3. INVESTMENTS AND FAIR VALUES OF ASSETS AND LIABILITIES

The disclosures below include details of Legg Mason's assets and liabilities that are measured at fair value, excluding the assets and liabilities of CIVs. See Note 17, Variable Interest Entities and Consolidation of Investment Vehicles, for information related to the assets and liabilities of CIVs that are measured at fair value.

Legg Mason has investments in debt and equity securities that are generally classified as trading as described in Note 1. Investments as of March 31, 2014 and 2013, are as follows:



	2014		2013
Investment securities:
Current investments	$	467,726	$	371,080
Available-for-sale	12,072		12,400
Other⁽¹⁾	90		99
Total	$	479,888	$	383,579


(1)	Includes investments in private equity securities that do not have readily determinable fair values.

The net unrealized and realized gain (loss) for investment securities classified as trading was $22,963, $18,260 and $(6,063) for fiscal 2014, 2013 and 2012, respectively.

Legg Mason's available-for-sale investments consist of mortgage backed securities, U.S. government and agency securities and equity securities. Gross unrealized gains and (losses) for investments classified as available-for-sale were $203 and $(451), respectively, as of March 31, 2014, and $230 and $(188), respectively, as of March 31, 2013.

Legg Mason uses the specific identification method to determine the cost of a security sold and the amount reclassified from accumulated other comprehensive income into earnings. The proceeds and gross realized gains and losses from sales and maturities of available-for-sale investments are as follows:



	Years Ended March 31,
	2014			2013			2012
Available-for-sale:
Proceeds	$	4,306		$	5,272		$	6,197
Gross realized gains	—			22			6
Gross realized losses	(29		)	(43		)	(25		)

Legg Mason had no investments classified as held-to-maturity as of March 31, 2014 and 2013.

The fair values of financial assets and (liabilities) of the Company were determined using the following categories of inputs:



	As of March 31, 2014
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
Assets:
Cash equivalents⁽¹⁾:
Money market funds	$	456,631		$	—	$	—		$	456,631
Time deposits and other	—			106,226		—			106,226
Total cash equivalents	456,631			106,226		—			562,857
Current investments:
Trading investments relating to long-term incentive compensation plans⁽²⁾	109,648			—		—			109,648
Trading investments of proprietary fund products and other trading investments⁽³⁾	260,251			75,015		190			335,456
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments⁽⁴⁾⁽⁵⁾	8,497			14,125		—			22,622
Total current investments	378,396			89,140		190			467,726
Available-for-sale investment securities⁽⁶⁾	2,048			10,024		—			12,072
Investments in partnerships, LLCs and other⁽⁶⁾	—			2,878		21,586			24,464
Equity method investments in partnerships and LLCs⁽⁴⁾⁽⁶⁾	—			—		62,973			62,973
Derivative assets:
Currency and market hedges	3,584			—		—			3,584
Other investments⁽⁶⁾	—			—		90			90
Total	$	840,659		$	208,268	$	84,839		$	1,133,766
Liabilities:
Contingent consideration liability⁽⁷⁾	$	—		$	—	$	(29,553	)	$	(29,553	)
Derivative liabilities:
Currency and market hedges	(2,335		)	—		—			(2,335		)
Total	$	(2,335	)	$	—	$	(29,553	)	$	(31,888	)



	As of March 31, 2013
	Quoted prices in active markets (Level 1)			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Total
Assets:
Cash equivalents⁽¹⁾:
Money market funds	$	485,776		$	—	$	—		$	485,776
Time deposits and other	—			177,471		—			177,471
Total cash equivalents	485,776			177,471		—			663,247
Current investments:
Trading investments relating to long-term incentive compensation plans⁽²⁾	86,583			—		—			86,583
Trading investments of proprietary fund products and other trading investments⁽³⁾	158,846			69,064		246			228,156
Equity method investments relating to long-term incentive compensation plans, proprietary fund products and other investments⁽⁴⁾⁽⁵⁾	12,600			43,741		—			56,341
Total current investments	258,029			112,805		246			371,080
Available-for-sale investment securities⁽⁶⁾	2,034			10,354		12			12,400
Investments in partnerships, LLCs and other⁽⁶⁾	761			2,620		27,762			31,143
Equity method investments in partnerships and LLCs⁽⁴⁾⁽⁶⁾	1,518			924		66,338			68,780
Derivative assets:
Currency and market hedges	1,939			—		—			1,939
Other investments⁽⁶⁾	—			—		99			99
Total	$	750,057		$	304,174	$	94,457		$	1,148,688
Liabilities:
Contingent consideration liability⁽⁷⁾	$	—		$	—	$	(21,900	)	$	(21,900	)
Derivative liabilities:
Currency and market hedges	(781		)	—		—			(781		)
Total	$	(781	)	$	—	$	(21,900	)	$	(22,681	)

(1)

Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at NAV and are classified as Level 1. Cash investments in time deposits and other are measured at amortized cost, which approximates fair value because of the short time between the purchase of the instrument and its expected realization, and are classified as Level 2.


(2)	Primarily mutual funds where there is minimal market risk to the Company as any change in value is primarily offset by an adjustment to compensation expense and related deferred compensation liability.


(3)	Trading investments of proprietary fund products and other trading investments consist of approximately 53% and 47% in equity and debt securities, respectively, as of March 31, 2014, and approximately 49% and 51% in equity and debt securities, respectively, as of March 31, 2013.


