2Q Commencement: A Guide to the Markets. David Kelly, Chief Global Strategist, JPMorgan Funds

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1 FOR INSTITUTIONAL USE ONLY NOT FOR PUBLIC DISTRIBUTION 2Q 2013 Commencement: A Guide to the Markets David Kelly, Chief Global Strategist, JPMorgan Funds

2 Summary Even at new all-time highs the stock market has room to rise. Long-term investors should position portfolios for rising rates. DM economies are troubled but DM stocks are cheap. EM stocks should benefit from stronger growth and sounder finances. The post-recovery environment should favor more balance and active management. 2

3 The S&P 500 finally hits a new high 6 Equities S&P 500 Index 1,600 1,400 Mar. 24, 2000 P/E (fwd.) = 25.6x 1,527 Characteristic Mar-2000 Oct-2007 May-2013 Index level 1,527 1,565 1,598 P/E ratio (fwd.) 25.6x 15.2x 14.0x Dividend yield 1.1% 1.8% 2.1% 10-yr. Treasury 6.2% 4.7% 1.6% Oct. 9, 2007 P/E (fwd.) = 15.2x 1,565 May P/E (fwd.) = 14.0x 1,598 1, % +101% 1,000-49% -57% +136% Dec. 31, 1996 Oct. 9, 2002 P/E (fwd.) = 16.0x Mar. 9, 2009 P/E (fwd.) = 14.1x P/E (fwd.) = 10.3x '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Standard & Poor s, First Call, Compustat, FactSet, J.P. Morgan Asset Management. Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based 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 future returns. Data are as of 5/3/13.

4 as the economy continues to expand. 17 Economy Real GDP % chg at annual rate 1 8% 6% 4% 2% 20-yr avg. 1Q13 Real GDP: 2.4% 2.5% $625 bn of output lost Components of GDP 1Q13 nominal GDP, billions USD $18,000 $16,000 $14,000 $12,000 $10,000 $8, % Housing 10.9% Investment ex-housing 18.9% Gov t Spending -2% -4% $1,049 bn of output recovered $6,000 $4, Consumption -6% $2,000-8% -1 '04 '06 '08 '10 '12 $0 -$2, % Net Exports Source: BEA, FactSet, J.P. Morgan Asset Management. GDP values shown in legend are % change vs. prior quarter annualized and reflect 1Q13 GDP. Data are as of 5/3/13. 4

5 .and the drag from Washington. 23 Economy Federal Budget Surplus/Deficit Federal Net Debt (Accumulated Deficits) % of GDP, % of GDP, % Forecast 2012 CBO Baseline CBO Baseline -8% -6% -4% 10 Forecast 2012 CBO Baseline 2013 CBO Baseline : actual: 72.5% : 58.3% -2% 4 2 2% 4% Source: U.S. Treasury, BEA, CBO, J.P. Morgan Asset Management numbers are actuals. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Chart on the left displays federal surplus/deficit (revenues outlays). Federal net debt comprises all financial liabilities of the Federal government (gross debt) minus all intra-government holdings as assets. Deficit and debt scenarios are based on CBO budget forecasts from August 2012 and February 2013, which include the American Taxpayer Relief Act s cost estimates. Data are as of 5/3/13. 5

6 $80 is offset by a surge in wealth. Consumer Balance Sheet Trillions of dollars outstanding, not seasonally adjusted Total Assets: $79.5tn 2Q- 07 Peak: $81.5tn 1Q- 09 Low: $65.2tn Household Debt Service Ratio Debt payments as % of disposable personal income, seasonally adjusted 15% 14% 3Q07: 14.1% 20 $70 Homes: 25% 13% Economy 6 $60 $50 $40 $30 $20 $10 $0 12% 11% 1Q80: 11.1% 1Q13*: 10.4% 1 '80 '85 '90 '95 '00 '05 '10 Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *1Q13 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 10 due to rounding. Data are as of 5/3/13. Other Tangible: 7% Deposits: 1 Pension Funds: 18% Other Financial Assets: 41% Revolving (e.g.: credit cards): 6% Non-revolving: 14% Other Liabilities: 8% Total Liabilities: $13.5tn Mortgages: 71% Household Net Worth Billions USD, saar $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 3Q07: $67,413 1Q13*: $69,210 $10,000 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

7 The economy has plenty of room to grow in spending 18 Economy Light Vehicle Sales Millions, seasonally adjusted annual rate ,400 Average: 15.2 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Housing Starts Thousands, seasonally adjusted annual rate Apr. 2013: 14.9 Change in Private Inventories Billions of 2005 dollars, seasonally adjusted annual rate $150 $100 $50 $0 $-50 Real Capital Goods Orders Non-defense capital goods orders ex. aircraft, $ bn, seasonally adjusted $75 1Q13: 50.3 Average: 28.8 $-100 $-150 $-200 '95 '00 '05 '10 2,000 $70 1,600 1, Average: 1,380 Mar. 2013: 1,036 $65 $60 $55 $50 Average: 57.2 Mar. 2013: $ '95 '00 '05 '10 $40 '00 '02 '04 '06 '08 '10 '12 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. Data are as of 5/3/13.

