3Q | 2012

As of June 30, 2012

Guide to the Markets

Table of Contents

EQUITIES ECONOMY FIXED INCOME INTERNATIONAL ASSET CLASS U.S. Market Strategy Team
Dr. David P. Kelly, CFA Andrew D. Goldberg Joseph S S. Tanious Tanious, CFA Andrs Garcia-Amaya Brandon D. Odenath David M. Lebovitz Anthony M. Wile david.p.kelly@jpmorgan.com andrew.d.goldberg@jpmorgan.com joseph s tanious@jpmorgan com joseph.s.tanious@jpmorgan.com andres.d.garcia@jpmorgan.com brandon.d.odenath@jpmorgan.com david.m.lebovitz@jpmorgan.com anthony.m.wile@jpmorgan.com

4 17 33 41 54

www.jpmorganfunds.com/mi
Past performance is no guarantee of comparable future results.

Page Reference
Equities
4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 3 14. 15. 16. Returns by Style Returns by Sector U.S. Equity Indexes S&P 500 Index at Inflection Points Equity Scenarios: Bull, Bear and In-between Stock Valuation Measures: S&P 500 Index Earnings Estimates and Valuations by Style Earnings per Share: Margins and Revenues Sources of Corporate Profitability 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. 39. 40. Fixed Income Yields and Returns The Fed and the Money Supply Credit Conditions High Yield Bonds Municipal Finance Emerging Market Debt

International
41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51 51. 52. 53. Global Equity Markets: Returns and Composition Global Economic Growth Global Monetary Policy The Importance p of Exports p The Impact of Global Consumers European Crisis: Fiscal Challenges European Crisis: Financial System Risks European Crisis: Structural Headwinds Chinese Growth and Economic Policy Global Equity Valuations Developed Markets Global Equity Valuations Emerging Markets International Economic and Demographic Data Current Account Deficit and U.S. Dollar

Economy
17. 18 18. 19. 20. 21. 22. 23. 24. 25 25. 26. 27. 28. 29. 30. 31. 32. Economic Growth and the Composition of GDP Cyclical Sectors Consumer Finances Federal Finances: Outlays and Revenues Federal Finances: Deficits and Debt Taxes Rates and the Distribution of Income and Taxes U.S. Political Perspectives The Aftermath of the Housing Bubble Employment Employment and Income by Educational Attainment Employment Gains and Losses Consumer Price Index Returns in Different Inflation Environments 40 years Oil and the Economy Global Oil Supply Consumer Confidence and the Stock Market

Asset Class
54. 55. 56 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. Asset Class Returns Risk On / Risk Off Correlations Mutual Fund Flows Dividend Income: Domestic and Global Global Commodities Gold Historical Returns by Holding Period Diversification and the Average Investor Annual Returns and Intra-year Declines Alternative Investment Returns Cash Accounts Corporate DB Plans and Endowments The Dow Jones Industrial Average Since 1900

Fixed Income
33. Fixed Income Sector Returns 34. Interest Rates and Inflation

Returns by Style
Charts reflect index levels (price change only). All returns and annotations reflect total return, including dividends.
S&P 500 Index
1,450 ,

2Q 2012
Value Large Blend Growth

2012 YTD
Value Large Blend Growth

Equities

1,425 1,400 1,375 1,350

2Q12: -2.8%

-2.2%

-2.8%

-4.0%

8.7%

9.5%

10.1%

Mid

1,325 1,300 1,275 1,250 1,225 Dec-11 Feb-12 Mar-12 Apr-12 May-12 Jun-12

-3.3%

-4.4%

-5.6%

Mid

7.8%

8.0%

8.1%

2012: +9.5%
Small

-3.0%

-3.5%

-3.9%

Small

8.2%

8.5%

8.8%

S&P 500 Index

1 600 1,600 1,400 1,200

Since Market Peak (October 2007)

Large

Since Market Low (March 2009)

Value Large Blend Growth

Since 10/9/07 Peak: -3.4%

Value

Blend

Growth

-12.6%

-3.4%

7.6%

118.0% 115.9% 119.5%

Mid

1,000 800 600 Dec-06

Since 3/9/09 Low: +115.9%

0.0%

2.6%

4.2%

Mid Small

155.4% 147.6% 140.9%

Small

-3.1%

0.9%

4.6%

139.5% 143.4% 146.8%

Feb-08

Mar-09

Apr-10

May-11

Jun-12

Source: Russell Investment Group, Standard & Poors, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return return, including dividends reinvested for the stated period period. Since Market Peak represents period 10/9/07 6/30/12, illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 6/30/12, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all time periods, total return is based on Russell-style indexes with the exception of the large blend category, which is reflected by the S&P 500 Index. Past performance is not indicative of future returns. Data are as of 6/30/12.

Returns by Sector
Di sc r. es ar e du st ria ls St ap l og In d S& P
100.0% 100.0% 100.0% -2.8 Retur rn Div P/E 9.5 -3.4 115.9 1.00 12 3x 12.3x 16.8x 14.4x 19.6x 2.1% 1.7%

na nc ia ls

Te le co m

at er ia ls

Te ch n

He al th

er gy

s.

s.

Co n

Co n

Fi

In

En

Ut il

iti

Equities

Russell Growth Weight Russell Value Weight

2Q 2012 2012 YTD Since Market Peak

(October 2007)

-6.8 13.7 -54.6 147.9 1.36 10 4x 10.4x 13.0x 12.4x 15.9x 1.8% 2.1%

-6.7 13.3 14.3 139.5 1.25 11 9x 11.9x 24.1x 14.3x 26.8x 1.2% 0.6%

1.7 11.0 16.1 87.2 0.65 12 4x 12.4x 18.8x 16.9x 24.2x 2.4% 1.5%

-3.6 7.3 -8.2 152.3 1.15 12 2x 12.2x 17.1x 14.6x 20.4x 2.6% 1.8%

-6.0 -2.3 -5.4 73.3 0.92 10 0x 10.0x 14.7x 9.9x 18.2x 2.5% 1.9%

-2.6 12.9 25.3 190.1 1.12 14 3x 14.3x 18.8x 14.5x 19.7x 1.7% 1.0%

2.9 8.6 42.2 99.5 0.53 15 5x 15.5x 18.7x 18.2x 21.2x 3.0% 2.0%

14.1 16.5 5.1 100.7 0.88 18 2x 18.2x 17.5x 48.3x 19.0x 5.0% 3.8%

6.5 4.8 9.1 91.0 0.56 15 2x 15.2x 13.6x 16.3x 14.3x 4.2% 4.5%

-4.2 6.5 -7.9 119.4 1.26 12 0x 12.0x 16.3x 15.1x 19.7x 2.5% 2.1%

Since Market Low

(March 2009)

Beta to S&P 500

Forward P/E Ratio 15-yr avg. Trailing P/E Ratio 20-yr avg. Dividend Yield 20-yr avg.

S Source: Standard St d d & P Poors, R Russell ll I Investment t tG Group, F FactSet, tS t J.P. J P Morgan M Asset A t Management. M t All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 6/30/12. Since Market Low represents period 3/9/09 6/30/12. Forward P/E Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings. Historical data can change as new information becomes available. Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom-up calculation of constituent earnings (as described) rather than a top-down calculation. This methodology is used to allow proper comparison of sector level data to broad index level data. Dividend yields are bottom-up bottom up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices. Past performance is not indicative of future returns. Data are as of 6/30/12.

Weight

S&P Weight

14.4% 4.5% 26.2%

19.7% 31.7% 6.7%

12.0% 11.9% 11.8%

10.5% 12.4% 9.2%

10.8% 3.7% 16.5%

11.0% 16.2% 7.7%

11.3% 13.2% 7.2%

3.2% 2.3% 3.7%

3.7% 0.2% 7.3%

3.4% 3.9% 3.9%

50 0

ol

es

ex

U.S. Equity Indexes

Russell Indexes
Russell 1000 Growth (572) Russell Russell 1000 1000 Russell Top 200 R Russell ll Mid Cap (800) S&P 1500

S&P Indexes
S&P 500 S&P Mid Cap 400 S&P Small Cap 600

Dow Jones
Industrials (30) Industrials

Equities

Russell 3000

Russell 2000

Value (690)

Mark et Cap Index S&P 500 Russell 1000 Dow Jones Russell 1000 Value Russell 1000 Growth S&P Mid Cap 400 Russell Mid Cap Russell 2000 Russell 3000 W td Av g 110.5 bn 97.9 144.9 88.0 107.8 3.8 8.2 1.2 90.5 T otal 12,303 bn 13,886 3,922 7,010 6,876 1,116 4,092 1,150 15,036 T op 10 21.0% 18.4 55.7 27.9 27.3 7.4 4.3 2.4 17.0

W eight Bottom 100 2.9% 0.9 44.3 0.9 0.8 10.7 3.0 0.5 0.0

Size (Lipper*) Large 90.8% 81.3 99.5 79.8 82.9 1.9 36.6 0.0 75.1 Mid 8.5% 14.2 0.5 14.5 13.9 51.3 48.2 0.5 13.1 Small 0.7% 4.5 0.0 5.7 3.2 46.9 15.2 99.5 11.7

Valuation Div Yld 2.2% 2.2 2.5 2.8 1.7 1.5 1.8 1.6 2.2 Fwd P/ E 12.3x 12.9 12.1 11.3 14.9 14.3 14.3 17.2 13.1

Market Cap is a bottom-up weighted average based on share information from Compustat and price information from FactSet's pricing database as provided by Standard & Poor's and Russell Investment Group, p respectively. p y Dividend Yield is calculated based on the trailing g 12 months of dividends and is p provided by y FactSets p pricing g database for S&P and Dow Indexes and Russell for the Russell Indexes. Forward P/E is a bottom-up calculation based on the most recent S&P 500 price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Top 10 represents summed benchmark weight of 10 largest stocks in respective index. Bottom 100 represents summed benchmark weight of 100 smallest stocks in respective index. *Lipper mutual fund size parameters are used for illustrative purposes only and are hypothetical distributions based on Lipper mutual fund categories. As of May 2012, Lipper defines large as market cap over $11.4 billion, small as less than $4.0 billion and mid as all values in between. The number of holdings as of 6/30/12 are Russell 1000: 991; Russell Mid Cap: 800; Russell 2000: 2,002; Russell 3000: 2,993. Data are as of 6/30/12.

All Sm

Mid

Large

S&P 500 Index at Inflection Points

S&P 500 Index
1,600
Mar. 24, 2000 P/E (fwd.) = 25.6x

Characteristic Index level P/E ratio (fwd.) Di id d yield Dividend i ld 10-yr. Treasury

Mar-2000 1,527 25.6x 1 1% 1.1% 6.2%

Oct-2007 1,565 15.2x 1 8% 1.8% 4.7%

Jun-2012 1,362 12.3x 2 1% 2.1% 1.7%

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

Equities

1 527 1,527

1,565
Jun. 30, 2012 P/E (fwd.) = 12.3x

1,362

1,400

+101%
1,200

+106% -57% -49%

1 000 1,000

+101% 101%

800
Dec. 31, 1996 P/E (fwd.) = 16.0x Oct. 9, 2002 Oct 00 P/E (fwd.) = 14.1x M Mar. 9, 9 2009 P/E (fwd.) = 10.3x

741

777

677

600 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Source: Standard & Poors, First Call, Compustat, FactSet, J.P. Morgan Asset Management. Dividend y yield is calculated as the annualized dividend rate divided by y price, p as p provided by y Compustat. p Forward Price to Earnings g Ratio is a bottom-up p calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future results. Data are as of 6/30/12.

Equity Scenarios: Bull, Bear and In-between

S&P 500 Index: Return Needed to Reach 2007 Peak
Analysis as of Jun. 30, 2012. Index has risen 101.2% since low of 677.
1 Yrs Y 2 Yrs 3 Yrs 4 Yrs 5 Yrs 6 Yrs 7 Yrs 8 Yrs 9 Yrs 10 Yrs 16 9% 16.9% 9.2% 6.7% 5.5% 4.8% 4.3% 4.0% 3.8% 3 8% 3.6% 3.4%

Bear Market Cycles vs. Subsequent Bull Runs

Market Peak 5/29/46 Market Low 5/19/47 Bear Market Return -28.6% Yrs to Length of Length Bull Run Reach Old Decline of Run Peak 12 257.6% 122 3.1 yrs

Equities

16 9% 16.9% 19.2%

7/15/57

10/22/57

-20.7%

86.4%

50

0.9 yrs

21.6%
12/12/61 6/26/62 -28.0% 28 0% 6 79 8% 79.8% 44 1 2 yrs 1.2

24.0% 10/9/07 Peak

3/9/09 Trough

1,565 677 1,362 888 685 203

2/9/66

10/7/66

-22.2%

48.0%

26

0.6 yrs

26.5% 29.1% 31.6% 34.3%

6/30/12 Level Decline Peak to Trough Recovery So Far Distance Left to Peak

11/29/68

5/26/70

-36.1%

18

74.2%

31

1.8 yrs

1/5/73

10/3/74

-48.4%

21

125.6%

74

5.8 yrs

11/28/80

8/12/82

-27.1%

20

228.8%

60

0.2 yrs

8/25/87

12/4/87

-33.5%

582.1%

148

1.6 yrs

X% Implied avg. annualized total return

3/24/00

10/9/02

-49.1%

31

101.5%

60

4.6 yrs

36.9% 39.7%

X% Implied cumulative total return

10/9/07 3/9/09 -56.8% -35.0% 17 14 mo's 101.2% 40* 2.2 yrs

Average:

176.0% 68 mo's

Source: Standard & Poors, FactSet, J.P. Morgan Asset Management. (Left) Data assume 2.0% annualized dividend yield. Implied values reflect the average geometric total returns required for the S&P 500 to reach its 10/9/07 peak of 1,565 over each stated time period. Chart is for illustrative purposes only. Past performance does not guarantee future results. (Right) A bear market is defined as a peak-to-trough decline in the S&P 500 Index (price only) of 20% or more. The bull run data reflect the market expansion from the bear market low to the subsequent market peak. All returns are S&P 500 Index returns and do not include dividends. *Current bull run from 3/9/09 through 6/30/12. Data are as of 6/30/12.

