1. We aspire to be your first call.
Investment
Outlook
&
Issues
—
2017

2. the next page’s chart that the driving factor
in the Fed’s decisions to increase or decrease
interest rates (the orange line) has been the
growth occurring in the domestic economy
(the green line). Inflation has been fairly
consistent (the blue line) domestically across
all interest rate cycles. Economic growth has
traditionally provided the impetus for the
Fed’s decision to change the target rate, but
they have still moved together over time.
Since the Great Recession officially ended in
June 2009, domestic economic data has not
forced the hand of the Fed to rapidly raise
rates, but it has provided a backdrop that
would allow for gradual increases. Our belief
is that the primary factor keeping U.S. rates
low and causing the Fed to maintain its
“lower for longer” stance regarding interest
rates has been the fragile global economy and
an overwhelming amount of close-to-zero
and negative yields on government debt.
1
FIXED INCOME BACKDROPAND 2017 OUTLOOK
THE FEDERAL
RESERVE (FED)
Investors around the world have spent the past
few years fixated on what the Fed’s next move
might be or what the next statement might
say. Despite all the attention, not much has
changed. We are hardly above where we started
back in December 2008 when the Fed dropped
the federal-funds target rate to a range of 0% to
0.25%. The Fed continues to be pressured from
all angles as the rest of the world’s central banks
and global economic data continue to weigh
on its decisions. The European Central Bank,
the Bank of Japan, and the Swiss National
Bank have continued to drive yields well into
negative territory.
The chart on the next page shows the Fed’s
actions prior to the unprecedented monetary
easing that occurred worldwide. We expect
very gradual increases in the Fed’s target rate
to be the trend over the next two years.
Despite the Fed’s continual concern with
inflation reaching a target rate of 2%, one can
interpret from historical data presented on
i
STAYING THE COURSE
PAUL GIFFORD, Jr., CFA
Chief Investment Officer
Investors move the
financial markets
daily in a variety of
directions, usually
for reasons based on
future expectations.
Events such as the
release of a single
economic number or an investment theme
like dividend paying stocks can move the
market. It seems that every year, investors are
surprised and their expectations are altered by
events outside their control. In the short-term
these surprises can create quite a bit of chaos.
In 2016 we had two such events: First was
Brexit and second was the election of Donald
Trump as president. Our cover page this year
depicts railroad tracks with several paths further
down the tracks. The tracks are a way for us
to think about changing market conditions.
Brexit is the term coined for the June 23rd
referendum in the United Kingdom (U.K.)
whereby British citizens voted to leave the
European Union (EU). It had seemed a
foregone conclusion that the U.K. would stay
in the EU, a belief that held up until the votes
were counted. Global equity markets reacted
negatively with many markets losing 3% to 10%
that day and the next. What will change in
the coming years is the way in which they
transact with the rest of Europe. The global
equity markets quickly moved past their initial
reaction, with most recovering their initial
losses and some even moving to new highs.
The U.S. Presidential election, like Brexit,
came with a less than expected outcome.
During the early hours after election day,
as it became apparent Trump would win,
the equity markets sold off 5%, which was
a very similar response by the markets after
Brexit. However, by the opening of U.S.
equity markets, the decline was reversed.
We have since experienced new highs in
the Dow and S&P 500.
In this 2017 investment outlook we will
discuss expectations that are likely to impact
the markets and investors’ decisions in the
coming year. After eight years of a bull
market in U.S. equities, moderation seems
to be emerging as a theme and, when it comes
to interest rates and inflation, uncertainty has
taken hold. The year 2017 will likely provide
a few unexpected surprises. We believe that
one of the best ways investors can “expect
the unexpected” is to diversify their assets,
determine what is an appropriate amount
of risk given their situation, and stay invested
through the market’s inevitable ups and downs.
We expect to see more market volatility in
2017 like we saw in 2016. The following
commentary discusses the investment backdrop
and some issues that we believe could affect
the financial markets in the year ahead.