8 .and employment. 25 Civilian Unemployment Rate Seasonally adjusted 12% Employment Total Private Payroll Total job gain/loss (thousands) % 400 Economy 1 9% 8% 7% Apr. 2013: 7.5% mm jobs lost 6.8mm jobs gained 6% % 50-yr. avg.: 6.1% % % '70 '80 '90 '00 '10 Source: BLS, FactSet, J.P. Morgan Asset Management. Data are as of 5/3/13. -1,000 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: BLS, FactSet, J.P. Morgan Asset Management. 8

9 Stocks still look cheap relative to bonds and cash. 7 Equities S&P 500 Index: Valuation Measures Historical Averages Valuation 1-year 3-year 5-year 10-year 15-year Latest* Measure Description ago avg. avg. avg. avg. P/E Price to Earnings 14.0x 12.7x 12.5x 12.9x 14.2x 16.5x P/B Price to Book P/CF Price to Cash Flow P/S Price to Sales PEG Price/Earnings to Growth Div. Yield Dividend Yield 2.2% 2.2% 2.2% 2.3% 2.1% 1.9% S&P 500 Shiller Cyclically Adjusted P/E Adjusted using trailing 10-yr. avg. inflation adjusted earnings 50x 40x S&P 500 Earnings Yield vs. Baa Bond Yield 1 9% 8% S&P 500 Earnings Yield: (Inverse of fwd. P/E) 7.2% 9 30x 20x 10x 0x Average: 19.0x Apr. 2013: 22.3x '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 7% 6% 5% 4% Moody s Baa Yield: 4.5% 3% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: (Top) Standard & Poor s, FactSet, Robert Shiller Data, 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 post-1992 include intangibles and are provided by Standard & Poor s. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next 12 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 by NTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates are provided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 4/30/2013. (Bottom right) Standard & Poor s, Moody s, FactSet, J.P. Morgan Asset Management. Data are as of 5/3/13.

10 Confidence has room to rise. 30 Economy Consumer Sentiment Index University of Michigan Average 12-month S&P 500 index return After a peak: +1.1% After a trough: +22.2% Total period: +6.6% Aug % May % Mar % Jan Jan % Jan % 80 Average: Mar % Oct % '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 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 series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Data are as of 5/3/13. Feb % May % Oct % Nov % Aug %

11 Equities 11 S&P 500 forward P/E based on consensus EPS estimates 26x Forward P/E 24x 22x 20x 18x 16x 14x 12x 10x 5% 4% 3% 2% 1% -1%.and this should boost multiples. Multiple Expansion and Contraction '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Sentiment & Real Yields Correlation Coefficient: 0.75 Real yield based on nominal 10-yr. yield minus year-over-year core CPI 6% Real 10-year Yield Correlation Coefficient: 0.68 Est. impact of a 10pt. rise in sentiment: +2.0 multiple points* Consumer Sentiment Est. impact of a 10pt. rise in sentiment: +54 basis points* Consumer Sentiment '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: (Top) Standard & Poor s, FactSet, J.P. Morgan Asset Management. (Bottom) U.S. Treasury, BLS, University of Michigan, J.P. Morgan Asset 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 on coefficients from regression analysis. Data are as of 5/3/

12 Summary Even at new all-time highs the stock market has room to rise. Long-term investors should position portfolios for rising rates. DM economies are troubled but DM stocks are cheap. EM stocks should benefit from stronger growth and sounder finances. The post-recovery environment should favor more balance and active management. 12

13 Fed net bond purchases now exceed Treasury net bond issuance 34 Fed s Balance Sheet: Assets $ trillions $3.5tn $3.0tn Other $2.5tn U.S. Treasuries $2.0tn Agency MBS $1.5tn $1.0tn $0.5tn Money Multiplier M2 / Monetary Base 10.0x 9.0x 8.0x 7.0x 6.0x 5.0x 4.0x 3.0x Mar. 2013: 3.6x Fixed Income $0.0tn '03 '04 '05 '07 '08 '09 '10 '12 Fed s Balance Sheet: Liabilities $ trillions $3.0tn $2.5tn $2.0tn $1.5tn $1.0tn $0.5tn Minimum Reserves Excess Reserves 2.0x Federal Funds Rate & FOMC Interest Rate Projections 12% 1 8% 6% 4% 2% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Long-term Fed projection Mar. 31, 2013: % 13 $0.0tn '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: Federal Reserve, FactSet, J.P. Morgan Asset Management. '84 '88 '92 '96 '00 '04 '09 '12 '14 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 held in the central bank's reserves. Money multiplier defined as M2 divided by the monetary base. Long-term Fed projection is based on average expectations of FOMC members. Data are as of 5/3/13.

14 holding real yields artificially low.for now 32 Nominal and Real 10-year Treasury Yields 2 15% Sep. 30, 1981: 15.84% Average 5/1/13 Nominal Yields 6.41% 1.63% Real Yields 2.55% -0.26% Fixed Income 1 5% Nominal 10-year Treasury Yield May 1, 2013: 1.63% Real 10-year Treasury Yield 14-5% Rising Rate Corp. Bonds S&P % Ann. Inflation Ann. Real Return % Falling Rate Corp. Bonds S&P % 11. Ann. Inflation 3.1% 3.1% Ann. Real Return 6.8% 7.7% May 1, 2013: -0.26% '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 April 2013 and May 2013, where real yields are calculated by subtracting out March 2013 year-over-year core inflation. All returns above reflect annualized total returns, which include reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance. Data are as of 5/3/13.

