Understanding Flex Dist Share Classes

Transcription

1 Understanding Flex Dist Share Classes Inside Investments for Global Liquidity The Flex Dist share class is designed to operate in both positive and negative yield environments, enabling you to continue to reap the benefits provided by a stable net asset value (NAV) money market fund, irrespective of market conditions. The Flex Dist share class preserves many of the fundamental characteristics of a stable NAV money market fund; most importantly same day settlement for purchases and redemptions. This innovative solution to a challenging yield environment provides a choice that was previously unavailable, the ability to manage your cash needs with the knowledge that your money market fund would function regardless of the prevailing interest rate. Background Traditional distributing share classes on same-day settlement stable NAV money market funds distribute net income at the end of each day. These classes do not account for the possibility of negative net income on the fund. Flex Dist shares present a solution for challenging market circumstances. Flex Dist shares can operate in both positive and negative yield environments, while retaining the vital benefits of daily settlement and a stable NAV per share in a diversified investment vehicle. Overview of the Flex Dist share class In a positive yield environment, the Flex Dist share class has similar characteristics to a traditional distributing share class in a stable NAV money market fund all or substantially all of the net investment income is declared daily as a dividend and distributed monthly. However, in a negative yield environment, a specific mechanism applies in order to stabilise and maintain the NAV per share at the initial subscription price per distributing share. In this mechanism, an amount representing any shortfall due to the portfolio s low or negative yield as well as the Annual Total Expenses is calculated daily and deducted from your holdings by redeeming an appropriate number of shares, with the aim that the NAV of the share class can remain stable at the initial subscription price per share. Your overall account balance will decline as a result of the deduction. When the environment returns to positive yields, the deduction ceases. ADVANTAGES OF THE FLEX DIST SHARE CLASS Provides the benefits of diversification and professional management with the convenience of a stable NAV per share, daily liquidity and same-day settlement. Operates in both positive and negative yield environments. Allows funds to be more predictable and sustainable for the long term. Because the Flex Dist share class operates in both positive and negative yield environments, no change is required when yields turn from negative back to positive. How it works In a positive yield environment the share class operates exactly as distributing share classes have traditionally operated; income is accrued daily and distributed to you monthly (paid on business day one), and the NAV per share resets every day to 1.00 (see Figure 1). In a negative yield environment you pay a sum (the Flex Deduction) to compensate for negative yields and a portion of the fund s expenses and management fees, and to maintain a stable NAV per share; this is essentially a reverse distribution and will result in a reduction in your overall account balance in the amount of such reverse distribution (see Figure 2). The Flex Deduction will comprise two elements: the yield shortfall, and a portion of operating expenses and management fees (not to exceed the maximum Annual Total Expenses stated in the fund prospectus). The Flex Deduction will be taken through a redemption of your shares. The share class retains a stable NAV per share and daily settlement, thereby maintaining an important element of simplicity. jpmgloballiquidity.com

2 FIGURE 1 DAILY DISTRIBUTION IN A POSITIVE YIELD ENVIRONMENT Income Daily distribution of positive income NAV per share Day FIGURE 2 DAILY DISTRIBUTION/FLEX DEDUCTION IN A NEGATIVE YIELD ENVIRONMENT Income Daily distribution of positive income NAV per share 1.00 Deduction of negative income Day COMMONLY ASKED QUESTIONS I invest in the Flex Dist shares. Do I need to do anything when yields turn negative, and how will I know that the yield of the fund is negative? You do not have to take any action, and there will be no formal notification of negative yields. The Daily Yield Report will show a negative distribution rate (indicated by a minus sign) when yields are negative and a positive distribution rate when they are positive. Your monthly statements will show a Flex Deduction of shares for each day a negative yield is posted. How will the deduction occur from an accounting perspective? Upon closing the books of the fund each day and calculating the NAV per share, a receivable will be created in the fund for the amount of the negative Flex Deduction Factor. A redemption of investor shares will be made and paid into the fund to relieve the receivable. This process keeps the fund s NAV per share at Your share balance will be reduced by the daily redemption, reflecting your proportionate amount of the negative Flex Deduction Factor. FIGURE 3 EXAMPLE OF THE FLEX DEDUCTION CALCULATION Opening Balance 1,000, shares Flex Deduction Factor (example) Flex deduction amount Flex deduction amount * NAV = Flex Deduction shares Closing Balance *1.00 = shares 999, shares What will happen to the accumulating classes? The accumulating classes continue to operate as they have previously; that is, they will continue to be priced using amortised cost accounting, and will not pay out a distribution. In a positive yield environment, the NAV per share of these classes will trend upwards (accumulate), and in a negative yield environment, the NAV per share of these classes will trend downwards (de-cumulate). At what time will the negative rate be known/calculated, and at what time will the Flex Deduction process be completed on days when the yield is negative? The negative rate calculation should be completed by 6pm Luxembourg time, and the Flex Deduction process should normally be completed by 7pm Luxembourg time. Therefore, the end of day account balance will always show the balance after the Flex Deduction.

