1. September 8, 2014 Gilbert Andrew Garcia, CFA Managing Partner

2. I. Market Quiz II. Evolution of the Fixed Income Market III. Fixed Income Excess Returns IV. Valuation V. Market Developments 1

3. GoldHigh YieldAggregate Russell Midcap S&P 2 11.97%10.43%8.90%7.78%4.93% 10 -Year Annualized Returns Ending 6-30-14

4. GoldHigh YieldAggregateRussell MidcapS&P 3 11.97%8.90%4.93%10.43%7.78% 10 -Year Annualized Returns Ending 6-30-14 INDEX

5.  Return doesn’t account for the risk.  Investors must be compensated for risk.  We should measure returns on a risk adjusted basis. 4

6. 5  Developed by Nobel laureate William F. Sharpe.  Calculated by subtracting the Risk Free Return from the Investment Return and dividing the difference by the Volatility of the Investment. Sharpe Ratio = R - Rƒ σ  A higher Sharpe ratio equates to better risk- adjusted performance.

7. GoldHigh YieldAggregateRussell MidcapS&P 6 11.97%8.90%4.93%10.43%7.78% 10 -Year Annualized Returns Ending 6-30-14 INDEX 10 -Year Sharpe Ratio Ending 6-30-14 1.040.540.710.500.42

8. GoldHigh YieldAggregate Russell Midcap S&P 7 11.86%7.13%6.94%6.31%6.02% 10 -Year Annualized Returns Ending 6-30-07

9. GoldRussell MidcapAggregateS&PHigh Yield 8 11.86%7.13%6.94%6.31%6.02% 10 -Year Annualized Returns Ending 6-30-07 INDEX

10. GoldRussell MidcapAggregateS&PHigh Yield 9 10 -Year Annualized Returns Ending 6-30-07 INDEX 10 -Year Sharpe Ratio Ending 6-30-07 0.660.510.370.23 11.86%7.13%6.94%6.31%6.02%

11. 10 INDEX 10 -Year Sharpe Ratio Ending 6-30-14 10 -Year Sharpe Ratio Ending 6-30-07 GoldHigh YieldAggregateRussell MidcapS&P1.040.540.710.500.420.660.510.370.23

12. 11 1976 $456 Billion

13. 12 1976 1986 $2.1 Trillion $456 Billion

14. CMO’s invented  MBS along the yield curve  Floating rate traunches  PAC’s 13 1986 $2.1 Trillion 13

15. 14 19961986 $2.1 Trillion$4.7 Trillion

16. 15 NOW $17.1 Trillion

17. 16 1976 $456 Billion NOW $17.1 Trillion

18. AgencyABSCorporatesMBS 17 44.73%30.38%22.13%16.81% 20 -Year Excess Return Ending 6-30-14

19. AgencyCorporatesABSMBS 18 44.73%30.38%22.13%16.81% 20 -Year Excess Return Ending 6-30-14 INDEX

20. 19 $178 Billion

21. 20 1980 TODAY $178 Billion$4.0 Trillion

22. 21 Source: Barclays Live Last Update: 7/31/2014 Greece U.S. Credit Downgrade Gulf War

23. (OAS Spread/ 5 yr Treasury yield) 22 Source: Barclays Live Last Update: 7/31/2014 Greece U.S. Credit Downgrade Gulf War

24.  Electronic Trading  TRACE Data 23

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