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Investment Program Update

AUMCPBO Annual MeetingOctober 24, 2014

Sustainable Investment Update

Looking Forward to 2015

Best Investment Strategy—Past Five Years

Markets Overview

Investment Philosophy

Agenda

2

statement

DiversifiedDiversified

DisciplinedDisciplined

Long-TermLong-Term

SustainableSustainable

Investment Philosophy

3

Why Are the Markets so Volatile?

If you are not confused, you don’t understand things

very well.

Source: Charlie Munger/Berkshire Hathaway Annual Meeting April 5, 2013

4

Recent Market Volatility Is the Mostin the Past Two Years

0

10

20

30

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Source: CBOE; FactSet

5

CBOE Market Volatility Index (VIX)

Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management

Catalyst: Europe Inflation Trending Lower

6

German 5-Year Inflation Expectations (%)

0.0

0.5

1.0

1.5

2.0

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Source: Bloomberg

7

We Must Pay for the Privilege of Depositing Money in European Banks

Source: Wall Street Journal

October 17, 2014

U.S. Dollar Index

78

80

82

84

86

Source: FactSet

9

10-Year U.S. Treasury Note Yield (%)

1.50

2.00

2.50

3.00

3.50

Source: FactSet

10

U.S. 5-Year Inflation Expectations (%)

0.0

0.5

1.0

1.5

2.0

2.5

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

Source: FactSet

11

WTI Crude Oil ($/bbl)

$70

$80

$90

$100

$110

Jan-14 Apr-14 Jul-14 Oct-14

July through Oct price drop = 22%

Source: FactSet

12

MSCI ACWI (ex-US) Performance Relative to S&P 500—Five Years

60%

65%

70%

75%

80%

85%

90%

95%

100%

Source: Wilshire Compass, Wespath

13

Russell 2000 Performance Relativeto S&P 500–One Year

84%

86%

88%

90%

92%

94%

96%

98%

100%

102%

Source: Wilshire Compass, Wespath

14

Reasons for Optimism

15

U.S. Initial Jobless Claims (Thousands)

100

200

300

400

500

600

700

1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: U.S. Department of Labor; FactSet

16

U.S. Hires and Quits (Thousands)

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

3,100

3,500

4,000

4,500

5,000

5,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

HiresQuits

Source: Bureau of Labor Statistics; FactSet

17

Private Sector Has Driven Employment

Source: Bureau of Labor Statistics, Factset, J.. P. Morgan Asset Management

18

U.S. Is Now the World’s Leading Oil Producer

Source: Economist

19

Future Prospects Are Brightfor Abundant and Cheap Energy

Source: EIA, IMF, FactSet, J.P. Morgan Asset Management

20

Corporate Sector Continuesto Reduce Borrowing

Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management

21

Individuals Continue to Reduce Borrowing

Source: BEA, Standard & Poor’s, Compustat, J.P. Morgan Asset Management

22

Plenty of “Dry Powder” in Corporate Sector

Source: The Economist

23

Reasons for Concern

24

European Employment Remains Stagnant

Source: Eurostat, BLS, SIFMA, ECBC, FactSet, IMF, J.P. Morgan Asset Management

25

U.S. Federal Budget Deficit

-$1,600

-$1,200

-$800

-$400

$0

$400

Source: Whitehouse.gov

$492 million

26

U.S. Government Outstanding Debtas a Percent of GDP

0%

20%

40%

60%

80%

100%

120%

Source: Bureau of Economic Analysis, TreasuryDirect.gov, Wespath

103%

27

2015 U.S. Government Budget

Interest5.6%

Health & Welfare27.9%

Education16.1%

Defense & Public Safety

16.8%

Other14.7%

Pension18.9%

Source: usgovernmentspending.com

Interest Expense = $369.4 Billion

28

Average Interest on U.S. Government Debt

0%

1%

2%

3%

4%

5%

6%

7%

Source: TreasuryDirect

2.40%

6.64%

29

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