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A Guide to Mutual Fund Investing Many investors turn to mutual funds to meet their long-term financial goals. They offer the benefits of diversification and professional management and are seen as an easy and efficient way to invest in different asset classes. However, as with all investment choices, investing in mutual funds involves certain risks, fees and expenses. HELPING YOU REACH YOUR FINANCIAL GOALS. Millions of investors find mutual funds a good option for their long-term financial goals. Some reasons include: hh Professional Management – The fund’s portfolio is professionally managed by experienced money managers who research and select investments that are appropriate for the fund’s objective and provide full-time monitoring of the performance of those investments. If changes are necessary, they’re able to modify the fund’s holdings. hh Variety – Mutual funds offer a wide range of options in terms of assets classes and objectives. There are stock and bond funds, income and growth funds or funds that try to achieve several objectives, and conservative and more risky funds. Mutual funds provide a convenient way to create a portfolio that meets your specific investment objectives and risk tolerance. hh Diversification – Depending on their specific objectives, mutual fund portfolios are generally diversified over many different companies and industries. The concept of diversification is as simple as the 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 ownership makes it easy for an investor to maintain a diversified investment portfolio. hh Affordability – To invest in a diversified portfolio of individual securities could require a large investment. Many mutual funds allow investors to purchase shares for a relatively low dollar amount for initial and subsequent purchases. hh Liquidity – Investors generally may redeem their mutual fund shares for any reason at the current net asset value (NAV), plus any fees and charges assessed on redemption. Liquidity can be impacted by market conditions
IMPORTANT REMINDERS • Mutual funds are not banking deposits, are not guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency and involve risks including the possible loss or some or all of your investment. • Past performance is not a reliable indicator of future performance. However, past performance can help you assess a fund’s volatility over time. • All mutual funds have costs that may lower your investment returns. • The mutual funds and share classes available are limited and will change from time to time. • Before you invest, be sure to read the fund’s prospectus and Statements of Additional Information (“SAI”) to learn about the fund you’re considering. These documents have tables of contents which allow you to easily find information about investment objectives, risks and tax considerations. By clearly understanding the investment you’re considering, you’ll be better prepared to make a sound investment decision.
Investors should carefully consider the investment objectives and risks as well as charges and expenses of the mutual fund before investing. To obtain a prospectus, visit the fund company’s website. The prospectus contains this and other information about the mutual fund. Read the prospectus carefully before investing. JPMorgan Chase Bank, N.A. and its affiliates do not offer legal, tax or accounting advice. Clients are urged to consult their own legal, tax and accounting advisors with respect to their specific situations. Investment products and services are offered through J.P. Morgan Securities LLC (JPMS), a member of FINRA and SIPC. JPMS is an affiliate of JPMorgan Chase Bank, N.A. Products not available in all states.
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
A GUIDE TO MUTUAL FUND INVES TING
hh Dividend Payments – A fund can earn income in the form of dividends and interest on the securities in its portfolio, which is passed on to shareholders in the form of dividends. hh Dividend Reinvestment – You can set your account up for the automatic reinvestment of any dividends generated by your fund, allowing you to accumulate more shares without incurring a sales charge. hh Capital Gains Distribution – Occurs when the fund sells a security that has increased in value. At the end of each year, most funds will distribute any capital gains (minus any capital losses) to their investors. You may also elect to have these distributions reinvested without incurring a sales charge. LEARNING MORE ABOUT MUTUAL FUNDS A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds and other securities or assets in some combination depending on its investment objectives. The holdings of the mutual fund are its “portfolio”. Each share of the mutual fund represents an investor’s proportionate ownership of the fund’s holdings and the income or appreciation those holdings may generate. Mutual funds also have some unique characteristics that investors need to consider before making the decision to invest: hh Costs Despite Negative Returns – Sales charges, fees and other expenses must be paid by the mutual fund investor regardless of how the fund performs. In addition, when shares are sold, investors may also be required to pay taxes on any capital gains distribution they receive, even if the fund declines in value after the shares are purchased, or the shares have been held a relatively short period of time. This is especially important at the end of the year when many funds distribute capital gains. hh Knowledge of Portfolio Holdings – By relying on the fund managers to manage the fund’s holdings, the individual investor usually has little current knowledge of the exact make-up of a fund’s portfolio. Additionally, they have no direct influence on the timing or selection of securities the fund manager buys or sells. hh Degrees of Risk – All mutual funds carry some degree of risk. You may lose some or all of the money you invest—your principal—because the securities held by a fund fluctuate in value on a daily basis. Any dividends or interest payments may also fluctuate due to changing market conditions. hh Buying and Selling Mutual Funds – Investors may purchase mutual fund shares in a number of ways. The two most common are from the fund itself or through a Financial Advisor. The price paid for mutual fund shares is the fund’s per share net asset value (NAV), plus any shareholder fees that the fund may impose at the time of purchase, such as sales loads. The NAV is calculated at the end of each business day by dividing the total value of the fund’s holdings (less expenses) by the number of shares owned by the