THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO, THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA), AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, IN ANY MEMBER STATE OF THE EEA OR IN ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.

This announcement is not an offer to sell, or a solicitation of an offer to acquire, securities in the United States or in any other jurisdiction in which the same would be unlawful. Neither this announcement nor any part of it shall form the basis of or be relied on in connection with or act as an inducement to enter into any contract or commitment whatsoever.

JFJ Legal Entity Identifier: 549300JZW3TSSO464R15

19 September 2024

JPMORGAN JAPANESE INVESTMENT TRUST PLC

Combination with JPMorgan Japan Small Cap Growth & Income plc ("JSGI")

Publication of Prospectus and Circular

Introduction

Further to the announcement of 31 July 2024, the Board of JPMorgan Japanese Investment Trust plc (the "Company" or "JFJ") is pleased to announce that the Company has today published a circular (the "Circular") and a prospectus (the "Prospectus") in connection with the proposed combination (the "Combination") of the Company with JPMorgan Japan Small Cap Growth & Income plc ("JSGI").

The Combination will be undertaken by way of a scheme of reconstruction and members' voluntary winding-up of JSGI under s110 of the Insolvency Act 1986 (the "Scheme"), under which a proportion of JSGI's assets will be transferred to JFJ in exchange for the issue of new JFJ shares to JSGI shareholders who roll over, or are deemed to roll over, their interests in JSGI into new JFJ shares (the "Transaction"). Under the terms of the Scheme, JSGI shareholders will be entitled to elect to receive cash in respect of part or all of their shareholding, subject to an aggregate limit of 25 per cent. of  JSGI's issued share capital (excluding any treasury shares).

The Circular provides the Company's shareholders (the "Shareholders") with further details of the Scheme.  A general meeting of the Company has been convened for 11.00 a.m. on 10 October 2024 (the "General Meeting") to seek approval from Shareholders for the implementation of the Scheme.  Approval from JSGI Shareholders will also be required to implement the Scheme.

The Prospectus has been approved by the Financial Conduct Authority, and the Prospectus and Circular will shortly be available for inspection at the National Storage Mechanism which is located at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at JPMorgan Japanese Investment Trust plc | J.P. Morgan Asset Management.

Benefits of the Combination

The Combination is expected to result in the following substantial benefits for Shareholders:

·             Increased scale: JFJ is a constituent of the FTSE 250 Index, with a market capitalisation of £770 million and net assets of £875 million as at 13 September 2024.  It is the largest Japanese equity investment trust. The Transaction will increase the net assets of JFJ to up to approximately £1.0 billion, assuming that the Cash Option is taken up in full. The expected benefits should include increased secondary market liquidity and a greater relevance to larger investors as a direct consequence of size. 

·             Reduced management fees: Conditional on the Scheme becoming effective, and with effect from 1 October 2024, the Board has agreed a reduced investment management fee with JPMorgan for JFJ that is expected to reduce the blended annual management fee from 0.57% on net assets per annum to 0.48% on net assets per annum following completion of the Scheme (based on the net assets of both companies as at 13 September 2024 and assuming the Cash Option is taken up in full). The marginal fee rate will be 0.35% on net assets in excess of £750 million. For JSGI Shareholders electing for the Rollover Option, this represents a significant reduction in headline management fees from 0.83%.

·             Lower ongoing charges: JFJ's expected ongoing charges ratio (OCR), pro forma for the Transaction (and excluding the costs and JPMorgan Costs Contribution in relation to the Transaction) is expected to be 0.62% in the 12 months following the Transaction (based on net assets of both companies as at 13 September 2024 and assuming the Cash Option is taken up in full). This compares to JFJ's OCR of 0.75% for the six months ended 31 March 2024.

·             Introduction of continuation vote: As part of its commitment to the highest standards of corporate governance, the Board is also proposing an amendment to the Articles at the General Meeting to introduce a continuation vote which would be held at the Company's annual general meeting to be held in 2029 and, if passed, at every fifth annual general meeting thereafter.

·             Cost contribution: JPMorgan has agreed to cover the fixed costs of the Transaction, reducing the effective implementation costs for each of the Company and JSGI such that there is no NAV dilution for either JFJ or for JSGI Shareholders receiving New Shares pursuant to the Transaction from these fixed costs. 

Overview of the Scheme

Pursuant to the Scheme, JSGI will be put into liquidation and its assets split notionally into three pools in respect of: (i) the interests of JSGI Shareholders who elect, or are deemed to elect, to roll over into the enlarged JFJ (the "Rollover Pool"); (ii) the interests of JSGI Shareholders who elect for the Cash Option (the "Cash Pool"); and (iii) a provision sufficient to meet any current and future, actual and contingent liabilities of JSGI, including repayment of JSGI's existing loan facility (the "Liquidation Pool").

