PENSION & OPEB FINANCING Presented to November 21, 2008 Florida Government Finance Officers Association
Pension & OPEB Financing Participants Todd H. Holder   Director  Citigroup Global Markets Inc.  200 Crescent Court, Suite ...
 
Pension & OPEB Financing <ul><li>PART ONE </li></ul><ul><li>City of Gainesville OPEB Case Study </li></ul><ul><li>PART TWO...
City of Gainesville OPEB Case Study
City of Gainesville OPEB Case Study <ul><li>In the early 1980’s the City had a 30 year, non-contributory pension plan and ...
City of Gainesville OPEB Case Study <ul><li>20 year retirement shifted ratio between actives & retirees </li></ul><ul><li>...
City of Gainesville OPEB Case Study <ul><li>In 1992 City performed actuarial valuation on existing retiree health insuranc...
City of Gainesville OPEB Case Study <ul><li>Staff & actuary worked for two years on various allocations of cost </li></ul>...
City of Gainesville OPEB Case Study <ul><li>Discussions with actives, retirees and City Commission </li></ul><ul><li>Formu...
City of Gainesville OPEB Case Study
City of Gainesville OPEB Case Study <ul><li>By 2005 plan had UAAL of $34,660,000, with a % of payroll contribution associa...
City of Gainesville OPEB Case Study <ul><li>Early in 2005 hired plan consultant through RFP process </li></ul><ul><li>Crea...
City of Gainesville OPEB Case Study <ul><li>Early in 2005 hired plan consultant through RFP process </li></ul><ul><li>Crea...
1 City of Gainesville OPEB Case Study
City of Gainesville OPEB Case Study
City of Gainesville OPEB Case Study <ul><li>State of Florida prohibits separately rating employees  </li></ul><ul><li>$34....
City of Gainesville OPEB Case Study
City of Gainesville OPEB Case Study
City of Gainesville OPEB Case Study <ul><li>Implemented GASB 43 & GASB 45 in fiscal 2005, with required note disclosure </...
November 21, 2008 The iPeb Structured Finance Strategy®
4 MAIN REASONS PEOPLE WORK FOR THE GOVERNMENT 4 Main Reasons People Work for the Government (The Country’s Largest Employe...
4 MAIN REASONS PEOPLE WORK FOR THE GOVERNMENT <ul><li>Competitive Salary </li></ul><ul><li>13 Paid Sick Days </li></ul><ul...
2006 PENSION FUNDING LEVELS 96% - 110% 80% - 95% 55% - 79%
HEALTH CARE - GASB OPEB ISSUES – HISTORICAL PERSPECTIVE <ul><li>1940 </li></ul><ul><li>Medical plans became employer paid ...
2006 OPEB FUNDING LEVELS 0% 1% - 35% Over 35%
THE UNIVERSE IS DIVIDED INTO 2 CAMPS Those looking at Non-Funding Solutions Those looking at Funding Solutions (after exha...
METHODS TO ADDRESS OPEB FUNDING <ul><li>Pros </li></ul><ul><li>Reducing or limiting a portion of existing benefits can hel...
LIABILITY MANAGEMENT COMPONENTS
BASIC iPeb TM  OVERVIEW STRUCTURE = iPeb TM Bond Insurance Benefits Trust 3 Pieces:
iPeb STRUCTURED FINANCE STRATEGY ®  MECHANICS SUMMARY Fund Retirement Payments $ 25% 75% Buy Ins. on employees Cash Sets U...
ANALYSIS OF FUNDING ALTERNATIVES <ul><ul><li>Establish projected cash flows to fund UAAL </li></ul></ul><ul><ul><li>Identi...
Project Unfunded Actuarial Accrued Liability (UAAL) Level % of Payroll Amortization <ul><ul><li>Initial UAAL of $100 milli...
UAAL Amortization Total Cash Flow:  $316,176,024 Average Annual Deposit:  $10,539,200 Lowest:  $4,758,903 Highest:  $19,58...
Annual Level Savings Annual Level Savings UAAL Amortization vs. Refunding Debt Service Total Cash Flow:  $272,353,171 Savi...
