8. Annual Presentation by Western Asset Management Company · 12/15/2010 · Biographies –...

8. Annual Presentation by Western Asset Management Company

8

Los Angeles Water and Power Employees’ Retirement Plan

December 15, 2010

Paul E. WynnJoseph C. Carieri

This presentation is printed on 100% recycled paper

1

Table of Contents

I. Company Overview

II. Investment Process and Discipline

III. Market Overview

IV. Performance Review

V. Portfolio Review and Characteristics

VI. Appendix• Fee Schedule• Glossary of Investment Terms

2

Company Overview

3

Note: Western Asset experience reflects current position title and hire date.

Biographies – Presenters

JOSEPH C. CARIERI27 Years Experience

– Western Asset Management Company – Client Service Executive, 1996– – Los Angeles County Employees Retirement Association – Senior Investment Officer, 1993–1995– Fidelity Management and Research Company – Senior Trader, 1992–1993– First Capital Holdings Corporation – Portfolio Manager, 1987–1992– Drexel Burnham Lambert – Credit Analyst, 1983 – 1987– Anderson Graduate School of Management, UCLA, M.B.A.– Saint Francis College, New York, B.S.

PAUL E. WYNN28 Years Experience

– Western Asset Management Company – Portfolio Manager, 1992–– Morgan Grenfell – Portfolio Manager, 1982–1992– Keele University, B.S.

4

History 1971 – Founded Western Asset Management

Company: Los Angeles 1986 – Affiliated with Legg Mason, Inc.: Baltimore 1996 – Established Western Asset Management

Company Limited: London 2000 – Established Western Asset Management

Company (Asia) Pte Limited: Singapore 2005 – Citigroup Asset Management acquisition: New

York, London, Tokyo, Singapore, Hong Kong, Melbourne, São Paulo 2010 – Formed dedicated advisory team

Focus Fixed-income Active management

Business Update

Assets under management in USD (billions), as of 30 Sep 10.

Statistics (as of September 30, 2010) 905 staff members 555 client relationships $469.4 billion under management

Corporate Initiatives Advisory Services Insurance

Product Interests Absolute Return

−Global Alpha, Global Credit Absolute Return Emerging Markets

− Sovereign, local, credit Global Inflation-Linked bonds Global Multi-Sector Long Duration

5

Organization

LiquidityPortfolios

$130.6

EnhancedCash

Portfolios$2.7

LimitedDurationPortfolios

$16.1

Broad MarketPortfolios

$120.0

AbsoluteReturn

Portfolios$10.5

LongDurationPortfolios

$22.4

GlobalPortfolios

$50.7

PortableAlpha

Portfolios$3.5

Research

Client Initiatives Reporting

Risk ManagementCompliance

Portfolio &Quantitative Analysis

Business Management

Investment Management

Client Service

Govt-only

Portfolios$12.0

ABS/MBS

Portfolios$6.0

MunicipalPortfolios

$25.3

CorporatePortfolios

$19.5

High-Yield

Portfolios$13.5

EmergingMarket

Portfolios$18.8

Inflation-Linked

Portfolios$13.4

StructuredPortfolios

$4.4


6

Western Asset Global Inflation-linked Capabilities3Q 2010

$14.84 billion total in Inflation-linked Securities under management

$0.54 billion in one Euro Inflation-linked mandate

$7.60 billion in thirty Global Inflation-linked mandates

$5.12 billion in twenty-three US Inflation-linked mandates

$0.15 billion in two UK Inflation-linked mandates

$1.43 billion Opportunistic allocation in diversified fixed income mandates

2553 4329 4800 4714 4872 49288855

15500 14300 115007500 6900

2759 1428200 1965 1951 1226

3495

6600 10000 1430017900

1450014885

13417

0

10000

20000

30000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

Asse

ts (U

SD, m

illion

s)

Inflation-linked Diversified Inflation-linked Dedicated

Source: Western Asset. *As of 30 Sep 10.

7

Total AUM: $469.4B

7 Countries

Western AssetAs of September 2010


Singapore$2.0

New York$164.8

London$50.0

Tokyo$43.0

Melbourne$9.0

São Paulo$15.8

Pasadena$184.8

Hong Kong

8

Europe

US

UK

Japan

Credit

Currencies

Stephen A.Walsh (CIO)S. Kenneth LeechMichael J. BazdarichFrederick R. MarkiPeter H. Stutz

Andrew Belshaw

Catherine L. Matthews

Dipankar Shewaram

Kazuto Doi

Andrew Belshaw

Andres Sanchez Balcazar

Dollar Bloc Richard A. Booth

GlobalInflation-linked

Portfolios

Paul E. Wynn

Global Inflation-linked Strategy

9

Representative Client List

As of 30 Sep 10. Please see the Representative Client List Disclosure in the Appendix for more information.All have authorized the use of their names by Western Asset for marketing purposes. Such authorization does not imply approval, recommendation or otherwise of Western Asset or the advisory services provided.

Corporate Public Multi-Employer / Union InsuranceAlcon Laboratories, Inc. Arkansas Teacher Retirement System 1199 SEIU National Benefit Fund APG Investment Services N.V.Allied Domecq Pension Fund City of Orlando Alaska Electrical Trust Funds AXAAMEC Staff Pensions Trustee Limited Fife Council Pension Fund Boilermaker Blacksmith National Pension Trust Blue Cross Blue Shield of MassachusettsArcelorMittal USA Inc. Fire & Police Pension Association of Colorado Bricklayers and Trowel Trades International Union Pension Fund Catalina Holdings (Bermuda) LtdAT&T Investment Management Corporation Fonds de compensation AVS Directors Guild of America-Producer Pension and Health Plan Great-West Life & Annuity Insurance CompanyBaker Hughes, Inc. Fresno County Employees' Retirement Association IUOE Employers Construction Industry Retirement Plan, Locals 302 and 612 Health Care Service CorporationBank of America Pension Plan Gloucestershire County Council Line Construction Benefit Fund Highmark, Inc.BASF Corporation Government of Bermuda Public Funds Major League Baseball Players Benefit Plan Oil Investment Corporation Ltd.Bayer Corporation Guardians of New Zealand Superannuation The Western Conference of Teamsters Pension Trust Fund United Services Automobile AssociationBBC Pension Trust Limited Hampshire County Council UFCW Unions and Employers Pension Fund Wellmark Blue Cross & Blue Shield of IowaBristol-Myers Squibb Company Indiana State Treasurer's Office Eleemosynary WellPoint, Inc.Chrysler LLC International Fund For Agricultural Development - IFAD Abington Memorial Hospital HealthcareCNH Global N.V. Iowa Public Employees' Retirement System Alcoa Foundation Ascension HealthConsolidated Edison Company Of New York, Inc. Kansas Public Employees Retirement System Baha'i' World Centre Baptist Healthcare System, Inc.E.ON UK Trustees Limited Korea Investment Corporation Battelle Memorial Institute Baylor Health Care SystemElectronic Data Systems Ltd Los Angeles County Employees Retirement Association Bill & Melinda Gates Foundation Trust BJC HealthCareGKN Group Pension Scheme Los Angeles Water & Power Employees' Retirement Plan Board of Trustees - Concordia Plans of The Lutheran Church - Missouri Synod Catholic Health InitiativesHewlett-Packard Marin County Employees' Retirement Association Board of Trustees of Southern Illinois University Children's Hospital of New OrleansInternational Paper Company Merchant Navy Ratings Pension Fund Commonfund FMOL Health SystemJohn Lewis Partnership Pensions Trust Minnesota State Board of Investment Diocese of Rockville Centre Iowa Health SystemKellogg, Brown & Root Plc MNOPF Trustees Limited Domestic & Foreign Missionary Society ECUSA Lehigh Valley HospitalKeySpan Energy Corporation Nevada Public Employees Retirement System Indiana University MedicaMacy's, Inc. New Jersey Transit Lakeside School NorthShore University HealthSystemN M Rothschild & Sons Limited North Dakota State Investment Board Saint Louis University Providence Health and ServicesNestle USA, Inc. Ohio Police & Fire Pension Fund San Francisco Foundation St. George CorporationNorthwest Airlines, Inc. Oregon Investment Council Texas A&M Foundation Sub-AdvisoryPCS Administration (USA), Inc Public Employee Retirement System of Idaho The Church Pension Fund DIAM Co., Ltd.Pensioenfonds Horeca & Catering Public School Teachers' Pension and Retirement Fund of Chicago The LCMS Foundation Fondaco LUX S.A.PPG Industries San Francisco Employees' Retirement System The Pennsylvania State University Galliard Capital Managementrpmi School Employees Retirement System of Ohio The Rotary Foundation of Rotary International GuideStone Capital ManagementSmiths Group Services Corporation State of Wyoming, State Loan And Investment Board United Negro College Fund KOKUSAI Asset Management Co., Ltd.Southern California Edison State Universities Retirement System of Illinois University of Colorado Legg Mason, Inc.Temple-Inland, Inc. Tennessee Valley Authority University of Illinois Morgan Stanley Smith Barney Consulting GroupThe Coca-Cola Company Ventura County Employees' Retirement Association University of Miami Polaris Investment S.A.The RWE npower Group of the ESPS Virginia College Savings Plan University of Southern California Reliance Standard Life Insurance CompanyTRW Benefit Administration Virginia Retirement System University of Wisconsin Foundation Russell Investment GroupUnisys Corporation Wiltshire Council Washington College SEI Investments Management CorporationYMCA Retirement Fund Wyoming Retirement System Washington State University T&D Asset Management Co., Ltd.