3. 2 3
2018 20192016
THE GLOBAL DEBT PICTURE
Global debt continues to increase at an exorbitant pace and is expected to continue increasing in 2017.
Since the end of the global financial crisis in early 2009, the United States government has increased
its debt by over 100%, corporations have increased their debt by approximately 25%, and consumers
have increased their non-mortgage debt by 40%. All this has taken place on the back of historically
low to negative interest rates across most economies, whether of advanced or developing nations.
While the U.S. government and consumers have had sizable increases in debt over the past seven years,
China, the world’s second largest economy, has more than doubled the percentage increase that the
U.S. has experienced. The most alarming change within China has been the almost 400% increase in
corporate debt over the past seven years and the burden it will become on China’s economy. Low rates
in developed markets have allowed China to issue debt at extraordinarily low rates and have made their
bonds overly sensitive to interest rate increases, especially in the United States.
We have been attentively following China’s
economy as it transitions from one that
is manufacturing-based to one that is
service-driven. We have found that it’s often
challenging to understand what is going
on in China due to the lack of information
provided by its government and political
leaders. Approximately 20% of the world’s
population is in China and its economy is
expected to be 20% of the world’s gross
domestic product (GDP) by 2020. Thus,
we believe China plays a very important
role in global growth and in the world’s
equity and fixed income markets.
Chart: Federal Funds Target Rate, Domestic Growth, & Inflation (1986-2008)

4. 54
U.S. EQUITY MARKET
international markets. Borrowers’ ability
to pay off or refinance debt in the current
economic environment has been easy. Many
companies have plenty of cash or can easily
refinance their debt through new borrowings
and typically at a lower rate. Corporations
continue to experience strong cash flows and
profit margins and we expect that to continue
throughout the next few years.
Interest rates have historically increased when
economies have experienced growth and/or
inflation. Although the Federal Reserve
is currently in a rate-change conundrum,
from our perspective we still see a good
environment to be overweight in corporate
bonds relative to U.S. Treasuries. We believe
the U.S. economy will continue to march
along whether interest rates stay flat or slowly
rise. The core of our taxable fixed-income
portfolios will continue to be investment-
grade corporate bonds.
MANAGING CREDIT RISK IN A LOW
INTEREST RATE ENVIRONMENT
The U.S. equity market started 2016 in a
tumultuous manner with the worst 10-day start
to a year on record. The market stabilized near
month end, but recorded the worst January
performance since 2009. The S&P 500® Index,
which includes 500 of the United States’
largest stocks from a broad variety of industries,
declined 5.1% and the technology-heavy
NASDAQ Composite Index declined 8% in
January. Historically, negative performance
in the first month of a calendar year does not
bode well for the market. There have been
26 instances when January was negative and the
average annual return was a decline of -3.29%.
Since January, the S&P 500 has recovered nicely
and was up almost 10% as of this writing.
During 2016’s market declines, like those in
other time periods, investor pessimism spiked,
anxiety increased, and investors became reluctant
to commit additional funds to the equity markets.
This was especially evident after the Brexit vote
and less so in response to the U.S. Presidential
election results. Investors rushed for the exits after
Brexit, sending the Dow Jones Industrial Average
down nearly 900 points in a two-day period in
late June. (The Dow Jones Industrial Average is a
price-weighted average of 30 blue chip, primarily
industrial stocks, traded on the New York Stock
Exchange.) While the implications of Brexit are
In a world of low to negative interest rates,
credit analysis and understanding credit spread
has never been more important as investors scour
the world for more yield. Credit spread is the
difference between the yield on a U.S. Treasury
security (deemed to be the highest quality and
carry the least risk) and a non-Treasury security,
such as a corporate bond, and are very similar
in all respects except for credit quality.
While it remains challenging for fixed income
investors to determine the appropriate amount
of risk to take for the right amount of yield,
we continue to believe that spread-based fixed
income investments offer the most relative value
over the short- and long-term.
The pillars of credit analysis — cash flow,
assessment of management, capital structure
and credit profile, and the business and
competitive environment — continue to be
strong domestically and throughout most
difficult to determine at this early stage,
we at 1st Source believe that the U.S.
economy is much more insulated from the
uncertainty surrounding the first country
to leave the European Union in its near
six decade existence. Even though the
U.S. economy may face the headwind of
a stronger dollar, one major tailwind is that
increased global uncertainty will likely keep
the Federal Reserve on a slow trajectory for
raising interest rates. Therefore, we believe
that in 2017 the U.S. equity market will
continue its uptrend, but at a pace well
below the earlier gains of this long-running
bull market.
For 2016, the S&P 500 is on pace to post its
eighth consecutive year of positive returns
making it one the longest stretches in market
history. Other periods of similar performance
would be the mid-1980s and mid- to late-
1990s when the U.S. equity market increased
for several years in a row. More traditional
measures of the value of a company’s stock
such as the price-to-earnings (P/E) ratio
(the price of a stock divided by its earnings
per share) or the price-to-sales (P/S) ratio
(a stock’s market capitalization divided by the
company’s sales over the trailing 12 months)

