Legg Mason Partners Variable Equity Trust N-CSR Certified annual shareholder report (management investment company)

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)

55 Water Street, New York, NY 10041
(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)

Registrant’s telephone number, including area code:

Funds Investor Services at 1-800-822-5544
or
Institutional Shareholder Services at 1-888-425-6432

Date of fiscal year end: December 31

Date of reporting period: December 31, 2009

ITEM 1. REPORT TO STOCKHOLDERS.

          The Annual Report to Stockholders is filed herewith.

ANNUAL REPORT / DECEMBER 31, 2009

Legg Mason ClearBridge

Variable Capital
Portfolio

Managed by CLEARBRIDGE ADVISORS

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

Portfolio objective

The Portfolio seeks to provide capital appreciation through investment in securities which the portfolio managers believe have above-average capital appreciation potential.

Portfolio name change

Prior to November 2, 2009, the Portfolio was known as Legg Mason Partners Variable Capital Portfolio. There was no change in the Portfolio’s investment objective or investment policies as a result of the name change.

What’s inside

Letter from the chairman	I
Portfolio overview	1
Portfolio at a glance	7
Portfolio expenses	8
Portfolio performance	10
Historical performance	11
Schedule of investments	12
Statement of assets and liabilities	16
Statement of operations	17
Statements of changes in net assets	18
Financial highlights	19
Notes to financial statements	20
Report of independent registered public accounting firm	32
Board approval at management and subadvisory agreements	33
Additional information	38
Important tax information	45

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Portfolio’s investment manager and ClearBridge Advisors, LLC (“ClearBridge”) is the Portfolio’s subadviser. LMPFA and ClearBridge are wholly-owned subsidiaries of Legg Mason, Inc.

Letter from the chairman

R. Jay Gerken, CFA

Chairman, President and Chief Executive Officer

Dear Shareholder,

While the U.S. economy was weak during the first half of the twelve-month reporting period ended December 31, 2009, the lengthiest recession since the Great Depression finally appeared to have ended during the second half of the year.

Looking back, the U.S. Department of Commerce reported that first quarter 2009 U.S. gross domestic product (“GDP”)ⁱ contracted 6.4%. The economic environment then started to get relatively better during the second quarter, as GDP fell 0.7%. The economy’s more modest contraction was due, in part, to smaller declines in both exports and business spending. After contracting four consecutive quarters, the Commerce Department reported that third quarter 2009 GDP growth was 2.2%. A variety of factors helped the economy to expand, including the government’s $787 billion stimulus program, its “Cash for Clunkers” car rebate program, which helped spur an increase in car sales, and tax credits for first-time home buyers. Economic growth then accelerated during the fourth quarter of 2009, as the advance estimate for GDP growth was 5.7%. The Commerce Department cited a slower drawdown in business inventories and consumer spending as contributing factors spurring the economy’s higher growth rate.

Even before GDP advanced in the third quarter, there were signs that the economy was starting to regain its footing. The manufacturing sector, as measured by the Institute for Supply Management’s PMIⁱⁱ, rose to 52.9 in August 2009, the first time it surpassed 50 since January 2008 (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). PMI data subsequently showed that manufacturing expanded from September through December as well. In addition, December’s PMI reading of 55.9 was the highest since April 2006.

There were some mixed signals from the housing market toward the end of the reporting period. According to its most recent data, the S&P/Case-Shiller Home Price Indexⁱⁱⁱ indicated that month-over-month home prices rose for the sixth straight month in November. However, according to the National Association of Realtors, while existing home sales rose 7.4% in November, sales fell by nearly 17% in December.

Legg Mason ClearBridge Variable Capital Portfolio  I

Letter from the chairman continued

One area that remained weak—and could hamper the magnitude of economic recovery—was the labor market. While monthly job losses have moderated compared to earlier in the year, the unemployment rate remained elevated during the reporting period. After reaching a twenty-six-year high of 10.1% in October 2009, the unemployment rate fell to 10.0% in November and remained unchanged the following month. Since December 2007, the unemployment rate has more than doubled and the number of unemployed workers has risen by more than eight million.

The Federal Reserve Board (“Fed”)^iv continued to pursue an accommodative monetary policy during the reporting period. After reducing the federal funds rate^v from 5.25% in August 2007 to a range of 0 to 1/4 percent in December 2008—a historic low—the Fed maintained this stance through the end of 2009 and during its first meeting in January 2010. In conjunction with its January 2010 meeting, the Fed said that it “will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

After falling nearly 30% from September through November 2008 (before the reporting period began), the U.S. stock market, as measured by the S&P 500 Index^vi (the “Index”), rallied and, overall, generated strong results during the twelve-month reporting period. Stock prices fell during the first two months of the reporting period, due to the rapidly weakening global economy, an ongoing credit crisis and plunging corporate profits. Stock prices continued to decline in early March, reaching a twelve-year low on March 9^th. Stocks then moved sharply and posted positive returns during nine of the last ten months of the year. From its March trough through the end of December, the Index gained approximately 67%, its fastest rebound since 1933. The market’s rally was attributed to a number of factors, including optimism that the economy was gaining traction and that corporate profits would continue to improve. All told, the Index returned 26.46% over the twelve-month reporting period ended December 31, 2009, its best calendar year since 2003.

Looking at the U.S. stock market more closely, in terms of market capitalizations, large-, mid- and small-cap stocks, as measured by the Russell 1000^vii, Russell Midcap^viii and Russell 2000^ix Indices, returned 28.43%, 40.48% and 27.17%, respectively, during the twelve-month period ended December 31, 2009. From an investment style perspective, growth and value stocks, as measured by the Russell 3000 Growth^x and Russell 3000 Value^xi Indices, returned 37.01% and 19.76%, respectively.

II  Legg Mason ClearBridge Variable Capital Portfolio

A special note regarding increased market volatility

Dramatically higher volatility in the financial markets has been very challenging for many investors. Market movements have been rapid—sometimes in reaction to economic news, and sometimes creating the news. In the midst of this evolving market environment, we at Legg Mason want to do everything we can to help you reach your financial goals. Now, as always, we remain committed to providing you with excellent service and a full spectrum of investment choices. Rest assured, we will continue to work hard to ensure that our investment managers make every effort to deliver strong long-term results.

We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our enhanced website, www.leggmason.com/individualinvestors. Here you can gain immediate access to many special features to help guide you through difficult times, including:

•  Market insights and commentaries from our portfolio managers and

•  A host of educational resources.

During periods of market unrest, it is especially important to work closely with your financial advisor and remember that reaching one’s investment goals unfolds over time and through multiple market cycles. Time and again, history has shown that, over the long run, the markets have eventually recovered and grown.

Information about your portfolio

Please read on for a more detailed look at prevailing economic and market conditions during the Portfolio’s reporting period and to learn how those conditions have affected Portfolio performance.

Important information with regard to recent regulatory developments that may affect the Portfolio is contained in the Notes to Financial Statements included in this report.

As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you meet your financial goals.

Sincerely,

R. Jay Gerken, CFA

Chairman, President and Chief Executive Officer

January 29, 2010

Legg Mason ClearBridge Variable Capital Portfolio  III

Letter from the chairman continued

All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

i	Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.
ii	The Institute for Supply Management’s PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the manufacturing sector.
iii	The S&P/Case-Shiller Home Price Index measures the residential housing market, tracking changes in the value of the residential real estate market in twenty metropolitan regions across the United States.
iv	The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.
v	The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.
vi	The S&P 500 Index is an unmanaged index of 500 stocks and is generally representative of the performance of larger companies in the U.S.
vii	The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. 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.
viii	The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represents approximately 25% of the total market capitalization of the Russell 1000 Index.
ix	The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
x	The Russell 3000 Growth Index measures the performance of those Russell 3000 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.)
xi	The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values.

IV  Legg Mason ClearBridge Variable Capital Portfolio

Portfolio overview

Q. What is the Portfolio’s investment strategy?

A. The Portfolio seeks capital appreciation through investment in securities which we believe have above-average capital appreciation potential. The Portfolio invests primarily in equity securities of U.S. companies that typically range in size from established large-capitalization companies to medium-sized companies, and may also invest in small-capitalization companies, including those at the beginning of their life cycles.

Our investment philosophy is predicated on the belief that over a reasonable time horizon, real economic returns—as determined by a company’s current and prospective cash flow characteristics—are the key determinants of stock valuations. While basic in concept, the process of understanding and quantifying those returns—absolute and relative to the expectations embedded in a stock’s current valuation—depends on careful, thoughtful, thorough fundamental and valuation analysis.

The Portfolio is a professionally managed portfolio, which is not constrained by typical style box restrictions. We seek to add value by relying on bottom-up, proprietary research to identify companies attractively priced relative to their current or prospective free cash flow.

Whether a company is defined as being “value” or “growth” in a traditional sense is irrelevant to our analysis. There is a price at which we want to own a company and a price at which we are not interested, regardless of the strength of its underlying fundamentals.

The Portfolio has the ability to shift investments across industries, market capitalization and asset classes which may help maximize return potential and manage risk in all stages of a market cycle. The Portfolio is not constrained to a single style box and, over time, may move from one style box to another.

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

A. The Portfolio’s reporting period was dominated by a remarkable set of conditions that heavily impacted performance in both negative and positive ways. The period began during the worst financial crisis since the Great Depression and included a major and historic disruption of the global stock and credit markets, record job losses, a Federal Reserve Board (“Fed”)ⁱ and U.S. Department of the Treasury thrust into the spotlight of national politics and a significant reshaping of the financial services industry. It ended amidst a record-setting stock market rally and an economy that had, at least technically, emerged from the so-called “Great Recession” that began in December of 2007.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  1

Portfolio overview continued

The domestic stock market was already in turmoil before the past fiscal year began, following the initial bursting of the housing market bubble in 2007 and the subsequent credit and liquidity crises that culminated in the collapse and/or distressed acquisitions of several major financial services companies, including the failure of the prominent investment bank Lehman Brothers in the largest bankruptcy filing in U.S. history. The stock market suffered a series of record-breaking declines and lows before the start of the reporting period, eventually setting what many now consider to be a durable bottom and a “generational” low in early March of 2009, after the new year and the reporting period had begun.

