q12015jpmguidetomarkets by McGowanGroup Asset Management

4Q 1Q | 2015 2013 AsAsofofSeptember December 30, 31, 2013 2014

速

Guide to the Markets

Global Market Insights Strategy Team

Americas

Europe

Asia

Dr. David P. Kelly, CFA New York

Stephanie H. Flanders London

Tai Hui Hong Kong

Andrew D. Goldberg New York

Maria Paola Toschi Milan

Geoff Lewis Hong Kong

Anastasia V. Amoroso, CFA Houston

Vincent Juvyns Luxembourg

Yoshinori Shigemi Tokyo

James C. C Liu, Liu CFA Chicago

Manuel Arroyo Ozores, Ozores CFA Madrid

Grace Tam Tam, CFA Hong Kong

Julio C. Callegari S達o Paulo

Tilmann Galler, CFA Frankfurt

Ian Hui Hong Kong

David M. Lebovitz New Yorkk

David Stubbs, PhD London d

Ben Luk Hong Kong

Gabriela D. Santos New York

Lucia Gutierrez Madrid

Ainsley E. Woolridge New York

Kerry Craig, CFA London

Hannah J. Anderson New York

Alexander W. Dryden London

Abigail B. Dwyer New York

Nandini Ramakrishnan London

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

Page Reference Equities 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

S&P 500 Index at Inflection Points Returns and Valuations by Style Returns and Valuations by Sector Stock Valuation Measures: S&P 500 Index Corporate Profits and Leverage Sources of Earnings per Share Growth Equity Performance in Bull Markets Interest Rates and Equities Deploying Corporate Cash y Declines Annual Returns and Intra-year Equity Correlations and Volatility Stock Market Since 1900

Economy 16. 17. 18. 19. 20. 21. 22. 23. 24. 25 25. 26. 27. 28. 29. 30.

Interest Rates and Inflation The Fed and Interest Rates Shape of the Yield Curve Global Monetary Policy Sources of Bond Returns

36. 37. 38. 39. 40. 41.

Fixed Income Yields and Returns Global Fixed Income Municipal Finance High Yield Bonds Emerging Market Debt Fixed Income Sector Returns

International

Page 16

Economic Growth and the Composition of GDP Consumer Finances Credit Conditions Cyclical Sectors Residential Real Estate Long-term Drivers of Economic Growth Federal Finances Unemployment and Wages Labor Market Perspectives Employment and Income by Educational Attainment Inflation Trade and the U.S. Dollar Energy: Supply, Demand and Prices Energy Price Impacts Consumer Confidence and the Stock Market

Fixed Income 31. 32. 33. 34. 35.

Page 4

42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55.

Global Equity Markets International Equity Earnings and Valuations Global Economic Growth Manufacturingg Momentum Sovereign Debt Stresses Europe: Cyclical Headwinds and Tailwinds Europe: Unemployment, Inflation, and Credit Markets Japan: Economic Snapshot China: Economic and Credit Growth Demographics and Development Emerging Market Currencies Emerging Market Equities Global Equity Valuations: Developed Markets Global Equity Valuations: Emerging Markets

Asset Class

g 31 Page

56. 57 57. 58. 59. 60. 61. 62. 63. 64 64. 65. 66. 67.

Page 42

Asset Class Returns Correlations and Volatility Alternative Asset Class Returns Fund Flows Yield Alternatives: Domestic and Global Global Real Assets Global Commodities Life Expectancy and Pension Shortfall Historical Returns by Holding Period Diversification and the Average Investor Cash Accounts Corporate DB Plans and Endowments

Page 56

S&P 500 Index at Inflection Points S&P 500 Index Characteristic

Equities

2,200

Mar-2000

Oct-2007

Dec-2014

1,527 25 25.6x 6x 1.1% 6.2%

1,565 15 2x 15.2x 1.8% 4.7%

2,059 16 2x 16.2x 1.9% 2.2%

Index level P/E ratio (fwd.) (fwd ) Dividend yield 10-yr. Treasury

2,000

1,800

2 059 2,059

Oct. 9, 2007 P/E (fwd.) (fwd ) = 15.2x 15 2x

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

1,565

1,527

1,600

Dec. 31, 2014 P/E (fwd.) = 16.2x

+101%

1,400

+106%

+204% -57%

1,200

-49% 1,000 Dec. 31, 1996 P/E (fwd.) = 16.0x

741

800

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

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

677

777

600 '97 97

'98 98

'99 99

'00 00

'01 01

'02 02

'03 03

'04 04

'05 05

'06 06

'07 07

'08 08

'09 09

'10 10

'11 11

'12 12

Source: Standard & Poorâ&#x20AC;&#x2122;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 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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

'13 13

'14 14

Returns and Valuations by Style

4.9%

4.8%

6.1%

9.4%

5.9%

9.7%

5.8%

10.1%

Blend

Growth

13.5%

13.7%

13.0%

14.7%

4.2%

13.2%

4.9%

11.9%

5.6%

Value Large

5.0%

Value

Mid

Growth

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

Small

Blend

Mid

Value

Large

2014

Small

Large Mid Small

Equities

4Q14

15.5

Blend 16.2

14.0 16.4

18.7 16.1

18.6 14.2

16.4

21.0 20.0

16.5 18.1

14.5

Growth

21.9 20.0

17.3

21.5

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

Large

42.1%

54.0%

70.1%

Large

254.4% 244.2% 246.9%

68 5% 68.5%

70 0% 70.0%

69 6% 69.6%

Mid d

330 1% 310.3% 330.1% 310 3% 292.0% 292 0%

48.1%

57.6%

66.7%

Small

Value

Blend

Growth

266.2% 279.9% 293.3%

Value

Blend

Growth

Large

Growth

110.1%

100.6%

89.0%

Mid

Blend

E.g.: Large Cap Blend stocks are fairly valued compared to historical average.

118.1%

112.7%

94.5%

Small

Value

Mid d

Since Market Low (March 2009)

Small

Since Market Peak (October 2007)

113.1%

104.4%

93.3%

Source: Russell Investment Group, Standard & Poor’s, FactSet, J.P. Morgan Asset Management. All calculations are cumulative total return, including dividends reinvested for the stated period. Since Market Peak represents period 10/9/07 – 12/31/14, illustrating market returns since the S&P 500 Index high on 10/9/07. Since Market Low represents period 3/9/09 – 12/31/14, 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 reflect latest available data. Earnings estimates are as of November for Russell Indexes and as of December for Standard & Poor’s. Guide to the Markets – U.S. Data are as of 12/31/14.

ex In d 50 0

10.4% 12.2% 10.1%

8.4% 4.5% 11.3%

12.1% 18.7% 6.6%

9.8% 10.5% 7.4%

2.3% 2.1% 2.1%

3.2% 0.1% 6.4%

3.2% 4.0% 3.0%

100.0% 100.0% 100.0%

2014

15.2

20.1

25.3

9.8

-7.8

9.7

16.0

3.0

29.0

6.9

13.7

4Q14

7.2

5.2

7.5

6.8

-10.7

8.7

8.2

-4.2

13.2

-1.8

4.9

-19.6

78.6

118.7

52.4

16.9

115.8

112.3

22.5

54.0

33.5

54.0

338.7

274.2

252.6

318.9

114.1

399.5

197.7

133.9

169.5

217.9

244.2

Beta to S&P 500

1.44

1.10

0.70

1.20

0.99

1.13

0.57

0.63

0.50

1.27

1.00

C Correl l to Treas. T Yields Yi ld

0 20 0.20

0 03 0.03

-0.16 0 16

0 17 0.17

0 29 0.29

0 06 0.06

-0.19 0 19

-0.21 0 21

-0.50 0 50

0 12 0.12

0 04 0.04

Since Market Peak (October 2007)

Since Market Low (March 2009)

Forward P/E Ratio

13.6x

15.9x

17.2x

16.3x

16.5x

18.4x

19.1x

13.5x

17.4x

16.1x

16.2x

15-yr avg.

12.7x

20.6x

17.3x

17.0x

13.6x

18.5x

18.4x

16.9x

14.0x

16.0x

16.1x

Trailing P/E Ratio

16.8x

19.3x

24.4x

17.9x

12.8x

21.0x

22.5x

10.9x

19.9x

19.1x

18.6x

20-yr avg.

16.5x

26.0x

24.1x

20.3x

17.1x

19.3x

21.3x

19.8x

15.0x

19.5x

Dividend Yield

1.8%

1.5%

1.4%

2.1%

2.9%

1.4%

2.5%

4.7%

3.5%

2.1%

1.9%

20-yr avg.

2.1%

0.7%

1.4%

1.7%

0.9%

2.1%

4.2%

4.3%

2.1%

1.7%

Return (%)

14.2% 14.2% 13.7%

ρ β

19.7% 28.3% 9.5%

Weight

S& P

at er ia ls M

Ut il

iti

es Te le co m

Co n

St ap l

Di sc r. s. Co n

er gy En

du st ria ls In

ar e He al th

og ol Te ch n

16.6% 5.3% 29.9%

P/E

S&P Weight Russell Growth Weight Russell Value Weight

Div v

Equities

na nc ia ls

Returns and Valuations by Sector

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 – 12/31/14. Since Market Low represents period 3/9/09 – 12/31/14. 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 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 12/31/14.

Stock Valuation Measures: S&P 500 Index

Equities

U.S. Equity: Valuation Measures Valuation Measure P/E

Description Price to Earnings

CAPE Div. Yield

Shiller's P/E Dividend Yield

REY

Real Earnings Yield

P/B P/CF EY Spread

Historical Averages 5-year 1-year ago avg avg.

Latest

10-year avg avg.

25-year avg * avg.

16.2x

15.4x

13.5x

13.8x

15.6x

27.3

25.5

22.5

22.9

25.3

1.9%

2.0%

2.1%

3.7%

4.3%

3.3%

2.3%

P i tto Book Price B k

29 2.9

27 2.7

23 2.3

24 2.4

29 2.9

Price to Cash Flow EY Minus Baa Yield

11.4

10.8

9.3

9.7

11.3

1.5%

1.6%

2.2%

1.3%

-0.7%

S&P 500 Index: Forward P/E Ratio

S&P 500 Earnings Yield vs. Baa Bond Yield

26x

14%

24x

S&P 500 Earnings Yield (Inverse of fwd. P/E): 6.2%

12%

22x 20x

10%

18x

Current: 16.2x

16x Average: 15.6x

14x

8% 6%

12x

Moody’s Baa Yield: 4.7%

10x 8x '90 90

'92 92

'94 94

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

'10 10

'12 12

'14 14

'90 90

'92 92

'94 94

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

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 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 12/31/14.

'08 08

'10 10

'12 12

'14 14

Corporate Profits and Leverage S&P 500 Earnings Per Share and Performance Index level and quarterly operating earnings

Equities

$31

Profit Margins 11%

4Q14*: $30.50

S&P 500 Operating EPS % of Sales per Share** After-Tax Adj After-Tax, Adj. Corp. Corp Profits Profits, % of GDP

10%

3Q14*: 10.1%

$27

2Q07: $24.06

3Q14: 8.8%

$23 6% 5%

$19 4% '60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

Total Leverage

$15

S&P 500, 500 ratio of total debt to total equity equity, quarterly 220%

$11 200% 180%

$7 160%

A Average: 162% 140%

4Q14: 100%

120% 100%

-$1 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

80%

'96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 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 3Q14 as 4Q14 is a Standard & Poor’s preliminary estimate. **S&P 500 Operating EPS % of Sales per Share fell to 0% in 4Q2008 and is adjusted on the chart. Past performance is not indicative of future returns. Guide to the Markets – U.S.

Data are as of 12/31/14.

'12 12

'14 14

Sources of Earnings per Share Growth S&P 500 Year-Over-Year EPS Growth

Growth broken into revenue, changes in profit margin & changes in share count

Equities

50%

Share of EPS Growth Margin Revenue Share count

40%

3Q14* Q 3.6% 6.3% 0.1%

30%

20%

10%

-10%

-20%

-30%

-40%

-50% 3Q94

3Q96

3Q98

3Q00

3Q02

3Q04

3Q06

3Q08

3Q10

Source: Standard & Poorâ&#x20AC;&#x2122;s, Compustat, J.P. Morgan Asset Management. EPS levels are based on operating earnings per share. *Most recently available data is 3Q14. 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. Guide to the Markets â&#x20AC;&#x201C; U.S.

