CIO Chart Book - Merrill

GLOBAL INSTITUTIONAL CONSULTING

CIO Chart BookJanuary 2018

For institutional use only. Distribution to any other audience is prohibited.

GLOBAL INSTITUTIONAL CONSULTING | 2

Important information

This material was prepared by the Global Wealth & Investment Management Chief Investment Office (GWIM CIO) and is not a publication of BofA Merrill Lynch Global Research. The views expressed are those of the GWIM CIO and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer by any Merrill Lynch entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available. The opinions expressed in this material are strictly those of the GWIM CIO, are made as of the date of this material and are subject to change without notice. Other affiliates may have opinions that are different from and/or inconsistent with the opinions expressed herein.

The GWIM Investment Strategy Committee (GWIM ISC) is responsible for developing and coordinating recommendations for short‐term and long‐term investment strategy and market views encompassing markets, economic indicators, asset classes and other market‐related projections affecting GWIM.

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OVERVIEWFourth quarter macro and markets recap 4

Major index total returns 5

2018 outlook: The next great odyssey (New) 6

Chief Investment Office — Portfolio strategy 7

CIO asset class strategy views 8

Tactical strategy timeline 9

Capital market outlook timeline 10

CIO circle back —Major trend and asset class calls 11

MACRO STRATEGY —GLOBAL THEMES AND TRENDSEconomic outlook 13

Global economy improving 14

Inside the global synchronized pickup (New) 15

CIO U.S. recession indicator (New) 16

Macro conditions indicator 17

U.S. business cycle has room to run 18

Monetary policy passing the baton to fiscal policy? (New) 19

Tight labor market 20

Inflation expectations are soft 21

Dollar likely to be stable (New) 22

MARKET DYNAMICS AND INVESTMENT TRENDSThe CIO “bulls eye” (New) 24

Tax reform in a global context (New) 25

U.S.: Effective corporate tax rates by industry (New) 26

Repatriation: Over $1 trillion to return? (New) 27

The end of an era —Quantitative easing roll‐off (QERO) begins

28

PORTFOLIO STRATEGY Equities (New) 57‐58

Fixed income 59‐60

Alternative investments 61

THEMATIC INVESTINGThematic investing — a transforming world 63

Cloud services providing a growing share of computer processing and storage (New)

64

Wind and solar power growing more quickly than other energy sources (New)

65

Mobile payments (New) 66

Only five NATO members currently meet the official defense spending target

67

Technology sector valuation percentiles — dot‐com years vs. today

68

APPENDIXEconomic market forecasts 70

Business cycle and relative stock performance 71

The value of diversification (New) 72

Merrill Lynch U.S.‐oriented investor 73

Merrill Lynch U.S.‐oriented investor quilt chart on volatility (New)

74

U.S. equities 75

Merrill Lynch globally oriented investor 76

Merrill Lynch globally investor quilt chart on volatility (New)

77

Glossary 78

Asset class proxies, index definitions 79‐88

Disclosures 89‐90

Table of contentsFactor barometer 29

Global economic policy uncertainty 30

Major geopolitical shocks in the current cycle 31

Gold as a diversifier 32

TIFFs: Ten Interesting Fast Facts (New) 33

GLOBAL EQUITIES SUMMARY AND CHARTSCIO portfolio guidance — Equities 35

Global profit outlook (New) 36

U.S. equity fundamentals and valuations (New) 37

Non‐U.S. equities — A portfolio diversifier? 38

Non‐U.S. equity valuations (New) 39

In Europe and Japan: Purchasing power key 40

Global pickup may favor emerging markets (New) 42

…But watch China’s growth trajectory 43

FIXED INCOME SUMMARY AND CHARTSCIO portfolio guidance — Fixed income 44

Fixed income market trends (New) 45‐46

Investment grade and high yield 47

ALTERNATIVE INVESTMENTS SUMMARY AND CHARTSCIO portfolio guidance —Alternative investments 49

The environment for hedge funds continues to improve 50

We remain moderately positive equity long/short 51

We are constructive on niche areas of private equity and private real estate

52

Navigating uncertainty with specialty assets 53

Commodities: Energy 54

Commodities: Metals 55



ALTERNATIVE INVESTMENTS*

• Commodities won back ground— The Bloomberg Commodity Index increased 4.7% during the quarter, paring earlier losses to finish the year up 1.7%. After having endured a tough nine months of the year, energy advanced 8.9% during the quarter, buttressed by strength in Brent Crude (17.7%). Agriculture continued its slide (‐2.3%), however industrial metals added 10.7% after suffering in the prior quarter. Copper, often used as a measure of industrial activity, built upon a strong year (31.7%) with a quarterly return of 11.7%. Gold increased 1.8% in Q4.

• The DXY dollar index fell 1.0% this quarter, due to the euro appreciating 1.6%. The Japanese yen fell slightly by 0.2%. EM currency performance was mixed versus the dollar. The South African Rand was the top performer appreciating 9.1%.

• The HFRX Global Hedge Fund index rose 1.5%, and the LPX50 Private Equity Index gained 1.1%. U.S. Master Limited Partnerships (MLPs) fell 0.9%, while global Real Estate Investment Trusts (REITs) added to a yearly gain, booking 3.4% in the quarter.

FIXED INCOME

• Fixed income returns were modestly higher in the 4th quarter. — The ML Global Broad Market Index added 1.0%, bringing its YTD gain to 6.9%.

• In the U.S. the 10‐year U.S. Treasury yield settled at 2.41%, 8 bps higher than it began the quarter. Despite this, U.S. government bonds on aggregate gained 0.1% for the quarter. U.S. Corporates gained 1.1%. U.S. Treasury Inflation‐Protected Securities (TIPS) added 1.4%. This resulted in the broad measure of U.S. bonds adding 0.4% for the quarter and 3.6% for the year.

• The municipal bond market added 0.7%. High Yield bonds gained 0.4% in the 4th quarter, maintaining their lead in U.S. fixed income returns year‐to‐date.

• EM sovereign debt rose 0.6% in the 4th quarter and 10.0% for the year. This compares to European sovereigns, which rose 0.6% and 0.5% respectively.

EQUITIES

• Global equities gained in Q4, led by Emerging Markets (EMs) — The MSCI All Country World Index appreciated 5.7% during the quarter, bringing its year‐to‐date (YTD) total return to 24.0%.

• In the U.S., the S&P 500 added 6.6% during the 4th quarter, with YTD gains summing to 21.8%. Technology (9.0%) led all sectors in the last quarter of the year, while telecoms and energy shaved their YTD losses, advancing 3.6% and 6.0% respectively. Small caps lagged, with the Russell 2000 returning 3.3% in the 4th quarter and 14.6% for the year. More broadly, growth outperformed value within the Russell 3000 (7.6% vs. 5.1%) during the quarter.

• EMs outpaced Developed Markets (DMs) during the quarter, with a return of 7.4% versus 5.5%. Within DM, the Pacific region led, with Singapore surging 10.1%. In EMs, Asia (8.4%) outperformed, with India advancing 11.8%. LatAm trailed in the space, down ‐2.3%, with Mexico slumping ‐8.1% during the quarter.

MACRO

• Despite storms, both natural and in Washington, U.S. economic growth was resilient. The U.S. economy has grown two consecutive quarters more than 3% on a seasonally adjusted annual rate (SAAR). The 3rd quarter result of 3.2% was driven largely by an increase in inventories, government spending, and lessened imports. The hurricane‐related disruption to economic data has mostly proved transitory, while political noise has not dented business confidence. The Federal Reserve (Fed) began reducing its balance sheet, while raising its policy rate by 25 basis points (bps) to 1.25‐1.50%, despite core inflation remaining shy of target.

• The global expansion has broadened with measures of activity, such as the global Purchasing Managers Index and world trade volumes at or near multi‐year highs. However, core inflation remains subdued. In Japan and Europe, it continues to trail that of the U.S. While the Bank of Japan has shied away from amending its yield curve control target, signaling continued extraordinary easy monetary policy, the European Central Bank has begun to taper its bond purchases.

Fourth quarter of 2017 in review

Fourth quarter macro and markets recap

* Many products that pursue Alternative Investment strategies, specifically Private Equity and Hedge Funds, are available only to pre‐qualified clients. Source: Chief Investment Office as of December 31, 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.



Major index total returns

Source: Chief Investment Office and Bloomberg. Data as of December 31, 2017. Asset classes represented by the following indices: MLPs (Alerian MLP Total Return Index), Commodities (Bloomberg Commodity Total Return Index), Gold (Gold Spot Price), U.S. REITs (FTSE NAREIT U.S. REITs Total Return), Global REITs (FTSE NAREIT Global REITs Total Return), Private Equity (LPX 50 TR USD Index), and Global Hedge Funds (HFRX Global Hedge Fund Index). Brent Crude Oil is a classification of sweet light crude oil and is a major benchmark price for oil purchases worldwide. WTI crude oil reflects the Bloomberg West Texas Intermediate Crushing Crude Oil Spot Price. The price is derived by adding spot market spreads to the NYMEX contract. Units are in U.S. dollars per barrel and is traded intraday. It is not possible to invest directly in an index. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Global Equities Global Fixed Income Alternative Investments


0 5 10152025303540

Russell 3000 Value

Russell 2000

S&P Midcap 400

S&P 500

MSCI All CountryWorld

MSCI Japan

MSCI EAFE

MSCI Europe

MSCI Pacific ex.Japan

Russell 3000 Growth

MSCI EmergingMarkets

YTD QTD%

YTD QTD

37.3 7.4

29.6 7.6

25.9 7.0

25.5 2.2

25.0 4.2

24.0 8.5

24.0 5.7

21.8 6.6

16.2 6.3

14.6 3.3

13.2 5.1

0 2 4 6 8 10

ML Agency Master

ML Treasury Master

ML TIPS Master

ML US Broad Market

ML Muni Master

ML Corp Master

ML Global BroadMarket

ML HY Master

ML EM Sovereign

YTD QTD%

YTD QTD

10.0 0.6

7.5 0.4

6.9 1.0

6.5 1.1

5.4 0.7

3.6 0.4

3.3 1.4

2.4 0.1

2.1 0.0

‐15 ‐5 5 15 25

DXY U.S. Dollar Index

MLPs

Commodities

U.S. REITs

Global Hedge Funds

Global REITs

WTI Crude Oil

Gold

Brent Crude Oil

Private Equity

YTD QTD%

YTD QTD

25.4 1.1

17.7 16.2

13.1 1.8

12.5 16.9

8.0 3.4

6.0 1.5

3.9 1.6

1.7 4.7

‐6.5 ‐0.9

‐9.9 ‐1.0


We see 2018 as a year of continued transition. The progression from the prolonged period of secular stagnation and extraordinarily low interest rates to rising economic growth, enhanced by secular forces, and rising interest rates may generate episodes of concern, which could eventually set the stage for a new upcycle.

2018 outlook: The next great odyssey

Expected growth sourcesCapital investment via repatriation

Millennial housing cycle

Emerging market middle‐class consumers

Second wave of an innovation cycle

Global infrastructure redevelopment

Our outlook of expected dynamics to drive the new upcycle can be seen through a 5 by 5 prism.

Central banks to normalize large balance sheets

Tapering of central bank bond‐buying programs

A nudge higher in interest rates

Trillions of dollars to fade to positive rate structure

Debt servicing costs to remain at acceptable levels, as growth hovers at or above trend levels

New demographic and inflation dynamics expected to allow…

Source: GWIM Investment Strategy Committee (GWIM ISC) as of December, 2017.



ALTERNATIVE INVESTMENTS*

• We maintain our expectation that commercial real estate should continue to perform well into 2018 based on our view of U.S. economic growth, a healthy job market and increasing consumer spending.

• We believe the environment for active management, and hence hedge funds, will remain favorable in 2018 and we continue to prefer a diversified approach when investing in this heterogeneous asset class. We maintain a moderately positive view on equity long/short strategies.

• We believe it is prudent for investors to plan a disciplined multi‐year private equity commitment strategy that builds portfolio diversity among different managers, styles, geographies, and vintages.

FIXED INCOME

• Neutral to slightly short duration is warranted, balancing expectations for higher short‐term rates over time and periods of flight‐to‐quality given U.S. political and geo‐political headwinds.

• Prefer credit over Treasurys, with an emphasis on investment grade corporates–particularly banks—and municipals, although the relative value of credit has moderated.

• Underweight high yield as valuations are rich. An allocation to leverage loans may be prudent due to the floating‐rate coupon, secured status and minimal yield give‐up to unsecured bonds. Allocations should be with an active manager favoring higher‐quality securities.

• Active management can potentially help improve risk‐adjusted returns in a rising rate environment and that a barbell strategy of owning bonds or bond funds with both longer and shorter maturities could potentially outperform a bulleted strategy in a rising yield environment.

EQUITIES

• Equity allocations are moving up and supporting the broader indices around the world. Which supports our overweight equities across the board with an emphasis on non‐U.S. exposure.

• We prefer exposure to industries that offer earnings streams from secular themes such as technology (digital revolution, artificial intelligence, cloud computing, etc.) and to ones offering cyclical value such as financials (rising rates, deregulation).

• Overweight Emerging Markets and International Developed equities, specifically Europe and Japan.

• Dividend growth over high dividend yield.• Hybrid mix of active and passive managers based on market opportunity.

TACTICAL SHIFTS

January 2018: • Moderated our view of U.S. municipals to neutral as muni‐to‐Treasury ratios are less compelling versus last year

May 2017: • Lowered our conviction on U.S. small‐caps to a slight overweight • Slightly increased our exposure to International Developed equities March 2017: • Shifted to a slight overweight position in International Developed equities, more specifically Emerging Markets

Chief Investment Office — Portfolio strategy

*Many products that pursue Alternative Investment strategies, specifically Private Equity and Hedge Funds, are available only to pre‐qualified clients. Asset Allocation and diversification do not ensure a profit or protect against loss in a declining market. Source: GWIM Investment Strategy Committee (GWIM ISC) as of January, 2018. Please refer to appendix for asset class proxies and index definitions.

CIO THEMES

• From secular stagnation to fiscal reflation and synchronized economic expansion

• Equities remain attractive vs. Fixed Income on relative basis

• Utilize a barbell strategy in Fixed Income to accumulate cash flow

• Non‐U.S. economies gather momentum• Emerging Markets remain a tailwind to world growth



Global Equities

U.S. Large Cap

U.S. Mid & Small Cap

International Developed

Emerging Markets

CIO asset class strategy views

Global Fixed Income

U.S. Treasuries

U.S. Municipals

U.S. Investment Grade Corp

U.S. High Yield

U.S. Collaterized

Non‐U.S. Corporates

Non‐U.S. Sovereigns

Emerging Market Debt

Alternatives*

Commodities

Hedged Strategies

Real Estate

Private Equity

U.S. Dollar

Cash

• Generate attractive cash flows across asset classes• Active rebalancing during periods of outsized weakness and strength• Focus on risk‐adjusted returns and goal alignment

CORE PORTFOLIO FUNDAMENTALS

When assessing your portfolio in light of our current guidance, consider the tactical positioning around asset allocation in reference to your own individual risk tolerance, time horizon, objectives and liquidity needs. Certain investments may not be appropriate, given your specific circumstances and investment plan. Certain security types, like hedged strategies and private equity investments, are subject to eligibility and suitability criteria. Your financial advisor can help you customize your portfolio in light of your specific circumstances. *Many products that pursue Alternative Investment strategies, specifically Private Equity and Hedge Funds, are available only to pre‐qualified clients. Source: GWIM ISC as of January 2018.


UnderweightSlightly

Underweight NeutralSlightly

Overweight Overweight


A World of Change: The Investor Strikes Back! From secular stagnation to fiscal reflationEquities remain attractive vs. Fixed Income on a relative basis. From a defensive search for yield to extracting value and increasing cyclical exposureA move toward the late‐cycle phase, fiscal stimulus through tax cuts

The Pivotal YearBuilding the foundation for recoveryLong‐term growth shift from the developed to developing worldActively examine and position portfolios for the recovery

Crossing the Rubicon Positive Micro factors should trump Macro concerns in 2011Corporate profits are growing and employment should improve

The Year the Can Kicks BackAfter a run‐up early in 2012, expect correction in spring/summer as policy cloud returnsYield‐tilt and low volatility strategies are top themes for 2012

The Big Fix BeginsFiscal policy transparency & continued easy monetary policy lead to stronger economic growth & improved equity marketContinue to advocate “get paid to wait” strategy, but add more growth & cyclical investments

Back to the FutureThe unemployment rate & fiscal deficit have improved more than expectedTax hikes earlier this year & the sequester controls on spending have amplified the normal cyclical forces reducing the deficit

Where the Buffalo RoamMany trends (technological advancement, a stronger USD, declining twin deficits in the U.S., and volatility shifting back to the developing world) will continue to unfold, with the key engine for world growth remaining the United States

The Twilight ZoneExpect 2016 to reinforce the divergences between central bank policies, the rapidly changing trends in the private sector, the unsettling geopolitical equation, the pressure on the Emerging Markets & the commodity complex, and the early warning signals building across some of the credit markets

The Next Great OdysseyExpect volatility to pick up as fiscal and monetary policy changes gather pace and filter broadly into the capital markets. Still expect profit growth to rise, and believe investor skepticism should continue to wane, optimism to rise and eventually some euphoria could enter and elevate valuation to unsustainable premiums

Reduce US Mid/Small Cap to slight OW; Equity Int. Dev. to large UW. Fixed income to large UW, private equity to neutral, tangible assets to large OW.

Increase US Large Cap, but keep at slight OW. Tangible assets down from large OW to slight OW.

Cash to slight OW, tangible assets to neutral.Cash to large OW, Equities to neutral, global high yield to large OW.Real estate up to neutral.Equities to large OW, Equity Int. Dev. up to slight OW. Real estate and tangible assets to slight OW. Hedge funds to slight UW.

Cash to neutral, increase exposure to all equity segments, fixed income to large UW.Reduce tangible assets to large UW, proceeds flow to cash.Reduce EM to slight UW and increase US Large Cap exposure.

