finding new income sources and strategies in today’s low...

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Finding new income sources and strategies in today’s low-yield world

Evolving your income strategy

Insight + Process = ResultsSM

You have questions. We have answers.

Falling interest rates give rise to many questions. How can you earn more income from your investments? What happens if rates start to rise? Will your bonds lose money? Should you be worried about inflation? Are you diversified enough?

Get the insights you need to pursue higher income in today’s lower-yield world.

Today’s bond market: Interest rates at historic lows 01 Reduce the potential impact of rising rates 04

Diversify your bonds to pursue higher, smoother returns 06 Look beyond bonds for income, opportunity and diversification 08

Evolve your income strategy 13

What’s inside

A new world for income investorsThe need for income hasn’t changed. If anything, it’s grown as more Americans retire and many others look for new ways to increase total returns or reduce risks.

What has changed is the landscape of income investing. Interest rates are now near all-time lows, bonds and CDs are yielding less and inflation is once again a concern.

These factors present both opportunities and obstacles for income investors. Your challenge is building a portfolio with the potential to deliver much-needed income and outpace inflation — without assuming unwanted risk.

Traditional “safe” sources of income, such as CDs and U.S. government bonds, are yielding a fraction of what they once did.

Source: J.P. Morgan Asset Management. Shown for illustrative purposes only.

Income figures for Treasuries reflect yield to maturity, which may include capital gains or losses for bonds not priced at face value.

} BOND BASICS INTEREST RATE VS. CURRENT YIELD

A bond’s interest rate [“coupon”] is set when a bond is issued and usually doesn’t change. It determines the amount of annual income earned. A bond’s current yield reflects that income as a percentage of the bond’s price. It changes each day with bond prices.

Example: A $1,000 bond with a 3% coupon pays $30 in income each year ($1,000 x .03). If the bond’s price rises to $1,100, the yield falls to 2.73% ($30 / $1,100). Thus, when price goes up, yield goes down — and vice versa.

When yield is referenced, what’s typically meant is yield-to-maturity — a more complete measure of income from a bond. Yield-to-maturity factors in reinvestment of coupons and any gain or loss on a bond as if it were held until maturity. It’s greater than current yield if a bond is priced at a discount [gain at maturity] and less than current yield if a bond is priced at a premium [loss at maturity].

■ 2006 ■ 6.30.2012

$5,240

6-month CD 2-year Treasurybond

10-year Treasurybond

$4,710 $4,820

$480 $330

$1,670

INCOME FROM TRADITIONAL SOURCESHAS FALLEN SHARPLY

Annual income from a $100,000 investment

Today’s bond market:Interest rates at historic lows

“Macroeconomic uncertainty should persist as the world’s central banks seek to invigorate a global “muddle through” recovery. Nevertheless, our disciplined bottom-up, fundamental analysis should allow us to identify areas of opportunity and avoid undue risk.”

GARY MADICH

Global Chief Investment Officer, Broad Market and Tax Aware Group

J.P. Morgan’s view

2 | EVOLVING YOUR INCOME STRATEGY

-10%

-5%

0%

5%

10%

15%

20%

Real 10-year Treasury yield6.30.2012: -0.44%

Nominal 10-year Treasury yield6.30.2012: 1.67%

Nominal yield average: 6.48%

Real yield average: 2.59%

9.30.1981: 15.84%

1958 1968 1978 1988 1998 2008 6.30.2012

Historically low rates create challenges for income investorsToday, interest rates are lower than they’ve been in 60 years. Since reaching an all-time high in 1981, 10-year Treasury yields have steadily declined, fueling a 30-year bull market for bonds. Meanwhile, real yields (i.e., yields after inflation) on many fixed income investments are now negative.

Together, low rates, inflation and a gradually recovering economy create challenges for fixed income investors:

• Producing enough income when rates are low

• Combating the impact of inflation on yields and purchasing power

• Protecting against possible losses as rates eventually start rising

• Identifying opportunities for price gains after a long bull market for bonds

INTEREST RATES ARE AT 60-YEAR LOWSNominal and real 10-year Treasury yields

Oct. 1962Cuban Missile Crisis

Oct. 1973OPEC oil embargo against U.S.

Oct. 1987“Black Monday” stock market crash

Mar. 1980Inflation reaches 14.8%Jan. 1980

Gold reaches inflation-adjusted high of $2,480/oz.

