ITEM 1.
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REPORT TO STOCKHOLDERS.
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The
Annual
Report to Stockholders is filed herewith.
March 31, 2013
Annual Repor
t
Western Asset
Pennsylvania Municipals Fund
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE
VALUE
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II
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Western Asset Pennsylvania Municipals Fund
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Fund objective
The Fund seeks as high a level of income exempt from regular federal income tax and Pennsylvania personal income taxes* as is consistent
with prudent investing.
*
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Certain investors may be subject to the federal alternative minimum tax (AMT), and state and local taxes may apply. Capital gains, if any, are fully
taxable. Please consult your personal tax or legal adviser.
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Fund name change
Prior to August 1, 2012, the Fund was known as Legg Mason Western Asset Pennsylvania Municipals Fund. There was no change in the Funds
investment objective or investment policies as a result of the name change.
Letter from the chairman
Dear Shareholder,
We are pleased to provide the annual report of Western Asset Pennsylvania Municipals Fund for the twelve-month reporting period ended
March 31, 2013. Please read on for a detailed look at prevailing economic and market conditions during the Funds reporting period and to learn how those conditions have affected Fund performance.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to
supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.leggmason.com/individualinvestors. Here you can gain immediate access to market and investment information, including:
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Fund prices and performance,
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Market insights and commentaries from our portfolio managers, and
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A host of educational resources.
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We look forward to helping you meet your financial goals.
Sincerely,
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
April 26, 2013
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Western Asset Pennsylvania Municipals Fund
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III
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Investment commentary
Economic review
The U.S. economy expanded over the twelve months ended March 31, 2013, but it did so in fits and starts. U.S. gross
domestic product (GDP)
i
growth, as reported by the U.S. Department of Commerce, was a tepid 1.3% in the second quarter of 2012. Economic growth accelerated to
3.1% in the third quarter, partially due to increased private inventory investment, higher federal government spending and moderating imports. However, economic activity sharply moderated in the fourth quarter, with GDP expanding an anemic 0.4%.
This was driven by a reversal of the above factors, as private inventory investment and federal government spending weakened. The reporting period then ended on a positive note, as the U.S. Department of Commerces initial estimate for first
quarter 2013 GDP growth was 2.5%. Accelerating growth was due, in part, to strengthening consumer spending, which rose 3.2% during the first quarter, versus a 1.8% increase during the previous quarter.
While there was some improvement in the U.S. job market, unemployment remained elevated throughout the reporting period. When the period began,
unemployment, as reported by the U.S. Department of Labor, was 8.2%. Unemployment then generally declined and was 7.8% in September 2012. The unemployment rate then fluctuated between 7.8% and 7.9% over the next four months. Unemployment then fell
to 7.7% in February and 7.6% in March, the lowest level since December 2008. However, the decline in March was partially due to people leaving the workforce. In addition, the number of longer-term unemployed continues to be a headwind for the
economy, as nearly 40% of the 11.7 million people without a job have been out of work for more than six months.
Meanwhile, the
housing market brightened, as sales generally improved and home prices continued to rebound. According to the National Association of Realtors (NAR), existing-home sales slipped 0.6% on a seasonally adjusted basis in March 2013 versus
the previous month, but were 10.3% higher than in March 2012. In addition, the NAR reported that the median existing-home price for all housing types was $184,300 in March 2013, up 11.8% from March 2012. This marked the thirteenth consecutive month
that home prices rose compared to the same period a year earlier. While the inventory of homes available for sale rose modestly in March to a 4.7 month supply at the current sales pace, it was 16.8% lower than in March 2012.
The manufacturing sector expanded during much of the reporting period, although it experienced several soft patches. Based on
the Institute for Supply Managements PMI (PMI)
ii
, after expanding 34 consecutive months, the PMI fell to 49.7 in June 2012, which represented the first
contraction in the manufacturing sector since July 2009 (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). Manufacturing continued to contract in July and August before ticking up to 51.5 in
September and 51.7 in October. The PMI fell back to contraction territory with a reading of 49.5 in November, its lowest level since July 2009. However, manufacturing again expanded over the next four months, with the PMI at 51.3 in March 2013.
The Federal Reserve Board
(Fed)
iii
took a number of actions as it sought to meet its dual mandate of fostering maximum employment and price stability. As has been the case since December
2008, the Fed kept the federal funds rate
iv
at a historically low range between zero and 0.25%. At its June 2012 meeting, the Fed announced that it would continue its program
of purchasing longer-term Treasury securities and selling an equal amount of
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IV
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Western Asset Pennsylvania Municipals Fund
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Investment commentary (contd)
shorter-term Treasury securities (often referred to as Operation Twist) until the end of 2012. In September, the Fed announced a third round of quantitative easing (QE3),
which involves purchasing $40 billion each month of agency mortgage-backed securities (MBS) on an open-end basis. In addition, the Fed further extended the duration that it expects to keep the federal funds rate on hold, until at least
mid-2015. Finally, at its meeting in December, the Fed announced that it would continue purchasing $40 billion per month of agency MBS, as well as initially purchasing $45 billion a month of longer-term Treasuries. The Fed also said that it would
keep the federal funds rate on hold
as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committees 2% longer-run goal, and
longer-term inflation expectations continue to be well anchored. As expected, at its meeting in March 2013, the Fed said it would continue its asset purchase program. It also stated that When the Committee decides to begin to remove
policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%.
As always, thank you for your confidence in our stewardship of your assets.
Sincerely,
R. Jay Gerken, CFA
Chairman, President and
Chief Executive Officer
April 26, 2013
All
investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.
i
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Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time.
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ii
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The Institute for Supply Managements PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more
than 350 companies. It offers an early reading on the health of the manufacturing sector.
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iii
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The Federal Reserve Board (Fed) is responsible for the formulation of policies designed to promote economic growth, full employment,
stable prices and a sustainable pattern of international trade and payments.
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iv
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The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the
Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.
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Western Asset Pennsylvania Municipals Fund 2013 Annual Report
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1
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Fund overview
Q. What is the Funds investment strategy?
A.
The Fund seeks as high a level of income exempt from regular federal income tax and Pennsylvania personal income taxes as is consistent with prudent investing.
We select portfolio holdings primarily by identifying undervalued sectors and individual securities, while also selecting securities that we believe
will benefit from changes in market conditions. Under normal circumstances, the Fund invests at least 80% of its assets in Pennsylvania municipal securities, the interest on which is exempt from regular federal income tax and
Pennsylvania State personal income taxes. Interest on Pennsylvania municipal securities may be subject to the federal alternative minimum tax (AMT). Pennsylvania municipal securities include debt obligations issued by the Commonwealth of
Pennsylvania and its political subdivisions, agencies and public authorities, certain other governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) and other qualifying issuers. These securities include participation or other
interests in municipal securities issued or backed by banks, insurance companies and other financial institutions.
The Fund will
normally invest in securities that, at the time of purchase, have remaining maturities from one to more than thirty years. The Fund focuses on investment grade bonds (that is, securities rated in the Baa/BBB categories or above or, if unrated,
securities we determine to be of comparable credit quality), but may invest up to 20% of its assets in below investment grade bonds. Instead of investing directly in particular securities, the Fund may use derivatives that are intended to provide
economic exposure to a security, an issuer, an index or basket of securities, or a market to the extent consistent with its 80% policy. The Fund may also engage in a variety of transactions using derivatives in order to change the investment
characteristics of its portfolio (such as shortening or lengthening duration
i
) and for other purposes.
At Western Asset Management Company (Western Asset), the Funds subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment
management sector specialists. The sector teams are comprised of Western Assets senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will
reflect a consensus of interdisciplinary views within the Western Asset organization.
Q. What were the overall market conditions during
the Funds reporting period?
A.
The spread sectors (non-Treasuries) overcame several periods of heightened risk aversion and
generally outperformed equal-duration Treasuries over the twelve months ended March 31, 2013. Risk appetite waned during portions of the first two months of the period given concerns that the economy may be experiencing a soft patch and
contagion fears from the European sovereign debt crisis. However, the spread sectors then generally rallied over much of the next seven months. Supporting the spread sectors were continued economic growth in the U.S. and overall robust investor
demand as they looked to generate incremental yield in the low interest rate environment. Spread sector returns fluctuated over the last three months of the period as Treasury yields rose, global growth moderated and there were renewed concerns
regarding the situation in Europe.
Despite moving higher during the second half of the reporting period, both short- and long-term
Treasury yields declined during the twelve months ended March 31, 2013.
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2
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Western Asset Pennsylvania Municipals Fund 2013 Annual Report
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Fund overview (contd)
Two-year Treasury yields fell from 0.33% at the beginning of the reporting period to 0.25% at the end of the period. They were as high as 0.36% on April 3, 2012 and as low as 0.22% in July
and August 2012. Ten-year Treasury yields were 2.23% at the beginning of the period and peaked at 2.30% on April 3, 2012. On July 25, 2012, ten-year Treasuries closed at an all-time low of 1.43%. Yields then moved higher from its trough
due to additional Federal Reserve Board (Fed)
ii
actions to stimulate the economy and increased inflation expectations. When the reporting period ended on
March 31, 2013, ten-year Treasury yields were 1.87%.
While there were periodic setbacks, the municipal bond
market generated solid results during the reporting period. Demand was generally robust and the municipal market posted positive returns during nine of the twelve months covered by this report. Supporting the municipal market were increasing tax
revenues, relatively low new issuance and extremely low defaults. In addition, while certain challenges remain, a number of states took actions to reduce spending and get their financial houses in order. All told, the Barclays Municipal Bond Index
iii
returned 5.25% for the twelve months ended March 31, 2013. Over the same period, the overall taxable bond market, as measured by the Barclays U.S. Aggregate Index
iv
, returned 3.78%.
The Pennsylvania municipal bond market
outperformed the overall tax-exempt market, with the Barclays Pennsylvania Municipal Bond Index
v
returning 5.42% during the twelve-month reporting period. Pennsylvania took a
number of actions to improve its financial situation and demand for the states municipal bonds was generally robust.
Q. How did we
respond to these changing market conditions?
A.
There were no significant changes to the Fund during the
reporting period, as we were comfortable with its sector, duration and yield curve
vi
positioning.
The Fund employed the use of short U.S. Treasury futures during the reporting period to manage duration. This strategy detracted from the Funds performance during the period.
Performance review
For the twelve months ended March 31, 2013, Class A shares of Western Asset Pennsylvania Municipals Fund, excluding sales charges, returned 4.37%. The Funds unmanaged benchmark, the
Barclays Pennsylvania Municipal Bond Index, returned 5.42% for the same period. The Lipper Pennsylvania Municipal Debt Funds Category Average
1
returned 5.36% over the same
time frame.
Certain investors may be subject to the AMT, and state and local taxes may apply. Capital gains, if any, are fully taxable.
Please consult your personal tax or legal adviser.
1
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Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period
ended March 31, 2013, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 60 funds in the Funds Lipper category, and excluding sales charges.
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Western Asset Pennsylvania Municipals Fund 2013 Annual Report
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3
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Performance Snapshot
as of March 31, 2013
(unaudited)
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(excluding sales charges)
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6 months
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12 months
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Western Asset Pennsylvania
Municipals Fund:
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Class A
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0.73
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%
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4.37
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%
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Class B
1
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0.37
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%
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3.63
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%
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Class C
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0.44
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%
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3.71
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%
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Class I
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0.79
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%
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4.42
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%
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Barclays Pennsylvania Municipal Bond Index
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0.96
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%
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5.42
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%
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Lipper Pennsylvania Municipal Debt Funds Category
Average
2
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0.89
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%
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5.36
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%
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The
performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value, investment returns and yields will fluctuate and
investors shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/individualinvestors.
All share class returns assume the
reinvestment of all distributions at net asset value and the deduction of all Fund expenses. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. If
sales charges were reflected, the performance quoted would be lower. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.
The 30-Day SEC Yields for the period ended March 31, 2013 for Class A, Class B,
Class C and Class I shares were 3.38%, 2.93%, 2.94% and 3.66 %, respectively. The 30-Day SEC Yield is subject to change and is based on the yield to maturity of the Funds investments over a 30-day period and not on the dividends paid by
the Fund, which may differ.
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Total Annual Operating Expenses
(unaudited)
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As of the Funds current prospectus dated August 1, 2012, the gross total annual
operating expense ratios for Class A, Class B, Class C and Class I shares were 0.70%, 1.43%, 1.26% and 0.60%, respectively.
Actual expenses may be higher. For example, expenses may be higher than those shown if
average net assets decrease. Net assets are more likely to decrease and Fund expense ratios are more likely to increase when markets are volatile.
Q. What were the leading contributors to performance?
A.
The largest
contributors to the Funds relative performance during the reporting period were its overall yield curve and duration positioning. From a yield curve perspective, the Fund maintained an overweight to the 22+ year portion of the municipal yield
curve. This positively impacted performance as longer-term securities outperformed shorter-term securities. The Funds duration was longer than that of its benchmark, which was beneficial as rates moved lower during the period.
Sector positioning, overall, enhanced the Funds results during the reporting period. In particular, an underweight to State General Obligation
bonds was positive for performance as they lagged the benchmark.
Also contributing to the Funds results was its overweight to
lower rated investment grade municipal bonds. More specifically, overweights to A-rated and BBB-rated securities were beneficial as they outperformed their higher-rated counterparts during the period. An underweight to AA-rated securities was also
rewarded as they lagged the benchmark.