Data are as of 12/31/14.

3Q12

3Q14

Equity Performance in Bull Markets S&P 500 Performance and Average Valuation

S&P 500 Levels Near Market Highs

300%

90%

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

Price returns to peak after crossing average real earnings yield

Equities

Returns to p peak price p after average g valuation Returns before markets pass average valuation 240%

83% 84%

1991-2000 80%

78%

2002-2007 2009-Today

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

70% 0%*

60% 83%

180% 50% 42%

40%

49%

120%

36% 33%

30% 30% 4%

60%

20%

16% 15%

10%

29%

49%

73%

121%

59%

180%

101%

204%

'66

'70

'74

'82

'87

'90

'02

'09

Start of Bull Market

17% 13% 11%

New High Within 1% Within 5% Percent of days during a Bull Market spent at record highs highs, or within a 1% or 5% range of the record high

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 22% to reach its long-term average real earnings yield of 2.5%. Guide to the Markets – U.S. Data are as of 12/31/14

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

Equities

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

0.6 Positive relationship between yield movements and stock returns

Corre elation Coefficient

0.4

Graph Key Last 12 Months 1963  12 Months Ago

0.2

-0.2

Negative relationship between yield movements t and d stock returns

-0.4

-0.6

-0.8 0%

10%

10-Year 10 Year Treasury Yield 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 12/31/14.

12%

14%

16%

Deploying Corporate Cash Corporate Growth

Equities

Corporate Cash as a % of Current Assets

S&P 500 companies – cash and cash equivalents, quarterly

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

32%

$1,800

30%

$1,700

$1,600

28%

$1,600

$1,400

26%

$1,500

$1,200

24%

$1,400

$1,000

22%

$1,300

$800

20%

$1,200

$600

18%

$1,100

$400

16%

$1,000

$200

14%

$900 '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Cash Returned to Shareholders

60%

$39

$bn S&P 500 companies, $bn, companies rolling 4-quarter 4 quarter averages $36

50%

40%

$1,800

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

Dividend Payout Ratio S&P 500 companies, companies LTM

M&A Activity

Capital Expenditures

Dividends per Share

$160 $140

$33

$120

$30

$100

$27

$80

$24

30%

$60

$21 $18

Share Buybacks

$15

20% '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

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

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 12/31/14.

$40

Annual Returns and Intra-year Declines S&P 500 Intra-year Declines vs. Calendar Year Returns Despite average intra-year drops of 14.2%, annual returns positive in 27 of 35 years* 2014

Equities

40% 34 31

30%

30 27

23 20

20%

10%

-8

-7

-10

-8

-9

-8

-7

-6

0 -3

-5 -9

-8 11 -11

-13 -17

-18

3 -2

-10%

-20%

-12

-17 -19

-20

-8

-10 -13

-7

-8

-6 -10

-10

-14

-7

-16

-17

-19 -23

-30%

-28

-30 -34

-34

-40% 40%

-38

-50%

-49

-60% '80

'82

'84

'86

'88

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

Source: Standard & Poorâ&#x20AC;&#x2122;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 2014. Guide to the Markets â&#x20AC;&#x201C; U.S.

Data are as of 12/31/14.

'10

'12

'14

Equity Correlations and Volatility Sovereign Debt Crisis

Large Cap Stocks Correlations Among Stocks

Equities

70%

Great Depression / World War II

60%

Cuban Missile Crisis

50%

Lehman B k Bankruptcy t

1987 Crash OPEC Oil Crisis

40%

Tech Bust & 9/11

30% 20%

Dec. 2014: 37.4%

Average: 27.0

10% 0% '26

'32

'38

'44

'50

'56

'62

Daily Volatility of DJIA

'68

'74

'80

'86

Volatility y Measure ‘08 Peak DJIA (Left) 3.30% VIX (Right) 80.9

3.5% 3.0%

'92

Average g 0.71% 20.0

'98

'04

'10

Latest 0.58% 19.2

90 75

DJIA vol. shown in 3-month moving average

2.5% 2.0%

60 45

1.5% 30

1.0%

0.5% 0.0%

0 '30 30

'35 35

'40 40

'45 45

'50 50

'55 55

'60 60

'65 65

'70 70

'75 75

'80 80

'85 85

'90 90

'95 95

'00 00

'05 05

'10 10

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 12/31/14.

Stock Market Since 1900 S&P Composite Index

Equities

Log Scale

2000 – present 1,000

300 1966 – 1974 100 40 1937 – 1948 1900 – 1924

'00

'10

'20

'30

'40

'50

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. Guide to the Markets – U.S. Data are as of 12/31/14.

'60

'70

'80

'90

'00

'10

Economic Growth and the Composition of GDP Components of GDP

Real GDP

Year-over-year % chg

3Q14 nominal GDP, trillions USD

10%

Real GDP YoY % chg:

Econom my

QoQ % chg:

3Q14

$18

2.7% 5.0%

$16 $14

6% Average: 3.0%

3.2% Housing 13.3% Investment Ex-housing

18.2% Govâ&#x20AC;&#x2122;t Spending

$12

$10 2%

68 2% Consumption 68.2%

0% Expansion Average: 2.3%

-2%

$4 $2

-4%

$0 - 2.9% Net Exports

-$2

-6% '65 65

'70 70

'75 75

'80 80

'85 85

'90 90

'95 95

'00 00

'05 05

'10 10

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 full period. Expansion average refers to the period starting in the second quarter of 2009. Guide to the Markets â&#x20AC;&#x201C; U.S.

Data are as of 12/31/14.

Consumer Finances Consumer Balance Sheet

3Q14, Trillions of dollars outstanding, not seasonally adjusted

$100

Total Assets: $ $95.4tn

3Q-‘07 Peak: $82.1tn 1Q-‘09 Q Low: $67.0tn $

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

4Q07: 13 2% 13.2%

13%

$90 12%

Homes: 24%

Econom my

$80

1Q80: 10.6% 4Q14**: 9.9%

11%

$70 $60 $50

Other Tangible: 6% Deposits: 9%

9% '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14

Household Net Worth Billions USD, USD not seasonally adjusted

Pension Funds: 21% %

$40 $30 $20

10%

Other Financial Assets: 39%

Other Non-revolving: 1% Revolving*: 6% Auto Loans: 7% Other Liabilities: 9% Student Debt: 9% Total Liabilities: $14.1tn

2Q07: $67,874

$90,000 $80,000 $70,000 $60,000 $50 000 $50,000 $40,000 $30,000

$10

Mortgages: 68% $0

$20,000 $10,000 '90 90

'92 92

'94 94

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

Source: (Left) FRB, J.P. Morgan Asset Management. Data include households and nonprofit organizations. (Right) BEA, FRB, J.P. Morgan Asset Management. *Revolving includes credit cards. **4Q14 household debt service ratio and 4Q14 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 12/31/14.

4Q14**: Q $82,907

'08 08

'10 10

'12 12

'14 14

Credit Conditions Common Equity as a % of Total Assets

Delinquency Rates

14%

12%

All FDIC insured institutions, 1934 â&#x20AC;&#x201C; 2013

All banks, seasonally adjusted

2013: 11.1%

12%

10%

Econom my

Residential Mortgages Consumer Loans Commercial and Industrial Loans

10%

7.0%

Average: 7.7%

4% 6%

2 2% 2.2%

0.8%

0% '34

'40

'46

'52

'58

'64

'70

'76

'82

'88

'94

'00

'06

'92

'12

Loan Growth

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

Lending Standards for Approved Mortgage Loans

G th in Growth i loans l outstanding t t di att commercial i l bbanks, k YoY, Y Y seasonally ll adjusted dj t d

Average FICO score based on origination date

760

30%

Real Estate Loans

Nov. 2014: 12.8%

20% 10%

Nov. 2014: 744

740 720

0% -10%

Nov. 2014: 2.7%

Commercial and Industrial Loans

680

-20% -30%

'00

'01

'02

'03

'04

'05

'06

'07

'08

700

'09

'10

'11

'12

'13

'14

660

00 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14 '00 Source: (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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Cyclical Sectors Manufacturing and Trade Inventories

Light Vehicle Sales

Days of sales, seasonally adjusted

Millions, seasonally adjusted annual rate 24

Dec. 2014: 16.8

20 18

Econom my

45 44 43 42

Oct. 2014: 39.5

Average: 15.3

37 '96

'98

'00

'02

'04

'06

'08

'10

'12

'14

Housing Starts

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

Real Capital Goods Orders

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

N d f Non-defense capital it l goods d orders d ex. aircraft, i ft $ bn, b seasonally ll adjusted dj t d

2,400

$75 $70

2,000

Nov. 2014: 61.0

$65

1,600 $60

A Average: 1 348 1,348

1 200 1,200

$55

800

Average: 56.8

$50

Nov. 2014: 1,028

400

$45 $40

0 '96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

'10 10

'12 12

'14 14

'96

'98

'00

'02

'04

'06

'08

'10

Source: (Top left) BEA, FactSet, J.P. Morgan Asset Management. (Top right) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom left) Census Bureau, FactSet, J.P. Morgan Asset Management. (Bottom right) Census Bureau, FactSet, J.P. Morgan Asset Management. Capital goods orders deflated using the producer price index for capital goods with a base year of 2004. Guide to the Markets â&#x20AC;&#x201C; U.S.

Data are as of 12/31/14.

'12

'14

Residential Real Estate Housing Affordability Index

Home Prices

Avg. mortgage payment as a % of household income

Indexed to 100, seasonally adjusted

40%

125 120

Case Shiller 20-city

3 % 35%

FHFA Purchase Only

30%

Average Existing Home

Econom my

115

Nov. 2014: 12.1%

25% 20%

110

Average: 20.3%

15% 10%

105

'75

'78

'81

'84

'87

'90

'93

'96

'99

'02

'05

'08

'11

'14

Home Inventories

100

Millions annual rate Millions, rate, seasonally adjusted 4.5

95 4

3.5

Nov. 2014: 2.4

2.5

80 2

1.5 '94 94 '96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 '12 12 '14 14 Sources: (Left) National Association of Realtors, Standard & Poorâ&#x20AC;&#x2122;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.

'05 05

'06 06

'07 07

Guide to the Markets â&#x20AC;&#x201C; U.S.

Data are as of 12/31/14.

'08 08

'09 09

'10 10

'11 11

'12 12

'13 13

'14 14

Long-term Drivers of Economic Growth Gross Investment and Depreciation

Growth in Employment and Real Output Per Worker*

Private nonresidential fixed investment, % of GDP

Depreciation

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

16%

Gross investment spending p g

5% Average growth A th 50 yr. 10 yr.

12%

Econom my

5 yr.

Employment

1.5%

0.5%

1.1%

Real Output Per Worker

1.5%

1.1%

1.3%

GDP

3.0%

1.6%

2.4%

Real Output Per Worker 0% '90

'95

'00

'05

'10

Real Capital Stock Growth

Nonresidential fixed assets, assets year year-over-year over year % chg 5% 4% 3% 2%

Employment Growth

2013: 1.6% 0%

1% -1% '70 '80 '90 1990 1995 2000 2005 2010 Source: 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.

Guide to the Markets â&#x20AC;&#x201C; U.S.

Data are as of 12/31/14.

