Annual Report JPMorgan Asian Investment Trust plc. Annual Report & Accounts for the year ended 30th September 2010

Transcription

1 2010 Annual Report JPMorgan Asian Investment Trust plc Annual Report & Accounts for the year ended 30th September 2010

2 Features Contents About the Company 1 Financial Results 2 Chairman s Statement Investment Review 6 Investment Managers Report 10 Summary of Results 11 Performance 12 Ten Year Financial Record 13 Ten Largest Investments 14 Portfolio Analyses 15 Investment Activity 16 List of Investments Directors Report 17 Board of Directors 18 Directors Report 30 Directors Remuneration Report Accounts 31 Directors Responsibilities in Respect of the Accounts 32 Independent Auditors Report 33 Income Statement 34 Reconciliation of Movements in Shareholders Funds 35 Balance Sheet 36 Cash Flow Statement 37 Notes to the Accounts Objective Capital growth, primarily from investing in equities quoted on the stockmarkets of Asia, excluding Japan. Investment Policy - To have a diversified portfolio of Asian stocks. - To have a portfolio comprising 50 to 80 investments. - To use borrowings from time to time to gear the portfolio within a range of 90%-120% invested. Benchmark MSCI AC Asia ex Japan Index with net dividends reinvested, expressed in sterling terms. Capital Structure There were 177,010,090 Ordinary shares and 11,878,259 Subscription shares in issue at 30th September Continuation Vote In accordance with the Company s Articles of Association, the Directors are required to propose a resolution that the Company continue as an investment trust at the Annual General Meeting in 2011 and every third year thereafter. Management Company The Company employs JPMorgan Asset Management (UK) Limited ( JPMAM or the Manager ) to manage its assets. Shareholder Information 57 Shareholder Analyses 59 Notice of Annual General Meeting 62 Glossary of Terms and Definitions 64 Subscription shares 64 Rollover Apportionments 65 Information about the Company

3 Financial Results Total returns (includes dividends reinvested) +23.9% Portfolio total return net of fees and expenses 1,2 (2009: +44.4%) +22.7% Return to Ordinary Shareholders 4 (2009: +41.2%) +21.3% Benchmark 3 (2009: +41.3%) +24.0% Diluted return on net assets 1,5 (2009: +34.8%) 1.70p Dividend (2009: 1.50p) 1 Source: J.P. Morgan. 2 Return on net assets, that is net of management fees and administration expenses, but excluding the effect of Subscription shares which have been converted during the year and the dilutive impact of Subscription shares in issue at the year end. 3 Source: MSCI. The Company s benchmark is the MSCI Asia ex Japan Index with net dividends reinvested, expressed in sterling terms. 4 Source: Morningstar. 5 Return on net assets, using the diluted net asset value, which assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the year end. Long Term Performance for periods ended 30th September 2010 % Year Performance 5 Year Performance JPMorgan Asian return to Ordinary shareholders 1 JPMorgan Asian diluted return on net assets 1 JPMorgan Asian undiluted return on net assets 2 Benchmark 3 10 Year Performance 1 Source: Morningstar. 2 Source: J.P. Morgan. 3 Source: MSCI. JPMorgan Asian Investment Trust plc. Annual Report & Accounts

4 Chairman s Statement Performance I am pleased to be able to report that the Company has delivered solid performance in both absolute and relative terms for the full year. You may recall that performance in the first half was less satisfactory, but our investment managers remained firm in their convictions, including a number of country and stock specific overweights and underweights against the benchmark index which delivered very strong out-performance in the last few months of the financial year. The Company s portfolio returned +23.9%, net of management fees and expenses, outperforming the benchmark index by 2.6 percentage points. The Company s diluted net asset value ( NAV ) total return (which assumes that the 11.9 million Subscription shares outstanding at 30th September 2010 were all exercised at 176p per share) was +24.0% and the return to Ordinary shareholders was +22.7%. Please refer to the investment managers report for a full review of the portfolio s performance. Revenue and Dividends Revenue per share for the year amounted to 1.76p (on an undiluted basis) and the Directors are recommending a final dividend of 1.70p which, if approved by shareholders, will be payable on 11th February 2011 to shareholders on the register at the close of business on 7th January Discount Management The Board closely monitors the level of discount at which the Company s Ordinary shares trade relative to their NAV. During the year the Company bought back a total of 3,119,610 Ordinary shares in nine separate transactions, representing 1.9% of the Ordinary shares in issue at the start of the year. These buybacks were executed at an average weighted discount to the diluted ex-income NAV of 10%. The Board believes that the discount should, in normal market circumstances, be maintained as far as possible at less than 10% relative to the diluted ex-income NAV, and uses the Company s buyback powers to pursue this objective. Over the year the average daily discount, using the diluted ex-income NAV, was 9.2%. The Board also believes that, as well as providing liquidity, it is important that buybacks should bring an uplift in NAV per share for continuing investors (as a result of those shares being acquired at a discount to their NAV). This will continue to be the Board s policy for the year ahead and the Directors will therefore propose a resolution at the forthcoming Annual General Meeting ( AGM ) to authorise the Company to repurchase its Ordinary and Subscription shares. In addition, and as part of its armoury to manage the discount, the Directors intend to convene a General Meeting in February 2011 to propose introducing conditional semi-annual tender offers. Each tender offer would be for up to 5% of the Company s Ordinary shares in issue at the relevant date, at a 2% discount to diluted ex-income NAV, less the costs of effecting the tender. The first such tender would be in respect of the six month period ending 30th September 2011 and would be implemented if the Company s Ordinary shares have traded at an average daily discount of more than 2 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