Stock Valuation Measures: S&P 500 Index

S&P 500 Index: Valuation Measures Valuation Measure P/E P/B P/CF P/S PEG Div. Yield Description Price to Earnings Price to Book Price to Cash Flow Price to Sales Price/Earnings to Growth Dividend Yield Latest
12.3x 2.2 8.5 1.2 1.5 2.3%

1-year ago
12.4x 2.3 8.4 1.2 0.8 2.1%

Historical Averages 3-year 5-year avg. avg.

12.9x 2.1 8.4 1.2 1.0 2.2% 13.0x 2.2 8.5 1.2 1.2 2.3%

10-year avg.
14.4x 2.5 9.8 1.3 1.2 2.1%

15-year avg.
16.8x 3.1 11.1 1.5 1.2 1.9%

Equities

S&P 500 Shiller Cyclically Adjusted P/E

50x

Adjusted using trailing 10-yr. avg. inflation adjusted earnings

S&P 500 Earnings Yield vs. Baa Bond Yield

10% 9%

S&P 500 Earnings Yield: (Inverse of fwd. P/E) ( ) 8.1%

40x 30x 20x 10x 0x

8%

2Q12: 20.0x Average: 19.0x

7% 6% 5% 4%

Moodys Baa Yield: 5.1%

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

3% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Source: (Top) Standard & Poors, FactSet, Robert Shiller Data, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. Price to Book is price divided by book value per share. Data post-1992 post 1992 include intangibles and are provided by Standard & Poors Poor s. Price to Cash Flow is price divided by consensus analyst estimates of cash flow per share for the next 12 months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided by NTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates are provided by FactSet. (Bottom left) Cyclically adjusted P/E uses as reported earnings throughout. (Bottom right) Standard & Poors, Moodys, FactSet, J.P. Morgan Asset Management. Data are as of 6/30/12.

Earnings Estimates and Valuations by Style

S&P 500 Index: Forward P/E Ratio
28x

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

Value Larg ge 11.3 14.0 12.5 14.0 12.9 14.2 14.4 17.1 14.0 16.3 16.1 21.3 Blend 12.5 16.7 15.6 21.8 Growth 13.8 21.0

24x

Equities

20x

16x

Jun. 2012: 12.3x

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 $20 $0

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

2Q12: $110.91 E.g.: g Large g Cap p Blend stocks are 25.4% cheaper than their historical average. Value Blend Growth
Large 80.7% 74.6% 65.7%

Mid

Small

12x

Mid

Average: 16.2x

89.6%

85.6%

71.5%

Small

90.5%

84.2%

75.4%

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

10

Source: (Top and bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Right) Russell Investment Group, IBES, FactSet. Earnings estimates are for calendar years and taken at quarter end dates throughout the year. Forward Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months. P/E ratios are calculated and provided by Russell based on IBES consensus estimates of earnings over the next 12 months. Data are as of 6/30/12.

Earnings per Share: Margins and Revenues

S&P 500 Earnings Per Share
$26

Operating basis, quarterly

2Q07: $24.06

Most recent: $24.24

S&P 500 Year-Over-Year EPS Growth

60%

Growth broken into revenue growth and margin expansion, quarterly

Equities

$23
50%

$20 $17 $14

30%

Margin Share of EPS Growth Revenue Share of EPS Growth

40% 44.0%

$11 $8 $5
8 1% 8.1% 29.8% 20% 20.0% 7.3% 10% 7.8% 4Q10 8.3% 11.6% 10.8% 6.5% 0.3% 7.3% 6.8% 3Q10 7.9% 4Q11 0.9% 6.6% 1Q12

$2 -$1 '02 '04 '06 '08 '10 '12

0% 2Q10 1Q11 2Q11 3Q11

Source: Standard & Poors, Compustat,, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. Most recently available data is 1Q12. Past performance is not indicative of future returns. Data are as of 6/30/12.

11

Sources of Corporate Profitability

DuPont Breakdown of Profitability for S&P 500 Return on Equity: Net Income Equity

Equities

Profit Margin: Net Income Sales

Asset Efficiency: Sales Assets

Financial Leverage: Assets Equity

Return on Equity: Net Income Equity

20% 16% 12% 8% 4% 0% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Most Recent 14.5%

Profit Margin: Net Income Sales

10% 8%

Asset Efficiency: Sales Assets

8.5%
51% 48%

Financial Leverage: Assets Equity

640% 600%

45% 6% 4% 2% 33% 0% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 30% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 440% '94 '96 '98 '00 '02 '04 '06 '08 42% 39% 36% 480% 560%

36.4%

520%

469 0% 469.0%
'10 '12

Source: Standard & Poors, Compustat, FactSet, J.P. Morgan Asset Management. Return on equity for S&P 500 companies calculated as the product of aggregate net income/sales, aggregate sales/assets and aggregate assets/equity for these 500 companies. Most recent data are from 4Q11 reflecting the last fully completed reporting period. Data are as of 6/30/12.

12

Deploying Corporate Cash

Corporate Cash as a % of Current Assets
30%

S&P 500 companies cash and cash equivalents, quarterly

28% 26% 24% 22%

Corporate Growth
$1,300 $1 200 $1,200 $1,100 $1,000 $900

Nonfarm nonfinancial capex in billions USD, quarterly deal volume

Capital Expenditures M&A Activity
1,600 1 400 1,400 1,200 1,000 800 600 400 200 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Equities

20% 18% 16% 14% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

$800 $700 $600

Dividend Payout y Ratio

S&P 500 companies, LTM
60%

Cash Returned to Shareholders

$30

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

$160

Dividends per Share

$27

$140 $120

50%
$24

$100 $80 $60

40%
$21

30%

$18 $15

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

$40 $20

20%

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

Source: 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 quarterly number of deals of any value and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poors, Compustat, FactSet, J.P. Morgan Asset Management. Data are most recent as of 6/30/12.

13

Broad Market Lagged Price to Earnings Ratio

Lagged P/E Ratio All U.S. Corporations
35x

Ratio of market value of all U.S. corporations to adjusted after-tax corporate profits for prior four quarters

Equities

30x

P/E Ratios Avg. During Recessions 12.6x 13.9x 12.1x

25x

Avg. During Expansions June 30, 2012

20x

15x

Average: 13.7x

10x

Jun. 30, 2012*: 12.1x

5x

0x '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12
Source: BEA, Federal Reserve Board, Wilshire Associates, J.P. Morgan Asset Management. *The June 30, 2012 price is a J.P. Morgan Asset Management estimated based on the daily value of the Wilshire Total Market Index. Data are as of 6/30/12.

14

P/E Ratios and Equity Returns

P/E and Total Return Over 1-yr. Periods
Quarterly, 1Q 1952 to 1Q 2011
60%

P/E and Total Return Over 5-yr. Annualized Periods

Quarterly, 1Q 1952 to 1Q 2007
60%

Current P/E: 12.1

Current P/E: 12.1

Equities

40%

40%

20%

20%

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

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

-20%

-20%

-40%

-40%

Source: BEA, FRB, J.P. Morgan Asset Management. Prices are based on the market value of all U.S. corporations and include quarterly dividends. Valuation based on long-term PE ratio. Note: Orange line denote results of linear regression with R-squared of 0.15 for 1-yr. returns (LHS) and 0.35 for 5-yr. returns (RHS). Data are as of 6/30/12.

15

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: 26.7%

Jun. 2012: 40.5%

Daily Volatility of DJIA

3.5% 3.0% 2.5% 2 0% 2.0%

DJIA vol. shown in 3-month moving average

Volatility Measure 08 Peak DJIA (LHS) 3.30% VIX (RHS) 80.9

Average 0.72% 20.5

Latest 0.71% 17.1

90 75 60 45

1.5% 1.0% 0.5% 0.0% '30 '35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 Jun. 28, 2012. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIA volatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average. Charts shown for illustrative purposes only. Data are as of 6/30/12. '10 30 15 0

16

Economic Growth and the Composition of GDP

Real GDP
% chg at annual rate
10%

Components of GDP
20-yr avg. 1Q12 Real GDP: 2.6% 1.9%
$16,000 $14,000
$685 bn of output p lost

1Q12 nominal GDP, billions, USD

$18,000

8% 6%

2.3% Housing 10.9% Investment ex-housing 19.5% G t Spending Govt S di

Econom my

4% 2% 0% -2% 2% -4% -6% -8% -10% '04 '06

$12 000 $12,000 $10,000 $8,000

$850 bn b of f output recovered

$6,000 $4,000 $2,000 $0

71.2% Consumption

- 3.9% Net Exports

'08 '10 '12

-$2,000

Source: BEA, FactSet, J.P. Morgan Asset Management. GDP values l shown h i in l legend d are % change h vs. prior i quarter t annualized li d and d reflect fl t revised i d 1Q12 GDP. GDP Data are as of 6/30/12.

17

Cyclical Sectors
Light Vehicle Sales
24 22 20 18 16

Manufacturing and Trade Inventories

Days of sales, seasonally adjusted
47 46 45 44

Millions, seasonally adjusted annual rate

Apr. 2012: 38.3

May 2012: 13.7 Average: 15.1

43 42 41 40 39 38 37

Econom my

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

'02

'04

'06

'08

'10

'12

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Th Thousands, d seasonally ll adjusted dj t d annuall rate t

2,400 2,000 1,600 1 200 1,200 800 400 0 '75

Housing Starts

Real Capital Goods Orders

75 70 65

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

Average: 1,442

60 55 50

Average: 57.5

May 2012: 708

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

45 40 '98 '00 '02 '04 '06 '08

May 2012: 57.3

'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 6/30/12.

18

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

Personal Savings Rate Annual, % of disposable income

12% 10% 8%

Total Assets: $76.3 tn

2Q-07 Peak: $81.5tn 1Q 09 Low: 1Q-09 L $65.2tn $65 2t

$70

YTD 2012: 3.7%

Homes: 24%

6% 4%

Econom my

$60

Other tangible: 7%
$50

2% 0% '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

Deposits: 11%

$40

Pension funds: f nds 18%

$30

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

3Q07: 14.1%

$20

Revolving (e.g.: credit cards): 6% Non-revolving: 12% Other Liabilities: 9% Other financial assets: 39% Total Liabilities: $13.4 tn

14% 13% 12% 11%

$10

1Q80: 11.1% 2Q12*: 10.8%

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

Mortgages: 72%
10%

$0

Source: (Left) S (L ft) FRB, FRB J.P. J P Morgan M Asset A t Management. M t Data D t includes i l d households h h ld and d nonprofit fit organizations. i ti (Ri (Right) ht) BEA, BEA FRB FRB, J.P. J P Morgan M A Asset t Management. Personal savings rate is calculated as personal savings (after-tax income personal outlays) divided by after-tax income. Employer and employee contributions to retirement funds are included in after-tax income but not in personal outlays, and thus are implicitly included in personal savings. Savings rate data as of May 2012. *2Q12 Household Debt Service Ratio is a J.P. Morgan Asset Management estimate. All other data are as of 1Q12. Data are as of 6/30/12.

19

Federal Finances: Outlays and Revenues

The 2012 Federal Budget
CBO Baseline forecast, trillions USD
$4.0

1960 2012, % of GDP

26%

Federal Outlays and Receipts

Total Spending: $3.6tn $3 6tn

$3.5

Other $504bn (14%) Net Int.: $224bn (6%) Non defense Non-defense Discretionary: $630bn (17%) Defense: $673bn (19%) Borrowing: $1,171bn (32%)

24%

$3.0

Econom my

2012*: 23.4%
22%

$2.5

$2.0

20%

Average: 20.5%

$1.5

$1.0

Social Security: $769bn (21%)

Revenues: $2,456bn (68%)

18%

Average: 17.9%
16%

$0.5

Medicare & Medicaid: $827bn (23%)

14% 1960

Revenues Outlays

2012*: 15.7%

$0.0 Total Government Spending Sources of Financing

S Source: U.S. US T Treasury, BEA, BEA CBO CBO, J.P. J P Morgan M Asset A M Management.