1
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Effective July 1, 2011, the Fund no longer offers Class B shares
for purchase by new and existing investors. Individual investors who owned Class B shares on June 30, 2011 may continue to hold those shares but may not add to their Class B share positions except through dividend reinvestment. Class B
shares are also available for incoming exchanges.
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2
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Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the
period ended March 31, 2 013, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 60 funds for the six-month period and among the 60 funds for the twelve-month period in the Funds
Lipper category, and excluding sales charges.
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4
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Western Asset Pennsylvania Municipals Fund 2013 Annual Report
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Fund overview (contd)
Q. What were the leading detractors from performance?
A.
The largest detractor from relative performance during the reporting period was the Funds out-of-benchmark allocation to holdings in
Puerto Rico. Commonwealth bonds underperformed the benchmark during the reporting period as Puerto Rico continued to experience economic and political issues (interest from bonds issued in certain territories, such as Puerto Rico, is tax-exempt in
all states).
The Funds short U.S. Treasury futures position was a small detractor from results as Treasury yields declined during
the period given several flights to quality.
Finally, an overweight to securities with maturities of one year and less was a negative
given their underperformance versus intermediate- and longer-term municipal securities.
Thank you for your investment in Western Asset
Pennsylvania Municipals Fund. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Funds investment goals.
Sincerely,
Western Asset Management Company
April 16, 2013
RISKS:
The Funds investments are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing
the value of the Funds share price. Municipal securities purchased by the Fund may be adversely affected by
changes in the financial condition of municipal issuers
and insurers, regulatory and political developments, uncertainties and public perceptions, and other factors. As a non-diversified fund, it can invest a larger percentage of its assets in fewer issues than a diversified fund. This may magnify the
Funds losses from events affecting a particular issuer. Lower-rated, higher yielding bonds are subject to greater credit risk, including the risk of default, than higher-rated obligations. The Fund may use derivatives, such as options and
futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. Please see the Funds prospectus for a more complete discussion of these and other risks, and the Funds
investment strategies.
The mention of sector breakdowns is for informational purposes only and should not be construed as a
recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in
any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio managers current or future investments. The
Funds portfolio composition is subject to change at any time.
All investments are subject to risk including the possible loss of
principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may
differ from those of the firm as a whole.
i
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Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based
on the weighted average of the present values for all cash flows.
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ii
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The Federal Reserve Board (Fed) is responsible for the formulation of policies designed to promote economic growth, full employment,
stable prices and a sustainable pattern of international trade and payments.
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iii
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The Barclays Municipal Bond Index is a market value weighted index of investment grade municipal bonds with maturities of one year or more.
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iv
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The Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated
investment grade or higher, and having at least one year to maturity.
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v
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The Barclays Pennsylvania Municipal Bond Index is a market value weighted index of Pennsylvania investment grade (Baa3/BBB- or higher) fixed-rate
municipal bonds with maturities of one year or more.
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vi
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The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.
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Western Asset Pennsylvania Municipals Fund 2013 Annual Report
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5
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Fund at a glance
(unaudited)
Investment breakdown
(%) as a percent of total investments
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The bar graph above represents the composition of the Funds investments as of March 31, 2013 and March 31, 2012 and does not include derivatives, such as
futures contracts. The Fund is actively managed. As a result, the composition of the Funds investments is subject to change at any time.
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6
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Western Asset Pennsylvania Municipals Fund 2013 Annual Report
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Fund expenses
(unaudited)
Example
As a shareholder of the
Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees; and
other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on October 1, 2012 and held for the six months ended March 31, 2013.
Actual expenses
The table below
titled Based on Actual Total Return provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid
over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled
Expenses Paid During the Period.
Hypothetical example for comparison purposes
The table below titled Based on Hypothetical Total Return provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an
assumed rate of return of 5.00% per year before expenses, which is not the Funds actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the
period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear
in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning
different funds. In addition, if these transaction costs were included, your costs would have been higher.
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Based on actual total return
1
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Based on hypothetical total return
1
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Actual
Total Return
Without
Sales
Charge
2
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Beginning
Account
Value
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Ending
Account
Value
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Annualized
Expense
Ratio
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Expenses
Paid
During
the
Period
3
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Hypothetical
Annualized
Total Return
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Beginning
Account
Value
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Ending
Account
Value
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Annualized
Expense
Ratio
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Expenses
Paid
During
the
Period
3
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Class A
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0.73
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%
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$
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1,000.00
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$
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1,007.30
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0.71
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%
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$
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3.55
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Class A
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5.00
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%
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$
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1,000.00
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$
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1,021.39
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0.71
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%
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$
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3.58
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Class B
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0.37
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1,000.00
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1,003.70
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1.42
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7.09
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Class B
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5.00
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1,000.00
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1,017.85
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1.42
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7.14
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Class C
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0.44
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1,000.00
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1,004.40
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1.28
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6.40
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Class C
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5.00
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1,000.00
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1,018.55
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1.28
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6.44
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Class I
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0.79
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1,000.00
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1,007.90
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0.59
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2.95
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Class I
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5.00
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1,000.00
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1,021.99
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0.59
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2.97
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1
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For the six months ended March 31, 2013.
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2
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Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the
applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charge (CDSC) with respect to Class B and Class C shares. Total return is not annualized, as it may not be representative of the
total return for the year. 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.
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3
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Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class respective
annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182), then divided by 365.
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Western Asset Pennsylvania Municipals Fund 2013 Annual Report
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7
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Fund performance
(unaudited)
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Average annual total returns
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Without sales charges
1
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Class A
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Class B
|
|
|
Class C
|
|
|
Class I
|
|
Twelve Months Ended 3/31/13
|
|
|
4.37
|
%
|
|
|
3.63
|
%
|
|
|
3.71
|
%
|
|
|
4.42
|
%
|
Five Years Ended 3/31/13
|
|
|
5.37
|
|
|
|
4.74
|
|
|
|
4.78
|
|
|
|
5.48
|
|
Ten Years Ended 3/31/13
|
|
|
4.68
|
|
|
|
4.23
|
|
|
|
4.08
|
|
|
|
N/A
|
|
Inception* through 3/31/13
|
|
|
5.72
|
|
|
|
5.35
|
|
|
|
5.11
|
|
|
|
5.09
|
|
|
|
|
|
|
With sales charges
2
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class I
|
|
Twelve Months Ended 3/31/13
|
|
|
-0.09
|
%
|
|
|
-0.87
|
%
|
|
|
2.71
|
%
|
|
|
4.42
|
%
|
Five Years Ended 3/31/13
|
|
|
4.45
|
|
|
|
4.57
|
|
|
|
4.78
|
|
|
|
5.48
|
|
Ten Years Ended 3/31/13
|
|
|
4.22
|
|
|
|
4.23
|
|
|
|
4.08
|
|
|
|
N/A
|
|
Inception* through 3/31/13
|
|
|
5.48
|
|
|
|
5.35
|
|
|
|
5.11
|
|
|
|
5.09
|
|
|
|
|
|
|
Cumulative total returns
|
|
|
|
Without sales charges
1
|
|
|
|
Class A (3/31/03 through 3/31/13)
|
|
|
58.01
|
%
|
Class B (3/31/03 through 3/31/13)
|
|
|
51.32
|
|
Class C (3/31/03 through 3/31/13)
|
|
|
49.15
|
|
Class I (Inception date of 2/4/08 through 3/31/13)
|
|
|
29.18
|
|
All
figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost.
Total returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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.
1
|
Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the
applicable sales charge with respect to Class A shares or the applicable CDSC with respect to Class B and C shares.
|
2
|
Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class A shares reflect
the deduction of the maximum initial sales charge of 4.25%; Class B shares reflect the deduction of a 4.50% CDSC, which applies if shares are redeemed within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase
payment and thereafter by 1.00% per year until no CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment.
|
*
|
Inception dates for Class A, B, C and I shares are April 4, 1994, June 20, 1994, April 5, 1994 and February 4, 2008,
respectively.
|
|
|
|
8
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Fund performance
(unaudited)
(contd)
Historical performance
Value of $10,000 invested in
Class A, B and C Shares of Western Asset Pennsylvania Municipals Fund vs. Barclays Pennsylvania Municipal Bond Index and Lipper Pennsylvania
Municipal Debt Funds Category Average March 2003 - March 2013
All
figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost.
The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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.
|
Hypothetical illustration of $10,000 invested in Class A, B and C shares of Western Asset Pennsylvania Municipals Fund on March 31, 2003, assuming the deduction
of the maximum initial sales charge of 4.25% at the time of investment for Class A shares and the reinvestment of all distributions, including returns of capital, if any, at net asset value through March 31, 2013. The hypothetical illustration also
assumes a $10,000 investment in the Barclays Pennsylvania Municipal Bond Index and the Lipper Pennsylvania Municipal Debt Funds Category Average. The Barclays Pennsylvania Municipal Bond Index is a market value weighted index of Pennsylvania
investment grade (Baa3/BBB- or higher) fixed-rate municipal bonds with maturities of one year or more. The Index is unmanaged and not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest
directly in an index. The Lipper Pennsylvania Municipal Debt Funds Category Average is comprised of the Funds peer group of mutual funds. The performance of the Funds other class may be greater or less than the Class A, B and C
shares performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other class.
|
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
9
|
|
Spread duration
(unaudited)
Economic exposure
March 31, 2013
Spread duration measures the sensitivity to changes in spreads. The spread over Treasuries is the annual risk-
premium demanded by investors to hold non-Treasury securities. Spread duration is quantified as the % change in price resulting from a 100 basis points change in spreads. For a security with positive spread duration, an increase in spreads would
result in a price decline and a decline in spreads would result in a price increase. This chart highlights the market sector exposure of the Funds sectors relative to the selected benchmark sectors as of the end of the reporting period.
|
|
|
Benchmark
|
|
Barclays Pennsylvania Municipal Bond Index
|
WA PA Muni
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
|
10
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Effective duration
(unaudited)
Interest rate exposure
March 31, 2013
Effective duration measures the sensitivity to changes in relevant interest rates. Effective duration is
quantified as the % change in price resulting from a 100 basis points change in interest rates. For a security with positive effective duration, an increase in interest rates would result in a price decline and a decline in interest rates would
result in a price increase. This chart highlights the interest rate exposure of the Funds sectors relative to the selected benchmark sectors as of the end of the reporting period.
|
|
|
Benchmark
|
|
Barclays Pennsylvania Municipal Bond Index
|
WA PA Muni
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
11
|
|
Schedule of investments
March 31, 2013
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
Face
Amount
|
|
|
Value
|
|
Municipal Bonds
94.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education 18.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adams County, PA, IDA Revenue, Gettysburg College
|
|
|
5.875
|
%
|
|
8/15/21
|
|
$
|
7,500,000
|
|
|
$
|
7,600,350
|
|
Cumberland County, PA, Municipal Authority College Revenue, AICUP Financing Program, Dickinson
College
|
|
|
5.000
|
%
|
|
11/1/39
|
|
|
1,210,000
|
|
|
|
1,298,875
|
|
Lehigh County, PA, General Purpose Authority Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Muhlenberg College Project
|
|
|
5.250
|
%
|
|
2/1/34
|
|
|
1,075,000
|
|
|
|
1,176,910
|
|
Muhlenberg College Project
|
|
|
5.250
|
%
|
|
2/1/39
|
|
|
3,615,000
|
|
|
|
3,910,056
|
|
Pennsylvania State Higher EFA Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AICUP Financing Program, Delaware Valley College of Science & Agriculture Project
|
|
|
5.000
|
%
|
|
11/1/27
|
|
|
1,250,000
|
|
|
|
1,364,200
|
|
AICUP Financing Program, Delaware Valley College of Science & Agriculture Project
|
|
|
5.000
|
%
|
|
11/1/42
|
|
|
1,025,000
|
|
|
|
1,060,455
|
|
AICUP Financing Program-Messiah College
|
|
|
5.000
|
%
|
|
11/1/22
|
|
|
1,125,000
|
|
|
|
1,329,570
|
|
Clarion University Foundation Inc., SCA
|
|
|
5.250
|
%
|
|
7/1/18
|
|
|
1,000,000
|
|
|
|
1,002,260
|
|
Drexel University
|
|
|
5.000
|
%
|
|
5/1/31
|
|
|
10,000,000
|
|
|
|
11,091,800
|
|
La Salle University
|
|
|
5.000
|
%
|
|
5/1/29
|
|
|
1,740,000
|
|
|
|
1,990,386
|
|
La Salle University
|
|
|
5.000
|
%
|
|
5/1/37
|
|
|
1,700,000
|
|
|
|
1,892,780
|
|
La Salle University
|
|
|
5.000
|
%
|
|
5/1/42
|
|
|
2,000,000
|
|
|
|
2,219,940
|
|
Shippensburg University Student Services Inc.
|
|
|
5.000
|
%
|
|
10/1/30
|
|
|
1,000,000
|
|
|
|
1,117,710
|
|
Shippensburg University Student Services Inc.
|
|
|
5.000
|
%
|
|
10/1/35
|
|
|
700,000
|
|
|
|
769,356
|
|
Shippensburg University Student Services Inc.