The powerful and sustained stock market rally following the March lows generated returns for the broad S&P 500 Indexⁱⁱ of over 67% from the March 9^th bottom through the end of December, with the blue-chip Dow Jones Industrial Averageⁱⁱⁱ rising over 63% from its twelve-year low in March and the NASDAQ Composite Index^iv gaining over 80% for the same period.

Stock market volatility, as measured by the Volatility Index (“VIX”)^v, which is often referred to as the “investor fear index”, set a record high in November 2008 and remained elevated over much of the reporting period. However, the VIX trended downward and by the close of the period had fallen to a range within historical norms, 50% below its peak.

A resumption of U.S. gross domestic product (“GDP”)^vi growth in the third quarter indicated that the economy had technically emerged from the Great Recession, but mixed or disappointing data for other key economic indicators, including the highest unemployment rate since 1983, and concerns about the fate of the recovery once the government’s stimulus begins to slow and the loose interest rate environment begins to tighten, left many in the market with concerns about inflation and doubts about both the future strength of the overall economic recovery and the continued viability of the present bull market.

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

A. Our investment process incorporates a philosophy and process designed to minimize emotional responses to changing market dynamics. Through our quantitative and fundamental analysis, we focus on companies with what we believe to be attractive valuations, strong fundamentals and management teams that exercise capital discipline. This core strategy, which we expect to drive excellent results through an economic cycle, did not change as a result of the changing market conditions. Additionally, we aim to source the majority of our risk from stock selection, where we believe we can add the most value, and attempt to minimize factor risk that is most influenced by macroeconomic conditions, where we believe we have less of a competitive advantage.

2  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Performance review

For the twelve months ended December 31, 2009, Legg Mason ClearBridge Variable Capital Portfolio¹ returned 40.25%. The Portfolio’s unmanaged benchmark, the Russell 3000 Index^vii, returned 28.34% over the same time frame. The Lipper Variable Multi-Cap Growth Funds Category Average² returned 40.72% for the same period.

   PERFORMANCE SNAPSHOT as of December 31, 2009 (unaudited)

	6 MONTHS		12 MONTHS
Legg Mason ClearBridge Variable Capital Portfolio1		16.30%		40.25%
Russell 3000 Index		23.17%		28.34%
Lipper Variable Multi-Cap Growth Funds Category Average2		23.66%		40.72%

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.

Portfolio returns assume the reinvestment of all distributions, including returns of capital, if any, 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.

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

   TOTAL ANNUAL OPERATING EXPENSES (unaudited)

As of the Portfolio’s most current prospectus dated April 30, 2009, the gross total operating expense ratio was 1.09%.

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, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets will not exceed 1.00%. This expense limitation cannot be terminated prior to December 31, 2011 without the Board of Trustees’ consent.

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.

² Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2009, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 128 funds for the six-month period and among the 120 funds for the twelve-month period in the Portfolio’s Lipper category.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  3

Portfolio overview continued

Q. What were the leading contributors to performance?

A. On an absolute basis, the Portfolio had positive returns in all eight of the equity market sectors in which it invested during the reporting period, with the greatest contributions to returns coming from the Information Technology (“IT”), Consumer Discretionary, Energy, Financials and Health Care sectors.

Relative to the benchmark, both the Portfolio’s overall stock selection and overall sector allocation made positive contributions to performance, but stock selection accounted for almost all of the outperformance for the period. In particular, stock selection in the Consumer Discretionary, Energy, Industrials, IT and Financials sectors helped the Portfolio’s relative performance. Additionally, the Portfolio’s overweight positions in the IT, Financials and Consumer Discretionary sectors and its underweight positions in the Consumer Staples, Health Care, Utilities and Telecommunication Services sectors (“Telecom”) (no holdings in either Utilities or Telecom), also made positive contributions to relative performance.

In terms of individual holdings, the leading contributors to performance for the period included Palm Inc., Google Inc. (Class A Shares) and Juniper Networks Inc., all in the IT sector, Li Ning Co., Ltd. in the Consumer Discretionary sector and Invesco Ltd. in the Financials sector.

Q. What were the leading detractors from performance?

A. Relative to the benchmark, the Portfolio’s stock selection in the Consumer Staples sector and the Portfolio’s overweight positions in the Industrials and Energy sectors and its underweight in the Materials sector detracted from performance during the period.

The Portfolio’s investments in several S&P 500 Index put options also detracted from both absolute and relative performance. These derivative securities were used primarily as a risk management tool.

In terms of individual holdings, leading detractors from performance for the period included General Electric Co. in the Industrials sector, Comstock Resources Inc. and Exxon Mobil Corp., both in the Energy sector, as well as Genzyme Corp. in the Health Care sector and Family Dollar Stores Inc. in the Consumer Discretionary sector.

Q. Were there any significant changes to the Portfolio during the reporting period?

A. During the reporting period, we closed our existing positions in a number of companies, including stocks of General Electric Co. in the Industrials sector, Cisco Systems Inc. and QUALCOMM Inc., both in the IT sector, WPP PLC, American Eagle Outfitters Inc. and Sherwin-Williams Co., all in the Consumer Discretionary sector, Genentech, Pediatrix Medical Group

4  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Inc. and McKesson Corp., all in the Health Care sector, as well as Comstock Resources Inc. and El Paso Corp., both in the Energy sector.

We added new positions during the period in securities of Mednax Inc., Amgen Inc., Johnson & Johnson and Celgene Corp., all in the Health Care sector, Exxon Mobil Corp. and Petrohawk Energy Corp., both in the Energy sector, Covanta Holding Corp. in the Industrials sectors, Walgreen Co., Procter & Gamble Co. and Pantry Inc., all in the Consumer Staples sector, Yum! Brands Inc. and Family Dollar Stores Inc., both in the Consumer Discretionary sector, Bank of America Corp., Chimera Investment Corp., XL Capital Ltd. and Allstate Corp., all in the Financials sector, ASML Holding N.V. in the IT sector and Huabao International Holdings Ltd. in the Materials sector.

Thank you for your investment in Legg Mason ClearBridge Variable Capital Portfolio. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Portfolio’s investment goals.

Sincerely,

Brian M. Angerame Portfolio Manager ClearBridge Advisors, LLC	Derek J. Deutsch, CFA Portfolio Manager ClearBridge Advisors, LLC

January 19, 2010

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  5

Portfolio overview continued

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.

Portfolio holdings and breakdowns are as of December 31, 2009 and are subject to change and may not be representative of the portfolio managers’ current or future investments. The Portfolio’s top ten holdings (as a percentage of net assets) as of this date were: Charles Schwab Corp. (4.0%), Invesco Ltd. (3.9%), Shire Ltd., ADR (3.9%), Roche Holding AG (3.6%), L-3 Communications Holdings Inc. (3.3%), Li Ning Co., Ltd. (3.2%), Travelers Cos. Inc. (3.2%), Check Point Software Technologies Ltd. (3.2%), Mednax Inc. (2.9%) and Accenture PLC, Class A Shares (2.9%). Please refer to pages 12 through 15 for a list and percentage breakdown of the Portfolio’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Portfolio’s top five sector holdings (as a percentage of net assets) as of December 31, 2009 were: Information Technology (20.2%), Financials (19.9%), Health Care (16.8%), Industrials (14.4%) and Energy (12.4%). The Portfolio’s composition is subject to change at any time.

RISKS: Diversification does not assure against loss. Stocks are subject to market fluctuations. The Portfolio may invest in small- and mid-cap companies that may involve a higher degree of risk and volatility than investments in large-cap companies. The Portfolio 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. Please see the Portfolio’s prospectus for more information on these and other risks.

All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

i	The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.
ii	The S&P 500 Index is an unmanaged index of 500 stocks and is generally representative of the performance of larger companies in the U.S.
iii	The Dow Jones Industrial Average is a widely followed measurement of the stock market. The average is comprised of thirty stocks that represent leading companies in major industries. These stocks, widely held by both individual and institutional investors, are considered to be all blue-chip companies.
iv	The NASDAQ Composite Index is a market-value weighted index, which measures all securities listed on the NASDAQ stock market.
v	VIX is a volatility index for the Chicago Board Options Exchange, known by its ticker symbol, VIX. It is calculated by taking a weighted average of the implied volatility from eight calls and puts on the S&P 100 Index. The S&P 100 Index is a market-capitalization weighted index consisting of 100 large blue-chip stocks covering a broad range of industries.
vi	Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.
vii	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.

6  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Portfolio at a glance^† (unaudited)

   INVESTMENT BREAKDOWN (%) As a percent of total investments

† The bar graphs above represent the composition of the Portfolio’s investments as of December 31, 2009 and December 31, 2008. The Portfolio is actively managed. As a result, the composition of the Portfolio’s investments is subject to change at any time.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  7

Portfolio expenses (unaudited)

Example

As a shareholder of the Portfolio, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees; distribution and/or service (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 mutual funds.

This example is based on an investment of $1,000 invested on July 1, 2009 and held for the six months ended December 31, 2009.

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”.