J.P. MORGAN ASSET MANAGEMENT | 3

-10%

-5%

0%

5%

10%

15%

20%

Real 10-year Treasury yield6.30.2012: -0.44%

Nominal 10-year Treasury yield6.30.2012: 1.67%

Nominal yield average: 6.48%

Real yield average: 2.59%

9.30.1981: 15.84%

1958 1968 1978 1988 1998 2008 6.30.2012

Source: Federal Reserve, BLS, Standard & Poor’s, J.P. Morgan Asset Management. Shown for illustrative purposes only. Data as of 6.30.2012.

Past performance is no guarantee of future results.

Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for June 2012, where real yields are calculated by subtracting out May 2012 year-over-year core inflation.

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.

Interest rates

Bond pricesInterest rates

Bond prices

Interest rates

Bond pricesInterest rates

Bond prices

Shown for illustrative purposes only.Sep. 1998Google founded

Oct. 2007S&P 500 at record high of 1,565

Mar. 2009S&P 500 at 677

Oct. 2002S&P 500 at 777

} BOND BASICS THE INVERSE RELATIONSHIP BETWEEN BOND PRICES AND INTEREST RATES

A bond’s total return comes from its interest payments, plus changes in price. Bond prices generally move in the opposite direction of interest rates — that’s why we’ve seen a 30-year bull market as rates have fallen. The extent of price changes depends on many factors, including the bond issuer’s credit quality as well as the size and speed of interest rate movements.

It’s important to remember that bonds continue paying income even as their prices fluctuate. If prices rise, the capital gain is added to the income. If prices fall, the capital loss is cushioned by the income.


Source: The Federal Reserve, FactSet, J.P. Morgan Asset Management. Shown for illustrative purposes only.

Reduce the potential impact of rising rates

0%

20%

40%

60%

80%

100%

1990 1994 1998 2002 2006 2010 2014 2018 2022

2011 actual: 67.7%

Alternative: 93.2%

CBO baseline: 61.3%

Forecast

Rising rates are like any other risk — it can be managedRising interest rates can be a concern for income investors, but aren’t usually a reason to abandon bonds or make drastic portfolio changes. Rates can rise for any number of reasons, including:

• Economicgrowthtendstoincreasethecostofborrowing,pushingbond yields higher and prices lower.

• Inflationoftenaccompanieseconomicexpansion,promptingtheU.S. Federal Reserve and other countries’ central banks to boost interest rates in an effort to slow down inflation.

• Highgovernmentspendingleadstomoreborrowing—andthelikelihood of rising rates.

Today, high unemployment is helping to keep inflation in check. But even our gradually recovering economy, combined with high federal debt, may eventually drive rates higher.

FEDERAL DEBT IS EXPECTED TO REMAIN HIGHAccumulated deficits as % of GDP, 1990 – 2022

The impact of rising rates can vary widelyDifferent bond market sectors respond differently to changing interest rates. For example, high-yield bonds tend to be less sensitive to rates than U.S. Treasuries. The same is true for shorter-term bonds. That’s why diversification can help manage risks and reduce the overall impact rising rates might have on your portfolio.

A 1% RISE IN RATES AFFECTS BOND PRICES DIFFERENTLY% decline in value relative to a 1% increase in interest rates

Source: U.S. Treasury, Federal Reserve, Barclays Capital, FactSet, J.P. Morgan Asset Management. Shown for illustrative purposes only. Data as of 6.30.2012.

2-yearTreasuries

10-yearTreasuries

30-yearTreasuries

Corporatebonds

Municipalbonds

High-yieldbonds

-2.0% 8.2%-7.0% -7.5%

5.3% -4.1%

-9.0%

-19.8%

America’s debt-to-GDP ratio has been rising rapidly in recent years. While projections vary on specific levels, U.S. debt as a percentage of GDP is likely to remain high for some time, putting continued pressure on interest rates.


Inflation is low, but still damagingAlthough inflation is low today, history shows that it can spike suddenly — and often dramatically. Even if inflation stays relatively low, it poses a constant threat to retirees and other income investors:

• Most bond income is fixed, but prices continue to rise — resulting in loss of buying power.

• Investing too conservatively in CDs, money market funds and short-term bonds may not earn enough to keep pace with even modest inflation.

