2018 legg mason dividend strategy balanced portfolios · 2 q 2018 s eparately managed accounts legg...

2Q 2018 Separately Managed Accounts

LEGG MASONDIVIDEND STRATEGYBALANCEDPORTFOLIOS

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

Introduction | Legg Mason

Meet our investment managers

Having honed their expertiseover many decades and marketcycles, our global asset managersoffer specialized capabilitiesacross a scope of asset classesand strategies. Each skilled teamoperates with independentvision to help deliver powerfulfinancial solutions for bothindividuals and institutions.

Global alternative investments One of the world’s largest hedge fund investors, recognized as a global leader in structuring comprehensive alternative investment strategies for institutional and high net worth clients.

Active equity specialists An active equity specialist that builds global, stock-driven portfolios based on fundamental research, devoting all of its resources to delivering optimum investment outcomes and superior client relationships.

Quality-focused equity Global investment manager with over 50 years of experience and long-tenured portfolio managers who seek to build income, high active share or low volatility portfolios.

Investing with conviction Acting with conviction and discipline, we look beyond short-term, conventional thinking to rigorously pursue long-term value across differentiated fixed income, equity, and alternative solutions.

Systematic investment solutions QS Investors is a quantitative asset manager that provides multi-asset class and global equity solutions. Their approach unites intellectual and academic precision with the power of data and technology in their quest to elevate the certainty of outcomes they deliver.

Small-cap equityKnown for its disciplined, value-oriented approach to managing small-caps. An asset class pioneer, the firm’s founder is one of the longest-tenured active managers.

Global listed infrastructure investing RARE is a dedicated infrastructure investment manager focused on global listed infrastructure investments. Established in 2006, RARE has grown to become one of the largest listed infrastructure managers globally.

Fixed incomeOne of the world’s leading global fixed income managers. Founded in 1971, the firm is known for team management, proprietary research and a long-term fundamental value approach.

Real estate investment specialists Clarion Partners is a leading private equity and debt real estate investment manager established in 1982. Clarion invests in the Americas across a broad range of property types and risk profiles, with the goal of consistently creating value for its clients.

Active share is a measure of the percentage of stock holdings in a manager’s portfolio that differs from the benchmark index.

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Your investment portfolio | Dividend Strategy Balanced

Legg Mason Dividend Strategy Balanced Portfolios

OverviewLegg Mason Dividend Strategy Balanced Portfolios aim to meetlong-term financial goals with dividend income, dividend incomegrowth and long-term capital appreciation, while utilizing high-qualitybonds to manage portfolio volatility.§PhilosophyWe believe that:• A total return portfolio—with exposure to companies that either

pay an existing dividend or have the potential to pay and/orsignificantly grow their dividends— combined with the potentialadded stability of bonds—has the potential to outperform over thelong term

• Competitive risk-adjusted returns may be achieved by investing inselect large- and mid-cap companies and by seeking to limitportfolio turnover to capitalize on potential for long-term growth

ObjectivesThe strategy seeks to:• dividend income

• achieve growth of dividend income

• achieve long-term capital appreciation

• utilize fixed income as an anchor to manage volatility in the overallportfolio, as well as to provide income and total return.

Risks: All investments involve risk, including the loss of principal, and there is no guarantee that investment objectives will be met.Investments may be made in small-cap and mid-cap companies which involve a higher degree of risk and volatility than investments in larger, more established companies.While most investments are in U.S. companies, investments may be made in ADRs and U.S.-traded ordinary shares of non-U.S. companies in developed and emerging markets which involve risks in addition to those ordinarily associated with investing in domesticsecurities, including the potentially negative effects of currency fluctuations, political and economic developments, foreign taxation and differences in auditing and other financial standards. These risks are magnified in emerging markets.Managers seek to keep portfolio turnover low to allow for the positive compounding effect of dividends over time, although market, security and other investment considerations may cause turnover to be higher from time to time. Also, all capitalization ranges will notnecessarily be represented in an individual account.The managers may sometimes hold significant portions of portfolio assets in cash equivalents while waiting for buying opportunities.Tapering of the Federal Reserve Board’s quantitative easing program and a general rise in interest rates may lead to increased portfolio volatility.Limited investments also may be made in non-dividend paying stocks that are not expected to pay a dividend in the near future. Fixed income securities are subject to interest rate and credit risk, which is a possibility that the issuer of a security will be unable to makeinterest payments and repay the principal on its debt. As interest rates rise, the price of fixed income securities falls. Fixed income securities are subject to illiquidity risk, which is the risk that securities may be difficult to sell at certain prices when no marketparticipants are willing to purchase the securities at such prices.