10

Key Contacts

Joseph C. Carieri Client Service ExecutiveWestern Asset Management Co.385 East Colorado BoulevardPasadena, Ca. 91101Phone: (626) [email protected]

Daniel Alvarado Client Service AssociateWestern Asset Management Co.385 East Colorado BoulevardPasadena, Ca. 91101Phone: (626) [email protected]

Paul E. Wynn Portfolio ManagerWestern Asset Management Co.385 East Colorado BoulevardPasadena, Ca. 91101Phone: (626) [email protected]

Client Service Public FundsWestern Asset Management Co.385 East Colorado BoulevardPasadena, Ca. 91101Phone: (626) 844-9595Fax: (626) [email protected]

11

Investment Process and Discipline

12

Active Global Inflation-linked Bond

Our Beliefs We view inflation-linked bonds as a separate asset class and utilise them in all our portfolios We treat the path and location of real yields as primary to the valuation of all bonds, including government nominal bonds We have a long term perspective/approach with a belief that longer term real yields have equilibrium around the 1.5-2.0% range We use short term perspectives on inflation to drive tactical trading around a long term theme/strategy Inflation-linked is a diversifying asset

− Low correlation to other assets− Low volatility

Ideal for long-term liability-matching

Applications Valuation primarily versus nominal bonds Advantageous if mandates can have allocation or latitude to both inflation-linked as well as nominal bonds Highest quality assets Broadening investor base demand Improved liquidity / broadening supply Advantageous if allowed derivatives for risk management

13

Global Macroeconomic Trends

Fundamental Country Analysis

Technical/Market Conditions

Client Portfolio

Client Portfolio

Benchmark and Guidelines

Risk Analysis

Investment Outlook

Investment Outlook

Identifying Investment Outlook

14

Investment Philosophy and Process

Monitoring and Controls

Portfolio Construction

InvestmentOutlook

Benchmarkand Guidelines

ClientPortfolio

Sub-Sectorand Security

SelectionStrategicPortfolio

Yield CurveStrategy

SectorAllocation

Interest Rate Exposure

Long-term

Fundamental value orientation

Diversified strategies

15

Investment Guidelines

Portfolio Component Definition

Western Asset Management Company (WAMCO) will manage an active portfolio (“Portfolio”) for the Plan that will provide participation in the broad Global Inflation-Linked market. Given this orientation, the goal of the Portfolio is to provide superior performance versus the Barclays Capital Global Inflation-linked hedged Index (BC GIL Hedged to USD) over a complete investment cycle. The Portfolio will be measured in USD.

Performance Objectives

On an annual basis, WAMCO is expected to outperform the BC Global Inflation Linked USD Hedged Index return, net of fees, to be measured over a market cycle of three-to-five years. In addition a second objective is that, over a three-to-five year market cycle, realized tracking error should not exceed 1.25% versus the BC Global Inflation Linked USD Hedged Index.

16

Market Overview

17

Main Risk Positions

• Overall risk reduction• Inflation picks up markedly relative to the US

• Reduced growth and inflation outlook• Lower beta than US TIPS market• BoC has more inflation fighting flexibility

-0.25yrs CAN versus US TIPSShort Canada

• Overall risk reduction• Growth weakens and inflation slows

• Economic data resilient• Riksbank rates pass into inflation• Inflation more volatile

+0.15yrs SWE versus Europe inflation-linked

Long Sweden

• Overall risk reduction• AUD strength weakens inflation• RBA hikes more than expected• Negative carry trade if hedged

• Yield pick up• Increased domestic participation in Aust IL• Rate cycle more advancedSupply less likely to be increased

+0.30yrs AUS versus UK inflation-linkedLong Australia

• Low correlation to other themes in portfolio

• Year end squeeze• Index extension in 2011• Further QE to include linkers

• Increased supply• RPI/CPI confusion

20-50-Year UK Index-linked -0.3010-Year UK Index-linked -0.20

UnderweightUK Index-linked Gilts

• Short duration outright in Europe• Use 2yr schatz to hedge tactically

• BE rally in sympathy with US• Pension liability matching• Reduced 30yr Supply• Germany vs France spread tightening

• Austerity measure yet to impact inflation• Periphery needs to deflate vs

Germany• ECB keen to reduce stimulus

20-30-Year French Index-linked -1.00yrs10-Year nominal Germany 0.45 yrs10-Year nominal Germany 0.45yrs

30-Year European Breakeven

• Tendency to bear flatten• Curve expected to flatten in a deflation scare

• Further nominal steepness• Short term inflation increases carry cost• Fed purchases focus on 10-Year TIPs

• Steep curve• BE curve to dictate further nominal steepness andcarry non prohibitive• H1 2011 net supply small

10-Year TIPS -0.40yrs20-Year+ TIPS +1.00yrs

Curve Flattener

DiversificationDownside RisksRationalePosition SizingStrategies

MEDI

UM T

ERM

TACT

ICAL

18

TIPS Curve And Duration

US Real and Nominal 10-30 Curve

RealNominal

-50

0

50

100

150

200

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

Basis

Poin

ts

Source: Barclays Capital. As of 01 Nov 10.

US Breakeven 10-30 Curve

020406080

100120

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

Basis

Poin

ts

Source: Barclays Capital. As of 01 Nov 10. *Breakeven

Expected Real LIBOR (BE)*

10-Year TIPS

-2

-1

0

1

2

3

4

5

6

1998 2000 2002 2004 2006 2008 2010

Real

Polic

y Rate

0

1

2

3

4

5

10 Year Real Yields

Source: Barclays Capital. As of 30 Sep 10.

19

US Forward Inflation

US = 5-Year forward US inflation rates

vs. Consumer Expectations

vs. Gold Prices

vs. Inflation Forecasts

vs. Oil Prices

US

Forecast

0.00.51.01.52.02.53.03.5

Dec-06 Sep-07 Jun-08 Mar-09 Dec-09 Sep-10 Jun-11

Perce

nt

-3.0

-1.0

1.0

3.0

5.0

7.0

Percent

Source: Barclays, Bloomberg, University of Michigan, BNP, CSFB, Citigroup.As of 31 Oct 10.

US

Oil

0.00.51.01.52.02.53.03.5

Dec 06 Sep 07 Jun 08 Mar 09 Dec 09 Sep 10

Perce

nt

-101030507090110130150

US$


US

Michigan

0.00.51.01.52.02.53.03.5


Perce

nt

22.22.42.62.833.23.43.6


US

Gold

0.00.51.01.52.02.53.03.5


Perce

nt

600700800900100011001200130014001500

US$


20

European Breakevens

30 Year Breakeven

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10Source: Barclays Capital. As of 01 Nov 10.

European CPI

-4-202468

10

1996 1998 2000 2002 2004 2006 2008 2010

Perce

nt

High Low

Source: Bloomberg. As of 30 Sep 10.

0

2

4

6

8

10

1996 1998 2000 2002 2004 2006 2008 2010

Percent

Source: Bloomberg. As of 30 Sep 10.

Inflation Spread Between High and Low Eurozone Countries

European CPI

21

UK Index-linked Gilts

UKTI 2022s vs 2035s

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

2007 2008 2009

Perce

nt


2035 UKTI Real Yields

0.0

0.5

1.0

1.5

2.0

2007 2008 2009 2010

Perce

nt


30-Year UK Real Yields*

* 2035 UKTI real yields

10-Year to 30-Year UK Real Curve**

** UKTI 2022s vs. 2035s

22

Tactical Trades (Real Yields)

Australia v UK

050

100150200250300

Dec-08 Jul-09 Jan-10 Jul-10

Basis

Poin

ts

Canada vs US

-80

-60

-40

-20

0

Dec-08 Jun-09 Dec-09 Jun-10

Basis

Poin

ts

Source: Barclays Capital. As of 30 Oct 10.

Sweden v France

-100-80-60-40-20

020

Dec-08 Jun-09 Dec-09 Jun-10

Basis

Poin

ts

Germany vs France

-20

-10

0

10

20

30

Dec-2008 Jun-2009 Dec-2009 Jun-2010

Basis

Poin

ts




23

The above reflects current opinions of Western Asset Management.

