2Q | 2013

As of March 31, 2013

Guide to the Markets

®

Table of Contents

EQUITIES ECONOMY FIXED INCOME INTERNATIONAL ASSET CLASS U.S. Market Strategy Team
Dr. David P. Kelly, CFA Joseph S. Tanious, CFA Andrés D D. Garcia-Amaya Garcia Amaya Anastasia V. Amoroso, CFA Brandon D. Odenath David M. Lebovitz Gabriela D. Santos Anthony M. M Wile david.p.kelly@jpmorgan.com joseph.s.tanious@jpmorgan.com andres d garcia@jpmorgan com andres.d.garcia@jpmorgan.com anastasia.v.amoroso@jpmorgan.com brandon.d.odenath@jpmorgan.com david.m.lebovitz@jpmorgan.com gabriela.d.santos@jpmorgan.com anthony m wile@jpmorgan com anthony.m.wile@jpmorgan.com

4 17 31 39 56

2

Past performance is not indicative of future returns.

Page Reference
Equities
4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 3 14. 15. 16. Returns by Style Returns by Sector S&P 500 Index at Inflection Points Stock Valuation Measures: S&P 500 Index Earnings Estimates and Valuations by Style Corporate Profits Sources of Earnings per Share Growth Confidence and the Capital Markets Interest Rates and Equities Deploying ep oy g Corporate Co po ate Cas Cash Broad Market Lagged Price to Earnings Ratio P/E Ratios and Equity Returns Equity Correlations and Volatility 35. 36. 37. 38. Credit Conditions High Yield Bonds Municipal Finance Emerging Market Debt

International
39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51 51. 52. 53. 54. 55. Global Equity Markets: Returns Global Equity Markets: Composition Global Economic Growth The Importance of Exports The Impact of Global Consumers Sovereign g Debt Stresses Global Manufacturing Wages Global Monetary Policy Europe: Economic Growth Europe: Inflation and Unemployment Eurozone: Sovereign Bond Yields China: Growth and Economic Policy China: Cyclical Indicators Japan: Economic Snapshot Global Equity Valuations – Developed Markets Global Equity Valuations – Emerging Markets Emerging Market Equity Composition

Economy
17. 18 18. 19. 20. 21. 22. 23. 24. 25 25. 26. 27. 28. 29. 30. Economic Growth and the Composition of GDP Cyclical Sectors The Aftermath of the Housing Bubble Consumer Finances Corporate Finances Federal Finances: Outlays and Revenues Federal Finances: Deficits and Debt Trade and the U.S. Dollar Employment Employment and Income by Educational Attainment Consumer Price Index Oil and the Economy Global Energy Supply Consumer Confidence and the Stock Market

Asset Class
56. 56 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. Asset Class Returns Correlations: 10-Years Mutual Fund Flows Yield Alternatives: Domestic and Global Global Commodities Gold Historical Returns by Holding Period Diversification f and the Average Investor Annual Returns and Intra-year Declines Cash Accounts Corporate DB Plans and Endowments Stock Market Since 1900

Fixed Income
31. 32. 33. 34. Fixed Income Sector Returns Interest Rates and Inflation Fixed Income Yields and Returns The Fed and the Money Supply

3

6% 193.6% 9. All calculations are cumulative total return return. For all time periods.4% 13.6% S&P 500 Index 1 600 1.450 1Q13: +10.2% Since Market Peak (October 2007) Value Large Blend Growth Since Market Low (March 2009) Value Large Blend Growth 6. Since Market Peak represents period 10/9/07 – 3/31/13.8% Small 17.400 1.2% Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Source: Russell Investment Group.7% 191. not annualized.5% 164.350 14.5% 16.5% Mid Small 220.0% 151. 3/31/13 illustrating market returns since the most recent S&P 500 Index high on 10/9/07.P.300 2012: +16.2% 13. Past performance is not indicative of future returns.2% 13.0% 25.8% 187. including dividends reinvested for the stated period period.500 1.2% 23.Returns by Style Charts reflect index levels (price change only). illustrating market returns since the S&P 500 Index low on 3/9/09. including dividends.8% Small 1.8% 203. J.0% 18.6% 24.8% Mid 1.400 1. 4 . FactSet.5% 17.3% 14. Morgan Asset Management.9% 21. total return is based on Russell-style indexes with the exception of the large blend category.6% 12.600 1.5% Mid 18.250 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 11.6% Value 12. All returns and annotations reflect total return.9% 24.0% 15.000 800 600 Dec-06 Since 3/9/09 Low: +153. Standard & Poor’s.5% 17. Since Market Low represents period 3/9/09 – 3/31/13.0% 11.3% Mid 1. S&P 500 Index 1.3% 15.600 . which is reflected by the S&P 500 Index. Data are as of 3/31/13.2% 194.3% 10. 1Q 2013 Large 2012 Blend Growth Value Large Blend Growth Equities 1. Returns are cumulative returns.2% Small 1.7% 153.6% 25.200 Since 10/9/07 Peak: +13 2% +13.1% 16.550 1.

All calculations are cumulative total return.7 212.6x 12.4x 2.3 9.3x 21.13 12 8x 12.7 1.1% 10.13 16 4x 16.4% 4.8% 10.0x 19.2% 15.8 21.6 11.0% 4. St ap le s og y ar e In d S& P 100.3% 11.52 15 9x 15.2 0.0x 2. including dividends for the stated period.5 0. P M Morgan A Asset M Management.9% 27.7% Div P/E 16.6x 19.3x 20.8% 11. Past performance is not indicative of future returns. S Source: Standard S d d&P Poor’s.8 15.4x 4.1x 14.3 0.1 148.3 16. Trailing P/E Ratio 20-yr avg.5% 10.8 17.0% 14.0% 2.6 0.3 133.6% 50 0 ol es y ex . Dividend Yield 20-yr avg.0% 100.9% 3.3% 3.5x 2.7% 1. 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.4x 18.9x 24. F FactSet. and is provided by FactSet Market Aggregates. Dividend yields are bottom-up bottom up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. s.7 15.8x 16.7% 0.0x 14.6% 2.4% 3.2 256.8% 10.9x 1.9x 13.0% 100.9% 8.0% 28.9% 7.2 108. S J J.8x 23.2% 1.0 4.0x 16.4x 19. 5 Weight S&P Weight 15.29 13 4x 13. Historical data can change as new information becomes available.9% 4.8% 12.0x 2.1 153.8% 11.00 13 8x 13.3x 1.1 1.1% 9.4x 17.5% 12.44 11 7x 11.0x 2. Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price. Co n Co n Ut il En In Fi Equities Russell Growth Weight Russell Value Weight 1Q13 2012 Since Market Peak (October 2007) 11.8 1.3 19.8x 19.7x 12.2 4.0% 1.4% 3.6% M at er iti 3.5% 18.Returns by Sector Di sc r.0x 15. Data are as of 3/31/13.0% 10.2% 3.0 13. not annualized.9% 4.7% 2. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices.68 17 4x 17.7x 15.6x β Return (%) du st ria ls na nc ia ls Te le co m ia ls C He al th Te ch n er g s.8% 13.4x 18.4x 42.2 153.9% 6.0 1.6x 18.2% 6.0x 26.9 1.9 54.8 130.4x 16. Since Market Low represents period 3/9/09 – 3/31/13.3x 2.6 14.0 0.1x 18.6x 17.P.0% 1.9% 2.1% Since Market Low (March 2009) Beta to S&P 500 Forward P/E Ratio 15-yr avg.6 10. This methodology is used to allow proper comparison of sector level data to broad index level data data.1% 12. ’ R Russell ll I Investment G Group.2 200.66 14 4x 14.1 1.6% 16.6 16.55 16 6x 16.8x 16. divided by consensus estimates for earnings in the next 12 months (NTM).8 -42.5% 0.1x 18.1% 4.7% 12.0 1.8 66.8x 15.7 104.6x 20.0x 4.5x 1.4% 3.7x 19.2 23.9 42.9% 9.3% 1.8 123.6% 15. Since Market Peak represents period 10/9/07 – 3/31/13.97 12 1x 12.20 14 0x 14.5 18.0% 12. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings.2x 18.4 28.

S&P 500 Index at Inflection Points S&P 500 Index 1. 1996 P/E (fwd. 2000 P/E (fwd.2% Oct-2007 1.8x 2 2. 31.527 25. Comp stat Forward For ard Price to Earnings Ratio is a bottom bottom-up p calc calculation lation based on the most recent S&P 500 Index price.) = 16. 6 .569 13. 9.6x 1 1% 1. Treasury Mar-2000 1. First Call. FactSet.400 +101% 1.1% 6. Returns are cumulative and based on S&P 500 Index price movement only. 9. Past performance is not indicative of future returns. as pro provided ided b by Compustat. 9 2002 P/E (fwd. and do not include the reinvestment of dividends. Data are as of 3/31/13.6x Characteristic Index level P/E ratio (fwd.1x Mar.) = 10. 31.) = 14. Morgan Asset Management. Dividend Di idend yield ield is calc calculated lated as the ann annualized ali ed di dividend idend rate di divided ided b by price price.7% Mar-2013 1. Compustat. and is provided by FactSet Market Aggregates.P. 2013 P/E (fwd.569 1. J.0x O t 9.) = 25. 2007 P/E (fwd.8% 4.9% Oct.200 +106% -57% -49% +132% 1.565 15. Oct.) = 13.2x Mar.000 800 Dec 31 Dec. 24.2x 1 8% 1.) = 15.527 1 565 1.8x Equities 1.0% 0% 1.3x 741 600 '97 '98 '99 '00 '01 777 '02 '03 '04 '05 '06 677 '07 '08 '09 '10 '11 '12 '13 Source: Standard & Poor’s.) Dividend yield 10-yr.565 1. divided by consensus estimates for earnings in the next 12 months (NTM).600 Mar. 2009 P/E (fwd.

FactSet.0 2. inflation adjusted earnings S&P 500 Earnings Yield vs.P. *Latest reflects data as of 3/31/2013.9 1.8% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 3% Source: (Top) Standard & Poor’s.5 9.0 1. J.6x 2.2 8. Morgan Asset Management.6x 3.4 9. P/E) ( ) 7. FactSet. avg.0x 2.8x 2.2% Latest* 13.2 1.7 2. PEG Ratio is calculated as NTM P/E divided by NTM earnings growth. Moody’s.4 1. Morgan Asset Management. All consensus analyst estimates are provided by FactSet.3 2.1% 15-year avg. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. 16.2x 2.0x 7% 6% 5% 4% Moody’s Baa Yield: 4. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months.3% 10-year avg. (Bottom right) Standard & Poor’s.2% 12.4 1.9x 2. 12. Price to Book is price divided by book value per share. 14.P.5 1.2 1.1 8. Yield Dividend Yield 1-year ago 13. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout.0 11. Data are as of 3/31/13. 7 . Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price.1 8.5 2.3 1.5 1.Stock Valuation Measures: S&P 500 Index S&P 500 Index: Valuation Measures Valuation Measure Description P/E Price to Earnings P/B Price to Book P/CF Price to Cash Flow P/S Price to Sales PEG Price/Earnings to Growth Div.9% Equities S&P 500 Shiller Cyclically Adjusted P/E 50x Adjusted using trailing 10-yr.1 2. Data post-1992 post 1992 include intangibles and are provided by Standard & Poor’s Poor s.3% 40x 30x 20x 10x 0x 8% 1Q13: 22. avg.2% Historical Averages 3-year 5-year avg.1 2. J.7 1.6x Average: 19. Robert Shiller Data.7 1.4 1. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next 12 months. Baa Bond Yield 10% 9% S&P 500 Earnings Yield: (Inverse of fwd.

8 16.1 15.15 E. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. P/E 1Q13: $114.g. FactSet.2 17.2% 80.6 17. Earnings estimates are for calendar years and taken at quarter end dates throughout the year.2x Mar.2 14. which is the S&P 500.5% 91. 20-year avg.P.8% cheaper than their historical average. 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.3 17.1 14.5 16.4% 81.Earnings Estimates and Valuations by Style S&P 500 Index: Forward P/E Ratio 28x 24x 20x 16x 12x Current P/E vs.: g Large g Cap p Blend stocks are 14.2 15. IBES.8 Growth 15.7% 95.0% Mid Small Mid 100. .9 14. Data are as of 3/31/13.4 21.9 Equities Average: 16.6% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 8 Source: (Top and bottom left) Standard & Poor’s. J.2% Growth 74.8x 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 $60 $40 Current P/E as % of 20-year avg. FactSet.7% Blend 85.5% Small $20 $0 99.5 13. Morgan Asset Management.5 20. (Right) Russell Investment Group. 2013: 13.0 14.3 Blend 13. Value Large 89. P/E Value Lar rge 12.6 21.

Compustat. Most recently available data is 3Q12 as 4Q12 are Standard & Poor’s estimates with 99.2% $5 $2 4% -$1 '02 '04 '06 '08 '10 '12 3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Source: Standard & Poor’s. BEA.16 Operating basis. EPS levels are based on operating earnings per share. avg.8% of companies reported.06 Equities 4Q12: 9 9% 9. J. Morgan Asset Management. quarterly Includes inventory and capital consumption adjustments 11% 2Q07: $24. 9 Data are as of 3/31/13.9% $23 10% $20 9% $17 8% $14 7% $11 6% $8 5% 50-yr. .P.: 6.Corporate Profits S&P 500 Earnings Per Share $26 Adjusted After-Tax Corporate Profits (% of GDP) 4Q12: $23. Past performance is not indicative of future returns.