Reduce US Equity exposure to slight OW. EM up to neutral. Real estate and tangible assets up to neutral.EM and tangible assets down to slight UW, place back into hedge funds.

Increase Equity Int. Dev. to large OW. Reduce US Mid Cap to neutral and EM to large UW.Reduce high yield to UW; redeploying proceeds to US Large Cap.

Moving to balanced inv. policy across all profiles; tactical shift Equities to neutral.Maintain slight OW U.S. large caps; increase EM Equities to slight OW. Reduce Equity Int. Dev. to slight UW.Increase Equities to slight OW; and US Small Caps to OW; increase Equity Int. Dev and cash move to neutral.

Updated strategic asset allocation guidelines.Decreased Municipals from slight OW to neutral.

Introduced new asset allocation framework.Increase Equity International Developed to OW from neutral. Reduce High Yield to slight UW from neutral. Slightly increased exposure to Int. Dev. Equities. Lowered conviction on U.S. Small Cap to a slight OW.

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2010 2011 2012 2013 2014 2015 2016 2017 2018

Large Overweight Overweight (OW) Neutral Underweight (UW) Large Underweight

Tactical Weight in All U.S. Equities

Index

* GWIM ISC

Tactical strategy timeline

Source: U.S. Trust Investment Strategy Committee as of August, 2017; GWIM ISC as January 2018. Data: FactSet as of December 29, 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.

ISC Tactical Changes


MSCI All‐Country World Price Index (ex –U.S.)Russell 3000 Index S&P 500 Price Index

Investment Strategy Committee (ISC) process


Capital market outlook timeline

Sources: Bloomberg; U.S. Trust Macro Strategy and Research Team. Data as of December 29, 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.

The November election result marked a decisive break higher for cyclical sectors. We expect the outperformance of cyclicals to persist as the year progresses.

Risks to the outlook for global economic growth are shifting to the upside. Hard and soft economic data show increasing growth momentum. Leading indicators suggest that both inflation and real growth will rise through 2018.

Solid economic fundamentals in the new pro‐growth political environment are overwhelming risks associated with the sharp political divisions that threaten tax reform, infrastructure spending, repatriation and further regulatory relief.

Margins remain near historical highs and are likely to decline only slowly, in our view, as the labor market tightens. Low energy prices, modest wage pressures and low real interest rates have kept margins higher for longer. Corporate tax cuts would provide an additional boost. As a result, we see profits continuing to advance in 2018.

With summer in the rear‐view mirror, we outline the road ahead, bracketed by the most salient items related to politics, policies and macro/markets. Following a near‐term bout of volatility and an odds‐on correction/consolidation in equities, the rally in global equities is expected to grind higher.

After a decade of "secular stagnation," signs that growth is resuming a more historically normal pattern are broadening out, helping to explain the barrage of upside surprises in U.S. economic statistics and equity prices.

We expect business, consumer and investor confidence to continue to head higher well into 2017 (with most of the newly expected growth to come in 2018), which should underpin Equities for most of the year.

Markets are enjoying the “feel‐good” stage of the expansion, when good economic conditions and contained inflation feed positive thinking. The next (worrisome) phase of the cycle should focus on rising inflation and the Fed’s response to it.

With leading indicators validated and showing additional post‐election strength, it is reasonable to expect the favorable growth dynamic unfolding in the U.S. and global economies to extend and broaden. An outperformance by non‐U.S. equities is expected.

Lower oil prices, a weaker dollar and falling long‐term interest rates have caused investors to worry that the better economic growth driving earnings and stock prices higher is about to end.

While the U.S. is well into the midcycle stage of its expansion, other countries are just beginning theirs. This mixed picture suggests that the U.S. will give the early warning signs for the global expansion’s demise. As a result, financial markets are likely to focus on U.S. inflation and Federal Reserve policy in 2018.

The S&P 500 ended Q3 on a new all‐time high, and as we move into the fourth quarter (seasonally the strongest of the year), fundamentals for the broad market remain supportive. On a sector basis, we expect industry‐specific cost and revenue drivers, thematic trends and expectations around fiscal and regulatory policy to drive returns as we move toward year‐end.

We expect 2018 to be another year of good global growth as both the real and price components of nominal gross domestic product (GDP) accelerate. This implies that revenue and profit growth should remain robust with an extra kicker in the U.S. from much lower corporate tax rates.


2000

2100

2200

2300

2400

2500

2600

2700

S&P 500

01/2017 3/2017

4/2017

7/20175/2017

6/20178/2017 12/201712/2016 02/2017

9/2017

10/2017

11/2017


How did our major trend calls and tactical asset class adjustments perform?

CIO circle back —Major trend and asset class calls

Major Trend Calls (2016/2017) Duration of call Effect

Equities

Global Equities over Fixed Income1 Jan ‘16 – Present +Overweight International Developed Equities2 Mar ‘17 – Present =Value over Growth3 Nov ‘16 – Present ‐Cyclicals over Defensives4 Oct ‘16 – Present +Technology to outperform5 Jan ‘16 – Present +Favor Financials in a post election environment6 Nov ‘16 – Present +

Fixed Income

Slightly short duration7 Dec ‘16 – Present =Credit over Treasuries8 Jan ‘16 – Present +Underweight High Yield9 Mar ‘17 – Present ‐

Alternatives Moderately positive Equity Long/Short strategies10 Mar ‘17 – Present +Note: “+” represents positive portfolio effect, “=” represents neutral portfolio effect, “‐” represents negative portfolio effect. Source: Chief Investment Office. Data as of December 31, 2017. Alternatives data as of December 31, 2017.Index sources: 1) MSCI AC World Index vs. Bloomberg Barclays Global Aggregate Index. 2) MSCI World ex US Index vs. MSCI ACWI. 3) Russell 1000 Value Index vs. Russell 1000 Growth Index. 4) MSCI USA Cyclicals Index vs. MSCI USA Defensives Index. 5) S&P 500 Technology Index vs. S&P 500 Index. 6) S&P 500 Financials Index vs. S&P 500 Index. 7) ML U.S. Broad Market Index vs. ML U.S. Broad Market Index. 8) ML U.S. Corporate Index vs. ML U.S. Broad Market. 9) ML U.S. Broad Market vs. ML U.S. High Yield Master. 10) HFRI Equity Hedge Index vs. HFRI Fund Weighted Composite Index. Investors cannot invest directly in indices. Reference to indices, or other measures of relative market performance over a specified period of time (each, an “index”) are provided for illustrative purposes only, do not represent a benchmark or proxy for the return or volatility of any particular product, portfolio, security holding, or AI. Indices are unmanaged. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.



Macro strategy —Global themes and trends



EMPLOYMENT, INFLATION & INTEREST RATES

• Job growth remains steady and the current trend is sufficient to keep the unemployment rate at 4%, or lower, for the next year.

• Wage growth is moderate and suggests inflation is well anchored.• We expect the Fed, in our opinion, to continue to gradually remove monetary accommodation through rate hikes and balance sheet tapering.

DOLLAR & COMMODITIES

• In our view, the dollar is mildly overvalued on a trade‐weighted basis, but interest rate differentials are favorable and we think the dollar will remain broadly stable with slight upside risks against the Yen.

• We would approach hedging Japanese and European equities on a case‐by‐case basis given our more neutral view.

• We expect West Texas Intermediate (WTI) oil prices to remain in the $55 to $65 range in 2018.

PROFITS

• Higher nominal growth and a lower corporate tax rate add to the upside risks to profits. S&P 500 earnings per share are expected to rise by double‐digits in 2018, in our opinion.

GLOBAL

• The synchronized global growth upturn that began last year continues.

• Purchasing Managers’ Indexes show the global expansion has become more synchronized as emerging markets pick up after a five‐year slowdown. Capital spending plans are rising with global growth.

• Corporate profits are rising around the world as global growth improves.• We expect 3.5% plus real global GDP growth in 2018.

UNITED STATES

• U.S. economic growth is picking up. Q2 and Q3 U.S. real Gross Domestic Product (GDP) grew at over a 3% annual rate. Q4 growth appears to also be tracking over 3%.

• U.S. consumers have tailwinds from decent wage growth, rising home prices, lower rates and very positive labor market dynamics.

• We expect housing and business investment spending to be cyclical tailwinds for the overall economy, extending the cycle.

• We believe pro‐business policies are helping: Tax cuts, tax reform, repatriation and regulatory relief should boost nominal growth.

WATCH LIST

• U.S. Inflation• U.S. Fiscal Policy • Earnings• China• Central Bank Meetings • Brexit Negotiations• U.S. Trade Policy

Macro economic outlook from the Chief Investment Office

Economic outlook

Source: GWIM ISC as of January, 2018. Please refer to appendix for asset class proxies and index definitions.



2.5

3.0

3.5

4.0

4.5

5.0

5.5

11 12 13 14 15 16 17

GDP

(YoY

% Change)

OECD1 & Major Six Non‐Mem: Original Series: Gross Domestic Product (Year/Year % Change)

China/EM Slowdown

Europe Growing Again

Dollar‐Oil Shock

Bottom

The synchronized global growth upturn that began last year continues and has broadened.

Global economy improving

The Global Wave quantifies trends in global economic activity and is an amalgamation of seven macroeconomic and market components.2

Global aggregate economic data continue to improve Global Wave suggests continued outperformance for equities and cyclical rotation

1 Organization for Economic Co‐operation and Development. 2 Components of Global Wave: Global Industrial Confidence (Output), Global Consumer Confidence (Demand), Global Capacity Utilization (Investment), Global Unemployment Labor (Market), Global Producer Prices (Prices), Global Credit Spreads (Bond Market) and Global Earnings Revision Ratio (Equity Market). Source: (Left) OECD /Haver Analytics. As of December 2017. (Right) BofA Merrill Lynch Global Quantitative Strategy, MSCI, IBES, Bloomberg, OECD, IMF. As of December 2017. Past performance is no guarantee of future results. There can be no assurance that the forecasts will be achieved. Economic or financial forecasts are inherently limited and should not be relied on as indicators of future investment performance. Please refer to appendix for asset class disclosures and index definitions.



More country economies have been growing at faster rates, while those contracting have fallen to a cycle low.

Inside the global synchronized economic pickup


0%

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100%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Countries growing above 2%

Countries growing below 0%Cycle high

Cycle low

Countries growing above 2% and below 0%Share of all countries

Source: International Monetary Fund. Data as of 2017.Past performance is no guarantee of future results. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Please refer to appendix for asset class proxies and index definitions.


Changes in economic gauges we track are aggregated into the CIO U.S. Recession Indicator. At its current reading, the risk of recession in the U.S. appears to be currently low.

CIO U.S. recession indicator


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100

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Recession Recession Indicator*Elevated recession risk >25% Extreme recession risk >50%

Source: GWIM Chief Investment Office, Bloomberg, National Bureau of Economic Research. *Logistic regression of six macroeconomic variables (initial claims, housing starts, industrial production, domestic vehicle sales, 10yr‐3m yield curve, commercial bank loans and leases) against recessionary and non‐recessionary periods since January 1970. The start of past recessions has generally been contemporaneous with increases in the indicator above 50%. Data as of November 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Prob

ability (%

)


Macro conditions are “neutral” as credit, dollar, and financial stress remain benign. The yield curve has narrowed.

Macro conditions indicator


U.S. Trust Macro Conditions Indicator: Normalized Components: Yield Curve, Leading Credit Index, BofA Global Financial Stress Index, Real Broad Trade Weighted Dollar Index. Source: Chief Investment Office, Bloomberg. Data as of December 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Stan

dard deviatio

ns

‐2

‐1

0

1

2

3

4

5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Normalized Components: Yield Curve, Leading Credit Index, BofA Global Financial Stress Index, Real Broad Trade Weighted Dollar Index

Tighter Conditions Above 0

Easier Conditions Below 0

The indicator fell under 1 standard deviation in March 2009and below its long‐term average in June 2009.

The surpassing of 1 standard deviation in "tighter conditions.” In May 2000 and September 2007, turned out to be an opportune time to sell equities.


Nonfinancial leverage does not suggest very late‐cycle, more aggressive, behavior. Despite the Fed’s rate upcycle, the yield curve has flattened on relative attractiveness of U.S. yield to foreigners.

U.S. business cycle has room to run

Nonfinancial leverage still “neutral” While it has flattened some, the yield curve remains accommodative

Source: (Left) Federal Reserve Bank of Chicago/Haver Analytics. Shaded are recessions. As of December 2017. (Right) Haver Analytics. As of December 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


‐2

‐1

0

1

2

3

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017

Stan

dard deviatio

ns

National Financial Conditions Index: Nonfinancial Leverage+=Tighter Than Avg

‐1

0

1

2

3

Yield (%

)

EXTENDED

LOW

EXTENDED

MODERATE

Yield Curve10yr minus 2yr yield (basis point)


Will pro‐business policies raise productivity?

Monetary policy passing the baton to fiscal policy?

Strong growth usually follows tax and regulatory policies that incentivize business spending

We expect recent passage of tax reform to prompt businesses to expand capital expenditures, leading to an increase in productivity

Source: (Left) BEA /Haver Analytics. As of November 29, 2017. (Right) BLS /Haver Analytics. As of November 29, 2017. Shaded are recessions. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


‐2%

0%

2%

4%

6%

8%

81 84 87 90 93 96 99 02 05 08 11 14 17

Real Gross Domestic Product (8‐Quarter % Change Annualized)

Reagan Tax Cuts passed

ClintonTax Cuts

BushTax Cuts

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1981‐Q2 1986‐Q2 1991‐Q2 1996‐Q2 2001‐Q2 2006‐Q2 2011‐Q2 2016‐Q2

Productivity Growth (20‐quarter % change annualized)U.S. Trust Estimate Leading 3 years

2020‐Q1

(%)

1976‐1982 Stagflation

2008‐2016Secular stagnation


2.5

5.0

7.5

10.0

12.5

15.0

17.5

Percen

tage

(%)

Broader Measure of Unemployment*, SA, %Civilian Unemployment Rate: 16 yr +, SA, %

1

2

3

4

5

6

7

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Percen

tage

(%)

Wage Growth Tracker: Overall: 3‐Mo Moving Avg of Median Wage Growth Non‐Seasonally Adjusted, %

A tight labor market supports faster wage growth.

Tight labor market

Unemployment rate has declined, which may pressure wage growth

*Broader measure of unemployment: Total unemployed plus all marginally attached workers, plus total employed part time for economic reasons as a percent of the civilian labor force, plus all marginally attached workers.Source: (Left) Bureau of Labor Statistics/Haver Analytics. As of December 15, 2017. (Right) Federal Reserve Bank of Atlanta/Haver Analytics. As of January 3, 2018. Shaded are recessions.Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.



Inflation running below policy target adds to the case for a cautious Fed tightening cycle. Core inflation should return to trend over the medium term.

Inflation expectations are soft

Market‐based inflation expectations are still historically low… ...a mood increasingly reflected by consumers.

Source: (Left) Federal Reserve Board/Haver Analytics. As of January 3, 2018. (Right) University of Michigan/Haver Analytics. As of January 3, 2018.Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


0.5

1.0

1.5

2.0

2.5

3.0

Percen

tage

(%)

Calculated 5‐Year Forward Inflation Rate EOP, %

1.50

2.25

3.00

3.75

4.50

5.25

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

enta

ge (%

)

12 Month Expectations: Change in Prices: Median Increase, %


‐2

‐1

0

1

2

3

4

Stan

dard deviatio

ns

U.S. rates are likely to move higher, in our opinion, on balance sheet tapering and a gradual increase in inflation. Our expectation of a steady to mildly depreciating dollar in 2018 stems from capital outflows from the U.S. to an improved global environment offsetting capital inflows attracted to rising U.S. interest rates.

U.S. rate and dollar outlook

The CIO forecasts the 10‐year U.S. Treasury yield (a proxy for interest rates) to end this year between 2.87% and 3.12%

Real Broad Trade‐Weighted Exchange Value of U.S. DollarStandard Deviations from Mean

Source: Chief Investment Office, FactSet. Data as of January 4, 2018. Federal Reserve Board/Haver Analytics. Data as December 15, 2017.Past performance is no guarantee of future results. There can be no assurance that the forecasts will be achieved. Economic or financial forecasts are inherently limited and should not be relied on as indicators of future investment performance. Performance results are short term and may not provide an adequate basis for evaluating performance potential over varying market conditions or economic cycles. Please refer to appendix for asset class disclosures and index definitions..


1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

2012 2013 2014 2015 2016 2017 2018

Yield, (%

)

U.S. 10‐year yield

Forecast Band of Chief Investment Office


Market dynamics and investment trends



A succinct and objective perspective on new developments during the quarter and key ongoing macro drivers.

The CIO “bulls eye”

Positive FactorsBroad global synchronized recovery drives earnings growth

Monetary policy worldwide remains accommodative

Healthy consumer and job growth drives U.S. economy

Growth of European economy reduces political risk

Recent DevelopmentsRepublican tax plan signed into law, handing President Trump a major legislative achievement

Jerome Powell chosen as next Federal Reserve Chairman, seen as a continuation of accommodative monetary policy

U.K. and the European Union agree to separation financial bill, setting up talks for future trade relationship

Republican electoral defeats potentially signal shift in political winds

Quantitative Easing Roll Off (QERO) begins in U.S. while global central banks tiptoe towards tightening monetary policy

Angela Merkel, recently elected Chancellor of Germany, finds it difficult to form a government

North Korea, categorized as state‐sponsor of terrorism, fires another ICBM*

Bitcoin futures begin trading on the Chicago Board Options Exchange and Chicago Mercantile Exchange

Geopolitical and trade tensions (protectionism)

China’s deleveraging campaign and economic transition

QERO and FOMC** composition

Italian elections (March 4th) / Identity Politics

On Watch

Source: Chief Investment Office. Data as of December 31, 2017. *Intercontinental ballistic missile; **Federal Open Market Committee



Tax reform aims to make American firms more competitive and spark a capital expenditure cycle. This along with household tax cuts are ingredients for stimulating growth in the U.S.

Tax reform in a global context

Source: OECD. Data as of December 2017. The key on the right hand side of the chart classify the lines by country, while the top shows what the lines are. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


0

5

10

15

20

25

30

35

40

45

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

U.S. (previous)France

JapanU.S. (new)

GermanyCanadaIreland

Headline national corporate tax rates, excluding regional or state levies (%)

U.K.

