QUARTERLY INVESTMENT UPDATE Stock Market Commentary Large Stocks S&P 500 1.8% 21.8% 14.6% Russell 1000 2.0% 22.4% 14.7% Russell 1000 Growth 1.1% 23.2% 14.6% Russell 1000 Value 3.0% 21.6% 14.8% Medium and Small Stocks S&P 400 Midcap 3.0% 21.2% 13.3% Russell 2000 1.1% 24.9% 13.2% Russell 2000 Growth 0.5% 27.2% 13.6% Russell 2000 Value 1.8% 22.6% 12.7% International Stocks MSCI Developed (EAFE) 0.8% 18.3% 7.9% MSCI Emerging Markets -0.4% -1.4% -2.9% Real Estate DJ Wilshire REIT Index 10.3% 4.3% 10.3% Bond Market Commentary Taxable Bonds Aggregate 1.8% -0.1% 3.8% Intermediate Govt./Credit 1.0% -0.1% 3.1% U.S. Government 1.3% -1.2% 3.2% U.S. Credit 2.9% 1.0% 5.8% High-Yield Bonds 3.0% 7.5% 9.0% Tax-Free Bonds 3-Year Municipal 0.3% 1.1% 2.1% 5-Year Municipal 1.0% 1.0% 3.7% 10-Year Municipal 3.1% 0.5% 5.9% Sources: Bloomberg, Municipal Market Data, Vanguard, Lipper. The bond indexes above are produced by Barclays Capital. Returns include the reinvestment of interest and dividends. *Returns are annualized. 3 Years* To receive this Quarterly Investment Update by email, request our composite performance history, or request descriptions of the indexes and other information included in this report, please contact us at [email protected] . For the Quarter Ending March 31, 2014 Perkins Coie Trust Company • 1201 Third Avenue, Suite 4900 • Seattle, Washington 98101 • 888.720.8382 STOCK MARKETS BOND MARKETS 3 Months 1 Year 3 Years* 3 Months 1 Year The S&P 500's strong close on the final day of March accounted for nearly half of the first quarter return of 1.8%. Markets withstood a number of challenges, including a frigid winter, a crisis in Ukraine, and uncertainty over Federal Reserve policy. As investors digested the large gains of 2013, valuations came into focus and leadership shifted. Midcap stocks outperformed both large and small cap stocks and value stocks overtook growth. The strongest market sectors included Utilities and Healthcare, gaining 9.9% and 5.8%, respectively. Consumer Discretionary stocks, which had led in 2013, fared the worst in the first quarter, sliding 2.8%. Strong European stock performance during the quarter evaporated with the onset of the Crimean crisis. The MSCI Developed Markets index finished with a slight gain of 0.8%. Emerging Markets declined early in the quarter, as estimates for China GDP growth were slashed further. A late rebound produced a nearly flat return of -0.4% for the MSCI Emerging Markets index. The DJ Wilshire Real Estate index surged 10.3% as interest rates retreated during the quarter. Investors waiting for higher interest rates were disappointed in the first quarter. The yield on the 10-Year Treasury fell from 3.0% to 2.7% and some of last year's worst-performing fixed income sectors enjoyed strong gains for the quarter. The Barclays Aggregate index gained 1.8% after losing 2% in 2013, and long-duration municipal bonds rose 3.1% for the quarter after giving up 2.1% in 2013. Within the municipal bond market, a lower than average level of new supply, combined with high demand due to rising tax rates has led to a steady rise in prices. New municipal bond issuance in January and February is down 29% compared to the same period last year. Some of the riskiest municipal bond issuers, including Puerto Rico and the City of Chicago, have seen strong demand for new bonds. Over the past several weeks, Chicago and Puerto Rico successfully sold general obligation bonds totaling nearly $4 billion. 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 0 2 5 8 11 14 17 20 23 26 29 Yield to Maturity Years to Maturity Bond Yields AAA-Rated Tax-Exempt Municipals U.S. Treasuries 500 700 900 1100 1300 1500 1700 1900 2100 Stock Prices MSCI EAFE Index S&P 500 Index QUARTERLY INVESTMENT UPDATE Economic Commentary Key Economic Releases EMPLOYMENT As of Expected Actual Prior Unit Labor Costs (4Q) MAR -0.5% -0.1% -2.0% Unemployment Rate MAR 6.60% 6.70% 6.70% Average Hourly Earnings (YoY) MAR 2.3% 2.1% 2.2% Change in Manufact. Payrolls MAR 7K -1K 19K Change in Non-Farm Payrolls MAR 200K 192K 197K INFLATION (year over year) As of Expected Actual Prior Consumer Price Index FEB 1.2% 1.1% 1.6% CPI Ex Food & Energy FEB 1.6% 1.6% 1.6% Producer Price Index FEB 1.1% 1.2% 0.7% PPI Ex Food & Energy FEB 1.3% 1.4% 1.3% HOME PRICES (year over year) As of Expected Actual Prior S&P/Case Shiller Top 20 Mkts. JAN 13.3% 13.2% 13.4% MANUFACTURING ACTIVITY As of Expected Actual Prior Capacity Utilization FEB 78.6% 78.8% 78.5% Leading Indicators FEB 0.2% 0.5% 0.1% GDP Annualized (4Q) MAR 2.7% 2.6% 4.1% PRODUCTIVITY As of Expected Actual Prior Non-Farm Productivity (4Q) MAR 2.2% 1.8% 3.6% Industrial Production FEB 0.2% 0.6% -0.2% Source: Bloomberg. For the Quarter Ending March 31, 2014 Perkins Coie Trust Company • 1201 Third Avenue, Suite 4900 • Seattle, Washington 98101 • 888.720.8382 This report is based on information obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. Opinions and estimates may be changed or withdrawn without notice. The information and opinions contained in this report should not be considered as recommendations to buy or sell any security or commodity. Investments are not guaranteed, and past performance is not a guarantee of future results. At Perkins Coie Trust Company, we believe that maintaining a long-term asset allocation and tax-intelligent strategy is an important priority. We seek attractively valued investment opportunities in high-quality stocks, bonds and mutual funds across a full spectrum of geographic regions, sectors and specific industries. By diversifying portfolios and focusing on fundamentals, we strive to manage market risk. We stand ready to assist you in meeting your objectives. For more information regarding trustee and investment services, please contact us toll-free at (888) 720-8382, locally at (206) 359-6462 or on the web at www.trust.perkinscoie.com. -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Year Over Year % Change Inflation (CPI) Headline Inflation Core Inflation -1400 -900 -400 100 600 1100 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% New Jobs in Thousands % Unemployed Employment Unemployment Rate (Left Scale) Non-Farm Payrolls (Right Scale) Economic conditions illustrate the balance between slow and steady growth in the US and persistent worries about political and economic stability in emerging markets. Some of the slow growth experienced over the past several months has been weather-related. Other causes include the impact of the government shutdown and budget settlement, major inventory buildups and higher interest rates. Positive factors include accelerating oil and gas production, a strengthening housing market, and a reduction in government austerity measures. The US economy generated 192,000 jobs in March, in line with expectations and indicative of a slowly growing economy. The March total was a little better than the six-month average of 182,000 and should give the Federal Reserve room to continue its tapering program. The latest employment report also included upward revisions for the January and February totals. The economy appears to be emerging from a weather-related setback in the first part of the year when freezing temperatures and mountains of snow kept shoppers indoors, grounded flights, and made it harder for shippers to fill product orders.