15 Investors need to diversify across fixed income 33 U.S. Treasuries # of issues Correlation to 10-year Avg. Maturity 3/31/2013 3/31/2012 1Q Year years 0.25% 0.33% 0.09% 0.31% 5-Year % 1.04% 0.18% 2.29% 10-Year % 2.23% -0.31% 4.13% 30-Year % -3.07% 2.34% Yield Return Price Impact of a 1% Rise/Fall in Interest Rates* 2y UST -1.9% 0.5% +1% 5y UST -4.9% 3.7% -1% TIPS -5.8% 5.9% 10y UST -9.2% 9.2% 30y UST -20.3% 20.4% Fixed Income 15 TIPS % -0.09% -0.36% 6.98% Sector Broad Market 8, years 1.86% 2.22% -0.12% 4.21% MBS % 2.74% -0.05% 2.59% Municipals 8, % 2.47% 0.35% 5.7 Corporates 4, % % 9.82% High Yield 2, % 7.23% 2.89% 15.81% Floating Rate % 1.44% 0.48% 4.09% Convertibles % 0.97% 6.91% 15.64% EMD ($) % -1.46% 17.95% EMD (LCL) % 5.95% 0.34% 15.09% Floating Rate Convertibles MBS US HY EMD (LCL) US Aggregate Munis EMD ($) IG Corps -4.1% -4.1% % % -7.1% -0.1% % 3.5% % % % 7.1% Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown above are provided by Barclays Capital and are represented by Broad Market: Barclays U.S. Aggregate; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; EMD ($): Emerging Markets (USD); High Yield: Corporate High Yield Index; TIPS: Treasury Inflation Protection Securities (TIPS). EMD (LCL): Barclays Emerging Market Local Currency Government; Floating Rate: Barclays U.S. Floating Rate Notes; Convertibles: Barclays U.S. Convertibles Composite. Treasury securities data for # of issues based on U.S. Treasury benchmarks from Barclays Capital. Yield and return information based on Bellwethers for Treasury securities. Sector yields reflect yield to worst, while Treasury yields are yield to maturity. Correlations are based on 10-years of monthly returns for all sectors except Floating Rate and EMD (LCL), which are based on monthly returns from May 2004 and July 2008, respectively, due to data availability. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2). *Calculation assumes 2-year Treasury interest rate falls 0.25% to 0.0 and the 5-year Treasury falls 0.77% to 0.0,as interest rates can only fall to 0.0. Chart is for illustrative purposes only. Past performance is not indicative of future results. Data are as of 5/3/13.

16 0.8 The stock market shouldn t be hurt by rising rates from low levels 12 Correlations Between Weekly Stock Returns and Interest Rate Movements Weekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, Equities Correlation Coefficient Positive relationship between yield movements and stock returns Negative relationship between yield movements and stock returns When yields are below 5%, rising rates are generally associated with rising stock prices % 4% 6% 8% 1 12% 14% 16% 10-Year Treasury Yield Source: Standard & Poor s, US Treasury, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Data are as of 5/3/13. 16

17 Summary Even at new all-time highs the stock market has room to rise. Long-term investors should position portfolios for rising rates. DM economies are troubled but DM stocks are cheap. EM stocks should benefit from stronger growth and sounder finances. The post-recovery environment should favor more balance and active management. 17

18 Global equity markets still are far from their peaks Q MSCI EAFE Index: Return Needed to Reach 2007 Peak Analysis as of Mar. 31, 2013, implied average annualized total return Country / Region Local USD Local USD 1 Yr 46.9% Regions / Broad Indexes USA (S&P 500) EAFE Europe ex-u.k Pacific ex-japan Emerging Markets Yrs 3 Yrs 4 Yrs 5 Yrs 23.2% 16.1% 12.8% 10.8% MSCI: Selected Countries United Kingdom France MSCI EME Index: Return Needed to Reach 2007 Peak Analysis as of Mar. 31, 2013, implied average annualized total return 1 Yr 21.1% International Germany Japan China India Brazil Yrs 3 Yrs 4 Yrs 11.5% 8.5% 7. Russia Yrs 6.1% 18 Source: Standard & Poor s, 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 of 3/31/13 (MSCI EAFE: 3.3% and MSCI EM: 2.7%). Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions. Data as of 5/3/13.

19 .as Europe slumps back into recession. 47 International Europe Real GDP Year-over-year % change 6% 4% 2% -2% -4% Avg. Since % '99 '01 '03 '05 '07 '09 '11 Source: Eurostat, Bloomberg, FactSet, J.P. Morgan Asset Management. 4Q12 Real GDP 1.5% -0.5% Average: 1.5% Latest GDP Growth Rates for European Countries 4Q12, year-over-year % change Norway Sweden Switzerland Austria Germany U.K. Ireland France Belgium Europe Netherlands Denmark Finland Spain Italy Portugal Greece -5.7% -3.8% -2.8% -1.4% -1.9% -0.4% -0.5% -0.9% % 0.5% 0.2% % 1.4% 1.4% 2.1% -8% -6% -4% -2% 2% 4% 19 Data are as of 5/3/13.

