Download Tab 1.1 - University of Maine System

STRICTLY PRIVATE/CONFIDENTIAL
JPMorgan Core Bond Fund
September 23, 2014
Wally Theado, CFA, Client Portfolio Manager, Global Fixed Income
614-213-2353, [email protected]
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
David Sultan, Client Advisor, Endowments & Foundations Group
212-648-1598, [email protected]
STRICTLY PRIVATE/CONFIDENTIAL
Agenda

Overview of University of Maine System’s J.P. Morgan team

J.P. Morgan Global Fixed Income Overview

U.S. Value Driven Core Bond

–
Investment Process
–
Investment Performance
Appendix
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
11
STRICTLY PRIVATE/CONFIDENTIAL
Today’s Presenters
David Sultan, Executive Director, is a Client Advisor in the Endowments & Foundations Group. In his
role, David leverages all of the resources of J.P. Morgan to deliver investment advice tailored to the
needs of endowments, foundations, and hospitals. Previously, David was an Investment Specialist in the
Financial Sponsors Group in J.P. Morgan's Private Bank, where he advised high net worth individuals and
private equity firms. Before joining J.P. Morgan, David was a long/short portfolio manager in UBS's
proprietary U.S. Equities Group focusing on the consumer and retail sectors and worked as a securities
analyst at John A. Levin & Co., also for the consumer and retail sectors. Prior to that, David spent over a
decade at Credit Suisse First Boston as an M&A banker in the Generalist Group. He advised clients on a
variety of transactions including public and private company buy-side and sell-side processes,
recapitalizations, fairness opinions, cross-border combinations, and defense and joint venture
advisories. He also worked at McKinsey & Co., advising clients in the financial services and consumer
products industries. David received an MBA from Harvard Business School and an AB from Harvard
College.
Wally Theado, vice president, is a member of the Global Fixed Income, Currency & Commodities
(GFICC) group. Based in Columbus, Wally is a client portfolio manager and is responsible for
communicating investment strategy, decisions and performance across various fixed income products to
clients, consultants, prospects and internal partners. An employee since 2008, he has served in various
positions within the Private Bank and Asset Management which include equity analyst, portfolio
management and wholesaling. Previously, he worked for Morgan Stanley as an analyst. Wally holds a
B.A. in finance from Otterbein University and an M.B.A. in financial economics from Ohio University. He is
a CFA charterholder and holds FINRA Series 7 and 63 licenses.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
2
STRICTLY PRIVATE/CONFIDENTIAL
Demonstrated Commitment to the Endowment & Foundation Community
J.P. Morgan is privileged to be the trusted investment advisor for a diverse group of endowments and
foundations globally
Demonstrated Commitment

Our firm has been working with the E&F community for nearly a century

Trusted advisor to E&F clients managing approximately $40bn of their assets 1
Distinctive Perspective

Acting as a fiduciary for over a century, our dedicated team of 47 E&F specialists provide investment expertise focused on
creating and delivering customized portfolio solutions that meet the unique needs of our E&F clients

Leverage the extensive global resources, expertise and best thinking of J.P. Morgan
Investment Solutions
1

Collaborate to identify and create custom solutions to meet each client’s objectives

Employ proprietary strategic portfolio tools including factor based modeling and liquidity analytics to produce efficient
risk/return portfolios

Implement single and multi-asset class custom portfolios
As of December 31, 2013. Includes J.P. Morgan Private Bank and J.P. Morgan Investment Management Inc.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
3
STRICTLY PRIVATE/CONFIDENTIAL
University of Maine System’s dedicated J.P. Morgan Investment Team
 Consults with UMS to
determine the portfolio’s
objectives and long-term
asset allocation
 Principal point of contact for
relationship with J.P.
Morgan Asset Management
 Ensures that UMS’s needs
are addressed
 Provides perspective on the
overall investment
environment
David Sultan
Client Advisor
 Brings product knowledge
and expertise across all
asset classes
 Oversees all stages of
account onboarding process
 Drafts and negotiates
advisory agreements and
related legal documentation
 Primary contact for day-today administrative, legal,
and compliance matters
Wally Theado
Client Portfolio
Manager
 Conducts account reviews
with Investment Committee
and staff
UMS
Deborah
Branaghan
Client Account
Manager
Doug Swanson
Portfolio Manager
 Oversees and implements
the investment decisions and
guidelines for UMS
 Monitors UMS’s portfolio on a
day-to-day basis
 Oversees risk management,
investment policy
compliance, and rebalancing
procedures
 Defines and coordinates
ongoing operational and
reporting requirements
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
 Communicates market and
strategy-specific information
and answer investment
related questions
 Brings deep portfolio
management knowledge and
expertise
4
STRICTLY PRIVATE/CONFIDENTIAL
Agenda