fund’s shareholders. Purchasers of mutual funds purchase at the NAV next calculated after they place their purchase order. Mutual fund shares are “redeemable”, meaning that investors can sell their shares back to the fund at any time. The portfolios of mutual funds are managed by separate entities known as “Investment Advisors” that are registered with the U.S. Securities and Exchange Commission (SEC). Mutual funds strive to achieve a particular investment objective, such as capital appreciation or current income, over time. Most mutual funds are generally designed for long-term investors. Therefore, they are not suitable investors seeking quick profits or those attempting to “time the market” through active trading. In fact, most mutual funds implement practices and procedures that protect shareholders from investors who are actively trading shares in order to time the market. Market timing involves the rapid buying and selling of mutual fund shares in an attempt to realize short-term profits. This excessive trading of mutual fund shares may disrupt a fund’s investment strategy. It also may negatively influence performance results by increasing trading costs and/or causing fund managers to hold more cash than they otherwise would prefer to hold. In order to discourage investors from using their funds to practice market timing, a fund may: hh Impose Redemption fees – Some mutual funds charge fees to investors who redeem their shares within a few months of purchasing them. Usually the fund company returns the redemption fees to the fund’s portfolio to offset the costs associated with short-term trading.
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hh Implement Trading Restrictions – Most funds limit the number of exchanges (selling shares of one fund and using the proceeds to purchase shares of another in the same fund family) and “round-trip” transactions (a purchase followed by a redemption) that shareholders may make within a specific time period. For example, a fund may limit shareholders to two substantive exchanges within a 30-day period. hh Modify exchange privileges – Most mutual fund families let their shareholders exchange shares of one fund they manage for shares of another fund they manage with some restrictions. If this practice results in excessive trading, the fund may modify the exchange privilege. For example, it may make exchanges into certain funds effective on a delayed basis in order to disrupt a market timing strategy. hh Identify and Isolate Market Timers – Some funds attempt to identify market timers by monitoring shareholder transactions. Upon identifying market timers, the fund may restrict the timers’ trading privileges or expel them from the fund. DIFFERENT TYPES OF MUTUAL FUNDS Investors today have thousands of choices when it comes to investing in mutual funds. Understanding your individual financial goals and risk tolerance is the first step in the journey to reach your long-term financial goals. It will also help determine which mutual funds are right for you. Mutual funds generally fit into three main categories—money market funds, bond funds, stock funds (also called “equity” funds). Each category has unique features, risks and rewards. In general, the higher the potential return, the higher the potential risk of loss. What’s In a Name There are rules requiring a fund to invest at least 80% of its assets in the type of investments suggested by its name. However, funds can invest up to 20% of their holdings in other types of securities. The investment parameters of what the fund can and can’t hold are contained in the prospectus, which you should always read carefully before investing. hh Money Market funds – Typically less volatile than other types of mutual funds. By law, they can only invest in high- quality, short-term investments issued by the U.S. government, U.S. corporations and state and local governments. Money market funds are not guaranteed against loss. Money market funds pay dividends that are usually declared daily, paid monthly, and generally reflect short-term interest rates. “Inflation risk”, the risk that the inflation rate will grow faster than the investment’s return over time, can be a concern for money market fund investors. While a potential alternative to keeping cash in a bank account, investments in a money market fund are not insured or guaranteed by the FDIC or any other government agency. In October 2016, money market fund reforms adopted by the U.S. Securities and Exchange Commission will go into effect. These reforms are intended to reduce the potential risks to money market funds during periods of extreme market stress. Under these reforms, money market funds will fall into three general categories: Government, Retail and Institutional. During periods of market turmoil, when certain triggers are met and depending into which category they 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 the October 2016 changes, please see page 15. hh Bond (or Income) Funds – Generally have higher risks than money market funds, due to the fact that they typically pursue strategies aimed at producing higher yields. Unlike money market funds, there are no laws to restrict bond funds to highquality or short-term investments. Because there are many different types of bonds, these funds can vary dramatically in their risks and rewards. One of the major risks associated with bond funds is “credit risk”, or the risk that companies or other issuers may fail to pay their debts. The credit quality of the bonds contained in a fund will have a direct impact on their credit risk. Another risk is “interest rate risk”, or the risk that the market value of the bonds will go down when interest rates increase. Funds that invest in longer-term bonds tend to have a higher interest rate risk and fluctuate more dramatically in value. Interest earned on a bond fund’s portfolio is passed through to investors as dividends, which may be taken in cash or reinvested. This component of a bond fund’s earnings (less expenses) is called its yield. The two major factors that affect a bond fund’s yield are the quality and maturity of the bonds in the portfolio. In general, lower quality bonds and those with longer maturities generally offer higher yields but have increased risks. The share price or NAV of a bond fund may change based upon the market value of the bonds in the portfolio. The value of the bonds in the portfolio may change in response to changes in interest rates. To calculate the total return of a bond fund, it is necessary to include the change in share price along with any income earned (dividends and capital gains distributions).
