Annual Report JPMorgan Global Convertibles Income Fund Limited

Transcription

1 Annual Report JPMorgan Global Convertibles Income Fund Limited Annual Report & Accounts period ended 30th June JPMorgan Global Convertibles Income Fund Limited

2 Features Contents 1 Financial Results 2 Chairman s Statement 5 Investment Managers Report 8 Portfolio Analyses 10 Business Review 15 Board of Directors 17 Corporate Governance Framework 21 Directors Report 24 Directors Remuneration Report (Unaudited) 26 Statement of Directors Responsibilities 27 Independent Auditor s Report Financial Statements 29 Statement of Comprehensive Income 30 Statement of Changes in Equity 31 Statement of Financial Position 32 Cash Flow Statement 33 Notes to the Accounts Shareholder Information 48 Notice of Annual General Meeting 51 Glossary of Terms and Definitions 53 Information about the Company Investment Objective The Company aims to deliver dividend income with the potential for long term capital growth, from investing in a globally diversified portfolio of convertible securities. Investment Policies The Company will invest in a globally diversified portfolio of convertible securities and other suitable instruments exhibiting convertible or exchangeable characteristics. The portfolio is expected to be broadly diversified across sectors, geography and market capitalisations and, while there are no specific limits placed on exposure to any sector, country or market capitalisation, the Company will at all times invest and manage the portfolio in a manner consistent with spreading investment risk. The Company will have no restrictions with respect to the credit ratings of any issuer, or any securities, in which it may invest and the issuers of convertible securities may be located in any country, including emerging market countries. Benchmark The Company s benchmark is the MSCI World Index, (in Sterling terms) for reference purposes but will not be benchmark-driven in its asset allocation. Capital Structure At 30th June, there were 160,499,999 ordinary shares in issue. Management Company The Company employs JPMorgan Funds Limited ( JPMF or the Manager ) to manage its assets. Prior to 1st July the Company employed JPMorgan Asset Management (UK) Limited to manage its assets. Administrator The Company employs JPM Administration Services (CI) Limited as its administrator. Website The Company s website, which can be found at includes useful information on the Company, such as daily prices, factsheets and will include current and historic half year and annual reports. FCA regulation of non-mainstream pooled investments The Company currently conducts its affairs so that the shares issued by the Company can be recommended by Independent Financial Advisers to ordinary retail investors in accordance with the Financial Conduct Authority ( FCA ) s rules in relation to non-mainstream pooled investment products and intends to continue to do so for the foreseeable future. The shares are excluded from the FCA s restrictions which apply to non-mainstream investment products because they are shares in an investment company, which if it were domiciled in the United Kingdom, would currently qualify as an investment trust.

3 Financial Results (for the period from the date the Company began investing on 11th June 2013 to 30th June ) Total returns (includes dividends reinvested) +14.6% Return to shareholders on issue price % 4.5p Return on net assets 2 Dividend Summary of Results 30th June 11th June 2013 Total returns for the period from 11th June 2013 to 30th June 3 Return to shareholders on issue price % Return on net assets % % change Net asset value, share price and premium Shareholders funds ( 000) 173, , Net asset value per share 108.0p 98.2p Ordinary shares in issue 160,499, ,000, Share price 112.3p 103.0p Share price premium to net asset value per share 4.0% 4.9% Revenue for the period from 11th June 2013 to 30th June 3 Net revenue profit attributable to shareholders ( 000) 6,658 Revenue profit per share 4.33p Dividend per share 4.50p Gearing/(net cash) 6 (1.7%) Ongoing Charges 7 1.1% A glossary of terms and definitions is provided on page Source: Morningstar. Issue price Source: J.P. Morgan. 3 Dealings in the Company s shares began on 11th June 2013 and the Company began investing on that date. 4 Based on gross proceeds less accrued expenses as at 11th June The gross proceeds less actual expenses totalled 133.8m. 5 Opening mid market price on the first day of trading. 6 Gearing represents the excess amount above shareholders funds of total assets expressed as a percentage of the shareholders funds. Total assets include total investments and net current assets/liabilities less cash/cash equivalents and excluding bank loans of less than one year. If the amount calculated is negative, this is shown as a net cash position. 7 Management fee and all other operating expenses excluding finance costs, expressed as a percentage of the average of the daily net assets during the year. The Ongoing Charges are calculated in accordance with guidance issued by the Association of Investment Companies in May JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 1

4 Chairman s Statement The Company This is the Company s first Annual Report, covering the period from incorporation on 7th May 2013 to 30th June. The Company was admitted to trading on the London Stock Exchange on 11th June 2013, raising net proceeds of million. As at the date of this statement a further 74.4 million has been raised through the issue of shares. Investment Performance For the period from admission to 30th June, the Company recorded a total return on net assets of +12.3%. Shares in the Company have also traded strongly and the total return for shareholders who subscribed for shares in the initial issue has been +14.6% over the same period. The Investment Managers report reviews the Company s performance and gives a detailed commentary on the investment strategy and portfolio construction, and their outlook for the sector. Dividends The Board declared a first interim dividend of 2.25p per share, which was paid on 28th March. The Board has now declared a second interim dividend of 2.25p per share, payable on 31st October to shareholders on the register on 17th October. This means that the total dividend payable in respect of the period ended 30th June amounts to 4.50p per share, in keeping with the Company s target of paying in the Company s first financial year an initial gross dividend yield of 4.5% based on the initial issue price of 100p per share. The Board will seek to maintain this level of annual dividend, although now that the Company is fully invested it intends to start paying quarterly dividends instead of semi-annual dividends. Accordingly, the Board expects to declare in November an interim dividend in respect of the three months to 30th September. The Board has considered at length the emphasis which the Investment Managers should attribute to the relative merits of revenue returns versus total returns and, while the Board is committed to providing shareholders with a dividend income, it is cognisant that this should not be to the detriment of long term capital growth. The Board has concluded, therefore, that it is in the best interests of shareholders that the Investment Managers should continue to operate on a total return basis where possible. Accordingly, there may be times when, for example, the Company holds convertible bonds with lower coupons where there is a greater expectation of capital return. The law applicable to the Company as a Guernsey incorporated entity is such that this treatment need not impact the Company s ability to meet its dividend ambitions. Manager Evaluation The Management Engagement Committee carried out an evaluation of the Manager in May. The current investment management team comprises Antony Vallee, Natalia Bucci and Robin Dunmall of JPMorgan Asset Management (UK) Limited ( JPMAM ). The Board will of course continue to monitor investment performance closely, but I am pleased to report that having taken all factors into account, including investment performance and other services provided to the Company and its shareholders, it has 2 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

5 concluded that the Manager should remain as the Company s Manager and that its ongoing appointment remains in the best interests of shareholders. Please note the section on Alternative Investment Fund Managers Directive below. Gearing The Company may employ gearing up to a maximum of 20% of Net Asset Value at the time of borrowing. Significant gearing has not been employed to date, but this is a matter of regular review. Placing Programme On 20th September 2013 the Company issued a prospectus in respect of up to 150 million shares to be issued pursuant to a Placing Programme. The prospectus permitted the issuance of new shares for a period of 12 months following publication and, accordingly, the prospectus and the remaining capacity thereunder lapsed on 19th September. Following the lapse of the prospectus the Company is still able to issue in the region of 20.5 million shares by relying on certain customary Prospectus Rule exemptions. Share Issuance At admission on 11th June 2013, the Company issued 136,000,000 ordinary shares at a price of 100p per share raising, after issue expenses, million. To date a further 69,500,000 shares have been issued at a premium to Net Asset Value(of which 54,500,001 shares were issued pursuant to the placing programme) resulting in net proceeds of 74.4 million. Share issuance has always taken place at a premium to the prevailing cum-income Net Asset Value per share and so is accretive to the returns of existing shareholders. If conditions are appropriate, the Company will continue to issue new shares which, as well as assisting with premium management, will also enhance liquidity and continue to underpin the Company as an attractive investment. Alternative Investment Fund Managers Directive ( AIFMD or Directive ) Further to legal advice received by the Company from Dickson Minto WS, I can report that JPMorgan Funds Limited, which has been approved by the Financial Conduct Authority as an Alternative Investment Fund Manager, has been appointed as Manager and Company Secretary to the Company, from 1st July. This change of entity does not in any way affect the actual management of the portfolio which will continue to be managed under a delegated authority by JPMAM. The Company Secretarial and administration support will also continue to be conducted by the same individuals from the office in London and via the Guernsey Administrator, JPM Administrative Services (CI) Limited. No extra fees are being charged by any JPMorgan entity as a result of the Company s AIFMD obligations. Although JPMorgan Chase Bank, N.A. will continue as the Company s custodian, the new requirements of a depositary function will be undertaken by Bank of New York Mellon ( BNYM ). BNYM will be paid a fee of 0.017% of the Company s gross assets per annum. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 3

6 Chairman s Statement continued As a Guernsey domiciled investment company, the Company had the option of adopting a lighter-touch approach to the implementation of the Directive that would have avoided the need to appoint an entity that takes on the full obligations of a depositary under the Directive, However, the Board and the Manager have taken the view that full compliance with the Directive and the appointment of BNYM as Depositary provides additional protections to the Company and ultimately to investors. Board of Directors The Board has procedures in place to ensure that the Company complies fully with the AIC Code on Corporate Governance and the UK and Guernsey Codes ofcorporate Governance. The only exceptions are those that the Board considers to be inappropriate for a company of this nature. These are detailed in the Corporate Governance report, on page 17. In accordance with the Company s Articles of Association, all Directors will be retiring and seeking election by the shareholders at the Company s first Annual General Meeting. The Board has carried out a satisfactory evaluation of its performance and accordingly supports the election of all Directors. Annual General Meeting The Company s first Annual General Meeting will be held on Tuesday, 4th November at noon at 1st Floor, Les Echelons Court, Les Echelons, South Esplanade, St Peter Port, Guernsey GY1 1AR. If you have any detailed or technical questions, it would be helpful if you could raise these in advance of the meeting with the Company Secretary at the Guernsey address above, or via the Ask the Chairman link on the website. Shareholders who are unable to attend the Annual General Meeting are encouraged to use their proxy votes. Outlook There remain attractive opportunities, and the Board considers that the main drivers of the Company s strong performance remain intact. The investment managers have a sufficiently large universe of securities to meet the Company s return target for the current year. This is in part a result of a strong market for the issue of convertible shares. The Board continues to view the convertible bond market as an attractive opportunity to combine a stable income with capital appreciation. The equity sensitivity of the convertible bond market should act as a mitigating factor were interest rates to rise. Simon Miller Chairman 30th September 4 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

7 Investment Managers Report The portfolio is constructed to provide an attractive yield while also being positioned to benefit from positive equity performance. This has been achieved through holdings in bond-like and balanced convertibles. While bond-like convertibles combine yield generation and a stable return profile, high-coupon balanced convertibles have more equity sensitivity and a greater potential for capital gains. The convertible market offers particular exposure to mid-capitalisation issuers, and the portfolio s structure as a closed-ended vehicle enables it to fully capitalise on these opportunities by focusing on these high-coupon securities. Antony Vallee In the period covered by this first annual report our investment activities produced a total return, before costs, of million. Following the Company s accounting policies, million of this return has been classified as revenue and million as capital. The capital component of return shows the net result of the changes in value of our convertible holdings in their local currencies, a loss of million, netted off against the effects of a currency hedging programme designed to protect the value of the portfolio from changes in the relative values of the currencies in which holdings are denominated in sterling. As sterling strengthened over the period, from $1.56 when the Company was launched to $1.71 at the year end, the gain on the hedging transactions is quite substantial. Natalia Bucci The chart on page 7 shows how the various factors that influence the pricing of convertible securities have contributed to the returns shareholders have earned over the period. Major contributing factors to performance over the period have been the equity effect; the increase in convertible prices as the issuers share price has risen over the period, the income effect; the income received from the portfolio of convertibles and the credit effect; the positive effect on the pricing of convertible bonds and prevailing interest rates have fallen. Other effects, which include the costs of the initial launch of the Company and management and other fees borne over the period have detracted from performance. Strong equity performance in the second half of 2013 was driven by the emergence of the eurozone from recession and indications that the Federal Reserve was willing to delay the withdrawal of asset purchases. Positive momentum continued into the fourth quarter of 2013 as economic data showed signs of a sustained global recovery. Although fixed income assets were generally weak in the latter part of the year as markets contemplated an eventual increase in interest rates, convertibles were largely insulated from this impact by their equity sensitivity. Robin Dunmall While there was additional volatility at the start of, the negative impact of this was largely confined to January and continued improvements in economic data helped developed equity markets to overcome any potential downturn in investor sentiment. Strong earnings releases and an upturn in merger and acquisitions activity also helped to drive equity markets higher over the first half of. This backdrop of strong equity performance necessitated active profit-taking on securities that had appreciated significantly in price in order to maintain the risk profile of the portfolio and support the yield being generated. As equity indices performed well, the overall equity sensitivity of the convertible bond market JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 5