Debt Service Comparisons UAAL Amortization vs.. OPEB Bond Debt Service vs. iPeb   Debt Service   Total Cash Flow:  $289,02...
iPeb TM :  AN ALTERNATIVE TO CUTTING BENEFITS Reduces the cash flow necessary to fund the OPEB obligation Provides suffici...
Source:  Clark Consulting TM ;  Executive Benefits – A Survey of Current Trends 2005;  152 of Fortune 1000 Companies Respo...
Citigroup Global Markets Inc. - Disclaimer Any terms set forth herein are intended for discussion purposes only and are su...
The Financial Group - Disclaimer IRS CIRCULAR 230 DISCLOSURE: To the extent these materials contain tax advice, the U.S. T...
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Mark Pollack, Scott Kremer, Todd Holder, Mark Benton

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  • The graph indicates the progress in the funded ratio of the Retiree Health Insurance Plan since the changes implemented in 1995. The line represents the Actuarial Accrued Liability and the bars the actuarial value of assets. As you can see when we began in 1995, we of course had no assets. The funded ratio grew to just over 15% in 1998 &amp; 2000, and by March of 2005 the funded ratio was approximately 27%, with actuarial assets of $12,726,000 and an AAL of $47,386,000. This demonstrates our inability to make significant progress in funding the liability in the absence of a critical mass of assets at the outset of the funding process.
  • The graph indicates the progress in the funded ratio of the Retiree Health Insurance Plan since the changes implemented in 1995. The line represents the Actuarial Accrued Liability and the bars the actuarial value of assets. As you can see when we began in 1995, we of course had no assets. The funded ratio grew to just over 15% in 1998 &amp; 2000, and by March of 2005 the funded ratio was approximately 27%, with actuarial assets of $12,726,000 and an AAL of $47,386,000. This demonstrates our inability to make significant progress in funding the liability in the absence of a critical mass of assets at the outset of the funding process.
  • The graph indicates the progress in the funded ratio of the Retiree Health Insurance Plan since the changes implemented in 1995. The line represents the Actuarial Accrued Liability and the bars the actuarial value of assets. As you can see when we began in 1995, we of course had no assets. The funded ratio grew to just over 15% in 1998 &amp; 2000, and by March of 2005 the funded ratio was approximately 27%, with actuarial assets of $12,726,000 and an AAL of $47,386,000. This demonstrates our inability to make significant progress in funding the liability in the absence of a critical mass of assets at the outset of the funding process.
  • Here we have some of Gainesville’s plan statistics as of 9/30/05, both on an age adjusted and blended premium basis. The AAL is 75.5m vs. 47.4M. The actuarial value of assets is of course the same under both approaches at 49.2M. That leaves us with a UAAL of 26.3M vs. negative 1.9M, and funded ratios of 65.2% vs. 103.9%. The annual required contribution is 7.7M on an age adjusted basis, and 3.6M on a blended premium basis.
  • The graph indicates the progress in the funded ratio of the Retiree Health Insurance Plan since the changes implemented in 1995. The line represents the Actuarial Accrued Liability and the bars the actuarial value of assets. As you can see when we began in 1995, we of course had no assets. The funded ratio grew to just over 15% in 1998 &amp; 2000, and by March of 2005 the funded ratio was approximately 27%, with actuarial assets of $12,726,000 and an AAL of $47,386,000. This demonstrates our inability to make significant progress in funding the liability in the absence of a critical mass of assets at the outset of the funding process.
