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QS Asset Allocation Funds A SIMPLE, BALANCED APPROACH TO GROWTH For investors who prefer a simple and accessible approach to growth-oriented investing, QS Asset Allocation Funds are a smart option. Each of the four professionally managed funds can provide a portfolio with the appropriate mix of risk and potential reward for specific investment profiles. INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE WHY DIVERSIFY? 2008 2009 2010 2011 2012 2013 2014 2015 2016 Large-Cap Growth 11.8% Bonds 5.2% Mid-Cap Blend 40.5% Small-Cap Blend 26.9% Bonds 7.8% Large-Cap Value 17.5% Small-Cap Blend 38.8% Large-Cap Value 13.5% Large-Cap Growth 5.7% Small-Cap Blend 21.3% Developed Foreign 11.2% Cash 1.8% Large-Cap Growth 37.2% Mid-Cap Blend 25.5% Large-Cap Growth 2.6% Developed Foreign 17.3% Mid-Cap Blend 34.8% Mid-Cap Blend 13.2% Bonds 0.6% Large-Cap Value 17.3% Bonds 7.0% Small-Cap Blend -33.8% Developed Foreign 31.8% Large-Cap Growth 16.7% Large-Cap Value 0.4% Mid-Cap Blend 17.3% Large-Cap Growth 33.5% Large-Cap Growth 13.1% Cash 0.0% Mid-Cap Blend 13.8% Mid-Cap Blend 5.6% Large-Cap Value -36.9% Small-Cap Blend 27.2% Large-Cap Value 15.5% Cash 0.1% Small-Cap Blend 16.4% Large-Cap Value 32.5% Bonds 6.0% Developed Foreign -0.8% Large-Cap Growth 7.1% Cash 4.7% Large-Cap Growth -38.4% Large-Cap Value 19.7% Developed Foreign 7.8% Mid-Cap Blend -1.5 Large-Cap Growth 15.3% Developed Foreign 22.8% Small-Cap Blend 4.9% Mid-Cap Blend -2.4% Bonds 2.7% Large-Cap Value -0.2% Mid-Cap Blend -41.5% Bonds 5.9% Bonds 6.5% Small-Cap Blend -4.2% Bonds 4.2% Cash 0.1% Cash 0.0% Large-Cap Value -3.8% Developed Foreign 1.0% Small-Cap Blend -1.6% Developed Foreign -43.4% Cash 0.2% Cash 0.1% Developed Foreign -12.1% Cash 0.1% Bonds -2.0% Developed Foreign -4.9% Small-Cap Blend -4.4% Cash 0.3% Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index. A bond is a debt instrument through which an investor loans money to an entity (corporate or governmental) that borrows the money for a defined period of time and typically at a fixed interest rate. Bonds are used by companies, municipalities, states, and U.S. and foreign governments to finance a variety of projects and activities. Developed Foreign Stocks are represented by the MSCI EAFE Index. They are ownership securities of companies domiciled in larger non-U.S. countries with long-established economies. Large-Cap Growth is represented by the Russell 1000 Growth Index, which measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted earnings growth rates. Large-Cap Value is represented by the Russell 1000 Value Index, which measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted earnings growth rates. Mid-Cap Blend is represented by the Russell Midcap Index, which invests in stocks of various sizes and mixed characteristics, giving it a middle-of-the-road profile. Investors cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Source: Legg Mason. Returns are as of December 31 of specified years. The table above is presented for informational purposes only and does not represent performance of any specific investment. Past performance is no guarantee of future results. Diversification does not guarantee a profit or protect against a loss. 2 Lowest % return 2007 Highest % return Because over time, asset classes typically perform differently. The worst-performing investment one year can be the best the next, and vice versa. No one can predict which asset class will come out on top. Small-Cap Blend is represented by the Russell 2000 Index. A small-cap blend strategy generally holds both growth and value stocks, to achieve gains from both styles over the long term. Cash is represented by the Citigroup 3-Month U.S. Treasury Bill Index, which consists of negotiable debt obligations issued by the U.S. government and backed by its full faith and credit, and that have a maturity of one year or less. ELIMINATE THE GUESSWORK QS Asset Allocation Funds take the guesswork out of choosing and combining various asset types to achieve your goals. That makes them a great choice for investors who seek a simple and accessible approach to investing. Offering built-in diversification, the Funds can instantly provide