Monthly Commentary

October 2016

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Monthly Commentary 10/31/16

Monthly Commentary

During October, global markets were

focused on the U.S. Presidential

Election as the race tightened

significantly late in the month with

polls showing Hillary Clinton’s lead

over Donald Trump narrowing. The

campaign trail took an unexpected

turn on October 28th when FBI

Director James Comey notified

Congress that his bureau had learned

of new emails that could be pertinent

to their previously completed

investigation of Hillary Clinton’s use of

a private server when she was

Secretary of State. Following the

announcement, financial markets

experienced a bout of volatility that

continued through the end of the

month.

Regardless of the outcome of the U.S.

Presidential Election, we maintained a

cautious stance toward U.S.

Government bonds. First and

foremost, we believe that inflation

expectations are likely to increase

over the next several months

especially if energy prices stabilize and

healthcare costs continue to rise.

Although it may take a few months for

the base effects to roll off, the

Consumer Price Index (CPI) is likely to

push toward 2% over the next several

months which make Treasury Inflation

-Protected Securities (TIPS) an

attractive alternative.

In addition to rising inflation

expectations, both candidates are

likely to bring massive infrastructure

plans to the White House that will

likely be financed by additional debt

which is exclusive to the longer-term

issue of ballooning entitlements.

Foreign holders of U.S. Treasuries

(UST) have been net sellers over the

past several months. According to the

last two Treasury International Capital

(TIC) reports, foreign investors have

been net sellers of UST in favor of

other higher yielding investments.

Although UST offer an attractive yield

profile relative to many low to

negative yielding sovereigns, the yield

pickup has eroded thanks to rising

LIBOR and other costs associated with

hedging currency risk (see below).

As we expected, rates continued to

move higher during October as the

benchmark 10-year UST ended the

month up 24 basis points (bps) to

close at 1.83%. By month end, the

World Interest Rate Probability (WIRP)

function on Bloomberg implied just a

16% chance of a rate hike at the

November meeting while the U.S.

Dollar (USD) rallied in line with

expectations for the U.S. Federal

Reserve (Fed) to hike interest rates at

their December meeting. According to

the implied futures market, there is a

71% chance of a hike at the December

14th meeting. With a November hike

virtually off the table, the market will

have its eye on the Federal Open

Market Committee (FOMC) to see if

they can hold on to any credibility of

their interest rate forecasts.

Overview

Yield Pickup for European Investor Buying 10-Year U.S. Treasury (FX Hedged) vs. 10-Year Bunds

Source: Bloomberg

-0.20%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

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Monthly Commentary 10/31/16

Monthly Commentary

Prepayment speeds were faster

this month than expected, making

it the third month in a row where

speeds printed higher than market

consensus estimates. Aggregate

speeds declined by about 5% with

Fannie Mae printing 17.9, Freddie

Mac printing 17.7, and Ginnie Mae

printing 21.7. Higher coupons did

not see much change in speeds but

production coupon paper did see

some minor declines, attributed to

lower day count for this period.

Lags continue to be cause of

higher than expected prepayment

activity. Due to a lower day count,

negative seasonality factors, and a

higher mortgage rate, it’s

anticipated that speeds will drop

further in November.

Total gross issuance for the month

of October was approximately

$154 billion, bringing year-to-date

(YTD) volumes to approximately

$1.25 trillion. Based on current run

rates, we may surpass 2015 total

gross issuance volumes by

November month-end most likely

due to higher than expected

prepayment activity for the third

and fourth quarter of this year.

The mortgage basis was near its

tightest levels since the end of

2014 by October month-end. The

Collateralized Mortgage Obligation

(CMO) side of the market in

particular has been on the tighter

end of their spread range for the

trailing 12-month period. This has

largely been supported by healthy

demand both domestically from

banks and from overseas investors

as the mortgage sector continues

to provide more attractive yields

relative to local yields since in

other markets such as Japan and

Taiwan.

Trading volume was $5.7 billion in

October, which was higher than

the previous month. However,

year over year, trading volume was

down from $8.3 billion in October

2015, primarily due to the

amortizing nature of mortgage

loans. As we approach year end, it

remains to be seen if trading

volume will continue to pick up

due to volatile political

environment in the United States.

In the October remittance reports,

prepayments speeds for legacy

non-Agency slowed. The decrease

in speeds was attributable to a

lower day count in September.

