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

Legal Entity Identifier: 549300HKKL9K1NY4TW55

Annual Financial Report for the year ended 30 June 2024

Financial Highlights for the year ended 30 June 2024

Ordinary Share Performance

*for definitions of the above Alternative Performance Measurements please refer to the Glossary of Terms in the Annual Report.

Ten year record

*for definitions of the above Alternative Performance Measurements please refer to the Glossary of Terms in the Annual Report.

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

"In a challenging environment, the portfolio managers maintained their strategy of identifying long-term compounders that offer durable growth, good governance and a strong 'go-to-market' position, even if this meant missing out on some of the more momentum-driven and speculative stocks that have led the smaller companies market more recently. Our performance was impacted by other factors such as our underweight position in financials, a sector our portfolio managers tend not to favour and, for valuation reasons, having little exposure to perceived AI plays. In addition, certain stocks in the healthcare and IT sectors were hit by negative earnings surprises, some of which have since been sold.

Today's backdrop of a reasonably healthy economy and falling interest rates is favourable for smaller companies. We see a return to the fore of our portfolio manager's investment style with its focus on earnings analysis, cash flow and balance sheet quality, and believe our portfolio is well placed to take advantage of this situation." 

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Chairman's Statement

Dear Fellow Shareholder

For the twelve months ended 30 June 2024, your Company's net asset value (NAV) per share rose from 1,431.9p to 1,471.4p, an increase of 2.8%. This small gain was somewhat disappointing, not only in absolute terms as smaller companies in the US lagged their larger peers for the third financial year running, but also relative to our benchmark, the sterling adjusted Russell 2000 Total Return index, which rose by 10.7% over the same period. An explanation of specific portfolio factors in relation to performance can be found in this statement as well as in the

Portfolio Manager's review below. Despite a difficult year, the Board reiterates its confidence in Brown Advisory's approach and its optimism for the US smaller company sector going forward.

Over the twelve-month period, the Company's share price rose from 1,220.00p to 1,282.50p, an increase of 5.1%. This resulted in a small narrowing of the discount to NAV from 14.8% on 30 June 2023 to 12.8% on 30 June 2024. A small number of shares were bought in over the course of the year in accordance with the revised buyback policy we outlined a year ago.

Market Review

For the first four months of our financial year, US equity markets moved within a narrow trading range amidst low volatility, reduced trading volumes and restrained corporate activity. Geopolitical risks remained elevated as in Europe the war between Russia and the Ukraine continued, in the Far East dialogue between China and Taiwan became more strained and in the Middle East Israel responded aggressively to the attacks by terrorist organisation Hamas. Surprisingly, these tensions had only a limited impact on financial markets. At the same time, US domestic news, continued to be mixed, giving little direction to markets as the debate continued as to whether the economy would be hitting a 'hard' or a 'soft' landing in 2024.

What influenced markets above all in this period was the perceived direction of US interest rates. With official rates having reached a 22-year high of between 5.25% and 5.50% at the start of our year, the Federal Reserve (Fed) reiterated its focus on bringing inflation down to its 2.0% target, suggesting that it still had 'a long way to go', even if tight conditions would weigh on economic activity. Given this rhetoric and data that showed the economy and jobs market to be still in good shape, 10-year bond yields moved steadily higher, briefly touching 5.0% in October.

This restrained equity markets in this period, and held back in particular the smaller company sector, not helped by investors continuing to favour the mega-caps, particularly those now known as the 'Magnificent Seven', and other technology stocks with any perceived connection to artificial intelligence (AI).

In November, the mood in the markets began to brighten again. Hopes grew that, with improving inflation numbers, mixed retail sales and some softening in the jobs market, the Fed's tightening cycle had come to an end and that a steady programme of interest rate cuts lay in store. Indeed, investors' expectations for rate cuts at this time moved well ahead of those suggested by the Fed in its famous post-meeting 'dot plots', both in terms of timing and of scope. Nonetheless, the Fed held firm throughout the first half of 2024, refusing to cut rates as it argued that, despite some softening, the economy and the jobs market remained resilient, while inflation risks had not gone away. It did acknowledge, however, that the peak in rates had probably been reached, but made no promises as to when the first cut would come. This was despite several other major central banks cutting interest rates towards the end of the period.

Hoping that the Fed would soon concede and cut rates, US equity markets pushed steadily higher from November onwards, without any major setbacks, and closed our financial year around their all-time highs. Although the market leaders were still the 'Magnificent Seven', and other technology stocks linked to AI, where news flow remained upbeat, earnings continued to surprise positively and valuations seemed not unreasonable, other sectors were also pulled higher in their wake. This included small caps which until then had spent much of the year in the shadow of their larger peers, but which met with some renewed buying interest. Within the small cap arena, similar trends were at play as in large cap with the winners being technology stocks, anything seen to be AI related and momentum plays, often driven higher by speculative retail buying despite having poorer fundamentals.

