JPMorgan 4Q Guide to the Markets 2012

7/30/2019 JPMorgan 4Q Guide to the Markets 2012

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As of September 30, 2012

i h M rk


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Table of Contents

EQUITIES

ECONOMY

INTERNATIONAL

ASSET CLASS

U.S. Market Strategy Team

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

Andrew D. Goldberg [email protected]

. , . . .

Andrs Garcia-Amaya [email protected]

Brandon D. Odenath [email protected]

David M. Lebovitz [email protected]

Anthony M. Wile [email protected]

2

www.jpmorganfunds.com/mi


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Page Reference

4. Returns by Style

5. Returns by Sector

6. S&P 500 Index at Inflection Points

34. Fixed Income Yields and Returns

35. The Fed and the Money Supply

36. The Fed Funds Rate: History and Expectations

37. Credit Conditions

38. High Yield Bonds

Equities

7. Bull and Bear Markets

8. Stock Valuation Measures: S&P 500 Index

9. Earnings Estimates and Valuations by Style

10. Corporate Profits

11. Sources of Earnings per Share Growth

12. Confidence and the Capital Markets

13. De lo in Cor orate Cash

39. Municipal Finance

40. Emerging Market Debt

41. Global Equity Markets: Returns and Composition

42. Global Economic Growth

43. Global Monetar Polic

International

14. Broad Market Lagged Price to Earnings Ratio

15. P/E Ratios and Equity Returns

16. Equity Correlations and Volatility

17. Economic Growth and the Composition of GDP

44. The Importance of Exports

45. The Impact of Global Consumers

46. European Crisis: Fiscal Challenges

47. European Crisis: Sovereign Bond Yields

48. European Crisis: Financial System Risks49. Chinese Growth and Economic Policy

Economy

.

19. Consumer Finances

20. Federal Finances: Outlays and Revenues

21. Federal Finances: Deficits and Debt

22. Tax Rates and the Distribution of Income & Taxes

23. U.S. Political Perspectives

24. The Aftermath of the Housing Bubble

.

51. Global Equity Valuations Emerging Markets

52. Emerging Market Equity Composition

53. International Economic and Demographic Data

54. Current Account Deficit and U.S. Dollar

Asset Class

.

26. Employment and Income by Educational Attainment

27. Consumer Price Index

28. Returns in Different Inflation Environments 40 years

29. Oil and the Economy

30. Global Oil Supply

31. Consumer Confidence and the Stock Market

.

56. Correlations: 10-Years

57. Mutual Fund Flows

58. Dividend Income: Domestic and Global

59. Global Commodities

60. Gold

61. Historical Returns by Holding Period

3

32. Fixed Income Sector Returns

33. Interest Rates and Inflation

62. Diversification and the Average Investor

63. Annual Returns and Intra-year Declines64. Cash Accounts

65. Corporate DB Plans and Endowments

66. The Dow Jones Industrial Average Since 1900

Fixed Income


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Returns by Style

1,500

S&P 500 Index3Q 2012 2012 YTD

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

Value Blend Growth Value Blend Growth

1,350

1,400

1,450

Equ

ities

2012: +16.4%

3Q12:+6.4%

Large

6.5% 6.4% 6.1%Large

15.7% 16.4% 16.8%

Mid 5.8% 5.6% 5.3% M

id 14.0% 14.0% 13.9%

Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Sep-12

1,250

,

S&P 500 IndexSince Market Low (March 2009)Since Market Peak (October 2007)

Value Blend Growth Value Blend Growth

Small

5.7% 5.3% 4.8%Small

14.4% 14.2% 14.1%

1,000

1,200

1,400

,

2.7%

Since 3/9/09

Large

-6.9% 2.7% 14.2%Large

132.2% 129.6% 132.9%

M

id

5.8% 8.3% 9.8% Mid

170.3% 161.4% 153.8%

Dec-06 Feb-08 Apr-09 Jun-10 Aug-11 Sep-12600

800

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

Low: +129.6%

Small

2.3% 6.2% 9.6%Small

153.1% 156.2% 158.7%

4

, .

9/28/12, illustrating market returns since the most recent S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 9/28/12, illustrating market returns since the S&P 500 Index low on 3/9/09. Returns are cumulative returns, not annualized. For all timeperiods, 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 9/30/12.


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6/69

S&P 500 Index at Inflection Points

1,600Index level 1,527 1,565 1,441P/E ratio (fwd.) 25.6x 15.2x 12.9x

S&P 500 Index

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

Se . 28 2012

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

1,565

Characteristic Mar-2000 Oct-2007 Sep-2012

1,400

. . .10-yr. Treasury 6.2% 4.7% 1.6%

Equ

ities , P/E (fwd.) = 12.9x

1,441

+101%

1,200

-49%

-57%

+106%

800

,

Oct. 9, 2002Dec. 31, 1996

+

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

600

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

Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based

P/E (fwd.) = 14.1x

777

P/E (fwd.) = 16.0x

741

ar. ,P/E (fwd.) = 10.3x

677

6

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 futureresults.



7/69

Bull and Bear Markets

Historical Bull Markets: Duration and Magnitude*

'87 - '00

400%600%

Bear Market Cycles vs. Subsequent Bull Runs

Market

Peak

Market

Low

Bear

MarketLength of

DeclineBull Run

Length

of Run

Yrs. to

Reach Old

Equ

ities

300%

350%550% 5/29/46 5/19/47 -28.6% 12 257.6% 122 3.1 yrs.

7/15/57 10/22/57 -20.7% 3 86.4% 50 0.9 yrs.

-

'47 - '57

'82 - '87

Average200%

250%

arketR

eturn(%)

. . . .

2/9/66 10/7/66 -22.2% 8 48.0% 26 0.6 yrs.

11/29/68 5/26/70 -36.1% 18 74.2% 31 1.8 yrs.

'57 - '61

'62 - '66' '

'74 - 80

'02 - '07

CurrentRun

100%

150%BullM 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% 3 582.1% 148 1.6 yrs.

'66 - '68

-

0%

50%

0 50 100 150

Bull Market Len th months

3/24/00 10/9/02 -49.1% 31 101.5% 60 4.6 yrs.

10/9/07 3/9/09 -56.8% 17 112.9% 43*

Average: -35.0% 14 mo's 176.0% 68 mo's 2.2 yrs.

7

Source: Standard & Poors, FactSet, J.P. Morgan Asset Management.Chart is for illustrative purposes only. Past performance does not guarantee future results. A bear market is defined as a peak-to-trough decline inthe 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 marketpeak. All returns are S&P 500 Index returns and do not include dividends. *Current bull run from 3/9/09 through 9/28/12.



8/69

Stock Valuation Measures: S&P 500 Index

S&P 500 Index: Valuation Measures Historical Averages

Valuation

Measure DescriptionLatest

1-year

ago

3-year

avg.

5-year

avg.

10-year

avg.

15-year

avg.

P/E Price to Earnings 12.9x 10.8x 12.8x 13.0x 14.3x 16.8x

P/B Price to Book 2.3 2.0 2.1 2.2 2.5 3.0

P/CF Price to Cash Flow 9.0 7.5 8.5 8.5 9.8 11.1P/S Price to Sales 1.3 1.0 1.2 1.1 1.3 1.5

PEG Price/Earnings to Growth 1.7 0.8 0.9 1.1 1.2 1.2

Equ

ities

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

50x9%

10%

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

S&P 500 Earnings Yield vs. Baa Bond Yield

S&P 500 Earnings Yield:(Inverse of fwd. P/E) 7.7%

20x

30x

40x

5%

6%

7%

8%

3Q12:22.2x

Average: 19.0x

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

10x

'94 '96 '98 '00 '02 '04 '06 '08 '10 '123%

4% Moodys Baa Yield: 4.7%

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

-

8

.

months. Price to Sales is calculated as price divided by consensus analyst estimates of sales per share for the next 12 months. PEG Ratio is calculated as NTM P/E divided byNTM earnings growth. Dividend Yield is calculated as consensus analyst estimates of dividends for the next 12 months divided by price. All consensus analyst estimates areprovided by FactSet.(Bottom left) Cyclically adjusted P/E uses as reported earnings throughout.(Bottom right) Standard & Poors, Moodys, FactSet, J.P. Morgan Asset Management.Data are as of 9/30/12.


