March 2020

TOPIC OF FOCUS: INVESTING VALUE INVESTING IN A LOW GLOBAL INTEREST RATE ENVIRONMENT

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We believe that at its core, our time-tested investment philosophy—which combines fundamen- tal value investing with multiple diversified strategies—is a risk-reduction strategy. It is therefore especially relevant in today’s low-rate environment for fixed-income investors seeking attractive returns with contained risk.

KEY TAKEAWAYS

ƒƒ By focusing on fundamental, long-term value, we believe we are able to identify when markets and securities are mispriced and to invest accordingly to beneft our clients. ƒƒ While some pricing anomalies can correct over relatively short periods, signifcant deviations from fair value can often take signifcant time to correct. ƒƒ Our confdence in our view of both fundamentals and valuations determines the proportionality of positions: the greater the confdence, the bigger the position. ƒƒ Our ability to add value for our clients has not been contingent on a specifc market Gordon S. Brown Co-Head of Global Portfolios environment and we believe will not be compromised by the current low rates and unconventional central bank monetary policy.

Michael B. Zelouf Head of London Operations

© Western Asset Management Company, LLC 2020. This publication is the property of Western Asset Management Company and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confdential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission. VALUE INVESTING IN A LOW GLOBAL INTEREST RATE ENVIRONMENT By Gordon S. Brown and Michael B. Zelouf

More than a decade after the global fnancial crisis (GFC), policymakers continue struggling to catalyse their “Our conviction is economies to expand beyond their anemic growth rates of recent years and to ensure that they can meet in- anchored in the fation targets. Investors have increasingly become conditioned to accept that a low interest rate environment success of a proven will persist well into the new decade. With the secular headwinds from aging populations and high and rising debt burdens dragging on growth and infation, such a scenario is hard to dispute. But does this mean that a investment style long-term fundamental value-driven investment approach can remain appropriate for investors who seek at- that allocates to tractive risk-adjusted returns from global bond markets? Based on our experience, which has stood the test of securities priced time for over almost half a century, Western Asset remains convinced that it does. Our conviction is anchored in the success of a proven investment style that allocates to securities priced below their fundamental fair value, below their especially when combined with diversifed strategies that can reduce risk at the portfolio level. fundamental fair value …” Exhibit 1: Advanced Economies’ Growth and Inflation

Inflation GDP 5 4 3 2 1 0

Year on Year (%) -1 -2 -3 -4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Haver Analytics, IMF. As at 30 Sep 19

The Western Asset Approach By actively rotating across a broad range of sectors and markets as relative valuations change, we believe we can successfully augment returns from coupon income despite short-term capital market movements driven by market sentiment or non-economic participants. Value investing is by its nature defensive. The asymmetric risk of capital loss that bond investors face as yields have declined towards (or below) 0% argues strongly for constructing diversifed portfolios with an emphasis on undervalued assets that can increase the probability of beating the market while limiting the risk of capital loss.

What Is Value Investing in Fixed-Income? In his seminal work on value investing, renowned American investor Benjamin Graham posits that purchasing securities at a discount to their intrinsic value provides a “margin of safety” that can signifcantly limit losses from negative outcomes. Moreover, he believes that the concept is universal, applying across markets and through time.

Western Asset 1 March 2020 VALUE INVESTING IN A LOW GLOBAL INTEREST RATE ENVIRONMENT

It is this fundamental risk-mitigating concept that underpins Western Asset’s value-driven philosophy across our investment strategies. Bonds ofer limited scope for capital gains but can be susceptible to signifcant losses. The cushion over the risk-free rate that bond yields ofer is critical to successful bond investing. By being disciplined to invest only in securities that we estimate ofer a yield cushion greater than that warranted by their fundamentals, we increase our ability to protect against price declines and to more fully participate in gains as prices return to our assessment of fair value.

Looking at each of the pillars of our philosophy, in turn, can shed light on the strength of our conviction in our ability to continue successfully to meet the test of time.

Long-Term Fundamental Value Markets often misprice securities. Prices deviate from fundamental fair value, but consistently investing in un- dervalued securities increases the probability of delivering superior investment returns while reducing the risk of loss if your view is wrong.

There are three broad reasons why capital markets are not always efcient:

ƒƒ “Fear and Greed” Psychology: Value investing is psychologically uncomfortable because it often means “[To] quote our countering the consensus view. Investors often make investment decisions based on extrapolating short- term price action and recent information. When the short-term fundamental news is good, markets tend CIO Ken Leech, to infate prices beyond fundamental value when prices have been trending higher (“greed”). Conversely, ‘Central banks can when fundamentals appear to have worsened, the natural tendency is to sell even as prices are falling win the battles but (“fear”). As prominent British investor John Templeton said, “To buy when others are despondently selling and sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.” fundamentals win the wars’”. ƒƒ “Non-Fundamental” Factors: Over short periods of time, markets move to levels that diverge from fundamental-driven factors such as geopolitics, supply/demand, market sentiment and liquidity. In- creasingly market valuations have been driven by non-economic players such as central banks whose investment objectives are to stimulate economic growth or underpin fnancial stability rather than to maximize investor profts. However, to quote our CIO Ken Leech, “Central banks can win the battles but fundamentals win the wars”.

Exhibit 2: US Investment-Grade Credit Spreads (2007-2020)

600

500

400

300

Basis Points 200

100

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Bloomberg Barclays. As at 20 Jan 20

Western Asset 2 March 2020 VALUE INVESTING IN A LOW GLOBAL INTEREST RATE ENVIRONMENT

ƒƒ Time Horizon: Investors who have short-term investment horizons are often forced to sell to comply with stop-loss or drawdown restrictions. These decisions tend to exaggerate price declines (or increases) in the short-term for reasons unrelated to fundamentals. As long-term investors we believe that, over time, prices adjust to refect infation, credit quality fundamentals and liquidity conditions. While some pricing anomalies can correct over relatively short periods, signifcant deviations from fair value can often take signifcant time to correct; after the GFC, corporate bond spreads took many years to return to levels closer to fair value.

We can systematically identify mispricings. We identify and capitalize on markets and securities that are mispriced by using disciplined and rigorous analysis, comparing fundamental fair values estimated by our macroeconomic and credit research teams to market pricing.

In corporate bonds this means combining a thorough fundamental credit review with a robust quantitative relative value analysis, irrespective of the phase of the interest rate or credit cycle. This allows us to identify “Over the longer issues which are mispriced relative to their creditworthiness. term, Western Asset believes that In government and currency markets, we assess current and prospective trends in macroeconomic factors such as growth, infation, domestic and external balances and political governance. Moreover, we analyse central the main drivers banks’ stated policy objectives for an indication of future borrowing costs. Since the banking system is an of government important conduit for the transmission of monetary policy, we will also carefully monitor trends in the supply bond valuations of and demand for credit through data on monetary aggregates. This analysis and comparisons with historical valuations help us assess fair value for the expected path of short-term interest rates as well as for the shape are growth and of the yield curves. Over the longer term, Western Asset believes that the main drivers of government bond infation …” valuations are growth and infation, with infation being a more dominant driver of longer-dated bond yields. We believe that currency valuations over the long term will be driven by growth and interest rate diferentials, and by trends in relative competitiveness.

Exhibit 3: 30-Year US Treasury Yields vs. Inflation (1978–2020)

30-Year Treasury vs. Core PCE 16 14 12 10 30-Year Treasury 8 Percent 6 4 2 Core PCE (3-Year Average) 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Bloomberg. As at 31 Oct 19 Personal Consumption Expenditures (PCE) is an inflation index excluding food and energy.

Our portfolios emphasize our highest convictions. The greater the diference between our view of fair value and markets’ pricing of a security, the bigger the potential position we can take. Our confdence in our view of fundamentals determines the proportionality of positions: the greater the confdence, the bigger the position.

Western Asset 3 March 2020 VALUE INVESTING IN A LOW GLOBAL INTEREST RATE ENVIRONMENT

Multiple Diversifed Strategies We seek diversifed sources of returns. Our objective is to meet or exceed our investors’ performance objectives within their tolerances for risk. By diversifying investments across interest rate duration, yield curve, sector allocation, security selection, country and currency strategies, that all ofer value but do not all beneft from the same market environment, we increase our chances of meeting our performance goals. Moreover, with no one strategy domi- nating performance we reduce risk and dampen volatility.

“The market disloca- In fxed-income, diversifcation is harder to achieve than it is in equities, and correlations tend to be high, especially tions resulting from in credit and other spread products. This makes diversifying portfolios with strategies that are reliably negatively the taper tantrum correlated in a risk-of environment crucial to reducing portfolio risk. episode provided Market Inefciencies in a Low Rate Environment Western Asset with Perhaps the best known example of where non-fundamental factors led to a dramatic shift in market pricing is the so-called “taper tantrum” in the latter half of 2013 shortly after the then Federal Reserve (Fed) Chair Ben an opportunity to Bernanke stated that the Federal Open Market Committee (FOMC) was considering reducing the size of asset look through short- purchases over the following months. Despite Bernanke’s subsequent attempts to reassure markets that decisions term noise and about bond purchases were distinct from those on interest rates, investors started to price in policy rate hikes with 5-year US Treasury (UST) yields rising over 120 basis points between May and September. Western Asset’s position portfolios view over this period was that the FOMC was very unlikely to increase policy rates as US domestic economic to refect our long- fundamentals didn’t warrant it. term fundamental The market dislocations resulting from the taper tantrum episode provided Western Asset with an opportunity to views.” look through short-term noise and position portfolios to refect our long-term fundamental views. Long duration positions in USTs, and in particular our bias to be overweight the long end of the yield curve, subsequently performed very strongly in 2014 as the market reassessed its view on Fed policy and ongoing weak infation to be more in line with Western Asset’s view.

Exhibit 4: US Yield Curve Shift, May–Sep 2013 vs. Jan–Dec 2014

(A) US Treasury Yield Curve, May–Sep 2013 (B) US Treasury Yield Curve, Jan–Dec 2014 4 4

05 Sep 13 01 Jan 14 3 3

31 Dec 14 2 2

02 May 13 Yield to Maturity(%) 1 Yield to Maturity(%) 1

0 0 1Y 2Y 3Y 5Y 7Y10Y 30Y 1Y 2Y 3Y 5Y 7Y10Y 30Y Source: (A) Bloomberg. As at 05 Sep 13 (B) Bloomberg. As at 31 Dec 14

Western Asset 4 March 2020 VALUE INVESTING IN A LOW GLOBAL INTEREST RATE ENVIRONMENT

In 2018, emerging markets (EM) were severely challenged by the perfect storm of rising US rates, a strong US dollar, weak European and Chinese growth, higher oil prices and a looming trade war. With infation rates in EM remaining subdued, central banks had substantial scope to loosen monetary policy. This was not refected in real yield diferentials with developed markets at 10-year wides, presenting a strong valuation opportunity for capital gains in 2019.

Exhibit 5: Real Yield Differential and Core Inflation Rates for Emerging and Developed Markets

(A) Real Yield Differential (EM¹ vs. DM²) (B) Emerging Market Inflation 400 8 7 EM Core Inflation 200 6 5 0 4 Percent BasisPoints 3 G10 GDP Weighted -200 2 Core Inflation 1 -400 0 2006 2008 2010 2012 2014 2016 2018 2005 2007 2009 2011 2013 2015 2017 2019 “With infation rates (A) Source: Bloomberg, HSBC. As at 30 Nov 19 (B) J.P. Morgan. As at 30 Nov 19 ¹EM (Emerging Markets): Weighted average of Brazil, China, India, Indonesia, Mexico, Poland, Russia, S. Africa and Turkey in EM remaining ²DM (Developed Markets): Weighted average of Germany, Japan, UK and the US subdued [in 2018],

central banks had With the 2016 Brexit referendum, UK banks suddenly found themselves exposed to a world of materially higher substantial scope political risk, combined with elevated economic uncertainty and lower interest rates. UK bank spreads widened to loosen monetary materially when compared with their European and US peers. Against this backdrop, the UK banks continued to strengthen their balance sheets and the onerous stress tests by the Bank of England further highlighted the resilience policy.” of their credit fundamentals. As a result, we saw the widening of UK bank spreads in 2016 as an opportunity driven by our fundamental assessment.

Exhibit 6: Barclays HoldCo Bond Spreads vs. Barclays Common Equity Ratio (Jun 2015–Dec 2019)

BACR 3.65 03/16/2025 Corp - Bloomberg Mid Spread to Benchmark (L1) BARC LN Equity - Tier 1 Common Equity Ratio (R1) 350 14

300 (%) Ratio Equity Common 250 13 200 Spread 150 12 100 50 0 11 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Jun 19 Dec 19 Source: Bloomberg. As at 31 Dec 19

Western Asset 5 March 2020 VALUE INVESTING IN A LOW GLOBAL INTEREST RATE ENVIRONMENT

Western Asset’s Value Approach: It Works We can demonstrate that our ability to add value is not contingent on a specifc market environment and not com- promised by the current low rate and unconventional monetary policy stance of some central banks.

Exhibit 7 shows the attribution across a number of key return drivers for our global full discretion portfolios. The 10-year period shown spans a number of distinct monetary policy regimes including the US Fed’s zero interest rate policy (ZIRP) and quantitative easing (QE) (2009-2014), US Fed rate “normalization” (2016-2018), European negative “We can demon- rates (2014-2019) and Bank of Japan QE, and yield curve control policies (2013-2019). Throughout this 10-year period, strate that our abil- our global aggregate portfolios were able to generate positive excess returns from diferent sources.

ity to add value is Importantly, sources of return vary, and this is testimony to our value-based approach to sector rotation and our not contingent on a active management style, with no single source of return dominating. specifc market en- vironment and not Exhibit 7: Western Asset’s Global Aggregate Strategy: Performance Attribution (2010–2019)

compromised by Sector/Security the current low rate Year Duration/Curve Country Currency Selection Residual Total and unconventional Target % 35 15 20 20 10 100 2010 290 0 48 160 75 573 monetary policy 2011 259 -26 -76 -58 -98 1 stance of some 2012 137 128 57 190 155 667 central banks.” 2013 -62 -8 33 55 24 42 2014 107 74 6 6 8 201 2015 106 27 -85 5 -95 -43 2016 1 -85 -83 204 6 43 2017 183 44 48 73 22 371 2018 -138 -46 -67 -41 -2 -294 2019 -52 105 86 55 69 263 10 Year 83 21 -3 65 10 176

Source: Western Asset. As at 31 Dec 19 Western Asset Global Core Full Discretion (USD Hedged) Composite as at 31 Dec 19. Performance attribution results depend on the calculation methodology and models used: different calculation methodologies and models will deliver different results. Different calculation methodologies and models may be employed in order to better reflect both the natures of the sectors invested in and the investor’s decision-making process, style or approach. Western Asset uses a top-down decomposition approach in which security selection is not separated from sector beta effects, benchmark pricing differences and unaccounted systematic factors. Sector and strategy contributions to performance will vary. Data may not sum due to rounding

Past results are not indicative of future investment results. This publication is for informational purposes only and refects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an ofer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, fnancial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, fnancial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence. Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a fnancial promotion in the UK and EEA countries as defned by the FCA or MiFID II rules.

Western Asset 6 March 2020 Performance and Risk Disclosures January 31, 2020

Rolling 1-Year Performance Returns Period Ending: 31 Jan 20 31 Jan 19 31 Jan 18 31 Jan 17 31 Jan 16

Global Core Full Discretion (USD Hedged) Composite (gross of fees) 10.88% 0.82% 6.74% 3.88% -1.28% Global Core Full Discretion (USD Hedged) Composite (net of fees) 10.45% 0.42% 6.32% 3.47% -1.68% Bloomberg Barclays Global Aggregate USD Hedged Index 9.01% 3.58% 2.67% 2.08% 0.62% Base Currency: USD

Past investment results are not indicative of future investment results. Source for performance figures is Western Asset. Please refer to the Performance Disclosure for more information. Currency exchange rate fluctuations will impact the value of your investment. The value of investments and the income from them may go down as well as up and you may not get back the amount you originally invested. Investment Risks: The strategy does not offer any capital guarantee or protection and you may not get back the amount invested. The strategy is subject to the following risks which are materially relevant but may not be adequately captured by the indicator: Asset-Backed Securities: The timing and size of the cash-flow from asset-backed securities is not fully assured and could result in loss for the strategy. These types of investments may also be difficult for the strategy sell quickly. Bonds: There is a risk that issuers of bonds held by the strategy may not be able to repay the investment or pay the interest due on it, leading to losses for the strategy. Bond values are affected by the market’s view of the above risk, and by changes in interest rates and inflation. Counterparties: The strategy may suffer losses if the parties that it trades with cannot meet their financial obligations. Currency: Changes in exchange rates between the currencies of investments held by the strategy and the strategy's base currency may negatively affect the value of an investment and any income received from it. Derivatives: The strategy makes significant use of derivatives. The use of derivatives can result in greater fluctuations of the portfolio's value. Emerging Markets: The strategy may invest in the markets of countries which are smaller, less developed and regulated, and more volatile than the markets of more developed countries. Interest Rates: Changes in interest rates may negatively affect the value of the strategy. Typically as interest rates rise, bond values fall. Low-rated Bonds: The strategy may invest in lower rated or unrated bonds of similar quality, which carry a higher degree of risk than higher rated bonds. This strategy is managed by Western Asset. This information is only for use by professional clients, eligible counterparties or qualified investors. It is not aimed at, or for use by, retail clients.

Western Asset January 2020 Performance Disclosure December 31, 2019

Global Core Full Discretion (USD Hedged) Composite Composite Inception Date: 04/01/2001 | Composite Creation Date: 04/01/2001 No. of Gross Total Net Total Benchmark Gross Total Benchmark Total Internal Mkt. Value Percentage of Firm Assets Accts Return Return Total Return 3-Yr St Dev 3-Yr St Dev Dispersion USD Mil Firm Assets USD Mil 2010 5 10.35% 9.91% 4.61% 7.06% 3.17% -na- 1,716 0.38% 453,909 2011 5 5.41% 4.99% 5.40% 5.17% 2.41% -na- 1,701 0.38% 443,140 2012 5 12.39% 11.95% 5.72% 3.76% 2.16% -na- 1,878 0.41% 461,891 2013 5 0.28% -0.12% -0.14% 4.10% 2.42% -na- 2,174 0.48% 451,632 2014 5 9.60% 9.16% 7.59% 3.53% 2.29% -na- 2,347 0.50% 466,036 2015 5 0.59% 0.19% 1.02% 3.76% 2.66% -na- 1,655 0.38% 433,747 2016 5 4.38% 3.96% 3.95% 3.67% 2.73% -na- 1,591 0.38% 419,207 2017 8 6.74% 6.32% 3.04% 3.59% 2.63% -na- 2,109 0.48% 436,309 2018 7 -1.18% -1.57% 1.76% 3.43% 2.37% 0.46% 1,657 0.39% 424,136 2019 9 10.84% 10.40% 8.22% 2.93% 2.40% 0.70% 2,146 0.47% 455,276 Description: The Western Asset Global Core Full Discretion (USD Hedged) strategy is an aggregate fixed-income strategy that aims to maximize total return and add value through duration and curve positioning, sector, country and currency allocation, and security selection, while approximating benchmark risk. The strategy invests in a diversified portfolio using all major global fixed-income sectors and currencies. The strategy allows for opportunistic investments in high-yield securities. Benchmark Description: The current benchmark is the Bloomberg Barclays Global Aggregate Bond Index, USD Hedged. Base Currency: USD | Composite Minimum: $5 million ($25 million prior to 6/1/14). Current Fee Schedule: .40 of 1% on the first $100 million, .20 of 1% on amounts over $100 million.

Western Asset claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Western Asset has been independently verified for the periods from January 1, 1993 to December 31, 2018.

Verification assesses whether (1) the Firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the Firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The Global Core Full Discretion (USD Hedged) Composite has been examined for the period from April 1, 2001 to December 31, 2018. The verification and performance examination reports are available upon request.

For GIPS® purposes, the Firm is defined as Western Asset, a primarily fixed-income investment manager comprised of Western Asset Management Company, LLC; Western Asset Management Company Limited, authorised and regulated by the Financial Conduct Authority ("FCA"); Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R, holder of the Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business operator and regulated by the Financial Services Agency of Japan; Western Asset Management Company Pty Ltd ABN 41 117 767 923, holder of the Australian Financial Services Licence 303160; and Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários (DTVM) Limitada, authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brazil, with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Each Western Asset company is a wholly owned subsidiary of Legg Mason, Inc. ("Legg Mason") but operates autonomously, and Western Asset, as a Firm, is held out to the public as a separate entity. Western Asset Management Company was founded in 1971.

The Firm is comprised of several entities as a result of various historical acquisitions made by Western Asset, and their respective performance has been integrated into the Firm in line with the portability requirements set forth by GIPS.

The Composite is valued monthly. The Composite returns are the asset-weighted average of the performance results of all the accounts in the Composite. Gross-of-fees returns are presented before management fees, but after all trading expenses. Net of fees results are calculated using a model approach whereby the current highest tier of the appropriate strategy's fee schedule is used. This model fee does not reflect the deduction of performance-based fees. The portfolios in the Composite are all actual, fee-paying and performance fee-paying, fully discretionary accounts managed by the Firm for at least one full month. Investment results shown are for taxable and tax-exempt accounts and include the reinvestment of all earnings. Any possible tax liabilities incurred by the taxable accounts have not been reflected in the net performance. Composite performance results are time-weighted net of trading commissions and other transaction costs including non-recoverable withholding taxes. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. The returns for the accounts in the Composite are calculated using a time-weighted rate of return adjusted for weighted cash flows. The returns for the commingled funds in the Composite are calculated daily using net asset values (NAV), adding back the funds' total expense ratio or equivalent. Trade date accounting is used since inception and market values include interest income accrued on securities held within the accounts. Composite returns are measured against a benchmark, when applicable. The benchmark is unmanaged and provided to represent the investment environment in existence during the time periods shown. For comparison purposes, its performance has been linked in the same manner as the Composite. The benchmark presented was obtained from third party sources deemed reliable but not guaranteed for accuracy or completeness. Benchmark returns and benchmark three-year annualized ex-post standard deviation are not covered by the report of independent verifiers. Internal dispersion is calculated using the asset-weighted standard deviation of annual gross returns of those portfolios that were included in the Composite for the entire year. For each annual period, accounts with less than 12 months of returns are not represented in the dispersion calculation. Periods with five or fewer accounts are not statistically representative and are not presented. The three-year annualized ex-post standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The three-year annualized ex-post standard deviation is not presented for periods where 36 monthly returns are not available for the composite or the benchmark. Any gross total three-year annualized ex-post standard deviation measures prior to 2011, included within the "Examination Period" identified above, are not covered by the report of independent verifiers. Past investment results are not indicative of future investment results. Information contained herein is believed to be accurate, but cannot be guaranteed. Employees and/or clients of Western Asset may have a position in the securities mentioned. Western Asset's list of composite descriptions is available upon request. Please contact Derek Fan at 626-844-9465 or [email protected]. All returns for strategies with inception prior to January 1, 2010 are available upon request.

For more information on Western Asset visit our website at www.westernasset.com Western Asset