Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Collateralized Mortgage Obligations (g)
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government National Mortgage Association (GNMA), 2015-101 IO, IO
|
|
|
0.452
|
%
|
|
|
3/16/52
|
|
|
|
7,796,925
|
|
|
$
|
189,647
|
(f)
|
Government National Mortgage Association (GNMA), 2015-183 IO, IO
|
|
|
0.717
|
%
|
|
|
9/16/57
|
|
|
|
10,915,738
|
|
|
|
450,878
|
(f)
|
GSR Mortgage Loan Trust, 2004-11 1A1
|
|
|
3.404
|
%
|
|
|
9/25/34
|
|
|
|
45,160
|
|
|
|
46,783
|
(f)
|
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNN FFL (1 mo. USD
LIBOR + 2.500%)
|
|
|
2.601
|
%
|
|
|
1/16/37
|
|
|
|
1,963,500
|
|
|
|
1,958,856
|
(d)(f)
|
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNN GFL (1 mo. USD
LIBOR + 3.000%)
|
|
|
3.101
|
%
|
|
|
1/16/37
|
|
|
|
1,963,500
|
|
|
|
1,873,775
|
(d)(f)
|
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNN
GFX
|
|
|
4.688
|
%
|
|
|
1/16/37
|
|
|
|
2,270,000
|
|
|
|
2,198,645
|
(d)(f)
|
Merrill Lynch Mortgage Investors Trust, 2004-A1 2A1
|
|
|
2.310
|
%
|
|
|
2/25/34
|
|
|
|
4,224
|
|
|
|
4,346
|
(f)
|
MRCD Mortgage Trust, 2019-PARK A
|
|
|
2.718
|
%
|
|
|
12/15/36
|
|
|
|
850,000
|
|
|
|
890,637
|
(d)
|
Natixis Commercial Mortgage Securities Trust, 2019-TRUE A (1 mo. USD LIBOR + 2.011%, 3.511% floor)
|
|
|
3.511
|
%
|
|
|
4/18/24
|
|
|
|
2,050,000
|
|
|
|
2,028,594
|
(d)(f)
|
New Residential Mortgage Loan Trust, 2014-1A A
|
|
|
3.750
|
%
|
|
|
1/25/54
|
|
|
|
477,210
|
|
|
|
507,650
|
(d)(f)
|
Nomura Resecuritization Trust, 2015-4R 2A2 (1 mo. USD LIBOR +
0.306%)
|
|
|
0.246
|
%
|
|
|
10/26/36
|
|
|
|
2,803,514
|
|
|
|
2,533,822
|
(d)(f)
|
RAMP Trust, 2004-SL4 A5
|
|
|
7.500
|
%
|
|
|
7/25/32
|
|
|
|
39,711
|
|
|
|
24,769
|
|
Washington Mutual MSC Mortgage Pass- Through Certificates Trust, 2004-RA1
2A
|
|
|
7.000
|
%
|
|
|
3/25/34
|
|
|
|
5,441
|
|
|
|
5,808
|
|
Total Collateralized Mortgage Obligations (Cost $27,752,204)
|
|
|
|
|
|
|
|
25,790,512
|
|
Non-U.S. Treasury Inflation Protected Securities 4.9%
|
|
|
|
|
|
|
|
|
|
Brazil 1.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional Serie B, Notes
|
|
|
6.000
|
%
|
|
|
8/15/50
|
|
|
|
25,128,497
|
BRL
|
|
|
6,090,998
|
|
Canada 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada Government Real Return Bond
|
|
|
1.500
|
%
|
|
|
12/1/44
|
|
|
|
1,799,339
|
CAD
|
|
|
1,912,433
|
|
Canada Government Real Return Bond
|
|
|
0.500
|
%
|
|
|
12/1/50
|
|
|
|
1,568,215
|
CAD
|
|
|
1,401,054
|
|
Total Canada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,313,487
|
|
Mexico 1.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican Udibonos
|
|
|
2.000
|
%
|
|
|
6/9/22
|
|
|
|
71,174,313
|
MXN
|
|
|
3,589,650
|
|
Russia 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russian Federal Inflation Linked Bond OFZ
|
|
|
2.500
|
%
|
|
|
2/2/28
|
|
|
|
253,468,168
|
RUB
|
|
|
3,434,040
|
|
Total Non-U.S. Treasury Inflation Protected
Securities (Cost $17,766,869)
|
|
|
|
16,428,175
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
6
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Sovereign Bonds 4.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil 0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional Serie F, Notes
|
|
|
10.000
|
%
|
|
|
1/1/23
|
|
|
|
2,920,000
|
BRL
|
|
$
|
585,919
|
|
Brazil Notas do Tesouro Nacional Serie F, Notes
|
|
|
10.000
|
%
|
|
|
1/1/27
|
|
|
|
965,000
|
BRL
|
|
|
196,579
|
|
Total Brazil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
782,498
|
|
Chile 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonos de la Tesoreria de la Republica en pesos, Bonds
|
|
|
5.000
|
%
|
|
|
3/1/35
|
|
|
|
2,330,000,000
|
CLP
|
|
|
3,368,590
|
|
Indonesia 1.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia Government International Bond, Senior Notes
|
|
|
4.750
|
%
|
|
|
7/18/47
|
|
|
|
400,000
|
|
|
|
465,409
|
(d)
|
Indonesia Government International Bond, Senior Notes
|
|
|
4.350
|
%
|
|
|
1/11/48
|
|
|
|
290,000
|
|
|
|
321,350
|
|
Indonesia Treasury Bond
|
|
|
7.000
|
%
|
|
|
5/15/27
|
|
|
|
49,188,000,000
|
IDR
|
|
|
3,644,771
|
|
Total Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,431,530
|
|
Mexico 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican Bonos, Bonds
|
|
|
8.000
|
%
|
|
|
11/7/47
|
|
|
|
21,750,000
|
MXN
|
|
|
1,140,832
|
|
Mexico Government International Bond, Senior Notes
|
|
|
4.500
|
%
|
|
|
4/22/29
|
|
|
|
1,480,000
|
|
|
|
1,675,131
|
|
Total Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,815,963
|
|
Nigeria 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria Government International Bond, Senior Notes
|
|
|
6.500
|
%
|
|
|
11/28/27
|
|
|
|
200,000
|
|
|
|
213,738
|
(d)
|
Russia 0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russian Federal Bond OFZ
|
|
|
7.050
|
%
|
|
|
1/19/28
|
|
|
|
97,680,000
|
RUB
|
|
|
1,356,074
|
|
United Arab Emirates 0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abu Dhabi Government International Bond, Senior Notes
|
|
|
3.875
|
%
|
|
|
4/16/50
|
|
|
|
960,000
|
|
|
|
1,080,691
|
(d)
|
Total Sovereign Bonds (Cost $14,497,801)
|
|
|
|
|
|
|
|
14,049,084
|
|
Asset-Backed Securities 1.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameriquest Mortgage Securities Inc., Asset- Backed Pass-Through Certificates,
2005-R7 M2 (1 mo. USD LIBOR + 0.750%)
|
|
|
0.842
|
%
|
|
|
9/25/35
|
|
|
|
418,528
|
|
|
|
418,852
|
(f)
|
Countrywide Home Equity Loan Trust, 2005-C 2A (1 mo. USD LIBOR +
0.180%)
|
|
|
0.281
|
%
|
|
|
7/15/35
|
|
|
|
334,926
|
|
|
|
327,503
|
(f)
|
Countrywide Home Equity Loan Trust, 2006-I 2A (1 mo. USD LIBOR +
0.140%)
|
|
|
0.241
|
%
|
|
|
1/15/37
|
|
|
|
553,866
|
|
|
|
535,822
|
(f)
|
First Franklin Mortgage Loan Trust, 2006- FF15 A5 (1 mo. USD LIBOR + 0.160%)
|
|
|
0.252
|
%
|
|
|
11/25/36
|
|
|
|
837,495
|
|
|
|
827,695
|
(f)
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
7
|
|
Consolidated schedule of investments (unaudited) (contd)
May 31, 2021
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Asset-Backed Securities continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legacy Mortgage Asset Trust, 2019-GS1 A1, Step bond
|
|
|
4.000
|
%
|
|
|
1/25/59
|
|
|
|
762,110
|
|
|
$
|
764,704
|
(d)
|
Morgan Stanley ABS Capital I Inc. Trust, 2004-HE7 M1 (1 mo. USD LIBOR +
0.900%)
|
|
|
0.992
|
%
|
|
|
8/25/34
|
|
|
|
694,605
|
|
|
|
690,416
|
(f)
|
Saxon Asset Securities Trust, 2006-3 A4 (1 mo. USD LIBOR +
0.240%)
|
|
|
0.332
|
%
|
|
|
10/25/46
|
|
|
|
1,110,000
|
|
|
|
994,214
|
(f)
|
Towd Point Mortgage Trust, 2015-2 1B3
|
|
|
3.450
|
%
|
|
|
11/25/60
|
|
|
|
950,000
|
|
|
|
980,380
|
(d)(f)
|
Total Asset-Backed Securities (Cost $5,477,794)
|
|
|
|
|
|
|
|
|
|
|
|
5,539,586
|
|
Mortgage-Backed Securities 0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA 0.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (FNMA)
|
|
|
2.680
|
%
|
|
|
1/1/35-
2/1/35
|
|
|
|
300,000
|
|
|
|
321,004
|
|
Federal National Mortgage Association (FNMA)
|
|
|
2.790
|
%
|
|
|
1/1/35
|
|
|
|
467,097
|
|
|
|
506,515
|
(f)
|
Total Mortgage-Backed Securities (Cost $771,057)
|
|
|
|
|
|
|
|
|
|
|
|
827,519
|
|
Total Investments before Short-Term Investments (Cost
$455,414,563)
|
|
|
|
487,560,487
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Short-Term Investments 2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dreyfus Government Cash Management, Institutional Shares (Cost $6,743,689)
|
|
|
0.030
|
%
|
|
|
|
|
|
|
6,743,689
|
|
|
|
6,743,689
|
|
Total Investments 146.5% (Cost $462,158,252)
|
|
|
|
|
|
|
|
|
|
|
|
494,304,176
|
|
Liabilities in Excess of Other Assets (46.5)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(156,810,142
|
)
|
Total Net Assets 100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
337,494,034
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
8
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
Western Asset Inflation-Linked Income Fund
|
Face amount denominated in U.S. dollars, unless otherwise noted.
