Jpmorgan Fleming Asset Management

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					JPMorgan Fleming Japanese
Investment Trust plc
annual report & accounts – year ended 30th september 2006
Features


OBJECTIVE
Capital growth from Japanese investments.

POLICIES
To maintain a portfolio almost wholly invested in Japan.

GEARING
To use gearing to increase potential returns to shareholders.

BENCHMARK
The Tokyo Stock Exchange 1st Section Index (TOPIX) expressed in sterling terms.

CAPITAL STRUCTURE
The Company has an authorised share capital of 444,800,000 ordinary shares of 25p each,
of which 185,521,919 were in issue at the year end.

MANAGEMENT COMPANY
The Company employs JPMorgan Asset Management (UK) Limited to manage its assets
(‘JPMAM’).

AIC
The Company is a member of the Association of Investment Companies.




CONTENTS

Results                                    1         Directors’ Remuneration Report           25
Chairman’s Statement                       2         Directors’ Responsibilities in Respect
Investment Manager’s Report                4           of the Accounts                        26
Summary of Results                         7         Notice of Annual General Meeting         27
Ten Year Financial Record                  8         Independent Auditors’ Report             29
Ten Largest Investments                    9         Income Statement                         30
Portfolio Analysis                        10         Reconciliation of Movements in
List of Investments                       11           Shareholders’ Funds                    31
Shareholder Analysis                      13         Balance Sheet                            32
Board of Directors                        14         Cash Flow Statement                      33
Directors’ Report                         15         Notes to the Accounts                    34
Corporate Governance                      21         Information about the Company            45
Results



–3.2%                      Return to shareholders1 (2005: +39.5%)



+2.0%                      Return on net assets2 (2005: +28.3%)



+4.8%                      Benchmark return3,4 (2005: +28.9%)




1
  Change in share price with net dividends (if any) reinvested. (Source: Standard & Poor’s – www.funds-sp.com).
2
  Change in net asset value (‘NAV’) per share (with debt at fair value) with net dividends (if any) reinvested. (Source:
  Fundamental Data Ltd). NAV total returns are now calculated on a bid to bid basis. Historic NAVs have been adjusted to
  a bid basis by using an average factor compiled from the previous 12 month end valuations. This adjustment may differ
  from that shown in the accounts.
3
  Change in the index adjusted to include net dividends (if any) reinvested. (Source: Datastream).
4
  The Company’s benchmark is The Tokyo Stock Exchange 1st Section Index (TOPIX) in sterling terms.
  Comparison of the Company’s performance is made with this benchmark. The benchmark is a recognised index of stocks
  which should not be taken as wholly representative of the Company’s investment universe. The Company’s investment
  strategy does not track this benchmark and, consequently, there may be some divergence between its performance and
  that of the Company.




                                                                                                                      JPMorgan Fleming Japanese 1
Chairman’s Statement




                                                                                                                   Jeremy Paulson-Ellis
                                                                                                                   CHAIRMAN




                          Investment Performance                                 introduction of new financial reporting standards in
                          The strong performance of the Japanese economy         2005 there have been a number of amendments
                          over the latter months of 2005 and the early part      this year to the accounting policies of the Company.
                          of 2006 continued into the second half of your         The main difference to prior years is the valuation
                          Company’s financial year. However, rather              of investments at ‘fair value’, which in this case
                          disappointingly, this strength was not reflected in    means bid price instead of last trade price. You will
                          either the performance of the main Japanese            notice that the move from bid price to mid price has
                          markets, or the returns generated for                  necessitated the adjustment of the Company’s
                          shareholders. Over the year to 30th September          return on net assets. This is in line with investment
                          2006 your Company produced a total return on net       trust practice. There is also a revised layout for the
                          assets of 2.0%, underperforming the total return of    Income Statement (previously called the Statement
                          our benchmark, the TOPIX Index, of 4.8%. The           of Total Return) on page 30 and a new primary
                          return to shareholders was a negative 3.2% as the      statement, the Reconciliation of Movements in
                          discount on the shares widened from 3.1% to 7.7%       Shareholder’s Funds shown on page 31.
                          at the end of the financial year.                      Board of Directors
                          Revenue and Dividends                                  During the year, the Board carried out an evaluation
                          Net revenue after taxation for the year was            of the Directors, the Chairman, the Board’s
                          £6,692,000 (2005: £5,112,000) and earnings per         operations and its Committees. Three Directors are
                          share were 3.60p (2005: 2.75p). Shareholders will      seeking election or re-election at this year’s Annual
                          notice that the change in accounting policy made       General Meeting. In accordance with the Company’s
                          in 2003 regarding the allocation of the Company’s      Articles of Association, Alan Barber, who was
                          expenses, together with the strong growth in           appointed to the Board on 9th February 2006,
                          investment income witnessed in recent years, has       retires and seeks election. The Director retiring by
                          meant that the revenue reserve deficit that the        rotation is David Pearson, who being eligible, offers
                          Company had built up over the course of its            himself for re-election. In addition, I, having served
                          existence has been substantially reduced. In the       as a Director for in excess of nine years, therefore
                          absence of any unforeseen circumstances, and as        also retire and will seek re-election. The Board does
                          long as normal market conditions prevail, it           not believe that length of service in itself should
                          appears likely that the Company will be in a           disqualify a Director from seeking re-election and,
                          position to pay a dividend in respect of the current   in proposing my re-election, it has taken into
                          financial year to September 2007. I will update        account the ongoing requirements of the Combined
                          shareholders as to the possible quantum of such a      Code, including the need to refresh the Board and
                          dividend in my interim statement.                      its Committees. Both Alan and David have proved
                                                                                 invaluable in the Board’s deliberations and I have
                          Accounting Standards
                                                                                 no hesitation in recommending their election and re
                          Shareholders may be aware that following the
                                                                                 election respectively.


2 JPMorgan Fleming Japanese
Investment Manager                                       If you have any detailed or technical questions, it
The Company’s objective is to provide shareholders       would be helpful if you could raise these in advance
with capital growth from a portfolio of investments      of the meeting with the Company Secretary at
in Japanese companies. Your Board has reviewed           Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.
the capabilities of the Investment Manager in order      Shareholders who are unable to attend the AGM are
to assess whether JPMorgan Asset Management              encouraged to use their proxy votes.
(UK) Limited remains the most appropriate manager        Prospects
of the Company’s assets.                                 Japan benefited from three years of strong stock
Authority to Repurchase the Company’s Shares             market gains from 2003 to 2005, but in 2006 its
                                                         performance has been much weaker. This has now
At last year’s AGM, shareholders granted the
                                                         left the stock market looking more reasonably valued
Directors authority to repurchase up to 14.99% of
                                                         again – trading on broadly comparable valuations to
the company’s shares for cancellation. Whilst the
                                                         the United States equity market and by historical
Company only repurchased 0.15% of the Company’s          comparison a more modest premium to European
issued share capital (280,000 shares) for                markets – despite a much lower cost of capital for
cancellation during the year, the Directors believe      companies in Japan. The listed corporate sector from
that the power to buyback shares is of benefit to        which the manager has to choose investments is
shareholders. It is therefore proposed that the          delivering a higher return-on-equity for shareholders
authority be renewed for a further period.               than at any time in the post-war period, and the
                                                         companies are also implementing both higher
Change of Company Name                                   dividend pay-outs and share buy-backs to enhance
In the light of the change of our Manager’s name         shareholder returns. Overall, this gives a relatively
from J.P. Morgan Fleming Asset Management (UK)           benign background in which to invest in Japanese
Limited to JPMorgan Asset Management (UK) Limited        equities, particularly if earnings growth can be
on 3rd May 2005, your Board considers that there         maintained. There will though be challenges over the
are advantages to changing the Company’s name to         next year coming from a variety of sources: the
JPMorgan Japanese Investment Trust plc. The Board        global economy which is adjusting to a slower path of
will therefore propose a resolution to change the        growth than in the last three years, consumption in
Company’s name at the forthcoming Annual General         Japan which has yet to respond to tighter labour
Meeting. None of the costs relating to this change       markets as companies hold down wages and, as your
                                                         manager highlights in his report, from the
will fall on shareholders.
                                                         demographic changes now affecting the Japanese
Annual General Meeting                                   population. In 2006 geo-political problems in the
This year’s Annual General Meeting will be held at The   middle east and elsewhere have been much more
Library, JPMorgan’s offices, 60 Victoria Embankment,     frequent and it seems this trend may continue for the
London, EC4Y 0JP on Tuesday 19th December 2006 at        foreseeable future. However, the Board remains
                                                         confident that out of the significant – and growing -
2.00 p.m. As in previous years, in addition to the
                                                         universe of listed Japanese companies, there are
formal part of the meeting, there will be a
                                                         many that are creating shareholder value which can
presentation from the Investment Managers who will       be included in a portfolio dedicated to investing in
answer questions on the portfolio and performance.       Japan, thus hopefully providing most satisfactory
There will also be an opportunity to meet the Board,     returns to shareholders for the future.
the Investment Managers and representatives of
JPMorgan after the meeting. I look forward to
                                                         Jeremy Paulson-Ellis
welcoming as many of you as possible to this
                                                         Chairman                       15th November 2006
meeting.

                                                                                                            JPMorgan Fleming Japanese 3
Investment Manager’s
Report


Stephen Mitchell
has been managing the
assets of the Company since
December 1997.




                          Review                                                      Performance
                          The current economic expansion in Japan is set to           The Company’s total return on net assets, in sterling
                          surpass the longest post war expansion on record, the       terms, was 2.0% over the fiscal year, 2.8% behind the
                          so-called 5 year “Izanagi” boom from 1965-1970. Whilst      TOPIX index. Performance had been strong during the
                          the current cycle remains intact, economic data was         first half of the year, gaining 29.5%, but two events in
                          softer towards the end of the review period, with           particular affected Japan in the second half, and the NAV
                          consumption in particular not responding as expected to     then fell back 21%., which was disappointing. Firstly, the
                          a tighter labour market. Industrial machinery orders        accounting scandal concerning internet company
                          eased back a little over the summer, though they remain     Livedoor was a trigger for the selling off of all small and
                          at very high levels, and consumer sentiment was             mid-sized companies, and secondly, the “Bernanke
                          somewhat affected by high oil prices and the difficult      Shock” in May when the US central bank reacted
                          environment in world stockmarkets. Exports held up          vigorously to soaring oil and commodity prices, triggered
                          though with notably strong exports of cars. The setback     a second wave of risk aversion and selling which reduced
                          in the stockmarket in 2006 through January to July came     valuations. The Company was overweight in small and
                          against this positive background, and was mainly due to     mid cap companies and this materially affected the
                          a correction in the valuation of stocks rather than any     performance in the latter half of the year. The portfolio’s
                          drastic change in the fundamentals of corporate Japan.      bias to small and mid caps was designed to exploit
                                                                                      Japan’s smaller service oriented companies, rather than
                          Two factors exacerbated this year’s decline in Japanese
                                                                                      global export giants such as Toyota, many of whom have
                          stocks. Firstly, individual investors had bought large
                                                                                      high growth rates. Currently, looking at the Company’s
                          positions in small and mid-cap stocks using their margin
                                                                                      largest small and mid cap names they offer a more
                          accounts, and they therefore suffered several painful
                                                                                      attractive valuation for above average rates of growth.
                          rounds of margin liquidation. Secondly, hedge funds were
                                                                                      High yielding J-REITs (real estate investment trusts)
                          also overweight in Japanese stocks without any offsetting
                                                                                      performed very well for the Company during the weak
                          hedges in place. There was thus frantic selling that
                                                                                      phase of the stockmarket.
                          dramatically affected the prices of stocks regardless of
                          their quality. This gave the Company a good buying          This fiscal year the Company was positioned for an
                          opportunity at distressed prices and gearing was raised     ongoing economic recovery and performance benefited
                          in July, which proved timely.                               strongly from this in the first half-year. However, the
                                                                                      decline in stock valuations in the second half was both
                          The final two months of the fiscal year marked a recovery
                                                                                      more abrupt and more extreme than anticipated, with
                          as the decline in Japanese stocks had gone too far,
                                                                                      an associated sharp switch by investors into defensive
                          particularly in small and mid-caps. A more benign
                                                                                      stocks, and the Company’s economic-sensitivity
                          investment background also prevailed. Firstly, yen was
                                                                                      affected its performance. JPMorgan Asset Management
                          quite weak, boosting the profits of Japanese exporters.
                                                                                      believe that the underlying improvement in the
                          Secondly, oil peaked at $77 per barrel at the end of July
                                                                                      Japanese economy and corporate profits will continue,
                          and fell back to $60. This improved the inflation outlook
                                                                                      and as a result do not want to make wholesale changes
                          and global interest rates reduced significantly. Thus the
                                                                                      to a portfolio of long-term holdings. Nevertheless some
                          Federal Reserve Bank looked more likely to engineer a
                                                                                      adjustments were made to the portfolio, which
                          “soft landing”. Lastly, the order books of Japanese
                                                                                      increased turnover, as it became clear that the global
                          companies remained very healthy. There was no let up in
                                                                                      inflation risk was greater than previously perceived.
                          demand from China, India, Russia, the Middle East, and
                                                                                      This activity did help to mitigate the setback in
                          many other oil and commodity producing countries. The
                                                                                      economic sensitive stocks within the Company. The
                          year thus ended with a renewed sense of optimism and
                                                                                      valuation decline in the Tokyo market now appears to
                          with the stockmarket back at much more comfortable
                                                                                      have largely run its course with stocks making a good
                          valuations. Indeed small company shares were in many
                                                                                      recovery since July, most notably in the real estate
                          cases offering much better value relative to their growth
                                                                                      sector in which the Company is overweight.
                          rates.

