A Large Opportunity SetSmall- and micro-cap companies account for 82% of the publicly-traded universe in the US US Equities: US Equities: % Share based on total # of companies % Share based on Mkt Cap Large caps Micro caps Mid caps 4.2% 3.2% Small caps 13.3% 7% Mid caps 23.7% Small caps 16.3% Micro caps Large caps 66.2% 66.1% Source: FactSet, as at 30 June 2012 Page 2 Basis: All publicly listed US domiciled companies.
Exposure to the US Economy • Small-cap stocks are typically more US centric • On average, approximately 80% of revenues within the Russell 2000 originate from the US Source: FactSet, Compustat, Russell, J.P. Morgan Global Economics Research, J.P. Morgan Asset Management. Page 3 Foreign sales as a percentage of total sales is calculated as an unweighted average of individual index constituent companies’ reported sales figures and does not capture all index members reporting practices. As at 30 September 2012
PerformanceSmall Caps have outperformed large caps over the long term LM Royce US Small Cap Opp A Inc USD 159.11% Russell 2000 TR USD USD 134.37% S&P 500 TR USD 87.62% 280 230 180 130 80 01/11/02 01/08/03 01/05/04 01/02/05 01/11/05 01/08/06 01/05/07 01/02/08 01/11/08 01/08/09 01/05/10 01/02/11 01/11/11 01/08/12 Source: Morningstar. As at 30 September 2012 Page 4
The Long-Term Advantage Offered by Small CapsTotal Returns from 1926 CRSP 6-10 S&P 500 Cumulative Total Return 1,003,880.9% 233,474.4% Average Annual Total Return 11.3% 9.5% Growth of $10,000 $100,398,086 $23,357,439*CRSP = Centre for Research in Security PricesThe Cap-Based Portfolio data tracks micro, small, mid and large-cap stocks on monthly and quarterly frequencies. The methodology used to calculate the series differs from the CRSP Stock File Capitalization Decile Indices. For the Cap-Based Portfolios, CRSP ranks all NYSE companies by market capitalization and then divides them into ten equally populated portfolios. Amex and NASDAQ stocks are then placed into the deciles determined by the NYSE breakpoints,based on their market capitalization. The largest capitalizations in each decile serve as the breakpoints that are applied to various exchange groupings. CRSP portfolios 1-2 represent large cap stocks, portfolios 3-5 represent mid-caps,portfolios 6-8 represent small caps, and portfolios 9-10 represent our benchmark micro-caps. Source: Royce & Associates, as at 31 December 2011. Page 5
Reasons to Consider US Small Caps Now • Valuations: small caps are attractively valued relative to large caps • M&A activity: cheap valuation, high cash balances and a lack of organic growth should result in an increase in takeover activity • Performance over the long term: small caps have historically rebounded strongly from market declines Page 7
ValuationsRecent underperformance and compression in multiples creates an attractive entry point P/E Ratio Russell 2000 S&P 500 22 20 18 16 14 12 10 Source: Bloomberg, as at 30 September 2012. Page 8 Not annualised
Potential for ConsolidationSmall caps trading at cheap valuations are an attractive target for larger companiesRecent M&A activity Premium (previous Target Acquirer Sector Description days closing price) Bed, Bath & Beyond completed the purchase of Cost Plus, a discount Bed Bath & COST PLUS INC/CALIFORNIA Consumer Discretionary 18% retailer of home furnishing in May, for $495M including net debt. The Beyond transaction was all cash and BBBYs first acquisition since 2003. LeCroy makes test and measurement instruments such as LeCROY CORP Teledyne IT 54% oscilloscopes. Teledyne announced the acquisition of Lecroy on May 29th for $14.3, valuing Lecroy at $240M. Novellus is a manufacturer of semi conductor equipments used in the NOVELLUS SYSTEMS INC Lam