Allocation 30%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Investments in underlying funds
|
|
$
|
147,519,125
|
|
|
|
|
|
|
|
|
|
|
$
|
147,519,125
|
|
Short-term investments
|
|
|
|
|
|
$
|
261,000
|
|
|
|
|
|
|
|
261,000
|
|
Total investments
|
|
$
|
147,519,125
|
|
|
$
|
261,000
|
|
|
|
|
|
|
$
|
147,780,125
|
|
|
See Schedules of Investments for additional detailed categorizations.
|
(b) Repurchase agreements.
The Funds may
enter into repurchase agreements with institutions that their investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Funds acquire a debt security
subject to an obligation of the seller to repurchase, and of the Funds to resell, the security at an agreed-upon price and time, thereby determining the yield during the Funds holding period. When entering into repurchase agreements, it is the
Funds policy that their custodian or a third party custodian, acting on the Funds behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the
repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to
ensure the adequacy of the collateral. If the counterparty defaults, the Funds generally have the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the
period in which the Funds seek to assert their rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Funds may be delayed or limited.
(c) Fund of funds risk.
Your cost of investing in the Funds, as funds of funds, may be higher than the cost of investing in a mutual fund that only invests directly in individual securities. An underlying fund may
change its investment objective or policies without the Funds approval, which could force the Funds to withdraw their investments from such underlying fund at a time that is unfavorable to the Funds. In addition, one underlying fund may buy
the same securities that another underlying fund sells. Therefore, the Funds would indirectly bear the costs of these trades without accomplishing any investment purpose.
(d) Security transactions and investment income.
Security transactions are accounted for on a trade date basis. Net investment income distributions, are recorded on the ex-dividend date as investment income. Interest income is recorded on
an accrual basis. Short-term and long-term capital gain distributions, if any, from the Underlying Funds are recorded on the ex-dividend date as realized gains. The cost of investments sold is determined by use of the specific identification method.
(e) Distributions to shareholders.
The Allocation 85% and Allocation 70% Funds distribute net investment income and capital gains, if any, at least annually. The Allocation 50% and Allocation 30% Funds distribute net
investment income quarterly and capital gains, if any, at least annually. Distributions to shareholders of the Funds are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(f) Share class accounting.
Investment income, common expenses and realized/unrealized gains (losses) on investments are allocated to the various classes of each Fund on the basis of daily net assets of each class.
Fees relating to a specific class are charged directly to that share class.
(g) Compensating balance arrangements.
The Funds have an arrangement with their custodian bank whereby a portion
of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(h) Federal and other taxes.
It is the Funds policy to comply with the federal income and excise tax
requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute their taxable income and net realized gains, if any, to shareholders in
accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements.
|
|
|
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
|
|
55
|
|
Management has analyzed the Funds tax positions taken on income tax returns for all open
tax years and has concluded that as of January 31, 2013, no provision for income tax would be required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the
applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
(i) Reclassification.
GAAP requires that
certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. During the current year, the Funds had the
following reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
|
|
|
Undistributed Net
Investment Income
|
|
|
Accumulated Net
Realized Losses
|
|
Allocation 85%
|
|
|
(a)
|
|
|
$
|
1,348,316
|
|
|
$
|
(1,348,316)
|
|
Allocation 70%
|
|
|
(a)
|
|
|
|
864,966
|
|
|
|
(864,966)
|
|
Allocation 50%
|
|
|
(a)
|
|
|
|
405,185
|
|
|
|
(405,185)
|
|
Allocation 30%
|
|
|
(a)
|
|
|
|
136,225
|
|
|
|
(136,225)
|
|
(a)
|
Reclassifications are primarily due to Short-term Capital Gains from Underlying Funds treated as ordinary income for tax purposes.
|
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is each Funds investment manager and Legg Mason Global Asset Allocation, LLC
(LMGAA) is each Funds subadviser. Western Asset Management Company (Western Asset) manages each Funds cash and short-term instruments. LMPFA, LMGAA and Western Asset are wholly-owned subsidiaries of Legg Mason,
Inc. (Legg Mason). Under the investment management agreement, the Funds do not pay a management fee.
LMPFA provides
administrative and certain oversight services to the Funds. LMPFA delegates to the subadviser the day-to-day portfolio management of the Funds, except for the management of cash and short-term instruments, which is provided by Western Asset.
In addition, the Funds indirectly pay management and/or administration fees to LMPFA and other wholly-owned subsidiaries of Legg
Mason as a shareholder in the Underlying Funds. These management and administration fees ranged from 0.40% to 1.00% of the average daily net assets of the Underlying Funds.
As a result of expense limitation arrangements between the Funds and LMPFA, the ratio of expenses, other than interest, brokerage commissions, taxes, extraordinary expenses and acquired fund
fees and expenses, to average net assets of the Allocation 85%, Allocation 70% and Allocation 50% Funds Class A, Class B and Class C shares will not exceed 0.80%, 1.55% and 1.55%, respectively. Additionally, the ratio of expenses other
than interest, brokerage commissions, taxes, extraordinary expenses and acquired fund fees and expenses to average net assets of the Allocation 85% and Allocation 70% Funds Class I shares will not exceed 0.55%. Also, the ratio of expenses
other than interest, brokerage commissions, taxes, extraordinary expenses and acquired fund fees and expenses to average net assets of the Allocation 30% Funds Class A, Class B, Class C (new Class C shares are available for purchase
effective August 1, 2012), Class C1 (on August 1, 2012, Class C shares were reclassified as Class C1 shares) and Class I shares will not exceed 0.80%, 1.30%, 1.55%, 1.25% and 0.55%, respectively. These expense limitation arrangements
cannot be terminated prior to December 31, 2014 without the Board of Trustees consent.
During the year ended
January 31, 2013, the Allocation 85%, Allocation 70% and Allocation 30% Funds were reimbursed for expenses in the amounts of $2,357, $107 and $15, respectively.
The investment manager is permitted to recapture amounts waived or reimbursed to a class during the same fiscal year if the class total annual operating expenses have fallen to a level
below the expense limitation (expense cap) in effect at the time the fees were earned or the expenses incurred. In no case will the investment manager recapture any amount that would result, on any particular business day of each Fund,
in the class total annual operating expenses exceeding the expense cap or any other lower limit then in effect.
Legg Mason
Investor Services, LLC (LMIS), a wholly-owned broker-dealer subsidiary of Legg Mason, serves as each Funds sole and exclusive distributor.
|
|
|
56
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
Notes to financial
statements (contd)
For Allocation 85%,
Allocation 70% and Allocation 50%, there is a maximum initial sales charge of 5.75% for Class A shares. For Allocation 30%, there is a maximum initial sales charge of 4.25% for Class A shares. Allocation 85%, Allocation 70%, and Allocation
50% have a contingent deferred sales charge (CDSC) of 5.00% on Class B shares, which applies if redemption occurs within 12 months from purchase payment. This CDSC declines thereafter by 1.00% per year until no CDSC is incurred.
Allocation 30% has a CDSC of 4.50% on Class B shares, which applies if redemption occurs within 12 months from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is
incurred. Class C shares (new Class C shares for Allocation 30% are available for purchase effective August 1, 2012) and Class C1 shares (formerly Class C) of Allocation 30% have a 1.00% CDSC, which applies if redemption occurs within 12 months
from purchase payment. In certain cases, Class A shares of the Funds have a 1.00% CDSC, which applies if redemption occurs within 18 months from purchase payment (or within 12 months for shares purchased prior to August 1, 2012.) This CDSC
only applies to those purchases of Class A shares, which, when combined with current holdings of other shares of the Funds sold by LMIS, equal or exceed $1,000,000 in the aggregate. These purchases do not incur an initial sales charge.
On August 1, 2012, for Allocation 30%, Class C shares were reclassified as Class C1 shares. Class C1 (formerly Class C)
shares are not available for purchase by new or existing investors (except for certain retirement plans authorized by LMIS prior to August 1, 2012). Class C1 (formerly Class C) shares will continue to be available for dividend reinvestment and
incoming exchanges.