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hh Stock (or Equity) Funds – Typically have higher risks and volatility than money market and bond funds. However, over the long term, stocks have historically performed better than any other type of investment. “Market risk” is the greatest potential risk for investors in stock funds. Stock prices can fluctuate dramatically for many reasons, such as the overall strength of the economy or demand for particular products or services. Types of stock funds include: hh Growth Funds focus on stocks (companies) that may not pay a regular dividend but have the potential for large growth. There are also different types of growth funds, including small, medium and large cap funds, which will invest in the stock of these types of companies. hh Sector Funds may specialize in a particular industry segment, such as technology or consumer products stocks. A sector fund concentrates its investments in one sector and involves more risks than a fund that invests more broadly. hh Equity Income Funds invest in stocks that pay regular dividends. hh Index Funds seek to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, by investing in all or many of the companies included in the index. It is not possible to directly invest in an index. hh Balanced Funds – Provide investors with a combination of both stock and bond holdings in one mutual fund. hh Unit Investment Trusts (UITs) – Type of investment company that buys and holds a generally fixed portfolio of stocks, bonds or other securities meaning, unlike mutual funds, the portfolios won’t be regulatory. “Units” in the trust are sold to investors who receive a share of principal and dividends or interest. UITs have a stated termination date. Like mutual funds, UITs may charge an initial sales charge and a deferred sales charge. The UIT’s prospectus contains information about the portfolio of securities within the UIT and the sales charges. hh Exchange Traded Funds (ETFs) – Type of investment company that offers investors a proportionate share of a portfolio of stocks, bonds or other securities. Like individual equity securities, ETFs are traded on a stock exchange and can be bought and sold throughout the trading day through 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 have been introduced. Since ETFs trade on an exchange, like stocks, the value is determined by the prices buyers and sellers are willing to pay and may be different from the NAV of the underlying securities or investments. Therefore, ETFs may trade at a premium or discount to the NAV. hh Non-Traditional Funds – Non-traditional funds are mutual funds or ETFs that pursue alternative investment strategies. While traditional funds generally focus their investment strategies on long¬ term buy-and-hold stock and bond investing, nontraditional funds generally employ more complex trading strategies, such as selling securities short in anticipation of a drop in their price, using leverage, and purchasing options and futures. Some non-traditional funds also focus their investment strategies on investing in gold, commodities (such as copper and oil) or real assets such as real estate. These strategies have generally been associated with alternative investment products such as hedge 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 the costs associated with running a mutual fund. These costs are passed to investors in the form of fees and expenses. It’s important to clearly understand these fees, because they will impact your investment returns. hh Sales Charge (Load) – Paid when you initially purchase mutual fund shares. Usually associated with A shares, this charge is also known as a “front-end load”. A portion of this is usually paid to the broker selling the shares. Sales charges reduce the amount of your initial investment, as they are deducted from your initial investment purchase. hh Contingent Deferred Sales Charge (Load) – Paid when you sell mutual fund shares. Usually associated with B or C shares, this charge is also known as a “back-end load”. The amount will depend on how long you own the shares, and may decrease to zero if a B share held as a long-term investment. This may also be paid when selling shares purchased without a front-end load because the purchase was more than $1 million. hh Exchange Fee – Paid when shareholders exchange (transfer) to another fund within the same fund group.