an appropriate balance of risk and potential reward. They invest in a globally diversified mix of underlying assets (fixed income and equities), then dynamically manage this balance over time as market conditions change. Underlying investments may include low-cost exchange-traded funds (ETFs) that track certain markets (asset classes), as well as actively managed funds with a diverse set of strategies and investments, including alternatives (such as commodities, real estate assets and infrastructure assets). Matching risk profiles Each of the four QS Asset Allocation Funds is managed to deliver long-term capital growth against specific risk ranges, which are controlled by strategic and tactical allocations across multiple markets and asset classes. This outcome-oriented focus on long-term risk characteristics is intended to help easily select funds that appropriately match risk profiles. Don’t try to time the market Some people try to get in and out of investments by guessing which way the market is headed. A much more prudent way to diversify your portfolio is by allocating assets strategically based on your investment goals, then making incremental course corrections over time. The ABCs of QS Asset Allocation Funds Aggressive to conservative Select from conservative to aggressive allocations — from a high ratio of fixed income/equities for income-focused investing, to a high ratio of equities/fixed income for aggressive growth-focused investing. Bonds and stocks in one fund Each of the four Funds contains underlying mutual funds in two primary asset classes: equity and fixed income securities. A single Fund provides immediate access to investment grade and high yield bonds and domestic and international equities of all types. Control and monitoring It’s easy to monitor your investments. Experienced investment managers actively track and rebalance each Fund’s holdings. The portfolio’s original allocation mix is continually monitored and rebalanced quarterly. The portfolio managers may allocate Fund assets to any underlying funds in varying amounts in a manner consistent with each Fund’s investment objective. Each Fund’s allocation to each class will be measured at the time of purchase and may vary thereafter as a result of market movements. The portfolio managers will seek to maintain a level of risk in the Fund similar to that of each Fund’s composite benchmark. Alternative strategies involve highly speculative investments that employ aggressive investment strategies and carry substantial risk. There is no assurance that a recommended allocation will prove the ideal allocation in all circumstances. Asset allocation does not assure a profit or protect against a loss. 3 FOUR INVESTMENT GOALS, FOUR FUND ALLOCATIONS Real solutions for different investor objectives Each Fund is managed to deliver long-term capital growth against specific risk ranges. Conservative This mix is generally favored by investors who have a shorter time horizon and/or a lower tolerance for short-term market fluctuations. Its asset allocation is weighted more heavily toward lower-risk, current income-generating asset classes, such as bonds. 1 2 Conservative QS Defensive Growth Fund 1 Share class (Symbol): A (SBCPX), C (LWLAX), I (LMGIX) Balanced QS Conservative Growth Fund 2 Share class (Symbol): A (SBBAX), C (SCBCX), I (LMEIX) Best for investors who Best for investors who Require current income, with long-term capital growth a secondary consideration, and/or Are looking for capital growth and current income, and/or Have a medium-term investment time horizon, and/or Have a short-to-medium-term investment time horizon, and/or Can tolerate some risk Can tolerate minimal risk Investment goal Achieve income as a primary objective, and longterm growth of capital as a secondary objective Investment goal Achieve an approximate 50/50 ratio of capital growth and current income Asset allocation 15%–45% in underlying equity funds, 55%–85% in underlying fixed income funds Asset allocation (%) as of June 30, 2017 U.S. Large Cap Equity Funds U.S. All Cap Equity Funds U.S. Small/Mid Cap Equity Funds Inflation-Sensitive Funds 61.49 International/Global Equity Funds Fixed Income Funds Cash 1 2 Asset allocation (%) as of June 30, 2017 0.28 12.17 U.S. Large Cap Equity Funds U.S. All Cap Equity Funds U.S. Small/Mid Cap Equity Funds Inflation-Sensitive Funds 39.62 International/Global Equity Funds Fixed Income Funds Cash 2.20 4.93 6.44 12.49 Source: Legg Mason. Prior to June 1, 2015, this Fund followed different investment policies and strategies under the name QS Legg Mason Lifestyle Allocation 30%. Prior to June 1, 2015, this Fund followed different investment strategies under the name QS Legg Mason Lifestyle Allocation 50%. 