The Fund seeks to achieve long-term capital appreciation.

Letter from the president

Dear Shareholder,

We are pleased to provide the annual report of ClearBridge All Cap Growth ETF for the twelve-month reporting period ended September 30, 2020. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

Special shareholder notice

On July 31, 2020, Franklin Resources, Inc. (“Franklin Resources”) acquired Legg Mason, Inc. (“Legg Mason”) in an all-cash transaction. As a result of the transaction, Legg Mason Partners Fund Advisor, LLC (“LMPFA”) and the subadviser(s) became indirect, wholly-owned subsidiaries of Franklin Resources. Under the Investment Company Act of 1940, as amended, consummation of the transaction automatically terminated the management and subadvisory agreements that were in place for the Fund prior to the transaction. The Fund’s manager and subadviser(s) continue to provide uninterrupted services with respect to the Fund pursuant to new management and subadvisory agreements that were approved by Fund shareholders.

Franklin Resources, whose principal executive offices are at One Franklin Parkway, San Mateo, California 94403, is a global investment management organization operating, together with its subsidiaries, as Franklin Templeton. As of September 30, 2020, after giving effect to the transaction described above, Franklin Templeton’s asset management operations had aggregate assets under management of approximately $1.4 trillion.

Subsequent event notice

Effective March 31, 2021, Aram E. Green, Managing Director and Portfolio Manager at ClearBridge Investments, LLC (“ClearBridge”), the Fund’s subadviser, will join the Fund’s portfolio management team. Additionally, it is anticipated that Richard A. Freeman will step down as a member of the Fund’s portfolio management team effective December 31, 2021. Thereafter, Mr. Freeman will continue as a senior advisor and member of ClearBridge’s Management Committee. For more details, please see the supplement to the Fund’s statutory prospectus dated November 5, 2020.

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

We look forward to helping you meet your financial goals.

Sincerely,

Jane Trust, CFA

President and Chief Executive Officer

October 30, 2020

Fund overview

Q. What is the Fund’s investment strategy?

A. The ClearBridge All Cap Growth ETF (the “Fund”) seeks to achieve long-term capital appreciation. The Fund seeks to invest in a diversified portfolio of large, medium and small capitalization stocks that have the potential for above-average long-term earnings and/or cash flow growth. We at ClearBridge Investments, LLC (“ClearBridge”), the Fund’s subadviser, use a bottom-up investment process that seeks to find inefficiently priced companies with strong fundamentals, incentive-driven management teams, dominant positions in niche markets and/or goods and services that are in high customer demand. The bottom-up process that we use relies on extensive fundamental research that looks to identify companies with a range of growth opportunities while evaluating the company’s business model, financial structure and management acumen.

Research is conducted by the portfolio managers with input from the sector analysts of ClearBridge’s Fundamental Research Team. The team utilizes proprietary and independent research to identify companies whose projected rapid growth in earnings and cash flow is based on their participation in new products or markets. For large company growth stocks, the team seeks companies that exhibit superior balance sheets, exceptional management teams and long-term, consistent operating histories. We attempt to complement this core group of companies with tactical stocks that reflect themes within the prevailing market environment. When looking at small- and medium-sized company growth stocks, we focus on companies with rapid earnings growth potential, unrecognized values, industry leadership and management teams that have a significant ownership stake. The Fund may invest up to 25% of its net assets (at the time of investment) in foreign securities, either directly or through depositary receipts. We anticipate using a long-term approach to investing that typically results in low portfolio turnover. However, we may take a more active approach to the portfolio, depending upon market conditions.

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

A. The U.S. equity market shrugged off a global coronavirus pandemic, COVID-19, that severely reduced economic activity for a significant portion of the twelve-month reporting period ended September 30, 2020, yet generally managed to finish with robust gains. The large cap S&P 500 Indexⁱ advanced 15.15% for the twelve-month period, due in large part to unprecedented levels of fiscal and monetary stimulus from the U.S. Federal Reserve Board (the “Fed”)ⁱⁱ and Congress, while the small cap Russell 2000 Indexⁱⁱⁱ added 0.39% as investors gravitated to a limited number of mega cap technology and Internet stocks. Growth stocks outperformed value stocks by historically wide margins, driven by the momentum of buyers of capitalization weighted passive exchange-traded funds (“ETFs”) and other index funds. The Fund’s benchmark Russell 3000 Growth Index^iv (+36.12%) trounced the Russell 3000 Value Inde^xv by 41.79 percentage points for the year.

