Q2 Investment Strategy Update

We held our second quarter investment strategy meeting on March 22, 2016. At this meeting we deliberate and discuss various economic, market, and financial factors that influence our strategy for investing your assets. From this deliberation we set our investment policy and implement the policy through changes in holdings in your portfolio.

Right now the pace of global growth continues to remain sluggish due primarily to slowing growth in China, slow growth in Europe, and recessionary conditions in many emerging market countries. The U.S. remains one of the strongest of the major global economies growing at a pace of 2-2.5%. Slow global growth combined with a strong dollar has negatively impacted U.S. corporate earnings growth over the past few quarters which has been a hindrance for the U.S. stock market and a contributing factor to the recent market correction. The good news is the U.S. market appears to be recovering from its recent correction (now up 12% since the mid-February low) due to improving investor sentiment towards the U.S. economy. The outlook for both European and emerging market economies remains poor at this point.

The Federal Reserve came out with surprisingly dovish commentary following the March FOMC meeting. The Fed held off on a second Fed funds rate increase we believe due to concerns about slow global economic growth and disrupting other global monetary policy activity, particularly Europe, which is experimenting with negative interest rates to stimulate bank lending. While we expect the Fed may raise rates one or two more times this year, we would not expect these rate increases to derail the secular bull market in stocks as long as inflation remains moderate (which we expect) and economic growth continues at a moderate pace.

With respect to changes resulting from our meeting, the most significant change was our increase in weightings in value stocks. We did this across all equity categories because a) value stocks have underperformed growth stocks for a considerable period and therefore offer opportunity; and b) if corporate profit growth remains subdued, value stocks should have a greater opportunity for valuation improvement relative to growth stocks which are currently richly valued. The increased emphasis on value actually increased our overall equity exposure by about 2%.

Other significant changes following the meeting include slight increase in our weightings in natural resources/commodities including a new position in industrial metals (XME). We think industrial commodities offer value because of the severe decline they experienced over the past year as a result of concerns over a global recession. With respect to fixed income, there were no significant changes. We slightly reduced our weighting in both the long and short end of the yield curve. We remain essentially neutral in both the long and intermediate portion of the yield curve and overweight the short end. We continue to utilize corporate bonds for fixed income exposure due to their higher coupon yield and higher income to your portfolio.

3-24-16