Legg Mason Partners Variable Equity Trust NCSR 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)

620 Eighth Avenue,

49^th Floor, New York, NY 10018

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-877-721-1926

Date of fiscal year end: December 31

Date of reporting period: December 31, 2013

ITEM 1.

REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

December 31, 2013

LOGO

Annual

Repor t

Legg Mason

Variable Lifestyle Series

Legg Mason Variable Lifestyle Allocation 85%

Legg Mason Variable Lifestyle Allocation 70%

Legg Mason Variable Lifestyle Allocation 50%

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

Legg Mason Variable Lifestyle Series

Legg Mason Variable Lifestyle Series (“Variable Lifestyle Series”) consists of separate investment Portfolios, each with its own investment objective and policies. Each Portfolio offers different levels of potential return and involves different levels of risk.

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


What’s inside
Letter from the president		II
Investment commentary		III
Portfolios overview		1
Portfolios at a glance		7
Portfolios expenses		10
Portfolio performance		11
Schedules of investments		15
Statements of assets and liabilities		18
Statements of operations		19
Statements of changes in net assets		20
Financial highlights		23
Notes to financial statements		26
Report of independent registered public accounting firm		31
Board approval of management and subadvisory agreements		32
Additional information		41
Important tax information		45


Letter from the president

Dear Shareholder,

We are pleased to provide the annual report of Legg Mason Variable Lifestyle Series for the twelve-month reporting period ended December 31, 2013. Please read on for a detailed look at prevailing economic and market conditions during the Portfolios’ reporting period and to learn how those conditions have affected each Portfolio’s performance.

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

Market insights and commentaries from our portfolio managers and

A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

LOGO

Kenneth D. Fuller

President and Chief Executive Officer

January 31, 2014


II		Legg Mason Variable Lifestyle Series

Investment commentary

Economic review

The U.S. economy continued to grow over the twelve months ended December 31, 2013 (the “reporting period”). Looking back, U.S. gross domestic product (“GDP”)ⁱ growth, as reported by the U.S. Department of Commerce, was 1.1% during the first quarter of 2013. The economic expansion then accelerated, as GDP growth was 2.5% during the second quarter. This was partially due to increases in exports and non-residential fixed investments, along with a smaller decline in federal government spending versus the previous quarter. The economy gained further momentum during the third quarter, with GDP growth of 4.1%, its best reading since the fourth quarter of 2011. Stronger growth was driven, in part, by an increase in private inventory investment, a deceleration in imports and accelerating state and local government spending. The U.S. Department of Commerce’s initial reading for fourth quarter 2013 GDP growth, released after the reporting period ended, was 3.2%. Slower growth was due to several factors, including a deceleration in private inventory investment, declining federal government spending and less residential fixed investments.

The U.S. job market improved during the reporting period, although unemployment remained elevated from a historical perspective. When the period began, unemployment, as reported by the U.S. Department of Labor, was 7.9%. Unemployment fell to 7.7% in February 2013 and generally edged lower over the remainder of the period, falling to 6.7% in December. This represented the lowest level since October 2008. However, falling unemployment during the period was partially due to a decline in the workforce participation rate, which was 62.8% in December, its lowest level since 1978. In addition, the number of longer-term unemployed continues to be high, as roughly 37.7% of the 10.4 million Americans looking for work in December 2013 had been out of work for more than six months.

While sales of existing-homes declined at times throughout the reporting period given rising mortgage rates, they moved higher at the end of the year. According to the National Association of Realtors (“NAR”), existing-home sales rose 1.0% on a seasonally adjusted basis in December 2013 versus the previous month, although they were 0.6% lower than in December 2012. However, existing homes sales in 2013 were 9.1% higher than the previous year and 2013’s sales were the strongest since 2006. In addition, the NAR reported that the median existing-home price for all housing types was $198,100 in December 2013, up 9.9% from December 2012. The inventory of homes available for sale in December 2013 was 11% lower than the previous month at a 4.6 month supply at the current sales pace but 1.6% higher than in December 2012.

The manufacturing sector expanded during the majority of the reporting period, although it experienced a temporary soft patch. Based on the Institute for Supply Management’s Purchasing Managers’ Index (“PMI”)ⁱⁱ, manufacturing expanded during the first four months of the reporting period. It then contracted in May 2013, with a PMI of 49.0 (a reading below 50 indicates a contraction,

whereas a reading above 50 indicates an expansion). This represented the PMI’s lowest reading since June 2009. However, the contraction was a short-term setback, as the PMI rose over the next seven months and peaked at 57.3 in November, the best reading since April 2011. The PMI then moderated somewhat in December 2013, edging back to a still strong 57.0.

Growth outside the U.S. generally improved in developed countries. In its January 2014 World Economic Outlook Update, released after the reporting period ended, the International Monetary Fund (“IMF”) stated that “Global activity strengthened during the second half of 2013… activity is expected to improve further in 2014–15, largely on account of recovery in the advanced economies.” From a regional perspective, the IMF anticipates 2014 growth will be 1.0% in the Eurozone, versus -0.4% in 2013. After moderating somewhat in 2013, the IMF projects that overall growth in emerging market countries will improve in 2014, with growth of 5.1% versus 4.7% in 2013. For example, GDP growth in India is projected to move from 4.4% in 2013 to 5.4% in 2014. However, the IMF now projects that growth in China will dip from 7.7% in 2013 to 7.5% in 2014.

The Federal Reserve Board (“Fed”)ⁱⁱⁱ took a number of actions as it sought to meet its dual mandate of fostering maximum employment and price stability. As has been the case since December 2008, the Fed kept the federal funds rate^iv at a historically low range between zero and 0.25%. At its meeting in December 2012, the Fed announced that it would continue purchasing $40 billion per month of agency mortgage-backed securities (“MBS”), as well as initially purchasing $45 billion per month of longer-term Treasuries. At its meeting that ended on June 19, 2013, the Fed did not make any material changes to its official policy statement. However, in a press conference following the meeting, Fed Chairman Bernanke said “…the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year.” In a surprise to many investors, at its meeting that ended on September 18, 2013, the Fed did not taper its asset purchase program and said that it “…decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.” At its meeting that concluded on December 18, 2013, the Fed announced that it would begin reducing its monthly asset purchases, saying “Beginning in January 2014, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.” At the Fed’s meeting that concluded on January 29, 2014, after the reporting period ended, it announced that in February 2014 it would further taper its asset purchases, to a total of $65 billion a month ($30 billion per month of agency mortgage-backed securities and $35 billion per month of longer-term Treasury securities).

Given the economic challenges in the Eurozone, the European Central Bank (“ECB”)^iv took a number of actions to stimulate growth. In May 2013, the ECB cut rates from 0.75% to 0.50%. The ECB then lowered the rates to a new record low of 0.25% in November 2013. In other developed countries, the Bank of England kept rates on hold


Legg Mason Variable Lifestyle Series		III

Investment commentary (cont’d)

at 0.50% during the reporting period, as did Japan at a range of zero to 0.10%, its lowest level since 2006. In January 2013, the Bank of Japan announced that it would raise its target for annual inflation from 1% to 2%, and the Japanese government introduced a ¥10.3 trillion ($116 billion) stimulus package to support its economy. Elsewhere, the People’s Bank of China kept rates on hold at 6.0%.

As always, thank you for your confidence in our stewardship of your assets.

Sincerely,

LOGO

Kenneth D. Fuller

President and Chief Executive Officer

January 31, 2014

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. Forecasts and predictions are inherently limited and should not be relied upon as an indication of actual or future performance.

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 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.

^iv	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.

^v	The European Central Bank (“ECB”) is responsible for the monetary system of the European Union and the euro currency.


IV		Legg Mason Variable Lifestyle Series

Portfolios overview

Legg Mason Variable Lifestyle Series (the “Variable Lifestyle Series”) consists of three portfolio investment options (the “Portfolios”), each of which is a “fund of funds” that invests in a combination of equity and fixed-income mutual funds. The Variable Lifestyle Series offers a mix of equity funds categorized according to average market capitalization (size), investing style (e.g., value, core or growth) and global exposure (e.g., U.S. and/or international stocks). The various options within the Variable Lifestyle Series also offer a mix of bond asset classes such as U.S. and foreign government debt, corporate bonds, high-yield debt and emerging market debt — each of which carries a varying degree of risk/reward potential.

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

A. Investors grew more and more confident over the course of the reporting period that the global economy was starting to show signs of better growth. As a result, global equity markets rose during most of the period, and ended the year with very strong results. For the twelve months ended December 31, 2013, the overall domestic stock market, as measured by the S&P 500 Indexⁱ, returned 32.39%. Over the same time frame, the Russell 1000 Indexⁱⁱ of large-cap U.S. stocks produced a total return of 33.11%. Small-cap U.S. stocks produced even better results. The Russell 2000 Indexⁱⁱⁱ was up 38.82% over the same period. Developed international stock markets generated strong returns as well. For the twelve months ending December 31, 2013, the MSCI EAFE Index^iv produced a total return of 22.78%.

The evidence of improved economic growth that fueled strong gains in global stock markets presented a challenge for fixed income markets. Faster economic growth has historically tended to push interest rates higher (and hence bond prices lower), but in the current environment there is an additional wrinkle. Over the last two years the U.S. Federal Reserve Board (“Fed”)^v has been purchasing large amounts of bonds as part of its “quantitative easing” policy, designed to push interest rates lower than they would otherwise be and thus help restore the economy to stronger growth. As that stronger growth emerges, the natural upward pressure on interest rates that we would see anyway is exacerbated by the fact that the Fed is going to be reducing, and eventually eliminating, its bond buying program.

As the prospects for that scenario became more and more likely in the middle of 2013, government bond yields began to rise. The

ten-year U.S. Treasury note yield started the reporting period at 1.76%. In early May, the yield had actually drifted a bit lower than that, to 1.63%. But in May Fed Chairman, Ben Bernanke, began to make it clear that the Fed was looking to begin “tapering” the pace of its bond purchases as the economy improved, and bond yields jumped higher. By early September the 10-year Treasury note was yielding 3.00%. When the Fed hesitated, and decided to delay the start of the tapering process at its September meeting, the yield fell back to 2.50% briefly in October. But the continued improvement in the economic data in October and November made it clear that the Fed was going to have to start tapering fairly soon, and yields started rising again. The Fed went ahead with the start of its tapering program in December, and by the end of the reporting period the yield on the 10-year Treasury note was up to 3.03%.

The result of these rising yields was that the Barclays U.S. Aggregate Index^vi produced a negative return of 2.02% for the reporting period. The strength in the stock market, though, helped fuel a better year for high yield bonds, which carry a blend of interest rate and equity risk. The Barclays U.S. Corporate High Yield — 2% Issuer Cap Index^vii returned 7.44% for the year.

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

A. During the first seven months of the reporting period, we maintained a neutral asset allocation relative to our target weights. That is, our weightings in underlying equity and fixed-income funds matched those of their respective benchmark allocations. During that time, we were not seeing enough signs of strong earnings growth to give us confidence that stocks would be able to outperform bonds. At the same time, the level of real bond yields (i.e., the nominal yield minus the rate of inflation) was too low for us to want to overweight bonds either. Over the summer, we began to see the signs of stronger earnings growth that we had been looking for, such as a rise in the Institute for Supply Management’s Purchasing Managers’ Index (“PMI”)^viii, and we moved to a slight overweight in equities. Concerns about valuation kept us from making the overweight larger; stocks had moved up much faster than earnings in the preceding year, and did not have a lot of valuation support. While we felt that stocks were likely to outperform bonds if the anticipated acceleration in earnings growth came through, the high price-to-earnings (“P/E”) ratio^ix for the market as a whole meant that if earnings growth disappointed, there was significant downside risk for stocks. We maintained that small overweight in equities through the end of the reporting period.