4 JPMorgan Fleming Japanese
Yen was a fairly neutral factor in the first half of the
financial year, declining just 2% against sterling, but in       Performance attribution for the year
the second half of the year the Bank of England raised           to 30th September 2006
rates and yen then depreciated 7.5%, to make a total                                                                   1 Year
decline of nearly 10% for the year. This was unhelpful to                                                                  %
UK based shareholders but was not sufficiently large that        Contributions to Total Returns
the manager felt hedging was justified. The first half of        Benchmark total return (in sterling terms)            +4.8
2006 should be regarded as a period of sharp and abrupt
                                                                 – Allocation effect          +1.2
consolidation rather than a bear market. It came after the
                                                                 – Selection effect           –4.7
three very strong years of stockmarket gains from 2003
through 2005 during which the Nikkei 225 index rose              – Gearing/cash effect        +1.7
125%. Subsequently the economic cycle has continued              Investment manager contribution                       +3.0
and companies in the portfolio have revised up earnings          – Fees/expenses                   –0.8
and created value for shareholders.                              – Bid valuation adjustment        +0.4
The Company’s portfolio had a strong bias towards                – Residual                        –0.6
stocks that benefited from the end of deflation in Japan,        Other effects                                         –1.0
and it was these investments in banks and real estate            Return on net assets                                  +2.0
developers that performed best. Technology stocks also
                                                                 Increase in discount                                  –5.2
added value. For example, Sumco which makes silicon
                                                                 Return to shareholders                                –3.2
wafers did particularly well. The retail sector was a
domestic sector that disappointed, and the overweight            Source: Frank Russell/JPMAM/Fundamental Data
position hurt. Wages and incomes rose rather slower              Definitions
than expected as companies kept the lid firmly down on           Performance attribution: Analyses how the Company
costs. A factor unique to Japan was a move by politicians        achieved its recorded performance relative to its
to cap the interest rates paid on consumers loans. This          benchmark.
had a severe effect on credit card companies in which the        Allocation effect: Measures the impact of allocating
Company had several holdings. Credit card use though             assets differently to those in the benchmark, via the
remains an area of structural growth in Japan and the            portfolio’s weighting in different countries, sectors or
companies now trade cheaply at book value.                       asset types.
                                                                 Selection effect: Measures the effect of investing in
Outlook                                                          securities to a greater or lesser extent than their
Yen has weakened steadily since its 1995 peak and this           weighting in the benchmark, or of investing in securities
has affected returns this fiscal year. In real terms, it is at   outside of the benchmark.
levels near where the G7 nations intervened in the               Gearing/cash effect: Measures the impact on returns of
famous Plaza accord of 1985 and against sterling is at           borrowings or cash balances on the Company’s relative
levels last seen in 1979-81. Japan is thus enjoying a            performance.
significant reflationary stimulus helping the profitability
                                                                 Fees/expenses: The payment of fees and expenses
of the corporate sector, and certain industries such as car
                                                                 reduces the level of total assets, and therefore has a
makers in particular. It would not be surprising for yen to      negative effect on relative performance.
strengthen back to nearer its purchasing power parity in
                                                                 Bid valuation adjustment: The change from mid to bid
the next few years. The long-term investor in the
                                                                 valuations impacted the underlying portfolio value by
Company may thus expect to eventually benefit from this
                                                                 0.4%.
reversal.
                                                                 Residual: Residual due to timing differences of income
Secondly, the risks facing the Japanese stockmarket need         flows. The attribution accounts for income as it is
to be considered. Inflation around the world, which might        received, while fundamental data only account for
trigger further central bank tightening, is still a concern,     income paid out by the Company.


                                                                                                                                JPMorgan Fleming Japanese 5
Investment Manager’s Report continued




                          as the Chinese and Indian economies will continue to           machinery, and by Disco, which makes equipment for
                          absorb large amounts of the world’s scarce natural             polishing silicon wafers. These latter two companies are
                          resources. Within Japan, question marks over the               global leaders in their respective areas. Daicel is a
                          durability of this cycle are worrying investors. The drivers   chemical manufacturer, and is positioned in three growth
                          of growth have moved from exports to capital                   areas including materials for LCD TVs. The Company has a
                          expenditure, but for the cycle to really be sustainable        stake in Inpex, Japan’s largest oil exploration company,
                          into 2007 and 2008 it will need personal consumption,          which has made considerable gas discoveries in
                          which accounts for 50% of Japanese GDP, to pick up.            Indonesia and offshore Australia. Its valuation is less
                                                                                         than western oil majors, and its reserves are growing.
                          Leading indicators for US inflation have now moderated
                                                                                         Lastly, a venture capital company, Japan Asia Investment
                          and central banks may now be able to cut rates should
                                                                                         Corp, is held as the VC industry has markedly improved
                          growth start to slow. In Japan, the labour market
                                                                                         with the economy. The company invested well after the
                          continues to tighten and shortages of new employees are
                                                                                         1998 Asian crisis, and is now bringing to the stockmarket
                          becoming quite acute. Raising wages to resolve these
                                                                                         a successful list of bio-technology, service and digital
                          bottlenecks has proved frustratingly slow though. Japan’s
                                                                                         media companies. These ten holdings comprise just short
                          extreme demographic factors could also stall the
                                                                                         of a quarter of the Company’s value, and offer an
                          consumption recovery. In 2007-9 the number of
                                                                                         attractive and diversifying mix of Japan’s best companies
                          youngsters coming into the workforce drops sharply, and
                                                                                         that should create value over the medium term. The main
                          the retirement of baby boomers aged 55-60 starts in
                                                                                         changes made in the top holdings this year have been to
                          earnest, which will exacerbate a tight labour market.
                                                                                         reduce the beta of the portfolio and to realize profits in
                          There is also the chronically low birth rate and the fact
                                                                                         the real estate sector which did exceptionally well. One
                          that the population has just started to decline to
                                                                                         holding was cut in the small company loan sector due to
                          consider. So investors will have to wait and see how
                                                                                         the new Government cap on interest rates.
                          personal consumption plays out in 2007 and onwards.
                                                                                         In summary, Japan now faces challenges from the
                          Nevertheless Japanese corporations have positioned
                                                                                         durability of both global and domestic growth. Difficult
                          themselves well due to their competitive advantages. This
                                                                                         demographic changes also markedly accelerate in 2007
                          can be seen in the extremely high operating rates of
                                                                                         and will have an important part to play in the future
                          factories and the significant capital expenditure to invest
                                                                                         dynamics of the economy. Japanese shares suffered a
                          in profitable new products. The success of the car industry
                                                                                         decline in their valuation in January to July 2006, and
                          is notable, and currently they need to invest in more new
                                                                                         thus are better positioned to withstand these challenges
                          factories as far forward as 2010. The returns that
                                                                                         and also to positively respond to earnings growth when it
                          companies in general achieve from these significant
                                                                                         comes through. The Company’s manager has invested in
                          investments will be very important to future earnings
                                                                                         companies for the portfolio with more secular earnings
                          growth. JPMorgan Asset Management can report to
                                                                                         growth, and these should be better able to grow even as
                          shareholders the strong position of companies and the
                                                                                         global economic growth slows. Lastly, Japan has now
                          confidence they have to invest for the future. A high return
                                                                                         started to normalise interest rates and this should
                          on capital can be achieved, and most importantly more
                                                                                         eventually help to correct the undervaluation of yen, and
                          will be distributed to shareholders through higher
                                                                                         any reversal would benefit shareholders outside Japan
                          dividends.

                          Looking at the top ten holdings, they include three banks
                          which are benefiting from the normalisation of the             Stephen Mitchell
                          economy in Japan. Japan’s blue chip value-creating             Investment Manager                   15th November 2006
                          companies are represented by Honda in the auto
                          industry, and by Fuji Film in imaging and medical
                          equipment. Japan’s vigorous capital expenditure is
                          captured by holding SMC, which makes pneumatic


6 JPMorgan Fleming Japanese
Summary of Results


                                                                                         2006                      2005

TOTAL RETURNS for the year ended 30th September
Return to shareholders1                                                                 –3.2%                   +39.5%
Return on net assets2,3                                                                 +2.0%                   +28.3%
Benchmark return4,5                                                                     +4.8%                   +28.9%

ASSETS at 30th September                                                                                                              % CHANGE
Total net assets less current liabilities (£’000)                                     511,748                  504,289                        +1.5
Net asset value per share3                                                             275.8p                    271.4p                       +1.6
Share price                                                                            254.5p                    263.0p                      –3.2
Discount of share price to net asset value                                               7.7%                      3.1%

REVENUE for the year ended 30th September
Gross revenue return (£’000)                                                             8,450                    6,537                     +29.3
Net revenue available for shareholders (£’000)                                           6,692                     5,112                    +30.9
Return per ordinary share                                                                3.60p                    2.75p                     +30.9
Dividend per ordinary share                                                                 Nil                       Nil

GEARING FACTOR
Actual6                                                                                  113%                      114%

TOTAL EXPENSE RATIO7                                                                    0.49%                    0.53%


1
  Change in share price with net dividends (if any) reinvested. (Source: Standard & Poor’s – www.funds-sp.com).
2
  Change in net asset value (‘NAV’) per share (with debt at fair value) with net dividends (if any) reinvested. (Source: Fundamental Data Ltd). NAV
  total returns are now calculated on a bid to bid basis. Historic NAVs have been adjusted to a bid basis by using an average factor compiled from
  the previous 12 month end valuations.
3
  In accordance with paragraph 108D of FRS 26, the comparative NAV has not been restated within the accounts. Therefore the percentage change
  in the NAV for 2006 varies from the total return on net assets.
4
  Change in the index adjusted to include net dividends (if any) reinvested. (Source: Datastream).
5
  The Company’s benchmark is The Tokyo Stock Exchange 1st Section Index (TOPIX) in sterling terms.
  Comparison of the Company’s performance is made with this benchmark. The benchmark is a recognised index of stocks which should not be
  taken as wholly representative of the Company’s investment universe. The Company’s investment strategy does not track this benchmark and,
  consequently, there may be some divergence between its performance and that of the Company.
6
  Actual gearing means investments expressed as a percentage of shareholders’ funds.
7
  Management fees and all other operating expenses (including tax relief, where applicable, but excluding interest payments) expressed as a
  percentage of average net assets over the year.




                                                                                                                         JPMorgan Fleming Japanese 7
Ten Year Financial Record

As at 30th September                          1996    1997      1998     1999      2000     2001     2002     2003    2004    2005    2006
Total shareholders’ funds (£’000)          511,337 385,520 271,066 636,566 721,063 413,483 338,408 408,579 393,082 504,289 511,748
Net Asset Value per share (p)                261.1    196.8     138.4    325.0     368.2    211.1    180.2    219.9   211.6   271.4   275.8
Share Price (p)                              244.5    173.0     112.8    291.5     330.5    174.5    146.5    188.0   188.5   263.0   254.5
Yen Exchange Rate (=£1)                     174.12 195.03 231.32 175.34 159.77 175.08 191.45 185.60 199.44 200.51 220.54
Discount (%)                                   2.2     11.8      18.5     10.3      10.2     17.3     18.7     14.5    10.9     3.1     7.7
                     1
Actual Gearing (%)                           118.2    113.5     104.8    120.8     121.0    119.7    106.7    112.2   106.8   113.8   112.5
Total Expense Ratio (%)1                      0.58     0.53      0.54     0.47      0.56     0.55    0.53      0.52    0.56    0.53    0.49

Year ended 30th September
Gross Revenue return (£’000)                 5,457    4,701     2,817    3,391     4,861    4,632    3,601    4,274   5,272   6,537   8,450
(Loss)/earnings per share (p)                (0.97)    (1.01)   (1.59)   (1.29)    (2.23)   (1.95)   (0.82)    1.19    2.06    2.75    3.60
Dividend per share (net) (p)                    Nil      Nil      Nil      Nil       Nil      Nil      Nil      Nil     Nil     Nil     Nil

Year to 30th September (rebased to 100 at 30th September 1996)
Share price total return1,2,3                100.0     70.8      46.1    119.2     135.2     71.4    59.9      76.9    77.1   107.6   104.1
                                  1,2,3
Net asset value total return                 100.0     78.5      55.4    130.0     147.3     84.5     72.1     88.0    84.7   108.6   110.8
                          1,2,3
Benchmark total return                       100.0     76.7      49.0     93.9     101.1     64.7    53.6      61.8    62.8    80.9   84.8


1
  Definitions shown on page 7.
2
  Change in value with net dividends (if any) reinvested.
3
  Source: Standard & Poor’s – www.funds-sp.com/Fundamental Data Ltd./Datastream.




8 JPMorgan Fleming Japanese
Ten Largest Investments

                                                                                                               As at                As at
                                                                                                     30th September       30th September
                                                                                                               2006                 20051
                                                                                                           Valuation            Valuation
Company                                                                                         Sector        £’000        %2      £’000       %3
Sumitomo Mitsui Financial                                                                       Banks           20,999     4.1          –        –
Sumitomo Mitsui Financial is a holding company established by Sumitomo Mitsui
Banking Corporation. The Company manages financial operations for its
subsidiaries. The Group provides commercial banking and a variety of financial
services.
Honda Motor                                                                                 Transport           12,681     2.5     12,807      2.5
Honda Motor develops, manufactures and distributes motorcycles, automobiles and            Equipment
power products such as generators and farm machinery. The Company also
operates a financial credit business. Honda Motor has manufacturing facilities in the
US, Canada, the UK, France, Italy, Spain, Brazil, Mexico, India and Thailand.
Daicel Chemical Industries                                                                  Chemicals           12,676     2.5          –        –
Daicel Chemical Industries manufactures organic/inorganic chemicals, synthetic
resins and cellulose derivatives. The Company’s main products are cellulose acetate
and acetic acid products for cigarette filters and wrapping films.
SMC                                                                                        Machinery            11,629     2.3          –        –
SMC manufactures directional control devices such as power, hand and air valves.
The Company also produces air filters, cylinders and actuators along with other
pneumatic equipment. SMC seeks to become a comprehensive maker of automated
equipment through the market demand of information and communications
products.
Inpex                                                                                          Mining           11,081     2.1          –        –
Inpex produces and supplies petroleum and natural gas. The Company conducts
explorations mainly in Indonesia and Australia.
Fuji Film                                                                                   Chemicals           10,329     2.0          –        –
Fuji Film is a global film and document imaging company with a medical equipment
division.
Sumitomo Trust & Banking                                                                        Banks           10,203     2.0          –        –
Sumitomo Trust and Banking provides trust banking and commercial banking
services including money and pension trusts in Japan, the US, Europe, Asia and
Oceania. The Bank also provides securities brokerage, leasing, credit cards and
correspondents banking services across the countries.
Disco                                                                                      Machinery             9,871     1.9          –        –
Disco manufactures abrasive and precision industrial machinery for cutting and
grinding purposes. The Company’s products are applied in the semiconductor,
electronics and construction industries to produce consumer goods such as
personal computers, digital cameras, video game systems and Digital Video Disc
(DVD) players.
Japan Asia Investments                                                                      Financing            9,746     1.9      4,374      0.9
Japan Asia Investments forms venture capital groups to invest primarily in private
companies in Japan and Southeast Asia with high potential for future growth. The
Company also provides management services to the venture capital groups, makes
loans and offers consultation services to the invested companies.
Bank of Yokohama                                                                                Banks            9,565     1.9          –        –
The Bank of Yokohama is a regional bank based in Yokohama City, Kanagawa. The
Bank provides banking services including deposits, loans and foreign exchange
transactions. The Bank of Yokohama also provides information and financial
services such as securities brokerage, leasing, credit cards and letter of credit.
Total2                                                                                                      118,780       23.2

1
    No investments in the top ten at 30th September 2006 were included in the top ten at 30th September 2005.
2
    Based on total assets less current liabilities of £511.7m.
3
    Based on total assets less current liabilities of £504.3m.