8 Investment Managers Report continued increased and a number of previously bond-like convertibles have become more balanced. There continues to be significant opportunities to add yield to the portfolio, and a resurgent primary market has helped to maintain the size of the opportunity set for this strategy even as the overall yield on the secondary market has tightened. New convertible issuance is typically balanced and offers some of the best opportunities to combine equity sensitivity and attractive yields, and has been spurred on by three primary factors. Firstly, the strong performance of equity markets, which makes issuing convertibles at a premium to the current stock price more attractive for issuers. Secondly, an upturn in merger and acquisition activity, since convertible bond issuance is often used for financing. Thirdly, concerns about an imminent increase in interest rates, which provides an incentive for companies to issue debt in advance at lower rates. There was approximately $58 billion of new convertible issuance in the second half of 2013, which is a significant increase on the $38 billion over the same period in 2012, and $22 billion over the latter half of As interest rates do inevitably start to increase, it is anticipated that convertible issuance will become increasingly attractive for issuers, since the relative interest saving versus issuing non-convertible debt will become more significant. In the absence of any significant market shock, this could indicate a strong backdrop for continued convertible issuance that will support the opportunity set for an income-focused convertible strategy. The increased allocation towards high-coupon balanced convertibles over bond-like equivalents has led to an increase in the equity sensitivity of the portfolio since inception. This has helped to ensure participation in the strong performance of equity markets over the past year, and also limit the portfolio s exposure to the impact of an eventual increase in interest rates. The portfolio s US allocation has been increased over the second quarter of to take advantage of the relative strength of economic growth in the region. This allocation also helps to protect the portfolio from the fallout of geopolitical tensions in Europe and renewed weakness in economic data partially related to the introduction of various economic sanctions. Whilst the situation in Europe does pose some risks to ongoing equity performance, the US has so far brushed off much of these concerns and a correction in Europe may help to provide selective opportunities for the portfolio. Correspondingly, risk has been reduced within more cyclical sectors, but the team remain prepared to capitalise on opportunities to add yield as and when they arise. Antony Vallee Natalia Bucci Robin Dunmall Investment Managers 30th September 6 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

9 Contributing Factors to NAV Share Price Performance 16.00% NAV Effect Share Price 14.00% 1.90% 0.40% 0.60% 1.70% 2.30% 14.60% 12.00% 4.20% 12.30% 10.00% 8.00% 8.10% 6.00% 4.00% 2.00% 0.00% Equity Effect Income Credit Effect Interest Rate Effect Time Decay Effect Other Effects NAV Effects Discount Effect Share price total return These estimated sub-category returns have been calculated using an internal JPMAM analytical model and should be considered indicative only. The factors comprising net asset return are: Equity Effect = impact of changes in the price of issuing entity s equity on the value of the convertible security. Credit Effect = impact of changes in credit spreads on the price of convertible. The credit spread is the difference between the bond s value and a Treasury security that is equivalent in all respects except for credit quality. Interest Rate Effect = impact on changes in the risk-free rate of interest on the valuation of the convertible. Income Effect = coupon income; the cash received when underlying convertibles make their regular payments to investors. Time Decay Effect = a combination of the decline in the value of the embedded option in convertible securities with the passing of time and the pull-to-par of the bond. Other Effects = residual effects including the ongoing charges of the Company, other costs incurred in the issuance of shares and the differences between the theoretical model used to price convertibles securities and their observed market prices. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 7

10 Portfolio Analyses at 30th June Sector 30th June Portfolio % 1 Diversified Financials 14.7 Real Estate 13.7 Capital Goods 12.1 Energy 11.9 Materials 9.6 Transportation 5.3 Banks 5.1 Consumer Services 5.0 Automobiles & Components 4.7 Telecommunication Services 3.5 Technology Hardware & Equipment 2.9 Food Beverage & Tobacco 2.6 Semiconductors & Semiconductor Equipment 2.4 Software & Services 2.1 Utilities 1.5 Pharmaceuticals & Biotechnology 1.4 Liquidity Fund 1.5 Total Based on total portfolio of 165.0m. United North Developed Kingdom America Europe Asia Australia Total Geographic % % % % % % 1 Convertibles Fixed interest Preference Convertible Preference Liquidity Fund Total Based on total portfolio of 165.0m. 8 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

11 Portfolio Disclosure Holdings representing 1.5% of the Portfolio Value or more at 30th June Holding as Time to a percentage maturity of portfolio Region Country Currency Sector Rating (years) Investment 1 3.1% Europe France EUR Consumer, Cyclical NR 5.25 Investment 2 2.8% Europe France EUR Consumer, Cyclical B Investment 3 2.7% Americas United States USD Communications B Investment 4 2.6% Europe Spain EUR Industrial NR 1.84 Investment 5 2.5% Europe United Kingdom GBP Financial NR 4.89 Investment 6 2.5% Americas United States USD Financial BB- Perpetual Investment 7 2.4% Americas United States USD Financial BBB- Perpetual Investment 8 2.4% Americas United States USD Financial NR 3.71 Investment 9 2.4% Americas United States USD Financial NR 3.79 Investment % Europe Spain EUR Industrial B Investment % Europe France EUR Technology NR 4.22 Investment % Europe Sweden SEK Consumer, Cyclical B Investment % Asia Singapore SGD Financial NR 5.97 Investment % Americas United States USD Financial NR 8.79 Investment % Americas United States USD Financial NR 3.34 Investment % Asia India USD Basic Materials BB 2.04 Investment % Americas United States USD Financial BBB 5.79 Investment % Europe United Kingdom GBP Financial NR 1.93 Investment % Europe Luxembourg USD Basic Materials B Investment % Americas United States USD Energy NR 5.42 Investment % Europe Italy EUR Communications B Investment % Europe United Kingdom USD Energy NR 0.75 Investment % Europe Russia USD Basic Materials BB Investment % Asia Hong Kong USD Consumer, Cyclical NR 1.87 Investment % Europe Spain EUR Energy BBB Investment % Europe United Kingdom GBP Financial NR 4.96 Investment % Americas United States USD Financial BBB 4.54 Investment % Americas United States USD Financial BBB 4.54 Investment % Europe Germany EUR Consumer, Cyclical BBB 1.36 Investment % Americas Mexico EUR Consumer, Non-cyclical NR 3.82 Investment % Americas United States USD Consumer, Cyclical CCC 4.79 Investment % Asia China USD Communications NR % Note: Rating describes the most conservative rating published by an external reputable credit rating agency. Where a security is described as not rated, no external rating is available. These securities are subject to an internal credit analysis and rating procedure. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 9

12 Business Review Business Model JPMorgan Global Convertibles Income Fund Limited is a Guernsey domiciled investment company and its investment objective is set out below. The strategy the Board follows to achieve that objective is to set investment policy and risk guidelines, together with investment limits, and to monitor how they are applied. These are also set out below and have been approved by shareholders. The business model the Company has adopted to achieve its objective has been to contract investment management and administration to appropriate external service providers, who are subject to oversight by the Board. With effect from 1st July the principal service providers are: JPMorgan Funds Limited ( JPMF or the Manager ) to manage the portfolio in accordance with the Board s strategy and provide fund accounting, compliance and company secretarial services; and JPM Administration Services (CI) Limited ( JPMAS(CI) ) to provide general administration services. Prior to 1st July, the principal service providers were: JPMorgan Asset Management (UK) Ltd to manage the portfolio in accordance with the Board s strategy and provide fund accounting, compliance and company secretarial services: and JPMAS(CI) to provide general administration services. The Company was incorporated on 7th May 2013 under the Companies (Guernsey) Law, 2008, and launched as an income fund on 11th June Business of the Company The Company is a Registered closed-ended investment scheme registered pursuant to The Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended and The Registered Collective Investment Scheme Rules, 2008 issued by the Guernsey Financial Services Commission (the Commission ). Investment Objective and Policies The Company s investment objective is to provide investors with a dividend income combined with the potential for long term capital growth from investing in a diversified portfolio of emerging market investments. The Board seeks to manage the Company s risk by imposing various investment limits and restrictions. The Company predominantly invests in convertible bonds, but has the flexibility also to invest in other types of securities, including, but not limited to, unlisted equities, convertible securities, preference shares, derivatives, participation notes, debt securities, cash and cash equivalents. Investments in participation notes are limited to a maximum of 5% of the Company s assets. The Company can invest in any particular market, sector or country in the global emerging markets universe. It may also invest in securities issued by companies based in or operating in emerging markets but listed or traded on the stock exchanges of developed markets and in the securities of issuers based in developed markets that have substantial exposure to emerging markets. There are no fixed limits on portfolio construction with regard to region, country, sector or market capitalisation. The Company typically invests at least 80% of its gross assets in listed securities, but other security types may be used in the event of adverse equity market conditions or where they represent a more efficient means of obtaining investment income for the purposes of making dividend payments. In the event of adverse equity market conditions, the Company may hold fixed income securities of any kind to a maximum of 50% of its gross assets. Despite the absence of specific region, country, sector or market capitalisation limits, the Company manages its assets in a manner that is consistent with spreading investment risk. No more than 15% of gross assets may be invested in the securities of any one company or group at the time the investment is made. No more than 10% of the gross assets may be invested in unlisted securities or in other listed closed-end investment funds at the time the investment is made. The Company may undertake option writing in respect of up to 10% of the Company s net assets. The Company may invest in derivative instruments for the purposes of efficient portfolio management. Gearing may be used when appropriate in order to increase potential returns to shareholders. Such gearing will operate within a range of 10% net cash to 20% geared. Compliance with the Board s investment restrictions and guidelines is monitored continuously by the Manager and is reported to the Board on a monthly basis. 10 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

13 Management of the Company The Manager and Secretary is JPMF. JPMF is a wholly owned subsidiary of JPMorgan Chase Bank which, through other subsidiaries, also provides banking, dealing and custodial services to the Company. The Manager has delegated the management of portfolio to JPMorgan Asset Management (UK) Limited ( JPMAM ). The Board has evaluated the performance of the Manager and confirms that it is satisfied that the continuing appointment of the Manager is in the best interests of shareholders as a whole. In arriving at this view, the Board considered the investment strategy and process of the Manager, noting the support that the Company receives from JPMF. Such a review will be carried out on an annual basis. Management Fee JPMF is employed under a contract which is subject to six months notice of termination, such notice not to be given prior to two years following the date of admission to trading. If the Company wishes to terminate the contract on less than six months notice, the balance of the six months remuneration is payable by way of compensation. Under the terms of the Management Agreement, the management fee is charged at the rate of 0.75% per annum of the Company s net asset value. The fee is calculated and paid monthly in arrears. Investments made by the Company in investment funds on which the Manager or a member of its group earns a fee are excluded from the calculation and therefore attract no management fee. Performance In the period ended 30th June, the Company produced a total return to shareholders of +14.6% and a total return on net assets of +12.3%. As at 30th June, the gross value of the Company s investment portfolio was million. The Investment Managers Report on pages5to7includes a review of developments during the period as well as information on investment activity within the Company s portfolio. Total Return, Revenue and Dividends Gross total income amounted to 20.2 million and net total profit after deducting administrative expenses, finance costs and taxation, amounted to 18.3 million. An interim dividend of 2.25p per share has been paid during the period, amounting to 3,589,000. The Directors have declared a second interim dividend of 2.25p per share be paid on 31st October to shareholders on the register at the close of business on 17th October. This distribution will absorb 3,611,000. Key Performance Indicators ( KPIs ) The Board uses a number of financial KPIs to monitor and assess the performance of the Company. The principal KPIs are: Performance The principal objective is to provide investors with a dividend income combined with the potential for long term capital growth. However, the Board also monitors performance compared with a benchmark index and a broad range of competitor funds. The chart below shows the performance of the share price and NAV since the Company s initial public offering compared to the MSCI World Index (in sterling terms). As the Company s approach to managing the portfolio is not benchmark driven, this chart is provided for reference purposes only. The Directors and Manager are of the view that there is currently no appropriate convertible bond benchmark against which the performance of the Company might be more appropriately measured. As the portfolio is invested in convertible securities and the benchmark is a global index of equity securities, investors should expect material divergence between the Company s share price and NAV performance and that of the benchmark. JGCI Performance: Share Price & Cum-income NAV v. Benchmark Rebased: Inception date of 11 June 2013 = /06/13 11/07/13 11/08/13 11/09/13 11/10/13 JPMorgan Global Convertibles MISCI World Index (in sterling). JPMorgan Global Convertibles Share Price. JPMorgan Global Convertibles Cum-income NAV. 11/11/13 11/12/13 11/01/14 11/02/14 11/03/14 11/04/14 11/05/14 11/06/14 11/07/14 11/08/14 11/09/14 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 11

14 Business Review continued Share price premium/discount to net asset value per share The Board recognises that the possibility of a widening premium or discount can be a disadvantage of investment trusts that can discourage investors and influence the liquidity of the Company s shares. The Board therefore has a share issuance and repurchase programme that seeks to address imbalances in supply of and demand for the Company s shares within the market and thereby reduce the volatility and absolute level of the discount or premium to NAV at which the Company s shares trade. No shares have been repurchased for cancellation during the period. The Company s shares have traded at a premium or close to the NAV per share throughout. Ongoing Charges The Ongoing Charges represent the Company s management fee and all other operating expenses, excluding finance costs, expressed as a percentage of the average of the daily net assets during the period. The Ongoing Charges for the period ended 30th June were 1.1%. The Board reviews each year an analysis which shows a comparison of the Company s Ongoing Charges and its main expenses with those of its peers. Share Capital On 11th June 2013, 136,000,000 ordinary shares were issued fully paid pursuant to a placing and offer for subscription, for gross proceeds of million. During the period a further 24,499,999 ordinary shares were issued to satisfy demand, for gross proceeds of 25.0 million. Further details are given in note 16 on page 39. Since the period end, the Company has issued a further 45,000,001 new ordinary shares for total consideration of 48,917,000. All new ordinary shares have been issued at a premium to NAV. The Company has the authority to repurchase shares in the market for cancellation. However, no shares were repurchased during the period. Resolutions to renew the authority to repurchase shares and to issue new shares will be put to shareholders at the forthcoming Annual General Meeting. More details are given on pages 21 and 22 and the full text of the resolutions is set out in the Notice of Meeting on pages 48 and 49. Principal Risks With the assistance of the Manager, the Board has drawn up a risk matrix, which identifies the key risks to the Company. These key risks fall broadly into the following categories: Investment and Strategy: An inappropriate investment strategy, for example asset allocation or the level of gearing, may lead to underperformance against the Company s benchmark index and peer companies, resulting in the Company s shares trading on a wider discount. The Board manages these risks by diversification of investments through its investment restrictions and guidelines, which are monitored and reported on. the Manager provides the Directors with timely and accurate management information, including performance data and attribution analysis, revenue estimates, liquidity reports and shareholder analyses. The Board monitors the implementation and results of the investment process with the Investment Manager who attends all Board meetings, and reviews data which show statistical measures of the Company s risk profile. The Investment Manager is free to employ the Company s gearing tactically, within a strategic range set by the Board. Foreign Currency: Certain of the Company s assets, liabilities and income are denominated in currencies other than sterling (the Company s functional currency and the currency in which it reports). As a result, movements in exchange rates may affect the sterling value of these items. The Company may, and does, engage in currency hedging to mitigate this risk. Financial: The financial risks faced by the Company include market price risk, interest rate risk, liquidity risk and credit risk. Further details are disclosed in note 22 on page 41. Accounting, Legal and Regulatory: The Company is a registered closed-ended investment scheme as set out on page 10. The exempt status for Guernsey tax purposes is renewed annually by the Administrator and the results reported to the Board. The Company must also comply with Guernsey law and, since its shares are listed on the London Stock Exchange, the UKLA Listing Rules and Disclosure and Transparency Rules ( DTRs ). A breach of the law could result in the Company and/or the Directors being fined or the subject of criminal proceedings. Breach of the UKLA 12 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