Corporate tax rates around the world have been trending lower for years. We believe tax reform helps realign the U.S. with other major economies.

We believe tax reform, along with other pro‐growth fiscal and regulatory policies, should strengthen U.S. firms’ standing in the global economy.


Retail, telecom, and media companies may see the largest windfall from the recently passed Republican tax plan.

U.S.: Effective corporate tax rates by industry


Energy

Pharma, Biotech & Life Sciences

Semiconductors & Equipment

Materials

Diversified Financials

Household & Personal Products

Software & Services

Health Care Equipment

Capital Goods

Automobiles & Components

Utilities

Media

Retailing

Telecommunication Services

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

Decreasing benefit from lower

statutory rateEnergy

Pharma, Biotech & Life Sciences

Semiconductors & Equipment

Software & Services

Household & Personal Products

Capital Goods

Automobiles & Components

Materials

Diversified Financials

Health Care Equipment

Utilities

Media

Telecommunication Services

Retailing

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

Decreasing benefit from lower

statutory rate

Large cap Russell 1000 corporate tax ratesEffective rate

Small cap Russell 2000 corporate tax ratesEffective rate

Source: Credit Suisse, S&P Capital IQ/ClariFi, Compustat. Data as of 2016. Past performance is no guarantee of future results. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions. Please refer to appendix for asset class disclosures and index definitions.


0.0

0.1

0.1

0.6

0.7

0.8

0.9

1.0

1.8

2.1

5.0

0 1 2 3 4 5 6

Utilities

Real Estate

Telecom

Materials

Industrials

Energy

Discretionary

Staples

S&P 500

Health Care

Technology

Earnings per share impact (%)

S&P 500 companies potentially returning over $1 trillion dollars may boost earnings per share by $2 to $3 dollars on share buybacks. Tech and health care may benefit the most.

Repatriation: Over $1 trillion to return to the U.S.?

Source: BofAML Global Research. Data on report published December 20, 2017. *For reference purposes only.Past performance is no guarantee of future results. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index.


Sector

CSCO Cisco Systems, Inc. 36

GILD Gilead Sciences, Inc. 33

NTAP NetApp, Inc. 33

QCOM QUALCOMM Incorporated 31

AMGN Amgen Inc. 30

ORCL Oracle Corporation 30

AAPL Apple Inc. 28

WDC Western Digital Corporation 22

NWS News Corporation Class B 21

STX Seagate Technology PLC 20

WAT Waters Corporation 20

MSFT Microsoft Corporation 20

XLNX Xilinx, Inc. 18

LRCX Lam Research Corporation 18

GE General Electric 18

RL Ralph Lauren Corporation Class A 17

CA CA, Inc. 17

CTXS Citrix Systems, Inc. 16

JNPR Juniper Networks, Inc. 15

VRSN VeriSign, Inc. 14

Earnings per share impact by sector from repatriated cash used for buybacks

Top 20 firms with overseas cash as a % of market cap*


(150)

(100)

(50)

‐

50

100

150

200

250

Feb‐08 Mar‐09 Apr‐10 May‐11 Jun‐12 Jul‐13 Aug‐14 Sep‐15 Oct‐16

Change in balance sheet during QEExpected 2018‐2020 average monthly redemptions

QE3

QERO was officially announced at September’s FOMC meeting, designed to gradually reduce monetary accommodation. The strategy was put into action in October.

The end of an era—quantitative easing roll‐off (QERO) begins

Source for all charts: Federal Reserve, Bloomberg, U.S. Trust. Data as of September 22, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.


QE added $3.7 trillion securities to the Fed’s balance sheet.QERO, however, is only forecasted to reduce the Fed’s securities holdings by 1/3 of that over three years.

Since the program was well‐telegraphed and is relatively modest in scope, we do not think it will lead to significant market moves, but it should add further pressure on long‐term rates, in our opinion.

QE versus Normalization: QERO flows are very reasonable relative to QE flows…

…leading to ~10% effective reduction in QE per year, very manageable

0%10%20%30%40%50%60%70%80%90%100%

Mon

th 0

Mon

th 5

Mon

th 10

Mon

th 15

Mon

th 20

Mon

th 25

Mon

th 30

Mon

th 35

Mon

th 40

Mon

th 45

Mon

th 50

Mon

th 55

Mon

th 60

Mon

th 65

Mon

th 70

Mon

th 75

Mon

th 80

Mon

th 85

Mon

th 90

Mon

th 95

Mon

th 100Sh

are of QE prog

ram in

purchases

Pace of QE vs QERO

QE pace QERO paceQE 1 QE2

U.S. D

ollars (B

lns)


We have a more balanced view of growth versus value, preferring a more sector‐focused strategy. Momentum was the top performer in 2017.

Factor barometer

Source: Bloomberg. Chief Investment Office. Data as of December 29, 2017. *MSCI Indices: All Country World Index; Emerging Markets; United States of America.Past performance is no guarantee of future results. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index.Please refer to appendix for asset class proxies and index definitions.

(figures in %) ACWI EM USA

Index 23.97 37.28 21.19

Momentum 33.52 49.19 37.24

Quality 28.37 34.24 25.32

High Dividend 18.86 23.57 19.55

Equal Weighted 25.87 30.89 18.63

Minimum Volatility 17.93 26.73 18.41

Value 18.26 30.68 14.42

ACWI* EM* USA*

% return% return% return

Year‐to‐date factor performance within select MSCI indices


0 10 20 30 40

Index

Momentum

Quality

High Dividend

Equal Weighted

MinimumVolatility

Value

0 20 40 60

Index

Momentum

Quality

High Dividend

Equal Weighted

MinimumVolatility

Value

0 10 20 30 40

Index

Momentum

Quality

High Dividend

Equal Weighted

MinimumVolatility

Value

Value Core Growth

MTD

Large 1.46 1.11 0.78

Mid 1.24 0.93 0.54

Small ‐0.95 ‐0.40 0.12

For the S&P 500, the year has been one of growth outperforming value.

Value Core Growth

YTD

Large 13.66 21.69 30.21

Mid 13.34 18.52 25.27

Small 7.84 14.65 22.17


Policy uncertainty is off its highs post‐French election, while financial stress remains benign.

Global economic policy uncertainty

Policy uncertainty has declined, financial stress is low

Source: (Left) www.policyuncertainty.com. Data as of December 14, 2017. (Right) Bloomberg and Chief Investment Office. Data as of December 14, 2017. Past performance is no guarantee of future results. fees or expenses. It is not possible to invest directly in an index. Please refer to appendix for asset class proxies and index definitions.Notes: Global EPU calculated as the GDP‐weighted average of monthly EPU index values for U.S., Canada, Brazil, Chile, UK, Germany, Italy, Spain, France, Netherlands, Russia, India, China, South Korea, Japan, Ireland, Sweden, and Australia, using GDP data from the International Monetary Fund (IMF) World Economic Outlook Database. National EPU index values are from www.PolicyUncertainty.com and Baker, Bloom and Davis (2016). Each national EPU Index is renormalized to a mean of 100 from 1997 to 2015 before calculating the Global EPU Index.


‐0.6

‐0.4

‐0.2

0.0

0.2

0.4

0.6

0.8

1.0

2012 2013 2014 2015 2016 2017

BofAML GFSI

BofA Merrill Lynch Global Financial Stress Index (GFSI)Levels greater/less than 0 indicate more/less financial market stress

0

50

100

150

200

250

300

350

Global Economic Policy Uncertainty Index (EPU)

Global EPU, Current Price GDP Weights

Global Financial Crisis

Eurozone Crises, U.S. Fiscal Fights, China Leadership Transition

European Immigration Crisis

Brexit

Gulf War II9/11Asian & Russian Financial Crisis

(January 1997 to November 2017) Using data for 17 countries that account for 2/3 of global GDP

U.S. Elections & Political developments in Brazil, China, France, South Korea, and the U.K.


As a driver of investor risk aversion, rising geopolitical risk has not been a source of persistent market weakness during the current cycle, despite the range of geopolitical shocks emanating from flashpoints in the Middle East, Europe and Asia.

Major geopolitical shocks in the current cycle


100

150

200

250

300

350

400

450

500

550

09 10 11 12 13 14 15 16 17 18

MSCI All‐Country World Index Price level

North Korea ‐ South Korea Yeonpyeongincident

President Mubarak toppled in Arab Spring

North Korea underground nuclear test

Russian annexation of Crimea

Start of Hong Kong Occupy Central protests

Turkey downing of Russian fighter jet

UN rules against China’s claims in South China Sea

North Korea fires four ballistic missiles into Sea of Japan

U.S./North Korea nuclear threat escalation

Source: Bloomberg, U.S. Trust, Bank of America Private Wealth Management. Data as of September 29, 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


‐2

‐1

0

1

2

3

4

5

0

500

1000

1500

2000

2007 2009 2011 2013 2015 2017

Yield, (%

)

U.S. D

ollars per oun

ce

Spot gold10‐Y market implied real interest rate (rhs)

‐50

‐40

‐30

‐20

‐10

0

10

20

30

40

50

BlackMonday

LTCM andRuble Crisis

Dot‐ComBubble

Sept. 11,2001 Terror

attack

2002Recession

2008 GlobalFinancialCrisis

U.S. CreditDowngrade

FukushimaNuclearDisaster

Brexit *CurrentNorth Korea

Cumulative return, (%)

Gold S&P 500

9/30/87to 11/30/87

7/31/98 to 9/30/98

3/31/00 to 3/31/01

8/31/01 to 9/30/01

2/28/02 to 7/31/02

8/31/07 to 3/31/09

6/30/11 to 9/30/11

2/28/11 to 3/31/11

5/31/16 to 6/30/16

6/30/17 to 12/31/17

Despite our base case for the economic and market outlook, we advise investors to remain well‐diversified, increasing exposure to less correlated investments, such as gold.

Gold as a potential diversifier

A sharp rise in gold prices has coincided with weakness in companies with earnings and price momentum

Gold has historically lived up to “safe haven” status, outperforming the S&P 500 in most cases during periods when a low‐probability negative shock occurred

Source: Chief Investment Office, Bloomberg, Evercore ISI. Left and top right charts: Data as December 31, 2017. Bottom right table: data as of December 14, 2017. Past performance is no guarantee of future results. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index. Please refer to appendix for asset class proxies and index definitions.

Gold and Factor Return Correlations1 Stdev Moves 2 Stdev Moves

Earnings momentum ‐0.06 ‐0.15Earnings quality ‐0.05 0.08Price momentum ‐0.03 ‐0.13Traditional value ‐0.02 0.17Small size ‐0.01 ‐0.02Price volatility 0.02 ‐0.09Earnings risk 0.04 ‐0.12

Yet gold prices may decline, if geopolitical risk declines or if we see a rise in real interest rates



1. Through the first week of trading for 2018, the S&P 500 returned 2.6%. Since 1950, a greater than 2.5% gain after 4 trading dayshas occurred 12 prior times, with the index ending the year higher in all instances with average and median returns of +18.6%and +18.2% respectively.1

2. The S&P 500 has now turned in 14 consecutive months of positive total returns, the longest stretch since 1928.

3. More than 4 billion cyber records were leaked in 2016, greater than the combined total of the two prior years.2

4. The Global Wave has improved for 19 consecutive months.3

5. In China, Alibaba’s “Singles Day” 2017 sales were $25.3 billion. The new record was 40% higher than 2016 & more than “Black Friday” &“Cyber Monday” in the U.S. combined. Sales hit $1 billion within 2 minutes & $10 billion in just over 1 hour.4

6. Thirty six stocks in the S&P 500 had greater year‐to‐date returns before the highest performing “FANG” stock, in Amazon.5

7. Boeing is now the biggest weight in the Industrials sector within the S&P 500, surpassing General Electric. 5

8. Millennials constitute 27% of the world population and their annual income is expected to be $32 trillion by 2030.6

9. U.S. tariff rates peaked at 59% of the value of imports in 1932; the figure was just 4.9% in early May 2017.6

10. Tech stocks represent over 23.9% of S&P 500 total market capitalization. At the end of 1999 it was 29.2%; 1989, 5.9%.7

TIFFs: Ten Interesting Fast Facts

1 U.S. Trust. Fact #2) Bank of America Merrill Lynch Global Research. As of December 20, 2017. 2 IBM X‐Force Threat Intelligence Index 2017. 3 The Global Wave quantifies trends in global economic activity and is an amalgamation of seven market and macroeconomic components. Data as of September 12, 2017. 4 New York Times, CNBC and Reuters. Data as of November 11, 2017.5 Strategas data as of December 14, 2017. FANG: Facebook, Amazon, Netflix, Google. 6 Transforming World Atlas report dated May 9, 2017. 7 S&P Dow Jones Indices, Bloomberg. As of December 21, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.



Global equities summary and charts



Global Equities We are overweight global equities versus fixed income. This in expectation of higher nominal growth boosting corporate profits, along with gradually rising inflation and interest rates.

U.S. Large Cap Positive based on improving nominal U.S. and global economic growth, driving corporate profits, attractive relative valuations versus bonds, despite higher absolute valuations. Favor sectors that offer secular opportunity for earnings growth, such as technology and healthcare, as well as cyclical value, such as financials. We have a balanced view on growth and value.

U.S. Small Cap Small Caps could benefit from the recently signed tax plan boosting already firming economic conditions. We also like large caps, particularly multinational companies, which in our opinion, offer good earnings prospects and safety from market volatility.

International Developed Positive on Japan on stronger economic and profit growth, alongside coordinated fiscal and monetary policy. In Europe, better domestic demand, rising bank lending, global economic growth, rising profit margins and ROE are beneficial factors for equities.

Emerging Markets Overweight on potential benefit from continued cyclical momentum in global economy, fueling corporate profit growth. Valuations overall are moderate, particularly relative to global equities. We favor emerging Asia, on stronger fundamentals, exposure to consumer‐driven sectors, and faster growth rates. Structurally we see rising demand from EM consumers.

Value/Growth We have a relatively balanced view between growth and value, preferring exposure to industries and themes that offer secular earnings streams. Technology, via the advent of the “Digital Era,” and Financials, which would benefit from a cyclical rise in interest rates and deregulation over the longer term, are attractive candidates.

CIO portfolio guidance — Equities

Source: GWIM ISC as of January, 2018. Please refer to appendix for asset class proxies and index definitions.

UnderweightSlightly





Synchronized global earnings expansion is expected to continue.

Global profit outlook

Source: (Left) BofA Merrill Lynch Global Research. Data as of November 30, 2017. Source: (Right) FactSet consensus estimates. Data as of January 4, 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Analyst earnings revisions are headed higher across most regions Earnings growth has been synchronized across regions, a trend expected by analysts to continue


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2010 2011 2012 2013 2014 2015 2016 2017

# Stock Upgrade

d / # Dow

ngrade

d

USA Europe Japan Asia Pac ex‐Japan

4.30.3

5.4

‐0.2‐3.1

‐0.8

16.4

10.69.6

6.8

‐6.9

‐2.1

‐11.1

‐19.3

7.0

28.2

13.611.1

‐30

‐20

‐10

0

10

20

30

40

2011 2012 2013 2014 2015 2016 2017E 2018E 2019E

YoY, (%

)

Developed MarketsEmerging Markets


Equity valuations are full on an absolute basis, but more attractive versus fixed income. Earnings growth may be key for further equity upside.

U.S. equity fundamentals and valuations

Source: (Both) BofA Merrill Lynch US Equity & US Quant Strategy. *Note: Normalized equity risk premium is the spread between normalized earnings per share (EPS) yield and the normalized risk‐free rate (RFR). Normalized EPS is based on a log linear regression of S&P 500 operating EPS. The normalized RFR is the difference between 1) the average of the 30‐year Treasury yield and the 5‐year rolling average 10‐year Treasury yield and 2) the 10‐year TIPS spread and the 5‐year rolling average CPI inflation rate. Data as of November 30, 2017. (Right) Source: BofAML Global Research; Chief Investment Office. *The Chief Investment Office forecasts a S&P 500 2018 earnings per share (EPS) target range of $148–$158, which is depicted by the checkered box. E = Estimate. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

The normalized equity risk premium* usually undershoots during bull markets

Earnings momentum for the S&P 500 is forecasted to carry into 2018


‐200bp

0bp

200bp

400bp

600bp

800bp

1000bp

1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Average (ex‐Tech Bubble) = 363 basis points (bp)

Equity optimism

Equity fear

Tech Bubble

Financial crisis

Euro Crisis, Fiscal Cliff

12.0

18.1 18.2

15.8

11.9 11.5

15.9

7.2

11.3 11.4 11.5

12.911.7 11.0

12.0

12.8

11

0

2

4

6

8

10

12

14

16

18

20

3Q17 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E 2017E 2018E

YoY, (%

)

BAML Estimate Actual unless specified (E)Chief Investment Office*

18

Chief Investment Office Range*


‐30

‐20

‐10

0

10

20

30

40

50

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Rolling

3‐year a

nnua

lized

returns (%)

21 months

International stocks outpaced U.S. stocks

51 months 50 months 87 months 98 months

International stocks trailed U.S. stocks

MSCI EAFE Index versus the S&P 500 index, rolling 3‐year returns

Non‐U.S. equities have undergone a long period of underperformance but may be poised to catch‐up

Incorporating foreign stocks in a portfolio could potentially help mitigate total portfolio risk from U.S. equity volatility.

Non‐U.S. equities — A portfolio diversifier?

Source: Chief Investment Office, MSCI, Bloomberg. Data as of December 29, 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.



Across the world, equity valuations relative to the U.S. appear appealing.

Non‐U.S. equity valuations

Price‐to‐Book ratios versus the U.S. (MSCI indices)

Source: Chief Investment Office, Bloomberg. Data as of December 29, 2017. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index. Please refer to appendix for asset class proxies and index definitions.


0.55

0.54

0.58

0.44

0.68 0.67

0.71

0.54

0.93

0.800.82

0.67

0.50

0.55

0.61

0.44

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.5 1 1.5 2 2.5 3 3.5 4 4.5

Price‐to‐Boo

k of re

gion

versus P

rice‐to‐Boo

k of U.S.

