Case for America

If you spend much time on the Internet or watching news

on TV, you might believe Americas best years are behind

us. However, Wells Fargo Advisors begs to differ. In fact,

we think there are plenty of reasons to believe our nation

will remain vibrant and competitive.

Reasons to be optimistic about our nations economy and future

A case for AmericaA special publication from the Advisory Services Group

2 Please see page 11 for important disclosures.

There is a lot to be positive about when it comes to the U.S. economyDespite views to the contrary, we see a glass half full.The Great Recession left deep scars on the economy and investors mindset. Despite the economy being on the mend, popular media and social media seem to fuel pessimism with their frequent emphasis on the new normal, the lost decade, budget cuts, austerity, debt ceilings, inflation, deflation, market crashes, and below-trend growth in gross domestic product (GDP).

It all conspires to give investors a bad case of the grass is greener anywhere but here. Some look at the problems in the U.S. economy and assume its never going to get better. They see lions and tigers and bears waiting to pounce around every corner. Indeed, there will always be uncertainties that could impact the economy, but we believe its likely many investors are underestimating the resiliency and future prospects for the U.S. economy.

3Please see page 11 for important disclosures.

Many have called the 20th century the American Century, as the United States influence politically and culturally was felt worldwide and our economy became the largest, most productive and most competitive in the world. As the 21st century approached, and especially in the years following the financial crisis in 2008, concerns surfaced about the U.S. economys ability to maintain its preeminent position.

There are always challenges, but theyre not insurmountable. The recovery has been slow and uneven, yet steady and broad.

Stratification of the U.S. workforce over the past few years means that those with less education generally earn less and have potentially fewer opportunities for advancement than their more educated peers. A contentious political environment here at home and weak economies overseas have created uncertainty which can hinder business growth.

However, from our perspective, there is a lot to be positive about when it comes to the U.S. economy.

A FOUNDATION FOR FUTURE SUCCESS

Profitability Innovation Resources Stability PeopleImprovements in the global economy and expense reductions have contributed to send profits at U.S. corporations to record highs. With higher amounts of cash on their balance sheets, more companies are returning that cash to shareholders.

American firms are more innovative than at any point in history. In the last decade, U.S. companies have delivered a record number of new drugs, created the social networking industry, and established dominant positions in the smartphone software market.

North America is flush with resources ranging from farmland to water to oil and minerals. Advances in oilfield recovery technologies may allow the United States to substantially reduce its dependence on imported energy and give domestic manufacturers a cost advantage.

Although still on the mend, the housing market is recovering. The U.S. financial system is stronger than ever. Many Americans largest asset is their home, and a strong market tends to increase individual wealth.

Like other developed countries, the U.S. population is aging, but demographic trends should support further economic growth. Americans continue to value education, which should help the country remain competitive.

Lets take a closer look at each of these areas.


ProfitabilityU.S. corporations continue to deliver

The financial crisis was a painful event for corporate America, with profitability declining and layoffs surging. But over the last few years, many companies have recovered and are now better positioned than before.

U.S. corporations after-tax profits reached their highest level in 2012 the third consecutive record earnings year for Americas largest companies after a sharp plunge in the recession years of 2008 and 2009. Profits accounted for more than 11% of GDP. During the recession, corporate profits fell to as low as 4.8% of GDP.

Flush with cash and returning it to shareholdersA steadily improving business climate and a consistent focus on cost containment have led to record profits. These profits have resulted in a high level of cash and short-term investments on corporate balance sheets. At the end of 2012, large corporations held approximately $1.27 trillion in cash and short-term investments.

Despite record levels of business investment, American corporations have been returning substantial amounts of cash to shareholders in the form of dividends. According to a recent FactSet report, trailing 12-month dividend payments by S&P 500 companies reached $310.5 billion in 2012, up 22% from 2011. More than 80% of companies in the S&P 500 Index paid dividends in 2012, which was a 13-year high.

Trillio

ns

$1.8

$1.6

$1.4

$1.2

$1.0

$0.8

$0.6

$0.4

$0.2

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

$0

Corporate profits are at record highsCorporate profits after tax, seasonally adjusted annual rate

Source: U.S. Department of Commerce, Bureau of Economic Analysis

Corporate profits at many U.S. companies have recovered from the recession following the fiscal crisis in 2008 and surpassed $1.7 trillion in 2012.

Worlds most profitable companies

The United States has 10 companies among the worlds top 25 twice as many as Chinas five entries.