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hh Management/Investment Advisory Fees – Paid out of the fund’s assets to the fund’s Investment Advisor for investment portfolio management and administrative fees that are not included in the “Other Expenses” category. hh Distribution/Service Fees (12b-1 Fees) – Paid by the fund from fund assets to cover the costs of marketing and selling fund shares and/or to cover the costs of providing shareholder services, such as advertising, printing and mailing of prospectuses, phone centers and more. The broker dealer receives these fees, which are also called “trails”, and a portion of them is paid to a Financial Advisor. hh Other Expenses – Expenses not included under “Management/Investment Advisory Fees” or “Distribution/Service Fees”, such as custodial expenses, legal and accounting expenses, transfer agent and administrative expenses. hh Total Annual Fund Operating Expenses (Expense Ratio) – A line on the fee table that provides the total of a fund’s annual operating expenses, as a percentage of the fund’s average net assets. Annual operating expenses include the ongoing costs of running the fund, and the fund company pays these expenses from the fund’s assets before it distributes any earnings to shareholders. Included among the annual operating expenses of all mutual funds is the investment advisory fee, which the fund pays to the Investment Advisor for managing the portfolio. In some cases, the Investment Advisor may enter into revenue-sharing arrangements with firms that distribute the fund. The Investment Advisor finances these arrangements out of its investment advisory fee and must disclose the details of such arrangements in the prospectus or Statement of Additional Information (SAI). hh Revenue sharing – Paid by some funds, their Investment Advisors, distributors or other entities to brokerage firms, or other distributors of mutual funds, based on the amount of the fund’s shares sold by the distributor. This revenue is paid in addition to sales loads and 12b-1 fees described in the prospectus. Some mutual fund advisers, distributors or other entities make payments to J.P. Morgan Securities LLC (JPMS) based on the amount of the fund’s shares sold by JPMS or owned by JPMS’ clients. A Financial Advisor does not get paid a portion of this revenue. The fund prospectus is a valuable tool that will provide you with information on the various fees. Each fund prospectus is required to provide a “fee table” near the front of the prospectus that can help you compare the costs of different funds. BUYING, SELLING & EXCHANGING Mutual fund shares can be purchased and sold on any business day. Mutual funds are priced once each day at a time specified in the prospectus, usually 4:00 pm ET, which is the close of business on the New York Stock Exchange. When your purchase or sale order is received before the established cut-off ime, your transaction will receive the price calculated for that day. hh Purchasing Mutual Fund Shares – When you buy shares, you pay the current NAV per share plus any fee the fund may assess at the time of purchase, such as a sales charge or other type of purchase fee. hh Selling Mutual Fund Shares – When you sell your shares, the fund will pay you the current NAV minus any fee the fund assesses at the time of redemption, such as a deferred (or back-end) sales charge or redemption fee. hh Exchanging Shares – Many mutual fund companies have several different types of funds in which to invest. Most offer exchange privileges within their family of funds, allowing shareholders to transfer their holdings from one fund to another within the family, without incurring an additional sales charge, as their investment objectives or risk tolerance change. Exchanges may have tax consequences. Even if the fund doesn’t charge you for the exchange, you’ll be liable for any gain on the sale of your original shares or, depending on the circumstances, eligible to take a loss.
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UNDERSTANDING SHARE CLASSES Different share classes provide you with choices for how you wish to pay for your investment. Many mutual funds make more than one share class available to investors. Each share class invests in the same portfolio of securities and has the same investment objective and policies; however, each share class has different sales charges and expenses. This multi- class structure allows investors to select a fee and expense structure that is most appropriate for their individual investment goals. Here is a brief description and comparison of the share classes commonly available to individual investors. hh Class A Shares In general, Class A shares include a front-end sales charge (or load) that’s included in the purchase price of the shares and is determined by the amount you invest. The more you invest, the lower your purchase cost as a percentage of your investment. Many mutual fund families offer volume discounts known as “breakpoints” based upon the amount of investment. Information regarding a mutual fund’s breakpoints may be found in the prospectus. For long term investors, Class A shares generally represent the least costly method to purchase mutual funds. Class A shares usually have lower 12b-1 fees (annual marketing or distribution fees) than other share classes offered by the fund. Many mutual funds provide that purchases of $1 million or more of Class A shares will not be subject to a front-end sales charge. However, the purchaser will incur a deferred or back-end sales charge if any of the shares are sold within a specified time period, generally 12-18 months. In addition, certain investors may be entitled to a sales charge or load waiver based, for example, on account type or employment affiliation. hh Class B Shares Class B shares usually do not contain front-end loads, but rather include back-end sales charges or Contingent Deferred Sales Charges (CDSC). If you sell the shares within a specified number of years, you pay the sales charge, which usually declines over time. The 12b-1 fees associated with Class B shares generally are higher than those imposed on Class A shares. Most fund companies automatically will convert your Class B shares to Class A shares once you’ve held the Class B shares for a specified number of years. From that point forward, you’ll benefit from the lower 12b-1 fees of the Class A shares. Additionally, higher total fund expenses will result in lower dividend distributions than Class A shares. hh Class C Shares Class C shares generally do not include front-end sales charges, but they do contain higher 12b-1 fees and may have a sales charge if you sell within the first year. In addition, 12b-1 fees never convert to a lower amount and higher total fund expenses will result in lower dividend distributions than Class A shares. hh Class T Shares (New) Class T shares are a new class of mutual fund shares (2016/2017). The “T” stands for “transaction.” T shares provide one uniform price across the board and are considered low-load funds that generally charge a 2.5% front-end sales charge. Most T shares also have 12b-1 fees, which is used to pay for distribution and other expenses. For large fund purchases, the front-end load may be lower. hh Clean Shares Class T shares are a new class of mutual fund shares (2016/2017). The “T” stands for “transaction.” T shares provide one uniform price across the board and are considered low-load funds that generally charge a 2.5% front-end sales charge. Most T shares also have 12b-1 fees, which is used to pay for distribution and other expenses. For large fund purchases, the front-end load may be lower.
