SEPARATELY MANAGED ACCOUNTS

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1 Offering Guide Leadership and Innovation SEPARATELY MANAGED ACCOUNTS Today s complex markets require different approaches ones that can provide greater financial freedom, active management and tax control. Separately Managed Accounts (SMAs) are designed to provide customized, innovative, active solutions that can help investors address these demands and meet their financial goals. 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 subadvisor: 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. INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

2 SOLUTIONS FROM AN SMA LEADER In parternship with LPL, Legg Mason provides a complete suite of equity and fixed income offerings geared toward meeting your investment goals. Comprehensive offerings Across a complete suite of equity and fixed income strategies, including single-style, balanced and multi-style portfolios. With Legg Mason, investors benefit from: A leader Second-largest SMA provider, with a history of innovation. 1 Strong investment expertise Backed by our independent investment affiliates, with the depth of resources that comes from an industry leader. Tailored solutions: Customized solutions, personalized` to meet your individualized investment objectives. Depth: A full spectrum of capabilities across equity styles and market capitalizations, as well as taxable and tax-exempt fixed income. Innovator: Our innovations include our ground-breaking multiple-style SMAs, known as the Multiple Discipline Account (MDA), launched in Pioneer: Our affiliate manager ClearBridge Investments is among the largest mainstream investment managers to commit to sustainable investing; and it developed a dedicated Environmental, Social and Governance (ESG) program in Our style-pure strategies are designed to actively incorporate sustainable investment guidelines. Best in class: Exceptional service and support backed by the depth and breadth of Legg Mason s internal and affiliate resources. Legg Mason affiliates: ClearBridge Investments and Western Asset bring together a history of innovation and expertise that affirms our commitment to delivering a full suite of powerful investment solutions, tailored to help you meet your evolving financial needs. A well-established, global equity manager focusing on proprietary research and fundamental investing Over 50 years of experience building portfolios for clients seeking income solutions, high active share or low volatility Long-tenured portfolio managers provide strong leadership in a centralized investment structure One of the world s leading fixed income managers, focused on long-term, top-down and bottom-up fundamental value investing Founded in 1971, the firm has nine offices around the globe and deep experience across the range of fixed income sectors An investment approach emphasizing team management and intensive proprietary research, supported by robust risk management 1 Source: Cerulli Associates, The Cerulli Managed Edge U.S. Managed Accounts Q217 Edition. Diversification does not guarantee a profit or protect against a loss. 2

3 BENEFITS OF SMAS SMAs offer some key advantages that may play an important role in helping you build a portfolio that is responsive to your financial goals. Individual security ownership Tax efficiency Personalized approach Customization Transparency Compare the options SMA Mutual Fund ETF Definition Professionally managed investment portfolio of securities directly owned by the individual investor and managed according to a specific style or discipline Professionally managed investment vehicle that pools money from many investors for the purpose of investing in securities according to a specific style, discipline or outcome A security that typically tracks an index, commodity or a basket of assets like an index fund, but trades like a stock on an exchange Ownership Investors directly own the individual securities in their portfolio Investors own shares in a fund, which in turn owns the individual portfolio securities Investors own shares in an ETF, which in turn owns the individual portfolio securities Typical Investment Minimum $50K $300K $1,000 Investors pay the price of an ETF share Funding Portfolios may be funded with existing securities and/or cash Shares in mutual funds are purchased with cash Shares of ETFs are purchased with cash Customization Portfolio can be tailored to address each investor s specific needs None None Tax efficiency Investors have the ability to manage taxation because securities can be sold to harvest gains/losses Limited. While in-kind transactions could limit the possibility of involuntary capital gain distributions, this is operationally challenging and rarely used in mutual funds. ETFs have the ability to minimize portfolio capital gain payments. The in-kind redemptions allows the fund to mitigate tax impacts. Fees Investors typically pay one assetbased fee based on assets under management (either billed quarterly in advance or arrears) Shareholder costs can include sales charges on the purchase and/or redemption of a fund, including any ongoing operating expenses (i.e., expense ratio) Fees will vary by ETF but they are typically cheaper than those of mutual funds due to lower administrative cost. Also, transaction costs are reduced due to in-kind subscriptions and redemptions. Key differences Strengths Customization Ease of executing complex strategies Intraday liquidity Potent`fficiency at security level End-of-day liquidity at NAV Potential tax efficiency at portfolio level Cost savings over mutual funds Transparency Lower investment minimum Cost savings over mutual funds and SMAs Transparency Weaknesses High account minimums Limited tax efficiency Bid/Ask spreads Limited strategy availability Generally higher administrative costs Commissions 3