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Legg Mason Dividend Strategy Balanced Portfolios investment process

Portfolio implementation

Fixed Income Equity

Portfolio Implementation Dividend Strategy Balanced Portfolios• Two strategies are managed independently by the Dividend Strategy Team and the Taxable Fixed Income Team

• Allocation to fixed income will vary depending upon portfolio managers’ discretion and market conditions§

For Illustrative Purposes Only. Asset allocations are approximate and subject to change.Limited investments also may be made in non-dividend paying stocks that are not expected to pay a dividend in the near future.The investment process may change over time. The characteristics set forth are intended as a general illustration of some of the criteria the strategy team considers in selecting securities for client portfolios. There is no guarantee investment objectives will beachieved.

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Legg Mason Dividend Strategy Balanced Portfolios Equity investment process

Define the investmentuniverseEmphasize domesticlarge-capitalizationstocks, but also considermid- and small-capitalization companiesand ADR’s of foreigncompaniesopportunistically

Evaluate stocks usingproprietary disciplineScreen for companiesacross all market sectorswith either an attractivedividend yield, a historyof (or prospects for)dividend growth, strongbalance sheets, dominantpositions and/orreasonable valuations

Select securities andconstruct portfolioConduct fundamentalresearch and dividendanalysis to identifycompanies with attractivegrowth characteristicsrelative to their valuationlevels

Review processRe-examine a currentholding when valuation isrealized, fundamentalsdeteriorate, and/orcyclical shifts alterindustry’s attractiveness

The investment process may change over time. The characteristics set forth are intended as a general illustration of some of the criteria the strategy team considers in selecting securities for client portfolios. There is no guarantee investment objectives will beachieved.

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Legg Mason Dividend Strategy Balanced Portfolios Fixed Income investment process

Interest Rate Exposure/Duration WeightingWestern Asset’sinvestment teamcomprehensivelyanalyzes a variety ofdomestic andinternationalmacroeconomic factorsto establish a durationtarget

Term StructureWeightingThe Firm carefullyemploys strategies in anattempt to takeadvantage of changes inthe yield curve’s shapeand shifts in therelationship betweenshort-, intermediate-, andlong-maturity securities.

Sector AllocationWestern Asset seeks toadd value to a portfolio byactively rotating betweenthe Treasury and Agencysectors.

The investment process may change over time. The characteristics set forth are intended as a general illustration of some of the criteria the strategy team considers in selecting securities for client portfolios. There is no guarantee investment objectives will beachieved.

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Strategy characteristics & performance | Performance

Equity Portfolio characteristics as of June 30, 2018

Market capitalization (%)

75.08

16.42

7.431.08 0.00

68.43

14.26 15.17

2.14 0.00

Above $50B $25 - $50B $10 - $25B $3 - $10B 0 - $3B0

20

40

60

80

100Portfolio BM

Characteristics

Portfolio BM

Number of Holdings 55 505

Dividend Yield 2.55 1.87

Forecasted P/E Ratio -1 Year 17.01 17.17

Price/Book Ratio 4.73 4.85

Long-Term EPS Growth 11.34 13.43

Weighted Median Market Capitalization 108.23 104.84

Weighted Average Market Capitalization 160.03 208.02

Source: FactSet. Portfolio characteristics and composition are currently inaccessible at the representative account level for the Dividend Strategy Balanced portfolio. In lieu of this, the following pages show portfolio characteristics for arepresentative account of Dividend Strategy portfolio for the equity portion and for a model portfolio of GSM 5-Year for the fixed income portion. Portfolio characteristics are subject to change at any time. Portfolio characteristics of individual clientportfolios in the program may differ, sometimes significantly, from those shown above. Please see Endnotes for additional information. Please see appendix for term definitions.P/E ratio Year 1 and Long-term EPS growth are provided by I/B/E/S, are inherently limited and should not be used as an indication of future performance.§Yields and dividends represent past performance and there is no guarantee they will continue to be paid.