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SHARE CLASS SUMMARY SALES CHARGE
12B-1 FEES
BREAKPOINT POTENTIAL
CONSIDER FOR
Class A shares
Paid at the time of investment.
Typically lower than B or C share classes.
Volume discounts called “breakpoints” (or sales charge waivers) may be available.
Large, long-term investments
Class B Shares
Deferred until shares are sold. Charged decreases over several years until it goes to zero.
Typically higher than A shares, but may convert to A share 12b-1 fee after a specified period of time.
No volume discounts are available.
Small, long-term investments
Class C Shares
If imposed, is usually charged only if shares are sold within the first year holding period.
Typically higher than Class A shares and never converts to Class A shares.
No volume discounts are available.
Short-term investments
The fee table in each fund’s prospectus shows the fees and expenses paid by each class of shares. In addition, FINRA provides an online Fund Analyzer to help you understand the impact that fees and expenses can have on your investment. You may use the analyzer to compare different share classes or different mutual funds. Go to: http://apps.finra.org/fundanalyzer/1/fa.aspx MAKING THE MOST OF MUTUAL FUND CLASS A SHARE DISCOUNT OPPORTUNITIES Mutual funds that charge front-end sales charges, also known as sales loads, may offer a reduced sales charge when an investment of a certain amount is made; this is commonly called a “breakpoint”. Usually, there are several breakpoints available based on an escalating purchase amount; the larger the breakpoint, the lower the sales charge. Each fund company establishes its own formula for how they will calculate whether an investor is entitled to receive a breakpoint and establishes its own rules for sales charge waivers. It’s important to read the prospectus to learn how a particular fund establishes eligibility. Depending on a fund’s procedures, breakpoints can be met by aggregating positions of the mutual fund a client or certain family members already own; this is called Rights of Accumulation (“ROA”). A breakpoint can also be met over time, instead of at the initial purchase, if the client commits to buying addition shares to meet the requirement by providing a Letter of Intent (“LOI”). If this commitment isn’t met, the fund will charge the pre-breakpoint sales charge. INSTITUTIONAL, RETIREMENT, NO-LOAD AND OTHER SHARE CLASSES Institutional, retirement, no-load and certain other fund shares are generally available only through asset- based fee advisory programs. In these programs, you typically pay an annual fee based on a percentage of the value of the assets held in your account, including the value of the fund shares. These programs provide features and benefits that may not be available in a traditional brokerage account that charges transaction fees. The total cost of purchasing and holding mutual fund shares through an asset-based fee advisory program may be more or less than investing in mutual fund shares in a traditional brokerage account that is serviced by a Financial Advisor. A mutual fund’s breakpoint schedule and waiver eligibility rules can be found in the fund’s prospectus or SAI. TAX CONSEQUENCES Mutual funds have different tax consequences than many other investments. When you purchase and hold mutual fund shares, you will owe income tax on any ordinary dividends in the year you receive or reinvest them. Additionally, the law requires mutual funds to distribute capital gains to shareholders when they sell securities for a profit that can’t be offset by a loss. You may have to pay taxes on the fund’s capital gains for that year even if you still own the shares. Then, when you sell your shares, you will owe taxes on any capital gain you received on the sale.