'00

'10

Federal Finances Federal Budget Surplus/Deficit

The 2015 Federal Budget

% of GDP, 1990 – 2024, 2014 CBO Baseline

CBO Baseline forecast, trillions USD $4.0

T t l Spending: Total S di $3.8tn $3 8t

Econom my

$3.5

$3.0

-10% 10%

Other $550bn (15%)

Borrowing: $469bn (13%)

-8%

Other: $302bn (8%)

-4%

Net Int.: $251bn (7%) Non-defense Disc.: $506bn (13%)

$2.5

$2.0

$0.5

-6%

Social Insurance: $1,065bn (28%)

Defense: $608bn (16%)

2% 4% '90

'95

'00

'05

'10

'15

'20

% of GDP GDP, 1940 – 2024, 2024 2014 CBO Baseline, Baseline end of fiscal year

Income: $1 526bn (41%) $1,526bn

Forecast

120% 100%

2024: 2015: 77.2% 74.0%

80% 60%

Medicare & Medicaid: $948bn (25%)

40%

$0.0

20%

Total Government Spending

Sources of Financing

'40 40

'48 48

'56 56

'64 64

'72 72

'80 80

'88 88

'96 96

'04 04

Source: U.S. Treasury, BEA, CBO, St. Louis Fed, J.P. Morgan Asset Management. 2015 Federal Budget is based on the CBO’s August 2014 Baseline Budget Forecast. 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). 2015 numbers are CBO estimates as of August 2014.

'25

Federal Net Debt (Accumulated Deficits)

Social Security: $887bn (24%)

$1.0

2015: -2.6%

-2%

Corp.: $389bn (10%) $1.5

Forecast

-12%

Guide to the Markets – U.S. Data are as of 12/31/14.

'12 12

'20 20

Unemployment and Wages Civilian Unemployment Rate and Year-over-Year Growth in Wages of Production and Non-Supervisory Workers Seasonally adjusted, percent 12%

Oct. 2009: 10.0%

Econom my

10%

Unemployment

50-yr. Average: 6.1% 6%

Nov. 2014: 5.8% 49-yr. Average: 4.3%

Nov. 2014: 2.2% 2%

Wage Growth

0% '70 70 Source: BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

'80 80

'90 90

'00 00

'10 10

Labor Market Perspectives Employment – Total Private Payroll

Labor Force Participation Rate

Total job gain/loss (thousands) 600

68%

8.8mm jobs lost

400

67%

200

66%

65%

Econom my

-200

10.9 mm jobs gained

-400 -600

64% 63%

-800 -1,000

Nov. 2014: 62.8%

62%

'05

'06

'07

'08

'09

'10

'11

'12

'13

'90

'14

Net Job Creation Since Feb. 2010 – Millions of Jobs

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

Ratio of Unemployed to Job Openings 7

3 mm

3.2

2.9 2 mm

2.1

1.9

1 mm

0.9 0 mm

-0.5

-1 mm Info. Fin & Mfg. Trade & Leisure, Edu. & Mining & Bus. Svcs. Trans. Hospt. & Health Svcs. Construct. Other Svcs. Source: BLS, FactSet, J.P. Morgan Asset Management. Guide to the Markets – U.S. Data are as of 12/31/14.

Gov't

Oct. 2014: 1.9 '01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Employment and Income by Educational Attainment Unemployment Rate by Education Level

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

18%

$90,000

Less than High School Degree High School No College Some College College or Greater

16%

$80,000

14%

Econom my

$84,852

+28K

$70,000

Nov 2014: Nov. 8.5%

12%

Nov. 2014: 5.6%

10%

$56,665

$60,000

$50,000

+26K 8%

$40,000

$30,000

$30,627 Nov. 2014: 4.9% 4%

$20,000 ,

Nov. 2014: 3.2%

$0 '92

'94

'96

'98

'00

'02

'04

'06

'08

'10

Source: BLS, Census Bureau, FactSet, J.P. Morgan Asset Management. Unemployment rates shown are for civilians aged 25 and older. Guide to the Markets â&#x20AC;&#x201C; U.S.

$10,000

Data are as of 12/31/14.

'12

'14

High School Graduate

Bachelor's Bachelor s Degree

Advanced Degree

Inflation CPI and Core CPI

CPI Components

% change vs. prior year, seasonally adjusted 15%

Headline CPI Core CPI Headline PCE Core PCE

Econom my

12%

50 50-yr. A Avg.

N Nov. 2014

4.2% 4.1% 3.6% 3.5%

1.3% 1.7% 1.2% 1.4%

Weight in CPI

12-month Change

F d & Bev. Food B

14 1% 14.1%

3 2% 3.2%

Housing

32.3%

3.0%

Apparel

3.5%

-0.3%

Transportation p

5.6%

1.8%

Medical Care

5.8%

2.3%

Recreation

2.0%

-2.8%

Edu. & Comm.

0.6%

-4.0%

Other

1.6%

1.5%

100.0%

1.3%

Energy

8.9%

-4.8%

Food

14.1%

3.2%

Core CPI

77.1%

1.7%

Headline CPI Less:

-3%

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago and reflect November 2014 CPI data. CPI component weights are as of November 2014. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed weight basket used in CPI calculations.

Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Trade and the U.S. Dollar Current Account Balance and Oil Imports, % of GDP -7%

U.S. Dollar Index Monthly average of nominal trade-weighted exchange index: major currencies 115

4Q05: -6.2%

F Forecast* * 110

-6%

Econom my

105 -5% 100

-4%

90 -3%

C Current tA Accountt B Balance l

3Q14: -2.3%

Mar 2009: Mar. 2009 84.0

-2%

2Q08: 2Q08 -3.1%

-1%

Net Oil Imports

3Q14: -1.0%

'99 99 '01 01 '03 03 '05 05 '07 07 '09 09 '11 11 '13 13 Source: BEA, EIA, Federal Reserve, FactSet, J.P. Morgan Asset Management.

Mar. 2008: 70.3

0% '15 15

'96

'98

'00

'02

'04

*Oil imports as a percent of GDP is an EIA forecast. **December U.S. Dollar index value is a J.P. Morgan Asset Management estimate. Guide to the Markets â&#x20AC;&#x201C; U.S.

Dec 2014**: Dec. 2014 : 84.3

Data are as of 12/31/14.

'06

'08

'10

'12

'14

Energy: Supply, Demand and Prices Change in Production and Consumption of Oil Production, consumption and inventories, million barrels per day

Price of Oil

Brent crude, nominal prices , USD/bbl $160

2013

2014* 2014

2015* 2015

Production

Growth since 2013

$140 $120

Econom my

$100

U.S.

12.3

13.9

14.9

20.7%

OPEC

36.0

35.9

-0.3%

Other

41.8

42.1

41.9

0.4%

Global

90.2

92.0

92.8

2.9%

$80 $60

Dec. 2014: $57.33

$40 $20 $0 '86

'88

'90

'92

'94

'96

'98

'00

U.S. Natural Gas Production**

Consumption

Trillions of cubic feet feet, USD

U.S.

19.0

19.1

0.7%

Europe

13.6

13.5

13.4

-1.9%

Japan

4.5

4.4

4.2

-6.4%

China

10.6

11.0

11.3

6.9%

Other

42.8

43.6

44.3

3.6%

Global

90.5

91.4

92.3

2.0%

'02

'04

'06

'08

'10

'12

'14

EIA Forecast

Gbl. Natural Gas Prices Japan Germany U.S.

$13.86 $10.16 $3.65

Shale Gas Other***

Inventory Change

-0.3

0.5

0.4

'95 95 '00 00 '05 05 '10 10 '15 15 '20 20 Source: EIA, FactSet, J.P. Morgan Asset Management. *Forecasts are from EIA Annual Energy Outlook and start in 2013. **Production numbers as of 2013. ***Other includes conventional on and offshore natural gas drilling, tight gas, and coalbed methane. Natural gas prices are $/mmbtu and are as of December 2014. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

'25 25

Energy Price Impacts Percent of Income Spent on Gasoline and Motor Oil Before-tax income quintile, percent of spending, 2013

Oil Importers and Exporters Net imports as a percent of GDP, 2013

14%

Imports as a % of GDP

12%

-14% 8% -8%

10%

-6% 6%

Canada

-4% 4%

-2% 2%

-3.6%

U.K.

0.9%

4% 2% 0% Lowest

Second

Third

Fourth

Highest

Develop ped

Econom my

Gasoline Prices

United States all city average average, USD per gallon $5.00

U.S.

1.6%

Italy

2.2%

France

2.4%

Germany

2.4%

Japan

3.6%

Dec. 2014: $2.61

$4.00 $3.00 $2.00 $1.00

Developin ng

Russia*

-13.6%

Brazil China South Africa

India '80 80 '90 90 '00 00 '10 10 Source: (Top left) BEA, (Bottom Left) Department of Labor, FactSet, (Right) EIA, IMF, J.P. Morgan Asset Management.

$0.00

*Russia imports as a percent of GDP was -13.6% in 2013 and is adjusted on the chart. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

0.7% 2.4% 4.8% 5.3%

Consumer Confidence and the Stock Market Consumer Sentiment Index – University of Michigan 130

Impact on Consumer Sentiment from a… 10% y-o-y rise i iin gasoline li prices i 10% y-o-y rise in home prices 10% y-o-y rise in the S&P 500 1% y-o-y rise in the unemployment rate

120

Econom my

110

Aug. 1972 100 Aug -6.2%

-0.8 0 8 pts t +1.9 +2.8 -5.2

Jan. 2000 -2.0% Jan. 2004 +4.4%

Mar. 1984 +13.5%

Jan. 2007 -4.2%

May 1977 +1.2%

Dec 2014: Dec. 93.6

Average: 84.8 80

Mar. 2003 +32.8% Oct. 2005 +14.2%

Oct. 1990 +29 1% +29.1%

Feb. 1975 +22.2%

May 1980 +19.2%

Nov. 2008 Aug. 2011 +15.4% +22.3%

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

40 '72 72

'74 74

'76 76

'78 78

'80 80

'82 82

'84 84

'86 86

'88 88

'90 90

'92 92

'94 94

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

Source: University of Michigan, FactSet, J.P. Morgan Asset Management. Peak is defined as the highest index value before a series of lower lows, while a trough is defined as the lowest index value before a series of higher highs. Subsequent 12-month S&P 500 returns are price returns only, which excludes dividends. Impact on consumer sentiment is based on a multivariate monthly regression between 1/31/2000 – 5/31/2014.

Guide to the Markets – U.S. Data are as of 12/31/14.

'10 10

'12 12

'14 14

Interest Rates and Inflation Nominal and Real 10-year Treasury Yields 20%

Average

Sep. 30, Sep 30 1981: 15.84%

(1958 â&#x20AC;&#x201C; 2014)

Nominal Yields Real Yields Inflation

15%

12/31/14 2.17% 0.46% 1.71%

Nominal 10-year Treasury Yield

10%

Fixed In ncome

6.30% 2.50% 3.80%

Dec 31 Dec. 31, 2014: 2.17% 2 17% 5%

Real 10-year Treasury Yield 0% Falling Rate Corp. Bonds S&P 500 1982-2014 9.6% 11.7% Ann. Inflation 3.0% 3.0% Ann. Real Return 6.6% 8.6%

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%

Dec. 31, 2014: 0.46%

-5% '60

'65

'70

'75

'80

'85

'90

'95

'00

'05

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 December 2014, where real yields are calculated by subtracting out November 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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

'10

'15

The Fed and Interest Rates Fed’s Balance Sheet: Assets

Federal Funds Rate Expectations

$ trillions

FOMC and market expectations for the Fed Funds rate

$4.5

$4.0 $

Other

$3.5

U.S. Treasuries

$3.0

Agency MBS

Federal Funds Rate O C Year-End Estimates FOMC Market Expectations FOMC Long Run Projection

6% 5%

$2.5

$2.0

$1.5

$1.0 1%

Fixed In ncome

$0.5

$0.0 '04

'06

'07

'08

'09

'10

'11

'12

'13

'14

Fed’s Balance Sheet: Liabilities

'99

'01

'03

'05

'07

'09

'11

'13

'15

'17

Federal Reserve Summary of Economic Projections

$ trillions

FOMC December 2014 Forecasts* Percent

$4.5 $4.0

Excess Reserves

$3.5

Other Liabilities

$3.0

Required Reserves

2014

2015

2016

2017

Long Run

Change in real GDP, Q4 to Q4

2.4

2.8

2.4

2.2

$1.5

Unemployment Rate, Q4

5.8

5.3

5.1

5.4

$1.0

PCE Inflation, Q4 to Q4

1.3

1.9

2.0

0.13

1.13

2.50

3.63

3.75

$2.5 $2.0

$0.5 $0.0

Federal Funds Rate, end of year '05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management. Monetary base is defined as the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. Other liabilities of the Federal Reserve primarily consist of currency outstanding. Market expectations are the federal funds rates priced into the fed futures market. *Forecasts of 17 Federal Open Market Committee (FOMC) participants, midpoints of central tendency except for federal funds rate which is a median estimate.