1Q2010 and 2Q2010 reflect -101%. J. and are adjusted on the chart. Compustat. quarterly Margin Share of EPS Growth 40% Equities Revenue Share of EPS Growth 30% 20% 10% 0% -10% -20% -30% -40% 4Q94 4Q96 4Q98 4Q00 4Q02 4Q04 4Q06 4Q08 4Q10 4Q12 Source: Standard & Poor’s.P. 10 . Data are as of 3/31/13.8% of companies reported. Morgan Asset Management. EPS levels are based on operating earnings per share. 92% and 51% growth in operating earnings. Most recently available data is 3Q12 as 4Q12 are Standard & Poor’s estimates with 99. Past performance is not indicative of future returns. 4Q2008.Sources of Earnings per Share Growth S&P 500 Year-Over-Year EPS Growth 50% Growth broken into revenue growth and margin expansion.

rise in sentiment: +2. Treasury. . *Estimated impact based on coefficients from regression analysis. Real 10year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month. Morgan Asset Management. J.P. 10pt rise in sentiment: +54 basis points* Consumer Sentiment 120 110 100 90 80 70 Correlation Coefficient: 0. impact of a 10pt.S.Confidence and the Capital Markets Multiple Expansion and Contraction S&P 500 forward P/E based on consensus EPS estimates 26x 24x Est.68 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 60 50 11 Source: (Top) Standard & Poor’s. FactSet. (Bottom) U. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. J. University of Michigan.P. Morgan Asset Management.0 multiple points* Consumer Sentiment 120 110 100 90 80 70 Forward P/E Equities 22x 20x 18x 16x 14x 12x 10x '93 '94 '95 '96 Correlation Coefficient: 0. yield minus year-over-year core CPI Real 10-year Yield Est impact of a 10pt. BLS. Data are as of 3/31/13. Est.75 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 60 50 Sentiment & Real Yields 6% 5% 4% 3% 2% 1% 0% -1% '93 '94 '95 '96 Real yield based on nominal 10-yr.

8 0% 2% 4% 6% 8% 10-Year Treasury y Yield Source: Standard & Poor’s.2 0 -0.4 Cor rrelation Coefficient 0.Interest Rates and Equities Correlations Between Weekly Stock Returns and Interest Rate Movements Weekly S&P 500 returns. rolling 2-year correlation. 10% 12% 14% 16% 12 .6 Positive relationship between yield movements and stock returns 0. Data are as of 3/31/13.4 Negative relationship between yield movements and stock returns -0.2 -0. Returns are based on price index only and do not include dividends. US Treasury. 1963-2013 0. 10-year Treasury yield. J.6 -0. Morgan Asset Management.8 When y yields are below 5%. rising rates are generally associated with rising stock prices Equities 0. FactSet.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.200 $1. quarterly value of deals completed Capital Expenditures M&A Activity $1. FactSet. J. Bloomberg.P. Morgan Securities. FactSet.400 $1. FactSet.300 $1 200 $1.P. (Bottom right) Standard & Poor’s. Morgan Asset Management. quarterly 28% % 26% 24% 22% 20% 18% 16% 14% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Corporate Growth $1. FRB. J.000 $800 $600 $400 $200 $0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Equities Dividend Payout y Ratio S&P 500 companies.100 $1.P.P. FactSet. J. Data are as of 3/31/13. Morgan Asset Management. J. J. LTM 60% Cash Returned to Shareholders $33 $30 S&P 500 companies. nonfarm nonfinancial capex. (Top left) Standard & Poor’s.200 $1. (Bottom left) Standard & Poor’s.Deploying Corporate Cash Corporate Cash as a % of Current Assets 30% S&P 500 companies – cash and cash equivalents. billions USD $160 Dividends per Share $140 $120 $100 50% $27 40% $24 $80 $21 30% $18 $60 Share Buybacks '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 $40 $20 20% $15 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: Standard & Poor’s. 13 .000 $900 $800 $700 $600 $bn. Compustat.600 $1 400 $1.P. Morgan Asset Management. rolling 4-quarter averages.

31. Corporations 35x Ratio of market value of all U. Wilshire Associates. 2013 price is a J.S. 2013*: 14.Broad Market Lagged Price to Earnings Ratio Lagged P/E Ratio – All U.P. Federal Reserve Board.P.9x 14.7x 15x 10x 5x 0x 52 '52 '55 55 '58 58 '61 61 '64 64 '67 67 '70 70 '73 73 '76 76 '79 79 '82 82 '85 85 '88 88 '91 91 '94 94 '97 97 '00 00 '03 03 '06 06 '09 09 '12 12 Source: BEA. Morgan Asset Management. *The March 31.4x 25x Avg. 14 . corporations to adjusted after-tax corporate profits for prior four quarters Equities 30x P/E Ratios Avg.6x 13. During Expansions March 31. Data are as of 3/31/13. During Recessions 12. Morgan Asset Management estimate based on the daily value of the Wilshire 5000 Total Market Index.S.4x Average: 13. J. 2013 20x Mar.

S.4 3/31/13 Implied Annual Return 12.15 for 1-yr. Periods Quarterly. Prices are based on the market value of all U.4 Equities 40% 40% 3/31/13 Implied Annual Return 11. Note: Orange line denote results of linear regression with R-squared of 0.P/E Ratios and Equity Returns P/E and Total Return Over 1-yr. Valuation based on long-term P/E ratio. returns (left) and 0.2% Current P/E: 14. 15 .9% Standard Error 5. Morgan Asset Management. FRB. Data are as of 3/31/13. 1Q 1952 to 4Q 2007 60% Current P/E: 14.P. J. 1Q 1952 to 4Q 2011 60% P/E and Total Return Over 5-yr.9% Standard Error 17.35 for 5-yr.7% 20% 20% 0% 5x 10x 15x 20x 25x 30x 0% 5x 10x 15x 20x 25x 30x -20% -20% 20% -40% -40% Source: BEA. Annualized Periods Quarterly. returns (right). corporations and include quarterly dividends.

Capitalization weighted correlation of top 750 stocks by market capitalization.4 Latest 0.5% 0. DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average. '10 30 15 0 16 . J.5% 1.7 90 75 60 45 1.9 Average 0.P.30% VIX (Right) 80.45% 12. 1926 – Mar. 2013. J.5% 3. Morgan Asset Management.0% DJIA vol.5% 2 0% 2. 31.7% Mar. 2013: 34. (Bottom) CBOE.0% 2. Charts shown for illustrative purposes only.0% 0. shown in 3-month moving average Volatility Measure ’08 Peak DJIA (Left) 3. Morgan Asset Management. Standard & Poor’s.P. Data are as of 3/31/13.Equity Correlations and Volatility Large Cap Stocks Correlations Among Stocks 70% 60% 50% 40% 30% 20% 10% 0% '26 '32 '38 '44 '50 '56 '62 '68 '74 '80 '86 '92 '98 '04 '10 Sovereign Debt Crisis Lehman Bankruptcy Equities Great Depression / World War II Cuban Missile Crisis OPEC Oil Crisis 1987 Crash Tech Bust & 9/11 Average: 26.0% '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 Source: (Top) Empirical Research Partners LLC. daily returns. Dow Jones.5% Daily Volatility of DJIA 3.72% 20.

billions USD $18.000 Source: BEA.Economic Growth and the Composition of GDP Real GDP % chg at annual rate 10% Components of GDP 20-yr avg. prior i quarter t annualized li d and d reflect fl t 4Q12 GDP.000 $8.3% Net Exports '08 '10 '12 -$2. 4Q12 Real GDP: 2.000 $0 70.6% Investment ex-housing 19.000 $10.000 $625 bn of output p lost 4Q12 nominal GDP. 17 .000 $2.6% H i 10.2% Gov’t Spending 8% 6% Econom my 4% 2% 0% 2% -2% -4% -6% -8% -10% '04 '06 $12. GDP values l shown h i in l legend d are % change h vs.000 $4.000 $964 bn b of f output recovered $6.000 2 6% Housing 2. FactSet.P.4% $16.5% 0.3.000 $14. GDP Data are as of 3/31/13.9% 70 9% Consumption . J. Morgan Asset Management.

Cyclical Sectors
Light Vehicle Sales
24 22 20 18 16

Change in Private Inventories
$150 $100 $50

Millions, seasonally adjusted annual rate

Billions of 2005 dollars, seasonally adjusted annual rate
4Q12: 13.3

Feb. 2013: 15.3 Average: 15.2

$0 $-50 $ 100 $-100 $-150 $-200

Econom my

14 12 10 8 '94 '96 '98 '00

Average: 28.7

'02

'04

'06

'08

'10

'12

'95

'00

'05

'10

Th Thousands, d seasonally ll adjusted dj t d annuall rate t
2,400 2,000 1,600

Housing Starts

Real Capital Goods Orders
$75 $70 $65 $60

Non defense capital goods orders ex. Non-defense ex aircraft, aircraft $ bn bn, seasonally adjusted

1 200 1,200 800 400 0 '95 95 '00 00

Average: 1,380 1 380

Feb 2013: Feb. 917

Average: 57.2

Feb. 2013: 57.6

$55 $50 $45 $40

'05 05

'10 10

'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 3/31/13.

18

The Aftermath of the Housing Bubble
Home Prices
Indexed to 100, seasonally adjusted
160

Monthly Rent vs. Monthly Mortgage Payment
Vacant properties
$1,100

Case Shiller 20-city FHFA Purchase Only
150

$950 $800 $650

Average Existing Home

M thl Monthly Mortgage Payment

1Q13*: $726

Econom my

140

$500 $350

Monthly Rent
'88 '90 '92 '94 '96 '98 '00 '02 '04 '06

1Q13*: $507

130

$200 '08 '10 '12

Home Inventories
120

Milli Millions, annuall rate, t seasonally ll adjusted dj t d
4.5 4.0

110
3.5 30 3.0

100

2.5 2.0

Feb. 2013: 2.2
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

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

1.5

Sources: (Left) National Association of Realtors, Standard & Poor’s, 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 payment based on asking price. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. *1Q13 rent and mortgage payment values are J.P. Morgan Asset Management estimates.

19

Data are as of 3/31/13.

Consumer Finances
Consumer Balance Sheet
Trillions of dollars outstanding, not seasonally adjusted
$80

Household Debt Service Ratio Debt payments as % of disposable personal income, seasonally adjusted
15% 14%

Total Assets: $79.5tn

2Q-’07 Peak: $81.5tn 1Q ’09 1Q09 Low: $65.2tn $65 2tn

3Q07: 14 1% 14.1%

$70

Homes: 25%

13% 12%

Econom my

$60

Other Tangible: 7%
$50

1Q80: 11 1% 11.1% 1Q13*: 10.4%
'85 '90 '95 '00 '05 '10

11% 10% '80

Deposits: 10%

$40

Pension Funds: 18%

Household Net Worth Billions USD, saar
$80,000 $70,000 $60,000 $50,000 $ $40,000 $30,000

3Q07: $67,413

1Q13*: $69,210

$30

Revolving (e.g.: credit cards): 6% Non-revolving: 14% Other Liabilities: 8% Other Financial Assets: 41% Total Liabilities: $13.5tn

$20

$10

Mortgages: 71%
$0

$20,000 $10,000

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

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 100% due to rounding. Data are as of 3/31/13.

20

ratio of total debt to total equity.200 $1.Corporate Finances Corporate Financing Gap Nonfarm nonfinancial corporate business.600 $1. 500 quarterly t l 9x 8x 7x 6x 5x 4x 3x 2x 1x 0x '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 3Q12: 7. .2x 160% 140% 120% 100% '94 '96 '98 '00 '02 '04 '06 '08 4Q12 : 108% '10 '12 Source: Federal Reserve.P. Morgan Asset Management. quarterly 240% Total Internal Funds Total Capital Expenditures Companies must borrow Companies can fund internally '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 220% Econom my $800 $ $600 $400 200% 180% Average: 173% Interest Coverage Ratio (EBIT / Net Interest) S&P 500.1.000 Total Leverage S&P 500. F. Total internal funds equals retained earnings plus depreciation. J.102 lines 9 and 11.400 $1. billions USD $1. Compustat. (Top Left): All data is from the Fed’s Flow of Funds tables report Z. FactSet. 21 Data are as of 3/31/13. Standard & Poor’s.

: $251bn (7%) 18% 2013: 17. J P Morgan M Asset A M Management. CBO J. BEA.P.5 Other: $241bn (7%) 22% 2013: 23.5 Social Security: $810bn (23%) $1. Data are as of 3/31/13.9% $0. Note: Years shown are fiscal years (Oct.0 Borrowing: $845bn (24%) 24% Econom my $2.: : $461bn (13%) Defense: $751bn (21%) $3. OMB CBO.6% $1.0 1960 – 2013. 30).0 Social Insurance: $952bn (27%) 20% Average: 20.264bn (36%) 16% Revenues Outlays $0.5 Medicare & Medicaid: $858bn (24%) Income: $1.Federal Finances: Outlays and Revenues The 2013 Federal Budget CBO Baseline forecast. US T Treasury. % of GDP 26% Federal Outlays and Receipts Total Spending: $3.5 Other $448bn (13%) Net Int. 14% 1960 1970 1980 1990 2000 2010 22 .6tn $3. BEA OMB. 2013 Federal Budget is based on the CBO’s February 2013 Baseline Scenario.3% $2.0 Total Government Spending Sources of Financing S Source: U.: $224bn (6%) Non-defense Non defense Disc Disc.S.0 Corp. 1 through Sep.8% Average: 17. trillions USD $4.

