Value Investing in the US Equities Market

1. Value Investing in the US Equities Market Justin Eede Richard Gillham

2. Introduction to Legg Mason • On 1 December 2005, Citigroup Asset Management became part of Legg Mason • Founded in 1899, Legg Mason is a global investment management firm • ‘Pure-play’ asset manager with assets under management in excess of $800 billion1 • Worldwide investment presence within unique affiliate structure • 1 Assets under management as of 31 October 2005 include the combined assets of Legg Mason and Permal plus approximately US$400 billion in managed assets acquired from Citigroup. Managed assets acquired from Citigroup have been reduced by a de minimis level of terminations plus certain assets that were either excluded from the transaction or are not anticipated to be retained long-term. These reductions are not expected to have a material impact on previously announced anticipated operating results.

3. Global investment house with expertise in UK, US, Europe and Asia Focuses exclusively on US equities One of the world’s largest fixed income managers Managing US small-cap equities for over 30 years Global Reach of Seasoned Investment Managers Focuses on ‘Classic Value’ investing in US and international equities and fixed income Broad based excellence across fixed income and equity markets around the world

4. Trailing 5-Year Return of the S&P 500 Looking Through the Rear View Mirror, Investors Are Discouraged… Source: CS First Boston

5. Preventing Them From Seeing the Better View Through the Front Windshield Source: Ibbotson Associates

6. Fundamental: Earnings Growth History suggests S&P 500 catch up In order to catch up to current earnings growth as happened in the last two cycles, the S&P 500 would need to appreciate more than 20% over the next two years. Source: FTN Midwest Securities Corp

7. S&P 500 Not so Expensive…Especially Relative to Bonds Extreme equity Overvaluation to Bonds Overvalued Undervalued Extreme equity Undervaluation to Bonds Fundamental: Valuations Source: www.NDR.com - Ned Davis Research, FTN Midwest Securities Corp

8. Capital Spending in Early Innings Capital Spending as a % of GDP acts very much like last cycle… …and is likely in early innings Fundamental: Growth Source: Thomson/Baselime, FTN Midwest Securities Corp

9. Mega Cap Stocks Were Expensive in 2000. Now They Look Cheap S&P 500 Index Top 10 Companies* As of 31 December 2005 Source: FactSet Data Systems * Top 10 Companies by Market Value in 2000: MSFT, GE, CSCO, WMT, XOM, INTC, LU, PFE, IBM, T. In 2005: GE, XOM, MSFT, C, PG, WMT, JNJ, BAC, AIG, PFE. Statistics are capitalisation-weighted.

10. Relative P/E of the Largest 25 S&P 500 Companies • Valuations of ‘megacaps’ on 20 year lows • Clean balance sheets and powerful FCF to reward shareholders • Offer above average dividend yields US Equities: Focus on Mega-caps Top tickers:  GE, XOM, MSFT, WMT, BAC, JNJ, AIG, PFE, MO, INTC, JPM, PG, CVX, IBM, CSCO, WFC, PEP, AMGN, KO, HD, COP, WB, VZ, UPS Source:   FactSet and Citigroup Investment Research U.S. Equity Strategy

11. Real GDP Growth Has Become Far Less Volatile Source: Citigroup Economic & Market Analysis, January 2005

12. Investment Team Profile • $60 billion* in assets under management • $44 billion* in Value Equity • One team, one philosophy, one process • Continuity of investment managers • Bill Miller joined Legg Mason in 1981 • Mary Chris Gay joined Legg Mason in 1988 • Significant competitive advantages Legg Mason Capital Management • Investment Professionals** - 44 • Total Employees - 100 * As at 31 December 2005. ** As at 31 December 2005 - includes investment team members, client service analysts and traders. Past performance is not an indication of future performance and may not be repeated.