|
|
|
5.000
|
%
|
|
10/1/44
|
|
|
1,625,000
|
|
|
|
1,771,087
|
|
Widener University
|
|
|
5.000
|
%
|
|
7/15/20
|
|
|
3,000,000
|
|
|
|
3,034,590
|
|
Pennsylvania State University, Refunding
|
|
|
5.250
|
%
|
|
3/1/18
|
|
|
1,000,000
|
|
|
|
1,003,270
|
|
Pennsylvania State, Public School Building Authority, Community College Revenue, Community College of
Philadelphia Project
|
|
|
6.000
|
%
|
|
6/15/28
|
|
|
8,000,000
|
|
|
|
8,950,400
|
|
Philadelphia, PA, Authority for IDR, Discovery Charter School Project
|
|
|
5.875
|
%
|
|
4/1/32
|
|
|
450,000
|
|
|
|
493,956
|
|
Snyder County, PA, Higher Education Authority, University Revenue, Susquehanna University
Project
|
|
|
5.000
|
%
|
|
1/1/38
|
|
|
2,000,000
|
|
|
|
2,128,680
|
|
State Public School Building Authority, College Revenue, Delaware County Community College Project,
AGM
|
|
|
5.000
|
%
|
|
10/1/27
|
|
|
1,250,000
|
|
|
|
1,375,513
|
|
Washington County, PA, IDA, College Revenue, Washington and Jefferson College
|
|
|
5.000
|
%
|
|
11/1/36
|
|
|
3,700,000
|
|
|
|
3,963,699
|
|
Total Education
|
|
|
|
|
|
|
|
|
|
|
|
|
60,545,843
|
|
Health Care 21.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegheny County, PA, Hospital Development Authority Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Center-UPMC Health, NATL
|
|
|
6.000
|
%
|
|
7/1/24
|
|
|
1,000,000
|
|
|
|
1,277,880
|
|
Health Center-UPMC Health, NATL
|
|
|
6.000
|
%
|
|
7/1/26
|
|
|
2,250,000
|
|
|
|
2,850,210
|
|
See Notes to Financial Statements.
|
|
|
12
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Schedule of investments (contd)
March 31, 2013
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
Face
Amount
|
|
|
Value
|
|
Health Care continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chester County, PA, HEFA, Health System Revenue
|
|
|
5.000
|
%
|
|
5/15/40
|
|
$
|
7,500,000
|
|
|
$
|
8,143,950
|
|
Lancaster County, PA, Hospital Authority Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Systems, Lancaster General Hospital
|
|
|
5.000
|
%
|
|
3/15/31
|
|
|
5,195,000
|
|
|
|
5,509,609
|
|
Health Systems, Lancaster General Hospital
|
|
|
5.000
|
%
|
|
7/1/42
|
|
|
6,350,000
|
|
|
|
6,966,521
|
|
McKean County, PA, Hospital Authority Revenue, Bradford Hospital Project, ACA
|
|
|
5.000
|
%
|
|
10/1/18
|
|
|
1,265,000
|
|
|
|
1,130,417
|
|
Monroe County, PA, Hospital Authority Revenue, Pocono Medical Center
|
|
|
5.125
|
%
|
|
1/1/37
|
|
|
3,000,000
|
|
|
|
3,109,770
|
|
Montgomery County, PA, Higher Education & Health Authority, Hospital Revenue, Abington Memorial
Hospital
|
|
|
5.125
|
%
|
|
6/1/33
|
|
|
6,000,000
|
|
|
|
6,439,560
|
|
Montgomery County, PA, IDA Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acts Retirement-Life Communities
|
|
|
5.000
|
%
|
|
11/15/23
|
|
|
1,200,000
|
|
|
|
1,411,080
|
|
Acts Retirement-Life Communities
|
|
|
5.000
|
%
|
|
11/15/24
|
|
|
3,250,000
|
|
|
|
3,731,455
|
|
Acts Retirement-Life Communities
|
|
|
6.250
|
%
|
|
11/15/29
|
|
|
715,000
|
|
|
|
830,666
|
|
Montgomery County, PA, IDA, Health Facilities Revenue, Jefferson Health System
|
|
|
5.000
|
%
|
|
10/1/41
|
|
|
6,000,000
|
|
|
|
6,440,160
|
|
Pennsylvania Economic Development Financing Authority, Health Systems Revenue, Albert Einstein
Healthcare
|
|
|
6.250
|
%
|
|
10/15/23
|
|
|
4,000,000
|
|
|
|
4,662,800
|
|
Pennsylvania State Higher EFA Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
University of Pennsylvania Health Systems Revenue
|
|
|
5.750
|
%
|
|
8/15/41
|
|
|
2,000,000
|
|
|
|
2,294,160
|
|
University of Pittsburgh Medical Center
|
|
|
5.000
|
%
|
|
5/15/31
|
|
|
8,000,000
|
|
|
|
8,829,360
|
|
Potter County, PA, Hospital Authority Revenue, Charles Cole Memorial Hospital, Radian
|
|
|
6.050
|
%
|
|
8/1/24
|
|
|
525,000
|
|
|
|
525,268
|
|
St. Marys Hospital Authority, Health System Revenue, Catholic Health East
|
|
|
5.000
|
%
|
|
11/15/40
|
|
|
4,000,000
|
|
|
|
4,214,560
|
|
Total Health Care
|
|
|
|
|
|
|
|
|
|
|
|
|
68,367,426
|
|
Industrial Revenue 10.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegheny County, PA, IDA Revenue, Environmental Improvement, US Steel Corp.
|
|
|
6.750
|
%
|
|
11/1/24
|
|
|
3,000,000
|
|
|
|
3,331,860
|
|
Beaver County, PA, IDA Revenue, FirstEnergy Generation Corp. Project
|
|
|
2.150
|
%
|
|
3/1/17
|
|
|
1,875,000
|
|
|
|
1,870,800
|
|
Delaware County, PA, IDA Revenue, Resources Recovery Facilities
|
|
|
6.200
|
%
|
|
7/1/19
|
|
|
1,000,000
|
|
|
|
1,000,810
|
|
Pennsylvania Economic Development Financing Authority, Exempt Facilities Revenue, Shipping
Port
|
|
|
3.375
|
%
|
|
7/1/15
|
|
|
13,000,000
|
|
|
|
13,488,930
|
(a)
|
Pennsylvania Economic Development Financing Authority, Water Facility Revenue, American Water Co.
Project
|
|
|
6.200
|
%
|
|
4/1/39
|
|
|
9,000,000
|
|
|
|
10,618,020
|
|
Pennsylvania State IDA Revenue, Economic Development
|
|
|
5.500
|
%
|
|
7/1/23
|
|
|
2,190,000
|
|
|
|
2,546,050
|
|
See Notes to Financial Statements.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
13
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
Face
Amount
|
|
|
Value
|
|
Industrial Revenue continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philadelphia, PA, Authority for IDR, AMBAC
|
|
|
5.250
|
%
|
|
7/1/31
|
|
$
|
500,000
|
|
|
$
|
501,105
|
|
Total Industrial Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
33,357,575
|
|
Leasing 4.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware Valley, PA, Regional Finance Authority, Local Government Revenue, AMBAC
|
|
|
5.500
|
%
|
|
8/1/28
|
|
|
1,000,000
|
|
|
|
1,161,820
|
|
New Morgan, PA, Municipal Authority Office Revenue, Commonwealth Office Project
|
|
|
6.500
|
%
|
|
6/1/25
|
|
|
1,560,000
|
|
|
|
1,561,466
|
|
Pennsylvania State Public School Building Authority Lease Revenue, Philadelphia School District Project,
AGM
|
|
|
5.000
|
%
|
|
6/1/33
|
|
|
11,500,000
|
|
|
|
12,156,305
|
|
Total Leasing
|
|
|
|
|
|
|
|
|
|
|
|
|
14,879,591
|
|
Local General Obligation 4.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampden Township, PA, GO
|
|
|
5.000
|
%
|
|
5/15/37
|
|
|
1,660,000
|
|
|
|
1,864,080
|
|
Lackawanna County, PA, GO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGM
|
|
|
5.875
|
%
|
|
9/15/30
|
|
|
4,375,000
|
|
|
|
4,852,925
|
|
AGM
|
|
|
6.000
|
%
|
|
9/15/32
|
|
|
2,730,000
|
|
|
|
3,039,282
|
|
Northeastern York, PA, School District, GO, NATL/FGIC
|
|
|
5.000
|
%
|
|
4/1/30
|
|
|
2,000,000
|
|
|
|
2,138,620
|
|
Philadelphia, PA, School District, GO, Refunding, AMBAC
|
|
|
5.000
|
%
|
|
8/1/17
|
|
|
500,000
|
|
|
|
545,170
|
|
Scranton, PA, School District, GO, AGM
|
|
|
5.000
|
%
|
|
7/15/38
|
|
|
2,000,000
|
|
|
|
2,118,320
|
|
Total Local General Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
14,558,397
|
|
Power 3.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philadelphia, PA, Gas Works Revenue, General Ordinance, AMBAC
|
|
|
5.000
|
%
|
|
10/1/18
|
|
|
3,920,000
|
|
|
|
4,432,109
|
|
Puerto Rico Electric Power Authority, Power Revenue
|
|
|
5.250
|
%
|
|
7/1/40
|
|
|
7,000,000
|
|
|
|
6,696,690
|
|
Total Power
|
|
|
|
|
|
|
|
|
|
|
|
|
11,128,799
|
|
Pre-Refunded/Escrowed to Maturity 7.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butler County, PA, GO, FGIC
|
|
|
5.250
|
%
|
|
7/15/23
|
|
|
500,000
|
|
|
|
507,130
|
(b)
|
Central Dauphin, PA, School District, GO, NATL
|
|
|
6.000
|
%
|
|
2/1/18
|
|
|
1,000,000
|
|
|
|
1,153,930
|
(b)
|
Centre County, PA, Hospital Authority Revenue, Mount Nittany Medical Center Project, AGM
|
|
|
6.125
|
%
|
|
11/15/39
|
|
|
2,000,000
|
|
|
|
2,188,420
|
(b)
|
Coatesville, PA, Water Guaranteed Revenue
|
|
|
6.250
|
%
|
|
10/15/13
|
|
|
15,000
|
|
|
|
15,487
|
(c)
|
Delaware River, PA, Joint Toll Bridge Commission Revenue
|
|
|
5.250
|
%
|
|
7/1/18
|
|
|
1,000,000
|
|
|
|
1,012,310
|
(b)
|
Delaware River, PA, Joint Toll Bridge Commission Revenue
|
|
|
5.000
|
%
|
|
7/1/22
|
|
|
2,845,000
|
|
|
|
2,878,286
|
(b)
|
Delaware River, PA, Joint Toll Bridge Commission Revenue
|
|
|
5.000
|
%
|
|
7/1/23
|
|
|
2,000,000
|
|
|
|
2,023,400
|
(b)
|
Hopewell Township, PA, Special Obligation
|
|
|
10.600
|
%
|
|
5/1/13
|
|
|
5,000
|
|
|
|
5,040
|
(c)
|
Lower Merion, PA, School District, GO
|
|
|
5.000
|
%
|
|
5/15/17
|
|
|
2,000,000
|
|
|
|
2,011,360
|
(b)
|
See Notes to Financial Statements.