Research IT 28% fabrication of integrated circuits. The all-share deal was announced in December 2011 (but completed in 2012) and valued Novellus at $3.3B. The $330M cash and share bid on the maker of semiconductor devices PLX TECHNOLOGY INC IDT IT 43% has recently been extended. Eastman Chemical initially announced the acquisition of Solutia, a Eastman SOLUTIA INC Materials 42% manufacturer of specialty chemicals and performance materials, in Chemical January, in a cash and share deal valuing Solutia at $3.38B. Sycamore, a private equity firm, announced the all cash purchase of Sycamore TALBOTS INC Consumer Discretionary 113% Talbots, valuing the retailer of women’s apparel, shoes and accessories Partners at $369M including net debt. International Paper completed the acquisition of this manufacturer of International packaging products in February, for $4.5B including net debt. The all TEMPLE-INLAND INC Materials 37% Paper cash deal represents a 37% premium on the stock price preceding the initial bid in May 2011. Source: Legg Mason as at 30 September 2012. Page 9
Small Cap Performance Following Major Market DeclinesRussell 2000 returns following all peak-to-trough declines of 10% or more since the Russell 2000’sInception Annualised Returns from Trough (%) Peak Date Trough Date Drawdown* 6 Months* 1 Year 3 Years 04/29/2011 10/03/2011 -29.1 +38.0 39.64 – 07/13/2007 03/09/2009 -58.9 72.2 97.9 35.3 05/05/2006 06/13/2006 -13.9 18.0 25.3 -6.5 12/28/2004 04/28/2005 -11.8 11.1 34.5 9.4 04/05/2004 08/12/2004 -14.4 23.5 29.2 16.5 03/09/2000 10/09/2002 -44.1 14.7 61.6 26.9 04/21/1998 10/08/1998 -36.5 29.6 39.7 11.4 10/13/1997 01/12/1998 -11.3 11.9 5 7.0 05/24/1996 07/24/1996 -15.4 20.7 34.9 14.9 03/18/1994 12/09/1994 -12.3 18.1 34.7 25.0 02/12/1992 06/25/1992 -12 17.4 25.8 17.0 10/09/1989 10/31/1990 -32.5 46.2 58.6 32 08/25/1987 10/28/1987 -38.9 38 41.8 6.7 07/03/1986 09/16/1986 -14.6 26.7 30.5 12.3 06/24/1983 07/25/1984 -24.1 21 33.8 23.8 06/15/1981 08/12/1982 -26.2 67.1 99.1 28.7 02/08/1980 03/27/1980 -26.3 59.6 81.4 36.2 10/05/1979 10/23/1979 -15.4 7.8 61.3 24.4 Averages 29.6% 46.3% 19.3% Source: Royce & Associates, as at 30 September 2012. Page 10 *Not annualised
Royce & AssociatesOne of the oldest (founded in late 1972) and largest Total invested AUM by Geographydedicated small-cap managers• Chuck Royce, the firm’s founder, is considered one of the pioneers of small-cap investing• Small-cap value investing is the core of the business• Seasoned staff of over 30 investment professionalsCo-ownership of funds• Officers and employees have approximately $143 million invested in the Royce Funds$36 billion in total assets under managementWholly owned, independent subsidiary of Legg Mason, Inc.since 1st October 2001 Source Royce & Associates, LLC as at 30 September 2012. Page 12
Organisation Business Management Average Industry Experience: 36 years | Average Experience with Royce: 25 years Charles M. Royce Co-Chief Investment Officer W. Whitney George Co-Chief Investment Officer Jack E. Fockler, Jr. Managing Director John D. Diederich Chief Operating Officer & Managing DirectorPortfolio Managers Assistant Portfolio Managers and AnalystsAverage Industry Experience: 26 years Average Experience with Royce: 11 years Average Industry Experience: 16 years Average Experience with Royce: 5 yearsCharles M. Royce Co-Chief Invest Officer John Protos Dana LambertW. Whitney George Co-Chief Investment Officer Derrik C. Li Dilip P. Badlani Mark RaynerBoniface A. Zaino William A. Hench Brendan J. HartmanCharles R. Dreifus David A. Nadel Jim P. StoeffelJames A Skinner, III James J. Harvey George Necakov TradersGeorge U. Wyper Lauren A. Romeo Chris E. Flynn Average Industry Experience: 22 years Average Experience with Royce: 13 yearsJenifer L. Taylor Steven G. McBoyle Christopher D. Clark Dan A. O’Byrne Kenneth D. SmolanoffJay S. Kaplan Carl D. Brown Francis D. Gannon Nickolas J. Spiezio Robert M. Fahy James P. Tyler John S. Lucas, III Mark A. Salamone Carl Vanderbush Elizabeth Winslow Source: Royce & Associates, LLC as at 30 June 2012 Page 13