As mentioned at the beginning of my statement, our performance this year was disappointing, both in absolute and in relative terms. Top-down, our portfolio suffered from being underweight financials, a sector our Portfolio Managers tend not to favour, having little exposure to perceived AI plays for valuation reasons, and avoiding the more speculative, indebted, low-quality earnings situations that enjoyed a sudden rally in November/December. Underperformance this year also came from stock selection in two specific areas, namely healthcare and information technology, where our portfolio was hit unexpectedly by negative earnings surprises in a clutch of our names, some of which had to be reassessed and have since been sold.

Key positive contributors to return over the year were Casey's General Stores, Pinterest, Waste Connections, Neurocrine Biosciences and Bright Horizons, while the main detractors were Accolade, SI-BONE, agilon health, Rentokil Initial and Workiva.

Over the year, in US dollar terms, the Russell 2000 returned 10.1%, the S&P 500 returned 24.6% and the Nasdaq returned 29.6%. The pound/dollar rate was little changed over the twelve-month period, moving from 1.2714 to 1.2641, because of which sterling-based shareholders made no currency gains this year.

Portfolio Manager and Continuation Vote

A more detailed coverage on the development of the US smaller company sector over the past twelve months and our activity and performance is included in the Portfolio Manager's Review below.

With three years having passed since Brown Advisory took over the management of the portfolio in June the Board undertook a detailed review of the Trust's investment performance, its fee structure and its remit to ensure that they remain appropriate and relevant. Between 31 March 2021, the date from which Brown Advisory commenced management, and 31 March 2024 the Trust's NAV rose by 6.4%, compared to an increase in the benchmark of 8.9%, equivalent to annualised returns over the three years of 2.1% and 2.9% respectively. We had hoped for better, particularly given our Manager, Brown Advisory's, impressive long-term performance record in its US smaller companies strategy, which attracted us to them in the first place and which we have been following since their appointment.

Over the three-year period, sector allocation was the main detractor to performance with an underweight position in the oil sector. Stock selection was more positive, particularly in the more growthy areas of healthcare and information technology. Key positive contributors to performance over the three-year period were Biohaven Pharmaceuticals, EVO Payments, Mimecast Limited, Waste Connections and Curtiss-Wright Corp., while detractors included Angi, Leslie's, Azenta, Oak Street Health and Natera.

The Board noted that, despite the more challenging market environment, the managers maintained their investment approach and their search for longterm compounders that offer durable growth, good governance and a strong 'go-to-market' position, even if this meant missing out on many of the more momentum-driven and speculative stocks which have led the smaller companies markets of late.

The Board will continue to monitor closely investment performance, both absolute and relative, on an ongoing basis.

Finally, the Board, as part of its ongoing review process, considered the fees charged by the Manager in relation to peers in the closed-end and open-ended sectors to ensure they remain both appropriate and competitive.

In accordance with the three-year cycle prescribed in the Company's Articles of Association, a continuation vote was held at last year's Annual General Meeting. The resolution in favour of continuation was passed with 3,885,193 proxy votes or 90.5 percent in favour. The next continuation vote will take place at the Annual General Meeting in November 2026. At its Strategy Day in April, the Board also considered again the Company's investment remit, strategy and performance and ongoing viability and believes that the Company's offering remains attractive.

Revenue and Capital Returns

The net gain per Ordinary share was 38.57p, allocated (6.11p) to Revenue and 44.68p to Capital. Dividend income was higher as some companies raised pay-outs as confidence returned and interest income benefited from the higher interest rates. With management expenses broadly unchanged, the net revenue loss was marginally lower

than the previous year. The Board still believes it appropriate to allocate all expenses to the Revenue account. No distributable revenue is available for the payment of dividends.

Share Price and Discount

A year ago, the Board amended the Company's share buyback policy which had been in place for several years. Under the new policy, the Board is committed to using share buybacks with the aim of reducing discount volatility and working to reduce any discount to the extent that it is significantly wider than those of similar investment trusts.

Alongside this share buyback policy, the Board believes that the Company's discount will also be driven by demand for the Company's shares, reflecting its long-term investment performance, its relevance to investors, the appropriate marketing of the Company and general market conditions.

Given that for much of the period the discount was within our tolerated range we only repurchased 90,000 shares. As at 30 June 2024, the number of shares held in Treasury was 6,361,254 (2023: 6,271,254) and the total number in public hands was 11,862,159 (2023: 11,952,159).

