jp littlebook 2014q3

8/11/2019 Jp Littlebook 2014Q3

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As of September 30, 2013

As of June 30, 2014

i h M rk

i h M rk

1


2/71

Global Market Insights Strategy Team

Americas Europe Asia

Dr. David P. Kelly, CFA

New York

Stephanie H. Flanders

London

Tai Hui

Hong Kong

Joseph S. Tanious, CFA

Los Angeles

Andrew D. Goldberg

London

Geoff Lewis

Hong Kong

Andrs D. Garcia-Amaya, CFANew York

Maria Paola ToschiMilan

Yoshinori ShigemiTokyo

Anastasia V. Amoroso, CFA

Houston

Vincent Juvyns

Luxembourg

Grace Tam, CFA

Hong Kong

James C. Liu, CFA

Chicago

Manuel Arroyo Ozores, CFA

Madrid

Ian Hui

Hong Kong

Julio C. Callegari Lucia Gutierrez Ben Luk

So Paulo Madrid Hong Kong

Brandon D. Odenath, CFA

New York

Tilmann Galler, CFA

Frankfurt

Gabriela D. Santos Kerry Craig, CFA

Anthony M. Wile

New York

David M. Lebovitz

London

Ainsley E. Woolridge

New York

Alexander W. Dryden

London

2

Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this

communication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full

disclaimer at the end. Unless otherwise stated, all data is as of June 30, 2014 or most recently available.


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Page Reference

4. S&P 500 Index at Inflection Points5. Returns and Valuations by Style6. Returns and Valuations by Sector

35. Owners of Treasury Securities36. Credit Conditions37. High Yield Bonds38. Municipal Finance39. Global Fixed Income

Equities Page4

7. Stock Valuation Measures: S&P 500 Index8. Corporate Profits and Leverage9. Sources of Earnings per Share Growth10. Sources of Total Return11. Multiples, Confidence, Style and Interest Rates12. Interest Rates and Equities13. De lo in Cor orate Cash

40. Emerging Market Debt

41. Global Equity Markets42. Global Economic Growth43. Manufacturing Momentum44. The Importance of Exports

International Page 41

14. Annual Returns and Intra-year Declines15. Equity Correlations and Volatility16. Stock Market Since 1900

17. Economic Growth and the Composition of GDP18. Consumer Finances

45. Sovereign Debt Stresses46. Global Monetary Policy47. MSCI EAFE Index at Inflection Points48. Europe: Cyclical Headwinds and Tailwinds

49. Europe: Unemployment and Inflation50. Europe: Economy and Earnings51. Ja an: Economic Sna shot

Economy Page 17

19. Cyclical Sectors20. Residential Real Estate21. Commercial Real Estate22. Long-term Drivers of Economic Growth23. Federal Finances24. Employment

P

52. International Equity Earnings and Valuations53. Demographics and Development54. Emerging Market Currencies55. China: Economic and Credit Growth56. Global Equity Valuations Developed Markets57. Global Equity Valuations Emerging Markets

. L26. Employment and Income by Educational Attainment27. Consumer Price Index28. Energy and the Economy29. Consumer Confidence and the Stock Market

F

58. Asset Class Returns59. Correlations and Volatility60. Alternative Asset Class Returns61. Mutual Fund Flows62. Yield Alternatives: Domestic and GlobalFixed Income

Asset Class

Page 30

Page 58

3

.

31. Interest Rates and Inflation32. Fixed Income Yields and Returns33. Sources of Bond Returns34. The Fed and Interest Rates

.

64. Historical Returns by Holding Period65. Diversification and the Average Investor66. Cash Accounts67. Corporate DB Plans and Endowments


4/71

S&P 500 Index at Inflection Points

2,000Index level 1,527 1,565 1,960P/E ratio (fwd.) 25.6x 15.2x 15.6x

S&P 500 IndexJun. 30, 2014

P/E (fwd.) = 15.6x

1,960

Characteristic Mar-2000 Oct-2007 Jun-2014

1,600

1,800

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

Equ

ities

Mar. 24, 2000P/E (fwd.) = 25.6x

1,527

Oct. 9, 2007P/E (fwd.) = 15.2x

1,565

1,200

1,400

+101%+190%

+106%

800

1,000

-49% -57%

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

600

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

Oct. 9, 2002P/E (fwd.) = 14.1x

777

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

741

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

677

4

, . -

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

Guide to the Markets U.S.

Data are as of 6/30/14.


5/71

Returns and Valuations by Style

2Q 2014 Year to Date Current P/E vs. 20-year avg. P/E

Value Blend Growth Value Blend Growth

e e15.0 15.6 18.3

Value Blend Growth

ge

Equ

ities

Lar 5.1% 5.2% 5.1%

Lar 8.3% 7.1% 6.3%

Mid 5.6% 5.0% 4.4% M

id 11.1% 8.7% 6.5%

14.0 16.2 21.0

17.0 18.4 19.8

14.1 16.4 21.8

La

Mid

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

Current P/E as % of 20-year avg. P/E

E.g.: Large Cap Blend stocks are 3.4%

cheaper than their historical average.

Small

2.4% 2.0% 1.7%Small

4.2% 3.2% 2.2%

. . .

14.4 17.2 21.4Small

Value Blend Growth

Large

107.4% 96.6% 87.1%

id 120.1% 111.7% 90.7%

Value Blend Growth Value Blend Growth

Large

35.7% 45.2% 59.9%Large

238.2% 224.4% 226.2%

id id

Small

116.1% 107.6% 96.5%

Small

48.1% 55.0% 61.3%Small

266.2% 273.8% 280.7%

5

, , , . . .

All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 6/30/14, illustratingmarket returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 6/30/14, illustrating market returns since the S&P 500 Indexlow on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with theexception of the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns.Guide to the Markets U.S.



6/71


7/71

Stock Valuation Measures: S&P 500 Index

U.S. Equity: Valuation Measures Historical Averages

Valuation

Measure DescriptionLatest

1-year

ago

5-year

avg.

10-year

avg.

25-year

avg.*

Equ

ities P/E Price to Earnings 15.6x 13.8x 13.4x 13.8x 15.6x

CAPE Shiller's P/E 25.6 24.4 21.7 22.9 25.1

Div. Yield Dividend Yield 1.9% 2.0% 2.0% 2.0% 2.1%

PEG Price/Earnings to Growth 1.5 0.8 1.1 1.7 1.4

P/B Price to Book 2.8 2.6 2.2 2.4 2.9

14%S&P 500 Earnings Yield vs. Baa Bond Yield

26xS&P 500 Index: Forward P/E Ratio

P/CF Price to Cash Flow 11.0 10.3 8.9 9.5 10.6

EY Spread EY Minus Baa Yield 1.7% 1.5% 2.0% 1.2% -0.7%

8%

10%

12%

S&P 500 Earnings Yield:

(Inverse of fwd. P/E) 6.4%

16x

18x

20x

22x

24x

Current: 15.6x

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '142%

4%

6%

Moodys Baa Yield: 4.7%

Source: Standard & Poors FactSet Robert Shiller Data FRB J.P. Mor an Asset Mana ement. Price to Earnin s is rice divided b consensus anal st estimates of earnin s

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '148x

10x

12x

14x Average: 15.6x

7

per share for the next 12 months. Shillers P/E uses trailing 10-years of inflation adjusted earnings as reported by companies. Dividend Yield is calculated as the trailing 12-

month average dividend divided by price. Price/Earnings to Growth Ratio is calculated as NTM P/E divided by NTM earnings growth. Price to Book Ratio is the price divided by

book value per share. Price to Cash Flow is price divided by NTM cash flow. EY Minus Baa Yield is the forward earnings yield (consensus analyst estimates of EPS over the

next 12 months divided by price) minus the Moodys Baa seasoned corporate bond yield. *P/CF is a 20-year avg. due to cash flow data availability.

Latest reflects data as of 6/30/14.

Guide to the Markets U.S. Data are as of 6/30/14.


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Corporate Profits and Leverage

12%

S&P 500 Earnings Per ShareOperating basis, quarterly

Profit Margins

S&P 500 Operating EPS % of Sales per Share

1Q14*: $27.32 1Q14:9.8%

$23

$27

4%

6%

8%

Equ

ities

1Q14:8.9%

2Q07: $24.06

$15

$19

0%

2%

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

Total Leverage

- , . . ,

$7

$11

180%

200%

220%

240%

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

-$1

$3

100%

120%

140%

160%

1Q14:102%

Average: 171%

8

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: BEA, Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 4Q13 as 1Q14 are Standard & Poors preliminary estimates .Past performance is not indicative of future returns.