Guide to the Markets – U.S. Data are as of 12/31/14.

Shape of the Yield Curve Yield Curve U.S. Treasury Yield Curve 4.5%

4.0%

4 0% 4.0%

Dec. 31, 2013

3.5%

3.0%

2.5%

1.8%

2.0% 1.5% 1.0%

Fixed In ncome

0.5% 0.0%

1.1%

0.1%

0.7% 0.8% 0.3% 0.4%

3m 1y

2.0%

2.2%

1 7% 1.7%

10y

Treasuries Outstanding â&#x20AC;&#x201C; 3Q14

0 8% 0.8%

3 2% 3.2%

0.7%

3.0%

0.6%

2.8%

0.5%

2.6%

0.4%

2.4%

10Y UST (RHS) 2Y UST (LHS)

0.2% Jan '14 14

Apr '14 14

Jul '14 14

Oct '14 14

Source: Federal Reserve, FactSet, J.P. Morgan Asset Management. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

30y

Nominal 2 Year and 10 Year U.S. Treasury Yields

0.3%

2.8%

Dec. 31, 2014

By holder, holder end of period, period not seasonally adjusted Households 6% Financial institutions 7%

State and local gov'ts g 7% Mutual funds 9%

2.2% 2.0% Jan '15 15

Foreign private 15%

Other 1%

Foreign g official 32%

Federal Reserve 19%

Global Monetary Policy Central Bank Assets – Percent of Nominal GDP JPMAM Forecast*

80%

Correlation of Government Bonds

6-month rolling correlation of weekly change in USTs and German Bund yields 1

0.8 70%

10-yr. Bonds

0.6 0.4

60%

0.2

2-yr. Bonds 0

Fixed In ncome

50%

-0.2 '10 40%

'12

'13

'14

Real Policy Rates – Monthly Bank of Japan

30%

20%

E European Central C t lB Bank k 10%

U.S. Federal Reserve 0% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

'11

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

Emerging Markets

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

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. *Central bank assets as percent of nominal GDP is forecasted through 2015 using J.P. Morgan Global Economics Research nominal GDP forecasts and assumptions for central bank balance sheet size based on statements released by each respective central bank and its governors. Guide to the Markets – U.S. Data are as of 12/31/14.

Sources of Bond Returns Treasury Base Rate Return Spread to Treasury Return 2014 “A”

2014 “B”

5-yr.

1 3% 1.3%

10-yr.

8.2%

30-yr.

26.0%

Fixed In ncome

10-yr. Muni

Total Return

2014 “C”

2014

2014 “A + B + C”

2013

EM (USD) 0.3%

10.7%

2.6%

29.4%

3.4%

8.7%

4.3%

-1.1%

-3.3%

6.8%

-1.2%

2.5% 4.8%

5.6%

IG Corp.

3.7%

U.S. MBS

2.0%

0.4%

U.S. Agg.

2.7%

0.1%

4.2%

-0.5%

-1.4%

-20%-10% 20% 10% 0% 10% 20% -20% 20% -10% 10% 0% Source: Federal Reserve, Barclays, J.P. Morgan Asset Management.

3.7%

3.2%

1.3%

0.1% 10%

-20% 20%

-10% 10%

10%

Guide to the Markets – U.S. Data are as of 12/31/14.

10-yr.

30-yr.

10-yr. Muni

U.S. HY

EM (USD)

7.5%

IG Corp.

6.1%

U.S. MBS

6.0%

U.S. Agg.

0.1%

FRN (BBB)

-20%-10% 20% 10% 0% 10% 20% 30%

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.

5-yr.

2 9% 2.9%

1 6% 1.6%

4.4%

U.S. HY

FRN (BBB)

Coupon Return

Fixed Income Yields and Returns Yield

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

Return

# of issues

Correlation to 10-year

Avg. Maturity

12/31/2014

9/30/2014

4Q14

2014

2y UST

2-Year

0.63

2 years

0.67%

0.58%

0.17%

0.66%

5y UST

5-Year

0.90

1.65%

1.78%

1.14%

2.89%

TIPS

10-Year

1.00

2.17%

2.52%

3.57%

10.74%

10y UST

30-Year

0.92

2.75%

3.21%

10.06%

29.38%

30y UST

TIPS

0.58

0.49%

0.55%

-0.03%

3.64%

U.S. Treasuries

Fixed In ncome

-5.7%

5 0% 5.0% 6.7% 9.5% 23.2%

-17.8%

-0.1%

0.85

7.7 years

2.25%

2.36%

1.79%

5.97%

Convertibles

-3.2%

410

0.80

6.5

2.60%

2.88%

1.79%

6.08%

ABS

-3.9%

Municipals

9,080

0.45

10.0

2.04%

2.13%

1.38%

8.72%

US HY

-4.3%

Corporates

5,212

0.45

10.7

3.11%

3.10%

1.77%

7.46%

MBS

-5.5%

High Yield

2,253

-0.24

6.5

6.61%

6.13%

-1.00%

2.45%

US Aggregate

-5.6%

Floating Rate

-0.21

2.7

1.61%

0.98%

-1.43%

0.08%

Munis

-5 7% -5.7%

Convertibles

518

-0.29

1.11%

1.14%

1.06%

8.17%

IG Corps

1,727

-0.04

4.4

2.15%

2.18%

1.27%

3.44%

MBS

0.9%

-8.6%

9,054

ABS

-4.7%

Floating Rate

Sector Broad Market

-2.0%

-30%

-6.7% -10%

0.1% 3.6% 3.9% 4.2% 3.4% 5.5% 5.5% 7.7% 10%

30%

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 â&#x20AC;&#x201C; 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) (TIPS). Floating Rate: Barclays FRN (BBB); Convertibles: Barclays U.S. 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 0.67% 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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Global Fixed Income Return

Yield Aggregates

Correl to Duration 10-year

12/31/2014 9/30/2014

4Q14

2014

Global Bond Market USD, trillions $100

U.S.

0.83

5.6 Yrs

2.25%

2.36%

1.79%

5.97%

$90

Gbl. ex. U.S.

0.37

7.1

1.29%

1.46%

-2.61% -2.21%

$80

Japan

0.49

8.3

0.36%

0.52%

-6.38% -8.35%

12/31/89 U.S. 60.7% Dev. ex U.S. 38.2% EM 1.1%

EM: $14tn

6/30/14 36.1% 49.5% 14.4%

Fixed In ncome

$70 Germany

0.25

6.0

0.58%

0.76%

-1.87% -3.70%

U.K.

0.17

9.4

1.94%

2.36%

1.57%

5.82%

Italy

0.07

6.6

1.50%

1.67%

-1.80%

0.84%

Spain

0 10 0.10

58 5.8

1 17% 1.17%

1 32% 1.32%

-1.87% 1 87%

0 67% 0.67%

Euro Corp.

0.11

4.8

1.04%

1.20%

-2.73% -4.82%

Euro HY.

-0.39

3.9

4.65%

4.58%

-3.27% -6.02%

EMD ($)

0.20

6.7

5.62%

5.39%

-0.55%

EMD (LCL)

0.08

4.9

6.50%

6.74%

-5.71% -5.72%

EM Corp.

-0.26

5.6

5.56%

5.28%

0.31%

$60

Developed ex U.S.: $50tn

$50 $40

Sector

$30

U.S.: $35tn

$20

7.43%

$10

6.74%

$0 '90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

Source: Barclays Capital, BIS, FactSet, J.P. Morgan Asset Management. All returns are in USD. Fixed income sectors shown above are provided by Barclays Capital and are represented by the global aggregate for each country except where noted. EMD sectors are represented by the J.P. Morgan EMBIG Diversified Index (USD), the J.P. Morgan GBI EM Global Diversified Index (LCL), and the J.P. Morgan CEMBI Broad Diversified Index (Corp). European Corporates are represented by the Barclays Euro Aggregate Corporate Index and the Barclays Pan-European High Yield index. Sector yields reflect yield to worst. Duration is modified duration. Correlations are based on 7-years of monthly returns for the all sectors. Past performance is not indicative of future results.

Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Municipal Finance 10-Year Muni Taxable Equivalent Yield Taxable equivalent Muni and Treasury yields

State & Local Government Debt Service % of current expenditures

12%

10%

3Q14: 7.9%

Taxable Equivalent 10-yr. Muni Yield

10%

7% 6% 5%

Fixed In ncome

4% 3% '90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

Municipal Bond Issuance* Billions USD, USD revenue and GO issues $500

10-yr. Treasury Yield

$400 $300

$200 $100

Spread 0%

'90

'92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

'96

'98

'00

'02

'04

'06

'08

'10

'12

Source (Left chart): Barclays Capital, U.S. Treasury, FactSet, J.P. Morgan Asset Management. (Top right) BEA, J.P. Morgan Asset Management. (Bottom right) SIFMA, J.P. Morgan Asset Management. 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 November 2014. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

'14

High Yield Bonds U.S. High Yield Spreads and Defaults 20%

HY Spreads HY Defaults Rates

HY Spreads 15%

Average 5.9% 4.0%

Latest 5.7% 3.0%

'06

'08

HY D Default f lt R Rates t

10%

Fixed In ncome

0% '88

'90

'92

'94

'96

'98

'00

'02

100% Other 17%

Euro HY

80% 60% EM HY

U.S. HY

'10

Sector Weights

Global High Yield Spreads Spread p over Treasuries

40%

5% 20%

Other 7% Energy 2%

Energy 17%

Industrial 29%

Industrial 20%

Telecom 18%

Telecom T l 10% Financial 7%

Financial 13%

Consumer 28%

'12

'14

Other 5% Energy 11% Industrial 24%

Telecom 21%

Financial 22% Consumer 31% Consumer 17%

'12

'04

'13

'14

U.S. HY

Euro HY

EM HY

Source: 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. Spreads indicated are benchmark yield to worst less comparable maturity Treasury yields. 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. J.P. Morgan Domestic HY, J.P. Morgan Euro HY, and J.P. Morgan CEMBI Non-IG indexes were used for Spreads and Industry Weights. Past performance is not indicative of comparable future results. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Emerging Market Debt EMD Indices by Region

EMD Sovereign Spreads

100%

Local denominated debt, 5 years, spread to Treasuries, basis points Brazil 27%

80% 60%

Mexico 20% Poland 11%

40%

S. Africa 9% Other 23% 0% Local Sovereign

Latin America 30%

Russia

Europe 13%

Brazil

Europe 31% Asia 39%

Turkey 10%

20%

Fixed In ncome

Latin America 35%

Asia 21% Middle East & Africa 13%

Middle East & Africa 18%

USD Sovereign

USD Corporate

1,089

India

633

Turkey

628 62 8 592

Indonesia 428

Colombia

EMD Indices by Credit Ratings 100%

Mexico

80%

China

181

Philippines

168

60%

Investment Grade 85%

Investment Grade 65%

Investment Grade 69%

40%

348

Non Investment Grade 15%

g Local Sovereign

Non Investment Grade 35%

Non Investment Grade 31%

USD Sovereign g

USD Corporate p

Graph Key Current spread 5 year average

146

Hungary

20%

1,317

Poland

200

400

600

800

1,000

1,200

1,400

Source: J.P. Morgan Global Economic Research, FactSet, J.P. Morgan Asset Management. Spreads measure the credit risk premium over comparable maturity U.S. Treasury bonds. The J.P. Morgan EMBI Global (EMBIG) Index is a USD-denominated external debt index tracking bonds issued by sovereigns and quasi-sovereigns in developing nations. The J.P. Morgan Corporate Emerging Bond Index Broad (CEMBI) is a USD-denominated external debt index tracking bonds issued by corporations in developing nations. The J.P. Morgan Government Bond Index â&#x20AC;&#x201C; EM (GBI-EM) is a local currency denominated index tracking bonds issued by emerging market sovereigns. Past performance is not indicative of Comparable future results. Index breakdown may not equate to 100% due to rounding. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Fixed In ncome

Fixed Income Sector Returns 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

4Q14

10-yrs. '05 - '14 Cum. Ann.