Under the Scheme, JSGI Shareholders will be entitled to elect to receive cash in respect of part or all of their shareholding, subject to an aggregate limit of 25% of JSGI's issued share capital (excluding shares held in treasury) at a 2% discount to the JSGI Residual FAV less the costs of realising the assets required to create the Cash Pool (the "Cash Option"). New Shares will be issued as the default option under the Scheme in the event that either no election, or a partial election, for the Cash Option is made by a JSGI Shareholder or because an election for the Cash Option is scaled back in accordance with the Scheme (the "Rollover Option").

The Scheme will be implemented on a formula asset value ("FAV") to FAV basis. FAVs for the purposes of the Scheme will be calculated in accordance with JFJ's and JSGI's normal accounting policies and will take into account the adjustments outlined below. FAVs will be calculated based on the NAVs (cum income, debt at fair value, if applicable) of the respective companies, on the Calculation Date.

The JSGI residual formula asset value ("JSGI Residual FAV") shall be equal to the gross assets of JSGI as at the Calculation Date less: (i) the value of the cash and other assets appropriated to the Liquidation Pool (which includes any assets attributable to any Dissenting JSGI Shareholders); and (ii) any dividend which has been declared as at the Calculation Date but not paid to JSGI Shareholders, and not accounted for in the JSGI NAV, but excluding any adjustment for the JPMorgan Costs Contribution; plus (iii) an amount equal to any costs relating to the realignment of the JSGI Portfolio in relation to the Transaction already incurred.

The JSGI Cash Pool FAV shall be equal to the JSGI Residual FAV multiplied by the proportion of the issued share capital of JSGI electing for the Cash Option to JSGI's issued share capital (excluding shares held in treasury) minus: (i) 2% (the "Cash Option Discount"); and (ii) the costs incurred in realising portfolio assets to create the Cash Pool (the "Cash Pool Realisation Costs").

The JSGI Cash FAV per Share shall equal the JSGI Cash Pool FAV divided by the number of JSGI Shares in respect of which JSGI Shareholders have elected for the Cash Option, subject to an aggregate limit of 25% of JSGI's issued share capital (excluding shares held in treasury).

The JSGI Rollover Pool FAV shall be equal to the JSGI Residual FAV multiplied by the proportion of the issued share capital of JSGI not electing for the Cash Option to JSGI's issued share capital (excluding shares held in treasury): (i) plus an amount reflecting the benefit of the JPMorgan Costs Contribution to JSGI (being equal to the fixed costs of the Proposals payable by JSGI); (ii) less the portfolio realignment costs, including both disposals and acquisitions, whether already incurred or estimated still to be incurred, as part of the Transaction by JSGI and JFJ and either before or after the Effective Date, but excluding the Cash Pool Realisation Costs (the "Realignment Costs"); and (iii) plus an amount equal to the aggregate value of the Cash Option Discount, capped at the value of the Realignment Costs. Any remaining benefit from the Cash Option Discount, after the application of the cap, will be for ongoing shareholders in the enlarged JFJ.

The JSGI Rollover FAV per Share shall equal the JSGI Rollover Pool FAV divided by the number of JSGI Shares in respect of which JSGI Shareholders have elected, or are deemed to have elected, for the Rollover Option.

The JFJ FAV shall be equal to the net assets of JFJ as at the Calculation Date: (i) less any direct Transaction costs not already incorporated into the JFJ NAV; (ii) plus an amount reflecting the benefit of the JPMorgan Costs Contribution to JFJ (being equal to the fixed costs of the Proposals payable by JFJ); and (iii) plus an amount equal to any costs relating to the realignment of the Portfolio in relation to the Transaction already incurred.

The JFJ FAV per Share shall be equal to the JFJ FAV divided by the issued share capital of JFJ (excluding Shares held in treasury).

JSGI Shareholders who elect (or are deemed to have elected) for the Rollover Option shall have New Shares issued to them based on the ratio of the JSGI Rollover FAV per Share to the JFJ FAV per Share, multiplied by the number of JSGI Shares in respect of which they have elected, or are deemed to have elected, for the Rollover Option.

