A different option

JPMorgan Global Convertibles Income Fund 6 October 2016

JPMorgan Global Convertibles Income Fund

A different option

Initiation

Investment companies

6 October 2016

Issue price

100p

Target issue proceeds

>£100m

Target initial NAV

98p

Target initial yield

4.5%

Company website

am.jpmorgan.co.uk/investment-trusts/global-convertibles-income-fund-limited

Transaction contacts

Oliver Packard

+44 (0)20 7742 6632

oliver.h.packard@jpmorgan.com

Andrew Marshall

+44 (0)20 3100 0266

andrew.marshall@wins.co.uk

Next events

Listing

7 June 2013

Analysts

Andrew Mitchell

+44 (0)20 7841 1550

Martyn King

+44 (0)20 3077 5745

JPMorgan Global Convertibles Income Fund Limited (JGCI) is a new investment company targeting a 4.5% yield as well as long-term capital growth through investment in a globally diversified portfolio of convertible securities. In the context of the global equity market the yield premium would be roughly two percentage points while convertibles offer potential downside protection in the event of a market downturn and some degree of participation in a stronger equity market.

Reasons to invest in convertible bonds

Investors always seek attractive risk/reward investments and the current environment of innovative monetary policy and general macro uncertainty makes the task particularly difficult. Convertibles can offer a neat solution as they combine equity and bond characteristics, providing yield and potential downside protection, but also participation in equity upside. Historically, over significant periods, they have delivered superior risk-adjusted rewards versus bonds and equities (page 7).

Why invest through a closed-end fund?

Convertibles are something of a niche market and active management in this area calls for a combination of skills. This together with the relatively dynamic behaviour of some convertible securities and the value of accessing new issues argues for investment through a managed fund. As in the corporate bond market, many convertible issues can be relatively illiquid, which could be problematic for an open-ended fund. For some investors the UK tax treatment of dividends from a Channel Islands incorporated investment company may be more favourable than from an open-ended fund (page 14). Hence a closed-end structure is particularly well suited to such a fund.

Investment strategy

The fund intends to focus on high-yield bond-like and balanced convertibles to provide an appropriate mix of income and growth potential (explanation on page 6). The fund is likely to have a relatively high exposure to small- and mid-cap companies reflecting both the nature of the convertibles market and the fund’s income mandate. The manager has a strong emphasis on repeatable process, employing a customised screening tool before applying more detailed credit and equity analysis to investment candidates.

Risks

While convertibles have historically shown an attractive balance of risk and reward, it should be remembered that the fund will be exposed to similar credit risks as an equivalent bond fund. The companies issuing convertibles generally do so because other financing options are less readily available, meaning that diversification and credit analysis are important in mitigating this risk. Like other equity and bond funds, the company will also suffer or benefit from macro developments, but investors will at least have exposure to an asset category that hedges the bet between equities and corporate bonds.

Disclaimer

This document has been produced by Edison Investment Research Limited at the request and cost of, but not on behalf of, JPMorgan Asset Management (UK) Limited. JPMorgan Asset Management (UK) Limited and/or one or more of its affiliates will act as Investment Manager to JPMorgan Global Convertibles Income Fund Limited (the "Company"). By accepting this document, you agree to be bound by the following limitations.

THIS DOCUMENT IS BEING SUPPLIED TO YOU SOLELY FOR YOUR OWN INFORMATION AND MAY NOT BE REPRODUCED, REDISTRIBUTED OR PASSED ON, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON, NOR MAY IT BE PUBLISHED IN WHOLE OR IN PART, FOR ANY PURPOSE. NEITHER THIS DOCUMENT NOR ANY COPY OF IT MAY BE TAKEN OR TRANSMITTED INTO OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OF AMERICA, ITS TERRITORIES OR POSSESSIONS (THE "UNITED STATES") OR TO ANY US PERSON. NEITHER THIS DOCUMENT NOR ANY COPY OF IT MAY BE TAKEN OR TRANSMITTED INTO OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, IN CANADA, AUSTRALIA OR JAPAN OR TO ANY RESIDENT THEREOF. NEITHER THIS DOCUMENT NOR ANY COPY OF IT MAY BE DISTRIBUTED IN ANY OTHER JURISDICTIONS WHERE ITS DISTRIBUTION MAY BE RESTRICTED BY LAW AND ANY PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. ANY FAILURE TO COMPLY WITH THESE RESTRICTONS MAY CONSTITUTE A VIOLATION OF THE LAWS OF ANY SUCH OTHER JURISDICTION.

In the United Kingdom, this document is being distributed only by or with the approval of an authorised person or is for distribution to, and/or is directed only at: (i) persons having professional experience in matters relating to investments who fall within the definition of investment professionals in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); (ii) high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Order; and (iii) persons to whom it may otherwise be lawfully distributed under the Order (together "Relevant Persons"). Any investment or investment activity to which this document relates is only available to and will only be engaged in with Relevant Persons. Persons who are not Relevant Persons should not rely on or act upon this document or any of its contents.

This document is being distributed to and is directed at only persons in member states of the European Economic Area (the "EEA") who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC) ("Qualified Investors"). Any person in the EEA who receives this document will be deemed to have represented and agreed that it is a Qualified Investor and that it has not received this document on behalf of any persons in the EEA other than Qualified Investors or persons in the UK and other member states (where equivalent legislation exists) for whom the investor has authority to make decisions on a wholly discretionary basis. The Company, JPMorgan Asset Management (UK) Limited, Winterflood Securities Limited, their respective affiliates and others will rely upon the truth and accuracy of the foregoing representations and agreements. Any person in the EEA who is not a Qualified Investor should not act or rely on this document or any of its contents.

This document is not for distribution to retail clients (as defined in Directive 2004/39/EC ("MiFID")) or to persons who are not Qualified Investors and this document does not constitute investment advice or a personal recommendation as defined in MiFID or otherwise.

