Growth and Transition Strategy Update

A historic evolution of the capital stack and return opportunities in Fixed Income... The size of capital markets generally resembles a funnel, until you get to the large equity base¹ Size of the Capital Stack ($B) Deposits MMF Treasury (1-3Y) Muni MBS IG ABS CMBS HY S&P $22,710 $18,617 $3,217 $11,718 厘 $6,855 $1,464 $3,573 $1,378 $35,806 But for over 2 decades now, investors have been rewarded for taking on more volatility as the returns have very much been concentrated down towards the bottom (the deep end of the pool) Historical Volatility (20Y Avg) 2 Historical Returns (20Y Avg) ³ 3 Deposits MMF 0.1% Treasury (1-3Y) 1.1% MBS 2.8% Deposits + MMF Treasury (1-3Y) Munis 1.2% 2.2% 4.0% Muni 2.5% MBS 3.3% IG 5.2% IG 4.7% ABS 2.2% ABS 3.0% CMBS 4.6% CMBS 4.6% HY S&P 4.0% 17.0% HY S&P 7.9% 10.0% And of course, that makes sense as at pretty much any time over the last 15 years, the Yield profile looked something like this...4 Yields in May 2013 Deposits MMF 0.1% Treasury (1-3Y) 0.3% Muni 2.2% MBS 2.8% IG ABS 2.9% 1.0% CMBS 1.8% HY S&P 5.4% 6.8% But today, it's a very different picture in which more risk does not necessarily equate to higher reward...3 Deposits MMF Treasury (1-3Y) Muni MBS IG ABS CMBS HY S&P Current Yields 4.3% 4.6% 3.7% 4.8% 5.5% 5.3% 5.5% 8.9% 5.3% Note: For footnoted information, refer to slide 87. Index definitions are found on slide 88. Index returns are shown for illustrative purposes only. It is not possible to invest directly in an index. Past performance is not indicative of future results. BlackRock 83

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