The Information Technology (“IT”) (+53.96%) and Consumer Discretionary (+50.88%) sectors, home to most of the mega cap companies that benefited from secular trends accelerated by the COVID-19-induced lockdowns, such as working from home (“WFH”) and e-commerce, were the best performers in the benchmark. Communication Services (+32.36%), which was boosted by an increase in video streaming that offset the cancellation of live entertainment

Fund overview (cont’d)

and sports, and Health Care (+29.06%) were the only sectors within 1,000 basis pointsvi of the benchmark. The Energy sector (-34.86%) was the most significant underperformer, hurt by the combination of an oversupply of crude oil and anemic global demand that was exacerbated by the pandemic-induced restrictions on travel. The income-oriented Utilities (-13.43%), Real Estate (+3.87%) and Consumer Staples (+9.12%) sectors, which carry a minimal weighting in the benchmark and no exposure in the Fund, as well as Industrials (+8.10%) and Materials (+10.53%), also underperformed.

Three interest rate cuts in four months by the Fed, the last coming in October 2019, coupled with a resilient U.S. consumer, helped stocks generally post positive gains to start the reporting period. A partial resolution to many key concerns — the U.S. and China reaching a phase one trade agreement and the Fed’s forward rate outlook signaling sustained accommodation — in the fourth quarter of 2019 led to a cyclical rotation as shares of mega cap IT and Internet stocks generally resumed leadership.

Stocks suffered a waterfall decline in the first quarter as the spread of the coronavirus, combined with the outbreak of an oil price war, sparked historic volatility and ground parts of the U.S. economy to a halt. The S&P 500 Index dropped 19.60% for the quarter, its worst three-month decline since 2008, with growth stocks holding up better than value stocks, with IT showing the most resilience.

Momentum stocks continued to lead in a powerful rebound from bear market lows in late March that continued as a whole through the end of the reporting period. Equity markets were supported by a massive injection of liquidity into the financial system and the pockets of U.S. consumers as well as the Fed slashing short-term interest rates to near zero. The S&P 500 Index delivered its best 50-trading day performance in history from bear market lows in late March 2020 while growth stocks maintained a wide performance advantage over value stocks. The market had not seen such dispersion between investment styles since early 2000. A brief correction in the market-leading mega cap momentum stocks to end the reporting period curbed overall returns for the indexes and provided an indication that a rotation in performance leadership could be possible.

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

A. Mega cap momentum stocks centered in the IT, Consumer Discretionary and Communication Services sectors led performance through the reporting period. While we have some exposure to these stocks, including meaningful positions in Amazon.com, Apple, Microsoft and Facebook Inc., as active managers with a three to five-year or longer investment horizon, we seek growth across a wider range of companies across sectors and market cap ranges.

We have always believed that a portfolio of companies with a diverse set of growth drivers offers the best opportunity to outperform over a full market cycle. We have managed through periods where one investment style has been a dominant performer for several quarters or even longer, such as momentum is currently. Over the last six to twelve months, the market has underappreciated the zero cost of capital made possible by low interest rates, which has translated into very high price/sales multiples for growth stocks. This, we

believe, cannot continue indefinitely as inflation and higher bond yields will eventually remove the justification for high valuations. As interest rates and inflation normalize with better economic growth, we think that the sector performance with the highest momentum will end, as a rotation to economically sensitive sectors will become more in favor. We want to be positioned to effectively manage that transition.

We have made meaningful moves over the last year to focus the portfolio on our highest-conviction ideas and those that we believe stand to benefit as the global economy normalizes. These have included taking profits in stocks that have reached our valuation targets such as Chipotle Mexican Grill, as well as companies where we think future growth rates are already reflected in current stock prices, such as Alphabet. We have also reduced our exposure in areas that are facing secular challenges. Our moves in the Energy sector are a good example of this active repositioning. In light of the decline in oil prices caused by the coincident supply and demand shock, we exited our positions in Occidental Petroleum and Pioneer Natural Resources. While both have taken aggressive steps to manage costs during this period, we felt it prudent to sell these positions and redeploy these proceeds to fund names we perceive to have better visibility and less balance sheet uncertainty. With these moves, the Fund’s energy exposure is the lowest in its history.

We used the volatility caused by COVID-19 to establish a number of new positions. These include Guardant Health, a leader in liquid biopsy used for therapy selection and early-stage cancer detection, that we think is poised to benefit from the increased focus and spending on diagnostics. Aptiv, in the Consumer Discretionary sector, is a maker of high-end automobile components while NXP Semiconductors, in the IT sector, makes chips for a wide range of automotive and wireless functions. We expect both should see increased demand from the growth of electric vehicles.