|
|
|
14
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Schedule of investments (contd)
March 31, 2013
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
Face
Amount
|
|
|
Value
|
|
Pre-Refunded/Escrowed to Maturity continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pennsylvania Convention Center Authority Revenue, FGIC
|
|
|
6.000
|
%
|
|
9/1/19
|
|
$
|
1,000,000
|
|
|
$
|
1,256,700
|
(c)
|
Pennsylvania State IDA Revenue, Economic Development
|
|
|
5.500
|
%
|
|
7/1/23
|
|
|
310,000
|
|
|
|
382,704
|
(b)
|
Pennsylvania State Turnpike Commission, Oil Franchise Tax Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMBAC
|
|
|
5.250
|
%
|
|
12/1/16
|
|
|
1,365,000
|
|
|
|
1,369,450
|
(c)
|
NATL
|
|
|
5.250
|
%
|
|
12/1/17
|
|
|
1,000,000
|
|
|
|
1,033,140
|
(b)
|
Philadelphia, PA, Gas Works Revenue, NATL
|
|
|
7.000
|
%
|
|
5/15/20
|
|
|
330,000
|
|
|
|
403,610
|
(c)
|
St. Marys Hospital Authority, Health System Revenue, Catholic Health East
|
|
|
5.500
|
%
|
|
11/15/24
|
|
|
1,000,000
|
|
|
|
1,080,740
|
(b)
|
State Public School Building Authority, School Revenue, Lease Daniel Boone School District Project,
NATL
|
|
|
5.000
|
%
|
|
4/1/22
|
|
|
1,000,000
|
|
|
|
1,000,000
|
(b)
|
Westmoreland County, PA, GO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Appreciation, AMBAC
|
|
|
0.010
|
%
|
|
8/1/13
|
|
|
2,000,000
|
|
|
|
1,996,660
|
(c)
|
Capital Appreciation, AMBAC
|
|
|
0.010
|
%
|
|
8/1/14
|
|
|
1,000,000
|
|
|
|
992,340
|
(c)
|
Wilkes-Barre, PA, Area School District, GO, NATL
|
|
|
5.250
|
%
|
|
4/1/22
|
|
|
1,460,000
|
|
|
|
1,532,606
|
(b)
|
Total Pre-Refunded/Escrowed to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
22,843,313
|
|
Solid Waste/Resource Recovery 1.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pennsylvania State Economic Development Financing Authority, Solid Waste Disposal Revenue, Waste
Management Inc. Project
|
|
|
1.750
|
%
|
|
12/1/15
|
|
|
4,000,000
|
|
|
|
4,106,240
|
(a)
|
Special Tax Obligation 8.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue
|
|
|
5.750
|
%
|
|
8/1/37
|
|
|
3,000,000
|
|
|
|
3,197,490
|
|
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue
|
|
|
5.000
|
%
|
|
8/1/40
|
|
|
6,000,000
|
|
|
|
6,210,300
|
(d)
|
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue
|
|
|
5.500
|
%
|
|
8/1/42
|
|
|
15,500,000
|
|
|
|
15,951,515
|
|
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue
|
|
|
6.000
|
%
|
|
8/1/42
|
|
|
1,000,000
|
|
|
|
1,074,330
|
|
Virgin Islands Public Finance Authority Revenue, Senior Lien, Capital Projects
|
|
|
5.000
|
%
|
|
10/1/39
|
|
|
1,000,000
|
|
|
|
1,049,120
|
|
Total Special Tax Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
27,482,755
|
|
Transportation 12.1%
|
|
Dauphin County, PA, General Authority Revenue, Office & Parking, Riverfront Office Center
Project
|
|
|
6.000
|
%
|
|
1/1/25
|
|
|
1,315,000
|
|
|
|
1,318,209
|
|
Delaware River Port Authority of Pennsylvania & New Jersey Revenue
|
|
|
5.000
|
%
|
|
1/1/40
|
|
|
4,000,000
|
|
|
|
4,317,560
|
|
Delaware River, NJ, Port Authority Revenue, Port District Project
|
|
|
5.000
|
%
|
|
1/1/25
|
|
|
2,715,000
|
|
|
|
3,126,132
|
|
See Notes to Financial Statements.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
15
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
Face
Amount
|
|
|
Value
|
|
Transportation continued
|
|
Delaware River, PA, Joint Toll Bridge Commission Revenue
|
|
|
5.000
|
%
|
|
7/1/21
|
|
$
|
1,200,000
|
|
|
$
|
1,439,028
|
|
Delaware River, PA, Joint Toll Bridge Commission Revenue
|
|
|
5.000
|
%
|
|
7/1/23
|
|
|
1,000,000
|
|
|
|
1,191,520
|
|
Pennsylvania State Turnpike Commission Revenue
|
|
|
5.250
|
%
|
|
6/1/36
|
|
|
6,000,000
|
|
|
|
6,538,920
|
|
Pennsylvania State Turnpike Commission Revenue
|
|
|
5.250
|
%
|
|
12/1/41
|
|
|
4,000,000
|
|
|
|
4,421,320
|
|
Pennsylvania State Turnpike Commission Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGM
|
|
|
5.000
|
%
|
|
6/1/39
|
|
|
2,800,000
|
|
|
|
3,042,144
|
|
Motor License Fund Enhanced
|
|
|
5.000
|
%
|
|
12/1/37
|
|
|
2,250,000
|
|
|
|
2,493,090
|
|
Motor License Fund Enhanced
|
|
|
5.000
|
%
|
|
12/1/42
|
|
|
3,500,000
|
|
|
|
3,839,815
|
|
Susquehanna, PA, Area Regional Airport Authority System Revenue
|
|
|
5.000
|
%
|
|
1/1/22
|
|
|
4,355,000
|
|
|
|
4,822,466
|
(e)
|
Susquehanna, PA, Area Regional Airport Authority System Revenue
|
|
|
5.000
|
%
|
|
1/1/27
|
|
|
2,500,000
|
|
|
|
2,710,475
|
(e)
|
Total Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
39,260,679
|
|
Water & Sewer 3.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erie, PA, Water Authority Revenue, AGM
|
|
|
5.000
|
%
|
|
12/1/43
|
|
|
7,000,000
|
|
|
|
7,501,270
|
|
Luzerne County, PA, IDA, Water Facility Revenue, American Water Co.
|
|
|
5.500
|
%
|
|
12/1/39
|
|
|
2,000,000
|
|
|
|
2,194,620
|
|
Philadelphia, PA, Water & Wastewater Revenue, Refunding, AMBAC
|
|
|
5.000
|
%
|
|
8/1/22
|
|
|
2,000,000
|
|
|
|
2,232,540
|
|
Total Water & Sewer
|
|
|
|
|
|
|
|
|
|
|
|
|
11,928,430
|
|
Total Investments before Short-Term Investments (Cost
$288,639,865)
|
|
|
|
308,459,048
|
|
Short-Term Investments
4.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Education 1.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pennsylvania State Higher EFA Revenue, Drexel University, LOC-JPMorgan Chase
|
|
|
0.120
|
%
|
|
11/1/25
|
|
|
5,500,000
|
|
|
|
5,500,000
|
(f)(g)
|
General Obligation 1.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philadelphia, PA, School District, GO, LOC-Wells Fargo Bank N.A.
|
|
|
0.130
|
%
|
|
9/1/30
|
|
|
5,000,000
|
|
|
|
5,000,000
|
(f)(g)
|
Health Care 0.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delaware County, PA, Authority Hospital Revenue, Crozer-Chester Medical Center, LOC-Wells Fargo
Bank N.A.
|
|
|
0.140
|
%
|
|
12/15/31
|
|
|
2,020,000
|
|
|
|
2,020,000
|
(f)(g)
|
Philadelphia, PA, Hospitals & Higher EFA Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Childrens Hospital Philadelphia Project, SPA-Bank of America N.A.
|
|
|
0.150
|
%
|
|
7/1/41
|
|
|
220,000
|
|
|
|
220,000
|
(f)(g)
|
Childrens Hospital Philadelphia Project, SPA-JPMorgan Chase & Westdeutsche
Landesbank
|
|
|
0.150
|
%
|
|
7/1/22
|
|
|
100,000
|
|
|
|
100,000
|
(f)(g)
|
Childrens Hospital Project, SPA-JPMorgan Chase
|
|
|
0.150
|
%
|
|
2/15/14
|
|
|
200,000
|
|
|
|
200,000
|
(f)(g)
|
See Notes to Financial Statements.
|
|
|
16
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Schedule of investments (contd)
March 31, 2013
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
Face
Amount
|
|
|
Value
|
|
Health Care continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitals & Higher EFA, Revenue, Childrens Hospital Project, SPA-JPMorgan
Chase & Westdeutsche Landesbank
|
|
|
0.150
|
%
|
|
7/1/25
|
|
$
|
100,000
|
|
|
$
|
100,000
|
(f)(g)
|
Total Health Care
|
|
|
|
|
|
|
|
|
|
|
|
|
2,640,000
|
|
Total Short-Term Investments (Cost $13,140,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
13,140,000
|
|
Total Investments 98.9% (Cost $301,779,865#)
|
|
|
|
|
|
|
|
|
|
|
|
|
321,599,048
|
|
Other Assets in Excess of Liabilities 1.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
3,416,465
|
|
Total Net Assets 100.0%
|
|
|
|
|
|
|
|
|
|
|
|
$
|
325,015,513
|
|
(a)
|
Maturity date shown represents the mandatory tender date.
|
(b)
|
Pre-Refunded bonds are escrowed with U.S. government obligations and/or U.S. government agency securities and are considered by the manager to be
triple-A rated even if issuer has not applied for new ratings.
|
(c)
|
Bonds are escrowed to maturity by government securities and/or U.S. government agency securities and are considered by the manager to be triple-A
rated even if issuer has not applied for new ratings.
|
(d)
|
All or a portion of this security is held at the broker as collateral for open futures contracts.
|
(e)
|
Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (AMT).
|
(f)
|
Variable rate demand obligations have a demand feature under which the Fund can tender them back to the issuer or liquidity provider on no more
than 7 days notice.
|
(g)
|
Maturity date shown is the final maturity date. The security may be sold back to the issuer before final maturity.
|
#
|
Aggregate cost for federal income tax purposes is $301,615,035.
|
|
|
|
Abbreviations used in this schedule:
|
ACA
|
|
American Capital Assurance Insured Bonds
|
AGM
|
|
Assured Guaranty Municipal Corporation Insured Bonds
|
AMBAC
|
|
American Municipal Bond Assurance Corporation Insured Bonds
|
EFA
|
|
Educational Facilities Authority
|
FGIC
|
|
Financial Guaranty Insurance Company Insured Bonds
|
GO
|
|
General Obligation
|
HEFA
|
|
Health & Educational Facilities Authority
|
IDA
|
|
Industrial Development Authority
|
IDR
|
|
Industrial Development Revenue
|
LOC
|
|
Letter of Credit
|
NATL
|
|
National Public Finance Guarantee Corporation Insured Bonds
|
Radian
|
|
Radian Asset Assurance Insured Bonds
|
SCA
|
|
Syncora Capital Assurance Inc. Insured Bonds
|
SPA
|
|
Standby Bond Purchase Agreement Insured Bonds
|
See Notes to Financial
Statements.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
17
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
|
|
Ratings table* (unaudited)
|
|
|
|
Standard & Poors/Moodys/Fitch**
|
|
|
|
|
AAA/Aaa
|
|
|
0.6
|
%
|
AA/Aa
|
|
|
30.7
|
|
A
|
|
|
42.6
|
|
BBB/Baa
|
|
|
18.7
|
|
BB/Ba
|
|
|
1.3
|
|
A-1/VMIG 1
|
|
|
4.1
|
|
NR
|
|
|
2.0
|
|
|
|
|
100.0
|
%
|
*
|
As a percentage of total investments.
|
**
|
The ratings shown are based on each portfolio securitys rating as determined by Standard & Poors, Moodys or Fitch, each a Nationally
Recognized Statistical Rating Organization (NRSRO). These ratings are the opinions of the NRSRO and are not measures of quality or guarantees of performance. Securities may be rated by other NRSROs, and these ratings may be higher or
lower. In the event that a security is rated by multiple NRSROs and receives different ratings, the Fund will treat the security as being rated in the highest rating category received from a NRSRO.
|
See Notes to Financial Statements.
|
|
|
18
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Statement of assets and liabilities
March 31, 2013
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
Investments, at value (Cost $301,779,865)
|
|
$
|
321,599,048
|
|
Cash
|
|
|
253
|
|
Interest receivable
|
|
|
4,348,294
|
|
Receivable for Fund shares sold
|
|
|
387,315
|
|
Receivable from broker variation margin on open futures contracts
|
|
|
8,250
|
|
Prepaid expenses
|
|
|
11,505
|
|
Other assets
|
|
|
554
|
|
Total Assets
|
|
|
326,355,219
|
|
|
|
Liabilities:
|
|
|
|
|
Payable for Fund shares repurchased
|
|
|
866,054
|
|
Distributions payable
|
|
|
138,098
|
|
Investment management fee payable
|
|
|
122,834
|
|
Service and/or distribution fees payable
|
|
|
88,159
|
|
Trustees fees payable
|
|
|
466
|
|
Accrued expenses
|
|
|
124,095
|
|
Total Liabilities
|
|
|
1,339,706
|
|
Total Net Assets
|
|
$
|
325,015,513
|
|
|
|
Net
Assets:
|
|
|
|
|
Par value (Note 7)
|
|
$
|
241
|
|
Paid-in capital in excess of par value
|
|
|
306,874,308
|
|
Undistributed net investment income
|
|
|
95,197
|
|
Accumulated net realized loss on investments and futures contracts
|
|
|
(1,758,630)
|
|
Net unrealized appreciation on investments and futures contracts
|
|
|
19,804,397
|
|
Total Net Assets
|
|
$
|
325,015,513
|
|
|
|
Shares
Outstanding:
|
|
|
|
|
Class A
|
|
|
13,223,684
|
|
Class B
|
|
|
251,209
|
|
Class C
|
|
|
7,874,229
|
|
Class I
|
|
|
2,728,212
|
|
|
|
Net Asset
Value:
|
|
|
|
|
Class A (and redemption price)
|
|
|
$13.52
|
|
Class B*
|
|
|
$13.47
|
|
Class C*
|
|
|
$13.46
|
|
Class I (and redemption price)
|
|
|
$13.51
|
|
Maximum Public Offering
Price Per Share:
|
|
|
|
|
Class A (based on maximum initial sales charge of 4.25%)
|
|
|
$14.12
|
|
*
|
Redemption price per share is NAV of Class B and C shares reduced by a 4.50% and 1.00% CDSC, respectively, if shares are redeemed within one year from purchase
payment (See Note 2).
