Investment Manager Update from Wilshire Associates Active Diversified Portfolios

Transcription

1 Investment Manager Update from Wilshire Associates Active Diversified Portfolios As of March 31, 2017 Wilshire Associates ("Wilshire") is the investment manager for Active Diversified Portfolios. Wilshire is responsible for all strategy and investment decisions for the Portfolios. Wilshire is not affiliated with Ameriprise Financial. See fact sheet for additional details about the portfolio. Executive Summary The domestic stock market posted solid gains during the first quarter behind strong economic releases. Foreign equity markets, in both developed and emerging markets, also produced strong returns. A weakening U.S. dollar also added value to domestic investors holding foreign securities. The Federal Reserve (Fed) increased interest rates by 0.25% at their March meeting. The 10- year U.S. treasury yield ended the quarter at 2.40%, modestly lower from the end of In the first quarter, all 28 of the 28 Active Diversified Portfolios posted positive absolute returns. Portfolios with higher equity allocations performed better as both U.S. and non-u.s. equities outpaced fixed income. During the quarter, benchmark relative performance was primarily positive. Relative outperformance was the result of an overweight to domestic large cap equities relative to small cap equities. Additionally, exposure to growth-oriented stocks helped performance while exposure to developed and emerging markets also added value. The alternatives sleeve added overall value but underperformed U.S. and non-u.s. equities. As the investment manager (as of February 2, 2017), Wilshire Associates made the following underlying fund changes in the first quarter that aligned with changes in our research opinions and our efforts to enhance performance and manage risk. Material changes included: Addition of ishares MSCI Europe, Australasia and Far East Value Exchange Traded Fund (EFV) as a new allocation across the more aggressive Funds and Alternatives portfolios, both tax-neutral and taxsensitive. Addition of ishares International Select Dividend Exchange Traded Fund (IDV) as a new allocation across all of the yield portfolios. All changes are covered below in Summary of Portfolio Changes. Market Environment The U.S. stock market, represented by the Russell 3000 Index, was up 5.74% for the first quarter of The market has been trending upward, generally, for more than a year now, including six straight quarterly gains. Economic releases during the quarter were strong and markets took comfort in both the Fed s 0.25% increase in the overnight rate and its accompanying statement. Despite accelerating price increases, the Fed s forecast for the fed funds rate at year-end 2017 changed a little from their December meeting. Large capitalization stocks outperformed smaller shares with the Russell 1000 Index up 6.03% versus a gain on 2.47% for the Russell 2000 Index. However, small cap performed better for the one-year period although both segments have been quite strong. The Russell Midcap Index returned 5.15% for the quarter and 17.03% for the past twelve months. Growth stocks led value during the first quarter in both large and small cap spaces; and led for the past year as well. Sector performance was varied during the quarter. Equity markets outside of the U.S. produced very strong returns during the first quarter of 2017, in both developed and emerging markets. The U.S. dollar weakened during the quarter, providing an additional boost for U.S. investors holding foreign currencies. Economic releases out of Europe suggest an improving economy, that includes the manufacturing industry along with consumer sentiment. Pacific-region equities

2 received a boost from countries such as Hong Kong and Singapore whereas the Japanese market was flat in local currency terms. Corporate earnings in these countries have been improving generally, and are expected to move higher going forward. Real estate securities were up slightly in the U.S. during the first quarter, with a much stronger return globally. Commodities were down for the quarter as crude oil fell - 5.8% to $50.60 per barrel; although oil is still up for the past six months. Natural gas prices were down, as well, with a loss of -14.3%, ending the quarter at $3.19 per million British Thermal Units (BTUs). Master Limited Partnerships (MLPs) returns were positive for the quarter despite the pullback in oil and natural gas prices. Finally, gold prices were up and finished at approximately $1,251 per troy ounce, up +8.6% from last quarter. The U.S. treasury yield curve did not shift much during the quarter but did flatten with the six-month yield up 0.29% and the ten-year down 0.05%. The 10-year treasury yield ended the quarter at 2.40%, down slightly but much higher than a year ago (1.78%). The Federal Open Market Committee (FOMC) decided to increase their overnight rate by 0.25% at their March meeting, their third increase since Credit spreads continued lower during the quarter in both investment grade and high yield bonds. Performance Review Absolute Performance Summary: In terms of absolute performance, the Active Diversified Funds Portfolios ranged from 2.27% gross