'96 '98 '00 '02 '04 '06 '08 '10 '12 '14


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Sources of Earnings per Share Growth

50%

S&P 500 Year-Over-Year EPS GrowthGrowth broken into revenue, changes in profit margin & changes in share count

30%

40%

Equ

ities

Margin 2.6%Revenue 3.6%

Share count -0.1%

0%

10%

-20%

-10%

-50%

-40%

-

1Q141Q121Q101Q081Q061Q041Q021Q001Q981Q961Q94

9

Source: Standard & Poors, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 4Q13 as 1Q14 are Standard & Poors preliminary estimates.Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, andare adjusted on the chart.




10/71

Sources of Total Return

50%

S&P 500 Year-Over-Year Total ReturnTotal return broken into multiples, earnings and dividends, quarterly

30%

40%

Equ

ities

0%

10%

-20%

-10%

Share of Total Return 2Q14

-50%

-40%

-

2Q142Q122Q102Q082Q062Q042Q022Q002Q982Q962Q94

Multiples 12.4%Earnings 9.6%Dividends 2.6%

10

Source: Standard & Poors, IBES, J.P. Morgan Asset Management.Earnings contribution is the measured change in forward earnings per share estimates.




11/71

Multiples, Confidence, Style and Interest Rates

27x120

Multiple Expansion and Contraction

Consumer Sentiment Forward P/E

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

15x

18x

21x

24x

80

90

100

Equ

ities

'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

9x

12x

50

60

70

Correlation Coefficient: 0.52

-

20%

30%

40%

3%

4%

5%

.

Cyclical vs. Defensive Sectors (LHS)

0%

10%

1%

2%

Growth vs. Value Styles (LHS)

10-yr. Treasury Yield(RHS)

11

'10 '11 '12 '13-10% 0%

Source: (Top) Standard & Poors, FactSet, J.P. Morgan Asset Management. *Estimated impact based on coefficients from regression analysis.(Bottom) Standard & Poors, Russell, J.P. Morgan Asset Management. Cyclical sectors include consumer discretionary, financials, technology,industrials, energy and materials of the S&P 500, while defensive sectors include health care, consumer staples, telecom and utilities.Guide to the Markets U.S. Data are as of 6/30/14.


12/71

Interest Rates and Equities

0.8

Correlations Between Weekly Stock Returns and Interest Rate MovementsWeekly S&P 500 returns, 10-year Treasury yield, rolling 2-year correlation, May 1963 Jun. 2014

0.4

0.6

Equ

ities

Positiverelationshipbetween yieldmovementsand stock

below 5%, risingrates aregenerally

associated withrising stockprices

Last 12 Months

1963 12 Months Ago

Graph Key

0

0.2

returns

onCo

efficient

-0.4

-0.2

Negativerelationship

between yield

Correlati

-0.8

-0.6

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

stock returns

12

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

Returns are based on price index only and do not include dividends. Markers represent monthly 2-year correlations only.



10-Year Treasury Yield


13/71

Deploying Corporate Cash

$1,600$1,70032%

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

Corporate Growth

Capital Expenditures M&A Activity

$bn, nonfarm nonfinancial capex, quarterly value of deals completed

$600

$800$1,000

$1,200

,

$1,200

$1,300$1,400

$1,500

,

20%

22%

24%

26%

28%

Equ

ities

$0

$200

$400

$900

$1,000

$1,100

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

14%

16%

18%

Cash Returned to ShareholdersDividend Payout Ratio

$120

$140

$160

$30

$33

$36

50%

60%

$bn, S&P 500 companies, rolling 4-quarter averagesS&P 500 companies, LTM

Dividends per Share

$40

$60

$80

$18

$21

$24

30%

40%

Share Buybacks

13

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13Source: Standard & Poors, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management. (Top left) Standard & Poors,FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of deals completed and capital expenditures are fornonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard &Poors, Compustat, FactSet, J.P. Morgan Asset Management. Guide to the Markets U.S. Data are as of 6/30/14.


14/71

Annual Returns and Intra-year Declines

3440%

S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.4%, annual returns positive in 26 of 34 years*

YTD 2014

26

1517

26

1512

27 26

7

20

27

20

26

9

14

23

13 13

30

10%

20%

30%

Equ

ities

-101 2

-7

4

-2 -10 -13 -23

3 4

-38 0

-7

-

-8-9

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

-3

-8

-11 -12

-8 -7 -8-10 -10

-6 -6-10%

%

-17 -18-17

-34

-20 -19-17

-30

-34

-14

-28

-16

-19

-40%

-30%

-20%

-49

-60%

-50%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

14

Source: Standard & Poors, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough duringthe year. For illustrative purposes only. *Returns shown are calendar year returns from 1980 to 2013 excluding 2014 which is year-to-date.




15/71

Equity Correlations and Volatility

70%

Large Cap StocksCorrelations Among Stocks

Sovereign DebtCrisis

LehmanGreat Depression /

30%

40%

50%

Equ

ities

Tech Bust & 9/11

1987 Crash

OPEC Oil

Crisis

Cuban Missile Crisis

0%

10%

20%

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

Average: 26.9%Jun. 2014: 28.2%

2.5%

3.0%

3.5%

60

75

90Volatility Measure 08 Peak Average LatestDJIA (Left) 3.30% 0.72% 0.41%VIX (Right) 80.9 20.0 11.6

DJIA vol. shownin 3-month

moving average

0.5%

1.0%

1.5%

.

15

30

45

15

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

Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top750 stocks by market capitalization, daily returns, 1926 Jun. 30, 2014. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIAvolatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average.

Charts shown for illustrative purposes only. Guide to the Markets U.S. Data are as of 6/30/14.


16/71

Stock Market Since 1900

S&P Composite Index

Log Scale

1,000

300

Equ

ities

100

1966 1974

101900 1924

1937 1948

'00 '10 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10

16

Source: Robert Shiller, FactSet, J.P. Morgan Asset Management.

Data shown in log scale to best illustrate long-term index patterns.Past performance is not indicative of future returns. Chart is for illustrative purposes only.




17/71

Economic Growth and the Composition of GDP

10%$18

Real GDPYear-over-year % chg

1 14

Components of GDP1Q14 nominal GDP, trillions USD

3.2% HousingReal GDP

6%

8%

$14

$16

y

YoY % chg: 1.5%12.7% Investment Ex-housing

18.3% Govt SpendingAverage:

QoQ % chg: -2.9%

2%

4%

$8

$10

Econo 3.0%

-2%

0%

$2

$4

$6 68.9% Consumption

ExpansionAverage:

2.1%

'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-6%

-4%

-$2

$0

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

- 3.1% Net Exports

17

. .

full period and the period starting in the second quarter of 2009.Guide to the Markets U.S.



18/71

Consumer Finances

13.5%$100

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

4Q07:

Consumer Balance Sheet1Q14, Trillions of dollars outstanding, not seasonally adjusted

3Q-07 Peak: $83.1tn

11.0%

11.5%

12.0%

12.5%

.

$80

$90

y1Q80:10.6%

. .

Homes: 24%

1Q-09 Low: $69.7tn

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '129.5%

10.0%

10.5%

$50

$60

$70

Econo 2Q14*:

9.9%

Household Net WorthBillions USD, not seasonally adjusted 2Q14*:

Deposits: 10%

Pension Funds: 21%

Other Tangible: 6%

$30

$40

$50,000

$60,000

$70,000

$80,000

$90,000 $83,5472Q07:

$68,901

Other Non-revolving: 1%Revolving (e.g.: credit cards): 6%

Auto Loans: 7%Other Liabilities: 9%

Student Debt: 9%

$0

$10

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$10,000

$20,000

$30,000

$40,000Total Liabilities: $13.8tn

Assets: 39%

Mortgages: 68%

18

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

Management. *2Q14 household debt service ratio and household net worth are J.P. Morgan Asset Management estimates. Values may not sum to100% due to rounding.




19/71

Cyclical Sectors

24

Millions, seasonally adjusted annual rateLight Vehicle Sales

46

47

Manufacturing and Trade InventoriesDays of sales, seasonally adjusted

14

16

18

20

22

y Average: 15.3

Jun. 2014:

16.9

41

4243

44

45

Apr. 2014:39.2

'96 '98 '00 '02 '04 '06 '08 '10 '12 '148

10

12

Econo

Real Capital Goods Orders

Housing Starts

'96 '98 '00 '02 '04 '06 '08 '10 '12 '1437

38

39

$6 0

$6 5

$7 0

$7 5

1,600

2,000

2,400

- . , ,

May 2014:1,001

ousan s, seasona y a us e annua rae

May 2014:60.9

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$4 0

$4 5

$5 0

$5 5

'96 '98 '00 '02 '04 '06 '08 '10 '12 '140

400

800

,

Average: 56.6

,

19

Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management.Capital goods orders deflated using the producer price index for capital goods with a base year of 2004.Guide to the Markets U.S.



