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4Q | 20134Q | 20144Q | 2013As of September 30, 2013

4Q | 2014As of October 31, 2014

Guide to the Markets®Guide to the Markets®Guide to the MarketsGuide to the Markets

1

Global Market Insights Strategy Team

Americas Europe Asia

Dr. David P. Kelly, CFANew York

Stephanie H. FlandersLondon

Tai HuiHong Kong

Andrew D. GoldbergNew York

Maria Paola ToschiMilan

Geoff LewisHong Kong

Anastasia V. Amoroso, CFAHouston

Vincent JuvynsLuxembourg

Yoshinori ShigemiTokyo

James C Liu CFA Manuel Arroyo Ozores CFA Grace Tam CFAJames C. Liu, CFAChicago

Manuel Arroyo Ozores, CFAMadrid

Grace Tam, CFAHong Kong

Julio C. CallegariSão Paulo

Tilmann Galler, CFAFrankfurt

Ian HuiHong Kong

David M. Lebovitzk

David Stubbs, PhDd

Ben LukNew York London Hong Kong

Gabriela D. SantosNew York

Lucia GutierrezMadrid

Ainsley E. WoolridgeNew York

Kerry Craig, CFALondon

Hannah J. AndersonNew York

Alexander W. DrydenLondon

Nandini RamakrishnanLondon

2Past performance is no guarantee of comparable future results. For China and Australia distribution, please note this communication is for intended recipients only and is for wholesale clients only in Australia. For details, please refer to the full disclaimer at the end. Unless otherwise stated, all data is as of October 31, 2014 or most recently available.

Page Reference

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

36. Owners of Treasury Securities37. Credit Conditions38. High Yield Bonds39. Municipal Finance40. Global Fixed Income

Equities Page 4

7. Stock Valuation Measures: S&P 500 Index8. Corporate Profits and Leverage9. Sources of Earnings per Share Growth10. Sources of Total Return11. Equity Performance in Bull Markets12. Interest Rates and Equities13. Deploying Corporate Cash

41. Emerging Market Debt

42. Global Equity Markets43. Global Economic Growth44. Manufacturing Momentum45. Sovereign Debt Stresses

International Page 42

p y g p14. Annual Returns and Intra-year Declines15. Equity Correlations and Volatility16. Stock Market Since 1900

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

g46. Global Monetary Policy47. Europe: Cyclical Headwinds and Tailwinds48. Europe: Unemployment, Inflation and Credit Markets49. Europe: Revenues, Margins and Earnings50. Japan: Economic Snapshot51. International Equity Earnings and Valuations52. Exports, Demographics and Development

Economy Page 17

18. Consumer Finances19. Cyclical Sectors20. Residential Real Estate21. Commercial Real Estate22. Long-term Drivers of Economic Growth23. Federal Finances24. Employment25 Labor Market Perspectives

52. Exports, Demographics and Development53. Emerging Market Currencies54. Emerging Market Diversity55. China: Economic and Credit Growth56. Global Equity Valuations – Developed Markets57. Global Equity Valuations – Emerging Markets

Asset Class Page 5825. Labor Market Perspectives26. Employment and Income by Educational Attainment27. Consumer Price Index28. Trade and the U.S. Dollar29. Energy and the Economy30. Consumer Confidence and the Stock Market

58. Asset Class Returns59. Correlations and Volatility60. Alternative Asset Class Returns61. Fund Flows62. Yield Alternatives: Domestic and Global63. Global Commodities64 Historical Returns by Holding PeriodFixed Income 1

3

31. Fixed Income Sector Returns32. Interest Rates and Inflation33. Fixed Income Yields and Returns34. Sources of Bond Returns35. The Fed and Interest Rates

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

g

S&P 500 Index at Inflection Points

2,200Index level 1,527 1,565 2,018P/E ratio (fwd.) 25.6x 15.2x 15.7xDividend yield 1 1% 1 8% 1 9%

S&P 500 Index

Oct. 31, 2014 P/E (fwd.) = 15.7x

Characteristic Mar-2000 Oct-2007 Oct-2014

1,800

2,000Dividend yield 1.1% 1.8% 1.9% 10-yr. Treasury 6.2% 4.7% 2.3%

Equi

ties

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

P/E (fwd.) 15.7x 2,018

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

1 565

1 200

1,400

1,600 1,527

+101%

1,565

+198%+106%

800

1,000

1,200

-49%

Dec 31 1996

-57%

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14600

800

Source: Standard & Poor’s, First Call, Compustat, FactSet, J.P. Morgan Asset Management.

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

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

777

Dec. 31, 1996 P/E (fwd.) = 16.0x

741 Mar. 9, 2009

P/E (fwd.) = 10.3x 677

4

Dividend yield is calculated as the annualized dividend rate divided by price, as provided by Compustat. Forward Price to Earnings Ratio is a bottom-up calculation based on the most recent S&P 500 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Returns are cumulative and based on S&P 500 Index price movement only, and do not include the reinvestment of dividends. Past performance is not indicative of future returns.

Guide to the Markets – U.S.

Data are as of 10/31/14.

Returns and Valuations by Style

QTD Year to Date Current P/E vs. 20-year avg. P/E

Value Blend Growth Value Blend Growth

e e 14.9 15.7 18.2

Value Blend Growth

rge

Equi

ties

Larg 2.2% 2.4% 2.6%

Larg 10.5% 11.0% 10.7%

Mid 3.4% 3.1% 2.8% Mid 11.9% 10.2% 8.6%

14.0 16.1 21.0

16.4 18.1 19.9

14.2 16.5 21.9

16 2 18 0 20 0

Lar

Mid

Since Market Low (March 2009)Since Market Peak (October 2007)Current P/E as % of 20-year avg. P/E

E.g.: Large Cap Blend stocks are 2.2% cheaper than their historical average.

Smal

l

7.0% 6.6% 6.2%Sm

all

1.9% 1.9% 1.9%16.2 18.0 20.0

14.4 17.3 21.5Smal

l

Value Blend Growth Value Blend Growth

Larg

e

38.4% 50.4% 66.6%

Larg

e

245.2% 236.1% 239.8%

Mid 64.3% 65.4% 64.6% Mid 319.5% 299.2% 280.6%

Value Blend Growth

Larg

e

106.5% 97.8% 86.6%

Mid 115.7% 109.5% 91.1%

Source: Russell Investment Group, Standard & Poor’s, FactSet, J.P. Morgan Asset Management.

M 64.3% 65.4% 64.6% M 319.5% 299.2% 280.6%

Smal

l

44.8% 53.1% 60.8%

Smal

l

258.2% 269.1% 279.5%

M 115.7% 109.5% 91.1%

Smal

l

112.6% 104.1% 93.0%

5

p, , , g gAll calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 – 10/31/14, illustrating market returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 – 10/31/14, 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. P/E ratios reflectlatest available data. Earnings estimates are as of September for Russell Indexes and as of October for Standard & Poor’s.Guide to the Markets – U.S.Data are as of 10/31/14.

Returns and Valuations by Sector

Financia

ls

Technology

Health C

areIndus

trials

Energy

Cons. Disc

r.Cons. S

taples

Teleco

m

Utilitie

s

Materia

ls

S&P 500 In

dexEq

uitie

s S&P Weight 16.4% 19.6% 14.3% 10.4% 9.2% 11.7% 9.6% 2.4% 3.2% 3.3% 100.0%Russell Growth Weight 5.2% 28.2% 14.2% 12.0% 5.3% 18.2% 10.4% 2.3% 0.1% 4.0% 100.0%

Russell Value Weight 29.4% 9.2% 13.7% 10.3% 12.2% 6.2% 7.1% 2.2% 6.4% 3.2% 100.0%

YTD 10.6 16.1 22.9 6.7 0.3 3.0 11.1 8.4 23.1 6.1 11.0

QTD 3.0 1.7 5.4 3.7 -2.9 2.1 3.6 0.9 8.0 -2.5 2.4

Wei

ght

(%)

Since Market Peak (October 2007)

-22.8 72.6 114.4 48.0 27.1 102.7 103.4 28.9 47.0 32.5 50.4

Since Market Low (March 2009)

321.2 261.7 245.6 306.9 132.8 369.2 185.2 146.3 157.2 215.6 236.1

Beta to S&P 500 1.44 1.10 0.70 1.20 1.00 1.13 0.57 0.63 0.50 1.27 1.00 β

Correl to Treas Yields 0 26 0 05 0 12 0 22 0 20 0 08 0 15 0 23 0 42 0 07 0 06 ρR

etur

n

Correl to Treas. Yields 0.26 0.05 -0.12 0.22 0.20 0.08 -0.15 -0.23 -0.42 0.07 0.06 ρ

Forward P/E Ratio 13.3x 15.6x 17.2x 16.0x 14.2x 17.8x 18.4x 13.7x 16.8x 16.0x 15.7x15-yr avg. 12.7x 21.0x 17.4x 17.1x 13.7x 18.6x 18.5x 17.1x 14.0x 16.0x 16.2x

Trailing P/E Ratio 16.1x 18.7x 24.9x 17.4x 13.6x 19.9x 21.6x 10.8x 20.0x 19.0x 18.2x20-yr avg. 16.4x 26.1x 24.1x 20.3x 17.2x 19.2x 21.3x 19.9x 14.9x 19.5x 19.5x

Dividend Yield 1.7% 1.5% 1.5% 2.1% 2.6% 1.5% 2.7% 4.9% 3.5% 2.1% 2.0%

P/E

iv

Source: Standard & Poor’s, Russell Investment Group, FactSet, J.P. Morgan Asset Management.All calculations are cumulative total return, not annualized, including dividends for the stated period. Since Market Peak represents period 10/9/07 – 10/31/14. Since Market Low represents period 3/9/09 – 10/31/14. Correlation to Treasury Yields are trailing 2-year monthly correlations between S&P 500 sector price returns and 10-year Treasury yield movements. 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

20-yr avg. 2.1% 0.7% 1.4% 1.7% 1.7% 0.9% 2.1% 4.2% 4.3% 2.1% 1.7% Di

6

Note that P/E ratios for the S&P 500 may differ from estimates elsewhere in this book due to the use of a bottom up calculation of constituent earnings (as described) rather than a top-down calculation. This methodology is used to allow proper comparison of sector level data to broad index level data. Dividend yields are bottom-up values defined as the annualized value of the most recent cash dividend as a percent of month-end price. Beta calculations are based on 10 years of monthly price returns for the S&P 500 and its sub-indices. Beta’s are calculated on a monthly frequency over the past 10-years. Past performance is not indicative of future returns.

Guide to the Markets – U.S.Data are as of 10/31/14.

Stock Valuation Measures: S&P 500 Index

U.S. Equity: Valuation Measures Historical AveragesValuation Measure Description

Latest 1-year ago

5-year avg.

10-year avg.

25-year avg.*

Equi

ties P/E Price to Earnings 15.7x 14.8x 13.4x 13.8x 15.6x

CAPE Shiller's P/E 26.4 25.1 22.2 22.9 25.2Div. Yield Dividend Yield 1.9% 1.9% 2.0% 2.0% 2.1%REY Real Earnings Yield 3.7% 3.7% 4.3% 3.3% 2.3%P/B Price to Book 2.8 2.6 2.3 2.4 2.9

26x 14%S&P 500 Earnings Yield vs. Baa Bond YieldS&P 500 Index: Forward P/E Ratio

P/B Price to Book 2.8 2.6 2.3 2.4 2.9P/CF Price to Cash Flow 11.1 10.7 9.2 9.7 11.3EY Spread EY Minus Baa Yield 1.7% 1.6% 2.1% 1.3% -0.7%

16x

18x

20x

22x

24x

8%

10%

12%S&P 500 Earnings Yield

(Inverse of fwd. P/E): 6.4%

Current: 15.7x

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

10x

12x

14x

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

4%

6%

Moody’s Baa Yield: 4.7%

Source: Standard & Poor’s, FactSet, Robert Shiller Data, FRB, J.P. Morgan Asset Management. Price to Earnings is price divided by consensus analyst estimates of earnings

Average: 15.6x

7

per share for the next 12 months. Shiller’s P/E uses trailing 10-years of inflation adjusted earnings as reported by companies. Dividend Yield is calculated as the trailing 12-month average dividend divided by price. Real Earnings Yield is defined as (trailing four quarters of reported earnings/price) - year over year core CPI inflation. Price to Book Ratio is the price divided by book value per share. Price to Cash Flow is price divided by NTM cash flow. EY Minus Baa Yield is the forward earnings yield (consensus analyst estimates of EPS over the next 12 months divided by price) minus the Moody’s Baa seasoned corporate bond yield. *P/CF is a 20-year avg. due to cash flow data availability.

Guide to the Markets – U.S. Data are as of 10/31/2014.

Corporate Profits and Leverage

$3110%

12%S&P 500 Earnings Per ShareOperating basis, quarterly

Profit Margins

S&P 500 Operating EPS % of Sales per Share3Q14*: $29.74

3Q14*:10.0%

$23

$27

4%

6%

8%

10%

Equi

ties

p g p

2Q14:8.7%

3Q14 : $29.74

2Q07: $24.06

After Tax Adj Corp Profits % of GDP

$15

$190%

2%

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

Total Leverage

After-Tax, Adj. Corp. Profits, % of GDP

$7

$11

180%

200%

220%

240%S&P 500, ratio of total debt to total equity, quarterly

-$1

$3

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 80%

100%

120%

140%

160%

3Q14: 101%

Average: 169%

8

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

Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. *Most recently available data is 2Q14 as 3Q14 is a Standard & Poor’s preliminary estimate. Past performance is not indicative of future returns.



'96 '98 '00 '02 '04 '06 '08 '10 '12 '1480%

Sources of Earnings per Share Growth

50%

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

Share of EPS Growth 3Q14

20%

30%

40%

Equi

ties Share of EPS Growth 3Q14

Margin 3.6%Revenue 7.5%Share count 0.1%

0%

10%

20%

30%

-20%

-10%

-50%

-40%

-30%

3Q143Q123Q103Q083Q063Q043Q023Q003Q983Q963Q94

9

Source: Standard & Poor’s, Compustat, J.P. Morgan Asset Management.EPS levels are based on operating earnings per share. Past performance is not indicative of future returns. 4Q2008, 1Q2010 and 2Q2010 reflect -101%, 92% and 51% growth in operating earnings, and are adjusted on the chart.



Sources of Total Return

S&P 500 Year-Over-Year Total ReturnTotal return broken into multiples, earnings and dividends, quarterly50%

Equi

ties

20%

30%

40%

0%

10%

20%

Share of Total Return 3Q14 -30%

-20%

-10%

QMultiples 7.7%Earnings 9.6%Dividends 2.4%

-50%

-40%

30%

3Q143Q123Q103Q083Q063Q043Q023Q003Q983Q963Q94

10

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



Equity Performance in Bull Markets

300%% of days during bull markets the S&P 500 is at and near record highs

1991-2000

S&P 500 Performance and Average Valuation S&P 500 Levels Near Market HighsPrice returns to peak after crossing average real earnings yield

Returns to peak price after average valuation 83% 84%90%

0%

240%

2002-20072009-Today

Equi

ties Returns before markets pass average valuation

*

“Average valuation” is defined as the average real earnings yield of the S&P 500 from 1963 until today

78%

60%

70%

80%

49%

83%180%

500 from 1963 until today

36%40%

40%

50%

60%

16%

30%

4%

0%

60%

120%

13%

33%

11%

16%20%

30%

29% 49% 73% 121% 59% 180% 101% 198%

15%

0%'66 '70 '74 '82 '87 '90 '02 '09

Start of Bull Market Percent of days during a Bull Market t t d hi h ithi 1% 5% f th d hi h

13% 11%

0%

10%

New High Within 1% Within 5%

11

Source: Standard & Poor’s, J.P. Morgan Asset Management. Valuations are based on real earnings yield for the S&P 500 which is defined as (trailing four quarters of reported earnings/price) - year over year core CPI inflation. Period after average valuation defined by 15-day moving average passing below average real earnings yield. *As depicted on the left hand chart, the return to peak price for the current bull market is 0% as the S&P 500 has yet to cross its long run average real earnings yield. The S&P 500 would need to appreciate over 26% to reach its long-term average real earnings yield of 2.5%.Guide to the Markets – U.S. Data as of 10/31/2014

spent at record highs, or within a 1% or 5% range of the record high

Interest Rates and Equities

0.8

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

When yields are

0.4

0.6

Equi

ties

Positive relationship between yield movements and stock

When yields are below 5%, rising rates are generally associated with rising stock prices

Last 12 Months1963 12 Months Ago

Graph Key

0

0.2returns

on C

oeffi

cien

t

-0.4

-0.2

Negative relationship between yield movements and

Cor

rela

ti

-0.8

-0.6

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

movements and stock returns

12

Source: Standard & Poor’s, U.S. Treasury, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Markers represent monthly 2-year correlations only. Guide to the Markets – U.S.Data are as of 10/31/14.

10-Year Treasury Yield

Deploying Corporate Cash

$1 400

$1,600

$1 600

$1,700

30%

32%

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

Corporate Growth

Capital Expenditures M&A Activity $bn, nonfarm nonfinancial capex, quarterly value of deals completed

$600

$800

$1,000

$1,200

$1,400

$1,200

$1,300

$1,400

$1,500

$1,600

20%

22%

24%

26%

28%

30%

Equi

ties

$0

$200

$400

$900

$1,000

$1,100

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1414%

16%

18%

Cash Returned to ShareholdersDividend Payout Ratio

50%

60%

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

Dividends per Share

$100

$120

$140

$160

$30

$33

$36

20%

30%

40%

Share Buybacks

$20

$40

$60

$80

$100

$15

$18

$21

$24

$27

13

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1420%

Source: Standard & Poor’s, FRB, Bloomberg, FactSet, J.P. Morgan Securities, J.P. Morgan Asset Management. (Top left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Top right) M&A activity is the quarterly value of officially agreed transactions and capital expenditures are for nonfarm nonfinancial corporate business. (Bottom left) Standard & Poor’s, FactSet, J.P. Morgan Asset Management. (Bottom right) Standard & Poor’s, Compustat, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of 10/31/14.