1 through Sep. Morgan Asset Management. J.S.P. Data are as of 3/31/13.5% -6% 60% 2022: 58. Sep 30). Federal net debt comprises all financial liabilities of the Federal government (gross debt) minus all intra-government holdings as assets. which include the American Taxpayer Relief Act’s cost estimates.3% -4% 40% -2% 0% 20% 2% 1990 1994 1998 2002 2006 2010 2014 1990 1994 1998 2002 2006 2010 2014 2018 2022 Source: U. BEA. 1990 – 2022 100% 2012 CBO B Baseline li -10% Forecast Forecast 2012 CBO Baseline 2013 CBO Baseline 2022: 76.0% 2013 CBO Baseline 80% -8% Econom my 2012 actual: 72. Treasury. 4% 0% 2018 2022 23 . 2012 numbers are actuals. Deficit and debt scenarios are based on CBO budget forecasts from August 2012 and February 2013. CBO. 1990 – 2022 -12% Federal Net Debt (Accumulated Deficits) % of GDP.Federal Finances: Deficits and Debt Federal Budget Surplus/Deficit % of GDP. 30) Chart on the left displays federal surplus/deficit (revenues – outlays). actuals Note: Years shown are fiscal years (Oct (Oct.

2008: 70. Data are as of 3/31/13. Dollar Index Nominal trade-weighted exchange index: major currencies 115 4Q05: 4Q05 -6. 24 .8% 0% 70 65 '94 94 '96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 '12 12 '94 94 '96 96 '98 98 '00 00 '02 02 Mar.P. J. 84. Morgan Asset Management.S.1 -2% 4Q12: -2.5% -6% 110 105 100 95 90 85 80 75 Econom my -4% Mar 2009: Mar. 2013: 76. % of GDP -8% U. Data are as of 3/31/13. FactSet.P. Dollar Current Account Balance.S.0 Mar. Morgan Asset Management. J. FactSet. Source: Federal Reserve.Trade and the U.3 '04 04 '06 06 '08 08 '10 10 '12 12 Source: BEA.

P.000 '00 '10 '03 '04 '05 '06 '07 '08 '09 Source: BLS. Data are as of 3/31/13.000 1.Employment Civilian Unemployment Rate Seasonally adjusted 12% Employment – Total Private Payroll Total job gain/loss (thousands) 600 11% 400 Econom my 10% 200 8.7% 7% -200 6. J. 2013: 7. FactSet. avg. J.8mm jobs lost j 9% 0 8% Feb.P.4mm jobs gained -400 6% -600 5% % 50-yr. Morgan Asset Management. '10 '11 '12 25 . FactSet. Morgan Asset Management.1% -800 4% 3% '70 '80 '90 Source: BLS. -1.: 6.

P.493 6% Feb. 26 .8% 2% $10. J.000 4% $20 000 $20.981 16% 14% Less than High School Degree High School No College Some College College or Greater Feb.2% $80.9% $50.000 $87. Unemployment rates shown are for civilians aged 25 and older. J. 2013: 11 2% 11. Morgan Asset Management.000 $59.415 Econom my 12% $60.000 10% Feb.P. Morgan Asset Management. 2013: 3. 2011.000 $32.000 Feb. $0 High School Graduate Bachelor's Degree Advanced Degree Source: Census Bureau. USD $90. Data are as of 3/31/13. 2013: 6.000 0% '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: BLS. FactSet.7% $30.Employment and Income by Educational Attainment Unemployment Rate by Education Level 18% Average Annual Earnings by Highest Degree Earned Full-time workers aged 18 and older.000 +29K $70. 2013: 7.000 +24K % 8% $40.

1 year ago and reflect February 2013 CPI data.3% 76.8% 3 4% 3. 27 . Morgan Asset Management.7% 2. 2013 CPI Components Food & Bev.0% 2.0% 2. prior year.3% 41. J.0% 12% Econom my 9% Medical Care Recreation 6% Educ.1% 4. Avg.4% 100. Core CPI CPI used is CPI-U and values shown are % change vs. Core CPI is defined as CPI excluding food and energy prices.0% Headline CPI: Core CPI: 4.Consumer Price Index CPI and Core CPI % change vs. & Comm.2% 4.6% 14. Feb.2% 6. Data are as of 3/31/13.0% 1 7% 1.6% 16.8% 7. FactSet.8% 2.3% 0.1% 2.0% -3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Source: BLS. Housing Apparel Transportation Weight in CPI 15.0% 3. Other 3% Headline CPI Less: 0% Energy Food 9.7% 3. seasonally adjusted 15% 50-yr.P.0% 12-month Change 1.4% 1.0% 3. CPI component weights are as of December 2012 and 12-month change reflects non-seasonally adjusted data through February 2013.7% 2.7% 2.0% 6.

50 2% Econom my $100 $3.50 0% '70 '75 '80 '85 '90 '95 '00 '05 '10 $60 $2.S. J.S.7% $80 $2.00 1% 1Q13*: 2. hydropower and bio-fuels. .50 Oil Oil Gas $140 12/31/00 $26.Oil and the Economy WTI Crude Oil & Retail Gasoline Prices $160 Economic Drag From Oil Prices Gas $4. Morgan Asset Management.23 $3 68 $3.8% $4.72 $1 41 $1. 0% '90 '95 '00 '05 '10 Source: (Top) BEA.P. petroleum and natural gas while consumption includes oil.50 20% 15% $20 $1. '15 '20 28 Data are as of 3/31/13.00 10% 5% $0 $0. gas.00 Total U. Department of Energy. nuclear.P. petroleum imports as a % of GDP 4% 3Q08: 3. FactSet. (Bottom) EIA. retail national average of all formulations and WTI for crude. FactSet.68 U. J.41 3/31/13 $97. Morgan Asset Management. Morgan Asset Management estimate. Imports are mostly crude oil. Morgan Asset Management. Energy Net Imports % of total energy consumption Energy Spending by Income Level 35% % of after-tax income 30% 25% EIA forecast $40 $1. J.P. *1Q12 drag on growth is a J.S. coal.50 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: U.00 3% $120 $3. Price of gas based on U.S.P.

2011 Saudi Arabia 13% China Russia 12% Iran United States 12% Canada 5% 5% 4% Major Consum ers Percent of global total.1% U.6% 5 0 1990 1995 2000 2005 2010 2015 2020 2025 Sudan S d 0. *mmBTU represents 10.03 $10. Forecasts are from the EIA Annual Energy Outlook 2013.S. J. 2011 United States 22% India 4% China 10% Saudi Arabia 3% Japan 5% Brazil 3% $10 $8 $6 $4 $2 $0 $4.000 million British thermal units.2% Shale Gas Econom my Iraq 3.5% Kuwait 3.9% 15 10 Other Egypt 0. Morgan Asset Management.6% Iran 4.70 $14.8% Saudi Arabia 12.0% Libya 0.0% UAE 3. 2011 Syria 0.11 United States United Kingdom China Source: EIA. .5% Natural Gas Prices by y Country y USD per mmBTU* $16 $14 $12 $13.10 Bab el el-Mandeb Mandeb 3.P.8% Strait of Hormuz 17 0% 17. Japan 29 Data are as of 3/31/13. Natural gas prices are as of June 2012. USD 30 25 20 EIA forecast Suez Canal 2.Global Energy Supply Middle East Energy Production & Chokepoints Percent of global liquid fuel production. Natural Gas Production Trillions of cubic meters.4% Major Producers Percent of global total.

FactSet. 1975 +22.4% Jan. 2005 +14.3 80 70 Mar. 2011 +15.0% 110 Econom my Aug.2% 90 May 1977 +1.6% +6 6% 120 Jan.2% Oct. which excludes dividends. Subsequent 12-month S&P 500 returns are price returns only. J. 1990 +29.5% Jan. 2004 +4.2% Mar. Morgan Asset Management.4% 40 '72 '74 '76 '06 '08 '10 '12 Source: University of Michigan. 1972 100 Aug -6. 2003 +32. 2008 +22. 1984 Mar +13.8% Oct.3% Aug. .2% +22 2% Total period: +6. 2007 -4.2% Average: 85.Consumer Confidence and the Stock Market Consumer Sentiment Index – University of Michigan 130 Average 12-month S&P 500 index return… After a peak: +1 +1.2% '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 60 50 Feb.1% 1% After a trough: +22. while a trough is defined as the lowest index value before a series of higher highs. Peak is defined as the highest index value before a series of lower lows.1% May 1980 +19.2% Nov.P. 30 Data are as of 3/31/2013. 2000 -2.

25% in Treasuries.1% Barclays B l Agg -0.2% Corp. 15.1% Muni 4. High Yield: Corporate High Yield Index. 9. 9.2% EMD 5.9% -26. 1.2% Corp. 4.0% Muni 6.1% Barclays B l Agg 7.7% Muni 64. 8. 10% in Emerging Debt.Fixed Income Sector Returns 2003 High Yield % 29. J. 2. Treasuries: Barclays Capital U. .2% High Yield High Yield 1.9% Asset Alloc.6% % High Yield 10. 15% in Municipals.5% 2005 EMD 12.4% 2007 TIPS 11. Corporate: U.5% Asset Alloc. The “Asset Allocation” portfolio assumes the following weights: 10% in MBS.0% 2012 EMD 17. 10% in High Yield.7% 2006 High Yield 11.6% % Treas. 9.0% EMD 26.6% Muni 3. 59.8% Asset Alloc. 7.8% Corp. Morgan Asset Management.2% Source: Barclays Capital.9% MBS 5.1% MBS 0. 3.6% 2010 High Yield 15. 0. EMD 200. 4.9% TIPS 6.3% Asset Alloc.1% MBS 3.4% MBS 4. FactSet. 5.7% MBS 2.5% MBS 64. 31 Data are as of 3/31/13.8% Barclays B l Agg 4. 6.9% Asset Alloc.3% Treas.8% % EMD 10.7% % MBS 8.6% % Muni 10. 5.S.4% Barclays Agg 5.7% Treas.0% 1Q13 High Yield 2.0% MBS 6. -0.8% Corp.2% High Yield 5.4% Muni -2.2% Asset Alloc.7% TIPS 8.3% Barclays Agg 4.0% MBS 6.2% TIPS -0.3% Corp.P. Aggregate Index.6% Treas. 13.1% Treas. Asset allocation portfolio assumes annual rebalancing.9% MBS 5. Past performance is not indicative of future returns. 94. 6. -1.0% Asset Alloc. 9. -4.1% TIPS 0. -0.0% EMD 11. 6.5% TIPS 2.8% High Yield 2.4% EMD -1. Treasury.8% TIPS 7.3% Treas.4% 2008 Treas.0% Corp. Emerging Debt: Emerging Markets USD Index.9% Treas.5% Barclays Agg 4.'12 Cum.4% Corp.3% % Asset Alloc.3% % High Yield 174.0% MBS 5. 4.4% 2011 TIPS 13.9% TIPS 11. Corporates.9% Corp.9% EMD -14.5% 10-yrs '03 .S. 7.8% Muni 12.1% TIPS 8. 8.4% 2004 EMD 11.9% % High Yield 15. 2.6% Asset Alloc.2% Muni 5.3% Barclays Agg 5. 20% in Corporate.4% TIPS -2. 18.7% Fixed In ncome Corp.8% Asset Alloc.3% Corp.3% TIPS 90.2% % EMD 34. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.6% Muni 3. 3.5% TIPS 6. 3.1% Treas. 5.4% Corp.9% % Muni 0.8% Treas.4% Muni 2.7% Asset Alloc. 2.7% 2009 High Yield 58.5% Corp.1% Treas. -3.1% Treas.7% Muni 4.0% Barclays Agg 7.2% Muni 5. 84.7% Barclays B l Agg 65.3% Asset Alloc.1% % EMD 12.8% Barclays Agg 4.2% Asset Alloc.3% Barclays B l Agg 5. 6. Ann.6% Barclays Agg 2.1% MBS 5. MBS: Fixed Rate MBS Index. 9.2% MBS 2. 8.S. 10% in TIPS. TIPS: Barclays Capital TIPS.8% EMD 7. Municipals: Muni Bond Index.7% Corp.9% % High Yield 11.3% Treas.6% Barclays Agg 6.

J. 31.5% Falling Rate Corp. Real Return 6. Corporate bond returns are based on a composite index of investment grade bond performance.84% 15% Nominal Yields Real Yields Average 6. Inflation 3.6% Ann. 30. All returns above reflect annualized total returns.Interest Rates and Inflation Nominal and Real 10-year Treasury Yields 20% Sep. Data are as of 3/31/13.8% 7. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for March 2013. Real Return -2. Bonds S&P 500 1982-2012 10. Inflation 5.1% 11.0% 5.09% -5% '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 Source: Federal Reserve. Morgan Asset Management.55% 3/31/13 1.87% 0. BLS.42% 2.1% Ann.P. 32 . 2013: 1.7% Mar. Bonds S&P 500 1958-1981 3.1% 3. which include reinvestment of dividends.0% Ann. where real yields are calculated by subtracting out February 2013 year-over-year core inflation.87% 5% Real 10-year Treasury Yield 0% Rising Rate Corp. S 30 1981 1981: 15. 31. 2013: 0.0% Ann.0% 8.0% 3.09% 10% Fixed In ncome Nominal 10-year Treasury Yield Mar.

