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, 2015

ITEM 1.

REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

December 31, 2015

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Annual Repor t

QS Legg Mason

Variable Asset Allocation Series

QS Legg Mason Variable Growth

QS Legg Mason Variable Moderate Growth

QS Legg Mason Variable Conservative Growth

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

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QS Legg Mason Variable Asset Allocation Series

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

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

Effective May 1, 2015, each Portfolio’s name, investment policies and strategies were changed.


What’s inside
Letter from the president			II
Investment commentary			III
Portfolios overview			1
Portfolios at a glance			7
Portfolios expenses			10
Portfolios 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			35
Board approval of management and subadvisory agreements			36
Additional information			45
Important tax information			50


Letter from the president

Dear Shareholder,

We are pleased to provide the annual report of QS Legg Mason Variable Asset Allocation Series for the twelve-month reporting period ended December 31, 2015. 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.

Special Shareholder Notice:

Effective April 1, 2016, QS Investors, LLC will become a subadviser for each Portfolio, and QS Legg Mason Global Asset Allocation, LLC will cease to be a subadviser for each Portfolio. The same portfolio managers will continue to serve each Portfolio. Additionally, effective April 1, 2016, the Portfolios’ names will change to QS Variable Growth (currently known as QS Legg Mason Variable Growth), QS Variable Moderate Growth (currently known as QS Legg Mason Variable Moderate Growth) and QS Variable Conservative Growth (currently known as QS Legg Mason Conservative Growth). For more information regarding these changes, please see the prospectus supplement dated February 4, 2016.

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

Jane Trust, CFA

President and Chief Executive Officer

February 5, 2016


II		QS Legg Mason Variable Asset Allocation Series

Investment commentary

Economic review

The pace of U.S. economic activity was mixed during the twelve months ended December 31, 2015 (the “reporting period”). Looking back, the U.S. Department of Commerce reported that first quarter 2015 U.S. gross domestic product (“GDP”)ⁱ growth was a tepid 0.6%. Economic activity then accelerated, as second quarter 2015 GDP growth was 3.9%. The upturn was driven by increasing exports, accelerating personal consumption expenditures (“PCE”), declining imports, expanding state and local government spending, and rising nonresidential fixed investment. Third quarter 2015 GDP growth then moderated to 2.0%. Decelerating growth was primarily due to a downturn in private inventory investment and decelerations in exports, PCE, nonresidential fixed investment, state and local government spending, and residential fixed investment. Finally, the U.S. Department of Commerce’s initial estimate for fourth quarter 2015 GDP growth — released after the reporting period ended — was 0.7%. Slower growth was attributed to a deceleration in PCE and downturns in nonresidential fixed investment, exports and state and local government spending.

The U.S. labor market significantly improved and was a tailwind for the economy during the reporting period. When the period began, unemployment was 5.7%, as reported by the U.S. Department of Labor. By December 2015, unemployment was 5.0%, equaling its lowest level since April 2008.

Turning to the global economy, in its January 2016 World Economic Outlook Update, released after the reporting period ended, the International Monetary Fund (“IMF”) said, “In advanced economies, a modest and uneven recovery is expected to continue, with a gradual further narrowing of output gaps. The picture for emerging market and developing economies is diverse but in many cases challenging.” From a regional perspective, the IMF currently estimates 2015 growth in the Eurozone at 1.5%, and is projecting 1.7% growth in 2016. Japan’s economy is expected to expand 0.6% in 2015 and 1.0% in 2016. Elsewhere, the IMF said that overall growth in emerging market countries decelerated in 2015, with growth of 4.0% versus 4.6% in 2014. However, the IMF believes emerging market growth will accelerate to 4.3% in 2016.

After an extended period of maintaining the federal funds rateⁱⁱ at a historically low range between zero and 0.25%, the Federal Reserve Board (“Fed”)ⁱⁱⁱ finally increased the rate at its meeting on December 16, 2015. This marked the first rate hike since 2006. In particular, the U.S. central bank raised the federal funds rate to a range between 0.25% and 0.50%. In its official statement after the December 2015 meeting, the Fed said, “The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation…. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual

increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.” During its meeting that concluded on January 27, 2016 — after the reporting period ended — the Fed said it is, “…closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook. Given the economic outlook, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent…. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation.”

Given the economic challenges in the Eurozone, the European Central Bank (“ECB”)^iv took a number of actions to stimulate growth and ward off deflation. The ECB reduced rates in June and September 2014, before the beginning of the reporting period. In January 2015, the ECB announced that, beginning in March 2015, it would start a €60 billion-a-month bond buying program that is expected to run until September 2016. In December 2015, the ECB extended its monthly bond buying program until at least March 2017. In other developed countries, the Bank of England kept rates on hold at 0.50% during the reporting period, as did Japan at a range of zero to 0.10%, its lowest level since 2006. At the end of October 2014, the Bank of Japan announced that it would increase its asset purchases between 10 trillion yen and 20 trillion yen ($90.7 billion to $181.3 billion) to approximately 80 trillion yen ($725 billion) annually, in an attempt to stimulate growth. Elsewhere, after holding rates steady at 6.0% since July 2012, the People’s Bank of China lowered rates six times from November 23, 2013 through October 23, 2015, with the last cut pushing rates down to 4.35%.

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

Sincerely,

LOGO

Jane Trust, CFA

President and Chief Executive Officer

January 29, 2016

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 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.

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

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


QS Legg Mason Variable Asset Allocation Series		III

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Portfolios overview

QS Legg Mason Variable Asset Allocation Series (the “Variable Asset Allocation Series”) consists of three portfolio investment options (the “Portfolios”), each of which is a “fund of funds” that invests in other mutual funds. The Variable Asset Allocation Series offers a mix of equity funds categorized according to average market capitalization (size), investing style (e.g., value, core or growth) and global exposure (e.g., U.S. and/or international stocks). The various options within the Variable Asset Allocation Series also offer a mix of bond asset classes such as U.S. and foreign government debt, corporate bonds, high-yield debt and emerging market debt — each of which carries a varying degree of risk/reward potential. Each Portfolio is managed as an asset allocation program and seeks to achieve its investment objective by allocating its assets among the funds managed by the manager and its affiliates (underlying funds).

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

A. In 2015, large cap U.S. equity returns increased slightly. As measured by the Russell 1000 Indexⁱ, large cap U.S. stocks returned 0.92% for the year. Small cap stocks, represented by the Russell 2000 Indexⁱⁱ, did not perform as well, declining by 4.41% for the year. Non-U.S. stocks also declined, with the MSCI All Country World Index Ex-U.S. (“MSCI ACWI Ex-U.S.”)ⁱⁱⁱdeclining 5.66%. On the fixed income side, the Barclays U.S. Aggregate Index^iv of investment grade bonds rose by 0.55% and the Barclays Global High Yield Index^v (hedged to U.S. dollars) declined by 0.69% for 2015.

2015 was a year of many market events and bouts of explosive volatility but, in the end, returns were rather muted. The year started off on a positive note as the arrival of Quantitative Easing in Europe in late 2014 sparked a rally in risk assets and the dollar soared in anticipation of a federal funds rate^vi hike. Markets quickly transitioned into crisis mode as irrational behavior in the Greek Debt negotiations once again brought into question the stability of the

European Union. Luckily, calmer heads prevailed, and a Greek debt default was averted. At that point, markets shifted their attention to China. Bad economic numbers from China in August led to a 3rd quarter sell-off that featured a historic explosion of volatility on August 24th. Risk assets recovered in October just in time for a further decline in oil prices caused by Saudi Arabia’s additional efforts to protect its market share. Matters were made worse by Iran’s anticipated increase in oil production once international sanctions are lifted. Low oil prices are a threat to the stability of U.S. shale oil companies and their ability to service debt. As a result, high yield bonds and the Energy sector were hit hard at the end of the year. In the background, the U.S. economy continued to expand at a respectable pace, creating jobs and pushing down the unemployment rate.

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

A. In the 2nd quarter of 2015, manager allocations within the Portfolios were changed to create a more broad exposure while maintaining a similar risk level. The Portfolios supplemented their previous fixed income exposure by allocating to Western Asset Macro Opportunities Fund. In addition, we added QS Batterymarch Global Dividend Fund to diversify our equity allocation. The correlation effects of investing in these new funds allow the Portfolios to maintain a higher exposure to equity-like assets, while maintaining a similar overall risk level. Over full cycles, we believe the broadened exposure will benefit investors and allow for a better risk/return experience.

In addition, we used several tactical asset allocation models to adjust exposures to stocks versus bonds and equity styles within U.S. equities. These models drove tactical adjustments to the Portfolios as the economic and market environment changed.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		1

Portfolios overview (cont’d)

QS Legg Mason Variable Growth¹

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

Performance review

For the twelve months ended December 31, 2015, QS Legg Mason Variable Growth¹ returned -2.23%. The Portfolio’s unmanaged benchmarks, the Barclays U.S. Aggregate Index and the Russell 3000 Index^vii, and the Variable Growth Composite Benchmark^viii, returned 0.55%, 0.48% and -0.64%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Aggressive Growth Funds Category Average² returned -2.16% for the same period.


Performance Snapshot as of December 31, 2015 (unaudited)
	6 months			12 months
QS Legg Mason Variable Growth¹		-4.40	%		-2.23	%
Barclays U.S. Aggregate Index		0.65	%		0.55	%
Russell 3000 Index		-1.43	%		0.48	%
Variable Growth Composite Benchmark		-3.54	%		-0.64	%
Lipper Variable Mixed-Asset Target Allocation Aggressive Growth Funds Category Average²		-4.72	%		-2.16	%

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 bond markets in general, particular sectors of such markets and the performance outlook for the underlying funds.

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

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2015, the gross total annual operating expense ratio for the Portfolio was 0.89%.

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 interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of underlying funds), to average net assets is not expected to exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2017 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 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, 2015, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 57 funds for the six-month period and among the 57 funds for the twelve-month period in the Portfolio’s Lipper category.