For the year ended January 31, 2013, sales charges and CDSCs paid to LMIS and its affiliates were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Charges
|
|
|
CDSCs
|
|
|
|
Class A
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class C1
¨
|
|
Allocation 85%
|
|
$
|
296,169
|
|
|
$
|
602
|
|
|
$
|
134,331
|
|
|
$
|
596
|
|
|
|
|
|
Allocation 70%
|
|
|
168,581
|
|
|
|
539
|
|
|
|
72,601
|
|
|
|
964
|
|
|
|
|
|
Allocation 50%
|
|
|
139,383
|
|
|
|
935
|
|
|
|
43,582
|
|
|
|
1,120
|
|
|
|
|
|
Allocation 30%
|
|
|
35,271
|
|
|
|
204
|
|
|
|
26,724
|
|
|
|
29
|
*
|
|
$
|
1,673
|
|
¨
|
On August 1, 2012, Class C shares were reclassified as Class C1 shares.
|
*
|
For the period August 1, 2012 (inception date) to January 31, 2013.
|
All officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.
3. Investments
During the year ended January 31, 2013, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term
investments) were as follows:
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
Allocation 85%
|
|
$
|
67,262,124
|
|
|
$
|
114,034,530
|
|
Allocation 70%
|
|
|
52,908,701
|
|
|
|
91,259,491
|
|
Allocation 50%
|
|
|
37,846,996
|
|
|
|
57,870,156
|
|
Allocation 30%
|
|
|
23,519,857
|
|
|
|
30,697,450
|
|
At January 31, 2013, the aggregate gross unrealized appreciation and depreciation of investments for
federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
Depreciation
|
|
Net
Unrealized
Appreciation
|
|
Allocation 85%
|
|
$
|
85,657,741
|
|
|
|
|
$
|
85,657,741
|
|
Allocation 70%
|
|
|
66,614,239
|
|
|
|
|
|
66,614,239
|
|
Allocation 50%
|
|
|
35,398,241
|
|
|
|
|
|
35,398,241
|
|
Allocation 30%
|
|
|
14,814,919
|
|
|
|
|
|
14,814,919
|
|
4. Derivative instruments and hedging activities
GAAP requires enhanced disclosure about an entitys derivative and hedging activities.
During the year ended
January 31, 2013, the Fund did not invest in any derivative instruments.
|
|
|
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
|
|
57
|
|
5. Class specific expenses, waivers and/or expense reimbursements
The Funds have adopted a Rule 12b-1 distribution plan and under that plan the Funds pay a service fee with respect to their Class A,
Class B, Class C and Class C1 (on August 1, 2012, Allocation 30% Class C shares were reclassified as Class C1 shares) shares calculated at the annual rate of 0.25% of the average daily net assets of each respective class. In addition, the
Allocation 85%, Allocation 70%, and Allocation 50% each pay a distribution fee with respect to their Class B and Class C shares calculated at the annual rate of 0.75% of the average daily net assets of each respective class. Allocation 30% pays a
distribution fee with respect to its Class B, Class C and Class C1 (on August 1, 2012, Class C shares were reclassified as Class C1 shares) shares calculated at the annual rate of 0.50%, 0.75% and 0.45%, respectively, of the average daily net
assets of each class. Service and distribution fees are accrued daily and paid monthly.
For the year ended January 31, 2013,
class specific expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
Service and/or
Distribution
Fees
|
|
|
Transfer Agent
Fees
|
|
Allocation
85%
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
1,354,174
|
|
|
$
|
2,110,225
|
|
Class B
|
|
|
806,668
|
|
|
|
406,447
|
|
Class C
|
|
|
155,943
|
|
|
|
29,831
|
|
Class I
|
|
|
|
|
|
|
933
|
|
Total
|
|
$
|
2,316,785
|
|
|
$
|
2,547,436
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and/or
Distribution
Fees
|
|
|
Transfer Agent
Fees
|
|
Allocation
70%
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
953,056
|
|
|
$
|
1,113,643
|
|
Class B
|
|
|
484,205
|
|
|
|
221,044
|
|
Class C
|
|
|
170,436
|
|
|
|
27,959
|
|
Class I
|
|
|
|
|
|
|
2,344
|
|
Total
|
|
$
|
1,607,697
|
|
|
$
|
1,364,990
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and/or
Distribution
Fees
|
|
|
Transfer Agent
Fees
|
|
Allocation
50%
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
601,487
|
|
|
$
|
553,094
|
|
Class B
|
|
|
283,476
|
|
|
|
113,683
|
|
Class C
|
|
|
129,792
|
|
|
|
23,490
|
|
Total
|
|
$
|
1,014,755
|
|
|
$
|
690,267
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and/or
Distribution
Fees
|
|
|
Transfer Agent
Fees
|
|
Allocation
30%
|
|
|
|
|
|
|
|
|
Class A
|
|
|
$319,560
|
|
|
|
$224,034
|
|
Class B
|
|
|
96,440
|
|
|
|
44,032
|
|
Class C
|
|
|
877
|
|
|
|
78
|
|
Class C1
¨
|
|
|
37,082
|
|
|
|
14,869
|
|
Class I
|
|
|
|
|
|
|
211
|
|
Total
|
|
|
$453,959
|
|
|
|
$283,224
|
|
¨
|
On August 1, 2012, Class C shares were reclassified as Class C1 shares.
|
|
For the period August 1, 2012 (inception date) to January 31, 2013.
|
|
For the period March 15, 2012 (inception date) to January 31, 2013.
|
|
|
|
58
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
Notes to financial
statements (contd)
For the year ended
January 31, 2013, waivers and/or expense reimbursements by class were as follows:
|
|
|
|
|
|
|
Waivers/Expense
Reimbursements
|
|
Allocation
85%
|
|
|
|
|
Class B
|
|
$
|
2,357
|
|
Total
|
|
$
|
2,357
|
|
|
|
|
|
|
|
|
Waivers/Expense
Reimbursements
|
|
Allocation
70%
|
|
|
|
|
Class I
|
|
$
|
107
|
|
Total
|
|
$
|
107
|
|
|
|
|
|
Waivers/Expense
Reimbursements
|
|
Allocation
30%
|
|
|
|
|
Class I
1
|
|
|
$15
|
|
Total
|
|
|
$15
|
|
1
|
For the period March 15, 2012 (inception date) to January 31, 2013.
|
6. Distributions to shareholders by class
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31, 2013
|
|
|
Year Ended
January 31, 2012
|
|
Allocation
85%
|
|
|
|
|
|
|
|
|
Net
Investment Income:
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
6,639,073
|
|
|
$
|
5,210,743
|
|
Class B
|
|
|
356,574
|
|
|
|
209,498
|
|
Class C
|
|
|
123,075
|
|
|
|
75,954
|
|
Class I
|
|
|
7,404
|
|
|
|
3,838
|
|
Total
|
|
$
|
7,126,126
|
|
|
$
|
5,500,033
|
|
|
|
|
|
|
Year Ended
January 31, 2013
|
|
|
Year Ended
January 31, 2012
|
|
Allocation
70%
|
|
|
|
|
|
|
|
|
Net
Investment Income:
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
5,950,323
|
|
|
$
|
5,401,531
|
|
Class B
|
|
|
261,558
|
|
|
|
311,235
|
|
Class C
|
|
|
170,917
|
|
|
|
128,853
|
|
Class I
|
|
|
15,578
|
|
|
|
8,436
|
|
Total
|
|
$
|
6,398,376
|
|
|
$
|
5,850,055
|
|
|
|
|
|
|
Year Ended
January 31, 2013
|
|
|
Year Ended
January 31, 2012
|
|
Allocation
50%
|
|
|
|
|
|
|
|
|
Net
Investment Income:
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
4,076,584
|
|
|
$
|
4,692,566
|
|
Class B
|
|
|
190,398
|
|
|
|
331,259
|
|
Class C
|
|
|
126,290
|
|
|
|
146,194
|
|
Total
|
|
$
|
4,393,272
|
|
|
$
|
5,170,019
|
|
|
|
|
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31, 2013
|
|
|
Year Ended
January 31, 2012
|
|
Allocation
30%
|
|
|
|
|
|
|
|
|
Net
Investment Income:
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
3,023,576
|
|
|
$
|
3,260,124
|
|
Class B
|
|
|
197,913
|
|
|
|
303,020
|
|
Class C
|
|
|
2,946
|
|
|
|
|
|
Class C1
¨
|
|
|
92,858
|
|
|
|
106,864
|
|
Class I
|
|
|
2,879
|
|
|
|
|
|
Total
|
|
$
|
3,320,172
|
|
|
$
|
3,670,008
|
|
¨
|
On August 1, 2012, Class C shares were reclassified as Class C1 shares.
|
|
For the period August 1, 2012 (inception date) to January 31, 2013.
|
|
For the period March 15, 2012 (inception date) to January 31, 2013.
|
7. Shares of beneficial interest
At January 31, 2013, the Trust
had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Funds have the ability to issue multiple classes of shares. Each class of shares represents an identical interest and has the same
rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares.
