Q110 | Investment Ideas

Go anywhere.

INVESTMENTPRODUCTS:NOTFDICINSURED•NOBANKGUARANTEE•MAYLOSEVALUE

1 Inchoosingopen-endfundsforinvestment,theFundwillfavorLeggMasonproductswhenavailable.Insuchcases,theLeggMason-affiliatedfundmustofferaccesstoanassetclassoremployastrategywhichPermalwishestoutilizeand,inPermal’sjudgment,theLeggMason-affiliatedfundcanaccommodatetheFund’sinvestments.

Investing in 4D: The four dimensions of flexibility

Geography The Fund can move anywhere around the globe in search of opportunities. And it does so with a focus on risk management and a top-down worldview.

Asset classInvestments can range from the traditional stocks, bonds and cash to commodities, currencies, hedge funds, REITs, and master limited partnerships.

Investment vehiclesPermal can choose from open-end1, closed-end and exchange-traded funds (ETFs). And the Fund’s open architecture allows for investment in funds both inside and outside the Legg Mason family of managers.

Asset allocationThe first three dimensions of flexibility come together in the fourth: The Fund’s wide investment bands allow it to adjust asset allocation as market conditions change.

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Legg Mason Permal Tactical Allocation Fund (LPTAX)blends traditional and alternative asset classes to seek out opportunities in all market environments. This fund-of-funds invests using four dimensions of flexibility — resulting in a “go anywhere” fund that offers investors key advantages.

The fourth dimension: asset allocationCompared with traditional portfolios that have static asset allocations, the Fund has much greater latitude to increase or reduce the scale of its investments in different asset classes. Its equity allocation, for example, can range from a conservative 20% of total assets to a more-robust 80%.

So when opportunity knocks, Permal is ready at the door: It can emphasize assets with the most favorable pros-pects and trim others accordingly.

Legg Mason Permal Tactical Allocation Fund Traditional 60/30/10 strategy

Assetclass Allocationrangesandinvestments Allocationsandinvestments

Equity:U.S.InternationalEmergingmarkets

20% – 80%Open-endfundsClosed-endfundsExchange-tradedfunds

60%Equitysecurities

Fixed income:U.S.governmentCorporatesBankloansConvertiblebondsInternationalEmergingmarketsTIPS

10% – 60%Open-endfundsClosed-endfundsExchange-tradedfundsExchange-tradednotes

30%Fixed-incomesecurities

Cash equivalents:T-bills 0% – 40%

T-billsMoneymarketfundsCash

10%T-billsMoneymarketfundsCash

Alternatives (including long or short strategies):CommoditiesRealestateInfrastructureForeigncurrenciesHedgefundstrategies

0% – 40%Open-endfundsClosed-endfundsExchange-tradedfundsExchange-tradednotesMasterlimitedpartnershipsHedgefundstrategies

0%

Inchoosingopen-endfundsforinvestment,theFundwillfavorLeggMasonproductswhenavailable.Insuchcases,theLeggMason-affiliatedfundmustofferaccesstoanassetclassoremployastrategywhichPermalwishestoutilizeand,inPermal’sjudgment,theLeggMason-affiliatedfundcanaccommodatetheFund’sinvestments.Theuseoftacticalallocationstrategiesandalternativeinvestmentsinvolvesadditionalrisks.TheFundisnotintendedtobeacompleteinvestmentprogramandmaynotbesuitableforallinvestors.Seelastpagefordetails.

A focus on risk managementLegg Mason Permal Tactical Allocation Fund delivered solid returns during the past year, with significantly lower equity exposure than its benchmark, which is composed of 60% global equities, 30% bonds and 10% Treasury bills.

**AnnualizedforperiodsinceinceptionthroughApril30,2010.Source:LeggMason. SeelastpagefordescriptionsofIndexBlendandS&P500Index.