Overview of University of Maine System’s J.P. Morgan team

J.P. Morgan Global Fixed Income Overview

U.S. Value Driven Core Bond

–
Investment Process
–
Investment Performance
Appendix
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
5
STRICTLY PRIVATE/CONFIDENTIAL
The breadth and size of our fixed income business supports a solid
investment infrastructure
J.P. Morgan Global Fixed Income and Liquidity AUM
GFICC Investment Strategies (USD Billion)
USD 843 Billion Total Assets Under Management
US
Core
Short Duration
Government, Mortgages, Inflation Linked
Intermediate
Absolute
Return and
Opportunistic
Fixed Income,
38.6
Global Fixed
Income,
Currency &
Commodities
(GFICC),
399.9
Global
Liquidity, 451.9
JPS Credit
Opportunities
Strategies, 0.8
USD Billions
Source: JPMorgan Asset Management. Data as of June 30, 2014
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
6
136.9
74.1
40.0
12.7
10.2
Global
Global Rates
Global Aggregate
Global Credit
Asia Fixed Income
40.2
11.5
9.9
17.2
1.7
High Yield 1
High Yield Broad
High Yield Upper Tier
High Yield Global
High Yield Distressed Debt
High Yield Leveraged Loans
High Yield Other 2
61.8
33.2
7.4
8.0
5.6
5.7
1.9
EMD
EMD Sovereign
EMD Local Currency
EMD Corporate Debt
EMD Blended
39.2
14.4
6.8
6.4
11.6
Municipals
29.5
Unconstrained/Specialty
Currency 3
Multi-Sector/Strategic Bond
Infrastructure Debt
Commodities
19.3
12.7
5.6
0.7
0.2
Global Solutions
Liability Driven Investing
Insurance
Stable Value4
72.8
24.4
36.6
11.9
GFICC Total
Note: Global Fixed Income and Liquidity strategies highlighted above may not sum to the total assets under
management (“AUM”) figure due to the inclusion/exclusion of assets managed on behalf of other product
groups within J.P. Morgan Asset Management.
June 2014
$399.9
Includes assets managed on behalf of Absolute Return and Opportunistic Fixed Income.
short high yield and other high yield fixed income
3 Currency AUM represents exposure hedged by GFI currency team.
4 Market Value figures shown
1
2 Includes
STRICTLY PRIVATE/CONFIDENTIAL
J.P. Morgan Asset Management
Global Fixed Income, Currency & Commodities
Bob Michele, CFA
CIO and Global Head of GFICC
Business Management & Solutions
Investors
Meg
McClellan
Owais
Rana
Pierre-Yves
Bareau
Lisa
Coleman, CFA
Rob
Cook, CFA
Nick
Cox
Nick
Gartside, CFA
Global Fixed Income
Market Strategies
Liability-Driven
Investment Solutions
Group
Emerging Markets
Debt
Global IG
Corporates
Global High Yield
Trading
International
Vincent Kumaradjaja/
Rene Noel
Amit
Bhuchar
Steve
Lear, CFA
Barb
Miller
Bill Morgan/
Jim Shanahan
Doug
Swanson
Rick
Taormina
Fixed Income Risk
Management
Chief Operating Officer
U.S. CIO
Macro Driven
Mid-Institutional
High Yield/ Loans/
Distressed
U.S. CIO
Value Driven
Tax Aware
As of June 30, 2014.
There can be no assurance that the professionals currently employed by J.P. Morgan will continue to be employed by J.P. Morgan or that the past performance or success of any such professional serves as an indicator of such professional’s future
performance or success.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
7
STRICTLY PRIVATE/CONFIDENTIAL
J.P. Morgan Asset Management
GFICC Senior Investors
Bob Michele, CFA
CIO and Global Head of GFICC
Investors
U.S.
Steve Lear, CFA
U.S.
Doug Swanson
International
Nick Gartside, CFA
Global IG Corporates
Lisa Coleman, CFA
Global High Yield
Rob Cook, CFA
High Yield/Loans/Distressed
Bill Morgan/Jim Shanahan
Portfolio Managers/Traders
Betsy Borowiec
Tony Candelmo
Donald Clark, CFA
Don Clemmenson
Cary Fitzgerald
Ed Fitzpatrick, CFA
Jan Ho
Pete Kocubinski, CFA
Deepa Majmudar, PhD
Robert Manning, CFA
Andy Maschhoff, CFA
Dhruv Mohindra, CFA
Michael Murray, CFA
Andrew Norelli
Matthew Pallai
Michael Sais, CFA
Diana Wagner, CFA
Portfolio Managers/Traders
Richard Figuly
Scott Grimshaw, CFA
Gregg Hrivnak, CFA
Mark Jackson, CFA
Peter Simons, CFA
Henry Song, CFA
Erin Spalsbury, CFA
Portfolio Managers
David Oliver
Jeff Sawyer
Prashant Sharma
Liliana Slavova
Iain Stealey, CFA
Portfolio Managers/Traders
Robin Green
Jodi Irwin
Jeremy Klein, CFA
Andreas Michalitsianos, CFA
Bryan Wallace
Portfolio Managers/Traders
James Gibson
Christopher Musbach
Frederick Sabetta, CFA
Global Rates
Lee Isley
Seamus Mac Gorain, CFA
David Tan
Genji Tsukatani
Credit Research
Matthew Anavy, CFA
Yoann Belmere
Robert Emes
Russell Klein
Michael Kolster
Warren Leonard, CFA
Beate Muenstermann
Portfolio Managers/Traders
Peter Aspbury
Joan Boyer
Ben Callan
Thomas Davis, CFA
Thomas Hauser, CFA
John Lux, CFA
Mortgage Specialists
Kevin Beck
Jay DeWaltoff
Richard Dugoff
Drew Headley, CFA
Andrew Kazior, CFA
Raymond McGarrigal
Mark Rasimas, CFA
Daniel Sang
Credit Research
Greg Reed, CFA
Tim Bond
Mark Gannon
Josh Golden
Kevin Martinez
Stephen Mayes, CFA
Steve Sun
Scott Thomas, CFA
Kent Weber, CFA
Mid-Institutional
Barb Miller
Portfolio Managers/Traders
Steve Deibel, CFA
Wendy Fletcher
Toby Maczka, CFA
Mike McClinchie
Thad Paskell
Quant Research
Bhupinder Bahra
Frederick Bourgoin
Nick Handley, CFA
Currency
Roger Hallam, CFA
Danny Sage
Nima Tayebi
Neil Weller, CFA
Trading
Nick Cox
Traders
Jack Crawford
Emerging Markets Debt
Pierre-Yves Bareau
Credit Research
Robert Amenta
Andrew Clouse, CFA
Chris Fetes, CFA
Jeffrey Hutz, CFA
Naiara Irastorza
Jeffrey Lovell, CFA
Matthew Nelson, CFA
Mark Prenger, CFA
Russell Taylor
Portfolio Managers & Research
Eduardo Alhadeff
Emil Babayev
Joanne Baxter
Julio Callegari
Stephen Chang, CFA
Charles Chen
Namdev Chougule, CFA
Shaw Yann Ho
John-Paul Kelly
Didier Lambert, CFA
Scott McKee
Ai Ling Ngiam
Anna Shamina
Matias Silvani, PhD
Samrawit Soquar
Nima Tayebi
As of June 30, 2014
The above is reflective of senior team members only (managing director (bolded) and executive director levels). There can be no assurance that the professionals currently employed by J.P. Morgan will
continue to be employed by J.P. Morgan or that the past performance or success of any such professional serves as an indicator of such professional’s future performance or success.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
8
Credit Research
Kevin Aug, CFA
Casey Basil
Michael Borowske
Chad Engelbert, CFA
Andrew Guest
Matthew Kline
David Matherly
Alexander Sammarco, CFA
W. Scott Telford III, CFA
Eric Tutterow
Tax Aware
Rick Taormina
Portfolio Managers/Traders
James Ahn
Kimberly Bingle, CFA
Josh Brunner, CFA
Michael Buscemi
Kevin Ellis, CFA
Michelle Hallam, CFA
John Kowalski
Kevin Mortimer
Michael Myers
David Sivinski, CFA
Jennifer Tabak, CFA
Credit Research
John Blakely
Jeff Fountain, CFA
David Fucio
Kyle Gephart
John Updegraff
STRICTLY PRIVATE/CONFIDENTIAL
PM Biographies
Douglas S. Swanson, managing director, is the team leader and head portfolio manager for the U.S.
Value Driven team within our Global Fixed Income, Currency & Commodities (GFICC) group. Located in
Columbus, Doug is responsible for establishing daily tactical decision-making for taxable bond money
management as it relates to strategic investment policy and benchmarking, composite and investment
style oversight and performance oversight. An employee since 1983, he previously worked as managing
director of the Taxable Bond Team for Banc One Investment Advisors. Prior to this, Doug was first vice
president and portfolio manager at First Chicago NBD Corporation, where he managed the
government/corporate desk as well as the Pegasus Bond Fund, the Pegasus Intermediate Bond Fund,
the Mortgage-Backed Securities Fund, the Market Plus Fund and large institutional portfolios. Prior to
that position, Doug was a fixed income quantitative research analyst. He holds a B.S. in chemistry from
the Massachusetts Institute of Technology and an M.S. in management from the Sloan School at the
Massachusetts Institute of Technology.
Christopher Nauseda, vice president, is a member of the Global Fixed Income, Currency &
Commodities (GFICC) group. Located in Columbus, Chris is a portfolio manager for the U.S. Value
Driven team and is responsible for managing institutional taxable bond portfolios and the Illinois
Metropolitan Investment Fund. An employee since 1982, Chris previously served as vice president and
associate manager of the Pegasus Short Bond Fund and co-manager of the FCNBD Stable Asset Income
Fund at First Chicago NBD Corporation (predecessor firm). Before this, he worked as a trader and
managed various money market pooled funds and also served as a quantitative analyst. Chris holds a
B.S. in finance from Wayne State University and an M.B.A. from Wayne State University.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
9
STRICTLY PRIVATE/CONFIDENTIAL
This page intentionally left blank
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
10
STRICTLY PRIVATE/CONFIDENTIAL
Agenda

