FROM: Lisa Sorani, Manager of HR Employee Services LS -

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POSSIBLE OUTCOMES: ALTERNATIVE SCENARIO 2 r • If instead of deciding to raise revenue or cut expenses, the Government could decide to finance the cost by issuing more debt • This situation would compound much quicker than the previous one in which the Government enacted austerity to accommodate the debt service costs • Taken to the limit, it is easy to see how quickly this process can lead to a debt spiral Gov’t Debt I nterest Interest t Deficit Pension Consulting Alliance, Inc. ││ EBMUD Fixed Income Discussion │ 34
POSSIBLE OUTCOMES: ALTERNATIVE SCENARIO 2 r • A combination of the two approaches can be witnessed in many Southern European countries • Greece, an extreme example, exhibited a typical debt spiral in which debt reaches a certain tipping point after which debt begets more debt o o o o In such a situation, debt servicing costs are financed by additional debt leading to higher debt servicing cost At some point this process becomes non-linear and the debt servicing cost explodes Along this process investors start viewing the debt more skeptically, raising the interest that must be paid on the debt => exacerbating the process This process can happen relatively slowly or rapidly (as it did in Greece) • On the other hand, Spain and Italy have chosen a path of austerity o o Deciding to cut spending and increase taxes to avoid increased borrowing However, this has had a huge impact on their economies as GDP has continued to fall and unemployment has continued to climb Pension Consulting Alliance, Inc. ││ EBMUD Fixed Income Discussion │ 35
Page 21 and 22: M E M O R A N D U M Date: April 29,
Page 23 and 24: Recent Investment Performance Barro
Page 25: Additional Considerations Barrow Ha
Page 29 and 30: For example, as of the most recent
Page 31 and 32: Q1 - 2013 Preliminary Recent Invest
Page 33 and 34: Q1 - 2013 Preliminary Periods endin
Page 35: Q1 - 2013 Preliminary Fixed Income
Page 38 and 39: AGENDA ITEMS Section Tab Current In
Page 40 and 41: THE CURRENT INTEREST RATE ENVIRONME
Page 50 and 51: SECTION 2 LOOKING FORWARD Source: W
Page 52 and 53: LOOKING FORWARD: INTRODUCTION r •
Page 54 and 55: LOOKING FORWARD: POSSIBLE OUTCOMES
Page 56 and 57: POSSIBLE OUTCOMES: ALTERNATIVE SCEN
Page 78 and 79: LOOKING FORWARD: CONCLUSIONS r •
Page 80 and 81: INVESTMENT OPTIONS r • In light o
Page 82 and 83: INVESTMENT OPTION 2 r • Option 2:
Page 84 and 85: INVESTMENT OPTION 4 r • Option 4:
Page 86 and 87: INVESTMENT OPTION 4-A r • Option
Page 88 and 89: INVESTMENT OPTION 4-B r • Option
Page 90 and 91: INVESTMENT OPTION 4-C r • Option
Page 92 and 93: CONCLUSIONS r • There are a few a
Page 95 and 96: Considering a Real Return Class Eas
Page 97 and 98: Defining Inflation • Inflation is
Page 99 and 100: Expert Views 5
Page 101 and 102: Expert Views: Inflation Doves • B
Page 103 and 104: Expert Views: Inflation Doves The E
Page 105 and 106: Expert Views: Inflation Hawks • B
Page 107 and 108: Expert Views: Inflation Hawks The E
Page 109 and 110: Expert Views: Summary • Experts a
Page 111 and 112: Institutional Investor Response •
Page 113 and 114: Modeling the Real Return Class •
Page 115 and 116: Modeling the Real Return Class •
Page 117 and 118: Implementing a Real Return Class
Page 119 and 120: Appendix 25 25
Page 121 and 122:
Modeling a Real Return Class SUMMAR
Page 123 and 124:
A Brief Description of Global Infla
Page 125 and 126:
A Brief Description of Absolute Ret
Page 127 and 128:
A Brief Description of Absolute Ret
Page 129 and 130:
A Brief Description of Commodities
Page 131 and 132:
A Brief Description of Oil & Gas RE
Page 133 and 134:
A Brief Description of Oil & Gas RE
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FROM: Lisa Sorani, Manager of HR Employee Services LS -

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