20 .(although the ECB is holding financial stress in check) 49 European Sovereign Funding Costs 10-year benchmark bond yield 35% 3 25% Euro launch 4/26/13 Greece 9.85% Portugal 5.82% Spain 4.27% Italy 4.02% Ireland 4.2% 3.62% Germany % LTRO OMT International % Source: Tullett Prebon, FactSet, J.P. Morgan Asset Management. Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February The Outright Monetary Transaction (OMT) program was announced in September Data are as of 5/3/13. '95 '97 '99 '01 '03 '05 '07 '09 '11

21 .and Japan struggles with long-term problems 52 Real GDP Year-over-year % change 6% 20-yr Avg. 4Q12 Real GDP: 0.9% 0.4% Japanese Yen and the Stock Market 130 Japanese Yen per U.S. Dollar Nikkei ,000 3% ,000-3% 16,000-6% 110-9% '02 '04 '06 '08 '10 '12 CPI Inflation Year-over-year % change, sa 3% ,000 12,000 International Headline CPI Jan. 2013: -0.4% 1% 80-1% Core CPI Jan. 2013: -0.6% -3% 70 '02 '04 '06 '08 '10 '12 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: (Left) Japanese Statistics Bureau & Statistics Centre, Bank of Japan, J.P. Morgan Asset Management. (Right) FactSet, J.P. Morgan Asset Management. Core CPI is defined as CPI excluding food and energy prices. Data are as of 5/3/13. 10,000 8,000 6,000

22 .but DM valuations still look attractive, particularly given low inflation and low interest rates. 53 Developed Market Countries Std Dev from Global Average +6 Std Dev +5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 Std Dev -4 Std Dev -5 Std Dev World (ACWI) EAFE Index France Germany U.K. Japan Australia Canada United States Switzerland Example Expensive relative to own history Cheap relative to own history Expensive relative to world Current Average Cheap relative to world International Current Composite Index Current 10-year avg. Fw d. P/E P/B P/CF Div. Yld. Fw d. P/E P/B P/CF Div. Yld. World (ACWI) % % EAFE Index % % France % % Germany % U.K % % Japan % % Australia % % Canada % % United States % Sw itzerland % % 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), price to last 12 months 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 variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions. Data are as of 5/3/13. 22

23 EM growth is rebounding. 41 Emerging Market Country Real GDP Growth Year-over-year % chg. forecasts from JPMSI 1 8% 6% 4% 2% -2% Historical JPMSI Forecast 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13-4% Emerging Markets China India Mexico Russia South Africa Korea Brazil Developed Market Country Real GDP Growth Year-over-year % chg. forecasts from JPMSI 1 8% Historical JPMSI Forecast 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 International 6% 4% 2% -2% -4% Developed Countries U.S. Canada Germany Japan U.K. France Italy Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. Forecast and aggregate data come from J.P. Morgan Global Economic Research. Data are as of 5/3/13. 23

24 .and with EM debt under control GDP Growth, Gross Debt to GDP and Borrowing Costs 1 China 8% Indonesia Bubble size = 10-year government bond yield 1 44 International 24 Real GDP Growth ( F) 6% 4% 2% -2% -4% -6% Emerging Markets Developed Markets -8% Gross Debt-to-GDP Ratios (2012F) Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management. Growth and debt data are based on the October 2012 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 Africa s borrowing cost is based on 7-year government bond yield due to data availability. Data as of 5/3/13. Russia Australia Korea Turkey South Africa Malaysia Mexico Brazil India Germany EU Spain France U.K. Singapore U.S. Portugal Italy 5% Greece Japan 24

25 .many EM markets still looking cheap. 54 Emerging Market Countries Std Dev from Global Average +6 Std Dev +5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 Std Dev -4 Std Dev -5 Std Dev World (ACWI) EM Index Russia Brazil China Taiwan South Thailand Africa Korea Mexico Indonesia India Example Expensive relative to own history Cheap relative to own history Expensive relative to world Current Average Cheap relative to world International Current Current 10-year avg. Composite Index Fw d. P/E P/B P/CF Div. Yld. Fw d. P/E P/B P/CF Div. Yld. World (ACWI) % % EM Index % % Russia % Brazil % % China % % Taiw an % Thailand % % South Africa % % Korea % % Indonesia % % Mexico % % India % % 25 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), price to last 12 months 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 variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions. Data are as of 5/3/13.

26 .and EM growing as a share of global stock markets, investors may want to raise their EM equity allocations. 40 Share of Global Market Capitalization % global market capitalization, float adjusted 16% Weights in MSCI All Country World Index % global market capitalization, float adjusted 14% 12% 1 EM Market 8% 6% 4% 2% '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Emerging Market Share of MSCI ACWI Earnings % of global market earnings, float adjusted 16% United States 47% Share of Global GDP Based on purchasing power parity Europe ex- U.K. 15% U.K. 8% Emerging Markets 12% Japan 8% International 26 14% 12% 1 8% 6% 4% 2% '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: MSCI, IMF, FactSet, J.P. Morgan Asset Management. Emerging Markets 51% Europe ex- U.K. 16% United States 19% Share of global market capitalization is based on float adjusted MSCI data. Share of global GDP based on purchasing power parity (PPP) as calculated by the IMF for Definition of emerging markets is based on MSCI and IMF data sources. Percentages may not sum to 10 due to rounding. Data as of 5/3/13. Japan 6% U.K. 3% Other Developed 5% Canada 2%

27 Summary Even at new all-time highs the stock market has room to rise. Long-term investors should position portfolios for rising rates. DM economies are troubled but DM stocks are cheap. EM stocks should benefit from stronger growth and sounder finances. The post-recovery environment should favor more balance and active management. 27