Overview of University of Maine System’s J.P. Morgan team

J.P. Morgan Global Fixed Income Overview

U.S. Value Driven Core Bond

–
Investment Process
–
Investment Performance
Appendix
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
11
STRICTLY PRIVATE/CONFIDENTIAL
STRICTLY PRIVATE/CONFIDENTIAL
We believe in a disciplined value-driven approach based on bottom-up
fundamental analysis

Longer term investing versus trading mentality

Style emphasizes research and individual security analysis, rather than large macro bets

Portfolios are well diversified and of AA+/AA average credit quality, helping to minimize individual security risk

Many small decisions drive overall portfolio strategy, making us less dependent on a few top-down decisions

Low turnover minimizes trading costs

Risk management, embedded throughout the process, seeks to limit downside risk relative to a benchmark
This approach has resulted in consistent, long-term outperformance of the benchmark in a
variety of market environments
The manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met.
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC DISTRIBUTION
12
STRICTLY PRIVATE/CONFIDENTIAL
Our investment process is based on active investment management and
disciplined risk control
Risk Management
Execution and
Rebalancing
Execution & Rebalancing
 PM’s responsible for
trading & fine tuning
Yield Curve & Duration
 Typically maintained
within +/- 10% of
benchmark
Relative Value Search
Relative Value Search
– Sector
– Security
Security
 Seek inexpensive
cash flows
Seek inexpensive
 High quality bias
Sector

cash flows
Fixed Income
High quality
SecurityUniverse
bias
Risk Management
The manager seeks to achieve the stated objectives. There can be no guarantee the objectives will met.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
13
Portfolio
Macroeconomic Environment
Macroeconomic Environment
PM’s responsible for
trading & fine tuning
STRICTLY PRIVATE/CONFIDENTIAL
We focus on identifying undervalued sectors within defined allocation
guidelines
Sector analysis

Analysis focuses research efforts on attractive
sectors that offer a clear risk/reward advantage

Process utilizes:
–
sector-specific scenario analysis
–
historical and projected spread analysis
–
macroeconomic trends

Portfolio managers are generalists, but maintain
specialized sector responsibilities

Typical allocation leads to spread product of 65%
to 85%
Core Bond Fund
Typical
Allocation
range
Mortgage-backed securities (MBS)
40-65%
38.47%
Agency (excluding MBS)
0-10%
2.77%
Corporate and asset-backed
15-35%
24.65%
Treasury
15-35%
22.64%
Source: J.P. Morgan Asset Management . Data as of 7/31/2014. Actual account allocations may differ.
The manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
14
Current
Allocation
Jul-05
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC DISTRIBUTION
-10
-10
-15
Corporate and asset-backed securities
Source: J.P. Morgan Investment Management Inc. Updated through July 31, 2014
15
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Treasury
Jan-07
5
Jul-06
10
Jul-06
20
Jan-06
25
Jul-05
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
30
Jan-06
-5
Jan-06
Mortgage-backed securities
Jul-05
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
Jan-06
Jul-05
STRICTLY PRIVATE/CONFIDENTIAL
STRICTLY PRIVATE/CONFIDENTIAL
Sector weight comparison
Core Bond Composite vs. Barclays Aggregate
(% Market value)
Agency
10
15
5
0
0
-5
STRICTLY PRIVATE/CONFIDENTIAL
STRICTLY PRIVATE/CONFIDENTIAL
CMOs are a large and active market
As of December 31, 2013

Total outstanding CMOs reached $1.8
trillion in December 2013

Annual issuance was a total of $316
billion issued, versus $334 billion in 2012

CMOs represent a significant portion of
our mortgage allocation

We have a long track record investing in
this market
Outstanding CMOs since 2000
(In US$ Billions)
3500
Non-Agency
GNMA
FNMA
FHLMC
3000
2500
2000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
*Amount outstanding includes Re-Remics.
Source: Bloomberg and J.P. Morgan Investment Management Inc.
The charts and/or graphs shown above and throughout the presentation are for illustration and discussion purposes only.
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC DISTRIBUTION
16
STRICTLY PRIVATE/CONFIDENTIAL
Security selection: Structure is also an important consideration
Security selection

Perform rigorous security-by-security
research in an effort to uncover value

Seek securities that are high in quality

Utilize:

–
option-adjusted spread analysis
–
projected total returns
–
historical and projected spread analysis
–
credit research
Security analysis example
(12-month horizon stress test)
Security
Description
Pass-through
PAC bond (CMO)
Price
Yield
Duration
OAS
FNMA 30yr 3.0% 10/01/2042 104.64
1.33
5.51
0
FHLMC 3867 VB 4.5%
03/15/2024
1.57
5.00
60
114.36
Change in interest rates
-150
-100
-50
0
+50
+100
+150
Total expected return passthrough MBS
2.95
3.50
3.52
2.16
(0.13)
(2.96)
(6.01)
Total expected return PAC
bond
4.58
4.67
4.09
2.41
0.35
(1.75)
(3.81)
CMO advantage
1.63
1.17
0.57
0.25
0.48
1.21
2.20
Drives creation of added value
Key point:
 A planned amortization class (PAC) mortgage bond can help protect
against prepayment volatility, and offer great carry
Snapshot
Treasury Curve
1 Year
2 Year
3 Year
5 Year
7 year
10 Year
30 Year
0.16
0.24
0.34
0.69
1.16
1.76
2.92
Source: J.P. Morgan Asset Management ; data as of 09/12/2012 The above example is shown for illustrative purposes only and is not representative of any specific portfolio.
The manager seeks to achieve the stated objective. There can be no guarantee the objective will be met.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
17
STRICTLY PRIVATE/CONFIDENTIAL
Investment Grade Credit Research
Credit – Client Coverage
Market
Overview
Size (AUM)
Taxable Corporate Bonds
$50 BN
Structured Bonds:
$22 BN
-Non Agency CMO
$6 BN
-CMBS
$8 BN
-ABS
$8 BN
Total Fixed Income Credit
 The Investment Grade Credit Research Team supports a wide
range of global strategies across the risk and duration curves
 Our Credit Research Team supports $462 Billion of AUM for the
JPMAM Global Liquidity Group
 The broad range of AUM supported provides the research team
with good relative risk and relative value perspective.
 Access to issuers and management adds insight to valuation
process
$72 BN
Fixed Income Universe Coverage
Return
Corporate
Only
A-AAA
Core
Plus
Bond
Mortgage
Backed
Inflation
Managed
Bond
Limited
Duration
Bond
Core
Bond
Short-Term
Bond
Long
Duration
Credit
Opportunities
Intermediate
Bond
Additional Product Offerings:
Insurance
Global
Liquidity
Risk
Source: JPMorgan Investment Management Inc. As of June 30, 2014
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
18
STRICTLY PRIVATE/CONFIDENTIAL
STRICTLY PRIVATE/CONFIDENTIAL
Portfolio construction: Security selection
Example: AT&T/Bellsouth
“Deep Dive” Financial Analysis
Focus on balance sheet, capital structure, cash flow and
available liquidity

AT&T Wireless subsidiary has the strongest cash flow &
fundamentals for the group

S&P removed rating on BellSouth causing spreads to widen

Perform rigorous security-by-security research in an effort to
uncover value

BellSouth has structural seniority plus a 40% economic
ownership in the strong cash flows from AT&T Wireless

Utilize:
– Option-Adjusted Spread Analysis
– Projected Total Returns
– Historical And Projected Spread Analysis
– Credit Research

Attractive risk/reward opportunity for better yields and a better
credit profile
AT&T STRUCTURE
COMPARISON
Wireless
Wireless Entity
% of Wireless
Rating Ownership % EBITDA
Debt
EBITDA to Debt
At&t
60%
$12,979 $57,800
22.5%
AT&TInc.
Inc.(Parent)
(Parent) A2/A-/A-
Relative Value
BellSouth
A2/NR/A
40%
$8,652
$9,400
92.0%
Analysis of spreads and curve positioning to find
attractive opportunities
SECURITY
DESCRIPTION
Spread
Yield
Duration Z-Spread Advantage Advantage
Price
Yield
$100.4
1.51%
4.628
40.0
$115.0
1.83%
4.149
75.0
$115.3
4.59%
15.153
189.0
$110.5
5.21%
12.149
260.0
At&t Inc.
ofof
AT&T
Inc.1.6%
1.6%
Feb. 2017
BellSouth 5.2% of
Dec. 2016
At&t Inc.
ofof
AT&T
Inc.5.55%
5.55%
Aug. 2041
BellSouth 6.55% of
June 2034
35
0.32%
71
0.62%
Prices as of 12/31/10 per IDC. Analytics per YieldBook model. 3-month time horizon analysis.. Securities mentioned are shown for illustrative purposes only and should not be interpreted as recommendations to buy or sell. A full list of firm
recommendations for the past year is available upon request. There can be no guarantee that the above security will be profitable in the future.
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC DISTRIBUTION
19
STRICTLY PRIVATE/CONFIDENTIAL
STRICTLY PRIVATE/CONFIDENTIAL
Risk management is an integral part of our investment process
Objectives

Limit downside risk relative to benchmark

Consciously identify and manage risk exposures
Foundations


Portfolio guidelines
–
provide diversification framework relative to benchmark
–
serve as the primary basis for monitoring portfolios
versus benchmarks
Participants

Portfolio managers — portfolio construction and
monitoring

Quantitative/risk managers — risk environment,
analysis and monitoring

Credit analysts — security review

Senior management — oversight and accountability

Client portfolio managers — client policy and
communication
Stress testing
–
total return simulations for portfolio versus benchmark
–
stress changes in interest rates, yield curve and
spreads

Extensive portfolio reporting and oversight

Performance review
The manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met.
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC DISTRIBUTION
20
STRICTLY PRIVATE/CONFIDENTIAL
Duration and yield curve are important considerations in
the investment process
Contribution to Duration
 Core Bond Fund
 BC Aggregate
4.68 yrs
5.46 yrs
Duration management
2.5
2.04
Duration (Yrs.)
2.0
1.74

1.86
Portfolio duration has tracked the benchmark
historically
–
1.5
1.23
1.32
1.27

1.0
0.5
0.17
typically within +/- 10% of index
Duration is managed within each sector and on
an overall portfolio basis
0.26
0.14
0.10
0.0
Treasury
Agency
Mortgages
ABS/CMBS
Credit
Yield Curve
Key Rate Duration
Core Bond Fund
1.50
1.39
1.22
1.29
1.10
0.94 0.98
0.93
KRD
0.90
0.70
0.57
0.50
0.30
0.32
0.14 0.14
0.39
0.31
0.18
0.10
-0.10
KRD 1
KRD 2
KRD 3
Seek and emphasize portions of the yield curve
that are attractively priced

