- The Municipal Bond team at Western Asset won the 2007 year-end Lipper award for Outstanding Fixed Income performance on a 1-year, 3-year and 5-year basis.
- Five portfolios managed by The Royce Funds were awarded the 2007 Lipper Performance Achievement Award: the Royce Opportunity Fund (for 10-year performance), the Royce Value Plus Fund (for 5-year performance), the Royce Focus Trust (for 1-year, 5-year and 10-year performance), the Royce Micro-Cap Trust (for 5-year performance) and the Royce Capital Fund, Micro-Cap Portfolio (for 10-year performance).

- Brandywine Global won awards in the Global Fixed Income category for its 3-year and 10-year risk-adjusted performance.
- Batterymarch won top honors in the Asia Equities (excluding Japan) category for its 5-year performance.
- Legg Mason International Equities won in the Hong Kong Equities category for its 10-year performance.

- Batterymarch portfolio managers Curtis Butler and Ray Prasad were named Citywire Top Managers of the Year for their performance with the Legg Mason Asia Pacific Fund.

- Permal extended its successful global launch of a fund-of-hedge funds offering generally designed to invest in the Silk Road region and in other global emerging regions. The firm also launched several structured products and added new share classes to its existing product lines to facilitate continued strong growth in Asian markets including China, Singapore, Malaysia and Korea. Permal also funded several new mandates that increased its penetration of the U.S. institutional market.

- Brandywine Global launched new currency classes for a global bond fund and extended one of its core equity products into the separate account space, in response to increased demand.

- At March 31, 2008, Legg Mason''s cash position, including cash equivalents, repurchase agreements and cash restricted for collateral purposes, was $2.9 billion, total debt was $2.8 billion and stockholders'' equity was $6.6 billion. The ratio of total debt to total capital (total equity plus total debt) was 29%.

Fiscal 2008 Highlights

- The company achieved record revenues of $4.63 billion, up 7% from $4.34 billion in fiscal 2007.
- Net income was $267.6 million, or $1.86 per share, representing a decrease of 59% and 58%, respectively, from fiscal 2007 results.
- Cash income, as adjusted, was $877 million, or $6.09 per share, both representing an increase of 4% from fiscal 2007.

- Assets Under Management at the end of fiscal 2008 were $950.1 billion, down 5% from $998.5 billion at December 31, 2007, and down 2% from $968.5 billion at the end of fiscal 2007.
- Total AUM declined by $18.4 billion, or 2%, from $968.5 billion at March 31, 2007. Despite the challenging markets, Western Asset, Permal and Brandywine each grew their AUM in fiscal 2008.

- Cash income was $468.5 million, or $3.25 per share, compared to cash income of $846 million, or $5.86 per share, in fiscal 2007.
- The pre-tax profit margin for fiscal 2008 was 9.6%, compared to 24% for fiscal 2007.
- The pre-tax profit margin, as adjusted, was 32.8%, down slightly from 33.2% in fiscal 2007.

Key questions from the fourth quarter earnings call conducted by Legg Mason, Inc. on May 6, 2008.

William Katz (Buckingham Research): You let off the conversation by saying that the business has turned better in through since March 31st. if that is occurring, why the capital raise at all?

Mark R. Fetting: The capital raise is targeted to a series of issues that to me are separate. First and foremost is the reduced exposure that we have but still there and in this kind of an environment it is because we have done so many, we believe, successful approaches to supporting the money funds on an efficient basis, it is clear to us that as things improve, fundamentally there year wise they have capital to work through it for the remaining piece over a reasonable period of time. As to exactly when and if we have to do it remains to be seen. For those who would say why raise this capital, it is because we do have that remaining exposure and ample capital from an extra margin of safety should facilitate our further reduction of it. If we do not use it, which is a possibility, we have other means, other opportunities in terms of our core building wise strategy to deploy it in both acquisitions and also supporting the growth of our existing managers. We think our businesses are all performing well and like our business model.

William Katz (Buckingham Research): The equity attrition just continues to accelerate, not withstanding a bad backdrop and you have some high profile managers that just continue to under-perform not withstanding a recovery. What steps can you take to help learn some of the attrition and then within the attrition, are there any lumpy account losses or is it just across the border?

Mark R. Fetting: On the equity front, there is the kind of principal managers underlying that would be capital management, PCM and ClearBridge, and if I tried to convey having met with all of the teams there I think they are doing all that should and needs to be done and in some cases you have seen improvement. ClearBridge being an excellent example in terms of the improved performances, depreciation, et cetera, and you do see some impact, still outflows for sure but some impact. Capital management is interesting because it has extended the team and expanded the product offering. They are while still focused on improving the situation, both in performance and flows in their core products; they are pursuing some other opportunities as an example. Bill just got awarded a Financial Services mandate from a sovereign wealth government and fund. That is an indication of some opportunity that they would want to pursue. No one is at all doing anything other than just focused on turning where it needs to be turned and continuing to grow the business.

Prashant Bhatia (Citigroup): Is it fair to think about the amount the Western owes the Legg Mason shareholder to be in the $200 million range And if that is accurate over what time period do you think that will be recovered?

F. Barry Bilson: The agreement is in facts and circumstances market environment, the retention, et cetera, will come to play. But you will recall back last quarter indicated there was an agreement of recovery over the next fiscal year, the more recent 8-K indicated years because candidly it would be inappropriate to cut their nose off and display their face, i.e., squeeze everything out immediately. There is certainly every expectation at this point that there would be recovery and from a standpoint of your modeling, I believe, we indicated in the last quarter''s call that you could be looking at something in order of magnitude of about $20 million a quarter. But again that is subject to some variability.

Prashant Bhatia (Citigroup): Is there any update on the leadership back at ClearBridge and what are you looking for in terms of replacing someone in the timeframe there?

Mark R. Fetting: We have an active search underway, it has made good progress meeting with both internal and external candidates and we are on track. In the meantime I am appreciative of the progress the teams have made and confident that we will have that result in a reasonable timeframe.

Robert Lee (Keefe, Bruyette & Woods): Could you give some color on institutional flows and how much of that was coming from Legg Mason capital management?