EFTA00506026.pdf

Managing a Concentrated Position: Strategies & Solutions Client Name I Presentation Date Name, Banker - phone Name, Global Investment Specialist - phone Name, Wealth Advisor - phone IMPORTANT NOTE: Many of the strategies discussed in this presentation involve hedging or pledging shares. Executives and other insiders of publicly-traded companies are often restricted in their ability to hedge/pledge company stock. Do not provide this presentation to a corporate insider subject to hedging/pledging restrictions. Contact Advice Lab Q&A with questions. INVESTMENT PRODUCTS: NOT FDIC INSURED I NO BANK GUARANTEE I MAY LOSE VALUE Please read important information section at the end of the presentation. JP Morgan EFTA00506026 Please keep in mind This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option- related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. This material is intended to help you understand the financial consequences of the concepts and strategies discussed here in very general terms. However, the strategies found herein often involve complex tax and legal issues. Only your own attorney and other tax advisors can help you consider whether the ideas illustrated here are appropriate for your individual circumstances. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. We will, however, be pleased to consult with you and your legal and tax advisors as you move forward with your own planning. Additionally, please read the Important Information pages at the end of this presentation. 2 ei EFTA00506027 Agenda Topic Page Concentration Risks & Planning Options 4-5 Hedge 6 — Puts 7-8 — Collars 9-10 Monetize 11 — Qualified Covered Call Writing 12-14 — Unhedged & Hedged Loans 15 Diversify 16 — Outright Sale 17 — PrISMs1 18-20 — Private Placement Exchange Funds 21 — Personal Exchange Funds 22-29 — Charitable Remainder Trusts 30-33 Synergizing Strategies 34 Appendix 35-44 1. A Principal Installment Stock Monetization ("PrISM") is a prepaid variable forward strategy. 3 EFTA00506028 Concentrated investors should carefully consider how they manage their concentration risk • While some companies substantially outperform the broad market and maintain their value, the odds are stacked against the average concentrated investor — Of Russell 3000 Index companies since 1980, the return of the median stock versus the index was -54%, and roughly 40% of all stocks suffered a permanent 70%+ decline from their peak value Cumulative number of companies removed from the S&P 500 due to distress, number of companies 350 300 250 200 150 100 50 0 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Analysis of lifetime returns by sector, 1980-2014 Sector Median excess return vs. Russell 3000 Percentage of stock with negative EXCESS returns Percentage of stock with negative ABSOLUTE returns Percentage of "extreme winner"? stocks All sectors -54% 64% 40% 7% Consumer discretionary -62% 65% 44% 7% Consumer staples -3% 51% 26% 15% Energy -93% 72% 48% 6% Materials -73% 66% 34% 8% Industrials -58% 64% 37% 7% Health Care -39% 60% 42% 8% Financials -21% 58% 30% 6% Information Technology -63% 71% 53% 6% Telecommunication Services -57% 68% 54% 6% Utilities -141% 85% 14% 0% Sector Total % of companies experiencing "catastrophic loss," 1980-2014 All sectors Consumer discretionary Consumer staples Energy Materials Industrials Health Care Financials Information Technology Telecommunication Services Utilities 40% 43% 26% 47% 34% 35% 42% 25% 57% 51% 13% Source: Bloomberg, FactSet, Standard & Poor's, 1.P. Morgan Asset Management. 1. "Catastrophic loss" defined as a 70% decline from peak value with minimal recovery. This is a subjective cutoff point; some investors may see smaller permanent declines as equally unacceptable. 2. "Extreme winner" stocks defined as those stock with a 500%+ time-adjusted lifetime price return vs. the Russell 3000 Index. The Russell 3000 index measures the performance of the 3,000 largest U.S. companies representing approximately 98% of the investible U.S. equity market. 4 EFTA00506029 What solutions are available to manage your concentrated position? Depending on your objectives, J.P. Morgan can help create a plan to manage your wealth by using a combination of strategies: Hedge tat. Hedge a concentrated position, potential for monetization Gain liquidity from a concentrated position Diversify Generate proceeds for reinvestment Puts Collar Qualified Covered Calls Unhedged Loan Collar + Loan Outright Sale PrISM' Exchange Fund Charitable Remainder Trust 1. A Principal Installment Stock Monetization ("PrISM") is a prepaid variable forward strategy. The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. Typically such investment ideas can only be offered to suitable investors through a confidential offering memorandum which fully describes all terms, conditions and risks. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option•related products in general, are suitable to their needs. For a complete discussion of risks for any investment, please review offering documents and speak with your investment specialists. CrAT5 5 EFTA00506030 Hedge Moye EFTA00506031 Payment at Maturity Protective puts are a hedge against a decline in the value of a single stock position Puts provide downside protection by giving the investor the right to sell shares at a fixed price (the put strike price). In exchange for this right, the investor must pay an upfront premium to acquire the put contract. This strategy is appropriate for investors who are neutral to moderately bearish on the stock. Benefits • Provides some downside protection • Investor retains all upside appreciation, dividends; and voting rights • Investor can borrow against hedged position to raise liquidity, as needed2 • Requires the investor to pay an upfront premium; this premium is an economic loss if the contract expires worthless • Shares are pledged as collateral for the put for the duration of the contract • Over-the-counter ("OTC") options are typically European-style options that expire at maturity; if unwound early, the payout may vary from expected payout at maturity; If stock price at maturity is less than the put strike price: — Physical settlement: Investor delivers shares and receives the put strike price — Cash settlement: Investor receives the difference between put strike price and stock price If stock price at maturity is greater than the put strike price: — Investor continues to hold the shares and the contract expires worthless — Investor may claim a capital loss in the amount of the premium paid to acquire the option contract 1. Dividend protection is as defined in the term sheet and confirmation. Dividends would not qualify for qualified dividend income tax treatment during the time the offsetting put is held. 2. Subject to credit approval. 3. Based on factors including the underlying stock price, volatility, interest rates, dividend yield and time to maturity. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or optiomrelated products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 7 EFTA00506032 Potential benefits of an OTC protective put strategy Payout Profile (Illustrative Only) Investor's Return 60% 40% 20% 0% -6 -20% -40% -60% Value forgone vs. long stock Put Strike Price (-10%) 4 % 'SSC< eZel Qt o -e 20% Outperformance vs. long stock Appreciation/Depreciation to Maturity Date 40% 60% The protective put strategy outperforms versus the long stock when the stock falls below the strike price plus the premium paid. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option.related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 8 EFTA00506033 Collars provide downside protection and upside appreciation to a defined cap Collars provide downside protection by foregoing some potential upside appreciation. The strategy consists of buying a put and selling a call, with payoff contingent on the stock price at maturity. This strategy is appropriate for investors who are neither aggressively bullish nor bearish on the stock. Benefits Payment at Maturity • • • • • • • Provides some downside protection Less costly than purchasing the equivalent protection of a put alone; "cashless" collars incur no out-of-pocket cost Investor retains all upside appreciation up to the call strike price, dividends', and voting rights Investor can borrow against hedged position to raise liquidity, as needed2 Investor caps the potential return on the stock at the call strike price and gives up any stock appreciation above the call strike price; Shares are pledged as collateral for the collar for the duration of the contract Over-the-counter ("OTC") options are typically European-style options that expire at maturity; if unwound early, the payout may vary from expected payout at maturity' If stock price at maturity is less than the put strike price: — Physical settlement: Investor delivers shares and receives the put strike price — Cash settlement: Investor receives the difference between put strike price and stock price If stock price at maturity is greater than the call strike price: — Physical settlement: Investor delivers shares and receives the call strike price — Cash settlement: Investor pays the difference between stock price and call strike price If stock price at maturity is equal to or greater than the put strike price and equal to or less than the call strike price: No payments are made by either party and contract expires worthless 1. Dividend protection is as defined in the term sheet and confirmation. Dividends would not qualify for qualified dividend income tax treatment during the time the collar is in place. 2. Subject to credit approval. 3. The collar locks in the amount that can be realized at maturity to a range defined by the put and call strike prices. 4. Based on factors including the underlying stock price, volatility, interest rates, dividend yield and time to maturity. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or optiomrelated products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 9 EFTA00506034 Potential benefits of an OTC cashless collar strategy Payout Profile (Illustrative Only) Investor's Return 60% • 40% - 20% - 0% Put Strike Price (-10%) Collar -60 -20% -40% -60% -40% -200/0 \\\\\ \\\ r 0% Outperformance vs. long stock 40% Call Strike Price (+20%) Appreciation/Depreciation to Maturity Date The collar strategy outperforms versus the long stock when the stock price at maturity is below the put strike price. 60% Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 10 EFTA00506035 Monetize ef, EFTA00506036 Call overwriting allows you to retain stock ownership and potentially enhance yield Call writer receives an upfront payment ("premium") in exchange for selling partial upside above a predetermined price. This strategy is appropriate for investors who are neutral to moderately bullish and do not expect the stock price to increase above the "effective sales price" on the call overwriting strategy. Benefits • Investor receives an upfront premium, available for current reinvestment • Investor retains dividends2 and voting rights on the shares during the term of the transaction • Assuming the calls meet the definition of a "qualified covered call" (QCC)3 for tax purposes: — Investor does not realize a tax event until the exercise or expiry of the call option — Shares continue to accrete holding period — Dividends continue to qualify for tax treatment as qualified dividend income — There would be no limitation on loss recognition if shares are sold I Risks • Potential return on stock appreciation is capped at the call strike price • Partial downside protection is limited to the amount of call premium received • Shares are pledged as collateral for the duration of the strategy • OTC options are European-style options which are exercisable only at maturity. If unwound early, the payout may vary from expected payout at maturity' Payment at Maturity If stock price at maturity is greater than the call strike price: — Physical settlement: Investor delivers the underlying stock and receives the call strike price — Cash Settlement: Investor pays difference between the stock price and the call strike price • If stock price at maturity is less than or equal to the call strike price: Call option expires worthless • Investor keeps the upfront premium in all cases 1. The effective sales price is the call strike plus the upfront premium. 2. Dividend protection is as defined in the term sheet and confirmation. 3. ft exchange-listed calls exist on the position, an OTC call option generally will be treated as a Oa if written: i) out-of-the-money, ii) with a maturity date in 33 months or fewer, and iii) more than 30 days before expiry 4. Based on factors including the underlying stock price, volatility, interest rates, dividend yield and time to maturity. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option-related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 12 EFTA00506037 Potential benefits of an OTC call overwriting strategy Payout Profile (Illustrative Only) Investor's Return 60% 40% 20% 0% -60% -20% - -40% - -60% - -40% -20% Value forgone vs. long stock 0% Outperformance vs. long stock cat Call Writing 40% 60% Call Strike Price (+5%) Appreciation/Depreciation to Maturity Date The covered call strategy outperforms versus the long stock as long as the stock does not appreciate by more than the upfront premium plus the call strike price. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option.related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 13 EFTA00506038 Overwriting a covered call spread would allow you to retain some exposure to the upside Payout Profile (Illustrative Only) Investor's Return 60% 40% 20% 0% -6 -20% -40% -60% Short Call Strike Price (+5%) -40% -20% Appreciation/Depreciation to Maturity Date Value forgone vs. long stock .• o pet, •••\ 0% 20% 40% 60% Outperformance vs. long stock Long Call Strike Price (+20%) By using part of the premium received from writing a covered call to purchase another call option at a higher strike price, you can retain some exposure to the upside. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option.related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 14 EFTA00506039 A securities-based line of credit can be an effective way to monetize your concentration Borrower is able to extract value from the concentrated position by pledging the securities as collateral on a line of credit facility extended by the bank Borrower may use the loan proceeds for any purpose; if reinvested at a rate of return greater than the rate of interest on the line of credit, an arbitrage opportunity may exist Lending value of a concentrated position will be lower than lending value of a diversified portfolio of investments; protecting the position with a collar or other hedging strategy may increase lending value, Shares are pledged as collateral for the duration of the strategy and may be subject to forced sale by the lender A decline in the value of the pledged securities may require the borrower to pledge additional collateral and/or pay down the line of credit; this risk is heightened by the concentrated nature of the pledged shares Borrowers hedging their concentrated position with a protection strategy intended to match the anticipated maturity of the loan run the risk that the hedging strategy and/or the loan must be unwound early 1. Lending values are determined by JPMorgan Chase Bank, N.A. in its sole discretion. Advance rates on securities are determined by JPMorgan Chase Bank, N.A., and are subject to change without notice. Lines of credit are extended at the discretion of J.P. Morgan, and J.P. Morgan has no commitment to extend a line of credit or make loans available under the line of credit. Any extension of uedit is subject to credit approval by the lender in accordance with the terms contained in definitive loan documents. Loans collateralized by securities involve certain risks and may not be suitable for all borrowers and investors. A decline in the value of securities pledged as collateral may require the borrower to provide additional collateral and/or pay down the loan or line of uedit in order to avoid the forced sale of the securities by the lender. 