Legg Mason Royce US Small Cap Opportunity Fund• Experienced team – Fund is managed by Bill Hench, who is assisted by Buzz Zaino – Investment approach used to manage the Fund has been in place for more than 30 years• Active investment style – Invests in a diversified portfolio of smaller companies with a preference for micro-cap stocks – Focuses on companies with a market capitalisation of up to $2.5 billion – Seeks to purchase companies trading at discounts of at least 30% and preferably 50% of the investment manager’s estimate of their value as businesses• Stock pickers – Bottom-up approach to stock selection is employed• Benchmark – Russell 2000 indexPlease refer to the prospectus of Legg Mason Global Funds Plc (LMGF) for a full description of the Legg Mason Royce US Small Cap Opportunity Fund. Source: Legg Mason/S&P/OBSR, as at 30 September 2012 Page 15 The Legg Mason Royce US Small Cap Opportunity 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. Please see the full Prospectus and Key Investor Information Document (KIID) for Legg Mason Global Funds plc for a full description of risk factors associated with the Fund.
Investment Universe – US Smaller CompaniesInvest in companies with market caps up to $2.5 billion Micro-Cap Universe Small-Cap Universe • <$500 million • $500 million - $2.5 billion • Approximately 3,000 • More than 1,100 companies companies representing representing more than more than $336 billion in $1.4 trillion in total market total market cap cap • Less liquidity, more • Greater liquidity, more volatility, greater return research coverage, greater potential competition Portfolio Weight 35.68% Portfolio Weight 59.15% • Comparable with securities such as Club Med & WH Smith Source: Legg Mason, as at 30 September 2012. Page 16
Investment Philosophy Value Driven Royce employs a disciplined value approach and strives to provide investors with above- average absolute performance Smaller Cap Focus Royce invests in small-cap companies that are trading significantly below the investment team’s assessment of their current worth Consistency Royce maintains the same discipline, regardless of market movements and trendsValue Driven• Focus on companies with low P/B and P/S ratios• Select securities from the entire small-cap universe, not just the “value” portion• Use a long-term investment horizon of generally two-to-five years Page 17
Portfolio ThemesPortfolio companies fall into one of four distinct themes for tracking purposes:Unrecognised Asset Values (15% - 30%)• Example: Gaylord Entertainment (GET) - $2 billion hotel and entertainment group which owns valuable assets including convention hotels near large cities as well as the rights to the Grand Ole Opry, the legendary country music show.Turnarounds (25% - 35%)• Example: Lender Processing Services (LPS) – $2.4 billion provider of home finance services for the mortgage industry. A new management team was brought in that shed the company’s non-performing businesses and refocused it on its core activities.Undervalued Growth (15% - 30%)• Example: Lithia Motors (LAD) – $650 million car dealership benefiting from the resurgence of GM and Chrysler brands.Interrupted Earnings (15% - 35%)• Example: Inphi (IPHI) - $390 million analog semiconductor producer. “Broken IPO” type stock, which sold off after its November 2010 listing. Page 18
