Annual Report & Accounts. JPMorgan Fund III ICVC

Transcription

1 Annual Report & Accounts JPMorgan Fund III ICVC 30 April

2 Contents Authorised Corporate Director s (ACD) Report 2-6 Investment Adviser s Report for the year ending 30 April 7 Statement of the Authorised Corporate Director 8 Statement of the Depositary s Responsibilities and Report of the Depositary to the Shareholders of JPMorgan Fund III ICVC ( the Company ) for the year ended 30 April 9 Independent Auditors Report to the Shareholders of JPMorgan Fund III ICVC Policies and Risks 12 JPM Portfolio Fund This material should not be relied on as including sufficient information to support an investment decision. The opinions and views expressed in this document are those held by J.P. Morgan Asset Management as at 14 July, which are subject to change and are not to be taken as or construed as investment advice. For up-to-date performance information please contact J.P. Morgan Asset Management using the numbers shown on the back of this document. You should remember that past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. The level of tax benefits and liabilities will depend on individual circumstances and may change in the future. The investment objective of a Fund may allow some flexibility in terms of portfolio composition. Funds that invest predominantly in a single market, asset class or sector may be subject to greater volatility than those funds with a more diversified portfolio. The information in this booklet is based on our understanding of law, regulation and HM Revenue & Customs practice as at 14 July. 1

3 Authorised Corporate Director s (ACD) Report Board of Directors of JPMorgan Funds Limited ( JPMF ), the Authorised Corporate Director ( ACD ) of JPMorgan Fund III ICVC. We are pleased to present the Annual Report & Accounts for JPMorgan Fund III ICVC for the year ended 30 April Chairman Daniel Watkins Connected director. A member of the ACD since January Dan Watkins, Managing Director, is the Deputy CEO of IM Europe and Global Head of IM Client Services and Business Platform. An employee since 1997, Dan oversees the business infrastructure of Investment Management in Europe and Asia including client services, fund administration, product development, and RFP. Dan also performs the role of Deputy CEO of GIM EMEA, acting as a director of all the regulated legal entities across the region. Previously, he was head of Europe COO and Global IM Operations, head of the European Operations Team, head of the European Transfer Agency, head of Luxembourg Operations, manager of European Transfer Agency and London Investment Operations; and manager of the Flemings Investment Operations Teams. Dan is currently a director of several JPMorgan managed Luxembourg domiciled Investment Funds. Dan obtained a BA in Economics and Politics from the University of York and is a qualified Financial Advisor. Directors Jasper Berens Connected director. A member of the ACD since January Jasper Berens, Managing Director, is Head of UK Retail Business including the Investment Trusts. An employee since 1997, he was previously Head of UK Sales from 2005 to 2012 and, prior to that, Head of Asset Management Sales. Jasper draws on over 20 years experience within sales and utilises this experience to oversee the fund strategies and marketing activities of JPMF. Jasper is a Director of several J.P.Morgan managed UK domiciled investment funds. Tanaquil McDowall Connected director. A member of the ACD since January Tanaquil McDowall, Executive Director, is the European Financial Controller in the Asset Management finance team, based in London. Employed by J.P.Morgan since 2008, she is responsible for statutory and regulatory reporting (both local and US) of the European legal entities. She also currently serves on various J.P. Morgan boards. Prior to this, she spent ten years working at Citigroup in a range of roles, including product control, financial regulation and legal entity control and two years working at Schroders. She is a chartered accountant who trained with Coopers & Lybrand, working in the Reading and Hamburg offices. Tanaquil is a director of a number of J.P. Morgan s regulated entities. Tanaquil holds a joint honours degree in Physics and Music from the University of Reading and an MBA from Cass Business School. Mike O Brien Connected director. A member of the ACD since December Mike O Brien, Managing Director, is the Chief Executive of J.P. Morgan Investment Management, EMEA and the Co-Head of the Global Investment Management Solutions (GIM Solutions), based in London. As CEO, Mike partners with the global investment, business and function heads to develop the business priorities in EMEA. A key area of his responsibility is ensuring the firm remains in line with the regulatory requirements and within a framework of appropriate risk management. Mike is also a director of the firm s principle legal entities and funds boards in Europe. In his role as Co-Head of GIM Solutions, Mike oversees the Firm s Multi-Asset, Retirement, Pensions & Insurance Advisory and ETF businesses globally. Prior to this he was responsible for the firm s Global Institutional Business. An employee since 2010, he is also a member of the J.P. Morgan Asset Management Operating Committee, as well as the J.P. Morgan Global Investment Management Operating Committee. Mike is a director of a number of J.P. Morgan s regulated entities. Previously he worked at BlackRock/BGI where he was Head of Institutional Business for EMEA. During his decade-long tenure at BGI and then BlackRock, he led a team of institutional client advisors responsible for some of the firm s largest clients located across 12 regional markets. Prior to that, he worked at Towers Perrin for 14 years where he oversaw their UK and European investment consulting practice, managing all aspects of pension planning financial management, and developing new products and service offerings, such as pension financial risk modeling for UK and US corporations. Mike holds a bachelor s degree in Applied Mathematics from Limerick University in Ireland. He is an Actuary ( FIA ) and a CFA charter holder and is an advisor to the Investment Committee of the UK s Pension Protection Fund. 2

