Exhibit 81: Municipal Bond Mutual Fund Flows Exhibit 82: Annual Municipal Bond Returns The pace of outflows at the end of 2016 was surpassed in Since 1994 recent history only by the 2013 taper tantrum. Intermediate municipal bonds experienced a rare loss in 2016. 4-Week Rolling Average, $ bn Ranked Annual Returns (%) 3 1b 4 | we ee © my ji i | : OTP] Ue : BT 1 4 . “SE S=ESSSSSE8888Re8e8R8 222 2007 2008 2009 2010 2011 2012, 2013, 2014-2015 = 2016 FRERRSRSRRSLSRSSSSSSRLSRSS Data through December 31, 2016. Data as of December 31, 2016. Source: Investment Strategy Group, ICI. Source: Investment Strategy Group, Barclays. only add to existing concerns about pension net supply low—as new issuance has been largely funding levels. offset by maturing debt—but has also helped While there is clearly no shortage of risks, the municipal finances. Ratings trends have improved silver lining to last year’s rout is that we begin as a result of both stable revenue and spending 2017 with a much larger valuation buffer to help discipline, with upgrades in the Moody’s universe absorb them. As seen in Exhibit 83, the ratio seeing a notable uptick in last year’s third quarter of municipal yields to Treasury yields is above (see Exhibit 84). average for both 5- and 10-year maturities. In Of course, underfunded long-term pension turn, investors can currently earn an extra 70 liabilities remain a source of concern. But with basis points of after-tax yield by owning five- aggregate funding levels holding steady at around year municipal bonds instead of same-maturity 74%, we do not think this will be a primary focus Treasuries—a yield pickup more than double the in 2017, particularly given last year’s increase in post-crisis median of 31 basis points. Moreover, stock prices. While rising equity values will do this incremental after-tax yield would still be little to remedy municipals’ inadequate funding around 50 basis points if the top individual tax on contributions, they will help increase