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Equity Portfolio Composition As of June 30, 2018

Sector weightings (%)

Portfolio BM

Consumer Staples 13.99 6.96

Information Technology 13.02 25.96

Financials 12.27 13.84

Energy 9.93 6.34

Consumer Discretionary 9.37 12.92

Health Care 9.19 14.07

Materials 8.84 2.60

Industrials 8.36 9.51

Real Estate 4.70 2.86

Utilities 3.41 2.95

Telecommunication Services 1.90 1.99

Cash 5.01 0.00

Top equity holdings (%)

Microsoft Corp 3.04

Home Depot Inc/The 2.96

Texas Instruments Inc 2.79

Bank of America Corp 2.65

BlackRock Inc 2.38

Mastercard Inc 2.36

Sysco Corp 2.33

Apple Inc 2.30

Enbridge Inc 2.29

International Paper Co 2.27

Total 25.37

Source: FactSet. Portfolio characteristics are based on a model portfolio, not an actual client account. The model portfolio is a hypothetical portfolio whereby the portfolio characteristics are based on simulated trading and account activity of a client account invested inthis strategy. The model portfolio assumes no withdrawals, contributions or client-imposed restrictions. Portfolio characteristics of individual client accounts may differ from those of the model portfolio as a result of account size, client-imposed restrictions, the timingof client investments, market conditions, contributions, withdrawals and other factors.

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Fixed income Portfolio characteristics as of June 30, 2018

Sector weightings (%)

Treasury 77.01Agency 22.99Asset-BackedSecurities

0.0

CMO 0.0Corporate 0.0Mortgage-BackedSecurities

0.0

Other 0.0Cash 0.0

Treasury 77.01

Agency 22.99

Asset-BackedSecurities

0.0

CMO 0.0

Corporate 0.0

Mortgage-BackedSecurities

0.0

Other 0.0

Cash 0.0

Characteristics

Average Maturity (Years) 3.90

Average Coupon Rate (%) 1.92

Effective Duration (Years) 3.64

Yield to Maturity (%) 2.66

Yield to Worst (%) 2.66

Source: BondEdge. Portfolio sector weightings and characteristics are for a model portfolio, are for illustrative purposes only and are subject to change. The Model Portfolio represents the Investment Manager’s general advice at the date stated above to GSM 5-Yearclients without restrictions on their accounts. For actual GSM 5- Year client accounts, composition and other data shown varied from those shown for Model Portfolio because of factors such as client-imposed restrictions and the timing of actions and withdrawals offunds to and from individual client accounts. Sector weightings and characteristics of individual client portfolios may differ, sometimes significantly, from the weightings shown above. Yields will fluctuate and are not guaranteed. Please see appendix for termdefinitions.

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Performance

Calendar-year total returns – gross and net of fees (%) ending December 31

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008

Dividend Strategy Bal (70/30) (gross) 13.77 11.18 -1.88 10.39 20.48 10.75 9.45 10.54 13.63 -12.59

Dividend Strategy Bal (70/30) (net) 10.48 7.97 -4.75 7.19 17.01 7.54 6.28 7.34 10.35 -15.18

Index Mix (70/30) 15.27 8.73 1.54 10.31 21.37 11.68 3.72 12.55 17.94 -24.60

S&P 500 Index 21.83 11.96 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00

Annualized rates of return – gross and net of fees (%) as of June 30, 2018 – PRELIMINARY

Jun ‘18 Q2 ‘18 YTD 1-year 3-year 5-year 7-year 10-year

Dividend Strategy Bal (70/30) (gross) 0.72 2.22 -0.21 7.11 8.22 8.50 9.42 8.95

Dividend Strategy Bal (70/30) (net) 0.48 1.47 -1.67 4.00 5.08 5.35 6.25 5.79

Index Mix (70/30) 0.43 2.41 1.71 9.72 8.55 9.69 9.71 8.08

S&P 500 Index 0.62 3.43 2.65 14.37 11.93 13.42 13.23 10.17

The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com for the latest performance figures. YTD numbers are not annualized. Investors cannotinvest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.70/30 Index Mix consists of the following: 70% S&P 500 Index and 30% Bloomberg Barclays Intermediate Treasury Bond Index (rebalanced monthly).Past performance is no guarantee of future results. YTD numbers are not annualized. Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Netperformance includes the deduction of a 3.0% annual wrap fee, which is the maximum anticipated wrap fee for equity and balanced portfolios. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into an agreement directly withLegg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Returns reflect the reinvestment of dividends and other earnings. Please see Performance Endnotes for additional important information regarding theportfolio’s performance and for effects of fees. Management and performance of individual accounts may vary for reasons that include the existence of different implementation and model requirements in different investment programs.