Current 15 year average 90th percentile 10th percentile

Emerging Markets Developed ex‐U.S. Europe Japan


0

2

4

6

8

10

12

2003 2005 2007 2009 2011 2013 2015

%

MSCI US Profit Margin (12m Trailing)MSCI Europe Profit Margin (12m Trailing)

0.0

0.5

1.0

1.5

2.0

2.5

1964 1970 1976 1982 1988 1994 1999 2005 2011 2017

New

Jobs to

App

lican

ts ra

tio

In Japan, rising wages would increase consumer purchasing power and may be instrumental in defeating its population’s “deflationary mindset.” In Europe, purchasing power would lift low margins off the mat, potentially boosting upside.

In Europe and Japan, purchasing power is key

Source: Chief Investment Office. MSCI, Bloomberg. (Left) Data as of November 30, 2017. (Right) Data as of December 29, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

The Japanese labor market is tight, which may result in rising wages as employers struggle to fill vacancies. Higher inflation may boost attractive equity valuations.

Profit margins are near a peak in the U.S. but sub‐trend in Europe with room to expand



‐20

‐10

0

10

20

30

40

‐80

‐60

‐40

‐20

0

20

40

60

80

100

120

140

160

2001 2003 2005 2007 2009 2011 2013 2015 2017

YoY, (%

)

YoY, (%

)

EM Asia EPS growthGlobal trade volume (rhs)

In our view, a rebound in global trade, along with the rise of the consumer are trends favoring Emerging Markets, particularly in Asia.

Global pickup may favor emerging markets

Growth in global trade volumes have historically been a tailwind for earnings in Asian Emerging Markets

A pickup in economic growth relative to Developed Markets suggests strength for Emerging Market equities

Note: MSCI DM represented by MSCI World Index. Source: Chief Investment Office. IMF. Bloomberg, MSCI. (Left) Data as of September 30, 2017. (Right) Data as of December 29, 2017.Past performance is no guarantee of future results. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index. Please refer to appendix for asset class proxies and index definitions.

On a relative price basis, Emerging Markets appear to have plenty of runway for appreciation if they lead global economic growth


40

60

80

100

120

140

160

180

‐1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

MSCI EM / M

SCI D

M ‐Inde

xed to 100

EM GDP minus DM GDP (%

)

EM‐DM Real GDP growth gapMSCI EM / MSCI DM (rhs)


30

32

34

36

38

40

42

44

46

48

50

52

54

0123456789101112131415

1990 1993 1996 1999 2002 2005 2008 2011 2014

Share of China

GDP by

indu

stry (%

)

China Re

al GDP grow

th (%

)

China Real GDP growthSecondary Industry* (RHS)Tertiary Industry* (RHS)

83

55

17

45

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

December 2010 December 2017

Share of MSCI China equity index market capitalization (%)"Old China" sectors** "New China" sectors**

A slip in China’s growth trajectory is a risk to growth for broader Emerging Markets; one to watch but not our base case.

…But watch China’s growth trajectory

While China’s economic growth rate is decelerating gradually…

Source: Chief Investment Office. CEIC. MSCI. International Monetary Fund (Left) Data of December 30, 2016. (Right) Data as of December 31, 2017. *Secondary Industry refers to mining and quarrying, manufacturing, production and supply of electricity, water and gas, and construction. Tertiary industry refers to all economic activity not included in primary or secondary industry including real estate, finance, wholesale and retail, transportation and other services** “New China” sectors: Technology, Health Care, Consumer. “Old China” sectors: Energy, Financials, Industrials, Materials, Telecommunications, Utilities.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

…it masks an ongoing structural shift to consumption and services, more sustainable growth drivers, in our view.



Fixed income summary and charts



Global Fixed Income Bonds provide portfolio diversification, income and stability, but low rates skew down‐side risk. Neutral to slightly short duration is warranted, balancing expectations of higher short term rates over time and periods of flight to quality given political and geo‐political headwinds.

U.S. Treasuries Yields have become somewhat more compelling, particularly versus sovereign peers. Overall, rate risk remains tilted toward the upside. Some allocation for liquidity and safety is advised. Fed will likely continue to raise short rates, and longer rates will be impacted by fiscal stimulus, global demand for yield and central bank balance sheet reductions.

U.S. Municipals Offers good relative value for high‐tax investors, as muni interest tax‐exemption remains intact under new tax regime. Lower new issue supply should provide a technical tailwind. Credit generally stable, although certain tax‐reform provisions are negative for some issuers.

U.S. Investment Grade Despite near cycle low spreads, we continue to have a favorable view on investment grade credit predicated on strong demand—particularly from institutional and foreign investors, a steadily improving macro backdrop, benefits of tax reform, and our expectation for a gradual reduction in corporate leverage. Overweight remains biased towards U.S. Financials which continue to boast strong underlying fundamentals and attractive relative valuations.

U.S. High Yield Valuations are rich on a spread, yield and ratio basis. Prefer actively‐managed solutions that are higher in credit quality. Fundamentals have improved modestly, but leverage remains elevated. Within High Yield, an allocation to floating rate, secured bank loan strategies is advised.

International Debt* Compressed yields and risk premiums around the globe compared to the U.S., combined withpotentially higher volatility in non‐U.S. markets, present unfavorable risk/reward conditions for non‐U.S. fixed income, justifying an underweight position.

Cash We have a small cash position awaiting deployment when opportunities arise.

UnderweightSlightly



CIO portfolio guidance — Fixed income

*International Debt includes Non‐U.S. Corporates, Non‐U.S. Sovereigns and Emerging Market Debt. Source: GWIM ISC as of January 2018. Please refer to appendix for asset class proxies and index definitions.



‐0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec‐15 Mar‐16 Jun‐16 Sep‐16 Dec‐16 Mar‐17 Jun‐17 Sep‐17

Yield (%

) 10 Year Treasury

10 Year German Bund

10 Year Japanese Government Bond

1.00%

1.25%

1.50%

1.75%

2.00%

2.25%

2.50%

2.75%

3.00%

Jan‐18 Jul‐18 Jan‐19 Jul‐19 Jan‐20 Jul‐20

Projected Fede

ral Fun

ds Rate

Market‐implied rate pathFed‐implied rate path

The disconnect between Federal Reserve projections and market expectations is something to watch, though it has narrowed. Negative policy rates continue to drive divergences in sovereign yields.

Fixed income market trends

Ex‐U.S. global sovereign yields remain close to zero

Source: Bloomberg, Chief Investment Office. Left chart: data as of December 31, 2017. Right chart: data as of December 31, 2017. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurances that the forecasts will be achieved.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

In our view, the search for yield, the low supply of sovereign bond inventory, and the negative yield backdrop outside the U.S., have all led to money flow into U.S. government yields pushing the curve down and long dated yields close to record levels. As central banks move toward policy to help lift the yield curve, we believe longer dated bond yields will creep higher.

Gap between Fed and market rate hike expectations has narrowed



(100)

(50)

‐

50

100

150

200

250

300

2

3

4

5

6

7

8

9

10

Jan‐90 Jan‐94 Jan‐98 Jan‐02 Jan‐06 Jan‐10 Jan‐14

Yield spread

(bps)

Une

mploy

men

t Rate (%

)

UE Rate (LHS) 2s/10s Curve (RHS)

1.50

1.75

2.00

2.25

1.00

1.25

1.50

1.75

2.00

2.25

Jan‐17 Mar‐17 May‐17 Jul‐17 Sep‐17 Nov‐17

Yield (%

)

Yield (%

)

2y Treasury Yields (LHS) 5y Treasury Yields (RHS)

Breakout in 2‐year yields led to a narrower spread between 2‐year Treasury and 10‐year Treasury yield, but this is not a large concern—financial conditions are very accommodative and leading indicators are positive.

Fixed income market trends

Source: (Left) Bloomberg and Chief Investment Office. Data as of December 31, 2017. (Right) Bloomberg and Chief Investment Office. Data as of December 31, 2017. Performance results are short term and may not provide an adequate basis for evaluating performance potential over varying market conditions or economic cycles. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Short and intermediate‐dated Treasurys have broken out to multi‐year highs. This breakout reflects the market’s optimism about tax reform, the continuing economic expansion, and renewed faith that the Fed will likely be able to continue its rate hike campaign with multiple hikes in 2018.


The 2s/10s curve has continued to flatten along with the unemployment rate, much as we anticipated. This flattening has been exacerbated by the sharp move higher in 2‐year Treasury yields. The Fed‐Funds‐to‐10‐year curve is a better leading indicator. It is currently still accommodative and nowhere near inverted, so the flattening 2s/10s curve should not be overly concerning at this point.


Spreads are tight, but based on history they can stay at these tighter levels as long as economic strength continues.

Investment grade and high yield

The macro environment will likely remain supportive to credit risk appetite, but elevated leverage metrics remain a concern when the credit cycle ultimately turns. Tax reform is largely supportive for credit spreads.

*The Spread per unit of net leverage is the ratio between the Options‐adjusted spread and the net leverage ratio (Net Debt to EBITDA).Source: Bloomberg and Chief Investment Office. (Left) Data as of December 31, 2017. (Right) Data as of September 30, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Spread levels per unit of net leverage* have compressed to tighter levels in High Yield (HY) and Investment Grade (IG), indicating less value in IG and fair value in HY.


0

500

1,000

1,500

2,000

2,500

0

100

200

300

400

500

600

700

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Option Ad

justed

Spread (OAS

)

Option Ad

justed

Spread (OAS

)

IG OAS

HY OAS (Right)

IG Spread pe

r Turn of Leverage

HY Spread

per Turn of Leverage

0

100

200

300

400

500

600

0

50

100

150

200

250

300

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

IG Spread per Turn ofLeverage

HY Spread per Turn ofLeverage (RHS)


Alternative investmentssummary and charts



Alternative Investments* We believe Alternative Investments* may help broaden the investment toolkit to diversify traditional stock and bond portfolios.

Hedged Strategies We believe the environment for active management, and hence hedge funds, will remain favorable heading into 2018 and we continue to recommend a diversified approach when investing in this heterogeneous asset class. We are moderately positive equity long/short strategies.

Private Equity We view private equity strategies as long‐term potential portfolio return enhancers with unique access to specialized deals unavailable to most investors. We recommend investors plan a disciplined multi‐year commitment strategy that builds portfolio diversity among different managers, styles, geographies, and importantly, vintages. Currently, we see opportunities in special situations and private credit.

Real Estate Finishing out a solid performance in 2017 and going into 2018, the U.S. real estate markets appear to remain generally healthy with supply and demand largely in balance for most property sectors. We maintain our expectation that commercial real estate (CRE) will continue to perform well into 2018 based on our view of U.S. economic growth, a healthy job market and increasing consumer spending.

Commodities Commodity prices are likely range‐bound in the near‐term, weighed down by global economic policy uncertainty but held up by stable global cyclical momentum. We think oil prices will finish the year in the $55 to $65 range and move slightly higher next year.

UnderweightSlightly



CIO portfolio guidance — Alternative investments

*Many products that pursue Alternative Investment strategies, specifically Private Equity and Hedge Funds, are available only to pre‐qualified clients.Source: GWIM ISC as of January, 2018. Please refer to appendix for asset class, important risk disclosures, and index definitions.

Investment Strategy: The pro‐cyclical improvement has started to break down the elevated correlation amongst and within asset classes since early last year. We expect this adjustment to continue as economic volatility picks up and asset class volatility follows suit. In this environment, we believe alternative investments, namely hedge funds, should have a larger opportunity set to outperform industry benchmarks, which is a break from the most recent past of difficult performance.



The environment for hedge funds continues to improve

On a beta adjusted basis, hedge funds have kept pace with traditional markets in the recent bull years…

Source: Both Charts Bloomberg. Data as November 30, 2017. * Left hand side. Hedge funds are represented by the HFRI Fund Weighted Composite Index. Hedge Fund beta and alpha is the index versus the S&P 500 index. Past performance is no guarantee of future results. Please refer to appendix for asset class, important risk disclosures and index definitions.

…and in 2017, hedge funds, have once again been able to generate alpha as normalized inter‐stock correlations open the opportunity set available to managers, particularly those in the equity space.


‐2.0%

‐1.5%

‐1.0%

‐0.5%

0.0%

0.5%

1.0%

1.5%

2.0%0.00.10.20.30.40.50.60.70.80.91.0Mar‐95 Jun‐96 Sep‐97 Dec‐98 Mar‐00 Jun‐01 Sep‐02 Dec‐03 Mar‐05 Jun‐06 Sep‐07 Dec‐08 Mar‐10 Jun‐11 Sep‐12 Dec‐13 Mar‐15 Jun‐16 Sep‐17

HF Alph

a vs. S&P 500

(Rollin

g 1‐Yr)

Average S&

P 500 Pa

irwise

Correlation

Hedge Fund Alpha (RHS) S&P 500 Pairwise Correlation (inverted, LHS)

Pre‐Crisis Post‐Crisis

*

‐20%

‐10%

0%

10%

20%

30%

40%

Mar‐95 Sep‐96 Mar‐98 Sep‐99 Mar‐01 Sep‐02 Mar‐04 Sep‐05 Mar‐07 Sep‐08 Mar‐10 Sep‐11 Mar‐13 Sep‐14 Mar‐16 Sep‐17

Rolling

12‐Mon

th Return

Hedge Fund Returns (Actual) Hedge Fund Returns (Beta‐Adjusted)

Pre‐Crisis Post‐Crisis


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Mar‐95 Sep‐96 Mar‐98 Sep‐99 Mar‐01 Sep‐02 Mar‐04 Sep‐05 Mar‐07 Sep‐08 Mar‐10 Sep‐11 Mar‐13 Sep‐14 Mar‐16 Sep‐17

Rolling

6‐m

onth Average

S&P 500 Pa

irwise Co

rrelation

S&P 500 Pairwise Correlation

We remain moderately positive equity long/short

We expect contribution from both alpha and beta components of Equity Long/Short strategies (ELS):• Alpha: widening opportunity set resulting from lower correlations. • Beta: Continued up‐trend in stocks should help ELS strategies, which have typically produced between 0.4 to 0.6 beta to public

equities.

Source: Bloomberg, GWIM CIO. Data as of November 30, 2017. Past performance is no guarantee of future results. Please refer to appendix for asset class, important risk disclosures and index definitions.

Currently at lowest levels since financial crisis

We believe lower stock pairwise correlations should continue to expand the opportunity set for active managers, particularly in the Equity Long/Short space



‐5%

5%

15%

25%

35%

45%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

U.S. P

rivate Eq

uity In

ternal

Rate of R

eturn (IR

R)

Vintage Year

Median IRRUpper Quartile IRRLower Quartile IRR

We are constructive on niche areas of private equity and private real estate

A pullback in bank lending since the financial crisis has created opportunities for private lenders, and they have benefited from private/public loan spreads.

Source: (Top) Cambridge Associates. The data is as of 1Q17, it says 2012 because these are vintage years (which is shown at the bottom of the chart). Vintage years of performance are needed to be able to measure these tranches. Shaded are recessions. (Bottom Left) Bloomberg, various company filings, KKR Credit analysis. Data as of March 21, 2017. (Bottom Right) Chief Investment Office. Past performance is no guarantee of future results. Please refer to appendix for asset class, important risk disclosures and index definitions.

Private equity returns can vary widely by vintages. We therefore recommend a disciplined and structured approach to implementing private equity strategies.


11.2%12.0% 11.4%

10.8%

9.7% 9.6%

7.8% 8.2% 8.5% 8.6% 8.3%8.3%

11.3%10.7%

5.8% 5.8% 6.0%5.1% 4.9%

5.5% 5.9% 5.5%

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017

Weighted Average Yield of Originated Senior Term Debt 12‐Month Average Yield of Traded Loans


Investors can see consistent performance through market shifts as they reap the potential benefits of illiquidity.

Navigating uncertainty with specialty assets

Direct investment in Farmland, Timberland, and Real Estate exhibit a favorable risk/return profile relative to stocks and bonds

Over the long term, Farmland has continued to appreciate in value while also providing current income returns

Vacancy rates continue to trend downward across commercial real estate sectors such as retail, industrial, and office

As the housing market rebounds, framing lumber prices are following

Source: (Top Left) National Council of Real Estate Investment Fiduciaries, Annualized measures during period of 1991 ‐ 2016. Data as of December 31, 2016. (Top Right) U.S. Census Bureau; Quarterly Smoothing Average for Housing Starts; Random Lengths, Framing Lumber Composite Prices. Data as of March 31, 2017. (Bottom Left) U.S. Department of Agriculture, Land Values. Data as of December 31, 2016. (Bottom Right) CoStar Group, Inc., Vacancy Rates. Data as of March 31, 2017 (Q1 2017 data). Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions


$‐ $500

$1,000 $1,500 $2,000 $2,500 $3,000 $3,500

Farm

land

Value

per Acre

Barclays Capital U.S. Aggregate

S&P 500NCREIF Timberland

NCREIF Farmland

NCREIF US Real Estate

0%

2%

4%

6%

8%

10%

12%

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

Return

Standard Deviation

$‐

$100

$200

$300

$400

$500

$600

0

500

1,000

1,500

2,000

Q12006

Q12007

Q12008

Q12009

Q12010

Q12011

Q12012

Q12013

Q12014

Q12015

Q12016

Q12017

Fram

ing Lumbe

r Pric

e

Hou

sing

Starts

Housing Starts Framing Lumber Composite Prices

0

5

10

15

20

2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q3

Apartment Industrial Office Retail


Supply demand balance has been elusive.

Commodities: Energy

Total world oil supply expected to come from both OPEC and non‐OPEC

Oil prices may be stable on diminishing supply/demand imbalances

Note: Organization of the Petroleum Exporting Countries (OPEC) Source: Chief Investment Office, BofA Merrill Lynch Global Research, Bloomberg. Data as of September 2017. Past performance is no guarantee of future results. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Please refer to appendix for asset class proxies and index definitions.