9/69

Earnings Estimates and Valuations by Style

28x

S&P 500 Index: Forward P/E Ratio Current P/E vs. 20-year avg. P/E

11.6 12.9 15.2

Value Blend Growth

e

16x

20x

Average: 16.2xEqu

ities

14.0 16.2 21.0

12.3 14.1 16.6

14.0 16.3 21.8

Lar

Mid

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

12x

S&P 500 Operating Earnings Estimates

Sep. 2012: 12.9x

Current P/E as % of 20-year avg. P/EE. .: Lar e Ca Blend stocks are 20.3%

13.0 14.4 16.2

14.2 17.1 21.3Small

Value Blend Growth

Large

82.7% 79.7% 72.3%

$80

$100

$1203Q12: $111.86

Consensus estimates of the next twelve months rolling earnings cheaper than their historical average.

Mid 87.8% 86.3% 75.9%

Small

91.2% 84.6% 75.8%

0

$20

$40

$60

9

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

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 byconsensus analyst estimates of earnings per share for the next 12 months. P/E ratios are calculated and provided by Russell based on IBESconsensus estimates of earnings over the next 12 months except for large blend, which is the S&P 500.Data are as of 9/30/12.


10/69

Corporate Profits

S&P 500 Earnings Per ShareOperating basis, quarterly

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

11% 2Q12:26

Most recent:$25.43

2Q07: $24.06

Equ

ities

9%

10%

.

$20

$23

7%

8%

$14

$17

5%

6%

50-yr. avg.: 6.2%

$5

$8

$11

'65 '70 '75 '80 '85 '90 '95 '00 '05 '103%

4%

-$1

$2

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

10

Source: Standard & Poors, Compustat, BEA, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. Most recently available data is 2Q12.Past performance is not indicative of future returns.



11/69

Sources of Earnings per Share Growth

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

50%

Equ

ities

Revenue Share of EPS Growth

30%

40%

10%

20%

-20%

-10%

-40%

-30%

2Q122Q102Q082Q062Q042Q022Q002Q982Q962Q94

11

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



12/69

Confidence and the Capital Markets

120

24x

26x

Multiple Expansion and Contraction

Consumer SentimentForward P/E

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

80

90

100

16x

18x20x

22x

Equ

ities

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

50

60

10x

12x

14x

Sentiment & Real Yields*

Correlation Coefficient: 0.75

100

110

120

4%

5%

6% Consumer SentimentReal 10-year Yield

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

60

70

80

0%

1%

2%

Correlation Coefficient: 0.68

12

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

Source: (Top) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Bottom) U.S. Treasury, BLS, University of Michigan, J.P. MorganAsset Management. Price to Earnings is price divided by consensus analyst estimates of earnings per share for the next twelve months. Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core inflation for that month. *Estimated impact based oncoefficients from regression analysis. Data are as of 9/30/12.


13/69

Deploying Corporate Cash

Corporate Cash as a % of Current AssetsS&P 500 companies cash and cash equivalents, quarterly30%

Corporate Growth

Capital Expenditures M&A Activity

Nonfarm nonfinancial capex in billions USD, quarterly deal volume1,600$1,300

Equ

ities

20%

22%

24%

26%

600

800

1,000

1,200

,

$900

$1,000

$1,100

,

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

14%

16%

18%

0

200

400

$600

$700

800

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

$120

$140

$160

$24

$27

$30

50%

60%

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

Dividends per Share

$40

$60

$80

$18

$21

30%

40%

Share Buybacks

13

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

(Top left) Standard & Poors, FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is quarterly number of deals of any value andcapital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poors, FactSet, J.P. Morgan AssetManagement. (Bottom right) Standard & Poors, Compustat, FactSet, J.P. Morgan Asset Management. Data are most recent as of 9/30/12.


14/69

Broad Market Lagged Price to Earnings Ratio

35x

Lagged P/E Ratio All U.S. CorporationsRatio of market value of all U.S. corporations to adjusted after-tax corporate profits for prior four quarters

25x

30x

Equ

ities

Avg. During Recessions 12.6x

Avg. During Expansions 13.9x

P/E Ratios

20x

September 30, 2012 13.2x

10x

15x Average: 13.7x

Sep. 30, 2012*: 13.2x

0x

5x

14

Source: BEA, Federal Reserve Board, Wilshire Associates, J.P. Morgan Asset Management.

*The September 28, 2012 price is a J.P. Morgan Asset Management estimated based on the daily value of the Wilshire Total Market Index.



15/69

P/E Ratios and Equity Returns

60%60%

P/E and Total Return Over 5-yr. Annualized PeriodsP/E and Total Return Over 1-yr. PeriodsQuarterly, 1Q 1952 to 2Q 2007Quarterly, 1Q 1952 to 2Q 2011

Current P/E: 13.2 Current P/E: 13.2

40%

9/30/12

Implied Annual Return 13.1%Standard Error 5.7%40%

9/30/12

Implied Annual Return 14.9%Standard Error 17.2%

Equ

ities

20%20%

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

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

-40%

-20%

-40%

-20%

15

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

Note: Orange line denote results of linear regression with R-squared of 0.15 for 1-yr. returns (left) and 0.35 for 5-yr. returns (right).



16/69

Equity Correlations and Volatility

70%

Large Cap StocksCorrelations Among Stocks

Sovereign DebtCrisis

LehmanGreat Depression /

30%

40%

50%

Equ

ities

Tech Bust & 9/11

1987 Crash

OPEC Oil

Crisis

Cuban Missile Crisis

0%

10%

20%

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

Average: 26.7% Sep. 2012: 40.9%

2.5%

3.0%

3.5%

60

75

90Volatility Measure 08 Peak Average LatestDJIA (Left) 3.30% 0.72% 0.51%VIX (Right) 80.9 20.5 15.7

DJIA vol. shownin 3-month

moving average

0.5%

1.0%

1.5%

.

15

30

45

16

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

Source: (Top) Empirical Research Partners LLC, Standard & Poors, J.P. Morgan Asset Management. Capitalization weighted correlation of top750 stocks by market capitalization, daily returns, 1926 Sep. 28, 2012. (Bottom) CBOE, Dow Jones, J.P. Morgan Asset Management. DJIAvolatility are represented as three-month moving averages of the daily absolute percentage change in the Dow Jones Industrial Average.

Charts shown for illustrative purposes only. Data are as of 9/30/12.


17/69

Economic Growth and the Composition of GDP

$18,00010%

Real GDP% chg at annual rate

20-yr avg. 2Q12

Components of GDP2Q12 nominal GDP, billions, USD

$14,000

$16,000

4%

6%

8%

y

Real GDP: 2.5% 1.3%

10.7% Investment ex-housing

19.6%

2.4% Housing

$625 bn ofout ut lost

$8,000

$10,000

,

0%

2%

Econo

71.0%

ov pen ng

$2,000

$4,000

$6,000

-6%

-4%

-Consumption

n ooutput

recovered

-$2,000

$0

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

-8%

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

- 3.7% Net Exports

17

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



18/69

Cyclical Sectors

24Millions, seasonally adjusted annual rateLight Vehicle Sales

150

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

2Q12: 41.4

14

16

18

20

y Average: 15.1

Aug. 2012:14.5

-50

0

50

Average: 28.3

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

10

12

Econo

Real Capital Goods Orders

Housing Starts

'95 '00 '05 '10-200

-150

-

60

65

70

75

1,600

2,000

2,400

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

Average: 57.4

'98 '00 '02 '04 '06 '08 '10 '1240

45

50

55

'95 '00 '05 '100

400

800

1,200

Aug. 2012: 750 Aug. 2012:53.4

,

18

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



19/69

Consumer Finances

$80

Personal Savings Rate

12%

Annual, % of disposable incomeConsumer Balance SheetTrillions of dollars outstanding, not seasonally adjusted