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Risk/return profile (%)

Gross of fees (based on 10-year period ending June 30, 2018)

0 5 10 15 200

5

10

15

Dividend Strategy Bal (70/30) Index Mix (70/30) S&P 500 Index

Ann

ualiz

ed r

ate

of r

etur

n (%

)

Risk (% annualized standard deviation)

Modern portfolio statistics as of June 30, 2018

DividendStrategyBalancedTaxable(70/30)

Index Mix(70/30)

S&P 500Index

Annualized return (%) 8.95 8.08 10.17

Annualized standard deviation (%) 7.82 10.10 14.71

Sharpe ratio 1.10 0.79 0.71

Beta 0.73 N/A N/A

Alpha 2.80 N/A N/A

R-squared 0.89 N/A N/A

The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com for the latest performance figures. YTD numbers are not annualized. Investors cannotinvest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.Past performance is no guarantee of future results. Investments involve risk of loss. Alpha, Beta, and R-squared are shown versus the Index Mix. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses orsales charges. Please see appendix for term definitions.70/30 Index Mix consists of the following: 70% S&P 500 Index and 30% Bloomberg Barclays Intermediate Treasury Bond Index (rebalanced monthly).Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into anagreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see Performance Endnotes for additional important information regarding the portfolio’s performance and for effectsof fees. Management and performance of individual accounts may vary for reasons that include the existence of different implementation and model requirements in different investment programs.

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Up/Down market capture ratios (%)


0.85

0.71

1.00

1.00

2

1

0

1

2

Dividend Strategy Bal (70/30) Index Mix (70/30)

Up82 positive months

Down38 negative months

The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com for the latest performance figures. YTD numbers are not annualized. Investors cannotinvest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into anagreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see appendix for term definitions.Please see Performance Endnotes for additional important information regarding the portfolio’s performance and for effects of fees. Management and performance of individual accounts may vary for reasons that include the existence ofdifferent implementation and model requirements in different investment programs. Past performance is no guarantee of future results.

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Growth of $100,000


2008 2010 2012 2014 2016 2018$0

$50,000

$100,000

$150,000

$200,000

$250,000Dividend Strategy Bal (70/30) Index Mix (70/30) $235,654 $217,457

For illustrative purposes only. Assumes no withdrawals or contributions. These statistics are based on gross-of-fees quarterly composite returns, were calculated assuming reinvestment of dividends and income, and take into account both realized and unrealizedcapital gains and losses. Past performance is no guarantee of future results. All investments involve risk, including the loss of principal.Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into anagreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see Performance Endnotes for additional important information regarding the portfolio’s performance and for effectsof fees. Management and performance of individual accounts may vary for reasons that include the existence of different implementation and model requirements in different investment programs.

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Performance

Calendar-year total returns – gross and net of fees (%) ending December 31

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008

Dividend Strategy Bal (60/40) (gross) 11.97 9.64 -1.38 9.14 17.33 9.63 9.02 9.94 11.86 -9.48

Dividend Strategy Bal (60/40) (net) 8.73 6.46 -4.27 5.97 13.95 6.45 5.86 6.75 8.62 -12.14

Index Mix (60/40) 13.15 7.64 1.55 9.19 17.88 10.24 4.20 11.62 15.12 -20.09

S&P 500 Index 21.83 11.96 1.38 13.69 32.39 16.00 2.11 15.06 26.46 -37.00

Annualized rates of return – gross and net of fees (%) as of June 30, 2018 – PRELIMINARY

Jun ‘18 Q2 ‘18 YTD 1-year 3-year 5-year 7-year 10-year

Dividend Strategy Bal (60/40) (gross) 0.61 1.90 -0.28 6.00 7.13 7.43 8.29 8.09

Dividend Strategy Bal (60/40) (net) 0.37 1.15 -1.75 2.92 4.02 4.31 5.15 4.96

Index Mix (60/40) 0.36 2.08 1.38 8.19 7.42 8.45 8.53 7.33

S&P 500 Index 0.62 3.43 2.65 14.37 11.93 13.42 13.23 10.17

The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com for the latest performance figures. YTD numbers are not annualized. Investors cannotinvest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.60/40 Index Mix consists of the following: 60% S&P 500 Index and 40% Bloomberg Barclays U.S. Intermediate Treasury Bond Index (rebalanced monthly).Past performance is no guarantee of future results. YTD numbers are not annualized. Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Netperformance includes the deduction of a 3.0% annual wrap fee, which is the maximum anticipated wrap fee for equity and balanced portfolios. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into an agreement directly withLegg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Returns reflect the reinvestment of dividends and other earnings. Please see Performance Endnotes for additional important information regarding theportfolio’s performance and for effects of fees. Management and performance of individual accounts may vary for reasons that include the existence of different implementation and model requirements in different investment programs.