Profits (In billions)

1. Exxon Mobil $44.9

2. Apple $41.7

8. Chevron $26.2

12. J.P. Morgan Chase $20.5

14. Wells Fargo $18.9

16. Walmart (tie) $17.0

17. Microsoft (tie) $17.0

18. IBM $16.6

21. Berkshire Hathaway $14.8

22. General Electric $14.7

Source: FactSet


InnovationThe United States is a leader of the pack

Innovation is recognized as a key driver of business competitiveness and long-term economic growth. In that regard, U.S. companies are among the most innovative in the world. According to a 2012 study done by Thompson Reuters, 47% of the top 100 global innovators are from the United States. Further evidence can be found in the long list of American household products that are common on store shelves in foreign markets and the dominance of many U.S. technology firms.

Breakthroughs in health careThe U.S. health care system is a world-leading innovator in most areas, including pharmaceuticals, biotechnology, and devices. The industrys investment in research and development (R&D) has led to significant advancements in patient treatment. Due to the successful investment in R&D, death rates have declined for many diseases, including HIV, heart disease, and cancer. U.S. corporations are also credited for developing some of the most advanced technologies in medical devices such as mechanical valves and hearts, laser technologies used in surgical procedures, and robotic technology allowing for more precise surgery resulting in increased effectiveness and better outcomes for patients.

The birthplace of new technologiesBeyond health care, firms in the technology sector have continued to create, reshape and dominate their industry. The Internet, time-shifted TV, search engines, smartphone operating systems, social networking, and advanced networking technologies were all born out of American organizations. Whether using a tablet, smartphone, or a PC on a wired or wireless network, you are likely using hardware, semiconductors, an operating system, and applications designed by American companies.

The sky is the limitInnovation within the technology sector has spilled into other areas providing further innovative opportunities. Cloud computing, an invention born out of the Internet and one that's been relatively commoditized, has given rise to numerous opportunities in the human services industries as well as in the consumer retail environment. Genetic engineering has also led to advances in industries outside of health care, such as in nutrition and agriculture.

Leading countries in research and development

Agriculture & food production

Automotive & other motor

vehicles

Aerospace, rail & non-auto

transportation

Military aerospace, defense &

security

Composite, nanotech, &

other advanced materials

Energy generation &

efficiency

Environmental & sustainability

Health care, medical, life

science & biotech

Information & communications

Instruments & non-ICT

electronics

U.S. Germany U.S. U.S. U.S. U.S. Germany U.S. U.S. U.S.

China Japan France China Japan Germany U.S. U.K. Japan Germany

Germany U.S. Germany Russia Germany Japan Japan Germany China Japan

Australia South Korea China U.K. China China U.K. Japan Germany China

Brazil China Japan France U.K. U.K. Sweden Switzerland South Korea South Korea

Source: Battelle Survey, 2013 Global R&D Funding Forecast. Results reflect responses of 914 science and engineering researchers from 70 countries.

In a 2012 survey of scientists and engineers, the United States was named the leader in research and development in eight of 10 technology/research areas.

2013 forecasted gross expenditures on research and development

(In billions)

United States $424

China $220

Japan $162

Germany $91

South Korea $58

France $51

India $45

United Kingdom $42

Russia $39

Brazil $32

Sources: Battelle, R&DMagazine, International Monetary Fund, World Bank, CIA World Factbook


25

20

15

20

5

0 1975 1980 1985

Nuclear electric power

Renewable energy

Coal

Natural gas

Crude oil and NGPL*

1990 1995 2000 20102005

Quad

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n Btu

(Brit

ish th

erm

al un

it)

U.S. energy production trends are positive

*Natural gas plant liquids Source: U.S. Energy Information Administration, Monthly Energy Review, June 2013

Increased production from U.S. oil, natural gas and renewable sources is helping the country meet its energy needs.

ResourcesAmerica is regaining its edge

Radical innovation isnt limited to the health care and technology sectors. In the last several years, game-changing technology has transformed and re-energized the U.S. energy industry. These new technologies are expected to help the U.S. decrease its dependence on imported energy commodities. Heres a look at some of the trends within key energy sources.

New technologies boost oil and natural gas productionThe expanded use of horizontal drilling and hydraulic fracturing (fracking) technology has created a major inflection point for the industry. For the first time since the mid 1980s, U.S. oil production is rising. Increased vehicle, home heating system, and manufacturing plant efficiency means that oil consumption has dropped despite a population increase of nearly 46 million to levels last seen in 1996. In the United States, new natural gas supplies are outpacing demand. The U.S. Energy Information Administration (EIA) estimates that it may take approximately five years for demand to catch up with supply.

