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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 SecurityUniverse 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