$20$15'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Annual Returns and Intra-year Declines

3431

40%

S&P 500 Intra-year Declines vs. Calendar Year ReturnsDespite average intra-year drops of 14.2%, annual returns positive in 26 of 34 years*

YTD 2014

26

1517

26

1512

27 26

7

20

3127

20

26

914

23

13 13

30

910%

20%

30%

Equi

ties

-10

1 2

-7

47

-2

-1013

3 4

0

-7

13

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

-3

-8-11 -12

-8 -7 -8-10 -10

-6 -7-10%

%

10%

-13

-23

-38

-17 -18 -17-13

-34

-20 -19

-12

-17

-30-34

-14

-28

-16-19

-40%

-30%

-20%

-38

-49

-60%

-50%

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

14

Source: Standard & Poor’s, FactSet, J.P. Morgan Asset Management.Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a trough during the year. For illustrative purposes only. *Returns shown are calendar year returns from 1980 to 2013 excluding 2014 which is year-to-date.Guide to the Markets – U.S.Data are as of 10/31/14.

Equity Correlations and Volatility

60%

70%

Large Cap StocksCorrelations Among Stocks

Sovereign Debt Crisis

Lehman Bankruptcy

Great Depression /World War II

30%

40%

50%

60%

Equi

ties Bankruptcy

Tech Bust & 9/11

1987 CrashWorld War II

OPEC Oil Crisis

Cuban Missile Crisis

0%

10%

20%

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

Daily Volatility of DJIA

Average: 26.9% Sep. 2014: 32.5%

2 0%

2.5%

3.0%

3.5%

60

75

90Volatility Measure ’08 Peak Average Latest DJIA (Left) 3.30% 0.71% 0.59%VIX (Right) 80.9 20.0 14.0

Daily Volatility of DJIA

DJIA vol. shownin 3-month

moving average

0.5%

1.0%

1.5%

2.0%

15

30

45

15

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

Source: (Top) Empirical Research Partners LLC, Standard & Poor’s, J.P. Morgan Asset Management. Capitalization weighted correlation of top 750 stocks by market capitalization, daily returns, 1926 – Sep. 1, 2014. (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. Guide to the Markets – U.S. Data are as of 10/31/14.

Stock Market Since 1900

S&P Composite Index

Log Scale

2000 – present

1,000

300

2000 present

Equi

ties

100

40

1966 – 1974

40

101900 – 1924

1937 – 1948

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

16

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



Economic Growth and the Composition of GDP

$1810%

Real GDP Year-over-year % chg

3Q14

Components of GDP3Q14 nominal GDP, trillions USD

3.2% HousingReal GDP

$

$14

$16

$

6%

8%

my

3Q14YoY % chg: 2.4% 13.1% Investment Ex-housing

18.3% Gov’t SpendingAverage:

QoQ % chg: 3.5%

Real GDP

$8

$10

$12

2%

4%

Econ

om 3.0%

$2

$4

$6

-2%

0% 68.2% Consumption

Expansion Average:

2.2%

-$2

$0

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

-4%

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

Values may not sum to 100% due to rounding Quarter over quarter percent changes are at an annualized rate Average represents the annualized growth rate for the

- 2.8% Net Exports

17

Values may not sum to 100% due to rounding. Quarter over quarter percent changes are at an annualized rate. Average represents the annualized growth rate for the full period. Expansion average refers to the period starting in the second quarter of 2009.



Consumer Finances

14%$100

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

4Q07:13 2%

Consumer Balance Sheet2Q14, Trillions of dollars outstanding, not seasonally adjusted

Total Assets: $95.4tn 3Q-’07 Peak: $72.3tn$

11%

12%

13%

$80

$90

my

1Q80: 10.6%

13.2%Total Assets: $95.4tn

Homes: 24%

1Q-’09 Low: $62.6tn

9%

10%

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

$50

$60

$70

Econ

om 3Q14*:9.9%

Household Net WorthBillions USD, not seasonally adjusted 3Q14*:

Deposits: 9%

Pension Funds: 21%

Other Tangible: 6%

$20

$30

$40

$50,000

$60,000

$70,000

$80,000

$90,000y j

$82,1122Q07:

$67,927

Other Financial

Other Non-revolving: 2%Revolving (e.g.: credit cards): 6%

Auto Loans: 7%Other Liabilities: 10%

Student Debt: 8%

$0

$10

$20

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

$20,000

$30,000

$40,000Total Liabilities: $13.9tnOther Financial

Assets: 40%

Mortgages: 67%

18

Source: (Left) FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *3Q14 household debt service ratio and 3Q14 household net worth are J.P. Morgan Asset Management estimates. Values may not sum to 100% due to rounding.Guide to the Markets – U.S.Data are as of 10/31/14.

Cyclical Sectors

22

24Millions, seasonally adjusted annual rateLight Vehicle Sales

46

47

Manufacturing and Trade InventoriesDays of sales, seasonally adjusted

14

16

18

20

22

my Average: 15.3

Sep. 2014:16.3

40

4142

4344

45

Aug. 2014: 39.2

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

10

12

Econ

om

Real Capital Goods OrdersN d f it l d d i ft $ b ll dj t d

Housing StartsTh d ll dj t d l t

'96 '98 '00 '02 '04 '06 '08 '10 '12 '143738

3940

$60

$65

$70

$75

1 200

1,600

2,000

2,400Non-defense capital goods orders ex. aircraft, $ bn, seasonally adjusted Thousands, seasonally adjusted annual rate

Sep. 2014:61.7

Average: 1 348

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14$40

$45

$50

$55

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

400

800

1,200

Sep. 2014:1,017

Average: 56.8

Average: 1,348

19

96 98 00 02 04 06 08 10 12 14Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau,FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management. Capital goods orders deflated using the producer price index for capital goods with a base year of 2004.Guide to the Markets – U.S.


Residential Real Estate

40%

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

125

Indexed to 100, seasonally adjustedHome Prices

Case Shiller 20-city

20%

25%

30%

35%

my

Sep. 2014: 12.2%

Average: 20 3%110

115

120

Case Shiller 20-cityFHFA Purchase OnlyAverage Existing Home

10%

15%

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

om

Average: 20.3%

100

105

110

Home InventoriesMilli l t ll dj t d

3 0

3.5

4.0

4.5

85

90

95Millions, annual rate, seasonally adjusted

Sep. 2014: 2.4

1.5

2.0

2.5

3.0

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14'05 '06 '07 '08 '09 '10 '11 '12 '13 '1475

80

85

20

Sources: (Left) National Association of Realtors, Standard & Poor’s, FHFA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, J.P. Morgan Asset Management. Monthly mortgage payment assumes the prevailing 30-year fixed-rate mortgage rates and average new home prices excluding a 20% down payment. (Bottom right) Census Bureau, National Association of Realtors, J.P. Morgan Asset Management.



Commercial Real Estate

Commercial Vacancy Rates by SectorPercent at year end

Cap. Rates, REIT Div. Yields & Treasury Yields

Aug. 2014: Sector 2013

Cap. Rates25%8%

10%

6.67%

my

Sector 2013 Office 16.7%Retail 10.1%Industrial 9.5%Apartment 4.2%

Aug. 2014: 3.98%

REIT Div. Yield


20%4%

6%

8%

Commercial Mortgage-Backed Security Issuance$

Aug. 2014: 2.35%

Econ

om

15%0%

2%

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

$ bn, quarterlyU.S. IssuanceForeign Issuance

5%

10%

80

100

120

0%

5%

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

20

40

60

'01 '02 '03 '04 '0 '06 '0 '08 '09 '10 '11 '12 '13 '14

21

Source: Reis, Inc., PREA, FactSet, J.P. Morgan Asset Management. Cap rate is the rate of return on a real estate investment property based on the expected return that the property will generate. It is calculated by dividing annual income by the total value of the property. Cap rate is for U.S. core properties limited to deal transactions of $2.5 million or greater. Vacancy rate data provided by Reis, Inc. Guide to the Markets – U.S.Data are as of 10/31/14.

90 92 94 96 98 00 02 04 06 08 10 12 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Long-term Drivers of Economic Growth

5%16%Five year moving average of year-over-year % change

Gross Investment and DepreciationPrivate nonresidential fixed investment, % of GDP

Gross investment spending Depreciation

Growth in Employment and Real Output Per Worker*

A th

4%

%

8%

12%

my

Average growth50 yr. 10 yr. 5 yr.

Employment 1.5% 0.5% 1.0%

Real Output Per Worker 1.5% 1.1% 1.3%

GDP 3.0% 1.6% 2.3%

2%

3%

0%

4%

1990 1995 2000 2005 2010Econ

om

Real Capital Stock Growth

Real Output Per Worker

1%

3%

4%

5%Nonresidential fixed assets, year-over-year % chg.

2013 JPMAM

Est: 1.4%Employment Growth

-1%

0%

0%

1%

2%

Employment Growth

22

1964 1974 1984 1994 2004 20141990 1995 2000 2005 2010Source: BEA, BLS, FactSet, J.P. Morgan Asset Management.*Labor Force includes the population age 16+ working or looking for work, Real Output Per Worker is calculated as real GDP growth minus civilian employment growth. Averages are calculated as the annualized growth rate.



Federal Finances

-12%

-10%$4.0

The 2014 Federal BudgetCBO Baseline forecast, trillions USD

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

Forecast

-8%

-6%

-4%

-2%

0%

$3.0

$3.5

my

2014: -2.8%

Total Spending: $3.5tnOther

$395bn (11%)

Non defense Disc :

Net Int.: $231bn (7%)

Borrowing:$537bn (15%)

Other: $237bn (7%) 0%

2%

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

$2.0

$2.5

Econ

om

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

Defense:$606bn (17%)

Non-defense Disc.:$527bn (15%)

Social Insurance:$1,024bn (30%)

80%

100%

120%

$1.0

$1.5

y

Social Security:$845bn (24%)

Income:$1,390bn (40%)

Corp.: $274bn (8%)

2024: 77.2%

2014:

20%

40%

60%

'40 '48 '56 '64 '72 '80 '88 '96 '04 '12 '20

$0.0

$0.5

Total Government Spending Sources of Financing

S U S T BEA CBO St L i F d J P M A t M t

Medicare & Medicaid:$908bn (26%)

( )

Forecast

2014: 74.1%

23

Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management.2014 Federal Budget is based on the CBO’s August 2014 Baseline Scenario. Other spending includes, but is not limited to, health insurance subsidies, income security, and federal civilian and military retirement. Note: Years shown are fiscal years (Oct. 1 through Sep. 30). 2014 numbers are CBO estimates as of August 2014.Guide to the Markets – U.S.Data are as of 10/31/14.

Employment

60012%

Civilian Unemployment Rate Employment – Total Private Payroll Seasonally adjusted Total job gain/loss (thousands)

200

400

10%

11%

my 8.8mm

jobs lost

Oct. 2009: 10.0%

-200

0

8%

9%

Econ

om

jobs lost

10.3 mm jobs

gained

-600

-400

5%

6%

7%

Sep. 2014: 5.9%

gained

-1,000

-800

3%

4%

5% 50-yr. avg.: 6.1%

24

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14'70 '80 '90 '00 '10Source: BLS, FactSet, J.P. Morgan Asset Management.



Labor Market Perspectives

6%

7% 68%

Labor Force Participation RateEmployed Part-time for Economic Reasons% of labor force employed part-time for economic reasons

Sep. 2014:4 6%

% of population aged 16+ working or looking for work

2%

3%

4%

5%

6%

64%

65%

66%

67%

my Sep. 2014:

62.7%

4.6%

0%

1%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '1462%

63%

Econ

om

Average Hourly Earnings GrowthYear-over-year % chg for production and nonsupervisory workers

Net Job Creation Since Feb. 2010 – Millions of Jobs

3%

4%

5%

Sep. 2014: 2.3%

Year over year % chg. for production and nonsupervisory workers

3.12.6

2.0 1.8

0 81 mm

2 mm

3 mm

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

1%

2%

S BLS F tS t J P M A t M t

0.8

-0.6

-1 mm

0 mm

Info. Fin & Bus. Svcs.

Mfg. Trade & Trans.

Leisure, Hospt. &

Other Svcs.

Edu. & Health Svcs.

Mining & Construct.

Gov't

25

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



Employment and Income by Educational Attainment

18%

$84 852$90,000

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

Unemployment Rate by Education Level

14%

16%

$84,852

$70,000

$80,000

my

+28K

Less than High School DegreeHigh School No CollegeSome CollegeCollege or Greater

10%

12%$56,665

$50,000

$60,000

Econ

om

+26K

Sep. 2014:5.4%

Sep. 2014:8.4%

4%

6%

8%

$30,627

$20 000

$30,000

$40,000

Sep. 2014:5.3%

0%

2%

4%

92 9 96 98 00 02 0 06 08 10 12 1$0

$10,000

$20,000

Sep. 2014:2.9%

26

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

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

Unemployment rates shown are for civilians aged 25 and older.



Consumer Price Index

15%

CPI and Core CPI50-yr. Avg. Sep. 2014

Headline CPI: 4.2% 1.7%

% change vs. prior year, seasonally adjustedCPI Components

Weight in CPI

12-month change (sa)

Food & Bev. 14.9% 2.9%

12%

my

Core CPI: 4.1% 1.7%Housing 41.4% 2.6%

Apparel 3.4% 0.5%

Transportation 16.4% -0.8%

6%

9%

Econ

om Medical Care 7.6% 2.0%

Recreation 5.8% 0.1%

Edu. & Comm. 7.1% 1.3%

Other 3 4% 1 6%

0%

3%

Other 3.4% 1.6%

Headline CPI 100.0% 1.7%

Less:

Energy 9.0% -0.6%

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

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

Food 13.9% 3.0%

Core CPI 77.1% 1.7%

27

CPI used is CPI-U and values shown are % change vs. one year ago and reflect September 2014 CPI data. CPI component weights are as of December 2013. Core CPI is defined as CPI excluding food and energy prices.



Trade and the U.S. Dollar

115-8%

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

105

110

-6%

4Q05:-6.2%

my

90

95

100

-4%

2Q14: Mar 2009

Econ

om

80

85

-2%

2Q14:-2.3%

Mar. 2009: 84.0 Oct. 2014:

80.8

'96 '98 '00 '02 '04 '06 '08 '10 '12 '1465

70

75

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

0% Mar. 2008: 70.4

28

96 98 00 02 04 06 08 10 12 1496 98 00 02 04 06 08 10 12 14Source: BEA, Federal Reserve, FactSet, J.P. Morgan Asset Management.



Energy and the Economy

30

35 Gbl. Natural Gas PricesJapan $17.17

$Kuwait

%Syria

Middle East Energy Production & Chokepoints Percent of global petroleum production, 2013*

U.S. Natural Gas Production*Trillions of cubic feet, USD EIA

Forecast

10

15

20

25

30Germany $10.40U.S. $3.96

my

Iran3.6%

Iraq3.4%

3.1%Syria0.1%

Suez Canal2.2%

Other**

Shale Gas

0

5

10

1990 1995 2000 2005 2010 2015 2020 2025

Econ

om Libya1.1%

Egypt0.8%

Sudan

Saudi Arabia12.9%

Strait of Hormuz17 0% Consumption of Imports of Liquid Fuels

40%

50%

60%

70%

Sudan0.3%

UAE3.6%

17.0%

Bab el-Mandeb

p p qNet imports of liquid fuels as a percent of total US consumption

EIA Forecast

10%

20%

30%

40%3.4%

Major ProducersPercent of global total, 2013

United States 14% China 5%Saudi Arabia 13% Canada 5%

Major ConsumersPercent of global total, 2013

United States 21% India 4%China 11% Russia 4%

29

0%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Source: (Left) EIA, J.P. Morgan Asset Management. (Top right) EIA, IMF, FactSet, J.P. Morgan Asset Management. (Bottom right) EIA, J.P. Morgan Asset Management. Forecasts are from EIA Annual Energy Outlook and start in 2013. *Production numbers as of 2013, while chokepoints are 2011 data. **Other includes conventional on and offshore natural gas drilling , tight gas, and coalbed methane. Natural gas prices are $/mmbtuand are as of September 2014. Guide to the Markets – U.S. Data are as of 10/31/2014.

Saudi Arabia 13% Canada 5%Russia 12% Iran 4%

China 11% Russia 4%Japan 5% Saudi Arabia 3%

Consumer Confidence and the Stock Market

130Consumer Sentiment Index – University of Michigan

0 8 t10% i i li iImpact on Consumer Sentiment from a…

100

110

120

my

Mar 1984

Jan. 2000-2.0%

Jan. 2004+4.4%

Aug 1972

-0.8 pts+1.9+2.8-5.2

10% y-o-y rise in gasoline prices10% y-o-y rise in home prices10% y-o-y rise in the S&P 5001% y-o-y rise in the unemployment rate

80

90

100

Average: 84.8

Econ

om

Mar. 1984+13.5%

May 1977+1.2%

Aug. 1972-6.2% Jan. 2007

-4.2%Oct. 2014:

86.9

60

70

80

Oct. 1990

Mar. 2003+32.8% Oct. 2005

+14.2%

'72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '1440

50

Feb. 1975+22.2%

May 1980+19.2%

+29.1%Nov. 2008

+22.3%Aug. 2011

+15.4%Sentiment Cycle Low and subsequent 12-month S&P 500 Index return

30

'72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14Source: 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. Impact on consumer sentiment is based on a multivariate monthly regression between 1/31/2000 – 5/31/2014. Guide to the Markets – U.S.