5 9% relative to their diluted ex-income NAV over that period. Thereafter, and subject to receiving the necessary shareholder approvals at each AGM, such tenders would be conducted on the same basis in respect of the financial periods ending 31st March and 30th September each year. Shareholders should note that these tender offers will, however, remain at the discretion of the Board and be subject to prevailing market conditions at the time, so they should place no expectation on these tender offers being implemented in the future. Proposed One-Off Tender Offer The Board has also decided, following recent meetings with a number of the Company s major shareholders, to implement a one-off tender offer for up to 5% of the Ordinary shares in issue on the Record Date of 8th December 2010 and to allow Subscription shareholders to participate in this tender if they exercise their conversion rights by 7th January Subscription shareholders on the register on the Record Date and who exercise their Subscription shares by 7th January 2011 will be deemed to have held the Ordinary shares resulting from the exercise on the Record Date. This tender offer is designed to enable those shareholders (other than restricted shareholders) who wish to realise their Ordinary shares to do so (subject to the overall limits of the tender offer). Shareholders who successfully tender their Ordinary shares will receive a tender price per Ordinary share which will be equal to the diluted ex-income NAV per Ordinary share (inclusive of undistributed revenue reserves) on the calculation date, from which the direct costs and expenses of the tender offer (including stamp duty and realisation costs), together with a further 2% discount, have been deducted. The Record Date for participation in this tender offer will be close of business on 8th December Under the terms of this tender offer, shareholders (other than restricted shareholders) will be entitled to tender up to 5% of the Ordinary shares they hold, as at the Record Date (their Basic Entitlement ). Such shareholders will also be able to tender additional Ordinary shares, but such excess tenders will only be satisfied to the extent that other Shareholders tender less than their aggregate Basic Entitlement and will be satisfied on a pro rata basis. Tender applications will be rounded down to the nearest whole number of Ordinary shares. A circular in respect of this tender offer (and the semi-annual tender offers detailed above) is expected to be despatched to shareholders in the first half of January This one-off tender offer will be conditional on shareholders approving the Company s continuation resolution at the AGM on 31st January 2011, as more fully described below. Subscription Shares The Company issued 32,000,805 Subscription shares as a bonus issue to qualifying shareholders on the basis of one Subscription share for every five Ordinary shares held in February Each Subscription share confers the right (but not the obligation) to subscribe for one Ordinary share at predetermined prices on any business day during the period from 1st April 2009 until 31st March 2014, after which JPMorgan Asian Investment Trust plc. Annual Report & Accounts

6 Chairman s Statement continued the rights on the Subscription shares will lapse. Between 1st October 2009 and 30th September 2010, 19,669,626 Subscription shares were converted into Ordinary shares, raising proceeds of 26,972,000. As at the date of this Report, a further 27,641 Subscription shares have been converted, meaning that a total of 27,641,000 has been raised for investment by the Company since the Subscription shares were issued, with 63% of the original allotment of Subscription shares being converted. On 1st April 2010, the exercise price stepped up from an initial 137p per Subscription share to 176p per share. Since this increase, the Company s Ordinary share price, which is 237p at the time of writing, has remained above the revised exercise price. The next and final step-up in exercise price, to 203p per share, will take place on 1st April Further details on the Subscription shares, including their exercise prices, the apportionments for capital gains tax purposes and how they may be exercised, can be found on the Company s website at and on page 64 of this report. Manager The Board has carried out its formal annual review of the investment management, company secretarial and marketing services provided to the Company by JPMorgan Asset Management (UK) Limited ( JPMAM ). This review encompassed their performance record, management processes, investment style, resources and risk control mechanisms. After full consideration, the Board concluded that the continued appointment of JPMAM for provision of these services on the terms agreed is in the interests of shareholders as a whole. Performance Fee This year, for the first time since 2008, a performance fee is payable to the Manager. Despite the Company having outperformed its benchmark index in the two years up to 30th September 2010 the fee amounts to a relatively modest 53,000, as the carried forward negative balance of million (incurred largely in respect of poor performance in the year ended 30th September 2008) had to be covered before a performance fee could again be paid. The Board is pleased that the Manager s investment performance relative to our benchmark index has improved to such an extent that it has earned this additional fee. Details in relation to the calculation of the performance fee may be found in the Directors Report on page 22 of this report. Borrowing Facilities The Company has a 25 million five year multi-currency loan facility with Lloyds Banking Group, which expires in May In August the Board was able to renegotiate the Company s 364 day multi-currency facility with ING Bank and increased the expiring facility from 20 million to 30 million and for a term of three years. 4 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