15 Listing Rules or DTRs could result in the Company s shares being suspended from listing. The Board relies on the services of its Company Secretary and the Administrator to ensure compliance with Guernsey company law and the UKLA Listing Rules and DTRs. Corporate Governance and Shareholder Relations: Details of the Company s compliance with Corporate Governance best practice, are set out on pages 17 to 20. Information on relations with shareholders is set out on page 22. Operations: Disruption to, or failure of, the Manager s accounting, dealing or payments systems or the custodian s records could prevent accurate reporting and monitoring of the Company s financial position. Details of how the Board monitors the services provided by the Manager and the Administrator and their associates and the key elements designed to provide effective internal control are included below. Internal Control The Code requires the Directors, at least annually, to review the effectiveness of the Company s system of internal control and to report to shareholders that they have done so. This encompasses a review of all controls, which the Board has identified as including business, financial, operational, compliance and risk management controls. The Directors are responsible for the Company s system of internal control, which is designed to safeguard the Company s assets, maintain proper accounting records and ensure that financial information used within the business, or published, is reliable. However, such a system can only be designed to manage rather than eliminate the risk of failure to achieve business objectives and therefore can only provide reasonable, but not absolute, assurance against fraud, material mis-statement or loss. Since investment management, custody of assets and all administrative services are provided to the Company by the Manager and Administrator and their associates and the Depositary, the Company s system of internal control mainly comprises monitoring the services provided by the Manager and Administrator and their associates and the Depositary, including the operating controls established by them, to ensure they meet the Company s business objectives. The Company does not have an internal audit function of its own, but relies on the internal audit department of the Manager, and the Board reviews this arrangement annually. The same arrangements will apply in respect of the Depositary, with effect from 1st July. The key elements designed to provide effective internal control are as follows: Financial Reporting Regular and comprehensive review by the Board of key investment and financial data, including management accounts, revenue projections, analysis of transactions and performance comparisons. Management Agreement Appointment of a manager and custodian regulated by the FCA, whose responsibilities are clearly defined in a written agreement. Management Systems The Manager s system of internal control includes organisational agreements which clearly define the lines of responsibility, delegated authority, control procedures and systems. These are monitored by JPMF s Compliance Department which regularly monitors compliance with FCA rules. Investment Strategy Authorisation and monitoring of the Company s investment strategy and exposure limits by the Board. The Board, either directly or through the Audit Committee, keeps under review the effectiveness of the Company s system of internal control by monitoring the operation of the key operating controls of the Manager and Administrator and their associates, and the Depositary with effect from 1st July, as follows: the Board, through the Management Engagement Committee, reviews the terms of the management agreement and receives regular reports from the Manager s Compliance department; the Board reviews the report on the internal controls and operations of its custodian, JPMorgan Chase Bank, which is itself independently reviewed; and the Directors review every six months an independent report on the internal controls and the operations of the Manager. By means of the procedures set out above, the Board confirms that it has reviewed the effectiveness of the Company s system JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 13

16 Business Review continued of internal control for the period ended 30th June, and to the date of approval of this Annual Report and Accounts. During the course of its review of the system of internal control, the Board had not identified nor been advised of any failings or weaknesses which it has determined to be significant. Employees, Social, Community and Human Rights Issues The Company has a management contract with the Manager. It has no employees and all of its Directors are non-executive. The day to day activities are carried out by third parties. There are therefore no disclosures to be made in respect of employees. The Board notes the Manager s policy statements in respect of Social, Community and Environmental and Human Rights issues, as highlighted in italics: Social, Community, Environmental and Human Rights JPMF believes that companies should act in a socially responsible manner. Although our priority at all times is the best economic interests of our clients, we recognise that, increasingly, non-financial issues such as social and environmental factors have the potential to impact the share price, as well as the reputation of companies. Specialists within the Manager s environmental, social and governance ( ESG ) team are tasked with assessing how companies deal with and report on social and environmental risks and issues specific to their industry. The Manager is also a signatory to the United Nations Principles of Responsible Investment, which commits participants to six principles, with the aim of incorporating ESG criteria into their processes when making stock selection decisions and promoting ESG disclosure. Our detailed approach to how we implement the principles is available on request. Future Developments The future development of the Company depends on the success of the Company s investment strategy. The Investment Managers discuss the outlook in their report on pages 5 to 7. By order of the Board Juliet Dearlove, for and on behalf of JPMorgan Funds Limited, Secretary 30th September 14 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

17 Board of Directors Simon Miller (Chairman and chair of the Remuneration and Nomination Committee and Management Engagement Committee) A Director since May Appointed Chairman in May Simon Miller is chairman of Dunedin LLP. Mr Miller is also chairman of Brewin Dolphin plc, Artemis Alpha Trust plc, Blackrock North America Income Trust plc, Amati VCT plc and a non-executive director of Scottish Friendly Assurance Limited. He was previously chairman of JPMorgan Elect plc. He will retire as chairman and director of Artemis Alpha Trust plc in early October. Mr Miller is resident in the United Kingdom. Shareholding in Company: 25,000. Philip Taylor FCA (Chair of the Audit Committee) A Director since May 2013 Philip Taylor is Chairman of Hawksford Holdings Limited, The States of Jersey Treasury Advisory Panel and The Jersey International Business School Limited, Non-Executive Director of Royal Bank of Scotland International Limited and City Merchants High Yield Trust Limited, a Member of the Audit Committee of the States of Jersey and a Member of the Conduct Committee of the Financial Reporting Council. Formerly, he was a Partner of PricewaterhouseCoopers United Kingdom and Channel Islands firms and Senior Partner of PricewaterhouseCoopers Channel Islands from 1998 to Mr Taylor is resident in Jersey. Philip Taylor is Chairman of Hawksford International Limited. Simon Miller is Chairman of Dunedin LLP, which is manager of Dunedin Buyout Fund 2 and Equity Harvest Fund, which together own 49 per cent. of the shares in Hawksford International Limited. Dunedin LLP does not itself hold any interest in Hawksford International Limited. Shareholding in Company: 25,000. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 15

18 Board of Directors continued Charlotte Valeur A Director since May 2013 Charlotte Valeur is the Managing Director of GFG Ltd, which she founded in Prior to GFG, Ms Valeur was the Managing Partner of Brook Street Partners Ltd from Ms Valeur is the Chairman of the Board of Brevan Howard Credit Catalysts Limited, Kennedy Wilson Europe Real Estate plc and Blackstone/GSO Loan Financing Limited. She also serves on boards and committees of a number of listed and unlisted fund management and investment companies. Ms Valeur has in excess of 30 years experience in the financial markets. Prior to Brook Street Partners, Ms Valeur was a Director in Capital Markets at S.G.Warburg and Co, BNP Paribas, Societe Generale and Commerzbank. Ms Valeur began her career in Copenhagen in 1982 with Nordea A/S. In 1991 she moved to the London office of Nordea A/S as Head of the UK Fixed Income sales group. Ms Valeur is a member of The Institute of Directors and is regulated by the Jersey Financial Services Commission in the conduct of Trust Company business. Ms Valeur is resident in Jersey. Shareholding in Company: 25,000. Paul Meader A Director since May 2013 Mr Meader is an independent director of investment companies, insurers and investment funds. Until the autumn of 2012 he was Head of Portfolio Management for Collins Stewart based in Guernsey, prior to which he was Chief Executive of Corazon Capital. He has 28 years experience in financial markets in London, Dublin and Guernsey holding senior positions in portfolio management and trading. Prior to joining Corazon he was Managing Director of Rothschild's Swiss private-banking subsidiary in Guernsey. Mr Meader is a Chartered Fellow of the Chartered Institute of Securities & Investments, a past Commissioner of the Guernsey Financial Services Commission and past Chairman of the Guernsey International Business Association. Mr Meader is a resident of Guernsey. Shareholding in Company: 30,000. All Directors are members of the Audit Committee, the Remuneration and Nomination Committee, and the Management Engagement Committee and are considered independent of the Manager 16 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

19 Corporate Governance Framework The Company is committed to high standards of corporate governance. This statement, together with the Statement of Directors Responsibilities on page 26, indicates how the Company, as a Guernsey incorporated company listed on the London Stock Exchange has applied the principles of good governance of the Financial Reporting Council s UK Corporate Governance Code (the Code ).The Company is also required to comply with the Code of Corporate Governance issued by the Guernsey Financial Services Commission ( GFSC ). The Company is a member of the Association of Investment Companies (the AIC ) and by complying with the AIC s Code of Corporate Governance (the AIC Code ), it is deemed to comply with both the UK and Guernsey Codes of Corporate Governance. The GFSC issued The Financial Sector Code of Corporate Governance ( Guernsey Code ), effective 1st January The Guernsey Code requires an assurance statement from companies confirming that the Directors have considered the effectiveness of their corporate governance practices and are satisfied with their degree of compliance. The Board has considered the principles and recommendations of the Code and the AIC Code and considers that the Company has complied with the best practice provisions of the Code, insofar as they are relevant to the Company s business, the AIC Code, and the Guernsey Code throughout the period under review except for the provisions relating to: Role of the CEO; Executive Director remuneration; Internal Audit function; and Nomination of Senior Independent Director. As an investment company with no executive directors, the Board believes that compliance with these provisions is not appropriate. Role of the Board A management agreement between the Company and JPMF, and an administration agreement between the Company and JPM Administration Services (CI) Limited set out the matters which have been delegated to the Manager and the Administrator. This includes management of the Company s assets and the provision of accounting, company secretarial, administration, and some marketing services. All other matters are reserved for the approval of the Board. A formal schedule of matters reserved to the Board for decision has been approved. This includes determination and monitoring of the Company s investment objectives and policy and its future strategic direction, gearing policy, management of the capital structure, appointment and removal of third party service providers, review of key investment and financial data and the Company s corporate governance and risk control arrangements. The Board has procedures in place to deal with potential conflicts of interest and confirms that the procedures have operated effectively during the period under review. The Board meets on at least four occasions during the year and additional meetings are arranged as necessary. Full and timely information is provided to the Board to enable it to function effectively and to allow Directors to discharge their responsibilities. The Board has carried out on-site visits to the Manager in London and the Administrator in Guernsey. There is an agreed procedure for Directors to take independent professional advice if necessary and at the Company s expense. This is in addition to the access that every Director has to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures are followed and for compliance with applicable rules and regulations. Board Composition The Board, chaired by Simon Miller, consists of four non-executive Directors, all of whom are regarded by the Board as independent of the Company s Manager, including the Chairman. The Chairman s other significant commitments are set out in his biography on page 15. The Directors have a breadth of investment, business and financial skills and experience relevant to the Company s business. Brief biographical details of each Director are set out on pages 15 and 16. A review of Board composition and balance is included as part of the annual performance evaluation of the Board, details of which may be found below. The Board has considered whether a senior independent director should be appointed and has concluded that, as the Board is composed entirely of non-executive directors, this is unnecessary at present. However, the Chairman of the Audit Committee leads the evaluation of the performance of the Chairman and is available to shareholders if they have concerns that cannot be resolved through discussion with the Chairman. Board Diversity When recruiting a new Director, the Board s policy is to appoint individuals on merit. Diversity is important in bringing an appropriate range of skills, knowledge and experience to the Board. At 30th June, there were three male Directors and one female Director on the Board. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 17