Fixed Income Yields and Returns Price Impact of a 1% Rise/Fall in Interest Rates* Yield U.0% -6.1% 10% 20% 30% Fixed In ncome Broad Market MBS Municipals p Corporates High Yield Floating Rate Convertibles EMD ($) EMD (LCL) Convertibles MBS US HY EMD (LCL) US Aggregate Munis EMD ($) IG Corps -30% 2.7 1.0% 5.00%. 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. respectively. EMD (LCL): Barclays y Emerging g g Market Local Currency y Government.53 0.4 6.29% TIPS 10y UST 4. Maturity 2 years 5 10 30 10 3/31/2013 0.11% 4. Fixed income sectors shown above are provided by Barclays Capital and are represented by – Broad Market: Barclays U.00%.95% 0.64% -1.3% 6. Floating g Rate Notes.86% 2.0% -4. TIPS: Treasury Inflation Protection Securities (TIPS). Treasury.2 years 5.2% 7.1% 5. p Treasury y securities data for # of issues based on U. Floating g Rate: Barclays y U.988 .40% 7. .06% 4.23 -0.46% 17.52% 2.3% 0.09% 0 09% Return 2y UST 1Q13 0. High Yield: Corporate High Yield Index.52 -0. Sector yields reflect yield to worst.0 1.23 -0.3% -6. Past performance is not indicative of future results.47% 3.76% 5.81 0.59% 5. Chart is for illustrative purposes only.07% -0.S.5% 3.9 9.13% 30y UST 2. EMD ($): Emerging Markets (USD).1% -3.9 10.S.35% -0.0% 4. Municipals: Muni Bond Index. J.06% 2.056 314 517 623 430 0.05% 0.21% 2.2% 6.09% 0. 4.23% 1.30% 4.1% -5.5 * Price * Convexity * (Change in Interest Rates)^2).8 -9. Aggregate.77% to 0.95% -0.35% -0.86% 2.223 784 8.97% 5. while Treasury yields are yield to maturity.81% 0.34% 15.33% 1.23% 3.82% -0.92 1.5% 3 7% -3.77% 1.62 Avg.1% 3.98% 20.0% 6.7% 5.7% -5.48% 4.5% 4. Treasury benchmarks from Barclays Capital.527 2. Corporate: U. due to data availability.70% 9.S. Convertibles: Barclays y U. Barclays Capital.04 7.64% 0 64% 3/31/2012 0.25% 0. which are based on monthly returns from May 2004 and July 2008. Correlations are based on 10-years of monthly returns for all sectors except Floating Rate and EMD (LCL).28 0.92 0 62 0.87 0.09% Source: U. Treasuries 2-Year 5-Year 10-Year 30-Year TIPS Sector # of issues 73 60 21 18 34 Correlation to 10-year 0.1% -20% -10% 0% 0.18% -0.74% 2.9% 9. *Calculation assumes 2-year Treasury interest rate falls 0.1% -4 1% -4.35% 5. FactSet. Convertibles Composite.31% 2.89% 15.8% -9.12% -0.87% 3.P.67% 0. 33 Data are as of 3/31/13. MBS: Fixed Rate MBS Index.25% to 0.10% -0.00% and the 5-year Treasury falls 0.S.91% 15. Morgan Asset Management.2% -7.2% +1% -1% y UST 5y 0.S.04% 2.S. Corporates.as interest rates can only fall to 0. Yield and return information based on Bellwethers for Treasury securities.22% 2.2% -20.0% -5.22 -0.S.09% 6.31% -3.6 7.34% 6 98% 6.4% Floating Rate 8.00 0.68% 1.44% 0.36% 0 36% 2012 -0.69 0.

0x Money Multiplier M2 / Monetary Base 10.The Fed and the Money Supply Fed’s Balance Sheet: Assets $ trillions $3. 2013: 3.0x 9 0x 9. 2013: 0.0tn $2.0x 3. 31.0x 7.0tn $1 5tn $1. J. Treasuries Agency MBS $1 0tn $1.6x Fixed In ncome $0.0tn Minimum Reserves Excess Reserves 6% 4% 2% 0% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Long-term Fed projection Mar. .5tn 5.0%-0. Morgan Asset Management. Money multiplier defined as M2 divided by the monetary base. 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. 34 Data are as of 3/31/13.S.0x Oth Other U.0tn '03 '04 '05 '07 '08 '09 '10 '12 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Fed’s Balance Sheet: Liabilities $ trillions t illi $3.0x 6.P.5tn Federal Funds Rate & FOMC Interest Rate Projections 12% 10% 8% $2.25% '84 '88 '92 '96 '00 '04 '09 '12 '14 Source: Federal Reserve.5tn $3 0t $3.5tn $0.0x Mar.5tn $1.0x 8. Long-term Fed projection is based on average expectations of FOMC members.0tn $1.0tn $0.0tn $2.0x 2.5tn 4.5tn $2. FactSet.0tn $0.

J.6% 2.1% 10% 8% 2011: 11. All data reflect most recently available releases. 1934 – 2011 14% Residential Mortgages Consumer Loans Commercial and Industrial Loans 12% 10. 2013: 747 19% 15% Small Firms Large & Medium Firms '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Fixed In ncome Delinquency Rates All b banks.Credit Conditions Lending Standards for Approved Mortgage Loans Average FICO score based on origination date 760 740 720 700 680 660 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Commercial & Industrial Loan Demand Net percent of banks reporting stronger demand 60% 40% 20% 0% -20% -40% -60% -80% Feb.1% Average: 7. J.P. Morgan Asset Management. Morgan Asset Management. FactSet.6% 1. Morgan Asset Management. J.2% '10 '12 6% 4% '97 97 '04 04 '11 11 '34 34 '41 41 '48 48 '55 55 '62 62 '69 69 '76 76 '83 83 '90 90 Source: (Top left) McDash.P.P. Morgan Securitized Product Research.P. Data are as of 3/31/13. J.P. 35 . J. (Bottom left): Federal Reserve. (Top right) Federal Reserve. Morgan Asset Management. FactSet. k seasonally ll adjusted dj t d 12% 10% 8% 6% 4% 2% '92 '94 '96 '98 '00 '02 '04 '06 '08 Common Equity as a % of Total Assets All FDIC insured institutions institutions. (Bottom right) FDIC.

1% 4. Loan Spreads HY Defaults Rates Average 5.P. (Bottom left): J. 2013. Strategic Insight.1¢ $20 $10 $0 -$10 -$20 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 36 Source (Top chart): U. (Bottom right): Strategic Insight.P. 2013. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields.P Morgan. Loan L Spreads S d HY Default Rates HY Spreads Lev. . Morgan Asset Management. Morgan.S.P. Past performance is not indicative of comparable future results.2% Latest 5. Fitch. bo ds. billions USD YTD 2013: $11 $11.9% 5. Morgan Asset Management.5% 1.0% 4. Flows include ETFs and are as of February 28.High Yield Bonds High Yield Spreads and Defaults 20% HY Spreads 15% L Lev. prepackaged filing or missed interest payments.P. Treasury. Morgan Asset Management.7bn 7bn $50 $40 $30 Leveraged Loans High Yield Average: 42. 2013 recovery rate is a weighted average number as of February 28. J. Data are as of 3/31/13. J. J. . J. Yield to worst is defined as the lowest potential yield that can be received on a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder. 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.2% 10% 5% 0% Fixed In ncome '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Historical High Yield Recovery Rates High g yield y e d bonds. ce cents ts o on t the e do dollar a 90¢ 80¢ 70¢ 60¢ 50¢ 40¢ 30¢ 20¢ 10¢ 0¢ '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Annual Flows into High Yield and Leveraged Loan Funds Mutual funds & ETFs.

J. J. Morgan Asset Management. (Bottom right) SIFMA. Morgan Asset Management.S.P. 31. Treasury. Data are as of 3/31/13. Morgan Asset Management. 2013: 110% '00 '02 '04 '06 '08 '10 '12 $100bn $0bn '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 60% Source (Left chart): Barclays Capital. *Excludes maturities of 13 months or less and private placements. revenue e e ue a and d GO issues ssues Billions $500bn $400bn $300bn 120% 100% $200bn 80% Mar. 2013 issuance data is as of February 2013. (Top right) BEA. 37 .P. FactSet. J.Municipal Finance Muni/Treasury Ratio Ratio of Barclays 10-year Municipal Bond yield to 10-year Treasury 240% State & Local Government Debt Service % of current expenditures 8% 220% 7% 200% 6% 4Q12: 5. U.P.2% 5% 180% 4% Fixed In ncome 160% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 140% Municipal Bond Issuance* o s US USD. .

Data are as of 3/31/13. Flow data is as of February 2013. Average Spread 3. The J. g inverse scale F b 2013: Feb. Morgan Corporate Emerging Bond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. percent Index Sov. Morgan Asset Management.P. Spreads measure the credit risk premium over comparable maturity U.4% Latin America 43% Latin America 29% 40% 20% Europe 33% Asia 41% Asia 17% 0% Fixed In ncome Sovereigns (EMBIG) Corporates (CEMBI) 0% '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Emerging Market Debt Credit Rating EMBIG average g monthly y credit rating.P.Emerging Market Debt Index Breakdown – USD Denominated EMD 100% 80% 60% Europe 16% Middle East & Africa 7% Middle East & Africa 13% Emerging Markets Debt Spreads 12% 10% 8% 6% 4% 2% Spread to Treasuries of USD-denominated debt. Morgan. 2013 BBBBBB BBBBB+ BB BBB+ Annual Flows into EMD Mutual Funds & ETFs Billions USD $30 $25 $20 $15 $ $10 $5 YTD 2013 2013: $5 $5.S. Strategic Insight.P.3% Spread (3/31/13) 3.P. MorganMarkets.1% 3. Corp. 38 . Treasury bonds.0 0 B B- $0 '11 '12 '13 -$5 '03 '04 '05 '06 '07 '08 '09 '10 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 Source: J. Past performance is not indicative of comparable future results.8% 3. The J. Morgan EMBI Global (EMBIG) Index is a USDdenominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. FactSet. J.

1 21 8 21.0 17.P.8 22.4 10. 39 .1 26.5% 3 Yrs 8.2 10.6 17.0 -0. Data assume dividend yields as of 3/31/13 (MSCI EAFE: 3.9 30.K.8% 5 Yrs 10.8 -4. 31.0 -1.6 17. Past performance is not indicative of future results.5 24.9 30. Definition of emerging markets is based on MSCI data.6 0.7%).4 -3.1% 4 Yrs 12.8 2.7 7.6 2 Yrs 23.0 10.4 23.3 14.8 32. J.7 3.7 18. MSCI.3 30 3. 2013.Global Equity Markets: Returns 1Q13 Country / Region Local USD 2012 Local USD MSCI EAFE Index: Return Needed to Reach 2007 Peak Analysis as of Mar.6 -0. Morgan Asset Management.5% 4 Yrs 7. UK Pacific ex-Japan Emerging Markets 9.4 MSCI EME Index: Return Needed to Reach 2007 Peak Analysis as of Mar.1% International Germany Japan China India Brazil Russia 2 Yrs 11.3 -2.3 -1.2 20. Data as of 3/31/13.0 22.3 2. IMF.4 16.1 84 8.2% 3 Yrs 16.1 9.0% 5 Yrs 6 1% 6. implied average annualized total return 1 Yr 46.8 -3. 31. 2013.0 7.3 11 8 11. implied average annualized total return 1 Yr 21. Please see disclosure page for index definitions.9% Regions / Broad Indexes USA (S&P 500) EAFE Europe ex ex-U.6 5.9 20 0 20.3 22. Chart is for illustrative purposes only.8% MSCI: Selected Countries United Kingdom France 9.8 57 5. FactSet. All return values are MSCI Gross Index (official) data.9 21 6 21.3% and MSCI EM: 2.5 0.1% Source: Standard & Poor’s.7 15.0 0.6 -4.5 -2.9 22 5 22.

K. earnings float adjusted 16% 14% Share of Global GDP Based on purchasing power parity Europe exU. .K. Share of global GDP based on purchasing power parity (PPP) as calculated by the IMF for 2013.K. float adjusted 16% 14% 12% 10% 8% 6% 4% 2% 0% '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Weights in MSCI All Country World Index % global market capitalization. 8% Emerging Markets 12% Japan 8% Emerging Market Share of MSCI ACWI Earnings % of global market earnings. 3% Other Developed 5% International 12% 10% 8% 6% 4% 2% 0% '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Source: MSCI. FactSet. Percentages may not sum to 100% due to rounding.Global Equity Markets: Composition Share of Global Market Capitalization % global market capitalization. Definition of emerging markets is based on MSCI and IMF data sources.K. J. Morgan Asset Management. 15% EM Market United States 47% U.P. Data as of 3/31/13. 16% Emerging Markets 51% U. IMF. Japan 6% United States 19% Canada 2% 40 Share of global market capitalization is based on float adjusted MSCI data. float adjusted Europe ex exU.

