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

JPMorgan Funds
Notes to the Unaudited Financial Statements (continued)
As at 31 December 2013
High Water Mark Method
If the Share Class Return exceeds the Benchmark Return and the cumulative Share Class Return exceeds the High Water Mark Return (as set out in the
Appendix to the Prospectus), the Performance Fee accrual is increased by the Performance Fee Rate multiplied by the Excess Return multiplied by the
previous Valuation Day’s Adjusted net asset value for that Class. If the Share Class Return does not exceed the Benchmark Return, the Performance Fee
accrual is reduced (but not below zero) by the Performance Fee Rate multiplied by the negative Excess Return multiplied by the previous Valuation Day’s
Adjusted net asset value for that Class. Following a period of negative Excess Return whereby the Performance Fee accrual has been reduced to zero, no new
Performance Fee is accrued until such time as the cumulative Share Class Return exceeds the greater of the High Water Mark Return and the cumulative
Benchmark Return since the beginning of the Company accounting year. The Performance Fee accrued on any Valuation Day is reflected in the Net Asset
Value per Share on the basis of which subscriptions and redemptions may be accepted.
Claw-Back mechanism
The purpose of the Claw-Back Mechanism is to ensure that the Management Company will only become entitled to a Performance Fee when it outperforms
the cumulative Benchmark Return (as defined in Appendix V of the prospectus) accrued since the last Valuation Day of the last period in which a Performance
Fee was paid.
8. Transactions with Connected Parties
All transactions with connected parties were carried out on an arm’s length basis.
JPMorgan Chase & Co. and its affiliates are counterparties for all securities lending activity and for certain forward foreign exchange contracts and financial
futures contracts. The Management Company, Registrar, Global Distributor, Transfer and Domiciliary Agent, Advisory Company, Investment Managers,
Custodian, Corporate, Administrative and Paying Agent and other related Agents of the SICAV are considered as connected parties as they are affiliated
entities of JPMorgan Chase & Co. In addition Elvinger, Hoss & Prussen (of which Mr Jacques Elvinger who is on the Board of the Directors of the SICAV, is a
partner) is compensated for legal services to the SICAV.
9. Soft Commission Arrangements
The Investment Managers of the Fund may enter into soft commission arrangements with brokers in respect of services used to support investment
decision-making for the benefit of the Fund.
The investment related services received under soft commission arrangements comprise:
- research and advisory services;
- economic and political analysis;
- portfolio analysis, including valuation and performance measurement;
- market analysis;
- data and quotation services;
- computer hardware and software incidental to the above goods and services; and
- investment-related publications.
The Investment Managers do not make direct payments for these services, but transact an agreed amount of business with the brokers on behalf of the Fund
and commission is paid on these transactions.
10. Securities Lending
The SICAV may lend portions of its securities portfolio to third parties for the purpose of generating additional income or for reducing costs or risk, to the
maximum extent allowed by and within the limits set forth in (i) article 11 of the Grand Ducal regulation of 8 February 2008 relating to certain definitions of
the Luxembourg Law, (ii) CSSFCircular 08/356 relating to the rules applicable to Undertakings for Collective Investment when they use certain techniques
and instruments relating to transferable securities and money market instruments and (iii) any other applicable laws, regulations, circulars or CSSF
positions. A significant proportion of the income generated from the securities lending program is credited to participating Sub-Funds, with a portion of the
income being paid to JPMorgan Chase Bank, N.A. for its role as securities lending agent for the Fund. Borrowers of securities lent by participating Sub-Funds
are approved by the Management Company after appropriate assessment of such borrowers’ status and financial standing. From 1 January 2013, the
Management Company has waived the incremental income previously received from the portion of income generated by Securities Lending, for its oversight
of the program. From this date, 85% of any incremental income earned from securities lending is accrued to the applicable Sub-Fund, with the remaining
income payable to the securities lending agent which arranges the transaction. The income earned from the securities lending program is detailed in the
Combined Statement of Operations and Changes in Net Assets.
As at 31 December 2013, the SICAV valuation of securities on loan is USD 385,455,652, as detailed below and received collateral as security with a market
value of USD 401,931,320.
The table below provides the USD valuation of securities on loan at a Sub-Fund level as at 31 December 2013:
Sub-Fund Market Value Cash Collateral
Non Cash
Collateral*
Lending Income
(Gross) Lending Agent Fee
Lending Income
(Net)
JPMorgan Funds - China Fund 75,519,527 9,470,769 70,800,652 270,164 40,525 229,639
JPMorgan Funds - Euroland Equity Fund 9,273,726 9,460,467 - 123,141 18,471 104,670
JPMorgan Funds - Euroland Select Equity Fund 3,440,721 2,653,468 887,176 24,331 3,650 20,681
JPMorgan Funds - Europe Dynamic Fund 24,748,959 8,197,759 17,585,398 125,077 18,762 106,315
JPMorgan Funds - Europe Equity Fund 8,700,934 7,749,897 1,151,257 96,853 14,528 82,325
JPMorgan Funds - Europe Small Cap Fund 7,670,295 2,841,514 5,181,249 49,081 7,362 41,719
JPMorgan Funds - Europe Technology Fund 18,797,187 9,373,294 10,282,008 65,467 9,820 55,647
JPMorgan Funds - Germany Equity Fund 48,953,646 49,787,301 100,703 80,229 12,034 68,195
JPMorgan Funds - Global Dynamic Fund 11,736,727 5,370,381 6,850,215 103,767 15,565 88,202
JPMorgan Funds - Global Focus Fund 33,417,775 34,120,375 - 147,318 22,098 125,220
JPMorgan Funds - Greater China Fund 55,361,632 8,888,362 49,948,440 137,809 20,671 117,138
JPMorgan Funds - Hong Kong Fund 7,276,728 456,688 7,255,591 17,621 2,643 14,978
JPMorgan Funds - US Small Cap Growth Fund** - - - 2 - 2
JPMorgan Funds - US Technology Fund** - - - 2,226 334 1,892
* The securities received as collateral are in the form of government securities (US, UK, and some Eurozone). These securities are issued and guaranteed as to principal and interest by the US and the
Eurozone government with minimum ratings of AAA and AA-, respectively.
** Exited from the Securities Lending programme as at 31 December 2013.
48