Eaton Vance Municipal Ladders Tax Advantaged Bond Strategies Group

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1 Municipal Ladders Tax Advantaged Bond Strategies Group RULES BASED ENGINEERED TAX EXEMPT INCOME CUSTOMIZED TO YOUR NEEDS 1Q 2018 Not FDIC Insured Not Bank Guaranteed May Lose Value

2 Why Professional Management? Professionally managed municipal portfolios may offer meaningful advantages over self-managed portfolios in an environment of: Heightened credit risk Limited access to municipal bonds Potentially volatile interest rates Credit Risk Access to Bonds Interest Rate Risk Invest in municipal bonds using s proprietary credit analysis Backed by a large team of experienced, municipal credit research analysts Experienced traders with access to a nationwide network of over 100 brokerdealers to buy and sell bonds at advantageous prices Use relative value analysis and institutional purchasing power to buy undervalued bonds Seek to minimize impact of interest-rate risk by reinvesting maturing bond proceeds at higher interest rates Provide customized rate scenario analysis to help determine which ladder is suitable for you 2

3 Updated FINRA Guidelines FINRA guidelines include a requirement for advisors to understand the risks associated with individual securities. A broker must Perform reasonable diligence to understand the potential risks and rewards associated with a recommended security or strategy. That is, even if a firm s product committee has approved a product for sale, an individual broker s lack of understanding of a recommended product or strategy could violate the obligation, notwithstanding that the recommendation is suitable for some investors. 3 Source: July 2012 FINRA New guidelines for Reasonable-Basis Suitability.

4 Solution: Laddered Municipal Portfolios What is a laddered investment strategy? Laddering a municipal bond portfolio involves equally weighting maturity exposure over a specified portion of the yield curve A constant percentage of bonds mature, or roll out, each year and the proceeds are reinvested on the longer end of the ladder This can be particularly helpful to investors who want to achieve an attractive total return regardless of the interest-rate environment, but want to mitigate price and reinvestment risk Proceeds from maturing bonds are reinvested at the long end of the ladder in Year % % of Portfolio 9.0% 6.0% 3.0% 0.0% Current Maturity Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 4 Source:. For illustrative purposes only.

5 Solution: Laddered Municipal Portfolios Research suggests actual returns closer to top rung yield versus average yield in a laddered structure 1 In a ladder, each bond s maturity shortens every year, and the shortest rung is reinvested at the longest rung. In a positively sloped yield curve environment, this causes the total return of each bond to be > than its stated yield to maturity. Research shows that the expected return, over time, of a laddered portfolio is closer to the yield of its top rung instead of its average yield to maturity. Returns are Above Average YTM in Positive Yield Curve Situations Rolling Yield 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 3.0% 2.0% 2.5% 4.0% 3.0% 5.0% 3.5% 6.0% 4.0% Expected returns should be near 4% Average yield to maturity of laddered portfolio = 3.0% 1.0% 0.5% 0.0% Maturity (years) 5 1 Financial Analysts Journal Vol. 71. This example is for illustrative purposes only and does not represent the experience of any client or strategy.

6 Why Laddered Municipal Portfolios? Established Investment Management Firm Access to Muni Market Over $433.9 B in AUM* (NYSE: EV, with history dating to 1924) Over $42.0 Billion in Municipal AUM* Rules-based Predictable Cash Flow Low or No Turnover Seek to Minimize Capital Gains Approximately Equal- Weighted by Maturity Customized Value Added National State Concentration Credit Quality Maturity Ranges Buy Based on input from credit team & traders Transitions Effective transition of existing portfolio 6 *, as of March 31, 2018.

7 Fundamental Municipal Credit Research Seek to Avoid Landmines And Uncover Potential Value Unfunded Pension Liabilities Deteriorating Fundamental Trends Fundamentals Improving Upgrades Downgrades & Defaults Strained Budgets Reforms Improve Outlook Responsible Management 7

