Thank you for joining Legg Mason at our RETHINK 2010 Investment Symposium in

Toronto, Canada.

The Symposium will provide an informative forum for you to hear presentations and
discussions from many of Legg Mason's prestigious investment management affiliates,
highlighting perspectives on current investment themes.

We hope that you find the day useful and thought provoking.

Kind regards,

Lori MacKay, CFA

Managing Director, Business Head
Legg Mason Canada Inc.

Page 1
Agenda
8.00 am Registration and Continental Breakfast

Introduction and Welcome Remarks

8.30 am
Lori MacKay and David Gregoire, Legg Mason Canada

Opening Keynote
8.45 am
Paul Ehrlichman, Head of Global Equity, Global Currents

Developed Markets Panel

Moderated by Richard Gillham, Product Specialist, Legg Mason Global Asset Management
Michael Kagan, Senior Portfolio Manager, ClearBridge Advisors
9.30 am
Patrick Kaser, Co-Head Large Cap Value, Brandywine Global
Sam Peters, Senior Portfolio Manager, Legg Mason Capital Management
Paul Ehrlichman, Head of Global Equity, Global Currents

10.30 am Break

Asset Allocation Spotlight

10.45 am
Steven Bleiberg, Head of Global Investment Strategy, Legg Mason Global Asset Allocation

Emerging and Alternative Markets Panel

Moderated by Kent Miller, Product Specialist, Legg Mason Global Asset Management
11.00 am David Lazenby, Senior Portfolio Manager, Batterymarch Financial Management
Stephen Smith, Managing Director and Portfolio Manager, Brandywine Global
Tim Schuler, Investment Strategist, Permal

Luncheon Keynote
12.00 pm
Ken Leech, CIO Emeritus, Western Asset Management

1.30 pm Closing Remarks

Page 2
Symposium Overview
Opening Keynote
Paul Ehrlichman, Head of Global Equity, Global Currents
The Changing Landscape for Global Equities: How in a growth starved world can investors navigate and pursue global
opportunities to grow their portfolios? Despite challenging sales margins and sales growth for many companies going forward,
Paul will detail his team’s strategy for finding value in these markets by focusing on resilience via investing in companies with
strong internal and external growth drivers and competitive attributes that can lead to outperformance over time.

Developed Markets Panel: Invest for Success

Is now the best time in more than 50 years for Canadians to invest in U.S. stocks? Should you buy small-, medium- or large-cap
companies? Will growth beat out value? Can active managers add value against passive indices? Four talented, skilled and
opinionated portfolio managers will answer these questions and share their thoughts on how to outperform in the biggest and
most efficient markets in the world.

Emerging and Alternative Markets Panel: Extending the Pursuit of Alpha

The world has gone through a turbulent transition from status quo to a new paradigm as the emerging titans are providing much
of the economic horsepower to the global economy. What are the implications for non-traditional investments as we continue
through the re-normalization of the global market and how can institutional investors capture alpha from emerging and
alternative assets as it continues to evolve? Our experts will address these issues and offer timely insight into emerging market
equity and fixed income markets.

Page 3
Symposium Overview (Continued)
Asset Allocation Spotlight
Risk (Re)considered: Portfolio Allocation in the Black Swan’s Wake
Can the classical long-term approach to risk management be successfully adapted to protect portfolios against the recurrence of
another market pullback? Steven Bleiberg, Chief Investment Officer of Legg Mason Global Asset Allocation, will discuss the
central questions posed by recent market events: What have we learned about risk? Is there a need for a fundamental
reassessment of risk management, or simply adjustments to traditional approaches? What new techniques should be
considered going forward? And ultimately, how can we help investors to meet their investment objectives?

Luncheon Keynote
Ken Leech, CIO Emeritus, Western Asset Management
The biggest investment challenge may be yet to come. The politics of stimulus are in retreat globally. Fiscal consolidation is the
strategy of the developed world, and the corollary is that monetary policy must be sufficiently accommodative. “Low for long” is
now the mantra of the central banks, and the bond market rallies that have been touched off in response have been
spectacular. So what have we done and where do we go from here?

Page 4
Lori MacKay, CFA
Managing Director, Business Head
Legg Mason Canada

Page 5
Legg Mason Global Asset Management
Truly global: headquartered in Baltimore, USA, with 33 offices around the world
Singular focus on asset management, with over US$674 billion under management1
Continuous evolution through manager acquisition for over four decades
Diversified investment management capabilities through a network of leading investment
management subsidiaries with investment independence
Leading, diversified global asset manager
8th largest manager of institutional
assets worldwide2

Over 3,800 employees operating in 33 offices

around the globe to provide investment
solutions to clients in over 190 countries
1As at 09/30/2010.
Page 6
Pension & Investments, based on 12/31/2009 worldwide assets under management
2
*These transactions occurred during Legg Mason’s fiscal year ending March 2006, and were completed in December 2005.
**The team at Global Currents formerly managed international and global equity strategies at Brandywine Global Investment Management, LLC,
a wholly owned affiliate of Legg Mason, Inc.
Legg Mason Canada Inc.1

• On-the-ground sales, marketing and support professionals for Legg Mason Affiliates in Canada.
• Serves the institutional and third party investment communities, offering segregated portfolios, separately managed
accounts and pooled funds.
• Provides Canadian investors with access to a diverse range of investment management affiliates covering multiple styles
and capitalizations.
• Offers Canadian perspective for customized asset allocation and balanced account management
• C$6.3 Billion AUM as of September 30, 2010*

