Market Sector Update

• As expected, the U.S. Federal Reserve (Fed) continued on its path of gradually raising rates, increasing its target rate by 25 basis points in March, moving its target range to 1.50-1.75%.
• The yield on the 10-year U.S. Treasury was as high as 2.95% during the quarter, the highest in four years. The ongoing volatility in equity markets resulted in late-quarter tightening and yields closed the quarter at 2.74%.
• The Fed has projected a 2018 U.S. gross domestic target at 2.7%, while inflation appears to be closing in on the Fed’s 2.0% protection.
• Corporate spreads widened during the quarter as investors are now demanding more yield as compensation for loaning money to companies.

Portfolio Strategy

• A passively managed index fund, the Fund underperformed against its benchmark, the S&P 500 Bond Index.
• All sectors were negative for the quarter. Industrials, utilities and health care were the worst performers, while the higher beta sectors of telecommunications, information technology and energy were less impacted.
• Higher-quality corporates bore the brunt of relative spread widening, while BBB-rated credits modestly outperformed higher quality bonds.
• Issuance was slightly down to begin the year with most of the new supply driven by mergers & acquisitions activity. The decrease was largely attributed to the effects of recent tax reform; namely repatriation of offshore cash.

Outlook

• It appears market volatility will remain a factor for the foreseeable future, especially with the possible escalation of trade disputes with key U.S. partners.
• Aided by the newly enacted tax laws, we believe corporate profits should be very strong throughout 2018. Despite concern of global growth being less robust than expected, signs of near-term recession remain abated.
• Increasing corporate yields will present market participants with tactical opportunities; however rising rates, widening credit spreads and inflationary pressures will continue to pose headwinds.

The opinions expressed are those of the Fund’s managers and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through March 31, 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon. Past performance is not a guarantee of future results.

The Fund is a passively managed index fund and does not invest in securities based on the managers’ view of the investment merit of a particular security or company, nor does it conduct conventional investment research or analysis or forecast market movement or trends, in managing the assets of the Fund. The Fund seeks to remain fully invested at all times in securities that, in combination, provide exposure to the index without regard to market conditions, trends or direction.

The Fund entails other risks, including imperfect benchmark correlation and market price variance that may decrease performance. While the Fund attempts to track the performance of its stated index, there is no guarantee or assurance that the methodology used to create the Index will result in the Fund achieving high, or even positive, returns. The Index may underperform, and the Fund could lose value, while other indices or measures of market performance increase in value. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. These and other risks are more fully described in the Fund’s prospectus. Not all funds or fund classes may be offered at all broker/dealers.

Risk factors: The value of the Fund's shares will change, and you could lose money on your investment. While the Fund attempts to track the performance of its stated index, there is no guarantee or assurance that the methodology used to create the index will result in the Fund achieving high, or even positive, returns. The Index may underperform, and the Fund could lose value, while other indices or measures of market performance increase in value. Fixed-income securities are subject to interest rate risk and, as such, the net asset value of the Fund may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. As of June 30, 2017, the index was concentrated in the financial industry group; therefore, the Fund is subject to the same risks faced by companies in the financials industry to the same extent as the index is so concentrated. Such risks include extensive government regulation, fluctuation of profitability, and credit losses resulting from financial difficulties of borrowers. A number of factors may affect the Fund's ability to achieve a high degree of correlation with the Index, and there is no guarantee that the Fund will achieve a high degree of correlation. Failure to achieve a high degree of correlation may prevent the Fund from achieving its investment objective. An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. These and other risks are more fully described in the Fund's prospectus. Not all funds or fund classes may be offered at all broker/dealers.