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


2		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

QS Legg Mason Variable Moderate Growth¹

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

Performance review

For the twelve months ended December 31, 2015, QS Legg Mason Variable Moderate Growth¹ returned -1.79%. The Portfolio’s unmanaged benchmarks, the Barclays U.S. Aggregate Index and the Russell 3000 Index, and the Variable Moderate Growth Composite Benchmark^ix, returned 0.55%, 0.48% and -0.28%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Average² returned -1.29% for the same period.


Performance Snapshot as of December 31, 2015 (unaudited)
	6 months			12 months
QS Legg Mason Variable Moderate Growth¹		-3.53	%		-1.79	%
Barclays U.S. Aggregate Index		0.65	%		0.55	%
Russell 3000 Index		-1.43	%		0.48	%
Variable Moderate Growth Composite Benchmark		-2.62	%		-0.28	%
Lipper Variable Mixed-Asset Target Allocation Growth Funds Category Average²		-3.11	%		-1.29	%

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

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

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2015, the gross total annual operating expense ratio for the Portfolio was 0.93%.

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2015, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 226 funds for the six-month period and among the 223 funds for the twelve-month period in the Portfolio’s Lipper category.

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


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		3

Portfolios overview (cont’d)

QS Legg Mason Variable Conservative Growth¹

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

Performance review

For the twelve months ended December 31, 2015, QS Legg Mason Variable Conservative Growth¹ returned -1.19%. The Portfolio’s unmanaged benchmarks, the Barclays U.S. Aggregate Index and the Russell 1000 Index, and the Variable Conservative Growth Composite Benchmark^x, returned 0.55%, 0.92% and -0.18%, respectively, over the same time frame. The Lipper Variable Mixed-Asset Target Allocation Moderate Funds Category Average² returned -1.42% for the same period.


Performance Snapshot as of December 31, 2015 (unaudited)
	6 months			12 months
QS Legg Mason Variable Conservative Growth¹		-2.57	%		-1.19	%
Barclays U.S. Aggregate Index		0.65	%		0.55	%
Russell 1000 Index		-0.78	%		0.92	%
Variable Conservative Growth Composite Benchmark		-1.96	%		-0.18	%
Lipper Variable Mixed-Asset Target Allocation Moderate Funds Category Average²		-2.77	%		-1.42	%

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

Total Annual Operating Expenses† (unaudited)

As of the Portfolio’s current prospectus dated May 1, 2015, the gross total annual operating expense ratio for the Portfolio was 0.81%.

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended December 31, 2015, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 233 funds for the six-month period and among the 229 funds for the twelve-month period in the Portfolio’s Lipper category.

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


4		QS Legg Mason Variable Asset Allocation Series 2015 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 contributor to absolute performance was the Portfolios’ allocation to the U.S. fixed income asset class, as Western Asset Core Plus Bond Fund and Western Asset Total Return Unconstrained Fund, both performed positively in absolute terms.

In relative terms (i.e., relative to each Portfolio’s specific benchmark), the leading contributors to performance were QS Batterymarch Global Dividend Fund, ClearBridge Mid Cap Core Fund, and QS Batterymarch International Equity Fund.

Q. What were the leading detractors from performance?

A. Among the other underlying funds, the funds that made the largest negative contribution to performance (taking into account both the underlying fund returns and their weightings within the Portfolios) were QS Legg Mason Strategic Real Return Fund, Royce Small-Cap Value Fund and Legg Mason BW Diversified Large Cap Value Fund.

In relative terms (i.e., relative to each Portfolio’s specific benchmark), the leading detractors from performance were the same funds, QS Legg Mason Strategic Real Return Fund, Royce Small-Cap Value Fund and Legg Mason BW Diversified Large Cap Value Fund.

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

A. In addition to the strategic allocation changes mentioned above, each Portfolio’s name was also changed on May 1, 2015 to reflect a risk based approach.

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

Sincerely,

LOGO

Y. Wayne Lin

Portfolio Manager

QS Legg Mason Global Asset Allocation, LLC

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Thomas Picciochi

Portfolio Manager

QS Legg Mason Global Asset Allocation, LLC

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Ellen Tesler

Portfolio Manager

QS Legg Mason Global Asset Allocation, LLC

January 19, 2016

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.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		5

Portfolios overview (cont’d)

ⁱ

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

ⁱⁱ

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.

ⁱⁱⁱ	The MSCI All Country World Index Ex-U.S. (“MSCI ACWI Ex-U.S.”) is a market-capitalization-weighted index that is designed to measure performance of stocks throughout the world, with the exception of U.S.-based companies. The MSCI ACWI Ex-U.S. includes both developed and emerging markets.

^iv	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.

^v	The Barclays Global High Yield Index (Hedged) provides a broad-based measure of the global high-yield fixed-income markets, representing the union of the U.S. High-Yield, Pan-European High-Yield, and Emerging Markets Hard Currency High-Yield Indices.

^vi	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.

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

^viii

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

^ix

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

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


6		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

Portfolios at a glance (unaudited)

QS Legg Mason Variable Growth Breakdown† as of — December 31, 2015

As a Percent of Total Long-Term Investments

LOGO


% of Total Long-Term Investments		Top 5 Sectors
	13.8 Legg Mason Global Asset Management Trust — QS Batterymarch International Equity Fund, Class IS Shares	Financials Consumer Discretionary Health Care Industrials Consumer Staples
	11.6 Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	Financials Health Care Information Technology Industrials Energy
	10.2 Legg Mason Partners Equity Trust — QS Batterymarch Global Dividend Fund, Class IS Shares	Consumer Staples Financials Telecommunication Services Utilities Health Care
	9.1 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares	Information Technology Financials Health Care Consumer Discretionary Consumer Staples
	8.8 Legg Mason Partners Equity Trust — QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares	Information Technology Consumer Discretionary Health Care Financials Industrials
	7.8 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Industrials Financials
	7.1 The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares	Consumer Discretionary Information Technology Industrials Financials Energy
	7.1 Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares	Health Care Information Technology Consumer Discretionary Energy Industrials
	6.1 Legg Mason Global Asset Management Trust — QS Legg Mason Strategic Real Return Fund, Class IS Shares	U.S. Treasury Inflation Protected Securities Investments in Underlying Funds U.S. Government & Agency Obligations Financials Information Technology

†	Subject to change at any time.


% of Total Long-Term Investments		Top 5 Sectors
	5.7 Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares	Consumer Discretionary Information Technology Financials Industrials Health Care
	5.6 Legg Mason Partners Equity Trust — ClearBridge International Value Fund, Class IS Shares	Financials Industrials Consumer Discretionary Information Technology Materials
	2.9 Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Financials Industrials
	2.5 Western Asset Funds, Inc. — Western Asset Macro Opportunities Fund, Class IS Shares	Corporate Bonds & Notes Sovereign Bonds U.S. Government & Agency Obligations Collateralized Mortgage Obligations Asset-Backed Securities
	0.9 Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares	Corporate Bonds & Notes U.S. Government & Agency Obligations Collateralized Mortgage Obligations Mortgage-Backed Securities Asset-Backed Securities
	0.8 Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares	Consumer Discretionary Energy Financials Industrials Health Care


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		7

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

QS Legg Mason Variable Moderate Growth Breakdown† as of — December 31, 2015

As a Percent of Total Long-Term Investments

LOGO


% of Total Long-Term Investments		Top 5 Sectors
	12.0 Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares	Corporate Bonds & Notes U.S. Government & Agency Obligations Collateralized Mortgage Obligations Mortgage-Backed Securities Asset-Backed Securities
	10.4 Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	Financials Health Care Information Technology Industrials Energy
	10.1 Legg Mason Partners Equity Trust — QS Batterymarch Global Dividend Fund, Class IS Shares	Consumer Staples Financials Telecommunication Services Utilities Health Care
	9.3 Legg Mason Global Asset Management Trust — QS Batterymarch International Equity Fund, Class IS Shares	Financials Consumer Discretionary Health Care Industrials Consumer Staples
	8.1 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares	Information Technology Financials Health Care Consumer Discretionary Consumer Staples
	6.9 Legg Mason Partners Equity Trust — QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares	Information Technology Consumer Discretionary Health Care Financials Industrials
	6.9 Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Industrials Financials
	6.1 Legg Mason Global Asset Management Trust — QS Legg Mason Strategic Real Return Fund, Class IS Shares	U.S. Treasury Inflation Protected Securities Investments in Underlying Funds U.S. Government & Agency Obligations Financials Information Technology
	5.7 Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares	Health Care Information Technology Consumer Discretionary Energy Industrials

†	Subject to change at any time.