Liquidation speeds were slightly

lower and severities improved in

September. Specifically, liquidation

timelines seem to be improving in

non-judicial states, which have

resulted in improving severity

prints.

October private-label issuance

consisted of 10 deals totaling $6.8

billion, a decrease of $1.3 billion

from September. The transactions

consisted of four conduit deals

totaling $3.8 billion and six single-

asset single-borrower (SASB) deals

totaling $3.0 billion. While conduit

issuance was 35% lower than

September, SASB issuance was

62% higher and included the first

Risk Retention compliance deal.

Conduit issuance is expected to

pick-up in November as dealers

are assembling a robust pipeline

before Risk Retention takes effect

in December.

Agency Mortgage-Backed Securities

Non-Agency MBS

Conditional Prepayment Rates (CPR)

2015 - 2016 Nov Dec Jan Feb Mar Apr May Jun July Aug Sept Oct

Fannie Mae (FNMA) 10.5% 11.9% 9.3% 10.1% 14.7% 14.2% 15.0% 16.3% 15.0% 20.0% 18.9% 17.9%

Freddie Mac (FHLMC) 10.5% 11.6% 9.3% 10.0% 14.6% 14.1% 15.0% 16.1% 14.8% 19.8% 18.6% 17.7%

Ginnie Mae (GNMA) 13.8% 15.6% 13.4% 14.2% 19.3% 18.5% 19.6% 21.5% 19.9% 23.8% 22.5% 21.7%

Barclays Capital U.S.

MBS Index 8/31/2016 9/30/2016 10/31/2016 Change

Average Dollar Price $106.34 $106.44 $105.39 -$1.05

Duration 2.40 2.50 3.09 0.59

Barclays Capital U.S.

Index Returns 8/31/2016 9/30/2016 10/31/2016

Aggregate -0.11% -0.06% -1.10%

MBS 0.12% 0.28% -0.56%

Corporate 0.20% -0.28% -1.44%

Treasury -0.55% -0.13% -1.28%

source: eMBS, Barclays Capital

Commercial MBS

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Monthly Commentary 10/31/16

Monthly Commentary

The CMBS Delinquency Rate

continued to rise in October and

closed the month at 4.98%, a 20

bps increase from September. The

CMBS Delinquency Rate increased

seven of the last eight months as

loans from 2006/2007 deals

continue to reach their maturity. It

is important to note, however, the

percentage of delinquent or

specially serviced loans among post

-crisis conduit deals stands at a

mere 0.60%, up only 21 bps since

January.

The Moody’s/RCA Commercial

Property Price Indices (CPPI)

National All-Property Composite

Index has gained 101% since its

financial crisis trough in January

2010. Prices are now 21% above

their pre-crisis peak in November

2007. Both major and non-major

markets have exhibited

comparable growth at

approximately 8% year-over-year

(YoY).

The UST market continued to be in

the sell-off mode in October and

the 10-year UST yield was pushed

up to 1.87 towards end of the

month. According to the Barclays

U.S. Government Index, treasuries

as a whole retracted by 1.06%

compared with last month, making

October the worst month of the

year so far. Yields have been

steadily rising for the last three

months, which confirmed our

thoughts that the Treasuries

market bottomed out around early

July.

The yield curve continued the

steepening trend in October. The

short end of the curve was still held

down by the Fed’s low rate

policies, but the long end kept

rising. Specifically, compared to

September, the 10-year yield

increased 23 bps in October while

the 30-year yield increased over 26

bps.

A big portion of the rise in nominal

yield can be attributed to mounting

inflation expectations, which can

be observed through breakeven

rates. The 10-year breakeven rate,

which is the difference between

nominal yield and real yield,

climbed 12 bps during the month.

In the mid-to-long term, our base

case is still a rising rate

environment regardless of the

election’s outcome. Among many

emerging signs of inflation, we’d

like to point out that wage growth,

a reliable harbinger of inflation

historically, has been on the

upward trend. We expect inflation

linked bonds to outperform in the

mid-term.

While spreads touched a 12-month

low of 123 bps intra-month, the

Barclays U.S. Credit Index ended

October at 125 bps posting 47 bps

of excess return.