Fixed Income Sector Returns

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD QTD Cum. Ann.

EMD LCL. EMD USD EMD LCL. EMD LCL. Treas. Gbl. HY EMD LCL. TIPS Gbl. HY Gbl. HY EMD USD EMD USD EMD LCL. EMD LCL.

23.0% 10.2% 15.2% 18.1% 13.7% 59.4% 15.7% 13.6% 19.6% 7.3% 9.9% 1.7% 148.3% 9.5%

10-yrs. '04 - '13

Gbl. HY EMD LCL. Gbl. HY TIPS Gbl. Sov. EMD USD Gbl. HY Muni EMD USD Gbl. Corp. Muni EMD LCL. Gbl. HY Gbl. HY

13.2% 6.3% 13.7% 11.6% 9.4% 29.8% 14.8% 12.3% 17.4% 1.8% 8.0% 1.6% 143.6% 9.3%

Gbl. Sov. Gbl. HY EMD USD Gbl. Sov. MBS Gbl. Corp. EMD USD Treas. EMD LCL. Asset Alloc. MBS Barclays Agg EMD USD EMD USD

12.1% 3.6% 9.9% 10.9% 8.3% 23.7% 12.2% 9.8% 16.8% -1.3% 5.2% 1.0% 119.7% 8.2%

EMD USD TIPS Gbl. Corp. Treas. Barclays Agg EMD LCL. Asset Alloc. Barclays

Agg Gbl. Corp. MBS Barclays Agg Treas. Asset Alloc. Asset Alloc.

11 6% 2 8% 8 3% 9 0% 5 2% 22 0% 7 5% 7 8% 12 5% 1 4% 5 1% 1 0% 75 4% 5 8%11.6% 2.8% 8.3% 9.0% 5.2% 22.0% 7.5% 7.8% 12.5% -1.4% 5.1% 1.0% 75.4% 5.8%

Gbl. Corp. Treas. Gbl. Sov. Asset Alloc. Muni Asset Alloc. Gbl. Corp. EMD USD Asset Alloc. Barclays Agg Asset Alloc. MBS Gbl. Corp. Gbl. Corp.

10.0% 2.8% 7.3% 7.2% 1.5% 16.2% 7.0% 7.3% 8.3% -2.0% 4.6% 1.0% 72.2% 5.6%

TIPS Muni Asset Alloc. Barclays Agg Asset Alloc. TIPS Barclays

Agg Asset Alloc. TIPS Muni TIPS TIPS TIPS TIPS

8.5% 2.7% 6.9% 7.0% -1.5% 11.4% 6.5% 6.9% 7.0% -2.2% 4.6% 0.9% 60.6% 4.8%

Asset Alloc MBS MBS MBS TIPS Muni TIPS MBS Muni Treas Treas Asset Alloc Muni Munincom

e

Asset Alloc. MBS MBS MBS TIPS Muni TIPS MBS Muni Treas. Treas. Asset Alloc. Muni Muni

8.2% 2.6% 5.2% 6.9% -2.4% 9.9% 6.3% 6.2% 5.7% -2.7% 4.1% 0.8% 57.5% 4.6%

MBS Barclays Agg Muni EMD USD EMD LCL. Barclays

Agg Gbl. Sov. Gbl. Sov. Barclays Agg Gbl. Sov. Gbl. Corp. Muni MBS MBS

4.7% 2.4% 4.7% 6.2% -5.2% 5.9% 6.1% 5.2% 4.2% -4.9% 3.4% 0.7% 57.0% 4.6%Barclays

AggAsset Alloc. Barclays

AggGbl. Corp. Gbl. Corp. MBS Treas. Gbl. Corp. MBS EMD USD Gbl. HY Gbl. HY Barclays

AggBarclays

Agg4.3% 1.7% 4.3% 6.1% -11.2% 5.9% 5.9% 4.0% 2.6% -5.3% 3.2% 0.6% 56.0% 4.5%

Fixe

d In

4.3% 1.7% 4.3% 6.1% 11.2% 5.9% 5.9% 4.0% 2.6% 5.3% 3.2% 0.6% 56.0% 4.5%

Muni Gbl. Corp. Treas. Muni EMD USD Gbl. Sov. MBS Gbl. HY Treas. TIPS EMD LCL. Gbl. Corp. Treas. Treas.

4.1% -2.7% 3.1% 4.3% -12.0% 4.3% 5.4% 3.1% 2.0% -8.6% 1.6% 0.5% 51.3% 4.2%

Treas. Gbl. Sov. TIPS Gbl. HY Gbl. HY Treas. Muni EMD LCL. Gbl. Sov. EMD LCL. Gbl. Sov. Gbl. Sov. Gbl. Sov. Gbl. Sov.

3.5% -8.8% 0.4% 3.2% -26.9% -3.6% 4.0% -1.8% 1.8% -9.0% -0.4% -0.8% 50.2% 4.1%

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

31

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 unless otherwise noted and are represented by Broad Market: Barclays Capital U.S. Aggregate Index; MBS: Fixed Rate MBS Index; Corporate: Gbl. Corporates; Municipals: Muni Bond 10-Year Index; Emerging Debt USD: J.P. Morgan EMBIG Diversified Index; Emerging Debt LCL: J.P. Morgan EM Global Index; Gbl. High Yield: Global Corporate High Yield Index; Treasuries: Barclays Capital; U.S. Treasury; TIPS: Barclays Capital TIPS; Gbl. Sovereigns: Global Treasury ex U.S.. The “Asset Allocation” portfolioassumes the following weights: 20% in MBS, 20% in Gbl. Corporate,15% in Municipals, 5% in Emerging Debt USD, 5% in Emerging Debt LCL, 10% in Gbl. High Yield, 15% in Treasuries, 5% in TIPS, 5% in Gbl. Sovereigns. Asset allocation portfolio assumes annual rebalancing. Guide to the Markets – U.S. Data are as of 10/31/14.

Interest Rates and Inflation

20%Nominal and Real 10-year Treasury Yields

S 30 1981

15%

Sep. 30, 1981: 15.84%

Average(1958 – 2014 YTD) 10/31/14

Nominal Yields 6.31% 2.35%Real Yields 2.51% 0.61%Inflation 3 80% 1 74%

10%

ncom

e

Nominal 10-year Treasury Yield

Inflation 3.80% 1.74%

5%

Fixe

d In Oct. 31, 2014: 2.35%

Real 10-year Treasury Yield

-5%

0%

Oct. 31, 2014: 0.61%

Treasury Yield

Rising Rate Corp. Bonds S&P 500 1958-1981 3.0% 8.6% Ann. Inflation 5.0% 5.0% Ann. Real Return -2.0% 3.5%

Falling Rate Corp. Bonds S&P 500 1982-2013 9.7% 11.6% Ann. Inflation 3.0% 3.0% Ann. Real Return 6.5% 8.4%

32

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10-5%

Source: Federal Reserve, BLS, J.P. Morgan Asset Management.Real 10-year Treasury yields are calculated as the daily Treasury yield less year-over-year core CPI inflation for that month except for October 2014, where real yields are calculated by subtracting out September 2014 year-over-year core inflation. All returns above reflect annualized total returns, which include reinvestment of dividends. Corporate bond returns are based on a composite index of investment grade bond performance. Guide to the Markets – U.S.Data are as of 10/31/14.

Fixed Income Yields and Returns

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

+1%-1%-2.0%

5.0%

1.0%

5y UST

2y USTUS Treasuries # of issues

Correlation to 10-year

Avg.Maturity 10/31/2014 9/30/2014 QTD YTD

2 Year 94 0 64 2 years 0 50% 0 58% 0 28% 0 77%

Yield Return

-17.3%

-8.4%

-5.8%

-4.7%

22.6%

9.3%

6.8%

30y UST

10y UST

TIPS

5y UST 2-Year 94 0.64 2 years 0.50% 0.58% 0.28% 0.77%

5-Year 96 0.91 5 1.62% 1.78% 0.96% 2.71%

10-Year 17 1.00 10 2.35% 2.52% 1.73% 8.78%

30-Year 20 0.92 30 3.07% 3.21% 3.19% 21.30%

ncom

e

-3.9%

-3.2%

-0.1%

4 2%

3.8%

3.6%

0.1%

S

ABS

Convertibles

Floating Rate

TIPS 35 0.58 10 0.43% 0.55% 0.85% 4.55%

Sector

Broad Market 8,958 0.85 7.7 years 2.24% 2.36% 0.98% 5.12%

MBS 420 0.81 6.9 2.72% 2.88% 0.97% 5.23%

Fixe

d In

-5.7%

-5.7%

-5.6%

-4.3%

7 7%

5.5%

3.8%

5.6%

4.2%

Munis

MBS

US Aggregate

US HY Municipals 9,083 0.46 9.9 2.04% 2.13% 0.74% 8.03%

Corporates 5,145 0.46 10.6 3.03% 3.10% 1.02% 6.68%

High Yield 2,216 -0.24 6.5 5.83% 6.13% 1.19% 4.72%

Floating Rate 48 -0.21 2.9 1.05% 0.98% -0.10% 1.44%

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

-6.7%7.7%

-30% -10% 10% 30%

IG Corps Convertibles 520 -0.30 -- 1.12% 1.14% 0.01% 7.04%

ABS 1,676 -0.04 4.3 2.07% 2.18% 0.83% 3.00%

33

Barclays FRN (BBB); Convertibles: Barclays U.S. Convertibles Composite; ABS: Barclays ABS CMBS. Treasury securities data for # of issues based on U.S. Treasury benchmarks from Barclays Capital. Yield and return information based on bellwethers for Treasury securities. Sector yields reflect yield to worst, while Treasury yields are yield to maturity. Correlations are based on 10-years of monthly returns for all sectors. 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 0.50% to 0.00%,as interest rates can only fall to 0.00%. Chart is for illustrative purposes only. Past performance is not indicative of future results. Guide to the Markets – U.S.Data are as of 10/31/14.

Sources of Bond Returns

Coupon Return2014 YTD “C”

Total Return2014 YTD “A + B + C”

Treasury Base Rate Return2014 YTD “A”

Spread to Treasury Return2014 YTD “B”

2014 YTD1.4%5-yr. 1.3% 2.7% 5-yr.

20136.6%

18.4%

10-yr.

30-yr.

2.2%

2.9%

8.8%

21.3%

10-yr.

30-yr.

ncom

e

4.5%

-2.6%

10-yr. Muni

U.S. HY

EM (USD)

1.6%

2 9%

3.6%

5.7%

4 7%

8.0%

4.7%

7 9%

10-yr. Muni

U.S. HY

EM (USD)

Fixe

d In 0.3%

2.8%

1.7%

EM (USD)

IG Corp.

U.S. MBS

2.9%

0.4%

0.4%

4.7%

3.5%

3.1%

7.9%

6.7%

5.2%

EM (USD)

IG Corp.

U.S. MBS

2.1%

-1.1%

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

U.S. Agg.

FRN (BBB)

0.4%

1.5%

-20% -10% 0% 10%

2.6%

1.1%

-20% -10% 0% 10%

5.1%

1.4%

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

U.S. Agg.

FRN (BBB)

34

Source: Federal Reserve, Barclays, J.P. Morgan Asset Management.All returns reflect year to date returns. Treasury base, spread, and coupon returns based on Barclays and J.P. Morgan Asset Management estimates. The sum of charts A and B equate to price return for each sector. Indices used include Barclays US Treasury Bellwethers (10Y), Barclays US Aggregate, Barclays US Aggregate Credit – Corporate Investment Grade, Barclays US Aggregate Credit – Corporate High Yield, Barclays Muni 10-year Index, Barclays US MBS Index, Barclays Floating Rate Index, and Barclays Emerging Markets USD. Guide to the Markets – U.S. Data are as of 10/31/14.

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

The Fed and Interest Rates

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

Fed’s Balance Sheet: Assets$ trillions

Oth

4% Oct. 2014: 2 3%$4 0

$4.5

OtherU.S. TreasuriesAgency MBS

1%

2%

3%

Average: 1.6%

2.3%

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Fed’s Balance Sheet: Liabilities$ t illinc

ome

Federal Reserve Summary of Economic Projections

'85 '90 '95 '00 '05 '10 '15-1%

0%

$0.0

$0.5

$1.0

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

$2.5$3.0$3.5$4.0$4.5$ trillions

Fixe

d In

Other LiabilitiesExcess Reserves

Required Reserves

Fed's September 2014 Forecasts* Percent

2014 2015 2016 2017 Long Run

Change in real GDP, Q4 to Q4 2.2 2.8 2.8 2.4 2.2

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14$0.0$0.5$1.0$1.5$2.0

g

Unemployment Rate, Q4 6.0 5.5 5.3 5.1 5.4

PCE Inflation, Q4 to Q4 1.6 1.8 1.9 2.0 2.0

Federal Funds Rate, end of year 0.25 1.38 2.88 3.75 3.75

35

05 06 07 08 09 10 11 12 13 14Source: 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. Other liabilities of the Federal Reserve primarily consist of currency outstanding. *Forecasts of 17 FOMC participants, midpoints of central tendency except for federal funds rate which is a median estimate. Guide to the Markets – U.S.


Owners of Treasury Securities

1 200

Net Purchases of Treasuries – Year Ended 2Q14Billions of dollars

Treasuries Outstanding – 2Q14Billions of dollars, end of period, not seasonally adjusted

Total Outstanding Treasury Securities: $12,544

800

1,000

1,200

State and local gov'ts

7%

Financial institutions

6%

Other1%

PensionsFinancial institutions

Other*

Foreign private

T t l t h $690

200

400

600Foreign official32%

Mutual funds9%

Households 7%

ncom

e

Federal Reserve

Total net purchases: $690

Foreign official

-200

0

200

Federal Reserve19%

Foreign private15%

Federal Reserve Balance

Fixe

d In

Mutual funds

Households

-600

-400< 3 yrs: 20%3-5 yrs: 29%

5-10 yrs: 27%> 10 yrs: 24%

Federal Reserve Balance Sheet by Treasury Maturity

S F d l R J P M A t M t

State and local gov’ts*

36

Source: Federal Reserve, J.P. Morgan Asset Management.Treasuries outstanding include total issues of Treasury securities plus budget agency securities and federal mortgage borrowing. “Other” includes Nonfinancial corporate business, Nonfinancial noncorporate business, Issuers of asset-backed securities and Holding companies. Net Purchases is the average of the annual rates over the past four quarters. *Other had net inflows of $6.6 billion and State and local gov’ts had net outflows of $4.9 billion.



Credit Conditions

14%

Common Equity as a % of Total AssetsAll FDIC insured institutions, 1934 – 2013

2013:12%

Residential Mortgages

Delinquency RatesAll banks, seasonally adjusted

8%

10%

12% 11.1%

Average: 7.7%4%

6%

8%

10% Consumer LoansResidential Mortgages

Commercial and Industrial Loans

7.4%

2 3%

4%

6%

'34 '41 '48 '55 '62 '69 '76 '83 '90 '97 '04 '11 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '140%

2%

ncom

e

0.8%

2.3%

Lending Standards for Approved Mortgage LoansA FICO b d i i ti d t

Loan GrowthYoY gro th in loans o tstanding at commercial banks seasonall adj sted

720

740

760

0%

10%

20%

30%

Fixe

d In Average FICO score based on origination date

Oct. 2014: 742

YoY growth in loans outstanding at commercial banks, seasonally adjustedReal Estate Loans

Oct. 2014:12.1%

660

680

700

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14-30%

-20%

-10%

0%

Commercial and Industrial LoansOct. 2014:

3.1%

37

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14Source: (Top left) FDIC, 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) McDash, J.P. Morgan Securitized Product Research, J.P. Morgan Asset Management. All data reflect most recently available releases. Guide to the Markets – U.S.Data are as of 10/31/14.

High Yield Bonds

15%

20%Average Latest

HY Spreads 5.9% 4.9%HY Defaults Rates 4.0% 1.9%

High Yield Spreads and Defaults

HY D f lt R tHY Spreads

5%

10%

15% HY Default Rates

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

ncom

e

Historical High Yield Recovery RatesHigh yield bonds, cents on the dollar

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

$30

$60

$90

40¢

50¢

60¢

70¢

Fixe

d In

g y e d bo ds, ce ts o t e do a

Average: 41.3¢

,YTD 2014: -$20.7bn

High YieldLeveraged Loans

-$30

$0

$30

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

10¢

20¢

30¢

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

38

Source: (Top chart): U.S. Treasury, J.P. Morgan, Strategic Insight, J.P. Morgan Asset Management. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. (Bottom left): J.P Morgan, Fitch, J.P. Morgan Asset Management. (Bottom right): Strategic Insight, J.P. Morgan Asset Management. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. 2014 recovery rate is a weighted average number as of October 2014. 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. Flows include ETFs and are as of September 2014. Past performance is not indicative of comparable future results. Guide to the Markets – U.S.Data are as of 10/31/14.

