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Home My WebLink About95.02142018 Administration Committee Item 5 - Late Communication.pdf.____. L.....! --- Investment Report Orange County Sanitation District Period Ending December 31, 2017 6225 Lusk Blvd I San Diego, CA 92121 I Phone 800.317.4747 I Fax 858.546.3741 I www.chandlerasset.com m 0 0 ::: : : s 0 3 -· 0 c: "C c. s: u r+ CD "' m (' ) :: j 0 z .. . a . . ltl Employment ...___ -......... .......... Nonfarm Payroll (OOO's) Unemployment Rate 350 13.0% 12.0% -Underemployment Rate (U6) 300 11 .0% -unemployment Rate (U3) I en I 0 250 0 e -= 200 4) C) c: C'G 150 .c (.) 10.0% ~ 9.0% ~ 4) 8.0% -'2. 7.0% ·~ -~ "'----........._ - ::!: 0 100 ::!: 6.0% . 50 5.0% 4,0°10 """' ........_ ___ ~ ------..... ,.. 0 3,0% ~76' ~ i':.76' ~1..7,> ~ io ~'7,> :-:.7,> 'i-1(76' 'i-1(7,> ~ ~-76' ~ io 'i-/. ~-.. :-:... '7. '6' '6' 6' ~ ~ io 'i-/. i':.76' ~'7,> :-:.7,> '7,> ~7. ~")'ho :.>· ... Source: US Department of Labor Source: US Department of Labor U.S. payrolls rose by 200,000 in January, exceeding the consensus forecast of 180,000. November and December payrolls were revised down by a net total of 24,000. On a trailing 3-month and 6-month basis, payrolls increased by an average of 192,000 and 180,000 per month, respectively. The unemployment rate and the labor participation rate were unchanged in January at 4.1 % and 62.7%, respectively. A broader measure of unemployment called the U-6, which includes those who are marginally attached to the labor force and employed part time for economic reasons, edged up to 8.2% in January from 8.1 % in December and 8.0% in November. Wages rose 0.3% in January, following an upwardly revised 0.4% increase in December. Wages were up 2.9% on a year-over-year basis in January (the highest year-over-year pace since June 2009), ahead of the 2.6% consensus forecast. The average workweek declined to 34.3 hours from 34.5 hours. - Q\\l Inflation Consumer Price Index (CPI) 3.5% 3.0% Cl) 2.5% m c ~ 2.0% 0 7 ~ 15% ~· >-1.0% 0.5% 0.0% -CPI YOY% Change ~core CPI YOY % Change o&. c..{S ~ ~.r.76' "'b.,_,6' IS'<?a '16- Source: US Department of Labor o&. c..16' ~ ~.r.7,> '1.-. ~'7,> ~ o&. XI.. 7,> c.. 7,> 3.5% 3.0% Personal Consumption Expenditures (PCE) -PCE Price Deflater YOY % Change I~~~~~~~~~~~~ -PCE Core Deflater YOY % Change 2~% 1-===~~~~~~~~~~~~~~~~~~~ Cl) Cl ~ .2.:0% .!: (.J -0-1.5'% ~ g 1.0% >- ii 0.5% 0.0% -0.5% ~ ~ '1.-. ~ ~ ~ '1.-. ~ ~ c..{S ~~ ~~ ;o,.16' c..16' ~~ ~~ ;o,.7,> c..7,> Source: US Department of Labor The Consumer Price Index (CPI) was up 2.1% year-over-year in December, versus up 2.2% year-over-year in November. Core CPI (CPI less food and energy) was up 1.8% year-over-year in December, versus up 1.7% year-over-year in November. Core CPI remains soft but did move higher. The Personal Consumption Expenditures (PCE) index was up 1. 7% year-over-year in December, versus up 1.8% year-over-year in November. Core PCE (excluding food and energy) was up just 1.5% on a year-over-year basis in December, unchanged from November. PCE inflation remains well below the Fed's 2.0% target. Personal Consumption Expencltures Gross Private Domestic Investment Net Exports and Imports Federal Government Expenditures State and Local (Conswnption and Gross Investment) Tatar Source: US Department of Commerce 1.3%1 -0.2%1 0.2%1 -0.2%1 0.1%1 1.2%11 2.2%1! 1.5%1 0.6%:1 1.2% 0.2%11 0.4% 0.1%1 0.1%1 -0.2% 0.0% 3.1%1 3.2%1 6.0% 2.6%1 1 Ofc 5.0 0 4.0% 0.6% 3.0% -1.1% 2.0% 1.0% 0.2%1 1 0.0% 0.3% -1.0% -20% 2.6% ~ Gross Domestic Product (GDP) -GDP QOQ % Change - -GDP YOY % Change 0. ~-0. ~-0. ~-0. ~-0. ~-0. ~-0. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Source: US Department of Commerce GDP growth was slightly weaker than expected in the fourth quarter, up 2.6% (versus the consensus estimate of 2.9%), down from 3.2% in the third quarter and 3.1 % in the second quarter. Net exports and inventories were both a large drag on growth during the fourth quarter, however many of the other components of GDP growth were quite strong. Personal consumption expenditures as a contribution to GDP were 2.6% in the fourth quarter, up from 1.5% third quarter. Q\\ I Bond Yields US Treasury Note Yields 3.5%--------..... -2-YE!'.3 3.0 % --S·Yea -1 ~Year- 2.5% ~ " 2.0% 32 Q) > 1.S% 1 .00~ I ""'"'9'" ,,._ 0,5% +-------------------- 0.0% ----------- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Source: Bloomberg US Treasury Yield Curve 3.~Ai -------------------- -Jan-18 3'.0% -. -1 -oct-17 -Jan-17 2.5% I ..,.. ~ 2.0% I J ~--------------- 32 Q) > 1.5% 1.0"/o +---------------------- 0.5% ........... ~------------------ 0.0% ----------~-------~----- a 4,,.6' ~ '? h 0 .. o Source: Bloomberg .s-h ,., )"0,1.,; ,.. .?o};.. We believe the recent move up in rates has been fueled by increased optimism about economic growth as a result of tax reform, relatively strong fourth quarter corporate earnings, and signs of increasing wage pressure (which is viewed as a precursor to overall inflation). Still, the yield curve remains quite flat by historical standards with the spread between 2-year and 10-year Treasuries just 56 basis points at the end of January. All else being equal, we believe the Fed's efforts to normalize the balance sheet will likely promote a steeper yield curve later this year. Tax reform may also be stimulative to the economy and drive yields at the long end of the curve higher. ~ 0 0 c :: : : l ,. . . "t J a "'" " ' -· -CD CJ ) m 0 -I -0 z N r- 1" ~ r r r r r r r· r· r· r· [' r· c: [' [. r L L L Portfolio Characteristics Orange County Sanitation District Long Term 12/31/2017 9/30/2017 Benchmark* Portfolio Portfolio Average Maturity (yrs) 2.71 2.52 2.74 Modified Duration 2.58 2.26 2.44 Average Purchase Yield n/a 1.75% 1.73% Average Market Yield 2.09% 1.91% 1.64% Average Quality** AAA AA+/Aa1 AA/Aa'2 Total Market Value 396,615,693 333, 199,867 *BAML 1-5 Yr US Corporate/Govt Rated AAA-A Index **Benchmark is a blended rating of S&P, Moody's, and Fitch. Portfolio is S&P and Moody's respectively. Many securities were purchased across the Treasury, Agency, Supranational, Commercial Paper, and Corporate sectors of the market to keep the portfolio structure in-line with Chandler targets. The purchased securities ranged in maturity from January 2018 to November 2022. A few securities were sold and in aggregate $64 million was contributed to the portfolio during the quarter to help facilitate the new holdings in the portfolio. Lta1 LL L ~ Sector Distribution ...._ -L~ ~ __.. Orange County Sanitation District Long Term US Treasury 32.8% US Corporate 19.3% December 31, 2017 ABS CMO Commercial Paper Money Market 1.7% Fund Fl 4.0% US Treasury 32.3% September 30, 2017 ABS CMO Supranational 5.9% Negotiable CD 1.5% Mortgage Pass Tl"lru 0.4% US Corporate_ 23.9% Supranational 6.6% Negotiable CD- 1.8% Municipal Bonds 1.4% Mortgage Pass Thru 0.6% 1.1% The sector allocation evolved as the additional monies allocated to the strategy we invested conservatively late in December. The allocation to the Treasury and Agency sectors increased, whereas most of the other sector allocations decreased; the Chandler team will be working to increase the exposure of the portfolio to higher beta sectors in the first quarter of 2018 as liquidity returns to the market in the New Year. Issuers Orange County Sanitation District Long Term -Account #10268 As of 12/31/2017 Issue Name !nvestment Type % Portfolio Government of United States US Treasury 32.85% Federal Home Loan Bank Agency 13.19% Federal National Mortgage Association Agency 8.85% Federal Home Loan Mortgage Corp Agency 5.41% First American Govt Obligation Fund Class-Z Money Market Fund Fl 3.96% Inter-American Dev Bank Supranational 2.77% Intl Bank Recon and Development Supranational 2.52% Tennessee Valley Authority Agency 2.02% Bank of Tokyo-Mit UFJ Commercial Paper 1.68% John Deere ABS ABS 1.52% Bank of Nova Scotia Houston Negotiable CD 1.48% HSBC USA Corp US Corporate 1.40% Occidental Petroleum Corporation US Corporate 1.36% JP Morgan Chase & Co US Corporate 1.35% Wells Fargo Corp US Corporate 1.28% General Electric Co US Corporate 1.27% Deere & Company US Corporate 1.27% Qualcomm Inc US Corporate 1.25% Bank of New York US Corporate 1.18% Chubb Corporation US Corporate 1.07% Berkshire Hathaway US Corporate 1.04% Honda Motor Corporation US Corporate 1.02% Apple Inc US Corporate 1.02% Eli Lilly & Co US Corporate 1.01% Honda ABS ABS 1.01% Morgan Stanley US Corporate 0.79% Exxon Mobil Corp US Corporate 0.76% American Express Credit US Corporate 0.75% Microsoft US Corporate 0.75% . Port Authority of New York and New Jersey Municipal Bonds 0.65% ~ --l Issuers Orange County Sanitation District Long Term -Account #10268 As of 12/31/2017 issue Name Investment Type % IPorttolio 1 ChevronTexaco Corp US Corporate 0.63% International Finance Corp Supranational 0.61% Nissan ABS ABS 0.50% Federal Home Loan Mortgage Corp CMO 0.50% New York City Transitional Finance Authority Municipal Bonds 0.37% Federal National Mortgage Association Mortgage Pass Thru 0.35% Goldman Sachs Inc. US Corporate 0.16% Toyota ABS ABS 0.13% University of California Municipal Bonds 0.11% Federal National Mortgage Association CMO 0.07% GNMA Mortgage Pass Thru 0.05% AMRESCO Residental Securities Corp Mortgage Pass Thru 0.03% Small Business Administration ABS 0.01% SLM Corp ABS 0.01% GNMA CMO 0.01% Federal Home Loan Mortgage Corp Mortgage Pass Thru 0.00% Total 100.00% - Duration Distribution Orange County Sanitation District Long Term Portfolio Compared to the Benchmark as of December 31, 2017 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% •Orange County Sanitation District Long Term Portfolio Benchmark* 0 -0.25 21 .3% 0.0% *BAML 1-5 Yr US Corporate/Govt Rated AAA-A Index 0.25 -0.50 1.8% 0.0% 0.50 -1 4.2% 1.4% BAML 1-5 Yr US Corporate/Govt Rated AAA-A Index 1 -2 19.6% 32.6% 2 ~3 16.3% 28.7% 3 -4 20_8% 23_6% 4 ~5 12.9% 13.7% 5+ 3.0% 0.0% The duration of the portfolio contracted primarily due to the large contribution into the strategy. The current duration of 2.26 will be migrating closer to 2.50 in the coming weeks as Chandler tactically repositions the portfolio closer to our strategic targets. ~ ---.:l .._.... Compliance· ----------- I Orange County Sanitation District Long Term December 31, 2017 COMPLIANCE WITH INVESTMENT POLICY Assets managed by Chandler Asset Management are in full compliance v.ith state law and v.ith the investment policy Category Standard Treasury Issues 5 years maximum maturity Supranational "AA" or better by 1 of 3 NRSROs; 30% maximum; 5% max issuer; 5 years maturity; Includes only: IADB, IBRD, and IFC per CGC Comment I Complies"' Complies j U.S. Agencies 20% max issuer; 5 years maximum maturity Complies U.S. Corporate (MTNs) "A" or better long term rating by 1 of 3 NRSROs; 30% maximum; 5% max issuer; 5 years max Complies maturitv -·- Municipal Securities "A" or higher by 1 of 3 NRSROS; 10% maximum; 5% max issuer; 5 years maximum maturity Complies Asset Backed/ CMOs/ Mortgage-"AA" or better by 1 of 3 NRSROs; "A" or higher issuer rating by 1 of 3 NRSROs; 20% Complies* backed maximum; 5% max