally managed investment company with no employees or physical assets, the principal stakeholders of the Company are its shareholders, Portfolio Manager, AIFM, depositary, custodian, administrator and registrar. The continuance, or otherwise, of engagement of key third-party service providers are principal decisions taken by the Board every year.

Principal Decisions

The Directors address the S172 considerations when making all material decisions of the Company. Examples of this can be seen as follows.

Appointment of New Portfolio Manager, AIFM and Company Secretary

In December 2020, following a competitive search the Board announced the appointment of Brown Advisory LLC as the Company's new Portfolio Manager and of FundRock Partners Limited as the Company's AIFM and Company Secretary. The appointments followed the announcement of the retirement of Robert Siddles of Jupiter Asset Management.

COVID-19

With the rise in status of COVID-19 to a pandemic, the Board requested that the Portfolio Manager and the AIFM increase the frequency of its monitoring of key suppliers to ensure the safety of working conditions and continuity of operational functions.

Attendance at AGMs

The Board sought shareholder approval at the previous AGM to take advantage of the provisions of the Companies Act 2006 to allow future general meetings to be held either as a physical meeting or an electronic meeting, or a combination of both. This will provide shareholders with the ability to attend future AGM's remotely if the Company is unable to hold a physical meeting.

In Summary

The governance structure and decision-making process are underpinned by the duties of the Directors under S172 on all matters. The Board firmly believes that the sustainable long-term success of the Company is dependent upon taking account of the interests of all its key stakeholders.

For and on behalf of the Board

Stephen White

Chairman

27 October 2021

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable laws) including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and the Republic of Ireland.

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the return or loss of the Company for that period. In preparing those financial statements, the Directors are required to:

(a)   select suitable accounting policies and then apply them consistently;

(b)   make judgements and accounting estimates that are reasonable and prudent;

(c)   state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

(d)   prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Report of the Directors, Directors' Remuneration Report and Statement of Corporate Governance that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website www.brownadvisory.com/basc, which is a website maintained by Brown Advisory LLP. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, who are listed in the Annual Report & Accounts, confirms to the best of their knowledge that:

(a)   the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)   the Strategic Report and Report of the Directors include a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that the Company faces; and

(c)   in their opinion the Annual Report & Accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary to assess the Company's position and performance, business model and strategy.

So far as each Director is aware at the time the report is approved:

(a)   there is no relevant audit information of which the Company's auditors are unaware; and

(b)   the Directors have taken all steps required of a company director to make themselves aware of any relevant audit information and to establish that the Company's auditors have been made aware of that information.

By order of the Board

Stephen White

Chairman

27 October 2021

Income Statement

for the year ended 30 June 2021

The total column of this statement is the profit and loss account of the Company.

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

Statement of Financial Position

as at 30 June 2021

The financial statements were approved by the Board of Directors and signed on its behalf on 27 October 2021.

Stephen White

Chairman

Company Registration Number 02781968

Statement of Changes in Equity

for the year ended 30 June 2021

for the year ended 30 June 2020

Notes to the Accounts for the year ended 30 June 2021

1.   Accounting policies

Basis of preparation

The financial statements for the year ended 30 June 2021 have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP') including Financial Reporting Standard 102 ('FRS 102'), the financial reporting standard applicable in the UK and Republic of Ireland and with the Statement of Recommended Practice ('SORP') for Investment Trust Companies and Venture Capital Trusts issued by the Association of Investment Companies ('AIC') in October 2019.

The Company continues to adopt the going concern basis in the preparation of the financial statements. The financial statements have been prepared in accordance with the Company's accounting policies as set out below. They are presented in accordance with the Companies Act 2006 (the 'Act') and the requirements of the SORP 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' issued in October 2019.

The Company has taken advantage of the exemption from preparing a Cash Flow Statement under FRS 102, as it is an investment fund and the investments are substantially all highly liquid and carried at fair (market) value.

In accordance with FRS 102, the Company is required to nominate a functional reporting currency in which the Company predominantly operates. Having regard to the Company's share capital and the predominant currency in which its shareholders operate, pounds sterling is the nominated functional reporting currency of the Company.

Statement of Compliance

The financial statements of the Company have been prepared in compliance with United Kingdom Accounting Standards, including FRS 102 and the Companies Act 2006.