Utilize:
BC Aggregate
1.32
1.30

KRD 5
KRD 10
KRD 20
KRD 30
Source: J.P. Morgan Asset Management and Barclays Capital. For illustrative purposes only. Data as of 7/31/2014.
Index statistics are compiled by running vendor data through J.P. Morgan’s internal analytic models.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
21
–
yield curve shift scenario analysis
–
historical and projected spread analysis
–
macroeconomic trends
STRICTLY PRIVATE/CONFIDENTIAL
Putting it all together — JPMorgan Core Bond Fund
Portfolio Statistics
Core Bond Fund
BC Aggregate
YTM
2.28%
2.21%
30-Day SEC Yield (Select)
2.10%
-
30-Day Unsubsidized Yield
1.96%
-
77
37
Weighted Avg. Life (yrs)
6.25
7.53
Duration (years)
4.68
5.46
Convexity
0.28
0.04
Turnover
15.00%
-
4,273
8,876
OAS (bps)
Number of holdings
Quality Distribution
BC Aggregate
AAA
68.86%
71.55%
AA
4.96%
4.87%
A
11.09%
11.58%
BBB
8.23%
12.00%
BB and below
2.04%
0.00%
Not Rated
4.82%
0.00%
100.00%
100.00%
Total
Sector Distribution
Maturity Distribution
50.0
Core Bond Fund
50
Core Bond
Core Bond
Barclays Agg
30.0
40
%
19.1
20.0
20.921.2
23.9
21.0
17.1
Barclays Agg
35.4
28.8
30
24.8
23.3
22.6
%
40.0
38.5
18.5
20
15.7
11.0
10.0
7.5
10.0
3.1
10
4.7
6.1
2.8 3.6
0.5
0.1
0.0
6.2
4.9
2.1
5.2
1.4
0.0
0
0-1
1-3
3-5
5-7
7 - 10
10 - 20
Treasury
20+
Agency
MBS
ABS
CMBS
Non-Corp.
Credit
Corp.
Cash
Source: J.P. Morgan Asset Management as of 7/31/14. The manager receives credit quality ratings on underlying securities of the portfolio from the three major ratings agencies - S&P, Moody's and Fitch. When calculating the credit quality
breakdown, the manager selects the middle rating of the agencies when all three agencies rate a security. The manager will use the lower of the two ratings if only two agencies rate a security and will use one rating if that is all that is provided.
Securities that are not rated by all three agencies are reflected as such. Due to rounding, values may not total 100%. Index statistics are compiled by running vendor data through J.P. Morgan’s internal analytic models.
Past performance does not guarantee future returns.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
22
STRICTLY PRIVATE/CONFIDENTIAL
Agenda

Overview of University of Maine System’s J.P. Morgan team

J.P. Morgan Global Fixed Income Overview

U.S. Value Driven Core Bond

–
Investment Process
–
Investment Performance
Appendix
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
23
STRICTLY PRIVATE/CONFIDENTIAL
JPMorgan Core Bond Fund
Investment performance as of July 31, 2014 – R6 shares at NAV
Core Bond Fund (R6 Class Shares)
9.00
7.00
5.00
Barclays U.S. Aggregate Index
Lipper Core Bond Funds
Morningstar * Overall Rating: 
R6 Shares, Intermediate-Term Bond Category, 934 funds
3 year rating 3 stars; 933 funds
5 year rating 3 stars; 801 funds
10 year rating 4 stars; 575 funds
5.64
5.00
4.61
Ratings reflect risk-adjusted returns
.
3.37
3.66
4.00
3.64
5.23
4.47
3.97
3.30 3.04
4.80 4.77
3.70
3.00
0.91 0.94 1.06
1.00
-1.00
-0.18 -0.25 -0.26
1 Month
3 Mo.
YTD
1 Yr.
3 Yr.
77
Lipper ** Percentile Rankings
425
Rank / Total funds in category
ANNUAL OPERATING EXPENSES (%)
Expense cap expiration date
Expense cap
Total annual operating expenses
Fee waivers and/or expense reimbursements
Net expenses
6/30/2015
0.40%
0.48%
0.08%
0.40%
/
5 Yr.
53
534
289
/
10 Yr.
60
469
264
/
27 (Select)
407
78
/
288
Fee waivers and/or expense reimbursements, Net Expenses, Total annual operating expenses. The Investment
Advisor, Administrator and Distributor have contractually agreed to waive fees and/or reimburse expenses to
the extent that Total Annual Operating Expenses (excluding Acquired Fund Fees and Expenses, dividend
expenses relating to short sales, interest, taxes and extraordinary expenses and expenses related to the Board
of Trustees’ deferred compensation plan) exceed the expense cap of the average daily net assets through the
expense cap expiration date. Without the Acquired Fund Fees and Expenses, the Total Annual Operating
Expenses and Net Expenses would have been lower. In addition, the Fund’s service providers may voluntarily
waive or reimburse certain of their fees, as they may determine, from time to time.
©2014, Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its providers; (2) may not be copied or distributed; (3) is not
warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damage or losses arising from any use of this information. For each fund
with a three-year history, Morningstar calculates a Morningstar Rating™ metric each month by subtracting the return on a 90-day U.S. Treasury Bill from the fund's load-adjusted return for
the same period, and then adjusting this excess return for risk. The top 10% of funds in each broad asset class receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars,
the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with
its three-, five- and ten-year (if applicable) Morningstar Rating metrics. Past performance is no guarantee of future results. Different share classes may have different ratings.
** Lipper – Core Bond Funds– R6 Class Shares – Lipper Analytical Services ranks mutual funds based on the fund’s objective within the respective Lipper category. Lipper ranking does not account for
sales charges and is based on total return. Past performance is not an indication of future results. Rankings are calculated based upon the total returns of multiple share classes within their respective
Lipper category. Different shares classes may have different rankings. The JPMorgan Core Bond Fund was reclassified from the Intermediate U.S. Government Funds category to the Core Bond Funds
category on 9/22/2013.
The performance quoted is past performance and is not a guarantee of future results. Mutual funds are subject to certain market risks. Investment
returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original
cost. Current performance may be higher or lower than the performance data shown. For performance current to the most recent month-end please call
1-800-338-4345.
24
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
24
STRICTLY PRIVATE/CONFIDENTIAL
Strong risk adjusted returns and meaningfully lower standard deviation are
benefits of our investment approach
2.50
Sharpe ratio - Strong risk-adjusted returns
Standard deviation - Meaningfully lower volatility
2.00
5.00
2.00
1.83
1.65
1.50
1.29
1.36
1.14
1.07
1.00
1.00
2.77
3.00
0.83
0.50
3.18
2.96
2.85
3.25
3.38 3.50
2.99
2.49
2.44
0.98
0.82
3.94
3.91
4.00
1.47
2.00
1.00
0.00
0.00
3 Yr
5 Yr
JPMorgan Core Bond Select
10 Yr
3 Yr
15 Yr
Barclays U.S. Aggregate Index
5 Yr
10 Yr
15 Yr
Morningstar US Intermediate -Term Bond Category
Key takeaways:

Lower volatility: Lower standard deviation in all time periods (see upper right
chart)

Better downside capture: 75% of the downside of the benchmark for the 5year period

Better risk-adjusted results: Higher Sharpe ratio in all time periods (see
upper left chart)

Style purity: Long-term average tracking error of 1.09 (monthly since 1991)

Lower risk: Beta of 0.85 for the 5-year period
Source: J.P. Morgan Asset Management, Morningstar, Lipper; as of 6/30/14. Performance is annualized, net of fees for Select Shares in the Morningstar U.S. Intermediate-Term Bond Category.
Please see disclosure page for investment term and index definitions. The performance quoted is past performance and is not a guarantee of future results. Mutual funds are subject to certain market
risks. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may
be higher or lower than the performance data shown. For performance current to the most recent month-end please call 1-800-338-4345.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
25
STRICTLY PRIVATE/CONFIDENTIAL
JPMorgan Core Bond Fund
Calendar year periods
(percentages)
14
Core Bond Fund - Select Class
BC Aggregate Bond Index
12.12
11.63
12
10.2310.26
9.67
10
9.06
8.44
7.84
8
7.30
7.26
6.97 6.97
6.54
5.93
6
5.24
%
5.08
4.22
4.00
3.96
4
4.40 4.34
4.33
3.98 4.10
2.27 2.43
2
0
-0.87-0.82
-2
-1.77
-2.02
-4
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
The performance quoted is past performance and is not a guarantee of future results. Mutual funds are subject to certain market risks. Investment returns and principal value of an investment will
fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data shown. For
performance current to the most recent month-end please call 1-800-338-4345. Index statistics are compiled by running vendor data through J.P. Morgan’s internal analytic models.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
26
STRICTLY PRIVATE/CONFIDENTIAL
2008 Core Bond Performance Summary
Market Environment

Market volatility rose to historic levels

Unprecedented spread widening and fear continued to cripple the spread markets

Business confidence plummeted, job losses spiked higher, housed prices tumbled, Lehman
Brothers filed for bankruptcy (Sept) and the levels of recorded and projected growth declined

Investors fled to Treasury and cash equivalents
Relative Performance
Positives:
•
High quality bias within sectors
•
Duration positioning
Negatives:
• Overweight in financial subsector relative to the index
• Slight underweight to Treasuries (overweight spread sectors)
Lipper Universe: Intermediate U.S. Government
Percentile Rank: 4th percentile
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
27
STRICTLY PRIVATE/CONFIDENTIAL
Fixed Income Portfolio Analysis
Comparison of 2008 and 2014 Portfolio composition
7/31/2008
7/31/2014
70.0
61.4
Percent of Account
60.0
50.0
38.5
40.0
30.0
22.6
19.9
20.0
16.9
16.1
10.0
6.1
0.3
2.8
4.9
1.6
2.4
1.3
5.2
0.0
Treasury
Agency
MBS
ABS
CMBS
*The 2013 distribution excludes cash
Source: JPMorgan Asset Management
28
Credit
Cash Eq.
STRICTLY PRIVATE/CONFIDENTIAL
Scenario Analysis – Sample Core Bond Portfolio
12 Month Horizon
24 Month Horizon
Sample portfolio
Flat
+50
+100
Flat
+50
+100
Total Cumulative Return
2.88
0.77
-1.28
5.66
3.93
2.26
Principal
-0.38
-2.52
-4.59
-0.71
-2.53
-4.29
Income
3.26
3.29
3.31
6.37
6.46
6.55
Yield Curve
As of 7/31/2014
1
2
3
5
7
10
30
0.13
0.54
1.05
1.78
2.24
2.61
3.32

Data as of July 31, 2014

Reinvestment rate = current YTM + rate increase

Based on a gradual shift in interest rates

Based on parallel shifts in the yield curve

Spreads (OAS) remain constant
Source: Citigroup Yieldbook; JPMAM as of 7/31/14; For illustrative purposes only. The manager seeks to achieve the stated objective. There can be no guarantee the objective will be met. Scenario
testing is an estimate not an exact measurement.
29
STRICTLY PRIVATE/CONFIDENTIAL
J.P. Morgan Core Bond as a complement to PIMCO
3 Year Statistics:
Performance Results:
Return (%)
Product Name
Return
Standard
Deviation
Information
Ratio
Sharpe
Ratio
R-Squared
7
JPM Core Bond
6.14
PIMCO Total Return
6
Barclays US Aggregate Index
J.P. Morgan Core Bond
3.63
2.35
1.07
1.52
96.8%
PIMCO Total Return
4.02
3.75
0.40
1.06
56.7%
Barclays US Aggregate
3.04
2.68
---
1.11
100.0%
5.53
5
4.47
4.21
4.04
4
3.66
3.57
4.02
3.97
3.63
3.38
3.04
5 Year Correlation of Excess Returns:
3
(1)
2
1) JPM Core Bond
1.00
2) PIMCO Total Return
0.30
(2)
1
0
YTD
1 Year
3 Year
5 Year
Source: Evestment Alliance as of 7/31/14. Gross of
fees.
FOR INSTITUTIONAL/WHOLESALE OR PROFESSIONAL CLIENT USE ONLY-NOT FOR RETAIL DISTRIBUTION
Source: Evestment Alliance as of 7/31/14. Gross of fees.
30
1.00
STRICTLY PRIVATE/CONFIDENTIAL
Summary

Stable and seasoned investment team

Well-defined, consistent investment process designed to deliver consistent, long-term excess returns

High quality, well diversified bottom-up portfolio

Strong complement to PIMCO Total Return Strategy
Opinions, estimates, forecasts, projections and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC DISTRIBUTION
31
STRICTLY PRIVATE/CONFIDENTIAL
This page intentionally left blank
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
32
STRICTLY PRIVATE/CONFIDENTIAL
Agenda

