Annual Report & Accounts. JPMorgan Fund II ICVC

Transcription

1 Annual Report & Accounts JPMorgan Fund II ICVC 30 November

2

3 Contents Authorised Corporate Director s (ACD) Report 2 Investment Adviser s Report for the year ending 30 November 7 Statement of the Authorised Corporate Director 8 Statement and Report of the Depositary to the Shareholders 9 Independent Auditors report to the Shareholders of JPMorgan Fund II ICVC 10 Policies and Risks JPM America Equity Fund JPM Balanced Managed Fund JPM Europe Smaller Companies Fund JPM Global Allocation Fund JPM Global Bond Opportunities Fund JPM Income Fund JPM UK Equity Income Fund JPM UK Equity Plus Fund JPM UK Smaller Companies Fund JPM US Smaller Companies 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 12 March 2018, 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 12 March

4 Authorised Corporate Director s (ACD) Report Board of Directors of JPMorgan Funds Limited ( JPMF ), the Authorised Corporate Director ( ACD ) of JPMorgan Funds II ICVC Chairman Daniel Watkins Connected director. A member of the ACD since January Dan Watkins, Managing Director, is the Deputy CEO of J.P. Morgan Asset Management s AM Europe and Global Head of AM Client Services and Business Platform. Dan has been an employee since 1997, and oversees the business infrastructure of Investment Management in Europe, U.S. and Asia including client services, fund administration, product development, and Request for Proposal. Dan also performs the role of Deputy CEO of AM EMEA, acting as a director of all the regulated legal entities across the region. Dan has held a number of positions at J.P. Morgan namely: 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 obtained a BA in Economics and Politics from the University of York and is a qualified Financial Advisor. Dan is currently a director of several J.P. Morgan managed Luxembourg and Irish domiciled Investment funds and also several UK legal entities. 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 UK legal entities. 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 Asset Management, EMEA and the Co-Head of the Asset Management Solutions (AM 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 AM 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 Asset and Wealth 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. Ioan Roberts Connected director. A member of the ACD since November. Ioan Roberts, Managing Director, is CFO of the AM Solutions business as well as the EMEA regional SFO for Asset Management. He has been a board director of JPMorgan Asset Management (UK) Limited and JPMorgan Asset Management International Limited since His previous roles include CFO of the Global Institutional business and Head of Management Reporting for Europe for Asset Management. Prior to joining Asset Management in 2001 he was a member of the group reporting team in Flemings responsible for preparing statutory and management accounts for the Robert Fleming group. Ioan joined the company in Prior to joining he worked as an external auditor for 4 years, qualifying as a chartered accountant in 1998 and is a CFA charter holder since Ioan obtained a BSc in Mathematics from Imperial College, University of London. Ioan is a director of several J.P. Morgan UK legal entities. 2

5 Authorised Corporate Director s (ACD) Report continued Ruston Smith Independent Director. A member 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. 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 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 JPMorgan Asset Management International Limited, a Director of Standard Life s Master Trust Company, a Trustee Director of The People s Pension, a Governor of the Pensions Policy Institute, Non-Executive Chairman of PTL Ltd and Chairman of National Grocers Benevolent Fund. He was former Chairman of the Pensions and Lifetime Savings Association. He has an MBA, is a Fellow of the Pensions Management Institute and a Fellow of the Institute of Management. Background JPMorgan Funds Limited ( JPMF ) is the Authorised Corporate Director ( ACD ) of JPMorgan Fund II ICVC (the Company ) and is the sole Director of JPMorgan Fund II ICVC (the Board ). The Board is pleased to present the Annual Report and Accounts for the year ended 30 November. Authorised Status JPMorgan Fund II ICVC is an Open-Ended Investment Company with variable capital, authorised under Regulation 12 of the OEIC Regulations by the Financial Conduct Authority. The Company was launched as a UCITS Retail Scheme and acts as an umbrella company comprising of ten sub-funds. Its registration number is IC127 and its registered address is 60 Victoria Embankment, London EC4Y 0JP. Structure The assets of each sub-fund are treated as separate from those of every other subfund and are invested in accordance with the investment objective and investment policies applicable to that sub-fund. Details of the investment objective, the policies for achieving these objectives, the performance record and a review of the investment activities for each of the sub-funds can be found in this report. The ACD report includes for each fund the: 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 payment of their shares. Role and Responsibility of the Board JPMF is authorised and regulated by the FCA and its principle activity is investment management. The ACD is incorporated under and governed by the Companies Act With respect to the annual report and accounts of the Company, it is also required to comply with the prospectus, 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 sub-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 report and 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 prepare 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 subfunds 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 has procedures in place to manage any conflict of interest between personal interests of the directors of JPMF 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 interest 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. 3