It is our view that economic growth is constrained and could remain so in the near to medium term. Plenty of risks linger on the horizon, including the outcome of the presidential election and whether consumers and businesses will receive more stimulus to keep demand healthy and workers employed. The primary inflection point we are monitoring is the development of a COVID-19 vaccine. When that medical breakthrough occurs, we expect a movement out of IT and Communication Services names that have been viewed as a safety trade and into more economically sensitive areas of the market like retail, hospitality and transportation. As “real world” economic growth picks up, rates we expect will also move commensurately, leading to a shift in investor risk tolerance and potentially bolstering a move in market leadership from digital to physical businesses.

Performance review

For the twelve months ended September 30, 2020, ClearBridge All Cap Growth ETF generated a 25.60% return on a net asset value (“NAV”)^vii basis and 25.84% based on its market price per share^viii.

The performance table shows the Fund’s total return for the twelve months ended September 30, 2020 based on its NAV and market price as of September 30, 2020. The Fund’s broad-based market index, the Russell 3000 Growth Index, returned 36.12% over the same time frame. The Lipper Multi-Cap Growth Funds Category Averageix returned 35.37% for the period. Please note that Lipper performance returns are based on each fund’s NAV.

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 so shares, when sold, may be worth more or less than their original cost. Performance data current to the most recent month-end is available at www.leggmason.com/etf.

Investors buy and sell shares of an exchange-traded fund (“ETF”) at market price (not NAV) in the secondary market throughout the trading day. These shares are not individually available for direct purchase from or direct redemption to the ETF. Effective July 1, 2020, market price returns typically will be based upon the official closing price of the Fund’s shares. Prior to July 1, 2020, market price returns generally were based upon the mid-point between the bid and ask on the Fund’s principal trading market when the Fund’s NAV was determined, which was typically 4:00 p.m. Eastern time (US). Market price performance reported for periods prior to July 1, 2020 will continue to reflect market prices calculated based upon the mid-point between the bid and ask on the Fund’s principal trading market typically as of 4:00 p.m. Eastern time (US). These returns do not represent investors’ returns had they traded shares at other times. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

Information showing the Fund’s net asset value, market price, premiums and discounts, and bid-ask spreads for various time periods is available by visiting the Fund’s website at www.leggmason.com/etf.

Information showing the Fund’s net asset value, market price, premiums and discounts, and bid-ask spreads for various time periods is available by visiting the Fund’s website at www.leggmason.com/etf.

As of the Fund’s current prospectus dated February 1, 2020, as revised July 1, 2020, the gross total annual fund operating expense ratio for the Fund was 0.54%.

* Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors pay on distributions or the sale of shares.

† Total return assumes the reinvestment of all distributions at NAV.

‡ Total return assumes the reinvestment of all distributions at market price, which typically is based upon the official closing price of the Fund’s shares.

Q. What were the leading contributors to performance?

A. On an absolute basis, the Fund’s positions in six of the ten sectors in which it was invested (out of eleven sectors in total) contributed positively to performance for the reporting period. The greatest contributions to absolute returns came from the Fund’s holdings in the IT and Consumer Discretionary sectors.

Relative to the benchmark, Russell 3000 Growth Index, stock selection in the Health Care and Real Estate sectors and an underweight allocation to the Consumer Staples sector contributed to returns.

In terms of individual Fund holdings, leading contributors to performance for the reporting period included positions in Amazon.com in the Consumer Discretionary sector, UnitedHealth Group in the Health Care sector, as well as Microsoft, Nvidia and Apple in the IT sector.

Q. What were the leading detractors from performance?

A. Relative to the benchmark index, the Fund’s overall stock selection and sector allocation detracted from performance. In particular, stock selection in the IT and Communication Services sectors, underweights to the IT and Consumer Discretionary sectors, as well as an overweight to the Energy sector had negative impacts on relative returns.

In terms of individual Fund holdings, leading detractors from performance for the period included positions in Anheuser-Busch InBev in the Consumer Staples sector, Raytheon Technologies and L3Harris Technologies in the Industrials sector, Western Digital in the IT sector and Pioneer Natural Resources in the Energy sector.

