0001193125-21-050205.txt : 20210222 0001193125-21-050205.hdr.sgml : 20210222 20210222104401 ACCESSION NUMBER: 0001193125-21-050205 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20201231 FILED AS OF DATE: 20210222 DATE AS OF CHANGE: 20210222 EFFECTIVENESS DATE: 20210222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEGG MASON PARTNERS VARIABLE EQUITY TRUST CENTRAL INDEX KEY: 0001176343 IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21128 FILM NUMBER: 21658685 BUSINESS ADDRESS: STREET 1: LEGG MASON & CO., LLC STREET 2: 620 EIGHTH AVENUE, 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 1-877-721-1926 MAIL ADDRESS: STREET 1: LEGG MASON & CO., LLC STREET 2: 620 EIGHTH AVENUE, 49TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 FORMER COMPANY: FORMER CONFORMED NAME: Legg Mason Partners Variable Portfolios IV DATE OF NAME CHANGE: 20060501 FORMER COMPANY: FORMER CONFORMED NAME: SMITH BARNEY MULTIPLE DISCIPLINE TRUST DATE OF NAME CHANGE: 20021004 FORMER COMPANY: FORMER CONFORMED NAME: SMITH BARNEY MULTIPLE DISCIPLINE ACCOUNT TRUST DATE OF NAME CHANGE: 20020626 0001176343 S000017009 QS Variable Conservative Growth C000047266 Class I QLMLFX C000183009 Class II QVCIIX 0001176343 S000017010 QS Variable Moderate Growth C000047267 Class I QLMLSX C000183010 Class II QVMIIX 0001176343 S000017011 QS Variable Growth C000047268 Class I QLMLTX C000183011 Class II QLMIIX N-CSR 1 d54821dncsr.htm QS LM VARIABLE ASSET ALLOCATION SERIES QS LM Variable Asset Allocation Series

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-21128

 

 

Legg Mason Partners Variable Equity Trust

(Exact name of registrant as specified in charter)

 

 

620 Eighth Avenue, 47th Floor, New York, NY 10018

(Address of principal executive offices) (Zip code)

 

 

Marc A. De Oliveira.

Franklin Templeton

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: December 31, 2020

 

 

 


ITEM 1.

REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.


LOGO

 

Annual Report   December 31, 2020

QS

Variable Asset Allocation Series

QS Variable Growth

QS Variable Moderate Growth

QS Variable Conservative Growth

 

 

 

Beginning in or after January 2021, as permitted by regulations adopted by the Securities and Exchange Commission, your insurance company may no longer send you paper copies of the Fund’s shareholder reports like this one by mail, unless you specifically request paper copies of the reports from the insurance company or your financial intermediary. Instead, the shareholder reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. Instructions for requesting paper copies will be provided by your insurance company.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. If your insurance company offers electronic delivery, you may elect to receive shareholder reports and other communications from them electronically by following the instructions provided by the insurance company.

You may elect to receive all future reports in paper free of charge. You can inform the insurance company that you wish to continue receiving paper copies of shareholder reports by following the instructions provided by them. Your election will apply to all Funds available under your contract with the insurance company.

 

LOGO

 

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


 

What’s inside      
Letter from the president     II  
Portfolios overview     1  
Portfolios at a glance     7  
Portfolios expenses     10  
Portfolios performance     13  
Schedules of investments     19  
Statements of assets and liabilities     22  
Statements of operations     23  
Statements of changes in net assets     24  
Financial highlights     27  
Notes to financial statements     31  
Report of independent registered public accounting firm     40  
Additional shareholder information     41  
Statement regarding liquidity risk management program     42  
Additional information     43  
Important tax information     48  

QS Variable Asset Allocation Series

QS Variable Asset Allocation Series (“Variable Asset Allocation Series”) consists of separate investment Portfolios, each with its own investment objective and policies. Each Portfolio is a “fund of funds,” investing in other mutual funds and exchange-traded funds (ETFs), and is managed as an asset allocation program.

The Portfolios are separate investment series of Legg Mason Partners Variable Equity Trust, a Maryland statutory trust.

 

Letter from the president

 

LOGO

 

Dear Shareholder,

We are pleased to provide the annual report of QS Variable Asset Allocation Series for the twelve-month reporting period ended December 31, 2020. Please read on for a detailed look at prevailing economic and market conditions during the Portfolios’ reporting period and to learn how those conditions have affected each Portfolio’s performance.

As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.leggmason.com. Here you can gain immediate access to market and investment information, including:

 

 

Market insights and commentaries from our portfolio managers and

 

 

A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

 

LOGO

Jane Trust, CFA

President and Chief Executive Officer

January 29, 2021

 

 

 II 

   QS Variable Asset Allocation Series


Portfolios overview

 

QS Variable Asset Allocation Series (the “Variable Asset Allocation Series”) consists of three portfolio investment options (the “Portfolios”), each of which is a “fund of funds” that invests in other mutual funds and exchange-traded funds (“ETFs”). The Variable Asset Allocation Series offers a mix of equity funds categorized according to average market capitalization (size), investing style (e.g., value, core or growth) and global exposure (e.g., U.S. and/or international stocks). The various options within the Variable Asset Allocation Series also offer a mix of bond asset classes such as U.S. and foreign government debt, corporate bonds, high-yield debt and emerging market debt — each of which carries a varying degree of risk/reward potential. Each Portfolio is managed as an asset allocation program and allocates its assets among mutual funds and ETFs managed by the manager and its affiliates, including other Legg Mason and Franklin Templeton investment managers, and ETFs managed by unaffiliated investment advisers (“underlying funds”). When selecting investments to fulfill a desired asset class exposure, the portfolio managers expect to allocate to Legg Mason and Franklin Templeton affiliated mutual funds and ETFs, provided that appropriate products are available. At the current time, the Portfolios invest primarily in affiliated mutual funds.

Q. What were the overall market conditions during the Portfolios’ reporting period?

A. Despite a global pandemic and economic disruptions, many of the world’s equity markets finished the twelve-month reporting period ended December 31, 2020 higher. During the first quarter of 2020, global stock markets sold off virtually across the board. Volatility on many indexes rose to levels not seen since the global financial crisis, as investors struggled to price the impact of a global economic shutdown stemming from the escalating COVID-19 pandemic. During the second quarter, global equity markets surged, with investors cheering plans for the reopening of economies amid the COVID-19 pandemic and government officials continuing to pledge extraordinary measures to lessen the pandemic’s economic impact.

Equity market gains continued through the remainder of the reporting period, with the bulk of the gains in the final quarter made in November 2020, following positive coronavirus vaccine trials and Joe Biden’s win in the U.S. presidential election. Positive news appeared to outweigh concerns that economic recoveries would stall amid renewed lockdowns resulting from rising coronavirus infection rates and the identification of a new, more infectious COVID-19 strain. Sentiment was buoyed toward the end of the reporting period by the start of vaccinations for essential medical workers in parts of the United States and Europe.

Within the U.S., large-cap stocks performed in line with small-cap stocks for the reporting period, after significantly outperforming for the first three quarters of 2020, returning 20.97%, as measured by the Russell 1000 Indexi, versus 19.97%, as measured by the Russell 2000 Indexii. Abroad, emerging markets significantly outperformed developed markets, returning 19.5% (MSCI Emerging Markets Indexiii) and 1.3% (MSCI EAFE Indexiv), respectively.

The yield for the ten-year Treasury note declined 1.0% over the past year and ended 2020 at 0.91%. In the first quarter of 2020, the U.S. Treasury yield curve declined at a historic rate. The yield for the ten-year Treasury fell one-hundred twenty-five basis pointsv as the COVID-19 pandemic escalated. The Federal Reserve Board (the “Fed”)vi cut its policy rate first by fifty basis points and then by one-hundred basis points to support the economy. In July 2020, the yield for the ten-year Treasury fell 0.15% as the Fed reiterated that they will use all possible tools to support the U.S. economy and that interest rates will remain near zero “until it is confident that the economy has weathered recent events.” However, longer dated yields rose in August 2020, after the Fed announced that they would modify its target inflation to an average of 2% in the long run. The U.S. yield curvevii steepened further over the final quarter, with short-term yields moving lower while their longer-term counterparts rose.

The U.S. Dollar (“USD”) declined -5.4% over the past year, retreating 2.2% in the second quarter of 2020, as the April 2020 unemployment rate was 14.7%, the highest in post-war history.

Crude oil declined -20.5% over the twelve-month reporting period ended December 31, 2020, as it was unable to recover from the -66.5% decline in the first quarter of 2020. During the quarter, outlook for demand in China (the largest importer of crude oil) drastically declined due to COVID-19. In March 2020, a price war between Saudi Arabia and Russia further lowered crude oil prices. In the following quarter, crude oil rebounded +91.7%. This was driven by May’s 2020 +88.4% jump, as economies began to ease lockdown restrictions and oil companies in North America reduced supply.

Gold returned +24.4% over the past year and served as one of the strongest performing asset classes. As the coronavirus came to light in the first quarter of 2020, physical gold saw high demand, as retail investors bought the metal for protection against the turmoil. Demand for gold continued to increase through the remainder of the reporting period due to negative real interest rates, a weakening USD, rising U.S. and China tensions, as well as a surge in COVID-19 cases across the globe.

Q. How did we respond to these changing market conditions?

A. For all three Portfolios, we employ a quantitative tactical strategy that over- and underweights certain allocations in the Portfolios in response to various market, economic and valuation conditions. These tactical views are updated on a quarterly basis. Throughout the reporting period we were generally overweight equities versus fixed income, as valuations measures and our in-house index of leading economic indicators favored equities. In addition, we were largely overweight U.S. equities versus international equities.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 1 


Portfolios overview (cont’d)

 

QS Variable Growth1

QS Variable Growth seeks capital appreciation. The Portfolio organizes its investments in underlying funds into two main asset classes: the equity class (equity securities of all types) and the fixed income class (fixed income securities of all types). The portfolio managers may invest across all asset classes and strategies. The portfolio managers will allocate between 70% to 100% of the Portfolio’s assets to underlying funds that invest in equity and equity-like strategies and between 0% to 30% to underlying funds that invest in fixed income strategies. The portfolio managers may, however, allocate assets to any underlying funds in varying amounts in a manner consistent with the Portfolio’s investment objective. The Portfolio’s allocation to each asset class will be measured at the time of purchase and may vary thereafter as a result of market movements.

Performance review

For the twelve months ended December 31, 2020, Class I shares of QS Variable Growth returned 11.24%. The Portfolio’s unmanaged benchmarks, the Bloomberg Barclays U.S. Aggregate Indexviii and the Russell 3000 Indexix, and the Variable Growth Composite Benchmarkx, returned 7.51%, 20.89% and 16.59%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Aggressive Growth Funds Category Averagexi returned 13.12% for the same period.

 

Performance Snapshot as of December 31, 2020 (unaudited)  
     6 months     12 months  
QS Variable Growth:    

Class I

    21.24     11.24
Bloomberg Barclays U.S. Aggregate Index     1.29     7.51
Russell 3000 Index     25.24     20.89
Variable Growth Composite Benchmark     23.43     16.59
Lipper Variable Mixed-Asset Target Allocation Aggressive Growth Funds Category Average     21.54     13.12

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost.

Share class returns assume the reinvestment of all distributions at net asset value and the deduction of all Portfolio expenses. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

The portfolio managers periodically adjust the allocation of the Portfolio’s assets among different Legg Mason and Franklin Templeton affiliated mutual funds and ETFs and ETFs that are managed by unaffiliated investment advisers, depending upon the portfolio managers’ outlook for the equity and bond markets in general, particular sectors of such markets and the performance outlook for the underlying funds. In assessing the equity and bond markets, the portfolio managers consider a broad range of market and economic trends and quantitative factors.

 

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2020, the gross total annual fund operating expense ratio for Class I shares was 0.80%.

Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Portfolio expense ratios are more likely to increase when markets are volatile.

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of underlying funds), to average net assets will not exceed 0.20% for Class I shares. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

The manager is permitted to recapture amounts waived and/or reimbursed to a class during the same fiscal year if the Portfolio’s total annual fund 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 manager recapture any amount that would result, on any particular business day of the Portfolio, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

 

1 

The Portfolio is an underlying investment option of various variable annuity and variable life insurance products. The Portfolio’s performance returns do not reflect the deduction of expenses imposed in connection with investing in variable annuity or variable life insurance contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the Portfolio. Past performance is no guarantee of future results.

 

Includes expenses of the underlying funds in which the Portfolio invests.

 

 

 2 

   QS Variable Asset Allocation Series 2020 Annual Report


QS Variable Moderate Growth1

QS Variable Moderate Growth seeks long-term growth of capital. The Portfolio organizes its investments in underlying funds into two main asset classes: the equity class (equity securities of all types) and the fixed income class (fixed income securities of all types). The portfolio managers may invest across all asset classes and strategies. The portfolio managers will allocate between 55% to 85% of the Portfolio’s assets to underlying funds that invest in equity and equity-like strategies and between 15% to 45% to underlying funds that invest in fixed income strategies. The portfolio managers may, however, allocate assets to any underlying funds in varying amounts in a manner consistent with the Portfolio’s investment objective. The Portfolio’s allocation to each asset class will be measured at the time of purchase and may vary thereafter as a result of market movements.

Performance review

For the twelve months ended December 31, 2020, Class I shares of QS Variable Moderate Growth returned 11.07%. The Portfolio’s unmanaged benchmarks, the Bloomberg Barclays U.S. Aggregate Index and the Russell 3000 Index, and the Variable Moderate Growth Composite Benchmarkxii, returned 7.51%, 20.89% and 15.57%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Averagexiii returned 11.79% for the same period.

 

Performance Snapshot as of December 31, 2020  (unaudited)  
     6 months     12 months  
QS Variable Moderate Growth:    

Class I

    17.81     11.07
Bloomberg Barclays U.S. Aggregate Index     1.29     7.51
Russell 3000 Index     25.24     20.89
Variable Moderate Growth Composite Benchmark     19.31     15.57
Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Average     16.20     11.79

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost.

Share class returns assume there investment of all distributions at net asset value and the deduction of all Portfolio expenses. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

Portfolio performance figures reflect fee waivers and/or expense reimbursements, without which the performance would have been lower.

The portfolio managers periodically adjust the allocation of the Portfolio’s assets among different Legg Mason and Franklin Templeton affiliated mutual funds and ETFs and ETFs that are managed by unaffiliated investment advisers, depending upon the portfolio managers’ outlook for the equity and bond markets in general, particular sectors of such markets and the performance outlook for the underlying funds. In assessing the equity and bond markets, the portfolio managers consider a broad range of market and economic trends and quantitative factors.

 

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2020, the gross total annual fund operating expense ratio for Class I shares was 0.92%.

Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Portfolio expense ratios are more likely to increase when markets are volatile.

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of underlying funds), to average net assets will not exceed 0.20% for Class I shares. Total annual fund operating expenses after waiving fees and/or reimbursing expenses exceed the expense cap for Class I as a result of acquired fund fees and expenses. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

The manager is permitted to recapture amounts waived and/or reimbursed to a class during the same fiscal year if the class’ total annual fund 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 manager recapture any amount that would result, on any particular business day of the Portfolio, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

 

1 

The Portfolio is an underlying investment option of various variable annuity and variable life insurance products. The Portfolio’s performance returns do not reflect the deduction of expenses imposed in connection with investing in variable annuity or variable life insurance contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the Portfolio. Past performance is no guarantee of future results.

 

Includes expenses of the underlying funds in which the Portfolio invests.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 3 


Portfolios overview (cont’d)

 

QS Variable Conservative Growth1

QS Variable Conservative Growth seeks balance of growth of capital and income. The Portfolio organizes its investments in underlying funds into two main asset classes: the equity class (equity securities of all types) and the fixed income class (fixed income securities of all types). The portfolio managers may invest across all asset classes and strategies. The portfolio managers will allocate between 35% to 65% of the Portfolio’s assets to underlying funds that invest in equity and equity-like strategies and between 35% to 65% to underlying funds that invest in fixed income strategies. The portfolio managers may, however, allocate assets to any underlying funds in varying amounts in a manner consistent with the Portfolio’s investment objective. The Portfolio’s allocation to each asset class will be measured at the time of purchase and may vary thereafter as a result of market movements.

