The search for income in a low interest rate world J.P. Morgan Investment Academy Series Accessible investment education from a trusted source FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Fixed income mechanics Debt works like an IOU Income vs. appreciation Bonds and interest rates – When interest rates rise, bond prices typically fall because new bonds are issued at the new, higher rates. This makes current lower-yielding bonds less valuable. – When interest rates fall, new bonds are issued at lower rates, which increases the price of existing higher-yielding bonds. 1 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

U.S. Treasury yields at historic lows 2 Low interest rates have decreased investor income FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Primary reasons for buying bonds 3 Historically, bond prices have been more stable than stocks. To preserve capital To generate a predictable income stream To diversify portfolio holdings To take advantage of unique opportunities FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Investors have been favoring bonds over stocks 4 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Historically low rates create challenges for income investors 5 Traditional “safe” sources of income, such as CDs and U.S. Government bonds, are yielding a fraction of what they once did FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Inflation is low, but still damaging 6 The impact of inflation is especially high when rates are low FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

The impact of rising rates can vary widely 7 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Finding an appropriate mix for fixed income investor needs 8 Shown for illustrative purposes only. Because everyone’s circumstances are unique, these models provide a framework for client discussions. They should not be taken as one-size-fits all investment advice. Asset allocation/diversification does not guarantee investment returns and does not eliminate the risk of loss. FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Look beyond bonds for income, opportunity and diversification 9 Investors heavily favoring bonds over stocks FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Dividend-paying stocks may be a meaningful alternative Higher growth potential Inflation protection Less volatility than other stocks A cushion against market risk 10 Dividend-paying stocks provide: Dividends have accounted for 42% of stock market returns FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

11 Banks Financial planners The business of retirement income FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION  Brokers  CPAs  Blogs  AARP  Registered investment advisors  Estate planners  Advocacy groups  Investment newsletters  No-load mutual funds  Annuity providers  Real estate agents  Bankers  Insurance carriers  U.S. Treasury Direct  Online traders Retirement income

Variable annuities: Flexible structure, attractive features Innovative income and withdrawal benefits – Guaranteed Minimum Withdrawal Benefits (GMWBs) for income now – Guaranteed Minimum Income Benefits (GMIBs) for guaranteed income later Broad range of investment choices Protect against market volatility Tax-deferred growth opportunity 12 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Diversification may help reduce risk and enhance returns 13 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

In summary Demand for income is growing. Longer life expectancies underscore the need to plan. Current low interest rate environment may require: – Moving further out on the risk/reward spectrum – Diversifying portfolios across a greater mix of income-producing assets – Extending investment time horizons – Expanding the opportunity set 14 FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION

Thank you 15

16 Disclosure This document is intended solely to report on various investment views held by J.P. Morgan Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Investments in bonds and other debt securities will change in value based on changes in interest rates. If rates rise, the value of these investments generally drops. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. Variable annuity guarantees are only as good as the insurance company that gives them. While it is an uncommon occurrence that the insurance companies that back these guarantees are unable to meet their obligations, it may happen. Diversification does not guarantee investment returns and does not eliminate the risk of loss. J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. © 2013 JPMorgan Chase & Co. FOR INSTITUTIONAL USE ONLY | NOT FOR PUBLIC DISTRIBUTION