Yield Curve

Source: Bloomberg

9/30/2016 10/31/2016 Change

3 month 0.27% 0.30% 0.03%

6 month 0.43% 0.49% 0.06%

1 year 0.59% 0.64% 0.05%

2 year 0.76% 0.84% 0.08%

3 year 0.88% 0.99% 0.11%

5 year 1.15% 1.31% 0.16%

10 year 1.59% 1.83% 0.24%

30 year 2.32% 2.58% 0.26%

U.S. Government Securities

Investment Grade Credit

Barclays U.S. Credit Index Yield-to-Worst As of October 31, 2016

Source: Bloomberg

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Monthly Commentary 10/31/16

Monthly Commentary

Higher beta sectors once again

outperformed, with Metals &

Mining and Energy posting excess

returns of 2.03% and 1.55%,

respectively. The worst performing

sector, Wirelines, returned -2.43%

of excess return and was negatively

impacted by the large ATT/Time

Warner deal announcement.

Fund flows continued to be positive

and supported a strong technical

bid for bonds. The new issue

market remained active with

$126.2 billion of new issuance

compared to $111.7 billion in

October 2015. The strong demand

was evident in aggressive new issue

pricing with some new issues

coming tighter than the

outstanding paper.

October was a hectic month in the

new issue and refinancing markets

of U.S. Collateralized Loan

Obligations (CLOs). October new

issuance was the highest the CLO

market has seen in 2016 with $8.41

billion of new issuance across 17

deals. October outpaced

September by $170 million in new

issue. Year-to-date (YTD) issuance

now stands at $54.49 billion which

exceeded the revised expectation

of $45 billion.

In addition to the 17 new deals that

came to market, 21 seasoned deals

refinanced the AAA through A or

reset the entire tranche. With Risk

Retention becoming effective in

December, CLOs that wanted to

refinance or reset had to do so on

their last payment date before the

Risk Retention effective date. Since

a majority of CLOs last chance to

refinance was during this October

pay period, there was a flurry of

refinancing activity during October.

We expect CLO refinancing and

reset activity to continue through

November, albeit at a slower pace.

The secondary market saw

decreased activity this month

because of the flood of new issue

and refinancing activity in the

primary market. This decrease in

secondary market activity left

prices relatively unchanged for the

month of October.

The S&P/LSTA Leveraged Loan

Index returned 0.83% in the month

of October, bringing the YTD total

return to 8.61%. The lower range of

the credit curve continued to

outperform, with CCCs, Bs and BBs

returning 3.43%, 0.85%, and 0.30%,

respectively during the month.

Similarly, cyclical commodity

sectors outperformed the broader

market, with Metals & Mining and

Oil & Gas returning 8.68% and

6.15%, respectively. The average

bid of the Index jumped 2.05 points

to $97.17. The exceptionally large

price move was due in large part to

an Index rebalance that removed

$22.7 billion of Texas Competitive

Electric Holdings (TCEH) pre-

petition debt from the index

following the company’s exit from

bankruptcy. The average

discounted spread to maturity fell

19 bps last month to LIBOR +461

bps, the lowest level since August

2014.

With the removal of TCEH loans,

the par value outstanding of the

Index contracted 1.7% to $866.8

billion. October continued to be a

busy month for loan arrangers with

$46.1 billion of new loan issuance

following September’s $58.2

billion, which was the second

highest monthly amount on record.

Much of the new issue activity has

been attributable to refinancing as

issuers opportunistically brought

deals given the favorable market

conditions. The net effect of new

issuance and repayments was

positive $4.7 billion during

September.

Demand for leveraged loans

continues to increase moderately.

The leveraged loan market

experienced $10.7 billion of inflows

Source: S&P Capital IQ

U.S. CLO Monthly Issuance January 2016—October 2016

Collateralized Loan Obligations

Bank Loans

0

2

4

6

8

10

12

14

16

18

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16

# o

f D

ea

ls

Issu

an

ce (

$B

illi

on

s)

Number of Deals

Issuance

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Monthly Commentary 10/31/16

Monthly Commentary

in October, composed of $8.4

billion of CLO issuance and the

largest prime fund inflow since

February 2014 at $2.3 billion.

The lagging 12-month loan default

rate rose slightly during the month

to 2.35% from 2.23% as there was

one new default in October.

During October, High Yield (HY)

bond yields declined to a YTD low

and then rose late in the month

amid increasing treasury rates,

weaker oil prices, election-related

concerns and heavy ETF outflows.