Performance review

For the twelve months ended December 31, 2020, Class I shares, QS Variable Conservative Growth returned 10.96%. The Portfolio’s unmanaged benchmarks, the Bloomberg Barclays U.S. Aggregate Index and the Russell 1000 Index, and the Variable Conservative Growth Composite Benchmarkxiv, returned 7.51%, 20.96% and 13.70%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Moderate Funds Category Averagexv returned 10.65% for the same period.

 

Performance Snapshot as of December 31, 2020  (unaudited)  
     6 months     12 months  
QS Variable Conservative Growth:    

Class I

    13.93     10.96

Class II

    13.82     10.77
Bloomberg Barclays U.S. Aggregate Index     1.29     7.51
Russell 1000 Index     24.46     20.96
Variable Conservative Growth Composite Benchmark     14.54     13.70
Lipper Variable Mixed-Asset Target Allocation Moderate Funds Category Average     13.17     10.65

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value and investment returns will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost.

All share class returns assume the reinvestment of all distributions at net asset value and the deduction of all Portfolio expenses. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

The portfolio managers periodically adjust the allocation of the Portfolio’s assets among different Legg Mason and Franklin Templeton affiliated mutual funds and ETFs and ETFs that are managed by unaffiliated investment advisers, depending upon the portfolio managers’ outlook for the equity and bond markets in general, particular sectors of such markets and the performance outlook for the underlying funds. In assessing the equity and bond markets, the portfolio managers consider a broad range of market and economic trends and quantitative factors.

 

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2020, the gross total annual fund operating expense ratio for Class I and Class II shares were 0.69% and 0.94%, respectively.

Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Portfolio expense ratios are more likely to increase when markets are volatile.

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of underlying funds), to average net assets will not exceed 0.20% for Class I shares and 0.45% for Class II shares. These expense limitation arrangements cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

The manager is permitted to recapture amounts waived and/or reimbursed to a class during the same fiscal year if the class’ total annual fund 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 manager recapture any amount that would result, on any particular business day of the Portfolio, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

 

1 

The Portfolio is an underlying investment option of various variable annuity and variable life insurance products. The Portfolio’s performance returns do not reflect the deduction of expenses imposed in connection with investing in variable annuity or variable life insurance contracts, such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the performance of the Portfolio. Past performance is no guarantee of future results.

 

Includes expenses of the underlying funds in which the Portfolio invests.

 

 

 4 

   QS Variable Asset Allocation Series 2020 Annual Report


Q. What were the leading contributors to performance?

A. Taking into account the underlying funds return and their weightings within the Portfolios, the leading contributors to absolute performance were in the U.S. equities space, especially large capitalization stocks. Overweighting U.S. small capitalization equities also added value.

In relative terms at the underlying manager level (i.e., relative to each underlying fund’s specific benchmark), the leading contributors were ClearBridge Large Cap Growth Fund, ClearBridge Small Cap Growth Fund and Western Asset Core Plus Bond Fund.

Q. What were the leading detractors from performance?

A. The largest detractor to performance on a relative basis came from manager selection, particularly in the U.S. equity space. The leading underperformers versus their respective benchmarks were BrandywineGLOBAL — Dynamic US Large Cap Value Fund and QS U.S. Small Capitalization Equity Fund.

Thank you for your investment in the Variable Asset Allocation Series. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Portfolios’ investment goals.

Sincerely,

QS Investors, LLC

January 14, 2021

RISKS: Equity securities are subject to price and market fluctuations. Fixed income securities are subject to interest rate and credit risks. Foreign securities are subject to certain risks of overseas investing including currency fluctuations and political, social and economic uncertainties, which could increase volatility. These risks are magnified in emerging markets. Emerging market countries tend to have economic, political, and legal systems that are less developed and are less stable than those of more developed countries. Investments in small- and mid-capitalization companies may involve a higher degree of risk and volatility than investments in larger, more established companies. As interest rates rise, bond prices fall, reducing the value of the Portfolios’ share prices. High-yield bonds (commonly known as “junk” bonds) involve greater credit and liquidity risks than investment grade bonds.

Each Portfolio is a fund of funds – it invests primarily in other funds – and is subject to the risks of the underlying funds in which it invests. There are additional risks and other expenses associated with investing in other mutual funds and exchange-traded funds (“ETFs”), rather than directly in portfolio securities. In addition to the Portfolio’s operating expenses, you will indirectly bear the operating expenses of the underlying funds in which the Portfolio invests. The Portfolios pay brokerage commissions in connection with the purchase and sale of shares of ETFs. In addition, each Portfolio indirectly bears its pro rata share of the fees and expenses incurred by the underlying funds it invests in, including management fees and other expenses. These expenses are in addition to the expenses that each Portfolio bears directly in connection with its own operation. Certain underlying funds may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses and have a potentially large impact on Portfolio performance. Also, the portfolio managers may invest in underlying funds that have a limited performance history. Please see the Portfolios’ prospectus for a more complete discussion of these and other risks and the Portfolios’ investment strategies.

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 5 


Portfolios overview (cont’d)

 

 

i 

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 90% of the U.S. market.

 

ii 

The Russell 2000 Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values. (A price-to-book ratio is the price of a stock compared to the difference between a company’s assets and liabilities). The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 200 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.

 

iii 

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

 

iv 

The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada.

 

v 

A basis point is one-hundredth (1/100 or 0.01) of one percent.

 

vi 

The Federal Reserve Board (the “Fed”) is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.

 

vii 

The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.

 

viii 

The Bloomberg Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.

 

ix 

The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market.

 

x 

The Variable Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 45% Russell 1000 Index, 20% Russell 2000 Index, 20% MSCI EAFE Index, 10% Bloomberg Barclays U.S. Aggregate Index and 5% Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. The Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

 

xi 

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2020, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 77 funds for the six-month period and among the 74 funds for the twelve-month period in the Portfolio’s Lipper category.

 

xii 

The Moderate Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 40% Russell 1000 Index, 15% Russell 2000 Index, 15% MSCI EAFE Index, 25% Bloomberg Barclays U.S. Aggregate Index and 5% Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index.

 

xiii 

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2020, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 248 funds for the six-month period and among the 245 funds for the twelve-month period in the Portfolio’s Lipper category.

 

xiv 

The Conservative Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 28% Russell 1000 Index, 12% Russell 2000 Index, 10% MSCI EAFE Index, 43% Bloomberg Barclays U.S. Aggregate Index and 7% Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index.

 

xv 

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2020, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 291 funds for the six-month period and among the 288 funds for the twelve-month period in the Portfolio’s Lipper category.

 

 

 6 

   QS Variable Asset Allocation Series 2020 Annual Report


Portfolios at a glance (unaudited)

 

QS Variable Growth Breakdown† as of — December 31, 2020

 

As a Percent of Total Long-Term Investments

 

LOGO

 

% of Total Long-Term Investments   Top 5 Sectors
LOGO   21.9 Legg Mason Global Asset Management Trust — BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares  

Financials

Consumer Discretionary

Health Care

Industrials

Information Technology

LOGO   19.4 Legg Mason Global Asset Management Trust — QS International Equity Fund, Class IS Shares  

Financials

Industrials

Consumer Discretionary

Health Care

Consumer Staples

LOGO   16.9 Legg Mason Global Asset Management Trust — QS U.S. Small Capitalization Equity Fund, Class IS Shares  

Health Care

Financials

Information Technology

Industrials

Consumer Discretionary

LOGO   9.6 Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares  

Information Technology

Consumer Discretionary

Health Care

Communication Services

Industrials

LOGO   8.3 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares  

Information Technology

Communication Services

Health Care

Financials

Industrials

LOGO   7.4 Western Asset Funds, Inc. — Western Asset Intermediate Bond Fund, Class IS Shares  

U.S. Government & Agency Obligations

Financials

Collateralized Mortgage Obligations

Mortgage-Backed Securities

Asset-Backed Securities

LOGO   6.8 Legg Mason Global Asset Management Trust — BrandywineGLOBAL — Diversified US Large Cap Value Fund, Class IS Shares  

Financials

Health Care

Information Technology

Consumer Discretionary

Industrials

LOGO   5.0 Western Asset Funds, Inc. — Western Asset Core Bond Fund, Class IS Shares  

Corporate Bonds & Notes

Mortgage-Backed Securities

U.S. Government & Agency Obligations

Collateralized Mortgage Obligations

Asset-Backed Securities

LOGO   4.7 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares  

Information Technology

Health Care

Industrials

Consumer Discretionary

Financials

 

Subject to change at any time.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 7 


Portfolios at a glance (unaudited) (cont’d)

 

QS Variable Moderate Growth Breakdown† as of — December 31, 2020

 

As a Percent of Total Long-Term Investments

 

LOGO

 

% of Total Long-Term Investments   Top 5 Sectors
LOGO   18.4 Legg Mason Global Asset Management Trust — BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares  

Financials

Consumer Discretionary

Health Care

Industrials

Information Technology

LOGO   16.2 Western Asset Funds, Inc. — Western Asset Intermediate Bond Fund, Class IS Shares  

U.S. Government & Agency Obligations

Financials

Collateralized Mortgage Obligations

Mortgage-Backed Securities

Asset-Backed Securities

LOGO   14.4 Legg Mason Global Asset Management Trust — QS International Equity Fund, Class IS Shares  

Financials

Industrials

Consumer Discretionary

Health Care

Consumer Staples

LOGO   13.1 Legg Mason Global Asset Management Trust — QS U.S. Small Capitalization Equity Fund, Class IS Shares  

Health Care

Financials

Information Technology

Industrials

Consumer Discretionary

LOGO   10.9 Western Asset Funds, Inc. — Western Asset Core Bond Fund, Class IS Shares  

Corporate Bonds & Notes

Mortgage-Backed Securities

U.S. Government & Agency Obligations

Collateralized Mortgage Obligations

Asset-Backed Securities

LOGO   10.8 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares  

Information Technology

Communication Services

Health Care

Financials

Industrials

LOGO   8.4 Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares  

Information Technology

Consumer Discretionary

Health Care

Communication Services

Industrials

LOGO   4.4 Legg Mason Global Asset Management Trust — BrandywineGLOBAL — Diversified US Large Cap Value Fund, Class IS Shares  

Financials

Health Care

Information Technology

Consumer Discretionary

Industrials

LOGO   3.4 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares  

Information Technology

Health Care

Industrials

Consumer Discretionary

Financials

 

Subject to change at any time.

 

 

 8 

   QS Variable Asset Allocation Series 2020 Annual Report


 

QS Variable Conservative Growth Breakdown† as of — December 31, 2020

 

As a Percent of Total Long-Term Investments

 

LOGO

 

% of Total Long-Term Investments   Top 5 Sectors
LOGO   28.2 Western Asset Funds, Inc. — Western Asset Intermediate Bond Fund, Class IS Shares  

U.S. Government & Agency Obligations

Financials

Collateralized Mortgage Obligations

Mortgage-Backed Securities

Asset-Backed Securities

LOGO   18.9 Western Asset Funds, Inc. — Western Asset Core Bond Fund, Class IS Shares  

Corporate Bonds & Notes

Mortgage-Backed Securities

U.S. Government & Agency Obligations

Collateralized Mortgage Obligations

Asset-Backed Securities

LOGO   13.4 Legg Mason Global Asset Management Trust — BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares  

Financials

Consumer Discretionary

Health Care

Industrials

Information Technology

LOGO   11.1 Legg Mason Global Asset Management Trust — QS U.S. Small Capitalization Equity Fund, Class IS Shares  

Health Care

Financials

Information Technology

Industrials

Consumer Discretionary

LOGO   10.1 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares  

Information Technology

Communication Services

Health Care

Financials

Industrials

LOGO   9.2 Legg Mason Global Asset Management Trust — QS International Equity Fund, Class IS Shares  

Financials

Industrials

Consumer Discretionary

Health Care

Consumer Staples

LOGO   6.5 Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares  

Information Technology

Consumer Discretionary

Health Care

Communication Services

Industrials

LOGO   2.6 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares  

Information Technology

Health Care

Industrials

Consumer Discretionary

Financials

 

Subject to change at any time.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 9 


Portfolios expenses (unaudited)

 

Example

As a shareholder of the Portfolio, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other funds.

This example is based on an investment of $1,000 invested on July 1, 2020 and held for the six months ended December 31, 2020.

Actual expenses

The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.

Hypothetical example for comparison purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Portfolio and other portfolios. To do so, compare the 5.00% hypothetical example relating to the Portfolio with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

Based on actual total return1           Based on hypothetical total return1  
QS
Variable
Growth
  Actual
Total
Return2
    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio3
    Expenses
Paid
During
the
Period4
          QS
Variable
Growth
  Hypothetical
Annualized
Total Return
   

Beginning

Account
Value

    Ending
Account
Value
    Annualized
Expense
Ratio3
    Expenses
Paid
During
the
Period4
 
Class I     21.24   $ 1,000.00     $ 1,212.40       0.13   $ 0.72       Class I     5.00   $ 1,000.00     $ 1,024.48       0.13   $ 0.66  

 

1  

For the six months ended December 31, 2020.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Total returns do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

3 

Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

 

4 

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to the class’ annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 366.

 

 

 10 

   QS Variable Asset Allocation Series 2020 Annual Report


Example

As a shareholder of the Portfolio, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other funds.

This example is based on an investment of $1,000 invested on July 1, 2020 and held for the six months ended December 31, 2020.

Actual expenses

The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.

Hypothetical example for comparison purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Portfolio and other portfolios. To do so, compare the 5.00% hypothetical example relating to the Portfolio with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

Based on actual total return1           Based on hypothetical total return1  
QS Variable
Moderate
Growth
  Actual
Total
Return2
    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio3
    Expenses
Paid
During
the
Period4
          QS Variable
Moderate
Growth
 

Hypothetical

Annualized
Total Return

    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio3
    Expenses
Paid
During
the
Period4
 
Class I     17.81   $ 1,000.00     $ 1,178.10       0.20   $ 1.10       Class I     5.00   $ 1,000.00     $ 1,024.13       0.20   $ 1.02  

 

1  

For the six months ended December 31, 2020.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Total returns do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

3 

Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

 

4 

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to the class’ annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 366.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 11 


Portfolios expenses (unaudited) (cont’d)

 

Example

As a shareholder of the Portfolio, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including service and/or distribution (12b-1) fees; and other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other funds.

This example is based on an investment of $1,000 invested on July 1, 2020 and held for the six months ended December 31, 2020.

Actual expenses

The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.

Hypothetical example for comparison purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Portfolio and other portfolios. To do so, compare the 5.00% hypothetical example relating to the Portfolio with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

Based on actual total return1           Based on hypothetical total return1  

QS

Variable
Conservative
Growth

  Actual
Total
Return2
    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio3
    Expenses
Paid
During
the
Period4
         

QS

Variable
Conservative
Growth

  Hypothetical
Annualized
Total Return
    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio3
    Expenses
Paid
During
the
Period4
 
Class I     13.93   $ 1,000.00     $ 1,139.30       0.14   $ 0.75       Class I     5.00   $ 1,000.00     $ 1,024.43       0.14   $ 0.71  
Class II     13.82       1,000.00       1,138.20       0.39       2.10       Class II     5.00       1,000.00       1,023.18       0.39       1.98  

 

1  

For the six months ended December 31, 2020.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Total returns do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

3 

Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

 

4 

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 366.

 

 

 12 

   QS Variable Asset Allocation Series 2020 Annual Report


Portfolios performance (unaudited)

 

QS Variable Growth

 

Average annual total returns1       
      Class I  
Twelve Months Ended 12/31/20      11.24
Five Years Ended 12/31/20      10.18  
Ten Years Ended 12/31/20      9.06  

 

Cumulative total returns1       
Class I (12/31/10 through 12/31/20)      137.94%  

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

1 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 13 


Portfolios performance (unaudited) (cont’d)

 

QS Variable Growth

Historical performance

Value of $10,000 invested in

Class I Shares of QS Variable Growth vs. Benchmark Indices† — December 2010 - December 2020

 

LOGO

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

Hypothetical illustration of $10,000 invested in Class I shares of QS Variable Growth on December 31, 2010, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2020. The hypothetical illustration also assumes a $10,000 investment in the Bloomberg Barclays U.S. Aggregate Index, the Russell 3000 Index and the Variable Growth Composite Benchmark. The Bloomberg Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. The Variable Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 45% Russell 1000 Index, 20% Russell 2000 Index, 20% MSCI EAFE Index, 10% Bloomberg Barclays U.S. Aggregate Index and 5% Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 90% of the U.S. market. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The indices are unmanaged and are not subject to the same management and trading expenses as a fund. Please note that an investor cannot invest directly in an index.