Royce’s Disciplined Approach Small & Micro-Cap US Companies Identify Value Valuation Portfolio Themes • Initial universe of Focus on four value • Companies • Diversified trading at a 30% portfolio of over 4,100 stocks themes: and preferably, a 250-300 • Sources of ideas: • Unrecognised asset 50% discount stocks values – Trade journals • Turnarounds/ – Previously owned Special Situations companies • Undervalued growth – New low list • Interrupted earnings – Screens: Low P/B, P/S Page 19
Portfolio Construction• Broad diversification generally among 250 - 300 holdings to help minimise stock specific risk and because of liquidity/trading considerations• Portfolio holdings are averaged in over time to help minimise price risk and generally constitute 35 - 50 basis point weightings at the time of purchase• Position weights are based on valuation and conviction levels• Positions are cut back when weightings reach 1.0% of portfolio assets and/or when the portfolio manager determines that company progress is not being met Page 20
How Royce Manages a Broadly Diversified Portfolio• Significant knowledge of the investment universe gained from 40 years of small-cap investing• Portfolio Managers review all names with significant news flow at the start of each day• Screen for valuation characteristics such as P/B and P/S• Diversification is key because it allows sufficient time for turnaround situations to fully develop - it is also a way to minimise risks that are specific to investing in small caps, including liquidity and trading risks• Turnover within the investment universe is lower than generally perceived, especially in Industries like Aerospace – therefore, opportunities remain consistent across the market cycles Page 21
Legg Mason Royce US Small Cap Opportunity FundSector Exposure Relative to Russell 2000 Fund Index Underweight OverweightMaterials 10.45% 5.08%Industrials 20.20% 14.87%Information Technology 22.15% 17.29%Consumer Discretionary 16.85% 14.11%Energy 6.92% 6.19%Telecommunication Services 0.40% 0.77%Consumer Staples 0.84% 3.65%Utilities 0.00% 3.69%Financials 13.95% 20.74%Health Care 3.14% 13.60%Cash & Cash Equivalents 5.09% 0.00% Source: Legg M ason. As at 30/09/12. Page 23
Legg Mason Royce US Small Cap Opportunity FundFund CompositionMarket Capitalisation Legg Mason Royce US Small Cap Opportunity Fund Russell 2000 60 50.60 50 40 35.68 32.10 % of Fund 30 27.05 23.77 20 17.70 10 7.93 4.49 0.68 0.00 0 5,000-10,000 mil 2,500-5,000 mil 1,000-2,500 mil 500-1,000 mil Less than 500 mil $ Millions Source: FactSet. As at 30/09/12. Page 24
Legg Mason Royce US Small Cap Opportunity FundPortfolio CharacteristicsPortfolio Characteristics Fund* IndexValue FactorsTrailing P/E Ratio (Weighted Average) 14.64 14.43Current Dividend Yield (Weighted Average) 0.87% 1.48%Price/Book (Weighted Interquartile Average) 1.43 2.34Price/Sales Ratio 1.09 2.40EPS Growth, Trailing 3-5 Years (Weighted Average) -4.95% 5.42%Risk Factors over 3 YearsStandard Deviation 25.81% 21.28%Sharpe Ratio 0.55 0.68Treynor 11.79 14.37Tracking Error 5.71% 0.00%Information Ratio -0.25 -R Squared 0.98 1.00M Squared 11.75 14.46Alpha -3.05 0.00Beta 1.20 1.00Market CapWeighted Median Market Cap ($bn) 0.69 1.16Weighted Average Cap ($bn) 0.96 1.27 Source: FactSet. As at 30/09/12. Page 25 Please refer to “Important Information” for additional details.
Legg Mason Royce US Small Cap Opportunity FundPerformanceAnnualised Returns (USD) Source: Legg M ason. As at 30/09/12. Page 26 NAV to NAV with gross income reinvested without initial charges, but reflecting annual management fees, based in USD for Class A Shares. For sector figures: Copyright 2009, Morningstar, In. All Rights Reserved. Past performance is no guide to future returns and may not be repeated.