EMD USD

EMD LCL.

Treas.

Gbl. HY

EMD LCL.

TIPS

Gbl. HY

Muni

Treas.

Gbl. HY

10.2%

15.2%

18.1%

13.7%

59.4%

15.7%

13.6%

19.6%

7.3%

8.7%

1.9%

115.3%

8.0%

EMD USD

111.5%

7.8%

EMD LCL.

Gbl. HY

TIPS

Gbl. Sov.

EMD USD

Gbl. HY

Muni

EMD USD

Gbl. Corp.

EMD USD

6.3%

13.7%

11.6%

9.4%

29.8%

14.8%

12.3%

17.4%

1.8%

7.4%

Barclays Agg 1.8%

Gbl. HY

EMD USD

Gbl. Sov.

MBS

Gbl. Corp.

EMD USD

Treas.

EMD LCL.

Asset Alloc.

MBS

EMD LCL.

3.6%

9.9%

10.9%

8.3%

23.7%

12.2%

9.8%

16.8%

-1.3%

6.1%

1.8%

90.4%

6.7%

TIPS

Gbl. Corp.

Treas.

2 8% 2.8%

8 3% 8.3%

9 0% 9.0%

EMD LCL.

Asset Alloc.

22 0% 22.0%

7 5% 7.5%

Barclays Agg 7 8% 7.8%

Gbl. Corp. 12 5% 12.5%

MBS -1.4% 1 4%

Barclays Agg 6 0% 6.0%

1 4% 1.4%

Treas.

Asset Alloc.

Muni

5.1%

0.1%

64.4%

5.1%

Muni

Asset Alloc. Asset Alloc. 67 4% 67.4%

5 3% 5.3%

Treas.

Gbl. Sov.

Asset Alloc.

Muni

Asset Alloc.

Gbl. Corp.

EMD USD

Asset Alloc.

2.8%

7.3%

7.2%

1.5%

16.2%

7.0%

7.3%

8.3%

Barclays Agg -2.0%

Muni

Asset Alloc.

TIPS

Asset Alloc.

TIPS

Muni

Asset Alloc.

TIPS

Gbl. Corp.

2.7%

6.9%

-1.5%

11.4%

6.9%

7.0%

-2.2%

3.9%

0.0%

60.5%

4.8%

Barclays Agg 7.0%

Barclays Agg 6.5%

MBS

TIPS

M i Muni

TIPS

MBS

M i Muni

T Treas.

TIPS

Gbl Corp. Gbl. C

MBS

2.6%

5.2%

6.9%

-2.4%

9.9%

6.3%

6.2%

5.7%

-2.7%

3.6%

-0.3%

59.0%

4.7%

Muni

EMD USD

EMD LCL.

Gbl. Sov.

Gbl. Corp.

EMD USD

6.2%

-5.2%

6.1%

5.2%

Barclays Agg 4.2%

Gbl. Sov.

4.7%

Barclays Agg 5.9%

-4.9%

2.5%

-0.6%

Barclays Agg 58.4%

Barclays Agg 4.7%

Gbl. Corp.

MBS

Treas.

Gbl. Corp.

MBS

EMD USD

Gbl. HY

Treas.

6 1% 6.1%

-11.2% 11 2%

5 9% 5.9%

4 0% 4.0%

2 6% 2.6%

-5.3% 5 3%

0 0% 0.0%

-2.5% 2 5%

53 5% 53.5%

4 4% 4.4%

Barclays Agg 2.4%

1 7% 1.7%

Barclays Agg 4 3% 4.3%

Gbl. Corp.

Treas.

Muni

EMD USD

Gbl. Sov.

MBS

Gbl. HY

Treas.

TIPS

Gbl. Sov.

TIPS

-2.7%

3.1%

4.3%

-12.0%

4.3%

5.4%

3.1%

2.0%

-8.6%

-2.8%

-3.1%

53.4%

4.4%

Gbl. Sov.

TIPS

Gbl. HY

Treas.

Muni

EMD LCL.

Gbl. Sov.

EMD LCL.

Gbl. Sov.

-8.8%

0.4%

3.2%

-26.9%

-3.6%

4.0%

-1.8%

1.8%

-9.0%

-5.7%

30.3%

2.7%

Asset Alloc.

Barclays Agg 5 2% 5.2%

Source: Barclays Capital Capital, FactSet FactSet, JJ.P. P Morgan Asset Management Management. Past performance is not indicative of future returns 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” portfolio assumes 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 12/31/14.

Global Equity Markets 4Q14 Country y / Region g

Local

Weights in MSCI All Country World Index

2014 USD

Local

% global market capitalization, float adjusted USD

Europe exU.K. 16%

4.9

13.7

EAFE

1.8

-3.5

6.4

-4.5

Europe ex-U ex-U.K. K

02 0.2

-4 3 -4.3

74 7.4

-5 8 -5.8

Pacific ex-Japan

3.1

-1.5

5.8

-0.3

Emerging Markets

0.1

-4.4

5.6

-1.8

Canada 4% %

Regions / Broad Indexes U.S. (S&P 500)

United Kingdom

-0.4

-4.2

0.5

-5.4

Rolling 1-year 1 year correlations correlations, 30 countries

Japan 7%

France

-1.7

-5.8

3.6

-9.0

0.80

Germany

4.0

-0.4

2.8

-9.8

0.70

Japan

6.7

-2.4

9.8

-3.7

China

7.0

7.2

8.3

0.40

India

1.5

-0.7

26.4

23.9

0.30

Brazil

-7.5

-14.8

-2.8

-13.7

Russia

-5.9

-32.8

-12.1

-45.9

0.90

0.60 0.50

Dec. 2014: 0.44

0.20 0.10 0.00 '95 95

U.K. 7% Emerging Markets 11%

Global Equity Market Correlations

MSCI: Selected Countries

Internatio onal

United States 51%

'97 97

'99 99

'01 01

'03 03

'05 05

'07 07

Source: Standard & Poorâ&#x20AC;&#x2122;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 â&#x20AC;&#x201C; U.S. Data as of 12/31/14.

'09 09

'11 11

'13 13

International Equity Earnings and Valuations Earnings per Share EPS for next 12-month consensus, local currency, rebased to 100

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

260

18x

MSCI EM S&P 500 MSCI Europe

240

’07/’08 Peak 217 150 161

Current 167 179 123

% Change g -23% 19% -24%

Average 11.3x 13.8x 12.0x

MSCI EM S&P 500 MSCI Europe

Current 11.0x 16.2x 14.1x

16x 220

200

14x

180

12x 160

10x

Internatio onal

140

120

8x 100

80 '05 05

'06 06

'07 07

'08 08

'09 09

'10 10

'11 11

'12 12

'13 13

'14 14

'04 04

'05 05

'06 06

'07 07

'08 08

'09 09

'10 10

'11 11

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. Guide to the Markets – U.S.

Data are as of 12/31/14.

'12 12

'13 13

'14 14

Global Economic Growth Emerging Market Country Real GDP Growth

Historical

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

4Q13

1Q14

2Q14

JPMSI Forecast 3Q14

4Q14

1Q15

2Q15

3Q15

8% 6% 4% 2% 0% -2% -4% Emerging Markets

China

India

Korea

Mexico

South Africa

Russia

Brazil

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

Hi t i l Historical

10%

4Q13

Internatio onal

1Q14

2Q14

JPMSI Forecast F t 3Q14

4Q14

1Q15

2Q15

3Q15

6% 4% 2% 0% -2% -4% Developed Countries

US U.S.

UK U.K.

Canada

Germany

France

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

Data are as of 12/31/14.

Italy

Japan

Manufacturing Momentum

Internatio onal

Global

Dec'14 D

Nov'14

Oct'14 O

Se ep'14

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 52.2 52.6 52.4 52.6 52.2 52.2 51.8 51.6

U.S.

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 55.9 54.8 53.9

Canada

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 55.3 55.3 53.9

U.K.

51.0 48.2 50.1 50.4 51.9 52.5 54.5 58.0 57.0 56.4 57.9 57.0 56.5 56.5 55.5 57.0 56.4 56.7 54.9 52.6 51.6 53.3 53.3 52.5

Euro Area

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 50.6 50.1 50.8

Germ any

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 51.4 49.5 51.2

France

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 48.5 48.4 47.5

Italy

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 49.0 49.0 48.4

Spain

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 52.6 54.7 53.8

Greece

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 48.8 49.1 49.4

I l d Ireland

50 3 51.5 50.3 51 5 48.6 48 6 48.0 48 0 49.7 49 7 50.3 50 3 51.0 51 0 52.0 52 0 52.7 52 7 54.9 54 9 52.4 52 4 53.5 53 5 52.8 52 8 52.9 52 9 55.5 55 5 56.1 56 1 55.0 55 0 55.3 55 3 55.4 55 4 57.3 57 3 55.7 55 7 56.6 56 6 56.2 56 2 56.9 56 9

Australia

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 49.4 50.1 46.9

Japan

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 52.4 52.0 52.0

China

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 50.4 50.0 49.6

Indonesia

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 49.2 48.0 47.6

Korea

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 49.0 49.9

Taiw an

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 52.0 51.4 50.0

India

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 51.6 53.3 54.5

Brazil

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 49.1 48.7 50.2

Mexico

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 53.3 54.3 55.3

Russia

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 51.7 48.9

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. Guide to the Markets â&#x20AC;&#x201C; U.S.

Au ug'14

Jul'14 J

un'14 Ju

May'14

Apr'14 A

Mar'14

eb'14 Fe

Jan'14

Dec'13 D

Nov'13

Oct'13 O

Se ep'13

Au ug'13

Jul'13 J

un'13 Ju

May'13

Apr'13 A

Mar'13

eb'13 Fe

Jan'13

Global Purchasing Managersâ&#x20AC;&#x2122; Index for Manufacturing

Data are as of 12/31/14.

Sovereign Debt Stresses GDP Growth, Gross Debt to GDP and Borrowing Costs 10%

Bubble size = 10-year g government bond yield y

China

10%

Indonesia Malaysia

Internatio onal

Real GDP Growth (2012 – 2 2014F)

India Turkey y

Australia

Singapore

Korea Mexico

U.K.

Russia Brazil South Africa

France

Japan

U.S.

Germany EU

P t Portugal l Spain

Italy

-2%

-4% Greece

Emerging Markets Developed Markets

-6%

-8% 0%

20%

40%

60%

80%

100%

120%

140%

160%

Gross G oss Debt-to-GDP ebt to G Ratios at os ((2013) 0 3) 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’s borrowing cost is based on 7-year government bond yield due to data availability.

Guide to the Markets – U.S. Data are as of 12/31/14.

180%

245% 200%

Europe: Cyclical Headwinds and Tailwinds European Sovereign Funding Costs 10-year benchmark bond yield 35%

Government Fiscal Drag

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

30%

9.42% 2.67% 1.86% 1.61% 1.24% 0.53%

Mo ore fiscal drag

Greece Portugal Italy Spain Ireland Germany

13.9%

14%

12/31/14

25%

2010-2013 12%

2013-2016

10%

8% 20%

LTRO

6.0%

4.6%

OMT 10%

Les ss fiscal drag

Internatio onal

15%

4 0% 4.0%

3.5%

3.3%

1.2%

1.1%

3.1%

2.7%

1.4% 0.8%

0.5%

0% -0.4%

-0.1%

-2% 0% '08 08

'09 09

'10 10

'11 11

'12 12

'13 13

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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Europe: Unemployment, Inflation and Credit Markets Unemployment Rates

Oct. 2014: 11.5%

12%

Euro Area Credit Growth % year-over-year loan growth 20%

Euro Area

10%

Nonfinancial Corporations

15% 8%

10% 6%

Nov. 2014: 5.8% 4%

Nov. 2014: -1.6%

Households

U.S.