1970

1980

1990

2000

2010

2012 Federal Budget is based on the CBOs March 2012 Baseline Scenario. *2012 revenues and outlays are forecasts from the Congressional Budget Office (CBO). Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Data are as of 6/30/12.

20

Federal Finances: Deficits and Debt

Federal Budget Surplus/Deficit % of GDP, 1990 2022
4%

Federal Debt (Accumulated Deficits) % of GDP, 1990 2022

100%

Forecast
2% 80% 0%

Forecast

2022*: 80.0%

Econom my

2011 actual: 67.7% CBO Baseline Alternative

-2%

60%

2022*: 61.3%

-4%

-6%

CBO B Baseline li Alternative

40%

-8%
CBO Baseline 2011 Actual -10% 2012 Est. 2013 Proj. -12% 1990 1994 1998 2002 2006 2010 2014 Source: U.S. Treasury, BEA, CBO, J.P. Morgan Asset Management. 2018 2022 -8.7% 8.7% -7.6% -3.8% Alt. -8.7% 8.7% -7.6% -6.6% 0% 1990 1994 1998 2002 2006 2010 2014 2018 2022

20%
2011 Actual 2012 Est. 2013 Proj.

CBO Baseline 67.7% 73.2% 75.8%

Alt. 67.7% 73.2% 78.8%

2011 numbers are actuals. 2012 Federal Budget is based on the CBOs March 2012 Baseline Scenario. *Alternative scenario based on CBO Alternative Scenario for spending and President Obamas budget for revenues. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). Chart on the left displays federal surplus/deficit (revenues outlays). Data are as of 6/30/12.

21

Tax Rates and the Distribution of Income & Taxes

Historical Average Maximum Tax Rates by Decade
100% 80% 60%

Share of Income and Taxes by Income Level

Based on adjusted gross income and federal taxes, 2009
Income

Dividends

Wage Income
40%

5% to 25% 34.1% Top 5% 31.7% Bottom 75% 34.2%

Econom my

Capital Gains
20% 0%

1930's

1940's

1950's

1960's

1970's

1980's

1990's

2000's

Current

Current and scheduled 2013 maximum federal tax rates under current law
60% 50% 40% 30% 20% 10% 0% Wage income Capital Gains* Dividends* Payroll Tax** Estate Tax*** 15.0% 37.9% 23.8% 15.0% 10.4% 12.4%

Potential Tax Rate Changes

2012
43.4%

Taxes
55.0%

Scheduled 2013
43.4% 35.0%

Top 5% 58.7%

5% to 25% 28.6%

Bottom 75% 12.7%

22

Source: (Top left) IRS, IRS J.P. J P Morgan Asset Management Management. Wage income tax rates include employer and employee contributions to the Medicare tax tax. (Bottom left) IRS, IRS The Tax Foundation, J.P. Morgan Asset Management. Tax rates based on maximum U.S. individual income tax. Wage income tax rates include employer and employee contributions to the Medicare tax. *Includes recently enacted healthcare tax of 3.8%. **In 2011 and 2012, the payroll tax cut reduced the employees share of Social Security taxes by 2%. Rates shown include both employer and employee contributions to the payroll tax. ***In 2013, the estate tax exemption amount was expected to fall to $1 million from $5.12 million in 2012. (Right) IRS, J.P. Morgan Asset Management. Taxes paid are based on federal individual income taxes, which are responsible for about 25% of the nation's taxes paid. Data are as of 6/30/12.

U.S. Political Perspectives

Political Polarization
% of Representatives voting with the majority of their party*
100% 95% 90% 85%

Congressional & Presidential Approval Ratings

90% 80%

Senate House

70% 60% 50% 40%

Econom my

80% 30% 75% 70% 1901 20% 10% 1941 1951

Presidential Congressional
1961 1971 1981 1991 2001 2011

1919

1937

1955

1973

1991

2009

Political Party Dominance

Democratic % of major party seats
80%
Democratic President

Based on election dates, dates parties identified as President/Senate/House

20%

Stock Market Returns by Political Party Control

70%

Senate House

16% 12%

17.2% 13.4% 9.5% 7.6% 5.7%

60% 8% 50% 4% 40% 1939 1951 1963 1975 1987 1999 2011 0% DRR DDD RDD RRR RRD

Source: U.S. House of Representatives, U.S. Senate, Gallup Inc., FactSet, J.P. Morgan Asset Management. *In roll call votes where the majority in one party voted the opposite way to the majority in the other. Data compiled by Professors Keith T. Poole and Howard Rosenthal available at www.voteview.com. Stock market returns are price only and calculated from election date to election date from11/5/40 to 11/4/08.

23

Data are as of 6/30/12.

The Aftermath of the Housing Bubble

Home Prices
Indexed to 100, seasonally adjusted
170

Monthly Rent vs. Monthly Mortgage Payment

Vacant properties
$1,100

Case Shiller 20-city

160

FHFA Purchase Only Average Existing Home

$950 $800 $650

Monthly Mortgage Payment

2Q12*: $719

Econom my

150 $500 $350 140 $200 '88 130 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Monthly Rent

2Q12*: 2Q12 : $536

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

120

110

3.5 30 3.0

100

2.5 2.0

May 2012: 2.6

90 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

1.5

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management. Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage payment based on asking price. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. *2Q12 rent and mortgage payment values are J.P. Morgan Asset Management estimates.

24

Data are as of 6/30/12.

Employment
Civilian Unemployment Rate
Seasonally adjusted
12%

Employment Total Private Payroll

Total job gain/loss (thousands)
600

11%

400

10%

Econom my

200

8.9mm jobs lost

9% 0 8%

May 2012: 8.2%

-200

7% % -400 6% -600 5%

4.3mm jobs gained

50-yr. avg.: 6.1%

-800

4%

3% '70 '80 '90 '00 '10

-1,000 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Source: BLS BLS, FactSet, FactSet J.P. J P Morgan Asset Management Management. Data are as of 6/30/12.

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

25

Employment and Income by Educational Attainment

Unemployment Rate by Education Level
18%

Average Annual Earnings by Highest Degree Earned

Full-time workers aged 25 and older, 2009, USD
$90,000

$87,194

16%

14%

Less than High School Degree High School No College Some College College or Greater May 2012: 13 0% 13.0%

$80,000

+31K
$70,000

Econom my

12%

May 2012: 8.1%

$60,000

$56,665

10%

$50,000

8%

+26K
$40 000 $40,000

6%

May 2012: 7.9%

$30,627
$30,000

4%

May y 2012: 3.9%

2%

$20,000

$10,000

0% '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
Source: BLS BLS, FactSet, FactSet J.P. J P Morgan Asset Management Management. Unemployment rates shown are for civilians aged 25 and older. Data are as of 6/30/12.

$0 High School Graduate Bachelor's Degree Advanced Degree

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

26

Employment Gains and Losses

Job Gains and Losses May 2011 to April 2012
Millions of jobs
Total Hires: 50 50.9mm 9mm
50

20 Years Net Job Creation

Net change in millions of payroll jobs, sa

Total Separations: 49.1mm

Other Separations: 3.9mm

Fin. & Bus. Services

6.9

Health Care

6.8

Econom my

40

Leisure & Hospitality

42 4.2

30

Quits: 24.3mm

Education

4.0

Trade & Retailing

3.3

Other Services
20

1.1

Mining & Construction

1.1

10

Layoffs and Discharges: 20.9mm

Government

08 0.8

Manufacturing
-6.0

-4.9
-4.0 -2.0 0.0 2.0 4.0 6.0 8.0

0
Source: BLS BLS, FactSet, FactSet J.P. J P Morgan Asset Management Management. Data are as of 6/30/12.

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

27

Consumer Price Index

% change vs. prior year, seasonally adjusted
15%

CPI and Core CPI

50-yr. Avg. May. 2012

CPI Components Food & Bev. Housing Apparel Transportation

Weight in CPI 15.3% 41.0% 3.6% 16.9% 7.1% 6.0% 6.8% 3 4% 3.4% 100.0%

12-month Change 2.7% 1.6% 4.4% 0.2% 3.6% 0.9% 2.2% 1 9% 1.9% 1.7%

Headline CPI: Core CPI:

4.2% 4.1%

1.7% 2.3%

12%

Econom my

9%

Medical Care Recreation

6%

Educ. & Comm. Other

3%

Headline CPI Less:

0%

Energy Food

9.7% 13.7% 76.6%

-3.7% 2.8% 2.3%

-3% '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Source: BLS, FactSet, J.P. Morgan Asset Management. CPI values shown are % change vs. 1 year ago and reflect May 2012 CPI data. CPI component weights are as of December 2011 and 12-month change reflects non-seasonally adjusted data through May 2012. Core CPI is defined as CPI excluding food and energy prices. Data are as of 6/30/12.

Core CPI

28

Returns in Different Inflation Environments 40 years

Rising inflation scenarios Falling inflation scenarios

High and Rising Inflation

Occurred 14 times since 1972
25% 20% 15% 10% 5% 2% 7% 13%

High and Falling Inflation

O Occurred d 6 times ti since i 1972
25% 20% 15% 10% 5% 0% -5% -10% -15% -15% Bonds Equities Cash Commodities 18% 8% 23%

Econom my

5% 0% -5% -10% -15% Bonds

Equities

Cash

Commodities

Low and Rising Inflation

Occurred 7 times since 1972
25% 20% 15% 10% 5% 0% -5% -10% -15% Bonds Equities Cash Commodities 6% 3% 20% 17%

Low and Falling Inflation

Occurred 13 times since 1972
25% 20% 15% 10% 5% 0% -5% -10% -15% Bonds Equities Cash Commodities 8% 12% 4% 6%

Median Inflation: 3.3%

29

Source: BLS BLS, Barclays Capital Capital, Robert Shiller, Shiller Federal Reserve, Reserve Strategas/Ibbotson, Strategas/Ibbotson Standard & Poor Poors s, FactSet, FactSet J.P. J P Morgan Asset Management Management. High or low inflation distinction is relative to median CPI-U inflation for the period 1971 to 2011. Rising or falling inflation distinction is relative to previous year CPI-U inflation rate. Bond returns are based on the Barclays U.S. Aggregate index since its inception in 1976 and a composite bond index prior to that. Equity returns based on S&P 500 price return and annual dividend yield. Cash returns are based on the Barclays 1-3 Month T-Bill index since its inception in 1992 and 3-month T-Bill rates prior to that. Commodities returns based on GSCI. For illustrative purposes only. Past performance is not indicative of comparable future returns. Data are as of 6/30/12.

Above e median Below medi ian

Oil and the Economy

WTI Crude Oil & Retail Gasoline Prices
$4.50

Economic Drag From Oil Prices

Oil
$160

Gas
Oil Gas

12/31/00 $26.72 $1 41 $1.41

6/30/12 $84.96 $3 44 $3.44

U.S. petroleum imports as a % of GDP

4%

2Q12*: 3.0% 3Q08: 3.8%

$4.00

$140

3%

$3.50

$120

Econom my

2%

$3.00

$100

1%

$2.50

$80

0% '70

'75

'80

'85

'90

'95

'00

'05

'10

Energy Spending by Income Level

$2.00 $60

% of after-tax income
Lowest 20% 2nd 1.4% 4.6% 0.4% 5.9% 12.3% % Middle 20% 0.9% 3.1% 0.3% 4.8% 9.1% % 4th 0.7% 2.2% 0.2% 3.7% 6.8% % Top 20% 0.5% 1.2% 0.2% 2.2% 4.0% % Natural Gas Electricity

$1.50

$40

2.4% 9.5% 0.9% 10.1% 22.9% %

$1.00

$20

Fuel Oil & Other Fuels Gasoline & Motor Oil

$0.50 '94

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

Total Energy gy

Source: U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. Price of gas based on U.S. retail national average of all formulations and WTI for crude. Data are as of 6/30/12.

Source: (Top) BEA, FactSet, J.P. Morgan Asset Management. (Bottom) BLS, J.P. Morgan Asset Management. *2Q12 drag on growth is a J.P. Morgan Asset Management estimate.

30

Global Oil Supply

Middle East Energy Production & Chokepoints
Percent of global liquid fuel production, 2010
Syria 0.5% Kuwait 2.9%

Days of net imports

250 200 150

U.S. Commercial & Strategic Oil Stocks

May 2012: 228 days

Suez Canal 2.1%

Oct. 2005: 129 days

Econom my

Iraq 2.8% Libya 2.1%

Iran 4.9%

100 50

U.S. Commercial Oil Stocks

Egypt 0.8%

Saudi Arabia 11.7% Strait of Hormuz 18 0% 18.0% UAE 3.3%

U.S. Strategic Petroleum Reserve

0 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Sudan S d 0.6%

OPEC Surplus Production Capacity

Millions of barrels per day
6 5 4 3

EIA forecast

Bab el el-Mandeb Mandeb 3.7%

Major Producers Percent of global total, 2010 Saudi Arabia 12% China Russia 12% Iran United States 11% Canada 5% 5% 4% Major Consum ers Percent of global total, 2010 United States 22% India 4% China 11% Russia 3% Japan 5% Saudi Arabia 3%

Average: 2.6mm bbl/day

2 1 0 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

Source: EIA, J.P. Morgan Asset Management. Forecast from the June EIA Short Term Energy Outlook.