Legg Mason Variable Lifestyle Series 2013 Annual Report		1

Portfolios overview (cont’d)

Legg Mason Variable Lifestyle Allocation 85%

Target Asset Allocation¹


		Legg Mason Variable Lifestyle Allocation 85% seeks capital appreciation by investing 85% of its assets in underlying funds that invest principally in equity securities and 15% in underlying funds that invest principally in fixed-income securities.

Performance review

For the twelve months ended December 31, 2013, Legg Mason Variable Lifestyle Allocation 85%² returned 26.50%. The Portfolio’s unmanaged benchmarks, the Barclays U.S. Aggregate Index, the Russell 3000 Index^x and the Lifestyle Allocation 85% Composite Benchmark^xi, returned -2.02%, 33.55% and 26.92%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Average³ returned 19.36% for the same period.


Performance Snapshot as of December 31, 2013 (unaudited)
	6 months			12 months
Variable Lifestyle Allocation 85%²		15.51	%		26.50	%
Barclays U.S. Aggregate Index		0.43	%		-2.02	%
Russell 3000 Index		17.09	%		33.55	%
Lifestyle Allocation 85% Composite Benchmark		15.40	%		26.92	%
Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Average³		11.94	%		19.36	%

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

The portfolio managers periodically adjust the allocation of the Portfolio’s assets among different Legg Mason-affiliated funds

depending upon the portfolio managers’ outlook for the equity and fixed-income markets in general, particular sectors of such markets and the performance outlook for the underlying funds. The Portfolio is not expected to be invested in all of the underlying funds at any time. The Portfolio may change its allocations among the underlying funds and may vary the allocation between equity and fixed-income funds within the Target Range⁴ without prior notice to shareholders.

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2013, the gross total annual operating expense ratio for the Portfolio was 0.93%.

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

As a result of an expense limitation arrangement, the ratio of expenses, other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets is not expected to exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2015 without the Board of Trustees’ consent.

The manager is permitted to recapture amounts waived and/or reimbursed to the Portfolio during the same fiscal year if the Portfolio’s total annual operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will the 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 or any other lower limit then in effect.

The Target Asset Allocation set forth above represents an approximate mix of investments for Legg Mason Variable Lifestyle Allocation 85%. The allocation and investment mix of the Portfolio may vary depending upon market conditions, cash flows in and out of the Portfolio and other factors. In addition, the allocation and investment range of the Portfolio may be changed, from time to time, without prior notice to shareholders.

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.

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2013, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 301 funds for the six-month period and among the 290 funds for the twelve-month period in the Portfolio’s Lipper category.

⁴	The Target Range is the percentage range, as stated by the prospectus, within which the Portfolio may make tactical changes to its equity funds/fixed-income funds allocation.

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


2		Legg Mason Variable Lifestyle Series 2013 Annual Report

Legg Mason Variable Lifestyle Allocation 70%

Target Asset Allocation¹


		Legg Mason Variable Lifestyle Allocation 70% seeks long-term growth of capital by investing 70% of its assets in underlying funds that invest principally in equity securities and 30% in underlying funds that invest principally in fixed-income securities.

Performance review

For the twelve months ended December 31, 2013, Legg Mason Variable Lifestyle Allocation 70%² returned 21.82%. The Portfolio’s unmanaged benchmarks, the Barclays U.S. Aggregate Index, the Russell 3000 Index and the Lifestyle Allocation 70% Composite Benchmark^xii, returned -2.02%, 33.55% and 21.50%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Average³ returned 19.36% for the same period.


Performance Snapshot as of December 31, 2013 (unaudited)
	6 months			12 months
Variable Lifestyle Allocation 70%²		12.88	%		21.82	%
Barclays U.S. Aggregate Index		0.43	%		-2.02	%
Russell 3000 Index		17.09	%		33.55	%
Lifestyle Allocation 70% Composite Benchmark		12.64	%		21.50	%
Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Average³		11.94	%		19.36	%

The portfolio managers periodically adjust the allocation of the Portfolio’s assets among different Legg Mason-affiliated funds depending upon the portfolio managers’ outlook for the equity and fixed-income markets in general, particular sectors of such markets and the performance outlook for the underlying funds. The Portfolio is not expected to be invested in all of the underlying funds at any time. The Portfolio may change its allocations among the underlying funds and may vary the allocation between equity and fixed-income funds within the Target Range⁴ without prior notice to shareholders.

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2013, the gross total annual operating expense ratio for the Portfolio was 0.94%.

The Target Asset Allocation set forth above represents an approximate mix of investments for Legg Mason Variable Lifestyle Allocation 70%. The allocation and investment mix of the Portfolio may vary depending upon market conditions, cash flows in and out of the Portfolio and other factors. In addition, the allocation and investment range of the Portfolio may be changed, from time to time, without prior notice to shareholders.

⁴	The Target Range is the percentage range, as stated by the prospectus, within which the Portfolio may make tactical changes to its equity funds/fixed-income funds allocation.

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


Legg Mason Variable Lifestyle Series 2013 Annual Report		3

Portfolios overview (cont’d)

Legg Mason Variable Lifestyle Allocation 50%

Target Asset Allocation¹


		Legg Mason Variable Lifestyle Allocation 50% seeks a balance of growth of capital and income by investing 50% of its assets in underlying funds that invest principally in equity securities and 50% in underlying funds that invest principally in fixed-income securities.

Performance review

For the twelve months ended December 31, 2013, Legg Mason Variable Lifestyle Allocation 50%² returned 15.33%. The Portfolio’s unmanaged benchmarks, the Barclays U.S. Aggregate Index, the Russell 1000 Index and the Lifestyle Allocation 50% Composite Benchmark^xiii, returned -2.02%, 33.11% and 14.83%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Moderate Funds Category Average³ returned 14.27% for the same period.


Performance Snapshot as of December 31, 2013 (unaudited)
	6 months			12 months
Variable Lifestyle Allocation 50%²		9.57	%		15.33	%
Barclays U.S. Aggregate Index		0.43	%		-2.02	%
Russell 1000 Index		16.86	%		33.11	%
Lifestyle Allocation 50% Composite Benchmark		9.28	%		14.83	%
Lipper Variable Mixed-Asset Target Allocation Moderate Funds Category Average³		9.27	%		14.27	%

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2013, the gross total annual operating expense ratio for the Portfolio was 0.81%.

The Target Asset Allocation set forth above represents an approximate mix of investments for Legg Mason Variable Lifestyle Allocation 50%. The allocation and investment mix of the Portfolio may vary depending upon market conditions, cash flows in and out of the Portfolio and other factors. In addition, the allocation and investment range of the Portfolio may be changed, from time to time, without prior notice to shareholders.

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2013, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 245 funds for the six-month period and among the 232 funds for the twelve-month period in the Portfolio’s Lipper category.

⁴	The Target Range is the percentage range, as stated by the prospectus, within which the Portfolio may make tactical changes to its equity funds/fixed-income funds allocation.

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


4		Legg Mason Variable Lifestyle Series 2013 Annual Report

Q. What were the leading contributors to performance?

A. Taking into account both the underlying fund returns and their weightings within the Portfolios, the leading contributors to absolute performance were the four large cap U.S. equity funds (the Legg Mason Batterymarch U.S. Large Cap Equity Fund, the Legg Mason BW Diversified Large Cap Value Fund, the ClearBridge Appreciation Fund and the ClearBridge Aggressive Growth Fund) as well as the ClearBridge Small Cap Growth Fund.

In relative terms (i.e., relative to the Portfolios’ blended benchmarks), the leading contributors to performance were the ClearBridge Aggressive Growth Fund, the ClearBridge Small Cap Growth Fund and the Western Asset Total Return Unconstrained Fund.

Q. What were the leading detractors from performance?

A. The Western Asset Core Plus Bond Fund was the only underlying fund that had a negative total return for the reporting period, so it was the only fund that detracted from performance on an absolute basis. Among the other underlying funds, the funds that made the smallest positive contribution to performance (taking into account both the underlying fund returns and their weightings within the Portfolios) were the Legg Mason Strategic Real Return Fund and the Western Asset Total Return Unconstrained Fund.

In relative terms (i.e., relative to each Portfolios’ composite benchmark), the leading detractors from performance were the Legg Mason Strategic Real Return Fund, the Royce Value Fund, and the ClearBridge Appreciation Fund.

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

A. There were no significant changes to the Portfolios during the reporting period.

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

Sincerely,

LOGO

Steven Bleiberg

Portfolio Manager

Legg Mason Global Asset Allocation, LLC

LOGO

Y. Wayne Lin

Portfolio Manager

Legg Mason Global Asset Allocation, LLC

LOGO

Patricia Duffy Maxwell

Portfolio Manager

Legg Mason Global Asset Allocation, LLC

January 24, 2014

RISKS: Equity securities are subject to price fluctuation. Fixed-income securities are subject to interest rate and credit risks. Foreign securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets. Investments in small- and mid-capitalization companies may involve a higher degree of risk and volatility than investments in larger, more established companies. As interest rates rise, bond prices fall, reducing the value of the Portfolios’ share prices. High-yield bonds involve greater credit and liquidity risks than investment grade bonds. There are additional risks and other expenses associated with investing in other mutual funds rather than directly in portfolio securities. Certain underlying funds may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Portfolio performance. Additionally, the portfolio managers may invest in underlying funds that have a limited performance history. Please see the Portfolios’ prospectuses for a more complete discussion of these and other risks, and the Portfolios’ investment strategies.

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

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


Legg Mason Variable Lifestyle Series 2013 Annual Report		5

Portfolios overview (cont’d)

ⁱ	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.

ⁱⁱ

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market.

ⁱⁱⁱ

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The 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.

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

^v	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.

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

^vii	The Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

^viii

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.

^ix	The price-to-earnings (“P/E”) ratio is a stock’s price divided by its earnings per share.

^x	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.

^xi

The Lifestyle Allocation 85% Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 45% Russell 1000 Index, 20% Russell 2000 Index, 20% MSCI EAFE Index, 10% Barclays U.S. Aggregate Index and 5% Barclays U.S. Corporate High Yield — 2% Issuer Cap Index.

^xii

The Lifestyle Allocation 70% Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 40% Russell 1000 Index, 15% Russell 2000 Index, 15% MSCI EAFE Index, 25% Barclays U.S. Aggregate Index and 5% Barclays U.S. Corporate High Yield — 2% Issuer Cap Index.

^xiii

The Lifestyle Allocation 50% Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 28% Russell 1000 Index, 12% Russell 2000 Index, 10% MSCI EAFE Index, 43% Barclays U.S. Aggregate Index and 7% Barclays U.S. Corporate High Yield — 2% Issuer Cap Index.