By Affiliate By Asset Class

Batterymarch
5.0%
Western Asset
20.0% Fixed Income
22.9%
Brandywine
19.0%

Asset Allocation/Other
48.1% Cash
7.5%

Global Currents Canadian Equity

12.0% 2.3%
Legg Mason Global International Equity
Asset Allocation Legg Mason Capital 3.9%
43.9% Management
0.1% Global Equity
8.0%
U.S. Equity
7.3%

1 See Important Information at the end of this section.

Page 7

* Legg Mason Canada Inc. assists certain of its affiliates in attaining and servicing Canadian clients. Such affiliates
compensate Legg Mason Canada for its services. AUM at 09/30/2010 includes C$1.2 billion of these assets.
David Gregoire, CFA
Managing Director, Head of Distribution
Legg Mason Canada

Page 8
Legg Mason’s Seasoned Investment Managers
Legg Mason is Committed to Providing Clients with Investment Management Excellence through its
Framework of Highly Regarded Investment Subsidiaries

Global Fixed Income managers with Focuses exclusively on managing Focuses on ‘Classic Value’ investing in U.S. U.S. Value Equity manager recognized for
expertise across all areas of the fixed all-cap U.S. equities equities and global fixed income its distinct value investment process
income market

Follows a disciplined value approach Pioneer in quantitative analysis for equities Value-oriented investment approach
in small and micro cap U.S. equities management since 1969 with expertise in emphasizes preservation of
Hedge-style managers within
North America, UK, Europe, Asia and capital and appreciation.
mutli-manager funds
Emerging Markets

Classic ‘value investing’ global equity Dedicated Emerging Markets manager Provides asset allocation and manager Dedicated Hong Kong and China Equities
specialist oversight services Investment Manager

Page 9
Each of the above investment management companies is affiliated with Legg Mason Canada Inc. through common control and ownership by
Legg Mason, Inc. Legg Mason Canada provides access to its affiliates through Legg Mason Canada services that are intended for Canadian
residents only. Esemplia Emerging Markets is the trading name of Legg Mason International Equities Limited.
International Products
Legg
Mason Batterymarch Legg Mason Congruix Esemplia Permal Private
Western ClearBridge Brandywine Royce & Global
Global Financial Capital Investment Emerging Group Capital
Asset Advisors Global Associates Currents
Asset Mgmt Mgmt Mgmt Markets Mgmt
Allocation

Cdn Non-Cdn
Domiciled Domiciled Separate Accounts
Funds* Funds**
Canadian Equities 9 9
US Equities 9 9 9 9 9 9 9 9
International
Equities 9 9 9 9 9 9
Global Equities 9 9 9 9 9
European Equities 9 9
Far East Equities 9 9 9
Emerging Market
Equities 9 9 9 9

Canadian Fixed
Income 9 9
US Fixed Income 9 9
Euro Fixed Income 9 9
Global Fixed
Income 9 9 9 9
Money Market 9 9 9

Hedge Funds 9 9
Asset Allocation/
Balanced 9 9 9 9
LDI Solutions 9 9 9
130/30 9 9 9 9 9 9
SRI/ESG 9 9 9 9
Private Equity 9
Managed Currency 9 9

Page 10
*Legg Mason Canada Pooled Funds **Sub-Funds of Legg Mason Global Funds plc.
See Important Information at the end of this document.
Important Information
Legg Mason Canada and Affiliated Investment Managers
Legg Mason Canada Inc. and each of the affiliated investment managers referred to herein (“Affiliated Managers”) are affiliated through
common control and ownership by Legg Mason, Inc. Legg Mason Canada provides access to the Affiliated Managers through Legg Mason
Canada services that are intended for Canadian residents only. Such services are available through Legg Mason Canada only as
specifically permitted and subject to applicable regulatory and other restrictions.

Canadian Domiciled Funds

Legg Mason Canada is the manager and portfolio adviser of the Legg Mason Canada Pooled Funds (the “Funds”). Legg Mason Canada
has appointed certain Affiliated Managers as portfolio sub-advisers to manage certain of the Funds’ portfolios. The offering of units of the
Funds is not, and under no circumstances is to be construed as, a public offering of such securities. The Funds are available for purchase
only by investors resident in each of the Provinces of Canada who are “accredited investors” under National Instrument 45-106.
Information concerning the Funds is set out in the Confidential Offering Memorandum, available from Legg Mason Canada upon request.

Non-Canadian Domiciled Funds

The Non-Canadian Domiciled Funds are sub-funds of Legg Mason Global Funds plc (the “Company”), an umbrella fund with segregated
liability between sub-funds, established as an open-ended, variable capital investment company incorporated with limited liability under the
laws of Ireland. Each of these sub-funds is authorized in Ireland by the Irish Financial Services Regulatory Authority as an undertaking for
collective investment in transferable securities (“UCITS”). The sub-funds are available for purchase through Legg Mason Canada only by
investors resident in each of the Provinces of Canada who are “accredited investors” under National Instrument 45-106. Information
concerning the particular sub-funds being offered to residents of Canada is set out in the Company’s Prospectus, Simplified Prospectus
and the Confidential Canadian Offering Memorandum, available from Legg Mason Canada upon request.