7 Board This year the Directors commissioned Trust Associates, an independent consultancy firm, to facilitate the annual evaluation of the Board. The evaluation covered a range of topics including size and composition of the Board, Board information and processes, shareholder engagement and training and accountability, as well as the effectiveness of the Audit Committee, the Chairman and the Directors. This was a very worthwhile and revealing exercise and actions have been taken in respect of the findings and recommendations. As part of its commitment to effective succession planning, the Board has resolved to recruit a new non-executive director in 2011, in anticipation of the retirement of Mr Alun Evans at the AGM in Continuation Vote The Articles of Association of the Company provide that the Directors must propose an Ordinary resolution for the continuation of the Company in its current form at the forthcoming AGM. The Board has confidence in the Company s ability to benefit from the opportunities for long term capital growth offered by Asia ex Japan stockmarkets and, having also consulted a number of its larger shareholders, has no hesitation in recommending that shareholders vote in favour of the resolution, as the Directors intend to do with their own shares. This will enable the Company to continue as an investment trust for a further three years until the AGM to be held in Annual General Meeting This years Meeting will again be held at The Salters Hall, 4 Fore Street, London EC2Y 5DE on Monday, 31st January 2011 at noon. In addition to the formal proceedings, there will be a presentation by Joshua Tay, one of your investment managers, who will also be available to respond to questions on the Company s portfolio, investment strategy and the outlook for Asia generally. Following the Meeting there will be an opportunity for shareholders to meet the Board and the investment manager over a buffet lunch and I look forward to seeing as many of you as possible. Outlook At the time of writing Asia ex Japan stock markets are strong, supported by healthy company balance sheets and reasonable valuations and our investment managers remain positive for now. Nevertheless, we have seen recent interest rate increases from China, Australia and India as these countries central banks seek to moderate growth to avoid excessive inflation. For now the portfolio remains geared but our investment managers are keeping a very close eye on equity market valuations. James M Long Chairman 10th December 2010 JPMorgan Asian Investment Trust plc. Annual Report & Accounts

8 Investment Managers Report Market Review The twelve months to 30th September 2010 has been a period of continued, but volatile, recovery in Asian markets. The MSCI AC Asia ex Japan Index rose 21.3% in sterling terms over this period. Joshua Tay Pauline Ng During the last quarter of 2009, Asia s stock markets rose as their economies continued to benefit from both global and regional stimulus. However, this trend quickly reversed at the start of 2010 as markets retreated following concerns over Chinese economic policy tightening, the risk of a Greek debt default, fears over changes in US bank regulation and rising inflation worries. In addition, after a strong 2009, Asian stock markets were no longer as attractively valued and therefore susceptible to profit taking. A brief respite in February and March 2010 saw markets rise again thanks to a recovery in US consumption data. Again this trend was short lived. As we went into the second quarter of 2010, momentum ebbed as fears over European sovereign debt and further Chinese tightening measures resurfaced once again. Asian markets recovered from July onwards, and indeed rose very strongly in September, as investment flowed back into the region following a return of risk appetite and as concerns faded over a double dip recession in the US. Global central banks signalling possible further quantitative easing measures also provided momentum to the equity market rally. Over the twelve month review period, south Asian countries performed markedly better than their northern counterparts. In particular, small, non-export dependent countries, such as the Philippines, Thailand and Indonesia outperformed the region. Indian equities also performed well as the country s profit cycle restarted and economic indicators posted strong growth. The Greater China markets (China, Hong Kong and Taiwan) posted mixed performance; China and Taiwan lagged the broader region as Hong Kong outperformed. In Hong Kong, the continued talk of the globalisation of the renminbi and the concomitant liquidity benefits that this would bring this territory (as China's international financial centre), buoyed local bank and property stocks. Taiwan and Korea underperformed over the review period as weak demand from the developed world weighed on their export-exposed economies. Both China s A and H share markets lagged the region as investors awaited clarity on how far policy tightening measures would go and whether the economy would achieve a soft landing. Performance Over the twelve months ended 30th September 2010, the Company s portfolio returned +23.9%, net of management fees and expenses, outperforming the benchmark index by 2.6 percentage points. Over the course of the year we employed gearing of approximately 5% on average. Both asset allocation and stock selection contributed to positive returns. In terms of asset allocation, our decision to 6 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