6		Legg Mason Variable Lifestyle Series 2013 Annual Report

Portfolios at a glance (unaudited)

Legg Mason Variable Lifestyle Allocation 85% Breakdown† as of — December 31, 2013

As a Percent of Total Long-Term Investments

LOGO


% of Total Long-Term Investments		Top 5 Sectors
	11.6 Legg Mason Partners Equity Trust — Legg Mason Batterymarch U.S. Large Cap Equity Fund, Class IS Shares	Information Technology Consumer Discretionary Financials Health Care Energy
	11.2 Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	Financials Industrials Energy Health Care Information Technology
	11.0 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares	Information Technology Financials Consumer Discretionary Health Care Industrials
	10.7 Legg Mason Partners Equity Trust — ClearBridge International All Cap Opportunity Fund, Class IS Shares	Financials Industrials Consumer Discretionary Information Technology Materials
	10.5 Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares	Health Care Consumer Discretionary Information Technology Energy Industrials
	9.8 Legg Mason Global Asset Management Trust — Legg Mason Batterymarch International Equity Trust, Class IS Shares	Financials Consumer Discretionary Industrials Health Care Materials
	7.5 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Industrials Financials

†	Subject to change at any time.


% of Total Long-Term Investments		Top 5 Sectors
	7.4 The Royce Fund — Royce Value Fund, Institutional Class Shares	Consumer Discretionary Information Technology Financials Energy Materials
	6.5 Legg Mason Global Asset Management Trust — Legg Mason Strategic Real Return Fund, Class IS Shares	U.S. Treasury Inflation Protected Securities Investments In Underlying Funds Financials Consumer Discretionary Information Technology
	5.1 Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares	Consumer Discretionary Financials Information Technology Health Care Industrials
	3.7 Western Asset Funds, Inc. — Western Asset Total Return Unconstrained Fund, Class IS Shares	U.S. Government & Agency Obligations Financials Collateralized Mortgage Obligations Asset-Backed Securities Consumer Discretionary
	2.8 Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares	Consumer Discretionary Energy Industrials Materials Financials
	2.2 Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares	Corporate Bonds & Notes Mortgage-Backed Securities Collateralized Mortgage Obligations U.S. Government & Agency Obligations Sovereign Bonds


Legg Mason Variable Lifestyle Series 2013 Annual Report		7

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

Legg Mason Variable Lifestyle Allocation 70% Breakdown† as of — December 31, 2013

As a Percent of Total Long-Term Investments

LOGO


% of Total Long-Term Investments		Top 5 Sectors
	10.8 Legg Mason Partners Equity Trust — Legg Mason Batterymarch U.S. Large Cap Equity Fund, Class IS Shares	Information Technology Consumer Discretionary Financials Health Care Energy
	10.3 Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	Financials Industrials Energy Health Care Information Technology
	10.1 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares	Information Technology Financials Consumer Discretionary Health Care Industrials
	9.7 Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares	Corporate Bonds & Notes Mortgage-Backed Securities Collateralized Mortgage Obligations U.S. Government & Agency Obligations Sovereign Bonds
	9.7 Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares	Health Care Consumer Discretionary Information Technology Energy Industrials
	9.3 Western Asset Funds, Inc. — Western Asset Total Return Unconstrained Fund, Class IS Shares	U.S. Government & Agency Obligations Financials Collateralized Mortgage Obligations Asset-Backed Securities Consumer Discretionary

†	Subject to change at any time.


% of Total Long-Term Investments		Top 5 Sectors
	7.7 Legg Mason Partners Equity Trust — ClearBridge International All Cap Opportunity Fund, Class IS Shares	Financials Industrials Consumer Discretionary Information Technology Materials
	6.6 Legg Mason Global Asset Management Trust — Legg Mason Strategic Real Return Fund, Class IS Shares	U.S. Treasury Inflation Protected Securities Investments In Underlying Funds Financials Consumer Discretionary Information Technology
	6.4 Legg Mason Global Asset Management Trust — Legg Mason Batterymarch International Equity Trust, Class IS Shares	Financials Consumer Discretionary Industrials Health Care Materials
	5.5 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Industrials Financials
	5.4 The Royce Fund — Royce Value Fund, Institutional Class Shares	Consumer Discretionary Information Technology Financials Energy Materials
	4.6 Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares	Consumer Discretionary Financials Information Technology Health Care Industrials
	3.9 Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares	Consumer Discretionary Energy Industrials Materials Financials


8		Legg Mason Variable Lifestyle Series 2013 Annual Report

Legg Mason Variable Lifestyle Allocation 50% Breakdown† as of — December 31, 2013

As a Percent of Total Long-Term Investments

LOGO


% of Total Long-Term Investments		Top 5 Sectors
	24.1 Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares	Corporate Bonds & Notes Mortgage-Backed Securities Collateralized Mortgage Obligations U.S. Government & Agency Obligations Sovereign Bonds
	12.4 Western Asset Funds, Inc. — Western Asset Total Return Unconstrained Fund, Class IS Shares	U.S. Government & Agency Obligations Financials Collateralized Mortgage Obligations Asset-Backed Securities Consumer Discretionary
	7.8 Legg Mason Partners Equity Trust — Legg Mason Batterymarch U.S. Large Cap Equity Fund, Class IS Shares	Information Technology Consumer Discretionary Financials Health Care Energy
	7.5 Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	Financials Industrials Energy Health Care Information Technology
	7.2 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares	Information Technology Financials Consumer Discretionary Health Care Industrials
	6.7 Legg Mason Global Asset Management Trust — Legg Mason Strategic Real Return Fund, Class IS Shares	U.S. Treasury Inflation Protected Securities Investments In Underlying Funds Financials Consumer Discretionary Information Technology

†	Subject to change at any time.


% of Total Long-Term Investments		Top 5 Sectors
	6.6 Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares	Health Care Consumer Discretionary Information Technology Energy Industrials
	5.9 Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares	Consumer Discretionary Energy Industrials Materials Financials
	4.6 Legg Mason Partners Equity Trust — ClearBridge International All Cap Opportunity Fund, Class IS Shares	Financials Industrials Consumer Discretionary Information Technology Materials
	4.6 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Industrials Financials
	4.5 The Royce Fund — Royce Value Fund, Institutional Class Shares	Consumer Discretionary Information Technology Financials Energy Materials
	4.4 Legg Mason Global Asset Management Trust — Legg Mason Batterymarch International Equity Trust, Class IS Shares	Financials Consumer Discretionary Industrials Health Care Materials
	3.7 Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares	Consumer Discretionary Financials Information Technology Health Care Industrials


Legg Mason Variable Lifestyle Series 2013 Annual Report		9

Portfolios expenses (unaudited)

Example

As a shareholder of the Portfolios, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees; and other Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolios 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, 2013 and held for the six months ended December 31, 2013.

Actual expenses

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

Hypothetical example for comparison purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not each 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 Portfolios and other portfolios. To do so, compare the 5.00% hypothetical example relating to the Portfolios with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

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


Based on actual total return¹													Based on hypothetical total return¹
	Actual Total Return²			Beginning Account Value		Ending Account Value		Annualized Expense Ratio³			Expenses Paid During the Period⁴			Hypothetical Annualized Total Return			Beginning Account Value		Ending Account Value		Annualized Expense Ratio³			Expenses Paid During the Period⁴
Legg Mason Variable Lifestyle Allocation 85%		15.51	%	$	1,000.00	$	1,155.10		0.11	%	$	0.60	Legg Mason Variable Lifestyle Allocation 85%		5.00	%	$	1,000.00	$	1,024.65		0.11	%	$	0.56
Legg Mason Variable Lifestyle Allocation 70%		12.88			1,000.00		1,128.80		0.18			0.97	Legg Mason Variable Lifestyle Allocation 70%		5.00			1,000.00		1,024.30		0.18			0.92
Legg Mason Variable Lifestyle Allocation 50%		9.57			1,000.00		1,095.70		0.10			0.53	Legg Mason Variable Lifestyle Allocation 50%		5.00			1,000.00		1,024.70		0.10			0.51

¹	For the six months ended December 31, 2013.

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

³	Does not include expenses of the Underlying Funds in which each Portfolio invests.

⁴

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each Portfolio’s respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365.


10		Legg Mason Variable Lifestyle Series 2013 Annual Report

Portfolio performance (unaudited)

Legg Mason Variable Lifestyle Allocation 85%


Average annual total returns¹

Twelve Months Ended 12/31/13	26.50	%
Five Years Ended 12/31/13	17.03
Ten Years Ended 12/31/13	6.19


Cumulative total returns¹
12/31/03 through 12/31/13	82.37	%

Legg Mason Variable Lifestyle Allocation 70%


Average annual total returns¹

Twelve Months Ended 12/31/13	21.82	%
Five Years Ended 12/31/13	16.23
Ten Years Ended 12/31/13	6.26


Cumulative total returns¹
12/31/03 through 12/31/13	83.51	%

Legg Mason Variable Lifestyle Allocation 50%


Average annual total returns¹

Twelve Months Ended 12/31/13	15.33	%
Five Years Ended 12/31/13	14.83
Ten Years Ended 12/31/13	5.98


Cumulative total returns¹
12/31/03 through 12/31/13	78.79	%

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

¹	Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value.


Legg Mason Variable Lifestyle Series 2013 Annual Report		11

Portfolios performance (unaudited) (cont’d)

Historical performance

Value of $10,000 invested in

Legg Mason Variable Lifestyle Allocation 85% vs. Benchmark Indices† — December 2003 - December 2013

LOGO

†

Hypothetical illustration of $10,000 invested in Legg Mason Variable Lifestyle Allocation 85% on December 31, 2003, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2013. The hypothetical illustration also assumes a $10,000 investment in the Barclays U.S. Aggregate Index, Russell 3000 Index and Lifestyle Allocation 85% Composite Benchmark. The Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. The Lifestyle Allocation 85% Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 45% Russell 1000 Index, 20% Russell 2000 Index, 20% MSCI EAFE Index, 10% Barclays U.S. Aggregate Index and 5% Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. 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 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. The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The Indices are unmanaged and are not subject to the same management and trading expenses of a mutual fund. Please note that an investor cannot invest directly in an index.


12		Legg Mason Variable Lifestyle Series 2013 Annual Report

Historical performance

Value of $10,000 invested in

Legg Mason Variable Lifestyle Allocation 70% vs. Benchmark Indices† — December 2003 - December 2013

LOGO

†

Hypothetical illustration of $10,000 invested in Legg Mason Variable Lifestyle Allocation 70% on December 31, 2003, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2013. The hypothetical illustration also assumes a $10,000 investment in the Barclays U.S. Aggregate Index, Russell 3000 Index and Lifestyle Allocation 70% Composite Benchmark. The Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market. The Lifestyle Allocation 70% Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 40% Russell 1000 Index, 15% Russell 2000 Index, 15% MSCI EAFE Index, 25% Barclays U.S. Aggregate Index and 5% Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. 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 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. The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The Indices are unmanaged and are not subject to the same management and trading expenses of a mutual fund. Please note that an investor cannot invest directly in an index.


Legg Mason Variable Lifestyle Series 2013 Annual Report		13

Portfolios performance (unaudited) (cont’d)

Historical performance

Value of $10,000 invested in

Legg Mason Variable Lifestyle Allocation 50% vs. Benchmark Indices† — December 2003 - December 2013

LOGO

†

Hypothetical illustration of $10,000 invested in Legg Mason Variable Lifestyle Allocation 50% on December 31, 2003, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2013. The hypothetical illustration also assumes a $10,000 investment in the Barclays U.S. Aggregate Index, Russell 1000 Index and Lifestyle Allocation 50% Composite Benchmark. The Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. The Lifestyle Allocation 50% Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 28% Russell 1000 Index, 12% Russell 2000 Index, 10% MSCI EAFE Index, 43% Barclays U.S. Aggregate Index and 7% Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. 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. The MSCI EAFE Index is a free float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The Indices are unmanaged and are not subject to the same management and trading expenses of a mutual fund. Please note that an investor cannot invest directly in an index.