• If you have to tap into investment principal to meet rising expenses, it could increase your risk of running out of money during retirement.

THE IMPACT OF INFLATION IS ESPECIALLY HIGH WHEN RATES ARE LOWInterest rates, yields and inflation as of 6.30.2012

After inflation, some traditional income sources are now paying negative “real” yields. If inflation rises in the future, real income and investor buying power would decline even more.

Source: FactSet. Shown for illustrative purposes only.

Since 1966, we have seen considerable increases in the prices of household goods and services. In many cases, these increases have far exceeded the rise in the Consumer Price Index as a whole.

Sources: Census Bureau, CNN, MCLIB [Morris County New Jersey Library].

INFLATION HAS GREATLY ERODED PURCHASING POWER OVER TIMEPrices of everyday products outpacing the inflation rate, 1966 vs. 2011

1966 2011 Annual Total price price increase increase

Super Bowl ticket $12.00 $900.00 10.3% 7,400%

Aspirin $0.40 $6.99 6.4% 1,665%

Breakfast cereal $0.25 $3.79 6.2% 1,416%

Cold medicine $0.66 $7.99 5.7% 1,111%

Bread $0.31 $3.69 5.7% 1,093%

Candy bar $0.09 $0.99 5.5% 1,018%

Median home price $21,525 $224,070 5.3% 941%

Gallon of gas $0.32 $3.31 5.3% 934%

Consumer Price Index (CPI) 32.40 224.94 4.4% 594%

SolutionIf interest rates rise:

• Bondsstillbelonginwell-balanced portfolios because they rarely move in lockstep with stocks.

• Bondskeeppayinginterestevenif prices are falling to help offset some or all of the loss.

• Youcaninvestinnew,higher-yielding bonds, which may further cushion price declines over time.

6-month CD2-year

Treasury bond10-year

Treasury bondS&P 500

dividend yield

0.48%0.33%

-0.44% 0.0%

1.70%1.67%

-1.78%-1.63%

Interest rate/yield

After core inflation


Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Shown for illustrative purposes only. Data as of 6.30.2012.


Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets Index; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The “Asset Allocation” portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Asset allocation portfolio assumes annual rebalancing.

Diversify your bonds to pursue higher, smoother returnsDiversification helps reduce risk and broaden opportunitiesA bond portfolio concentrated in one specific sector, such as Treasuries, can lead to a bumpy ride. Diversifying across sectors may help you:

• Lowerportfoliovolatility

• Reducetheimpactofrisinginterestratesandotherrisks

• Increaseincomeandreturnpotentialbyaccessingabroaderrangeofopportunities

In this example, a portfolio allocated to all of these sectors outperformed the Barclays Aggregate Index and Treasuries over 10 years — with a smoother ride along the way.

FIXED INCOME SECTOR RETURNS AND THE BENEFITS OF DIVERSIFICATION

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2Q2012 Cum. Ann.

TIPS16.7%

EMD12.2%

Treas.11.8%

BarclaysAgg.

