Quality Knows No Borders: Why Royce, Why Global andWhy European Smaller Companies?David Nadel, Director of International Research, Royce & AssociatesCitywire Trade Mission, New York, 20-22 June 2011* Based on 31 May 2011 Fund DataThis document is for Asset Managers, Fund Distributors and Authorised Intermediaries. Not for use by Private Individuals.
Agenda• About Royce & Associates• Our Funds• The Case for Global & European Small Caps• Royce Investment Process• Risk Management• Appendix Page 1
Royce & AssociatesOne of the oldest (founded in late 1972) and largest dedicated small-cap managers in the world• Chuck Royce, the firm’s founder and co-CIO, was a pioneer in the development of the small-cap value investing discipline Total Invested AUM by Geography• Whitney George, co-CIO, has worked with Chuck Royce for the last 20 years 4% 15%• Nearly 40 years of small- and micro-cap value experience• Apply the same disciplined investment approach, regardless of market movements and trends Rest of World• Seasoned staff of 34 professionals US Equity• Actively managing non-US equities since 1998 European Equity$42 billion in open- and closed-end fund assets 81%Strong risk/reward track recordAward winning investment expertiseCo-ownership of funds• Officers, employees and their affiliates have approximately $149 million invested in the Royce FundsWholly owned, independent subsidiary of Legg Mason, Inc. since October 1, 2001 Page 2 Source Royce & Associates, LLC as of 31 May 2011
OrganisationPortfolio ManagersAverage Industry Experience: 25 years | Average Experience with Royce: 10 years Charles M. Royce - Co-Chief Investment Officer W. Whitney George Co-Chief Investment OfficerBoniface A. Zaino Steven McBoyle Jim StoeffelCharles R. Dreifus William A. Hench George WyperJames A. Skinner, III James J. Harvey George NecakovJenifer Taylor David Nadel Carl BrownJay S. Kaplan Lauren Romeo Brendan HartmanAssistant Portfolio Managers and Analysts TradersAverage Industry Experience: 18 years Average Experience with Royce: 5 years Average Industry Experience: 22 years Average Experience with Royce: 12 yearsDilip Badlani Dana Serman Dan O’Byrne Kenneth SmolanoffChris E. Flynn Francis Gannon Nick Spiezio Robert FahyMark Rayner John Protos Jim Tyler John LucasChristopher Clark Derrick Li Mark Salamone Carl Vanderbush Elizabeth WinslowBusiness ManagementAverage Industry Experience: 35 years - Average Experience with Royce: 24 years John D. DiederichCharles M. Royce Jack E. Fockler, Jr. W. Whitney George Co-Chief Investment Chief Operating Officer and ManagingPresident and Co-Chief Investment Officer Managing Director Officer and Managing Director Director Page 3 Source: Royce & Associates, LLC as of 31 May 2011
Offshore Funds:Multiple Offerings Tailored To Specific Investor Needs Strategy Fund Domicile Ratings US Small Cap Legg Mason Royce Smaller Companies Fund Ireland S&P AA, OBSR AA Legg Mason Royce US Small Cap Opportunity Fund S&P AA Global Small Cap Legg Mason Royce Global Smaller Companies Fund Ireland European Small Cap Legg Mason Royce European Smaller Companies Fund Ireland Strong and consistent returns across all strategies: Since Inception Since Inception Performance (Cumulative) Fund Benchmark % % Legg Mason Royce Smaller Companies Fund (inception 1/3/04) +56.53% +99.44% Russell 2000 Index Legg Mason Royce US Small Cap Opportunity Fund (inception: 8/11/02) +215.35% +149.78% Russell 2000 Index Legg Mason Royce Global Smaller Companies Fund (inception: 31/12/09) +40.07% +30.47% Russell Global Small Cap Index Legg Mason Royce European Smaller Companies Fund (inception: 31/12/09) Russell Europe Small Cap Index +35.15% +29.96% Page 4 Source: Legg Mason as at 31 May 2011 NAV to NAV with net income reinvested, without initial charges but reflecting annual management fees for Class A Dist (A) shares in USD for all strategies except Legg Mason Royce European Smaller Companies Fund which is in EUR. Performance for US strategies is shown versus Russell 2000 Index, Global Smaller Companies is shown versus Russell Global Small Cap Index and European Smaller Companies is shown versus Russell Europe Small Cap Index. Performance is shown cumulative. Past performance is not a guide for future results and may not be repeated.