2010 Outlook

Outlook Economies recovering from recession Extreme downside avoided – exit strategies a focus Inflation not a near-term concern, longer-term possibility Government and central bank policy supportive of capital market/economy

Inflation-linked Strategy Targeting mild short overall portfolio duration Underweight nominal front-ends Underweight breakevens in Europe Underweight UK index-linked market Overweight US TIPS

24

Performance Review

25

Eligible Securities

Any of the following fixed income securities, individually or in commingled vehicles, subject to credit, diversification and marketability guidelines below, may be held outright and under resale agreement.

(1) Inflation-Indexed and Non-Inflation-Indexed obligations issued or guaranteed by the U.S. Federal Government, U.S. Federal agencies or U.S. government-sponsored corporations and agencies;

(2) Inflation-Indexed and Non-Inflation-Indexed obligations of U.S. and non-U.S. corporations such as debentures, mortgage bonds, commercial paper, certificates of deposit and bankers acceptances issued by industrial, utility, finance, commercial banking or bank holding company organizations;

(3) Inflation-Indexed and Non-Inflation-Indexed obligations denominated in U.S. dollars or foreign currencies of international agencies, supranational entities and foreign governments (or their subdivisions or agencies), as well as foreign currency exchange-related securities, warrants, and forward contracts;

(4) Inflation-Indexed and Non-Inflation-Indexed obligations issued or guaranteed by U.S. local, city and state governments and agencies; and

(5) Inflation-Indexed securities defined under Rule 144A;

(6) Foreign exchange contracts

Duration Exposure

The modified duration of portfolio security holdings is expected to range within + 30% of the benchmark.

Credit Quality

In all categories, emphasis will be on high-quality securities and the weighted average of portfolio holdings will not fall below AA- or equivalent. Holdings are subject to the following limitations:

(1) Rated Securities: 100% of the portfolio will be of "investment grade", i.e. rated as high as or higher than the following standards or their equivalent by two or more nationally recognized statistical rating organizations (NRSRO): Standard & Poor's BBB-, or A-2, or Moody's Baa3, or Prime-2, or Fitch BBB-, or F-2

(2) Other Unrated Securities: Securities not covered by the standards in (1) above will normally be, in the judgment of WAMCO, at least equal in credit quality to the criteria implied in those standards. Obligations in unrated securities are limited to 10% of the total portfolio.

(3) Downgraded Securities: Securities which fall below the stated minimum credit requirements subsequent to initial purchase may be held at WAMCO’s, discretion. WPERP should be notified of these securities.

(4) Securities Inside 270 Days: For securities with legal final maturities of 270 days or less, WAMCO may use the underlying credit’s short term ratings as proxy for establishing the minimum credit requirement.

(continues)

Portfolio Guidelines

26

Diversification

(1) Maturity: Inflation-Indexed and Non-Inflation-Indexed securities covering the full range of available maturities are acceptable.

(2) Sector: subject to the following limitations:

(a) Up to 25% of the portfolio may be invested in non-inflation-indexed securities.

(3) Issuer: Holdings are subject to the following limitations:

(a) Obligations issued or guaranteed by the U.S. government, U.S. agencies or U.S. government-sponsored corporations and agencies are eligible without limit.

(b) Obligations of other national governments are limited to 50% per issuer.

(c) Obligations of other issuers are subject to a 5% per issuer limit excluding investments in commingled vehicles.

(4) Cash: The cash equivalent portion should not normally exceed 10% of the portfolio.

(5) Currency: Both long and short currency exposures are permitted. However, the aggregate of all active long exposures (local country bond plus currency position) will not exceed 5% of the portfolio. (For example, a 5% local bond position in a country combined with a short (-5%) position in that country’s currency is fully hedged and, therefore, has 0% active long currency exposure. A 5% local bond position in a country with an“additional” 5% currency position represents a 10% active long currency exposure).

Marketability

All holdings will be of sufficient size and held in issues that are traded actively enough to facilitate transactions at minimum cost and accurate market valuation.

◘

Portfolio Guidelines (continued)

27

Compliance

Please be advised that as of October 31, 2010, both Global TIPS accounts managed by Western Asset on behalf of Los Angeles Water and Power Employees' Retirement Plan are fully compliant with the stated investment guidelines.

28

3.5

2.7

0.6

3.4

2.6

0.5

4.4

3.5

0.8

0

2

4

6

Since Inception01 Apr 10

3 Months 1 Month

Total

Retu

rn (%

)

Los Angeles Water & Power Employees' Retirement Plan (Gross)Los Angeles Water & Power Employees' Retirement Plan (Net)Barclays Capital World Govt Inflation-Linked All Maturities USD Hedged Bond Index

As of 31 Oct 10. Returns since inception are as of the indicated close of business day.

Investment Results

Duration (yrs) Avg. Quality ConvexityPortfolio 9.7 AAA/Aaa N/AIndex 10.1 AAA/Aaa N/A

29

Attribution AnalysisLos Angeles Water & Power Employees' Retirement Plan vs. Index*October 31, 2010

Western Asset believes that attribution is not a hard science, but rather a means of evaluating strategies to determine their relative impact on overall portfolio performance. The intent of the manager, therefore, is critical in the evaluation of different strategies, and the return attribution for any sector or strategy could be over or understated due to its inclusion in another component.

3 Month Since Inception

Sector 0 55

Duration -39 -104

Curve -10 -1

FX -36 -26

Selection 0 0

Total -85 -76

*Barclays Capital World Govt Inflation-Linked All Maturities USD Hedged Bond Index

30

Los Angeles Water & Power Employees' Retirement PlanCountry AllocationOctober 31, 2010

*Barclays Capital World Govt Inflation-Linked All Maturities USD Hedged Bond IndexNote: Data may not sum to 100% due to rounding.

48

22 20

3 1 3 3

40

27 23

1 3 2 4

0

20

40

60

US EU UK Australia Canada Sweden Japan

Alloc

ation

(%)

Portfolio Index*

3.7

1.6 2.23.6

0.4 0.1 0.3 0.5 0.4 0.2 0.2 0.2

9.7 10.1

3.3 3.1

0

4

8

12

US EU UK Australia Canada Sweden Japan Total

Portfolio (Real) Portfolio (Nominal) Index*

Dura

tion C

ontrib

ution

(Yea

rs)


31

Los Angeles Water & Power Employees' Retirement Plan Sector AllocationOctober 31, 2010


5

95

0

100

0

25

50

75

100

125

Governments Index-Linked

Alloc

ation

(%)

Portfolio Index*

0.5

9.2 9.7

0.0

10.1 10.1

0

4

8

12

Governments Index-Linked Total

Dura

tion C

ontrib

ution

(yea

rs)

Portfolio Index*

32

3.6

2.7

0.6

3.5

2.7

0.6

4.4

3.5

0.8

0

2

4

6

Since Inception01 Apr 10

3 Months 1 Month

Total

Retu

rn (%

)

Los Angeles Department of Water and Power (Gross)Los Angeles Department of Water and Power (Net)Barclays Capital World Govt Inflation-Linked All Maturities USD Hedged Bond Index

As of 31 Oct 10. Returns since inception are as of the indicated close of business day.

Investment Results

Duration (yrs) Avg. Quality ConvexityPortfolio 9.7 AAA/Aaa N/AIndex 10.1 AAA/Aaa N/A

33

Attribution AnalysisLos Angeles Department of Water and Power vs. Index*October 31, 2010

Western Asset believes that attribution is not a hard science, but rather a means of evaluating strategies to determine their relative impact on overall portfolio performance. The intent of the manager, therefore, is critical in the evaluation of different strategies, and the return attribution for any sector or strategy could be over or understated due to its inclusion in another component.

*Barclays Capital World Govt Inflation-Linked All Maturities USD Hedged Bond Index

3 Month Since Inception

Sector 0 47

Duration -37 -105

Curve -10 3

FX -34 -24

Selection 0 0

Total -81 -79

34

Los Angeles Department of Water and PowerCountry AllocationOctober 31, 2010


48

22 20

3 1 3 3

40

27 23

1 3 2 4

0

20

40

60

US EU UK Australia Canada Sweden Japan

Alloc

ation

(%)

Portfolio Index*

1.62.2

9.2 10.1

3.63.8

0.20.20.20.40.50.30.10.4

3.3 3.1

0

4

8

12


Portfolio (Real) Portfolio (Nominal) Index*

Dura

tion C

ontrib

ution

(Yea

rs)


35

Los Angeles Department of Water and PowerSector AllocationOctober 31, 2010


5

95

0

100

0

25

50

75

100

125

Governments Index-Linked

Alloc

ation

(%)

Portfolio Index*

0.5

9.2 9.7

0.0

10.1 10.1

0

4

8

12

Governments Index-Linked Total

Dura

tion C

ontrib

ution

(yea

rs)