|
See
Notes to Financial Statements.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
19
|
|
Statement of operations
For the Year Ended March 31, 2013
|
|
|
|
|
|
|
Investment
Income:
|
|
|
|
|
Interest
|
|
$
|
13,982,914
|
|
|
|
Expenses:
|
|
|
|
|
Investment management fee (Note 2)
|
|
|
1,430,873
|
|
Service and/or distribution fees (Notes 2 and 5)
|
|
|
1,010,136
|
|
Transfer agent fees (Note 5)
|
|
|
164,712
|
|
Legal fees
|
|
|
47,471
|
|
Audit and tax
|
|
|
35,451
|
|
Fund accounting fees
|
|
|
32,213
|
|
Shareholder reports
|
|
|
26,059
|
|
Registration fees
|
|
|
19,633
|
|
Insurance
|
|
|
7,177
|
|
Trustees fees
|
|
|
5,156
|
|
Custody fees
|
|
|
3,083
|
|
Miscellaneous expenses
|
|
|
8,393
|
|
Total Expenses
|
|
|
2,790,357
|
|
Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)
|
|
|
(3,609)
|
|
Net Expenses
|
|
|
2,786,748
|
|
Net Investment Income
|
|
|
11,196,166
|
|
|
Realized and
Unrealized Gain (Loss) on Investments
and Futures Contracts (Notes 1, 3 and 4):
|
|
Net Realized Gain (Loss) From:
|
|
|
|
|
Investment transactions
|
|
|
364,874
|
|
Futures contracts
|
|
|
(716,675)
|
|
Net Realized Loss
|
|
|
(351,801)
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
|
|
Investments
|
|
|
1,775,180
|
|
Futures contracts
|
|
|
(14,786)
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
|
|
1,760,394
|
|
Net Gain on Investments and Futures Contracts
|
|
|
1,408,593
|
|
Increase in Net Assets from Operations
|
|
$
|
12,604,759
|
|
See Notes to Financial
Statements.
|
|
|
20
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Years Ended March 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
11,196,166
|
|
|
$
|
10,919,748
|
|
Net realized gain (loss)
|
|
|
(351,801)
|
|
|
|
610,314
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
1,760,394
|
|
|
|
19,728,634
|
|
Increase in Net Assets From Operations
|
|
|
12,604,759
|
|
|
|
31,258,696
|
|
|
|
|
Distributions to
Shareholders From (Notes 1 and 6):
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(11,160,621)
|
|
|
|
(10,882,325)
|
|
Decrease in Net Assets From Distributions to
Shareholders
|
|
|
(11,160,621)
|
|
|
|
(10,882,325)
|
|
|
|
|
Fund Share Transactions
(Note 7):
|
|
|
|
|
|
|
|
|
Net proceeds from sale of shares
|
|
|
59,706,329
|
|
|
|
54,593,946
|
|
Reinvestment of distributions
|
|
|
9,520,221
|
|
|
|
9,185,442
|
|
Cost of shares repurchased
|
|
|
(42,476,344)
|
|
|
|
(51,663,295)
|
|
Increase in Net Assets From Fund Share Transactions
|
|
|
26,750,206
|
|
|
|
12,116,093
|
|
Increase in Net Assets
|
|
|
28,194,344
|
|
|
|
32,492,464
|
|
|
|
|
Net
Assets:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
296,821,169
|
|
|
|
264,328,705
|
|
End of year*
|
|
$
|
325,015,513
|
|
|
$
|
296,821,169
|
|
* Includes undistributed net investment income of:
|
|
|
$95,197
|
|
|
|
$96,046
|
|
See Notes to Financial
Statements.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
21
|
|
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of beneficial interest outstanding throughout each year ended March 31:
|
|
Class A Shares
1
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Net asset value, beginning
of year
|
|
|
$13.44
|
|
|
|
$12.47
|
|
|
|
$13.01
|
|
|
|
$12.39
|
|
|
|
$12.79
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.50
|
|
|
|
0.54
|
|
|
|
0.55
|
|
|
|
0.55
|
|
|
|
0.54
|
|
Net realized and unrealized gain (loss)
|
|
|
0.08
|
|
|
|
0.97
|
|
|
|
(0.54)
|
|
|
|
0.62
|
|
|
|
(0.40)
|
|
Total income from operations
|
|
|
0.58
|
|
|
|
1.51
|
|
|
|
0.01
|
|
|
|
1.17
|
|
|
|
0.14
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.50)
|
|
|
|
(0.54)
|
|
|
|
(0.55)
|
|
|
|
(0.55)
|
|
|
|
(0.54)
|
|
Total distributions
|
|
|
(0.50)
|
|
|
|
(0.54)
|
|
|
|
(0.55)
|
|
|
|
(0.55)
|
|
|
|
(0.54)
|
|
|
|
|
|
|
|
Net asset value, end of
year
|
|
|
$13.52
|
|
|
|
$13.44
|
|
|
|
$12.47
|
|
|
|
$13.01
|
|
|
|
$12.39
|
|
Total return
2
|
|
|
4.37
|
%
|
|
|
12.30
|
%
|
|
|
0.02
|
%
|
|
|
9.56
|
%
|
|
|
1.14
|
%
|
|
|
|
|
|
|
Net assets, end of year
(000s)
|
|
|
$178,770
|
|
|
|
$168,007
|
|
|
|
$157,777
|
|
|
|
$167,756
|
|
|
|
$138,964
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
0.70
|
%
|
|
|
0.69
|
%
|
|
|
0.69
|
%
|
|
|
0.67
|
%
|
|
|
0.68
|
%
|
Net expenses
3
|
|
|
0.70
|
|
|
|
0.69
|
|
|
|
0.69
|
|
|
|
0.67
|
|
|
|
0.68
|
4
|
Net investment income
|
|
|
3.70
|
|
|
|
4.14
|
|
|
|
4.27
|
|
|
|
4.26
|
|
|
|
4.33
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
6
|
%
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
Performance figures, exclusive of sales charges, 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.
|
3
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
4
|
As a result of a contractual expense limitation arrangement, effective March 16, 2007 until August 1, 2008, management had
contractually agreed to waive fees and/or reimburse expenses to limit total annual operating expenses, other than brokerage, taxes, extraordinary expenses, to average net assets to 0.70% for Class A shares.
|
See Notes to Financial Statements.
|
|
|
22
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Financial highlights (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of beneficial interest outstanding throughout each year ended March 31:
|
|
Class B Shares
1
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Net asset value, beginning
of year
|
|
|
$13.39
|
|
|
|
$12.42
|
|
|
|
$12.96
|
|
|
|
$12.35
|
|
|
|
$12.75
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.41
|
|
|
|
0.45
|
|
|
|
0.47
|
|
|
|
0.47
|
|
|
|
0.47
|
|
Net realized and unrealized gain (loss)
|
|
|
0.07
|
|
|
|
0.96
|
|
|
|
(0.54)
|
|
|
|
0.61
|
|
|
|
(0.40)
|
|
Proceeds from settlement of a regulatory matter
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
Total income (loss) from operations
|
|
|
0.48
|
|
|
|
1.41
|
|
|
|
(0.04)
|
|
|
|
1.08
|
|
|
|
0.07
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.40)
|
|
|
|
(0.44)
|
|
|
|
(0.50)
|
|
|
|
(0.47)
|
|
|
|
(0.47)
|
|
Total distributions
|
|
|
(0.40)
|
|
|
|
(0.44)
|
|
|
|
(0.50)
|
|
|
|
(0.47)
|
|
|
|
(0.47)
|
|
|
|
|
|
|
|
Net asset value, end of
year
|
|
|
$13.47
|
|
|
|
$13.39
|
|
|
|
$12.42
|
|
|
|
$12.96
|
|
|
|
$12.35
|
|
Total return
2
|
|
|
3.63
|
%
|
|
|
11.51
|
%
|
|
|
(0.39)
|
%
3
|
|
|
8.89
|
%
|
|
|
0.57
|
%
|
|
|
|
|
|
|
Net assets, end of year
(000s)
|
|
|
$3,384
|
|
|
|
$4,054
|
|
|
|
$5,284
|
|
|
|
$7,597
|
|
|
|
$9,220
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
1.41
|
%
|
|
|
1.42
|
%
|
|
|
1.34
|
%
|
|
|
1.22
|
%
|
|
|
1.24
|
%
|
Net expenses
4
|
|
|
1.41
|
|
|
|
1.42
|
|
|
|
1.34
|
|
|
|
1.22
|
|
|
|
1.24
|
|
Net investment income
|
|
|
2.99
|
|
|
|
3.42
|
|
|
|
3.60
|
|
|
|
3.72
|
|
|
|
3.76
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
6
|
%
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
Performance figures, exclusive of CDSC, 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.
|
3
|
The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been
(0.63)%. Class B received $19,100 related to this distribution.
|
4
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
See Notes to Financial Statements.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of beneficial interest outstanding throughout each year ended March 31:
|
|
Class C Shares
1
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Net asset value, beginning
of year
|
|
|
$13.39
|
|
|
|
$12.42
|
|
|
|
$12.95
|
|
|
|
$12.34
|
|
|
|
$12.73
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.43
|
|
|
|
0.47
|
|
|
|
0.48
|
|
|
|
0.47
|
|
|
|
0.47
|
|
Net realized and unrealized gain (loss)
|
|
|
0.06
|
|
|
|
0.96
|
|
|
|
(0.53)
|
|
|
|
0.61
|
|
|
|
(0.39)
|
|
Total income (loss) from operations
|
|
|
0.49
|
|
|
|
1.43
|
|
|
|
(0.05)
|
|
|
|
1.08
|
|
|
|
0.08
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.42)
|
|
|
|
(0.46)
|
|
|
|
(0.48)
|
|
|
|
(0.47)
|
|
|
|
(0.47)
|
|
Total distributions
|
|
|
(0.42)
|
|
|
|
(0.46)
|
|
|
|
(0.48)
|
|
|
|
(0.47)
|
|
|
|
(0.47)
|
|
|
|
|
|
|
|
Net asset value, end of
year
|
|
|
$13.46
|
|
|
|
$13.39
|
|
|
|
$12.42
|
|
|
|
$12.95
|
|
|
|
$12.34
|
|
Total return
2
|
|
|
3.71
|
%
|
|
|
11.70
|
%
|
|
|
(0.48)
|
%
|
|
|
8.88
|
%
|
|
|
0.64
|
%
|
|
|
|
|
|
|
Net assets, end of year
(000s)
|
|
|
$106,000
|
|
|
|
$94,278
|
|
|
|
$82,890
|
|
|
|
$70,394
|
|
|
|
$32,529
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
1.26
|
%
|
|
|
1.25
|
%
|
|
|
1.26
|
%
|
|
|
1.23
|
%
|
|
|
1.24
|
%
|
Net expenses
3
|
|
|
1.26
|
|
|
|
1.25
|
|
|
|
1.26
|
|
|
|
1.23
|
|
|
|
1.24
|
|
Net investment income
|
|
|
3.13
|
|
|
|
3.57
|
|
|
|
3.70
|
|
|
|
3.68
|
|
|
|
3.76
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
6
|
%
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
Performance figures, exclusive of CDSC, 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.
|
3
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
See Notes to Financial Statements.
|
|
|
24
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Financial highlights (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of beneficial interest outstanding throughout each year ended March 31:
|
|
Class I Shares
1
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Net asset value, beginning
of year
|
|
|
$13.44
|
|
|
|
$12.46
|
|
|
|
$13.00
|
|
|
|
$12.39
|
|
|
|
$12.79
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.52
|
|
|
|
0.55
|
|
|
|
0.57
|
|
|
|
0.56
|
|
|
|
0.55
|
|
Net realized and unrealized gain (loss)
|
|
|
0.07
|
|
|
|
0.98
|
|
|
|
(0.55)
|
|
|
|
0.61
|
|
|
|
(0.39)
|
|
Total income from operations
|
|
|
0.59
|
|
|
|
1.53
|
|
|
|
0.02
|
|
|
|
1.17
|
|
|
|
0.16
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.52)
|
|
|
|
(0.55)
|
|
|
|
(0.56)
|
|
|
|
(0.56)
|
|
|
|
(0.56)
|
|
Total distributions
|
|
|
(0.52)
|
|
|
|
(0.55)
|
|
|
|
(0.56)
|
|
|
|
(0.56)
|
|
|
|
(0.56)
|
|
|
|
|
|
|
|
Net asset value, end of
year
|
|
|
$13.51
|
|
|
|
$13.44
|
|
|
|
$12.46
|
|
|
|
$13.00
|
|
|
|
$12.39
|
|
Total return
2
|
|
|
4.42
|
%
|
|
|
12.52
|
%
|
|
|
0.12
|
%
|
|
|
9.56
|
%
|
|
|
1.31
|
%
|
|
|
|
|
|
|
Net assets, end of year
(000s)
|
|
|
$36,862
|
|
|
|
$30,482
|
|
|
|
$18,378
|
|
|
|
$10,936
|
|
|
|
$1,802
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
0.58
|
%
|
|
|
0.57
|
%
|
|
|
0.58
|
%
|
|
|
0.69
|
%
|
|
|
0.53
|
%
|
Net expenses
3
|
|
|
0.57
|
4,5
|
|
|
0.57
|
4
|
|
|
0.58
|
4,5
|
|
|
0.59
|
4,5
|
|
|
0.53
|
|
Net investment income
|
|
|
3.83
|
|
|
|
4.23
|
|
|
|
4.40
|
|
|
|
4.36
|
|
|
|
4.46
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
9
|
%
|
|
|
6
|
%
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
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.
|
3
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
4
|
As a result of an expense limitation arrangement, effective September 18, 2009, the ratio of expenses, other than brokerage interest, taxes,
extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.60%. This expense limitation arrangement cannot be terminated prior to December 31, 2014 without the Board of Trustees
consent.
|
5
|
Reflects fee waivers and/or expense reimbursements.
|
See Notes to Financial Statements.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
25
|
|
Notes to financial statements
1. Organization and significant accounting policies
Western Asset Pennsylvania Municipals Fund (formerly Legg Mason Western Asset Pennsylvania Municipals Fund) (the Fund) is a separate
non-diversified investment series of Legg Mason Partners Income Trust (the Trust). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end
management investment company.