Gearing

With the rise in interest rates, a mixed earnings outlook and limited investor interest in the sector, the Board saw

no good reason to deploy any gearing over the year, and indeed preferred to hold some cash in hand in case of market setbacks. However, going forward, should prospects for the smaller company sector improve and investor interest return, the Board will review its decision to gear, mindful that the ability to do so to enhance returns is one of the key advantages of a closed-end structure.

Board Composition

In May, I was pleased to announce the appointment of Ruth Beechey as a non-executive Director, with effect from 1 July 2024. We were helped in our search by an external recruitment agency which put forward a strong, experienced and diverse list of candidates to choose from. Keen to recruit someone with a legal background to replace the skill set that will be lost when Lisa Booth steps down, we chose Ruth. We see her bringing considerable expertise to the Board given her long career as a lawyer in the fund management industry, first at Deutsche Asset

Management and then at UBS Asset Management UK. She is also a non-executive director at Legal and General Assurance (Pensions Management) Ltd and the Investor Forum.

As planned, to coincide with Ruth's arrival Clive Parritt, Senior Independent Director (SID), stepped down from the Board on 30 June 2024. I am delighted that his role as SID has been taken on by Jane Routledge. During Clive's time as a Director the Company benefited hugely from his corporate and accounting knowledge and business acumen as a former president of the Institute of Chartered Accountants in England & Wales.

Finally, Lisa Booth will be retiring from the Board at the AGM in November. For several years, she was Chair of

the Audit and Risk Committee and her background as a lawyer was of great use to the Company, particularly during the time of our change of Manager. On behalf of the Board and shareholders I would like therefore to thank both Clive and Lisa for their contribution to the success of the Company over the past years and to wish them the very best in the future.

With the full refreshing of the Board since I became Chair in October 2021, four directors will be presenting themselves for re-election/election at the AGM in November, Jasper Judd, Jane Routledge, Ruth Beechey and myself. Although, following the AGM, the Board will only comprise four people, I believe that this is appropriate for the size and complexity of our Company and that all the necessary skill sets are represented, be they investment

management, accounting, marketing or legal. If we feel the need for additional skills and expertise, we always have the scope to go back to five.

The Board is aware of the FCA's Diversity and Inclusion Policy and notes and supports their targets. Full disclosure of the Board's composition, balance and diversity is given in the Annual Report. The Board's aim above all is to create and maintain a Board that has the appropriate mix of skills, diversity of thought and a collegiate culture drawn from as wide a pool as possible.

Annual General Meeting

This year's AGM will be held on Monday, 4 November 2024 at 2.00pm at the offices of Brown Advisory, 18 Hanover Square, London W1S 1JY. It will include a short presentation via video-link by Chris Berrier, Portfolio Manager, covering the performance of the Company over the past year as well as his outlook for the future. The Board and Portfolio Manager would welcome questions which shareholders may submit to: InvestmentTrustEnquiries@brownadvisory.com 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 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, whose details can be found within the Company's Annual Report.

Notice of the AGM, containing full details of the business to be conducted at the meeting, is set out in the Company's Annual Report.

Shareholder Communications

The Board encourages shareholders to visit the Company's website (www.brownadvisory.com/basc) for the latest information, podcasts and monthly factsheets.

Outlook

So far in 2024, the US economy has continued to perform well, and the recession forecast by many has again failed to materialise. Consumer spending has been the linchpin of the economy, driven by jobs growth, rising wages and the drawdown of savings accumulated from the pandemic period. At the same time, investment spending has held up well due to government incentives and the move towards reshoring given the rising geopolitical and supply chain risks. The Board sees these trends continuing and the US economy remaining resilient. At the same time,

market expectations are for inflation to move back towards the Fed's targeted range, enabling the latter to embark on its much-anticipated programme of interest rate cuts as of the autumn. Certainly, the tone of the US central bank has been softening over the summer, as evidenced by Jerome Powell's speech at the recent Jackson Hole symposium where the chair of the Fed declared that 'the time has come for policy to adjust'.

Against a background of a reasonably healthy economy and falling interest rates, US equity markets will hopefully

continue nonetheless to perform well. More importantly for us, we see this as a generally favourable background for smaller companies, particularly given their long period of underperformance relative to their larger peers. Smaller companies tend to have higher amounts of debt and at floating rates and thus benefit proportionally more

as interest rates fall. They tend to be under-owned by investors, particularly true of late given the massive exposure

that many have built up in the 'Magnificent Seven' stocks and the technology sector at the expense of all other areas.