|
|
Represents less than 0.1%.
|
(a)
|
All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements.
|
(b)
|
All or a portion of this security is held at the broker as collateral for open swap contracts.
|
(c)
|
All or a portion of this security is held at the broker as collateral for open futures contracts.
|
(d)
|
Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees.
|
(e)
|
Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the
United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees.
|
(f)
|
Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published
reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.
|
(g)
|
Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates that are structured to direct payments
on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial indicators and may be subject to an
upper and/or lower limit.
|
|
|
|
Abbreviation(s) used in this schedule:
|
|
|
ARM
|
|
Adjustable Rate Mortgage
|
|
|
BRL
|
|
Brazilian Real
|
|
|
CAD
|
|
Canadian Dollar
|
|
|
CAS
|
|
Connecticut Avenue Securities
|
|
|
CLP
|
|
Chilean Peso
|
|
|
GTD
|
|
Guaranteed
|
|
|
IDR
|
|
Indonesian Rupiah
|
|
|
IO
|
|
Interest Only
|
|
|
JSC
|
|
Joint Stock Company
|
|
|
LIBOR
|
|
London Interbank Offered Rate
|
|
|
MXN
|
|
Mexican Peso
|
|
|
OFZ
|
|
Obligatsyi Federalnovo Zaima (Russian Federal Loan Obligation)
|
|
|
PJSC
|
|
Private Joint Stock Company
|
|
|
REMIC
|
|
Real Estate Mortgage Investment Conduit
|
|
|
RUB
|
|
Russian Ruble
|
|
|
SOFR
|
|
Secured Overnight Financing Rate
|
|
|
USD
|
|
United States Dollar
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
9
|
|
Consolidated schedule of investments
(unaudited) (contd)
May 31, 2021
Western Asset Inflation-Linked Income Fund
At May 31, 2021, the Fund had the following open reverse repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Rate
|
|
|
Effective
Date
|
|
|
Maturity
Date
|
|
Face Amount
of Reverse
Repurchase
Agreements
|
|
|
Asset Class
of Collateral*
|
|
Collateral
Value**
|
|
Morgan Stanley & Co. Inc.
|
|
|
0.200
|
%
|
|
|
12/11/2020
|
|
|
6/11/2021
|
|
$
|
160,737,500
|
|
|
U.S. Treasury Inflation Protected Securities
|
|
$
|
164,887,897
|
|
*
|
Refer to the Consolidated Schedule of Investments for positions held at the counterparty as collateral for reverse repurchase agreements.
|
**
|
Including accrued interest.
|
At
May 31, 2021, the Fund had the following open futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts
|
|
|
Expiration
Date
|
|
|
Notional
Amount
|
|
|
Market
Value
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90-Day Eurodollar
|
|
|
322
|
|
|
|
12/23
|
|
|
$
|
79,673,951
|
|
|
$
|
79,727,200
|
|
|
$
|
53,249
|
|
Brent Crude
|
|
|
124
|
|
|
|
12/21
|
|
|
|
7,582,665
|
|
|
|
8,295,600
|
|
|
|
712,935
|
|
Copper
|
|
|
98
|
|
|
|
7/21
|
|
|
|
10,309,845
|
|
|
|
11,459,875
|
|
|
|
1,150,030
|
|
Euro
|
|
|
53
|
|
|
|
6/21
|
|
|
|
7,907,401
|
|
|
|
8,085,481
|
|
|
|
178,080
|
|
Gold 100 Ounce
|
|
|
66
|
|
|
|
8/21
|
|
|
|
12,332,925
|
|
|
|
12,574,980
|
|
|
|
242,055
|
|
Japanese Yen
|
|
|
35
|
|
|
|
6/21
|
|
|
|
4,034,321
|
|
|
|
3,985,406
|
|
|
|
(48,915)
|
|
Mexican Peso
|
|
|
97
|
|
|
|
6/21
|
|
|
|
2,271,324
|
|
|
|
2,431,305
|
|
|
|
159,981
|
|
U.S. Treasury 10-Year Notes
|
|
|
629
|
|
|
|
9/21
|
|
|
|
83,038,920
|
|
|
|
82,988,688
|
|
|
|
(50,232)
|
|
U.S. Treasury Ultra Long- Term Bonds
|
|
|
12
|
|
|
|
9/21
|
|
|
|
2,212,427
|
|
|
|
2,223,000
|
|
|
|
10,573
|
|
WTI Crude
|
|
|
101
|
|
|
|
12/21
|
|
|
|
6,099,789
|
|
|
|
6,454,910
|
|
|
|
355,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,762,877
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pound
|
|
|
33
|
|
|
|
6/21
|
|
|
|
2,875,352
|
|
|
|
2,927,925
|
|
|
|
(52,573)
|
|
U.S. Treasury 5-Year Notes
|
|
|
112
|
|
|
|
9/21
|
|
|
|
13,873,806
|
|
|
|
13,871,375
|
|
|
|
2,431
|
|
U.S. Treasury Long-Term Bonds
|
|
|
179
|
|
|
|
9/21
|
|
|
|
27,826,592
|
|
|
|
28,019,094
|
|
|
|
(192,502)
|
|
WTI Crude
|
|
|
93
|
|
|
|
7/21
|
|
|
|
5,977,133
|
|
|
|
6,167,760
|
|
|
|
(190,627)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(433,271)
|
|
Net unrealized appreciation on open futures contracts
|
|
|
|
|
|
|
$
|
2,329,606
|
|
At May 31, 2021, the Fund had the following open forward foreign currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased
|
|
|
Currency
Sold
|
|
|
Counterparty
|
|
Settlement
Date
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
USD
|
|
|
47,704
|
|
|
EUR
|
|
|
40,000
|
|
|
BNP Paribas SA
|
|
|
7/19/21
|
|
|
$
|
(1,123)
|
|
USD
|
|
|
2,289,812
|
|
|
EUR
|
|
|
1,920,000
|
|
|
BNP Paribas SA
|
|
|
7/19/21
|
|
|
|
(53,890)
|
|
USD
|
|
|
2,542,318
|
|
|
EUR
|
|
|
2,128,609
|
|
|
BNP Paribas SA
|
|
|
7/19/21
|
|
|
|
(56,028)
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
10
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased
|
|
|
Currency
Sold
|
|
|
Counterparty
|
|
Settlement
Date
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
AUD
|
|
|
145,262
|
|
|
USD
|
|
|
111,189
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
$
|
820
|
|
BRL
|
|
|
6,560,000
|
|
|
USD
|
|
|
1,171,178
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
81,359
|
|
INR
|
|
|
236,697,367
|
|
|
USD
|
|
|
3,182,486
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
58,202
|
|
RUB
|
|
|
367,490,000
|
|
|
USD
|
|
|
4,700,623
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
282,451
|
|
USD
|
|
|
3,233,463
|
|
|
CAD
|
|
|
4,047,196
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
(116,491)
|
|
USD
|
|
|
2,414,624
|
|
|
EUR
|
|
|
2,030,000
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
(63,352)
|
|
USD
|
|
|
1,320,949
|
|
|
MXN
|
|
|
26,950,000
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
(24,311)
|
|
USD
|
|
|
1,932,255
|
|
|
MXN
|
|
|
39,271,722
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
(28,067)
|
|
USD
|
|
|
2,520,337
|
|
|
MXN
|
|
|
51,400,000
|
|
|
Citibank N.A.
|
|
|
7/19/21
|
|
|
|
(45,390)
|
|
GBP
|
|
|
1,928,058
|
|
|
USD
|
|
|
2,649,334
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/19/21
|
|
|
|
87,011
|
|
RUB
|
|
|
123,590,000
|
|
|
USD
|
|
|
1,577,610
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/19/21
|
|
|
|
98,240
|
|
RUB
|
|
|
185,605,641
|
|
|
USD
|
|
|
2,367,753
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/19/21
|
|
|
|
149,014
|
|
IDR
|
|
|
5,269,305,390
|
|
|
USD
|
|
|
358,920
|
|
|
JPMorgan Chase & Co.