6 Authorised Corporate Director s (ACD) Report continued Board Composition JPMF is chaired by Dan 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. 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. There were eleven JPMF Board meetings held during. 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 Company 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: corporate-governance 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 non-financial 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 sub-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 long-term strategic and operational objectives, while avoiding excessive risktaking 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. 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, JPMF manages 32 AIFs and 2 UCITS (with 38 sub-funds) with a combined AUM as at 31 December of 13,204m and 15,004m respectively. Fixed remuneration 14,845 Variable remuneration 9,801 Total remuneration* 24,646 Number of beneficiaries 117 All staff ($ 000s) * 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. 4

7 Authorised Corporate Director s (ACD) Report continued 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. Statement of Cross Holdings There are no holdings of the sub-funds of JPMorgan Fund II ICVC by other sub-funds of the Company. Liquidation of JPM Global Allocation Fund The ACD approved the liquidation of JPM Global Allocation Fund on 2 December. The liquidation commenced on 17 February and the liquidation proceeds were paid to shareholders on 22 February. Liquidation of JPM Income Fund The ACD approved the liquidation of JPM Income Fund on 6 March. The liquidation commenced on 24 May and liquidation proceeds were paid to shareholders on 30 May. Liquidation of JPM Balanced Managed Fund The ACD approved the liquidation of JPM Balanced Managed Fund on 12 September. The liquidation commenced on 13 December and liquidation proceeds were paid to shareholders on 18 December. Privacy Policy The ACD complies with a privacy policy that has been issued by J.P. Morgan Asset Management which can be accessed at This policy will be updated by 25 May 2018 to comply with the General Data Protection Regulation. Changes to the Prospectus Amendments published on 9 December To amend the expected level of leverage for JPM Global Bond Opportunities Fund from 100% to 400%. To highlight that the Company and the sub-funds 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 ). The Volcker Rule restricts JPMorgan acquiring or retaining or sponsoring a covered fund and prohibits certain transactions with such funds. To avoid sub-funds being treated as covered funds, JPMorgan may be required to reduce its ownership in the relevant sub-funds at the end of the permitted seeding period which could adversely impact such sub-funds. To add a disclosure around China Interbank Bond Market so to cover the risks relating to Chinese onshore renminbi denominated bond markets. Amendments published on 1 February To state that share price publications in the Financial Times will cease with effect from 1 January and to explain that they will continue to be available in other national newspapers and are available via the J.P. Morgan website: investor. To allow sub-funds that currently invest in China A-Shares via the Shanghai-Hong Kong Stock Connect programme to invest in the Shenzhen-Hong Kong Stock Connect programme. Amendments published on 6 April To add a disclosure to explain the procedure for the correction of pricing errors and the materiality threshold used to determine whether a pricing error is deemed material. All sub-funds within this Company have a materiality threshold of 0.50% of price per share. Conflicts of Interest disclosures updated. Amendments published on 5 June To remove reference to net share classes in JPM Global Bond Opportunities Fund. Amendments published on 11 July To add a general risk disclosure on cyber security to highlight that despite measures being developed to reduce the risks associated with cyber security there remains a risk associated with cyber security. Amendments published on 29 September To reduce the preliminary charge for A shares in all funds from 3% to nil. Amendments published on 5 December To amend the expected level of leverage for JPM UK Equity Plus Fund from 60% to 85%. To include a risk warning on the impact of margin requirements for OTC derivative transactions. Changes to the Instrument of Incorporation and the Prospectus Amendments published on 9 December To allow the ACD to effect compulsory conversions of shares in one class of a subfund for another class of the same sub-fund, upon reasonable written notice to affected shareholders and to state that compulsory conversions will only be undertaken where the ACD reasonably considers it is in the best interests of affected shareholders. Amendments published on 31 May The inclusion of the UK Equity Income Fund. Change to the composition of the Board of JPMF Tanaquil McDowall resigned from the Board with effect from the close of business on 6 September and Ioan Roberts was appointed as Director commenced following approval by the FCA on 20 November. The Board would like to take this opportunity to record its thanks to Tanaquil for her service to the Company and to shareholders. 5