 

 

Prior to May 1, 2015, the Portfolio followed different investment policies and strategies under the name QS Legg Mason Variable Lifestyle Allocation 85%.

 

 

 14 

   QS Variable Asset Allocation Series 2020 Annual Report


 

QS Variable Moderate Growth

 

Average annual total returns1       
      Class I  
Twelve Months Ended 12/31/20      11.07
Five Years Ended 12/31/20      9.58  
Ten Years Ended 12/31/20      8.49  

 

Cumulative total returns1       
Class I (12/31/10 through 12/31/20)      125.98%  

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

1 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 15 


Portfolios performance (unaudited) (cont’d)

 

QS Variable Moderate Growth

Historical performance

Value of $10,000 invested in

Class I Shares of QS Variable Moderate Growth vs. Benchmark Indices† — December 2010 - December 2020

 

LOGO

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

Hypothetical illustration of $10,000 invested in Class I shares of QS Variable Moderate Growth on December 31, 2010, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2020. The hypothetical illustration also assumes a $10,000 investment in the Bloomberg Barclays U.S. Aggregate Index, the Russell 3000 Index and the Variable Moderate Growth Composite Benchmark. The Bloomberg Barclays U.S. Aggregate Index is a broad based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. The Variable Moderate Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 40% Russell 1000 Index, 15% Russell 2000 Index, 15% MSCI EAFE Index, 25% Bloomberg Barclays U.S. Aggregate Index and 5% Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 90% of the U.S. market. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The indices are unmanaged and are not subject to the same management and trading expenses as a fund. Please note that an investor cannot invest directly in an index.

 

 

Prior to May 1, 2015, the Portfolio followed different investment policies and strategies under the name QS Legg Mason Variable Lifestyle Allocation 70%.

 

 

 16 

   QS Variable Asset Allocation Series 2020 Annual Report


 

QS Variable Conservative Growth

 

Average annual total returns1  
      Class I      Class II  
Twelve Months Ended 12/31/20      10.96      10.77
Five Years Ended 12/31/20      8.72        N/A  
Ten Years Ended 12/31/20      7.59        N/A  
Inception* through 12/31/20             8.03  

 

Cumulative total returns1       
Class I (12/31/10 through 12/31/20)      107.76
Class II (Inception date of 6/23/17 through 12/31/20)      31.29  

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

1

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value.

 

*

Inception dates for Class I and Class II shares of QS Variable Conservative Growth are February 5, 1997 and June 23, 2017, respectively.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 17 


Portfolios performance (unaudited) (cont’d)

 

QS Variable Conservative Growth

Historical performance

Value of $10,000 invested in

Class I Shares of QS Variable Conservative Growth vs. Benchmark Indices† — December 2010 - December 2020

 

LOGO

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

Hypothetical illustration of $10,000 invested in Class I shares of QS Variable Conservative Growth on December 31, 2010, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2020. The hypothetical illustration also assumes a $10,000 investment in the Bloomberg Barclays U.S. Aggregate Index, the Russell 1000 Index and the Variable Conservative Growth Composite Benchmark. The Bloomberg Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 90% of the U.S. market. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. The Variable Conservative Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 28% Russell 1000 Index, 12% Russell 2000 Index, 10% MSCI EAFE Index, 43% Bloomberg Barclays U.S. Aggregate Index and 7% Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The indices are unmanaged and are not subject to the same management and trading expenses as a fund. Please note that an investor cannot invest directly in an index.

 

 

Prior to May 1, 2015, the Portfolio followed different investment policies and strategies under the name QS Legg Mason Variable Lifestyle Allocation 50%.

 

 

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   QS Variable Asset Allocation Series 2020 Annual Report


Schedules of investments

December 31, 2020

 

QS Variable Growth

 

Description                 Shares     Value  
Investments in Underlying Funds (a) — 99.8%                                

Legg Mason Global Asset Management Trust:

                               

BrandywineGLOBAL — Diversified US Large Cap Value Fund, Class IS Shares

                    339,329     $ 6,284,375  

BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares

                    1,603,366       20,250,518  

QS International Equity Fund, Class IS Shares

                    1,081,480       17,952,571  

QS U.S. Small Capitalization Equity Fund, Class IS Shares

                    1,191,864       15,577,665  

Legg Mason Partners Equity Trust:

                               

ClearBridge Appreciation Fund, Class IS Shares

                    268,364       7,712,780  

ClearBridge Large Cap Growth Fund, Class IS Shares

                    131,192       8,909,216  

ClearBridge Small Cap Growth Fund, Class IS Shares

                    84,651       4,360,385  

Western Asset Funds, Inc.:

                               

Western Asset Core Bond Fund, Class IS Shares

                    334,890       4,577,943  

Western Asset Intermediate Bond Fund, Class IS Shares

                    598,847       6,832,843  

Total Investments in Underlying Funds before Short-Term Investments (Cost — $69,465,103)

 

    92,458,296  
     Rate                       
Short-Term Investments — 0.4%                                

Invesco Government & Agency Portfolio, Institutional Class (Cost — $348,593)

    0.030             348,593       348,593  

Total Investments — 100.2% (Cost — $69,813,696)

                            92,806,889  

Liabilities in Excess of Other Assets — (0.2)%

                            (151,398

Total Net Assets — 100.0%

                          $ 92,655,491  

 

(a) 

Underlying Funds are affiliated with Legg Mason, Inc. and more information about the Underlying Funds is available at www.leggmason.com/mutualfunds.

 

See Notes to Financial Statements.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 19 


Schedules of investments (cont’d)

December 31, 2020

 

QS Variable Moderate Growth

 

Description                 Shares     Value  
Investments in Underlying Funds (a) — 99.9%                                

Legg Mason Global Asset Management Trust:

                               

BrandywineGLOBAL — Diversified US Large Cap Value Fund, Class IS Shares

                    78,771     $ 1,458,837  

BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares

                    481,050       6,075,664  

QS International Equity Fund, Class IS Shares

                    285,586       4,740,729  

QS U.S. Small Capitalization Equity Fund, Class IS Shares

                    330,604       4,320,989  

Legg Mason Partners Equity Trust:

                               

ClearBridge Appreciation Fund, Class IS Shares

                    123,548       3,550,756  

ClearBridge Large Cap Growth Fund, Class IS Shares

                    41,055       2,788,046  

ClearBridge Small Cap Growth Fund, Class IS Shares

                    21,649       1,115,115  

Western Asset Funds, Inc.:

                               

Western Asset Core Bond Fund, Class IS Shares

                    263,485       3,601,837  

Western Asset Intermediate Bond Fund, Class IS Shares

                    469,233       5,353,949  

Total Investments in Underlying Funds before Short-Term Investments (Cost — $25,657,973)

 

    33,005,922  
     Rate                       
Short-Term Investments — 0.2%                                

Invesco Government & Agency Portfolio, Institutional Class (Cost — $43,452)

    0.030             43,452       43,452  

Total Investments — 100.1% (Cost — $25,701,425)

                            33,049,374  

Liabilities in Excess of Other Assets — (0.1)%

                            (19,060

Total Net Asseteas — 100.0%

                          $ 33,030,314  

 

(a) 

Underlying Funds are affiliated with Legg Mason, Inc. and more information about the Underlying Funds is available at www.leggmason.com/mutualfunds.

 

See Notes to Financial Statements.

 

 

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   QS Variable Asset Allocation Series 2020 Annual Report


 

 

QS Variable Conservative Growth

 

Description                 Shares     Value  
Investments in Underlying Funds (a) — 99.9%                                

Legg Mason Global Asset Management Trust:

                               

BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares

                    966,952     $ 12,212,610  

QS International Equity Fund, Class IS Shares

                    504,485       8,374,457  

QS U.S. Small Capitalization Equity Fund, Class IS Shares

                    767,788       10,034,993  

Legg Mason Partners Equity Trust:

                               

ClearBridge Appreciation Fund, Class IS Shares

                    318,835       9,163,318  

ClearBridge Large Cap Growth Fund, Class IS Shares

                    87,469       5,940,045  

ClearBridge Small Cap Growth Fund, Class IS Shares

                    46,389       2,389,483  

Western Asset Funds, Inc.:

                               

Western Asset Core Bond Fund, Class IS Shares

                    1,256,005       17,169,583  

Western Asset Intermediate Bond Fund, Class IS Shares

                    2,246,528       25,632,888  

Total Investments in Underlying Funds before Short-Term Investments (Cost — $73,759,095)

 

    90,917,377  
     Rate                       
Short-Term Investments — 0.2%                                

Invesco Government & Agency Portfolio, Institutional Class (Cost — $201,773)

    0.030             201,773       201,773  

Total Investments — 100.1% (Cost — $73,960,868)

                            91,119,150  

Liabilities in Excess of Other Assets — (0.1)%

                            (75,136

Total Net Assets — 100.0%

                          $ 91,044,014  

 

(a) 

Underlying Funds are affiliated with Legg Mason, Inc. and more information about the Underlying Funds is available at www.leggmason.com/mutualfunds.

 

See Notes to Financial Statements.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 21 


Statements of assets and liabilities

December 31, 2020

 

     QS Variable
Growth
    QS Variable
Moderate
Growth
    QS Variable
Conservative
Growth
 
Assets:                        

Investments in affiliated Underlying Funds, at cost

  $ 69,465,103     $ 25,657,973     $ 73,759,095  

Short-term investments, at cost

    348,593       43,452       201,773  

Investments in affiliated Underlying Funds, at value

  $ 92,458,296     $ 33,005,922     $ 90,917,377  

Short-term investments, at value

    348,593       43,452       201,773  

Distributions receivable from affiliated Underlying Funds

    20,361       16,105       76,866  

Interest receivable

    4       1       5  

Receivable for Portfolio shares sold

          79        

Receivable from investment manager

          3,332        

Prepaid expenses

    1,149       649       1,230  

Total Assets

    92,828,403       33,069,540       91,197,251  
Liabilities:                        

Payable for Portfolio shares repurchased

    126,497       1,267       44,296  

Payable for investments in affiliated Underlying Funds

    21,506       17,002       81,162  

Shareholder reports payable

    7,536       4,229       7,116  

Audit and tax fees payable

    6,953       6,953       6,953  

Fund accounting fees payable

    5,311       5,218       5,311  

Legal fees payable

    3,559       3,559       3,559  

Trustees’ fees payable

    918       325       921  

Service and/or distribution fees payable

                2,858  

Accrued expenses

    632       673       1,061  

Total Liabilities

    172,912       39,226       153,237  
Total Net Assets   $ 92,655,491     $ 33,030,314     $ 91,044,014  
Net Assets:                        

Par value (Note 7)

  $ 63     $ 23     $ 57  

Paid-in capital in excess of par value

    71,149,088       26,302,702       74,120,367  

Total distributable earnings (loss)

    21,506,340       6,727,589       16,923,590  
Total Net Assets   $ 92,655,491     $ 33,030,314     $ 91,044,014  
Net Assets:                        

Class I

  $ 92,655,491     $ 33,030,314     $ 77,464,902  

Class II

              $ 13,579,112  
Shares Outstanding:                        

Class I

    6,284,522       2,259,519       4,884,155  

Class II

                858,976  
Net Asset Value:                        

Class I

  $ 14.74     $ 14.62     $ 15.86  

Class II

              $ 15.81  

 

 

See Notes to Financial Statements.

 

 

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   QS Variable Asset Allocation Series 2020 Annual Report


Statements of operations

For the Year Ended December 31, 2020

 

     QS Variable
Growth
    QS Variable
Moderate
Growth
    QS Variable
Conservative
Growth
 
Investment Income:                        

Income distributions from affiliated Underlying Funds

  $ 1,205,360     $ 474,930     $ 1,491,451  

Interest

    1,057       559       1,915  

Total Investment Income

    1,206,417       475,489       1,493,366  
Expenses:                        

Fund accounting fees

    32,668       32,132       32,682  

Audit and tax fees

    30,156       29,876       30,102  

Legal fees

    27,690       28,523       27,692  

Shareholder reports

    12,961       8,553       13,898  

Trustees’ fees

    6,781       2,661       6,812  

Insurance

    1,876       982       1,876  

Custody fees

    1,457       1,584       1,304  

Transfer agent fees (Note 5)

    1,055       1,202       2,136  

Interest expense

    74       71       82  

Service and/or distribution fees (Notes 2 and 5)

                28,710  

Miscellaneous expenses

    1,724       1,721       2,024  

Total Expenses

    116,442       107,305       147,318  

Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)

    (547)       (46,411)       (567)  

Net Expenses

    115,895       60,894       146,751  
Net Investment Income     1,090,522       414,595       1,346,615  
Realized and Unrealized Gain (Loss) on Affiliated Underlying Funds and Capital Gain Distributions From Affiliated Underlying Funds (Notes 1 and 3):                        

Net Realized Gain (Loss) From:

                       

Sale of affiliated Underlying Funds

    (22,619)       (51,098)       (467,407)  

Capital gain distributions from affiliated Underlying Funds

    2,550,093       907,012       2,441,180  

Net Realized Gain

    2,527,474       855,914       1,973,773  

Change in Net Unrealized Appreciation (Depreciation) on Affiliated Underlying Funds

    5,029,784       1,881,467       5,484,136  
Net Gain on Affiliated Underlying Funds and Capital Gain Distributions From Affiliated Underlying Funds     7,557,258       2,737,381       7,457,909  
Increase in Net Assets From Operations   $ 8,647,780     $ 3,151,976     $ 8,804,524  

 

See Notes to Financial Statements.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 23 


Statements of changes in net assets

QS Variable Growth

 

For the Years Ended December 31,    2020      2019  
Operations:                  

Net investment income

   $ 1,090,522      $ 1,351,777  

Net realized gain

     2,527,474        2,813,912  

Change in net unrealized appreciation (depreciation)

     5,029,784        15,775,617  

Increase in Net Assets From Operations

     8,647,780        19,941,306  
Distributions to Shareholders From (Notes 1 and 6):                  

Total distributable earnings

     (4,699,254)        (6,438,220)  

Decrease in Net Assets From Distributions to Shareholders

     (4,699,254)        (6,438,220)  
Portfolio Share Transactions (Note 7):                  

Net proceeds from sale of shares

     794,640        292,230  

Reinvestment of distributions

     4,699,254        6,438,220  

Cost of shares repurchased

     (14,745,590)        (16,989,853)  

Decrease in Net Assets From Portfolio Share Transactions

     (9,251,696)        (10,259,403)  

Increase (Decrease) in Net Assets

     (5,303,170)        3,243,683  
Net Assets:                  

Beginning of year

     97,958,661        94,714,978  

End of year

   $ 92,655,491      $ 97,958,661  

 

See Notes to Financial Statements.

 

 

 24 

   QS Variable Asset Allocation Series 2020 Annual Report


QS Variable Moderate Growth

 

For the Years Ended December 31,    2020      2019  
Operations:                  

Net investment income

   $ 414,595      $ 503,667  

Net realized gain

     855,914        903,177  

Change in net unrealized appreciation (depreciation)

     1,881,467        4,689,876  

Increase in Net Assets From Operations

     3,151,976        6,096,720  
Distributions to Shareholders From (Notes 1 and 6):                  

Total distributable earnings

     (1,603,146)        (1,781,181)  

Decrease in Net Assets From Distributions to Shareholders

     (1,603,146)        (1,781,181)  
Portfolio Share Transactions (Note 7):                  

Net proceeds from sale of shares

     410,132        446,023  

Reinvestment of distributions

     1,603,146        1,781,181  

Cost of shares repurchased

     (3,713,466)        (4,828,898)  

Decrease in Net Assets From Portfolio Share Transactions

     (1,700,188)        (2,601,694)  

Increase (Decrease) in Net Assets

     (151,358)        1,713,845  
Net Assets:                  

Beginning of year

     33,181,672        31,467,827  

End of year

   $  33,030,314      $  33,181,672  

 

See Notes to Financial Statements.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 25 


Statements of changes in net assets (cont’d)

QS Variable Conservative Growth

 

For the Years Ended December 31,    2020      2019  
Operations:                  

Net investment income

   $ 1,346,615      $ 1,656,792  

Net realized gain

     1,973,773        1,524,560  

Change in net unrealized appreciation (depreciation)

     5,484,136        10,800,414  

Increase in Net Assets From Operations

     8,804,524        13,981,766  
Distributions to Shareholders From (Notes 1 and 6):                  

Total distributable earnings

     (3,493,004)        (3,791,343)  

Decrease in Net Assets From Distributions to Shareholders

     (3,493,004)        (3,791,343)  
Portfolio Share Transactions (Note 7):                  

Net proceeds from sale of shares

     5,898,482        5,925,183  

Reinvestment of distributions

     3,493,004        3,791,343  

Cost of shares repurchased

     (14,427,491)        (12,559,856)  

Decrease in Net Assets From Portfolio Share Transactions

     (5,036,005)        (2,843,330)  

Increase in Net Assets

     275,515        7,347,093  
Net Assets:                  

Beginning of year

     90,768,499        83,421,406  

End of year

   $ 91,044,014      $ 90,768,499  

 

See Notes to Financial Statements.