20 Corporate Governance Framework continued Tenure Directors are initially appointed until the following Annual General Meeting when, under the Company s Articles of Association, it is required that they be reappointed by shareholders. Thereafter, a Director s appointment runs for a term of one year. In the light of the performance evaluation carried out each year, the Board will decide whether it is appropriate for the Director to seek an additional term. The Board does not believe that length of service in itself necessarily disqualifies a Director from seeking reappointment but, when making a recommendation, the Board will take into account the ongoing requirements of the Code, including the need to refresh the Board and its Committees. As an investment company with no executive directors the Board believes that compliance with these provisions is not appropriate. The Company s Articles of Association require that Directors stand for reappointment at each Annual General Meeting. The terms and conditions of Directors appointments are set out in formal letters of appointment, copies of which are available for inspection on request at the Company s registered office and at the Annual General Meeting. Meetings and Committees The Board delegates certain responsibilities and functions to Committees. Details of membership of Committees are shown with the Directors profiles on pages 15 and 16. The table below details the number of Board and Audit and Nomination Committee meetings attended by each Director. During the period under review there were four quarterly Board meetings and one Audit Committee and one Remuneration and Nomination Committee meeting. In addition, there were several other ad hoc Board meetings to deal with various corporate initiatives. Audit and Nomination Board Committee Meetings Meeting Director Attended Attended Simon Miller 4/4 1/1 Philip Taylor 4/4 1/1 Charlotte Valeur 4/4 1/1 Paul Meader 4/4 1/1 One Audit Committee meeting was held during the inaugural year, since the second, year-end, meeting was held after the conclusion of the first full financial reporting period in order to review the outcomes of that reporting period. Training and Appraisal On appointment, the Manager and Company Secretary provide all Directors with induction training. Thereafter regular briefings are provided on changes in regulatory requirements that affect the Company and Directors. Directors are encouraged to attend industry and other seminars covering issues and developments relevant to investment companies. The Board has agreed procedures for the formal evaluation of the Manager, its own performance and that of the Audit and Remuneration and Nomination Committee and individual Directors. Questionnaires, drawn up by the Board, are completed by each Director. The responses are collated and then discussed at a meeting of the Remuneration and Nomination Committee. The evaluation of individual Directors is led by the Chairman, on the basis of the questionnaires, and the Audit Committee Chairman leads the evaluation of the Chairman s performance. Board Committees The Committees each have written terms of reference which are available on the Company s website, Audit Committee The Audit Committee, chaired by Philip Taylor, consists of all of the Directors and meets at least twice each year. The members of the Audit Committee consider that they have the requisite skills and experience to fulfil the responsibilities of the Committee. At least one member of the Committee has recent and relevant financial experience and the qualifications of the members of the Audit Committee are disclosed on pages 15 and 16. The Board has taken the decision that Simon Miller should be a member of the Audit Committee. This is permitted under corporate governance rules because the Chairman was deemed to be independent on appointment. The Committee reviews the actions and judgements of the Manager in relation to the half year and annual accounts and the Company s compliance with the UK Corporate Governance Code. During its review of the Company s financial statements for the year ended 30th June, the Audit Committee considered the following significant issues, including those communicated by the Auditors during their reporting: 18 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

21 Significant issue Valuation and ownership of investments Recognition of investment income Allocation of expenses between revenue and capital Allocation of dividend between revenue and capital How the issue was addressed The valuation of investments is undertaken in accordance with the accounting policies, disclosed in note 2 to the accounts on page 33. Controls are in place to ensure that valuations are appropriate and existence is verified through Depositary reconciliations. The recognition of investment income is undertaken in accordance with accounting policy note 2(i) to the accounts on page 34. The Board regularly reviews subjective elements of income such as special dividends and agrees their accounting treatment. The Committee reviewed the allocation based on the objectives of the Company, the expected returns from the portfolio and discussions with the investment managers. It was agreed that expenses would be allocated 65% to revenue and 35% to capital. The Committee reviewed the issue price of new shares by reference to the cum-income element of the net asset value of the shares issued to determine the element that was returned to the purchaser by way of dividend. The Board was made fully aware of any significant financial reporting issues and judgements made in connection with the preparation of the financial statements. As a result of the assessment of the Annual Report performed by the Committee, it has concluded that the Annual Report for the year ended 30th June, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company s performance, business model and strategy, and has reported on these findings to the Board. The Board s conclusions in this respect are set out in the Statement of Directors Responsibilities on page 26. The Committee examined the effectiveness of the control systems by reviewing impendent reports on the control systems of the Manager, the Custodian and the Registrar and from reports prepared by the Manager s Compliance department. The Directors statement on the Company s system of Risk Management and Internal Controls is set out on pages 12 to 14. The Committee reviewed the scope and results of the external audit, its cost effectiveness, the balance of audit and non-audit services and the independence and objectivity of the external Auditors. In the Directors opinion the Auditors are independent. The Committee also has a primary responsibility for making recommendations to the Board on the reappointment and removal of external Auditors. Representatives of the Company s Auditors attended the Audit Committee meeting at which the draft annual report and accounts are considered and also engage with the Directors as and when required. Having reviewed the performance of the external Auditors, including assessing the quality of work, timing of communications and work with the Manager, the Committee recommended it appropriate to recommend their reappointment. The Board supported this recommendation and a resolution will be put to shareholders at the forthcoming Annual General Meeting. The Directors believe that having considered the Company s investment objective (see page 10), risk management policies (see pages 12 and 13), capital management policies and procedures (see page 47), the nature of the portfolio and expenditure projections, that the Company has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future. For these reasons, they consider that there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts. The current audit firm has audited the Company s financial statements since the launch of the Company on 11th June The Company s period ended 30th June is the current Audit Partner s first of a five year maximum term. Details of the fees paid for audit services are included in note 6 on page 36. The Board reviewed and approved non audit services provided by the independent Auditors and assessed the impact of the non-audit work on their ability to remain independent. Non-audit work was undertaken during the year, associated with the launch of the Company. Ernst & Young LLP were appointed during the period under review and have expressed their willingness to continue in office as auditor to the Company and a resolution proposing their re-appointment and to authorise the Directors to agree their remuneration for the ensuing year will be put to shareholders at the forthcoming Annual General Meeting. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 19

22 Corporate Governance Framework continued Remuneration and Nomination Committee The Remuneration and Nomination Committee, chaired by Simon Miller, consists of all of the Directors and meets at least annually to ensure that the Board has an appropriate balance of skills and experience to carry out its fiduciary duties and to select and propose suitable candidates for appointment when necessary. The appointment process takes account of the benefits of diversity, including gender. The Board s policy on diversity, including gender, is to take account of the benefits of these during the appointment process. However, the Board remains committed to appointing the most appropriate candidate, regardless of gender or other forms of diversity. Therefore, no targets have been set against which to report. The Committee conducts an annual performance evaluation of the Board, its Committees and individual Directors to ensure that all Directors have devoted sufficient time and contributed adequately to the work of the Board and its Committees. The evaluation of the Board considers the balance of experience, skills, independence, corporate knowledge, its diversity, including gender, and how it works together. Questionnaires, drawn up by the Board, with the assistance of the Manager, are completed by each Director. The responses are collated and then discussed by the Committee. The evaluation of individual Directors is led by the Chairman who also meets with each Director. The Audit Committee Chairman leads the evaluation of the Chairman s performance. The Committee also reviews Directors fees and makes recommendations to the Board as and when appropriate in relation to the remuneration policy. This review forms only a minimal part of discussions and therefore it is felt to be appropriate for Simon Miller to act as Chairman of the Committee. Management Engagement Committee The membership of the Management Engagement Committee consists of all the independent Directors and is chaired by Simon Miller. The Committee meets at least once a year to review the terms of the management agreement between the Company and the Manager, to review the performance of the Manager and other service providers, to review the notice period that the Company has with the Manager and terms in place with other service providers, and to make recommendations to the Board on the continued appointment of the Manager and other service providers following these reviews. 20 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

23 Directors Report The Directors present their report and the audited financial statements for the period ended 30th June. Capital Structure The Company s capital structure is summarised on the Features page. Voting Rights in the Company s shares Details of the voting rights in the Company s shares as at the date of this report are given in note 14 to the Notice of Meeting on page 50. Notifiable Share Interests At the date of this report the Company was aware of the following holdings of 3% or more of the Company s voting rights: Number of Shareholders voting rights % Brewin Dolphin Limited 30,136, JM Finn & Co Limited 11,193, Brown Shipley 7,928, The rules concerning the appointment and replacement of Directors, amendment of the Articles of Incorporation and powers to issue or buy back the Company s shares are contained in the Articles of Incorporation of the Company and Guernsey law. There are no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; no agreements which the Company is party to that affect its control following a takeover bid; and no agreements between the Company and its directors concerning compensation for loss of office. Environmental Matters, Social and Community Issues Information on environmental matters, social and community issues is set out on page 14. The Company has no employees. Annual General Meeting In accordance with the Articles of Incorporation and corporate governance best practice all Directors will stand for reappointment at the forthcoming Annual General Meeting. The Remuneration and Nomination Committee, having considered their qualifications, performance and confirmation to the Board and to the Committee, confirms that each Director continues to be effective and demonstrates commitment to the role and the Board recommends to shareholders that they be reappointed. NOTE: THIS SECTION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you should seek your own personal financial advice from your stockbroker, bank manager, solicitor or other financial adviser authorised under the Financial Services and Markets Act Resolutions relating to the following items of special business will be proposed at the forthcoming Annual General Meeting: (i) Authority to repurchase the Company s shares (resolution 9) A resolution will be proposed at the Annual General Meeting that the Company be authorised to repurchase in the market up to 14.99% of the Company s issued share capital as at the date of the passing of the resolution. Any repurchases will be at the discretion of the Board and will be made in the market only at prices below the prevailing net asset value per share, thereby enhancing the NAV of the remaining shares. The authority limits the number of shares that could be repurchased to a maximum of 30,804,450 Ordinary shares, representing approximately 14.99% of the Company s issued share capital as at 29th September (being the latest practicable date prior to the publication of this report). (ii) Authority to allot new shares and disapplication of pre-emption rights (resolutions 10 and 11) Resolution 10, if passed, will authorise the Directors to allot up to 20,550,000 ordinary shares or, if different, such number of ordinary shares as shall represent 10% of the Company s issued share capital as at close of business on the day immediately preceding the Annual General Meeting. If Resolution 11 is passed, the Directors will also have the power to allot the shares over which they are granted authority pursuant to Resolution 10 for cash on a non pre-emptive basis. Any ordinary shares allotted on a non pre-emptive basis will not be issued at a price less than the prevailing net asset value per ordinary share, based on the reasonable belief of the Directors at the time of issuance. After 19th September and the lapse of the existing prospectus, the Directors will limit the number of ordinary JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 21

24 Directors Report continued shares which may be issued for cash on a non pre-emptive basis to such maximum number of shares as shall be equal to 10% of the Company s issued ordinary share capital as at midnight on 29th September (this being the maximum amount of ordinary shares that the Company may issue during the next twelve months without having to publish a new prospectus). The Directors intend to use this authority when they consider that it is in the best interests of shareholders to do so and to satisfy continuing demand for the Company s ordinary shares. As such issues are only made at prices greater than the NAV, they increase the assets underlying each share and spread the Company s administrative expenses, other than the management fee which is charged on the value of the Company s assets, over a greater number of shares. Recommendation The Board considers that resolutions 9 to 11 are likely to promote the success of the Company and are in the best interests of the Company and its shareholders as a whole. The Directors unanimously recommended that you vote in favour of the resolutions, as they intend to do in respect of their own beneficial holdings which amount in aggregate to 105,000 ordinary shares, representing 0.05% of the voting rights of the Company. Relations with Shareholders The Board regularly monitors the shareholder profile of the Company. It aims to provide shareholders with a full understanding of the Company s activities and performance and reports formally to shareholders each year by way of the annual report and accounts, the half year report and (currently) two interim management statements. This is supplemented by daily publication, through the London Stock Exchange, of the net asset value (on a cum-income basis) of the Company s shares. Shareholders may also visit the Company s website at where the share price is updated every 15 minutes during trading hours. All shareholders have the opportunity, and are encouraged, to attend the Company s Annual General Meeting, at which the Directors and representatives of the Manager are available in person to meet shareholders and answer their questions, and a presentation is given by the Investment Manager who reviews the Company s performance. During the period the Company s brokers, the Investment Manager and the Manager hold regular discussions with larger shareholders and make the Board fully aware of their views. The Chairman and Directors make themselves available as and when required to support these meetings and to address shareholder queries. The Directors may be contacted through the Company Secretary whose details are shown on page 53. The Company s Annual Report and Accounts is published in time to give shareholders at least 21 days notice of the Annual General Meeting. Shareholders who cannot attend the meeting but wish to raise questions in advance of the meeting are encouraged to write to the Company Secretary at the address shown on page 53. Details of the proxy voting position on each resolution will be published on the Company s website shortly after the Annual General Meeting. Corporate Governance and Voting Policy The Company delegates responsibility for voting to the Manager. The following is a summary of the Manager s policy statements on corporate governance, voting policy and social and environmental issues, which has been reviewed and noted by the Board. Corporate Governance The Manager believes that corporate governance is integral to our investment process. As part of our commitment to delivering superior investment performance to our clients, we expect and encourage the companies in which we invest to demonstrate the highest standards of corporate governance and best business practice. We examine the share structure and voting structure of the companies in which we invest, as well as the board balance, oversight functions and remuneration policy. These analyses then form the basis of our proxy voting and engagement activity. Proxy Voting The Manager manages the voting rights of the shares entrusted to it as it would manage any other asset. It is the policy of the Manager 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. 22 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

25 Stewardship/Engagement The Manager recognises its wider stewardship responsibilities to its clients as a major asset owner. To this end, we support the introduction of the FRC Stewardship Code, which sets out the responsibilities of institutional shareholders in respect of investee companies. Under the Code, managers should: publicly disclose their policy on how they will discharge their stewardship responsibilities to their clients; disclose their policy on managing conflicts of interest; monitor their investee companies; establish clear guidelines on how they escalate engagement; be willing to act collectively with other investors where appropriate; have a clear policy on proxy voting and disclose their voting record; and report to clients. The Manager s Voting Policy and Corporate Governance Guidelines are available on request from the Company Secretary or can be downloaded from The Manager s website: which also sets out its approach to the seven principles of the FRC Stewardship Code, its policy relating to conflicts of interest and its detailed voting record. By order of the Board Juliet Dearlove, for and on behalf of JPMorgan Funds Limited, Secretary 30th September The Manager endorses the Stewardship Code for its UK investments and supports the principles as best practice elsewhere. We believe that regular contact with the companies in which we invest is central to our investment process and we also recognise the importance of being an active owner on behalf of our clients. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 23