Legg Mason Royce Global Smaller Companies FundLegg Mason Royce European Smaller Companies FundKey FactsActive investment style• Uses a bottom-up approach to select securities• Focuses primarily on companies with market capitalisations up to $5.0 billion• Seeks to purchase companies trading at sizeable discounts to the investment manager’s estimate of intrinsic value• Invests in a focused portfolio of approximately 60-80 companiesExperienced team• Funds co-managed by Whitney George, Co-Chief Investment Officer and David Nadel, Director of International Research• Royce invests primarily in small-cap equities and has almost 40 years’ experience in the asset class Page 5 Please refer to the prospectus of Legg Mason Funds plc for a full description of the Legg Mason Royce Global Smaller Companies Fund and Legg Mason European Smaller Companies Fund..
Fund Performance SincePerformance (%) Cumulative Class A Dist shares (A) 3M 6M 1Y InceptionLegg Mason Royce Global Smaller Companies Fund (31/12/09) 5.20 16.54 46.65 40.07Russell Global Small Cap Index (USD) 2.18 12.76 32.04 30.47Legg Mason Royce European Smaller Companies Fund (31/12/09) 2.55 6.99 30.46 35.15Russell Europe Small Cap Index (EUR) 2.08 11.57 24.63 29.96 Page 6 Source: Legg Mason. as at 31 May 2011 NAV to NAV with net income reinvested without initial charges but reflecting annual management fees for Class A Dist (A) shares. Past performance is no guide to future returns and may not be repeated. Performance for the Legg Mason Global Smaller Companies Fund is shown in USD and for Legg Mason European Smaller Companies Fund is shown in EUR.
Manager’s Track RecordRoyce Global Value Fund. For illustrative purposes only. This has been used to demonstrate the manager’s long-term track record of investing in global equitiesSource: Morningstar as at 31 May 2011.There are differences between the Royce Global Value Fund and the Legg Mason Royce Global Smaller Companies Fund including differences in the amount ofassets under management, cash flows, fees and expenses, and applicable regulatory requirements, including investment and borrowing restrictions. The past performance of the Royce Global ValueFund is, therefore, not indicative of the future performance of the Legg Mason Royce Global Smaller Companies Fund. The Royce Global Value Fund has been used to demonstrate the longer termtrack record of the investment manager. The Royce Global Value Fund is US domiciled and is therefore unavailable for investment outside of the US. Page 7
Manager’s Track RecordRoyce European Smaller Companies Fund. For illustrative purposes only. This has been used to demonstrate themanager’s long-term track record of investing in global equitiesSource: Morningstar as at 31 May 2011.There are differences between the Royce European Smaller Companies Fund and the Legg Mason Royce European Smaller Companies Fund includingdifferences in the amount of assets under management, cash flows, fees and expenses, and applicable regulatory requirements, including investment and borrowing restrictions. The performance of theRoyce European Smaller Companies Fund is shown in USD. The past performance of the Royce Global Value Fund is, therefore, not indicative of the future performance of the Legg Mason RoyceEuropean Smaller Companies Fund. The Royce European Smaller Companies Fund has been used to demonstrate the longer term track record of the investment manager. The RoyceEuropean Smaller Companies Fund is US domiciled and is therefore unavailable for investment outside of the US. Page 8
Why Global & European Small Caps?Acceptance VariesWithin the US:• Indices and ETFs are now part of the landscape• Strategic and permanent allocationOutside the US:• Small cap is not an accepted asset class• Used tactically to add “beta” to portfolio• Companies are viewed opportunistically• Conditions resemble that in the US 15-20 years ago Page 9