3 How will I be notified of the Flex Deduction amount? Contract notes will not be generated for each Flex Deduction transaction; however, we offer several different options to receive the required information: Global Cash Portal (GCP) if you use our online access system, you will be able to view the Flex Deduction transaction, updated balance and a table showing the negative rate applied for each day. GCP Flex dist changes Corporate 1. Balances page: As the balances update real time after a transaction has finished processing, users will be able to see their updated balance as soon as the Flex Deduction of shares has taken place each night (between 5 and 7 pm CET). A new Flex deductions icon has been added to the Action column for all of the (flex dist.) classes. Clicking on the icon will take the user to the Flex Deductions summary page. Luxembourg Liquidity Funds (Distributing) Account Balances are as of the dates indicated in the table. For transactions setting after this date for details of pending transactions. 2. Flex Deductions summary page: This is a new page that is similar to the existing Accrued Dividends page. It will show the daily rate and calculation used for the deduction as well as the cumulative total for the month. The information will be updated nightly, so users will be able to see the month to date calculations as of the previous day each morning. Users will also be able to retrieve data for previous months using the historical link.

4 3. Transaction history page: A new transaction type called Flex Deduction will be displayed for each day that there is a deduction of shares due to a negative yield. As the transaction history updates real time after a transaction has finished processing, users will be able to see this transaction as soon as the Flex Deduction of shares has taken place each night (normally between 5 and 7 pm CET). Contract Notes will not be generated for the Flex Deduction transactions, therefore no Contract Note link will appear for these trades.

5 GCP Flex dist changes Intermediary 1. Account Inquiry/Trading screen: The account balances that will be displayed on this screen will always be the balance at the end of the day, after the Flex Deduction of shares has taken place. As the balance is updated nightly, the updated balance will be available early in the morning the next day. A new column has been added called Flex Deduction Summary. This will be populated with an icon for all of the (flex dist.) classes. Clicking on the icon will take the user to the Flex Deductions summary page. 2. Flex Deductions summary page: This is a new page that is similar to the existing Accrued Dividends page. It will show the daily rate and calculation used for the deduction as well as the cumulative total for the month. The information will be updated nightly, so users will be able to see the month to date calculations as of the previous day each morning. Users will also be able to retrieve data for previous months using the historical link. 3. Transaction history page: A new transaction type called Flex Deduction will be displayed on each day that there is a deduction of shares due to a negative yield. The transaction history is updated on a nightly basis, so the transactions from the previous day will be available early in the morning the next day. Contract Notes will not be generated for the Flex Deduction transactions, therefore no Contract Note link will appear for these trades.

6 SWIFT if you receive reporting via SWIFT you will receive the share balance after the Flex Deduction has taken place on the MT535/Semt messages and the Flex Deduction transaction will appear on the MT536/Semt messages (please note that the transaction will appear as a regular redemption, as there is no SWIFT standard message for this type of transaction). File Transfer (FTP) if you receive reporting via file transfer, the Flex Deduction transaction and updated balance will be reflected in the transaction history and balance files sent on a nightly basis. How is this reflected on my monthly account statement? The Flex Deduction transaction will appear in the transaction history section and a separate Statement of Flex Deductions page will show the daily negative rate and amount deducted. Days with a positive distribution factor will continue to be displayed on the Accrued Dividends statement page. See statement example below. Sample Flex Dist Statement

7 Sample Flex Dist Statement What happens if, during the same month, there are some days with a positive yield and some days with a negative yield? Will positive and negative days be offset during the month? Positive days will continue to accrue daily and be paid out monthly. On negative days the deduction will happen on that day. We will not offset positive and negative days during the month.

8 IMPORTANT Although the aim is for the NAV per share to remain stable even in a negative yield environment, in such circumstances the number of shares held, and hence the value of a holding, will decrease and investors will receive reduced distributions in future. At the time of redemption, investors may get back less than originally invested. NOT FOR RETAIL DISTRIBUTION: This communication has been prepared exclusively for institutional/wholesale/professional clients and qualified investors only as defined by local laws and regulations. The views contained herein are not to be taken as an advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Hong Kong by JF Asset Management Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited; in India by JPMorgan Asset Management India Private Limited; in Singapore by JPMorgan Asset Management (Singapore) Limited, or JPMorgan Asset Management Real Assets (Singapore) Pte Ltd; in Taiwan by JPMorgan Asset Management (Taiwan) Limited; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number Kanto Local Finance Bureau (Financial Instruments Firm) No. 330 );; in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN ) (AFSL ); in Brazil by Banco J.P. Morgan S.A.; in Canada by JPMorgan Asset Management (Canada) Inc., and in the United States by JPMorgan Distribution Services Inc. and J.P. Morgan Institutional Investments, Inc., both members of FINRA/SIPC.; and J.P. Morgan Investment Management Inc. Copyright 2016 JPMorgan Chase & Co. All rights reserved. LV JPM /16 e5dc1910-a0f4-11e6-b c8a