2Q-07 Peak: $81.5tn

$60

$70

4%

6%

8%

10%o a sse s: . n

Homes: 25%

y

YTD 2012:4.2%

1Q-09 Low: $65.2tn

$40

$50'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10

0%

2%

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

Deposits: 10%

Other tangible: 7%

Econo

13%

14%

15%

$20

$30

Revolving (e.g.: credit cards): 6%Non-revolving: 14%Other Liabilities: 7%

3Q07:14.1%

10%

11%

12%

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12$0

$10

Total Liabilities: $13.5 tn

assets: 40%

Mortgages: 73%

1Q80:11.1%

3Q12*:10.5%

19

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

Management. Personal savings rate is calculated as personal savings (after-tax income personal outlays) divided by after-tax income. Employer andemployee contributions to retirement funds are included in after-tax income but not in personal outlays, and thus are implicitly included in personalsavings. Savings rate data as of August 2012. *3Q12 Household Debt Service Ratio is a J.P. Morgan Asset Management estimate. All other data areas of 2Q12 which is most recently available as of 9/30/12.


20/69

Federal Finances: Outlays and Revenues

$4.0 26%

The 2012 Federal BudgetCBO Baseline forecast, trillions USD

Federal Outlays and Receipts1960 2012, % of GDP

$3.0

$3.5

24%

y

Total Spending: $3.6tn

Other

$482bn (14%)

Net Int.: $220bn (6%)Borrowing:

$1,128bn (32%)2012*:24.3%

$2.0

$2.5

20%

22%

Econo

Defense:$669bn (19%)

-Discretionary:$620bn (17%)

Average: 20.5%

$1.0

$1.5

18%Social Security:$768bn (22%)

Revenues:$2,435bn (68%)

Average: 17.9%2012*:

15.8%

$0.0

$0.5

Total Government Spending Sources of Financing14%

16%

1960 1970 1980 1990 2000 2010

Medicare & Medicaid:$804bn (23%)

RevenuesOutlays

20

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

2012 Federal Budget is based on the CBOs August 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).



21/69

Federal Finances: Deficits and Debt

-12% 100%

Federal Budget Surplus/Deficit Federal Debt (Accumulated Deficits)% of GDP, 2007 2022 % of GDP, 2007 2022

ForecastFiscal Cliff Fiscal Ledge Fiscal Ladder

-10%

80%

y

2011 actual: 67.7%

2022*: 75.1%Forecast

2022*: 83.2%

- . - . - .

2012 Est. -7.3% -7.3% -7.3%

2013 Proj. -4.0% -5.7% -6.5%

-8%

-6%

60%

Econo

Fiscal Cliff

Fiscal Ledge Scenario

2022: 58.5%Fiscal Ladder Scenario

Fiscal Ladder Scenario

-4%

-2%

20%

Fiscal Cliff

Fiscal Ledge Scenario

Fiscal Cliff Fiscal Ledge Fiscal Ladder

0%'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22

0%'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22

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

*

. . .

2012 Est. 72.8% 72.8% 72.8%

2022 Proj. 58.5% 75.1% 83.2%

21

. .households earning less than $250k per year, the AMT is fixed, dividend and capital gain tax rates increase to 20%, the payroll tax cut expires, extendedunemployment benefits expire on schedule, higher Medicare taxes take effect and both sets of spending cuts agreed to last fall are implemented. FiscalLadder scenario assumes Bush tax cuts are extended in full for 2013 and for households earnings less than $250k per year for 2014 the AMT fix,dividend and capital gain tax rates increase to 20% in 2014 payroll tax cut is maintained in 2013, phased down to 1% in 2014 and eliminated in 2016extended unemployment benefits expire on schedule higher Medicare taxes take effect and only the first round of spending cuts take effect. Note: Yearsshown are fiscal years (Oct. 1 through Sep. 30). Chart on the left displays federal surplus/deficit (revenues outlays).



22/69

Tax Rates and the Distribution of Income & Taxes

80%

100%

Historical Average Maximum Tax Rates by Decade Share of Income and Taxes by Income LevelBased on adjusted gross income and federal taxes, 2009

Dividends

Income

40%

60%

Top 5%31.7%

5% to 25%

34.1%Wage Income

Capital Gainsy

0%1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's Current

Bottom 75%34.2%

Potential Tax Rate ChangesCurrent and scheduled 2013 maximum federal tax rates under current law Taxes

Econo

Top 5%

58.7%

5% to 25%28.6%

Scheduled 20132012

37.9%35.0%

43.4%

23.8%

43.4%

55.0%

30%

40%

50%

Bottom 75%12.7%

15.0% 15.0%10.4% 12.4%

0%

10%

20%

Wage Income Capital Gains* Dividends* Payroll Tax** Estate Tax***

22

, . . . . ,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 tothe 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 expectedto fall to $1 million from $5.12 million in 2012. (Right) IRS, J.P. Morgan Asset Management. Taxes paid are based on federal individualincome taxes, which are responsible for about 25% of the nation's taxes paid.Data are as of 9/30/12.


23/69

U.S. Political Perspectives

Congressional & Presidential Approval RatingsPolitical Polarization% of Representatives voting with the majority of their party*

Senate

100%80%

90%

y

House

80%

85%

90%

40%

50%

60%

Econo

Annual Market Returns by Political Party ControlPolitical Party Dominance

Presidential

Congressional

70%

75%

1901 1919 1937 1955 1973 1991 2009

10%

20%

1941 1951 1961 1971 1981 1991 2001 2011

70%

80%, , -

DemocraticPresident

Senate

House

17.4%

15.4%

12%

14%

16%

18%

20%

40%

50% 6.5%

10.6%

0%

2%

4%

6%

8%

23

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. Pooleand Howard Rosenthal, available at www.voteview.com. Stock market returns are total return and calculated by calendar year. RSPLIT denotesRepublican president and split government, and DSPLIT denotes Democratic President and split government.



24/69

The Aftermath of the Housing Bubble

$1,100160

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

Home Prices

-

$500

$650

$800

950

140

150

y

3Q12*:$725

MortgagePayment

FHFA Purchase Only

Average Existing Home

$200

$350

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12130E

cono

Home Inventories

3Q12*: $477Monthly Rent

3.5

4.0

4.5

110

120 ons, annua ra e, seasona y a us e

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

2.0

2.5

.

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

100

Aug. 2012: 2.4

24

Sources: (Left) National Association of Realtors, Standard & Poors, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management.Monthly mortgage payment assumes a 20% down payment at prevailing 30-year fixed-rate mortgage rates; analysis based on median asking rent and median mortgage paymentbased on asking price. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management. *3Q12 rent and mortgagepayment values are J.P. Morgan Asset Management estimates.



25/69

Employment

60012%

Civilian Unemployment Rate Employment Total Private Payroll

Seasonally adjusted Total job gain/loss (thousands)

200

400

10%

11%

y8.9mm

jobs lost

-200

0

7%

8%

9%

Econo

Aug. 2012: 8.1%4.6mm

jobsgained

-600

-400

5%

6%

50-yr. avg.: 6.1%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-1,000

-800

'70 '80 '90 '00 '103%

4%

25

, , . . .


, , . . .


26/69

Employment and Income by Educational Attainment

18%

Average Annual Earnings by Highest Degree EarnedFull-time workers aged 25 and older, 2009, USD

$87,194$90,000

Unemployment Rate by Education Level

14%

16%

y$70,000

$80,000

+31K

Less than High School Degree

High School No College

Some CollegeCollege or Greater

8%

10%Econo $56,665

$50,000

$60,000

+26K

Aug. 2012:8.8%

.12.0%

4%

6%$30,627

$20,000

$30,000

,

Aug. 2012:

Aug. 2012:6.6%

0%

2%

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

$10,000

High School Graduate Bachelor's Degree Advanced Degree

4.1%

26

, . . ., , . . .