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When you invest in a tax-exempt fund, such 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, however, owe taxes on any capital gains realized by the fund and on the sale of your shares. Anytime you receive a capital gains distribution, you will usually owe taxes—even if the fund has had a negative return from the point during the year when you purchased your shares. Consider contacting the fund to learn when it makes distributions so you won’t pay more than your fair share of taxes. Mutual funds are required to disclose after-tax returns in the “Risk/Return Summary” section of their 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 the tax consequences of mutual fund investing. SOURCES OF FUND INFORMATION hh The Prospectus When you’re considering the purchase of mutual fund shares, you should always review the fund’s prospectus before you invest. The prospectus is the fund’s selling document and it contains the following information: – fund investment objectives/goals – strategies for achieving those goals – principal risks of investing in the fund – fees and expenses – past performance The prospectus also provides information on the fund’s managers and Investment Advisors and describes how to purchase and sell fund shares. The SEC requires funds to include specific categories of information in their prospectuses and to present key data (such as fees and past performance) in a standard format so that investors can more easily compare different funds. hh Statement of Additional Information (SAI) The SAI explains a fund’s operations in greater detail than the prospectus. It includes the fund’s financial statements and details about the history of the fund, fund policies on borrowing and concentration, the identity of officers, directors and persons who control the fund, investment advisory and other services, brokerage commissions, tax matters and performance such as yield and average annual total return information. The mutual fund is typically required to send you an SAI anytime you request one, and the back cover of a fund’s prospectus should contain information on how to obtain the SAI. hh Shareholder Reports A mutual fund must also provide shareholders with annual and semi-annual reports within 60 days after the end of the fund’s fiscal year and 60 days after the fund’s fiscal mid-year. These reports contain a variety of updated financial information, a list of the fund’s portfolio securities and other information. You may obtain any of these documents by: – Calling or writing to the fund (all mutual funds have toll-free telephone numbers). – Visiting the fund’s website. You can obtain additional information about mutual funds at the educational websites of the U.S. Securities and Exchange Commission (www.SEC.gov), the Financial Industry Regulatory Authority (www.FINRA.org), the Securities Industry Association (www.SIA.com) and the Investment Company Institute (www.ICI.org).
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MUTUAL FUND GLOSSARY 1.
12b-1/Distribution Fees – Fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. “Distribution fees” include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors and the printing and mailing of sales literature. “Shareholder Service Fees” are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.
2.
Breakpoints – Mutual funds that charge front-end sales loads may charge a lower sales load for larger investments. The investment levels required to obtain a reduced sales load are commonly referred to as “breakpoints”.
3.
Classes – Different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, etc. Each class invests in the same “pool” (or investment portfolio) of securities and has the same investment objectives and policies. But each class has different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results.
4.
Contingent Deferred Sales Charge (CDSC) – Type of back-end load, the amount of which depends on the length of time the investor held his or her shares. For example, a contingent deferred sales load might be (X)% if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and is eliminated completely.
5.
Exchanges – Mutual fund companies may offer exchange privileges within their family of funds, allowing shareholders to transfer their holdings from one fund to another within the family.
6.
Expense Ratio – Fund’s total annual operating expenses (including management fees, 12b-1 fees and other expenses) expressed as a percentage of average net assets.
7.
Investment advisor/Manager – Person who manages portfolios of securities, including mutual funds.
8.
Investment Company – Company (Corporation, Business Trust, Partnership or Limited Liability Company) that issues securities and is primarily engaged in the business of investing in securities. The three 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 than the fund’s breakpoint within a designated period (usually 13 months) makes you eligible to receive a breakpoint discount on the sales charge as if the purchases had been made in a single lump sum.
10. Management/Advisory Fee – Fee paid out of a fund’s assets to the fund’s Investment Advisor or its affiliates for managing the fund’s portfolio. Also includes any other management and administrative fees payable to the fund’s Investment Advisor or its affiliates that are not included in the “Other Expenses” category. A fund’s management fee appears as a category under “Annual Fund Operating Expenses” in the Fee Table. 11. Mutual Fund – Common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments or other securities. Mutual funds continuously issue redeemable shares that investors purchase directly from the fund (or through a broker for the fund) instead of purchasing from investors on a secondary market. 12. Net Asset Value (NAV) – Value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. To calculate the NAV per share, the fund’s liabilities are subtracted from its assets and then divided by the number of shares outstanding. NAV is usually calculated at the close of the New York Stock Exchange (4 pm ET). 13. No-Load Fund – Fund that does not charge any type of sales load. Not every type of shareholder fee is a “sales load”, however, and a no-load fund may charge fees that are not sales loads. (No-load funds also charge operating expenses.)