14		Legg Mason Variable Lifestyle Series 2013 Annual Report

Schedules of investments

December 31, 2013

Legg Mason Variable Lifestyle Allocation 85%


Description	Shares		Value
Investments in Underlying Funds^(a) — 100.0%
Legg Mason Global Asset Management Trust:
Legg Mason Batterymarch International Equity Trust, Class IS Shares		855,408		$ 12,779,795
Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares		766,070		14,494,050
Legg Mason Strategic Real Return Fund, Class IS Shares		604,144		8,403,638
Legg Mason Partners Equity Trust:
ClearBridge Aggressive Growth Fund, Class IS Shares		69,326		13,658,671
ClearBridge Appreciation Fund, Class IS Shares		737,916		14,212,255
ClearBridge International All Cap Opportunity Fund, Class IS Shares		1,226,923		13,864,231
ClearBridge Mid Cap Core Fund, Class IS Shares		207,118		6,582,194
ClearBridge Small Cap Growth Fund, Class IS Shares		327,874		9,750,960
Legg Mason Batterymarch U.S. Large Cap Equity Fund, Class IS Shares		970,629		15,035,036
The Royce Fund — Royce Value Fund, Institutional Class Shares		705,566		9,546,306
Western Asset Funds, Inc.:
Western Asset Core Plus Bond Fund, Class IS Shares		257,644		2,883,041
Western Asset High Yield Fund, Class IS Shares		404,837		3,688,067
Western Asset Total Return Unconstrained Fund, Class IS Shares		451,910		4,763,130
Total Investments in Underlying Funds (Cost — $87,661,481)				129,661,374
Total Investments — 100.0% (Cost — $87,661,481#)				129,661,374
Liabilities in Excess of Other Assets — (0.0)%				(60,243)
Total Net Assets — 100.0%				$129,601,131

^(a)	Underlying Fund is affiliated with Legg Mason, Inc. and more information about the Underlying Fund is available at www.leggmason.com/individualinvestors.

#	Aggregate cost for federal income tax purposes is $95,753,105.

See Notes to Financial Statements.


Legg Mason Variable Lifestyle Series 2013 Annual Report		15

Schedules of investments (cont’d)

December 31, 2013

Legg Mason Variable Lifestyle Allocation 70%


Description	Shares		Value
Investments in Underlying Funds^(a) — 100.2%
Legg Mason Global Asset Management Trust:
Legg Mason Batterymarch International Equity Trust, Class IS Shares		227,257		$ 3,395,223
Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares		288,927		5,466,495
Legg Mason Strategic Real Return Fund, Class IS Shares		249,912		3,476,277
Legg Mason Partners Equity Trust:
ClearBridge Aggressive Growth Fund, Class IS Shares		25,936		5,109,836
ClearBridge Appreciation Fund, Class IS Shares		277,766		5,349,765
ClearBridge International All Cap Opportunity Fund, Class IS Shares		359,981		4,067,785
ClearBridge Mid Cap Core Fund, Class IS Shares		77,256		2,455,192
ClearBridge Small Cap Growth Fund, Class IS Shares		98,471		2,928,523
Legg Mason Batterymarch U.S. Large Cap Equity Fund, Class IS Shares		366,935		5,683,821
The Royce Fund — Royce Value Fund, Institutional Class Shares		211,628		2,863,322
Western Asset Funds, Inc.:
Western Asset Core Plus Bond Fund, Class IS Shares		456,693		5,110,390
Western Asset High Yield Fund, Class IS Shares		223,439		2,035,530
Western Asset Total Return Unconstrained Fund, Class IS Shares		467,280		4,925,136
Total Investments in Underlying Funds (Cost — $35,951,643)				52,867,295
Total Investments — 100.2% (Cost — $35,951,643#)				52,867,295
Liabilities in Excess of Other Assets — (0.2)%				(106,383)
Total Net Assets — 100.0%				$52,760,912

^(a)	Underlying Fund is affiliated with Legg Mason, Inc. and more information about the Underlying Fund is available at www.leggmason.com/individualinvestors.

#	Aggregate cost for federal income tax purposes is $39,905,841.

See Notes to Financial Statements.


16		Legg Mason Variable Lifestyle Series 2013 Annual Report

Legg Mason Variable Lifestyle Allocation 50%


Description	Shares		Value
Investments in Underlying Funds^(a) — 99.9%
Legg Mason Global Asset Management Trust:
Legg Mason Batterymarch International Equity Trust, Class IS Shares		372,674		$ 5,567,745
Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares		495,497		9,374,804
Legg Mason Strategic Real Return Fund, Class IS Shares		606,474		8,436,049
Legg Mason Partners Equity Trust:
ClearBridge Aggressive Growth Fund, Class IS Shares		42,422		8,357,963
ClearBridge Appreciation Fund, Class IS Shares		471,394		9,079,045
ClearBridge International All Cap Opportunity Fund, Class IS Shares		510,229		5,765,587
ClearBridge Mid Cap Core Fund, Class IS Shares		145,551		4,625,616
ClearBridge Small Cap Growth Fund, Class IS Shares		192,859		5,735,626
Legg Mason Batterymarch U.S. Large Cap Equity Fund, Class IS Shares		634,232		9,824,253
The Royce Fund — Royce Value Fund, Institutional Class Shares		415,054		5,615,685
Western Asset Funds, Inc.:
Western Asset Core Plus Bond Fund, Class IS Shares		2,703,812		30,255,660
Western Asset High Yield Fund, Class IS Shares		812,870		7,405,244
Western Asset Total Return Unconstrained Fund, Class IS Shares		1,472,431		15,519,428
Total Investments in Underlying Funds (Cost — $94,782,751)				125,562,705
Total Investments — 99.9% (Cost — $94,782,751#)				125,562,705
Other Assets in Excess of Liabilities — 0.1%				74,388
Total Net Assets — 100.0%				$125,637,093

^(a)	Underlying Fund is affiliated with Legg Mason, Inc. and more information about the Underlying Funds is available at www.leggmason.com/individualinvestors.

#	Aggregate cost for federal income tax purposes is $103,073,693.

See Notes to Financial Statements.


Legg Mason Variable Lifestyle Series 2013 Annual Report		17

Statements of assets and liabilities

December 31, 2013


	Legg Mason Variable Lifestyle Allocation 85%		Legg Mason Variable Lifestyle Allocation 70%		Legg Mason Variable Lifestyle Allocation 50%

Assets:
Investments, at cost	$	87,661,481	$	35,951,643	$	94,782,751
Investments, at value		129,661,374		52,867,295		125,562,705
Receivable for Portfolio shares sold		—		280		148,711
Prepaid expenses		2,186		1,220		2,206
*Total Assets*		*129,663,560*		*52,868,795*		*125,713,622*

Liabilities:
Due to custodian		11,138		14,324		12,186
Payable for Portfolio shares repurchased		2,831		51,950		16,874
Accrued expenses		48,460		41,609		47,469
*Total Liabilities*		*62,429*		*107,883*		*76,529*
Total Net Assets	$	129,601,131	$	52,760,912	$	125,637,093

Net Assets:
Par value (Note 5)	$	78	$	38	$	88
Paid-in capital in excess of par value		94,373,450		48,132,540		119,807,795
Undistributed net investment income		216,714		113,680		64,579
Accumulated net realized loss on Underlying Funds and capital gain distributions from Underlying Funds		(6,989,004)		(12,400,998)		(25,015,323)
Net unrealized appreciation on investments		41,999,893		16,915,652		30,779,954
Total Net Assets	$	129,601,131	$	52,760,912	$	125,637,093

Shares Outstanding		7,847,808		3,755,379		8,834,852

Net Asset Value		$16.51		$14.05		$14.22

See Notes to Financial Statements.


18		Legg Mason Variable Lifestyle Series 2013 Annual Report

Statements of operations

For the Year Ended December 31, 2013


	Legg Mason Variable Lifestyle Allocation 85%		Legg Mason Variable Lifestyle Allocation 70%		Legg Mason Variable Lifestyle Allocation 50%

Investment Income:
Income distributions from Underlying Funds	$	1,313,037	$	718,923	$	2,282,154
Interest		48		35		207
*Total Investment Income*		*1,313,085*		*718,958*		*2,282,361*

Expenses:
Shareholder reports		41,027		19,543		35,742
Audit and tax		27,955		27,489		27,969
Legal fees		27,657		28,121		27,365
Fund accounting fees		12,055		5,264		12,151
Trustees’ fees		8,374		3,733		8,523
Transfer agent fees		6,443		6,450		6,465
Insurance		3,328		1,954		3,443
Custody fees		60		24		81
Miscellaneous expenses		4,399		4,283		4,404
*Total Expenses*		*131,298*		*96,861*		*126,143*
Net Investment Income		1,181,787		622,097		2,156,218

Realized and Unrealized Gain (Loss) on Underlying Funds and Capital Gain Distributions From Underlying Funds (Notes 1 and 3):
Net Realized Gain From:
Sale of Underlying Funds		1,392,881		2,225,991		1,714,837
Capital gain distributions from Underlying Funds		3,154,921		1,139,625		2,095,835
*Net Realized Gain*		*4,547,802*		*3,365,616*		*3,810,672*
*Change in Net Unrealized Appreciation (Depreciation) on Underlying Funds*		*22,785,922*		*6,451,681*		*11,379,012*
Net Gain on Underlying Funds and Capital Gain Distributions from Underlying Funds		27,333,724		9,817,297		15,189,684
Increase in Net Assets From Operations	$	28,515,511	$	10,439,394	$	17,345,902

See Notes to Financial Statements.


Legg Mason Variable Lifestyle Series 2013 Annual Report		19

Statements of changes in net assets

Legg Mason Variable Lifestyle Allocation 85%


For the Years Ended December 31,	2013		2012

Operations:
Net investment income	$	1,181,787	$	2,018,691
Net realized gain		4,547,802		101,888
Change in net unrealized appreciation (depreciation)		22,785,922		13,746,979
*Increase in Net Assets From Operations*		*28,515,511*		*15,867,558*

Distributions to Shareholders From (Note 1):
Net investment income		(2,000,012)		(1,968,126)
*Decrease in Net Assets From Distributions to Shareholders*		*(2,000,012)*		*(1,968,126)*

Portfolio Share Transactions (Note 5):
Net proceeds from sale of shares		2,537,477		8,229,948
Reinvestment of distributions		2,000,012		1,968,126
Cost of shares repurchased		(13,380,502)		(12,205,466)
*Decrease in Net Assets From Portfolio Share Transactions*		*(8,843,013)*		*(2,007,392)*
*Increase in Net Assets*		*17,672,486*		*11,892,040*

Net Assets:
Beginning of year		111,928,645		100,036,605
End of year*	$	129,601,131	$	111,928,645
* Includes undistributed net investment income of:		$216,714		$476,790

See Notes to Financial Statements.