Performance shown represents past performance and is no guarantee of future results. Currentperformancemaybehigherorlowerthantheperformanceshown.Investmentreturnandprincipalvaluewillfluctuate,soshares,whenredeemed,maybeworthmoreorlessthantheoriginalcost.ClassAsharesreflectamaximumfront-endsalescharge

As of March 31, 2010 As of April 30, 2010

Withoutsalescharges Withsalescharges Withoutsalescharges Withsalescharges Expenses

Symbol 1-yrSince

inception 1-yrSince

inception 1-yrSince

inception** 1-yrSince

inception** Gross2 Net3

ClassA LPTAX – 24.88 – 17.67 23.38 24.58 16.29 17.70 3.63 1.82

ClassC LPTCX – 23.95 – 22.95 22.37 23.60 21.37 23.60 4.25 2.57

ClassI LPTIX – 25.19 – 25.19 23.69 24.88 23.69 24.88 3.17 1.57

ClassFI LPTFX – 24.88 – 24.88 23.38 24.58 23.38 24.58 3.77 1.82

IndexBlend – – 27.14 – 27.14 24.48 26.22 24.48 26.22 – –

S&P500 – – 39.37 – 39.37 38.84 39.39 38.84 39.39 – –

Average annual total returns & fund expenses (%)Inceptiondate:4/13/09

Risk measures AsofApril30,2010

Returns (%)AsofApril30,2010

2 GrossexpensesaretheFund’stotalannualoperatingexpensesfortheshareclass(es)indicatedasofthedateoftheFund’smostcurrentprospectusanddonotreflectfeewaiversorreimbursements.Theseexpensesincludemanagementfees,12b-1distributionandservicefees,andotherexpenses.

3 NetexpensesaretheFund’stotalannualoperatingexpensesfortheshareclass(es)indicatedasofthedateoftheFund’smostcurrentprospectusandreflectcontrac-tualfeewaiversand/orreimbursements.TheFund’smanagerhascontractuallyagreedtowaivefeesand/orreimburseoperatingexpensesforcertainshareclassesuntilApril30,2012,sothatthetotaloperatingexpensesarenotexpectedtoexceed1.75%forClassA,2.50%forClassC,1.50%forClassIand1.75%forClassFIoftheFund’saveragedailynetassetsattributabletoeachshareclass.NotallunderlyingFundexpensesaresubjecttothesefeewaiversand/orreimbursements.

Beta Standarddeviation Up-captureratio Down-captureratio

ClassA* 0.94 8.35% 0.94 0.87

IndexBlend 1.00 8.48% 1.00 1.00

ClassA* 0.61 8.35% 0.56 0.41

S&P500 1.00 11.65% 1.00 1.00

IndexBlend 0.68 8.48% 0.60 0.54

S&P500 1.00 11.65% 1.00 1.00

* Withoutsalescharge ForperiodMay1,2009throughApril30,2010. Source:LeggMasonandZephyrStyleAdvisor.

0

7

14

21

28

Class A*

One-year Since inception

Index Blend Class A* Index Blend

* Withoutsalescharge

In a strong period for equities, Legg Mason Permal Tactical Allocation Fund generated equity- like returns — by significantly investing in fixed income.

of5.75%.One-yearreturnsforClassCsharesreflectaCDSCof1.0%.Performanceforothershareclasseswillvaryduetodifferencesinsaleschargestructureandclassexpenses.TotalreturnsassumethereinvestmentofalldistributionsatnetassetvalueandthedeductionofallFundexpenses.PerformancedatadonotreflecttradedateadjustmentsmadetotheNAVatmonth-end.Performancewouldhavebeenloweriffeeshadnotbeenwaivedinvariousperiods.Toobtainthemostrecentmonth-endinformation,pleasevisitwww.leggmason.com/individualinvestors.

TheFund’sequitymarket-basedriskwaslowbyawidemargin.

TheFund’svolatilitywassignificantlylowerthanthemarket’s.

TheFunddeclinedlessthanthemarketdid.

Evolution of an allocationLegg Mason Permal Tactical Allocation Fund shifts its asset allocation as it scours the globe for opportunities. Over time, the allocation will reflect wherever Permal sees the best potential for superior risk-adjusted returns.

