CARILLON REAMS CORE FUND

INSIGHT | COMMENTARY SECOND QUARTER | 2021

Investment Team Market Overview Mark Egan, CFA Although the U.S. Federal Reserve (Fed) has communicated an inflation target of 2% for many years, realized inflation has fallen short of this level except for brief periods of time. Multiple inflation measures reported during the second Managing Director and quarter of 2021 indicate that greater than 2% inflation has indeed arrived. Although some market commentators point Lead Portfolio Manager to the base effect of low numbers in the middle of the pandemic a year ago, month-over-month numbers also showed Clark Holland, CFA a sharp pickup in recent price levels. Several rounds of fiscal stimulus combined with extremely loose monetary policy have seemingly succeeded in producing higher inflation where monetary stimulus alone has failed in the past. Portfolio Co-Manager Shortages in lumber, metals, and even glass have also caused pockets of upward price pressure, although many of Todd Thompson, CFA these supply chain factors moderated late in the quarter. Portfolio Co-Manager Anecdotal evidence suggests that employers have been forced to pay higher wages to coax employees to return to work, Stephen Vincent, CFA in particular within the service sector. A significant number of would-be employees are choosing to remain at home due to Portfolio Co-Manager expanded unemployment benefits and the cost/availability of child care during the summer months, along with lingering health concerns related to COVID-19. The winding down of federally funded supplemental unemployment benefits should Jason Hoyer, CFA ultimately prompt workers to re-enter the labor force, but some employers are also choosing to incentivize people back into Portfolio Co-Manager jobs by offering them higher wages. Hopefully this combination, along with alleviated concerns regarding COVID-19 and access to affordable child care, will allow the overall employment picture to continue to improve. Should these recent wage Dimitri Silva, CFA increases gain traction and momentum, higher inflation could prove stickier than most are currently projecting. Portfolio Co-Manager During the second quarter, President Biden proposed a $6 trillion budget and two infrastructure packages totaling $4.1 trillion, spread over multiple years, in a continuing effort to stimulate the economy. The administration has been clear for some time now that it views doing too little as a much higher risk than doing too much, but efforts to push Characteristics through additional large-scale fiscal stimulus have been stymied by Senate Republicans and several conservative Democrats. Late in the quarter, a tentative agreement was reached on a $579 billion bipartisan infrastructure package, but certain factions within the Democratic Party have ostensibly tied their support for the bill to promises of a much Total Net Assets larger spending package that would be passed through reconciliation, creating renewed uncertainty. (millions): $585.0 The Fed continues to argue that the current state of heightened inflation is simply transitory and, therefore, they do not need to remove the punch bowl just yet. This constant “transitory” refrain was called into some question at the June Fed meeting, Number of holdings: 145 however. The Fed “dot plot” of expected future Fed funds rates indicated more diversity of thought among the Fed governors versus the previous estimates given in March, with several members pulling forward their projections of when the first rate Top Holdings hike will occur. No action was taken on rates or asset purchases, or even hinted at for that matter, but the June meeting sowed some minor seeds of doubt regarding the Fed’s outlook on inflation and commitment to a dovish stance through 2023. US TREASURY N/B T 0 3/8 03/31/22 Valuations in most risk markets moved higher during the second quarter from levels that were already elevated. Credit spreads US TREASURY N/B T 0 3/4 03/31/26 continued to tighten, with the high yield (HY) sector once again outperforming. High yield corporate option-adjusted spreads US TREASURY N/B T 1 1/4 10/31/21 (OAS) tightened 42 basis points (bps), asset-backed securities (ABS) 12 bps, commercial mortgage-backed securities (CMBS) 12 bps, and investment-grade (IG) corporates 10 bps, while mortgage-backed securities (MBS) widened 16 bps. In a reversal of US TREASURY N/B T 1 1/8 07/31/21 the first-quarter move, intermediate and long-term Treasury rates declined and the flattened. The 2-year Treasury US TREASURY N/B T 1 5/8 05/15/31 yield rose 9 bps while the 5-year, 10-year, and 30-year Treasury yields fell 5, 27, and 32 bps, respectively. (Source: Bloomberg) FN MA4126 Portfolio Review US TREASURY N/B T 1 1/8 05/15/40 Macro factors detracted due to a below-index duration stance, as intermediate and long-term U.S. Treasury rates fell WELLS FARGO 4.478 04/04/31 during the second quarter. Sector allocation contributed due to an underweight to the underperforming MBS sector. US TREASURY N/B T 1 1/8 02/15/31 selection contributed as well, primarily within the IG corporates sector. Selection within the MBS and CMBS sectors also contributed a modest amount. All other sectors had a minimal impact on performance. BANK OF AMERICA CORP BAC 2.496 02/13/31 The Fund’s weight in IG corporates remained elevated during the second quarter but declined slightly quarter-over- quarter, with exposure focused on short-maturity and lower-beta credits. We viewed select IG corporate bonds as offering Please consider the investment moderately attractive spreads relative to U.S. Treasurys on a risk-adjusted basis. The Fund’s allocation to U.S. Treasurys objectives, risks, charges, and decreased during the second quarter and shifted from an overweight relative to the index to a slight underweight relative expenses of any fund carefully to the index. The reduction in U.S. Treasury exposure was primarily driven by shifts in maturity/duration positioning, before investing. Call 800.421.4184 as the reduction was offset by a corresponding increase in cash and equivalents. The Fund’s agency MBS exposure or your financial professional for a decreased slightly quarter-over-quarter and remained at a low absolute level, as we viewed agency MBS spreads as prospectus, which contains this and offering very little relative value. CMBS exposure increased slightly and represented an overweight relative to the index other important information about at quarter’s end. CMBS holdings remained concentrated in well-structured senior securities due to their stable cash the funds. Read the prospectus flow characteristics. The Fund’s ABS weight also increased but remained moderate on an absolute basis, with holdings carefully before you invest or send focused on high-quality auto loan collateral. money.