% of Total Long-Term Investments		Top 5 Sectors
	4.9 The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares	Consumer Discretionary Information Technology Industrials Financials Energy
	4.7 Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares	Consumer Discretionary Information Technology Financials Industrials Health Care
	4.0 Legg Mason Partners Equity Trust — ClearBridge International Value Fund, Class IS Shares	Financials Industrials Consumer Discretionary Information Technology Materials
	3.9 Western Asset Funds, Inc. — Western Asset Macro Opportunities Fund, Class IS Shares	Corporate Bonds & Notes Sovereign Bonds U.S. Government & Agency Obligations Collateralized Mortgage Obligations Asset-Backed Securities
	2.8 Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Financials Industrials
	2.6 Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares	Consumer Discretionary Energy Financials Industrials Health Care
	1.6 Western Asset Funds, Inc. — Western Asset Core Bond Fund, Class IS Shares	Corporate Bonds & Notes U.S. Government & Agency Obligations Collateralized Mortgage Obligations Mortgage-Backed Securities Asset-Backed Securities


8		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

QS Legg Mason Variable Conservative Growth Breakdown† as of — December 31, 2015

As a Percent of Total Long-Term Investments

LOGO


% of Total Long-Term Investments		Top 5 Sectors
	23.1 Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares	Corporate Bonds & Notes U.S. Government & Agency Obligations Collateralized Mortgage Obligations Mortgage-Backed Securities Asset-Backed Securities
	10.2 Legg Mason Partners Equity Trust — QS Batterymarch Global Dividend Fund, Class IS Shares	Consumer Staples Financials Telecommunication Services Utilities Health Care
	8.8 Western Asset Funds, Inc. — Western Asset Core Bond Fund, Class IS Shares	Corporate Bonds & Notes U.S. Government & Agency Obligations Collateralized Mortgage Obligations Mortgage-Backed Securities Asset-Backed Securities
	7.2 Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	Financials Health Care Information Technology Industrials Energy
	6.2 Legg Mason Global Asset Management Trust — QS Legg Mason Strategic Real Return Fund, Class IS Shares	U.S. Treasury Inflation Protected Securities Investments in Underlying Funds U.S. Government & Agency Obligations Financials Information Technology
	5.8 Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares	Information Technology Financials Health Care Consumer Discretionary Consumer Staples
	5.5 Legg Mason Global Asset Management Trust — QS Batterymarch International Equity Fund, Class IS Shares	Financials Consumer Discretionary Health Care Industrials Consumer Staples
	5.3 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
	4.7 Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares	Consumer Discretionary Energy Financials Industrials Health Care
	4.4 Western Asset Funds, Inc. — Western Asset Macro Opportunities Fund, Class IS Shares	Corporate Bonds & Notes Sovereign Bonds U.S. Government & Agency Obligations Collateralized Mortgage Obligations Asset-Backed Securities
	4.0 Legg Mason Partners Equity Trust — QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares	Information Technology Consumer Discretionary Health Care Financials Industrials
	3.8 Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares	Health Care Information Technology Consumer Discretionary Energy Industrials
	3.6 Legg Mason Partners Equity Trust — ClearBridge International Value Fund, Class IS Shares	Financials Industrials Consumer Discretionary Information Technology Materials
	3.3 Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares	Consumer Discretionary Information Technology Financials Industrials Health Care
	2.5 The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares	Consumer Discretionary Information Technology Industrials Financials Energy
	1.6 Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares	Information Technology Health Care Consumer Discretionary Financials Industrials


QS Legg Mason Variable Asset Allocation Series 2015 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 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, 2015 and held for the six months ended December 31, 2015.

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
QS Legg Mason Variable Growth		-4.40	%	$	1,000.00	$	956.00		0.16	%	$	0.79	QS Legg Mason Variable Growth		5.00	%	$	1,000.00	$	1,024.40		0.16	%	$	0.82
QS Legg Mason Variable Moderate Growth		-3.53			1,000.00		964.70		0.23			1.14	QS Legg Mason Variable Moderate Growth		5.00			1,000.00		1,024.05		0.23			1.17
QS Legg Mason Variable Conservative Growth		-2.57			1,000.00		1,000.00		0.17			0.86	QS Legg Mason Variable Conservative Growth		5.00			1,000.00		1,024.35		0.17			0.87

¹	For the six months ended December 31, 2015.

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

³	Does not include fees and expenses of the Underlying Funds in which 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		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

Portfolios performance (unaudited)

QS Legg Mason Variable Growth


Average annual total returns¹
Twelve Months Ended 12/31/15	-2.23	%
Five Years Ended 12/31/15	7.95
Ten Years Ended 12/31/15	4.75


Cumulative total returns¹
12/31/05 through 12/31/15	59.08	%

QS Legg Mason Variable Moderate Growth


Average annual total returns¹
Twelve Months Ended 12/31/15	-1.79	%
Five Years Ended 12/31/15	7.42
Ten Years Ended 12/31/15	5.21


Cumulative total returns¹
12/31/05 through 12/31/15	66.10	%

QS Legg Mason Variable Conservative Growth


Average annual total returns¹
Twelve Months Ended 12/31/15	-1.19	%
Five Years Ended 12/31/15	6.47
Ten Years Ended 12/31/15	5.32


Cumulative total returns¹
12/31/05 through 12/31/15	68.00	%

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

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


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		11

Portfolios performance (unaudited) (cont’d)

QS Legg Mason Variable Growth

Historical performance

Value of $10,000 invested in

QS Legg Mason Variable Growth vs. Benchmark Indices† — December 2005 - December 2015

LOGO

†

Hypothetical illustration of $10,000 invested in QS Legg Mason Variable Growth on December 31, 2005, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2015. The hypothetical illustration also assumes a $10,000 investment in the Barclays U.S. Aggregate Index, Russell 3000 Index and Variable Growth 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 Variable Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 45% Russell 1000 Index, 20% Russell 2000 Index, 20% MSCI EAFE Index, 10% 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.

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


12		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

QS Legg Mason Variable Moderate Growth

Historical performance

Value of $10,000 invested in

QS Legg Mason Variable Moderate Growth vs. Benchmark Indices† — December 2005 - December 2015

LOGO

†

Hypothetical illustration of $10,000 invested in QS Legg Mason Variable Moderate Growth on December 31, 2005, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2015. The hypothetical illustration also assumes a $10,000 investment in the Barclays U.S. Aggregate Index, Russell 3000 Index and Variable Moderate Growth 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 Variable Moderate Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 40% Russell 1000 Index, 15% Russell 2000 Index, 15% MSCI EAFE Index, 25% 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.

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


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		13

Portfolios performance (unaudited) (cont’d)

QS Legg Mason Variable Conservative Growth

Historical performance

Value of $10,000 invested in

QS Legg Mason Variable Conservative Growth vs. Benchmark Indices† — December 2005 - December 2015

LOGO

†

Hypothetical illustration of $10,000 invested in QS Legg Mason Variable Conservative Growth on December 31, 2005, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through December 31, 2015. The hypothetical illustration also assumes a $10,000 investment in the Barclays U.S. Aggregate Index, Russell 1000 Index and Variable Conservative Growth 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 Variable Conservative Growth Composite Benchmark is a hypothetical representation of the performance of the Portfolio’s major asset classes. It consists of 28% Russell 1000 Index, 12% Russell 2000 Index, 10% MSCI EAFE Index, 43% 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.

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


14		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

Schedules of investments

December 31, 2015

QS Legg Mason Variable Growth


Description				Shares		Value
Investments in Underlying Funds^(a) — 99.9%
Legg Mason Global Asset Management Trust:
Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares					732,967	$	12,929,530
QS Batterymarch International Equity Fund, Class IS Shares					1,075,209		15,386,240
QS Legg Mason Strategic Real Return Fund, Class IS Shares					617,261		6,802,214
Legg Mason Partners Equity Trust:
ClearBridge Aggressive Growth Fund, Class IS Shares					38,017		7,834,451
ClearBridge Appreciation Fund, Class IS Shares					512,900		10,145,164
ClearBridge International Value Fund, Class IS Shares					654,892		6,267,319
ClearBridge Large Cap Growth Fund, Class IS Shares					88,496		3,154,871
ClearBridge Mid Cap Core Fund, Class IS Shares					193,630		6,322,005
ClearBridge Small Cap Growth Fund, Class IS Shares					307,519		8,641,282
QS Batterymarch Global Dividend Fund, Class IS Shares					1,026,422		11,321,440
QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares					629,430		9,825,406
The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares					900,885		7,873,731
Western Asset Funds, Inc.:
Western Asset Core Plus Bond Fund, Class IS Shares					88,430		1,010,749
Western Asset High Yield Fund, Class IS Shares					123,799		919,828
Western Asset Macro Opportunities Fund, Class IS Shares					275,358		2,775,607
Total Investments in Underlying Funds before Short-Term Investments (Cost — $91,593,895)							111,209,837

	Rate
Short-Term Investments — 0.2%
State Street Institutional Liquid Reserves Fund, Premier Class (Cost — $223,389)		0.225	%		223,389		223,389
Total Investments — 100.1% (Cost — $91,817,284#)							111,433,226
Liabilities in Excess of Other Assets — (0.1)%							(61,086	)
Total Net Assets — 100.0%						$	111,372,140

^(a)	Underlying Funds are 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 $97,382,742.

See Notes to Financial Statements.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		15

Schedules of investments (cont’d)

December 31, 2015

QS Legg Mason Variable Moderate Growth


Description				Shares		Value
Investments in Underlying Funds^(a) — 99.9%
Legg Mason Global Asset Management Trust:
Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares					234,351	$	4,133,950
QS Batterymarch International Equity Fund, Class IS Shares					256,681		3,673,106
QS Legg Mason Strategic Real Return Fund, Class IS Shares					219,775		2,421,915
Legg Mason Partners Equity Trust:
ClearBridge Aggressive Growth Fund, Class IS Shares					11,036		2,274,242
ClearBridge Appreciation Fund, Class IS Shares					161,304		3,190,598
ClearBridge International Value Fund, Class IS Shares					164,575		1,574,985
ClearBridge Large Cap Growth Fund, Class IS Shares					30,579		1,090,134
ClearBridge Mid Cap Core Fund, Class IS Shares					56,336		1,839,359
ClearBridge Small Cap Growth Fund, Class IS Shares					96,602		2,714,511
QS Batterymarch Global Dividend Fund, Class IS Shares					363,872		4,013,510
QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares					175,149		2,734,080
The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares					222,908		1,948,218
Western Asset Funds, Inc.:
Western Asset Core Bond Fund, Class IS Shares					53,283		647,388
Western Asset Core Plus Bond Fund, Class IS Shares					416,391		4,759,349
Western Asset High Yield Fund, Class IS Shares					139,222		1,034,420
Western Asset Macro Opportunities Fund, Class IS Shares					152,947		1,541,706
Total Investments in Underlying Funds before Short-Term Investments (Cost — $32,832,642)							39,591,471

	Rate
Short-Term Investments — 0.2%
State Street Institutional Liquid Reserves Fund, Premier Class (Cost — $57,793)		0.225	%		57,793		57,793
Total Investments — 100.1% (Cost — $32,890,435#)							39,649,264
Liabilities in Excess of Other Assets — (0.1)%							(29,361	)
Total Net Assets — 100.0%						$	39,619,903

^(a)	Underlying Funds are 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 $35,247,765.

