Exchange Traded Funds

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Solution-Driven ETFs

Investors today are faced with an increasingly complex array of challenges. Yet financial goals — growing wealth, drawing portfolio income and managing volatility — remain largely unchanged. Thankfully, investors can choose from a growing set of strategies and vehicles that can help meet these goals while also navigating today's unpredictable economic environment.

Legg Mason's suite of ETFs represents a new level of choice for investors and advisors who are looking for cost-efficient, liquid investments to meet their specific financial goals.

Low Volatility High Dividend

strategies are based on the idea that identifying sustainable, higher-yielding stocks stocks with less downside capture may be more powerful than either attribute on its own.

Legg Mason Low Volatility High Dividend ETF (LVHD) Legg Mason International Low Volatility High Dividend ETF (LVHI) Legg Mason Emerging Markets Low Volatility High Dividend ETF (LVHE)

Diversification Based Investing (QS DBI™)

methodology rethinks conventional wisdom about equity diversification and is available in U.S., international and emerging markets focuses.

Legg Mason US Diversified Core ETF (UDBI) Legg Mason Developed ex-US Diversified Core ETF (DDBI) Legg Mason Emerging Markets Diversified Core ETF (EDBI)

Equity securities are subject to price fluctuation and possible loss of principal. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Diversification does not guarantee a profit or protect against a loss. Dividends, income and yields will fluctuate and are not guaranteed.

The importance of working with a trusted financial professional. A financial professional, also known as a broker, can help you achieve your goals by providing valuable insight and guidance on economic issues, the markets, and specific investment and strategies. FINRA, The Financial Industry Regulatory Authority, oversees the registered professionals and firms that sell stocks, bonds, mutual funds and other securities. We encourage you to seek out additional information on your current or prospective registered representative or broker/dealer by going to BrokerCheck, http://brokercheck.finra.org

Solution-Driven ETFs

Volatility Management

Don't let volatility derail your investment goals

Significant market swings are becoming more commonplace once again. While it's not possible to make a portfolio immune to market volatility, investors can take steps to shore up their portfolios against whatever the market brings.

Elevated market volatility remains a concern.

Daily Closing Price for the CBOE Volatility Index (VIX) 10/1/11-9/30/16

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Source: Morningstar, as of September 30, 2016. Past performance is no guarantee of future results. Chicago Board Options Exchange, CBOE Volatility Index: VIX ©. VIX values greater than 30 are generally associated with a large amount of volatility resulting from investor fear or uncertainty, while values below 20 generally correspond to less stressful times in the markets.

Investment ideas:

  • Diversify your investments, both across and within different asset classes, since traditional index-focused strategies may not be as diversified as expected.
  • Search out strategies that aim to limit downside. Lower-volatility strategies may not rise as high in booming markets, but their focus on the downside can help total return over the long term.
  • Consider low-correlating assets. Having a portfolio of investments that don't necessarily move in sync with one another may lessen volatility.

Equity securities are subject to price fluctuation and possible loss of principal. Diversification does not guarantee a profit or protect against a loss. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Dividends, income and yields will fluctuate and are not guaranteed.

Volatility Management

Balancing income and risk

Balancing the need for income with risk

Income-oriented investors are at a critical juncture: Interest rates are expected to move higher, which can mean higher bond yields, but also potentially falling prices. In this environment, investors looking to diversify their income beyond bonds should consider income investments that can offer the potential for capital appreciation and income growth.

Investors need to balance income, growth potential and risk in choosing income investments.

12-month yields and standard deviation for common income investments (as of September 30, 2016)

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Sources: Yields – Bloomberg; Standard Deviation – Morningstar, as of September 30, 2016. All investments involve risk, including loss of principal. Past performance is no guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.

Investment ideas:

  • Consider investments that offer the potential for sustainable dividends.
  • Evaluate risk when selecting income investments; many strategies that aim simply for high yield often carry very high risk.
  • Explore outside the U.S. for income — international companies can offer higher dividends than U.S. companies, potentially enhancing portfolio income.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. High-yield bonds are subject to greater price volatility, illiquidity and possibility of default. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Diversification does not guarantee a profit or protect against a loss. Dividends, income and yields will fluctuate and are not guaranteed. Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks. Real estate investment trusts (REITs) are closely linked to the performance of the real estate markets. REITs are subject to illiquidity, credit and interest rate risks, and risks associated with small- and mid-cap investments. Investments in MLP securities are subject to unique risks, including the risks of MLPs and the energy sector, which include the risks of declines in energy and commodity prices, decreases in energy demand, adverse weather conditions, natural or other disasters, changes in government regulation, and changes in tax laws. U.S. Treasuries are direct debt obligations issued by the U.S. government and backed by its full faith and credit. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity.

Treasuries are represented by the Bloomberg Barclays U.S. Treasury Index, which is a measure of the public obligations of the U.S. Treasury. U.S. Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index, an unmanaged index of U.S. investment-grade fixed-income securities. High-Yield Corporate Bonds are represented by the Bloomberg Barclays US Corporate High Yield Bond Index, which measures the USD-denominated, high-yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Stocks are represented by the S&P 500 Index, an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Dividend-paying stocks are represented by the S&P 500 Dividend Aristocrats Index, which measures the performance of large-cap, blue-chip companies within the S&P 500 that have increased their dividends every year for at least 25 consecutive years. MLPs are represented by the Alerian MLP Index, a composite of the most prominent energy MLPs, and which is calculated using a float-adjusted, capitalization-weighted methodology. REITs are represented by the FTSE NAREIT Mortgage REIT Index, a free-float-adjusted, market capitalization-weighted index of U.S. Mortgage REITs. Mortgage REITs include all tax-qualified REITs with more than 50% of total assets invested in mortgage loans or mortgage-backed securities secured by interests in real property.

Standard deviation indicates the percentage by which an index's performance has varied from its average performance in any given month during the period indicated. The higher the standard deviation, the greater the range of performance, indicating greater volatility.

12-month yield refers to the ratio of annual income (interest or dividends) to the index price.

Income

Opportunities for Growth

After years of record-setting returns, markets seemed to have returned to earth, leaving growth-oriented investors wondering if there is any upside left. But market slowdowns are a natural part of investing, and historically, growth-oriented investments have provided a pathway to build wealth over the long term.

The likelihood of gain can increase with time in the market

Percentage of time average annual rolling returns were positive over 1-, 5- and 10-year rolling monthly periods (%)

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Source: Bloomberg, as of December 31, 2015. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment. Returns are on a rolling monthly basis: 1-year from January 31, 1977–December 31, 2015; 5-year from January 31, 1981–December 31, 2015; and 10-year from January 31, 1987– December 31, 2015. Rolling monthly returns are average annual returns for a specified time period (1, 5 and 10 years) with the starting point beginning with the closing price at the end of each subsequent month. The time period for which returns are measured corresponds with the January 31, 1976 inception date of the Bloomberg Barclays Aggregate Index.

Investment ideas:

  • Reconsider traditional asset allocation. Non-traditional investment approaches or assets can provide new opportunities for growth.
  • Seek out investments that focus on quality, which can be more resilient even in slow-growth times.
  • Think globally, including emerging markets, to potentially take advantage of differing macroeconomic influences and business cycles.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed-income securities falls. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Diversification does not guarantee a profit or protect against a loss. Dividends, income and yields will fluctuate and are not guaranteed.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

Growth