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Carillon Fund Distributors, Inc., Member FINRA The Funds’ duration decreased significantly accommodative monetary and fiscal policy. The information provided should not be construed as during the second quarter, moving from slightly If inflation is more persistent than transitory, a recommendation to buy, sell, or hold any particular below that of the index to significantly below however, it may become increasingly security. The data is shown for informational purposes only and is not indicative of future portfolio that of the index. This shift occurred due to challenging for the Fed to remain dovish. characteristics or returns. Portfolio holdings are not the meaningful decline in risk-free rates and Nominal yields have meaningfully increased stagnant and may change over time without prior notice. subsequent view that real interest rates are year to date but so have inflation expectations, unattractive at current levels, with long-term leaving real rates still firmly in negative Basis points (bps) are units of measure often used in rate risk skewed to the upside. The Fund territory. This dynamic stands in stark contrast discussions of interest rates, equity indices, and yields of fixed-income securities. One basis point is equal to remained underweight the 10+ year maturity with the economic conditions currently in 1/100th of 1%. segment of the yield curve, along with the one place. The tailwinds for growth remain strong, to three year and five to seven year segments, but valuations in almost every spread sector Duration incorporates a bond’s yield, , final balanced by overweights to the zero to one year appear vulnerable. maturity and call features into one number, expressed in years, that indicates how price-sensitive a bond or and seven to 10 year segments. portfolio is to changes in interest rates. Bonds with higher durations carry more risk and have higher price Outlook Risk Considerations: The return of principal in volatility than bonds with lower durations. Despite a bit of mixed messaging at the last a fund is not guaranteed. Fixed Benchmark Index meeting, the Fed has every incentive to ensure income funds have the same interest rate, The Bloomberg Barclays U.S. Aggregate Bond Index is inflation, issuer, maturity and credit risks that composed of the total U.S. investment-grade . The a sustained recovery and will be extremely market-weighted index includes Treasuries, agencies, CMBS, reluctant to admit that elevated inflation data are associated with underlying fixed income ABS and investment-grade corporates. It is not possible to is anything but transitory. Modest tapering and securities owned by the fund. Mortgage- invest in an index. eventually a rise in rates are expected to occur, and Asset-Backed Securities are subject to Carillon Tower Advisers is the investment adviser for the prepayment risk and the risk of default on the Carillon Family of Funds and Scout Investments is the but the committee will likely be slow to tighten sub-adviser to the Carillon Reams Core Bond Fund. Reams and even then only begrudgingly. Whether underlying mortgages or other assets. Asset Management is a division of Scout Investments. this tension morphs into a policy error or not Scout Investments is a wholly owned subsidiary of Carillon Foreign investments present additional risks Tower Advisers. Carillon Fund Distributors is a wholly owned remains to be seen. subsidiary of Eagle Asset Management (a sub-adviser to due to currency fluctuations, economic and certain of the Carillon Family of Funds), and Eagle Asset political factors, government regulations, Management is a wholly owned subsidiary of Carillon Tower The bipartisan infrastructure deal was a bit Advisers. All entities named are affiliates. surprising in this sharply divided environment, differences in accounting standards and other but congressional Democrats were careful to factors. The views and opinions expressed are not necessarily those separate this bill from a much more ambitious of any broker/dealer or any affiliates. Nothing discussed or Derivatives such as credit default swap suggested should be construed as permission to supersede or spending package that could be forced circumvent any broker/dealer policies, procedures, rules, and agreements and futures contracts may involve through under the reconciliation process. guidelines. greater risks than if the Fund invested in the If these broader plans are thwarted, the referenced obligation directly. Derivatives ©2021 Carillon Tower Advisers, Inc. All rights reserved. additional fiscal support that the market has are subject to risks such as market risk, CFD21-0532, Exp. 10/31/21 CM-CFF-CRCB already priced in may result in disappointment. liquidity risk, interest rate risk, credit risk and The ultimate scale and scope of any bills management risk. Derivative investments passed, along with how they are to be funded, could lose more than the principal amount could have significant impact on growth and invested. The Fund may use derivatives for inflation in the second half of 2021 and 2022. hedging purposes or as part of its investment While garnering significant attention, supply strategy. The use of leverage and derivatives shortages in lumber, metal, and other investments could accelerate losses to the commodities had already begun to ease fund. These losses could exceed the amount by the end of the second quarter. These originally invested. markets should continue to normalize The Fund may, at times, experience higher- in the second half of the year, as global than-average portfolio turnover, which supply adjusts to increased demand. Wage may generate significant taxable gains and pressures exacerbated by federal enhanced increased trading expenses, which, in turn, may unemployment benefits, on the other hand, lower the Fund’s return. could last long after the extended benefits phase out. Increased wages are difficult to “walk back” in a competitive employment Past performance is not indicative of future results, and investing involves risk, including the risk of environment, and upward movement of entry- loss. All information as of June 30, 2021. Opinions level wages can have a daisy-chain reaction expressed are the current opinions as of the date on the wages demanded by existing and more appearing in this material only. This material should senior employees. not be construed as research or investment advice. No part of this material may, without Carillon Tower Valuations remain elevated due to an Advisers’ prior written consent, be copied, photocopied, improving macro picture and ultra- or duplicated in any form, by any means.