5. 7
less negative. The earnings estimate for S&P 500 companies is slightly positive for the third
quarter of 2016, which would make it the first quarter with year-over-year earnings growth in
over a year. Much of the improvement in earnings will come from the energy sector and the
fact that the earnings will be less bad when compared to the prior year. Of greater concern
for S&P 500 companies is the absence of sales growth due to sluggish global economic growth
and a stronger U.S. dollar. Sales growth for the second quarter of 2016 was negative at -0.5%.
Excluding energy sector revenue, sales growth was modestly positive at 1.5%.
In 2017, the U.S. economy will be in its eighth year of business cycle expansion and corporate
America will have to contend with the difficulty of growing sales and earnings in an expansion
that is the second longest of the postwar period.
Energy companies areequities. Going forward, as a result of
recent equity market performance and
higher than average valuations, we would
expect equity market returns to be below
historical averages. Corporate earnings
have been negative on a year-over-year
basis for over a year, mainly due to the
significant decline in earnings at energy
companies. The energy sector reported
that earnings declined 75% versus
the prior year. Energy companies are
focused on restructuring their businesses
and repairing their balance sheets
to adjust to the new reality of lower
energy prices. The earnings drag from
the energy sector lessened during the
second half of 2016 and the year-over-
year contribution from energy will be
indicate that the equity market is fully valued
after the significant move from the lows in
March 2009. One favorite valuation metric of
Warren Buffet is the relationship between the
S&P 500’s market capitalization and the gross
domestic product of the U.S. The S&P 500’s
market cap has historically averaged about
55% of annual GDP in the U.S. However, at
the end of May 2016 it stood at 90% of GDP.
The ratio was as low as 38% in 1981 and as
high as 131% in 2000. On the other hand,
relative valuation metrics, which compare
equity prices to other asset classes such as
fixed income, suggest the equity market is
fairly valued. We currently have neutral
equity allocation at our mid-point based
on the significant run up in equity prices
since 2009 and the extended valuation of
6