|
|
|
7/19/21
|
|
|
|
8,365
|
|
BRL
|
|
|
3,596,828
|
|
|
USD
|
|
|
630,755
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/19/21
|
|
|
|
56,007
|
|
BRL
|
|
|
4,800,000
|
|
|
USD
|
|
|
841,749
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/19/21
|
|
|
|
74,742
|
|
BRL
|
|
|
9,600,000
|
|
|
USD
|
|
|
1,683,498
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/19/21
|
|
|
|
149,483
|
|
COP
|
|
|
21,134,053,192
|
|
|
USD
|
|
|
5,783,180
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/19/21
|
|
|
|
(100,335)
|
|
MYR
|
|
|
11,377,459
|
|
|
USD
|
|
|
2,749,507
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/19/21
|
|
|
|
(2,917)
|
|
USD
|
|
|
4,212,259
|
|
|
CLP
|
|
|
3,021,201,024
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/19/21
|
|
|
|
44,048
|
|
USD
|
|
|
909,690
|
|
|
JPY
|
|
|
99,967,625
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/19/21
|
|
|
|
(835)
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
597,003
|
|
|
|
|
|
|
Abbreviation(s) used in this table:
|
|
|
|
AUD
|
|
|
|
Australian Dollar
|
|
|
|
BRL
|
|
|
|
Brazilian Real
|
|
|
|
CAD
|
|
|
|
Canadian Dollar
|
|
|
|
CLP
|
|
|
|
Chilean Peso
|
|
|
|
COP
|
|
|
|
Colombian Peso
|
|
|
|
EUR
|
|
|
|
Euro
|
|
|
|
GBP
|
|
|
|
British Pound
|
|
|
|
IDR
|
|
|
|
Indonesian Rupiah
|
|
|
|
INR
|
|
|
|
Indian Rupee
|
|
|
|
JPY
|
|
|
|
Japanese Yen
|
|
|
|
MXN
|
|
|
|
Mexican Peso
|
|
|
|
MYR
|
|
|
|
Malaysian Ringgit
|
|
|
|
RUB
|
|
|
|
Russian Ruble
|
|
|
|
USD
|
|
|
|
United States Dollar
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
11
|
|
Consolidated schedule of investments
(unaudited) (contd)
May 31, 2021
Western Asset Inflation-Linked Income Fund
At May 31, 2021, the Fund had the following open swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CENTRALLY CLEARED INTEREST RATE SWAPS
|
|
|
|
Notional
Amount
|
|
|
Termination
Date
|
|
|
Payments
Made
by
the Fund
|
|
|
Payments
Received by
the Fund
|
|
|
Upfront
Premiums Paid
(Received)
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
|
|
$
|
21,580,000
|
|
|
|
3/22/23
|
|
|
|
2.570%*
|
|
|
|
CPURNSA*
|
|
|
|
|
|
|
$
|
313,172
|
|
|
|
|
7,110,000
|
|
|
|
4/7/25
|
|
|
|
0.802%*
|
|
|
|
CPURNSA*
|
|
|
$
|
45,882
|
|
|
|
611,741
|
|
|
|
|
21,580,000
|
|
|
|
3/22/26
|
|
|
|
CPURNSA*
|
|
|
|
2.504%*
|
|
|
|
|
|
|
|
(325,301)
|
|
Total
|
|
$
|
50,270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
45,882
|
|
|
$
|
599,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CREDIT INDICES SELL PROTECTION1
|
|
Reference Entity
|
|
Notional
Amount2
|
|
|
Termination
Date
|
|
|
Periodic
Payments
Received by
the Fund
|
|
Market
Value3
|
|
|
Upfront
Premiums
Paid
(Received)
|
|
|
Unrealized
Appreciation
|
|
Markit CDX.NA.HY.36 Index
|
|
$
|
9,464,000
|
|
|
|
6/20/26
|
|
|
5.000% quarterly
|
|
$
|
919,305
|
|
|
$
|
822,190
|
|
|
$
|
97,115
|
|
Markit CDX.NA.IG.36 Index
|
|
|
73,036,000
|
|
|
|
6/20/26
|
|
|
1.000% quarterly
|
|
|
1,785,000
|
|
|
|
1,576,913
|
|
|
|
208,087
|
|
Total
|
|
$
|
82,500,000
|
|
|
|
|
|
|
|
|
$
|
2,704,305
|
|
|
$
|
2,399,103
|
|
|
$
|
305,202
|
|
1
|
If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay
to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or
securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.
|
2
|
The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event
occurs as defined under the terms of that particular swap agreement.
|
3
|
The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the
current status of the payment/performance risk and represent the likelihood of an expected loss (or profit) for the credit derivative had the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values (sell
protection) or increasing market values (buy protection) when compared to the notional amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood or risk of default or other credit event
occurring as defined under the terms of the agreement.
|
|
Percentage shown is an annual percentage rate.
|
*
|
One time payment made at termination date.
|
|
|
|
Abbreviation(s) used in this table:
|
|
|
CPURNSA
|
|
U.S. CPI Urban Consumers NSA Index
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
12
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
Consolidated statement of assets and liabilities (unaudited)
May 31,
2021
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
Investments, at value (Cost $462,158,252)
|
|
$
|
494,304,176
|
|
Foreign currency, at value (Cost $602,417)
|
|
|
622,918
|
|
Cash
|
|
|
162,520
|
|
Receivable for securities sold
|
|
|
2,474,854
|
|
Deposits with brokers for open futures contracts
|
|
|
2,016,593
|
|
Interest receivable
|
|
|
1,915,571
|
|
Deposits with brokers for centrally cleared swap contracts
|
|
|
1,444,868
|
|
Unrealized appreciation on forward foreign currency contracts
|
|
|
1,089,742
|
|
Foreign currency collateral for open futures contracts, at value (Cost $129,614)
|
|
|
147,829
|
|
Receivable from broker net variation margin on open futures contracts
|
|
|
67,467
|
|
Receivable from broker net variation margin on centrally cleared swap contracts
|
|
|
34,251
|
|
Prepaid expenses
|
|
|
7,985
|
|
Total Assets
|
|
|
504,288,774
|
|
|
|
Liabilities:
|
|
|
|
|
Payable for open reverse repurchase agreements (Note 3)
|
|
|
160,737,500
|
|
Payable for securities purchased
|
|
|
2,474,293
|
|
Deposits from brokers for open reverse repurchase agreements
|
|
|
2,215,000
|
|
Unrealized depreciation on forward foreign currency contracts
|
|
|
492,739
|
|
Deposits from brokers for OTC derivatives
|
|
|
400,000
|
|
Interest expense payable
|
|
|
153,594
|
|
Investment management fee payable
|
|
|
147,000
|
|
Administration fee payable
|
|
|
21,000
|
|
Trustees fees payable
|
|
|
3,535
|
|
Accrued expenses
|
|
|
150,079
|
|
Total Liabilities
|
|
|
166,794,740
|
|
Total Net Assets
|
|
$
|
337,494,034
|
|
|
|
Net Assets:
|
|
|
|
|
Common shares, no par value, unlimited number of shares authorized, 23,322,256 shares issued and
outstanding
|
|
$
|
299,282,514
|
|
Total distributable earnings (loss)
|
|
|
38,211,520
|
|
Total Net Assets
|
|
$
|
337,494,034
|
|
|
|
Shares Outstanding
|
|
|
23,322,256
|
|
|
|
Net Asset Value
|
|
|
$14.47
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
13
|
|
Consolidated statement of operations (unaudited)
For the
Six Months Ended May 31, 2021
|
|
|
|
|
|
|
|
|
Investment Income:
|
|
|
|
|
Interest
|
|
$
|
9,056,504
|
|
Less: Foreign taxes withheld
|
|
|
(27,510
|
)
|
Total Investment Income
|
|
|
9,028,994
|
|
|
|
Expenses:
|
|
|
|
|
Investment management fee (Note 2)
|
|
|
885,003
|
|
Interest expense (Note 3)
|
|
|
168,319
|
|
Administration fees (Note 2)
|
|
|
126,429
|
|
Legal fees
|
|
|
99,310
|
|
Fund accounting fees
|
|
|
39,752
|
|
Transfer agent fees
|
|
|
38,832
|
|
Audit and tax fees
|
|
|
24,819
|
|
Custody fees
|
|
|
13,467
|
|
Commodity pool reports
|
|
|
13,459
|
|
Trustees fees
|
|
|
11,576
|
|
Shareholder reports
|
|
|
7,556
|
|
Stock exchange listing fees
|
|
|
7,153
|
|
Insurance
|
|
|
2,713
|
|
Miscellaneous expenses
|
|
|
4,560
|
|
Total Expenses
|
|
|
1,442,948
|
|
Net Investment Income
|
|
|
7,586,046
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts,
Written Options, Swap Contracts, Forward
Foreign Currency Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
|
|
|
|
|
Net Realized Gain From:
|
|
|
|
|
Investment transactions
|
|
|
17,969,623
|
|
Futures contracts
|
|
|
6,734,771
|
|
Written options
|
|
|
1,796,992
|
|
Swap contracts
|
|
|
2,713,687
|
|
Forward foreign currency contracts
|
|
|
171,787
|
|
Foreign currency transactions
|
|
|
134,521
|
|
Net Realized Gain
|
|
|
29,521,381
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
|
|
Investments
|
|
|
(16,760,372
|
)
|
Futures contracts
|
|
|
1,238,860
|
|
Written options
|
|
|
463,103
|
|
Swap contracts
|
|
|
(1,797,039
|
)
|
Forward foreign currency contracts
|
|
|