20		Legg Mason Variable Lifestyle Series 2013 Annual Report

Statements of changes in net assets

Legg Mason Variable Lifestyle Allocation 70%


For the Years Ended December 31,	2013		2012

Operations:
Net investment income	$	622,097	$	1,043,446
Net realized gain		3,365,616		521,862
Change in net unrealized appreciation (depreciation)		6,451,681		5,991,594
*Increase in Net Assets From Operations*		*10,439,394*		*7,556,902*

Distributions to Shareholders From (Note 1):
Net investment income		(800,005)		(1,263,631)
*Decrease in Net Assets From Distributions to Shareholders*		*(800,005)*		*(1,263,631)*

Portfolio Share Transactions (Note 5):
Net proceeds from sale of shares		482,007		401,500
Reinvestment of distributions		800,005		1,263,631
Cost of shares repurchased		(10,273,728)		(12,145,672)
*Decrease in Net Assets From Portfolio Share Transactions*		*(8,991,716)*		*(10,480,541)*
*Increase (Decrease) in Net Assets*		*647,673*		*(4,187,270)*

Net Assets:
Beginning of year		52,113,239		56,300,509
End of year*	$	52,760,912	$	52,113,239
* Includes undistributed net investment income of:		$113,680		$106,274

See Notes to Financial Statements.


Legg Mason Variable Lifestyle Series 2013 Annual Report		21

Statements of changes in net assets

Legg Mason Variable Lifestyle Allocation 50%


For the Years Ended December 31,	2013		2012

Operations:
Net investment income	$	2,156,218	$	2,807,867
Net realized gain		3,810,672		1,723,308
Change in net unrealized appreciation (depreciation)		11,379,012		9,886,036
*Increase in Net Assets From Operations*		*17,345,902*		*14,417,211*	��

Distributions to Shareholders From (Note 1):
Net investment income		(2,500,016)		(3,118,397)
*Decrease in Net Assets From Distributions to Shareholders*		*(2,500,016)*		*(3,118,397)*

Portfolio Share Transactions (Note 5):
Net proceeds from sale of shares		10,070,972		8,552,039
Reinvestment of distributions		2,500,016		3,118,397
Cost of shares repurchased		(18,340,250)		(21,383,729)
*Decrease in Net Assets From Portfolio Share Transactions*		*(5,769,262)*		*(9,713,293)*
*Increase in Net Assets*		*9,076,624*		*1,585,521*

Net Assets:
Beginning of year		116,560,469		114,974,948
End of year*	$	125,637,093	$	116,560,469
* Includes undistributed net investment income of:		$64,579		$65,112

See Notes to Financial Statements.


22		Legg Mason Variable Lifestyle Series 2013 Annual Report

Financial highlights

Legg Mason Variable Lifestyle Allocation 85%


For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
	2013¹			2012¹			2011			2010			2009²			2009³

Net asset value, beginning of year		$13.26			$11.65			$12.11			$10.63			$7.73			$12.75

Income (loss) from operations:
Net investment income		0.15			0.23	⁴		0.20	⁴		0.18			0.20	⁴		0.23	⁴
Net realized and unrealized gain (loss)		3.35			1.61			(0.48)			1.48			2.92			(4.97)
*Total income (loss) from operations*		*3.50*			*1.84*			*(0.28)*			*1.66*			*3.12*			*(4.74)*

Less distributions from:
Net investment income		(0.25)			(0.23)			(0.18)			(0.18)			(0.22)			(0.20)
Net realized gains		—			—			—			—			—			(0.08)
*Total distributions*		*(0.25)*			*(0.23)*			*(0.18)*			*(0.18)*			*(0.22)*			*(0.28)*

Net asset value, end of year		$16.51			$13.26			$11.65			$12.11			$10.63			$7.73
*Total return⁵*		*26.50*	%		*15.89*	%		*(2.31)*	%		*15.70*	%⁶		*40.53*	%⁶		*(37.53)*	%

Net assets, end of year (000s)		$129,601			$111,929			$100,037			$103,838			$89,463			$59,371

Ratios to average net assets:
Gross expenses⁷		0.11	%		0.11	%		0.11	%		0.15	%		0.21	%⁸		0.15	%
Net expenses^7,9,10		0.11			0.11			0.11			0.15			0.19	^8,11		0.12	¹¹
Net investment income		0.98			1.85	⁴		1.64	⁴		1.65			2.52	^4,8		2.30	⁴

Portfolio turnover rate		9	%		14	%		40	%		17	%		10	%		34	%

¹	Per share amounts have been calculated using the average shares method.

²	For the period February 1, 2009 through December 31, 2009.

³	For the year ended January 31.

⁴	Net investment income includes short-term capital gain distributions from Underlying Funds.

⁵

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

⁶	The total return includes gains from settlement of investment litigations. Without these gains, the total return would have been 15.60% and 39.87% for the year ended December 31, 2010 and the period ended December 31, 2009, respectively.

⁷	Does not include expenses of the Underlying Funds in which the Portfolio invests.

⁸	Annualized.

⁹	The impact of compensating balance arrangements, if any, was less than 0.01%.

¹⁰

As a result of an expense limitation arrangement, effective December 1, 2007, the ratio of expenses, other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2015 without the Board of Trustees’ consent.

¹¹	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


Legg Mason Variable Lifestyle Series 2013 Annual Report		23

Financial highlights (cont’d)

Legg Mason Variable Lifestyle Allocation 70%


For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
	2013¹			2012¹			2011			2010			2009²			2009³

Net asset value, beginning of year		$11.71			$10.47			$10.74			$9.53			$7.09			$10.94

Income (loss) from operations:
Net investment income		0.15			0.21	⁴		0.22	⁴		0.22			0.27	⁴		0.30	⁴
Net realized and unrealized gain (loss)		2.40			1.31			(0.28)			1.20			2.47			(3.89)
*Total income (loss) from operations*		*2.55*			*1.52*			*(0.06)*			*1.42*			*2.74*			*(3.59)*

Less distributions from:
Net investment income		(0.21)			(0.28)			(0.21)			(0.21)			(0.30)			(0.25)
Net realized gains		—			—			—			—			—			(0.01)
*Total distributions*		*(0.21)*			*(0.28)*			*(0.21)*			*(0.21)*			*(0.30)*			*(0.26)*

Net asset value, end of year		$14.05			$11.71			$10.47			$10.74			$9.53			$7.09
*Total return⁵*		*21.82*	%		*14.60*	%		*(0.58)*	%		*15.01*	%⁶		*38.90*	%⁶		*(33.03)*	%

Net assets, end of year (000s)		$52,761			$52,113			$56,301			$69,946			$71,982			$59,526

Ratios to average net assets:
Gross expenses⁷		0.18	%		0.17	%		0.14	%		0.20	%		0.23	%⁸		0.14	%
Net expenses^7,9,10		0.18			0.17	¹¹		0.14			0.18	¹¹		0.20	^8,11		0.10	¹¹
Net investment income		1.17			1.90	⁴		1.83	⁴		2.02			3.32	^4,8		2.89	⁴

Portfolio turnover rate		9	%		11	%		30	%		14	%		11	%		26	%

¹	Per share amounts have been calculated using the average shares method.

²	For the period February 1, 2009 through December 31, 2009.

³	For the year ended January 31.

⁴	Net investment income includes short-term capital gain distributions from Underlying Funds.

⁵

⁶	The total return includes gains from settlement of investment litigations. Without these gains, the total return would have been 14.79% and 37.59% for the year ended December 31, 2010 and the period ended December 31, 2009, respectively.

⁷	Does not include expenses of the Underlying Funds in which the Portfolio invests.

⁸	Annualized.

⁹	The impact of compensating balance arrangements, if any, was less than 0.01%.

¹⁰

¹¹	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


24		Legg Mason Variable Lifestyle Series 2013 Annual Report

Legg Mason Variable Lifestyle Allocation 50%


For a share of beneficial interest outstanding throughout each year ended December 31, unless otherwise noted:
	2013¹			2012¹			2011			2010			2009²			2009³

Net asset value, beginning of year		$12.58			$11.43			$11.60			$10.45			$8.06			$12.04

Income (loss) from operations:
Net investment income		0.24			0.29	⁴		0.30	⁴		0.34			0.43	⁴		0.46	⁴
Net realized and unrealized gain (loss)		1.69			1.20			(0.16)			1.15			2.44			(3.65)
*Total income (loss) from operations*		*1.93*			*1.49*			*0.14*			*1.49*			*2.87*			*(3.19)*

Less distributions from:
Net investment income		(0.29)			(0.34)			(0.31)			(0.34)			(0.48)			(0.40)
Net realized gains		—			—			—			—			—			(0.39)
*Total distributions*		*(0.29)*			*(0.34)*			*(0.31)*			*(0.34)*			*(0.48)*			*(0.79)*

Net asset value, end of year		$14.22			$12.58			$11.43			$11.60			$10.45			$8.06
*Total return⁵*		*15.33*	%		*13.10*	%		*1.17*	%		*14.35*	%⁶		*35.93*	%⁶		*(27.51)*	%

Net assets, end of year (000s)		$125,637			$116,560			$114,975			$125,315			$126,294			$112,415

Ratios to average net assets:
Gross expenses⁷		0.10	%		0.10	%		0.09	%		0.13	%		0.14	%⁸		0.09	%
Net expenses^7,9,10		0.10			0.10			0.09			0.13			0.14	⁸		0.07	¹¹
Net investment income		1.77			2.39	⁴		2.44	⁴		2.89			4.66	^4,8		3.96	⁴

Portfolio turnover rate		13	%		14	%		37	%		20	%		11	%		24	%

¹	Per share amounts have been calculated using the average shares method.

²	For the period February 1, 2009 through December 31, 2009.

³	For the year ended January 31.

⁴	Net investment income includes short-term capital gain distributions from Underlying Funds.

⁵

⁶	The total return includes gains from settlement of investment litigations. Without these gains, the total return would have been 14.25% and 35.54% for the year ended December 31, 2010 and the period ended December 31, 2009, respectively.

⁷	Does not include expenses of the Underlying Funds in which the Portfolio invests.

⁸	Annualized.

⁹	The impact of compensating balance arrangements, if any, was less than 0.01%.

¹⁰

¹¹	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


Legg Mason Variable Lifestyle Series 2013 Annual Report		25

Notes to financial statements

1. Organization and significant accounting policies

Legg Mason Variable Lifestyle Allocation 85% (“Lifestyle Allocation 85%”), Legg Mason Variable Lifestyle Allocation 70% (“Lifestyle Allocation 70%”) and Legg Mason Variable Lifestyle Allocation 50% (“Lifestyle Allocation 50%”) (the “Portfolios”) are separate non-diversified investment series of Legg Mason Partners Variable Equity Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Portfolios invest in other mutual funds (“Underlying Funds”) which are affiliated with Legg Mason, Inc. (“Legg Mason”). Shares of the Portfolios are offered to separate accounts sponsored by certain life insurance companies and qualified pension and retirement plans, including affiliates of the investment manager.

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

(a) Investment valuation. Investments in the Underlying Funds, excluding ETF’s, are valued at the closing net asset value per share of each Underlying Fund on the day of valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of fair valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. When the Portfolios hold securities or other assets that are denominated in a foreign currency, the Portfolios will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Portfolios calculate their net asset value, the Portfolios value these securities as determined in accordance with procedures approved by the Portfolios’ Board of Trustees.

The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Portfolios’ pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Portfolios, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities. Additionally, if the closing net asset value per share for an Underlying Fund is not available on the day of valuation, the Valuation Committee may adjust the Underlying Fund’s last available net asset value per share to account for significant events that have occurred subsequent to the Underlying Fund’s last net asset value per share calculation but prior to the day of valuation.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.