(4)	Substantially all of Legg Mason's equity method investments are investment companies which record their underlying investments at fair value. Fair value is measured using Legg Mason's share of the investee's underlying net income or loss, which is predominately representative of fair value adjustments in the investments held by the equity method investee.


(5)	Includes investments under the equity method (which approximate fair value) relating to long-term incentive compensation plans of $14,125 and $43,741 as of March 31, 2014 and 2013, respectively, and proprietary fund products and other investments of $8,497 and $12,600 as of March 31, 2014 and 2013, respectively, which are classified as Investment securities on the Consolidated Balance Sheets.


(6)	Amounts are included in Other non-current assets on the Consolidated Balance Sheets for each of the periods presented.


(7)	See Note 2.

Proprietary fund products include seed capital investments made by Legg Mason to fund new investment strategies and products. Legg Mason had investments in proprietary fund products which totaled $405,918 and $304,713, as of March 31, 2014 and 2013, respectively, which are substantially comprised of investments in 46 funds and 39 funds as of March 31, 2014 and 2013, respectively, that are individually greater than $1,000 and together comprise over 90% of the seed capital investment total in each period. See Note 1 for additional information regarding seed capital investments.

Substantially all of the above financial instruments where valuation methods rely on other than observable market inputs as a significant input utilize the equity method, the cost method, or NAV practical expedient discussed below, such that measurement uncertainty has little relevance.

The changes in financial assets and (liabilities) measured at fair value using significant unobservable inputs (Level 3) for the years ended March 31, 2014 and 2013, are presented in the tables below:



	Value as of March 31, 2013			Purchases		Sales			Redemptions/ Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of March 31, 2014
Assets:
Trading investments of proprietary fund products and other trading investments	$	246		$	1	$	—		$	(77	)	$	—	$	20		$	190
Investments in partnerships, LLCs and other	27,762			—		(731		)	(4,869		)	—		(576		)	21,586
Equity method investments in partnerships and LLCs	66,338			5,154		(750		)	(9,258		)	—		1,489			62,973
Other investments	111			—		(12		)	—			—		(9		)	90
	$	94,457		$	5,155	$	(1,493	)	$	(14,204	)	$	—	$	924		$	84,839
Liabilities:
Contingent consideration liability	$	(21,900	)	$	—	$	—		$	—		$	—	$	(7,653	)	$	(29,553	)



	Value as of March 31, 2012		Purchases			Sales			Redemptions/Settlements/ Other			Transfers		Realized and unrealized gains/(losses), net			Value as of March 31, 2013
Assets:
Trading investments of proprietary fund products and other trading investments	$	—	$	246		$	—		$	—		$	—	$	—		$	246
Equity method investments in proprietary fund products	11,778		—			—			(11,705		)	—		(73		)	—
Investments in partnerships, LLCs and other	28,763		—			(970		)	(1,014		)	—		983			27,762
Equity method investments in partnerships and LLCs	166,438		2,827			(2,268		)	(117,411		)	—		16,752			66,338
Other investments	124		—			—			—			—		(13		)	111
	$	207,103	$	3,073		$	(3,238	)	$	(130,130	)	$	—	$	17,649		$	94,457
Liabilities:
Contingent consideration liability	$	—	$	(21,566	)	$	—		$	—		$	—	$	(334	)	$	(21,900	)

Realized and unrealized gains and losses recorded for Level 3 investments are primarily included in Other Non-Operating Income (Expense) on the Consolidated Statements of Income (Loss). The change in unrealized losses for Level 3 investments and liabilities still held at the reporting date was $5,210 and $1,229 for the years ended March 31, 2014 and 2013, respectively. Also, included in realized and unrealized losses, net, for the year ended March 31, 2014, is the change in the fair value of the contingent consideration liability.

There were no significant transfers between Level 1 and Level 2 during the years ended March 31, 2014 and 2013.

As a practical expedient, Legg Mason relies on the NAV of certain investments as their fair value. The NAVs that have been provided by the investees have been derived from the fair values of the underlying investments as of the respective reporting dates. The following table summarizes, as of March 31, the nature of these investments and any related liquidation restrictions or other factors which may impact the ultimate value realized:



		Fair Value Determined Using NAV						As of March 31, 2014
Category of Investment	Investment Strategy	March 31, 2014			March 31, 2013			Unfunded Commitments		Remaining Term
Funds-of-hedge funds	Global macro, fixed income, long/short equity, natural resources, systematic, emerging market, European hedge	$	34,771	(1)	$	38,811	(1)	n/a		n/a
Hedge funds	Fixed income - developed market, event driven, fixed income - hedge, relative value arbitrage, European hedge	19,461			24,716			$	20,000	n/a
Private equity funds	Long/short equity	22,759		(2)	23,763		(2)	5,575		Up to 9 years
Other	Various	2,434			2,408			n/a		Various ⁽³⁾
Total		$	79,425	(4)	$	89,698	(4)	$	25,575

n/a-not applicable


(1)	40% monthly redemption and 60% quarterly redemption as of March 31, 2014. 49% monthly redemption and 51% quarterly redemption as of March 31, 2013. Any remaining lockup expired in June 2013.

(2) Liquidations are expected over the remaining term.


(3)	Of this balance, 10% has a remaining term of less than one year and 90% has a remaining term of 19 years.


(4)	Comprised of approximately 31% and 69% of Level 2 and Level 3 assets, respectively, as of March 31, 2014 and 32% and 68% of Level 2 and Level 3 assets, respectively, as of March 31, 2013.

There are no current plans to sell any of these investments held as of March 31, 2014.