Legg Mason Royce US Small Cap Opportunity FundPerformanceCalendar Year Returns (USD) Legg Mason Royce US Small Cap Opportunity Fund - Class A Dist. (A) USD Russell 2000 Index 100 83.43 80 59.13 60 47.25 40 34.04 27.17 26.85 16.82 18.33 17.89 18.37 20 14.67 14.23 % 3.50 4.55 0 -1.57 -4.18 -4.61 -20 -12.39 -40 -33.79 -47.74 -60 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD Source: Legg M ason. As at 30/09/12. Page 27 NAV to NAV with gross income reinvested without initial charges, but reflecting annual management fees, based in USD for Class A Distributing Shares. Please refer to “Important Information” for additional details. Past performance is no guide to future returns and may not be repeated.
Legg Mason Royce US Small Cap Opportunity FundTop 10 Fund HoldingsSecurity Market Cap ($m) % of Total FundJones Group Inc 1,032 0.82Pennymac Mor Inv Trst 969 0.78Apogee Enterprises Inc 556 0.78Trex Company Inc 537 0.77Unisys Corp 839 0.73Kaiser Aluminum Corp 1,128 0.73Integ Silicon Solution 255 0.73UNIFI INC USD0.1 258 0.72Lasalle Hotel Properties 2,303 0.72QUANEX BUILDING P USD0.01 696 0.71Total 7.48Total Number of Holdings 276 Source: Legg M ason. As at 30/09/12. Page 29
Legg Mason Royce US Small Cap Opportunity FundActive Share/Tracking Error PositioningActive share of a fund is a measure of the percentage of stock holdings in a managers portfolio that differ from the benchmark index. In other words, it’sa way to estimate how different a fund is from its benchmark. Current Active Share - Tracking Error Positioning 100% 90% Fund 80% Diversified Concentrated Stock Picks Stock Picks 70% Active Share 60% 50% Closet 40% Factor Bets Indexing 30% 20% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Tracking Error (Three-Year Annualized) Source: Legg M ason. As at 30/09/12. Page 30 *Active Share and Mutual Fund Performance (Antti Petajisto – 2010). Active share is calculated by taking the sum of the absolute value of the differences of the weight of each holding in the portfolio versus the weight of each holding in the benchmark index and dividing by two.
Performance in Market ReboundsFor illustrative purposes only 1 Year Performance from Market bottom in 2002* 1 Year Performance from Market bottom in 2009** Royce Opportunity Fund Legg Mason Royce US Small Cap Opportunity Fund Source: Morningstar/Bloomberg, as at 7 October 2003. Performance is annualised for the Institutional share class and is Class A Distr. (USD) presented on a total return basis and reflects the reinvestment of distributions. There are differences between the Royce Opportunity Fund and the Legg Mason Royce US Small Cap Opportunity Fund including differences in the amount of assets under management, cash flows, fees and expenses, and applicable regulatory requirements, including investment and borrowing restrictions. The past performance of the Royce Opportunity Fund is, therefore, not indicative of the future performance of the Legg Mason Royce US Small Cap Opportunity Fund. The Royce Opportunity Fund has been used to Source: Morningstar/Bloomberg, as at 9 March 2010. NAV to NAV with gross income demonstrate the longer term track record of the investment manager. The Royce Opportunity Fund is US domiciled and is reinvested without initial charges, but reflecting annual management fees, based in therefore unavailable for investment outside of the US. USD for Class A Distributing Shares. Please refer to “Important Information” for additional details. Page 31 . Past performance is no guide to future returns and may not be repeated
Current “Themes”• The fund has exposure to housing related names, which make up 14-15% of the portfolio: Home builders, building materials, decking providers, roofing names, REITs etc.• The fund has increased its allocation to regional banking and financial related stocks over the last year, making up around 10% of the portfolio• Consumer related names including retailers make up 15% of the portfolio• Energy plays poised to benefit from the shale energy boom in the US, represent 5% of the portfolio and growing• Within Industrials, the fund is invested in several aerospace names which are a particularly bright spot for the US economy Source Royce & Associates, LLC as at 30 September 2012. Page 32
Example: Housing• The team has steadily built exposure to housing related Housing Starts: Total: New Privately Owned Housing Units Started names over the last year. 2400• This exposure includes a variety of names across 2000 different sectors such as builders and wood suppliers, as well as plumbing-related names and providers of 1600 decking. 1200• Valuations are still low but the sector seems to be 800 bottoming and a number of factors are supportive including: 400 Dec 95 Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 – Historically low mortgage rates – High affordability Toll Brothers Russell 2000 – The existence of pent-up demand 190 170 – Prices have declined 30% nationwide since 2006 peaks 150 – Significant capacity has been taken out 130 110 90 70 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Source top chart: US Department of Commerce: Census Bureau, as at 01 August 2012. Page 33 Source: Bloomberg, as at 31 August 2012. . Bottom chart rebased to 100.