8 Authorised Corporate Director s (ACD) Report continued 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 DST Systems, Inc. (renamed from International Financial Data Services Limited on 14 August ) DST House, Saint Nicholas Lane Basildon, Essex, SS15 5FS (Authorised and regulated by the Financial Conduct Authority) By order of the Authorised Corporate Director, Dan Watkins Director JPMorgan Funds Limited 12 March 2018 Ioan Roberts Director JPMorgan Funds Limited 12 March

9 Investment Adviser s Report for the year ending 30 November Market review The macro environment over the review period provided fertile ground for most asset markets. The recovery strengthened by sector and geography, and while deflation risks receded, inflation failed to accelerate enough to spoil the party. Central banks committed to maintain accommodative policy for the foreseeable future pleasing equity and bond investors alike. European markets were among the strongest for the period, boosted by a sharp turnaround in the regional economy and lessening of political risk as the tide of populism showed signs of abating. The stronger economic momentum in Europe has been supported by a rebound in consumption as an improving labour market boosts consumer confidence and this has provided a positive backdrop for strong corporate profit growth over the review period with stronger sales driving margin expansion. Sentiment towards Europe was also lifted by political developments, as populist and hard right parties were defeated in several elections, including most notably in France, where centrist candidate Emmanuel Macron easily beat Marine Le Pen in the presidential run off in May. In response to the improved growth picture and lower deflation risks, European Central Bank president Mario Draghi began to reduce the pace of quantitative easing purchases during the review period, although any rise in interest rates still appears some way off. UK equities underperformed global markets in sterling terms with the FTSE All Share up 14.3%. Brexit uncertainty and political instability dominated the year under review, as politicians grappled with the task of implementing the mandate delivered by the referendum result. After invoking Article 50 of the Lisbon Treaty in March, the prime minister, Theresa May, called a surprise general election for early June to shore up her authority. But the Conservative Party lost seats to an increasingly left-wing Labour opposition, leaving Mrs May reliant on the support of Northern Ireland s Democratic Unionist Party to form a government. The UK economic outlook is not much clearer. Very low unemployment is a clear positive and the drag on real wages may be close to its nadir, but consumer confidence remains weak and there are signs of weakness in the London housing market. Despite this highly uncertain backdrop, the Bank of England began to signal that it thinks that an interest rate rise would soon be warranted. In the US, Donald Trump s presidential election victory in November shocked markets, but investors quickly began to focus on the new Republican administration s progrowth economic policies including plans for deregulation, increased infrastructure spending and tax reform. US equities were also supported by decent corporate earnings growth and the absence of any near-term recession risk. Against this positive economic backdrop, the Federal Reserve (the Fed) continued to raise US interest rates gradually, and announced in September that it would start the process of quantitative tightening. This reduction in the size of its balance sheet will begin to reverse some of the quantitative easing that has been so supportive of asset prices in recent years. Market outlook The recovery may be old, but there is still scope for the expansion to broaden both through Europe and the emerging world. If anything, macroeconomic risks are receding and there is even upside potential if productivity starts to pick up alongside trade and investment. Even in the US, where the cycle is more mature, the leading indicators remain strong and point to robust corporate earnings. There are still things to be wary of. In particular, no one knows for sure whether inflation is dead or merely dormant. Similarly, central banks could get tetchier about whether they are repeating the errors of the 2000s. A punchier uptick in inflation and/or more hawkish central banks would result in significant market moves. In this sense, the risk is skewed more towards concerns that this Goldilocks expansion becomes too hot, rather than too cold. However, assuming the economic expansion continues and inflation remains under control, the Federal Reserve (Fed) should be able to continue to slowly lift the Fed funds rate higher. At the same time, longer-term rates are likely to be constrained by ongoing accommodative policy at both the European Central Bank (ECB) and Bank of Japan (BoJ). Perhaps most importantly, investors should not underestimate the impact of the BoJ s extraordinary commitment to fix its 10-year government bond yield at 0%. Forget don t fight the Fed ; it is the BoJ we will be keeping an eye on. In this environment, risk assets should continue to perform well, led by equities. Cash is expected to provide a negative real return for yet another year. JPMorgan Asset Management (UK) Limited December 7

