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Investment Policy Notes December 16, 2015 - December 2015

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1) U.S. Investment Policy Committee Notes December 16, 2015 Economic and Stock Market Outlooks Overall Outlook Recommended Moderate Allocation Like unwrapping the holiday gift that had been repeatedly requested, the markets breathed a sigh of relief when the Fed raised the fed funds rate by 25 basis points in a unanimous vote, and accompanied the moves with a dovish statement. The dot-plot suggests four quarter-point hikes next year, according to Action Economics, while the median long-run funds rate is seen at 3.5%. Investors will closely watch the stock market's reaction to the highly anticipated rate hike over the coming days. Our expectation is that the lifting of the veil of uncertainty will pave the way for an end-of-year gain in share prices. Should this rally not materialize, the old adage popularized by The Stock Trader's Almanac will likely be chanted: "If Santa Claus should fail to call, bears may come to Broad and Wall." 15% Fo re ig n Eq u itie s 4 5 % U.S. Eq u itie s 2 5 % Bo n d s Economic Update Today, U.S. economic reports revealed a large drop of 0.6% to November industrial production, versus an expected 0.1% decline, with hits from the "El Nino" influenced winter and an associated utility sector drop, and a now-routine plunge in the mining sector. In addition, capacity utilization rose to 77.0% versus the 77.4% estimate. On net, these reports were disappointing, as industrial production growth has slowed to an estimated 1.3% rate in 2015, and is expected to advance just 1% or less in 2016 despite our much higher GDP estimates in both years. Offsetting this disappointing data, housing starts surged 10.5% in November to a 1.173 million units, versus the expected 1.133M pace. In addition, the jump in starts was accompanied by a larger 11.0% pop in building permits, as mild weather proved to be more helpful for housing. Fundamental Update Buybacks continue to impact the index weights: S&P Dow Jones Indices recently reminded us that the S&P 500 share rebalancing will occur at the close of trading on December 18, 2015, based on the December 11, closing values. On 12/18, 188 issues will increase their index share counts (down from 194 in Q3, 2015 and 206 in Q4, 2014). At the same time, 288 will decrease their share counts (288 also decreased counts in Q3,'15, while 270 did so in Q4,'14). The actual S&P 500 share count will decline by 0.47% (it decreased 1.01% in Q3,'15), as none of the 10 sectors added shares. The consumer discretionary sector will see the smallest reduction in share count at -0.016%, while Materials will experience the greatest reduction in count at -0.864%. The actual S&P 500 market value will decrease by -0.50%, versus the addition of 0.24% in Q3,'15). 1 5 % Ca s h S&P 500 EPS changes as of 12/16/15 EPS Growth % S&P 500 Sector Q3 2015 Q4 2015e Technical Update Targets The S&P 500 index declined to test 1990 before rotating back to the upside. While above 1990, the bias remains rotational with resistance beginning at 2077-2092. A breach of 1990 would suggest further decline to lower support at 1937-1963. The index must surmount 2115 to shift into a bullish position. The Russell 2000 has breached critical support at 1135, which is a negative for stocks as a whole and shifted the bias in this index to bearish. The zone at 1149-1166 is now resistance on any rally attempt. While below this zone, the next downside target is a retest of the October lows at 1078. Separately, the 10-year yield remains below resistance at 2.407 and above support at 1.91-1.975. The bias is rotational while between these zones. Further rotational price action is expected until one of these levels is exceeded. 