Unemployment rates shown are for civilians aged 25 and older.



27/69

Consumer Price Index

CPI

Components

Weight in

CPI

12-month

Change

Food & Bev. 15.3% 2.0%15%

CPI and Core CPI50-yr. Avg. Aug. 2012

Headline CPI: 4.2% 1.7%

% change vs. prior year, seasonally adjusted

Housing 41.0% 1.4%

Apparel 3.6% 1.6%

Transportation 16.9% 1.4%

12%

y

Core CPI: 4.1% 1.9%

Medical Care 7.1% 4.1%

Recreation 6.0% 1.2%

Educ. & Comm. 6.8% 1.5%

Other 3.4% 2.4%

6%

9%

Econo

Headline CPI 100.0% 1.7%

Less:

Energy 9.7% -0.6%0%

3%

Food 13.7% 2.0%

Core CPI 76.6% 1.9%'65 '70 '75 '80 '85 '90 '95 '00 '05 '10

-3%

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

27

CPI values shown are % change vs. 1 year ago and reflect August 2012 CPI data. CPI component weights are as of

December 2011 and 12-month change reflects non-seasonally adjusted data through August 2012. Core CPI isdefined as CPI excluding food and energy prices.



28/69

Returns in Different Inflation Environments 40 years

High and Rising Inflation

High and Falling Inflation

Falling inflation scenariosRising inflation scenarios

y

ccurre mes s nce ccurre mes s nce

median

5%2%

7%

13%

5%

10%

15%

20%

25%

18%

23%

8%

5%

10%

15%

20%

25%

Econo

Abov

MedianInflation:

3.3%

-15%

-10%

-5%

Bonds Equities Cash Commodities

-15%-15%

-10%

-5%


Occurred 7 times since 1972

Occurred 13 times since 1972 B

elowme

di6%

20%17%

10%

15%

20%

25%

8%

12%

4%

6%10%

15%

20%

25%

an

-15%

-10%

-5%

0%

5%


-15%

-10%

-5%

0%


28

, , , , , , , . . .

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 toprevious year CPI-U inflation rate. Bond returns are based on the Barclays U.S. Aggregate index since its inception in 1976 and a composite bondindex 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-Billindex 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.



29/69

Oil and the Economy

$160$4.50

4%

WTI Crude Oil & Retail Gasoline Prices

OilGas 12/31/00 9/30/12Oil $26.72 $92.19

Economic Drag From Oil PricesU.S. petroleum imports as a % of GDP 3Q12*: 2.9%

3Q08: 3.8%

$120

$140

$3.50

$4.00

2%

3%

y

. .

$80

$100

$2.50

$3.00

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

0%

1%

Econo

Oil Prices and Consum tion er Countr

$40

$60

$1.50

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

Gasoline price per gallon, USD, annual barrels of oil consumed per capita

$8.67$8.06

$8.48

20bbls

25bbls

30bbls

$8

$10

$12 Annual Barrels of Oil Consumed per Capita (Right)

Gasoline Price per Gallon (Left)

0

$20

0.50

$1.00

$3.97

$5.38 $5.22

5bbls

10bbls

15bbls

-

$2

$4

$6

29

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

Source: U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. Price ofgas based on U.S. retail national average of all formulations and WTI for crude.


Source: (Top) BEA, FactSet, J.P. Morgan Asset Management.(Bottom) EIA, J.P. Morgan Asset Management.*3Q12 drag on growth is a J.P. MorganAsset Management estimate.

US UK France Germany China India


30/69

Global Oil Supply

250

Kuwait

Middle East Energy Production & Chokepoints

Percent of global liquid fuel production, 2011

U.S. Commercial & Strategic Oil StocksDays of net imports

Aug. 2012:235 days

100

150

200

Iran4.9%

Iraq3.0%

3.1%yr a

0.5%Suez Canal

2.2%

U.S. Commercial Oil Stocksy

Oct. 2005:129 days

0

50

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

Libya0.6%

Egypt0.8% Saudi Arabia

12.8%

Strait ofHormuz OPEC Sur lus Production Ca acit

U.S. Strategic Petroleum Reserve

Econo

4

5

6

u an0.5%

UAE3.6%

.

Bab el-Mandeb

Millions of barrels per day

EIAforecast

1

2

33.4%

Average: 2.7mm bbl/day

Major Producers Major Consumers

Percent of global total, 2011 Percent of global total, 2011

Saudi Arabia 13% China 5% United States 22% India 4%

Russia 12% Iran 5% China 10% Saudi Arabia 3%

30

0

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13Source: EIA, J.P. Morgan Asset Management.

Forecast from the September EIA Short Term Energy Outlook.


United States 12% Canada 4% Japan 5% Brazil 3%


31/69

Consumer Confidence and the Stock Market

130

Consumer Sentiment Index University of Michigan

Average 12-month S&P 500 index return

110

120

y

Jan. 2000

-2.0%

Jan. 2004+4.4%

. . .

90

100

Average: 85.3

Econo

.+13.5%

May 1977+1.2%

.-6.2%

Jan. 2007-4.2%

60

70

Oct. 1990

Mar. 2003+32.8% Oct. 2005

+14.2%

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

50

Feb. 1975+22.2%

May 1980+19.2%

+29.1%

Nov. 2008+22.3%

Aug. 2011+15.4%

31

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

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



32/69

Fixed Income Sector Returns

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 3Q12 Cum. Ann.

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

10-yrs '02 - '11

16.6% 29.0% 11.9% 12.3% 11.8% 11.6% 13.7% 58.2% 15.1% 13.6% 14.2% 6.8% 185.6% 11.1%

EMD EMD High YieldAsset

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

12.2% 26.9% 11.1% 3.6% 10.0% 9.0% 8.3% 34.2% 12.8% 10.7% 12.1% 4.5% 133.6% 8.9%

Treas.Asset

Alloc.TIPS Muni MBS

Barclays

Agg

Barclays

AggCorp. Corp. Treas. Corp. Corp. TIPS TIPS

. . . . . . . . . . . . . .

Barclays

AggTIPS

Asset

Alloc.TIPS

Asset

Alloc.MBS

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

Asset

Alloc.

10.3% 8.4% 6.3% 2.8% 5.1% 6.9% -1.4% 15.8% 7.6% 8.9% 6.7% 2.7% 96.0% 7.0%

Corp. Corp. Corp. Treas. Muni

Asset

Alloc. TIPS Muni

Barclays

Agg Corp. TIPS Muni Corp. Corp.

10.1% 8.2% 5.4% 2.8% 4.8% 6.2% -2.4% 12.9% 6.5% 8.1% 6.2% 2.3% 85.2% 6.4%com

e

Asset

Alloc.Muni MBS High Yield

Barclays

AggEMD Muni TIPS TIPS

Barclays

AggMuni TIPS

Barclays

Agg

Barclays

Agg

10.0% 5.3% 4.7% 2.7% 4.3% 5.2% -2.5% 11.4% 6.3% 7.8% 6.1% 2.1% 75.4% 5.8%

MuniBarclays

AggMuni MBS Corp. Corp. Corp.

Barclays

AggTreas. EMD

Barclays

Agg

Barclays

AggTreas. Treas.

9.6% 4.1% 4.5% 2.6% 4.3% 4.6% -4.9% 5.9% 5.9% 7.0% 4.0% 1.6% 74.3% 5.7%

FixedI

MBS MBS

Agg

AggTreas. Muni EMD MBS MBS MBS MBS MBS MBS MBS

8.7% 3.1% 4.3% 2.4% 3.1% 3.4% -14.7% 5.9% 5.4% 6.2% 2.8% 1.1% 73.9% 5.7%

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

-1.4% 2.2% 3.5% 1.7% 0.4% 1.9% -26.2% -3.6% 2.4% 5.0% 2.1% 0.6% 68.8% 5.4%

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

32

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.