   BASED ON ACTUAL TOTAL RETURN¹

		BEGINNING		ENDING		ANNUALIZED		EXPENSES
ACTUAL TOTAL		ACCOUNT		ACCOUNT		EXPENSE		PAID DURING
RETURN2		VALUE		VALUE		RATIO		THE PERIOD3
	16.30%	$	1,000.00	$	1,163.00		1.00%	$	5.45

1	For the six months ended December 31, 2009.
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 return does not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total return. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.
3	Expenses (net of fee waivers and/or expense reimbursements) are equal to the Portfolio’s 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, then divided by 365.

8  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

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 funds. 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 HYPOTHETICAL TOTAL RETURN¹

HYPOTHETICAL		BEGINNING		ENDING		ANNUALIZED		EXPENSES
ANNUALIZED		ACCOUNT		ACCOUNT		EXPENSE		PAID DURING
TOTAL RETURN		VALUE		VALUE		RATIO		THE PERIOD2
	5.00%	$	1,000.00	$	1,020.16		1.00%	$	5.09

1	For the six months ended December 31, 2009.
2	Expenses (net of fee waivers and/or expense reimbursements) are equal to the Portfolio’s 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, then divided by 365.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  9

Portfolio performance (unaudited)

   AVERAGE ANNUAL TOTAL RETURNS¹

Twelve Months Ended 12/31/09	40.25	%
Five Years Ended 12/31/09	-0.23
Inception* through 12/31/09	5.51

   CUMULATIVE TOTAL RETURN¹

Inception date of 10/1/02 through 12/31/09 47.56 %

1

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. 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. Total returns shown do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower.

*

Inception date is October 1, 2002.

10  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Historical performance (unaudited)

   VALUE OF $10,000 INVESTED IN LEGG MASON CLEARBRIDGE VARIABLE CAPITAL
   PORTFOLIO VS. RUSSELL 3000 INDEX† — October 1, 2002 - December 2009

†

Hypothetical illustration of $10,000 invested in Legg Mason ClearBridge Variable Capital Portfolio at inception on October 1, 2002, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2009. 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 Index is unmanaged and is not subject to the same management and trading expenses of a mutual fund. Please note that an investor cannot invest directly in an index.

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. Total returns shown do not reflect expenses associated with the separate account such as administrative fees, account charges and surrender charges, which, if reflected, would reduce the total returns. Performance figures may reflect fee waivers and/or expenses reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  11

Schedule of investments
December 31, 2009

   LEGG MASON CLEARBRIDGE VARIABLE CAPITAL PORTFOLIO

SHARES		SECURITY	VALUE
COMMON STOCKS — 93.6%
CONSUMER DISCRETIONARY — 8.0%
		Hotels, Restaurants & Leisure — 2.9%
	14,000	Ctrip.com International Ltd., ADR*	$	1,006,040
	70,000	Yum! Brands Inc.		2,447,900
		Total Hotels, Restaurants & Leisure		3,453,940
		Leisure Equipment & Products — 3.2%
	1,000,000	Li Ning Co., Ltd.(a)		3,784,803
		Multiline Retail — 1.9%
	78,000	Family Dollar Stores Inc.		2,170,740
		TOTAL CONSUMER DISCRETIONARY		9,409,483
CONSUMER STAPLES — 5.2%
		Food & Staples Retailing — 2.9%
	48,000	Pantry Inc.*		652,320
	77,000	Walgreen Co.		2,827,440
		Total Food & Staples Retailing		3,479,760
		Household Products — 2.3%
	44,000	Procter & Gamble Co.		2,667,720
		TOTAL CONSUMER STAPLES		6,147,480
ENERGY — 12.4%
		Energy Equipment & Services — 5.7%
	25,500	Diamond Offshore Drilling Inc.		2,509,710
	222,800	ION Geophysical Corp.*		1,318,976
	162,000	Weatherford International Ltd.*		2,901,420
		Total Energy Equipment & Services		6,730,106
		Oil, Gas & Consumable Fuels — 6.7%
	46,000	Exxon Mobil Corp.		3,136,740
	47,000	Newfield Exploration Co.*		2,266,810
	100,000	Petrohawk Energy Corp.*		2,399,000
		Total Oil, Gas & Consumable Fuels		7,802,550
		TOTAL ENERGY		14,532,656
FINANCIALS — 18.0%
		Capital Markets — 8.0%
	252,000	Charles Schwab Corp.		4,742,640
	196,900	Invesco Ltd.		4,625,181
		Total Capital Markets		9,367,821
		Diversified Financial Services — 1.8%
	49,600	JPMorgan Chase & Co.		2,066,832

See Notes to Financial Statements.

12  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

   LEGG MASON CLEARBRIDGE VARIABLE CAPITAL PORTFOLIO

SHARES		SECURITY	VALUE
		Insurance — 5.2%
	39,000	Allstate Corp.	$	1,171,560
	75,000	Travelers Cos. Inc.		3,739,500
	68,000	XL Capital Ltd., Class A Shares		1,246,440
		Total Insurance		6,157,500
		Real Estate Investment Trusts (REITs) — 1.5%
	465,000	Chimera Investment Corp.		1,804,200
		Thrifts & Mortgage Finance — 1.5%
	103,000	People’s United Financial Inc.		1,720,100
		TOTAL FINANCIALS		21,116,453
HEALTH CARE — 16.8%
		Biotechnology — 4.3%
	51,000	Amgen Inc.*		2,885,070
	40,000	Celgene Corp.*		2,227,200
		Total Biotechnology		5,112,270
		Health Care Providers & Services — 2.9%
	57,000	Mednax Inc.*		3,426,270
		Pharmaceuticals — 9.6%
	38,000	Johnson & Johnson		2,447,580
	25,000	Roche Holding AG(a)		4,252,904
	78,000	Shire Ltd., ADR		4,578,600
		Total Pharmaceuticals		11,279,084
		TOTAL HEALTH CARE		19,817,624
INDUSTRIALS — 11.9%
		Aerospace & Defense — 3.3%
	45,100	L-3 Communications Holdings Inc.		3,921,445
		Construction & Engineering — 4.5%
	133,000	Quanta Services Inc.*		2,771,720
	88,000	Shaw Group Inc.*		2,530,000
		Total Construction & Engineering		5,301,720
		Industrial Conglomerates — 4.1%
	75,000	McDermott International Inc.*		1,800,750
	83,000	Tyco International Ltd.*		2,961,440
		Total Industrial Conglomerates		4,762,190
		TOTAL INDUSTRIALS		13,985,355
INFORMATION TECHNOLOGY — 20.2%
		Communications Equipment — 2.0%
	87,000	Juniper Networks Inc.*		2,320,290

See Notes to Financial Statements.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  13

Schedule of investments continued
December 31, 2009

   LEGG MASON CLEARBRIDGE VARIABLE CAPITAL PORTFOLIO

SHARES		SECURITY	VALUE
		Computers & Peripherals — 3.0%
	17,600	International Business Machines Corp.	$	2,303,840
	121,000	Palm Inc.*		1,214,840
		Total Computers & Peripherals		3,518,680
		Internet Software & Services — 4.7%
	4,900	Google Inc., Class A Shares*		3,037,902
	104,500	VeriSign Inc.*		2,533,080
		Total Internet Software & Services		5,570,982
		IT Services — 2.9%
	82,500	Accenture PLC, Class A Shares		3,423,750
		Semiconductors & Semiconductor Equipment — 1.5%
	51,500	ASML Holding NV, New York Registered Shares		1,755,635
		Software — 6.1%
	75,000	Blackboard Inc.*		3,404,250
	110,000	Check Point Software Technologies Ltd.*		3,726,800
		Total Software		7,131,050
		TOTAL INFORMATION TECHNOLOGY		23,720,387
MATERIALS — 1.1%
		Chemicals — 1.1%
	1,200,000	Huabao International Holdings Ltd.(a)		1,295,474
		TOTAL COMMON STOCKS (Cost — $101,003,857)		110,024,912
CONVERTIBLE PREFERRED STOCKS — 1.9%
FINANCIALS — 1.9%
	150,000	Bank of America Corp., 10.000%(b)* (Cost — $2,250,000)		2,238,000
FACE
AMOUNT
CONVERTIBLE BONDS & NOTES — 3.0%
CONSUMER STAPLES — 0.5%
		Food & Staples Retailing — 0.5%
$	700,000	Pantry Inc., Senior Subordinated Notes, 3.000% due 11/15/12		616,000
INDUSTRIALS — 2.5%
		Commercial Services & Supplies — 2.5%
	2,500,000	Covanta Holding Corp., Senior Notes, 3.250% due 6/1/14(c)		2,893,750
		TOTAL CONVERTIBLE BONDS & NOTES (Cost — $3,169,455)		3,509,750

See Notes to Financial Statements.

14  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

   LEGG MASON CLEARBRIDGE VARIABLE CAPITAL PORTFOLIO

CONTRACTS		SECURITY	VALUE
PURCHASED OPTION — 0.0%
	205	S&P 500 Index, Put @ $1,050.00, expires 1/16/10 (Cost — $1,134,265)	$	58,425
		TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENT (Cost — $107,557,577)		115,831,087
FACE
AMOUNT
SHORT-TERM INVESTMENT — 1.6%
		Repurchase Agreement — 1.6%
$	1,810,000	State Street Bank & Trust Co. repurchase agreement, dated 12/31/09, 0.000% due 1/4/10; Proceeds due at maturity — $1,810,000; (Fully collateralized by U.S. Treasury Bill, 0.000% due 6/24/10; Market value — $1,848,335) (Cost — $1,810,000)		1,810,000
		TOTAL INVESTMENTS — 100.1% (Cost — $109,367,577#)		117,641,087
		Liabilities in Excess of Other Assets — (0.1)%		(86,142	)
		TOTAL NET ASSETS — 100.0%	$	117,554,945

*	Non-income producing security.
(a)	Security is valued in good faith at fair value by or under the direction of the Board of Trustees (See Note 1).
(b)	Variable rate securities. Coupon rates disclosed are those which are in effect at December 31, 2009. Maturity date shown is the date of the next coupon rate reset or actual maturity.
(c)	Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees, unless otherwise noted.
#	Aggregate cost for federal income tax purposes is $113,582,609.