Why Global & European Small Cap?Inefficient markets: Under-followed, Under-valued • Investment universe is enormous with more than 19,000 companies • Analyst coverage is limited • Institutional investors tend to stay away from small-cap companies as it is harder to put large amounts of capital to work • Lack of investor focus and analyst coverage creates significant potential under-valuation • Universe is constantly replenishing itself with IPOs and as larger-cap stocks fall in market capitalisation Average number of sell-side Universe of Global Small Cap Small-cap exposure within broader indices analysts per stock: stocks vs. Large Cap Stocks: such as MSCI World*:18 7,500 16 6,43316 6,500 14%14 5,50012 4,50010 Large Cap 15% Small Caps 8 3,500 Large Cap Mid Cap 6 Small Cap 2,414 6 2,500 Small Cap Large Cap 4 1,500 2 71% 500 0 MSCI All Country World Index -500 MSCI All Country World Index Page 10 *Source: Bloomberg , IBES and MSCI as at 31/07/10. All MSCI data is provided “as is”. In no event shall MSCI, its affiliates or any MSCI data provider have any liability of any kind in connection with MSCI data described herein. *Data represents percentage of small cap within MSCI World Index
How Do We Define Smaller Companies?Royce invests in global companies with market caps up to $5.0 billion Micro-Cap Universe** Small-Cap Universe** SMid-Cap Universe • Companies with market • Companies with market • Companies with market caps up to $500 million caps between $500 million caps between $2.5 billion • More 15,500 companies and $2.5 billion and $5.0 billion representing more than • More than 3,200 companies • More than 850 companies $1.4 trillion in total market representing more than representing more than $3 cap* $3.7 trillion in total market trillion in total market cap* • Less liquidity, more cap* volatility, greater return • Greater liquidity, more potential research coverage, greater competition Page 11 *Source: FactSet 31 March 2011. ** Primary selection universe
Royce Investment Process Company meetings will only take place if a stock makes it to this point in the process Returns Small & Micro Cap Balance Sheet on Global Universe Focus Capital Valuation Portfolio Enterprise Analysis Conviction Analysis Management Cap Rate* 60 - 80 stocks Initial universe of Assets/Equity ratio ROIC meetings more than 18,000 stocks Balance Sheet Focus: seeks companies that have an asset base funded 50% by equity Returns on Capital Analysis: seeks companies with return-on-invested-capital hurdle of 15% or greater Enterprise Conviction: management meetings and Enterprise Conviction Scoring (ECS) Valuation Analysis: cap rate and returns-adjusted fair value of capital employed pricing models Page 12 *Cap Rate is defined as a company’s EBIT/EV (pre-tax earnings yield)
Balance Sheet Focus Companies with strong balance sheets can better survive difficult times for their industry or sector Leverage takes into consideration both long-term debt and short-term borrowings High leverage can significantly burden operations • Constrains use of cash • Less flexibility to absorb changes in sales & profitability and therefore increases risks • Less able to absorb external shocks • Less able to tap into capital markets in time of need Assets/ Shareholders’ Equity • Focus on the equity ratio (the percentage of a company’s assets funded by shareholders’ equity) • For non financial companies (2:1 ratio) – Can reveal potential issues in a way that traditional metrics such as EBITDA and interest coverage may not – Can be better suited for longer-term analysis that is less effected by cyclicality – Quasi-debt such as account receivable financing, working-capital-based financing are considered Page 13
Returns On Capital AnalysisReturn on Investment Capital (ROIC) • Most complete indication of a company’s ability to generate returns - only includes assets and liabilities that are employed in generating operating earnings – Ability to meaningfully compare ROIC vs. WACC* – Royce’s hurdle rate of 15% helps ensure we focus only on high quality companiesPrefers ROIC to Return on Equity (ROE): • ROE fails to take into account the capital structure – The impact of leverage on returns – ROE is as much a measure of capital structure as profitability Page 14 * Weighted Average Cost of Capital