Data are as of 3/31/13.K. Morgan Asset Management. – forecasts from JPMSI 10% 8% Historical 1Q12 2Q12 3Q12 4Q12 1Q13 JPMSI Forecast 2Q13 3Q13 4Q13 International 6% 4% 2% 0% -2% -4% Developed Countries U. Morgan Global Economic Research.P. J. France Italy Source: J. Morgan Global Economic Research.S. 41 . Forecast and aggregate data come from J.Global Economic Growth Emerging Market Country Real GDP Growth Year-over-year % chg. Canada Germany Japan U.P.P. – forecasts from JPMSI 10% 8% 6% 4% 2% 0% -2% -4% Emerging Markets China India Mexico Russia South Africa Korea Brazil Historical 1Q12 2Q12 3Q12 4Q12 1Q13 JPMSI Forecast 2Q13 3Q13 4Q13 Developed Market Country Real GDP Growth Year-over-year % chg.

4% 9 5% 9.0% 4.4% E Eurozone BRIC Oth Other 26.2% 2.1% 26 8% 26.8% 1.9% 4.2% 1.4% 1.6% 15.K.8% U.7% 2 1% 2.S.4% 9.6% 21. Data are as of 3/31/13.S.9% 10.1% 23.2% 3.5% 2. France 1.1% 4.3% 10.2% US U.The Importance of Exports Exports as a % of GDP – 2011 Goods exports only Brazil India China Russia 0 8% 0.7% 38. J P Morgan Asset Management Management.0% 2.0% 2.7% 6.0% 5.0% 18. IMF J.0% 12.1% 4.8% 6.4% 2.6% 2.3% 14. Japan U.4% 2.8% 1.8% International Italy Canada Germany 19.7% 12. 17.2% 21.1% 1.P.5% 14 4% 14. Values may not sum to total exports due to rounding. Numbers represent exports of goods only and would be higher if services were included.5% 1.2% 10.5% 1.0% 4.1% 2.9% 1.0% 10.3% 4. 42 .8% 7.5% 1.5% 2.9% 0% 5% 10% 15% 20% 25% 30% 35% 40% Source: IMF.2% 1.8% 26.

The Impact of Global Consumers Share of Global Nominal Consumption 40% Foreign Sales. Compustat. Foreign sales as a percentage of total sales is calculated as an unweighted average of individual index constituent companies’ reported sales figures and does not capture p all index members due to differences in reporting p gp practices.S. J. J.P. 43 .P. % of Total Sales 40% 35% 35% 30% 30% Mega Cap (Russell Top 200) 25% 25% 20% Large g Cap p (Russell ( 1000) ) International 20% U. Morgan Asset Management. Russell. Consumption % of Global EM Consumption % of Global 15% Small Cap (Russell 2000) 15% 1990 1995 2000 2005 2010 10% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Source: FactSet. Morgan Global Economics Research. Data are as of 3/31/13.

Morgan Economics.P. Morgan Asset Management. 44 .K. Bloomberg. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. FactSet. South Africa’s borrowing cost is based on 7-year government bond yield due to data availability. Italy -2% Spain Portugal International -4% -6% Emerging Markets Developed Markets Greece -8% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 240% G Gross Debt-to-GDP D bt t GDP R Ratios ti (2012F) Source: IMF. J. Data as of 3/31/13. Gross Debt to GDP and Borrowing Costs 10% China Bubble size = 10-year government bond yield 8% Indonesia 10% India Malaysia Turkey 5% Singapore Brazil U.S. Barclays.P. Borrowing costs based on local currency debt.Sovereign Debt Stresses GDP Growth. Germany France EU Japan 6% Real GDP G Growth (2011 – 2013F) 4% Russia Korea Mexico 2% Australia South Africa 0% U. J. Growth and debt data are based on the October 2012 World Economic Outlook.

P.500 $3. average USD per month $4 000 $4.250 $2. and 2010 for Brazil. U.000 $455 $500 $309 $352 $74 $0 $348 $139 $323 $112 $193 $52 $148 $500 $250 $0 U.077 $866 $1. Chinese wages are those of rural migrant workers as a proxy. Data as of 3/31/13.089 $2.000 $2.958 $1. FactSet.885 Emerging Countries 2001* Latest $2 000 $2. and Japan.750 $3.S. and Indonesia (preliminary). and Thailand. FactSet J. Indonesia IMF IMF.716 $1.500 $1.000 $3. Germany.000 $2. Vietnam Statistics Indonesia. General Statistics Office of Vietnam.Global Manufacturing Wages Manufacturing Wages Nominal. Germany Japan Brazil Mexico China Thailand Vietnam Indonesia Source: ILO (International Labor Organization). Thailand National Statistical Office. 45 . Vietnam (preliminary). *Data begins in 2005 for Vietnam due to availability of data. J P Morgan Asset Management Management. China. Bureau of Labor Statistics. EM Advisors Group.500 $750 International $1.500 $2 9 8 $2.000 $1.000 Developed p Countries $3. Ministry of Labor-Mexico. Data is from 2012 for Mexico.942 $2.S. 2011 for United States.

K.0% 7. China India -5.5% 0. Morgan Global Economics Research. Real policy rates are short-term target interest rates set by central banks minus year-over-year inflation.S. Federal Reserve '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 -2% -3% '02 '03 Emerging Markets Developed Markets '04 '05 '06 '07 '08 '09 '10 '11 '12 Country Level Monetary Policy and Inflation 10.0% U. Morgan Global Economics Research.P. J.0% Target Policy Rate Inflation Rate Real Policy Rate International 2. Inflation rates shown represent year-over-year quarterly rates for 4Q12.P.0% -2.5% 5. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. U.Global Monetary Policy Central Bank Assets – Percent of Nominal GDP 35% 30% Real Policy Rates – Monthly 4% 3% 25% 20% 15% 10% 5% 0% Bank of Japan European Central Bank 2% 1% 0% -1% U.5% South Africa Hong Kong Euro area Indonesia Russia Thailand Colombia Canada Australia Mexico Poland Turkey Taiwan Japan Korea Developed Markets Emerging Markets 46 Source: J.P. (Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J. Morgan Asset Management. Data are as of 3/31/13. Brazil .S.

year-over-year % change 4Q12 -0. FactSet.9% -1.7% 0.1% 1.0% -1.9% -2.2% 0.Europe: Economic Growth Europe Real GDP Year-over-year % change 6% Latest GDP Growth Rates for European Countries Avg. Data are as of 3/31/13.8% -3. Ireland France 0% Belgium Europe Netherlands -2% Denmark Finland Spain International -4% Italy Portugal -6% '99 '01 '03 '05 '07 '09 '11 Source: Eurostat.4% -0.7% -8% -6% -4% -2% 0% 2% 4% 4% Austria Germany 2% Average: 1.4% 1.5% Norway Sweden Switzerland 2.4% 0. Greece 47 . Morgan Asset Management.K. Bloomberg.5% U.8% -5. Since 1999 Real GDP 1.5% 0.5% 4Q12.P.3% -0.5% 0 5% -0. J.0% -0.4% -1.

8% 24% 27% Greece and Spain p Euro area U.S. J.Europe: Inflation and Unemployment Europe Inflation Year-over-year % change 5% Unemployment Rate Avg. Source: Eurostat. 21% 1. Latest data January 2013 except US which is February 2013. 2013 1.P. J. FactSet.P.and Spain unemployment rate is weighted average of each country’s harmonised unemployment rate based on population size.7% Feb. (Right) Note: Greece. Since 1999 Headline CPI Core CPI 2. Morgan Asset Management. Data are as of 3/31/13. Morgan Asset Management.1% 1.4% 4% Italy Germany 3% 18% 15% 2% 12% 1% International 9% 0% 6% '99 '01 '03 '05 '07 '09 '11 3% '99 '01 '03 '05 '07 '09 '11 Source: (Left) ECB. 48 . FactSet.

. The Outright Monetary Transaction (OMT) program was announced in September 2012.40% 1.68% 4.2% Germany 3/31/13 10. Note: The ECB announced the second round of Long Term Refinancing Operations (LTRO) in February 2012.P.06% 4. 49 Data are as of 3/31/13. Morgan Asset Management.90% 6 26% 6.Eurozone: Sovereign Bond Yields European Sovereign Funding Costs 10-year benchmark bond yield 35% Euro launch 30% Greece P t Portugal l Spain Italy Ireland 4.28% 25% 20% LTRO 15% OMT International 10% 5% 0% '95 '97 '99 '01 '03 '05 '07 '09 '11 Source: Tullett Prebon. J.26% 5. FactSet.

5% -0.3% 1.4% 9.P. J.1% 7% Mar. RRR represents the reserve requirement ratio.4% -3.1% 9. .5% 5.5% Monetary Policy Rates 8% RRR 25% 4% Working Capital Rate 4.9% 0% -4% '00 '02 '04 '06 '08 '10 '12 8% 4.2% 4.5% 3.1% 4% 12% 10. 2013 3.2% 1.China: Growth and Economic Policy China GDP Contribution Year-over-year % change 16% Investment Consumption Net Exports Inflation Year-over-year % change 12% 8% Avg.9% 1 9% 9.2% 4.0% 1 0% Feb. CEIC. 50 Data are as of 3/31/13. since Jan.8% 5. 2013: 6% 5% 5% 0% -4% 4% 2008 2009 2010 2011 2012 '00 '02 '04 '06 '08 '10 '12 Source: National Bureau of Statistics of China.4% -0.6% 8.6% 0. Morgan Asset Management. FactSet. 2000 Headline CPI: Non-Food CPI: 2. 2013: 20% 15% 10% 0% 0.3% 7. The People’s Bank of China.5% 4.2% 6% Mar. Values may not sum to 100% due to rounding.9% 20% Internatio onal 4.

7% Markit Mfg. 2013: 17.7 (Flash) NBS Mfg.4% May 2010 – Mar.0% 30% 0% 8 RMB per USD (Spot) Exports Feb.8% 7 Jun. seasonally adjusted 90% Residential Floor Space Started Feb. 2005 – Jul. Mf PMI 30% 0% -30% 30% '10 '11 Residential Floor Space Sold 50 Feb.China: Cyclical Indicators Chinese Currency Renminbi per US Dollar (inverted scale) 6 Merchandise Trade Growth Year-over-year % change Mar. 2013: 21. 2013: 56. while the Markit manufacturing PMI includes 400 companies with a bias toward small and medium-sized companies. 2013: -15. Morgan Asset Management. 51 Data are as of 3/31/13. FactSet. Markit. PMI Feb. 2013: 50. 2013: 6. 2008: +17. 2013: +9. Note: NBS manufacturing PMI covers approximately 800 companies with a bias toward state-owned and large enterprises. .22 90% 60% Imports Feb. 2013: 51.P.0% Manufacturing PMIs Index level 60 Internatio onal 60% 55 Mar. J.0% -30% '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '10 '11 '12 '13 Residential Floor Space Started and Sold Year-over-year % change.1 45 '12 '13 '10 '11 '12 '13 Source: National Bureau of Statistics of China.

000 ¥14. (Right) FactSet.S. J. 2013: -0.000 CPI Inflation Y Year-over-year % change. Real GDP: 0.000 110 ¥16.000 -1% 80 ¥8.4% ¥10.000 Source: (Left) Japanese Statistics Bureau & Statistics Centre. h sa 3% Headline CPI 90 Internatio onal 1% Jan.000 Japanese Yen per U. Core CPI is defined as CPI excluding food and energy prices.4% Japanese Yen and the Stock Market 130 ¥20.9% 4Q12 0. Morgan Asset Management. Morgan Asset Management. 52 .000 -3% '02 '04 Core CPI '06 '08 Jan. 2013: -0.P.000 0% -3% -6% -9% '02 '04 '06 '08 '10 '12 100 ¥12.P. Dollar Nikkei 225 ¥18.6% '10 '12 70 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 ¥6. J. Bank of Japan.Japan: Economic Snapshot Real GDP Year-over-year % change 6% 3% 120 20-yr Avg. Data are as of 3/31/13.

5 14 9 14. 2.8 12 1.3 2.3 10.6% 3.5 P/CF 7.7 Div Yld Div.4% 3.3 10.1% Fw d. J Japan Australia Canada United States Sw itzerland -0.1 8.0 12.9 14.1 2.9% 1 9% 1. P/E).3% 3.5 5.29 -1. P/B 1.5% 2.25 0 25 -0.9 14.7 6. Yld.8 17 0 17. Yld.32 1.Global Equity Valuations – Developed Markets Developed Market Countries Std d Dev from Global A Average +6 Std Dev +5 Std Dev +4 Std Dev +3 3 Std D Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 Std Dev -4 Std Dev -5 Std Dev Example Expensive relative to world Expensive relative to own history Cheap relative to own history Current Average Cheap relative to world World (ACWI) EAFE Index France Germany U.08 0.5 8. J.7 1.5 11.0 10-year avg.0 7.K.2 2. Results are then normalized using means and average variability over the last 10 years. (P/B) price to last 12 months’ months cash flow (P/CF) and price to last 12 months’ dividends.9% 2.5 5.0 9.5% 2.1% 3. FactSet.6 8.3 13.4 P/CF 6.9% 4. See disclosures page at the end for metric definitions.7 12. 2.P.5 1.0% 3.4% 2.4 2.0% Internatio onal 53 Source: MSCI.5 1.9 7.9 1.3 2.7% 1 9% 1.7 60 6.2 1.8% 3.5 6.3 11.83 -1.0 9.11 -1.9 Div Yld Div.4% 3.0 11.0 8.2 55 5. Data are as of 3/31/13.8 11.9 1.9 5.8 2.93 -0.3 1. d P/E 13. Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd (Fwd. Morgan Asset Management.6 P/B 1.45 -0.4% 3. .8 5.8 1.5 13.7% 3.0 13.K. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI).9% 4.1 13.9 13 1. P/E) price to current book (P/B).51 -0.5 1.0 6.82 Current Fw d. d P/E 12.5 1.3 11.4 13. Japan Australia Canada United Switzerland States Current Com posite Index World (ACWI) EAFE Index France Germ any U.8% 3.2 13.