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Risk/return profile (%)


0 5 10 15 200

5

10

15

Dividend Strategy Bal (60/40) Index Mix (60/40) S&P 500 Index

Ann

ualiz

ed r

ate

of r

etur

n (%

)

Risk (% annualized standard deviation)

Modern portfolio statistics as of June 30, 2018

DividendStrategyBalancedTaxable(60/40)

Index Mix(60/40)

S&P 500Index

Annualized return (%) 8.09 7.33 10.17

Annualized standard deviation (%) 6.67 8.59 14.71

Sharpe ratio 1.16 0.83 0.71

Beta 0.73 N/A N/A

Alpha 2.52 N/A N/A

R-squared 0.89 N/A N/A

The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com for the latest performance figures. YTD numbers are not annualized. Investors cannotinvest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.Past performance is no guarantee of future results. Investments involve risk of loss. Alpha, Beta, and R-squared are shown versus the Index Mix. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses orsales charges. Please see appendix for term definitions.60/40 Index Mix consists of the following: 60% S&P 500 Index and 40% Bloomberg Barclays U.S. Intermediate Treasury Bond Index (rebalanced monthly).Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into anagreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see Performance Endnotes for additional important information regarding the portfolio’s performance and for effectsof fees. Management and performance of individual accounts may vary for reasons that include the existence of different implementation and model requirements in different investment programs.

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Up/Down market capture ratios (%)


0.86

0.69

1.00

1.00

2

1

0

1

2

Dividend Strategy Bal (60/40) Index Mix (60/40)

Up81 positive months

Down39 negative months

The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com for the latest performance figures. YTD numbers are not annualized. Investors cannotinvest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into anagreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see appendix for term definitions.Please see Performance Endnotes for additional important information regarding the portfolio’s performance and for effects of fees. Management and performance of individual accounts may vary for reasons that include the existence ofdifferent implementation and model requirements in different investment programs. Past performance is no guarantee of future results.

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Growth of $100,000


2008 2010 2012 2014 2016 2018$0

$50,000

$100,000

$150,000

$200,000

$250,000Dividend Strategy Bal (60/40) Index Mix (60/40) $217,758 $202,951

For illustrative purposes only. Assumes no withdrawals or contributions. These statistics are based on gross-of-fees quarterly composite returns, were calculated assuming reinvestment of dividends and income, and take into account both realized and unrealizedcapital gains and losses. Past performance is no guarantee of future results. All investments involve risk, including the loss of principal.Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into anagreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see Performance Endnotes for additional important information regarding the portfolio’s performance and for effectsof fees. Management and performance of individual accounts may vary for reasons that include the existence of different implementation and model requirements in different investment programs.

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Appendix | Investment Management Team

Investment management team

Scott Glasser, §Managing Director, Portfolio Manager• Co-Chief Investment Officer

• Industry since 1991

• Firm since 1993

• Pennsylvania State University — MBA

• Middlebury College — BA

• Member of the ClearBridge Investments ManagementCommittee

• Shearson Lehman Brothers -- Portfolio Manager, ConsumerAnalyst

• Bear Stearns & Co. -- Credit Analyst

• CIS Marketing -- Account Representative§

§

Michael Clarfeld, CFA§

Managing Director, Portfolio Manager• Industry since 2000

• Firm since 2006

• Duke University — BA in History

• Member of the CFA Institute

• Member of the New York Society of Securities Analysts

• Hygrove Partners, LLC -- Equity Analyst

• Goldman Sachs -- Equity Research, Financial Analyst§§

Diane Keady§

Director, Portfolio Manager• Industry since 2000

• Firm since 1994

• New York University, Leonard N. Stern School of Business —MBA

• Rutgers University — BS

• Citigroup Asset Management -- U.S. Sales and Distribution, VicePresident

• Salomon Smith Barney -- GAAP Reporting, Vice President

• Smith Barney Shearson -- Technology Finance, Expense Analyst§§

Peter Vanderlee, CFA§

Managing Director, Portfolio Manager• Industry since 1999

• Firm since 1999

• New York University, Leonard N. Stern School of Business —MBA

• University of Technology, Eindhoven, Holland — MS in Math/Computer Science

• Member of the CFA Institute

• Predecessor organization — First Vice President

• Booz&Co — Program Director/Senior Associate

• Cap Gemini America — Senior Consultant

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Appendix | Investment Management Team

Investment management team

Western Asset, one of the world’s leading fixed income managers, was founded in 1971. With a focus on long-termfundamental value investing that employs a top-down, bottom-up approach, the firm has nine offices around the globeand deep experience across the range of fixed income sectors. Western Asset has been recognized for its emphasis onteam management and intensive proprietary research, supported by robust risk management.

