RAMIREZ ASSET MANAGEMENT FOURTH QUARTER 2013 FIXED INCOME MARKET UPDATE

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1 RAMIREZ ASSET MANAGEMENT FOURTH QUARTER 2013 FIXED INCOME MARKET UPDATE 61 Broadway, 29 th Floor 200 N. LaSalle Street, Suite 1900 New York, NY Chicago, IL

2 EXECUTIVE SUMMARY The Federal Reserve s widely anticipated announcement concerning its intentions with respect to the tapering of its asset purchase program occurred on December 18, coinciding with Chairman Bernanke s final press conference as Fed Chairman. In January the Fed will begin reducing its purchases by $10 billion per month split equally between mortgage backed securities (MBS) and Treasuries. This will reduce monthly MBS purchases from $40 billion to $35 billion and Treasuries will decline to $40 billion from $45 billion. The announcement occurred in the wake of a bi-partisan budget deal, which may have been the catalyst for the timing of the taper. However, the Fed maintained its overall dovish position on interest rates and indicated that it might consider an unemployment target rate below 6.50% citing concerns over the ongoing weak employment participation rate and inflation below the stated 2.00% target. Ten-year Treasuries traded in a 50 basis point range in the fourth quarter closing near 3.00%, the high for the three-month period. For all of 2013 the yield on ten-year Treasuries climbed 121 basis points, most of which occurred June through August when investors began to anticipate and discount the inevitable beginning of the end to Quantitative Easing. The yield curve also steepened as taper fears disproportionately impacted longer maturities while short rates remained anchored as market participants pushed the timing of initial Fed tightening out to The risk on trade was intact in the fourth quarter and the year as a whole as spread product outperformed U.S. Treasuries The economy continued to experience some incremental improvement in the fourth quarter. Headline GDP growth for 3Q13 was revised up 1.3 percentage point to 4.1%, which was the fastest pace in almost two years and an acceleration from the second quarter s 2.5%. This third and final revision revealed a more favorable mix than what had largely been an inventory story in an earlier revision. This could bode well for economic growth in the fourth quarter and into early One of the key Fed data points, employment, was solid in November thereby keeping the improving trend in tack. However, the reduction in labor force participation has been overstating the overall health of the labor picture. Inflation as measured by the Personal Consumption Expenditures Index (PCE) was 100 basis points below the 2.00% Fed target. On a more positive note the Index of Leading Economic Indicators (LEI) is pointing to slightly firmer growth in In consideration of the slowly improving economy and low interest rates, we are maintaining our preference for spread product. Barring some unforeseen event that would cause renewed flight to quality, interest rates should continue to trend higher. However, the absolute levels of interest rates are still relatively low, a situation that favors the carry trade. Outlook: The economy continues to show signs of improvement. While the potential for price appreciation may be limited in light of higher trending interest rates the carry trade is still attractive. Therefore we are maintaining our overweight in spread product. 1

3 FIXED INCOME PERFORMANCE REVIEW AND OUTLOOK The broad U.S. investment-grade fixed income market generated total returns of -0.14% return during the fourth quarter and -2.02% for the year, with excess returns of +97 basis points (bps) and +79 bps, respectively. A majority of the spread sectors generated positive absolute returns, and contributed excess returns over duration-matched U.S. Treasuries in the fourth quarter. The top three sectors by absolute performance during the quarter were: Investment Grade Corporates (1.11%), BAML Taxable Municipals Index (0.59%), and Commercial Mortgage Backed Securities (0.53%). Corporate sector absolute returns were driven mainly by the Financials sub-sector which produced a quarterly return of 1.36%. In addition, each of the corporate sub sectors contributed at least +220 bps of excess return in the quarter. The Bank of America/Merrill Lynch ( BAML ) Taxable Municipal Index reversed some of the negative performance for the year. The sector performed well on a relative basis with +256 bps of excess return in the quarter, recovering slightly from multiple headwinds (Detroit s bankruptcy, Puerto Rico s fiscal problems, and retail mutual fund outflows) during the year. The Commercial Mortgage Backed Securities ( CMBS ) sub sector produced positive absolute and relative returns for the quarter, finishing the year as the only sector with a positive absolute total return for the year. In addition, the finance sub-sector generated a positive 0.93% return for the year. Sector Performance Sector Sector Return 4Q 2013 Excess Return 4Q 2013 Sector Return 2013 Excess Return 2013 Investment Grade Corporates 1.11% 2.32% -1.53% 2.86% BAML Taxable Municipals Index 0.59% 2.56% -5.42% 2.11% Commercial Mortgage Backed Securities (CMBS) 0.53% 0.86% 0.23% 0.99% Asset Backed Securities (ABS) 0.32% 0.46% -0.27% 0.24% Non-Corporates 0.20% 1.23% -3.80% 0.09% Barclays U.S. Aggregate Index -0.14% 0.79% -2.02% 0.97% U.S. Agencies -0.16% 0.25% -1.38% -0.11% Agency Mortgage Backed Securities (MBS) -0.42% 0.57% -1.41% 1.01% U.S. Treasuries -0.75% 0.00% -2.75% 0.00% U.S. Treasury Inflation Protected Securities (TIPS) -2.01% -1.26% -8.61% -5.86% Source: Index and Sector total return performance provided by Barclays and Bank of America/Merrill Lynch. Past Performance is not indicative of future results. U.S. Treasury Inflation Protected Securities (TIPS), U.S. Treasuries, Agency Mortgage Backed Securities (MBS), and U.S. Agencies lagged during the quarter. These sectors generated negative returns in tandem with a sustained rise in the level of interest rates. U.S. TIPS underperformed Treasuries, with approximately -126 bps in negative excess returns. For the year, U.S. Agencies and U.S. Treasury Inflation Protected Securities (TIPS) underperformed duration matched treasuries by -11 and -586 bps, respectively. 2