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 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. Short-term fixed income
securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investments fair value. Futures contracts are valued daily at the settlement price established by
the board of trade or exchange on which they are traded
.
If independent third party pricing 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 Legg Mason
North American Fund Valuation Committee (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,
|
|
|
26
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Notes to financial statements (contd)
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.
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.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
27
|
|
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
|
|
Municipal bonds
|
|
|
|
|
|
$
|
308,459,048
|
|
|
|
|
|
|
$
|
308,459,048
|
|
Short-term investments
|
|
|
|
|
|
|
13,140,000
|
|
|
|
|
|
|
|
13,140,000
|
|
Total investments
|
|
|
|
|
|
$
|
321,599,048
|
|
|
|
|
|
|
$
|
321,599,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Other financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures
|
|
$
|
14,786
|
|
|
|
|
|
|
|
|
|
|
$
|
14,786
|
|
|
See Schedule of Investments for additional detailed categorizations.
|
(b) 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 cash equivalents 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. The daily changes in contract value are recorded as unrealized gains or losses in the 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.
(c) Fund concentration.
Since the Fund invests primarily in obligations of issuers within Pennsylvania, it is subject to
possible risks associated with economic, political, credit or legal developments or industrial or regional matters specifically affecting Pennsylvania.
(d) Security transactions and investment income.
Security
transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. 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.
|
|
|
28
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Notes to financial statements (contd)
(e) Distributions to shareholders.
Distributions from net investment income of the Fund are declared each business day to shareholders of record, and are paid monthly. The Fund intends to satisfy conditions that will enable interest
from municipal securities, which is exempt from federal and certain state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Fund. Distributions of net realized gains, if any, are taxable and are declared at
least annually. 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.
(f) Share class accounting.
Investment income, common expenses
and realized/unrealized gains (losses) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.
(g) 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.
(h) 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 March 31, 2013, 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.
(i) 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 values per share. During the current year, the following reclassifications have been
made:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed Net
Investment Income
|
|
|
Accumulated Net
Realized Loss
|
|
|
Paid-in
Capital
|
|
(a)
|
|
|
|
|
|
$
|
2,153,654
|
|
|
$
|
(2,153,654)
|
|
(b)
|
|
$
|
(36,394)
|
|
|
|
36,394
|
|
|
|
|
|
(a)
|
Reclassifications are primarily due to the expiration of a capital loss carryfoward.
|
(b)
|
Reclassifications are primarily due to differences between book and tax accretion of market discount on fixed income securities.
|
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
29
|
|
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager and Western Asset Management Company (Western
Asset) is the Funds subadviser. LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason).
Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.45% of the Funds average daily net assets.
LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio
management of the Fund. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund.
As a result
of an expense limitation arrangements between the Fund and LMPFA, the ratio of expenses other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.60%.
This expense limitation arrangements cannot be terminated prior to December 31, 2014 without the Board of Trustees consent.
The investment manager is permitted to recapture amounts waived or reimbursed to a class during the same fiscal year if the class total annual
operating expenses have fallen to a level below the expense limitation (expense cap) in effect at the time the fees were earned or the expenses incurred. In no case will the investment manager recapture any amount that would result, on
any particular business day of the Fund, in the class total annual operating expenses exceeding the expense cap or any other lower limit then in effect.
Legg Mason Investor Services, LLC (LMIS), a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Funds sole and exclusive distributor.
There is a maximum initial sales charge of 4.25% for Class A shares. There is a contingent deferred sales charge (CDSC) of 4.50% on
Class B shares, which applies if redemption occurs within 12 months from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is incurred. Class C shares have a 1.00%
CDSC, which applies if redemption occurs within 12 months from purchase payment. In certain cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs within 18 months from purchase payment (or within 12 months for shares
purchased prior to August 1, 2012). This CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of other shares of funds sold by LMIS, equal or exceed $1,000,000 in the aggregate. These purchases
do not incur an initial sales charge.
|
|
|
30
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Notes to financial statements (contd)
For the year ended March 31, 2013, LMIS and its affiliates received sales charges of $43,874 on sales of the
Funds Class A shares. In addition, for the year ended March 31, 2013, CDSCs paid to LMIS and its affiliates were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
CDSCs
|
|
|
|
|
|
$
|
4,246
|
|
|
$
|
20,692
|
|
The Fund had adopted an unfunded, non-qualified deferred compensation plan (the Plan) which allowed
non-interested trustees (Independent Trustees) to defer the receipt of all or a portion of their fees earned until a later date specified by the Independent Trustees. The deferred balances are reported in the Statement of Assets and
Liabilities under Trustees fees payable and are considered a general obligation of the Fund and any payments made pursuant to the Plan will be made from the Funds general assets. The Plan was terminated effective January 1, 2006.
This change had no effect on fees previously deferred. As of March 31, 2013, the Fund had accrued $231 as deferred compensation payable.
All officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.
3. Investments
During the year ended March 31, 2013, the aggregate cost of
purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
|
|
|
|
|
Purchases
|
|
$
|
66,806,982
|
|
Sales
|
|
|
29,768,380
|
|
At March 31, 2013, the aggregate gross unrealized appreciation and depreciation of investments for federal
income tax purposes were as follows:
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
20,442,039
|
|
Gross unrealized depreciation
|
|
|
(458,026)
|
|
Net unrealized appreciation
|
|
$
|
19,984,013
|
|
At March 31, 2013, the Fund had the following open futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts
|
|
|
Expiration
Date
|
|
|
Basis
Value
|
|
|
Market
Value
|
|
|
Unrealized
Loss
|
|
Contracts to
Sell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 30-Year Bonds
|
|
|
88
|
|
|
|
6/13
|
|
|
$
|
12,698,464
|
|
|
$
|
12,713,250
|
|
|
$
|
(14,786)
|
|
4. Derivative instruments and hedging activities
GAAP requires enhanced disclosure about an entitys derivative and hedging activities.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
31
|
|
Below is a table, grouped by derivative type, that provides information about the fair value and the
location of derivatives within the Statement of Assets and Liabilities at March 31, 2013.
|
|
|
|
|
LIABILITY
DERIVATIVES
1
|
|
|
|
Interest Rate
Risk
|
|
Futures contracts
2
|
|
$
|
14,786
|
|
1
|
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation (depreciation) and for liability
derivatives is payables/net unrealized appreciation (depreciation).
|
2
|
Includes cumulative appreciation (depreciation) of futures contracts as reported in the footnotes. Only variation margin is reported within the
receivables and/or payables on the Statement of Assets and Liabilities.
|
The following tables provide information about
the effect of derivatives and hedging activities on the Funds Statement of Operations for the year ended March 31, 2013. 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
|
|
Futures contracts
|
|
$
|
(716,675)
|
|
|
|
|
|
|
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|
|
|
Interest Rate
Risk
|
|
Futures contracts
|
|
$
|
(14,786)
|
|
During the year ended March 31, 2013, the volume of derivative activity for the Fund was as follows:
|
|
|
|
|
|
|
Average Market
Value
|
|
Futures contracts (to sell)
|
|
$
|
10,649,688
|
|
5. Class specific expenses
The Fund has adopted a Rule 12b-1 distribution plan and under that plan the Fund pays a service fee with respect to its Class A, Class B and Class C shares calculated at the annual rate of
0.15% of the average daily net assets of each respective class. The Fund also pays a distribution fee with respect to its Class B and Class C shares calculated at the annual rate of 0.50% and 0.55% of the average daily net assets of each class,
respectively. Service and distribution fees are accrued daily and paid monthly.
|
|
|
32
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Notes to financial statements (contd)
For the year ended March 31, 2013, class specific expenses were as follows:
|
|
|
|
|
|
|
|
|
|
|
Service and/or
Distribution Fees
|
|
|
Transfer Agent
Fees
|
|
Class A
|
|
$
|
265,782
|
|
|
$
|
72,709
|
|
Class B
|
|
|
24,828
|
|
|
|
9,653
|
|
Class C
|
|
|
719,526
|
|
|
|
56,463
|
|
Class I
|
|
|
|
|
|
|
25,887
|
|
Total
|
|
$
|
1,010,136
|
|
|
$
|
164,712
|
|
For the year ended March 31, 2013, waivers and/or expense reimbursements by class were as follows:
|
|
|
|
|
|
|
Waivers/Expense
Reimbursements
|
|
Class A
|
|
|
|
|
Class B
|
|
|
|
|
Class C
|
|
|
|
|
Class I
|
|
$
|
3,609
|
|
Total
|
|
$
|
3,609
|
|
6. Distributions to shareholders by class
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31, 2013
|
|
|
Year Ended
March 31, 2012
|
|
Net Investment
Income:
|
|
|
|
|
|
|
|
|
Class A
|
|
$
|
6,534,239
|
|
|
$
|
6,649,683
|
|
Class B
|
|
|
113,692
|
|
|
|
161,082
|
|
Class C
|
|
|
3,208,778
|
|
|
|
3,050,854
|
|
Class I
|
|
|
1,303,912
|
|
|
|
1,020,706
|
|
Total
|
|
$
|
11,160,621
|
|
|
$
|
10,882,325
|
|
7. Shares of beneficial interest
At March 31, 2013, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Fund has the ability to issue multiple classes of
shares. Each class of shares represents an identical interest and has the same rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares.
Transactions in shares of each class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31, 2013
|
|
|
Year Ended
March 31, 2012
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Class
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,948,482
|
|
|
$
|
26,534,987
|
|
|
|
1,725,639
|
|
|
$
|
22,778,111
|
|
Shares issued on reinvestment
|
|
|
429,084
|
|
|
|
5,852,306
|
|
|
|
452,919
|
|
|
|
5,933,497
|
|
Shares repurchased
|
|
|
(1,650,937)
|
|
|
|
(22,505,139)
|
|
|
|
(2,335,415)
|
|
|
|
(30,469,106)
|
|
Net increase (decrease)
|
|
|
726,629
|
|
|
$
|
9,882,154
|
|
|
|
(156,857)
|
|
|
$
|
(1,757,498)
|
|
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31, 2013
|
|
|
Year Ended
March 31, 2012
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
Class
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
2,589
|
|
|
$
|
35,117
|
|
|
|
6,884
|
|
|
$
|
87,210
|
|
Shares issued on reinvestment
|
|
|
6,757
|
|
|
|
91,811
|
|
|
|
9,860
|
|
|
|
128,409
|
|
Shares repurchased
|
|
|
(60,769)
|
|
|
|
(825,773)
|
|
|
|
(139,453)
|
|
|
|
(1,814,826)
|
|
Net decrease
|
|
|
(51,423)
|
|
|
$
|
(698,845)
|
|
|
|
(122,709)
|
|
|
$
|
(1,599,207)
|
|
|
|
|
|
|
Class
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,687,803
|
|
|
$
|
22,922,784
|
|
|
|
1,286,611
|
|
|
$
|
16,922,531
|
|
Shares issued on reinvestment
|
|
|
192,657
|
|
|
|
2,616,324
|
|
|
|
186,769
|
|
|
|
2,437,869
|
|
Shares repurchased
|
|
|
(1,048,733)
|
|
|
|
(14,241,291)
|
|
|
|
(1,106,733)
|
|
|
|
(14,312,242)
|
|
Net increase
|
|
|
831,727
|
|
|
$
|
11,297,817
|
|
|
|
366,647
|
|
|
$
|
5,048,158
|
|
|
|
|
|
|
Class
I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
748,795
|
|
|
$
|
10,213,441
|
|
|
|
1,126,943
|
|
|
$
|
14,806,094
|
|
Shares issued on reinvestment
|
|
|
70,414
|
|
|
|
959,780
|
|
|
|
52,146
|
|
|
|
685,667
|
|
Shares repurchased
|
|
|
(359,623)
|
|
|
|
(4,904,141)
|
|
|
|
(385,244)
|
|
|
|
(5,067,121)
|
|
Net increase
|
|
|
459,586
|
|
|
$
|
6,269,080
|
|
|
|
793,845
|
|
|
$
|
10,424,640
|
|
8. Income tax information and distributions to shareholders
Subsequent to the fiscal year end, the Fund has made the following distributions per share:
|
|
|
|
|
|
|
|
|
Record Date
Payable Date
|
|
Class A
|
|
Class B
|
|
Class C
|
|
Class I
|
Daily
4/30/2013
|
|
$0.040837
|
|
$0.032022
|
|
$0.034388
|
|
$0.042157
|
The tax character of distributions paid during the fiscal years ended March 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
Distributions Paid
From:
|
|
|
|
|
|
|
|
|
Tax-exempt income
|
|
$
|
11,160,621
|
|
|
$
|
10,870,283
|
|
Ordinary income
|
|
|
|
|
|
|
12,042
|
|
Total distributions paid
|
|
$
|
11,160,621
|
|
|
$
|
10,882,325
|
|
As of March 31, 2013, the components of accumulated earnings on a tax basis were as follows:
|
|
|
|
|
Undistributed tax-exempt income net
|
|
$
|
146,469
|
|
Capital loss carryforward*
|
|
|
(1,938,246)
|
|
Other book/tax temporary differences
(a)
|
|
|
(36,486)
|
|
Unrealized appreciation (depreciation)
(b)
|
|
|
19,969,227
|
|
Total accumulated earnings (losses) net
|
|
$
|
18,140,964
|
|
|
|
|
34
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Notes to financial statements (contd)
*
|
As of March 31, 2013, the Fund had the following net capital loss carryforward remaining:
|
|
|
|
|
|
Year of Expiration
|
|
Amount
|
|
No Expiration
|
|
$
|
(454,597
|
)**
|
3/31/2018
|
|
|
(343,827
|
)
|
3/31/2019
|
|
|
(1,139,822
|
)
|
|
|
$
|
(1,938,246
|
)
|
These amounts will be available to offset any future taxable capital gains.