9 Performance attribution for the year ended 30th September 2010 Contributions to total returns % % Benchmark Stock selection +3.7 Currency effect +0.3 Gearing/cash +1.1 Dividends/residual 1.7 Investment manager contribution +3.4 Portfolio total return Management fees/ other expenses 0.8 Portfolio total return, net of fees and expenses Share buybacks +0.2 Exercise of Subscription shares 5.1 Other effects 4.9 Undiluted return on net assets Subscription share dilution +5.0 Structural effects +5.0 Diluted return on net assets Return to Ordinary shareholders Source: FactSet, JPMAM and Morningstar. All figures are on a total return basis. Performance attribution analyses how the Company achieved its recorded performance relative to its benchmark index. A glossary of terms and definitions is provided on pages 62 and 63. overweight Thailand and Indonesia contributed positively to performance. Conversely, our underweight in Hong Kong and having no exposure in Malaysia, detracted from performance. At the stock level, selection was strongest in Singapore, Thailand, Korea and India. In Singapore the portfolio s holding of consumption stocks such as Genting Singapore and GMG Global, and our overweight in Keppel Land were key contributors to performance. Genting Singapore s shares posted strong gains, especially in the third quarter of 2010, as its newly opened integrated casino registered robust growth. GMG Global, an operator of rubber plantations, benefited from an increase in rubber prices due to supply constraints and significant demand growth, especially from China. Encouraging home sales in Singapore and China benefited Keppel Land but further policy action remains a risk with the Singapore government keeping a close eye on the city-state s property prices. The two largest contributors to performance were two Thai stocks; namely Siam Cement and Banpu. Siam Cement s shares posted strong gains on the back of increasing demand for both cement and chemicals and Banpu s shares rose due to the positive long term outlook for coal demand, especially from China and India. In Korea, the portfolio benefited from our decision to overweight Samsung Engineering, whose order book looked increasingly robust. In India, consumer discretionary names were also strong, especially our holding of Tata Motors which surged 72% following increased demand for its passenger cars. Conversely, stock selection in Taiwan, especially within the information technology sector, detracted from performance. Our decision to overweight RichTek Technology and underweight HTC cost performance. HTC s share price rose as evidence emerged that concerns over the degree and speed of pricing and margin contraction were exaggerated, and in July the company launched its own brand devices in China. In contrast, RichTek s share price struggled from May onwards on concerns over rising competition and margin pressure. Portfolio Activity/Positioning At the end of 2009, it became increasingly clear to us that, with US rates remaining low, Asia would remain strong and liquidity would continue to flow into the region. Earnings expectations were reasonable which supported valuations and, with recovering demand from the OECD, the market s momentum would be maintained into the second half of Although we were cognisant of the headwinds (property tightening, banking sector overhang) facing Chinese equities, we started 2010 with overweight positions in China, Hong Kong, Indonesia and Thailand. We turned positive on India and took an overweight position in that market in March on the back of its strong earnings outlook. In Thailand, where exports, consumer and investment indicators continued to show very strong growth, we remained overweight despite concerns over the impact that the political protests would have on the Thai economy. JPMorgan Asian Investment Trust plc. Annual Report & Accounts

10 Investment Managers Report continued In Indonesia, however, we turned more cautious as valuations became stretched and inflation expectations accelerated. In July, it became apparent China would achieve a soft landing for its economy and we decided to increase our overweight as we gained more confidence. The underlying theme of our portfolio strategy remains unchanged; namely to favour domestic consumption stocks in Asia, at the expense of exporters, with India and China remaining our key overweight markets. In India, where the portfolio remains overweight in financials and other domestic consumption related names, the outlook in the medium to long term continues to be very positive from a bottom-up perspective, as fundamentals continue to improve. In China, where we are looking for signs of a peak in policy risk before we see further market upside, we have recently taken profits on some of the cyclical stocks which have performed well. Despite the possibility of the introduction of capital controls in Thailand and some other ASEAN countries, we continue to favour South Asia over the more OECD-export-exposed North Asian countries. Market Outlook US Dollar weakness and a flattening of developed world growth have been the main features of the final quarter. Momentum in markets accelerated in October with growing QE2 speculation (a second bout of quantitative easing was announced on 3rd November) but there was disquiet about the effect of low rates and a weak US Dollar on the success of U.S. Treasury auctions. Thanks to renewed fears about the weaker Eurozone nations (Ireland in particular) and tensions between North and South Korea, markets have corrected since the beginning of November. There are concerns too about possible speculative or bubble effects resulting from keeping rates at record low levels (gold bubbles, bond bubbles), the bursting of which might further damage already weak financial institutions. These concerns aside, the easing of export growth rates from Asia is indicating a weak year-end shopping season. This is not surprising given the structural factors behind what are likely to prove permanent job losses in the U.S. and Europe. China is trying to protect domestic jobs from too fast an appreciation in its currency and wishes to move smoothly, not disruptively, up the value-added curve. Over the third quarter, the A-share market had recognised the possible end of administrative measures and there is plenty of room for the laggard domestic market to catch up with its Hong Kong-listed counterparts. More recently however, as China s near term growth concern fades, policymakers are turning their focus to inflation. The surprisingly strong pickup in October CPI inflation, caused obvious jitters in the market and we expect to see inflation headlines dominating news-flow until after Chinese New Year (Feb 2011). We expect the central bank to continue to focus on liquidity management, through intensified sterilisation, reserve requirement ratio hikes, and further credit controls in the coming months, in addition to closer monitoring of capital inflows, all of which will continue to cause uncertainty in the market. Additionally, should CPI continue to stay at elevated levels, the probability of the government allowing the renminbi to appreciate faster than previously 8 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

11 anticipated is rising. India, on the other hand, will be supported by a strong monsoon, good earnings growth and foreign inflows. As indicated, some concern exists on capital controls in the region, and we prefer South Asia over the more OECD-export-exposed North Asia. That said, there will still be companies in Korea and Taiwan which offer good exposure to growth both in China and in those products still seeing growth in the OECD. Valuations are now at mid-cycle levels at 2.2x Trailing Price/Book and 13.4x 2011 Price/Earnings for MSCI Asia ex-japan. Liquidity is abundant in Asia driving prices higher and earnings revisions are coming through to sustain multiples. However, the quality of those upgrades needs rigorous scrutiny. Joshua Tay Pauline Ng Investment Managers 10th December 2010 JPMorgan Asian Investment Trust plc. Annual Report & Accounts

12 Summary of Results Total Returns (including dividends reinvested) for the year ended 30th September Unit return to shareholders 1, % +47.3% Portfolio total return net of fees and expenses 2, % +44.4% Benchmark % +41.3% Diluted return on net assets 2, % +34.8% Undiluted return on net assets % +43.2% Return to Ordinary shareholders % +41.2% % change Net AssetValue, Share Price, Discount and Market Data at 30th September Shareholders funds ( 000) 445, , Diluted net asset value per Ordinary share 246.7p 200.4p Undiluted net asset value per Ordinary share 251.4p 212.8p Ordinary share price 224.0p 184.0p Ordinary share price discount to diluted net asset value per Ordinary share 9.2% 8.2% Ordinary shares in issue 177,010, ,470, Subscription share price 50.3p 41.5p Subscription shares in issue 11,878,259 31,547, Revenue for the year ended 30th September Gross revenue return ( 000) 7,256 5, Net revenue attributable to shareholders ( 000) 2,997 2, Revenue return per Ordinary share diluted 1.75p 1.52p Revenue return per Ordinary share undiluted 1.76p 1.55p Dividend per Ordinary share 1.70p 1.50p Actual Gearing Factor at 30th September % 105.1% Total Expense Ratio % 0.88% A glossary of terms and definitions is provided on pages 62 and A Unit comprises 5 Ordinary shares and 1 Subscription share. 2 Source: J.P. Morgan. 3 Return on net assets, that is net of management fees and administration expenses, but excluding the effect of Subscription shares which have been converted during the year and the dilutive impact of Subscription shares in issue at the year end. 4 Source: MSCI. The Company s benchmark is the MSCI Asia ex Japan Index with net dividends reinvested, expressed in sterling terms. 5 Return on net assets, using the diluted net asset value, which assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the year end. 6 Source: Morningstar. 7 Investments expressed as a percentage of shareholders funds. 8 Management fees and all other operating expenses excluding interest and performance fee payable, expressed as a percentage of the average of the month end net assets during the year. 10 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

13 Performance Ten Year Performance Figures have been rebased to 100 at 30th September Source: Morningstar/MSCI. JPMorgan Asian Ordinary share price. JPMorgan Asian diluted net asset value per Ordinary share. Benchmark. Performance Relative to Benchmark Figures have been rebased to 100 at 30th September Source: Morningstar/MSCI. JPMorgan Asian Ordinary share price. JPMorgan Asian diluted net asset value per Ordinary share. The Benchmark is represented by the grey horizontal line. JPMorgan Asian Investment Trust plc. Annual Report & Accounts

14 Ten Year Financial Record At30thSeptember Shareholders funds( 000) 183, , , , , , , , , , ,002 Dilutednetassetvalueper Ordinaryshare(p) Ordinaryshareprice(p) Ordinarysharepricediscount to dilutednetassetvalue per Ordinaryshare Actualgearingfactor(%) Subscriptionshareprice(p) Yearended30thSeptember Grossrevenuereturn( 000) 3,409 3,705 3,471 4,035 4,828 6,260 5,640 6,786 7,280 5,363 7,256 (Loss)/returnperOrdinary share diluted(p) 5 (0.36) DividendperOrdinary share(p) Nil Nil Totalexpenseratio(%) Totalexpenseratioincluding performancefee payable% Rebasedto100at30thSeptember2000 Ordinarysharepricetotal return Dilutedreturnonnetassets 3, Benchmarkreturn A glossary of terms and definitions is provided on pages 62 and Figures have been restated where relevant to comply with FRS 19 Deferred Tax. 2 Figures have been restated to reflect changes in accounting policy regarding dividends payable. Such dividends are now included in the accounts in the year in which they are paid. 3 The diluted net asset value per Ordinary share assumes that all outstanding dilutive Subscription shares were converted into Ordinary shares at the year end. 4 Investments expressed as a percentage of shareholders funds. 5 The return per Ordinary share, adjusted for the effect of all dilutive Subscription shares. 6 Management fees and and all other operating expenses excluding interest and performance fee payable, expressed as a percentage of the average of the month end net assets during the year (2008 and prior years: the average of the opening and closing net assets). 7 Management fees, all other operating expenses and performance fee payable, but excluding interest, expressed as a percentage of the average of the month end net assets during the year (2008 and prior years: the average of the opening and closing net assets). 8 Source: Morningstar. 9 Source: MSCI. The Company s benchmark is the MSCI AC Asia ex Japan Index with net dividends reinvested, expressed in sterling terms. 12 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

