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For the Quarter Ended December 31, 2017 <br />REDWOOD CITY Portfolio Review <br />Portfolio Recap <br />Credit instruments generated outperformance for the quarter relative to government securities. The primary drivers of portfolio <br />performance were asset allocation and diversification. <br />Federal agency yield spreads remained very narrow relative to similar -maturity Treasuries throughout the quarter. We generally <br />favored U.S. Treasuries for government security allocations, except in a few maturity ranges where agency spreads were <br />marginally wider. Minimal incremental income and similar relative price changes resulted in little excess return from the agency <br />sector during the quarter. (Excess return is the return on a sector over and above the return on similar -duration Treasuries.) <br />Investment-grade corporate yield spreads continued to grind tighter. Due to a combination of incremental yield and spread <br />compression, the corporate sector was one of the best performing fixed income sectors during the quarter. <br />Incremental returns on asset-backed securities (ABS) were also strong, although they were dependent on industry, issuer, and <br />deal tranches. <br />Commercial paper continued to provide attractive incremental yield benefits relative to comparable maturity Treasuries. <br />PFM Asset Management LLC <br />