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Appendix | Performance Endnotes

Performance Endnotes (70/30)

Performance calculationLegg Mason Dividend Strategy Balanced Portfolios compositeperformance has the approximate target allocation of: 70% equityand 30% fixed income components. The Index Mix is comprised of70% S&P 500 Index and 30% Bloomberg Barclays IntermediateTreasury Bond indices, rebalanced monthly. Unlike the indicesincluded in the Index Mix, investment styles included in balancedportfolios are not automatically rebalanced each month.

Performance returns for periods prior to January 2006 are based onthe performance of a composite of accounts from a formerly-affiliated sponsor channel, which represented an overwhelmingmajority of the strategy’s retail assets under management duringsuch periods. Such pre-2006 returns were calculated on an equal-weighted basis where each portfolio contributed an equal weight tothe resulting composite return regardless of its asset size.Performance returns for periods subsequent to January 2006 arebased on the composite performance of all discretionary retailmanaged accounts in the strategy. Such post-2005 returns werecalculated on an asset-weighted basis where each portfoliocontributed to the resulting composite return proportionately basedon asset size.

FeesGross performance shown does not reflect the deduction ofinvestment management fees and certain transaction costs, whichwill reduce portfolio performance. Net performance includes thededuction of a 3.0% annual wrap fee, which is the maximumanticipated wrap fee for equity and balanced portfolios. Actual feesmay vary. For fee schedules, contact your financial professional, or ifyou may enter into an agreement directly with Legg Mason PrivatePortfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADVdisclosure document.

Index DefinitionsThe S&P 500 Index is a capitalization-weighted, composite index of500 stocks designed to measure performance of the broad domesticeconomy through changes in the aggregate market value of 500stocks representing all major industries.

The Bloomberg Barclays U.S. Intermediate Treasury Bond Indexis composed of all public obligations of the U.S. Treasury. This indexhas an average current maturity of 3.69 years (average maturity mayvary over time).

The portfolio composition typically varies from that of the above-noted, unmanaged indices.

Past performance is no guarantee of future results.

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Appendix | Performance Endnotes

Performance Endnotes (60/40)

Performance calculationLegg Mason Dividend Strategy Balanced Portfolios compositeperformance has the approximate target allocation of: 60% equityand 40% fixed income components. The Index Mix is comprised of60% S&P 500 Index and 40% Bloomberg Barclays U.S.Intermediate Treasury Bond indices, rebalanced monthly. Unlike theindices included in the Index Mix, investment styles included inbalanced portfolios are not automatically rebalanced each month.

Performance returns for periods prior to January 2006 are based onthe performance of a composite of accounts from a formerly-affiliated sponsor channel, which represented an overwhelmingmajority of the strategy’s retail assets under management duringsuch periods. Such pre-2006 returns were calculated on an equal-weighted basis where each portfolio contributed an equal weight tothe resulting composite return regardless of its asset size.Performance returns for periods subsequent to January 2006 arebased on the composite performance of all discretionary retailmanaged accounts in the strategy. Such post-2005 returns werecalculated on an asset-weighted basis where each portfoliocontributed to the resulting composite return proportionately basedon asset size.

FeesGross performance shown does not reflect the deduction ofinvestment management fees and certain transaction costs, whichwill reduce portfolio performance. Net performance includes thededuction of a 3.0% annual wrap fee, which is the maximumanticipated wrap fee for equity and balanced portfolios. Actual feesmay vary. For fee schedules, contact your financial professional, or ifyou may enter into an agreement directly with Legg Mason PrivatePortfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADVdisclosure document.

Index DefinitionsThe S&P 500 Index is a capitalization-weighted, composite index of500 stocks designed to measure performance of the broad domesticeconomy through changes in the aggregate market value of 500stocks representing all major industries.

The Bloomberg Barclays U.S. Intermediate Treasury Bond Indexis composed of all public obligations of the U.S. Treasury. This indexhas an average current maturity of 3.69 years (average maturity mayvary over time).

The portfolio composition typically varies from that of the above-noted, unmanaged indices.

Past performance is no guarantee of future results.

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Appendix | Index Definitions

Definitions

Index DefinitionsThe Bloomberg Barclays U.S. Government/Credit Bond Indextracks the performance of the overall bond market and is a broadmeasure of the performance of government and corporate fixed-ratedebt issues.