They are likely to benefit more from the reshoring trend given their domestic economy bias and finally they offer

greater value trading at multiples well below their larger peers and their own long-term averages. That is not to say

that the US smaller company sector won't be affected by bouts of volatility in world markets resulting from the ongoing geopolitical issues, notably tensions in East Asia and Ukraine, not to mention closer to home with the forthcoming presidential election in November in the US.

In conclusion, after a period of dull returns from US small cap, we see a more favourable picture going forward,

for all the reasons cited above. At the same time, we also see a return to the fore of our Manager's investment

style with its focus on earnings analysis, cash flow generation and balance sheet quality, rather than on speculation and momentum. We believe our portfolio is well placed to take advantage of this situation.

Stephen White

Chairman of the Board

20 September 2024

Portfolio Manager's Review

Performance Review

For the 12 months ending June 30, 2024, our portfolio unfortunately did not keep up with our benchmark, the Sterling-adjusted Russell 2000 Total Return Index. During the year, the Company's NAV increased by 2.8% compared to the benchmark return of 10.7%1. Several factors contributed to this underperformance, which we'll explain below.

Market Overview

The market has been through some unusual times in the past few years. The COVID-19 pandemic led to stimulus cheques and very low interest rates, causing markets to soar. However, in 2022 skyrocketing valuations and rampant inflation forced the Federal Reserve to take a stricter approach, causing growth stocks to fall. Traditional

growth sectors like technology and healthcare initially struggled. While healthcare remains under pressure, the information technology sector rebounded in late 2023 thanks to innovations like generative artificial intelligence, leading to a historic period of market concentration.

In the small-cap space, Super Micro Computer, Inc. (SMCI) became the first company to be included in both the Russell 2000 Index and the S&P 500 Index simultaneously. MicroStrategy Inc. (MSTR), which holds a large position in bitcoin, also saw staggering gains. The largest 15 names in the Russell 2000 Growth Index produced a weighted average gain of 77.5% in the first half of 2024 - this is extremely unusual.

Our Strategy's Performance

Our strategy has seen both highs and lows over the last few years. Our downside protection helped us endure the challenges of 2022, posting a smaller decline against the benchmark. However, in late 2023, it became increasingly difficult to keep up with our benchmark as market concentration accelerated and individual investors swelled.

Individual investors, also known as retail investors, are non-professional market participants who trade securities for their personal accounts. The surge in their activity can significantly impact market dynamics, leading to increased volatility and price shifts.

These market dynamics led to a small-cap benchmark that had become somewhat distorted, with the largest constituent of the Russell 2000 Index, SMCI, valued at $46bn by the end of May 2024. The index was rebalanced in late June 2024, removing some of these outliers. Following SMCI's exit from the index, the maximum market capitalisation drops to just under $11 billion. This results in an index more aligned with our present portfolio weights. We are modestly underweight in healthcare and closely aligned with the benchmark in information technology. Additionally, we are overweight in Industrials, including a 5%+ position in waste management companies, which are likely better mapped as utilities or consumer staples.

Our strategy's monthly tracking error has risen from around 1.5% pre-COVID to nearly 2.4% post COVID. Tracking error measures the difference between the performance of a portfolio and its benchmark. It is often used to assess how closely a portfolio follows the index to which it is benchmarked. A higher tracking error indicates more significant deviations from the benchmark, while a lower tracking error suggests the portfolio is closely aligned with the benchmark.

Despite this increase, we remain committed to our philosophy and process. While our portfolio's relative swings can be significantly positive or negative over short periods, our portfolio's long-term fortunes will be governed by the fundamental progress of the companies in which we invest. We continue to remain active, adding to our winners, reducing or selling poorer performers, and adding new positions with favourable risk/reward profiles.

Key Factors Impacting Performance

·      Most of our fiscal year relative underperformance occurred in the final weeks of 2023. Our strategy was ahead of the Russell 2000 Index and roughly tied with the Russell 2000 Growth Index for the calendar year as we entered the month of November last year. However, people became excited about the possibility that the Federal Reserve might switch to a less strict policy which prompted a classic, lower quality, risk-on rally - where investors flock to higher-risk assets hoping for greater returns - resulting in our higher quality portfolio struggling. This led to us lagging the Russell 2000 Index by about 5% during the November-December rally.

·      The absence of Super Micro Computer (SMCI) and MicroStrategy (MSTR) in our portfolio hurt results. Despite examining these stocks over the years, they did not align with our "3G" investment filter. Russell's decision to retain these high market cap stocks in the benchmark until very recently proved detrimental, negatively impacting our relative returns.