Agriculture provides renewable possibilitiesNotwithstanding the drought of 2012, the U.S. farm economy continues to be strong and resilient. The U.S. Department of Agriculture (USDA) projects the sector produced a trade surplus of $32.4 billion in fiscal 2012.1 Although anticipated to fall in the next few years, the surplus is projected to stabilize at an average $17 billion through 2022. In addition to being a leading source for food and nutrition, the use of agriculture as a source for renewable energy continues to grow. More than 3,000 American companies are producing more than 25,000 biologically-based products made from renewable sources. This innovation is supporting more than 100,000 jobs.2 According to Bloomberg research, the United States is expected to reach record highs in respect to corn acreage planted, which could translate to record ethanol production. 1 Congressional Research Service Report for Congress, U.S. Farm Income, Randy Schnepf, February 21, 2013. USDA reports fiscal year ending September 30. 2 USDA

The changing energy landscape

The International Energy Agency predicts:

Around 2015, the United States will surpass Russia as the worlds leading natural gas producer

Around 2020, the United States will surpass Saudi Arabia as the worlds leading oil producer

Source: World Energy Outlook 2012, International Energy Agency


220

200

180

160

140

120

1002003

Hous

ing A

orda

bility

Inde

x

Shaded area indicates U.S. recession

2005 2007 2009 2011 2013 2015

Housing prices remain affordable in an improving market

Source: National Association of Realtors

This index measures the degree to which a typical family can afford the monthly mortgage payments on a typical home.

Value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20% down payment. This index is calculated as composite of the fixed and adjustable-rate mortgages.

StabilityStronger housing and banking industries

For most Americans, their home is one of their largest and most important assets. A strong housing market tends to create jobs and increase individual wealth, fueling spending, while a weak housing market has the opposite effect. Fortunately, recent housing statistics indicate that real estate prices have not only bottomed but are also showing signs of a sustainable recovery.

The combination of historically low mortgage rates and rebounding home prices have led to improving housing trends. Other factors that support a slow, sustainable recovery include:

Nearrecord-lowmortgagerates Adropinhomeforeclosures Thetightsupplyofbothnewandpreviouslyownedhomesavailableforsale Alowerunemploymentrate

It appears that these factors along with a more positive economic outlook are working together to bring potential buyers back into the market.

One of the worlds strongest financial systems In recent years, large U.S. banks have markedly strengthened their balance sheets by reshaping their business models, realizing losses where necessary, and raising capital to fortify operations. Although the steps were painful, we believe our domestic banking system is now one of the strongest in the world. Regulators have set a much higher bar for safety and soundness. For example, the Federal Reserve now publicly releases the data of its annual bank stress tests. In our opinion, these rigorous tests allow us to conclude that major U.S. banks have enough capital to potentially withstand another significant crisis. New regulatory actions have shaped banks postcrisis business models and create incentives to adopt models that generate sustainable profits and reduce the reliance on Federal Reserve support.

Bank failures are declining

The number of banks closed by regulators due to an inability to meet their obligations to depositors and others has continued to fall following the financial crisis.

2008 25

2009 140

2010 157

2011 92

2012 51

2013 16*

Source: Federal Deposit Insurance Corporation *As of June 7, 2013


Although the U.S. population overall is expected to be older in 2030 versus today (with the median age increasing from 35 to 39 years), 80% is projected to be younger than age 65.

Other countries may face bigger aging challenges

Its expected that approximately one quarter of the U.S. population will be aged 60 and older in 2040. Although that may sound like a lot, heres how it compares with some other countries:

Japan 43.3%

Germany 39.0%

Korea 38.6%

Canada 31.5%

China 27.9%

United States 25.4%

Chile 25.0%

Mexico 22.3%

Brazil 22.2%

India 15.6%

Source: CSIS GAP Index Report, 13D Research

PeopleGrowing, young, and educated population offers promise

Another U.S. advantage we see can be described in three familiar words: We the people. Our growing, young, and educated population should keep our country in a strong, competitive position.