10.3%

Corp.10.1%

AssetAlloc.10.0%

Muni9.6%

MBS8.7%

High Yield-1.4%

High Yield29.0%

EMD26.9%

TIPS10.6%

AssetAlloc.10.0%

Corp.8.2%

Muni5.3%

BarclaysAgg.4.1%

MBS3.1%

Treas.2.2%

EMD11.9%

High Yield11.1%

TIPS6.3%

AssetAlloc.6.0%

Corp.5.4%

MBS4.7%

Muni4.5%

Muni4.8%

Barclays Agg.4.3%

Treas.3.5%

EMD12.3%

AssetAlloc.3.6%

Muni3.5%

TIPS2.8%

Treas.2.8%

High Yield2.7%

MBS2.6%

Barclays Agg.2.4%

Corp.1.7%

High Yield11.8%

EMD10.0%

MBS5.2%

AssetAlloc.5.1%

BarclaysAgg.4.3%

Corp.4.3%

Treas.3.1%

TIPS0.4%

TIPS11.6%

Treas9.0%

BarclaysAgg.7.0%

MBS6.9%

Asset Alloc.6.2%

EMD5.2%

Corp.4.6%

Muni3.4%

High Yield1.9%

Treas.13.7%

MBS8.3%

BarclaysAgg.5.2%

AssetAlloc.-1.4%

TIPS-2.4%

Muni-2.5%

Corp.-4.9%

EMD-14.7%

High Yield-26.2%

High Yield58.2%

EMD34.2%

Corp.18.7%

AssetAlloc.15.8%

Muni12.9%

TIPS11.4%

BarclaysAgg.5.9%

BarclaysAgg.2.4%

MBS5.9%

Treas-3.6%

High Yield15.1%

EMD12.8%

Corp.9.0%

AssetAlloc.7.6%

BarclaysAgg.6.5%

TIPS6.3%

Treas.5.9%

MBS5.4%

Muni2.4%

TIPS13.6%

Muni10.7%

Treas.9.8%

AssetAlloc.8.9%

Corp.8.2%

BarclaysAgg.7.8%

EMD7.0%

MBS6.2%

MBS1.7%

High Yield5.0%

High Yield7.3%

EMD7.0%

Corp.4.7%

TIPS4.0%

AssetAlloc.3.9%

Muni3.7%

Treas.1.5%

TIPS3.2%

Treas.2.8%

Corp.2.5%

AssetAlloc.2.2%

Muni1.9%

EMD1.4%

MBS1.1%

10 years: 2002-2011

EMD185.6%

High Yield133.6%

TIPS107.5%

AssetAlloc.96.0%

Corp.85.2%

BarclaysAgg.

75.4%

Treas.74.3%

MBS73.9%

Muni68.8%

EMD11.1%

High Yield8.9%

TIPS7.6%

AssetAlloc.7.0%

Corp.6.4%

BarclaysAgg.5.8%

Treas.5.7%

MBS5.7%

Muni5.4%

BarclaysAgg.2.1%

High Yield1.8%

“The great benefit of a portfolio approach to investment stems from the idea that multiple asset classes in it can improve the opportunity set and produce returns on aggregate that are less volatile than any single asset.”

BILL EIGEN

Head of Absolute Return and Opportunistic Fixed Income Strategies



Solution•Expandyourbondportfolio

beyond one or two core holdings.

• Diversifywithuncorrelatedassets— i.e., bonds that don’t all rise and fall at the same times or rates.

• Considerhighyieldandoverseasmarkets with little or no exposure to U.S. interest rates.

• Reviewportfolioallocationsregularly to keep pace with your changing needs and market conditions.

Find the appropriate mix for your fixed income needsInstitutional investors know the value of broadly diversifying their fixed income portfolios. When creating the right mix of bonds for your needs, it’s important to ensure that you’re also appropriately diversified:

• Consider your goals and risk tolerances

• Think strategically about augmenting your core holdings with complementary investments and extended sectors

• Adjust allocations to reflect your market and interest rate outlook

An appropriately diversified portfolio can help you increase return potential and achieve goals with the right balance of market risk and investment opportunity.

Emerging markets

International

High yield bonds/loans

Absolute return

Inflation hedge

Short-term

Sector-specific

[Mortgage-backed, corporates, governments, etc.]

Intermediate fixed income

TOP-DOWN BOTTOM-UP

EXTENDED SECTORSSeeks income and total return

CORE COMPLEMENTSeeks reduced correlations to core holdings

CORE HOLDINGSSeeks lower volatility and diversification to equities

Shown for illustrative purposes only.

Because everyone’s circumstances are unique, these models can provide a framework for discussion between you and your financial advisor. 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.


Look beyond bonds for income, opportunity and diversificationAn unbalanced portfolio can concentrate risks and limits rewardsInvestors who follow their emotions tend to make the wrong decisions at the wrong times. Since 2007, flows into bonds have been more than five times larger than flows into stocks. Investors have poured almost $1 trillion into bond funds since the S&P 500’s low in March 2009 — even though the S&P has nearly doubled in value over this period.

As a result, many portfolios have become dangerously overexposed to just one type of investment — U.S. bonds driven primarily by the direction of interest rates. In addition to underdiversifying, investors are underperforming other income-producing asset classes now offering more attractive yield and return opportunities.

INVESTORS ARE HEAVILY FAVORING BONDS OVER STOCKSCumulative flows into mutual funds and ETFs, 1.1.2007 – 5.31.2012

“The optimal approach to generating income includes diversified fixed income exposure and a prudent, flexible allocation to REITs and other income-generating securities.”

