A Guide to Mutual Fund Investing

Transcription

1 AS OF DECEMBER 2016 A Guide to Mutual Fund Investing Many investors turn to mutual funds to meet teir long-term financial goals. Tey offer te benefits of diversification and professional management and are seen as an easy and effcient way to invest in different asset classes. However, as wit all investment coices, investing in mutual funds involves certain risks, fees and expenses. Your Financial Advisor can elp you select te mutual funds tat are in line wit your objectives and risk tolerance as well as explain te applicable risks and associated costs. Helping you reac your financial goals. Millions of investors find mutual funds te rigt solution for teir long-term financial goals. Some reasons include: Professional Management Te fund s portfolio is professionally managed by experienced money managers wo researc and select investments tat are appropriate for te fund s objective and provide fulltime monitoring of te performance of tose investments. If canges are necessary, tey re able to modify te fund s oldings. Variety Mutual funds offer a wide range of options in terms of assets classes and objectives. Tere are stock and bond funds, income and growt funds or funds tat try to acieve several objectives, and conservative and more risky funds. Mutual funds provide a convenient way to create a portfolio tat meets your specific investment objectives and risk tolerance. Diversification Depending on teir specific objectives, mutual fund portfolios are generally diversified over many different companies and industries. Te concept of diversification is as simple as te timetested advice, Don t put all your eggs in one basket. By spreading your investments across a wide range of companies and industry sectors, you can better protect your assets during market fluctuations. Mutual fund ownersip makes it easy for an investor to maintain a diversified investment portfolio. Affordability To invest in a diversified portfolio of individual securities could require a large investment. Many mutual funds allow investors to purcase sares for a relatively low dollar amount for initial and subsequent purcases. Liquidity Investors generally may redeem teir mutual fund sares for any reason at te current net asset value (NAV), plus any fees and carges assessed on redemption. Liquidity can be impacted by market conditions Dividend Payments A fund can earn income in te form of dividends and interest on te securities in its portfolio, wic is passed on to sareolders in te form of dividends. IF YOU HAVE QUESTIONS ABOUT MUTUAL FUNDS OR ANY OTHER INVESTMENT OPTION, PLEASE CONTACT YOUR FINANCIAL ADVISOR. IMPORTANT REMINDERS Mutual funds are not banking deposits, are not guaranteed by te Federal Deposit Insurance Corporation (FDIC) or any oter government agency and involve risks including te possible loss or some or all of your investment. Past performance is not a reliable indicator of future performance. However, past performance can elp you assess a fund s volatility over time. All mutual funds ave costs tat may lower your investment returns. Te mutual funds and sare classes available are limited and will cange from time to time. It is important to work wit your Financial Advisor to determine wic funds and sare classes are available for purcase in your account. Before you invest, be sure to read te fund s prospectus and Statements of Additional Information ( SAI ) to learn about te fund you re considering. Tese documents ave tables of contents wic allow you to easily find information about investment objectives, risks and tax considerations. By clearly understanding te investment you re considering, you ll be better prepared to make a sound investment decision. To obtain a prospectus, please contact your Financial Advisor. INVESTMENT PRODUCTS ARE: NOT FDIC INSURED NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED

2 A GUIDE TO MUTUAL FUND INVESTING Dividend Reinvestment You can set your account up for te automatic reinvestment of any dividends generated by your fund, allowing you to accumulate more sares witout incurring a sales carge. Capital Gains Distribution Occurs wen te fund sells a security tat as increased in value. At te end of eac year, most funds will distribute any capital gains (minus any capital losses) to teir investors. You may also elect to ave tese distributions reinvested witout incurring a sales carge. LEARNING MORE ABOUT MUTUAL FUNDS A mutual fund is a company tat pools money from many investors and invests te money in stocks, bonds and oter securities or assets in some combination depending on its investment objectives. Te oldings of te mutual fund are its portfolio. Eac sare of te mutual fund represents an investor s proportionate ownersip of te fund s oldings and te income or appreciation tose oldings may generate. Mutual funds also ave some unique caracteristics tat investors need to consider before making te decision to invest: Costs Despite Negative Returns Sales carges, fees and oter expenses must be paid by te mutual fund investor regardless of ow te fund performs. In addition, wen sares are sold, investors may also be required to pay taxes on any capital gains distribution tey receive, even if te fund declines in value after te sares are purcased, or te sares ave been eld a relatively sort period of time. Tis is especially important at te end of te year wen many funds distribute capital gains. Knowledge of Portfolio Holdings By relying on te fund managers to manage te fund s oldings, te individual investor usually as little current knowledge of te exact make-up of a fund s portfolio. Additionally, tey ave no direct influence on te timing or selection of securities te fund manager buys or sells. Degrees of Risk All mutual funds carry some degree of risk. You may lose some or all of te money you invest your principal because te securities eld by a fund fluctuate in value on a daily basis. Any dividends or interest payments may also fluctuate due to canging market conditions. Buying and Selling Mutual Funds