                                                                                                                         JPMorgan Fleming Japanese 9
Portfolio Analysis
at 30th September




                                                                               2006                                         2005
                                                                 Portfolio          Benchmark                   Portfolio          Benchmark
                                                                          %                    %                      %                      %

                          Processing                                    32.4                40.4                    39.7                   43.3
                               Transportation Equipment         8.0                   9.0                12.1                      10.5
                               Machinery                        6.5                   3.9                 1.5                       4.0
                               Wholesale                         6.1                  3.6                 4.9                       4.4
                               Electrical Machinery             5.6                  14.3                 6.1                      12.3
                               Services                         3.4                   1.4                 6.2                       1.7
                               Communication                     1.2                  5.0                 5.8                       7.6
                               Precision Instruments            0.9                   1.4                 0.7                       1.2
                               Other Products                   0.7                   1.8                 2.4                       1.6
                          Consumer                                      19.9                 13.0                   24.8                   14.6
                               Retail Trade                     9.0                   3.6                 6.4                       4.8
                               Other Financing Business         7.3                   2.1               16.2                        3.0
                               Other Consumer                   3.6                   7.3                 2.2                       6.8
                          Assets                                        15.2                 8.4                    18.2                    7.5
                               Real Estate                     10.7                   2.7               16.2                        2.0
                               Other Assets                     4.5                   5.7                 2.0                       5.5
                          Financial                                     17.5                 19.1                    9.0                   16.2
                          Basic                                         15.0                 14.8                    8.3                   14.7
                          Utilities                                       –                   4.3                      –                    3.7

                                                                       100.0                100.0                  100.0                  100.0

                          Based on Total Equity Assets of £575.7m, other than loan balances falling due within one year.(2005: £574.9m).




10 JPMorgan Fleming Japanese
List of Investments
at 30th September 2006




                                   Value                              Value
Company                            £’000   Company                    £’000


Processing                                 Consumer
Electrical Machinery                       Retail Trade
Nidec                             8,304    Don Quijote               7,682
Hirose Electric                   5,439    Komeri                    7,573
Murata Manufacturing              5,342    Nishimatsuya Chain        7,210
Canon                             5,252    Honeys                    5,415
Yokogawa Electric                 4,787    Askul                     5,362
Advan                             2,922    Yamada Denki              5,360
Tokyo Electron                        8    Seiyu                     4,392
                                  32,054   United Arrows             4,020
                                           Tsuruha                   2,677
Transportation Equipment
                                           Link Theory               1,898
Honda Motor                       12,681
Toyota Motor                       8,638                            51,589
Nissan Motor                       8,227   Financing Business
Daihatsu Motor                     5,891   Japan Asia Investments    9,746
Denso                              5,528   Jafco                     8,910
Musashi Seimitsu                   5,324   Diamond Lease             8,050
                                 46,289    Pocket Card               4,155
                                           RHJ International         3,999
Services
                                           UFJ Nicos                 3,796
Take & Give Needs                 7,750
                                           Aiful                     3,342
Fullcast                          4,815
Resorttrust                       4,734                             41,998
USS                               2,413    Foods
Kendix Realty                         3    Japan Tobacco             7,244
                                  19,715   Pharmaceuticals
Wholesale                                  Daiichi Sankyo            8,988
Sumitomo Corporation              9,161    Miraca                    4,378
Mitsubishi Corporation            8,107                             13,366
Misumi                            7,247
Mitsui & Co                       5,977    Total Consumer           114,197
Mimasu Semiconductor              4,877
                                  35,369
Machinery
SMC                               11,629
Disco                              9,871
THK                                7,202
Hitachi Construction Machinery     4,953
OSG                                3,722
                                  37,377
Communication
KDDI                              6,940
Other Products
Arrk                              3,924
Precision Instruments
Shimadzu                          5,223
Total Processing                 186,891




                                                                         JPMorgan Fleming Japanese 11
List of Investments continued




                                                                Value                                    Value
                          Company                               £’000   Company                          £’000


                          Financials                                    Basic
                          Banks                                         Chemicals
                          Sumitomo Mitsui Financial           20,999    Daicel Chemical Industries     12,676
                          Sumitomo Trust & Banking            10,203    Fuji Film                      10,329
                          Bank of Yokohama                     9,565    Asahi Kasei                     8,308
                          Eighteenth Bank                      6,275    Nissan Chemical                 7,914
                          Bank of Nagoya                       6,132    JSR                             5,312
                          Aichi Bank                           5,626    Kaneka                          2,872
                          Mitsui Trust                         5,245                                    47,411
                          Kansai Urban Banking                 5,011
                                                                        Metal Products
                          Fukuoka Bank                         4,444
                                                                        Sumco                           9,278
                          Nishi-Nippon City Bank               3,925
                                                                        NHK Spring                      4,088
                          Shinsei Bank                         2,617
                          Bank of Kyoto                        1,917                                   13,366
                                                              81,959    Mining
                                                                        Inpex                          11,081
                          Securities & Commodity Futures
                          Mitsubishi UFJ Financial             9,469    Non-ferrous Metals
                          Nikko Cordial                        5,822    Sumitomo Electric Industries    5,458
                          Fintech Global                       3,226
                                                                        Textiles & Apparels
                                                               18,517   Renown                          3,682
                          Total Financials                    100,476   Glass & Ceramics
                                                                        N.G.K Insulators                5,241
                          Assets                                        Total Basic                    86,239
                          Land Transportation
                          Sankyu                               5,798    Total Portfolio                575,721
                          Nankai Electric Railway                  2
                                                               5,800
                          Real Estate
                          Asset Managers                       9,105
                          Sun Frontier Fudosan                 9,042
                          Ardepro                              7,308
                          New City Residence REIT              6,259
                          Risa Partners                        5,739
                          Nippon Residential REIT              4,025
                          Tokyo Tatemono                       3,734
                          Premier Investment REIT              3,295
                          Nippon Commercial Investment REIT    3,041
                          ES-Con Japan                         3,011
                          Japan Logistics Fund REIT            2,530
                          Arealink                             2,505
                          Joint REIT                           2,260
                                                              61,854
                          Construction
                          Daito Trust Construction             7,244
                          Sekisui House                        7,119
                          JGC                                  5,901
                                                              20,264
                          Total Assets                        87,918




12 JPMorgan Fleming Japanese
Shareholder Analysis
at 30th September 2006




                                                                           Number          %
                                                                          of shares   holding

Pension funds                                                           37,600,997      20.3
Unit trusts                                                             30,665,410      16.5
Other institutions                                                       9,212,374       5.0
Investment trusts1                                                       6,077,794       3.3
Insurance companies                                                      5,109,345       2.7
Charities                                                                2,170,444       1.2

Total Institutions                                                      90,836,364      49.0

Total Market Trading Accounts                                             4,712,128       2.5

Private client brokers                                                  50,947,220      27.5
Retail investors holding shares directly or through nominee accounts2   32,010,398      17.3
Individuals in the Investment Trust Share Plan3                          5,160,919       2.8
Individuals in the Investment Trust Pension Account3                       814,955       0.4
Individuals in the Investment Trust Individual Savings Account3            809,509       0.4
Individuals in the Investment Trust Personal Equity Plan3                  230,426       0.1

Total Retail Holdings                                                   89,973,427      48.5

Total Shares in Issue                                                   185,521,919    100.0

Nominee accounts have been allocated to their appropriate category.
1
    Includes 2,060,000 shares held by JPMorgan Elect plc.
2
    Includes shares below threshold of 10,000 shares.
3
    Savings product managed by JPMorgan.

Source: Thomson Financial.




                                                                                           JPMorgan Fleming Japanese 13
Board of Directors

                               Jeremy Paulson-Ellis (Chairman)*†Ω
                               Born 1943. Joined the Board in 1996.
                               He is Chairman of Genesis Investment Management LLP, a specialist
                               institutional investment manager. Prior to this he was Chairman of
                               Vickers da Costa Limited where he had responsibility for all their
                               Japanese business.




                               Alan Barber (Chairman of the Audit Committee)*†Ω
                               Born 1947. Joined the Board on 9th February 2006.
                               He is currently a Non-Executive Director and Chairman of the Audit
                               Committee of Invesco English & International Trust plc and the
                               Management Consultancy Group. He is a Chartered Accountant and
                               was a partner in KPMG for twenty five years prior to his retirement
                               in 2004.



                               Andrew Fleming*†Ω
                               Born 1959. Joined the Board in 2004.
                               He is Chief Executive and Chief Investment Officer of Aegon Asset
                               Management UK Limited. He has over twenty years of investment
                               management experience which included six years running an investment
                               company in Tokyo from 1987.




                               David Pearson*†Ω
                               Born 1950. Joined the Board in 2003.
                               He is Group Chief Executive of Qm Group Limited. He has considerable
                               experience working for multinational corporations with exposure to
                               Japan, as Managing Director of Sony UK Limited, Director of
                               Pentland Group plc and Chief Executive of NXT plc.




                               Keith Percy*†Ω
                               Born 1945. Joined the Board in 2004.
                               He is currently chairman of Société Générale Asset Management
                               UK and Brunner Investment Trust plc and a Director of Standard Life
                               Equity Income Trust plc, Henderson Smaller Companies Investment Trust
                               plc and SGAM (SA), the Board responsible for
                               SGAM worldwide.



                               * Member of the Audit Committee
                               † Considered independent of the Manager
                               Ω Member of the Nomination Committee.


14 JPMorgan Fleming Japanese
Directors’ Report

The Directors present their report for the year        and a total return on net assets of 2.0%. This
ended 30th September 2006.                             compares with the return on the Company’s
                                                       benchmark index of 4.8%. As at 30th September
Business Review
                                                       2006, the value of the Company’s investment
Business of the Company
                                                       portfolio was £575.7m. The Investment Manager’s
The Company carries on business as an investment
                                                       Report on pages 4 to 6 includes a review of
trust and was approved by HM Revenue & Customs
                                                       developments during the year as well as
as an investment trust in accordance with Section
                                                       information on investment activity within the
842 of the Income and Corporation Taxes Act 1988
                                                       Company’s portfolio.
for the year ended 30th September 2005. In the
opinion of the Directors, the Company has              Total Return and Revenue
subsequently conducted its affairs so that it          Gross total return for the year totalled £14,347,000
should continue to qualify. The Company will           (2005: £115,182,000) and net total return after
continue to seek approval under Section 842 of the     deducting interest, administrative expenses and
Income and Corporation Taxes Act 1988 each year.       taxation amounted to £9,423,000 (2005:
Approval for the year ended 30th September 2006        £111,207,000). No dividend has been declared
is subject to review should there be any               (2005: Nil).
subsequent enquiry under Corporation Tax Self          Key Performance Indicators (‘KPIs’)
Assessment. The Company is an investment
                                                       The Board uses a number of financial KPIs to
company within the meaning of Section 266 of the
                                                       monitor and assess the performance of the
Companies Act 1985. The Company is not a close
                                                       Company. The principal KPIs are:
company for taxation purposes.
                                                       •         Performance against the benchmark index:
Investment Objective and Policies
                                                                 This is the most important KPI by which
The Company’s objective is to achieve capital
                                                                 performance is judged.
growth from investments in Japanese companies
by consistent outperformance of the Company’s          Ten Year Performance (Total Return)
benchmark index, the Tokyo Stock Exchange 1st          Figures have been rebased to 100 at
Section (‘TOPIX’) in sterling terms, and a rising      30th September 1996
share price over the long term by taking carefully     250
controlled risks through an investment method
                                                       200
that is clearly communicated to shareholders.
                                                       150
In order to achieve this objective, the Company
                                                       100
invests in a diversified portfolio, with exposure to
over 70 Japanese companies. The Company makes              50

use of both long and short term borrowings to              0
                                                           1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
increase returns and focuses on first hand
                                                                    JPMorgan Fleming Japanese – Net asset value per share
company research and analysis, with over 2,000                      (with debt at par value)

company visits each year.                                           JPMorgan Fleming Japanese – Share price
                                                                    Tokyo Stock Exchange 1st Section (TOPIX) in Sterling terms
Performance                                                     Source: Standard & Poors – www.funds-sp.com/Fundamental Data Ltd/Datastream.


In the year to 30th September 2006, the Company
produced a total return to shareholders of –3.2%




                                                                                                                                               JPMorgan Fleming Japanese 15
Directors’ Report continued




                           Performance Relative to Benchmark Index                                                Discount Performance
                           (Total Return)                                                                             5

                           Figures have been rebased to 100 at                                                        0

                           30th September 1996                                                                     -5

                           200                                                                                    -10

                           175                                                                                    -15

                           150                                                                                    -20

                           125                                                                                    -25
                                                                                                                    1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
                           100                                                                                                JPMorgan Fleming Japanese – Discount
                                                                                                                          Source: Datastream
                               75

                               50                                                                                 •        Total expense ratio (‘TER’)
                                1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
                                                                                                                           The total expense ratio (‘TER’) is an expression
                                        JPMorgan Fleming Japanese – Net asset value per share
                                        (with debt at par value)                                                           of the Company’s management fees and all
                                        JPMorgan Fleming Japanese – Share price
                                                                                                                           other operating expenses (including tax relief,
                                        The benchmark index is represented by the orange horizontal line
                                    Source: Standard & Poors – www.fund-sp.com/Fundamental Data Ltd/Datastream.
                                                                                                                           where allowable, but excluding interest
                                                                                                                           payments) as a percentage of average net
                           •        Performance against the Company’s peers
                                                                                                                           assets over the year. The TER for the year
                                    The principal objective is to achieve capital
                                                                                                                           ended 30th September 2006 was 0.49% (2005:
                                    growth relative to the benchmark. However, the
                                                                                                                           0.53%). The Board reviews each year an
                                    Board also monitors the performance relative
                                                                                                                           analysis which shows a comparison of the
                                    to a broad range of competitor funds.
                                                                                                                           Company’s TER and its main expenses with
                           •        Performance Attribution                                                                those of its peers.
                                    The purpose of performance attribution
                                                                                                                  Share Capital
                                    analysis is to assess how the Company
                                                                                                                  Further to resolutions passed on 16th December
                                    achieved its performance relative to its
                                                                                                                  2005, the Company re-purchased 280,000
                                    benchmark index, i.e. to understand the impact
                                                                                                                  ordinary shares for cancellation during the year,
                                    on the Company’s relative performance of the
                                                                                                                  representing 0.15% of the Company’s issued
                                    various components such as stock and sector
                                                                                                                  share capital at the beginning of the financial
                                    allocation. Details of the attribution analysis for
                                                                                                                  year, for a consideration of £762,000. Since the
                                    the year ended 30th September 2006 are given
                                                                                                                  end of the year the Company has repurchased Nil
                                    in the Investment Manager’s Report on page 5
                                                                                                                  ordinary shares for cancellation for a
                           •        Discount to net asset value (‘NAV’)                                           consideration of £Nil.
                                    The Board has a share repurchase programme
                                                                                                                  A resolution to renew the authority to repurchase
                                    which seeks to address imbalances in supply of
                                                                                                                  shares at a discount to NAV is due to be put to
                                    and demand for the Company’s shares within
                                                                                                                  shareholders at the forthcoming Annual General
                                    the market. This minimises the volatility and
                                                                                                                  Meeting. The full text of this resolution is set out in
                                    absolute level of the discount to NAV at which
                                                                                                                  the Notice of Annual General Meeting on page 27.
                                    the Company’s shares trade in relation to its
                                    peers in the sector. In the year to                                           The Company did not issue any new shares during
                                    30th September 2006, the shares traded                                        the year.
                                    between a discount of 0.23% and 8.04% with                                    Principal Risks
                                    debt at fair value.
                                                                                                                  With the assistance of the Manager, the Board has
                                                                                                                  drawn up a risk matrix, which identifies the key



