CLEARBRIDGE SMALL CAP GROWTH FUND*

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1 1Q 2016 Product Commentary CLEARBRIDGE SMALL CAP GROWTH FUND* Jeffrey Russell, CFA, and Aram Green Portfolio Managers Market overview and outlook The growth slowdown impacting equity markets in the first quarter took a particularly severe toll on small growth companies. Volatility spiked early in the period on global growth concerns and commodity weakness, driving stocks into correction territory. While large-caps rebounded to finish in the positive column, with the Russell 1000 Index gaining 1.17%, the small-cap Russell 2000 Index declined 1.52% for the quarter. In a reversal of market leadership, value outperformed growth across market capitalizations, but it was most pronounced for small-caps, with the Russell 2000 Growth (R2000G) Index trailing the Russell 2000 Value Index by more than 600 basis points. As we discussed in late February, the fastest-growing companies were punished the most during the recession scare. Ranked by year-over-year sales growth, the top quintile of stocks in the benchmark R2000G Index declined by 13% on average in the quarter, according to Jefferies. These highergrowth stocks were considered by investors as the riskiest assets in the market, causing results for the group (both good and bad) to be viewed with a tremendous amount of skepticism. Positive news was mostly shrugged off, while the slightest hint of negative commentary from companies led to rapid and severe re-ratings to the downside. Security software provider Imperva, for example, saw its shares fall nearly 20% despite the company raising 2016 guidance from 25% to 30% revenue growth. Average annual total returns and fund expenses (%) as of March 31, 2016 Class A 3-mo 1-yr 5-yr Since Incept. 10-yr (07/01/98) Gross Net Excluding sales charges Including effects of maximum sales charges Russell N/A - - Growth Index Performance shown represents past performance and is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than the original cost. Class A shares have a maximum front-end sales charge of 5.75%.Total returns assume the reinvestment of all distributions at net asset value and the deduction of all Fund expenses. Total return figures are based on the NAV per share applied to shareholder subscriptions and redemptions, which may differ from the NAV per share disclosed in Fund shareholder reports. Performance would have been lower if fees had not been waived in various periods. Returns for less than one year are cumulative. For the most recent month-end information, please visit Gross expenses are the Fund's total annual operating expenses for the share class(es) shown. Net expenses are the Fund's total annual operating expenses for the share classes indicated and would reflect contractual fee waivers and/or reimbursements, where these reductions reduce the Fund's gross expenses. These arrangements cannot be terminated prior to December 31, 2017 without the Board s consent. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the numbers shown in the table above. Russell 2000 Growth Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for their growth orientation. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sale charges. *Effective October 1, 2013, this Fund is closed to new purchases. However, it is still open to existing Fund shareholders and relationships. INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