26		Legg Mason Variable Lifestyle Series 2013 Annual Report

The Portfolios use valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

Level 1 — quoted prices in active markets for identical investments

Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

Level 3 — significant unobservable inputs (including the Portfolios’ own assumptions in determining the fair value of investments)

The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

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

Lifestyle Allocation 85%


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investments in underlying funds†	$	129,661,374		—		—	$	129,661,374

†	See Schedules of Investments for additional detailed categorizations.

Lifestyle Allocation 70%


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investments in underlying funds†	$	52,867,295		—		—	$	52,867,295

†	See Schedules of Investments for additional detailed categorizations.

Lifestyle Allocation 50%


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investments in underlying funds†	$	125,562,705		—		—	$	125,562,705

†	See Schedules of Investments for additional detailed categorizations.

(b) Repurchase Agreements. The Portfolios may enter into repurchase agreements with institutions that their investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Portfolios acquire a debt security subject to an obligation of the seller to repurchase, and of the Portfolios to resell, the security at an agreed-upon price and time, thereby determining the yield during the Portfolios’ holding period. When entering into repurchase agreements, it is the Portfolios’ policy that their custodian or a third party custodian, acting on the Portfolios’ behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Portfolios generally have the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Portfolios seek to assert their rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Portfolios may be delayed or limited.

(c) Fund of funds risk. Your cost of investing in the Portfolios, as funds of funds, may be higher than the cost of investing in a mutual fund that only invests directly in individual securities. An underlying fund may change its investment objective or policies without the


Legg Mason Variable Lifestyle Series 2013 Annual Report		27

Notes to financial statements (cont’d)

Portfolios’ approval, which could force the Portfolios to withdraw their investments from such underlying fund at a time that is unfavorable to the Portfolios. In addition, one underlying fund may buy the same securities that another underlying fund sells. Therefore, the Portfolios would indirectly bear the costs of these trades without accomplishing any investment purpose.

(d) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Net investment income distributions, if any, from the Underlying Funds are recorded on the ex-dividend date as investment income. Interest income is recorded on an accrual basis. Short-term and long-term capital gain distributions, if any, from the Underlying Funds are recorded on the ex-dividend date as realized gains. The cost of investments sold is determined by use of the specific identification method.

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

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

(g) Federal and other taxes. It is the Portfolios’ policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Portfolios intend to distribute their taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Portfolios’ financial statements.

Management has analyzed the Portfolios’ tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2013, no provision for income tax would be required in the Portfolios’ financial statements. The Portfolios’ federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

(h) Reclassification. GAAP requires that certain components of net assets be 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 period, the Portfolios had the following reclassifications.


Fund		Undistributed Net Investment Income		Accumulated Net Realized (Loss)		Paid-in Capital
Lifestyle Allocation 85%	(a)	$	558,149	$	(558,149)		—
Lifestyle Allocation 70%	(b)		—		1,818,224	$	(1,818,224)
Lifestyle Allocation 70%	(a)		185,314		(185,314)		—
Lifestyle Allocation 50%	(a)		343,265		(343,265)		—

^(a)	Reclassifications are primarily due to Short-term Capital Gains from Underlying Funds treated as ordinary income for tax purposes.

^(b)	Reclassifications are primarily due to the expiration of a capital loss carryover.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is each Portfolio’s investment manager and Legg Mason Global Asset Allocation, LLC (“LMGAA”) is each Portfolio’s subadviser. Western Asset Management Company (“Western Asset”) manages each Portfolio’s cash and short-term instruments. LMPFA, LMGAA and Western Asset are wholly-owned subsidiaries of Legg Mason. The Portfolios do not pay a management fee or subadviser fee.

LMPFA provides administrative and certain oversight services to the Portfolios. LMPFA delegates to the subadviser the day-to-day portfolio management of the Portfolios, except, for the management of cash and short-term instruments, which is provided by Western Asset.

The Portfolios bear all expenses incurred in their operations, subject to LMPFA’s agreement to waive fees and/or reimburse expenses incurred directly by the Portfolios, such that each Portfolio’s total annual operating expenses (other than brokerage, interest, taxes, extraordinary expenses and Underlying Funds’ fees and expenses), are not expected to exceed 0.20% of each Portfolios’ average daily net assets. The investment manager is also permitted to recapture amounts waived and/or reimbursed to the Portfolios during the same fiscal year if the Portfolios’ total annual operating expenses have fallen to a level below the limit described above. In no case will the investment manager recapture any amount that would result, on any particular business day of the Portfolios, in the Portfolios’ total annual operating expenses exceeding this limit or any other lower limit then in effect. These expense limitation agreements cannot be terminated prior to December 31, 2015 without the Board of Trustees’ consent.


28		Legg Mason Variable Lifestyle Series 2013 Annual Report

In addition, the Portfolios indirectly pay management and/or administration fees to LMPFA and other wholly-owned subsidiaries of Legg Mason as a shareholder in the Underlying Funds. These management and administration fees ranged from 0.20% to 1.00% of the average daily net assets of the Underlying Funds.

Legg Mason Investor Services, LLC, a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Portfolios’ sole and exclusive distributor.

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

3. Investments

During the year ended December 31, 2013, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:


	Purchases		Sales
Lifestyle Allocation 85%	$	11,285,486	$	17,754,586
Lifestyle Allocation 70%		4,685,606		12,617,718
Lifestyle Allocation 50%		15,730,671		19,625,377

At December 31, 2013, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:


	Gross unrealized appreciation		Gross unrealized depreciation		Net unrealized appreciation
Lifestyle Allocation 85%	$	33,908,269		—	$	33,908,269
Lifestyle Allocation 70%		12,961,454		—		12,961,454
Lifestyle Allocation 50%		22,489,012		—		22,489,012

4. Derivative instruments and hedging activities

GAAP requires enhanced disclosure about an entity’s derivative and hedging activities.

During the year ended December 31, 2013, the Portfolios did not invest in any derivative instruments.

5. Shares of beneficial interest

At December 31, 2013, 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 Portfolios were as follows:


	Year Ended December 31, 2013		Year Ended December 31, 2012

Lifestyle Allocation 85%
Shares sold		173,909		658,044
Shares issued on reinvestment		125,465		152,558
Shares repurchased		(894,522)		(956,215)
Net decrease		(595,148)		(145,613)

Lifestyle Allocation 70%
Shares sold		37,682		34,301
Shares issued on reinvestment		58,336		110,591
Shares repurchased		(789,698)		(1,072,359)
Net decrease		(693,680)		(927,467)

Lifestyle Allocation 50%
Shares sold		750,378		693,104
Shares issued on reinvestment		176,821		250,894
Shares repurchased		(1,354,846)		(1,737,615)
Net decrease		(427,647)		(793,617)


Legg Mason Variable Lifestyle Series 2013 Annual Report		29

Notes to financial statements (cont’d)

6. Income tax information and distributions to shareholders

The tax character of distributions paid during the fiscal year ended December 31, 2013 were as follows:


	Lifestyle Allocation 85%		Lifestyle Allocation 70%		Lifestyle Allocation 50%

Distributions paid from:
Ordinary income	$	2,000,012	$	800,005	$	2,500,016

The tax character of distributions paid during the fiscal year ended December 31, 2012 were as follows:


	Lifestyle Allocation 85%		Lifestyle Allocation 70%		Lifestyle Allocation 50%

Distributions paid from:
Ordinary income	$	1,968,126	$	1,263,631	$	3,118,397

As of December 31, 2013, the components of accumulated earnings on a tax basis were as follows:


	Lifestyle Allocation 85%			Lifestyle Allocation 70%			Lifestyle Allocation 50%
Undistributed ordinary income — net	$	255,151		$	146,189		$	102,472
Undistributed long-term capital gains — net		1,102,620			—			—
Total undistributed earnings	$	1,357,771		$	146,189		$	102,472
Capital loss carryforward*		—			(8,446,800)			(16,724,381)
Other book/tax temporary differences		(38,437)	^(a)		(32,509)	^(a)		(37,893)	^(a)
Unrealized appreciation (depreciation)		33,908,269	^(b)		12,961,454	^(b)		22,489,012	^(b)
Total accumulated earnings (losses) — net	$	35,227,603		$	4,628,334		$	5,829,210

During the taxable year ended December 31, 2013, Lifestyle Allocation 85% utilized $ 3,128,693, Lifestyle Allocation 70% utilized $ 3,003,647 and Lifestyle Allocation 50% utilized $3,117,396 of it’s deferred capital losses and capital loss carryforwards available from prior years. As of December 31, 2013, the Portfolios had the following net capital loss carryforwards remaining:


Year of Expiration	Lifestyle Allocation 85%		Lifestyle Allocation 70%		Lifestyle Allocation 50%
12/31/2016		—	$	(1,548,306)	$	(1,420,792)
12/31/2017		—		(4,794,598)		(12,981,017)
12/31/2018		—		(2,103,896)		(2,322,572)
		—	$	(8,446,800)	$	(16,724,381)

These amounts will be available to offset any future taxable capital gains.

^(a)	Other book/tax temporary differences are attributable primarily to the 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. Recent accounting pronouncement

The Portfolios have adopted the disclosure provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Update 2011-11 (“ASU 2011-11”), Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities along with the related scope clarification provisions of FASB Accounting Standards Update 2013-01 (“ASU 2013-01”) entitled Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 is intended to enhance disclosures on the offsetting of financial assets and liabilities by requiring entities to disclose both gross and net information about financial instruments and transactions that are either offset in the statement of assets and liabilities or subject to a master netting agreement or similar arrangement. ASU 2013-01 limits the scope of ASU 2011-11’s disclosure requirements on offsetting to financial assets and financial liabilities related to derivatives, repurchase and reverse repurchase agreements, and securities lending and securities borrowing transactions.


30		Legg Mason Variable Lifestyle Series 2013 Annual Report

Report of independent registered public accounting firm

The Board of Trustees and Shareholders

Legg Mason Partners Variable Equity Trust:

We have audited the accompanying statements of assets and liabilities of Legg Mason Variable Lifestyle Allocation 85%, Legg Mason Variable Lifestyle Allocation 70%, and Legg Mason Variable Lifestyle Allocation 50%(collectively, the “Portfolios”), each a series of Legg Mason Partners Variable Equity Trust, including the schedules of investments, as of December 31, 2013, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the four-year period then ended, the period from February 1, 2009 to December 31, 2009, and the year ended January 31, 2009. These financial statements and financial highlights are the responsibility of the Portfolios’ 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, 2013, by correspondence with the investee funds’ transfer agent and brokers. 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 Variable Lifestyle Allocation 85%, Legg Mason Variable Lifestyle Allocation 70%, and Legg Mason Variable Lifestyle Allocation 50%, as of December 31, 2013, 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 four-year period then ended, the period from February 1, 2009 to December 31, 2009, and the year ended January 31, 2009, in conformity with U.S. generally accepted accounting principles.