159,114
|
|
Foreign currencies
|
|
|
(49,766
|
)
|
Change in Net Unrealized Appreciation
(Depreciation)
|
|
|
(16,746,100
|
)
|
Net Gain on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and
Foreign Currency Transactions
|
|
|
12,775,281
|
|
Increase in Net Assets From Operations
|
|
$
|
20,361,327
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
14
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
Consolidated statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Six Months Ended May 31, 2021 (unaudited)
and the Year Ended November 30, 2020
|
|
2021
|
|
|
2020
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
7,586,046
|
|
|
$
|
8,586,526
|
|
Net realized gain (loss)
|
|
|
29,521,381
|
|
|
|
(7,601,892)
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
(16,746,100)
|
|
|
|
39,818,800
|
|
Increase in Net Assets From Operations
|
|
|
20,361,327
|
|
|
|
40,803,434
|
|
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
|
|
|
|
|
Total distributable earnings
|
|
|
(16,101,102)
|
|
|
|
(11,194,683)
|
|
Decrease in Net Assets From Distributions to
Shareholders
|
|
|
(16,101,102)
|
|
|
|
(11,194,683)
|
|
|
|
|
Fund Share Transactions:
|
|
|
|
|
|
|
|
|
Cost of shares repurchased through tender offer (5,830,564 and 0 shares repurchased, respectively)
(Note 5)
|
|
|
(81,569,590)
|
|
|
|
|
|
Decrease in Net Assets From Fund Share Transactions
|
|
|
(81,569,590)
|
|
|
|
|
|
Increase (Decrease) in Net Assets
|
|
|
(77,309,365)
|
|
|
|
29,608,751
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
414,803,399
|
|
|
|
385,194,648
|
|
End of period
|
|
$
|
337,494,034
|
|
|
$
|
414,803,399
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
15
|
|
Consolidated statement of cash flows (unaudited)
For the
Six Months Ended May 31, 2021
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
Net increase in net assets resulting from operations
|
|
$
|
20,361,327
|
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided (used) by operating
activities:
|
|
|
|
|
Purchases of portfolio securities
|
|
|
(87,523,563)
|
|
Sales of portfolio securities
|
|
|
212,069,434
|
|
Net purchases, sales and maturities of short-term investments
|
|
|
(9,451,847)
|
|
Net inflation adjustment
|
|
|
(6,156,298)
|
|
Net amortization of premium (accretion of discount)
|
|
|
2,394,318
|
|
Increase in receivable for securities sold
|
|
|
(2,474,854)
|
|
Decrease in interest receivable
|
|
|
520,964
|
|
Decrease in receivable from broker net variation margin on centrally cleared swap contracts
|
|
|
93,352
|
|
Increase in prepaid expenses
|
|
|
(2,635)
|
|
Increase in receivable from broker net variation margin on open futures contracts
|
|
|
(67,467)
|
|
Decrease in deposits from brokers for reverse repurchase agreements
|
|
|
(4,238,000)
|
|
Increase in deposits from brokers for OTC derivatives
|
|
|
220,000
|
|
Increase in payable for securities purchased
|
|
|
2,196,414
|
|
Decrease in investment management fee payable
|
|
|
(24,680)
|
|
Decrease in Trustees fees payable
|
|
|
(168)
|
|
Decrease in administration fee payable
|
|
|
(3,526)
|
|
Decrease in interest expense payable
|
|
|
(57,123)
|
|
Decrease in accrued expenses
|
|
|
(80,773)
|
|
Decrease in premiums received from written options
|
|
|
(1,126,085)
|
|
Decrease in payable to broker net variation margin on futures contracts
|
|
|
(95,877)
|
|
Net realized gain on investments
|
|
|
(17,969,623)
|
|
Change in net unrealized appreciation (depreciation) of investments, written options and forward foreign currency
contracts
|
|
|
16,138,155
|
|
Net Cash Provided in Operating Activities*
|
|
|
124,721,445
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Distributions paid on common stock
|
|
|
(16,101,102)
|
|
Decrease in payable for reverse repurchase agreements
|
|
|
(33,212,500)
|
|
Payment for shares repurchased through tender offer
|
|
|
(81,569,590)
|
|
Net Cash Used by Financing Activities
|
|
|
(130,883,192)
|
|
Net Decrease in Cash and Restricted Cash
|
|
|
(6,161,747)
|
|
Cash and restricted cash at beginning of period
|
|
|
10,556,475
|
|
Cash and restricted cash at end of period
|
|
$
|
4,394,728
|
|
*
|
Included in operating expenses is cash of $225,442 paid for interest on borrowings.
|
See Notes to Consolidated Financial Statements.
|
|
|
|
|
16
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
The following table provides a reconciliation of cash (including foreign currency) and restricted cash reported within the Consolidated Statement of
Assets and Liabilities that sums to the total of such amounts shown on the Consolidated Statement of Cash Flows.
|
|
|
|
|
|
|
|
May 31, 2021
|
|
Cash
|
|
$
|
785,438
|
|
Restricted cash
|
|
|
3,609,290
|
|
Total cash and restricted cash shown in the Consolidated Statement of Cash Flows
|
|
$
|
4,394,728
|
|
|
Restricted cash consists of cash that has been segregated to cover the Funds collateral or margin obligations under derivative contracts and for
reverse repurchase agreements. It is separately reported on the Consolidated Statement of Assets and Liabilities as Deposits with brokers.
|
See Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
17
|
|
Consolidated financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of common stock outstanding throughout each year ended November 30,
unless
otherwise noted:
|
|
|
|
20211,2
|
|
|
20201
|
|
|
20191
|
|
|
20181
|
|
|
20171
|
|
|
20161,3
|
|
|
20151,4
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$14.23
|
|
|
|
$13.21
|
|
|
|
$12.35
|
|
|
|
$13.09
|
|
|
|
$12.66
|
|
|
|
$12.47
|
|
|
|
$13.21
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.31
|
|
|
|
0.29
|
|
|
|
0.32
|
|
|
|
0.33
|
|
|
|
0.34
|
|
|
|
0.27
|
|
|
|
0.07
|
|
Net realized and unrealized gain (loss)
|
|
|
0.48
|
|
|
|
1.11
|
|
|
|
0.95
|
|
|
|
(0.66)
|
|
|
|
0.48
|
|
|
|
0.27
|
|
|
|
(0.46)
|
|
Total income (loss) from operations
|
|
|
0.79
|
|
|
|
1.40
|
|
|
|
1.27
|
|
|
|
(0.33)
|
|
|
|
0.82
|
|
|
|
0.54
|
|
|
|
(0.39)
|
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.58)
|
5
|
|
|
(0.38)
|
|
|
|
(0.41)
|
|
|
|
(0.41)
|
|
|
|
(0.40)
|
|
|
|
(0.23)
|
|
|
|
(0.09)
|
|
Net realized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.00)
|
6
|
Return of capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.12)
|
|
|
|
(0.26)
|
|
Total distributions
|
|
|
(0.58)
|
|
|
|
(0.38)
|
|
|
|
(0.41)
|
|
|
|
(0.41)
|
|
|
|
(0.40)
|
|
|
|
(0.35)
|
|
|
|
(0.35)
|
|
Anti-dilutive impact of tender offer
|
|
|
0.03
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment by servicing agent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$14.47
|
|
|
|
$14.23
|
|
|
|
$13.21
|
|
|
|
$12.35
|
|
|
|
$13.09
|
|
|
|
$12.66
|
|
|
|
$12.47
|
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
|
$13.99
|
|
|
|
$13.17
|
|
|
|
$11.96
|
|
|
|
$10.69
|
|
|
|
$11.62
|
|
|
|
$11.23
|
|
|
|
$10.57
|
|
Total return, based on NAV8,9
|
|
|
5.93
|
%
|
|
|
10.88
|
%
|
|
|
10.43
|
%
|
|
|
(2.49)
|
%
|
|
|
6.77
|
%10
|
|
|
4.28
|
%
|
|
|
(3.00)
|
%
|
Total return, based on Market Price11
|
|
|
10.94
|
%
|
|
|
13.70
|
%
|
|
|
16.03
|
%
|
|
|
(4.61)
|
%
|
|
|
7.15
|
%
|
|
|
9.61
|
%
|
|
|
(5.95)
|
%
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions)
|
|
|
$337
|
|
|
|
$415
|
|
|
|
$385
|
|
|
|
$360
|
|
|
|
$382
|
|
|
|
$369
|
|
|
|
$363
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
0.84
|
%12
|
|
|
1.31
|
%
|
|
|
1.93
|
%
|
|
|
1.83
|
%
|
|
|
1.44
|
%
|
|
|
1.33
|
%12
|
|
|
1.10
|
%
|
Net expenses
|
|
|
0.84
|
12
|
|
|
1.31
|
|
|
|
1.93
|
|
|
|
1.62
|
13
|
|
|
1.44
|
|
|
|
1.33
|
12
|
|
|
1.10
|
|
Net investment income
|
|
|
4.43
|
12
|
|
|
2.20
|
|
|
|
2.46
|
|
|
|
2.60
|
|
|
|
2.63
|
|
|
|
2.33
|
12
|
|
|
0.50
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
18
|
%
|
|
|
47
|
%
|
|
|
38
|
%
|
|
|
45
|
%
|
|
|
59
|
%
|
|
|
88
|
%
|
|
|
59
|
%
|
See Notes to
Consolidated Financial Statements.