33/69

Interest Rates and Inflation

20%

Nominal and Real 10-year Treasury Yields

15%

Sep. 30, 1981: 15.84%

Average 9/30/12

Nominal Yields 6.46% 1.65%Real Yields 2.58% -0.27%

5%

10%

com

e

Sep. 30, 2012: 1.65%

Nominal 10-yearTreasury Yield

0%FixedI

Sep. 30, 2012: -0.27%

-

-5% Real 10-yearTreasury Yield

33

'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 September 2012,where real yields are calculated by subtracting out August 2012 year-over-year core inflation.



34/69

Fixed Income Yields and Returns

U.S. Treasuries # of issues Mkt. Value Avg. Maturity 9/30/2012 9/30/2011 2012 YTD 3Q12

Yield Return

Source: U.S. Treasury, BarclaysCapital, FactSet, J.P. Morgan AssetManagement.

Fixed income sectors shown above areprovided by Barclays Capital and are

2-Year 2 years 0.23% 0.25% 0.25% 0.21%

5-Year 5 0.62 0.96 2.30 0.83

10-Year 10 1.65 1.92 4.37 0.93

30-Year 30 2.82 2.90 3.66 -0.28

Sector

represented by Broad Market: U.S.Barclays Capital Index; MBS: FixedRate MBS Index; Corporate: U.S.Corporates; Municipals: Muni Bond

Index; Emerging Debt: EmergingMarkets Index; High Yield: CorporateHigh Yield Index. TIPS: TreasuryInflation Protection Securities (TIPS).

# of issues: 164

Total value: $5.067 tn

Broad Market 7,967 $16,815 bn 6.7 years 1.61% 2.35% 3.99% 1.58%

MBS 861 5,052 3.8 1.77 2.82 2.80 1.13

Corporates 4,231 3,551 10.7 2.79 3.83 8.66 3.83

Municipals 46,180 1,339 13.7 2.17 3.02 6.06 2.32

com

e

Treasury securities data for of issuesand market value based on U.S.Treasury benchmarks from BarclaysCapital. Yield and return informationbased on Bellwethers for Treasurysecurities.

Change in bond price is calculated. . . . .

High Yield 1,931 1,082 6.7 6.51 9.51 12.13 4.53

TIPS 33 823 9.2 1.46 1.86 6.25 2.12

FixedI

us n g o ura on an convex yaccording to the following formula:New Price = (Price + (Price * -Duration *Change in Interest Rates))+(0.5 * Price* Convexity * (Change in InterestRates)^2)

*Calculation assumes 2-year Treasury

Price Impact of a 1% Rise/Fall in Interest Rates +1%20.1%25%

n eres ra e a s . o . anthe 5-year Treasury falls 0.62% to0.00%, as interest rates can only fall to0.00%.

Chart is for illustrative purposes only.Past performance is not indicative ofcomparable future results.

-

-2.0%-4.9%

-2.4% -4.0% -4.9% -5.3% -6.8% - -

0.5%3.0%

9.1%

2.3% 4.0%4.8% 5.3%

6.8% 6.9% 7.2%

-10%

-5%

0%

5%

10%

15%

34

Data are as of 9/30/12.-9.1%

-20.1%

. .

-25%

-20%

-15%

2-Year 5-Year 10-Year 30-Year MBS High Yield BroadMkt.

TIPS EMD Munis Corp.


35/69

The Fed and the Money Supply

$3.5tn

Money MultiplierM2 / Monetary Base

Feds Balance Sheet: Assets$ trillions

10x

$1.5tn

$2.0tn

$2.5tn

3.0tn

5x

6x

7x

8x

er

U.S. Treasuries

Agency MBS

Aug. 2012:3.8x

$0.0tn

$0.5tn

. n

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

Feds Balance Sheet: Liabilities

com

e

Money Supply Growth

'03 '04 '05 '06 '07 '08 '09 '10 '11 '122x

3x

4x

r ons

FixedI

8%

10%

12%

14%

Year-over-year growth in M2

Aug. 2012: 6.3%

Monetary Base$2.0tn

$2.5tn

$3.0tn

'85 '90 '95 '00 '05 '100%

2%

4%

6%Excess Reserves

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12$0.0tn

$0.5tn

$1.0tn

.

35

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 inthe central bank's reserves. Money multiplier defined as M2 divided by the monetary base.



36/69

The Fed Funds Rate: History and Expectations

12%

Federal Funds Rate & FOMC Interest Rate Projections

10%

6%

8%

com

e

Long-term Fed

4%FixedI

0%

2% Sep. 30, 2012:0.0%-0.25%

36

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

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

Fed Funds Rate projections are based on an average of the FOMC interest rate projections for a given year.



37/69

Credit Conditions

760 60%

Consumer & Industrial Loan DemandNet percent of banks reporting stronger demand

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

Aug. 2012: 750

680

700

720

740

-

-20%

0%

20%

40%

22%

620

640

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

Delinquency Rates

com

e

Common Equity as a % of Total Assets

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

-60%

-

Large & Medium Firms

Small Firms

10%

12%

14%

8%

10%

12%

Consumer Loans

Residential Mortgages

an s, seasona y a us e

FixedI

Commercial and Industrial Loans

10.6%

nsure ns u ons,

2011:11.1%

4%

6%

8%

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

2%

4%

6%

1.4%

2.8%

Average: 7.6%

37

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

All data reflect most recently available releases.



38/69

High Yield Bonds

20%Average Latest

HY Spreads 5.9% 5.9%HY Defaults 4.2% 1.8%

High Yield Spreads and Defaults

5%

10%

prea s

Default Rates

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

com

e

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

Annual Flows into High Yield Mutual Funds & ETFsBillions USD

$10bn

$20bn

$30bn

$40bn

40

50

60

70

FixedI

Average: 39.2

.

-$20bn

-$10bn

$bn

'03 '04 '05 '06 '07 '08 '09 '10 '11 '120

10

20

30

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

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): Strategic Insight, J.P. Morgan Asset Management. Yield to worst is defined as the lowest potential yield that can be receivedon a bond without the issuer actually defaulting and reflects the possibility of the bond being called at an unfavorable time for the holder.Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. Past performance is not indicative of comparablefuture results. 2011 recovery rates are as of March 30, 2012.Data are as of 9/30/12.


39/69

Municipal Finance

8%

State & Local Government Debt ServicePercent of current expenditures

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

6%

7%

200%

220%

2Q12: 5.1%

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

com

e

Municipal Bond Issuance*Billions USD revenue and GO issues

160%

180%

Sep. 30, 2012:122%

FixedI

100%

120%

$300

$400

$500

'98 '00 '02 '04 '06 '08 '10 '1260%

80%

$0

$100

$200

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

39

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 August 2012.



40/69

Emerging Market Debt

12%

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

Index Breakdown USD Denominated EMD

Average Spread

Middle East &Africa 7%

Middle East &Africa 10%

100%

4%

6%

8%

Spread (9/30/12)

EMBIG 3.9% 3.1%

CEMBI 3.3% 3.6%

Europe 32%

Europe 16%

Latin America43%

Latin America39%

40%

60%

80%

0%

2%

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

com

e

Annual Flows into EMD Mutual Funds & ETFsBillions USD

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

Asia 18%

Asia 35%

0%

20%

EMBIG CEMBI

$8bn

$12bn

$16bn

$20bn

FixedI

.

BB+

BBB-

BB

BB-

: .

-$4bn

$bn

$4bn

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12'93 '95 '97 '99 '01 '03 '05 '07 '09 '11

B-

B

B+

40

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

Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debtindex 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 localcurrency-denominated index tracking bonds issued by emerging market governments. Past performance is not indicative of comparable future results.Data are as of 9/30/12.


41/69

Global Equity Markets: Returns and Composition

Country / Region

3Q12 YTD 2012

Local USD Local USD

Weights in MSCI All Country World Index% global market capitalization

Euro e ex-

Regions / Broad Indexes

USA (S&P 500) - 6.4 - 16.4EAFE 4.7 7.0 9.6 10.6

UnitedStates47%

U.K.15%

U.K. 8%

EmergingMarkets

- . . . . . .