·      Subpar results in healthcare dampened returns. Compared to the Russell 2000, we had our largest sector overweight in healthcare during the fiscal year, and our healthcare stocks returned roughly -10.4% vs. the -1.8% return for those in the benchmark. Although a few companies underperformed our expectations, some holdings fell on little negative news.

Additions and Disposals

Over the twelve-month period, we saw a roughly equal number of additions and deletions in the portfolio. Much

of the turnover was driven by M&A activity and our decision to exit positions where our investment thesis was no longer valid or where we saw poor risk/reward dynamics.

Over the twelve-month period, we made several strategic exits from our portfolio, driven by mergers and acquisitions (M&A) activity, invalidation of our investment thesis, or again poor risk/reward dynamics.

Specifically, we sold agilon health, Bentley Systems, Knight-Swift Transportation, XPEL, Inc., Choice Hotels, Genpact, Karuna Therapeutics, Abcam, Denbury Inc, and Angi Inc. These sales were made to ensure our portfolio remained aligned with our investment philosophy and to focus on positions with more favorable risk/reward profiles.

We also exited Definitive Healthcare, Sprout Social, Alignment Healthcare, Azenta, and Leslie's due to disappointing performance or concerns about future profitability. Astera Labs and Loar Holdings Inc. were sold after significant price increases following their IPOs. MakeMyTrip was sold after strong performance, but we remain cautious about future competition.

We were able to redeploy the proceeds from these sales into a diverse collection of businesses that we hope to own for the next several years.

Notable additions include Applied Industrial Technologies, a leading distributor of industrial machinery with strong market positioning; Haemonetics, which is using its strong cash flow to drive significant earnings growth through acquisitions; Kadant, a high-quality industrial company with a proven management team; and Vaxcyte, a biotechnology firm with a promising pneumococcal vaccine. We believe these companies offer strong

long-term growth potential and align well with our investment philosophy.

Focus on quality decisions

In challenging times, our commitment is to high quality decision-making, acknowledging that not all choices

will be perfect. Nonetheless, our investment team is actively adding new prospects to our portfolio, which

we believe will contribute to long-term risk-adjusted performance.

While our investment approach is not constrained by the composition of our benchmark, the continuing

rise of passive investing means we have to be more aware than ever of the impact of index inclusion on a

company's share price, particularly during periods of market volatility. As such, to avoid future oversights

we have enhanced our investment process to ensure we have an informed perspective on all top index

names that meet our "3G" criteria but we don't yet own.

We're grateful for your patience with short-term performance fluctuations. Our enduring objective is to outperform small-cap benchmarks with reduced risk, a goal we've achieved as an investment team over the past 18 years. As the investment landscape evolves, so too does our strategy, ensuring we stay ahead in a dynamic market.

Portfolio Manager

Brown Advisory LLC

20 September 2024

Key Performance Indicators

At 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 website www.brownadvisory.com/basc.

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, by reviewing the next three years. 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, as detailed in the Annual Report, 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

·      it 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 recognises that a continuation vote is scheduled for 2026 but has no current reason to believe that shareholders will vote against the continuation of 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 Board, through the Audit and Risk Committee, carries out a regular review of the risk environment in which the Company operates, changes to the environment and individual risks. The Board also considers emerging risks which might affect the Company.

In addition to those principal risks and uncertainties, the Board considers that the development of artificial intelligence (AI) presents potential risks to businesses in almost every sector. The extent of the risk presented by AI is extremely hard to assess at this point but the Board considers that it is an emerging risk and, together with the Manager, will monitor developments in this area.

During the year, the continued conflict in Ukraine and tensions between China and the US have created geopolitical uncertainties which have increased market risk and volatility.

There are a number of other risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has carried out a robust assessment of the Company's principal and emerging risks, which include those that would threaten its business model, future performance, solvency, liquidity or reputation.

The principal risks and uncertainties facing the Company at the current time, together with a description of the mitigating actions the Board has taken, are set out in the table below.

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 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 auditor is 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 auditor has been made aware of that information.

By order of the Board

Stephen White

Chairman

20 September 2024

Statement of Comprehensive Income

for the year ended 30 June 2024

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

The 'Revenue' and 'Capital' columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other items of other comprehensive income, and therefore the net return after taxation is also the total comprehensive income for the year.

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

The Notes below form part of these accounts.

Statement of Financial Position

as at 30 June 2024

The financial statements were approved by the Board of Directors and signed on its behalf on 20 September 2024.

Stephen White

Chairman

Company Registration Number 02781968

The Notes below form part of these accounts.