40

50

60

70

80

90

100

110

120

‐1,500

‐1,000

‐500

0

500

1,000

1,500

2,000

2008 2010 2012 2014 2016 2018F

USD

per barrel (en

d of period)

Thou

sand

s of b

arrels per day

global deficit (supply‐demand)WTI crude oil price (rhs)

BofAMLf'casts

‐1.5

‐1.0

‐0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18

Millions of b

arrels per day

OPEC crude supplynon‐OPEC oil supplytotal world oil supply BofAML

f'casts


16,000

18,000

20,000

22,000

24,000

2012 2013 2014 2015 2016 2017E 2018E

'000

Ton

nes

Global Copper Supply Global Copper Demand

The rally in copper this year has been supported by fundamentals, with demand outstripping supply beginning last year.

Commodities: Metals

Source: Metal Economics, Woodmac, CRU, Metal Bulletin, Reuters, Bloomberg, company reports, ICSG, BofA Merrill Lynch Global Research. Data as of December 7, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

• Copper has held up, given extremely high mine‐supply disruptions year‐to‐date.

• Prices have rallied meaningfully as China’s physical market has improved.

• Economic policy uncertainty, inversely correlated with copper has recently fallen, while the global Purchasing Managers’ Index (PMI), a proxy for demand, is at record levels.



Portfolio strategy



As long‐term trends begin to gain force within markets, we favor sectors leveraged to them.

Equities

Retiring baby boomers and aging populations globally look to provide secular demand growth for Health Care

The Technology and Financial sectors within the S&P 500 are poised to benefit from the advent of the “Digital Era” as well aspro‐growth U.S. government initiatives, in our view

Source: (Top Left, Right and Bottom left) Chief Investment Office, Bloomberg. Data as of January 4, 2018. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.


According to the World Health Organization, between 2000 and 2050, the proportion of the world’s

population over 60 years will double from about

11 to 22%0.20

0.22

0.24

0.26

0.28

0.30

0.32

0.34

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Relativ

e price ratio

Health Care vs. S&P 500

Testing Support

0.08

0.11

0.14

0.17

0.20

0.23

0.26

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Relativ

e price ratio

Financials vs. S&P 500

0.14

0.19

0.24

0.29

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Relativ

e price ratio

Technology vs. S&P 500

Technology has broken out on a relative price basis. Financials are close to breaking out on a relative price basis.


The case for remaining invested in equities

Equities

Not being invested for relatively brief periods of time may make a big difference in overall returns

The S&P 500 has had more positive than negative years

Source: (Left) Stocks are represented by the Ibbotson® Large Company Stock Index. Treasury bills are represented by the 30‐day U.S. Treasury bill. The data assumes reinvestment of income and does not account for taxes or transaction costs. © 2017 Morningstar. All Rights Reserved. (Right): Bloomberg; Standard & Poor's via Morningstar; U.S. Trust Market Strategy Team. Data as of December 31, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

$6,035

$23 $‐

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Hypothetical value of $1 invested from 1926 to 2016

Stocks Stocks minus best 45 months


1931 19372008

193019742002

19411957196619732001

1929193219341939194019461953196219691977198119902000

19471948195619601970197819841987199219931994200520072011

1944

2015

19491952195919641965196819711972197919861988200420062010

1927

2012

1942

2014

1943

2016

1951

2016

1961196319671976198219831996199819992003

1928

2009

1936193819451950195519751980198519891991199519972013

19351958

19331954

‐50 to ‐40 ‐40 to ‐30 ‐30 to ‐20 ‐20 to ‐10 ‐10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60

Positive years: 67 (74%)Negative years: 24 (26%)Max return: 54.0% (1933)Min return: ‐43.4% (1931)

2017

In percent (%)


Be selective as opportunities remain in credit.

Fixed income

Opportunities for yield still remain within Investment Grade and municipals

Source: (Left) BofA Merrill Lynch Global Research and Chief Investment Office. Data as of December 31, 2017. (Right) Bloomberg, and Chief Investment Office. Data as of December 31, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

The After‐Tax Yield Ratio, which compares the after‐tax corporate bond yield to the after‐tax yield from municipal bonds suggests the latter remains attractive


0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Dec‐15 Mar‐16 Jun‐16 Sep‐16 Dec‐16 Mar‐17 Jun‐17 Sep‐17

Ratio

(%)

After Tax Yield Ratio

Corporate Yields Attractive

Municipal Yields Attractive

0

1

2

3

4

5

6

7

8

9

10

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Yield to W

orst (%

)

ICE BofAML 5‐7 Year US Treasury Index

ICE BofAML 5‐7 Year US Corporate Index

ICE BofAML 5‐7 Year US Municipal Securities Index


‐15%

‐10%

‐5%

0%

5%

10%

15%

Excess re

turn over T

reasurys

Initial starting high yield spread

Average annualized excess return over 5‐year holding period

Excess returns average 0.33% from current spread levels (‐7% min, +3.7% max)

Historical best‐case scenario Historical worst‐case scenario

0%

2%

4%

6%

8%

10%

12%

14%

16%

All High Yield Double‐B Single‐B CCC

Spread

Average spread Current spread

Low starting yields and tight spreads imply modest future returns. Higher leverage levels and more rate sensitivity than usual are also risks.

High yield returns likely to be well below historical averages

…implying modest high yield returns, both absolute and relative.

Source for all charts: Bloomberg Barclays Indices, Moody’s, S&P Global Market Intelligence, U. S. Trust. Data as of December 31, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

• High yield spreads are extremely tight across rating categories, and yields (5.72%) are close to all‐time lows.

• While we do not expect significant near‐term widening—that usually only occurs with economic weakness—we believe, investors should expect coupon‐like total returns best case in a rising rate environment.

Spreads significantly tighter than 5‐year averages across all ratings…

• Furthermore, starting spreads are a good predictor of excess returns over a longer holding period.

• Current spread levels imply negligible excess returns over Treasurys based on historical data.



For qualified investors, Alternative Investments may provide diversification and may help lower volatility.

Alternative investments

Source: (Left) Factset, Chief Investment Office. Hedge Fund Sub‐Strategies represented byrespective HFRI Hedge Fund indexes. Private Equity represented by Cambridge Associates PrivateEquity Index. Data as of September 30, 2017, Private Equity Data as of June 30, 2017. (Top Right)Bloomberg. Strategies by respective Credit Suisse indexes, and Cambridge Associates Private EquityIndex. Data as of June 30, 2015. (Bottom Right) Factset, Chief Investment Office. Data as of June 30,2017. Diversification and asset allocation does not ensure a profit or protect against a loss indeclining markets. Results shown are based on indexes and are illustrative; they assumereinvestment of income, no transaction costs or taxes, and do not constitute a portfoliorecommendation. They do not represent benchmarks or proxies for the return of any particularinvestable hedge fund product. Past performance is no guarantee of future results. Theprerequisite for funds to be included in the components of the indices interjects a significantelement of “survivor bias” into the reported levels of the indices, as generally only successful fundswill continue to report results for the minimum time period required by the index. There can be noassurance that such funds will continue to be successful in the future. There is a “risk of ruin” inthese strategies which has historically had a material effect on long‐term performance but which isnot reflected in performance volatility. From time to time, extremely low volatility alternativeinvestments have incurred sudden and material losses. Alternative Investments are notappropriate for all investors based on factors such as risk tolerance and liquidity preferences.Please refer to appendix for asset class, important risk disclosures and index definitions.

Long‐term private equity returns have been competitive to equities

Certain AI strategies have been resilient in market downturns

Alternative Investments (AI) may complement portfolios by potentially lowering volatility and/or enhancing returns


‐20

‐15

‐10

‐5

0

5

10

Oct‐08 Aug‐98 Sep‐02 Feb‐09 Feb‐01 Sep‐08 Jun‐08 Jan‐09 Sep‐01 May‐10

Total R

eturn (%

)

Sorted by worst 10 months for the S&P 500 Index since 1994

S&P 500 Hedge Funds Global Macro Managed Futures

‐4

0

4

8

12

16

20

24

28

2000 2002 2004 2006 2008 2010 2012 2014 2016

Annu

alized

Return, (%

)

Trailing 10‐year ReturnsCambridge Associates US Private Equity S&P 500 TR

HFRI Fund Weighted …

Equity HedgeEvent Driven

Global Macro/CTA

Relative Value

Private Equity

S&P 500 TR

6%7%8%9%

10%11%12%13%14%15%

5% 7% 9% 11% 13% 15% 17%

Annu

alized

Return

Annualized Volatility (1995‐Q3 2017)


Thematic investing



• Robotics• Cyber security• Big data• Cloud computing• Wireless internet

Technological change is one of the few constants in a rapidly evolving global economy; Investors stand to benefit from exposure to companies that are at the cutting edge of the development, design and marketing of these new technologies, and those that can harness them in their operations and production decisions to reduce operational costs and offer improved customer service.

• Global obesity & healthcare

• Emerging market consumer

• Womenomics• Demographics

The demographic make‐up of societies around the world is shifting. Populations are ageing, chronic illness is becoming more prevalent and consumer incomes and lifestyles in the emerging world are converging with those elsewhere. Growth in healthcare spending will be underpinned by the ageing global population, rising incomes, higher calorific intakes and more sedentary lifestyles in the emerging world. The emerging market consumer should be a key driver of global spending growth across a range of sectors.

• Global commercial real estate

• Equity sectors

The extended economic expansion, low but gradually rising inflation and a measured normalization of interest rates should continue to favor stocks over bonds. However, we also continue to like real assets such as commercial real estate, farmland and timberland. The combination of healthy demographics, greater transparency, a growing consumer base and increasing cross‐border capital flows suggest the emerging markets will be an attractive area for investors to seek commercial real estate opportunities over the long term.

• Agriculture• Climate change• Water• Oil and gas

As the global rebalancing story evolves, the current and future growth engines for global growth will demand more natural resources. Rather than target specific countries, investors should seek to benefit from industries with the capabilities and technologies to meet future global demand for natural resources. Among the areas that stand to benefit are agricultural produce and yield‐enhancement products, as well as water infrastructure and alternative energy.

• Defense• Geopolitics• Infrastructure• Government policy

Government policy developments will have an impact on country and sector returns. We continue to see structural reform as a key theme that should differentiate prospective performance between countries. For example, the massive outperformance of emerging markets in the 2000s, came at a time of significant external support, but country‐specific factors will matter more over the coming years. Geopolitical stresses are on the rise around the world and this is being met with a build up of arms and equipment capability. We expect government defense spending to rise globally.

These five investment themes help to provide a broad multi‐industry context that will allow us to better understand the breadth of the changes occurring in the global economy driven in large part by the rebalancing of growth from the developed to the developing world.

Thematic investing — A transforming world


Source: Market & Thematic Strategy Team as of December 2017. Please refer to appendix for asset class proxies and index definitions.


Enterprises around the world are shifting from in‐house to cloud‐based computing resources for processing and storage. This trend should remain a tailwind for cloud service providers.

Cloud services providing a growing share of computer processing and storage

Source: Cisco Global Cloud Index. Data as of 2016. “e” = Estimate.The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


75% 81% 85% 88% 90% 92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016 2017e 2018e 2019e 2020e

Traditional data centerCloud data center

Global data center processingShare of workloads

65%

88%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2020e

Traditionaldata center

Cloud datacenter

Global data center storageShare of storage capacity


Renewable energy consumption growth has far outstripped that of fossil fuels over recent years. Despite the U.S. withdrawal from the Paris climate agreement, falling costs and local policies continue to support global adoption of wind and solar power.

Wind and solar power growing more quickly than other energy sources

Source: BP Statistical Review of World Energy. Data as of 2017.The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


‐1.3%

1.5% 1.5% 1.6% 1.9%

14.2%

34.3%

‐5%

0%

5%

10%

15%

20%

25%

30%

35%

Coal Oil Natural Gas Nuclear Hydropower Wind Solar

Global energy consumption by sourceEnergy unit growth rate (2013‐2016, annualized)


With the rise in internet access and mobile device usage around the world, mobile payments are changing the way that people shop.

Mobile payments

Source: (Left) World Payments Report 2017; Capgemini/BNP Paribas. Data as of 2017. (Right) Bloomberg. Data as of December 29, 2017.Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.


Global mobile payment volume is expected to soar in coming years…

…driving relative performance by companies in the space.

49.5

59.7

70.4

87.6

108.8

0

20

40

60

80

100

120

2015 2016E 2017E 2018E 2019E

Global Mobile Payment VolumeBillions of Transactions

CAGR= 21.8%

60

100

140

180

220

260

300

340

380

Mobile Payment Exposure Drives Relative PerformanceEOY 2016= 100

PayPal S&P 500

Square Apple


Rising geopolitical tensions and a more isolationist U.S. administration are boosting global military spending. A move by all NATO members to meet the 2% of GDP target would translate into a further $107 billion of global defense expenditure.

Only five NATO members currently meet the official defense spending target


5 2 0 0 5 0 1 0 1 0 28 12 3 7 18 1 0 1 0 2 5 151

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

U.S.

Greece

U.K.

Estonia

Poland

France

Norway

Lithuania

Mon

tene

gro

Turkey

Latvia

Romania

Bulgaria

Portugal

Croatia

Germany

Canada

Denm

ark

Nethe

rland

s

Italy

Slovakia

Albania

Hungary

Sloven

ia

Czech Re

public

Belgium

Spain

Luxembo

urg

Required dollar spending increase (nearest billion)

Share of GDP

NATO military spendingShare of GDP

2% NATO spending target

Source: North Atlantic Treaty Organization. Data as of 2016. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions


We maintain our growth preference for the information technology sector. In both valuation and price terms, the gains of the current cycle have not been excessive compared to the broad market and remain well short of the boom years of the 1990s.

Technology sector valuation percentiles —dot‐com years vs. today

Source: Bloomberg. Data as of December‐end 2017. Market peak was March 27th 2000. Past performance is no guarantee of future results. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Please refer to appendix for asset class disclosures and index definitions.


Median

75th percentile

10th percentile

25th percentile

0

20

40

60

80

100

120

140

160

180

2000 market peak peak – 1 yr peak – 2 yr peak – 3 yr Current

Valuation level – technology sector constituents

Price‐earnings ratio


Appendix



Economic and market forecasts

Q1 2017 Q2 2017 Q3 2017 Q4 2017E 2016 2017E 2018E

Real global GDP (% y/y annualized) 3.1 3.5 – 4.0 3.5 – 4.0

Real U.S. GDP (% q/q annualized) 1.2 3.1 3.0 3.5 – 4.5 1.5 2.0 – 3.0 2.5 – 3.5

CPI inflation (% y/y)1 1.6 1.9 2.1 2.2 1.3 1.8 – 2.2 2.0 – 3.0

Core CPI inflation (% y/y)1 2.2 2.1 2.0 2.0 2.2 1.8 – 2.2 2.0 – 3.0

Unemployment rate, period average (%) 4.7 4.4 4.3 4.1 4.9 4.4 3.9

Fed funds rate, end period (%)2 0.87 1.12 1.12 1.37 0.62 1.37 1.87 – 2.37

10‐year Treasury, end period (%) 2.40 2.31 2.33 2.41 2.45 2.41 2.87 – 3.12

S&P 500, end period3 2363 2423 2519 2674 2239 2674 2800 – 3000

S&P operating earnings ($/share) 31 33 32 38 119 129 – 138 148 – 158

U.S. dollar/euro, end period 1.07 1.14 1.18 1.20 1.05 1.20 1.15 – 1.25

Japanese yen/U.S. dollar, end period 111 112 113 113 117 113 115 – 125

Oil ($/barrel), end period 51 46 52 60 54 60 55 – 65

Percent calendar‐year average over calendar‐year average annualized unless stated. E = Estimate.1 Latest 12‐month average over previous 12‐month average. 2 Fed funds rate, end period based on market indications.3 Our 2017 S&P 500 end period forecast: 2450 is the equilibrium target with 2700 being the highest bull case with pro‐growth policies initiated and sentiment driving the earnings number to the upper end of the range. Past performance is no guarantee of future results. Economic or financial forecasts are inherently limited and should not be relied on as indicators of future investment performance. Source: GWIM ISC. Data as of January 08, 2018.



‐12

‐8

‐4

0

4

8

1970‐2009 averageCurrent cycle (6/2009‐12/2013)

Percentage points (annualized)

‐20

‐16

‐12

‐8

‐4

0

4

8

1970‐2009 averageCurrent cycle (12/2013‐present)


Business cycle and relative stock performance

The business cycle — a stylized view Sector relative performance versus S&P 500 during recovery phase

Sector relative performance versus S&P 500 during maturity phase… …and during decline phase

Average return is historical average annualized S&P 500 total return from 1970‐2009. Recession average return to recession market trough.

Source: (Top Left) U.S. Trust, Bank of America Private Wealth Management. Data as of 2017. (All other charts) Bloomberg. Data as of December 29, 2017. Bottom left chart “present” is December 29, 2017. Past performance is no guarantee of future results.

Economic growth rate

“Recovery”Growth accelerating. Inflation falling. Maximum monetary support. Average return = 15.1%

“Decline”Growth decelerating. Inflation peaking. Interest rates peak.Average return = 0.8%

“Maturity”Growth stabilizes. Inflation stable to rising. Withdrawal of monetary support. Average return = 8.6%

“Recession”Growth contractingInflation decliningInterest rates fallingAverage return = ‐35.4%

EXPANSION0

CONTRACTION

‐20

‐10

0

10

20

301970‐2009 average




Less volatility per unit of growth.