Municipal Finance

9%

10%12%

State & Local Government Debt Service% of current expenditures

10-Year Muni Taxable Equivalent Yield

3Q14: 7.9%Taxable equivalent Muni and Treasury yields

5%

6%

7%

8%

10%

Taxable Equivalent 10-Yr Muni Yield

3%

4%

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

6%

8%

ncom

e

Municipal Bond Issuance*Billions USD, revenue and GO issues

4%

Fixe

d In

o s US , e e ue a d GO ssues


$300

$400

$500

0%

2%

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

Spread

$0

$100

$200

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

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.Taxable equivalent yields are calculated for the highest federal marginal tax bracket. 2014 tax rate includes the net investment income tax of 3.8%. *Excludes maturities of 13 months or less and private placements. Interest payments include interest accrued on defined benefit liabilities. 2014 issuance data is as of September 2014. Guide to the Markets – U.S.Data are as of 10/31/14.

Global Fixed Income

$100

Global Bond MarketUSD, trillions

EM: $14tn

Yield

Aggregates Correl to 10-year Duration 10/31/2014 9/30/2014 QTD YTD

Return

$70

$80

$90 12/31/89 3/31/14 U.S. 60.7% 37.6%Dev. ex U.S. 38.2% 48.1%EM 1.1% 14.2%

10 year

U.S. 0.83 5.6 Yrs 2.24% 2.36% 0.98% 5.12%

Gbl. ex. U.S. 0.38 6.9 1.42% 1.46% -0.51% -0.10%

Japan 0.52 8.1 0.48% 0.52% -1.65% -3.72%

$50

$60

ncom

e Developed ex U.S.: $48tn

Germany 0.26 5.9 0.73% 0.76% -0.26% -2.12%

U.K. 0.17 9.0 2.25% 2.36% -0.05% 4.14%

Italy 0.07 6.4 1.76% 1.67% -1.10% 1.56%

$20

$30

$40

Fixe

d In

U S $3

Spain 0.10 5.7 1.39% 1.32% -0.64% 1.94%

Sector

EMD ($) 0.19 7.0 5.21% 5.39% 1.68% 9.84%

EMD (LCL) 0 07 4 8 6 46% 6 74% 2 32% 2 32%

$0

$10

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14Source: Barclays Capital, BIS, FactSet, J.P. Morgan Asset Management. Fixed income sectors shown above are provided by Barclays Capital and are represented by the global

U.S.: $37tn EMD (LCL) 0.07 4.8 6.46% 6.74% 2.32% 2.32%

Euro Corp. 0.09 4.8 1.17% 1.20% 0.27% -1.89%

Euro HY. -0.40 3.9 4.69% 4.58% -0.31% -3.15%

40

aggregate for each country except where noted. EMD sectors are represented by the J.P. Morgan EMBIG Diversified Index (USD) and the J.P. Morgan GBI EM Global Diversified Index (LCL). European Corporates are represented by the Barclays Euro Aggregate Corporate Index and the Barclays Pan-European High Yield index and returns are in USD. Sector yields reflect yield to worst. Duration is modified duration. Correlations are based on 7-years of monthly returns for the all sectors. Past performance is not indicative of future results. Guide to the Markets – U.S. Data are as of 10/31/14.

Emerging Market Debt

10%

12%

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

Index Breakdown – USD Denominated EMD

Index AverageSpread

Spread(10/31/14)

Middle East & Africa 13%

Middle East & Africa 21%100%

4%

6%

8%

10%EMBIG 3.8% 3.3%CEMBI 3.3% 3.3%

Asia 38%

Europe 32%Europe 13%

Latin America36% Latin America

29%

20%

40%

60%

80%

0%

2%

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

ncom

e

Annual Flows into EMD Mutual Funds & ETFsBillions USD

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

Asia 20%Asia 38%

0%

20%

Sovereigns(EMBIG)

Corporates(CEMBI)

$15

$20

$25

$30

Fixe

d In

g y g

Oct. 2014: BBB-BB+

BBB-

BB

BB- YTD 2014:

'93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-$5

$0

$5

$10

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

B-

B

B+$0.4 bn

41

Source: J.P. Morgan, Morgan Markets, FactSet, Strategic Insight, J.P. Morgan Asset Management. Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate Emerging Bond Index Broad (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. Flow data is as of September 2014. Past performance is not indicative of comparable future results. Index breakdown may not equate to 100% due to rounding.Guide to the Markets – U.S.Data are as of 10/31/14.

Global Equity Markets

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

Country / Region

QTD YTD 2014

Local USD Local USD

United States50%

Europe ex-U.K.16%

U.K. 8%

EmergingMarkets

%

Regions / Broad IndexesU.S. (S&P 500) - 2.4 - 11.0

EAFE -0.3 -1.4 4.2 -2.4

Europe ex U K 1 8 2 8 5 3 4 311%

Japan7%

Can

ada

4%

Global Equity Market Correlations

Europe ex-U.K. -1.8 -2.8 5.3 -4.3

Pacif ic ex-Japan 4.6 4.8 7.4 6.0

Emerging Markets 1.4 1.2 7.0 4.0

MSCI: Selected Countries

0 50

0.60

0.70

0.80

0.90

onal

Rolling 1-year correlations, 30 countriesUnited Kingdom -1.0 -2.3 -0.1 -3.5

France -3.6 -4.4 1.6 -7.6

Germany -1.2 -2.0 -2.4 -11.2

Japan 0.9 -1.3 3.8 -2.6

0.00

0.10

0.20

0.30

0.40

0.50

Inte

rnat

io

Oct. 2014: 0.36

p

China 4.2 4.3 5.4 5.4

India 3.3 4.0 28.7 29.6

Brazil 0.7 0.5 5.8 1.8

Russia 4 7 -2 0 -2 2 -21 1

42

'95 '97 '99 '01 '03 '05 '07 '09 '11 '13Source: Standard & Poor’s, MSCI, FactSet, J.P. Morgan Asset Management.All return values are MSCI Gross Index (official) data. Chart is for illustrative purposes only. Past performance is not indicative of future results. Please see disclosure page for index definitions. Countries included in global correlations include Argentina, South Africa, Japan, UK, Canada, France, Germany, Italy, Australia, Austria, Brazil, China, Colombia, Denmark, Finland, Hong Kong, India, Malaysia, Mexico, Netherlands, New Zealand, Peru, Philippines, Portugal, Korea, Spain, Taiwan, Thailand, Turkey, United States. Guide to the Markets – U.S. Data as of 10/31/14.

Russia 4.7 -2.0 -2.2 -21.1

Global Economic Growth

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

3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Historical*

2Q15

JPMSI Forecast

8%

10%

%

2%

4%

6%

8%

Developed Market Country Real GDP GrowthHi t i l* JPMSI F t

-4%

-2%

0%

Emerging Markets China India Korea Mexico South Africa Russia Brazil

Year-over-year % chg. – forecasts from JPMSIp y

onal

3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

Historical*

2Q15

JPMSI Forecast

4%

6%

8%

10%

Inte

rnat

i

-4%

-2%

0%

2%

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

43

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

Forecast and aggregate data come from J.P. Morgan Global Economic Research. Historical growth data collected from FactSet Economics. *All countries have data through 2Q14, except for China, Korea, the U.K. and the U.S., which have data through 3Q. Guide to the Markets – U.S.


pCountries

y p y

Manufacturing Momentum

Global Purchasing Managers’ Index for Manufacturing

Nov

'12

Dec

'12

Jan'

13

Feb'

13

Mar

'13

Apr

'13

May

'13

Jun'

13

Jul'1

3

Aug

'13

Sep'

13

Oct

'13

Nov

'13

Dec

'13

Jan'

14

Feb'

14

Mar

'14

Apr

'14

May

'14

Jun'

14

Jul'1

4

Aug

'14

Sep'

14

Oct

'14

N D J F M A M J A S N D J F M A M J A S

Global 49.7 50.1 51.4 50.8 51.0 50.1 50.4 50.4 50.6 51.5 51.7 51.9 52.9 52.9 53.0 53.2 52.4 51.9 52.1 52.6 52.4 52.5 52.2 52.6U.S. 52.8 54.0 55.8 54.3 54.6 52.1 52.3 51.9 53.7 53.1 52.8 51.8 54.7 55.0 53.7 57.1 55.5 55.4 56.4 57.3 55.8 57.9 57.5 55.9Canada 50.4 50.4 50.5 51.7 49.3 50.1 53.2 52.4 52.0 52.1 54.2 55.6 55.3 53.5 51.7 52.9 53.3 52.9 52.2 53.5 54.3 54.8 53.5 55.3U.K. 48.2 50.7 51.0 48.2 50.1 50.4 51.9 52.4 54.5 58.1 56.9 56.2 58.1 57.1 56.6 56.6 55.5 56.9 56.4 56.7 54.8 52.6 51.5 53.2Euro Area 46.2 46.1 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 54.0 53.2 53.0 53.4 52.2 51.8 51.8 50.7 50.3 50.6Germany 46.8 46.0 49.8 50.3 49.0 48.1 49.4 48.6 50.7 51.8 51.1 51.7 52.7 54.3 56.5 54.8 53.7 54.1 52.3 52.0 52.4 51.4 49.9 51.4France 44.5 44.6 42.9 43.9 44.0 44.4 46.4 48.4 49.7 49.7 49.8 49.1 48.4 47.0 49.3 49.7 52.1 51.2 49.6 48.2 47.8 46.9 48.8 48.5Italy 45.1 46.7 47.8 45.8 44.5 45.5 47.3 49.1 50.4 51.3 50.8 50.7 51.4 53.3 53.1 52.3 52.4 54.0 53.2 52.6 51.9 49.8 50.7 49.0Spain 45.3 44.6 46.1 46.8 44.2 44.7 48.1 50.0 49.8 51.1 50.7 50.9 48.6 50.8 52.2 52.5 52.8 52.7 52.9 54.6 53.9 52.8 52.6 52.6Greece 41.8 41.4 41.7 43.0 42.1 45.0 45.3 45.4 47.0 48.7 47.5 47.3 49.2 49.6 51.2 51.3 49.7 51.1 51.0 49.4 48.7 50.1 48.4 48.8Ireland 52.4 51.4 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 52.8 52.9 55.5 56.1 55.0 55.3 55.4 57.3 55.7 56.6

onal

Ireland 52.4 51.4 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 52.8 52.9 55.5 56.1 55.0 55.3 55.4 57.3 55.7 56.6Australia 44.3 44.3 40.2 45.6 44.4 36.7 43.8 49.6 42.0 46.4 51.7 53.2 47.7 47.6 46.7 48.6 47.9 44.8 49.2 48.9 50.7 47.3 46.5 49.4Japan 46.5 45.0 47.7 48.5 50.4 51.1 51.5 52.3 50.7 52.2 52.5 54.2 55.1 55.2 56.6 55.5 53.9 49.4 49.9 51.5 50.5 52.2 51.7 52.8China 50.5 51.5 52.3 50.4 51.6 50.4 49.2 48.2 47.7 50.1 50.2 50.9 50.8 50.5 49.5 48.5 48.0 48.1 49.4 50.7 51.7 50.2 50.2 50.4Indonesia 51.5 50.7 49.7 50.5 51.3 51.7 51.6 51.0 50.7 48.5 50.2 50.9 50.3 50.9 51.0 50.5 50.1 51.1 52.4 52.7 52.7 49.5 50.7 49.2Korea 48.2 50.1 49.9 50.9 52.0 52.6 51.1 49.4 47.2 47.5 49.7 50.2 50.4 50.8 50.9 49.8 50.4 50.2 49.5 48.4 49.3 50.3 48.8 48.7

Source: Markit J P Morgan Asset Management

Inte

rnat

i Taiwan 47.4 50.6 51.5 50.2 51.2 50.7 47.1 49.5 48.6 50.0 52.0 53.0 53.4 55.2 55.5 54.7 52.7 52.3 52.4 54.0 55.8 56.1 53.3 52.0India 53.7 54.7 53.2 54.2 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 51.0 51.6Brazil 52.2 51.1 53.2 52.5 51.8 50.8 50.4 50.4 48.5 49.4 49.9 50.2 49.7 50.5 50.8 50.4 50.6 49.3 48.8 48.7 49.1 50.2 49.3 49.1Mexico 55.6 57.1 55.0 53.4 52.2 51.7 51.8 51.3 49.7 50.8 50.0 50.2 51.9 52.6 54.0 52.0 51.7 51.8 51.9 51.8 51.5 52.1 52.6 53.3Russia 52.2 50.0 52.0 52.0 50.8 50.6 50.4 51.7 49.2 49.4 49.4 51.8 49.4 48.8 48.0 48.5 48.3 48.5 48.9 49.1 51.0 51.0 50.4 50.3

44

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

Heatmap colors are based on PMI relative to the 50 level, which indicates acceleration or deceleration of the sector, for the time period shown.



Sovereign Debt Stresses

10%Bubble size = 10-year

government bond yield

GDP Growth, Gross Debt to GDP and Borrowing Costs

Turkey

China

India

IndonesiaMalaysia

10%

5%

4%

6%

8%

014F

)

g y

BrazilSouth Africa

Mexico

U.S.

Turkey

Korea

France

GermanyJapanRussia

Singapore

EU

Australia

U.K.

0%

2%

4%

Gro

wth

(201

2 –

2

Greece

ItalySpain

Portugal

-4%

-2%

Rea

l GD

P G

onal

-8%

-6%

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

G D b GDP R i (2013F)

Developed MarketsEmerging Markets

Inte

rnat

i

245%

45

Gross Debt-to-GDP Ratios (2013F)Source: IMF, FactSet, Bloomberg, J.P. Morgan Economics, Barclays, J.P. Morgan Asset Management.Growth and debt data are based on the October 2014 World Economic Outlook.Borrowing costs based on local currency debt. EU overall borrowing cost based on Barclays Capital Euro-Aggregate 7-10 year treasury. South Africa’sborrowing cost is based on 7-year government bond yield due to data availability. Guide to the Markets – U.S.


Global Monetary Policy

7%

8%60%

Central Bank Assets – Percent of Nominal GDP Nominal 5-Year Interest Rates 10/31/14

United States 1.61%Germany 0 07%

2%

3%

4%

5%

6%

50%

5-yr U.S. Treasury

5-yr German BundGermany 0.07%Japan 0.12%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140%

1%

2%

30%

40%

Bank of Japan

5-yr Japanese Gov’t

Real Policy Rates – Monthly8%

20%

onal European Central Bank

U S Federal Reserve

Emerging Markets

2%3%4%5%6%7%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '140%

10%

Inte

rnat

i U.S. Federal Reserve

Developed Markets

-3%-2%-1%0%1%2%

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

46

Source: J.P. Morgan Global Economics Research, FactSet, J.P. Morgan Asset Management.Real policy rates represent GDP weighted aggregates estimated by J.P. Morgan Global Economics Research. Real policy rates are short-term target interest rates set by central banks minus year-over-year inflation. Guide to the Markets – U.S.Data are as of 10/31/14.

Europe: Cyclical Headwinds and Tailwinds

35%10/31/14

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

European Sovereign Funding Costs10-year benchmark bond yield

13.9%14%

25%

30%

10/31/14 Greece 7.96%Portugal 3.21%Spain 2.10%Italy 2.36%Ireland 1.70%Germany 0.80%

2010-2013

2013-2016

ore

fisca

l dra

g

10%

12%

20%

25%

Mo

LTRO

6.0%

4.6%4 0%

6%

8%

10%

15%

onal

OMT

ss fi

scal

dra

g

3.5%4.0%

3.3% 3.1%2.7%

0.5%1.2% 1.1% 1.4%

0.5% 0.8%

2%

4%

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

5%

Inte

rnat

i

Les

-0.4% -0.1%

-2%

0%

47

Source: Tullett Prebon, FactSet, IMF, J.P. Morgan Asset Management. Data are based on the October 2014 World Economic Outlook. Government deficits are calculated by the IMF as the general government structural balance. The structural balance excludes the normal impact of the business cycle, providing a clearer measure of the independent impact of changes in government spending and taxation on demand in the economy.*Eurozone includes a J.P. Morgan Asset Management estimate for the 2016 structural deficit as a % of GDP. Guide to the Markets – U.S. Data are as of 10/31/14.

Europe: Unemployment, Inflation and Credit Markets

20%11%

13% Sep. 2014: 11.5%

Unemployment Rates Euro Area Credit Growth% year-over-year loan growth

5%

10%

15%

7%

9%

11%

U.S.

Euro Area-16

S 2014 5 9%

Nonfinancial Corporations

Sep. 2014: -2.0% Sep. 2014: -0.5%Households

-5%

%

'06 '07 '08 '09 '10 '11 '12 '13 '14'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '143%

5%

Europe InflationYear over year % change

U.S. Sep. 2014: 5.9%

Euro Area Asset-Backed Securities Outstanding€ billionsYear-over-year % change Core

Euro AreaPeriphery

€ billions

onal

€2 000

€3,000

2%

3%

4%

5%

Inte

rnat

i

€1,000

€2,000

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13-1%

0%

1%

2%

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

48

Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management.(Top left) Unemployment rate levels for the U.S. and Euro Area-16 are not directly comparable due to calculation differences. (Bottom right) Euro Area securitization outstanding includes Covered Bonds, Asset-Backed Securities, Residential Mortgage-Backed Securities, Commercial Real Estate Mortgage-Backed Securities, and Small and Medium-Sized Enterprise Asset-Backed Securities.Guide to the Markets – U.S.Data are as of 10/31/14.