15 EFTA00506040 Diversify EFTA00506041 An outright sale of shares is the most direct path to diversification But deciding on a selling strategy is more complex than it may seem • Shares can either be sold all at once or in stages Investors selling a concentrated position must ask themselves the following questions: — What is the right amount for me to sell? (Consider liquidity needs and appetite for continued exposure to single-stock risk) Am I comfortable selling out of the position more gradually if it means potentially selling at a higher price? Am I comfortable selling out of the position more gradually if it means potentially selling at a lower price? If I sell in stages, what is an appropriate pace for the sales? How will the realized capital gains event(s) impact my overall income tax situation? Immediate Sale • Generates immediate cash for diversification • Possibility of selling at a depressed or undervalued price • Large lots may move markets • Investor may be subject to trading restrictions • Creates an immediate capital gains tax liability Staged Selling Strategy • Liquidity realized more gradually • Greater potential upside and downside because concentration is held longer • Can accommodate investors subject to trading restrictions • Capital gains taxes incurred, albeit at a staggered pace The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. 17 EFTA00506042 A "PrISM" adds value by providing proceeds upfront A Principal Installment Stock Monetization ("PrISM")' is a private contract that allows an investor to receive attractive upfront liquidity (typically 75%-90% of the stock value), downside protection, and flexibility in the use of investment proceeds. At trade date: Investor receives proceeds2 Investor posts underlying stock as collateral During term of trade: Investor can use PrISM proceeds for any purpose Can be structured such that investor retains all or most dividends (optional) and voting rights during term of transaction At maturity date: Investor delivers shares or cash3 Investor receives back excess shares4 Number of shares (or amount of cash) depends on stock price at maturity 1. A PrISM is also known as a prepaid variable forward. 2. Strategy typically allows a client to receive 75.90% of the stock value upfront with a variable number of shares delivered (or cash value payable) at maturity. 3. May be settled in stock or the cash equivalent, upon Client's election. 4. If stock price at maturity is greater than the hedged value; total number of shares retained subject to payments under the cap level. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option•related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 18 EFTA00506043 Payment at Maturity A PrISM offers limited exposure to the upside and proceeds upfront A Principal Installment Stock Monetization ("PrISM") is a private contract that allows an investor to receive attractive upfront liquidity (typically 75%-90% of the stock value), downside protection, and flexibility in the use of investment proceeds. lill Benefits • Upfront liquidity, protection below the hedged value, and upside appreciation to a predetermined limit • While similar to collar plus a loan, no interim interest payments required, structure generally provides more cash upfront, and more flexibility in the use of proceeds • Taxes on underlying shares deferred until maturity (or beyond if cash settled) • Can be structured so investor retains dividends' (optional) and voting rights during contract • Stock appreciation is capped at the upside limit • Shares are pledged for the duration of the PrISM • OTC options are European-style options which are exercisable only at maturity. If unwound early, the actual payout may vary from expected payout at maturity' If stock price at maturity is less than hedged value: — Investor delivers 100% of the shares (or cash value) If stock price at maturity is between the hedged value and the upside limit: — Investor delivers a percentage of the number of shares equal to the hedged value divided by the settlement price (or cash value) If stock price at maturity is greater than the upside limit: — Investor delivers a percentage of the number of shares equal to the hedged value of shares plus appreciation above the upside limit divided by the settlement price (or cash value) 1. Dividend protection is as defined in the term sheet and confirmation. Dividends would not qualify for qualified dividend income tax treatment during the term of the PrISM contract. 2. Based on factors including the underlying stock price, volatility, interest rates, dividend yield and time to maturity. Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or optiomrelated products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 19 EFTA00506044 Hypothetical PrISM transaction PrISM Assumptions Underlying Stock: ABC Inc. (ABC) Current Share Price: $100 Number of Shares: 50,000 OTC Option Style: European Settlement: Cash or Fhysical Bank Counterparty: JPMorgan Chase Bank Other Assumptions: Dividend Protection (based on a dividend schedule of $1.00 per quarter) Structure Maturity Hedged Value Upside Limit Purchase Price A 2 years 100% $100.00 120% $120.00 89.46% $4,473,000 Payoff at Maturity for Structure A Share Price at Maturity Position Value Physical Settlement Cash Settlement Residual Value' Residual Value (%) Shares Delivered (%) Shares Delivered Cash Delivered' (Optional) $70.00 $3,500,000 100.00% 50,000 $3,500,000 $0 0.00% $85.00 $4,250,000 100.00% 50,000 $4,250,000 $0 0.00% $100.00 $5,000,000 100.00% 50,000 $5,000,000 $0 0.00% $106.67 $5,333,333 93.75% 46,875 $5,000,000 $333,333 6.67% $113.33 $5,666,667 88.24% 44,118 $5,000,000 $666,667 13.33% $120.00 $6,000,000 83.33% 41,667 $5,000,000 $1,000,000 20.00% $135.00 $6,750,000 85.19% 42,593 $5,750,000 $1,000,000 20.00% $150.00 $7,500,000 86.67% 43,333 $6,500,000 $1,000,000 20.00% 1. With adjustments for fractional shares. 2. Residual Value = (Number of Shares - Shares Delivered) x Share Price at Maturity Note: Prices are for purposes of illustration only and do not represent actual prices. The payoff on early termination will not equal the payoff a client would expect given the same underlying equity price at maturity. The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. 