Page 11
The Changing Investment Landscape
Paul Ehrlichman, Head of Global Equity
Global Currents Investment Management
Page 12
The Changing Investment Landscape

“I put a dollar in one of those

change machines… nothing
changed.”
George Carlin, Comedian

Page 13
The Big Picture: The 3D Economy

• Delusion, denial and debasement

• The Great Truth of our generation needs to be accepted - Governments have
made promises they cannot keep
• An asset reflation driven debt boom again?
• The transition from a Gaming culture is needed
• Debasement is a transfer of wealth to hard asset owners while punishing savers,
lenders and the working classes, especially the poor EM consumers
• A reconnection of markets, economics and society
• The socioeconomic and political challenges are not fully appreciated

Page 14
An Unsustainable Gap
Consumer Spending and Wage Payments

(LHS)

Source: BEA; Morgan Stanley Research.

Page 15
Chilling Impact: US Abandonment of Gold Standard

5
4.5
4
40's
3.5
50's
3
60's
2.5
70's
2
80's
1.5
90's
1
00+
0.5
0
40's 50's 60's 70's 80's 90's 00+

Source: Global Ministry of Truth, 2010.

Shifts in the Investment Landscape

• The old shadow banking system and circle of manipulation are dead
• Structural decline in interest rates ending
• Growth no longer driven by rising debt & asset prices
• Supercycle profit boom is over
• It’s 1873 again: the locus of power moves East
• The “Great Moderation” is over
• Period of price stability is ending
• Friction increases in the global economy - tariffs, taxes, capital controls,
protectionism, etc…

Page 17
World GDP over the last 500 Years

Source: Visualizing Economics, Angus Maddison, University of Groningen, 2009

Page 18
Source: Anderson, 2005.

Page 19
Changing Landscape: Companies & Markets

• Not enough growth to go around

• Cost of capital diverges
• Country/regional and stock correlations fall
• Too much capacity in the East and too much debt in the West; tough environment
for margins
• Fallacy of composition: not everyone can gain market share, cut costs, raise
prices and boost exports…profit estimates are too high
• Bust, bounce, correct and then range bound is the historical pattern for markets
• Old leadership leads the bounce, new leadership emerges from the correction

Page 20
Correlations & Global Equities
Rolling 5-Year Monthly Correlations Country Equity Index vs. World Equity Index

Source: Wolfe Trahan & Co, 2010

Page 21
Correlations and World GDP
10-Year Correlation Country GDP to World GDP

Source: Wolfe Trahan & Co, 2010

Page 22
Earnings Revisions: MSCI EM
MSCI EM: FY2 Earnings Revision and YoY Performance

Source: IBES, Factset, Morgan Stanley Research. Data as of 25 May, 2010.

Page 23
Stock selection in Range Bound Markets

• Target less than 12 times average earnings; never more than 16

• Seek 3% to 5% yields growing at 3% to 5% per year
• Sustainable, recurring free cash flows and high ROE’s are key
• Superior business models are rewarded with flexible costs, positive demand
elasticity, market share leadership; the strong get stronger
• Quality, margin of safety and timing are key
• Pseudo contrarians beware…bad news is bad news

Page 24
Emerging Markets - Too Big to Ignore…

Change in number of companies, market capitalization, and price of developed and

developing market companies in FactSet database (1990 – 2010)

Source: Societe Generale Research, 2010.

Page 25
… But Don’t Ignore Dilution
Passive investors watch out: Emerging Market dilution is 10% per annum

Source: Societe Generale Research, 2010.

Page 26
High Growth not High Returns

Emerging market country GDP growth and stock market performance is inversely correlated
(country growth and stock performance: 1988 – 2007)

Source: Societe Generale Research, 2010.

Page 27
Valuation Dispersion
Emerging Markets
Composite Valuation Dispersion
As Of 09/30/10
2.0

1.5 Very High

1.0

High
0.5

0.0
Normal

-0.5
Low

-1.0

-1.5
Very Low

-2.0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Bernstein Research, 2010.

Page 28
Emerging Markets and Valuation Strategies (2000-2010)

Source: Societe Generale Research, 2010.

Page 29
Size Matters less than Quality
Performance of size/quality strategies in Developed, Emerging and Global Markets (2000-2010)

Source: Societe Generale Research, 2010.

Page 30
EM Thoughts and Observations

• Need to be creative and careful - not ideal timing from a valuation standpoint
• Quality measures and margin of safety critical
• Cost of protection via options at record low
• Investor buying on QE2 expectations may be misplaced
• Developing economies hurt by asset price bubbles and rising inflation…will need
to adjust currencies, rates or accept higher inflation
• Relatively poor consumers and under-developed domestic sectors
• Facts to Fantasy to Farce…the myth of lower risk and higher returns forever

Page 31
China: It’s later than you think…

• Expect a structural slowdown in growth to 5% to 8%

• Economic reform process is 30 years old
• Urbanization and unmet housing needs less than widely perceived
• Overbuilding and mal-investment are massive and will continue to depress capital
returns and efficiency
• Consumer economy still too small to fully offset slowdown in exports and fixed
capital formation
• Social challenges; transition from austerity to abundance
• Health and demographic challenges

Page 32
China’s Investment Boom

Source: IMF, Pivot Capital Management, 2010.

Page 33
For comparative analysis, the data for South Korea, Japan, Germany and China are plotted on the same graph.
The time line for this chart is being used to better highlight the investment boom for China.
Housing in China

Source: Bureau of Statistics, Pivot Capital Management, 2010.

Page 34
China Housing Expanding since 2001

Source: Bureau of Statistics, Pivot Capital Management, 2010.

Page 35
America: It’s Earlier than you think…

• Modern American age really began with the fall of USSR

• Produce 25% of the world’s goods and services
• Biggest producer of manufactured goods - larger than Japan and China combined
• US oil production close to Russia and 85% of Saudi Arabia’s
• Second in the world in natural gas
• Still under-populated at 31 people/km2 (Europe 200+/km2)
• Three times the global average of arable land per capita = food security

Page 36
US Education Productivity

Source: MW Hodges, 2010 grandfather-economic-report.com Grandfather Economic Report

Page 37
Cabinet Appointments & Private Sector

Source: Originally posted on The Enterprise Blog on November 25, 2009 at blog.american.com.