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

A. Over the course of the period, we established new positions in Salesforce.com and NXP Semiconductors in the IT sector, Ulta Beauty and Aptiv in the Consumer Discretionary sector, Amgen, Guardant Health and Alcon in the Health Care sector, Monster Beverage in the Consumer Staples sector and Raytheon Technologies in the Industrials sector. We also gained shares of AbbVie in the Health Care sector following its acquisition of portfolio holding Allergan, as well as shares of Cerence in the IT sector following its spinoff from portfolio holding Nuance Communications. We also closed positions in Alphabet Class A and Class C shares in the Communication Services sector, Johnson & Johnson in the Health Care sector, Honeywell International and Fluor in the Industrials sector, Oracle and LogMeIn in the IT sector, Linde in the Materials sector, Chipotle Mexican Grill and Grubhub in the Consumer Discretionary sector, BlackRock and Charles Schwab in the Financials sector, McCormick in the Consumer Staples sector, as well as Pioneer Natural Resources and Occidental Petroleum in the Energy sector.

Looking for additional information?

The Fund’s daily NAV is available on-line at www.leggmason/etf. The Fund is traded under the symbol “CACG” and its closing market price is available on most financial websites. In a continuing effort to provide information concerning the Fund, shareholders may call 1-877-721-1926 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern time, for the Fund’s current NAV, market price and other information.

Fund overview (cont’d)

Thank you for your investment in ClearBridge All Cap Growth ETF. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,

Peter Bourbeau

Portfolio Manager

ClearBridge Investments, LLC

Richard Freeman

Portfolio Manager

ClearBridge Investments, LLC

Evan Bauman

Portfolio Manager

ClearBridge Investments, LLC

Margaret Vitrano

Portfolio Manager

ClearBridge Investments, LLC

October 30, 2020

RISKS: Equity securities are subject to market and price fluctuations. In addition to investments in large-capitalization companies, investments may be made in speculative and/or small-cap and mid-cap companies which involve a higher degree of risk and volatility than investments in larger, more established companies. The Fund’s growth-oriented investment style may increase the risks of investing in the Fund. Growth securities typically are very sensitive to market movements because their market prices tend to reflect future expectations. When it appears those expectations will not be met, the prices of growth securities typically fall. Growth stocks

as a group may be out of favor and underperform the overall equity market while the market concentrates on value stocks. Although the Fund will not concentrate its investments in any one industry or industry group, it may, like many growth funds, weight its investments toward certain industries, thus increasing its exposure to factors adversely affecting issuers within those industries. Investments may also be made in depositary receipts and other securities of non-U.S. companies in developed and emerging markets which involve risks in addition to those ordinarily associated with investing in domestic securities, including the potentially negative effects of currency fluctuation, political and economic developments, foreign taxation and differences in auditing and other financial standards. These risks are magnified in emerging markets. Emerging market countries tend to have economic, political and legal systems that are less developed and are less stable than those of more developed countries. Active management and diversification does not ensure gains or protect against market declines. Distributions are not guaranteed and are subject to change. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.

Portfolio holdings and breakdowns are as of September 30, 2020 and are subject to change and may not be representative of the portfolio managers’ current or future investments. The Fund’s top ten holdings (as a percentage of net assets) as of September 30, 2020 were: Amazon.com Inc. (6.2%), UnitedHealth Group Inc. (5.2%), Microsoft Corp. (4.3%), Facebook Inc. (3.8%), Comcast Corp. (3.6%), Broadcom Inc. (2.8%), Vertex Pharmaceuticals Inc. (2.8%), Twitter Inc. (2.7%), Visa Inc. (2.6%) and Adobe Inc. (2.6%). Please refer to pages 13 through 17 for a list and percentage breakdown of the Fund’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of September 30, 2020 were: Information Technology (37.6%), Health Care (19.9%), Communication Services (12.9%), Consumer Discretionary (11.2%) and Industrials (8.7%). The Fund’s composition may differ over time.

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.

Fund overview (cont’d)

Fund at a glance^† (unaudited)

Investment breakdown (%) as a percent of total investments

Fund expenses (unaudited)

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, such as brokerage commissions paid on purchases and sales of Fund shares; and (2) ongoing costs, including management fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other funds.

This example is based on an investment of $1,000 invested on April 1, 2020 and held for the six months ended September 30, 2020.

Actual expenses

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

Hypothetical example for comparison purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’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 Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund 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, such as brokerage commissions paid on purchases and sales of Fund shares. 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.

Fund performance (unaudited)

See Notes to Financial Statements.

Statement of operations

For the Year Ended September 30, 2020

See Notes to Financial Statements.

See Notes to Financial Statements.

Financial highlights

See Notes to Financial Statements.