Europe: Revenues, Margins and Earnings

7015% €13 $140

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

Earnings Per ShareNext 12- month consensus EPS

S&P 500

40

50

60

10%

-5%

0%

5%

10%

€11

€12

$

$120

$130

20

30

-20%

-15%

-10%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 €9

€10

$90

$100

$110Manufacturing PMIRevenue Growth

U.S. and European Operating Profit MarginsLTM EPS/SPS

€6

€7

€8

$60

$70

$80

9%

10%

11%

onal

LTM, EPS/SPS

S&P 500

'00 '02 '04 '06 '08 '10 '12 '14€4

€5

$40

$50

$60

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '146%

7%

8%

Inte

rnat

i

MSCI Europe

MSCI Europe

49

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

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


Japan: Economic Snapshot

¥120

¥130

¥18,000

¥20,000Inflation and Japanese Government Bond Yields Year-over-year % change for inflation Japanese Yen per U.S. Dollar

Nikkei 225

Japanese Yen and the Stock Market

9%

¥90

¥100

¥110

¥10,000

¥12,000

¥14,000

¥16,000Owners of Japanese Gov. BondsOther Domestic 71%Bank of Japan 25%Foreign 4%

7%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14¥70

¥80

¥6,000

¥8,000

Nominal 10-year Yield Government Fiscal Balance% of GDP IMF

3%

5%

-12%

-10%

-8%

-6%

-4%onal

% of GDP IMFforecast

1%

%

-2%

0%

2%

4%'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Inte

rnat

io

Core CPI

'87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13-3%

-1%

50

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

Core CPI is defined as CPI excluding fresh food. Other Domestic includes banks, insurance and pensions, public pensions, and households. Values may not sum to 100% due to rounding. Government bond data is calculated from the Bank of Japan’s September 2014 flow of funds.



International Equity Earnings and Valuations

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

Earnings per ShareEPS for next 12-month consensus, local currency, rebased to 100280 ’07/’08 Peak Current % Change

MSCI EM 217 191 12%Average Current

MSCI EM 11 3 11 0

16x

18x

220

240

260MSCI EM 217 191 -12%S&P 500 150 186 24%MSCI Europe 161 126 -22%

MSCI EM 11.3x 11.0xS&P 500 13.8x 15.7xMSCI Europe 12.0x 13.1x

12x

14x

180

200

220

10x

onal

120

140

160

6x

8x

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14Source: MSCI FactSet J P Morgan Asset Management

Inte

rnat

io

'05 '06 '07 '08 '09 '10 '11 '12 '13 '1480

100

51

Source: MSCI, FactSet, J.P. Morgan Asset Management. Forward Price to Earnings Ratio is based on each index price, divided by consensus estimates for earnings per share (EPS) in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Past performance is not indicative of future returns.



Exports, Demographics and Development

Demographic SnapshotExports as a % of GDP2013, goods exported Investment

(% of GDP)GDP Per Capita

Population % of Pop. under 20

Russia

China

India

Brazil

24.9%

26 2%

10.8%

16.0%

Developed

U.S. $54,678 319 mm 26% 20%

Canada 50,577 35 22 24

U.K. 44,141 65 24 15

Japan

U.S.

Russia

U.S.

Europe

BRIC

26.2%

9.4%

14.6%

Germany 47,201 81 18 18

France 45,384 64 24 22

Japan 37,540 127 18 22

Italy 35,512 60 19 17

France

UK

Eurozone

onal

Other

BRIC

18.5%

19.6%

20.7%

Emerging

Korea 28,739 50 22 29

India 1,626 1,260 38 32

Brazil 11,067 203 33 17

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

Germany

Italy

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

Inte

rnat

i

24.6%

37.6%

Mexico 10,837 120 38 22

Russia 14,317 144 21 20

China 7,572 1,368 20 48

52

India, J.P. Morgan Asset Management.

GDP Per Capita, Population and Investment as % of GDP are IMF estimates for 2014.



Emerging Market Currencies

China (Mainland)

EM Current Accounts and Currency Performance

nger

re

ncy

Mexico

China (Mainland) Korea

Russia Taiwan-7%

2%

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

ceS

tro Cur

r

14%

Brazil

India

South Africa

Turkey-16%

cy P

erfo

rman

Indonesia

-34%

-25%

onal

Cur

ren

2013 Currency Performance & 2013 Current Account

Currency Performance sincer y

Graph Key

-43%

34%

Current Account (% of GDP)

Inte

rnat

i Currency Performance since Jan. 2013 & 2014 Current Account

Wea

ker

Cur

renc

Current Account SurplusCurrent Account Deficit

53

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

Current accounts as a percentage of GDP are IMF figures for full year 2013 and latest available quarterly data for 2014. China (Mainland) uses solely Chinese Yuan for currency.

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


Emerging Market Diversity

Brazil

EM GDP growth: Sensitivity to DM growthEstimated increase in real GDP growth from a 1% increase in DM growth

U.S.

Emerging Markets: Service vs. Commodity Orientation % of exports in service or commodity sectors, 2012

Service-Percent of

E t Mf & Commodity-Percent of E t

Emerging Markets: Commodities vs. Services% of exports in service or commodity sectors, 2012

Mexico

Russia Japan

Europe

Commodities Services

Service Oriented

Exports, Mfg. & Services

CommodityOriented

Exports, Commodities

China 94.7 Chile 72.5

Korea 89.2 Russia 70.9

0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7%

Korea

MSCI EM Country Index by Sector

Mexico 78.6 Indonesia 54.5

India 73.8 Brazil 52.3

y y

Other

Commodities

Financialsonal

23%

14%33%

63%

19% 17%18%

12%

13% 10% 18% 22% 31%15%

60%

80%

100%

TechConsumer

Inte

rnat

i

22%7%

17% 11%

34%22%

3%23%

11%

37%29%

19%

38% 17%

0%

20%

40%

Brazil Russia India China Mexico* Korea

54

Source: MSCI, FactSet, MacData, IMF, J.P. Morgan Asset Management. “Other” is comprised of Health Care, Industrials, Telecom, and Utilities sectors. *Mexican telecom sector accounts for 20.2% of the country’s market capitalization. Values may not sum to 100% due to rounding. (Top Right) Assumes a 1% increase in GDP growth from Japan, Europe, and the U.S., and estimates a reaction function through a multistage regression measuring emerging market economies sensitivity to export volumes. Developed market imports are used as a proxy for developed demand and estimated from a 1% pick up in domestic GDP. Increases in industrial production are estimated while controlling for emerging market domestic demand in order to limit feedback loops and isolate the impulse from developed market demand only. The sample period tested ranges between 1993 and 2013 reflecting quarterly data. Guide to the Markets – U.S. Data are as of 10/31/14.

China: Economic and Credit Growth

16%

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

Credit* vs. GDP Growth

40%

12%

InvestmentConsumptionNet Exports

9.6%

9.2%

10.4%9.3%

Credit

Real GDP

GDP Deflator30%

35%

4 3%

4.5%

8.1%5.5% 4.4%

3.6% 4.2%

4%

8% 7.7% 7.7%

20%

25%

0.8%

-3.4%

0.4%

-0.4% -0.2% -0.3%

4.3%4.6% 4.5% 5.3%

4.2% 3.9%

0%

onal

5%

10%

15%

-8%

-4%

2008 2009 2010 2011 2012 2013

Inte

rnat

io

-5%

0%

5%

55

2008 2009 2010 2011 2012 2013

Source: National Bureau of Statistics of China, The People’s Bank of China, EM Advisors Group, FactSet, CEIC, J.P. Morgan Asset Management.Values may not sum to 100% due to rounding. *As defined by Total Social Financing: RMB bank loans, bankers acceptance bills, trust loans, entrusted loans, corporate bond financing, foreign currency loans, and non-financial equity financing. TSF data uses an assumption of outstanding credit in Dec. 2001. Guide to the Markets – U.S. Data are as of 10/31/14.

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

Global Equity Valuations – Developed Markets

+5 Std Dev+4 Std Dev


Developed Market Countries

vera

ge Expensive relative to

ld

Example

+3 Std Dev+2 Std Dev+1 Std Dev

Average-1 Std Dev-2 Std Dev-3 Std Dev

+4 Std Dev

Dev

from

Glo

bal A

v

Expensive relative to own

history

world

Cheap relative to own history

Average

Current

Cheap-4 Std Dev-5 Std Dev

Std

own history Cheap relative to

worldWorld (ACWI)

EAFE Index

U.K. Germany France Australia Canada JapanSwitzerland

United States

F d P/E P/B P/CF Di Yld F d P/E P/B P/CF Di Yld

Current Composite

Current 10-year avg.

onal

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

World (ACWI) 0.45 14.4 2.0 8.4 2.5% 13.0 2.0 7.5 2.5% EAFE Index -0.53 13.9 1.6 7.5 3.2% 12.6 1.7 6.7 3.2%

U.K. -0.78 13.2 1.8 7.2 3.8% 11.4 2.0 7.4 3.6%Germany -0.67 12.4 1.6 7.5 2.9% 11.5 1.5 5.7 3.1%France -0.65 13.3 1.4 7.6 3.3% 11.4 1.6 5.9 3.4%

Index

Source: MSCI, FactSet, J.P. Morgan Asset Management.N t E h l ti i d h ll i ht d it f f t i i t f d i (F d P/E) i t t b k (P/B) i t l t 12 th ’

Inte

rnat

io Australia -0.57 14.7 2.0 8.8 4.8% 13.4 2.2 9.2 4.3%Canada 0.49 14.4 1.9 7.8 2.7% 13.6 2.1 8.6 2.3%Japan 0.50 14.0 1.3 7.9 1.9% 16.0 1.4 6.4 1.6% Switzerland 1.52 15.8 2.6 11.8 3.2% 13.3 2.4 9.8 2.8%

United States 2.22 15.9 2.7 10.6 1.9% 13.9 2.4 8.7 1.9%

56

Note: Each valuation index shows an equally weighted composite of four metrics: price to forward earnings (Fwd. P/E), price to current book (P/B), price to last 12 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 one standard deviation in variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions.



Global Equity Valuations – Emerging Markets

Emerging Market Countries

vera

ge Expensive relative to

Example

+5 Std Dev4 Std D


Dev

from

Glo

bal A

v

Expensive relative to own

history

world

Cheap relative to own history

Average

Current

Cheap

+3 Std Dev+2 Std Dev+1 Std Dev

Average-1 Std Dev-2 Std Dev-3 Std Dev

+4 Std Dev

Std

own history Cheap relative to

world

3 Std Dev-4 Std Dev-5 Std Dev

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

Current Composite

Current 10-year avg.

World(ACWI)

EM Index

Russia China Brazil Taiwan Korea Thailand South Africa

IndonesiaMexico

India

onal

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

World(ACWI) 0.45 14.4 2.0 8.4 2.5% 13.0 2.0 7.5 2.5% EM Index -1.52 11.0 1.5 5.4 2.8% 11.0 1.9 6.3 2.7%

Russia -4.90 4.6 0.6 2.3 5.1% 7.4 1.4 4.5 2.2%China -2.85 8.9 1.4 3.4 3.4% 11.7 2.1 6.9 2.7%Brazil -2.12 10.8 1.3 5.9 4.0% 9.9 1.9 5.6 3.2%T i 0 79 13 0 1 9 6 3 3 1% 14 1 1 9 6 7 3 6%

Index

Inte

rnat

io Taiwan -0.79 13.0 1.9 6.3 3.1% 14.1 1.9 6.7 3.6%Korea 0.33 9.8 1.0 5.4 1.3% 9.6 1.4 5.0 1.5%Thailand 0.45 13.6 2.2 9.8 2.9% 10.9 2.0 7.1 3.6%

South Africa 1.11 15.0 2.6 11.1 3.0% 11.5 2.5 8.8 3.2%Indonesia 2.63 14.6 3.3 12.8 2.4% 12.6 3.5 10.2 2.7% Mexico 3.86 19.7 2.8 8.7 1.3% 14.4 2.8 7.5 1.8%I di 3 90 17 1 3 0 12 5 1 4% 15 5 3 2 13 0 1 3%

57

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 one standard deviation in variability relative to that of the MSCI All Country World Index (ACWI). See disclosures page at the end for metric definitions. See disclosures page at the end for metric definitions. Guide to the Markets – U.S.Data are as of 10/31/14.

India 3.90 17.1 3.0 12.5 1.4% 15.5 3.2 13.0 1.3%

Asset Class Returns

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD QTD Cum. Ann.

REITs MSCIEME

REITs MSCIEME

Ba rc la ys Agg

MSCIEME

REITs REITs REITs Russe ll 2 0 0 0

REITs REITs MSCIEME

MSCIEME

3 1.6 % 3 4 .5 % 3 5 .1% 3 9 .8 % 5 .2 % 7 9 .0 % 2 7 .9 % 8 .3 % 19 .7 % 3 8 .8 % 2 3 .6 % 9 .0 % 19 7 .7 % 11.5 %

10-yrs. '04 - '13

MSCIEME

Bbe rgCmdty

MSCIEME

Bbe rgCmdty

Ca sh MSCI EAFE

Russe ll 2 0 0 0

Ba rc la ys Agg

MSCIEME

S&P5 0 0

S&P5 0 0

Russe ll 2 0 0 0

Russe ll 2 0 0 0

Russe ll 2 0 0 0

2 6 .0 % 2 1.4 % 3 2 .6 % 16 .2 % 1.8 % 3 2 .5 % 2 6 .9 % 7 .8 % 18 .6 % 3 2 .4 % 11.0 % 6 .6 % 13 8 .3 % 9 .1%MSCI EAFE

MSCI EAFE

MSCI EAFE

MSCI EAFE

Ma rke t Ne utra l

REITs MSCIEME

Ma rke t Ne utra l

MSCI EAFE

MSCI EAFE

Ba rc la ys Agg

S&P5 0 0

REITs REITs

2 0 .7 % 14 .0 % 2 6 .9 % 11.6 % 1.1% 2 8 .0 % 19 .2 % 4 .5 % 17 .9 % 2 3 .3 % 5 .1% 2 .4 % 12 8 .5 % 8 .6 %Russe ll Russe ll Ma rke t Asse t Russe ll Bbe rg S&P Russe ll Asse t Asse t Asse t S&P S&PRusse ll

2 0 0 0REITs Russe ll

2 0 0 0Ma rke t Ne utra l

Asse t Alloc .

Russe ll 2 0 0 0

Bbe rgCmdty

S&P5 0 0

Russe ll 2 0 0 0

Asse t Alloc .

Asse t Alloc .

Asse t Alloc .

S&P5 0 0

S&P5 0 0

18 .3 % 12 .2 % 18 .4 % 9 .3 % - 2 4 .0 % 2 7 .2 % 16 .8 % 2 .1% 16 .3 % 15 .0 % 4 .8 % 1.8 % 10 4 .3 % 7 .4 %Asse t Alloc .

Asse t Alloc .

S&P5 0 0

Asse t Alloc .

Russe ll 2 0 0 0

S&P5 0 0

S&P5 0 0

Ca sh S&P5 0 0

Ma rke t Ne utra l

MSCIEME

MSCIEME

MSCI EAFE

MSCI EAFE

12 .5 % 8 .3 % 15 .8 % 7 .4 % - 3 3 .8 % 2 6 .5 % 15 .1% 0 .1% 16 .0 % 9 .3 % 4 .0 % 1.2 % 10 4 .1% 7 .4 %S&P5 0 0

Ma rke t Ne utra l

Asse t Alloc .

Ba rc la ys Agg

Bbe rgCmdty

Asse t Alloc .

Asse t Alloc .

Asse t Alloc .

Asse t Alloc .

REITs Russe ll 2 0 0 0

Ba rc la ys Agg

Asse t Alloc .

Asse t Alloc .5 0 0 Ne utra l Alloc . Agg Cmdty Alloc . Alloc . Alloc . Alloc . 2 0 0 0 Agg Alloc . Alloc .

10 .9 % 6 .1% 15 .2 % 7 .0 % - 3 5 .6 % 2 2 .2 % 12 .5 % - 0 .6 % 11.3 % 2 .9 % 1.9 % 1.0 % 10 0 .2 % 7 .2 %Bbe rgCmdty

S&P5 0 0

Ma rke t Ne utra l

S&P5 0 0

S&P5 0 0

Bbe rgCmdty

MSCI EAFE

Russe ll 2 0 0 0

Ba rc la ys Agg

Ca sh Ca sh Ca sh Ma rke t Ne utra l

Ma rke t Ne utra l

9 .1% 4 .9 % 11.2 % 5 .5 % - 3 7 .0 % 18 .9 % 8 .2 % - 4 .2 % 4 .2 % 0 .0 % 0 .0 % 0 .0 % 6 4 .9 % 5 .1%Ma rke t Ne utra l

Russe ll 2 0 0 0

Ca sh Ca sh REITs Ba rc la ys Agg

Ba rc la ys Agg

MSCI EAFE

Ma rke t Ne utra l

Ba rc la ys Agg

Ma rke t Ne utra l

Ma rke t Ne utra l

Ba rc la ys Agg

Ba rc la ys Agg

6 .5 % 4 .6 % 4 .8 % 4 .8 % - 3 7 .7 % 5 .9 % 6 .5 % - 11.7 % 0 .9 % - 2 .0 % - 1.5 % 0 .0 % 5 6 .0 % 4 .5 %Ba rc la ys

AggCa sh Ba rc la ys

AggRusse ll

2 0 0 0MSCI EAFE

Ma rke t Ne utra l

Ca sh Bbe rgCmdty

Ca sh MSCIEME

MSCI EAFE

Bbe rgCmdty

Ca sh Ca sh

4 .3 % 3 .0 % 4 .3 % - 1.6 % - 4 3 .1% 4 .1% 0 .1% - 13 .3 % 0 .1% - 2 .3 % - 2 .4 % - 0 .8 % 17 .1% 1.6 %

Ca sh Ba rc la ys Agg

Bbe rgCmdty REITs MSCI

EME Ca sh Ma rke t Ne utra l

MSCIEME

Bbe rgCmdty

Bbe rgCmdty

Bbe rgCmdty

MSCI EAFE

Bbe rgCmdty

Bbe rgCmdty

1.2 % 2 .4 % 2 .1% - 15 .7 % - 5 3 .2 % 0 .1% - 0 .8 % - 18 .2 % - 1.1% - 9 .5 % - 6 .3 % - 1.4 % 9 .0 % 0 .9 %

setC

lass

Source: Russell, MSCI, Bloomberg, Standard & Poor’s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P. Morgan Asset Management.