26 Directors Remuneration Report (Unaudited) The Board presents the Directors Remuneration Report for the period ended 30th June. Directors Remuneration Policy The Directors Remuneration Policy is subject to a triennial binding vote and therefore an ordinary resolution to approve this policy will be put to shareholders at the forthcoming Annual General Meeting. The policy subject to the vote, is set out in full below and is currently in force. The Board s policy for this and subsequent years is that Directors fees should properly reflect the time spent by the Directors on the Company s business and should be at a level to ensure that candidates of a high calibre are recruited to the Board and retained. The Chairman of the Board and the Chairman of the Audit Committee are paid higher fees than the other Directors, reflecting the greater time commitment involved in fulfilling those roles. Reviews are based on information provided by the Manager and industry research carried out by third parties on the level of fees paid to the directors of the Company s peers and within the investment trust industry generally. The involvement of remuneration consultants has not been deemed necessary as part of this review. The Company has no Chief Executive Officer and no employees and therefore no consultation of employees is required and there is no employee comparative data to provide, in relation to the setting of the remuneration policy for Directors. All of the Directors are non-executive. There are no performance-related elements to their fees and the Company does not operate any type of incentive, share scheme, award or pension scheme and therefore no Directors receive bonus payments or pension contributions from the Company or hold options to acquire shares in the Company. Directors are not granted exit payments and are not provided with compensation for loss of office. No other payments are made to Directors, other than the reimbursement of reasonable out-of-pocket expenses incurred in attending the Company s business. In the year under review, Directors fees were paid at the following rates: Chairman 32,000; Chairman of the Audit Committee 27,500; and other Directors 25,000. The Company s articles of association provide that any increase in the maximum aggregate annual limit on Directors fees, currently 175,000, requires both Board and shareholder approval. The Company has not sought shareholder views on its remuneration policy. The Remuneration and Nomination Committee considers any comments received from shareholders on remuneration policy on an ongoing basis and takes account of those views. The terms and conditions of Directors appointments are set out in formal letters of appointment which are available for review at the Company s Annual General Meeting and the Company s registered office. Details of the Board s policy on tenure are set out on page 18. Directors Remuneration Policy Implementation The Directors Remuneration Report, which includes details of the Directors remuneration policy and its implementation, is subject to an annual advisory vote and therefore an ordinary resolution to approve this report will be put to shareholders at the forthcoming Annual General Meeting. Details of voting on both the Remuneration Policy and the Directors Remuneration Report from the Annual General Meeting will be given in the annual report for the period ending 30th June Thereafter, the reporting will be annually for the advisory vote on the Directors Remuneration Report and triennially for the Remuneration Policy. Details of the implementation of the Company s remuneration policy are given below. Chairman s Annual Statement on Directors Remuneration The Board has reviewed Directors remuneration and considers that the current level of remuneration is appropriate. No additional discretionary payments were made in the period. 24 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

27 Single total figure of remuneration The single total figure of remuneration paid to each Director for the period under review is detailed below. A table showing actual expenditure by the Company on remuneration and distributions to shareholders for the year and the prior year is below: Single total figure table Total fees 1 Expenditure by the Company on remuneration and distributions to shareholders 30th June 7th May 2013 Simon Miller 36,677 Philip Taylor 31,520 Charlotte Valeur 28,653 Paul Meader 28,750 Total 125,600 1 Directors remuneration comprises a directorship fee only. Directors are also reimbursed for out of pocket expenses incurred in attending the Company s business. Directors Shareholdings There are no requirements pursuant to the Company s Articles of Association for the Directors to own shares in the Company. The Directors beneficial shareholdings are detailed below. 7th May th June or as at date of Directors Name appointment Simon Miller 25,000 nil Philip Taylor 25,000 nil Charlotte Valeur 25,000 nil Paul Meader 30,000 nil Total 105,000 nil Remuneration paid to all Directors 125,600 nil Distribution to shareholders by way of dividend 3,589,000 nil by way of share repurchases nil nil Director Indemnification and Insurance As permitted by the Company s Articles of Incorporation, the Directors have the benefit of an indemnity which is a qualifying third party indemnity. The indemnity was in place during the period and as at the date of this report. An insurance policy is maintained by the Company which indemnifies the Directors of the Company against certain liabilities arising in the conduct of their duties. There is no cover against fraudulent or dishonest actions. For and on behalf of the Board Simon Miller Chairman 30th September The Directors have not purchased any shares since the period end. The Directors have no other share interests or share options in the Company and no share schemes are available. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 25

28 Statement of Directors Responsibilities The Directors are responsible for preparing the annual report and accounts in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the financial performance and cash flows of the Company for that period. International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board s Framework for the preparation and presentation of financial statements. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. In preparing these financial statements, the Directors are required to: properly select and apply accounting policies and then apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity s financial position and financial performance; and make an assessment of the Company s ability to continue as a going concern. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and which enable them to ensure that the accounts comply with the Companies (Guernsey) Law, They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for ensuring that the Company complies with the provisions of the Listing Rules and the Disclosure Rules & Transparency Rules of the UK Listing Authority which, with regard to Corporate Governance, require the Company to disclose how it has applied the principles, and complied with the provisions, of the UK Corporate Governance Code applicable to the Company. The Directors of the Company, who are listed on pages 15 and 16, each confirm to the best of their knowledge that: the financial statements, which have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; this annual report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and this annual report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company s performance, business model and strategy. Disclosure of information to Auditors In the case of each of the persons who are Directors of the Company at the time when this report was approved: (a) so far as each of the Directors is aware, there is no relevant audit information of which the Company s auditor is unaware, and (b) each of the Directors has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information (as defined) and to establish that the Company s auditor is aware of that information. For and on behalf of the Board Simon Miller Chairman 30th September 26 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

29 Independent Auditor s Report Independent Auditor s report to the members of JPMorgan Global Convertibles Income Fund Limited We have audited the financial statements of JPMorgan Global Convertibles Income Fund Limited (the Company ) for the period ended 30th June which comprise the Statement of Comprehensive Income Statement, the Statement of Changes in Equity, the Statement of Financial Position, the Cash Flow Statement and the related notes 1 to 24. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors Responsibilities set out on page 26, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Company s affairs as at 30th June and of its return for the period then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies (Guernsey) Law, Our assessment of risks of material misstatement We identified the following risks of material misstatement that had the greatest effect on the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team: valuation and ownership of the Company s investments; and recognition of dividend and fixed interest income. Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and of uncorrected misstatements, if any, on the financial statements and in forming our audit opinion. We determined materiality for the Company to be 1,733,000 which is 1% of total equity. This provided a basis for determining the nature, timing and extent of risk assessment procedures, identifying and assessing the risk of material misstatement and determining the nature, timing and extent of further audit procedures. On the basis of our risk assessments, together with our assessment of the Company s overall control environment, our judgment was that overall performance materiality (i.e. our tolerance for misstatement in an individual account or balance) for the Company should be 50% of materiality, namely 866,000. Our objective in adopting this approach was to ensure that total uncorrected and undetected audit differences in all accounts did not exceed our planning materiality level. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 27

30 Independent Auditor s Report continued We have agreed with the Audit Committee to report all audit differences in excess of 87,000, as well as differences below that threshold that, in our view, warrant reporting on qualitative grounds. An overview of the scope of our audit Our response to the risks identified above was as follows: We addressed the risk around the valuation and ownership of the Company's investments by: Obtaining a copy of the ISAE 3402 report on JPMorgan Chase Bank, N.A Investor Services for the period ended 31st March, and reading it to ascertain whether the controls over the capture of prices were operating effectively and could be relied upon in our audit strategy; As the ISAE 3402 report did not cover the entire financial year, we also obtained a copy of the representation from JPMorgan Chase Bank, N.A to the Directors of the Company that those controls also operated effectively during the period from 1st April to 30th June ; We agreed all period end prices for quoted investments to an independent source and considered the appropriateness of valuation basis applied to the unlisted investment; and We also obtained independent confirmation from the custodian of all of the Company s investments and agreed them to the books and records of the Company. We addressed the risk around incomplete or inaccurate income recognition by: Obtaining a copy of the ISAE 3402 report on JPMorgan Chase Bank, N.A, for the period ended 31st March, and reading it to ascertain whether the controls over the recognition of income were operating effectively and could be relied upon in our audit strategy; As the ISAE 3402 report did not cover the entire financial year, we also obtained a copy of the representation from JPMorgan Chase Bank, N.A to the Directors of the Company that those controls also operated effectively during the period from 1st April to 30th June ; We traced on a sample basis the terms of dividends and rates of interest receivable for portfolio securities and recalculated the income receivable based on holdings of the securities within the Company s portfolio; and We tested a sample of transactions to ensure that the effective interest rates were applied correctly and checked the bond portfolio for evidence of actual or potential credit losses that would impact the expected flow of income. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: materially inconsistent with the information in the audited financial statements; or apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or otherwise misleading. In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records; or we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company s compliance with the nine provisions of the UK Corporate Governance Code specified for our review. Andrew Jonathan Dann FCA for and on behalf of Ernst & Young LLP, Guernsey, C.I. 30th September 28 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

31 Financial Statements Statement of Comprehensive Income for the period from incorporation on 7th May 2013 to 30th June Revenue Capital Total Notes Losses on investments held at fair value through profit or loss 3 (1,751) (1,751) Income from investments 4 8,157 8,157 Other income Realised foreign currency gains on foreign currency contracts 12,770 12,770 Realised foreign currency gains Unrealised foreign currency gains on foreign currency contracts Total income 8,179 12,038 20,217 Management fee 5 (806) (434) (1,240) Other administrative expenses 6 (466) (466) Profit before finance costs and taxation 6,907 11,604 18,511 Finance costs 7 (8) (5) (13) Profit before taxation 6,899 11,599 18,498 Taxation 8 (241) (241) Net profit 6,658 11,599 18,257 Earnings per share p 7.54p 11.87p Details of dividends paid and proposed are given in note 10 on page 37. Earnings per share is based on the weighted average number of shares in issue during the period. The Company does not have any income or expense that is not included in net profit for the period. Accordingly the Net profit for the period is also the Total comprehensive income for the period, as defined in IAS 1 (revised). The Total column of this statement is the profit and loss account of the Company prepared in accordance with IFRS. The Revenue and Capital columns represent supplementary information prepared under guidance issued by the Association of Investment Companies. All items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. The notes on pages 33 to 47 form an integral part of these accounts. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 29

32 Financial Statements continued Statement of Changes in Equity for the period from incorporation on 7th May 2013 to 30th June Share Capital Revenue Capital Reserve Reserve Total At 7th May 2013 Issue of ordinary shares following placing and offer for subscription 136, ,000 Expenses of placing and offer for subscription (2,218) (2,218) Issue of ordinary shares 25,483 25,483 Share issue expenses (673) (673) Transfer of share premium on share issuance to revenue (154) 154 Profit for the period 11,599 6,658 18,257 Dividend paid in the period (3,589) (3,589) At 30th June 158,438 11,599 3, ,260 The notes on pages 33 to 47 form an integral part of these accounts. 30 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

33 Statement of Financial Position at 30th June Notes 000 Non current assets Investments held at fair value through profit or loss ,484 Investment in liquidity fund held at fair value through profit or loss 11 2,501 Total investments 164,985 Current assets Derivative financial assets Trade and other receivables 13 7,279 Cash and cash equivalents Current liabilities Derivative financial liabilities 14 (155) Trade and other payables 15 (195) Net current assets 8,275 8,625 Total assets less current liabilities 173,260 Net assets 173,260 Amounts attributable to equity holders Share capital ,438 Capital reserve 17 11,599 Revenue reserve 17 3,223 Total equity shareholders funds 173,260 Net asset value per Ordinary share p The accounts on pages 29 to 47 were approved by the Directors and authorised for issue on 30th September and are signed on their behalf by: Philip Taylor Director The notes on pages 33 to 47 form an integral part of these accounts. Incorporated in Guernsey with the company registration number: JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 31

34 Financial Statements continued Cash Flow Statement for the period from incorporation on 7th May 2013 to 30th June 000 Operating activities Profit before taxation 18,498 Add back interest 9 Add back losses on investments held at fair value through profit or loss 1,751 Deduction of unrealised gains on foreign currency contracts (723) Realised losses on Future Contracts (428) Transfer of income accrued (503) Purchases of investments held at fair value through profit or loss (360,355) Sales of investments held at fair value through profit or loss 188,981 Effect of increase in trade and other receivables (1,734) Effect of increase in trade and other payables 195 Net cash outflow from operating activities before interest and taxation (154,309) Taxation Interest paid Net cash outflow from operating activities (154,533) Financing activities Proceeds from the issue of ordinary shares following placing and offer for subscription 136,000 Expenses paid in respect of ordinary shares issued (2,218) Proceeds from the issue of ordinary shares 25,483 Share issue expenses (673) Dividend paid (3,589) Net cash inflow from financing activities 155,003 Increase in cash and cash equivalents 470 Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period 470 (215) (9) The notes on pages 33 to 47 form an integral part of these accounts. 32 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