20/71

Residential Real Estate

40%

Housing Affordability IndexAvg. mortgage payment as a % of household income

130

Indexed to 100, seasonally adjustedHome Prices

-

20%

25%

30%

35%

y

May 2014:13.4%120

125

FHFA Purchase Only

Average Existing Home

10%

15%

'75 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '12Econo

.

105

110

Home Inventories

90

95

100ons, annua rae, seasona y a us e

3.5

4.0

4.5

May 2014:2.3

'04 '05 '06 '07 '08 '09 '10 '11 '12 '1380

85

'96 '98 '00 '02 '04 '06 '08 '10 '12 '141.5

2.0

2.5

.

20

Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management.Monthly mortgage payment assumes the prevailing 30-year fixed-rate mortgage rates and average new home prices excluding a 20% downpayment. (Bottom right) CensusBureau, National Association of Realtors, J.P. Morgan Asset Management.Guide to the Markets U.S.Data are as of 6/30/14.


21/71

Commercial Real Estate

25%

10%

Commercial Vacancy Rates by SectorPercent at year end

Cap. Rates, REIT Div. Yields & Treasury Yields

Cap. Rates

20%4%

6%

8% Apr. 2014:6.61%

y

ec orOffice 16.7%Retail 10.1%

Industrial 9.5%Apartment 4.2%

Apr. 2014:4.14%

REIT Div. Yield

10-Year Treasur Yield

15% 0%

2%

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Commercial Mort a e-Backed Securit Issuance

Apr. 2014:2.65%

Econo

10%

80

100

120

$ bn, quarterly

U.S. Issuance

Foreign Issuance

0%

5%

0

20

40

60

21

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: Reis, Inc., PREA, FactSet, J.P. Morgan Asset Management.Cap rate is the rate of return on a real estate investment property based on the expected return that the property will generate. It is calculated bydividing annual income by the total value of the property. Cap rate is for U.S. core properties limited to deal transactions of $2.5 million or greater.Vacancy rate data provided by Reis, Inc. Guide to the Markets U.S.



22/71

Long-term Drivers of Economic Growth

16% 5%

ProductivityOutput per hour, nonfarm private business, year-over-year % chg.

Gross Investment and DepreciationPrivate nonresidential fixed investment, % of GDP

Gross investment spending Depreciation

8%

12%

2%

3%

4%

y2013:0.5%

0%1990 1995 2000 2005 2010

0%

1%

1990 1995 2000 2005 2010Econo

Real Capital Stock Growth

Labor Force Growth

3%

4%

5%

2%

3%

onres en a xe asses, year-over-year c g.

2013JPMAM

Est: 1.5%

ear-over-year c g. n popua on age wor ng or oo ng or wor

0%

1%

2%

-1%

0%

2013:-0.4%

22

1990 1995 2000 2005 2010

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




23/71

Federal Finances

-12%

-10%

The 2014 Federal BudgetCBO Baseline forecast, trillions USD

Federal Budget Surplus/Deficit% of GDP, 1990 2024, 2014 CBO Baseline

Forecast$4.0

-8%

-6%

-4%

-2%

0%y

2014:-2.8%

$3.0

$3.5Total Spending: $3.5tn

Other

$360bn (10%)Net Int.: $227bn (6%)

Borrowing:

$492bn (14%)

Other: $265bn (8%)

2%

4%'90 '95 '00 '05 '10 '15 '20

Econo

Federal Net Debt (Accumulated Deficits)% of GDP, 1940 2024, 2014 CBO Baseline, end of fiscal year

$2.0

$2.5

Defense:

$596bn (17%)

- .$584bn (17%)

Social Insurance:$1,033bn (29%)

80%

100%

120%

$1.0

$1.5Social Security:

$845bn (24%)

Corp.: $351bn (10%)

2024:78.1%

20%

40%

60%

'40 '44 '48 '52 '56 '60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 '16 '20 '24$0.0

$0.5

Total Government Spending Sources of Financing

Medicare & Medicaid:$911bn (26%)

$1,382bn (39%)

Forecast

73.8%

23

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

2014 Federal Budget is based on the CBOs April 2014 Baseline Scenario. Other spending includes, but is not limited to, health insurance subsidies, income security,and federal civilian and military retirement.Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2014 numbers are CBO estimates as of April 2014.




24/71

Employment

60012%

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

200

400

10%

11%

y 8.8mmobs lost

Oct. 2009: 10.0%

-200

0

8%

9%

Econo

9.4mmjobs

-600

-400

6%

7%

May 2014: 6.3%

-1,000

-800

3%

4%

50-yr. avg.: 6.1%

24

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13'70 '80 '90 '00 '10

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




25/71

Labor Market Perspectives

Job Gains and Losses May 2013 to Apr. 2014

Millions of jobs

Total Separations: 52.8mmTotal Hires: 55.1mm

68%

Labor Force Participation Rate% of population aged 16+ working or looking for work

20

30

40

50

y

Other Separations: 4.4mm

Quits:28.5 mm

64%

65%

66%

67%

0

10

Econo Layoffs and Discharges:

19.9mm

Average Hourly Earnings Growth

'96 '98 '00 '02 '04 '06 '08 '10 '12 '1462%

63%

May 2014: 62.8%

- -Net Job Creation Since Feb. 2010 Millions of Jobs

3%

4%

5%

May 2014:2.4%

.

2.72.4

1.91.7

0.7

1 mm

2 mm

'96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

1%

2%

-0.6

-1 mm

0 mm

Info. Fin &Bus. Svcs.

Mfg. Trade &Trans.

Leisure,Hosp t. &

Other Svcs.

Educ. &Health Svcs .

Mining &Construct.

Gov't

25





26/71

Employment and Income by Educational Attainment

18%$89,253

$90,000

Average Annual Earnings by Highest Degree EarnedFull-time workers aged 18 and older, 2012, USD

Unemployment Rate by Education Level

14%

16%

$70,000

$80,000

y

+29K

Less than High School Degree

High School No College

Some CollegeCollege or Greater

10%

12% $60,159

$50,000

$60,000

Econo

+28K

May 2014:

6.5%

May 2014:9.1%

6%

8%

$32,630

$30,000

$40,000

May 2014:

5.5%

0%

2%

0

$10,000

$20,000

May 2014:3.2%

26

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 High School Graduate Bachelor's Degree Advanced Degree

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

Unemployment rates shown are for civilians aged 25 and older.




27/71

Consumer Price Index

15%

CPI and Core CPI50-yr. Avg. May 2014

Headline CPI: 4.2% 2.1%

% change vs. prior year, seasonally adjustedCPI

Components

Weight in

CPI

12-month

change (sa)

Food & Bev. 14.9% 2.4%

12%

y

Core CPI: 4.1% 1.9%Housing 41.4% 2.6%

Apparel 3.4% 0.7%

Transportation 16.4% 1.8%

6%

9%

Econo Medical Care 7.6% 2.8%

Recreation 5.8% 0.4%

Educ. & Comm. 7.1% 1.5%

Other 3 4% 1 8%

0%

3%

. .

Headline CPI 100.0% 2.1%

Less:

Energy 9.0% 3.4%

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


Food 13.9% 2.5%

Core CPI 77.1% 1.9%

27

CPI used is CPI-U and values shown are % change vs. 1 year ago and reflect May 2014 CPI data. CPI component weights are as of December 2013.

Core CPI is defined as CPI excluding food and energy prices.




28/71

Energy and the Economy

Gbl. Natural Gas Prices35

Kuwait

Middle East Energy Production & Chokepoints

Percent of global liquid fuel production, 2012*

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

Forecast

.Germany $10.64U.S. $4.59

15

20

25

y

Iran3.9%

Iraq3.9%

3.4%0.2%

Suez Canal2.2%

Other

Shale Gas

0

5

10

1990 1995 2000 2005 2010 2015 2020 2025

Econo Libya

1.8%Egypt0.8% Saudi Arabia

12.9%

Strait ofHormuz

U.S. Sources of Oil and Li uid Fuels

20

25

U.S. consumption, millions of barrels per day0.1%UAE3.5%

.

Bab el-Mandeb

Net Imports U.S. Production

EIA Forecast

5

10

3.4%

Major Producers

Percent of global total, 2012

Saudi Arabia 13% China 5%

Major Consumers

Percent of global total, 2012

United States 21% India 4%

28

0

2000 2002 2004 2006 2008 2010 2012 2014Source: (Left) EIA, J.P. Morgan Asset Management. (Top right) EIA, IMF, FactSet, J.P. Morgan Asset Management. (Bottom right) EIA, J.P.Morgan Asset Management. Forecasts are from EIA Annual Energy Outlook and start in 2013. *Production numbers as of 2012, while chokepointsare 2011 data. Natural gas prices are as of May 2014. Guide to the Markets U.S. Data are as of 6/30/2014.