Still, the Citi HY Cash-Pay Capped

Index managed to return 0.27% for

the month, bringing the yield-to-

worst to 6.27% and spread-to-

worst to 5.02%. Despite the late-

month sell-off, CCC-rated bonds

outperformed while Bs and BBs

lagged.

One supportive factor during the

first three weeks was that high

yield bond new issue supply totaled

only $6.5 billion, according to

Barclays. Then, as earnings season

slowed, the primary market saw

$7.0 billion during the final week.

U.S. issuance in 2016 through

October was $184.0 billion, down

18.5% from the same period last

year. JP Morgan estimates 60% of

the $126 billion of new issuance

since May has been used to

refinance existing debt, resulting in

limited net new securities brought

to market.

In October the broad commodity

market declined by 0.52% and

1.53%, as measured by the

Bloomberg Commodity Index

(BCOM) and the S&P Goldman

Sachs Commodity Index (S&P GSCI),

respectively.

Sector performance was mixed

during the month of October with

three sectors gaining while two

sectors declined. The best

performing sector was Livestock,

which gained 4.16% as Lean Hogs

rallied 9.04% with Live Cattle and

Feeder Cattle increasing 3.20% and

0.16%, respectively. The Industrial

Metals sector increased by 1.11%

in October, with the best and worst

sector performers being Aluminum

and Lead, with returns of 3.61%

and -3.12%, respectively.

Precious Metals fell by 3.82% with

Gold declining 3.34% and Silver

declining over twice that amount

with a return of -7.38%. The

Agriculture sector rallied 2.40% in

October as Corn and Soybeans

rallied over 5%, with returns of

5.35% and 5.23%, respectively.

Sugar was the worst performer for

the month declining 6.22%. The

Energy sector declined 3.51% with

every commodity in the sector

declining. Brent crude (-4.31%) fell

the most with a return of -4.31%

while Natural Gas had the smallest

decline with a return of -1.68%.

Emerging markets (EM) were not

immune to the back up in global

market yields and rising volatility.

October saw the weakest monthly

performance in EM external

sovereign debt in 2016. Credit

spreads were relatively unchanged

month-over-month (MoM), but the

rise in U.S. Treasury yields led to

High Yield

Commodities Emerging Markets

JP Morgan Emerging Markets Bond Index Performance October 31, 2015 to October 31, 2016

Source: JP Morgan

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

JPM Emerging Markets Bond Global Diversified Index (EMBI)

JPM Corporate Emerging Markets Bond Broad Diversified Index (CEMBI)

JPM Government Bond Emerging Markets Broad Diversified Index (GBI EM)

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Monthly Commentary 10/31/16

Monthly Commentary

negative total returns for the asset

class.

EM external corporate debt

outperformed its sovereign

counterpart, in part due to its

shorter duration relative to the

sovereign index, and modest credit

spread tightening during the

month.

For the month of October,

infrastructure-related bond issues

financed through the IG Corporate

bond market lagged as rising rates

and marginal spread widening led

to slight underperformance in both

the Utility and Transport sectors.

The strongest performers in this

space were Energy distribution

assets (midstream), while regulated

Utilities saw the most spread

widening.

Within EM, infrastructure assets

fared much better as broader

spread tightening was able to

overcome the steepening yield

curve. Assets in Latin America

performed especially well as

spread tightening in this region was

amongst the most pronounced for

EM.

ABS issues secured by

infrastructure assets also rallied

during October. Investor demand

was brisk and lead to tighter

spreads in almost all sectors. Clean

Energy, Aircraft and Container

transactions were especially well

bid with strong demand on both

the primary and secondary fronts.

With both U.S. Government bond

yields and Donald Trump’s poll

numbers rising during the October,

U.S. equity markets ended the

month lower. In October, the

benchmark S&P 500 Index lost over

1.8%. Smaller capitalization stocks

suffered more, with the Russell

2000 Index losing 5%.

The best performing sector within

the S&P 500 was Financial Services,

with the steepening yield curve

improving future earnings

prospects. Real Estate, Telecom

and Healthcare were all quite weak

in the month, losing 5.5%, 6.5%

and 6.5%, respectively.