35 Notes to the Accounts for the period from incorporation on 7th May 2013 to 30th June 1. Principal Activity The Company is a closed-end investment company incorporated in accordance with the Companies (Guernsey) Law, The principal activity of the Company is investment in a globally diversified portfolio of high-yielding convertible securities as set out in the Company s Objective and Investment Policies. 2. Basis of Preparation (a) Statement of compliance The Company s financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), which comprise standards and interpretations approved by the International Accounting Standards Board ( IASB ), the International Accounting Standards and Standing Interpretations Committee and interpretations approved by the International Accounting Standards Committee ( IASC ) that remain in effect and to the extent that they have been adopted by the European Union ( EU ). (b) Accounting period The financial information covers the period from the date of the incorporation of the Company on 7th May 2013 to 30th June. Dealings in the Company s shares began on the London Stock Exchange on 11th June 2013 and the Company began investing on that date. (c) Basis of accounting The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice ( SORP ) for investment companies issued by the Association of Investment Companies ( AIC ) in January 2009 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. All of the Company s operations are of a continuing nature. (d) Going Concern The financial statements have been prepared on a going concern basis. In assessing the going concern basis of accounting, the Directors have had regard to the guidance issued by the Financial Reporting Council in October After making enquiries, and bearing in mind the nature of the Company s business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. (e) Presentation of the Statement of Comprehensive Income In order to reflect the activities of the closed-ended investment company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue nature and a capital nature have been presented alongside the Statement of Comprehensive Income. (f) Adoption of New and Revised Standards New standards, amendments and interpretations with effect from 1 July 2013 The following new standards and amendments to existing standards are relevant to the Company s operations and are mandatory for the accounting periods ending on 30th June : IFRS 13, Fair value measurement (with effect from 1st January 2013). Annual improvements 2011 (with effect from 1st January 2013). New standards, amendments and interpretations issued but not yet effective The following standards and interpretations have been issued and are expected to be relevant to the Company in future periods, which will be effective for this Company s accounts after 1st July. Amendments to IAS 32, Financial instruments: assets and liabilities offsetting (with effect from 1st January ). IFRS 9 Financial Instruments (with effect from 1st January 2018). The Directors are currently reviewing these standards with a view to implementation on their effective date. Early adoption of standards The Company did not early adopt new or amended standards/interpretations for the period ended 30th June. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 33

36 Financial Statements continued Notes to the Accounts continued 2. Basis of Preparation continued (g) Financial Instruments Investments Financial instruments are recognised and derecognised on the trade date where a purchase or sale is under a contract whose terms require delivery within a timeframe established by the market concerned. Financial instruments are designated upon initial recognition as held at fair value through profit or loss at inception because they are managed and their performance is evaluated on a fair value basis and information thereon is evaluated by the Directors of the Company on a fair value basis. At subsequent reporting dates, investments are valued at fair values which are quoted bid market prices for investments traded in active markets. Changes in the fair value of financial instruments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the Statement of Comprehensive Income within Gains or losses on investments held at fair value through profit or loss. Transaction costs incurred on the acquisition and disposal of investments are also included within this column. Financial instruments traded over the counter that are freely transferable will be valued using an independent reporting system or, if not quoted on such a system, using prices obtained from at least two of the principal market makers in such securities. With respect to financial instruments other than those specified above, the Directors will determine the valuation, in accordance with established valuation procedures. Such procedures include the use of independent pricing sources if available. If independent pricing sources are not available, the fair value of such securities or assets will be determined using the issuer s financial strength and stability, the issuer s operating performance, strength of the issuer s management team, the Company s expected exit from the investment and any specific rights or restrictions associated with such investment. Gains and losses on sales of investments, increases and decreases in the valuation of investments held at the year end, foreign exchange gains and losses and other capital receipts and payments are dealt with in capital reserve. (h) Derivatives and Hedging Derivative instruments are valued at fair value in the Statement of Financial Position. Forward currency contracts entered into for hedging exposures are valued at the appropriate forward exchange rate ruling at the balance sheet date and any profits and losses are recognised in the Statement of Comprehensive Income and taken to capital reserve. Futures contracts entered into for hedging exposures are valued at fair value at the quoted trade price of the contract and any profits and losses on the closure or revaluation of positions are recognised in the Statement of Comprehensive Income and taken to capital reserve. The Company does not apply hedge accounting. (i) Income Interest from non-convertible fixed interest debt securities is recognised on an accruals basis using the effective interest rate basis which takes account of the amortisation of any discount or premium arising on the purchase price, compared to the final maturity value, over the remaining life of the security. Where income arises from convertible fixed interest securities it is also calculated on the effective interest rate basis but is based on the assumed value of the bond element of the security at acquisition. Future cash flows on all assets are considered when calculating revenue on an effective interest rate basis and where in the director s view there is a doubt as to the final maturity value, an estimate of the final redemption proceeds will be made in determining those cash flows. Accrued interest purchased or sold is excluded from the cost of the security and is dealt with in the revenue column of the Statement of Comprehensive Income. Dividends receivable from equity shares are included in the revenue column of the Statement of Comprehensive Income on an ex-dividend basis except where, in the opinion of the Directors, the dividend is capital in nature, in which case it is included in the capital column. Deposit interest receivable is recognised in the revenue column on an accruals basis. (j) Expenses and Finance cost All expenses are accounted for on an accruals basis and are recognised in the Statement of Comprehensive Income. 34 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

37 Management fees and finance costs are allocated 35% to capital and 65% to revenue in accordance with the Board s expected long-term split of returns, in the form of capital gains and income respectively, from the investment portfolio. Except for custodian dealing costs, all other expenses are charged through revenue. All expenses are accounted for on an accruals basis. All administration expenses (including management fees) are charged to the revenue column of the Statement of Comprehensive Income. (k) Cash and cash equivalents Cash and cash equivalents 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. (l) Other receivables Other receivables are non interest bearing, short term in nature and will accordingly be stated at nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. (m) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board. The Directors are of the opinion that the Company is engaged in a single segment of business, being investments in convertible securities. The Directors manage the business in this way. (n) Taxation The Company has been granted exemption from Guernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, and is charged an annual fee of 600. Overseas interest and dividends are shown gross of withholding tax and the corresponding irrecoverable tax is shown as a charge in the Statement of Comprehensive Income. (o) Foreign currency Functional and Presentation Currency The financial statements are presented in sterling, which is the Company s functional and presentation currency. Transactions and Balances Transactions in foreign currency, whether of a capital or revenue nature, are translated to sterling at the rate of exchange ruling on the date of such transactions. Foreign currency assets and liabilities are translated to sterling at the rates of exchange ruling at the balance sheet date. All profits and losses, whether realised or unrealised, are recognised in the Statement of Comprehensive Income and are taken to capital reserve or revenue reserve, depending on whether the gain or loss is capital or revenue in nature. (p) Key estimates and assumptions The preparation of the financial statements requires the Company to make estimations where uncertainty exists. It also requires the Company to exercise judgement in the process of applying the accounting policies. The critical accounting estimates and areas involving a higher degree of judgement or complexity comprise the fair value of derivatives and other financial instruments. The Directors use their judgement in selecting an appropriate valuation technique for financial instruments not quoted on an active market. Valuation techniques commonly used by market practitioners are applied. For derivative financial instruments, assumptions are made based on quoted market rates adjusted for specific features of the instrument. Other financial instruments are valued where possible, by observable market prices or using a discounted cash flow analysis based on assumptions supported. (q) Share issue costs The costs of issuing shares are charged against any premium received on those shares. If no premium is receivable, the costs are included in the Statement of Changes in Equity and charged to share capital. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 35

38 Financial Statements continued Notes to the Accounts continued Gains/(losses) on investments held at fair value through profit or loss Gains on investments held at fair value through profit or loss 2,217 Realised losses on close out of futures held at fair value through profit or loss (428) Effective interest rate adjustment (amortisation) (468) Net movement in investment holding gains and losses (3,061) Unrealised losses on futures held at fair value through profit or loss (2) Other capital charges (9) Total losses on investments held at fair value through profit or loss (1,751) Income Investment income Income from liquidity fund 21 Investment income interest 7,086 Overseas dividends 1,050 8,157 Other income Deposit interest 22 Total income 8,179 Revenue Capital Total Management fee Management fee ,240 Details of the management fee are given in the Business Review on page Other administrative expenses Other administration expenses 266 Directors fees Savings scheme costs 2 37 Auditor s remuneration for audit services 32 Auditor s remuneration for all other services Full disclosure is given in the Directors Remuneration Report on page These amounts were paid to JPMAM for the marketing and administration of saving scheme products. 3 In addition, the auditors were paid 20,000 in relation to work undertaken as part of the initial launch of the Company, which is included in the expenses of the placing and offer for subscriptions in note JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

39 Revenue Capital Total Finance costs Bank overdrafts Taxation As a Guernsey investment company no tax is payable on capital gains and, as the Company principally invest in assets which do not result in a revenue tax, the only overseas tax arises on the few assets domiciled in countries with which Guernsey has no double-taxation treaty. The overseas tax charge consist of irrecoverable withholding tax Earnings per share Earnings per share is based on the following: Revenue return 6,658 Capital return 11,599 Total profit 18,257 Weighted average number of shares in issue during the period used for the purpose of the calculation 153,766,882 Revenue return per share 4.33p Capital return per share 7.54p Total earnings per share 11.87p 10. Dividends Dividend paid and declared 000 Dividend paid First interim dividend of 2.25p per share 3,589 Dividend declared Second dividend declared of 2.25p per share 3,611 Dividend payment in excess of the revenue amount will be paid out of Company s distributable capital reserve. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 37

40 Financial Statements continued Notes to the Accounts continued 11. Investments held at fair value through profit or loss 000 Investments listed on a recognised stock exchange 159,477 Unlisted investment 3,007 Investment in liquidity fund 2,501 Total investments held at fair value through profit or loss 164, Listed Unlisted Total Opening valuation Movements in the period: Purchases at cost 357,355 3, ,355 Sales proceeds (194,526) (194,526) Gains on investments held at fair value through profit or loss 2,217 2,217 Net movement in investment holding gains and losses (3,068) 7 (3,061) Closing valuation 161,978 3, ,985 Closing book cost 165,046 3, ,046 Closing investment holding (losses)/gains (3,068) 7 (3,061) Closing valuation 161,978 3, ,985 Transaction costs on purchases during the period amounted to 12,000 and on sales during the period amounted to 2,000. These costs comprise mainly brokerage commission. 12. Derivative financial assets 000 Financial assets held for trading derivatives that are not designated in hedge accounting relationships Forward foreign currency contracts 876 Further details are given in notes 21 and Current assets 000 Trade and other receivables Securities sold awaiting settlement 5,545 Prepayments and accrued income 1,734 7,279 The Directors consider that the carrying amount of other receivables approximates to their fair value. 38 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

41 Cash and cash equivalents Cash and cash equivalents comprises bank balances and short term bank deposits held by the Company. The carrying amount of these represents their fair value. Cash balances in excess of a predetermined amount are placed on short term deposits at market rates of interest Derivative financial liabilities Financial liabilities held for trading derivatives that are not designated in hedge accounting relationships Futures contracts 1 2 Forward foreign currency contracts US$ 10 year note (CBT)SEP Futures at a contract cost of 5,018,000 and a market value of 5,016,000 giving an unrealised loss of 2,000. Further details are given in notes 21 and Trade and other payables Other payables measured at amortised cost Other creditors and accruals 195 The Directors consider that the carrying amount of other payables approximates to their fair value. 16. Share capital Authorised Share Capital Unlimited number of shares at no par value 000 Allotted and fully-paid share capital Issue of 136,000,000 shares following the placing and offer for subscriptions 136,000 Expenses of placing and offer for subscriptions (2,218) Issue of 24,499,999 shares 25,483 Share issue expenses (673) Transfer of share premium on share issuance to revenue (154) Closing balance 158,438 Share capital transactions On 7th May 2013, 136,000,000 shares were issued following a Placing and Subscription for gross proceeds of 136,000,000. A further 24,499,999 were issued during the period, to satisfy market demand for gross proceeds of 25,483,000. The ordinary shares carry the right to receive all dividends declared by the Company, are entitled to all the surplus assets of the Company on a winding up and hold all rights to vote in the Annual General Meeting of shareholders. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 39

42 Financial Statements continued Notes to the Accounts continued Capital Revenue reserve 1 reserve Reserves Opening balance Realised foreign currency gains on foreign currency contracts 12,770 Realised foreign currency gains 296 Unrealised foreign currency gains on forward foreign currency contracts 723 Realised gains on investments held at fair value through profit or loss 2,217 Effective Interest Rate Adjustment (Amortisation) (468) Unrealised losses on investments (3,061) Realised losses on close out of futures (428) Unrealised loss on futures (2) Finance costs charged to capital (5) Management fee charged to capital (434) Other capital charges (9) Transfer of share premium on share issuance to revenue 154 Dividends appropriated in the period (3,589) Net revenue profit for the period 6,658 Closing balance 11,599 3,223 1 Capital reserve is distributable and comprise gains and losses on sales of investments and holding gains and losses on investments held at the period end. Net holding losses on investments held at the period end amounted to 3,061,000 and realised gains amounted to 14,660, Net asset value per Ordinary share Ordinary shareholders funds ( 000) 173,260 Number of Ordinary shares in issue 160,499,999 Net asset value per Ordinary share (pence) Contingent liabilities and capital commitments There were no contingent liabilities or capital commitments at the balance sheet date. 20. Transactions with the Manager Details of the management contract are set out in the Business Review on page 11. The management fee payable to JPMorgan Asset Management Limited (JPMAM) by the Company for the period was 1,240,000 of which nil was outstanding in the accounts at the period end. In addition 37,000 was payable by the Company to JPMAM for the marketing and administration of savings scheme products of which 3,000 was outstanding in the Company s accounts at the period end. Included in other administration expenses in note 6 on page 36 are safe custody fees payable to JPMorgan Chase as custodian of the Company amounting to 10,000 of which 2,000 was outstanding at the period end. JPMAM carries out some of its dealing transactions through subsidiaries. These transactions are carried out at arms length. The commission payable to JPMorgan Securities for the period by the Company was 32 of which nil was outstanding in the Company s accounts at the period end. Handling charges payable on dealing transactions undertaken by overseas sub custodians on behalf of the Company amounted to 8,000 of which 1,000 was outstanding at the period end. At the period end, the Company held bank balances of 470,000, with JPMorgan Chase which was placed on deposit with an approved list of banks. 40 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

