jpm q3 guide to markets

7/28/2019 JPM Q3 Guide to Markets

1/70

As of June 30, 2013

i h M rk


2/70

Table of Contents

EQUITIES

ECONOMY

4

17

INTERNATIONAL

ASSET CLASS

39

57

U.S. Market Strategy Team

Dr. David P. Kelly, CFA [email protected]

Joseph S. Tanious, CFA [email protected]

-. . . .

Anastasia V. Amoroso, CFA [email protected]

Brandon D. Odenath [email protected]

Gabriela D. Santos [email protected]

Anthony M. Wile [email protected]

2Past performance is not indicative of future returns.


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Page Reference

4. Returns by Style

5. Returns by Sector

6. S&P 500 Index at Inflection Points

35. Credit Conditions

36. High Yield Bonds

37. Municipal Finance

38. Emerging Market Debt

Equities

7. Stock Valuation Measures: S&P 500 Index

8. Earnings Estimates and Multiples

9. Valuations by Sector and Style

10. Corporate Profits and Leverage

11. Sources of Earnings per Share Growth

12. Confidence and the Capital Markets

13. Interest Rates and E uities

39. Global Equity Markets: Returns

40. Global Equity Markets: Composition

41. Global Economic Growth

42. Manufacturing Momentum

43. The Importance of Exports

44. The Im act of Global Consumers

14. Deploying Corporate Cash

15. P/E Ratios and Equity Returns

16. Equity Correlations and Volatility

17. Economic Growth and the Composition of GDP

45. Sovereign Debt Stresses

46. Global Manufacturing Wages

47. Global Monetary Policy

48. Europe: Economic Growth

49. Europe: Austerity50. Eurozone: Sovereign Bond Yields

Economy

.

19. The Aftermath of the Housing Bubble

20. Consumer Finances

21. Federal Finances: Outlays and Revenues

22. Federal Finances: Deficits and Debt

23. Trade and the U.S. Dollar

24. Employment

.

52. China: Cyclical Indicators

53. J apan: Economic Snapshot

54. Global Equity Valuations Developed Markets

55. Global Equity Valuations Emerging Markets

56. Emerging Market Equity Composition

Asset Class.26. Consumer Price Index

27. Oil and the Economy

28. Global Energy Supply

29. Consumer Confidence and the Stock Market

57. Asset Class Returns

58. Correlations: 10-Years

59. Mutual Fund Flows

60. Yield Alternatives: Domestic and Global

61. Global Commodities

62. Historical Returns by Holding PeriodFixed Income

3

30. Fixed Income Sector Returns

31. Interest Rates and Inflation

32. Fixed Income Yields and Returns

33. Correlation to 10-Year Treasury Returns

34. The Fed and the Money Supply

63. Diversification and the Average Investor

64. Annual Returns and Intra-year Declines65. Cash Accounts

66. Corporate DB Plans and Endowments

67. Stock Market Since 1900


4/70

Returns by Style

1,700

S&P 500 Index2Q 2013 YTD 2013

Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.

Value Blend Growth Value Blend Growth

1,500

1,600

Equ

ities

2Q 2013:+2.9% L

arge

3.2% 2.9% 2.1%Large

15.9% 13.8% 11.8%

Mid 1.7% 2.2% 2.9% M

id 16.1% 15.5% 14.7%

Dec-12 Feb-13 Mar-13 Apr-13 May-13 J un-131,400

S&P 500 Index

.

Since Market Low (March 2009)Since Market Peak (October 2007)

Small

2.5% 3.1% 3.7%Small

14.4% 15.9% 17.4%

Value Blend Growth Value Blend Growth

1,200

1,400

1,600

, Since 10/9/07 Peak:+16.5%

Large

9.6% 16.5% 26.0%Large

173.2% 160.3% 157.0%

M

id

27.7% 28.7% 28.0% Mid

226.1% 210.5% 196.0%

Dec-06 Apr-08 Aug-09 Nov-10 Mar-12 J un-13600

800

,

Source: Russell Investment Group, Standard & Poors, FactSet, J .P. Morgan Asset Management.

Low: +160.3%

Small

20.8% 25.4% 29.3%Small

198.8% 202.3% 205.2%

4

, . ,market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 6/30/13, illustrating market returns since the S&P500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with the exception of thelarge blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns.

Data are as of 6/30/13.


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6/70

S&P 500 Index at Inflection Points

Index level 1,527 1,565 1,606P/E ratio (fwd.) 25.6x 15.2x 13.9x

S&P 500 Index

Mar. 24, 2000

Jun. 30, 2013P/E (fwd.) = 13.9x

Oct. 9, 2007

Characteristic Mar-2000 Oct-2007 Jun-2013

1,400

, . . .10-yr. Treasury 6.2% 4.7% 2.5%

Equ

ities P/E (fwd.) = 25.6x

1,527

,P/E (fwd.) = 15.2x

1,565

1,200

-49%

+101%

-57% +137%

+106%

800

1,000

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

600

Source: Standard & Poors, First Call, Compustat, FactSet, J .P. Morgan Asset Management.

ct. ,P/E (fwd.) = 14.1x

777

. ,P/E (fwd.) = 16.0x

741

Mar. 9, 2009P/E (fwd.) = 10.3x

677

6

v en ye s ca cua e as e annua ze v en ra e v e y prce, as prov e y ompus a . orwar rce o arnngs a o s a o om-up ca cua on ase

on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates.Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of futurereturns.



7/70

Stock Valuation Measures: S&P 500 Index

S&P 500 Index: Valuation Measures Historical Averages

Valuation

Measure DescriptionLatest*

1-year

ago

3-year

avg.

5-year

avg.

10-year

avg.

15-year

avg.

Equ

ities P/E Price to Earnings 13.9x 12.0x 12.6x 12.9x 14.1x 16.4x

P/B Price to Book 2.4 2.1 2.2 2.1 2.5 2.9

P/CF Price to Cash Flow 9.4 8.3 8.6 8.4 9.6 10.9

P/S Price to Sales 1.4 1.2 1.2 1.1 1.3 1.5

PEG Price/Earnings to Growth 1.4 1.1 1.1 2.0 1.7 1.6

12%

14%50x

S&P 500 Shiller Cyclically Adjusted P/EAdjusted using trailing 10-yr. avg. inflation adjusted earnings

S&P 500 Earnings Yield vs. Baa Bond Yield

S&P 500 Earnings Yield:

Div. Yield Dividend Yield 2.2% 2.4% 2.2% 2.3% 2.1% 1.9%

6%

8%

10%

20x

30x

40x

. .

2Q13:23.6x

Average: 19.0x

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '122%

4%

'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100x

10x

Moodys Baa Yield: 5.4%

Source: (Top) Standard & Poors, FactSet, Robert ShillerData, J .P. Morgan Asset Management.Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data

-

7

.

months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided byNTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates areprovided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 6/30/2013.(Bottom right) Standard & Poors, IBES, Moodys, FactSet, J .P. Morgan Asset Management.Data are as of 6/30/13.


8/70

Earnings Estimates and Multiples

24x

26x

S&P 500 Index: Forward P/E Ratio S&P 500 Index LevelsIndex levels implied by operating earnings and P/E ratio combinations

$80 $90 $100 $110 $120 $130

14x

16x

18x

20x

Average: 14.9x

Jun. 2013: 13.9xEqu

ities

11x 880 990 1100 1210 1320 1430

12x 960 1080 1200 1320 1440 1560

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '128x

10x

12x

S&P 500 Operating Earnings Estimates

13x 1040 1170 1300 1430 1560 1690

14x 1120 1260 1400 1540 1680 1820

$80

$100

$120

$1402Q13: $116.12

x

16x 1280 1440 1600 1760 1920 2080

17x 1360 1530 1700 1870 2040 2210

0

$20

$40

$60

18x 1440 1620 1800 1980 2160 2340

19x 1520 1710 1900 2090 2280 2470

8

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Source: Standard & Poors, IBES, FactSet, J .P. Morgan Asset Management. Earnings estimates are for calendar years and taken at quarterend dates throughout the year. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12months.



9/70

Valuations by Sector and Style

1.3x

Defensive vs. Cyclical Sector ValuationsNext 12-month P/E ratio for defensives / next 12-month P/E ratio for cyclicals

Current P/E vs. 20-year avg. P/E

13.4 13.9 16.6

Value Blend Growth

e

1.1x

1.2x

Equ

ities

Defensive Sectorspremium valuation

13.9 16.2 20.9

14.7 16.3 18.6

14.0 16.3 21.8

Lar

Mid

0.9x

1.0x

Average: 1.0x Current P/E as % of 20-year avg. P/EE. .: Lar e Ca Blend stocks are 13.8%

15.3 17.0 19.1

14.2 17.1 21.3Small

0.7x

0.8xValue Blend Growth

Large

96.4% 86.2% 79.4%

cheaper than their histor ical average.

0.5x

0.6x

Mid 104.7% 100.0% 85.5%

Small

107.2% 99.5% 89.6%

premium valuation

9

'96 '98 '00 '02 '04 '06 '08 '10 '12

Source: Standard & Poors, Russell Investment Group, IBES, FactSet, J .P. Morgan Asset Management.