2 This bear market in small-cap growth stocks is occurring in a period where earnings growth estimates, while lower, remain resilient and smaller companies continue to expand profits at a faster pace than larger ones. The fundamentals of our portfolio companies remain strong, and we have taken advantage of the recent volatility to trim some of our better performers as they grow in size and re-invest the proceeds in names suffering the most severe price dislocations. As we shared in our midquarter update, consensus estimates still point to meaningful revenue and earnings growth this year, and the companies we own remain confident in their growth prospects for The growth/value inversion we experienced in the first quarter presented another headwind for the asset class. As uncertainty has risen, investors have abandoned faster-growing companies in favor of value stocks backed by high dividend and free cash flow yields. We seek to own quality companies with sound balance sheets and growing free cash flows, but we are also looking for share takers. As a result, we would rather see these early-stage companies invest in research and development than return capital to shareholders through dividends and share buybacks. Pacira Pharmaceuticals, for example, sold off during the quarter after guiding to modest spending increases on clinical trials to expand the usage of already-approved drugs for new treatments. For emerging growth companies like Pacira, we believe such a short-term reaction overlooks the long-term value creation from re-investing in the business. Results in the first quarter were impacted by a combination of generally negative sentiment for growth companies as well as company-specific results. Small-cap technology companies are among the most aggressive when it comes to spending to grow their business, and the software names we own had a significant impact on results in a period of zero tolerance for investment. The portfolio was also hurt by underperformance of select holdings in the consumer discretionary sector, as well as financials sector exposure closely tied to swings in the investment markets. We were encouraged by the performance of our holdings in the health care and industrials sectors, which held up better than their peers in the index. thoughts with management teams. The feedback from these communications leaves us confident that the portfolio remains well stocked with innovative companies possessing the capital position to drive innovation and increase market share through what we expect may be ongoing market turbulence. Fund highlights For the quarter ended March 31, 2016, the ClearBridge Small Cap Growth Fund Class A shares had a cumulative return of -8.80%, excluding the effects of sales charges. In comparison, the Fund s unmanaged benchmark, the Russell 2000 Growth Index, returned -4.68% and the Lipper Small-Cap Growth Funds category average returned -4.79% for the same period. On an absolute basis, the Fund had gains in two of the sectors in which it was invested for the first quarter (out of eight sectors total) industrials and materials. The main detractors from returns during the quarter were the health care, information technology and financials sectors. In relative terms, the Fund underperformed its Russell 2000 Growth Index benchmark, impacted primarily by stock selection decisions, while sector allocation added to overall performance during the quarter. Stock selection in the information technology, consumer discretionary and financials sectors detracted the most from relative performance. Conversely, an underweight allocation and stock selection in health care and also stock selection in the industrials sector most helped relative performance during the period. On an individual stock basis, positions in Pacira Pharmaceuticals, Lions Gate Entertainment, Marketo, Medidata Solutions and Acorda Therapeutics were the greatest detractors from absolute returns during the first quarter. The largest contributors to absolute returns included Trex Company, FEI Company, US Ecology, BroadSoft and Monro Muffler Brake. In every economic and market cycle, small-cap growth stocks face different factors that impact performance. While companies in our part of the stock market tend to be less exposed to emerging markets and other macro effects, company-specific news had a more powerful effect on performance during the first quarter than we typically experience. The chaotic and often extreme price moves we have observed recently have caused us to re-examine the reasons we own each of our companies and verify our 2

3 Top contributors The leading individual contributors for the quarter included: Trex (TREX), in the industrials sector, is a manufacturer and marketer of wood alternative decking products. The stock benefited from a mild winter that led to more deck building and strong fourth-quarter results that included a 20% jump in sales. FEI Company (FEIC) is supplier of precision microscopes and other scientific instruments for nanoscale applications and solutions for industry and science. The company benefited in the quarter from new business with pharmaceutical companies and increased demand from its core semiconductor customers coming from increases in nanometer technology. US Ecology (ECOL), in the industrials sector, provides disposal, treatment and transportation of hazardous and non-hazardous waste. The stock maintained its positive momentum after the company in February issued better-than-expected financial guidance for Broadsoft (BSFT), in the IT sector, is a developer of software for telecom companies to offer cloud-based communications. The stock was propelled by fourth-quarter results that topped expectations and full-year guidance that was raised above Wall Street forecasts. Monro Muffler Brake (MNRO), in the consumer discretionary sector, operates automotive repair and tire services centers in the Northeast and Midwest. The stock has benefited from a rebound of miles driven in the U.S. combined with anticipation of continued accretive acquisitions. Bottom contributors The bottom individual contributors for the quarter included: Pacira Pharmaceuticals (PCRX), in the health care sector, is a developer of pharmaceutical products primarily used in hospitals and surgery centers, as well as treatments for cancer. Shares were hurt after the company disclosed modest spending increases for additional clinical trials and marketing for an approved treatment. Lions Gate Entertainment (LGF), in the consumer discretionary sector, develops and distributes programming for motion pictures, television, animation and digital media. Shares plunged following weak results from its movie segment that offset continued strength in its TV business. Marketo (MKTO), in the IT sector, is a developer of software for cloud-based marketing and customer relationship management. The stock was hurt by delays in customer contracts as the company faces greater competition as it continues a transition toward larger corporate customers. Medidata Solutions (MDSO), in the health care sector, provides cloud-based clinical data management and analytics tools for biopharmaceutical and medical device companies. The stock was hurt by quarterly revenue results that missed estimates due to contract modifications and conservative guidance for Acorda Therapeutics (ACOR), in the health care sector, is a biopharmaceutical company developing treatments for multiple sclerosis and neurological disorders. The stock was pressured by a review of patents for its Ampyra MS treatment. Top 10 equity holdings (%) Trex Co Inc 2.7 FEI Co 2.5 Monro Muffler Brake Inc 2.5 athenahealth Inc 2.3 Fortinet Inc 2.3 Core-Mark Holding Co Inc 2.3 Insulet Corp 2.3 MAXIMUS Inc 2.2 Buffalo Wild Wings Inc 2.2 Medidata Solutions Inc 2.2 Sector allocation (%) Information Technology 37.2 Health Care 21.1 Industrials 15.2 Consumer Discretionary 13.1 Financials 7.1 Consumer Staples 2.1 Energy 1.4 Materials 1.3 Other 0.8 Utilities 0.0 Telecommunication Services 0.0 Cash/Other 0.7 Percentages are based on total portfolio as of quarter end and are subject to change at any time. For informational purposes only and not to be considered a recommendation to purchase or sell any security. 3