Enterprise Conviction • Meetings with company management, suppliers, clients and customers • Enterprise Conviction Scores which are based on a ranking driven by the five categories shown below; a higher score represents a better positioned company. Attractiveness of Sector • Companies get a rating of 0-10 in each Company’s competitive position of the five categoriesOperating efficiency • Stocks with a total rating of 0-25 are Operating Efficiency deemed un-investible • Stocks with a total rating of 26-50 are Financial track record investable Extra-financial factors Page 15
Valuation Analysis: Seeks companies trading at a 30%, and preferably a 50% discount , to Royce’s estimate of intrinsic value Pricing/valuation discount provides a margin of safety and enables accumulation of company’s shares over time Cap rate pricing model (15% or greater) • Business buyer’s approach • Cash on cash return • Equates to a company’s earnings yield (defined as ebit/enterprise value) Returns-adjusted fair value of capital employed • Adjusts last reported capital employed by the ratio of its 5-year mean ROIC (its earnings power) to Royce’s hurdle rate of 15% Page 16
Stock example:Used Car System Solutions (USS Co) (4732 JP Equity) Japan’s largest used vehicle auction market company with a greater than 30% market share Cap rates: EBIT Key valuation metrics USS Enterprise Value Price/Earnings 11.98x ¥21,940 = 16% ¥ 135,000 Price/Book 1.36x USS trades at a 16% Cap rate Price/Cash Flow 8.15x Returns-adjusted fair-value of capital employed: Cap Rate 16.0% (Enterprise Value ÷ Capital Employed*) Dividend Yield 3.35% (5-year average ROIC ÷ Hurdle Rate**) EPS growth 14.12% Net Debt/EBITDA -1.02 (¥135.bn ÷ ¥92 bn) = 0.85 or 85% Equity ratio 81.0% (26% ÷ 15%) USS Co trades at a 15% discount to its “no growth” intrinsic value. Page 17 Source: Legg Mason as at 10 June 2011. For illustrative purposes only. This does not constitute a recommendation to buy or sell any stock. *Capital employed is defined as Total equity + Gross debt – Gross Cash – Short term investments **Hurdle rate represents Royce’s in-house hurdle rate of 15%
Portfolio Construction Highest conviction 2.5%-3.5% position weights A Box Portfolio is comprised of 60- 20%allocation 80 stocks Confidence is growing 1.5%-2.5% position weights B Box 40%allocation Newer positions or an existing holdings being decreased; C Box 0.0%-1.5% position weights 40%allocation Page 18
Buy & Sell Discipline• Buy and sell triggers are established for each position around a company’s intrinsic value• Use cap rate* to ensure the return potential of an investment is commensurate with the risk of equity ownership• Typically buy companies trading at a cap rate in the mid teens (e.g. ~15%, or 7x pre-tax earnings) and sell when the cap rate trades in the mid single digits (e.g. ~7.5%, or 14x pre-tax earnings) Page 19 *Cap rate is defined as a company’s EBIT/EV (pre-tax earnings yield)
Risk Reduction TechniquesRisk management is at the core of Royce’s investment process:• Focus primarily on avoiding capital loss rather than managing against a benchmark• Fund will only invest in companies with strong balance sheets and above-average returns on capital• Fund seeks companies that are trading at a 30%, and preferably a 50% discount, to their estimate of intrinsic value• Contrarian approach helps to minimise liquidity risk – buying when others are selling, and selling when others are buyingAdditional Risk controls:• Box report system ensures decisions are made incrementally over time• Both co-managers must agree before a company can move up in the portfolio• Industry weights are typically limited to 25% of the portfolio Page 20
Performance: Legg Mason Royce Global Smaller Companies FundAnnualised returns 50.00 46.85 45.00 40.00 35.00 32.04 30.00 26.85 25.00 20.65 20.00 16.54 15.00 12.76 10.00 5.20 5.00 2.18 0.00 3 Months 6 Months 1 Year Since Inception Legg Mason Royce Global Smaller Companies Fund (Class A Distr. (A) USD) Russell Global Small Cap Index Page 22 Source: Legg Mason as at 31 May 2011.NAV to NAV with net income reinvested without initial charges but reflecting annual management fees. The Fund was launched on 31 December 2009. Past performance is no guide to future returns and may not be repeated.