Portfolio Index*

36

Portfolio Review and Characteristics

37

Top Ten Holdings

Top 10 Holdings (%)US INFLATION-LINKED TREASURY NOTE 5.88US INFLATION-LINKED TREASURY BOND 5.83US INFLATION-LINKED TREASURY BOND 5.74US INFLATION-LINKED TREASURY NOTE 5.08US INFLATION-LINKED TREASURY BOND 4.59BUONI POLIENNALI DEL TES I/L 3.51FRANCE O.A.T. I/L 3.45AUSTRALIAN INDEX LINKED 3.44UK INDEX-LINKED TREASURY 3.17BUNDESREPUB. DEUTSCHLAND 2.79Total 43.48

Los Angeles Department of Water and PowerLos Angeles Water & Power Employees' Retirement Plan

Top 10 Holdings (%)US INFLATION-LINKED TREASURY NOTE 6.28US INFLATION-LINKED TREASURY BOND 6.00US INFLATION-LINKED TREASURY BOND 5.93US INFLATION-LINKED TREASURY BOND 4.48US INFLATION-LINKED TREASURY NOTE 4.33BUONI POLIENNALI DEL TES I/L 3.54AUSTRALIAN INDEX LINKED 3.47UK INDEX-LINKED TREASURY 3.28FRANCE O.A.T. I/L 3.06UK INDEX-LINKED TREASURY 3.01Total 43.38

38

Market Value Change

At Inception 01 Apr 10 $126,440,059.00As of 31 Oct 10 $265,031,616.00

Los Angeles Department of Water and PowerLos Angeles Water & Power Employees' Retirement Plan

At Inception 01 Apr 10 $16,187,525.00As of 31 Oct 10 $14,796,073.00

39

Los Angeles Water & Power Employees' Retirement Plan Rating AllocationOctober 31, 2010


1204 9

88 87

0

25

50

75

100

AAA AA A

Alloc

ation

(%)

Portfolio Index*

Portfolio Index*Duration (years) 9.7 10.1Average Rating AAA/Aaa AAA/Aaa

40

Los Angeles Department of Water and PowerRating AllocationOctober 31, 2010


1204 9

88 87

0

25

50

75

100

AAA AA A

Alloc

ation

(%)

Portfolio Index*

Portfolio Index*Duration (years) 9.7 10.1Average Rating AAA/Aaa AAA/Aaa

Los Angeles Water & Power Employees' Retirement Plan

October 31, 2010Schedule of Current Holdings

Book Value Market ValueS&P Price TotalSecurity DescriptionAsset ID

Current Units/Price Total AssetsInterestMoody's

RatingsOriginal Face

Accrued % of

GovernmentTreasuryFixed Rate

$100.0938 $16,246.472,920,000.00912828NT3 $101.4530 1.10%Aaa AAA $2,962,428.67 $2,922,738.96US TREASURY BOND2.625 Due 08/15/2020

$122.9310 $55,154.281,350,000.00DE0001135325 $126.9168 0.88%Aaa AAA $2,311,368.83 $2,306,634.98BUNDESREPUB. DEUTSCHLAND4.250 Due 07/04/2039

$97.6150 $0.005,520,000.00DE0001135416 $97.4000 2.79%Aaa AAA $7,472,771.85 $7,489,267.19BUNDESREPUB. DEUTSCHLAND2.250 Due 09/04/2020

Total Fixed Rate $71,400.75Aaa AAA 4.77%$12,746,569.35 $12,718,641.13

Total Treasury $71,400.75 4.77%Aaa AAA $12,746,569.35 $12,718,641.13

$71,400.75Total Government 4.77%Aaa AAA $12,746,569.35 $12,718,641.13

Index-LinkedGovernment

$123.6910 $19,150.342,220,000.00135087YK4 $122.3139 1.06%Aaa AAA $2,700,939.76 $2,833,181.00CANADA-GOV'T REAL RETURN2.000 Due 12/01/2041

$138.8590 $4,753.122,600,000.00912810FD5 $177.1543 1.82%Aaa AAA $4,606,012.97 $4,873,120.52US INFLATION-LINKED TREASURY BOND3.625 Due 04/15/2028

$144.5940 $6,897.572,870,000.00912810FH6 $179.0617 2.06%Aaa AAA $5,139,069.74 $5,510,956.38US INFLATION-LINKED TREASURY BOND3.875 Due 04/15/2029

$140.7970 $1,841.73950,000.00912810FQ6 $171.3132 0.61%Aaa AAA $1,627,475.32 $1,645,119.31US INFLATION-LINKED TREASURY BOND3.375 Due 04/15/2032

$119.2810 $39,433.014,840,000.00912810FR4 $135.5305 2.51%Aaa AAA $6,559,676.73 $6,686,347.51US INFLATION-LINKED TREASURY BOND2.375 Due 01/15/2025

$114.3440 $63,399.619,730,000.00912810FS2 $117.4073 4.59%Aaa AAA $11,423,731.77 $12,237,459.52US INFLATION-LINKED TREASURY BOND2.000 Due 01/15/2026

$119.9060 $32,517.574,270,000.00912810PS1 $126.4718 2.08%Aaa AAA $5,400,345.77 $5,542,641.06US INFLATION-LINKED TREASURY BOND2.375 Due 01/15/2027

$122.9840 $36,442.504,840,000.00912810PZ5 $116.0532 2.27%Aaa AAA $5,616,974.22 $6,052,545.40US INFLATION-LINKED TREASURY BOND2.500 Due 01/15/2029

$117.4220 $17,786.564,919,700.00912810QF8 $114.3861 2.18%Aaa AAA $5,627,453.90 $5,834,867.08US INFLATION-LINKED TREASURY BOND2.125 Due 02/15/2040

$108.1720 $85,039.8212,150,000.00912828BW9 $126.7215 5.83%Aaa AAA $15,396,663.82 $15,528,465.42US INFLATION-LINKED TREASURY BOND2.000 Due 01/15/2014

$108.4380 $68,017.1312,360,000.00912828DH0 $121.6634 5.74%Aaa AAA $15,037,599.80 $15,323,845.70US INFLATION-LINKED TREASURY BOND1.625 Due 01/15/2015

$114.7190 $32,669.884,290,000.00912828GD6 $124.6194 2.00%Aaa AAA $5,346,172.17 $5,327,710.39US INFLATION-LINKED TREASURY BOND2.375 Due 01/15/2017

$103.6090 $14,651.6712,190,000.00912828GN4 $111.5264 5.08%Aaa AAA $13,595,073.06 $13,587,917.84US INFLATION-LINKED TREASURY NOTE2.000 Due 04/15/2012

$103.2660 $4,455.9914,780,000.00912828HW3 $106.0661 5.88%Aaa AAA $15,676,565.37 $15,764,247.59US INFLATION-LINKED TREASURY NOTE0.625 Due 04/15/2013

Page 1 of 5 1010-0024-5647






Accrued % of

Index-Linked$106.2190 $999.681,660,000.00912828KM1 $108.3746 0.68%Aaa AAA $1,799,018.51 $1,818,883.11US INFLATION-LINKED TREASURY NOTE

1.250 Due 04/15/2014$107.3910 $19,847.225,355,000.00912828NM8 $108.1463 2.16%Aaa AAA $5,791,234.69 $5,756,768.87US INFLATION-LINKED TREASURY BOND

1.250 Due 07/15/2020$108.8680 $29,247.678,620,000.00AU0000XCLWP8 $108.7591 3.44%Aaa Aaa

NR$9,071,886.94 $9,198,609.68AUSTRALIAN INDEX LINKED

3.000 Due 09/20/2025$106.3360 $24,808.242,000,000.00DE0001030500 $115.3879 1.21%Aaa AAA $3,173,607.67 $3,209,577.30DEUTSCHLAND I/L BOND

1.500 Due 04/15/2016$105.9440 $78,722.264,300,000.00DE0001030518 $113.4433 2.55%Aaa AAA $6,638,432.66 $6,764,789.07BUNDESOBLIGATION I/L

2.250 Due 04/15/2013$106.5850 $69,948.395,250,000.00FR0000188013 $125.8865 3.45%Aaa AAA $8,967,626.73 $9,162,419.61FRANCE O.A.T. I/L



2.100 Due 07/25/2023$267.1600 $30,077.781,020,000.00GB0008932666 $264.8549 1.64%Aaa AAA $4,205,927.71 $4,356,781.88UK INDEX-LINKED TREASURY




2.500 Due 07/26/2016$320.9510 $2,172.6140,000.00GB0009081828 $308.7934 0.08%Aaa AAA $192,302.70 $205,254.62UK INDEX-LINKED TREASURY


2.000 Due 01/26/2035$145.1270 $7,612.77860,000.00GB00B0CNHZ09 $150.9385 0.75%Aaa AAA $2,018,477.72 $1,995,450.13UK INDEX-LINKED TREASURY

1.250 Due 11/22/2055$124.9940 $18,295.851,620,000.00GB00B128DH60 $124.4840 1.22%Aaa AAA $3,139,777.72 $3,237,415.12UK INDEX-LINKED TREASURY