**
|
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward these capital losses for an unlimited period. However,
these losses will be required to be utilized prior to the funds other capital losses with the expiration dates listed above. Additionally, these capital losses retain their character as either short-term or long-term capital losses rather than
being considered all short-term as under previous law.
|
(a)
|
Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized losses on certain futures
contracts and book/tax differences in the timing of the deductibility of various expenses.
|
(b)
|
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the difference between book
and tax accretion methods for market discount on fixed income securities.
|
9. Legal matters
On or about May 30, 2006, John Halebian, a purported shareholder of Western Asset New York Tax Free Money Market Fund
(formerly known as Citi
SM
New York Tax Free
Reserves), a series of Legg Mason Partners Money Market Trust, formerly a series of CitiFunds Trust III (the Subject Trust), filed a complaint in the United States District Court for the Southern District of New York against the persons
who were then the independent trustees of the Subject Trust. The Subject Trust was also named in the complaint as a nominal defendant.
The complaint raised derivative claims on behalf of the Subject Trust and putative class claims against the then independent trustees in connection
with the 2005 sale of Citigroups asset management business to Legg Mason and the related approval of new investment advisory agreements by the trustees and shareholders. In the derivative claim, the plaintiff alleged that the independent
trustees had breached their fiduciary duty to the Subject Trust and its shareholders by failing to negotiate lower fees or to seek competing bids from other qualified investment advisers in connection with Citigroups sale to Legg Mason. In the
claims brought on behalf of a putative class of shareholders, the plaintiff alleged that the echo voting provisions applicable to the proxy solicitation process violated the 1940 Act and constituted a breach of fiduciary duty. The relief sought
included rescission of the advisory agreement and an award of costs and attorney fees.
In advance of filing the complaint,
Plaintiffs lawyers had made written demand for relief on the Board of the Subject Trust, and the Boards independent trustees formed a demand review committee to investigate those matters raised in the demand, and the expanded set of
matters subsequently raised in the complaint. The demand review committee recommended that the action demanded by Plaintiff would not be in the best interests of the Subject Trust. The independent trustees of the Subject Trust considered the
committees report, adopted the recommendation of the committee, and directed counsel to move to dismiss the complaint.
The Federal
district court dismissed the complaint in its entirety in July 2007. In May 2011, the U.S. Court of Appeals for the Second Circuit affirmed the district courts
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
|
|
35
|
|
dismissal as to the class claims, and remanded the remaining claim relating to the demand review committee that had examined the derivative claim to the district court with instructions to
convert the motion to dismiss into a motion for summary judgment. In July 2012, the district court granted summary judgment in favor of the defendants. In August 2012, Plaintiff filed an appeal, and the matter is now before the U.S. Court of Appeals
for the Second Circuit.
|
|
|
36
|
|
Western Asset Pennsylvania Municipals Fund 2013 Annual Report
|
Report of independent registered public accounting firm
The Board of Trustees and Shareholders
Legg Mason Partners Income Trust:
We have audited the accompanying statement of assets and liabilities, of Western Asset Pennsylvania Municipals Fund (formerly Legg Mason Western
Asset Pennsylvania Municipals Fund) (the Fund), a series of Legg Mason Partners Income Trust, including the schedule of investments, as of March 31, 2013, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 2013, by correspondence with the custodian and broker or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Western Asset Pennsylvania Municipals Fund as
of March 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then
ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
May 14, 2013
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
37
|
|
Board approval of management and subadvisory agreements
(unaudited)
At an in-person meeting of the Board of Trustees of Legg Mason Partners Income Trust (the Trust) held on November 5-6, 2012, the
Board, including the Trustees who are not considered to be interested persons of the Trust (the Independent Trustees) under the Investment Company Act of 1940, as amended (the 1940 Act), approved for an annual
period the continuation of the management agreement (the Management Agreement) between the Trust and Legg Mason Partners Fund Advisor, LLC (the Manager) with respect to the Western Asset Pennsylvania Municipals Fund, a series
of the Trust (the Fund), and the sub-advisory agreement (the Sub-Advisory Agreement) between the Manager and Western Asset Management Company (the Subadviser), an affiliate of the Manager, with respect to the
Fund.
Background
The
Board received information in advance of the meeting from the Manager to assist it in its consideration of the Management Agreement and the Sub-Advisory Agreement and was given the opportunity to ask questions and request additional information from
management. In addition, the Independent Trustees submitted questions to management before the meeting and considered the responses provided. The Board received and considered a variety of information about the Manager and the Subadviser, as well as
the management and sub-advisory arrangements for the Fund and other funds overseen by the Board, certain portions of which are discussed below. The information provided and presentations made to the Board encompassed the Fund and all funds for which
the Board has responsibility. The discussion below covers both the advisory and the administrative functions being rendered by the Manager, both of which functions are encompassed by the Management Agreement, as well as the advisory functions
rendered by the Subadviser pursuant to the Sub-Advisory Agreement.
Board approval of management agreement and sub-advisory agreement
The Independent Trustees were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent
Trustees received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the proposed continuation of the Management Agreement and the Sub-Advisory Agreement. The Independent Trustees also
discussed the proposed continuation of the Management Agreement and the Sub-Advisory Agreement in private sessions with their independent legal counsel at which no representatives of the Manager or Subadviser were present. In approving the
Management Agreement and Sub-Advisory Agreement, the Board, including the Independent Trustees, considered a variety of factors, including those factors discussed below. No single factor reviewed by the Board was identified by the Board as the
principal factor in determining whether to approve the Management Agreement and the Sub-Advisory Agreement, and each Trustee may have attributed different weight to the various factors.
|
|
|
38
|
|
Western Asset Pennsylvania Municipals Fund
|
Board approval of management and subadvisory agreements
(unaudited)
(contd)
Nature, extent and quality of the services under the management agreement and sub-advisory agreement
The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the
Subadviser under the Management Agreement and the Sub-Advisory Agreement, respectively, during the past year. The Board noted information received at regular meetings throughout the year related to the services rendered by the Manager in its
management of the Funds affairs and the Managers role in coordinating the activities of the Funds other service providers. The Boards evaluation of the services provided by the Manager and the Subadviser took into account the
Boards knowledge gained as Trustees of funds in the Legg Mason fund complex, including the scope and quality of the investment management and other capabilities of the Manager and the Subadviser, and the quality of the Managers
administrative and other services. The Board observed that the scope of services provided by the Manager and the Subadviser had expanded over time as a result of regulatory, market and other developments, including maintaining and monitoring their
own and the Funds compliance programs. The Board also noted that on a regular basis it received and reviewed information from the Manager and the Subadviser regarding the Funds compliance policies and procedures established pursuant to
Rule 38a-1 under the 1940 Act. The Board also considered the Managers and the Subadvisers risk management processes.
The
Board reviewed the qualifications, backgrounds and responsibilities of the Funds senior personnel and the team of investment professionals primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered,
based on its knowledge of the Manager and its affiliates, the financial resources of Legg Mason, Inc., the parent organization of the Manager and the Subadviser.
The Board considered the division of responsibilities between the Manager and the Subadviser and the oversight provided by the Manager. The Board also considered the Managers and the
Subadvisers policies and practices regarding the selection of brokers and dealers and the execution of portfolio transactions. In addition, management also reported to the Board on, among other things, its business plans and organizational
changes.
The Board received and considered performance information for the Fund as well as for a group of funds (the Performance
Universe) selected by Lipper, Inc. (Lipper), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the similarity of the Fund with the funds
included in the Performance Universe. The Board also noted that it had received and discussed with management information throughout the year at periodic intervals comparing the Funds performance against its benchmark and against the
Funds peers. In addition, the Board considered the Funds performance in light of overall financial market conditions.
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
39
|
|
The information comparing
the Funds performance to that of its Performance Universe, consisting of all retail and institutional funds classified as Pennsylvania municipal debt funds by Lipper, showed, among other data, that the Funds performance for the 1- and
3-year periods ended June 30, 2012 was below the median and the performance for the 5- and 10-year periods ended June 30, 2012 was above the median. The Board noted the explanations from the Manager and the Subadviser concerning the
Funds relative performance versus the peer group for the various periods.
The Board concluded that, overall, the nature, extent
and quality of services provided (and expected to be provided) under the Management Agreement and the Sub-Advisory Agreement were sufficient for renewal. The Board noted that it will continue to evaluate the Funds performance and any actions
taken by the Manager and the Subadviser to continue to improve performance.
Management fees and expense ratios
The Board reviewed and considered the contractual management fee (the Contractual Management Fee) and the actual management fees paid by
the Fund to the Manager (the Actual Management Fee) in light of the nature, extent and quality of the management and sub-advisory services provided by the Manager and the Subadviser. In addition, the Board noted that the compensation
paid to the Subadviser is paid by the Manager, not the Fund.
In addition, the Board received and considered information comparing the
Contractual Management Fee and the Actual Management Fee and the Funds total actual expenses with those of funds in both the relevant expense group and a broader group of funds, each selected and provided by Lipper. The Board also reviewed
information regarding fees charged by the Manager to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, separate accounts.
The Manager reviewed with the Board the differences in services provided to these different types of accounts, noting that the Fund is provided with certain administrative services, office
facilities, and Fund officers (including the Funds chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other Fund service providers. The Board
considered the fee comparisons in light of the differences in management of these different types of accounts. The Board also considered and discussed information about the Subadvisers fees, including the amount of the management fees retained
by the Manager after payment of the subadvisory fee. The Board also received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes.
The information comparing the Funds Contractual and Actual Management Fees as well as its actual total expense ratio to its expense group,
consisting of a group of retail front-end load funds (including the Fund) classified as Pennsylvania municipal debt funds and chosen by Lipper to be comparable to the Fund, showed that the
|
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40
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|
Western Asset Pennsylvania Municipals Fund
|
Board approval of management and subadvisory agreements
(unaudited)
(contd)
Funds Contractual Management Fee was below the median and its Actual Management Fee was at the median. The Board noted that the Funds actual total expense ratio was below the median.
The Board also considered that the current expense limitation applicable to one share class of the Fund is expected to continue through December 2014.
Taking all of the above into consideration, as well as the factors identified below, the Board determined that the management fee and the subadvisory fee for the Fund were reasonable in light of the
nature, extent and quality of the services provided to the Fund under the Management Agreement and the Sub-Advisory Agreement.
Manager
profitability
The Board received and considered an analysis of the profitability of the Manager and its affiliates in providing services
to the Fund. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received information with respect to the Managers allocation methodologies used in preparing this
profitability data. It was noted that the allocation methodologies had been reviewed in the past by an outside consultant and remained substantially unchanged. The profitability of the Manager and its affiliates was considered by the Board not
excessive in light of the nature, extent and quality of the services provided to the Fund and the type of fund it represented.
Economies
of scale
The Board received and discussed information concerning whether the Manager realizes economies of scale as the Funds
assets grow. The Board noted that although the Funds Contractual Management Fee does not have breakpoints, the Contractual Management Fee was below the asset-weighted average of management fees paid by the other funds in the same Lipper
investment classification/objective at lower asset levels, and only slightly higher than the asset-weighted average of management fees paid by the other funds in the same Lipper investment classification/objective at higher asset levels. The Board
also considered that the Contractual Management Fee was below the median of the expense group and the Actual Management Fee was at the median of the expense group.
The Board determined that the management fee structure for the Fund was reasonable.
Other benefits to the manager and the subadviser
The Board considered other benefits received by the Manager, the Subadviser and their affiliates as a result of their relationship with the Fund, including the opportunity to offer additional
products and services to Fund shareholders.
In light of the costs of providing investment management and other services to the Fund and
the ongoing commitment of the Manager and the Subadviser to the Fund, the Board considered that the ancillary benefits that the Manager and its affiliates received were reasonable.
* * *
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Western Asset Pennsylvania Municipals Fund
|
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41
|
|
In light of all of the
foregoing, the Board determined that the continuation of each of the Management Agreement and Sub-Advisory Agreement would be in the best interests of the Funds shareholders and approved the continuation of such agreements for another year.
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42
|
|
Western Asset Pennsylvania Municipals Fund
|
Additional information
(unaudited)
Information about Trustees and Officers
The business and affairs of Western Asset Pennsylvania Municipals Fund (the Fund) are conducted by management under
the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o R. Jay Gerken, 620 Eighth Avenue, 49
th
Floor, New York, New York 10018. Information pertaining to the Trustees and officers of the Fund is set forth
below.
The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon
request by calling the Fund at 1-877-721-1926.