Defensive vs. Cyclical sector analysis based on GICS sectors and excludes Financials. Defensives sectors are comprised of Health Care, Consumer Staples,Utilities and Telecommunications Services. Cyclical sectors are comprised of Information Technology, Industrials, Energy, Consumer Discretionary and Materials.P/E ratios are calculated and provided by Russell based on IBES consensus estimates of earnings over the next 12 months except for large blend, which is the S&P500.



10/70

Corporate Profits and Leverage

$26

S&P 500 Earnings Per ShareOperating basis, quarterly

Adjusted After-Tax Corporate Profits (% of GDP)Includes inventory and capital consumption adjustments11%

1Q13:9.7%

1Q13: $25.77

2Q07: $24.06

$20

$23

Equ

ities

6%

7%

8%

9%

10%

50-yr. avg.: 6.2%

$14

$17

'65 '70 '75 '80 '85 '90 '95 '00 '05 '10

3%

4%

5%

Total Leverage

$5

$8

$11

200%

220%

240%

S&P 500, ratio of total debt to total equity, quarterly

-$1

$2

'''''''

120%

140%

160%

1Q13:107%

Average: 172%

10

Source: Standard & Poors, Compustat, BEA, J .P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 4Q12 as 1Q13 are Standard & Poors estimates with 99.7% ofcompanies reported.Past performance is not indicative of future returns.


'94 '96 '98 '00 '02 '04 '06 '08 '10 '12


11/70

Sources of Earnings per Share Growth

50%

S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue growth and margin expansion, quarterly

30%

40%

Equ

ities

Revenue Share of EPS Growth

10%

20%

-20%

-10%

-40%

-30%

1Q131Q111Q091Q071Q051Q031Q011Q991Q971Q95

11

Source: Standard & Poors, Compustat, J .P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 4Q12 as 1Q13 are Standard & Poors estimates with 99.7%of companies reported. Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth inoperating earnings, and are adjusted on the chart.



12/70

Confidence and the Capital Markets

120

24x

26x

Multiple Expansion and Contraction

Consumer SentimentForward P/E

S&P 500 forward P/E based on consensus EPS estimatesEst. impact of a 10pt. rise in sentiment: +2.0 multiple points*

80

90

100

16x

18x20x

22x

Equ

ities

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

50

60

10x

12x

14x

Sentiment & Real Yields*

Correlation Coefficient: 0.75

100

110

120

4%

5%

6% Consumer SentimentReal 10-year Yield

Real yield based on nominal 10-yr. yield minus year-over-year core CPI. .

60

70

80

0%

1%

2%

Correlation Coefficient: 0.68

12

'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '1250-1%

Source: (Top) Standard & Poors, FactSet, J .P. Morgan Asset Management. (Bottom) U.S. Treasury, BLS, University of Michigan, J .P. MorganAsset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month. *Estimated impact based oncoefficients from regression analysis. Data are as of 6/30/13.


13/70

13

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

0% 2% 4% 6% 8% 10% 12% 14% 16%

Sector Correlations to Rates2-year rolling, 1994-2013

Correlations Between Weekly Stock Returns and Interest Rate MovementsWeekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, 1963-2013

Source: Standard & Poors, US Treasury, FactSet, J.P. Morgan Asset Management.

Returns are based on price index only and do not include dividends. Grey bars in the right chart represent the historic range

in correlations for each sector.Data are as of 6/30/13.

Equities

Positive

relationship

between yield

movements

and stock

returns

Negative

relationship

between yieldmovements and

stock returns

When yields are

below 5%, rising

rates are

generally

associated with

rising stock

prices

10-Year Treasury Yield

Correlation

Coefficient

Max

Average

Current

Min

-1.00 -0.50 0.00 0.50 1.00

Utilities

Telecom

Cons . Staples

Materials

Technology

Health Care

Energy

Cons. Disc.

S&P 500

Industrials

Financials


14/70

Deploying Corporate Cash

Corporate Cash as a % of Current AssetsS&P 500 companies cash and cash equivalents, quarterly

30%

Corporate Growth

Capital Expenditures M&A Activity

$bn, nonfarm nonfinancial capex, quarterly value of deals completed$1,600$1,300

Equ

ities

20%

22%

24%

26%

28%

$600

$800

$1,000

$1,200

,

$900

$1,000

$1,100

,

Cash Returned to ShareholdersDividend Payout Ratio'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

14%

16%

18%

$0

$200

$400

$600

$700

800

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

50%

60%

S&P 500 companies, rolling 4-quarter averages, billions USDS&P 500 companies, LTM

Dividends per Share

$120

$140

$160

$27

$30

$33

30%

40%

Share Buybacks

20

$40

$60

$80

15

$18

$21

$24

14

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12Source: Standard & Poors, FRB, Bloomberg, FactSet, J .P. Morgan Securities, J .P. Morgan Asset Management.

(Top left) Standard & Poors, FactSet, J .P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of deals completed andcapital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J .P. Morgan AssetManagement. (Bottom right) Standard & Poors, Compustat, FactSet, J .P. Morgan Asset Management. Data are as of 6/30/13.

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13


15/70

P/E Ratios and Equity Returns

60%60%

P/E and Total Return Over 5-yr. Annualized PeriodsP/E and Total Return Over 1-yr. PeriodsQuarterly, 1Q 1952 to 1Q 2008Quarterly, 1Q 1952 to 1Q 2012

Current P/E: 14.5x Current P/E: 14.5x

40%40%Equ

ities

20%20%

0%5x 10x 15x 20x 25x 30x

0%5x 10x 15x 20x 25x 30x

-40%

-20%

-40%

-20%

15

Source: BEA, FRB, J .P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterlydividends. Valuation based on long-term P/E ratio.

Note: Orange line denote results of linear regression with R-squared of 0.15 for 1-yr. returns (left) and 0.36 for 5-yr. returns (right).



16/70

Equity Correlations and Volatility

70%

Large Cap StocksCorrelations Among Stocks

Sovereign DebtCrisis

LehmanGreat Depression /

30%

40%

50%

Equ

ities

Tech Bust & 9/11

1987 Crash

OPEC Oil

Crisis

Cuban Missile Crisis

0%

10%

20%

'26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10

Average: 26.9% Jun. 2013: 34.2%

2.5%

3.0%

3.5%

60

75

90Volatility Measure 08 Peak Average LatestDJIA (Left) 3.30% 0.72% 0.60%VIX (Right) 80.9 20.3 16.9

DJIA vol. shownin 3-month

moving average

0.5%

1.0%

1.5%

.

15

30

45

16

'30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100.0% 0

Source: (Top) Empirical Research Partners LLC, Standard & Poors, J .P. Morgan Asset Management. Capitalization weighted correlation of top750 stocks by market capitalization, daily returns, 1926 J un. 30, 2013. (Bottom) CBOE, Dow J ones, J .P. Morgan Asset Management. DJ IAvolatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average.

Charts shown for illustrative purposes only. Data are as of 6/30/13.


17/70

Economic Growth and the Composition of GDP

$18,00010%

Real GDP% chg at annual rate

20-yr avg. 1Q13

Components of GDP1Q13 nominal GDP, billions USD

12000

$14,000

$16,000

4%

6%

8%

y

Real GDP: 2.5% 1.8%

10.7% Investment ex-housing

18.9%Govt Spending

. ous ng

$625 bn of

$8,000

$10,000

0%

2%

Econo

$2,000

$4,000

$6,000

-6%

-4%

- .Consumption

, n ooutput

recovered

-$2,000

$0

'04 '06 '08 '10 '12-10%

-8%

Source: BEA, FactSet, J .P. Morgan Asset Management.

- 3.4% Net Exports

17

va ues s own n egen are c ange vs. pror quar er annua ze an re ec .



18/70

Cyclical Sectors

24

Millions, seasonally adjusted annual rateLight Vehicle Sales

$150

Change in Private InventoriesBillions of 2005 dollars, seasonally adjusted annual rate

1Q13: 36.7

14

1618

20

y Average: 15.2

May 2013:15.2

$-50

$0

$50

Average: 28.7

'94 '96 '98 '00 '02 '04 '06 '08 '10 '128

10

12

Econo

Real Capital Goods Orders

Housing Starts

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12$-200

$-150

-

$60

$65

$70

$75

1,600

2,000

2,400

- . , ,ousan s, seasona y a us e annua rae

May 2013:59.6

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12$40

$45

$50

$55

'94 '96 '98 '00 '02 '04 '06 '08 '10 '120

400

800

, 914

Average: 55.8

,

18

Source: (Top left) BEA, FactSet, J .P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J .P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J .P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J .P. Morgan Asset Management.Capital goods orders deflated using the producer price index for capital goods with a base year of 1982.



19/70

The Aftermath of the Housing Bubble

$1,100150

Monthly Rent vs. Monthly Mortgage PaymentVacant propertiesIndexed to 100, seasonally adjusted

Home Prices

-

$500

$650

$800

$950

140

y

2Q13*:$727

on yMortgagePayment

FHFA Purchase Only

Average Existing Home

$200

$350

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

120

130

Econo

Home Inventories

2Q13*: $529Monthly Rent

110

ons, annua rae, seasona y a us e

3.5

4.0

4.5

'03 '04 '05 '06 '07 '08 '09 '10 '11 '1290

100

'94 '96 '98 '00 '02 '04 '06 '08 '10 '121.5

2.0

2.5

.