Page 38
Europe: It’s much, much, much later…

• Economic union without political union is a structural flaw

• EMU was a ponzi scheme for the “CAD’s”
• Two speed Europe returns
• Reduced spending, higher taxes, falling wages and high real interest rates
• The socio-economic fabric of Europe - the welfare state - is failing and will test
political and social stability
• Euro at a turning point - soft or hard currency?
• Culture, capital, labor and geographic challenges
• The largest long run decline in global relative GDP

Page 39
Europe: Paradox of Government Misery and Corporate Prosperity

Source: Societe Generale Research, 2010.

Page 40
Random thoughts and ideas…
• Trade Asia bullishly and Europe bearishly
• Remember the 80/20 global arbitrage
• Competition for retirees goes global; the baby boom goes into capital preservation mode
• Negative correlations of commodities and stocks
• Japan finally inflates
• Emerging market downside protection is cheap
• A renewed global downturn led by weakness in Emerging economies is the non-consensus
view
• Bearish on the Euro / Bullish on the US dollar
• Packaging, printing, media-abundance plays
• Chinese water infrastructure
• Is it time for Africa?

Page 41
Random thoughts and happy thoughts…

• Mass collaboration - the knowledge revolution

• Increased focus on unmet needs - healthcare, energy, food production,
education, aging, security…
• Seeds of recovery - innovation, adaptation and progress gets sparked by
adversity
• From 1931-38 US research spending rose 50%
• Age of oil is giving way to age of electricity
• Efficiency & abundance vs. scarcity & waste
• Capital will go from weak to strong hands

Page 42
Suggestions for further reading
The Next 100 years. George Friedman
Wikinomics. Don Tapscott and Anthony D. Williams
Mavericks at Work. William C. Taylor and Polly LaBarre
The Misbehavior of Markets. Benoit Mandelbrot and Richard L. Hudson
Mobs, Messiahs and Markets. William Bonner and Lila Rajiva
Why Catastrophes Happen-Ubiquity. Mark Buchanan
Why Most Things Fail. Paul Ormerod
The Myth of the Rational Market. Justin Fox
The Forgotten Man. Amity Shlaes
Assaying the Aughts - Special Briefing December 31, 2009. Inferential Focus
Fault Lines. Raghuram G. Rajan
Lords of Finance. Liaquat Ahamed
Financial Fiasco. Johan Norberg

Page 43
Thanks for Listening. Your Thoughts?

Page 44
Important Information
The information contained in this presentation is obtained from sources believed to be accurate, reliable and current as of the presentation
date. Global Currents will not undertake to supplement, update or revise such information at a later date. The information contained herein
is for informational purposes only and is not intended to be a recommendation, investment advice, forecast or guarantee of future results.
This is not an offer or solicitation for any products or services in any jurisdiction. All indices discussed herein are unmanaged and not
available for direct investment. All investments involve risks including loss of principal. Investing in foreign securities involve risks in
addition to those ordinarily associated with investing in domestic securities, including the potentially negative effects of currency
fluctuations, political and economic developments, foreign taxation and differences in auditing and other financial standards. International
investing may not be suitable for everyone
Copyright © 2010 Global Currents Investment Management, LLC. All rights reserved.

Source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any
express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such
parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose
with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party
involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential
or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of
the MSCI data is permitted without MSCI’s express written consent.

Past performance is no guarantee of future results.

All opinions and data included in this presentation are as of October 22, 2010 and are subject to change. The opinions and views
expressed herein are those of the speaker Paul Ehrlichman, Head of Global Equity at Global Currents Investment Management, and may
differ from the firm as a whole or other Legg Mason investment affiliates, and are not intended to be a forecast of future events, a
guarantee of future results or investment advice. The statistics have been obtained from sources believed to be reliable, but the accuracy
and completeness of this information cannot be guaranteed.

Page 45
Risk (Re) Considered
Portfolio Allocation
in The Black Swan’s Wake
Steven Bleiberg, Head of Global
Investment Strategy, Legg Mason
Global Asset Allocation

Page 46
The only thing that went up during the financial crisis was correlation
200

175
Index Levels, 12/31/2006 = 100

150

125

100

75

50

25
D ec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10

Developed Equities Emerging Equities Real Estate

Com modities High Yield Bonds Corporate Bonds
Source: Bloomberg. Developed Equities = MSCI World Index. Emerging Equities = MSCI EM Index. Real Estate = FTSE NAREIT All REITs Index. Commodities = S&P GSCI Index.
High Yield Bonds = Citigroup HY Market Index. Corporate Bonds = Citigroup Credit Index.

Page 47
‘Long periods of boredom punctuated by moments of sheer terror’
30%
Frequency Distribution for Monthly S&P 500 Returns

25%
January 1928 to September 2010

20%

15%

10%

5%

0%
<-3 -3 -2.5 -2 -1.5 -1 -0.5 0.5 1 1.5 2 2.5 3 >3
Standard Deviations Away From Mean

Source: Bloomberg, LMGAA calculations. Normal Distribution Actual Distribution

Page 48
Traditional risk management – i.e., diversification – still provides
benefits over the long term.
But what can investors do in the short term to manage the risk of
“black swans,” when correlations rise and diversification is of little
benefit?