1.250 Due 11/22/2027$120.8520 $23,052.782,870,000.00GB00B1L6W962 $122.0110 2.08%AAA AAA

NR$5,457,626.26 $5,545,362.60UK INDEX-LINKED TREASURY

1.125 Due 11/22/2037$109.9490 $8,232.433,150,000.00GB00B24FFM16 $111.1100 2.07%Aaa AAA $5,547,740.36 $5,537,274.43UK INDEX-LINKED TREASURY

0.750 Due 11/22/2047$113.8170 $1,517.21170,000.00GB00B3D4VD98 $113.6351 0.12%Aaa AAA $302,196.06 $309,350.10UK INDEX-LINKED TREASURY

1.250 Due 11/22/2032$99.5860 $894.35810,000.00GB00B3LZBF68 $100.6042 0.48%Aaa AAA $1,271,253.99 $1,289,666.80UK INDEX-LINKED TREASURY

0.625 Due 03/22/2040$102.4740 $1,195.04270,000.00GB00B3MYD345 $103.7155 0.17%Aaa AAA $444,411.74 $442,355.74UK INDEX-LINKED TREASURY

0.625 Due 11/22/2042$98.5990 $1,404.471,590,000.00GB00B421JZ66 $104.0521 0.94%Aaa Aaa

NR$2,591,109.71 $2,506,477.70UK INDEX-LINKED TREASURY

0.500 Due 03/22/2050$104.0060 $17,916.264,050,000.00IT0003625909 $120.0787 2.50%Aa2 A+ $6,684,726.24 $6,675,413.04BUONI POLIENNALI DEL TES I/L

2.150 Due 09/15/2014

Page 2 of 5






Accrued % of

Index-Linked$102.9410 $6,516.371,830,000.00IT0004216351 $109.3987 1.04%Aa2 A+ $2,663,388.32 $2,792,755.30BUONI POLIENNALI DEL TES I/L



2.100 Due 09/15/2021$98.3066 $5,965.59310,000,000.00JP11200916A8 $98.2699 1.41%Aa2 AA $3,671,945.02 $3,783,370.08JGBI I/L CPI 10YR #9

1.100 Due 09/10/2016$99.0347 $11,185.28460,000,000.00JP1120151848 $98.9949 2.11%Aa2 Aa2

NR$5,486,295.56 $5,655,612.92JGBI I/L CPI 10YR #15

1.400 Due 03/10/2018$160.5310 $88,960.1713,780,000.00SE0000317943 $159.9103 1.26%Aaa AAA $3,140,983.26 $3,299,352.96SWEDISH GOVERNMENT I/L

4.000 Due 12/01/2020$162.7490 $113,219.2320,090,000.00SE0000556599 $161.8126 1.86%Aaa AAA $4,710,041.00 $4,876,620.00SWEDISH GOVERNMENT I/L

3.500 Due 12/01/2028

Total Government $1,155,150.94 95.20%Aaa AAA $248,018,642.39 $253,939,811.12

$1,155,150.94Total Index-Linked 95.20%Aaa AAA $248,018,642.39 $253,939,811.12

Foreign ExchangeForward

$1.0000 $0.003,402,771.95CADUSD112410 $100.0000 1.27%NR NR $3,402,771.95 $3,402,771.95CAD/USD FFX DUE 112410 Due 11/24/2010

$1.0000 $0.00-3,397,048.11CADUSD112410 $100.0000 -1.27%NR NR -$3,397,048.11 -$3,397,048.11CAD/USD FFX DUE 112410 Due 11/24/2010

$1.0181 $0.003,455,108.00CADUSD112410CC $100.0000 1.27%NR NR $3,397,048.11 $3,393,535.93CAD/USD FFX DUE 112410-Cross Due 11/24/2010

$1.0181 $0.00-3,500,000.00CADUSD112410CC $100.0000 -1.28%NR NR -$3,402,771.95 -$3,437,627.93CAD/USD FFX DUE 112410-Cross Due 11/24/2010

$1.0000 $0.0010,480,946.52JPYUSD112410 $100.0000 3.91%NR NR $10,480,946.52 $10,480,946.52JPY/USD FFX DUE 112410 Due 11/24/2010

$80.5352 $0.00-876,213,604.00JPYUSD112410CC $100.0000 -4.06%NR NR -$10,480,946.52 -$10,879,878.61JPY/USD FFX DUE 112410-Cross Due 11/24/2010

$1.0000 $0.00-1,805,654.90SEKUSD112410 $100.0000 -0.67%NR NR -$1,805,654.90 -$1,805,654.90SEK/USD FFX DUE 112410 Due 11/24/2010

$1.0000 $0.0010,050,771.60SEKUSD112410 $100.0000 3.75%NR NR $10,050,771.60 $10,050,771.60SEK/USD FFX DUE 112410 Due 11/24/2010

$6.7095 $0.0013,000,000.00SEKUSD112410CC $100.0000 0.72%NR NR $1,805,654.90 $1,937,549.17SEK/USD FFX DUE 112410-Cross Due 11/24/2010

$6.7095 $0.00-69,484,910.04SEKUSD112410CC $100.0000 -3.86%NR NR -$10,050,771.60 -$10,356,186.92SEK/USD FFX DUE 112410-Cross Due 11/24/2010

$1.0231 $0.00-16,738,771.31USDAUD112410 $100.0000 -6.11%NR NR -$15,740,691.63 -$16,360,609.59USD/AUD FFX DUE 112410 Due 11/24/2010

$1.0231 $0.006,955,000.00USDAUD112410 $100.0000 2.54%NR NR $6,566,326.08 $6,797,872.90USD/AUD FFX DUE 112410 Due 11/24/2010

Page 3 of 5






Accrued % of

Foreign Exchange$1.0000 $0.00-6,566,326.08USDAUD112410CC $100.0000 -2.45%NR NR -$6,566,326.08 -$6,566,326.08USD/AUD FFX DUE 112410-Cross

Due 11/24/2010$1.0000 $0.0015,740,691.63USDAUD112410CC $100.0000 5.87%NR NR $15,740,691.63 $15,740,691.63USD/AUD FFX DUE 112410-Cross

Due 11/24/2010$0.7197 $0.0014,922,980.03USDEUR112410 $100.0000 7.74%NR NR $20,317,326.70 $20,735,362.35USD/EUR FFX DUE 112410

Due 11/24/2010$0.7197 $0.00-59,736,626.31USDEUR112410 $100.0000 -30.98%NR NR -$80,525,143.57 -$83,003,568.28USD/EUR FFX DUE 112410

Due 11/24/2010$1.0000 $0.00-20,317,326.70USDEUR112410CC $100.0000 -7.58%NR NR -$20,317,326.70 -$20,317,326.70USD/EUR FFX DUE 112410-Cross

Due 11/24/2010$1.0000 $0.0080,525,143.57USDEUR112410CC $100.0000 30.05%NR NR $80,525,143.57 $80,525,143.57USD/EUR FFX DUE 112410-Cross

Due 11/24/2010$0.6256 $0.005,218,928.59USDGBP112410 $100.0000 3.11%NR NR $8,186,414.00 $8,342,561.97USD/GBP FFX DUE 112410

Due 11/24/2010$0.6256 $0.00-39,158,075.95USDGBP112410 $100.0000 -23.36%NR NR -$61,980,407.10 -$62,594,969.29USD/GBP FFX DUE 112410

Due 11/24/2010$1.0000 $0.00-8,186,414.00USDGBP112410CC $100.0000 -3.06%NR NR -$8,186,414.00 -$8,186,414.00USD/GBP FFX DUE 112410-Cross

Due 11/24/2010$1.0000 $0.0061,980,407.10USDGBP112410CC $100.0000 23.13%NR NR $61,980,407.10 $61,980,407.10USD/GBP FFX DUE 112410-Cross

Due 11/24/2010

Total Forward $0.00 -1.31%$0.00 -$3,517,995.72

$0.00Total Foreign Exchange -1.31%$0.00 -$3,517,995.72

Cash & Cash EquivalentsTRADE DATE CASH218,607.83AUD_CASH $215,532.25 $214,279.39 $0.00 0.08%AAA AAA

NR NR$1.0143 $1.0202

$0.00$215,532.25 $214,279.39 Settled Cash 0.08%

TRADE DATE CASH67,945.44CAD_CASH $67,796.13 $66,770.28 $0.00 0.02%AAA AAANR NR

$1.0022 $1.0176

$0.00$67,796.13 $66,770.28 Settled Cash 0.02%

TRADE DATE CASH-3,427,737.77EUR_CASH -$4,768,623.22 -$4,764,214.19 $0.00 -1.78%AAA AAANR NR

$0.7188 $0.7195

$0.00-$1,037,110.00 -$1,042,425.32 Unsettled Spot FX -0.39%

$0.00$2,570,062.32 $2,570,062.32 Unsettled Sales 0.96%

$0.00-$7,508,242.87 -$7,508,242.87 Unsettled Purchases -2.80%

$0.00$1,200,615.16 $1,210,339.51 Settled Cash 0.45%

$0.00$6,052.17 $6,052.17 Outstanding Interest at period end 0.00%

Page 4 of 5






Accrued % of

Cash & Cash EquivalentsTRADE DATE CASH3,233,586.44GBP_CASH $5,156,653.01 $5,169,858.84 $0.00 1.93%AAA AAA