Pacific ex-Japan 9.5 11.0 15.5 17.6

Emerging Markets 6.0 7.9 11.4 12.3

MSCI: Selected CountriesShare of Global GDP

Japan7%

United Kingdom 4.0 7.1 6.5 10.7

France 5.9 7.4 11.7 10.7

Germany 12.4 13.9 22.8 21.7

- -

Canada 2%

o

nal

Emer in

UnitedStates19%

. . . .

China 4.7 4.7 8.9 9.1

India 9.0 15.4 24.5 25.4

Brazil 5.3 4.8 5.4 -3.1Internati Markets

50%

Japan 5% OtherDeveloped

4%Europe ex-U.K.17%

41

Russia 6.0 9.4 8.9 11.6

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 9/30/12.

U.K. 3%


42/69

Global Economic Growth

10%

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

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

Historical

2Q13

JPMSI Forecast

0%

2%4%

6%

-4%

-2%

Emerging Markets China India Russia Mexico South Africa Korea Brazil

Developed Market Country Real GDP Growth

4%

6%

8%

10%

Year-over-year % chg. forecasts from JPMSI

o

nal

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13

2Q13

-4%

-2%

0%

2%

DevelopedCountries

Japan Canada U.S. Germany France U.K. Italy

Internati

42

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

Forecast and aggregate data come from J.P. Morgan Global Economic Research.



43/69

Global Monetary Policy

30%

35%

Central Bank Assets Percent of Nominal GDP Real Policy Rates Monthly

3%

4%

10%

15%

20%

25%

European Central Bank

Bank of Japan

-1%

0%

1%

2%

0%

5%

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

Developed Markets

Country Level Monetary Policy and Inflation

Emerging Markets

U.S. Federal Reserve

-3%

-2%

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

o

nal

0.0%

3.5%

7.0%

10.5%

14.0%

Internati

-7.0%

-3.5%

HongKong

U.K.

U.S.

Euroarea

Canada

Japan

Australia

Turkey

India

SouthAfrica

Taiwan

Thailand

Korea

Mexico

Poland

Indonesia

Colombia

Russia

Brazil

China

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. MorganGlobal Economics Research. (Bottom chart) Target policy rates are the short-term target interest rates set by central banks. Inflation rates shownrepresent year-over-year quarterly rates for 2Q12. Real policy rates are short-term target interest rates set by central banks minus year-over-yearinflation.Data are as of 9/30/12.

eve ope ar e s merg ng ar e s


44/69

The Importance of Exports

Goods exports onlyExports as a % of GDP 2011

0.8%

4.5%

2.0%

.

9.5%

4.4%

3.1%

.

2.1%

1.7%

2.3%

.

14.4%

15.5%

10.2%

.

26.8%

26.1%

17.6%

.

Russia

China

India

2.2% 1.7%

1.5%

4.0%

1.4%

6.2%

6.9%

14.0%

9.8%

Japan

U.S.

o

nal

1.4%

1.1%

1.9%

12.4%

12.7%

10.0%

2.0%

1.5%

1.3%

7.6%

5.8%

4.8%

23.4%

21.1%

18.0%

Italy

France

U.K.

Internati

2.2%

19.2%

21.8%

2.5%

4.2%

1.6%

10.7%

2.8%

38.9%

26.0%

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

Germany

Canada

44

ource: , . . organ sse anagemen .

Numbers represent exports of goods only and would be higher if services were included.Data are as of 9/30/12.


45/69

The Impact of Global Consumers

35%40%

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

30%35%Mega Cap (Russell 200)

20%

25%

25%

30%

Large Cap (Russell 1000)

15%20%

o

nal U.S. Consumption % of Global

EM Consumption % of Global

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

15%1990 1994 1998 2002 2006 2010

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

Internati

45

and does not capture all index members due to differences in reporting practices.



46/69

European Crisis: Fiscal Challenges

8%

Example of Fiscal Redistribution in the U.S.GDP Growth, Debt to GDP and Borrowing Costs

Bubble size = 10-yeargovernment bond yield

EM

4%

6%

13)

= 5%

= 10%

France

Germany

IrelandE.U.

U.S.

2%

The E.U. Lacks a Similar Fiscal Mechanismrowt

h(201120

Greece

Italy

Portugal

Spain

-2%

0%

o

nal R

ealGDPG

-6%

-4%

20% 40% 60% 80% 100% 120% 140% 160%

Internati

46

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 levelof unemployment rate. European country colors are based on levels of sovereign stress, including but not exclusively, the measure shown in theabove chart on the left. Growth and debt data based on the April 2012 World Economic Outlook. Bond yields as of 9/30/12.


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


47/69

European Crisis: Sovereign Bond Yields

16%

European Sovereign Funding Costs10-year benchmark bond yields, daily

Introduction

9/30/12Portugal 8.39%Ireland 7.19%Spain 5.97%

12%

14%

Italy 5.03%France 2.18%Germany 1.46%

8%

10%

4%

6%

o

nal

0%

2%

Internati

47

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

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



48/69

European Crisis: Financial System Risks

European Bank Exposure Euribor and Libor Spreads3M Euribor - EONIA, 3M Libor - OISBillions USD4.0%

Spain

Spain

Greece

Ireland

Italy 3.0%

3.5%

U.K.

Libor SpreadPortugal

2.0%

2.5%

Germany

o

nal

Euribor Spread1.0%

1.5%

France

Internati

0.0%

0.5%

' ' ' ' ' '

48

Source: Bloomberg, BIS, J.P. Morgan Asset Management.

The Libor OIS spread is the difference between the interest rate at which banks borrow unsecured funds from other banking institutions and overnightindexed swaps at the effective federal funds rate. The Euribor EONIA spread is the difference between the interest rate at which European Unionbanks borrow unsecured funds from other Euro banking institutions and the standard interest rate for Euro area deposits calculated by the EuropeanCentral Bank. Both are standard measures of perceived risk in banking institutions. Data are as of 9/30/12.


49/69

Chinese Growth and Economic Policy

30%10%Share of year-over-year change in nominal global GDPChina and U.S. Contribution to Global GDP Growth Chinese Inflation and the Money Supply

Year-over-year % change

China Most Recent40%

20%

25%

2%

4%

6%

8n e a es .

M2 (RHS) 13.5%

15%

20%

25%

30%

10%

15%

-2%

0%

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

China Export Growth

Mortgage Debt

0%

5%

10%

'81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14

15%

25%

35%

45%

71%

73%

75%

77%

14%

16%

18%

o

nal

- - -

Aug. 2012:5.0%

1Q12: 14.0%United States (Right)

-25%

-15%

-5%

5%

Feb-08 Se -08 A r-09 Nov-09 Jun-10 Jan-11 Au -11 Mar-1261%

63%

65%

67%

69%

8%

10%

12%

' ' ' ' ' ' ' '

Internati

1Q12: 62.9%

China (Left)

49

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.



50/69

Global Equity Valuations Developed Markets

Developed Market Countries

verage Expensive

relative toworld

Example

+5 Std Dev

+4 Std Dev

+6 Std Dev

dDevfrom

Global

Expensiverelative to own

history

Cheap relative toown history

Average

Current

+ ev

+2 Std Dev

+1 Std Dev

Average

-1 Std Dev

-2 Std Dev

-3 Std Dev

CurrentComposite

Current 10-year avg.

World(ACWI)

EAFEIndex

France Japan U.K. Germany Australia Canada Switzerland UnitedStates

St

relative toworld

-4 Std Dev

-5 Std Dev

. . . . . .

World (ACWI) -0.88 12.0 1.7 6.9 2.8% 13.4 2.1 7.0 2.5%

EAFE Index -1.88 10.9 1.3 5.5 3.7% 12.9 1.7 6.2 3.3%

France -2.39 10.2 1.1 5.2 4.2% 11.5 1.6 5.8 3.7%

Japan -2.00 11.5 0.9 3.9 2.7% 17.9 1.4 6.2 1.9%

U.K. -1.78 10.2 1.6 6.1 4.1% 11.4 2.0 7.1 3.9%

o

nal

ermany - . . . . . . . . .