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|
Independent Trustees:
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|
Elliott J. Berv
|
|
|
Year of birth
|
|
1943
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1989
|
Principal occupation(s) during past five years
|
|
President and Chief Executive Officer, Catalyst (consulting) (since 1984); formerly, Chief Executive Officer, Rocket City Enterprises
(media) (2000 to 2005)
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
World Affairs Council (since 2009); Board Member, American Identity Corp. (doing business as Morpheus Technologies) (biometric information management) (since 2001); formerly,
Director, Lapoint Industries (industrial filter company) (2002 to 2007); formerly, Director, Alzheimers Association (New England Chapter) (1998 to 2008)
|
A. Benton Cocanougher
|
|
|
Year of birth
|
|
1938
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1991
|
Principal occupation(s) during past five years
|
|
Retired; Dean Emeritus and Professor Emeritus, Texas A&M University (since 2008); Interim Dean, George Bush School of Government
and Public Service, Texas A&M University (2009 to 2010); A.P. Wiley Professor, Texas A&M University (2001 to 2008); Interim Chancellor, Texas A&M University System (2003 to 2004); Dean of the Mays Business School, Texas A&M
University (1987 to 2001)
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
Formerly, Director, First American Bank, Texas (1994 to 1999); formerly, Director, Randle Foods, Inc. (1991 to 1999); formerly, Director, Petrolon, Inc. (engine
lubrication products) (1991 to 1994)
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|
|
|
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|
Western Asset Pennsylvania Municipals Fund
|
|
|
43
|
|
|
|
|
Independent Trustees
contd
|
|
|
Jane F. Dasher
|
|
|
Year of birth
|
|
1949
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1999
|
Principal occupation(s) during past five years
|
|
Chief Financial Officer, Long Light Capital, LLC, formerly known as Korsant Partners, LLC (a family investment company)
(since 1997)
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
None
|
Mark T. Finn
|
|
|
Year of birth
|
|
1943
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1989
|
Principal occupation(s) during past five years
|
|
Adjunct Professor, College of William & Mary (since 2002); Chairman, Chief Executive Officer and Owner, Vantage Consulting Group,
Inc. (investment management) (since 1988); Principal/Member, Balvan Partners (investment management) (2002 to 2009)
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Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
None
|
Stephen R. Gross
|
|
|
Year of birth
|
|
1947
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1986
|
Principal occupation(s) during past five years
|
|
Chairman Emeritus (since 2011) and formerly Chairman, HLB Gross Collins, P.C. (accounting and consulting firm) (1974 to 2011);
Executive Director of Business Builders Team, LLC (since 2005); Principal, Gross Consulting Group, LLC (since 2011); CEO, Gross Capital Advisors, LLC (since 2011); CEO, Trusted CFO Solutions, LLC (since 2011)
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Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
None
|
Richard E. Hanson, Jr.
|
|
|
Year of birth
|
|
1941
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1985
|
Principal occupation(s) during past five years
|
|
Retired; formerly Headmaster, The New Atlanta Jewish Community High School, Atlanta, Georgia (1996 to 2000)
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
None
|
|
|
|
44
|
|
Western Asset Pennsylvania Municipals Fund
|
Additional information
(unaudited)
(contd)
Information about Trustees and Officers
|
|
|
Independent Trustees
contd
|
|
|
Diana R. Harrington
|
|
|
Year of birth
|
|
1940
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1992
|
Principal occupation(s) during past five years
|
|
Babson Distinguished Professor of Finance, Babson College (since 1992)
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
None
|
Susan M. Heilbron
|
|
|
Year of birth
|
|
1945
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1994
|
Principal occupation(s) during past five years
|
|
Retired; formerly, President, Lacey & Heilbron (communications consulting) (1990 to 2002); formerly, General Counsel and Executive
Vice President, The Trump Organization (1986 to 1990); formerly, Senior Vice President, New York State Urban Development Corporation (1984 to 1986); formerly, Associate, Cravath, Swaine & Moore (1980 to 1984) and (1977 to 1979)
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Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
Formerly, Director, Lincoln Savings Bank, FSB (1991 to 1994); formerly, Director, Trump Shuttle, Inc. (air transportation) (1989 to 1990); formerly, Director, Alexanders
Inc. (department store) (1987 to 1990)
|
Susan B. Kerley
|
|
|
Year of birth
|
|
1951
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1992
|
Principal occupation(s) during past five years
|
|
Investment Consulting Partner, Strategic Management Advisors, LLC (investment consulting) (since 1990)
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
Director and Trustee (since 1990) and formerly, Chairman (2005 to 2012) of various series of MainStay Family of Funds (66 funds); Investment Company Institute (ICI) Board
of Governors (since 2006); ICI Executive Committee (since 2011); Chairman of the Independent Directors Council (since 2012)
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|
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|
Western Asset Pennsylvania Municipals Fund
|
|
|
45
|
|
|
|
|
Independent Trustees
contd
|
|
|
Alan G. Merten
|
|
|
Year of birth
|
|
1941
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1990
|
Principal occupation(s) during past five years
|
|
President Emeritus (since 2012) and formerly, President, George Mason University (1996 to 2012)
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
Director Emeritus, Cardinal Financial Corporation (since 2006); Trustee, First Potomac Realty Trust (since 2005); Director, DeVry Inc. (educational services) (since 2012);
formerly, Director, Xybernaut Corporation (information technology) (2004 to 2006); formerly, Director, Digital Net Holdings, Inc. (2003 to 2004); formerly, Director, Comshare, Inc. (information technology) (1985 to 2003)
|
R. Richardson Pettit
|
|
|
Year of birth
|
|
1942
|
Position(s) with Trust
|
|
Trustee
|
Term of office
1
and length of time served
2
|
|
Since 1990
|
Principal occupation(s) during past five years
|
|
Retired; formerly, Duncan Professor of Finance, University of Houston (1977 to 2006); previous academic or management positions
include: University of Washington, University of Pennsylvania and Purdue University
|
Number of funds in fund complex overseen by Trustee
|
|
52
|
Other board memberships held by Trustee
|
|
None
|
Interested Trustee and Officer:
|
|
|
R. Jay Gerken
3
|
|
|
Year of birth
|
|
1951
|
Position(s) with Trust
|
|
Trustee, President, Chairman and Chief Executive Officer
|
Term of office
1
and length of time served
2
|
|
Since 2002
|
Principal occupation(s) during past five years
|
|
Managing Director of Legg Mason & Co., LLC (Legg Mason & Co.) (since 2005); Officer and Trustee/Director of 162
funds associated with Legg Mason Partners Fund Advisor, LLC (LMPFA) or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); President and Chief Executive Officer (CEO) of LMPFA (since 2006);
President and CEO of Smith Barney Fund Management LLC (SBFM) (formerly a registered investment adviser) (since 2002)
|
Number of funds in fund complex overseen by Trustee
|
|
162
|
Other board memberships held by Trustee
|
|
None
|
|
|
|
46
|
|
Western Asset Pennsylvania Municipals Fund
|
Additional information
(unaudited)
(contd)
Information about Trustees and Officers
|
|
|
Additional Officers:
|
|
|
Ted P. Becker
Legg Mason
620 Eighth Avenue, 49th Floor, New York, NY 10018
|
|
|
Year of birth
|
|
1951
|
Position(s) with Trust
|
|
Chief Compliance Officer
|
Term of office
1
and length of time served
2
|
|
Since 2007
|
Principal occupation(s) during past five years
|
|
Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005);
Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006)
|
Vanessa A. Williams
Legg Mason
100 First Stamford Place, 6th Floor, Stamford, CT 06902
|
|
|
Year of birth
|
|
1979
|
Position(s) with Trust
|
|
Chief Anti-Money Laundering Compliance Officer and Identity Theft Prevention Officer
|
Term of office
1
and length of time served
2
|
|
Since 2011
|
Principal occupation(s) during past five years
|
|
Vice President of Legg Mason & Co. (since 2012); Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since
2011); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); formerly, Senior Compliance Officer of Legg Mason & Co. (2008 to 2011); formerly, Compliance
Analyst of Legg Mason & Co. (2006 to 2008) and Legg Mason & Co. predecessors (prior to 2006)
|
Robert I. Frenkel
Legg Mason
100 First Stamford Place, 6th Floor, Stamford, CT 06902
|
|
|
Year of birth
|
|
1954
|
Position(s) with Trust
|
|
Secretary and Chief Legal Officer
|
Term of office
1
and length of time served
2
|
|
Since 2007
|
Principal occupation(s) during past five years
|
|
Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel of Global Mutual Funds for Legg Mason & Co. (since 2006) and
Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to
2006)
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|
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|
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
47
|
|
|
|
|
Additional Officers contd
|
|
|
Thomas C. Mandia
Legg Mason
100 First Stamford Place, 6th Floor, Stamford, CT 06902
|
|
|
Year of birth
|
|
1962
|
Position(s) with Trust
|
|
Assistant Secretary
|
Term of office
1
and length of time served
2
|
|
Since 2007
|
Principal occupation(s) during past five years
|
|
Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006);
Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary to SBFM (since 2002)
|
Richard F. Sennett
Legg Mason
100 International Drive, 5th Floor, Baltimore, MD 21202
|
|
|
Year of birth
|
|
1970
|
Position(s) with Trust
|
|
Principal Financial Officer
|
Term of office
1
and length of time served
2
|
|
Since 2011
|
Principal occupation(s) during past five years
|
|
Principal Financial Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); Managing Director of Legg Mason & Co. and Senior
Manager of the Treasury Policy group for Legg Mason & Co.s Global Fiduciary Platform (since 2011); formerly, Chief Accountant within the SECs Division of Investment Management (2007 to 2011); formerly, Assistant Chief Accountant
within the SECs Division of Investment Management (2002 to 2007)
|
James Crowley
Legg Mason
620 Eighth Avenue, 49th Floor, New York, NY 10018
|
|
|
Year of birth
|
|
1966
|
Position(s) with Trust
|
|
Treasurer
|
Term of office
1
and length of time served
2
|
|
Since 2011
|
Principal occupation(s) during past five years
|
|
Vice President of Legg Mason & Co. (since 2010); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); formerly,
Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2011); formerly, Controller of Security Fair Valuation and Project Management for Legg Mason & Co. or its affiliates (prior to
2010)
|
|
|
|
48
|
|
Western Asset Pennsylvania Municipals Fund
|
Additional information
(unaudited)
(contd)
Information about Trustees and Officers
|
|
|
Additional Officers contd
|
|
|
Jeanne M. Kelly
Legg Mason
620 Eighth Avenue, 49th Floor, New York, NY 10018
|
|
|
Year of birth
|
|
1951
|
Position(s) with Trust
|
|
Senior Vice President
|
Term of office
1
and length of time served
2
|
|
Since 2007
|
Principal occupation(s) during past five years
|
|
Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); Managing
Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005)
|
|
Trustees who are not interested persons of the Fund within the meaning of section 2(a)(19) of the 1940 Act.
|
1
|
Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death,
resignation, retirement or removal.
|
2
|
Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office.
|
3
|
Mr. Gerken is an interested person of the Fund, as defined in the 1940 Act, because of his position with LMPFA and/or certain of
its affiliates.
|
|
|
|
|
|
Western Asset Pennsylvania Municipals Fund
|
|
|
49
|
|
Important tax information
(unaudited)
All of the net investment income distributions paid monthly by the Fund during the taxable year ended March 31, 2013 qualify as tax-exempt
interest dividends for Federal income tax purposes.
Please retain this information for your records.
Western Asset
Pennsylvania Municipals Fund
Trustees
Elliott J. Berv
A. Benton Cocanougher
Jane F. Dasher
Mark T. Finn
R. Jay Gerken
Chairman
Stephen R. Gross
Richard E. Hanson, Jr.
Diana R. Harrington
Susan M. Heilbron
Susan B. Kerley
Alan G. Merten
R.
Richardson Pettit
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadviser
Western Asset Management Company
Distributor
Legg Mason Investor
Services, LLC
Custodian
State Street Bank and Trust Company
Co-transfer agents
Boston Financial
Data Services, Inc.
2000 Crown Colony Drive
Quincy, MA 02169
BNY Mellon Asset Servicing
4400 Computer Drive
Westborough, MA
01581
Independent registered public accounting firm
KPMG LLP
345 Park Avenue
New York, NY 10154
Western Asset Pennsylvania Municipals Fund
The Fund is a separate investment
series of Legg Mason Partners Income Trust, a Maryland statutory trust.
Western Asset Pennsylvania Municipals Fund
Legg Mason Funds
620 Eighth Avenue, 49
th
Floor
New York, NY 10018
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 on Form N-Q. The Funds Forms N-Q are available on the SECs website at www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, D.C., and
information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q, shareholders can call the Fund at 1-877-721-1926.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th 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 the Fund at 1-877-721-1926, (2) on the Funds website at www.leggmason.com/individualinvestors and
(3) on the SECs website at www.sec.gov.
This
report is submitted for the general information of the shareholders of Western Asset Pennsylvania Municipals Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a
current prospectus.
Investors should consider the
Funds investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.
www.leggmason.com/individualinvestors
©2013 Legg Mason Investor Services, LLC
Member FINRA, SIPC
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason 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 and certain closed-end funds
managed or sub-advised by Legg Mason or its affiliates. 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;
|
|
|
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 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 marketing services solely for the Funds;
|
|
|
The Funds representatives such as legal counsel, accountants and auditors; and
|
|
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
NOT PART OF THE ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on
the Funds behalf 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, or if you have questions about the Funds privacy practices, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us
section of the Funds website at www.leggmason.com, or contact the Fund at 1-877-721-1926.
Revised April 2011
|
NOT PART OF THE ANNUAL REPORT
|
www.leggmason.com/individualinvestors
©2013 Legg Mason Investor Services, LLC Member FINRA, SIPC
FD0789 5/13 SR13-1908
The registrant
has adopted a code of ethics that applies to the registrants principal executive officer, principal financial officer, principal accounting officer or controller.