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14. Operating Expenses – Costs a fund incurs in connection with running the fund, including management fees, 12b-1 fees and other expenses. 15. Portfolio – Individual’s or entity’s combined holdings of stocks, bonds or other securities and assets. 16. Prospectus – Written document that contains information about the mutual fund’s costs, investment objectives, risks and performance. Prospectuses may be obtained from the mutual fund company (through its website or by phone or mail). 17. Rights of Reinvestment (Reinstatement) – Allows clients to reinvest proceeds from a redemption, dividend payment or capital distribution back into the same fund or fund family’s shares without a sales charge or to recoup all or part of any sales charge paid (i.e., contingent deferred sales charge (“CDSC”) on such shares with other holding privileges, provided the reinvestment occurs within the period of time stated in the prospectus (e.g., 60 days of the redemption). 18. Related Accounts – Used in factoring breakpoint discounts, and defined differently by each mutual fund, related accounts are those owned by family members in the same household (i.e., spouse and minor children). 19. Rights of Accumulation (ROA) – Privilege that allows you to combine your family’s existing account balances and with new share purchases to qualify for breakpoint discounts. 20. Sales Charge (or “Load”) – Amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. 21. Shareholder Service Fees – Fees paid to persons to respond to investor inquiries and provide investors with information about their investments. See also “12b-1 fees”. 22. Statement of Additional Information (SAI) – Conveys information about an open- or closed-end fund that is not necessarily needed by investors to make an informed investment decision, but that some investors find useful. Although funds are not required to provide investors with an SAI, they must send the SAI upon request and without charge. Also known as “Part B” of the fund’s registration statement. 23. Total Annual Fund Operating Expense – Total of a fund’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets, which can be found in the fund’s fee table in the prospectus. IMPORTANT DISCLOSURES
Investing involves market risk, including the possible loss of principal. There is no guarantee that investment objectives will be achieved. Asset allocation/diversification does not guarantee a profit or protect against a loss. Investors should carefully consider the investment objectives and risks, as well as charges and expenses of the fund before investing. To obtain a prospectus, visit the fund company’s or insurance company’s Web site. The prospectus contains this and other information about the fund. Read the prospectus carefully before investing. The information expressed is being provided for informational and educational purposes only and is not intended to provide, and should not be relied on for accounting, legal or tax advice. It is not intended to provide specific advice or recommendations for any individual. You should carefully consider your needs and objectives before making any decisions. Important information about your investments and potential conflicts of interest Conflicts of interest will arise whenever JPMorgan Chase Bank, N.A. or any of its affiliates (together, “J.P. Morgan”) have an actual or perceived economic or other incentive in its management of our clients’ portfolios to act in a way that benefits J.P. Morgan. Conflicts will result, for example (to the extent the following activities are permitted in your account): (1) when J.P. Morgan invests in an investment product, such as a mutual fund, structured product, separately managed account or hedge fund issued or managed by JPMorgan Chase Bank, N.A. or an affiliate, such as J.P. Morgan Investment Management Inc.; (2) when a J.P. Morgan entity obtains services, including trade execution and trade clearing, from an affiliate; (3) when J.P. Morgan receives payment as a result of purchasing an investment product for a client’s account; or (4) when J.P. Morgan receives payment for providing services (including shareholder servicing, recordkeeping or custody) with respect to investment
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A GUIDE TO MUTUAL FUND INVES TING products purchased for a client’s portfolio. Other conflicts will result because of relationships that J.P. Morgan has with other clients or when J.P. Morgan acts for its own account. Investment strategies are selected from both J.P. Morgan and third-party asset managers and are subject to a review process by our manager research teams. From this pool of strategies, our portfolio construction teams select those strategies we believe fit our asset allocation goals and forward looking views in order to meet the portfolio's investment objective. As a general matter, we prefer J.P. Morgan managed strategies. We expect the proportion of J.P. Morgan managed strategies will be high (in fact, up to I00 percent) in strategies such as, for example, cash and high-quality fixed income, subject to applicable law and any account-specific considerations. While our internally managed strategies generally align well with our forward looking views, and we are familiar with the investment processes as well as the risk and compliance philosophy of the firm, it is important to note that J.P. Morgan receives more overall fees when internally managed strategies are included. We offer the option of choosing to exclude J.P. Morgan managed strategies (other than cash and liquidity products) in certain portfolios.. Important information about exchange traded funds ETFs are marketable securities that are interests in registered funds, and are designed to track, before fees and expenses, the 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 exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares. ETFs do not fully replicate their underlying indices and may hold securities different from those included in their underlying indices. Physical replication and synthetic replication are two of the most common structures used in the construction of ETFs. Physically replicated ETFs buy all or a representative portion of the underlying securities in the index that they track. In contrast, some ETFs do not purchase the underlying assets but gain exposure to them by use of swaps or other derivative instruments. In addition to the general risks of investing in funds, there are specific risks to consider with respect to an investment in these passive investment vehicles. ETF performance may differ from the performance of the applicable index for a variety of reasons. For example, ETFs incur operating expenses