4 Authorised Corporate Director s (ACD) Report continued Ruston Smith Independent Director of the ACD since December. Ruston has over 30 years experience in the pension fund and investment industry complemented by broader commercial experience. He has held senior corporate positions with responsibility for strategy, Investment, governance, communication and operations for a wide range of UK and international defined benefit and defined contribution schemes and provident funds also acting as a Trustee and Chairman. His experience includes over a decade as the Group Pensions and Insurable Risk Director at Tesco, where the award winning UK scheme has over 200,000 employed members where he was also the CEO of Tesco Pension Investment their FCA approved in house investment manager with 12bn of assets under management. Ruston has a breadth of experience which has included responsibility for executive reward and benefits, employee relations, HR systems, payroll, global mobility and health & wellness. Before joining Tesco, Ruston was a Director and Company Secretary at PZ Cussons, where he was also responsible for their group pensions, property, legal and insurance. Ruston is a non executive director and the immediate past Chairman of the Pensions and Lifetime Savings Association, Non Executive Chairman of the Tesco Pension Trustee Board and the Tesco DC Governance Committee, Non Executive Chairman of Tesco Pension Investment Limited, non executive director of J.P.Morgan Asset Management International Limited a Director of Standard Life s Master Trust Company, a Trustee Director of The People s Pension Master Trust, a Governor of the Pensions Policy Institute, Chairman of National Grocers Benevolent Fund and is on the MBA Advisory Board of the Manchester Metropolitan University s Business School. He has an MBA, is a Fellow of the Pensions Management Institute and a Fellow of the Institute of Management. Authorised Status JPMorgan Fund III ICVC is an Open-Ended Investment Company ( Company ) with variable capital authorised, under Regulation 12 of the OEIC Regulations, by the Financial Conduct Authority on 16 May The Company was launched as a non-ucits Retail Scheme on 7 September 2002 and acts as an umbrella company comprising one Fund. Its registration number is IC and its registered address is 60 Victoria Embankment, London EC4Y 0JP. Structure & Liabilities The assets of the Fund are treated as separate from those of any other Fund and are invested in accordance with the investment objective and investment policies applicable to that Fund. Details of the investment objective, the policies for achieving these objectives, the performance record and a review of the investment activities for the Fund can be found in this report. The ACD report includes the following in relation to the Fund: Investment objective and policy Risk profile Fund review Fund outlook Portfolio statement Portfolio movements Shareholders are not liable for the debts of the Company. Shareholders are not liable to make any further payment to the Company after the purchase of their shares is paid for. Role and Responsibility of the Board JPMF is authorised and regulated by the FCA and its principle activity is investment management. The responsibility of the ACD is governed by the Companies Act 2006 and the FCA. With respect to the annual accounts of the Company, it is also required to comply with the prospectus and any applicable accounting standards and also with the latest Statement of Recommended Practice issued by The Investment Association. The matters reserved for the Board include determination of each Fund s investment objective and policies, investment restrictions and powers, amendments to the prospectus, reviewing and approving key investment and financial data, including the annual and semiannual accounts, as well as the appointment of and review of the services provided by the depositary and auditor. Prior to each meeting the Board receives detailed and timely information allowing them to be prepared for the items under discussion during the meeting. For each quarterly meeting the Board requests, and receives, reports from, amongst others, the investment managers, risk management, compliance, as well as proposals for changes to existing funds or proposals to launch new ones as appropriate. Senior representatives of each of these functions attend Board meetings by invitation to enable the Board to question the reports presented to them. In addition the Board reviews on an annual basis all service providers. The Board takes decisions in the interests of the Company and its shareholders as a whole and refrains from taking part in any deliberation or decision which creates a conflict of interest between personal interests and those of the Company and its shareholders. JPMF and its affiliates provide a variety of different services to the Company and receives compensation for these services. JPMF and its affiliates therefore need to balance the desire to be compensated for these services with the requirement to act in the best interests of the Company. JPMF and its affiliates also face conflicts of interest where these services are provided to other funds or clients, and, from time to time, make decisions that differ from and/or negatively impact those made on behalf of the Company. The Board can take independent professional advice if necessary. 3