10 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 early adoption of the Statement of Recommended Practice for Authorised Funds (SORP) issued by the IMA in May 2014, which supersedes 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 Company are not liable for the debts of the Company. Dan Watkins Director JPMorgan Funds Limited 12 March 2018 Ioan Roberts Director JPMorgan Funds Limited 12 March

11 Statement of the Depositary s Responsibilities and Report of the Depositary to the Shareholders of JPMorgan Fund II ICVC ( the Company ) for the Period Ended 30 November The Depositary must ensure that the Company is managed in accordance with the Financial Conduct Authority s Collective Investment Schemes Sourcebook, the Open Ended Investment Companies Regulations 2001 (SI 2001/1228) (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 safekeeping 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 (this requirement on the Depositary applied from 18 March ) 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 Authorised Fund Manager ( the AFM ) are carried out (unless they conflict with the Regulations). The Depositary also has a duty to take reasonable care to ensure that the Company is managed in accordance with the Regulations and the Scheme documents in relation to the investment and borrowing powers applicable to the Company. 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 AFM: (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. National Westminster Bank plc London 12 March

12 Independent Auditors Report to the Shareholders of JPMorgan Fund II ICVC Report on the audit of the financial statements Opinion In our opinion, JPMorgan Fund II ICVC s financial statements: give a true and fair view of the financial position of the Company and each of the sub-funds as at 30 November and of the net revenue/(expenses) and the net capital gains/(losses) on the scheme property of the Company and each of the sub-funds for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, and applicable law), the Statement of Recommended Practice for UK Authorised Funds, the Collective Investment Schemes sourcebook and the Instrument of Incorporation. JPMorgan Fund II ICVC (the company ) is an Open Ended Investment Company ( OEIC ) with 10 sub-funds. The financial statements of the company comprise the financial statements of each of the sub-funds. We have audited the financial statements, included within the Annual Report & Accounts (the Annual Report ), which comprise: the balance sheets as at 30 November ; the statement of total return and the statement of change in net assets attributable to shareholders for the year then ended; the distribution tables; the accounting policies; and the notes to the financial statements. Emphasis of Matter Basis of Preparation In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 1 (a) to the financial statements concerning the basis of preparation. The Authorised Corporate Director has decided that the JPM Income Fund, the JPM Global Allocation Fund and the JPM Balanced Managed Fund will cease trading during the next financial year and it is the Authorised Corporate Director s intention to wind up these funds. Accordingly, the going concern basis of preparation is no longer appropriate and the financial statements for these three funds have been prepared on a basis other than going concern as described in note 1 (a) to the financial statements. No adjustments were required in the JPM Income Fund and JPM Global Allocation Fund financial statements to reduce assets to their realisable values, to provide for liabilities arising from the decision or to reclassify fixed assets and long term liabilities as current assets and liabilities. Adjustments have been made to reclassify fixed assets as current assets for the JPM Balanced Managed Fund. No other adjustments were necessary. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ( ISAs (UK) ) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: the Authorised Corporate Directors use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the Authorised Corporate Director has not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company s or any of the sub-funds ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company s or any of the sub-funds ability to continue as a going concern. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors report thereon. The Authorised Corporate Director is responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. 10

