Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
Executive Committee Meeting Bonita Springs, FL December 5, 2013
EComm Winter Mtg 2013 Slide# 1
2013 Executive Committee Meeting Itinerary
Wednesday, December 4 – Arrival • Golf -‐ 1:00 PM – Raptor Bay Course • Check – In – 3:00 PM • Dinner
– 6:30 PM – Tarpon Bay – on site Thursday, December 5 -‐ Mee;ng • ConJnental Breakfast
– 7:30 AM – ExecuJve Boardroom
December 5 – cont’d • MeeJng – 8:00 AM – 12:00 PM – ExecuJve
Boardroom • Golf – 1:00 PM – Raptor Bay Course – on site
– Meet in lobby 12:10/12:40 pm – Return 5:15/5:40
• Dinner 6:30 PM – Chops – off site – Meet in lobby at 6:15 pm
• Friday December 6 -‐ Departure – 11:00AM -‐ Checkout
EComm Winter Mtg 2013 Slide# 2
EComm Winter Mtg 2013 Slide# 3
Anti-‐Trust Guidelines 1. The purpose of RFGSA is to conduct compliance surveys. Discussions at RFGSA meeJngs should be limited to issues that are germane to this purpose. 2. There should be no discussion of compeJJvely sensiJve maWers at RFGSA meeJngs. In parJcular, there should be no discussion of member companies’ (a) prices, (b) costs, or (c) confidenJal business informaJon, including markeJng plans. 3. Company representaJves should not discuss their company’s strategies and plans for complying with regulatory requirements. 4. Members generally may discuss whether RFGSA should support or oppose proposals for government regulaJon or legislaJon. 5. If anyone has a concern that a parJcular topic of discussion may present an anJtrust issue, they should raise their concern with RFGSA. Mr. Lenski can consult with RFGSA’s anJtrust counsel as needed. In addiJon, members are always free to consult with their own company counsel.
EComm Winter Mtg 2013 Slide# 4
RFG Investment Policy
• Current Policy • Por`olio Performance • CiJbank/Legg Mason • RecommendaJon
EComm Winter Mtg 2013 Slide# 5
Cash Management Policy
• Investment reviews* CWM/Por`olio Mgr. • Principles – Stability/Quality/Liquidity/ST • 3 types of investment pools
– OperaJons fund – Avg. 3-‐6 mos. – ST CD’s – staggered (3-‐9 months) – FDIC Insured – Investments Policy Statement (IPS) -‐ > 1 yr.
• Western Asset Management – Core Por`olio – FluctuaJon in value
* Quarterly reviews or as needed.
EComm Winter Mtg 2013 Slide# 6
Portfolio Performance • ST Cash Mgmt. – Marginal Interest earned
• LT Investments – IPS – Legg Mason • Western Core Por`olio
– 2012 -‐ 5.72% • 4.77% -‐ incepJon (2008)
– 2013 Total YTD -‐ (1.66%) -‐ ($67K) • ($90-‐100K) 2013 Est. vs. $220K -‐ 2012
– Net return aler fees
EComm Winter Mtg 2013 Slide# 7
Investment Policy Statement -‐ IPS
• Revised IPS & Cash Management to EC • Update IPS, add InternaJonal fixed income component
• RaJonale – U.S. – Rising Interest rates trend – Inverse relaJonship Interest rates/Yields – InternaJonal – Interest rates – independent U.S
• Diversify por`olio/MiJgate risk
EComm Winter Mtg 2013 Slide# 8
RFG Investment Policy
• CiJbank – Dariana Gordon – VP, CiJ Wealth Mgmt.
• Legg Mason – Eric Kruk -‐ Assoc. VP, Legg Mason
• RelaJonship/Philosophy/Products • Market Discussion/Trends/Risks • ExecuJve CommiWee IPS RecommendaJon
EComm Winter Mtg 2013 Slide# 9
INVESTMENT AND INSURANCE PRODUCTS: NOT FDIC INSURED • NOT A BANK DEPOSIT • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NO BANK GUARANTEE • MAY LOSE VALUE
Putting the strength of a global financial institution to work for you Presenter Title: Vice President- Wealth Management Date: 12/05/2013
The Power of Citi
Presenter Name: Dariana Gordon, CFP, CLU, AIF
2 2
Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor. As further described in the offering documents, an investment in alternative investments can be highly illiquid, are speculative and not suitable for all investors. Investing in alternative investments is for experienced and sophisticated investors who are willing to bear the high economic risks associated with such an investment. Investors should carefully review and consider potential risks before investing. Certain of these risks may include:
• loss of all or a substantial portion of the investment due to leveraging, short-selling, or other speculative practices; • lack of liquidity in that there may be no secondary market for the fund and none is expected to develop; • volatility of returns; • restrictions on transferring interests in the Fund; • potential lack of diversification and resulting higher risk due to concentration of trading authority when a single advisor is utilized; • absence of information regarding valuations and pricing; • complex tax structures and delays in tax reporting; • less regulation and higher fees than mutual funds; and • manager risk.
Individual funds will have specific risks related to their investment programs that will vary from fund to fund. Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk. In general, as prevailing interest rates rise, fixed income securities prices will fall. Bonds face credit risk if a decline in an issuer's credit rating, or creditworthiness, causes a bond's price to decline. High yield bonds are subject to additional risks such as increased risk of default and greater volatility because of the lower credit quality of the issues. Finally, bonds can be subject to prepayment risk. When interest rates fall, an issuer may choose to borrow money at a lower interest rate, while paying off its previously issued bonds. As a consequence, underlying bonds will lose the interest payments from the investment and will be forced to reinvest in a market where prevailing interest rates are lower than when the initial investment was made. Depending on your state of residency, some bonds may be exempt from state and local taxes; however, interest may be subject to the federal Alternative Minimum Tax. Diversification and asset allocation do not guarantee a profit or protect against loss. Past performance is no guarantee of future results. ©2013 Citi Personal Wealth Management is a business of Citigroup Inc., which offers investment products through Citigroup Global Markets Inc. (“CGMI”), member SIPC. CGMI and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc. or its affiliates.
Citi: A Global Consumer Banking (GCB) Leader
Serves more than100 million clients across the world through its unique footprint and capabilities, its presence in and understanding of local markets, and the ability to deliver a consistent and enhanced banking experience.
• Does business in 160+ countries
• The collective GCB businesses account for $337 billion in deposits, $295 billion in loans, $154 billion in assets under management in Retail Banking
• There are approximately 4,000 branches worldwide.1
Building on a 200-year heritage, Citi today
Banking and Institutional Offices
1: Citigroup, N.A Annual Report 2012.
4
Products and Services for Diverse Needs
Citi’s offerings range from banking and lending to investment advice and wealth management
Some services only are offered in specific regions.
Investment Finance • Commercial Real Estate • Residential Real Estate • Real Estate Investment Trusts
Banking & Cash Management • Personal • Business
Wealth Planning • Trust & Estate Planning • Business Succession Planning • Liquidity Planning • Insurance Planning
Trust Services • Trust Administrative Services • Agency Services • Estate Settlement • Real Estate and Special Assets
Management
Managed Accounts • UMA/SMA • Mutual Fund/
ETF Wrap • Portfolio Advisor/
Managed
Capital Markets • Structured Products • Equities/Fixed
Income Trading • Foreign
Exchange
Packaged Products • Mutual Funds • ETFs • Insurance • Annuities
Alternative Investments • Hedge Funds • Private Equity • Real Estate
Investment Strategies
Lending and
Banking
Trust, Custody, Wealth
Planning
5
Global Scope + Local Market Insights
Perspectives backed by extensive market knowledge and intellectual capital
Chief Investment Office Authoritative views on markets, economic trends, and asset allocation
Global Managed Investments Open-architecture platform of rigorously vetted traditional & alternative managers
Investment Specialists Customized advice, supported by sophisticated portfolio analytics
Capital Markets Trading-floor access to real-time institutional market information & execution
Research • 314 analysts • 39 economists • 66 countries
• 3,008 stocks covered • 76,000+ publications
6
Traditional Investments: Managed Accounts
Citi’s approach combines customized investment strategies and professional management
Open architecture platform
Forward-looking perspective
Unbiased selection of third-party managers
Customized approach
Choice of discretionary or nondiscretionary portfolios
Rigorous due diligence
Open architecture platform
Manager research
7
Manager Research: Extensive, Intensive and Ongoing
Quantitative and qualitative screening is used to select and monitor managers and strategies
“Open architecture” means that Citi Investment Manager Research (IMR) can add to its platform any investment manager willing to offer services to Citi investors. Citi Access represents those investment products that IMR believes most acceptable research standards and are appropriate for an open architecture managed account offering. Citi focus research will include investment strategies that IMR believes future account-overage potential to outperform an appropriate market benchmark and peer group over a full market cycle.
POTE
NTI
AL
TO
OU
TPER
FOR
M P
EER
S
HIGH
LOW HIGH LEVEL OF CITI RESEARCH
Open Architecture
Citi Access Research
Citi Focus Research
8
Los Angeles
Dallas Tampa
Philadelphia
Chicago
New York
Traditional Investments: Municipal Bonds
Citi is the nation’s largest originator of muni bonds
Record of strength • Leading negotiated muni bond underwriter,
15 of the past 16 years* • Largest holder of secondary issues
Commitment to the municipal bond market • 6 regional trading and underwriting desks nationwide • 31 municipal-bond traders and underwriters • 4 municipal-credit analysts on Citi’s NYC trading floor
Market access • Direct access to issuers • Firsthand knowledge of local markets • Greater liquidity for investors
*Source of Information: Thomson Reuters
9
Alternative Investments: Tools for Portfolio Diversification
Citi’s offerings include hedge funds, private equity and real estate
NOTE: Hedge funds employ significant leverage; transparency is limited
• Single-manager funds
• Funds of funds
• Advice-driven
• Third-party managers only
Hedge funds
NOTE: Investments may be volatile and illiquid; employ leverage
• LBOs
• Venture capital
• Mezzanine funding
• Direct investments in companies
Private equity
NOTE: Limited liquidity; limited secondary market for private funds
• Managed funds
• Direct investments
• Commercial properties
• Residential housing
Real estate
10
Citi Personal Wealth Management
Putting your financial picture together in a way that makes sense for you
A COMPREHENSIVE APPROACH TO ...
Wealth Accumulation Wealth Preservation Wealth transfer
• Investments
• Customized financial planning
• Retirement planning
• Education planning
• Estate Planning
• Risk analyses
• Life insurance
• Disability insurance
• Long Term Care (LTC) insurance
• Trusts Services
• Charitable giving
• Estate & Gift distribution
• Business succession
11
Define your situation and goals.
Prioritize your goals and concerns.
Develop a plan to help pursue your goals.
Implement your strategy.
Review your strategy and refocus as necessary.
Citi ClaritySM: Our Proprietary Wealth Management Process
A framework for prioritizing your goals and creating a plan to help pursue them
12
Wealth Specialist Teams
Enlisted by your Financial Advisor, experienced specialists work collaboratively, based on what you want to accomplish.