58

As Source: Russell, MSCI, Bloomberg, Standard & Poor s, Credit Suisse, Barclays Capital, NAREIT, FactSet, J.P. Morgan Asset Management.

The “Asset Allocation” portfolio assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Barclays Capital Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the CS/Tremont Equity Market Neutral Index, 5% in the Bloomberg Commodity Index and 5% in the NAREIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 10/31/14, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 9/31/14. “10-yrs” returns represent period of 1/1/04 – 12/31/13 showing both cumulative (Cum.) and annualized (Ann.) over the period. Please see disclosure page at end for index definitions. *Market Neutral returns include estimates found in disclosures. Guide to the Markets – U.S. Data are as of 10/31/14.

Correlations and Volatility

zU.S.

Large Cap EAFE EME Bonds

Corp. HY Munis Currcy. EMD Cmdty. REITs

Hedge Funds `

Eq Market

Neutral*Ann.

Volatility

U S Large Cap 1 00 0 89 0 79 -0 26 0 77 -0 09 -0 53 0 63 0 50 0 79 0 82 0 60 16%U.S. Large Cap 1.00 0.89 0.79 -0.26 0.77 -0.09 -0.53 0.63 0.50 0.79 0.82 0.60 16%

EAFE 1.00 0.91 -0.16 0.78 -0.03 -0.73 0.70 0.59 0.71 0.88 0.72 20%

EME 1.00 -0.11 0.82 0.04 -0.68 0.79 0.64 0.61 0.90 0.57 25%

Bonds 1.00 -0.06 0.82 -0.08 0.27 -0.23 -0.02 -0.27 -0.18 3%

Corp. HY 1.00 0.16 -0.52 0.87 0.56 0.72 0.78 0.41 12%

Munis 1.00 -0.07 0.47 -0.17 0.06 -0.07 -0.11 4%

Currencies 1.00 -0.52 -0.60 -0.46 -0.60 -0.67 7%

EMD 1.00 0.47 0.65 0.67 0.34 8%

Commodities 1.00 0.37 0.70 0.46 20%

REITs 1.00 0.56 0.43 26%

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

Indexes used – Large Cap: S&P 500 Index; Currencies: Federal Reserve Trade Weighted Dollar; EAFE: MSCI EAFE; EME: MSCI Emerging Markets; Bonds: Barclays Capital Aggregate; Corp HY: Barclays Capital Corporate High Yield; EMD: Barclays Capital Emerging Market; Cmdty.: DJ UBS C dit I d R l E t t NAREIT E it REIT I d H d F d CS/T t M lti St t I d E it M k t N t l

setC

lass

Hedge Funds 1.00 0.59 8%

Eq Market Neutral* 1.00 4%

59

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

All correlation coefficients and annualized volatility calculated based on quarterly total return data for period 9/30/04 to 9/30/14.

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


As

Alternative Asset Class Returns

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD QTDAnn.

ReturnAnn.

VolatilityRe a l

Esta tePriva te Equity

Re a l Esta te

Priva te Equity

Gbl. Ma c ro

MLPs MLPs MLPs Re a l Esta te

MLPs Re a l Esta te

Re a l Esta te

MLPs Re a l Esta te

10-yrs '04 - '13

Esta te Equity Esta te Equity Ma c ro Esta te Esta te Esta te Esta te3 5 .0 % 2 8 .3 % 3 5 .6 % 19 .7 % 4 .7 % 7 6 .4 % 3 5 .9 % 13 .9 % 18 .0 % 2 7 .6 % 2 4 .3 % 8 .5 % 15 .0 % 2 5 .2 %Priva te Equity

Globa l Equity

Priva te Equity

MLPs Eq. Mkt. Ntrl.

Globa l Equity

Re a l Esta te

Priva te Equity

Globa l Equity

Globa l Equity

MLPs Gbl. Ma c ro

Priva te Equity

MLPs

2 5 .9 % 17 .4 % 2 8 .7 % 12 .7 % - 3 .0 % 3 0 .0 % 2 6 .7 % 11.0 % 16 .5 % 2 6 .2 % 14 .0 % 1.4 % 15 .0 % 18 .1%

Distrsd. Re a l Esta te

MLPs Gbl. Ma c ro

Mrgr. Arb.

Re a l Esta te

Priva te Equity

Re a l Esta te

Priva te Equity

Priva te Equity

Globa l Equity

Globa l Equity

Re a l Esta te

Priva te Equity

18 1% 13 7 % 2 6 1% 11 4 % - 6 7 % 2 7 6 % 2 0 4 % 9 4 % 14 0 % 2 0 8 % 7 9 % 1 2 % 8 5 % 10 3 %18 .1% 13 .7 % 2 6 .1% 11.4 % - 6 .7 % 2 7 .6 % 2 0 .4 % 9 .4 % 14 .0 % 2 0 .8 % 7 .9 % 1.2 % 8 .5 % 10 .3 %

MLPs Distrsd. Globa l Equity HF Agg. Re l. Va l. Re l. Va l. Re l. Va l. Mrgr.

Arb. Re l. Va l. Distrsd. Re l. Va l. Eq. Mkt. Ntrl. Distrsd. Distrsd.

16 .7 % 10 .4 % 17 .0 % 11.0 % - 17 .3 % 2 3 .0 % 12 .5 % 2 .3 % 9 .7 % 15 .1% 5 .7 % - 0 .1% 7 .7 % 9 .6 %Globa l Equity HF Agg. Distrsd. Re l. Va l. HF Agg. Distrsd. Distrsd. Re l. Va l. Distrsd. HF Agg. Gbl.

Ma c roMrgr. Arb.

Globa l Equity

Globa l Equity

12 .0 % 9 .1% 15 .3 % 10 .0 % - 18 .7 % 2 0 .2 % 12 .2 % 0 .8 % 8 .5 % 9 .6 % 4 .2 % - 0 .4 % 7 .3 % 9 .3 %Mrgr Mrgr Globa lHF Agg. MLPs Mrgr. Arb.

Mrgr. Arb. Distrsd. HF Agg. Globa l

Equity Distrsd. MLPs Re l. Va l. HF Agg. Re l. Va l. Re l. Va l. HF Agg.

9 .3 % 6 .3 % 14 .6 % 8 .9 % - 2 2 .3 % 18 .6 % 11.1% 0 .0 % 4 .8 % 7 .5 % 4 .2 % - 0 .4 % 6 .5 % 7 .8 %Gbl.

Ma c roEq. Mkt.

Ntrl.HF Agg. Globa l

EquityPriva te Equity

Priva te Equity

HF Agg. Gbl. Ma c ro

HF Agg. Eq. Mkt. Ntrl.

Distrsd. HF Agg. HF Agg. Re l. Va l.

7 .5 % 6 .1% 13 .3 % 7 .7 % - 2 2 .4 % 13 .4 % 8 .5 % - 0 .7 % 4 .4 % 6 .4 % 3 .7 % - 0 .7 % 5 .8 % 6 .7 %

Re l. Va l. Gbl. Ma c ro

Re l. Va l. Distrsd. MLPs Mrgr. Arb

Mrgr. Arb

Eq. Mkt. Ntrl

Eq. Mkt. Ntrl

Mrgr. Arb

Eq. Mkt. Ntrl

Distrsd. Mrgr. Arb

Gbl. Ma c ro

setC

lass

Ma c ro Arb. Arb. Ntrl. Ntrl. Arb. Ntrl. Arb. Ma c ro6 .1% 6 .1% 12 .2 % 6 .8 % - 3 6 .9 % 11.9 % 4 .6 % - 1.5 % 3 .1% 5 .3 % 2 .4 % - 2 .3 % 5 .0 % 4 .6 %Mrgr. Arb.

Mrgr. Arb.

Gbl. Ma c ro

Eq. Mkt. Ntrl.

Re a l Esta te

Gbl. Ma c ro

Gbl. Ma c ro

HF Agg. Mrgr. Arb.

Gbl. Ma c ro

Mrgr. Arb.

MLPs Gbl. Ma c ro

Eq. Mkt. Ntrl.

3 .7 % 5 .5 % 8 .2 % 5 .7 % - 3 7 .3 % 6 .9 % 3 .2 % - 2 .0 % 1.8 % 0 .1% 2 .3 % - 4 .6 % 4 .5 % 3 .7 %Eq. Mkt.

Ntrl.Re l. Va l. Eq. Mkt.

Ntrl.Re a l

Esta teGloba l Equity

Eq. Mkt. Ntrl.

Eq. Mkt. Ntrl.

G loba l Equity

Gbl. Ma c ro

Re a l Esta te

Priva te Equity

Priva te Equity

Eq. Mkt. Ntrl.

Mrgr. Arb.

3 4 % 5 3 % 7 0 % - 16 3 % - 3 9 2 % - 1 7 % 2 5 % - 6 0 % - 1 3 % - 0 5 % - - 2 7 % 3 5 %

60

As Source: Standard & Poor’s, Alerian, HFRI, MSCI, Cambridge Associates, NAREIT, FactSet, J.P. Morgan Asset Management.

Hedge fund indices include distressed and restructuring (Distrsd.), relative value (Rel. Val.), global macro (Gbl. Macro), merger arbitrage (Mrger. Arb.), equity market neutral (Eq. Mkt. Ntrl.), and the aggregate (HF Agg.). Returns may fluctuate as hedge fund reporting occurs on a lag. QTD and YTD private equity data is unavailable and provided by Cambridge Associates. Real estate returns reflect the NAREIT Real Estate 50 Index and global equity returns reflect the MSCI AC World Index. Annualized volatility and returns are calculated from quarterly data between 12/31/03 and 12/31/13.Please see disclosure pages for index definitions. Guide to the Markets – U.S. Data are as of 10/31/14.

3 .4 % 5 .3 % 7 .0 % - 16 .3 % - 3 9 .2 % - 1.7 % 2 .5 % - 6 .0 % - 1.3 % - 0 .5 % - - 2 .7 % 3 .5 %

Fund Flows

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

Domestic Equity 6 010 (34) 18 (159) (133) (81) (28) (149) (68) (3) 17 100 120 (25) 57 258 176

Mutual Fund Flows

Domestic Equity 6,010 (34) 18 (159) (133) (81) (28) (149) (68) (3) 17 100 120 (25) 57 258 176World Equity 2,129 80 142 6 4 57 26 (80) 142 151 107 72 24 (4) (23) 58 11

Taxable Bond 2,893 27 (20) 253 127 219 301 22 100 44 21 0 40 125 76 (36) 8Tax-exempt Bond 551 18 (58) 50 (12) 12 70 8 11 15 5 (15) (7) 17 12 (14) (12)

Hybrid 1,353 32 72 47 40 35 20 (26) 40 20 43 53 39 8 7 (37) (14)

M M k t 2 604 (115) 15 (0) (124) (525) (539) 637 654 245 62 (157) (263) (46) 375 159 194

$600

$800

$1,400

$1,600

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

Sep. ’14: $1,377 billion into bond funds and fixed income ETFs since ’07

Cumulative Flows Into U.S. Equity FundsBillions, USD, includes both mutual funds and ETFs

Sep. ’14: $605 billion into U.S. equity funds and ETFs by

Money Market 2,604 (115) 15 (0) (124) (525) (539) 637 654 245 62 (157) (263) (46) 375 159 194

$200

$0

$200

$400

$600

$800

$1,000

$1,200

Sep. ’14: $654 billion into stock funds and equity

Institutional

institutional investors since ‘07

-$800

-$600

-$400

-$200

'07 '08 '09 '10 '11 '12 '13 '14$0

$200

$400

$600

'07 '08 '09 '10 '11 '12 '13 '14setC

lass

Bonds

Stocks

ETFs since ’07 Retail

Sep. ’14: $662 billion out of U.S. equity funds and ETFs by retail investors since ’07

61

07 08 09 10 11 12 13 14Source: Investment Company Institute, J.P. Morgan Asset Management.TOP: Data includes flows through September 2014 and excludes ETFs. BOTTOM: Data includes flow through September 2014 and includes 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.Guide to the Markets – U.S.Data are as of 10/31/14.

As

Yield Alternatives: Domestic and Global

15%

20%

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

Dividends

4.7% 5.4% 6.0% 5.1% 3.3% 4.2% 4.4% 2.5%1.8% 4.0%

13.9%

-5 3%

3.0%

13.6%

4.4%1.6%

12.6% 15.3%

-2.7%

5.8%

0%

5%

10%

15%

-5.3%

-10%

-5%

1926 - 1929 1930's 1940's 1950's 1960's 1970's 1980's 1990's 2000's 1926 to 2013

Equity Dividend Yields REIT YieldsMajor world markets annualized Major world markets annualizedMajor world markets, annualized

10-year government bond yield

10-year government bond yield

Major world markets, annualized

3.6%

5.8%5.5%

5.0%

4.2%3.8%

3 2%4%

5%

6%

7%

2 0%

4.4%

3.7%3.3%

2.9% 2.9%2.5%

3%

4%

5%

setC

lass

3.2% 3.1%

0%

1%

2%

3%2.0% 2.5%

1.8%

0%

1%

2%

62

Source: (Top chart) Standard & Poor’s, Ibbotson, J.P. Morgan Asset Management. (Bottom right) FactSet, NAREIT, J.P. Morgan Asset Management. Dividend vs. capital appreciation returns are through 12/31/13. Yields shown are that of the appropriate FTSE NAREIT REIT index, which excludes property development companies. (Bottom left) FactSet, MSCI, J.P. Morgan Asset Management. Yields shown are that of the appropriate MSCI index. Guide to the Markets – U.S.


As 0%

U.S. Singapore Canada France Australia Global Japan U.K.0%

U.S. Australia U.K. France Switzerland Canada ACWI Japan

Global Commodities

Commodity Prices Weekly index prices rebased to 100

Gold Prices$ / oz$3,000

Gold Inflation Adjusted450

$1 000

$1,500

$2,000

$2,500Oct. 2014:

$1,164

Gold, Inflation AdjustedGold

350

400 Precious Metals

Commodity Prices and Inflation'75 '80 '85 '90 '95 '00 '05 '10

$0

$500

$1,000

250

300 Industrial Metals

4%

6%

8%

40%

60%

80%

yYear-over-year % chg.

Headline CPI (Y/Y % chg.)

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

150

200

G i

-4%

-2%

0%

2%

-40%

-20%

0%

20%

setC

lass

0

50

100

EnergyLivestock

GrainsCPI Basket

63

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14-6% -60%

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


As '05 '06 '07 '08 '09 '10 '11 '12 '13 '140

Historical Returns by Holding Period

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

Annual Avg. T t l R t

Growth of $100,000 20

51%

43%

32%30%

40%

50%

50/50 Portfolio 9.0% $564,491Bonds 6.1% $327,240Stocks 11.1% $827,444

Total Return over 20 years

32%28%

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

12% 14%10%

20%

30%

-8%

-15%

-2% -2% 1% -1% 1% 2%6%

1%5%

-20%

-10%

0%

Stocks

-37%

-40%

-30%

20%

1-yr. 5-yr. 10-yr. 20-yr. setC

lass 50/50 Portfolio

Bonds

64

y yrolling

yrolling

yrollingA

s

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

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


Diversification and the Average Investor

Equity Mkt. Neutral

Commodities

Source: Morningstar Direct, Dalbar Inc., J.P. Morgan Asset Management. (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; I t ti l St k 15% MSCI EAFE

Traditional Portfolio More Diversified PortfolioMaximizing the Power of Diversification (1994 – 2013)

8%8%

8%

22%13%4%

26%

Commodities

REIT

S&P 500

Russell 2000

MSCI EAFE

55%

15%

30% S&P 500

MSCI EAFE

Barclays Agg.

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% 22%

9%13% MSCI EAFE

MSCI EM

Barclays Agg.

15%y gg ,

NAREIT Equity REIT Index. Return and standard deviation calculated using Morningstar Direct.Charts are shown for illustrative purposes only. Past performance is not indicative of future returns. Diversification does not guarantee investment returns and does not li i t i k f l (B tt ) I d

Return: 8.02%Standard Deviation: 10.64%

Return: 7.95%Standard Deviation: 9.71%

20-year Annualized Returns by Asset Class (1994 – 2013)eliminate risk of loss. (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 investor return is based on an analysis by

10.3% 10.2%9.2%10%

12%

y yDalbar 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 12/31/13 to match Dalbar’s most recent analysis Guide to the Markets U Sse

tCla

ss 6.1% 5.8% 5.7%

3.1%2.5% 2.4%

4%

6%

8%

65

analysis. Guide to the Markets – U.S. Data are as of 10/31/14. A

s

0%

2%

REITs Oil S&P 500 EAFE Gold Bonds Homes Average Investor

Inflation

Cash Accounts

$8,000

$10,000Annual Income Generated by $100,000 Investment in a 6-month CD

2006: $5 240

$ BillionsWeight in

Money Supply

Money SupplyComponent

$2,000

$4,000

$6,000

$8,000

2013: $390

2006: $5,240

M2-M1 8,618 78.2%

Retail MMMFs 627 5.7%

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

M2 Money Supply as a % of Nominal GDP70%

3Q14: 65.3%

Savings deposits 7,463 67.7%

Small time deposits 529 4.8%

50%

55%

60%

65%

Average: 53.0%

Institutional MMMFs 1,747 15.9%

651 5.9% Cash in IRA & Keogh accounts

setC

lass

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 issued in amounts of less than $100 000 All IRA and Keogh account balances at commercial banks and thrift institutions are subtracted

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

45%Total 11,016 100.0%

66

As Small-denomination time deposits are those issued in amounts of less than $100,000. All IRA and Keogh account 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. Guide to the Markets – U.S.Data are as of 10/31/14.