LOGO

New York, New York

February 13, 2014


Legg Mason Variable Lifestyle Series 2013 Annual Report		31

Board approval of management and subadvisory agreements (unaudited)

Legg Mason Partners Variable Equity Trust —Legg Mason Variable Lifestyle Allocation 85%

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 Variable Lifestyle Allocation 85% (the “Fund”), pursuant to which Legg Mason Partners Fund Advisor, LLC (the “Manager”) provides the Fund with investment advisory and administrative services, the sub-advisory agreement pursuant to which Legg Mason Global Asset Allocation, LLC (“LMGAA”) provides day-to-day management of the Fund’s portfolio, and the sub-advisory agreement pursuant to which Western Asset Management Company (“Western Asset” and, together with LMGAA, the “Sub-Advisers”) provides day-to-day management of the Fund’s cash and short-term instruments. (The management agreement and sub-advisory agreements are collectively referred to as the “Agreements.”) The Manager and the Sub-Advisers are wholly-owned subsidiaries of Legg Mason, Inc. The Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “Independent Trustees”)) of the Fund were assisted in their review by Fund counsel and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Advisers. The Independent Trustees requested and received information from the Manager and the Sub-Advisers they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Advisers. Included was information about the Manager, the Sub-Advisers and the Fund’s distributor, as well as the management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full Board.

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

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

The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Sub-Advisers under the Management Agreement and Sub-Advisory Agreements, respectively, during the past year. The Trustees also considered the Manager’s supervisory activities over the Sub-Advisers. In addition, the Independent Trustees received and considered other information regarding the administrative and other services rendered to the Fund and its shareholders by the Manager. The Board noted information received at regular meetings throughout the year related to the services rendered by the Manager in its management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Sub-Advisers and the Fund’s other service providers. The Board’s evaluation of the services provided by the Manager and the Sub-Advisers 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 management and other capabilities of the Manager and the Sub-Advisers 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 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 among the Manager and the Sub-Advisers and the oversight provided by the Manager. The Board also considered the Manager’s and LMGAA’s brokerage policies and practices, the standards applied in seeking best execution, their policies and practices regarding soft dollars, and the existence of quality controls applicable to brokerage allocation procedures. In addition, management also reported to the Board on, among other things, its business plans, recent organizational changes, portfolio manager compensation plan and policy regarding portfolio managers’ ownership of fund shares.

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


32		Legg Mason Variable Lifestyle Series

Fund performance

The Board received and reviewed performance information for the Fund and for all mixed-asset target allocation growth 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 at periodic intervals information on the investment performance of the Fund in comparison to similar mutual funds and benchmark performance indices. The information comparing the Fund’s performance to that of the Performance Universe was for the one-, three-, five- and ten-year periods ended June 30, 2013. The Fund performed better than the median performance of the funds in the Performance Universe for the one-, three- and five-year periods and was ranked in the first quintile of the Performance Universe for the one- and three-year periods, but performed below the median performance of the funds in the Performance Universe for the ten-year period. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2013, which showed that the Fund’s performance was better than the Lipper category average during the third quarter. The Trustees then discussed with representatives of management the portfolio management strategy of the Fund’s portfolio managers. The Trustees noted that the Manager and LMGAA were committed to providing the resources necessary to assist the Fund’s portfolio managers and continue to improve Fund performance. Based on its review, the Board 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.

Expense ratios

The Board noted that the Fund bears indirectly its pro rata share of the expenses of the underlying funds in which it invests, including management fees payable by such underlying funds to the Manager or its affiliates. The Board noted that there is no management fee payable by the Fund to the Manager or sub-investment advisory fees payable by the Fund to the Sub-Advisers.

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

Additionally, the Board received and considered information comparing the Fund’s overall expense ratio with those of a group of actively and passively managed affiliated funds of funds underlying variable insurance products consisting of 12 mixed-asset target allocation growth funds selected by Lipper as comparable to the Fund (the “Expense Group”), and a broader group of funds selected by Lipper consisting of all actively and passively managed affiliated mixed-asset target allocation growth funds of funds underlying variable insurance products (the “Expense Universe”). This information showed that the Fund’s total expense ratio (including underlying fund expenses) was higher than the median of the total expense ratios of the funds in the Expense Group and was higher than the average total expense ratio of the funds in the Expense Universe. The Trustees also noted the Manager’s fee waiver and/or expense reimbursement arrangement.

Manager profitability

The Board received and considered a profitability analysis of the Manager and its affiliates in providing services to the Fund. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received information with respect to the 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.


Legg Mason Variable Lifestyle Series		33

Board approval of management and subadvisory agreements (unaudited) (cont’d)

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

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

Other benefits to the manager

The Board considered other benefits received by the Manager and its affiliates, including the Sub-Advisers, as a result of the 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 Agreements to continue for another year.

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


34		Legg Mason Variable Lifestyle Series

Legg Mason Partners Variable Equity Trust —Legg Mason Variable Lifestyle Allocation 70%

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 Variable Lifestyle Allocation 70% (the “Fund”), pursuant to which Legg Mason Partners Fund Advisor, LLC (the “Manager”) provides the Fund with investment advisory and administrative services, the sub-advisory agreement pursuant to which Legg Mason Global Asset Allocation, LLC (“LMGAA”) provides day-to-day management of the Fund’s portfolio, and the sub-advisory agreement pursuant to which Western Asset Management Company (“Western Asset” and, together with LMGAA, the “Sub-Advisers”) provides day-to-day management of the Fund’s cash and short-term instruments. (The management agreement and sub-advisory agreements are collectively referred to as the “Agreements.”) The Manager and the Sub-Advisers are wholly-owned subsidiaries of Legg Mason, Inc. The Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “Independent Trustees”)) of the Fund were assisted in their review by Fund counsel and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Advisers. The Independent Trustees requested and received information from the Manager and the Sub-Advisers they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Advisers. Included was information about the Manager, the Sub-Advisers and the Fund’s distributor, as well as the management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full Board.

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


Legg Mason Variable Lifestyle Series		35

Board approval of management and subadvisory agreements (unaudited) (cont’d)

Fund performance

The Board received and reviewed performance information for the Fund and for all mixed-asset target allocation growth 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 at periodic intervals information on the investment performance of the Fund in comparison to similar mutual funds and benchmark performance indices. The information comparing the Fund’s performance to that of the Performance Universe was for the one-, three-, five- and ten-year periods ended June 30, 2013. The Fund performed better than the median performance of the funds in the Performance Universe for the one-, three- and five-year periods and was ranked in the first quintile of the Performance Universe for the five-year period, but performed below the median performance of the funds in the Performance Universe for the ten-year period. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2013, which showed that the Fund’s performance was better than the Lipper category average during the third quarter. The Trustees then discussed with representatives of management the portfolio management strategy of the Fund’s portfolio managers. The Trustees noted that the Manager and LMGAA were committed to providing the resources necessary to assist the Fund’s portfolio managers and continue to improve Fund performance. Based on its review, the Board 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.

Expense ratios

Additionally, the Board received and considered information comparing the Fund’s overall expense ratio with those of a group of actively and passively managed affiliated funds of funds underlying variable insurance products consisting of ten mixed-asset target allocation growth funds selected by Lipper as comparable to the Fund (the “Expense Group”), and a broader group of funds selected by Lipper consisting of all actively and passively managed affiliated mixed-asset target allocation growth funds of funds underlying variable insurance products (the “Expense Universe”). This information showed that the Fund’s total expense ratio (including underlying fund expenses) was higher than the median of the total expense ratios of the funds in the Expense Group and was higher than the average total expense ratio of the funds in the Expense Universe. The Trustees also noted the Manager’s fee waiver and/or expense reimbursement arrangement.

Manager profitability

Economies of scale


36		Legg Mason Variable Lifestyle Series

Other benefits to the manager

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

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


Legg Mason Variable Lifestyle Series		37

Board approval of management and subadvisory agreements (unaudited) (cont’d)

Legg Mason Partners Variable Equity Trust —Legg Mason Variable Lifestyle Allocation 50%

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 Variable Lifestyle Allocation 50% (the “Fund”), pursuant to which Legg Mason Partners Fund Advisor, LLC (the “Manager”) provides the Fund with investment advisory and administrative services, the sub-advisory agreement pursuant to which Legg Mason Global Asset Allocation, LLC (“LMGAA”) provides day-to-day management of the Fund’s portfolio, and the sub-advisory agreement pursuant to which Western Asset Management Company (“Western Asset” and, together with LMGAA, the “Sub-Advisers”) provides day-to-day management of the Fund’s cash and short-term instruments. (The management agreement and sub-advisory agreements are collectively referred to as the “Agreements.”) The Manager and the Sub-Advisers are wholly-owned subsidiaries of Legg Mason, Inc. The Trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended (the “Independent Trustees”)) of the Fund were assisted in their review by Fund counsel and independent legal counsel and met with independent legal counsel in executive sessions separate from representatives of the Manager and the Sub-Advisers. The Independent Trustees requested and received information from the Manager and the Sub-Advisers they deemed reasonably necessary for their review of the Agreements and the performance of the Manager and the Sub-Advisers. Included was information about the Manager, the Sub-Advisers and the Fund’s distributor, as well as the management, sub-advisory and distribution arrangements for the Fund and other funds overseen by the Board. This information was initially reviewed by a special committee of the Independent Trustees and then by the full Board.

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


38		Legg Mason Variable Lifestyle Series

Fund performance

The Board received and reviewed performance information for the Fund and for all mixed-asset target allocation moderate 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 at periodic intervals information on the investment performance of the Fund in comparison to similar mutual funds and benchmark performance indices. The information comparing the Fund’s performance to that of the Performance Universe was for the one-, three-, five- and ten-year periods ended June 30, 2013. The Fund performed better than the median performance of the funds in the Performance Universe for the one-, three- and five-year periods and was ranked in the first quintile of the Performance Universe for the three- and five-year periods, but performed below the median performance of the funds in the Performance Universe for the ten-year period. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2013, which showed that the Fund’s performance was better than the Lipper category average during the third quarter. The Trustees then discussed with representatives of management the portfolio management strategy of the Fund’s portfolio managers. The Trustees noted that the Manager and LMGAA were committed to providing the resources necessary to assist the Fund’s portfolio managers and continue to improve Fund performance. Based on its review, the Board 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.

Expense ratios

Additionally, the Board received and considered information comparing the Fund’s overall expense ratio with those of a group of actively and passively managed affiliated funds of funds underlying variable insurance products consisting of ten mixed-asset target allocation moderate funds selected by Lipper as comparable to the Fund (the “Expense Group”), and a broader group of funds selected by Lipper consisting of all actively and passively managed affiliated mixed-asset target allocation moderate funds of funds underlying variable insurance products (the “Expense Universe”). This information showed that the Fund’s total expense ratio (including underlying fund expenses) was at 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 also noted the Manager’s fee waiver and/or expense reimbursement arrangement.

Manager profitability

Economies of scale


Legg Mason Variable Lifestyle Series		39

Board approval of management and subadvisory agreements (unaudited) (cont’d)

Other benefits to the manager

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

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


40		Legg Mason Variable Lifestyle Series

Additional information (unaudited)

Information about Trustees and Officers

The business and affairs of Legg Mason Variable Lifestyle Series (the “Portfolios”) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o Kenneth D. Fuller, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Trustees and officers of the Portfolio is set forth below.