20 EFTA00506045 Private placement exchange funds provide an opportunity for tax-efficient diversification An exchange fund is a potentially tax-efficient diversification tool. Investors holding concentrated positions of low-basis stock can contribute the securities to the Fund in exchange for Fund units. Similarly situated investors contribute other marketable securities as well. After a minimum of seven years,' the individual investors may redeem their units of the fund for a pro-rata share of a diversified basket of securities with the same cost basis as the individual investors' bases in the securities originally contributed. ABC Stoc (low basis) Partnership units Tax-free exchange Exchange Fund Diversified Portfolio >20% private assets Pro-rata distribution of fund assets Redeem units after seven years Diversified Portfolio The 'investment company" tax rules (which concern a tax definition of a pre-tax diversification concept) must be avoided (i.e., avoid taxable event inbound in the capitalization of the partnership/swap fund). The most common way to avoid these rules is to initially close the fund with more than 20% of the fund value composed of certain private assets (i.e., fail one of the tax definitions in the investment company rules) Income Tax Treatment • No income tax consequence on contribution • No income tax consequence on distribution (after at least seven years) • Investor allocates his or her original cost basis to the basket of securities distributed to him or her • Capital gains tax due on later sale of the securities received Transfer Tax Treatment • Depending on the facts, value of fund units may reflect a discount to their apparent market value, because of their illiquidity and "minority" status • Exchange fund generally should incorporate a feature that would allow units to be gifted • If held by a decedent, units may also qualify for a valuation discount for estate tax purposes . Timeframe driven by current partnership tax law. There have been legislative proposals in the past hat would have extended this time period to ten years and future legislative changes could alter this timeframe. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 21 EFTA00506046 A Personal Exchange Fund, under certain circumstances, may allow indefinite deferral of capital gains tax on low-basis shares A personal exchange fund allows a number of shareholders, acting through a single vehicle, to hedge and monetize a low-basis single stock position and actively manage investments, while offering the opportunity to defer capital gains tax associated with the low-basis shares. In a typical personal exchange fund, three or more shareholders form a partnership or limited liability company (LLC), contributing the same low basis single stock.' The LLC then enters into a seven-year2 variable prepaid forward contract (such as a PrISM)3 to generate cash for reinvestment. Unlike a public exchange fund, the LLC can actively manage its investments in accordance with the objectives set forth in its shareholders' operating agreement (e.g., in a diversified equity portfolio). Benefits Under certain circumstances, strategy may allow for indefinite deferral of capital gains tax on a low-basis stock holding • Partners determine how fund's assets are invested, and may vary these investments over time • Partners retain upside exposure on the underlying shares • Strategy may be executed in a family limited partnership or family limited liability company that could also own other assets, including closely-held business interests Risks • Tax law changes may affect certain tax benefits of the structure • Early non-pro rata distributions from the LLC (as a result of death, taxable corporate actions, etc.) may have a negative effect on the overall strategy • Appreciation in the underlying stock price is limited to the upside limit in the PrISM structure • Partners may sell their fund units, likely at a discount, before the seven-year period expires 1. Partners may have previously received their stock by gift from another partner. The lapse of time between the gift and the contribution to the partnership is an additional consideration. 2. Timeframe driven by current partnership tax law. There have been legislative proposals in the past that would have extended this time period to ten years and future legislative changes could alter this timeframe. 3. A Principal Installment Stock Monetization ("PrISM") is a prepaid variable forward strategy. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates ancVor subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 22 EFTA00506047 How a Personal Exchange Fund works O O Investors (who may be related) contribute stock in the same company to a limited liability company (LLC) LLC enters into a PrISM' transaction, receiving upfront cash proceeds that can be actively managed in accordance with LLC's investment objectives LLC uses cash proceeds received in PrISM transaction to acquire a diversified portfolio of investments Income, expenses, gains, and losses generated by the LLC are allocated to investors in proportion to their ownership interest At or prior to maturity, the LLC may chose to: 1) Take no action, allowing the PrISM to mature within LLC 2) Roll the PrISM within the LLC 3) Sell the diversified portfolio and reinvest or distribute proceeds to investors 4) Make a liquidating distribution of LLC assets and/or liabilities to one or more investors in accordance with their share of the LLC's net value Investor #1 95% XYZ XYZ shares shares LLC Cash Diversified Portfolio Investor #2 2.5% PrISM contract Upfront cash Shares pledged as collateral Investor #3 2.5% XYZ shares Bank Counterparty % ownership for illustrative purposes only 1. A Principal Installment Stock Monetization ("PrISM") is a prepaid variable forward strategy. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 23 EFTA00506048 Strategies to consider at or prior to the maturity of the PrISM 1) Have LLC deliver the required number of shares on maturity of the PrISM and continue investing through the LLC The LLC may elect this option if: — the stock has declined in value since inception, — the prospects for the issuer of the stock are not favorable, and — the tax consequences of the delivery of the shares are acceptable in light of the costs of the other alternatives • At maturity, the LLC may choose to deliver shares of stock. Physical delivery of the shares would result in a taxable long-term capital gain on the difference between the amount received upfront and the tax basis of the shares delivered (assuming the shares had been held for more than one year prior to entering into the PrISM). The cost basis of the shares would either be their original basis or, to the extent that one of the investors has died in the interim, the stepped-up tax basis resulting from that event (assuming the LLC has made an election pursuant to IRC §754) • Unless the LLC's investors agree otherwise, this would be the "default" option 2) Roll the PrISM within the LLC • The LLC might elect this option if the stock subject to the PrISM has experienced a decline in value since inception which they believe is unwarranted or overdone. In this case, the LLC would modify the terms of the PrISM contract to extend the delivery date (paying consideration to the counterparty in the process). The LLC's investors may not recognize gain or loss at the time the PrISM contract is modified as the transaction would remain open until the extended delivery date' 1. Estate of McKelvey v. Commissioner, (2017) 148 TC No. 13. IRC: Internal Revenue Code The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. Cert:±5 24 EFTA00506049 Strategies to consider at or prior to the maturity of the PrISM (cont.) 3) Redeem out one or more investors with a non-pro rata portion of the LLC's assets and/or liabilities • The LLC might elect this option for one or more of the investors in exchange for all or a portion of the stock subject to the PrISM or of the diversified portfolio that differs from that of the other investors • For example, the LLC may choose to redeem the interest of one of the investors in exchange for all or a portion of the diversified equity portfolio, with the shares subject to the PrISM remaining in the LLC. Assuming that: — The redemption takes place more than seven years' after the formation of the LLC, — The redeemed investor is the original investor (and not his/her estate), and — The LLC makes a §754 election, the redemption would result in a stepping down in the cost basis of the diversified portfolio to the cost basis that the redeemed investor had in the shares subject to the PrISM (plus any gain recognized in the intervening period). This basis step- down would result in a corresponding step-up in the cost basis of the assets remaining in the LLC (consisting primarily of the shares subject to the PrISM). The step-up in basis may reduce the gain the LLC would otherwise recognize when it delivers shares upon maturity of the PrISM, assuming the LLC chooses to satisfy the PrISM by delivering shares (as opposed to settling the PrISM with cash). The redeemed investor would be left with a diversified equity portfolio with a basis that should equal that of the original (low) basis of the stock that the redeemed investor contributed to the LLC (plus that investor's pro-rata portion of any gain recognized in the interim) 4) Redeem the interest of one or more investors in exchange for shares subject to the PrISM and an assumption by those investor(s) of the PrISM liability • The assumption by the redeemed investor(s) of the PrISM liability should cause a step-up in the cost basis of the distributed shares subject to the PrISM. The step-up in the distributed shares should reduce the gain that would otherwise be recognized on closing out the PrISM (assuming the PrISM is closed out by delivering some or all of the shares subject to the PrISM rather than via delivery of cash). The law now mandates a basis step-down in the diversified portfolio left behind in the partnership 1. Timeframe driven by current partnership tax law. There have been legislative proposals in the past that would have extended this time period to ten years and future legislative changes could alter this timeframe. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. Ce.e . :ffb 25 EFTA00506050 Illustrating the benefit of a Personal Exchange Fund: Assumptions Concentrated Stock Assum ptions Underlying stock XYZ Number of shares 1,000,000 Current XYZ share price $50.00 cod basisper share $0.00 PrISM Contract Assum ptions Tax Assumptions PrISM Proceeds(% of total position value) 70.00% State of residence for tax purposes U.S. Federal Only RISM Proceeds(S value) $35,000,000 State income tax rate 0.00% Hedged value $39.05 Effective ordinary income tax rate 40.80% Upside limit $58.57 Effective long-term capital gainstax rate 23.80% Length of contract 7 years Tax rates 51'0:WM reflect those used in the rrejority of theyears in the analysis. Concentrated Stock Return Assumptions Diversified Portfolio Return Assum ptions Total return 8.60% Total return 5.21% Yield 2.40% Yield 2.43% Expected appreciation 6.20% Expected appreciation 2.79% Volatility 25.40% Volatility 8.88% Geometric appreciation* 3.35% Geometric appreciation* 2.42% Assumes no underlying turnover in the stock until PrISM contract is settled and shaes are sold. Annual turnover rate 41.34% •The expected appreciation represents the average of all returns, whereas the geometric appreciation represents an estimate of how volatility impacts the expected appreciation; the greater the volatility, the lower the geometric appreciation is relative to the expected appreciation. Note: The information contained herein is based on certain assumptions and is provided for informational purposes only. Assumptions as of 01/01/2018. Return assumptions shown are pre-tax. References to expected returns are not predictions of future performance. Actual results may be expected to vary from assumptions, which are made for discussion purposes only. The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. 26 EFTA00506051 Comparing a PrISM and a Personal Exchange Fund to an outright sale of shares Steps Scenario 1: Outright Sale Sell Low-Basis Stock Value of shares Capital gains tax' Total assets reinvested Future Value of Portfolio Value in Year 7 Total' $ 50.000.000 (11.900.000) 38.100.000 $ 50,366,949 50,366,949 Steps Scenario 2: Use a PrISM Scenario 3: Use a PEF XYZ Stock Portfolio XYZ Stock Portfolio Take Out PrISM Contract Value of shares S 50.000.000 S - $ 50.000.000 $ - Net RSA proceeds 35 000.000 35000 000 Total assets invested 50,000,000 35.000,000 50.000.000 35,000.000 Settle PrISM Contract Value in Year 7 $ 62,955,251 $ 52,466,647 $ 62,955,251 $ 52,466,647 XYZ share price in Year 7 $62.96 $62.96 Number of shares to deliver 689,938 689,938 Value of shares delivered $ (43,435,251) $ - $ (43,435,251) $ - Capital gains tax due 2 (8,330,000) - Sell Residual Shares Value after settling PrISM $ 19,520,000 $ 44.136.647 $ 19,520.000 $ 52,466,647 Sell residual shares (19,520,000) 19.520.000 (19,520,000) 19,520,000 Capital gains tax on sale (4 645 760) (4 645 760) Total' • 59,010,887 67,340,887 Benefit vs. Scenario 1 $8,643,938 516,973.938 Annualized "tax alpha" 2.90% 5.35% 1. Tax calculated earning a current effective long-term capital gain tax rate of 23.80%. 2. In Scenario 3. no capital gainstax isdue upon settlement of the FtISM contract because one of the partnersammesthe PrISM liability in a liquidating didribution and receivesa step-up in cod bees 3. The ending cod basisof the portfolio isabout 97% of market value in Scenario 1.97% of market value in Scenario 2. and 33% of market value in Scenario 3. Note: These materials should not be construed as providing legal, tax or accounting advice. In Scenario 3, it is assumed that the investor forms an investment partnership with two smaller partners who contribute the same stock position with a proportionally equivalent cost basis. For comparison purposes, only the investors share of partnership assets are shown. At the time the PrISM contract is to be settled, one of the smaller partners takes a liquidating distribution from the partnership and assumes the PrISM liability. Doing so, the partner receives a step-up in the cost basis of the shares delivered to settle the PrISM, thereby closing the transaction with little or no capital gains tax incurred. The residual shares and the diversified portfolio remaining the in partnership receive an equivalent step-down in their cost basis. "Tax alpha" means the amount by which the annual return of Scenario 1 would have to exceed the annual returns of Scenarios 2 and 3 on a pre-tax basis in order for the portfolio to be worth the same amount at the end of the analysis period. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates ancVor subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 27 EFTA00506052 FLPs may enable you to minimize transfer taxes while maintaining some degree of control over assets What is a Family Limited Partnership (FLP)? • An FLP is a limited partnership that holds the investment property contributed by its members • An FLP has two types of partner: — the General Partner(s) (GP), who is responsible for managing the FLP and its assets — the Limited Partners (LPs), who have an economic interest in the FLP, but have no ability to control, direct, or otherwise influence its operations. LPs also generally lack the ability to liquidate their partnership units without the consent of the GP How can an FLP reduce transfer taxes? • The family's senior generation creates the FLP and contributes assets, receiving in exchange all the GP and LP units • The senior generation subsequently gifts LP units to the junior generation, while retaining the GP units — This allows the senior generation, through the GP units, to continue to exercise control over the FLP's assets — Due to the limited partners' lack of control and lack of independent liquidation rights, the appraised value of the gifted LP units for transfer tax purposes generally should be less than