Abbreviation used in this schedule:

ADR — American Depositary Receipt

See Notes to Financial Statements.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  15

Statement of assets and liabilities
December 31, 2009

ASSETS:
Investments, at value (Cost — $109,367,577)	$	117,641,087
Cash		182
Dividends and interest receivable		139,576
Prepaid expenses		2,669
Total Assets		117,783,514
LIABILITIES:
Investment management fee payable		76,430
Payable for Portfolio shares repurchased		67,828
Distribution fees payable		14,874
Trustees’ fees payable		147
Accrued expenses		69,290
Total Liabilities		228,569
TOTAL NET ASSETS	$	117,554,945
NET ASSETS:
Par value (Note 5)	$	116
Paid-in capital in excess of par value		158,562,328
Undistributed net investment income		587,066
Accumulated net realized loss on investments and foreign currency transactions		(49,871,521	)
Net unrealized appreciation on investments and foreign currencies		8,276,956
TOTAL NET ASSETS	$	117,554,945
Shares Outstanding		11,599,694
Net Asset Value		$10.13

See Notes to Financial Statements.

16  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Statement of operations
For the Year Ended December 31, 2009

INVESTMENT INCOME:
Dividends	$	1,679,853
Interest		54,211
Less: Foreign taxes withheld		(19,769	)
Total Investment Income		1,714,295
EXPENSES:
Investment management fee (Note 2)		809,667
Distribution fees (Note 2)		269,889
Shareholder reports		60,293
Legal fees		28,302
Audit and tax		21,843
Custody fees		16,483
Trustees’ fees		10,054
Transfer agent fees		5,904
Insurance		4,112
Miscellaneous expenses		2,353
Total Expenses		1,228,900
Less: Fee waivers and/or expense reimbursements (Note 2)		(149,345	)
Net Expenses		1,079,555
NET INVESTMENT INCOME		634,740
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, WRITTEN OPTIONS AND FOREIGN CURRENCY TRANSACTIONS (NOTES 1, 3 AND 4):
Net Realized Gain (Loss) From:
Investment transactions		(21,634,673	)
Written options		29,674
Foreign currency transactions		9,164
Net Realized Loss		(21,595,835	)
Change in Net Unrealized Appreciation/Depreciation From:
Investments		57,320,241
Foreign currencies		3,443
Change in Net Unrealized Appreciation/Depreciation		57,323,684
NET GAIN ON INVESTMENTS, WRITTEN OPTIONS AND FOREIGN CURRENCY TRANSACTIONS		35,727,849
INCREASE IN NET ASSETS FROM OPERATIONS	$	36,362,589

See Notes to Financial Statements.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  17

Statements of changes in net assets

FOR THE YEARS ENDED DECEMBER 31,	2009			2008
OPERATIONS:
Net investment income	$	634,740		$	656,171
Net realized loss		(21,595,835	)		(28,177,551	)
Change in net unrealized appreciation/depreciation		57,323,684			(54,186,694	)
Increase (Decrease) in Net Assets From Operations		36,362,589			(81,708,074	)
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):
Net investment income		(700,008	)		(80,023	)
Net realized gains		—			(39,398,107	)
Decrease in Net Assets From Distributions to Shareholders		(700,008	)		(39,478,130	)
PORTFOLIO SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares		421,816			1,826,800
Reinvestment of distributions		700,008			39,478,130
Cost of shares repurchased		(20,062,032	)		(52,788,996	)
Decrease in Net Assets From Portfolio Share Transactions		(18,940,208	)		(11,484,066	)
INCREASE (DECREASE) IN NET ASSETS		16,722,373			(132,670,270	)
NET ASSETS:
Beginning of year		100,832,572			233,502,842
End of year*	$	117,554,945			$100,832,572
* Includes undistributed net investment income of:		$587,066			$643,170

See Notes to Financial Statements.

18  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Financial highlights

   FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT
   EACH YEAR ENDED DECEMBER 31:

	2009			2008			20071			2006			2005
NET ASSET VALUE, BEGINNING OF YEAR		$7.27			$15.76			$16.42			$15.24			$14.82
INCOME (LOSS) FROM OPERATIONS:
Net investment income		0.06			0.05			0.07			0.10			0.05
Net realized and unrealized gain (loss)		2.86			(5.42	)		0.25			1.97			0.73
Total income (loss) from operations		2.92			(5.37	)		0.32			2.07			0.78
LESS DISTRIBUTIONS FROM:
Net investment income		(0.06	)		(0.01	)		(0.07	)		(0.10	)		(0.05	)
Net realized gains		—			(3.11	)		(0.91	)		(0.79	)		(0.31	)
Total distributions		(0.06	)		(3.12	)		(0.98	)		(0.89	)		(0.36	)
NET ASSET VALUE, END OF YEAR		$10.13			$7.27			$15.76			$16.42			$15.24
Total return2		40.25	%		(42.13	)%		1.85	%		13.62	%		5.25	%
NET ASSETS, END OF YEAR (000s)		$117,555			$100,833			$233,503			$271,937			$284,380
RATIOS TO AVERAGE NET ASSETS:
Gross expenses		1.14	%		1.13	%		1.07	%		1.10	%3		1.06	%
Net expenses4,5		1.00			1.00			0.95			0.98	3		0.96
Net investment income		0.59			0.38			0.43			0.57			0.38
PORTFOLIO TURNOVER RATE		50	%		63	%		85	%		14	%		22	%

1	Per share amounts have been calculated using the average shares method.
2	Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Total returns do not reflect expenses associated with the 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.
3	Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Portfolio during the period. Without these fees, the gross and net expense ratios would have been 1.09% and 0.95%, respectively.
4	As a result of an expense limitation, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets will not exceed 1.00% until December 31, 2011.
5	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  19

Notes to financial statements

1. Organization and significant accounting policies

Legg Mason ClearBridge Variable Capital Portfolio (formerly known as Legg Mason Partners Variable Capital Portfolio) (the “Portfolio”) is a separate diversified investment series of Legg Mason Partners Variable Equity Trust (the “Trust”). The Trust, a Maryland business trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

Shares of the Portfolio 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 Portfolio 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 February 16, 2010, the issuance date of the financial statements.

(a) Investment 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. Debt securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service, which are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Portfolio calculates its net asset value, the Portfolio values these securities at fair value as determined in accordance with procedures approved by the Portfolio’s Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair value.

The Portfolio has adopted Financial Accounting Standards Board Codification Topic 820 (formerly, Statement of Financial Accounting Standards No. 157) (“ASC Topic 820”). ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Portfolio’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below.

20  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

•  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 Portfolio’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The Portfolio uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of the 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 convert future amounts to a single present amount.

The following is a summary of the inputs used in valuing the Portfolio’s assets carried at fair value:

			OTHER SIGNIFICANT		SIGNIFICANT
			OBSERVABLE		UNOBSERVABLE
	QUOTED PRICES		INPUTS		INPUTS
DESCRIPTION	(LEVEL 1)		(LEVEL 2)		(LEVEL 3)		TOTAL
Long-term investments†:
Common stocks:
Consumer discretionary	$	5,624,680	$	3,784,803		—	$	9,409,483
Health care		15,564,720		4,252,904		—		19,817,624
Materials		—		1,295,474		—		1,295,474
Other common stocks		79,502,331		—		—		79,502,331
Convertible preferred stocks		2,238,000		—		—		2,238,000
Convertible bonds and notes		—		3,509,750		—		3,509,750
Purchased option		58,425		—		—		58,425
Total long-term investments	$	102,988,156	$	12,842,931		—	$	115,831,087
Short-term investment†		—		1,810,000		—		1,810,000
Total investments	$	102,988,156	$	14,652,931		—	$	117,641,087

†See Schedule of Investments for additional detailed categorizations.

(b) Repurchase agreements. The Portfolio may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, a portfolio takes possession of an

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  21

Notes to financial statements continued

underlying debt obligation subject to an obligation of the seller to repurchase, and of the portfolio to resell, the obligation at an agreed-upon price and time, thereby determining the yield during a portfolio’s holding period. When entering into repurchase agreements, it is the Portfolio’s policy that its custodian or a third party custodian, acting on the Portfolio’s behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked to market and measured against the value of the agreement to ensure the adequacy of the collateral. If the counterparty defaults, the Portfolio generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Portfolio seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Portfolio may be delayed or limited.

(c) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.

The Portfolio does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

22  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

(d) Written options. When the Portfolio writes an option, an amount equal to the premium received by the Portfolio is recorded as a liability, the value of which is marked to market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Portfolio’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Portfolio from the exercise of the written put option to form the Portfolio’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Portfolio.

The risk in writing a covered call option is that the Portfolio may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Portfolio may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing a call option is that the Portfolio is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market.

(e) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Portfolio determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or credit event occurs by the issuer, the Portfolio may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.

(f) REIT distributions. The character of distributions received from Real Estate Investment Trusts (”REITs”) held by the Portfolio is generally comprised of net investment income, capital gains, and return of capital. It is the policy of the Portfolio to estimate the character of distributions received from underlying REITs based on historical data provided by the REITs. After each calendar year end, REITs report the actual tax character of these distributions. Differences between the estimated and actual amounts reported by the REITs are reflected

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  23

Notes to financial statements continued

in the Portfolio’s records in the year in which they are reported by the REITs by, adjusting related investment cost basis, capital gains and income, as necessary.

(g) 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 Portfolio are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

(h) Federal and other taxes. It is the Portfolio’s 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 Portfolio intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with the timing requirements imposed by the Code. Therefore, no federal income tax provision is required in the Portfolio’s financial statements.

Management has analyzed the Portfolio’s tax positions taken on federal income tax returns for all open tax years and has concluded that as of December 31, 2009, no provision for federal income tax is required in the Portfolio’s financial statements. The Portfolio’s 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 Internal Revenue Service and state departments of revenue.

Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.

(i) Reclassification. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. During the current year, the following reclassifications have been made:

	UNDISTRIBUTED NET		ACCUMULATED
	INVESTMENT INCOME		NET REALIZED LOSS
(a)	$	9,164	$	(9,164	)

^(a) Reclassifications are primarily due to foreign currency transactions treated as ordinary income for tax purposes.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Portfolio’s investment manager and ClearBridge Advisors, LLC (“ClearBridge”) is the Portfolio’s subadviser. LMPFA and ClearBridge are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

24  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Under the investment management agreement, the Portfolio pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.75% of the Portfolio’s average daily net assets.

LMPFA provides administrative and certain oversight services to the Portfolio. LMPFA delegates to the subadviser the day-to-day portfolio management of the Portfolio, except for the management of cash and short-term instruments. For its services, LMPFA pays ClearBridge 70% of the net management fee it receives from the Portfolio.

As a result of an expense limitation, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets will not exceed 1.00% until December 31, 2011. This expense limitation cannot be terminated prior to December 31, 2011 without the Board of Trustees’ consent.

The manager is permitted to recapture amounts previously forgone or reimbursed to the Portfolio during the same fiscal year if the Portfolio’s total annual operating expenses have fallen to a level below an expense limitation (“expense cap”). In no case will the manager recapture any amount that would result, on any particular business day of the Portfolio, in the Portfolio’s total annual operating expenses exceeding the expense cap.

During the year ended December 31, 2009, LMPFA waived a portion of its management fee in the amount of $41,389.

Legg Mason Investor Services, LLC (“LMIS”), a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Portfolio’s sole and exclusive distributor.

The Portfolio has adopted a Rule 12b-1 distribution plan and under that plan the Portfolio pays a distribution fee of 0.25% of the Portfolio’s average daily net assets. This fee is calculated daily and paid monthly.

During the year ended December 31, 2009, LMIS waived a portion of its distribution fees equal to 0.10% of the average daily net assets of the Portfolio, resulting in a waiver of $107,956.

Certain officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.

3. Investments

During the year ended December 31, 2009, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

Purchases	$	50,564,994
Sales		66,599,157

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  25

Notes to financial statements continued

At December 31, 2009, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

Gross unrealized appreciation	$	10,226,610
Gross unrealized depreciation		(6,168,132	)
Net unrealized appreciation	$	4,058,478

During the year ended December 31, 2009, written option transactions for the Portfolio were as follows:

	NUMBER OF
	CONTRACTS			PREMIUMS
Written options, outstanding December 31, 2008		—			—
Options written		230		$	38,557
Options closed		(230	)		(38,557	)
Options expired		—			—
Written options, outstanding December 31, 2009		—			—

4. Derivative instruments and hedging activities

Financial Accounting Standards Board Codification Topic 815 (formerly, Statement of Financial Accounting Standards No. 161) (“ASC Topic 815”) requires enhanced disclosure about an entity’s derivative and hedging activities.

Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at December 31, 2009.

ASSET DERIVATIVES
	EQUITY		OTHER
	CONTRACTS		CONTRACTS
	RISK		RISK		TOTAL
Purchased options1	$	58,425		—	$	58,425

¹ Market value of purchased options is reported within investments at value in the Statement of Assets and Liabilities.

The following tables provide information about the effect of derivatives and hedging activities on the Portfolio’s Statement of Operations for the year ended December 31, 2009. The first table provides additional detail about the amounts and sources of gains/(losses) realized on derivatives during the year. The second table provides additional information about the change in unrealized

26  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

appreciation/(depreciation) resulting from the Portfolio’s derivatives and hedging activities during the year.

AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED
	EQUITY			OTHER
	CONTRACTS			CONTRACTS
	RISK			RISK		TOTAL
Written options	$	29,674			—	$	29,674
Purchased options		(1,758,530	)		—		(1,758,530	)
Total	$	(1,728,856	)		—	$	(1,728,856	)

CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON DERIVATIVES RECOGNIZED
	EQUITY			OTHER
	CONTRACTS			CONTRACTS
	RISK			RISK		TOTAL
Purchased options	$	(1,075,840	)		—	$	(1,075,840	)

During the year ended December 31, 2009, the Portfolio had an average market value of $323,842 in purchased options.

5. Shares of beneficial interest

At December 31, 2009, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share.

Transactions in shares of the Portfolio were as follows:

	YEAR ENDED			YEAR ENDED
	DECEMBER 31, 2009			DECEMBER 31, 2008
Shares sold		47,352			159,789
Shares issued on reinvestment		81,681			3,227,975
Shares repurchased		(2,400,043	)		(4,331,889	)
Net decrease		(2,271,010	)		(944,125	)

6. Income tax information and distributions to shareholders

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

	2009		2008
Distribution Paid From:
Ordinary income	$	700,008	$	1,304,010
Net long-term capital gains		—		38,174,120
Total distribution paid	$	700,008	$	39,478,130

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  27

Notes to financial statements continued

As of December 31, 2009, the components of accumulated earnings on a tax basis were as follows:

Undistributed ordinary income — net	$	642,566
Capital loss carryforward*		(44,699,603	)
Other book/tax temporary differences(a)		(1,012,386	)
Unrealized appreciation/(depreciation)(b)		4,061,924
Total accumulated earnings/(losses) — net	$	(41,007,499	)

* As of December 31, 2009, the Portfolio had the following net capital loss carryforward remaining:

YEAR OF EXPIRATION	AMOUNT
12/31/2016	$	(22,266,493	)
12/31/2017		(22,433,110	)
	$	(44,699,603	)

	These amounts will be available to offset any future taxable capital gains.
(a)	Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized losses on certain futures contracts, the deferral of post-October capital losses for tax purposes and 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 primarily to the tax deferral of losses on wash sales

7. Regulatory matters

On May 31, 2005, the U.S. Securities and Exchange Commission (“SEC”) issued an order in connection with the settlement of an administrative proceeding against Smith Barney Fund Management LLC (“SBFM”), a wholly-owned subsidiary of Legg Mason and the then investment adviser or manager to the Portfolio, and Citigroup Global Markets Inc. (“CGM”), a former distributor of the Portfolio, relating to the appointment of an affiliated transfer agent for the Smith Barney family of mutual funds, including the Portfolio (the “Affected Funds”).

The SEC order found that SBFM and CGM willfully violated Section 206(1) of the Investment Advisers Act of 1940, as amended, and the rules promulgated there under [the “Advisers Act”]. Specifically, the order found that SBFM and CGM knowingly or recklessly failed to disclose to the boards of the Affected Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that: First Data Investors Services Group (“First Data”), the Affected Funds’ then-existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before; and that Citigroup Asset Management (“CAM”), the Citigroup business unit that, at the time, included the Affected Funds’ investment manager and other investment advisory companies, had entered into a side letter with First Data under which CAM agreed to recommend the appointment of First Data as sub-transfer agent to the affiliated transfer agent in exchange for, among other things, a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGM. The order also found that

28  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

SBFM and CGM willfully violated Section 206[2] of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Affected Funds’ boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the transfer agent functions, and the suggestion that the proposed arrangement was in the Affected Funds’ best interests and that no viable alternatives existed.

SBFM and CGM do not admit or deny any wrongdoing or liability. The settlement does not establish wrongdoing or liability for purposes of any other proceeding. The SEC censured SBFM and CGM and ordered them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act. The order required Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Affected Funds, primarily through fee waivers. The remaining $183.7 million, including the penalty, has been paid to the U.S. Treasury and will be distributed pursuant to a plan submitted for the approval of the SEC. The order also required that transfer agency fees received from the Affected Funds since December 1, 2004, less certain expenses, be placed in escrow and provided that a portion of such fees might be subsequently distributed in accordance with the terms of the order. On April 3, 2006, an aggregate amount of approximately $9 million held in escrow was distributed to the Affected Funds.

The order required SBFM to recommend a new transfer agent contract to the Affected Funds’ boards within 180 days of the entry of the order; if a Citigroup affiliate submitted a proposal to serve as transfer agent or sub-transfer agent, SBFM and CGM would have been required, at their expense, to engage an independent monitor to oversee a competitive bidding process. On November 21, 2005, and within the specified timeframe. The Affected Funds’ boards selected a new transfer agent for the Affected Funds. No Citigroup affiliate submitted a proposal to serve as transfer agent. Under the order, SBFM also must comply with an amended version of a vendor policy that Citigroup instituted in August 2004.

Although there can be no assurance, LMPFA does not believe that this matter will have a material adverse effect on the Affected Funds.

On December 1, 2005, Citigroup completed the sale of substantially all of its global asset management business, including SBFM, to Legg Mason.