Significant accounting judgements, estimates and assumptions

The preparation of the Company's financial statements on occasion requires management to make judgements, estimates and assumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. These assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in the current and future periods, depending on circumstance.

Management do not believe that any significant accounting judgements have been applied to these financial statements other than the allocations between capital and revenue.

Further details of the Company's accounting policies can be found in the Annual Report & Accounts for the year ended 30 June 2021.

7.   Net asset value per Ordinary share           

The net asset value per Ordinary share is based on the net assets attributable to the equity shareholders of £181,426,000 (2020: £145,011,000) and on 11,964,698 (2020: 12,989,799) Ordinary shares, being the number of Ordinary shares in issue at the year end.

8.   Related parties and transactions with the manager

Directors

There are no transactions with the Directors other than aggregated remuneration for services as Directors as disclosed in the Directors' Remuneration Report and as set out in Note 5 to the accounts and the beneficial interests of the Directors in the Ordinary shares of the company as detailed in the Annual Report & Accounts for the year ended 30 June 2021.

Transactions with the manager

On 1 April 2021 the board announced the appointment of Brown Advisory LLC ("Brown Advisory") as the Company's portfolio manager ("Portfolio Manager") and FundRock Partners Limited ("FundRock") as the Company's alternative investment fund manager ("AIFM"), replacing Jupiter Unit Trust Managers Limited ("JUTM") as AIFM and Jupiter Asset Management ("JAM") as portfolio manager. The changes became effective on 1 April 2021.

FundRock has been appointed as AIFM to the Company pursuant to an Alternative Investment Fund Management Agreement between FundRock and the Company. FundRock has also been appointed to provide company secretarial services to the Company.

Brown Advisory has been appointed to provide portfolio management services pursuant to a Portfolio Management Agreement between the Company, FundRock and Brown Advisory.

Prior to 1 April 2021, the investment management fee was calculated at an annual rate of 0.75% of net assets up to £150 million; plus 0.65% of net assets in excess of £150 million but less than or equal to £200 million; plus 0.55% of net assets in excess of £200 million.

Under the new management arrangements, with effect from 1 April 2021, the management fee has been calculated at an annual rate of 0.7% on the first £200 million; 0.6% of the next £300 million; and 0.5% thereafter of the Company's adjusted net assets.

The management fee is payable by the Company to FundRock, who shall deduct from the management fee the amounts due to it as AIFM and for company secretarial services and shall pay the balance to Brown Advisory.

The management fee is calculated and payable on a quarterly basis.

The investment management fee payable to JUTM for the period from 1 July 2020 to 31 March 2021 was £905,000 (year to 30 June 2020: £1,108,000) with £328,000 outstanding as at 30 June 2021 (2020: £266,000).

The investment management fee for the period 1 April 2021 to 30 June 2021 was £326,000 with £nil outstanding as at 30 June 2021 but these fees were waived to offset the costs incurred in transitioning to Brown Advisory.

Costs associated with the transition of the AIFM and Portfolio Manager comprised £273,000 of legal and other expenses and £53,000 of portfolio transaction costs. These costs were defrayed by the waiver of £326,000 of investment management fees.

The appointment of Brown Advisory and FundRock may be terminated by not less than six months' notice, such notice not to be served earlier than 1 April 2022.

9.   Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding at 30 June 2021 (2020: nil).

10. Annual results

This Annual Results announcement does not constitute the Company's statutory accounts for the years ended 30 June 2020 and 30 June 2021 but is derived from those accounts. Statutory accounts for the year ended 30 June 2020 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2020 and the year ended 30 June 2021 both received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not include statements under Section 498 of the Companies Act 2006 respectively. The statutory accounts for the year ended 30 June 2021 will be delivered to the Registrar of Companies.

11. Other information

The Annual General Meeting of the Company will be held on 29 November 2021.

A copy of the Annual Report & Accounts for the year ended 30 June 2021 will shortly be submitted to the National Storage Mechanism and will be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

The Annual Report & Accounts will also be available for download from the Company's website www.brownadvisory.com/basc

Enquiries:

FundRock Partners Limited, Company Secretary

Limor Gonen    Tel: +44 203 994 7129

[email protected]

27 October 2021