43 Interest amounting to nil was receivable by the Company during the period from JPMorgan Chase of which nil was outstanding in the Company s accounts at the period end. Full details of directors, directors remuneration and shareholdings can be found on pages 15, 16 and 25. No fees are outstanding at the period end. 21. Disclosures regarding financial instruments measured at fair value The disclosures required by the IFRS 13: Fair Value Measurement are given below. The Company s financial instruments within the scope of IFRS 13 that are held at fair value comprise its investment portfolio. The investments are categorised into a hierarchy consisting of the following three levels: Level 1 valued using quoted prices in active markets. Level 2 valued by reference to valuation techniques using observable inputs other than quoted market prices included within Level 1. Level 3 valued by reference to valuation techniques using inputs that are not based on observable market data. Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset. Details of the valuation techniques used by the Company are given in note 2(g) on page 34. The following tables set out the fair value measurements using the IFRS 13 hierarchy at 30th June: Level 1 Level 2 2 Level 3 Total Financial assets held at fair value through profit or loss Investments: Fixed interest securities 1 9,574 9,574 Convertibles 141,463 3, ,470 Preference 4,256 4,256 Convertible preference 4,184 4,184 Liquidity fund 2,501 2,501 Total investments 159,477 5, ,985 Derivative financial instruments: Forward foreign currency contracts Future contracts (2) (2) Total 159,477 6, ,706 1 Fixed interest securities include both fixed and floating rate securities. 2 Level 2 investments and derivative financial instruments are priced in accordance with the accounting policy in note 2(p). 22. Financial instruments exposure to risk and risk management policies The Directors have delegated to the Manager the management of the day-to-day investment activities, borrowings and hedging of the Company as more fully described in the Strategic Report and the Directors Report. As a closed ended investment company, the Company s investments include, but are not restricted to, convertible securities, preference shares, equities, index and participation notes, equity-linked notes, corporate bonds, pre-ipo bonds, warrants and other instruments exhibiting convertible or exchangeable characteristics, held for the long-term so as to comply with its Investment Policies (incorporating the Company s investment objective) stated on the Features page. In pursuing its investment objective, the Company is exposed to a variety of risks that could result in either a reduction in the Company s net assets or a reduction of the profits available for dividends. These risks include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Directors policy for managing these risks is set out below. The Company Secretary in close cooperation with the Board and the Manager, coordinates the Group s risk management strategy. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 41

44 Financial Statements continued Notes to the Accounts continued 22. Financial instruments exposure to risk and risk management policies continued (a) Market risk The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements currency risk, interest rate risk and other price risk. Information to enable an evaluation of the nature and extent of these three elements of market risk is given in parts (i) to (iii) of this note, together with sensitivity analyses where appropriate. The Board reviews and agrees policies for managing these risks. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis. (i) Currency risk Certain of the Company s assets, liabilities and income are denominated in currencies other than sterling, which is the Company s functional currency and the presentational currency of the Company. As a result, movements in exchange rates may affect the sterling value of those items. Management of currency risk The Manager monitors the Company s exposure to foreign currencies on a daily basis and reports to the Board. The Manager measures the risk to the Company of the foreign currency exposure by considering the effect on the Company s net asset value and income of a movement in the rates of exchange to which the Company s assets, liabilities, income and expenses are exposed. Income denominated in foreign currencies is converted to sterling on receipt. The Company may use short term forward currency contracts to mitigate currency risk. Foreign currency exposure The fair value of the Company s monetary items that have foreign currency exposure at 30th June are shown below. Where the Company s investments (which are not monetary items) are priced in a foreign currency, they have been included separately in the analysis so as to show the overall level of exposure. Singapore Australian Swedish US Dollar Euro Dollar Krona Dollar Other Total Current assets , , ,210 Creditors 2 (2,984) (51,545) (1,296) (5,623) (106,305) (2,450) (170,203) Foreign currency exposure on net monetary items (2,948) (43,424) (1,249) (5,531) (93,495) (2,346) (148,993) Investments held at fair value through profit or loss 3,556 43,969 1,717 5,931 93,813 2, ,893 Total net foreign currency exposure ,900 1 Does not include sterling balances. 2 Includes open forward currency contract gross exposure amounts. Foreign currency sensitivity The following tables illustrate the sensitivity of profit after taxation for the period and net assets with regard to the monetary financial assets and financial liabilities, convertible securities, and exchange rates. The sensitivity analysis is based on equity investments, monetary currency financial instruments held at each balance sheet date and the income receivable in foreign currency, and assumes a 10% appreciation or depreciation in sterling against the Singapore Dollar, Euro, Australian Dollar, Swedish Krona, US Dollar the other currencies to which the Company is exposed, which is deemed a reasonable illustration based on the volatility of exchange rates during the period. 42 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

45 If sterling had weakened by 10% this would have had the following effect: 000 Net monetary items (14,899) Investments held at fair value 15,189 Capital return 290 Total return after taxation for the period/net assets 290 Conversely if sterling had strengthened by 10% this would have had the following effect: 000 Net monetary items 14,899 Investments held at fair value (15,189) Capital return (290) Total return after taxation for the period/net assets (290) In the opinion of the Directors, the above sensitivity analysis with respect to monetary financial assets, financial liabilities and convertible securities, is broadly representative of the whole period. (ii) Interest rate risk Interest rate risk represents the risk that the fair value or the future payment flows generated by a financial instrument could fluctuate because of changes in interest rate levels. Interest rate risk comprises the fair value (present value) risk on fixed interest financial instruments as well as the risk associated with cash flows from variable interest (floating rate) financial instruments. It is related above all to long-term financial instruments. These longer terms can be material for financial assets, securities and financial liabilities. Interest rate movements may affect: the fair value of the investments in fixed-interest rate securities; the level of income receivable on cash deposits and floating rate investments; and the interest payable on variable rate borrowings. Management of interest rate risk The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account as part of the portfolio management and borrowings processes of the Manager. The Company may employ gearing up to a maximum of 20% of Net Asset Value at the time of borrowing. Gearing is expected to be used tactically to make investments consistent with the Company s investment objective and policy and for working capital purposes. The Board reviews on a regular basis the investment portfolio and borrowings. This encompasses the valuation of fixed-interest and floating rate securities and gearing levels. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 43

46 Financial Statements continued Notes to the Accounts continued 22. Financial instruments exposure to risk and risk management policies continued (a) Market risk continued (ii) Interest rate risk continued Interest rate exposure The following table shows the Company s exposure to interest rate risk at the balance sheet date arising from its monetary financial assets and liabilities. Within More than one year one year Total Exposure to held floating interest rates: Investments at fair value through profit or loss 2,501 1,726 4,227 Cash and cash equivalents Exposure to fixed-interest rates: Investments held at fair value through profit or loss 10, , ,199 Net exposure to interest rates 12, , ,896 Interest rate sensitivity The following table illustrates the sensitivity of profit after taxation for the period and net assets to a 1% increase or decrease in interest rate in regards to monetary financial assets and financial liabilities. This level of change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivity analysis is based on the monetary financial instruments held at the balance sheet date, with all other variables held constant. Effect of a 1% increase in interest rate: 000 Statement of Comprehensive Income return after taxation Revenue return 47 Total return after taxation for the period and net assets 47 Effect of a 1% decrease in interest rate: 000 Statement of Comprehensive Income return after taxation Revenue return (47) Total return after taxation for the period and net assets (47) In the opinion of the Directors, the above sensitivity analysis may not be representative of the whole period as the level of exposure to floating interest rates may fluctuate. 44 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

47 (iii) Other price risk Other price risk includes changes in market prices, other than those arising from interest rate risk or currency risk, which may affect the value of investments. Management of other price risk The Board meets each year to consider the asset allocation of the portfolio and the risk associated with particular industry sectors. The investment management team has responsibility for monitoring the portfolio, which is selected in accordance with the investment objective and seeks to ensure that individual securities meet an acceptable risk/reward profile. Other price risk exposure The Company s exposure to other changes in market prices at 30th June on its investments are as follows: 000 Investments held at fair value through profit or loss Fixed interest securities 1 9,574 Convertibles 144,470 Preference 4,256 Convertible preference 4, ,484 1 Fixed interest securities include both fixed and floating rate securities. Other price risk sensitivity The following table illustrates the sensitivity of profit after taxation for the period and net assets to an increase or decrease of 10% in the fair value of investments or a change in the rate. This level of change is considered to be a reasonable illustration based on observation of current market conditions. The sensitivity analysis is based on investments and adjusting for change in the management fee, but with all other variables held constant. Effect of a 10% increase in fair value: 000 Statement of Comprehensive Income return after taxation Revenue return (79) Capital return 16,206 Total return after taxation for the period and net assets 16,127 Effect of a 10% decrease in fair value: 000 Statement of Comprehensive Income return after taxation Revenue return 79 Capital return (16,206) Total return after taxation for the period and net assets (16,127) JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 45

48 Financial Statements continued Notes to the Accounts continued 22. Financial instruments exposure to risk and risk management policies continued (b) Liquidity risk This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Management of liquidity risk Liquidity risk is not significant as the Company s assets comprise readily realisable securities, which can be sold to meet funding requirements if necessary. Short term flexibility is achieved through the use of overdraft facilities. The Board s policy is to remain fully invested in normal market conditions and the Company may employ gearing up to a maximum of 20% of Net Asset Value to manage short term liabilities and working capital requirements. Liquidity risk exposure Contractual maturities of the financial liabilities at the year end, based on the earliest date on which payment can be required by the lender are as follows: Less than three months Total Other creditors and accruals Futures contracts 2 2 Forward foreign currency contracts (c) Credit risk Credit risk is the risk that the counterparty to a transaction fails to discharge its obligations under that transaction which could result in a loss to the Company. Management of credit risk Portfolio dealing The Company invests in markets that operate DVP (Delivery Versus Payment) settlement. The process of DVP mitigates the risk of losing the principal of a trade during the settlement process. The Manager continuously monitors dealing activity to ensure best execution, a process that involves measuring various indicators including the quality of trade settlement and incidence of failed trades. Counterparty lists are maintained and adjusted accordingly. Cash Counterparties are subject to daily credit analysis by the Manager and trades can only be placed with counterparties that have a minimum rating of A1/P1 from Standard & Poor s and Moody s respectively. Exposure to JPMorgan Chase JPMorgan Chase is the custodian of the Company s assets. The custody agreement grants a general lien over the securities credited to the securities account. The Company s assets are segregated from JPMorgan Chase s own trading assets. Therefore, in the event that JPMorgan Chase were to cease trading, these assets would be protected. However, no absolute guarantee can be given to investors on the protection of all assets of the Company. 46 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

49 Credit risk exposure The amounts shown in the Statement of Financial Position under investments in liquidity fund, derivative financial assets, derivative financial liabilities, other receivables and payables, and cash and cash equivalents represent the maximum exposure to credit risk at the period ends. Cash and cash equivalents comprise balances held at banks that have a minimum rating of A1/P1 from Standard & Poor s and Moody s respectively. (d) Fair values of financial assets and financial liabilities All financial assets and liabilities are either included in the Statement of Financial Position at fair value or the carrying amount is a reasonable approximation of fair value. 23. Capital management policies and procedures The Company s capital comprises the following: 000 Equity Share capital 158,438 Reserves 14,822 Total equity 173,260 The capital management objectives are to ensure that the Company will continue as a going concern and to optimise capital return to the Company s equity shareholders. Gearing is permitted up to a maximum level of 20% of Net Asset Value. 000 Investments held at fair value excluding liquidity fund holdings 162,484 Current assets excluding cash 8,155 Current liabilities excluding bank loans (350) Total assets 170,289 Net assets 173,260 Gearing/(net cash) (1.7)% The Board, with the assistance of the Manager, monitors and reviews the broad structure of the Company s capital on an ongoing basis. This review includes: the planned level of gearing, which takes into account the Manager s views of the market; the need to buy back equity shares for cancellation takes into account the share price discount or premium; and the need for issues of new shares. 24. Post balance sheet event A further 45,000,001 ordinary shares have been issued for gross proceeds of 48,917,000 since the balance sheet date. This included 41,250,001 ordinary shares issued on 19th September, for gross proceeds of 44,802,000 representing the largest individual transaction. JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 47

