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PORTFOLIO RECAPFor the Quarter Ended March 31, 2017Fixed Income Management2017 PFM Asset Management LLCKey drivers of market conditions in the first quarter included•Federal Reserve policy;•the inauguration of President Trump and the early rollout of various policies;•continued improvement in consumer confidence; and•further stock market appreciation.Yields remained within a narrow range through the first few months before rising strongly in anticipation of the March FOMC rate hike. Yields on the short end of the curve ended the quarter higher, reflecting the rate hike, while long-term yields declined alongside future inflation expectations.We maintained “neutral” durations through January and most of February as market conditions were consistent with an economic outlook for moderate growth. But, seeing that investors had become a bit too complacent about the potential for near-term Fed rate hikes, which resulted in rates being too low in our opinion, we shifted to a modestly short, more defensive posture in late February. Once a March rate hike became imminent, rates rose quickly. We were able to take advantage of the higher yields by extending duration just before the March 15 Fed meeting. Although the Fed raised rates, market yields fell after the meeting as the Fed’s accompanying statement implied a more gradual tightening path than anticipated.Federal agency yield spreads remained historically tight throughout the quarter as demand continued to outpace supply. We evaluated agency spreads across the yield curve and, where possible, took advantage of opportunities to•swap out of expensive agency holdings into U.S. Treasuries at similar yields and•purchase new issues that offered acceptable yield concessions, mostly in the 2-3 year maturity range.We maintained corporate allocations as the sector continued to provide incremental income and benefit from “roll-down.” We remain positive on the sector but, due to narrowing spread levels, approach the sector with more caution and selectivity. The corporate sector outperformed comparable maturity Treasuries for the sixth straight quarter. Leading up to the effective date of significant money market fund reforms last October, yields on commercial paper (CP) and bank certificate of deposits (CDs) rose sharply in the second half of 2016. Although spreads narrowed somewhat after the March Fed rate hike, short-term credit instruments, like CP and CDs, continued to offer excellent incremental yield opportunities. 106.1.A. - Page 19