Page 49
What would the ideal payoff structure look like?
40%

30%

20%

10%
Hypothetical Portfolio Return

0%

-10%

-20%

-30%

-40%
-40% -30% -20% -10% 0% 10% 20% 30% 40%
Hypothetical Market Return
Source: Legg Mason Global Asset Allocation, LLC. This graph is for illustrative purposes only. The graph represents the returns of a hypothetical portfolio and does not predict or represent the
returns of any actual investment product or investment strategy in any way.

Page 50
There are two basic ways to replicate the payoff structure of a call
option:

Dynamic Risk Management – changing the mix between risky

assets and riskless assets as prices rise and fall, or as implied
volatility rises and falls, based on a pre-determined algorithm

Derivatives Overlay Strategy – using options and/or futures to

change the shape of the payoff structure or to effectively change the
asset mix

All investments involve risk. Derivatives, such as options, can be illiquid, may disproportionately increase losses, and have a potentially large impact on performance.

Page 51
 Dynamic Risk Management Derivatives Overlay Strategy

Can be the lowest cost strategy, No need to trade underlying assets

sometimes requiring no trading

Advantages Can be applied to a variety of Can protect portfolio in volatile

asset allocation models; not markets without any need to trade
dependent on existence of (options)
derivatives

Can be “stopped out” and miss Paying for insurance you didn’t use
rallies
Explicit transactions costs Protection costs more just when
Disadvantages you need it most
associated with asset mix changes

May be unable to transact during May be unable to transact during

discontinuous markets discontinuous markets

All investments involve risk. Derivatives, such as options, can be illiquid, may disproportionately increase losses, and have a potentially large impact on performance.

Page 52
Whichever method of risk management you choose, it is essential to
have a systematic approach:
• Helps you avoid spending time figuring out how to react when
markets move
• Saves you from emotional overreactions

Ultimately, short term risk management is a form of insurance.

Insurance is not free, even if it turns out you didn’t need it.

Page 53
Important Information
The views expressed in this document are current as of the presentation date and are subject to change based on market and other
conditions. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice.
Forecasts are inherently limited. Past performance is no guarantee of future results.

Opinions and views are those of Steven Bleiberg, Chief Investment Officer of Legg Mason Global Asset Allocation (“LMGAA”) and do not
represent other managers or Legg Mason or its affiliates overall. The information provided is not on behalf of any Legg Mason product or
service. The information contained herein should not be used as the sole basis to make any investment decision.

This presentation is solely for the use of the intended recipient and is not to be photocopied, reproduced or otherwise distributed without
the express written consent of LMGAA.

Statistics and market data have been obtained from sources believed reliable however LMGAA cannot guarantee the accuracy or
completeness of this information.

Diversification does not ensure a profit or protect against market loss.

Page 54
Investment Overview
Where Do We Go From Here?
Kenneth Leech, CIO Emeritus
Western Asset

Page 55
Systemic Risk

Page 56
Systemic Risk Abating
600
500
U.S. Credit OAS (bps)

Lehman Bros.
Barclays Capital

400
Enron WCOM
Bear Stearns
300 Inverted Recession Onset
Recession, Gulf Inverted Curve
200 War GM Subprime
Russia/LTCM
100 SE Asia
0
1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Source: Barclays Capital. As of 30 Sep 10

Default Rates, Investment-Grade Corporates

20
5-Year Default Rate Based on 30% Recovery Implied by
15 Market Pricing 30 Sep 10 (12.4%)
Percent

10 5-Year Cumulative Rate of Historical Defaults,

Investment-Grade Corporates
5

0
1924 1934 1944 1954 1964 1974 1984 1994 2004
Source: Moody's, Barclays Capital, Bloomberg

Page 57
Bank Fundamentals Continue to Improve
Banks are Reducing the Size of Their Balance Sheets…and Dramatically Improving Capital

120 Change in Tangible Common Equity Total Change in Assets

109.1
100.0
100 95.9

80 74.3
Change in Tangible Equity (%)

62.1
60 52.3 53.1

40 33.5
31.1 31.2 30.2
27.0
22.3 21.1 20.8 22.4
20
11.3 10.0 8.6
8.4 5.1 3.6
1.5 0.6 0.1 0.6
0
-5.0 -6.4 -6.6 -7.2 -3.5
-9.2 -9.0 -9.7
-20
-24.2
-31.4 -25.8 -30.2
-40
UBS

RBS
JP Morgan Chase

Credit Suisse

UniCredit

Deutsche

US Average
Santander

Intesa
BNP Paribas

Banco Bilbao
HSBC

Barclays
Bank of America

Lloyds

Societe Generale
Wells Fargo

Credit Agricole

European Average
Source: Citigroup. As of 25 Jun 10

Page 58
Global Growth: Greece - Who Would’ve Thunk?

Page 59
 Source: IMF As of 30 Sep 09
Percent of GDP
Percent of GDP

-20
-10
0
10
20
30
-20
-10
0
10
20
30

5
Norway

11
16

Norway

-8
Malaysia

23
16

Malaysia
6

-4
China

10
China
5

-4
South Korea South Korea

7
4

-3
Germany Germany
3

-7
Japan

10
Japan
Budget Deficit

-6
Euro Area
-1

Euro Area

-3
2
Brazil
-1

Brazil
1
-2
Poland
-2

Poland
-2

United kingdom
13

United Kingdom
-14
4
-2

-6

Turkey Turkey
0
-3

-3

Canada Canada
Current Account as a Percentage of GDP

-5
2
-3

Italy Italy
Surplus Private Saving

7
-3

United States United States

-10
0
-4

Australia Australia
-4
-6

Spain Spain
-12
Fiscal Profligacy: High vs. Low Savings Economies

Greece Greece
-12

-13

Page 60
2-Speed Eurozone
Unit Labor Costs
150

140

130 Ireland
Index (2000=100)

120 Italy
Greece
Spain

110

Germany
100

90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: OECD, as of 31 Dec 2009.