Transactions in shares of each class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31, 2013
|
|
|
Year Ended
January 31, 2012
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Allocation
85%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
3,754,559
|
|
|
$
|
51,412,313
|
|
|
|
4,509,817
|
|
|
$
|
58,319,540
|
|
Shares issued on reinvestment
|
|
|
475,053
|
|
|
|
6,619,892
|
|
|
|
417,850
|
|
|
|
5,198,051
|
|
Shares repurchased
|
|
|
(6,711,049)
|
|
|
|
(91,998,472)
|
|
|
|
(6,819,891)
|
|
|
|
(88,070,197)
|
|
Shares issued with merger
|
|
|
|
|
|
|
|
|
|
|
5,299,308
|
|
|
|
73,261,856
|
|
Net increase (decrease)
|
|
|
(2,481,437)
|
|
|
$
|
(33,966,267)
|
|
|
|
3,407,084
|
|
|
$
|
48,709,250
|
|
|
|
|
|
|
Class
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
17,777
|
|
|
$
|
231,866
|
|
|
|
439,458
|
|
|
$
|
5,610,268
|
|
Shares issued on reinvestment
|
|
|
27,098
|
|
|
|
355,703
|
|
|
|
17,733
|
|
|
|
209,068
|
|
Shares repurchased
|
|
|
(1,487,219)
|
|
|
|
(19,215,618)
|
|
|
|
(1,972,566)
|
|
|
|
(24,149,547)
|
|
Shares issued with merger
|
|
|
|
|
|
|
|
|
|
|
1,431,312
|
|
|
|
18,707,860
|
|
Net increase (decrease)
|
|
|
(1,442,344)
|
|
|
$
|
(18,628,049)
|
|
|
|
(84,063)
|
|
|
$
|
377,649
|
|
|
|
|
|
|
Class
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
61,964
|
|
|
$
|
815,875
|
|
|
|
65,985
|
|
|
$
|
817,783
|
|
Shares issued on reinvestment
|
|
|
8,910
|
|
|
|
118,625
|
|
|
|
6,143
|
|
|
|
73,227
|
|
Shares repurchased
|
|
|
(168,761)
|
|
|
|
(2,196,932)
|
|
|
|
(249,302)
|
|
|
|
(3,091,047)
|
|
Shares issued with merger
|
|
|
|
|
|
|
|
|
|
|
309,480
|
|
|
|
4,093,435
|
|
Net increase (decrease)
|
|
|
(97,887)
|
|
|
$
|
(1,262,432)
|
|
|
|
132,306
|
|
|
$
|
1,893,398
|
|
|
|
|
|
|
Class
I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
12,884
|
|
|
$
|
177,438
|
|
|
|
86,908
|
|
|
$
|
1,158,658
|
|
Shares issued on reinvestment
|
|
|
532
|
|
|
|
7,404
|
|
|
|
309
|
|
|
|
3,838
|
|
Shares repurchased
|
|
|
(6,563)
|
|
|
|
(88,381)
|
|
|
|
(76,172)
|
|
|
|
(1,019,773)
|
|
Net increase
|
|
|
6,853
|
|
|
$
|
96,461
|
|
|
|
11,045
|
|
|
$
|
142,723
|
|
|
|
|
|
|
Allocation
70%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
2,503,314
|
|
|
$
|
33,796,286
|
|
|
|
3,499,751
|
|
|
$
|
44,523,429
|
|
Shares issued on reinvestment
|
|
|
435,237
|
|
|
|
5,932,462
|
|
|
|
434,404
|
|
|
|
5,383,695
|
|
Shares repurchased
|
|
|
(5,070,255)
|
|
|
|
(68,556,947)
|
|
|
|
(5,147,608)
|
|
|
|
(65,442,813)
|
|
Net decrease
|
|
|
(2,131,704)
|
|
|
$
|
(28,828,199)
|
|
|
|
(1,213,453)
|
|
|
$
|
(15,535,689)
|
|
|
|
|
60
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
Notes to financial
statements (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31, 2013
|
|
|
Year Ended
January 31, 2012
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Allocation
70%
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
25,402
|
|
|
$
|
347,896
|
|
|
|
299,706
|
|
|
$
|
3,992,717
|
|
Shares issued on reinvestment
|
|
|
18,997
|
|
|
|
260,969
|
|
|
|
24,471
|
|
|
|
310,334
|
|
Shares repurchased
|
|
|
(1,051,991)
|
|
|
|
(14,342,925)
|
|
|
|
(1,517,310)
|
|
|
|
(19,581,438)
|
|
Net decrease
|
|
|
(1,007,592)
|
|
|
$
|
(13,734,060)
|
|
|
|
(1,193,133)
|
|
|
$
|
(15,278,387)
|
|
|
|
|
|
|
Class
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
176,852
|
|
|
$
|
2,418,113
|
|
|
|
152,149
|
|
|
$
|
1,952,382
|
|
Shares issued on reinvestment
|
|
|
12,039
|
|
|
|
166,394
|
|
|
|
9,956
|
|
|
|
125,758
|
|
Shares repurchased
|
|
|
(205,482)
|
|
|
|
(2,770,455)
|
|
|
|
(266,790)
|
|
|
|
(3,464,669)
|
|
Net decrease
|
|
|
(16,591)
|
|
|
$
|
(185,948)
|
|
|
|
(104,685)
|
|
|
$
|
(1,386,529)
|
|
|
|
|
|
|
Class
I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
39,185
|
|
|
$
|
522,637
|
|
|
|
29,657
|
|
|
$
|
378,464
|
|
Shares issued on reinvestment
|
|
|
1,148
|
|
|
|
15,578
|
|
|
|
683
|
|
|
|
8,436
|
|
Shares repurchased
|
|
|
(18,514)
|
|
|
|
(247,929)
|
|
|
|
(6,978)
|
|
|
|
(88,548)
|
|
Net increase
|
|
|
21,819
|
|
|
$
|
290,286
|
|
|
|
23,362
|
|
|
$
|
298,352
|
|
|
|
|
|
|
Allocation
50%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
2,538,851
|
|
|
$
|
31,880,073
|
|
|
|
3,171,742
|
|
|
$
|
37,749,579
|
|
Shares issued on reinvestment
|
|
|
320,908
|
|
|
|
4,052,064
|
|
|
|
397,841
|
|
|
|
4,666,091
|
|
Shares repurchased
|
|
|
(4,038,801)
|
|
|
|
(50,744,289)
|
|
|
|
(4,686,168)
|
|
|
|
(55,464,295)
|
|
Net decrease
|
|
|
(1,179,042)
|
|
|
$
|
(14,812,152)
|
|
|
|
(1,116,585)
|
|
|
$
|
(13,048,625)
|
|
|
|
|
|
|
Class
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
51,173
|
|
|
$
|
665,656
|
|
|
|
242,254
|
|
|
$
|
2,999,782
|
|
Shares issued on reinvestment
|
|
|
14,505
|
|
|
|
189,415
|
|
|
|
27,153
|
|
|
|
328,001
|
|
Shares repurchased
|
|
|
(685,073)
|
|
|
|
(8,845,847)
|
|
|
|
(1,070,293)
|
|
|
|
(13,083,498)
|
|
Net decrease
|
|
|
(619,395)
|
|
|
$
|
(7,990,776)
|
|
|
|
(800,886)
|
|
|
$
|
(9,755,715)
|
|
|
|
|
|
|
Class
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
158,343
|
|
|
$
|
2,048,305
|
|
|
|
216,234
|
|
|
$
|
2,630,413
|
|
Shares issued on reinvestment
|
|
|
9,493
|
|
|
|
124,171
|
|
|
|
11,885
|
|
|
|
143,578
|
|
Shares repurchased
|
|
|
(156,147)
|
|
|
|
(2,009,102)
|
|
|
|
(282,474)
|
|
|
|
(3,462,016)
|
|
Net increase (decrease)
|
|
|
11,689
|
|
|
$
|
163,374
|
|
|
|
(54,355)
|
|
|
$
|
(688,025)
|
|
|
|
|
|
|
Allocation
30%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,827,665
|
|
|
$
|
22,136,621
|
|
|
|
2,150,568
|
|
|
$
|
24,853,136
|
|
Shares issued on reinvestment
|
|
|
248,958
|
|
|
|
3,018,332
|
|
|
|
283,868
|
|
|
|
3,250,031
|
|
Shares repurchased
|
|
|
(2,428,703)
|
|
|
|
(29,409,426)
|
|
|
|
(2,554,048)
|
|
|
|
(29,535,815)
|
|
Net decrease
|
|
|
(352,080)
|
|
|
$
|
(4,254,473)
|
|
|
|
(119,612)
|
|
|
$
|
(1,432,648)
|
|
|
|
|
|
|
Class
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
67,383
|
|
|
$
|
830,303
|
|
|
|
189,744
|
|
|
$
|
2,241,545
|
|
Shares issued on reinvestment
|
|
|
15,810
|
|
|
|
195,470
|
|
|
|
25,728
|
|
|
|
300,268
|
|
Shares repurchased
|
|
|
(384,674)
|
|
|
|
(4,728,565)
|
|
|
|
(522,325)
|
|
|
|
(6,163,535)
|
|
Net decrease
|
|
|
(301,481)
|
|
|
$
|
(3,702,792)
|
|
|
|
(306,853)
|
|
|
$
|
(3,621,722)
|
|
|
|
|
|
|
Class
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
25,185
|
|
|
$
|
308,771
|
|
|
|
|
|
|
|
|
|
Shares issued on reinvestment
|
|
|
209
|
|
|
|
2,555
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
(1,784)
|
|
|
|
(22,034)
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
23,610
|
|
|
$
|
289,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
January 31, 2013
|
|
|
Year Ended
January 31, 2012
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Allocation
30%
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class
C1
¨
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
56,040
|
|
|
$
|
680,725
|
|
|
|
139,083
|
|
|
$
|
1,640,390
|
|
Shares issued on reinvestment
|
|
|
6,980
|
|
|
|
86,095
|
|
|
|
8,595
|
|
|
|
100,122
|
|
Shares repurchased
|
|
|
(111,015)
|
|
|
|
(1,363,534)
|
|
|
|
(162,061)
|
|
|
|
(1,907,101)
|
|
Net decrease
|
|
|
(47,995)
|
|
|
$
|
(596,714)
|
|
|
|
(14,383)
|
|
|
$
|
(166,589)
|
|
|
|
|
|
|
Class
I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
11,941
|
|
|
$
|
143,129
|
|
|
|
|
|
|
|
|
|
Shares issued on reinvestment
|
|
|
236
|
|
|
|
2,879
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
(317)
|
|
|
|
(3,860)
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
11,860
|
|
|
$
|
142,148
|
|
|
|
|
|
|
|
|
|
¨
|
On August 1, 2012, Class C shares were reclassified as Class C1 shares.
|
|
For the period August 1, 2012 (inception date) to January 31, 2013.
|
|
For the period March 15, 2012 (inception date) to January 31, 2013.
|
8. Transfer of net assets
On April 21, 2011, Allocation 85%
acquired the assets and certain liabilities of the Legg Mason Lifestyle Allocation 100% (the Acquired Fund), pursuant to a plan of reorganization approved by the Acquired Fund shareholders. Total shares issued by Allocation 85% and the
total net assets of the Acquired Fund and Allocation 85% on the date of the transfer were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired Fund
|
|
Shares Issued
by the Fund
|
|
|
Total Net Assets of the
Acquired Fund
|
|
|
Total Net Assets
of the Fund
|
|
Legg Mason Lifestyle Allocation 100%
|
|
|
7,040,100
|
|
|
$
|
96,063,151
|
|
|
$
|
619,515,813
|
|
As part of the reorganization, for each share they held, shareholders of the Acquired Fund Class A,
Class B and Class C received 0.741862, 0.772639 and 0.766514 shares of Allocation 85% Class A, Class B and Class C shares, respectively.
The total net assets of the Acquired Fund before acquisition included unrealized appreciation of $18,903,732, accumulated net realized loss of $16,869,391 and accumulated net investment loss
of $8,764. Total net assets of Allocation 85% immediately after the transfer were $715,578,964. The transaction was structured to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended.
Proforma results of operations of the combined entity for the entire year ended January 31, 2012, as though the acquisition had occurred
as of the beginning of the year (rather than on the actual acquisition date), are as follows:
|
|
|
|
|
Net investment income
|
|
$
|
5,575,971
|
|
Net realized gain
|
|
|
5,478,818
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
(13,312,395)
|
|
Decrease in net assets from operations
|
|
$
|
(2,257,606)
|
|
Because the combined investment funds have been managed as a single fund since the acquisition was completed,
it is not practicable to separate the amounts of revenue and earnings of the Acquired Fund that have been included in the Funds accompanying Statement of Operations since the close of business on April 21, 2011.
9. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal year ended January 31, 2013 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Allocation 85%
|
|
|
Allocation 70%
|
|
|
|
|
Distributions
Paid From:
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
7,126,126
|
|
|
$
|
6,398,376
|
|
|
|
|
62
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
Notes to financial
statements (contd)
|
|
|
|
|
|
|
|
|
|
|
Allocation 50%
|
|
|
Allocation 30%
|
|
|
|
|
Distributions
Paid From:
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
4,393,272
|
|
|
$
|
3,320,172
|
|
The tax character of distributions paid during the fiscal year ended January 31, 2012 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Allocation 85%
|
|
|
Allocation 70%
|
|
|
|
|
Distributions
Paid From:
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
5,500,033
|
|
|
$
|
5,850,055
|
|
|
|
|
|
|
Allocation 50%
|
|
|
Allocation 30%
|
|
|
|
|
Distributions
Paid From:
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
5,170,019
|
|
|
$
|
3,670,008
|
|
As of January 31, 2013, the components of accumulated earnings on a tax basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
Allocation 85%
|
|
|
Allocation 70%
|
|
Undistributed ordinary income net
|
|
$
|
566,793
|
|
|
$
|
628,583
|
|
Capital loss carryforward*
|
|
|
(13,899,174)
|
|
|
|
(43,628,445)
|
|
Other book/tax temporary differences
|
|
|
(281,295)
|
(a)
|
|
|
(56,013)
|
(b)
|
Unrealized appreciation (depreciation)
|
|
|
85,657,741
|
(c)
|
|
|
66,614,239
|
(c)
|
Total accumulated earnings (losses) net
|
|
$
|
72,044,065
|
|
|
$
|
23,558,364
|
|
|
|
|
|
|
Allocation 50%
|
|
|
Allocation 30%
|
|
Undistributed ordinary income net
|
|
$
|
1,157,717
|
|
|
$
|
363,945
|
|
Capital loss carryforward*
|
|
|
(18,350,206)
|
|
|
|
(12,199,942)
|
|
Other book/tax temporary differences
|
|
|
(41,010)
|
(b)
|
|
|
(36,242)
|
(b)
|
Unrealized appreciation (depreciation)
|
|
|
35,398,241
|
(c)
|
|
|
14,814,919
|
(c)
|
Total accumulated earnings (losses) net
|
|
$
|
18,164,742
|
|
|
$
|
2,942,680
|
|
*
|
During the taxable year ended January 31, 2013, Allocation 85% utilized $6,670,292, Allocation 70% utilized $2,771,858, Allocation 50% utilized $1,267,298
and Allocation 30% utilized $1,390,670 of their respective capital loss carryforwards available from prior years. As of January 31, 2013, the Funds had the following net capital loss carryforwards remaining:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Expiration
|
|
Allocation 85%
|
|
|
Allocation 70%
|
|
|
Allocation 50%
|
|
|
Allocation 30%
|
|
No Expiration
|
|
|
|
|
|
$
|
(13,190,061)
|
**
|
|
|
|
|
|
|
|
|
1/31/2014
|
|
|
|
|
|
|
(5,972,151)
|
|
|
|
|
|
|
$
|
(2,019,831)
|
|
1/31/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,356,048)
|
|
1/31/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,485,293)
|
|
1/31/2017
|
|
|
|
|
|
|
(4,200,689)
|
|
|
$
|
(2,216,336)
|
|
|
|
(839,335)
|
|
1/31/2018
|
|
$
|
(7,273,349)
|
|
|
|
(13,201,741)
|
|
|
|
(13,178,522)
|
|
|
|
(4,454,972)
|
|
1/31/2019
|
|
|
(6,625,825)
|
|
|
|
(7,063,803)
|
|
|
|
(2,955,348)
|
|
|
|
(1,044,463)
|
|
|
|
$
|
(13,899,174)
|
|
|
$
|
(43,628,445)
|
|
|
$
|
(18,350,206)
|
|
|
$
|
(12,199,942)
|
|
These amounts will be available to offset future taxable capital gains. In addition, $5,413,795 of Allocation
30%s capital loss carryforward is subject to an annual limitation of $1,620,185 due to the reorganization described in Note 8.
**
|
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward these capital losses for an unlimited period.
However, these losses will be required to be utilized prior to the funds other capital losses with the expiration dates listed above. Additionally, these capital losses retain their character as either short-term or long-term capital losses
rather than being considered all short-term as under previous law.
|
(a)
|
Other book/tax temporary differences are attributable primarily to the deferral of ordinary late year losses and book/tax differences in
the timing of the deductibility of various expenses.
|
(b)
|
Other book/tax temporary differences are attributable primarily to book/tax differences in the timing of the deductibility of various
expenses.
|
(c)
|
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of
losses on wash sales.
|
|
|
|
|
|
Legg Mason Lifestyle Series 2013 Annual Report
|
|
|
63
|
|
Report of independent registered public
accounting firm
The Board of Trustees and
Shareholders
Legg Mason Partners Equity Trust:
We have audited the accompanying statements of assets and liabilities of Legg Mason Lifestyle Allocation 85%, Legg Mason Lifestyle Allocation 70%, Legg Mason Lifestyle Allocation 50%, and
Legg Mason Lifestyle Allocation 30% (collectively, the Funds), each a series of Legg Mason Partners Equity Trust, including the schedules of investments, as of January 31, 2013, and the related statements of operations for the year
then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights
are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of January 31, 2013, by correspondence with the investee funds transfer agent and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial
position of Legg Mason Lifestyle Allocation 85%, Legg Mason Lifestyle Allocation 70%, Legg Mason Lifestyle Allocation 50%, and Legg Mason Lifestyle Allocation 30%, as of January 31, 2013, the results of their operations for the year then ended,
the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
March 19, 2013
|
|
|
64
|
|
Legg Mason Lifestyle Series
|
Board approval of management and
subadvisory agreements
(unaudited)
Legg Mason Partners Equity Trust Legg Mason Lifestyle
Allocation 85%
At a meeting of the Trusts Board of Trustees, the Board considered the re-approval for an annual period of
the management agreement pursuant to which Legg Mason Partners Fund Advisor, LLC (the Manager) provides the Fund with investment advisory and administrative services, the sub-advisory agreement pursuant to which Legg Mason Global Asset
Allocation, LLC (LMGAA) provides day-to-day management of the Funds portfolio, and the sub-advisory agreement pursuant to which Western Asset Management Company (Western Asset and, together with LMGAA, the
Sub-Advisers) provides day-to-day management of the Funds cash and short-term instruments. (The management agreement and sub-advisory agreements are collectively referred to as the Agreements.) The Manager and the
Sub-Advisers are wholly-owned subsidiaries of Legg Mason, Inc. The Trustees who are not interested persons (as defined in the Investment Company Act of 1940, as amended (the Independent Trustees)) of the Fund were assisted in
their review by Fund counsel and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Advisers. The Independent Trustees requested and received information
from the Manager and the Sub-Advisers they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Advisers. Included was information about the Manager, the Sub-Advisers and the Funds
distributor, as well as the management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full
Board.
In voting to approve the Agreements, the Independent Trustees considered whether the approval of the Agreements would be
in the best interests of the Fund and its shareholders, an evaluation based on several factors including those discussed below.
Nature, Extent and Quality of the Services provided to the Fund under the Management Agreement and Sub-Advisory Agreements
The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and
the Sub-Advisers under the Management Agreement and Sub-Advisory Agreements, respectively, during the past year. The Trustees also considered the Managers supervisory activities over the Sub-Advisers. In addition, the Independent Trustees
received and considered other information regarding the administrative and other services rendered to the Fund and its shareholders by the Manager. The Board noted information received at regular meetings throughout the year related to the services
rendered by the Manager in its management of the Funds affairs and the Managers role in coordinating the activities of the Sub-Advisers and the Funds other service providers. The Boards evaluation of the services provided by
the Manager and the Sub-Advisers took into account the Boards knowledge and familiarity gained as Trustees of funds in the Legg Mason fund complex, including the scope and quality of the investment management and other capabilities of the
Manager and the Sub-Advisers and the quality of the Managers administrative and other services. The Board observed that the scope of services provided by the Manager had expanded over time as a result of regulatory and other developments,
including maintaining and monitoring its own and the Funds compliance programs. The Board reviewed information received from the Manager and the Funds Chief Compliance Officer regarding the Funds compliance policies and procedures
established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.
The Board reviewed the qualifications,
backgrounds and responsibilities of the Funds senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board considered the degree to which the Manager implemented
organizational changes to improve investment results and the services provided to the Legg Mason fund complex. The Board also considered, based on its knowledge of the Manager and the Managers affiliates, the financial resources available to
the Managers parent organization, Legg Mason, Inc.
The Board also considered the division of responsibilities among the
Manager and the Sub-Advisers and the oversight provided by the Manager. The Board also considered the Managers and LMGAAs brokerage
|
|
|
|
|
Legg Mason Lifestyle Series
|
|
|
65
|
|
policies and practices, the standards applied in seeking best execution, their policies and practices regarding soft dollars, and the existence of quality controls applicable to brokerage
allocation procedures. In addition, management also reported to the Board on, among other things, its business plans, recent organizational changes, portfolio manager compensation plan and policy regarding portfolio managers ownership of fund
shares.
The Board concluded that, overall, it was satisfied with the nature, extent and quality of services provided (and
expected to be provided) under the respective Agreement by the Manager and the Sub-Advisers.
Fund Performance
The Board received and reviewed performance information for the Fund and for all retail and institutional mixed-asset target allocation
growth funds (the Performance Universe) selected by Lipper, Inc. (Lipper), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the
similarity of the Fund with the funds included in the Performance Universe. The Trustees noted that they also had received and discussed with management at periodic intervals information on the investment performance of the Fund in comparison to
similar mutual funds and benchmark performance indices. The information comparing the Funds performance to that of the Performance Universe was for the one-, three-, five- and ten-year periods ended June 30, 2012. The Fund performed
better than the median performance of the funds in the Performance Universe for the three-year period, but performed below the median performance of the funds in the Performance Universe for the one-, five- and ten-year periods. The Board also
reviewed performance information provided by the Manager for periods ended September 30, 2012, which showed that the Funds performance was better than the Lipper category average during the third quarter. The Trustees then discussed with
representatives of management the portfolio management strategy of the Funds portfolio managers. The Trustees noted that the Manager and LMGAA were committed to providing the resources necessary to assist the Funds portfolio managers and
improve Fund performance. Based on its review, the Board generally was satisfied with managements efforts to improve performance going forward. The Board determined to continue to evaluate the Funds performance and directed the
Independent Trustees performance committee to continue to periodically review Fund performance with the Manager and report to the full Board during periods between Board meetings.
Expense Ratios
The Board noted that the Fund bears indirectly its pro
rata share of the expenses of the underlying funds in which it invests, including management fees payable by such underlying funds to the Manager or its affiliates. The Board noted that there is no management fee payable by the Fund to the Manager
or sub-investment advisory fees payable by the Fund to the Sub-Advisers.
The Board received an analysis of complex-wide
management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes. Management also discussed with the Board the Funds distribution arrangements, including how amounts received by the
Funds distributor are expended, and the fees received and expenses incurred in connection with such arrangements by affiliates of the Manager.
Additionally, the Board received and considered information comparing the Funds overall expense ratio with those of a group of retail front-end load actively managed affiliated fund of
funds consisting of ten mixed-asset target allocation growth fund of funds selected by Lipper as comparable to the Fund (the Expense Group), and a broader group of funds selected by Lipper consisting of all retail front-end load actively
managed mixed-asset target allocation growth affiliated fund of funds (the Expense Universe). This information showed that the Funds total expense ratio was higher than the median of the total expense ratios of the funds in the
Expense Group and higher than the average total expense ratio of the funds in the Expense Universe. The Trustees noted that the Funds total expense ratio was impacted by transfer agent costs that were higher than the average transfer agent
costs of the funds in the Expense Group and the Expense Universe. The Trustees noted the Managers expense reimbursement arrangement, if any.
|
|
|
66
|
|
Legg Mason Lifestyle Series
|
Board approval of
management and subadvisory agreements
(unaudited)
(contd)
Manager Profitability
The Board received and considered a profitability analysis of the Manager and its affiliates in providing services to the Fund. The Board
also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received information with respect to the Managers allocation methodologies used in preparing this profitability data as well
as a report from an outside consultant that had reviewed the Managers methodology. The Board also noted the profitability percentage ranges determined by appropriate court cases to be reasonable given the services rendered to investment
companies. The Board determined that the Managers profitability was not excessive in light of the nature, extent and quality of the services provided to the Fund.
Economies of Scale
The Board received and considered information
regarding whether there have been economies of scale with respect to the management of the Fund as the Funds assets grow, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential for realization
of any further economies of scale. The Board considered whether economies of scale in the provision of services to the Fund were being passed along to the shareholders.
The Board noted that to the extent the Funds assets increase over time, the Fund and its shareholders should realize economies of scale as certain expenses, such as fixed fund fees,
become a smaller percentage of overall assets. The Board noted that it appeared that the benefits of any economies of scale also would be appropriately shared with shareholders through increased investment in fund management and administration
resources.
Taking all of the above into consideration, the Board determined that the Funds expense ratio was reasonable in
light of the comparative performance and expense information and the nature, extent and quality of the services provided to the Fund under the Agreements.
Other Benefits to the Manager
The Board considered other benefits
received by the Manager and its affiliates, including the Sub-Advisers, as a result of the Managers relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.
In light of the costs of providing investment management and other services to the Fund and the Managers ongoing commitment to the
Fund, the profits and other ancillary benefits that the Manager and its affiliates received were considered reasonable.
Based on
their discussions and considerations, including those described above, the Trustees approved the Management Agreement and the Sub-Advisory Agreements to continue for another year.
No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the Management Agreement and the Sub-Advisory Agreements.
|
|
|
|
|
Legg Mason Lifestyle Series
|
|
|
67
|
|
Legg Mason Partners Equity Trust Legg Mason Lifestyle Allocation 70%
At a meeting of the Trusts Board of Trustees, the Board considered the re-approval for an annual period of the management agreement
pursuant to which Legg Mason Partners Fund Advisor, LLC (the Manager) provides the Fund with investment advisory and administrative services, the sub-advisory agreement pursuant to which Legg Mason Global Asset Allocation, LLC
(LMGAA) provides day-to-day management of the Funds portfolio, and the sub-advisory agreement pursuant to which Western Asset Management Company (Western Asset and, together with LMGAA, the Sub-Advisers)
provides day-to-day management of the Funds cash and short-term instruments. (The management agreement and sub-advisory agreements are collectively referred to as the Agreements.) The Manager and the Sub-Advisers are wholly-owned
subsidiaries of Legg Mason, Inc. The Trustees who are not interested persons (as defined in the Investment Company Act of 1940, as amended (the Independent Trustees)) of the Fund were assisted in their review by Fund counsel
and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Advisers. The Independent Trustees requested and received information from the Manager and the
Sub-Advisers they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Advisers. Included was information about the Manager, the Sub-Advisers and the Funds distributor, as well as the
management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full Board.
In voting to approve the Agreements, the Independent Trustees considered whether the approval of the Agreements would be in the best
interests of the Fund and its shareholders, an evaluation based on several factors including those discussed below.
Nature,
Extent and Quality of the Services provided to the Fund under the Management Agreement and Sub-Advisory Agreements
The Board
received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Sub-Advisers under the Management Agreement and Sub-Advisory Agreements, respectively, during the past year. The
Trustees also considered the Managers supervisory activities over the Sub-Advisers. In addition, the Independent Trustees received and considered other information regarding the administrative and other services rendered to the Fund and its
shareholders by the Manager. The Board noted information received at regular meetings throughout the year related to the services rendered by the Manager in its management of the Funds affairs and the Managers role in coordinating the
activities of the Sub-Advisers and the Funds other service providers. The Boards evaluation of the services provided by the Manager and the Sub-Advisers took into account the Boards knowledge and familiarity gained as Trustees of
funds in the Legg Mason fund complex, including the scope and quality of the investment management and other capabilities of the Manager and the Sub-Advisers and the quality of the Managers administrative and other services. The Board observed
that the scope of services provided by the Manager had expanded over time as a result of regulatory and other developments, including maintaining and monitoring its own and the Funds compliance programs. The Board reviewed information received
from the Manager and the Funds Chief Compliance Officer regarding the Funds compliance policies and procedures established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.
The Board reviewed the qualifications, backgrounds and responsibilities of the Funds senior personnel and the portfolio management team
primarily responsible for the day-to-day portfolio management of the Fund. The Board considered the degree to which the Manager implemented organizational changes to improve investment results and the services provided to the Legg Mason fund
complex. The Board also considered, based on its knowledge of the Manager and the Managers affiliates, the financial resources available to the Managers parent organization, Legg Mason, Inc.
|
|
|
68
|
|
Legg Mason Lifestyle Series
|
Board approval of
management and subadvisory agreements
(unaudited)
(contd)
The Board also considered the division of responsibilities among
the Manager and the Sub-Advisers and the oversight provided by the Manager. The Board also considered the Managers and LMGAAs brokerage policies and practices, the standards applied in seeking best execution, their policies and practices
regarding soft dollars, and the existence of quality controls applicable to brokerage allocation procedures. In addition, management also reported to the Board on, among other things, its business plans, recent organizational changes, portfolio
manager compensation plan and policy regarding portfolio managers ownership of fund shares.
The Board concluded that,
overall, it was satisfied with the nature, extent and quality of services provided (and expected to be provided) under the respective Agreement by the Manager and the Sub-Advisers.
Fund Performance
The Board received and reviewed performance
information for the Fund and for all retail and institutional mixed-asset target allocation growth funds (the Performance Universe) selected by Lipper, Inc. (Lipper), an independent provider of investment company data. The
Board was provided with a description of the methodology Lipper used to determine the similarity of the Fund with the funds included in the Performance Universe. The Trustees noted that they also had received and discussed with management at
periodic intervals information on the investment performance of the Fund in comparison to similar mutual funds and benchmark performance indices. The information comparing the Funds performance to that of the Performance Universe was for the
one-, three-, five- and ten-year periods ended June 30, 2012. The Fund performed better than the median performance of the funds in the Performance Universe for the one-, three- and five-year periods, but performed below the median performance
of the funds in the Performance Universe for the ten-year period. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2012, which showed that the Funds performance was better than the
Lipper category average during the third quarter. The Trustees then discussed with representatives of management the portfolio management strategy of the Funds portfolio managers. The Trustees noted that the Manager and LMGAA were committed to
providing the resources necessary to assist the Funds portfolio managers and continue to improve Fund performance. Based on its review, the Board generally was satisfied with the Funds performance and managements efforts to
continue to improve performance going forward. The Board determined to continue to evaluate the Funds performance and directed the Independent Trustees performance committee to continue to periodically review Fund performance with the
Manager and report to the full Board during periods between Board meetings.
Expense Ratios
The Board noted that the Fund bears indirectly its pro rata share of the expenses of the underlying funds in which it invests, including
management fees payable by such underlying funds to the Manager or its affiliates. The Board noted that there is no management fee payable by the Fund to the Manager or sub-investment advisory fees payable by the Fund to the Sub-Advisers.
The Board received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a
framework of fees based on asset classes. Management also discussed with the Board the Funds distribution arrangements, including how amounts received by the Funds distributor are expended, and the fees received and expenses incurred in
connection with such arrangements by affiliates of the Manager.
Additionally, the Board received and considered information
comparing the Funds overall expense ratio with those of a group of retail front-end load actively managed affiliated fund of funds consisting of 11 mixed-asset target allocation growth fund of funds selected by Lipper as comparable to the Fund
(the Expense Group), and a broader group of funds selected by Lipper consisting of all retail front-end load actively managed mixed-asset target allocation growth affiliated fund of funds (the Expense Universe). This
information showed that the Funds total expense ratio was slightly higher than the median of the total expense ratios of the funds in the Expense Group and lower than the average total expense ratio of the funds in the Expense Universe. The
Trustees noted the Managers expense reimbursement arrangement, if any.
|
|
|
|
|
Legg Mason Lifestyle Series
|
|
|
69
|
|
Manager Profitability
The Board received and considered a profitability analysis of the Manager and its affiliates in providing services to the Fund. The Board also received profitability information with respect
to the Legg Mason fund complex as a whole. In addition, the Board received information with respect to the Managers allocation methodologies used in preparing this profitability data as well as a report from an outside consultant that had
reviewed the Managers methodology. The Board also noted the profitability percentage ranges determined by appropriate court cases to be reasonable given the services rendered to investment companies. The Board determined that the
Managers profitability was not excessive in light of the nature, extent and quality of the services provided to the Fund.
Economies of Scale
The Board received and considered information regarding whether there have been economies of scale with respect to the management of the Fund
as the Funds assets grow, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered whether economies of scale in the
provision of services to the Fund were being passed along to the shareholders.
The Board noted that to the extent the Funds
assets increase over time, the Fund and its shareholders should realize economies of scale as certain expenses, such as fixed fund fees, become a smaller percentage of overall assets. The Board noted that it appeared that the benefits of any
economies of scale also would be appropriately shared with shareholders through increased investment in fund management and administration resources.
Taking all of the above into consideration, the Board determined that the Funds expense ratio was reasonable in light of the comparative performance and expense information and the
nature, extent and quality of the services provided to the Fund under the Agreements.
Other Benefits to the Manager
The Board considered other benefits received by the Manager and its affiliates, including the Sub-Advisers, as a result of the Managers
relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.
In light of
the costs of providing investment management and other services to the Fund and the Managers ongoing commitment to the Fund, the profits and other ancillary benefits that the Manager and its affiliates received were considered reasonable.
Based on their discussions and considerations, including those described above, the Trustees approved the Management Agreement
and the Sub-Advisory Agreements to continue for another year.
No single factor reviewed by the Board was identified by the Board
as the principal factor in determining whether to approve the Management Agreement and the Sub-Advisory Agreements.
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Board approval of
management and subadvisory agreements
(unaudited)
(contd)
Legg Mason Partners Equity Trust Legg Mason Lifestyle
Allocation 50%
At a meeting of the Trusts Board of Trustees, the Board considered the re-approval for an annual period of
the management agreement pursuant to which Legg Mason Partners Fund Advisor, LLC (the Manager) provides the Fund with investment advisory and administrative services, the sub-advisory agreement pursuant to which Legg Mason Global Asset
Allocation, LLC (LMGAA) provides day-to-day management of the Funds portfolio, and the sub-advisory agreement pursuant to which Western Asset Management Company (Western Asset and, together with LMGAA, the
Sub-Advisers) provides day-to-day management of the Funds cash and short-term instruments. (The management agreement and sub-advisory agreements are collectively referred to as the Agreements.) The Manager and the
Sub-Advisers are wholly-owned subsidiaries of Legg Mason, Inc. The Trustees who are not interested persons (as defined in the Investment Company Act of 1940, as amended (the Independent Trustees)) of the Fund were assisted in
their review by Fund counsel and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Advisers. The Independent Trustees requested and received information
from the Manager and the Sub-Advisers they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Advisers. Included was information about the Manager, the Sub-Advisers and the Funds
distributor, as well as the management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full
Board.
In voting to approve the Agreements, the Independent Trustees considered whether the approval of the Agreements would be
in the best interests of the Fund and its shareholders, an evaluation based on several factors including those discussed below.
Nature, Extent and Quality of the Services provided to the Fund under the Management Agreement and Sub-Advisory Agreements
The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and
the Sub-Advisers under the Management Agreement and Sub-Advisory Agreements, respectively, during the past year. The Trustees also considered the Managers supervisory activities over the Sub-Advisers. In addition, the Independent Trustees
received and considered other information regarding the administrative and other services rendered to the Fund and its shareholders by the Manager. The Board noted information received at regular meetings throughout the year related to the services
rendered by the Manager in its management of the Funds affairs and the Managers role in coordinating the activities of the Sub-Advisers and the Funds other service providers. The Boards evaluation of the services provided by
the Manager and the Sub-Advisers took into account the Boards knowledge and familiarity gained as Trustees of funds in the Legg Mason fund complex, including the scope and quality of the investment management and other capabilities of the
Manager and the Sub-Advisers and the quality of the Managers administrative and other services. The Board observed that the scope of services provided by the Manager had expanded over time as a result of regulatory and other developments,
including maintaining and monitoring its own and the Funds compliance programs. The Board reviewed information received from the Manager and the Funds Chief Compliance Officer regarding the Funds compliance policies and procedures
established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.
The Board reviewed the qualifications,
backgrounds and responsibilities of the Funds senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board considered the degree to which the Manager implemented
organizational changes to improve investment results and the services provided to the Legg Mason fund complex. The Board also considered, based on its knowledge of the Manager and the Managers affiliates, the financial resources available to
the Managers parent organization, Legg Mason, Inc.
The Board also considered the division of responsibilities among the
Manager and the Sub-Advisers and the oversight provided by the Manager. The Board also considered the Managers and LMGAAs brokerage
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policies and practices, the standards applied in seeking best execution, their policies and practices regarding soft dollars, and the existence of quality controls applicable to brokerage
allocation procedures. In addition, management also reported to the Board on, among other things, its business plans, recent organizational changes, portfolio manager compensation plan and policy regarding portfolio managers ownership of fund
shares.
The Board concluded that, overall, it was satisfied with the nature, extent and quality of services provided (and
expected to be provided) under the respective Agreement by the Manager and the Sub-Advisers.
Fund Performance
The Board received and reviewed performance information for the Fund and for all retail and institutional mixed-asset target allocation
moderate funds (the Performance Universe) selected by Lipper, Inc. (Lipper), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the
similarity of the Fund with the funds included in the Performance Universe. The Trustees noted that they also had received and discussed with management at periodic intervals information on the investment performance of the Fund in comparison to
similar mutual funds and benchmark performance indices. The information comparing the Funds performance to that of the Performance Universe was for the one-, three-, five- and ten-year periods ended June 30, 2012. The Fund performed
better than the median performance of the funds in the Performance Universe for the one-, three- and five-year periods, but performed slightly below the median performance of the funds in the Performance Universe for the ten-year period. The Board
also reviewed performance information provided by the Manager for periods ended September 30, 2012, which showed that the Funds performance was better than the Lipper category average during the third quarter. The Trustees then discussed
with representatives of management the portfolio management strategy of the Funds portfolio managers. The Trustees noted that the Manager and LMGAA were committed to providing the resources necessary to assist the Funds portfolio
managers and continue to improve Fund performance. Based on its review, the Board generally was satisfied with the Funds performance and managements efforts to continue to improve performance going forward. The Board determined to
continue to evaluate the Funds performance and directed the Independent Trustees performance committee to continue to periodically review Fund performance with the Manager and report to the full Board during periods between Board
meetings.
Expense Ratios
The Board noted that the Fund bears indirectly its pro rata share of the expenses of the underlying funds in which it invests, including management fees payable by such underlying funds to
the Manager or its affiliates. The Board noted that there is no management fee payable by the Fund to the Manager or sub-investment advisory fees payable by the Fund to the Sub-Advisers.
The Board received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes. Management also
discussed with the Board the Funds distribution arrangements, including how amounts received by the Funds distributor are expended, and the fees received and expenses incurred in connection with such arrangements by affiliates of the
Manager.
Additionally, the Board received and considered information comparing the Funds overall expense ratio with those
of a group of retail front-end load actively managed affiliated fund of funds consisting of ten mixed-asset target allocation moderate fund of funds selected by Lipper as comparable to the Fund (the Expense Group), and a broader group of
funds selected by Lipper consisting of all retail front-end load actively managed mixed-asset target allocation moderate affiliated fund of funds (the Expense Universe). This information showed that the Funds total expense ratio
was lower than the median of the total expense ratios of the funds in the Expense Group and lower than the average total expense ratio of the funds in the Expense Universe. The Trustees noted the Managers expense reimbursement arrangement, if
any.
Manager Profitability
The Board received and considered a profitability analysis of the Manager and its affiliates in providing services to the Fund. The Board also received profitability information with respect
to the Legg Mason fund
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Board approval of
management and subadvisory agreements
(unaudited)
(contd)
complex as a whole. In addition, the Board received information with respect to the Managers allocation methodologies used in preparing this profitability data as well as a report from an
outside consultant that had reviewed the Managers methodology. The Board also noted the profitability percentage ranges determined by appropriate court cases to be reasonable given the services rendered to investment companies. The Board
determined that the Managers profitability was not excessive in light of the nature, extent and quality of the services provided to the Fund.
Economies of Scale
The Board received and considered information
regarding whether there have been economies of scale with respect to the management of the Fund as the Funds assets grow, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential for realization
of any further economies of scale. The Board considered whether economies of scale in the provision of services to the Fund were being passed along to the shareholders.
The Board noted that to the extent the Funds assets increase over time, the Fund and its shareholders should realize economies of scale as certain expenses, such as fixed fund fees,
become a smaller percentage of overall assets. The Board noted that it appeared that the benefits of any economies of scale also would be appropriately shared with shareholders through increased investment in fund management and administration
resources.
Taking all of the above into consideration, the Board determined that the Funds expense ratio was reasonable in
light of the comparative performance and expense information and the nature, extent and quality of the services provided to the Fund under the Agreements.
Other Benefits to the Manager
The Board considered other benefits
received by the Manager and its affiliates, including the Sub-Advisers, as a result of the Managers relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.
In light of the costs of providing investment management and other services to the Fund and the Managers ongoing commitment to the
Fund, the profits and other ancillary benefits that the Manager and its affiliates received were considered reasonable.
Based on
their discussions and considerations, including those described above, the Trustees approved the Management Agreement and the Sub-Advisory Agreements to continue for another year.
No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the Management Agreement and the Sub-Advisory Agreements.
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Legg Mason Partners Equity Trust Legg Mason Lifestyle Allocation 30%
At a meeting of the Trusts Board of Trustees, the Board considered the re-approval for an annual period of the management agreement
pursuant to which Legg Mason Partners Fund Advisor, LLC (the Manager) provides the Fund with investment advisory and administrative services, the sub-advisory agreement pursuant to which Legg Mason Global Asset Allocation, LLC
(LMGAA) provides day-to-day management of the Funds portfolio, and the sub-advisory agreement pursuant to which Western Asset Management Company (Western Asset and, together with LMGAA, the Sub-Advisers)
provides day-to-day management of the Funds cash and short-term instruments. (The management agreement and sub-advisory agreements are collectively referred to as the Agreements.) The Manager and the Sub-Advisers are wholly-owned
subsidiaries of Legg Mason, Inc. The Trustees who are not interested persons (as defined in the Investment Company Act of 1940, as amended (the Independent Trustees)) of the Fund were assisted in their review by Fund counsel
and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Advisers. The Independent Trustees requested and received information from the Manager and the
Sub-Advisers they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Advisers. Included was information about the Manager, the Sub-Advisers and the Funds distributor, as well as the
management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full Board.
In voting to approve the Agreements, the Independent Trustees considered whether the approval of the Agreements would be in the best
interests of the Fund and its shareholders, an evaluation based on several factors including those discussed below.
Nature,
Extent and Quality of the Services provided to the Fund under the Management Agreement and Sub-Advisory Agreements
The Board
received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Sub-Advisers under the Management Agreement and Sub-Advisory Agreements, respectively, during the past year. The
Trustees also considered the Managers supervisory activities over the Sub-Advisers. In addition, the Independent Trustees received and considered other information regarding the administrative and other services rendered to the Fund and its
shareholders by the Manager. The Board noted information received at regular meetings throughout the year related to the services rendered by the Manager in its management of the Funds affairs and the Managers role in coordinating the
activities of the Sub-Advisers and the Funds other service providers. The Boards evaluation of the services provided by the Manager and the Sub-Advisers took into account the Boards knowledge and familiarity gained as Trustees of
funds in the Legg Mason fund complex, including the scope and quality of the investment management and other capabilities of the Manager and the Sub-Advisers and the quality of the Managers administrative and other services. The Board observed
that the scope of services provided by the Manager had expanded over time as a result of regulatory and other developments, including maintaining and monitoring its own and the Funds compliance programs. The Board reviewed information received
from the Manager and the Funds Chief Compliance Officer regarding the Funds compliance policies and procedures established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.
The Board reviewed the qualifications, backgrounds and responsibilities of the Funds senior personnel and the portfolio management team
primarily responsible for the day-to-day portfolio management of the Fund. The Board considered the degree to which the Manager implemented organizational changes to improve investment results and the services provided to the Legg Mason fund
complex. The Board also considered, based on its knowledge of the Manager and the Managers affiliates, the financial resources available to the Managers parent organization, Legg Mason, Inc.
The Board also considered the division of responsibilities among the Manager and the Sub-Advisers and the oversight provided by the Manager.
The Board also considered the Managers and LMGAAs brokerage
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74
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Legg Mason Lifestyle Series
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Board approval of
management and subadvisory agreements
(unaudited)
(contd)
policies and practices, the standards applied in seeking best execution, their policies and practices regarding soft dollars, and the existence of quality controls applicable to brokerage
allocation procedures. In addition, management also reported to the Board on, among other things, its business plans, recent organizational changes, portfolio manager compensation plan and policy regarding portfolio managers ownership of fund
shares.
The Board concluded that, overall, it was satisfied with the nature, extent and quality of services provided (and
expected to be provided) under the respective Agreement by the Manager and the Sub-Advisers.
Fund Performance
The Board received and reviewed performance information for the Fund and for all retail and institutional mixed-asset target allocation
conservative funds (the Performance Universe) selected by Lipper, Inc. (Lipper), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the
similarity of the Fund with the funds included in the Performance Universe. The Trustees noted that they also had received and discussed with management at periodic intervals information on the investment performance of the Fund in comparison to
similar mutual funds and benchmark performance indices. The information comparing the Funds performance to that of the Performance Universe was for the one-, three-, five- and ten-year periods ended June 30, 2012. The Fund performed
better than the median performance of the funds in the Performance Universe for each period. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2012, which showed that the Funds
performance was better than the Lipper category average during the third quarter. The Trustees then discussed with representatives of management the portfolio management strategy of the Funds portfolio managers. The Trustees noted that the
Manager and LMGAA were committed to providing the resources necessary to assist the Funds portfolio managers. Based on its review, the Board generally was satisfied with the Funds performance. The Board determined to continue to evaluate
the Funds performance and directed the Independent Trustees performance committee to continue to periodically review Fund performance with the Manager and report to the full Board during periods between Board meetings.
Expense Ratios
The
Board noted that the Fund bears indirectly its pro rata share of the expenses of the underlying funds in which it invests, including management fees payable by such underlying funds to the Manager or its affiliates. The Board noted that there is no
management fee payable by the Fund to the Manager or sub-investment advisory fees payable by the Fund to the Sub-Advisers.
The
Board received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes. Management also discussed with the Board the Funds distribution arrangements,
including how amounts received by the Funds distributor are expended, and the fees received and expenses incurred in connection with such arrangements by affiliates of the Manager.
Additionally, the Board received and considered information comparing the Funds overall expense ratio with those of a group of retail front-end load actively managed affiliated fund of
funds consisting of ten mixed-asset target allocation conservative fund of funds selected by Lipper as comparable to the Fund (the Expense Group), and a broader group of funds selected by Lipper consisting of all retail front-end load
actively managed mixed-asset target allocation conservative affiliated fund of funds (the Expense Universe). This information showed that the Funds total expense ratio was better than the median of the total expense ratios of the
funds in the Expense Group and lower than the average total expense ratio of the funds in the Expense Universe. The Trustees noted the Managers expense reimbursement arrangement, if any.
Manager Profitability
The Board received and considered a profitability analysis of the Manager and its affiliates in providing services to the Fund. The Board
also received profitability information with respect to the Legg Mason fund
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complex as a whole. In addition, the Board received information with respect to the Managers allocation methodologies used in preparing this profitability data as well as a report from an
outside consultant that had reviewed the Managers methodology. The Board also noted the profitability percentage ranges determined by appropriate court cases to be reasonable given the services rendered to investment companies. The Board
determined that the Managers profitability was not excessive in light of the nature, extent and quality of the services provided to the Fund.
Economies of Scale
The Board received and considered information
regarding whether there have been economies of scale with respect to the management of the Fund as the Funds assets grow, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential for realization
of any further economies of scale. The Board considered whether economies of scale in the provision of services to the Fund were being passed along to the shareholders.
The Board noted that to the extent the Funds assets increase over time, the Fund and its shareholders should realize economies of scale as certain expenses, such as fixed fund fees,
become a smaller percentage of overall assets. The Board noted that it appeared that the benefits of any economies of scale also would be appropriately shared with shareholders through increased investment in fund management and administration
resources.
Taking all of the above into consideration, the Board determined that the Funds expense ratio was reasonable in
light of the comparative performance and expense information and the nature, extent and quality of the services provided to the Fund under the Agreements.
Other Benefits to the Manager
The Board considered other benefits
received by the Manager and its affiliates, including the Sub-Advisers, as a result of the Managers relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.
In light of the costs of providing investment management and other services to the Fund and the Managers ongoing commitment to the
Fund, the profits and other ancillary benefits that the Manager and its affiliates received were considered reasonable.
Based on
their discussions and considerations, including those described above, the Trustees approved the Management Agreement and the Sub-Advisory Agreements to continue for another year.
No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the Management Agreement and the Sub-Advisory Agreements.
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Additional information
(unaudited)
Information about Trustees and Officers
The business and affairs of Legg Mason Lifestyle Series are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each
Trustee is c/o R. Jay Gerken, 620 Eighth Avenue, 49th Floor, New York, New York 10018. Information pertaining to the Trustees and officers of the Funds is set forth below.
The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Funds at 1-877-721-1926.