Market Outlook and Key Themes

January 2013

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• What are current market/ economic conditions?

• What are current investment themes?

• What is the market outlook for 2013?

• What are drivers of growth?

• Are equities fairly valued?

• What are the risk in fixed income?

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Topics

Current Economic Conditions

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Current Economic Conditions

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Current Economic Conditions

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Investment Themes (3 to 5 years)

Implementation Strategy Rationale Theme

Global Fiscal Concerns

Divergent Growth Expectations (Developed vs. Emerging)

Credit Dislocation (Rate Environment)

Inflationary Environment

Risk Premium (Equity Valuations)

Maintain diversified exposure across global markets

Include hedging strategies to manage overall portfolio volatility

Ensure exposure to countries with stronger balance sheets and improving economic conditions

Maintain and/or enhance exposure to faster growing regions such as emerging markets across asset classes

Maintain allocations to specialist managers in emerging markets

Maintain diversified global fixed income exposure with focus on real yields

Complement core fixed income with opportunistic fixed income strategies

Ensure adequate inflation protection by allocating to real assets (commodities, real estate)

Consider increasing exposure to equity markets via higher beta strategies

Add higher net exposure approaches in long/short and equity oriented strategies across asset classes

Continued Government Intervention

Global Deficits/Increasing Sovereign Debt

Political Uncertainty/Election Pressures

US Regulatory Environment

Chinese Economic Policy

GDP Growth in Developed Markets to Remain Below Long-term Averages

High US Unemployment

Weak Housing Markets

Austerity Measures Around the Globe

Constrained Credit Environment

Global Deleveraging

Lagging Effects of Government Stimulus

Tax Policy

Volatile Commodity Prices

Focus on macro factors – rising correlations

Disconnect between pricing and fundamental values

Increasing risk premiums

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2013 Market Outlook Summary

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S&P 2013 10 YearYear End GDP Growth Treasury Yield

Barclays 1660 1.40% 2.00%

Putnam 1490 2.25% 2.20%

BlackRock 1545 2.00% 2.25%

Goldman 1575 1.80% 2.20%

JP Morgan 1580 2.00% 2.00%

Morgan Stanley 1434 1.40% 2.24%

Prudential 1600 2.50% 2.30%

BAC / Merrill 1600 1.50% 2.00%

Average 1561 1.86% 2.15%

High 1660 2.50% 2.30%

Low 1434 1.40% 2.00%

Investment Outlook – Goldman Sachs

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• Continued US Housing Recovery

• Employment

• US Manufacturing

• US Domestic Energy

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Drivers of Growth

Housing

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Housing

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Employment

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U.S. Manufacturing

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U.S. Manufacturing

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Domestic Energy

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Domestic Energy

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Equity Market - Valuation

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Equity Market - Valuation

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Equity Market - Valuation

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Source: J.P. Morgan Asset Management; Bloomberg. The securities highlighted above have been selected based on their significance and are shown for illustrative purposes only. Data as of July 4, 2012.

2.38%

3.16%

1.87%

2.16%

2.84%

2.71%

2.61%

4.05%

7.20%

7.00%

10.50%

9.90%

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

United Technologies

Time Warner

Microsoft

Merck

2012 Estimated FreeCashflow YieldCurrent Dividend Yield10 Year Debt Yield to Maturity

(Pharm/medtech)

(Software & Services)

(Media)

(Industrial Cyclical)

Equity Market Update - Valuation

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Fixed Income

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Fixed Income

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Fixed Income Market Update – Muni Bonds

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Fixed Income

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Where Do We Go From Here?

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