Nov. 2014: -0.4%

-5%

0% '00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'06

'07

'08

'09

'10

'11

'12

'13

'14

Euro Area Asset-Backed Securities Outstanding

Europe Inflation

Year over year % change Year-over-year

€ billions

Core Euro Area Periphery

5% 4%

€3,000

Internatio onal

€2,500 3%

€2 000 €2,000

2% 1%

€1,500 0% -1%

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

€1,000

'03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management. (Top left) Unemployment rate levels for the U.S. and Euro Area 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 12/31/14.

'13 13

Japan: Economic Snapshot Inflation and Japanese Government Bond Yields

Japanese Yen and the Stock Market

Year-over-year % change for inflation

¥130

¥20,000

Japanese Yen per U.S. Dollar

Nikkei 225 ¥18,000

¥120

Owners of Japanese Gov. Bonds Other Domestic 74% Bank of Japan 21% Foreign 4%

¥16,000

¥110

¥14,000 ¥100 ¥12,000 ¥90

¥10,000

¥80 4%

¥70

¥8,000 '05

'06

'07

'08

'09

'10

'11

'12

'13

'14

¥6,000

Government Fiscal Balance % of GDP

Nominal 10-year Yield

-12%

IMF forecast

-10%

Internatio onal

-8% -6%

-4%

Core CPI

-2% 0%

-2%

2% 4% '88 88

'90 90

'92 92

'94 94

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

'10 10

'12 12

'14 14

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

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 December 2014 flow of funds.

Guide to the Markets – U.S. Data are as of 12/31/14.

China: Economic and Credit Growth China Real GDP Contribution

Credit* vs. GDP Growth

16%

40%

Year-over-year % change

Year-over-year % change, 3-month moving average for credit

Investment Consumption

9.2%

35%

Credit

Net Exports

12%

Real GDP

30% 10.4%

GDP Deflator

9.3%

9.6%

25% 8.1% 8%

7.7%

5.5%

4.5%

7.7%

4.5%

20% 3.9%

4.2%

15% 4% 4.2%

International

4.6%

0.9%

4.5%

5.2%

10% 4.1%

3.8%

0 4% 0.4% -0.4%

-0.2%

-0.3%

-3.5%

-5%

-4% 2008

2009

2010

2011

2012

2013

03 '03

'04 04

'05 05

'06 06

'07 07

'08 08

'09 09

Source: National Bureau of Statistics of China, The Peopleâ&#x20AC;&#x2122;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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

'10 10

'11 11

'12 12

'13 13

'14 14

Demographics and Development The Impact of Urbanization Urbanization ratios and GDP per capita (current USD), 1961 â&#x20AC;&#x201C; 2013

Demographic Snapshot GDP Per Capita

Population

% of Pop. under 20

Investm ent ((% of GDP))

U.S.

$53,101

316 mm

26%

20%

Canada

51,990

U.K.

39,567

Germ any

44,999

France

43,000

Japan

38,491

127

Italy y

34,715 ,

Korea

24,329

India

1,505

1,243

Brazil

11,311 ,

198

Mexico

10,630

118

Russia

14,819

143

China

6,747

1,361

$60,000 U.S.

2013: $53,142

Developed Japan

$50,000

G DP per Capita

$40,000

$30,000 South Korea

Internatio onal

$20,000

1961: $2,935 China

$10,000 , India

$15%

25%

35%

45%

55%

65%

75%

85%

95%

Em erging

Urbanization Ratio Source: FactSet, World Bank, United Nations, J.P. Morgan Global Economics Research, OECD, Bureau of Statistics of China, Ministry of Statistics & Programme Implementation of India, J.P. Morgan Asset Management. GDP per capita and Investment as % of GDP in the Demographic Snapshot table are IMF estimates for 2014. Guide to the Markets â&#x20AC;&#x201C; U.S.

Data are as of 12/31/14.

Emerging Market Currencies Commodity Exposure and External Vulnerability

2014 Currency Performance

Performance of foreign currency versus USD

Net Com mmodity Exporterss

25% Russia

-45.2%

17%

2014 Currency Performance

Indonesia Chile 9% South Africa Brazil

Depreciation (over -10%)

Mexico

-18.7%

Colombia

-13.4%

Depreciation ( (-0% to -10%))

Colombia

Russia

Chile

-11.2%

Brazil

-11.1%

Mexico

Net Comm modity Importers

Internatio onal

-8%

-6%

-4%

-2%

-9.5%

South Africa

-8.1%

Turkey

-7% Turkey

-4.0%

China

Korea

India -2.4%

China

-2.0%

India

-1.7%

Indonesia

-15% Korea -23%

Current Account Deficit

Current Account Surplus

Source: IMF, U.N. Commodity Trade Statistics Database, FactSet, J.P. Morgan Asset Management. Commodities defined by SITC codes 0-4. Net commodity exporters/importers plotted as a % of GDP. Current accounts as a percentage of GDP are IMF estimates for 2014. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

-50% -40% -30% -20% -10%

10%

20%

Emerging Market Equities MSCI EM Index by Region Latin America ex Brazil 7%

EM Earnings by Region Africa/Mideast 8%

Brazil 12%

EPS for next 12-month consensus, local currency, rebased to 100 400

Europe

350

Latin America Asia

300

Europe 10%

250

Asia ex China & Korea 28%

Korea 16%

200 150

China 19%

100 50

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

MSCI EM Country Index by Sector 100%

Internatio onal

80%

13% 23%

19%

60% 40%

69% 36%

24%

15% 10%

0% Brazil

24%

31%

14%

Data are as of 12/31/14.

Other

15%

Commodities

17% 18%

33%

17%

Financials 40%

Russia

Tech Consumer

14% 20%

15%

India

China

35%

Mexico* Mexico

Source: MSCI, FactSet, J.P. Morgan Asset Management. “Other” is comprised of Health Care, Industrials, Telecom, and Utilities sectors. *Mexican Telecom sector accounts for 17% of the country’s market capitalization. Values may not sum to 100% due to rounding. Guide to the Markets – U.S.

14%

23%

20%

21%

23% Korea

Global Equity Valuations: Developed Markets Developed Market Countries

Example

Std D Dev from Global Average

+7 Std Dev +6 Std Dev

Expensive relative to world

+5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev

Expensive relative to own history

+1 Std Dev Average -1 Std Dev

Cheap relative to own history

-2 Std Dev -3 3 Std D Dev -4 Std Dev -5 Std Dev

World (ACWI)

Internatio onal

World (ACWI)

EAFE Index

U.K.

France Germany Australia Canada

Current Average Cheap relative to world

Japan Switzerland United States

Current Com posite Index

Fw d. P/E

P/B

P/CF

Div. Yld.

Fw d. P/E

P/B

P/CF

Div. Yld.

0.71

14.8

2.1

8.7

2.5%

13.1

2.0

7.5

2.5% 3.2%

Current

10-year avg.

EAFE Index

-0.48

14.2

1.6

7.5

3.2%

12.7

1.7

6.7

U.K.

-0.76

13.8

1.8

7.3

3.9%

11.4

2.0

7.4

3.7%

France

-0.69

13.8

1.4

7.7

3.3%

11.5

1.6

5.9

3.5%

Germ any

-0.58

12.9

1.6

7.5

2.9%

11.5

1.6

5.8

3.1%

Australia

-0.37

14.7

1.9

8.8

4.8%

13.5

2.2

9.2

4.3%

Canada

0.46

15.5

1.9

8.6

2.8%

13.7

2.1

8.5

2.3%

Japan

0.70

14.3

1.4

8.1

1.8%

16.1

1.4

6.4

1.6%

Sw itzerland

1.36

15.7

2.5

11.3

3.2%

13.5

2.4

9.9

2.8%

United States

2.68

16.4

2.8

11.0

1.9%

14.0

2.4

8.7

1.9%

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. Guide to the Markets – U.S. Data are as of 12/31/14.

Global Equity Valuations: Emerging Markets

Std D Dev from Global Ave erage

Emerging Market Countries

Expensive relative to world Expensive relative to own history Cheap relative to own historyy

World (ACWI)

Internatio onal

Example

+7 Std Dev +6 Std Dev +5 Std Dev +4 Std Dev +3 Std Dev +2 Std Dev +1 Std Dev Average -1 Std Dev -2 Std Dev -3 Std Dev -4 Std Dev -5 Std Dev -6 Std Dev

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

EM Index

Russia

Current Com posite Index 0.71 -1.49 -5.52 -2.58 -2.35 -0.54 0 54 0.09 0.22 1.41 2.62 3.17 3.90

Brazil

China

Taiwan

Korea Thailand South Indonesia Mexico Africa

Current

Average Cheap relative to world

India 10-year avg.

Fw d. P/E

P/B

P/CF

Div. Yld.

Fw d. P/E

P/B

P/CF

Div. Yld.

14.8 11.0 3.8 10.2 9.4 13 2 13.2 9.6 13.2 15.7 15.0 18.3 16.7

2.1 1.4 0.4 1.2 1.4 19 1.9 1.0 2.1 2.6 3.3 2.6 3.0

8.7 5.4 1.8 5.2 4.0 69 6.9 5.8 9.4 11.0 12.6 7.1 12.2

2.5% 2.8% 6.6% 4.5% 3.2% 3 0% 3.0% 1.3% 3.0% 3.0% 2.4% 1.4% 1.5%

13.1 11.1 7.3 10.0 11.7 14 2 14.2 9.7 10.9 11.7 12.8 14.7 15.7

2.0 1.9 1.3 1.8 2.1 19 1.9 1.4 2.0 2.5 3.5 2.8 3.2

7.5 6.3 4.4 5.6 6.8 67 6.7 5.1 7.2 8.9 10.3 7.5 13.0

2.5% 2.7% 2.2% 3.2% 2.7% 3 6% 3.6% 1.5% 3.6% 3.2% 2.7% 1.8% 1.3%

Current

Guide to the Markets – U.S. Data are as of 12/31/14.

Asset Class Returns 2005

2008

2009

Ba rc la ys Agg 5.2%

MS CI EME 79.0% MS CI EAFE 32.5%

2010

2011

2012

REITs

27.9%

8.3%

Russe ll 2000 26.9%

Ba rc la ys Agg 7.8%

3 5 . 1%

MS CI EME 39.8%

Bbe rg Cmdty 2 1. 4 %

MS CI EME 32.6%

Bbe rg Cmdty 16 . 2 %

MS CI EAFE 14 . 0 %

MS CI EAFE 26.9%

MS CI EAFE 11. 6 %

Ma rke t Ne utra l 1. 1%

28.0%

MS CI EME 19 . 2 %

12 . 2 %

Russe ll 2000 18 . 4 %

Ma rke t Ne utra l 9.3%

Asse t Alloc . - 24.0%

Russe ll 2000 27.2%

Bbe rg Cmdty 16 . 8 %

Asse t Alloc . 8.3%

S &P 500 15 . 8 %

Asse t Alloc . 7.4%

Russe ll 2000 - 33.8%

S &P 500 26.5%

S &P 500 15 . 1%

Ma rke t Ne utra l 6 . 1%

Asse t Alloc . 15 . 2 %

Ba rc la ys Agg gg 7.0%

Bbe rg Cmdty y - 35.6%

Asse t Alloc . 22.2%

Asse t Alloc . 12 . 5 %

S &P 500 4.9%

Ma rke t Ne utra l 11. 2 %

S &P 500 5.5%

S &P 500 - 37.0%

Bbe rg Cmdty 18 . 9 %

MS CI EAFE 8.2%

Russe ll 2000 - 4.2%

Ba rc la ys Agg 4.2%

Ca sh

REITs

4.8%

- 37.7%

MS CI EAFE - 11. 7 %

Ma rke t Ne utra l 0.9%

Russe ll 2000 - 1. 6 %

MS CI EAFE - 4 3 . 1%

Russe ll 2000 4.6%

Asset Class

2007

MS CI EME 34.5%

REITs

2006 REITs

Ca sh 1. 8 %

3.0%

Ba rc la ys Agg 4.3%

Ba rc la ys Agg

Bbe rg Cmdty

REITs

MS CI EME

2.4%

2 . 1%

- 15 . 7 %

- 53.2%

Ca sh

REITs

Ba rc la ys Ba rc la ys Agg Agg 5.9% 6.5% Ma rke t Ne utra l 4 . 1%

2013

2014

4Q14

REITs

10-yrs. '05 - '14 Cum. Ann.