 

 

 26 

   QS Variable Asset Allocation Series 2020 Annual Report


Financial highlights

QS Variable Growth

 

For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class I Shares1,2    2020      2019      2018      2017      2016  
Net asset value, beginning of year      $14.00        $12.20        $14.46        $14.55        $14.12  
Income (loss) from operations:               

Net investment income

     0.17        0.18        0.20        0.22        0.20  

Net realized and unrealized gain (loss)

     1.30        2.52        (1.30)        2.56        0.98  

Total income (loss) from operations

     1.47        2.70        (1.10)        2.78        1.18  
Less distributions from:               

Net investment income

     (0.21)        (0.21)        (0.38)        (0.29)        (0.21)  

Net realized gains

     (0.52)        (0.69)        (0.78)        (2.58)        (0.54)  

Total distributions

     (0.73)        (0.90)        (1.16)        (2.87)        (0.75)  
Net asset value, end of year      $14.74        $14.00        $12.20        $14.46        $14.55  

Total return3

     11.24      22.58      (8.05)      19.33      8.50
Net assets, end of year (000s)      $92,655        $97,959        $94,715        $118,126        $110,803  
Ratios to average net assets:               

Gross expenses4

     0.14      0.12      0.11      0.12      0.11

Net expenses4,5

     0.13 6        0.12        0.11        0.12        0.11  

Net investment income

     1.27        1.38        1.36        1.40        1.44  
Portfolio turnover rate      21      19      15      88 %7        20

 

1

Effective May 1, 2017, the existing single class shares were renamed Class I shares.

 

2

Per share amounts have been calculated using the average shares method.

 

3 

Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Total returns do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Past performance is no guarantee of future results.

 

4

Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

 

5 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of Class I shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

 

6 

Reflects fee waivers and/or expense reimbursements.

 

7 

Excludes the value of securities received in lieu of cash proceeds from the sale of Underlying Funds and the subsequent sale of those securities.

 

See Notes to Financial Statements.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 27 


Financial highlights (cont’d)

QS Variable Moderate Growth

 

For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class I Shares1,2    2020      2019      2018      2017      2016  
Net asset value, beginning of year    $ 13.87      $ 12.16      $ 13.93      $ 14.57      $ 13.95  
Income (loss) from operations:               

Net investment income

     0.18        0.20        0.22        0.24        0.24  

Net realized and unrealized gain (loss)

     1.29        2.25        (1.07)        2.18        0.87  

Total income (loss) from operations

     1.47        2.45        (0.85)        2.42        1.11  
Less distributions from:               

Net investment income

     (0.23)        (0.51)        (0.35)        (0.34)        (0.30)  

Net realized gains

     (0.49)        (0.23)        (0.57)        (2.72)        (0.19)  

Total distributions

     (0.72)        (0.74)        (0.92)        (3.06)        (0.49)  
Net asset value, end of year    $ 14.62      $ 13.87      $ 12.16      $ 13.93      $ 14.57  

Total return3

     11.07      20.43      (6.28)      16.73      7.99
Net assets, end of year (000s)    $ 33,030      $ 33,182      $ 31,468      $ 37,446      $ 38,178  
Ratios to average net assets:               

Gross expenses4

     0.35      0.29      0.30      0.30      0.23

Net expenses4,5,6

     0.20        0.20        0.20        0.20        0.20  

Net investment income

     1.36        1.53        1.56        1.52        1.70  
Portfolio turnover rate      26      21      16      87 %7        21

 

1 

Effective May 1, 2017, the existing single class shares were renamed Class I shares.

 

2 

Per share amounts have been calculated using the average shares method.

 

3 

Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Total returns do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Past performance is no guarantee of future results.

 

4 

Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

 

5 

Reflects fee waivers and/or expense reimbursements.

 

6 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of Class I shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

 

7 

Excludes the value of securities received in lieu of cash proceeds from the sale of Underlying Funds and the subsequent sale of those securities.

 

See Notes to Financial Statements.

 

 

 28 

   QS Variable Asset Allocation Series 2020 Annual Report


 

QS Variable Conservative Growth

 

For a share of each class of beneficial interest outstanding throughout each year ended December 31:  
Class I Shares1,2    2020      2019      2018      2017      2016  
Net asset value, beginning of year    $ 14.88      $ 13.23      $ 14.64      $ 14.76      $ 14.07  
Income (loss) from operations:               

Net investment income

     0.23        0.27        0.28        0.28        0.31  

Net realized and unrealized gain (loss)

     1.37        2.01        (0.91)        1.73        0.73  

Total income (loss) from operations

     1.60        2.28        (0.63)        2.01        1.04  
Less distributions from:               

Net investment income

     (0.32)        (0.31)        (0.38)        (0.39)        (0.35)  

Net realized gains

     (0.30)        (0.32)        (0.40)        (1.74)         

Total distributions

     (0.62)        (0.63)        (0.78)        (2.13)        (0.35)  
Net asset value, end of year    $ 15.86      $ 14.88      $ 13.23      $ 14.64      $ 14.76  

Total return3

     10.96      17.37      (4.40)      13.55      7.43
Net assets, end of year (000s)    $ 77,465      $ 80,945      $ 78,534      $ 94,355      $ 93,763  
Ratios to average net assets:               

Gross expenses4

     0.14      0.12      0.14      0.14      0.13

Net expenses4,5

     0.14 6        0.12        0.14        0.14        0.13  

Net investment income

     1.59        1.88        1.90        1.78        2.18  
Portfolio turnover rate      28      24      11      86 %7        18

 

1 

Effective May 1, 2017, the existing single class shares were renamed Class I shares.

 

2 

Per share amounts have been calculated using the average shares method.

 

3 

Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Total returns do not reflect expenses associated with separate accounts such as administrative fees, account charges and surrender charges which, if reflected, would reduce the total return for all periods shown. Past performance is no guarantee of future results.

 

4 

Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

 

5 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of Class I shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

 

6 

Reflects fee waivers and/or expense reimbursements.

 

7 

Excludes the value of securities received in lieu of cash proceeds from the sale of Underlying Funds and the subsequent sale of those securities.

 

See Notes to Financial Statements.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 29 


Financial highlights (cont’d)

 

QS Variable Conservative Growth

 

For a share of each class of beneficial interest outstanding throughout each year ended December 31,
unless otherwise noted:
 
Class II Shares1    2020      2019      2018      20172  
Net asset value, beginning of year    $ 14.83      $ 13.21      $ 14.62      $ 15.72  
Income (loss) from operations:            

Net investment income

     0.21        0.25        0.33        0.32  

Net realized and unrealized gain (loss)

     1.35        1.97        (0.98)        0.66  

Total income (loss) from operations

     1.56        2.22        (0.65)        0.98  
Less distributions from:            

Net investment income

     (0.28)        (0.28)        (0.36)        (0.34)  

Net realized gains

     (0.30)        (0.32)        (0.40)        (1.74)  

Total distributions

     (0.58)        (0.60)        (0.76)        (2.08)  
Net asset value, end of year    $ 15.81      $ 14.83      $ 13.21      $ 14.62  

Total return3

     10.77      16.94      (4.55)      6.18
Net assets, end of year (000s)    $ 13,579      $ 9,823      $ 4,888      $ 1,111  
Ratios to average net assets:            

Gross expenses4

     0.39      0.37      0.38      0.43 %5 

Net expenses4,6

     0.39 7        0.37        0.38        0.43 5  

Net investment income

     1.41        1.77        2.32        3.90 5  
Portfolio turnover rate      28      24      11      86 %8,9 

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

For the period June 23, 2017 (inception date) to December 31, 2017.

 

3 

Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

 

4 

Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

 

5 

Annualized.

 

6 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of Class II shares did not exceed 0.45%. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

 

7 

Reflects fee waivers and/or expense reimbursements.

 

8 

Excludes the value of securities received in lieu of cash proceeds from the sale of Underlying Funds and the subsequent sale of those securities.

 

9 

For the year ended December 31, 2017.

 

See Notes to Financial Statements.

 

 

 30 

   QS Variable Asset Allocation Series 2020 Annual Report


Notes to financial statements

 

1. Organization and significant accounting policies

QS Variable Growth (“Variable Growth”), QS Variable Moderate Growth (“Variable Moderate Growth”) and QS Variable Conservative Growth (“Variable Conservative Growth”) (the “Portfolios”) are separate non-diversified investment series of Legg Mason Partners Variable 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 Portfolios invest in other mutual funds and exchange-traded funds (“ETFs”) which are affiliated with Legg Mason, Inc. (“Legg Mason”) and ETFs managed by unaffiliated investment advisers (“Underlying Funds”). Shares of the Portfolios are offered to separate accounts sponsored by certain life insurance companies and qualified pension and retirement plans, including affiliates of the investment manager.

Shares of the Portfolios may only be purchased or redeemed through variable annuity contracts and variable life insurance policies offered by the separate accounts of participating insurance companies or through eligible pension or other qualified plans.

The following are significant accounting policies consistently followed by the Portfolios and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.

(a) Investment valuation. Investments in the Underlying 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 (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed 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 valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. When the Portfolios hold securities or other assets that are denominated in a foreign currency, the Portfolios 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 each Portfolio calculates its net asset value, the Portfolios value these securities as determined in accordance with procedures approved by the Portfolios’ 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 Atlantic 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 Portfolios’ pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Portfolios, 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

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 31 


Notes to financial statements (cont’d)

 

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.

The Portfolios use 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 Portfolios’ 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 Portfolios’ assets carried at fair value:

Variable Growth

 

ASSETS  
Description   Quoted Prices
(Level 1)
    Other Significant
Observable Inputs
(Level 2)
   

Significant
Unobservable
Inputs

(Level 3)

    Total  
Investments in Underlying Funds†   $ 92,458,296                 $ 92,458,296  
Short-Term Investments†     348,593                   348,593  
Total Investments   $ 92,806,889                 $ 92,806,889  

 

See Schedule of Investments for additional detailed categorizations.

Variable Moderate Growth

 

ASSETS  
Description   Quoted Prices
(Level 1)
   

Other Significant
Observable Inputs

(Level 2)

   

Significant
Unobservable

Inputs

(Level 3)

    Total  
Investments in Underlying Funds†   $ 33,005,922                 $ 33,005,922  
Short-Term Investments†     43,452                   43,452  
Total Investments   $ 33,049,374                 $ 33,049,374  

 

See Schedule of Investments for additional detailed categorizations.

 

 

 32 

  

QS Variable Asset Allocation Series 2020 Annual Report


Variable Conservative Growth

 

ASSETS  
Description   Quoted Prices
(Level 1)
    Other Significant
Observable Inputs
(Level 2)
   

Significant
Unobservable
Inputs

(Level 3)

    Total  
Investments in Underlying Funds†   $ 90,917,377                 $ 90,917,377  
Short-Term Investments†     201,773                   201,773  
Total Investments   $ 91,119,150                 $ 91,119,150  

 

See Schedule of Investments for additional detailed categorizations.

(b) Fund of funds risk. The cost of investing in the Portfolios, 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 Portfolios’ approval, which could force the Portfolios to withdraw their investments from such Underlying Fund at a time that is unfavorable to the Portfolios. In addition, one Underlying Fund may buy the same securities that another Underlying Fund sells. Therefore, the Portfolios would indirectly bear the costs of these trades without accomplishing any investment purpose.

(c) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Net investment income distributions, if any, from the Underlying Funds 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 character of certain distributions received from the Underlying Funds may represent a return of capital. The Portfolios determine the components of these distributions subsequent to the ex-dividend date, based on the actual tax character reported by the Underlying Funds. These distributions are recorded by adjusting the cost basis of the related Underlying Fund. The cost of investments sold is determined by use of the specific identification method.

(d) Distributions to shareholders. Distributions from net investment income and distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Portfolios are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

(e) Share class accounting. Investment income, common expenses and realized/unrealized gains (losses) on investments are allocated to the various classes of the Portfolios on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.

(f) Compensating balance arrangements. The Portfolios have an arrangement with their custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Portfolios’ cash on deposit with the bank.

(g) Federal and other taxes. It is the Portfolios’ 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 Portfolios 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 Portfolios’ financial statements.

Management has analyzed the Portfolios’ tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2020, no provision for income tax is required in the Portfolios’ financial statements. The Portfolios’ 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.

(h) 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 value per share. During the current year, the Portfolios had no reclassifications.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is each Portfolio’s investment manager and QS Investors, LLC (“QS Investors”) is each Portfolio’s subadviser. Western Asset Management Company, LLC (“Western Asset”) manages the portion of each Portfolio’s cash and short-term instruments allocated to it. As of July 31, 2020, LMPFA, QS Investors and Western Asset are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”). Prior to July 31, 2020, LMPFA,

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 33 


Notes to financial statements (cont’d)

 

QS Investors and Western Asset were wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”). As of July 31, 2020, Legg Mason is a subsidiary of Franklin Resources. Under the investment management agreements, the Portfolios do not pay a management fee.

LMPFA provides administrative and certain oversight services to the Portfolios. LMPFA delegates to the subadviser the day-to-day portfolio management of the Portfolios, except for the management of the portion of each Portfolio’s cash and short-term instruments allocated to Western Asset.

As a result of expense limitation arrangements between the Portfolios and LMPFA, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of Class I shares of Variable Growth, Variable Moderate Growth and Variable Conservative Growth and Class II shares of Variable Conservative Growth did not exceed 0.20% and 0.45%, respectively. These expense limitation arrangements cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

During the year ended December 31, 2020, fees waived and/or reimbursed were as follows:

 

Variable Growth    $ 547  
Variable Moderate Growth      46,411  
Variable Conservative Growth      567  

LMPFA is permitted to recapture amounts waived and/or reimbursed to a class during the same fiscal year if the class’ total annual fund 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 LMPFA recapture any amount that would result, on any particular business day of the Portfolios, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

In addition, the Portfolios indirectly pay management and/or administration fees to LMPFA and certain LMPFA affiliates as shareholders in the Underlying Funds. These management and/or administration fees ranged from 0.40% to 0.75% of the average daily net assets of the Underlying Funds.

Legg Mason Investor Services, LLC (“LMIS”) serves as the Portfolios’ sole and exclusive distributor. As of July 31, 2020, LMIS is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources. Prior to July 31, 2020, LMIS was a wholly-owned broker-dealer subsidiary of Legg Mason.

As of July 31, 2020, all officers and one Trustee of the Trust are employees of Franklin Resources or its affiliates and do not receive compensation from the Trust. Prior to July 31, 2020, all officers and one Trustee of the Trust were employees of Legg Mason and did not receive compensation from the Trust.

3. Investments

During the year ended December 31, 2020, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

 

      Purchases      Sales  
Variable Growth    $ 18,450,811      $ 28,794,998  
Variable Moderate Growth      8,052,212        10,044,995  
Variable Conservative Growth      24,104,048        28,730,212  

At December 31, 2020, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

 

      Variable Growth
      Cost      Gross
Unrealized
Appreciation
     Gross
Unrealized
Depreciation
     Net
Unrealized
Appreciation
Securities    $ 73,920,718      $ 18,886,171             $18,886,171

 

 

 34 

   QS Variable Asset Allocation Series 2020 Annual Report


              Variable Moderate Growth          
      Cost      Gross
Unrealized
Appreciation
   Gross
Unrealized
Depreciation
     Net
Unrealized
Appreciation
 
Securities    $ 27,154,973      $5,894,401           $ 5,894,401  

 

              Variable Conservative Growth          
      Cost      Gross
Unrealized
Appreciation
   Gross
Unrealized
Depreciation
     Net
Unrealized
Appreciation
 
Securities    $ 76,425,049      $14,694,101           $ 14,694,101  

4. Derivative instruments and hedging activities

During the year ended December 31, 2020, the Portfolios did not invest in derivative instruments.