This document does not constitute or form part of any offer, solicitation or invitation to subscribe for or purchase any securities of the Company nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase or subscribe for securities in any offering should be made solely on the basis of the information contained in the final prospectus (and any supplements thereto) or other offering circular issued by the Company in connection with such offering.

While Edison Investment Research Limited has received certain factual information from and has met with JPMorgan Asset Management (UK) Limited, and JPMorgan Asset Management (UK) Limited, Winterflood Securities Limited and other advisers to the Company have checked certain factual information in this document, this document has been prepared by its authors independently of the Company. Edison Investment Research Limited has no authority whatsoever to give any information or to make any representation or warranty on behalf of the Company, JPMorgan Asset Management (UK) Limited, Winterflood Securities Limited or any other advisers to the Company or any other person in connection therewith. In particular, the opinions, estimates and projections expressed in it are entirely those of the authors hereof and are not given as an agent of the Company, JPMorgan Asset Management (UK) Limited, Winterflood Securities Limited or any other advisers to the Company or any other person.

The information in this document or on which this document is based has been obtained from sources that Edison Investment Research Limited believes to be reliable, but none of Edison Investment Research Limited, the Company, JPMorgan Asset Management (UK) Limited or Winterflood Securities Limited has independently verified the contents hereof. The information, opinions, estimates and projections contained in this document are provided as at the date of this document and are subject to change without notice. There can be no assurance that future results or events will be consistent with any opinions, estimates or projections contained in this document. No representation or warranty, express or implied, is made to us and no reliance should be placed on the fairness, accuracy, completeness or reasonableness of this document or the information, opinions, estimates or projections contained herein or supplied herewith and, to the extent permitted by law and regulation, none of Edison Investment Research Limited, the Company, JPMorgan Asset Management (UK) Limited, Winterflood Securities Limited, any other advisers to the Company nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.

Exhibit 1: Fund at a glance

Investment objective and fund background

JGCI will seek to generate dividend income combined with the potential for long-term capital growth by investing in a globally diversified portfolio of convertible securities and other suitable instruments exhibiting convertible or exchangeable characteristics. The company targets an initial gross dividend yield of 4.5% reflecting the opportunity the manager sees to generate income, particularly in the high-yield sub-sector. The dedicated convertibles team at JPMorgan Asset Management will follow a well-developed process that combines equity and credit selection techniques. The MSCI World index is the reference index. Currency exposures for capital and income will be hedged.

Expected timetable (subject to change)

Latest time and dates for commitments under the Placing

24 May 2013

Latest time and date for applications under the Offer

3 June 2013

Publication of results of the Placing and the Offer for Subscription

6 June 2013

Admission and dealings in Ordinary Shares commence

7 June 2013

CREST Accounts credited in respect of the Shares

7 June 2013

Share certificates despatched

Week beginning 10 June

Forthcoming announcements/catalysts

Capital structure

Fund details

Year end

30 June

Gearing

Up to 20%

Group

JPMorgan Asset Management

Dividend paid*

Quarterly

Annual mgmt fee

0.75% of net assets

Manager

JPMorgan Asset Management

Launch date

7 June 2013

Performance fee

None

Address

1st Floor, Les Echelons Court,
Les Echelons, South Esplanade,
St Peter Port,
Guernsey, GY1 1AR

Cont. vote

At the AGM in 2018 and thereafter every third year

Dividend policy

Share buy-back policy

In the first year dividends will be paid half-yearly with the intention to move to quarterly payments thereafter. The target is for a gross dividend yield of 4.5% on the issue price. The company would aim to smooth dividend payments over time.

The intention is to seek annual permission to buy back up to 14.99% of the issued share capital. Subject, among other things, to directors’ discretion, the company would expect to make purchases if the share price discount to net asset value exceeds 5% for any significant period of time.

Indicative portfolio characteristics**

Indicative sector exposure**

Portfolio yield to best***

6.4%

Autos & Comps

5.5%

Materials

14.5%

Portfolio running yield

5.2%

Banks

2.0%

Media

0.5%

Delta

29.6%

Capital Goods

8.0%

Pharma, Biotech

1.5%

Average credit rating

BB

Consumer Durables Apparel

2.5%

Real Estate

8.5%

Weighted average duration

c 4 years

Consumer Services

3.5%

Retailing

2.0%

Number of securities

72

Diversified Fins

9.5%

Semiconductors

9.5%

Energy

16.0%

Tech hardware

3.0%

Food Beverages & Tobacco

1.5%

Transport

4.0%

Healthcare

0.5%

Utilities

6.0%

Insurance

1.5%

Indicative regional breakdown**

Indicative top five holdings**

Australia

3.5%

Norway

0.5%

Security

Country

Weight

Austria

1.0%

Portugal

0.5%

Intel 2.950% 15 Dec 2035

US

2.5%

Bermuda

1.0%

Russia

3.0%

Steinhoff International 4.500% 31 Mar 2018

South Africa

2.5%

Canada

2.0%

Singapore

2.0%

Ares Capital Corporation 4.750% 15 Jan 2018

US

2.5%

China

2.0%

South Africa

3.5%

Pierre et Vacances 4.000% 1 Oct 2015

France

2.5%

France

10.0%

Spain

4.0%

Chesapeake Energy 2.250% 15 Dec 2038

US

2.5%

Germany

2.5%

Taiwan

1.0%

Hong Kong

0.5%

United Kingdom

5.0%

India

5.5%

United States

51.5%

Italy

1.0%

Source: JPMAM. Note: *See dividend policy. **Indicative portfolio is illustrative only. The company’s portfolio and the returns derived from such portfolio may differ. Indicative holdings are examples only of investments that may be considered by the company and are provided for illustrative purposes only. Information provided in relation to those investments does not constitute a recommendation to buy or sell any of the investments described. There is no assurance that these investments will be included in the company’s portfolio or that investments in the company’s portfolio will share the characteristics of those investments. ***Yield to best: highest yield for each bond with all future put dates treated as possible maturity dates and a yield-to-maturity calculation performed for each date. Yield to maturity is the internal rate of return of a bond for an investor holding it to maturity.