28 The sideways market may be ending. S&P Composite Index, Price Return (Since 1900) Log Scale 2000 P/E: 28.6x 2000 present 67 1, P/E: 17.8x 1966 P/E: 18.0x Current P/E: 16.3x P/E: 15.1x 1937 P/E: 17.3x P/E: 9.5x Asset Class 28 '00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10 Source: IDC, FactSet, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. P/E ratios shown at price peaks and troughs use trailing four quarters of reported earnings and are shown as a one year average. Past performance is not indicative of future returns. Chart is for illustrative purposes only. Data are as of 4/22/ P/E: 10.0x 1932 P/E: 14.5x 1948 P/E: 10.0x

29 .and with correlations falling, superior active management should have an edge. 16 Large Cap Stocks Correlations Among Stocks Sovereign Debt Crisis Equities Great Depression / World War II Cuban Missile Crisis OPEC Oil Crisis 1987 Crash Tech Bust & 9/11 Lehman Bankruptcy Average: 26.7% Mar. 2013: 34.5% '26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10 Daily Volatility of DJIA 3.5% % % % DJIA vol. shown in 3-month moving average Volatility Measure 08 Peak Average Latest DJIA (Left) % 0.47% VIX (Right) '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Source: (Top) Empirical Research Partners LLC, Standard & Poor s, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 Mar. 31, (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility 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 5/3/13. 0

30 Asset Class yrs '03 - ' Q13 Cum. Ann. MSCI MS CI MS CI Ba rc la ys MS CI Russe ll MSCI MSCI REITs REITs REITs REITs REITs EME EME EME Agg EME EME EME % % % % % 5.2 % % % 8.3 % % 12.4 % % 16.9 % Russe ll MS CI DJ UBS MSCI DJ UBS MS CI Russe ll Ba rc la ys MS CI S&P Ca sh REITs REITs EME Cmdty EME Cmdty EAFE Agg EME % % % % % 1.8 % % % 7.8 % % 10.6 % % % MSCI MS CI MS CI MSCI MS CI Ma rke t MS CI Ma rke t MS CI Russe ll Russe ll REITs REITs EAFE EAFE EAFE EAFE EAFE Ne utra l EME Ne utra l EAFE % % 14.0 % % 11.6 % 1.1% % 19.2 % 4.5 % % 8.1% % 9.7 % Russe ll Russe ll Ma rke t Asse t Russe ll DJ UBS S&P Russe ll MSCI MSCI MSCI REITs REITs Ne utra l Alloc Cmdty EAFE EAFE EAFE % % 12.2 % 18.4 % 9.3 % % % 16.8 % 2. 1% % 5. 3 % % 8.7 % S&P Asse t Alloc. Asse t Alloc. S&P Asse t Alloc. Russe ll S &P S&P Ca sh S &P Asse t Alloc. Asse t Alloc % % 8. 3 % 15.8 % 7.4 % % % 15. 1% 0. 1% % 5. 0 % % 8.1% Asse t S &P Ma rke t Asse t Ba rc la ys DJ UBS Asse t Asse t Asse t Asse t Ma rke t S &P S&P Alloc Ne utra l Alloc. Agg Cmdty Alloc. Alloc. Alloc. Alloc. Ne utra l % % 6.1% 15.2 % 7.0 % % % 12.5 % % 11.3 % 0. 7 % % 7.1% DJ UBS Cmdty DJ UBS Cmdty S&P Ma rke t Ne utra l S &P S&P DJ UBS Cmdty MS CI EAFE Russe ll Ba rc la ys Agg Ca sh Ba rc la ys Agg Asse t Alloc. Ba rc la ys Agg % 9.1% 4. 9 % % 5.5 % % % 8.2 % % 4.2 % 0. 0 % % 5.2 % Ma rke t Ma rke t Russe ll Ba rc la ys Ba rc la ys MSCI Ma rke t Ba rc la ys Ma rke t Ma rke t Ca sh Ca sh REITs Ne utra l Ne utra l Agg Agg EAFE Ne utra l Agg Ne utra l Ne utra l 7.1% 6.5 % 4. 6 % 4.8 % 4.8 % % 5.9 % 6.5 % % 0.9 % - 0.1% % 4.9 % Ba rc la ys Ba rc la ys Ba rc la ys Russe ll MSCI Ma rke t DJ UBS DJ UBS DJ UBS DJ UBS Ca sh Ca sh Ca sh Agg Agg Agg EAFE Ne utra l Cmdty Cmdty Cmdty Cmdty 4.1% 4.3 % 3. 0 % 4.3 % % % 4.1% 0.1% % 0.1% - 1.1% % 4.1% Ca sh but now, more than ever, investors need balance. Ca sh Ba rc la ys Agg DJ UBS Cmdty REITs MSCI EME Ca sh Ma rke t Ne utra l MSCI EME DJ UBS Cmdty 1.0 % 1.2 % 2. 4 % 2. 1% % % 0.1% % % - 1.1% % 18.2 % 1.7 % Source: Russell, MSCI, Dow Jones, Standard & Poor s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P. Morgan Asset Management. The Asset Allocation portfolio assumes the following weights: 25% in the S&P 500, 1 in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EMI, 25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 3/31/13, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 2/28/ yrs returns represent period of 1/1/03 12/31/12 showing both cumulative (Cum.) and annualized (Ann.) over the period. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures. Data are as of 5/3/13. MSCI EME Ca sh Ca sh 56