5. Class specific expenses, waivers and/or expense reimbursements

Variable Conservative Growth has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan the Portfolio pays service and/or distribution fees with respect to its Class II shares calculated at the annual rate of 0.25% of the average daily net assets of the class. Service and/or distribution fees are accrued daily and paid monthly.

For the year ended December 31, 2020, class specific expenses were as follows:

 

                 

Transfer Agent

Fees

 
Variable Growth                      
Class I                 $ 1,055  

 

                 

Transfer Agent

Fees

 
Variable Moderate Growth                      
Class I                 $ 1,202  

 

       

Service and/or

Distribution Fees

      

Transfer Agent

Fees

 
Variable Conservative Growth                      
Class I               $ 1,889  
Class II      $ 28,710          247  
Total      $ 28,710        $ 2,136  

For the year ended December 31, 2020, waivers and/or expense reimbursements by class were as follows:

 

      Waivers/Expense
Reimbursements
 
Variable Growth         
Class I    $ 547  
      Waivers/Expense
Reimbursements
 
Variable Moderate Growth         
Class I    $ 46,411  
      Waivers/Expense
Reimbursements
 
Variable Conservative Growth         
Class I    $ 495  
Class II      72  
Total    $ 567  

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 35 


Notes to financial statements (cont’d)

 

6. Distributions to shareholders by class

 

        Year Ended
December 31, 2020
       Year Ended
December 31, 2019
 
Variable Growth                      
Net Investment Income:                      
Class I      $ 1,325,003        $ 1,450,012  
Net Realized Gains:                      
Class I      $ 3,374,251        $ 4,988,208  

 

        Year Ended
December 31, 2020
       Year Ended
December 31, 2019
 
Variable Moderate Growth                      
Net Investment Income:                      
Class I      $ 510,002        $ 540,002  
Net Realized Gains:                      
Class I      $ 1,093,144        $ 1,241,179  

 

        Year Ended
December 31, 2020
       Year Ended
December 31, 2019
 
Variable Conservative Growth                      
Net Investment Income:                      
Class I      $ 1,513,029        $ 1,668,604  
Class II        236,973          181,402  
Total      $ 1,750,002        $ 1,850,006  
Net Realized Gains:                      
Class I      $ 1,508,547        $ 1,778,536  
Class II        234,455          162,801  
Total      $ 1,743,002        $ 1,941,337  

7. Shares of beneficial interest

At December 31, 2020, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Portfolios 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
December 31, 2020
     Year Ended
December 31, 2019
 
      Shares      Amount      Shares      Amount  
Variable Growth                                    
Class I                                    
Shares sold      57,152      $ 794,640        22,021      $ 292,230  
Shares issued on reinvestment      356,118        4,699,254        481,350        6,438,220  
Shares repurchased      (1,125,910)        (14,745,590)        (1,272,013)        (16,989,853)  
Net decrease      (712,640)      $ (9,251,696)        (768,642)      $ (10,259,403)  

 

 

 36 

   QS Variable Asset Allocation Series 2020 Annual Report


     Year Ended
December 31, 2020
     Year Ended
December 31, 2019
 
      Shares      Amount      Shares      Amount  
Variable Moderate Growth                                    
Class I                                    
Shares sold      32,030      $ 410,132        33,678      $ 446,023  
Shares issued on reinvestment      118,899        1,603,146        132,744        1,781,181  
Shares repurchased      (283,600)        (3,713,466)        (362,320)        (4,828,898)  
Net decrease      (132,671)      $ (1,700,188)        (195,898)      $ (2,601,694)  

 

     Year Ended
December 31, 2020
     Year Ended
December 31, 2019
 
      Shares      Amount      Shares      Amount  
Variable Conservative Growth                                    
Class I                                    
Shares sold      71,937      $ 1,058,057        66,624      $ 960,006  
Shares issued on reinvestment      200,104        3,021,576        236,118        3,447,140  
Shares repurchased      (829,414)        (11,993,998)        (795,273)        (11,435,782)  
Net decrease      (557,373)      $ (7,914,365)        (492,531)      $ (7,028,636)  
Class II                                    
Shares sold      336,609      $ 4,840,425        346,872      $ 4,965,177  
Shares issued on reinvestment      31,290        471,428        23,611        344,203  
Shares repurchased      (171,112)        (2,433,493)        (78,346)        (1,124,074)  
Net increase      196,787      $ 2,878,360        292,137      $ 4,185,306  

8. Transactions with affiliated companies

As defined by the 1940 Act, an affiliated company is one in which the Portfolios own 5% or more of the outstanding voting securities, or a company which is under common ownership or control with the Portfolios. The following Underlying Funds were considered affiliated companies for all or some portion of the year ended December 31, 2020. The following transactions were effected in such Underlying Funds for the year ended December 31, 2020.

 

    Affiliate
Value at
December 31,
2019
   

 

 

 

 

Purchased

    Sold     Realized
Gain (Loss)
from Sale

of Affiliated
Underlying
Funds
    Income
Distributions
from
Affiliated
Underlying
Funds
    Capital  Gain
Distributions
from
Affiliated
Underlying
Funds
    Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation)
    Affiliate
Value at
December 31,
2020
 
    
Variable Growth
  Cost     Shares     Cost     Shares  
BrandywineGLOBAL — Diversified US Large Cap Value Fund, Class IS Shares   $ 6,328,152     $ 1,009,535       59,418     $ 825,430       47,294     $ (40,432)     $ 93,613     $ 90,922     $ (227,882)     $ 6,284,375  
BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares     21,812,871       2,944,018       252,359       4,608,466       409,515       136,534       262,344       791,674       102,095       20,250,518  
QS International Equity Fund, Class IS Shares     19,909,003       1,787,672       110,779       4,049,194       252,963       (549,194)       312,672             305,090       17,952,571  
QS U.S. Small Capitalization Equity Fund, Class IS Shares     16,426,125       3,175,663       319,319       6,435,369       474,963       (1,210,369)       174,678       415,985       2,411,246       15,577,665  
ClearBridge Appreciation Fund, Class IS Shares     8,200,353       734,120       26,773       1,323,824       71,998       541,176       85,012       254,109       102,131       7,712,780  
ClearBridge Large Cap Growth Fund, Class IS Shares     9,847,566       797,821       12,034       2,783,664       61,002       691,336       15,122       477,698       1,047,493       8,909,216  
ClearBridge Small Cap Growth Fund, Class IS Shares     4,580,558       408,111       9,980       1,637,659       45,428       222,341             268,111       1,009,375       4,360,385  
Western Asset Core Bond Fund, Class IS Shares     4,274,209       3,007,709       225,010       2,878,008       218,148       91,992       110,283       67,797       174,033       4,577,943  
Western Asset Intermediate Bond Fund, Class IS Shares     6,416,481       4,586,162       404,316       4,276,003       380,423       93,997       151,636       183,797       106,203       6,832,843  
    $ 97,795,318     $ 18,450,811             $ 28,817,617             $ (22,619)     $ 1,205,360     $ 2,550,093     $ 5,029,784     $ 92,458,296  

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 37 


Notes to financial statements (cont’d)

 

    Affiliate
Value at
December 31,
2019
   

 

 

 

 

Purchased

    Sold     Realized
Gain (Loss)
from Sale
of Affiliated
Underlying
Funds
    Income
Distributions
from
Affiliated
Underlying
Funds
    Capital  Gain
Distributions
from
Affiliated
Underlying
Funds
    Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation)
    Affiliate
Value at
December 31,
2020
 

Variable Moderate

Growth

  Cost     Shares     Cost     Shares  
BrandywineGLOBAL — Diversified US Large Cap Value Fund, Class IS Shares   $ 1,434,561     $ 292,461       17,473     $ 233,177       12,878     $ (13,177)     $ 21,541     $ 20,921     $ (35,008)     $ 1,458,837  
BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares     6,266,202       1,172,809       103,127       1,455,950       127,824       29,048       79,102       238,707       92,603       6,075,664  
QS International Equity Fund, Class IS Shares     5,056,070       882,567       57,804       1,324,289       82,978       (179,290)       82,567             126,381       4,740,729  
QS U.S. Small Capitalization Equity Fund, Class IS Shares     4,277,656       1,078,019       108,436       1,743,985       128,747       (353,985)       47,926       115,093       709,299       4,320,989  
ClearBridge Appreciation Fund, Class IS Shares     3,660,355       486,768       18,063       741,874       34,490       153,125       39,299       117,470       145,507       3,550,756  
ClearBridge Large Cap Growth Fund, Class IS Shares     2,900,423       312,160       4,731       756,690       16,739       203,310       4,669       147,490       332,153       2,788,046  
ClearBridge Small Cap Growth Fund, Class IS Shares     1,103,417       174,447       4,271       442,855       11,553       32,144             69,447       280,106       1,115,115  
Western Asset Core Bond Fund, Class IS Shares     3,383,316       1,432,503       106,609       1,354,711       102,780       40,289       84,457       53,341       140,729       3,601,837  
Western Asset Intermediate Bond Fund, Class IS Shares     5,086,336       2,220,478       194,938       2,042,562       181,470       37,438       115,369       144,543       89,697       5,353,949  
    $ 33,168,336     $ 8,052,212             $ 10,096,093             $ (51,098)     $ 474,930     $ 907,012     $ 1,881,467     $ 33,005,922  

 

    Affiliate
Value at
December 31,
2019
   

 

 

 

 

Purchased

    Sold     Realized
Gain (Loss)
from Sale
of Affiliated
Underlying
Funds
    Income
Distributions
from
Affiliated
Underlying
Funds
    Capital  Gain
Distributions
from
Affiliated
Underlying
Funds
    Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation)
    Affiliate
Value at
December 31,
2020
 

Variable Conservative

Growth

  Cost     Shares     Cost     Shares  
BrandywineGLOBAL — Dynamic US Large Cap Value Fund, Class IS Shares   $ 12,636,250     $ 3,322,048       295,021     $ 3,940,885       347,944     $ 99,113     $ 159,264     $ 480,609     $ 195,197     $ 12,212,610  
QS International Equity Fund, Class IS Shares     9,237,419       2,346,582       155,795       3,540,429       219,068       (600,429)       145,854             330,885       8,374,457  
QS U.S. Small Capitalization Equity Fund, Class IS Shares     9,860,008       3,282,546       327,259       4,987,203       368,331       (957,205)       110,535       264,871       1,879,642       10,034,993  
ClearBridge Appreciation Fund, Class IS Shares     9,462,241       1,715,432       64,174       2,695,546       107,184       129,453       101,635       303,797       681,191       9,163,318  
ClearBridge Large Cap Growth Fund, Class IS Shares     6,121,126       951,715       14,889       1,815,329       39,405       479,651       9,719       306,996       682,533       5,940,045  
ClearBridge Small Cap Growth Fund, Class IS Shares     2,300,141       491,472       12,258       965,379       26,177       119,621             141,379       563,249       2,389,483  
Western Asset Core Bond Fund, Class IS Shares     16,350,137       4,615,313       344,241       4,493,333       343,043       138,465       407,461       254,269       697,466       17,169,583  
Western Asset Intermediate Bond Fund, Class IS Shares     24,559,490       7,378,940       648,837       6,759,515       602,980       123,924       556,983       689,259       453,973       25,632,888  
    $ 90,526,812     $ 24,104,048             $ 29,197,619             $ (467,407)     $ 1,491,451     $ 2,441,180     $ 5,484,136     $ 90,917,377  

 

 

 38 

   QS Variable Asset Allocation Series 2020 Annual Report


9. Income tax information and distributions to shareholders

The tax character of distributions paid during the fiscal year ended December 31, 2020 was as follows:

 

        Variable
Growth
       Variable
Moderate Growth
       Variable
Conservative Growth
 
Distributions paid from:                                 
Ordinary income      $ 1,541,494        $ 601,853        $ 2,079,285  
Net long-term capital gains        3,157,760          1,001,293          1,413,719  
Total distributions paid      $ 4,699,254        $ 1,603,146        $ 3,493,004  

The tax character of distributions paid during the fiscal year ended December 31, 2019 was as follows:

 

        Variable
Growth
       Variable
Moderate Growth
       Variable
Conservative Growth
 
Distributions paid from:                                 
Ordinary income      $ 1,547,129        $ 583,127        $ 1,917,854  
Net long-term capital gains        4,891,091          1,198,054          1,873,489  
Total distributions paid      $ 6,438,220        $ 1,781,181        $ 3,791,343  

As of December 31, 2020, the components of distributable earnings (loss) on a tax basis were as follows:

 

        Variable
Growth
       Variable
Moderate Growth
       Variable
Conservative Growth
 
Undistributed ordinary income — net      $ 17,830        $ 6,399        $ 22,528  
Undistributed long-term capital gains — net        2,616,828          837,971          2,221,029  
Total undistributed earnings      $ 2,634,658        $ 844,370        $ 2,243,557  
Other book/tax temporary differences(a)        (14,489)          (11,182)          (14,068)  
Unrealized appreciation (depreciation)(b)        18,886,171          5,894,401          14,694,101  
Total distributable earnings (loss) — net      $ 21,506,340        $ 6,727,589        $ 16,923,590  

 

(a)  

Other book/tax temporary differences are attributable to book/tax differences in the timing of the deductibility of various expenses.

 

(b) 

 The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales.

10. Other matter

The outbreak of the respiratory illness COVID-19 (commonly referred to as “coronavirus”) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Portfolios’ investments, impair the Portfolios’ ability to satisfy redemption requests, and negatively impact the Portfolios’ performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Portfolio by its service providers.

 

QS Variable Asset Allocation Series 2020 Annual Report  

 

 39 


Report of independent registered public accounting firm

 

To the Board of Trustees of Legg Mason Partners Variable Equity Trust and Shareholders of QS Variable Growth, QS Variable Moderate Growth and QS Variable Conservative Growth

Opinions on the financial statements

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of each of the funds indicated in the table below (three of the funds constituting Legg Mason Partners Variable Equity Trust, hereafter collectively referred to as the “Funds”) as of December 31, 2020, the related statements of operations and of changes in net assets for each of the periods indicated in the table below, including the related notes, and the financial highlights for each of the periods indicated in the table below (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2020, the results of each of their operations, the changes in each of their net assets, and each of the financial highlights for each of the periods indicated in the table below, in conformity with accounting principles generally accepted in the United States of America.

 

Fund    Statement of operations    Statement of changes
in net assets
   Financial highlights

QS Variable Growth

QS Variable Moderate Growth

   For the year ended December 31, 2020    For the years ended December 31, 2020 and 2019    For the years ended December 31, 2020, 2019, 2018 and 2017
QS Variable Conservative Growth    For the year ended December 31, 2020    For the years ended December 31, 2020 and 2019    For each of the periods indicated therein beginning with the period ended December 31, 2017

The financial statements of the Funds as of and for the year ended December 31, 2016 and the financial highlights for the year then ended (not presented herein, other than the financial highlights) were audited by other auditors whose report dated February 15, 2017 expressed an unqualified opinion on those financial statements and financial highlights.

Basis for opinions

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 by correspondence with the custodian and transfer agent of the investee funds. We believe that our audits provide a reasonable basis for our opinions.

/s/PricewaterhouseCoopers LLP

Baltimore, Maryland

February 12, 2021

We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.

 

 

 40

   QS Variable Asset Allocation Series 2020 Annual Report


Additional shareholder information (unaudited)

 

QS Variable Growth

Results of special meeting of shareholders

On July 14, 2020 a special meeting of shareholders was held for the following purposes: 1) to approve a new management agreement between the Portfolio and its investment manager; and 2) to approve a new subadvisory agreement with respect to each of the Portfolio’s subadvisers. The following table provides the number of votes cast for or against, as well as the number of abstentions and broker non-votes as to each matter voted on at the special meeting of shareholders. Each item voted on was approved.