May 2013: 2.2

19

Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J .P. Morgan Asset Management. (Top right) Census Bureau, J .P. Morgan Asset Management.Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage paymentbased on asking price. (Bottom right) Census Bureau, National Association of Realtors, J .P. Morgan Asset Management. *2Q13 rent and mortgagepayment values are J .P. Morgan Asset Management estimates.



20/70

Consumer Finances

15%

Household Debt Service RatioDebt payments as % of disposable personal income, seasonally adjusted

3Q07:

Consumer Balance SheetTrillions of dollars outstanding, not seasonally adjusted

Total Assets: $83.7tn 3Q-07 Peak: $82.1tn

$70

$80

12%

13%

14%

y 1Q80:

14.0%

Homes: 25%

- .

$50

$60

'80 '85 '90 '95 '00 '05 '1010%

11%

Econo

.

2Q13*:10.5%

Household Net WorthBillions USD, saar 2Q13*:

Deposits: 10%

Pension Funds: 18%

Other Tangible: 6%

$20

$30

$50,000

$60,000

$70,000

$80,000 ,3Q07:$67,413

Revolving (e.g.: credit cards): 6%Non-revolving: 15%Other Liabilities: 8%

$0

$10

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12$10,000

$20,000

$30,000

$40,000

Total Liabilities: $13.4tn

Assets: 41%

Mortgages: 71%

20

Source: (Left) FRB, J .P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J .P. Morgan Asset

Management. *2Q13 household debt service ratio and household net worth are J .P. Morgan Asset Management estimates. Values may not sum to100% due to rounding.



21/70

Federal Finances: Outlays and Revenues

26%$4.0

The 2013 Federal BudgetCBO Baseline forecast, trillions USD

Federal Outlays and Receipts1960 2013, % of GDP

24%

$3.0

$3.5

y

Total Spending: $3.5tn

Other

$359bn (10%)

Net Int.: $223bn (6%)

Borrowing:$642bn (19%)

20%

22%

$2.0

$2.5

Econo

Defense:

$751bn (22%)

on- e ense sc.:$461bn (13%)

Average: 20.5%2013:21.5%

Social Insurance:

$952bn (28%)

Other: 237bn (7%)

18%

$1.0

$1.5

Social Security:$809bn (23%)

Average: 17.9%

2013:17.5%Corp.: $291bn (8%)

14%1960 1970 1980 1990 2000 2010

$0.0

$0.5

Total Government Spending Sources of Financing

Medicare & Medicaid:$852bn (25%)

$1,333bn (39%) RevenuesOutlays

21

Source: U.S. Treasury, BEA, OMB, CBO, J .P. Morgan Asset Management.

2013 Federal Budget is based on the CBOs May 2013 Baseline Scenario. Other spending includes, but is not limited to, health insurance subsidies, income security,and federal civilian and military retirement.Note: Years shown are fiscal years (Oct. 1 through Sep. 30).



22/70

Federal Finances: Deficits and Debt

-12%100%

Federal Budget Surplus/Deficit Federal Net Debt (Accumulated Deficits)% of GDP, 1990 2022 % of GDP, 1990 2022

ForecastForecast

-10%

-8%

80%

y

ase ne

2012 actual: 72.6%

2013 CBO Baseline

2022: 72.9%

ase ne

2013 CBO Baseline

-6%

-4%

60%

Econo

2022: 58.5%

-2%

0%

20%

2%

4%1990 1994 1998 2002 2006 2010 2014 2018 2022

0%1990 1994 1998 2002 2006 2010 2014 2018 2022

Source: U.S. Treasury, BEA, CBO, J .P. Morgan Asset Management.

22

. . . . outlays). Federal net debt comprises all financial liabilities of the Federal government (gross debt) minus all intra-government holdings as assets. Deficitand debt scenarios are based on CBO budget forecasts from August 2012 and May 2013, which include the American Taxpayer Relief Acts costestimates.



23/70

Trade and the U.S. Dollar

115-8%

Current Account Balance, % of GDP U.S. Dollar IndexNominal trade-weighted exchange index: major currencies

105

110

-6%

4Q05:-6.5%

y

90

95

100

-4%Econo

80

85

-2%1Q13:-2.7%

.84.0

Jun. 2013:76.1

' ' ' ' ' ' ' ' ' '65

70

75

' ' ' ' ' ' ' ' ' '

0% Mar. 2008: 70.3

23

Source: BEA, FactSet, J .P. Morgan Asset Management.


Source: Federal Reserve, FactSet, J .P. Morgan Asset Management.



24/70

Employment

60012%

Civilian Unemployment Rate Employment Total Private PayrollSeasonally adjusted Total job gain/loss (thousands)

200

400

10%

11%

y 8.8mm

-200

0

8%

9%

Econo

May 2013: 7.6%

6.9mmjobs

-600

-400

6%

7%

-1,000

-800

3%

4%

5 50-yr. avg.: 6.1%

24

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12'70 '80 '90 '00 '10

Source: BLS, FactSet, J .P. Morgan Asset Management.




25/70

Employment and Income by Educational Attainment

18%$87,981$90,000

Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2011, USD

Unemployment Rate by Education Level

14%

16%

$70,000

$80,000

y

+29K

May 2013:

Less than High School Degree

High School No College

Some CollegeCollege or Greater

10%

12% $59,415

$50,000

$60,000

Econo

+27K

May 2013:7.4%

.

6%

8%

$32,493

$30,000

$40,000

May 2013:6.5%

0%

2%

$0

$10,000

,

May 2013:3.8%

25

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 High School Graduate Bachelor's Degree Advanced Degree

Source: Census Bureau, J .P. Morgan Asset Management.Source: BLS, FactSet, J .P. Morgan Asset Management.

Unemployment rates shown are for civilians aged 25 and older.



26/70

Consumer Price Index

15%

CPI and Core CPI50-yr. Avg. May 2013

Headline CPI: 4.2% 1.4%

% change vs. prior year, seasonally adjustedCPI

Components

Weight in

CPI

12-month

Change

Food & Bev. 15.3% 1.4%

12%

y

Core CPI: 4.1% 1.7%Housing 41.0% 2.2%

Apparel 3.6% 0.2%

Transportation 16.8% -0.5%

6%

9%

Econo Medical Care 7.2% 2.2%

Recreation 6.0% 0.8%

Educ. & Comm. 6.8% 1.3%

0%

3%

. .

Headline CPI 100.0% 1.4%

Less:

Energy 9.6% -0.8%

'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-3%


Food 14.3% 1.4%

Core CPI 76.1% 1.7%

26

CP I used is CPI-U and values shown are % change vs. 1 year ago and reflect May 2013 CPI data. CPI component weights are as of December 2012 and 12-month changereflects non-seasonally adjusted data through May 2013. Core CPI is defined as CPI excluding food and energy prices.



27/70

Oil and the Economy

$160 $4.50

4%

WTI Crude Oil & Retail Gasoline Prices

Oil Gas12/31/00 6/30/13Oil $26.72 $96.56

Economic Drag From Oil PricesU.S. petroleum imports as a % of GDP

3Q08: 3.8%

$120

$140

$3.50

$4.00

2%

3%

y

. .

$80

$100

$2.50

$3.00

'70 '75 '80 '85 '90 '95 '00 '05 '10

0%

1%

Econo 2Q13*: 2.5%

Total U.S. Ener Net Im orts

$40

$60

$1.50

$2.00Energy Spending by Income Level% of after-tax income

25%

30%

35%

% of total energy consumption

EIAforecast

0

$20

0.50

$1.00

5%

10%

15%

27

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Source: U.S. Department of Energy, FactSet, J .P. Morgan Asset Management. Price ofgas based on U.S. retail national average of all formulations and WTI for crude.Imports are mostly crude oil, petroleum and natural gas while consumption includes oil,gas, coal, nuclear, hydropower and bio-fuels.


Source: (Top) BEA, FactSet, J .P. Morgan Asset Management.(Bottom) EIA, J .P. Morgan Asset Management.*2Q13 drag on growth is a J .P. MorganAsset Management estimate.

'90 '95 '00 '05 '10 '15 '20


28/70

Global Energy Supply

30

U.S. Natural Gas ProductionTrillions of cubic meters, USD EIA

forecast

Kuwait

Middle East Energy Production & Chokepoints

Percent of global liquid fuel production, 2012*

10

15

20

25

yOther

Shale Gas

Iran3.9%

Iraq3.9%

3.4%yr a

0.2%Suez Canal

2.2%

0

5

1990 1995 2000 2005 2010 2015 2020 2025Econo Libya

1.8%Egypt0.8% Saudi Arabia

12.9%

Strait ofHormuz Natural Gas Prices b Countr

u an0.1%

UAE3.5%

.

Bab el-Mandeb

USD per mmBTU*

$13.70 $14.10

$10

$12

$14

$16

3.4%

$4.03

$10.11

$2

$4

$6

$8

Major Producers Major Consumers

Percent of global total, 2012 Percent of global total, 2012

Saudi Arabia 13% China 5% United States 21% India 4%

28

Source: EIA, J .P. Morgan Asset Management.Forecasts are from the EIA Annual Energy Outlook 2013. *mmBTU represents 10,000 million British thermal units. Natural gas prices are as of J une2012. *Production numbers as of 2012, while chokepoints are 2011 data.


$0

United States United Kingdom China J apan

Russia 12% Iran 4% J apan 5% Brazil 3%


29/70

Consumer Confidence and the Stock Market

130

Consumer Sentiment Index University of Michigan

Average 12-month S&P 500 index return

110

120

y

Jan. 2000

-2.0%

Jan. 2004+4.4%

. . .

90

100

Average: 85.3

Econo

.+13.5%

May 1977+1.2%

.-6.2%

Jan. 2007-4.2%

60

70

Oct. 1990

Mar. 2003+32.8% Oct. 2005

+14.2%

' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' ' '40

50

Feb. 1975+22.2%

May 1980+19.2%

+29.1%

Nov. 2008+22.3%

Aug. 2011+15.4%

29

Source: University of Michigan, FactSet, J .P. Morgan Asset Management.

Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a seriesof higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends.



30/70

Fixed Income Sector Returns

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2Q13 Cum. Ann.

High Yield EMD EMD High Yield TIPS Treas. High Yield High Yield TIPS EMD High Yield High Yield EMD EMD

10-yrs. '03 - '12

29.0% 11.9% 12.3% 11.8% 11.6% 13.7% 58.2% 15.1% 13.6% 17.9% 1.4% -1.4% 200.3% 11.6%

EMD High YieldAsset

Alloc.EMD Treas. MBS EMD EMD Muni High Yield MBS Treas. High Yield High Yield

26.9% 11.1% 3.6% 10.0% 9.0% 8.3% 34.2% 12.8% 10.7% 15.8% -2.0% -1.9% 174.3% 10.6%

Asset

Alloc.TIPS Muni MBS

Barclays

Agg

Barclays

AggCorp. Corp. Treas. Corp. Treas. MBS

Asset

Alloc.

Asset

Alloc.

. . . . . . . . . . - . - . . .

TIPSAsset

Alloc.TIPS

Asset

Alloc.MBS

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Barclays

Agg

Barclays

AggTIPS TIPS

8.4% 6.3% 2.8% 5.1% 6.9% -1.4% 15.8% 7.6% 8.9% 7.8% -2.4% -2.3% 90.4% 6.7%

Corp. Corp. Treas. Muni

Asset

Alloc. TIPS Muni

Barclays

Agg Corp. TIPS Muni Muni Corp. Corp.

8.2% 5.4% 2.8% 4.8% 6.2% -2.4% 12.9% 6.5% 8.1% 7.0% -2.7% -3.0% 84.7% 6.3%com

e

Muni MBS High YieldBarclays

AggEMD Muni TIPS TIPS

Barclays

AggMuni

Asset

Alloc.

Asset

Alloc.

Barclays

Agg

Barclays

Agg

5.3% 4.7% 2.7% 4.3% 5.2% -2.5% 11.4% 6.3% 7.8% 6.8% -3.1% -3.1% 65.7% 5.2%

Barclays

AggMuni MBS Corp. Corp. Corp.

Barclays

AggTreas. EMD

Barclays

AggCorp. Corp. Muni Muni

4.1% 4.5% 2.6% 4.3% 4.6% -4.9% 5.9% 5.9% 7.0% 4.2% -3.4% -3.3% 64.5% 5.1%

FixedI

MBSAgg

Agg

Treas. Muni EMD MBS MBS MBS MBS EMD EMD MBS MBS

3.1% 4.3% 2.4% 3.1% 3.4% -14.7% 5.9% 5.4% 6.2% 2.6% -6.5% -5.1% 64.1% 5.1%

Treas. Treas. Corp. TIPS High Yield High Yield Treas. Muni High Yield Treas. TIPS TIPS Treas. Treas.

2.2% 3.5% 1.7% 0.4% 1.9% -26.2% -3.6% 2.4% 5.0% 2.0% -7.4% -7.0% 59.0% 4.7%

Source: Barclays Capital, FactSet, J .P. Morgan Asset Management.

30

Past performance is not indicative of future returns. 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 USD Index; High Yield: Corporate High YieldIndex; 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.



31/70

Interest Rates and Inflation

20%

Nominal and Real 10-year Treasury Yields

15%

ep. , :15.84%

Average 6/30/13

Nominal Yields 6.42% 2.49%Real Yields 2.55% 0.81%

10%

com

eNominal 10-yearTreasury Yield

5%

FixedI Jun. 30, 2013: 2.49%

Real 10-year

-

0%

Jun. 30, 2013: 0.81%

Rising Rate Corp. Bonds S&P 5001958-1981 3.0% 8.6%Ann. Inflation 5.0% 5.0%Ann. Real Return -2.0% 3.5%

Falling Rate Corp. Bonds S&P 5001982-2012 10.1% 11.0%Ann. Inflation 3.1% 3.1%Ann. Real Return 6.8% 7.7%

31

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

-

Source: Federal Reserve, BLS, J .P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for J une 2013, wherereal yields are calculated by subtracting out May 2013 year-over-year core inflation. All returns above reflect annualized total returns, which includereinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance.Data are as of 6/30/13.


32/70


33/70

Correlation to 10-Year Treasury Returns

1.0

Correlations to 10-yr. U.S. Treasury Returns

U.S. Aggregate

Calculated over two year rolling periods using monthly total return indices

0.6

0.8

Investment Grade

0.0

0.2

0.4

com

e

-0.4

-0.2 Emerging MarketDebt

FixedI

-0.8

-0.6

Rising FedFunds Rate

High Yield

33

-1.0

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Source: Federal Reserve, Barclays, J .P. Morgan Asset Management.

Indices used include Barclays US Treasury Bellwethers (10Y), Barclays US Aggregate, Barclays US Aggregate Credit Corporate Investment Grade,Barclays US Aggregate Credit Corporate High Yield, and Barclays Emerging Markets USD.Data are as of 6/30/13.


34/70

The Fed and the Money Supply

Money MultiplierM2 / Monetary Base

Feds Balance Sheet: Assets$ trillions

10.x$4.0

5.x

6.x

7.x

8.x

.er

U.S. Treasuries

Agency MBS

Jun. 2013:$1.5

$2.0

$2.5

$3.0

.

Feds Balance Sheet: Liabilities

com

e

Federal Funds Rate & FOMC Interest Rate Projections

'04 '05 '06 '07 '08 '09 '10 '11 '122.x

3.x

4.x.

$0.0

$0.5

$1.0

'04 '05 '06 '07 '08 '09 '10 '11 '12

$2.5

$3.0

$3.5

$4.0

6%

8%

10%

12%r ons

FixedI

Long-term Fedprojection

Other Liabilities

Excess Reserves

Required Reserves

'04 '05 '06 '07 '08 '09 '10 '11 '12$0.0

$0.5

$1.0

$1.5

.

0%

2%

4%

'84 '88 '92 '96 '00 '04 '09 '12 '14

Jun. 30, 2013:0.0%-0.25%

34

Source: Federal Reserve, FactSet, J .P. Morgan Asset Management.

Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits heldin the central bank's reserves. Money multiplier defined as M2 divided by the monetary base. Long-term Fed projection is based on averageexpectations of FOMC members. Other liabilities of the Federal Reserve primarily consist of the monetary base.



35/70

Credit Conditions

760 60%

Commercial & Industrial Loan DemandNet percent of banks reporting stronger demand

Small Firms

Lending Standards for Approved Mortgage LoansAverage FICO score based on origination date

700

720

740

-

-20%

0%

20%

40% Large & Medium Firms

6%

8%

Apr. 2013:

745

660

680

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Delinquency Rates

com

e

Common Equity as a % of Total Assets

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12-80%

-60%

-

10%

12%

14%

8%

10%

12%

Consumer Loans

Residential Mortgages

an s, seasona y a use

FixedI

Commercial and Industrial Loans 9.7%

,

2012:11.1%

4%

6%

8%

' ' ' ' ' ' ' ' ' ' ' ''92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

2%

4%

6%

1.5%

2.5%

Average: 7.6%

35

Source: (Top left) McDash, J .P. Morgan Securitized Product Research, J .P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J .P. Morgan AssetManagement. (Bottom left): Federal Reserve, FactSet, J .P. Morgan Asset Management. (Bottom right) FDIC, J .P. Morgan Asset Management.

All data reflect most recently available releases.



36/70

High Yield Bonds

20%Average Latest

HY Spreads 5.9% 5.4%Lev. Loan Spreads 5.1% 4.1%HY Defaults Rates 4.2% 1.1%

High Yield Spreads and Defaults

HY Spreads

5%

10%

ev. oan prea s

HY Default Rates

0%

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

com

e

Historical High Yield Recovery RatesHi h ield bonds cents on the dollar

Annual Flows into High Yield and Leveraged Loan FundsMutual funds & ETFs, billions USD

$20

$30

$40

$50

FixedI

Average: 40.1

.

High Yield

Leveraged Loans

40

50

60

70

-$20

-$10

$0

$10

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

0

10

20

30

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

36

Source (Top chart): U.S. Treasury, J .P. Morgan, Strategic Insight, J .P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market

trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J .P Morgan, Fitch, J .P. Morgan AssetManagement. (Bottom right): Strategic Insight, J .P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields.2013 recovery rate is a weighted average number as of May 2013. Yield to worst is defined as the lowest potential yield that can be receivedon a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder.Flows include ETFs and are as of May 2013. Past performance is not indicative of comparable future results.Data are as of 6/30/13.


37/70

Municipal Finance

8%

State & Local Government Debt Service% of current expenditures

Muni/Treasury RatioRatio of Barclays 10-year Municipal Bond yield to 10-year Treasury240%

6%

7%

200%

220%

1Q13: 5.2%

4%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

com

e

Municipal Bond Issuance*Billions USD revenue and GO issues

160%

180%

FixedI

100%

120%

$300bn

$400bn

$500bn

'00 '02 '04 '06 '08 '10 '1260%

80%Jun. 30, 2013:

111%

$0bn

$100bn

$200bn

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

37

Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J .P. Morgan Asset Management. (Top right) BEA, J .P. Morgan Asset Management. (Bottom right) SIFMA,

J .P. Morgan Asset Management.

*Excludes maturities of 13 months or less and private placements. 2013 issuance data is as of May 2013.



38/70

Emerging Market Debt

12%

Emerging Markets Debt SpreadsSpread to Treasuries of USD-denominated debt, percent

Index Breakdown USD Denominated EMDMiddle East &

Africa 11%Middle East &

Africa 14%100%

IndexAverage

S read

Spread

6/30/13

4%

6%

8%

Asia 42%

Europe 35%

Europe 16%

Latin America36%

Latin America28%

20%

40%

60%

80%EMBIG 3.8% 3.5%

CEMBI 3.3% 3.8%

0%

2%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

com

e

Annual Flows into EMD Mutual Funds & ETFsBillions USD

Emerging Market Debt Credit RatingEMBIG average monthly credit rating, inverse scale

Asia 19%

0%Sovereigns

(EMBIG)Corporates

(CEMBI)

$15

$20

$25

$30

FixedI ay : -

BB+

BBB-

BB

BB-

: . n

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11

-$5

$0

$5

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

B-

B

B+

38

Source: J .P. Morgan, MorganMarkets, FactSet, Strategic Insight, J .P. Morgan Asset Management.

Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J .P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J .P. Morgan Corporate EmergingBond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of May2013. Past performance is not indicative of comparable future results. Index breakdown may not equate to 100% due to rounding.Data are as of 6/30/13.


39/70

Global Equity Markets: Returns

MSCI EAFE Index: Return Needed to Reach 2007 PeakAnalysis as of Jun. 30, 2013, implied average annualized total return

47.0%1 YrCountry / Region

2Q13 YTD 2013

Local USD Local USD

23.2%

16.2%

2 Yrs

3 Yrs

Regions / Broad Indexes

USA (S&P 500) - 2.9 - 13.8EAFE 1.4 -0.7 11.4 4.5

MSCI EME Index: Return Needed to Reach 2007 Peak

12.9%

10.9%

4 Yrs

5 Yrs

- . . . . . .

Pacific ex-Japan -2.9 -10.9 3.9 -4.6

Emerging Markets -4.3 -8.0 -4.7 -9.4

MSCI: Selected Countries

o

nal

Analysis as of Jun. 30, 2013, implied average annualized total return

28.1%

14.8%

1 Yr

2 Yrs

United Kingdom -2.0 -2.1 7.5 0.3

France 2.2 3.5 5.6 4.1

Germany 2.2 3.4 5.2 3.7

Internati

10.7%

8.7%

3 Yrs

4 Yrs

. . . .

China -6.6 -6.5 -10.7 -10.8

India 3.2 -5.6 -0.2 -8.0

Brazil -9.3 -17.2 -11.4 -17.8

39

Source: Standard & Poors, MSCI, IMF, FactSet, J .P. Morgan Asset Management.

All return values are MSCI Gross Index (official) data. Definition of emerging markets is based on MSCI data. Data assume dividend yields as of6/30/13 (MSCI EAFE: 3.4% and MSCI EM: 2.9%). Chart is for illustrative purposes only. Past performance is not indicative of future results. P leasesee disclosure page for index definitions.Data as of 6/30/13.

.Russia -4.1 -8.3 -5.8 -11.2


40/70

Global Equity Markets: Composition

14%

16%

Weights in MSCI All Country World Index% global market capitalization, float adjusted

Share of Global Market Capitalization% global market capitalization, float adjusted

6%

8%

10%

12%

UnitedStates49%

Europe ex-U.K.15%

U.K. 8%

EmergingMarkets

Jun. 2013:11%

0%

2%

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Share of Global GDP

11%

Japan8%

Emerging Market Share of MSCI ACWI Earnings

EM Market

o

nal

OtherDeveloped

5%

Europe ex-U.K.16%

U.K. 3%

,

10%

12%

14%

16%

Canada 2%Internati

Markets51%

UnitedStates19%

Japan 5%

2%

4%

6%

8%

40

Source: MSCI, IMF, FactSet, J .P. Morgan Asset Management.

Share of global market capitalization is based on float adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) ascalculated by the IMF for 2013. Definition of emerging markets is based on MSCI and IMF data sources.Percentages may not sum to 100% due to rounding.Data as of 6/30/13.

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12


41/70

Global Economic Growth

Year-over-year % chg. forecasts from JPMSI

Emerging Market Country Real GDP Growth

2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

Historical

1Q14

J PMSI Forecast

10%

0%

2%

4%

6%

8%

Developed Market Country Real GDP Growth

-4%

-2%

Emerging Markets China India Mexico South Africa Korea Russia Brazil

Year-over-year % chg. forecasts from JPMSI

o

nal

2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

1Q14

4%

6%

8%

10%

Internati

-4%

-2%

0%

2%

DevelopedCountries

U.S. Canada U.K. J apan Germany France Italy

41

Source: J .P. Morgan Global Economic Research, J .P. Morgan Asset Management.

Forecast and aggregate data come from J .P. Morgan Global Economic Research. Historical growth data collected from FactSet Economics.



42/70

Manufacturing Momentum

Global Purchasing Managers Index for Manufacturing

l'11

g'11

p'11

ct'11

v'11

c'11

n'12

b'12

r'12

r'12

y'12

n'12

l'12

g'12

p'12

ct'12

v'12

c'12

n'13

b'13

r'13

r'13

y'13

n'13

J A S O N D Ja

F M A M J J A S O N D Ja

F M A M J

Global 51.3 51.2 50.5 50.7 49.6 50.3 51.0 51.2 51.6 51.3 50.2 49.7 48.8 48.7 48.7 48.8 49.6 50.0 51.5 50.9 51.2 50.4 50.6 50.6

U.S. 52.6 53.9 53.7 53.6 53.4 53.9 54.3 53.6 56.0 56.0 54.0 52.5 51.4 51.5 51.1 51.0 52.8 54.0 55.8 54.3 54.6 52.1 52.3 51.9

U.K. 50.3 49.7 51.3 48.9 47.9 49.2 50.7 51.1 51.8 49.9 46.1 48.3 45.6 49.7 48.9 47.7 49.0 50.9 50.9 48.2 49.0 50.2 51.5 52.5

Germany 52.0 50.9 50.3 49.1 47.9 48.4 51.0 50.2 48.4 46.2 45.2 45.0 43.0 44.7 47.4 46.0 46.8 46.0 49.8 50.3 49.0 48.1 49.4 48.6

France 50.5 49.1 48.2 48.5 47.3 48.9 48.5 50.0 46.7 46.9 44.7 45.2 43.4 46.0 42.7 43.7 44.5 44.6 42.9 43.9 44.0 44.4 46.4 48.4

Italy 50.1 47.0 48.3 43.3 44.0 44.3 46.8 47.8 47.9 43.8 44.8 44.6 44.3 43.6 45.7 45.5 45.1 46.7 47.8 45.8 44.5 45.5 47.3 49.1

Spain 45.6 45.3 43.7 43.9 43.8 43.7 45.1 45.0 44.5 43.5 42.0 41.1 42.3 44.0 44.5 43.5 45.3 44.6 46.1 46.8 44.2 44.7 48.1 50.0

Greece 45.2 43.3 43.2 40.5 40.9 42.0 41.0 37.7 41.3 40.7 43.1 40.1 41.9 42.1 42.2 41.0 41.8 41.4 41.7 43.0 42.1 45.0 45.3 45.4

Ireland 48.2 49.7 47.3 50.1 48.5 48.6 48.3 49.7 51.5 50.1 51.2 53.1 53.9 50.9 51.8 52.1 52.4 51.4 50.3 51.5 48.6 48.0 49.7 50.3

Australia 43.4 43.3 42.3 47.4 47.8 50.2 51.6 51.3 49.5 43.9 42.4 47.2 40.3 45.3 43.0 42.8 44.3 44.3 40.2 45.6 44.4 36.7 43.8 49.6

o

nal

apan . . . . . . . . . . . . . . . . . . . . . . . .

China 49.3 49.9 49.9 51.0 47.7 48.7 48.8 49.6 48.3 49.3 48.4 48.2 49.3 47.6 47.9 49.5 50.5 51.5 52.3 50.4 51.6 50.4 49.2 48.2

Indonesia 50.9 50.8 49.7 51.6 50.1 48.8 48.5 50.6 50.8 50.5 48.1 50.2 51.4 51.6 50.5 51.9 51.5 50.7 49.7 50.5 51.3 51.7 51.6 51.0

Korea 51.3 49.7 47.5 48.0 47.1 46.4 49.2 50.7 52.0 51.9 51.0 49.4 47.2 47.5 45.7 47.4 48.2 50.1 49.9 50.9 52.0 52.6 51.1 49.4

Taiwan 46.1 45.2 44.5 43.7 43.9 47.1 48.9 52.7 54.1 51.2 50.5 49.2 47.5 46.1 45.6 47.8 47.4 50.6 51.5 50.2 51.2 50.7 47.1 49.5

India 53.6 52.6 50.4 52.0 51.0 54.2 57.5 56.6 54.7 54.9 54.8 55.0 52.9 52.8 52.8 52.9 53.7 54.7 53.2 54.2 52.0 51.0 50.1 50.3

Source: Markit, J .P. Morgan Asset Management.

Internati Brazil 47.8 46.0 45.5 46.5 48.7 49.1 50.6 51.4 51.1 49.3 49.3 48.5 48.7 49.3 49.8 50.2 52.2 51.1 53.2 52.5 51.8 50.8 50.4 50.4

Mexico 54.7 51.7 53.0 54.7 53.7 53.1 52.2 53.7 53.8 56.3 55.2 55.9 55.2 55.1 54.4 55.5 55.6 57.1 55.0 53.4 52.2 51.7 51.7 51.3

Russia 49.8 49.9 50.0 50.4 52.6 51.6 50.8 50.7 50.8 52.9 53.2 51.0 52.0 51.0 52.4 52.9 52.2 50.0 52.0 52.0 50.8 50.6 50.4 51.7

42

ea map co ors are ase on re a ve o e eve , w c n caes expans on or con rac on o e sec or, or e me pero s own.



43/70

The Importance of Exports

Latest 12 months, goods exportedExports as a % of GDP

U.S. Eurozone BRIC Other .

1.9%

4.3%

2.0%

.

2.0%

2.8%

7.3%

.

1.4%

1.6%

0.6%

.

11.5%

17.5%

21.1%

India

China

Russia

.

16.8%

26.2%

31.0%

1.8%

1.2% 1.2%

2.2%

7.5%

9.1%

U.S.

Eurozone

10.0%

13.2%

2.4%

2.7%

2.1%

0.9%

8.6%

10.0%

2.8%

1.6%

1.1%

7.3%

6.6%

8.6%

J apan

U.K.

France

o

nal

19.5%

21.9%

13.5%

1.7%

3.3%

13.0%

15.5%

1.8%

4.7%

8.4%

17.9%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Italy

Germany

Internati 24.8%

41.3%

43

, , , , , , , , ,

Industry, ISTAT, German Federal Statistics Office, FactSet, J .P. Morgan Asset Management.

Values may not sum to total exports due to rounding.



44/70

The Impact of Global Consumers

40% 40%

Share of Global Nominal Consumption Foreign Sales, % of Total Sales

35%

30%

35%

Mega Cap (Russell Top 200)

25%

30%

25%

Lar e Ca Russell 1000

20%15%

20%

o

nal U.S. Consumption % of Global

EM Consumption % of Global

15%1990 1995 2000 2005 2010

10%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Source: FactSet, Compustat, Russell, J .P. Morgan Global Economics Research, J .P. Morgan Asset Management.Foreign sales as a percentage of total sales is calculated as an unweighted average of individual index constituent companies reported sales figuresand does not ca ture all index members due to differences in re ortin ractices.

Internati

44



45/70

Sovereign Debt Stresses

China

10%Bubble size = 10-year

government bond yield

GDP Growth, Gross Debt to GDP and Borrowing Costs

India

Indonesia

Malaysia

10%

5%

6%

8%

014F)

Brazil

South Africa

Mexico

US

Turkey

Korea

FranceGermany

J apan

Russia Singapore

EU

Australia

UK

0%

2%

row

th(20122

Greece

Italy

Spain

Portugal

-4%

-2%

RealGDP

o

nal

-8%

-6%

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200%

Developed Markets

Emerging Markets

Internati

240%

45

ross e - o- a os

Source: IMF, FactSet, Bloomberg, J .P. Morgan Economics, Barclays, J .P. Morgan Asset Management.

Growth and debt data are based on the April 2013 World Economic Outlook.Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africasborrowing cost is based on 7-year government bond yield due to data availability.

Data as of 6/30/13.


46/70

Global Manufacturing Wages

Manufacturing WagesNominal, average USD per month

Developed Countries Emerging Countries

$3,885

$3,716

$1,500

$1,750

,

$3,000

$3,500

,

Latest2001*

$2,942

$2,089 $2,077

2,958

$1,000

$1,250

$2,000

$2,500

$866

$455

$500

$750

$1,000

$1,500

o

nal

$309

$74$139 $112 $52

$323

$193$148

$0

$250

$0

$500

Source: ILO (International Labor Organization), U.S. Bureau of Labor Statistics, Ministry of Labor-Mexico, EM Advisors Group, Thailand National Statistical Office, General

Internati

Brazil Mexico China Thailand Vietnam IndonesiaU.S. Germany J apan

46

, , , , . . .Chinese wages are those of rural migrant workers as a proxy. *Data begins in 2005 for Vietnam due to availability of data.

Data is from 2012 for Mexico, China, and Thailand; 2011 for United States, Vietnam (preliminary), and Indonesia (preliminary);and 2010 for Brazil, Germany, and J apan.

Data as of 6/30/13.


47/70

Global Monetary Policy

3%

4%

30%

35%

Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly

-1%

0%

1%

2%

10%

15%

20%

25%

European Central Bank

Bank of Japan

-3%

-2%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '130%

5%

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Developed Markets

Country Level Monetary Policy and Inflation

Emerging Markets

Inflation Rate Real Polic RateTar et Polic Rate

U.S. Federal Reserve

o

nal

0.0%

2.5%

5.0%

7.5%

10.0%

Internati

-5.0%

-2.5%

HongKong

U.K.

U.S.

Euroarea

Canada

Japan

Australia

India

Russia

Turkey

SouthAfrica

Mexico

Indonesia

Thailand

Colombia

Taiwan

Korea

Brazil

Poland

China

47

Source: J .P. Morgan Global Economics Research, J .P. Morgan Asset Management.(Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J .P. MorganGlobal Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shownrepresent year-over-year quarterly rates for 2Q13. Real policy rates are short-term target interest rates set by central banks minus year-over-yearinflation.Data are as of 6/30/13.

Developed Markets Emerging Markets


48/70

Europe: Economic Growth

6%

Europe Real GDPYear-over-year % change

Avg. Since1999

1Q13

Real GDP 1.5% -0.7%

Latest Unemployment Rates for European CountriesMay 2013, seasonally adjusted

0%

2%

4%Average:

1.5%

6.6%

5.4%

4.9%

3.7%

Netherlands

Germany

Austria

orway

'00 '02 '04 '06 '08 '10 '12-6%

-4%

-

8.4%

8.4%

7.9%

7.8%

.

Belgium

Finland

Sweden

U.K.

uYear-over-year % change

3%

4%

5%

.1999

May 2013

Headline CPI 2.1% 1.4%

Core CPI 1.7% 1.3%

o

nal

13.5%

12.0%

11.0%

11.0%

Ireland

Italy

France

European Union

'99 '01 '03 '05 '07 '09 '11

0%

1%

2%

Internati

27.0%

26.8%

17.8%

0% 5% 10% 15% 20% 25% 30%

Greece

Spain

Portugal

48

Source: Eurostat, FactSet, J .P. Morgan Asset Management.



49/70

Europe: Austerity

General Government Deficit Reduction% of GDP, fiscal drag measured as difference in government deficit between stated years7%

2010-2013

2013-2016

6.2%

6%

3.3%

4.4%

3.8%

3.4%

3.1%

4.0%

3.6%4%

o

nal

.

1.8%1.9%

2.8%

2%

3%

Internati

1.1%

0.3% 0.4%

0.8%

0%

1%

49

Source: IMF, J .P. Morgan Asset Management.

Government deficits calculated by the IMF as general government net lending/borrowing (revenue minus total expenditure). Data are based on the

April 2013 World Economic Outlook.


Eurozone Greece Portugal Germany France U.K. Spain Italy


50/70

Eurozone: Sovereign Bond Yields

European Sovereign Funding Costs10-year benchmark bond yield

35%

6/30/13

Greece 10.83%

30%

or uga .

Spain 4.72%

Ireland 4.2%

Germany 1.73%

Ireland 4.08%

Euro launch

Italy 4.54%

20%

LTRO

10%

15%OMT

o

nal

'95 '97 '99 '01 '03 '05 '07 '09 '110%

5%

Internati

50

Source: TullettPrebon, FactSet, J .P. Morgan Asset Management.

Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012. The Outright Monetary Transaction (OMT )program was announced in September 2012.



51/70

China: Growth and Economic Policy

25%8%

China GDP ContributionYear-over-year % change

Investment

Consumption

Net ExportsRRRWorking Capital Rate

Monetary Policy Rates

16%

10%

15%

20%

6%

7%May 2013:

20%

4.2%4.6% 4.5% 5.2% 4.1%

4.5%

8.1%

5.5% 4.5% 3.9%

4%

8%

12%9.6%

.

10.4%9.3%

7.8%

0%

5%

5%'05 '07 '09 '11 '13

Credit Growth*Inflation

Avg. since

May 2013:6%

0.9%

-3.5%

0.4%-0.4% -0.2%

-4%

0%

2008 2009 2010 2011 2012

8%

12%

o

nal

RMB billions, new for the month

RMB Bank Loans

Other**

ear-over-year c ange .