The value of diversification


Hypothetical portfolio returns: equity versus equity and fixed income blends

Nov 2009: 40/60

portfolio

Dec 2010: 60/40

portfolio

Mar 2012: S&P 500 recovers

Oct 2007: S&P 500 peak

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

Oct '07 Aug '08 Jun '09 Apr '10 Feb '11 Dec '11 Oct '12 Aug '13 Jun '14 Apr '15 Feb '16 Dec '16 Oct '17

40/60 stocks & bonds60/40 stocks & bondsS&P 500

Feb 2009: S&P 500 loses over 50%

Source: Chief Investment Office, Bloomberg. Equity Index: S&P 500 Total Return; Fixed Income index: BarCap Aggregate. Data as of December 31, 2017. Results shown are based on an index and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Indexes are unmanaged. Direct investment cannot be made in an index. Diversification does not ensure a profit or protect against loss in declining markets. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Hyp

othe

tical Portfolio Value

in U.S. d

ollars


Historical Asset Class Performance

Merrill Lynch U.S.‐oriented investor

Source: Morningstar Direct, Bloomberg, & Factset. Income and dividends are included in all returns figures. Excludes alternative investments. Moderate Portfolio represents GWIM Strategic Asset Allocation for Tier 0 (Highest Liquidity) Moderate U.S. Investor. Data as of December 31, 2017. Results shown are based on an index and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Indexes are unmanaged. Direct investment cannot be made in an index. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Key market index returns, 2007 – 2017, highest to lowest2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Govt FI12.78%

EM Equity78.51%

US SCG29.08%

Govt FI9.19%

EM Equity18.23%

US SCG43.30%

US LCV13.45%

US LCG5.67%

US SCV31.74%

EM Equity37.78%

Mtge FI8.30%

High Yield FI56.28%

US SCV24.51%

Corp FI7.51%

US SCV18.05%

US SCV34.52%

US LCG13.05%

Mtge FI1.46%

High Yield FI17.34%

US LCG30.21%

Intl FI5.48%

US LCG37.20%

EM Equity18.88%

Mtge FI6.14%

US LCV17.50%

US LCG33.48%

Intl FI9.07%

Intl FI1.35%

US LCV17.34%

Intl Eq24.21%

Cash2.06%

US SCG34.49%

US LCG16.71%

High Yield FI4.50%

Intl Eq16.41%

US LCV32.53%

Corp FI7.51%

Govt FI0.84%

US SCG11.32%

US SCG22.17%

Inflation0.09%

Intl Eq33.67%

US LCV15.51%

Intl FI4.04%

High Yield FI15.44%

Intl Eq21.02%

ML Mod. Port.6.42%

Inflation0.73%

EM Equity11.19%

US LCV13.66%

Corp FI‐6.82%

ML Mod. Port.22.78%

High Yield FI15.24%

Inflation2.96%

US LCG15.27%

ML Mod. Port.13.10%

Mtge FI6.07%

Cash0.05%

ML Mod. Port.7.86%

ML Mod. Port.13.34%

ML Mod. Port.‐22.23%

US SCV20.59%

ML Mod. Port.12.10%

US LCG2.64%

US SCG14.58%

High Yield FI7.38%

Govt FI5.88%

Corp FI‐0.63%

US LCG7.08%

US SCV7.84%

High Yield FI‐26.21%

Corp FI19.76%

Corp FI9.52%

ML Mod. Port.1.47%

ML Mod. Port.11.78%

Inflation1.51%

US SCG5.60%


Corp FI5.96%

High Yield FI7.48%

US SCV‐28.93%

US LCV19.69%

Intl Eq8.95%

US LCV0.39%

Corp FI10.37%

Intl FI1.33%

US SCV4.22%

US SCG‐1.38%

Intl FI5.19%

Corp FI6.48%

US LCV‐36.85%

Mtge FI5.76%

Mtge FI5.67%

Cash0.10%

Intl FI6.59%

Cash0.07%

High Yield FI2.45%

Intl Eq‐3.04%

Intl Eq2.75%

Intl FI2.51%

US LCG‐38.43%

Intl FI4.67%

Govt FI5.61%

US SCG‐2.92%

Mtge FI2.59%

Mtge FI‐1.39%

Inflation0.76%

US LCV‐3.83%

Inflation2.07%

Mtge FI2.45%

US SCG‐38.53%

Inflation2.72%

Intl FI3.28%

US SCV‐5.50%

Govt FI2.19%

Corp FI‐1.46%

Cash0.03%

High Yield FI‐4.55%

Mtge FI1.67%

Govt FI2.42%

Intl Eq‐43.56%

Cash0.21%

Inflation1.50%

Intl Eq‐12.21%

Inflation1.74%

EM Equity‐2.60%

EM Equity‐2.19%

US SCV‐7.47%

Govt FI1.15%

Inflation2.30%

EM Equity‐53.33%

Govt FI‐2.58%

Cash0.13%

EM Equity‐18.42%

Cash0.11%

Govt FI‐3.21%

Intl Eq‐4.32%

EM Equity‐14.92%

Cash0.33%

Cash0.86%



Historical Asset Class Volatility

Merrill Lynch U.S.‐oriented investor

Source: Morningstar Direct. Moderate Portfolio represents GWIM Strategic Asset Allocation for Tier 0 (Highest Liquidity) Moderate U.S. Investor. Standard deviation is a statistical measurement of the range of an asset class’s total returns over the rolling three‐year period ending on December 31 2017. In general, a higher standard deviation means greater volatility. Results shown are based on an index and are illustrative. Indexes are unmanaged. Direct investment cannot be made in an index. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.


Annualized standard deviations of key asset classes 2008 – 2017, highest to lowest2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

EM Equity28.67%

EM Equity32.34%

EM Equity32.58%

US SCV26.04%

EM Equity21.50%

EM Equity19.04%

EM Equity15.00%

US SCG14.95%

US SCG16.67%

EM Equity15.35%

US SCG21.26%

US SCV25.62%

US SCV28.37%

EM Equity25.76%

US SCG20.72%

US SCG17.28%

US SCG13.82%

EM Equity14.05%

EM Equity16.07%

US SCG14.59%

Intl Eq19.45%

US SCG24.84%

US SCG27.69%

US SCG24.31%

US SCV19.89%

Intl Eq15.97%

US SCV12.79%

US SCV13.45%

US SCV15.50%

US SCV13.97%

US SCV19.14%

Intl Eq23.89%

Intl Eq26.30%

Intl Eq22.34%

Intl Eq19.04%

US SCV15.82%

Intl Eq12.74%

Intl Eq12.27%

Intl Eq12.34%

Intl Eq11.65%

US LCG16.40%

US LCV21.10%

US LCV23.18%

US LCV20.69%

US LCG15.66%

US LCV12.70%

US LCG9.59%

US LCG10.70%

US LCG11.15%

US LCG10.54%

US LCV15.36%

US LCG19.73%

US LCG22.11%

US LCG17.76%

US LCV15.51%

US LCG12.18%

US LCV9.20%

US LCV10.68%

US LCV10.77%

US LCV10.20%

High Yield FI13.30%

High Yield FI16.66%

High Yield FI16.79%

ML Mod. Port.11.32%

ML Mod. Port.8.78%

ML Mod. Port.7.40%

ML Mod. Port.5.64%

ML Mod. Port.6.02%

ML Mod. Port.6.10%

ML Mod. Port.5.59%

ML Mod. Port.10.28%

ML Mod. Port.12.97%

ML Mod. Port.13.96%

High Yield FI10.78%

High Yield FI6.93%

High Yield FI6.33%

High Yield FI4.42%

High Yield FI5.27%

High Yield FI6.01%

High Yield FI5.58%

Corp FI7.78%

Corp FI8.75%

Corp FI8.91%

Corp FI5.13%

Corp FI3.81%

Corp FI4.24%

Corp FI3.88%

Corp FI3.94%

Corp FI3.98%

Corp FI3.71%

Govt FI4.35%

Govt FI5.15%

Govt FI5.24%

Govt FI4.18%

Govt FI3.37%

Govt FI3.34%

Govt FI2.91%

Govt FI3.25%

Govt FI3.66%

Govt FI3.50%

Mtge FI3.36%

Mtge FI3.36%

Mtge FI3.28%

Intl FI2.53%

Intl FI2.40%

Intl FI2.44%

Mtge FI2.24%

Intl FI2.69%

Intl FI2.80%

Intl FI2.82%

Intl FI2.73%

Intl FI2.67%

Intl FI2.89%

Mtge FI2.09%

Mtge FI1.70%

Mtge FI2.08%

Intl FI2.22%

Mtge FI2.32%

Mtge FI2.11%

Mtge FI1.75%

Inflation2.11%

Inflation2.01%

Inflation1.90%

Inflation0.96%

Inflation1.09%

Inflation1.19%

Inflation1.18%

Inflation1.14%

Inflation1.09%

Inflation0.91%

Cash0.48%

Cash0.63%

Cash0.36%

Cash0.03%

Cash0.03%

Cash0.03%

Cash0.02%

Cash0.02%

Cash0.05%

Cash0.11%


Historical sector performance

U.S. equities

Source: Bloomberg. U.S. equities represented by the S&P 500 Index. Returns calculated are total returns. Data as of December 31, 2017.Results shown are based on an index and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Indexes are unmanaged. Direct investment cannot be made in an index. Past performance is no guarantee of future results. Please refer to appendix for asset class appendix and index definitions.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Utilities57.2%

Materials3.5%

Cons Staples‐4.3%

Technology47.2%

Energy31.5%

Energy31.4%

Telecom36.8%

Energy34.4%

Cons Staples‐15.4%

Technology61.7%

Cons Disc27.7%

Utilities19.9%

Financials28.8%

Cons Disc43.1%

Utilities29.0%

Cons Disc 10.1%

Energy27.4%

Technology 38.8%

Health Care37.1%

Cons Disc2.8%

Materials‐5.5%

Materials38.2%

Utilities24.3%

Utilities16.8%

Energy24.2%

Materials22.5%

Health Care‐22.8%

Materials48.6%

Industrials26.7%

Cons Staples14.0%

Cons Disc23.9%

Health Care41.5%

Health Care25.3%

Health Care 6.9%

Telecom 23.5%

Materials 23.8%

Financials 25.7%

Industrials‐5.7%

Energy‐11.1%

Cons Disc37.4%

Telecom19.9%

Financials6.5%

Utilities21.0%

Utilities19.4%

Utilities‐29.0%

Cons Disc41.3%

Materials22.2%

Health Care12.7%

Telecom18.3%

Industrials40.7%

Technology20.1%

Cons Staples 6.6%

Financials 22.8%

Cons Disc 23.0%

Cons Staples 16.8%

Cons Staples‐6.4%

Financials‐14.6%

Industrials32.2%

Industrials18.0%

Health Care6.5%

Financials19.2%

Technology16.3%

Telecom‐30.5%

Industrials20.9%

Energy20.5%

Telecom6.3%

Health Care17.9%

Financials35.6%

Cons Staples16.0%

Technology 5.9%

Industrials 18.9%

Financials 22.2%

Energy15.7%

Financials‐9.0%

Health Care‐18.8%

Financials31.0%

Cons Disc13.2%

Materials4.4%

Cons Disc18.6%

Cons Staples14.2%

Cons Disc ‐33.5%

Health Care19.7%

Telecom19.0%

Cons Disc6.1%

Industrials15.3%

Technology28.4%

Financials15.2%

Telecom 3.4%

Materials 16.7%

Health Care 22.1%

Industrials5.9%

Energy‐10.4%

Cons Disc‐23.8%

Utilities26.3%

Materials13.2%

Cons Staples3.6%

Materials18.6%

Industrials12.0%

Energy‐34.9%

Financials17.2%

Cons Staples14.1%

Energy4.7%

Materials15.0%

Cons Staples26.1%

Industrials9.8%

Financials ‐1.5%

Utilities 16.3%

Industrials 21.0%

Materials‐15.7%

Health Care‐11.9%

Industrials‐26.3%

Energy25.6%

Financials10.9%

Industrials2.3%

Cons Staples14.4%

Telecom11.9%

Industrials‐39.9%

Cons Staples14.9%

Financials12.1%

Technology2.4%

Technology14.8%

Materials25.6%

Cons Disc9.7%

Industrials ‐2.5%

Technology 13.8%

Cons Staples 13.5%

Cons Disc‐20.0%

Telecom‐12.2%

Utilities‐30.0

Health Care15.1%

Cons Staples8.2%

Technology1.0%

Industrials13.3%

Health Care7.2%

Technology‐43.1%

Energy13.8%

Technology10.2%

Industrials‐0.6%

Cons Staples10.8%

Energy25.1%

Materials6.9%

Utilities‐4.8%

Cons Disc 6.0%

Utilities 12.1%

Telecom‐38.8%

Technology‐25.9%

Telecom‐34.1%

Cons Staples11.6%

Technology2.6%

Telecom‐5.6%

Technology8.4%

Cons Disc‐13.2%

Materials‐45.7%

Utilities11.9%

Utilities5.5%

Materials‐9.8%

Energy4.6%

Utilities13.2%

Telecom3.0%

Materials ‐8.4%

Cons Staples 5.4%

Energy ‐1.0%

Technology‐40.9%

Utilities‐30.4%

Technology‐37.4%

Telecom7.1%

Health Care1.7%

Cons Disc‐6.4%

Health Care7.5%

Financials‐18.6%

Financials‐55.3%

Telecom8.9%

Health Care2.9%

Financials‐17.1%

Utilities1.3%

Telecom11.5%

Energy‐7.8%

Energy ‐21.1%

Health Care ‐2.7%

Telecom ‐1.3%



Historical Asset Class Performance

Merrill Lynch globally oriented investor

Source: Morningstar Direct. Income and dividends are included in all returns figures. Moderate Portfolio represents GWIM Strategic Asset Allocation for Tier 0 (Highest Liquidity) Moderate Global Investor. Data as of December 31, 2017. Results shown are based on an index and are illustrative; they assume reinvestment of income and no transaction costs or taxes. Indexes are unmanaged. Direct investment cannot be made in an index. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Key market index returns, 2007 – 2017, highest to lowest2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Global Govt8.97%

EM Equity 78.51%

EM Equity 18.88%

Global Govt5.81%

Dev APAC ex‐Jap24.57%

North America29.57%

North America11.90%

Japan9.57%

Global HY / EM14.74%

EM Equity 37.28%

Global Mtge3.98%



Global Mtge5.61%

Dev Eur ex‐UK21.28%


Global Govt8.15%

Global Mtge1.34%

North America11.57%


Cash2.06%


Japan15.44%

Global Corp4.95%


Japan27.16%

Global Corp7.71%

Global Govt1.26%

EM Equity 11.19%


Inflation0.09%

United Kingdom43.30%

North America15.30%

Inflation2.96%

EM Equity 18.23%


Global Mtge6.17%

Inflation0.73%


Japan23.99%

Global Corp‐4.84%



Global HY / EM2.77%


ML Mod. Port.12.05%

ML Mod. Port.5.74%

Cash0.05%

ML Mod. Port.6.50%



North America28.44%

ML Mod. Port.10.16%

ML Mod. Port.0.12%

North America14.77%

Global HY / EM7.19%

Inflation0.76%

Global Corp‐0.24%

Global Corp6.08%

North America20.89%

Global HY / EM‐26.10%

ML Mod. Port.23.62%

United Kingdom8.75%

Cash0.10%

ML Mod. Port.11.94%


Cash0.03%

Dev Eur ex‐UK‐0.65%

Global Govt3.70%

ML Mod. Port.13.79%

Japan‐29.21%

Global Corp16.30%

Global Corp7.35%

North America‐0.07%

Global Corp10.79%

Inflation1.51%



Japan2.38%



Global Mtge7.98%

Global Mtge5.93%

United Kingdom‐2.57%

Japan8.19%

Cash0.07%

Dev APAC ex‐Jap‐0.47%


Global Mtge2.21%

Global Corp5.77%


Japan6.25%

Global Govt3.79%


Global Mtge4.74%

Global Corp0.02%

EM Equity ‐2.19%


Inflation2.07%

Global Mtge2.56%


Inflation2.72%


Japan‐14.33%

Global Govt4.64%

Global Mtge‐0.27%

Japan‐4.02%


Cash0.33%

Global Govt2.35%


Global Govt1.39%

Inflation1.50%


Inflation1.74%

Global Govt‐0.43%




Inflation2.30%

EM Equity ‐53.33%

Cash0.21%

Cash0.13%

EM Equity ‐18.42%

Cash0.11%

EM Equity ‐2.60%


EM Equity ‐14.92%


Cash0.86%



Historical Asset Class Volatility

Merrill Lynch globally oriented investor

Source: Morningstar Direct. Moderate Portfolio represents GWIM Strategic Asset Allocation for Tier 0 (Highest Liquidity) Moderate Global Investor. Standard deviation is a statistical measurement of the range of an asset class’s total returns over the rolling three‐year period ending on December 31, 2017. In general, a higher standard deviation means greater volatility. Results shown are based on an index and are illustrative. Indexes are unmanaged. Direct investment cannot be made in an index. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.

Annualized standard deviations of key asset classes 2008 – 2017, highest to lowest2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

EM Equity 28.67%

EM Equity 32.34%

EM Equity 32.58%







EM Equity 15.35%









EM Equity 16.07%





EM Equity 25.76%

EM Equity 21.50%

EM Equity 19.04%

EM Equity 15.00%

EM Equity 14.05%













North America15.75%

North America20.19%

North America22.29%

North America18.91%

North America15.38%

Japan14.70%

Japan12.88%

Japan13.26%

Japan12.89%

Japan12.31%

Japan15.42%

Japan18.89%

Japan20.30%

Japan16.98%

Japan14.45%

North America12.20%

North America9.08%

North America10.45%

North America10.65%

North America9.94%





ML Mod. Port.8.95%

Global HY / EM7.86%

Global HY / EM6.02%

ML Mod. Port.6.10%

Global HY / EM6.39%

Global HY / EM5.73%

ML Mod. Port.10.00%

ML Mod. Port.12.52%

ML Mod. Port.13.54%

ML Mod. Port.11.11%

Global HY / EM8.88%

ML Mod. Port.7.52%

ML Mod. Port.5.79%

Global HY / EM5.80%

ML Mod. Port.6.09%

ML Mod. Port.5.66%

Global Corp5.20%

Global Corp6.13%

Global Corp6.30%

Global Corp4.33%

Global Corp3.34%

Global Corp3.70%

Global Corp3.24%

Global Corp3.39%

Global Corp3.39%

Global Corp3.24%

Global Govt3.18%

Global Govt3.32%

Global Govt3.44%

Global Govt2.83%

Global Govt2.51%

Global Govt2.62%

Global Govt2.39%

Global Govt2.82%

Global Govt3.08%

Global Govt3.01%

Global Mtge2.72%

Global Mtge2.83%

Global Mtge2.80%

Global Mtge2.08%

Global Mtge1.57%

Global Mtge1.95%

Global Mtge2.04%

Global Mtge2.14%

Global Mtge1.97%

Global Mtge1.71%

Inflation2.11%

Inflation2.01%

Inflation1.90%

Inflation0.96%

Inflation1.09%

Inflation1.19%

Inflation1.18%

Inflation1.14%

Inflation1.09%

Inflation0.91%

Cash0.48%

Cash0.63%

Cash0.36%

Cash0.03%

Cash0.03%

Cash0.03%

Cash0.02%

Cash0.02%

Cash0.05%

Cash0.11%



Alpha: A measure of risk‐adjusted performance relative to a comparative benchmark, aka residual return.