Fund profile and summary

Company description: Access a niche market

JPMorgan Global Convertibles Income Fund Limited (JGCI) is a new investment company, incorporated in Guernsey and to be listed on the Main market of the London Stock Exchange. The fund aims to deliver an initial dividend yield of 4.5% based on the issue price together with potential long-term growth. The investment universe consists of global convertible bonds and other suitable instruments exhibiting convertible or exchangeable characteristics. While a significant category with a global value of circa $500bn, it qualifies as a niche segment when compared with equities and bonds. The fund will be the only UK-Iisted, closed-end fund addressing this market.

An active manager in this space requires a blend of equity and credit-related skills. The portfolio will be managed by Antony Vallee, who heads the five-strong JPMorgan Asset Management convertibles investment team. He has 15 years’ experience in the convertibles market, both in long-only and arbitrage strategies. (See page 10 for a description of JPMorgan Asset Management’s capabilities in this area.)

Convertible bonds: Why invest?

Convertible bonds combine characteristics of bonds and equities. This provides investors with an opportunity to hedge their bets in allocating between the two asset classes. We see the asset category as particularly appealing to those seeking higher returns but who are concerned by the historically depressed level of government bond yields, the tail risk of a spike in inflation and the mixed macro and earnings newsflow relating to equities. In periods of equity market or specific stock weakness the bond component of a convertible provides an element of downside protection while in a stronger market phase the equity element means a convertible bond would participate in the positive movement. Were interest rates to rise sharply the equity option in a convertible would mitigate the impact from the bond component of the valuation.

There is also the attraction of tapping into a niche segment that has historically offered attractive risk-adjusted returns compared with both equities and bonds (see Exhibit 4, page 7). Convertible bonds tend to trade more actively than conventional corporate bonds and, for those bonds migrating to bond-like or equity-like status, price movements can be more significant than normally seen in the bond market. This means they are well suited to an actively managed fund, while a closed-end structure obviates the liquidity constraint present for an open-ended fund.

Investment strategy and process: Income with equity exposure

To meet the company’s objective of generating both income and the potential for long-term growth the manager intends to focus on two areas within the convertible universe: high-yield bond-like convertibles and convertibles that fall into the balanced category (see Exhibit 3, page 6) where they are more sensitive to movements in the price of the underlying equity. The bias is likely to be towards smaller and mid-cap names as this is where a large portion of convertibles issuance takes place and also because there is a liquidity premium available that a closed-end fund is well-placed to exploit.

The fund manager places great emphasis on the investment process to ensure that the approach taken is repeatable and to facilitate analysis of decisions. Having established the requirements of the fund a customised screening tool is used to narrow down investment candidates before appropriate credit and equity-related analysis is undertaken. The fund is expected to have 60-80 holdings, which should provide adequate diversification without diluting the selection process unduly.

An introduction to convertible bonds

Convertible bonds combine characteristics of bonds and equities.

Issued as bonds, the holder has the option to convert into the equity, normally at a premium to the share price at the time of issue.

At the time of issue, the yield is usually below the level of an equivalent straight bond but above the equity yield of the issuer.

Convertibles participate in the upside of the underlying equity.

As bonds, there is potential downside protection if the underlying equity price falls.

The option to convert becomes more valuable if the equity volatility increases.

The equity component reduces a bond’s sensitivity to interest rate changes.

Like corporate bonds they are exposed to default risk.

What are convertible bonds?

Convertible bonds combine characteristics of a bond and an equity investment. A typical convertible bond, like a corporate bond, pays a fixed income (coupon) with the option of redemption at face value (like a normal bond) or conversion into the underlying equity at a predetermined rate (for example, at a 30% premium to the equity price at time of the bond issue) at a particular date.

From the issuing company’s perspective, a convertible bond offers a way of raising capital to fund growth or to refinance that costs less in terms of interest coupon than a straight loan and may have less restrictive covenants. The conversion rate is set at a premium to the current stock price and a convertible can also find a more ready acceptance than a straight equity issue, depending on market timing and the specific circumstances of the issuer.

For the investor, a convertible bond offers a way of investing in a company that provides fixed income initially with the potential for participation in equity upside thanks to the conversion option that forms part of the bond. In addition to a normal yield premium compared with the equity, the bond element of the security confers some downside protection in the event of adverse developments relating either to the specific issuer or for the equity market in general.

As an example, the table below shows some data for a Steinhoff International Holdings1 euro-denominated convertible bond that falls within the investable universe for the fund. Calculations for the premium of the market conversion price are shown, which recently stood 70% above the stock price for Steinhoff. This is significantly above the 32% premium at the time of the bond issue in March 2011, reflecting primarily depreciation of the South African rand, which means that the share price in euro terms has fallen by about 20% while in rand terms it is virtually unchanged. Delta, a measure of the sensitivity of the bond to movements in the Steinhoff share price, is 27%, modestly below the expected delta for the portfolio of c 30%. The bond is therefore relatively equity-insensitive and, as mentioned, its euro denomination has provided a measure of currency protection over the period since launch when compared with direct ownership of the stock. The bond has a current or running yield of 4.4%, compared with the illustrative portfolio yield of c 5.2% while the issue size of approximately $600m is relatively large, suggesting the potential for better than average liquidity (most issues are between $100m and $500m – source JPMAM).