16 JPMorgan Fleming Japanese
risks to the Company. These key risks fall broadly          Details of the Company’s approval are given
under the following categories:                             under “Business of the Company” above.
                                                            Should the Company breach Section 842, it
•   Investment and Strategy: An inappropriate
                                                            may lose investment trust status and as a
    investment strategy, for example asset
                                                            consequence gains within the Company’s
    allocation or the level of gearing, may lead to
                                                            portfolio would be subject to Capital Gains Tax.
    under-performance against the Company’s
                                                            The Section 842 qualification criteria are
    benchmark index and peer companies,
                                                            continually monitored by JPMAM and the
    resulting in the Company’s shares trading on a
                                                            results reported to the Board each month. The
    wider discount. The Board manages these risks
                                                            Company must also comply with the provisions
    by diversification of investments through its
                                                            of the Companies Act 1985 and, as its shares
    investment restrictions and guidelines which
                                                            are listed on the London Stock Exchange, the
    are monitored and reported on. JPMorgan Asset
                                                            UKLA Listing Rules. A breach of the Companies
    Management (UK) Limited (‘JPMAM’) provides
                                                            Act could result in the Company and/or the
    the Directors with timely and accurate
                                                            Directors being fined or the subject of criminal
    management information, including
                                                            proceedings. Breach of the UKLA Listing Rules
    performance data and attribution analyses,
                                                            may result in the Company’s shares being
    revenue estimates, liquidity reports and
                                                            suspended from listing which in turn would
    shareholder analyses. The Board monitors the
                                                            breach Section 842. The Board relies on the
    implementation and results of the investment
                                                            services of its Company Secretary, JPMAM, and
    process with the Investment Managers, who
                                                            its professional advisers to ensure compliance
    attend all Board meetings, and reviews data
                                                            with The Companies Act 1985 and The UKLA
    which shows statistical measures of the
                                                            Listing Rules.
    Company’s risk profile. The Investment
    Manager employs the Company’s gearing               •   Corporate Governance and Shareholder
    tactically, within a strategic range set by the         Relations: Details of the Company’s compliance
    Board. The Board holds a separate meeting               with Corporate Governance best practice,
    devoted to strategy each year.                          including information on relations with
                                                            shareholders, are set out in the Corporate
•   Market: Market risk arises from uncertainty
                                                            Governance report on pages 21 to 24.
    about the future prices of the Company’s
    investments. It represents the potential loss the   •   Operational: Disruption to, or failure of,
    Company might suffer through holding                    JPMAM’s accounting, dealing or payments
    investments in the face of negative market              systems or the custodian’s records may prevent
    movements. The Board considers asset                    accurate reporting and monitoring of the
    allocation, stock selection and levels of gearing       Company’s financial position. Details of how
    on a regular basis and has set investment               the Board monitors the services provided by
    restrictions and guidelines which are monitored         JPMAM and its associates and the key elements
    and reported on by JPMAM. The Board monitors            designed to provide effective internal control
    the implementation and results of the Investment        are included within the Internal Control section
    process with the Investment Managers.                   of the Corporate Governance report on
                                                            pages 23 and 24.
•   Accounting, Legal and Regulatory: In order to
    qualify as an investment trust, the Company         •   Financial: The financial risks faced by the
    must comply with Section 842 of the Income              Company are disclosed in note 20 on pages 42
    and Corporation Taxes Act 1988 (‘Section 842’).         to 44.




                                                                                                               JPMorgan Fleming Japanese 17
Directors’ Report continued




                          Future Developments                                                      Going Concern
                          Clearly the future development of the Company is                         The Directors consider that the Company has
                          much dependent upon the success of the                                   adequate resources, an appropriate financial
                          Company’s investment strategy in the light of                            structure and suitable arrangements in place for its
                          economic and equity market developments, but                             management to continue in operational existence
                          the investment manager discusses the outlook in                          for the foreseeable future. For this reason, they
                          his report on pages 5 and 6.                                             continue to adopt the going concern basis in
                                                                                                   preparing the accounts.
                          Management
                          The Manager and Secretary, JPMorgan Asset                                Payment Policy
                          Management (UK) Limited (‘JPMAM’) is employed                            It is the Company’s policy to obtain the best terms
                          under a contract terminable on 1 years notice,                           for all business and therefore there are no standard
                          without penalty. If the Company wishes to terminate                      payment terms. In general the Company agrees
                          the contract on shorter notice, the balance of                           with its suppliers the terms on which business will
                          remuneration is payable by way of compensation.                          take place and it is the Company’s policy to abide
                                                                                                   by these terms. As at 30th September 2006, the
                          JPMAM is a wholly-owned subsidiary of JPMorgan
                                                                                                   Company had no outstanding trade creditors.
                          Chase Bank which, through other subsidiaries, also
                          provides banking, dealing and custodian services                         Directors
                          to the Company.                                                          The Directors of the Company at the end of the

                          The Board has thoroughly reviewed the                                    year together with their beneficial interests in the

                          performance of JPMAM in the course of the year.                          Company’s share capital are given below.

                          The review covered the performance of the                                                                           1st October
                          investment manager, its management processes,                                                                              2005
                                                                                                                          30th September     or at date of
                          investment style, resources and risk controls. The
                                                                                                                                    2006     appointment
                          Board is satisfied with the results of the review
                          and is therefore of the opinion that the continuing                      Alan Barber1                    5,300           5,300
                          appointment of the investment manager is in the                          Andrew Fleming                  1,500           1,500
                          interests of shareholders. Such a review will be                         Jeremy Paulson-Ellis            1,500           1,500
                          carried out on an annual basis.                                          David Pearson                   1,693           1,693
                                                                                                   Keith Percy                     1,500           1,500
                          Management Fee
                                                                                                   1
                                                                                                       Appointed on 9th February 2006
                          The fixed basic annual management fee,
                          negotiated in 2005, is a sliding scale based on the                      No changes in the above holdings have been
                          Company’s net assets.                                                    notified by any Director between the year end and
                          Net assets   First £465 million    £465 million to   Over £930 million   the date of this report.
                                           under            £930 million under       under
                                         management           management         management        Blaise Hardman retired as a Director and Chairman
                          Fee level        0.65%                 0.485%             0.40%
                                                                                                   of the Audit Committee on 15th March 2006. In
                          The managment fee includes a contribution                                accordance with the Articles of Association, Alan
                          towards JPMAM’s general marketing and client                             Barber, who was appointed a Director on
                          administration costs.                                                    9th February 2006 and replaced Blaise Hardman as

                          If the Company invests in funds managed or                               Chairman of the Audit Committee, offers himself

                          advised by JPMAM, or any of its associated                               for election. The Directors retiring by rotation are

                          companies, those investments are excluded from                           David Pearson and Jeremy Paulson-Ellis, who,

                          the calculation of the fixed basic annual                                being eligible, offer themselves for re-election at

                          management fee.                                                          the forthcoming Annual General Meeting.


18 JPMorgan Fleming Japanese
An insurance policy is maintained by the Company          standards voluntarily. As a solus Company, rather
which indemnifies the Directors of the Company            than adopt IFRS, the Company has continued to
against certain liabilities arising in the conduct of     follow the UK accounting framework, albeit
their duties.                                             amended for new accounting standards which were
                                                          released by the UK Accounting Standards Board as
Disclosure of information to Auditors
                                                          the first part of an IFRS convergence programme.
In the case of each of the persons who are
                                                          This approach is consistent with that of most other
Directors of the Company at the time when this
                                                          investment trust companies that do not prepare
report was approved:
                                                          group accounts.
(a)   so far as each of the Directors is aware, there
                                                          The main difference to prior years is that
      is no relevant audit information (as defined in
                                                          investments are to be valued at “fair value”, which
      the Companies Act) of which the Company’s
                                                          for listed investments means bid price instead of
      auditors are unaware, and
                                                          last trade price and the requirement to expense
(b)   each of the Directors has taken all the steps       transaction costs on the purchase and sale of
      that he ought to have taken as a Director in        investments. The accounts also include a new
      order to make himself aware of any relevant         primary statement the Reconciliation of
      audit information (as defined) and to               Movements in Shareholders’ Funds, which can be
      establish that the Company’s auditors are           found on page 31.
      aware of that information.
                                                          Further details can be found in the accounting
Notifiable Share Interests                                policies note on pages 34 and 35.
At the date of this report the Company had been
                                                          Annual General Meeting
notified of the following interests in excess of 3%
                                                          Resolutions relating to the following items of
of its issued share capital:
                                                          special business will be proposed at the
                                    Number of
                                                          forthcoming Annual General Meeting:
Shareholders                       shares held        %
                                                          (i) Authority to increase the maximum aggregate
Legal & General Investment
                                                              Directors’ fees (resolution 7)
  Management Ltd                    6,356,901      3.4
Asset Value Investors Ltd           5,591,585      3.0    Given that Directors’ remuneration for the year to
                                                          30th September 2006 was in excess of £99,000
Independent Auditors
                                                          and to allow for Board succession planning, the
Begbies Chettle Agar have expressed their
                                                          Directors recommend that, in accordance with
willingness to continue in office as Auditors to the
                                                          Article 77 of the Company’s Articles of Association,
Company and a resolution proposing their re-
                                                          the permitted maximum aggregate of Directors’
appointment, and to authorise the Directors to
                                                          fees payable be increased from £100,000 to
determine their remuneration for the ensuing year,
                                                          £125,000 per annum with immediate effect.
will be put to shareholders at the Annual General
Meeting.                                                  (ii) Authority to Repurchase the Company’s Shares
                                                              (resolution 8)
Accounting Policies
                                                          The authority to repurchase up to 14.99% of the
From 1st January 2005, International Financial
                                                          Company’s issued share capital, granted by
Reporting Standards (‘IFRS’) came into force for all
                                                          shareholders at last year’s AGM, will expire on
listed companies that prepare group accounts. All
                                                          15th June 2007 unless renewed at the forthcoming
other companies were permitted to adopt these
                                                          AGM.




                                                                                                               JPMorgan Fleming Japanese 19
Directors’ Report continued




                          The Board will seek shareholder approval at the
                          AGM to renew this authority, which will last until
                          18th June 2008 or until the whole of the 14.99%
                          has been acquired, whichever is the earlier.
                          Repurchases will be made at the discretion of the
                          Board, and will only be made in the market at
                          prices below the prevailing net asset value per
                          share as and when market conditions are
                          appropriate.

                          The Directors consider that the renewal of the
                          authority would be in the interests of shareholders
                          as a whole as the repurchase of shares at a
                          discount to their underlying net asset value (‘NAV’)
                          would enhance the NAV of the remaining shares.
                          The Directors therefore recommend that
                          shareholders vote in favour of this resolution.

                          (iii) Authority to change the name of the Company
                               (resolution 9)
                          The Directors recommend that the Company’s
                          name be changed to ‘JPMorgan Japanese
                          Investment Trust plc’.

                          The full text of each of the above resolutions can
                          be found in the Notice of Annual General Meeting
                          on page 27.




                          By order of the Board
                          AK Norman, for and on behalf of
                          JPMorgan Asset Management (UK) Limited,
                          Secretary
                          15th November 2006




20 JPMorgan Fleming Japanese
Corporate Governance

Compliance                                             to the advice and services of the Company
The Company is committed to high standards of          Secretary, JPMAM, which is responsible to the
corporate governance. This statement, together         Board for ensuring that Board procedures are
with the Statement of Directors’ Responsibilities      followed and that applicable rules and regulations
on page 26, indicates how the Company has              are complied with.
applied the principles of good governance of the       Board Composition
updated Combined Code published in June 2006
                                                       The Board consists of five non-executive directors,
(the ‘Combined Code’) and the AIC’s Code of
                                                       all of whom are regarded by the Board as
Corporate Governance, also published in 2003 (the
                                                       independent of the Company’s Manager, including
‘AIC Code’), which complements the Combined
                                                       the Chairman.
Code and provides a framework of best practice for
investment trusts.                                     A review of Board composition and balance is
                                                       included as part of the annual performance
The Board is responsible for ensuring the
                                                       evaluation of the Board, details of which may be
appropriate level of Corporate Governance and
                                                       found below.
considers that the Company has complied with the
best practice provisions of the Combined Code,         The Board has considered whether a senior
insofar as they are relevant to the Company’s          independent director should be appointed. As the
business, and the AIC Code throughout the year         Board comprises entirely of non-executive
under review.                                          directors, the appointment of a senior independent
                                                       director is not considered necessary. However, the
Role of the Board
                                                       Chairman of the Audit Committee leads the
A management agreement between the Company             evaluation of the performance of the Chairman and
and JPMAM sets out the matters over which the          is available to shareholders if they have concerns
Manager has authority. This includes management        that cannot be resolved through discussion with
of the Company’s assets and the provision of           the Chairman.
accounting, company secretarial, administration,
and some marketing services. All other matters are     Tenure
reserved for the approval of the Board. A formal       Directors are initially appointed until the following
schedule of matters reserved to the Board for          Annual General Meeting when, under the
decision has been approved during the year. This       Company’s Articles of Association, it is required
includes determination and monitoring of the           that they be elected by shareholders. Thereafter,
Company’s investment objectives and policy and         Directors are required to submit themselves for re-
its future strategic direction, gearing policy,        election at least every three years. The Chairman
management of the capital structure, appointment       will meet with each Director before the Director is
and removal of third party service providers,          proposed for re-election, and subject to the
review of key investment and financial data and        evaluation of performance carried out each year,
the Company’s corporate governance and risk            the Board will agree whether it is appropriate for
control arrangements.                                  the director to seek an additional term. The Board
                                                       does not believe that length of service in itself will
The Board meets at least quarterly during the year
                                                       necessarily disqualify a director from seeking re-
and additional meetings are arranged as necessary.
                                                       election but, when making a recommendation, the
Full and timely information is provided to the Board
                                                       Board will take into account the on-going
to enable it to function effectively and to allow
                                                       requirements of the Combined Code, including the
Directors to discharge their responsibilities.
                                                       need to refresh the Board and its Committees.
There is an agreed procedure for Directors to take
                                                       Any directors with more than nine years service
independent professional advice in the furtherance
                                                       will be required to submit themselves annually for
of their duties and at the Company’s expense. This
                                                       re-election. In this regard, the Board recommends
is in addition to the access that every Director has