4 U.S. Governments U.S. treasuries produced -0.75% in 4Q13 and -2.75% for the year. Ten year treasury yields started 2013 at 1.76% and ended at 3.03%. Short term rates remained anchored while intermediate and longer term rates rose in anticipation of the Federal Reserve tapering its asset purchases. Global quantitative easing programs drove investors to higher yielding assets. In December, a bipartisan budget agreement cleared Congress, a higher than expected annualized GDP quarter over quarter print of 4.1%, and a lower than consensus unemployment rate of 7%, increased demand for risk assets. The Underemployment rate declined slightly from 14.4% in December 2012 to 13.2% in November If GDP shows consistent improvement, while the unemployment and the underemployment rates continue to decline, chances are that the Fed will taper throughout If U.S. and global fiscal and monetary policies work in sync to provide confidence to the global economy then the demand for risk assets should continue. If education and infrastructure reforms moves in the right direction to better prepare the U.S. to compete globally, then less government support will be needed in the future. There might be set-backs to economic growth over the course of 2014, but RAM believes the tremendous stimulus programs in place will provide for U.S. GDP growth greater than the 2% experienced in recent years. As a result, RAM is short duration and underweight U.S. treasuries. U.S. agencies produced -0.16% and -1.38% for the quarter and the year, slightly higher than duration matched U.S. treasuries for 4Q13, but under for the year As of year-end 2013 five year agencies offered an approximate modest 8 basis points of spread over U.S. treasuries. The last 10 year benchmark senior FHLMC debt was issued in January As the Fed tapers its mortgage buying, it is possible that mortgage spreads may widen and agency spreads will in turn widen modestly. RAM is underweight agencies, preferring non US. Government spread products that yield more and offer less extension risk. Some risks to an underweight in U.S. government bonds for 2014 are a global and domestic economic slowdown, Congressional gridlock, and geo-political risk. Outlook: Underweight. Tremendous stimulus programs increase confidence to invest in risk assets. U.S. Treasury Inflation Protected Securities (U.S. TIPs) As of November 30th, the Core Personal Consumption Expenditures (PCE) from the Department of Commerce, the Fed s preferred inflation gauge, was 1.12%, below the inflation target of 2-2.5% and below the 1.6% at the beginning of U.S. TIPs underperformed 4Q13 with a -2.01% sector return versus the U.S. treasuries sector return of -0.75%. U.S. TIPs underperformed in 2013 at-8.61%, the worst absolute return year in U.S. TIPs history, as retail outflows affected performance. RAM is modestly invested in front-intermediate end U.S. TIPs which have less of a negative return than the U.S. TIPs index and benefit from roll-down. The NYMEX Division light Crude Futures declined mid In 2013, 10-year break evens decreased from 2.45% to 2.23%, a reflection of a decline in inflation expectations over the course of 2013, specifically mid-year as the Fed announced the possibility of tapering asset purchases down the road, a reversal of its accommodative monetary policy in recent years. 3