Beta: A measure of the sensitivity of the returns of the Asset to the comparative benchmark.

Consumer Price Index (CPI) Level: Base Year 1982‐84: 100. The CPI represents changes in prices of all good and services purchased for consumption by urban households. User feesand sales and excise taxes paid by the consumer are also included. Income taxes and investment items are not included.

CPI Core Index Level: Base year 1982‐84; it excludes food and energy items from the Consumer Price Index Level.

Current Account Deficit: Occurs when a country's total import of goods, services and transfers is greater than the country's total export of goods, services and transfers; this situationmakes a country a net debtor to the rest of the world.

Developed Market: A country that is most developed in terms of its economy and capital markets. The country must be high‐income, but this also includes openness to foreignownership, ease of capital movement, and efficiency of market institutions.

Emerging Market: A country that is progressing toward becoming advanced, as shown by some liquidity in local debt and equity markets and the existence of some form of marketexchange and regulatory body.

GDP ‐ Nominal: Gross Domestic Product (GDP) equals the total income of everyone in the economy or the total expenditure on the economy’s good and services. GDP includes onlythe value of final goods and services. Nominal GDP measures the value of goods and services at current dollar prices.

GDP ‐ Real: The chain‐weighted GDP measure of goods and services at constant dollar prices. The base year changes continuously over time (e.g., 1995, process measures real growthfrom 1995 to 1996). The figures are then linked to a chain that can compare goods and services in any two years. Chain‐weighted figures never let prices get too far out of date.

High Yield OAS: Option‐adjusted spread (OAS) is the yield spread which has to be added to a benchmark yield curve to discount a security's payments to match its market price, usinga dynamic pricing model that accounts for embedded options

HY Leverage Ratio: Net Debt divided by last 12 months earnings before interest taxes and amortization (EBITDA)

HY Spread per Turn of Leverage: OAS divided by net leverage ratio

IG Net Leverage Ratio: Net Debt divided by last 12 months earnings before interest taxes and amortization (EBITDA)

IG Spread per Turn of Leverage: OAS divided by net leverage ratio

Investment Grade OAS: Option‐adjusted spread (OAS) is the yield spread which has to be added to a benchmark yield curve to discount a security's payments to match its marketprice, using a dynamic pricing model that accounts for embedded options

Jobless Claims: Average weekly initial claims for unemployment insurance: measures the average number of new claims for unemployment compensation per week.

Standard Deviation: Annualized Standard Deviation is a statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of thedistribution.

U.S. Employees Non‐Farm Private Payrolls: A statistic that represents the total number of paid U.S. workers except for farm workers, general government employees, employees ofnonprofit organizations that provide assistance to individuals and private household employees. The Non‐Farm Private Payroll represents about 80% of the workers who produce theU.S. Gross Domestic Product.

Glossary



Asset class proxies

Asset Class Index Description

Inflation IA SBBI US Inflation The Consumer Price Index for All Urban Consumers, or CPI‐U, is used by IA SBBI to measure inflation, which is the rate of change of consumer goods prices. All inflation measures are constructed by the U.S. Departmetn of Labor, Bureau of Labor Statistics, Washington.

Cash/Near Cash IA SBBI US 30 Day TBill TR USD & BAML U.S. Treasury Bills 3 months

For the U.S. Treasury Bill index, data from The Wall Street Journal are used for 1977‐Present; the CRSP U.S. Government Bond File is the source from 1926 to 1976. Each month a one‐bill portfolio containing the shortest‐term bill having not less than one month to maturity is constructed. (The bill's original term to maturity is not relevant.)

US Large Cap Growth Russell 1000 Growth Total Return Russell 1000 Growth Total Return measures the performance of the large‐cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price‐to‐book ratios and higher forecasted growth values.

US Large Cap Value Russell 1000 Value Total Return Russell 1000 Value Total Return measures the performance of the large‐cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price‐to‐book ratios and lower expected growth values.

US Small Cap Growth Russell 2000 Growth Total Return Russell 2000 Growth Total Return measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price‐to‐book ratios and higher forecasted growth values.

US Small Cap Value Russell 2000 Value Total Return Russell 2000 Value Total Return measures the performance of the large‐cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price‐to‐book ratios and lower expected growth values.

International Equity MSCI Daily TR Net World Ex USA USD The MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries ‐‐ excluding the United States. The index covers approximately 85% of the free float‐adjusted market capitalization in each country.

Emerging Markets MSCI Daily TR Net EM USD The MSCI Emerging Markets (EM) Index captures large and mid cap representation across 23 Emerging Markets countries and targets coverage of approximately 85% of the free floatadjusted market capitalization in each country.

North America MSCI Daily TR Net North America The MSCI North America Index is designed to measure the performance of the large and mid cap segments of the US and Canada markets. The index covers approximately 85% of the free float‐adjusted market capitalization in the US and Canada.

Developed Europe ex‐UK MSCI Daily TR Net Europe Ex U.K. USD The MSCI Europe ex UK Index captures large and mid cap representation across 14 Developed Markets (DM) countries in Europe. The index covers approximately 85% of the free float‐adjusted market capitalization across European Developed Markets excluding the UK.

UK MSCI Daily TR Net UK USD The MSCI United Kingdom Index is designed to measure the performance of the large and mid cap segments of the UK market. The index covers approximately 85% of the free float‐adjusted market capitalization in the UK.

Japan MSCI Daily TR Net Japan USD The MSCI Japan Index is designed to measure the performance of the large and mid cap segments of the Japanese market. The index covers approximately 85% of the free float‐adjusted market capitalization in Japan.

Developed Asia Pacific ex‐Japan

MSCI Daily TR Net Pacific Ex Japan USD The MSCI AC Asia ex Japan Index captures large and mid cap representation across 2 Developed Markets countries (Hong Kong and Singapore) and 8 Emerging Markets countries (China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand) in Asia. The index covers approximately 85% of the free float‐adjusted market capitalization in each country.




U.S. Government & Quasi Government

BAML AAA U.S. Treasury/Agency Master The BofA Merrill Lynch US Treasury & Agency Index tracks the performance of US dollar denominated US Treasury and non‐subordinated US agency debt issued in the US domestic market. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch). In addition, qualifying securities must have at least one year remaining term to final maturity, at least 18 months to maturity at time of issuance, a fixed coupon schedule and a minimum amount outstanding of $1 billion for sovereigns and $250 million for agencies.

U.S. Mortgage Backed BAML Mortgage Master The BofA Merrill Lynch US Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass‐through securities publicly issued by U.S. agencies in the U.S. domestic market. 30‐year, 20‐year, 15‐year and interest‐only fixed rate mortgage pools are included in the Index provided they have at least one year remaining term to final maturity and a minimum amount outstanding of at least $5 billion per generic coupon and $250 million per production year within each generic coupon.

U.S. Corp Master BAML U.S. Corp Master The BofA Merrill Lynch US Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remainingterm to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $250 million.

USD High Yield / Not Rated BAML High Yield Cash Pay The BofA Merrill Lynch US Cash Pay High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt, currently in a coupon paying period, that is publicly issued in the US domestic market.

International Fixed Income BAML Global Broad Market TR ex USD (Hedged)

The BofA Merrill Lynch Global Broad Market Excluding US Dollar Index tracks the performance of investment grade debt publicly issued in the major domestic and eurobond markets, including sovereign, quasi‐government, corporate, securitized and collateralized securities, excluding all securities denominated in U.S. dollars.

Global Governments BAML Global Govt Bond Index + BAML Global Large Cap Quasi‐Govt Index (Hedged)

(i) The BofA Merrill Lynch Global Government Index tracks the performance of publicly issued investment grade sovereign debt denominated in the issuer's own domestic currency. (ii) The BofA Merrill Lynch Global Large Cap Quasi‐Government Index tracks the performance of large capitalization investment grade quasi‐government debt publicly issued in the major domestic and eurobond markets, including agency, foreign government, local government, supranational and government guaranteed securities. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch).

Global Corporates BAML Global Broad Market Corp (Hedged)

The BofA Merrill Lynch Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and eurobond markets. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remainingterm to final maturity as of the rebalancing date and a fixed coupon schedule.

Asset class proxies (continued)



Asset class proxies (continued)


Hedge Funds Hedge Fund Research HFRI Fund Weighted Composite

The HFRI Fund Weighted Composite Index is a global, equal‐weighted index of over 2,000 single‐manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in U.S. Dollar and have a minimum of $50 Million under management or a twelve month track record of active performance. The HFRI Fund Weighted Composite Index does not include Funds of Hedge Funds.

Private Equity Merrill Lynch Small Cap Research Private Equity/ Micro Cap & Russell Microcap TR

Merrill Lynch Small Cap Research Private Equity/Micro Cap Index is a customized proprietary market capitalization weighted index provided by Bank of America Merrill Lynch Global Research with security market capitalization ranging from $101 Million to $779 Million.

Previously proprietary Merrill Lynch Small Cap Research Private Equity/Micro Cap index is no longer provided by BofA Merrill Lynch Global Research and the proxy switched to Russell Microcap Index in July 2016.

Real Assets 50/25/25 BB Cmdty / NCREIF Property / NCREIF TBI

(i) The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for commodities as an asset class. The index is composed of futures contracts on 22 physical commodities. (ii) Produced quarterly, the NCREIF Property Index (NPI) shows real estate performance returns using data submitted by its Data Contributing Members. The NPI is used as an industry benchmark to compare an investor’s own returns against the industry average. (iii) The NCREIF Transaction‐Based Index (TBI) is an index based on properties that were in the NCREIF Property Index and were sold that quarter. The index does not replace the NPI. It is a complementary index to the appraisal‐based NPI. A transaction‐based index is often considered to be more comparable to stock and bond indexes that are transaction‐based.



AAII Investor Sentiment: The sentiment survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market short term; individuals are polled from the AAII Web site on a weekly basis.

Alerian MLP Index is a composite of the 50 most prominent energy master limited partnerships and is calculated by Standard & Poor’s using a float‐adjusted, market capitalization‐weighted methodology. The total return index is calculated on an end‐of‐day basis and is disseminated daily through its ticker symbol, AMZX, on the New York Stock Exchange.

BAML Financial Stress Index: See BofA Merrill Lynch Global Financial Stress Index definition.

Bitcoin Investment Trust: The Bitcoin Investment Trust is an open‐ended grantor trust based in the U.S., sponsored by Grayscale Investments. It is invested exclusively in bitcoin and derives its value solely from the price of bitcoin. The Trust's objective is for the NAV per share to track bitcoin's market price.

Bloomberg Agriculture Subindex: The index is composed of futres contracts on coffee, corn, cotton, soybeans, soybean oil, soybean meal, sugar, and wheat. It reflects the return of underlying commodity futures price movements only and is quoted in USD.

Bloomberg Barclays US Aggregate Bond Index is a market capitalization‐weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented.

Bloomberg Commodity Index is made up of 22 exchange‐traded futures on physical commodities, which are weighted to account for economic significance and market liquidity.

Bloomberg Copper Subindex TR: Bloomberg Copper Subindex Total Return Index.

Bloomberg Energy Subindex TR: The index is composed of futures contracts on crude oil, heating oil, unleaded gasoline, and natural gas. It reflects the return on fully collateralized futures positions and is quoted in USD.

Bloomberg Industrial Metals Subindex Total Return: The index is composed of longer‐dated futures contracts on aluminum, copper, nickel, and zinc. It reflects the return on fully collateralized positions and is quoted in USD.

Bloomberg Livestock Subindex: The index is composed of futures contracts on live cattle and lean hogs. It reflects the return of underlying commodity futures price movements only. It is quoted in USD.

BofA Merrill Lynch 5‐7 Year US Corporate Index is a subset of The BofA Merrill Lynch US Corporate Index including all securities with a remaining term to final maturity greater than or equal to 5 years and less than 7 years.

BofA Merrill Lynch 5‐7 Year US Municipal Securities Index is a subset of The BofA Merrill Lynch US Municipal Securities Index including all securities with a remaining term to final maturity between 5‐7 years.

BofA Merrill Lynch 5‐7 Year US Treasury Index is a subset of The BofA Merrill Lynch US Treasury Index including all securities with a remaining term to final maturity greater than or equal to 5 years and less than 7 years.

BofA Merrill Lynch All Maturity All Euro Government Index: The BofA Merrill Lynch All Maturity All Euro Government Index tracks the performance of EUR denominated sovereign debt publicly issued by Euro member countries in either the eurobond market or the issuer’s own domestic market.

BofA Merrill Lynch Global Broad Market Index: The BofA Merrill Lynch Global Broad Market Index tracks the performance of investment grade debt publicly issued in the major domestic and eurobond markets, including sovereign, quasi‐government, corporate, securitized and collateralized securities.

Index definitions



BofA Merrill Lynch Global Emerging Markets Sovereign tracks the performance of U.S. dollar‐denominated debt of sovereign issuers domiciled in countries with a BB or lower foreign currency long‐term sovereign debt rating.

BofA Merrill Lynch Global Financial Stress Index is a Bank of America Merrill Lynch calculated, cross market measure of risk, hedging demand and investor flows in the global financial system. Levels greater/less than 0 indicate more/less financial market stress than normal. Apart from the headline GFSI, there are three sub‐indices, RISK, FLOW and SKEW.

BofA Merrill Lynch Global Sovereign Broad Market Index tracks the performance of local currency‐denominated debt of Investment Grade‐rated sovereign issuers.

BofA Merrill Lynch High Yield Master Index tracks the performance of below Investment Grade U.S. dollar‐denominated corporate bonds publicly issued in the U.S. domestic market. “Yankee” bonds (debt of foreign issuers issued in the U.S. domestic market) are included in the index provided the issuer is domiciled in a country having an Investment Grade foreign currency long‐term debt rating (based on a composite of Moody’s and S&P).

BofA Merrill Lynch Municipal Masters Index tracks the performance of the Investment Grade U.S. tax‐exempt bond market.

BofA Merrill Lynch U.S. Broad Market Index tracks the performance of U.S. dollar‐denominated Investment Grade government and corporate public debt issued in the U.S. domestic bond market, including collateralized products such as mortgage pass‐through and asset‐backed securities.

BofA Merrill Lynch U.S. Corporate Master Index tracks the performance of U.S. dollar‐denominated Investment Grade corporate public debt issued in the U.S. domestic bond market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $150 million. Bonds must be rated Investment Grade based on a composite of Moody’s and S&P.

BofA Merrill Lynch US Agency Index tracks the performance of U.S. dollar denominated U.S. agency senior debt issued in the U.S. domestic market. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch).

BofA Merrill Lynch US Inflation‐Linked Treasury Index tracks the performance of US dollar denominated inflationlinked sovereign debt publicly issued by the US government in its domestic market.

BofA Merrill Lynch US Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market.

BofAML U.S. Corporate Master Index tracks the performance of U.S. dollar‐denominated Investment Grade corporate public debt issued in the U.S. domestic bond market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $150 million. Bonds must be rated Investment Grade based on a composite of Moody’s and S&P.

Brent Crude Oil is a classification of sweet light crude oil and is a major benchmark price for oil purchases worldwide.

Cambridge Associates Private Equity U.S. Total Return: Performance data is calculated quarterly by Cambridge Associates and published by Thomson Reuters Venture Economics’ Private Equity Performance Database, which tracks the performance of thousands of U.S. and European venture capital and buyout funds formed since 1969. Sources are financial documents and schedules from Limited Partners investors and General Partners. All returns are calculated net to investors (net of fees and carried interest) by Thomson Venture Economics from the underlying financial cash flows using both cash on cash returns (distributions and capital calls) and the unrealized net asset value of funds as reported by private equity fund managers. The “U.S.” category includes only U.S. funds.

Cleveland Fed Financial Stress Index: The CFSI is designed to track distress in the U.S. financial system on a continuous basis.

Conference Board U.S. Leading Credit Index: This index is consisted of six financial indicators: 2‐years Swap Spread (real time), LIBOR 3 month less 3 month Treasury‐Bill yield spread (real time), Debit balances at margin account at broker dealer (monthly), AAII Investors Sentiment Bullish (%) less Bearish (%) (weekly), Senior Loan Officers C&I loan survey – Bank tightening Credit to Large and Medium Firms (quarterly), and Security Repurchases (quarterly) from the Total Finance‐Liabilities section of Federal Reserve’s flow of fund report..

Index definitions (continued)



DJ Credit Suisse AllHedge Equity Market Neutral Index measures the aggregate performance of equity market neutral funds. Equity market neutral funds typically take both long and short positions in stocks while seeking to reduce exposure to the systemic risk of the market (i.e., a beta of zero is desired).

DJ Credit Suisse AllHedge Fixed Income Arbitrage Index measures the aggregate performance of fixed income arbitrage funds. Fixed income arbitrage funds typically attempt to generate profits by exploiting inefficiencies and price anomalies between related fixed income securities. Fixed income arbitrage funds seek to limit volatility by hedging out exposure to the market and interest rate risk.

DJ Credit Suisse AllHedge Global Macro Indexmeasures the aggregate performance of global macro funds. Global macro funds typically focus on identifying extreme price valuations and leverage is often applied on the anticipated price movements in equity, currency, interest rate and commodity markets.

DJ Credit Suisse AllHedge Index is an asset‐weighted hedge fund index derived from the market leading Dow Jones Credit Suisse Hedge Fund Index. The Dow Jones Credit Suisse AllHedge Index provides a rules‐based measure of an investable portfolio. Index performance data is published monthly and constituents are rebalanced semi‐annually according to the sector weights of the Dow Jones Credit Suisse Hedge Fund Index.