                                                                                                            JPMorgan Fleming Japanese 21
Corporate Governance continued




                          the re-election of Jeremy Paulson-Ellis who, having         Committee leads the evaluation of the Chairman’s
                          served in excess of nine years, retires at this year’s      performance. The Board as a whole evaluates its
                          AGM. Jeremy Paulson-Ellis has a wealth of                   own performance and that of its committees.
                          experience in the financial sector and makes an
                                                                                      Board Committees
                          invaluable contribution to the workings of the
                                                                                      Nomination and Remuneration Committee
                          Board and, as Chairman, has demonstrated
                                                                                      The Board has established a Nomination
                          effective leadership of the Company.
                                                                                      Committee, which consists of the entire Board, and
                          Meetings and Committees                                     which meets at least annually to ensure that the
                          The Board delegates certain responsibilities and            Board has a balance of skills and experience to
                          functions to committees. Details of membership of           carry out its fiduciary duties and to select and
                          committees are shown with Directors’ profiles on            propose suitable candidates for appointment when
                          page 14. Directors who are not members of                   necessary. A variety of sources, including external
                          Committees may attend at the invitation of the              search consultants, may be used to ensure that a
                          Chairman.                                                   wide range of candidates is considered.
                          The table below lists the number of Board and               The Committee undertakes an annual performance
                          Committee meetings attended by each Director.               evaluation to ensure that all members of the Board
                          During the year there were 5 Board meetings, in             have devoted sufficient time and contributed
                          addition to a meeting devoted to strategy, 2 Audit          adequately to the work of the Board. The
                          Committee meetings and a meeting of the                     Committee also reviews Directors’ fees and makes
                          Nomination Committee. In addition there is regular          recommendations to the Board as and when
                          contact between the Directors and the Manager               required.
                          and Company Secretary throughout the year.
                                                                                      Audit Committee
                                                                Audit    Nomination
                                                Board        Committee   Committee    The Audit Committee meets at least twice each year
                                               Meetings       Meetings    Meetings    and its membership is set out on page 14. The
                          Director             Attended       Attended    Attended
                          Alan Barber1             3              1           1       Committee reviews the actions and judgements of
                          Andrew Fleming           5              2           1       management in relation to the interim and annual
                          Blaise Hardman2          3              1           1
                                                                                      financial statements and the Company’s compliance
                          Jeremy Paulson-Ellis     5              2           1
                          David Pearson            5              2           1       with the Combined Code. It reviews the terms of the
                          Keith Percy              5              2           1       management agreement and examines the
                                                                                      effectiveness of the Company’s internal control
                          1
                              Appointed 9th February 2006.
                          2
                                                                                      systems, receives information from the Manager’s
                              Retired 15th March 2006.
                                                                                      compliance department and also reviews the scope
                          Training and Appraisal                                      and results of the external audit, its cost
                          On appointment the Manager and Company                      effectiveness and the independence and objectivity
                          Secretary provide all Directors with induction              of the external auditors. The Directors’ statement
                          training. Thereafter regular briefings are provided         on the Company’s system of internal control is set
                          on changes in regulatory requirements that could            out below.
                          affect the Company and Directors. Directors are
                                                                                      The terms of reference for the Nomination and
                          encouraged to attend industry and other seminars
                                                                                      Audit Committees are available for inspection on
                          covering issues and developments relevant to
                                                                                      request at the Company’s registered offices on the
                          investment trusts.
                                                                                      Company’s website and at the AGM.
                          The Board has agreed a procedure for the formal
                                                                                      Relations with Shareholders
                          evaluation of its own performance and of that of its
                                                                                      The Board regularly monitors the shareholder
                          committees and individual directors. The
                                                                                      profile of the Company. It aims to provide
                          evaluation of individual directors is led by the
                                                                                      shareholders with a full understanding of the
                          Chairman, and the Chairman of the Audit

22 JPMorgan Fleming Japanese
Company’s activities and performance and reports         only be designed to manage rather than eliminate
formally to shareholders twice a year by way of the      the risk of failure to achieve business objectives
Annual Report and Accounts and the Interim               and therefore can only provide reasonable, but not
Report. This is supplemented by the daily                absolute, assurance against fraud, material
publication, through the London Stock Exchange,          misstatement or loss.
of the net asset value of the Company’s shares.
                                                         Since investment management, custody of assets
All shareholders have the opportunity, and are           and all administrative services are provided to the
encouraged, to attend the Company’s Annual               Company by JPMAM and its associates, the
General Meeting at which the Directors and               Company’s system of internal control mainly
representatives of the Manager are available in          comprises monitoring the services provided by
person to meet with and answer shareholders’             JPMAM and its associates, including the operating
questions. In addition, a presentation is given by       controls established by them, to ensure they meet
the investment managers who review the                   the Company’s business objectives. The Company
Company’s performance. During the year the               does not have an internal audit function of its own,
Company’s brokers, the investment managers and           but relies on the internal audit department of
JPMAM hold regular discussions with larger               JPMAM. The key elements designed to provide
shareholders. The Directors are made fully aware         effective internal control are as follows:
of their views. The Chairman and Directors make
                                                         Financial Reporting – Regular and comprehensive
themselves available as and when required to
                                                         review by the Board of key investment and
address shareholder queries. The Directors may be
                                                         financial data, including management accounts,
contacted through the Company Secretary whose
                                                         revenue projections, analysis of transactions and
details are shown on page 45.
                                                         performance comparisons.
The Company’s Annual Report and Accounts are
                                                         Management Agreement – Appointment of a
published in time to give shareholders at least 20
                                                         manager and custodian regulated by the Financial
working days’ notice of the Annual General
                                                         Services Authority (FSA), whose responsibilities
Meeting. Shareholders wishing to raise questions
                                                         are clearly defined in a written agreement.
in advance of the meeting are encouraged to write
to the Company Secretary at the address shown on         Management Systems – The Manager’s system of
page 45. Details of the proxy voting position on         internal control includes organisational
each resolution will be published on the Company         agreements which clearly define the lines of
web site shortly after the AGM.                          responsibility, delegated authority, control
                                                         procedures and systems. These are monitored by
Internal Control
                                                         JPMAM’s compliance department which regularly
The Combined Code requires the Directors, at least       monitors compliance with FSA rules.
annually, to review the effectiveness of the
Company’s system of internal control and to report       Investment Strategy – Authorisation and
to shareholders that they have done so. This             monitoring of the Company’s investment strategy
encompasses a review of all controls, which the          and exposure limits by the Board.
Board has identified as including business, financial,   The Board, either directly or through the Audit
operational, compliance and risk management.             Committee, keeps under review the effectiveness
The Directors are responsible for the Company’s          of the Company’s system of internal control by
system of internal control which is designed to          monitoring the operation of the key operating
safeguard the Company’s assets, maintain proper          controls of the Manager and its associates as
accounting records and ensure that financial             follows:
information used within the business, or                 •   the Board, through the Audit Committee,
published, is reliable. However, such a system can           reviews the terms of the management


                                                                                                             JPMorgan Fleming Japanese 23
Corporate Governance continued




                               agreement and receives regular reports from       stance on a variety of key corporate governance
                               JPMAM’s compliance department;                    issues, including disclosure and transparency,
                                                                                 board composition and independence, control
                          •    the Board reviews the report on the internal
                                                                                 structures, remuneration, as well as social and
                               controls and the operations of its custodian,
                                                                                 environmental issues (see below). These
                               JPMorgan Chase Bank, which is itself
                                                                                 guidelines form the basis of our proxy voting
                               independently reviewed; and
                                                                                 decisions, although it should be noted that JPMAM
                          •    the Directors review every six months an          makes all of its voting decisions on a case by case
                               independent report on the internal controls       basis, taking into account the individual
                               and the operations of JPMAM.                      circumstances of each vote.
                          By the means of the procedures set out above,          Corporate Social Responsibility
                          which accord with the Turnbull guidance on             The following is a summary of JPMAM’s policy
                          internal controls, the Board confirms that it has      statement on corporate social responsibility which
                          reviewed the effectiveness of the Company’s            has been noted by the Board:
                          system of internal control for the year ended
                          30th September 2006, and to the date of approval       We believe it is our primary duty to act in the best
                          of this Annual Report and Accounts.                    financial interests of our clients and to achieve
                                                                                 good financial returns consistent with an
                          Corporate Governance and Voting Policy                 acceptable level of risk. We recognise that non
                          The Company delegates responsibility for voting to     financial issues, such as social and environmental
                          JPMAM. The following is a summary of JPMAM’s           issues, can have an economic impact and that any
                          policy statement on corporate governance and           company run in the long-term interests of its
                          voting policy which has been noted by the Board.       shareholders will need to manage effectively
                          The full policy is available from JPMAM on request,    relationships with its employees, suppliers and
                          or can be downloaded from www.jpmorgan.com:            customers, to behave ethically and to have regard
                          JPMAM is committed to delivering superior              to the environment and society as a whole. Our
                          investment performance to its clients worldwide.       investment managers take these factors into
                          We believe that one of the drivers of investment       account as part of any investment decision.
                          performance is an assessment of the corporate
                          governance principles and practices of the
                          companies in which we invest our clients’ assets
                          and we expect those companies to demonstrate
                          high standards of governance in the management
                          of their business.

                          Proxy voting is an important part of the corporate
                          governance process, and we view seriously our
                          obligation to manage the voting rights of the
                          shares entrusted to us as we would manage any
                          other asset. It is the policy of JPMAM to vote in a
                          prudent and diligent manner, based exclusively on
                          our reasonable judgement of what will best serve
                          the financial interests of our clients. So far as is
                          practicable we will vote at all of the meetings
                          called by companies in which we are invested.

                          In order to do this we have formulated detailed
                          guidelines for each region, which set out our


24 JPMorgan Fleming Japanese
Directors’ Remuneration Report

The Board presents this report which has been prepared              and within the investment trust industry generally. A
under the requirements of schedule 7A of the Companies              resolution to increase the aggregate fees payable to
Act 1985. An Ordinary Resolution for the approval of this           Directors from £100,000 to £125,000 has been included
Report is to be put to shareholders at the forthcoming              in the Notice of Annual General Meeting on page 27.
Annual General Meeting.                                             Directors are initially appointed until the following Annual
Directors’ fees for the year were paid at a fixed rate of           General Meeting when, under the Company’s Articles of
£25,000 per annum for the Chairman, £20,000 per                     Association, it is required that they be elected by
annum for the Chairman of the Audit Committee and                   shareholders. Thereafter, a Director’s appointment will
£17,500 per annum for each other Director. Fees were                run for a three year term. A Director may then be invited
last increased with effect from 1st October 2005.                   by the Board to serve for a further three years. A
                                                                    Director’s continuing appointment is subject to re-
Directors’ Remuneration*
                                                                    election by shareholders on retirement by rotation in
                                        2006               2005
                                                                    accordance with the Company’s Articles of Association,
Director’s Name                            £                  £
                                                                    which require that one third of the Board must retire by
Jeremy Paulson-Ellis1                 25,000              16,496    rotation each year.
Alan Barber2                          12,609                  —
                                                                    The Company does not operate any type of incentive or
Andrew Fleming                        17,500              13,000
                                                                    pension scheme and therefore no Directors receive bonus
Blaise Hardman3                        9,179              15,000
                                                                    payments or pension contributions from the Company or
Keith Percy4                          17,500              11,783
                                                                    hold options to acquire shares in the Company. Directors
David Pearson                         17,500              13,000
                                                                    are not paid compensation for loss of office. No other
David Ritchie5                            —                4,061
                                                                    payments are made to Directors, other than the
1
Appointed Chairman 17th December 2004.                              reimbursement of reasonable out-of-pocket expenses
2
    Appointed 9th February 2006.                                    incurred in connection with attending the Company’s
3
    Resigned 15th March 2006.                                       business.
4
    Appointed 4th November 2004.
5
                                                                    A graph showing the Company’s share price total return
    Retired on 17th December 2004.
                                                                    compared with its benchmark index total return, the
*The information in the above table has been audited.
                                                                    Tokyo Stock Exchange 1st Section (TOPIX) Index (in
The Directors’ fees are not performance-related. Any                sterling terms), over the last five years is shown below.
increase in the aggregate fee level of £100,000 per
annum requires both Board and shareholder approval.
                                                                    By order of the Board
The Board has established a Nomination Committee
which reviews fees on a regular basis. Reviews are based            AK Norman, for and on behalf of
on information provided by the Manager, JPMorgan Asset              JPMorgan Asset Management (UK) Limited,
Management (UK) Limited, and industry research, on the              Secretary
level of fees paid to the directors of the Company’s peers          15th November 2006




Five year share price and index total return to 30th September 2006
 160

    140

    120
    100

     80
     30/09/01              30/09/02               30/09/03             30/09/04             30/09/05               30/09/06
                    Share Price Total Return                   Benchmark Total Return
          Source: Datastream/Standard & Poors – www.funds-sp.com
                                                                                                                                30/

The Company’s benchmark is the Tokyo Stock Exchange 1st Section (TOPIX) Index (in sterling terms). Comparison of
the Company’s performance is made with this benchmark. The benchmark is a recognised index of stocks which should
not be taken as wholly representative of the Company’s investment universe. The Company’s investment strategy does
not follow or track this index and, consequently, there may be some divergence between its performance and that of
the Company.

                                                                                                                                JPMorgan Fleming Japanese 25
Directors’ Responsibilities in Respect
of the Accounts
                          Company law requires the Directors to prepare           The Directors are responsible for ensuring that
                          accounts for each financial year in accordance with     proper accounting records are kept which disclose
                          United Kingdom Generally Accepted Accounting            with reasonable accuracy at any time the financial
                          Practice which give a true and fair view of the state   position of the Company and enable them to
                          of affairs of the Company as at the end of the year     ensure that the accounts comply with the
                          and of the net return for the year. In preparing        Companies Act 1985. They are also responsible for
                          those accounts, the Directors are required to:          safeguarding the assets of the Company and hence
                                                                                  for taking reasonable steps for the prevention and
                          •    select suitable accounting policies and then
                                                                                  detection of fraud and other irregularities.
                               apply them consistently;

                          •    make judgements and estimates that are
                               reasonable and prudent; and

                          •    state whether applicable accounting standards
                               have been followed, subject to any material
                               departures disclosed and explained in the
                               accounts.