5 Authorised Corporate Director s (ACD) Report continued Board Composition JPMF is chaired by Mr Watkins, and consists of four connected directors and one independent director. All Board meetings require a quorum of two directors to be in attendance. Induction and Training All new directors of JPMF will receive a full induction incorporating relevant information regarding the Company and its duties and responsibilities as the ACD of the Company. In addition, JPMF takes active steps to keep up to date with developments relevant to the Company and have ensured that a formal training programme is in place. Board Evaluation The Board carries out a biennial review of its performance. Board Meetings and Committees The Board meets quarterly but if necessary additional meetings will be arranged. Given the scope and nature of the business of the Company, the Board does not currently consider it necessary to have a formal Audit Committee or indeed any other standing committees. However, this is kept under review. All Board related matters are therefore currently approved by the Board or, where there are specific matters that need further consideration, a Sub-Committee of the Board could be formed for this specific purpose. Such circumstances could be where the Board requests some amendments to the prospectus and where it is not appropriate to wait till the next quarterly Board meeting for this to be approved. These Sub-Committee meetings are formed of a minimum of two directors of JPMF. There were twelve Board meetings held during the year. Four of these were quarterly Board meetings where, amongst other matters, the agenda included those items highlighted under the section above called Role and Responsibility of the Board. Corporate Governance The Board is responsible for ensuring that a high level of corporate governance is met and considers that the Fund has complied with the best practices in the UK funds industry. Proxy Voting Policy JPMF delegates responsibility for proxy voting to the Investment Adviser. The Investment Adviser manages the voting rights of the shares entrusted in a prudent and diligent manner, based exclusively on the reasonable judgement of what will best serve the financial interests of clients. So far as is practicable, the Investment Adviser will vote at all of the meetings called by companies in which they are invested. A copy of the proxy voting policy is available from the Company s registered office upon request or on the website: am.jpmorgan.com/uk/institutional/corporategovernance Remuneration Disclosure JPMF is part of the J.P. Morgan Chase & Co. group of companies. In this section, the terms J.P. Morgan or Firm refer to that group, and each of the entities in that group globally, unless otherwise specified. Remuneration Policy A disclosure of the current remuneration policy for JPMF (the Remuneration Policy ) can be found at en/asset-management/gim/per/legal/emearemuneration-policy. This policy includes details of how remuneration and benefits are calculated, including the financial and nonfinancial criteria used to evaluate performance, the responsibilities and composition of the Firm s Compensation and Management Development Committee, and the measures adopted to avoid or manage conflicts of interest. A copy of this policy can also be requested free of charge from the UK-based Investor Services team on The Remuneration Policy applies to all employees of JPMF, including individuals whose professional activities may have a material impact on the risk profile of JPMF or the funds it manages ( Identified Staff ). The Identified Staff include members of the Board, senior management, the heads of relevant control functions, and holders of other key functions. Individuals are notified of their identification and the implications of this status on at least an annual basis. The Board reviews and adopts the Remuneration Policy on an annual basis, and oversees its implementation, including the classification of Identified Staff. The Remuneration Policy, and its implementation, is designed to foster proper governance and regulatory compliance. The remuneration structure as described in the Remuneration Policy is designed to contribute to the achievement of short-term and longterm strategic and operational objectives, while avoiding excessive risk-taking inconsistent with the risk management strategy. This is intended to be accomplished, in part, through a balanced total compensation program comprised of a mix of fixed remuneration (including base salary), and variable remuneration in the form of cash incentives and long-term, equity based or fund-tracking incentives that vest over time. A balanced assessment of employees performance is undertaken taking account of business and financial results, risk and control outcomes, client/customer goals, and other priorities including people and leadership objectives as appropriate. The compensation governance practices contain a number of measures to avoid conflicts of interest, including independent oversight and control of the remuneration policy, and the assessment of employees in Control Functions against independent objectives linked to their functions. 4