 

Item Voted On    Voted For      Voted
Against
     Abstentions      Broker
Non-Votes
 
To Approve a New Management Agreement with Legg Mason Partners Fund Advisor, LLC      62,878,708.782        527,341.015        5,641,635.309        0  
To Approve a New Subadvisory Agreement with QS Investors, LLC      62,025,867.093        812,322.395        6,209,495.618        0  
To Approve a New Subadvisory Agreement with Western Asset Management Company, LLC      62,098,249.806        764,688.811        6,184,746.489        0  

QS Variable Moderate Growth

Results of special meeting of shareholders

On July 14, 2020 a special meeting of shareholders was held for the following purposes: 1) to approve a new management agreement between the Portfolio and its investment manager; and 2) to approve a new subadvisory agreement with respect to each of the Portfolio’s subadvisers. The following table provides the number of votes cast for or against, as well as the number of abstentions and broker non-votes as to each matter voted on at the special meeting of shareholders. Each item voted on was approved.

 

Item Voted On    Voted For      Voted
Against
     Abstentions      Broker
Non-Votes
 
To Approve a New Management Agreement with Legg Mason Partners Fund Advisor, LLC      22,780,964.497        49,151.716        2,194,522.876        0  
To Approve a New Subadvisory Agreement with QS Investors, LLC      21,538,618.889        744,327.496        2,741,692.703        0  
To Approve a New Subadvisory Agreement with Western Asset Management Company, LLC      21,713,179.677        769,151.543        2,542,307.868        0  

QS Variable Conservative Growth

Results of special meeting of shareholders

On July 14, 2020 a special meeting of shareholders was held for the following purposes: 1) to approve a new management agreement between the Portfolio and its investment manager; and 2) to approve a new subadvisory agreement with respect to each of the Portfolio’s subadvisers. The following table provides the number of votes cast for or against, as well as the number of abstentions and broker non-votes as to each matter voted on at the special meeting of shareholders. Each item voted on was approved.

 

Item Voted On    Voted For      Voted
Against
     Abstentions      Broker
Non-Votes
 
To Approve a New Management Agreement with Legg Mason Partners Fund Advisor, LLC      66,427,200.821        669,615.556        7,102,216.875        0  
To Approve a New Subadvisory Agreement with QS Investors, LLC      64,923,776.730        1,306,037.113        7,969,219.408        0  
To Approve a New Subadvisory Agreement with Western Asset Management Company, LLC      64,938,932.996        1,306,037.113        7,954,063.142        0  

 

QS Variable Asset Allocation Series  

 

 41 


Statement regarding liquidity risk management program (unaudited)

 

As required by law, each fund has adopted and implemented a liquidity risk management program (the “Program”) that is designed to assess and manage liquidity risk. Liquidity risk is the risk that the funds could not meet requests to redeem their shares without significant dilution of remaining investors’ interests in the funds. Legg Mason Partners Fund Advisor, LLC (the “Manager”), the funds’ manager, is the administrator of the Program. The Manager has established a liquidity risk management committee (the “Committee”) to administer the Program on a day-to-day basis.

The Committee, on behalf of the Manager, provided the funds’ Board of Trustees with a report that addressed the operation of the Program, assessed its adequacy and effectiveness of implementation, including, if applicable, the operation of any highly liquid investment minimum (“HLIM”), and described any material changes that had been made to the Program or were recommended (the “Report”). The Report covered the period from December 1, 2018 through December 31, 2019 (the “Reporting Period”).

The Report confirmed that there were no material changes to the Program during the Reporting Period and that no changes were recommended.

The Report also confirmed that, throughout the Reporting Period, the Committee had monitored each fund’s portfolio liquidity and liquidity risk on an ongoing basis, as described in the Program and in Board reporting throughout the Reporting Period.

The Report discussed the Committee’s annual review of the Program, which addressed, among other things, the following elements of the Program:

Assessment, Management, and Periodic Review of Liquidity Risk. The Committee reviewed each fund’s investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable stressed conditions. The Committee noted that the funds’ investment strategy continues to be appropriate for an open-end fund, taking into account, among other things, whether and to what extent the funds held less liquid and illiquid assets and the extent to which any such investments affected the funds’ ability to meet redemption requests. In managing and reviewing the funds’ liquidity risk, the Committee also considered the extent to which the funds’ investment strategy involves a relatively concentrated portfolio or large positions in particular issuers, the extent to which the fund uses borrowing for investment purposes, and the extent to which the funds use derivatives (including for hedging purposes). The Committee also reviewed the funds’ short-term and long-term cash flow projections during both normal and reasonably foreseeable stressed conditions. In assessing the funds’ cash flow projections, the Committee considered, among other factors, historical net redemption activity, redemption policies, ownership concentration, distribution channels, and the degree of certainty associated with the funds’ short-term and long-term cash flow projections. The Committee also considered the funds’ holdings of cash and cash equivalents, as well as borrowing arrangements and other funding sources, including, if applicable, the funds’ participation in a credit facility, as components of the funds’ ability to meet redemption requests.

Liquidity Classification. The Committee reviewed the Program’s liquidity classification methodology for categorizing each fund’s investments into one of four liquidity buckets. In reviewing the funds’ investments, the Committee considered, among other factors, whether trading varying portions of a position in a particular portfolio investment or asset class in sizes the fund would reasonably anticipate trading, would be reasonably expected to significantly affect liquidity.

Highly Liquid Investment Minimum. The Committee performed an analysis to determine whether the funds are required to maintain a Highly Liquid Investment Minimum, and determined that no such minimum is required because the funds primarily hold highly liquid investments.

Compliance with Limitation on Illiquid Investments. The Committee confirmed that during the Reporting Period, the funds did not acquire any illiquid investment such that, after the acquisition, the funds would have invested more than 15% of their assets in illiquid investments that are assets, in accordance with the Program and applicable SEC rules.

Redemptions in Kind. The Committee confirmed that no redemptions in-kind were effected by each fund during the Reporting Period.

The Report stated that the Committee concluded that the Program is reasonably designed and operated effectively to assess and manage the funds’ liquidity risk throughout the Reporting Period.

 

 

 42 

   QS Variable Asset Allocation Series


Additional information (unaudited)

Information about Trustees and Officers

 

The business and affairs of QS Variable Asset Allocation Series (the “Portfolios”) 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 Jane Trust, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Trustees and officers of the Portfolios is set forth below.

The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Portfolios at 1-877-721-1926.

 

Independent Trustees
Paul R. Ades
Year of birth   1940
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1983
Principal occupation(s) during the past five years   Paul R. Ades, PLLC (law firm) (since 2000)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   None
Andrew L. Breech
Year of birth   1952
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1991
Principal occupation(s) during the past five years   President, Dealer Operating Control Service, Inc. (automotive retail management) (since 1985)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   None
Althea L. Duersten
Year of birth   1951
Position(s) with Trust   Trustee and Chair
Term of office1 and length of time served2   Since 2014
Principal occupation(s) during the past five years   Retired (since 2011); formerly, Chief Investment Officer, North America, JPMorgan Chase (investment bank) and member of JPMorgan Executive Committee (2007 to 2011)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   Non-Executive Director, Rokos Capital Management LLP (since 2019)
Stephen R. Gross
Year of birth   1947
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1986
Principal occupation(s) during the past five years   Chairman Emeritus (since 2011) and formerly, Chairman, HLB Gross Collins, P.C. (accounting and consulting firm) (1979 to 2011); Executive Director of Business Builders Team, LLC (since 2005); Principal, Gross Consulting Group, LLC (since 2011); CEO, Gross Capital Partners, LLC (since 2014); CEO, Trusted CFO Solutions, LLC (since 2011)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   None

 

QS Variable Asset Allocation Series  

 

 43 


Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Independent Trustees (cont’d)
Susan M. Heilbron
Year of birth   1945
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1991
Principal occupation(s) during the past five years   Retired; formerly, President, Lacey & Heilbron (communications consulting) (1990 to 2002); General Counsel and Executive Vice President, The Trump Organization (1986 to 1990); Senior Vice President, New York State Urban Development Corporation (1984 to 1986); Associate, Cravath, Swaine & Moore LLP (1980 to 1984) and (1977 to 1979)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   Formerly, Director, Lincoln Savings Bank, FSB (1991 to 1994); Director, Trump Shuttle, Inc. (air transportation) (1989 to 1990); Director, Alexander’s Inc. (department store) (1987 to 1990)
Howard J. Johnson
Year of birth   1938
Position(s) with Trust   Trustee
Term of office1 and length of time served2   From 1981 to 1998 and since 2000 (Chairman since 2013)
Principal occupation(s) during the past five years   Retired; formerly, Chief Executive Officer, Genesis Imaging LLC (technology company) (2003 to 2012)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   None
Jerome H. Miller
Year of birth   1938
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1995
Principal occupation(s) during the past five years   Retired; formerly, President, Shearson Lehman Asset Management (1991 to 1993), Vice Chairman, Shearson Lehman Hutton Inc. (1989 to 1992) and Senior Executive Vice President, E.F. Hutton Group Inc. (1986 to 1989)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   None
Ken Miller
Year of birth   1942
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1983
Principal occupation(s) during the past five years   Retired; formerly, President, Young Stuff Apparel Group, Inc. (apparel manufacturer), division of Li & Fung (1963 to 2012)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   None

 

 

 44 

   QS Variable Asset Allocation Series


 

 

Independent Trustees (cont’d)
Thomas F. Schlafly
Year of birth   1948
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1983
Principal occupation(s) during the past five years   Chairman, The Saint Louis Brewery, LLC (brewery) (since 2012); formerly, President, The Saint Louis Brewery, Inc. (1989 to 2012); Senior Counsel (since 2017) and formerly, Partner (2009 to 2016), Thompson Coburn LLP (law firm)
Number of funds in fund complex overseen by Trustee   49
Other board memberships held by Trustee during the past five years   Director, CNB St. Louis Bank (since 2006)

 

Interested Trustee and Officer
Jane Trust, CFA3
Year of birth    1962
Position(s) with Trust    Trustee, President and Chief Executive Officer
Term of office1 and length of time served2    Since 2015
Principal occupation(s) during the past five years    Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 147 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (“Legg Mason & Co.”); Senior Vice President of LMPFA (2015)
Number of funds in fund complex overseen by Trustee    145
Other board memberships held by Trustee during the past five years    None

 

Additional Officers

Ted P. Becker

Franklin Templeton

620 Eighth Avenue, 47th Floor, New York, NY 10018

Year of birth    1951
Position(s) with Trust    Chief Compliance Officer
Term of office1 and length of time served2    Since 2007
Principal occupation(s) during the past five years    Vice President, Global Compliance of Franklin Templeton (since 2020); Chief Compliance Officer of LMPFA (since 2006); Chief Compliance Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Director of Global Compliance at Legg Mason, Inc. (2006 to 2020); Managing Director of Compliance of Legg Mason & Co. (2005 to 2020)

Susan Kerr

Franklin Templeton

620 Eighth Avenue, 47th Floor, New York, NY 10018

Year of birth    1949
Position(s) with Trust    Chief Anti-Money Laundering Compliance Officer
Term of office1 and length of time served2    Since 2013
Principal occupation(s) during the past five years    Senior Compliance Analyst, Franklin Templeton (since 2020); Chief Anti-Money Laundering Compliance Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2013) and Anti-Money Laundering Compliance Officer (since 2012), Senior Compliance Officer (since 2011) and Assistant Vice President (since 2010) of Legg Mason Investor Services, LLC (“LMIS”); formerly, Assistant Vice President of Legg Mason & Co. (2010 to 2020)

 

QS Variable Asset Allocation Series  

 

 45 


Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Additional Officers (cont’d)
Jenna Bailey
Franklin Templeton
100 First Stamford Place, 5th Floor, Stamford, CT 06902
 
Year of birth   1978
Position(s) with Trust   Identity Theft Prevention Officer
Term of office1 and length of time served2   Since 2015
Principal occupation(s) during the past five years   Senior Compliance Analyst of Franklin Templeton (since 2020); Identity Theft Prevention Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2015); formerly, Compliance Officer of Legg Mason & Co. (2013 to 2020); Assistant Vice President of Legg Mason & Co. (2011 to 2020)
Marc A. De Oliveira*
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth   1971
Position(s) with Trust   Secretary and Chief Legal Officer
Term of office1 and length of time served2   Since 2020
Principal occupation(s) during the past five years   Associate General Counsel of Franklin Templeton (since 2020); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Managing Director (2016 to 2020) and Associate General Counsel of Legg Mason & Co. (2005 to 2020)
Thomas C. Mandia
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth   1962
Position(s) with Trust   Senior Vice President
Term of office1 and length of time served2   Since 2020
Principal occupation(s) during the past five years   Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of LMPFA (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); Secretary of LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers); formerly, Managing Director and Deputy General Counsel of Legg Mason & Co. (2005 to 2020)
Christopher Berarducci
Franklin Templeton
620 Eighth Avenue, 47th Floor, New York, NY 10018
Year of birth   1974
Position(s) with Trust   Treasurer and Principal Financial Officer
Term of office1 and length of time served2   Since 2014 and 2019
Principal occupation(s) during the past five years   Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co.
Jeanne M. Kelly
Franklin Templeton
620 Eighth Avenue, 47th Floor, New York, NY 10018
Year of birth   1951
Position(s) with Trust   Senior Vice President
Term of office1 and length of time served2   Since 2007
Principal occupation(s) during the past five years   U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM (2013 to 2015)

 

 

 46 

   QS Variable Asset Allocation Series


 

 

Trustees who are not “interested persons” of the Portfolios within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”).

 

*

Effective August 6, 2020, Mr. De Oliveira became Secretary and Chief Legal Officer.

 

1

Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal.

 

2

Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office.

 

3

Ms. Trust is an “interested person” of the Portfolios, as defined in the 1940 Act, because of her position with LMPFA and/or certain of its affiliates.

 

QS Variable Asset Allocation Series  

 

 47 


Important tax information (unaudited)

 

The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2020:

        Variable Growth  
Record date:        6/17/2020          12/29/2020  
Payable date:        6/18/2020          12/30/2020  
Ordinary Income:                      

Dividends Qualifying for the Dividends

                     

Received Deduction for Corporations

       42.94        52.89 %* 
Foreign Source Income                 23.59 %* 
Foreign Taxes Paid Per Share                 $0.006863  
Long-Term Capital Gain Dividend        $ 0.391570          $0.099320  
        Variable Moderate Growth  
Record date:        6/17/2020          12/29/2020  
Payable date:        6/18/2020          12/30/2020  
Ordinary Income:                      

Dividends Qualifying for the Dividends

                     

Received Deduction for Corporations

       32.06        39.75 %* 
Foreign Source Income                 14.79 %* 
Foreign Taxes Paid Per Share                 $0.005054  
Long-Term Capital Gain Dividend        $ 0.338910          $0.106020  
        Variable Conservative Growth  
Record date:        6/17/2020          12/29/2020  
Payable date:        6/18/2020          12/30/2020  
Ordinary Income:                      

Dividends Qualifying for the Dividends

                     

Received Deduction for Corporations

       18.63        23.21 %* 
Foreign Source Income                 7.80 %* 
Foreign Taxes Paid Per Share                 $0.003514  
Long-Term Capital Gain Dividend        $ 0.189970          $0.052960  

 

*

Expressed as a percentage of the cash distribution grossed-up for foreign taxes.

The foreign taxes paid represent taxes incurred by the Fund on income received by the Fund from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax adviser regarding the appropriate treatment of foreign taxes paid.

 

 

 48 

   QS Variable Asset Allocation Series


QS

Variable Asset Allocation Series

 

Trustees

Paul R. Ades

Andrew L. Breech

Althea L. Duersten

Chair

Stephen R. Gross

Susan M. Heilbron

Howard J. Johnson

Jerome H. Miller

Ken Miller

Thomas F. Schlafly

Jane Trust

 

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadviser

QS Investors, LLC

Distributor

Legg Mason Investor Services, LLC

Custodian

The Bank of New York Mellon

Transfer agent

BNY Mellon Investment Servicing (US) Inc.

4400 Computer Drive

Westborough, MA 01581

 

Independent registered public

accounting firm

PricewaterhouseCoopers LLP

Baltimore, MD

 

QS Variable Asset Allocation Series

QS Variable Growth

QS Variable Moderate Growth

QS Variable Conservative Growth

The Portfolios are separate investment series of Legg Mason Partners Variable Equity Trust, a Maryland statutory trust.