26 JPMorgan Fleming Japanese
Notice of Annual General Meeting

Notice is hereby given that the seventy ninth                      Company’s issued share capital as at the
Annual General Meeting of JPMorgan Fleming                         date of the passing of this Resolution;
Japanese Investment Trust plc will be held at The
                                                            (ii)   the minimum price which may be paid for
Library, JPMorgan’s offices, 60 Victoria
                                                                   an ordinary share shall be 25p;
Embankment, London, EC4Y 0JP on Tuesday 19th
December 2006 at 2.00 p.m. for the following                (iii) the maximum price which may be paid for
purposes:                                                         an ordinary share shall be an amount
                                                                  equal to the highest 0f (a) 105% of the
1   To receive the Directors’ Report & Accounts and
                                                                  average of the middle market quotations
    the Auditors’ Report for the year ended 30th
                                                                  for an ordinary share taken from and
    September 2006.
                                                                  calculated by reference to the London
2   To approve the Directors’ Remuneration Report                 Stock Exchange Daily Official List for the
    for the year ended 30th September 2006.                       five business days immediately preceding
                                                                  the day on which the ordinary share is
3   To elect Alan Barber as a Director of the
                                                                  purchased or (b) the price of the last
    Company.
                                                                  independent trade; or (c) the highest
4   To re-elect David Pearson as a Director of the                current independent bid;
    Company.
                                                            (iv) any purchase of ordinary shares will be
5   To re-elect Jeremy Paulson-Ellis as a Director of            made in the market for cash at prices
    the Company.                                                 below the prevailing net asset value per
6   To re-appoint Begbies Chettle Agar as auditors               ordinary share (as determined by the
    to the Company and to authorise the Directors                Directors) at the date following not more
    to determine their remuneration.                             than seven days before the date of
                                                                 purchase;
Special Business
                                                            (v)    the authority hereby conferred shall
To consider the following resolutions:
                                                                   expire on 18th June 2008 unless the
Authority to increase the maximum aggregate                        authority is renewed by shareholders in
Directors’ fees – Ordinary Resolution                              general meeting prior to such time; and
7   THAT in accordance with Article 77 of the
                                                            (vi) the Company may make a contract to
    Company’s Articles of Association, the
                                                                 purchase ordinary shares under the
    maximum aggregate Directors’ fees payable be
                                                                 authority hereby conferred prior to the
    increased from £100,000 to £125,000 per
                                                                 expiry of such authority and may make a
    annum with immediate effect.
                                                                 purchase of ordinary shares pursuant to any
Authority to Repurchase the Company’s shares –                   such contract notwithstanding such expiry.
Special Resolution
                                                        Authority to change the name of the Company –
8 THAT the Company be generally and, subject as
                                                        Special Resolution
  hereinafter appears, unconditionally authorised
                                                        9   THAT subject to the consent of the Registrar of
  in accordance with Section 166 of the
                                                            Companies, the name of the Company be
  Companies Act 1985 (the “Act”) to make market
                                                            changed to JPMorgan Japanese Investment
  purchases (within the meaning of Section 163
                                                            Trust plc.
  of the Act) of its issued ordinary shares of
  25p each in the capital of the Company                           By order of the Board
                                                                   AK Norman, for and on behalf of
    PROVIDED ALWAYS THAT
                                                                   JPMorgan Asset Management (UK) Limited,
    (i) the maximum number of ordinary shares
                                                                   Secretary
        hereby authorised to be purchased shall
                                                                   15th November 2006
        be 27,809,735 or, if less, that number of
        shares which is equal to 14.99% of the


                                                                                                              JPMorgan Fleming Japanese 27
                          Notes                                                      6   No Director has any contract of service with the
                          1    A member entitled to attend and vote at the               Company.
                               above meeting is entitled to appoint one or more
                                                                                     Electronic appointment – CREST members
                               proxies to attend and on a poll vote on their
                                                                                     CREST members who wish to appoint a proxy or
                               behalf. A proxy need not be a member of the
                                                                                     proxies by utilising the CREST electronic proxy
                               Company. The lodging of a form of proxy does not
                                                                                     appointment service may do so for the Meeting and
                               prevent a member from attending and voting if he
                                                                                     any adjournment(s) thereof by using the procedures
                               so wishes.
                                                                                     described in the CREST Manual. CREST personal
                          2    Any instrument appointing a proxy, to be valid,       members or other CREST sponsored members, and
                               must be lodged at the Company’s Registrar not         those CREST members who have appointed (a) voting
                               less than 48 hours before the time of the meeting.    service provider(s) who will be able to take the
                                                                                     appropriate action on their behalf.
                          3    To be entitled to attend and vote at the Meeting
                               (and for the purpose of the determination by the      In order for a proxy appointment made using the
                               Company of the number of votes they may cast),        CREST service to be valid, the appropriate CREST
                               members must be entered on the Company’s              message (a ‘CREST Proxy Instruction’) must be
                               register of members as at 6.00 p.m. on                properly authenticated in accordance with CRESTCo’s
                               15th December 2006 (the ‘specified time’). If the     CREST Manual. The CREST message must be
                               meeting is adjourned to a time not more than 48       transmitted so as to be received by the issuer’s agent
                               hours after the specified time applicable to the      (ID7RA01) by not later than 48 hours before the time
                               original meeting, that time will also apply for the   appointed for the holding of the meeting or the
                               purpose of determining the entitlement of             adjourned meeting. For this purpose, the time of
                               members to attend and vote (and for the purpose       receipt will be taken to be the time (as determined by
                               of determining the number of votes they may           the timestamp applied to the CREST message by the
                               cast) at the adjourned meeting. If however the        CREST Applications Host) from which the issuer’s
                               meeting is adjourned for a longer period then, to     agent is able to retrieve the CREST message by
                               be so entitled, members must be entered on the        enquiry to CREST in the manner prescribed by CREST.
                               Company’s register of members as at 6.00 p.m.         After this time any change of instructions to proxies
                               two days prior to the adjourned meeting or, if the    appointed through CREST should be communicated to
                               Company gives notice of the adjourned meeting,        the appointee through other means.
                               at the time specified in that notice.
                                                                                     CREST members and, where applicable, their CREST
                          4    Entry to the above Meeting will be restricted to      sponsors or voting service provider(s), should note
                               shareholders, with guests admitted only by prior      that CRESTCo does not make available special
                               arrangement.                                          procedures in CREST for any particular messages.
                                                                                     Normal system timing and limitations will therefore
                               A corporation, which is a shareholder, may
                                                                                     apply in relation to the input of CREST Proxy
                               appoint an individual to act as its representative
                                                                                     Instructions. It is the responsibility of the CREST
                               and to vote in person at the meeting. The
                                                                                     member concerned to take (or, if the CREST
                               appointment must comply with section 375 of the
                                                                                     member(s) is/are a CREST personal member or
                               Companies Act 1985. The representative should
                                                                                     sponsored member or has appointed (a) voting
                               bring to the meeting evidence of his or her
                                                                                     service provider(s), to procure that the CREST sponsor
                               appointment, including any authority under which
                                                                                     or voting service provider takes) such action as shall
                               it is signed, unless previously given to the
                                                                                     be necessary to ensure that a CREST message is
                               Company’s registrars.
                                                                                     transmitted by means of the CREST system by any
                          5    The register of interests of the Directors and        particular time. In this connection, CREST members
                               connected persons in the share capital of the         and, where applicable, their CREST sponsors or voting
                               Company is available for inspection at the            service provider(s) is/are referred, in particular, to
                               Company’s registered office during usual business     those sections of the CREST Manual concerning
                               hours on any weekday (Saturdays and public            practical limitations of the CREST system and timings.
                               holidays excepted). It will also be available for
                                                                                     The Company may treat as invalid a CREST Proxy
                               inspection at the Annual General Meeting.
                                                                                     Instruction in the circumstances set out in Regulation
                                                                                     35(5) (a) of the Uncertificated Securities Regulations
                                                                                     2001.



28 JPMorgan Fleming Japanese
Independent Auditors’ Report

To the members of JPMorgan Fleming Japanese                    it does not. We are not required to consider whether the
Investment Trust plc                                           Board’s statements on internal control cover all risks and
We have audited the financial statements of The Fleming        controls, or to form an opinion on the effectiveness of the
Japanese Investment Trust plc for the year ended 30th          Company’s corporate governance procedures or its risk
September 2006 which comprise the Income Statement,            and control procedures.
the Reconciliation of Movements in Shareholders’ Funds,        Basis of Audit Opinion
the Balance Sheet, the Cash Flow Statement and the
                                                               We conducted our audit in accordance with International
related notes. We have also audited the information in
                                                               Standards on Auditing (UK an Ireland) issued by the
the Directors’ Remuneration Report that is described as
                                                               Auditing Practice Board.. An audit includes examination,
having been audited.
                                                               on a test basis, of evidence relevant to the amounts and
Respective Responsibilities of Directors and Auditors          disclosures in the financial statements and the part of the
The Directors’ responsibilities for preparing the annual       Directors’ Remuneration Report to be audited. It also
report, the Directors’ Remuneration Report and the             includes an assessment of the significant estimates and
financial statements in accordance with applicable United      judgements made by the directors in the preparation of
Kingdom law and accounting standards are set out in the        the financial statements, and of whether the accounting
statement of Directors’ Responsibilities.                      policies are appropriate to the Company’s circumstances,
                                                               consistently applied and adequately disclosed.
Our responsibility is to audit the financial statements and
the auditable part of the Directors’ Remuneration Report       We planned and performed our audit so as to obtain all
in accordance with relevant legal and regulatory               the information and explanations which we considered
requirement and International Standards on Auditing (UK        necessary in order to provide us with sufficient evidence
and Ireland). This report, including the opinion, has been     to give reasonable assurance that the financial
prepared for and only for the Company’s members as a           statements and the part of the Directors’ Remuneration
body in accordance with Section 235 of the Companies           Report to be audited are free from material
Act 1985 and for no other purpose. We do not, in giving        misstatement, whether caused by fraud or other
this opinion, accept or assume responsibility for any          irregularity or error. In forming our opinion we also
other purpose or to any other person to whom this report       evaluated the overall adequacy of the presentation of
is shown or into whose hands it may come save where            information in the financial statements.
expressly agreed by our prior consent in writing.              Opinion
We report to you our opinion as to whether the financial       In our opinion:
statements give a true and fair view and whether the
                                                               •   the financial statements give a true and fair view of
financial statements and the part of the Directors’
                                                                   the state of the Company’s affairs at 30th September
Remuneration Report to be audited have been properly
                                                                   2006 and of its total return and cash flows for the
prepared in accordance with the Companies Act 1985. We
                                                                   year then ended;
also report to you if, in our opinion, the Directors’ Report
is not consistent with the financial statements, if the        •   the financial statements and the part of the
Company has not kept proper accounting records, if we              Directors’ Remuneration Report required to be
have not received all the information and explanations             audited have been properly prepared in accordance
we require for our audit, or if information specified by law       with the Companies Act 1985; and
regarding Directors’ remuneration and transactions with        •   those parts of the Directors’ Remuneration Report
the Company is not disclosed.                                      required by Part 3 of Schedule 7A to the Companies
We read the other information contained in the Annual              Act 1985 have been properly prepared in accordance
Report and consider the implications for our report if we          with the Companies Act 1985.
become aware of any apparent misstatements or material
inconsistencies with the financial statements. The other
information comprises only the Directors’ Report, the
                                                               BEGBIES CHETTLE AGAR
unaudited part of the Directors’ Remuneration Report,
the Chairman’s Statement, the Investment Manager’s             Chartered Accountants and Registered Auditors
Report and the corporate governance statement.                 London
                                                               15th November 2006
We review whether the corporate governance statement
reflects the Company’s compliance with the nine
provisions of the 2003 Financial Reporting Council
Combined Code specified for our review by the Listing
Rules of the Financial Services Authority, and we report if


                                                                                                                           JPMorgan Fleming Japanese 29
Income Statement
for the year ended 30th September 2006




                                                                       2006                                   2005

                                                       Revenue       Capital         Total     Revenue        Capital         Total
                                                         return       return        return       return        return        return
                                               Notes     £’000        £’000         £’000        £’000         £’000         £’000

Gains from investments held at fair value
  through profit or loss                          2          —         5,897         5,897            —      108,645       108,645
Income from investments                           3        7,245          —          7,245        4,983            —         4,983
Other interest receivable and similar income      3        1,205          —          1,205        1,554            —          1,554

Gross revenue and capital gains                          8,450         5,897        14,347        6,537      108,645        115,182
Management fee                                    4        (702)      (2,808)       (3,510)         (571)      (2,285)       (2,856)
Other administrative expenses                     5        (460)          —          (460)         (439)           —           (439)

Net return on ordinary activities before
  finance costs and taxation                             7,288         3,089        10,377        5,527      106,360        111,887
Finance costs                                     6         (89)        (358)         (447)          (66)        (265)         (331)

Net return on ordinary activities before
  taxation                                                 7,199       2,731        9,930         5,461      106,095        111,556
Taxation                                          7        (507)          —           (507)        (349)           —           (349)

Net return on ordinary activities after
  taxation                                               6,692         2,731        9,423          5,112     106,095        111,207


Return per share (basic and diluted)              8      3.60p         1.47p         5.07p        2.75p        57.10p       59.85p


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

The total column of this statement is the profit and loss account of the Company and the revenue and capital columns represent
supplementary information. The total column represents all the information that is required to be disclosed in a ‘Statement of Total
Recognised Gains and Losses’ (‘STRGL’). For this reason a STRGL has not been presented.

The notes on pages 34 to 44 form part of these accounts.




30 JPMorgan Fleming Japanese
Reconciliation of Movements in
Shareholders’ Funds
for the year ended 30th September 2006

                                                Called up                  Capital
                                                    share     Other   redemption      Capital    Revenue
                                                  capital   reserve       reserve    reserve      reserve             Total
                                                    £’000     £’000         £’000      £’000        £’000            £’000

At 30th September 2004                            46,450    166,791         2,512    189,204       (11,875)       393,082
Total return from ordinary activities                 —         —              —     106,095         5,112         111,207

At 30th September 2005                            46,450    166,791         2,512    295,299        (6,763)       504,289
Adjustments to opening shareholders’ funds
  at 1st October 2005 to reflect the adoption
  of bid prices                                       —         —              —      (1,209)           —            (1,209)
Shares bought back and cancelled                     (70)       —              70       (762)           —             (762)
Total return from ordinary activities                 —         —              —       2,731        6,692            9,423
Unclaimed dividends returned in the year              —         —              —          —              7                7

At 30th September 2006                            46,380    166,791         2,582    296,059           (64)        511,748


The notes on pages 34 to 44 form part of these accounts.




                                                                                                JPMorgan Fleming Japanese 31
Balance Sheet
at 30th September 2006




                                                                                                           2006                   2005
                                                                                   Notes                  £’000                  £’000

                          Fixed assets
                          Investments at fair value                                    9                575,721               574,903


                          Current assets                                              10
                          Debtors                                                                         2,224                 13,658
                          Cash at bank and in hand                                                          879                    889

                                                                                                          3,103                 14,547

                          Creditors:
                          Amounts falling due within one year                         11                (67,076)               (84,282)
                          Derivative financial instruments                            12                     —                    (879)

                          Net current liabilities                                                       (63,973)               (70,614)

                          Total assets less current liabilities                                         511,748               504,289


                          Total net assets                                                              511,748               504,289


                          Capital and reserves
                          Called up share capital                                     13                 46,380                46,450
                          Other reserve                                               14                166,791               166,791
                          Capital redemption reserve                                  14                  2,582                 2,512
                          Capital reserve                                             14               296,059                295,299
                          Revenue reserve                                             14                    (64)               (6,763)

                          Equity shareholders’ funds                                                    511,748               504,289


                          Net asset value per share                                   15                 275.8p                 271.4p


                          The accounts on pages 30 to 44 were approved by the Directors and authorised for issue on 15th November 2006:

                          Jeremy Paulson-Ellis
                          Chairman

                          The notes on pages 34 to 44 form part of these accounts.