A South Africa-based business with European Retail (brands Harveys, Conforama, Abra) and diversified South African retail and industrial activities. Market capitalisation €3.7bn/ZAR44bn, net debt to equity c 47%.

Exhibit 2: Example convertible bond

Steinhoff International Holdings convertible bond

Issued

2011

Conversion price - based on nominal (a) €

3.32

Maturity

31/03/2018

Convertible price, per €100 nominal (b) €

102.70

Size

€467.5m

Market conversion price (c) = b/(100/a) €

3.41

Coupon (fixed)

4.50%

Stock price (d) € (conv from ZAR24.03)

2.01

Current yield

4.38%

Premium = c/d-1 %

70%

Yield to maturity

5.77%

Delta

27%

Rank

Senior unsecured

Bond floor/Option value €

101.56/1.14

Source: Bloomberg, Barclays, Edison Investment Research

Exhibit 3 is an illustration of how the bond and equity components of a convertible bond might interact at different stock price levels (horizontal axis). The solid line represents the price of the convertible. At the right-hand side of the chart, where the conversion price is below the stock price, the convertible is in-the-money and its price moves closely with the equity price. Towards the left-hand side, in the out-of-the-money segment, the convertible is valued as a bond and does not respond significantly to marginal moves in the stock price; this is where the downside protection, or bond floor, of a convertible is evident. On the extreme left, were the company to become distressed, the bond, as with any corporate bond, is exposed to default risk: hence the illustrative price line trends to zero in this segment. The company intends to invest in the out-of-the money and balanced segments in order to benefit from superior yield compared with the in-the-money category and the potential for selected bonds to move up the curve between categories.

Exhibit 3: Illustration of interaction of bond and equity components of convertible bond

Source: JPMAM

How risky are convertible bonds?

While convertibles have shown an attractive risk/reward balance historically (see “Track record for convertibles” below), investment in convertibles does carry the risks associated with either bond or equity investments.

By their nature, convertible securities will tend to be issued by companies that need to raise finance and are less able to access bank credit, corporate bond markets or the equity market. Thus for the convertible market as a whole there is a relatively high exposure to smaller and mid-cap companies (56% of the universe – source JPMAM) and to non-investment grade and unrated issuers (67% of universe).

The manager indicates that the default rate for convertible bonds in the segment the company will focus on (3-4%) is similar to that in the equivalently rated corporate bond market. A managed fund can mitigate this risk through diversification and, potentially, through detailed credit analysis. For reference, a recent S&P forecast for US speculative grade corporate default rate in 2013 has a central value of 3.4% within a range from 2.3% to 5.5%, depending primarily on macroeconomic developments. This compares with the long-run (1981-2013) average default rate of 4.5% and default peaks of 12.5%, 10.8% and 11.5% in 1991, 2002 and 2009 respectively.

Macroeconomic developments pose a risk both to the underlying operations of the issuers and, through interest rate changes, to the valuation of both the bond and equity components of a convertible bond. Specific problems at an issuer would affect the valuation of a balanced or in-the-money convertible, although the presence of the conversion option could reduce the equity-related downside as increased volatility would tend to increase the value of the option.

As an indication of the main influences on convertible bond prices, a study by Lummer and Riepe2 shows that between 1973 and 1992 US convertible bonds were highly correlated both with large- and small-cap equities (0.90 and 0.86 respectively) and only to a lesser extent with corporate bonds (0.47 long-term and 0.53 intermediate-term bonds).

Convertible bonds as an asset class 1957-92, S. L. Lummer, M. W. Riepe, Journal of Fixed Income, September 1993. What drives the performance of convertible-bond funds? M. Ammam, A. Kind, R. Seiz, Journal of Banking & Finance November 2010 concluded that stock-related factors accounted for the largest part of the variation in returns for convertible bond funds 1985-2004.

The track record for convertible bonds

The relatively attractive risk/reward offered by convertible bonds over the last near-decade are illustrated in Exhibit 4 below, which shows that the UBS Global convertible bond index both outperformed the MSCI World and S&P 500 equity indices and recorded substantially lower volatility.

Exhibit 4: Annualised performance and volatility of convertible bond index compared

February 2002-December 2012

Annualised performance

Annualised volatility of returns

UBS Global Convertibles USD unhedged

7.6%

8.8%

MSCI World total return

6.2%

18.1%

S&P 500 total return

4.8%

21.4%

Source: JPMAM

Intuition suggests that convertibles would tend to perform somewhere between bonds and equities and the study by Lummer and Riepe, using earlier data for the 1957-92 period, does fit with this expectation. The first set of data for the whole period in the upper section of Exhibit 5 shows that convertible bond returns and volatility, as measured by standard deviation, did fall between bonds and equities. However, the second section of the table demonstrates that the outperformance shown in Exhibit 4 above has not been unique with convertibles also producing a stronger return than both equities and bonds in the 1973-92 period and scoring only a slightly higher standard deviation than long-term corporate bonds.

Exhibit 5: Performance and volatility comparison 1957-92

Asset class

Compound annual return

Standard deviation

1957-1992

Convertible bonds

8.3%

14.1%

S&P 500

10.5%

16.4%

Long-term corporate

6.9%

10.7%

Intermediate-term corporate

7.3%

8.1%

1973-1992

Convertible bonds

11.8%

12.8%

S&P 500

11.3%

17.5%

Long-term corporate

9.5%

12.6%

Intermediate-term corporate

10.1%

8.1%

Source: Lummer, Riepe, cited below


The global convertible bond market

While significant in scale at $500bn, the global convertibles market is less than 4% of the size of the equity or corporate bond markets.

The US accounts for just over half of the convertible universe, while one-third has an investment grade rating.

With maturity periods of five years or less for over 70% of the market, new issuance is important for a fund investing in the sector.

Issuance has been reviving and is more stable in the small- and mid-cap area where the portfolio will be focused.

Scale of the market

The global convertible bond market has a value of c $500bn. This compares with values for the global, non-financial, corporate bond market ($12,697bn, BIS, end September 2012) and equity market ($57,286bn, WFE, end-March 2013). While it is a significant market for a dedicated fund to address, the scale comparison makes clear why this is something of a niche area and why there may be inefficiencies for an active manager to exploit.

Geographically, the Americas is the largest market, accounting for 53% of the total (see Exhibit 6). In terms of credit quality 33% of the universe is investment grade. The manager’s illustrative portfolio has an average credit rating of BB, the second-highest sub-investment grade on the S&P scale.3

S&P describes as “Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.” 

Exhibit 6: Global universe – region

Exhibit 7: Global universe – credit quality

Source: JPMAM

Source: JPMAM

Exhibit 6: Global universe – region

Source: JPMAM

Exhibit 7: Global universe – credit quality

Source: JPMAM

Convertible bond issuance

Convertible bond issuance has varied over time according to market conditions. As over 70% of the global convertible universe matures within five years it is important for a specialist convertible fund that there is a reasonable flow of new issues to maintain an active and liquid market. The manager also indicates that convertible bonds typically perform strongly in the first six months following issuance. Exhibit 8 shows that global issuance has been “spiky” with peaks in 2001 (post-tech bubble) and 2007 (pre-financial crisis trough). From 2007 to 2012, issuance tailed off, in part reflecting reduced interest costs and the increasing availability of bank and straight corporate bond credit. This year annualised first-quarter issuance was more than 60% above the prior-year rate led by a near 90% increase in small-cap issuance. We would be surprised were this rate of increase to be maintained (US issuance in Q1 was up only 7% on the 2012 average rate), but it may well signal the beginning of a recovery in activity. Reflecting this, and the relative strength in small-cap issuance (see Exhibit 9), the manager looks for further increases in demand for financing from small- and mid-cap companies, an area the company portfolio is likely to have a relatively high exposure to.

Exhibit 8: Global convertible bond issuance

Exhibit 9: Size analysis of issuance

Source: JPMAM. Note: Last column Q113 annualised.

Source: JPMAM. Note: Small-cap <$2bn, mid $2-10bn, large >$10bn.

Exhibit 8: Global convertible bond issuance

Source: JPMAM. Note: Last column Q113 annualised.

Exhibit 9: Size analysis of issuance

Source: JPMAM. Note: Small-cap <$2bn, mid $2-10bn, large >$10bn.

Outlook for the market?

Continuing the focus on issuance, the manager has noted the resurgence in activity as companies look to benefit from investors’ search for returns from higher-risk assets. Examples highlighted include convertible issues in the last six months by global large caps Nokia, Arcelor Mittal and Sony, where appetite for a straight equity issue might have been constrained but where the risk/reward characteristics of a convertible were appealing and contributed to strong performance post-issue. More generally, the manager notes that while larger-cap issuers may enter and leave the convertible market according to the availability of alternative funding, there is a more consistent flow of issues from smaller and mid-cap companies across the global market. The manager expects the share of issuance of the small- and mid-cap companies to continue to rise with investor appetite exceeding the level of issuance, creating significant pent-up demand with potentially positive implications for valuations.

After a strong performance in 2012 for convertibles (+12.5%) and with an unclear outlook for both equity and bond markets it is interesting to consider the prospects for the market. For those uncertain about the outlook and seeking income we would argue the relative attractions of the convertible market are clear: the bond component provides some downside protection in the event of an equity market correction. The manager’s view is that credit spreads are likely to be fairly stable this year, but any weakness in bond markets prompted by changes in monetary policy, a (further?) rotation into equities or an uptick in inflation would be ameliorated by the equity exposure within convertible bonds. A strong upward movement in the equity market would, in our view, probably leave convertibles lagging but still better off than a straight bond investment.


JPMorgan AM’s convertible bond expertise

The five-strong convertible bond investment team is led by Antony Vallee who has 15 years’ experience in the convertibles market.

The scale of the JPMorgan Asset Management business means the team has access to extensive equity, credit, strategy, risk and compliance resources.

Convertible funds managed total c $4.4bn, which helps gain access to the flow of new issues.

Team

JPMorgan Asset Management’s five-strong convertible bond investment team is led by Antony Vallee (head of convertibles), who is to be manager responsible for the company portfolio. He has 15 years’ experience in the convertible bond market, including long-only, arbitrage and equity-linked strategies. Prior to joining JPMorgan Asset Management in 2007 he had asset management roles at SYSTEIA Capital Management and HSBC Asset Management. He has degrees in finance, applied mathematics and economics and is a CFA Charterholder. Other members of the team are Natalia Bucci, who is an experienced portfolio manager with seven years’ experience in convertibles; Robin Dunmall, a junior portfolio manager with four years’ experience and an economics background; Benoit Lanctot, a convertible capital structure analyst with seven years’ experience in both analysis and origination; and Nicolas Hurley, who carries out convertible bond market research and has an engineering background.

Importantly, the team can draw on the broader resources of JPMorgan Asset Management. In overall terms this means being able to call on the expertise of about 300 equity analysts and portfolio managers, while the credit and global strategy teams also provide input to the decision-making process.

A separate investment director and dedicated convertible bond traders provide investment oversight and market know-how respectively. Risk, compliance and performance reporting capabilities all benefit from the scale of the JPMorgan Asset Management business.

Funds managed

Within the convertible bond area, JPMorgan Asset Management manages funds under five broad groups: balanced, conservative, yield-focused total return, income and flexible total return. In total, assets under management are approximately $4.4bn, including c $0.3bn in the income category that is closest to the company’s mandate. The direct overlap of existing funds with the company’s mandate is therefore relatively modest and, given its experience in running a range of funds, JPMorgan Asset Management has well-established procedures for addressing any potential conflicts of interest between different mandates.