|
|
|
|
|
18
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended May 31, 2021 (unaudited).
|
3
|
For the period January 1, 2016 through November 30, 2016.
|
4
|
For the year ended December 31.
|
5
|
The actual source of the Funds current fiscal year distributions may be from net investment income, realized capital gains, return of capital or a
combination thereof. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year.
|
6
|
Amount represents less than $0.005 per share.
|
7
|
The tender offer was completed at a price of $13.99 for 5,830,564 shares and $81,569,590 for the six months ended May 31, 2021.
|
8
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
|
9
|
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of
less than one year are not annualized.
|
10
|
The total return includes payment by the servicing agent. Without this payment, the total return would have been 6.69% for the year ended November 30, 2017.
|
11
|
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no
guarantee of future results. Total returns for periods of less than one year are not annualized.
|
See Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
19
|
|
Notes to consolidated financial statements (unaudited)
1. Organization and significant accounting policies
Western Asset Inflation-Linked Income Fund (the Fund) is registered under the Investment Company Act of 1940, as amended (1940 Act), as a diversified,
closed-end management investment company. The Fund commenced operations on September 26, 2003.
The
Funds primary investment objective is to provide current income for its shareholders. Capital appreciation, when consistent with current income, is a secondary investment objective. Under normal market conditions and at the time of purchase,
the Fund will invest at least 80% of its total managed assets in inflation-linked securities and at least 60% of its total managed assets in U.S. Treasury Inflation Protected Securities (TIPS). The Fund may also invest up to 40% of its
total managed assets in non-U.S. dollar investments. The Fund can invest no more than 10% of its total managed assets in securities rated below investment grade at the time of purchase (or, if unrated, assets
of comparable quality as determined by management). If a security is rated by multiple nationally recognized statistical rating organizations (NRSROs) and receives different ratings, the Fund will treat the security as being rated in the
highest rating category received from an NRSRO.
The Fund may gain exposure to the commodities markets by investing a portion of its assets in a
wholly-owned subsidiary, Western Asset Inflation-Linked Income Fund CFC (the Subsidiary), organized under the laws of the Cayman Islands. Among other investments, the Subsidiary may invest in commodity-linked instruments. The Fund may
invest up to 25% of its total assets in the Subsidiary; although 10% of total managed assets may be utilized for commodity-related strategies. These financial statements are consolidated financial statements of the Fund and the Subsidiary. All
interfund transactions have been eliminated in consolidation.
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. 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 typically 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. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. 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. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the
currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing
|
|
|
|
|
20
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
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 Funds 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 Global Fund
Valuation Committee (formerly known as Legg Mason North Atlantic Fund Valuation Committee prior to March 1, 2021) (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 Funds 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
issuers 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.
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.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
21
|
Notes to consolidated financial statements (unaudited) (contd)
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:
|
|
Level 1 quoted prices in active markets for identical investments
|
|
|
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
|
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
|
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 Funds assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Long-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Inflation Protected Securities
|
|
|
|
|
|
$
|
384,313,166
|
|
|
|
|
|
|
$
|
384,313,166
|
|
Corporate Bonds & Notes
|
|
|
|
|
|
|
40,612,445
|
|
|
|
|
|
|
|
40,612,445
|
|
Collateralized Mortgage Obligations
|
|
|
|
|
|
|
25,790,512
|
|
|
|
|
|
|
|
25,790,512
|
|
Non-U.S. Treasury Inflation Protected Securities
|
|
|
|
|
|
|
16,428,175
|
|
|
|
|
|
|
|
16,428,175
|
|
Sovereign Bonds
|
|
|
|
|
|
|
14,049,084
|
|
|
|
|
|
|
|
14,049,084
|
|
Asset-Backed Securities
|
|
|
|
|
|
|
5,539,586
|
|
|
|
|
|
|
|
5,539,586
|
|
Mortgage-Backed Securities
|
|
|
|
|
|
|
827,519
|
|
|
|
|
|
|
|
827,519
|
|
Total Long-Term Investments
|
|
|
|
|
|
|
487,560,487
|
|
|
|
|
|
|
|
487,560,487
|
|
Short-Term Investments
|
|
$
|
6,743,689
|
|
|
|
|
|
|
|
|
|
|
|
6,743,689
|
|
Total Investments
|
|
$
|
6,743,689
|
|
|
$
|
487,560,487
|
|
|
|
|
|
|
$
|
494,304,176
|
|
Other Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts
|
|
$
|
2,864,455
|
|
|
|
|
|
|
|
|
|
|
$
|
2,864,455
|
|
Forward Foreign Currency Contracts
|
|
|
|
|
|
$
|
1,089,742
|
|
|
|
|
|
|
|
1,089,742
|
|
Centrally Cleared Interest Rate Swaps
|
|
|
|
|
|
|
924,913
|
|
|
|
|
|
|
|
924,913
|
|
Centrally Cleared Credit Default Swaps on Credit
Indices Sell Protection
|
|
|
|
|
|
|
305,202
|
|
|
|
|
|
|
|
305,202
|
|
Total Other Financial Instruments
|
|
$
|
2,864,455
|
|
|
$
|
2,319,857
|
|
|
|
|
|
|
$
|
5,184,312
|
|
Total
|
|
$
|
9,608,144
|
|
|
$
|
489,880,344
|
|
|
|
|
|
|
$
|
499,488,488
|
|
|
|
|
|
|
22
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Other Significant
|
|
|
Unobservable
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
Other Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts
|
|
$
|
534,849
|
|
|
|
|
|
|
|
|
|
|
$
|
534,849
|
|
Forward Foreign Currency Contracts
|
|
|
|
|
|
$
|
492,739
|
|
|
|
|
|
|
|
492,739
|
|
Centrally Cleared Interest Rate Swaps
|
|
|
|
|
|
|
325,301
|
|
|
|
|
|
|
|
325,301
|
|
Total
|
|
$
|
534,849
|
|
|
$
|
818,040
|
|
|
|
|
|
|
$
|
1,352,889
|
|
|
See Consolidated Schedule of Investments for additional detailed categorizations.
|
|
Reflects the unrealized appreciation (depreciation) of the instruments.
|
(b) Written options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the
value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized
gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Funds basis in the underlying security (in the case of a covered written call option), or the cost to purchase
the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the
cost of the security purchased by the Fund from the exercise of the written put option to form the Funds basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the
exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to
the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(c) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or
hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain percentage of
the contract amount. This is known as the initial margin and subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuation in the value of the
contract. For certain futures, including foreign denominated futures, variation margin is not settled daily,
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
23
|
Notes to consolidated financial statements (unaudited) (contd)
but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized gains or losses in the Consolidated
Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk
of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(d) Forward foreign currency contracts. The Fund enters into a forward foreign currency
contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward
foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is
marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either
delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time
it is closed.
Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in
cash without the delivery of foreign currency.
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on
the Consolidated Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
(e) Swap agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those associated
with other portfolio transactions. Swap agreements are privately negotiated in the over-the-counter market and may be entered into as a bilateral contract (OTC
Swaps) or centrally cleared (Centrally Cleared Swaps). Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.
In a Centrally Cleared Swap, immediately following execution of the swap, the swap agreement is submitted to a clearinghouse or central counterparty (the CCP) and the CCP becomes the ultimate
counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker, acting in an agency capacity. All payments are settled with the CCP through the broker. Upon entering into a Centrally Cleared Swap, the Fund is
required to deposit initial margin with the broker in the form of cash or securities.
Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is recorded as a net receivable or payable
for variation margin on the Consolidated Statement of Assets and Liabilities. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated
accounts with the Funds custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the
|
|
|
|
|
24
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
Consolidated Schedule of Investments and
restricted cash, if any, is identified on the Consolidated Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Consolidated Statement of Assets and Liabilities. These risks include changes in the returns of the underlying
instruments, failure of the counterparties to perform under the contracts terms, and the possible lack of liquidity with respect to the swap agreements.
OTC swap payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Consolidated Statement of Assets and Liabilities. These upfront payments are
amortized over the life of the swap and are recognized as realized gain or loss in the Consolidated Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Consolidated Statement
of Operations.
The Funds maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional
amount.
As of May 31, 2021, the total notional value of all credit default swaps to sell protection was $82,500,000. This amount would be offset by
the value of the swaps reference entity, upfront premiums received on the swap and any amounts received from the settlement of a credit default swap where the Fund bought protection for the same referenced security/ entity.