of fees and 1.76% net of fees (Conservative Tax Neutral) to 6.17% gross of fees and 5.64% net of fees (All Equity Tax Neutral). Absolute performance within the Active Diversified Alternatives Portfolios ranged from 2.11% gross of fees and 1.61% net of fees (Conservative Tax Neutral) to 5.72% gross of fees and 5.20% net of fees (All Equity Tax Sensitive). Absolute performance within the Active Diversified Yield Portfolios ranged from 2.99% gross of fees and 2.48% net of fees (Yield Enhanced) to 4.49% gross of fees and -3.97% net of fees (Moderate Aggressive). For the quarter, the Active Diversified Funds Portfolios outperformed their Active Diversified Alternatives Portfolios counterparts. The Active Diversified Yield Portfolios underperformed both the Funds and Alternatives counterparts as high dividendfocused value-oriented stocks trailed their growth counterparts. Benchmark Relative Performance Summary: Relative performance was primarily aided by manager selection with additional value coming from select asset allocation decisions. An underweight to equities relative to fixed income held back performance this quarter. However, within U.S. equities an overweight to large cap equities relative to small cap equities aided performance. An underweight to non-u.s. equities relative to the blended benchmark weighed on relative returns while an overweight to emerging markets relative to developed international markets helped. An overweight to alternatives relative to equities hurt with the Wilshire Liquid Alternatives Index as stated above. Relative Performance Contributors: Exposure to domestic large cap growth equities added value during the first quarter. The Russell 1000 Growth Index outpaced the Russell 1000 Value Index and the Russell 3000 Index by 5.04% and 3.17%, respectively. An overweight in domestic large cap equities added value as well. The Russell 1000 Index outpaced both the Russell 2000 Index and the Russell 3000 Index by 3.56% and 0.29%, respectively. Exposure to emerging markets equities also helped this quarter. The MSCI Emerging Markets Index outperformed the MSCI All Country World ex U.S. Index by 3.58%. Within fixed income, exposure to municipal bonds and preferred stocks aided relative performance. The Barclays Municipal Bond 1-15 Year Blend Index outpaced the Barclays U.S. Universal Bond Index by 0.46%. Relative Performance Detractors: From an asset allocation perspective, an underweight to U.S. equities and an overweight to fixed income negatively impacted relative performance. Exposure to domestic large cap value equities also hindered returns. For the quarter, the Russell 1000 Value Index trailed the Russell 1000 Growth Index and the Russell 3000 Index by -564 and -247 basis points, respectively. Exposure to domestic mid cap value equities also hurt with the Russell Midcap Value Index trailing the Russell 3000 Index by -1.98%. Exposure to domestic small cap

3 equities also detracted as the Russell 2000 Index trailed the Russell 1000 Index by -3.56% and trailed the Russell 3000 Index by -3.27%. Exposure to equity alternatives hampered relative performance as well. For the quarter, the Wilshire Liquid Alternatives Index trailed the Russell 3000 Index by -4.35%. Performance Impact from Prior Quarter s Reallocation (mid-jan. 2017): Within the Active Diversified Funds and Alternatives portfolios, increasing the allocation to core bonds in the more conservative portfolios while decreasing the allocation to municipal bonds and non-traditional bonds detracted. A slight decrease to the international value equities sourced from international growth equities that further diminished relative performance. Within the Active Diversified Yield Portfolios, a reduction in the preferred stocks allocation hurt performance and an increase to domestic large cap equities softened some of those losses. Manager changes this quarter included the addition of ishares MSCI EAFE Value ETF within the Funds and Alternatives Portfolios and the addition of ishares International Select Dividend ETF within the Active Diversified Yield Portfolios. Summary of Portfolio Changes This quarter, Wilshire made several changes to the portfolios to further improve the investment efficacy. ishares MSCI EAFE Value ETF (EFV) Wilshire added the ishares MSCI EAFE Value ETF (EFV) as a new allocation across the more aggressive portfolios (with and without Alternatives). Specifically, we were seeking to reduce basis risk vs. the developed market portion of the benchmark, the MSCI Europe, Australasia, Far East Index (MSCI EAFE index). The largest sector allocation within the MSCI EAFE Index is the Financial Services sector, with an allocation of about 21%. Our two active developed foreign equity funds, MFS International Value Fund (MGIAX) and Oppenheimer International Growth Fund (OIGAX) have 12% and 5% respectively; allocated to the Financial Services sector. EFV has a robust 36% allocated to Financial Services and thus a mix of MGIAX, OIGAX and EFV helps to reduce this sector underweight. ishares International Select Dividend ETF (IDV) Wilshire added the ishares International Select Dividend ETF (IDV) as a new allocation across all of the Yield Models in order to further enhance portfolio