6. 8
THE EFFECTS
OF AN ELECTION
YEAR
9
HOME BIAS
Investment theory suggests that investors can reduce risk in their investment portfolios by investing
across different asset classes, such as equities and fixed income, and by diversifying their equity
allocation between domestic and international companies. Nevertheless, many investors exhibit
“home bias” or the preference to allocate the vast majority of their investment portfolio to
domestic securities. The U.S. makes up roughly 40% of the world’s equity market capitalization,
but U.S. investors, on average, allocate roughly 85% of their equity investments to domestic
securities. Home bias is even more evident in Europe and Asia. For example, French investors
allocate 90% of their investment portfolios to domestic securities. In China, investors allocate
over 95% of their equity investments to home grown companies. Home bias may be partly
explained by market restrictions in certain countries regarding the flow of funds, liquidity
concerns, currency risk, or governance. However, it is more likely due to investors’ greater
willingness to invest in what they know and in what is close to home.
The poor performance of international equity markets since the Great Recession has many
investors questioning the benefits of investing abroad. At 1st Source, we believe it is important
to remember that markets move in cycles. From 2002 through 2008, international markets
outperformed the U.S. market by over five percentage points per year. Our asset allocation
committee currently recommends an equity allocation of 80% to U.S. companies with the
remaining 20% invested in international companies. Please note that we change our allocation
recommendations based on opportunities we see in the markets. We believe in diversification
through international equity investments.
Most election years bring a sense of renewed energy and higher expectations
for many voters. Expectations rise based on the promises made by those running
for office. The challenge for investors is that election promises matter less when
it comes to investment returns. What seems to matter more is how, over time,
investors see the outlook for the economy, interest rates and corporate earnings.
Studies by our research partner the Leuthold Group have shown that investment
returns vary little whether voters elect a Democrat or a Republican president,
the median return for their terms is 27.7% and 27.3%, respectively.
Another notable point is that the first year of a newly-elected president’s term
tends to be the lowest for market performance. The good news is that the
historical average is still a positive 3.5% and that does not include dividend income.

7. THE U.S. AND GLOBAL ECONOMIES
“Slow and steady” best describes our
expectations for the U.S. and the global
economy. In the last seven years the U.S.
economy has grown at an average rate of
2.1%, well below the historical average growth
rate after a recession. The global economy
is only growing modestly better. The largest
drop in growth will continue to come from
China as the country struggles with a large
amount of debt and the transition from a
manufacturing-led economy to a service-based
economy.
We expect to see continued improvement in
the service-based labor market in the U.S.
Unemployment has fallen by all measures.
Even the U6 measurement of unemployment
(those underemployed or working part time for
economic reasons) is at the lowest level since
April of 2008. The headline unemployment rate
stood at 4.6% in November, well below its peak
of 10% following the recession. We have started
to see wages increase as well, which bodes well
for the economy.
Housing continues to be a strong area
of the economy. The persistence of low
interest rates, demand exceeding supply,
and a tight labor market has helped the
housing market maintain its strength.
In some markets, including Seattle and
the Bay Area, net new jobs have well
exceeded the increase in new housing.
We have also seen an improvement in
consumers’ balance sheets. Today, only 10%
of consumers’ disposable income is going
toward paying non-mortgage debt. The
challenge for Millennials (the generation
born starting in the early 1980s through
the early 2000s) is student debt, which has
ballooned to $1 trillion. There has also
been an increase in debt owed by seniors
who are suffering from the low interest rate
environment.
We expect the U.S. economy to grow
between 2% and 3% in 2017, unless there is
a significant economic or geopolitical event.
10 11
The chart above shows that over longer periods of time it does not matter
to the stock market who is president. We know it’s the economy that matters.

