JPMorgan Japanese Investment Trust plc · essionals in Japan Our Investment Approach A combination of desk-based research and company meetings contribute to our rating of a company

JPMorgan Japanese Investment Trust plc Annual Report & Financial Statements for the year ended 30th September 2018

K E Y F E A T U R E S

J P M O R G A N J A P A N E S E I N V E S T M E N T T R U S T P L C . A N N U A L R E P O R T & F I N A N C I A L S T A T E M E N T S 2 0 1 8

Your Company

Investment Objective

Capital growth from investments in Japanese companies.

Investment Policy

To maintain a portfolio almost wholly invested in Japan.•

To use gearing to increase potential returns to shareholders. The Company’s gearing policy is to operate within a range of 5% net•cash to 20% geared in normal market conditions.

To invest no more than 15% of its gross assets in any listed company (including investment trusts).•

Further details on investment objective and policy, together with investment restrictions and guidelines are given in the StrategicReport on pages 20.

Benchmark

The Tokyo Stock Exchange First Section Index (‘TOPIX’) expressed in sterling terms.

Capital Structure

UK domiciled. Premium listing on the London Stock Exchange. Constituent of the FTSE 250 Index.

As at 30th September 2018, the Company’s share capital comprised 161,248,078 (2017: 161,248,078) ordinary shares of 25p each.

Management Company and Company Secretary

The Company employs JPMorgan Funds Limited (‘JPMF’ or the ‘Manager’) as its Alternative Investment Fund Manager (‘AIFM’) andCompany Secretary. JPMF delegates the management of the Company’s portfolio to JPMorgan Asset Management (UK) Limited(‘JPMAM’), which in turn delegates day to day investment management activity to JPMorgan Asset Management (Japan) Limited inTokyo. Further details are given on page 25.

Find out more

More information about the Company can be found online at www.jpmjapanese.co.uk



Why invest in JPMorgan Japanese Investment Trust

Our heritage and our team

JPMorgan first opened its Tokyo office in 1969 and has over 40 years’ experience in Japan in seeking out the most attractively valuedJapanese sectors.

The Investment Team, based primarily in Tokyo, has a significant depth of experience in Japanese equity investments with an averageof 13 years’ employment with JPMorgan and some 18 years in the industry. They are supported by JPMorgan Asset Management’sextensive resources around the world.

40Years’ experience

investing in the region

2,000+Japanese company

visits each year

95.3%Active share1

24Investment

professionals in Japan

Our Investment Approach

A combination of desk-based research and company meetings contribute to our rating of a company. We consider the growthopportunity for the industry overall before considering the company’s competitive positioning and management. This allows us toassess the company’s potential for growth. We then look at financial metrics with a focus on cash flow and balance sheet strengthto assess the overall economics of the business. We also consider governance issues such as shareholder returns, managementstrength and the track record on environmental and social issues. Only then do we consider valuations – we do not buy companieswhere the short-term valuation looks low if they do not have a strong long term growth outlook.

1 Active share is a measurement of the difference in the Company’s portfolio compared to the benchmark index as at 30th September 2018.

Source: JPMAM

C O N T E N T S

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Strategic Report 4 Financial Highlights

6 Chairman’s Statement

9 Investment Managers’ Report

16 Portfolio Information

18 Ten Year Record

20 Investment Objective, Policies and Guidelines

21 Principal Risks

22 Long Term Viability

Directors’ Review 24 Board of Directors

25 Director’s Report

29 Corporate Governance Statement

33 Audit Committee Report

Directors’ Remuneration 35 Report

Statement of Directors’ 38 Responsibilities

Independent Auditors’ 40 Report

Financial Statements 47 Statement of Comprehensive Income

47 Statement of Changes in Equity

48 Statement of Financial Position

49 Statement of Cash Flows

50 Notes to the Financial Statements

Regulatory Disclosures 68 Alternative Investment Fund Managers

Directive (‘AIFMD’) Disclosure (Unaudited)

70 Securities Financing TransactionsRegulation (‘SFTR’) Disclosure (Unaudited)

Shareholder Information 74 Notice of Annual General Meeting

77 Glossary of Terms and AlternativePerformance Measures (‘APMs’) (Unaudited)

79 Where to buy J.P. Morgan Investment Trusts

80 Information about the Company

Strategic Report

Japanese p03-22.qxp 12/11/2018 15:21 Page 3

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F I N A N C I A L H I G H L I G H T S

TOTAL RETURNS (INCLUDING DIVIDENDS REINVESTED)

1 Source: Morningstar.2 Source: Morningstar/J.P. Morgan, using cum income net asset value per share, with debt at par value.3 Source: Morningstar. The Company’s benchmark is the Tokyo Stock Exchange First Section Index (TOPIX) expressed in sterling terms.

A glossary of terms and alternative performance measures is provided on pages 77 to 78.

2018 2017 3 Year 5 Year 10 Year

Return to shareholders1

Return on net assets2

Benchmark return3

Net asset return performanceagainst benchmark return3

Annual dividend

+24.6% +12.3% +83.9% +103.4% +268.4%

5.0p 5.0p

+26.8% +9.7% +89.1% +107.3% +252.8%

+12.6% +12.2% +66.6% +78.2% +156.8%

+14.2% –2.5% +22.5% +29.1% +96.0%


S T R A T E G I C R E P O R T | 5

F I N A N C I A L H I G H L I G H T S

SUMMARY OF RESULTS

2018 2017 % change

Key financial data as at 30th September

Shareholders’ funds (£’000) 851,540 678,838 +25.4

Total assets (£’000) 991,003 778,546 +27.3

Net asset value per share with debt at par value 528.1p 421.0p +25.4

Net asset value per share with debt at fair value1 523.6p 421.0p +24.4

Share price 458.0p 372.0p +23.1

Share price discount to net asset value per share with debt at par value 13.3% 11.6%

Share price discount to net asset value per share withdebt at fair value1 12.5% 11.6%

12 month average share price discount to net asset

value per share with debt at fair value2 9.2% 12.0%

Exchange rate 1 = 148.1 1 = 151.0 –1.9

Shares in issue 161,248,078 161,248,078

Revenue for the year ended 30th September

Gross revenue attributable to shareholders (£’000) 11,958 11,640 +2.7

Net revenue attributable to shareholders (£’000) 8,913 8,902 +0.1

Revenue return per share 5.53p 5.52p +0.2

Dividend per share 5.00p 5.00p

Gearing 14.7% 13.6%

Ongoing charges 0.67% 0.69%

1 The fair value of the Company’s ¥13 billion senior secured loan notes issued in August 2018 has been calculated using a discount rate based on the yield from a similar datedgilt plus a margin based on the five year average of the AA Barclays Yen Corporate Bond spread. The fair values of the Company’s other financial liabilities such as bankloans are considered to have no material difference to their amortised cost therefore, prior to August 2018, the NAV per share with debt at fair value was the same as theNAV per share with debt at par value. Further details on the net asset value calculation are given in the Alternative Performance Measures on page 77.

2 Morningstar/J.P.Morgan.


£ ¥ £ ¥


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C H A I R M A N ’ S S T A T E M E N T

Investment PerformanceI am pleased to report that your Company has had a successful year. For the year to 30th September 2018your Company produced a return on net assets of +26.8%, outperforming its benchmark index by some14.2%. Once again, I would like to congratulate our Investment Managers for this excellent performance.

Further information on performance and stocks is included in the Investment Managers’ Report on pages 9to 15.

On 26th March 2018 the Company’s market capitalisation had reached a sufficient size (£712.7 million) for itto become a constituent of the FTSE 250 Index at 31st March 2018. We very much hope that this willenhance the profile of your Company and improve demand for the shares.

Over recent years, while the investment objective of the Company has remained unchanged, the portfoliohas evolved, with the active encouragement of the Board, to take advantage of the market opportunitiesthat the Manager sees. In particular, the Investment Manager has reduced the number of holdings in theportfolio, has increasingly divested from larger capitalisation ‘core’ stocks and invested instead incompanies outside the largest constituents of the TOPIX Index (where the Manager sees the mostinteresting investment opportunities) and also increased the holding periods of the investments made.In previous Chairman’s Statements I have referred, in particular, to the opportunities among the newercompanies and business models that have evolved in Japan in recent years.

To formalise this approach, the Board, having consulted with shareholders, has agreed that the Managercan in future hold investments up to 7.5% (previously 5%) in excess of the benchmark weighting, a levelthat is in line with many of the Manager’s other portfolios. This will give the Investment Manager increasedflexibility in managing the portfolio and in particular ensure that strongly performing investments cancontinue to be held for longer if the Investment Manager believes this is in the best interests ofshareholders. It is not intended, however, that the Investment Manager will add further to any holding that,through market appreciation, rises to more than 5% in excess of the benchmark.

In addition, the Board has agreed that the Manager can make greater use of the Company’s closed endstructure in support of the current investment approach and invest in a limited number of more illiquidstocks.

To be clear the Company will continue to invest on a research-driven basis in attractive companies acrossthe full market capitalisation range in Japan.

Revenue and Dividends

Income received during the year rose marginally, with earnings per share for the full year increasing to 5.53p(2017: 5.52p). The Board’s dividend policy is to pay out the majority of the revenue available each year. This isset against the Company’s objective of maximising capital growth and the dividend paid being a residual of theportfolio structure. The Board proposes, subject to shareholders’ approval at the Annual General Meeting, topay a final dividend of 5.00p per share (2017: 5.00p) on 21st December 2018 to shareholders on the registerat the close of business on 23rd November 2018 (ex-dividend date 22nd November 2018).

Gearing and Long Term Debt

The Board of Directors sets the overall strategic gearing policy and guidelines, reviewing these at each meeting.In August the Board was able to take advantage of market conditions which offered the opportunity to securelong term debt financing in yen at rates below that paid on the Company’s then existing five year term loan andcompleted the placing of ¥13 billion of Senior Secured Notes (the ‘Notes’) at an average annualised interest rateof 1.10%. The net proceeds from the placing of the Notes were used to repay elements of the Company’s shortterm indebtedness, namely the ¥9 billion term loan and ¥4 billion of the ¥11 billion revolving credit facility.Through these Notes your Company has been able to achieve fixed rate borrowing of up to 30 years at little orno additional coupon cost than the existing shorter term facilities we were able to repay. There has been nochange in the Investment Managers’ permitted gearing range, as previously set by the Board, to limit gearingwithin the range of 5% net cash to 20% geared in normal market conditions.

Andrew FlemingChairman

I am pleased toreport that yourCompany hashad a successfulyear.




Management Fees

The Board has conducted its annual detailed review of management fees. It concluded that the currentOngoing Charges rate of 0.67% is extremely competitive compared to the Company’s peer group, havingreduced from 0.69% for the same period in 2017.

PRIIPs/KID

You will be aware that the Regulator introduced new rules (Packaged Retail and Insurance-basedInvestment Products Regulation (the ‘PRIIPs Regulation’)) that require the Investment Manager, who isdeemed to be the ‘Manufacturer’ of the investment product, in our case this company, to prepare a KeyInformation Document (KID). The Company and Directors is/are not responsible for the informationcontained in the KID and investors should note that the procedures for calculating the risks, costs andpotential returns are prescribed by the law. The figures in the KID may not reflect the returns the Companymight eventually achieve and performance returns cannot be guaranteed.

Stock Lending

We launched a stock lending programme for the Company during the course of the year. The revenue fromthis will help to defray expenses. We have made a relatively cautious start to the programme and it is stilltoo early to determine how successful, or otherwise it has been. It will be reported on more fully in futurereports.

The BoardHaving had the privilege of being a director of the Company for nearly fifteen years, I will step down aschairman at the Annual General Meeting (‘AGM’). I am very pleased that Christopher Samuel has agreed toreplace me, and Stephen Cohen will replace Christopher as chairman of the Audit Committee. I am alsodelighted to report that Sally Macdonald will be joining the Board following the AGM as a result ofa recruitment process that involved an independent consultant to identify candidates. Sally has a wealth ofexperience in investment management and I am sure she will make a strong contribution to yourCompany’s Board. All the Directors of the JPMorgan Japanese Investment Trust will, therefore, have beenappointed in or since 2013 and they will be in a strong position, led by Christopher, to build on the excellentinvestment process and performance record that has been established particularly since the managementof the investment portfolio was moved to Tokyo. I would like to thank all our shareholders for their supportof the Board while I have been a director. I wish Christopher, the directors, Nicholas Weindling and theTokyo-based investment team all success in the future.

Annual General MeetingThis year’s Annual General Meeting will be held on Thursday, 13th December 2018 at 12 noon at 60 VictoriaEmbankment, London EC4Y 0JP. As in previous years, in addition to the formal part of the meeting, therewill be a presentation from the Investment Managers who will answer questions on the portfolio andperformance. There will also be an opportunity to meet the Board and representatives of JPMorgan afterthe meeting. I look forward to welcoming as many of you as possible to this meeting.

If you have any detailed or technical questions, it would be helpful if you could raise these in advance of themeeting with the Company Secretary at 60 Victoria Embankment, London EC4Y 0JP. Alternatively, questionsmay be submitted via the Company’s website (www.jpmjapanese.co.uk). Shareholders who are unable toattend the AGM are encouraged to use their proxy votes. Proxy votes may be lodged electronically, whethershares are held through CREST or in certificate form, and full details are set out on the form of proxy.

OutlookThere are three particularly important developments that are likely to impact the outlook for Japanesequoted companies: the first is the continuing general improvement in Japanese corporate return on equity;the second is the scale of the Bank of Japan’s quantitative easing (‘QE’) programme which now stands outglobally in scale and reach and the third is Japan’s exposure to global trade in general and the Chineseeconomy and supply chain in particular.


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Japanese quoted company operating margins and returns on equity are now on average the highest for30 years with the latter, for example, having risen in aggregate to over 10%. Similarly, the ratio of currentprofits to sales is the highest for 30 years. Foreign investors, fixated as they have been by returns fromUS companies in recent years, have been very large sellers of Japanese equities so there is the real potentialfor these flows to reverse if these improvements in performance can be maintained. The second importantpositive for Japanese equities has been the Bank of Japan’s (BoJ) bond and asset-purchase programme. Thebond-purchase programme has been adjusted to maintain long-term interest rates effectively at zero, and theequity purchases continue on a huge scale albeit to buy into market falls rather than the earlier moreindiscriminate buying programme. The BoJ now owns approximately half the government bond market, andnearly three quarters of equity ETFs and is now a top ten shareholder in over 40% of TSE-listed companies.

The big risk for Japanese equities is the potential for a slowdown in global growth and /or the dislocation ofglobal trade flows through greater protectionism. In both respects it is worth noting that Japanesecompanies now trade more with China then they do with the United States.

Your Company’s Tokyo-based research and portfolio management team has been able in recent years toidentify many fast growing attractive companies often based on new business models. The Board believesthat this approach will continue to serve the Company’s shareholders well over the medium term andparticularly so while there are continuing signs of subtle positive changes in the behaviour of Japanesecorporate management in their attitude towards returns to shareholders.

Andrew FlemingChairman 12th November 2018



I N V E S T M E N T M A N A G E R S ’ R E P O R T

Performance

In the 12 months to 30th September 2018 the Company produced a total return to shareholders of +24.6%and a total return on net assets of +26.8%, in sterling terms. These compare with a total return of +12.6%from the Company’s benchmark index, the TOPIX Index, in sterling terms. Over the last three and five yearsthe Company has returned +89.1% and +107.3% respectively versus +66.6% and +78.2% for thebenchmark, also all in sterling, with a share price return of +83.9% and +103.4% over three and five years.The average level of gearing over the 12 month period was around 15%, which enhanced returns in a risingmarket.

Investment Philosophy and Process

Our investment approach emphasizes individual stock selection to build a portfolio of quality growth stockswith strong future growth prospects. This means that, within some broad portfolio risk limits, theCompany’s portfolio is likely to differ materially from the benchmark index as we will avoid companies andsectors that face structural issues even if they are a large constituent of the benchmark index.

The opportunity to find attractive opportunities is assisted by the fact that the Japanese market isunder-researched when compared with other developed equity markets. With well over 50% of theconstituents of the Company’s benchmark index being covered by no more than one provider of brokerresearch, there are significant opportunities to uncover hidden sources of return from Japanese equities.

Against the background of a market with poor sell-side coverage, we have the resources in Japan to carryout our own research and identify attractive investment themes and companies. Our Tokyo-basedinvestment team consists of 24 investment professionals who have carried out over 2,000 company visits inthe past year.

A combination of desk-based research and company meetings contribute to our rating of a company.We consider the growth opportunity for the industry overall before considering the company’s competitivepositioning and management. This allows us to assess the company’s potential for growth. We then look atfinancial metrics with a focus on cash flow and balance sheet strength to assess the overall economics ofthe business. We also consider governance issues such as shareholder returns, management strength andthe track record on environmental and social issues. Only then do we consider valuations – we do not buya company where the short term valuation looks low unless it has a strong long term growth outlook.

This work carried out in looking through the under-researched parts of the market helps us build portfoliosthat are comprised of a number of high conviction holdings which we expect to hold for long periods of time.

Several points evidence this philosophy. The portfolio has long had a bias towards mid cap and small capstocks. At the year end the portfolio held 61 different stocks, down from 70 over the period. And 16 of thestocks in the portfolio have been held continuously for more than three years.

Nicholas WeindlingInvestment Manager

Shoichi MizusawaInvestment Manager

We have theresources inJapan to carryout our ownresearch andidentifyattractiveinvestmentthemes andcompanies


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Portfolio Themes

In building the Company’s investment portfolio we have identified several key themes that underlie much of our stock selection. We believethese themes are long term resilient sources of return for Japanese companies and have been in place for over 5 years. The extent towhich an individual company that we research is a beneficiary of one or more of these themes adds to the attractions of the company.

Below we explain these themes, give the weighting of each theme in the portfolio and give examples of companies that exhibit them.

Recruit

CyberAgent

MonotaRO

SoftBank

SBI Holdings

Trend Micro

Start Today

Square Enix

GMO Payment Gateway

Nexon

Infomart

Mercari

Zenrin

Digital Garage

Otsuka

IStyle

Money Forward

Uzabase

1%3

Internet Japan is a very advanced country in some areas but, perhaps surprisingly, it lags in others. A prime example ise-commerce where the penetration of online shopping is lower than in many developed nations. Similarly, thepercentage of on-line advertising is still relatively low compared to many other markets. However, Japan isfollowing a similar pattern as other countries allowing us to look at business models that have been successfulin other markets and find Japanese equivalents.

Highlighted Company: CyberAgentCyberAgent is the number one online advertising companyin Japan. As noted above, online advertising is low in Japan,compared to other countries; approximately 20% of totalmedia advertising spend is online, versus over 50% in theUK and China. We expect the increase in online advertisingto continue and for CyberAgent to maintain its number oneposition. In addition, AbemaTV, the internet televisionservice operated by CyberAgent, is gaining new users asyounger generations increasingly move from terrestrialtelevision. The company also operates the number oneonline dating business in Japan, where there continue to besignificant growth opportunities. Less than a quarter ofsingle people aged over eighteen have used an onlinedating service in Japan, versus over 50% in the UK.

March 2011Date purchased

4.03%of portfolio

+89.3%Performance in

period

£34.2 millionValue of holding

0

10

20

30

40

50

60

Rest of WorldChina JapanUK USA

20172016201520142013201220112010200920082007

Digital Advertising Spending % of Total MediaAdvertising Spending 2007-2017

(%)

Source: Zenithoptimedia, Advertising Expenditure Forecasts, Japan data is based on Dentsu and CLSA, 30 June 2018


S T R A T E G I C R E P O R T | 1 1


Keyence

Nidec Corp

Shin-Etsu Chemical

Makita

Komatsu

SMC Corp

Murata Manufacturing

Misumi Group

Tokyo Electron

Shima Seiki

Lasertec Corp

%19

Automation

Wages in China, the workshop of the world, have increased almost three fold in the last ten years. Although thisis good news for consumption, it affects the profitability of companies that produce there. To mitigate thismargin pressure, some companies are automating production while others are shifting production nearer toend consumers in the West. To do this profitably requires automation. Japanese companies are leaders infactory automation with several being global leaders in their respective fields.

Highlighted Company: Keyence

We have held Keyence since November 2011. It is a factoryautomation business that manufactures sensors. It isexperiencing rapid growth worldwide as demand rises forits products and has seen the percentage of overseas salesincrease from 25% to over 50% in the past few years.Keyence also has one of the highest operating margins ofany industrial company anywhere in the world at over 55%.We believe the company is highly competitive with stronggrowth prospects for many years.

November 2011Date purchased

6.02%of portfolio


period


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

20172016201520142013201220112010200920082007

(CNY

/Yea

r)

Up 3.1X

China Average Yearly Wages in ManufacturingCY 2007 – 2017

Source: J.P. Morgan Asset Management, National Bureau Of Statistics of China The latest data available as at 30th June 2018

%19

Shiseido

Kao Corp

Daikin Industries

Pigeon

Nintendo

Sony Corp

Suzuki Motor

Kose Corp

CI:Z

Milbon

Japanese Brands & TourismOne of the most visible changes in Japan over the last five years has been the boom in inbound tourism. In 20128.4 million tourists visited Japan. By the end of 2017 this number had increased to c.28.7 million.1 The numberof visitors in 2018 looks set to increase c.15% to around 33 million. This trend is driven by a relaxation in visarestrictions, the weaker yen making Japan a more affordable destination and rising wages across Asia leadingto a growing middle class who want to travel more. We believe that growth in tourism to Japan is a long termstructural trend.

Whereas Asian tourists visiting Europe often purchase luxury goods, other types of products are also popular inJapan including skin cream, medicines, cosmetics and baby goods. These products are perceived as highquality, safe and reliable. Additionally, not only do Asian consumers buy these products when visiting Japan butcontinue to do so once they return to their home countries.1 (https://www.tourism.jp/en/tourism-database/stats/).

Highlighted Company: ShiseidoShiseido is a world class cosmetics manufacturer. Thecompany’s operating profit margin is substantiallylower than global peers at c.8% versus over 15% fordomestic and international competitors. We believethat new management is turning the company aroundas it focuses on profitability. Furthermore, Japanesecosmetics companies have a significant opportunity togrow in China where per capita usage of these productsis still well below developed market levels.

