CLEARBRIDGE TACTICAL DIVIDEND INCOME FUND

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1 1Q 2018 Product Commentary CLEARBRIDGE TACTICAL DIVIDEND INCOME FUND Mark McAllister, CFA, and Peter Vanderlee, CFA Portfolio Managers Average annual total returns and fund expenses (%) as of March 31, 2018 Class A 3-mo 1-yr 5-yr 10-yr Excluding sales charges Since Incept. (10/19/90) Gross Net Including effects of maximum sales charges Dow Jones U.S N/A - - Select Dividend Index Composite Benchmark N/A - - 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, 2019 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. the Fund s audited financial statements or financial highlights. The Dow Jones U.S. Select Dividend Index consists of 100 of the highest dividendyielding securities (excluding real estate investment trusts, or REITs) in the Dow Jones U.S. Index, a broad-based index representative of the total market for the United States equity securities. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. The Composite Benchmark is a representation of the performance of the major asset classes in which the Fund may typically invest, consisting of 60% Russell 3000 Value Index, 20% Alerian MLP Index and 20% MSCI US REIT Index. The Russell 3000 Value Index is a market-capitalization weighted equity index maintained by the Russell Investment Group and based on the Russell 3000 Index, which measures how U.S. stocks in the equity value segment perform. Included in the Russell 3000 Value Index are stocks from the Russell 3000 Index with lower price-to-book ratios and lower expected growth rates. The Alerian MLP Index is the leading gauge of energy MLPs. The float-adjusted, capitalization-weighted index, whose constituents represent approximately 85% of total float-adjusted market capitalization, is disseminated real-time on a price return basis (AMZ) and on a total-return basis (AMZX). The MSCI US REIT Index is a free floatadjusted market-capitalization index that is comprised of equity REITs. The index is based on the MSCI USA Investable Market Index (IMI), its parent index, which captures large-, mid- and small-cap securities. Key takeaways We expect earnings growth to accelerate in the near term due to the benefits of faster economic growth, tax reform and deregulation. We remain steadfast in our belief that the U.S. renaissance in energy production represents a secular growth opportunity and is attractive for the long-term investor. Higher long-term interest rates can be a near-term headwind for REITs; however, earnings results may be positive for the near-to-intermediate term. The Gross and Net Expenses listed include 0.57 of Acquired Fund Fees and Expenses (AFFE) that are required to be shown in the Fund s prospectus. AFFE reflects the Fund s pro rata share of fees and expenses relating to its investments in acquired funds; however, AFFE are not incurred directly by the Fund. Therefore, AFFE are not reflected in INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