6 Authorised Corporate Director s (ACD) Report continued Quantitative Disclosures The table below provides an overview of the aggregate total remuneration paid to staff of JPMF and the number of beneficiaries. These figures include the remuneration of all staff of JP Morgan Asset Management (UK) Ltd (the relevant employing entity) and the number of beneficiaries, both apportioned to JPMF on an AUM weighted basis. Due to the Firm s operational structure, the information needed to provide a further breakdown of remuneration attributable to the Company is not readily available and would not be relevant or reliable. However, for context, the Management Company manages 31 AIFs and 2 UCITS (with 41 Funds), with a combined AUM as at 31 December of 12,163m and 13,627m respectively. All staff ($ 000s) Fixed remuneration 16,270 Variable remuneration 10,174 Total remuneration* 26,445 Number of beneficiaries 131 * No carried interest or performance fees were paid to any staff by the Company in the year. Directors and Officers Indemnity Insurance The Company s Articles of Incorporation indemnify the directors against expenses reasonably incurred in connection with any claim against them arising in the course of their duties or responsibilities as long as they have not acted fraudulently or dishonestly. To protect shareholders against any such claim, the Board has taken out Directors and Officers Indemnity Insurance which indemnifies the ACD against certain liabilities arising in the course of their duties and responsibilities but does not cover against any fraudulent or dishonest actions on their part. Auditor PricewaterhouseCoopers LLP, has been the Company s Auditor since January The Board reviewed the services of PwC in and decided that, subject to any other influencing factor, they should continue to be appointed as Auditor for a further 8 years. Sub-Fund Terminations The following Funds were terminated: JPM Fusion Balanced Fund, JPM Fusion Conservative Fund, JPM Fusion Growth Fund, JPM Fusion Growth Plus Fund and JPM Fusion Income Fund. A letter was sent on 18 November 2015 informing shareholders of the intention to close these Funds. On 21 January all trading in these Funds ceased and proceeds were sent to shareholders on 27 January. In the case of JPM Fusion Balanced Fund an additional distribution of pro-rata termination proceeds were paid to shareholders on 7 June, except where the amount payable was less than 10. Termination accounts for all these Funds were sent to shareholders on 15 July. Mailing of Report and Accounts With effect from 22 November the FCA has dispensed with the requirement to produce and send Short Form accounts to shareholders. This decision was made after feedback received during an industry consultation showed that these accounts did not meet the original aim of providing timely, clear and focused information. As a result Short Form accounts will no longer be produced and sent to clients. However, the Long Form Accounts, which contain additional disclosures will still be available at am.jpmorgan.com/gb/en/asset-management/ gim/per/products/oeics and up to date information about each Fund can be found at Changes to the Prospectus Amendments published on 1 July To amend the investment objective of the JPM Portfolio Fund to remove reference to the possible investment in the Fusion Funds. To comply with the Securities Financing Transactions Regulation, the Prospectus was updated to include additional information and disclosures for specific financial instruments and transactions. The purpose of this regulation is to increase the transparency and data availability for the five types of instruments and transactions in scope. Although the Fund might not participate in all of these, the scope of this regulation includes 1) repurchase and reverse repurchase transactions, 2) securities or commodities lending and securities or commodities borrowing, 3) margin lending transactions, 4) buy-sell back or sell-back transactions, and 5) total return swaps. Amendment published on 1 September The disclosure was amended to reflect the revised duties, obligations and liabilities of the Depositary to comply with UCITS V Directive. Amendments published on 3 October To include a more general statement concerning investment time horizon rather than stating specific years for the Fund. To include reference to the Solvency II Directive which imposes certain restrictions on insurance undertakings in relation to new and existing investments. Amendment published on 9 December To inform investors that the Company and the Fund are deemed to be controlled by JPMorgan Chase & Co. and so have a risk associated with U.S. federal banking laws including the U.S. Bank Holding Company Act of 1956, and section 13 (the Volcker Rule ). Investors are informed that the Volcker Rule restricts JPMorgan acquiring or retaining or sponsoring a covered Fund and prohibits certain transactions with such Funds. To avoid Funds being treated as covered Funds, JPMorgan may be required to reduce its ownership in the relevant Funds at the end of the permitted seeding period which could adversely impact such Fund. 5