ANNE LESTER

Senior Portfolio Manager,Global Multi-Asset Group


2007 2008 2009 2010 2011 2012

Flows into bonds: $1.2 trillion

Flows into stocks: $205 billion

Sources: Investment Company Institute, J.P. Morgan Asset Management. Shown for illustrative purposes only.


Explore other income-producing asset classesToday’s lower-risk income investments may not provide enough yield and could actually incur losses if interest rates rise in a recovering economy. The key to generating higher income isn’t to avoid the safest investments or overdo the riskiest. It’s combining many of them into a portfolio that pursues your desired returns while diversifying risks.

INVESTING ALL ALONG THE RISK-RETURN SPECTRUMA broader mix of asset classes can expand opportunities for yield and price gains

*Historical volatility. Shown for illustrative purposes only.

Diversification does not guarantee investment returns and does not eliminate the risk of loss.

RISK*

RETU

RN

Short-term CDs

Money market funds

Longer-term Treasuries

High-yield bondsDividend-paying stocks

Foreign bonds

Short-intermediate bonds

High-quality corporate bonds

Convertible bonds

REITs

Emerging marketbonds

Preferred stocks

} DIVIDEND BASICS DIVIDEND YIELD AND PAYOUT RATIO

Dividend yield is the income paid to stockholders each year, expressed as a percentage of the stock price.

Payout ratio is the percentage of company earnings paid out as dividends.


Expand your pursuit of income to global marketsWith CDs and U.S. Treasuries paying historically low yields, it can be beneficial to look for income across a broader range of asset classes from around the world.

For example, in today’s persistently low rate environment, it has been common for a country’s stock market dividend yield to exceed its long-term government bond yield. That’s currently the case in the U.S. as well as many foreign countries.

The story is similar with dividends from real estate investment trusts [REITs] — yields are currently higher than U.S. Treasuries and typically higher still outside the U.S. And because international markets are driven by different economies, they can bring another level of diversification to your income portfolio.

INCOME OPPORTUNITIES BEYOND BONDS AND OUTSIDE THE U.S.

3.1%

10-year government bond yield

U.S.

2.2%

France

5.1%

Australia U.K.

4.3%3.9%

Switzerland Canada

3.7%2.9%

JapanACWI

2.6%

High Yield Bonds

U.S. Europe Global

Equity dividend yields vs. 10-year government bonds

10-year government bond yield

REIT dividend yields vs. 10-year government bonds

5.0%

7.8%8.6%

8.0%

U.S.

3.5%

France

6.0%

Singapore Australia U.K.

5.9% 5.7%

Canada

5.2%

4.2%

Japan Global

4.1%

Sources: FactSet, MSCI, J.P. Morgan Asset Management, NAREIT. Shown for illustrative purposes only. Data as of 6.30.2012.

Equity yields shown are that of the appropriate MSCI index. REIT yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies.

Equity dividend yields vs.10-year government bonds

REIT dividend yields vs. 10-year government bonds

High yield bonds


Consider dividend-paying stocksDividends occur when a company shares its profits with stockholders. As a complement to traditional income investments, dividend payers may offer added sources of yield along with other possible benefits:

• Higher growth potential: Dividend-paying stocks have historically delivered higher long-term returns than other income vehicles.

• Inflation protection: Unlike bonds paying fixed income, many companies increase their dividend payouts each year to help investors stay ahead of rising prices.

• Less volatility than other stocks: Dividend payers tend to be large, financially strong companies with more mature businesses that are less susceptible to economic cycles.

• A cushion against market risk: Dividend income has the potential to cushion falling stock prices and reduce the volatility of returns.

Since 1926, 43% of the U.S. stock market’s total return has come from dividends, with the rest from price appreciation. But while price returns varied widely from decade to decade, dividends were always positive. They helped boost gains in up periods and reduce losses during downturns.

DIVIDENDS HAVE ACCOUNTED FOR 43% OF STOCK MARKET RETURNS

S&P 500 total return: Dividends vs. capital appreciation, average annualized returns [%]

“In an environment of increasingly volatile markets and persistently low interest rates, dividend-paying stocks offer the potential for upside participation, downside mitigation and a reliable income stream.”

CLARE HART

Portfolio Manager,U.S. Equity Group


Source: Standard & Poor’s, Ibbotson, J.P. Morgan Asset Management. Shown for illustrative purposes only. Data as of 12.31.2011.