Corporate DB Plans and Endowments

Funded Status (%)

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

Corporate Defined Benefit PlansEndowments

Liabilities ($)

Trillions ($)

100%

105%$2.5

Assets ($)Corporate Defined Benefit Plans

48.0%

9.0%

27.0%

Fixed Income

Equities

( )

80%

85%

90%

95%

$1.0

$1.5

$2.0

Pension Return Assumptions: S&P 500 companies

4.0%

38.0%

15 9%

20.1%Hedge Funds

Fixed Income

70%

75%

80%

$0.0

$0.5

'07 '08 '09 '10 '11 '12 '13 Q3 '14*

27% 29%

20%20%

34%

20%

30%

40%

pani

es

2013: Average 7.3%1999: Average 9.2%

2.0%

2.0%

17.7%

15.9%

Real Estate

Private Equity

0% 1% 1% 1%

5%9%

7%10%

6%

12% 13%

3%0% 0% 0%

0%

10%

< 6% 6 to 6 5%

6.5 to 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%

% o

f Com

p

setC

lass

% of total4.0%

3.0%

3.0%

7.3%

Cash

Other

67

6.5% 7% 7.5% 8% 8.5% 9% 9.5% 10%Return Assumption

Source: NACUBO (National Association of College and University Business Officers), Towers Watson, Compustat/FactSet, J.P. Morgan Asset Management. Asset allocation as of 2012. *Funded status for 3Q14 estimated using market returns. 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. Pension Assets, Liabilities and Funded Status based on Russell 3000 companies reporting pension data. Return assumption bands are inclusive of upper range. All information is shown for illustrative purposes only. Guide to the Markets – U.S. Data are as of 10/31/14.

As

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

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. Th S&P 400 Mid C I d i i f 400 k i h id f h d i k

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 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

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 price-t b k ti d l f t d th l

securities are categorized using different attributes - three for value and five for growth including forward-looking 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 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 creditsto-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.

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, Belgium, Denmark, Finland, France, Germany, 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 asset-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 price-to-book ratios and lower forecasted growth values. The Russell Top 200 Index ® measures the performance of the largest cap segment of the U.S. equity universe. It includes approximately 200 of the largest securities based on a combination of their market cap and current

g p y ,weighted 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

i pp y g p

index membership and represents approximately 68% of the U.S. market. 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, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

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.The Dow Jones Industrial Average measures the stock performance of 30 leading blue-chip U.S. companies.The Bloomberg Commodity Index is composed of futures contracts on physical commodities and represents twenty two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.

68

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.

J.P. Morgan Asset Management – Index Definitions

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

All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. 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.

with floating rates, and derivatives are excluded from the benchmark.The Barclays Capital Emerging Markets Index includes 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 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. Treasury Index is a component of the U.S. Government 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

The Barclays Capital TIPS Index consists of Inflation-Protection securities issued by the U.S. 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

(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 e CS/ e o t u t St ategy de co s s s o u ds a a oca e cap a based o pe ce ed oppo u es

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.The Barclays U.S. Dollar Floating Rate Note (FRN) Index provides a measure of the U.S. dollar denominated floating rate note market.*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

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 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 in connection with the Bernard Madoff scandal. J.P. Morgan Funds believes this distortion is not an accurate

representation of returns in the category. CS/Tremont later published a finalized November return of -40.56% for the month, reflecting this mark-down. CS/Tremont assumes no responsibility for these estimates.

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 High Yield Municipal Index includes bonds rated Ba1 or lower or non-rated bonds using the middle rating of Moody’s, 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

69

(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.

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

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 company’s financial condition, sometimes rapidly or unpredictably. These price movements may result from factors affecting 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

The HFRI Monthly Indices (HFRI) are equally weighted performance indexes, utilized by numerous hedge fund managers as a benchmark for their own hedge funds. The HFRI are broken down into 4 main strategies, each with multiple substrategies. All single-manager HFRI Index constituents are included in the HFRI Fund Weighted Composite, which accounts for over 2200 funds listed on the internal HFR Database.Equity Market Neutral Strategies employ sophisticated quantitative techniques of analyzing price data to ascertain information about future price movement and relationships between securities, select securities for purchase and sale Equity Market Neutral Strategies typically maintain characteristic net equity market exposure no 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 investing typically carries more risk than investing in well-established "blue-chip" companies. 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

purchase and sale. Equity Market Neutral Strategies typically maintain characteristic net equity market exposure no greater than 10% long or short.Distressed Restructuring Strategies employ an investment process focused on corporate fixed income instruments, primarily on corporate credit instruments of companies trading at significant discounts to their value at issuance or obliged (par value) at maturity as a result of either formal bankruptcy proceeding or financial market perception of near term proceedings.Merger Arbitrage Strategies which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction. Global Macro Strategies trade a broad range of strategies in which the investment process is predicated on 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

g g g p pmovements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets.Relative Value Strategies maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. The Cambridge Associates LLC U.S. Private Equity Index® is an end-to-end calculation based on data compiled from 1,052 U.S. private equity funds (buyout, growth equity, private equity energy and mezzanine funds), including fully liquidated partnerships, formed between 1986 and 2013.The Alerian MLP Index is a composite of the 50 most prominent energy Master Limited Partnerships (MLPs) that provides investors with an unbiased comprehensive benchmark for the asset classinstruments 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, such as drought, floods, weather, livestock disease, 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.Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments involve greater risks than traditional investments and should not be deemed a complete investment program. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for i t t l i Th l f th i t t f ll ll i d i t t b k l th

provides investors with an unbiased, comprehensive benchmark for the asset class.

investment loss or gain. The value of the investment may fall as well as rise and investors may get back less than they invested.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's market value to its book 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

70

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.

J.P. Morgan Asset Management – Risks & Disclosures

The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment decision-making, the program explores the implications of current economic data and changing market conditions. The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material should not be relied pon b o in e al ating the merits of in esting in an sec rities or prod cts In addition the In estor sho ld make an independent assessment of the legal reg lator ta credit and acco nting and determine together ith be relied upon by you in evaluating the merits of investing in any securities or products. In addition, the Investor should make an independent assessment of the legal, regulatory, tax, credit, and accounting and determine, together with their own professional advisers if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Exchange rate variations may cause the value of investments to increase or decrease. Investments in smaller companies may involve a higher degree of risk as they are usually more sensitive to market movements. Investments in emerging markets may be more volatile and therefore the risk to your capital could be greater. Further, the economic and political situations in emerging markets may be more volatile than in established economies and these may adversely influence the value of investments made.It shall be the recipient’s sole responsibility to verify his / her eligibility and to comply with all requirements under applicable legal and regulatory regimes in receiving this communication and in making any investment. All case studies shown are for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. Results shown are not meant to be representative of actual investment results.J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued by the following entities: in Brazil by Banco J.P. Morgan S.A. (Brazil) which is regulated by The Brazilian Securities and Exchange Commission (CVM) and Brazilian Central Bank (Bacen); in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority (FCA); in other EU jurisdictions by JPMorgan Asset Management (Europe) S.à r.l.; in Switzerland by J.P. Morgan (Suisse) SA, which is regulated by the Swiss Financial Market Supervisory Authority FINMA; in Hong Kong by JF Asset Management Limited, JPMorgan Funds (Asia) Limited or JPMorgan Asset Management Real Assets (Asia) Limited, all of which are regulated by the Securities and Futures Commission; in India by JPMorgan Asset Management India Private Limited which is regulated by the Securities & Exchange Board of India; in Singapore by JPMorgan Asset Management (Singapore) Limited or JPMorgan Asset Management Real Assets (Singapore) Pte. Ltd., both are regulated by the Monetary Authority of Singapore; in Taiwan by JPMorgan Asset Management (Taiwan) Limited or JPMorgan Funds (Taiwan) Limited, both are regulated by the Financial Supervisory Commission; in Japan by JPMorgan Asset Management (Japan) Limited which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Japan Securities Dealers Association, and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Korea by JPMorgan Asset Management (Korea) Company Limited which is regulated by the egu ated by t e a c a Se ces ge cy ( eg st at o u be a to oca a ce u eau ( a c a st u e ts ) o 330 ); o ea by J o ga sset a age e t ( o ea) Co pa y ted c s egu ated by t eFinancial Services Commission (without insurance by Korea Deposit Insurance Corporation) and in Australia to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Cth) by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919) which is regulated by the Australian Securities and Investments Commission; in Canada by JPMorgan Asset Management (Canada) Inc.; and in the United States by J.P. Morgan Investment Management Inc., or J.P. Morgan Distribution Services , Inc., member FINRA SIPC.

EMEA Recipients: You should note that if you contact J.P. Morgan Asset Management by telephone those lines may be recorded and monitored for legal, security and training purposes. You should also take note that information and data from communications with you will be collected, stored and processed by J.P. Morgan Asset Management in accordance with the EMEA Privacy Policy which can be accessed through the following website http://www.jpmorgan.com/pages/privacy.

Brazilian recipients:

Prepared by: Andrew D. Goldberg, Anastasia V. Amoroso, James C. Liu, Gabriela D. Santos, David M. Lebovitz, Hannah J. Anderson, Ainsley E. Woolridge, and David P. Kelly.

Unless otherwise stated, all data are as of October 31, 2014 or most recently available.

Past performance is no guarantee of comparable future results.Diversification does not guarantee investment returns and does not eliminate the risk of loss.

71


JP-LITTLEBOOK

MARKET UPDATE

Austin LitvakSenior Analyst, Asset Allocation Research

2

Duration-Based Asset Allocation Framework

Source: Fidelity Investments (AART)

Increasingly Divergent Global Business Cycle

3

Note: This is a hypothetical illustration of a typical business cycle. There is not always a chronological progression in this order, and there have been cycles when the economy has skipped a phase or retraced an earlier one. Economically sensitive assets include stocks and high-yield corporate bonds, while less economically sensitive assets include Treasury bonds and cash. *A growth recession is a significant decline in activity relative to a country’s long-term economic potential. We have adopted the “growth cycle” definition for most developing economies such as China because they tend to exhibit strong trend performance driven by rapid factor accumulation and increases in productivity, and the deviation from the trend tends to matter the most for asset returns. We use the classic definition of recession, involving an outright contraction in economic activity, for developed economies. Please see endnotes for a complete discussion. Source: Fidelity Investments (AART).

U.S. Wage Growth Subdued, but Income Outlook Improving

4

-1%

0%

1%

2%

3%

4%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Initial Claims (% of Working-Age Population)Expected Change in Median Income

0

0

0

0

1

1

1

1

1

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Average Hourly Earnings

U.S. Worker Earnings

Year-over-Year % Change

U.S. Employment & Income Expectations

Shaded areas indicate recessions as defined by the National Bureau of Economic Research (NBER). LEFT: Source: NBER, Department of Labor, Bureau of Labor Statistics, University of Michigan, Haver Analytics, Fidelity Investments (AART), as of 8/31/14. RIGHT: Source: NBER, Bureau of Labor Statistics, Haver Analytics, Fidelity Investments (AART), as of 8/31/14.

5

Late Cycle Often Causes a Key Shift in Asset Performance

0%

5%

10%

15%

Stocks High Yield Bonds Cash0%

5%

10%

15%

Stocks High Yield Bonds Cash

Absolute Annual Return (Average)

Source: Fidelity Investments proprietary analysis of historical asset class performance, which is not indicative of future performance. Asset class total returns are represented by indexes from the following sources: Fidelity Investments, Bank of America Merrill Lynch, Ibbotson Associates, Barclays, as of Jul. 31, 2014.

Mid Cycle Asset Class Performance (1950-2010)

Late Cycle Asset Class Performance (1950-2010)

Absolute Annual Return (Average)

Favor Economically Sensitive Assets• Monetary policy accommodative/neutralized• Profit growth solid/peaks• Credit spreads narrow

Mixed Asset Class Performance• Monetary policy becomes restrictive• Earnings under pressure• Credit spreads widen

First (and Most) Fed Tightening Has Occurred in Mid Cycle

Fed Funds Rate Change per Business Cycle, 1950–2010

Basis Points

-250

-200

-150

-100

-50

0

50

100

150

Early Mid Late Recession

Average Median

Frequency of First Rate Hike 33% 58% 8% 0%

Source: Federal Reserve, Haver Analytics, Fidelity Investments (AART), as of Jul. 31, 2014. 6

Timing and Magnitude of Tightening May Create Volatility

7

Implied FOMC and Market Expectations of Fed Funds Tightening Cycle

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Oct

-14

Nov

-14

Dec

-14

Jan-

15Fe

b-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep

-15

Oct

-15

Nov

-15

Dec

-15

Jan-

16Fe

b-16

Mar

-16

Apr

-16

May

-16

Jun-

16Ju

l-16

Aug

-16

Sep

-16

Oct

-16

Nov

-16

Dec

-16

Jan-

17Fe

b-17

Mar

-17

Apr

-17

May

-17

Jun-

17Ju

l-17

Aug

-17

Sep

-17

Fed Funds Futures Market FOMC

Expected Fed Funds Rate (%)

87 bps

84 bps

65 bps

50 bps

46 bps

Fed: Federal Reserve. FOMC: Federal Open Market Committee. Market Fed Funds rate hike expectations calculated using daily generic Fed Funds futures contracts out 36 months. FOMC rate hike expectations calculated using the weighted average of the participants of the Federal Reserve System’s appropriate pace of policy firming survey results. Source: Federal Reserve, Bloomberg Finance L.P., Fidelity Investments (AART), as of 9/30/14.

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0.0% 1.0% 2.0% 3.0% 4.0%

June 2014

Rate Outlook: Up Over Time, but Dramatic Spike Unlikely

8

Average Real 10-Year Yield

Real GDP Compound Annual Growth Rate

Historical Observations in U.K., Australia, Canada, United States, and Japan

Government Real Yields and Real GDP Growth for Major Economies, 1985–2014

U.S. 20-Year Forecast

March 2013

Developed Countries 10-Year Yield (%)

Switzerland 0.49%

Japan 0.53%

Germany 0.95%

France 1.29%

Ireland 1.65%

Spain 2.14%

Canada 2.15%

Italy 2.33%

United Kingdom 2.39%

United States 2.49%

Developed-Country 10-Year Government Bond Yields

Real: inflation-adjusted. GDP: Gross Domestic Product. LEFT: The average real 10-year yield and real GDP compound annual growth rates are calculated since the inception dates of the inflation-adjusted government securities for the following countries: United Kingdom (Jan. 1985), Australia (Jun. 1985), Canada (Nov. 1991), United States (Apr. 1998), and Japan (Apr. 2004). Source: Country statistical organizations, Haver Analytics, Fidelity Investments (AART), as of 9/30/14. RIGHT: Past performance is no guarantee of future results. Source: Bloomberg Finance L.P., Fidelity Investments (AART), as of 9/30/14.

9

High Yield: Mid-Cycle Support, but Bouts of Volatility Likely

High-Yield Return Components: Spreads vs. Rates

-3

-2

-1

0

1

2

3

Jan-

13

Feb-

13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

Apr

-14

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep

-14

Spread Return Rate Return

Monthly Returns (%)

Fed Taper Scare

Rate Hike Anticipation?

Spread returns: Returns of the Bank of America Merrill Lynch (BofA ML) U.S. High-Yield Bond Index attributable to changes in credit spreads. Rate returns: Returns of the BofA ML U.S. High-Yield Bond Index attributable to changes in interest rates. Source: BofA ML U.S. High-Yield Bond Index, Fidelity Investments (AART), as of 9/30/14.

High-Quality Bonds Key to Diversifying Equity Exposure

10

Stocks and Bonds Rolling 36-Month Performance Correlations

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1928

1930

1932

1934

1936

1938

1940

1942

1944

1946

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Stocks and Intermediate U.S. Treasury Bonds Stocks and High Yield Bonds

Correlation Coefficient

Past performance is no guarantee of future results. Asset class total returns are represented by indexes from the following sources: Bank of America Merrill Lynch, Ibbotson Associates, Standard & Poor’s, Morningstar, Bloomberg Finance L.P., Fidelity Investments (AART), as of 9/30/14.

Corporate Profitability Still a Support for Stocks

11

Cyclical productivity: a proprietary measure of U.S. cyclical corporate productivity. CPI: Consumer Price Index. PPI: Producer Price Index. See appendix for important index information. Core inflation excludes food and energy prices. Source: Bureau of Labor Statistics, Haver Analytics, Fidelity Investments (AART), through 10/3/14.