Financial Advisor
Investment Specialist
Estate Planning Specialist
Capital Markets Desks
Trust Specialist
Other Product Areas
Wealth Specialist
Team
Specialized Support
Financial Planning Specialist, CFP®
Western Asset Core Portfolios
[INVESTMENT PRODUCTS: NOT FDIC INSURED * NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY * NO BANK GUARANTEE * MAY LOSE VALUE]
Table of Contents
I. Western Asset Core Portfolios
2
SECTION I.
Western Asset Core Portfolios
3
To d a y ’s L e g g M a s o n
Our philosophy
At Legg Mason, we’ve assembled a collection of experienced investment management firms
and empowered each of them with the tools, the resources, and, most importantly, the
independence to pursue the strategies they know best.
Each was purposefully chosen for their commitment to investment excellence.0
Each is focused on specific investment styles and asset classes.0
Each exhibits thought leadership in their chosen area of focus.0
Together, we’ve built a powerful portfolio of solutions for financial advisors and their clients.
4
To d a y ’s L e g g M a s o n
Our impact
1 As of 9/30/13.
2 Source: Pensions & Investments, as of 12/31/12.
3 Source: Cerulli Associates, 9/30/13.
Legg Mason is one of the oldest names in investing, dating back to 1899. Throughout our 100+ years, the company has
continued to evolve to meet new challenges and opportunities.
0
Today, Legg Mason is focused exclusively on asset management and a commitment to investment excellence. 0
As a result, we have become: 0
A global asset management firm, with $656 billion in assets under management1, serving clients in more than 190
countries
6
The 20th largest asset manager2 in the world6
The 3rd largest provider of separately managed accounts in the industry36
5
To d a y ’s L e g g M a s o n
Our Separately Managed Account capabilitiesLegg Mason is one of the largest managers of separately managed accounts in the industry1
1
Source: Cerulli Associates, 9/30/13.
2 Effective December 5, 2012, ClearBridge Advisors, LLC became ClearBridge Investments, LLC.
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 on investment instructions or advice provided by one or more of the following Legg Mason-affiliated subadvisors: ClearBridge Investments, LLC and Western Asset Management Company. Management is implemented by LMPPG, the designated subadvisor or, in the case of certain programs, the program sponsor or its designee.
Our portfolios offer investors access to a broad range of U.S. and international equity and fixed-income strategies, backed
by the vast resources of a world leader in money management:
0
ClearBridge Investments2 has over 45 years of asset management experience. The firm is known for its research-driven,
fundamental approach to investing, offering actively managed equity products in a wide range of capitalizations and
styles.
6
Western Asset, one of the world’s premier fixed-income managers, was founded in 1971. The firm relies on a team-
based culture, guided by a value-driven research process and a diversified, long-term approach to fixed-income
management.
6
6
I n t r o d u c t i o n
Potential benefits of diversificationBy actively rotating among different bond sectors, portfolio managers may have the potential to enhance portfolio returns and manage risk over time
Source: Legg Mason. Data as of 12/31/2012. Past performance is no guarantee of future results. Investors cannot invest directly in an index. Duration and credit quality for the asset classes shown will vary. Diversification does not assure a profit or protect against market loss. All investments involve risks, including loss of principal. This information is for illustrative purposes only and does not represent the performance of any actual portfolio. U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. Government. The U.S. Government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, other fixed-income securities are subject to credit risk, which is the possibility that the issuer of a security will be unable to make interest payments and repay the principal on its debt. All fixed-income securities are subject to interest rate risk. As interests rates rise, the price of a fixed-income security declines. Please see Index definitions for additional information.
Quarterly returns for varied bond sectors
U.S Treasuries are represented by the Barclays Capital U.S. Int. Treasury Index Mortgage-backed securities are represented by the Barclays Capital Fixed-Rate Mortgage-Backed Securities Index
Agencies are represented by the Barclays Capital U.S. Agencies Index Asset-backed securities are represented by the Barclays Capital Asset-Backed Securities Index
Investment-grade corporate bonds are represented by the Barclays Capital U.S. Credit Index
BE
ST
PE
RF
OR
MA
NC
E
WO
RS
T P
ER
FO
RM
AN
CE
2Q09
Inv Gr Corp 8.81%
Agy -0.07%
US Tr -2.14%
ABS 7.64%
MBS Fixed 0.70%
4Q10
Agy -0.98%
ABS -1.48%
US Tr -1.77%
Inv Gr Corp
-1.86%
MBS Fixed 0.24%
2Q10
Agy 2.60%
Inv Gr Corp 3.27%
US Tr 3.57%
ABS 2.54%
MBS Fixed 2.87%
1Q10
MBS Fixed 1.54%
US Tr 1.14%
Inv Gr Corp 2.27%
ABS 2.22%
Agy 1.10%
3Q09
Agy 1.82%
ABS 6.30%
Inv Gr Corp 7.47%
US Tr 1.66%
MBS Fixed 2.31%
1Q09
Agy -0.11%
Inv Gr Corp
-1.78%
US Tr -0.29%
MBS Fixed 2.20%
ABS 7.56%
3Q08
Inv Gr Corp
-6.38%
Agy 1.08%
ABS -3.72%
US Tr 2.17%
MBS Fixed 1.87%
2Q08
Inv Gr Corp
-0.90%
ABS -0.80%
MBS Fixed -0.49%
US Tr -2.07%
Agy -1.47%
4Q12
US Tr 0.01%
ABS 0.22%
Inv Gr Corp 1.05%
MBS Fixed -0.20%
Agy 0.12%
1Q12
MBS Fixed -0.48%
ABS -0.04%
US Tr 0.57%
Agy 2.04%
Inv Gr Corp 0.83%
2Q12
Agy 2.46%
Inv Gr Corp 1.33%
US Tr 1.08%
ABS 1.29%
MBS Fixed 1.56%
3Q12
Agy 3.54%
US Tr 1.13%
MBS Fixed 0.62%
ABS 0.78%
Inv Gr Corp 1.23%
3Q10
MBS Fixed 0.63%
Agy 1.62%
US Tr 2.33%
ABS 2.51%
Inv Gr Corp 4.65%
1Q08
Inv Gr Corp 0.43%
Agy 3.18%
US Tr 4.55%
ABS -1.92%
MBS Fixed 2.43%
4Q08
ABS -6.82%
MBS Fixed 4.34%
Inv Gr Corp 4.03%
US Tr 6.45%
Agy 6.33%
4Q09
MBS Fixed 0.57%
Inv Gr Corp 1.03%
ABS 1.34%
Agy -0.10%
US Tr -0.61%
4Q11
MBS Fixed 0.88%
US Tr 0.72%
Agy 0.55%
ABS 0.23%
Inv Gr Corp 1.70%
2Q11
ABS 1.77%
MBS Fixed 2.28%
Inv Gr Corp 2.50%
Agy 1.45%
US Tr 2.23%
1Q11
MBS Fixed 0.58%
Agy 0.27%
Inv Gr Corp 0.89%
ABS 0.64%
US Tr -0.04%
3Q11
MBS Fixed 2.36%
ABS 2.42%
Agy 2.48%
Inv Gr Corp 3.03%
US Tr 3.54%
7
C o r e | O v e r v i e w
Western Asset Core Portfolios
Shares of the no fee funds may only be purchased by or on behalf of separately managed accounts by Legg Mason affiliates, including Western Asset. Managed account clients will pay fees to program sponsors or to their account managers, and such fees will be calculated taking into account assets invested in shares of no fee funds. Unless reimbursed by the fund’s manager or it’s affiliates, ordinary and extraordinary fund-level operating expenses are borne by shareholders. The manager of the no fee funds has entered into an expense reimbursement agreement with the funds pursuant to which the manager has agreed to reimburse 100% of each fund’s ordinary operating expenses through 12/31/13. The expense reimbursement agreement does not cover brokerage, taxes and extraordinary expenses. The no-fee funds prospectus is available from your financial professional and includes information on fund investment objectives strategies and risks. The portfolio may invest in derivatives, which can be illiquid and may have a potentially large impact on performance.
The investment minimum for the Western Asset Core Portfolios is $250,000.
Overview
The Western Asset Core Portfolios offer investors access to
these flagship strategies in a separately managed account.
These separately managed accounts consist of investments in
individual securities and shares of no-fee mutual funds advised
by Western Asset and its affiliates. The no-fee funds are used by
Western Asset to achieve appropriate levels of diversification, as
well as provide clients with exposure to sectors that are normally
difficult to include in a separately managed account with low
minimum investment requirements.
8
C o r e | D i f f e r e n t i a t o r s
Key differentiators
Risks:
All investments involve risk, including the loss of principal, and there is no guarantee that investment objectives will be met.
U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.
Foreign securities, where permitted, are subject to the additional risks of fluctuations in foreign exchange rates, changes in political and economic conditions, foreign taxation, and differences in auditing and financial standards. These risks are magnified in the case of investments in emerging markets.
Please see next page for additional risk disclosures.
Team-managed approach0Team unites groups of specialists dedicated to different market sectors6
Each group of sector specialists utilizes its expertise in bottom-up analysis of each portfolio sector6
Unique structure0Utilizes an institutional-style hybrid approach for the strategy that combines individual securities and no-fee funds into
one account
6
Provides access within the fixed-income market to a greater number of sectors, with more diversification in each
sector than a traditional separately managed account with a similar minimum account size
6
Increases the diversification within each sector, which may achieve lower volatility and higher returns than a traditional
managed account with this minimum account size
6
Leverage Western Asset Management resources0Institutional-caliber buying power and trading expertise6
Access to proprietary credit research team6
Exclusive focus on fixed-income management6
9
C o r e | P h i l o s o p h y & o b j e c t i v e s
Western Asset Core Portfolios
Risks:
All investments involve risk, including the loss of principal, and there is no guarantee that investment objectives will be met.
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 make interest payments and repay the principal on its debt. As interest rates rise, the price of fixed income securities falls.
Philosophy
Long-term 0
Seek out the greatest long-term value by thoroughly
analyzing a wide range of sectors of the fixed-income
market
6
Value oriented0
We seek to identify and favor sectors and issuers that are
undervalued or out of favor in the market
6
Diversified strategies0
Results do not depend on only one or two opportunities;
multiple themes are employed in portfolios. Diversification
seeks to limit the impact of a single adverse market event
6
Strive to add incremental value over time and potentially
reduce volatility
6Fixed income securities may be subject to extension risk, which is the risk that the issuer will repay their obligations more slowly than the market anticipates in the event market interest rates rise. Issuers also have the right to pay their payment obligations ahead of schedule in the event market interest rates fall, subjecting to prepayment risk.
Investments may also be made in mortgage-backed, asset-backed securities and taxable municipal securities. Asset-backed securities generally decrease in value as a result of interest rate increases, but may benefit less than other fixed-income securities from declining interest rates, principally because of prepayments. Mortgage-backed securities involve additional risk over more traditional fixed-income investments, including: interest rate risk, implied call and extension risks; and the possibility of premature return of principal due to mortgage prepayment, which can reduce expected yield and lead to price volatility
Diversification does not assure a profit or protect against market loss.
Sector rotation0
The Core Portfolios predominantly focus on investment-
grade securities across all market sectors and maturities
6
Objectives
The strategy seeks to maximize total return consistent with
prudent portfolio management
0
10
C o r e | I n v e s t m e n t s t r a t e g y
Western Asset Core Portfolios
For illustrative purposes only.