Page 61
Global Conundrum
Fiscal consolidation
Monetary accommodation
Central Bank Target Rates
7

6
Fed
BoE
5

4
Percent

3
ECB
2

1
BoJ

0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Federal Reserve, ECB, BoE, BoJ. As of 30 Sep 10

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Inflation: Little Underlying Inflationary Pressures
US: Three Measures of "Underlying" Inflation Europe: Disinflation at the core, Deflation at the Periphery
6 5
5 4
Spain
4 Core CPI 3
Median CPI

Percent
Percent

3 2 France
2 1
Mean
1 0
Trimmed CPI
0 -1

1990 1993 1996 1999 2002 2005 2008 2000 2002 2004 2006 2008
Source: BLS, Cleveland Fed As of 30 Sep 10 Source: Bloomberg. As of 30 Sep 10

World Inflation - Average Consumer Prices

40
Annual Percent Changes

30

20

10

0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: Bloomberg

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Emerging Markets Should be the Long-Term Winner
Government Debt as a Percentage of GDP
120

100
Advanced Economies
80
Percent

60

40 Emerging Markets
20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010*

GDP Growth
10
8 Emerging Markets
6
4 Advanced Economies
Percent

2
0
-2
-4
-6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010*

*Forecast
Source: International Monetary Fund, Moodys, CSFB. As of 31 Dec 09

Page 64
Monetary Policy Uncertainty
7
6
Fed Fund Rate
5
4
Percent

3
Core PCE
2
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Bloomberg. As of 31 Aug 10

6
Year-Over-Year Change (%)

4
Fed Funds – Core PCE
2

-2
Fed Funds – CPI
-4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Federal Reserve, Bureau of Labor Statistics, Bureau of Economic Analysis. As of 31 Aug 10

Page 65
QE Uncertainty
US (LHS) Europe (LHS) UK (RHS)
2.15 2.80

Bernanke's Jackson Hole Speech

2.05 2.75

1.95 2.70
10-Year Breakeven Inflation

10-Year Breakeven Inflation

1.85 2.65

1.75 2.60

1.65 2.55

1.55 2.50

1.45 2.45
Jun 10 Aug 10 Sep 10 Oct 10
Source: Barcap. As of 15 Oct 10

Page 66
Investment Themes
Global Overview
• Systemic risk abating
• Global recovery ongoing with mild downshift in 2011
• Fiscal consolidation meets "very low for very long" monetary policy
• Emerging markets remain firm - partial decoupling in place
• Inflation remains low
Growth
• Asia and emerging markets lead
• US continues subpar recovery
• Europe lags
Currency
• Emerging and strong fiscal condition countries lead
• G4 all remain challenged
• Euro weakness to re-emerge
Risks
• Double-dip recession
• QE uncertainty
• Potential currency instability

Page 67
Important Information
On November 3, 2008, Barclays Capital announced the rebranding of its unified family of indices under the “Barclays Capital Indices” name.
This combines the existing Lehman Brothers and Barclays Capital indices into a single platform.

© Western Asset Management Company 2010. This publication is the property of Western Asset Management Company (Western Asset)
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.

The information contained in this herein is obtained from sources believed to be accurate, reliable and current as of the presentation date.
Western Asset will not undertake to supplement, date or revise such information at a later date. The information is for informational
purposes only and is not intended to be a recommendation, investment advice, forecast or guarantee of future results. This is not an offer or
solicitation for any products or services in any jurisdiction. The opinions and views expressed are those of the speaker Kenneth Leech, CIO
Emeritus of Western Asset and may differ from the firm as a whole or other Legg Mason investment affiliates.

Page 68
Speaker Biographies

Page 69
Paul Ehrlichman
Head of Global Equity – Global Currents
Paul is the Head of Global Equity and also serves as a Portfolio Manager for Global Currents Investment Management. In addition, he oversees
the firm’s global investment process and leads the investment team which consists of 5 portfolio managers and 5 dedicated research analysts.
Prior to launching Global Currents in 2008, Paul spent 18 years at Brandywine Global as Global Equity CIO and Managing Director. He has 27
years of industry experience. Prior to joining Brandywine Global, Paul was with Provident Capital Management, Inc. as an Assistant Vice
President and Portfolio Manager (1984-1988), and with First Pennsylvania Bank as a Securities Analyst (1983-1984).
Paul earned a B.S. degree in Finance and Quantitative Analysis from La Salle University, graduating Cum Laude. Paul is also involved with a
number of community organizations including Fairville Friends School, The Brandywine Conservancy, Salesianum High School, St. Patrick’s
Parish of Kennett Square and The Delaware Nature Society.

Michael Kagan
Senior Portfolio Manager - ClearBridge Advisors
Michael manages the Large Cap Core and ESG Large Cap Core sector-neutral strategy products and one of our 130/30 strategies; he also co-
manages the Appreciation and ESG Appreciation products. He has 25 years of investment industry experience. Michael previously was
employed as an equity analyst for Zweig Advisors and was portfolio manager of the Fidelity Select Construction and Housing Fund at Fidelity
Investments. Michael received his B.A. in Economics from Harvard College and attended the Massachusetts Institute of Technology Sloan
School of Management.