Example: Banks• The fund’s exposure to banking and other related Washington Federal Russell 2000 financial stocks (around 10%) is now probably close to 135 historical highs for the strategy. 130• The team has also recently added to community banks where there are good underlying regional economies: 125 (e.g. Washington D.C. area; Virginia). 120• Small-cap banks posted among the best 4Q11 Russell 2000 industry performance and this strong performance 115 has continued YTD. 110• Banks held in portfolio are full service regional/local banks benefiting from commercial & industrial loan 105 growth in areas where the larger players have pulled out. 100• They are plays on undervalued assets and are also 95 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 ways to play an improving housing market. Source: Bloomberg, as at 31 August 2012. Page 34 Rebased to 100.
Example: Aerospace Barnes Russell 2000• 2012 will be another record year in terms of production 270 level. 2013 and 2014 should also be record years. 250• The large commercial jet backlog is also the highest it has ever been.* 230 210• US manufacturers and suppliers are benefiting from a weak US$. 190 170• Barnes ($1.14 billion market cap), a long term portfolio holding, is a manufacturer of precision metal parts and 150 distributor of industrial supplies. The company has been benefiting from improving prospects for its aerospace 130 clients. 110 90 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12*According to Aerospace Market News as of 30 September 2011. Source: Bloomberg, as at 31 August 2012. Page 35 Rebased to 100.
Legg Mason Royce US Small Cap Opportunity FundLegg Mason Royce US Small Cap Opportunity Fund – Investment TeamHistory & Background William A Hench, Portfolio Manager and Senior Analyst 2002 – present: • Portfolio Manager and Senior Analyst • 20 years investment industry experience • Portfolio Manager of the Legg Mason Royce US Small Cap Opportunity Fund since 2009. Previous Investment Experience: • J P Morgan • Cooper and Lybrand Years of Industry Years at Royce ExperienceOther Portfolio ManagersBoniface “Buzz” A ZainoManaging Director and Assistant Portfolio Manager 44 14MBA, Columbia UniversityTradersRobert Fahy 23 14BA, State University of New York, AlbanyMark A. Salamone 13 9BA, University of Maryland Source: Royce & Associates, as at 30 June 2012. Page 36
Important InformationThe Legg Mason Royce US Small Cap Opportunity Fund is a sub-fund of Legg Mason Global Funds plc, an umbrella fund with segregated liabilitybetween sub-funds, established as an open-ended investment company with variable capital and incorporated with limited liability under the laws ofIreland with registered number 278601. It qualifies, and is authorised in Ireland by the Central Bank of Ireland as an undertaking for collectiveinvestment in transferable securities and is a section 264 Scheme as recognised by the FSA.Royce & Associates is affiliated with Legg Mason through common control and ownership by Legg Mason, Inc. Legg Mason provides its clients withaccess to Royce & Associates primarily through its range of Irish and UK authorised funds in which Royce & Associates serves as investment manageror 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 Fund is offered solely to non-US investors under the terms and conditions of the Fund’s current prospectus - please refer to the Key InvestorInformation Document (KIID) 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 England andWales, Company No. 1732037. Authorised and regulated by the Financial Services Authority. Client Services 0207 070 7444November 2012Ref:8355Past performance is no guide to future returns and may not be repeated.This document is for Asset Managers, Fund Distributors and Authorised Intermediaries. Not for use by Private Individuals. Page 37