32 JPMorgan Fleming Japanese
Cash Flow Statement
for the year ended 30th September 2006




                                                      Notes         2006         2005
                                                                   £’000        £’000

Net cash inflow from operating activities                  16      3,660        2,763


Returns on investments and servicing of finance
Interest paid                                                       (478)        (284)

Capital expenditure and financial investment
Purchases of investments                                        (893,498)    (590,308)
Sales of investments                                             898,078      569,379
Other capital charges                                                  (7)         (10)

Net cash inflow/(outflow) from capital expenditure
  and financial investment                                         4,573      (20,939)


Unclaimed dividends returned                                            7          —


Net cash inflow/(outflow) before financing                         7,762      (18,460)


Financing
Repurchase of ordinary shares                                        (762)         —
Net (repayment)/draw down of loans                                 (5,941)     17,929

Net cash (outflow)/inflow from financing                          (6,703)      17,929

Increase/(decrease) in cash for the year                   17      1,059         (531)


The notes on pages 34 to 44 form part of these accounts.




                                                                                     JPMorgan Fleming Japanese 33
Notes to the Accounts
for the year ended 30th September 2006




                          1. Accounting policies
                          (a) Basis of accounting
                               The accounts are prepared in accordance with the Companies Act 1985, United Kingdom Generally
                               Accepted Accounting Practice (‘UK GAAP’) and with the Statement of Recommended Practice
                               ‘Financial Statements of Investment Trust Companies’ (the ‘SORP’) issued by the AIC in December
                               2005. Further details can be found on this and the following page. The Company has adopted certain
                               new accounting policies following the issue of new financial reporting standards (‘FRSs’). All of the
                               Company’s operations are of a continuing nature.

                          (b) Changes in presentation
                               The new financial reporting standards, the Listing Rules and the revised SORP have also given rise
                               to some changes in presentation. The Statement of Total Return is now called the Income Statement
                               and the total return column, as opposed to the revenue column, is now the profit and loss account of
                               the Company. If the Company was to pay a dividend, it would not now be reflected in the Income
                               Statement. However it would be shown in the Reconciliation of Movements in Shareholders’ Funds
                               which is now presented as a primary statement.

                          (c) Valuation of investments
                               Investments are designated as ‘held at fair value through profit or loss’ in accordance with FRS 26:
                               ‘Financial Instruments: Measurement’. Listed investments are valued at bid market prices. This
                               represents a change in accounting policy, however in accordance with paragraph 108D of FRS 26,
                               comparatives have not been restated. In prior periods, listed investments were valued at last trade
                               prices. As a consequence, the adoption of bid prices on 1st October 2005 decreased the value of
                               investments by £1,209,000 as shown in note 9.

                               Changes in the fair value of investments held at fair value through profit or loss and gains or losses
                               on disposal are included in the income statement within ‘Gains from investments held at fair value
                               through profit or loss’. Transaction costs incurred on the purchase and sale of investments are also
                               included within this caption. All purchases and sales are accounted for on a trade date basis.

                          (d) Income
                               Dividends receivable from equity shares are included in revenue on an ex-dividend basis except where,
                               in the opinion of the Board, the dividend is capital in nature, in which case it is taken to capital.

                               Overseas dividends are shown gross of withholding tax.

                               Interest receivable is taken to revenue on an accruals basis.

                               Interest receivable from debt securities together with any premiums or discounts on purchase are
                               allocated to revenue on a time apportionment basis so as to reflect the effective interest rate of
                               those securities.

                               Stock lending income and interest receivable on deposits is taken to revenue on an accruals basis.

                          (e) Expenses
                               All expenses are accounted for on an accruals basis. Expenses are allocated wholly to revenue with
                               the following exceptions:
                               –   management fees are allocated 20% to revenue and 80% to capital in line with the Board’s
                                   expected long term split of revenue 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 commonly referred to as transaction costs and comprise mainly broker commission.
                                   In accordance with the SORP, disclosure of transaction costs is now required and can be found in
                                   note 9.

34 JPMorgan Fleming Japanese
(f ) Finance costs
   Finance costs are accounted for on an accruals basis and in accordance with the provisions of FRS 25:
   ‘Financial Instruments: Disclosure and Presentation’ and FRS 26: ‘Financial Instruments:
   Measurement’.

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

(g) Financial instruments
   Cash at bank and in hand may comprise cash and demand deposits which are readily convertible to a
   known amount of cash and are subject to insignificant risk of changes in value.

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

   Interest bearing bank loans and overdrafts are recorded at the proceeds received net of direct issue
   costs. Finance costs, including any premiums payable on settlement or redemption and direct issue
   costs, are accounted for on an accruals basis in profit or loss using the effective interest rate method.

   Derivative instruments are valued at fair value in the balance sheet. Changes in the fair value of
   derivative instruments that do not qualify for hedge accounting are recognised in profit or loss as they
   arise.

(h) Foreign currency
   In accordance with FRS23: ‘The effects of changes in Foreign Currency Exchange Rates’ the Company
   is required to nominate a functional currency, being the currency in which the Company predominantly
   operates. The Board, having regard to the currency of the Company’s share capital and the
   predominant currency in which its shareholders operate, has determined the functional currency to be
   Sterling.

   Transactions denominated in foreign currencies are converted at actual exchange rates as at the date
   of the transaction. Assets and liabilities denominated in foreign currencies at the year end are
   translated at the 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 as an exchange gain or loss in revenue return or capital return, depending on whether the
   gain or loss is of a revenue or capital nature.

(i) Taxation
   Deferred tax is accounted for in accordance with FRS 19: ‘Deferred Tax’.

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

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




                                                                                                               JPMorgan Fleming Japanese 35
Notes to the Accounts continued




                                                                                                             2006                     2005
                                                                                                            £’000                    £’000
                          2. Gains from investments held at fair value through
                               profit or loss
                             Gains from investments held at fair value through
                               profit or loss based on historical cost                                 113,834                      35,935
                             Amounts recognised as unrealised in the previous year                     (65,609)                     (4,927)
                               Realised gains based on carrying value at previous
                                 balance sheet date                                                     48,225                      31,008
                               Net movement in unrealised gains                                         (46,791)                    77,306
                               Net foreign currency gains                                                 4,901                        340
                               Realised loss on close out of future                                        (430)                        —
                               Other capital charges                                                         (8)                        (9)
                               Total capital gains on investments held at fair value
                                     through profit or loss                                                 5,897                   108,645

                                                                                                             2006                     2005
                                                                                                            £’000                    £’000
                          3. Income
                             Income from investments
                             Dividends from investments listed overseas                                     7,245                    4,983
                               Other income
                               Deposit interest                                                                 4                         7
                               Stock lending fees                                                           1,201                     1,547
                                                                                                            1,205                     1,554
                               Total income                                                                 8,450                    6,537

                                                                                         2006                               2005
                                                                          Revenue      Capital        Total     Revenue   Capital     Total
                                                                            £’000       £’000        £’000        £’000    £’000     £’000
                          4. Management fee
                             Management fee                                    702      2,808         3,510         571    2,285     2,856

                                                                                                             2006                     2005
                                                                                                            £’000                    £’000
                          5. Other administrative expenses
                             Other management expenses                                                       342                       345
                             Directors’ fees1                                                                 99                        73
                             Auditors’ remuneration for audit services2                                       19                        21
                                                                                                             460                       439
                               1
                               Full disclosure is given in the Directors’ Remuneration Report on page 25.
                               2
                                   No other payments were made to the auditors (2005: same).




36 JPMorgan Fleming Japanese
                                                              2006                           2005
                                                 Revenue    Capital     Total Revenue      Capital     Total
                                                   £’000     £’000     £’000    £’000       £’000     £’000
6. Finance costs
   Bank loans and overdrafts                           89      358       447        66        265       331

                                                                        2006                           2005
                                                                       £’000                          £’000
7. Taxation
   UK corporation tax at 30% (2005: 30%)                                 472                            636
   Double taxation relief                                               (472)                          (349)
   Prior year eligible unrelieved foreign tax                              —                           (287)
   Overseas witholding tax                                               507                            349
   Current tax                                                           507                            349

   The tax charge for the year is lower than the standard rate of corporation tax in the UK of 30%
   (2005: 30%). The difference is explained below.
                                                                        2006                           2005
                                                                       £’000                          £’000
   Net return on ordinary activities before taxation                   7,199                          5,461

   Net return on ordinary activities before taxation multiplied
      by the standard rate of corporation tax of 30% (2005: 30%)       2,160                          1,638
   Tax relief on capitalised expenses                                   (951)                          (765)
   Income taxed in different periods                                     140                             (2)
   Prior year charges utilised                                          (877)                          (235)
   Overseas taxation                                                    (472)                           349
   Relief for overseas taxation                                          507                           (636)
                                                                         507                            349

   The Company has an unrecognised deferred tax asset of £4,541,000 (2005: £5,278,000). This asset
   has arisen because cumulative deductible expenses have exceeded taxable income over the life of the
   Company. This asset may be utilised in future years where there is an excess of taxable income over
   deductible expenses. A deferred tax asset has not been recognised in the accounts due to the
   uncertainty in calculating the amount which the Company will be able to utilise.
   Given the Company’s status as an Investment Trust Company, and the intention to continue meeting
   the conditions required to obtain approval, the Company has not provided deferred tax on any capital
   gains or losses arising on the revaluation or disposal of investments.
8. Return per ordinary share
   The revenue return per ordinary share is based on the earnings attributable to the ordinary shares of
   £6,692,000 (2005: £5,112,000 ) and on the weighted average number of shares in issue throughout
   the year of 185,699,611 (2005: 185,801,919 ).
   The capital return per ordinary share is based on the capital gains attributable to the ordinary shares
   of £2,731,000 (2005: £106,095,000 ) and on the weighted average number of shares in issue
   throughout the year of 185,699,611 (2005: 185,801,919 ).
   The total return per ordinary share is based on the total return attributable to the ordinary shares of
   £9,423,000 (2005: £111,207,000 ) and on the weighted average number of shares in issue throughout
   the year of 185,699,611 (2005: 185,801,919 ).




                                                                                                             JPMorgan Fleming Japanese 37
Notes to the Accounts continued




                                                                                                       2006                             2005
                                                                                                      £’000                            £’000
                          9. Investments
                             Investments listed on a recognised investment exchange                 575,721                         574,903
                             Investment in TOPIX future                                                  —                             (879)
                                                                                                    575,721                         574,024

                                                                                                                       2006
                                                                                                       2006            Topix           2006
                                                                                                      Listed          future           Total
                                                                                                      £’000           £’000           £’000

                               Opening book cost                                                    495,804                –        495,804
                               Opening unrealised gains/(losses)                                     79,099            (879)         78,220
                               Opening valuation                                                    574,903            (879)        574,024
                               Movements in the year:                                                                      –
                               Adjustment to bid valuation                                           (1,209)               –         (1,209)
                               Purchases at cost                                                    888,195                –        888,195
                               Sales – proceeds                                                   (887,602)            1,309      (886,293)
                               Sales – realised gains/(losses) in investments                        48,225            (430)         47,795
                               Net movement in unrealised gains                                     (46,791)              —         (46,791)
                                                                                                    575,721                –        575,721

                               Closing book cost                                                     610,231               –         610,231
                               Closing unrealised losses                                            (34,510)               –        (34,510)
                                                                                                    575,721                –        575,721

                               Transaction costs on purchases during the year amounted to £918,000 (2005: £725,000) and on sales
                               during the year amounted to £1,345,000 (2005: £662,000). These costs comprise mainly broker
                               commission.

                               During the year, prior year unrealised gains amounting to £65,609,000 have been transferred to
                               realised gains as disclosed in note 14.

                               On 28th September 2005, the Company purchased a Tokyo Stock Exchange 1st Section Index (TOPIX)
                               future, the purpose of which was to provide protection against falls in the capital value of the
                               investment portfolio. At 30th September 2005, an unrealised loss of £879,000 existed, due to the
                               subsequent rise in the TOPIX index. The TOPIX future was closed out on 27th October 2005 at a total
                               loss to the Company of £1,309,000.

                               The aggregate value of securities on loan as at 30th September 2006 amounted to £45,450,000 and
                               the maximum value of securities on loan during the year ended 30th September 2006 was
                               £103,081,000. Collateral is obtained by JPMorgan Chase & Co. Limited as agent to the Company.
                               Collateral is held in the form of certificates of deposit, letters of credit or bonds. JPMorgan initially
                               calls collateral at either 102% or 105% and pledges to call sufficient collateral to maintain the
                               collateral margins at these levels.




38 JPMorgan Fleming Japanese
                                                                       2006                           2005
                                                                      £’000                          £’000
10. Current assets:
    Debtors
    Securities sold for future settlement                                —                          11,785
    Dividends and interest receivable                                 1,934                          1,466
    Other debtors                                                       290                            407
                                                                      2,224                         13,658

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

   Cash at bank and in hand
   Cash at bank and in hand comprises bank balances and cash held by the Company, including short
   term bank deposits. The carrying amount of these approximates to their fair value. Cash balances in
   excess of a predetermined amount are placed on short term deposit at market rates of interest.
                                                                       2006                           2005
                                                                      £’000                          £’000
11. Creditors: Amounts falling due within one year:
    Bank loans                                                       66,202                         69,821
    Overdrafts                                                           —                           8,293
    Securities purchased for future settlement                          727                          6,030
    Other creditors and accruals                                        147                            138
                                                                     67,076                         84,282

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

   The £66.2m bank loans drawn down at 30th September 2006 comprise three short term Yen
   denominated loans drawn down on facilities with ING Bank N.V., Lloyds TSB Bank plc and The Royal
   Bank of Scotland plc. The £69.8m bank loans drawn down at 30th September 2005 comprised two
   short term Yen denominated loans drawn down on the above facilities with The Royal Bank of Scotland
   and Lloyds TSB Bank plc. Further details are given in note 20.
                                                                       2006                           2005
                                                                      £’000                          £’000
12. Derivative financial instruments
   Unrealised loss on TOPIX future                                        —                              (879)

   Further details are given in note 9.