7 Authorised Corporate Director s (ACD) Report continued Amendment published on 1 February To state that share price publications in the Financial Times will cease with effect from 1 January. Prices will continue to be available in other national newspapers and are available via the J.P. Morgan website: Amendments published on 6 April To add a disclosure to inform shareholders of the procedure for the correction of pricing errors and the materiality threshold used to determine whether a pricing error is deemed material. The Fund within JPMorgan Fund III ICVC has a materiality threshold of 0.50% of price per share. Conflicts of Interest disclosures updated. Amendments published on 11 July To add a general risk disclosure on cyber security which will inform investors that measures have been developed to reduce the risks associated with cyber security but that there remains a risk associated with cyber security regardless of these measures. Eligible Securities Markets list updated to include Egypt and Saudi Arabia. Management and Administration Authorised Corporate Director JPMorgan Funds Limited 3 Lochside View, Edinburgh Park, Edinburgh, EH12 9DH (Authorised and regulated by the Financial Conduct Authority) Custodian and Bankers: JPMorgan Chase Bank, N.A. London Branch 25 Bank Street, Canary Wharf, London, E14 5JP (Authorised and regulated by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority) Depositary National Westminster Bank plc 280 Bishopsgate, London, EC2M 4RB (Authorised and regulated by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority) Independent Auditors PricewaterhouseCoopers LLP Atria One, 144 Morrison Street, Edinburgh, EH3 8EX Investment Adviser JPMorgan Asset Management (UK) Limited 25 Bank Street, Canary Wharf, London, E14 5JP (Authorised and regulated by the Financial Conduct Authority) Registrar International Financial Data Services Limited IFDS House, Saint Nicholas Lane Basildon, Essex, SS15 5FS (Authorised and regulated by the Financial Conduct Authority) By order of the Authorised Corporate Director, Mike O Brien Director JPMorgan Funds Limited 14 July Dan Watkins Director JPMorgan Funds Limited 14 July 6

8 Investment Adviser s Report for the year ending 30 April Market review Equity markets had a good start to the year, extending last year s strong performance. The US election, and the associated hopes for tax cuts, increased public spending and regulatory reform, have undoubtedly played a part in the rally since November. But this latest leg of the equity bull market got its new lease of life over a year ago, long before the election, as US business and consumer confidence surveys started to show a recovery from their weakness in Market outlook As we move further into, global economic conditions continue to improve. Stronger economic growth, recovering commodity prices and a gradual move towards a normalisation of interest rates is contributing to rising bottom-up earnings expectations and positive analyst estimate revisions. The earnings season thus far has highlighted that both revenue and profit trends are very positive and that capital expenditure is beginning to pick up, which is good news for economic growth. In Europe and Japan, investors are increasingly expecting improvement in corporate profit and economic growth, where high corporate operating leverage combined with better nominal GDP growth should drive earnings growth. This, in addition to continued supportive monetary policy, provides a healthy backdrop for equities. Meanwhile, politics are likely to remain a dominant theme for the remainder of, particularly in the UK. The shock result of the UK general election is now behind us, but uncertainty looks set to continue, with all eyes on the progress of Brexit negotiations and the impact on sterling and the stock market. JPMorgan Asset Management (UK) Limited May 7

9 Statement of the Authorised Corporate Director Statement of the Authorised Corporate Director s responsibilities in relation to the financial statements of the scheme The Rules of the Financial Conduct Authority s Collective Investment Schemes Sourcebook require the Authorised Corporate Director to prepare financial statements for each annual accounting period which give a true and fair view of the financial affairs of the company and of its income and expenditure for the period. In preparing those financial statements the Authorised Corporate Director is required to: comply with the Prospectus and applicable accounting standards, subject to any material departures which are required to be disclosed and explained in the financial statements; comply with the Statement of Recommended Practice for Authorised Funds issued by The Investment Association (formerly the Investment Management Association (IMA)) in May 2014, which supercedes the SORP issued in October 2010; select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in operation for the foreseeable future; and take reasonable steps for the prevention and detection of fraud, error and noncompliance with law or regulations. The Authorised Corporate Director is required to keep proper accounting records and to manage the company in accordance with the regulations and the Prospectus. The report has been prepared in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook. The shareholders of the ICVC are not liable for the debts of the ICVC. Mike O Brien Director For and on behalf of JPMorgan Funds Limited 14 July Dan Watkins Director For and on behalf of JPMorgan Funds Limited 14 July 8