if the FLP's assets were transferred to the junior generation outright The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. rCer:±5 28 EFTA00506053 An FLLC provides the same benefits as an FLP with the added benefit of limited liability for all participants' A Family Limited Liability Company (FLLC) functions similarly to an FLP: membership interests are divided between those of managing members and non-managing members As the managing members of an FLLC, the senior generation may buy, sell, or otherwise operate FLLC assets without consent of the non-managing members As with an FLP, this structure allows gifts of membership interest to the junior generation to be valued at a discount to fair market value for transfer tax purposes An added benefit of the FLLC is that it provides limited liability to all members, insulating them from liability for the FLLC's activities C Allows you to maintain some control over the assets Creates economies of scale in consolidating/diversifying family wealth May minimize transfer taxes because value of gifted partnership units may be discounted Can accommodate different investment objectives among multiple beneficiaries Provides limited liability for all participants 1. In some states, a limited partnership may be preferable in order to avoid a gross receipts tax. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. Creffb 29 EFTA00506054 A Charitable Remainder Trust ("CRT") can provide a means of tax-efficient diversification A successful CRT will also benefit the charities selected to receive the trust remainder interest 0 0 0 0 0 Grantor transfers asset (usually low-yielding, highly- appreciated in the grantor's hands) to an irrevocable trust and may benefit from current income tax charitable deduction based on the asset's fair market value Trustee sells assets without incurring capital gains tax and reinvests proceeds in a diversified portfolio Grantor and/or spouse receive an income stream from the trust for the life of the survivor of them Grantor pays income and/or capital gains tax on CRT distributions as they are received, according to the character of the amounts distributed When trust term ends, remaining assets pass to qualified charity (or charities) of grantor's choice' 0 0 Grantor transfers asset(s) Grantor pays income and capital gains tax on CRT payments as they are received Annual payment stream to grantor and/or spouse, typically 0 0 Trust ends 0 Trust sells assets without incurring capital gains tax Qualified Charit(ies) Remaining assets pass to charity 1. A family foundation or a donor-advised fund can be named as a beneficiary, giving the grantor's family greater influence over the assets that will pass to charity. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 30 EFTA00506055 A valid CRT must conform to various U.S. tax laws and regulations Trust term A "term" CRT ends, and distributes its remaining assets to charity, at the end of a fixed term (of up to 20 years) determined by the grantor • A "lifetime" CRT ends, and distributes its remaining assets to charity, at the death of the grantor — A CRT can also be created to last for the life of the survivor of a married couple Annual payments • Charitable Remainder Unitrusts (CRUTs) distribute a fixed percentage of the trust's total assets to the income beneficiaries at least annually — Generally, a CRUT must distribute at least 5%, but no more than 50%, of its assets annually (must pass 10% test; see below) • Charitable Remainder Annuity Trusts (CRATs) pay the income beneficiaries a fixed dollar amount, at least annually — The annuity paid by a CRAT must be no less than 5%, and no more than 50%, of the initial fair market value of all propertytransferred to the trust (must pass 10% test; see below) Trust remainder • The present value of the CRT remainder interest, as valued at the time of funding, may not be less than 10% of the fair market value of the funded property. This "10% test" effectively caps the annuity amount/unitrust interest income beneficiaries can receive • Young grantors with long life expectancies may be unable to create a lifetime CRT for either of the following two reasons: — It may not be possible for the present value of the CRT remainder interest to pass the 10% test — A lifetime CRAT's (a) fixed annuity payment requirement and (b) indeterminate term create a risk of trust depletion; the IRS has ruled that the actuarial probability of the grantor's surviving past the point of trust depletion can be no greater than 5% for a valid CRAT to be created • The IRS has provided a sample provision for CRATs that may be used as an alternative to the above tests. If an annuity payment would result in the trust corpus' being less than 10% of its initial value, this provision would cause the early termination of the CRAT on the date immediately before such annuity payment would be mad& 1. Rev. Rul. 77-374 2. Rev. Proc. 2016-42 Note: These materials should not be construed as providing legal, tax or accounting advice. Source: Internal Revenue Code Sec. 664 The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. Creffb 31 EFTA00506056 Illustrating the benefit of a CRT: Assumptions CRT Assumptions Charitable remainder beneficiary Type of property contributed to trust Value of assetscontributed Cod basisof assetscontributed Payment type Trull term U.S. Treasury discount rate Unitrust amount Charitable deduction for remainder interest Public Charity Appreciated Stock $50,000,000 $0 Unitrust 20 years 2.60% 11.158% $5,001,000 Portfolio Return Assumptions -Grantor Total return Yield Expected appreciation Volatility Geometric appreciation* Annual turnover rate 6.11% 2.33% 3.79% 11.81% 3.13% 38.35% Tax Assumptions Grantor'sstate of residence for tax purposes State income tax rate Effective ordinary income tax rate Effective long-term capital gainstax rate Effective estate tax rate Tax rates quoted are those used in a majority of the years in the analysis. U.S. Federal Only 0.00% 43.40% 23.80% 40.00% Portfolio Return Assumptions -CRT Total return Yield Expected appreciation Volatility Geometric appreciation* Annual turnover rate 6.15% 2.47% 3.68% 11.81% 3.03% 36.24% Note: The information contained herein is based on certain assumptions and is provided for informational purposes only. Assumptions as of 01/01/2018. •The expected appreciation represents the average of all returns, whereas the geometric appreciation represents an estimate of how volatility impacts the expected appreciation; the greater the volatility, the lower the geometric appreciation is relative to the expected appreciation. Returns shown are pre-tax. References to expected returns are not predictions of future performance. Actual results may be expected to vary from assumptions, which are made for discussion purposes only. The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. 32 EFTA00506057 Selling assets in a CRT can preserve more wealth for family and charity than selling them outright Cash flow example: $50,000,000 asset with $0 cost basis; pre-tax unitrust amount = 11.16% Scenario 1: Hold Assets Scenario 2: Use a CRUT Grantor Grantor CRUT Net proceedsof sale' $ 38,100,000 Net proceedsof sale - $ 50,000,000 Benefit of income tax deduction Benefit of income tax deduction* 1,850,370 Value at end of Year 20 89,535,896 Value at end of Year 20 89,963,890 15,588,765 Estate tax (35,814,358) Estate tax (35,985,556) Net wealth to family 53,721,538 Net wealth to family 53,978,334 Wealth to charity Wealth to charity 15,588,765 1. Assumes an effective long-term capital gains tax rate of 23.80%. Total wealth to beneficiaries $69,567,099 Value added by CRUT $15,845,561 Annualized "tax alpha" 1.69% *Assumes a minimum adjusted gross income (AGO for the grantor that would allow the full deduction to be claimed currently. Economic benefit assumes deduction is taken against income taxed at the top ordinary rate Note: The information contained herein is based on certain assumptions and is provided for informational purposes only. -Tax alpha" means the amount by which the average annualized return of the seed capital in the Hold Assets scenario must exceed the average annualized return of the CRT scenario on a pre- tax basis in order for the Hold Assets scenario to pass the same net wealth to beneficiaries. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 33 EFTA00506058 It is possible to combine multiple strategies into one comprehensive plan r I Designate different pools of shares to contribute to overall objectives Sample Objectives: I — Lock-in value of stock position — Retain share price upside I — Generate positive cash flow — Maintain dividend income, if any I — Divest at a convenient level Example Plan: — Three or more tranches with a mix of protection, monetization and income strategies 1 Scenario 1: Does not result in divestiture 34% 33% 33% Year 1 Year 2 Year 3 lyr Collar ■ 2yr Collar 2yr Collar lyr Collar Generate Income Generate Income Generate Income Scenario Z: Results in divestiture Year 1 Year 2 Year 3 34% I Divested I Divested lyr PrISM 33% Divested 2yr PrISM Generate Generate Generate 33% Income Income Income Note: This material is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal, tax or accounting advisor concerning such matters. The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 34 EFTA00506059 Appendix • Block Sales • Decumulator • Private Placement vs. Personal Exchange Funds • "Rolling" Variable Prepaid Forward Contracts • Estate Protection Option (EPO) e,, EFTA00506060 Immediate Sale I Block sales may be an attractive option for investors holding large positions • Investors who hold large positions many times the average daily trading volume of a stock may require several weeks to exit a position completely, during which time they are exposed to market volatility • A block sale allows an investor to unload shares in a single transaction • In a block sale, an investor contracts with an investment bank to sell the stock. The investor sells the shares to the investment bank, which assumes risk on its own balance sheet as it sells the shares in the open markets • In exchange for assuming this risk, the investment bank purchases the shares from the investor at a discount to current market levels • Investors considering a block sale should weigh pricing against their desire to exit the position while minimizing risk Investor sells shares to investment bank... ...and bank pays investor a discounted price Investment Bank Bank assumes market risk Bank sells shares in the markets The views and strategies described herein may not be suitable for all investors. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. 36 EFTA00506061 Staged Selling I A Decumulator strategy hedges against price swings as shares are sold In a Decumulator selling strategy, an investor contracts with a bank counterparty to sell a predetermined number of shares at an established forward price each day during the length of the contract. The contract also establishes a "knock-out" barrier. If the stock closes at or below the knock-out barrier at any point during the length of the contract, the trade terminates. A Decumulator strategy may be appropriate for investors who expect moderate price volatility as they sell out of the position. Payout Profile (Illustrative Only) I Underlying St Time O Forward Sale Price Initial Spot Price Knock-out Barrier } } Underperformance vs. long stock 1. Strategy underperforms when the stock price rises above the forward price 2. Strategy outperforms when the stock price trades between the forward price and the knock-out barrier 3. Strategy terminates when the stock price trades below the knock-out barrier Note: This information is intended to be a high level overview of potential hedging strategies that can be executed through OTC options to achieve specific goals. These strategies may not be suitable for all investors. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option-related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. 37 EFTA00506062 One or more single stocks Comparing Private Placement Exchange Funds and Personal Exchange Funds Personal Exchange Fund Funding Investments held Minimum term Distribution Minimums Other requirements Use of derivatives Single stocks contributed by multiple parties and generally managed to a benchmark through the use of derivatives Fund is required to purchase and hold 20% or more of its value in certain private assets 7 years A diversified basket of individual shares selected by the portfolio manager with the tax cost basis of the contributed shares Generally $1 million Investors must be accredited investors and qualified purchasers Used to maintain correlation to the fund's benchmark index Single stock Partnership takes out variable prepaid forward contract on the single stock contributed Forward prepayment used to build diversified portfolio with initial cost basis equal to market value 7 years A diversified portfolio with the tax cost basis of the contributed shares No required minimum; however, such a strategy will likely not make sense for less than $10 million Three or more parties (who may be related) must capitalize a partnership or other local law entity classified as a partnership for U.S. income tax purposes. Units can also be used for estate planning A variable prepaid forward contract involves the purchase of a put option and sale of a call option The views and strategies described herein and the applicable tax rules are complex and may not be suitable for all investors. This information is provided for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument, and is being provided merely to illustrate a particular investment strategy. J.P. Morgan Chase & Co. and its affiliates and/or subsidiaries do not practice law, and do not give tax, accounting or legal advice. You should consult your own tax, legal, and accounting advisors before engaging in any financial transactions. 38 EFTA00506063 "Rolling" a variable prepaid forward contract: The McKelvey case A recent Tax Court case may provide investors with a significant opportunity • Regulations published under Internal Revenue Code §1001 generally provide that the material modification, in economic terms, of a derivative contract will be treated as a sale or exchange and any gain or loss on the contract is realized as if the contract had been sold • A recent Tax Court case, Estate of McKelvey v. Commissioner,' stands for the proposition that a taxpayer may "roll" a variable prepaid forward contract (such as a PrISM2) by extending the length of the contract — Taxpayer had outstanding variable prepaid forward contracts with two investments banks as the respective counterparties — Counterparties agreed to extend the length of the contracts in exchange for cash consideration from the taxpayer — Taxpayer took the position that there had been no realized tax event upon modification of the contract and that the transaction remained open — IRS took the position that the modified contracts should be viewed as separate financial instruments and that constructive sales had occurred • The Tax Court ruled in favor of the taxpayer and held that the open transaction treatment afforded to the variable prepaid forward contracts in Rev. Rul. 2003-7 continued until the transactions were closed by the future delivery of cash or shares under the terms of the modified contracts • The McKelvey case is not a panacea: — The IRS has not acquiesced to the Tax Court's decision and may appeal or litigate in another forum — The IRS believes that the decision is at odds with black-letter law in both the Internal Revenue Code and the controlling regulations — The facts of the case involved a single modification of the contracts; there is no indication how the courts might view a taxpayer's attempts to roll a contract indefinitely 1. Estate of McKelvey v. Commissioner, (2017) 148 TC No. 13. 