31

Data are as of 6/30/12.

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 +1.1% 1% After a trough: +23.3% +23 3% Total period: +6.6% +6 6%

120

Jan. 2000 -2.0%

110

Econom my

Aug. 1972 100 Aug -6.2%

90

May 1977 +1.2%

Mar. 1984 Mar +13.5%

Jan. 2004 +4.4% Jan. 2007 -4.2%

Average: 85.3
80

70

Mar. 2003 +32.8% Oct. 2005 +14.2% Oct. 1990 +29.1% May 1980 +19.2%
'78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04

60

50

Feb. 1975 +22.2%

Nov. 2008 +22.3%

Aug. 2011 ?

40 '72 '74 '76 '06 '08 '10 '12

Source: University of Michigan, FactSet, J.P. Morgan Asset Management. Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends.

32

Data are as of 6/30/12.

Fixed Income Sector Returns

10-yrs '02 - '11 Cum. Ann.
EMD 185.6% High Yield 133.6% TIPS 107 5% 107.5% Asset Alloc. 96.0% Corp. 85.2% Barclays Agg 75.4% Treas. 74.3% MBS 73.9% Muni 68.8% EMD 11.1% High Yield 8.9% TIPS 7 6% 7.6% Asset Alloc. 7.0% Corp. 6.4% Barclays Agg 5.8% Treas. 5.7% MBS 5.7% Muni 5.4%

2002
TIPS 16.7% EMD 12.2% Treas. 11 8% 11.8% Barclays Agg 10.3% Corp. 10.1% Asset Alloc. 10.0% Muni 9.6% MBS 8.7% High Yield -1.4%

2003
High Yield 29.0% EMD 26.9% TIPS 10 6% 10.6% Asset Alloc. 10.0% Corp. 8.2% Muni 5.3% Barclays Agg 4.1% MBS 3.1% Treas. 2.2%

2004
EMD 11.9% High Yield 11.1% TIPS 6 3% 6.3% Asset Alloc. 6.0% Corp. 5.4% MBS 4.7% Muni 4.5% Barclays Agg 4.3% Treas. 3.5%

2005
EMD 12.3% Asset Alloc. 3.6% Muni 3 5% 3.5% TIPS 2.8% Treas. 2.8% High Yield 2.7% MBS 2.6% Barclays Agg 2.4% Corp. 1.7%

2006
High Yield 11.8% EMD 10.0% MBS 5 2% 5.2% Asset Alloc. 5.1% Muni 4.8% Barclays Agg 4.3% Corp. 4.3% Treas. 3.1% TIPS 0.4%

2007
TIPS 11.6% Treas. 9.0% Barclays Agg 7 0% 7.0% MBS 6.9% Asset Alloc. 6.2% EMD 5.2% Corp. 4.6% Muni 3.4%

2008
Treas. 13.7% MBS 8.3% Barclays Agg 5 2% 5.2% Asset Alloc. -1.4% TIPS -2.4% Muni -2.5% Corp. -4.9% EMD -14.7%

2009
High Yield 58.2% EMD 34.2% Corp. 18 7% 18.7% Asset Alloc. 15.8% Muni 12.9% TIPS 11.4% Barclays Agg 5.9% MBS 5.9% Treas. -3.6%

2010
High Yield 15.1% EMD 12.8% Corp. 9 0% 9.0% Asset Alloc. 7.6% Barclays Agg 6.5% TIPS 6.3% Treas. 5.9% MBS 5.4% Muni 2.4%

2011
TIPS 13.6% Muni 10.7% Treas. 9 8% 9.8% Asset Alloc. 8.9% Corp. 8.2% Barclays Agg 7.8% EMD 7.0% MBS 6.2% High Yield 5.0%

2012 YTD
High Yield 7.3% EMD 7.0% Corp. 4 7% 4.7% TIPS 4.0% Asset Alloc. 3.9% Muni 3.7% Barclays Agg 2.4% MBS 1.7% Treas. 1.5%

2Q12
TIPS 3.2% Treas. 2.8% Corp. 2 5% 2.5% Asset Alloc. 2.2% Barclays Agg 2.1% Muni 1.9% High Yield 1.8% EMD 1.4% MBS 1.1%

Fixed In ncome

High Yield High Yield 1.9% -26.2%

Source: Barclays Capital, FactSet, J.P. Morgan Asset Management. Past performance is not indicative of future returns. Fixed income sectors shown above are provided by Barclays Capital and are represented by: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets Index; High Yield: Corporate High Yield Index; Treasuries: Barclays Capital U.S. Treasury; TIPS: Barclays Capital TIPS. The Asset Allocation portfolio assumes the following weights: 10% in MBS, 20% in Corporate, 15% in Municipals, 10% in Emerging Debt, 10% in High Yield, 25% in Treasuries, 10% in TIPS. Asset allocation portfolio assumes annual rebalancing.

33

Data are as of 6/30/12.

Interest Rates and Inflation

Nominal and Real 10-year Treasury Yields
20%

Sep. 30, 1981: 15.84%

15%

Nominal Yields Real Yields

Average 6/30/12 6.48% 1.67% 2.59% -0.44%

10%

Nominal 10-year Treasury Yield Jun. 30, 2012: 1.67%

Fixed In ncome

5%

0%

Jun. 30, 2012: -0.44%

-5%

Real 10-year Treasury Yield

-10% 10% '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Source: Federal Reserve, BLS, J.P. Morgan Asset Management. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month except for June 2012, where real yields are calculated by subtracting out May 2012 year-over-year core inflation.

34

Data are as of 6/30/12.

Fixed Income Yields and Returns

Yield U.S. Treasuries 2-Year 5-Year 10-Year 30-Year Sector Broad Market MBS 7,921 916 4,194 46,716 509 1,915 33 $16,524 bn 5,064 3,401 1,330 722 1,009 796 7.1 years 4.9 10.6 13.6 11 1 11.1 6.7 9.3 2.83% 3.53 3.83 3.49 5 60 5.60 7.32 2.66 1.98% 2.44 3.27 2.45 5 44 5.44 7.35 1.50 2.37% 1.66 4.65 3.66 6 95 6.95 7.27 4.04 2.06% 1.08 2.52 1.88 1 37 1.37 1.83 3.15
Change in bond price is calculated using both duration and convexity according to the following formula: New Price = (Price + (Price * -Duration * Change in Interest Rates))+(0.5 * Price * Convexity * (Change in Interest Rates)^2) *Calculation assumes 2-year Treasury interest rate falls 0.33% to 0.00% and the 5-year Treasury falls 0.72% to 0.00%, as interest rates can only fall to 0.00%. Chart is for illustrative purposes only. Past performance is not indicative of p future results. comparable Data are as of 6/30/12.

Return 2012 YTD 0.04% 1.46 3.40 3.95 2Q12 0.12% 1.95 5.78 12.64

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: U.S. Barclays Capital Index; MBS: Fixed Rate MBS Index; Corporate: U.S. Corporates; Municipals: Muni Bond Index; Emerging Debt: Emerging Markets Index; High Yield: Corporate High Yield Index. TIPS: Treasury Inflation Protection Securities (TIPS). Treasury securities data for # of issues and market value based on U.S. Treasury benchmarks from Barclays Capital. Yield and return information based on Bellwethers for Treasury securities.

# of issues

Mkt. Value Avg. Maturity 2 years

6/30/2011 0.45% 1.76 3.18 4.38

6/30/2012 0.33% 0.72 1.67 2.76

# of issues: 159 Total value: $4.903 tn

5 10 30

Fixed In ncome

Corporates Municipals Emerging Debt High Yield TIPS

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

+1%

25% 19.9% -1% 20% 15% 9.0% 7.5% 7.0% 6.6% 10% 5.1% 5.0% 4.1% 3.5% 3.2% 5% 0.7% 0% -5% -2.0% -3.2% -4.1% -4.9% 4.9% -5 5.0% 0% -5 5.1% 1% -10% 10% -6.6% 6 6% -7.0% -7.5% -9.0% -15% -20% -19.8% -25% 2-Year 5-Year 10-Year 30-Year Sector MBS High Yield TIPS Broad Mkt EMD Corp. Munis

35

The Fed and the Money Supply

Federal Funds Rate
10% 9% 8% 7% 6% 5% 4% 3% 2% 1%

FOMC Projected Pace of Policy Firming

Target federal funds rate at year-end
5.0%

Jun. 30, 2012: 0-0.25%

4.0% 3.0% 2.0% 1.0% 0.0%

FOMC member Fed Funds Rate projection as of June 20, 2012

Fixed In ncome

0% '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

2012

2013

2014

Longer run

Excess Reserves, Monetary Base and Multiplier

$ trillions t illi
$3.0 $2.5 $2.0

Money Supply Growth

Year-over-year growth in M2
10x 9x 8x

Monetary Base & Reserves

M2 Money Multiplier

14% 12% 10% 8% 6% 4% 2% 0% '85 '90 '95 '00 '05 '10

May 2012: 9.5%

Monetary Base
$1 5 $1.5 $1.0 $0.5 $0.0 '03 '04 '05 '06 '07 '08 '09 '10 '11

7x 6 6x 5x 4x 3x 2x

Excess Reserves

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 held in the central bank's reserves. Money multiplier defined as M2 divided by the monetary base. Data are as of 6/30/12.

36

Credit Conditions
Lending Standards
Net percent of banks reporting tighter lending standards
100% 80% 60% 40% 20% 0% -20%

Consumer & Industrial Loan Demand

Net percent of banks reporting stronger demand
60% 40% 20% 0%

Commercial and Industrial Loans 84% (Medium & Large Firms) Consumer Loans 67%

31%

-7% -8%
'98 '00 '02 '04 '06 '08 '10 '12

-20% -40% -60% -80%

22% Small Firms Large & Medium Firms

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

Fixed In ncome

-40%

Delinquency Rates
All b banks, 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, 1934 2011
14%

Residential Mortgages Consumer Loans Commercial and Industrial Loans

9.9%
12% 10% 8%

2011: 11.1%

Average: 7.6%

2.9%
6%

1.5%
'10 '12

4% '34 34 '41 41 '48 48 '55 55 '62 62 '69 69 '76 76 '83 83 '90 90 '97 97 '04 04 '11 11

37

Source: (Top left) Federal Reserve, FactSet, J.P. Morgan Asset Management. (Top right) Federal Reserve, FactSet, J.P. Morgan Asset Management. (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. 2Q11 2Q12 estimates of lending standards on consumer loans are J.P. Morgan Asset Management estimates. Data are as of 6/30/12.

High Yield Bonds

High Yield Spreads and Defaults
20%

HY Spreads HY Defaults S Spreads d Default Rates

Average 5.9% 4.2%

Latest 6.6% 2.2%

15%

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 y yield bonds, , cents on the dollar
70 60 50 40 30 20 10 0 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Annual High Yield Bond Issuance Billions USD

$350 $300 $250

Average: 39.2

$200 $150 $100 $50 $0 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

38

Source (Top chart): U.S. Treasury, J.P. Morgan, 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, Moodys, J.P. Morgan Asset Management. (Bottom right): J.P. Morgan Asset Management. 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. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. Past performance is not indicative of comparable future results. 2011 recovery rates are as of March 30, 2012, and 2012 issuance is as of June 29, 2012. Data are as of 6/30/12.

Municipal Finance
Muni/Treasury Ratio Ratio of Barclays 10-year Municipal Bond yield to 10-year Treasury
240%

State & Local Government Debt Service Percent of current expenditures

8%

220%

7%

200%

6%

1Q12: 5.6%

180%

5%

Fixed In ncome

160%

Jun. 30, 2012: 135%

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

140%

Municipal Bond Issuance* o s US USD, , revenue e e ue a and d GO issues ssues Billions

$500

120%

$400 $300 $200

100%

80%

$100
60% '98 '00 '02 '04 '06 '08 '10 '12

$0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P. Morgan Asset Management. *Excludes maturities of 13 months or less and private placements. 2012 issuance data is as of May 2012. Data are as of 6/30/12.

39

Emerging Market Debt

Index Breakdown USD Denominated EMD
100% 80% 60% 40% 20%
Asia 18% Middle East & Africa 7% Middle East & Africa 11%

Emerging Markets Debt Spreads

12% 10%

Spread to Treasuries of USD denominated debt, percent

Index EMBIG CEMBI Average Spread S Spread d (6/30/12) 3.9% 3.2% 3.7% 4.2%

Latin America 44%

Latin America 39% Europe 15%

8% 6%

Europe 31% Asia 35%

4% 2% 0% '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

0%

Fixed In ncome

EMBIG

CEMBI

Emerging Market Debt Credit Rating

EMBIG average g monthly y credit rating, g inverse scale
May 2012: 2012 BBBBBBBB+ BB BBB+ B B-

Local Emerging Market Bond Yields

Sovereign g issues, , local currency-denominated y bonds
9%

8%

7%

Average: 6.8%

6%

Jun. 30, 2012: 6.0%

5% '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

40

Source: J.P. Morgan, IMF, MorganMarkets, FactSet, 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 Emerging Bond Index (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations. The J.P. Morgan GBI-EM index is a local currency-denominated index tracking bonds issued by emerging market governments. Past performance is not indicative of comparable future results. Data are as of 6/30/12.