5 Ten year break evens, a measure of inflation expectations increased from 2.16% to 2.23% in 4Q13, picking up steam in December after the Fed s $10 billion tapering announcement, as the Fed believed economic indicators have strengthened enough to begin to taper. U.S. TIPs are part of the Fed s asset purchase program. The accrual factor for U.S. TIPs, the CPI for Urban Consumers Non-Seasonally Adjusted-CPI-U NSA decreased from to during 4Q13 and increased from to in RAM believes a modest allocation to front-intermediate end U.S. TIPs will outperform nominal treasuries as tremendous stimulus encourage investment in risk assets, will benefit from the roll-down, gain traction from a Congress working together to lower the deficit, and may be enhanced with the Fed targeting a higher inflation rate than the current rate. Risks to RAM s 2014 U.S. TIPs forecast are continual retail outflows, lower medical inflation and slower than expected global and domestic economic growth. Outlook: U.S. Corporates Positive. Fed is targeting a higher rate of inflation than the current rate. Investment grade (IG) U.S. corporate bonds returned 1.11% for 4Q13 and -1.53% for 2013, gaining 232 and 286 basis points of excess return for the quarter and the year, respectively. IG Corporate bonds have been attractive alternatives versus U.S. treasuries as global quantitative easing programs encourage investment in risk assets. Strong equity market performance, interest by IG issuers to take advantage of low interest rates, and M&A activity such as the Verizon/Vodafone deal which offered bonds at attractive new issue concessions, encouraged modestly positive corporate bond excess returns during a rising rate environment. Finance bonds, benefitting from increased regulation such as Dodd- Frank to reduce systemic risk, earned 393 basis points of excess return over the course of 2013, and gained a positive 0.93% in total return. BBB-rated IG bonds yielded approximately 3.90% at year end and are attractive versus lower yielding A- rated corporate bonds. RAM believes select BBB bonds, such as Verizon, offer attractive spread, and is less likely at this juncture to lever up their balance sheet versus their A-rated counterparts. For 2014, RAM believes finance bonds will continue to benefit from strong fundamentals such as lower leverage, increased capital ratios, improved liquidity and low chance of a leveraging M&A event. RAM anticipates corporate bonds in aggregate will provide a low single digit total return as the larger tapering anticipation rate rise occurred in 2013 and rates should rise more modestly in The uncertainty around when the Fed would begin to taper was removed in December with the announcement that it would begin to decrease its asset purchases by $10 billion per month beginning in January, allowing corporate bond excess returns to continue to move higher. Some risks to the RAM s 2014 corporate bond forecast are global and domestic economic slowdowns, increased geo-political risk, risky M&A activity, and Congressional gridlock. Outlook: Positive. Finance bonds and select higher yielding BBBs are attractive. 4

6 Municipals For the 4th quarter of 2013, the broad market of taxable municipals/babs produced a total return of 0.59% and excess returns of 256 bps according to data supplied by Bank of America/Merrill Lynch ( BAML ) of all index eligible issues. Similarly, the broad market of tax-exempt municipals produced a total return of 0.37% and excess returns of 146 bps during the quarter. Year to date, the taxable municipals/babs index provided a return of -5.42% and excess returns of 211 bps with the tax-exempt municipal index providing year to date returns of -2.89% and excess returns of 0.73 bps. Municipals underperformed dramatically in the 2nd and 3rd quarter of 2013, with June and August alone, producing -2.93% and -0.79%, respectively for a combined -3.72%. These two months accounted for a large percentage of the negative price action for AAA tax exempt municipal bonds outperformed treasuries in Q4 across the curve with the 30 year Municipal/Treasury ratio (M/T) ending at 106.3% from a high of %, the 10 year M/T ending at 71.42% from a high of 94.30%, the 5 year M/T ending at 71.42% from a high of 94.30% and the 2 year M/T ending at 86.42% from a high of %. The municipal asset class started to recover from what we felt was an oversold condition starting in September and finished the year strong with considerable outperformance in Q4 of The factors that helped the asset class were the continuation of the factors that caused the reversal of the downtrend starting at the end of Q3, which we highlighted in our Q3 review. The technical factors were primarily a slowing in withdrawals from mutual funds, lower supply levels from new issues and the stabilization of the Treasury market. These factors were combined with credit headwinds associated with the record bankruptcy in Detroit, Michigan and downgrades on Puerto Rico bond, which were digested by the market and realized to be large events that were fundamental issues related to those specific issuers and not the broad market. In Q3 and Q4, with municipals yields becoming very attractive on a relative and historical basis, the market experienced a reversal of the trend and strong outperformance resulted with both retail and crossover investors taking advantage of buying opportunities. Taxable municipals, at their current levels, represent value relative to other investment grade asset classes including emerging and high yield. The spread differential between taxable municipals and the credit index continues to be wider than both shorter and longer term averages while possessing an average index credit rating of AA3/A1 versus A2/A3, respectively. The fundamentals of the broad based municipal market continue to improve as the economy recovers, with Q3 estimates showing growth in state tax revenues. Puerto Rico remains a closely watched credit story with a potential for additional downgrades of many of the islands credits to below investment grade. Several reforms have been implemented within the tax codes, pension plans and rates on infrastructure usage to help improve the credit picture. Detroit is working through the restructuring process, with the bankruptcy judge giving them the ability to include pensions as part of the process. We do not see this becoming a popular option for other issuers to reduce pension obligations, with the implementation of reforms becoming more commonplace. This process has begun in Illinois with the Illinois State legislature passing pension reform in late 2013 to address their pension liabilities. For 2014, we continue to be cautiously optimistic about the asset class performance on an excess return basis, finding the yield opportunities, structure options, higher credit quality, and low correlations to other fixed income asset classes to be compelling. RAM selectively favors defensive structures and solid investment grade issuers. The effects of headline risks could cause short term moments of stress in the markets in the coming months and will be for the most part issuer specific. The fundamental picture for a majority of the municipal market will continue to improve helped by a combination of a stabilizing and improving economy, consumer, employment and home values. 5