The FTSE 3-Month U.S. Treasury Bill Index is an index based uponthe average monthly yield of the 90-Day Treasury Bills. Treasury billsare secured by the full faith and credit of the U.S. Government andoffer a fixed rate of return.

The MSCI EAFE Index (Europe, Australasia, Far East) is anunmanaged index of common stocks of companies located inEurope, Australasia and the Far East.

The MSCI World Index is a free float-adjusted market capitalizationweighted index that is designed to measure the equity marketperformance of developed markets.

The MSCI World ex. US Index consists of the following 22developed market country indexes: Australia, Austria, Belgium,Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal,Singapore, Spain, Sweden, Switzerland, and, the United Kingdom.

The Russell 1000 Index consists of the 1000 largest securities in theRussell 3000 Index, and this large cap (market-oriented) index ishighly correlated with the S&P 500 Index.

The Russell 1000 Growth Index measures the performance ofthose Russell 1000 Index companies with higher price-to-book ratiosand higher forecasted growth values. (A priceto-book ratio is theprice of a stock compared to the difference between a company’sassets and liabilities).

The Russell 1000 Value Index measures the performance of thoseRussell 1000 Index companies with lower price-to-book ratios andlower forecasted growth values.

The Russell 2000 Index is comprised of the 2,000 smallestcompanies in the Russell 3000 Index.

The Russell 2000 Growth Index measures the performance ofthose Russell 2000 Index companies with higher price-to-book ratiosand higher forecasted growth values.

The Russell 2000 Value Index measures the performance of thoseRussell 2000 Index companies with lower price-to-book ratios andlower forecasted growth values.

The Russell 3000 Index is comprised of the 3,000 largest U.S.companies based on total market capitalization, and represents thevast majority of the investable U.S. market.

The Russell 3000 Growth Index measures the performance ofthose Russell 3000 Index companies with higher price-to-book ratiosand higher forecasted growth values.

The Russell MidCap Index consists of the 800 smallest companiesin the Russell 1000 Index as ranked by total market capitalization.

The Russell MidCap Growth Index measures the performance ofthose Russell MidCap companies with higher price-to-book ratiosand higher forecasted growth values.

The Russell MidCap Value Index measures the performance ofthose Russell MidCap companies with lower price-to-book ratios andlower forecasted growth values. The stock are also members of theRussell 1000 Value Index.

The S&P 500 Index is a capitalization weighted, composite index of500 stocks designed to measure performance of the broad domesticeconomy through changes in the aggregate market value of 500stocks representing all major industries.

Investors cannot invest directly in an index and unmanaged indexreturns do not reflect any fees, expenses or sales charges.

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Appendix | Term Definitions

Definitions

Term definitionsMarket Capitalization measures the number of outstandingcommon shares of a given corporation multiplied by the latest priceper share.

Weighted Median Market Capitalization represents the value atwhich half the portfolio’s market capitalization weight falls above andhalf falls below.

Weighted Average Market Capitalization represents the averagevalue of the companies held in the portfolio. When that figure isweighted, the impact of each company’s capitalization on the overallaverage is proportional to the total market value of its shares.

Dividend Yield is determined by dividing a stock’s annual dividendsper share by the current market price per share. Dividend yield is afinancial ratio that shows how much a company pays out individends.

P/E (Year 1) is the previous day’s closing price of the stock dividedby the consensus earnings per share (EPS) of fiscal year 1 (FY1)provided by I/B/E/S. Forecasts are inherently limited and should notbe relied upon as indicators of future performance.§ The Price-to-Book ratio (P/B) is a stock’s price divided by the stock’sper share book value.

Earnings Per Share (EPS) is the portion of a company’s profitallocated to each outstanding share of a common stock.

The Sharpe Ratio is a risk-adjusted measure, calculated usingstandard deviation and excess return to determine reward per unit ofrisk. The higher the Sharpe Ratio, the better the portfolio’s historicaladjusted performance.

Alpha is a measure of the difference between actual returns andexpected performance, given the level of risk as measured by Beta,where Beta measures sensitivity to benchmark movements.

R-Squared measures the strength of the linear relationship betweenthe portfolio and its benchmark. R-squared at 1.0 implies perfectlinear relationship and zero implies no relationship exists.§

Standard Deviation is based on quarterly data. Standard deviation isa measure of the variability of returns; the higher the standarddeviation, the greater the range of performance (i.e., volatility).

The Capture Ratios measure a manager’s composite performancerelative to the benchmark, considering only those quarters that areeither positive (Up) or negative (Down) for the benchmark.

An Up Market Capture Ratio greater than 1.0 indicates a managerwho has outperformed the benchmark in the benchmark’s positivequarters.