Notes to financial statements

1. Organization and significant accounting policies

ClearBridge All Cap Growth ETF (the “Fund”) is a separate diversified investment series of Legg Mason ETF Investment 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 Fund is an actively managed exchange-traded fund (“ETF”). ETFs are funds that trade like other publicly-traded securities. Unlike shares of a mutual fund, which can be bought from and redeemed by the issuing fund by all shareholders at a price based on net asset value (“NAV”), shares of the Fund may be directly purchased from and redeemed by the Fund at NAV solely by certain large institutional investors who have entered into agreements with the Fund’s distributor (“Authorized Participants”). Also unlike shares of a mutual fund, shares of the Fund are listed on a national securities exchange and trade in the secondary market at market prices that change throughout the day.

Shares of the Fund are listed and traded at market prices on NASDAQ. The market price for the Fund’s shares may be different from the Fund’s NAV. The Fund issues and redeems shares at NAV only in blocks of a specified number of shares or multiples thereof (“Creation Units”). Only Authorized Participants may purchase or redeem Creation Units directly with the Fund at NAV. Creation Units are created and redeemed principally in-kind (although under some circumstances its shares are created and redeemed partially for cash). Except when aggregated in Creation Units, shares of the Fund are not redeemable securities. Shareholders who are not Authorized Participants may not redeem shares directly from the Fund at NAV.

The Fund seeks to achieve long-term capital appreciation through investing in a diversified portfolio of large, medium and small capitalization stocks that have the potential for above-average long-term earnings and/or cash flow growth.

The following are significant accounting policies consistently followed by the Fund 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. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation

techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will use the currency exchange rates, generally determined as of 4:00 p.m. (London Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.

The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Fund, 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.

Notes to financial statements (cont’d)

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 Fund uses 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:

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 Fund’s assets carried at fair value:

(b) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.

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

(d) REIT distributions. The character of distributions received from Real Estate Investment Trusts (‘‘REITs’’) held by the Fund is generally comprised of net investment income, capital gains, and return of capital. It is the policy of the Fund to estimate the character of distributions received from underlying REITs based on historical data provided by the REITs. After each calendar year end, REITs report the actual tax character of these distributions. Differences between the estimated and actual amounts reported by the REITs are reflected in the Fund’s records in the year in which they are reported by the REITs by adjusting related investment cost basis, capital gains and income, as necessary.

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

(f) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its 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 Fund’s financial statements.

Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of September 30, 2020, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

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

Notes to financial statements (cont’d)

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

2. Investment management agreement and other transactions with affiliates

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

LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. The Fund is responsible for paying interest expenses, taxes, brokerage expenses, future 12b-1 fees (if any), acquired fund fees and expenses, extraordinary expenses and the management fee payable to LMPFA under the investment management agreement.

Under the investment management agreement and subject to the general supervision of the Fund’s Board of Trustees, LMPFA provides or causes to be furnished all investment management, supervisory, administrative and other services reasonably necessary for the operation of the Fund, including certain distribution services (provided pursuant to a separate distribution agreement) and investment advisory services (provided pursuant to separate subadvisory agreements) under a unitary fee structure. The Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.53% of the Fund’s average daily net assets.

As compensation for its subadvisory services, LMPFA pays ClearBridge 70% of the management fee paid by the Fund to LMPFA, net of (i) all fees and expenses incurred by LMPFA under the investment management agreement (including without limitation any subadvisory fee paid to another subadviser to the Fund) and (ii) expense waivers, if any, and reimbursements. LMPFA pays Western Asset monthly a fee of 0.02% of the portion of the Fund’s average daily net assets allocated to Western Asset for the management of cash and other short-term instruments, net of expense waivers, if any, and reimbursements.

As of July 31, 2020, Legg Mason Investor Services, LLC (“LMIS”) is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources and serves as the distributor of Creation Units for the Fund on an agency basis. Prior to July 31, 2020, LMIS was a wholly-owned broker-dealer subsidiary of Legg Mason.

The Fund’s Board of Trustees has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan, the Fund is authorized to pay service and/or distribution fees calculated at an annual rate of up to 0.25% of its average daily net assets. No service and/or distribution fees are currently paid by the Fund, and there are no current plans to impose these fees.

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

3. Investments

During the year ended September 30, 2020, the aggregate cost of purchases and proceeds from sales of investments (excluding in-kind transactions and short-term investments) were as follows:

The in-kind contributions and in-kind redemptions shown in this table may not agree with the Fund Share Transactions on the Statement of Changes in Net Assets. This table represents the accumulation of the Fund’s daily net shareholder transactions while the Statement of Changes in Net Assets reflects gross shareholder transactions including any cash component of the transactions.

At September 30, 2020, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows: