Assets managed for non-US domiciled clients are 33% of total assets under management as of March 31, 2007.

The company continued to build upon its international distribution business, which now has distribution offices in Miami, New York, London, Paris, Frankfurt, Madrid, Warsaw, Hong Kong, Singapore, Taipei, Tokyo, Melbourne, Sydney, and Santiago. The company has over $75 billion in non-US fund assets as of March 31, 2007. The company has cross-border fund ranges domiciled in Luxembourg and Dublin that are sold throughout Europe, Asia, and the Americas.

Legg Mason also manages local funds through various subsidiaries in Australia, Chile, Japan, Poland, Hong Kong, Singapore, and the United Kingdom, as well as cross-border liquidity funds.

Fiscal 2007 Financial Highlights

Results for the fiscal year 2007 reflect the contribution of the first full year of operations following the company’s acquisitions of Citigroup Asset Management and the Permal Group late in calendar 2005.

- Revenues from continuing operations were $4.3 billion, up 64% from the $2.6 billion reported for the fiscal year ended March 31, 2006.
- Income from continuing operations was $646.2 million, or $4.48 per diluted share, compared to $433.7 million, or $3.35 per diluted share for the fiscal year 2006.
- Cash income from continuing operations was $845.4 million, or $5.86 per diluted share, compared to $532.1 million, or $4.10 per diluted share for the fiscal year 2006.

- Total assets under management were $968.5 billion, up $100.9 billion, or 12%, from $867.6 billion at March 31, 2006. The company experienced increased assets under management in all three of its asset classes – fixed income, equity, and liquidity, as well as all three of its divisions – Managed Investments, Institutional, and Wealth Management.
- Positive net client cash flows for the fiscal year were $44.2 billion. This was driven by fixed income and liquidity flows, while negative client cash flows in equity were approximately $10 billion.

- Net income for the fiscal year 2007 was $646.8 million, or $4.48 per diluted share, compared to $1,144.2 million, or $8.80 per diluted share for fiscal year 2006, which includes a $644 million, or $4.94 per share, gain from the sale of the company’s brokerage business, as well as $66.4 million, or 51 cents per diluted share of income from discontinued operations. Net income for the fiscal year 2006, excluding the one-time gain from the sale of the company’s brokerage business was $500.1 million, or $3.86 per diluted share.

- For the fiscal year 2007, expenses were $3.3 billion, up from $2 billion a year ago and reflect the first year of operations following the company’s acquisitions of Citigroup Asset Management and the Permal Group late in calendar 2005.
- The pre-tax profit margin from continuing operations for fiscal year 2007 was 24% compared to 27% in the prior fiscal year. The pre-tax profit margin from continuing operations, as adjusted for distribution and servicing expense, was 33.2% compared to 34.3% last year.

- At March 31, 2007, Legg Mason’s cash position was $1.2 billion; long-term debt was $1.1 billion; and stockholders'' equity was $6.5 billion. The ratio of total debt to equity was 17%.

Key questions and answers from the fourth quarter fiscal 2007 earnings call conducted by Legg Mason Inc. on May 9, 2007.

Robert Lee (KBW): Can you comment on the equity side and regarding ClearBridge, to what degree are they still in the outflow?

ClearBridge is another story. That’s a massive mutual fund operation, and there are two pieces to this. One is is a performance fee and the other one has to do with the outflows. But their outflows were by far the strongest that went on. That was when the firm moved to an open platform. The company has two dynamics going on here. But that dynamic is a very large dynamic and for any of you who don’t understand that is they slow down in your desire to sell your own products, because they’re no longer in-house. That will happen either from an open platform or a natural happening. But when you totally dislodge and your product now becomes a third party product and there’s a lot less internal support for it, the likelihood of outflows tends to increase. Of course, that was one of the major concerns, how much that would be and how long it would prevail. On top of it, the company has had performance issues that to some extent many growth managers have tended to have so that the double effect of that hopefully will self-correct over time. Market conditions are very important to any manager and fixed and equity, but the company has had a period here where there have been virtually little if any flows into the growth area at all. In fact in the last quarter, not just ClearBridge, there was an outflow across the board. Performance is the only thing that will correct that. Until the firm gets that performance for a little bit of a sustained period of time, it will still be struggling with it. As a percentage of what the company is doing, it’s not necessarily meaningful but it is certainly important and certainly something that it is interested in. This has been a little bit of a different struggle for the company because for probably ten years its equity performance was so much better than most that it tended to have constant flows, which you get with constant performance. What’s going on now, if you look at a lot of these mutual fund flows, they are extremely tilted toward the international or global platforms. You can look at the last two years and all can get very smart when things work very well, but if you look at the last few years, the global flows have totally dominated the flow patterns that have been going on. You’re getting what sooner or later the percentage of international assets or whatever it is gets to a percentage that that is the perceived percent, and it will obviously level off. But sooner or later there will be flow back into large cap, and into growth, and both of those would be very important to the ClearBridge assets.

Cynthia Mayer (Merrill Lynch): It seems like the fixed income flows of 5 billion were a little bit light versus previous quarters. Is there anything going on aside from that lost separate account? Is there any issue of in terms of consultants pulling back because of the overall size of person at this point or system other issue?

Typically the first calendar quarter tends to be slow. The company is doing well in all of its product areas. One of the issues that is real is this traditional products are under a lot of pressure. The investors are spending a lot of time looking at alternative product areas within the fixed income space and this has caused people to sit on the sidelines a little bit and try and figure out where to head with this. When you look at the global markets get different issues in the US and the UK, Japan, other parts of the world, but clearly traditional onychs are definitely under pressure. The company has active in developing new products, new structures, and it is involved in a number of conversations with clients and other parties to broaden its product line in some of these new areas.

Cynthia Mayer: Is it possible to quantify the impact of the fund consolidation in terms of flows and would there be any more impact at this point going forward?

The firm believes that it did have some impact but it was not substantial. But absolutely the company does believe that there was some impact and you picked it up already. Going forward the firm probably will have little impact, if any.

Bill Katz (Buckingham Research): Could you quantify the outlook for the Institutional business against the $28 billion pipeline that you noted at the end of calendar fourth quarter against the traditional pressure on the traditional side?

The company still has a very strong pipeline in place. The firm has got a couple of very large opportunities that it is working on. The firm feels confident that it has got a real shot and these are in different types of products and new areas. The management cannot quantify them at this point in time but the firm’s pipeline is as strong as it’s been over the last couple of years.

Bill Katz: Now you move from integration phase to the growth phase. Does that preclude incremental savings beyond natural leverage to the market at this point in time?