8. Legal matters

Beginning in May 2004, class action lawsuits alleging violations of the federal securities laws were filed against CGM, a former distributor of the Portfolio, and other affiliated funds [collectively, the “Funds”] and a number of its then

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  29

Notes to financial statements continued

affiliates, including SBFM and Salomon Brothers Asset Management Inc. (“SBAM”), which were then investment adviser or manager to certain of the Funds (the “Managers”), substantially all of the mutual funds then managed by the Managers [the “Defendant Funds”], and Board members of the Defendant Funds (collectively, the “Defendants”). The complaints alleged, among other things, that CGM created various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Managers caused the Defendant Funds to pay excessive brokerage commissions to CGM for steering clients towards proprietary funds. The complaints also alleged that the Defendants breached their fiduciary duty to the Defendant Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions. The complaints also alleged that the Defendant Funds failed to adequately disclose certain of the allegedly wrongful conduct. The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Defendant Funds’ contracts with the Managers, recovery of all fees paid to the Managers pursuant to such contracts and an award of attorneys’ fees and litigation expenses.

On December 15, 2004, a consolidated amended complaint (the “Complaint”) was filed alleging substantially similar causes of action. On May 27, 2005, all of the Defendants filed motions to dismiss the Complaint. On July 26, 2006, the court issued a decision and order (1) finding that plaintiffs lacked standing to sue on behalf of the shareholders of the Funds in which none of the plaintiffs had invested and dismissing those Funds from the case (although stating that they could be brought back into the case if standing as to them could be established), and (2) other than one stayed claim, dismissing all of the causes of action against the remaining Defendants, with prejudice, except for the cause of action under Section 36(b) of the 1940 Act, which the court granted plaintiffs leave to replead as a derivative claim.

On October 16, 2006, plaintiffs filed their Second Consolidated Amended Complaint (“Second Amended Complaint”) which alleges derivative claims on behalf of nine funds identified in the Second Amended Complaint, under Section 36(b) of the 1940 Act, against CAM, SBAM and SBFM as investment advisers to the identified funds, as well as CGM as a distributor for the identified funds (collectively, the “Second Amended Complaint Defendants”). The Portfolio was not identified in the Second Amended Complaint. The Second Amended Complaint alleges no claims against any of the funds or any of their Board Members. Under Section 36(b), the Second Amended Complaint alleges similar facts and seeks similar relief against the Second Amended Complaint Defendants as the Complaint.

On December 3, 2007, the court granted the Defendants’ motion to dismiss, with prejudice. On January 2, 2008, the plaintiffs filed a notice of appeal to the Second Circuit Court of Appeals. The appeal was fully briefed and oral

30  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

argument before the U.S. Court of Appeals for the Second Circuit took place on March 5, 2009. The parties currently are awaiting a decision from the U.S. Court of Appeals for the Second Circuit.

Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed in the future.

* * *

Beginning in August 2005, five class action lawsuits alleging violations of federal securities laws and state law were filed against CGM and SBFM by the SEC. The complaints seek injunctive relief and compensatory and punitive damages, removal of SBFM as the adviser for the Smith Barney family of funds, rescission of the Funds’ management and other contracts with SBFM, recovery of all fees paid to SBFM pursuant to such contracts and an award of attorneys’ fees and litigation expenses.

The five actions were subsequently consolidated, and a consolidated complaint was filed. On September 26, 2007, the U.S. District Court for the Southern District of New York issued an order dismissing the consolidated complaint, and judgment was entered. An appeal was filed with the U.S. Court of Appeals for the Second Circuit. After full briefing, oral argument before the U.S. Court of Appeals for the Second Circuit took place on March 4, 2009. On February 16, 2010, the U.S. Court of Appeals for the Second Circuit issued its opinion affirming the dismissal, in part, and vacating and remanding, in part. The opinion affirmed the dismissal with prejudice of plaintiffs’ claim pursuant to Section 36(b) of the Investment Company Act but vacated the dismissal of the Section 10(b) securities fraud claim. The case has been remanded to Judge Pauley of the U.S. District Court for the Southern District of New York.

Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report  31

Report of independent registered public accounting firm

The Board of Trustees and Shareholders
Legg Mason Partners Variable Equity Trust:

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Legg Mason ClearBridge Variable Capital Portfolio (formerly Legg Mason Partners Variable Capital Portfolio), a series of Legg Mason Partners Variable Equity Trust, as of December 31, 2009, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2009, by correspondence with the custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Legg Mason ClearBridge Variable Capital Portfolio as of December 31, 2009, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

New York, New York

February 16, 2010

32  Legg Mason ClearBridge Variable Capital Portfolio 2009 Annual Report

Board approval of management and subadvisory agreements (unaudited)

At a meeting of the Trust’s Board of Trustees, the Board considered the re-approval for an annual period of the management agreement of Legg Mason ClearBridge Variable Capital Portfolio (the “Fund”), pursuant to which Legg Mason Partners Fund Advisor, LLC (the “Manager”) provides the Fund with investment advisory and administrative services, and the Fund’s sub-advisory agreement, pursuant to which ClearBridge Advisors, LLC (the “Sub-Adviser”) provides day-to-day management of the Fund’s portfolio. (The management agreement and sub-advisory agreement are collectively referred to as the “Agreements.”) The Manager and the Sub-Adviser are wholly-owned subsidiaries of Legg Mason, Inc. The Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “Independent Trustees”)) of the Fund were assisted in their review by Fund counsel and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Adviser. The Independent Trustees requested and received information from the Manager and the Sub-Adviser they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Adviser. Included was information about the Manager, the Sub-Adviser and the Fund’s distributor (including any distributors affiliated with the Fund during the past two years), as well as the management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full Board.

In voting to approve the Agreements, the Independent Trustees considered whether the approval of the Agreements would be in the best interests of the Fund and its shareholders, an evaluation based on several factors including those discussed below.

Nature, extent and quality of the services provided to the fund under the management agreement and sub-advisory agreement

The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Sub-Adviser under the Management Agreement and Sub-Advisory Agreement, respectively, during the past year. The Trustees also considered the Manager’s supervisory activities over the Sub-Adviser. In addition, the Independent Trustees received and considered other information regarding the administrative and other services rendered to the Fund and its shareholders by the Manager. The Board noted information received at regular meetings throughout the year related to the services rendered by the Manager in its management of the Fund’s affairs, including the management of cash and short-term instruments, and the Manager’s role in coordinating the activities of the Sub-Adviser and the Fund’s other service providers. The Board’s evaluation of the services provided by the Manager and the Sub-Adviser took into account the Board’s knowledge and familiarity gained as Trustees of funds in the Legg Mason fund complex, including the scope and quality of the investment

Legg Mason ClearBridge Variable Capital Portfolio  33

Board approval of management and subadvisory agreements (unaudited) continued

management and other capabilities of the Manager and the Sub-Adviser and the quality of the Manager’s administrative and other services. The Board observed that the scope of services provided by the Manager had expanded over time as a result of regulatory and other developments, including maintaining and monitoring its own and the Fund’s expanded compliance programs. The Board reviewed information received from the Manager and the Fund’s Chief Compliance Officer regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.

The Board reviewed the qualifications, backgrounds and responsibilities of the Fund’s senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board considered the degree to which the Manager implemented organizational changes to improve investment results and the services provided to the Legg Mason fund complex. The Board also considered, based on its knowledge of the Manager and the Manager’s affiliates, the financial resources available to the Manager’s parent organization, Legg Mason, Inc.

The Board also considered the division of responsibilities between the Manager and the Sub-Adviser and the oversight provided by the Manager. The Board also considered the Manager’s and the Sub-Adviser’s brokerage policies and practices, the standards applied in seeking best execution, the Manager’s policies and practices regarding soft dollars, and the existence of quality controls applicable to brokerage allocation procedures. In addition, management also reported to the Board on, among other things, its business plans, recent organizational changes, portfolio manager compensation plan and policy regarding portfolio managers’ ownership of fund shares.

The Board concluded that, overall, it was satisfied with the nature, extent and quality of services provided (and expected to be provided) under the respective Agreement by the Manager and the Sub-Adviser.

Fund performance

The Board received and reviewed performance information for the Fund and for all multi-cap core funds underlying variable insurance products (the “Performance Universe”) selected by Lipper, Inc.(“Lipper”), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the similarity of the Fund with the funds included in the Performance Universe. The Trustees noted that they also had received and discussed with management information at periodic intervals comparing the Fund’s performance to that of its benchmark index. The information comparing the Fund’s performance to that of the Performance Universe was for the one-, three- and five-year periods ended June 30, 2009. The Fund performed better than median for the one- and three-year periods, but below the median for the five-year period. The Board

34  Legg Mason ClearBridge Variable Capital Portfolio

also reviewed performance information provided by the Manager for periods ended September 30, 2009, which showed the Fund’s performance was below the Lipper category average during the third quarter. The Trustees then discussed with representatives of management the portfolio management strategy of the Fund’s portfolio managers. The Trustees also noted that the Manager was committed to providing the resources necessary to assist the portfolio managers and continue to improve Fund performance. Based on its review, the Board generally was satisfied with the Fund’s performance and management’s efforts to continue to improve performance going forward. The Board determined to continue to evaluate the Fund’s performance and directed the Independent Trustees’ performance committee to continue to periodically review Fund performance with the Manager and report to the full Board during periods between Board meetings.

Management fees and expense ratios

The Board reviewed and considered, the contractual management fee (the “Contractual Management Fee”) payable by the Fund to the Manager in light of the nature, extent and quality of the management and sub-advisory services provided by the Manager and the Sub-Adviser, respectively. The Board noted that the Manager, and not the Fund, pays the sub-advisory fee to the Sub-Adviser and, accordingly, that the retention of the Sub-Adviser does not increase the fees and expenses incurred by the Fund. In addition, because of the Manager’s fee waiver and/or expense reimbursement arrangement in effect for the Fund, which partially reduced the management fee paid to the Manager, the Board also reviewed and considered the actual management fee rate (after taking into account waivers and reimbursements) (“Actual Management Fee”).