QS Variable Asset Allocation Series

Legg Mason Funds

620 Eighth Avenue, 47th Floor

New York, NY 10018

 

The Portfolios file their complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year as an exhibit to their reports on Form N-PORT. The Portfolios’ Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Portfolios at 1-877-721-1926.

 

Information on how the Portfolios voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Portfolios use to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling the Portfolios at 1-877-721-1926, (2) at www.leggmason.com/variablefunds and (3) on the SEC’s website at www.sec.gov.

 

This report is submitted for the general information of the shareholders of QS Variable Growth, QS Variable Moderate Growth and QS Variable Conservative Growth. This report is not authorized for distribution to prospective investors in the Portfolios unless preceded or accompanied by a current prospectus.

Investors should consider each Portfolio’s investment objectives, risks, charges and expenses carefully before investing. Each prospectus contains this and other important information about the Portfolios. Please read the prospectuses carefully before investing.

www.leggmason.com

© 2021 Legg Mason Investor Services, LLC

Member FINRA, SIPC


Legg Mason Funds Privacy and Security Notice

 

Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds

This Privacy and Security Notice (the “Privacy Notice”) addresses the Legg Mason Funds’ privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds’ distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.

The Type of Nonpublic Personal Information the Funds Collect About You

The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:

 

 

Personal information included on applications or other forms;

 

 

Account balances, transactions, and mutual fund holdings and positions;

 

 

Bank account information, legal documents, and identity verification documentation;

 

 

Online account access user IDs, passwords, security challenge question responses; and

 

 

Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individual’s total debt, payment history, etc.).

How the Funds Use Nonpublic Personal Information About You

The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law.

The Funds may disclose information about you to:

 

 

Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

 

 

Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;

 

 

Permit access to transfer, whether in the United States or countries outside of the United States to such Funds’ employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

 

 

The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

 

 

Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.

Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform. The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.

Keeping You Informed of the Funds’ Privacy and Security Practices

The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.

 

NOT PART OF THE ANNUAL REPORT


Legg Mason Funds Privacy and Security Notice (cont’d)

 

The Funds’ Security Practices

The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds’ internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.

Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary, so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.

In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds’ website at www.leggmason.com, or contact the Fund at 1-877-721-1926.

Revised April 2018

Legg Mason California Consumer Privacy Act Policy

Although much of the personal information we collect is “nonpublic personal information” subject to federal law, residents of California may, in certain circumstances, have additional rights under the California Consumer Privacy Act (“CCPA”). For example, if you are a broker, dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal information (as defined by the CCPA).

 

 

In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces of personal information we have collected about you.

 

 

You also have the right to request the deletion of the personal information collected or maintained by the Funds.

If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.

We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if suitable and appropriate proof is not provided.

For the 12-month period prior to the date of this Privacy Policy, the Legg Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.

Contact Information

Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202

Email: DataProtectionOfficer@franklintempleton.com

Phone: 1-800-396-4748

Revised October 2020

 

 

NOT PART OF THE ANNUAL REPORT


www.leggmason.com

© 2021 Legg Mason Investor Services, LLC Member FINRA, SIPC

FD01436 2/21 SR21-4077


ITEM 2.

CODE OF ETHICS.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.

 

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

The Board of Trustees of the registrant has determined that Stephen R. Gross possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert,” and has designated Stephen R. Gross as the Audit Committee’s financial expert Stephen R. Gross is an “independent” Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.

 

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

a) Audit Fees. The aggregate fees billed in the last two fiscal years ending December 31, 2019 and December 31, 2020 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $296,402 in December 31, 2019 and $379,280 in December 31, 2020.

b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in December 31, 2019 and $0 in December 31, 2020.

(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $0 in December 31, 2019 and $0 in December 31, 2020. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.

There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.

d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) for the Item 4 for the Legg Mason Partners Variable Equity Trust., were $0 in December 31, 2019 and $0 in December 31, 2020

All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Legg Mason Partners Variable Equity Trust requiring pre-approval by the Audit Committee in the Reporting Period.

(e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.

(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The


Committee may implement policies and procedures by which such services are approved other than by the full Committee.

The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.

Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.

(2) For the Legg Mason Partners Variable Equity Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for December 31, 2019 and December 31, 2020; Tax Fees were 100% and 100% for December 31, 2019 and December 31, 2020; and Other Fees were 100% and 100% for December 31, 2019 and December 31, 2020.

(f) N/A

(g) Non-audit fees billed by the Auditor for services rendered to Legg Mason Partners Variable Equity Trust, LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Legg Mason Partners Variable Equity Trust during the reporting period were $544,232 in December 31, 2019 and $674,925 in December 31, 2020.

(h) Yes. Legg Mason Partners Variable Equity Trust’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Legg Mason Partners Variable Equity Trust or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.

 

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS.

 

  a)

The independent board members are acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) of the Exchange Act. The Audit Committee consists of the following Board members:

Paul R. Ades

Andrew L. Breech


Althea L. Duersten

Stephen R. Gross

Susan M. Heilbron

Howard J. Johnson

Jerome H. Miller

Ken Miller

Thomas F. Schlafly

 

  b)

Not applicable

 

ITEM 6.

SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

 

ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 9.

PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

 

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

 

ITEM 11.

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 second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 12.

DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 13.

EXHIBITS.

(a) (1) Code of Ethics attached hereto.


Exhibit 99.CODE ETH

(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit  99.CERT

(b) Certifications pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.906CERT


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, there unto duly authorized.

 

Legg Mason Partners Variable Equity Trust
By:   /s/ Jane Trust
  Jane Trust
  Chief Executive Officer
Date:   February 19, 2021

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/ Jane Trust
  Jane Trust
  Chief Executive Officer
Date:   February 19, 2021
By:   /s/ Christopher Berarducci
  Christopher Berarducci
  Principal Financial Officer
Date:   February 19, 2021
EX-99.CODE 2 d54821dex99code.htm CODE OF ETHICS Code of Ethics

CODE OF ETHICS

I. Introduction

A. Individuals Covered by the Code

This Code applies to all employees of Legg Mason & Co., LLC and interested directors of the Proprietary Funds who are not otherwise subject to another code of ethics adopted pursuant to either Rule 17j-1 under the Investment Company Act or Rule 204A-1 under the Investment Advisers Act (“Covered Persons”).

 

1.

Without limiting the generality of the foregoing, this Code covers all employees of Legg Mason & Co., LLC who perform services on behalf of the Proprietary Funds as part of the following regulated entities:

 

a.

Legg Mason Investor Services, LLC (“LMIS”).

 

b.

Legg Mason Partners Fund Advisor, LLC (“LMPFA”).

 

2.

For the avoidance of doubt, each of the Legg Mason Registered Advisers (other than LMPFA) have adopted their own codes of ethics, and employees of the Legg Mason Registered Advisers who are subject to the requirements of those codes of ethics (including any who may be registered representatives of LMIS) are not subject to the requirements of this Code.

B. Standards of Business Conduct

This Code is based on the principle that Legg Mason and its affiliates owe a fiduciary duty to Legg Mason’s clients, and that all Covered Persons must therefore avoid activities, interests and relationships that might (i) present a conflict of interest or the appearance of a conflict of interest, or (ii) otherwise interfere with Legg Mason’s ability to make decisions in the best interests of any of its clients. In particular, Covered Persons must at all times comply with the following standards of business conduct:

 

1.

Compliance with Applicable Law. All Covered Persons must comply with the Federal Securities Laws that apply to the business of Legg Mason.

 

2.

Clients Come First. Covered Persons must scrupulously avoid serving their personal interests ahead of the interests of clients. For example, a Covered Person may not induce or cause a client to take action, or not to take action, for the Covered Person’s personal benefit at the expense of the client’s best interests.

 

3.

Avoid Taking Advantage. Covered Persons may not use their knowledge of the Legg Mason Registered Advisers’ investment activities or client portfolio holdings to profit by the market effect of such activities or to engage in short-term or other abusive trading in Reportable Funds.

 

4.

Avoid Other Inappropriate Relationships or Activities. Covered Persons should avoid relationships or activities that could call into question the Covered Person’s ability to exercise independent judgment in the best interests of Legg Mason’s clients. In particular, Covered Persons should take note of the provisions of the Legg Mason Code of Conduct and the Legg Mason Employee Handbook that pertain to confidentiality, corporate opportunities, gifts and entertainment, insider trading and outside business activities. In addition, Covered Persons who are registered representatives of LMIS should also take note of LMIS’s policies and procedures pertaining to these activities.

 

1


5.

Observe the Spirit of the Code. Doubtful situations should be resolved in favor of Legg Mason’s clients. Technical compliance with the Code’s procedures will not automatically insulate from scrutiny any personal Securities Transactions or other course of conduct that might indicate an abuse of these governing principles.

C. Duty to Report Violations

Covered Persons must promptly report all violations of this Code to the Compliance Department.

D. Fiduciary Duty / Political Contributions

Covered Persons are prohibited from making political contributions for the purpose of obtaining or retaining any Legg Mason Registered Adviser or its affiliates as investment advisers. Covered Persons are specifically prohibited from making political contributions to any person for the purpose of influencing the selection or retention of an investment adviser by a government entity. Covered Persons will be required to certify annually that they have and will comply with this provision.

II. Personal Securities Transactions

A. Prohibited Transactions in Individual Securities

Covered Persons are subject to the following restrictions on their personal trading activities in individual securities:

 

1.

Fraudulent Transactions. In connection with the purchase or sale, directly or indirectly, by a Covered Person of (A) a Reportable Security which, within the most recent fifteen (15) calendar days, (i) is or has been held by a Legg Mason client, or (ii) is being or has been considered by a Legg Mason Registered Adviser for purchase by a client, or (B) an Equivalent Security thereof, Covered Persons are prohibited from:

 

a.

Employing any device, scheme or artifice to defraud Legg Mason’s clients;

 

b.

Making any untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading;

 

c.

Engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on Legg Mason’s clients; or

 

d.

Engaging in any manipulative practice with respect to Legg Mason’s clients.

 

2.

Inside Information. Covered Persons are prohibited from engaging in any transaction in a Security (or Equivalent Security) at a time when the Covered Person is in possession of material non-public information regarding the Security or the issuer of the Security.

 

3.

Market Manipulation. Covered Persons are prohibited from engaging in any transactions in a Security (or Equivalent Security) intended to raise, lower or maintain the price of that Security or to create a false appearance of active trading in that Security.

 

4.

Trading on the Knowledge of Client Transactions. Covered Persons are prohibited from engaging in any transactions in a Security (or an Equivalent Security) on the basis of any information they may be in possession of to the effect that (i) a Legg Mason Registered Adviser is or may be considering an investment in or sale of such Security on behalf of its clients or (ii) has or may have an open order in such Security on behalf of its clients.

 

2


5.

Legg Mason, Inc. Stock. Covered Persons are prohibited from engaging in any transaction in Legg Mason securities that is not in compliance with the “Legg Mason, Inc. Policies and Procedures Regarding Acquisitions and Dispositions of Legg Mason Securities,” as the same may be amended from time to time. A copy of this policy is available on the Legg Mason Legal and Compliance Website.

B. Prohibited Transactions in Reportable Funds

 

1.

Market Timing in Reportable Funds. No Covered Person may use his or her knowledge of the portfolio holdings or investment activities of a Reportable Fund to engage in any short-term or other abusive trading strategy involving such Fund that may conflict with the best interests of the Fund and its shareholders.

 

2.

60-Day Holding Period for Investments in Proprietary Funds. Subject to the exemptions set forth below, no Covered Person may sell (or exchange out of) shares of a Proprietary Fund in which the Covered Person has a Beneficial Interest if the Covered Person has not held the shares of the same Proprietary Fund for sixty (60) calendar days, including any individual retirement account or 401(k) participant account.

 

3.

Additionally, Proprietary Funds that are sold in the LM 401(k) account are also subject to a 60-day minimum waiting period. No Covered Person may buy (or exchange into) shares of a Proprietary Fund within sixty (60) calendar days of a sell of (or exchange out of) shares of the same Proprietary Fund within the same LM 401(k) account.

The following Securities Transactions involving Proprietary Funds are exempt from the 60-day minimum holding period requirement set forth in this Section II.B.2 and II.B.3:

 

a.

Money Market Funds and Other Short-Term Trading Vehicles. Purchases or redemptions of Proprietary Funds that are money market funds or that hold themselves out as short-term trading vehicles.

 

b.

Managed Accounts. Transactions in Proprietary Funds held in a Managed Account in connection with which the Covered Person has no direct or indirect influence or control over the account, is neither consulted nor advised of the trade before it is executed, and has no knowledge of specific management actions taken by a trustee or investment manager.

 

c.

Systematic Investment. Purchases or redemptions of Proprietary Funds pursuant to an Automatic Investment Plan where a prescribed purchase or sale is made automatically on a regular predetermined basis without affirmative action by the Covered Person or pursuant to a similar arrangement approved by the Compliance Department (for example, automated payroll deduction investments by 401(k) participants or automatic dividend reinvestment).

C. Pre-Approval of Investments in Initial Public Offerings and Private Placements

Covered Persons are prohibited from acquiring a Beneficial Interest in a Reportable Security through an initial public offering (other than a new offering of securities issued by a registered open-end investment company) or Private Placement without the prior written approval of the Compliance Department. Requests for such approval shall be submitted to the Compliance Department through Fidelity National Information Services, Inc. (“FIS”)/PTA using substantially the form of “Request for Approval to Invest in an Initial Public Offering or Private Placement” attached hereto as Appendix A.

 

3


D. Reporting and Trading Requirements

 

1.

Acknowledgement of Receipt; Initial and Periodic Disclosure of Personal Holdings; Annual Certification.

 

a.

Within ten (10) calendar days of being identified as a Covered Person under this Code, each Covered Person must acknowledge that he or she has received and reviewed a copy of the Code, and has disclosed all Securities holdings in which such Covered Person has a Beneficial Interest..

 

b.

Thereafter, on an annual basis, each Covered Person shall give the same acknowledgements and, in addition, shall certify that he or she has complied with all applicable provisions of the Code.

 

c.

Such acknowledgments and certifications shall be provided through FIS/PTA using substantially the form of the “Acknowledgement of Receipt of Code of Ethics, Personal Holdings Report and Annual Certification” attached hereto as Appendix B.

 

2.

Execution of Personal Securities Transactions.

 

a.

Approved Accounts. Unless one of the following exceptions applies, Covered Persons must execute their personal securities transactions involving any Reportable Securities or Reportable Funds in which they have or acquire a Beneficial Interest through one of the following two types of accounts (“Approved Accounts”):

 

i.

Approved Securities Accounts. Securities accounts (including IRA accounts) with financial intermediaries that have been approved by the Compliance Department (an “Approved Securities Account”); or

 

ii.

Approved Retirement Accounts. Participant accounts in retirement plans approved by the Compliance Department on the grounds that either (i) automated feeds into FIS/PTA have been established, or (ii) sufficient policies and procedures are in place to protect any Reportable Funds that may be in the plan from the types of activities prohibited by Sections A and B above (an “Approved Retirement Account”).1

 

b.

Exceptions. The following types of accounts are exempt from the requirements of section 2.a above, subject to compliance with the conditions set forth below:

 

i.

Mutual Fund-Only and Managed Accounts. Covered Persons may have or acquire a Beneficial Interest in Mutual Fund-Only and Managed Accounts that are not Approved Securities Accounts, provided that the requirement set forth in this Code relating to a Managed Account or Mutual Fund-Only Account, as the case may be, are satisfied. To qualify for this exemption, a Covered Person must deliver to the Compliance Department through FIS/PTA a certification in substantially the form of the “Certificate for Managed Accounts or Mutual Fund-Only Accounts” attached hereto as Appendix D.

 

ii.

Outside Retirement Accounts. Covered Persons may have or acquire a Beneficial Interest in a retirement account other than an Approved Retirement Account (an “Outside Retirement Account”), provided that the Covered Person complies with the certification or reporting requirements set forth in Section 3.c below, and provided further that, for purposes of this Code, an IRA account shall be treated as a securities account and not as a retirement account.

 

1

A list of the approved financial intermediaries and retirement plans may by found on the Legal and Compliance home page on LMEX.

 

4


iii.

Dividend Reinvestment Plans. Covered Person may have or acquire a Beneficial Interest in securities held in a dividend reinvestment plan account directly with the issuer of the securities or its transfer agent (a “Dividend Reinvestment Plan”), subject to compliance with the requirements of Section 3.a below.