yield and reduce the reliance (from a yield perspective) on the ishares U.S. Preferred Stock (PFF) ETF. IDV tracks a dividend-weighted index of 100 of the highest-yielding securities in developed countries outside of the U.S. IDV uses a tiered weighting system that weights countries based on their dividend yields and the securities within each country by their indicated annual dividends. This results in significant sector and country tilts as well as a tilt towards mid- and small-cap equities, but IDV is still highly correlated (0.96 since inception) to the MSCI EAFE index and delivers a similar beta (measure of the volatility, or systematic risk, or a security or a portfolio in comparison to the market as a whole) which is 1.11 since inception. This helps reduce the basis risk of using the ETF in lieu of active mutual funds. The yield is similar to PFF, but tracks much closer to beta(s) that exist within the blended benchmark of the Yield portfolios. The expenses are similar between IDV (0.50%) and PFF (0.47%), so there will be little impact on the Yield portfolios from a fee perspective. Asset Allocation and Fund-Specific Changes Since the last Ameriprise Active Diversified Portfolios rebalance, the views of the Wilshire Funds Management Investment Strategy Committee ( ISC ) remained unchanged across most asset classes, sectors and geographic locales. The ISC only changed two of its views, neither of which materially impact the Active Diversified Portfolios models. The ISC moved to overweight emerging markets equities relative to developed, non-u.s. equities. The continuing stability of commodities is beneficial for emerging markets countries as are improving fundamentals and attractive valuations. After nearly two years of being underweight in commodities relative to global equities. The ISC believes that while the systematic downdraft in commodities is dissipating, global growth is needed for a strong recovery in commodities. The ISC does not necessarily believe that global growth will accelerate, but energy commodities appear to have troughed and precious metals tend to hold up well during times of market stress.

4 As a recap, the ISC is underweight growth equities versus value equities. On a valuation basis, growth is more attractive than value, but we believe that value may hold up better during periods of market uncertainty. The ISC also maintains an overweight view regarding domestic large cap equities relative to small cap in order to reduce exposure to higher beta. Although large caps are more richly valued relative to small caps, we previously moved to an overweight in this segment of the market primarily to facilitate a more defensive posture. 3% increase within the Moderate Aggressive Portfolio. A 2% decrease to the MFS International Value Fund within the Moderate Aggressive, Aggressive and All Equity Portfolios. A 2% decrease to the Oppenheimer International Growth within the Aggressive and All Equity Portfolios and a 1% decrease within the Moderate Aggressive Portfolio. Within fixed income, the ISC remains overweight credit relative to government issues, due to our belief that credit provides a superior risk-adjusted return opportunity, with government yields remaining near historic lows and corporate balance sheets relatively healthy. We remain underweight non-u.s. fixed income relative to domestic issues, due to the extremely low yields offered in developed, non-u.s. markets, coupled with potential currency headwinds, relative to similar quality domestic fixed income issues. U.S. Equities There were no changes within the U.S. equities sleeve of the Active Diversified Funds or Alternatives Portfolios this quarter. Within the Active Diversified Yield Portfolios, Wilshire made the following changes: Within the Active Diversified Alternatives Portfolios, Wilshire made the following changes: A 4% increase to the ishares MSCI EAFE Value ETF within the All Equity Portfolio and a 3% increase within the Moderate Aggressive and Aggressive Portfolios. A 2% decrease to the MFS International Value Fund within the Moderate Aggressive, Aggressive and All Equity Portfolios. A 2% decrease to the Oppenheimer International Growth within the All Equity Portfolio and a 1% decrease within the Moderate Aggressive and Aggressive Portfolios. Within the Active Diversified Yield Portfolios, Wilshire made the following changes: A 3% increase to the Nuveen Santa Barbara Dividend Growth Fund within the Moderate Conservative Portfolio and a 2% increase within the Moderate and Moderate Aggressive Portfolios. A 3% increase to the Columbia Dividend Income Fund within the Moderate Aggressive Portfolio and a 2% increase within the Yield Enhanced Portfolio. A 2% increase to the MFS Growth Fund within the Moderate Portfolio. A 7% increase to the ishares International Select Dividend ETF within the Moderate and Moderate Aggressive Portfolios and a 6% increase within the Moderate Conservative and Yield Enhanced Portfolios. A 5% decrease to the MainStay Epoch Global Equity Yield Fund within the Moderate Conservative and Moderate Portfolios, a 2% decrease within the Moderate Aggressive Portfolio and a 1% decrease within the Yield Enhanced Portfolio. A 2% increase to the Federated Strategic Value Dividend Fund within the Moderate Portfolio. Non-U.S. Equities Within the Active Diversified Funds Portfolios, Wilshire made the following changes: A 3% decrease to the MFS Research International Fund within the Moderate and Moderate Aggressive Portfolios Portfolio and a 1% decrease within the Yield Enhanced Portfolio. Fixed Income A 4% increase to the ishares MSCI EAFE Value ETF within the Aggressive and All Equity Portfolios and a Within the Active Diversified Funds Tax-Neutral Portfolios, Wilshire made the following changes:

5 A 2% increase to the Multi-Manager Total Return Bond Strategies Fund within the Conservative, Moderate Conservative, Moderate and Moderate Aggressive Portfolios. A 2% decrease to the BlackRock Strategic Income Opportunities Fund within the Conservative, Moderate Conservative, Moderate and Moderate Aggressive Portfolios. Within the Active Diversified Funds Tax-Sensitive Portfolios, Wilshire made the following changes: A 12% increase to the Multi-Manager Total Return Bond Strategies Fund within the Moderate Conservative Portfolio, a 9% increase within the Conservative Portfolio and a 6% increase within the Moderate and Moderate Aggressive Portfolios. Opportunities Fund within the Conservative and a 1% decrease within the Moderate Conservative Portfolio. Within the Active Diversified Alternatives Tax-Sensitive Portfolios, Wilshire made the following changes: A 5% increase to the Multi-Manager Total Return Bond Strategies Fund within the Moderate Conservative Portfolio and a 4% increase within the Conservative Portfolio. A 1% increase to the Nuveen Intermediate Duration Municipal Bond Fund within the Moderate Portfolio. A 1% increase to the Wells Fargo Advantage Short- Term Municipal Bond Fund within the Moderate Portfolio. A 5% decrease to the BlackRock Strategic Income Opportunities Fund within the Moderate Conservative Portfolio, a 4% decrease within the Moderate Aggressive Portfolio, a 3% decrease within the Conservative Portfolio and a 2% decrease within the Moderate Portfolio. A 4% decrease to the Western Asset Intermediate- Term Municipal Bond Fund within the Conservative Portfolio, a 3% decrease within the Moderate Conservative Portfolio and a 1% decrease within the Moderate Aggressive Portfolio. A 1% increase to the Western Asset Intermediate- Term Municipal Bond Fund within the Moderate Portfolio, a 3% decrease within the Conservative Portfolio and a 2% decrease within the Moderate Conservative Portfolio. A 3% decrease to the BlackRock Strategic Income Opportunities Fund within the Moderate Conservative and Moderate Portfolios and a 1% decrease within the Conservative Portfolio. Within the Active Diversified Yield Portfolios, Wilshire made the following changes: A 3% decrease to the Nuveen Intermediate Duration Municipal Bond Fund within the Moderate Portfolio, a 2% decrease within the Moderate Conservative Portfolio and a 1% decrease within the Conservative and Moderate Aggressive Portfolios. A 2% decrease to the MFS Municipal High-Income Fund within the Moderate Conservative Portfolio and a 1% decrease within the Conservative and Moderate Portfolios. Within the Active Diversified Alternatives Tax-Neutral Portfolios, Wilshire made the following changes: A 8% decrease to the ishares U.S. Preferred Stock ETF within the Yield Enhanced Portfolio, a 7% decrease within the Moderate Aggressive Portfolio, a 5% decrease within the Moderate Portfolio and a 3% decrease within the Moderate Conservative Portfolio. Alternatives There were no changes within the alternatives sleeve of the Active Diversified Funds or Alternatives Portfolios this quarter. A 2% increase to the Multi-Manager Total Return Bond Strategies Fund within the Conservative Portfolio and a 1% increase within the Moderate Conservative Portfolio. A 2% decrease to the BlackRock Strategic Income Outlook Wilshire s high level market outlook remains mostly unchanged, with volatility expected to remain elevated,

6 global equities trending upwards and interest rates are likely to increase slightly. The global economy continues to expand, but it will not be a smooth ride for some countries and sectors as increased inflation can add volatility in the market place. We expect liquid hedge funds to perform better due to the uptick in market uncertainty. Our Macro outlook includes the following opinions: 1. Although we expect the Fed to raise rates slowly, we are concerned that a bear flattener, a yield-rate environment where short-term rates are rising faster than long-term interest rates, will lead the market to disproportionately increase the yields on the shorter end of the yield curve. Overall, we have maintained a neutral view regarding duration, but we remain wary of short-term fixed income and we recommend an allocation to non-core fixed income funds that are positioned to weather an increase in rates better than the Barclays U.S. Universal Bond Index. 