The growth trend and composition (by age group) of a nations population are important indicators of potential future economic growth. At 310 million people, the United States was the third most populous nation in 2010, behind only China and India. Our population is expected to grow by approximately 2.5 million per year and reach 362 million by 2030. In contrast, other countries are expected to grow more slowly or even decline in population. For example, through 2030, Europe is expected to grow by about 1 million people per year and Japan by about 50,000. China, on the other hand, is expected to lose about 400,000 per year.3

Although its true that the proportion of U.S. citizens entering the 65-plus age category is growing, the percentage of young and working-age people is expected to increase 42% between 2000 and 2050. In contrast, the number in those age groups is expected to decline 10% in China, 25% in Europe, 30% in South Korea, and more than 40% in Japan.4

An educated workforceOur deep and highly talented labor pool is another not-to-be-ignored American resource. The U.S. higher education system is among the most advanced in the world and attracts students from around the globe. Data from the Organisation for Economic Co-operation and Development (OECD) put the United States near the top in the percentage of the workforce with advanced degrees. While America has work to do in improving its elementary science and mathematics competitiveness, most children attend school and receive a quality education. 3United Nations, Department of Economic and Social Affairs, World Population Prospects: The 2010 Revision 4Source: The Changing Demographics of America, Joel Kotkin, Smithsonian, July-August 2010.

400

350

300

250

200

150

100

50

02000

12%

21% 19%

61%

20%

2010 2020 2030

40

39

38

37

36

35

34

33

Popu

lation

(milli

ons) Population age66%

0-14 years 15-64 years 65+ years

Median age

U.S. population should remain relatively young

Source: United Nations, Department of Economic and Social Affairs, World Population Prospects: The 2010 Revision

Please see page 11 for important disclosures.

A few reasons why America is positioned to remain a global leader

WELL CONNECTED 505 million

#1 in the world in computers connected to the internet

Source: The World Factbook 2013-14, Central Intelligence Agency

LONG-TERM EQUITY APPRECIATION

9.8%S&P 500 nominal return, 1926-2012

Source: Ibbotson Associates

VALUABLE COMPANIES $15.6 trillion

#1 in the world in market value of shares of publicly traded companies

Source: The World Factbook 2013-14, Central Intelligence Agency

LEADING UNIVERSITIES 19

of the worlds top 25 universities

Source: World University Ranking 2012-2013, Times Higher Education

WORLDS RESERVE CURRENCY 62%

of foreign exchange holdings by worlds central banks are in dollars

Source: International Monetary Fund, 2011 Q4

9

WORLDS LARGEST ECONOMY $15.7 trillion

2012 U.S. gross domestic productSource: U.S. Department of Commerce, Bureau of Economic Analysis


Take advantage of Americas potential in your investment plan If youve been pessimistic about the United States future and avoided investing in U.S. stocks, we think its time to reconsider. Thats especially true if youre holding a large position in cash alternatives thats providing little or no returns. We believe the best approach is to work with your Financial Advisor to develop a long-term plan including a well diversified asset allocation (investment mix) to help you work toward your goals.

The Advisory Services Group at Wells Fargo Advisors, which includes the firms top strategists, provides our Financial Advisors and clients with nine strategic asset allocation models (all of which include an allocation to domestic stocks) to use as a starting point for building customized strategies. The models cover the range of investment objectives and risk tolerances from conservative income to long-term growth. Your Financial Advisor can help determine which one appears right for your situation.

Wells Fargo Advisors also offers the Envision investment planning process, which begins by helping you identify and prioritize your most important investment objectives. It then takes into consideration what you have saved, how much you plan to save in the future, and uses sophisticated statistical modeling to create an asset allocation for you.

Contact your Financial Advisor today for help determining whether you need to reposition your portfolio. If you dont have a Financial Advisor with Wells Fargo Advisors, go to wellsfargoadvisors.com and use our Connect With Us Today locator tool to get in touch with one.

11

Disclosures and definitions S&P 500 index consists of 500 industrial, financial, utility, and transportation companies with market capitalizations of $4 billion or more.

An index is not managed and is unavailable for direct investment.

Diversification and asset allocation does not guarantee a profit or protect against loss.

Additional information available upon request. Past performance is not a guide to future performance. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is published solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or investment product. Opinions and estimates are as of a certain date and subject to change without notice.

Envision is a registered service mark of Wells Fargo & Company and used under license.

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Wells Fargo Advisors is one broker/dealer affiliate of Wells Fargo & Company; other broker/dealer affiliates of Wells Fargo & Company may have differing opinions than those expressed in this report. Contact your Financial Advisor if you would like copies of additional reports.

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Case for America