31 2Q 2013 As of March 31, 2013 Guide to the Markets

32 Table of Contents EQUITIES ECONOMY FIXED INCOME INTERNATIONAL ASSET CLASS U.S. Market Strategy Team Dr. David P. Kelly, CFA david.p.kelly@jpmorgan.com Joseph S. Tanious, CFA joseph.s.tanious@jpmorgan.com Andrés D. Garcia-Amaya andres.d.garcia@jpmorgan.com Anastasia V. Amoroso, CFA anastasia.v.amoroso@jpmorgan.com anastasia.v.amoroso@jpmorgan.com Brandon D. Odenath brandon.d.odenath@jpmorgan.com David M. Lebovitz david.m.lebovitz@jpmorgan.com Gabriela D. Santos gabriela.d.santos@jpmorgan.com Anthony M. Wile anthony.m.wile@jpmorgan.com 32 Past performance is not indicative of future returns.

33 Page Reference 33 Equities 4. Returns by Style 5. Returns by Sector 6. S&P 500 Index at Inflection Points 7. Stock Valuation Measures: S&P 500 Index 8. Earnings Estimates and Valuations by Style 9. Corporate Profits 10. Sources of Earnings per Share Growth 11. Confidence and the Capital Markets 12. Interest Rates and Equities 13. Deploying Corporate Cash 14. Broad Market Lagged Price to Earnings Ratio 15. P/E Ratios and Equity Returns 16. Equity Correlations and Volatility Economy 17. Economic Growth and the Composition of GDP 18. Cyclical Sectors 19. The Aftermath of the Housing Bubble 20. Consumer Finances 21. Corporate Finances 22. Federal Finances: Outlays and Revenues 23. Federal Finances: Deficits and Debt 24. Trade and the U.S. Dollar 25. Employment 26. Employment and Income by Educational Attainment 27. Consumer Price Index 28. Oil and the Economy 29. Global Energy Supply 30. Consumer Confidence and the Stock Market Fixed Income 31. Fixed Income Sector Returns 32. Interest Rates and Inflation 33. Fixed Income Yields and Returns 34. The Fed and the Money Supply 35. Credit Conditions 36. High Yield Bonds 37. Municipal Finance 38. Emerging Market Debt International 39. Global Equity Markets: Returns 40. Global Equity Markets: Composition 41. Global Economic Growth 42. The Importance of Exports 43. The Impact of Global Consumers 44. Sovereign Debt Stresses 45. Global Manufacturing Wages 46. Global Monetary Policy 47. Europe: Economic Growth 48. Europe: Inflation and Unemployment 49. Eurozone: Sovereign Bond Yields 50. China: Growth and Economic Policy 51. China: Cyclical Indicators 52. Japan: Economic Snapshot 53. Global Equity Valuations Developed Markets 54. Global Equity Valuations Emerging Markets 55. Emerging Market Equity Composition Asset Class 56. Asset Class Returns 57. Correlations: 10-Years 58. Mutual Fund Flows 59. Yield Alternatives: Domestic and Global 60. Global Commodities 61. Gold 62. Historical Returns by Holding Period 63. Diversification and the Average Investor 64. Annual Returns and Intra-year Declines 65. Cash Accounts 66. Corporate DB Plans and Endowments 67. Stock Market Since 1900

34 Returns by Style 4 Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends. Equities S&P 500 Index 1,600 1,550 1,500 1,450 1,400 1,350 1,300 1, : Q13: +10.6% Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 1Q Value Blend Growth Value Blend Growth Small Mid Large 12.3% 10.6% 9.5% 14.2% % 11.6% 12.4% 13.2% Small Mid Large 17.5% % 18.5% 17.3% 15.8% 18.1% 16.3% 14.6% S&P 500 Index 1,600 Since 10/9/07 Peak: +13.2% Since Market Peak (October 2007) Since Market Low (March 2009) Value Blend Growth Value Blend Growth 1,400 Large 6.2% 13.2% 23.5% Large 164.7% % 1,200 1, Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Source: Russell Investment Group, Standard & Poor s, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 3/31/13, illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 3/31/13, illustrating market returns since the S&P 500 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 the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns. Since 3/9/09 Low: Mid Small 25.6% 25.9% 24.5% 17.9% 21.6% 24.7% Mid Small 220.8% 203.8% 187.8% 191.6% 193.2% 194.2% 34