2. We have implemented a tilt towards Large Cap relative to Small Cap names. Although large caps are more richly valued relative to small caps, we have moved to an overweight in this segment of the market primarily to facilitate more defensive posture, as large caps tend to exhibit higher equity beta, or move more correlated with the equity market, relative to small caps. Furthermore, large cap earnings have been hurt by the strength of the U.S. dollar, which has subsided more recently, providing more support to overweight this segment of the market. as a result. Equity income (which tends to be comprised of value names) is relatively more attractive as the prospects for sharp interest rate increases have fallen. In addition, the momentum factors that helped drive the performance of many growth names appears to have dissipated and may act as a headwind to performance. 4. Economies outside of the U.S. continue to slowly heal and while there remains a need for continued, structural reforms in both Europe and Japan, we believe that those markets will continue to gain momentum and have become an attractive area for investment, though the stimulus necessary to jumpstart the Eurozone could lead to further depreciation of the euro, relative to the U.S. dollar, but a stimulus-driven rally may lead foreign equities to outperform U.S. equities. 5. Non-U.S. bonds valuations are concerning. At current levels, foreign investment grade and government fixed income fails to provide adequate yields relative to the risk. As spreads worldwide appear to be sentiment driven at the moment, non- U.S. bonds would likely be more negatively impacted than U.S. counterparts during times of heightened market tension. 3. We continue to believe that we are in the early stages of a more pronounced repricing of growth securities and remain underweight growth vs. value

7 Active Diversified Funds Portfolios Composite Performance (as of 3/31/2017) Active Diversified Funds Tax - Sensitive Portfolios Composite Performance (as of 3/31/2017) Past performance is not a guarantee of future results.

8 Active Diversified Alternatives Portfolios Composite Performance (as of 3/31/2017) Active Diversified Alternatives Tax - Sensitive Portfolios Composite Performance (as of 03/31/2017) Past performance is not a guarantee of future results

9 Active Diversified Yield Portfolios Composite Performance (as of 3/31/2017) Past performance is not a guarantee of future results. Disclosures Wilshire Associates ("Wilshire") is the investment manager for Active Diversified Portfolios. Wilshire is responsible for all strategy and investment decisions for the Portfolios. Wilshire Funds Management, a business unit of Wilshire Associates Incorporated, uses mathematical, statistical and qualitative investment processes to allocate assets, select managers and construct portfolios and funds in ways that seek to outperform their specific benchmarks. Wilshire is not affiliated with Ameriprise Financial. Wilshire is a registered service mark of Wilshire Associates Incorporated, Santa Monica, California. All other trade names, trademarks, and/or service marks are the property of their respective holders. Wilshire makes no warranties, expressed or implied, as to results to be obtained from use of information provided by Wilshire and used in this service. This material may include estimates, projections and other "forward-looking statements." Due to numerous factors, actual events may differ substantially from those presented. Third-party information contained herein has been obtained from sources believed to be reliable. Wilshire gives no representations or warranties as to the accuracy of such information, and accepts no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in such information and for results obtained from its use. Any opinions expressed in this material are current only as of the time made and are subject to change without notice. Wilshire assumes no duty to update any such statements. The financial advisor is responsible for client suitability. This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. This material is intended for financial advisors only. Performance Individual account performance may vary and the actual return of a client s account will be reduced by the wrap fee and other expenses that will be incurred by that client. Current performance may be lower or higher than the performance information shown. Depending on the portfolio, the composite performance may be calculated by Ameriprise Financial Services, Inc. or the Investment Manager. Annualized performance is calculated on a trailing basis. In nearly all cases, the composites are created on an asset and time-weighted basis using month-end market values and returns. Performance reflected for the current quarter may be preliminary, that is, calculated prior to obtaining composite performance data for actual accounts within the portfolio. Preliminary performance does not reflect reinvestment of dividends or other distributions. Composite performance data utilizing actual accounts within the portfolio reflects reinvestment of any dividends and other distributions. Gross performance is calculated either before the deduction of fees and transaction costs, and in other instances before the deduction of fees but net of transaction costs. Net composite performance is calculated by deducting the highest annual program wrap fee for the applicable strategy from the gross results. It may be understated if the gross results already reflect the deduction of transaction costs.