Headline CPI: 2.3% 2.1%

Non-Food CPI: 1.0% 1.6%

1,600

2,100

2,600

0%

4%

Internati

100

600

1,100

51

-4%

'00 '02 '04 '06 '08 '10 '12Source: National Bureau of Statistics of China, The Peoples Bank of China, FactSet, CEIC, J .P. Morgan Asset Management.

Values may not sum to 100% due to rounding. RRR represents the reserve requirement ratio. *As defined by Total Social Financing. **Other:bankers acceptance bills (-9%), trust loans (8%), entrusted loans (17%), corporate bond financing (18%), foreign currency loans (3%), and non-financial equity financing (2%). Data are as of 6/30/13.

-'05 '07 '09 '11 '13


52/70

China: Cyclical Indicators

170

Fixed Asset InvestmentYear-over-year % change, 3-month moving average35%

Index, rebased 2007=100, national average

Residential Real Estate Price

Property Tightening Measures Announced

25%

30%

140

Auto and Retail Sales

15%

20%

'06 '07 '08 '09 '10 '11 '12 '13

May 2013: 20.2%

11020%

25%

40%

60%

80%

o

nal

Year-over-year % change

Retail Sales

May 2013: 12.9%

805%

10%

15%

-20%

0%

20%

Internati

Auto SalesMay 2013: 9.7%

52

Source: National Bureau of Statistics of China, China Association of Automobile Manufacturers, China Ministry of Construction, FactSet, J .P. Morgan Asset Management.



53/70

Japan: Economic Snapshot

9%130 20,000

Inflation and Japanese Government Bond YieldsYear-over-year % change for inflation

Japanese Yen per U.S. Dollar Nikkei 225

Japanese Yen and the Stock Market

7%120

16,000

18,000Bank of J apan 13%

Other Domestic 79%Foreign 8%

Owners of Japanese Gov. Bonds

3%

5%

100

110

14,000

Nominal 10-year Yield

1% 90

10,000

,

o

nal

'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-3%

-1%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '1270

80

6,000

8,000

Internati

Core CPI

53

Source: (Left) Bank of J apan, OECD, IMF, FactSet, J .P. Morgan Asset Management. (Right) FactSet, J .P. Morgan Asset Management.

Core CPI is defined as CPI excluding fresh food. Other Domestic includes banks (34%), insurance and pensions (23%), public pensions (7%),households (3%), and others (11%). Values may not sum to 100% due to rounding. Government bond data is calculated from the Bank of J apansJ une 2013 flow of funds.



54/70

Global Equity Valuations Developed Markets

Developed Market Countries

verage Expensive

relative toworld

Example

+5 Std Dev

+4 Std Dev

+6 Std Dev

dDevfromGlobal

Expensiverelative to own

history

Cheap relative toown history

Average

Current

+ ev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

CurrentComposite Current 10-year avg.

World(ACWI)

EAFEIndex

France Germany U.K. Canada Australia J apan Switzerland UnitedStates

St

relative toworld

-4 Std Dev

-5 Std Dev

. . . . . .

World (ACWI) -0.32 12.9 1.8 7.7 2.7% 13.3 2.1 7.0 2.5%EAFE Index -1.13 12.5 1.5 6.9 3.4% 13.0 1.6 6.1 3.4%France -1.80 11.7 1.2 5.8 3.8% 11.7 1.5 5.7 3.8%

Germany -1.63 11.3 1.4 5.5 3.4% 11.8 1.5 4.8 3.4%

U.K. -1.05 11.5 1.7 8.1 3.9% 12.2 1.9 7.0 3.9%

o

nal

ana a - . . . . . . . . .

Australia -0.56 13.4 1.9 9.1 4.7% 13.3 2.1 8.2 4.5%

Japan -0.04 13.4 1.3 6.6 1.8% 16.3 1.3 5.9 2.0%

Switzerland 0.52 14.4 2.4 9.8 3.2% 13.5 2.4 9.8 3.0%United States 1.18 14.2 2.4 9.5 2.0% 14.2 2.3 8.4 2.1%Source: MSCI, FactSet, J .P. Morgan Asset Management.

Internati

54

. , ,cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent

valuation index variabilityrelative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions.Data are as of 6/30/13.


55/70

Global Equity Valuations Emerging Markets

Emerging Market Countries

erage

+5 Std Dev

+4 Std Dev

+6 Std Dev Expensiverelative to

world

Example

Devfrom

GlobalA+ ev

+2 Std Dev

+1 Std Dev

Average-1 Std Dev

-2 Std Dev

-3Std Dev

Expensiverelative to own

history

Cheap relative toown history

Average

Current

World(ACWI)

EMIndex

Russia ChinaBrazil

TaiwanThailand

Korea SouthAfrica

India MexicoIndonesia

CurrentComposite

Current 10-year avg.

Std

-4 Std Dev

-5 Std Dev

relative to

world

w . v. . w . v. .

World (ACWI) -0.32 12.9 1.8 7.7 2.7% 13.3 2.1 7.0 2.5%

EM Index -1.74 9.8 1.4 5.5 3.0% 10.8 1.9 5.8 2.7%

Russia -4.26 5.2 0.7 3.2 4.0% 7.8 1.3 4.8 2.3%

China -2.44 8.3 1.3 5.0 3.6% 12.0 2.1 4.3 2.7%

Brazil -2.34 9.7 1.3 5.2 4.1% 8.9 1.9 5.6 3.4%

Index

o

nal

Taiwan -0.59 13.6 1.8 6.7 3.0% 13.9 1.9 6.4 3.6%

Thailand -0.45 11.6 2.3 7.7 3.1% 10.6 2.0 6.6 3.6%

Korea -0.37 8.1 1.1 4.4 1.2% 9.5 1.5 5.1 1.8%South Africa -0.06 12.8 2.2 9.3 3.4% 10.7 2.4 8.1 3.3%India 1.92 13.6 2.4 10.4 1.6% 14.8 3.3 12.4 1.5%

Mexico 1.94 16.4 2.7 7.8 1.7% 13.4 2.7 6.0 2.0%

Internati

55

Indonesia 2.31 14.3 3.5 12.8 2.5% 11.8 3.3 9.3 3.0%

Source: MSCI, FactSet, J .P. Morgan Asset Management.Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), priceto last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over thelast 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page atthe end for metric definitions.Data are as of 6/30/13.


56/70

Emerging Market Equity Composition

MSCI EM Index by Region MSCI EM Index by Sector

Other

Africa/Mideast7%

Latin Americaex Brazil

9%

Brazil11%

19%

Commodities21%

Tech15%

18%

Asia ex China& Korea

Korea15%

Europe10%

MSCI EM Country Index by Sector

Financials27%China

18%

onal

14%31%

63%

19%18%

18%

12%

15% 11% 17%23%

31%

15%

60%

80%

100%

Other

Commodities

Internati

21% 18%

37%

23%

3%16%

8%

37%30%

19%

30%

40%14%

20%

40%

Financials

Tech

Consumer

56

Source: MSCI, FactSet, J .P. Morgan Asset Management. Other is comprised of Healthcare, Industrials, Telecom, and Utilities sectors.*Mexican Telecom sector accounts for 22% of the countrys market capitalization. Values may not sum to 100% due to rounding.


7%0%

Brazil Russia India China Mexico* Korea


57/70


58/70

Correlations: 10-Years

Large

Cap

Small

Cap EAFE EME

Core

Bonds

Corp.

HY EMD Cmdty. REITs

Hedge

Funds

Eq.

Market

Neutral*

Large Cap 1.00 0.94 0.90 0.79 -0.26 0.77 0.60 0.52 0.79 0.82 0.59

Small Cap 1.00 0.86 0.74 -0.32 0.73 0.55 0.46 0.85 0.77 0.55

EAFE 1.00 0.91 -0.17 0.77 0.67 0.60 0.73 0.88 0.74

EME 1.00 -0.06 0.81 0.79 0.66 0.63 0.89 0.61

Core Bonds 1.00 -0.03 0.34 -0.18 0.01 -0.24 -0.09

Corp. HY 1.00 0.85 0.56 0.72 0.77 0.43

EMD 1.00 0.48 0.65 0.64 0.40

Commodities 1.00 0.40 0.71 0.51

REITs 1.00 0.58 0.49

Source: Standard & Poors, Russell, Barclays Capital Inc., MSCI Inc., Credit Suisse/Tremont, NCREIF, DJ UBS, J .P. Morgan Asset Management.

Indexes used Large Cap: S&P 500 Index; Small Cap: Russell 2000; EAFE: MSCI EAFE; EME: MSCI Emerging Markets; Bonds: BarclayssetClass

Hedge Funds 1.00 0.59

Eq. Market Neutral* 1.00

58

Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.: DJ UBS Commodity Index;Real Estate: NAREIT Equity REIT Index; Hedge Funds: CS/Tremont Multi-Strategy Index; Equity Market Neutral: CS/Tremont Equity MarketNeutral Index. *Market Neutral returns include estimates found in disclosures.

All correlation coefficients calculated based on quarterly total return data for period 6/30/03 to 6/30/13.

This chart is for illustrative purposes only.

Data as of 6/30/13.