19 . 7 %

Russe ll 2000 38.8%

28.0%

12 . 9 %

MS CI EME 18 . 6 %

S &P 500 32.4%

S &P 500 13 . 7 %

Russe ll 2000 9.7%

12 2 . 3 %

8.3%

Ma rke t Ne utra l 4.5%

MS CI EAFE 17 . 9 %

MS CI EAFE 23.3%

Ba rc la ys Agg 6.0%

S &P 500 4.9%

Russe ll 2000 111. 3 %

Russe ll 2000 7.8%

S &P 500 2 . 1%

Russe ll 2000 16 . 3 %

Asse t Alloc . 15 . 0 %

Asse t Alloc . 5.2%

Asse t Alloc . 2.0%

S &P 500 10 9 . 5 %

S &P 500 7.7%

0 . 1%

S &P 500 16 . 0 %

Ma rke t Ne utra l 9.3%

Russe ll 2000 4.9%

Ba rc la ys Agg 1. 8 %

Asse t Alloc . 9 1. 7 %

Asse t Alloc . 6.7%

Asse t Alloc . - 0.6%

Asse t Alloc . 11. 3 %

REITs

Ca sh

Ma rke t Ne utra l 1. 0 %

MS CI EAFE 6 1. 5 %

MS CI EAFE 4.9%

Ca sh

2.9%

0.0%

Ma rke t Ne utra l - 0.5%

0.0%

Ba rc la ys Agg - 2.0%

MS CI EME - 1. 8 %

MS CI EAFE - 3.5%

MS CI EAFE - 4.5%

MS CI EME - 4.4%

Ca sh

MS CI EME 13 2 . 0 %

MS CI EME 8.8%

REITs

Ba rc la ys Ba rc la ys Agg Agg 58.4% 4.7% Ma rke t Ne utra l 54.0%

Ma rke t Ne utra l 4.4%

Ca sh

0 . 1%

Bbe rg Cmdty - 13 . 3 %

0 . 1%

MS CI EME - 2.3%

15 . 7 %

1. 5 %

Ca sh

Ma rke t Ne utra l

MS CI EME

Bbe rg Cmdty

0 . 1%

- 0.8%

- 18 . 2 %

- 1. 1%

- 9.5%

- 17 . 0 %

- 12 . 1%

- 17 . 1%

- 1. 9 %

Ca sh

Source: Russell, MSCI, Bloomberg, g Standard & Poor’s, Credit Suisse, Barclays y Capital, p NAREIT, FactSet, J.P. Morgan g Asset Management. g 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 12/31/14, except for the CS/Tremont Equity Market Neutral Index, which reflects data through 11/30/14. “10-yrs” returns represent period of 12/31/04 – 12/31/14 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 12/31/14.

Correlations and Volatility z U.S. Large Cap EAFE EME Bonds

U.S. Large Cap

EAFE

EME

1.00

0.88 1.00

Bonds

Munis

Currcy.

EMD

Cmdty.

REITs

0.78

-0.26

0.76

-0.09

-0.50

0.61

0.50

0.78

0.81

0.61

16%

0.91

-0.17

0.78

-0.03

-0.72

0.70

0.63

0.68

0.87

0.74

20%

1.00

-0.11

0.82

0.04

-0.66

0.79

0.67

0.58

0.89

0.58

25%

1.00

-0.06

0.81

-0.08

0.26

-0.24

-0.01

-0.27

-0.18

1.00

0.16

-0.53

0.87

0.57

0.70

0.78

0.41

12%

1.00

-0.08

0.47

-0.17

0.06

-0.07

-0.11

1.00

-0.53

-0.66

-0.40

-0.58

-0.69

1.00

0.49

0.62

0.66

0.34

1.00

0.36

0.72

0.45

21%

1.00

0.54

0.43

26%

1.00

0.60

1.00

Corp. HY Munis Currencies EMD Commodities REITs Hedge Funds

Asset Class

Eq Hedge Market Funds `Neutral*

Corp. HY

Eq Market Neutral*

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 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 12/31/04 to 12/31/14. This chart is for illustrative purposes only.

Guide to the Markets – U.S. Data are as of 12/31/14.

Ann. Volatility

Alternative Asset Class Returns

2005

2006

2007

2008

P riva te Equity q y 28.3%

Re a l Esta te 35.6%

P riva te Equity q y 19 . 7 %

G bl. Ma c ro 4.7%

MLP s

76.4%

35.9%

G loba l Equity 17 . 4 %

P riva te Equity 28.7%

12 . 7 %

Eq. Mkt. Ntrl. - 3.0%

G loba l Equity 30.0%

Re a l Esta te 26.7%

G bl. Ma c ro 11. 4 %

Mrgr. Arb. - 6.7%

Re a l Esta te 27.6%

P riva te Equity 20.4%

HF Agg.

Re l. V a l.

11. 0 %

- 17 . 3 %

23.0%

12 . 5 %

Re a l Esta te 13 . 7 % Distrsd. 10 . 4 %

Distrsd.

Re l. V a l.

HF Agg.

Distrsd.

9 . 1%

15 . 3 %

10 . 0 %

- 18 . 7 %

20.2%

Mrgr. Arb. 14 . 6 %

Mrgr. Arb. 8.9%

6.3% Eq. Mkt. Ntrl. 6 . 1% G bl. Ma c ro 6 . 1%

Asset Class

2 6 . 1% G loba l Equity 17 . 0 %

HF Agg.

MLP s

2009

Mrgr. Arb. 5.5% Re l. V a l. 5.3%

HF Agg. 13 . 3 %

G loba l Equity 7.7%

Di t d Distrsd.

HF A Agg.

- 22.3%

18 . 6 %

P riva te Equity - 22.4%

P riva te Equity 13 . 4 %

2010

2014

4Q14

27.6%

Re a l Esta te 28.7%

Re a l Esta te 12 . 3 %

P riva te Equity q y 15 . 0 %

Re a l Esta te 25.2%

G loba l Equity 26.2%

G loba l Equity 9.9%

G bl. Ma c ro 3.4%

MLP s

13 . 8 %

18 . 1%

P riva te Equity 14 . 0 %

P riva te Equity 20.8%

G bl. Ma c ro 6 . 1%

G loba l Equity 3.0%

Re a l Esta te 8.0%

P riva te Equity 10 . 3 %

Re l. V a l.

Distrsd.

Re l. V a l.

9.7%

15 . 1%

5.2%

Eq. Mkt. Ntrl. 1. 1%

G loba l Equity 7.0%

2012

13 . 9 %

Re a l Esta te 18 . 0 %

P riva te Equity 11. 0 %

G loba l Equity 16 . 5 %

Re a l Esta te 9.4%

MLP s

Mrgr. Arb. 2.3%

2013 MLP s

Distrsd. 9.6%

Distrsd.

Re l. V a l.

Distrsd.

HF Agg.

MLP s

HF Agg.

Re l. V a l.

12 . 2 %

0.8%

8.5%

9.6%

4.8%

- 0.3%

6.4%

G loba l Equity 9.3%

Di t d Distrsd.

HF A Agg.

6 . 1%

7.8%

Re l. V a l.

HF Agg.

Re l. V a l.

- 0.9%

5.3%

6.7%

Mrgr. Arb. 4.9%

G bl. Ma c ro 4.6% Eq. Mkt. Ntrl. 3.7% Mrgr. Arb. 3.5%

G loba l Equity 11. 1%

Di t d Distrsd.

MLP s

0.0%

4.8%

4.6%

4.4%

Eq. Mkt. Ntrl. 3.6%

Eq. Mkt. Ntrl. 3 . 1%

Mrgr. Arb. 5.3%

Mrgr. Arb. 2.0%

- 2.0%

Mrgr. Arb. 1. 8 %

G bl. Ma c ro 0 . 1%

G loba l Equity - 6.0%

G bl. Ma c ro - 1. 3 %

Re a l Esta te - 0.5%

Mrgr. Arb. 4.6%

Eq. Mkt. Ntrl. - 1. 5 %

Distrsd.

MLP s

12 . 2 %

6.8%

- 36.9%

G bl. Ma c ro 8.2%

Eq. Mkt. Ntrl. 5.7%

Re a l Esta te - 37.3%

G bl. Ma c ro 6.9%

G bl. Ma c ro 3.2%

Eq. Mkt. Ntrl. 7.0%

Re a l Esta te - 16 . 3 %

G loba l Equity - 39.2%

Eq. Mkt. Ntrl. - 1. 7 %

Eq. Mkt. Ntrl. 2.5%

HF Agg. A

7.5%

8.5%

HF Agg.

R ll. V a l. Re l

Eq. Mkt. Ntrl. 6.4%

G bl. Ma c ro - 0.7%

Mrgr. Arb. 11. 9 %

Re l. V a l.

2011

10-yrs '05 - '14 Ann. Ann. Return Volatility

HF Agg.

Mrgr. Arb. - 0.7%

Distrsd. - 4.0%

Distrsd.

MLP s

1. 9 %

- 12 . 3 %

G bl. Ma c ro 4.4%

P riva te Equity -

Eq. Mkt. Ntrl. 2.7%

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 12/31/04 and 12/31/14. Please see disclosure pages for index definitions. Guide to the Markets – U.S. Data are as of 12/31/14.

Fund Flows Mutual Fund Flows AUM

Billions, USD

YTD 2014 2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

Domestic Equity

6,283

(39)

(159)

(133)

(81)

(28)

(149)

(68)

(3)

100

120

(25)

258

176

World Equity

2,158

141

(80)

142

151

107

(4)

(23)

Taxable Bond

2,942

(13)

256

129

221

301

100

125

(36)

560

(58)

(12)

(15)

(7)

(14)

(12)

Hybrid

1,377

(26)

(37)

(13)

Money Market

2,623

(75)

(0)

(124)

(525)

(539)

637

654

245

(157)

(263)

(46)

375

159

194

Tax-exempt Bond

Cumulative Flows Into Global Stock & Bond Funds

Cumulative Flows Into U.S. Equity Funds

$1,600

$800

Billions USD, Billions, USD includes both mutual funds and ETFs

$1,400 $1,200

Nov. ’14: $1,406 billion into bond funds and fixed income ETFs since ’07

$1,000

Nov. ’14: $707 billion into stock t k ffunds d and d equity it ETFs since ’07

Asset Class

$800

$600

Bonds

Nov. ’14: $626 billion into U.S. equity funds and ETFs by institutional investors since ‘07

$400

Institutional $0

Retail

-$400

$400 $200

Billions USD, Billions, USD includes both mutual funds and ETFs

Stocks

Nov. ’14: $643 billion out of U.S. equity funds and ETFs by retail investors since ’07

-$800 '07

'08

'09

'10

'07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14 Source: Investment Company Institute, J.P. Morgan Asset Management. TOP: Data includes flows through November 2014 and excludes ETFs. BOTTOM: Data includes flow through November 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 12/31/14.

'11

'12

'13

'14

Yield Alternatives: Domestic and Global S&P 500 Total Return: Dividends vs. Capital Appreciation Average annualized returns

Capital Appreciation

20%

Dividends

% 15% 13.6%

13.9%

10%

12.6%

3.0% 5% 4.7%

4.4%

6.0%

5.4%

5.1%

5.9% 4.4%

4.2%

3.3%

15.3%

1.6% 1.8%

2.5%

4.0%

-2.7%

-5.3% 5 3% -5% -10% 1926 to 1929

1930's

1940's

1950's

1960's

Equity Dividend Yields

10-year government bond yield

4.6%

1926 to 2014

10-year government bond yield

7% 5.8%

5.6%

5% 2.9%

Asset Class

2000's

5.0%

3.3%

4.1%

2.8%

2.5% 1.8%

2% 2.0%

3.6%

3.8% 3.0%

2.9%

U.K.