Allocations are subject to change. Important Information: The Core Portfolios are available as separately managed accounts that utilize both individual securities and no-fee mutual funds. These mutual funds were created specifically for, and are made available exclusively through, these separately managed accounts. Investments in these separately managed accounts present special considerations. The mix of investments may vary depending on market conditions, the manager’s views as to relative attractiveness of available sectors, cash flows into and out of the account, and other factors. The funds prospectus is available from your financial professional and includes information on fund investment objectives, strategies and risks.
The Core Portfolios combine individual securities and no-fee mutual funds.
Individual Securities
Investment-grade corporates - no-fee
fund
Mainly mortgages - no fee fund
11
C o r e | P o r t f o l i o s t r u c t u r e
Portfolio composition may include:
Mortgage-backed securities involve additional risk over more traditional fixed income investments including: interest rate risk, implied call and extension risks and possibility of premature return of principal due to mortgage prepayment, which can reduce expected yield and lead to price volatility.
Individual securities0
U.S. Treasuries6
Agencies6
Investment-grade corporates6
Mortgage-backed securities (MBS)6
Non-U.S. governments6
Cash and cash equivalent6
* May invest in derivatives, which can be illiquid and may have a potentially large impact on performance. See the Market Terms slide for term definitions.
No-fee mutual funds*0
Investment-grade corporates6
Investment-grade corporates–
Mainly mortgages6
Agency and non-agency mortgage-backed securities–
Mortgage pools–
Asset-backed securities–
U.S. Treasuries and Agencies–
U.S. Treasury Inflation Protected Securities (TIPS)–
Mortgage dollar rolls–
Cash equivalents–
12
C o r e | I n v e s t m e n t p r o c e s s
Investment process
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 be achieved.
Western’s investment team comprehensively analyzes a variety of domestic and international macroeconomic factors to establish a duration target
Using a bottom-up process, the Firm seeks to identify companies with changing credit characteristics and securities that are undervalued and out of favor due to unusual circumstances.
The Firm carefully employs strategies in an attempt to take advantage of changes in the yield curve’s shape and shifts in the relationship between short-, intermediate-, and long-maturity securities.
Interest Rate Exposure/Duration Weighting
Western Asset believes that the value can be added to a portfolio by actively rotating among, and within, different sectors of the bond market. The investment team studies the fundamental factors that influence sector spread relationships.
Term Structure Weighting
Sector Allocation
Issue Selection
13
C o r e | I n v e s t m e n t p r o c e s s
Investment process
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 be achieved.
By implementing the process illustrated, Western seeks to provide investors with diversified, value-oriented, tightly controlled portfolios that exceed benchmark returns while approximating the benchmark’s risk. Of course, there is no guarantee that investment objectives will be achieved.
IMPLEMENTATION
MONITORING AND CONTROLS
InvestmentOutlook
Benchmark &Guidelines
Strategic Portfolio
Portfolio Holdings
Term Structure Weighting
Sector Allocation
Interest Rate Exposure
Sub-sector andSecurity Selection
14
C o r e | C h a r a c t e r i s t i c s
Portfolio characteristicsAs of 9/30/2013
Portfolio sector weightings
37.54% Mortgage-Backed Securities30.28% Credit16.45% Treasury11.78% Agency1.21% Other1.05% TIPS0.78% Cash0.70% Asset-Backed Securities0.21% Emerging-Market
Detail of mortgage-backed security allocation (%)
Core Portfolios
FHLMC 11.06
FNMA 12.70
GNMA 5.15
CMBS 1.47
Agency Hybrids 0.04
Non-Agency MBS 7.12 Due to a change in reporting methods a negative cash position may be apparent, which is primarily due to the portfolio’s unsettled trade activity. This is a more concise approach to defining the cash position and it best represents sector exposures in the portfolio.
Source: Legg Mason. Portfolio characteristics and sector weightings are based on a representative account within the composite. Portfolio characteristics and sector weightings of individual client portfolios in the program may differ, sometimes significantly, from those shown above. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the sectors listed and should not be used as a sole basis to make any investment decisions. Please see appendix for term definitions.
Characteristics
Core Portfolios
Duration 6.13
Average Maturity(yrs) 8.61
Average Coupon(%) 3.81
15
C o r e | P e r f o r m a n c e
Performance
For periods from January 1, 2007 to the present, Western Asset (WA) Core performance is for a composite of one or more retail WA Core separately managed accounts (SMAs). Performance for periods prior to 1/1/07 is for a composite of institutional WA Core managed accounts. WA follows substantially the same investment philosophy, strategies and processes in managing the SMA accounts as it does in managing the institutional accounts. WA invests portions of the SMA accounts in certain fixed-income sectors by investing in shares of one or more no-fee mutual funds managed by WA while investing the institutional accounts solely in individual fixed-income securities.
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. Net performance includes the deduction of a 1.5% annual wrap fee, which is the maximum anticipated wrap fee for fixed income portfolios. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into an agreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see GIPS® Endnotes for additional important information regarding the portfolio’s performance shown 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.
Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
Calendar year rates of return (%, ending 12/31)
2012 2011 2010 2009 2008 2007 2006 2005 2004 2003
Core Portfolios (net of fees) 4.92 5.71 7.54 10.96 0.37 4.66 4.20 0.81 4.00 4.69
Core Portfolios (gross of fees) 6.49 7.29 9.14 12.61 1.88 6.22 5.76 2.33 5.55 6.26
Barclays U.S. Aggregate Bond
Index 4.22 7.84 6.54 5.93 5.24 6.97 4.33 2.43 4.34 4.10
Citigroup 3-Month U.S.
Treasury Bill Index 0.07 0.08 0.13 0.16 1.80 4.74 4.76 3.00 1.24 1.07
16
C o r e | P e r f o r m a n c e
PerformanceAs of 9/30/2013
The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com/individualinvestors for the latest performance figures. YTD numbers are not annualized.
For periods from January 1, 2007 to the present, Western Asset (WA) Core performance is for a composite of one or more retail WA Core separately managed accounts (SMAs). Performance for periods prior to 1/1/07 is for a composite of institutional WA Core managed accounts. WA follows substantially the same investment philosophy, strategies and processes in managing the SMA accounts as it does in managing the institutional accounts. WA invests portions of the SMA accounts in certain fixed-income sectors by investing in shares of one or more no-fee mutual funds managed by WA while investing the institutional accounts solely in individual fixed-income securities.
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. Net performance includes the deduction of a 1.5% annual wrap fee, which is the maximum anticipated wrap fee for fixed income portfolios. Actual fees may vary. For fee schedules, contact your financial professional, or if you enter into an agreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see GIPS® Endnotes for additional important information regarding the portfolio’s performance shown 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.
Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
Annualized rates of return (%, ending 9/30/2013) - PRELIMINARY
YTD 1 Year 3 Year 5 Year 7 Year 10 Year
Core Portfolios (net of fees) -3.15 -3.08 1.94 5.70 4.56 4.01
Core Portfolios (gross of fees) -2.06 -1.62 3.47 7.28 6.12 5.57
Barclays U.S. Aggregate Bond
Index -1.89 -1.68 2.86 5.41 5.12 4.59
Citigroup 3-Month U.S. Treasury
Bill Index 0.04 0.07 0.08 0.15 1.17 1.61
17
C o r e | P e r f o r m a n c e
Risk/return analysis (gross of fees)For the 10-year period ending 9/30/2013 - PRELIMINARY
The strategy returns shown are preliminary composite returns, subject to future revision (downward or upward). Please visit www.leggmason.com/individualinvestors for the latest performance figures. YTD numbers are not annualized.
Past performance is no guarantee of future results. Investments involve risk of loss. Alpha, Beta, and R-squared are shown versus the Barclays U.S. Aggregate Bond Index. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. Please see appendix for term definitions.
Less Risk/More Reward
Less Risk/Less Reward
More Risk/More Reward
More Risk/Less Reward
-1 0 1 2 3 4 5 6 7 8Annualized standard deviation (%)
0
2
4
6
8
10
Annu
alize
d ra
te o
f ret
urn
(%)
A
B
C
Core PortfoliosA
Barclays U.S. Aggregate Bond IndexB
Citigroup 3-Month U.S. Treasury Bill IndexC
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 an agreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see GIPS® 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 of different implementation and model requirements in different investment programs.
Core
Portfolios
Barclays U.S.
Aggregate
Bond Index
Citigroup 3-
Month U.S.
Treasury Bill
Index
Annualized return (%) 5.57 4.59 1.61
Annualized standard dev. (%) 3.80 3.50 0.92
Sharpe Ratio 1.03 0.85 0.00
Beta 1.02 N/A N/A
Alpha 0.88 N/A N/A
R-Squared 0.86 N/A N/A
18
C o r e | P e r f o r m a n c e
Growth of $1,000,000 (gross of fees)For the 10-year period ending 9/30/2013 - PRELIMINARY
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 unrealized capital 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 an agreement directly with Legg Mason Private Portfolio Group, LLC (“LMPPG”), refer to LMPPG’s Form ADV disclosure document. Please see GIPS® 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 of different implementation and model requirements in different investment programs.
$1,719,294
$0
$500,000
$1,000,000
$1,500,000
09/2003 09/2004 09/2005 09/2006 09/2007 09/2008 09/2009 09/2010 09/2011 09/2012 09/2013
19
C o r e | I n v e s t m e n t m a n a g e m e n t t e a m
Investment management team
Western’s fixed-income discipline emphasizes a team approach that unites groups of
specialists dedicated to different market sectors. The investment responsibilities of each
sector group are distinct, yet results are derived from the constant interaction that unites
the specialty groups into a cohesive investment management team. The sector teams are
comprised of Western’s senior portfolio managers, research analysts, and an in-house
economist who are highly skilled and experienced in all major areas of the fixed-income
market.
20
C o r e | G I P S ® E n d n o t e s
Western Asset Core Wrap Composite Disclosure - GIPS® Endnotes
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, 2011. The verification report is available upon request. 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 verification does not ensure the accuracy of any specific composite presentation. For GIPS® purposes, the Firm is defined as Western Asset, a primarily fixed-income investment manager comprised of Western Asset Management Company, Western Asset Management Company Limited, Western Asset Management Company Pte. Ltd., Western Asset Management Company Ltd, Western Asset Management Company Pty Ltd, and Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários (DTVM) Limitada, with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Dubai. 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.
For periods prior to January 1, 2007, the Western Asset Core composite is comprised of institutional accounts managed directly by Western Asset in accordance with the Western Asset Core strategy, which seeks to maximize total return and has the flexibility to invest across a range of fixed-income sectors, including the U.S. government, federal agency, domestic corporate, mortgage and money market/cash equivalent sectors. Effective January 1, 2007, Western Asset began providing its Core strategy in a retail SMA format. Currently, such retail SMA portfolios are managed by Western Asset as subadvisor to its affiliate, Legg Mason Private Portfolio Group, LLC. For periods from January 1, 2007, the Western Asset Core composite is comprised of one or more SMA portfolios managed by Western Asset in accordance with the Western Asset Core strategy. Western Asset follows substantially the same investment philosophy, strategies and processes in managing SMA Core portfolios that it does in managing institutional Core portfolios. However, unlike the institutional accounts included in the Western Asset Core composite for periods prior to January 1, 2007, which invest solely in individual fixed-income securities, SMA portfolios included in the Western Asset Core composite for periods from January 1, 2007 invest in certain fixed income sectors represented in the Core strategy by investing in shares of one or more mutual funds managed by Western Asset instead of investing solely in individual fixed-income securities. The performance of the SMA Core composite may vary from the performance of Western Asset’s institutional Core composite, especially over shorter time periods and during periods of extraordinary market conditions, due to differences in cash flows into and out of SMA Core portfolios relative to the cash flows into and out of institutional Core portfolios and differences in the specific securities used by Western Asset to implement its investment strategy for SMA Core portfolios relative to those used for institutional Core portfolios.