13 Independent Auditors Report to the Shareholders of JPMorgan Fund II ICVC continued Authorised Corporate Director s (ACD) Report In our opinion, the information given in the Authorised Corporate Director s (ACD) Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Responsibilities for the financial statements and the audit Responsibilities of the Authorised Corporate Director for the financial statements As explained more fully in the Statement of the Authorised Corporate Director set out on page 8, the Authorised Corporate Director is responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Authorised Corporate Director is also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Authorised Corporate Director is responsible for assessing the company s and each of the sub-funds ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Authorised Corporate Director either intends to wind up or terminate the company or individual sub-fund, or has no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council s website at: This description forms part of our auditors report. Use of this report This report, including the opinions, has been prepared for and only for the Company s shareholders 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. Other required reporting Opinion on matter required 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. Collective Investment Schemes sourcebook exception reporting Under the Collective Investment Schemes sourcebook we are also 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. We have no exceptions to report arising from this responsibility. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 12 March

14 Policies and Risks Accounting policies (a) The accounts have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the Statement of Recommended Practice for UK Authorised Funds (SORP) issued by the Investment Management Association (IMA (now the Investment Association)) in May 2014 and in accordance with United Kingdom Generally Accepted Accounting Practice as defined within FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. All of the funds have been prepared on a going concern basis, with the exception of the JPM Income Fund, JPM Global Allocation Fund and JPM Balanced Managed Fund. The Authorised Corporate Director has decided that the JPM Income Fund, the JPM Global Allocation Fund and the JPM Balanced Managed Fund will cease trading during the next financial year and it is the Authorised Corporate Director s intention to wind up these funds. Accordingly, the going concern basis of preparation is no longer appropriate and the financial statements for these three funds have been prepared on a basis other than going concern. No adjustments were required in the JPM Income Fund and JPM Global Allocation Fund financial statements to reduce assets to their realisable values, to provide for liabilities arising from the decision or to reclassify fixed assets and long term liabilities as current assets and liabilities. Adjustments have been made to reclassify fixed assets as current assets for the JPM Balanced Managed Fund. No other adjustments were necessary. The ACD will bear the costs relating to any such liabilities arising. The comparative financial statements continue to be prepared on a going concern basis with the exception of the JPM Global Allocation Fund which have been prepared on a basis other than going concern. The principal accounting policies, which have been applied consistently throughout the year, are set out below. (b) Revenue on debt securities is recognised on the effective interest rate basis which takes account of the amortisation of any discounts or premium arising on the purchase price, compared to the final maturity value, over the remaining life of the security. Interest Only debt securities are amortised to a maturity date determined by the Investment Adviser that represents their best estimate of maturity rather than the final legal maturity date. The estimated maturity dates are reviewed on a regular basis and revised where applicable. Future cash flows on all assets are considered when calculating revenue on an effective interest rate basis and where, in the ACD s view there is doubt as to the final maturity value, an estimate of the final redemption proceeds will be made in determining those cash flows. Accrued interest purchased or sold is excluded from the cost of the security and is dealt with as revenue. (c) 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. Underwriting commission is recognised when the issue takes place. Where the fund is required to take up all of the shares underwritten, the commission received is treated as a deduction from the cost of the shares taken up. Where the Fund is required to take up a proportion of the shares underwritten, the same proportion of the commission received is treated as a deduction from the cost of the shares taken up and the balance is taken to revenue. (d) Dividends from US Real Estate Investment Trusts ( REITs ) are initially accounted for on a 70% revenue and 30% capital split when the security goes ex-dividend. Following the end of the calendar year, US REIT companies publish the split between revenue and capital of the dividends they have