2. A Principal Installment Stock Monetization (-PrISM") is a type of variable prepaid forward contract. 39 EFTA00506064 An EPO may help executors maximize the after-tax value of stock held by an estate When an estate holds a significant concentrated equity position, the executors may face competing objectives: — Minimize valuation of assets for estate tax purposes Raise cash to meet estate tax obligations by selling the stock Manage investment risk so as to maximize value for heirs An estate protection option (EPO) is a protective put that may allow the executors to manage risk on the downside and generate an estate tax deduction — The option premium may be claimed as a deduction against the gross estate or alternatively would reduce capital gains taxes owed upon exercise of the option An EPO generally has a six-month maturity in order to take advantage of a planning opportunity under the Internal Revenue Code: — Estates generally establish the value of assets for estate tax purposes as of the date of death. However, in certain circumstances, the executors may elect to value the assets six months after the date of death' Stock appreciates Elect date-of-death value for estate tax purposes EPO expires worthless, but may be offset by gain on stock Death + 6 months Stock depreciates Death Elect value of stock six months after date of death Exercise EPO to sell stock at higher strike price 1. This election would apply to all assets of the estate. Accordingly, this strategy may be of particular interest when a concentrated position represents the majority of an estate's assets. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option-related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. For illustrative purposes only. This document is not intended as an offer or solicitation for the purchase or sale of any financial instrument. 40 EFTA00506065 Comparison of EPO to immediate sale of stock by estate Scenario: 100% of option premium claimed as estate tax deduction —Immediate Sale Estate Protection Option ♦ &eakeven Fbints Proceeds of Sale of One Share $70 $60 $50 $40 $30 $20 $10 $0 -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% Change in Stock Price Over 6 Months Following Date of Death 50% Assumptions: Gwent stock price = S64.00; put strike price = S60.17; put premium = S3.00. Effective estate tax rate = 40.00%; effective long-term capital gains tax rate = 23.80%. Assumes 100% of put premium is deducted against estate taxes and 0% of put premium reduces sales proceeds on exercise. &eakeven occurs if stock returns -45.51% or 3.69% in the six months following the date of death. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument. In discussion of options and option strategies, results and risks are based solely on the hypothetical examples cited; actual results and risks will vary depending on specific circumstances. Investors are urged to consider carefully whether option or option-related products in general, are suitable to their needs. For a complete discussion of risks associated with any investment, please review offering documents and speak with your investment specialists. For illustrative purposes only. This document is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Creaffb 41 EFTA00506066 Important information: Understanding long-term estimates Risk and return measures are developed by J.P. Morgan and a multi•factor model. Estimates of unmanaged return and volatility for portfolios are based on our projected long-term estimates and are described in greater detail below. Our investment management research incorporates our proprietary projections of the long-term returns and volatility of each asset class over the long term, as well as mathematically derived correlations among the asset classes. Clearly, neither we nor any other financial firm can predict how markets will perform in the future. But we do believe that by analyzing current economic and market conditions and historical market trends, and then, most critically, making projections of future economic growth, inflation, and real yields for each country, we can estimate the long-term performance for an entire asset class, given current and our estimated equilibrium levels. The equilibrium level shows the average or central tendency over a very long period of time around which market returns will tend to fluctuate, because it represents the value inherent in that market. It is possible indeed, probable that actual returns will vary considerably from this, even for a number of years. But we believe that market returns will always at some point return to the equilibrium trend. We further believe that these kinds of forward•looking assessments are far more accurate than historical trends in deciding what asset class performance will be, and how best to determine an optimal asset mix. In reviewing this material, please understand that all references to return are not promises, or even estimates, of actual returns one may achieve. They simply show what the long- term return should be, according to our best estimates. Also note that actual performance may be affected by the expertise of the person who actually manages these investments, both in picking individual securities and possibly adjusting the mix periodically to take advantage of asset class undervaluations and overvaluations caused by market trends. For the purpose of this analysis volatility is defined as a statistical measure of the dispersion of return for a given allocation and is measured as the standard deviation of the allocation's arithmetic return. Correlation is a statistical measure of the degree to which the movements of two variables, in this case asset class returns, are related. Correlation can range from -1 to 1 with 1 indicating that the returns of two assets move directionally in concert with one another, i.e. they behave in the same way during the same time. A correlation of 0 indicates that the returns move independently of each other and •1 indicates that they move in the opposite direction. Notwithstanding anything herein to the contrary, each recipient of this presentation, and each employee, representative or other agent of such recipient may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to such recipient relating to such tax treatment and tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to such recipient by JPMorgan Chase & Co. and its subsidiaries. Information herein is believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The analysis herein is based on our estimates and is for illustrative purposes only. Furthermore, the material is incomplete without reference to, and should be viewed in conjunction with, the verbal briefing provided by J.P. Morgan. 42 EFTA00506067 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 _LP. 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 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 100 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. 43 EFTA00506068 Important information PURPOSE OF THIC MATFRIAl This material is for intonation purposes only. The information provided may inform you of certain investment products and services offered by J.P. Morgan's private banking business, part of 1PMorgan Chase & Co. 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