Investment Implementation: Questioning the De-risking Concept Joe Ramos Joe.Ramos@Lazard.com 212-632-1550 William Berkmeier William.Berkmeier@Lazard.com 212-632-1330 This presentation and all research and materials enclosed are property of Lazard Asset Management LLC. © 2011 Lazard Asset Management LLC Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the date of this presentation and are subject to change. An investment in bonds carries risk. If interest rates rise, bond prices usually decline. The longer a bond’s maturity, the greater the impact a change in interest rates can have on its price. If you do not hold a bond until maturity, you may experience a gain or loss when you sell. Bonds also carry the risk of default, which is the risk that the issuer is unable to make further income and principal payments. Other risks, including inflation risk, call risk, and pre-payment risk, also apply. High yield securities (also referred to as “junk bonds”) inherently have a higher degree of market risk, default risk, and credit risk.

The U.S. Fixed Income Market Remains Precarious We are in the middle of an unprecedented deleveraging transition of key historical pillars of prior stability; Financials, Housing, Consumer. Central bank policy is in uncharted waters in a new era of aggressive intervention and balance sheet leverage. Interest rates are abnormally low and unlikely to go lower without the advent of a prolonged disinflationary environment. Ratings, the standard barometers of impairment outcomes, are unreliable. The information and opinions expressed are as of October 31, 2011 and are subject to change.

Deleveraging Will Take Years – Expect Disruptions During The Great Moderation, the private sector increased debt to unprecedented levels as leverage and wealth became interlinked The current deleveraging era is likely to continue to be defined by cash flow disruptions, defaults, restructurings, and government interventions 299% of GDP 92% 72% of GDP 29% of GDP (%) Peaked at 367% of GDP in 1Q2009 88% 73% 81%* Need to merge data source for pages 4 and 5 and set cell references for page 5 to year-end lines for page 4. - ok As of 30 June 2011 Source: U.S. Federal Reserve, U.S. Bureau of Economic Analysis, Morgan Stanley, U.S. Treasury Department * Government debt includes federal debt owned by the public ($9.8 trillion) (including federal debt owned by other government entities would increase this figure by $4.6 trillion) and debt issued by state and local governments ($2.4 trillion)

Uncharted Waters: Aggressive Intervention and Balance Sheet Leverage U.S. Federal Reserve Balance Sheet (USD 000s) U.S. Treasury OAS of 5-10 Year Bank Debt versus the TED Spread (bps) Need to merge data source for pages 4 and 5 and set cell references for page 5 to year-end lines for page 4. - ok As of October 26, 2011 Source: Bloomberg, BofA Merrill Lynch

U.S. Treasury Rates are Abnormally Low As of 15 September 2011 Source: U.S. Federal Reserve, Bureau of Labor Statistics

Ratings Have Been Unreliable Industry Description Jan '07 Eff Dur Jan '07 Yield January 2007 Composite Rating June 2009 Composite Rating Brokerage Goldman Sachs 7.2 5.69 AA- A   Lehman Bros. 7.9 A+ Default Banking Wells Fargo 13.5 5.82 AA Wash Mutual 5.75 A- Banking/Brokerage Barclays PLC 7.4 Kaupthing Bank 7.1 6.07 Insurance Mass Mutual 13.3 5.80 Ambac 13.4 6.05 C+ Apparel/Textiles VF Corporation 12.6 6.43 Jones Apparel 12.1 7.13 BBB- B+ Printing & Publishing Donnelley & Sons 6.16 BBB Knight Ridder 7.5 6.67 CC+ Building & Construction MDC Holdings 6.6 6.41 Lennar Corp 6.5 6.20 The securities identified are not necessarily held by Lazard Asset Management for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. Shown for illustrative purposes only. Source: Bank of America Merrill Lynch, Bloomberg