10 Active Diversified Portfolios The performance indicated above is comprised of 1) a single account invested in the portfolio model from 1/1/08 to 3/31/09, and 2) all eligible fully discretionary accounts from 4/1/09 to present. All eligible accounts are added to the composite after one full calendar month of performance. Unless otherwise stated, the composite performance presented is shown both gross and net of Max Wrap Fee and includes the reinvestment of dividends where permitted, other distributions and applicable expenses of the underlying mutual funds. Performance reflects Max Wrap Fee of 1.5% prior to 8/1/10 and 2.0% thereafter. Returns are annualized for periods of one year or greater. Active Diversified Alternatives Portfolios The performance indicated above is comprised of 1) a single account invested in the portfolio model from 7/1/09 to 8/31/09, and 2) all eligible fully discretionary accounts from 9/01/09 to present. All eligible accounts are added to the composite after one full calendar month of performance. Unless otherwise stated, the composite performance presented is shown both gross and net of Max Wrap Fee and includes the reinvestment of dividends where permitted, other distributions and applicable expenses of the underlying mutual funds. Performance reflects Max Wrap Fee of 1.5% prior to 8/1/10 and 2.0% thereafter. Returns are annualized for periods of one year or greater. Active Diversified Yield Portfolios Composite performance as presented is comprised of 1) a single account invested in the portfolio model from 8/1/10 to 12/31/11 and, 2) all eligible fully discretionary accounts from 1/1/12 to present. All eligible accounts are added to the composite after one full calendar month of performance. Unless otherwise stated, the composite performance presented is shown both gross and net of Max Wrap Fee and other distributions and applicable expenses of the underlying mutual funds. The composite performance does not include the reinvestment of dividends, unless otherwise permitted. The Max Wrap Fee is 2.0%. Returns are annualized for periods of one year or greater. Past performance does not guarantee future returns, and processes used may not achieve the desired results. Blended Benchmarks The Blended Benchmark returns presented reflect a weighted combination of multiple indices. For the Active Diversified Portfolios, the Blended Benchmark used is selected by Ameriprise Financial Services, Inc., and corresponds to the asset allocation mix of the portfolios as reflected. Custom Blended Benchmarks for Active Diversified Funds and Yield Portfolios Barclays U.S. Universal Barclays U.S. Corporate High Yield Citigroup 3- Month Treasury Bill Portfolios Russell 3000 MSCI ACWI ex U.S. (net) MSCI U.S. REIT Active Diversified Conservative Portfolios 15% 5% 78% 0% 0% 2% Active Diversified Moderate Conservative Portfolios 26% 9% 63% 0% 0% 2% Active Diversified Moderate Portfolios 40% 13% 45% 0% 0% 2% Active Diversified Enhanced (Moderate) Portfolios 28% 0% 33% 30% 7% 2% Active Diversified Moderate Aggressive Portfolios 52% 17% 29% 0% 0% 2% Active Diversified Aggressive Portfolios 64% 21% 13% 0% 0% 2% Active Diversified All Equity Portfolios 73% 25% 0% 0% 0% 2% Custom Blended Benchmarks for Active Diversified Funds Tax-Sensitive Portfolios Barclays U.S. Universal Barclays 1-15 Year Municipal Citigroup 3- Month Treasury Bill Portfolios Russell 3000 MSCI ACWI ex U.S. (net) Active Diversified Conservative Portfolios 15% 5% 28% 50% 2% Active Diversified Moderate Conservative Portfolios 26% 9% 20% 43% 2% Active Diversified Moderate Portfolios 40% 13% 12% 33% 2% Active Diversified Moderate Aggressive Portfolios 52% 17% 8% 21% 2% Active Diversified Aggressive Portfolios 64% 21% 3% 10% 2% Active Diversified All Equity Portfolios 73% 25% 0% 0% 2%