Overview of University of Maine System’s J.P. Morgan team

J.P. Morgan Global Fixed Income Overview

U.S. Value Driven Core Bond

–
Investment Process
–
Investment Performance
Appendix
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
33
STRICTLY PRIVATE/CONFIDENTIAL
Core Bond Fund - Mortgage-backed Securities Summary
As of July 31, 2014
MBS Exposure
% of Core Bond
Fund
% of Core Bond
Fund
U.S. Government/Agency
30.85
CMOs
23.49
Non-Agency
7.63
Pass-throughs
14.98
Total
U.S Gov’t/Agency Detail
Total
38.47
% of Core Bond
Fund
38.47
% of Core Bond
Fund
Fannie Mae
18.86
Fixed Rate
26.26
Freddie Mac
6.83
Hybrid/ Floating Rate
12.22
Ginnie Mae
4.95
NCUA
0.11
VA
0.10
FDIC
0.00
FHLB
0.00
Non-Agency
7.63
Total
Total
38.47
Source: J.P. Morgan Asset Management For illustrative purposes only.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
34
38.47
STRICTLY PRIVATE/CONFIDENTIAL
Core Bond Fund - Seasoned Mortgages
As of July 31, 2014
Issue Year
% of total
% cumulative
< 2005
19.39
19.39
2005
7.36
26.75
2006
10.12
36.87
2007
7.56
44.42
2008
2.56
46.98
2009
1.61
48.59
2010
8.71
57.30
2011
9.46
66.76
2012
17.94
84.69
2013
12.35
97.04
2014
2.96
100.00
Source: J.P. Morgan Asset Management For illustrative purposes only.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
35
STRICTLY PRIVATE/CONFIDENTIAL
Core Bond Fund - Non-Agency MBS Summary
As of July 31, 2014
Alt-A Quality
% of Core Bond Fund
Prime Quality
% of Core Bond Fund
AAA
0.05
AAA
0.91
AA
0.05
AA
0.72
A
0.04
A
0.83
BBB
0.06
BBB
0.95
BB
0.12
BB
0.40
<B
0.83
<B
2.67
Total
1.14
Total
6.48
Alt-A Vintage
% of Core Bond Fund
Prime Vintage
% of Core Bond Fund
< 2005
1.77
2005
0.67
2006
1.70
2007
1.31
<2005
0.40
2005
0.25
2006
0.15
2008
0.07
2007
0.34
2009
0.10
2008
0.01
2010
0.04
2009
0.00
2011
0.04
Total
1.14
2012
0.03
2013
0.32
2014
0.44
Total
6.48
*Alt-A (Alternative A) are loans made to borrowers whose qualifying mortgage
characteristics do not meet the underwriting criteria established by the GSEs
(Government-Sponsored Enterprises). The typical Alt-A borrower has a credit score high
enough to obtain an A standing, which is especially important to the originator since the
score must compensate for the lack of other necessary documentation. Actual account
characteristics may differ. For illustrative purposes only.
Source: J.P. Morgan Asset Management; - J.P. Morgan Investment Management (JPMIM) receives credit quality ratings on underlying securities of the portfolio from the three major ratings agencies – S&P, Moody’s and
Fitch. When calculating the credit quality breakdown, JPMIM selects the middle rating of the agencies when all three agencies rate a security. JPMIM will use the lower of the two ratings if only two agencies rate a
security and JPMIM will use one rating if that is all that is provided. Securities that are not rated by all three agencies are reflected as such.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
36
STRICTLY PRIVATE/CONFIDENTIAL
Core Bond Fund – Top 10 Corporate Issuers
As of July 31, 2014
Issuer
% of Core Bond Fund
General Electric
0.66
Goldman Sachs
0.55
Citigroup
0.54
Bank of America
0.53
Wells Fargo
0.48
Berkshire Hathaway
0.44
Verizon
0.37
HSBC
0.32
Morgan Stanley
0.27
MetLife
0.25
Total
4.42
The top 10 holdings listed reflect only the Fund's long-term investments. Short-term investments are excluded. Holdings are subject to change. The holdings listed should not be considered
recommendations to purchase or sell a particular security. Each individual security is calculated as a percentage of the aggregate market value of the securities held in the Fund and does not
include the use of derivative positions, where applicable.
Source: J.P. Morgan Asset Management For illustrative purposes only.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
37
STRICTLY PRIVATE/CONFIDENTIAL
Risk management stress testing scenarios
Statistical modeling is enhanced by interest rate scenario analysis and testing
Stress testing foundations

Stress test scenarios are dynamic in character. Scenarios are updated monthly and incorporate both historical volatility and current market characteristics,

Stress tests are conducted over a 3-month forward horizon. Portfolio and benchmark structures are assumed to be static and scenarios are assumed to evolve
linearly over the horizon.

Market movements expressed in the stress scenarios approximate the 98th percentile.