Statement of Changes in Equity

for the year ended 30 June 2024

Statement of Cash Flows

for the year ended 30 June 2024

Notes to the Accounts for the year ended 30 June 2024

1.   General information

Brown Advisory US Smaller Companies PLC (a Public Company Limited by shares) is an investment Company incorporated in the United Kingdom with a premium listing on the London Stock Exchange. The Company registration number is 02781968 and the registered office is 6th floor, 125 London Wall, London, EC2Y 5AS.

The Company conducts its affairs so as to qualify as an investment trust under the provisions of section 1158 of the Corporation Tax Act 2010. The Company has qualified as an investment trust in respect of all relevant years up to and including the year ended 30 June 2024. Section 1158 was amended to allow the Company to seek approval of compliance in advance and for all subsequent financial years. The Company received such advance approval subject to it continuing to meet the relevant eligible conditions and ongoing requirements. The Company intends to conduct its affairs so as to enable it to comply with the requirements. Such approval exempts the Company from UK corporation tax on gains realised in the relevant year on its portfolio of fixed asset investments.

A summary of the accounting policies, all of which have been applied consistently throughout the period is set out below.

2.   Accounting policies

Basis of preparation

The financial statements for the year ended 30 June 2024 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 July 2022.

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 July 2022.

In accordance with FRS 102, the Company is required to identify its 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 identified functional and presentation reporting currency of the Company.

The Directors are of the opinion that the Company is engaged in a single segment of business activity, being investment business. Consequently, no business segmental reporting is required.

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.

(b) Principal accounting policies

(i) Financial instruments Financial instruments include fixed asset investments and derivative assets and liabilities.

Accounting standards recognise a hierarchy of fair value measurements for financial instruments which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The classification of financial instruments depends on the lowest significant applicable input, as follows:

Level 1 - Unadjusted, fully accessible and current quoted prices in active markets for identical assets or liabilities. Included within this category are investments listed on any recognised stock exchange.

Level 2 - Quoted prices for similar assets or liabilities, or other directly or indirectly observable inputs which exist for the duration of the period of investment. Examples of such instruments would be those for which the quoted price has been recently suspended, forward exchange contracts and certain other derivative instruments.

Level 3 - External inputs are unobservable.

Fair value is the Directors' best estimate, based on advice from relevant knowledgeable experts, use of recognised valuation techniques and on assumptions as to what inputs other market participants would apply in pricing the same or similar instruments. Included within this category are unquoted investments.

(ii) Fixed asset investments As an investment trust, the Company measures its fixed asset investments at "fair value through profit or loss" and treats all transactions on the realisation and revaluation of investments as transactions on the capital account. Purchases are recognised on the relevant trade date, inclusive of expenses which are incidental to their acquisition. Sales are also recognised on the trade date, after deducting expenses incidental to the sales.

Quoted investments are valued at bid value at the close of business on the relevant date on the exchange on which the investment is quoted.

(iii) Foreign currency

Monetary assets, monetary liabilities and equity investments denominated in a foreign currency are expressed in sterling at rates of exchange ruling at the Statement of Financial Position date. Purchases and sales of investment securities, dividend income, interest income and expenses are translated at the rates of exchange prevailing at the respective dates of such transactions.

Foreign exchange profits and losses on fixed asset investments are included within the changes in fair value in the capital account.

Foreign exchange profits and losses on other currency balances are separately credited or charged to the

capital account except where they relate to revenue items when they are credited or charged to the revenue

account.

(iv) Income

Income from equity shares is brought into the revenue account (except where, in the opinion of the Directors, its nature indicates it should be recognised within the capital account) on the ex-dividend date or, where no ex-dividend date is quoted, when the Company's right to receive payment is established.

Dividends from overseas companies are shown gross of withholding tax.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash (scrip dividends), the amount of the cash dividend foregone is recognised as income. Any excess in the value of the shares received over the amount of the cash dividend foregone is recognised in the capital account.

(v) Expenses, including finance charges

Expenses are charged to the revenue account of the Income Statement, except as noted below:

- expenses incidental to the acquisition or disposal of fixed asset investments are included within the cost of the investments or deducted from the disposal proceeds of investments and are thus charged to the capital element of retained earnings - arising on investments sold via the capital account; and

- all expenses are accounted for on an accruals basis. Finance charges are accrued using the effective interest rate method.

(vi) Taxation

Withholding tax deducted at source from income received is treated as part of the taxation charge in the income account, in instances where it cannot be recovered.

Deferred tax is provided in accordance with FRS 102, on an undiscounted basis, on all timing differences that have originated but not reversed by the Statement of Financial Position date, based on the tax rates that are expected to apply in the period when the liability is settled or the asset realised.

Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted.