June 2017Date purchased

5.11%of portfolio


period


0

50

100

150

200

250

300

WesternEurope

USASouthKorea

JapanChina

(USD

per

cap

ita)

Per Capita Spending on Beauty – 2015

Sources: Euromonitor International, J.P. Morgan Asset Management. Latest dataavailable as at 31st December 2017

Beauty and Personal Care Colour Cosmetics Skin Care


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Tokio Marine

Hikari Tsushin

Mitsubishi UFJ

Japan Exchange Group

%10

Improving Corporate GovernanceFrom an investor stand point the single most important change in Japan since Shinzo Abe became PrimeMinister is the improvement in corporate governance which began with the adoption of a stewardship code andwas followed by a corporate governance code. As a result we have witnessed steady increases in both dividendsand share buybacks, a rise in the number of outside directors that sit on company boards and increasingnumbers of companies officially stating return on equity and/or return on asset targets. Although the pace ofchange is moderate, we believe this trend will endure, directly benefitting shareholders. In due course, it mayhelp Japanese equities to close the valuation discount versus other developed markets.

Highlighted Company: Tokio Marine

Tokio Marine, Japan’s number one non-life insurancecompany, remains a significant position in the Company’sportfolio. The top three companies in this sector have anoverwhelming 90% domestic market share. There aresignificant improvements in corporate governance in thissector. Tokio Marine has increased its dividend per sharealmost fourfold over the last ten years while the number ofshares outstanding has decreased by over 10%.

March 2012Date purchased

4.05%of portfolio


period


HealthcarePeople are living longer. More illnesses are treatable and procedures are becoming less risky. People livinglonger and healthier lives is a good thing but over the long term it also means that Government healthcarespending will need to rise.

Highlighted Company: M3

The company operates the number one website used bydoctors in Japan and the UK (amongst other countries).This core business enables pharmaceutical companies toreduce their marketing expenses by promoting theirproducts online. Governments are putting increasingpressure on pharmaceutical companies to reduce drugprices as they try to control healthcare expenditure. Anyreduction in marketing expenses will therefore easepressure on research and development costs.

September 2011Date purchased

4.70%of portfolio


period


M3

Peptidream

Sysmex

Asahi Intecc

Tsumura

SanBio

Nakanishi

%10

0

4

8

12

16

20Share buybacksDividends

(JPY

trill

ion)

Listed companies’ dividend pay-out and sharebuybacks

2017

2015

2010

2005

2000

1995

1990

Source: Nomura, J.P. Morgan Asset Management. *Share buyback data is for repurchases of common stock, excluding repurchases from Resolution and Collection Corp. and repurchases of preferred stock collected by Nomura. 2017 figures for share buybacks and dividends are estimates. (Past performance is not a reliable indicator of current and future results. Guide to the Markets – Europe. Latest data available as at 30th June 2018

0

20

40

60

80

100

OthersSales fromPharmaceutical

Companies

Internet

(%)

39

1

17

92

44

7

Doctor’s time allocation vs pharmaceutical companies’ budget allocation

Sources: J.P. Morgan Asset Management, M3, as at 31st December 2017

Doctors’ time allocation

Marketing resource allocation




Stock Specific Of course, not all the companies we like have exposure to these themes. We also own shares in companies withspecific products, circumstances or management which offer the potential for attractive long term returns.

Highlighted Company: Miura

Small, energy-efficient industrial boilers make up 70% ofthe Japanese boiler market; Miura has close to 60%share of this segment. In Japan, the overwhelmingmajority of boilers are sold with maintenance contractsthat generate recurring annual revenues. Miura is usingthis strong cash flow generation to expand in Chinawhere the market is four times the size of Japan and80% of boilers are coal-fired. We expect Miura to benefitas the Chinese government bans coal-fired products tocontrol air pollution.

December 2015Date purchased

2.15%of portfolio


period


Miura

Don Quijote

Kureha Corporation

Welbe

Aruhi Corp

Nifco Inc

%5

0

10

20

30

40

50

60

70

WorldOECD membersChina20162015201420132012201120102005200019951999

PM2.5 air pollution, mean annual exposure

(mic

ogra

ms

per c

ubic

met

er)

Source: The World Data Bank

Ageing Population Japan’s population is ageing and falling. Today there are over 125 million people living in Japan but by 2050 thiswill fall by around 20%; older people will make up an increasingly large percentage of the total population. Thismay be bad news for many companies with a domestic bias as demand for their products will drop in the longterm. It is, however, good news for a small number of companies which presents an opportunity for activemanagers to focus on those companies that will benefit from a strong following in future years.

Highlighted Company: Nihon M&A Center

We have held Nihon M&A Center since July 2012 and it continues to be a significant stock in the portfolio.Corporate consolidation is the reason.

For example, the top ten companies in the Japanesepharmacy market have approximately 50% market share (by contrast the top two in the UK – Boots andSuperdrug – have over 60% share). The remaining 50%comprise ‘mom and pop’ stores.

A key feature of these companies is that for many thereis no family member to take over the business. NihonM&A Center advises companies in this position andmatches them with larger partners. There areapproximately 120,000 profitable companies in thissituation, yet Nihon M&A Center currently executesbarely around 1,000 deals per year. The industrytherefore offers multi-year growth with Nihon M&ACenter as the largest participant, and ideally placed tocapitalise on this trend of corporate consolidation.

July 2012Date purchased

2.28%of portfolio


period


Nihon M&A Center

Relo Group

Obic

EN-Japan

Cosmos Pharmaceutical

%6

Japanese population breakdown by age

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Population15-64 years old

Population65 years old +

Population< 15 years old

Projection by OECD

Source: OECD, J.P. Morgan Asset Management, latest data availabe as at 30th June 2018


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We continue tosee robustcorporateearnings growth

Investment Performance

The themes to which the portfolio is exposed have not changed during the year under review. The financialcharacteristics of the portfolio are also unchanged: balance sheets and free cash flows are stronger;earnings growth faster and return on equity higher than the market as a whole. For example, as at30th September 2018 the holdings in the portfolio generated an average return on equity of 15.8%,compared to the benchmark return on equity of 11.8%. The portfolio valuation, as measured by theprice earnings ratio, is higher than the market average but we believe the strong long-term growthprospects of the companies we own more than justify this.

We also have a bias to mid and smaller sized companies reflecting the fact that coverage by analysts ispoor. This provides us with the opportunity to identify investments overlooked by the broader market.These companies also tend to have more focused business models. Investors should expect to see thesecharacteristics in the portfolio over the economic cycle.

Over the year under review, we made some changes to the portfolio, reducing the number of holdings fromseventy to sixty one. We also increased the gearing level from 13.6% to 14.7%.

The largest purchases were Hikari Tsushin and SBI, with additions to our holdings in Shiseido, Recruit and M3.

The most significant sales were Sumitomo Mitsui Financial, Orix, NTT, and Sanwa Holdings, with a reductionin our holding in Mitsubishi UFJ.

During the year the top contributing stocks included Shiseido, CyberAgent and M3 which we comment onabove.

The other top contributing stocks were:

• MonotaRO – operator of an e-commerce website that sells to businesses. It is growing sales, withrevenues growing in excess of 20% a year, and rapidly winning new customers; and

• Recruit – a recruitment company. It operates several websites including the company Indeed, theworld’s largest employment website. Recruit is expected to benefit from the tight labour market andtake market share from existing employment agencies.

The largest negative contributors to performance were Mercari, Suruga Bank, Komatsu, Square Enix andNexon. Except for Suruga Bank, which had a compliance failure and we have sold, we have continued beliefin the long term investment cases for these stocks and therefore remain holders of these positions.

At the end of September 2018, the largest overweight positions compared to the TOPIX were in Recruit,Keyence, M3, Shiseido and CyberAgent.

Investment outlook

The Japanese market is more cyclical than other developed markets and can be impacted by globaleconomic developments, both positively and negatively. Currently there are concerns about a potentialtrade war between the United States and China. In addition, Chinese macro data is weaker than recentyears and negotiations for a new trade deal between the United States and Japan are at an early stage.However, we continue to see robust corporate earnings growth, progress on corporate governance reformand good economic activity in Japan.

The topcontributingstocks includedShiseido,CyberAgent and M3




PERFORMANCE ATTRIBUTIONYEAR ENDED 30TH SEPTEMBER 2018

% %

Contributions to total returns

Benchmark return 12.6

Sector allocation 3.1

Stock selection 10.1

Gearing/cash 1.7

Investment Manager contribution 14.9

Portfolio return 27.5

Management fee/other expenses –0.7

Other effects –0.7

Return on net assets – Debt at par value 26.8

Impact of fair value of debt –1.1

Return on net assets – Debt at fair value 25.7

Return to shareholders 24.6

Source: 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.


The JPMorgan Japanese Investment Trust focuses on individual stocks rather than attempting to predictglobal economic growth. The companies we have invested in have strong structural growth outlooks,competitive positions and balance sheets and we believe they will perform well in the long-term regardlessof the performance of the wider global economy. Their competitive positions and balance sheets are strongenough to withstand such issues. The high level of gearing currently deployed reflects our conviction in thecompanies that we own.

Nicholas WeindlingShoichi MizusawaInvestment ManagersTokyo 12th November 2018


S


P O R T F O L I O I N F O R M A T I O N

TEN LARGEST INVESTMENTS

AS AT 30TH SEPTEMBER

2018 2017 Valuation ValuationCompany Sector £’000 %1 £’000 %1

Keyence Electric Appliances 51,238 5.2 35,155 4.6

Recruit Services 50,745 5.2 20,617 2.7

Shiseido2 Chemicals 43,454 4.5 12,688 1.6

M32 Services 40,021 4.1 16,809 2.2

Tokio Marine2 Insurance 34,540 3.5 18,158 2.4

CyberAgent2 Services 34,241 3.5 15,126 2.0

Hikari Tsushin3 Information & Communication 30,994 3.2 — —

Kao2 Chemicals 30,661 3.1 12,284 1.6

MonotaRO2 Retail Trade 27,757 2.8 9,433 1.2

Daikin Industries Machinery 25,928 2.7 19,131 2.5

Total 369,579 37.8

1 Based on the total portfolio investments of £976.7m (2017: £771.1m).2 Not included in the ten largest investments at 30th September 2017.3 Not held in the Portfolio as at 30th September 2017.

At 30th September 2017, the value of the ten largest investments amounted to £240.2 million representing 31.3% of total portfolioinvestments.

SECTOR ANALYSIS 30th September 2018 30th September 2017 Portfolio Benchmark Portfolio Benchmark %1 % %1 %

Processing 68.3 50.3 54.9 50.0

Basic 12.4 11.2 13.4 8.8

Consumer 9.7 14.8 13.1 16.7

Financial 9.6 11.3 14.4 12.2

Utilities — 7.3 — 6.7

Assets — 5.1 4.2 5.6

Total 100.0 100.0 100.0 100.0

1 Based on the total portfolio investments of £976.7m (2017: £771.1m).



P O R T F O L I O I N F O R M A T I O N

ValuationCompany £’000



PROCESSING

Services

Recruit 50,745

M3 40,021

CyberAgent 34,241

Nihon M&A Center 19,427

Infomart 13,584

Relo 13,386

en-japan 7,191

Welbe 5,768

184,363

Information & Communication

Hikari Tsushin 30,994

SoftBank 24,614

Trend Micro 17,920

Square Enix 14,847

GMO Payment Gateway 14,352

Nexon 13,778

Mercari 13,084

Obic 11,133

Zenrin 10,964

Digital Garage 10,175

Otsuka 7,571

Istyle 4,604

Money Forward 3,573

Uzabase 2,634

180,243

Electric Appliances

Keyence 51,238

Nidec 20,221

Sony 12,980

Murata Manufacturing 12,920

Sysmex 11,575

Tokyo Electron 7,859

Lasertec 4,933

121,726

PROCESSING – CONT

Machinery

Daikin Industries 25,928

Miura 18,258

Makita 18,134

Komatsu 16,132

SMC 15,265

Shima Seiki Manufacturing 6,413

100,130

Other Products

Pigeon 23,499

Nintendo 20,573

44,072

Precision Instruments

Asahi Intecc 8,345

Nakanishi 4,242

12,587

Transportation Equipment

Suzuki Motor 12,345

12,345

Wholesale Trade

MISUMI 11,956

11,956

TOTAL PROCESSING 667,422

BASIC

Chemicals

Shiseido 43,454

Kao 30,661

Shin-Etsu Chemical 18,548

Kose 8,810

Kureha 5,842

Ci:z 5,813

Milbon 4,298

Nifco 3,452

TOTAL BASIC 120,878

CONSUMER

Retail Trade

MonotaRO 27,757

Don Quijote 16,776

Start Today 15,317

Cosmos Pharmaceutical 3,966

63,816

Pharmaceutical

PeptiDream 17,037

Tsumura 8,249

SanBio 4,792

30,078

TOTAL CONSUMER 93,894

FINANCIAL

Insurance

Tokio Marine 34,540

34,540

Other Financing Business

Japan Exchange 16,856

Aruhi 3,494

20,350

Securities & Commodity Futures

SBI 19,943

19,943

Banks

Mitsubishi UFJ Financial 19,697

19,697

TOTAL FINANCIAL 94,530

TOTAL INVESTMENTS 976,724

LIST OF INVESTMENTS BY SECTOR

The portfolio comprises entirely of equity investments.


S


T E N Y E A R R E C O R D

TEN YEAR ABSOLUTE PERFORMANCE

FIGURES HAVE BEEN REBASED TO 100 AT 30TH SEPTEMBER 2008

1 Source: Morningstar.2 Source: Morningstar/J.P.Morgan, using cum income net asset value with debt at fair value.3 Source: Morningstar. The Company’s benchmark is the Tokyo Stock Exchange First Section Index (TOPIX) expressed in sterling terms.

JPMorgan Japanese – share price total return1. JPMorgan Japanese – net asset value total return2. Benchmark total return3.

50

100

150

200

250

300

350

400

450

20182017201620152014201320122011201020092008

TEN YEAR PERFORMANCE RELATIVE TO BENCHMARK

FIGURES HAVE BEEN REBASED TO 100 AT 30TH SEPTEMBER 2008

1 Source: Morningstar.2 Source: Morningstar/J.P.Morgan, using cum income net asset value with debt at fair value.3 Source: Morningstar. The Company’s benchmark is the Tokyo Stock Exchange First Section Index (TOPIX) expressed in sterling terms.

JPMorgan Japanese – share price total return1. JPMorgan Japanese – net asset value total return2. Benchmark total return3.

90

100

110

120

130

140

150

160

170

20182017201620152014201320122011201020092008



T E N Y E A R F I N A N C I A L R E C O R D

TEN YEAR FINANCIAL RECORD

At 30th September 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total assets less current liabilities (£’m) 298.1 315.7 306.1 326.6 302.1 494.8 408.4 513.2 693.2 778.2 986.1

Net asset value per share with debt at fair value (p) 171.3 185.9 189.6 194.7 187.3 267.8 253.3 287.5 387.5 421.0 523.6

Share price (p) 145.5 157.0 160.0 166.8 154.5 238.3 218.0 257.3 335.0 372.0 458.0

Share price discount to net asset value per share with debt at fair value (%) 15.1 15.5 15.6 14.3 17.5 11.0 13.9 10.5 13.5 11.6 12.5

12 month average share price discountto net asset value per share withdebt at fair value (%)1 12.8 18.3 16.8 13.9 14.0 11.8 9.6 10.7 12.4 12.0 9.2

Gearing/(net cash) (%) 8.0 7.6 (1.8) (0.6) 9.0 13.7 12.7 6.4 9.5 13.6 14.7

Yen exchange rate (=£1) 189.2 143.2 131.6 120.1 125.6 158.9 177.8 181.4 131.5 151.0 148.1

Year ended 30th September

Gross revenue attributable to shareholders (£’000) 7,160 7,596 6,138 7,323 8,121 6,041 5,715 6,970 8,725 11,640 11,958

Revenue return per share (p) 2.97 2.96 2.91 3.49 4.10 2.78 2.46 3.06 3.97 5.52 5.53

Dividend per share (p) 2.80 2.80 2.80 3.30 3.65 2.80 2.80 2.80 3.65 5.00 5.00

Ongoing charges (%) 0.79 0.77 0.81 0.86 0.77 0.78 0.78 0.77 0.74 0.69 0.67

Rebased to 100 at 30th September 2008

Share price total return1 100.0 110.3 114.6 121.4 114.8 181.1 167.7 200.3 263.4 295.7 368.4

Net asset value total return2 100.0 111.0 114.4 119.2 116.7 170.2 162.7 186.6 253.7 278.3 349.8

Benchmark total return3 100.0 112.7 113.6 116.8 110.6 144.1 145.5 154.1 203.0 227.9 256.7

1 Source: Morningstar/J.P. Morgan.2 Source: Morningstar/J.P. Morgan, using cum income net asset value, with debt at fair value.3 Source: Morningstar. The Company’s benchmark is the Tokyo Stock Exchange 1st Section Index (TOPIX) expressed in sterling terms.



I


I N V E S T M E N T O B J E C T I V E , P O L I C I E S A N D G U I D E L I N E S

The aim of this Strategic Report is to provide shareholders withthe ability to assess how the Directors have performed their dutyto promote the success of the Company during the year underreview. To assist shareholders with this assessment, the StrategicReport sets out the investment objective of the Company, itsinvestment policies and risk management, investment restrictionsand guidelines, performance, total return, revenue and dividends,key performance indicators, principal risks and how the Companyseeks to manage those risks and its long term viability. TheDirectors’ Report on page 27 includes information on BoardDiversity, Employees, Social, Environmental, Community andHuman Rights Issues, and Greenhouse Gas Emissions and alsoforms part of this Strategic Report.

Investment Objective

JPMorgan Japanese Investment Trust plc is an investment trustcompany that has a premium listing on the London StockExchange and is currently a constituent of the FTSE 250 Index.The Company’s objective is to achieve capital growth frominvestments in Japanese companies by long term outperformanceof the Company’s benchmark index, the Tokyo Stock ExchangeFirst Section Index (‘TOPIX’) expressed in sterling terms.

Investment Policies and Risk Management

In order to achieve its stated investment policy and to seek tomanage investment risks, the Company invests in a diversifiedportfolio of quoted Japanese companies. The number ofinvestments in the portfolio will normally range between 50and 100. The average number of holdings in the portfolio hasreduced in recent years as the Investment Managers have focusedon those companies that have strong balance sheets, using firsthand company research and analysis. The Company makes use ofboth long and short term borrowings to increase returns.

Investment Restrictions and Guidelines

The Board seeks to manage the Company’s risk by imposingvarious investment limits and restrictions:

• The Company must maintain 97.5% of investments inJapanese securities or securities providing an indirectinvestment in Japan. (30th September 2018: 100%).

• No investment to be more than 5% in excess of benchmarkweighting at time of purchase. (30th September 2018: 4.06%).(See Chairman’s Statement).

• The Company does not normally invest in unquotedinvestments and to do so requires prior Board approval.(30th September 2018: Nil).

• The Company’s gearing policy is to operate within a range of5% net cash to 20% geared in normal market conditions.(30th September 2018: 14.7%).

• The Company does not normally enter into derivativetransactions and to do so requires prior Board approval.(30th September 2018: Nil).

• The Company will not invest more than 15% of its gross assetsin other UK listed investment companies and will not investmore than 10% of its gross assets in companies thatthemselves may invest more than 15% of gross assets inUK listed investment companies. (30th September 2018:None).

• The Investment Managers do not hedge the portfolio againstforeign currency risk.

These limits and restrictions may be varied by the Board at anytime at its discretion.

Compliance with the Board’s investment restrictions andguidelines is monitored continuously by the Manager and isreported to the Board on a monthly basis.

Performance

In the year ended 30th September 2018, the Company produceda total return to shareholders of +24.6% and a total return on netassets of +26.8%. This compares with the total return on theCompany’s benchmark of +12.6%. As at 30th September 2018, thevalue of the Company’s investment portfolio was £976.7 million.The Investment Managers’ Report on pages 9 to 15 includesa review of developments during the year as well as informationon investment activity within the Company’s portfolio and thefactors likely to affect the future performance of the Company.

Total Return, Revenue and Dividends

Gross total return for the year amounted to £188.6 million (2017:£66.6 million) and the net total return after deducting themanagement fee, other administrative expenses, finance costsand taxation, amounted to £180.8 million (2017: £60.0 million).Distributable income for the year amounted to £8.9 million (2017:£8.9 million).

The Directors have declared a final dividend of 5.0p (2017: 5.0p) pershare. This dividend amounts to £8.1 million (2017: £8.1 million) andthe revenue reserve after allowing for the dividend will amount to£4.5 million (2017: £3.7 million). The dividend will be subject toshareholder approval at the forthcoming Annual General Meeting.

Key Performance Indicators (‘KPIs’)

The Board uses a number of financial KPIs to monitor and assessthe performance of the Company. The principal KPIs are:

• Performance against the benchmark indexThis is the most important KPI by which performance isjudged. Information on the Company’s performance is givenin the Chairman’s Statement and the Investment Managers’


I N V E S T M E N T R E V I E W | 2 1

P R I N C I P A L R I S K S

Report on pages 6 to 8 and 9 to 15 respectively, and theTen Year Financial Record on page 19.

• Performance against the Company’s peers Whilst the principal objective is to achieve capital growthrelative to the benchmark, the Board also monitors theperformance relative to a broad range of competitor funds.

• Performance attributionThe purpose of performance attribution analysis is to assesshow the Company achieved its performance relative to itsbenchmark index, i.e. to understand the impact on theCompany’s relative performance of the various componentssuch as sector allocation, stock selection and gearing. Detailsof the attribution analysis for the year ended 30th September2018 are given in the Investment Managers’ Report onpage 15.

• Share price discount to cum income net asset values(‘NAV’) per share with debt at fair valueThe Board recognises that the possibility of a wideningdiscount can be a key disadvantage of investment trusts andcan discourage investors. The Board therefore has a discountmanagement policy that, whilst it does not intervene in themarket on a regular basis, will see it look to buy back shares ifthe discount widens materially relative to its peer group. Inthe year to 30th September 2018, the shares traded betweena discount of 4.5% and 12.8% at an average of 9.2%.

• Ongoing chargesThe ongoing charges represent the Company’s managementfee and all other operating expenses excluding any financecosts, expressed as a percentage of the average daily netassets during the year. The ongoing charges for the yearended 30th September 2018 were 0.67% (2017: 0.69%). Eachyear the Board reviews an analysis which shows a comparisonof the Company’s ongoing charges and its main expensesagainst those of its peers.

Principal Risks

The Directors confirm that they have carried out a robustassessment of the principal risks facing the Company, includingthose that would threaten its business model, futureperformance, solvency or liquidity. The risks identified havechanged over the year under review, and the ways in which theyare managed or mitigated are summarised as follows.

With the assistance of the Manager, the Board has drawn up a riskmatrix, which identifies the key risks to the Company. These keyrisks fall broadly under the following categories:

• Investment Underperformance and StrategyAn inappropriate investment strategy, for example sectorallocation, the level of gearing or the degree of portfolio risk,may lead to underperformance against the Company’sbenchmark index and peer companies, resulting in theCompany’s shares trading on a wider discount.

The Board manages these risks by diversification ofinvestments and through its investment restrictions andguidelines, which are monitored and reported on by theManager. The Manager provides the Directors with timely andaccurate management information, including performancedata and attribution analyses, revenue estimates, liquidityreports and shareholder analyses. The Board monitors theimplementation and results of the investment process withthe Investment Managers, at least one of whom attends allBoard meetings, and reviews data which show statisticalmeasures of the Company’s risk profile. The InvestmentManagers employ the Company’s gearing tactically, withina strategic range set by the Board. The Board holdsa separate meeting devoted to strategy each year.

• Market and CurrencyMarket risk arises from uncertainty about the future prices ofthe Company’s investments. It represents the potential lossthe Company might suffer through holding investments in theface of negative market movements. The Board considerssector allocation, stock selection and levels of gearing ona regular basis and has set investment restrictions andguidelines which are monitored and reported on by theManager. The Board monitors the implementation and resultsof the investment process with the Manager. The majority ofthe Company’s assets, liabilities and income are denominatedin yen rather than in the Company’s functional currency ofsterling (in which it reports). As a result, movements in theyen:sterling exchange rate may affect the sterling value ofthose items and therefore impact on reported results and/orfinancial position. Therefore, there is an inherent risk fromthese exchange rate movements. It is the Company’s policynot to undertake foreign currency hedging. Further detailsabout the foreign currency risk may be found in note 22 onpages 61 and 62.

• Political, Economic and GovernanceAdministrative risks, such as the imposition of restrictions onthe free movement of capital. These risks are discussed by theBoard on a regular basis.

• Loss of Investment Team or Portfolio ManagerA sudden departure of a Portfolio Manager or severalmembers of the investment management team could result ina short term deterioration in investment performance. TheManager takes steps to reduce the risk arising from such anevent by ensuring appropriate succession planning and theadoption of a team based approach, as well as special effortsto retain key personnel. The Board engages with the seniormanagement of the Manager in order to mitigate this risk.

• DiscountA disproportionate widening of the discount relative to theCompany’s peers could result in loss of value forshareholders. The Board regularly discusses discount policyand has set parameters for the Manager and the Company’sbroker to follow.



L O N G T E R M V I A B I L I T Y

• Change of Corporate Control of the ManagerThe Board holds regular meetings with senior representativesof the Manager in order to obtain assurance that the Managercontinues to demonstrate a high degree of commitment to itsasset management and investment trust business.

• Accounting, Legal and RegulatoryIn order to qualify as an investment trust, the Company mustcomply with Section 1158 of the Corporation Tax Act 2010(‘Section 1158’). Details of the Company’s approval are givenunder Management of the Company on page 25. Were theCompany to breach Section 1158, it may lose investment truststatus and, as a consequence, gains within the Company’sportfolio would be subject to Capital Gains Tax. TheSection 1158 qualification criteria are continually monitoredby the Manager and the results reported to the Board eachmonth. The Company must also comply with the provisions ofthe Companies Act 2006 and, since its shares are listed on theLondon Stock Exchange, the UKLA Listing Rules, MarketAbuse Regulation (‘MAR’), Disclosure Guidance andTransparency Rules (‘DTRs’) and, as an investment trust, theAlternative Investment Fund Managers Directive (‘AIFMD’).A breach of the Companies Act could result in the Companyand/or the Directors being fined or the subject of criminalproceedings. Breach of the UKLA Listing Rules or DTRs couldresult in the Company’s shares being suspended from listingwhich in turn would breach Section 1158. The Board relies onthe services of its Company Secretary, the Manager and itsprofessional advisers to ensure compliance with theCompanies Act 2006, the UKLA Listing Rules, DTRs, MAR andAIFMD.

• Corporate Governance and Shareholder RelationsDetails of the Company’s compliance with CorporateGovernance best practice, including information on relationswith shareholders, are set out in the Corporate GovernanceStatement on pages 29 to 32.

• OperationalDisruption to, or failure of, the Manager’s accounting, dealingor payments systems or the Depositary or Custodian’s recordsmay prevent accurate reporting and monitoring of theCompany’s financial position. Details of how the Boardmonitors the services provided by JPMF and its associates andthe key elements designed to provide effective riskmanagement and internal control are included within the RiskManagement and Internal Controls section of the CorporateGovernance Statement on pages 29 and 32.

• Cyber CrimeThe threat of cyber attack, in all guises, is regarded as at leastas important as more traditional physical threats to businesscontinuity and security. The Company benefits directly and/orindirectly from all elements of JPMorgan’s Cyber Securityprogramme. The information technology controls around

physical security of JPMorgan’s data centres, security of itsnetworks and security of its trading applications, are tested byindependent auditors and reported every six months againstthe AAF Standard.

• FinancialThe financial risks faced by the Company include market pricerisk, liquidity risk and credit risk. Further details are disclosedin note 22 on pages 60 to 66.

Long Term Viability

The Company is an investment trust with an objective of achievinglong term capital growth. Taking account of the Company’scurrent position, the principal risks that it faces and theirpotential impact on its future development and prospects, theDirectors have assessed the prospects of the Company, to theextent that they are able to do so, over the next five years. Theyhave made that assessment by considering those principal risks,the Company’s investment objective and strategy, the investmentcapabilities of the Manager and the current outlook for theJapanese economy and equity market.

In determining the appropriate period of assessment theDirectors had regard to their view that, given the Company’sobjective of achieving capital growth, shareholders shouldconsider the Company as a long term investment proposition. Thisis consistent with advice provided by independent financialadvisers and wealth managers, that investors should considerinvesting in equities for a minimum of five years. Accordingly, theDirectors consider five years to be an appropriate time horizon toassess the Company’s viability.

The Directors confirm that they have a reasonable expectation, onthe assumption that the principal risks identified above, includingInvestment Underperformance, are managed or mitigatedeffectively, that the Company will be able to continue in operationand meet its liabilities as they fall due over the five year period ofassessment.

By order of the Board Faith Pengelly, for and on behalf of JPMorgan Funds Limited, Secretary

12th November 2018


Directors’ Review


B O A R D O F D I R E C T O R S

All Directors are members of the Audit Committee, theNomination and Remuneration Committee, and theManagement Engagement Committee. All Directors areconsidered independent of the Manager.

Andrew Fleming(Chairman, Chairman of the Nomination and RemunerationCommittee and Chairman of the Management EngagementCommittee)Director since 2004.Last reappointed to the Board: 2017.He has over thirty years of international investment managementexperience, which included six years running an investmentcompany in Tokyo and is Chief Executive of Waverton InvestmentManagement. Mr Fleming is a member of the InvestmentCommittee of the National Trust. Connections with Manager: None.Shared directorships with other Directors: None.

Christopher Samuel(Chairman of the Audit Committee)Director since 2014.Last reappointed to the Board: 2017.Currently Chairman of Defaqto and BlackRock Throgmorton Trustplc and a non-executive Director of Alliance Trust plc, Sarasin &Partners and UIL. Mr Samuel was previously Chief Executive Officerof Ignis Asset Management. He has considerable experience offinancial services and the investment management industry forover 30 years and was based in Japan earlier in his career. He isa Chartered Accountant.Connections with Manager: None.Shared directorships with other Directors: None.

Sir Stephen Gomersall, KCMGDirector since 2013.Last reappointed to the Board: 2017.Deputy Chairman of Hitachi Europe and a director of a number ofHitachi Group companies in the UK. Sir Stephen entered theForeign & Commonwealth Office in 1970 and held a number ofappointments overseas including being Ambassador to Japanfrom 1999 to 2004. He has spent more than fourteen years livingand working in Japan.Connections with Manager: None.Shared directorships with other Directors: None.

Stephen CohenDirector since 2016.Last appointed to the Board: 2017.Had an executive career in asset management of over 34 years,including setting up two businesses in Japan and living there forseven years. He managed Japanese equity portfolios for tenyears. He also latterly ran a Japanese equity activist business.Currently, he is also a member of the Gambling Commission andActing Chair of the Health and Care Professions Council.Connections with Manager: None.Shared directorships with other Directors: None.

George OlcottDirector since 2016.Last appointed to the Board: 2017.15 years of investment banking and asset management businessexperience in Japan and Asia with SG Warburg/UBS. Has servedon the boards of five listed Japanese corporations as anindependent director (currently for Denso Corporation, Dai-ichiLife Holdings and Hitachi Chemical). Dr Olcott is Guest Professorat Keio University in Tokyo teaching international managementand organisational behaviour.Connections with Manager: None.Shared directorships with other Directors: None.

D I R E C T O R S ’ R E V I E W | 2 5

D I R E C T O R S ’ R E P O R T

The Directors present their annual report and the financialstatements for the year ended 30th September 2018.

Management of the Company

The Manager and Company Secretary to the Company isJPMorgan Funds Limited (‘JPMF’), a company authorised andregulated by the FCA. The Manager is a wholly-owned subsidiaryof JPMorgan Chase Bank which, through other subsidiaries, alsoprovides marketing, banking, dealing and custodian services tothe Company.

In seeking to achieve its objectives, the Company employs JPMFwhich delegates portfolio management to JPMorgan AssetManagement (UK) Limited (‘JPMAM’), a firm regulated by the FCA,with the day to day investment management activity conducted inTokyo by JPMorgan Asset Management (Japan) Limited, a fellowinvestment management subsidiary and an affiliate of JPMorganChase Bank. JPMF is employed under a contract which can beterminated on six months’ notice without penalty. If the Companywishes to terminate the contract on shorter notice, the balance ofremuneration is payable by way of compensation.

The current Management Agreement was entered into with effectfrom 1st July 2014 following the implementation of a number ofchanges required by the Alternative Investment Fund ManagersDirective.

The Board has appointed a Management Engagement Committeewhich conducts a formal evaluation of the performance of, andcontractual relationship with, the Manager on an annual basis.Part of this evaluation includes a consideration of themanagement fees and whether the service received is value formoney for shareholders.

The Management Engagement Committee has thoroughlyreviewed the performance of the Manager in the course of theyear. The review covered the performance of the Manager, itsmanagement processes, investment style, resources and riskcontrols and the quality of support that the Company receivesfrom the Manager including the marketing support provided.As part of this process, the Board visits Japan each year. TheBoard is of the opinion that the continuing appointment of theManager is in the best interests of shareholders as a whole.Such a review is carried out on an annual basis.

The Company is subject to UK and European legislation andregulations including UK company law, UK Financial ReportingStandards, the UK Listing, Prospectus, Disclosure Guidance andTransparency Rules, Market Abuse Regulation, taxation law andthe Company’s own Articles of Association.

The Company is an investment company within the meaning ofSection 833 of the Companies Act 2006 and has been approved

by HM Revenue & Customs as an investment trust (for thepurposes of Sections 1158 and 1159 of the Corporation TaxAct 2010). As a result the Company is not liable for taxation oncapital gains. The Directors have no reason to believe thatapproval will not continue to be retained. The Company is nota close company for taxation purposes.

The Alternative Investment Fund ManagersDirective (‘AIFMD’)

JPMF is the Company’s alternative investment fund manager(‘AIFM’). It is approved as an AIFM by the FCA. For the purposes ofthe AIFMD the Company is an alternative investment fund (‘AIF’).JPMF has delegated certain responsibilities as set out under‘Management of the Company’ above.

The Company has appointed BNY Mellon Trust and Depositary(UK) Limited (‘BNY’) as its depositary. BNY has appointedJPMorgan Chase Bank, N.A., as the Company’s custodian, BNY isresponsible for the oversight of the custody of the Company’sassets and for monitoring its cash flows. With effect from 1st June2018 the legal equity of the depositary changed to Bank of NewYork Mellon (International) Limited, by a deed of novation.

The AIFMD requires certain information to be made available toinvestors in AIFs before they invest and requires that materialchanges to this information be disclosed in the annual report ofeach AIF. An Investor Disclosure Document, which sets outinformation on the Company’s investment strategy and policies,leverage, risk, liquidity, administration, management, fees,conflicts of interest and other shareholder information areavailable on the Company’s website at www.jpmjapanese.co.uk

There have been no material changes (other than those reflectedin these financial statements) to this information requiringdisclosure. Any information requiring immediate disclosurepursuant to the AIFMD will be disclosed to the London StockExchange through a primary information provider.

As an authorised AIFM, JPMF will make the requisite disclosureson remuneration levels and policies to the FCA at the appropriatetime.

Management Fee

The fixed basic annual management fee is a sliding scale based onthe Company’s net assets. The management fee is chargedmonthly in arrears.

Net assets Fee level

First £465 million under management 0.65%

£465 million to £930 million under management 0.485%

Over £930 million under management 0.40%



The management fee includes a contribution towards theManager’s general marketing and client administration costs.

If the Company invests in funds managed or advised by theManager, or any of its associated companies, those investmentsare excluded from the calculation of the fixed basic annualmanagement fee.

Directors

The Directors of the Company who held office at the end of theyear are detailed on page 24. Details of their beneficialshareholdings may be found in the Directors’ RemunerationReport on page 36.

Andrew Fleming will retire as a Director of the Company at theAnnual General Meeting. All continuing Directors will retire at theCompany’s forthcoming Annual General Meeting and, beingeligible, will offer themselves for reappointment by shareholders.

The Nomination and Remuneration Committee, having consideredthe Directors’ qualifications, performance and contribution to theBoard and its Committees, confirms that each Director continuesto be effective and demonstrates commitment to the role and theBoard recommends to shareholders that those standing forreappointment be reappointed.

Director Indemnification and Insurance

As permitted by the Company’s Articles of Association, eachDirector has the benefit of an indemnity which is a qualifyingthird party indemnity, as defined by Section 234 of the CompaniesAct 2006. The indemnities were in place during the year and as atthe date of this report.

An insurance policy is maintained by the Company whichindemnifies the Directors of the Company against certainliabilities arising in the conduct of their duties. There is nocover against fraudulent or dishonest actions.

Disclosure of information to the Auditors

In the case of each of the persons who are Directors of theCompany at the time when this report was approved:

(a) so far as each of the Directors is aware, there is no relevantaudit information (as defined in the Companies Act 2006) ofwhich the Company’s Auditors are unaware, and

(b) each of the Directors has taken all the steps that he ought tohave taken as a Director in order to make himself aware ofany relevant audit information (as defined) and to establishthat the Company’s Auditors are aware of that information.

The above confirmation is given and should be interpreted inaccordance with the provisions of Section 418(2) of theCompanies Act 2006.

Independent Auditors

Further to a review of audit services in 2013,PricewaterhouseCoopers LLP were appointed Auditors of theCompany with effect from the 2013 Annual General Meeting.PricewaterhouseCoopers LLP have expressed their willingness tocontinue in office as the Auditors and a resolution to reappointPricewaterhouseCoopers LLP and authorise the Directors todetermine their remuneration for the ensuing year, will beproposed at the Annual General Meeting.

Share Capital Structure and Voting Rights

As at 30th September 2018, the Company’s issued share capitalcomprised 161,248,078 (2017: 161,248,078) ordinary shares of25p each. There were no shares held in Treasury.

The Company has the authority to repurchase shares in themarket for cancellation (or to be held in Treasury) and to issuenew shares for cash on behalf of the Company. During the yearthe Company did not repurchase any ordinary shares (2017: nil).No shares have been repurchased for cancellation or intoTreasury since the year end. The Company did not issue any newshares during the year.

Resolutions to renew the authorities to issue new shares orreissue shares from Treasury, and to repurchase shares forcancellation or to be held in Treasury will be put to shareholdersat the forthcoming Annual General Meeting. It should be notedthat the Board would only reissue shares from Treasury ata premium to NAV. The full text of these resolutions is set out inthe Notice of Meeting on pages 74 to 75.

Details of the voting rights in the Company’s shares as at the dateof this report are given in note 16 to the Notice of Annual GeneralMeeting on page 76.

There are no restrictions concerning the transfer of securities inthe Company; no special rights with regard to control attached tosecurities; no agreements between holders of securities regardingtheir transfer known to the Company; no agreements to which theCompany is party that affect its control following a takeover bid;and no agreements between the Company and its Directorsconcerning compensation for loss of office.



Notifiable Interests in the Company’s Voting Rights

At the year end, the following had declared a notifiable interest inthe Company’s voting rights:

Number of Shareholders voting rights %

Lazard Asset Management1 31,443,372 19.5Wells Capital Management 17,079,604 10.61607 Capital Partners 14,209,555 8.8

1 Indirect holding.

As at 1st October 2018 Lazard Asset Management had a notifiableinterest in 16.9% of the voting rights of the Company. No furtherchanges have been notified since the year end to the date of thisreport.

The Company is also aware that as at 30th September 2018,approximately 2.2% of the Company’s total voting rights wereheld by individuals through the savings products managed byJPMorgan Asset Management and registered in the name ofChase Nominees Limited as at the year end. If those voting rightsare not exercised by the beneficial holders, in accordance withthe terms and conditions of the savings products, under certaincircumstances, JPMorgan Asset Management has the right toexercise those voting rights. That right is subject to certain limitsand restrictions and falls away at the conclusion of the relevantgeneral meeting.

The rules concerning the appointment, reappointment andreplacement of Directors, amendment of the Company’s Articlesof Association and powers to issue or buy back the Company’sshares are contained in the Articles of Association of the Companyand the Companies Act 2006.

Listing Rule 9.8.4R

Listing Rule 9.8.4R requires the Company to include certaininformation in a single identifiable section of the Annual Report orcross reference table indicating where the information is set out.The Directors confirm that there are no disclosures to be made inthis report.

Board Diversity

The Board’s policy on diversity, including gender, is to takeaccount of the benefits of these during the appointment process.However, the Board remains committed to appointing the mostappropriate candidate, regardless of gender or other forms ofdiversity, whilst noting the regulatory guidance on gender.

At 30th September 2018, there were five male Directors and nofemale Directors on the Board. However, as set out on page 27,Sally Macdonald, will be appointed as a Director with effect fromthe AGM on 13th December 2018.

Employees, Social, Environmental, Community andHuman Rights

The Company is managed by JPMF, has no employees and all ofits Directors are non-executive. There are therefore nodisclosures to be made in respect of employees. The Board notesthe policy statements of JPMorgan Asset Management (UK)Limited (‘JPMAM’) in respect of Social, Community, Environmentaland Human Rights issues, which are shown in italics below.

“JPMAM believes that companies should act in a socially responsiblemanner. Although our priority at all times is the best economicinterests of our clients, we recognise that, increasingly,non-financial issues such as social and environmental factors havethe potential to impact the share price, as well as the reputation ofcompanies. Specialists within JPMAM’s environmental, social andgovernance (‘ESG’) team are tasked with assessing how companiesdeal with and report on social and environmental risks and issuesspecific to their industry.

JPMAM is also a signatory to the United Nations Principles ofResponsible Investment, which commits participants tosix principles, with the aim of incorporating ESG criteria into theirprocesses when making stock selection decisions and promotingESG disclosure. Our detailed approach to how we implement theprinciples is available on request.”

The Manager has implemented a policy which seeks to restrictinvestments in securities issued by companies that have beenidentified by an independent third party provider as beinginvolved in the manufacture, production or supply of clustermunitions, depleted uranium ammunition and armour and/oranti-personnel mines. Shareholders can obtain further details onthe policy by contacting the Manager.

Greenhouse Gas Emissions

The Company is managed by JPMF with portfolio managementdelegated to JPMAM. It has no employees and all of its Directorsare non-executive, the day to day activities being carried out bythird parties. There are therefore no disclosures to be made inrespect of employees. The Company itself has no premises,consumes no electricity, gas or diesel fuel and consequently doesnot have a measurable carbon footprint. JPMAM is a signatory tothe Carbon Disclosure Project and JPMorgan Chase is a signatoryto the Equator Principles on managing social and environmentalrisk in project finance.

The Modern Slavery Act 2015 (the ‘MSA’)

The MSA requires companies to prepare a slavery and humantrafficking statement for each financial year of the organisation.As the Company has no employees and does not supply goods andservices, the MSA does not apply directly to it. The MSArequirements more appropriately relate to JPMF and JPMAM.JPMorgan’s statement on Human Rights can be found on the



following website: www.jpmorganchase.com/corporate/Corporate-Responsibility/document/modern-slavery-act.pdf

Criminal Corporate Offence

The Company has zero tolerance for tax evasion. Shares in theCompany are purchased through intermediaries or brokers,therefore no funds flow directly into the Company. As theCompany has no employees, the Board’s focus is to ensure thatthe risk of the Company’s service providers facilitating tax evasionis also low. To this end it seeks assurance from its serviceproviders that effective policies and procedures are in place.

Annual General Meeting

NOTE: THIS SECTION IS IMPORTANT AND REQUIRES YOURIMMEDIATE ATTENTION. If you are in any doubt as to the actionyou should take, you should seek your own personal financialadvice from your stockbroker, bank manager, solicitor or otherfinancial adviser authorised under the Financial Services andMarkets Act 2000.

Resolutions relating to the following items of special business willbe proposed at the forthcoming Annual General Meeting. The fulltext of the resolutions is set out in the Notice of Annual GeneralMeeting on pages 74 to 75.

(i) Authority to allot new shares and to disapply statutorypre-emption rights (resolutions 11 and 12)

The Directors will seek renewal of the authority at the AnnualGeneral Meeting to issue new ordinary shares for cash up to anaggregate nominal amount of £4,031,200 such amount beingequivalent to 10% of the present issued share capital (excludingTreasury shares) as at the last practicable date before thepublication of this document or, if different, the number ofordinary shares which is equal to approximately 10% of theCompany’s issued share capital (excluding Treasury shares) as atthe date of the passing of the resolution.

This authority will expire at the conclusion of the Annual GeneralMeeting in 2018 unless renewed at a prior general meeting.

Resolution 12 will enable the allotment of shares otherwise thanby way of a pro rata issue to existing shareholders. It isadvantageous for the Company to be able to issue new shares(or to sell Treasury shares) to participants purchasing sharesthrough the JPMorgan savings products and also to otherinvestors when the Directors consider that it is in the bestinterests of shareholders to do so. Any such issues would only bemade at prices greater than the net asset value (‘NAV’), therebyincreasing the NAV per share and spreading the Company’sadministrative expenses, other than the management fee which ischarged on the value of the Company’s net assets, over a greater

number of shares. The issue proceeds would be available forinvestment in line with the Company’s investment policies. Noissue of shares will be made which would effectively alter thecontrol of the Company without the prior approval ofshareholders in general meeting.

The Company currently does not hold any shares in the capital ofthe Company in Treasury.

(ii) Authority to repurchase the Company’s shares(resolution 13)

The authority to repurchase up to 14.99% of the Company’sissued share capital, granted by shareholders at the 2017 AnnualGeneral Meeting, will expire on 13th June 2019, unless renewedprior to that time. The Directors consider that the renewal of theauthority at the forthcoming Annual General Meeting is in theinterests of shareholders as a whole, as the repurchase of sharesat a discount to their underlying NAV enhances the NAV of theremaining shares.

Resolution 13 gives the Company authority to repurchase its ownissued shares in the market as permitted by the CompaniesAct 2006. The authority limits the number of shares that couldbe purchased to a maximum of 24,171,085 shares, representingapproximately 14.99% of the Company’s issued shares (being thelatest practicable date prior to the publication of this document)or, if different, the number of ordinary shares which is equal to14.99% of the Company’s issued share capital (excluding Treasuryshares) as at the date of the passing of the resolution. Theauthority also sets minimum and maximum prices.

If resolution 13 is passed at the Annual General Meeting, theBoard may repurchase the shares for cancellation or hold themin Treasury pursuant to the authority granted to it for possiblereissue at a premium to NAV.

Any repurchase will be at the discretion of the Board and will bemade in the market only at prices below the prevailing NAV pershare, thereby enhancing the NAV of the remaining shares, asand when market conditions are appropriate.

Recommendation

The Board considers that resolutions 11 to 13 are likely to promotethe success of the Company and are in the best interests of theCompany and its shareholders as a whole. The Directorsunanimously recommend that you vote in favour of theresolutions as they intend to do, where voting rights areexercisable, in respect of their own beneficial holdings whichamount in aggregate to 38,049 shares representingapproximately 0.01% of the voting rights of the Company.



Corporate Governance Statement

Compliance

The Company is committed to high standards of corporategovernance. This statement, together with the Statement ofDirectors’ Responsibilities on page 38, indicates how the Companyhas applied the principles of good governance of the FinancialReporting Council’s UK Corporate Governance Code (the‘UK Corporate Governance Code’) and the Association of InvestmentCompanies’ Code of Corporate Governance (the ‘AIC Code’), whichcomplements the UK Corporate Governance Code and providesa framework of best practice for investment trusts.

The Board is responsible for ensuring the appropriate level ofcorporate governance and considers that the Company hascomplied with the best practice provisions of the UK CorporateGovernance Code and of the AIC Code, other than in respect ofthe provision relating to the appointment of a senior independentdirector, and insofar as they are relevant to the Company’sbusiness, throughout the year under review.

The revised UK Corporate Governance Code (‘the 2018 Code’) waspublished in July 2018 and applies to companies with accountingperiods commencing on or after 1st January 2019. The Board willreport on compliance with the 2018 Code and any revised codepublished by the AIC in 2020.

Role of the Board

The Management Agreement between the Company and theManager sets out the matters which have been delegated to theManager. This includes management of the Company’s assets andthe provision of accounting, company secretarial, administration,and some marketing services. All other matters are reserved forthe approval of the Board. A formal schedule of matters reservedto the Board for decision has been approved. This includesdetermination and monitoring of the Company’s investmentobjective and policy and its future strategic direction, gearingpolicy, management of the capital structure, appointment andremoval of third party service providers, review of key investmentand financial data and the Company’s corporate governance andrisk control arrangements.

At each Board meeting, Directors’ interests are considered. Theseare reviewed carefully, taking into account the circumstancessurrounding them, and, if considered appropriate, are approved.It was resolved that there were no actual or indirect interests ofa Director which conflicted with the interests of the Company,which arose during the year.

Following the introduction of The Bribery Act 2010, the Board hasadopted appropriate procedures designed to prevent bribery.It confirms that the procedures have operated effectively duringthe year under review.

The Board meets at least quarterly during the year and additionalmeetings are arranged as necessary. Full and timely informationis provided to the Board to enable it to function effectively and toallow Directors to discharge their responsibilities.

There is an agreed procedure for Directors to take independentprofessional advice, if necessary, and at the Company’s expense.This is in addition to the access that every Director has to theadvice and services of the Company Secretary, which isresponsible to the Board for ensuring that Board procedures arefollowed and for compliance with applicable rules andregulations.

Board Composition

The Board, chaired by Andrew Fleming, consisted of fivenon-executive Directors during the year ended 30th September2018, all of whom are regarded by the Board as independent ofthe Company’s Manager. The Directors have a breadth ofinvestment knowledge, business and financial skills andexperience relevant to the Company’s business and briefbiographical details of each Director are set out on page 24.

There have been no changes to the Chairman’s other significantcommitments during the year under review.

Andrew Fleming will retire as a Director at the Annual GeneralMeeting on 13th December 2018. Christopher Samuel will becomeChairman with effect from 13th December 2018 and StephenCohen will replace him as Audit Committee Chairman.

As part of the succession planning process Fletcher Jones wereappointed, resulting in a decision to appoint Sally Macdonald asa Director of the Company following the Annual General Meetingon 13th December 2018. Fletcher Jones has no other connectionwith the Company.

A review of Board composition and balance is included as partof the annual performance evaluation of the Board, details ofwhich may be found below. The Board has considered whethera senior independent director should be appointed, and hasconcluded that, due to the Company’s nature of business as aninvestment trust and because the Board is comprised entirely ofnon-executive Directors, this is unnecessary at present. However,the Chairman of the Audit Committee leads the evaluation of theperformance of the Chairman and is available to shareholders ifthey have concerns that cannot be resolved through discussionswith the Chairman.

Tenure

Directors are initially appointed until the following Annual GeneralMeeting when, under the Company’s Articles of Association, it isrequired that they be reappointed by shareholders. Thereafter,Directors are required under the Company’s Articles ofAssociation to submit themselves for reappointment at least



every three years. The Board has adopted corporate governancebest practice and all Directors stand for annual reappointment.The Chairman will meet with each Director before the Director isproposed for reappointment, and subject to the performanceevaluation carried out each year, the Board will agree whether itis appropriate for the Director to seek an additional term. TheBoard does not believe that length of service in itself necessarilydisqualifies a Director from seeking reappointment but, whenmaking a recommendation, the Board will take into account theongoing requirements of the UK Corporate Governance Code,including the need to refresh the Board and its Committees. AnyDirectors with more than nine years’ service are required tosubmit themselves annually for reappointment.

The terms and conditions of Directors’ appointments are set outin formal letters of appointment, copies of which are available forinspection on request at the Company’s registered office and atthe Annual General Meeting.

Induction and Training

On appointment, the Manager and Company Secretary provide allDirectors with induction training. Thereafter, regular briefings areprovided on changes in law and regulatory requirements thataffect the Company and Directors. Directors are encouraged toattend industry and other seminars covering issues anddevelopments relevant to investment trust companies. Regularreviews of the Directors’ training needs are carried out by theChairman by means of the evaluation process described below.

Meetings and Committees

The Board delegates certain responsibilities and functions toCommittees. Details of membership of these Committees areshown with Directors’ profiles on page 24.

The table below details the number of formal Board andCommittee meetings attended by each Director. During the yearunder review there were five scheduled Board meetings, inaddition to a meeting devoted to strategy, two Audit Committeemeetings, one meeting of the Management EngagementCommittee, and one meeting of the Nomination andRemuneration Committee. These meetings were supplemented byadditional adhoc meetings held to cover procedural matters andformal approvals. In addition there is regular contact between theDirectors and the Manager and Company Secretary throughoutthe year.

Meetings AttendedNomination and Management

Audit Remuneration EngagementDirector Board Committee Committee Committee

Stephen Cohen 5 2 1 1Andrew Fleming 5 2 1 1Sir Stephen Gomersall 5 2 1 1George Olcott 5 2 1 1Christopher Samuel 5 2 1 1

Board Committees

Nomination and Remuneration Committee

The Nomination and Remuneration Committee, chaired byAndrew Fleming, which consists of the entire Board, meets atleast annually to ensure that the Board has an appropriatebalance of skills and experience to carry out its fiduciary dutiesand to select and propose suitable candidates for appointmentwhen necessary. The appointment process takes account of thebenefits of diversity, including gender. A variety of sources,including the use of independent external recruitmentconsultants, may be used to ensure that a wide range ofcandidates is considered.

The Committee conducts an annual performance evaluation of theBoard, its Committees and individual Directors to ensure that allDirectors have devoted sufficient time and contributed adequatelyto the work of the Board and its Committees. The evaluation ofthe Board considers the balance of experience, skills,independence, corporate knowledge, its diversity, includinggender, and how it works together.

Questionnaires, drawn up by the Board, with the assistance of theManager and a firm of independent consultants, are completed byeach Director. The responses are then collated and discussed bythe Committee. The evaluation of individual Directors is led by theChairman who also meets with each Director. The AuditCommittee Chairman leads the evaluation of the Chairman’sperformance.

The Committee also reviews Directors’ fees and makesrecommendations to the Board as and when appropriate inrelation to remuneration policy. This review forms only a minimalpart of discussions and therefore it is felt to be appropriate forAndrew Fleming to act as Chairman of the Committee.

Management Engagement Committee

The membership of the Management Engagement Committeeconsists of all the Directors and is chaired by Andrew Fleming.The Committee meets at least once a year to review the termsof the Management Agreement between the Company and theManager, to review the performance of the Manager, to reviewthe notice period that the Board has with the Manager and tomake recommendations to the Board on the continuedappointment of the Manager following these reviews.

Audit Committee

The report of the Audit Committee is set out on page 33.

Terms of Reference

The Nomination and Remuneration Committee, Audit Committeeand Management Engagement Committee have written terms ofreference which define clearly their respective responsibilities,copies of which are available on the Company’s website and forinspection on request at the Company’s registered office and atthe Company’s Annual General Meeting.



Relations with Shareholders

The Board regularly monitors the shareholder profile of theCompany. It aims to provide shareholders with a fullunderstanding of the Company’s activities and performance andreports formally to shareholders twice a year by way of the annualreport and financial statements and the half year report. These aresupplemented by the daily publication, through the London StockExchange, of the net asset value of the Company’s shares.

All shareholders are encouraged to attend the Company’s AnnualGeneral Meeting at which the Directors and representatives of theManager are available to meet shareholders and answer theirquestions. In addition, a presentation is given by the InvestmentManagers who reviews the Company’s performance.

During the year, the Company’s brokers, the InvestmentManagers and JPMF hold regular discussions with largershareholders. The Directors are made fully aware of their views.The Chairman and Directors make themselves available as andwhen required to support these meetings and to addressshareholder queries. The Directors may be contacted through theCompany Secretary whose details are shown on page 81. TheChairman can also be contacted via the Company’s website byfollowing the ‘Ask a Question’ link at www.jpmjapanese.co.uk

The Company’s annual report and financial statements arepublished in time to give shareholders at least twenty workingdays’ notice of the Annual General Meeting. Shareholders wishingto raise questions in advance of the meeting are encouraged tosubmit questions via the Company’s website or write to theCompany Secretary at the address shown on page 81.

Details of the proxy voting position on each resolution will bepublished on the Company website shortly after the AnnualGeneral Meeting.

Risk Management and Internal Control

The UK Corporate Governance Code requires the Directors, atleast annually, to review the effectiveness of the Company’ssystem of risk management and internal control and to report toshareholders that they have done so. This encompasses a reviewof all controls, which the Board has identified as includingbusiness, financial, operational, compliance and riskmanagement.

The Directors are responsible for the Company’s system of riskmanagement and internal control, which is designed to safeguardthe Company’s assets, maintain proper accounting records andensure that financial information used within the business, orpublished, is reliable. However, such a system can only bedesigned to manage rather than eliminate the risk of failure toachieve business objectives and therefore can only providereasonable, but not absolute, assurance against fraud, materialmisstatement or loss.

Since investment management, custody of assets and alladministrative services are provided to the Company by theDepositary and the Manager and its associates, the Company’ssystem of risk management and internal control mainly comprisesmonitoring the services provided by the Depositary and theManager and its associates, including the operating controlsestablished by them, to ensure they meet the Company’s businessobjectives. There is an ongoing process for identifying, evaluatingand managing the significant risks faced by the Company (seePrincipal Risks on pages 21 and 22). This process has been inplace for the year under review and up to the date of the approvalof the annual report and financial statements, and it accords withthe Financial Reporting Council’s guidance. Whilst the Companydoes not have an internal audit function of its own, the Boardconsiders that it is sufficient to rely on the internal auditdepartment of the Manager and regular direct reporting from theDepositary. This arrangement is kept under review.

The key elements designed to provide effective risk managementand internal control are as follows:

• Financial Reporting

Regular and comprehensive review by the Board of keyinvestment and financial data, including managementaccounts, revenue projections, analysis of transactions andperformance comparisons.

• Management

Appointment of a manager, depositary and custodianregulated by the FCA, whose responsibilities are clearlydefined in a written agreement.

• Management Systems

The Manager’s system of risk management and internalcontrol includes organisational agreements which clearlydefine the lines of responsibility, delegated authority, controlprocedures and systems. These are monitored by theManager’s Compliance department which regularly monitorscompliance with FCA rules.

• Investment Strategy

Authorisation and monitoring of the Company’s investmentstrategy and exposure limits by the Board.

The Board, either directly or through the Audit Committee,keeps under review the effectiveness of the Company’ssystem of risk management and internal control bymonitoring the operation of the key operating controls of theManager and its associates as follows:

• reviews the terms of the management agreement andreceives regular reports from the Manager’s Compliancedepartment;



• reviews reports on the risk management and internalcontrol and operations of its Depositary, Bank of NewYork Mellon (International) Limited, and its Custodian,JPMorgan Chase Bank, which are themselvesindependently reviewed; and

• reviews every six months an independent report on the riskmanagement and internal controls and the operations ofthe Manager.

By the means of the procedures set out above, the Boardconfirms that it has reviewed the effectiveness of the Company’ssystem of risk management and internal control for the yearended 30th September 2018 and to the date of approval of thisannual report and financial statements.

The Board confirms that any failings or weaknesses identifiedduring the course of its review of the systems of risk managementand internal control were not significant and did not impact theCompany.

Corporate Governance and Voting Policy

The Company delegates responsibility for voting to the Manager.The following is a summary of the policy statements of JPMAM oncorporate governance, voting policy and social and environmentalissues, which has been reviewed and noted by the Board. Detailsof social and environmental issues are set out on page 27.

Corporate Governance

JPMAM believes that corporate governance is integral to ourinvestment process. As part of our commitment to deliveringsuperior investment performance to our clients, we expect andencourage the companies in which we invest to demonstrate thehighest standards of corporate governance and best businesspractice. We examine the share structure and voting structure ofthe companies in which we invest, as well as the board balance,oversight functions and remuneration policy. These analyses thenform the basis of our proxy voting and engagement activity.

Proxy Voting

JPMAM manages the voting rights of the shares entrusted to it as itwould manage any other asset. It is the policy of JPMAM to vote ina prudent and diligent manner, based exclusively on our reasonablejudgement of what will best serve the financial interests of ourclients. So far as is practicable, we will vote at all of the meetingscalled by companies in which we are invested.

Stewardship/Engagement

JPMAM recognises its wider stewardship responsibilities to itsclients as a major asset owner. To this end, we support theintroduction of the FRC Stewardship Code, which sets out theresponsibilities of institutional shareholders in respect of investeecompanies. Under the Code, managers should:

– publicly disclose their policy on how they will discharge theirstewardship responsibilities to their clients;

– disclose their policy on managing conflicts of interest;

– monitor their investee companies;

– establish clear guidelines on how they escalate engagement;

– be willing to act collectively with other investors whereappropriate;

– have a clear policy on proxy voting and disclose their votingrecord; and

– report to clients.

JPMAM endorses the Stewardship Code for its UK investments andsupports the principles as best practice elsewhere. We believe thatregular contact with the companies in which we invest is central toour investment process and we also recognise the importance ofbeing an ‘active’ owner on behalf of our clients.

JPMAM’s Voting Policy and Corporate Governance Guidelines areavailable on request from the Company Secretary or can bedownloaded from JPMAM’s website:http://www.jpmorganinvestmenttrusts.co.uk/governance,which also sets out its approach to the seven principles of theFRC Stewardship Code, its policy relating to conflicts of interestand its detailed voting record.



Composition and RoleThe Audit Committee, chaired by Christopher Samuel, and whosemembership is set out on page 24, meets at least twice each year. Themembers of the Audit Committee consider that they have the requisiteskills and experience to fulfil the responsibilities of the Committee. Asa Chartered Accountant, Christopher Samuel has recent and relevantfinancial experience, and the Audit Committee as a whole hascompetence relevant to the sector.

Financial Statements and Significant AccountingMattersThe Committee reviews the actions and judgements of the Manager inrelation to the half year and annual accounts and the Company’scompliance with the UK Corporate Governance Code.

The Audit Committee examines the effectiveness of the Company’sinternal control systems and receives information from the Manager’sCompliance department. The Directors’ statement on the Company’ssystem of Risk Management and Internal Control is set out on pages 31and 32.

During its review of the Company’s financial statements for the yearended 30th September 2018, the Audit Committee considered thefollowing significant issues, including those communicated by theAuditors during their reporting:

Significant issue How the issue was addressed

The valuation of investments is undertaken inaccordance with the accounting policies, disclosed innote 1(b) to the financial statements on page 50.Controls are in place to ensure that valuations areappropriate and existence is verified throughDepositary and Custodian reconciliations. The Companyhas appointed Bank of New York Mellon (International)Limited (‘BNYM’) as its depositary. BNY has appointedJPMorgan Chase Bank, N.A. as the Custodian. BNYMremains responsible for the oversight of the custody ofthe Company’s assets.

The recognition of investment income is undertaken inaccordance with accounting policy note 1(d) to thefinancial statements on page 50. The Board regularlyreviews subjective elements of income such as specialdividends and agrees their accounting treatment.

Approval for the Company as an investment trust underSections 1158 and 1159 for financial years commencingon or after 1st October 2012 has been obtained andongoing compliance with the eligibility criteria ismonitored on a regular basis.

Going Concern The Directors believe that, having considered the Company’sinvestment objective (see page 20), risk management policies (seepages 60 to 66), liquidity risk (see note 22(b) on pages 64 to 65,capital management policies and procedures (see note 23 onpage 66), the nature of the portfolio and revenue and expenditureprojections, the Company has adequate resources, an appropriatefinancial structure and suitable management arrangements in place tocontinue in operational existence. For these reasons, the Directors

consider that there is reasonable evidence to continue to adopt thegoing concern basis in preparing the Company’s financial statements.They have not identified any material uncertainties to the Company’sability to continue to do so over a period of at least 12 months fromthe date of approval of these financial statements.

The Board was made fully aware of any significant financial reportingissues and judgements made in connection with the preparation of thefinancial statements.

Auditor Appointment and TenureThe Committee reviews the scope and results of the external audit, itseffectiveness and cost effectiveness, the balance of audit and non-audit services and the independence and objectivity of the externalAuditors. In the Directors’ opinion the Auditors are independent. TheCommittee also has primary responsibility for makingrecommendations to the Board on the reappointment and removal ofthe external Auditors.

Representatives of the Company’s Auditors attend the AuditCommittee meeting at which the draft annual report and financialstatements are considered and also engage with the Directors as andwhen required. Having reviewed the performance of the externalAuditors, including assessing the quality of work, timing ofcommunications and work with the Manager, the Committeeconsidered it appropriate to recommend the Auditors’ reappointment.The Board supported this recommendation and a resolution will be putto shareholders at the forthcoming Annual General Meeting.

As part of its review of the continuing appointment of the Auditors, theAudit Committee considered the length of tenure of the audit firm, itsfee, its independence from JPMF and the Investment Managers andany matters raised during the audit. A formal tender exercise wasundertaken in 2013, as a result of which PricewaterhouseCoopers LLPwas appointed in place of Begbies. The Company’s year ended30th September 2018 is therefore the Audit Partner’s last ofa five year maximum term. The Board reviews and approves anynon-audit services provided by the independent Auditors and assessesthe impact of any non-audit work on the ability of the Auditors toremain independent. No such work was undertaken during the year.Details of the fees paid for audit services are included in note 6 onpage 53.

Fair, Balanced and UnderstandableHaving taken all available information into consideration and havingdiscussed the content of the annual report and financial statementswith the Alternative Investment Fund Manager, Investment Managers,Company Secretary and other third party service providers, the AuditCommittee has concluded that the annual report and financialstatements for the year ended 30th September 2018, taken as awhole, are fair, balanced and understandable and provide theinformation necessary for shareholders to assess the Company’sperformance, business model and strategy, and has reported thesefindings to the Board. The Board’s conclusions in this respect are setout in the Statement of Directors’ Responsibilities on page 38.

Christopher SamuelChairman of the Audit Committee

12th November 2018

Valuation, existenceand ownership ofinvestments

Recognition ofinvestment income

Compliance withSections 1158 and1159 CorporationTax Act 2010

Audit Committee Report

Directors’ Remuneration Report


D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T

The Board presents the Directors’ Remuneration Report for theyear ended 30th September 2018, which has been prepared inaccordance with the requirements of Section 421 of theCompanies Act 2006 as amended.

The law requires the Company’s Auditors to audit certain of thedisclosures provided. Where disclosures have been audited, theyare indicated as such. The Independent Auditors’ Report isincluded in their report on pages 40 to 45.

The Nomination and Remuneration Committee reviews Directors’fees on a regular basis and makes recommendations to the Boardas and when appropriate.

Directors’ Remuneration Policy

The Directors’ Remuneration Policy is subject to a triennialbinding vote, however, a decision has been taken to seekapproval annually and therefore an ordinary resolution toapprove this policy will be put to shareholders at the forthcomingAnnual General Meeting. The policy subject to the vote is set outin full below and is currently in force.

The Board’s policy for this and subsequent years is that Directors’fees should properly reflect the time spent by the Directors on theCompany’s business and should be at a level to ensure thatcandidates of a high calibre are recruited to the Board andretained. The Chairman of the Board and the Chairman of theAudit Committee are paid higher fees than the other Directors,reflecting the greater time commitment involved in fulfilling thoseroles. Reviews are based on information provided by the Managerand industry research carried out by third parties on the level offees paid to the directors of the Company’s peers and within theinvestment trust industry generally. The involvement ofremuneration consultants has not been deemed necessary as partof this review. The Company has no Chief Executive Officer and noemployees and therefore no consultation of employees isrequired and there is no employee comparative data to provide inrelation to the setting of the remuneration policy for Directors.

All of the Directors are non-executive. There are noperformance-related elements to their fees and the Companydoes not operate any type of incentive, share scheme, award orpension scheme and therefore no Directors receive bonuspayments or pension contributions from the Company or holdoptions to acquire shares in the Company. Directors are notgranted exit payments and are not provided with compensationfor loss of office. No other payments are made to Directors,other than the reimbursement of reasonable out-of-pocketexpenses incurred in attending the Company’s business.

In the year under review Directors were paid at the followingrates: Chairman £36,000; Chairman of the Audit Committee£29,500; and other Directors £25,000. During the year the Boarddecided to increase the fees paid and with effect from 1st October2018 Directors fees will be paid at the following rates; Chairman£40,000; Chairman of the Audit Committee £31,500 and otherDirectors £27,000. The Company’s Articles of Association (the‘Articles’) provide that any increase in the maximum aggregateannual limit on Directors’ fees, currently £200,000, requires bothBoard and shareholder approval. The Articles further provide thatany Director who performs services which go beyond the ordinaryduties of a director may be paid such additional remuneration asthe directors may determine.

The Company has not sought individual shareholder views on itsremuneration policy. The Nomination and RemunerationCommittee considers any comments received from shareholderson remuneration policy on an ongoing basis and takes account ofthose views.

The terms and conditions of Directors’ appointments are set outin formal letters of appointment which are available for review atthe Company’s Annual General Meeting and the Company’sregistered office. Details of the Board’s policy on tenure are setout on pages 29 and 30.

Directors’ Remuneration Policy Implementation

The Directors’ Remuneration Report, which includes details of theDirectors’ remuneration policy and its implementation, is subjectto an annual advisory vote and therefore an ordinary resolutionto approve this report will be put to shareholders at theforthcoming Annual General Meeting. There have been nochanges to the policy implemented with effect from 1st October2015 as described above.

At the Annual General Meeting held on 14th December 2017, ofvotes cast in respect of the Remuneration Policy andRemuneration Report, 99.9% were in favour (or granteddiscretion to the Chairman who voted in favour) and 0.1% votedagainst. Abstentions were received from less than 0.1% of thevotes cast. Details of the implementation of the Company’sremuneration policy are given above.

Single total figure of remuneration

The single total figure of remuneration for each Director isdetailed below together with the prior year comparative.

D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T | 3 6

D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T

Single total figure table1

2018 2017Taxable Taxable

Fees benefits2 Total Fees benefits2 TotalDirectors’ Name £ £ £ £ £ £

Alan Barber3 — — — 6,493 — 6,493Stephen Cohen4 25,000 — 25,000 19,565 — 19,565Andrew Fleming 36,000 — 36,000 36,000 — 36,000Sir Stephen Gomersall 25,000 — 25,000 25,000 — 25,000George Olcott4 25,000 — 25,000 19,565 — 19,565Keith Percy3 — — — 5,503 41 5,544Christopher Samuel 29,500 173 29,673 28,522 131 28,653

Total 140,500 173 140,673 140,648 172 140,820

1 Audited information. The other disclosure requirements set out in the reportingregulations are omitted because they are not applicable.

2 Taxable benefits relate to travel and subsistence costs.3 Retired 20th December 2016.4 Appointed 20th December 2016.

A table showing the total remuneration for the Chairman over thefive years ended 30th September 2018 is below:

Remuneration for the Chairman over the five yearsended 30th September 2018

Performancerelated benefits

received as aYear ended percentage of30th September Fees maximum payable1

2018 £36,000 n/a

2017 £36,000 n/a

2016 £36,000 n/a

2015 £34,000 n/a

2014 £32,500 n/a

Directors’ Shareholdings1

There are no requirements pursuant to the Company’s Articles ofAssociation for the Directors to own shares in the Company. TheDirectors’ shareholdings are detailed below. All shares are heldbeneficially.

1st October 201730th September or as at date of

Directors’ Name 2018 retirement

Alan Barber2 — 5,300

Stephen Cohen 15,000 15,000

Andrew Fleming 5,000 5,000

Sir Stephen Gomersall 3,049 3,049

Keith Percy2 — 4,500

George Olcott 5,000 5,000

Christopher Samuel 10,000 5,000

Total 38,049 42,849

1 Audited information.2 Retired 20th December 2016.

As at the latest practicable date before the publication of thisdocument, there have been no changes to the Directors’shareholdings. The Directors have no other share interests orshare options in the Company and no share schemes areavailable.

In accordance with the Companies Act 2006, a graph showing theCompany’s share price total return compared with its benchmark,the Tokyo Stock Exchange First Section (TOPIX) Index expressed insterling terms, over the last ten years is shown below. Becausethe TOPIX Index is the adopted benchmark for the Company, it isdeemed by the Board to be the most representative comparator.Although the Investment Manager does not track the TOPIX Index,the Index is the most representative of the Company’s investmentremit.

Ten Year Share Price and Benchmark Total ReturnPerformance to 30th September 2018 (rebased)

Source: Morningstar.

A table showing actual expenditure by the Company onremuneration and distributions to shareholders for the year andthe prior year is below:

Expenditure by the Company on remuneration anddistributions to shareholders.

Year ended 30th September

2018 2017

Remuneration paid to all Directors £140,673 £140,820

Distribution to shareholders by way of:

— dividend £8,062,000 £5,886,000

— share repurchases £nil £nil

Total distribution to shareholders £8,062,000 £5,886,000

For and on behalf of the Board Andrew FlemingChairman

12th November 2018

100

150

200

250

300

350

400

20182017201620152014201320122011201020092008

Share price total return Benchmark

Statement of Directors’ Responsibilities


S T A T E M E N T O F D I R E C T O R S ’ R E S P O N S I B I L I T I E S

The Directors are responsible for preparing the annual report andfinancial statements in accordance with applicable law andregulations.

Company law requires the Directors to prepare financialstatements for each financial year. Under that law, the Directorshave elected to prepare the financial statements in accordancewith United Kingdom generally accepted accounting practice(United Kingdom Accounting Standards) including FRS 102 ‘TheFinancial Reporting Standards applicable in the UK and Republicof Ireland’ and applicable laws. Under company law the Directorsmust not approve the financial statements unless they aresatisfied that, taken as a whole, the annual report and financialstatements are fair, balanced and understandable, provide theinformation necessary for shareholders to assess the Company’sposition and performance, business model and strategy and thatthey give a true and fair view of the state of affairs of theCompany and of the total return or loss of the Company for thatperiod. In order to provide these confirmations, and in preparingthese financial statements, the Directors are required to:

• select suitable accounting policies and then apply themconsistently;

• make judgements and accounting estimates that arereasonable and prudent;

• state whether applicable UK Accounting Standards have beenfollowed, subject to any material departures disclosed andexplained in the financial statements; and

• prepare the financial statements on a going concern basisunless it is inappropriate to presume that the Company willcontinue in business;

and the Directors confirm that they have done so.

The Directors are responsible for keeping proper accountingrecords that are sufficient to show and explain the Company’stransactions and disclose with reasonable accuracy at any timethe financial position of the Company and to enable them toensure that the financial statements comply with the CompaniesAct 2006. They are also responsible for safeguarding the assets ofthe Company and hence for taking reasonable steps for theprevention and detection of fraud and other irregularities.

The accounts are published on the www.jpmjapanese.co.ukwebsite, which is maintained by the Company’s Manager. The

maintenance and integrity of the website maintained by theManager is, so far as it relates to the Company, the responsibilityof the Manager. The work carried out by the Auditors does notinvolve consideration of the maintenance and integrity of thiswebsite and, accordingly, the Auditors accept no responsibility forany changes that have occurred to the accounts since they wereinitially presented on the website. The accounts are prepared inaccordance with UK legislation, which may differ from legislationin other jurisdictions.

Under applicable law and regulations the Directors are alsoresponsible for preparing a Directors’ Report, Strategic Report,Statement of Corporate Governance and Directors’ RemunerationReport that comply with that law and those regulations.

Each of the Directors, whose names and functions are listed onpage 24, confirms that, to the best of their knowledge:

• the financial statements, which have been prepared inaccordance with United Kingdom Accounting Standards, andapplicable law), (United Kingdom Generally AcceptedAccounting Practice) give a true and fair view of the assets,liabilities, financial position and net return or loss of theCompany; and

• the Strategic Report includes a fair review of the developmentand performance of the business and the position of theCompany, together with a description of the principal risksand uncertainties that the Company faces.

The Board confirms that it is satisfied that the annual report andfinancial statements taken as a whole are fair, balanced andunderstandable and provide the information necessary forshareholders to assess the Company’s position and performance,business model and strategy and that they give a true and fairview of the state of affairs of the Company and of the total returnor loss of the Company for that period.

For and on behalf of the Board Andrew FlemingChairman

12th November 2018

Independent Auditors’ Report


INDEPENDENT AUDITORS’ REPORT

Report on the audit of the financial statements

Opinion

In our opinion, JPMorgan Japanese Investment Trust plc’s financial statements:

• give a true and fair view of the state of the company’s affairs as at 30th September 2018 and of its net return and cash flows for theyear then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United KingdomAccounting Standards, comprising FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’, andapplicable law); and

• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report & Financial Statements (the ‘Annual Report’), whichcomprise: the Statement of Financial Position as at 30th September 2018; the Statement of Comprehensive Income; the Statement ofCash Flows; the Statement of Changes in Equity for the year then ended; and the notes to the financial statements, which includea description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Ourresponsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements sectionof 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 financialstatements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled ourother ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not providedto the company.

We have provided no non-audit services to the Company in the period from 1st October 2017 to 30th September 2018.

Our audit approach

Context

JPMorgan Japanese Investment Trust plc is an Investment Trust Company listed on the London Stock Exchange. It primarily invests inquoted Japanese equities. We focus our audit work primarily on the valuation and existence of investments and dividend income.

Overview

• Overall materiality: £8.5 million (2017: £6.8 million), based on 1% of net assets.

• The Company is a standalone Investment Trust Company and engages JPMorgan Funds Limited (the‘Manager’) to manage its assets.

• We conducted our audit of the financial statements using information provided by JPMorgan Corporate& Investment Bank (the ‘Administrator’) to whom the Manager has, with the consent of the Directors,delegated the provision of certain administrative functions.

• We tailored the scope of our audit taking into account the types of investments within the Company,the involvement of the third parties referred to above, the accounting processes and controls, and theindustry in which the Company operates.

• We obtained an understanding of the control environment in place at both the Manager and theAdministrator. We adopted a fully substantive testing approach.

• Dividend Income.

• Valuation and Existence of Investments.

Materiality

Audit scope

Areas offocus

I N D E P E N D E N T A U D I T O R S ’ R E P O R T | 4 1


The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimatesthat involved making assumptions and considering future events that are inherently uncertain.

We gained an understanding of the legal and regulatory framework applicable to the Company and the industry in which it operates,and considered the risk of acts by the Company which were contrary to applicable laws and regulations, including fraud. We designedaudit procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher thanthe risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentionalmisrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in theCompany’s financial statements, including, but not limited to, the Companies Act 2006 and section 1158 of the Corporation TaxAct 2010. Our tests included, but were not limited to, review of the financial statement disclosures to underlying supportingdocumentation, enquiries of those charged with governance and testing the Company’s compliance with section 1158 in the currentyear. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws andregulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.

We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk ofmanagement override of internal controls, including testing journals and evaluating whether there was evidence of bias by theDirectors that represented a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financialstatements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in theaudit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our proceduresthereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and wedo not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Key audit matter How our audit addressed the key audit matter

We assessed the accounting policy for income recognition for compliancewith accounting standards and the AIC SORP and performed testing tocheck that income had been accounted for in accordance with this statedaccounting policy.

We tested the accuracy of dividend receipts by agreeing the dividend ratesfrom investments to independent market data.

To test for completeness we tested that, for investment holdings in theportfolio, all dividends recorded in the year had been declared in themarket, and that all dividends declared in the market for investmentholdings had been recorded.

We tested occurrence by tracing a sample of dividends received to bankstatements.

We tested the allocation and presentation of dividend income between therevenue and capital return columns in the Statement of ComprehensiveIncome, in line with the requirements set out in the AIC SORP bydetermining reasons behind dividend distributions.

No material issues were identified which required reporting to thosecharged with governance.

Dividend IncomeRefer to page 33 (Audit Committee Report), page 50(Accounting Policies) and page 53 (Notes to the FinancialStatements).

We focused on the occurrence, accuracy andcompleteness of dividend income recognition and itspresentation in the Statement of ComprehensiveIncome as set out in the requirements of TheAssociation of Investment Companies Statement ofRecommended Practice (the ‘AIC SORP’). This isbecause non-occurrence, incomplete or inaccurateincome recognition could have a material impact on theCompany’s net asset value.



Key audit matter How our audit addressed the key audit matter

We tested the valuation of the listed investment portfolio by agreeing theprices used in the valuation to independent third party sources.

We tested the existence of the investment portfolio by agreeing holdings ofinvestments to an independent custodian confirmation, obtained fromJPMorgan Chase Bank, N.A.

No material issues were identified which required reporting to thosecharged with governance.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statementsas a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which itoperates.

The Company’s accounting is delegated to the Administrator who maintains the Company's accounting records and who hasimplemented controls over those accounting records.

We obtained our audit evidence from substantive tests. However, as part of our risk assessment, we understood and assessed theinternal controls in place at both the Manager and the Administrator to the extent relevant to our audit. This assessment of theoperating and accounting structure in place at both organisations involved obtaining and analysing the relevant controls reports issuedby the independent service auditor of the Manager and the Administrator in accordance with generally accepted assurance standardsfor such work. Following this assessment, we applied professional judgement to determine the extent of testing required over eachbalance in the financial statements.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our auditprocedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, bothindividually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality £8.5 million (2017: £6.8 million).

How we determined it 1% of net assets.

We have applied this benchmark, a generally accepted auditing practice for investment trust audits, in theabsence of indicators that an alternative benchmark would be appropriate and because we believe thisprovides an appropriate and consistent year-on-year basis for our audit.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £426,000 (2017:£339,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Valuation and Existence of InvestmentsRefer to page 33 (Audit Committee Report), page 50(Accounting Policies) and page 56 (Notes to the FinancialStatements).

The investment portfolio at the year-end comprised oflisted equity investments.

We focused on the valuation and existence ofinvestments because investments represent theprincipal element of the net asset value as disclosed onthe Statement of Financial Position in the financialstatements.

Rationale forbenchmark applied



Going concern

In accordance with ISAs (UK) we report as follows:

Reporting obligation Outcome

We are required to report if we have anything material to add or draw attention toin respect of the Directors’ statement in the financial statements about whether theDirectors considered it appropriate to adopt the going concern basis of accountingin preparing the financial statements and the Directors’ identification of anymaterial uncertainties to the Company’s ability to continue as a going concern overa period of at least twelve months from the date of approval of the financialstatements.

We are required to report if the Directors’ statement relating to Going Concern inaccordance with Listing Rule 9.8.6R(3) is materially inconsistent with ourknowledge obtained in the audit.

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 Directors are responsible for the other information. Our opinion on the financial statements does not cover theother information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in thisreport, 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, considerwhether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, orotherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we arerequired to perform procedures to conclude whether there is a material misstatement of the financial statements or a materialmisstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatementof this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK CompaniesAct 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06),ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters asdescribed below (required by ISAs (UK) unless otherwise stated).Strategic Report and Directors’ ReportIn our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’Report for the year ended 30th September 2018 is consistent with the financial statements and has been prepared in accordance withapplicable legal requirements. (CA06)

In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we did notidentify any material misstatements in the Strategic Report and Directors’ Report. (CA06)

The Directors’ assessment of the prospects of the Company and of the principal risks that would threaten the solvency or liquidity ofthe CompanyWe have nothing material to add or draw attention to regarding:

• The Directors’ confirmation on page 21 of the Annual Report that they have carried out a robust assessment of the principal risksfacing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.

We have nothing material to add or to drawattention to. However, because not allfuture events or conditions can bepredicted, this statement is not aguarantee as to the Company’s ability tocontinue as a going concern.

We have nothing to report.



• The Directors’ explanation on page 22 of the Annual Report as to how they have assessed the prospects of the Company, overwhat period they have done so and why they consider that period to be appropriate, and their statement as to whether they havea reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over theperiod of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of theprincipal risks facing the Company and statement in relation to the longer-term viability of the Company. Our review was substantiallyless in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements;checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the ‘Code’); andconsidering whether the statements are consistent with the knowledge and understanding of the Company and its environmentobtained in the course of the audit. (Listing Rules)

Other Code ProvisionsWe have nothing to report in respect of our responsibility to report when:

• The statement given by the Directors, on page 33, that they consider the Annual Report taken as a whole to be fair, balanced andunderstandable, and provides the information necessary for the members to assess the Company’s position and performance,business model and strategy is materially inconsistent with our knowledge of the company obtained in the course of performing ouraudit.

• The section of the Annual Report on page 33 describing the work of the Audit Committee does not appropriately address matterscommunicated by us to the Audit Committee.

• The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevantprovision of the Code specified, under the Listing Rules, for review by the auditors.

Directors’ RemunerationIn our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with theCompanies Act 2006. (CA06)

Responsibilities for the financial statements and the audit

Responsibilities of the Directors for the financial statementsAs explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the financialstatements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors arealso responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.

In preparing the financial statements, the Directors are responsible for assessing the Company’s 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 Directors eitherintend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from materialmisstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance isa high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financialstatements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this reportThis report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreedby our prior consent in writing.



Other required reporting

Companies Act 2006 exception reportingUnder the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or

• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received frombranches not visited by us; or

• certain disclosures of Directors’ remuneration specified by law are not made; or

• the financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accountingrecords and returns.

We have no exceptions to report arising from this responsibility.

AppointmentFollowing the recommendation of the Audit Committee, we were appointed by the directors on 20th December 2013 to audit thefinancial statements for the year ended 30th September 2014 and subsequent financial periods. The period of total uninterruptedengagement is 5 years, covering the years ended 30th September 2014 to 30th September 2018.

Jeremy Jensen (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors, London

12th November 2018

Financial Statements

F I N A N C I A L S T A T E M E N T S | 4 7

STATEMENT OF COMPREHENSIVE INCOME AND STATEMENT OF CHANGES IN EQUITY

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30TH SEPTEMBER 2018

2018 2017Revenue Capital Total Revenue Capital Total

Notes £’000 £’000 £’000 £’000 £’000 £’000

Gains on investments held at fairvalue through profit or loss 3 — 179,515 179,515 — 44,397 44,397

Net foreign currency (losses)/gains — (2,915) (2,915) — 10,514 10,514Income from investments 4 11,665 — 11,665 11,640 — 11,640Other interest receivable and similar income 4 293 — 293 — — —

Gross return 11,958 176,600 188,558 11,640 54,911 66,551Management fee 5 (905) (3,622) (4,527) (775) (3,099) (3,874)Other administrative expenses 6 (690) — (690) (613) — (613)

Net return on ordinary activities before finance costs and taxation 10,363 172,978 183,341 10,252 51,812 62,064

Finance costs 7 (282) (1,127) (1,409) (189) (755) (944)

Net return on ordinary activities before taxation 10,081 171,851 181,932 10,063 51,057 61,120

Taxation 8 (1,168) — (1,168) (1,161) — (1,161)

Net return on ordinary activities after taxation 8,913 171,851 180,764 8,902 51,057 59,959

Return per share 9 5.53p 106.58p 112.11p 5.52p 31.66p 37.18p

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

The ‘Total’ column of this statement is the profit and loss account of the Company and the ‘Revenue’ and ‘Capital’ columns representsupplementary information prepared under guidance issued by the Association of Investment Companies. Net return on ordinaryactivities after taxation represents the profit for the year and also total comprehensive income.

The notes on pages 50 to 66 form part of these financial statements.

STATEMENT OF CHANGES IN EQUITY


Called up Capitalshare redemption Other Capital Revenuecapital reserve reserve reserves reserve1 Total£’000 £’000 £’000 £’000 £’000 £’000

At 30th September 2016 40,312 8,650 166,791 400,299 8,713 624,765Net return on ordinary activities — — — 51,057 8,902 59,959Dividend paid in the year (note 10) — — — — (5,886) (5,886)

At 30th September 2017 40,312 8,650 166,791 451,356 11,729 678,838 Net return on ordinary activities — — — 171,851 8,913 180,764 Dividend paid in the year (note 10) — — — — (8,062) (8,062)At 30th September 2018 40,312 8,650 166,791 623,207 12,580 851,540

1 This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

The notes on pages 50 to 66 form an integral part of these financial statements.


S T A T E M E N T O F F I N A N C I A L P O S I T I O N

AT 30TH SEPTEMBER 2018

2018 2017Notes £’000 £’000

Fixed assets Investments held at fair value through profit or loss 11 976,724 771,143

Current assets 12Debtors 7,001 3,852Cash and cash equivalents 7,278 3,551

14,279 7,403Current liabilities 13Creditors: amounts falling due within one year (4,951) (385)

Net current assets 9,328 7,018

Total assets less current liabilities 986,052 778,161

Creditors: amounts falling due after more than one year 14 (134,512) (99,323)

Net assets 851,540 678,838

Capital and reserves Called up share capital 15 40,312 40,312Capital redemption reserve 16 8,650 8,650Other reserve 16 166,791 166,791Capital reserves 16 623,207 451,356Revenue reserve 16 12,580 11,729

Total shareholders’ funds 851,540 678,838

Net asset value per share 17 528.1p 421.0p

The financial statements on pages 47 to 49 were approved and authorised for issue by the Directors on 12th November 2018 and weresigned on their behalf by:

Andrew FlemingChairman

The notes on pages 50 to 66 form an integral part of these financial statements.

Company registration number: 223583.


S T A T E M E N T O F C A S H F L O W S

FOR THE YEAR ENDED 30 SEPTEMBER 2018

2018 2017Notes £’000 £’000

Net cash outflow from operations before dividends and interest 18 (4,461) (4,442)Dividends received 10,902 9,648Interest paid (1,262) (1,037)

Net cash inflow from operating activities 5,179 4,169

Purchases of investments (404,862) (250,200)Sales of investments 379,693 207,947Settlement of foreign currency contracts 15 5

Net cash outflow from investing activities (25,154) (42,248)

Dividend paid (8,062) (5,886)Drawdown of bank loan 32,990 41,442Drawdown of senior secured loan note 88,967 —Repayment of bank loan (90,235) —

Net cash inflow from financing activities 23,660 35,556

Increase/(decrease) in cash and cash equivalents 3,685 (2,523)

Cash and cash equivalents at start of year 3,551 6,118Exchange movements 42 (44)Cash and cash equivalents at end of year 7,278 3,551

Increase/(decrease) in cash and cash equivalents 3,685 (2,523)

Cash and cash equivalents consist of:Cash and short term deposits 12 7,278 3,551


N O T E S T O T H E F I N A N C I A L S T A T E M E N T S


1. Accounting policies

(a) Basis of accounting

The financial statements are prepared under the historical cost convention, modified to include fixed asset investments at fairvalue, in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice (‘UK GAAP’),including FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ and with the Statement ofRecommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ (the ‘SORP’) issued bythe Association of Investment Companies in November 2014 and updated in February 2018.

All of the Company’s operations are of a continuing nature.

The financial statements have been prepared on a going concern basis. The disclosures on going concern on page 33 form partof these financial statements.

The policies applied in these financial statements are consistent with those applied in the preceding year.

(b) Valuation of investments

The Company has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments.

The Company’s business is investing in financial assets with a view to profiting from their total return in the form of income andcapital growth. The portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordancewith a documented investment strategy and information is provided internally on that basis to the Company’s Board of Directors.

Accordingly, upon initial recognition the investments are designated by the Company as held at fair value through profit or loss.They are included initially at fair value which is taken to be their cost, excluding expenses incidental to purchase which arewritten off to capital at the time of acquisition. Subsequently the investments are valued at fair value, which are quoted bidprices for investments traded in active markets. For investments which are not traded in active markets, unlisted and restrictedinvestments, the Board takes into account the latest traded prices, other observable market data and asset values based on thelatest management accounts.

All purchases and sales are accounted for on a trade date basis.

(c) Accounting for reserves

Gains and losses on sales of investments including the related foreign exchange gains and losses, realised gains and losses onforeign currency contracts, management fees and finance costs allocated to capital and any other capital charges, are includedin the Statement of Comprehensive Income and dealt with in capital reserves within ‘Gains and losses on sales of investments’.

Increases and decreases in the valuation of investments held at the year end including the related foreign exchange gains andlosses, are included in the Statement of Comprehensive Income and dealt with in capital reserves within ‘Investment holdinggains and losses’.

(d) Income

Dividends receivable from equity shares are included in revenue on an ex-dividend basis except where, in the opinion of theBoard, the dividend is capital in nature, in which case it is included in capital.

Overseas dividends are included gross of any withholding tax.

Special dividends are looked at individually to ascertain the reason behind the payment. This will determine whether they aretreated as revenue or capital.

Deposit interest receivable is taken to revenue on an accruals basis.

Stock lending income is taken to revenue on an accruals basis. In all cases securities lent continue to be recognised in theStatement of Financial Position.



(e) Expenses

All expenses are accounted for on an accruals basis. Expenses are allocated wholly to the revenue with the following exceptions:

– The management fee is allocated 20% to revenue and 80% to capital in line with the Board’s expected long term split ofrevenue and capital return from the Company’s investment portfolio.

– Expenses incidental to the purchase and sale of an investment are charged to capital. These expenses are commonlyreferred to as transaction costs and comprise brokerage commission and stamp duty. Details of transaction costs are givenin note 11 on page 56.

(f) Finance costs

Finance costs are accounted for on an accruals basis using the effective interest method.

Finance costs are allocated 20% to revenue and 80% to capital in line with the Board’s expected long term split of revenue andcapital return from the Company’s investment portfolio.

(g) Financial instruments

Cash and cash equivalents may comprise cash including demand deposits which are readily convertible to a known amount ofcash and are subject to an insignificant risk of change in value.

Other debtors and creditors do not carry any interest, are short term in nature and are accordingly stated at nominal value, withdebtors reduced by appropriate allowances for estimated irrecoverable amounts.

Bank loans are classified as financial liabilities measured at amortised cost. They are initially measured as proceeds net of directissue costs and subsequently measured at amortised cost. Interest payable on the bank loan is accounted for on an accrualsbasis in the Statement of Comprehensive Income.

Senior secured loan notes (the ‘Notes’) in issue are classified as financial liabilities at amortised cost. They were initiallymeasured at the proceeds net of direct issue costs and subsequently measured at amortised cost. The amortisation of directissue costs are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interestmethod.

(h) Taxation

Current tax is provided at the amounts expected to be paid or recovered.

Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. Deferred taxliabilities are recognised for all taxable timing differences but deferred tax assets are only recognised to the extent that it ismore likely than not that taxable profits will be available against which those timing differences can be utilised.

Deferred tax is measured at the tax rate which is expected to apply in the periods in which the timing differences are expected toreverse, based on tax rates that have been enacted or substantively enacted at the balance sheet date and is measured on anundiscounted basis.

Tax relief is allocated to expenses charged to capital on the ‘marginal basis’. On this basis, if taxable income is capable of beingentirely offset by revenue expenses, then no tax relief is transferred to capital.

(i) Value Added Tax (‘VAT’)

Expenses are disclosed inclusive of the related irrecoverable VAT. Recoverable VAT is calculated using the partial exemptionmethod based on the proportion of zero rated supplies to total supplies.



1. Accounting policies continued

(j) Foreign currency

The Company is required to identify its functional currency, being the currency of the primary economic environment in whichthe Company operates. The Board, having regard to the currency of the Company’s share capital and the predominant currencyin which its shareholders operate, has determined that sterling is the functional currency. Sterling is also the currency in whichthe financial statements are presented.

Transactions denominated in foreign currencies are converted at actual exchange rates at the date of the transaction. Monetaryassets, liabilities and equity investments held at fair value, denominated in foreign currencies at the year end are translated atthe rates of exchange prevailing at the year end.

Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included in the Statementof Comprehensive Income as an exchange gain or loss in revenue or capital, depending on whether the gain or loss is ofa revenue or capital nature.

(k) Dividend payable

Dividends are included in the financial statements in the year in which they are approved by shareholders.

(l) Repurchase of ordinary shares for cancellation

The cost of repurchasing ordinary shares including the related stamp duty and transactions costs is charged to ‘Capital reserves’and dealt with in the Statement of Changes in Equity. Share repurchase transactions are accounted for on a trade date basis. Thenominal value of ordinary share capital repurchased and cancelled is transferred out of ‘Called up share capital’ and into ‘Capitalredemption reserve’.

2. Significant accounting judgements, estimates and assumptions

The preparation of the Company’s financial statements on occasion requires the Directors to make judgements, estimates andassumptions that affect the reported amounts in the primary financial statements and the accompanying disclosures. Theseassumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets orliabilities affected in the current and future periods, depending on circumstance.

The Directors do not believe that any significant accounting judgements or estimates have been applied to this set of financialstatements, including estimates that have a significant risk of causing a material adjustment to the carrying amount of assets andliabilities within the next financial year.

3. Gains on investments held at fair value through profit or loss

2018 2017£’000 £’000

Gains on investments held at fair value through profit or loss based on historic cost 91,005 59,365 Amounts recognised as investment holding gains and losses in the previous yearin respect of investments sold during the year (78,480) (77,489)

Gains/(losses) on sales of investments based on the carrying value at the previous balance sheet date 12,525 (18,124)

Net movement in investment holding gains and losses 166,991 62,524 Other capital charges (1) (3)

Total capital gains on investments held at fair value through profit or loss 179,515 44,397



4. Income

2018 2017£’000 £’000

Income from investmentsOverseas dividends 11,665 11,640

Other income:Stock lending 293 —

Total income 11,958 11,640

5. Management fee2018 2017

Revenue Capital Total Revenue Capital Total£’000 £’000 £’000 £’000 £’000 £’000

Management fee 905 3,622 4,527 775 3,099 3,874

Details of the management fee are given in the Directors’ Report on pages 25 to 26.

6. Other administrative expenses

2018 2017£’000 £’000

Administrative expenses 395 307Directors’ fees1 141 141Depositary fees 100 110Overseas board trip expenses 32 34Auditors’ remuneration for audit services 22 21

690 613

1 Full disclosure is given in the Directors’ Remuneration Report on pages 35 to 36.

7. Finance costs 2018 2017

Revenue Capital Total Revenue Capital Total£’000 £’000 £’000 £’000 £’000 £’000

Interest on bank loans and overdrafts 251 1,003 1,254 189 755 944Senior secured loan notes interest 31 124 155 — — —

282 1,127 1,409 189 755 944



8. Taxation

(a) Analysis of tax charge in the year 2018 2017Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Overseas withholding tax 1,168 — 1,168 1,161 — 1,161

Total tax charge for the year 1,168 — 1,168 1,161 — 1,161

(b) Factors affecting total tax charge for the year

The tax charge for the year is lower than (2017: lower) the Company’s applicable rate of corporation tax of 19.0% (2017: 19.5%)The factors affecting the total tax charge for the year are as follows:

2018 2017Revenue Capital Total Revenue Capital Total

£’000 £’000 £’000 £’000 £’000 £’000

Net return on ordinary activities before taxation 10,081 171,851 181,932 10,063 51,057 61,120

Net return on ordinary activities before taxation multiplied by the Company’s applicable rate of corporation tax of 19.0% (2017: 19.5%) 1,915 32,652 34,567 1,962 9,955 11,917

Effects of:Non taxable overseas dividends (2,221) — (2,221) (2,146) — (2,146)Non taxable capital losses — (33,554) (33,554) — (10,707) (10,707)Income taxed in different years 37 — 37 — — —Overseas withholding tax 1,168 — 1,168 1,161 — 1,161Unutilised expenses carried forward to future periods 272 902 1,174 194 752 946

Deferred tax relief expensed (3) — (3) (10) — (10)

Total tax charge for the year 1,168 — 1,168 1,161 — 1,161

(c) Deferred taxation

The Company has an unrecognised deferred tax asset of £7,982,000 (2017: £6,940,000) based on a prospective corporation taxrate of 17.0% (2017: 17.0%). The UK Corporation tax is enacted to fall to 17% effective on 1st April 2020. The deferred tax assethas arisen due to the cumulative excess of deductible expenses over taxable income. Given the composition of the Company’sportfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been recognised in thefinancial statements.

Given the Company’s status as an Investment Trust Company and the intention to continue meeting the conditions required toobtain approval, the Company has not provided deferred tax on any capital gains or losses arising on the revaluation or disposalof investments.



9. Return per share

2018 2017£’000 £’000

Revenue return 8,913 8,902Capital return 171,851 51,057

Total return 180,764 59,959

Weighted average number of shares in issue during the year 161,248,078 161,248,078Revenue return per share 5.53p 5.52pCapital return per share 106.58p 31.66p

Total return per share 112.11p 37.18p

10. Dividends

(a) Dividends paid and proposed

2018 2017£’000 £’000

Dividend paid2017 final dividend paid of 5.00p (2016: 3.65p) per share 8,062 5,886

Dividend proposed2018 final dividend proposed of 5.00p (2017: 5.00p) per share 8,062 8,062

All dividends paid and proposed in the year are and will be funded from the revenue reserve.

The dividend proposed in respect of the year ended 30th September 2018 is subject to shareholder approval at the forthcomingAnnual General Meeting. In accordance with the accounting policy of the Company, this dividend will be reflected in the financialstatements for the year ending 30th September 2019.

(b) Dividend for the purposes of Section 1158 of the Corporation Tax Act 2010 (‘Section 1158’)

The requirements of Section 1158 are considered on the basis of the dividend proposed in respect of the financial year, shownbelow. The revenue available for distribution by way of dividend for the year is £8,913,000 (2017: £8,902,000). The revenuereserve after payment of the final dividend will amount to £4,518,000.

2018 2017£’000 £’000

Final dividend proposed of 5.00p (2017: 5.00p) per share 8,062 8,062



11. Investments

2018 2017£’000 £’000

Investments listed on a recognised stock exchange 976,724 771,143

Opening book cost 559,381 457,130Opening investment holding gains 211,762 226,727

Opening valuation 771,143 683,857

Movements in the year:Purchases at cost 409,299 250,411Sales proceeds (383,234) (207,525)Gains/(losses) on sales of investments based on the carrying value at the previous balance sheet date 12,525 (18,124)

Net movement in investment holding gains and losses 166,991 62,524

976,724 771,143

Closing book cost 676,450 559,381Closing investment holding gains 300,274 211,762

Total investments held at fair value through profit or loss 976,724 771,143

Transaction costs on purchases during the year amounted to £207,000 (2017: £163,000) and on sales during the year amountedto £163,000 (2017: £159,000). These costs comprise mainly brokerage commission.

During the year, prior year investment holding gains amounting to £78,480,000 have been transferred to Gains and losses onsales of investments as disclosed in note 16 on page 58.

12. Current assets

2018 2017£’000 £’000

DebtorsSecurities sold awaiting settlement 3,545 —Dividends and interest receivable 3,409 3,814Other debtors 47 38

7,001 3,852

The Directors consider that the carrying amount of debtors approximates to their fair value.

Cash and cash equivalents

Cash and cash equivalents comprises bank balances and short term deposits. The carrying amount of these represents their fairvalue.



13. Current liabilities 2018 2017£’000 £’000

Creditors: amounts falling due within one yearSecurities purchased awaiting settlement 4,648 211Senior secured loan notes interest payable 155 —Other creditors and accruals 105 123Bank loan interest payable 43 51

4,951 385

The Directors consider that the carrying amount of creditors falling due within one year approximates to their fair value.

14. Creditors: amounts falling due after more than one year 2018 2017£’000 £’000

¥13 billion senior secured loan notes 87,253 —Floating rate bank loan 47,259 39,729Fixed rate bank loan — 59,594

134,512 99,323

During the year the Company repaid in full its ¥9.0 billion 5 year fixed rate loan facility with National Australia Bank (‘NAB’),which was due to mature on 29th July 2020 with an interest rate of 1.14%.

During the year the Company increased its 3 year floating rate revolving credit facility, maturing on with National Australia Bank(‘NAB’) 5th December 2019, from ¥6.0 billion to ¥11.0 billion. At 30th September 2018, the Company had drawn down¥7.0 billion (£47.3 million) of this facility.

On 2nd August 2018, the Company issued senior secured loan notes (the ‘Notes’) with five tranches:

– ¥2 billion fixed rate 10 year series A senior secured loan notes at an annual coupon of 0.76% which will expire on2nd August 2028.

– ¥2.5 billion fixed rate 15 year series B senior secured loan notes at an annual coupon of 0.95% which will expire on2nd August 2033.

– ¥2.5 billion fixed rate 20 year series C senior secured loan notes at an annual coupon of 1.11% which will expire on2nd August 2038.

– ¥2.5 billion fixed rate 25 year series D senior secured loan notes at an annual coupon of 1.21% which will expire on2nd August 2043.

– ¥3.5 billion fixed rate 30 year series E senior secured loan notes at an annual coupon of 1.33% which will expire on2nd August 2048.



15. Called up share capital 2018 2017£’000 £’000

Issued and fully paid share capital:Ordinary shares of 25p each Opening balance of 161,248,078 (2017: 161,248,078) shares 40,312 40,312

Closing balance 40,312 40,312

Further details of transactions in the Company’s shares are given in the Directors’ Report on pages 26 and 27.

16. Capital and reserves

Capital reserves

Gains and InvestmentCalled up Capital losses on holding Unrealised Capital

share redemption Other1 sales of gains and capital reserves Revenuecapital reserve reserve investments losses reserve total reserve2 Total£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Opening balance 40,312 8,650 166,791 250,978 211,762 (11,384) 451,356 11,729 678,838

Net foreign currency gains on cash and cash equivalents — — — 552 — — 552 — 552

Gains on sales of investments based on the carrying value at the previous balance sheet date — — — 12,525 — — 12,525 — 12,525

Net movement in investment holding gains and losses — — — — 166,991 — 166,991 — 166,991

Transfer on disposal of investments — — — 78,480 (78,480) — — — —Unrealised exchange gain on foreign currency loan — — — — — 731 731 — 731

Realised losses on repayment of loans — — — (4,198) — — (4,198) — (4,198)

Transfer on loans repaid in year — — — (12,474) — 12,474 — — —Management fee and finance costs charged to capital — — — (4,749) — — (4,749) — (4,749)

Other capital charges — — — (1) — — (1) — (1)Dividend paid in the year — — — — — — — (8,062) (8,062)Retained revenue for the year — — — — — — — 8,913 8,913

Closing balance 40,312 8,650 166,791 321,113 300,273 1,821 623,207 12,580 851,540

1 Created during the year ended 30th September 1999, following a cancellation of the share premium account.2 This reserve forms the distributable reserve of the Company and may be used to fund distribution of profits to investors via dividend payments.

17. Net asset value per share

2018 2017

Net assets (£’000) 851,540 678,838Number of shares in issue 161,248,078 161,248,078

Net asset value per share 528.1p 421.0p



18. Reconciliation of net return on ordinary activities before finance costs and taxation to net cashoutflow from operations before dividends and interest

2018 2017£’000 £’000

Net return on ordinary activities before finance costs and taxation 183,341 62,064Less capital return on ordinary activities before finance costs and taxation (172,978) (51,812)Decrease/(increase) in accrued income and other debtors 393 (813)(Decrease)/increase in accrued expenses (20) 11Tax on unfranked investment income (1,168) (1,161)Management fee charged to capital (3,622) (3,099)Dividends received (10,902) (9,648)Realised gains on foreign currency transactions 495 16

Net cash outflow from operations before dividends and interest (4,461) (4,442)

19. Contingent liabilities and capital commitments

At the balance sheet date there were no contingent liabilities or capital commitments (2017: same).

20. Transactions with the Manager and related parties

Details of the management contract are set out in the Directors’ Report on pages 25 to 26. The management fee payable to theManager for the year was £4,527,000 (2017: £3,874,000) of which £nil (2017: £nil) was outstanding at the year end.

Included in administration expenses in note 6 on page 53 are safe custody fees amounting to £111,000 (2017: £50,000) payableto JPMorgan Chase Bank, N.A., of which £19,000 (2017: £17,000) was outstanding at the year end.

The Manager may carry out some of its dealing transactions through group subsidiaries. These transactions are carried out atarm’s length. The commission payable to JPMorgan Securities for the year was £11,000 (2017: £13,000) of which £nil (2017: £nil)was outstanding at the year end.

Handling charges on dealing transactions amounting to £1,000 (2017: £3,000) were payable to JPMorgan Chase Bank N.A. duringthe year of which £nil (2017: £nil) was outstanding at the year end.

At the year end, total cash of £7,278,000 (2017: £3,551,000) was held with JPMorgan Chase. A net amount of interest of£nil (2017: £117) was receivable by the Company during the year from JPMorgan Chase of which £nil (2017: £nil) was outstandingat the year end.

Stock lending income amounting to £293,000 (2017: £nil) was receivable by the Company during the year. JPMAM commissionsin respect of such transactions amounted to £52,000 (2017: £nil).

Full details of Directors’ remuneration and shareholdings can be found on pages 35 and 36 and in note 6 on page 53.



21. Disclosures regarding financial instruments measured at fair value

The Company’s financial instruments within the scope of FRS 102 that are held at fair value comprise its investment portfolio andderivative financial instruments.

The investments are categorised into a hierarchy consisting of levels 1, 2 and 3.

Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at themeasurement date

Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e.: developed using market data) for theasset or liability, either directly or indirectly

Level 3: Inputs are unobservable (i.e.: for which market data is unavailable) for the asset or liability

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair valuemeasurement of the relevant asset.

Details of the valuation techniques used by the Company are given in note 1(b) on page 50.

The following table sets out the fair value measurements using the FRS 102 hierarchy as at 30th September.

2018 2017Assets Liabilities Assets Liabilities£’000 £’000 £’000 £’000

Level 1 976,724 — 771,143 —

Total 976,724 — 771,143 —

There were no transfers between Level 1, 2 or 3 during the year (2017: same).

22. Financial instruments’ exposure to risk and risk management policies

As an investment trust, the Company invests in equities for the long term so as to secure its investment objective stated on the‘Features’ page. In pursuing this objective, the Company is exposed to a variety of financial risks that could result in a reductionin the Company’s net assets or a reduction in the profits available for dividends.

These financial risks include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and creditrisk. The Directors’ policy for managing these risks is set out below. The Company Secretary, in close cooperation with the Boardand the Manager, coordinates the Company’s risk management policy.

The objectives, policies and processes for managing the risks and the methods used to measure the risks that are set out below,have not changed from those applying in the comparative year.

The Company’s classes of financial instruments are as follows:

– investments in equity shares of Japanese companies which are held in accordance with the Company’s investmentobjective;

– short term debtors, creditors and cash arising directly from its operations;

– a loan facility; and

– senior secured loan notes issued by the Company.



(a) Market risk

The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices.This market risk comprises three elements – currency risk, interest rate risk and other price risk. Information to enable an evaluationof the nature and extent of these three elements of market risk is given in parts (i) to (iii) of this note 22(a), together with sensitivityanalyses where appropriate. The Board reviews and agrees policies for managing these risks and these policies have remainedunchanged from those applying in the comparative year. The Manager assesses the exposure to market risk when making eachinvestment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

(i) Currency risk

The Company’s functional currency and the currency in which it reports, is sterling. However the Company’s assets,liabilities and income are almost entirely denominated in yen. As a result, movements in exchange rates will affect thesterling value of those items.

Management of currency risk

The Manager monitors the Company’s exposure to foreign currencies on a daily basis and reports to the Board, which meetson at least four occasions each year. The Manager measures the risk to the Company of the foreign currency exposure byconsidering the effect on the Company’s net asset value and income of a movement in the yen/sterling exchange rate. Yendenominated borrowing may be used to limit the exposure of the Company’s portfolio to the yen/sterling exchange rate.Income is converted to sterling on receipt. The Company may use short term forward currency contracts to manage workingcapital requirements. It is currently not the Company’s policy to hedge against foreign currency risk.

Foreign currency exposure

The fair value of the Company’s monetary items that have exposure to the yen at 30th September are shown below. TheCompany’s investments (which are not monetary items) have been included separately in the analysis so as to show theoverall level of exposure.

2018 2017 New New US Zealand US Zealand Yen Dollar Dollar Total Yen Dollar Dollar Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Current assets 14,138 2 5 14,145 7,268 — 4 7,272Creditors (139,359) — — (139,359) (99,535) — — (99,535)

Foreign currency exposure on net monetary items (125,221) 2 5 (125,214) (92,267) — 4 (92,263)

Investments held at fair value through profit or loss 976,724 — — 976,724 771,143 — — 771,143

Total net foreign currency exposure 851,503 2 5 851,510 678,876 — 4 678,880

In the opinion of the Directors, the above year end amounts are broadly representative of the exposure to foreigncurrency risk during the year.

Foreign currency sensitivity

The following tables illustrate the sensitivity of return after taxation for the year and net assets with regard to theCompany’s monetary financial assets and financial liabilities and exchange rates. The sensitivity analysis is based on theCompany’s monetary currency financial instruments held at each balance sheet date and the income receivable in foreigncurrency and assumes a 10% (2017: 10%) appreciation or depreciation in sterling against the yen, which is considered tobe a reasonable illustration based on the volatility of exchange rates during the year.



22. Financial instruments’ exposure to risk and risk management policies continued

(a) Market risk continued

(i) Currency risk continued

Foreign currency sensitivity continued

2018 2017If sterling If sterling If sterling If sterling

strengthens weakens strengthens weakens by 10% by 10% by 10% by 10%£’000 £’000 £’000 £’000

Statement of Comprehensive Income – returnafter taxation

Revenue return (1,167) 1,167 (1,164) 1,164 Capital return 12,521 (12,521) 9,226 (9,226)

Total return after taxation 11,354 (11,354) 8,062 (8,062)

Net assets 11,354 (11,354) 8,062 (8,062)

In the opinion of the Directors, the above sensitivity analysis is not representative of the whole of the current orcomparative year due to fluctuation in drawings on the yen loan facility and the new senior secured loan notes.

(ii) Interest rate risk

Interest rate movements may affect the level of income receivable on cash deposits and the interest payable on theCompany’s variable rate cash borrowings.

Management of interest rate risk

The Company does not normally hold significant cash balances. Short term borrowings are used when required. TheCompany may finance part of its activities through borrowings at levels approved and monitored by the Board. Thepossible effects on cash flows that could arise as a result of changes in interest rates are taken into account when theCompany borrows on the loan facility. However, amounts drawn down on this facility are for short term periods andtherefore exposure to interest rate risk is not significant.

Interest rate exposure

The exposure of financial assets and liabilities to floating interest rates, giving cash flow interest rate risk when rates arereset, is shown below.

2018 2017£’000 £’000

Exposure to floating interest rates:Cash and cash equivalents 7,278 3,551Floating rate bank loan (47,259) (39,729)

Total exposure (39,981) (36,178)

Interest receivable on cash balances, or paid on overdrafts, is at a margin below or above LIBOR respectively (2017: same).

Interest rate sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and net assets to a 1% (2017: 1%)increase or decrease in interest rates in regards to the Company’s monetary financial assets and financial liabilities. Thislevel of change is considered to be a reasonable illustration based on observation of current market conditions. Thesensitivity analysis is based on the Company’s monetary financial instruments held at the balance sheet date, with all othervariables held constant.



2018 20171% increase 1% decrease 1% increase 1% decrease

in rate in rate in rate in rate £’000 £’000 £’000 £’000

Statement of Comprehensive Income – returnafter taxation

Revenue return (22) 22 (44) 44Capital return (378) 378 (318) 318

Total return after taxation for the year (400) 400 (362) 362

Net assets (400) 400 (362) 362

In the opinion of the Directors, the above sensitivity analysis is calculated based on the Company’s year end positions andtherefore it may not be representative of the Company’s future exposure to interest rate changes due to fluctuations in thelevel of cash balances and amounts drawn down on the loan facility.

(iii) Other price risk

Other price risk includes changes in market prices, other than those arising from interest rate risk or currency risk, whichmay affect the value of equity investments.

Management of other price risk

The Board meets on at least four occasions each year to consider the asset allocation of the portfolio and the riskassociated with particular industry sectors. The investment management team has responsibility for monitoring theportfolio, which is selected in accordance with the Company’s investment objective and seeks to ensure that individualstocks meet an acceptable risk/reward profile.

Other price risk exposure

The Company’s total exposure to changes in market prices at 30th September comprises its holdings in equity investmentsas follows:

2018 2017£’000 £’000

Investments held at fair value through profit or loss 976,724 771,143

The above data is broadly representative of the exposure to other price risk during the current and comparative year.

Concentration of exposure to other price risk

An analysis of the Company’s investments is given on pages 16 and 17. This shows that all investments are in Japaneselisted equities. Accordingly, there is a concentration of exposure to that country. However, it should also be noted that aninvestment may not be entirely exposed to the economic conditions in its country of domicile or of listing.




(a) Market risk continued

(iii) Other price risk continued

Other price risk sensitivity

The following table illustrates the sensitivity of return after taxation for the year and net assets to an increase or decreaseof 10% (2017: 10%) in the market value of equity investments. This level of change is considered to be a reasonableillustration based on observation of current market conditions. The sensitivity analysis is based on the Company’s equities,adjusting for changes in the management fee but with all other variables held constant.

2018 201710% increase 10% decrease 10% increase 10% decreasein fair value in fair value in fair value in fair value

£’000 £’000 £’000 £’000

Statement of Comprehensive Income – return after taxationRevenue return (78) 87 (75) 75Capital return 97,360 (97,325) 76,815 (76,815)

Total return after taxation 97,282 (97,238) 76,740 (76,740)

Net assets 97,282 (97,238) 76,740 (76,740)

(b) Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that aresettled by delivering cash or another financial asset.

Management of the risk

Liquidity risk is not significant as the Company’s assets comprise readily realisable securities, which can be sold to meet fundingrequirements if necessary. Short term flexibility is achieved through the use of overdraft facilities. The Board’s policy is for theCompany to remain fully invested in normal market conditions and that short term borrowings be used to manage short termliabilities, working capital requirements and to gear the Company as appropriate. Details of the current loan facilities are given innote 14 on page 57.

Liquidity risk exposure

Contractual maturities of the financial liabilities, based on the earliest date on which payment can be required are as follows:

2018More than

Three three months months but not more More than or less than one year one year Total£’000 £’000 £’000 £’000

Creditors:Securities purchased awaiting settlement 4,648 — — 4,648Other creditors and accruals 105 — — 105Bank loan & senior secured loan notes – including interest 539 1,043 154,547 156,129

5,292 1,043 154,547 160,882



2017More than

Three three months months but not more More than or less than one year one year Total£’000 £’000 £’000 £’000

Creditors:Securities purchased awaiting settlement 211 — — 211 Other creditors and accruals 123 — — 123 Bank loans – including interest 296 748 100,935 101,979

630 748 100,935 102,313

The liabilities shown above represent future contractual payments and therefore may differ from the amounts shown in theStatement of Financial Position.

(c) Credit risk

Credit risk is the risk that the failure of the counterparty to a transaction to discharge its obligations under that transaction couldresult in loss to the Company.

Management of credit risk

Portfolio dealing

The Company invests in markets that operate Delivery Versus Payments (‘DVP’) settlement. The process of DVP mitigates the riskof losing the principal of a trade during the settlement process. However, the Company’s holdings in Participatory Notes andWarrants are subject to counterparty risk associated with each issuer. The Manager continuously monitors dealing activity toensure best execution, a process that involves measuring various indicators including the quality of trade settlement andincidence of failed trades. Counterparty lists are maintained and adjusted accordingly.

Cash and cash equivalents

Counterparties are subject to regular credit analysis by the Manager and deposits can only be placed with counterparties thathave been approved by JPMAM’s Counterparty Risk Group.

Exposure to JPMorgan Chase

JPMorgan Chase Bank, N.A. is the custodian of the Company’s assets. The Company’s assets are segregated from JPMorganChase’s own trading assets. Therefore these assets are designed to be protected from creditors in the event that JPMorgan Chasewere to cease trading. The Depositary, Bank of New York Mellon (International) Limited, is responsible for the safekeeping of allcustodial assets of the Company and for verifying and maintaining a record of all other assets of the Company. However, noabsolute guarantee can be given on the protection of all the assets of the Company.

Credit risk exposure

The amounts shown in the Statement of Financial Position under debtors and cash and cash equivalents represent the maximumexposure to credit risk at the current and comparative year ends.

The aggregate value of securities on loan at 30th September 2018 amounted to £87.9 million (2017: £nil) and the maximum valueof stock on loan during the year amounted to £96.7 million (2017: £nil). Collateral is obtained by JPMorgan Asset Managementand is called in on a daily basis to a value of 102% (2017: nil) of the value of the securities on loan if that collateral isdenominated in the same currency as the securities on loan and 105% (2017: nil) if it is denominated in a different currency.




(d) Fair values of financial assets and financial liabilities

All financial assets and liabilities are either included in the Statement of Financial Position at fair value or the carrying amount isa reasonable approximation of fair value except for the senior secured loan notes disclosed below. The fair value of theCompany’s ¥13 billion senior secured loan notes has been calculated using discount cash flow techniques, using the yield froma similar date gilt plus a margin based on the five year average for the AA Barclays Yen Corporate Bond Spread.

Carrying value Fair value2018 2017 2018 2017 £’m £’m £’m £’m

¥13 billion senior secured loan notes 87.3 — 94.6 —

23. Capital management policies and procedures

The Company’s debt and capital structure comprises the following:2018 2017£’000 £’000

Debt:Bank loans 47,259 99,323Senior secured loan notes 87,253 —

134,512 99,323Equity:Called up share capital 40,312 40,312Reserves 811,228 638,526

851,540 678,838

Total debt and equity 986,052 778,161

The Company’s capital management objectives are to ensure that it will continue as a going concern and to maximise capitalreturn to its equity shareholders through an appropriate level of gearing.

The Board’s policy is to limit gearing within the range of 5% net cash to 20% geared in normal market conditions.

2018 2017£’000 £’000

Investments held at fair value through profit or loss 976,724 771,143

Net assets 851,540 678,838

Gearing 14.7% 13.6%

The Board, with the assistance of the Manager, monitors and reviews the broad structure of the Company’s capital on an ongoingbasis. This review includes:

– the planned level of gearing, which takes into account the Manager’s views on the market;

– the need to buy back equity shares, either for cancellation or to hold in Treasury, which takes into account the share pricediscount or premium; and

– the need for issues of new shares, including issues from Treasury.

24. Subsequent events

The Directors have evaluated the period since the year end and have not noted any subsequent events.

Regulatory Disclosures


R E G U L A T O R Y D I S C L O S U R E S

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (‘AIFMD’) DISCLOSURE (UNAUDITED)

Leverage

For the purposes of the Alternative Investment Fund Managers Directive (the ‘AIFMD’), leverage is any method which increases theCompany’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’sexposure and its net asset value and is calculated on a gross and a commitment method, in accordance with the AIFMD. Under thegross method, exposure represents the sum of the Company’s positions without taking into account any hedging and nettingarrangements. Under the commitment method, exposure is calculated after certain hedging and netting positions are offset againsteach other.

The Company is required to state its maximum and actual leverage levels, calculated as prescribed by the AIFMD, as at 30th September2018, which gives the following figures:

Gross Method Commitment Method

Maximum limit 200% 200%Actual 116% 116%

JPMF Remuneration

JPMorgan Funds Limited (the ‘Management Company’) is the authorised manager of JPMorgan Japanese Investment Trust plc (the‘Company’) and is part of the J.P. Morgan Chase & Co. group of companies. In this section, the terms ‘J.P. Morgan’ or ‘Firm’ refer to thatgroup, and each of the entities in that group globally, unless otherwise specified.

This section of the annual report has been prepared in accordance with the Alternative Investment Fund Managers’ Directive (the‘AIFMD’), the European Commission Delegated Regulation supplementing the AIFMD, and the ‘Guidelines on sound remunerationpolicies’ issued by the European Securities and Markets Authority under the AIFMD.

This section has also been prepared in accordance with the relevant provisions of the Financial Conduct Authority Handbook(FUND 3.3.5).

JPMF Remuneration Policy

A summary of the Remuneration Policy currently applying to the Management Company (the ‘Remuneration Policy Statement’) can befound at https://am.jpmorgan.com/gb/en/asset-management/gim/per/legal/emea-remuneration-policy. This Remuneration PolicyStatement includes details of how remuneration and benefits are calculated, including the financial and non-financial criteria used toevaluate performance, the responsibilities and composition of the Firm’s Compensation and Management Development Committee, andthe measures adopted to avoid or manage conflicts of interest. A copy of this policy can be requested free of charge from theManagement Company.

The Remuneration Policy applies to all employees of the Management Company, including individuals whose professional activities mayhave a material impact on the risk profile of the Management Company or the Alternative Investment Funds it manages (‘AIFMDIdentified Staff’). The AIFMD Identified Staff include members of the Board of the Management Company (the ‘Board’), seniormanagement, the heads of relevant Control Functions, and holders of other key functions. Individuals are notified of their identificationand the implications of this status on at least an annual basis.

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The Board reviews and adopts the Remuneration Policy on an annual basis, and oversees its implementation, including theclassification of AIFMD Identified Staff. As at 31st December 2017, the Board last reviewed and adopted the Remuneration Policy inJune 2017 with no material changes and was satisfied with its implementation.

JPMF Quantitative Disclosures

The table below provides an overview of the aggregate 2017 total remuneration paid to staff of the Management Company and thenumber of beneficiaries. These figures include the remuneration of all staff of JP Morgan Asset Management (UK) Ltd (the relevantemploying entity) and the number of beneficiaries, both apportioned to the Management Company on an AUM weighted basis.

Due to the Firm’s operational structure, the information needed to provide a further breakdown of remuneration attributable to theCompany is not readily available and would not be relevant or reliable. However, for context, the Management Company manages32 Alternative Investment Funds and 2 UCITS (with 38 sub-funds), with a combined AUM as at 31st December 2017 of £13,204 millionand £15,004 million respectively.

Fixed Variable Total Number of remuneration remuneration remuneration beneficiaries

All staff ($’000s) 14,845 9,801 24,646 117

The aggregate 2017 total remuneration paid to AIFMD Identified Staff was USD 65,309,308, of which USD 7,505,126 relates to SeniorManagement and USD 57,804,181 relates to other Identified Staff.


R E G U L A T O R Y D I S C L O S U R E S R E G U L A T O R Y D I S C L O S U R E S

SECURITIES FINANCING TRANSACTIONS REGULATION (‘SFTR’) DISCLOSURE (UNAUDITED)

The Company engages in Securities Financing Transactions (as defined in Article 3 of Regulation (EU) 2015/2365, securities financingtransactions include repurchase transactions, securities or commodities lending and securities or commodities borrowing,buy-sell back transactions or sell-buy back transactions and margin lending transactions). In accordance with Article 13 of theRegulation, the Company’s involvement in and exposures related to SFTR for the accounting year ended 30th September 2018 aredetailed below.

Global Data

Amount of securities on loan

The total value of securities on loan as a proportion of the Company’s total lendable assets, as at the balance sheet date, is 9.0%.

Total lendable assets represents the aggregate value of assets types forming part of the Company’s securities lending programme.

Amount of assets engaged in securities lending

The following table represents the total value of assets engaged in securities lending:Value£’000 % of AUM

Securities lending 87,922 10.3%

Concentration and Aggregate transaction data

Counterparties

The following table provides details of the counterparties (based on gross volume of outstanding transactions with exposure ona gross absolute basis) in respect of securities lending as at the balance sheet date:

ValueCounterparty Country of incorporation £’000

Deutsche Bank Germany 29,900Morgan Stanley United States of America 17,378Credit Suisse Switzerland 14,864Merrill Lynch United States of America 12,592Citigroup United States of America 8,068UBS Switzerland 4,865Bank of Nova Scotia Canada 133Jeffries United States of America 122

Total 87,922

Maturity tenor of Security lending transactions

The Company’s securities lending transactions have open maturity.

Collateral issuers

The following table lists the issuers by value of non-cash collateral received by the Company by way of title transfer collateralarrangement across securities lending transactions, as at the balance sheet date:

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Collateral Value Issuer £’000

United Kingdom Treasury 32,678French Republic Government 17,851United States of America Treasury 10,121Republic of Austria Government 7,381Kingdom of Belgium Government 4,772Kingdom of Netherlands Government 976Federal Government Republic of Germany 609Republic of Finland Government 227

Total 74,615

Non-cash collateral received by way of title transfer collateral arrangement in relation to securities lending transactions cannot besold, re-invested or pledged.

Type, quality and currency of collateral

The following table provides an analysis of the type, quality and currency of collateral received by the Company in respect ofsecurities lending transactions as at the balance sheet date.

Value Type Quality Currency £’000

Sovereign Debt Investment Grade GBP 32,678Sovereign Debt Investment Grade EUR 31,816Treasury Notes Investment Grade USD 8,599Treasury Bonds Investment Grade USD 1,251Treasury Bills Investment Grade USD 271

Total 74,615

Maturity tenor of collateral

The following table provides an analysis of the maturity tenor of collateral received in relation to securities lending transactions as atthe balance sheet date

Value Maturity £’000

Less than 1 day —1 day to 1 week —1 to 4 weeks 5691 to 3 months 4373 to 12 months 3,844more than 1 year 69,765

Total 74,615

Settlement and clearing

The Company’s securities lending transactions including related collaterals are settled and cleared either bi-laterally, tri-party orthrough a central counterparty.



Re-use of collateral

Share of collateral received that is reused and reinvestment return

Non-cash collateral received by way of title transfer collateral arrangement in relation to securities lending transactions cannot besold, re-invested or pledged.

Cash collateral received in the context of securities lending transactions may be reused, however the Company does not currentlyreinvest cash collateral received in respect of securities lending transactions.

Counterparty Quality Maturity Date £’000

Societe Genérale Investment Grade 01 October 2018 19,595Citigroup Investment Grade 01 October 2018 3,100Citigroup Investment Grade 02 October 2018 2,000Deutsche Bank Investment Grade 01 October 2018 1,466Credit Suisse Investment Grade 02 October 2018 1,400Credit Suisse Investment Grade 01 October 2018 300Nomura Investment Grade 01 October 2018 40

Total 27,901

Safekeeping of collateral

All collateral received (£102,516,000) by the Company in respect of securities lending transactions as at the balance sheet date is heldby the Depositary.

Return and cost

JPMorgan Chase Bank, N.A (JPMCB), the lending agent, receives a fee of 15% of the gross revenue for its services related to the StockLending Transactions. The remainder of the revenue, 85%, is received by the Company i.e. for the benefit of Shareholders.

Shareholder Information


N O T I C E O F A N N U A L G E N E R A L M E E T I N G

Notice is hereby given that the ninetieth Annual General Meetingof JPMorgan Japanese Investment Trust plc will be held at theOffices of JPMorgan, 60 Victoria Embankment, London EC4Y 0JPon Thursday, 13th December 2018 at 12 noon for the followingpurposes:

1. To receive the Directors’ Report & Financial Statements andthe Auditors’ Report for the year ended 30th September2018.

2. To approve the Director’s Remuneration Policy.

3. To approve the Directors’ Remuneration Report for theyear ended 30th September 2018.

4. To approve a final dividend of 5.00p per share.

5. To reappoint Stephen Cohen as a Director of the Company.

6. To reappoint Sir Stephen Gomersall as a Director of theCompany.

7. To reappoint George Olcott as a Director of the Company.

8. To reappoint Christopher Samuel as a Director of theCompany.

9. To reappoint PricewaterhouseCoopers LLP as the Auditorsof the Company.

10. To authorise the Directors to determine the Auditorsremuneration.

Special Business

To consider the following resolutions:

Authority to allot new shares – Ordinary Resolution

11. THAT the Directors of the Company be and they are herebygenerally and unconditionally authorised, (in substitution ofany authorities previously granted to the Directors),pursuant to and in accordance with Section 551 of theCompanies Act 2006 (the ‘Act’) to exercise all the powersfor the Company to allot shares in the Company and togrant rights to subscribe for, or to convert any securityinto, shares in the Company (‘Rights’) up to an aggregatenominal amount of £4,031,200 or, if different theaggregate nominal amount representing approximately10% of the Company’s issued Ordinary share capital as atthe date of the passing of this resolution, provided that thisauthority shall expire at the conclusion of the AnnualGeneral Meeting of the Company to be held in 2019 unlessrenewed at a general meeting prior to such time, save thatthe Company may before such expiry make offers oragreements which would or might require shares to beallotted or Rights to be granted after such expiry and sothat the Directors of the Company may allot shares andgrant Rights in pursuance of such offers or agreements asif the authority conferred hereby had not expired.

