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PFM Asset Management LLCREDWOOD CITYFor the Quarter Ended September 30, 2017Portfolio ReviewPolicy challenges in the U.S., combined with escalating tensions on the geopolitical front, led to bouts of uncertainty which triggered periods of “risk-off” and “risk-on” during the third quarter. Nonetheless, volatility remained low and equities continued to book new record highs, reflective of investor complacency.After three rate hikes since December 2016, the Federal Reserve (Fed) shifted gears and announced the beginning of their program to reduce the central bank’s enormous balance sheet. The plan is to gradually reduce the Fed's securities holdings by decreasing its reinvestment of the principal payments on its large holdings of Treasury and agency mortgage-backed securities. This had little impact on our strategy as the process was telegraphed well in advance and will be gradual and predictable.Strong investor appetite for high-quality bonds generally caused the yield spreads on investment-grade fixed income sectors (relative to U.S. Treasuries) to tighten over the quarter, resulting in strong relative performance for corporate securities. •The yield spreads on federal agency securities vs. comparable-maturity Treasuries narrowed to historic lows, in some cases nearzero, leading to diminished value of the agency sector.•Corporate yield spreads also tightened to multi-year lows as investors reaching for yield piled into a limited market supply ofinvestment-grade securities.Without a clear trend in the direction of interest rates, we maintained the portfolio duration in line with the benchmark to minimize return volatility.Portfolio Recap26.1.A. - Page 7