4 Asset allocation 35%–65% in underlying equity funds, 35%–65% in underlying fixed income funds 0.36 23.16 3.55 8.78 18.27 6.27 Sector allocations are subject to change at any time. Percentages are based on total portfolio. This information is provided for information purposes only and should not be construed as a recommendation to purchase or sell any security. 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. Access to Legg Mason’s entire affiliate fund family provides access to funds with complementary risk/return patterns and a diverse source of alpha. Pairing different active managers gives the QS Asset Allocation Funds greater potential for growth while keeping the Funds’ overall risk characteristics in line with existing benchmarks. Aggressive This mix is generally favored by investors who have a longer time horizon and/or a higher tolerance for short-term market fluctuations. Its asset allocation is weighted more heavily toward higher-risk, long-term growth-oriented asset classes, such as stocks. 3 4 Growth QS Moderate Growth Fund 3 Share class (Symbol): A (SCGRX), C (SCGCX), I (LLAIX) Best for investors who Best for investors who Are focused primarily on long-term capital growth, and/or Are focused solely on growth of capital, and/or Have a medium-to-long-term investment time horizon, and/or Have a long-term investment time horizon, and/or Can tolerate market fluctuations over time Can tolerate potentially significant market fluctuations over time Investment goal Achieve long-term capital growth Investment goal Achieve capital appreciation Asset allocation 55%–85% in underlying equity funds, 15%–45% in underlying fixed income funds Asset allocation (%) as of June 30, 2017 0.25 Asset allocation 70%–100% in underlying equity funds, 0%–30% in underlying fixed income funds Asset allocation (%) as of June 30, 2017 2.58 U.S. Large Cap Equity Funds U.S. All Cap Equity Funds 19.23 U.S. Small/Mid Cap Equity Funds 34.58 Inflation-Sensitive Funds International/Global 23.27 Equity Funds 5.48 Fixed Income Funds 6.27 10.92 Cash Aggressive growth QS Growth Fund 4 Share class (Symbol): A (SCHAX), C (SCHCX), I (LANIX) These risks are magnified in emerging markets. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks. Fixed income securities are subject to interest rate, credit, inflation and reinvestment risk. As interest rates rise, the value of fixed income securities falls. In addition to the Fund’s operating expenses, you will indirectly bear the operating expenses of the underlying funds. Please refer to the next page for additional risk information. Totals may not add to 100% due to rounding. U.S. Large Cap Equity Funds U.S. All Cap Equity Funds U.S. Small/Mid Cap 26.98 Equity Funds Inflation-Sensitive Funds International/Global 6.26 Equity Funds Fixed Income Funds 16.83 Cash 3 4 0.27 40.41 6.66 Prior to June 1, 2015, the Fund followed different investment policies and strategies under the name QS Legg Mason Lifestyle Allocation 70%. Prior to June 1, 2015, the Fund followed different investment policies and strategies under the name QS Legg Mason Lifestyle Allocation 85%. 