Global Equity Markets: Returns and Composition

2Q12 Country / Region Local USD YTD 2012 Local USD

Weights in MSCI All Country World Index

% global market capitalization

Regions / Broad Indexes USA (S&P 500) EAFE Europe ex ex-U.K. UK Pacific ex-Japan Emerging Markets -5.1 -4.3 43 -4.1 -5.1 -2.8 -6.9 -8.7 87 -4.9 -8.8 4.7 47 4.7 5.5 5.1 9.5 3.4 28 2.8 5.9 4.1
United States 48%

Europe exU.K. 15% U.K. 8% Emerging Markets 13% Japan 8%

MSCI: Selected Countries United Kingdom France -2.2 -3.6 -7.4 -10.1 0 -5.3 -0.9 -10.1 -6.6 66 -4.0 -8.2 -11.7 -7.3 3 -5.3 -9.5 -18.8 -14.0 14 0 2.4 5.5 9.3 7.1 4.0 14.2 0.1 28 2.8 3.4 3.1 6.8 3.2 3 4.1 8.6 -7.5 20 2.0

Share of Global GDP

Based on purchasing power parity

United States 19% Emerging Markets 50% Japan 6% Europe exU.K. 17% U.K. 3%

International

Germany Japan Japa China India Brazil Russia

Canada 2%

Other Developed 5%

Source: Standard & Poors, MSCI, IMF, FactSet, J.P. Morgan Asset Management. All return values are MSCI Gross Index (official) data. Share of global GDP based on purchasing power parity (PPP) as calculated by the IMF for 2012. Definition of emerging markets is based on MSCI and IMF data sources, respectively. Percentages may not sum to 100% due to rounding. Data as of 6/30/12.

41

Global Economic Growth

Emerging Market Country Real GDP Growth
Year-over-year % chg. forecasts from JPMSI
10% 8% 6% 4% 2% 0% -2% -4% Emerging Markets China India Russia Mexico Korea South Africa Brazil

Historical 2Q11 3Q11 4Q11 1Q12 2Q12

JPMSI Forecast 3Q12 4Q12 1Q13

Developed Market Country Real GDP Growth

Year-over-year % chg. forecasts from JPMSI
10% 8%

Historical 2Q11 3Q11 4Q11 1Q12 2Q12

JPMSI Forecast 3Q12 4Q12 1Q13

International

6% 4% 2% 0% -2% -4% Developed Countries Japan U.S. Canada Germany U.K. France Italy

Source: J.P. Morgan Global Economic Research, J.P. Morgan Asset Management. Forecast and aggregate data come from J.P. Morgan Global Economic Research. Data are as of 6/30/12.

42

Global Monetary Policy

Central Bank Assets Percent of Nominal GDP
35% 30% 25% 20% 15% 10% 5% 0% '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Real Policy Rates Monthly

4% 3%

Bank of Japan European Central Bank

2% 1% 0% -1%

U.S. Federal Reserve

-2% -3% '02 '03

Emerging Markets Developed Markets

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

Country Level Monetary Policy and Inflation

14.0% 10.5% 7.0%

Target Policy Rate

Inflation Rate

Real Policy Rate

International

3.5% 0.0% -3.5%

South Africa

Hong Kong

Euro area

Indonesia

Thailand

Russia

Colombia

Canada

Australia

Poland

Mexico

Taiwan

Turkey

Japan

Korea

China

India

-7.0%

U.K.

U.S.

D Developed l dM Markets k t

E Emerging i M Markets k t

43

Source: J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. (Top charts) Emerging and Developed Economy GDP growth and real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shown represent year-over-year quarterly rates for 1Q12. Real policy rates are short-term target interest rates set by central banks minus year-over-year inflation. Data are as of 6/30/12.

Brazil

The Importance of Exports

Exports as a % of GDP 2011
Goods exports only
Brazil India China Russia
0.8% 1 0% 2.1% 1.0% 2 1% 2 2% 2.2% 4 9% 4.9%

10 3% 10.3%
10.2%

US
17.6%
15.5%

Eurozone

BRIC

Other

Total

2.0%

3.1%

2.3%

4.5%

4.4%

1.7%

26.1% 26.8% 6 8%

9.5%

2.1%

14.4%

U.S. Japan U.K. France

1.5% 1.4%

6.9%

9.8%
6.2%

2.2%

1.7%

4.0%

14.0%
1.3% 4.8%

1.9%

10.0%

18.0%
5.8%

1.1%

12.7%

1.5%

21.1%
7.6%

International

Italy Canada Germany

1.4%

12.4%

2.0%

23.4%
1.6% 2.8%

19.2%

2.5%

26.0%
4.2% 10.7%

2.2%

21.8%

38.9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Source: IMF, IMF J.P. J P Morgan Asset Management Management. Numbers represent exports of goods only and would be higher if services were included. Data are as of 6/30/12.

44

The Impact of Global Consumers

Share of Global Nominal Consumption
40%

Foreign Sales, % of Total Sales

35%

35%

30%

Mega Cap (Russell 200)

30%

25%

Large Cap (Russell 1000)

25% 20%

International

20%

U.S. Consumption % of Global EM Consumption % of Global

15%

Small Cap (Russell 2000)

15% 1990 1994 1998 2002 2006 2010 10% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10

Source: FactSet, Compustat, Russell, J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. Estimates of global consumption for 2010 and 2011 provided by J.P. Morgan Global Economics Research. 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 all index members due to differences in reporting practices. Data are as of 6/30/12.

45

European Crisis: Fiscal Challenges

GDP Growth, Debt to GDP and Borrowing Costs
8%

Bubble size = 10-year government bond yield = 10%

Example of Fiscal Redistribution in the U.S.

6%

EM

= 5%

Real GDP Growth (2011 20 013)

4%

U.S. 2% Germany France E.U. 0% Ireland Italy Portugal -2% Greece

The E.U. Lacks a Similar Fiscal Mechanism

Spain

International

-4%

-6% 20%

40%

60%

80%

100%

120%

140%

160%

Net Debt-to-GDP Ratio (2012 est.)

Source: IMF, BLS, J.P. Morgan Asset Management. Maps are for illustrative purposes only and are intended to show the current sources of stress in each region. The U.S. state colors are based on level of unemployment rate. European country colors are based on levels of sovereign stress, including but not exclusively the measure shown in the above chart on the left. Growth and debt data based on the April 2012 World Economic Outlook. Bond yields as of 6/30/12.

46

Data are as of 6/30/12.

European Crisis: Financial System Risks

10-year benchmark bond yields, daily
20% 16% 12% 8% 4% 0%

European Sovereign Funding Costs

Introduction of the Euro

Portugal Ireland Spain Italy France Germany

6/30/12 8.80% 6.74% 6.34% 5.79% 2.69% 1.59%

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

European Bank Exposure

Billions USD
$300

European Central Bank Balance Sheet

Trillions of EUR
3.0

May 2012: 3.0tn

Derivative claims Sovereign debt claims and bank claims

International

$200

2.5

$100 2.0 $0 Greek Portugese Irish Spanish Italian U.S. banks exposure to all GIIPS

Exposure of all European banks to each countrys public sector, banking sector and derivative claims Source: FactSet, BIS, ECB, J.P. Morgan Asset Management. Data are as of 6/30/12.

1.5 Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

47

European Crisis: Structural Headwinds

Current Account Balance
% of GDP
9% 5% 1% -3% 7% -7% 130 -11% Germany Austria Italy Spain Portugal Greece 120 140

Manufacturing Unit Labor Costs

OECD seasonally adjusted (indexed base year = 2005)
150

Greece Italy Spain Portugal Germany Austria

Primary Fiscal Budget Deficit/Surplus

% of GDP
2%

110

Internatio onal

-2% -4% % -6% -8% Italy Germany Portugal Austria Greece Spain
Source: IMF, OECD, World Bank, FactSet, J.P. Morgan Asset Management. All data is as of 2011. Primary budget deficits for Portugal and Greece are IMF estimates for 2011. Data are as of 6/30/12.

100

90 2005

2006

2007

2008

2009

2010

2011

48

Chinese Growth and Economic Policy

China and U.S. Contribution to Global GDP Growth
Share of year-over-year change in nominal global GDP
40% 35% 30%
6%

Chinese Inflation and the Money Supply

Year-over-year % change
10% % 8%

China U it d States United St t

CPI (LHS) M2 (RHS)

Most Recent 3 0% 3.0% 13.2%

30%

25%

25% 20% 15% 10%

0% 4% 2% 15% 20%

5% 0% '81 '84 '87 '90 '93 '96 '99 '02 '05

*
'08 '11 '14

-2% '00 '02 '04 '06 '08 '10 '12

10%

China Export Growth

45% 35%

3 month moving average year-over-year 3-month year over year %

Percentage of GDP
18% 16%

Mortgage Debt
United States (RHS) 1Q12: 14.0%
77% 75% 73% 14% 12% 10% 71%

International

25% 15% 5% -5% -15%

May 2012: 9.7%

China (LHS)

69% 67% 65%

-25% 61% 8% Feb-08 Feb 08 Sep Sep-08 08 Apr Apr-09 09 Nov Nov-09 09 Jun Jun-10 10 Jan Jan-11 11 Aug Aug-11 11 Mar Mar-12 12 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '05 Source: (Top left) IMF, J.P. Morgan Asset Management. (Top right) National Bureau of Statistics, J.P. Morgan Economics, J.P. Morgan Asset Management. (Bottom left) IMF, J.P. Morgan Asset Management. (Bottom right) Barclays Capital, Federal Reserve, J.P. Morgan Asset Management. *In 2009, global growth was negligible, while Chinese growth was robust, which resulted in China contributing more than 1200% to global growth. Calculations based on PPP exchange rates and 2012 2016 growth forecasts are from the IMF.

1Q12: 62.9%

63%

49

Data are as of 6/30/12.

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 Australia

U.K.

Japan

Canada Switzerland United States

Current Com posite Index World (ACWI) EAFE Index France Germ any Australia UK U.K. Japan Canada Sw itzerland United States -1.32 -2.28 -2.80 -2.35 -2.14 -2.03 2 03 -1.81 -1.46 0.00 0.08

Current Fw d. d P/E 11.2 10.5 9.5 9.0 11.1 96 9.6 12.1 11.9 11.8 12.4 P/B 1.6 1.3 1.1 1.2 1.6 16 1.6 1.0 1.7 1.9 2.1 P/CF 6.1 5.0 4.5 6.2 5.5 60 6.0 4.1 5.1 11.8 7.2 Div Yld Div. Yld. 2.9% 3.9% 4.3% 4.0% 5.2% 4 2% 4.2% 2.6% 3.0% 3.7% 2.1% Fw d. d P/E 13.5 13.0 11.6 11.9 13.5 11 5 11.5 18.1 13.8 13.6 14.5

10-year avg. P/B 2.1 1.7 1.6 1.5 2.2 20 2.0 1.4 2.2 2.4 2.4 P/CF 7.1 6.3 5.9 4.6 8.3 72 7.2 6.3 7.3 9.8 8.5 Div Yld Div. Yld. 2.5% 3.3% 3.7% 3.3% 4.4% 3 8% 3.8% 1.8% 2.4% 2.8% 2.0%

Internatio onal 50

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

Global Equity Valuations Emerging Markets

Emerging Market Countries
+6 Std Dev

Example Expensive relative to world Expensive relative to own history Cheap relative to own history

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

Current Average Cheap relative to world

World (ACWI)

EM Index
Current posite Com p Index -1.32 -1.89 -4.10 -2.65 -2.44 -1.08 -0.90 -0.39 1.64 2.24

Russia

China

Brazil

Taiwan

South Africa

Korea

Mexico

India

Current Fw d. P/E 11.2 9.6 4.8 8.3 9.4 13.7 10.8 8.1 16.2 13.1 P/B 1.6 1.5 0.7 1.5 1.3 1.7 2.2 1.2 2.8 2.4 P/CF 6.1 5.5 2.8 4.0 5.7 6.5 8.0 5.4 6.5 12.6 Div. Yld. 2.9% 3.1% 3.8% 3.5% 4.4% 3.7% 3.7% 1.3% 1.6% 1.6% Fw d. P/E 13.5 10.9 7.9 12.3 9.5 14.7 10.9 9.3 13.2 15.0

10-year avg. P/B 2.1 1.9 1.3 2.1 1.9 1.9 2.3 1.5 2.6 3.2 P/CF 7.1 5.7 5.0 4.2 5.5 6.6 7.4 5.0 5.6 12.1 Div. Yld. 2.5% 2.8% 2.1% 2.7% 3.6% 3.5% 3.3% 1.8% 2.1% 1.5%

World (ACWI) EM Index Russia China Brazil Taiw an South Africa Korea Mexico India