8. 12
Today’s savers and investors face challenges in what they might expect to earn from
the pool of assets they have accumulated. What investors are facing in the coming
years will be influenced by expected returns from different asset classes. Forecasts
for future returns have been greatly influenced by the eight-year bull market in
U.S. stocks and historically low interest rates here and abroad. In determining the
allocation of your investment portfolio, which you have entrusted to us, where and
how you will earn money for a given level of risk is an important consideration.
Savers are facing a continued period of low interest rates domestically and in many
parts of the world interest rates are negative. The Wall Street Journal recently
published an article on the concept of earning interest when you take the risk
of lending money, a practice that was established approximately 5,000 years ago.
Today, there are countries, and some companies, paid to borrow money as opposed
to paying interest for the right to borrow. This is creating unique and difficult times
for families, pensions, endowments and other investors. Many of these investors
need high returns to meet their retirement needs, benefit payments, and other
required distributions.
The charts on the next page show how the investment market, particularly the
fixed income market, has changed over the past 20 years. Twenty years ago,
the return on a fixed income portfolio would meet the needs of many investors
without the need for them to invest much or any of their assets in the stock market.
To obtain similar returns today, an investor needs a portfolio that is invested in
both fixed income securities and equities. Chart A shows that in 2015 significant
exposure to stocks and other assets classes was needed to earn the same return
as a fixed income portfolio earned in 1995. Chart B shows associated volatility.
Chart A
CHALLENGES FOR
SAVERS AND INVESTORS
Chart B
This chart shows how volatility in the price of a
portfolio of securities from different asset classes
in 2005 and 2015 is much greater than a bond-only
portfolio in 1995. To obtain the same return in
2015 as in 1995 as shown in Chart A, the portfolio’s
volatility increased by nearly four times.
13

9. 1514
NAVIGATING THE LANDSCAPE
At left, our last chart shows how today’s savers and investors
have greater responsibility for their future. The chart shows
the decline in the number of pension plans and the rise
of defined contribution plans such as 401(k) and 403(b) plans.
As a result of these changes, budgeting, understanding
cash flow and financial planning have become more
important today than they may have been 20 years ago.
We are here to help you navigate the current financial landscape.
At 1st Source, we want to work with you to determine the asset allocation that is appropriate for your
unique situation and to help you realistically set your expectations regarding potential investment returns.
We will follow up with more conversations to understand the sources of income available for your
retirement and lifestyle needs. We have expanded our wealth management offerings to better meet your
needs and we are able to assist you with financial and social security optimization. We feel confident that
by working with us you will have the tools that will help meet your needs today and in the future.

10. 1st Source Corporation Investment Advisors, Inc.
(Left to Right) Jon Cisna; Randy Thornton, MBA; Paul Gifford, Jr., CFA; Tamara Simon, MBA, IACCP®;
Chris Davis, MBA; Erik Clapsaddle, CFA, CFP®; Anthony Gaipa, Marie Alvarez; Jackie Kronewitter;
Noreen Kazi, MBA; Rob Romano, CFA; Jason Cooper, MBA
1716
1st Source Bank Wealth Advisory Services is a closely-knit team of over 100 caring, knowledgeable
professionals who are fiercely committed to providing unbiased and balanced advice, and who work
to fully understand our clients’ professional and personal aspirations.
Wealth Advisory Services has twelve (12) staff members on the 1st Source Corporation Investment
Advisors, Inc. team. Together, they offer more than 210 years of combined professional experience,
and an average of 17 years of experience per team member. Three (3) of our investment staff
members have the CFA (Chartered Financial Analyst) designation, one (1) staff member has
the CFP® (CERTIFIED FINANCIAL PLANNER) designation, and one (1) staff member
has the IACCP® (Investment Advisor Certified Compliance Professional) designation.
1ST SOURCE CORPORATION
INVESTMENT ADVISORS, INC.
Understanding that each person and family have different financial goals, 1st Source
Corporation Investment Advisors design customized plans to suit each situation
and with the long-view in mind. As independent, unbiased advisors, we select from
a wide variety of investments, adding flexibility, using an open investment structure,
and offering hands-on investment advice and education if desired.
Some members of our investment team hold the investment industry’s highest
professional designation of Chartered Financial Analyst (CFA); some hold advanced
business degrees; all are fiercely dedicated to their clients. By focusing exclusively
to keep each client’s best interest in mind, the 1st Source Investment Advisors
provide clients with deep peace of mind.

11. Not FDIC Insured Not Bank Guaranteed May Lose Value Not Insured by any Federal Government Agency Not a Bank Deposit
We aspire to be your first call.
(800) 882-6935