Overseas JSGI Shareholders

To the extent that an Overseas JSGI Shareholder is entitled to and would otherwise receive New Shares under the Scheme, either because no election, or a partial election, for the Cash Option was made and they are deemed to have elected for the Rollover Option in respect of all or some of their JSGI Shares or because an election for the Cash Option is scaled back in accordance with the Scheme, then (unless they have satisfied the Directors and the JSGI Directors that they are entitled to receive and hold New Shares without breaching any relevant securities laws and without the need for compliance on the part of the Company or JGSI with any overseas laws, regulations, filing requirements or the equivalent) such New Shares will be issued to the Liquidators as nominees for the relevant Overseas JSGI Shareholder and sold by the Liquidators in the market.

Conditions of the Issue and the Scheme

The Issue and the Scheme are conditional upon the:

·             passing of the Issue Resolution at the General Meeting and such resolution becoming unconditional in all respects;

·             passing of the JSGI Resolutions to approve the Scheme and the winding-up of JSGI at the JSGI General Meetings and the Scheme becoming unconditional in all respects (including the Transfer Agreement becoming unconditional in all respects);

·             FCA agreeing to admit the New Shares to listing in the closed-ended investment funds category of the Official List and the London Stock Exchange agreeing to admit the New Shares to trading on its Main Market, subject only to allotment; and

·             Directors and JSGI Directors resolving to proceed with the Scheme.

Unless the conditions referred to above have been satisfied or, to the extent permitted, waived by both the Company and JSGI on or before 30 November 2024, the Scheme will not become effective and the New Shares will not be issued.

Manager's contribution to costs

The Manager has undertaken to make a contribution to JFJ equal to the total fixed costs of the Transaction of each of JFJ and JSGI (the "JPMorgan Costs Contribution"), contingent on the Transaction being fully implemented and subject to JPMorgan agreeing the costs being incurred. For the avoidance of doubt, the following costs shall not constitute fixed costs of the Transaction for the purposes of calculating the JPMorgan Costs Contribution: (i) any costs of the realignment and/or realisation of the JSGI Portfolio, which costs shall be borne solely by JSGI; (ii) any realignment costs, stamp duty, SDRT or other transaction tax incurred by JFJ for the acquisition of the Rollover Pool, which costs shall be borne solely by JFJ, but which, for the avoidance of doubt, will not be reflected in the JFJ FAV; and (iii) listing fees in respect of the listing of the New Shares issued in connection with the Scheme, which costs shall be borne by JFJ, but which, for the avoidance of doubt, will not be reflected in the JFJ FAV.

The financial value of the JPMorgan Costs Contribution will be credited against the costs of the Proposals as described above to the benefit of continuing shareholders (which excludes, to the extent of their actual participation in the Cash Option, those JSGI shareholders who elect for the Cash Option).

The amount of the JPMorgan Costs Contribution may, at the option of JPMorgan, be deducted from the amounts payable by JFJ to JPMorgan under the Investment Management Agreement.

JPMorgan has also agreed to waive any termination fees payable under its investment management agreement with JSGI which will terminate upon completion of the Transaction.

In the event that implementation of the Scheme does not proceed, each party will bear its own costs, save that JPMorgan has agreed to make a contribution to cover some of the Company's costs in certain prescribed circumstances.

Dividend policy

The Company is managed to produce capital growth and not to produce any particular level of dividend and therefore the level of dividend will vary. The Company currently has a policy of paying out the majority of revenue available each year. The dividend reflects the available revenue for distribution each year and accordingly there are likely to be fluctuations year on year.

The Board notes that JSGI has paid an enhanced dividend since 2018. Following completion of the Transaction, the enlarged Board intends to undertake a review of JFJ's dividend policy, including consulting with JFJ's major shareholders.

Board structure

Conditional on the Scheme becoming effective and with effect from Admission, Tom Walker will be appointed to the Board.

Tom Walker was appointed as a director of JSGI in 2019. He was a portfolio manager at Martin Currie Investment Management Limited where latterly he headed up their Global Long Term Unconstrained equity team. He qualified as a chartered accountant with Thomson McLintock, now KPMG, then moved into investment management with Edinburgh Fund Managers and subsequently worked in Hong Kong with Baring Asset Management before joining Martin Currie. He is a non-executive Director of Lowland Investment Company PLC.

The Board of the enlarged JFJ will therefore consist of the six current Directors of JFJ and one director from the board of JSGI following implementation of the Scheme. It is expected that the Board of the enlarged JFJ will, subject to meeting the requirement for an appropriate level of diversity on the Board (taking into account relevant skills, experience, gender, social and ethnic backgrounds), revert to six Directors over the medium-term.

Revised management fee arrangements

The existing annual management fee payable by the Company to the Manager is calculated on a tiered basis by reference to the Net Asset Value, as follows:

• 0.65% on the first £465 million of the Net Asset Value;

• 0.485% above £465 million and up to £930 million of the Net Asset Value; and

• 0.40% on the Net Asset Value in excess of £930 million.