Total return assumes the reinvestment of income.

Capital appreciation

Dividends

1926–1929

1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s 1926–2011

4.7 5.4 6.0 5.1 3.3 4.2 4.4 2.5 1.8 2.14.1

13.9

-5.3

3.0

13.6

4.4 1.6

12.6 15.3

-2.7

6.25.5


QUALITY MATTERS: DIVIDENDS ARE IMPORTANT, BUT SO IS THE ABILITY TO PAY THEM*

Equal-weighted total return from 1990 – 6.30.2012

DIVIDEND STOCKS HAVE OUTPERFORMED THE MARKET — WITH LESS DOWNSIDE RISKDow Jones U.S. Select Dividend Index vs. S&P 500 Index, 1992-2011

Source: J.P. Morgan Asset Management. Dividend payers are represented by the Dow Jones U.S. Select Dividend Index, and the overall market is represented by the S&P 500 Index. Shown for illustrative purposes only.


Companies with high dividend yields and low payout ratios have historically delivered the best returns. And because such companies pay out a relatively small portion of their earnings, they’re often able to continue issuing dividends in tough times — and increase them in good times.

Source: Credit Suisse Quantitative Equity Research. Shown for illustrative purposes only.


There is no guarantee that companies that can issue dividends will declare, continue to pay or increase dividends.

*U.S. equities returned 6% on average since 1991. However, without dividends the annual gain drops to 1.7%; Treasury bonds returned 2.1% during the same period. According to inflation-adjusted data compiled by the London Business School and Credit Suisse Group AG.

-8.9%

Average return in down years

Average return in up years

Average annualreturn

-20.0%

19.9%17.0%

11.4%

7.8%

n Dividend payersn Overall market

Solution• Reviewyourcurrentportfolio

to see which asset classes are missing or under-represented.

• Investinabroadermixofassetsglobally to expand diversification and income potential.

• Considerdividendpayerswith the potential to outyield traditional income sources and outperform inflation.

-50%

0%

50%

100%

150%

250%

200%

300%

350%

400% High dividend yield, Low payout ratio

Low dividend yield, Low payout ratio

No dividend

High dividend yield, High payout ratio

S&P 500

Low dividend yield, High payout ratio

’92 ’90 ’94 ’96 ’98 ’00 ’02 ’04 ’06 ’08 ’10 ’12

2006 2008 2010 201219981996199419921990 2000 2002 2004

For more information, consult your financial professional to discuss your income needs and investment choices.

To learn more about J.P. Morgan Funds, please call 1.800.480.4111 or visit www.jpmorganfunds.com.

?

Evolve your income strategy

Pursue income as part of total returnTotal return combines the income from an investment with changes in its price. It’s an important consideration even if income is your top priority. Without long-term price appreciation, you may not have the potential to build wealth, beat inflation and reduce the risk of outliving assets.

Increase your diversificationA well-rounded income portfolio can include lower-risk traditional bonds and cash as well as higher-yielding non-traditional bonds, dividend-paying stocks and real estate investment trusts [REITs].

Think globallyInvesting in income-generating assets outside the United States may help you further expand diversification while taking advantage of higher yields overseas.

Invest in actively managed mutual fundsActive managers rely heavily on research to analyze markets, evaluate individual securities and make informed decisions on your behalf. In low-yield environments like we have today, they can play an especially valuable role in uncovering areas of opportunity while avoiding those that appear risky or unrewarding.

Consider flexible funds with fewer constraintsOpportunistic, “go-anywhere” funds have the flexibility to invest across asset classes and geographic regions in search of higher income. In some cases, they can take defensive measures in an effort to limit losses when conditions are unfavorable. In other cases, they can use sophisticated strategies such as derivatives or short selling to pursue absolute returns — that is, positive results regardless of market direction.



Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 for a fund prospectus. You can also visit

us at www.jpmorganfunds.com. Investors should carefully consider the investment objectives and risks

as well as charges and expenses of the mutual fund before investing. The prospectus contains this and

other information about the mutual fund. Read the prospectus carefully before investing.

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. Past performance is no guarantee of future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends.

J.P. Morgan Funds are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA/SIPC.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc.

© JPMorgan Chase & Co., August 2012

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