JPMorgan Funds Audited Annual Report - JP Morgan Asset ...

JPMorgan Funds
Notes to the Unaudited Financial Statements (continued)
As at 31 December 2013
The resulting gains and losses on translation are included in “Net Realised Gain/(Loss) on Foreign Exchange” in the Combined Statement of Operations and
Changes in Net Assets.
The reference currency of the Combined Statements is USD.
The principal exchange rates applied as at 31 December 2013 are as follows:
1 USD = 0.72592121 EUR;
1 USD = 0.60437568 GBP;
1 USD = 104.92000000 JPY.
f) Forward Foreign Exchange Contracts
Unrealised gains or losses on outstanding Forward Foreign Exchange Contracts are valued on the basis of currency exchange rates prevailing at the relevant
valuation date. The changes in such amounts are included in “Net Change in Unrealised Gain/(Loss) on Forward Foreign Exchange Contracts” in the
Combined Statement of Operations and Changes in Net Assets. Unrealised gains or losses are recorded under “Unrealised Net Gain/(Loss) on Forward
Foreign Exchange Contracts” in the Combined Statement of Net Assets.
g) Financial Futures Contracts on Securities and Indices
Regulated financial futures contracts are valued at the exchange quoted settlement price. Initial margin deposits are made upon entering into the contracts
and can be either in cash or securities. During the period the contracts are open, changes in the value of the contracts are recognised as unrealised gains and
losses by “marking-to-market” to reflect the market value of the contracts at the end of each business day’s trading. Variation margin payments are made or
received, depending upon whether losses or gains are incurred. The frequency of those margin payments may differ depending on where the contract is
traded. When a contract is closed, the SICAV records a realised gain or loss equal to the difference between the proceeds from, or cost of, the closing
transaction and the initial cost of the contract in “Net Realised Gain/(Loss) on Financial Futures Contracts” in the Combined Statement of Operations and
Changes in Net Assets.
Unrealised gains or losses are recorded under “Unrealised Net Gain/(Loss) on Financial Futures Contracts” in the Combined Statement of Net Assets.
Daily margin calls are recorded under “Net Realised Gain/(Loss) on Financial Futures Contracts” in the Combined Statement of Operations and Changes in
Net Assets.
h) Option Contracts
The SICAV writes options on securities, futures and currencies. These options are settled in cash and subject the SICAV to unlimited risk of loss. The SICAV,
however, is not subject to credit risk on written options as the counterparty has already performed its obligation by paying the premium at the inception of
the contract. As of 31 December 2013, certain Sub-Funds had written options contracts outstanding as listed on its Schedule of Investments.
Options purchased are recorded as investments; options written or sold are recorded as liabilities. When the exercise of an option results in a cash
settlement, the difference between the premium and the settlement proceeds is accounted for as a realised gain or loss. When securities are acquired or
delivered upon exercise of an option, the acquisition cost or sale proceeds are adjusted by the amount of the premium. When an option is closed, the
difference between the premium and the cost to close the position is accounted for as a realised gain or loss. When an option expires, the premium is
accounted for as a realised gain for options written or as a realised loss for options purchased.
For options on futures, where the investment manager is based in the United Kingdom, variation margin payments are made or received daily, depending
upon whether losses or gains are incurred on the underlying futures contracts.
i) Total Return Swaps
The SICAV may enter into swap contracts in which the SICAV and the counterparty agree to exchange payments where one or both parties pay the returns
generated by a security, instrument, basket or index thereof. The payments made by the SICAV to the counterparty and vice versa are calculated by
reference to a specific security, on a basket of securities, index, or instruments and an agreed upon notional amount. Any such underlying security or
instrument must be a transferable security and any such index must be an index of a regulated market.
A Total Return Swap will exchange the total performance on a specific basket of securities, selected by the Investment Manager against a reference rate plus
a spread. The total performance will include interests, dividends, gains and losses on the underlying securities during the contract period according to the
type of underlying. The risk of this type of instrument will depend on the uncertain evolution, at the time of the contract conclusion, of the performance of the
underlying. These underlying securities are listed on a primary exchange.
The value of the underlying securities shall be taken into account for the calculation of the investment and borrowing powers applicable to individual issuers. The
relevant indices include, but are not limited to, currencies, interest rates, prices and total return on interest rates indices, fixed income indices and stock indices.
The market values are recorded under “Derivatives Instruments at Market Value” in the Combined Statement of Net Assets. The changes in such amounts are
included in the Combined Statement of Operations and Changes in Net Assets under “Net Change in Unrealised Gain/(Loss) on Derivatives Instruments”.
When a contract is closed, the Realised Gain/(Loss) is recorded under “Net Realised Gain/(Loss) on Derivatives Instruments” in the Combined Statement of
Operations and Changes in Net Assets.
j) Interest Rate Swaps
An interest rate swap is a bilateral agreement in which each of the parties agree to exchange a series of interest payments for another series of interest
payments (usually fixed/floating) based on a notional amount that serves as a computation basis and that is usually not exchanged.
The market values are recorded under “Derivatives Instruments at Market Value” in the Combined Statement of Net Assets. The interests on interest rate
swaps are recorded under “Net Interest on Swap Transactions” in the Combined Statement of Operations and Changes in Net Assets. The changes in
unrealised gains or losses are included in the Combined Statement of Operations and Changes in Net Assets under “Net Change in Unrealised Gain/(Loss) on
Derivatives Instruments”. When a contract is closed, the realised gains or losses are recorded under “Net Realised Gain/(Loss) on Derivatives Instruments” in
the Combined Statement of Operations and Changes in Net Assets.
k) Credit Default Swaps
A Credit Default Swap is a credit derivative transaction in which two parties enter into an agreement, whereby one party pays the other a fixed periodic
coupon for the specified life of the agreement. The other party makes no payments unless a credit event, relating to a predetermined reference asset,
occurs. If such an event occurs, the party will then make a payment to the first party, and the swap will terminate. The value of the underlying securities shall
be taken into account for the calculation of the investment and borrowing powers applicable to individual issuers.
The market values are recorded under “Derivatives Instruments at Market Value” in the Combined Statement of Net Assets. The changes in unrealised gains
or losses are included in the Combined Statement of Operations and Changes in Net Assets under “Net Change in Unrealised Gain/(Loss) on Derivatives
Instruments”. When a contract is closed, the realised gains or losses are recorded under “Net Realised Gain/(Loss) on Derivatives Instruments” in the
Combined Statement of Operations and Changes in Net Assets.
l) To Be Announced Securities (“TBA”)
TBAs are related to mortgage backed securities issued by government sponsored agencies. These agencies usually pool mortgage loans and sell interests in
the pools created. TBAs relate to future pools of these agencies that are bought and sold for future settlement for which either the interest rate or the
maturity date is not yet fixed. TBAs are separately disclosed in the Schedule of Investments.
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