Russia 12% Iran 4% Japan 5% Saudi Arabia 3%


29/71

Consumer Confidence and the Stock Market

130

Consumer Sentiment Index University of Michigan

Impact on Consumer Sentiment from a

110

120

y

Jan. 2000

-2.0%

Jan. 2004+4.4%

- . p s

+1.9

+2.8

-5.2

y-o-y r se n gaso ne pr ces

10% y-o-y rise in home prices

10% y-o-y rise in the S&P 500

1% y-o-y rise in the unemployment rate

90

100

Average: 85.3

Econo

.+13.5%

May 1977+1.2%

.-6.2%

Jan. 2007-4.2%

60

70

Oct. 1990

Mar. 2003+32.8% Oct. 2005

+14.2%

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

50

Feb. 1975+22.2%

May 1980+19.2%

+29.1%

Nov. 2008+22.3%

Aug. 2011+15.4%Sentiment Cycle Low and

subsequent 12-month S&P 500 Indexreturn

29

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

Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a seriesof higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Impact on consumer sentiment isbased on a multivariate monthly regression between 1/31/2000 5/31/2014. Guide to the Markets U.S.



30/71


31/71

Interest Rates and Inflation

20%

Nominal and Real 10-year Treasury Yields

15%

ep. , :15.84%

Average

(1958 2014) 6/30/14Nominal Yields 6.34% 2.53%Real Yields 2.52% 0.58%

10%

com

eNominal 10-yearTreasury Yield

. .

5%

FixedI Jun. 30, 2014: 2.53%

Real 10-year

-

0%

Jun. 30, 2014: 0.58%

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

Falling Rate Corp. Bonds S&P 5001982-2013 9.7% 11.6%Ann. Inflation 3.0% 3.0%Ann. Real Return 6.5% 8.4%

31

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

-

Source: Federal Reserve, BLS, J.P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core CPI inflation for that month except for June 2014,where real yields are calculated by subtracting out May 2014 year-over-year core inflation. All returns above reflect annualized total returns, whichinclude reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance.Guide to the Markets U.S.Data are as of 6/30/14.


32/71

Fixed Income Yields and Returns

US Treasuries# of

issues

Correlation to

10-year

Avg.

Maturity6/30/2014 3/31/2014 2Q14 YTD

Yield Return Price Impact of a 1% Rise/Fall in Interest Rates*

+1%

-1%-2.0%0.9%2y UST

- . . . . .

5-Year 96 0.91 5 1.62% 1.73% 1.18% 1.92%

10-Year 18 1.00 10 2.53% 2.73% 2.66% 6.14%

30-Year 20 0.92 30 3.34% 3.56% 5.24% 13.77%-16.9%

-8.5%

-6.7%

-4.7%

21.9%

9.4%

7.7%

.

30y UST

10y UST

TIPS

5y UST

TIPS 35 0.59 10 0.27% 0.60% 3.81% 5.83%

Sector

Broad Market 8,523 0.86 7.7 years 2.22% 2.39% 2.04% 3.93%

MBS 429 0.81 7.2 2.79% 3.11% 2.41% 4.03%

com

e

-3.8%

-3.2%

-0.1%

3.5%

3.5%

0.1%

ABS

Convertibles

Floating Rate

Municipals 9,101 0.47 9.9 2.25% 2.55% 2.49% 5.69%

Corporates 5,039 0.46 10.5 2.91% 3.10% 2.66% 5.68%

High Yield 2,164 -0.24 6.6 4.91% 5.23% 2.41% 5.46%

Floating Rate 47 -0.21 3.1 1.01% 1.17% 0.73% 1.13%

FixedI

-6.1%

-6.0%

-5.6%

-4.1%

5.6%

4.1%

5.6%

4.0%

Munis

MBS

US Agg regate

US HY

Convertibles 514 -0.32 -- 1.19% 1.20% 4.23% 8.80%

ABS 1,358 -0.04 4.1 1.90% 1.90% 1.19% 2.33%

Source: U.S. Treasury, Barclays Capital, FactSet, J.P. Morgan Asset Management.Fixed income sectors shown above are provided by Barclays Capital and are represented by Broad Market: Barclays U.S. Aggregate; MBS: U.S. Aggregate Securitized - MBS Index;Corporate: U.S. Corporates; Municipals: Muni Bond 10-year Index; High Yield: Corporate High Yield Index; TIPS: Treasury Inflation Protection Securities (TIPS). Floating Rate: Barclays FRNBBB Convertibles: Barcla s U.S. Convertibles Com osite ABS: Barcla s ABS + CMBS. Treasur securities data for # of issues based on U.S. Treasur benchmarks from Barcla s Ca ital.

-6.6%7.6%

-30% -10% 10% 30%

IG Corps

32

. . . . . .Yield and return information based on bellwethers for Treasury securities. Sector yields reflect yield to worst, while Treasury yields are yield to maturity. Correlations are based on 10-years of

monthly returns for all sectors. Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change inInterest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2). *Calculation assumes 2-year Treasury interest rate falls 0.47% to 0.00%,as interest rates can only fall to 0.00%.Chart is for illustrative purposes only. Past performance is not indicative of future results. Guide to the Markets U.S.



33/71

Sources of Bond Returns

Coupon Return2013 C

Total Return2013 A + B + C

Treasury Base Rate Return2013 A

Spread to Treasury Return2013 B

2014 YTD1.2%5-yr. 0.8% 1.9% 5-yr.

2013

4.8%

12.0%

10-yr.

30-yr.

1.4%

1.8%

6.1%

13.8%

10-yr.

30-yr.

com

e

3.5%

-1.3%

10-yr. Muni

U.S. HY

EM (USD)

2.1%

3.4%

5.7%

5.5%

10-yr. Muni

U.S. HY

EM (USD)

3.4%

FixedI

.

2.2%

1.5%

IG Corp.

U.S. MBS

.

2.1%

1.8%

.

5.7%

4.0%

IG Corp.

U.S. MBS

.

1.4%

0.7%

1.7%

-0.7%

-20% -10% 0% 10%

U.S. Agg .

FRN (BBB)

1.6%

0.7%

-20% -10% 0% 10%

3.9%

1.1%

-20% -10% 0% 10% 20%

U.S. Agg .

FRN (BBB)

0.7%

1.1%

-20% -10% 0% 10%

33

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

All returns reflect year to date returns. Treasury base, spread, and coupon returns based on Barclays and J.P. Morgan Asset Managementestimates. The sum of charts A and B equate to price return for each sector.

Indices used include Barclays US Treasury Bellwethers (10Y), Barclays US Aggregate, Barclays US Aggregate Credit Corporate InvestmentGrade, Barclays US Aggregate Credit Corporate High Yield, Barclays Muni 10-year Index, Barclays US MBS Index, Barclays Floating RateIndex, and Barclays Emerging Markets USD. Guide to the Markets U.S. Data are as of 6/30/14.


34/71

The Fed and Interest Rates

Yield Curve Steepness10-yr. U.S. Treasury minus effective Fed Funds rate

Feds Balance Sheet: Assets$ trillions

4%Jun. 2014:

$4.0

$4.5

er

U.S. Treasuries

Agency MBS

1%

2%

3%

Average:

1.6%

.

$1.5

$2.0

$2.5

$3.0

$3.5

Feds Balance Sheet: Liabilities

com

e

Federal Reserve Summary of Economic Projections

'85 '90 '95 '00 '05 '10-1%

0%

$0.0

$0.5

$1.0

'04 '05 '06 '07 '08 '09 '10 '12 '13 '14

r ons

FixedI

Other Liabilities

Excess Reserves

Required Reserves

$2.5

$3.0

$3.5

$4.0

$4.5 Fed's June 2014 Forecasts*Percent

2014 2015 2016Long

Run

Chan e in real GDP 4 to 4 2.2 3.1 2.8 2.2

'05 '06 '07 '08 '09 '10 '11 '12 '13$0.0

$0.5

$1.0

$1.5

$2.0

Unemployment Rate, Q4 6.1 5.6 5.3 5.4

PCE Inflation, Q4 to Q4 1.6 1.8 1.8 2.0

Federal Funds Rate, end of year 0.25 1.13 2.50 3.75

34

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits heldin the central bank's reserves. Other liabilities of the Federal Reserve primarily consist of currency outstanding. *Forecasts of 16 FOMC participants,midpoints of central tendency except for federal funds rate which is a median estimate. Guide to the Markets U.S.



35/71

Owners of Treasury Securities

1,200

Net Purchases of Treasuries Year Ended 1Q14Billions of dollars

Treasuries Outstanding 1Q14Billions of dollars, end of period, not seasonally adjusted

Total Outstanding Treasury Securities: $12,591

800

1,000

PensionsMutual funds

Other

Foreign private

Financial

State and localgov'ts6%

Other

1%

400

600

com

eForeign official

Total net purchases: $686

Foreign official

32%Households7%

institutions7%

0

200

FixedI Federal Reserve

Federal Reserve18%

Foreign private15%

Mutual funds9%

-400

-200Households

Financial institutionsState and local govts

35

ource: e era eserve, . . organ sse anagemen .Treasuries outstanding include total issues of Treasury securities plus budget agency securities and federal mortgage borrowing. Other includesNonfinancial corporate business, Nonfinancial noncorporate business, Issuers of asset-backed securities and Holding companies. Net Purchasesis the average of the annual rates over the past four quarters. Foreign official reports assets held by official foreign institutions (i.e. Monetaryauthorities, government agencies), Foreign private reports treasury securities held by other foreigners (i.e. Financial institutions, individuals).




36/71

Credit Conditions

760 12%

Delinquency RatesAll banks, seasonally adjusted

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

May 2014:741

700

720

740

4%

6%

8%

10% Consumer Loans

Commercial and Industrial Loans

7.8%

660

680

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

2%

com

e0.9%

.

Common Equity as a % of Total Assets

Mortgage Originations

10%

12%

14%

FixedI ,

2013:11.1%

$300

$350

$400

$450

u y, , y u

4%

6%

8%

' ' ' ' ' ' ' ' ' ' ' '

Average: 7.7%

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$50

$100

$150

$200

2Q14: $144bn

36

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

All data reflect most recently available releases.




37/71

High Yield Bonds

20%Average Latest

HY Spreads 5.9% 4.0%Lev. Loan Spreads 4.9% 3.0%HY Defaults Rates 4.0% 2.1%

High Yield Spreads and Defaults

HY Spreads

5%

10%

ev. oan prea s

HY Default Rates

0%'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

com

e

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

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

$40

$60

$80

FixedI

Average: 41.1

YTD 2014: $15.0bn

High Yield

Leveraged Loans

40

50

60

70

-$20

$0

$20

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140

10

20

30

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

37

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

trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Fitch, J.P. Morgan AssetManagement. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields.2014 recovery rate is a weighted average number as of June 2014. Yield to worst is defined as the lowest potential yield that can be receivedon a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder.Flows include ETFs and are as of May 2014. Past performance is not indicative of comparable future results. Guide to the Markets U.S.Data are as of 6/30/14.


38/71

Municipal Finance

9%

10%12%

State & Local Government Debt Service% of current expenditures

10-Year Muni Taxable Equivalent YieldTaxable equivalent Muni and Treasury yields 1Q14: 8.8%

5%

6%

7%

8%

10%

Taxable Equivalent 10-Yr Muni Yield

3%

4%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

6%

8%

com

e

Municipal Bond Issuance*Billions USD revenue and GO issues

4%

$300bn

$400bn

$500bn

FixedI

10-Year Treasury Yield

0%

2%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14$0bn

$100bn

$200bn

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14

Spread

38

Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P.Morgan Asset Management.Taxable equivalent yields are calculated for the highest federal marginal tax bracket. 2014 tax rate includes the net investment income tax of 3.8%.*Excludes maturities of 13 months or less and private placements. Interest payments include interest accrued on defined benefit liabilities.2014 issuance data is as of May 2014. Guide to the Markets U.S.



39/71

Global Fixed Income

AggregatesCorrel to

10-yearDuration Current 2Q14 YTD

ReturnYield

$100

Global Bond MarketUSD, trillions

EM: $14tn

U.S. 0.83 5.6 Yrs 2.22% 2.04% 3.93%

Gbl. ex. U.S. 0.38 6.8 1.56% 2.71% 5.50%

Japan 0.53 8.0 0.53% 2.39% 5.27%$70

$80

$90 12/31/89 12/31/13U.S. 60.7% 37.9%Dev. ex U.S. 38.2% 48.3%

EM 1.1% 13.9%

Germany 0.25 5.8 0.94% 1.44% 3.63%

U.K. 0.17 8.6 2.54% 3.51% 6.35%

Italy 0.07 6.3 2.00% 2.76% 7.93%$50

$60

com

e Developed ex

U.S.: $47tn

Spain 0.10 5.5 1.68% 2.38% 7.66%

Sector

EMD ($) 0.18 7.0 5.10% 4.76% 8.66%

$20

$30

$40

FixedI

. . . . .

Euro Corp. 0.09 4.6 1.48% 2.39% 4.81%

Euro HY. -0.41 4.0 4.37% 2.66% 6.03% $0

$10

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

Source: Barcla s Ca ital BIS FactSet J.P. Mor an Asset Mana ement. Fixed income sectors shown above are rovided b Barcla s Ca ital and are re resented b the lobal

. .: 7tn

39

aggregate for each country except where noted. EMD sectors are represented by the J.P. Morgan EMBIG Index (USD) and the J.P. Morgan GBI EM Global Diversified Index (LCL).

European Corporates are represented by the Barclays Euro Aggregate Credit Corporate Index and the Barclays Pan-European High Yield index. Sector yields reflect yield to worst.Duration is modified duration. Correlations are based on 7-years of monthly returns for the all sectors. Past performance is not indicative of future results.Current data are as of 6/30/2014 unless otherwise noted.Guide to the Markets U.S.Data are as of 6/30/14.


40/71

Emerging Market Debt

12%

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

Index Breakdown USD Denominated EMDMiddle East &

Africa 12%Middle East &

Africa 16%100%

IndexAverage

Spread

Spread

(6/30/14)

4%

6%

8%

Asia 38%

Europe 33%Europe 15%

Latin America36%

Latin America30%

20%

40%

60%

EMBIG 3.8% 2.8%

CEMBI 3.3% 3.0%

0%

2%

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

com

e

Annual Flows into EMD Mutual Funds & ETFsBillions USD

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

Asia 19%

0%Sovereigns

(EMBIG)Corporates

(CEMBI)

$15

$20

$25

$30

FixedI

-

BB+

BBB-

BB

BB-

YTD 2014:

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

-$5

$0

$5

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

B-

B

B+-$2.0bn

40

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

Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate EmergingBond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of May2014. Past performance is not indicative of comparable future results. Index breakdown may not equate to 100% due to rounding.Guide to the Markets U.S.Data are as of 6/30/14.


41/71

Global Equity Markets

Country / Region

2Q14 YTD 2014

Local USD Local USD

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

Regions / Broad Indexes

U.S. (S&P 500) - 5.2 - 7.1EAFE 3.7 4.3 3.5 5.1

-

UnitedStates49%

Europe ex-U.K.17%

U.K. 8%

EmergingMarkets . . . . . .

Pacif ic ex-Japan 3.0 4.4 3.6 7.5

Emerging Markets 5.2 6.7 4.8 6.3

MSCI: Selected Countries

11%

Japan7%

Canada4%

Global Equity Market Correlations

0.60

0.70

0.80

0.90United Kingdom 3.4 6.1 1.9 5.2

France 3.1 2.4 6.1 5.4

Germany 2.9 2.3 2.6 2.0

Japan 4.9 6.7 -2.8 0.9o

nal

Rolling 1-year correlations, 30 countries

0.10

0.20

0.30

0.40

0.50

China 5.6 5.7 -0.5 -0.5

India 13.5 12.7 18.5 21.9

Brazil 5.2 7.7 3.5 10.7

- -

Internati

Jun. 2014:0.38

41

.'95 '97 '99 '01 '03 '05 '07 '09 '11 '13

. . . .

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

All return values are MSCI Gross Index (official) data. Chart is for illustrative purposes only. Past performance is not indicative of future results. Pleasesee disclosure page for index definitions. Countries included in global correlations include Argentina, South Africa, Japan, UK, Canada, France,Germany, Italy, Australia, Austria, Brazil, China, Colombia, Denmark, Finland, Hong Kong, India, Malaysia, Mexico, Netherlands, New Zealand, Peru,Philippines, Portugal, Korea, Spain, Taiwan, Thailand, Turkey, United States. Guide to the Markets U.S. Data as of 6/30/14.


42/71

Global Economic Growth

10%Year-over-year % chg. forecasts from JPMSIEmerging Market Country Real GDP Growth

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Historical

1Q15

JPMSI Forecast

2%

4%

6%

-4%

-2%

Emerging Markets China India Korea Brazil South Africa Mexico Russia

Develo ed Market Countr Real GDP Growth

4%

6%

8%

10%

Year-over-year % chg. forecasts from JPMSI

o

nal

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

s or ca

1Q15

orecas

-4%

-2%

0%

2%

Internati

42

Countries

. . . .

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

Forecast and aggregate data come from J.P. Morgan Global Economic Research. Historical growth data collected from FactSet Economics.Guide to the Markets U.S.



43/71


44/71

The Importance of Exports

Exports as a % of GDP2013, goods exported Estimated increase in quarterly real GDP reflecting stronger DM exports

Emerging Market Real GDP Growth Sensitivity to DM

Brazil .

16.0%

24.9%Turkey

S. Africa

raz

China

India

U.S.

Europe

U.S.

.

9.4%

Russia

Mexico

Chile

U.S.

Other

BRICJapan

14.6%

19.6%

18.5%

o

nal Korea

Hungary

UK

Eurozone

apan

20.7%

24.6%

37.6%Internati

Thailand

Taiwan

Germany

Italy

France

44

Source: IMF, MacData, J.P. Morgan Securities, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. (Right chart) Assumes a 1% increase in GDP growth from Japan, Europe, and the U.S., and estimatesa reaction function through a multistage regression measuring emerging market economies sensitivity to export volumes. Developed market importsare used as a proxy for developed demand and estimated from a 1% pick up in domestic GDP. Increases in industrial production are estimated whilecontrolling for emerging market domestic demand in order to limit feedback loops and isolate the impulse from developed market demand only. Thesample period tested ranges between 1993 and 2013 reflecting quarterly data. Guide to the Markets U.S. Data are as of 6/30/14.

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%0% 5% 10% 15% 20% 25% 30% 35% 40%


45/71

Sovereign Debt Stresses

10%

Bubble size = 10-yearovernment bond ield

GDP Growth, Gross Debt to GDP and Borrowing Costs

India

Indonesia

Malaysia

10%

5%

6%

8%

014F)

Brazil

South Africa

Mexico

U.S.

Turkey

Korea

France

Germany

JapanRussia

Singapore

EU

Aust ralia

U.K.

0%

2%

row

th(20122

Greece

ItalySpain

Portugal

-4%

-2%

RealGDP

o

nal

-8%

-6%

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

Developed Markets

Emerging Markets

Internati

245%

45

Gross Debt-to-GDP Ratios (2013F)

Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management.Growth and debt data are based on the April 2014 World Economic Outlook.Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africasborrowing cost is based on 7-year government bond yield due to data availability. Guide to the Markets U.S.



46/71

Global Monetary Policy

4%60%

Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly

2%

3%50%

Emerging Markets

1%

30%

40%

Bank of Japan

-1%

20%

o

nal

Developed Markets

European Central Bank

-3%

-2%

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '130%

10%

Internati

U.S. Federal Reserve

46

Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management.Real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. Real policy rates are short-term targetinterest rates set by central banks minus year-over-year inflation.Guide to the Markets U.S.Data are as of 6/30/14.


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MSCI EAFE Index at Inflection Points

1,400 Index level 1,136 1,212 969P/E ratio (fwd.) 28.7x 14.5x 14.2x

MSCI EAFE Index Characteristic Mar-2000 Jul-2007 Jun-2014

1,100

1,200

1,300 . . .

10-yr. German Bunds 5.3% 4.6% 1.2%

Mar. 29, 2000

P/E (fwd.) = 28.7x1,136

Jul. 16, 2007P/E (fwd.) = 14.5x

1,212

800

900

1,000

-56%

un. ,P/E (fwd.) = 14.2x

969

+141%

-57% +87%

+70%

600

700

Dec. 31, 1996P/E (fwd.) = 19.5x

670

o

nal

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13400

500

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

Mar. 12, 2003P/E (fwd.) = 13.2x

503

Mar. 9, 2009P/E (fwd.) = 10.2x

518

Internati

47

Index levels are in local currency. Dividend yield is calculated as the annualized dividend rate divided by price, as provided by MSCI. Forward Price to Earnings Ratio is abottom-up calculation based on the most recent MSCI EAFE Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided byFactSet Market Aggregates. Returns are cumulative and based on MSCI EAFE Index price movement only, and do not include the reinvestment of dividends.Past performance is not indicative of future returns.Guide to the Markets U.S.



48/71

Europe: Cyclical Headwinds and Tailwinds

16%35%6/27/14

Government Fiscal Drag% of potential GDP, reduction in structural deficits from one period to the next

European Sovereign Funding Costs10-year benchmark bond yield

14.4%

12%

14%

15%

20%

25%

30% Greece 5.87%Portugal 3.56%

Spain 2.63%

Italy 2.72%Ireland 2.33%

Germany 1.26%

2010-2013

2013-2016

refisca

ldrag

LTRO

OMT

5.9%6%

8%

10%

'08 '09 '10 '11 '12 '130%

5%M

Euro Area Credit Growth

3.4%

4.7%

3.5% 3.5% 3.3%2.9%

0.7%

1.5% 1.5%1.9%

0.3%

1.2%2%

4%

10%

15%

20%

o

nal

sfiscaldrag

year-over-year oan grow

Nonfinancial Corporations

-1.0%

-0.1%

-2%

0%

-5%

%

5%

' ' ' ' ' ' ' ' '

Internati L

e

Households

May 2014: -2.6%

May 2014:-0.7%

48

Source: Eurostat, Tullett Prebon, FactSet, IMF, J.P. Morgan Asset Management. Data are based on the April 2014 World Economic Outlook.Government deficits are calculated by the IMF as the general government structural balance. The structural balance excludes the normal impact of the business cycle, providing aclearer measure of the independent impact of changes in government spending and taxation on demand in the economy.*Eurozone includes a J.P. Morgan Asset Management estimate for the 2016 structural deficit as a % of GDP.Guide to the Markets U.S.Data are as of 6/30/14.


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Europe: Unemployment and Inflation

13% May 2014: 11.6%

Unemployment Rates Latest Unemployment Rates for European CountriesLatest available, seasonally adjusted

3.3%Norway

7%

9%

11%

Euro Area-16

6.6%

6.5%

5.1%

4.7%

U.K.

Denmark

Germany

Austria

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '133%

5%

Europe Inflation

. .May 2014: 6.3%

8.5%

8.5%

7.8%

7.0%

Belgium

Finland

Sweden

Netherlands

2%

3%

4%

5%

- -

o

nal

Core

Euro Area

Periphery

12.6%

12.0%

11.6%

10.3%

.

Italy

Ireland

Euro Area

European Union

rance

-1%

0%

1%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Internati

27.4%

25.1%

14.3%

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

Greece

Spain

Portugal

49

Source: Eurostat, BLS, FactSet, IMF, J.P. Morgan Asset Management.(Top left) Unemployment rate levels for the U.S. and Euro Area-16 are not directly comparable due to calculation differences.




50/71

Europe: Economy and Earnings

7015% 13 $130

Economic Growth and Revenue Growth Estimates12-month revenue growth & manufacturing PMI (advanced 12-months)

Earnings Per ShareNext 12- month consensus EPS

S&P 500

40

50

60

-

-5%

0%

5%

10%

11

12

$110

$120

20

30

-20%

-15%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '159

10

$90

$100Manufacturing PMIRevenue Growth

U.S. and European Operating Profit Margins

6

7

8

$60

$70

$80

9%

10%

11%

o

nal

,

S&P 500

'00 '02 '04 '06 '08 '10 '12 '144

5

$40

$50

'04 '05 '06 '07 '08 '09 '10 '11 '12 '136%

7%

8%

Internati

MSCI Europe

MSCIEurope

50

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

Revenue growth reflects next twelve month forward estimates from FactSet for the MSCI Europe Index.



51/71

Japan: Economic Snapshot

9%

130

18,000

20,000

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

Japanese Yen per U.S. Dollar Nikkei 225

Japanese Yen and the Stock Market

7%

9 0

100

110

10,000

12,000

14,000

16,000

Other Domestic 72%Bank of Japan 20%

Foreign 8%

Owners of Japanese Gov. Bonds

3%

5%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '137 0

8 0

6,000

8,000

Nominal 10-year Yield Government Fiscal Balance% of GDP

-12%

-10%

-8%

-6%

-4%

1%

o

nal

forecast

-2%

0%

2%

4%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

-3%

-1%

Internati

Core CPI

51

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

Core CPI is defined as CPI excluding fresh food. Other Domestic includes banks, insurance and pensions, public pensions, and households. Values

may not sum to 100% due to rounding. Government bond data is calculated from the Bank of Japans June 2014 flow of funds.




52/71

International Equity Earnings and Valuations

18x

Forward Price to EarningsP/E ratios for next 12-month consensus EPS

Earnings per ShareEPS for next 12-month consensus, local currency, rebased to 100

260 07/08 Peak Current % Change Average Current

16x220

240

-

S&P 500 150 182 21%MSCI Europe 161 125 -22%

. x . xS&P 500 13.8x 15.6xMSCI Europe 11.7x 14.3x

12x

14x

160

180

200

o

nal

10x

120

140

Internati

'04 '05 '06 '07 '08 '09 '10 '11 '12 '136x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '1380

100

52

, , . . .Forward Price to Earnings Ratio is based on each index price, divided by consensus estimates for earnings per share (EPS) in the next 12 months (NTM),

and is provided by FactSet Market Aggregates. Past performance is not indicative of future returns.




53/71

Demographics and Development

Demographic SnapshotThe Impact of UrbanizationUrbanization ratios and GDP per capita (current USD), 1961 2012

$60,000Investment

% of GDP

GDP Per

Ca itaPopulation

% of Pop.

under 20

$50,000 Japan

U.S.2012: $51,749

Developed

U.S. $53,101 316 mm 26% 20%

Canada 51,990 35 22 24

U.K. 39,567 64 24 14

$30,000

$40,000

GDP

perCapita

South

Germany 44,999 81 18 17

France 43,000 64 24 19

Japan 38,491 127 18 21

Italy 34,715 60 19 17

o

nal

$10,000

$20,000

China

India

Korea

1961: $2,935

Emerging

Korea 24,329 50 22 26

India 1,505 1,243 38 35

Brazil 11,311 198 33 18

Source: FactSet, World Bank, United Nations, J.P. Morgan Global Economics Research, OECD, Bureau of Statistics of China, Ministry of Statistics &

Internati

$-15% 25% 35% 45% 55% 65% 75% 85% 95%

Urbanization Ratio

Mexico 10,630 118 38 22

Russia 14,819 143 21 24

China 6,747 1,361 20 48

53

, . . .

GDP per capita and Investment as % of GDP are IMF estimates for 2014.Guide to the Markets U.S.



54/71

Emerging Market Currencies

6%

EM Current Accounts and Currency Performance

ger

ncy

Mexico

Korea

Taiwan

-3%

-9% -6% -3% 0% 3% 6% 9%

e

14%

Stron

Curr

India

Russia

-12%yPerforman

2013 Currency Performance& 2013 Current Account

South Africa

Turkey

-21%

o

nal

Curren

Graph Key

Currency Performance sinceJan. 2013 &

2014 Current Account

Indonesia

-30%

Current Account (% of GDP)

Internati

Weaker

Currency

Current Account SurplusCurrent Account Deficit

54

Source: IMF World Economic Outlook, FactSet, J.P. Morgan Asset Management.

Current accounts as a percentage of GDP are IMF figures for full year 2013 and latest available quarterly data for 2014.

Russia current account reflects IMF estimates for 2014. Guide to the Markets U.S.



55/71

China: Economic and Credit Growth

16%

China Real GDP ContributionYear-over-year % change Year-over-year % change, 3-month moving average for credit

Credit* vs. GDP Growth

40%

12%

Investment

Consumption

Net Exports

9.6%

9.2%

10.4%9.3%

Credit

Real GDP

GDP Deflator

30%

35%

4.5%

8.1%

5.5% 4.4%

3.6% 4.2%

4%

8%7.7% 7.7%

20%

25%

0.8%

-3.4%

0.4%

-0.4% -0.2% -0.3%

.4.6%

4.5% 5.3%4.2% 3.9%

0%

o

nal

10%

15%

-8%

-4%

Internati

-5%

0%

' ' ' ' ' ' ' ' ' ' ' '

55

Source: National Bureau of Statistics of China, The Peoples Bank of China, EM Advisors Group, FactSet, CEIC, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. *As defined by Total Social Financing: RMB bank loans, bankers acceptance bills, trust loans,entrusted loans, corporate bond financing, foreign currency loans, and non-financial equity financing. TSF data uses an assumption of outstandingcredit in Dec. 2001. Guide to the Markets U.S.Data are as of 6/30/14.


56/71

Global Equity Valuations Developed Markets

+5 Std Dev

+6 Std Dev

+7 Std Dev

Developed Market Countries

erage

Expensiverelative to

Example

+3 Std Dev

+2 Std Dev

+1 Std Dev

Average-1 Std Dev

-2 Std Dev

-3 Std Dev

Devfrom

GlobalA

Expensiverelative to own

history

wor

Cheap relative toown histor

Average

Current

CurrentComposite

Current 10-year avg.

-4 Std Dev

-5 Std Dev

World(ACWI)

EAFEIndex

France U.K. Australia Germany JapanCanada

SwitzerlandUnitedStates

Std

relative toworld

w . v. . w . v. .

World (ACWI) 0.62 14.5 2.1 8.5 2.5% 13.0 2.0 7.4 2.5%

EAFE Index -0.26 14.2 1.7 8.0 3.1% 12.6 1.7 6.6 3.2%

France -0.47 14.1 1.5 8.0 3.3% 11.3 1.6 5.8 3.4%

U.K. -0.46 13.6 1.9 7.8 3.6% 11.2 2.0 7.5 3.7%

Australia -0.44 14.3 2.0 8.2 4.6% 13.4 2.2 9.3 4.3%

Index

o

nal

Germany -0.27 13.0 1.7 8.1 2.8% 11.5 1.5 5.6 3.1%

Japan 0.22 13.6 1.3 7.4 1.9% 16.2 1.4 6.4 1.6%

Canada 0.85 15.1 2.0 9.9 2.7% 13.6 2.1 8.6 2.3%

Switzerland 1.64 16.2 2.6 11.9 3.1% 13.4 2.4 9.7 2.7%

United States 2.27 15.9 2.7 10.0 1.9% 13.9 2.4 8.6 1.9%

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

Internati

56

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 monthscash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over the last 10 years. The grey bars represent

valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions.




57/71

Global Equity Valuations Emerging Markets

Emerging Market Countries

erage

Expensiverelative to

Example

+5 Std Dev

+6 Std Dev

+7 Std Dev

Devfrom

GlobalA

Expensive

relative to ownhistory

world

Cheap relative toAverage

Current

+3 Std Dev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-

+ ev

CurrentComposite

Current 10-year avg.

World(ACWI)

EMIndex

Russia China Brazil TaiwanThailand

Korea SouthAfrica

IndonesiaMexico

India

Std

relative toworld

-4 Std Dev

-5 Std Dev

. . . . . .

World (ACWI) 0.62 14.5 2.1 8.5 2.5% 13.0 2.0 7.4 2.5%

EM Index -1.31 10.9 1.5 5.7 2.7% 11.1 1.9 6.2 2.7%

Russia -4.39 4.7 0.7 3.0 4.4% 7.7 1.4 4.6 2.2%

China -2.67 8.8 1.4 3.4 3.5% 11.8 2.1 7.0 2.7%

Brazil -1.99 10.4 1.4 5.8 3.8% 9.9 1.9 5.6 3.2%

Index

o

nal

a wan - . . . . . . . . .

Thailand 0.03 12.5 2.1 9.6 3.2% 10.7 2.0 6.9 3.6%

Korea 0.43 9.4 1.1 5.5 1.2% 9.5 1.4 4.9 1.5%

South Africa 1.14 14.5 2.6 10.8 3.0% 11.4 2.4 8.8 3.2%

Indonesia 2.01 14.0 3.3 11.5 2.5% 12.5 3.5 10.0 2.7%

Mexico 2.88 18.4 2.8 8.4 1.6% 14.3 2.8 7.5 1.8%

Internati

57

n a . . . . . . . . .

Source: MSCI, FactSet, J.P. Morgan Asset Management.Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), priceto last 12 months cash flow (P/CF) and price to last 12 months dividends. Results are then normalized using means and average variability over thelast 10 years. The grey bars represent valuation index variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page atthe end for metric definitions. Guide to the Markets U.S.Data are as of 6/30/14.


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59/71

Correlations and Volatility

U.S.

Large

Cap EAFE EME Bonds

Corp.

HY Munis Currcy. EMD Cmdty. REITs

Hedge

Funds

Eq

Market

Neutral*

Ann.

Volatility

U.S. Lar e Ca - - - . . . . . . . . . . . .

EAFE 1.00 0.91 -0.18 0.77 -0.04 -0.73 0.67 0.58 0.70 0.88 0.70 20%

EME 1.00 -0.10 0.81 0.05 -0.68 0.78 0.64 0.61 0.89 0.56 25%

Bonds 1.00 -0.05 0.83 -0.07 0.29 -0.23 -0.01 -0.28 -0.17 3%

Corp. HY 1.00 0.18 -0.52 0.85 0.55 0.71 0.77 0.41 12%

Munis 1.00 -0.10 0.50 -0.14 0.07 - 0.08 -0.08 4%

Currencies 1.00 -0.52 -0.58 -0.46 -0.61 -0.66 7%

EMD 1.00 0.47 0.65 0.64 0.34 9%

Commodities 1.00 0.37 0.70 0.45 20%

REITs 1.00 0.56 0.42 26%

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

Indexes used Large Cap: S&P 500 Index; Currencies: Federal Reserve Trade Weighted Dollar; EAFE: MSCI EAFE; EME: MSCI EmergingMarkets; Bonds: Barclays Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.:s

etClass

Hedge Funds 1.00 0.58 8%

Eq Market Neutral* 1.00 4%

59

DJ UBS Commodity Index; Real Estate: NAREIT Equity REIT Index; Hedge Funds: CS/Tremont Multi-Strategy Index; Equity Market Neutral:CS/Tremont Equity Market Neutral Index. *Market Neutral returns include estimates found in disclosures.