Authority to disapply pre-emption rights on allotment ofrelevant securities – Special Resolution

12. THAT subject to the passing of Resolution 11 set out above,the Directors of the Company be and they are herebyempowered pursuant to Sections 570 and 573 of the Act toallot equity securities (within the meaning of Section 560 ofthe Act) for cash pursuant to the authority conferred byResolution 11 or by way of a sale of Treasury shares as ifSection 561(1) of the Act did not apply to any suchallotment, provided that this power shall be limited to theallotment of equity securities for cash up to an aggregatenominal amount of £4,031,200 or, if different theaggregate nominal amount representing approximately10% of the issued share capital as at the date of thepassing of this resolution at a price of not less than the netasset value per share and shall expire upon the expiry ofthe general authority conferred by Resolution 11 above,save that the Company may before such expiry make offersor agreements which would or might require equitysecurities to be allotted after such expiry and so that theDirectors of the Company may allot equity securities inpursuance of such offers or agreements as if the powerconferred hereby had not expired.

Authority to repurchase the Company’s shares – SpecialResolution

13. THAT the Company be generally and, subject as hereinafterappears, unconditionally authorised in accordance withSection 701 of the Act to make market purchases (withinthe meaning of Section 693 of the Act) of its issuedOrdinary shares of 25p each in the capital of the Companyon such terms and in such manner as the Directors mayfrom time to time determine.

PROVIDED ALWAYS THAT

(i) the maximum number of Ordinary shares herebyauthorised to be purchased shall be 24,171,085 or, ifless, that number of Ordinary shares which is equalto 14.99% of the Company’s issued share capital(less shares held in Treasury) as at the date of thepassing of this resolution;

(ii) the minimum price which may be paid for anOrdinary share shall be 25p;

(iii) the maximum price which may be paid for anOrdinary share shall be an amount equal to thehighest of: (a) 105% of the average of the middlemarket quotations for an Ordinary share taken fromand calculated by reference to the London StockExchange Daily Official List for the five business daysimmediately preceding the day on which theOrdinary share is contracted to be purchased; or(b) the price of the last independent trade; or (c) thehighest current independent bid;

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(iv) any purchase of Ordinary shares will be made in themarket for cash at prices below the prevailing netasset value per Ordinary share (as determined by theDirectors);

(v) the authority hereby conferred shall expire on12th June 2020 unless the authority is renewed atthe Annual General Meeting in 2019 or at any othergeneral meeting prior to such time; and

(vi) the Company may make a contract to purchaseOrdinary shares under the authority herebyconferred prior to the expiry of such authority whichcontract will or may be executed wholly or partlyafter the expiry of such authority and may makea purchase of Ordinary shares pursuant to any suchcontract.

By order of the BoardFaith Pengelly, for and on behalf of JPMorgan Funds Limited, Secretary

12th November 2018

Notes

These notes should be read in conjunction with the notes on the reverseof the proxy form.

1. A member entitled to attend and vote at the Annual General Meeting(the ’Meeting’) may appoint another person(s) (who need not bea member of the Company) to exercise all or any of his rights toattend, speak and vote at the Meeting. A member can appoint morethan one proxy in relation to the Meeting, provided that each proxy isappointed to exercise the rights attaching to different shares held byhim.

2. A proxy does not need to be a member of the Company but mustattend the Meeting to represent you. Your proxy could be theChairman, another Director of the Company or another person whohas agreed to attend to represent you. Details of how to appoint theChairman or another person(s) as your proxy or proxies using theproxy form are set out in the notes to the proxy form. If a voting boxon the proxy form is left blank, the proxy or proxies will exercisehis/their discretion both as to how to vote and whether he/theyabstain(s) from voting. Your proxy must attend the Meeting for yourvote to count. Appointing a proxy or proxies does not preclude youfrom attending the Meeting and voting in person.

3. Any instrument appointing a proxy, to be valid, must be lodged inaccordance with the instructions given on the proxy form no later than12 noon two business days prior to the Meeting (i.e. excludingweekends and bank holidays).

4. You may change your proxy instructions by returning a new proxyappointment. The deadline for receipt of proxy appointments (seeabove) also applies in relation to amended instructions. Any attemptto terminate or amend a proxy appointment received after therelevant deadline will be disregarded. Where two or more validseparate appointments of proxy are received in respect of the sameshare in respect of the same Meeting, the one which is last received(regardless of its date or the date of its signature) shall be treated asreplacing and revoking the other or others as regards that share; if theCompany is unable to determine which was last received, none ofthem shall be treated as valid in respect of that share.

5. To be entitled to attend and vote at the Meeting (and for the purposeof the determination by the Company of the number of votes they maycast), members must be entered on the Company’s register ofmembers as at 6.30 p.m. two business days prior to the Meeting (the‘specified time’). If the Meeting is adjourned to a time not more than48 hours after the specified time applicable to the original Meeting,that time will also apply for the purpose of determining theentitlement of members to attend and vote (and for the purpose ofdetermining the number of votes they may cast) at the adjournedMeeting. If however the Meeting is adjourned for a longer period then,to be so entitled, members must be entered on the Company’s registerof members as at 6.30 p.m. two business days prior to the adjournedMeeting or, if the Company gives notice of the adjourned Meeting, atthe time specified in that notice. Changes to entries on the registerafter this time shall be disregarded in determining the rights ofpersons to attend or vote at the Meeting or adjourned Meeting.

6. Entry to the Meeting will be restricted to shareholders and their proxyor proxies, with guests admitted only by prior arrangement.



7. A corporation, which is a shareholder, may appoint an individual(s) toact as its representative(s) and to vote in person at the Meeting(see instructions given on the proxy form). In accordance with theprovisions of the Companies Act 2006, each such representative(s)may exercise (on behalf of the corporation) the same powers as thecorporation could exercise if it were an individual member of theCompany, provided that they do not do so in relation to the sameshares. It is therefore no longer necessary to nominate a designatedcorporate representative.

Representatives should bring to the Meeting evidence of theirappointment, including any authority under which it is signed.

8. Members that satisfy the thresholds in Section 527 of the CompaniesAct 2006 can require the Company to publish a statement on itswebsite setting out any matter relating to: (a) the audit of theCompany’s financial statements (including the Auditors’ report and theconduct of the audit) that are to be laid before the Meeting; or (b) anycircumstances connected with Auditors of the Company ceasing tohold office since the previous AGM, which the members propose toraise at the Meeting. The Company cannot require the membersrequesting the publication to pay its expenses. Any statement placedon the website must also be sent to the Company’s Auditors no laterthan the time it makes its statement available on the website. Thebusiness which may be dealt with at the Meeting includes anystatement that the Company has been required to publish on itswebsite pursuant to this right.

9. Pursuant to Section 319A of the Companies Act 2006, the Companymust cause to be answered at the Meeting any question relating to thebusiness being dealt with at the Meeting which is put by a memberattending the Meeting except in certain circumstances, including if it isundesirable in the interests of the Company or the good order of theMeeting or if it would involve the disclosure of confidentialinformation.

10. Under Sections 338 and 338A of the 2006 Act, members meeting thethreshold requirements in those sections have the right to require theCompany: (i) to give, to members of the Company entitled to receivenotice of the Meeting, notice of a resolution which those membersintend to move (and which may properly be moved) at the Meeting;and/or (ii) to include in the business to be dealt with at the Meetingany matter (other than a proposed resolution) which may properly beincluded in the business at the Meeting. A resolution may properly bemoved, or a matter properly included in the business unless: (a) (in thecase of a resolution only) it would, if passed, be ineffective (whetherby reason of any inconsistency with any enactment or the Company’sconstitution or otherwise); (b) it is defamatory of any person; or (c) it isfrivolous or vexatious. A request made pursuant to this right may be inhard copy or electronic form, must identify the resolution of whichnotice is to be given or the matter to be included in the business, mustbe accompanied by a statement setting out the grounds for therequest, must be authenticated by the person(s) making it and mustbe received by the Company not later than the date that is six clearweeks before the Meeting, and (in the case of a matter to be includedin the business only) must be accompanied by a statement setting outthe grounds for the request.

11. A copy of this Notice of Meeting has been sent for information only topersons who have been nominated by a member to enjoy informationrights under Section 146 of the Companies Act 2006 (a ‘Nominated

Person’). The rights to appoint a proxy cannot be exercised bya Nominated Person: they can only be exercised by the member.However, a Nominated Person may have a right under an agreementbetween him and the member by whom he was nominated to beappointed as a proxy for the Meeting or to have someone else soappointed. If a Nominated Person does not have such a right or doesnot wish to exercise it, he may have a right under such an agreementto give instructions to the member as to the exercise of voting rights.

12. In accordance with Section 311A of the Companies Act 2006, thecontents of this Notice of Meeting, details of the total number ofshares in respect of which members are entitled to exercise votingrights at the Meeting, the total voting rights members are entitled toexercise at the Meeting and, if applicable, any members’ statements,members’ resolutions or members’ matters of business received bythe Company after the date of this Notice will be available on theCompany’s website www.jpmjapanese.co.uk.

13. The register of interests of the Directors and connected persons in theshare capital of the Company and the Directors’ letters of appointmentare available for inspection at the Company’s registered office duringusual business hours on any weekday (Saturdays, Sundays and publicholidays excepted). It will also be available for inspection at theMeeting. No Director has any contract of service with the Company.

14. You may not use any electronic address provided in this Notice ofMeeting to communicate with the Company for any purposes otherthan those expressly stated.

15. As an alternative to completing a hard copy Form of Proxy/VotingInstruction Form, you can appoint a proxy or proxies electronically byvisiting www.sharevote.co.uk. You will need your Voting ID, Task IDand Shareholder Reference Number (this is the series of numbersprinted under your name on the Form of Proxy/Voting InstructionForm). Alternatively, if you have already registered with EquinitiLimited’s online portfolio service, Shareview, you can submit yourForm of Proxy at www.shareview.co.uk. Full instructions are given onboth websites.

16. As at 6th November 2018 (being the latest business day prior to thepublication of this Notice), the Company’s issued share capital consistsof 161,248,078 ordinary shares carrying one vote each. Therefore thetotal voting rights in the Company are 161,248,078.

17. A copy of the current articles of association of the Company will beavailable for inspection during normal business hours (Saturdays,Sundays and public holidays excepted) at the offices of JPMorganAsset Management (UK) Limited, 60 Victoria Embankment, LondonEC4Y 0JP, from the date of the Annual Report in which this notice isincluded up until the close of the AGM. Copies will also be available at60 Victoria Embankment, London EC4Y 0JP, being the place of theAnnual General Meeting, for 15 minutes prior to, and during, themeeting.

Electronic appointment – CREST members

CREST members who wish to appoint a proxy or proxies by utilising theCREST electronic proxy appointment service may do so for the Meetingand any adjournment(s) thereof by using the procedures described in theCREST Manual. See further instructions on the proxy form.


GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES (‘APMs’) (UNAUDITED)

Return to Shareholders (APM)Total return to shareholders, on a last traded price to last traded price basis, assuming that all dividends received were reinvested,without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend.

Total return calculation Page 2018 2017

Opening share price as at 30th September (p) 5 372.0 335.0

Closing share price as at 30th September (p) 5 458.0 372.0 (a)

Reinvestment of dividend paid during the financial year

Final dividend (p) 5 5.00 3.65 (b)

Share price on ex-dividend date 23rd November 2017 (2017: 24th November 2016) 420.5 331.0 (c)

Total dividend adjustment factor (d = b / c + 1) 1.011891 1.011027 (d)

Adjusted closing share price (e = a x d) 463.45 376.10 (e)

Total return to shareholders 24.6% 12.3%

Return on Net Assets with Debt at Par Value (APM)Total return on net asset value (‘NAV’) per share, on a bid value to bid value basis, assuming that all dividends paid out by the Companywere reinvested, into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend.

Total return calculation Page 2018 2017

Opening cum-income NAV per share with debt at par value as at 30th September (p) 47 421.0 387.5

Closing cum-income NAV per share with debt at par value as at 30th September (p) 47 528.1 421.0 (a)

Reinvestment of dividend paid during the financial year

Final dividend (p) 5 5.00 3.65 (b)

Cum-income NAV per share on ex-dividend date 23rd November 2017 (2017: 24th November 2016) 476.7 374.5 (c)

Total dividend adjustment factor (d = b / c + 1) 1.010489 1.009747 (d)

Adjusted closing cum-income NAV per share (e = a x d) 533.64 425.10 (e)

Total return on net assets with debt at par value 26.8% 9.7%

Net Asset Value with Debt at Fair Value (APM)The Company’s debt (senior secured loan notes) is valued in the Statement of Financial Position (on page 48) at amortised cost, whichis materially equivalent to the repayment value of the debt on the assumption that it is held to maturity. This is often referred to as‘Debt at Par Value’. The current replacement or market value of the debt, which assumes it is repaid and renegotiated under currentmarket conditions, is often referred to as the ‘Debt at Fair Value’.

This fair value is explained in note 22(d) (on page 66). The difference between fair and par value of the debt is subtracted from the NAVto derive the NAV with debt at fair value. The fair value of the ¥13 billion senior secured loan notes issued by the Company has beencalculated using discount cash flow techniques, using the yield from a similar dated gilt plus a margin based on the five year averagefor the AA Barclays Yen Corporate Bond spread. As at 30th September 2018, the cum-income NAV with debt at fair value was£844,355,000 (2017: £678,838,000) or 523.6p (2017: 421.0p) per share.

Benchmark returnTotal return on the benchmark, on a closing-market value to closing-market value basis, assuming that all dividends received werereinvested, without transaction costs,in the shares of the underlying companies at the time the shares were quoted ex-dividend.

The benchmark is a recognised index of stocks which should not be taken as wholly representative of the Company's investmentuniverse. The Company's investment strategy does not 'track' this index and consequently, there may be some divergence between theCompany's performance and that of the benchmark.

GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES (‘APMS’) (UNAUDITED)


Gearing/Net cash (APM)Gearing represents the excess amount above shareholder’s funds of total investments, expressed as a percentage of the shareholders’funds. If the amount calculated is negative, this is shown as a ‘net cash’ position.

2018 2017 Gearing calculation Page £’000 £’000

Investments held at fair value through profit or loss 48 976,724 771,143 (a)

Net assets 48 851,540 678,838 (b)

Gearing (c = a / b – 1) 14.7% 13.6% (c)

Ongoing charges (APM)The ongoing charges represents the Company’s management fee and all other operating expenses excluding finance costs payable,expressed as a percentage of the average of the daily cum-income net assets during the year and is calculated in accordance withguidance issued by the Association of Investment Companies.

2018 2017 Ongoing charges calculation Page £’000 £’000

Management fee 47 4,527 3,874

Other administrative expenses 47 690 613

Total management fee and other administrative expenses 5,217 4,487 (a)

Average daily cum-income net assets 783,216 646,572 (b)

Ongoing charges (c = a / b) 0.67% 0.69% (c)

Share Price Discount/Premium to Net Asset Value ('NAV') per Share (APM)If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount, meaning thereare more sellers than buyers. The discount is shown as a percentage of the NAV per share. The opposite of a discount is a premium. Itis more common for an investment trusts' shares to trade at a discount than at a premium (see page 5).

Performance Attribution

Analysis of how the Company achieved its recorded performance relative to its benchmark (see page 5).

– Stock/SectorMeasures the effect of investing in securities/sectors to a greater or lesser extent than their weighting in the benchmark, or ofinvesting in securities which are not included in the benchmark.

– Gearing/CashMeasures the impact on returns of borrowings or cash balances on the Company’s relative performance.

– Management Fee/Other ExpensesThe payment of fees and expenses reduces the level of total assets, and therefore has a negative effect on relative performance.

– Share RepurchasesMeasures the effect on relative performance of repurchasing and cancelling the Company’s own shares, or holding them inTreasury, at a price which is less than the net asset value per share.


W H E R E T O B U Y J . P . M O R G A N I N V E S T M E N T T R U S T S

You can invest in a J.P. Morgan investment trust through thefollowing;

1. Directly from J.P. Morgan

Investment Account

The Company’s shares are available in the J.P. Morgan InvestmentAccount, which facilitates both regular monthly investments andoccasional lump sum investments in the Company’s ordinaryshares. Shareholders who would like information on theInvestment Account should call J.P. Morgan Asset Managementfree on 0800 20 40 20 or visit its website atam.jpmorgan.co.uk/investor

Stocks & Shares Individual Savings Accounts (ISA)

The Company’s shares are eligible investments withina J.P. Morgan ISA. For the 2018/19 tax year, from 6th April 2018and ending 5th April 2019, the total ISA allowance is £20,000.The shares are also available in a J.P. Morgan Junior ISA. Detailsare available from J.P. Morgan Asset Management free on0800 20 40 20 or via its website at am.jpmorgan.co.uk/investor

2. Via a third party provider

Third party providers include;

Please note this list is not exhaustive and the availability ofindividual trusts may vary depending on the provider. Thesewebsites are third party sites and J.P. Morgan Asset Managementdoes not endorse or recommend any. Please observe each site’sprivacy and cookie policies as well as their platform chargesstructure.

3. Through a professional adviser

Professional advisers are usually able to access the products of allthe companies in the market and can help you find an investmentthat suits your individual circumstances. An adviser will let youknow the fee for their service before you go ahead. You can findan adviser at unbiased.co.uk

You may also buy investment trusts through stockbrokers, wealthmanagers and banks.

To familiarise yourself with the Financial Conduct Authority (FCA)adviser charging and commission rules, visit fca.org.uk

AJ BellAlliance Trust SavingsBarclays StockbrokersBestinvestCharles Stanley DirectFundsNetwork

Hargreaves LansdownInteractive InvestorJames BrearleyJames HaySelftradeThe Share Centre


W H E R E T O B U Y J . P . M O R G A N I N V E S T M E N T T R U S T S

Avoid investment fraud1 Reject cold calls

If you’ve received unsolicited contact about an investment opportunity, chances are it’s a high risk investment or a scam. You should treat the call with extreme caution. The safest thing to do is to hang up.

2 Check the FCA Warning List The FCA Warning List is a list of �rms and individuals we know are operating without our authorisation.

3 Get impartial advice Think about getting impartial �nancial advice before you hand over any money. Seek advice from someone unconnected to the �rm that has approached you.

Report a ScamIf you suspect that you have been approached by fraudsters please tell the FCA using the reporting form at www.fca.org.uk/consumers/report-scam-unauthorised-�rm. You can also call the FCA Consumer Helpline on 0800 111 6768

If you have lost money to investment fraud, you should report it to Action Fraud on 0300 123 2040 or online at www.actionfraud.police.uk

Find out more at www.fca.org.uk/scamsmart

Investment scams are designed to look like genuine investmentsSpot the warning signs

Have you been:

• contacted out of the blue• promised tempting returns

and told the investment is safe• called repeatedly, or• told the offer is only available

for a limited time?

If so, you might have been contacted by fraudsters. Remember: if it sounds too good to be true,

it probably is!

Be ScamSmart

I N F O R M A T I O N A B O U T T H E C O M P A N Y

HistoryThe Company was formed in 1927 as The Capital & National Trust Limited. It wasa general investment trust until 1982, when its shareholders approved a change ofname to The Fleming Japanese Investment Trust plc and the adoption of a policy ofspecialising in investment in Japan. The Company adopted its current name inDecember 2006. Constituent of the FTSE 250 Index.

Company NumbersCompany registration number: 223583 London Stock Exchange number: 0174002ISIN: GB0001740025Bloomberg code: JFJ LN

Market InformationThe Company’s unaudited net asset value (‘NAV’) is published daily via theLondon Stock Exchange.

The Company’s shares are listed on the London Stock Exchange. The market priceis shown daily in the Financial Times, The Times, The Daily Telegraph, TheScotsman and on the Company’s website at www.jpmjapanese.co.uk, where theshare price is updated every fifteen minutes during trading hours.

Websitewww.jpmjapanese.co.uk

The Company’s website can be found at www.jpmjapanese.co.uk and includesuseful information about the Company, such as daily prices, factsheets andcurrent and historic half year and annual reports.

Share TransactionsThe Company’s shares may be dealt in directly through a stockbroker orprofessional adviser acting on an investor’s behalf. They may also be purchasedand held through the J.P. Morgan Investment Account, J.P. Morgan ISA andJ.P. Morgan Junior ISA. These products are all available on the online serviceat jpmorgan.co.uk/online

Manager and Company SecretaryJPMorgan Funds Limited

Company’s Registered Office60 Victoria EmbankmentLondon EC4Y 0JPTelephone: 020 7742 4000

For company secretarial and administrative matters, please contactFaith Pengally at the above address.

DepositaryThe Bank of New York Mellon (International) Limited1 Canada SquareLondon E14 5AL

The Depositary has appointed JPMorgan Chase Bank, N.A. as the Company’scustodian.

RegistrarsEquiniti LimitedReference 1090Aspect HouseSpencer RoadLancingWest Sussex BN99 6DATelephone number: 0371 384 2328

Lines open 8.30 a.m. to 5.30 p.m. Monday to Friday. Calls to the helpline will costno more than a national rate call to a 01 or 02 number. Callers from overseasshould dial +44 121 415 0225.

Notifications of changes of address and enquiries regarding share certificates ordividend cheques should be made in writing to the Registrar quoting reference1090. Registered shareholders can obtain further details on their holdings on theinternet by visiting www.shareview.co.uk.

Independent AuditorsPricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors7 More London RiversideLondon SE1 2RT

BrokersCanaccord Genuity88 Wood StreetLondon EC2V 7QR

Savings Product AdministratorsFor queries on the J.P. Morgan Investment Account and J.P. Morgan ISA,see contact details on the back cover of this report.

FCA Regulation of ‘Non-Mainstream Pooled Investments’The Company currently conducts its affairs so that its shares can berecommended by Independent Financial Advisers to ordinary retail investorsin accordance with the rules of the Financial Conduct Authority (‘FCA’) in relationto non-mainstream investment products and intends to continue to do so for theforeseeable future.

The shares are excluded from the FCA’s restrictions which apply to non-mainstreaminvestment products because they are shares in an investment trust.

FINANCIAL CALENDAR

Financial year end 30th September

Final results announced November

Half year end 31st March

Half year results announced May/June

Dividend on ordinary shares paid December

Annual General Meeting December

A member of the AIC


Telephone calls may be recorded and monitored for security and training purposes.

GB A119 | 11/18

CONTACT J.P. MORGAN

Freephone 0800 20 40 20 or +44 (0) 1268 444470.Telephone lines are open Monday to Friday, 9.00am to 5.30pm.

www.jpmjapanese.co.uk

Documents

JPMorgan Japanese Investment Trust plc · essionals in Japan Our Investment Approach A combination of desk-based research and company meetings contribute to our rating of a company