Money Market Funds Commentary

3Q 2019

Certain fund expenses may have been waived or reimbursed. Had waivers and reimbursements not been in effect, the performance quoted would have been lower, and for the U.S Treasury Fund the 7-day current, 7-day effective and the 30-day effective yields would have been 1.54%, 1.55%, and 1.73%; and for the Government Securities Money Market Fund would have been 1.51%, 1.52%, and 1.73%, respectively. Currently, contractual fee waivers are in effect from December 26, 2018 through December 31, 2019.

How did you position your portfolios during the quarter?

On July 31, the Federal Reserve Open Market Committee (FOMC) lowered the federal funds target range 25 basis points (0.25%) to 2.00% - 2.25%. The FOMC noted muted inflation pressures as well as soft growth of business fixed investment. And on September 18, it further lowered the target range to 1.75% - 2.00%, while lowering the Interest on Excess Reserve rate (IOER) to 1.80%. The impact of the decreases were somewhat buffered by longer-term securities in both funds, but money fund yields are declining, reflecting the rate environment.

The month of September saw a noteworthy dislocation in the overnight repurchase agreement (repo) market. Rates spiked sharply, with the rates we received briefly rising over 200 basis points (2.00%). In response, the Federal Reserve Board (the Fed) injected liquidity into the financial system via short-term open market operations, and continued these operations into October. This calmed markets, but questions remain about how much additional liquidity may be necessary.

In the Government Securities Money Market Fund, Secured Overnight Funding Rate (SOFR)-based floating-rate notes¹ continued to add value, typically yielding a bit more than the overnight repo without affecting the Weighted Average Life (WAL)¹ of the Fund adversely. Moreover, in both funds, Fixed Income Clearing Corp.¹ (FICC)-sponsored repo continued to perform well.**

As a hedge against lower rates, we took limited positions in somewhat longer-term Treasuries during the quarter, as we had done earlier in the year, but as the markets began to anticipate lower rates, longer-term opportunities became scarce. In the Government Securities Money Market Fund, the SOFR floating-rate notes helped buffer lower rates as they typically yielded a bit more than overnight repo. As we believed that Treasury supply might increase in the latter part of the year due to increased issuance by the Treasury, we felt that this increase might be reflected in higher repo levels from time to time, and this in fact happened.**

What is your outlook, and how are you positioning the funds?

With continued signs of economic weakening, globally and within the United States, and with the Fed reversing course halfway through 2019 to a more accommodative stance, we believe the funds remain positioned for the possibility of still lower rates.**

We continue to closely monitor the market’s perception of future FOMC moves, and we look for opportunities to help lock in longer-term rates as we feel the short-term momentum is toward lower levels. We are also open to adding additional floating-rate notes if we feel the levels are attractive.**

Portfolio composition is subject to change

Lipper

The Lipper Mutual Funds Average is an equally weighted average of the mutual funds within their respective Lipper classification, adjusted for reinvestment of capital gains distributions and income dividends. Lipper does not guarantee the accuracy of this information. More information is available at www.lipperweb.com. Thomson Reuters Copyright 2019, All Rights Reserved.

Definitions

The London Interbank Offered Rate (LIBOR) is the average rate charged by large banks in London for loans to each other. LIBOR is a relatively volatile rate and is typically quoted in maturities of one month, three months, six months and one year. Secured Overnight Financing Rate (SOFR) was originally known as the broad Treasuries financing rate, the secured overnight financing rate is a measure of the cost of borrowing cash on an overnight basis in the U.S. Treasury repo markets. It is the U.S. successor to Libor. Fixed Income Clearing Corporation (FICC) is an agency that deals with the confirmation, settlement, and delivery of fixed-income assets in the U.S. The agency ensures the systematic and efficient settlement of U.S. government securities and mortgage-backed security (MBS) transactions in the market. The Weighted Average Life (WAL) is the average length of time that each dollar of unpaid principal on a loan, a mortgage or an amortizing bond remains outstanding.

The 7-day yield or 7-day effective yield refers to the income generated by an investment in a fund over a 7-day period. The 7- and 30-day effective yields also assume that income earned from the fund’s investments is reinvested and generating additional income. The yield quotation more closely reflects the current earnings of the Fund than the total return quotations.

Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. To obtain performance information current to the most recent month end, call 800-762-7085 or visit us at www.cavanalhillfunds.com.

This material must be preceded or accompanied by a current prospectus. An investor should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing or sending any money. This and other important information about the investment company can be found in the fund’s prospectus or summary prospectus. To obtain more information, call 1-800-762-7085, or visit our website at www.cavanalhillfunds. com. Please read the prospectus or summary prospectus carefully before investing.

Cavanal Hill Investment Management, Inc. is an SEC registered investment adviser and a wholly-owned subsidiary of BOKF, NA, a wholly-owned subsidiary of BOK Financial Corporation, a financial holding company (“BOKF”). BOKF, NA serves as the custodian for the Cavanal Hill Funds. Cavanal Hill Investment Management, Inc. provides investment advice, administration and other services for the Funds and receives a fee for providing such services as fully described in the prospectus. The Funds are distributed by Cavanal Hill Distributors, Inc., a registered Broker/Dealer, member FINRA and wholly-owned subsidiary of BOKF. SEC registration does not imply a certain level of skill or training. Bank of Oklahoma and its affiliates Bank of Arkansas, Bank of Albuquerque, Bank of Texas, Bank of Arizona, Mobank and Colorado State Bank and Trust offer investment management and administrative services nationally and administer more than $35 billion in assets for numerous clients, including foundations and endowments, and high-net-worth individuals.

Commentary provided is for the period ended 9/30/2019 and is designed to provide a frame of reference and does not constitute investment advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. The opinions expressed herein reflect the judgment of the authors at this date and are subject to change without notice and are not a complete analysis of any sector, industry or security. This document contains forward-looking statements that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the Cavanal Hill Funds, the securities and credit markets and the economy in general. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “plans,” “projects,” variations of such words and similar expressions are intended to identify such forwardlooking statements. Management judgments relating to and discussion of the value and potential future value or performance of any security, group of securities, type of security or market segment involve judgments as to expected events and are inherently forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expressed, implied, or forecasted in such forward-looking statements. The potential realization of these forward-looking statements is subject to a number of limitations and risks, which are described in the Funds’ prospectuses, and investors or potential investors, are cautioned to review the Funds’ prospectuses, and the description of such risks. Neither the Funds nor the Funds’ investment adviser, Cavanal Hill, undertake any obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

MUTUAL FUNDS AND OTHER INVESTMENTS: NOT FDIC INSURED • MAY LOSE VALUE • NO BANK GUARANTEE