As


59/70

Mutual Fund Flows

Billions, USD AUM YTD 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

Domestic E uit 4 952 14 156 132 81 29 149 65 0 18 101 120 26 55 261 176 149

Fund Flows

World Equity 1,762 63 3 4 58 28 (80) 139 149 106 71 24 (3) (22) 53 11 8

Taxable Bond 2,932 86 254 137 224 310 21 98 45 27 5 40 125 76 (36) 8 59

Tax-exempt Bond 586 7 50 (12) 11 69 8 11 15 5 (15) (7) 17 11 (14) (12) 15

Hybrid 1,116 44 46 29 29 12 (25) 41 18 37 48 38 8 9 (36) (14) 10

Mone Market 2 600 98 0 124 525 539 637 654 245 62 157 263 46 375 159 194 235

$1,600

$40

Difference Between Flows Into Stock and Bond FundsBillions, USD, U.S. and international funds, monthly

Bond flows exceeded equity flowsby $6 billion in May 2013

Cumulative Flows into Stock & Bond FundsIncludes both mutual funds and ETFs, $ billions

May 13: $1,502 billion into bond funds

$800

$1,000

$1,200

,

-$20

$0

$20an xe ncome s s nce

May 13: $332 billion

$0

$200

$400

600

'07 '08 '09 '10 '11 '12 '13

-$60

-$40

Nov '08 Sep '09 J ul '10 May '11 Mar '12 J an '13setClass Bonds

Stocks

into stock funds andequity ETFs since 07

59

Source: Investment Company Institute, J .P. Morgan Asset Management.Data include flows through May 2013 and exclude ETFs except for the bottom left chart. ICI data are subject to periodic revisions. World equityflows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexibleportfolio and mixed income flows.Data are as of 6/30/13.

As


60/70

Yield Alternatives: Domestic and Global

S&P 500 Total Return: Dividends vs. Capital AppreciationAverage annualized returns Capital Appreciation

Dividends20%

4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8%

4.1%

13.9%

3.0%

13.6%

4.4%

1.6%

12.6% 15.3%

-2.7%

5.6%

0%

5%

10%

Equity Dividend Yields Yield Alternatives

- .

-10%

-5%

1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2012

5.6%

4.9%

3.6% 3.5%4%

5%

6%

10-year government

10-year governmentbond yield

4.5%

3.7% 3.6%

2.9%3.1%

2.6%3%

4%

5%

1.1%

0.7%1%

2%

3%

setClass

bond yield2.0% 1.9%

1%

2%

60

EMD Loc. Preferreds U.S. REITs Inter. REIT's Converts Floating Rate

Source: (Top chart) Standard & Poors, Ibbotson, J .P. Morgan Asset Management. Dividend vs. capital appreciation returns are through 12/31/12.(Bottom left) FactSet, NAREIT, J .P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index. (Bottom right) FactSet, MSCI,J .P. Morgan Asset Management. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property developmentcompanies. Preferreds, U.S. REITs, Inter. REITs, EMD Loc., Converts, and Floating Rate yields reflect current yield.


As 0% U.S. Australia France U.K. Switzerland Canada ACWI J apan


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Global Commodities

8% 80%500

Commodity PricesWeekly index prices rebased to 100

Precious Metals

Commodity Prices and InflationYear-over-year % chg.

DJ-UBS Commodity Index

6% 60%

400

450

Industrial Metals Headline CPI(Y/Y % chg.)

.

2% 20%

250

300

350

-2%

0%

-20%

0%

150

200Energy

Grains

-4% -40%

50

100

setClass

Livestock

61

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12- -

'04 '05 '06 '07 '08 '09 '10 '11 '12

Source: Dow J ones/UBS, FactSet, J .P. Morgan Asset Management.

Commodity prices represented by the appropriate DJ /UBS Commodity sub-index.


Source: BLS, DJ /UBS, FactSet, J .P. Morgan AssetManagement.


As


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Diversification and the Average Investor

Equity Mkt. Neutral

(Top) Indexes and weights of thetraditional portfolio are as follows:U.S. Stocks: 55% S&P 500; U.S.Bonds: 30% Barclays CapitalAggregate; International Stocks:15% MSCI EAFE. Portfolio with 25%

Traditional Portfolio More Diversified Portfolio

Maximizing the Power of Diversification (1994 2012)

8%8%

8%

4%

26%REIT

S&P 500Russell 2000

55%

30% S&P 500

MSCI EAFE

Barclays Agg.

in alternatives is as follows: U.S.Stocks: 22.2% S&P 500, 8.8%Russell 2000; International Stocks:4.4% MSCI EM, 13.2% MSCI EAFE;

U.S. Bonds: 26.5% Barclays CapitalAggregate; Alternatives: 8.3%CS/Tremont Equity Market Neutral:8.3%, DJ /UBS Commodities: 8.3%NAREIT E uit REIT Index Return

9%

MSCI EM

Barclays Agg.

.and standard deviation calculatedusing Morningstar Direct.

Charts are shown for illustrativepurposes only. Past performance isnot indicative of future returns.Diversification does not guarantee

investment returns and does noteliminate risk of loss. Data are as of

Return: 7.43%Standard Deviation: 10.80% Return: 7.72%Standard Deviation: 9.87%

20-year Annualized Returns by Asset Class (1993 2012)

6/30/13.

(Bottom) Indexes used are asfollows: REITS: NAREIT Equity REITIndex, EAFE: MSCI EAFE, Oil: WTIIndex, Bonds: Barclays Capital U.S.Aggregate Index, Homes: mediansale price of existing single-familyhomes, Gold: USD/troy oz, Inflation:

11.2%

8.4% 8.2%8.1%

10%

12%

.investor return is based on ananalysis by Dalbar Inc., which utilizesthe net of aggregate mutual fundsales, redemptions and exchangeseach month as a measure of investorbehavior. Returns are annualized(and total return where applicable)and represent the 20-year periods

etClass 6.5% 6.3%

2.7% 2.5% 2.3%

4%

6%

8%

63

ending 12/31/12 to match Dalbarsmost recent analysis.A

s

0%

2%

REITs Gold S&P 500 Oil EAFE Bonds Homes Inflation AverageInvestor


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Annual Returns and Intra-year Declines

S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.7%, annual returns positive in 25 of 33 years

3440%

26

1517

26

1512

27 26

7

20

27

20

26

9

14

23

13 13 13

20%

30% YTD2013

-10

1 2

-7

4

-2

-10-

3 4

0

-7 -8 -9 -8 -8 -6 -6-5

-9

-3

-8-11 -

-8 -7 -8-10 -10

-6-10%

%

-23

-

-17 -18-17

-

-34

-20 -19-17

-30

-34

-14

-28

-16

-19

-40%

-30%

-20%

setClass

-49

-60%

-50%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

64

Source: Standard & Poors, FactSet, J .P. Morgan Asset Management.

Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough duringthe year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2012, 2013 numbers represent year to date returns.


As


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Cash Accounts

$ Billions

Weight in

Money

Supply

Money Supply

Component

$8,000

$10,000

Annual Income Generated by $100,000 Investment in a 6-month CD

M2-M1 8,018 76.9%

Retail MMMFs 634 6.1%

$2,000

$4,000

$6,000

2012:$450

,

Savings deposits 6,803 65.2%

Small time deposits 581 5.6%

$01986 1990 1994 1998 2002 2006 2010

6-month CD rate vs. Core CPICash AccountsCash as a % of Total Household Financial Assets28%

Mar. 09 S&P 500 low

Institutional MMMFs 1,747 16.7%

665 6.4%Cash in IRA & Keogh

accounts

16%

20%

24% Oct. 02 S&P 500 low

Total 10,429 100.0%

setClass

Source: Federal Reserve, St. Louis Fed, Bankrate.com, J .P. Morgan Asset Management.All cash measures obtained from the Federal Reserve are seasonally adjusted monthly numbers. All numbers are in billions of U.S. dollars.

'00 '02 '04 '06 '08 '10 '12

12%

65

As ma - enomna on me epos s are ose ssue n amoun s o ess an , . an eog accoun a ances a commerc a an s an r ns u ons are su rac e

from small time deposits. Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100,000 invested. 2012

average income is through December 2012. IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds.Past performance is not indicative of comparable future results.



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Corporate DB Plans and Endowments

Underfunded

Defined Benefit Plans Funded Status: S&P 500 Companies

Overfunded

Asset Allocation: Corporate DB Plans vs. Endowments

Endowments

94%78

22%

48.0%

9.0%

27.0%

FixedIncome

Equities

Pension Return Assumptions: S&P 500 companies

201219994.0%

38.0%

20.1%Hedge Funds

27%29%

20%

28%

21%

35%

20%

30%

40%

anies

2012: Average 7.3%

1999: Average 9.2%

2.0%

2.0%

17.7%

.

Real Estate

Private Equity

2% 1%

5%

9%7%

13%

3%0% 0% 0%

0%

10%

10%

%

ofCom

setClass

% of total4.0%

3.0%

3.0%

7.3%

Cash

Other

66

7.5% 8% 8.5% 9% 9.5% 10%

Return AssumptionSource: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J .P. Morgan AssetManagement. Asset allocation as of 2012. Funded status as of 2012. Endowments represents dollar-weighted average data of 842 colleges anduniversities. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Funded Status based on 347companies reporting pension funding status. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposesonly. Data are as of 6/30/13.

As

0% 10% 20% 30% 40% 50% 60%


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