7 Outlook: Short term - Cautiously optimistic, selectively adding during oversold market conditions. Long term - Positive, focus on defensive structures, improving credits and relative value opportunities Agency Mortgage Backed Securities (MBS) The Agency Mortgage Backed Securities (MBS) sector produced an overall total rate of return of -0.42% during the fourth quarter with an excess return of +57 basis points. The final two weeks of the year helped to salvage the quarter for the sector as the excess return during the final month of the year was +55 bps. This relative outperformance coincided with the FED s announcement of a reduction of purchases of both U.S. Treasuries and U.S. Agency Mortgages. The sector overall exhibited the weakest results within the primary securitized sectors during the fourth quarter. In deconstructing the collateral by term, 15 and 20 year paper had total rates of return of -0.38% and -0.12%, respectively, while 30 year collateral provided a return of -0.46% for the quarter. From a relative outperformance perspective, 20 year issues ended the quarter with +76 basis points of excess return, while 15 year mortgages had +27 basis points and 30 year with +61 basis points. The overall effective duration of the sector remained fairly unchanged at 5.6 years. The current coupon FNMA 30 year mortgage is 3.50% and is trading at a spread of +87 basis points to the equivalent average life U.S. Treasury with a yield of 3.60%. This translates into an OAS of 37 at year end. While there are both positive and negative headwinds for the sector, we continue to remain cautious on Agency MBS. The mortgage sector negative headwinds primarily revolve around sponsorship; who will the natural buyers be to pick up the slack from FED tapering? This lack of sponsorship includes mortgage REITs, capital treatment of the sector for banks, money manager s underweight/neutral the sector, and GSE retrenchment. Additionally we do not find current spreads for the current coupons to be very compelling giving the risks we believe may crop up to varying degrees over the short term. With the ten year U.S. Treasury hovering around 3%, the majority of outstanding mortgages are no longer refinanceable. As such our emphasis is on managing extension risk and insulating portfolios from a further rise in rates while concurrently mining for pockets of value in premium coupon specified pools. We are looking for premium 30 year collateral to act as a defensive measure to protect against a rise in rates. Also, specific premium coupon issues which have attractive prepay characteristics as well as compelling relative value compared to current production. Where opportunities exist, we are moving from current/discount coupons into high premium 4.5% to 5.5% collateral. While RAM acknowledges that the eligible universe of refinanceable mortgages may increase in the near future due to regulatory changes to the HARP mandates, we believe any impact from eligibility rules will be muted due to modestly increasing interest rates and the increased costs associated with refinancings. Outlook: Negative. While we acknowledge certain technicals are supportive of the sector, RAM is of the view that current levels do not represent attractive relative value particularly in light of FED tapering. 6