15 Ten Largest Investments at 30th September Valuation Valuation Company Country 000 % % 1 China Construction Bank Hong Kong & China 15, , China Construction Bank provides a complete range of banking services and other financial services to individual and corporate customers. The bank s services include retail banking, international settlement, project finance and credit card services. Ping An Insurance Hong Kong & China 14, , Ping An Insurance provides a variety of insurance services in China. The company writes property, casualty and life insurance. Samsung Electronics South Korea 12, , Samsung Electronics manufactures a wide range of consumer and industrial electronic equipment and products such as semiconductors, personal computers, peripherals, monitors, televisions, and home appliances including air conditioners and microwave ovens. The company also produces Internet access network systems and telecommunications equipment including mobile phones. Siam Cement 3 Thailand 12, Siam Cement is a diversified industrial company. The company s operations include cement manufacturing, petrochemicals manufacturing, paper manufacturing, building product manufacturing and distribution. Agricultural Bank of China 3 Hong Kong & China 10, Agricultural Bank of China provides a full range of commercial banking services. The bank s services include Renminbi and foreign currency deposit, loan, international and domestic settlement, bill discount, currency trading, bank guarantee, and treasury bill underwriting. Olam International Singapore 10, , Olam is an international integrated supplier of both raw and processed agricultural commodities. The company sources, processes, stores, transports, distributes, trades and markets agricultural products. Nine Dragons Paper 3 Hong Kong & China 9, Nine Dragons Paper produces a wide range of containerboard products. The company primarily produces linerboard, including kraft linerboard, test linerboard, white top linerboard, high performance corrugating medium and coated duplex board. Maruti Suzuki India 2 India 9, , Maruti Suzuki India manufactures and exports automobiles. Maruti collaborated with Suzuki of Japan to produce affordable cars for the average Indian. The company is 54% owned by Suzuki. In the small car segment it produces the Maruti 800 and the Zen. The big car segment includes the Maruti Esteem and Maruti Hyundai Heavy Industries 3 South Korea 9, Hyundai Heavy Industries builds ships for commercial and military purposes. The company manufactures oil tankers, cargo and passenger vessels, and warships. The company also produces heavy industrial machines, electrical components for engines and power trains, and industrial vehicles, such as cranes and bulldozers. Infrastructure Development Finance 2 India 8, , Infrastructure Development Finance offers infrastructure project financing services. The company primarily finances energy, telecommunications and transportation projects. Total 113, Based on total assets less current liabilities of 464.0m (2009: 366.5m). 2 Not included in the ten largest investments at 30th September Not held in the portfolio at 30th September At 30th September 2009, the value of the ten largest investments amounted to 86.9m representing 23.7% of total assets less current liabilities. JPMorgan Asian Investment Trust plc. Annual Report & Accounts

16 Portfolio Analyses Geographic 30th September th September 2009 Active Active Portfolio Benchmark Position Portfolio Benchmark Position % % % % % % Hong Kong and China India South Korea Singapore Taiwan Thailand Indonesia Malaysia Philippines Net current assets Total Based on total assets less current liabilities of 464.0m (2009: 366.5m). Sector 30th September th September 2009 Active Active Portfolio Benchmark Position Portfolio Benchmark Position % % % % % % Financials Industrials Materials Information Technology Consumer Staples Energy Consumer Discretionary Healthcare Utilities Telecommunication Services Net current assets Total Based on total assets less current liabilities of 464.0m (2009: 366.5m). 14 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

17 Investment Activity during the year ended 30th September 2010 Value at Changes Value at 30th September 2009 Purchases Sales in value 1 30th September % % Hong Kong and China 132, , ,736 20, , India 40, ,116 36,841 16,138 73, South Korea 54, ,267 62,288 11,340 69, Singapore 37, ,606 71,955 17,326 49, Taiwan 47, ,275 59,803 (2,232) 40, Thailand 16, ,434 26,646 12,069 32, Indonesia 29, ,658 28,164 8,835 25, Total Portfolio 358, , ,433 83, , Total capital gains on investments for the year amounted to 83,627,000, comprising gains on sales of investments and investment holding gains of 83,715,000, realised gains on futures contracts of 2,000, less other capital charges of 90,000. JPMorgan Asian Investment Trust plc. Annual Report & Accounts