All correlation coefficients and annualized volatility calculated based on quarterly total return data for period 6/30/04 to 6/30/14.

This chart is for illustrative purposes only. Guide to the Markets U.S.


As


60/71


61/71

Mutual Fund Flows

Billions, USD AUM YTD 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Fund Flows

,

World Equity 2,161 49 142 6 4 57 26 (80) 142 151 107 72 24 (4) (23) 58 11

Taxable Bond 2,895 32 (22) 252 127 219 301 22 100 45 21 0 39 125 76 (36) 8

Tax-exempt Bond 532 8 (58) 50 (12) 11 70 8 11 15 5 (15) (7) 17 12 (14) (12)

Hybrid 1,345 21 73 47 40 35 20 (26) 40 20 43 53 39 8 7 (37) (14)

1 400

$1,600

60

$80

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

Cumulative Flows Into Stock & Bond FundsBillions, USD, includes both mutual funds and ETFs

May 14: $1,367 billion into bond fundsand fixed income ETFs since 07

Money Market 2,577 (140) 15 (0) (124) (525) (539) 637 654 245 62 (157) (263) (46) 375 159 194

$800

$1,000

$1,200

,

$0

$20

$40

Bond flows exceeded equity flowsby $11 billion in May 2014

May 14: $597 billioninto stock funds and

$0

$200

$400

$600

' ' ' ' ' ' ' '

-$60

-$40

-$20

Feb '09 Dec '09 Oct '10 Au '11 Jun '12 A r '13 Feb '14setClass Bonds

Stocks

61

Source: Investment Company Institute, J.P. Morgan Asset Management.Data include flows through May 2014 and exclude ETFs except for the bottom left chart. ICI data are subject to periodic revisions. World equityflows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexibleportfolio and mixed income flows.Guide to the Markets U.S.Data are as of 6/30/14.

As


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Global Commodities

Commodity PricesWeekly index prices rebased to 100

Gold Prices$ / oz

$3,000500

$1,500

$2,000

$2,500Jun. 2014:

$1,315

,

Gold

400

450Precious Metals

Commodit Prices and Inflation

'75 '80 '85 '90 '95 '00 '05 '10$0

$500

,

250

300

350

Industrial Metals

4%

6%

8%

40%

60%

80%

Year-over-year % chg.

Headline CPI(Y/Y % chg.)

DJ-UBS Commodity Index(Y/Y % chg.)

150

200Energy

CPI Basket

-4%

-2%

0%

2%

-40%

-20%

0%

20%

setClass

50

100

Livestock

Grains

63

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14

-6% -60%

Source: Dow Jones/UBS, EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. CPI adjusted gold values are calculatedusing monthly averages of gold spot prices divided by the CPI value for that month. CPI is rebased to 100 at the end of the chart. Returns based onnominal prices. Commodity prices represented by the appropriate DJ/UBS Commodity sub-index. Guide to the Markets U.S.


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


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Historical Returns by Holding Period

60%Annual total returns, 1950 2013Range of Stock, Bond and Blended Total Returns

Annual Avg. Growth of $100,000

51%

43%

30%

40%

50%

50/50 Portfolio 9.0% $564,491

Bonds 6.1% $327,240

Stocks 11.1% $827,444

o a e urn over 20 years

28%

23% 21% 19%16% 17% 18%

12% 14%10%

20%

-8%

-15%

-2% -2% 1%-1% 1%

2%

6%

1%

5%

-

-10%

0%

Stocks

-37%

-40%

-30%

1- r. 5- r. 10- r. 20- r.setClass 50/50 Portfolio

Bonds

64

rolling rolling rollingAs

Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management.

Returns shown are based on calendar year returns from 1950 to 2013. Growth of $100,000 is based on annual average total returns from1950-2013. Guide to the Markets U.S.



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Diversification and the Average Investor

Equity Mkt. Neutral

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

Traditional Portfolio More Diversified Portfolio

Maximizing the Power of Diversification (1994 2013)

8%8%

8%

4%

26% REIT

S&P 500Russell 2000

55%

30% S&P 500

MSCI EAFE

Barclays Agg.

. .22.2% S&P 500, 8.8% Russell 2000;International Stocks: 4.4% MSCI EM,13.2% MSCI EAFE; U.S. Bonds:26.5% Barclays Capital Aggregate;Alternatives: 8.3% CS/Tremont EquityMarket Neutral: 8.3%, DJ/UBSCommodities: 8.3% NAREIT EquityREIT Index. Return and standard

9%

MSCI EM

Barclays Agg.

deviation calculated usingMorningstar Direct.

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

investment returns and does noteliminate risk of loss. Data are as ofReturn: 8.02%Standard Deviation: 10.64% Return: 7.95%Standard Deviation: 9.71%

20-year Annualized Returns by Asset Class (1994 2013)

. . .J.P. Morgan Asset Management.(Bottom) Indexes used are as follows:REITS: NAREIT Equity REIT Index,EAFE: MSCI EAFE, Oil: WTI Index,Bonds: Barclays Capital U.S.Aggregate Index, Homes: mediansale price of existing single-familyhomes, Gold: USD/troy oz, Inflation:

10.3% 10.2%

9.2%10%

12%

CPI. Average asset allocation investorreturn is based on an analysis byDalbar Inc., which utilizes the net ofaggregate mutual fund sales,redemptions and exchanges eachmonth as a measure of investorbehavior. Returns are annualized(and total return where applicable)

-setClass 6.1% 5.8% 5.7%

3.1%2.5% 2.4%

4%

6%

8%

65

-ending 12/31/13 to match Dalbars

most recent analysis.As

0%

2%

REITs Oil S&P 500 EAFE Gold Bonds Homes AverageInvestor

Inflation


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Cash Accounts

$8,000

$10,000

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

Weight in

Money

Supply

Money Supply

Component

$2,000

$4,000

$6,000

2013:$390

,

M2-M1 8,498 77.9%

Retail MMMFs 638 5.8%

'90 '95 '00 '05 '10$0

M2 Money Supply as a % of Nominal GDP70%

1Q14: 65.3%

Savings deposits 7,336 67.2%

Small time deposits 524 4.8%

50%

55%

60%

65%

Average: 52.8%

Institutional MMMFs 1,745 16.0%

667 6.1%Cash in IRA & Keogh

accounts

setClass

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

'80 '85 '90 '95 '00 '05 '1040%

45%

Total 10,910 100.0%

66

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

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

Keogh account balances at money market mutual funds are subtracted from retail money funds.Past performance is not indicative of comparable future results.




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Corporate DB Plans and Endowments

100%

105%$2.5 Funded Status (%)

Defined Benefit Plans: Russell 3000 CompaniesAsset Allocation: Corporate DB Plans vs. Endowments

Endowments

Liabilities $

Trillions ($)

80%

85%

90%

95%

$1.0

$1.5

.

Assets ($)

48.0%

9.0%

27.0%

Fixed Income

Equities

70%

75%

$0.0

$0.5

'07 '08 '09 '10 '11 '12 '13 May '14Est.

Pension Return Assumptions: S&P 500 companies

4.0%

38.0%

20.1%Hedge Funds

27% 29%

20%20%

34%

20%

30%

40%

anies

2013: Average 7.3%

1999: Average 9.2%

2.0%

2.0%

17.7%

.

Real Estate

Private Equity

0% 1% 1% 1%

5%

9%7%

10%

6%

12% 13%

3%0% 0% 0%

0%

10%

< 6% 6 to 6.5 to 7 to 7.5 to 8 to 8.5 to 9 to 9.5 to > 10%

%ofCom

setClass

% of total4.0%

3.0%

3.0%

7.3%

Cash

Other

67

. . . .

Return AssumptionSource: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan AssetManagement. Asset allocation as of 2012. Funded status for 2014 estimated using 2014 market returns. Endowments represents dollar-weightedaverage data of 842 colleges and universities. Pension Return Assumptions based on all available and reported data from S&P 500 Indexcompanies. Pension Assets, Liabilities and Funded Status based on Russell 3000 companies reporting pension data. Return assumption bands areinclusive of upper range. All information is shown for illustrative purposes only. Guide to the Markets U.S. Data are as of 6/30/14.

As

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


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