In line with the recommendations of the SORP, the allocation method used to calculate the tax relief on expenses charged to capital is the "marginal" basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

(vii) Capital redemption reserve

The nominal value of Ordinary share capital purchased and cancelled is transferred out of called-up share capital and into the capital redemption reserve.

Capital redemption reserve is not available for the payment of dividends.

(viii) Retained earnings

This consists of the following:

Capital return

The following are accounted for in this reserve:

·      gains and losses on the realisation of fixed asset investments;

·      increases and decreases in the valuation of fixed asset investments held at the year end;

·      realised and unrealised foreign exchange differences of a capital nature;

·      tax charges associated with transactions of a capital nature;

·      costs of professional advice, including related irrecoverable VAT, relating to the capital structure of the Company;

·      other capital charges and credits charged or credited to this account in accordance with the above policies; and

·      the costs of purchasing Ordinary share capital.

Revenue return

·      the income return or loss for the year is taken to the income element of this reserve.

This element of the retained earnings reserve may be used to fund the distribution of profits to investors via dividend payments only when this is in a surplus position. Currently there is an accumulated loss and therefore no distributions can be paid.

(c)   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 shown in Notes 4 and 5.

4.   Management fee  

5.   Other expenses  

6.   Taxation

(b) Factors affecting current tax (credit)/charge for the year

The tax assessed for the year is lower than (2023: lower) the Company's applicable rate of corporation tax of  25.00% (2023: 20.50%). The differences are explained below:

Due to the Company's status as an investment trust and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

There is an unrecognised deferred tax asset of £5,841,000 (2023: £5,461,000) which relates to unutilised excess expenses. The deferred tax asset would only be recovered if the Company were to generate sufficient profits to utilise these expenses. It is considered too uncertain that this will occur and therefore, no deferred tax asset has been recognised.

7.   Net return/(loss) per Ordinary share

The return per Ordinary share figure is based on the net profit for the year of £4,596,536 (2023: Profit £15,307,432), and on 11,918,279 (2023: 11,952,159) Ordinary shares, being the weighted average number of Ordinary shares in issue during the year.

The return per Ordinary share figure detailed above can be further analysed between revenue and capital, as below.

8.   Investments held as at fair value through profit or loss

9.   Transaction Costs

During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains (2023: gains) on investments in the Income Statement. The total costs were as follows:

10. Debtors

11. Creditors: amounts falling due within one year

12. Financial Instruments

Background

The Company's financial instruments comprise securities and other investments, cash balances and term

loans, debtors and creditors that arise directly from its operations, for example, in respect of sales and

purchases of investments awaiting settlement and debtors for accrued income. The numerical disclosures below exclude

short-term debtors and creditors which are denominated in sterling and do not incur interest and therefore

are not subject to foreign currency risk or interest rate risk.

The principal risks the Company faces in its portfolio management activities are:

- foreign currency risk

- market price risk

- interest rate risk

- liquidity risk

- credit and counterparty risk

The Portfolio Manager's policies for managing these risks are summarised below and have been applied

throughout the year.

(a) Foreign Currency Risk

A substantial portion of the financial assets of the Company are denominated in US Dollars with the

result that the Statement of Financial Position and Income Statement can be significantly affected by

currency movements.

The Company normally takes account of this risk when making investment decisions although it could

hedge against foreign currency movements affecting the value of the investment portfolio where

adverse movements are anticipated.

Foreign currency sensitivity

The principal currency to which the Company was exposed during the year was the US Dollar as all

investments are quoted in that currency. The exchange rates applying against sterling at 30 June and

the average rates during the year ended 30 June were as follows:

The following tables illustrate the sensitivity of the profit after tax for the year and net assets to exchange

rates for sterling against the US Dollar. It assumes the following changes in exchange rates:

£/US Dollar +/- 5% (2023: +/- 10%)

These percentages have been determined based on market volatility in exchange rates over the

previous twelve months. The sensitivity analysis is based on the company's foreign currency financial

instruments held at the date of each Statement of Financial Position.

If sterling had weakened by 5% (2023: 10%) against the currencies this would have had the following

effect on revenue, capital, total return and, accordingly, net assets:

If sterling had strengthened by 5% (2023: 10%) against the currencies below this would have had the

following effect:

(b) Market Price Risk

By the very nature of its activities, the Company's investments are exposed to market price fluctuations.

The board reviews and agrees policies for managing this risk. The investment adviser assesses the

exposure to market price risk when making each investment decision, and monitors the overall level of

market price risk on the whole of the investment portfolio on an ongoing basis. Further information on

the investment portfolio and investment policy is set out in the Portfolio Manager's Review above.