issuer (excluding MBS/govt agency); 5 years max maturitv Negotiable CDs "A" or better on its long term debt by 1 of 3 NRSROs; "A 1/P1" or highest short term ratings by 1 Complies of 3 NRSROs; 30% maximum; 5% max issuer; 5 years max maturity CDs/TDS 5% max issuer; 5 years max maturity Complies Banker's Acceptances A-1, or equivalent highest short term rating by 1 of 3 NRSROS; 40% maximum; 5% max issuer; Complies 180 days max maturitv Commercial Paper A-1 , or equivalent by 1 of 3 NRSROS; "A" or better by 1 of 3 NRSROs, if long term debt issued; Complies 25% maximum; 5% max issuer; 270 days max maturitv Mutual Fund & Money Market Highest rating by 2 NRSROs; 20% maximum; 10% max per mutual fund; 20% max per money Complies Mutual Fund market mutual fund -Repurchase Agreements 102% collateralization Complies Reverse Repurchase Agreements 5% maximum, 90 days max maturity Complies LAIF Not used by investment adviser Complies Avg Duration , Not to exceed 60 months -(80% to 120% of the benchmark) 1Complies I Maximum Maturity ,5 years maximum maturity Complies* *The portfolio has twenty-three (23) securities with maturities greater than 5 years including one (1) ABS, four (4) CM Os, se-.enteen (17) MBS and one (1) treasury. All securities were inherited from the prelAous manager and complied at time of purchase. ' 1 - Investment Performance Orange County Sanitation District Long Term Period Ending December 31, 2017 Total Rate of Return Annualized Since Inception November 30, 2014 1.40% ...-----------~~~~~~~~~~~~-------~~~~~~~~~~-----~~~~~~~~~-,, 1.20% __________ _____, 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 12 months 2 years 3 years 5 years 10 years Since Inception •Orange County Sanitation District Long Term Annualized 3 months 12 months 2 years 3 years 5 years 10 years Since Ince tion Orange County Sanitation District Long Term -0.24% 1.16% 1.32% 1.16% NIA N/A 1.06% BAML 1-5 Yr US Corporate/Govt Rated AAA-A Index -0.32% 1.02% 1.16% 1.13% N/A N1A 0.99% Total rate of return: A measure of a portfolio's performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending value; it includes interest earnings, realized and unrealized gains and losses in the portfolio. _Q(J L L L L L L L L i..-L.. -~ ~ Portfolio Characteristics _j L.. -J ......J _J Orange County Sanitation District Liquid 12/31/2017 9/30/2017 Benchmark* Portfolio Portfolio Average Maturity (yrs) 0.17 0.16 0.17 Modified Duration 0.16 0.15 0.17 Average Purchase Yield n/a 1.33% 1.12% Average Market Yield 1.24% 1.37% 1.16% Average Quality** AAA AA+/Aaa AA+/Aa1 Total Market Value 145,486,316 49,486,477 *BAML 3-Month US Treasury Bill Index **Benchmark is a blended rating of S&P, Moody's, and Fitch. Portfolio is S&P and Moody's respectively. Many securities were purchased across the Treasury, Agency, Supranational, Commercial Paper, and Corporate sector of the market to keep the portfolio fully invested. The purchased securities ranged in maturity from November 2017 to July 2018. One security was called, many matured, and in aggregate $96 million was contributed to the portfolio during the quarter. - -.,\\I Sector Distribution Orange County Sanitation District Liquid December 31, 2017 Supranational 3.8% Agency 29.0% US Treasury 21.2% September 30, 2017 Negotiable CD 2.0% Agency 24.5% US Treasury 52.7% US Corporate 8.9% Commercial Paper 4.7% 1.1% US Corporate 28.2% Commercial Paper 4.5% Money Market Fund Fl 19.5% The sector allocation changed materially with the large contribution into the portfolio. The Treasury allocation is elevated due to the upcoming large liquidity need at the end of January and the lack of attractive alternatives in the Agency discount note market. at1 1-.. ;......i ........ ......... Issuers Orange County Sanitation District Liquid -Account #10282 As of 12/31/2017 Issue Name Investment Type % Portfolio Government of United States US Treasury 52.67% Federal Home Loan Bank Agency 19.81% Tennessee Valley Authority Agency 6.87% Federal Home Loan Mortgage Corp Agency 2.27% Inter-American Dev Bank Supranational 2.07% Bank of Tokyo-Mit UFJ Commercial Paper 2.06% International Finance Corp Supranational 1.71% JP Morgan Chase & Co I US Corporate 1.40% Charles Schwab Corp!The I US Corporate 1.34% First American Govt Obligation Fund Class-Z Money Market Fund Fl 1.06% Paccar Financial I Commercial Paper 1.03% Toyota Motor Corp Commercial Paper 0.89% Berkshire Hathaway US Corporate 0.70% HSBC USA Corp US Corporate 0.69% Deere & Company US Corporate 0.69% PNC Financial Services Group US Corporate 0.69% Honda Motor Corporation US Corporate 0.69% Exxon Mobil Corp US Corporate 0.69% Cisco Systems US Corporate 0.69% Merck & Company US Corporate 0.69% Honda Motor Corporation Commercial Paper 0.69% Bank of New York I US Corporate 0.60% Total 100.00% - Q\\I Duration Distribution Orange County Sanitation District Liquid Portfolio Compared to the Benchmark as of December 31, 2017 120.00% 100.00% 80.00% 60.00% 40.00% II 20.00% 0.00% Portfolio Benchmark* 0 -0.25 0.25 -0.50 0.50 -1 1 -1.5 •Orange County Sanitation District Liquid 0 -0.25 86.1% 100.0% 0.25 -0.50 10.5% 0.0% 0.50 -1 3.4% 0.0% *BAML 3-Month US Treasury Bill Index 1 -1.5 0.0% 0.0% 1.5 -2 2 -2.5 2.5-3 BAML 3-Month US Treasury Bill Index 1.5 -2 0.0% 0.0% 2 -2.5 0.0% 0.0% 2.5-3 0.0% 0.0% 3 The duration of the portfolio was little changed, currently 0.15 compared to 0.17 at the end of the prior quarter. 3+ 0_0% 0,0% LG\(J LL Compliance l\\I I..-w 1 ~ ......... ._....J Orange County Sanitation District Liquid December 31 ,12011 COMPLIANCE WITH INVESTMENT POLICY Assets managed by Chandler Asset Management are in full co~pliance wth state law and wth the investment policy Category Treasury Issues Supranational ~ U.S . Agencies U.S. Corporate (MTNs) Asset Backed/ CMOs Negotiable CDs CDs/TDS Banker's Acceptances Commercial Paper Mutual Fund & Money Market Mutual Fund Repurchase Agreements Reverse Re LAIF Prohibited Prohibited 11 Avg Duration Maximum Maturity Standard Comment 1 year maximum maturity; Minimum allocation of 10% I Complies "AA" or better by 1 of 3 NRSROs; 30% maximum; 5% max issuer; 1 year maturity; Includes I Complies onlv: IADB, IBRD, and IFC per CGC I 20% max issuer, 1 year maximum maturity I Complies I "A" or better long term rating by 1 of 3 NRSROs; 30% maximum; 5% max issuer; 1 year max I Complies maturitv I "AA" m bette.r by 1! of 3 NRSROs; "P-J" or higher issuer rating by 1 of 3 NRSROs; 20% I Complies maximum; 5% max iss419r; 1 vear max maturi "A" or better on its long term debt by ~ of 3 NRSROs ; "A 1/P1" or highest short term ratings I Complies by 1 of 3 NRSROs; 30% maximum; 5% max issuer; 1 year max maturity 5% max issuer; 1 year max maturity A-1, or equivalent short term rating by 1 of 3 NRSROS; 40% maximum; 5% max issuer; 180 davs max maturi A-1 , or equivalent by 1 of 3 NRSROSi; "A" or better by 1 of 3 NRSROs, if long term debt issued; 25% maximum; 5% max issuer: 270 davs max maturi Highest rC!ting by 2 NRSROs; 20% maximum; 10% max per mutual fund ; 20% max per monev market mutual fund 102% collateralization 5% maximum, 90 davs max maturi Not used by investment adviser Municipal Securities Mortgage Securities Not to exceed 180 days; Max duration of 1 /2 year 1 year maximum maturity Complies Complies Complies Complies Complies 1complies Complies Complies Complies Complies Complies .J - Investment Performance Orange County Sanitation District Liquid Period Ending December 31, 2017 Total Rate of Return Annualized Since Inception November 30, 2014 1.00% ....... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~....., 0.90% 0.70% 0.60% 0.50% 0.40% 0.20% 0.10% 0.00% 12 months 2 years 3 years 5 years 10 years Since Inception •Orange County Sanitation District Liquid BAML 3-Month US Treasury Bill Index Annualized 3 months 12 months 2 years 3 years 5 years 10 years Since lnceetion Orange County Sanitation District Liquid 0.28% 0.89% 0.69% 0.54% NIA N/A 0.52% BAML 3-Month US Treasury Bill Index 0.28% 0.86% 0.59% 0.41% N/A N/A 0.40% Total rate of return: A measure of a portfolio's performance over time. It is the internal rate of return , which equates the beginning value of the portfolio with the ending value; it includes interest earnings, realized and unrealized gains and losses in the portfolio. ....._ ~ -..._ i._. -L...... ~ ~ _J _J _J .J Portfolio Chara.cteristics OCSD Lehman Exposure 12/31/2017 9/30/2017 Portfolio Portfolio Average Maturity (yrs) 20.18 21.35 Modified Duration 0.00 0.00 Average Purchase Yield 0.00% 0.00% Average Market Yield 0.00% 0.00% Average Quality NR/NR NR/NR Total Market Value 145,221 188,421 (" ) 0 :: : J "' 0 --· c. I» S" c. -:: : J -0 .. , 3 m !: ! : . 0 :: : J (/ ) m 0 :: ! 0 z w · ~ ....._ ......_ u -.....,_; _J Portfo,lio Characteristics Orange County Sanitation District Consolidated 12/31/2017 9/30/2017 Portfolio Portfolio Average Maturity (yrs) 1.89 2.42 Modified Duration 1.70 2.14 Average Purchase Yield 1.63% 1.64% Average Market Yield 1.76% 1.58% Average Quality AA+/Aa1 AA/Aa2 Total Market Value 542,247,229 382,874,766 - £•1 Sector Distribution Orange County Sanitation District Consolidated US Treasury 38.2% US Corporate _ 16.6% December 31, 2017 ABS Supranational 5.3% ' Negotiable CD 1.1% Municipal Bonds 0.8% Commercial Paper 2.5% Money Market Fund Fl 3.2% Mortgage Pass Thru 0.3% US Treasury 30.9% US Corporate 24.5% September 30, 2017 ABS CMO Commercial Paper 2.3% Money Market Fund Fl 3.7% Mortgage Pass Supranational Municipal Bonds 1.2% Thru 0.5% 5.8% Negotiable CD 1.8% _. ---"" Disclosure 2018 Chandler Asset Management, Inc, An Independent Registered Investment Adviser. Information contained herein is confidential. Prices are provided by /DC. an independent pricing source. In the event /DC does not provide a price or if the price provided is not reflective of fair market vafu,e, Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures. Our valuation procedures are a/so disclosed in Item 5 of our Form ADV Part 2A. Performance results are presented gross-of-fees and represent the client's Total Return. These results include the reinvestment of dividends and other earnings. Past performance may not be indicative' of future results. Therefore, no current or prospective client should assume that future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Economic factors, market conditions or changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Index returns assume reinvestment of all distributions. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. It is not po-sslble to inv:e·st directly in an index. This report is provided for informational purposes only and should not be construed as a specific investment or legal advice. The information contained herein was obtained from sources believed to .be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are Inherently limited and should not be relied upon as indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest, credit and market risk. Interest rate risk: the value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market in general could decline due to economic conditions, especially during periods of rising interest rates. -