Patrick S. Kaser, CFA

Product Head & Portfolio Manager - Brandywine Global
Patrick is co-head of the Large Cap Value Equity team and serves as co-lead portfolio manager on the Classic Large Cap Value strategy and as
a lead portfolio manager on the Fundamental Large Cap Value strategy. Patrick is responsible for researching the financial and healthcare
sectors, contributing insights and stock recommendations. He joined the firm in 1998. Before becoming a portfolio manager, Patrick worked for
the firm as a senior marketing associate (1998-2000) and as an analyst on the Large Cap Value Equity team since 2000. He was also with Dean
Witter as an account executive (1996-1997). Patrick is a CFA charterholder and earned an M.B.A. in Finance from the University of Delaware
and a B.A. in Political Science from Arizona State University. He is a member of the CFA Society of Philadelphia and has been quoted in The
Wall Street Journal, Business Week and The Washington Post, and has appeared on Bloomberg television and radio.

Page 70
Sam Peters, CFA
Portfolio Manager - Legg Mason Capital Management
Sam Peters joined Legg Mason Capital Management in 2005. He currently serves as the Portfolio Manager of the Legg Mason Special
Investment Trust mutual fund, and manages the Mid-Cap Equity strategy for institutional investors. Prior to joining Legg Mason, Sam worked for
Fidelity Management & Research, serving as Portfolio Manager of the Fidelity Select Health Care Fund and the Fidelity Select Medical
Equipment Fund, as well as Team Leader for the Health Care sector. From 2002 to 2004, Sam was Portfolio Manager for the Fidelity Select
Electronics Fund, and from 2000 to 2001, he was Portfolio Manager for the Fidelity Select Banking Fund. Sam joined Fidelity in 1999 as a Bank
Analyst. In 1996, Sam founded Samuel M. Peters Investment Advisors, an independent advisory firm. From 1992 to 1995, Sam was a Financial
Consultant for Eppler, Guerin & Turner. Sam earned a B.A. in economics from the College of William & Mary and an M.B.A. from the University
of Chicago. He received his CFA designation in 1997. Sam is a board member of the College of William and Mary’s Endowment Committee.

Steven Bleiberg
President and Chief Investment Officer - Legg Mason Global Asset Allocation
Steven Bleiberg is President and Chief Investment Officer of Legg Mason Global Asset Allocation, LLC, a Legg Mason, Inc. affiliate. He has
primary responsibility for Legg Mason’s asset allocation products. Steve joined Citigroup Asset Management (acquired by Legg Mason in
December 2005) in July 2003 from Credit Suisse Asset Management (CSAM), where he was an international equity portfolio manager and
chairman of CSAM’s Global Equity Strategy Group. Before that Steven was a portfolio manager at Matrix Capital Management, where he
managed the firm’s active equity assets. He began his career in 1984 at BEA Associates, where he was a research associate in the US equity
department. Steve has a B.A. in Government from Harvard University and an M.S. in Finance from the Sloan School of Management at MIT.

David W. Lazenby, CFA

Director and Senior Portfolio Manager, Emerging Markets - Batterymarch
David holds a BA from Brigham Young University and completed the coursework for an MPP at the Harvard University Kennedy School of
Government. He joined Batterymarch in 1987 and helped launch Batterymarch’s emerging markets capabilities. David was named director of the
emerging markets team in 2002. Among his areas of coverage have been Latin America, China/Hong Kong, India and South Africa. In addition,
David had primary responsibility for the development and implementation of Batterymarch’s quantitative models and process for emerging
markets. A founding board member of the Latin Investment Management Leadership Council, David has 22 years of investment experience.

Page 71
Stephen S. Smith
Managing Director & Portfolio Manager - Brandywine Global
Steve is co-lead portfolio manager for the firm’s Global Fixed Income and related strategies. He joined the firm in 1991. Previously, Steve
was with Mitchell Hutchins Asset Management, Inc. as managing director of taxable fixed income (1988-1991); Provident Capital
Management, Inc. as senior vice president overseeing taxable fixed income (1984-1988); Munsch & Smith Management as a founding
partner (1980-1984), and First Pennsylvania Bank as vice president and portfolio manager in the fixed income division (1976-1980). Steve
earned a B.S. in Economics and Business Administration from Xavier University, where he is currently chair of the university’s foundation
and a member of the board of trustees. He is a member of the firm’s Executive Board. Steve is also a member of the Board of Trustees at
both St. Mary’s Villa for Children and Families, and the Winterthur Museum & Country Estate, a nonprofit, educational institution.

Timothy Schuler
Investment Strategist - Permal
Tim is the Investment Strategist for The Permal Group. He was previously Director of Credit Suisse’s Asian and Australian Alternative
Investments business in Sydney. He had formerly been a partner at EIM, a Swiss based hedge fund of fund organisation, where he was
Portfolio Manager and member of the Investment Committee. He has also worked as a global macro and fixed income arbitrage hedge
fund trader in both London and New York. Tim has almost 20 years of professional investment experience, including 15 years of direct
hedge fund exposure. Tim holds a B.A. in Economics and English from the University of Richmond and is a CFA Charterholder.

Kenneth Leech
CIO Emeritus - Western Asset Management
Kenneth is CIO Emeritus of Western Asset and joined the firm in 1990 and in 2004, was honoured as Morningstar’s fixed income fund
manager of the year. Prior to Western Asset, Ken was portfolio manager at Greenwich Capital Markets (1988-1990), The First Boston
Corporation (1980-1988) and the National Bank of Detroit (1977-1980) – all portfolio manager positions. Ken has an MBA from the
Wharton School University of Pennsylvania.