8 Municipal Credit Research Team Credit Research Team with Extensive Experience Municipal Research Team Bill Delahunty, CFA Director of Municipal Credit Research Hospitals, Long Term Care, Corporate 22 Years of Ind. Experience 20 Years with Lilly Scher Senior Analyst Hospitals, Education 31 Years of Ind. Experience 18 Years with Leanne Parziale, CFA Senior Analyst Tobacco, Multi-Family Housing 22 Years of Ind. Experience 21 Years with Marc Savaria Senior Analyst Education, Utilities, Corporate 23 Years of Ind. Experience 8 Years with Henry Hong, CFA Senior Analyst Airports, Public Power, Corporate, Gaming, Real Estate 22 Years of Ind. Experience 12 Years with Raya McAnern Senior Analyst General Obligations, Real Estate 19 Years of Ind. Experience 10 Years with Kate Chanoux, CFA Senior Analyst Water & Sewer, General Obligations, Special Tax, Education 13 Years of Ind. Experience 13 Years with Trevor Smith Senior Analyst General Obligations, Special Tax, Puerto Rico, Ports, Bond Insurers 11 Years of Ind. Experience 8 Years with Brian Hassler, CFA Senior Analyst Water & Sewer, Special Tax, General Obligations, Senior Living 12 Years of Ind. Experience 12 Years with Colin Shaw Senior Analyst General Obligations, Water & Sewer, Special Tax, Education 11 Years of Ind. Experience 11 Years with Carl Thompson, CFA Senior Analyst General Obligations, Housing, Student Loans 7 Years of Ind. Experience 7 Years with Patrick Keogh, CFA Analyst General Obligations, Special Tax, Water & Sewer, Housing, Student Loans 7 Years of Ind. Experience 4 Years with Jeffrey Sayman, CFA Associate Analyst General Obligations 6 Years of Ind. Experience 5 Years with Victor Joita, CFA Associate Analyst General Obligations 7 Years of Ind. Experience 7 Years with Dan Streppa Associate Analyst General Obligations 2 Years of Ind. Experience 2 Years with Jason Michonski Research Associate General Obligations 2 Years of Ind. Experience 2 Years with 8 As of March 31, 2018

9 Supply and Demand Imbalances Cause Price Inefficiencies 2017 Calendar Year Issuance 50% 40% 30% Spike in Supply 20% 10% 0% Q1 Q2 Q3 Q4 Florida Georgia 9 Source: Bloomberg Finance LP. For illustrative purposes only. Data includes new issue volumes of all maturities.

10 Buy Based on Market s Misperception of Credit Quality Hypothetical Example : All bonds below are rated AA 1 and mature same year Bond Rating Maturity Yield Bond A AA 7/1/ % Which Bond Would You Buy? Bond B AA 7/1/ % Bond C AA 7/1/ % Bond D AA 7/1/ % The hypothetical information above is for illustrative purposes only. This does not represent the experience of any particular investor and is based on hypothetical assumptions and the experience of EVM. Hypothetical assumptions have many inherent limitations. Actual buy/sell decisions and transactions will vary For more information about credit ratings, please see the Additional Disclosures slide at the end of this presentation.

11 Buy Based on Market s Misperception of Credit Quality Hypothetical Example : All bonds below are rated AA 1 and mature same year Bond Rating Maturity Yield Credit Research Bond A AA 7/1/ % Credit is deteriorating Which Bond Would Buy? Bond B AA 7/1/ % Bond C AA 7/1/ % Credit is solid, but we don't like the valuation Credit is solid and we like the valuation Bond D AA 7/1/ % Credit is deteriorating The hypothetical information above is for illustrative purposes only. This does not represent the experience of any particular investor and is based on hypothetical assumptions and the experience of EVM. Hypothetical assumptions have many inherent limitations. Actual buy/sell decisions and transactions will vary For more information about credit ratings, please see the Additional Disclosures slide at the end of this presentation.

12 Why Pay Retail? Make the Bid/Offer Spread work for clients A 2012 GAO study 1 The median spread for retail sized trades was over 2.20% Which side of this trade do you want to be on? How much of a mark-up have you potentially paid? To find out, go to 2 A dealer buys 1mm+ bonds at Trade Date Trade Time 6/27/ :32am 6/27/ :11pm Hypothetical example Price Yield Size Trade Type MM+ Purchase from Customer k Sale to Customer Small Block sold to customer at 2.2% mark-up 12 1 Source: GAO Report: Municipal Securities: Overview of Market Structure, Pricing and Regulation, February Retail size trades defined as transactions less than 20k. 2 Source: For illustrative purposes only. The hypothetical example was chosen as a fair representation and does not represent the experience of individual investors. Please refer to the back of this presentation for important information and disclosure.