See Notes to Financial Statements.


16		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

QS Legg Mason Variable Conservative Growth


Description				Shares		Value
Investments in Underlying Funds^(a) — 100.0%
Legg Mason Global Asset Management Trust:
Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares					399,861	$	7,053,550
QS Batterymarch International Equity Fund, Class IS Shares					378,602		5,417,788
QS Legg Mason Strategic Real Return Fund, Class IS Shares					547,414		6,032,504
Legg Mason Partners Equity Trust:
ClearBridge Aggressive Growth Fund, Class IS Shares					17,793		3,666,822
ClearBridge Appreciation Fund, Class IS Shares					286,068		5,658,434
ClearBridge International Value Fund, Class IS Shares					370,302		3,543,789
ClearBridge Large Cap Growth Fund, Class IS Shares					45,107		1,608,075
ClearBridge Mid Cap Core Fund, Class IS Shares					100,222		3,272,243
ClearBridge Small Cap Growth Fund, Class IS Shares					185,546		5,213,846
QS Batterymarch Global Dividend Fund, Class IS Shares					901,290		9,941,226
QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares					252,657		3,943,983
The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares					279,055		2,438,942
Western Asset Funds, Inc.:
Western Asset Core Bond Fund, Class IS Shares					708,833		8,612,315
Western Asset Core Plus Bond Fund, Class IS Shares					1,979,982		22,631,189
Western Asset High Yield Fund, Class IS Shares					622,049		4,621,822
Western Asset Macro Opportunities Fund, Class IS Shares					428,051		4,314,752
Total Investments in Underlying Funds before Short-Term Investments (Cost — $85,169,883)							97,971,280

	Rate
Short-Term Investments — 0.1%
State Street Institutional Liquid Reserves Fund, Premier Class (Cost — $117,881)		0.225	%		117,881		117,881
Total Investments — 100.1% (Cost — $85,287,764#)							98,089,161
Liabilities in Excess of Other Assets — (0.1)%							(65,424	)
Total Net Assets — 100.0%						$	98,023,737

^(a)	Underlying Funds are 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 $90,299,145.

See Notes to Financial Statements.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		17

Statements of assets and liabilities

December 31, 2015


	QS Legg Mason Variable Growth		QS Legg Mason Variable Moderate Growth		QS Legg Mason Variable Conservative Growth

Assets:
Investments in affiliated Underlying Funds, at cost	$	91,593,895	$	32,832,642	$	85,169,883
Short-term investments, at cost		223,389		57,793		117,881
Investments in affiliated Underlying Funds, at value	$	111,209,837	$	39,591,471	$	97,971,280
Short-term investments, at value		223,389		57,793		117,881
Interest receivable		26		10		30
Receivable for Portfolio shares sold		—		248		1,586
Receivable from investment manager		—		16,889		—
Prepaid expenses		1,733		854		1,609
*Total Assets*		*111,434,985*		*39,667,265*		*98,092,386*

Liabilities:
Payable for Portfolio shares repurchased		11,226		2,829		18,326
Trustees’ fees payable		1,170		418		1,031
Accrued expenses		50,449		44,115		49,292
*Total Liabilities*		*62,845*		*47,362*		*68,649*
Total Net Assets	$	111,372,140	$	39,619,903	$	98,023,737

Net Assets:
Par value (Note 5)	$	79	$	28	$	70
Paid-in capital in excess of par value		93,540,196		34,861,788		92,398,818
Undistributed net investment income		18,011		61,377		170,458
Accumulated net realized loss on affiliated Underlying Funds, investments, capital gain distributions from affiliated Underlying Funds, and foreign currency transactions		(1,802,088)		(2,062,119)		(7,347,006)
Net unrealized appreciation on affiliated Underlying Funds		19,615,942		6,758,829		12,801,397
Total Net Assets	$	111,372,140	$	39,619,903	$	98,023,737

Shares Outstanding		7,889,351		2,839,601		6,966,028

Net Asset Value		$14.12		$13.95		$14.07

See Notes to Financial Statements.


18		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

Statements of operations

For the Year Ended December 31, 2015


	QS Legg Mason Variable Growth		QS Legg Mason Variable Moderate Growth		QS Legg Mason Variable Conservative Growth

Investment Income:
Income distributions from affiliated Underlying Funds	$	1,555,550	$	715,406	$	2,270,367
Dividends from unaffiliated investments		1,898		585		724
Interest		212		67		223
*Total Investment Income*		*1,557,660*		*716,058*		*2,271,314*

Expenses:
Legal fees		55,803		59,584		59,494
Audit and tax fees		29,885		29,706		29,791
Shareholder reports		28,331		16,707		33,996
Fund accounting fees		12,285		4,431		10,815
Trustees’ fees		7,974		2,867		7,011
Custody fees		3,812		3,810		3,764
Insurance		2,843		1,489		2,727
Transfer agent fees		100		105		100
Miscellaneous expenses		1,247		1,136		1,229
*Total Expenses*		*142,280*		*119,835*		*148,927*
Less: Fee waivers and/or expense reimbursements (Note 2)		—		(32,019)		—
*Net Expenses*		*142,280*		*87,816*		*148,927*
Net Investment Income		1,415,380		628,242		2,122,387

Realized and Unrealized Gain (Loss) on Affiliated Underlying Funds, Investments, Capital Gain Distributions From Affiliated Underlying Funds, and Foreign Currency Transactions (Notes 1 and 3):
Net Realized Gain (Loss) From:
Sale of affiliated Underlying Funds		11,290,467		5,023,780		8,635,183
Investment transactions (Note 3)		15,379		3,104		(2,685)
Capital gain distributions from affiliated Underlying Funds		3,814,370		1,131,521		1,905,975
Foreign currency transactions		3,323		953		908
*Net Realized Gain*		*15,123,539*		*6,159,358*		*10,539,381*
*Change in Net Unrealized Appreciation (Depreciation)*		*(18,986,953)*		*(7,439,052)*		*(13,724,749)*
Net Loss on Affiliated Underlying Funds, Investments, Capital Gain Distributions From Affiliated Underlying Funds, and Foreign Currency Transactions		(3,863,414)		(1,279,694)		(3,185,368)
Decrease in Net Assets From Operations	$	(2,448,034)	$	(651,452)	$	(1,062,981)

See Notes to Financial Statements.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		19

Statements of changes in net assets

QS Legg Mason Variable Growth


For the Years Ended December 31,	2015		2014

Operations:
Net investment income	$	1,415,380	$	1,427,032
Net realized gain		15,123,539		7,711,878
Change in net unrealized appreciation (depreciation)		(18,986,953)		(3,396,998)
*Increase (Decrease) in Net Assets From Operations*		*(2,448,034)*		*5,741,912*

Distributions to Shareholders From (Note 1):
Net investment income		(1,600,009)		(2,225,013)
Net realized gains		(12,915,081)		(3,949,513)
*Decrease in Net Assets From Distributions to Shareholders*		*(14,515,090)*		*(6,174,526)*

Portfolio Share Transactions (Note 5):
Net proceeds from sale of shares		1,560,143		1,964,079
Reinvestment of distributions		14,515,090		6,174,526
Cost of shares repurchased		(12,192,039)		(12,855,052)
*Increase (Decrease) in Net Assets From Portfolio Share Transactions*		*3,883,194*		*(4,716,447)*
*Decrease in Net Assets*		*(13,079,930)*		*(5,149,061)*

Net Assets:
Beginning of year		124,452,070		129,601,131
End of year*	$	111,372,140	$	124,452,070
* Includes undistributed net investment income of:		$18,011		$3,149

See Notes to Financial Statements.


20		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

QS Legg Mason Variable Moderate Growth


For the Years Ended December 31,	2015		2014

Operations:
Net investment income	$	628,242	$	726,013
Net realized gain		6,159,358		4,422,969
Change in net unrealized appreciation (depreciation)		(7,439,052)		(2,717,771)
*Increase (Decrease) in Net Assets From Operations*		*(651,452)*		*2,431,211*

Distributions to Shareholders From (Note 1):
Net investment income		(725,001)		(925,005)
*Decrease in Net Assets From Distributions to Shareholders*		*(725,001)*		*(925,005)*

Portfolio Share Transactions (Note 5):
Net proceeds from sale of shares		213,491		414,282
Reinvestment of distributions		725,001		925,005
Cost of shares repurchased		(7,585,404)		(7,963,137)
*Decrease in Net Assets From Portfolio Share Transactions*		*(6,646,912)*		*(6,623,850)*
*Decrease in Net Assets*		*(8,023,365)*		*(5,117,644)*

Net Assets:
Beginning of year		47,643,268		52,760,912
End of year*	$	39,619,903	$	47,643,268
* Includes undistributed net investment income of:		$61,377		$88,992

See Notes to Financial Statements.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		21

Statements of changes in net assets (cont’d)

QS Legg Mason Variable Conservative Growth


For the Years Ended December 31,	2015		2014

Operations:
Net investment income	$	2,122,387	$	2,541,386
Net realized gain		10,539,381		7,546,053
Change in net unrealized appreciation (depreciation)		(13,724,749)		(4,253,808)
*Increase (Decrease) in Net Assets From Operations*		*(1,062,981)*		*5,833,631*

Distributions to Shareholders From (Note 1):
Net investment income		(2,050,008)		(2,925,003)
*Decrease in Net Assets From Distributions to Shareholders*		*(2,050,008)*		*(2,925,003)*

Portfolio Share Transactions (Note 5):
Net proceeds from sale of shares		3,544,796		3,297,012
Reinvestment of distributions		2,050,008		2,925,003
Cost of shares repurchased		(18,655,969)		(20,569,845)
*Decrease in Net Assets From Portfolio Share Transactions*		*(13,061,165)*		*(14,347,830)*
*Decrease in Net Assets*		*(16,174,154)*		*(11,439,202)*

Net Assets:
Beginning of year		114,197,891		125,637,093
End of year*	$	98,023,737	$	114,197,891
* Includes undistributed (overdistributed) net investment income, respectively, of:		$170,458		$(8,943)

See Notes to Financial Statements.