While the management company’s scale in the convertible market could, on occasion, give rise to liquidity limitations for certain securities, there is a strong countervailing advantage when it comes to participation in new issues. As noted earlier, these are important in the market and larger investors tend to be given the opportunity to participate more fully in the issues. As Exhibit 10 below illustrates, JPMorgan Asset Management’s participation in new issues has ranged between 31% and 45% by number, while the six-month post-issue performance of issues in which the company participated outperformed the average on a global basis (8.9% versus 7.7%).4

Data as at 31 December 2012. Average performance represents a simple average of the performance of all actively traded convertibles issued between January 2009 and December 2012 in the first six months following the issue date. Performance since issue is quoted. ‘Actively traded’ generally means an issue size greater than US$100m or equivalent. Total issuance data refer only to those deals that JPMAM believes would be sufficiently liquid to be held in its portfolios – typically this excludes deals below US$100m, private placements and deals in which foreign investors are restricted.

Exhibit 10: JPMorgan AM participation in new issues

Exhibit 11: Ave. performance in 6 months after issue

Source: Bloomberg, JPMorgan Asset Management

Source: Bloomberg, JPMorgan Asset Management

Exhibit 10: JPMorgan AM participation in new issues

Source: Bloomberg, JPMorgan Asset Management

Exhibit 11: Ave. performance in 6 months after issue

Source: Bloomberg, JPMorgan Asset Management

Investment strategy and process

The manager intends to select from bond-like and balanced convertibles to meet the company’s objective of generating income and long-term growth.

Equity sensitivity will be enhanced by relatively high small-/mid-cap exposure.

Liquidity could be an issue in the convertible market but is less pressing for a closed-end fund.

The investment team follow a repeatable process, using a customised screening tool as part of this, followed by appropriate credit or equity analysis.

Positioning: Picking from bond- and equity-like instruments

To achieve the company’s objective of providing investors with income and the potential for long-term growth, the manager intends to invest in both bond-like convertibles, where yield is the key attribute, and the balanced segment where bonds are closer to in-the-money convertibles, which are equity proxies. The portfolio is likely to include high-coupon convertibles issued by small- and mid-cap companies where a liquidity premium helps to boost income and higher equity betas increase the equity sensitivity of the portfolio. The MSCI World is the reference index for the fund, but the portfolio will not be benchmark driven.

The manager will take into account top-down and bottom-up considerations. From a top-down perspective the fund will rotate strategically between more defensive bond-like convertibles and more equity-sensitive securities according to an assessment of the prospects for yields and overall convertible market valuations. Bottom-up factors include individual company analysis, industry outlook and technical factors for the specific convertible.

As shown in Exhibit 1, page 3 and Exhibit 12, page 13, the illustrative portfolio put forward by the manager has features that reflect the company’s income mandate. The lack of exposure to Japan reflects the low running yield available in that market, while the illustrative delta (equity sensitivity) of c 30% is low relative to a balanced strategy as the portfolio would include more bond-like investments.

While the company will have the ability to use gearing up to 20% of net assets, the manager indicates that the current intention is not to deploy this capacity initially and it is viewed as a tactical tool rather than a structural means of enhancing income.

Looking ahead, the manager believes there is increased interest in the asset class following an improved performance over the last year (BofA ML Global Convertible total return USD index +8% year to end March). The manager also sees a shrinkage in the US market as convertible bonds mature as likely to increase investor focus on European and Asian convertibles (having said this, the illustrative portfolio has a still substantial exposure of over 50% in the US). Higher running yields and betas in the small-cap sector are viewed as relatively attractive, favouring exposure to this area.

Risks: Crowded trades, lower participation in upside

As noted, one of the key attractions of a convertible bond can be the measure of downside protection it offers if an underlying equity performs poorly. The flipside of this is that an out-of-the-money bond would not participate fully if the underlying equity performed very well: this is the opportunity cost for the downside risk mitigation and superior yield characteristics.

Another feature of the market, in common with most corporate bonds, is that the issue size is modest and therefore can be subject to the risks associated with crowded trades. This risk is reduced to some extent by the closed-end structure, which obviates the need to provide for liquidity or sell at an inopportune time.

The greater small-/mid-cap exposure and somewhat lower diversification compared with a balanced convertible bond strategy may result in relatively higher credit risk.

While the main exposure is set to be to convertible bonds, notes and preference stocks, the manager may also invest in other convertible instruments including synthetic convertibles, use derivatives and hold equities post-conversion and corporate bonds. Some of these may expose the fund to counterparty risk in addition to other market risks.

Given the global mandate, the majority of the company’s assets are likely to be denominated in non-sterling currencies and the company normally intends to hedge the value of non-sterling assets and income. The company will not engage in speculative currency or interest rate hedges.

Investment constraints: Risk mitigation

Investment restrictions set by the company are as follows.

No exposure (including derivative instruments) to any company will exceed 10% of gross asset value.

No single counterparty exposure (whether as an issuer of convertibles or as a counterparty to instruments referable to other companies) to be greater than 15% of gross asset value.

Investments that are either unlisted or not subject to regulatory reporting requirements will not normally exceed 5% of gross asset value.

A maximum of 10% of total assets in other investment funds at the time of investment.

No investment in closed-end investment companies holding more than 15% of their total assets in other quoted closed-end investment companies.

There will be no formal constraints on geographical, sector or market capitalisation exposure. However, the manager has indicated that the investment process (see below) dictates practical limits to mitigate risk and in practice individual holdings are unlikely to be above 5% of assets. The expected range of holdings is between 60 and 80 securities. The portfolio will also be diversified by geography and market capitalisation helping to meet the requirement that “the company will at all times invest and manage the portfolio in a manner consistent with spreading investment risk”.