With effect from 1 October 2024, and conditional on the Scheme becoming effective, the Investment Management Agreement has been amended such that the existing management fee shall be reduced to a tiered fee structure by reference to the Net Asset Value on the following basis:

• 0.6% on the first £500 million of the Net Asset Value;

• 0.4% above £500 million and up to £750 million of the Net Asset Value; and

• 0.35% on the Net Asset Value in excess of £750 million.

As detailed above, the Manager has agreed to make the JPMorgan Costs Contribution to the costs of the Scheme pursuant to which the Manager may elect to waive its entitlement to be paid its management fee with effect from Admission until such time as the value of such waived management fee equals the JPMorgan Costs Contribution.

Amendments to Articles

Resolution 2 to be proposed at the General Meeting seeks approval to amend the Articles to include new Articles 151 and 152, and to amend Article 103, as set out in Part 3 of the Circular. The Scheme is not conditional on the passing of Resolution 2.

Continuation vote

The Board is proposing an amendment to the Articles to introduce a provision requiring a continuation vote to be proposed to Shareholders as an ordinary resolution at the annual general meeting of the Company to be held in 2029 and, if passed, at every fifth annual general meeting thereafter.

If any such resolution is not passed, the Board shall, at a general meeting to be held within six months of the date on which such resolution is not passed, put forward proposals to Shareholders for the reconstruction, reorganisation or winding-up of the Company.

Resolution 2 to be proposed at the General Meeting seeks approval to amend the Articles to incorporate the continuation vote, to increase the aggregate cap on Directors' remuneration given the increased size of the Board if the Scheme becomes effective and to adopt market practice by permitting the Board to require a compulsory transfer of Shares by a Shareholder should that Shareholder subject the Company to onerous legislative or regulatory obligations.  

Timetable

General Meeting

Scheme

References to times are to London time unless otherwise stated.  Any changes to the expected timetable set out above will be notified to the market by the Company via an RIS announcement.

Capitalised terms used but not defined in this announcement will have the same meaning as set out in the Circular.

FURTHER INFORMATION

For further information please contact:

Important Information

The information in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The material contained in this announcement is given as at the date of its publication (unless otherwise marked) and is subject to updating, revision and amendment. In particular, any proposals referred to herein are subject to revision and amendment. 

The New JFJ Shares have not been, and will not be, registered under the U.S. Securities Act of 1933 (as amended) (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an exemption from registration under the Securities Act. The Company does not intend to register any of the securities in the United States or to conduct a public offering of the securities in the United States.  Moreover, the new JFJ Shares have not been, nor will they be, registered under the applicable securities laws of Australia, Canada, Japan, the Republic of South Africa, or any member state of the EEA (other than any member state of the EEA where the shares are lawfully marketed). Further, JFJ is not, and will not be, registered under the US Investment Company Act of 1940, as amended. 

The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements.  When you sell your investment you may get back less than you originally invested. Figures refer to past performance and past performance should not be considered a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations.

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "might", "will" or "should" or, in each case, their negative or other variations or similar expressions. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the JFJ's or JSGI's respective financial positions, strategies, plans, proposed acquisitions and objectives, are forward-looking statements. 

Forward-looking statements are subject to risks and uncertainties and, accordingly, JFJ's or JSGI's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These forward-looking statements speak only as at the date of this announcement and cannot be relied upon as a guide to future performance. Subject to their respective legal and regulatory obligations, each of JFJ, JSGI and JPMorgan expressly disclaims any obligations or undertaking to update or revise any forward-looking statements contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based unless required to do so by law or any appropriate regulatory authority. 

Investec Bank plc ("Investec") which is authorised in the United Kingdom by the Prudential Regulatory Authority and regulated by the Financial Conduct Authority and the Prudential Regulatory Authority is acting exclusively for JFJ and for no-one else in connection with the Transaction, will not regard any other person as it client in relation to the Transaction and will not be responsible to anyone other than JFJ for providing the protections afforded to its clients or for providing advice in relation to the Transaction, or any of the other matters referred to in this announcement.  This does not exclude any responsibilities or liabilities of Investec under the Financial Services and Markets Act 2000, as amended, or the regulatory regime established thereunder.

None of JFJ, JPMorgan, or Investec, or any of their respective affiliates, accepts any responsibility or liability whatsoever for, or makes any representation or warranty, express or implied, as to this announcement, including the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to any of them, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of the announcement or its contents or otherwise arising in connection therewith. Each of JFJ, JPMorgan and Investec, and their respective affiliates, accordingly disclaim all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of this announcement or its contents or otherwise arising in connection therewith.