11 Custom Blended Benchmarks for Active Diversified Alternatives Portfolios Barclays U.S. Universal Wilshire Liquid Alternatives Citigroup 3- Month Treasury Bill Portfolios Russell 3000 MSCI ACWI ex U.S. (net) Active Diversified Conservative Portfolios 11% 4% 68% 15% 2% Active Diversified Moderate Conservative Portfolios 21% 8% 51% 18% 2% Active Diversified Moderate Portfolios 34% 12% 32% 20% 2% Active Diversified Moderate Aggressive Portfolios 47% 16% 17% 18% 2% Active Diversified Aggressive Portfolios 58% 20% 5% 15% 2% Active Diversified All Equity Portfolios 64% 22% 0% 12% 2% Custom Blended Benchmarks for Active Diversified Alternatives Tax-Sensitive Portfolios Barclays U.S. Universal Wilshire Liquid Alternatives Barclays 1-15 Year Municipal Citigroup 3- Month Treasury Bill Portfolios Russell 3000 MSCI ACWI ex U.S. (net) Active Diversified Conservative Portfolios 11% 4% 18% 15% 50% 2% Active Diversified Moderate Conservative Portfolios 21% 8% 8% 18% 43% 2% Active Diversified Moderate Portfolios 34% 12% 0% 20% 32% 2% Active Diversified Moderate Aggressive Portfolios 47% 16% 0% 18% 17% 2% Active Diversified Aggressive Portfolios 58% 20% 0% 15% 5% 2% Active Diversified All Equity Portfolios 64% 22% 0% 12% 0% 2% Indexes These indices are unmanaged and not available for direct investment. Barclays U.S. Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. The U.S. Corporate High Yield Index is a component of the U.S. Universal and Global High Yield Indices. The index was created in 1986, with history backfilled to July 1, Barclays U.S. Universal Bond Index represents the union of the U.S. Aggregate Bond Index, U.S. Corporate High Yield Index, Investment Grade 144A Index, Eurodollar Index, U.S. Emerging Markets Index, and the non-erisa eligible portion of the CMBS Index. The index covers USD-denominated, taxable bonds that are rated either investment grade or high-yield. Some U.S. Universal Index constituents may be eligible for one or more of its contributing subcomponents that are not mutually exclusive. These securities are not double-counted in the index. The U.S. Universal index was created on January 1, 1999, with index history backfilled to January 1, Barclays 1-15 Year Municipal Bond Index consists of tax-exempt general obligation, revenue and private activity bonds and notes, which are issued by or on behalf of states, territories or possessions of the U.S. and the District of Columbia and their political subdivisions, agencies and instrumentalities with a remaining maturity of more than three years and less than 15 years. Citigroup 3-Month Treasury Bill Index measures the return equivalents of yield averages. It is not marked to market. The Index is an average of the last three three-month Treasury bill month-end rates. MSCI All Country World Index ex U.S. (MSCI ACWI ex U.S.) is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets excluding the United States. MSCI All Country World Index ex U.S. (net of taxes) (MSCI ACWI ex U.S. - net) is a net of taxes, free float-adjusted market capitalization weighted index that is designed to measure the equity market performance in the global developed and emerging markets excluding the United States MSCI Europe, Australasia, Far East Index (MSCI EAFE Index) is a free float adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The MSCI EAFE Index consists of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom, as of June MSCI Emerging Markets Index is a free float adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 23 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates, as of June 2016.