Internatio onal 51

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

International Economic and Demographic Data

Economics
GDP USD GDP Per (B$s) Capita p Developed U.S. Canada U.K. Germany France Japan Italy Emerging Russia Mexico Brazil China India 1,850 1,155 2,493 7,298 1 676 1,676 12,993 10,153 12,789 5,414 1 389 1,389 -2.0 2.1 4.1 6.6 63 6.3 5.4 4.8 5.8 4.1 98 9.8 3.6 3.9 5.0 3.0 76 7.6 5.4 -0.5 -2.1 2.8 -2.3 23 138 115 206 1,343 1 205 1,205 -0.5 1.1 1.1 0.5 13 1.3 38.7 27.1 29.3 35.5 26 2 26.2 +0.3 -3.1 -0.1 -0.3 -0.1 01 $15,094 1,737 2,418 3 577 3,577 2,776 5,869 2,199 $48,387 50,436 38,592 43 742 43,742 44,008 45,920 36,267 GDP Growth 1.9% 2.0 -1.3 03 0.3 -1.0 1.6 -2.5 Unempl. Rate 8.2% 7.3 8.2 68 6.8 10.0 4.6 9.8 Inflation
(CPI)

Demographics
C.A.
(%GDP)

Population

Population Growth 0.9% 0.8 0.6 -0.2 02 0.5 -0.1 0.4

Median Age g 36.9 yrs 41.0 40.0 44 9 44.9 39.9 44.8 43.5

Migration per 1000 p +3.6 +5.7 +2.6 +7 +.7 +1.1 +4.7

1.7% 1.3 3.0 17 1.7 2.0 0.2 3.3

-3.5% -2.4 -2.4 55 5.5 -1.8 1.5 -2.2

314 mm 34 63 81 66 127 61

International 52

Source: FactSet, Eurostat, CIA, J.P. Morgan Securities, J.P. Morgan Asset Management. GDP levels represent 2011 data and are from the April 2012 World Economic Outlook published by the IMF, except for the U.S. levels, which come directly from the BEA. All GDP Growth data are from J.P. Morgan Economics and expressed as % change versus prior quarter annualized. All GDP growth data are for 2Q12. India unemployment is from CIA estimates and is as of 2011. CPI Inflation is shown as % change versus a year ago and all data are for May 2012, except for India and Japan, which are as of April 2012. Unemployment rate for developed countries comes from FactSet Economics, Eurostat and Statistics Canada and represent the most recently available data. Demographic data provided by CIA World Factbook at CIA.gov. Current Account (C.A.) represents each countrys current account balance as of 3/30/12. Russia, China, and Brazils current accounts are as of 12/31/11. Data are as of 6/30/12.

Current Account Deficit and U.S. Dollar

Current Account Balance, % of GDP
-8%

U.S. Dollar Index

Nominal trade-weighted exchange index: major currencies
115

4Q05: -6.5%
-6%

110 105 100

-4%

1Q12: -3.6%

95 90 85

Mar 2009: Mar. 84.0 Jun. 2012: 75.0

-2%

International

80 75
0%

70 65
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Mar. 2008: 70.3

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

Source: BEA, FactSet, J.P. Morgan Asset Management. Data are as of 6/30/12 and are reported quarterly.

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management. Data are as of 6/30/12.

53

Asset Class Returns

2002
DJ UBS Cmdty 23.9% Barclays Agg 10.3% M arket Neutral 7.4% REITs 3.8% Asset Alloc. -5.4% M SCI EM E -6.0% M SCI EAFE -15.7% Russell 2000 -20.5% S&P 500 -22.1%

2003
M SCI EM E 56.3% Russell 2000 47.3% M SCI EAFE 39.2% REITs 37.1% S&P 500 28.7% Asset Alloc. 25.2% DJ UBS Cmdty 22.7% M arket Neutral 7.1% Barclays Agg 4.1%

2004
REITs 31.6% M SCI EM E 26.0% M SCI EAFE 20.7% Russell 2000 18.3% Asset Alloc. 12.5% S&P 500 10.9% DJ UBS Cmdty 7.6% M arket Neutral 6.5% Barclays Agg 4.3%

2005
M SCI EM E 34.5% DJ UBS Cmdty 17.6% M SCI EAFE 14.0% REITs 12.2% Asset Alloc. 8.0% M arket Neutral 6.1% S&P 500 4.9% Russell 2000 4.6% Barclays Agg 2.4%

2006
REITs 35.1% M SCI EM E 32.6% M SCI EAFE 26.9% Russell 2000 18.4% S&P 500 15.8% Asset Alloc. 14.9% M arket Neutral 11.2% Barclays Agg 4.3% DJ UBS Cmdty -2.7%

2007
M SCI EM E 39.8% M SCI EAFE 11.6% DJ UBS Cmdty 11.1% M arket Neutral 9.3% Asset Alloc. 7.3% Barclays Agg 7.0% S&P 500 5.5% Russell 2000 -1.6% REITs -15.7%

2008
Barclays Agg 5.2% M arket Neutral 1.1%* Asset Alloc. -23.8% Russell 2000 -33.8% DJ UBS Cmdty -36.6% S&P 500 -37.0% REITs -37.7% M SCI EAFE -43.1% M SCI EM E -53.2%

2009
M SCI EM E 79.0% M SCI EAFE 32.5% REITs 28.0% Russell 2000 27.2% S&P 500 26.5% Asset Alloc. 22.5% DJ UBS Cmdty 18.7% Barclays Agg 5.9% M arket Neutral 4.1%

2010
REITs 28.0% Russell 2000 26.9% M SCI EM E 19.2% DJ UBS Cmdty 16.7% S&P 500 15.1% Asset Alloc. 12.7% M SCI EAFE 8.2% Barclays Agg 6.5% M arket Neutral -2.5%

2011
REITs 8.3% Barclays Agg 7.8% M arket Neutral 4.5% S&P 500 2.1% Asset Alloc. -0.2% Russell 2000 -4.2% M SCI EAFE -11.7% DJ UBS Cmdty -13.4% M SCI EM E -18.2%

2012YTD
REITs 14.9% S&P 500 9.5% Russell 2000 8.5% Asset Alloc. 5.1% M SCI EM E 4.1% M SCI EAFE 3.4% Barclays Agg 2.4% M arket Neutral -2.3% DJ UBS Cmdty -3.7%

2Q12
REITs 4.0% Barclays Agg 2.1% Asset Alloc. -2.1% S&P 500 -2.8% Russell 2000 -3.5% M arket Neutral -3.6% DJ UBS Cmdty -4.6% M SCI EAFE -6.9% M SCI EM E -8.8%

10-yrs '02 - '11 Cum. Ann.

M SCI EM E 277.2% REITs 164.2% Asset Alloc. 86.3% Barclays Agg 75.4% Russell 2000 72.8% M arket Neutral 72.1% M SCI EAFE 64.8% DJ UBS Cmdty 58.0% S&P 500 33.4% M SCI EM E 14.2% REITs 10.2% Asset Alloc. 6.4% Barclays Agg 5.8% Russell 2000 5.6% M arket Neutral 5.6% M SCI EAFE 5.1% DJ UBS Cmdty 4.7% S&P 500 2.9%

Asset Class 54

Source: Russell, MSCI, Dow Jones, Standard & Poors, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P. Morgan Asset Management. The Asset Asset Allocation Allocation portfolio assumes the following weights: 25% in the S&P 500 500, 10% in the Russell 2000 2000, 15% in the MSCI EAFE, EAFE 5% in the MSCI EMI EMI, 30% in the Barclays Capital Aggregate, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the DJ UBS Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data except commodities represent total return for stated period. Past performance is not indicative of future returns. Data are as of 6/30/12, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 2/29/12. 10-yrs returns represent annualized total return. These returns reflect the period from 1/1/02 12/31/11. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures. Data are as of 6/30/12.

Risk On / Risk Off Correlations

Asset Class Correlations in 2005
1 ) 2) 3) 4) 5) 6) 7) 8) 9) 1 0) 1 1 ) 1 2) 1 3) 1 4) 1 5) ) 1 6) 1 7) 1 8) 1 9) 20) 21 ) 22) S &P 5 0 0 R 2000 S t o xx 5 0 M SC I EA F E R E IT s M SC I EM CAD C a na da 10 - yr. U.S . 10 - yr. U.K. 10 - yr G e rm a n 10 - yr. J a pa n 10 - yr. C o m m o dit ie s C o ppe r B re nt O il G o ld N at. Gas E q. M k t . N e ut ra l E UR JP Y U.S . B o nds US D 1 ) 2) 3) 4) 5) 6) 7) 1 .0 0.9 0.7 0.7 0.6 0.7 0.2 0.9 1 .0 0.6 0.6 0.7 0.7 0.3 0.7 0.6 1 .0 0.6 0.3 0.6 0.1 0.7 0.6 0.6 1 .0 0.3 0.8 0.4 0 6 0.7 0.6 0 7 0.3 0 3 0.3 03 1 10 .0 0.3 0 3 0.2 02 0.7 0.7 0.6 0.8 0.3 1 .0 0.4 0.2 0.3 0.1 0.4 0.2 0.4 1 .0 0.2 0.1 0.1 0.0 -0.1 0.0 0.1 0.1 0.1 0.1 0.1 -0.2 0.1 0.1 0.2 0.2 0.1 0.3 -0.1 0.3 0.2 0.4 0.3 0.2 0.4 0.0 0.4 0.2 0.3 0.3 0.2 0.2 0.3 0.2 0.0 0.1 0.2 0.0 0.5 0.0 0.4 0.5 0.0 0.2 -0.1 0.2 0.0 0.3 0.3 0.0 0 0 0 0.0 0 -0.1 0 0.3 0 3 -0.2 0 0.1 0 0 0.3 3 0.1 0.1 -0.2 0.3 0.1 0.3 0.3 0.1 0.1 0.0 0.3 0.1 0.2 0.3 0.3 0.3 0.4 0.4 0.2 0.4 0.2 0.1 0.0 -0.3 0.4 0.0 0.2 0.2 0.1 0.0 -0.1 0.2 0.1 0.0 0.2 0.0 0.0 0.0 0.0 0.2 0.0 -0.1 -0.3 -0.3 0.1 -0.7 -0.2 -0.5 -0.5 8) 0.2 0.1 0.1 0.0 -0.1 01 0.0 0.1 1 .0 0.9 0.6 0.5 0.1 0.0 0.0 0.0 0 0 0.0 0.0 0.0 0.2 -0.2 -0.8 0.0 9) 0.1 0.1 0.1 0.1 -0.2 02 0.1 0.1 0.9 1 .0 0.6 0.5 0.1 0.0 0.0 0.1 0 0.0 -0.1 0.0 0.2 -0.3 -1 .0 0.0 1 0) 0.2 0.2 0.1 0.3 -0.1 01 0.3 0.2 0.6 0.6 1 .0 0.7 0.0 0.3 0.2 0.2 0 0.1 0.1 0.2 0.3 -0.1 -0.6 -0.2 1 1 ) 1 2) 1 3) 0.4 0.3 0.1 0.3 0.3 0.2 0.2 0.2 0.0 0.4 0.2 0.5 0 0 0.3 0.0 0 3 0.0 00 0.4 0.2 0.4 0.2 0.0 0.5 0.5 0.1 0.0 0.5 0.1 0.0 0.7 0.0 0.3 1 .0 0.1 0.2 0.1 1 .0 0.0 0.2 0.0 1 .0 0.1 -0.2 0.4 0.1 -0.2 0 0 0.6 0 6 0.1 0.0 0.5 0.2 0.2 0.8 0.2 0.0 0.2 0.4 0.2 0.3 0.0 -0.1 0.1 -0.5 0.0 0.0 -0.3 -0.1 -0.5 1 4) 0.0 0.2 -0.1 0.2 00 0.0 0.3 0.3 0.0 0.0 0.2 0.1 -0.2 0.4 1 .0 0.4 0 0.3 0.3 0.1 0.1 0.0 0.0 -0.3 1 5) 0.0 0.0 -0.1 0.3 -0.2 02 0.1 0.3 0.0 0.1 0.2 0.1 -0.2 0.6 0.4 1 .0 0 0.2 0.5 0.0 0.3 0.3 -0.1 -0.4 1 6) 0.1 0.1 -0.2 0.3 01 0.1 0.3 0.3 0.0 0.0 0.1 0.1 0.0 0.5 0.3 0.2 0 1 .0 0.4 -0.1 0.4 0.0 0.0 -0.5 1 7) 0.1 0.1 0.0 0.3 01 0.1 0.2 0.3 0.0 -0.1 0.1 0.2 0.2 0.8 0.3 0.5 0 5 0.4 1 .0 0.1 0.3 0.0 0.1 -0.4 1 8) 0.3 0.3 0.4 0.4 02 0.2 0.4 0.2 0.0 0.0 0.2 0.2 0.0 0.2 0.1 0.0 0 0 -0.1 0.1 1 .0 0.1 -0.1 0.0 -0.1 1 9) 0.1 0.0 -0.3 0.4 00 0.0 0.2 0.2 0.2 0.2 0.3 0.4 0.2 0.3 0.1 0.3 0 3 0.4 0.3 0.1 1 .0 0.1 -0.2 -0.7 20) 0.1 0.0 -0.1 0.2 01 0.1 0.0 0.2 -0.2 -0.3 -0.1 0.0 -0.1 0.1 0.0 0.3 0 3 0.0 0.0 -0.1 0.1 1 .0 0.3 -0.5 21 ) 0.0 0.0 0.0 0.0 02 0.2 0.0 -0.1 -0.8 -1 .0 -0.6 -0.5 0.0 0.0 0.0 -0.1 0 0.0 0.1 0.0 -0.2 0.3 1 .0 -0.1 22) -0.3 -0.3 0.1 -0.7 -0.2 02 -0.5 -0.5 0.0 0.0 -0.2 -0.3 -0.1 -0.5 -0.3 -0.4 0 -0.5 -0.4 -0.1 -0.7 -0.5 -0.1 1 .0