18 List of Investments at 30th September 2010 Valuation Company 000 Hong Kong and China China Construction Bank 15,564 Ping An Insurance 14,591 Agricultural Bank of China 10,844 Nine Dragons Paper 9,858 Poly (Hong Kong) Investments 8,142 Jiangxi Copper 8,035 Weichai Power 7,923 China Shenhua Energy 7,872 BOC Hong Kong 7,610 China Resources Cement 7,439 Kerry Properties 6,891 Orient Overseas International 6,578 China Yurun Food 6,558 China Merchants Bank 6,540 Hong Kong Exchanges & Clearing 6,245 BBMG 6,048 China Windpower 5,755 Zijin Mining 5,395 Parkson Retail 5,122 Yanzhou Coal Mining 5,053 China Eastern Airlines 4,959 Wharf 4,885 Amvig 3,519 Total 171,426 India Maruti Suzuki India 9,460 Infrastructure Development Finance 8,643 Mundra Port & Special Economic Zone 8,274 Larsen & Toubro 8,085 Tata Motors 7,726 HDFC Bank 7,385 Bharat Heavy Electricals 6,319 Ambuja Cements 5,934 JSW Steel 5,669 Hindalco Industries 1 5,636 Total 73,131 South Korea Samsung Electronics 12,956 Hyundai Heavy Industries 9,099 Samsung Engineering 8,316 KB Financial 7,901 Lock & Lock 7,784 Amorepacific 7,634 POSCO 7,180 Daewoo Shipbuilding & Marine Engineer 4,986 Samsung C&T 2,419 Korea Kumho Petrochemical 1,596 Valuation Company 000 Singapore Olam International 10,349 GMG Global 8,202 Fraser & Neave 7,816 Neptune Orient Lines 5,731 Otto Marine 5,138 Genting Singapore 4,487 Cosco 4,270 Midas 3,995 Total 49,988 Taiwan Hon Hai Precision 7,985 Advanced Semiconductor Engineering 7,694 President Chain Store 6,805 Acer 6,121 Innolux Display 6,043 Taishin Financial 5,366 Total 40,014 Thailand Siam Cement 2 12,533 Thai Oil 7,684 Banpu 2 6,996 Krung Thai Bank 5,654 Total 32,867 Indonesia United Tractors 8,639 Kalbe Farma 6,284 Bank Danamon 5,567 Indika Energy 4,640 Total 25,130 Total Portfolio 462,427 1 Participatory note. 2 Includes non-voting depository receipts. Total 69, JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

19 Board of Directors James Long TD (Chairman) Joined the Board in 1997 and appointed Chairman in Director of Risk and Compliance for AstraZeneca Europe. Previous roles included Corporate Finance Director of Inchcape plc and Managing Director, Asia and Emerging Markets for the ESAB Group. Mr Long is a Director of British Assets Trust PLC. Alun Evans CMG* Joined the Board in 2001 and appointed Senior Independent Director in Mr Evans s main career was with the Foreign and Commonwealth Office where he rose to senior management level with responsibility, latterly, for Far Eastern issues. He then spent thirteen years in the civil aviation industry as international affairs adviser first to British Airways and subsequently to Cathay Pacific Airways. He is also Deputy Chairman of the British-Iranian Chamber of Commerce. Ronald Gould* Joined the Board in Formerly Chief Executive Officer of Chi-X, Asia Pacific, Managing Director of BZW Investment Management, Vice-Chairman of BZW/Barclays Asset Management and President of BZW Investment Management Japan and Managing Director of Barclays Trust & Banking Japan. More recently Senior Executive Vice President and Managing Director at AXA Investment Managers and, subsequently, chief executive officer of, and now a consultant to, ABG Sundal Collier ASA. Mr Gould was formerly an adviser to the Financial Services Authority. He is also a director of Miller Insurance Services Limited. Andrew Sykes* Joined the Board in 2004 and appointed Audit Committee Chairman in Chairman of Absolute Return Trust Limited and Invista Foundation Property Trust Limited, Deputy Chairman of Smith & Williamson Holdings Limited, Director of Record plc and SVG Capital plc, a member of the Supervisory Board of the Schroder Exempt Property Unit Trust and Chairman of the Investment Committee of the Schroder Retirement Benefits Scheme. Until March 2004, Mr Sykes was a Director of Schroders plc, with responsibility for private banking and alternative investments. James Strachan* Joined the Board in Mr Strachan is currently a non-executive director of the Financial Services Authority, Legal and General Group plc, Welsh Water Limited, Sarasin and Partners LLP and Social Finance Limited. He is also a Visiting Fellow at the LSE (risk and regulation) and a Vice President of RNID. Until 2006, he was Chairman of the Audit Commission, the public services regulator and watchdog, and he served as a Director of the Bank of England until * Member of Audit Committee. Member of the Nomination Committee. JPMorgan Asian Investment Trust plc. Annual Report & Accounts