DJ Credit Suisse AllHedge Long Short Equity Index measures the aggregate performance of long/short equity funds. Long/short equity funds typically invest in both long and short sides of equity markets, generally focusing on diversifying or hedging across particular sectors, regions or market capitalizations.

DJ Credit Suisse AllHedge Managed Futures Index measures the aggregate performance of managed futures funds. Managed futures funds (often referred to as CTAs or Commodity Trading Advisors) typically focus on investing in listed bond, equity, commodity futures and currency markets globally.

DXY Index indicates the general international value of the U.S. dollar. The Index does this by averaging the exchange rates between the dollar and major world currencies.

FTSE NAREIT U.S. Real Estate Index is a performance index based on publicly traded real estate investment trusts (REITs) that span commercial real estate space across the U.S. economy. The index series provides investors with exposure to all investment and property sectors. A REIT is a company that owns and, in most cases, operates income‐producing real estate such as apartments, shopping centers, offices, hotels and warehouses. Some REITs also engage in financing real estate. To qualify as a REIT, a company must distribute at least 90% of its taxable income to its shareholders annually. A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income. As a result, most REITs remit at least 100% of their taxable income to their shareholders and therefore owe no corporate tax.

FTSE®EPRA®/NAREIT® Global Index is a free float, market capitalization‐weighted real estate index designed to represent publicly traded equity REITs and listed property companies globally.

Global Economic Policy Uncertainty Index: This concept tracks the general state of the economy as it relates to businesses. It can include broad economy‐wide conditions or specific economic conditions of a particular industry. The GEPU Index is a GDP‐weighted average of national EPU indices for 18 countries: Australia, Brazil, Canada, Chile, China, France, Germany, India, Ireland, Italy, Japan, the Netherlands, Russia, South Korea, Spain, Sweden, the United Kingdom, and the United States. Each national EPU index reflects the relative frequency of own‐country newspaper articles that contain a trio of terms pertaining to the economy (E), policy (P) and uncertainty (U). In other words, each monthly national EPU index value is proportional to the share of own‐country newspaper articles that discuss economic policy uncertainty in that month. For a detailed discussion of how we construct the country‐level EPU indices, see Measuring Economic Policy Uncertainty.

Gold reflects the gold spot price and is quoted in U.S. dollars per Troy Ounce.

HFRI Equity Hedge (Total) Index: Investment Managers who maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. EH managers would typically maintain at least 50% exposure to, and may in some cases be entirely invested in, equities, both long and short.




HFRI Event Driven Index: ‐ Investment Managers who maintain positions in companies currently or prospectively involved in corporate transactions of a wide variety including but not limited to mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments. Security types can range from most senior in the capital structure to most junior or subordinated, and frequently involve additional derivative securities. Event Driven exposure includes a combination of sensitivities to equity markets, credit markets and idiosyncratic, company specific developments. Investment theses are typically predicated on fundamental characteristics (as opposed to quantitative), with the realization of the thesis predicated on a specific development exogenous to the existing capital structure.

HFRI Fund Weighted Composite Index: A global, equal‐weighted index of over 2,000 single‐manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in U.S. Dollar and have a minimum of $50 Million under management or a twelve month track record of active performance. The HFRI Fund Weighted Composite Index does not include Funds of Hedge Funds.

HFRI Macro: Systematic Diversified Index: Systematic: Diversified strategies have investment processes typically as function of mathematical, algorithmic and technical models, with little or no influence of individuals over the portfolio positioning. Strategies which employ an investment process designed to identify opportunities in markets exhibiting trending or momentum characteristics across individual instruments or asset classes. Strategies typically employ quantitative process which focus on statistically robust or technical patterns in the return series of the asset, and typically focus on highly liquid instruments and maintain shorter holding periods than either discretionary or mean reverting strategies. Although some strategies seek to employ counter trend models, strategies benefit most from an environment characterized by persistent, discernable trending behavior. Systematic: Diversified strategies typically would expect to have no greater than 35% of portfolio in either dedicated currency or commodity exposures over a given market cycle.

HFRI Relative Value Index: Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Managers employ a variety of fundamental and quantitative techniques to establish investment theses, and security types range broadly across equity, fixed income, derivative or other security types. Fixed income strategies are typically quantitatively driven to measure the existing relationship between instruments and, in some cases, identify attractive positions in which the risk adjusted spread between these instruments represents an attractive opportunity for the investment manager. RV position may be involved in corporate transactions also, but as opposed to ED exposures, the investment thesis is predicated on realization of a pricing discrepancy between related securities, as opposed to the outcome of the corporate transaction. The constituent funds of the HFRI Relative Value (Total) Index ‐ Asset Weighted are weighted according to the AUM reported by each fund for prior month.

HFRX Global Hedge Fund Index: The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies; including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage.

LPX 50 TR USD Index: The LPX50 is a global index that consists of the 50 largest liquid LPE companies covered by LPX Group.

MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,854 constituents, the index covers approximately 85% of the global equity opportunity set outside the US.

MSCI ACWI Index captures large and mid cap representation across 23 Developed Markets (DM) and 23 Emerging Markets (EM) countries. With 2,484 constituents, the index covers approximately 85% of the global investable equity opportunity set.

MSCI Austria Net Total Return USD Index: The MSCI Austria Index is designed to measure the performance of the large and mid cap segments of the Austrian market. With 5 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in Austria.

MSCI Brazil Net Total Return USD Index: The MSCI Brazil Index is designed to measure the performance of the large and mid cap segments of the Brazilian market. With 57constituents, the index covers about 85% of the Brazilian equity universe.

MSCI China Index: The MSCI China Index captures large and mid cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). With 150 constituents, the index covers about 85% of this China equity universe.




MSCI EAFE (Europe, Australasia, and Far East) Index comprises 21 MSCI country indices, representing the Developed Markets outside of North America.

MSCI Emerging Asia Net Total Return USD Index: The MSCI Emerging Markets (EM) Asia Index captures large and mid cap representation across 9 Emerging Markets countries*. With 567 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in each country.

MSCI Emerging Latin America Net Total Return USD Index: The MSCI EM Latin America Index is a free float‐adjusted market capitalisation weighted index that is designed to measure the equity market performance of emerging markets in Latin America.

MSCI Emerging Markets Index captures large and mid cap representation across 23 Emerging Markets (EM) countries. With 832 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in each country. EM countries include: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

MSCI Europe non‐U.K. Index is a free float‐adjusted market capitalization index designed to measure Developed Market equity performance in Europe. As of July 2009, the index consisted of 15 Developed Market country indexes: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland.

MSCI Japan Index is designed to measure the performance of the large and mid cap segments of the Japanese market. With 319 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in Japan.

MSCI Pacific ex Japan Index captures large and mid cap representation across 4 of 5 Developed Markets (DM) countries in the Pacific region (excluding Japan). With 150 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in each country.

MSCI Portugal Net Total Return USD Index: The MSCI Portugal Index is designed to measure the performance of the large and mid cap segments of the Portuguese market. With 3 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in Portugal.

MSCI USA Defensive Sectors Index is based on MSCI USA Index, its parent index and captures large and mid‐cap segments of the US market. The index is designed to reflect the performance of the opportunity set of global defensive companies across various GICS® sectors. All constituent securities from Consumer Staples, Energy, Healthcare, Telecommunication Services and Utilities are included in the Index.

MSCI USA Index is designed to measure the performance of the large and mid cap segments of the US market. With 630 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in the U.S.

MSCI USA Momentum Index is based on MSCI USA Index, its parent index, which captures large and mid cap stocks of the US market. It is designed to reflect the performance of an equity momentum strategy by emphasizing stocks with high price momentum, while maintaining reasonably high trading liquidity, investment capacity and moderate index turnover.

MSCI USA Quality Index is based on the MSCI USA Index, its parent index, which includes large and mid cap stocks in the US equity market. The index aims to capture the performance of quality growth stocks by identifying stocks with high quality scores based on three main fundamental variables: high return on equity, stable year‐over‐year earnings growth and low financial leverage.

MSCI USA Size Index: Based on MSCI USA Index, its parent index, which captures large and mid cap stocks of the US market. It aims to reflect the performance of a low size strategy with relatively high investment capacity.

MSCI World ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries ‐‐ excluding the United States. With 1,022 constituents, the index covers approximately 85% of the free float‐adjusted market capitalization in each country.




MSCI World Value Index captures large and mid cap securities exhibiting overall value style characteristics across 23 Developed Markets (DM) countries. The value investment style characteristics for index construction are defined using three variables: book value to price, 12‐month forward earnings to price and dividend yield.

NASDAQ Composite Index: A broad‐based capitalization‐weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

National Financial Conditions Index (NFCI) provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets and the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than on average, while negative values indicate financial conditions that are looser than on average.

NCREIF Farmland: The NCREIF Farmland Index is a quarterly time series composite return measure of investment performance of a large pool of individual farmland properties acquired in the private market for investment purposes only.

NCREIF Property Index: The objective of the NPI is to provide a historical measurement of property‐level returns to increase the understanding of, and lend credibility to, real estate as an institutional investment asset class.

NCREIF Timberland: The NCREIF Timberland Index is a quarterly time series composite return measure of investment performance of a large pool of individual timber properties acquired in the private market for investment purposes only.

NFIB U.S. Small‐Business Optimism Index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Nikkei‐225 Stock Average is a price‐weighted average of 225 top‐rated Japanese companies listed in the First Section of the Tokyo Stock Exchange.

Philadelphia Federal Index: A regional federal‐reserve‐bank index measuring changes in business growth. The index is constructed from a survey of participants who voluntarily answer questions regarding the direction of change in their overall business activities. The survey is a measure of regional manufacturing growth. When the index is above 0 it indicates factory‐sector growth, and when below 0 indicates contraction.

Russell 2000 Index®measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

Russell 3000 Growth Indexmeasures the performance of those Russell 3000 Index companies with higher price‐to‐book ratios and higher forecasted growth values.

Russell 3000 Index is composed of 3000 large U.S. companies, as determined by market capitalization.

Russell 3000 Value Indexmeasures the performance of those Russell 3000 Index companies with lower price‐to‐book ratios and lower forecasted growth values.

S&P 400 Mid Cap Index is representative of 400 stocks in the mid‐range sector of the domestic stock market, representing all major industries.

S&P 500 Buyback Index measures the performance of the top 100 stocks with the highest buyback ratio (cash paid for common shares buyback in the last four calendar quarters divided by the total market capitalization of common shares) in the S&P 500.

S&P 500 Cyclicals ex‐financials is designed to reflect the performance of the opportunity set of U.S. cyclical companies across various GICS® sectors. All constituent securities from Consumer Discretionary, Industrials, Information Technology and Materials are included in the index.

S&P 500 Defensives is designed to reflect the performance of the opportunity set of U.S. cyclical companies across various GICS® sectors. All constituent securities from Consumer Staples, Energy, Healthcare, Telecommunication Services and Utilities are included in the index.




S&P 500 Dividend Aristocrats index is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years.

S&P 500 Financials Index comprises of those companies included in the S&P 500 that are classified as members of the GICS® financials sector.

S&P 500 High Dividend Index serves as a benchmark for income seeking equity investors. The index is designed to measure the performance of 80 high yield companies within the S&P 500 and is equally weighted to best represent the performance of this group, regardless of constituent size.

S&P 500 Index, widely regarded as the best single gauge of the U.S. equities market, includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the 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.

S&P 500 Information Technology Index comprises those companies included in the S&P 500 that are classified as members of the GICS® information technology sector.

S&P 500 Low Volatility Indexmeasures performance of the 100 least volatile stocks in the S&P 500. The index benchmarks low volatility or low variance strategies for the U.S. stock market. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights.

S&P 500 Total Return Index. Calculated intraday by S&P based on the price changes and reinvested dividends of the S&P 500 Index with a starting date of Jan 4, 1988.

Ten‐Year Treasury relates the yield on a security to its time to maturity and is based on the closing market bid yields on actively traded Treasury securities in the over‐the‐counter market.

Tokyo Stock Exchange Tokyo Price Index (TOPIX) is a capitalization‐weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors.

TOPIX‐Banks Index is a capitalization‐weighted index of all the banks listed on the First Section of the Tokyo Stock Exchange and is one of the 33 industry sectors of the TOPIX Index (TPX).

U.S. 5yr 5yr Forward Breakeven: Yields are yield to maturity and pre‐tax. The rates are comprised of Generic United States Breakeven forward rates: nominal forward 5 years minus US inflation‐linked bonds forward 5 years.

University of Michigan Consumer Sentiment Index: Surveys of Consumers collects data on consumer attitudes and expectations summarized in the Consumer Sentiment, in order to determine the changes in consumers' willingness to buy and to predict their subsequent discretionary expenditures.

US Trade Weighted Real Broad Dollar: An effective exchange rate (also known as a trade‐weighted exchange rate) is a weighted average of the individual exchange rates of a particular country with its main trading partners.

VIX Index: The Chicago Board Options Exchange Standard and Poor’s Volatility Index, reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes.

WTI crude oil reflects the Bloomberg West Texas Intermediate Crushing Crude Oil Spot Price. The price is derived by adding spot market spreads to the NYMEX contract. Units are in U.S. dollars per barrel and is traded intraday.




Reference to indices, or other measures of relative market performance over a specified period of time (each, an “index”) are provided for illustrative purposes only, do not represent a benchmark or proxy for the return or volatility of any particular product, portfolio, security holding, or AI. Indices are unmanaged. The figures for the index reflect the reinvestment of dividends but do not reflect the deduction of any fees or expenses which would reduce returns. We strongly recommend that these factors be taken into consideration before an investment decision is made. Neither Merrill Lynch nor the index sponsor can verify the validity or accuracy of the self reported returns of the managers used to calculate the index returns. Merrill Lynch does not guarantee the accuracy of the index returns and does not recommend any investment or other decision based on the results presented. The indices referred in the presentation do not reflect the performance of any account or fund managed by Merrill Lynch or its affiliates, or of any other specific fund or account, and do not reflect the deduction of any management or performance fees or expenses. The hedge fund universe from which the components of the indices are selected is based on funds which have continued to report results for a minimum period of time. This prerequisite for fund selection interjects a significant element of “survivor bias” into the reported levels of the indices, as generally only successful funds will continue to report for the required period, so that the funds from which the statistical analysis or the performance of the indices to date is derived necessarily tend to have been successful. There can, however, be no assurance that such funds will continue to be successful in the future. Indices are unmanaged and results shown are not reduced by taxes or transaction costs such as fees. It is not possible to invest directly in an Index.

Alternative Investments are speculative and subject to a high degree of risk. Although risk management policies and procedures can be effective in reducing or mitigating the effects of certain risks, no risk management policy can completely eliminate the possibility of sudden and severe losses, illiquidity and the occurrence of other material adverse effects. Some or all alternative investment programs may not be suitable for certain investors. Many alternative investment products, specifically private equity and most hedge funds, require purchasers to be “qualified purchasers” within the meaning of the federal securities laws (generally, individuals who own at least $5 million in “investments” and institutional investors who own at least $25 million in “investments,” as such term is defined in the federal securities laws). No assurance can be given that any alternative investment’s investment objectives will be achieved. In addition to certain general risks, each product will be subject to its own specific risks, including strategy and market risk.

Alternative Investments such as derivatives, hedge funds, private equity funds, and funds of funds can result in higher return potential but also higher loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before you invest in alternative investments, you should consider your overall financial situation, how much money you have to invest, your need for liquidity, and your tolerance for risk.

Investors should bear in mind that the global financial markets are subject to periods of extraordinary disruption and distress. During the financial crisis of 2008‐2009, many private investment funds incurred significant or even total losses, suspended redemptions or otherwise severely restricted investor liquidity, including increasing the notice period required for redemptions, instituting gates on the percentage of fund interests that could be redeemed in any given period and creating side‐pockets and special purpose vehicles to hold illiquid securities as they are liquidated. Other funds may take similar steps in the future to prevent forced liquidation of their portfolios into a distressed market. In addition, investment funds implementing alternative investment strategies are subject to the risk of ruin and may become illiquid under a variety of circumstances, irrespective of general market conditions.

There may be conflicts of interest relating to the alternative investment and its service providers, including Bank of America Corporation, and its affiliates, who are engaged in businesses and have clear interests other than that of managing, distributing and otherwise providing services to the alternative investment. These activities and interests include potential multiple advisory, transactional and financial and other interests in securities and instruments that may purchase or sell such securities and instruments. These are considerations of which investors in the alternative investments should be aware. Additional information relating to these conflicts is set forth in the offering materials for the alternative investment.

Disclosures



Nonfinancial assets, such as closely‐held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations, and lack of liquidity. Nonfinancial assets are not suitable for all investors. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy.

The investments discussed have varying degrees of risk. Some of the risks involved with equities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Investments in high‐yield bonds may be subject to greater market fluctuations and risk of loss of income and principal than securities in higher rated categories. Investments in foreign securities involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risk related to renting properties, such as rental defaults. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors.

The opinions expressed herein are those of the GWIM Chief Investment Office as of the date of this material and are subject to change. It is provided as general market commentary only, and it does not consider the specific investment objectives, financial situation or particular needs of any one client. It should not be considered a recommendation or solicitation to purchase or sell any security. There is no guarantee that any future event discussed herein will come to pass. When reading this commentary, you should consider that investments in securities involve risk and you could lose some or all of the amounts you have invested. The information herein was obtained from various sources, which we believe to be reliable, but we do not guarantee its accuracy or completeness. The indexes referenced herein are unmanaged and are not available for direct investment; returns assume no management, transaction or other expenses and also assume reinvestment of dividends, interest and/or capital gains. Past performance does not guarantee or indicate future results.

Merrill Lynch assumes no responsibility for any of the foregoing performance information, which has been provided by the index sponsor. Neither Merrill Lynch nor the index sponsor can verify the validity or accuracy of the self‐reported returns of the managers used to calculate the index returns. Merrill Lynch does not guarantee the accuracy of the index returns and does not recommend any investment or other decision based on the results presented.

Disclosures (continued)


CIO Chart Book - Merrill

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