35 Returns by Sector 5 Equities 35 Financials Technology Source: Standard & Poor s, Russell Investment Group, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 3/31/13. Since Market Low represents period 3/9/09 3/31/13. Forward P/E Ratio is a bottom-up calculation based 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. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings. Historical data can change as new information becomes available. Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom-up calculation of constituent earnings (as described) rather than a top-down calculation. This methodology is used to allow proper comparison of sector level data to broad index level data. Dividend yields are bottom-up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices. Past performance is not indicative of future returns. Health Care Industrials Energy Cons. Discr. Cons. Staples Telecom Utilities Materials S&P 500 Index S&P Weight 15.9% % 10.1% 10.9% 11.6% % 3.4% 100. Russell Growth Weight 4.9% 28.9% 12.8% 12.9% 4.2% 16.9% 12.9% 2.3% 0.2% 3.9% 100. Russell Value Weight 27.5% 6.7% 11.8% 9.1% 15.8% 8.3% 7.4% 3.2% 6.6% 3.6% 100. Since Market Peak (October 2007) Since Market Low (March 2009) 1Q Beta to S&P Forward P/E Ratio 11.7x 12.8x 14.4x 14.0x 12.1x 16.4x 16.6x 17.4x 15.9x 13.4x 13.8x 15-yr avg. 12.8x 23.7x 18.2x 16.8x 14.6x 18.6x 18.0x 17.4x 13.6x 16.1x 16.6x Trailing P/E Ratio 15.0x 15.0x 18.9x 16.6x 12.1x 17.8x 19.3x 42.3x 19.0x 18.7x 16.4x 20-yr avg. 15.9x 26.5x 24.0x 20.3x 18.0x 19.3x 21.0x 20.0x 14.4x 19.4x 19.5x Dividend Yield 1.9% 1.7% % 2.2% 1.7% 2.7% 4.4% % yr avg. 2.1% 0.6% 1.5% 1.8% 1.8% % 3.8% 4.4% 2.1% 1.7% Div P/E β Return (%) Weight

36 S&P 500 Index at Inflection Points 6 Equities S&P 500 Index 1,600 1,400 Mar. 24, 2000 P/E (fwd.) = 25.6x 1,527 Characteristic Mar-2000 Oct-2007 Mar-2013 Index level 1,527 1,565 1,569 P/E ratio (fwd.) 25.6x 15.2x 13.8x Dividend yield 1.1% 1.8% yr. Treasury 6.2% 4.7% 1.9% Oct. 9, 2007 P/E (fwd.) = 15.2x 1,565 Mar. 31, 2013 P/E (fwd.) = 13.8x 1,569 1, % +101% 1,000-49% -57% +132% Dec. 31, 1996 Oct. 9, 2002 P/E (fwd.) = 16.0x Mar. 9, 2009 P/E (fwd.) = 14.1x P/E (fwd.) = 10.3x '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Standard & Poor s, First Call, Compustat, FactSet, J.P. Morgan Asset Management. Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based 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 future returns.

37 Stock Valuation Measures: S&P 500 Index 7 Equities S&P 500 Index: Valuation Measures Historical Averages Valuation 1-year 3-year 5-year 10-year 15-year Latest* Measure Description ago avg. avg. avg. avg. P/E Price to Earnings 13.8x 13.0x 12.6x 12.9x 14.2x 16.6x P/B Price to Book P/CF Price to Cash Flow P/S Price to Sales PEG Price/Earnings to Growth Div. Yield Dividend Yield 2.2% 2.2% 2.2% 2.3% 2.1% 1.9% S&P 500 Shiller Cyclically Adjusted P/E Adjusted using trailing 10-yr. avg. inflation adjusted earnings 50x 40x S&P 500 Earnings Yield vs. Baa Bond Yield 1 9% 8% S&P 500 Earnings Yield: (Inverse of fwd. P/E) 7.3% 30x 20x Average: 19.0x 1Q13: 22.6x 7% 6% 5% 10x 4% Moody s Baa Yield: 4.8% 37 0x '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 3% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: (Top) Standard & Poor s, FactSet, Robert Shiller Data, 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 post-1992 include intangibles and are provided by Standard & Poor s. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next 12 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 by NTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates are provided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. *Latest reflects data as of 3/31/2013. (Bottom right) Standard & Poor s, Moody s, FactSet, J.P. Morgan Asset Management.

38 Earnings Estimates and Valuations by Style 8 Equities S&P 500 Index: Forward P/E Ratio 28x 24x 20x Average: 16.2x 16x 12x Mar. 2013: 13.8x 8x '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 S&P 500 Operating Earnings Estimates Consensus estimates of the next twelve months rolling earnings $120 $100 $80 1Q13: $ Current P/E vs. 20-year avg. P/E Large Mid Small Large Value Blend Growth Current P/E as % of 20-year avg. P/E E.g.: Large Cap Blend stocks are 14.8% cheaper than their historical average. Value Blend Growth 89.7% 85.2% 74. $60 $40 Mid 100.7% 95.2% 80.5% 38 $20 $0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Small 99.5% 91.4% 81.6% Source: (Top and bottom left) Standard & Poor s, FactSet, J.P. Morgan Asset Management. (Right) Russell Investment Group, IBES, FactSet. Earnings estimates are for calendar years and taken at quarter end dates throughout the year. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. 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&P 500.

39 Corporate Profits 9 Equities S&P 500 Earnings Per Share Operating basis, quarterly $26 2Q07: $24.06 $23 $20 4Q12: $23.16 Adjusted After-Tax Corporate Profits (% of GDP) Includes inventory and capital consumption adjustments 11% 1 9% 4Q12: 9.9% $17 8% $14 $11 $8 7% 6% 50-yr. avg.: 6.2% $5 5% $2 4% 39 -$1 '02 '04 '06 '08 '10 '12 3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Source: Standard & Poor s, Compustat, BEA, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. Most recently available data is 3Q12 as 4Q12 are Standard & Poor s estimates with 99.8% of companies reported. Past performance is not indicative of future returns.