0 5.8 3. See disclosures page at the end for metric definitions.4 1.7% 2.31 -3.80 -1.41 2.0 P/B / 1.5 1.9 3.5 3.0 13.9 Div.2 12.3 1.2% 3.9 14.2 6.2 6.2% 2. Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd.8% 3. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI).0 2.3 12.4 P/CF /C 7.4 6.76 -2. Morgan Asset Management.0 7.0% 1. Results are then normalized using means and average variability over the last 10 years.7 10.58 -0.0 5.0 5.7% 3. J.1% 2. Yld.6% 2.7 2.5 4.8 6.4 4.0% 3. P/E).9% 3.4 12.0 2.8% 2.Global Equity Valuations – Emerging Markets Emerging Market Countries +6 Std Dev Example Expensive relative to world Std Dev from Global Av verage +5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 3 Std Dev -4 Std Dev -5 Std Dev Expensive relative to own history Cheap relative to own history Current Average Cheap relative to world World EM (ACWI) Index Russia Brazil China Taiwan South Thailand Africa Korea Mexico Indonesia India 10-year avg.1 6.6% Fw d. 2.52 Current Fw d. price to last 12 months’ cash flow (P/CF) and price to last 12 months’ dividends.6 P/B / 1.4 8.2 14.3% 1.8 3. price to current book (P/B). .6 5.4% 1.0 2.3 11.9 10.2% 1.P.6% 2.2 16.8 2.7 13.4 10. 2.6 0.1% 3.9 2.3 10. World(ACWI) EM Index Russia Brazil China Taiw an Thailand South Africa Korea Indonesia Mexico India Current posite Com p Index -0.4 8.8 1.2 3.1 4.0 1.8% 3.29 -1.1 18.3% 3. P/E / 12.5 1.14 -0.9 8. FactSet.5 15.5 10.3 1.4 2.7 11.5 12. Yld.7% 2.7 1.0 13.2 9.5 5.6 14.7% 3.09 2.3 P/CF /C 6.12 3.6% 3. Data are as of 3/31/13.2 Div.9 2.16 0.6% 1.7 11.0 10.0 14. P/E / 13.4 2.2 6.4 7.05 0.3% Internatio onal 54 Source: MSCI.

Morgan Asset Management. Telecom.P. and Utilities sectors. 55 Data are as of 3/31/13. J. Industrials. . Values may not sum to 100% due to rounding.Emerging Market Equity Composition MSCI EM Index by Region Latin America ex Brazil 9% Brazil 13% Africa/Mideast 7% MSCI EM Index by Sector Other 19% Consumer 17% Tech 14% Europe 10% Korea 15% China 18% Asia ex China & Korea 28% Commodities 23% Financials 27% MSCI EM Country y Index by y Sector 100% 16% 80% 12% 16% 18% 33% 60% 64% 30% 40% 29% 2% 20% 0% Brazil 19% 5% Russia 17% India 18% 39% 6% 10% China Mexico* 22% Korea 40% 13% 37% 21% 22% 22% 26% 15% 12% 13% International Other Commodities Financials Tech Consumer 20% Source: MSCI. *Mexican Telecom sector accounts for 19% of the country’s market capitalization. FactSet. “Other” is comprised of Healthcare.

2% REITs 3 7 .) over the period.9% Russe ll 2000 18 .3% Ca sh 18 .0% Russe ll 2000 .7% Asse t Alloc . Past performance is not indicative of future returns. Ann. 6 % MS CI EAFE 17 . 7 % MS CI EME 18 . 15 . 1% Ma rke t Ne utra l 6. 2 % MS CI EAFE 11. 6 % 10-yrs '03 . 12 .33.8% DJ UBS Cmdty 16 .8% Ma rke t Ne utra l 4. 1% 4. 5 % DJ UBS Cmdty 49. Please see disclosure page at end for index definitions. 1% 1Q13 Russe ll 2000 12 . 117 . 7 % S &P 500 98. MS CI EME 376.15 . 8.4.3% Russe ll 2000 47.24.9% Russe ll 2000 26. 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity REIT Index. 8 % MS CI EAFE 13 0 .9% MS CI EME 19 . 1% MS CI EME . 9 % REITs 11.2% Ma rke t Ne utra l 0. . 5% in the CS/Tremont Equity Market Neutral Index. 1% S &P 500 4. 1% S &P 500 7 .0. Suisse Barclays Capital. 6 % Ma rke t Ne utra l 9. which reflects data through 2/28/13. 1% DJ UBS Cmdty 23. 1% Ca sh 0 . 4 % MS CI EAFE 14 .8% DJ UBS Cmdty .4% Ba rc la ys Agg 7.9% DJ UBS Cmdty 4 . 8 .3% Asse t Alloc .9% Ca sh 0 .11. 12 . All data represents total return for stated period. 2 % Ca sh 4.1.7% Russe ll 2000 18 .0% MS CI EAFE 20. 1% MS CI EME 32.7% MS CI EAFE 8. 1% Ca sh 0 .35. Capital NAREIT NAREIT.0% Ma rke t Ne utra l 0.1.6% Russe ll 2000 15 2 . 1% Ca sh 1.5% Asse t Alloc .7% Ma rke t Ne utra l 6 1. FactSet. 5% in the Barclays 1-3m Treasury. 3 % MS CI EME . 1% 2004 REITs 3 1.8% Ba rc la ys Agg 4.9% Russe ll 2000 4. 1% MS CI EME . 8 % Russe ll 2000 9. 5% in the MSCI EMI.6% MS CI EAFE 26.) and annualized (Ann. 2 5 .18 .2% 2009 MS CI EME 79. *Market Neutral returns include estimates found in disclosures. 5.5% REITs 28. 1% Ma rke t Ne utra l . 1% DJ UBS Cmdty .37. 7. 3 % Asse t Alloc .6% Ba rc la ys Agg 65. 0 % Asse t Alloc .5% Ca sh 4.0% REITs 204. Jones Standard & Poor Poor’s s. 1% DJ UBS Cmdty .13 .7% Asse t Alloc . . 8 % Asse t Alloc .7% Ca sh 0.2% Ca sh 1. 1% 2007 MS CI EME 39.0% Russe ll 2000 27.3% MS CI EAFE 39. MSCI Dow Jones. 9 % DJ UBS Cmdty 9 .3% Asse t Alloc . 0 % REITs 12 . 2 % DJ UBS Cmdty 16 . 7 % 2008 Ba rc la ys Agg 5. 6 % REITs . 3 % S &P 500 16 . . Data are as of 3/31/13.8% Russe ll 2000 . Credit Suisse.9% Ma rke t Ne utra l 7 .53. 8 % S &P 500 15 . 7 % Ba rc la ys Ba rc la ys Agg Agg 5. 1% S &P 500 28.'12 Cum. 1% Asse t Alloc . 3 % Ba rc la ys Agg 4. 8 % Ma rke t Ne utra l 1.2% DJ UBS Cmdty 18 . “10-yrs” returns represent period of 1/1/03 – 12/31/12 showing both cumulative (Cum.9% 6.1. 3 % Asse t Alloc . The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500.6% Ca sh 3.2% 2011 REITs 8.3% Ca sh 1. Russell MSCI.6% S &P 500 . 5 % MS CI EAFE 8. 10% in the Russell 2000.6% Russe ll 2000 . Data are as of 3/31/13.0% Ba rc la ys Agg 2.3% Ba rc la ys Agg 7. 2 % 56 Source: Russell. 7 % DJ UBS Cmdty .0% REITs .0.1. 5 % S &P 500 10 . 1% Ca sh 0 . Balanced portfolio assumes annual rebalancing.Asset Class Returns 2003 MS CI EME 56. 1% Ba rc la ys Agg 5.2% Ma rke t Ne utra l 4.P. J P Morgan Asset Management Management.5% 2005 MS CI EME 34.3% DJ UBS Cmdty 2 .2% S &P 500 26. 4 % S &P 500 15 . 25% in the Barclays Capital Aggregate. 9 % 2010 REITs 27.2% MS CI EAFE . FactSet J.4% 2006 REITs 3 5 . 11. 2 % 2012 REITs 19 .8% Asset Class Ba rc la ys Ba rc la ys Agg Agg 4 . 1% MS CI EAFE 5.5% Ma rke t Ne utra l 4 .3% Ma rke t Ne utra l 6 . 1% Asse t Alloc . 1% Asse t Alloc .0% MS CI EAFE 32.5% S &P 500 2 .0% Ba rc la ys Agg . 15% in the MSCI EAFE. 6 % REITs 8 . 2 % Ma rke t Ne utra l 11.0 . 9 % Russe ll 2000 16 . 2 % MS CI EME 16 . 6 % MS CI EME 26.37.5% DJ UBS Cmdty 2 1.0% S &P 500 5. except for the CS/Tremont Equity Market Neutral Index.4 3 . 22.7% MS CI EAFE . 4 % S &P 500 10 . 0 % Ca sh 1. 2 % Asse t Alloc .

00 Corp.91 -0.80 0.00 EME 0. EME: MSCI Emerging Markets.51 0.25 0.84 0. DJ UBS.81 0.73 0.P.72 0. EMD: Barclays Capital Emerging Market. HY EMD Commodities REITs 1.68 0. Morgan Asset Management. Market Neutral* 0.63 0..00 Asset Class Hedge Funds Eq. Credit Suisse/Tremont.59 0. This chart is for illustrative purposes only. 0.91 0. Indexes used – Large Cap: S&P 500 Index.66 0.80 0.62 -0.Correlations: 10-Years Large Cap Large Cap Small Cap EAFE EME Core Bonds Corp.78 0.58 0.00 Source: Standard & Poor’s.76 0.04 1. Market Neutral* 57 Data as of 3/31/13.55 0.28 -0. Russell.00 0.00 Hedge Funds 0.43 0. NCREIF.00 Eq.52 0.64 -0.61 0.39 1.75 0.00 Small Cap 0. Real Estate: NAREIT Equity REIT Index. MSCI Inc.77 0.50 0.71 0.95 1.78 0.79 0.30 0.82 -0.89 0. Hedge Funds: CS/Tremont Multi-Strategy Index. Small Cap: Russell 2000. Corp HY: Barclays Capital Corporate High Yield. Bonds: Barclays Capital Aggregate.92 1. Equity Market Neutral: CS/Tremont Equity Market Neutral Index.00 Core Bonds -0.59 1. Barclays Capital Inc. EAFE 0. *Market Neutral returns include estimates found in disclosures.00 REITs 0.00 Cmdty. All correlation coefficients calculated based on quarterly total return data for period 3/31/03 to 3/31/13. J. HY 0.08 1.44 1.72 0.59 1.: DJ UBS Commodity Index..16 -0.82 0.54 0.00 EMD 0.44 0. .22 0.87 1.73 0. Cmdty.45 0.86 1.22 -0. EAFE: MSCI EAFE.65 0.08 0.

flexible portfolio and mixed income flows.447 billion into bond funds and d fixed fi d income i ETFs ETF since i ’07 Bond flows exceeded equity flows by y $6 billion in February y 2013 $20 $1. ’13: $278 billion into stock funds and equity ETFs since ’07 -$20 -$40 '11 '12 '13 -$60 Sep '08 Jul '09 May '10 Mar '11 Jan '12 Nov '12 Source: Investment Company Institute.000 $800 $600 $0 Asset Class $400 $200 $0 '07 '08 Bonds Stocks '09 '10 Feb.P.042 2 653 2. J. 58 .653 YTD 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 17 35 43 10 18 (43) (156) (132) (81) 3 254 50 46 (0) 4 137 (12) 29 58 224 11 29 (29) (149) (65) 28 310 69 12 (80) 21 8 (25) 139 98 11 41 654 (0) 149 45 15 18 245 18 106 27 5 37 62 101 71 5 (15) 48 120 24 40 (7) 38 (26) (3) 125 17 8 55 (22) 76 11 9 375 261 53 (36) (14) (36) 159 176 11 8 (12) (14) 194 149 8 59 15 10 235 (124) (525) (539) 637 (157) (263) (46) Cumulative Flows into Stock & Bond Funds Includes both mutual funds and ETFs. monthly $40 Feb. Data are as of 3/31/13. and international funds. Hybrid flows include asset allocation.Mutual Fund Flows Fund Flows Billions.899 593 1. Data include flows through February 2013 and exclude ETFs except for the bottom left chart. USD Domestic Equity World Equity Taxable Bond Tax-exempt Bond Hybrid Money Market AUM 4.S. global equity and regional equity flows.689 2.608 1.600 $1. Difference Between Flows Into Stock and Bond Funds Billions. Morgan Asset Management. ICI data are subject to periodic revisions. $ billions $1.400 $ . balanced fund.200 $1. ’13: $1. World equity flows are inclusive of emerging market. U. USD.

