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| Name | Symbol | Market | Type |
|---|---|---|---|
| QS Global Equity Fund Class A (MM) | NASDAQ:CFIPX | NASDAQ | Fund |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number 811-06444
Legg Mason Partners Equity Trust
(Exact name of registrant as specified in charter)
620 Eighth Avenue, 49 th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-877-721-1926
Date of fiscal year end: December 31
Date of reporting period: March 31, 2013
| ITEM 1. | SCHEDULE OF INVESTMENTS. |
LEGG MASON PARTNERS EQUITY TRUST
PERMAL TACTICAL ALLOCATION FUND
FORM N-Q
March 31, 2013
PERMAL TACTICAL ALLOCATION FUND
| Consolidated Schedule of Investments (unaudited) | March 31, 2013 |
See Notes to Consolidated Schedule of Investments.
1
PERMAL TACTICAL ALLOCATION FUND
| Consolidated Schedule of Investments (unaudited) (cont’d) | March 31, 2013 |
|
SECURITY |
RATE |
MATURITY
DATE |
FACE
AMOUNT |
VALUE | ||||||||||||
| SHORT-TERM INVESTMENTS - 3.3% | ||||||||||||||||
|
Repurchase Agreements - 3.3% |
||||||||||||||||
|
State Street Bank & Trust Co. repurchase agreement dated 3/28/13; Proceeds at maturity - $3,250,004; (Fully collateralized by U.S. Treasury Notes, 0.250% due 1/31/14; Market Value - $3,319,001) (Cost - $3,250,000) |
0.010 | % | 4/1/13 | $ | 3,250,000 | $ | 3,250,000 | |||||||||
|
|
|
|||||||||||||||
|
TOTAL INVESTMENTS - 97.0% (Cost - $88,233,681#) |
97,275,498 | |||||||||||||||
|
|
|
|||||||||||||||
|
Other Assets in Excess of Liabilities - 3.0% |
3,054,007 | |||||||||||||||
|
|
|
|||||||||||||||
|
TOTAL NET ASSETS - 100.0% |
$ | 100,329,505 | ||||||||||||||
|
|
|
|||||||||||||||
| * | Non-income producing security. |
| (a) | Security is valued in good faith in accordance with procedures approved by the Board of Trustees (See Note 1). |
| (b) | Underlying Fund is affiliated with Legg Mason, Inc. and more information about the Underlying Fund is available at www.leggmason.com/individualinvestors. |
| # | Aggregate cost for federal income tax purposes is substantially the same. |
Abbreviations used in this schedule:
| ETF | — Exchange Traded Fund | |
| ETN | — Exchange Traded Note | |
| SPDR | — Standard & Poor’s Depositary Receipts |
See Notes to Consolidated Schedule of Investments.
2
Notes to Consolidated Schedule of Investments (unaudited)
1. Organization and significant accounting policies
Permal Tactical Allocation Fund (the “Fund”) is a separate diversified series of Legg Mason Partners Equity Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Fund may invest directly in fixed income, indexed or other performance-related instruments (including exchange-traded notes (“ETNs”)), equity securities, forwards and derivatives. However, while authorized to invest directly, most of the Fund’s long or short exposure to asset classes typically will be achieved indirectly through investments in a combination of intermediary securities such as open-end (including exchange-traded funds (“ETFs”)), and closed-end funds as well as funds that are commonly referred to as hedge funds.
The Fund intends to gain exposure to the commodities markets by investing a portion of its assets in a wholly-owned subsidiary, Tactical Allocation Fund, Ltd. (the “Subsidiary”), organized under the laws of the Cayman Islands. Among other investments, the Subsidiary may invest in gold coin and bullion and other precious metals and commodity-linked derivative instruments. These financial statements are consolidated financial statements of the Fund and the Subsidiary.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).
(a) Investment valuation. Investments in the Underlying Funds, excluding ETFs and closed-end funds, are valued at the closing net asset value per share of each Underlying Fund on the day of valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of fair valuation techniques and methodologies. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.
The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities. Additionally, if the closing net asset value per share for an Underlying Fund is not available on the day of valuation, the Valuation Committee may adjust the Underlying Fund’s last available net asset value per share to account for significant events that have occurred subsequent to the Underlying Fund’s last net asset value per share calculation but prior to the day of valuation.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.
3
Notes to Consolidated Schedule of Investments (unaudited) (continued)
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| • |
Level 1 – quoted prices in active markets for identical investments |
| • |
Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • |
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities carried at fair value:
|
ASSETS |
||||||||||||||||
|
DESCRIPTION |
QUOTED PRICES
(LEVEL 1) |
OTHER SIGNIFICANT
OBSERVABLE INPUTS (LEVEL 2) |
SIGNIFICANT
UNOBSERVABLE INPUTS (LEVEL 3) |
TOTAL | ||||||||||||
|
Long-term investments†: |
||||||||||||||||
|
Investments in Underlying Funds |
$ | 77,623,334 | $ | 1,974,612 | — | $ | 79,597,946 | |||||||||
|
Common stocks |
12,206,689 | — | — | 12,206,689 | ||||||||||||
|
Royalty Trusts |
2,220,863 | — | — | 2,220,863 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total long-term investments |
$ | 92,050,886 | 1,974,612 | — | $ | 94,025,498 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Short-term investments† |
3,250,000 | — | 3,250,000 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total investments |
$ | 92,050,886 | $ | 5,224,612 | — | $ | 97,275,498 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Other financial instruments: |
||||||||||||||||
|
Forward foreign currency contracts |
— | $ | 85,219 | — | $ | 85,219 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total |
$ | 92,050,886 | $ | 5,309,831 | — | $ | 97,360,717 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
LIABILITIES |
||||||||||||||||
|
DESCRIPTION |
QUOTED PRICES
(LEVEL 1) |
OTHER SIGNIFICANT
OBSERVABLE INPUTS (LEVEL 2) |
SIGNIFICANT
UNOBSERVABLE INPUTS (LEVEL 3) |
TOTAL | ||||||||||||
|
Other financial instruments: |
||||||||||||||||
|
Forward foreign currency contracts |
— | $ | 63,543 | — | $ | 63,543 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| † | See Consolidated Schedule of Investments for additional detailed categorizations. |
For the period ended March 31, 2013, as a result of the fair value pricing procedures for international equities utilized by the Fund, certain securities have transferred in and out of Level 1 and Level 2 measurements during the period. The Fund’s policy is to recognize transfers between levels as of the end of the reporting period. At March 31, 2013, securities valued at $4,658,559 were transferred from Level 2 to Level 1 within the fair value hierarchy.
(b) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical
4
Notes to Consolidated Schedule of Investments (unaudited) (continued)
repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s 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 Fund generally has 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 Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(c) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(d) Forward foreign currency contracts. The Fund enters into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it is closed.
When entering into a forward foreign currency contract, the Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
(e) Royalty trusts. The Fund may invest in royalty trusts. Royalty trusts are publicly traded investment vehicles that gather income on royalties and pay out almost all cash flows to stockholders as distributions. Royalty trusts typically have no physical operations and no management or employees. Typically royalty trusts own the rights to royalties on the production and sales of a natural resource, including oil, gas, minerals and timber. As these deplete, production and cash flows steadily decline, which may decrease distributions. In addition, the value of the equity securities of the royalty trusts in which the Fund invests may fluctuate in accordance with changes in the financial condition of those royalty trusts, the condition of equity markets generally, commodity prices, and other factors.
(f) Fund of funds risk. Your cost of investing in the Fund, as fund 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 Fund’s approval, which could force the Fund to withdraw its investments from such underlying fund at a time that is unfavorable to the Fund. In addition, one underlying fund may buy the same securities that another underlying fund sells. Therefore, the Fund would indirectly bear the costs of these trades without accomplishing any investment purpose.
(g) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(h) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Fund’s investment manager
5
Notes to Consolidated Schedule of Investments (unaudited) (continued)
attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
As of March 31, 2013, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $63,543. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.
(i) Security transactions. Security transactions are accounted for on a trade date basis.
2. Investments
At March 31, 2013, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:
|
Gross unrealized appreciation |
$ | 11,488,857 | ||
|
Gross unrealized depreciation |
(2,447,040 | ) | ||
|
|
|
|||
|
Net unrealized appreciation |
$ | 9,041,817 | ||
|
|
|
At March 31, 2013, the Fund had the following open forward foreign currency contracts:
3. Derivative instruments and hedging activities
GAAP requires enhanced disclosure about an entity’s derivative and hedging activities.
The following is a summary of the Fund’s derivative instruments categorized by risk exposure at March 31, 2013.
| Forward Foreign Currency Contracts | ||||||||||||
|
Primary Underlying Risk Disclosure |
Unrealized
Appreciation |
Unrealized
Depreciation |
Total | |||||||||
|
Foreign Exchange Risk |
$ | 85,219 | $ | (63,543 | ) | $ | 21,676 | |||||
|
|
|
|
|
|
|
|||||||
During the period ended March 31, 2013, the volume of derivative activity for the Fund was as follows:
| Average market value | ||||
|
Forward foreign currency contracts (to buy) † |
$ | 504,423 | ||
|
Forward foreign currency contracts (to sell) |
14,621,839 | |||
| † | At March 31, 2013, there were no open positions held in this derivative. |
4. Subsequent events
Effective July 31, 2013, the Fund will undergo investment objective, investment policies and strategies and benchmark changes, and the Fund will change its name to Permal Alternative Core Fund.
6
| ITEM 2. | CONTROLS AND PROCEDURES. |
| (a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. |
| ITEM 3. | EXHIBITS. |
Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Legg Mason Partners Equity Trust | ||
| By | / S / R. J AY G ERKEN | |
| R. Jay Gerken | ||
| Chief Executive Officer | ||
|
Date: May 24, 2013 |
||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By | / S / R. J AY G ERKEN | |
| R. Jay Gerken | ||
| Chief Executive Officer | ||
|
Date: May 24, 2013 |
||
| By | / S / R ICHARD F. S ENNETT | |
| Richard F. Sennett | ||
| Principal Financial Officer | ||
|
Date: May 24, 2013 |
||
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