10 Statement of the Depositary s Responsibilities and Report of the Depositary to the Shareholders of JPMorgan Fund III ICVC ( the Company ) for the year ended 30 April The Depositary must ensure that the Company is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Investment Funds Sourcebook, the Open-Ended Investment Companies Regulations 2001 (SI2001/1228) (the OEIC Regulations), as amended, the Financial Services and Markets Act 2000, as amended, (together the Regulations ), the Company s Instrument of Incorporation and Prospectus (together the Scheme documents ) as detailed below. The Depositary must in the context of its role act honestly, fairly, professionally, independently and in the interests of the Company and its investors. The Depositary is responsible for the safekeeplng of all custodial assets and maintaining a record of all other assets of the Company In accordance with the Regulations. The Depositary must ensure that: the Company s cash flows are properly monitored and that cash of the Company is booked into the cash accounts in accordance with the Regulations; the sale, issue, redemption and cancellation of shares are carried out in accordance with the Regulations; the value of shares of the Company are calculated in accordance with the Regulations; any consideration relating to transactions in the Company s assets is remitted to the Company within the usual time limits; the Company s income is applied in accordance with the Regulations; and the instructions of the Alternative Investment Fund Manager ( the AIFM ) are carried out (unless they conflict with the Regulations). Having carried out such procedures as we consider necessary to discharge our responsibilities as Depositary of the Company, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Company, acting through the AIFM: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Company s shares and the application of the Company s income in accordance with the Regulations and the Scheme documents of the Company, and (ii) has observed the Investment and borrowing powers and restrictions applicable to the Company. The Depositary also has a duty to take reasonable care to ensure that the Company is managed in accordance with the Scheme documents and the Regulations in relation to the investment and borrowing powers applicable to the Company. National Westminster Bank plc London 14 July 9

11 Independent Auditors Report to the Shareholders of JPMorgan Fund III ICVC Report on the financial statements Our opinion In our opinion, JPMorgan Fund III ICVC s financial statements (the financial statements ): give a true and fair view of the financial position of the Company as at 30 April and of the net revenue and the net capital gains of its scheme property for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Instrument of Incorporation. What we have audited JPMorgan Fund III ICVC (the Company ) is an umbrella fund with a single Fund. The financial statements of the Company comprise the financial statements of the Fund, which are prepared by JPMorgan Funds Limited (the Authorised Corporate Director ), and comprise of: the balance sheet as at 30 April ; the statement of total return for the year then ended; the statement of change in net assets attributable to shareholders for the year then ended; the Policies and Risks and notes to the financial statements of the Fund, which include other explanatory information; and the distribution table. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), the Statement of Recommended Practice Financial Statements of UK Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for UK Authorised Funds ), the Collective Investment Schemes sourcebook and the Instrument of Incorporation. In applying the financial reporting framework, the Authorised Corporate Director has made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. Opinions on matters prescribed by the Collective Investment Schemes sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Statement of the Authorised Corporate Director s Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Other matters on which we are required to report by exception Propriety of accounting records and information and explanations received Under the Collective Investment Schemes sourcebook we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. 10

12 Independent Auditors Report to the Shareholders of JPMorgan Fund III ICVC continued Responsibilities for the financial statements and the audit Our responsibilities and those of the Authorised Corporate Director As explained more fully in the Statement of the Authorised Corporate Director s Responsibilities Statement set out on page 8, the Authorised Corporate Director is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company s members as a body in accordance with paragraph of the Collective Investment Schemes sourcebook as required by paragraph 67(2) of the Open-Ended Investment Companies Regulations 2001 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland)). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company s and the Fund s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Corporate Director; and the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report and Accounts (the Annual Report ) to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 14 July The maintenance and integrity of the J.P.Morgan Asset Management website is the responsibility of the Authorised Corporate Director; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 11