previously declared. When this information is received the initial allocation is adjusted to reflect the correct split between revenue and capital. (e) 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. (f) Revenue from Stocklending is accounted for gross of bank and agent fees and is recognised on a receipts basis. (g) The underlying circumstances behind special dividends are reviewed on a case by case basis in determining whether the amount is capital or revenue in nature. Any tax treatment thereon will follow the accounting treatment of the principal amount. Amounts recognised as revenue will form part of the Fund s distribution. (h) Revenue and expenses are allocated each day pro rata to the value of the assets attributable to each class. The ACD s annual fee is charged at a rate specific to the share class. JPM UK Equity Plus Fund may charge an uncapped 10% Performance Fee on perf share classes. This is calculated using the Claw-back mechanism, further details can be found in Appendix F of the prospectus. Details of all share class specific expense rates can be found in Appendix A of the Prospectus. (i) Where funds hold 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 with the exception of JPM Income Fund which is charged to capital. 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. (j) 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. (k) Deferred taxation is provided for on all timing differences that have originated but not reversed by the balance sheet date, other than those differences regarded as permanent. Any liability to deferred taxation is provided for at the average rate of taxation expected to apply. Deferred tax assets and liabilities are not discounted to reflect the time value of money. (l) The listed investments of the funds and investments traded on regulated markets have been valued at market value at 12 noon on 30 November. Market value is defined, by the SORP, as fair value which generally is the bid value of each security excluding any accrued interest in the case of floating or fixed rate securities. The valuation of unlisted investments is based on the ACD s assessment of their estimated realisable value. Suspended securities are valued initially at the suspended price but are subject to constant review by the Pricing committee on a regular basis. Exchange traded derivatives, including futures and options, are priced at the market value at 12 noon on 30 November. (m) 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 30 November. (n) The funds may apply a dilution adjustment, intended to cover certain dealing charges which could have a diluting effect on the performance of the funds. This adjustment is at the discretion of the ACD. Where applied it is included within the dealing price available to shareholders. For the purpose of disclosure within these financial statements the issues and redemptions are stated at the mid market price with dilution adjustments disclosed separately. For the year ended the dilution adjustment has been shown separately on the Statement of change in net assets attributable to shareholders. The amounts for each fund for the year ended and are detailed below: JPM America Equity 5,285 ( : 4,376) JPM Balanced Managed Fund 57,747 ( : 2,554) JPM Europe Smaller Companies Fund 419 ( : 23,943) JPM Global Allocation Fund nil ( : 4) JPM Global Bond Opportunities Fund 1,410 ( : nil) JPM Income Fund nil ( : 5) JPM UK Equity Income Fund 60. JPM UK Equity Plus Fund 9,810 ( : 849,640) JPM UK Smaller Companies Fund 281 ( : 57,833) JPM US Smaller Companies Fund 23,919 ( : 18,884) Distribution policies (a) The income available for distribution for each fund is the total revenue earned by the fund, less deductible expenses and taxation charged to revenue. When calculating revenue on an effective interest rate basis all future cash flows are considered, and where, in the ACD s view there is doubt as to the final maturity value, an estimate of the final redemption proceeds will be made in determining those cash flows. The impact of this will be to reduce the revenue recognised from debt securities, and therefore the revenue distributed, whilst preserving capital within the fund. (b) The funds are not more than 60% invested in qualifying investments (as defined by SI2006/964) and where applicable will pay a dividend distribution apart from JPM Global Bond Opportunities Fund and JPM Income Fund (closed as at 24 May ) which are more than 60% invested in qualifying investments and where applicable will pay an interest distribution. (c) The ordinary element of stocks received in lieu of cash dividends is recognised as revenue of the respective 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 is 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 except for the JPM Income Fund which initially recognises its expenses as revenue but is then transferred to capital for revenue distribution purposes. (e) Any distribution payment of a Fund which remains unclaimed after a period of six years from the date of payment, will be forfeited and will be transferred to and become part of that Fund s capital property. Thereafter, neither the Shareholder nor any successor will have any right to it except as part of the capital property. 12