Dividend vs.2% 2.7% 1% 0% 0% U.2% 4% 3. Morgan Asset Management.P.6% 4. Yields shown are that of the appropriate FTSE NAREIT REIT index. J. REITs. U.3% 1. J. REITs.3% 5 3% 13.P.1% 13. Australia France U.9% 2.S. Data are as of 3/31/13. capital appreciation returns are through 12/31/12.9% 3.8% 3.1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2012 Equity Dividend Yields Major world markets by capitalization 5% 4. NAREIT.5% 1.8% -2.7% 12.S.5% 3.7% 2.4% -5. Ibbotson.6% 4. EMD Loc.6% 4.Yield Alternatives: Domestic and Global S&P 500 Total Return: Dividends vs.0% 0. MSCI.0% 3% 3% 3. 59 . REIT's Converts Floating Rate Source: (Top chart) Standard & Poor’s.7% 5.P. which excludes property development companies.6% 2.3% Asset Class 2% 2% 1% 10-year government bond yield 1.. (Bottom right) FactSet.7% 5% 4% 2. Preferreds.4% 2.S. (Bottom left) FactSet.K.0% 6. Morgan Asset Management. REITs Inter. Yields shown are that of the appropriate MSCI index.4% 3. Switzerland Canada ACWI Japan EMD Loc. J.0% 5.9% Yield Alternatives Annualized Yield 10-year government bond yield 6% 4. and Floating Rate yields reflect current yield.6% 15. Preferreds U.2% 4. Morgan Asset Management.1% Capital Appreciation Dividends 0% -5% -10% 1926 .9% 4. Inter. Capital Appreciation Average annualized returns 20% 15% 10% 5% 4. Converts.3% 5.

J.P.) 80% 60% 40% 20% 0% -20% -40% -60% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 200 Grains 4% 2% Asset Class 100 0% Livestock -2% -4% Headline CPI (Y/Y % chg.P. J. DJ/UBS. Energy 8% 6% DJ-UBS Commodity Index (Y/Y % chg.P. -6% Source: (Top) BP Statistical Review of World Energy. . FactSet. Morgan Asset Management.Global Commodities Commodity Prices Weekly index prices rebased to 100 600 Oil Demand: Emerging Markets Share Emerging markets as % of total global oil consumption 40% 38% 36% Precious Metals 500 Industrial Metals 400 34% 32% 30% '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 300 Commodity y Prices and Inflation Year-over-year % chg. Morgan Asset Management. 60 Data are as of 3/31/13. Morgan Asset Management. Data are as of 3/31/13. FactSet.) 0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: Dow Jones/UBS. J. (Bottom) BLS. Commodity prices represented by the appropriate DJ/UBS Commodity sub-index.

Department of Energy. U.P.16% $2.000 $1. Data are as of 3/31/13. 2013: $1.000 +338% +1.25 $1.Gold Gold Prices $ / oz $3.00 Gold. CPI is rebased to 100 at the end of the chart. 61 .S.598.480.500 Jan.500 Mar. CPI adjusted gold values are calculated using monthly averages of gold spot prices divided by the CPI value for that month.67% + 75% -11% . FactSet.209% . BLS. Inflation Adjusted Gold Asset Class $500 $0 '75 '80 '85 '90 '95 '00 '05 '10 Source: EcoWin. Returns based on nominal prices. 1980: $2.36 $2.000 Jan. Morgan Asset Management. J.49% + 609% . 1980: $850.

. y rolling 10-yr.627 $554. Federal Reserve.P.751 $335.8% 6. Growth of $100.Historical Returns by Holding Period Range of Stock. FactSet. J. Bond and Blended Total Returns Annual total returns.000 is based on annual average total returns from 1950-2012. y rolling Sources: Barclays Capital. Morgan Asset Management.754 16% 17% 14% 5% 0% -10% -20% 20% Stocks Asset Class Bonds 50/50 Portfolio -37% -30% -40% 1-yr. y 5-yr.9% $782.2% 8. y rolling 20-yr. Robert Shiller. Strategas/Ibbotson.000 Total T t l Return R t over 20 years 51% 43% 32% 28% 23% 21% 19% 18% 12% -2% -8% -15% -2% 1% -1% 1% 2% 1% Stocks Bonds 50/50 Portfolio 10. 62 Data are as of 3/31/13. Returns shown are based on calendar year returns from 1950 to 2012. Growth of $100. 1950 – 2012 60% 50% 40% 30% 20% 10% 6% Annual Avg.

13. International Stocks: 15% MSCI EAFE. Charts are shown for illustrative purposes only.1% 11. U.2% S&P 500. Diversification does not guarantee investment returns and does not eliminate risk of loss.S. Past performance is not indicative of future returns. Bonds: 30% Barclays Capital Aggregate.3% Bonds Homes Inflation 63 Average Investor . Return: 7. (Bottom) Indexes used are as follows: REITS: NAREIT Equity REIT Index.87% 20-year Annualized Returns by Asset Class (1993 – 2012) Asset Class 6.80% 12% 10% 8.43% Standard Deviation: 10.5% 6% 4% 2% 0% REITs Gold S&P 500 Oil EAFE 6. International Stocks: 4. 8. Bonds: Barclays Capital U.5% 2.S.4% MSCI EM. Oil: WTI Index. Stocks: 22. Inflation: CPI Average asset allocation CPI. redemptions and exchanges each month as a measure of investor behavior. Bonds: 26. investor return is based on an analysis by Dalbar Inc. Alternatives: 8.4% 8% 8. Return and standard deviation calculated using Morningstar Direct. Stocks: 55% S&P 500. 26% 8% 8% REIT S&P 500 Russell 2000 4% 13% 9% 22% MSCI EAFE MSCI EM Barclays Agg.S.3% NAREIT Equity REIT Index Index.Diversification and the Average Investor Maximizing the Power of Diversification (1994 – 2012) Traditional Portfolio More Diversified Portfolio Equity Mkt. U.. Gold: USD/troy oz. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/12 to match Dalbar’s most recent analysis. Homes: median sale price of existing single-family homes.3%. Data are as of 3/31/13 3/31/13.S.5% Barclays Capital Aggregate.2% Return: 7. Portfolio with 25% in alternatives is as follows: U.S. DJ/UBS Commodities: 8.2% MSCI EAFE. Neutral Commodities 8% 30% 55% 15% S&P 500 MSCI EAFE Barclays y Agg.3% 2.72% Standard Deviation: 9. gg (Top) Indexes and weights of the traditional portfolio are as follows: U.7% 2.8% Russell 2000.2% 8. which utilizes the net of aggregate mutual fund sales. Aggregate Index. EAFE: MSCI EAFE.3% CS/Tremont Equity Market Neutral: 8.

J. annual returns positive in 25 of 33 years 40% 30% 20% 10% 0% -10 1 2 -7 26 17 27 26 20 15 15 12 4 7 -2 -3 -9 -8 -11 -19 -12 12 -17 -14 -8 -7 -8 -10 -16 -19 -28 -34 -10 -10 -13 -23 9 3 4 -38 0 34 31 26 27 20 14 13 13 26 23 % -10% -20% -30% -34 -17 -18 -17 -7 -13 13 -20 -8 -8 -6 -6 -5 -8 -9 -30 -40% 40% Asset Class -50% -60% '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 -49 '08 '10 '12 Source: Standard & Poor’s.Annual Returns and Intra-year Declines S&P 500 Intra-year Declines vs. Morgan Asset Management.7%. 64 . Data are as of 3/31/13. Returns shown are calendar year returns from 1980 to 2012. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. FactSet. Calendar Year Returns Despite average intra-year drops of 14. Returns are based on price index only and do not include dividends.P.

Annual income is for illustrative purposes and is calculated based on the 6-month CD yield on average during each year and $100.P.com. J. All cash measures obtained from the Federal Reserve are seasonally adjusted monthly numbers.701 64.1% Savings deposits 6. Small denomination time deposits are those issued in amounts of less than $100 Small-denomination $100.000 $0 1986 1990 1994 1998 2002 2006 2010 Money Supply Component $ Billions Weight in Money Supply 2006: $5 $5. Morgan Asset Management.6% Cash Accounts as a % of Total Household Financial Assets Cash 6-month CD rate vs. Bankrate.000 invested.371 100.000 $6. Core CPI 24% 28% Small time deposits 612 5.000 $2. IRA and Keogh account balances at money market mutual funds are subtracted from retail money funds. St. 2012 average income is through December 2012. All numbers are in billions of U. 000 All IRA and Keogh account balances at commercial banks and thrift institutions are subtracted from small time deposits. Data are as of 3/31/13. 65 .9% Mar ’09 Mar.4% 16% Asset Class 12% Total 10.0% '98 '00 '02 '04 '06 '08 '10 '12 Source: Federal Reserve.0% Oct.240 240 M2-M1 7. 09 S&P 500 low Institutional MMMFs Cash in IRA & Keogh accounts 1.000 Investment in a 6-month CD $10.S.768 17. dollars.941 76.Cash Accounts Annual Income Generated by $100.000 $8. Louis Fed.6% 2012: $450 Retail MMMFs 628 6.000. ’02 S&P 500 low 20% 663 6. Past performance is not indicative of comparable future results.000 $4.

1% 4. Return assumption bands are inclusive of upper range. .7% 78% 94% Hedge Funds 1999 40% 35% 28% 21% 20% 13% 10% 2% 0% < 7% 7 to 7.5% 7 5% 7.3% Pension Return Assumptions: S&P 500 companies Private Equity 30% % of Comp panies Real Estate 20% Asset Class Other 7% 0% 9 to 9.5% 9 5% 0% 9. Endowments represents dollar-weighted average data of 842 colleges and universities.7% 10 7% 10.7% 6.7% 4.2% 2012: Average 7.0% 35. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Data are as of 3/31/13.5% 8 5% 8.5% 21.P.Corporate DB Plans and Endowments Asset Allocation: Corporate DB Plans vs.9% 2. Funded Status based on 347 companies reporting pension funding status. Asset allocation as of 2010. J.1% 3.5 to 8% 8 to 8.3% 32.5 to 10% 0% > 10% Cash % of total 20% 30% 40% 50% 0% 10% Return Assumption 66 Source: NACUBO (National Association of College and University Business Officers). All information is shown for illustrative purposes only. Morgan Asset Management. Compustat/FactSet.0% 4. Endowments Defined Benefit Plans – Funded Status: S&P 500 Companies Endowments Corporate Defined Benefit Plans Equities Overfunded Underfunded 6% 22% 45.0% Fixed Income 13. Towers Watson.1% 12.5 to 9% 1% 9% 5% 3% 27% 29% 2011 1999: Average 9.2% 4. Funded status as of 2011.

3x 300 1966 P/E: 18.0x 1932 P/E: 14.3x 1937 – 1948 1974 P/E: 9. Price Return (Since 1900) Log Scale 2000 P/E: 28. P/E ratios shown at price peaks and troughs use trailing four quarters of reported earnings and are shown as a one year average. Chart is for illustrative purposes only.6x 2000 – present 1. J.8x 1937 P/E: 17 3x 17.5x 10 1900 – 1924 1948 P/E: 10.P. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. 67 Data are as of 3/31/13. Morgan Asset Management. .Stock Market Since 1900 S&P Composite Index.5x Asset Class '00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10 Source: IDC.0x 1924 P/E: 10.0x 1966 – 1974 100 40 1900 P/E: 15. FactSet.000 Current P/E: 16.1x 1929 P/E: 17.