October also marked the beginning

of the third quarter earnings

release season. At the beginning of

the month, consensus expectations

gave a sixth consecutive quarter of

YoY earnings declines for the S&P

500 according to FactSet. By the

end of the month, over 58% of S&P

500 companies had reported their

third quarter earnings. With

earnings reports slightly better

than expected, estimates for S&P

500 earnings stood at a positive

1.6% at month-end. If this trend

holds, the losing streak of shrinking

earnings may be over.

At month-end, third quarter

revenue growth estimates stood at

2.7% YoY, little changed during the

month. Consensus estimates

continue to look for a sharp fourth

quarter acceleration in S&P 500

revenue and earnings to 5.2% and

4.6%, respectively. Absent

accelerating GDP, these estimates

may prove tough to achieve.

Global equities sold off in October

with the Morgan Stanley Capital

International All Country World

Index (MSCI ACWI) down 1.67%

during the month as global risk

sentiment declined heading into

the U.S. presidential election. U.S.

equities retreated with the S&P

500 and Dow Jones returning -

1.82% and -0.79%, respectively.

The Nasdaq and Russell 2000

Indices fared worse returning -

2.26% and -4.75%, respectively.

In Europe, equities outperformed

the broader market with the

Eurostoxx 50 up 1.91% during the

month. Regional equities climbed

with the DAX up 1.47% and CAC up

1.45%. In the periphery, equities

strengthened with the FTSEMIB up

4.41% and IBEX up 4.64%. During

October, the European banking

sector rebounded with the

Eurostoxx Banks Index up 13.18%

during the month while the euro

declined. U.K. equities, as

measured by the FTSE 100, rallied

1.03%.

Asian equities performed well in

October with Japanese equities, as

Global Equities

Infrastructure

U.S. Equities

8

Monthly Commentary 10/31/16

Monthly Commentary

measured by the Nikkei, up 5.93%.

Chinese equities, as measured by

the Shanghai Composite, returned

3.19%. Japanese equities

rebounded as the Japanese Yen

weakened alleviating pressure on

Japanese exporters.

EM equities managed small

positive returns with the MSCI

Emerging Markets Index up 0.25%.

Brazil’s Ibovespa was up 11.23%.

Russian equities, as measured by

MSCI Russia, returned 0.67%.

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Quarterly Commentary 10/31/16

Definitions

Barclays U.S. Corporate Index -An index designed to be a broad-based measure of the global investment-grade, fixed rate, fixed income corporate markets outside the

United States.

Barclays U.S. Credit Index—The US Credit component of the U.S. Government/Credit Index. This index consists of publically-issued U.S. corporate and specified foreign

debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. The US Credit Index is the

same as the former US Corporate Investment Grade Index.

Barclays U.S. Government Index - An index that measures the performance of all public U.S. government obligations with remaining maturities of one year or more.

Bloomberg Commodity Index (BCOM) - An index calculated on an excess return basis that reflects commodity futures price movements. The index rebalances annually

weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Roll period

typically occurs from 6th-10th business day based on the roll schedule.

Citi High-Yield Cash-Pay Capped Index -This index represents the cash-pay securities of the Citigroup High-Yield Market Capped Index, which represents a modified

version of the High Yield Market Index by delaying the entry of fallen angel issues and capping the par value of individual issuers at $5 billion par amount outstanding.

Cotation Assistee en Continu 40 (CAC 40) - The CAC 40 Index which is a French stock market index. It tracks 40 of the largest French stocks on the Paris Bourse, or

stock exchange.

Consumer Price Index (CPI) - A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, fo od and

medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to

their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Credit Suisse High Yield Index - The index reflects a trader-priced portfolio constructed to mirror the global high-yield debt market.

Deutsche Borse AG German Stock Index (DAX) - The German stock index, which represents 30 of the largest and most liquid German companies that trade on the

Frankfurt Exchange.

Dow Jones Industrial Average (DJIA) - A price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq.

ECB Corporate Sector Purchase Program - A program established by the European Central Bank with the goal of strengthening financing conditions. Six national

central banks will coordinate to purchase IG Euro-denominated bonds issued by non-bank corporations established in the euro area.

Eurostoxx 50 Index - A stock index of Eurozone stocks designed by STOXX, an index provider owned by Deutsche Borse Group and SIX group, with the goal of

providing a blue-chip representation of Supersector leaders in the Eurozone.

Financial Times Stock Exchange 100 (FTSE 100) - A capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange.