2 Market overview and outlook Volatility returned to the stock market in the first quarter of 2018 and led to negative returns ending a record period of 15 consecutive monthly gains as higher interest rates, fears of increasing inflation, and the specter of a possible trade war jolted investors. The U.S. 10-year Treasury yield rose from 2.4% to 2.7% and almost touched 3% in mid-february while the U.S. dollar fell modestly from $1.20/euro to $1.23/euro. Oil prices fluctuated within a range of $59 to $66, starting the quarter near the lows and ending near the highs. Despite the underlying market volatility, all U.S. economic data remained positive. Stocks rallied euphorically for much of January, until strongerthan-anticipated wage inflation data resulted in macro funds and ETFs, which were betting on sustained low volatility, pulling back. The reaction snowballed into a 10% decline in the market. The market decline in late January was atypical in that it was led by the largest, most liquid stocks. A rather quick market rally followed the correction, until President Trump announced aluminum and steel tariffs in March, which generated broader concerns about the probability of an all-out trade war. Also, Facebook s data breach increased the potential for greater regulatory scrutiny of privacy safeguards among the large technology companies, hurting sentiment for a group that had considerably outperformed for the previous 18 months. Small-cap stocks fared better than large-caps during the quarter. Most of this outperformance came after the tariff announcement, as small-cap companies tend to have less exposure to international trade than large multinationals. Only two industry groups rose during the quarter: information technology (IT) and consumer discretionary. The overwhelming majority of consumer discretionary subsector gains were generated by Amazon and Netflix. Technology companies, especially those with exposure to the public and hybrid cloud, showed explosive growth. Market laggards were led by telecommunication services and consumer staples, both of which are sensitive to interest rates and inflation. Energy and materials gave back gains generated in the fourth quarter of First-quarter U.S. economic data were healthy across the board. Jobless claims fell to 215,000, the lowest level since Fourth-quarter GDP was revised upward to 2.9%. Auto sales held steady in January and February at a 16.8 million SAAR, then lifted to 17.2 million in March on the back of increased incentives. The March Consumer Sentiment Index reading of was the highest since 2004, while the ISM Purchasing Managers Index reading of 59.3% was one of the highest levels ever. Earnings growth for the market exceeded 15% in the fourth quarter of 2017, and it s expected to accelerate to about 25% in the first quarter of 2018 on the back of lower corporate taxes. Given the strong U.S. economy, financial markets are increasingly sensitive to accelerating inflation. A higher-thananticipated increase in average hourly wages was the data point that sparked the market s sharp decline in January and ignited an increase in U.S. 10-year Treasury yields. While inflation appears to be building, we believe the pace is moderate, as evidenced by the modest slowing in average hourly wage increases to 2.6% in February. As expected, the Federal Reserve raised short-term interest rates by 25 basis points at its March meeting. That said, Chairman Powell s remarks were perceived as hawkish, and market expectations for the number of rate hikes in 2018 increased from three to four. The 2-year Treasury yield now exceeds the S&P 500 s dividend yield, and the yield curve is now the flattest it has been since In the past, an inverted yield curve has typically been followed by a recession. We continue to be optimistic about the outlook for the U.S. equity market. Fourth-quarter 2017 earnings results demonstrated that corporate profits continue to grow solidly, and we still expect earnings growth to accelerate in the near term due to the benefits of faster economic growth, tax reform and deregulation. There is no change in our view that focusing on companies with sound or improving balance sheets, attractive current dividend yields and dividend growth potential is a sound course in the current environment. We remain steadfast in our belief that the U.S. renaissance in energy production represents a secular growth opportunity and is attractive for the long-term investor. In our assessment, energy production in the U.S. remains in a good position to increase over time. In the short and medium terms, growth of hydrocarbon production has continued to increase, a result of an increasing U.S. rig count, which has more than doubled from its cycle trough. OPEC s announced extension to production cuts, expected to last until at least the end of 2018, is further supportive of our constructive stance. Our assessment continues to show that adherence to these announced cuts is adequate. We believe many energy infrastructure companies and MLPs remain attractively priced and that we are well positioned in the portfolio, which owns good-quality energy companies that can thrive in the long term. Most of our holdings continue to exhibit resilience in dividends and distributions, and in quite a few cases demonstrate strong growth. In our view, the long-term outlook 2

3 for owning energy infrastructure companies and MLPs is positive. We remain modestly positive on the outlook for the U.S. REIT market. The sector is facing near-term headwinds from higher long-term interest rates; however, earnings results may be positive for the near-to-intermediate term. In our opinion, REITs are moderately attractive at current levels. Fund highlights For the quarter ended March 31, 2018, the ClearBridge Tactical Dividend Income Fund Class A shares had a cumulative return of -5.06%, excluding the effects of sales charges. In comparison, the Fund s unmanaged benchmark, the Dow Jones U.S. Select Dividend Index (DJDVY), fell -2.54% for the quarter, while the Lipper Equity Income Funds category average dropped -2.51% for the same period. During the first quarter, one of the 11 sectors the Fund was invested in had positive returns the information technology (IT) sector while the energy (including MLPs) and real estate sectors detracted the most. Relative to the benchmark, stock selection effects detracted from relative returns, and this was partially offset by positive sector allocation effects. Stock selection in the IT and energy sectors detracted the most from relative returns, while stock selection in the health care sector contributed to relative performance, as did an overweight allocation to the IT sector. Japanese automotive chip maker Renesas Electronics. Renesas later denied the news. Maxim surpassed market expectations in both earnings and revenue in its most recent financial results, and it raised its dividend by 17%. Bottom contributors The bottom individual contributors to Fund performance for the quarter included: Golar LNG Partners LP, (GMLP), in the energy sector, was lower after the Federal Energy Regulatory Commission (FERC) announced a change to how MLPs will be allowed to calculate allowed rates of return on some interstate pipelines. Macquarie Infrastructure (MIC), in the industrials sector, unexpectedly cut its dividend in February and projected a decline in free cash flow next year. Enbridge Energy Partners, L.P. (EEP), in the energy sector, was lower after the Federal Energy Regulatory Commission (FERC) announced a change to how MLPs will be allowed to calculate allowed rates of return on some interstate pipelines. During the quarter we added a new position in General Motors. We sold our positions in PPL, Macquarie Infrastructure, Teva Pharmaceutical, Enbridge and Regal Entertainment, and converted our convertible shares of Allergan and American Tower, retaining the shares. Top contributors The leading individual contributors to Fund performance for the quarter included: Microsoft (MSFT), in the IT sector, saw shares rise, as investors continue to appreciate the company s growth trajectory, especially in cloud services. The company posted an earnings beat for the fourth quarter, driven by strong growth in cloud services such as Office 365 and Azure. Lockheed Martin (LMT), in the industrials sector, gained as the company continues to execute well on its large F-35 program and amid escalating global uncertainty and the prospect for larger defense budgets. Maxim Integrated Products (MXIM), in the IT sector, gained ground amid news it was discussing a potential acquisition by 3