Schedule of Investment Performance Results For The Period From January 1, 2003 Through December 31, 2012 Benchmark % of bundled fee
Net "Pure"1 gross Benchmark Gross total total Number of portfolios in Composite Composite assets % of firmYear return (%) return (%) total return (%) 3 Yr St Dev (%) 3 Yr St Dev (%) portfolios the composite dispersion (%) ($ millions) assets2003 4.69 6.26 4.10 24 0 1.04 9,919 6.692004 4.00 5.55 4.34 26 0 0.33 11,411 5.772005 0.81 2.33 2.43 26 0 0.32 9,700 3.892006 4.20 5.76 4.33 27 0 0.93 11,334 2.222007 4.66 6.22 6.97 11 100 -na- 5 0.002008 0.37 1.88 5.24 22 100 0.03 17 0.002009 10.96 12.61 5.93 28 100 0.16 28 0.012010 7.54 9.14 6.54 26 100 0.09 28 0.012011 5.71 7.29 7.84 3.08 2.82 25 100 0.09 27 0.012012 4.92 6.49 4.22 2.59 2.42 60 100 0.14 51 0.01
21
C o r e | G I P S ® E n d n o t e s
Western Asset Core Wrap Composite Disclosure - GIPS® Endnotes (continued)
As of January 1, 2007, the composite employs a 10% significant cash flow policy. For comparison purposes, composite returns are shown against returns of Barclays U.S. Aggregate Bond Index. An investor cannot invest directly in an index. The composite was created on January 1, 2007. As noted above, from January 1, 2007, the Western Asset Core composite is comprised of accounts that are SMAs with an account minimum of US $250,000. For periods prior to January 1, 2007, the Western Asset Core composite is comprised of all actual, fee-paying, fully discretionary Western Asset Core accounts managed by Western Asset for at least one full month and having a minimum asset size of $25 million. The composite includes both tax-exempt and taxable accounts. The composite is valued monthly, and the returns for each period are the asset-weighted average of the performance results of all the accounts in the composite for such period. Terminated accounts are included in the composite through the last month of management. The returns for the account in the Composite are calculated using a time-weighted rate of return adjusted for weighted cash flows. Prior to September 1, 2001, the Firm revalued each account when an external cash flow equal to or greater than 10% occurred in an account. Monthly performance returns prior to and after the date of the cash flow were calculated and geometrically linked to derive a monthly performance return. Effective September 1, 2001, the cash flow threshold was changed to 5% of each account’s market value. The decrease in the threshold was made to enhance the accuracy of the accounts’ returns. From January 1, 2007, daily account performance returns are calculated and geometrically linked to derive a monthly performance return.
Before-tax composite returns are presented “Pure” Gross and Net of fees, are calculated in U.S. dollars, and assume reinvestment of dividends, interest, capital gains and other earnings. “Pure” 1 gross returns do not reflect the deduction of any fees, transaction costs or expenses, and they are presented only as supplemental information to net returns. Net returns reflect the deduction of the anticipated maximum annual bundled fee of 1.5% applied monthly. Bundled fees may vary across different financial firms and across different accounts based upon account size and other factors. The bundled fee applied includes custody, trading, and investment management. The fee schedule currently in effect is 1.50% on all assets. All returns are gross of withholding tax on interest and capital gains, as are benchmark returns. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. The dispersion of annual returns is measured by the standard deviation of the asset-weighted portfolio returns represented within the composite. Dispersion for periods during which the composite had five or fewer accounts is not statistically significant and is 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. Past investment results are not indicative of future investment results. To receive a complete list and description of Western Asset’s composites and/or a presentation that adheres to the GIPS standards, please contact Marianne Kerry at 212-601-6194 or [email protected].
22
A p p e n d i x
Index definitions
The Barclays U.S. Aggregate Bond Index includes the Government/Credit and the
Mortgage-Backed indexes. The return comprised price appreciation/depreciation and
income as a percent of the original investment. Indexes are rebalanced monthly by market
capitalization.
The Barclays U.S. Intermediate Treasury Bond Index is composed of all public obligations
of the U.S. Treasury. This index has an average current maturity of 3.69 years (average
maturity may vary over time).
The Barclays U.S. Treasury Index is a measure of the public obligations of the U.S. Treasury.
The Barclays U.S. Intermediate Treasury Bond Index is composed of all public obligations
of the U.S. Treasury. This index has an average current maturity of 3.69 years (average
maturity may vary over time).
The Barclays U.S. Agencies Index is the U.S. Agency component of the U.S. Government/
Credit index, consisting of publicly issued debt of U.S. Government agencies, quasi-federal
corporations, and corporate or foreign debt guaranteed by the U.S. Government (such as
USAID securities). The largest issues are Fannie Mae, the Resolution Trust Funding
Corporation (REFCORP), and the Federal Home Loan Bank System (FHLB). The index
includes both callable and non-callable agency securities.
The Barclays Fixed-Rate Mortgage-Backed Securities Index is composed of about 600 15-
year to 30-year fixed-rate mortgage-backed pools of Government National Mortgage
Association, Federal National Mortgage Association and Federal Home Loan Corporation.
The Barclays Asset-Backed Securities Index is composed of debt securities backed by
credit card, auto and home equity loans that are rated investment grade or higher by
Moody’s Investors Service, Standard & Poor’s Ratings Service or Fitch Investor’s Service, in
that order. Issues must have at least one year to maturity and an outstanding par value of at
least $50 million. Price, coupon and total return are reported on a month-end to month-end
basis. All returns are market value-weighted inclusive of accrued interest but do not include
adjustments for advisory fees or other expenses.
The Barclays U.S. Credit Index is the U.S. Credit component of the U.S. Government/Credit
Index consisting of publicly issued U.S. corporate and specified foreign debentures and
secured notes that meet the specified maturity, liquidity, and quality requirements. To
qualify, bonds must be SEC-registered. The U.S. Credit Index is the same as the former U.S.
Corporate Investment Grade Index, which has been renamed the U.S. Credit Index. The
name change is effective as of 6/1/00 (for statistics) and as of 7/1/00 (for returns).
Investors cannot invest directly in an index and unmanaged index returns do not reflect any
fees, expenses or sales charges.
23
A p p e n d i x
Index definitions
The Barclays 5-Year Municipal Bond Index is composed of 35% state general obligation
bonds, 50% revenue debt and 15% pre-refunded bonds.
The Barclays 1-Year Municipal Bond Index is an unmanaged index composed of national
municipal bond issues with a maturity range of 1-2 years.
The Barclays U.S. Government/Credit Bond Index includes the Barclays U.S. Government
bond Index and the Barclays Credit Bond Index. The Government Index includes all public
U.S. Treasury obligations and the debt of U.S. Government agencies and quasi-federal
corporations. The Credit Index includes corporates (industrial, utility and finance including
both U.S. and non-U.S. corporations) and noncorporates (sovereign, supernational, foreign
agencies and foreign local governments).
The Barclays U.S. Intermediate Government/Credit Bond Index is a market value weighted
performance benchmark for government and corporate fixed-rate debt issues (rated Baa/
BBB or higher) with maturities between one and ten years.
The Barclays U.S. Intermediate Treasury Bond Index is composed of all public obligations
of the U.S. Treasury. This index has an average current maturity of 3.69 years (average
maturity may vary over time).
The Barclays U.S. Aggregate Bond Index includes the Government/Credit and the
Mortgage-Backed indexes. The return comprised price appreciation/depreciation and
income as a percent of the original investment. Indexes are rebalanced monthly by market
capitalization.
The Barclays 1-3 Year Government Bond Index is a broad measure of the performance of
short-term government bonds. Please note an investor cannot invest directly in an index.
The Merrill Lynch 1-3 Year Treasury Bond Index is a market capitalization-weighted index
including all U.S. Treasury notes and bonds with maturities greater than or equal to one
year and less than three years.
The Citi 90-Day Treasury Bill Index is an index based upon the average monthly yield of the
90-day Treasury bills. Treasury bills are secured by the full faith and credit of the U.S.
Government and offer a fixed rate of return.
Investors cannot invest directly in an index and unmanaged index returns do not reflect any
fees, expenses or sales charges.
24
A p p e n d i x
Market terms
Asset-Backed Security - (ABS) - A financial security backed by a loan, lease or receivables
against assets other than real estate and mortgage-backed securities. For investors, asset-
backed securities are an alternative to investing in corporate debt.
Commercial Mortgage-Backed Securities - (CMBS) - are a type of mortgage-backed
security that is secured by the loan on a commercial property. A CMBS can provide liquidity
to real estate investors and to commercial lenders.
Collateralized Mortgage Obligations - (CMO) - are securities backed by a pool of pass-
through securities, which consists of several classes of bondholders with varying
maturities. The principal payments from the underlying pool of pass-through securities are
used to retire the bonds on a priority basis as specified in the prospectus.
Mortgage-Backed Securities - (MBS) - A type of asset-backed security that is secured by a
mortgage, or a collection of mortgages. These securities must also be grouped in one of the
top two ratings as determined by an accredited credit rating agency, and usually pay
periodic payments that are similar to coupon payments. Furthermore, the mortgage must
have originated from a regulated and authorized financial institution.
Mortgage Pool - Group of related financial instruments, such as mortgages, combined for
resale to investors on a secondary market.
Mortgage Dollar Roll - A special type of repurchase agreement in which the security,
transferred to the investor as collateral, is a mortgage-backed security. The investor who
sells the security gives up the cash flows during the roll period, but has use of the proceeds.
Treasury Inflation Protected Securities - (TIPS) - A special type of Treasury note or bond
that offers protection from inflation. Like other Treasuries, an inflation-indexed security pays
interest every six months and pays the principal when the security matures. The difference
is that the coupon payments and underlying principal are automatically increased to
compensate for inflation as measured by the consumer price index (CPI). Also referred to
as “Treasury inflation-indexed securities.”
25
A p p e n d i x
Term definitions
Maturity is the date at which a debt instrument is due and payable. A bond due to mature
on January 1, 2010, will return the bondholder’s principal and final interest payment when it
reaches maturity on that date. Bond yields are frequently calculated on a yield-to-maturity
basis.
Duration (Modified Duration) is the measure of the price sensitivity of a fixed-income
security to an interest rate change of 100 basis points. Calculation is based on the weighted
average of the present values for all cash flows.
The yield to worst is the lowest potential yield that can be received on a bond without the
issuer actually defaulting. The yield to worst is calculated by making worst-case scenario
assumptions on the issue by calculating the returns that would be received if provisions,
including prepayment, call or sinking fund, are used by the issuer. This metric is used to
evaluate the worst-case scenario for yield to help investors manage risks and ensure that
specific income requirements will still be met even in the worst scenarios.