and portfolio transaction costs not incurred by the benchmark index, may not be fully invested in the securities of their indices at all times, or may hold securities not included in their indices. In addition, corporate actions with respect to the equity securities underlying ETFs (such as mergers and spin-offs) may impact the variance between the performances of the funds and applicable indices. Passive investing differs from active investing in that managers are not seeking to outperform their benchmark. As a result, managers may hold securities that are components of their underlying index, regardless of the current or projected performance of the specific security or market sector. Passive managers do not attempt to take defensive positions based upon market conditions, including declining markets. This approach could cause a passive vehicle’s performance to be lower than if it employed an active strategy. ETF shares are bought and sold in the secondary market at market prices. Although ETFs are required to calculate their net asset values (NAV) on a daily basis, at times the market price of an ETF’s shares may be more than the NAV (trading at a premium) or less than the NAV (trading at a discount). Given the differing nature of the relevant secondary markets for ETFs, certain ETFs may trade at a larger premium or discount to NAV than shares of other ETFs depending on the markets where such ETFs are traded. The risk of deviation from NAV for ETFs generally is heightened 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 the secondary market, market participants may be unable to calculate accurately the NAV per share of such ETFs and the liquidity of such ETFs may be adversely affected. This kind of market volatility may also disrupt the ability of market participants to create and redeem shares in ETFs. Further, market volatility may adversely affect, sometimes materially, the prices at which market participants are willing to buy and sell shares of ETFs. As a result, under these circumstances, the market value of shares of an ETF may vary substantially from the NAV per share of such ETF, and the Client may incur significant losses from the sale of its ETF shares. In addition, for all of the foregoing reasons, the performance of any ETF may not correlate with the performance of its underlying index as well as the NAV per share of such ETF. Trading in the shares of one or more ETFs may be halted due to market conditions or for reasons that, in the view of the exchange on which such shares are traded, make trading in such shares inadvisable. In addition, trading in the shares of ETFs may be subject to trading halts caused by extraordinary market volatility pursuant to the relevant exchange’s “circuit breaker” rules. If a trading halt or unanticipated early closing of an exchange occurs, it may not be possible to purchase or sell shares of an ETF. There can be no assurance that the requirements of an exchange necessary to maintain the listing of an ETF will
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A GUIDE TO MUTUAL FUND INVES TING
continue to be met or will remain unchanged. While shares of ETFs are generally listed on an exchange, there can be no assurance that active trading markets for the shares of any ETF will be maintained. Important information and changes about Money Market Mutual Funds (October 2016) In October 2016, money market fund reforms adopted by the U.S. Securities and Exchange Commission went into effect. These reforms are intended to reduce the potential risks to money market funds during periods of extreme market stress. What ’s changing?
Under the reforms, money market funds fall into three general categories: Government, Retail and Institutional. During periods of market turmoil, when certain triggers are met and depending into which category they fall, money market funds could be subject to one or more of the following: hh Redemption Gates: Retail and Institutional money market funds may place temporary limits on your ability to redeem shares for up to 10 business days in a 90-day period. These redemption gates are designed to ensure orderly redemptions during extreme market stress. This means that, if these extreme market conditions occur, you could be temporarily prevented from selling your money market fund shares. hh Liquidity Fees: Retail and Institutional money market funds may impose fees of up to 2% (depending on market conditions and the fund board’s determination) on the redemption of money market fund shares. The liquidity fee would be held by the fund to help support liquidity levels by transferring the cost of redemption from the fund to redeeming shareholders. This means that while you could redeem your shares, the redemption of your shares would be subject to a fee. For example, if a money market fund imposed a 1% liquidity fee, if you sought to redeem $1,000, you would be charged $10 by the fund, so the total amount of your redemption proceeds would be $990. hh Floating Net Asset Value (NAV): Institutional (but not Government or Retail) money market funds will be required to value their portfolio securities using current market prices, which means that your fund shares may be priced at more or less than $1 when the value of the securities in the fund fluctuate. What you should know?
hh Government money market funds, which invest at least 99.5% of their assets in cash, government securities and/or repurchase agreements collateralized with cash or government securities, are NOT subject to a redemption gate, liquidity fee or floating NAV; however, a Government money market fund MAY reserve the ability to impose redemption gates and/ or liquidity fees as long as the fund discloses this to you. hh Retail money market funds, the beneficial owners of which are limited to natural persons (e.g. individuals, but not corporations), are subject to the possible imposition of a redemption gate and liquidity fee, but NOT a floating NAV. hh Institutional money market funds, which are any funds that do not qualify as Government or Retail, ARE subject to the possible imposition of a redemption gate and liquidity fee and ARE subject to a floating NAV. hh If, under the money market fund reforms, you are a shareholder who is no longer permitted to own a Retail money market fund, your holdings will be involuntarily redeemed by the fund or J.P. Morgan. Redemption will appear on your account statement. hh Effective in October, investors in Institutional money market funds may elect to receive immediate transaction confirmations in addition to receiving transaction information on their monthly account statements. © 2017 JPMorgan Chase & Co. All rights reserved
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