 

c.

Outside Securities Accounts. Covered Persons that have or acquire a Beneficial Interest in a securities account (including an IRA account) other than an Approved Account, Mutual Fund-Only Account, Managed Account or Outside Retirement Account (an “Outside Securities Account”) must obtain the prior written approval to maintain such account from the Compliance Department.

 

i.

A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of “Request for Approval for an Outside Securities Account” attached hereto as Appendix C. Such approvals will only be granted in extraordinary circumstances.

 

ii.

If the Compliance Department does not approve such request, the Covered Person must arrange to transfer or convert such account into an Approved Account, Managed Account, Mutual Fund-Only Account or Outside Retirement Account as promptly as practicable.

 

6.

Transaction Reporting Requirements. Covered Persons shall report all Securities Transactions in which they have a Beneficial Interest to the Compliance Department in accordance with the following provisions:

 

a.

Approved Accounts, Managed Accounts, Mutual Fund Only and Dividend Reinvestment Plan Accounts. Covered Persons will not be required to arrange for the delivery of duplicate copies of confirmations or periodic statements for any Approved Accounts, Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans in which they have or acquire a Beneficial Interest. However, the existence of all such accounts must be disclosed to the Compliance Department pursuant to either Section II.D.1 above or II.D.4 below. In addition, copies of any statements for any Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans must be made available for review at the specific request of the Compliance Department.

 

b.

Outside Securities Accounts. For any Outside Securities Account approved by the Compliance Department, a Covered Person must arrange for the Compliance Department to receive, directly from the applicable broker-dealer, bank or other financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Securities Account.

 

i.

Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. Confirmations must be delivered to the Compliance Department contemporaneously with delivery to the applicable Covered Person.

 

ii.

A form of letter that may be used to request duplicate confirmations and periodic statements from financial intermediaries is attached as Appendix E. If a Covered Person is not able to arrange for duplicate confirmations and periodic statements to be sent, the Covered Person must immediately cease trading in such account and notify the Compliance Department.

 

iii.

It shall be the Covered Person’s responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Securities Account. and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account.

 

5


d.

Outside Retirement Accounts. For any Outside Retirement Account in which a Covered Person has a Beneficial Interest, such Covered Person must either:

 

i.

Certify that such account does not hold any shares of a Reportable Fund or Reportable Security and that no Securities Transactions involving a Reportable Fund or Reportable Security have been executed in such account (such certifications shall be provided to the Compliance Department through FIS/PTA using substantially the form of the “Certificate for Outside Retirement Accounts” attached hereto as Appendix F); or.

 

ii.

If a Covered Person is unable to provide such certification with respect to an Outside Retirement Account, the Covered Person must notify the Compliance Department and provide the Compliance Department with duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Retirement Account.

 

(a)

Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter.

 

(b)

It shall be the Covered Person’s responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Retirement Account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account.

 

7.

New Reportable Accounts. If a Covered Person opens a new reportable account that has not previously been disclosed, the Covered Person must notify the Compliance Department in writing within ten (10) calendar days of the existence of the account and make arrangements to comply with the requirements set forth in Sections II.D.2 & 3 above.

 

8.

Disclaimers. Any report of a Securities Transaction for the benefit of a person other than the individual in whose account the transaction is placed may contain a statement that the report should not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the Security to which the report relates.

 

9.

Availability of Reports. All information supplied pursuant to this Code may be made available for inspection to the CCO of any affected Legg Mason Registered Adviser or Reportable Fund, the board of directors of each company employing the Covered Person, the board of directors of any affected Reportable Fund, the Compliance Department, the Covered Person’s department manager (or designee), any party to which any investigation is referred by any of the foregoing, the Securities and Exchange Commission, any self-regulatory organization of which Legg Mason is a member, any state securities commission, and any attorney or agent of the foregoing or of the Reportable Funds.

 

10.

Outside Business Activities. No Covered Person may engage in outside business activities or serve on the board of directors of a publicly-held company absent prior written authorization of (i) the Compliance Department, and (ii) in the case of service on the board of directors of a publicly-held company, the General Counsel of Legg Mason, Inc.

 

a.

A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of “Request for Approval of Outside Business Activities” attached hereto as Appendix G.

 

b.

Requests for approval to serve as a director of a publicly held company will rarely be approved.

 

6


III. Personal Securities Transactions

A. Surveillance

The Compliance Department shall be responsible for maintaining a surveillance program reasonably designed to monitor the personal trading activities of all Covered Persons for compliance with the provisions of this Code and for investigating any suspected violation of the Code. Upon reaching the conclusion that a violation of the Code has occurred, the Compliance Department shall report the results of such investigation to the applicable Covered Person, the Covered Person’s department manager and to the CCOs of any affected Legg Mason Registered Adviser or Reportable Fund.

B. Remedies

 

1.

Authority. The Compliance Department has authority to determine the remedy for any violation of the Code, including appropriate disposition of any monies forfeited pursuant to this provision. Failure to promptly comply with any sanction directive may result in the imposition of additional sanctions..

 

2.

Sanctions. If the Compliance Department determines that a Covered Person has committed a violation of the Code, the Compliance Department may, in consultation with the Human Resources Department and the Covered Person’s supervisor, as appropriate, impose sanctions and take other actions as it deems appropriate, including a verbal warning, a letter of caution or warning, suspension of personal trading rights, suspension of employment (with or without compensation), fine, civil referral to the Securities and Exchange Commission, criminal referral, and termination of employment of the violator for cause. The Compliance Department may also require the Covered Person to reverse the transaction in question and forfeit any profit or absorb any loss associated or derived as a result. The amount of profit shall be calculated by the Compliance Department. No member of the Compliance Department may review his or her own transaction or those of his or her supervisors. If necessary, the General Counsel of Legg Mason or the CCO of the relevant Legg Mason Registered Adviser shall review these transactions..

C. Exceptions to the Code

Although exceptions to the Code will rarely be granted, the Compliance Department may grant exceptions to the requirements of the Code if the Compliance Department finds that the proposed conduct involves negligible opportunity for abuse. All such exceptions must be in writing..

IV. Definitions

When used in the Code, the following terms have the meanings set forth below:

A. General Defined Terms

“CCO” means the Chief Compliance Officer of any Reportable Fund, Legg Mason Registered Adviser or Legg Mason entity that is a principal underwriter of a Reportable Fund.

“Code” means this Code of Ethics, as the same may be amended from time to time.

“Compliance Department” means the Legal and Compliance Department of Legg Mason.

“Covered Person” means any employee of Legg Mason & Co., LLC who is covered by this Code in accordance with the provisions of Section I.A above.

 

7


“Federal Securities Laws” means the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002, the Investment Company Act, the Investment Advisers Act, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to Legg Mason and any Reportable Funds, and any rule adopted thereunder by the Securities and Exchange Commission or the Department of the Treasury.

“Investment Advisers Act” means the Investment Advisers Act of 1940, as amended.

“Investment Company Act” means the Investment Company Act of 1940, as amended.

“Legg Mason” means Legg Mason, Inc. and its subsidiaries and affiliates.

“Legg Mason Registered Advisers” means those subsidiaries of Legg Mason that are registered as investment advisers under the Investment Advisers Act.

“FIS/PTA” means FIS Personal Trading Assistant, a web browser-based automated personal trading compliance platform used by the Compliance Department to administer this Code.

B. Terms Defining the Scope of a Beneficial Interest in a Security

“Beneficial Interest” means the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to profit, or share in any profit derived from, a transaction in the subject Securities.

A Covered Person is deemed to have a Beneficial Interest in the following:

 

1.

Any Security owned individually by the Covered Person.

 

2.

Any Security owned jointly by the Covered Person with others (for example, joint accounts, spousal accounts, partnerships, trusts and controlling interests in corporations).

 

3.

Any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if:

 

a.

The Security is held in an account over which the Covered Person has decision making authority (for example, the Covered Person acts as trustee, executor, or guardian); or

 

b.

The Security is held in an account for which the Covered Person acts as a broker or investment adviser representative.

A Covered Person is presumed to have a Beneficial Interest in any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if the Immediate Family member resides in the same household as the Covered Person.

Any uncertainty as to whether a Covered Person has a Beneficial Interest in a Security should be brought to the attention of the Compliance Department. Such questions will be resolved in accordance with, and this definition shall be subject to, the definition of “beneficial owner” found in Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of 1934, as amended.

 

8


“Immediate Family” of a Covered Person means any of the following persons:

 

child    grandparent    son-in-law
stepchild    spouse    daughter-in-law
grandchild    sibling    brother-in-law
parent    mother-in-law    sister-in-law
stepparent    father-in-law   

Immediate Family includes adoptive relationships, domestic partner relationships and other relationships (whether or not recognized by law) that the Compliance Department determines could lead to the possible conflicts of interest, diversions of corporate opportunity, or appearances of impropriety, which this Code is intended to prevent.

C. Terms Defining the Scope of a Reportable Transaction

“Automatic Investment Plan” means a program in which regular periodic purchases (or withdrawals) are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.

“Equivalent Security” means any Security issued by the same entity as the issuer of a subject Security, including options, rights, stock appreciation rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and other obligations of that company or Security otherwise convertible into that Security. Options on Securities are included even if, technically, they are issued by the Options Clearing Corporation or a similar entity.

“Managed Account” means an account where a Covered Person has no:

 

   

Direct or indirect influence or control over the account (for example, the trustee or investment manager simply summarizes, describes, or explains account activity without the Covered Person providing directions or suggestions);

 

   

Knowledge of the transaction before it is completed (for example, transactions effected for a Covered Person by a trustee of a blind trust, or discretionary trades made by an investment manager retained by the Covered Person, in connection with which the Covered Person is neither consulted nor advised of the trade before it is executed); and

 

   

Knowledge of the specific management actions taken by a trustee or investment manager and no right to intervene in the trustee’s or investment manager’s management (for example, the Covered Person is not consulted as to the allocation of investments for the account).

“Mutual Fund-Only Account” means a Securities account or account held directly with a mutual fund that holds only non-Reportable Funds and in which no other type of Securities may be held. For purposes of this Code, a Mutual Fund-Only Account includes a 529 plan or variable annuity life insurance account that holds only non-Reportable Funds and in which no other type of Securities may be held.

 

9


“Private Placement” means a Securities offering that is exempt from registration pursuant to Section 4(2) or Section 4(6) of the Securities Act of 1933, as amended (the “Securities Act”), or pursuant to Rules 504, 505 or 506 of Regulation D under the Securities Act.

“Proprietary Fund” means an open-end investment company registered under the Investment Company Act (or any portfolio or series thereof, as the case may be) that is part of one of the fund families sponsored by Legg Mason or its affiliates.

“Reportable Fund” means (a) any fund registered under the Investment Company Act for which a Legg Mason Registered Adviser serves as an investment adviser, or (b) any fund registered under the Investment Company Act whose investment adviser or principal underwriter is controlled by or under common control with Legg Mason. For purposes of this definition, “investment adviser” has the same meaning as it does in section 2(a)(20) of the Investment Company Act, and “control” has the same meaning as it does in Section 2(a)(9) of the Investment Company Act.

“Reportable Security” means any Security (as defined herein) other than the following types of Securities:

 

1.

Direct obligations of the Government of the United States;

 

2.

Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and

 

3.

Shares of open-end mutual funds that are not Reportable Funds.

“Securities Transaction” means a purchase or sale of Securities in which a Covered Person has or acquires a Beneficial Interest.

“Security” includes stock, notes, bonds, debentures, and other evidences of indebtedness (including loan participations and assignments), limited partnership interests, investment contracts, closed-end investment companies, and all derivative instruments of the foregoing, such as options and warrants. “Security” does not include futures or options on futures, but the purchase and sale of such instruments are nevertheless subject to the reporting requirements of the Code.

 

10

EX-99.CERT 3 d54821dex99cert.htm CERTIFICATIONS 302 Certifications 302

CERTIFICATIONS PURSUANT TO SECTION 302

EX-99.CERT

CERTIFICATIONS

I, Jane Trust, certify that:

 

1.

I have reviewed this report on Form N-CSR of Legg Mason Partners Variable Equity Trust – QS Variable Growth;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 19, 2021      

/s/ Jane Trust

      Jane Trust
      Chief Executive Officer


I, Christopher Berarducci, certify that:

 

1.

I have reviewed this report on Form N-CSR of Legg Mason Partners Variable Equity Trust – QS Variable Growth;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 19, 2021      

/s/ Christopher Berarducci

      Christopher Berarducci
      Principal Financial Officer


CERTIFICATIONS PURSUANT TO SECTION 302

EX-99.CERT

CERTIFICATIONS

I, Jane Trust, certify that:

 

1.

I have reviewed this report on Form N-CSR of Legg Mason Partners Variable Equity Trust – QS Variable Moderate Growth;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 19, 2021      

/s/ Jane Trust

      Jane Trust
      Chief Executive Officer


I, Christopher Berarducci, certify that:

 

1.

I have reviewed this report on Form N-CSR of Legg Mason Partners Variable Equity Trust – QS Variable Moderate Growth;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 19, 2021      

/s/ Christopher Berarducci

      Christopher Berarducci
      Principal Financial Officer


CERTIFICATIONS PURSUANT TO SECTION 302

EX-99.CERT

CERTIFICATIONS

I, Jane Trust, certify that:

 

1.

I have reviewed this report on Form N-CSR of Legg Mason Partners Variable Equity Trust – QS Variable Conservative Growth;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 19, 2021      

/s/ Jane Trust

      Jane Trust
      Chief Executive Officer


I, Christopher Berarducci, certify that:

 

1.

I have reviewed this report on Form N-CSR of Legg Mason Partners Variable Equity Trust – QS Variable Conservative Growth;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 19, 2021      

/s/ Christopher Berarducci

      Christopher Berarducci
      Principal Financial Officer
EX-99.906CT 4 d54821dex99906ct.htm CERTIFICATIONS 906 Certifications 906

CERTIFICATIONS PURSUANT TO SECTION 906

EX-99.906CERT

CERTIFICATION

Jane Trust, Chief Executive Officer, and Christopher Berarducci, Principal Financial Officer of Legg Mason Partners Variable Equity Trust – QS Variable Growth (the “Registrant”), each certify to the best of their knowledge that:

1. The Registrant’s periodic report on Form N-CSR for the period ended December 31, 2020 (the “Form N-CSR”) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

Chief Executive Officer     Principal Financial Officer
Legg Mason Partners Variable Equity Trust – QS Variable Growth     Legg Mason Partners Variable Equity Trust – QS Variable Growth

/s/ Jane Trust

   

/s/ Christopher Berarducci

Jane Trust

 

    Christopher Berarducci
Date: February 19, 2021     Date: February 19, 2021

This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.


CERTIFICATIONS PURSUANT TO SECTION 906

EX-99.906CERT

CERTIFICATION

Jane Trust, Chief Executive Officer, and Christopher Berarducci, Principal Financial Officer of Legg Mason Partners Variable Equity Trust – QS Variable Moderate Growth (the “Registrant”), each certify to the best of their knowledge that:

1. The Registrant’s periodic report on Form N-CSR for the period ended December 31, 2020 (the “Form N-CSR”) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

Chief Executive Officer     Principal Financial Officer
Legg Mason Partners Variable Equity Trust – QS Variable Moderate Growth     Legg Mason Partners Variable Equity Trust – QS Variable Moderate Growth

/s/ Jane Trust

   

/s/ Christopher Berarducci

Jane Trust

 

    Christopher Berarducci
Date: February 19, 2021     Date: February 19, 2021

This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.


CERTIFICATIONS PURSUANT TO SECTION 906

EX-99.906CERT

CERTIFICATION

Jane Trust, Chief Executive Officer, and Christopher Berarducci, Principal Financial Officer of Legg Mason Partners Variable Equity Trust – QS Variable Conservative Growth (the “Registrant”), each certify to the best of their knowledge that:

1. The Registrant’s periodic report on Form N-CSR for the period ended December 31, 2020 (the “Form N-CSR”) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

Chief Executive Officer     Principal Financial Officer
Legg Mason Partners Variable Equity Trust – QS Variable Conservative Growth     Legg Mason Partners Variable Equity Trust – QS Variable Conservative Growth

/s/ Jane Trust

   

/s/ Christopher Berarducci

Jane Trust

 

    Christopher Berarducci
Date: February 19, 2021     Date: February 19, 2021

This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.

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