EarningsMid-Single-Digit Growth

RevenueStable, Slow Growth

Nominal GDP Growth Steady, low-single-digit growth

Profit MarginsHigh and Steady

Cyclical Productivity Efficiency gains continue

Input CostsInput prices contained relative to consumer prices

Debt Service Low interest expense, debt maturities extended

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Cyclical ProductivityConsumer Inflation minus Producer Inflation

Earnings & Cyclical Productivity

Core Consumer Inflation minus Core

Producer Inflation

Year-over-Year Changein Cyclical Productivity (%)

Positive for Profit Margins

Negative for Profit Margins

Equity Valuations Not an Obstacle in 2014

12

P/E vs. 1-Year Forward Real Stock Returns

P/E vs. 20-Year Forward Real Stock Returns

One-Year Forward Real S&P 500 Total Return (since 1926)

20-Year Forward Annualized Real S&P 500 Total Return (since 1926)

R² = 0.03

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

0 10 20 30 40 50Shiller CAPE

R² = 0.46

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0 5 10 15 20 25 30Price / Trailing One-Year Operating Earnings

Past performance is no guarantee of future results. Shiller CAPE: Cyclically adjusted P/E. P/E: stock price divided by earnings per share. R2: a measure of how well a regression line fits the data, ranging from 0 to 1. Forward returns calculated through 6/30/14. LEFT: Historical CAPE valuation levels: Q4 1925 to 6/30/13. Source: Standard & Poor’s, Robert Shiller, Haver Analytics, Fidelity Investments, as of 6/30/14. RIGHT: Historical trailing one-year operating earnings valuation levels: Q4 1925 to 6/30/94. Source: Standard & Poor’s, Haver Analytics, Fidelity Investments (AART), as of 6/30/14.

Emerging-Market Valuations Remain Compressed

13

-35%

-26%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

EM Discount to US Valuations Median

Trailing 12-Month P/E Ratios

5

10

15

20

25

30

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

EM EM AverageEAFE EAFE Average

EM Forward P/E Discount to U.S.

P/E Ratio: share price divided by earnings. P/E ratios derived from: EM – MSCI Emerging Markets (EM) Index; EAFE – MSCI Europe, Australia, Far East (EAFE) Index; U.S. – MSCI USA Index. LEFT: EM Average: 1988-2014. EAFE Average: 1973 to 2014. RIGHT: Forward P/E valuations are price divided by next-twelve-months earnings estimates. BOTH: Source: FactSet, Fidelity Investments (AART), as of 5/31/14.

Secular Global Economic Growth Forecast Favors EMs

14

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

Japa

n

Ger

man

y

Italy

Net

herla

nds

Spai

n

Can

ada

Fran

ce

Sw

eden

Aus

tralia

U.K

.

U.S

.

Rus

sia

Sou

th K

orea

Thai

land

Sou

th A

frica

Mex

ico

Peru

Bra

zil

Chi

na

Mal

aysi

a

Turk

ey

Col

ombi

a

Indo

nesi

a

Phi

lippi

nes

Indi

a

Global Growth Rate = 2.1%

Real GDP Growth Forecast, 2014–2033Annualized Growth Rate

Countries in table sorted by per-capita income, from highest to lowest; Gray shading indicates working-age population growth will be slower over next 20 years, but maturing demographics should help to offset the negative impact on GDP growth. Source: Fidelity Investments (AART), as of 1/31/14.

Appendix: Important Information

15

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market and other conditions. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

These materials are provided for informational purposes only and should not be used or construed as a recommendation of any security, sector, or investment strategy.

Fidelity does not provide legal or tax advice and the information provided herein is general in nature and should not be considered legal or tax advice. Consult with an attorney or a tax professional regarding your specific legal or tax situation.

Past performance and dividend rates are historical and do not guarantee future results.

Investing involves risk, including risk of loss.

Diversification does not ensure a profit or guarantee against loss.

All indices are unmanaged, and performance of the indices includes reinvestment of dividends and interest income and, unless otherwise noted, is not illustrative of any particular investment. An investment cannot be made in any index.

Although bonds generally present less short-term risk and volatility than stocks, bonds do contain interest rate risk (as interest rates rise, bond prices usually fall, and vice versa) and the risk of default, or the risk that an issuer will be unable to make income or principal payments. Additionally, bonds and short-term investments entail greater inflation risk—or the risk that the return of an investment will not keep up with increases in the prices of goods and services—than stocks. Increases in real interest rates can cause the price of inflation-protected debt securities to decrease.

Stock markets, especially non-U.S. markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets.

The securities of smaller, less well-known companies can be more volatile than those of larger companies.

Growth stocks can perform differently from the market as a whole and from other types of stocks, and can be more volatile than other types of stocks. Value stocks can perform differently from other types of stocks and can continue to be undervalued by the market for long periods of time.

Lower-quality debt securities generally offer higher yields but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Floating-rate loans generally are subject to restrictions on resale, and sometimes trade infrequently in the secondary market; as a result, they may be more difficult to value, buy, or sell. A floating-rate loan may not be fully collateralized and therefore may decline significantly in value.

The municipal market can be affected by adverse tax, legislative, or political changes, and by the financial condition of the issuers of municipal securities. Interest income generated by municipal bonds is generally expected to be exempt from federal income taxes and, if the bonds are held by an investor resident in the state of issuance, from state and local income taxes. Such interest income may be subject to federal and/or state alternative minimum taxes. Investing in municipal bonds for the purpose of generating tax-exempt income may not be appropriate for investors in all tax brackets. Generally, tax-exempt municipal securities are not appropriate holdings for tax-advantaged accounts such as IRAs and 401(k)s.

The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.

The gold industry can be significantly affected by international monetary and political developments, such as currency devaluations or revaluations, central bank movements, economic and social conditions within a country, trade imbalances, or trade or currency restrictions between countries.

Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry.

Leverage can magnify the impact that adverse issuer, political, regulatory, market, or economic developments have on a company. In the event of bankruptcy, a company’s creditors take precedence over the company’s stockholders.


16

Market Indices

BofA ML Corporate Real Estate Index, a subset of BofA ML U.S. Corporate Index, is a market capitalization-weighted index of U.S. dollar-denominated investment-grade corporate debt publicly issued in the U.S. domestic market by real estate issuers. Qualifying securities must have an investment-grade rating (based on an average of Moody’s, S&P, and Fitch). In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule, and a minimum amount outstanding of $250 million. BofA ML U.S. Real Estate Index is a subset of the BofA ML Real Estate Corporate Index; qualifying securities must have an investment grade rating and an investment grade-rated country of risk. BofA ML U.S. High Yield Bond Index is a market capitalization-weighted index of U.S. dollar denominated below investment grade corporate debt publicly issued in the US domestic market

Barclays U.S. 1-3 (1-5) Year Government Credit Index includes all publicly issued U.S. government and corporate securities that have a remaining maturity between one and three (five) years and are rated investment grade. Barclays U.S. 1-5 Year Credit Index is designed to cover publicly issued U.S. corporate and specified non-U.S. debentures and secured notes with a maturity between one and five years and meet the specified liquidity and quality requirements; bonds must be SEC-registered to qualify. Barclays U.S. 1-5 Year Municipal Index covers the one- to five-year maturity, U.S. dollar-denominated, tax-exempt bond market with four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds.

Barclays ABS Index is a market value-weighted index that covers fixed-rate asset-backed securities with average lives greater than or equal to one year and that are part of a public deal; the index covers the following collateral types: credit cards, autos, home equity loans, stranded-cost utility (rate-reduction bonds), and manufactured housing. Barclays CMBS Index is designed to mirror commercial mortgage-backed securities of investment-grade quality (Baa3/BBB-/BBB- or above) using Moody’s, S&P, and Fitch, respectively, with maturities of at least one year. Barclays Emerging Market Bond Index is an unmanaged index that tracks total returns for external-currency-denominated debt instruments of the emerging markets. Barclays Long U.S. Government Credit Index includes all publicly issued U.S. government and corporate securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more of outstanding face value. Barclays U.S. MBS Index is a market value-weighted index of fixed-rate securities that represent interests in pools of mortgage loans, including balloon mortgages, with original terms of 15 and 30 years that are issued by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corp. (FHLMC). Barclays U.S. Agency Bond Index is a market value-weighted index of U.S. Agency government and investment-grade corporate fixed-rate debt issues. Barclays U.S. Aggregate Bond is a broad-based, market-value-weighted benchmark that measures the performance of the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. Barclays U.S. Corporate High Yield Bond Index is a market value-weighted index that covers the universe of

dollar-denominated, fixed-rate, non-investment grade debt. Barclays U.S. Credit Bond Index is a market value-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more. Barclays U.S. Government Index is a market value-weighted index of U.S. Government fixed-rate debt issues with maturities of one year or more. Barclays Municipal Bond Index is a market value-weighted index of investment-grade municipal bonds with maturities of one year or more. Barclays U.S. Treasury Inflation-Protected Securities (TIPS) Index (Series-L) is a market value-weighted index that measures the performance of inflation-protected securities issued by the U.S. Treasury. Barclays U.S. Treasury Bond Index is a market value-weighted index of public obligations of the U.S. Treasury with maturities of one year or more.

Bloomberg Commodity Index measures the performance of the commodities market. It consists of exchange-traded futures contracts on physical commodities that are weighted to account for the economic significance and market liquidity of each commodity.

The Citigroup G7 Equal Weighted Index is designed to measure the unhedged performance of the government bond markets of Japan, Germany, France, Britain, Italy, and Canada. The index is equal weighted by country. Issues included in the index have fixed-rate coupons and maturities of one year or more.

Dow Jones U.S. Select Real Estate Securities Index is a float-adjusted, market capitalization-weighted index of publicly traded real estate securities, such as real estate investment trusts (REITs) and real estate operating companies (REOCs).

FTSE 100 Index is a market capitalization-weighted index of the 100 most highly capitalized blue chip companies listed on the London Stock Exchange. FTSE National Association of Real Estate Investment Trusts (NAREIT) All REITs Index is a market capitalization-weighted index that is designed to measure the performance of all tax-qualified REITs listed on the NYSE, the American Stock Exchange, or the NASDAQ National Market List. FTSE NAREIT Equity REIT Index is an unmanaged market value-weighted index based on the last closing price of the month for tax-qualified REITs listed on the New York Stock Exchange (NYSE).

The Global Financial Data (GFD) World x/USA Return Index is a multi-country composite index with constituents weighted by relative GDP and stock market capitalizations; it is designed to approximate continuous and comparable world ex-U.S. equity returns from 1919 to 1969. GFD Emerging Markets Index is a composite of various regional EM indices in use before 1987 using a qualitatively selected weighting of constituent countries; it is designed to approximate continuous and comparable EM equity returns from 1920 to 1987.


17

Market Indices (continued)

The IA SBBI U.S. Small Stock Index is a custom index designed to measure the performance of small capitalization U.S. stocks. IA SBBI U.S. Intermediate-Term Government Bond Index is an unweighted index that measures the performance of five-year maturity U.S. Treasury bonds. Each year, a one-bond portfolio containing the shortest non-callable bond having a maturity of not less than five years is constructed. IA SBBI U.S. Long-Term Corporate Bond Index is a custom index designed to measure the performance of long-term U.S. corporate bonds. IA SBBI U.S. 30-Day Treasury Bill Index is an unweighted index that measures the performance of 30-day maturity U.S. Treasury bills.

JPM® EMBI Global Index, and its country sub-indices, total returns for the U.S. dollar-denominated debt instruments issued by Emerging Market sovereign and quasi-sovereign entities, such as Brady bonds, loans, and Eurobonds. JPM® EMBI Global Investment Grade Index, and its country sub-indices, tracks total returns for traded external debt instruments issued by emerging-market sovereign and quasi-sovereign entities rated investment grade. JPM® EMBI Global Investment Grade Index, and its country sub-indices, tracks total returns for traded external debt instruments issued by emerging-market sovereign and quasi-sovereign entities rated speculative grade.

MSCI® All Country (AC) Europe Index is a market capitalization-weighted index that is designed to measure the equity market performance of Europe; it consists of the following developed and emerging-market country indices: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden, Switzerland, Turkey, and United Kingdom. MSCI All Country World Index (ACWI) is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed and emerging markets. MSCI Europe Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of the developed markets in Europe. MSCI North America Index is a market capitalization-weighted index designed to measure the performance of large and mid cap segments of the U.S. and Canada markets. MSCI Pacific ex Japan Index is a market capitalization-weighted index that is designed to measure the equity market performance of four of the five developed market countries in the Pacific region including Australia, Hong Kong, New Zealand and Singapore. MSCI World Index is a market capitalization weighted index that is designed to measure the investable equity market performance for global investors of developed markets. MSCI World ex USA Index is a market capitalization-weighted index designed to measure the equity market performance of developed markets excluding the U.S.

MSCI Emerging Markets (EM) Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets. MSCI EM Asia Index is a market capitalization-weighted index designed to measure equity market performance in Asia. MSCI EM Europe, Middle East, and Africa (EMEA) Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in the emerging

market countries of Europe, the Middle East & Africa. MSCI EM Latin America Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in the emerging market countries of Latin America. MSCI EM Large Cap Index is composed of those securities in the MSCI EM Index that are defined as large-capitalization stocks.

MSCI Europe, Australasia, Far East Index (EAFE) is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in developed markets, excluding the U.S. & Canada. MSCI EAFE Small Cap Index is a market capitalization-weighted index that is designed to measure the investable equity market performance of small cap stocks for global investors in developed markets, excluding the U.S. and Canada.

MSCI Canada Index is a market capitalization-weighted index designed to measure equity market performance in Canada. MSCI China Index is a market capitalization-weighted index designed to measure equity market performance in China. MSCI Japan Index is a market capitalization-weighted index designed to measure equity market performance in Japan. MSCI USA Index is a market capitalization-weighted index designed to measure the equity market performance of the U.S.

MSCI REIT Preferred Index is a preferred stock market capitalization-weighted total return index of certain exchange-traded perpetual preferred securities issued by U.S. Equity and U.S. Hybrid REITs.

Russell 2000® Index is a market capitalization-weighted index designed to measure the performance of the small-cap segment of the U.S. equity market. It includes approximately 2,000 of the smallest securities in the Russell 3000 Index. Russell 3000® Index is a market capitalization-weighted index designed to measure the performance of the 3,000 largest companies in the U.S. equity market. Russell 3000 Growth Index is a market capitalization-weighted index designed to measure the performance of the broad growth segment of the U.S. equity market. It includes those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth rates. Russell 3000 Value Index Russell 2500 Value Index is a market capitalization-weighted index designed to measure the performance of the small to mid-cap value segment of the U.S. equity market. It includes those Russell 2500 Index companies with lower price-to-book ratios and lower forecasted growth rates. Russell Midcap® Index is a market capitalization-weighted index designed to measure the performance of the mid-cap segment of the U.S. equity market. It contains approximately 800 of the smallest securities in the Russell 1000 Index.

The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. S&P 500 is a registered service mark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation and its affiliates. The S&P 500 Total Return Index represents the price changes and reinvested dividends of the S&P 500® Index. The S&P SmallCap 600 is a market capitalization-weighted index of 600 small-capitalization stocks.


18

Market Indices (continued)

Sectors and industries defined by Global Industry Classification Standards (GICS®), except where noted otherwise.

S&P 500 sectors are defined as follows: Consumer Discretionary – companies that tend to be the most sensitive to economic cycles. Consumer Staples – companies whose businesses are less sensitive to economic cycles. Energy – companies whose businesses are dominated by either of the following activities: the construction or provision of oil rigs, drilling equipment, and other energy-related services and equipment, including seismic data collection; or the exploration, production, marketing, refining, and/or transportation of oil and gas products, coal, and consumable fuels. Financials – companies involved in activities such as banking, consumer finance, investment banking and brokerage, asset management, insurance and investments, and real estate, including REITs. Health Care –companies in two main industry groups: health care equipment suppliers, manufacturers, and providers of health care services; and companies involved in research, development, production, and marketing of pharmaceuticals and biotechnology products. Industrials –companies whose businesses manufacture and distribute capital goods, provide commercial services and supplies, or provide transportation services. Information Technology – companies in technology software & services and technology hardware & equipment. Materials – companies that are engaged in a wide range of commodity-related manufacturing. Telecommunication Services – companies that provide communications services primarily through fixed-line, cellular, wireless, high bandwidth, and/or fiber-optic cable networks. Utilities – companies considered electric, gas, or water utilities, or companies that operate as independent producers and/or distributors of power.

Standard & Poor’s/Loan Syndications and Trading Association (S&P/LSTA) Leveraged Performing Loan Index is a market value-weighted index designed to represent the performance of U.S. dollar-denominated institutional leveraged performing loan portfolios (excluding loans in payment default) using current market weightings, spreads and interest payments.

Other Indices

The London Bullion Market Association (LBMA) publishes the international benchmark price of gold in USD, twice daily.

A purchasing managers’ index (PMI) is a survey of purchasing managers in a certain economic sector. A PMI over 50 represents expansion of the sector compared to the previous month, while a reading under 50 represents a contraction, and a reading of 50 indicates no change. The Institute for Supply Management ® reports the U.S. manufacturing PMI ®. Markit compiles non-U.S. PMIs.

The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan and Thomson Reuters.

Definitions

Correlation coefficient measures the interdependencies of two random variables that range in value from −1 to +1, indicating perfect negative correlation at −1, absence of correlation at 0, and perfect positive correlation at +1.

The Price-to-Earnings (P/E) ratio is the ratio of a company’s current share price to its current earnings, typically trailing 12-months earnings per share. A Forward P/E calculation will typically use an average of analysts’ published estimates of earnings for the next 12 months in the denominator.

R2 is a measure of how well a regression line fits the data, ranging from 0 to 1.

Sharpe ratio compares portfolio returns above the risk-free rate relative to overall portfolio volatility. A higher Sharpe ratio implies better risk-adjusted returns.

Standard deviation shows how much variation there is from the average (mean or expected value). A low standard deviation indicates that the data points tend to be very close to the mean, whereas a high standard deviation indicates that the data points are spread out over a large range of values. A higher standard deviation represents greater relative risk.

---

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