For average notional amounts of swaps held during the six months ended May 31, 2021, see Note 4.
Credit default swaps
The Fund enters into credit default swap (CDS)
contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a
third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may
use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuers default. As a
seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under
the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the
agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its
total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.
Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads
fall, market
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
25
|
Notes to consolidated financial statements (unaudited) (contd)
perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront
payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood
or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in
the Consolidated Schedule of Investments and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed
securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance
risk.
The Funds maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by
the posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty). As the protection seller, the Funds maximum risk is the notional amount of the contract. Credit default swaps are considered to
have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Consolidated Statement of Assets and Liabilities.
Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and
that there will be unfavorable changes in net interest rates.
Interest rate swaps
The Fund enters into interest rate swap contracts to manage its exposure to interest rate risk. Interest rate swaps are agreements between two parties to exchange
cash flows based on a notional principal amount. The Fund may elect to pay a fixed rate and receive a floating rate, receive a fixed rate and pay a floating rate, or pay and receive a floating rate, on a notional principal amount. Interest rate
swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized gain or loss in the Consolidated Statement
of Operations. When a swap contract is terminated early, the Fund records a realized gain or loss equal to the difference between the original cost and the settlement amount of the closing transaction.
The risks of interest rate swaps include changes in market conditions that will affect the value of the contract or changes in the present value of the future cash
flow streams and the possible inability of the counterparty to fulfill its obligations under the agreement. The Funds maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the
counterparty over the contracts remaining life, to the extent that amount is positive. This risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty.
(f) Stripped securities. The Fund may invest in Stripped Securities,
a term used collectively for components, or strips, of fixed income securities. Stripped Securities can be
|
|
|
|
|
26
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
principal only securities
(PO), which are debt obligations that have been stripped of unmatured interest coupons, or interest only securities (IO), which are unmatured interest coupons that have been stripped from debt obligations. The market value of
Stripped Securities will fluctuate in response to changes in economic conditions, rates of pre-payment, interest rates and the markets perception of the securities. However, fluctuations in response to
interest rates may be greater in Stripped Securities than for debt obligations of comparable maturities that pay interest currently. The amount of fluctuation may increase with a longer period of maturity.
The yield to maturity on IOs is sensitive to the rate of principal repayments (including prepayments) on the related underlying debt obligation and principal
payments may have a material effect on yield to maturity. If the underlying debt obligation experiences greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IOs.
(g) Reverse repurchase agreements. The Fund may enter into reverse repurchase
agreements. Under the terms of a typical reverse repurchase agreement, a fund sells a security subject to an obligation to repurchase the security from the buyer at an agreed upon time and price. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds use of the proceeds of the agreement may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the
Funds obligation to repurchase the securities. In entering into reverse repurchase agreements, the Fund will pledge cash, U.S. government securities or other liquid debt obligations at least equal in value to its obligations with respect to
reverse repurchase agreements or will take other actions permitted by law to cover its obligations. If the market value of the collateral declines during the period, the Fund may be required to post additional collateral to cover its obligation.
Cash collateral that has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any, will be reported separately in the Consolidated Statement of Assets and Liabilities. Securities pledged as collateral are noted in
the Consolidated Schedule of Investments. Interest payments made on reverse repurchase agreements are recognized as a component of Interest expense on the Consolidated Statement of Operations. In periods of increased demand for the
security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
(h) Inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose
principal value or interest rate is periodically adjusted according to the rate of inflation. As the index measuring inflation changes, the principal value or interest rate of inflation-indexed bonds will be adjusted accordingly. Inflation
adjustments to the principal amount of inflation-indexed bonds are reflected as an increase or decrease to investment income on the Consolidated Statement of Operations. Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
(i) Cash flow information. The Fund invests in securities and distributes dividends from
net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Consolidated Statement of Changes in Net Assets and additional information on cash
receipts and cash payments is presented in the Consolidated Statement of Cash Flows.
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
27
|
|
Notes to consolidated financial statements (unaudited) (contd)
(j) Foreign currency translation. Investment securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies
are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate
that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and
unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses
on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date
of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not
typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or
economic instability.
(k) Credit and market risk. The Fund invests in high-yield
and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Funds investments in
securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and
less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Funds investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
Investments in securities that are collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying
mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be
doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.
|
|
|
|
|
28
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
(l) Foreign investment
risks. The Funds 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.
(m) Counterparty risk and credit-risk-related contingent features of derivative instruments.
The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be
considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The
Funds investment adviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual
counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions.
Market events and changes in
overall economic conditions may impact the assessment of such counterparty risk by the investment adviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such
instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law,
the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or similar agreement, with certain of its
derivative counterparties that govern over-the-counter (OTC) derivatives and provide for general obligations, representations, agreements, collateral posting
terms, netting provisions in the event of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets or net asset value
per share over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments payables
and/or receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of
reported amounts of financial assets and financial liabilities in the Consolidated Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by
jurisdiction.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
29
|
Notes to consolidated financial statements (unaudited) (contd)
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded
derivatives while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Consolidated Statement
of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Consolidated Schedule of Investments.
As of
May 31, 2021, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $492,739. If a contingent feature in the master agreements would have been triggered, the Fund would have
been required to pay this amount to its derivatives counterparties.
At May 31, 2021, the Fund held cash collateral from Citibank N.A. in the amount
of $400,000 and the Fund held non-cash collateral from Goldman Sachs Group Inc. and Morgan Stanley & Co. Inc. in the amounts of $217,757 and $158,715, respectively. These amounts could be used to
reduce the Funds exposure to the counterparty in the event of default.
(n) 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. Paydown gains and losses on mortgage- and
asset-backed securities are recorded as adjustments to interest income. 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.
(o) Distributions to shareholders. Distributions from
net investment income of the Fund, if any, are declared and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Pursuant to its Managed Distribution Policy, the Fund intends to make regular
monthly distributions to shareholders at a fixed rate per common share, which rate may be adjusted from time to time by the Funds Board of Trustees. The actual source of the Funds monthly distributions may be from net investment income,
realized capital gains, return of capital or a combination thereof. Under the Funds Managed Distribution Policy, if, for any monthly distribution, the value of the Funds net investment income and net realized capital gain is less than
the amount of the distribution, the difference will be distributed from the Funds net assets (and may constitute a return of capital). Shareholders will be informed of the tax characteristics of the distributions after the close of
the 2021 fiscal year. The Board of Trustees may modify, terminate or suspend the Managed Distribution Policy at any time, including when certain events would make part of the return of capital taxable to shareholders. Any such modification,
termination or
|
|
|
|
|
30
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
suspension could have an adverse effect
on the market price of the Funds shares. 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.
(p) Compensating balance arrangements. The Fund has an arrangement with
its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(q) Federal and other taxes. It is the Funds 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 Funds financial statements.
Management
has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of November 30, 2020, no provision for income tax is required in the Funds financial statements. The Funds
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.
(r) 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.
2. Investment management agreement and other transactions with affiliates
The Fund has entered
into an Investment Management Agreement with Western Asset Management Company, LLC (Western Asset or the Investment Adviser), which provides for payment of a monthly fee computed at the annual rate of 0.35% of the Funds
average weekly assets. Average weekly assets means the average weekly value of the total assets of the Fund (including any assets attributable to leverage) minus accrued liabilities (other than liabilities representing leverage). For
purposes of calculating average weekly assets, liabilities associated with any instrument or transactions used by the Investment Adviser to leverage the Funds portfolio (whether or not such instruments or transactions are
covered as described in the prospectus) are not considered a liability.
During periods when the Fund is using leverage, the fee paid to the
Investment Adviser for advisory services will be higher than if the Fund did not use leverage because the fee paid will be calculated on the basis of the Funds average weekly assets, which includes the assets attributable to leverage.
Western Asset Management Company Pte. Ltd. (Western Asset Singapore), Western Asset Management Company Limited (Western Asset
London) and Western Asset Management Company Ltd (Western Asset Japan and together with Western Asset Singapore and Western Asset London) are also the Funds investment advisers. Western Asset Singapore, Western Asset London
and Western Asset Japan provide certain advisory
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
31
|
|
Notes to consolidated financial statements (unaudited) (contd)
services to the Fund relating to currency transactions and investment in non-U.S. denominated securities. Western Asset
Singapore, Western Asset London and Western Asset Japan do not receive any compensation from the Fund.
Legg Mason Partners Fund Advisor, LLC
(LMPFA or the Administrator), an affiliate of the Investment Adviser, provides certain administrative, accounting, shareholder servicing and corporate secretarial and related functions pursuant to an Administrative Services
Agreement with the Fund. The Fund pays the Administrator a monthly fee at the annual rate of 0.05% of the Funds average weekly assets.
Western
Asset, Western Asset Singapore, Western Asset London, Western Asset Japan and LMFPA are indirect, wholly-owned subsidiaries of Franklin Resources, Inc.
