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6.13. - Page 7 of 41 REDWOOD CITY Portfolio Recap Third quarter portfolio strategy encompassed the following: For the Quarter Ended September 30, 2020 Portfolio Review We maintained a sharp focus on portfolio safety with robust due diligence on credit and securitized products given the backdrop of a fragile economic environment. The portfolio's duration was targeted to match the benchmark duration as few catalysts were present to push yields meaningfully higher over the near term. • U.S. Treasury allocation was reduced further as financial markets stabilized and other sectors presented better investment opportunities to enhance portfolio earnings. Increased allocations to other investment-grade sectors boosted performance for the second consecutive quarter. • We continued to increase the portfolio's allocation to the federal agency sector as yield spreads on new issue Fannie Mae, Freddie Mac, and Federal Home Loan Bank bonds remained elevated from a historical perspective, especially for maturities of three years and longer. Value in callable structures was limited as spreads narrowed noticeably on most structures. • Investment-grade corporate notes were, once again, a significant boon for portfolio performance during the quarter. Supply was robust as corporations continued to take advantage of the low borrowing rate environment by issuing new bonds at a rapid pace. However, investor demand was strong and pressured spreads lower. While narrower spreads benefited third quarter performance, they also reduced future earnings potential. As a result, we maintained the portfolio's allocation in the sector. • After pausing new purchases of asset-backed securities (ABS) in the second quarter, we reevaluated underlying risks in the sector by conducting robust stress testing under a wide range of adverse scenarios, which affirmed the ability of most ABS to weather the current economic downturn. In the third quarter, we once again evaluated new issues, focusing on those issues with increased credit enhancements. • The taxable municipal sector remained active as entities benefited from the low borrowing rate environment. Finding value and diversification, PFM increased its participation in new issue municipal debt during the quarter as we viewed the sector to be quite attractive, even compared to some high-quality corporate issuers. PFM Asset Management LLC 53