20 Directors Report The Directors present their report for the year ended 30th September Business Review Business of the Company The Company carries on business as an investment trust and was approved by HM Revenue & Customs as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010 (formerly Section 842 of the Income and Corporation Taxes Act 1988) for the year ended 30th September In the opinion of the Directors, the Company has subsequently conducted its affairs so that it continues to qualify. The Company will continue to seek approval under Section 1158 of the Corporation Tax Act 2010 each year. Approval for the year ended 30th September 2009 is subject to review should there be any subsequent enquiry under Corporation Tax Self Assessment. The Company is an investment company within the meaning of Section 833 of the Companies Act The Company is not a close company for taxation purposes. A review of the Company s activities and prospects is given in the Chairman s Statement on pages 2 to 5, and in the Investment Managers Report on pages 6 to 9. Objective The Company s objective is to achieve capital growth primarily from investing in equities quoted on the stockmarkets of Asia, excluding Japan. The performance of the Company is measured against its benchmark index, the MSCI AC Asia ex Japan Index with net dividends reinvested, in sterling terms. Investment Policies and Risk Management In order to achieve its objective, the Company invests in a portfolio of Asian stocks with an emphasis on capital growth rather than income, with the likely result that the level of dividend will fluctuate from year to year. Investment risks are managed by diversifying investment over a number of Asian companies. The number of investments in the Company will normally range between 50 and 80. The Board seeks to manage the Company s risk relative to its benchmark index by limiting the active portfolio exposures to the various countries and stocks covered by the benchmark index and, in some cases, to specific stocks. These active exposure limits may be varied at any time by the Board at its discretion. Currently the maximum permitted active exposure to each country is 12% points above or below the benchmark index weighting except for Taiwan, South Korea, Hong Kong and China, where the maximum permitted active exposure is 15 percentage points above or below the benchmark index weighting. The maximum permitted exposure to each individual company is 8% of the Company s total assets, excluding collective vehicles and Samsung Electronics. The maximum permitted portfolio weighting of any investment in Samsung Electronics is 5 percentage points above that company s weighting in the benchmark index. The maximum proportion of the Company s total assets that may be represented by the five largest holdings in the portfolio is 40%. Unlisted investments are permitted with prior approval of the Board. The Board also permits investment in Australian listed companies, subject to a limit of 10% of the Company s gross assets. The Company does not invest more than 15% of its gross assets in other UK listed investment companies (including investment trusts). The Company does not invest more than 10% of its gross assets in companies that themselves may invest more than 15% of their gross assets in UK listed investment companies. Liquidity and borrowings are managed with the aim of increasing returns to shareholders. The Company s actual gearing range (investments expressed as a percentage of shareholders funds) may fluctuate between 90% and 120%. The use of derivatives is permitted with prior approval of the Board and within agreed limits. Currency hedging transactions are permitted up to 40% of the portfolio but only back into sterling. In addition, sales of country specific index futures are permitted, limited to the aggregate value of stocks held in the relevant market. Compliance with investment restrictions and guidelines is monitored continuously by the Manager and is reported to the Board on a monthly basis. These active exposure limits and restrictions may be varied by the Board at any time at its discretion. Performance In the year to 30th September 2010, the Company produced a portfolio total return net of fees and expenses of +23.9%, a total return to Ordinary shareholders of +22.7% and a diluted total return on net assets of+24.0%. This compares with the return on the Company's benchmark index of +21.3%. At 30th September 2010, the value of the Company s investment portfolio was million. The Investment Managers Report on pages 6 to 9 includes a review of developments during the year. 18 JPMorgan Asian Investment Trust plc. Annual Report & Accounts 2010

21 Total Return, Revenue and Dividends Gross total return for the year amounted to 89.4 million (2009: million) and net total return after deducting interest, management expenses, performance fees and taxation amounted to 85.0 million (2009: million). Distributable income for the year amounted to 2,997,000 (2009: 2,477,000). The Directors recommend a dividend of 1.70p per share (2009: 1.50p) payable on 11th February 2011 to shareholders on the register at the close of business on 7th January This distribution will amount to 3,009,000 (2009: 2,407,000). No other dividends were paid in respect of the year. The revenue reserve after this transfer will amount to 464,000 (2009: 513,000). Key Performance Indicators ( KPIs ) The Board uses a number of financial KPIs to monitor and assess the performance of the Company. The principal KPIs are: Performance against the benchmark This is the most important KPI by which performance is judged. Ten Year Performance Figures have been rebased to 100 at 30th September Source: Morningstar/MSCI. JPMorgan Asian Ordinary share price. JPMorgan Asian diluted net asset value per Ordinary share. Benchmark Performance relative to Benchmark Index Figures have been rebased to 100 at 30th September Source: Morningstar/MSCI. JPMorgan Asian Ordinary share price. JPMorgan Asian diluted net asset value per Ordinary share. The Benchmark is represented by the grey horizontal line Performance against the Company s peers The Board also monitors performance relative to a broad range of competitor funds Performance attribution The purpose of performance attribution analysis is to assess how the Company achieved its performance relative to its benchmark index, i.e. to understand the impact on the Company s relative performance of the various components such as gearing, stock selection and currency gains and losses. Details of the attribution analysis for the year ended 30th September 2010 are given in the Investment Managers Report on page 7. Discount to net asset value ( NAV ) The Board seeks to address imbalances in the supply of and demand for the Company s shares in the market and thereby reduce the volatility and absolute level of the discount to NAV at which the Company s Ordinary shares trade. The discount to NAV at the start of the year was 8.2% and at the end it was 9.2%. The highest and the lowest discounts to NAV during the year were 15.2% and 8.2% respectively. JPMorgan Asian Investment Trust plc. Annual Report & Accounts