13 Policies and Risks Accounting policies (a) The financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with applicable law and United Kingdom Accounting Standards (UK Generally Accepted Accounting Practices and UK GAAP FRS 102) and with the Statement of Recommended Practice for Authorised Funds issued by the Investment Management Association (IMA), now Investment Association, in May 2014, (the IMA SORP ). (b) Dividends on equities and other collective investment schemes are recognised when the security goes ex-dividend. Accumulation distributions from shares held in other collective investment schemes are reflected as revenue of the respective Fund, and equalisation on distributions received from other collective investment schemes is deducted from the cost of the investment. Interest on deposits and other revenue is accounted for on an accruals basis. (c) Management fee rebates received from underlying funds are recognised as revenue or capital in the same way as the underlying investments account for their management fee, and form part of the distribution where the underlying fund pays its management fee from revenue. (d) Where the Fund holds assets in other funds managed by an associate of the ACD then these funds are excluded from the calculation of the ACD fees paid. Fixed expenses are also charged to revenue. Transaction charges and expenses relating to the purchase and sale of investments are charged directly to the capital of the Fund. Taxation is computed by reference to the revenue after expenses attributable to each class. (e) The charge for taxation is based at the current rate on taxable revenue for the period less allowable expenses. UK dividend income is disclosed net of any related tax credit. Overseas dividends are disclosed gross of any foreign tax suffered, with the tax element being separately disclosed in the taxation note. (f) Investments in collective investment schemes managed by the ACD or its associates have been valued either at the quoted price calculated as at 12 noon on 28 April or the latest quoted price available at that time. Investments in other Collective Investment Schemes have been valued at the latest quoted price available at 12 noon on 28 April. Exchange traded derivatives including futures, are priced at the market value at 12 noon on 28 April. (g) All transactions in foreign currencies are converted into sterling at the rates of exchange ruling at the date of such transactions. The unrealised asset or liability position of each forward foreign currency contract held at the year end is determined with reference to the spot currency rate and the expected interest rate return over the currency contract to settlement date. Foreign currency assets and liabilities at the end of the accounting period are translated at the exchange rate at 12 noon on 28 April. Distribution policies (a) The income available for distribution for the Fund is the total revenue earned by the Fund, less deductible expenses and taxation charged to revenue. Accumulation distributions from shares held in other Collective Investment Schemes are reflected as revenue of the Fund and form part of the distribution. Income will be distributed on 31 July. (b) The Fund is not more than 60% invested in qualifying investments (as defined by SI2006/964) and where applicable will pay a dividend distribution. (c) The ordinary element of stocks received in lieu of cash dividends is recognised as revenue of the Fund, and forms part of the distribution. Any excess in value of shares received over the amount of cash forgone is reviewed on a case by case basis and treated appropriately as income or capital. (d) Revenue and not share class specific expenses are allocated each day pro rata to the value of assets attributable to each class. The ACD s annual fee is charged to revenue of the respective share class. Financial instruments Currency exposures In pursuing its investment objective as stated in the Fund highlights of each individual fund, the Company holds a number of financial instruments. The Company s financial instruments, other than derivatives, comprise securities and other investments, cash balances, debtors and creditors that arise directly from its operations, for example, in respect of sales and purchases awaiting settlement, amounts receivable for creations and payable for redemptions and debtors for accrued income. The main risks arising from the Company s financial instruments and the ACD s policies for managing these risks are summarised below. These policies have been applied throughout the period. Market price risk Market price risk is the risk that the value of the Company s investment holdings will fluctuate as a result of changes in market prices caused by factors other than interest rate or foreign currency movement. Market price risk arises mainly from uncertainty about future prices of financial instruments the Company holds. It represents the potential loss the Company might suffer through holding market positions in the face of price movements. The Company s investment portfolio is exposed to market price fluctuations, which are monitored by the ACD in pursuance of the investment objective and policy as set out in the Prospectus. Adherence to investment guidelines and to investment and borrowing powers set out in the Instrument of Incorporation and in the Financial Conduct Authority s Collective Investment Schemes Sourcebook mitigates the risk of excessive exposure to any particular type of security or issuer. Foreign currency risk Foreign currency risk is the risk that the value of the Company s investment holdings will fluctuate as a result of changes in foreign currency exchange rates. A proportion of some of the Company s investment portfolio s are invested in overseas securities and the balance sheet can be affected by movements in foreign exchange rates. The ACD may seek to manage exposure to currency movements by using forward currency contracts or by hedging the sterling value of investments that are priced in other currencies. Income received in other currencies is converted to sterling on the date of the transaction. See the Fund for its foreign currency profile. Interest rate risk Interest rate risk is the risk that the value of the Company s investment holdings will fluctuate as a result of changes in interest rates. The Fund may invest in fixed and floating rate securities. The income of the Fund may be affected by changes to interest rates relevant to particular securities or as a result of the ACD being unable to secure similar returns on the expiry of contracts or sale of securities. The value of fixed interest securities may be affected by interest rate movements or the expectation of such movements in the future. Interest receivable on bank deposits or payable on bank overdraft positions will be affected by fluctuations in interest rates. See the Fund for its interest rate profile. Liquidity risk The Company s assets comprise mainly of readily realisable securities. If insufficient cash is available to finance shareholder redemptions then securities held by the Company may need to be sold. The risk of low market liquidity, through reduced trading volumes, may affect the ability of the Company to trade financial instruments at values indicated by market data vendors. From time to time, liquidity may also be affected by stock specific or economic events. To manage these risks the Investment Manager undertakes detailed research to select appropriate investment opportunities in line with the Fund s objective. All stocks are valued daily but those stocks identified as being less liquid are reviewed on a regular basis for pricing accuracy. Credit risk/counterparty risk Certain transactions in securities that the Company enters into expose it to the risk that the counterparty will not deliver the investment for a purchase, or cash for a sale after the Company has fulfilled its responsibilities. The Company only buys and sells investments through brokers which have been approved by the ACD as an acceptable counterparty. In addition, limits are set to the exposure to any individual broker that may exist at any time and changes in brokers financial ratings are reviewed. Derivative risk The Company may also enter into derivative transactions in the form of futures for the purpose of efficient portfolio management. Fair value of financial assets and financial liabilities There is no material difference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value. Related party transactions JPMorgan Funds Limited, as Authorised Corporate Director ( ACD ), is a related party, and acts as principal in respect of all transactions of shares in the Company. ACD fees and fixed expenses paid to JPMorgan Funds Limited and their associates are shown in Note 4 and details of shares issued and cancelled by the ACD are shown in the Statement of change in net assets attributable to shareholders in the Fund s account. Investments considered to be related parties have been identified in the portfolio statement and the revenue from these investments is disclosed in the accounts. 12