The Board also reviewed information regarding the fees the Manager and the Sub-Adviser charged any of their U.S. clients investing primarily in an asset class similar to that of the Fund including, where applicable, separate accounts. The Manager reviewed with the Board the significant differences in the scope of services provided to the Fund and to such other clients, noting that the Fund is provided with regulatory compliance and administrative services, office facilities and Fund officers (including the Fund’s chief financial, chief legal and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers, including the Sub-Adviser. The Board considered the fee comparisons in light of the scope of services required to manage these different types of accounts.

The Board received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes. Management also discussed with the Board the Fund’s distribution arrangements, including how amounts received by the Fund’s

Legg Mason ClearBridge Variable Capital Portfolio  35

Board approval of management and subadvisory agreements (unaudited) continued

distributors are expended, and the fees received and expenses incurred in connection with such arrangements by affiliates of the Manager.

Additionally, the Board received and considered information comparing the Fund’s Contractual Management Fee and the Fund’s overall expense ratio with those of a group of 16 multi-cap core funds underlying variable insurance products selected by Lipper as comparable to the Fund (the “Expense Group”), and a broader group of funds selected by Lipper consisting of all multi-cap core funds underlying variable insurance products (the “Expense Universe”). This information showed that the Fund’s Contractual Management Fee and Actual Management Fee were lower than the median of management fees paid by the other funds in the Expense Group and lower than the average management fee paid by the other funds in the Expense Universe, and that the Fund’s actual total expense ratio was lower than the median of the total expense ratios of the funds in the Expense Group and lower than the average total expense ratio of the funds in the Expense Universe. The Trustees noted that the current limitation on the Fund’s expenses is expected to continue through December 31, 2011.

Manager profitability

The Board received and considered a profitability analysis of the Manager and its affiliates in providing services to the Fund. The Board also received profitability information with respect to the Legg Mason Partners fund complex as a whole. In addition, the Board received information with respect to the Manager’s allocation methodologies used in preparing this profitability data as well as a report from an outside consultant that had reviewed the Manager’s methodology. The Board also noted the profitability percentage ranges determined by appropriate court cases to be reasonable given the services rendered to investment companies. The Board determined that the Manager’s profitability was not excessive in light of the nature, extent and quality of the services provided to the Fund.

Economies of scale

The Board received and considered information regarding whether there have been economies of scale with respect to the management of the Fund as the Fund’s assets grow, whether the Fund has appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered whether economies of scale in the provision of services to the Fund were being passed along to the shareholders.

The Board also noted that to the extent the Fund’s assets increase over time, the Fund and its shareholders should realize other economies of scale as certain expenses, such as fixed fund fees, become a smaller percentage of overall assets. The Board noted that it appeared that the benefits of any economies of scale also would be appropriately shared with shareholders

36  Legg Mason ClearBridge Variable Capital Portfolio

through increased investment in fund management and administration resources.

Taking all of the above into consideration, the Board determined that the management fee was reasonable in light of the comparative performance and expense information and the nature, extent and quality of the services provided to the Fund under the Agreements.

Other benefits to the manager

The Board considered other benefits received by the Manager and its affiliates, including the Sub-Adviser, as a result of the Manager’s relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.

In light of the costs of providing investment management and other services to the Fund and the Manager’s ongoing commitment to the Fund, the profits and other ancillary benefits that the Manager and its affiliates received were considered reasonable.

Based on their discussions and considerations, including those described above, the Trustees approved the Management Agreement and the Sub-Advisory Agreement to continue for another year.

No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the Management Agreement and the Sub-Advisory Agreement.

Legg Mason ClearBridge Variable Capital Portfolio  37

Additional information (unaudited)
Information about Trustees and Officers

The business and affairs of Legg Mason ClearBridge Variable Capital Portfolio (formerly known as Legg Mason Partners Variable Capital Portfolio) (the “Portfolio”) are managed under the direction of the Board of Trustees. The current Trustees, including the Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the Portfolio (the “Independent Trustees”), and executive officers of the Portfolio, their years of birth, their principal occupations during at least the past five years (their titles may have varied during that period), the number of funds associated with Legg Mason the Trustees oversee, and other board memberships they hold are set forth below. The address of each Trustee is c/o R. Jay Gerken, 620 Eighth Avenue, New York, New York 10018.

The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling Funds Investor Services at 1-800-822-5544 or Institutional Shareholder Services at 1-888-425-6432.

INDEPENDENT TRUSTEES
PAUL R. ADES
Birth year	1940
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1983
Principal occupation(s) during past five years	Law Firm of Paul R. Ades, PLLC (since 2000)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None
ANDREW L. BREECH
Birth year	1952
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1991
Principal occupation(s) during past five years	President, Dealer Operating Control Service, Inc. (automotive retail management) (since 1985)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None

38  Legg Mason ClearBridge Variable Capital Portfolio

DWIGHT B. CRANE
Birth year	1937
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1981
Principal occupation(s) during past five years	Professor Emeritus, Harvard Business School (since 2007); formerly, Professor, Harvard Business School (1969 to 2007); Independent Consultant (since 1969)
Number of portfolios in fund complex over-seen by Trustee	54
Other board memberships held by Trustee	None
ROBERT M. FRAYN, JR.*
Birth year	1934
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1981
Principal occupation(s) during past five years	Retired; formerly, President and Director, Book Publishing Co. (1970 to 2002)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None
FRANK G. HUBBARD
Birth year	1937
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1993
Principal occupation(s) during past five years	President, Avatar International, Inc. (business development) (since 1998)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None

Legg Mason ClearBridge Variable Capital Portfolio  39

Additional information (unaudited) continued
Information about Trustees and Officers

HOWARD J. JOHNSON
Birth year	1938
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	From 1981 to 1998 and 2000 to Present
Principal occupation(s) during past five years	Chief Executive Officer, Genesis Imaging LLC (technology company) (since 2003)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None
DAVID E. MARYATT
Birth year	1936
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1983
Principal occupation(s) during past five years	Private Investor; President and Director, ALS Co. (real estate management and development firm) (since 1992)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None
JEROME H. MILLER
Birth year	1938
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1995
Principal occupation(s) during past five years	Retired
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None

40  Legg Mason ClearBridge Variable Capital Portfolio

KEN MILLER
Birth year	1942
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1983
Principal occupation(s) during past five years	President, Young Stuff Apparel Group, Inc. (apparel manufacturer), division of Li & Fung (since 1963)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None
JOHN J. MURPHY
Birth year	1944
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 2002
Principal occupation(s) during past five years	Founder and Senior Principal, Murphy Capital Management (investment management) (since 1983)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	Director, Nicholas Applegate Institutional Funds (since 2005); Trustee, Consulting Group Capital Markets Funds (since 2002); Trustee, UBS Funds (since 2008); formerly, Director, Atlantic Stewardship Bank (2004 to 2005); formerly, Director, Barclays International Funds Group Ltd. and affiliated companies (1983 to 2003)
THOMAS F. SCHLAFLY
Birth year	1948
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1983
Principal occupation(s) during past five years	President, The Saint Louis Brewery, Inc. (brewery) (since 1989); Partner, Thompson Coburn LLP (law firm) (since 2009); of Counsel, Husch Blackwell Sanders LLP (law firm) and its predecessor firms (prior to May 2009)
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	Director, Citizens National Bank of Greater St. Louis (since 2006)

Legg Mason ClearBridge Variable Capital Portfolio  41

Additional information (unaudited) continued
Information about Trustees and Officers

JERRY A. VISCIONE
Birth year	1944
Position(s) held with Fund1	Trustee
Term of office1 and length of time served2	Since 1993
Principal occupation(s) during past five years	Retired
Number of portfolios in fund complex overseen by Trustee	54
Other board memberships held by Trustee	None
INTERESTED TRUSTEE
R. JAY GERKEN, CFA3
Birth year	1951
Position(s) held with Fund1	Trustee, President, Chairman, and Chief Executive Officer
Term of office1 and length of time served2	Since 2002
Principal occupation(s) during past five years	Managing Director, Legg Mason & Co., LLC; Chairman of the Board and Trustee/Director of 147 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) and its affiliates; President of LMPFA (since 2006); Chairman, President and Chief Executive Officer (“CEO”) of certain mutual funds associated with Legg Mason, Inc. or its affiliates; President and CEO, Smith Barney Fund Management LLC and Chairman, President and CEO, CitiFund Management Inc. (“CFM”) (formerly registered investment advisers) (since 2002); formerly, Managing Director of Citigroup Global Markets Inc. (1989 to 2006); formerly, Chairman, President and CEO, Travelers Investment Adviser Inc. (2002 to 2005)
Number of portfolios in fund complex overseen by Trustee	134
Other board memberships held by Trustee	Former Trustee, Consulting Group Capital Markets Funds (2002 to 2006)
OFFICERS
KAPREL OZSOLAK Legg Mason 55 Water Street, New York, NY 10041
Birth year	1965
Position(s) held with Fund1	Chief Financial Officer and Treasurer
Term of office1 and length of time served2	Since 2004
Principal occupation(s) during past five years	Director of Legg Mason; Chief Financial Officer and Treasurer of certain mutual funds associated with Legg Mason; formerly, Controller of certain mutual funds associated with certain predecessor firms of Legg Mason (2002 to 2004)