50 Shareholder Information Notice of Annual General Meeting Notice is hereby given that the first Annual General Meeting of JPMorgan Global Convertibles Income Fund Limited will be held at 1st Floor, Les Echelons Court, Les Echelons, South Esplanade, St Peter Port, Guernsey GY1 1AR on Tuesday, 4th November at 12 noon for the following purposes: 1. To receive the Directors Report & Accounts and the Auditor s Report for the period ended 30th June. 2. To approve the Company s Remuneration Policy. 3. To approve the Directors Remuneration Report for the period ended 30th June. 4. To appoint Simon Miller as a Director of the Company. 5. To appoint Philip Taylor as a Director of the Company. 6. To appoint Charlotte Valeur as a Director of the Company. 7. To appoint Paul Meader as a Director of the Company. 8. To reappoint Ernst & Young LLP as auditor of the Company and to authorise the Directors to determine their remuneration. Special Business To consider the following resolutions: Authority to repurchase the Company s shares 9. THAT the Company be generally and subject as hereinafter appears unconditionally authorised in accordance with the Company s Articles of Incorporation to make market purchases of its issued shares in the capital of the Company. PROVIDED ALWAYS THAT (i) the maximum number of ordinary shares hereby authorised to be purchased shall be 30,804,450 or, if less, that number of shares which is equal to 14.99% of the Company s ordinary issued share capital as at the date of the passing of this resolution; (ii) the minimum price which may be paid for an ordinary share shall be 1p; (iii) the maximum price which may be paid for a Share shall be an amount equal to the highest of: (a) 105% of the average of the middle market quotations for an ordinary share taken from and calculated by reference to the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the Share is purchased; or (b) the price of the last independent trade; or (c) the highest current independent bid; (iv) any purchase of ordinary shares will be made in the market for cash at prices below the prevailing net asset value per ordinary share (as determined by the Directors); (v) the authority hereby conferred shall expire on 3rd May 2016 unless the authority is renewed at the Company s Annual General Meeting in 2015 or at any other general meeting prior to such time; and (vi) the Company may make a contract to purchase Shares under the authority hereby conferred prior to the expiry of such authority and may make a purchase of ordinary shares pursuant to any such contract notwithstanding such expiry. Authority to allot new shares Ordinary Resolution 10. THAT the Directors of the Company be and they are hereby generally and unconditionally authorised, (in substitution of any authorities previously granted to the Directors), pursuant to and in accordance with the Company s Articles of Incorporation to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company ( Rights ) up to an aggregate amount as shall be equal to 10% of the issued share capital of the Company as at 3rd November (being the day immediately preceding the date of the Annual General Meeting), provided that this authority shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2015 unless renewed at a general meeting prior to such time, save that the Company may before such expiry make offers or agreements which would or might require shares to be allotted or Rights to be granted after such expiry and so that the Directors of the Company may allot shares and grant Rights in pursuance of such offers or agreements as if the authority conferred hereby had not expired. 48 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

51 Authority to disapply pre-emption rights on allotment of relevant securities Special Resolution 11. THAT subject to the passing of Resolution 10 set out above, the Directors of the Company be and they are hereby empowered pursuant to the Company s Articles of Incorporation to allot equity securities for cash pursuant to the authority conferred by Resolution 10, provided that this power shall be limited to the allotment of equity securities for cash up to an aggregate amount as shall be equal to 10% of the issued share capital of the Company as at 3rd November (being the day immediately preceding the date of the Annual General Meeting), at a price being not less than the prevailing net asset value per share at the date of allotment and shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2015 unless renewed at a general meeting prior to such time, save that the Company may before such expiry make offers or agreements which would or might require equity securities to be allotted after such expiry and so that the Directors of the Company may allot equity securities in pursuant of such offers or agreements as if the power conferred hereby had not expired. By order of the Board Juliet Dearlove, for and on behalf of JPMorgan Asset Management (UK) Limited, Secretary 30th September Notes These notes should be read in conjunction with the notes on the reverse of the proxy form. 1. A member entitled to attend and vote at the Meeting may appoint another person(s) (who need not be a member of the Company) to exercise all or any of his rights to attend, speak and vote at the Meeting. A member can appoint more than one proxy in relation to the Meeting, provided that each proxy is appointed to exercise the rights attaching to different shares held by him. 2. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. Your proxy could be the Chairman, another director of the Company or another person who has agreed to attend to represent you. Details of how to appoint the Chairman or another person(s) as your proxy or proxies using the proxy form are set out in the notes to the proxy form. If a voting box on the proxy form is left blank, the proxy or proxies will exercise his/their discretion both as to how to vote and whether he/they abstain(s) from voting. Your proxy must attend the Meeting for your vote to count. Appointing a proxy or proxies does not preclude you from attending the Meeting and voting in person. 3. Any instrument appointing a proxy, to be valid, must be lodged in accordance with the instructions given on the proxy form. 4. You may change your proxy instructions by returning a new proxy appointment. The deadline for receipt of proxy appointments (see above) also applies in relation to amended instructions. Any attempt to terminate or amend a proxy appointment received after the relevant deadline will be disregarded. Where two or more valid separate appointments of proxy are received in respect of the same share in respect of the same Meeting, the one which is last sent shall be treated as replacing and revoking the other or others. 5. To be entitled to attend and vote at the Meeting (and for the purpose of the determination by the Company of the number of votes they may cast), members must be entered on the Company s register of members as at 6.00 p.m. two business days prior to the Meeting (the specified time ). If the Meeting is adjourned to a time not more than 48 hours after the specified time applicable to the original Meeting, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for the purpose of determining the number of votes they may cast) at the adjourned Meeting. If however the Meeting is adjourned for a longer period then, to be so entitled, members must be entered on the Company s register of members as at 6.00 p.m. two business days prior to the adjourned Meeting or, if the Company gives notice of the adjourned Meeting, at the time specified in that notice. 6. Entry to the Meeting will be restricted to shareholders, with guests admitted only by prior arrangement. 7. A corporation, which is a shareholder, may appoint an individual(s) to act as its representative(s) and to vote in person at the Meeting (see instructions given on the proxy form). In accordance with the provisions of the Company s Articles of Incorporation, each such representative(s) may exercise the same powers as the corporation JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 49

52 Shareholder Information continued Notice of Annual General Meeting continued could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares. It is therefore no longer necessary to nominate a designated corporate representative. Representatives should bring to the meeting evidence of their appointment, including any authority under which it is signed. 8. Members that satisfy the thresholds in the Company s Articles of Incorporation can require the Company to publish a statement on its website setting out any matter relating to: (a) the audit of the company s accounts (including the auditor s report and the conduct of the audit) that are to be laid before the AGM; or (b) any circumstances connected with an auditor of the company ceasing to hold office since the previous AGM; which the members propose to raise at the meeting. The Company cannot require the members requesting the publication to pay its expenses. Any statement placed on the website must also be sent to the Company s Auditors no later than the time it makes its statement available on the website. 9. The Company must cause to be answered at the AGM any question relating to the business being dealt with at the AGM which is put by a member attending the meeting; no answer need be given if it is undesirable in the interests of the Company or the good order of the meeting. 10. Members meeting the threshold requirements in the Company s Articles of Incorporation have the right to require the Company: (i) to give, to members of the Company entitled to receive notice of the Meeting, notice of a resolution which those members intend to move (and which may properly be moved) at the Meeting; and/or (ii) to include in the business to be dealt with at the Meeting any matter (other than a proposed resolution) which may properly be included in the business at the Meeting. A resolution may properly be moved, or a matter properly included in the business unless: (a) (in the case of a resolution only) it would, if passed, be ineffective (whether by reason of any inconsistency with any enactment or the Company s constitution or otherwise); (b) it is defamatory of any person; or (c) it is frivolous or vexatious. A request made pursuant to this right may be in hard copy or electronic form, must identify the resolution of which notice is to be given or the matter to be included in the business, must be accompanied by a statement setting out the grounds for the request, must be authenticated by the person(s) making it and must be received by the Company not later than the date that is six clear weeks before the Meeting, and (in the case of a matter to be included in the business only) must be accompanied by a statement setting out the grounds for the request. 11. In accordance with the Company s Articles of Incorporation, the contents of this notice of meeting, details of the total number of shares in respect of which members are entitled to exercise voting rights at the AGM, the total voting rights members are entitled to exercise at the AGM and, if applicable, any members statements, members resolutions or members matters of business received by the Company after the date of this notice will be available on the Company s website The register of interests of the Directors and connected persons in the share capital of the Company is available for inspection at the Company s registered office during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted). It will also be available for inspection at the Annual General Meeting. 13. You may not use any electronic address provided in this Notice of Meeting to communicate with the Company for any purposes other than those expressly stated. 14. As at 29th September (being the latest business day prior to the publication of this Notice), the Company s issued share capital consists of 205,500,000 ordinary share, carrying one vote each. Therefore the total voting rights in the Company are 205,500,000. Electronic appointment CREST members CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the Meeting and any adjournment(s) thereof by using the procedures described in the CREST Manual. See further instructions on the proxy form. 50 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts

53 Glossary of Terms and Definitions Return to Ordinary shareholders Share price total return to the Ordinary shareholder, on a mid-market price to mid-market price basis, assuming that all dividends received were reinvested, without transaction costs, into the Ordinary shares of the Company at the time the shares were quoted ex-dividend. Return on net assets Return on the undiluted net asset value ( NAV ) per share on a bid value to bid value basis, assuming that all dividends paid out by the Company were reinvested into the shares of the Company at the NAV per share at the time the shares were quoted ex-dividend. Share price premium to net asset value ( NAV ) per share If the share price of an investment trust is lower than the NAV per share, the shares are said to be trading at a discount. The discount is shown as a percentage of the NAV per share. The opposite of a discount is a premium. It is more common for an investment trust s shares to trade at a discount than at premium. Gearing/Net Cash Gearing represents the excess amount above shareholders funds of total assets expressed as a percentage of the shareholders funds. Total assets include total investments and net current assets/liabilities less cash/cash equivalents and excluding bank loans of less than one year. If the amount calculated is negative, this is shown as a net cash position. Ongoing Charges The Ongoing Charges represent the Company s management fee and all other operating expenses excluding finance costs, expressed as a percentage of the average of the daily net assets during the year and is calculated in accordance with guidance issued by the Association of Investment Companies. Earnings per Ordinary share The earnings per Ordinary share represents the return on ordinary activities after taxation divided by the weighted average number of Ordinary shares in issue during the year. Bond-like Bond-like convertible securities are those with a relatively stable credit and has a fixed income value far greater than the value of the underlying equity. It is largely insensitive to changes in the value of the underlying equity. Balanced Balanced convertible securities are those where the underlying equity value and the bond value of the security are within a fairly close range of each other. This makes the value of the instrument sensitive to both changes in the underlying equity and the fixed income value of the security. Financial Conduct Authority In association with: Beware of share fraud Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment. While high profits are promised, if you buy or sell shares in this way you will probably lose your money. How to avoid share fraud Report a scam Keep in mind that firms authorised by the FCA are unlikely to contact you out of the blue with an offer to buy or sell shares. Do not get into a conversation, note the name of the person and firm contacting you and then end the call. Check the Financial Services Register from to see if the person and firm contacting you is authorised by the FCA. Beware of fraudsters claiming to be from an authorised firm, copying its website or giving you false contact details. Use the firm s contact details listed on the Register if you want to call it back Call the FCA on if the firm does not have contact details on the Register or you are told they are out of date. Search the list of unauthorised firms to avoid at Consider that if you buy or sell shares from an unauthorised firm you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme. Think about getting independent financial and professional advice before you hand over any money. Remember: if it sounds too good to be true, it probably is! If you are approached by fraudsters please tell the FCA using the share fraud reporting form at where you can find out more about investment scams. You can also call the FCA Consumer Helpline on If you have already paid money to share fraudsters you should contact Action Fraud on ,000 people contact the Financial Conduct Authority about share fraud each year, with victims losing an average of 20,000 JPMorgan Global Convertibles Income Fund Limited. Annual Report & Accounts 51

54 Information about the Company Financial Calendar Financial year end Final results announced Half year end Half year results announced Interim Management Statements announced Annual General Meeting 30th June September 31st December February May and November November History JPMorgan Global Convertibles Income Fund Limited is a Guernsey-incorporated investment company which was launched in June 2013 with assets of million. Company Numbers Guernsey company registration number: Ordinary Shares London Stock Exchange ISIN code: GG00B96SW597 Bloomberg code: JGCI SEDOL B96SW59 Market Information The Company s unaudited net asset value ( NAV ) is published daily, via the London Stock Exchange. The Company s shares are listed on the London Stock Exchange. The market price is shown daily in the Financial Times, The Times, The Daily Telegraph, The Scotsman and on the JPMorgan website at where the share price is updated every fifteen minutes during trading hours. Website Share Transactions The Company s shares may be dealt in directly through a stockbroker or professional adviser acting on an investor s behalf. They may also be purchased and held through the J.P. Morgan Investment Account, J.P. Morgan ISA and J.P. Morgan SIPP. These products are all available on the online wealth manager service, J.P. Morgan WealthManager+ available at Manager and Company Secretary JPMorgan Funds Limited Administrator JPM Administration Services (CI) Limited Company s Registered Office 1st Floor Les Echelons Court Les Echelons South Esplanade St Peter Port Guernsey GY1 1AR For company secretarial matters please contact Juliet Dearlove at the above address. Depositary BNY Mellon Trust and Depositary (UK) Limited BNY Mellon Centre 160 Queen Victoria Street London EC4V 4LA The Depositary employs JPMorgan Chase Bank, NA, as the Company s custodian. Registrars Capita Registrars (Guernsey) Limited Mont Crevelt House Bulwer Avenue St Sampson Guernsey GY2 4LH Telephone number: (Calls cost 10p per minute plus network extras) Lines are open Monday Friday, 9.00 a.m. to 5.30 p.m. (from outside the UK +44 (0) ) [email protected] Registered shareholders can obtain further details on their holdings on the internet by visiting Independent Auditors Ernst & Young LLP PO Box 9 Royal Chambers St Julian s Avenue St Peter Port Guernsey GY1 4AF Brokers Winterflood Securities The Atrium Building Cannon Bridge 25 Dowgate Hill London EC4R 2GA Telephone number: Savings Product Administrators For queries on the J.P. Morgan Investment Account, J.P. Morgan ISA and J.P. Morgan SIPP, call the JPMorgan Helpline on Freephone or +44 (0) A member of the AIC JPMorgan Global Convertibles Income Fund Limited Annual Report & Accounts 53

55 J.P. Morgan Helpline Freephone or +44 (0) Your telephone call may be recorded for your security