Investors may purcase mutual fund sares in a number of ways. Te two most common are from te fund itself or troug a Financial Advisor. Te price paid for mutual fund sares is te fund s per sare net asset value (NAV), plus any sareolder fees tat te fund may impose at te time of purcase, suc as sales loads. Te NAV is calculated at te end of eac business day by dividing te total value of te fund s oldings (less expenses) by te number of sares owned by te fund s sareolders. Purcasers of mutual funds purcase at te NAV next calculated after tey place teir purcase order. Mutual fund sares are redeemable, meaning tat investors can sell teir sares back to te fund at any time. Te portfolios of mutual funds are managed by separate entities known as Investment Advisors tat are registered wit te U.S. Securities and Excange Commission (SEC). Mutual funds strive to acieve a particular investment objective, suc as capital appreciation or current income, over time. Most mutual funds are generally designed for long-term investors. Terefore, tey are not suitable investors seeking quick profits or tose attempting to time te market troug active trading. In fact, most mutual funds implement practices and procedures tat protect sareolders from investors wo are actively trading sares in order to time te market. Market timing involves te rapid buying and selling of mutual fund sares in an attempt to realize sort-term profits. Tis excessive trading of mutual fund sares may disrupt a fund s investment strategy. It also may negatively influence performance results by increasing trading costs and/or causing fund managers to old more cas tan tey oterwise would prefer to old. In order to discourage investors from using teir funds to practice market timing, a fund may: Impose Redemption fees Some mutual funds carge fees to investors wo redeem teir sares witin a few monts of purcasing tem. Usually te fund company returns te redemption fees to te fund s portfolio to offset te costs associated wit sort-term trading. Implement Trading Restrictions Most funds limit te number of excanges (selling sares of one fund and using te proceeds to purcase sares of anoter in te same fund family) and round-trip transactions (a purcase followed by a redemption) tat sareolders may make witin a specific time period. For example, a fund may limit sareolders to two substantive excanges witin a 30-day period. 2

3 Modify excange privileges Most mutual fund families let teir sareolders excange sares of one fund tey manage for sares of anoter fund tey manage wit some restrictions. If tis practice results in excessive trading, te fund may modify te excange privilege. For example, it may make excanges into certain funds effective on a delayed basis in order to disrupt a market timing strategy. Identify and Isolate Market Timers Some funds attempt to identify market timers by monitoring sareolder transactions. Upon identifying market timers, te fund may restrict te timers trading privileges or expel tem from te fund. DIFFERENT TYPES OF MUTUAL FUNDS Investors today ave tousands of coices wen it comes to investing in mutual funds. Understanding your individual financial goals and risk tolerance eiter on your own or wit te elp of your Financial Advisor is te first step in te journey to reac your long-term financial goals. It will also elp determine wic mutual funds are rigt for you. Mutual funds generally fit into tree main categories money market funds, bond funds, stock funds (also called equity funds). Eac category as unique features, risks and rewards. In general, te iger te potential return, te iger te potential risk of loss. Wat s In a Name Tere are rules requiring a fund to invest at least 80% of its assets in te type of investments suggested by its name. However, funds can invest up to 20% of teir oldings in oter types of securities. Te investment parameters of wat te fund can and can t old are contained in te prospectus, wic you sould always read carefully before investing. Money Market funds Typically less volatile tan oter types of mutual funds. By law, tey can only invest in igquality, sort-term investments issued by te U.S. government, U.S. corporations and state and local governments. Money market funds are not guaranteed against loss. Money market funds pay dividends tat are usually declared daily, paid montly, and generally reflect sort-term interest rates. Inflation risk, te risk tat te inflation rate will grow faster tan te investment s return over time, can be a concern for money market fund investors. Wile a potential alternative to keeping cas in a bank account, investments in a money market fund are not insured or guaranteed by te FDIC or any oter government agency. In October 2016, money market fund reforms adopted by te U.S. Securities and Excange Commission will go into effect. Tese reforms are intended to reduce te potential risks to money market funds during periods of extreme market stress. Under tese reforms, money market funds will fall into tree general categories: Government, Retail and Institutional. During periods of market turmoil, wen certain triggers are met and depending into wic category tey fall, money market funds could be subject to redemption gates, liquidity fees and/or floating net asset value (NAV). For more information about money market funds and te October 2016 canges, please see page 15. Bond (or Income) Funds Generally ave iger risks tan money market funds, due to te fact tat tey typically pursue strategies aimed at producing iger yields. Unlike money market funds, tere are no laws to restrict bond funds to ig-quality or sort-term investments. Because tere are many different types of bonds, tese funds can vary dramatically in teir risks and rewards. One of te major risks associated wit bond funds is credit risk, or te risk tat companies or oter issuers may fail to pay teir debts. Te credit quality of te bonds contained in a fund will ave a direct impact on teir credit risk. Anoter risk is interest rate risk, or te risk tat te market value of te bonds will go down wen