40 Sources of Earnings per Share Growth 10 Equities S&P 500 Year-Over-Year EPS Growth Growth broken into revenue growth and margin expansion, quarterly Margin Share of EPS Growth Revenue Share of EPS Growth Q94 4Q96 4Q98 4Q00 4Q02 4Q04 4Q06 4Q08 4Q10 4Q12 Source: Standard & Poor s, Compustat, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. Most recently available data is 3Q12 as 4Q12 are Standard & Poor s estimates with 99.8% of companies reported. Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, and are adjusted on the chart. 40

41 Equities 41 S&P 500 forward P/E based on consensus EPS estimates 26x Forward P/E 24x 22x 20x 18x 16x 14x 12x 10x 5% 4% 3% 2% 1% -1% Confidence and the Capital Markets Multiple Expansion and Contraction '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Sentiment & Real Yields Correlation Coefficient: 0.75 Real yield based on nominal 10-yr. yield minus year-over-year core CPI 6% Real 10-year Yield Correlation Coefficient: 0.68 Est. impact of a 10pt. rise in sentiment: +2.0 multiple points* Consumer Sentiment Est. impact of a 10pt. rise in sentiment: +54 basis points* Consumer Sentiment '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: (Top) Standard & Poor s, FactSet, J.P. Morgan Asset Management. (Bottom) U.S. Treasury, BLS, University of Michigan, J.P. Morgan Asset 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 on coefficients from regression analysis

42 0.8 Interest Rates and Equities 12 Correlations Between Weekly Stock Returns and Interest Rate Movements Weekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, Equities Correlation Coefficient Positive relationship between yield movements and stock returns Negative relationship between yield movements and stock returns When yields are below 5%, rising rates are generally associated with rising stock prices % 4% 6% 8% 1 12% 14% 16% 10-Year Treasury Yield Source: Standard & Poor s, US Treasury, FactSet, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. 42

43 Equities Deploying Corporate Cash Corporate Cash as a % of Current Assets S&P 500 companies cash and cash equivalents, quarterly 3 28% 26% 24% 22% 2 18% 16% 14% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Dividend Payout Ratio S&P 500 companies, LTM Corporate Growth $bn, nonfarm nonfinancial capex, quarterly value of deals completed $1,300 $1,200 $1,100 $1,000 $900 $800 $700 Cash Returned to Shareholders S&P 500 companies, rolling 4-quarter averages, billions USD $33 $30 $27 $24 $21 $18 Capital Expenditures M&A Activity $600 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Dividends per Share Share Buybacks 13 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 $160 $140 $120 $100 $80 $60 $ '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: Standard & Poor s, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management. $15 $20 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 (Top left) Standard & Poor s, FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of deals completed and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poor s, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poor s, Compustat, FactSet, J.P. Morgan Asset Management.

44 Broad Market Lagged Price to Earnings Ratio 14 Lagged P/E Ratio All U.S. Corporations Ratio of market value of all U.S. corporations to adjusted after-tax corporate profits for prior four quarters 35x Equities 30x 25x P/E Ratios Avg. During Recessions 12.6x Avg. During Expansions 13.9x March 31, x 20x Mar. 31, 2013*: 14.4x 15x Average: 13.7x 10x 5x 0x '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 44 Source: BEA, Federal Reserve Board, Wilshire Associates, J.P. Morgan Asset Management. *The March 31, 2013 price is a J.P. Morgan Asset Management estimate based on the daily value of the Wilshire 5000 Total Market Index.

45 P/E Ratios and Equity Returns 15 P/E and Total Return Over 1-yr. Periods Quarterly, 1Q 1952 to 4Q Current P/E: 14.4 P/E and Total Return Over 5-yr. Annualized Periods Quarterly, 1Q 1952 to 4Q Current P/E: 14.4 Equities 4 3/31/13 Implied Annual Return 12.9% Standard Error 17.2% 4 3/31/13 Implied Annual Return 11.9% Standard Error 5.7% 2 2 5x 10x 15x 20x 25x 30x 5x 10x 15x 20x 25x 30x Source: BEA, FRB, J.P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterly dividends. 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 0.35 for 5-yr. returns (right).

46 Equity Correlations and Volatility 16 Equities Large Cap Stocks Correlations Among Stocks Great Depression / World War II Cuban Missile Crisis OPEC Oil Crisis 1987 Crash Tech Bust & 9/11 Lehman Bankruptcy Sovereign Debt Crisis Average: 26.7% Mar. 2013: 34.5% 46 '26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10 Daily Volatility of DJIA 3.5% % % % DJIA vol. shown in 3-month moving average Volatility Measure 08 Peak Average Latest DJIA (Left) % 0.45% VIX (Right) '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Source: (Top) Empirical Research Partners LLC, Standard & Poor s, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 Mar. 31, (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility 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

47 Economic Growth and the Composition of GDP 17 Economy Real GDP % chg at annual rate 1 8% 6% 4% 2% 20-yr avg. 4Q12 Real GDP: 2.5% 0.4% $625 bn of output lost Components of GDP 4Q12 nominal GDP, billions USD $18,000 $16,000 $14,000 $12,000 $10,000 $8, % Housing 10.6% Investment ex-housing 19.2% Gov t Spending -2% -4% $964 bn of output recovered $6,000 $4, % Consumption -6% $2,000-8% -1 '04 '06 '08 '10 '12 $0 -$2, % Net Exports Source: BEA, FactSet, J.P. Morgan Asset Management. GDP values shown in legend are % change vs. prior quarter annualized and reflect 4Q12 GDP. 47