14 JPM Portfolio Fund Investment objective and policy To invest in a portfolio of regulated collective investment schemes operated or managed by JPMorgan. The Fund aims to provide capital growth over the long term. The Fund may have exposure to Emerging Markets and smaller companies. The Fund will not invest in schemes falling within paragraph (e) of section 3.9 (unregulated collective investment schemes) without first giving shareholders at least 60 days notice of the intention to do so. See section 11.7 in the Prospectus for the risks of investing in such schemes. The Fund may invest in forward transactions and Financial Derivative Instruments (derivatives) for hedging purposes and for Efficient Portfolio Management. Shareholders will receive at least 60 days notice of any proposed change of use of derivatives within the Fund and will be informed of the potential impact of the change of use on the risk profile of the Fund. Any increased use of derivatives will lead to a commensurate increase in the risks of trading derivatives shown in section 11.6 of the Prospectus. The Fund may invest in assets denominated in any currency and non- Sterling currency exposure will not normally be hedged back to Sterling. Risk profile The value of your investment may fall as well as rise and you may get back less than you originally invested. The value of Equity and Equity-Linked Securities held in the underlying funds may fluctuate in response to the performance of individual companies and general market conditions. The Fund is likely to have significant exposure to the UK and may therefore be more volatile than more broadly diversified funds. Movements in currency exchange rates can adversely affect the return of your investment. Please refer to Part 11 of the Prospectus for details of the general risk factors affecting this Fund in addition to the specific risk factors above. Fund review The Fund delivered a positive return for the period but underperformed the benchmark. Equity returns across regions were strong but asset allocation decisions in aggregate detracted. We maintained a bias towards higher quality markets, particularly the US, while maintaining an underweight to emerging market equities. In the first six months of the review period, emerging market equities outperformed developed markets. European markets rallied from the lows reached after the surprise UK referendum result as investors grew more comfortable that the event would not trigger a broader crisis, and instead focused on better economic data releases and a promising start to the corporate earnings season. An underweight to the UK and continental Europe in this period detracted. Asset allocation was partly offset by positive manager selection alpha, concentrated in the US and the UK, where our strategies outperformed their benchmarks. The largest outperformers were JPM US Select Equity Plus and the JPM UK Strategic Equity Income Fund. The largest underperformers were concentrated in Japan and Europe, but were less significant. Fund statistics Risk and Reward Profile 5 (5 at 31 October ) Fund size Benchmark Index 79.0m 50% FTSE All-Share Index (Net)/ 50% FTSE World ex-uk Index (Net) Fund charges and expenses A-Class B-Class C-Class Initial charge (max.) 3.00% Nil Nil Exit charge Nil Nil Nil Ongoing charge (comprises) 1.91% 1.41% 1.16% Annual management fee 1.50% 1.00% 0.75% Fixed expenses 0.18% 0.18% 0.18% Synthetic fee adjustment from underlying fund holdings 0.23% 0.23% 0.23% You should remember that past performance is not a guide to the future. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. For specific risks, including the risk and reward profile, please refer to the Key Investor information Document (KIID) available on the following website All equity indices stated as Net are calculated net of tax as per the standard published approach by the index vendor unless stated otherwise. Source: FTSE International Limited ( FTSE ) FTSE FTSE is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. 13