Financial Times Stock Exchange Milano Italia Borsa (FTSE MIB) - The benchmark stock market index for the Borsa Italiana, the Italian national stock exchange, which

superseded the MIB-30 in September 2004. The index consists of the 40 most-traded stock classes on the exchange.

S&P Goldman Sachs Commodity Index (GSCI) - Standard & Poor’s Goldman Sachs Commodity Index, or GSCI, is a composite index of commodity sector returns which

represents a broadly diversified, unleveraged, long-only position in commodity futures. The index’s components qualify for inclusion in the index based on liquidity

measures and are weighted in relation to their global production levels, making the Index a valuable economic indicator and commodities market benchmark.

Hang Seng Index - A free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. The components of the index are divided

into four subindices: Commerce and Industry, Finance, Utilities, and Properties.

Ibovespa - This accumulation index represents the present value of a portfolio begun on 2 January 1968, with a starting value of 100 and taking into account share price

increases plus the reinvestment of all dividends, subscription rights and bonus stocks received.

Indice Bursatil Espanol (IBEX) - The official index of the Spanish Continuous Market. The index is comprised of the 35 most liquid stocks traded on the Continuous

market. It is calculated, supervised and published by the Sociedad de Bolsas.

JP Morgan Corporate Emerging Markets Bond Broad Diversified Index (CEMBI) -This index is a market capitalization weighted index consisting of US-denominated

Emerging Market corporate bonds. It is a liquid global corporate benchmark representing Asia, Latin America, Europe and the Middle East/Africa.

JP Morgan Emerging Markets Bond Global Diversified Index (EMBI) -This index is uniquely-weighted version of the EMBI Global. It limits the weights of those index

countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts of debt outstanding. The countries covered in the

EMBI Global Diversified are identical to those covered by EMBI Global.

An investment cannot be made in an index.

10

Quarterly Commentary 10/31/16

Definitions

JP Morgan Government Bond Emerging Markets Broad Diversified Index (GBI EM) -This index is the first comprehensive, global local Emerging Markets index, and

consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure.

Korea Composite Stock Price Index (Kospi) - A market capitalization weighted index of all common stocks traded on the Stock Market Division—previously, Korea

Stock Exchange—of the Korea Exchange. It is the representative stock market index of South Korea, similar to the Dow Jones Industrial Average or S&P 500 in the United

States.

London Interbank Offered Rate (LIBOR) - An indicative average interest rate at which a selection of banks known as the panel banks are prepared to lend one another unsecured funds on the London money market.

Moody’s/RCA Commercial Property Price Indices (CPPI) National All-Property Composite Index - The Moody's/RCA Commercial Property Price Index (CPPI) describes various non-residential property types for the U.S. (10 monthly series from 2000). The Moody's/RCA Commercial Property Price Index is a periodic same-property round-trip investment price change index of the U.S. commercial investment property market. The dataset contains 20 monthly indicators.

Morgan Stanley Capital International All Country World Index (MSCI ACWI) -A market-capitalization-weighted index designed to provide a broad measure of stock

performance throughout the world, including both developed and emerging markets.

MSCI Emerging Markets (MSCI EM)- An index that covers 23 Emerging Market countries and is designed to capture the large and mid-cap representation across those

countries.

MSCI Emerging Markets Latin America - A subindex of that MSCI Emerging Markets Index that covers 5 EM countries in Latin America and is designed to capture large

and mid cap representation from 119 constituents.

MSCI Russia Index - An index that includes 85% of the free float-adjusted market capitalization of Russia. It is designed to measure the performance of the large and

midcap segments of the Russian market.

NASDAQ - A stock market index of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock

market with over 3,000 components. This index is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth

companies. Since both U.S. and non-U.S. companies are listed on the NASDAQ stock market, the index is not exclusively a U.S. index.

Nikkei 225 Index - A price-weighted index comprised of Japan's top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones

Industrial Average Index in the U.S.

Russell 2000 Index - A subset of the Russell 3000 Index representing approximately10% of the total market capitalization and measuring the perform ance of the small-

cap segment of the U.S. equity universe.

Shanghai Composite Index - A capitalization-weighted index that tracks the daily performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The

index was developed on December 19, 1990 with a base value of 100.

S&P Goldman Sachs Commodity Index (GSCI) - An index that measures investment in the commodity markets and commodity market performance over time.