Stress scenarios assume either 0 and +1correlation among sectors and along the yield curve
Spread Change Scenarios
Based on Recent Market Movements
Stress test scenario as of 06/30/2014
98th percentile
Yield Curve Scenarios
Maturity
down/ flattening
up/ steepening
up/ flattening
down/ steepening
0.25
0.5
2
3
5
10
30
0
-1
-12
-30
-70
-118
-107
0
1
57
79
108
115
101
80
89
104
100
84
56
36
0
-1
-10
-25
-60
-59
-43
The charts shown are for illustrative purposes only.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
38
Sector
Widen
Tighten
Mgt Index
45
-15
AAA
25
-5
AA
55
-20
A
60
-25
BBB
85
-30
BB
170
-60
B
240
-75
CCC
300
-110
CC-D
300
-110
NR
300
-110
IO
150
-125
PO
-50
40
Inv IO
150
-75
Agency
15
-5
STRICTLY PRIVATE/CONFIDENTIAL
Statistical modeling is enhanced by interest rate scenario analysis
and testing
Scenario testing for the Core Bond Composite Portfolio vs. Barclays Aggregate Index as of 06/30/14
What happens to the portfolio as interest rates change
Market Environment
Portfolio
Index
Exposure
Difference
Test exposure
guideline limit
Excess Exposure
Within Guideline
limit
Curve Reshape Down/Flatten
4.75%
4.96%
-0.20%
-0.50%
None
YES
Curve Reshape Up/Steepen
-3.91%
-4.60%
0.69%
-0.50%
None
YES
Curve Reshape Down/Steepen
3.02%
3.08%
-0.06%
-0.50%
None
YES
Curve Reshape Up/Flatten
-2.36%
-2.76%
0.39%
-0.50%
None
YES
Spreads Tighten
1.39%
1.40%
-0.01%
-0.50%
None
YES
Spreads Widen
-1.12%
-1.20%
0.08%
-0.50%
None
YES
Spread tighten
Sector contribution to exposure
Portfolio
Index
Spread widen
Difference
Portfolio
Index
Difference
Agency
0.04%
0.03%
0.01%
0.00%
0.00%
0.00%
Mortgage
0.58%
0.40%
0.18%
-0.63%
-0.47%
-0.17%
Asset Backed
0.05%
0.00%
0.05%
-0.04%
0.00%
-0.04%
CMBS
0.07%
0.02%
0.05%
-0.03%
-0.01%
-0.02%
Corporate
0.47%
0.74%
-0.27%
-0.59%
-0.93%
0.34%
Other (Non Spread Sectors)*
0.17%
0.20%
-0.03%
0.17%
0.20%
-0.03%
Total Return
1.39%
1.40%
-0.01%
-1.12%
-1.20%
0.08%
Source: J.P. Morgan Investment Management Inc.
*Non-spread sectors include all Treasuries, futures and cash.
Interpretation of stress test results must be considered in light of the scenarios and methodology used to conduct the stress tests. Some of the foundations, for example the assumption that the character of the portfolio will remain
unchanged over the test horizon, may not be reasonable under real market circumstances. There is no assurance that stress scenarios or resulting composite, individual account or benchmark forward return and risk assessments
will be realized. Consequently, stress test results should not be used as projections of future rates of return. Within J.P. Morgan Investment Management Inc., internal guideline exposure limits serve as a supplement to fund
prospectuses, client policies and other risk policies and procedures. Guidelines Limits serve as precautionary risk warnings not as absolute mandates. Periodic exceptions and changes to the guideline limits may occur as a
result of market or business developments. There is no assurance that tracking error targets or other risk objectives will be achieved. The above chart is for illustrative purposes only.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
39
STRICTLY PRIVATE/CONFIDENTIAL
NPL & RPL MBS: Quick Overview
Collateral backing NPL & RPL securities
Typically NPL & RPL security structure
Residential 1st Mortgage loans & REO Properties
 Interest:
Fixed rate coupon
 NPLs*:
Loans delinquent 90+ days, in foreclosure
and/or bankruptcy
 Principal:
Sequential pay, with full turbo principal
payments from all excess cash flow
 RPLs:
Modified loans now current 3+ months or
modified loans that are current but 3+months
delinquent in the last 12 months
 Credit:
Senior; subordinate bonds and overcollateralization (OC)
 REOs*:
Real estate owned properties.
Sources of NPL & RPL Bond cash flows
 Reserves:
3-6 months coupon interest
 Rating:
Non-NRSRO rated, but internally rated
investment grade bonds
 Placement:
144a/Private
 Maturity:
3 yr. anticipated maturity date (ARD) with 5-7
yr. stated final.
 REO sales
 Sale of NPL & RPL Mortgage loans to 3rd parties
 Coupon Step:
300 basis point coupon step up in 4th yr. if not
paid off and 400 basis point coupon step up
in 5th yr. if not paid off
 Call Option:
non-call 1 yr. and/or 35% remaining bond
factor
 Short sales on NPLs
 Cash flow from RPLs (principal and interest payments)
 Pricing:
 Refinancing of NPL’s and RPL’s
For illustrative purposes only; Source: Bloomberg finance; Deutsche Bank
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
40
Typically, at a discount price
STRICTLY PRIVATE/CONFIDENTIAL
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
J.P. Morgan Asset Management
Must be preceded or accompanied by a prospectus.
This document is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions, estimates, forecasts, and statements of financial market
trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should
not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial
markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Indices do not include fees or operating expenses and are
not available for actual investment. The information contained herein employs proprietary projections of expected returns as well as estimates of their future volatility. The relative
relationships and forecasts contained herein are based upon proprietary research and are developed through analysis of historical data and capital markets theory. These estimates
have certain inherent limitations, and unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees or other costs. References to future net returns
are not promises or even estimates of actual returns a client portfolio may achieve. The forecasts contained herein are for illustrative purposes only and are not to be relied upon as
advice or interpreted as a recommendation.
Contact JPMorgan Distribution Services, Inc. at 1-800-338-4345 for a fund prospectus. You can also visit us
at www.jpmorganfunds.com. Investors should carefully consider the investment objectives and risks as well as charges and
expenses of the mutual fund before investing. The prospectus contains this and other information about the mutual fund.
Read the prospectus carefully before investing.
RISKS ASSOCIATED WITH INVESTING IN THE FUND. The Fund’s fixed income securities are subject to interest rate risk. If rates increase, the value of the Fund’s investments
generally declines. Ordinarily the Fund will invest at least 80% of its total assets in bonds, both domestic and foreign. International investing involves a greater degree of risk and
increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas
markets may not be as politically and economically stable as the United States and other nations. The Fund may invest up to 5% of its assets in “sub-prime” mortgage-related
securities. The risk of defaults is generally higher in the case of mortgage-backed investments that include so-called “subprime” mortgages. The structure of some of these securities
may be complex and there may be less available information than other types of debt securities. The Fund may invest in futures contracts and derivatives. Many derivatives create
leverage thereby causing the Fund to be more volatile than it would be if it had not used derivatives.
The Barclays U.S. Aggregate Index is an unmanaged index that represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S.
investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The
performance of the index does not reflect the deduction of expenses associated with a fund, such as investment management fees. By contrast, the performance of the Fund reflects
the deduction of the fund expenses, including sales charges if applicable. An individual cannot invest directly in an index. The performance of the Lipper Intermediate U.S.
Government Funds Index includes expenses associated with a mutual fund, such as investment management fees. These expenses are not identical to the expenses charged by the
Fund.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
41
STRICTLY PRIVATE/CONFIDENTIAL
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
J.P. Morgan Asset Management
There can be no assurance that the professionals currently employed by JPMAM will continue to be employed by JPMAM or that the past performance or success of any such
professional serves as an indicator of such professional’s future performance or success.
Past performance does not guarantee future results. Total returns assumes reinvestment of any income. Total return assumes reinvestment of dividends and capital gains
distributions and reflects the deduction of any sales charges. Performance may reflect the waiver of a portion of the Fund's advisory or administrative fees for certain periods
since the inception date. If fees had not been waived, performance would have been less favorable.
©2014, Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its providers; (2) may not be copied or
distributed; (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damage or losses arising
from any use of this information. For each fund with a three-year history, Morningstar calculates a Morningstar Rating metric each month by subtracting the return
on a 90- day U.S. Treasury Bill from the fund's load-adjusted return for the same period, and then adjusting this excess return for risk. The top 10% of funds in each
broad asset class receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The
Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five- and ten-year (if applicable)
Morningstar Rating metrics. Past performance is no guarantee of future results. Different shares classes may have different ratings.
J.P. Morgan Funds are distributed by JPMorgan Distribution Services, Inc. (JPMDS) and offered by J.P. Morgan Institutional Investments, Inc. (JPMII); both affiliates of JPMorgan
Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMDS and JPMII are both members of FINRA/SIPC.
J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P.
Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.
Copyright 2014. JPMorgan Chase & Co.
FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION
42