As of June 2007. Morgan Asset Management – Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index.S. with approximately 75% coverage of U.S. The Russell 1000 Growth Index ® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. 2003. the American Stock Exchange or the NASDAQ National Market List.500 USD200 1 500 million million. but does not include tax credits. Russia. Hong Kong. As of June 2007. An investor cannot invest directly in an index. equities. representing all major industries. Israel. As of the close of May 30. Mexico. it is also an ideal proxy for the total market. and shown net of all performance fees and expenses. The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index. As of June 2007. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U. the Netherlands. The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As such. LLC. companies based on total market capitalization. Australia. a 12-month track record. New Zealand. MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices. and includes all tax-qualified real estate investment trusts (REITs) that are listed on the NYSE. Credit Suisse/Tremont Hedge Fund Index is compiled by Credit Suisse Tremont Index. the MSCI Europe Index consisted of the following 16 developed market country indices: Austria. equities market. Far East) Net Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. Greece Ireland. and consists only of funds with a minimum of US$50 million under management. It includes approximately 200 of the largest securities based on a combination of their market cap and current index membership and represents approximately 68% of the U. Morocco. As of June 2009 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices. Portugal. Jordan. at least in part. each targeting 50% of the free float adjusted market capitalization of the underlying country index. Norway. It is the exclusive property of Credit Suisse Tremont Index. economy. The stocks are also members of the Russell 1000 Value index. market. The MSCI Emerging Markets IndexSM is a free float-adjusted float adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. India. Malaysia.P. which tracks over 4500 funds. the MSCI Pacific Index consisted of the following 5 Developed Market countries: Australia. Pakistan. Although the S&P 500 Index focuses on the large-cap segment of the market.the great majority being pension funds.S. and Singapore. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1. emerging and All Country MSCI Equity indexes. The Russell 1000 Index ® measures the performance of the 1.J. It is an assetweighted hedge fund index and includes only funds. Peru. 68 . France Germany. Finland France.000 smallest companies in the Russell 3000 Index. Country Value/Growth indices are then aggregated into regional Value/Growth indices. Prior to May y 30. Denmark Finland. Indonesia. Switzerland and the United Kingdom.000 largest U. the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina. adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes . Japan. Chile. Germany Greece. The amount reinvested is the dividend distributed to individuals resident in the country of the company. South Africa. The MSCI Value and Growth IndicesSM cover the full range of developed. The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group. The Index uses the Credit Suisse/Tremont database. The MSCI® EAFE (Europe. and audited financial statements. values The Russell Top 200 Index ® measures the performance of the largest cap segment of the U.000 largest companies in the Russell 3000. relative to each MSCI country index. The Russell 2000 Growth Index ® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The S&P 400 Mid Cap Index is representative of 400 stocks in the mid-range sector of the domestic stock market. equity universe. within each country. It comprises 21 MSCI country indexes. Brazil. Thailand. The stocks are also members of the Russell 1000 Growth index. all properties are held in a fiduciary environment. Spain. The NAREIT EQUITY REIT Index is designed to provide the most comprehensive assessment of overall industry performance. Taiwan. The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only. Austria Belgium Belgium. The Russell 1000 Value Index ® measures the performance of those Russell 1000 companies with lower priceto-book ratios and lower forecasted growth values. Czech Republic. The S&P 500 Index is widely regarded as the best single gauge of the U. Poland. Denmark. The following MSCI Total Return IndicesSM are calculated with gross dividends: This series approximates the maximum possible dividend reinvestment. The Russell 2000 Index ® measures the performance of the 2. The Russell 2000 Value Index ® measures the performance of those Russell 2000 companies with lower priceto-book to book ratios and lower forecasted growth values.S. The Russell 3000 Index® measures the performance of the 3. Philippines. The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. The Russell Midcap p Value Index ® measures the p performance of those Russell Midcap p companies p with lower price-to-book ratios and lower forecasted growth values. Colombia.three for value and five for growth including forwardlooking variables. China. Sweden. and Turkey. The MSCI Pacific IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the Pacific region. Hungary. Index returns do not include fees or expenses. Egypt. 2003.S. The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities). representing the developed markets outside of North America. It is calculated and rebalanced on a monthly basis. LLC. Korea. Italy. The objective of the index design is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index.S. All properties in the NPI have been acquired. the indices used Price/Book Value ( (P/BV) ) ratios to divide the standard MSCI country indices into value and growth indices. as opposed to separate accounts. on behalf of tax-exempt institutional investors .

The Barclays Capital TIPS Index consists of Inflation Inflation-Protection Protection securities issued by the U U. J. the rating must be investment-grade.e. Morgan Funds believes this distortion is not an accurate representation of returns in the category. a beta of zero). Brazil. The returns are calculated on a fully collateralized basis with full reinvestment. dollars and must be fixed rate and non convertible.P. Remarketed issues (unless converted to fi d rate). taxable municipal bonds. Fitch. The bonds must be fixed rate. the rating must be investment-grade. Europe. and must be at least one year from their maturity date. and have $250 million or more of outstanding face value. The Barclays Capital MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae. and debt issues from countries designated as emerging markets (e. The bonds must be fixed rate. and Asia.S. The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents nineteen separate commodities traded on U. bonds with floating rates. S Government index. As with other fixed income benchmarks provided by Barclays Capital.P. equity long/short.S.S. Presumed to be excluded from the November return are three funds funds.S. Index returns do not include fees or expenses. Original issue zeroes.or higher) by at least two of the following ratings agencies: Moody's. reflecting this mark-down. long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. To be included in the index. step-up coupon structures. bonds must be rated investment-grade (Baa3/BBB. The Barclays High Yield Municipal Index includes bonds rated Ba1 or lower or non-rated bonds using the middle rating of Moody’s.S. market-value weighted index engineered for the long-term taxable bond market. The Barclays Capital Corporate Bond Index is the Corporate component of the U.P.or higher) by at least two of the following ratings agencies: Moody's. and derivatives. and derivatives. The Barclays Capital Taxable Municipal Bond Index is a rules-based. To be included in the index. The bonds must be fixed rate and must be at least one year from their maturity date.J. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged.. Fitch. 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0. and must be at least one year from their maturity date. If only one of the three agencies rates a security. The J. The Barclays Capital Emerging Markets Index includes USD USD-denominated denominated debt from emerging markets in the following regions: Americas. t and dd derivatives. non-investment grade debt. the rating must be investment investment-grade.S. which allows for an unbiased view of the marketplace and easy replicability. Individual components qualify for inclusion in the index on the basis of liquidity and are weighted by their respective world production quantities. convertible bond arbitrage. but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.S. Remarketed issues. S&P. Fitch.S. t t d Th They must th have an outstanding t t di par value l of f at t lleast t $7 million illi and d be b issued i d as part of a transaction of at least $75 million. taxable municipal bonds. are rated investment grade. bonds must be general obligation bonds rated investment-grade (Baa3/BBB. In addition. the lower rating is used to determine index eligibility. etc. the lower rating is used to determine index eligibility. which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. The Barclays Capital U. traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.or higher) by at least two of the following ratings agencies if all three rate the bond: Moody's. The CS/Tremont Equity Market Neutral Index takes both long and short positions in stocks with the aim of minimizing exposure to the systematic risk of the market (i. mortgage pass-through securities. dollar denominated floating rate note market. dollar denominated Brady bonds. the lower rating is used to determine index eligibility. index West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts. must have $250 million par amount outstanding. have a dated-date after December 31. h k Municipal Bond Index: To be included in the index. If only one of the three agencies rates a security. and are based on a December 8.or higher) by at least two of the following ratings agencies: Moody's. If only two of the three agencies rate the security. If only one of the three agencies rates a security. Venezuela.P. Argentina. CS/Tremont assumes no responsibility for these estimates.S. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. the index is rules-based. taxable municipal bonds. with the exception of aluminum. bonds with floating rates. Africa. are excluded from the benchmark. Credit index. *Market Neutral returns for November 2008 are estimates by J.) are excluded. Fitch. If only two of the three agencies rate the security. but are not limited to.S. th rating the ti must tb be iinvestment-grade. Strategies adopted in a multi-strategy fund may include. have a dated-date after December 31. and dollar denominated. Fannie Mae. bonds must be revenue bonds rated investment-grade (Baa3/BBB. Aggregate components must have a weighted average maturity of at least one year. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month. Morgan Funds Market Strategy. S&P. The index covers the U. and 144-As are also included. Morgan Asset Management – Index Definitions All indexes are unmanaged and an individual cannot invest directly in an index. Middle East. To be included in the index. grade. bonds with floating rates. statistical arbitrage and merger arbitrage. are excluded from the benchmark..S. 1990. Treasury Bill Index includes all publicly issued zero-coupon U. exchanges. S&P.S. If only two of the three agencies rate the security. with index components for government and corporate securities. and must be at least one year from their maturity date. The Barclays U. S&P and Fitch. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. the securities must be denominated in U. and derivatives are excluded from the benchmark. dollar domestic high yield corporate debt market. The CS/Tremont Multi Multi-Strategy Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. fixed t ) b bonds d with ith fl floating ti rates. The Barclays Capital General Obligation Bond Index is a component of the Barclays Capital Municipal Bond Index. have a dated-date after December 31. S Treasury Treasury. Eurobonds. S&P. and Freddie Mac. If only two of the three agencies rate the security.85% (with 69% of all CS/Tremont constituents having reported return data). and must be fixed rate mortgages.S. The bonds must be fixed rate. bonds must be rated investment-grade (Baa3/BBB. Pay-in-kind (PIK) bonds. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U. Eurobonds. 1990. 69 . The Barclays Capital High Yield Index covers the universe of fixed rate. Remarketed issues. The Barclays Capital 1-3 Month U. Aggregate Index represents securities that are SEC-registered. The Barclays Capital Revenue Bond Index is a component of the Barclays Capital Municipal Bond Index. and zinc. i ti are excluded l d df from th the b benchmark. and asset-backed securities. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. taxable. If only one of the three agencies rates a security.g. Morgan EMBI Global Index includes U. Remarketed issues. the lower rating is used to determine index eligibility. nickel. U S Treasury Index is a component of the U U. Dollar Floating Rate Note (FRN) Index provides a measure of the U.56% for the month. CS/Tremont later published a finalized November return of 40. The J. 1990.P.S. This U. investment grade fixed rate bond market.

Historically. sector swings or other risk factors. There is no guarantee that the use of long and short positions will succeed in limiting an investor's exposure to domestic stock market movements. sector or geographical sector. 2013 or most recently y available. All cases studies shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. The views and strategies described may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility.P.P. Price to book value compares a stock's market value to its book value.. Morgan Investment Management Inc. The use of derivatives may not be successful. or the securities market as a whole. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but. creates the possibility for greater loss. or JPMorgan Funds (Asia) Limited. Historically. such as changes in economic or political conditions. floods. Odenath. which leads to increased volatility. David M.. Wile and David P. Small-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies since smaller companies generally have a higher risk of failure. legal or tax advice. unpredictably These price movements may result from factors affecting individual companies. the small size of securities markets and the low trading volume may lead to a lack of liquidity. which is regulated by The Brazilian Securities and Exchange Commission (CVM) and Brazilian Central Bank (Bacen). Opinions and estimates offered constitute our judgment and are subject to change without notice. political and regulatory developments. Amoroso. They are subject to change at any time. l iin S Switzerland i l db by J J. These views do not necessarily reflect the opinions of any other firm. J. resulting in investment losses. Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed the original investment. health Price to dividends is the ratio of the price of a share on a stock exchange to the dividends per share paid in the previous year. the normal risks of investing in foreign countries are heightened when investing in emerging markets.J. can raise or lower returns. This communication is issued in the United States by J. Bonds are subject to interest rate risks. in Brazil by Banco J. Investments in commodities may have greater volatility than investments in traditional securities. at the same time. Lebovitz. declines in the value of real estate. Bond prices generally fall when interest rates rise.A. Anastasia V. Investing using long and short selling strategies may have higher portfolio turnover rates. Santos. Investments in emerging markets can be more volatile. all data are as of March 31. risks related to general and economic conditions. Inc. Tanious. Morgan Asset Management – Definitions. Kelly. Short selling involves certain risks. tariffs and international economic. changes in interest rates. as are statements of financial market trends. In addition. capitalization. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited which is regulated by the Financial Services Authority.. such as drought. Real estate investments may be subject to risks including. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Results shown are not meant to be representative of actual investment results. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Also. and the cost of such strategies may reduce investment returns. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Mid-capitalization investing typically carries more risk than investing in well-established "blue-chip" companies. Hi t i ll mid-cap id companies' i ' stock t kh has experienced i d a greater t d degree of f market k t volatility l tilit th than th the average stock. P M Morgan (S (Suisse) i ) SA SA. in India by JPMorgan Asset Management India Private Limited which is regulated by the Securities & Exchange Board of India. condition sometimes rapidly or unpredictably.à S à r.l.P. and is not intended to provide. The views expressed are those of J. which are based on current market conditions. particularly if the instruments involve leverage. including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions. We believe the information provided here is reliable.P. . some overseas markets may not be as politically and economically stable as the United States and other nations. Also. or fall because of changes in the broad market or changes in a company’s financial condition. Andrés Garcia-Amaya. sectors or industries. JPMorgan Distribution Services. all of which are regulated by the Securities and Futures Commission. I which hi h is i a registered i t d Portfolio P tf li Manager M and dE Exempt tM Market k t Dealer in Canada (including Ontario) and in addition. . smaller companies' stock has experienced a greater degree of market volatility than the average stock. Gabriela D. Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. © JPMorgan Chase & Co. and in Canada by JPM JPMorgan A Asset tM Management t (C (Canada) d ) Inc. in Hong Kong by JF Asset Management Limited. The value of commodity-linked derivative instruments may be affected by changes in overall market movements. which is regulated by the Swiss Financial Market Supervisory Authority FINMA. Risks & Disclosures Past performance is no guarantee of comparable future results. in other EU j i di i jurisdictions b by JPM JPMorgan A Asset M Management (E (Europe) ) S. or JPMorgan Asset Management Real Assets (Asia) Limited. used as a measure of a company's potential as an investment. This material has been prepared for informational purposes only. but not limited to. Price to cash flow is a measure of the market's expectations of a firm's firm s future financial health. Prepared by: Joseph S.P. and its affiliates worldwide.P. embargoes. April 2013. The price of equity securities may rise. but do not warrant its accuracy or completeness. emerging markets may not provide adequate legal protection for private or foreign investment or private property. Equity securities are subject to “stock market risk” meaning that stock prices in general may decline over short or extended periods of time. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. Brandon D. As mentioned above. Changes in currency exchange rates and differences in accounting g and taxation p policies outside the U. Morgan Asset Management. JP-LITTLEBOOK NOT FDIC INSURED ı NO BANK GUARANTEE ı MAY LOSE VALUE 70 . changes in the value of the underlying property owned by the trust and defaults by borrower. in Singapore by JPMorgan Asset Management (Singapore) Limited which is regulated by the Monetary Authority of Singapore.S. . and should not be relied on for accounting. weather. Unless otherwise stated. or factors affecting a particular industry or commodity. in Japan by JPMorgan Securities Japan Limited which is regulated by the Financial Services Agency. commodity index volatility. is registered as an Investment Fund Manager in British Columbia. livestock disease. Anthony M. in Australia by JPMorgan Asset Management (Australia) Limited which is regulated by the Australian Securities and Investments Commission. member FINRA/SIPC. Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry. which is regulated by the Securities and Exchange Commission. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Morgan S.