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DISCUSSION HIGHLIGHTS A continued flattening yield curve has been a source of concern for investors, since inversions (defined as higher short-term rates relative to longer-term rates) have preceded every recession since World War II. The widely watched 10-year minus 2-year yield spread continued to narrow to a post-crisis low of 0.23% at the end of the quarter. However, many market observers pointed to the wider 10- year Note minus 3-month T-bill spread of 0.85% as contradictory evidence the economy was not nearing a recession. Performance The Pleasanton Capital Growth account returned 1.94% gross of investment fees for the third quarter. As the account was being averaged-in to a steadily rising market throughout the time period, the investments that were made later in the quarter captured higher prices than if the account was fully invested for the entire quarter. As such, performance trailed the fully-invested benchmark. The Pleasanton Conservative account was higher by .52% gross of investment fees. Domestic equity markets continued to display strength on the back of strong corporate earnings growth. Issues surrounding tariffs and trade provided headwinds to international equity performance. The MSCI-EAFE Index did post a modest gain of 1.35% in the quarter. The continued strength in the dollar kept gains muted however. In the quarter, the two accounts' equities returned about 4.81%. The Fed's September 26th meeting saw all nine voting members of the FOMC approve an increase in the benchmark rate of 25 basis points to a range of 2% to 2.25%, the highest level since spring 2008. The panel also indicated that an additional hike could come at the upcoming December meeting. The Fed's outlook for the economy as noted in its post-meeting statement reduced concerns over the potential for an inverted yield curve which some investors believe foreshadows economic recession. On September 18th, the bellwether bond reached 3%, which offered a headwind for investment returns. This environment of rising rates provided a challenge to generating investment returns for the Plans' fixed income holdings. The Capital Growth Plan's actively-managed fixed income segment returned 0.09%, which was slightly ahead of the Bloomberg Barclays Aggregate Bond Index return of 0.02%. The Conservative portfolio fixed- income segment equaled the benchmark return as it is invested in the benchmark ETF. The Plans' overall asset allocation remained constant for the quarter at slightly overweight stocks and underweight bonds. Since the end of September, we reduced our allocation to international, and increased our allocation to large cap domestic equities. This reduction was due to elevated geopolitical risks as lingering and unresolved trade conflicts could potentially harm international equities more than domestic markets. We also reduced intermediate bonds and increased short-term bonds to reduce risk to rising interest rates. IGHIIVI H ARK® City of Pleasanton 111 rl 1� 3 CAPITAL MANAGEMENT