Other price risk sensitivity

The following illustrates the sensitivity of the profit after taxation for the year and the total equity to

an increase or decrease of 20% (2023: 20%) in the fair value of the Company's equities. This level of

change is considered to be reasonably possible based on observation of market conditions during the

year. The sensitivity analysis is based on the Company's equities at each reporting date, with all other

variables held constant.

The impact of a 20% increase in the value of investments on the revenue loss for the year to 30 June

2024 is a decrease of £232,000 (2023: £223,000) and on the capital return is an increase of

£33,185,000 (2023: £31,827,000).

The impact of a 20% fall in the value of investments on the revenue loss for the year to 30 June 2024

is an increase of £232,000 (2023: £223,000) and on the capital return is a decrease of £33,185,000

(2023: £31,827,000).

(c) Interest rate risk

Interest rate movements may affect:

- the fair value of investments of fixed interest securities,

- the level of income receivable from any floating interest-bearing securities and cash at bank and

on deposit, and

- the interest payable on floating interest term loans.

The financial assets (excluding short-term debtors) consist of:

The floating interest rate risk assets consist of cash deposits at call.

The financial liabilities consist of:

(d) Liquidity risk

Liquidity risk is not considered significant. All liabilities are payable within three months. The Company's

assets comprise mainly readily realisable securities which can be sold to meet funding requirements if

necessary.

(e) Credit and Counterparty Risk

Credit risk is the exposure to loss from the failure of a counterparty to deliver securities or cash for

acquisitions or disposals of investments or to repay deposits. The Company manages credit risk by

using brokers from a database of approved brokers who have undergone due diligence tests by the

Portfolio Manager's Best Execution Committee and by dealing through JPMCB with banks authorised

by the Financial Conduct Authority. Any derivative positions are marked to market and exposure to

counterparties is monitored on a daily basis by the Portfolio Manager; the Board reviews it on a quarterly

basis. The maximum exposure to credit risk at 30 June 2024 was £9,801,000 (2023: £12,511,000).

The calculation is based on the Company's credit exposure as at 30 June 2024 and may not be

representative of the year as a whole.

(f) Fair value of financial assets and financial liabilities

The financial assets and financial liabilities are carried in the Statement of Financial Position at their fair

value or the statement amount is a reasonable approximation of fair value (due from brokers, dividends

and interest receivable, due to brokers, accruals and cash at bank).

Fair Value hierarchy

FRS102 - section 34.22 on Financial Instruments requires an entity to classify fair value measurements

using fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The fair value hierarchy shall have the following levels:

Level 1 reflects financial instruments quoted in an active market.

Level 2 reflects financial instruments whose fair value is evidenced by comparison with other observable

current market transactions in the same instrument or based on a valuation technique whose variables

includes only data from observable markets.

Level 3 reflects financial instruments whose fair value is determined in whole or in part using a valuation

technique based on assumptions that are not supported by prices from observable market transactions

in the instrument and not based on available observable market data. The financial assets measured at

fair value in the Statement of Financial Position are grouped into the fair value hierarchy as follows:

(g) Use of derivatives

In order to enhance returns, the Company may take short positions (using contracts for difference) in

respect of a small number of larger capital securities. There were no derivative positions held at the year

end (2023: nil).

13. Paid-up share capital

14. 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 £174,544,000 (2023: £171,147,000) and on 11,862,159 (2023: 11,952,159) Ordinary shares, being the number of Ordinary shares in issue at the year end.

15. Related parties and transactions with the Portfolio Manager and the AIFM

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 the notes 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 2024.

Transactions with the Portfolio Manager and the AIFM

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

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

The management fee is 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 Partners Limited, 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 management fee payable to FundRock Partners Limited for the period from 1 July 2023 to 30 June 2024 was £1,222,000 (payable to FundRock Partners Limited for the period from 1 July 2022 to 30 June 2023: £1,172,000) with £303,000 outstanding as at 30 June 2024 (2023: £298,000).

The appointment of Brown Advisory and FundRock Partners Limited may be terminated by not less than six months' notice.

16. Contingent liabilities and capital commitments

There were no contingent liabilities or capital commitments outstanding at 30 June 2024 (2023: nil).

17. Annual results

This Annual Results announcement does not constitute the Company's statutory accounts for the years ended 30 June 2023 and 30 June 2024 but is derived from those accounts. Statutory accounts for the year ended 30 June 2023 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 June 2023 and the year ended 30 June 2024 both received an audit report which was unqualified and did not include a reference to any matters to which the auditor 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 2024 will be delivered to the Registrar of Companies.

18. Other information

The Annual General Meeting of the Company will be held on 4 November 2024.

A copy of the Annual Report & Accounts for the year ended 30 June 2024 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

ukfundscosec@apexgroup.com

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

END