* DataasofApril30,2009.**TreasuryInflation-ProtectedSecurities. Percentagesarebasedontotalportfolioasofdateindicated,aresubjecttochangeatanytimeanddonotincludetrade-dateactivity.Forinformationalpurposesonlyandnot

tobeconsideredarecommendationtopurchaseorsellanysecurity.CertainportfolioholdingsmaybeheldthroughtheFund’ssubsidiary,TacticalAllocationFund,Ltd.,anex-emptedcompanyincorporatedintheCaymanIslands.DataforClassAshares.Totalsmaynotaddto100.0%duetorounding.Source:LeggMason.

Detailed asset allocation(%)

AtInception At10/31/09 At4/30/10

Fixed Income 47.25 51.15 37.26

FixedIncomeBlend 7.00 8.25 12.06

InternationalDebt 6.87 8.07 8.08

InvestmentGradeCorp.Bonds 6.78 7.95 –

AgencyMortgageDebt 6.78 11.06 4.01

HighYieldCorp.Bonds 6.25 2.08 2.12

BankLoans 6.00 3.96 4.03

TIPS** 4.78 4.91 2.94

ConvertibleBonds 2.79 4.87 4.02

Equity 36.51 36.25 49.76

USEquity 23.60 21.33 35.55

Intl.DevelopedEquity 7.98 11.19 11.40

EmergingMarketsEquity 4.93 3.73 2.81

Alternatives 9.34 8.56 11.95

HedgeFundStrategies 4.80 3.92 3.80

RealAssets 4.54 4.64 5.21

ForeignCurrency – – 2.94

Cash&CashEquivalents 6.89 4.03 1.02

47.25%36.51%

9.34%6.89%

51.19%36.25%

8.56%4.03%

37.26%

49.76%

11.95%1.02%

At inception* At 10/31/09 At 4/30/10

“Now we’ve shifted more assets into stocks and alternative strategies, and out of bonds.”ChristopherZuehlsdorff,portfoliomanager

“While shifting among fixed-income sectors, we continued to overweight fixed income through 2009, which helped generate a solid return, with relatively low volatility.”ChristopherZuehlsdorff,portfoliomanager

About the Permal GroupPermal is a global pioneer in the use of multi-manager funds. Its approach has passed the test of time: Permal has invested through many market cycles during its 36-year history.

4 AsofMarch31,2010.

New YorkPermal Group, Inc.

Permal Asset Management, Inc.SEC Registered Investment Advisor Boston

Permal Capital Management, LLCSEC Registered Investment Advisor

DubaiDFSA Regulated

Hong KongSFC Regulated

SingaporeMas Regulated

Tokyo

Paris

Nassau, BahamasThe St. James Bank & Trust Co. LimitedCBB RegulatedW&P Fund Services Ltd.Securities Board Regulated

LondonPermal Investment Management Services LimitedFSA Authorized and Regulated

The Permal advantage:• Permal is one of the world’s oldest and largest alternative

fund-of-funds managers

• $17.4 billion under management4

• Seeks above-average returns over time while maintaining a lower risk profile than traditional investments

• Disciplined and rigorous investment and risk management processes

• Active reallocation among managers and strategies to poten-tially capitalize on opportunities wherever they may materialize

• Exceptional combination of experience, asset allocation expertise and global reach

The information advantage:• Legg Mason’s Permal Group affiliate

manages the Fund.

• With over 36 years of experience, Permal has gained direct access to some of the world’s best-known — and most exclu-sive — investment minds. This wealth of insights informs asset allocation and investment decisions.

In global pursuit of opportunitiesPermal truly goes anywhere for investment opportunities — both in the markets and on the ground. Its offices are strategically located in key financial centers: New York, London, Singapore, Dubai, Paris, Boston, Hong Kong, Tokyo and Nassau.

Meet the investment teamLegg Mason Permal Tactical Allocation Fund is managed by a team of seasoned investment professionals.