                                                                                                            JPMorgan Fleming Japanese 39
Notes to the Accounts continued




                                                                                                    2006                             2005
                                                                                                   £’000                            £’000
                          13. Share capital
                              AUTHORISED:
                              444,800,000 shares of 25p each                                      111,200                         111,200

                               ALLOTTED AND FULLY PAID:
                               Shares of 25p each
                               Total issued and fully paid at beginning of year                   46,450                          46,450
                               Repurchase of 280,000 ordinary shares (2005: Nil)                     (70)                             —

                               Total issued and fully paid at end of year                         46,380                          46,450

                               Represented by 185,521,919 (2005: 185,801,919) shares of 25p.
                                                                                               Capital     Capital    Capital
                                                                                     Other redemption    reserve – reserve –      Revenue
                                                                                   reserve     reserve    realised unrealised      reserve
                                                                                     £’000       £’000      £’000      £’000         £’000
                          14. Reserves
                              Opening balance                                   166,791         2,512    215,014      80,285       (6,763)
                              Adjustment to opening shareholders’ funds
                                 as at 1st October 2005 to reflect the adoption
                                 of bid prices                                       —             —            —      (1,209)         —
                              Realised foreign currency losses on cash
                                 and short term deposits                             —             —        (1,070)        —           —
                              Gains on foreign currency loans                        —             —         5,971         —           —
                              Unrealised gain now realised on Yen loan               —             —         2,064     (2,064)         —
                              Unrealised gains now realised on foreign
                                 currency hedge                                      —             —             1          (1)        —
                              Realised gains on investments                          —             —        48,225         —           —
                              Net movement in unrealised gains                       —             —            —     (46,791)         —
                              Transfer on disposal of investments                    —             —        65,609    (65,609)         —
                              Repurchase of ordinary shares                          —             70         (762)        —           —
                              Realised loss on close out of future                   —             —          (430)        —           —
                              Unrealised loss now realised on close out of future    —             —          (879)       879          —
                              Management fee and finance costs charged
                                 to capital                                          —             —        (3,166)        —           —
                              Other capital charges                                  —             —            (8)        —           —
                              Net revenue for the year                               —             —            —          —        6,692
                              Unclaimed dividends returned during the year           —             —            —          —            7
                               Closing balance                                   166,791       2,582     330,569      (34,510)        (64)

                          15. Net asset value per share
                               The net asset value per share is based on the net assets attributable to the ordinary shareholders of
                               £511,748,000 (2005: £504,289,000) and on the 185,521,919 (2005: 185,801,919) shares in issue at the
                               year end.




40 JPMorgan Fleming Japanese
                                                                       2006                         2005
                                                                      £’000                        £’000
16. Reconciliation of total return on ordinary
       activities before finance costs and taxation
       to net cash inflow from operating activities
    Total return on ordinary activities before
       finance costs and taxation                                     10,377                      111,887
    Capital return before finance costs and taxation                 (3,089)                    (106,360)
    Increase in accrued income                                         (468)                           (7)
    Decrease/(increase) in other debtors                                 116                         (148)
    Increase in accrued expenses                                          39                           25
    Overseas taxation                                                   (507)                        (349)
    Expenses charged to capital                                      (2,808)                       (2,285)
   Net cash inflow from operating activities                          3,660                        2,763

                                                          At 30th                                 At 30th
                                                       September                  Exchange     September
                                                             2005   Cash flow    movement           2006
                                                            £’000      £’000         £’000         £’000

17. Analysis of changes in net debt
    Cash at bank and in hand                                 889       1,059        (1,069)          879
    Bank loans falling due within
      one year                                           (78,114)      5,941         5,971       (66,202)
   Net debt                                              (77,225)      7,000        4,902        (65,323)

18. Capital commitments and contingent liabilities
   At the balance sheet date there were no capital commitments or contingent liabilities (2005: none).

19. Transactions with the Manager
   Details of the management contract are set out in the Directors’ Report on page 18. The management
   fee payable to JPMorgan Asset Management (UK) Limited (‘JPMAM’) for the year was £3,510,000
   (2005: £2,856,000) of which £Nil (2005: £19,000) was outstanding at the year end.

   Included in other management expenses in note 5 on page 36 are safe custody fees amounting to
   £90,000 (2005: £70,000) payable to JPMorgan Chase as custodian of the Company of which £20,000
   (2005: £18,000) was outstanding at the year end.

   JPMAM carries out some of its dealing transactions through group subsidiaries. These transactions are
   carried out at arms’ length. The commission payable to JPMorgan Securities for the year was £172,000
   (2005: £91,000) of which £Nil (2005: £Nil) was outstanding at the year end. The Company has been
   informed that certain of its dealing transactions may be subject to soft commission arrangements.

   Handling charges payable on dealing transactions undertaken by overseas sub custodians on behalf
   of the Company during the year amounted to £16,000 (2005: £12,000) of which Nil (2005: Nil) was
   outstanding at the year end.

   At the year end, a bank balance of £873,000 (2005: overdraft of £809,000) was held with JPMorgan
   Chase. A net amount of interest of £1,000 (2005: £7,000) was received by the Company during the
   year from JPMorgan Chase.

   The Company has received £1,201,000 (2005: £1,547,000) from stock lending transactions during the
   year. JPMAM commissions in respect of such transactions amounted to £330,000 (2005: £358,000).


                                                                                                         JPMorgan Fleming Japanese 41
Notes to the Accounts continued




                          20. Financial instruments
                          (a) Management of risk
                               The Group’s financial instruments comprise:
                               •   Investments in Japanese equity shares, which are held in accordance with the Company’s
                                   investment objective;
                               •   Short term debtors, creditors and cash arising directly from its operations;
                               •   Bank loans denominated in Yen, the main purpose of which is to finance the Company’s
                                   operations; and
                               •   Derivative transactions which may include forward foreign currency contracts and index futures.
                               The Company is an investment trust and invests in shares and securities for the long term.
                               The main risks arising from the Group’s operations are market price risk, liquidity risk, interest rate
                               risk, credit risk and foreign currency risk. A description of these risks is given below, together with the
                               Board’s policy for managing these risks where appropriate.

                               Market price risk
                               Market price risk arises mainly from uncertainty about future prices of financial instruments held. It
                               represents the potential loss which the Company might incur as a result of holding a portfolio of
                               investments when market prices fall.
                               The Board meets on at least four occasions each year to consider the asset allocation of the portfolio
                               in order to minimise the risk associated with particular industry sectors. An investment management
                               team has responsibility for monitoring the portfolio, which is selected in accordance with the
                               Company’s investment objectives and seeks to ensure that individual stocks meet an acceptable risk
                               reward profile. Index futures may be used to protect the portfolio from predicted market falls.
                               The Board meets at least quarterly to consider the asset allocation of the portfolio and, as part of their
                               review, the risk associated with particular industry sectors. An investment management team has
                               responsibility for monitoring the portfolio which is selected in accordance with the Company’s
                               investment objectives and seeks to ensure that individual stocks meet an acceptable risk-reward
                               profile.

                               Liquidity Risk
                               The Company’s assets comprise mainly realisable securities, which can be sold to meet funding
                               requirements if necessary. Short term flexibility is achieved through the use of overdraft facilities.

                               Interest rate risk
                               The Company finances its operations through bank borrowings and retained profits. The Company
                               may borrow at both fixed and floating rates of interest to both generate the desired interest rate
                               profile and to manage the exposure to interest rate fluctuations.
                               Credit Risk
                               The Company’s financial assets are bank balances, debtors and investments, which represent the
                               Company’s maximum exposure to credit risk in relation to financial assets. When buying and selling
                               investments, the Company is exposed to the risk that the counterparty will not deliver the investment
                               or cash. The Company will only deal with brokers which have been approved by JPMAM and banks
                               with high credit ratings assigned by international credit rating agencies.




42 JPMorgan Fleming Japanese
20. Financial instruments continued
   Limits have been set as to the maximum exposure to any one counterparty at any time. The Company
   has no significant concentration of credit risk, with exposure spread over a number of counterparties.

   Foreign currency risk
   The Company has exposure to foreign currency as part of the risk/reward inherent in a company that
   invests overseas. The income and capital value of the the Company’s investments can be affected by
   exchange rate movements as some of the Company’s assets and income are denominated in
   currencies other than Sterling which is the reporting currency.

   The Board has identified four principal areas where foreign currency risk could impact the Company:

   –     movements in rates affect the value of investments;

   –     movements in rates affect the value of loans;

   –     movements in rates affect short term timing differences; and

   –     movements in rates affect income received.

   The Company may be exposed to currency risk due to exchange rate movement in the period between,
   investment trade date and the date of settlement. This exposure is short term and therefore the risk is
   not significant.

   The Company’s policy of borrowing in Yen denominated loans acts to reduce the company’s exposure
   to fluctuations in Yen exchange rates.

(b) Currency exposures
                                                                         2006                         2005
                                                                          Yen                          Yen
                                                                          £m                           £m
   Investments                                                           575.7                        574.0
   Net current liabilities                                               (64.1)                        (71.0)

   Financial instruments outstanding at the year end                     511.6                        503.0

(c) Interest Rate Risk Profile of Financial Assets and Financial Liabilities
   Financial assets
   The Company’s financial assets comprise investments, debtors and cash. The investments are all
   equity shares which neither pay interest nor have a maturity date. The Company’s debtors comprise
   unsettled broker balances for securities sold, dividends receivable, prepayments and other small
   balances on which no interest accrues. Cash balances in excess of a predetermined amount are placed
   on short term deposit and earn market rates of interest.




                                                                                                            JPMorgan Fleming Japanese 43
Notes to the Accounts continued




                               Financial liabilities
                               The Company’s liabilities include unsettled broker balances for securities purchased, other accruals on
                               which no interest is payable, short term loans and overdrafts. Overdraft interest is payable at the
                               prevailing market rate. The interest rate profile of the Company’s financial liabilities at
                               30th September is:
                                                                                                         2006                      2005
                                                                                                        £’000                     £’000
                               Fixed rate financial liabilities                                       66,202                     69,821
                               Floating rate financial liabilities                                        —                       8,293
                               Liabilities on which no interest is paid                                  874                      7,047
                                                                                                       67,076                    85,161

                               For fixed rate financial liabilities:
                               Weighted average interest rate                                          0.70%                     0.40%
                               Weighted average period for which the interest
                                 rate is fixed                                                        13 days                  34 days

                               During the year, the Company arranged a Yen 6 billion revolving loan facility with ING Bank N.V. Under
                               the terms of this agreement the Company may draw down up to Yen 6 billion at an interest rate of
                               LIBOR, as offered in the market for the loan period, plus a margin, plus the ‘mandatory costs’ rate. At
                               30th September 2006, the Company had drawn down the whole Yen 6 billion on this facility
                               comprising four loans of one month duration at a weighted average interest rate of 0.71%.

                               In August 2005 the Company arranged a Yen 10 billion revolving loan facility with Lloyds TSB Bank plc.
                               Under the terms of this agreement the Company may draw down up to Yen 10 billion at an interest rate
                               of LIBOR, as offered in the market for the loan period, plus a margin, plus the ‘mandatory costs’ rate.
                               At 30th September 2006, the Company had drawn down the whole Yen 10 billion on this facility
                               comprising two loans of one month duration at a weighted average interest rate of 0.64%. At 30th
                               September 2005 the Company had drawn down Yen 8 billion on this facility comprising one loan of
                               three months duration at an interest rate of 0.33%.

                               In December 2004 the Company arranged a Yen 6 billion credit facility with The Royal Bank of Scotland
                               plc. Under the terms of this agreement the Company may draw down up to Yen 6 billion at an interest
                               rate of LIBOR, as offered in the market for the loan period, plus a margin, plus the ‘mandatory costs’
                               rate. At 30th September 2006, the Company had drawn down the whole Yen 6 billion on this facility
                               comprising one loan of one month duration at an interest rate of 0.8%. At 30th September 2005, the
                               Company had drawn down the whole Yen 6 billion on this facility comprising one loan of three months
                               duration at an interest rate of 0.51%.

                          (d) Maturity of the company’s financial liabilities
                                                                                                         2006                      2005
                                                                                                        £’000                     £’000
                               Falling due in one year or less or on demand                            67,076                    85,161

                          (e) Fair values of Financial Instruments
                               All financial assets and liabilities are included in the balance sheet at fair values.




44 JPMorgan Fleming Japanese
Information about the Company


 Financial Calendar
 Financial year end                                                                    30th September
 Interim results announced                                                                         April
 Final results announced                                                                      November
 Annual General Meeting                                                                       December



History                                               Company’s Registered Office
The Company was formed in 1927 as The Capital &       Finsbury Dials
National Trust Limited. It was a general investment   20 Finsbury Street
trust until 1982, when its shareholders approved a    London EC2Y 9AQ
change of name to The Fleming Japanese                Telephone: 020 7762 6000
Investment Trust plc and the adoption of a policy
of specialising in investment in Japan. It is the     For company secretarial and administrative issues
largest UK investment trust specialising in Japan.    please contact Andrew Norman.
The Company adopted its present name on 19th
                                                      Registrar
December 2003 and a resolution proposing to
                                                      Lloyds TSB Registrars, Reference 1090
change the Company’s name to JPMorgan
                                                      The Causeway
Japanese Investment Trust plc is included in the
                                                      Worthing
Notice of this year’s AGM.
                                                      West Sussex BN99 6DA
Company Numbers                                       Telephone: 0870 600 3984
Company registration number: 223583
                                                      Notifications of changes of address and enquiries
London Stock Exchange Sedol number: 0174002
                                                      regarding share certificates or dividend cheques
Bloomberg Code: JFJ LN
                                                      should be made in writing to the Registrar quoting
Reuters Code: JFJ.L
                                                      reference 1090.
Market Information                                    Registered shareholders can obtain further details
The Company’s net asset value (‘NAV’) is published    on their holdings on the internet by visiting
daily, via the London Stock Exchange.                 www.shareview.co.uk.
The Company’s shares are listed on the London
Stock Exchange. The market price of the shares is     Saving Product Administrators
shown daily in the Financial Times, The               For queries on the JPMorgan ISA, PEP, Share Plan
Independent, The Times, The Daily Telegraph, The      or Pension Account, see contact details on the
Scotsman, The Herald, the Daily Mail, on BBC          back cover of this report.
Ceefax and on the Company web site at
www.jpmfjapanese.com, where the share price is        Independent Auditors
updated every fifteen minutes during trading          Begbies Chettle Agar
hours.                                                Epworth House
                                                      25 City Road
Share Transactions                                    London EC1Y 1AR
The shares may be dealt in directly through a
stockbroker or through a professional adviser         Brokers
acting on an investor’s behalf. They may also be      Dresdner Kleinwort Wasserstein
purchased and held through the Investment Trust       20 Fenchurch Street
Share Plan, Individual Savings Account (‘ISA’),       London EC3P 3BB
Personal Equity Plan (‘PEP’) and Pension Account.

Manager and Secretary
JPMorgan Asset Management (UK) Limited



                                                                                                           JPMorgan Fleming Japanese 45
Linkway CCP L15121
JPMorgan Helpline
Freephone 0800 40 30 30 or 020 7742 9999
9.00 am to 5.30 pm Monday to Friday


JPMorgan Pension Helpline
Freephone 0800 413 176 or 01722 414 888
9.00 am to 5.00 pm Monday to Friday
Please use this service if you have any queries relating to the Pension Account.

Your telephone call may be recorded for your security.


www.jpmfjapanese.com

				
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