AgdaPkt 2020-09-14 Amended Joint SA PFA

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6.A. - Page 7 of 46 REDWOOD CITY Portfolio Recap PFM's strategy for the second quarter encompassed the following: For the Quarter Ended June 30, 2020 Portfolio Review We remained proactive in response to the market effects and uncertainty created by the pandemic. We continued to apply our strong credit process, reassessing every issuer for the short- and intermediate-term impact of the disrupted economy. As financial markets began to normalize during the second quarter, investment-grade issuers on PFM's approved issuer list were carefully vetted, with many issuers gradually reapproved. The portfolio duration was maintained in line with the benchmark—a strategy consistent with high levels of market uncertainty as well as expectations that rates will remain low for a prolonged period. Our neutral duration strategy over the past 18 months has been an important element in sustaining performance as yields draw close to all-time lows. Prior to the pandemic, the portfolio was structured with a higher -than -normal allocation to U.S. Treasuries. As market conditions stabilized in the second quarter, we began to cautiously reallocate this excess liquidity into sectors and issuers that offered opportunities to safely enhance earnings. Throughout much of the second quarter, yield spreads on federal agencies were wide and attractive, so we took this opportunity to add allocations back to the sector. As yields began to narrow back to pre -crisis lows, especially in maturities under three years, the portfolio benefited from incremental performance. Investment grade corporate bonds faced a multitude of uncertainties heading into the second quarter as economies were shut down and companies contended with growing concerns around revenue, profitability, liquidity, and sustainability. Aggressive Fed actions calmed the credit markets and restored liquidity, leading to a sharp tightening of the wide yield spreads from March. This allowed companies to bring a record amount of new issuance to market. A key element to our strategy during the second quarter was to cautiously maintain overall exposure to the credit sector, emphasizing issuers with strong balance sheets and limited overseas exposure. This strategy benefited the portfolio significantly as investment grade corporates significantly outperformed Treasuries during the second quarter and mostly offset the negative underperformance experienced in the first quarter. The ABS sector was challenged by many unknowns during the quarter as high unemployment threatened consumers' ability to make timely payments on credit cards and car loans. The Fed revived a program from 2009 to provide financing to eligible ABS investors, boosting confidence in the sector. In addition, new deals were structured with increased credit enhancements. Although no new ABS purchases were made during the quarter, the outperformance of existing holdings boosted portfolio performance relative to the benchmark in the second half of the quarter. PFM Asset Management LLL; 13