Page 72
Panel Moderators
Richard Gillham
Investment Director - International Distribution
Richard joined Legg Mason in 2004 and is Head of the Product Specialist Group with particular expertise in US Equities, including Royce &
Associates. Prior to Legg Mason, Richard was the senior U.S. equity investment specialist at Merrill Lynch Investment Managers. In this
capacity, Richard represented the firm’s U.S. equity investment capabilities to institutional and retail clients in the UK and across Europe. He
began his career in the fund management industry in 1997 with Mercury Asset Management, a business that was to be acquired by Merrill Lynch
in 1998. Richard was awarded the Chartered Financial Analyst designation in 2000 and is an active member of the CFA Institute in the UK.

Kent B. Miller
Director, Global Product Specialist - Legg Mason
Kent Miller joined Legg Mason in 2000 and has 21 years of investment industry experience. He serves as Global Product Specialist for Legg
Mason’s international equity affiliate boutiques, including Esemplia Emerging Markets and Global Currents.
Kent works closely with the portfolio teams on articulating portfolio attribution, active positioning, and macroeconomic outlook. Prior to joining the
firm, he was employed with T. Rowe Price Associates from 1989 to 2000, where he was a National Client Manager for institutional relationships.
Kent earned his B.B.A. in Finance from Loyola University, Maryland.

Page 73
Investment Manager Profiles

Page 74
Batterymarch Financial Management
A global investment manager with expertise across U.S., UK, European and Asian stock markets
Batterymarch pioneered the use of quantitative techniques based on the tenets of bottom-up fundamental
analysis. As a global investment manager, Batterymarch invests in over 50 countries, customizing their
investment process for the specific characteristics of each market. Batterymarch has been active in managing UK
and European equities for over 25 years – and involved in emerging market equities since 1989.

Brandywine Global Investment Management

Value investing specialist that includes U.S. equity and global fixed income strategies
Brandywine Global Investment Management, LLC was founded in 1986. The firm offers an array of equity, fixed
income and balanced portfolios that invest in the U.S., international and global markets. Since its founding, the
firm has pursued one investment approach, Value Investing, with the goal of providing excellent risk adjusted
returns over full investment cycles across global markets.

ClearBridge Advisors
Expertise across a diverse array of investment styles and disciplines in U.S. equities
ClearBridge Advisors is an equity-focused investment management firm offering an array of investment styles and
disciplines across U.S. equities. The cornerstone of the firm’s success is a bottom-up security selection process
and fundamental research focused on companies with solid economic returns relative to their risk-adjusted
valuations. The investment teams have significant experience gained throughout decades of up and down market
cycles and are supported by a team-driven culture and time-tested philosophies in seeking investment
opportunities from U.S. stocks.

Page 75
Global Currents Investment Management
A true value manager that is practised in managing global equity portfolios
Global Currents is a true value manager with a focus on managing global value equity strategies, with broad-
based experience in global equities. The firm also offers an international value equity strategy, as well as
providing socially responsible and ESG portfolios in a variety of formats.

Legg Mason Capital Management

An investment manager with seasoned expertise in managing U.S. equities
Adhering firmly to a value-driven, research intensive investment process, the firm focuses on assessing intrinsic
business value of companies and strives to buy stocks at significant discounts to Legg Mason Capital
Management’s assessment of their worth. Intrinsic value is assessed by employing a multifactor, quantitative
valuation methodology combined with rigorous business analysis, concentrating on a company’s ability to
generate excess cash flow, earn high rates of returns on capital and allocate capital efficiently.

Western Asset Management

One of the world’s premier fixed income managers
Western Asset believes significant inefficiencies exist in fixed income markets and seeks to exploit these
inefficiencies across all sectors of the global markets. By devoting all of its resources to fixed income, Western
Asset seeks to add value to this asset class through active management of fixed income portfolios. Western
Asset uses long term value-driven investment strategies, including sector rotation and issue selection, to help
maximize returns while at the same time managing risk by avoiding any one strategy overwhelming its investment
performance.

Page 76
Esemplia Emerging Markets
A dedicated global emerging markets equity manager
Esemplia Emerging Markets is a dedicated Emerging Markets Equities investment manager whose primary focus
is to consistently generate and deliver excess returns from the asset class to its clients.

Legg Mason Global Asset Allocation

Focus on strategic and tactical asset allocation
Steven Bleiberg, with 25 years of investment industry experience, leads the investment team at Legg Mason
Global Asset Allocation. LMGAA focuses exclusively on strategic and tactical allocation covering global markets.
Based in New York City, they provide active portfolio management using a disciplined methodology driven by
proprietary research.

The Permal Group

With over 30 years of experience, Permal encompasses the globe of investing
The Permal Group, a pioneer in multi-manager, multi-strategy investments, was established in 1973 with the
launch of its first fund of funds to provide European investors with access to U.S.-based investment managers.
Today, Permal provides multi-manager investment alternatives, that can be multi-strategy or single strategy, to a
global client base. The Firm’s objectives focus on capital preservation in ‘down’ markets, participation in ‘up’
markets, low volatility and asymmetric returns over time.

Royce & Associates

Experience in managing U.S. small-cap portfolios, recently extended to managing small-cap stocks in
global equity markets
Royce & Associates, LLC, is one of the industry’s most experienced and highly respected smaller-company
investment managers. For more than 35 years, the firm has utilized a disciplined value approach, one that pays
close attention to risk and maintains this discipline regardless of market environments or trends.

Page 77