A Down Market Capture Ratio of less than 1.0 indicates a managerwho has outperformed the relative benchmark in the benchmark’snegative quarters.§ Maturity is the date at which a debt instrument is due and payable.A bond due to mature on January 1, 2010, will return thebondholder’s principal and final interest payment when it reachesmaturity on that date. Bond yields are frequently calculated on ayield-to-maturity basis.

Duration (Modified Duration) is the measure of the price sensitivityof a fixed income security to an interest rate change of 100 basispoints. Calculation is based on the weighted average of the presentvalues for all cash flows.

Yield to Worst (YTW) is based on a portfolio’s current holdings onone specific day, is gross of all portfolio expenses, and is calculatedbased on assumptions that prepayment occurs if the bond has call orput provisions and the issuer can offer a lower coupon rate based oncurrent market rates. If market rates are higher than the current yieldof a bond, the YTW calculation will assume no prepayments aremade, and YTW will equal the yield to maturity. The YTW will be thelowest of yield to maturity or yield to call (if the bond has prepaymentprovisions). The YTW of a bond portfolio is the market-weightedaverage of the YTWs of all the bonds in the portfolio.

Insured municipal bonds are ones where scheduled interest andprincipal payments are guaranteed by AAA-rated municipal bondinsurers.

General Obligation municipal bonds are backed by the credit andtaxing power of the issuing jurisdiction rather than the revenue of agiven project.§

Revenue bonds are municipal bonds supported by the revenue froma specific project.

Pre-refunded bonds are municipal bonds that are generally backedor secured by U.S. Treasury bonds.

Effective Duration is a duration calculation for bonds withembedded options. Effective duration takes into account thatexpected cash flows will fluctuate as interest rates change.

Average Maturity is the average length of maturity for all fixed-ratedebt instruments held in a portfolio.

Average Coupon based on the portfolio’s underlying holdings,which may differ and are subject to change. Coupon rate is theannual coupon payments paid by the issuer relative to a bond’s faceor par value.

Yield to Maturity - The rate of return anticipated on a bond if it isheld until the maturity date. The calculation of YTM takes intoaccount the current market price, par value, coupon interest rate andtime to maturity.

The Sharpe Ratio is a risk-adjusted measure that is calculated usingstandard deviation and excess return to determine reward per unit ofrisk. The higher the Sharpe Ratio, the better the portfolio’s historicaladjusted performance.§

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23

Brandywine Global

Clarion Partners

ClearBridge Investments

EnTrustPermal

Martin Currie

QS Investors

RARE Infrastructure

Royce & Associates

Western Asset leggmason.com

Legg Mason is a leading global investment company committed to helping clients reach their financial goals through long-term, actively managed investment strategies.

• A broad mix of equities, fixed-income, alternatives and cash strategies invested worldwide

• A diverse family of specialized investment managers, each with its own independent approach to research and analysis

• Over a century of experience in identifying opportunities and delivering astute investment solutions to clients

Separately Managed Accounts (SMAs) are investment services provided by Legg Mason Private Portfolio Group, LLC (LMPPG), a federally registered investment advisor. Client portfolios are managed based oninvestment instructions or advice provided by one or more of the following Legg Mason-affiliated sub-advisors: ClearBridge Investments, LLC and Western Asset Management Company. Management isimplemented by LMPPG, the designated sub-advisor or, in the case of certain programs, the program sponsor or its designee.Investments for the program(s) discussed herein are traded primarily in U.S. markets and unless otherwise noted, equity and fixed income investments for such program(s) are primarily of U.S. issuers. In addition,unless otherwise noted, indexes referred to herein represent groups of securities that are issued primarily by U.S. issuers.IMPORTANT TAX INFORMATION:Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, andcannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written inconnection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’sparticular circumstances from an independent tax advisor.Gross-of-fees performance results shown herein do not reflect deduction for investment management fees and transaction costs. The performance of individual client accounts will vary and will be reduced by suchfees and costs. Please review the effect of fees and transaction costs on account performance with your financial professional.Investments are not obligations of, and are not guaranteed by, LMPPG or any other Legg Mason, Inc. affiliate or subsidiary; are not FDIC or government insured; and are subject to risks,including possible loss of the principal amount invested. Professional money management may not be suitable for all investors.Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute,and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategyor type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financialprofessional.©2018 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC, ClearBridge Investments, LLC, and Western Asset Management Company, LLC are subsidiaries of Legg Mason,Inc.FN1313443 SMA0045 PPG-Q118-V1

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