Japan p

3% 2%

1% 1%

U.S.

Australia

U.K.

France

Canada

Switzerland

ACWI

Japan p

U.S.

Canada

Singapore g p

France

Australia

Source: (Top chart) Standard & Poorâ&#x20AC;&#x2122;s, Ibbotson, J.P. Morgan Asset Management. (Bottom right) FactSet, NAREIT, J.P. Morgan Asset Management. Dividend vs. capital appreciation returns are through 12/31/14. 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 â&#x20AC;&#x201C; U.S.

1990's

Major world markets markets, annualized 6%

3.8%

1980's

REIT Yields

Major world markets, markets annualized 5%

1970's

Data are as of 12/31/14.

Global

Global Real Assets Commercial Vacancy Rates by Sector

Property Appreciation and Operating Income Growth

Percent at year end

YoY NCREIF ODCE Index* unlevered property appreciation and NOI growth

25%

12%

Sector Office Retail Industrial Apartment

20%

2013 16.7% 10.1% 9.5% 4.2%

Appreciation

8% 4% 0%

Net Operating Income Growth

-4% 15%

-8% '10

'11

'12

'13

'14

Allowed Return on Equity over the Cost of Debt

OECD Infrastructure 16%

10%

Recession

14%

Electric

12%

Nat. Gas

10%

Asset Class

10y UST

6% 4% 2% 0%

0% '90 90

'92 92

'94 94

'96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

'10 10

'12 12

'70 70

'80 80

Source: Reis, Inc., PREA, NCREIF, Regulatory Research Associates, Barclays Capital, FactSet, J.P. Morgan Asset Management. Vacancy rate data provided by Reis, Inc. *NCREIF Open End Diversified Core Equity Index. Guide to the Markets â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Utility bond

'90 90

'00 00

'10 10

Global Commodities Commodity Prices

Gold Prices

Weekly index prices rebased to 100

$ / oz

450

$3,000

Gold, Inflation Adjusted Gold Gold

$2,500

Precious Metals

400

Dec. 2014: $1,206

$2,000 $1,500

350

$1,000

300

$500

Industrial Metals

$0 '75

250

'80

'85

'90

'95

'00

'05

'10

Commodity Prices and Inflation Year-over-year % chg. chg

200

8% 6%

150

CPI Basket

Asset Class

100

Energy 0 '05 05

'06 06

'07 07

'08 08

'09 09

'10 10

'11 11

'12 12

'13 13

'14 14

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

Data are as of 12/31/14.

60%

40%

20%

-2%

-20%

-4%

-40%

-6%

-60% '96 96

'98 98

'00 00

'02 02

'04 04

'06 06

'08 08

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 â&#x20AC;&#x201C; U.S.

Grains

Livestock

80%

Headline CPI (Y/Y % chg.)

'10 10

'12 12

'14 14

Life Expectancy and Pension Shortfall Probability of Reaching Ages 80 and 90

Perceived retirement shortfall by country

100%

Persons aged 65, by gender, and combined couple

Men 87%

Women Couple – at least one lives to specified age

80%

69%

10 15

60%

Savings expected to last (years)

Expected savings shortfall (years)

58%

8 8

41%

40%

Brazil

Canada

U.S.

U.K.

Singapore S

90 Years

Australia

80 Years

France

Average

Asset Class

Source: (Left) SSA 2010 Life Tables, J.P. Morgan Asset Management. (Right) “The Future of Retirement: A new reality” study by HSBC, J.P. Morgan Asset Management. Figures represent the expected portion of retirement that will not be covered by retirement savings based on survey data. Guide to the Markets – U.S. Data as of 12/31/14.

18%

20%

UAE

Mexico

India

China

28%

Historical Returns by Holding Period Range of Stock, Bond and Blended Total Returns

Annual total returns, 1950 â&#x20AC;&#x201C; 2014 60% 50%

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

51%

40%

43%

30%

10.8%

$833,227

Bonds

6.2%

$327,106

50/50 Portfolio

9.0%

$565,743

32% 28%

20%

23% 21%

18% 19%

14%

16% 17% 12%

10% 6% 0%

-2% -8%

Asset Class

-10%

-2%

-1%

-15%

-20%

Stocks

-30%

Bonds 50/50 Portfolio -37%

-40% 1-yr.

5-yr. rolling

10-yr. rolling

Sources: Barclays Capital, FactSet, Robert Shiller, Strategas/Ibbotson, Federal Reserve, J.P. Morgan Asset Management. Returns shown are based on calendar year returns from 1950 to 2014. Growth of $100,000 is based on annual average total returns from 1950-2014. Guide to the Markets â&#x20AC;&#x201C; U.S.

5% 1%

Data are as of 12/31/14.

20-yr. rolling

Diversification and the Average Investor Maximizing the Power of Diversification (1994 – 2013) Traditional Portfolio

More Diversified Portfolio Equity Mkt. Neutral Commodities 8% 26%

S&P 500

30%

REIT

8% 8%

55%

MSCI EAFE Barclays y Agg. gg

15%

S&P 500 Russell 2000

22%

13% 9%

MSCI EAFE MSCI EM Barclays Agg.

Return: 8.02% Standard Deviation: 10.64%

Return: 7.95% Standard Deviation: 9.71%

20-year Annualized Returns by Asset Class (1994 – 2013) 12%

10.3%

10.2% 9.2%

10%

Asset Class

6.1% 6%

5.8%

5.7%

3.1%

2.5%

2.4%

Average Investor

Inflation

2% 0% REITs

Oil

S&P 500

EAFE

Gold

Bonds

Homes

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 International ti l Stocks: St k 15% MSCI EAFE. EAFE Portfolio with 25% in alternatives is as follows: U.S. Stocks: 22.2% S&P 500, 8.8% Russell 2000; International Stocks: 4.4% MSCI EM, 13.2% MSCI EAFE; U.S. Bonds: 26.5% Barclays Capital Aggregate; Alternatives: 8.3% CS/Tremont Equity Market Neutral: 8.3%,, DJ/UBS Commodities: 8.3% NAREIT Equity REIT Index. 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 eliminate li i t risk i k off lloss. (Bottom) (B tt ) IIndexes d 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 y by y return is based on an analysis Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/13 to match Dalbar’s most recent analysis Guide to the Markets – U.S. analysis. US Data are as of 12/31/14.

Cash Accounts Annual Income Generated by $100,000 Investment in a 6-mo. CD $10,000 $8 000 $8,000

Money Supply Component

$ Billions

Weight in Money Supply

2006: $5,240 M2-M1

$6,000

8,710

78.1%

$4,000

2014: $130

$2,000

Retail MMMFs

Savings deposits

'90

'95

'00

'05

'10

5.6%

7,558

67.8%

524

4 7% 4.7%

'15

M2 Money Supply as a % of Nominal GDP

Small time deposits

70%

628

3Q14: 65.0%

65%

Institutional MMMFs

1,788

16.0%

652

5.8%

60%

Average: 53 53.0% 0%

Asset Class

55%

Cash in IRA & Keogh accounts

50% 45% 40% '80

Total '85

'90

'95

'00

'05

'10

11,149

100.0%

'15

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 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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

Corporate DB Plans and Endowments Asset Allocation: Corporate DB Plans vs. Endowments

Endowments

Defined Benefit Plans: Russell 3000 Companies $2.5

Corporate Defined Benefit Plans

100% 95%

Assets ($) 48.0%

9.0%

Fixed Income

105%

Liabilities ($)

$2.0

27.0%

Equities

Funded Status (%)

Trillions ($)

$1.5

90%

$1.0

85% 80%

38 0% 38.0% $0.5

Hedge Funds

Private Equity

75%

20.1% $0.0

4.0%

70% '07

15.9%

'08

'09

'10

'11

'12

'13

Q4 '14*

Pension Return Assumptions: S&P 500 companies

2.0%

40%

Real Estate

Asset Class

Other

Cash

17.7% 2.0% 7.3% 3.0%

% of C Companies

34% 30% 20%

20% 13%

12%

10%

6% 0%

5% 1%

0% < 6%

6 to 6.5 to 6.5% 7%

7 to 7.5 to 7.5% 8%

8 to 8.5 to 8.5% 9%

0% 10% 20% 30% 40% 50% 60% 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 4Q14 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 â&#x20AC;&#x201C; U.S. Data are as of 12/31/14.

29%

20%

3.0% 4.0%

27%

9 to 9.5 to > 10% 9.5% 10%

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 Cap The C Index I d is i representative i off 400 stocks k iin the h mid-range id sector off the h ddomestic i stockk 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 pricet b k ratios to-book ti andd llower fforecasted t d growth th values. l The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell Midcap Growth Index ® measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Russell Midcap Value Index ® measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000 Value index. The Russell 2000 Index ® measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 2000 Growth Index ® measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Value Index ® measures the performance of those Russell 2000 companies with lower priceto-book ratios and lower forecasted growth values. The Russell Top 200 Index ® measures the performance of the largest cap segment of the U.S. equity universe. pp y 200 of the largest g securities based on a combination of their market capp and current It includes approximately 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. The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWI consisted of 45 country indices comprising 23 developed and 22 emerging market country indices.

The MSCI Small Cap IndicesSM target 40% of the eligible Small Cap universe within each industry group, within each country. MSCI defines the Small Cap universe as all listed securities that have a market capitalization in the range of USD200-1,500 million. The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including 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, company but does not include tax credits. 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. g Fund Index is compiled p byy Credit Suisse Tremont Index,, LLC. It is an assetCredit Suisse/Tremont Hedge 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 environment. i 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.

J.P. Morgan Asset Management â&#x20AC;&#x201C; 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 GSCI Index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. Individual components qualify for inclusion in the index on the basis of liquidity and are weighted by their respective world production quantities. The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indexes that are calculated and reported on a regular basis. This U.S. 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, bonds Eurobonds, Eurobonds and debt issues from countries designated as emerging markets (e (e.g., g Argentina Argentina, Brazil 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 Moody'ss, S&P S&P, Fitch. 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. eligibility If only one of the three agencies rates a security 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 Moodyâ&#x20AC;&#x2122;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 Moody'ss, S&P S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate and must be at least one year from their maturity date. Remarketed issues (unless converted to fixed rate), bonds with floating rates, and derivatives, are excluded from the benchmark.

Municipal Bond Index: To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, rates and derivatives are excluded from the benchmark 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 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). CS/Tremont e o t Multi-Strategy u t St ategy Index de co consists s s s oof funds u ds that a aallocate oca e cap capital a based oon pe perceived ce ed oppo opportunities u es Thee CS/ 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 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.

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. S ll Small-capitalization it li ti investing i ti ttypically i ll carries i more risk i k th than iinvesting ti iin well-established ll t bli h d "bl "blue-chip" hi " companies i 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. 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. leverage The value of commodity-linked 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 g y leveraged g and engage g g in speculative p investment techniques, q which can magnify g y the ppotential for 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 h tto th the dividends di id d per share h paid id in i th the previous i year, usedd as a measure off a company's ' potential t ti l 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. 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.

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. 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. g trade a broad range g of strategies g in which the investment pprocess is ppredicated on Global Macro Strategies movements 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, unbiased comprehensive benchmark for the asset class. class

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 decisionmaking, 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 upon pon by b you o in evaluating e al ating the merits of investing in esting in any an securities sec rities or products. prod cts In addition, addition the Investor In estor should sho ld make an independent assessment of the legal legal, reg regulatory, lator tax, ta credit credit, and accounting acco nting and determine, determine together with ith 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. 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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. Past performance is no guarantee of comparable future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.

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Prepared by: Andrew D. Goldberg, Anastasia V. Amoroso, James C. Liu, Gabriela D. Santos, David M. Lebovitz, Hannah J. Anderson, Abigail B. Dwyer, Ainsley E. Woolridge, and David P. Kelly. Unless otherwise stated, all data are as of December 31, 2014 or most recently available. Guide to the Markets – U.S. JP-LITTLEBOOK