13. Investment Process The Market is Efficient % of Actively Managed Large Cap. Funds1 that have Outperformed the S&P 500 Index2 Periods Ended 31/12/05 Very Few Active Large Capitalisation Managers Outperform the S&P 500 Source: Lipper Analytical Services 1 This chart includes all Lipper Large Capitalisation Mutual Funds (Growth, Core, Value) with the exception of Funds of Funds and Indexed Funds. 2 The S&P 500 Index is a market capitailsation weighted index, composed of 500 widely held common stocks, which includes reinvestment of dividends, and is generally considered representative of the US stock markets.

14. Investment Process Attributes that Distinguish a Successful Manager • Portfolio Turnover** •  27% turnover; contrast to 112% for all equity funds • Implies average holding period of approximately three years, versus less than one year for the average fund • Portfolio Concentration* •   Long-term outperformers tend to have higher portfolio concentrations than the index •   37% of assets in top-10 holdings, versus 24% for the S&P 500 and a 28% median for all U.S. equity funds • Investment Style • Intrinsic value investment approach • Geographic Location • Alpha-generators predominately based in cities outside of New York and Boston Source: *Morningstar, **The Bogle Center for Financial Research, over twelve months as of December 2004.

15. Sustainable Competitive Advantage “ Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally.” - Keynes

16. Competitive Strategy Analysis Idea Generation Decision Making Financial and Managerial Assessment Valuation (Quantify Expectations Gaps) Research Process

17. Research Process

18. Research Process

19. Legg Mason Value Fund - Total Portfolio Holdings As at 30 September 2005

20. US Equities: Google Inc - still plenty of upside • Valuation still compelling – 2006 EPS $8.80, 49% g rate, 2006 PE 49x, current price $430 • Product innovation strong – e.g. Google Earth • Share of advertising spend on internet still low – to increase from 3%-4% to 15% level • Global brand recognition – the search engine of choice • ‘Network effects’ - powerful competitive advantage similar to Amazon, EBay and Yahoo! Returns over the period 18/8/04 to 20/1/06 Source: Bloomburg, as at 27 January 2006 – for the period 18/8/04 to 20/1/06

21. US Equities: Bull Case • Corporate profit growth: S&P500 earnings to grow in low double digits this year • Dividends are rising faster than earnings: dividends are back in style • Valuations: S&P500 is attractive in both absolute terms and relative to alternative asset classes . Room for PE multiples to expand. • Fed policy: close to peak in interest rate cycle as Fed pursues pragmatic, evidence-based approach to monetary policy • Capital expenditure: corporate America is in its best shape in decades, with record cash as a percentage of assets

22. Important Information • This presentation does not constitute an invitation to invest and the relevant prospectus must be read before an investment is made. Past performance is not a guide to future performance and the value of shares and the income from them can fall as well as rise. Fluctuations in exchange rates can affect the value of any investment and the income from it. The Value Fund may select fewer equities in which to invest – a factor that may increase the risk profile of this sub-fund. Please refer to the prospectus and Simplified Prospectus documentation for a full description of risk factors. • Any views expressed in this presentation reflect those of Legg Mason Capital Management as at the date of this presentation. The information contained herein has been prepared from sources believed reliable but is not guaranteed by Legg Mason Investments and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. • The Legg Mason Value Fund is a sub-fund of Legg Mason Global Funds plc, an umbrella fund established as an open-ended investment company with variable capital incorporated with limited liability under the laws of Ireland. It qualifies, and is authorised in Ireland by the Financial Regulator as an undertaking for collective investment in transferable securities. • This presentation is solely for the use of the intended recipient and is not to be photocopied or reproduced in any way, or distributed to anyone, without the express written consent of Legg Mason Investments (Europe) Ltd. • Legg Mason Investments is the trading name for Legg Mason Investments (Europe) Ltd and Legg Mason Investment Funds Ltd. • Issued and approved by Legg Mason Investments (Europe) Limited, 32 Harbour Exchange Square, London, E14 9JX. Registered in England and Wales, Company no. 1732037. Authorised and Regulated by the Financial Service Authority. Business Development Desk: 020 7070 7444. • This presentation is not intended for private individuals.