Investment process

Antony Vallee has emphasised that he places great emphasis on maintaining a consistent process in managing funds. He regards this as important in enabling repeatability and analysis of decisions.

The investment strategy for the company has a clear focus on income, so the initial strategy-setting part of the investment process is predetermined and the manager will set risk allocation and positioning based on this.

An important tool for the convertibles team is the customised screening system that has been developed over four years based on Monis software. It covers the global convertibles universe facilitating convertible pricing and provides a range of portfolio management tools. Screening trims the number of candidate investments and is a necessary but not sufficient step in the investment process.

Having narrowed the search, the team will then, depending on the nature of the company, carry out more or less in-depth research covering convertible bond technical aspects and credit and/or equity analysis of the situation. The manager may attend company meetings and also works with analysts and portfolio managers from other teams within JPMorgan Asset Management to keep track of companies’ progress. Fuller analysis tends to be carried out on smaller names as these are less likely to be followed by the equity team at JPMorgan Asset Management.

In order to ensure clarity of communication among the team and with dealers the team allocate a ranking to the companies they are following. Simplistically, stocks in the top category would all be given an equal weighting in the portfolio to ensure that each of the selections is able to have an equal impact on performance.

Differentiation of the company

The distinguishing features of the fund, in our view, are fourfold: it is global, convertible/income-focused, closed-ended and UK-listed. Each of these is likely to give the fund particular characteristics.

As a global fund it is able to address the full convertibles universe and seek liquid opportunities according to market conditions. The convertible/income focus is evident in the illustrative portfolio running yield of 5.2% and is accompanied by its focus on the out of the money and balanced segments (note the lower equity sensitivity and lack of Japanese exposure in the comparison below, both reflecting the income mandate). A closed-end fund has an advantage in the relatively small convertible bond market. Open-ended funds need to retain liquidity and this may dictate a minimum issue size or greater diversity of holdings (illustrated in the table below) that could dilute concentration on preferred stocks. We believe the company will be unique as a UK-listed convertible closed-end investment fund providing investors here with access to this niche market through a suitably structured fund.

Exhibit 12: Comparison of illustrative convertible income and balanced global funds

Global convertible income fund5

Indicative portfolio is illustrative only: see note to Exhibit 1, page 3 for further detail.

Balanced global convertible fund

Yield to best

6.4%

1.1%

Running yield

5.2%

1.7%

Delta (equity sensitivity)

29.6%

43.2%

Average credit rating

BB

BBB

Number of securities

72

128

Regional breakdown

Americas

54.5%

32.0%

Europe

24.5%

42.0%

Asia ex-Japan

14.5%

11.0%

Japan

0.0%

15.0%

RoW

6.5%

0.0%

Source: JPMorgan Asset Management

Proposed capital structure, fees and other items

The company intends to make a placing and offer of shares targeting in excess of £100m (maximum £300m) subject to a minimum fund size of £50m. The proposed capital structure is conventional with one class of share.

The annual management fee will be 0.75% per annum of net assets calculated and paid monthly in arrears. There will not be a performance fee.

After issue costs capped at 2% of gross issue proceeds, the opening asset value is expected to be 98p compared with an issue price of 100p.

The fund management contract is terminable on six months’ notice by either party although notice cannot be served in the first two years of the fund’s establishment.

As noted earlier, the company will have the ability to use gearing of up to 20% of net assets but does not intend to deploy this initially and regards this as a tactical tool rather than a structural feature to enhance income, for example.

The company will have an indefinite life, subject to a continuation vote at the fifth AGM and three yearly continuation votes thereafter.

Discount management: the company will seek annual shareholder approval for buy-backs up to 14.99%. Subject, among other things, to directors’ discretion, the company would expect to make purchases if the share price discount to net asset value exceeds 5% for any significant period of time.

Further issues of shares: the company will have the authority to issue further shares, an option that will only be used on a non-dilutive basis, if the directors deem this to be in the interest of the shareholders and the company as a whole.

Dividend policy and tax treatment

The company target is for an initial gross dividend yield of 4.5%. Dividends will be payable half-yearly in the first year with the intention being to move to quarterly payments thereafter.

Subject to an individual’s tax position, the treatment of dividends from the company may be more favourable in the UK than would be the case for income from an open-ended fund. Distributions from an open-ended convertibles or bond fund may be counted as savings income and hence incur the investor’s marginal tax rate. The proposed company, by dint of its Guernsey incorporation, may pay no tax itself on interest receipts and a UK investor may pay the lower marginal rate of tax that applies to dividends.

Existing funds investing in convertibles

We interrogated the Morningstar database for existing funds investing in convertibles and identified 40 funds. We have already noted the advantage of a closed-end structure for investing in this area because of the liquidity limitations for some issues. Given this, and to give greater comparability with JGCI, we narrowed the group to closed-end funds only. In a further step we removed four with exposure of 30% or less to convertible instruments. This left just six funds (our “select group of CEFs”), all of which are US-based and predominantly invested in US securities and therefore differentiated from JGCI with its proposed UK listing and global diversification.

Exhibit 13 below shows selected data for these funds and the averages for the select group and all funds. We have also shown comparative figures for equity, convertible and bond indices. We would highlight the following points from the table.

Even taking the full number of open-ended and closed-ended funds identified (40) there are relatively few funds available to gain access to this market area and there are no existing UK-listed funds available.

As would be expected, given the nature of the underlying investment, the select funds on average generated total returns (TR) between the corporate bond indices and the MSCI world equity index.

They were actually ahead of the convertible index over one and three years and slightly behind over five years.

The average Sharpe ratio6 for the funds is ahead of the equity index: both have trailed US corporate bonds as represented by the DJ Corporate Bond index reflecting the strong run this asset class has enjoyed.