Performance: Legg Mason Royce European Smaller Companies FundAnnualised returns 35.00 30.46 30.00 24.63 25.00 23.69 20.32 20.00 15.00 11.57 10.00 6.99 5.00 2.55 2.06 0.00 3 Months 6 Months 1 Year Since Inception Legg Mason Royce European Smaller Companies Fund (Class A Distr. (A) EUR Russell Europe Small Cap Index (EUR) Page 23 Source: Legg Mason as at 31 May 2011.NAV to NAV with net income reinvested without initial charges but reflecting annual management fees. The Fund was launched on 31 December 2009. Past performance is no guide to future returns and may not be repeated.
Portfolio DiagnosticsLegg Mason Royce Global Smaller Companies Fund Portfolio Characteristics Metrics Fund Fund Net Assets $8.0 million Weighted Average P/E Ratio 15.3x Number of Holdings 71 Weights Average P/B Ratio 2.5x Weighted Average Market Cap $2,880 million Portfolio Concentration Portfolio Market Cap Breakdown Top 10 Holdings 26.79% < $500 Million 5.0% $500 Million - $1.0 Billion 10.9% $1.0 Billion - $2.5 Billion 42.0% $2.5 Billion - $5.0 Billion 32.3% $5.0 Billion - $10.0 Billion 6.7% $10.0 Billion - $15.0 Billion 2.3% >$15.0 Billion 0.9% Page 24 Source: Royce & Associates, LLC as 31 May 2011
Portfolio DiagnosticsLegg Mason Royce European Smaller Companies Fund Portfolio Characteristics Metrics Fund Fund Net Assets $2.0 million Weighted Average P/E Ratio 15.1x Number of Holdings 75 Weights Average P/B Ratio 2.4x Weighted Average Market Cap $2,226 million Portfolio Concentration Portfolio Market Cap Breakdown Top 10 Holdings 22.91% < $500 Million 12.5% $500 Million - $1.0 Billion 20.7% $1.0 Billion - $2.5 Billion 36.3% $2.5 Billion - $5.0 Billion 22.8% $5.0 Billion - $10.0 Billion 6..0% $10.0 Billion - $15.0 Billion 0.0% >$15.0 Billion 1.8% Page 25 Source: Royce & Associates, LLC as 31 May 2011
Legg Mason Royce Global Smaller Companies FundTop 10 Positions % of Portfolio Company Description Manufacturer of specialised rubber products including rubberSemperit AG Holding 3.22 escalator handrails and hosesSanten Pharmaceutical Company 3.21 Pharmaceutical company specialising in ophthalmic products Processes recycled cardboard and produces carton board forMayr-Melnholf Karton AG 3.07 packagingTeradyne AG 2.89 US-based company supplier of automatic test equipment Japanese provider of tutoring, foreign-language courses and nursingBenesse Holding, Inc. 2.66 homesAllied Nevada Gold Corporation 2.52 US-based gold mining and exploration company One of the worlds leading investment managers dedicated toAshmore Group 2.50 emerging marketsUSS Co., Ltd. 2.26 Management of used vehicle auctionFamilyMart Co., Ltd. 2.25 Japan-based company that operates a chain of convenience storesNU Skin Enterprises Inc. Cl. A 2.21 Personal care products Page 26 Source: Royce & Associates as at 31 Mary 2011
Legg Mason Royce European Smaller Companies FundTop 10 Positions % of Portfolio Company Description Manufacturer of reciprocating processors used for oil refining,Burckhardt Compression 2.86 chemical and petrochemical industries Manufactures vacuum pumps used in healthcare, semiconductors andPfeiffer Vacuum Technology 2.50 other industries Processes recycled cardboard and produces carton board forMayr-Melnholf Karton AG 2.41 packaging Manufacturer of specialised rubber products including rubberSemperit AG Holding 2.32 escalator handrails and hosesSMA Solar Technology AG 2..22 A leader manufacturer in the production of solar invertersTakkt AG 2.21 Leading B2B direct marketing specialist for business equipment One of the worlds leading investment managers dedicated toAshmore Group 2.17 emerging markets Underground precious metals producer focusing on high grade silverHochschild Mining 2.15 and gold depositsLamprell 2.06 Specialists in rig upgrade and refurbishment Medical technology company specialised in ophthalmology andCarl Zeiss Meditec AG 2.01 neuro/ENT surgery. Page 27 Source: Royce & Associates as at 31 May 2011
Portfolio Sector BreakdownLegg Mason Royce Global Smaller Companies Fund Legg Mason Royce European Smaller Companies FundSector % of Portfolio Sector % of PortfolioMaterial 23.51 Material 16.26Information Technology 14.22 Health Care 15.51Industrials 13.75 Industrials 15.4Health Care 12.52 Information Technology 14.12Financials 11.9 Financials 13.01Consumer Discretionary 11.04 Consumer Discretionary 12.79Consumer Staples 9.02 Energy 7.56Energy 7.14 Consumer Staples 3.7Treasuries & Cash -3.11 Treasuries & Cash 1.64 Page 28 Source: Royce & Associates as at 31 May 2011
Portfolio Country BreakdownLegg Mason Royce Global Smaller Companies Fund Legg Mason Royce European Smaller Companies Fund*Country % of Portfolio Country % of PortfolioUnited States 19.44 Germany 17.04Japan 16.41 France 15.30Canada 8.19 South Africa 8.98Germany 7.16 United Kingdom 8.93Austria 6.29 Switzerland 8.08South Africa 6.00 Austria 4.72Australia 5.47 Norway 4.00Hong Kong 5.22 Belgium 3.74United Kingdom 4.55 U.A.E. 3.68Belgium 3.34 Australia 2.85South Korea 2.83 Denmark 2.31France 2.77 Egypt 2.23Switzerland 2.15 Peru 2.15China 1.91 Turkey 2.15Peru 1.89 Italy 2.13U.A.E 1.67 Mexico 1.74Italy 1.37 Greece 1.58Brazil 1.29 Finland 1.48Mexico 1.27 Netherlands 1.16Egypt 1.18 Spain 1.02Norway 1.15 Hong Kong 0.97Denmark 0.80 Jersey 0.95Turkey 0.75 Ireland 0.74Cash -3.11 Sweden 0.41 Cash 1.64 Page 29 * For Legg Mason European Smaller Companies Fund at least 80% of stocks must be listed in EMEA. Source: Royce & Associates as at 31 May 2011
Co-Portfolio Managers W. Whitney George is Co-Chief Investment Officer, Portfolio Manager and a Managing Director of Royce & Associates, LLC, investment adviser to The Royce Funds. Mr. George manages Royce Low-Priced Stock Fund and Royce Focus Trust, a closed-end portfolio. He also co-manages Royce Premier Fund with Charles Royce, Royce Value Fund with Jay Kaplan, Royce Global Value Fund with David Nadel, Royce SMid-Cap Value Fund with Steven McBoyle and Royce Focus Value Fund with George Wyper. In addition, he serves as assistant portfolio manager for Royce Micro-Cap, Value Plus and Global Select Funds as well as Royce Capital Fund–Micro-Cap Portfolio. He serves on the portfolio management team of Royce Mid-Cap Fund with Carl Brown, Brendan Hartman and James Stoeffel. He has 29 years of investment industry experience. Prior to joining Royce & Associates in 1991, Mr. George held positions with Dominick & Dominick, Inc., WR Lazard & Laidlaw, Inc., Laidlaw, Adams & Peck and Oppenheimer & Co. Inc. He is a graduate of Trinity College. David A. Nadel is a Portfolio Manager and Director of International Research for Royce & Associates, LLC, investment adviser to The Royce Funds. Mr. Nadel joined the firm in 2006 and previously was a Senior Portfolio Manager at Neuberger Berman Inc. (2004-2006) and a Senior Analyst at Pequot Capital Management Inc. (2001-2003). He was also named to the 1999 and 2000 Institutional Investor All-American Research Teams. Mr. Nadel started his career at the French advisory firm Lazard Frerès & Co., and also worked in Hong Kong for Value Partners Group Ltd, Asias largest hedge fund manager. Mr. Nadel holds a bachelors degree from Williams College and a masters degree from Harvard University, as well as a Master of Business Administration from Harvard Business School. Page 30
SummaryKey points: Legg Mason Royce Global Smaller Companies Fund and Legg Mason Royce European SmallerCompanies Fund• Small / Mid Cap investment strategy. Concentrated portfolios of 60 – 80 stocks with market caps below $5 billion at time of purchase. More than 50% of Funds net assets are invested in companies with market caps between $500 million and $2.5 billion.• Funds are co-managed by Whitney George, co-CIO of Royce and David Nadel, Director of International Research.• Focus on higher quality names, defined as companies with low leverage and high ROIC.• Attempt to purchase companies at a discount to intrinsic value.• Both Funds were launched on 31 December 2009; the Legg Mason Royce Global Smaller Companies Fund has $8.4M in AUM and the Legg Mason Royce European Smaller Companies Fund has $2.4M in AUM as of 31 May 2011. Page 31 Source: Legg Mason As at 31 May 2011
Important InformationThe Legg Mason Royce Global Smaller Companies Fund and the Legg Mason Royce European Smaller Companies Fund are sub-funds of LeggMason Global Funds plc, an umbrella fund with segregated liability between sub-funds, established as an open-ended investment company withvariable capital and incorporated with limited liability under the laws of Ireland with registered number 278601. It qualifies, and is authorised in Irelandby the Central Bank of Ireland as an undertaking for collective investment in transferable securities and is a section 264 Scheme as recognised by theFSA.Royce and Associates is affiliated with Legg Mason through common control and ownership by Legg Mason, Inc.. Legg Mason provides its clients withaccess to Royce and Associates primarily through its range of Irish and UK authorised funds in which Royce and Associates serves as investmentmanager or sub-investment manager.This document does not constitute an invitation to invest. Past performance is no guide to future returns and may not be repeated. The value ofinvestments and the income from them can go down as well as up and investors may not get back the amounts originally invested. Fluctuations inexchange rates can affect the value of the Fund and the income from it.This presentation is for use by Professional Clients and Eligible Counterparties. It is not aimed at, or for use by, Retail Clients.This Fund is offered solely to non-US investors under the terms and conditions of the Fund’s current prospectus - please refer to the SimplifiedProspectus and Prospectus documentation, which describe the full risk factors associated with this Fund.These Funds may acquire shares in companies with relatively small market capitalisations and may involve a higher degree of risk.Issued and approved by Legg Mason Investments (Europe) Limited, registered office , 201 Bishopsgate, London, EC2M 3AB. Registered in Englandand Wales, Company No. 1732037. Authorised and regulated by the Financial Services Authority. Client Services 020 7070 7444.June 2011 6889This document is for use by asset managers, fund distributors and authorised intermediaries. Not for use by private individuals. Page 32