12-Month S&P 500:2250 S&P 500 EPS '15E:$117.00, 16E:$126.19 S&P 500 Revenues '15E:-2.1%, 16E:+5.4% S&P Euro 350 EPS '15E:+7.1%, 16E:+6.5% Real GDP Growth 2015E:2.5%, 16E:2.7% Core CPI 2015E:1.8%, 16E:1.9% Fed Funds Rate 2015E:0.1%, 16E:0.8% 10-Year T-Note 2015E:2.2%, 16E:2.7% WTI/bbl. Avg. '15E:$50.24, 16E:$53.23 S&P 500 GICS Sector Performance and Recommended Sector Weightings 12/15/2015 Dec YTD 2014 P/E on '16e EPS '16e P/E to Proj. 5-Yr. EPS Grth. (2.5) 1.5 (7.8) (2.0) 0.7 (3.2) (1.5) (4.7) 0.0 (1.3) 8.9 2.7 (21.7) (3.1) 4.3 (5.7) 5.1 (10.6) (3.4) (11.2) 8.0 12.9 (10.0) 13.1 23.3 7.5 18.2 4.7 (1.9) 24.3 18.2 19.6 27.1 13.4 15.8 15.3 16.0 15.0 12.1 15.0 0.9 2.4 (13.0) 1.4 1.4 1.4 1.2 1.4 2.0 2.9 (1.1) (0.8) (3.9) (3.4) 10.9 11.4 8.2 4.4 % Change S&P 500 Sector Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunication Services Utilities S&P Composite 1500 S&P 500 S&P MidCap 400 S&P SmallCap 600 2015e 2016e Consumer Disc. 16.4 7.6 9.7 14.8 Consumer Staples (1.5) (3.9) 0.0 6.6 Energy (58.6) (66.8) (59.6) (4.2) Financials 1.2 2.4 8.9 8.7 Health Care 15.1 5.8 13.5 9.3 Industrials 5.3 0.4 3.8 4.9 Info. Technology 5.2 (4.6) 3.4 8.6 Materials (14.6) (21.6) (4.8) 13.2 Telecom. Services 14.6 18.1 12.0 1.9 Utilities 1.6 (0.9) 2.5 3.1 S&P 500 (1.4) (4.8) (0.6) 8.0 Source: S&P Capital IQ (2.1) (1.8) (4.5) (5.0) 16.3 16.2 17.5 18.3 1.4 1.4 1.5 1.3 Sector % Weightings 13.0 9.9 6.6 16.5 15.0 10.0 21.0 2.8 2.4 2.9 S&P Sector Emphasis Overweight Marketweight Underweight Marketweight Overweight Marketweight Marketweight Underweight Overweight Underweight Over/Under Weight 0.4 0.0 -0.8 0.0 0.4 0.0 0.0 -0.3 0.5 -0.2 Sector recommendations are market-cap weighted, influenced by economic,fundamental and technical considerations Technical commentary contributed by i10 Research. Please read the Required Disclosures from page 2 onwards of this report. 1

2) Glossary STARS Ranking system and definition: ★★★★★ 5-STARS (Strong Buy): Total return is expected to outperform the total return of a relevant benchmark, by a wide margin over the coming 12 months, with shares rising in price on an absolute basis. ★★★★☆ 4-STARS (Buy): Total return is expected to outperform the total return of a relevant benchmark over the coming 12 months, with shares rising in price on an absolute basis. ★★★☆☆ 3-STARS (Hold): Total return is expected to closely approximate the total return of a relevant benchmark over the coming 12 months, with shares generally rising in price on an absolute basis. ★★☆☆☆ 2-STARS (Sell): Total return is expected to underperform the total return of a relevant benchmark over the coming 12 months, and the share price not anticipated to show a gain. ★☆☆☆☆ 1-STAR (Strong Sell): Total return is expected to underperform the total return of a relevant benchmark by a wide margin over the coming 12 months, with shares falling in price on an absolute basis. S&P Capital Ranking Definitions: Overweight rankings are assigned to approximately the top quartile of the asset class. Marketweight rankings are assigned to approximately the second and third quartiles of the asset class. Underweight rankings are assigned to approximately the bottom quartile of the asset class. S&P Capital IQ Quality Ranking Growth and stability of earnings and dividends are deemed key elements in establishing S&P Capital IQ's earnings and dividend rankings for common stocks, which are designed to capsulize the nature of this record in a single symbol. It should be noted, however, that the process also takes into consideration certain adjustments and modifications deemed desirable in establishing such rankings. The final score for each stock is measured against a scoring matrix determined by analysis of the scores of a large and representative sample of stocks. The range of scores in the array of this sample has been aligned with the following ladder of ranking. A+ Highest A High A- Above Average B+ Average B Below Average B- Lower C Lowest D In Reorganization Required Disclosures Global Markets Intelligence (“GMI”) is a business unit of S&P Capital IQ. Standard & Poor’s Investment Advisory Services LLC (“SPIAS”) and McGraw-Hill Financial Research Europe Limited (“MHFRE”) (collectively, “GMI Investment Advisory Services” or “GMI IAS”), each a wholly owned subsidiary of McGraw Hill Financial, Inc., operate under the GMI brand. GMI IAS provides non-discretionary advisory services to institutional clients and does not provide advice to underlying clients of the firms to which it provides advisory services. In the United States, advisory services are offered by SPIAS, which is authorized and regulated by the U.S. Securities and Exchange Commission. SPIAS does not act as a "fiduciary" or as an "investment manager", as defined under Employee Retirement Income Security Act (ERISA), to any investor. 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