22		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

Financial highlights

QS Legg Mason Variable Growth


For a share of beneficial interest outstanding throughout each year ended December 31:
	2015¹			2014¹			2013¹			2012¹			2011

Net asset value, beginning of year		$16.45			$16.51			$13.26			$11.65			$12.11

Income (loss) from operations:
Net investment income		0.19			0.19			0.15			0.23	²	��	0.20	²
Net realized and unrealized gain (loss)		(0.52)			0.59			3.35			1.61			(0.48)
*Total income (loss) from operations*		*(0.33)*			*0.78*			*3.50*			*1.84*			*(0.28)*

Less distributions from:
Net investment income		(0.21)			(0.30)			(0.25)			(0.23)			(0.18)
Net realized gains		(1.79)			(0.54)			—			—			—
*Total distributions*		*(2.00)*			*(0.84)*			*(0.25)*			*(0.23)*			*(0.18)*

Net asset value, end of year		$14.12			$16.45			$16.51			$13.26			$11.65
*Total return³*		*(2.23)*	%		*4.69*	%		*26.50*	%		*15.89*	%		*(2.31)*	%
Net assets, end of year (000s)		$111,372			$124,452			$129,601			$111,929			$100,037

Ratios to average net assets:
Gross expenses⁴		0.12	%		0.08	%		0.11	%		0.11	%		0.11	%
Net expenses^4,5		0.12			0.08			0.11			0.11			0.11
Net investment income		1.17			1.12			0.98			1.85	²		1.64	²

Portfolio turnover rate		54	%⁶		19	%		9	%		14	%		40	%

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

²	Net investment income includes short-term capital gain distributions from Underlying Funds.

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

⁴	Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

⁵

As a result of an expense limitation arrangement, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2017 without the Board of Trustees’ consent.

⁶	Excludes the value of securities received in lieu of cash proceeds from the sale of Underlying Funds and the subsequent sale of those securities.

See Notes to Financial Statements.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		23

Financial highlights (cont’d)

QS Legg Mason Variable Moderate Growth


For a share of beneficial interest outstanding throughout each year ended December 31:
	2015¹			2014¹			2013¹			2012¹			2011

Net asset value, beginning of year		$14.46			$14.05			$11.71			$10.47			$10.74

Income (loss) from operations:
Net investment income		0.21			0.21			0.15			0.21	²		0.22	²
Net realized and unrealized gain (loss)		(0.46)			0.48			2.40			1.31			(0.28)
*Total income (loss) from operations*		*(0.25)*			*0.69*			*2.55*			*1.52*			*(0.06)*

Less distributions from:
Net investment income		(0.26)			(0.28)			(0.21)			(0.28)			(0.21)
*Total distributions*		*(0.26)*			*(0.28)*			*(0.21)*			*(0.28)*			*(0.21)*

Net asset value, end of year		$13.95			$14.46			$14.05			$11.71			$10.47
*Total return³*		*(1.79)*	%		*4.91*	%		*21.82*	%		*14.60*	%		*(0.58)*	%

Net assets, end of year (000s)		$39,620			$47,643			$52,761			$52,113			$56,301

Ratios to average net assets:
Gross expenses⁴		0.27	%		0.16	%		0.18	%		0.17	%		0.14	%
Net expenses^4,5		0.20	⁶		0.16			0.18			0.17	⁶		0.14
Net investment income		1.43			1.44			1.17			1.90	²		1.83	²

Portfolio turnover rate		57	%⁷		17	%		9	%		11	%		30	%

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

²	Net investment income includes short-term capital gain distributions from Underlying Funds.

⁴	Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

⁵

As a result of an expense limitation arrangement, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2017 without the Board of Trustees’ consent.

⁶	Reflects fee waivers and/or expense reimbursements.

⁷	Excludes the value of securities received in lieu of cash proceeds from the sale of Underlying Funds and the subsequent sale of those securities.

See Notes to Financial Statements.


24		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

QS Legg Mason Variable Conservative Growth


For a share of beneficial interest outstanding throughout each year ended December 31:
	2015¹			2014¹			2013¹			2012¹			2011

Net asset value, beginning of year		$14.54			$14.22			$12.58			$11.43			$11.60

Income (loss) from operations:
Net investment income		0.29			0.31			0.24			0.29	²		0.30	²
Net realized and unrealized gain (loss)		(0.46)			0.39			1.69			1.20			(0.16)
*Total income (loss) from operations*		*(0.17)*			*0.70*			*1.93*			*1.49*			*0.14*

Less distributions from:
Net investment income		(0.30)			(0.38)			(0.29)			(0.34)			(0.31)
*Total distributions*		*(0.30)*			*(0.38)*			*(0.29)*			*(0.34)*			*(0.31)*

Net asset value, end of year		$14.07			$14.54			$14.22			$12.58			$11.43
*Total return³*		*(1.19)*	%		*4.91*	%		*15.33*	%		*13.10*	%		*1.17*	%

Net assets, end of year (000s)		$98,024			$114,198			$125,637			$116,560			$114,975

Ratios to average net assets:
Gross expenses⁴		0.14	%		0.10	%		0.10	%		0.10	%		0.09	%
Net expenses^4,5		0.14			0.10			0.10			0.10			0.09
Net investment income		1.98			2.09			1.77			2.39	²		2.44	²

Portfolio turnover rate		58	%⁶		17	%		13	%		14	%		37	%

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

²	Net investment income includes short-term capital gain distributions from Underlying Funds.

⁴	Does not include fees and expenses of the Underlying Funds in which the Portfolio invests.

⁵

As a result of an expense limitation arrangement, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds), to average net assets of shares did not exceed 0.20%. This expense limitation arrangement cannot be terminated prior to December 31, 2017 without the Board of Trustees’ consent.

⁶	Excludes the value of securities received in lieu of cash proceeds from the sale of Underlying Funds and the subsequent sale of those securities.

See Notes to Financial Statements.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		25

Notes to financial statements

1. Organization and significant accounting policies

QS Legg Mason Variable Growth (formerly QS Legg Mason Variable Lifestyle Allocation 85%) (“Growth”), QS Legg Mason Variable Moderate Growth (formerly QS Legg Mason Variable Lifestyle Allocation 70%) (“Moderate Growth”) and QS Legg Mason Variable Conservative Growth (formerly QS Legg Mason Variable Lifestyle Allocation 50%) (“Conservative Growth”) (the “Portfolios”) are separate non-diversified investment series of Legg Mason Partners Variable Equity Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Portfolios invest in other mutual funds (“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.

Effective May 1, 2015, each Portfolio’s name, investment policies and strategies were changed.

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 exchange-traded funds, are valued at the closing net asset value per share of each Underlying Fund on the day of valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of 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 each Portfolio calculates its net asset value, the Portfolios’ value these securities as determined in accordance with procedures approved by the Portfolios’ Board of Trustees.

The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (formerly, 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.


26		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

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

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

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

•

Level 1 — quoted prices in active markets for identical investments

•

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

•

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

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

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

Growth


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investments in underlying funds†	$	111,209,837		—		—	$	111,209,837
Short-term investments†		223,389		—		—		223,389
Total investments	$	111,433,226		—		—	$	111,433,226

†	See Schedule of Investments for additional detailed categorizations.

Moderate Growth


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investments in underlying funds†	$	39,591,471		—		—	$	39,591,471
Short-term investments†		57,793		—		—		57,793
Total investments	$	39,649,264		—		—	$	39,649,264

†	See Schedule of Investments for additional detailed categorizations.

Conservative Growth


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Investments in underlying funds†	$	97,971,280		—		—	$	97,971,280
Short-term investments†		117,881		—		—		117,881
Total investments	$	98,089,161		—		—	$	98,089,161

†	See Schedule of Investments for additional detailed categorizations.

(b) Repurchase agreements. The Portfolios may enter into repurchase agreements with institutions that their subadviser 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 Portfolio’s policy that its custodian or a third party custodian, acting on the Portfolios’ behalf, take possession of the underlying collateral


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		27

Notes to financial statements (cont’d)

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 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. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Portfolios determine the existence of a dividend declaration after exercising reasonable due diligence. 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, 2015, no provision for income tax is required in the Portfolios’ financial statements. The Portfolios’ federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

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


Portfolio	Undistributed Net Investment Income		Accumulated Net Realized Loss
Growth^(a)	$	199,491	$	(199,491)
Moderate Growth^(a)		69,144		(69,144)
Conservative Growth^(a)		107,022		(107,022)

^(a)	Reclassifications are primarily due to short-term capital gains from underlying funds treated as ordinary income for tax purposes and foreign currency transactions treated as ordinary income for tax purposes.

2. Investment management agreement and other transactions with affiliates

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


28		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report

LMPFA provides administrative and certain oversight services to the Portfolios. LMPFA delegates to the subadviser the day-to-day portfolio management of the Portfolios, except for the management of the portion of the Portfolios’ cash and short-term instruments allocated to 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 so that each Portfolio’s total annual operating expenses (other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses (fees and expenses of Underlying Funds)) are not expected to exceed 0.20% of each Portfolio’s average daily net assets. The investment manager is 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 arrangements cannot be terminated prior to December 31, 2017 without the Board of Trustees’ consent.

During the year ended December 31, 2015, fees waived and/or reimbursed were as follows:


Growth		—
Moderate Growth	$	32,019
Conservative Growth		—

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/or administration fees ranged from 0.40% to 1.15% 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, 2015, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:


	Purchases		Sales
Growth*	$	65,162,920	$	70,673,136
Moderate Growth**		24,730,927		30,361,595
Conservative Growth***		62,095,341		73,080,832

*	Excludes the value of securities received from the Underlying Funds and the subsequent sale of those securities, totaling $14,032,560 and $14,054,025, respectively.

**	Excludes the value of securities received from the Underlying Funds and the subsequent sale of those securities, totaling $4,824,886 and $4,829,730, respectively.

***	Excludes the value of securities received from the Underlying Funds and the subsequent sale of those securities, totaling $8,089,055 and $8,088,049, respectively.

During the year ended December 31, 2015, each Portfolio received securities in lieu of cash proceeds from the sale of three of its Underlying Funds: ClearBridge Aggressive Growth Fund, ClearBridge International Value Fund and QS Batterymarch U.S. Large Cap Equity Fund. Subsequently, the securities were sold. The realized gains and losses and currency gains and losses from the sale of these securities are noted in the Statements of Operations.

At December 31, 2015, 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
Growth	$	22,549,029	$	(8,498,545)	$	14,050,484
Moderate Growth		7,709,972		(3,308,473)		4,401,499
Conservative Growth		14,821,724		(7,031,708)		7,790,016

4. Derivative instruments and hedging activities

During the year ended December 31, 2015, the Portfolios did not invest in derivative instruments.


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		29

Notes to financial statements (cont’d)

5. Shares of beneficial interest

At December 31, 2015, 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 each Portfolio were as follows:


	Year Ended December 31, 2015		Year Ended December 31, 2014

Growth
Shares sold		97,647		116,989
Shares issued on reinvestment		976,811		368,494
Shares repurchased		(752,452)		(765,946)
Net increase (decrease)		322,006		(280,463)

Moderate Growth
Shares sold		14,498		29,118
Shares issued on reinvestment		51,035		63,365
Shares repurchased		(521,440)		(552,354)
Net decrease		(455,907)		(459,871)

Conservative Growth
Shares sold		243,523		224,753
Shares issued on reinvestment		144,692		199,691
Shares repurchased		(1,276,540)		(1,404,943)
Net decrease		(888,325)		(980,499)

6. Transactions with affiliated companies

As defined by the 1940 Act, an affiliated company is one in which the Portfolios own 5% or more of the outstanding voting securities, or a company which is under common ownership or control. Legg Mason through sub-advisory agreements with its wholly owned subsidiaries, also provides investment management services to certain of the Underlying Funds held by the Portfolios. Based on the Portfolios’ relative ownership, the following Underlying Funds were considered affiliated companies for all or some portion of the year ended December 31, 2015. The following transactions were effected in shares of such Underlying Funds for the year ended December 31, 2015.


	Affiliate Value at December 31, 2014		Purchased				Sold				Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015		Realized Gain (Loss) from Sale of Affiliated Underlying Funds
Growth	Affiliate Value at December 31, 2014		Cost		Shares		Cost		Shares		Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015
Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	$	14,394,676	$	3,989,606		210,143	$	4,044,810		217,262	$	223,128	$	615,478	$	12,929,530	$	188,190
Legg Mason Global Asset Management Trust — QS Batterymarch International Equity Fund, Class IS Shares		13,104,169		6,875,052		436,940		4,193,179		278,107		328,052		—		15,386,240		(148,179)
Legg Mason Global Asset Management Trust — QS Legg Mason Strategic Real Return Fund, Class IS Shares		8,376,646		934,153		76,964		1,623,421		117,727		—		254,153		6,802,214		(149,421)
Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares		13,068,761		2,550,040		11,222		2,513,372		31,926		—		277,040		7,834,451		4,861,628
Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares		14,372,234		3,477,788		169,202		6,336,048		360,133		140,445		367,343		10,145,164		1,154,952
Legg Mason Partners Equity Trust — ClearBridge International Value Fund, Class IS Shares		13,598,855		1,970,341		186,654		7,393,281		878,183		133,341		—		6,267,319		1,869,719
Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares		—		3,704,462		103,574		542,125		15,078		10,477		81,985		3,154,871		(2,125)
Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares		6,396,012		1,123,732		32,205		991,256		31,168		—		274,732		6,322,005		81,744
Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares		9,137,740		3,390,883		113,468		3,314,069		113,307		—		101,883		8,641,282		52,931


30		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report


	Affiliate Value at December 31, 2014		Purchased				Sold				Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015		Realized Gain (Loss) from Sale of Affiliated Underlying Funds
Growth (cont’d)	Affiliate Value at December 31, 2014		Cost		Shares		Cost		Shares		Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015
Legg Mason Partners Equity Trust — QS Batterymarch Global Dividend Fund, Class IS Shares		—	$	12,994,236		1,150,670	$	1,404,001		124,248	$	165,701	$	25,535	$	11,321,440	$	(29,001)
Legg Mason Partners Equity Trust — QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares	$	14,343,449		3,285,461		194,751		4,177,199		416,058		108,573		469,888		9,825,406		2,976,801
The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares*		8,866,582		3,529,408		334,389		2,216,641		184,274		84,696		1,239,712		7,873,731		(55,641)
Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares		1,085,537		7,617,931		650,843		7,418,262		655,673		72,931		—		1,010,749		282,738
Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares		6,716,098		551,870		65,635		6,309,659		727,345		151,870		—		919,828		(40,659)
Western Asset Funds, Inc. — Western Asset Total Return Unconstrained Fund, Class IS Shares		960,312		5,814,083		558,490		6,550,193		650,650		54,083		—		—		246,943
Western Asset Funds, Inc. — Western Asset Macro Opportunities Fund, Class IS Shares		—		3,353,874		308,176		359,684		32,818		82,253		106,621		2,775,607		(4,684)
	$	124,421,071	$	65,162,920			$	59,387,200			$	1,555,550	$	3,814,370	$	111,209,837	$	11,285,936

*	Formerly Royce Value Fund.


	Affiliate Value at December 31, 2014		Purchased				Sold				Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015		Realized Gain (Loss) from Sale of Affiliated Underlying Funds
Moderate Growth	Affiliate Value at December 31, 2014		Cost		Shares		Cost		Shares		Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015
Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	$	4,814,718	$	1,318,479		69,287	$	1,523,693		82,480	$	71,435	$	197,044	$	4,133,950	$	78,307
Legg Mason Global Asset Management Trust — QS Batterymarch International Equity Fund, Class IS Shares		3,588,836		1,639,449		104,450		1,469,697		98,737		78,449		—		3,673,106		(14,697)
Legg Mason Global Asset Management Trust — QS Legg Mason Strategic Real Return Fund, Class IS Shares		3,220,147		325,491		26,833		796,730		60,016		—		90,491		2,421,915		(45,730)
Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares		4,327,188		928,495		4,067		851,534		12,474		—		80,495		2,274,242		2,031,466
Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares		4,805,448		1,193,139		57,953		2,248,183		131,979		44,270		115,869		3,190,598		494,817
Legg Mason Partners Equity Trust — ClearBridge International Value Fund, Class IS Shares		4,127,895		504,509		47,715		2,460,636		291,842		33,509		—		1,574,985		614,364
Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares		—		1,307,329		36,548		214,525		5,969		3,663		28,666		1,090,134		475
Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares		2,140,712		200,393		5,822		357,003		13,946		—		80,393		1,839,359		122,997
Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares		2,428,636		1,181,504		39,408		666,277		24,496		—		32,504		2,714,511		55,723
Legg Mason Partners Equity Trust — QS Batterymarch Global Dividend Fund, Class IS Shares		—		4,778,635		423,180		670,178		59,308		59,548		9,087		4,013,510		(10,178)
Legg Mason Partners Equity Trust — QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares		4,796,956		1,120,275		66,123		1,693,927		175,491		30,270		131,005		2,734,080		1,327,073
The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares*		2,355,261		943,702		89,510		783,913		66,031		20,957		306,745		1,948,218		(4,913)


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		31

Notes to financial statements (cont’d)


	Affiliate Value at December 31, 2014		Purchased				Sold				Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015		Realized Gain (Loss) from Sale of Affiliated Underlying Funds
Moderate Growth (cont’d)	Affiliate Value at December 31, 2014		Cost		Shares		Cost		Shares		Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015
Western Asset Funds, Inc. — Western Asset Core Bond Fund, Class IS Shares		—	$	851,733		69,205	$	196,320		15,922	$	10,733		—	$	647,388	$	(1,320)
Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares	$	4,417,098		3,691,442		316,220		3,232,999		279,304		162,442		—		4,759,349		35,001
Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares		3,107,749		897,848		107,085		2,899,215		331,343		97,848		—		1,034,420		(95,215)
Western Asset Funds, Inc. — Western Asset Total Return Unconstrained Fund, Class IS Shares		3,510,159		1,926,595		185,050		5,017,880		521,918		56,595		—		—		435,715
Western Asset Funds, Inc. — Western Asset Macro Opportunities Fund, Class IS Shares		—		1,921,909		176,533		258,496		23,585		45,687	$	59,222		1,541,706		(3,496)
	$	47,640,803	$	24,730,927			$	25,341,206			$	715,406	$	1,131,521	$	39,591,471	$	5,020,389

*	Formerly Royce Value Fund.


	Affiliate Value at December 31, 2014		Purchased				Sold				Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015		Realized Gain (Loss) from Sale of Affiliated Underlying Funds
Conservative Growth	Affiliate Value at December 31, 2014		Cost		Shares		Cost		Shares		Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015
Legg Mason Global Asset Management Trust — Legg Mason BW Diversified Large Cap Value Fund, Class IS Shares	$	8,010,781	$	2,787,704		146,891	$	2,947,190		158,895	$	122,047	$	336,657	$	7,053,550	$	135,810
Legg Mason Global Asset Management Trust — QS Batterymarch International Equity Fund, Class IS Shares		6,238,011		2,145,403		138,327		3,004,893		195,950		115,403		—		5,417,788		(139,893)
Legg Mason Global Asset Management Trust — QS Legg Mason Strategic Real Return Fund, Class IS Shares		7,702,306		947,394		78,199		1,817,413		135,837		—		225,394		6,032,504		(116,413)
Legg Mason Partners Equity Trust — ClearBridge Aggressive Growth Fund, Class IS Shares		6,857,026		1,814,501		7,961		2,197,797		20,978		—		129,500		3,666,822		2,658,203
Legg Mason Partners Equity Trust — ClearBridge Appreciation Fund, Class IS Shares		7,996,790		2,476,844		120,631		3,787,434		226,178		78,167		204,678		5,658,434		909,566
Legg Mason Partners Equity Trust — ClearBridge International Value Fund, Class IS Shares		6,153,417		1,629,396		154,483		3,548,521		393,431		75,396		—		3,543,789		545,479
Legg Mason Partners Equity Trust — ClearBridge Large Cap Growth Fund, Class IS Shares		—		1,937,276		54,154		325,268		9,047		5,357		41,919		1,608,075		(268)
Legg Mason Partners Equity Trust — ClearBridge Mid Cap Core Fund, Class IS Shares		3,935,051		283,179		8,293		634,816		26,561		—		143,179		3,272,243		283,184
Legg Mason Partners Equity Trust — ClearBridge Small Cap Growth Fund, Class IS Shares		4,588,983		3,637,673		122,902		2,656,535		91,711		—		63,673		5,213,846		50,465
Legg Mason Partners Equity Trust — QS Batterymarch Global Dividend Fund, Class IS Shares		—		11,659,858		1,032,634		1,484,194		131,344		144,543		22,315		9,941,226		(24,194)
Legg Mason Partners Equity Trust — QS Batterymarch U.S. Large Cap Equity Fund, Class IS Shares		7,980,956		2,221,556		131,165		3,395,902		351,873		43,649		188,907		3,943,983		2,671,098
The Royce Fund — Royce Small-Cap Value Fund, Institutional Class Shares*		4,452,848		1,145,244		113,802		2,315,973		211,787		26,236		384,009		2,438,942		179,027
Western Asset Funds, Inc. — Western Asset Core Bond Fund, Class IS Shares		—		10,482,449		851,315		1,756,811		142,483		141,449		—		8,612,315		(11,811)
Western Asset Funds, Inc. — Western Asset Core Plus Bond Fund, Class IS Shares		27,736,954		8,347,264		714,571		12,484,929		1,117,490		822,264		—		22,631,189		562,071


32		QS Legg Mason Variable Asset Allocation Series 2015 Annual Report


	Affiliate Value at December 31, 2014		Purchased				Sold				Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015		Realized Gain (Loss) from Sale of Affiliated Underlying Funds
Conservative Growth (cont’d)	Affiliate Value at December 31, 2014		Cost		Shares		Cost		Shares		Income Distributions from Affiliated Underlying Funds		Capital Gain Distributions from Affiliated Underlying Funds		Affiliate Value at December 31, 2015
Western Asset Funds, Inc. — Western Asset High Yield Fund, Class IS Shares	$	9,386,177	$	2,464,048		294,355	$	6,866,744		770,105	$	389,048		—	$	4,621,822	$	(361,744)
Western Asset Funds, Inc. — Western Asset Total Return Unconstrained Fund, Class IS Shares		13,019,602		2,793,943		268,316		14,571,153		1,517,797		178,943		—		—		1,289,679
Western Asset Funds, Inc. — Western Asset Macro Opportunities Fund, Class IS Shares		—		5,321,609		488,511		662,642		60,460		127,865	$	165,744		4,314,752		(7,642)
	$	114,058,902	$	62,095,341			$	64,458,215			$	2,270,367	$	1,905,975	$	97,971,280	$	8,622,617

*	Formerly Royce Value Fund.

7. Income tax information and distributions to shareholders

The tax character of distributions paid during the fiscal year ended December 31, 2015 was as follows:


	Growth		Moderate Growth		Conservative Growth

Distributions Paid From:
Ordinary income	$	1,641,410	$	725,001	$	2,050,008
Net long-term capital gains		12,873,680		—		—
Total distributions paid	$	14,515,090	$	725,001	$	2,050,008

The tax character of distributions paid during the fiscal year ended December 31, 2014 was as follows:


	Growth		Moderate Growth		Conservative Growth

Distributions Paid From:
Ordinary income	$	2,404,123	$	925,005	$	2,925,003
Net long-term capital gains		3,770,403		—		—
Total distributions paid	$	6,174,526	$	925,005	$	2,925,003

As of December 31, 2015, the components of accumulated earnings on a tax basis were as follows:


	Growth			Moderate Growth			Conservative Growth
Undistributed ordinary income — net	$	57,627		$	94,598		$	209,230
Undistributed long-term capital gains — net		3,763,370			295,211			—
Total undistributed earnings		3,820,997			389,809			209,230
Capital loss carryforward*		—			—			(2,335,625)
Other book/tax temporary differences		(39,616)	^(a)		(33,221)	^(a)		(38,772)	^(a)
Unrealized appreciation (depreciation)		14,050,484	^(b)		4,401,499	^(b)		7,790,016	^(b)
Total accumulated earnings (losses) — net	$	17,831,865		$	4,758,087		$	5,624,849

*	During the taxable year ended December 31, 2015, Moderate Growth utilized $4,432,744 and Conservative Growth utilized $7,899,176 of its capital loss carryforwards available from prior years.

^(a)	Other book/tax temporary differences are attributable 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 to the tax deferral of losses on wash sales.

As of December 31, 2015, the Portfolios had the following net capital loss carryforwards remaining:


Year of Expiration	Conservative Growth
12/31/2017	$	(13,053)
12/31/2018		(2,322,572)
	$	(2,335,625)

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


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		33

Notes to financial statements (cont’d)

8. Subsequent events

On February 2, 2016, the Board of Trustees (the “Board”) approved a resolution whereby effective April 1, 2016, QS Investors, LLC will become a subadviser, and QS LMGAA will cease to be a subadviser, for each Portfolio. The Board’s resolution does not impact the portfolio managers serving the Portfolios. The Board also approved the Portfolios to be renamed QS Variable Growth, QS Variable Moderate Growth, and QS Variable Conservative Growth effective April 1, 2016.


34		QS Legg Mason Variable Asset Allocation Series 2015 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 QS Legg Mason Variable Growth (formerly, QS Legg Mason Variable Lifestyle Allocation 85%), QS Legg Mason Variable Moderate Growth (formerly, QS Legg Mason Variable Lifestyle Allocation 70%), and QS Legg Mason Variable Conservative Growth (formerly, QS 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, 2015, 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 five-year period then ended. 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, 2015, by correspondence with the custodian, transfer agent and brokers or by other appropriate auditing procedures. 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 QS Legg Mason Variable Growth, QS Legg Mason Variable Moderate Growth and QS Legg Mason Variable Conservative Growth as of December 31, 2015, the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

LOGO

New York, New York

February 18, 2016


QS Legg Mason Variable Asset Allocation Series 2015 Annual Report		35

Board approval of management and

subadvisory agreements (unaudited)

Legg Mason Partners Variable Equity Trust — QS Legg Mason Variable Growth

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 QS Legg Mason Variable Growth (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 QS Legg Mason Global Asset Allocation, LLC (“QS/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 QS/LMGAA, the “Sub-Advisers”) provides day-to-day management of the Fund’s cash and short-term instruments allocated to it by the Manager. (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.

At a subsequent meeting of the Trust’s Board of Trustees, the Board considered and approved for an annual period a sub-advisory agreement with QS Investors, LLC (“QS”) pursuant to which QS would provide day-to-day management of the Fund’s portfolio. The sub-advisory agreement with QS will replace the current sub-advisory agreement with QS/LMGAA upon the reorganization of QS/LMGAA with and into QS, effective on or about April 1, 2016. QS is an indirect wholly-owned subsidiary of Legg Mason, Inc. Noting that the sub-advisory agreement with QS is substantially identical to the sub-advisory agreement with QS/LMGAA and that there would be no changes to the nature, scope and quality of the services provided or the fees therefor, the Independent Trustees approved the sub-advisory agreement with QS based on an evaluation of 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 and the Manager’s commitment to continue to provide effective and efficient investment management and shareholder services. 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.


36		QS Legg Mason Variable Asset Allocation Series

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.

Fund performance

The Board received and reviewed performance information for the Fund and for all mixed-asset target allocation aggressive 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, 2015. The Fund performed better than the median performance of the funds in 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 one- and ten-year periods. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2015, which showed that the Fund’s performance was below the Lipper category average during the third quarter and year-to-date period. 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 QS/LMGAA were committed to providing the resources necessary to assist the Fund’s portfolio managers and improve Fund performance. Based on its review, the Board generally was satisfied with the Fund’s performance and with management’s efforts to improve the Fund’s 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 subadvisory 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 managed affiliated funds of funds underlying variable insurance products consisting of six mixed-asset target allocation aggressive 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 managed affiliated mixed-asset target allocation aggressive 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 lower than the median of the total expense ratios of the funds in the Expense Group and was lower than the average total expense ratio of the funds in the Expense Universe.

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


QS Legg Mason Variable Asset Allocation Series		37

Board approval of management and

subadvisory agreements (unaudited) (cont’d)

potential for realization of any further economies of scale. The Board considered whether economies of scale in the provision of services to the Fund were being passed along to the shareholders.

The Board 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 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.


38		QS Legg Mason Variable Asset Allocation Series

Legg Mason Partners Variable Equity Trust — QS Legg Mason Variable Moderate Growth

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 QS Legg Mason Variable Moderate Growth (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 QS Legg Mason Global Asset Allocation, LLC (“QS/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 QS/LMGAA, the “Sub-Advisers”) provides day-to-day management of the Fund’s cash and short-term instruments allocated to it by the Manager. (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


QS Legg Mason Variable Asset Allocation Series		39

Board approval of management and

subadvisory agreements (unaudited) (cont’d)

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 QS/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.

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, 2015. The Fund performed better than the median performance of the funds in 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 one- and ten-year periods. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2015, which showed that the Fund’s performance was below the Lipper category average during the third quarter and year-to-date period. 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 QS/LMGAA were committed to providing the resources necessary to assist the Fund’s portfolio managers and improve Fund performance. Based on its review, the Board generally was satisfied with the Fund’s performance and with management’s efforts to improve the Fund’s 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 managed affiliated funds of funds underlying variable insurance products consisting of six 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 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 at the median of the total expense ratios of the funds in the Expense Group and was lower than the average total expense ratio of the funds in the Expense Universe.

Manager profitability


40		QS Legg Mason Variable Asset Allocation Series

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.

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.


QS Legg Mason Variable Asset Allocation Series		41

Board approval of management and

subadvisory agreements (unaudited) (cont’d)

Legg Mason Partners Variable Equity Trust

— QS Legg Mason Variable Conservative Growth

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 QS Legg Mason Variable Conservative Growth (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 QS Legg Mason Global Asset Allocation, LLC (“QS/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 QS/LMGAA, the “Sub-Advisers”) provides day-to-day management of the Fund’s cash and short-term instruments allocated to it by the Manager. (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


42		QS Legg Mason Variable Asset Allocation 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, 2015. The Fund performed better than the median performance of the funds in the Performance Universe for the three- and five-year periods, and performed at the median performance of the funds in the Performance Universe for the ten-year period, but performed below the median performance of the funds in the Performance Universe for the one-year period. The Board also reviewed performance information provided by the Manager for periods ended September 30, 2015, which showed that the Fund’s performance was below the Lipper category average during the third quarter and year-to-date period. 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 QS/LMGAA were committed to providing the resources necessary to assist the Fund’s portfolio managers and improve Fund performance. Based on its review, the Board generally was satisfied with the Fund’s performance and with management’s efforts to improve the Fund’s 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 managed affiliated funds of funds underlying variable insurance products consisting of six 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 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 lower than the median of the total expense ratios of the funds in the Expense Group and was lower than the average total expense ratio of the funds in the Expense Universe.

Manager profitability


QS Legg Mason Variable Asset Allocation Series		43

Board approval of management and

subadvisory agreements (unaudited) (cont’d)

Economies of scale

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.


44		QS Legg Mason Variable Asset Allocation Series

Additional information (unaudited)

Information about Trustees and Officers

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

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


Independent Trustees†
Paul R. Ades
Year of birth		1940
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1983
Principal occupation(s) during past five years		Paul R. Ades, PLLC (law firm) (since 2000)
Number of funds in fund complex overseen by Trustee		44
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		44
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		44
Other board memberships held by Trustee during past five years		None

Althea L. Duersten
Year of birth		1951
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 2014
Principal occupation(s) during past five years		Retired (since 2011); formerly, Chief Investment Officer, North America, JPMorgan Chase (investment bank) and member of JPMorgan Executive Committee (2007 to 2011)
Number of funds in fund complex overseen by Trustee		44
Other board memberships held by Trustee during past five years		None


QS Legg Mason Variable Asset Allocation Series		45

Additional information (unaudited) (cont’d)

Information about Trustees and Officers


Independent Trustees cont’d
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, Fealds, Inc. (business development) (since 2016); formerly, President, Avatar International Inc. (business development) (1998 to 2015)
Number of funds in fund complex overseen by Trustee		44
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 and since 2000 (Chairman 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		44
Other board memberships held by Trustee during past five years		None

Jerome H. Miller
Year of birth		1938
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1995
Principal occupation(s) during past five years		Retired
Number of funds in fund complex overseen by Trustee		44
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		44
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		44
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); Director, Fort Dearborn Income Securities, Inc. (since 2013); formerly, Director, Nicholas Applegate Institutional Funds (12 funds) (2005 to 2010)


46		QS Legg Mason Variable Asset Allocation Series


Independent Trustees cont’d
Thomas F. Schlafly
Year of birth		1948
Position(s) with Trust		Trustee
Term of office¹ and length of time served²		Since 1983
Principal occupation(s) during 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)
Number of funds in fund complex overseen by Trustee		44
Other board memberships held by Trustee during past five years		Director, Citizens National Bank of Greater St. Louis (since 2006)

Interested Trustee and Officer
Jane Trust³
Year of birth		1962
Position(s) with Trust		Trustee, President and Chief Executive Officer
Term of office¹ and length of time served²		Since 2015
Principal occupation(s) during past five years		Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2015); Officer and/or Trustee/Director of 160 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Vice President of LMPFA (2015); formerly, Director of ClearBridge, LLC (formerly, Legg Mason Capital Management, LLC) (2007 to 2014); formerly, Managing Director of Legg Mason Investment Counsel & Trust Co. (2000 to 2007)
Number of funds in fund complex overseen by Trustee		151
Other board memberships held by Trustee during past five years		None

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)


QS Legg Mason Variable Asset Allocation Series		47

Additional information (unaudited) (cont’d)

Information about Trustees and Officers


Additional Officers cont’d
Jenna Bailey Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1978
Position(s) with Trust		Identity Theft Prevention Officer
Term of office¹ and length of time served²		Since 2015
Principal occupation(s) during past five years		Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2015); Compliance Officer of Legg Mason & Co. (since 2013); Assistant Vice President of Legg Mason & Co. (since 2011); formerly, Associate Compliance Officer of Legg Mason & Co. (2011 to 2013); formerly, Risk Manager of U.S. Distribution of Legg Mason & Co. (2007 to 2011)

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 — U.S. 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)

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 LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers)

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)

Christopher Berarducci Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018
Year of birth		1974
Position(s) with Trust		Treasurer
Term of office¹ and length of time served²		Since 2014
Principal occupation(s) during past five years		Director of Legg Mason & Co. (since 2015); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010); formerly, Vice President of Legg Mason & Co. (2011 to 2015); formerly, Assistant Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010)


48		QS Legg Mason Variable Asset Allocation Series


Additional Officers cont’d
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); President and Chief Executive Officer of LMAS and LMFAM (since 2015); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); formerly, Senior Vice President of LMFAM (2013 to 2015)

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

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

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

³	Effective June 1, 2015, Ms. Trust became a Trustee. In addition, Ms. Trust is an “interested person” of the Portfolios, as defined in the 1940 Act, because of her position with LMPFA and/or certain of its affiliates.


QS Legg Mason Variable Asset Allocation Series		49

Important tax information (unaudited)

The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2015:


	Growth
Record date:		6/23/2015			12/16/2015		12/22/2015
Payable date:		6/24/2015			12/17/2015		12/23/2015
Dividends qualifying for the dividends
received deduction for corporations		34.89	%		—		45.02	%
Foreign source income*		60.15	%		—		26.68	%
Foreign taxes paid per share		$0.000288			—		$0.004710
Long-term capital gains per share		$0.532470			$1.252570		—

				Moderate Growth
Record date:					6/23/2015		12/22/2015
Payable date:					6/24/2015		12/23/2015
Dividends qualifying for the dividends
received deduction for corporations					29.96	%	33.19	%
Foreign source income*					14.27	%	14.61	%
Foreign taxes paid per share					$0.000772		$0.002763

				Conservative Growth
Record date:					6/23/2015		12/22/2015
Payable date:					6/24/2015		12/23/2015
Dividends qualifying for the dividends
received deduction for corporations					17.36	%	18.86	%
Foreign source income*					7.80	%	8.15	%
Foreign taxes paid per share					—		$0.002378

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

Please retain this information for your records.


50		QS Legg Mason Variable Asset Allocation Series

QS Legg Mason

Variable Asset Allocation Series

Trustees

Paul R. Ades

Andrew L. Breech

Dwight B. Crane

Althea L. Duersten

Frank G. Hubbard

Howard J. Johnson

Chairman

Jerome H. Miller

Ken Miller

John J. Murphy

Thomas F. Schlafly

Jane Trust*

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadviser

QS Legg Mason Global Asset Allocation, LLC

Distributor

Legg Mason Investor Services, LLC

Custodian

State Street Bank and Trust Company

Transfer agent

BNY Mellon Investment Servicing (US) Inc.

4400 Computer Drive

Westborough, MA 01581

Independent registered public accounting firm

KPMG LLP

345 Park Avenue

New York, NY 10154

*	Effective June 1, 2015, Ms. Trust became a Trustee, President and Chief Executive Officer.

QS Legg Mason Variable Asset Allocation Series

QS Legg Mason Variable Growth

QS Legg Mason Variable Moderate Growth

QS Legg Mason Variable Conservative Growth

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

QS Legg Mason Variable Asset Allocation 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 QS Legg Mason Variable Growth, QS Legg Mason Variable Moderate Growth and QS Legg Mason Variable Conservative Growth. This report is not authorized for distribution to prospective investors in the Portfolios unless preceded or accompanied by a current prospectus.

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

NOT PART OF THE ANNUAL REPORT

www.leggmason.com/individualinvestors

FD01436 2/16 SR16-2693

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, 2014 and December 31, 2015 (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 $277,943 in December 31, 2014 and $318,825 in December 31, 2015.

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 $38,259 in December 31, 2014 and $0 in December 31, 2015.

(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 $44,640 in December 31, 2014 and $50,780 in December 31, 2015. 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, 2014 and December 31, 2015; Tax Fees were 100% and 100% for December 31, 2014 and December 31, 2015; and Other Fees were 100% and 100% for December 31, 2014 and December 31, 2015.

(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 2015.

(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

Althea L. Duersten

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/ Jane Trust
		Jane Trust
		Chief Executive Officer

Date:		February 24, 2016

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


By:		/s/ Jane Trust
		Jane Trust
		Chief Executive Officer

Date:		February 24, 2016

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

Date:		February 24, 2016

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