The Sharpe ratio is a measure of risk-adjusted return. The ratios we show are calculated by Morningstar for the past 36 month period by dividing a fund’s annualized excess returns over the risk-free rate by its annualized standard deviation.

Exhibit 13: Existing funds investing in convertibles – yield, total returns, Sharpe ratios and discounts

Fund

Ticker

Yield %

TR 1Y %

TR 3Y %

TR 5Y %

Sharpe 1Y ratio

Sharpe 3Y ratio

Sharpe 5Y ratio

Discount
(ex Par) %

Advent Claymore Cnvt Secs&Inc

AGC

3.4

12.1

2.4

-3.2

1.3

0.2

0.0

-6.1

Advent Claymore Conv & Inc

AVK

6.7

11.7

6.7

3.2

1.3

0.5

0.2

-7.4

Bancroft Fund

BCV

2.8

8.3

7.4

4.5

1.1

0.7

0.3

-14.7

Calamos Convertible & High Inc

CHY

4.7

11.7

10.4

9.3

2.1

1.2

0.6

-5.2

Ellsworth Fund Common

ECF

3.3

9.5

8.3

5.0

1.2

0.8

0.4

-14.4

Putnam High Inc Secs

PCF

5.8

12.8

9.7

8.0

2.4

1.1

0.5

-8.1

Average - select group of CEFs

4.4

11.0

7.5

4.5

1.6

0.7

0.3

-9.3

Average – 40 open-ended & CE funds

8.0

6.3

4.6

1.3

0.7

0.4

Benchmarks (all US$)

MSCI World GR

12.5

9.1

2.8

1.0

0.6

0.2

BofAML Global Convertible TR

8.1

6.4

4.8

1.1

0.6

0.4

S&P Intl Corporate Bond TR

5.5

6.8

N/A

0.7

0.6

N/A

DJ Corporate Bond TR

7.9

8.6

9.2

2.1

1.9

1.2

Source: Morningstar, Edison Investment Research. Note: Total returns (TR) are annualised.

Director biographies

Company directors

Simon Miller (chairman and chairman of the Remuneration and Nomination Committee). Simon Miller is chairman of Dunedin LLP. Mr Miller is also chairman of Brewin Dolphin plc, Artemis Alpha Trust plc, Blackrock North America Income Trust plc, Amati VCT plc and a non-executive director of Scottish Friendly Assurance Limited. He was previously chairman of JPMorgan Elect plc. Mr Miller is resident in the United Kingdom.

Philip Taylor FCA (chairman of the Audit Committee). Philip Taylor is chairman of Hawksford International Limited, The States of Jersey Treasury Advisory Panel and The Jersey International Business School, Regional Chair of Coutts Channel Islands, non-executive director of Royal Bank of Scotland International and City Merchants High Yield Trust Limited, a member of the Audit Committee of the States of Jersey and a member of the Conduct Committee of the Financial Reporting Council. Formerly he was a partner of PricewaterhouseCoopers’ United Kingdom and Channel Islands firms and senior partner of PricewaterhouseCoopers Channel Islands from 1998 to 2007. Mr Taylor is resident in Jersey.

Paul Meader is an independent director of a number of investment management companies and investment funds including BlueCrest AllBlue Fund Ltd and ICG-Longbow Senior Secured UK Property Debt Investments Limited. He was, until recently, head of portfolio management for Collins Stewart based in Guernsey, having previously held the role of chief executive of Corazon Capital Group, which was acquired by Collins Stewart in 2010. Mr Meader has 26 years’ experience in financial markets in London, Dublin and Guernsey following senior positions in portfolio management and trading, with particular expertise in fixed income investments. Prior to joining Corazon he was managing director of Rothschild’s Swiss private-banking subsidiary in Guernsey. Mr Meader is a Chartered Fellow of the Chartered Institute of Securities & Investments and is past chairman of the Guernsey International Business Association, of the International Bankers’ Association and of the Guernsey Investment Managers’ & Stockbrokers’ Association. He is resident in Guernsey.

Charlotte Valeur Adu is managing director of GFG Ltd, which she founded in 2011. Prior to GFG, Ms Valeur Adu was the managing partner of Brook Street Partners Ltd from 2003. Ms Valeur Adu is the chairman of the board of Brevan Howard Credit Catalysts Limited and also serves on boards and committees of a number of listed and unlisted fund management and investment companies. Ms Valeur Adu has in excess of 30 years' experience in the financial markets. Prior to Brook Street Partners, she was a director in Capital Markets at Warburg, BNP Paribas, Societe Generale and Commerzbank. Ms Valeur Adu began her career in Copenhagen in 1982 with Nordea A/S. In 1991 she moved to the London office of Nordea A/S as head of the UK fixed income sales group. Ms Valeur Adu is a member of The Institute of Directors and is regulated by the Jersey Financial Services Commission in the conduct of Trust Company business. Ms Valeur Adu is resident in Jersey.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Berlin, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is not regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by JPMorgan Global Convertibles Income FundAsset Management (UK) Limited and prepared and issued by Edison for publication. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. Edison US is not registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. This research is not intended for retail clients. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2013]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

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New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1162

Level 33, Australia Square

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NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Berlin +49 (0)30 2088 9525

Friedrichstrasse 95

10117 Berlin

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1162

Level 33, Australia Square

264 George St, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Berlin, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is not regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by JPMorgan Global Convertibles Income FundAsset Management (UK) Limited and prepared and issued by Edison for publication. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. Edison US is not registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. This research is not intended for retail clients. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2013]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Berlin +49 (0)30 2088 9525

Friedrichstrasse 95

10117 Berlin

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1162

Level 33, Australia Square

264 George St, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Berlin +49 (0)30 2088 9525

Friedrichstrasse 95

10117 Berlin

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1162

Level 33, Australia Square

264 George St, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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