4 AN SMA FOR EVERY NEED Legg Mason s deep capabilities and comprehensive lineup of strategies allow you to build customized portfolios. With Legg Mason, you can also choose which type of SMA structure may be best suited to meet your needs: single-style or multi-style. With over $63 billion in SMAs under management, Legg Mason is the second-largest provider in the market. 1 Single-Style SMA A distinct equity or fixed income investment style Used when managed accounts are the core components of your portfolio May also address a specific investment goal Multi-Style SMA Several different investment styles in a single account Multiple managers, each with their own style and sector expertise Overlay portfolio management 2 A single-style SMA, which typically requires investment minimums of $50,000 to $100,000 for equity portfolios and $100,000 to $250,000 for fixed income, may be suitable if you want to invest in a distinct style. However, given the account minimums, you will need significant assets to create a diversified portfolio. Please note that minimums vary according to firm and money manager. A multi-style SMA is invested across asset classes and/or managers, with a single manager overseeing all investments. Investment minimums generally range from $100,000 to $250,000. Creating a single, diversified portfolio helps avoid the securities overlap and overly concentrated positions that often occur when you combine investment styles without the benefit of a multi-style SMA. 2 However, managers may not always eliminate or reduce overlap. 4 4

5 EQUITIES Whether you seek long-term growth, portfolio income or a combination, ClearBridge Investments offers a comprehensive array of quality solutions designed to meet your most important needs. ClearBridge Investments clientfocused solutions are based on sound fundamental analysis. High active share These benchmark-agnostic solutions provide the freedom to select stocks with the highest total return potential. Income solutions Investors looking for an income stream will appreciate our focus on long-term quality holdings and solid dividend payers. Managed volatility We help investors capture long-term value with strategies that aim to skillfully navigate market uncertainty. All Cap Value Focuses on large-, mid- and small-cap stocks that appear inexpensive relative to their underlying fundamentals, with catalysts for improvement. All Cap Growth Provides market wide exposure to stocks with above-average long-term growth potential. Domestic High active share Multi Cap Growth Uses a concentrated approach to invest for the long term in innovative businesses with sustainable earnings and cash flow growth. Mid Cap Seeks long-term capital appreciation through a disciplined, consistent and transparent investment process. Environmental, Social and Governance (ESG) The ClearBridge Environmental, Social and Governance (ESG) program is designed for investors who want to actively incorporate sustainable investment policy guidelines into a style-pure investment strategy. Examples of ESG considerations: Innovative workplace policies, employee benefits and programs Environmental management system strength, eco-efficiency and life-cycle analysis Community involvement, strategic philanthropy and reputation management Strong corporate governance and independence on the board Large Cap Growth Seeks superior long-term performance through a diversified approach that targets three types of growth companies. Income solutions Dividend Strategy Seeks income growth and capital appreciation by owning dominant, large-cap franchises that aim to pay an attractive dividend yield. High active share International Small Cap Systematically and actively seeks investments in small-cap equities that offer the potential for long-term capital appreciation. Managed volatility Appreciation Invests in a diversified portfolio of growth and value stocks, mainly consisting of large-cap, bluechip companies. Large Cap Value Seeks large-company stocks whose market prices are attractive in relation to their underlying fundamentals. International Growth ADR Targets ADRs of well-managed growth franchises trading at solid valuations. 5

6 FIXED INCOME One of the world s leading fixed income managers, Western Asset focuses on long-term, fundamental value investing. Its suite of taxable and municipal offerings allows clients to invest in domestic and global fixed income markets. Value-oriented Combining our top-down macro insights and our intensive bottom-up fundamental analysis helps identify sectors and issues that are undervalued. Well-diversified Actively managed, diversified portfolios offer investors greater return opportunities and improved risk characteristics. Team-managed Seeks out the greatest long-term value through a team-managed approach, bringing together 125 investment professionals averaging 20 years industry experience. Intermediate Government Securities Management Strategies Seeks to outperform passive buy-and-hold investments in U.S. Treasuries, agencies and investment-grade intermediate corporate bonds through actively managing duration, curve and sector exposures. Targeted maturity options with maximum maturities of 3, 5 or 7 years are available to meet different client investment needs. Active Bond Strategies Seeks to maximize total return in a customizable, actively managed portfolio investing primarily in investment-grade securities including U.S. government, corporates and mortgage-backed securities. Targeted against several benchmarks from intermediate to longer-term, to provide options to meet different client investment needs. Taxable Core Portfolios Core Core Plus Portfolios Seeks to maximize total return via a well-diversified, long-term, valuebased core fixed income strategy that seeks to exceed the benchmark return of the Bloomberg Barclays U.S. Aggregate Bond Index while approximating benchmark risk. Both strategies combine individual securities with no-fee funds in a hybrid structure, allowing broader sector exposure and greater diversification. Invests in securities that are U.S. dollar-denominated and investment grade at time of purchase. Includes an opportunistic allocation to high-yield debt, emerging market debt and non-dollar opportunities. Individual securities No-fee fund SMAsh Series C shares (investment-grade corporates) No-fee fund SMAsh Series M shares (mainly mortgages) No-fee fund SMAsh Series EC shares (extended credit) Intermediate Tax-Exempt Core Current Market Muni Seeks to provide total return and tax-free income over a market cycle through a conservative portfolio of investment-grade municipal securities ranging from 1 10 years. Managed Municipal Portfolios Seeks to maximize total return and minimize risk. The strategy combines individual municipal securities with no-fee funds in a hybrid structure allowing broader sector exposure and greater diversification. Individual securities No-fee fund SMAsh Series State-specific portfolios available within tax-exempt funds MA NJ OR CA NY PA 6

7 ASSET ALLOCATION Legg Mason s Balanced and Multiple Discipline Accounts (MDAs) bring together the equity expertise of ClearBridge with our largest fixed income manager, Western Asset. Together, they provide a convenient, onestop approach to accessing our managers best ideas in a single account. M a E in a A Benefits of asset allocation Coordinated diversification through multiple investment styles in a single account Ongoing monitoring of asset allocation, with rebalancing as deemed appropriate A single point of contact for portfolio management Balanced Legg Mason Balanced Income (%) Seeks a balanced approach to high income by investing in high-quality, undervalued companies and select fixed income instruments. Multiple Discipline Accounts (MDAs) Legg Mason Multiple Discipline Accounts enable investors to individualize their asset allocation, offering choice and flexibility. MDA equity portfolios (%) MDA balanced portfolios (%) Legg Mason All Cap Blend Portfolios (MDA 0) ClearBridge All Cap Growth ClearBridge All Cap Value Legg Mason All Cap Blend Balanced (MDA 0 Bal) MDA equity selection Fixed income Legg Mason All Cap Blend Balanced Tax Favored (MDA 0 BTF) MDA equity selection Fixed income Equity selection Comprised equally of ClearBridge All Cap Growth Portfolios and ClearBridge All Cap Value. Fixed income Either Western Asset GSM 7-Year Portfolios (taxable) or Western Asset Current Market Muni Portfolios (tax-favored) The asset allocations shown are for illustrative purposes only. The allocation mix is approximate and may vary over time. Clients are responsible for asset allocation decisions. In addition, asset allocation and diversification do not ensure a profit or protect against a loss. There is no assurance that any investment strategy will be successful. Active management does not ensure gains or protect against market declines. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. The overlay portfolio management process is conducted by Legg Mason Private Portfolio Group. MDAs may not be appropriate for all investors. Dynamic MDA Portfolio minimums are typically $300,000 and may be more appropriate for affluent investors. It is important to review the investment objectives, risk tolerance, tax objectives and liquidity needs before choosing an investment style or manager. Allocations are subject to change. 7

8 What should I know before investing? All investments involve risk, including loss of principal, and there is no guarantee that investment objectives will be met. Diversification does not guarantee a profit or protect against loss. Asset allocation does not assure a profit or protect against market loss. Investments may be made in small- and mid-cap companies, which involve a higher degree of risk and volatility than investments in large-cap companies. Investments may also be made in ADRs and other securities of non-u.s. companies in developed and emerging markets, which involve risks in addition to those ordinarily associated with investing in domestic securities, including the potentially negative effects of currency fluctuation, political and economic developments, foreign taxation, and differences in auditing and other financial standards. These risks are magnified in emerging markets. Limited investments also may be made in non-dividend-paying stocks that are not expected to pay a dividend in the near future. The manager may hold significant portions of portfolio assets in cash equivalents while waiting for buying opportunities. 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. Fixed income securities are subject to illiquidity risk, which is the risk that securities may be difficult to sell at certain prices when no market participants are willing to purchase the securities at such prices. Investments may also be made in mortgage-backed and asset-backed securities and taxable municipal securities. Assetbacked securities generally decrease in value as a result of interest rate increases, but they 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. Fixed 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 taxable municipal securities and investment grade, U.S. dollar-denominated fixed income securities of non-u.s. developed and emerging market sovereign and corporate issuers. U.S. Treasuries are direct debt obligations issued by the U.S. government and backed by its full faith and credit. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, 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. For tax-exempt securities, certain investors may be subject to the federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable. 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. 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. High-yield bonds are subject to increased risk of default and greater volatility due to the lower credit quality of the issues. 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 its 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 December 31, The expense reimbursement agreement does not cover brokerage, taxes and extraordinary expenses. Tapering of the Federal Reserve Board s quantitative easing program and a general rise in interest rates may lead to increased portfolio volatility. Legg Mason is not affiliated with LPL Financial. Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, a forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC, ClearBridge Investments, LLC and Western Asset Management, LLC are subsidiaries of Legg Mason, Inc AMXX /18 LeggMason.com/SMAs