S&P 500 Index - Standard & Poor’s US 500 Index, a capitalized-weighted index of 500 stocks.

S&P/LSTA Leveraged Loan Index - An index designed to track the market-weighted performance of the largest institutional leveraged loans based on the market

weightings, spreads and interest payments.

World Interest Rate Probability (WIRP) - A Bloomberg function used as a measure of the likelihood of a Fed rate move using the Fed Funds futures and options

contracts.

An investment cannot be made in an index.

11

Quarterly Commentary 10/31/16

Disclaimers

Important Information Regarding This Report

Issue selection processes and tools illustrated throughout this presentation are samples and may be modified periodically. Such charts are not the only tools used by the

investment teams, are extremely sophisticated, may not always produce the intended results and are not intended for use by non-professionals.

DoubleLine has no obligation to provide revised assessments in the event of changed circumstances. While we have gathered this information from sources believed to

be reliable, DoubleLine cannot guarantee the accuracy of the information provided. Securities discussed are not recommendations and are presented as examples of

issue selection or portfolio management processes. They have been picked for comparison or illustration purposes only. No security presented within is either offered for

sale or purchase. DoubleLine reserves the right to change its investment perspective and outlook, as well as portfolio construction, without notice as market conditions

dictate or as additional information becomes available. This material may include statements that constitute “forward-looking statements” under the U.S. securities laws.

Forward-looking statements include, among other things, projections, estimates, and information about possible or future results related to a client’s account, or market

or regulatory developments.

Ratings shown for various indices reflect the average for the indices. Such ratings and indices are created independently of DoubleLine and are subject to change without notice.

Important Information Regarding Risk Factors

Investment strategies may not achieve the desired results due to implementation lag, other timing factors, portfolio management decision-making, economic or market

conditions or other unanticipated factors. The views and forecasts expressed in this material are as of the date indicated, are subject to change without notice, may not

come to pass and do not represent a recommendation or offer of any particular security, strategy, or investment. Past performance (whether of DoubleLine or any index

illustrated in this presentation) is no guarantee of future results. You cannot invest in an index.

Important Information Regarding DoubleLine

In preparing the client reports (and in managing the portfolios), DoubleLine and its vendors price separate account portfolio securities using various sources, including

independent pricing services and fair value processes such as benchmarking.

To receive a complimentary copy of DoubleLine’s current Form ADV (which contains important additional disclosure information), a copy of the DoubleLine’s proxy voting

policies and procedures, or to obtain additional information on DoubleLine’s proxy voting decisions, please contact DoubleLine’s Client Services.

Important Information Regarding DoubleLine’s Investment Style

DoubleLine seeks to maximize investment results consistent with our interpretation of client guidelines and investment mandate. While DoubleLine seeks to maximize

returns for our clients consistent with guidelines, DoubleLine cannot guarantee that DoubleLine will outperform a client's specified benchmark. Additionally, the nature

of portfolio diversification implies that certain holdings and sectors in a client's portfolio may be rising in price while others are falling; or, that some issues and sectors

are outperforming while others are underperforming. Such out or underperformance can be the result of many factors, such as but not limited to duration/interest rate

exposure, yield curve exposure, bond sector exposure, or news or rumors specific to a single name.

DoubleLine is an active manager and will adjust the composition of client’s portfolios consistent with our investment team’s judgment concerning market conditions and

any particular security. The construction of DoubleLine portfolios may differ substantially from the construction of any of a variety of bond market indices. As such, a

DoubleLine portfolio has the potential to underperform or outperform a bond market index. Since markets can remain inefficiently priced for long periods, DoubleLine’s

performance is properly assessed over a full multi-year market cycle.

Important Information Regarding Client Responsibilities

Clients are requested to carefully review all portfolio holdings and strategies, including by comparing the custodial statement to any statements received from

DoubleLine. Clients should promptly inform DoubleLine of any potential or perceived policy or guideline inconsistencies. In particular, DoubleLine understands that

guideline enabling language is subject to interpretation and DoubleLine strongly encourages clients to express any contrasting interpretation as soon as practical. Clients

are also requested to notify DoubleLine of any updates to Client’s organization, such as (but not limited to) adding affiliates (including broker dealer affiliates), issuing

additional securities, name changes, mergers or other alterations to Client’s legal structure.

DoubleLine® is a registered trademark of DoubleLine Capital LP.

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