12 MSCI U.S. REIT Index measures the performance of the large-, mid- and small-cap segments of U.S. equity REIT securities. The index represents most of the U.S. REIT universe and securities classified in the REIT sector according to the Global Industry Classification Standard (GICS). It is a free float market capitalization weighted index. Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe representing approximately 92% of the U.S. market. The Russell 1000 is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected. The Russell 1000 includes the largest 1000 securities in the Russell Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. The Russell 1000 Value is constructed to provide a comprehensive and unbiased barometer of the large-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate large-cap value manager's opportunity set. Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. The Russell 1000 Growth is constructed to provide a comprehensive and unbiased barometer of the large-cap growth market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate large-cap growth manager's opportunity set. Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. The Russell 2000 includes the smallest 2000 securities in the Russell Russell 3000 Index is composed of 3000 large U.S. companies, as determined by market capitalization. This portfolio of securities represents approximately 98% of the investable U.S. equity market. The Russell 3000 Index is comprised of stocks within the Russell 1000 and the Russell 2000 Indices. The index was developed with a base value of as of 12/31/1986. Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. The Russell Midcap Index is constructed to provide a comprehensive and unbiased barometer for the mid-cap segment and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true mid-cap opportunity set. The Russell Midcap Index is a subset of the Russell 1000 Index. It includes approximately 800 of the smallest securities based on a combination of their market and current index membership. Russell Midcap Value Index measures the performance of the mid-cap value segment of the U.S. equity universe. The Russell Midcap Value Index is constructed to provide a comprehensive and unbiased barometer of the mid-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine value probability approximates the aggregate mid-cap value manager's opportunity set. Wilshire Liquid Alternative Index measures the collective performance of the five Wilshire Liquid Alternative strategies that make up the Wilshire Liquid Alternative Universe. Portfolio Risks The portfolios are subject to risks associated with the underlying funds including, but not limited to: market risk, credit risk, interest rate risk, foreign/emerging markets risk, sector risk and risks associated with alternative investments. See the fund prospectus for a definition of these and other specific risks associated with the underlying funds. Tax-sensitive portfolios may include tax-exempt municipal bond funds and/or equity mutual funds with lower turnover rates. Income from tax-exempt funds may be subject to state and local taxes as well as federal and/or state alternative minimum tax. Federal and state taxes will apply to any capital gain distributions and any gains or losses on sales. Like real estate, REITs are subject to illiquidity, valuation and financing complexities, taxes, default, bankruptcy and other economic, political, or regulatory occurrences. Investments in small and mid-capitalization companies involve greater risks and volatility than investments in larger, more established companies. International investing involves increased risk and volatility due to potential political and economic instability, currency fluctuations, and differences in financial reporting and accounting standards and oversight. Risks are particularly significant in emerging markets. There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. While alternative investments have been added to reduce volatility through lower correlations to traditional assets, the use of leverage, shorting, and non-exchange listed instruments inside of the alternative mutual funds may introduce other risks into an investor s portfolio. Income from tax-exempt municipal bonds or municipal bond funds may be subject to state and local taxes, and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains.

13 Non-investment-grade (high-yield or junk) securities present greater price volatility and more risk to principal and income than higher rated securities. ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. Investment products, including shares of mutual funds, are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution. Commodity investments may be affected by the overall market and industry- and commodity-specific factors, and may be more volatile and less liquid than other investments. Preferred stock is subject to issuer default risk. A rise in interest rates may result in a price decline of preferred stock held by the fund. Falling rates may result in the fund investing in lower yielding securities, lowering the fund s income and yield. Dividend payments are not guaranteed and the amount, if any, can vary over time. Master Limited Partnerships (MLPs) concentrate investments in the natural resource sector and are subject to the risks of energy prices and demand and the volatility of commodity investments. Damage to facilities and infrastructure of MLPs may significantly affect the value of an investment and may incur environmental costs and liabilities due to the nature of their business. MLPs are subject to significant regulation and may be adversely affected by changes in the regulatory environment. Diversification strategies do not ensure or guarantee better performance and do not eliminate the risk of investment losses. Columbia funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA, and managed by Columbia Management Investment Advisers, LLC. Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies. These companies are part of Ameriprise Financial, Inc. Please review the Ameriprise Managed Accounts Client Disclosure Brochure or, if you have elected to pay a consolidated advisory fee, the Ameriprise Managed Accounts and Financial Planning Service Disclosure Brochure for a full description of services offered, including fees and expenses. Investment products are not federally or FDIC insured, are not deposits or obligations of, or guaranteed by any financial institution, and involves investment risks including possible loss of principal and fluctuation in value. Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser Ameriprise Financial, Inc. All rights reserved.