Australia -1.48 12.1 1.7 6.5 4.9% 13.4 2.2 8.2 4.5%

Canada -0.92 12.7 1.8 5.1 2.8% 13.8 2.1 7.2 2.4%

Switzerland 0.34 12.2 2.0 11.9 3.5% 13.7 2.4 9.8 2.9%

United States 0.55 12.6 2.2 8.2 2.0% 14.4 2.4 8.4 2.0%

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

Internati

50

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 averagevariability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Seedisclosures page at the end for metric definitions.



51/69

Global Equity Valuations Emerging Markets

Emerging Market Countries

erage

+5 Std Dev

+4 Std Dev

+6 Std DevExpensiverelative to

Example

Devfrom

GlobalA +3 Std Dev

+2 Std Dev

+1 Std Dev

Average-1 Std Dev

-2 Std Dev

-3 Std Dev

Expensiverelative to own

history

Cheap relative toown history

Average

Current

Chea

Current

Com ositeCurrent 10-year avg.

World(ACWI)

EMIndex

Russia China Brazi l Taiwan SouthAfrica

Korea Mexico India

Std

-4 Std Dev

-5 Std Dev

relative to

world

Fwd. P/E P/B P/CF Div. Yld. Fwd. P/E P/B P/CF Div. Yld.

World(ACWI) -0.88 12.0 1.7 6.9 2.8% 13.4 2.1 7.0 2.5%

EM Index -1.43 10.3 1.6 6.1 2.9% 10.9 1.9 5.7 2.7%

Russia -3.71 5.2 0.8 3.6 3.6% 7.9 1.3 4.9 2.2%

China -2.28 9.0 1.5 4.5 3.3% 12.2 2.1 4.1 2.8%

Brazil -1.92 10.8 1.4 6.2 4.1% 9.6 1.9 5.5 3.5%

Index

o

nal

Taiwan -0.74 15.0 1.8 5.9 3.3% 15.2 1.8 6.5 3.5%

South Africa -0.21 11.6 2.3 9.7 3.5% 10.9 2.3 7.5 3.4%

Korea 0.19 8.7 1.3 5.7 1.1% 9.4 1.5 5.0 1.8%

Mexico 1.76 16.7 2.9 6.3 1.6% 13.4 2.6 5.6 2.0%

India 2.69 14.0 2.5 12.7 1.5% 15.1 3.2 12.0 1.5%

Source: MSCI FactSet J.P. Mor an Asset Mana ement.

Internati

51

, , . . .

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 averagevariability over the last 10 years. The grey bars represent valuation index variability relative to that of the All Country World Index (ACWI). Seedisclosures page at the end for metric definitions.



52/69

Emerging Market Equity Composition

MSCI EM Index by Region MSCI EM Index by Sector

60%

10%

22%

Africa/Mideast

Asia/Pacific ex Japan

Europe

Latin America

20%

25%

14%

16% Other

Commodities

Financials

25%

Consumer

MSCI EM Country Index by Sector

o

nal

13%37%

21%22%

19%

14%

16% 12% 17%24%

34%

16%

60%

80%

100%

Other

Commodities

Internati

17% 18%

38%23%

4%16%

7%

33%26%

15%

28%

37%9%

20%

40%Financials

Tech

Consumer

52

Source: MSCI, FactSet, J.P. Morgan Asset Management. Other is comprised of Healthcare, Industrials, Telecom, and Utilities sectors.*Mexican Telecom sector accounts for 28% of the countrys market capitalization. Values may not sum to 100% due to rounding.


4%0%

Brazil Russia India China Mexico* Korea


53/69

International Economic and Demographic Data

Economics Demographics

GDP USD(B$s)

GDP Per

Ca ita

GDP

Growth

Unempl.

Rate

Inflation(CPI)

C.A.(%GDP)

PopulationPopulation

Growth

Median

A e

Migration

er 1000

Developed

U.S. $15,094 $48,387 1.3% 8.1% 1.7% -3.6% 314 mm 0.9% 37.1 yrs +3.6

Canada 1,737 50,436 1.9 7.3 1.4 -2.5 34 0.8 41.2 +5.7

U.K. 2,418 38,592 2.0 8.1 2.5 -2.3 63 0.6 40.2 +2.6

ermany , , . . . . - . . +.

France 2,776 44,008 -0.3 10.2 2.2 -1.9 66 0.5 40.4 +1.1

Japan 5,869 45,920 -2.0 4.3 -0.4 1.5 127 -0.1 45.4 -

Italy 2,199 36,267 -2.5 10.6 3.2 -2.3 61 0.4 43.8 +4.7

Emerging

Russia 1,850 12,993 2.0 5.2 6.9 5.4 143 -0.5 38.8 +0.3

Mexico 1,155 10,153 3.5 5.4 4.6 -0.4 115 1.1 27.4 -3.1

Brazil 2,493 12,789 4.8 5.3 5.3 -2.1 199 1.1 29.6 -0.1

China 7,298 5,414 7.4 4.1 2.0 2.8 1,343 0.5 35.9 -0.3

o

nal

, , . . . - . , . . - .

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. AllGDP Growth data are from J.P. Morgan Economics and expressed as % change versus prior quarter annualized. All GDP growth data are for 3Q12. India unemployment isfrom CIA estimates and is as of 2011. CPI Inflation is shown as % change versus a year ago and all data are for August 2012, except for Japan, which is as of July 2012.Unemployment rate for developed countries comes from FactSet Economics, Eurostat and Statistics Canada and represent the most recently available data. Demographicdata provided by CIA World Factbook at CIA.gov.

Internati

53

Current Account (C.A.) represents each countrys current account balance as of 6/30/12. Russia, China and Brazils current accounts are as of 12/31/11.



54/69

Current Account Deficit and U.S. Dollar

115-8%

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

105

110

-6%

4Q05:-6.5%

90

95-4% 2Q12:

-3.0%

80

85

-2%

o

nal

.84.0

'94 '96 '98 '00 '02 '04 '06 '08 '10 '1265

70

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

0%

Internati

Mar. 2008: 70.3

Sep. 2012: 72.5

54

Source: BEA, FactSet, J.P. Morgan Asset Management.Data are as of 9/30/12 and are reported quarterly.

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management.Data are as of 9/30/12.


55/69


56/69

Correlations: 10-Years

Large

Cap

Small

Cap EAFE EME

Core

Bonds

Corp.

HY EMD Cmdty. REITs

Hedge

Funds

EqMarket

Neutral*

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

Small Cap 1.00 0.88 0.79 -0.27 0.73 0.59 0.46 0.84 0.76 0.55

EAFE 1.00 0.93 -0.15 0.75 0.66 0.59 0.72 0.87 0.72

. - . . . . . . .

Core Bonds 1.00 -0.03 0.27 -0.27 0.00 -0.22 -0.09

Corp. HY 1.00 0.85 0.56 0.70 0.78 0.44

EMD 1.00 0.44 0.61 0.65 0.40

Commodities 1.00 0.40 0.72 0.50

REITs 1.00 0.59 0.50

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

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

Hedge Funds 1.00 0.60

Eq Market Neutral* 1.00

56

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

All correlation coefficients calculated based on quarterly total return data for period 9/30/02 to 9/30/12.

This chart is for illustrative purposes only.