Tax-Advantaged Bond Strategies Team Investment Team with Extensive Experience TABS Team Team Leadership Jim Evans, CFA Director Tax Advantaged Bond Strategies 35 Years of Ind.

13 Tax-Advantaged Bond Strategies Team Investment Team with Extensive Experience TABS Team Team Leadership Jim Evans, CFA Director Tax Advantaged Bond Strategies 35 Years of Ind. Experience 28 Years with Institutional Portfolio Managers and Traders Separately Managed Account (SMA) Portfolio Managers Brian Barney, CFA Director Institutional Portfolio Strategies 17 Years of Ind. Experience 17 Years with Issac Kuo, CFA, CPA Co-Director SMA Strategies 15 Years of Ind. Experience 8 Years with Jonathan Rocafort, CFA Co-Director SMA Strategies 15 Years of Ind. Experience 13 Years with Devin Cooch, CFA Portfolio Manager 10 Years of Ind. Experience 10 Years with Daniel Cozzi, CFA Portfolio Manager 14 Years of Ind. Experience 4 Years with Joseph Davolio Portfolio Manager 17 Years of Ind. Experience 12 Years with Lauren Kashmanian Portfolio Manager 11 Years of Ind. Experience 10 Years with Nisha Patel, CFA Portfolio Manager 13 Years of Ind. Experience 13 Years with Chris Harshman, CFA Portfolio Manager 15 Years of Ind. Experience 9 Years with Evan Rourke, CFA Portfolio Manager 31 Years of Ind. Experience 11 Years with Alison Wagner, CFA Trader / Portfolio Analyst 3 Years of Ind. Experience 3 Years with David Grean, CFA Portfolio Management Associate 5 Years of Ind. Experience 3 Years with Product & Portfolio Strategy Quantitative and Portfolio Analytics Michael Sullivan, CFA Institutional Portfolio Manager 18 Years of Ind. Experience 3 Years with Brandon Fritz Institutional Portfolio Manager 14 Years of Ind. Experience <1 Year with Nicholas Stahelski Income Product Manager 3 Years of Ind. Experience 3 Years with Stephan McElreath Quantitative Portfolio Associate 10 Years of Ind. Experience <1 Years with 13 As of March 31, 2018

14 Laddered Municipals - Portfolio Customization Step 1: Select Taxability Step 3: Select Type Step 4: Maturity Ranges Tax-Free Municipals 1 Taxable Municipals (see page 16) Bank Qualified (see page 17) Step 2: Select Quality Select Quality 2 AA- A- BBB minimum National State Specific (target 100% in-state) CA MN OH MA NJ PA MI NY TX State Preference (generally target 50% in-state) CA NJ TX MD AZ MA NY UT GA MO MI OH CO NC OR MN PA CT VA Best Efforts (generally target 20% in-state) FL KY TN HI LA SC IN Approximately Equal-Weighted x to y years x and y between 1 to 20 years Example: 1 to 10 year or 5 to 15 year No turnover other than for internal downgrade, call or rolling out of client selected maturity range Special Notes: The BBB minimum strategy will only be available in National portfolio and have a maximum of 30% invested in BBB issuers. Bank Qualified portfolios and Taxable Munis will only be National and A-rated minimums. Number of issues per maturity will generally be based on the size of the portfolio. For National portfolios (assuming account funded with cash), manager will generally seek to purchase issues as follows: $250k $500,000: 1 issue $500,000 $2,000,000: 2 issues $2,000,000 $5,000,000: 3 issues $5,000,000 or more: 4 issues. Reflecting fewer attractive issues, the number of issues per maturity may be less for state-specific and state-preference accounts Municipal bond income is generally federally tax exempt. A portion of income may be subject to federal income tax, alternative minimum tax and/or state and local taxes. In addition, federal and/or state capital gains taxes may apply to investments sold at a profit. 2 For more information about credit ratings, please see the Additional Disclosures slide at the end of this presentation.