8 Commercial Mortgage Backed Securities (CMBS) Ramirez Asset Management For the fourth quarter 2013 the CMBS sector generated a total rate of return of 0.53%, below the 1.02% realized during the third quarter. An excess return of 86 basis points was accumulated during the quarter, the best within the securitized space, as investors continued to embrace risk assets. This was evidenced by the generation of an additional 66 basis points of excess return in the previous quarter. The much awaited formal announcement by the Federal Reserve in December of a reduction in open market purchases of U.S. Treasuries and agency mortgage backed securities did not put a damper on the CMBS sector as market participants had largely priced in such a move and yields did not breach 3% on the 10 year U.S. Treasury note. Spreads on 5 year AAA senior new issue tranches closed out the year at approximately swaps +80 basis points while 10 year new issue AAA senior last cash flow (LCF) ended the year at roughly swaps +85. In the legacy space, 2 to 3 year average life A4 s are generally bid in a +75 to +90 to swaps context. Overall credit trends in the sector remain positive with delinquencies on legacy issues moving lower as well as the value of loans with special servicers. Loans with high concentration levels to JC Penney and Sears will be discounted but not fully reflect the potential for a bankruptcy filing or liquidation of these 2 struggling retailers. Moving into 2014 our outlook is generally positive and we remain overweight the sector. However we do not believe that new issue average life senior tranches have any further room for risk spreads to narrow, specifically 10 year LCF A4 paper. RAM remains more constructive on new issue 5 year average life CMBS; however from a yield carry play and not from a meaningful contraction in risk premiums. We generally believe that the 5 year portion of the CMBS sector offers compelling value relative to most of the other higher quality spread sectors. As such, RAM continues to favor legacy issues with 2 to 4 year average lives. One caveat within this sub sector is identifying bonds which contain a reasonable lockout period and an acceptable retail component in the underlying collateral. As we enter 2014, name specific 2011 vintage collateral in the front end of the yield curve as well as 2005/2006 paper appear to offer attractive relative spreads to new issue 5 year collateral. Additionally, underwriting standards on CMBS 2.0 vintage issues remained conservative. Attaining a reasonable lockout period is also addressed through these issues. The one caveat will be availability of issues in the secondary market with which to consider relative value swaps or for outright purchases. Lastly, RAM believes select AM legacy tranches present an attractive opportunity relative to new issue and legacy senior notes, again with the caveat of issue specific characteristics and availability in the secondary market. Outlook: Positive. Favor 5 year and shorter average lives in legacy CMBS 1.0 and new issue space. We believe new issue paper will be a carry advantage, while legacy paper may still witness modest spread contraction. Vintage 2011 collateral and subordinated 2005/2006 legacy tranches may present a compelling relative value opportunity on an issue specific basis. Asset Backed Securities (ABS) During the final quarter of 2013, the ABS sector delivered a total rate of return of 0.32% while producing an excess return of 46 basis points. In deconstructing the sector, one finds that the credit card sub sector posted a total return of 0.17% and +39 basis points in excess return. Auto related ABS collateral had a higher total return of 0.52%, the highest within the securitized space, and excess 7

9 return of +51 basis points. Interestingly, the impact of the subordinated tranches, particularly in the auto collateral space, is evident with the AAA segment generating a return of only 0.06% with a corresponding excess return of +33 basis points. Thus the subordinated sectors rated from AA to BBB had an outsized effect on overall ABS performance. While they represent only a very small percentage of overall outstanding ABS they moved the sector performance by 13 basis points in excess return or approximately 35%. Senior tranches rated AAA represent approximately 89% of outstanding ABS issues that are eligible for inclusion within the Barclay s Capital Aggregate Index. Credit fundamentals continue to be positive for the sector though that may reach a nadir in 2014 as consumer deleveraging winds down. RAM continues to take a positive outlook on the sector entering The majority of the excess returns occurred in the November and December time periods as investors embraced risk assets and continued to search for higher yielding issues. The quarter saw AAA spreads trade in a narrow range with yield carry accounting for the positive excess returns during the quarter. Subordinated tranches saw risk premiums narrow by roughly 20 basis points during the same period. An additional characteristic providing support to the sector is the limited nature of duration for the majority of ABS issuance, providing an attractive sector for those guarding against interest rate risk. Though we acknowledge the strong fourth quarter performance in the lower rated ABS tranches, overall RAM enters 2014 continuing to favor the AA and A tranches of both prime auto and sub prime auto issuers from both a yield carry and excess return viewpoint. We believe the ABS credit curve will continue to narrow with most ABS issues getting at least close to their 2013 tights. Additionally we continue to have a positive outlook on equipment and dealer floor plan ABS. We maintain our view that the performance of the most senior tranches may continue to be more about carry versus spread contraction although modest spread compression may still yet occur. While the more esoteric ABS sectors continue to present attractive yields, RAM continues to favor taking risk within the more established, liquid, primary sub sectors. Outlook: Positive. RAM favors mid rated tranches in auto, floor plan, equipment and select credit card collateral. Senior tranches continue to present a carry opportunity more so than spread compression. We believe spreads may retest their 2013 tights. 8