NR NR$0.6271 $0.6255

$0.00-$784,380.00 -$799,400.13 Unsettled Spot FX -0.30%

$0.00$7,000,770.61 $7,000,770.61 Unsettled Sales 2.61%


$0.00$1,727,123.08 $1,757,849.23 Settled Cash 0.66%

$0.00-$876.71 -$868.39 Outstanding Interest at period end 0.00%

TRADE DATE CASH440,554.48SEK_CASH $66,431.10 $65,708.31 $0.00 0.02%AAA AAANR NR

$6.6318 $6.7047

$0.00$66,431.10 $65,708.31 Settled Cash 0.02%

TRADE DATE CASH2,335,190.20USD_CASH $2,335,190.20 $2,335,190.20 $0.00 0.87%AAA AAANR NR

$1.0000

$0.00$1,821,490.00 $1,821,490.00 Unsettled Spot FX 0.68%

$0.00$2,668,893.01 $2,668,893.01 Unsettled Sales 1.00%


$0.00$0.00 $0.00 Settled Cash 0.00%

$0.00$3,381.37 $3,381.37 Outstanding Interest at period end 0.00%

$100.0000 $0.00499,717.88STIFSTIF0 $100.0000 0.19%Aaa AAA $499,717.88 $499,717.88STIF

$0.00Total Cash & Cash Equivalents 1.34%Aaa AAA $3,572,697.35 $3,587,310.71

$1,226,551.69Total Assets 100.00%

$267,954,318.93Total Account Value (Market Value & Accrued Interest)

Aaa AAA

NR: SECURITY NOT RATED BY RATING AGENCY. FOR AVERAGE CREDIT QUALITY COMPUTATION PURPOSES, RATING SUPPLIED BY WESTERN ASSET CREDIT GROUP.

264,337,909.09 266,727,767.24

Page 5 of 5

Los Angeles Department of Water and Power





Accrued % of

GovernmentTreasuryFixed Rate

$100.0938 $890.22160,000.00912828NT3 $102.1698 1.08%Aaa AAA $163,471.63 $160,150.08US TREASURY BOND2.625 Due 08/15/2020

$122.9310 $3,107.2970,000.00DE0001135325 $129.2169 0.82%Aaa AAA $115,022.15 $119,603.30BUNDESREPUB. DEUTSCHLAND4.250 Due 07/04/2039

$97.6150 $0.00310,000.00DE0001135416 $97.4000 2.81%Aaa AAA $419,666.54 $420,592.90BUNDESREPUB. DEUTSCHLAND2.250 Due 09/04/2020

Total Fixed Rate $3,997.51Aaa AAA 4.71%$698,160.32 $700,346.28

Total Treasury $3,997.51 4.71%Aaa AAA $698,160.32 $700,346.28

$3,997.51Total Government 4.71%Aaa AAA $698,160.32 $700,346.28

Index-LinkedGovernment

$123.6910 $1,078.28125,000.00135087YK4 $117.8442 1.07%Aaa AAA $146,008.55 $159,525.95CANADA-GOV'T REAL RETURN2.000 Due 12/01/2041

$138.8590 $297.07160,000.00912810FD5 $167.7988 2.01%Aaa AAA $268,478.14 $299,884.34US INFLATION-LINKED TREASURY BOND3.625 Due 04/15/2028

$144.5940 $408.57170,000.00912810FH6 $167.1782 2.19%Aaa AAA $284,203.02 $326,432.96US INFLATION-LINKED TREASURY BOND3.875 Due 04/15/2029

$140.7970 $116.3260,000.00912810FQ6 $170.2531 0.70%Aaa AAA $102,151.84 $103,902.27US INFLATION-LINKED TREASURY BOND3.375 Due 04/15/2032

$119.2810 $2,281.25280,000.00912810FR4 $133.3882 2.60%Aaa AAA $373,487.00 $386,813.49US INFLATION-LINKED TREASURY BOND2.375 Due 01/15/2025

$114.3440 $3,453.42530,000.00912810FS2 $109.4456 4.48%Aaa AAA $580,061.62 $666,583.10US INFLATION-LINKED TREASURY BOND2.000 Due 01/15/2026

$119.9060 $1,827.69240,000.00912810PS1 $123.4894 2.10%Aaa AAA $296,374.50 $311,530.18US INFLATION-LINKED TREASURY BOND2.375 Due 01/15/2027

$122.9840 $1,920.01255,000.00912810PZ5 $107.4846 2.15%Aaa AAA $274,085.85 $318,884.11US INFLATION-LINKED TREASURY BOND2.500 Due 01/15/2029

$117.4220 $867.10250,600.00912810QF8 $108.3395 1.99%Aaa AAA $271,498.84 $297,216.84US INFLATION-LINKED TREASURY BOND2.125 Due 02/15/2040

$108.1720 $4,829.42690,000.00912828BW9 $125.1097 5.93%Aaa AAA $863,256.65 $881,863.47US INFLATION-LINKED TREASURY BOND2.000 Due 01/15/2014

$108.4380 $3,962.16720,000.00912828DH0 $118.8753 6.00%Aaa AAA $855,902.16 $892,651.21US INFLATION-LINKED TREASURY BOND1.625 Due 01/15/2015

$114.7190 $1,827.69240,000.00912828GD6 $124.6194 2.01%Aaa AAA $299,086.56 $298,053.73US INFLATION-LINKED TREASURY BOND2.375 Due 01/15/2017

$103.6090 $713.49580,000.00912828GN4 $110.9568 4.33%Aaa AAA $643,549.17 $646,512.91US INFLATION-LINKED TREASURY NOTE2.000 Due 04/15/2012

$103.2660 $265.31880,000.00912828HW3 $104.9673 6.28%Aaa AAA $923,712.56 $938,602.01US INFLATION-LINKED TREASURY NOTE0.625 Due 04/15/2013

Page 1 of 5 1010-0024-5655






Accrued % of

Index-Linked$106.2190 $72.27120,000.00912828KM1 $106.8660 0.88%Aaa AAA $128,239.22 $131,485.53US INFLATION-LINKED TREASURY NOTE

1.250 Due 04/15/2014$107.3910 $1,111.90300,000.00912828NM8 $107.8344 2.16%Aaa AAA $323,503.21 $322,508.06US INFLATION-LINKED TREASURY BOND

1.250 Due 07/15/2020$108.8680 $1,645.61485,000.00AU0000XCLWP8 $106.5438 3.47%Aaa Aaa

NR$482,643.01 $517,555.19AUSTRALIAN INDEX LINKED

3.000 Due 09/20/2025$106.3360 $1,426.47115,000.00DE0001030500 $114.4007 1.24%Aaa AAA $177,958.70 $184,550.70DEUTSCHLAND I/L BOND

1.500 Due 04/15/2016$105.9440 $3,203.82175,000.00DE0001030518 $113.5426 1.86%Aaa AAA $263,017.72 $275,311.18BUNDESOBLIGATION I/L

2.250 Due 04/15/2013$106.5850 $3,464.10260,000.00FR0000188013 $126.1882 3.06%Aaa AAA $428,214.37 $453,757.93FRANCE O.A.T. I/L


2.500 Due 07/25/2013$112.1020 $145.0515,000.00FR0010050559 $124.5789 0.18%Aaa AAA $25,277.71 $26,643.61FRANCE O.A.T. I/L




2.500 Due 07/17/2024$278.7460 $927.53110,000.00GB0009036715 $250.0826 3.28%Aaa AAA $427,553.39 $490,225.10UK INDEX-LINKED TREASURY


2.500 Due 07/26/2016$0.0000 $122.640.00GB0009081828 $0.0000 0.00%Aaa AAA $0.00 $0.00UK INDEX-LINKED TREASURY


2.000 Due 01/26/2035$145.1270 $442.6050,000.00GB00B0CNHZ09 $149.4890 0.78%Aaa AAA $114,227.49 $116,014.54UK INDEX-LINKED TREASURY

1.250 Due 11/22/2055$124.9940 $1,115.59105,000.00GB00B128DH60 $120.8429 1.41%Aaa AAA $193,910.06 $209,832.46UK INDEX-LINKED TREASURY

1.250 Due 11/22/2027$120.8520 $1,164.69145,000.00GB00B1L6W962 $117.4022 1.88%AAA AAA

NR$260,703.42 $280,166.40UK INDEX-LINKED TREASURY

1.125 Due 11/22/2037$109.9490 $424.90170,000.00GB00B24FFM16 $110.4389 2.00%Aaa AAA $296,275.59 $298,837.04UK INDEX-LINKED TREASURY

0.750 Due 11/22/2047$99.5860 $55.2150,000.00GB00B3LZBF68 $96.3810 0.53%Aaa AAA $73,850.46 $79,609.06UK INDEX-LINKED TREASURY

0.625 Due 03/22/2040$102.4740 $88.5420,000.00GB00B3MYD345 $103.7155 0.22%Aaa AAA $32,919.41 $32,767.10UK INDEX-LINKED TREASURY

0.625 Due 11/22/2042$98.5990 $79.4990,000.00GB00B421JZ66 $103.7821 0.95%Aaa Aaa

NR$144,528.26 $141,876.10UK INDEX-LINKED TREASURY

0.500 Due 03/22/2050$104.0060 $973.24220,000.00IT0003625909 $121.0305 2.43%Aa2 A+ $360,224.51 $362,615.03BUONI POLIENNALI DEL TES I/L

2.150 Due 09/15/2014

Page 2 of 5






Accrued % of

Index-Linked$102.9410 $391.69110,000.00IT0004216351 $108.8324 1.13%Aa2 A+ $151,233.71 $167,870.53BUONI POLIENNALI DEL TES I/L

1.850 Due 09/15/2012$99.2020 $467.09100,000.00IT0004545890 $106.8690 0.94%Aa2 A+ $144,531.01 $139,957.39BUONI POLIENNALI DEL TES I/L

2.550 Due 09/15/2041$98.8910 $1,457.59380,000.00IT0004604671 $98.7379 3.54%Aa2 A+ $474,112.03 $528,666.52BUONI POLIENNALI DEL TES I/L

2.100 Due 09/15/2021$98.3066 $217.4511,300,000.00JP11200916A8 $97.9550 0.92%Aa2 AA $131,382.88 $137,909.94JGBI I/L CPI 10YR #9

1.100 Due 09/10/2016$99.0347 $729.4730,000,000.00JP1120151848 $98.6591 2.47%Aa2 Aa2

NR$351,309.97 $368,844.32JGBI I/L CPI 10YR #15

1.400 Due 03/10/2018$160.5310 $4,841.81750,000.00SE0000317943 $156.7275 1.23%Aaa AAA $156,558.66 $179,572.91SWEDISH GOVERNMENT I/L

4.000 Due 12/01/2020$162.7490 $6,311.871,120,000.00SE0000556599 $157.1484 1.86%Aaa AAA $243,516.23 $271,867.32SWEDISH GOVERNMENT I/L

3.500 Due 12/01/2028

Total Government $62,942.39 94.78%Aaa AAA $13,352,783.10 $14,112,357.98

$62,942.39Total Index-Linked 94.78%Aaa AAA $13,352,783.10 $14,112,357.98

Foreign ExchangeForward

$1.0000 $0.00-462,000.94CADUSD112410 $100.0000 -3.09%NR NR -$462,000.94 -$462,000.94CAD/USD FFX DUE 112410 Due 11/24/2010

$1.0000 $0.00465,573.97CADUSD112410 $100.0000 3.11%NR NR $465,573.97 $465,573.97CAD/USD FFX DUE 112410 Due 11/24/2010

$1.0181 $0.00468,248.00CADUSD112410CC $100.0000 3.08%NR NR $462,000.94 $459,903.55CAD/USD FFX DUE 112410-Cross Due 11/24/2010

$1.0181 $0.00-478,779.80CADUSD112410CC $100.0000 -3.14%NR NR -$465,573.97 -$470,247.66CAD/USD FFX DUE 112410-Cross Due 11/24/2010

$1.0000 $0.00-105,825.98JPYUSD112410 $100.0000 -0.71%NR NR -$105,825.98 -$105,825.98JPY/USD FFX DUE 112410 Due 11/24/2010

$1.0000 $0.00666,042.59JPYUSD112410 $100.0000 4.45%NR NR $666,042.59 $666,042.59JPY/USD FFX DUE 112410 Due 11/24/2010

$80.5352 $0.00-56,973,422.00JPYUSD112410CC $100.0000 -4.73%NR NR -$666,042.59 -$707,434.71JPY/USD FFX DUE 112410-Cross Due 11/24/2010

$80.5352 $0.008,570,285.00JPYUSD112410CC $100.0000 0.71%NR NR $105,825.98 $106,416.59JPY/USD FFX DUE 112410-Cross Due 11/24/2010

$1.0000 $0.00737,026.34SEKUSD112410 $100.0000 4.93%NR NR $737,026.34 $737,026.34SEK/USD FFX DUE 112410 Due 11/24/2010

$1.0000 $0.00-235,198.05SEKUSD112410 $100.0000 -1.57%NR NR -$235,198.05 -$235,198.05SEK/USD FFX DUE 112410 Due 11/24/2010

$6.7095 $0.001,700,000.00SEKUSD112410CC $100.0000 1.69%NR NR $235,198.05 $253,371.82SEK/USD FFX DUE 112410-Cross Due 11/24/2010

$6.7095 $0.00-5,254,120.75SEKUSD112410CC $100.0000 -5.24%NR NR -$737,026.34 -$783,085.94SEK/USD FFX DUE 112410-Cross Due 11/24/2010

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Accrued % of

Foreign Exchange$1.0231 $0.00827,517.91USDAUD112410 $100.0000 5.41%NR NR $775,111.25 $808,822.66USD/AUD FFX DUE 112410

Due 11/24/2010$1.0231 $0.00-1,371,017.31USDAUD112410 $100.0000 -8.96%NR NR -$1,253,389.30 -$1,340,043.34USD/AUD FFX DUE 112410

Due 11/24/2010$1.0000 $0.00-775,111.25USDAUD112410CC $100.0000 -5.18%NR NR -$775,111.25 -$775,111.25USD/AUD FFX DUE 112410-Cross

Due 11/24/2010$1.0000 $0.001,253,389.30USDAUD112410CC $100.0000 8.38%NR NR $1,253,389.30 $1,253,389.30USD/AUD FFX DUE 112410-Cross

Due 11/24/2010$0.7197 $0.00-4,367,904.32USDEUR112410 $100.0000 -40.58%NR NR -$5,713,819.57 -$6,069,168.40USD/EUR FFX DUE 112410

Due 11/24/2010$0.7197 $0.001,852,007.86USDEUR112410 $100.0000 17.21%NR NR $2,490,436.08 $2,573,350.23USD/EUR FFX DUE 112410

Due 11/24/2010$1.0000 $0.00-2,490,436.08USDEUR112410CC $100.0000 -16.65%NR NR -$2,490,436.08 -$2,490,436.08USD/EUR FFX DUE 112410-Cross

Due 11/24/2010$1.0000 $0.005,713,819.57USDEUR112410CC $100.0000 38.20%NR NR $5,713,819.57 $5,713,819.57USD/EUR FFX DUE 112410-Cross

Due 11/24/2010$0.6256 $0.00-2,750,000.00USDGBP112410 $100.0000 -29.39%NR NR -$4,351,647.41 -$4,395,930.12USD/GBP FFX DUE 112410

Due 11/24/2010$0.6256 $0.00834,564.12USDGBP112410 $100.0000 8.92%NR NR $1,311,994.61 $1,334,067.47USD/GBP FFX DUE 112410

Due 11/24/2010$1.0000 $0.004,351,647.41USDGBP112410CC $100.0000 29.10%NR NR $4,351,647.41 $4,351,647.41USD/GBP FFX DUE 112410-Cross

Due 11/24/2010$1.0000 $0.00-1,311,994.61USDGBP112410CC $100.0000 -8.77%NR NR -$1,311,994.61 -$1,311,994.61USD/GBP FFX DUE 112410-Cross

Due 11/24/2010

Total Forward $0.00 -2.83%$0.00 -$423,045.58

$0.00Total Foreign Exchange -2.83%$0.00 -$423,045.58

Cash & Cash EquivalentsTRADE DATE CASH3,512.39CAD_CASH $3,417.46 $3,451.64 $0.00 0.02%AAA AAA

NR NR$1.0278 $1.0176

$0.00$3,417.46 $3,451.64 Settled Cash 0.02%

TRADE DATE CASH-76,054.73EUR_CASH -$106,728.87 -$105,708.50 $0.00 -0.71%AAA AAANR NR

$0.7126 $0.7195

$0.00$155,238.66 $155,238.66 Unsettled Sales 1.04%

$0.00-$421,658.57 -$421,658.57 Unsettled Purchases -2.82%

$0.00$159,475.98 $160,496.35 Settled Cash 1.07%

$0.00$215.06 $215.06 Outstanding Interest at period end 0.00%

TRADE DATE CASH188,232.36GBP_CASH $299,656.83 $300,945.95 $0.00 2.01%AAA AAANR NR

$0.6282 $0.6255

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Accrued % of

Cash & Cash Equivalents$0.00-$118,365.00 -$119,910.02 Unsettled Spot FX -0.80%

$0.00$398,228.75 $398,228.75 Unsettled Sales 2.66%


$0.00$176,496.28 $179,486.67 Settled Cash 1.20%

$0.00-$18.38 -$17.86 Outstanding Interest at period end 0.00%

TRADE DATE CASH407,383.84SEK_CASH $60,365.49 $60,760.93 $0.00 0.41%AAA AAANR NR

$6.7486 $6.7047

$0.00$60,365.49 $60,760.93 Settled Cash 0.41%

TRADE DATE CASH137,174.67USD_CASH $137,174.67 $137,174.67 $0.00 0.92%AAA AAANR NR

$1.0000 $1.0000

$0.00$118,365.00 $118,365.00 Unsettled Spot FX 0.79%

$0.00$145,169.91 $145,169.91 Unsettled Sales 0.97%


$0.00$0.01 $0.01 Settled Cash 0.00%

$0.00$210.87 $210.87 Outstanding Interest at period end 0.00%

$100.0000 $0.00102,595.71STIFSTIF0 $100.0000 0.69%Aaa AAA $102,595.71 $102,595.71STIF

$0.00Total Cash & Cash Equivalents 3.34%Aaa AAA $496,481.29 $499,220.40

$66,939.90Total Assets 100.00%

$14,955,818.98Total Account Value (Market Value & Accrued Interest)

Aaa AAA

NR: SECURITY NOT RATED BY RATING AGENCY. FOR AVERAGE CREDIT QUALITY COMPUTATION PURPOSES, RATING SUPPLIED BY WESTERN ASSET CREDIT GROUP.

14,547,424.71 14,888,879.08

Page 5 of 5

42

Appendix

43


Biographies – Global Inflation-linked Strategy

MICHAEL J. BAZDARICH33 Years Experience

– Western Asset Management Company – Product Specialist, 2005-– MB Economics – Consulting Economist, 1986-2005– UCLA Anderson Forecast – Senior Economist, 2003-2005– UCR Forecasting Center – Director, 1993-2003– Claremont Economics Institute – Vice President, Forecasting/Advisory Services, 1981-1986– United California Bank – Vice President, Deputy Director of Research, 1980-1981– Federal Reserve Bank of San Francisco – Economist, 1977-1980– University of Chicago, Ph.D. Economics– University of Santa Clara, B.A.

ANDREW J. BELSHAW18 Years Experience

– Western Asset Management Company Limited – Head of Investment Management, London, 2009-– BlackRock Investment Management – Managing Director, Head of Sterling Fixed Income, 2004-2009– M&G Investment Management – Director, Institutional Fixed Income, 2003-2004– Baring Asset Management – Director, Global Fixed Income and Currency, 1999-2003– Gartmore Investment Management – Senior Investment Manager, Global Fixed Income, 1995-1999– Whittingdale Investment Management – Economist, Investment Manager, 1992-1995– University of York, Ph.D.– Manchester Polytechnic, B.A.

RICHARD A. BOOTH14 Years Experience

– Western Asset Management Company Limited – Portfolio Manager/Research Analyst, 1999–– Foreign & Colonial Asset Management – Research Analyst, 1996–1998– Birmingham University, B.Sc.

44



KAZUTO DOI21 Years Experience

– Western Asset Management Company Ltd – Head of Investment Management, Asia-Pacific, 2005–– Citigroup Asset Management – Managing Director, Head of Fixed Income, 2000–2005– PanAgora Asset Management – Investment Research Manager, 1995–2000– Nippon Life Insurance Company – Manager / Fixed Income Investment, 1989–1995– Boston College, M.S.– Kyoto University, B.A.– Chartered Member of the Security Analysts Association of Japan

S. KENNETH LEECH33 Years Experience

– Western Asset Management Company – CIO Emeritus, 1990– – Greenwich Capital Markets – Portfolio Manager, 1988–1990– The First Boston Corporation – Fixed Income Manager, 1980–1988– National Bank of Detroit – Portfolio Manager, 1977–1980– The Wharton School, University of Pennsylvania, M.B.A., B.S., B.A., 1972–1976

FREDERICK R. MARKI27 Years Experience

– Western Asset Management Company – Portfolio Manager, 2005–– Citigroup Asset Management – Senior Portfolio Mgr., 1991 – 2005– UBS – Portfolio Manager, 1989 – 1991– Merrill Lynch – Vice President, 1985 – 1989– Federal Reserve Bank of NY – Assistant Economist, 1983 – 1985– Massachusetts Institute of Technology, B.S.– Chartered Financial Analyst

CATHERINE L. MATTHEWS23 Years Experience

– Western Asset Management Company Limited – Portfolio Manager/Research Analyst, 1987– – London Business School

45



ANDRES SANCHEZ BALCAZAR10 Years Experience

– Western Asset Management Company Limited – Portfolio Manager, 2005–– Merrill Lynch Investment Managers, London – Fund Manager, 2000–2004– Banco de la Republica (Central Bank of Colombia), Bogota – Economist, 1997– HEC School of Management, Paris, MSc. Management– Universidad de los Andes, Bogota, B.A. Economics– Chartered Financial Analyst

DIPANKAR SHEWARAM13 Years Experience

– Western Asset Management Company Limited – Head of Non-US Credit/Portfolio Manager, 2009-– Blue Bay Asset Management – Partner/Principal, Senior Portfolio Manager, 2002-2008– ING Barings – Director, Strategic Trading Group, 2001-2002– BNP Paribas – Senior Emerging Markets Strategist, 2000-2001– Deutsche Asset Management – Emerging Markets Fund Manager, 1997-2000– London School of Economics and Political Science, MSc– University College London, BSc– Chartered Financial Analyst

PETER H. STUTZ17 Years Experience

– Western Asset Management Company – Portfolio Manager/Research Analyst, 1997–– Pacific Telesis Group – Portfolio Manager, 1996–1997– Wells Fargo Nikko Investment Advisors – Trader, 1993–1996– University of Chicago, M.B.A.– University of Illinois, B.S.– Chartered Financial Analyst

46



STEPHEN A. WALSH29 Years Experience

– Western Asset Management Company – Chief Investment Officer, 1991–– Security Pacific Investment Managers, Inc. – Portfolio Manager, 1989–1991– Atlantic Richfield Company – Portfolio Manager, 1981–1988– University of Colorado at Boulder, B.S.

PAUL E. WYNN28 Years Experience

– Western Asset Management Company – Portfolio Manager, 1992–– Morgan Grenfell – Portfolio Manager, 1982–1992– Keele University, B.S.

47

Representative Client List Disclosure

Clients that have advised Western Asset of account terminations have been excluded from the lists.

The clients listed in the Eleemosynary company type are in all mandates, located in all countries and all regions of the United States, and with portfolios with an AUM of $18(M) or greater.The clients listed in the Insurance company type are in all mandates, located in all countries and all regions of the United States, and with portfolios with an AUM of $86(M) or greater.

The clients listed in the Sub-Advisory company type are in all mandates, located in all countries and all regions of the United States, and with portfolios with an AUM of $196(M) or greater.

The clients listed in the Corporate company type are in all mandates, located in all countries and all regions of the United States, and with portfolios with an AUM of $159(M) or greater.

The clients listed in the Healthcare company type are in all mandates, located in all countries and all regions of the United States, and with portfolios with an AUM of $94(M) or greater.

The clients listed in the Public company type are in all mandates, located in all countries and all regions of the United States, and with portfolios with an AUM of $157(M) or greater.The clients listed in the Multi-Employer / Union company type are in all mandates, located in all countries and all regions of the United States, and with portfolios with an AUM of $76(M) or greater.

48

End Note

© Western Asset Management Company 2010. This publication is the property of Western Asset Management Company and is intended for the sole use of its clients and their investment consultants. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.

Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset Management. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset Management may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.

49

Fee Schedule

51

Glossary of Investment Terms

52

Glossary of Investment Terms

Treasury Inflation Protected Securities (TIPS)TIPS (Treasury Inflation Protected Securities), also known as Inflation Linked fixed income. TIPS are sold by the US Treasury and have a "real yield". The bond or note's face value is adjusted upwards with the CPI-U, and a real yield is applied to the adjusted principal to let the investor always outperform the inflation rate and protect purchasing power.

Real Yield to MaturityThe nominal return an investor would require on a normal bond that would make the real return equal to that of the inflation-indexed bond, assuming a constant inflation rate.

Nominal Yield to MaturityThe yield to maturity is the internal rate of return on the bond's cash flows: the purchase price, the coupons received and the principal at maturity.

Break Even Inflation RateThat average rate of actual inflation which if experienced, would make the return on the TIP identical to that on a similar maturity Nominal Bond.

Forward Break Even Inflation RateThat future/forward average rate of actual inflation which if experienced, would make the return on the TIP identical to that on a similar maturity Nominal Bond.

Sources: http://en.wikipedia.org/wiki/Yield_(finance); Bloomberg Financial Definition; Western Asset

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