4 Definitions and additional terms: Please note that an investor cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. Category Average Returns Source: Lipper Inc. Past performance is no guarantee of future results. Lipper returns are based on the three-month period ended March 31, 2016, and they are calculated among 580 funds in the Lipper Small Cap Growth peer group, including reinvestment of dividends and capital gains, if any, and excluding sales charges. Basis Point (BPS) or bp, is equal to 1/100th of 1%, or 0.01% (0.0001). 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. Russell 2000 Index is composed of the 2,000 smallest companies in the Russell 3000 Index. Russell 2000 Growth Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for their growth orientation. Russell 2000 Value Index is an unmanaged index of those companies in the small-cap Russell 2000 Index chosen for their value orientation. 4

5 Brandywine Global ClearBridge Investments Martin Currie Permal QS Investors RARE Infrastructure Royce & Associates Western Asset leggmasonfunds.com Youtube.com/leggmason Legg Mason is a leading global investment company committed to helping clients reach their financial goals through long-term, actively managed investment strategies. A broad mix of equities, fixed income, alternatives and cash strategies invested worldwide A diverse family of specialized investment managers, each with its own independent approach to research and analysis What should I know before investing? Over a century of experience in identifying opportunities and delivering astute investment solutions to clients Equity securities are subject to price fluctuation and possible loss of principal. Smalland mid-cap stocks involve greater risks and volatility than large-cap stocks. 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. Short selling is a speculative strategy. Unlike the possible loss on a security that is purchased, there is no limit on the amount of loss on an appreciating security that is sold short. Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The manager s investment style may become out of favor and/or the manager s selection process may prove incorrect, which may have a negative impact on the Fund s performance. The views expressed are those of the portfolio managers as of the date indicated, are subject to change, and may differ from the views of other portfolio managers or the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. All data referenced are from sources deemed to be reliable but cannot be guaranteed. Discussions of individual securities are intended to inform shareholders as to the basis (in whole or in part) for previously made decisions by a portfolio manager to buy, sell or hold a security in a portfolio. References to specific securities are not intended and should not be relied upon as the basis for anyone to buy, sell or hold any security. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional. Portfolio holdings and sector allocations may not be representative of the portfolio manager's current or future investment and are subject to change at any time. ClearBridge Investments, LLC and Legg Mason Investor Services, LLC are subsidiaries of Legg Mason, Inc Legg Mason Investor Services, LLC. Member FINRA, SIPC CBAX FN /16 BEFORE INVESTING, CAREFULLY CONSIDER A FUND S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. YOU CAN FIND THIS AND OTHER INFORMATION IN EACH PROSPECTUS, AND SUMMARY PROSPECTUS, IF AVAILABLE, AT PLEASE READ THE PROSPECTUS CAREFULLY. 5