Insured municipal bonds are ones where scheduled interest and principal payments are
guaranteed by AAA-rated municipal bond insurers.
General obligation municipal bonds are backed by the credit and taxing power of the
issuing jurisdiction rather than the revenue of a given project.
Revenue bonds are municipal bonds supported by the revenue from a specific project.
Pre-refunded bonds are municipal bonds that are generally backed or secured by U.S.
Treasury bonds.
Effective Duration is a duration calculation for bonds with embedded options. Effective
duration takes into account that expected cash flows will fluctuate as interest rates
change.
Average Maturity is the average length of maturity for all fixed-rate debt instruments held in
a portfolio.
The Coupon Rate is the annual coupon payments paid by the issuer relative to a bond’s face
or par value.
Yield To Maturity - The rate of return anticipated on a bond if it is held until the maturity
date. The calculation of YTM takes into account the current market price, par value, coupon
interest rate and time to maturity.
The Sharpe ratio is a risk-adjusted measure, calculated using standard deviation and
excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better
the portfolio’s historical adjusted performance.
Alpha is a measure of the difference between actual returns and expected 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 between the portfolio and its
benchmark. R-squared at 1.0 implies perfect linear relationship and zero implies no
relationship exists.
Standard deviation is based on quarterly data. Standard deviation is a measure of the
variability of returns; the higher the standard deviation, the greater the range of
performance (i.e., volatility).
The Capture Ratios measure a manager’s composite performance relative to the
benchmark, considering only those quarters that are either positive [Up] or negative [Down]
for the benchmark.
An Up Market Capture Ratio greater than 1.0 indicates a manager who has outperformed
the benchmark in the benchmark’s positive quarters.
A Down Market Capture Ratio of less than 1.0 indicates a manager who has outperformed
the relative benchmark in the benchmark’s negative quarters.
26
Disclaimer
PPG-Q313-V1
Separately Managed Accounts (SMAs) are investment services provided by Legg Mason Private Portfolio Group, LLC (LMPPG),
a federally registered investment adviser. Client portfolios are managed based on investment instructions or advice provided by
one or more of the following Legg Mason-affiliated sub-advisers: ClearBridge Investments, LLC. and Western Asset
Management Company. Management is implemented by LMPPG, the designated subadviser 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, and cannot 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 in connection 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’s particular 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 such fees 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.
©2013 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC, and Western Asset
Management Company are subsidiaries of Legg Mason, Inc.
FN1313260 SMA0016
27
IPS – Recommendation -‐ Summary
• Update the IPS & Cash Mgmt. Policies • Include Roles and ResponsibiliJes • Add InternaJonal Fixed Income • Approve the Policy revisions
• Next Steps – FCL/CWM – Discuss por`olio opJons – Implement 1st Qtr. 2014 – Review Qtrly./Report to EX in July BOD
EComm Winter Mtg 2013 Slide# 10
November 14, 2013
Exec Committee:
I would like to propose that the EC revise the existing Long-Term Investment policy Investment Policy Statement (IPS). Our current policy is outdated (created in 1994) and is in need of revision. The proposed policy would more accurately reflect market conditions/thinking; the roles and responsibilities of the investment policy partners and provide an opportunity for our fixed income portfolio to continue to perform in a manner consistent with our conservative investment objectives in the future. The primary reason for this recommendation is for the past 2-3 years I have discussed at EC the view from our investment advisor (Citibank) that we are closing in on the beginnings of the rise in U.S. interest rates as the Federal Reserve begins to pull back on the Quantitative Easing policy. There is known inverse relationship between interest rates and yields. As interest rates rise - yields fall. This is reflected in our current portfolio YTD results of (1.69%). This trend is expected to continue.
To this end, I have invited our investment advisor (Citibank) and our current portfolio investment manager (Legg Mason) to Executive Committee meeting to share/discuss the current and future investment landscape.
Please see below and attached, my discussion and recommendations to the Exec Comm for consideration at the December meeting.
Proposal: Update the current Investment Policy Statement (IPS) to incorporate an international fixed income securities component to diversify and maintain portfolio stability.
Background: In 1994, the Association instituted a cash management and short-term investment policy with a primary objective of stability and liquidity. The primary vehicles used in this portfolio are domestic fixed income investments (CD’s, government back obligations etc.). The portfolio was managed in 3 parts. 1) Operations fund – 3 months of operating income in cash; 2) Short-term cash management (funds invested for current year operation); 3) Longer term investments (i.e. Investment Policy Statement – IPS) for funds invested over one year. These funds are invested in U.S. fixed income domestic securities. The President is responsible for implementation of the investment direction of the RFGSA Board/Executive Committee. Citibank has been the Association investment advisor since 1994.
In 2008, with the financial crisis in U.S, the short-term cash management portion of the portfolio was updated to require the current years program dues, to remain liquid. In conjunction with Executive Committee’s direction, federally insured, laddered short-terms (less than one year) CD’s were instituted for current year program dues obligations. The Operations fund remained unchanged. The Longer-term investment portfolio continued investment in U.S. fixed income securities.
The portfolio has realized break-even or positive returns since inception. Since 2008 the
portfolio has averaged 4.87% annual return. The Portfolio income is returned to members annually as dues credits.
Our investment advisor (Citibank) has been recommending a change to the Longer-term investments (IPS) since 2011. This view has been shared with the Executive Committee since 2011. It is their opinion, based on market conditions; interest rates in the U.S. will be less favorable to current portfolio mix. Interest rates in U.S. have begun to rise in 2013. The YTD (10/30/13) portfolio return is (1.69%). It is anticipated this rising interest rate environment in the U.S. will continue.
Recommendation: Therefore, It is the Association’s and Investment Advisor's recommendation, to update (IPS) to incorporate an international fixed income component to diversify and maintain portfolio stability.
The Association is not recommending any material changes to the Cash Management and Short-term investment policy.
Below please find a summary of the proposed Cash Management, Short-term investment policy and the proposed Long-Term Investment Policy Statement (IPS).
RFG SURVEY ASSOCIATION CASH MANAGEMENT AND SHORT-TERM INVESTMENT POLICY
Preamble: The purpose of this policy is to provide management with direction on cash
management and short term investments.
Objective: Funds of RFG Survey Association (RFGSA) shall be managed with the objective of
maintaining security and liquidity. Cash Management and Short-Term Investment
decisions shall be made in accordance with the following policy guidelines:
1. Administrative procedures and authorities:
(a) The RFGSA President is responsible for cash management relationships with
qualified financial institutions. Qualified financial institutions include any U.S. institutions
having a rating of "A" or higher by an independent rating agency (Thompson Bank
Watch, Shehsunoff Bank Quarterly, etc.) or be large area banks meeting fully phased-in
capital requirements with net worth equal or in excess of Regulatory Capital
Requirements (such as Nations, First Union, Signet and Crestar).
(b) The President of RFGSA is responsible for the preparation of periodic cash
forecasts and for investment of funds in excess of immediate cash requirements.
(c) The President is authorized to perform all acts necessary or incidental to the
investment and reinvestment of funds consistent with the provisions of this policy
statement, including the purchase, sale, endorsement and delivery of securities and the
signing and endorsement of checks issued or received with respect to the sale or
purchase of those securities.
(d) Investment activities, including information on any large area banks being used,
shall be summarized and reported periodically to RFGSA's Executive Committee.
2. Nature of authorized short-term investments:
(a) U.S. Treasury Bills.
(b) Federally insured deposit-type obligations of domestic banking institutions, including
Certificates of Deposit (CD's), Time Deposits and Savings Accounts.
(c) Repurchase agreements collateralized by obligations of U.S. Government agencies
or government-sponsored enterprises with 1) banks rated "A" or higher, 2) large area
banks meeting fully phased-in capital requirements with net worth equal or in excess of
Regulatory Capital Requirements or 3) securities dealers recognized by the Federal
Reserve Board.
(d) Commercial paper issued by domestic corporations rated A1/P1 by Standard and
Poors (S & P) and Moody's Investors Service. Commercial paper issued by member
companies shall not be purchased.
(e) Money market funds or mutual funds that meet the guidelines set forth in (a) through
(d) above and do not invest, in whole or in part, in leverage derivatives. These
underlying securities may exceed two years in maturity as long as the investment fund
is liquid.
3. Duration and limits of authorized short-term investments:
(a) Investment maturities shall not exceed one year unless the funds balance is
otherwise noted from prior year.
(b) Not more than 50% may be invested in securities with maturities over six months
with anyone commercial (non-government) issuer.
RFG SURVEY ASSOCIATION INCORPORATED
INVESTMENT POLICY STATEMENT (IPS) DRAFT
Investment Objective: The main objective is to invest in a diversified portfolio of US and international fixed income instruments with a strategy to mange portfolio stability and total return consistent with prudent portfolio management. Guideline and Investment Process: Time Horizon: The investment guidelines for the portfolio are based upon an investment time horizon of greater than five years. Short-term liquidity needs are not expected as other funds outside the scope of this IPS have already been allocated. However, any unanticipated needs will be met from cash, maturing bonds or liquidating bonds within the portfolio. The RFGSA President will notify the investment manager in advance of the withdraw orders to allow sufficient time to build up necessary liquid reserves. Risk Tolerance: Portfolio may tolerate a moderate level of volatility to achieve a balance between stability and total return. This approach is likely to involve short-term volatility. The overall return is not guaranteed but should provide commensurate with a conservatively managed fixed income portfolio. Portfolio Composition: Portfolio may include:
• Individual securities such as US Treasuries, Agencies, Investment Grade Corporate bonds, Mortgage backed securities, Non US Governments cash and cash equivalents.
• Mutual funds that invest in Investment Grade Corporate Bonds, Agency and non-agency mortgage backed securities, mortgage pools, asset backed securities, US treasuries and agencies, US treasury inflation protected securities (TIPS), Mortgage dollar rolls, cash equivalents.
• May include US dollar and non-US dollar denominated fixed income securities. These may include corporate issues from developing markets and emerging market sovereign issuers.
Investment Process:
• The portfolio manager will have flexibility to establish and change duration target based on their comprehensive analyzes of a variety of domestic and international macroeconomic factors.
• Employ strategies in an attempt to take advantage of changes in the yield curve's shape and shifts in the relationship between short, intermediate and long-term maturity
securities. Actively rotating among and within different sectors of the bond markets. DUTIES AND RESPONSIBILITIES Investment Advisor The Advisor shall act as the investment advisor to RFG Survey Association Incorporated (RFGSA) until RFGSA decides otherwise. Advisor shall be responsible for:
• Designing and implementing an appropriate asset allocation plan consistent with the investment objectives, time horizon, risk profile, guidelines and constraints outlined in this statement.
• Advising RFGSA Incorporated about the selection of and the allocation of asset categories.
• Identifying specific assets and investment managers within each asset category, • Providing "due diligence", or research, on the Investment Manager(s). • Monitoring the performance of all selected assets. • Periodically reviewing the suitability of the investments for the. • Being available to meet with RFGSA quarterly or as needed, • Preparing and presenting appropriate reports.
Investor (RFGSA) RFGSA shall be responsible for:
• The oversight of the Portfolio. • Defining the investment objectives and policies of the Portfolio. • Directing Advisor to make changes in investment policy and to oversee and to approve
or disapprove Advisor's recommendations with regards to policy, guidelines, and objectives on a timely basis.
• Providing Advisor with all relevant information on RFGSA's financial conditions and risk tolerances and shall notify Advisor promptly of any changes to this information.
• Reading and understanding the information contained in the prospectus and each investment in the Portfolio.
• Being responsible for exercising all rights, including voting rights, as is acquired through the purchase of securities.
The Investment Manager(s) Each Investment Manager will have full discretion to make all investment decisions for assets placed under its jurisdiction, while observing and operating within all policies, guidelines, constraints, and philosophies as outlined in this statement. Specific responsibilities of the Investment Manager(s) include:
• Discretionary investment management including decisions to buy, sell, or hold individual securities, and to alter asset allocation within the guidelines established in this statement.
• Reporting, on a timely basis, periodic investment performance results. • Communicating any major changes to economic outlook, investment strategy, or any
other factors, which affect implementation of investment process, or the investment objective progress of the Fund's investment management.
• Informing the advisor regarding any qualitative change to investment management organization; examples include changes in portfolio management personnel, ownership structure, investment policy, etc..
• Voting proxies, if requested, on behalf of RFGSA. Criteria for selecting Investment Managers Investment managers (including mutual funds, separate account managers and limited partnership sponsors) shall be chosen using the following criteria:
• Past performance, considered relative to other investments having the same investment objectives. Consideration shall be given to both performance rankings over various time frames and consistency of performance.
• Costs relative to other funds with like objectives and investment styles discipline • Length of time the fund manager has been in existence and length of time it has been
under the direction of the current manager(s) and whether or not there have been material changes in the manager's organization and personnel.
• The historical volatility and downside risk of each proposed investment. • How well each proposed investment complements other assets in the portfolio. • The current economic environment and the likelihood of future investment success,
relative to other opportunities.
INVESTMENT MONITORING AND CONTROL PROCEDURES Monitoring - Performance Objectives RFGSA acknowledges fluctuating rates of return characterize the Fixed Income market, particularly during short-term time period, Recognizing the short-term fluctuations may cause variations on performance, the authorized officer intends to evaluate investment performance from a long-term perspective.
• RFGSA is aware the ongoing review and analysis of the investment options is just as important as the due diligence process. The performance of the investment options will be monitored on an ongoing basis and it is at the RFG's discretion to take corrective action by replacing a manager if they deem it appropriate at any time.
• On a timely basis, but not less than quarterly, RFGSA and the investment Advisors will meet to review overall performance including:
• The investments option's adherence to the RFGSA’s investment objectives • Material changes in the investment option's organization, investment philosophy
and/or personnel. Monitoring - Measuring Costs RFGSA will review at least annually all costs associated with the management of the portfolio, including; Expense ratios of each investment instrument against appropriate peer groups; Costs to administer the portfolio, including record keeping and other services
Investment Policy Review The IPS shall be reviewed at least annually to determine whether stated investment objectives are still relevant and the continued feasibility of achieving the same. It is not expected that the IPS will change frequently. In particular, short-term changes in the financial markets should not require adjustments to the IPS.
Association Operations
• Efficient/EffecJve – Business Model – Leverages Resources/Low Cost
• 47 RFG Member Companies -‐ 2014 – ULSD – 20 Companies – E15 – 160+ ParJcipaJng faciliJes/Companies
• 5 Programs – Federal, Ethanol, AZ, ULSD, E15 – Pay to parJcipate – Minimum program dues
EComm Winter Mtg 2013 Slide# 11
Association Highlights
• E15 Program Development – Survey ModificaJons/PNC/Field Resource
• Website Development/ImplementaJon – All OperaJons on-‐line
• Database Development/Update • Investment Policy Update • Established formal collecJon process
EComm Winter Mtg 2013 Slide# 12
Association Highlights
• ULSD program CodificaJon • STR costs 2014 <1% • Key personnel changes – SWRI
EComm Winter Mtg 2013 Slide# 13
Technical Committee
• Program IniJaJves • E15 • Quality Control • ULSD • RFG/Etoh/AZ
EComm Winter Mtg 2013 Slide# 14
Program Initiatives
• Website Development • Database Development/Update • Electronic FOR • Survey Designs
EComm Winter Mtg 2013 Slide# 15
Website Development
• All RFGSA Programs • Two RFGSA websites
– RFGSA managed – CBI data – RFGSA-‐SWRI managed – Data/User Mgmt.
• Integrated – Consolidated login – Accountants –Automated -‐ manual process/review
• Dual AccounJng System – 2013-‐2014
• “Manage Companies”
EComm Winter Mtg 2013 Slide# 16
RFGSA Website Development
• www.RFGSA.org • “Manage Companies” • Annual Program Update/VerificaJon • Invoicing/DocumentaJon • CC Payments • Other features – view input and past billings* • Accountant role – website verificaJon/reports • AdministraJve tools * enhanced in 2014
EComm Winter Mtg 2013 Slide# 17
Website Development -‐ 2014
• Next Steps • AccounJng requests
– Enhance tracking/verificaJon tools – Load historical invoices
• Clean up/Maintenance • Evaluate for improvements
EComm Winter Mtg 2013 Slide# 18
Website Changes – Updating Invoice Email Address
EComm Winter Mtg 2013 Slide# 19
• InacJve accounts at 18 months – Permissions are removed by system – User -‐ administrator to reacJvate
• Member company -‐ responsible for the security of their data; login permissions
• Example – An employee exits -‐ disable their login
Website Security
EComm Winter Mtg 2013 Slide# 20
2013 Stations Database Update
EComm Winter Mtg 2013 Slide# 21
• 123,239 Open AcJve LocaJons – RFG: 27,566 (22%) – ConvenJonal: 95,673 (78%) – ULSD: 83,513 (68%)
• Database now resides on RFGSA server (SwRI) • StaJsJcs available to FCL via website • RFG parJal counJes defined in MapPoint • Ipsos downloads open/acJve list prior to random selecJon for each survey
2013 Stations Database
EComm Winter Mtg 2013 Slide# 22
• Merged RFG/ULSD in 2010 • Empty Rates
– ULSD 12% before and aler merge – RFG 7% before merge, 10-‐12% aler merge
• RFG Empty Rate prompted a more thorough update and new approach (WEX=primary)
• Issue: 32,500 unaccounted – widely dispersed – 6% vague addresses – random selecJon audited (383) – 82% confirmed closed – 4,900 potenJally open (<4% of total db)
• DB Philosophy: – Comprehensive vs. RepresentaJve
Database Notes
EComm Winter Mtg 2013 Slide# 23
Electronic FOR
• Scope – Electronic FOR • RFGSA Programs -‐ iniJally • ICs enter FOR data via the contractor website. - Required info provided, streamline doc
review • Timing: tesJng -‐ Nov.-‐ Jan. 2014. • Field Release -‐ 1st Qtr. 2014.
EComm Winter Mtg 2013 Slide# 24
Electronic FOR
• Overview – IC’s enter data via the web • Receipts -‐ shipped and/or scanned • Retrieving FORs -‐ web – electronic form • Receipts -‐ website -‐ IC – opJon-‐ scan/send • Review at next TechComm
EComm Winter Mtg 2013 Slide# 25
• RFGSA – SubmiWed by – 9/01 – Atlanta – reclassified Non-‐RFG
• ULSD – SubmiWed 11/01 – Sample sizes – approx.. 2000/yr. – Reg. Update complete -‐ DFR
• E15 – Submit by 11/01 – Update on sample size – Summer OpJon – PNC chart
• AZ – Submit by -‐ 12/31 – No changes
2014 Survey Designs
EComm Winter Mtg 2013 Slide# 26
• Current Program Status • 2012-‐13 Program Results • Program Issues • 2014 OperaJons • RegistraJon
E15 Program
EComm Winter Mtg 2013 Slide# 27
• Annual -‐ CondiJon of E15 Fuel wavier • Prior to introducJon of E15 into commerce • EPA approved -‐ Misfueling MiJgaJon & Survey Design plans
• Meet requirements of § 80.1502 • TesJng non-‐flex, Oxy Vol%, RVP (summer E15 labeled), Oxy content/Correct labeling/retests
• ReporJng – EPA/Industry – PNC’s (24 hrs.) • Escrow$$/contracts – prior “each” survey start
E15 Survey Requirements
EComm Winter Mtg 2013 Slide# 28
Current Program Status
• 2012 Program iniJated -‐ 7/16/12 • 2013 Plan – Moved Geographic local
– Sample reducJon – 5000 samples/year – Summer Sample ModificaJon Request
• Program Issues – PNC issues – educaJon/response
• LiJgaJon – S.C. Dismissed • EPA FR 2014 – RFS Standards
EComm Winter Mtg 2013 Slide# 29
RFS -‐ 2014
• EPA issued FR – 11/15/13 • Comments due 60 days published FR • Reduces the Total Renewable Volume to 15.21B – approx. 3B reducJon -‐ 2014
• RVO convenJonal 14.4B to 13.01B • 2015+ -‐ EPA commiWed to – manageable growth of renewables over Jme
EComm Winter Mtg 2013 Slide# 30
FR – 2014 Standards -‐ RFS -‐11/15/13
EComm Winter Mtg 2013 31
Rule Observations • The overall demand for gasoline fell -‐ 14.67% (2007-‐2013)
• The analysis used only E10 and E85 • Volume of E15/E0 in the market has been very limited
• E85 producJon is esJmated 100 mill gal (2013). (2014) 125M in 2014 – max 300M
• NACSA survey -‐ 71% of customers indicated that price was the most important factor in determining where they buy gasoline
EComm Winter Mtg 2013 Slide# 32
Rule Observations
• If the price relaJonship between E10 and E85 reverts to historic levels significant growth in E85 sales volumes is unlikely.
• Inconveniences -‐ greater frequency of re-‐fueling, greater driving distances (fewer staJons), the unfamiliarity FFV owners/vehicles, etc.
• 8.6% of FFVs would have access to E85 in 2014
EComm Winter Mtg 2013 Slide# 33
General Observations
• E15 – slow growth – Larger market/Price relaJonship to E10/ExisJng infrastructure ?
– Create demand/High volume potenJal
• E85 slow growth – likely to conJnue – RelaJve price to E10/perceived value/mileage(-‐) – Few locaJons/higher infrastructure costs
• Result: Likely greater push for E15 – grow renewable volume
EComm Winter Mtg 2013 Slide# 34
• Total Requested -‐ 3267 • Total Analyzed – 2516 – 77% • EmpJes -‐ 19%
– Perm Closed 47%
• Refusals – 3.0% • Total PNC – 7.3%
2013 YTD Summary Results
Summary E15 Results
EComm Winter Mtg 2013 Slide# 36
Program Issues
• OperaJonal • PNC’s • Program CommunicaJon • Summer Sampling modificaJon • MMR modificaJons
EComm Winter Mtg 2013 Slide# 37
Operational Issues • Program – Evolving • Process Refinement
– Website issues – Minor RegistraJon/billing – PNC noJficaJons/Response/IC training – Development of Photo Management System
• PNC’s • EPA Program Changes
– New Blender Pump ConfiguraJons – Revisions to PNC charts
• Industry Requests/Changes • LiJgaJon/Other Impediments
EComm Winter Mtg 2013 Slide# 38
Survey Plan PNC Chart (revised)
EComm Winter Mtg 2013 39
PNC Program Resources
• Email PNC to Program ParJcipants – NoJce contains “Independent” Help Links – Emphasis on “go to Website for Details” – Clarified Display – Ethanol%, Pump Label
• Training VigneWes • Reviewed with Trade Groups/EPA • Non-‐member PNC response system
EComm Winter Mtg 2013 Slide# 40
Program Communication
• Define program as “Fuel Surveys” – TesJng for Federal Fuel requirements
• RFG Field CommunicaJon – From E15 Survey to Fuel Survey “all fuels” – RFGSA – complete 5/12
• EPA Pgm leWers – consolidated -‐ Pending • Program links – PNC noJces -‐ Pending
EComm Winter Mtg 2013 Slide# 41
2013 – Summer Sample Reduction
• RFA request for sample reducJon/reduce pgm costs.
• Issue: due to fuel blending volaJlity limits and distribuJon issues during the summer months, E15 is unlikely to be offered for sale at retail staJons.
• RFGSA – proposes 3rd Qtr. sample reducJon – in-‐line with regulaJon requirements
• EPA Approves proposal -‐ Savings est. $130K
EComm Winter Mtg 2013 Slide# 42
E15 MMR Amendments • Regula;on of Fuels and Fuel Addi;ves: RFS Pathways II and Technical Amendments to the RFS 2 Standards – 5/20/13
• Proposed Rule published – 5/20/13 • RVP – summer high ozone – “marked as E15 in any manner”
• 1.0 psi wavier does not apply<9.0/>10.0 • Codify changes to RFGSA reporJng to EPA “upon analysis”
• PTD – allow convenJonal gasoline product codes • Change e10/e15 definiJons – 10 and 15vol% (no decimals)
EComm Winter Mtg 2013 Slide# 43
2014 Program
• Commerce Issues • Survey Design Plan • Budget
EComm Winter Mtg 2013 Slide# 44
E 15 Commerce Issues
• Refiner “Blend Wall” • RFS 2014 standards • CAFÉ standards – 54.5 MPG-‐2025
– OpJmized fuel/vehicle Technologies
• Ethanol ProducJon/Harvest Issues • Supreme Court LiJgaJon – dismissed • Other Impediments
EComm Winter Mtg 2013 Slide# 45
2014 Survey Design
• Local Geographic – Primary focus on E15 areas
• 5000 Samples • OpJonal – summer modificaJon • Flush Sample eliminaJon • PNC Expansion
– Non registered E15 sites
EComm Winter Mtg 2013 Slide# 46
2014 Program Budget
EComm Winter Mtg 2013 Slide# 47
Program Dues
• Share program costs 50/50 -‐ Etoh Producers/Petroleum Refiners (includes, blenders, importers)
• IniJally, Dues based on % Refiner Total US Gasoline Prod/Imp(CG+RFG) to Total US Gasoline producJon * Refiner share of budget
• OperaJonal Program: Gasoline Prod/Imp(CG+RFG) * Refiner share of budget
• Program Minimums -‐ $500-‐1500/yr.
EComm Winter Mtg 2013 Slide# 48
Registration – Overview
• Contact RFGSA for access • RegistraJon – monthly • Payment received/escrow – Eligible for E15 • Survey registraJon data to EPA • Survey ConfirmaJon – CredenJals Issued • Eligible for Survey ParJcipaJon
EComm Winter Mtg 2013 Slide# 49
Quality Control Process
• Field & Lab Performance – SWRI
• Internal – Field Audits/Paperwork – (ExcepJon) – Lab Quality Reports – (CAR)
• External – Lab Audits -‐ TMC
» Field Audits/Paperwork – Inter Lab Cross Checks
EComm Winter Mtg 2013 Slide# 50
2013 Sample Distribution
EComm Winter Mtg 2013 Slide# 51
Document Exceptions – All Programs
EComm Winter Mtg 2013 Slide# 52
Sample Procurement Exceptions – All Programs
EComm Winter Mtg 2013 Slide# 53
Overall Exceptions
EComm Winter Mtg 2013 Slide# 54
• Issue/Concern: – PotenJal permeaJon through LDPE plug
• InvesJgaJon: – Previously tested samples were used for a small study to try to reproduce permeaJon
• Findings: – Fuel will permeate fluorinated LDPE under certain condiJons
• 10 days non-‐refrigerated storage + temp variaJons – Fuel retested aler permeaJon symptoms were created
• No appreciable difference in test results – Various other fluorinaJon levels tested
• Conclusions: – SwRI sample handling: Always refrigerated aler receipt – Fluorinated LDPE plug is effecJve under these condiJons
Can/Plug Issues
EComm Winter Mtg 2013 Slide# 55
Field Issues -‐ Sampling • ICs Trained:
– 409 RFG-‐E15 – 390 ULSD – 350 trained for both groups – 32 new since 1/1/13
• Low Procurement/ 6 surveys / EPA NoJce • 2013 Audits
– 51 Audits conducted (29 SwRI, 22TMC) – Few minor issues
• Developing Electronic FOR Entry
EComm Winter Mtg 2013 Slide# 56
Laboratory Issues
2013
EComm Winter Mtg 2013 57
Corrective Action Reports (CARs)
EComm Winter Mtg 2013 58
• Non-‐conformance – PNC was issued for a sample without verifying the product
through the photo review • Root Cause
– Previous programs did not have absolute requirement so we were accustomed to relying on IC notes and receipt.
– Had not fully converted to mandatory picture requirement at this point. • Corrective Action
– PNC redacted – Also redacted other similar situations – Immediately moved to MANDATORY photo requirement – Modifications to our photo review verification process
• Status – Closed
• Source – Client
2013-‐CAR-‐0128
EComm Winter Mtg 2013 Slide# 59
• Non-‐conformance – Field Origin Reports were printed without the ReportID
Barcode ; Scanner appended blank FORs to previous FOR • Root Cause
– FORs were not printed according to schedule – FORs were printed prior to having ReportID numbers assigned
• Corrective Action – Personnel reviewed Packet Flow Guidlines – Software will not allow FORs to be printed without ReportID – Scanner total count must match workorder count
• Status – Pending Verification
• Source – Client
2013-‐CAR-‐0258
EComm Winter Mtg 2013 Slide# 60
• Non-‐conformance – Incorrect Octane value posted to Website
• Root Cause – Clerk failed to notice MU grade with 87 octane
• Corrective Action – Software check alerts clerk of unusual Octane values according to the
grade requested. – Personnel reviewed guidelines for data entry
• Status – Open
• Source – Client
2013-‐CAR-‐0405
EComm Winter Mtg 2013 Slide# 61
• Non-‐conformance – Incorrect air saturation procedure used during RVP testing
• Root Cause – Technician failed to follow proper Air Saturation procedure
• Corrective Action – Technician counseled about procedure details – All certified technicians received notice to review procedure and were
informed about the audit findings – TIP being created for procedure detailing SwRI steps which are not
adequately addressed in the ASTM method – Technician recertification process will include the analysis of an unknown
sample to verify technique • Status
– Open • Source
– Client
2013-‐CAR-‐0443
EComm Winter Mtg 2013 Slide# 62
6/18/13 TMC Audits
• Two findings • D1319 FIA
– Samples and Syringe not <4°C • New Aluminum Block • Secondary Cooler • Temperature Monitoring
– Syringe Rinsed with sample to Chill • Control Charts
– Run Rule violaJons – Technician Training on mulJple notaJons
EComm Winter Mtg 2013 Slide# 63
9/4/13 TMC Audit • Two Findings • D5191 RVP
– Sample chilling did not proceed smoothly • All CerJfied technicians informed of expectaJons • Surrogate samples begin at room temperature
– Incorrect Air SaturaJon (2013-‐CAR-‐0443) • Re-‐implemenJng TIP’s
• Strengthening recerJficaJon procedure • RecerJficaJon Oversight
• Lab Refrigerator Temperature – Maintenance performed – New Equipment to be procured
EComm Winter Mtg 2013 Slide# 64
Sulfur Backup Plan • New Thermo Instrument
– Reliability has been a concern – What to do with low level samples
• Develop CorrelaJon w/ D7039 • Develop CorrelaJon w/ D5453 • Allowed under §80.46(a)(3) • May change with the PBTM proposal
– Absolute parameters (gravimetric) – Method defined parameters (Correlated)
• Refinery stream specific
EComm Winter Mtg 2013 Slide# 65
• Demonstrate Precision – Std Dev of 20 sx’s <= 1.5 Repeatability Std Dev (Sr)of the least precise current alternaJve method
• Demonstrate Accuracy – Gravimetric (Sulfur) – similar to ULSD method qualificaJon
– Other ASTM Methods, ASTM must state in the method any bias evaluated by D6078 and a correcJon eq. to the designated method
– Other methods – CorrelaJon must be created against a “qualified” facility
PBATMA (Performance Based Analytical Test Method Approach)
EComm Winter Mtg 2013 Slide# 66
Difficulties with PBATMA • For ASTM Methods, it has to be wriWen in the method which will require ASTM to iniJate
• For Non-‐ASTM Methods, or methods ASTM does not address it will be difficult to find a “qualified” laboratory
• Laboratory QualificaJons: for the designated methods the laboratory must: – Demonstrate precision (Should not be a problem) – Demonstrate Accuracy
• Last 5 ILCCP samples in the middle 50% distribuJon • Z-‐score of less than 0.6745
– In StaJsJcal Control for last 5 months • No excepJons for special cause variaJons
EComm Winter Mtg 2013 Slide# 67
Impacts on SwRI -‐ RFGSA
• Designated methods on all parameters other than aromaJcs, -‐ No Impact
• AromaJcs – IdenJfying a qualified lab may be difficult to qualify D1319 for aromaJcs
• EPA, SGS and SwRI have all at some point failed the criteria.
– Move to the Designated for AromaJcs D5769 (GC/MS)
• Would require an addiJonal instrument • Increase test cost by ~$28.00~$150K/Yr. -‐ 2015 budget
EComm Winter Mtg 2013 Slide# 68
Lab Optimization • Scheduling (2 Months behind schedule)
– 1/3 of test complete,92% of samples analyzed
In Place
D5191 D381 D6045ASTM D6379 D5453 D6443 Cl D4809 Net D4052 D873 D6045Saybolt D6584 D613 D4052M D5001 D5599 D1159 D6304 D7039 D4629 D240N D6443 D1319 D2710 D6756 D7419 D6079 D240G D3237 D86 D3703 InfraCal D525 D5762 D1796 D3606EPA D1322 D1160 D2624 D611 D2274 D2622 D3231 D2699Mdp D130 ISO 4406 D4308 PSpecVl D93 D2700Mdp D6217 D3831 D2276 D3606FP D97 D5580 D6422 BLEND D4530 D4815 D2500 D6550 CEC Soot D6468_180 D1298 D5769Wt D6371 D7576 D7671 D4294 D6078A D5186 D5845 D7347 NACE TM0172 D3701 D4952 D5188 D1500 D2622M Prepare10%B D4176 D6423_99
D156 PSpecWt D2709 D287 D6468_90
Recently Added Next to be added
EComm Winter Mtg 2013 Slide# 69
• Send note to ASTM D2622 about oxygen correcJon • PBTM rule , get details , potenJal TC topic • Develop correlaJons for D7039 & D5453 to present in March • FIA syringe chill study • Electronic FOR ImplementaJon • Audit findings • TIPs for all RFGSA methods • Performance based tesJng – Proposal
TC Action Items 10/9/13
EComm Winter Mtg 2013 Slide# 70
ULSD Program
• Program restructure • Data Summary -‐ 2013
EComm Winter Mtg 2013 Slide# 71
ULSD Program Restructure
• 2014 Survey Design – sample size 2,000 • Survey design sJll pending • Regula;on of Fuels and Fuel Addi;ves: RFS Pathways II and Technical Amendments to the RFS 2 Standards – 5/14/13
• Reducing ULSD sample count to 1800-‐2000 -‐ This alternaJve defense element provision (40 CFR §80.613(e))
• Status
EComm Winter Mtg 2013 Slide# 72
2013 Labeling and Concentration
EComm Winter Mtg 2013 73
Sulfur Data – 2013 PgmYTD (includes 3rd Quarter)
• Total 1,457 samples requested -‐ 1,229 analyzed • 1,227 – ULSD samples <=17 PPM
– Mean 7.5 PPM • 18 to 100 PPM – 2 samples
– Mean – 18.0 PPM • >100 PPM – None
EComm Winter Mtg 2013 Slide# 74
New Equation Statistics 2013
EComm Winter Mtg 2013 75
ULSD Sulfur Histogram 2007-‐2013
EComm Winter Mtg 2013 76
2013Pgm YTD ULSD Sulfur Averages by State and Zip Code
EComm Winter Mtg 2013 Slide# 77
ULSD Program Reporting – 2013 (thru 3rd Qtr)
• 27 Refusal PNCs (26 reported within 24 hours) • 1649 samples reported within 24 hours (98%) • 17 samples reported late
• (6 analyzed,3 improper label, 3 invalid sample, 2 no sulfur label, 3 closed staJon) § Late due to InformaJon verificaJon
EComm Winter Mtg 2013 Slide# 78
– Summary StaJsJcs
– Aggregate Results • Non-‐Compliance/Ethanol
– Performance Measures/Trends
– Program Issues
RFG Surveys – 2013
EComm Winter Mtg 2013 Slide# 79
2013 RFG Program Review Summary Statistics
• Survey Requests – 124 (120Fed/4AZ) • All RFG areas
– 66/54% Mandated vs.. Opt-‐in • Samples Analyzed – 90%
– EmpJes : Fed 10% / AZ 11.6 % • Closed -‐ Perm – 5.9%
– Refusals – 0.4% – Revisits –1.2% -‐ 57% pickup (2nd visit)
EComm Winter Mtg 2013 Slide# 80
2013 RFG Programs – Non Compliance
EComm Winter Mtg 2013 Slide# 81
Survey Aggregate Results 2013
EComm Winter Mtg 2013 Slide# 82
Ethanol RFG – 2013
EComm Winter Mtg 2013 Slide# 83
RFG Survey Precision – 2013 (thru 9/5/13) • Met all regulatory requirements • Regulatory requirement – Ok
– Benzene – OK (3 high variaJons – Chicago, Milwaukee, Phil) – NOx high variaJon – NY-‐NJ
• Individual fuel parameters – ARO(18 areas), OLE(15 areas) – NOX(w)(1 area)
• T50/90 SE > target – (None) • Grade reports <80%
– MU/PU # of areas – monitoring
EComm Winter Mtg 2013 Slide# 84
Sample Procurement Issues Over Time
EComm Winter Mtg 2013 Slide# 85
Non-‐Compliance Grade Distribution based on surveys through 9/5/2013
EComm Winter Mtg 2013 86
Sulfur by Grade based on surveys through 9/05/2013
EComm Winter Mtg 2013 Slide# 87
Oxygen Trend Based on surveys thru 9/5/2013
EComm Winter Mtg 2013 Slide# 88
Fuel Parameter Changes from 2012 to 2013 All %Change values = [(2013 value – 2012 value)/2012 value]*100%
Benzene Oxygen RVP Sulfur Aromatics Olefins VOC Red NOx Red Toxics Red
-3.30% -0.20% 0.10% -8.00% 3.00% 5.10% -0.30% -0.20% 9.20%
Benzene
Oxygen
RVP
Sulfur
Aromatics
Olefins
VOC Red NOx Red
Toxics Red
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Based on all 2013 surveys
EComm Winter Mtg 2013 Slide# 89
Fuel Parameter Changes from 1995 to 2013 All %Change values = [(2013 value – 1995 value)/1995 value]*100%
Benzene Oxygen RVP Sulfur Aromatics Olefins VOC Red NOx Red Toxics Red
-12.0% 65.0% -7.0% -84.0% -37.0% -17.0% 6.0% 140.0% 42.0%
Benzene
Oxygen
RVP
Sulfur Aromatics
Olefins
VOC Red
NOx Red
Toxics Red
-100.0%
-50.0%
0.0%
50.0%
100.0%
150.0%
200.0%
Based on all 2013 surveys
EComm Winter Mtg 2013 Slide# 90
Financial Report
• Finance CommiWee • Dues Update • 2013-‐14 Budget Review
EComm Winter Mtg 2013 Slide# 91
Finance Committee
• Monthly Financial Review – SegregaJon of duJes
• 990 Review Process • Audit Review/ParJcipaJon • 1 Yr. term (overlap)-‐ Kamla/Economides • Elect new commiWee member
• Schedule review in January 2014
EComm Winter Mtg 2013 Slide# 92
Dues Update
• Billing 10/01 • Dues by 12/01 • Late fees assessed
EComm Winter Mtg 2013 Slide# 93
RFG Survey Association – Federal Actual (10/31/13) vs. Budget
EComm Winter Mtg 2013 Slide# 94
2013-‐2014 RFG Budget Projections Program Issues
• RFGSA – original budget excluded E15 • 2013 and 2014 projected budgets now include the impact of E15 program
• Investment Income – ($90-‐100K) vs. $220K ‘12 • Impact -‐ E15/ULSD Pgms on Indirect expenses
– 2013 (full plan year) – Est. $285K – 2014 – Est. $250K
EComm Winter Mtg 2013 Slide# 95
RFG SURVEY ASSOCIATION -‐ FEDERAL 2013-‐2014 PROJECTED
PROJECTED PROJECTED PROJECTED BUDGET BUDGET BUDGETDESCRIPTION 2013 2014 % 14VS13 % 14VS13 2013 2014
Revenue $2,264,460 $2,269,254 100% $2,493,173 $2,269,254
ExpensesSTR $1,462,339 $1,567,329 107% 102% $1,539,304 $1,567,329Consultants – Total $380,000 $380,000 100% 100% $380,000 $380,000Rent $18,465 $18,587 101% 67% $27,560 $18,587T&E–Mtg $32,126 $32,338 101% 67% $47,950 $32,338Major Meetings $9,158 $9,219 101% 67% $13,669 $9,219Office Expense $12,716 $12,799 101% 67% $18,979 $12,799Wages & Benefits $180,824 $182,015 101% 67% $269,887 $182,015Subscription $6,133 $6,174 101% 67% $9,154 $6,174Insurance $22,253 $22,399 101% 67% $33,213 $22,399Interest Income -$52,500 -$70,000 133% 100% -$70,000 -$70,000New Business $0 $11,087 96% $11,598 $11,087Contingency $115,981 $110,865 96% 48% $231,961 $110,865
Total Expenses $2,264,460 $2,269,254 100% 91% $2,493,173 $2,269,254
Excess Revenue over Expenses $0 $0 $0 $0
EComm Winter Mtg 2013 Slide# 96
RFG SURVEY ASSOCIATION -‐ PHOENIX 2013-‐2014 PROJECTED
EComm Winter Mtg 2013 Slide# 97
RFG SURVEY ASSOCIATION -‐ ULSD 2012-‐2013 PROJECTED
EComm Winter Mtg 2013 Slide# 98
RFG SURVEY ASSOCIATION – E15 2012-‐2013 PROJECTED
EComm Winter Mtg 2013 Slide# 99
RFG Survey Association Cost per Gallon -‐ Federal
0.0066720524 0.0073414085 0.0078259587
0.0101648551
0.0000000000
0.0020000000
0.0040000000
0.0060000000
0.0080000000
0.0100000000
0.0120000000
2011 Actual 2012 EsJmated 2012 Revised EsJmates
2013 EsJmated
Cents per Gallon
EComm Winter Mtg 2013 Slide# 100
RFG Survey Association Cost per Gallon -‐ AZ
0.0052968560
0.0106716437 0.0108998543 0.0123947805
0.0000000000
0.0020000000
0.0040000000
0.0060000000
0.0080000000
0.0100000000
0.0120000000
0.0140000000
2011 Actual 2012 EsJmated 2012 Revised EsJmates
2013 EsJmated
Cents per Gallon
EComm Winter Mtg 2013 Slide# 101
RFG Survey Association Cost per Unit -‐ ULSD $32.02
$28.62
$16.32
$-‐
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
2011 2012 2013
Dollars per Unit
EComm Winter Mtg 2013 Slide# 102
Other Issues
• Insurance Review • 2014 MeeJngs Schedule • FCL Goals/Performance
EComm Winter Mtg 2013 Slide# 103
Insurance Review
• Coverage Issues – Cyber-‐Risk Policy – evaluate risk -‐ low
• DO -‐ $5MM – $11M – NC – EO policy – required -‐ $14M – new applicaJon
• Commercial coverage -‐ $10-‐15M • Cost -‐ $45M
EComm Winter Mtg 2013 Slide# 104
Cyber Risk Policy
Risks and costs associated with unauthorized access to computer systems. RFGSA site is staJc (at Jme being), but E15 program may increase our exposure.
EComm Winter Mtg 2013 105
2014 RFGSA Meeting Schedule
• Technical CommiWee – 2 – March 19, SAT, October 8, ScoWsdale
• Board MeeJng –July 16-‐17 – San Diego, CA – Rancho Bernardo Inn
• ExecuJve CommiWee – 2 • July 16, 2014– 1:00 PM – San Diego • December 4, 2014 – S. Florida
EComm Winter Mtg 2013 Slide# 106
FCL Goals/Performance
• RFG/ULSD/AZ/Etoh -‐ Run & Maintain -‐Investments
• E-‐15 -‐ Run & Maintain – Growth/Support • SWRI Cost controls – monitor/minimize • Succession/OperaJons Plan – Update • Website Development – RFGSA Pgm integraJon
EComm Winter Mtg 2013 Slide# 107
Meeting Summary
• Closing Comments • FCL Performance Discussion
– Exec Comm
• Golf – Meet in Lobby 12:10/12:40 pm • Non-‐Golfer – lunch cerJficate • Dinner – Chops – off site – 6:15 PM -‐ lobby
EComm Winter Mtg 2013 Slide# 108
Things to do
• New Finance CommiWee Member training – January
• Meet with CWM – set up IPS por`olio
EComm Winter Mtg 2013 Slide# 109