3. Investments
During the six months ended May 31, 2021, the aggregate cost of purchases
and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
U.S. Government &
Agency Obligations
|
|
Purchases
|
|
$
|
7,117,964
|
|
|
$
|
80,405,599
|
|
Sales
|
|
|
39,692,953
|
|
|
|
172,376,481
|
|
At May 31, 2021, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of
investments for federal income tax purposes were substantially as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost/Premiums
Paid (Received)
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
Depreciation
|
|
|
Net
Unrealized
Appreciation
|
|
Securities
|
|
$
|
462,158,252
|
|
|
$
|
38,504,383
|
|
|
$
|
(6,358,459)
|
|
|
$
|
32,145,924
|
|
Futures contracts
|
|
|
|
|
|
|
2,864,455
|
|
|
|
(534,849)
|
|
|
|
2,329,606
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
1,089,742
|
|
|
|
(492,739)
|
|
|
|
597,003
|
|
Swap contracts
|
|
|
2,444,985
|
|
|
|
1,230,115
|
|
|
|
(325,301)
|
|
|
|
904,814
|
|
Transactions in reverse repurchase agreements for the Fund during the six months ended May 31, 2021 were as follows:
|
|
|
|
|
Average Daily
|
|
Weighted Average
|
|
Maximum Amount
|
Balance*
|
|
Interest Rate*
|
|
Outstanding
|
$162,562,363
|
|
0.205%
|
|
$193,950,000
|
*
|
Averages based on the number of days that the Fund had reverse repurchase agreements outstanding.
|
Interest rates on reverse repurchase agreements ranged from 0.200% to 0.240% during the six months ended May 31, 2021. Interest expense incurred on reverse
repurchase agreements totaled $166,524.
|
|
|
|
|
32
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
4. Derivative
instruments and hedging activities
Below is a table, grouped by derivative type, that provides information about the fair value and the location of
derivatives within the Consolidated Statement of Assets and Liabilities at May 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET
DERIVATIVES1
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Credit Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Futures contracts2
|
|
$
|
66,253
|
|
|
$
|
338,061
|
|
|
|
|
|
|
$
|
2,460,141
|
|
|
$
|
2,864,455
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
1,089,742
|
|
|
|
|
|
|
|
|
|
|
|
1,089,742
|
|
Centrally cleared swap contracts3
|
|
|
924,913
|
|
|
|
|
|
|
$
|
305,202
|
|
|
|
|
|
|
|
1,230,115
|
|
Total
|
|
$
|
991,166
|
|
|
$
|
1,427,803
|
|
|
$
|
305,202
|
|
|
$
|
2,460,141
|
|
|
$
|
5,184,312
|
|
|
|
|
|
|
|
LIABILITY DERIVATIVES1
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Futures contracts2
|
|
|
|
|
|
$
|
242,734
|
|
|
$
|
101,488
|
|
|
$
|
190,627
|
|
|
$
|
534,849
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
492,739
|
|
|
|
|
|
|
|
492,739
|
|
Centrally cleared swap contracts3
|
|
|
|
|
|
|
325,301
|
|
|
|
|
|
|
|
|
|
|
|
325,301
|
|
Total
|
|
|
|
|
|
$
|
568,035
|
|
|
$
|
594,227
|
|
|
$
|
190,627
|
|
|
$
|
1,352,889
|
|
1
|
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability derivatives is payables/net unrealized
depreciation.
|
2
|
Includes cumulative unrealized appreciation (depreciation) of futures contracts as reported in the Consolidated Schedule of Investments. Only net variation
margin is reported within the receivables and/or payables on the Consolidated Statement of Assets and Liabilities.
|
3
|
Includes cumulative unrealized appreciation (depreciation) of centrally cleared swap contracts as reported in the Consolidated Schedule of Investments. Only net
variation margin is reported within the receivables and/or payables on the Consolidated Statement of Assets and Liabilities.
|
The
following tables provide information about the effect of derivatives and hedging activities on the Funds Consolidated Statement of Operations for the six months ended May 31, 2021. The first table provides additional detail about the
amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Funds derivatives and hedging
activities during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Credit Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Futures contracts
|
|
$
|
718,657
|
|
|
$
|
(105,964)
|
|
|
|
|
|
|
$
|
6,122,078
|
|
|
$
|
6,734,771
|
|
Written options
|
|
|
1,796,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,796,992
|
|
Swap contracts
|
|
|
(237,728)
|
|
|
|
|
|
|
$
|
2,951,415
|
|
|
|
|
|
|
|
2,713,687
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
171,787
|
|
|
|
|
|
|
|
|
|
|
|
171,787
|
|
Total
|
|
$
|
2,277,921
|
|
|
$
|
65,823
|
|
|
$
|
2,951,415
|
|
|
$
|
6,122,078
|
|
|
$
|
11,417,237
|
|
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
|
33
|
|
Notes to consolidated financial statements (unaudited) (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|
|
|
Interest Rate
Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Credit Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Futures contracts
|
|
$
|
(385,746)
|
|
|
$
|
(141,822)
|
|
|
|
|
|
|
$
|
1,766,428
|
|
|
$
|
1,238,860
|
|
Written options
|
|
|
463,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463,103
|
|
Swap contracts
|
|
|
292,998
|
|
|
|
|
|
|
$
|
(2,090,037)
|
|
|
|
|
|
|
|
(1,797,039)
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
159,114
|
|
|
|
|
|
|
|
|
|
|
|
159,114
|
|
Total
|
|
$
|
370,355
|
|
|
$
|
17,292
|
|
|
$
|
(2,090,037)
|
|
|
$
|
1,766,428
|
|
|
$
|
64,038
|
|
During the six months ended May 31, 2021, the volume of derivative activity for the Fund was as follows:
|
|
|
|
|
|
|
Average Market
Value
|
|
Written options
|
|
$
|
303,237
|
|
Futures contracts (to buy)
|
|
|
190,486,529
|
|
Futures contracts (to sell)
|
|
|
55,454,612
|
|
Forward foreign currency contracts (to buy)
|
|
|
36,021,178
|
|
Forward foreign currency contracts (to sell)
|
|
|
34,130,136
|
|
|
|
|
|
Average Notional
Balance
|
|
Interest rate swap contracts
|
|
$
|
44,106,000
|
|
Credit default swap contracts (to sell protection)
|
|
|
89,445,857
|
|
|
At May 31, 2021, there were no open positions held in this derivative.
|
The following table presents the Funds OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and net of the related collateral pledged
(received) by the Fund as of May 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Gross
Assets
Subject to
Master
Agreements1
|
|
|
Gross
Liabilities
Subject to
Master
Agreements1
|
|
|
Net Assets
(Liabilities)
Subject to
Master
Agreements
|
|
|
Collateral
Pledged
(Received)2,3
|
|
|
Net
Amount4,5
|
|
BNP Paribas SA
|
|
|
|
|
|
$
|
(111,041)
|
|
|
$
|
(111,041)
|
|
|
|
|
|
|
$
|
(111,041)
|
|
Citibank N.A.
|
|
$
|
422,832
|
|
|
|
(277,611)
|
|
|
|
145,221
|
|
|
$
|
(400,000)
|
|
|
|
(254,779)
|
|
Goldman Sachs Group Inc.
|
|
|
334,265
|
|
|
|
|
|
|
|
334,265
|
|
|
|
(217,757)
|
|
|
|
116,508
|
|
JPMorgan Chase & Co.
|
|
|
8,365
|
|
|
|
|
|
|
|
8,365
|
|
|
|
|
|
|
|
8,365
|
|
Morgan Stanley & Co. Inc.
|
|
|
324,280
|
|
|
|
(104,087)
|
|
|
|
220,193
|
|
|
|
(158,715)
|
|
|
|
61,478
|
|
Total
|
|
$
|
1,089,742
|
|
|
$
|
(492,739)
|
|
|
$
|
597,003
|
|
|
$
|
(776,472)
|
|
|
$
|
(179,469)
|
|
1
|
Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and
Liabilities.
|
|
|
|
|
|
34
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
2
|
Gross amounts are not offset in the Consolidated Statement of Assets and Liabilities.
|
3
|
In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization.
|
4
|
Net amount may also include forward foreign currency exchange contracts that are not required to be collateralized.
|
5
|
Represents the net amount receivable (payable) from (to) the counterparty in the event of default.
|
5. Tender offer
On November 24, 2020,
the Fund announced that the Funds Board of Trustees had approved a cash tender offer for up to 20% of the Funds outstanding common shares (the Shares) at a price per Share equal to 99% of the Funds net asset value per
Share as of the business day immediately following the expiration date of the tender offer. On November 25, 2020, the Fund commenced its tender offer. On December 28, 2020, the tender offer expired. Pursuant to the terms of the tender
offer, the Fund repurchased Shares tendered and accepted in the tender offer in exchange for cash. On December 30, 2020, the Fund announced the final results of the tender offer. A total of 20,871,974 Shares were duly tendered and not
withdrawn. Because the number of Shares tendered exceeded 5,830,564 Shares, the tender offer was oversubscribed. Therefore, in accordance with the terms and conditions specified in the tender offer, the Fund purchased Shares from all tendering
shareholders on a pro rata basis, disregarding fractions. Payment for such shares was made on December 31, 2020. The purchase price of properly tendered Shares was $13.99 per Share, equal to 99% of the per Share net asset value of $14.13 as of
the close of the regular trading session on the New York Stock Exchange on December 29, 2020. Shares that were not tendered remain outstanding.
