1) Our Perspective IS WINTER COMING FOR MUNIS? MAY 2016 Ronald Schwartz, CFA Managing Director, Senior Portfolio Manager, Tax-Exempt Tax exempt fund inflows have been strong for 33 straight weeks setting a record for YTD aggregate inflows at $25.3bn as of May 18th.1 Municipal funds have now erased all of the 2013 outflows and tax exempt yields are at their lowest in five decades. As a result, spread compression has been broad based, with high yield sectors seeing greater tightening than investment grade as investors chase the riskiest credits for any incremental yield. The strong demand is likely to continue as the municipal market enters its peak reinvestment period over the next three months (see chart below). The strong market technical factors have resulted in rich valuations that do not reflect fundamental conditions that have weakened this year as a result of softening revenue growth and increasing entitlement expenditures. Ron is a Senior Portfolio Manager focused on the TaxExempt Strategies. He has worked in the investment management industry since 1982. Ron received a B.A. in Business Administration from Adelphi University and is a CFA Charterholder and a member of the CFA Society of Orlando. Scott Andreson Director, Municipal Research Scott is the Director of Municipal Research for Seix Investment Advisors. He has more than 17 years of investment experience. He earned his MPA from USC and is a current officer of the National Federation of Municipal Analysts. CONTRIBUTORS Dusty Self Managing Director, Senior Portfolio Manager, Tax-Exempt Phillip Hooks, CFA Vice President, Municipal Credit Research Source: Bloomberg, JP Morgan Revenue Growth Has Softened for Most States and Has Turned Negative for Some Tax revenue growth in 2016 has slowed in many states and for some it has actually declined from last year. With only one month left in fiscal year 2016, a remarkably high 22 states have a current operating shortfall. Several states have also recently announced notable budget deficits for the next fiscal year that begins on July 1st because of weaker than expected April income tax revenues. Moody’s and S&P now have 11 states on negative credit outlooks. As we have previously discussed, the decline in oil prices is one of the primary reasons for a decline in revenues for the energy commodity states. However, even the non-energy states are experiencing softer tax revenues as a result of poor stock performance in 2015 and a more muted economic environment. S&P is now projecting lower or even negative GDP growth over the next few years for several states (see Exhibit 1 on next page). The Far West and South Atlantic regions should continue to outperform the nation due to dynamic demographics and continued economic growth (see Exhibit 2 on next page). 1JP Morgan Municipal Research, Lipper as of 5/18/16 

2) Our Perspective IS WINTER COMING FOR MUNIS? MAY 2016 Exhibit 1: Projected Compound Average Annual Real GDP Growth 2016-2019 Exhibit 2: Regional Economic Trends Play Key Role in Tax Revenue (Standard deviation above/below U.S.) (Employment growth from March 2015 to March 2016) > 1 below < 1 above negative growth growth of 2% to 3% < 1 below > 1 above growth of 0% to 0.99% more than 3% growth growth of 1% to 1.99% Source: Standard & Poor’s – Calculation using IHS/Connect projected growth rates Source: U.S. Bureau of Labor Statistics Pension Expenditures Are Increasing Lackluster stock returns are not only hurting state revenues, but are also negatively impacting U.S. state and city pensions. Public pension systems posted their worst results since the financial crisis, recording a median increase of 0.36% for 2015, and only 1.24% in the first quarter, falling far short of their 7%-8% targeted annual returns.2 Pension asset growth has not kept pace with unfunded liabilities as a result of weak investment returns, inadequate contributions and the graying demographics of public workers. State pensions had 74 percent of assets required to meet obligations to retirees in fiscal 2015, down from 77 percent in the prior year.2 As you can see in Exhibits 3 and 4 on the next page, growing entitlement expenditures for pensions and healthcare are increasing while capital spending is declining. The fiscal squeeze caused by flat to declining revenues and growing expenditure pressures from the cost of retiree benefits is likely to increase due to an aging population and a huge backlog of vital infrastructure spending. 2Bloomberg, Wilshire Trust Universe Comparison Service 

3) Our Perspective IS WINTER COMING FOR MUNIS? MAY 2016 Exhibit 3: Entitlement Benefits as a Share of Total State Expenditures Source: Standard & Poor’s, U.S. Census Bureau Exhibit 4: Capital Outlay as Percent of Total State Expenditures Source: Standard & Poor’s, U.S. Census Bureau We are now in the seventh year of the economic recovery from the Great Recession. Despite the economic recovery, some states and cities are still experiencing credit stress and may be running out of time to put their houses in order before another recession strikes. Only state and local credits that have had the political fortitude and strong fiscal management to build up budgetary reserves and enact pension reform will outperform in the next economic downturn. As we have previously stated, we continue to believe long term rates will remain lower for longer and we remain constructive on the municipal sector over the next several months because of its tax exempt income, strong technical factors, and compelling yields compared to other global fixed income rates. That being said, we believe that muni fundamentals most likely peaked in 2015 and we are in the late stages of the credit cycle with limited potential for credit spreads to tighten significantly from here. As a result, we have been upgrading our portfolios to take advantage of the strong technical environment. The assertions in this perspective are Seix Investment Advisors’ opinion. BofA Merrill Lynch Municipal Master Index tracks the performance of the investment-grade U.S. tax-exempt bond market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule, and an investment grade rating (based on average of Moody’s, S&P, and Fitch). Investment Risks: All investments involve risk. Debt securities (bonds) offer a relatively stable level of income, although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate-term, higher-quality bonds generally offer less risk than longer-term bonds and a lower rate of return. Generally, a portfolio’s fixed income securities will decrease in value if interest rates rise and vice versa. A portfolio’s income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax. There is no guarantee a specific investment strategy will be successful. This information and general market-related projections are based on information available at the time, are subject to change without notice, are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advice. Seix Investment Advisors does not provide legal, estate planning or tax advice. Investors are advised to consult with their investment processional about their specific financial needs and goals before making any investment decisions. Past performance is not indicative of future results. ©2016 Seix Investment Advisors LLC. Seix Investment Advisors is a registered investment adviser with the SEC and a member of the RidgeWorth Capital Management LLC network of investment firms.