42  Legg Mason ClearBridge Variable Capital Portfolio

TED P. BECKER Legg Mason 620 Eighth Avenue, New York, NY 10018
Birth year	1951
Position(s)held with Fund1	Chief Compliance Officer
Term of office1 and length of time served2	Since 2006
Principal occupation(s) during past five years	Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance at Legg Mason (since 2005); Chief Compliance Officer with certain mutual funds associated with Legg Mason, LMPFA and certain affiliates (since 2006); formerly, Managing Director of Compliance at CAM or its predecessor (2002 to 2005)
JOHN CHIOTA Legg Mason 100 First Stamford Place, Stamford, CT 06902
Birth year	1968
Position(s) held with Fund1	Chief Anti-Money Laundering Compliance Officer/Identity Theft Prevention Officer
Term of office1 and length of time served2	Since 2006/2008
Principal occupation(s) during past five years	Identity Theft Prevention Officer with certain mutual funds associated with Legg Mason or its affiliates (since 2008); Chief Anti-Money Laundering Compliance Officer with certain mutual funds associated with Legg Mason or its affiliates (since 2006); Vice President of Legg Mason or its predecessor (since 2004); Prior to August 2004, Chief AML Compliance Officer with TD Waterhouse
ROBERT I. FRENKEL Legg Mason 100 First Stamford Place, Stamford, CT 06902
Birth year	1954
Position(s) held with Fund1	Secretary and Chief Legal Officer
Term of office1 and length of time served2	Since 2003
Principal occupation(s) during past five years	Managing Director and General Counsel of Global Mutual Funds for Legg Mason and its predecessors (since 1994); Secretary and Chief Legal Officer of mutual funds associated with Legg Mason (since 2003); formerly, Secretary of CFM (2001 to 2004)
THOMAS C. MANDIA Legg Mason 100 First Stamford Place, Stamford, CT 06902
Birth year	1962
Position(s) held with Fund1	Assistant Secretary
Term of office1 and length of time served2	Since 2000
Principal occupation(s) during past five years	Managing Director and Deputy General Counsel of Legg Mason (since 2005); formerly, Managing Director and Deputy General Counsel for CAM (1992 to 2005)

Legg Mason ClearBridge Variable Capital Portfolio  43

Additional information (unaudited) continued
Information about Trustees and Officers

STEVEN FRANK Legg Mason 55 Water Street, New York, NY 10041
Birth year	1967
Position(s) held with Fund1	Controller
Term of office1 and length of time served2	Since 2005
Principal occupation(s) during past five years	Vice President of Legg Mason (since 2002); Controller of certain mutual funds associated with Legg Mason or its predecessors (since 2005); formerly, Assistant Controller of certain mutual funds associated with Legg Mason predecessors (2001 to 2005)
ALBERT LASKAJ Legg Mason 55 Water Street, New York, NY 10041
Birth year	1977
Position(s) held with Fund1	Controller
Term of office1 and length of time served2	Since 2007
Principal occupation(s) during past five years	Vice President of Legg Mason (since 2008); Controller of certain mutual funds associated with Legg Mason (since 2007); formerly, Assistant Controller of certain mutual funds associated with Legg Mason (2005 to 2007); formerly, Accounting Manager of certain mutual funds associated with certain predecessor firms of Legg Mason (2003 to 2005)

1	Each Trustee and Officer serves until his or her 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 or Officer became a Board Member or Officer, as applicable for a fund in the Legg Mason Partners funds complex.
3	Mr. Gerken is an “interested person” of the Trust as defined in the 1940 Act, because Mr. Gerken is an officer of LMPFA and certain of its affiliates.
*	Mr. Frayn retired from the Board of Trustees effective December 31, 2009.

44  Legg Mason ClearBridge Variable Capital Portfolio

Important tax information (unaudited)

The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2009:

Record date:	6/17/2009
Payable date:	6/18/2009
Dividends qualifying for the dividends received deduction for corporations	100.00	%

Please retain this information for your records.

Legg Mason ClearBridge Variable Capital Portfolio  45

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Legg Mason ClearBridge
Variable Capital Portfolio

Trustees

Paul R. Ades
Andrew L. Breech
Dwight B. Crane
Robert M. Frayn, Jr.*
R. Jay Gerken, CFA
  Chairman
Frank G. Hubbard
Howard J. Johnson
David E. Maryatt
Jerome H. Miller
Ken Miller
John J. Murphy
Thomas F. Schlafly
Jerry A. Viscione

Investment manager

Legg Mason Partners Fund
Advisor, LLC

Subadviser

ClearBridge Advisors, LLC

Distributor

Legg Mason Investor Services, LLC

Custodian

State Street Bank and Trust
Company

Transfer agent

Boston Financial Data Services, Inc.
2000 Crown Colony Drive
Quincy, Massachusetts 02169

Independent registered public
accounting firm

KPMG LLP
345 Park Avenue
New York, New York 10154

*  Mr. Frayn retired from the Board of Trustees effective December 31, 2009.

Legg Mason ClearBridge Variable Capital Portfolio

The Portfolio is a separate investment series of Legg Mason Partners Variable Equity Trust, a Maryland business trust.

LEGG MASON CLEARBRIDGE VARIABLE CAPITAL PORTFOLIO
Legg Mason Funds
55 Water Street
New York, New York 10041

The Portfolio files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Portfolio’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Portfolio’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Portfolio, shareholders can call Funds Investor Services at 1-800-822-5544 or Institutional Shareholder Services at 1-888-425-6432.

Information on how the Portfolio 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 Portfolio uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling Funds Investor Services at 1-800-822-5544 or Institutional Shareholder Services at 1-888-425-6432, (2) on the Portfolio’s website at www.leggmason.com/individualinvestors and (3) on the SEC’s website at www.sec.gov.

This report is submitted for the general information of the shareholders of Legg Mason ClearBridge Variable Capital Portfolio. This report is not authorized for distribution to prospective investors in the Portfolio unless preceded or accompanied by a current prospectus.

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

www.leggmason.com/individualinvestors

©2010 Legg Mason Investor Services, LLC
Member FINRA, SIPC

 

 

Privacy policy

We are committed to keeping nonpublic personal information about you secure and confidential. This notice is intended to help you understand how we fulfill this commitment. From time to time, we may collect a variety of personal information about you, including:

•  Information we receive from you on applications and forms, via the telephone and through our websites;

•  Information about your transactions with us, our affiliates or others (such as your purchases, sales or account balances); and

•  Information we receive from consumer reporting agencies.

We do not disclose nonpublic personal information about our customers or former customers, except to our affiliates (such as broker-dealers or investment advisers within the Legg Mason family of companies) or as is otherwise permitted by applicable law or regulation. For example, we may share this information with others in order to process your transactions or service an account. We may also provide this information to companies that perform marketing services on our behalf, such as printing and mailing, or to other financial institutions with whom we have joint marketing agreements. When we enter into such agreements, we will require these companies to protect the confidentiality of this information and to use it only to perform the services for which we hired them.

With respect to our internal security procedures, we maintain physical, electronic and procedural safeguards to protect your nonpublic personal information, and we restrict access to this information.

If you decide at some point either to close your account(s) or become an inactive customer, we will continue to adhere to our privacy policies and practices with respect to your nonpublic personal information.

                    NOT PART OF THE ANNUAL REPORT

BUILT TO WIN^SM

At Legg Mason, we’ve assembled a collection of experienced investment management firms and empowered each of them with the tools, the resources and, most importantly, the independence to pursue the strategies they know best.

• Each was purposefully chosen for their commitment to investment excellence.

• Each is focused on specific investment styles and asset classes.

• Each exhibits thought leadership in their chosen area of focus.

Together, we’ve built a powerful portfolio of solutions for financial advisors and their clients. And it has made us a world leader in money management.*

*  Ranked eleventh-largest money manager in the world, according to Pensions & Investments, May 18, 2009, based on 12/31/08 worldwide assets under management.

www.leggmason.com/individualinvestors

©2010 Legg Mason Investor Services, LLC Member FINRA, SIPC

FDXX010726 2/10 SR10-1009

NOT PART OF THE ANNUAL REPORT

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 Directors of the registrant has determined that Jerry A. Viscione 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 Mr. Viscione as the Audit Committee’s financial expert. Mr. Viscione is an “independent” Director 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, 2008 and December 31, 2009 (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 $229,100 in 2008 and $414,700 in 2009.

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 $12,900 in 2008 and $1,427 in 2009. These services consisted of procedures performed in connection with the Re-domiciliation of the various reviews of Prospectus supplements, and consent issuances related to the N-1A filings for the Legg Mason Partners Variable Equity Trust.

In addition, there were no Audit-Related Fees billed in the Reporting Period for assurance and related services by the Auditor to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Legg Mason Partners Variable Equity Trust (“service affiliates”), that were reasonably related to the performance of the annual audit of the service affiliates. Accordingly, there were no such fees that required pre-approval by the Audit Committee for the Reporting Periods (prior to July 6, 2003 services provided by the Auditor were not required to be pre-approved).

(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 $42,850 in 2008 and $43,200 in 2009. 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. There were no other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item for the Legg Mason Partners Variable Equity Trust.

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 2008 and 2009; Tax Fees were 100% and 100% for 2008 and 2009; and Other Fees were 100% and 100% for 2008 and 2009.

(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 $0 in 2009.

(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
Dwight B. Crane
Robert M. Frayn, Jr.
Frank G. Hubbard
Howard J. Johnson
David E. Maryatt
Jerome H. Miller
Ken Miller
John J. Murphy
Thomas F. Schlafly
Jerry A. Viscione

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 registrant’s last fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

ITEM 12. 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/ R. Jay Gerken
		(R. Jay Gerken)
		Chief Executive Officer of Legg Mason Partners Variable Equity Trust

Date: February 25, 2010

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ R. Jay Gerken
	(R. Jay Gerken)
	Chief Executive Officer of Legg Mason Partners Variable Equity Trust

Date: February 25, 2010

By:	/s/ Kaprel Ozsolak
	(Kaprel Ozsolak)
	Chief Financial Officer of Legg Mason Partners Variable Equity Trust

Date: February 25, 2010