1 .0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 04 -0.5 -0.6 -0.7 -0.8 -0.9 -1 .0

Move in the same direction

Move independently

Move in opposite directions

Asset Class Correlations in 2011

1 ) 2) 3) 4) 5) 6) 7) 8) 9) 1 0) ) 1 1 ) 1 2) 1 3) 1 4) 1 5) 1 6) 1 7) 1 8) 1 9) 20) 21 ) 22)
S &P 5 0 0 R 2000 S t o xx 5 0 M SC I EA F E R E IT s M SC I EM CAD C a na da 10 - yr. U.S . 10 - yr. U.K. 10 - y yr G e rm a n 10 - yr. J a pa n 10 - yr. C o m m o dit ie s C o ppe r B re nt O il G o ld N at. Gas E q. M k t . N e ut ra l E UR JP Y U.S . B o nds US D

Asset Class

1 ) 2) 3) 4) 1 .0 1 .0 0.9 0.9 1 .0 1 .0 0.8 0.8 0.9 0.8 1 .0 0.9 0.9 0.8 0.9 1 .0 0.9 0.9 0.7 0.8 0.7 0.8 0.7 0.9 0.8 0.8 0.7 0.8 0.7 0.6 0.8 0.7 0.8 0.7 0.7 0.7 0.7 0.6 0.7 0.7 0.4 0.3 0.6 0.5 0.4 0.4 0.5 0.4 0.5 0.6 0.4 0.6 0.6 0.6 0.5 0.6 0.5 0.5 0.3 0.5 0.1 0.2 0.1 0.3 0.2 0.2 0.1 0.2 0.1 0.1 -0.2 -0.1 0.3 0.3 0.4 0.4 -0.4 -0.4 -0.3 -0.3 -0.6 -0.5 -0.6 -0.4 -0.6 -0.6 -0.7 -0.8

5) 6) 7) 8) 0.9 0.7 0.8 0.7 0.9 0.8 0.8 0.6 0.7 0.7 0.7 0.8 0.8 0.9 0.8 0.7 1 .0 0.7 0.7 0.5 0.7 1 .0 0.7 0.5 0.7 0.7 1 .0 0.7 0.5 0.5 0.7 1 .0 0.5 0.5 0.6 0.9 0.5 0.6 0.6 0.8 0.2 0.3 0.3 0.8 0.3 0.3 0.3 0.5 0.5 0.7 0.7 0.4 0.5 0.8 0.6 0.4 0.4 0.5 0.6 0.3 0.2 0.4 0.3 0.0 0.2 0.3 0.2 0.1 0.1 0.0 0.1 -0.1 0.3 0.3 0.3 0.4 -0.2 -0.5 -0.4 -0.4 -0.3 -0.3 -0.4 -0.8 -0.6 -0.8 -0.7 -0.5

9) 0.8 0.7 0.7 0.7 0.5 0.5 0.6 0.9 1 .0 0.8 0.7 0.4 0.4 0.5 0.4 0.0 0.1 -0.1 0.3 -0.4 -0.9 -0.5

1 0) 0.7 0.6 0.7 0.7 0.5 0.6 0.6 0.8 0.8 1 .0 0.7 0.6 0.4 0.4 0.3 -0.1 0.2 -0.2 0.4 -0.5 -0.7 -0.4

1 1 ) 0.4 0.3 0.6 0.5 0.2 0.3 0.3 0.8 0.7 0.7 1 .0 0.5 0.2 0.2 0.2 0.0 0.2 -0.2 0.5 -0.2 -0.7 -0.4

1 2) 0.4 0.4 0.5 0.4 0.3 0.3 0.3 0.5 0.4 0.6 0.5 1 .0 0.2 0.2 0.3 -0.1 0.0 -0.1 0.1 -0.4 -0.4 -0.2

1 3) 1 4) 1 5) 1 6) 0.5 0.6 0.5 0.1 0.6 0.6 0.5 0.2 0.4 0.5 0.3 0.1 0.6 0.6 0.5 0.3 0.5 0.5 0.4 0.2 0.7 0.8 0.5 0.4 0.7 0.6 0.6 0.3 0.4 0.4 0.3 0.0 0.4 0.5 0.4 0.0 0.4 0.4 0.3 -0.1 0.1 0.2 0.2 0.2 0.0 0.2 0.2 0.3 -0.1 1 .0 0.8 0.7 0.6 0.8 1 .0 0.5 0.5 0.7 0.5 1 .0 0.4 0.6 0.5 0.4 1 .0 0.5 0.2 0.3 0.3 0.1 0.0 0.0 0.2 0.4 0.3 0.2 0.2 -0.4 -0.4 -0.2 -0.1 -0.3 -0.3 -0.3 0.1 -0.7 -0.7 -0.5 -0.5

1 7) 0.2 0.2 0.1 0.2 0.2 0.3 0.2 0.1 0.1 0.2 0.2 0.0 0.5 0.2 0.3 0.3 1 .0 0.1 0.3 0.1 0.0 -0.4

1 8) 0.1 0.1 -0.2 -0.1 0.1 0.0 0.1 -0.1 -0.1 -0.2 0.2 -0.2 -0.1 0.1 0.0 0.0 0.2 0.1 1 .0 0.0 -0.2 0.1 0.0

1 9) 0.3 0.3 0.4 0.4 0.3 0.3 0.3 0.4 0.3 0.4 0.5 0.1 0.4 0.3 0.2 0.2 0.3 0.0 1 .0 -0.1 -0.3 -0.6

20) -0.4 -0.4 -0.3 -0.3 -0.2 -0.5 -0.4 -0.4 -0.4 -0.5 0.5 -0.2 -0.4 -0.4 -0.4 -0.2 -0.1 0.1 -0.2 -0.1 1 .0 0.4 0.2

21 ) -0.6 -0.5 -0.6 -0.4 -0.3 -0.3 -0.4 -0.8 -0.9 -0.7 0.7 -0.7 -0.4 -0.3 -0.3 -0.3 0.1 0.0 0.1 -0.3 0.4 1 .0 0.3

22) -0.6 -0.6 -0.7 -0.8 -0.6 -0.8 -0.7 -0.5 -0.5 -0.4 0.4 -0.4 -0.2 -0.7 -0.7 -0.5 -0.5 -0.4 0.0 -0.6 0.2 0.3 1 .0

1 .0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 01 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 -0.8 0.9 9 -0 -1 .0

Move in the same direction

Move M independently

Move in opposite di directions ti

55

Source: Standard & Poors, Russell, Barclays Capital Inc., MSCI Inc., Credit Suisse/Tremont, NAREIT, DJ UBS, J.P. Morgan Asset Management. Correlation heat maps based on weekly percent change for calendar years shown. Currency correlations are based on trade weighted exchange rates. Sovereign bond correlations are based on changes in benchmark bond yield. Equity index correlations are based on total return. All other correlations are based on price return. Data are as of 6/30/12.

Mutual Fund Flows

Fund Flows Billions, USD Domestic D ti E Equity it World Equity Taxable Bond Tax-exempt Bond Hybrid Money Market AUM YTD 2012 4,006 4 006 1,378 2,595 540 882 2,560 (43) 19 113 24 27 (132) 2011 (134) 5 136 (12) 31 (124) 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 (95) 58 230 11 24 (28) (148) (65) 28 (80) 139 311 69 10 22 8 (26) 97 11 42 654 (0) 149 45 15 18 245 18 106 26 5 37 62 101 71 5 (15) 49 120 24 40 (7) 38 (26) (3) 125 17 9 55 (22) 76 11 9 375 261 53 (36) (14) (36) 159 176 11 8 (12) (14) 194 149 8 59 15 10 235

(525) (539) 637

(157) (263) (46)

Cumulative Flows into Stock & Bond Funds

Includes both mutual funds and ETFs, $ billions
$1,400
$1,200 $1,000 $800 $600

Difference Between Flows Into Stock and Bond Funds Billions, USD, U.S. and international funds, monthly
$40

May 12: $1,207 billion into bond funds and fixed income ETFs since 06

Bond flows exceeded equity flows b $29 billion by billi in i May M 2012

$20

$0

Asset Class

$400 $200

Bonds Stocks

May 12: 12: $205 billion into stock funds and equity ETFs since 06

$20 -$20

-$40

$0 '07 '08 '09 '10 '11 '12

-$60 May '08 08 Nov '08 08 May '09 09 Nov '09 09 May '10 10 Nov '10 10 May '11 11 Nov '11 11 May '12 12

Source: Investment Company Institute, J.P. Morgan Asset Management. Data include flows through May 2012 and exclude ETFs. ICI data are subject to periodic revisions. World equity flows are inclusive of emerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixed income flows. Data are as of 6/30/12.

56

Dividend Income: Domestic and Global

S&P 500 Total Return: Dividends vs. Capital Appreciation
Average annualized returns
20% 15% 10% 5% 4.7% 0% -5.3% 5 3% -5% -10% 1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2011 5.4% 13.9% 3.0% 6.0% 5.1% 13.6% 4.4% 3.3% 1.6% 4.2% 4.4% 2.5% 1.8% -2.7% 12.6% 15.3% 5.5% 4.1%

Capital appreciation Dividends

REIT Dividend Yields

7% 6.0% 6% 5% 5.9%

Equity Dividend Yields

10-year government bond yield
5.2% 5.0% 4.2% 4.1%
4% 6% 5.1% 5% 4.3%

Major world markets by capitalization

5.7%

Major world markets by capitalization

10-year government bond yield

3.9%

3.7% 3.1% 2 9% 2.9% 2.6%

4%

3 5% 3.5%
3% 2.2% 2%

Asset Class

3% 2% 1% 0%
1%

U.S.

Singapore

France

Australia

Canada

Japan

Global

U.K.

0%

U.S.

Australia

France

U.K.

Switzerland Canada

ACWI

Japan

Source: (Top chart) Standard & Poors, Ibbotson, J.P. Morgan Asset Management. (Bottom left) FactSet, NAREIT, J.P. Morgan Asset Management. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies. (Bottom right) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index. Data are as of 6/30/12.

57

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%

Precious metals
500

36% 34%

Industrial metals
400

32% 30%

Energy
300

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

Commodity y Prices and Inflation

Year-over-year % chg.
8% 6%

DJ-UBS Commodity Index (Y/Y % chg.) 80%

60% 40% 20% 0% -20%

200
4%

Grains

2% 0% -2%

Asset Class

100

Livestock
0 '03 '04 '05 '06 '07 '08 '09 '10 '11
Source: Dow Jones/UBS, FactSet, J.P. Morgan Asset Management. Commodity prices represented by the appropriate DJ/UBS Commodity sub-index.

-4% -6%

Headline CPI (Y/Y % chg.)

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

-40% -60%

Source: (Top) USDA, BP Statistical Review of World Energy, J.P. Morgan Asset Management. (Bottom) BLS, DJ/UBS, FactSet, J.P. Morgan Asset Management Data are as of 6/30/12.

58

Data are as of 6/30/12.

Gold
Gold Prices
$ / oz
$3,000

World Gold Production Year Troy Ounces Total Value

2000 83.3 mm 83.6 mm 82.0 mm 81.7 mm 77.8 mm 79.4 mm 76.2 mm 75.9 mm 73.6 mm 78.8 mm 80.4 mm $23 bn $23 bn $25 bn $30 bn $32 bn $35 bn $46 bn $53 bn $64 bn $86 bn $113 bn

$2,500

Jan. 1980: $2,480.36

Gold, Inflation Adjusted Gold

2001 2002 2003 2004

$2,000

$1,500

Jun. 2012: $1,598.50

2005 2006 2007 2008 2009

$1,000

Jan. 1980: $850.00

Asset Class

$500

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

2010

Source: (Left chart) EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. (Right table) U.S. Geological Survey, World Gold Council, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using month averages of gold spot prices divided by the CPI value for that month. CPI is rebased to 100 at the end of the chart. Data are as of 6/30/12.

59

Historical Returns by Holding Period

Range of Stock, Bond and Blended Total Returns
Annual total returns, 1950 2011
60% 50% 40% 30% 20% 10% 6% 0% -8% -10% -20% -15% -2% -2% 1% -1% 1% 2% 1%

Annual Avg. Growth of $100,000 Total T t l Return R t over 20 years

51% 43% 32% 28% 23% 21% 19% 18% 12%

Stocks Bonds 50/50 Portfolio

10.8% 6.3% 8.9%

$771,337 $337,713 $552,853

16% 17%

14% 5%

Stocks Bonds 50/50 Portfolio

Asset Class

-30% -40%

-37% 1-yr. 5-yr. rolling 10-yr. rolling 20-yr. rolling

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 2011.

60

Data are as of 6/30/12.

Diversification and the Average Investor

Maximizing the Power of Diversification (1994 2011)
Traditional Portfolio More Diversified Portfolio
Equity Mkt. Neutral Commodities 8%
30% 55% 15% S&P 500 MSCI EAFE Barclays y Agg. gg
(Top) Indexes and weights of the traditional portfolio are as follows: U.S. stocks: 55% S&P 500, U.S. bonds: 30% Barclays Capital Aggregate. International stocks: 15% MSCI EAFE. Portfolio with 25% in alternatives is as follows: U.S. stocks: 22.2% S&P 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral, 8.3% DJ/UBS Commodities, 8.3% NAREIT Equity REIT Index Index. Return and standard deviation calculated using Morningstar Direct. Charts are shown for illustrative purposes only. Past returns are no guarantee of future results. Diversification does not guarantee investment returns and does not eliminate risk of loss. Data are as of 6/30/12 6/30/12. (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: median sale price of existing single-family homes, Gold: USD/troy oz, Inflation: CPI Average asset allocation CPI. investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/11 to match Dalbars most recent analysis.

26%

8% 8%

REIT S&P 500 Russell 2000

4%
13% 9%

22%

MSCI EAFE MSCI EM Barclays Agg.

Return: 6.75% Standard Deviation: 10.94%

12% 10% 8.6% 8% 7 8% 7.8% 7 6% 7.6%

Return: 7.09% Standard Deviation: 9.97%

20-year Annualized Returns by Asset Class (1992 2011)

10.9%

Asset Class

6.5% 6% 4.0% 4% 2.5% 2% 0% REITs Oil S&P 500 Gold Bonds EAFE Inflation Homes Average Investor 2.5% 2.1%

61

Annual Returns and Intra-year Declines

S&P 500 Intra-year Declines vs. Calendar Year Returns
Despite average intra-year drops of 14.5%, annual returns positive in 25 of 32 years
50%

35%
26 26 17 27 26

34

31 27 20 20 14 13 4 -38 0 26 23

20%
-10

15

15

12 -7 4 7 9 -2 -10 -13 -23 3

5%

10% -10%
-17 -17 -14

-7 -12

-8

-9

-8

-8

-6 6

-6 6

-5 -9

-3 -8 -11 -19 -12 -17 -26 -14 -8 -7 -8 -10 -16 -19 -28 -32 32

-25%

-20

Asset Class

-40%

-34

-55%
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 over periods of 6 months or less. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2011. Data are as of 6/30/12.

-47

'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

62

Alternative Investment Returns

Hedge Funds (as of 3/31/12) CSFB/Tremont HF Index Multi-Strategy Distressed Convertible Arbitrage Equity Market Neutral* Risk Arbitrage** Fixed Income Arbitrage** G Global Macro Real Estate (as of 3/31/12) NCREIF Property Index Apartment Industrial Office Retail Private Equity (as of 12/31/11) U.S. U S Venture Capital Index U.S. Private Equity Index 1 year -0.8% 2.3% -1.2% 1.5% 2.4% 0.6% 5.3% 7.4% % 1 year 13.4% 14.8% 13 9% 13.9% 12.8% 12.9% 1 year 13.2% 13 2% 10.9% 3 year 9.8% 11.9% 11.0% 17.2% 4.2% 5.0% 14.4% 10.1% % 3 year 6.0% 8.2% 4 6% 4.6% 4.6% 7.0% 3 year 10.0% 10 0% 15.0% 5 year 3.3% 3.3% 2.2% 3.9% 3.3% 4.0% 2.2% 8.3% % 5 year 2.9% 3.0% 2 1% 2.1% 2.4% 4.4% 5 year 5.3% 5 3% 7.2% 10 year 6.8% 7.0% 7.8% 5.4% 5.6% 4.5% 4.0% 10.5% % 10 year 8.2% 8.1% 7 4% 7.4% 7.3% 10.8% 10 year 3.3% 3 3% 12.0%

Asset Class

Source: Cambridge Associates LLC, NCREIF, CS/Tremont, J.P. Morgan Asset Management. Cambridge PE and VC data provided at no charge. Other indexes shown are unmanaged and are for illustrative purposes only. Past performance is no guarantee of future results. Returns for all periods are as of 3/31/12 with the exception of Private Equity and Venture Capital returns, which are as of 12/31/11. All returns are annualized for periods greater than 1 year. Investing in alternative assets involves higher risks than traditional investments and is suitable only for the long term. They may not be tax efficient and have higher fees than traditional investments. They may also be highly leveraged and engage in speculative investment techniques techniques, which can magnify the potential for investment loss or gain. *Market Neutral returns include estimates found in disclosures. **Arbitrage is the simultaneous purchase and sale of an asset in order to profit from a difference in the price. Data are as of 6/30/12.

63

Cash Accounts
Annual Income Generated by $100,000 Investment in a 6-month CD
$10,000 $8,000 $6,000 $4,000 $2,000 $0 1986 1990 1994 1998 2002 2006 2010

Money Supply Component

$ Billions

Weight in Money Supply

2006: $5 $5,240 240

M2-M1 7,637 76.4%

2011: $419

Retail MMMFs

633

6.3%

Savings deposits

6,298

63.0%

Cash Accounts as a % of Total Household Financial Assets Cash

6-month CD rate vs. Core CPI
24% 28%

Small time deposits

706

7.1%

Mar 09 Mar. 09 S&P 500 low

Institutional MMMFs Cash in IRA & Keogh accounts 1,733 17.3%

Oct. 02 S&P 500 low

20%

628

6.3%

16%

Asset Class

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

Total

9,998

100.0%

64

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. Small denomination time deposits are those iss Small-denomination issued ed in amo amounts nts of less than $100 $100,000. 000 All IRA and Keogh acco account nt balances at commercial banks and thrift institutions are subtracted 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. Data are as of 6/30/12.

Corporate DB Plans and Endowments

Asset Allocation: Corporate DB Plans vs. Endowments Defined Benefit Plans Funded Status: S&P 500 companies

Endowments Corporate Defined Benefit Plans

Equities

overfunded

underfunded

8% 22%
45.3%

32.0%

Fixed Income

13.0% 35.5% 21.9% 2.7% 10 7% 10.7% 4.7% 6.1%

30%

78%

92%

Hedge Funds

1999
40% 33% 27% 27% 29%

2010
1999: Average 9.2% 2010: Average 7.4%

Pension Return Assumptions: S&P 500 companies

Private Equity

Real Estate

% of compa anies

3.1% 12.2% 4.1% 4.0% 4.7%

0% 10% 20% 30%

20% 20% 16% 16% 9% 5% 2% 0% < 7% 7 to 7.5% 7.5 to 8% 8 to 8.5% 8.5 to 9% 9 to 9.5% 9.5 to 10% > 10% 1% 0% 0% 8%

Asset Class

Other

10%

7% 0%

Cash

% of total
40% 50%

return assumption

65

Source: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan Asset Management. Endowments represents dollar-weighted average data of 842 colleges and universities. Pension Return Assumptions based on all available and reported data from S&P 500 Index companies. Funded Status based on 351 companies reporting pension funding status as of 3/31/11. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposes only. Data are as of 6/30/12.

The Dow Jones Industrial Average Since 1900

Dow Jones Industrial Index, Price Return (Since 1900)
Log Scale

2000 present 10,000

3,000 1966 1982 1,000

400 1937 1949

100

Asset Class

1906 1924

'10

'20

'30

'40

'50

'60

'70

'80

'90

'00

'10

Source: IDC, FactSet, J.P. Morgan Asset Management. Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only. Data are as of 6/30/12.

66

J.P. Morgan Asset Management Index Definitions

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

67

J.P. Morgan Asset Management Index Definitions

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities and represents nineteen separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc. The S&P GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. Individual components qualify for inclusion in the index on the basis of liquidity and are weighted by their respective world production quantities. The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. This U.S. U S Treasury Index is a component of the U U.S. S Government index. index West Texas Intermediate (WTI) is the underlying commodity for the New York Mercantile Exchange's oil futures contracts. The Barclays Capital High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, and 144-As are also included. The Barclays Capital 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible. The Barclays Capital General Obligation Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be general obligation bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, th rating the ti must tb be iinvestment-grade. 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. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark. The Barclays Capital Revenue Bond Index is a component of the Barclays Capital Municipal Bond Index. To be included in the index, bonds must be revenue bonds rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment investment-grade. grade. 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 bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark. The Barclays High Yield Municipal Index includes bonds rated Ba1 or lower or non-rated bonds using the middle rating of Moodys, S&P and Fitch. The Barclays Capital Taxable Municipal Bond Index is a rules-based, market-value weighted index engineered for the long-term taxable bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies if all three rate the bond: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. 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 bonds must be fixed rate and must be at least one year from their maturity date. Remarketed issues (unless converted to fixed rate), bonds with floating rates, and derivatives, are excluded from the benchmark. Municipal Bond Index: To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. 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 bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives are excluded from the benchmark. The Barclays Capital Emerging Markets Index includes USD-denominated USD denominated debt from emerging markets in the following regions: Americas, Europe, Middle East, Africa, and Asia. As with other fixed income benchmarks provided by Barclays Capital, the index is rules-based, which allows for an unbiased view of the marketplace and easy replicability. The Barclays Capital MBS Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. Aggregate components must have a weighted average maturity of at least one year, must have $250 million par amount outstanding, and must be fixed rate mortgages. The Barclays Capital Corporate Bond Index is the Corporate component of the U.S. Credit index. The Barclays Capital TIPS Index consists of Inflation Inflation-Protection Protection securities issued by the U U.S. S Treasury Treasury. The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities. The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S. dollar domestic high yield corporate debt market. 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.e., a beta of zero). The CS/Tremont Multi-Strategy Index consists of funds that allocate capital based on perceived opportunities among several hedge fund strategies. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage. *Market Neutral returns for November 2008 are estimates by J.P. Morgan Funds Market Strategy, and are based on a December 8, 2008 published estimate for November returns by CS/Tremont in which the Market Neutral returns were estimated to be +0.85% (with 69% of all CS/Tremont constituents having reported return data). Presumed to be excluded from the November return are three funds, which were later marked to $0 by CS/Tremont in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate representation p of returns in the category. g y CS/Tremont later p published a finalized November return of 40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates.

68

J.P. Morgan Asset Management Definitions, Risks & Disclosures

Past performance is no guarantee of comparable future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Bonds are subject to interest rate risks. Bond prices generally fall when interest rates rise. The price of equity securities may rise, or fall because of changes in the broad market or changes in a companys fi financial i l condition, diti sometimes ti rapidly idl or unpredictably. di t bl Th These price i movements t may result lt f from f factors t affecting ff ti individual companies, sectors or industries, or the securities market as a whole, such as changes in economic or political conditions. Equity securities are subject to stock market risk meaning that stock prices in general may decline over short or extended periods of time. 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. Historically, smaller companies' stock has experienced a greater degree of market volatility than the average stock. Mid-capitalization p investing g typically yp y carries more risk than investing g in well-established "blue-chip" p companies. p Historically, mid-cap companies' stock has experienced a greater degree of market volatility than the average stock. Real estate investments may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Real estate investments may be subject to risks including, but not limited to, declines in the value of real estate, risks related to general and economic conditions, changes in the value of the underlying property owned by the trust and defaults by borrower. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in emerging markets can be more volatile. As mentioned above, the normal risks of investing in foreign countries are heightened when investing in emerging markets. In addition, the small size of securities markets and the low trading volume may lead to a lack of liquidity, which leads to increased volatility. Also, emerging markets may not provide adequate legal protection for private or foreign investment or private property. Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, commodity such as drought, drought floods, floods weather weather, livestock disease disease, embargoes embargoes, tariffs and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss. 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. The use of derivatives may not be successful, resulting in investment losses, and the cost of such strategies may reduce investment returns. Price to forward earnings is a measure of the price-to-earnings ratio (P/E) using forecasted earnings. Price to book value compares a stock stock's s market value to its book value. value Price to cash flow is a measure of the market's expectations of a firm's future financial 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, used as a measure of a company's potential as an investment. 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, capitalization, sector swings or other risk factors. Investing using long and short selling strategies may have higher portfolio turnover rates. Short selling involves certain risks, including additional costs associated with covering short positions and a possibility of unlimited loss on certain short sale positions. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The views expressed are those of J.P. Morgan Asset Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. Those businesses include, but are not limited to, J.P. Morgan Investment Management Inc., Security Capital Research & Management Incorporated and J.P. Morgan Alternative Asset Management, Inc. JPMorgan Distribution Services, Inc., member FINRA/SIPC. JPMorgan Chase & Co., July 2012. Unless otherwise stated, all data are as of June 30, 2012 or most recently available. Prepared by: Andrew D. Goldberg, Joseph S. Tanious, Andrs Garcia-Amaya, David M. Lebovitz, Brandon D. Odenath, Anthony M. Wile and David P. Kelly.

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