Portfolio managersChristopher Zuehlsdorff, CFAAlexander Pillersdorf

Investment committeeIsaac Souede, CEOJames Hodge, CIORobert Kaplan, EVPJudy Tchou, EVP

©2010LeggMasonInvestorServices,LLC,memberFINRA,SIPC. LeggMasonInvestorServices,LLCandThePermalGroupLLCaresubsidiariesofLeggMason,Inc. 403924PRML0124545/10FN1010930

What should I know before investing?All investments are subject to risk, includ-ing the possible loss of principal. The Fund is a newly organized, open-end investment company with a limited history of opera-tions. In addition to the Fund’s operating expenses, you will indirectly bear the op-erating expenses of the underlying funds. The Fund may invest in unregistered hedge funds, which are highly speculative invest-ments that employ aggressive investment strategies and carry substantial risk. Invest-ments in hedge funds are generally illiquid, difficult to value and may carry significant restrictions for transferring assets. Some of the underlying funds employ leverage, which increases the volatility of investment returns and subjects the Fund to magnified losses if an underlying fund’s investments decline in value. The Fund and some of the underlying funds may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. Some of the underlying funds may employ short selling, a speculative strategy. Unlike the possible loss on a se-curity that is purchased, there is no limit on the amount of loss on an appreciating se-curity that is sold short. The Fund and each underlying fund may engage in active and frequent trading, resulting in higher port-folio turnover and transaction costs. There is no assurance that these and other strate-gies used by the Fund or underlying funds will be successful. International invest-ments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could in-crease volatility. These risks are magnified in emerging markets. Small- and mid-cap

stocks involve greater risks and volatility than large-cap stocks. Fixed-income securi-ties involve interest rate, credit, inflation and reinvestment risks. As interest rates rise, the value of fixed-income securities falls. High-yield bonds possess greater price volatility, illiquidity, and possibility of de-fault. Please see the prospectus for a more complete discussion of the Fund’s risks. Diversification does not assure a profit or protect against market loss.

What terms should I know?Beta is a measure of a portfolio’s volatility, or systematic risk, in comparison to the market as a whole. A beta below 1.00 indicates less volatility than the market; a higher beta indi-cates more volatility.

Standard deviation indicates the percentage by which an investment’s performance has varied from its average performance in any given month during the period indicated. The higher the standard deviation, the greater the range of performance, indicating greater volatility.

Up-capture ratio measures the extent to which an investment participates in the up-side of the market as a whole during periods when the market’s performance is positive. An up-capture ratio above 1.00 indicates that the investment captured more positive return than the investment’s benchmark.

Down-capture ratio measures the extent to which an investment participates in the down-side of the market as a whole during periods when the market’s performance is negative. A down-capture ratio below 1.00 indicates that the investment captured less negative return than the investment’s benchmark.

Index Blend is composed of 60% MSCI World Index, 30% Barclays Capital U.S. Aggregate Bond Index and 10% Treasury bills. The MSCI World Index is an unmanaged index consid-ered representative of growth stocks of developed countries. Index performance is calculated with net dividends. The Barclays Capital U.S. Aggregate Bond Index is a broad-based bond index composed of government, corporate, mortgage- and asset-backed issues rated investment grade or higher and having at least one year to maturity. The 90-Day Treasury Bill Index is an unmanaged index generally representative of the average yield of 90-day Treasury bills. Please note that an investor can-not invest directly in an index.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note that an investor cannot invest directly in an index.

Exchange-traded funds (ETFs) are securities that track an index, commodity or basket of assets. Although ETFs are classified as open-end mutual funds, their shares trade like stocks on an exchange. Unlike open-end funds, whose net asset value is calculated once daily after the close of trading, ETFs experience price changes throughout the day as they are bought and sold.

Where can I find more information? Talk to your financial advisor about the role Legg Mason Permal Tactical Allocation Fund can play as a part of a well- diversified portfolio.

AN INVESTOR SHOULD CONSIDER A FUND’S INVESTMENT OBJEC TIVES, RISKS, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. FOR A FREE PROSPEC TUS, WHICH CONTAINS THIS AND OTHER INFOR MATION ON ANY LEGG MASON FUND, VISIT WWW.LEGGMASON.COM/INDIVIDUALINVESTORS. AN INVESTOR SHOULD READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.