As


57/69

Mutual Fund Flows

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

Fund Flows

,

World Equity 1,492 18 4 58 28 (80) 139 149 106 71 24 (3) (22) 53 11 8

Taxable Bond 2,724 169 135 230 311 22 97 45 26 5 40 125 76 (36) 8 59

Tax-exempt Bond 562 39 (12) 11 69 8 11 15 5 (15) (7) 17 11 (14) (12) 15

Hybrid 946 39 31 24 10 (26) 42 18 37 49 38 9 9 (36) (14) 10

$1,400 $40

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

Bond flows exceeded equity flows

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

Aug. 12: $1,288 billion into bond funds

,

$800

$1,000

$1,200

$0

$20

y on n ugus

$0

$200

$400

' ' ' ' ' '-$60

-$40

-$20

' ' ' ' ' 'setClass

Bonds

Stocks

.into stock funds andequity ETFs since 07

57

ay ar an ov ep u

Source: Investment Company Institute, J.P. Morgan Asset Management.Data include flows through August 2012 and exclude ETFs. ICI data are subject to periodic revisions. World equity flows are inclusive ofemerging market, global equity and regional equity flows. Hybrid flows include asset allocation, balanced fund, flexible portfolio and mixedincome flows.Data are as of 9/30/12.

As


58/69

Dividend Income: Domestic and Global

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

Dividends20%

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

4.1%

13.9%

3.0%

13.6%

4.4%1.6%

12.6% 15.3%

-2.7%

5.5%

0%

5%

10%

Equity Dividend YieldsREIT Dividend Yields

- .

-10%

-5%

1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2011

3.5%

5.5% 5.5% 5.4%

5.0%4.7%

4.2%4.0%

4%

5%

6%

-bond yield 10-year government

bond yield4.8%

4.1%3.8%

3.4%4%

5%

6%

1%

2%

3%

setClass 2.2%

. . 2.6%

1%

2%

3%

58

0%U.S. F rance Aus tralia Singapore Canada Japan Global U.K.

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.


As 0% U. S. Aust ralia F rance U .K. Sw itzerland Canada ACWI Japan


59/69

Global Commodities

600

Commodity PricesWeekly index prices rebased to 100

Oil Demand: Emerging Markets ShareEmerging markets as % of total global oil consumption40%

500

Precious Metals

Industrial Metals

34%

36%

38%

300

400

Commodit Prices and Inflation

30%

32%

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

4%

6%

8%

40%

60%

80%

200

Energy

Grains

Year-over-year % chg.

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

-4%

-2%

0%

2%

-40%

-20%

0%

20%

100

setClass

Livestock Headline CPI (Y/Y % chg.)

59

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12-6% -60%

'03 '04 '05 '06 '07 '08 '09 '10 '11 '120

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

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


Source: (Top) BP Statistical Review of World Energy, J.P.Morgan Asset Management. (Bottom) BLS, DJ/UBS,FactSet, J.P. Morgan Asset Management.


As


60/69

Gold

$3,000

Gold Prices$ / oz Year Troy Ounces Total Value

2000 83.3 mm $23 bn

World Gold Production

$2,500

Jan. 1980:$2,480.36

Gold, Inflation Adjusted

Gold

2001 83.6 mm $23 bn

2002 82.0 mm $25 bn

$1,500

$2,000Sep. 2012:$1,763.00

. mm n

2004 77.8 mm $32 bn

2005 79.4 mm $35 bn

$1,000Jan. 1980:

$850.00

2006 76.2 mm $46 bn

2007 75.6 mm $53 bn

2008 73.3 mm $64 bn

$0

$500

setClass 2009 79.1 mm $77 bn

2010 82.3 mm $101 bn

60

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

Source: (Left chart) EcoWin, BLS, U.S. Department of Energy, FactSet, J.P. Morgan Asset Management. (Right table) U.S. Geological Survey, WorldGold Council, J.P. Morgan Asset Management. CPI adjusted gold values are calculated using month averages of gold spot prices divided by the CPIvalue for that month. CPI is rebased to 100 at the end of the chart. 2011 world production is a U.S. Geological Survey estimate.


As

.


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Historical Returns by Holding Period

Annual total returns, 1950 2011Range of Stock, Bond and Blended Total Returns

Annual Avg. Growth of $100,00060%

50/50 Portfolio 8.9% $552,853

Bonds 6.3% $337,713

Stocks 10.8% $771,337

o a e urn over 20 years

51%

43%40%

50%

32%

28%

23%21% 19%

16% 17%18%

12%14%10%

20%

Stocks

-8%

-15%

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

2%

6%

1%

5%

-10%

0%

setClass 50/50 Portfolio

Bonds

-37%

-40%

-30%

-20%

61

As

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.


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


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Diversification and the Average Investor

Equity Mkt. Neutral

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

Traditional Portfolio More Diversified Portfolio

Maximizing the Power of Diversification (1994 2011)

8%8%

8%

4%

26%REIT

S&P 500Russell 2000

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

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

55%

30% S&P 500

MSCI EAFE

Barclays Agg.

9%

MSCI EM

Barclays Agg.

.and standard deviation calculatedusing Morningstar Direct.

Charts are shown for illustrativepurposes only. Past returns are noguarantee of future results.Diversification does not guarantee

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

Return: 6.75%Standard Deviation: 10.94% Return: 7.09%Standard Deviation: 9.97%

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

9/30/12.

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

10.9%

8.6%10%

12%

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

etClass

. .

6.5%

4.0%

2.5% 2.5%2.1%

4%

6%

8%

62

ending 12/31/11 to match Dalbarsmost recent analysis.A

s

0%

2%

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


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Annual Returns and Intra-year Declines

50%

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

26

1517

26

15

2726

34

20

31

27

20

26 23

20%

35%

-10

1 2

12

-74

7 -2 -10 -13 -23

9

3 4-38

13

0

--3

5%

-17 -17-14

-7

-12

-8-9

-8 -8

-20

- --9 -8

-11

-19

-12

-17

-26

-14

-8 -7 -8-10

-28

-16

-19-25%

-

-34 -

-47-55%

-40%

'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 '11setClass

63

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 orless. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2011.


As


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Cash Accounts

$8,000

$10,000

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

$ Billions

Weight in

Money

Supply

Money Supply

Component

$2,000

$4,000

$6,000

2011:$419

,

M2-M1 7,688 76.7%

Retail MMMFs 641 6.4%

$01986 1990 1994 1998 2002 2006 2010

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

Savings deposits 6,348 63.3%

Small time deposits 700 7.0%

16%

20%

24% Oct. 02 S&P 500 low

.

Institutional MMMFs 1,723 17.2%

616 6.1%Cash in IRA & Keogh

accounts

setClass

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

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

12% Total 10,026 100.0%

64

As ma - enom na on me epos s are ose ssue n amoun s o ess an , . an eog accoun a ances a commerc a an s

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.



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Corporate DB Plans and Endowments

Underfunded

Defined Benefit Plans Funded Status: S&P 500 Companies

Overfunded

Asset Allocation: Corporate DB Plans vs. Endowments

Endowments

45.3%

13.0%

32.0%

Fixed Income

Equities

92%78

22%

2.7%

35.5%

21.9%Hedge Funds

Pension Return Assumptions: S&P 500 companies

20101999

27%29%

20%

33%

27%

20%

30%

40%

3.1%

4.7%

6.1%

.

Real Estate

Private Equity

anies

2010: Average 7.4%

1999: Average 9.2%

2% 1%

5%

9%7%8%

0% 0% 0%

0%

10%

< 7% 7 to 7.5 to 8 to 8.5 to 9 to 9.5 to > 10%4.7%

4.1%

4.0%

12.2%

Cash

Other

%o

fCom

setClass

% of total

65

7.5% 8% 8.5% 9% 9.5% 10%0% 10% 20% 30% 40% 50%

Return AssumptionSource: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan AssetManagement. Endowments represents dollar-weighted average data of 842 colleges and universities. Pension Return Assumptions based on allavailable and reported data from S&P 500 Index companies. Funded Status based on 351 companies reporting pension funding status as of3/31/11. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposes only. Data are as of 9/30/12.

As


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The Dow Jones Industrial Average Since 1900

Dow Jones Industrial Index, Price Return (Since 1900)

Log Scale

10,000

2000 present

3,000

1,0001966 1982

400

100

1937 1949

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

1906 1924

setClass

66

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

Data shown in log scale to best illustrate l

JPMorgan 4Q Guide to the Markets 2012

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