5 UNDERLYING FUNDS, EXPERIENCED MANAGERS Each of the QS Asset Allocation Funds draws from the expertise of seasoned investment managers. Global value investing Volatility-managed Small-cap equity Legg Mason BW Diversified Large Cap Value Fund QS Global Dividend Fund Royce Small-Cap Value Fund Global quantitative equity QS International Equity Fund QS U.S. Large Cap Equity Fund Inflation-sensitive Quality-focused equity QS Strategic Real Return Fund ClearBridge Aggressive Growth Fund ClearBridge Appreciation Fund ClearBridge Mid Cap Fund ClearBridge Small Cap Growth Fund ClearBridge International Value Fund “The key to long-term success in multi-strategy equity investing is selecting highquality companies through rigorous research and analysis.” Scott Glasser Co-Chief Investment Officer ClearBridge Investments Fixed income Western Asset Core Bond Fund Western Asset Core Plus Bond Fund Western Asset High Yield Fund Western Asset Macro Opportunities Fund “Our successful approach emphasizes the pursuit of both growth and income as we seek to invest in companies with sustainable and growing dividend streams.” Stephen Lanzendorf, CFA Portfolio Manager QS Investors “Our success in fixed income investing is driven by three essential elements: a teambased approach to management, a deep bench of investment professionals, and a long-term fundamental value approach.” Ken Leech Chief Investment Officer Western Asset Each underlying fund may engage in active and frequent trading, resulting in higher portfolio turnover and transaction costs. As a non-diversified fund, it is permitted to invest a higher percentage of its assets in any one issuer than a diversified fund, which may magnify the fund’s losses from events affecting a particular issuer. Certain of the underlying funds may engage in short selling, which is a speculative strategy that involves special risks. 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. The model used to manage a fund’s assets provides no assurance that the recommended allocation will either maximize returns or minimize risks. There is no assurance that a recommended allocation will prove the ideal allocation in all circumstances. Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses, and have a potentially large impact on fund performance. 6 A MULTI-ASSET SPECIALIST INVESTMENT MANAGER The investment manager of the QS Asset Allocation Funds is QS Investors, a global equity and multi-asset class solutions manager with nearly $22 billion in assets under management. † QS Investors counts thoughtful asset allocation and innovative risk management as two of its core competencies. With significant experience in managing multi-asset class portfolios, the firm employs a consultative approach to global asset management — an approach that includes: Market awareness Dynamically weights opportunities in response to changing conditions in economy and world markets Risk management Combines quantitative research with analysis of behavioral investing patterns to construct diversified portfolios designed to mitigate risk and smooth returns Management team QS Investors’ portfolio management team, with long-term investment experience, is responsible for day-to-day management of funds. Industry since 1996 Adam Petryk, CFA Head of Multi-Asset and Solutions Holds a BS in Computer Engineering from the University of Waterloo, Ontario, Canada and an MS in Electrical Engineering from the University of Waterloo. Industry since 1987 Thomas Picciochi Head of Multi-Asset Portfolio Management Implementation Holds a BA from University of Miami and an MBA from University of Miami Industry since Ellen Tessler Portfolio Manager, Member of Portfolio Management Implementation Group Holds a BBA and MBA from Pace University 1999 As of June 30, 2017. † 7 Brandywine Global Clarion Partners ClearBridge Investments EnTrustPermal Martin Currie QS Investors RARE Infrastructure Legg Mason is a leading global investment company committed to helping clients reach their financial goals through long-term, actively managed investment strategies. • $741 billion* in assets invested worldwide in a broad mix of equities, fixedincome, alternatives and cash strategies • A diverse family of specialized investment managers, each with its own independent approach to research and analysis • Over a century of experience in identifying opportunities and delivering astute investment solutions to clients Royce & Associates Western Asset LeggMason.com * As of June 30, 2017. Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional. © 2017 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC and all investment managers mentioned are subsidiaries of Legg Mason, Inc. 744997 QSIN117252 7/17 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 WWW.LEGGMASON.COM. PLEASE READ THE PROSPECTUS CAREFULLY.