  • Mark Pollack, Scott Kremer, Todd Holder, Mark Benton

    1. 1. PENSION & OPEB FINANCING Presented to November 21, 2008 Florida Government Finance Officers Association
    2. 2. Pension & OPEB Financing Participants Todd H. Holder Director Citigroup Global Markets Inc. 200 Crescent Court, Suite 830 Dallas, Texas 75201 P: 214-720-5074 E: todd.holder@citi.com Mark S. Benton Finance Director City of Gainesville 200 E. University Avenue Gainesville, Florida 32601 P: 352-334-5054 E: bentonms@ci.gainesville.fl.us Mark G. Pollock CLU, ChFC Principal The Financial Group, LLC 28601 Chargrin Boulevard, Suite 550 Cleveland, Ohio 44122 P: 216-455-2100 E: mpollock@tfg.com Scott D. Kremer Director of Institutional Markets The Financial Group, LLC 28601 Chargrin Boulevard, Suite 550 Cleveland, Ohio 44122 P: 216-455-2141 E: skremer@tfg.com
    3. 4. Pension & OPEB Financing <ul><li>PART ONE </li></ul><ul><li>City of Gainesville OPEB Case Study </li></ul><ul><li>PART TWO </li></ul><ul><li>The iPeb Structured Finance Strategy </li></ul>
    4. 5. City of Gainesville OPEB Case Study
    5. 6. City of Gainesville OPEB Case Study <ul><li>In the early 1980’s the City had a 30 year, non-contributory pension plan and the City funded 100% of retiree’s health insurance costs </li></ul><ul><li>In 1985 normal retirement moved to 20 years & plan became contributory </li></ul><ul><li>By 1985 City was picking up 80% of retirees’ dependent costs in addition to 100% of retirees </li></ul>
    6. 7. City of Gainesville OPEB Case Study <ul><li>20 year retirement shifted ratio between actives & retirees </li></ul><ul><li>Increased pension cost covered by member contributions </li></ul><ul><li>Rising pay-as-you-go retiree health insurance cost began to have fiscal impact on City </li></ul>
    7. 8. City of Gainesville OPEB Case Study <ul><li>In 1992 City performed actuarial valuation on existing retiree health insurance structure </li></ul><ul><li>AAL of $92M for 100% retiree/80% dependent </li></ul><ul><li>Began to look toward cost sharing formula to ensure continued provision of benefit </li></ul>
    8. 9. City of Gainesville OPEB Case Study <ul><li>Staff & actuary worked for two years on various allocations of cost </li></ul><ul><li>Chose premium sharing formula basing City contribution on years of service & age at point of accessing retiree health plan </li></ul><ul><li>City contribution capped at 50% of single premium </li></ul>
    9. 10. City of Gainesville OPEB Case Study <ul><li>Discussions with actives, retirees and City Commission </li></ul><ul><li>Formula implemented in1995; initial valuation resulted in $18M AAL under revised model </li></ul><ul><li>At same time new formula implemented, City began program of periodic valuations with contributions based on % of covered payroll </li></ul>
    10. 11. City of Gainesville OPEB Case Study
    11. 12. City of Gainesville OPEB Case Study <ul><li>By 2005 plan had UAAL of $34,660,000, with a % of payroll contribution associated with the UAAL of 4.19% </li></ul><ul><li>Translated to an annual City contribution of approximately $4.2M, with covered payroll growing 4-5% per year. </li></ul><ul><li>Issued $35.2M in 10 year taxable bonds and substituted debt service for UAAL amortization payments </li></ul><ul><li>All-in cost of 4.892%, projected gross savings of $7M, PV savings of $5.5M over 10 year life of bonds </li></ul>
    12. 13. City of Gainesville OPEB Case Study <ul><li>Early in 2005 hired plan consultant through RFP process </li></ul><ul><li>Created trust document for the plan, and separate investment policy for the trust </li></ul><ul><li>Through plan consultant six external investment managers were retained in various investment disciplines </li></ul><ul><li>Bond proceeds deposited in trust in 70/30 equity fixed income mix </li></ul>
    13. 14. City of Gainesville OPEB Case Study <ul><li>Early in 2005 hired plan consultant through RFP process </li></ul><ul><li>Created trust document for the plan, and separate investment policy for the trust </li></ul><ul><li>Through plan consultant six external investment managers were retained in various investment disciplines </li></ul><ul><li>Bond proceeds deposited in trust in 70/30 equity fixed income mix </li></ul>
    14. 15. 1 City of Gainesville OPEB Case Study
    15. 16. City of Gainesville OPEB Case Study
    16. 17. City of Gainesville OPEB Case Study <ul><li>State of Florida prohibits separately rating employees </li></ul><ul><li>$34.6M UAAL based on blended premium; premium charged is higher than actual only & lower than retiree only </li></ul><ul><li>Implicit rate subsidy – not age adjusted premium as called for by GASB </li></ul>
    17. 18. City of Gainesville OPEB Case Study
    18. 19. City of Gainesville OPEB Case Study
    19. 20. City of Gainesville OPEB Case Study <ul><li>Implemented GASB 43 & GASB 45 in fiscal 2005, with required note disclosure </li></ul><ul><li>Instituted separately issued financial statements for Other Post Employment Benefits Fund in Fiscal 2006 </li></ul>
    20. 21. November 21, 2008 The iPeb Structured Finance Strategy®
    21. 22. 4 MAIN REASONS PEOPLE WORK FOR THE GOVERNMENT 4 Main Reasons People Work for the Government (The Country’s Largest Employer) Flexible Qualifications Pay and Benefits Hiring Outlook Job Security 4 2 1 3
    22. 23. 4 MAIN REASONS PEOPLE WORK FOR THE GOVERNMENT <ul><li>Competitive Salary </li></ul><ul><li>13 Paid Sick Days </li></ul><ul><li>10 Paid Holidays </li></ul><ul><li>Flexible Work Hours </li></ul><ul><li>Transit Subsidies </li></ul><ul><li>Recruitment Bonus </li></ul><ul><li>Student Loan Repayment </li></ul><ul><li>Relocation Assistance </li></ul><ul><li>Lifetime Pension </li></ul><ul><li>Lifetime health Insurance into Retirement </li></ul>Pay and Benefits 2 Pay Benefits Pension Healthcare
    23. 24. 2006 PENSION FUNDING LEVELS 96% - 110% 80% - 95% 55% - 79%
    24. 25. HEALTH CARE - GASB OPEB ISSUES – HISTORICAL PERSPECTIVE <ul><li>1940 </li></ul><ul><li>Medical plans became employer paid </li></ul><ul><li>Unions play roll </li></ul><ul><li>Medical inflation 2X </li></ul><ul><li>Life expectancies increase </li></ul><ul><li>Retire age moved back 55 to 65 </li></ul><ul><li>2004 </li></ul><ul><li>GASB rules released </li></ul><ul><li>Calculate UAAL </li></ul><ul><li>Report liability </li></ul><ul><li>Develop a plan </li></ul><ul><li>2007 </li></ul><ul><li>GASB rules become effective </li></ul><ul><li>Actuarial reports </li></ul><ul><li>Plan design changes </li></ul><ul><li>2008 </li></ul><ul><li>Funding alternatives </li></ul><ul><li>Plan management </li></ul>A B C D
    25. 26. 2006 OPEB FUNDING LEVELS 0% 1% - 35% Over 35%
    26. 27. THE UNIVERSE IS DIVIDED INTO 2 CAMPS Those looking at Non-Funding Solutions Those looking at Funding Solutions (after exhausted all Non-Funding solutions) A B
    27. 28. METHODS TO ADDRESS OPEB FUNDING <ul><li>Pros </li></ul><ul><li>Reducing or limiting a portion of existing benefits can help reduce the UAAL </li></ul><ul><li>Private sector precedents </li></ul><ul><li>Cons </li></ul><ul><li>Polarization of employee/ retiree interests </li></ul><ul><li>May need to be used in conjunction with other options </li></ul>Reduce or Control Benefits <ul><li>Pros </li></ul><ul><li>Clean template from which to start (for many) </li></ul><ul><li>Trust fund treatment can move discount rate to 7%-8%, similar to a pension system. </li></ul><ul><li>Discount rate decreases the PV of unfunded liabilities </li></ul><ul><li>Cons </li></ul><ul><li>Limit to how much actuaries will allow </li></ul><ul><li>Aggressive assumptions may have negative rating implications </li></ul>Implement Favorable Actuarial Assumptions <ul><li>Pros </li></ul><ul><li>No immediate impact on budget </li></ul><ul><li>Pre-funding not required by GASB </li></ul><ul><li>Cons </li></ul><ul><li>Lack of funding means growing net OPEB obligation on balance sheet </li></ul><ul><li>Likely negative rating consequence </li></ul>Continue Pay-Go Funding Approach <ul><li>Pros </li></ul><ul><li>Least complicated </li></ul><ul><li>Funds invested to offset future liabilities </li></ul><ul><li>If annual budget contribution equals ARC, no balance sheet liability </li></ul><ul><li>Cons </li></ul><ul><li>Annual payments could be substantially higher than current budget </li></ul><ul><li>Contributes to Budget Stress </li></ul>Increase to Annual Required Contribution <ul><li>Pros </li></ul><ul><li>Immediate budget relief possible </li></ul><ul><li>Can be used in conjunction with all other strategies </li></ul><ul><li>Market gains realized on additional assets </li></ul><ul><li>Cons </li></ul><ul><li>May defer excessive debt service in later years </li></ul><ul><li>Legislation may be required in some jurisdictions </li></ul>Issue OPEB Bonds <ul><li>Pros </li></ul><ul><li>Same as “Issue OPEB Bonds” </li></ul><ul><li>Lowers net cost of capital through insurance proceeds </li></ul><ul><li>Possible credit enhancement to stand alone bond issue </li></ul><ul><li>Private sector precedents </li></ul><ul><li>Cons </li></ul><ul><li>Requires employees to acknowledge insurable interest </li></ul><ul><li>Mortality assumptions may not match cash flows </li></ul>iPeb Structured Finance Strategy ®
    28. 29. LIABILITY MANAGEMENT COMPONENTS
    29. 30. BASIC iPeb TM OVERVIEW STRUCTURE = iPeb TM Bond Insurance Benefits Trust 3 Pieces:
    30. 31. iPeb STRUCTURED FINANCE STRATEGY ® MECHANICS SUMMARY Fund Retirement Payments $ 25% 75% Buy Ins. on employees Cash Sets Up Trust Transfers OPEB Liability Issue Bonds Make P&I Payments Receives $ Transfer Both Buckets to Trust Death Benefits Pledged to Bond Holders Invested in Portfolio Cash Insurance Death Benefit CV #1 #2 GOVERNMENTAL ENTITY OPEB TRUST BONDS RETIREE BENEFITS
    31. 32. ANALYSIS OF FUNDING ALTERNATIVES <ul><ul><li>Establish projected cash flows to fund UAAL </li></ul></ul><ul><ul><li>Identify sources of funding </li></ul></ul><ul><ul><li>Comparison of cash flows </li></ul></ul>Actuarial Components of Funding: Purpose: <ul><ul><li>Actuarial funding method </li></ul></ul><ul><ul><li>Entry age vs.. projected unit credit </li></ul></ul><ul><ul><li>UAAL amortization method </li></ul></ul><ul><ul><li>Level dollar vs.. level % of payroll </li></ul></ul><ul><ul><li>Actuarial discount rate </li></ul></ul><ul><ul><li>Projected UAAL amortization </li></ul></ul><ul><ul><li>Payroll growth assumption </li></ul></ul><ul><ul><li>Projected level % payroll amortization </li></ul></ul><ul><ul><li>Long-term medical inflation rate </li></ul></ul><ul><ul><li>Projected normal cost </li></ul></ul><ul><ul><li>Projected retiree healthcare costs </li></ul></ul><ul><ul><li>Projected liquidity </li></ul></ul><ul><ul><li>Mortality table </li></ul></ul><ul><ul><li>Projected mortality </li></ul></ul>
    32. 33. Project Unfunded Actuarial Accrued Liability (UAAL) Level % of Payroll Amortization <ul><ul><li>Initial UAAL of $100 million. </li></ul></ul><ul><ul><li>The UAAL projection is based upon level percentage of payroll amortization. The salary growth is projected at 5%. The interest rate assumption is 7.5% net of expenses. </li></ul></ul>
    33. 34. UAAL Amortization Total Cash Flow: $316,176,024 Average Annual Deposit: $10,539,200 Lowest: $4,758,903 Highest: $19,588,290 $100 Million UAAL Amortization over 30 years <ul><ul><li>Amortization based upon 7.5% discount rate and 5% salary growth. </li></ul></ul><ul><ul><li>Middle of year payments necessary to fully fund UAAL. </li></ul></ul>
    34. 35. Annual Level Savings Annual Level Savings UAAL Amortization vs. Refunding Debt Service Total Cash Flow: $272,353,171 Savings: $38,971,576 PV Savings: $-15,062,820 % Savings: -14.95% Net Cost of Capital: 8.43%
    35. 36. Debt Service Comparisons UAAL Amortization vs.. OPEB Bond Debt Service vs. iPeb Debt Service Total Cash Flow: $289,025,069 Savings: $27,150,996 PV Savings: $7,616,370 % Savings: 7.56% Net Cost of Capital: 6.43%
    36. 37. iPeb TM : AN ALTERNATIVE TO CUTTING BENEFITS Reduces the cash flow necessary to fund the OPEB obligation Provides sufficient liquidity to meet future liabilities Strengthens the balance sheet and GASB 43/45 reporting We believe the iPeb TM meets the following 3 major objectives: Cash Flow Liquidity Balance Sheet Impact 3 2 1
    37. 38. Source: Clark Consulting TM ; Executive Benefits – A Survey of Current Trends 2005; 152 of Fortune 1000 Companies Responded EMPLOYER OWNED LIFE INSURANCE UTILIZED TO FUND RETIREE COMPENSATION PLANS PRIVATE SECTOR PRECENDENCE All Companies Financial Institutions
    38. 39. Citigroup Global Markets Inc. - Disclaimer Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the existence of and proposed terms for any transaction contemplated hereby (a “Transaction”).   Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.   IRS Circular 230 Disclosure: Citi, Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the &quot;promotion or marketing&quot; of the Transaction. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.   We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also request corporate formation documents, or other forms of identification, to verify information provided.   Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time.   Citi maintains a policy of strict compliance to the anti-tying provisions of the U.S. Bank Holding Company Act of 1956, as amended, and the regulations issued by the Federal Reserve Board implementing the anti-tying rules (collectively, the &quot;Anti-tying Rules&quot;). Moreover, our credit policies provide that credit must be underwritten in a safe and sound manner and be consistent with Section 23B of the Federal Reserve Act and the requirements of federal law. Consistent with these requirements and our Anti-tying Policy: ·          The extension of commercial loans or other products or services to you by Citibank, N.A. 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So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and research personnel to specifically prescribed circumstances. © 2007 Citigroup Global Markets Inc. Member SIPC. All rights reserved. Citi and Citi and Arc Design are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.
    39. 40. The Financial Group - Disclaimer IRS CIRCULAR 230 DISCLOSURE: To the extent these materials contain tax advice, the U.S. Treasury Department requires us to inform you that any such advice, whether in the body of these materials or in any attachment, it not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code. Advice from our firms relating to tax matters may not be used in promoting, marketing or recommending any entity, investment plan or arrangements to any taxpayer. NOTICE OF PATENT PENDING AND PROPRIETARY INFORMATION The material contained in this presentation and accompanying materials and exhibits has been developed by and constitutes the proprietary work of The Financial Group. The iPeb PP Structured Finance Solution™ is currently awaiting patent issue. You are being made aware of this “Patent Pending” notice and requested to honor the proprietary nature of the information. We request that any sharing of this information should have the prior expressed permission of the officers or directors of The Financial Group, LLC. This presentation does not constitute investment, legal or tax advice, and the material contained in this report should not be interpreted or relied upon for implementation. You should consult your investment, tax and/or legal advisors. <ul><li>Intended for discussion purposes only and not as tax or legal advice. Please consult your own attorney and accountant for tax and legal advice. </li></ul><ul><li>Important Information Regarding Insurance Products </li></ul><ul><li>Insurance products: </li></ul><ul><li>are NOT insured by the FDIC </li></ul><ul><li>are NOT deposits or other obligations of any bank and are NOT guaranteed by any bank; and </li></ul><ul><li>are subject to investment risks, including the possible loss of principal if the issuing company is unable to meet its obligations. </li></ul><ul><li>PATENT PENDING </li></ul><ul><li>© 2006 by The Financial Group, LLC. All Rights Reserved. </li></ul>
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