10 FIXED INCOME MARKET REVIEW One Year Change in the U.S. Treasury Yield Curve Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 12/31/ /31/ Year Change Source: US Department of the Treasury ( 9

11 Bloomberg Economic Forecasts by Quarter Economic Activity Q4 12 Ramirez Asset Management Q1 13 Q2 13 Real GDP (QoQ% SAAR) CPI (YoY%) Core PCE (YoY%) Unemployment (%) Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Interest Rates Central Bank Rate (%) Month Rate (%) Year Note (%) Year Note (%) ECONOMIC REVIEW Source: Bloomberg, forecasts in green are provided by consensus estimates polled from participating firms. The key developments during 4Q13 happened in the following areas: Improvements in macroeconomic conditions in the US Somewhat surprising December vote by the FOMC to reduce the pace of asset purchases The standoff in Congress regarding spending authority and debt limit In terms of macroeconomic indexes, 2013 ended on a relatively positive note. In particular, in relation to 3Q: Unemployment declined to a five-year low of 7% and job creation, as measured by change in non-farm payrolls, was strong in both October and November November industrial production increased at a highest rate in over a year, after a modest increase in October ISM manufacturing index has improved since September while the non-manufacturing index in December came below expectations, although still in positive territory Empire State Manufacturing Survey index and the Federal Reserve Bank of Philadelphia s index have declined since September although they still indicate expansion Auto sales remained strong and at the level comparable to the prior quarter 10

12 Housing permits in each of October and November, and sales of new homes, reached mid-2008 levels. Sales of existing homes decreased somewhat Both University of Michigan and Conference Board consumer confidence indexes improved over the quarter The Fed s communications remained in focus during the quarter: Beginning in January, the pace of asset purchases slowed by $5 billion for each of Treasuries and agency MBS from current $45 billion and $40 billion per month, respectively, according to the FOMC statement in December The FOMC s decisions about the pace of asset purchases will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases In a change to forward guidance, the FOMC now expects to keep the federal funds rate at the current target of % well past the time that the unemployment rate declines below 6.5%, especially if projected inflation continues to run below the Committee's 2% longer-run goal The Fed s Vice Chairman, Janet Yellen, was nominated to succeed Ben Bernanke whose term ends January 31. The Senate confirmed Ms. Yellen as the Chairwoman on January 6 The President s administration indicated that Stanley Fischer, former Governor of Bank of Israel, is the leading candidate to become Vice Chairman of the Fed (i.e. the Fed s number two official) October 2013 was marked by the failure of the two chambers of Congress to agree on the government s spending authority in the new fiscal year and extend the debt limit, resulting in the government showdown for sixteen days as well as fears of the country's default. In a last minute decision on October 16, spending authority was granted till January 15 and the debt limit was increased till February 7, In December, Congress set a positive precedent by passing bipartisan agreement on discretionary spending in 2014 and 2015, suggesting less confrontational spending authority discussions going forward. However, the debt limit issue was not addressed, which may result in yet another congressional fight in early

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15 RAMIREZ ASSET MANAGEMENT ( RAM ), founded in 2002, provides asset management services for institutional investors. The firm specializes in fixed income and offers customized investment programs for each of our clients. Our firm consists of experienced professionals whose singular mission is to provide our clients with the highest quality of fixed income management and service. RAM utilizes a full range of resources and infrastructure to work with our clients to analyze, develop, and implement a fixed income strategy to meet their goals and objectives. Investment strategies that we offer: Core Strategic Core Intermediate For more information, please contact: Samuel A. Ramirez, Jr. President and CEO Phone: (212) Fax: (212) sam.jr@ramirezam.com Strategic Intermediate Long Duration Short Duration/Enhanced Cash Bond Proceeds Management Liability Driven Investing Disclaimer: The views expressed are the views of Ramirez Asset Management through the period ending December 31, 2013 and are subject to change at any time based on market and other conditions. Sources of index performance and related data include Barclays, Bank of America/Merrill Lynch, and Bloomberg. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. 14