6. Distributions subsequent to May 31, 2021
The following distributions have been
declared by the Funds Board of Trustees and are payable subsequent to the period end of this report:
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payable Date
|
|
|
Amount
|
|
6/23/2021
|
|
|
6/30/2021
|
|
|
$
|
0.0340
|
|
7/23/2021
|
|
|
7/30/2021
|
|
|
$
|
0.0340
|
|
8/24/2021
|
|
|
8/31/2021
|
|
|
$
|
0.1480
|
|
9/23/2021
|
|
|
9/30/2021
|
|
|
$
|
0.0340
|
|
10/22/2021
|
|
|
10/29/2021
|
|
|
$
|
0.0340
|
|
11/22/2021
|
|
|
11/30/2021
|
|
|
$
|
0.0340
|
|
7. Stock repurchase program
On March 2, 2016, the Fund announced that the Funds Board of Trustees (the Board) had authorized the Fund to repurchase in the open market up to approximately 10% of the Funds
outstanding common stock when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such times and in such amounts as management reasonably believes
may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the six months ended May 31, 2021, the Fund did not repurchase any shares.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
|
|
|
35
|
Notes to consolidated financial statements (unaudited) (contd)
8. Recent accounting pronouncement
In March
2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on
Financial Reporting (the ASU). The amendments in the ASU provide optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the London
Interbank Offered Rate and other interbank-offered based reference rates as of the end of 2021. The ASU is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31,
2022. Management has reviewed the requirements and believes the adoption of this ASU will not have a material impact on the financial statements.
9. Other matters
The outbreak of the respiratory illness
COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic
fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the
Funds investments and negatively impact the Funds performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services
provided to the Fund by its service providers.
* * *
The Funds investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or
LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of
(i) the overnight and one-, three-, six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023 and
(ii) all other LIBOR settings, including the one-week and two-month USD LIBOR settings, immediately following the LIBOR publication on Friday, December 31,
2021. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Funds transactions and the financial markets generally. As such, the potential effect of a transition away from
LIBOR on the Fund or the Funds investments cannot yet be determined.
|
|
|
|
|
36
|
|
|
|
Western Asset Inflation-Linked Income Fund 2021 Semi-Annual Report
|
Additional shareholder information (unaudited)
Results of annual meeting of shareholders
The Annual Meeting of Shareholders of Western Asset Inflation-Linked Income Fund was held on May 14, 2021, for the purpose of considering and voting upon the
proposal presented at the Meeting. The following table provides information concerning the matters voted upon at the Meeting:
Election of Trustees
|
|
|
|
|
Nominees
|
|
Votes FOR
|
|
Votes WITHHELD
|
William E.B. Siart
|
|
15,206,968
|
|
6,187,485
|
Jaynie Miller Studenmund
|
|
15,218,102
|
|
6,176,351
|
Peter J. Taylor
|
|
15,212,368
|
|
6,182,085
|
At May 31, 2021, in addition to William E.B. Siart, Jaynie Miller Studenmund and Peter J. Taylor, the Trustees of the Fund were
Robert Abeles, Jr., Jane F. Dasher, Anita L. DeFrantz, Susan B. Kerley, Michael Larson, Ronald L. Olson, Avedick B. Poladian, and Jane E. Trust.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund
|
|
|
|
37
|
Dividend reinvestment plan (unaudited)
The Fund and Computershare Inc. (Agent), as the Transfer Agent and Registrar of WIA, offer a convenient way to add shares of WIA to your account. WIA
offers to all common shareholders a Dividend Reinvestment Plan (Plan). Under the Plan, cash distributions (e.g., dividends and capital gains) on the common shares are automatically invested in shares of WIA unless the shareholder elects
otherwise by contacting the Agent at the address set forth below.
As a participant in the Dividend Reinvestment Plan, you will automatically receive
your dividend or net capital gains distribution in newly issued shares of WIA, if the market price of the shares on the date of the distribution is at or above the net asset value (NAV) of the shares, minus estimated brokerage commissions that would
be incurred upon the purchase of common shares on the open market. The number of shares to be issued to you will be determined by dividing the amount of the cash distribution to which you are entitled (net of any applicable withholding taxes) by the
greater of the NAV per share on such date or 95% of the market price of a share on such date. If the market price of a share on such distribution date is below the NAV, less estimated brokerage commissions that would be incurred upon the purchase of
common shares on the open market, the Agent will, as agent for the participants, buy shares of WIA through a broker on the open market. All common shares acquired on your behalf through the Plan will be automatically credited to an account
maintained on the books of the Agent.
Additional information regarding the plan
WIA will pay all costs applicable to the Plan, except for brokerage commissions for open market purchases by the Agent under the Plan, which will be charged to
participants. All shares acquired through the Plan receive voting rights and are eligible for any stock split, stock dividend, or other rights accruing to shareholders that the Board of Trustees may declare.
You may terminate participation in the Plan at any time by giving notice to the Agent. Such termination will be effective prior to the record date next succeeding
the receipt of such instructions or by a later date of termination specified in such instructions. Upon termination, a participant will receive a certificate for the full shares credited to his or her account or may request the sale of all or part
of such shares. Fractional shares credited to a terminating account will be paid for in cash at the current market price at the time of termination.
Dividends and other distributions invested in additional shares under the Plan are subject to income tax just as if they had been received in cash. After year end,
dividends paid on the accumulated shares will be included in the Form 1099-DIV information return to the Internal Revenue Service and only one Form 1099-DIV will be sent
to participants each year.
Inquiries regarding the Plan, as well as notices of termination, should be directed to Computershare Inc., 462 South 4th
Street, Suite 1600 Louisville, KY 40202. Investor Relations telephone number 1-888-888-0151.
|
|
|
|
|
38
|
|
|
|
Western Asset Inflation-Linked Income Fund
|
Western Asset
Inflation-Linked Income Fund
Trustees
Robert Abeles, Jr.
Jane F. Dasher
Anita L. DeFrantz
Susan B. Kerley
Michael Larson
Ronald L. Olson
Avedick B. Poladian
William E.B. Siart
Chairman
Jaynie M. Studenmund
Peter J. Taylor
Jane Trust
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Ted P. Becker
Chief Compliance Officer
Jenna Bailey
Identity Theft Prevention Officer
Marc A. De Oliveira
Secretary and Chief Legal Officer
Thomas C. Mandia
Assistant Secretary
Jeanne M. Kelly
Senior Vice President
Western Asset Inflation- Linked Income Fund
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment advisers
Western Asset Management Company, LLC
Western Asset Management
Company Limited
Western Asset Management Company Pte. Ltd.
Western Asset Management Company Ltd
Administrator
Legg Mason Partners Fund Advisor, LLC
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD 21202
Legal counsel
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
New York Stock
Exchange
Symbol
WIA
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Funds privacy and data protection practices with respect to nonpublic
personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end funds. The
provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and
maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
|
|
Personal information included on applications or other forms;
|
|
|
Account balances, transactions, and mutual fund holdings and positions;
|
|
|
Bank account information, legal documents, and identity verification documentation;
|
|
|
Online account access user IDs, passwords, security challenge question responses; and
|
|
|
Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt,
payment history, etc.).
|
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial
institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have
authorized or as permitted or required by law.
The Funds may disclose information about you to:
|
|
Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business, or to comply with obligations to
government regulators;
|
|
|
Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or
processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;
|
|
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds employees, agents and affiliates and
service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
|
|
|
The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations
to government regulators;
|
|
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
NOT PART OF THE SEMI-ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds
behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them
to perform. The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory
request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds
practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify
you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds Security Practices
The
Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data security policies restrict access to your nonpublic personal information to authorized
employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal
information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds
will attempt to notify you as necessary, so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the
most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information
accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds privacy practices, or our use of your nonpublic personal information, write the Funds
using the contact information on your account statements, email the Funds by clicking on the Funds website at www.lmcef.com, or contact the Fund at 1-888-777-0102.
Revised April 2018
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information
we collect is nonpublic personal information subject to federal law, residents of California may, in certain circumstances, have additional rights under the California Consumer Privacy Act (CCPA). For example, if you are a
broker,
|
NOT PART OF THE SEMI-ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the
account of any other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your
personal information (as defined by the CCPA).
|
|
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces of personal
information we have collected about you.
|
|
|
You also have the right to request the deletion of the personal information collected or maintained by the Funds.
|
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth below. The
rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described below. We
do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a
request on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or
other applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an
agent if suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this
Privacy Policy, the Legg Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact
Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2020
|
NOT PART OF THE SEMI-ANNUAL REPORT
|
Western Asset Inflation-Linked Income Fund
Western Asset Inflation-Linked Income Fund
620 Eighth Avenue
47th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at
market prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission
(SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Funds Forms N-PORT are available on the
SECs website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at
1-888-777-0102.
Information on
how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to
vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102,
(2) at www.lmcef.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of Western Asset
Inflation-Linked Income Fund for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WASX013850 7/21 SR21-4183