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


Independent Trustees†:
Paul R. Ades
Year of birth		1940
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1983
Principal occupation(s) during past five years		Paul R. Ades, PLLC (law firm) (since 2000)
Number of funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		None

Andrew L. Breech
Year of birth		1952
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1991
Principal occupation(s) during past five years		President, Dealer Operating Control Service, Inc. (automotive retail management) (since 1985)
Number of funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		None

Dwight B. Crane
Year of birth		1937
Position(s) with Trust		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 funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		None

Frank G. Hubbard
Year of birth		1937
Position(s) with Trust		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 funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		None

Howard J. Johnson
Year of birth		1938
Position(s) with Trust		Trustee and Chairman
Term of office¹ and length of time served²		From 1981 to 1998; since 2000 and since 2013
Principal occupation(s) during past five years		Chief Executive Officer, Genesis Imaging LLC (technology company) (since 2003)
Number of funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		None


Legg Mason Variable Lifestyle Series		41

Additional information (unaudited) (cont’d)

Information about Trustees and Officers


Independent Trustees cont’d
Jerome H. Miller
Year of birth		1938
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1995
Principal occupation(s) during past five years		Retired
Number of funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		None

Ken Miller
Year of birth		1942
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1983
Principal occupation(s) during past five years		Retired; formerly, President, Young Stuff Apparel Group, Inc. (apparel manufacturer), division of Li & Fung (1963 to 2012)
Number of funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		None

John J. Murphy
Year of birth		1944
Position(s) with Trust		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 funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		Trustee, UBS Funds (52 funds) (since 2008); Trustee, Consulting Group Capital Markets Funds (11 funds) (since 2002); formerly, Director, Nicholas Applegate Institutional Funds (12 funds) (2005 to 2010); formerly, Director, Atlantic Stewardship Bank (2004 to 2005); formerly, Director, Barclays International Funds Group Ltd. and affiliated companies (1983 to 2003)

Thomas F. Schlafly
Year of birth		1948
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1983
Principal occupation(s) during past five years		Chairman, The Saint Louis Brewery, LLC (brewery) (since 2012); formerly, President, The Saint Louis Brewery, Inc. (1989 to 2012); Partner, Thompson Coburn LLP (law firm) (since 2009); formerly, Of Counsel, Husch Blackwell Sanders LLP (law firm) and its predecessor firms (1984 to 2009)
Number of funds in fund complex overseen by Trustee		51
Other board memberships held by Trustee during past five years		Director, Citizens National Bank of Greater St. Louis (since 2006)

Interested Trustee and Officer:
Kenneth D. Fuller³
Year of birth		1958
Position(s) with Trust		Trustee, President and Chief Executive Officer
Term of office¹ and length of time served²		Since 2013
Principal occupation(s) during past five years		Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2013); Officer and/or Trustee/Director of 167 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2013); President and Chief Executive Officer of LM Asset Services, LLC (“LMAS”) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (formerly registered investment advisers) (since 2013); formerly, Senior Vice President of LMPFA (2012 to 2013); formerly, Director of Legg Mason & Co. (2012 to 2013); formerly, Vice President of Legg Mason & Co. (2009 to 2012); formerly, Vice President — Equity Division of T. Rowe Price Associates (1993 to 2009), as well as Investment Analyst and Portfolio Manager for certain asset allocation accounts (2004 to 2009)
Number of funds in fund complex overseen by Trustee		155
Other board memberships held by Trustee during past five years		None


42		Legg Mason Variable Lifestyle Series


Additional Officers
Ted P. Becker Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018
Year of birth		1951
Position(s) with Trust		Chief Compliance Officer
Term of office¹ and length of time served²		Since 2007
Principal occupation(s) during past five years		Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006)
Susan Kerr Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018
Year of birth		1949
Position(s) with Trust		Chief Anti-Money Laundering Compliance Officer
Term of office¹ and length of time served²		Since 2013
Principal occupation(s) during past five years		Assistant Vice President of Legg Mason & Co. and Legg Mason Investor Services, LLC (“LMIS”) (since 2010); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2013) and Anti-Money Laundering Compliance Officer of LMIS (since 2012); Senior Compliance Officer of LMIS (since 2011); formerly, AML Consultant, DTCC (2010); formerly, AML Consultant, Rabobank Netherlands, (2009); formerly, First Vice President, Director of Marketing & Advertising Compliance and Manager of Communications Review Group at Citigroup Inc. (1996 to 2008)

Vanessa A. Williams Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1979
Position(s) with Trust		Identity Theft Prevention Officer
Term of office¹ and length of time served²		Since 2011
Principal occupation(s) during past five years		Vice President of Legg Mason & Co. (since 2012); Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); formerly, Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (2011 to 2013); formerly, Senior Compliance Officer of Legg Mason & Co. (2008 to 2011); formerly, Compliance Analyst of Legg Mason & Co. (2006 to 2008) and Legg Mason & Co. predecessors (prior to 2006)
Robert I. Frenkel Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1954
Position(s) with Trust		Secretary and Chief Legal Officer
Term of office¹ and length of time served²		Since 2007
Principal occupation(s) during past five years		Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel of Global Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)


Legg Mason Variable Lifestyle Series		43

Additional information (unaudited) (cont’d)

Information about Trustees and Officers


Additional Officers con’d
Thomas C. Mandia Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1962
Position(s) with Trust		Assistant Secretary
Term of office¹ and length of time served²		Since 2007
Principal occupation(s) during past five years		Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary of LMAS (since 2002) and LMFAM (since 2013)

Richard F. Sennett Legg Mason 100 International Drive, 7th Floor, Baltimore, MD 21202
Year of birth		1970
Position(s) with Trust		Principal Financial Officer
Term of office¹ and length of time served²		Since 2011
Principal occupation(s) during past five years		Principal Financial Officer and Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011 and since 2013); Managing Director of Legg Mason & Co. and Senior Manager of the Treasury Policy group for Legg Mason & Co.’s Global Fiduciary Platform (since 2011); formerly, Chief Accountant within the SEC’s Division of Investment Management (2007 to 2011); formerly, Assistant Chief Accountant within the SEC’s Division of Investment Management (2002 to 2007)

Albert Laskaj Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1977
Position(s) with Trust		Treasurer
Term of office¹ and length of time served²		Since 2010
Principal occupation(s) during past five years		Director of Legg Mason & Co. (since 2013); Vice President of Legg Mason & Co. (2008 to 2013); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010); formerly, Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010)
Jeanne M. Kelly Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018
Year of birth		1951
Position(s) with Trust		Senior Vice President
Term of office¹ and length of time served²		Since 2007
Principal occupation(s) during past five years		Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006) and LMFAM (since 2013); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005)

†	Trustees who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.

¹	Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal.

²	Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office.

Effective June 1, 2013, Mr. Fuller was appointed to the position of President and Chief Executive Officer. Prior to this date, R. Jay Gerken served as Chairman, President and Chief Executive Officer. Mr. Gerken retired effective May 31, 2013. Mr. Fuller is an “interested person” of the Fund, as defined in the 1940 Act, because of his position with LMPFA and/or certain of its affiliates.


44		Legg Mason Variable Lifestyle Series

Important tax information (unaudited)

The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2013:


	Lifestyle Allocation 85%
Record date:		6/17/2013			12/29/2013
Payable date:		6/18/2013			12/30/2013
Dividends qualifying for the dividends
received deduction for corporations		41.53	%		39.98	%
Foreign source income*		24.41	%		20.62	%
Foreign taxes paid per share	$	0.001794		$	0.006825
	Lifestyle Allocation 70%
Record date:		6/17/2013			12/29/2013
Payable date:		6/18/2013			12/30/2013
Dividends qualifying for the dividends
received deduction for corporations		33.34	%		32.26	%
Foreign source income*		14.08	%		12.28	%
Foreign taxes paid per share	$	0.000594		$	0.003853
	Lifestyle Allocation 50%
Record date:		6/17/2013			12/29/2013
Payable date:		6/18/2013			12/30/2013
Dividends qualifying for the dividends
received deduction for corporations		19.53	%		18.29	%
Foreign source income*		7.24	%		6.30	%
Foreign taxes paid per share	$	0.000105		$	0.006863

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

Please retain this information for your records.


Legg Mason Variable Lifestyle Series		45

Legg Mason

Variable Lifestyle Series

Trustees

Paul R. Ades

Andrew L. Breech

Dwight B. Crane

Kenneth D. Fuller*

President

Frank G. Hubbard

Howard J. Johnson*

Chairman

Jerome H. Miller

Ken Miller

John J. Murphy

Thomas F. Schlafly

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadviser

Legg Mason Global Asset Allocation, 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, MA 02169

Independent registered public accounting firm

KPMG LLP

345 Park Avenue

New York, NY 10154

*	Effective June 1, 2013, Mr. Johnson became Chairman and Mr. Fuller became a Trustee, President, and Chief Executive Officer.

Legg Mason Variable Lifestyle Series

Legg Mason Variable Lifestyle Allocation 85%

Legg Mason Variable Lifestyle Allocation 70%

Legg Mason Variable Lifestyle Allocation 50%

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

Legg Mason Variable Lifestyle Series

Legg Mason Funds

620 Eighth Avenue, 49^th Floor

New York, NY 10018

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

Information on how the Portfolios voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Portfolios use to determine how to vote proxies relating to portfolio transactions are available (1) without charge, upon request, by calling the Portfolios at 1-877-721-1926, (2) on the Portfolios’ 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 Variable Lifestyle Allocation 85%, Legg Mason Variable Lifestyle Allocation 70% and Legg Mason Variable Lifestyle Allocation 50%. This report is not authorized for distribution to prospective investors in the Portfolios unless preceded or accompanied by a current prospectus.

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

www.leggmason.com/individualinvestors

Member FINRA, SIPC

Legg Mason Funds Privacy and Security Notice

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

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

The Type of Nonpublic Personal Information the Funds Collect About You

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

Personal information included on applications or other forms;

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

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

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

How the Funds Use Nonpublic Personal Information About You

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

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

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

The Funds’ representatives such as legal counsel, accountants and auditors; and

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

Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.

The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.

NOT PART OF THE ANNUAL REPORT

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

Keeping You Informed of the Funds’ Privacy and Security Practices

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

The Funds’ Security Practices

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

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

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

Revised April 2011

NOT PART OF THE ANNUAL REPORT

www.leggmason.com/individualinvestors

FDO1436 2/14 SR14-2121

ITEM 2.

CODE OF ETHICS.

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

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

The Board of Trustees of the registrant has determined that Andrew L. Breech 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 Andrew L. Breech as the Audit Committee’s financial expert. Andrew L. Breech is an “independent” Trustee 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 previous fiscal years ending December 31, 2012 and December 31, 2013 (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 $317,700 in December 31, 2012 and $324,685 in December 31, 2013.

b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in December 31, 2012 and $0 in December 31, 2013.

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.

(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 $48,100 in December 31, 2012 and $51,400 in December 31, 2013. 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 December 31, 2012

and December 31, 2013; Tax Fees were 100% and 100% for December 31, 2012 and December 31, 2013; and Other Fees were 100% and 100% for December 31, 2012 and December 31, 2013.

(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 2013.

(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.

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

Frank G. Hubbard

Howard J. Johnson

Jerome H. Miller

Ken Miller

John J. Murphy

Thomas F. Schlafly

Not applicable.

ITEM 6.

SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

ITEM 7.

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

Not applicable.

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 9.

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

Not applicable.

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 11.

CONTROLS AND PROCEDURES.

(a)

The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

(b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

ITEM 12.

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/ Kenneth D. Fuller
		Kenneth D. Fuller
		Chief Executive Officer

Date:		February 24, 2014

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/ Kenneth D. Fuller
		Kenneth D. Fuller
		Chief Executive Officer

Date:		February 24, 2014

By:		/s/ Richard F. Sennett
		Richard F. Sennett
		Principal Financial Officer

Date:		February 24, 2014

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