Transitioning Portfolios 1 Send us your portfolio (we ll provide the template) CUSIPS Par amount 2 We ll send back a transition analysis that details: Your current portfolios statistics, maturity

15 Transitioning Portfolios 1 Send us your portfolio (we ll provide the template) CUSIPS Par amount 2 We ll send back a transition analysis that details: Your current portfolios statistics, maturity structure, and credit breakdown Which bonds we d keep, and which bonds we d sell Sample portfolio (built around the bonds we keep from your portfolio) with corresponding maturity and credit breakdown 3 Once the account opens, we ll retain bonds that fit: 4 Credit quality parameters Maturity parameters We ll sell the bonds that don t fit: Offered for as long as 60 days to over 100 dealers and several electronic trading platforms Seek to sell near pricing service evaluation 15

16 Summary Benefits of Professional Management Municipal Ladders Credit Analysis in an environment of heightened credit concerns Institutional Access to Bonds Rules-based Predictable Cash Flow Low to No Turnover Seek to Minimize Capital Gains Approximately Equal- Weighted by Maturity Customizable Value Added Tax-exempt Taxable National State Concentration Credit Quality AA- A- BBB Maturity Ranges Between 1 to 20 Years Buy Based on input from credit team & traders Transitions Effective transition of existing portfolio 16

17 Appendix 17

18 Tax Advantaged Bond Strategies - SMAs Active TABS Total Return Muni Solution Managed Municipals Enhanced Laddered Strategy 1 Laddered Municipals Engineered & Customized Solutions Managed for After-tax Total Return Managed for Income Managed for Predictable Income Capital preservation focus: AA- and higher Seeks to add Alpha 1 from credit and supply/demand inefficiencies Short, Intermediate & Long durations with yield curve management Higher tax-aware turnover Credit quality A- and higher Seeks to add Alpha 2 from credit sector valuation trends Short, Intermediate & Long durations Approximately equal weighted by maturity Moderate tax-aware turnover Customizable by credit quality, from BBB to AA- and higher Customizable by maturity range: 1 to 20 years Approximately equal weighted by maturity across preselected range Historically low turnover 1 Enhanced ladder portfolios seek to generate alpha by trading across a pre-selected ladder range, while remaining generally equal-weighted. 2 Alpha measures risk-adjusted performance, showing excess return delivered at the same risk level as the benchmark. 18 For more information about credit ratings, please see the Disclosures slide at the end of this presentation.

19 Why Consider Laddered Taxable Municipal Portfolios? Taxable Municipals may provide more yield than similarly rated corporate bonds For traditional buyers of taxable fixed income (pension funds, corporations, 401ks, IRAs), taxable municipals may provide higher yield and exposure/diversification 1 to a different asset class Historical Yield Spread Sample Taxable Municipal GO vs. Sample Corporate Both rated Aa2/AA/AA 2 by Moody s/s&p/fitch 5 Years March 2008 to March 2013 Issuer Maturity Rating Sample Taxable Muni 6/1/2015 Aa2/AA/AA Sample Corporate 7/1/2015 Aa2/AA/AA -150 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 1 Diversification cannot assure a profit or protect against loss. 2 For more information about credit ratings, please see the Additional Disclosures slide at the end of this presentation. 19 This sample is for illustrative purposes only. It does not constitute investment advice or a recommendation to buy or sell any particular security. Various bond sectors involve different risks and different potential benefits. The sample does not include fees or other costs associated with investing. Past performance is no guarantee of future results.

20 Why Professional Management for Banks? New OCC Rules for Banks Investment Portfolios Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Office of the Comptroller of the Currency (OCC) to issue new guidelines affecting banks (effective January 1, 2013) Banks may no longer rely solely on ratings issued by external credit rating agencies to determine if a security is investment grade Banks may continue to consider external ratings, but must use their own due diligence to demonstrate that the security meets appropriate credit quality standards, both at initial purchase and in ongoing reviews Banks need to assess whether their in-house investment and risk management capabilities are sufficient to meet obligations under the OCC s rulings and official guidance The use of third parties as a way to outsource some or all portfolio management duties may be a reasonable alternative for many banks seeking to help address some of the regulatory considerations Failure to maintain an adequate investment portfolio risk management process, which includes understanding key portfolio risks, is considered an unsafe and unsound practice 2 20 This material is for informational and educational purposes only. This is not intended to be, nor is it to be construed as, investment or legal advice. Banks should discuss applicable regulations with their own legal counsel prior to making any legal or investment decision The OCC stressed that its rules do not "substantively change" the standards that have long been in place for deciding which securities are eligible for purchase as investment grade or for having "an appropriate risk management framework for the level of risk in their investment portfolios...national banks and Federal savings associations that have established due diligence review processes as described in previous guidance, and that have not relied exclusively on external credit ratings, should not have difficulty establishing compliance with the new standard. This is intended as a summary only. For more information please refer to Federal Register Vol. 77, No. 117, p or the OCC site:

21 Why Consider BBB Laddered Municipal Portfolios? BBB municipals tend to offer higher yields for additional credit risk some of that risk may be minimized by our credit oversight In 2008, both Hospital #1 and Hospital #2 were rated BBB-. Hospital #1 - dominant market position in a demographically favorable area with a well integrated physician clinic model and relatively modern facilities. Hospital #2 - weak market position, aged physicians and relatively dated facilities. A Tale of Two Hospitals BBB+ BBB- Hospital #1 BBB BBB-(neg) BB+ BB+(neg) Hospital #2 BB(neg) BB(on review for multi notch downgrade) This is a hypothetical example for illustrative purposes only and does not constitute a recommendation to buy or sell any security. This does not represent actual results nor does it represent the experience of an actual investor. This presentation is based in part on hypothetical assumptions and the experience of EVM. Certain assumptions have been made and may not be realized. This is not an indication of how a portfolio would have performed in the past or will perform in the future. Securities illustrated are not representative of all the securities purchased, sold or recommended for advisory clients. Actual holdings may vary for each client and there is no guarantee that a particular client's account will hold any or all of the securities. It should not be assumed that any of the securities or recommendations in the future will be profitable. 21 For more information about credit ratings, please see the Additional Disclosures slide at the end of this presentation.

22 Additional Disclosures Ratings from Moody, S&P and Fitch. Credit ratings are based largely on the rating agency s investment analysis at the time of rating and the rating assigned to any particular security is not necessarily a reflection of the issuer s current financial condition. The rating assigned to a security by a rating agency does not necessarily reflect its assessment of the volatility of a security s market value or of the liquidity of an investment in the security. If individual securities are rated differently by the independent credit agencies, the higher rating is used to calculate the credit quality. Average credit quality may change over time. Ratings of BBB or higher by Standard and Poor s or Fitch (Baa or higher by Moody s) are considered to be investment grade quality. Important Information This material is presented for informational and illustrative purposes only and should not be construed as investment advice, a recommendation to purchase or sell specific securities, or to adopt any particular investment strategy. This material has been prepared on the basis of publicly available information, internally developed data and other third party sources believed to be reliable, however, no assurances are provided and has not sought to independently verify information taken from public and third party sources. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. Not all of 's recommendations have been or will be profitable. Future results may differ significantly from those stated, depending on factors such as changes in securities or financial markets or general economic conditions. Forecasts and estimates and certain information contained herein are based upon proprietary research and not be to relied upon as advice or interpreted as a recommendation. This information is not to be construed as an estimate or promise of the experience or results a client may achieve. Specific securities, sectors and portfolio characteristics mentioned are included only to provide a snap-shot illustrative sample based upon the manager s current investment strategy as of the date indicated. does not provide tax or legal advice. Investing entails risks and there can be no assurance that (and its affiliates) will achieve profits or avoid incurring losses. Prospective investors should consult with a tax or legal advisor before making any investment decision. 22 Risks These strategies invest in municipal securities. Municipal securities are subject to the risk that legislative changes and local and business developments may adversely affect the yield or value of the strategy s investments in such securities. These strategies investments are subject to credit risk, which is the risk that the issuer could default on interest or principal payments. These strategies investments are subject to interest rate risk. Rising interest rates could reduce the value of the bonds in the portfolio, thus adversely affecting the value of the overall investment. These strategies may invest up to 100% of their assets in US Government securities. Treasury securities are backed by the full faith and credit of the United States government. Income from US Treasury securities is subject to Federal Income Taxes but not subject to state income taxes. These strategies, which invests in these securities, is not guaranteed.

23 Thank you. For more information please contact us at: Management Two International Place Boston, MA

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