4 Holdings Top holdings - energy MLPs (%) Energy Transfer Partners LP 2.3 Genesis Energy LP 2.0 HOEGH LNG PARTNERS LP 1.9 KNOT Offshore Partners LP 1.9 Golar LNG Partners LP 1.7 Top holdings - REITs (%) Weyerhaeuser Co. 1.8 Alexandria Real Estate Equities, Inc. 1.5 Simon Property Group Inc. 1.2 American Tower Corp 1.2 AvalonBay Communities, Inc. 1.0 Top holdings - Equities (%) Microsoft Corp 4.7 Lockheed Martin Corp 3.9 The Blackstone Group L.P. 3.1 DowDuPont Inc. 2.4 Merck & Co. Inc. 2.2 Sector Allocation Sector allocation (%) Energy - MLPs 19.0 Financials 16.6 Information Technology 15.5 Real Estate 12.6 Health Care 7.3 Industrials 5.7 Telecommunication Services 4.5 Utilities 4.4 Materials 4.4 Consumer Staples 4.2 Consumer Discretionary 3.2 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, 2018, and they are calculated among 564 funds in the Lipper Equity Income peer group, including reinvestment of dividends and capital gains, if any, and excluding sales charges. Alerian MLP Index is a composite of the 50 most prominent energy master limited partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for this emerging asset class. The index is calculated using a float-adjusted, capitalization-weighted methodology. A basis point (bp, or bps) is equal to 1/100th of 1%, or 0.01%. The Dow Jones Industrial Average (DJIA) is an unmanaged index composed of 30 blue-chip stocks, each with annual sales exceeding $7 billion. The DJIA is price-weighted, reflects large-cap companies representative of U.S. industry, and historically it has moved in tandem with other major market indexes, such as the S&P 500. The Dow Jones U.S. Select Dividend Index consists of 100 of the highest dividend-yielding securities (excluding real estate investment trusts, or REITs) in the Dow Jones U.S. Index, a broad-based index representative of the total market for the United States equity securities. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. Federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. Federal Reserve Board ("Fed") is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. Master limited partnership (MLP) is a type of limited partnership that is publicly traded. MSCI US REIT Index is a market capitalization-weighted index comprising equity real estate investment trusts (REITs) that are included in the MSCI U.S. Investable Market 2500 Index, with the exception of specialty equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The index represents approximately 85% of the U.S. REIT universe. Organization of Petroleum Exporting Countries (OPEC) is an organization consisting of the world's major oil-exporting nations. The Institute for Supply Management's (ISM) composite PMI Index (formerly the National Association of Purchasing Managers Index) is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the manufacturing sector. Real estate investment trusts (REITs) invest in real estate or loans secured by real estate and issue shares in such investments, which can be illiquid. Russell 3000 Index is an unmanaged index of the 3,000 largest U.S. companies. Russell 3000 Value Index is a market capitalization-weighted equity index maintained by the Russell Investment Group and based on the Russell 3000 Index, which measures how U.S. stocks in the equity value segment perform. A seasonally adjusted annual rate (SAAR) is a rate adjustment used for economic or business data, such as sales numbers or employment figures, that attempts to remove seasonal variations in the data. The S&P 500 Index is an unmanaged index of common stock performance. The yield curve shows the relationship between yields and maturity dates for a similar class of bonds. Energy - Other 2.0 Cash 0.8 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. 4

5 Brandywine Global Clarion Partners ClearBridge Investments EnTrustPermal Martin Currie 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 Over a century of experience in identifying opportunities and delivering astute investment solutions to clients What should I know before investing? Equity securities are subject to price fluctuation and possible loss of principal. 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. 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. Dividends may fluctuate and a company may reduce or eliminate its dividend at any time. Diversification does not guarantee a profit or protect against a loss. Small- and 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. Active management does not ensure gains or protect against market declines. 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, a 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. 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 D /18 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