interest rates increase. Funds tat invest in longer-term bonds tend to ave a iger interest rate risk and fluctuate more dramatically in value. Interest earned on a bond fund s portfolio is passed troug to investors as dividends, wic may be taken in cas or reinvested. Tis component of a bond fund s earnings (less expenses) is called its yield. Te two major factors tat affect a bond fund s yield are te quality and maturity of te bonds in te portfolio. In general, lower quality bonds and tose wit longer maturities generally offer iger yields but ave increased risks. Te sare price or NAV of a bond fund may cange based upon te market value of te bonds in te portfolio. Te value of te bonds in te portfolio may cange in response to canges in interest rates. To calculate te total return of a bond fund, it is necessary to include te cange in sare price along wit any income earned (dividends and capital gains distributions). 3

4 Stock (or Equity) Funds Typically ave iger risks and volatility tan money market and bond funds. However, over te long term, stocks ave istorically performed better tan any oter type of investment. Market risk is te greatest potential risk for investors in stock funds. Stock prices can fluctuate dramatically for many reasons, suc as te overall strengt of te economy or demand for particular products or services. Types of stock funds include: Growt Funds focus on stocks (companies) tat may not pay a regular dividend but ave te potential for large growt. Tere are also different types of growt funds, including small, medium and large cap funds, wic will invest in te stock of tese types of companies. Sector Funds may specialize in a particular industry segment, suc as tecnology or consumer products stocks. A sector fund concentrates its investments in one sector and involves more risks tan a fund tat invests more broadly. Equity Income Funds invest in stocks tat pay regular dividends. Index Funds seek to acieve te same return as a particular market index, suc as te S&P 500 Composite Stock Price Index, by investing in all or many of te companies included in te index. It is not possible to directly invest in an index. Balanced Funds Provide investors wit a combination of bot stock and bond oldings in one mutual fund. Unit Investment Trusts (UITs) Type of investment company tat buys and olds a generally fixed portfolio of stocks, bonds or oter securities meaning, unlike mutual funds, te portfolios won t be regulatory. Units in te trust are sold to investors wo receive a sare of principal and dividends or interest. UITs ave a stated termination date. Like mutual funds, UITs may carge an initial sales carge and a deferred sales carge. Te UIT s prospectus contains information about te portfolio of securities witin te UIT and te sales carges. Excange Traded Funds (ETFs) Type of investment company tat offers investors a proportionate sare of a portfolio of stocks, bonds or oter securities. Like individual equity securities, ETFs are traded on a stock excange and can be bougt and sold trougout te trading day troug a broker dealer. Many ETFs attempt to track various stock market sectors, international indices and bond indices. Recently, additional types of ETFs, including leveraged ETFs and actively managed ETFs ave been introduced. Since ETFs trade on an excange, like stocks, te value is determined by te prices buyers and sellers are willing to pay and may be different from te NAV of te underlying securities or investments. Terefore, ETFs may trade at a premium or discount to te NAV. Non-Traditional Funds Non-traditional funds are mutual funds or ETFs tat pursue alternative investment strategies. Wile traditional funds generally focus teir investment strategies on long term buy-and-old stock and bond investing, non-traditional funds generally employ more complex trading strategies, suc as selling securities sort in anticipation of a drop in teir price, using leverage, and purcasing options and futures. Some non-traditional funds also focus teir investment strategies on investing in gold, commodities (suc as copper and oil) or real assets suc as real estate. Tese strategies ave generally been associated wit alternative investment products suc as edge funds. MUTUAL FUND FEES AND EXPENSES Running any business involves costs, and mutual fund companies are no exception. Transaction costs, advisory fees, marketing and distribution expenses (12b-1 fees) are just a few of te costs associated wit running a mutual fund. Tese costs are passed to investors in te form of fees and expenses. It s important to clearly understand tese fees, because tey will impact your investment returns. Sales Carge (Load) Paid wen you initially purcase mutual fund sares. Usually associated wit A sares, tis carge is also known as a front-end load. A portion of tis is usually paid to te broker selling te sares. Sales carges reduce te amount of your initial investment, as tey are deducted from your initial investment purcase. Contingent Deferred Sales Carge (Load) Paid wen you sell mutual fund sares. Usually associated wit B or C sares, tis carge is also known as a back-end load. Te amount will depend on ow long you own te sares, and may decrease to zero if a B sare eld as a long-term investment. Tis may also be paid wen selling sares purcased witout a frontend load because te purcase was more tan $1 million. Excange Fee Paid wen sareolders excange (transfer) to anoter fund witin te same fund group. 4

5 Management/Investment Advisory Fees Paid out of te fund s assets to te fund s Investment Advisor for investment portfolio management and administrative fees tat are not included in te Oter Expenses category. Distribution/Service Fees (12b-1 Fees) Paid by te fund from fund assets to cover te costs of marketing and selling fund sares and/or to cover te costs of providing sareolder services, suc as advertising, printing and mailing of prospectuses, pone centers and more. Te broker dealer receives tese fees, wic are also called trails, and a portion of tem is paid to your Financial Advisor. Oter Expenses Expenses not included under Management/Investment Advisory Fees or Distribution/Service Fees, suc as custodial expenses, legal and accounting expenses, transfer agent and administrative expenses. Total Annual Fund Operating Expenses (Expense Ratio) A line on te fee table tat provides te total of a fund s annual operating expenses, as a percentage of te fund s average net assets. Annual operating expenses include te ongoing costs of running te fund, and te fund company pays tese expenses from te fund s assets before it distributes any earnings to sareolders. Included among te annual operating expenses of all mutual funds is te investment advisory fee, wic te fund pays to te Investment Advisor for managing te portfolio. In some cases, te Investment Advisor may enter into revenue-saring arrangements wit firms tat distribute te fund. Te Investment Advisor finances tese arrangements out of its investment advisory fee and must disclose te details of suc arrangements in te prospectus or Statement of Additional Information (SAI). Revenue saring Paid by some funds, teir Investment Advisors, distributors or oter entities to brokerage firms, or oter distributors of mutual funds, based on te amount of te fund s sares sold by te distributor. Tis revenue is paid in addition to sales loads and 12b-1 fees described in te prospectus. Some mutual fund advisers, distributors or oter entities make payments to J.P. Morgan Securities LLC (JPMS) based on te amount of te fund s sares sold by JPMS or owned by JPMS clients. Your Financial Advisor does not get paid a portion of tis revenue. Te fund prospectus is a valuable tool tat will provide you wit information on te various fees. Eac fund prospectus is required to provide a fee table near te front of te prospectus tat can elp you compare te costs of different funds. BUYING, SELLING & EXCHANGING Mutual fund sares can be purcased and sold on any business day. Mutual funds are priced once eac day at a time specified in te prospectus, usually 4:00 pm ET, wic is te close of business on te New York Stock Excange. Wen your purcase or sale order is received before te establised cut-off time, your transaction will receive te price calculated for tat day. Purcasing Mutual Fund Sares Wen you buy sares, you pay te current NAV per sare plus any fee te fund may assess at te time of purcase, suc as a sales carge or oter type of purcase fee. Selling Mutual Fund Sares Wen you sell your sares, te fund will pay you te current NAV minus any fee te fund assesses at te time of redemption, suc as a deferred (or back-end) sales carge or redemption fee. Excanging Sares Many mutual fund companies ave several different types of funds in wic to invest. Most offer excange privileges witin teir family of funds, allowing sareolders to transfer teir oldings from one fund to anoter witin te family, witout incurring an additional sales carge, as teir investment objectives or risk tolerance cange. Excanges may ave tax consequences. Even if te fund doesn t carge you for te excange, you ll be liable for any gain on te sale of your original sares or, depending on te circumstances, eligible to take a loss. UNDERSTANDING SHARE CLASSES Different sare classes provide you wit coices for ow you wis to pay for your investment. Many mutual funds make more tan one sare class available to investors. Eac sare class invests in te same portfolio of securities and as te same investment objective and policies; owever, eac sare class as different sales carges and expenses. Tis multi- class structure allows investors to select a fee and expense structure tat is most appropriate for teir individual investment goals. Here is a brief description and comparison of te sare classes commonly available to individual investors. 5

6 Class A Sares In general, Class A sares include a front-end sales carge (or load) tat s included in te purcase price of te sares and is determined by te amount you invest. Te more you invest, te lower your purcase cost as a percentage of your investment. Many mutual fund families offer volume discounts known as breakpoints based upon te amount of investment. Information regarding a mutual fund s breakpoints may be found in te prospectus. For long term investors, Class A sares generally represent te least costly metod to purcase mutual funds. Class A sares usually ave lower 12b-1 fees (annual marketing or distribution fees) tan oter sare classes offered by te fund. Many mutual funds provide tat purcases of $1 million or more of Class A sares will not be subject to a front-end sales carge. However, te purcaser will incur a deferred or back-end sales carge if any of te sares are sold witin a specified time period, generally monts. In addition, certain investors may be entitled to a sales carge or load waiver based, for example, on account type or employment affliation. Class B Sares Class B sares usually do not contain front-end loads, but rater include back-end sales carges or Contingent Deferred Sales Carges (CDSC). If you sell te sares witin a specified number of years, you pay te sales carge, wic usually declines over time. Te 12b-1 fees associated wit Class B sares generally are iger tan tose imposed on Class A sares. Most fund companies automatically will convert your Class B sares to Class A sares once you ve eld te Class B sares for a specified number of years. From tat point forward, you ll benefit from te lower 12b-1 fees of te Class A sares. Additionally, iger total fund expenses will result in lower dividend distributions tan Class A sares. Class C Sares Class C sares generally do not include front-end sales carges, but tey do contain iger 12b-1 fees and may ave a sales carge if you sell witin te first year. In addition, 12b-1 fees never convert to a lower amount and iger total fund expenses will result in lower dividend distributions tan Class A sares. SHARE CLASS SUMMARY Class A sares Class B Sares Class C Sares Sales Carge 12b - 1 Fees Breakpoint Potential Consider for Paid at te time of investment. Deferred until sares are sold. Carged decreases over several years until it goes to zero. If imposed, is usually carged only if sares are sold witin te first year olding period. Typically lower tan B or C sare classes. Typically iger tan A sares, but may convert to A sare 12b-1 fee after a specified period of time. Typically iger tan Class A sares and never converts to Class A sares. Volume discounts called breakpoints (or sales carge waivers) may be available. No volume discounts are available. No volume discounts are available. Large, long-term investments Small, long-term investments Sort-term investments Te fee table in eac fund s prospectus sows te fees and expenses paid by eac class of sares. In addition, FINRA provides an online Fund Analyzer to elp you understand te impact tat fees and expenses can ave on your investment. You may use te analyzer to compare different sare classes or different mutual funds. Go to: ttp://apps.finra.org/fundanalyzer/1/fa.aspx 6

7 MAKING THE MOST OF MUTUAL FUND CLASS A SHARE DISCOUNT OPPORTUNITIES Mutual funds tat carge front-end sales carges, also known as sales loads, may offer a reduced sales carge wen an investment of a certain amount is made; tis is commonly called a breakpoint. Usually, tere are several breakpoints available based on an escalating purcase amount; te larger te breakpoint, te lower te sales carge. Eac fund company establises its own formula for ow tey will calculate weter an investor is entitled to receive a breakpoint and establises its own rules for sales carge waivers. It s important to read te prospectus and work wit your Financial Advisor to learn ow a particular fund establises eligibility. Depending on a fund s procedures, breakpoints can be met by aggregating positions of te mutual fund a client or certain family members already own; tis is called Rigts of Accumulation ( ROA ). A breakpoint can also be met over time, instead of at te initial purcase, if te client commits to buying addition sares to meet te requirement by providing a Letter of Intent ( LOI ). If tis commitment isn t met, te fund will carge te pre-breakpoint sales carge. Your Financial Advisor can elp you ensure you re receiving te correct breakpoint discount or sales carge waiver or answer any questions about te sales carges applied to your transactions. INSTITUTIONAL, RETIREMENT, NO-LOAD AND OTHER SHARE CLASSES Institutional, retirement, no-load and certain oter fund sares are generally available only troug asset- based fee advisory programs. In tese programs, you typically pay an annual fee based on a percentage of te value of te assets eld in your account, including te value of te fund sares. Tese programs provide features and benefits tat may not be available in a traditional brokerage account tat carges transaction fees. Te total cost of purcasing and olding mutual fund sares troug an asset-based fee advisory program may be more or less tan investing in mutual fund sares in a traditional brokerage account tat is serviced by your Financial Advisor A mutual fund s breakpoint scedule and waiver eligibility rules can be found in te fund s prospectus or SAI. TAX CONSEQUENCES Mutual funds ave different tax consequences tan many oter investments. Wen you purcase and old mutual fund sares, you will owe income tax on any ordinary dividends in te year you receive or reinvest tem. Additionally, te law requires mutual funds to distribute capital gains to sareolders wen tey sell securities for a profit tat can t be offset by a loss. You may ave to pay taxes on te fund s capital gains for tat year even if you still own te sares. Ten, wen you sell your sares, you will owe taxes on any capital gain you received on te sale. Wen you invest in a tax-exempt fund, suc as a municipal bond fund, some or all of your dividends will be exempt from Federal (and sometimes state and local) income tax. You will, owever, owe taxes on any capital gains realized by te fund and on te sale of your sares. Anytime you receive a capital gains distribution, you will usually owe taxes even if te fund as ad a negative return from te point during te year wen you purcased your sares. Consider contacting te fund to learn wen it makes distributions so you won t pay more tan your fair sare of taxes. Mutual funds are required to disclose after-tax returns in te Risk/Return Summary section of teir prospectuses. Since J.P. Morgan Securities LLC doesn t provide tax or legal advice, we encourage you to consult your tax advisor for more information on te tax consequences of mutual fund investing. SOURCES OF FUND INFORMATION Te Prospectus Wen you re considering te purcase of mutual fund sares, you sould always review te fund s prospectus before you invest. Te prospectus is te fund s selling document and it contains te following information: fund investment objectives/goals fees and expenses strategies for acieving tose goals past performance principal risks of investing in te fund 7

8 Te prospectus also provides information on te fund s managers and Investment Advisors and describes ow to purcase and sell fund sares. Te SEC requires funds to include specific categories of information in teir prospectuses and to present key data (suc as fees and past performance) in a standard format so tat investors can more easily compare different funds. Statement of Additional Information (SAI) Te SAI explains a fund s operations in greater detail tan te prospectus. It includes te fund s financial statements and details about te istory of te fund, fund policies on borrowing and concentration, te identity of offcers, directors and persons wo control te fund, investment advisory and oter services, brokerage commissions, tax matters and performance suc as yield and average annual total return information. Te mutual fund is typically required to send you an SAI anytime you request one, and te back cover of a fund s prospectus sould contain information on ow to obtain te SAI. Sareolder Reports A mutual fund must also provide sareolders wit annual and semi-annual reports witin 60 days after te end of te fund s fiscal year and 60 days after te fund s fiscal mid-year. Tese reports contain a variety of updated financial information, a list of te fund s portfolio securities and oter information. You may obtain any of tese documents by: Contacting your Financial Advisor. Calling or writing to te fund (all mutual funds ave toll-free telepone numbers).» Visiting te fund s website. You can obtain additional information about mutual funds at te educational websites of te U.S. Securities and Excange Commission ( te Financial Industry Regulatory Autority ( te Securities Industry Association ( and te Investment Company Institute ( MUTUAL FUND GLOSSARY 1. 12b-1/Distribution Fees Fees paid by te fund out of fund assets to cover te costs of marketing and selling fund sares and sometimes to cover te costs of providing sareolder services. Distribution fees include fees to compensate brokers and oters wo sell fund sares and to pay for advertising, te printing and mailing of prospectuses to new investors and te printing and mailing of sales literature. Sareolder Service Fees are fees paid to persons to respond to investor inquiries and provide investors wit information about teir investments. 2. Breakpoints Mutual funds tat carge front-end sales loads may carge a lower sales load for larger investments. Te investment levels required to obtain a reduced sales load are commonly referred to as breakpoints. 3. Classes Different types of sares issued by a single fund, often referred to as Class A sares, Class B sares, etc. Eac class invests in te same pool (or investment portfolio) of securities and as te same investment objectives and policies. But eac class as different sareolder services and/or distribution arrangements wit different fees and expenses and terefore different performance results. 4. Contingent Deferred Sales Carge (CDSC) Type of back-end load, te amount of wic depends on te lengt of time te investor eld is or er sares. For example, a contingent deferred sales load migt be (X)% if an investor olds is or er sares for one year, (X-1)% after two years, and so on until te load reaces zero and is eliminated completely. 5. Excanges Mutual fund companies may offer excange privileges witin teir family of funds, allowing sareolders to transfer teir oldings from one fund to anoter witin te family. 6. Expense Ratio Fund s total annual operating expenses (including management fees, 12b-1 fees and oter expenses) expressed as a percentage of average net assets. 8

9 7. Investment advisor/manager Person wo manages portfolios of securities, including mutual funds. 8. Investment Company Company (Corporation, Business Trust, Partnersip or Limited Liability Company) tat issues securities and is primarily engaged in te business of investing in securities. Te tree basic types of investment companies are open-end mutual funds, closed-end funds and unit investment trusts (UITs). 9. Letter of Intent (LOI) Investing an amount greater tan te fund s breakpoint witin a designated period (usually 13 monts) makes you eligible to receive a breakpoint discount on te sales carge as if te purcases ad been made in a single lump sum. 10. Management/Advisory Fee Fee paid out of a fund s assets to te fund s Investment Advisor or its affliates for managing te fund s portfolio. Also includes any oter management and administrative fees payable to te fund s Investment Advisor or its affliates tat are not included in te Oter Expenses category. A fund s management fee appears as a category under Annual Fund Operating Expenses in te Fee Table. 11. Mutual Fund Common name for an open-end investment company. Like oter types of investment companies, mutual funds pool money from many investors and invest te money in stocks, bonds, sort-term money-market instruments or oter securities. Mutual funds continuously issue redeemable sares tat investors purcase directly from te fund (or troug a broker for te fund) instead of purcasing from investors on a secondary market. 12. Net Asset Value (NAV) Value of te fund s assets minus its liabilities. SEC rules require funds to calculate te NAV at least once daily. To calculate te NAV per sare, te fund s liabilities are subtracted from its assets and ten divided by te number of sares outstanding. NAV is usually calculated at te close of te New York Stock Excange (4 pm ET). 13. No-Load Fund Fund tat does not carge any type of sales load. Not every type of sareolder fee is a sales load, owever, and a no-load fund may carge fees tat are not sales loads. (No-load funds also carge operating expenses.) 14. Operating Expenses Costs a fund incurs in connection wit running te fund, including management fees, 12b-1 fees and oter expenses. 15. Portfolio Individual s or entity s combined oldings of stocks, bonds or oter securities and assets. 16. Prospectus Written document tat contains information about te mutual fund s costs, investment objectives, risks and performance. Prospectuses may be obtained from te mutual fund company (troug its website or by pone or mail); your Financial Advisor may also provide you wit a copy. 17. Rigts of Reinvestment (Reinstatement) Allows clients to reinvest proceeds from a redemption, dividend payment or capital distribution back into te same fund or fund family s sares witout a sales carge or to recoup all or part of any sales carge paid (i.e., contingent deferred sales carge ( CDSC ) on suc sares wit oter olding privileges, provided te reinvestment occurs witin te period of time stated in te prospectus (e.g., 60 days of te redemption). 18. Related Accounts Used in factoring breakpoint discounts, and defined differently by eac mutual fund, related accounts are tose owned by family members in te same ouseold (i.e., spouse and minor cildren). 19. Rigts of Accumulation (ROA) Privilege tat allows you to combine your family s existing account balances and wit new sare purcases to qualify for breakpoint discounts. 20. Sales Carge (or Load ) Amount tat investors pay wen tey purcase (front-end load) or redeem (back-end load) sares in a mutual fund, similar to a commission. 21. Sareolder Service Fees Fees paid to persons to respond to investor inquiries and provide investors wit information about teir investments. See also 12b-1 fees. 9

10 22. Statement of Additional Information (SAI) Conveys information about an open- or closed-end fund tat is not necessarily needed by investors to make an informed investment decision, but tat some investors find useful. Altoug funds are not required to provide investors wit an SAI, tey must send te SAI upon request and witout carge. Also known as Part B of te fund s registration statement. 23. Total Annual Fund Operating Expense Total of a fund s annual fund operating expenses, expressed as a percentage of te fund s average net assets, wic can be found in te fund s fee table in te prospectus. IMPORTANT INFORMATION ABOUT EXCHANGE TRADED FUNDS ETFs are marketable securities tat are interests in registered funds, and are designed to track, before fees and expenses, te performance or returns of a relevant basket of assets, usually an underlying index. Unlike mutual funds, an ETF trades like a common stock on a stock excange. ETFs experience price canges trougout te day as tey are bougt and sold. ETFs typically ave iger daily liquidity and lower fees tan mutual fund sares. ETFs do not fully replicate teir underlying indices and may old securities different from tose included in teir underlying indices. Pysical replication and syntetic replication are two of te most common structures used in te construction of ETFs. Pysically replicated ETFs buy all or a representative portion of te underlying securities in te index tat tey track. In contrast, some ETFs do not purcase te underlying assets but gain exposure to tem by use of swaps or oter derivative instruments. In addition to te general risks of investing in funds, tere are specific risks to consider wit respect to an investment in tese passive investment veicles. ETF performance may differ from te performance of te applicable index for a variety of reasons. For example, ETFs incur operating expenses and portfolio transaction costs not incurred by te bencmark index, may not be fully invested in te securities of teir indices at all times, or may old securities not included in teir indices. In addition, corporate actions wit respect to te equity securities underlying ETFs (suc as mergers and spin-offs) may impact te variance between te performances of te funds and applicable indices. Passive investing differs from active investing in tat managers are not seeking to outperform teir bencmark. As a result, managers may old securities tat are components of teir underlying index, regardless of te current or projected performance of te specific security or market sector. Passive managers do not attempt to take defensive positions based upon market conditions, including declining markets. Tis approac could cause a passive veicle's performance to be lower tan if it employed an active strategy. ETF sares are bougt and sold in te secondary market at market prices. Altoug ETFs are required to calculate teir net asset values (NAV) on a daily basis, at times te market price of an ETF's sares may be more tan te NAV (trading at a premium) or less tan te NAV (trading at a discount). Given te differing nature of te relevant secondary markets for ETFs, certain ETFs may trade at a larger premium or discount to NAV tan sares of oter ETFs depending on te markets were suc ETFs are traded. Te risk of deviation from NAV for ETFs generally is eigtened in times of market volatility or periods of steep market declines. For example, during periods of market volatility, securities underlying ETFs may be unavailable in te secondary market, market participants may be unable to calculate accurately te NAV per sare of suc ETFs and te liquidity of suc ETFs may be adversely affected. Tis kind of market volatility may also disrupt te ability of market participants to create and redeem sares in ETFs. Furter, market volatility may adversely affect, sometimes materially, te prices at wic market participants are willing to buy and sell sares of ETFs. As a result, under tese circumstances, te market value of sares of an ETF may vary substantially from te NAV per sare of suc ETF, and te Client may incur significant losses from te sale of its ETF sares. In addition, for all of te foregoing reasons, te performance of any ETF may not correlate wit te performance of its underlying index as well as te NAV per sare of suc ETF. Trading in te sares of one or more ETFs may be alted due to market conditions or for reasons tat, in te view of te excange on wic suc sares are traded, make trading in suc sares inadvisable. In addition, trading in te sares of ETFs may be subject to trading alts caused by extraordinary market volatility pursuant to te relevant excange s circuit breaker rules. If a trading alt or unanticipated early closing of an excange occurs, it may not be possible to purcase or sell sares of an ETF. Tere can be no assurance tat te requirements of an excange necessary to maintain te listing of an ETF will continue to be met or will remain uncanged. Wile sares of ETFs are generally listed on an excange, tere can be no assurance tat active trading markets for te sares of any ETF will be maintained. 10

11 IMPORTANT INFORMATION AND CHANGES ABOUT MONEY MARKET MUTUAL FUNDS (OCTOBER 2016) In October 2016, money market fund reforms adopted by te U.S. Securities and Excange Commission went into effect. Tese reforms are intended to reduce te potential risks to money market funds during periods of extreme market stress. WHAT S CHANGING? Under te reforms, money market funds fall into tree general categories: Government, Retail and Institutional. During periods of market turmoil, wen certain triggers are met and depending into wic category tey fall, money market funds could be subject to one or more of te following: Redemption Gates: Retail and Institutional money market funds may place temporary limits on your ability to redeem sares for up to 10 business days in a 90-day period. Tese redemption gates are designed to ensure orderly redemptions during extreme market stress. Tis means tat, if tese extreme market conditions occur, you could be temporarily prevented from selling your money market fund sares. Liquidity Fees: Retail and Institutional money market funds may impose fees of up to 2% (depending on market conditions and te fund board s determination) on te redemption of money market fund sares. Te liquidity fee would be eld by te fund to elp support liquidity levels by transferring te cost of redemption from te fund to redeeming sareolders. Tis means tat wile you could redeem your sares, te redemption of your sares would be subject to a fee. For example, if a money market fund imposed a 1% liquidity fee, if you sougt to redeem $1,000, you would be carged $10 by te fund, so te total amount of your redemption proceeds would be $990. Floating Net Asset Value (NAV): Institutional (but not Government or Retail) money market funds will be required to value teir portfolio securities using current market prices, wic means tat your fund sares may be priced at more or less tan $1 wen te value of te securities in te fund fluctuate. WHAT YOU SHOULD KNOW Government money market funds, wic invest at least 99.5% of teir assets in cas, government securities and/or repurcase agreements collateralized wit cas or government securities, are NOT subject to a redemption gate, liquidity fee or floating NAV; owever, a Government money market fund MAY reserve te ability to impose redemption gates and/ or liquidity fees as long as te fund discloses tis to you. Retail money market funds, te beneficial owners of wic are limited to natural persons (e.g. individuals, but not corporations), are subject to te possible imposition of a redemption gate and liquidity fee, but NOT a floating NAV. Institutional money market funds, wic are any funds tat do not qualify as Government or Retail, ARE subject to te possible imposition of a redemption gate and liquidity fee and ARE subject to a floating NAV. If, under te money market fund reforms, you are a sareolder wo is no longer permitted to own a Retail money market fund, your oldings will be involuntarily redeemed by te fund or J.P. Morgan. Redemption will appear on your account statement. Effective in October, investors in Institutional money market funds may elect to receive immediate transaction confirmations in addition to receiving transaction information on teir montly account statements. If you would like to receive suc trade confirmations, please contact your Financial Advisor. If you ave questions about wat type of money market funds you own, weter you could be subject to a redemption gate, liquidity fee and/or floating NAV, or weter your sares may involuntarily redeemed, please contact your Financial Advisor. 11

12 A GUIDE TO MUTUAL FUND INVESTING Important information about your investments and potential conflicts of interest Conflicts of interest may arise wenever JPMorgan Case Bank, N.A. or any of its affliates (togeter, J.P. Morgan as an actual or perceived economic or oter incentive in its management of our clients portfolios to act in a way tat benefits J.P. Morgan. Conflicts may result, for example (to te extent te following activities are permitted in your account): wen J.P. Morgan invests in an investment product, issued or managed by an affliate; wen a J.P. Morgan entity obtains services from an affliate; wen J.P. Morgan receives payment as a result of purcasing an investment product for a client s account. Prospective investment strategies are carefully selected from bot J.P. Morgan and tird party asset managers across te industry and are subject to a rigorous and ongoing review process tat is consistently applied by our manager researc teams. Recommended strategies are ten subject to investment committee review and approval. From te approved pool of strategies, our portfolio construction teams select tose strategies we believe best fit our asset allocation goals and forward looking views in order to meet te portfolio s investment objective. As a general matter, we prefer J.P. Morgan managed strategies unless we tink tird party managers offer substantially differentiated portfolio construction benefits. Consequently, we expect te proportion of J.P. Morgan managed strategies will be ig (in fact, up to 100 percent) in strategies suc as, for example, cas and ig-quality fixed income, subject to applicable law and any account-specific considerations. We prefer internally managed strategies because tey generally align well wit our forward looking views and our familiarity wit te investment processes, as well as te risk and compliance pilosopy tat comes from being part of te same firm. It is important to note tat J.P. Morgan Case receives more overall fees wen internally managed strategies are included. Investing involves market risk, including te possible loss of principal. Tere is no guarantee tat investment objectives will be acieved. Asset allocation/diversification does not guarantee a profit or protect against a loss. Investors sould carefully consider te investment objectives and risks, as well as carges and expenses of te fund before investing. To obtain a prospectus, contact your Financial Advisor or visit te fund company s or insurance company s Web site. Te prospectus contains tis and oter information about te fund. Read te prospectus carefully before investing. Te information expressed is being provided for informational and educational purposes only and is not intended to provide, and sould not be relied on for accounting, legal or tax advice. It is not intended to provide specific advice or recommendations for any individual. You sould carefully consider your needs and objectives before making any decisions. For specific guidance on ow tis information sould be applied to your situation, you sould consult your financial advisor. Investment products and services are offered troug J.P. Morgan Securities LLC (JPMS), a member of FINRA and SIPC. JPMS is an affliate of JPMorgan Case Bank, N.A JPMorgan Case & Co. All rigts reserved. ( ) 12