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

JPMorgan Funds
Notes to the Unaudited Financial Statements (continued)
As at 31 December 2013
The Sub-Funds may enter into Dollar Rolls, principally using TBAs, in which the Sub-Funds sell mortgage-backed securities for delivery in the current month
and simultaneously contract to repurchase similar, but not identical, securities at an agreed-upon price on a fixed date. The Sub-Funds account for such
Dollar Rolls as purchases and sales and receive compensation as consideration for entering into the commitment to repurchase. The Sub-Funds must
maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such Dollar Rolls. The market value of the
securities that the Sub-Funds are required to purchase may decline below the agreed upon repurchase price of those securities.
The Sub-Funds had TBA Dollar Rolls outstanding as of 31 December 2013, which are included in “Amounts Receivable on Sale of TBAs” and “Amounts Payable
on Purchase of TBAs” in the Combined Statement of Net Assets.
m) Commodity Index Swaps
A Commodity Index Swap is a bilateral agreement in which each of the parties agree to exchange the total return of a specified commodity index against
money market rate plus fees.
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.
n) Reverse Repurchase Agreements
The underlying obligations found to be satisfactory by the Investment Manager are transferred to an account of the SICAV as collateral. The securities are
marked-to-market daily and maintained at a value at least equal to the principal amount of the reverse repurchase agreement (including accrued interest).
Interest received or paid on Reverse Repurchase Agreements are recorded in the interest section of the Combined Statement of Operations and Changes in
Net Assets. The Funds’ Investment Manager is responsible for determining that the value of the underlying securities remains in accordance with the market
value requirements stated above.
o) Consolidation of Mauritian Subsidiary
All income, expenses, receivables, payables and investments of JPMorgan SICAV Investment Company (Mauritius) Limited (the “Subsidiary”), a
wholly-owned subsidiary of JPMorgan Funds, are consolidated into the Combined Statement of Net Assets and the Combined Statement of Operations and
Changes in Net Assets of JPMorgan Funds - India Fund. Securities owned by the Subsidiary are individually disclosed in the Schedule of Investments of
JPMorgan Funds - India Fund. Intercompany balances are eliminated on consolidation.
The use of the Mauritius Subsidiary and the tax treatment it is afforded, is based on the law and practice currently in force in the relevant countries, as
understood by the Board of Directors. It is subject to any future changes and such changes may adversely affect the returns of the Sub-Fund. This includes
any circumstances where the India/Mauritius Double Taxation Treaty may not be applied or ceases to be applied, resulting from, inter alia, any future ruling
by the Indian tax authorities. Should the treaty not be applied, or cease to be applied, interest on securities listed on an Indian stock exchange would be
subject to tax at a maximum rate of 20%. Capital gains on disposal of such investments would be subject to tax at rates of 0% to 15% from 1 April 2011 in
respect of listed securities depending on the length of time the relevant investment has been held.
3. Value of Financial Instruments and Associated Risks
The SICAV entered into forward foreign exchange contracts, financial futures contracts, options and swaps which, to varying degrees, represent a market
risk in excess of the amount reflected on the Combined Statement of Net Assets. The amount of the contracts represents the extent of the SICAV’s
participation in these financial instruments. Market risks associated with such contracts arise due to the possible movements in foreign exchange rates,
indices, and security values underlying these instruments.
Investment in fixed income securities is subject to interest rate, sector, security and credit risks. High yield bonds are lower-rated securities and will usually
offer higher yields to compensate for the reduced creditworthiness or increased risk of default that these securities carry.
Other market and credit risks include the possibility that there may be an illiquid market for the contracts, that a change in the value of the contracts may not
directly correlate with changes in the value of the underlying currencies, indices, or securities, or that the counterparty to a contract defaults on its
obligation to perform under the terms of the contract.
In emerging and less developed markets, in which some of the Sub-Funds will invest, the legal, judicial and regulatory infrastructure is still developing but
there is much legal uncertainty both for local market participants and their overseas counterparts. Some markets may carry higher risks for investors who
should therefore ensure that, before investing, they understand the risks involved and are satisfied that an investment is suitable as part of their portfolio. In
some markets there may be no secure method of delivery against payment which would minimise the exposure to counterparty risk. It may be necessary to
make payment on a purchase or delivery on a sale before receipt of the securities or, as the case may be, sale proceeds.
4. Distribution Policy
During the period from 1 July 2013 to 31 December 2013, the SICAV paid dividends as follows:
Class Currency Dividend Amount per Share Payment Date
JPM Asia Local Currency Debt A (mth) - HKD HKD 0.05 17 July 2013
JPM Asia Local Currency Debt A (mth) - USD USD 0.40 17 July 2013
JPMorgan Asia Pacific Income A (mth) - HKD HKD 0.06 17 July 2013
JPMorgan Asia Pacific Income A (mth) - SGD SGD 0.06 17 July 2013
JPMorgan Asia Pacific Income A (mth) - SGD (hedged) SGD 0.05 17 July 2013
JPMorgan Asia Pacific Income A (mth) - USD USD 0.50 17 July 2013
JPMorgan Asia Pacific Income B (mth) - USD USD 0.48 17 July 2013
JPMorgan Asia Pacific Income D (mth) - USD USD 0.48 17 July 2013
JPM Emerging Markets Debt A (irc) - AUD (hedged) AUD 0.08 17 July 2013
JPM Emerging Markets Debt A (irc) - CAD (hedged) CAD 0.07 17 July 2013
JPM Emerging Markets Debt A (irc) - NZD (hedged) NZD 0.09 17 July 2013
JPM Emerging Markets Debt A (mth) - EUR (hedged) EUR 0.07 17 July 2013
JPM Emerging Markets Debt A (mth) - HKD HKD 0.07 17 July 2013
JPM Emerging Markets Debt A (mth) - USD USD 0.09 17 July 2013
JPM Emerging Markets Debt C (mth) - USD USD 0.58 17 July 2013
JPM Emerging Markets Dividend A (irc) - AUD (hedged) AUD 0.06 17 July 2013
JPM Emerging Markets Dividend A (mth) - SGD SGD 0.04 17 July 2013
JPM Emerging Markets Dividend A (mth) - SGD (hedged) SGD 0.04 17 July 2013
JPM Emerging Markets Dividend A (mth) - USD USD 0.40 17 July 2013
JPM Emerging Markets Local Currency Debt A (mth) - USD USD 0.10 17 July 2013
JPM Emerging Markets Local Currency Debt B (mth) - USD USD 0.66 17 July 2013
JPM Emerging Markets Local Currency Debt C (mth) - USD USD 0.65 17 July 2013
JPM Emerging Markets Local Currency Debt D (mth) - USD USD 0.66 17 July 2013
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