ITEM 1.
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REPORT TO STOCKHOLDERS.
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The Semi-Annual Report to Stockholders is filed herewith.
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Semi-Annual Report
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May 31, 2020
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WESTERN ASSET
INFLATION-LINKED
INCOME FUND (WIA)
Beginning in January 2021, as permitted by regulations adopted by the Securities and Exchange Commission, the Fund
intends to no longer mail paper copies of the Funds shareholder reports like this one, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary (such as a broker-dealer or bank). Instead,
the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you invest through a financial intermediary and you already elected to receive shareholder reports electronically (e-delivery), you will not be affected by this change and you need not take any action. If you have not already elected e-delivery, you may elect to receive
shareholder reports and other communications from the Fund electronically by contacting your financial intermediary.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies
of your shareholder reports. That election will apply to all Legg Mason Funds held in your account at that financial intermediary. If you are a direct shareholder with the Fund, you can call the Fund at 1-888-888-0151, or write to the Fund by regular mail at P.O. Box 505000, Louisville, KY 40233 or by overnight delivery to Computershare, 462 South 4th Street, Suite
1600, Louisville, KY 40202 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account held directly with the fund complex.
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INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE
VALUE
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Fund objectives
The Funds primary investment objective is to provide current income. Capital appreciation, when consistent with current income, is a secondary
investment objective.
Under normal market conditions and at the time of purchase, the Fund will invest at least 80% of its total managed assets in
inflation-linked securities and at least 60% of its total managed assets in U.S. Treasury Inflation Protected Securities (TIPS). The Fund may also invest up to 40% of its total managed assets in
non-U.S. dollar investments.
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II
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Western Asset Inflation-Linked Income Fund
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Letter from the president
Dear Shareholder,
We are pleased to provide the semi-annual report of Western Asset Inflation-Linked Income Fund for the
six-month reporting period ended May 31, 2020. Please read on for Fund performance information during the Funds reporting period.
Special shareholder notice
At the Funds annual meeting of shareholders held
April 24, 2020, the owners of the common shares of the Fund elected the following Board of Trustees: Susan B. Kerley, Ronald L. Olson, and Avedick B. Poladian, who join Michael Larson (previously elected by shareholders) as Class I
Trustees; Robert Abeles, Jr., Jane F. Dasher, Anita L. DeFrantz, and Jane E. Trust as Class II Trustees; and William E.B. Siart, Jaynie Miller Studenmund, and Peter J. Taylor as Class III Trustees. The Class I Trustees, Class II
Trustees, and Class III Trustees will hold office until the annual meeting of shareholders in the year 2022, 2023, and 2021, respectively, and until his or her respective successor is duly elected and qualified or until he or she resigns,
retires or is otherwise disqualified or removed from office.
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.lmcef.com. 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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Western Asset Inflation-Linked Income Fund
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III
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Letter from the president
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
President
June 30, 2020
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IV
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Western Asset Inflation-Linked Income Fund
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Performance review
For the six months ended May 31, 2020, Western Asset Inflation-Linked Income Fund returned
-0.31% based on its net asset value (NAV)i and -2.97% based on its New York Stock Exchange (NYSE) market price per share. The Funds
unmanaged benchmarks, the Bloomberg Barclays U.S. Government Inflation-Linked 1-10 Year Indexii and the Bloomberg Barclays U.S. Government Inflation-Linked All Maturities Indexiii, returned 3.76% and 5.49%,
respectively, for the same period. The Bloomberg Barclays World Government Inflation-Linked All Maturities Indexiv and the Funds Custom Benchmarkv returned 3.23% and 5.28%, respectively, over the same time frame.
During this six-month period, the Fund made distributions to shareholders totaling $0.21 per share. As of May 31, 2020,
the Fund estimates that 59.7% of the distributions were sourced from net investment income and 40.3% constitutes realized capital gains*. The performance table shows the Funds six-month total return
based on its NAV and market price as of May 31, 2020. Past performance is no guarantee of future results.
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Performance Snapshot as
of May 31, 2020 (unaudited)
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Price Per Share
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6-Month
Total Return**
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$12.96 (NAV)
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-0.31
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%
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$11.40 (Market Price)
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-2.97
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%
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All figures represent past performance and are not a guarantee of future results. Performance figures for periods shorter than
one year represent cumulative figures and are not annualized.
** Total returns are based on changes in NAV or market price, respectively. Returns
reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.
Total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV.
Total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Funds
Dividend Reinvestment Plan.
One of the distinguishing features of closed-end funds compared to other
investment vehicles is the ability to trade at a premium or discount to NAV. Since the Fund is listed on the NYSE, the share price may trade above (premium) or below (discount) its NAV. Whereas the NAV is reflective of the Funds underlying
investments, the share price is reflective of the overall supply and demand in the marketplace. Historically, the majority of closed-end funds have traded at a discount to NAV. This Fund was no exception to
the phenomenon. We believe the Funds discount may be driven by a number of factors, including the overall closed-end fund market, current distribution rate and muted demand for inflation-linked
*
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These estimates are not for tax purposes. The Fund will issue a Form 1099 with final composition of the distributions for tax purposes after year end. A
return of capital is not taxable and results in a reduction in the tax basis of a shareholders investment. For more information about a distributions composition, please refer to the Funds distribution press release or, if
applicable, the Section 19 notice located in the press release section of our website www.lmcef.com (click on the name of the Fund).
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Western Asset Inflation-Linked Income Fund
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V
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Performance review (contd)
investment products. While there are actions that may temporarily reduce the discount
to NAV, which we discuss with the Board of Trustees, we believe that if investor demand for inflation-linked investments increased, that development, among other factors, may help reduce the Funds share price discount to NAV over time. Western
Asset Management Company, LLC, the Funds investment adviser, continues to believe the Fund offers investors the opportunity for long term inflation protection while providing a source of diversification for investors fixed income
portfolios.
Looking for additional information?
The Fund is traded under the symbol WIA and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line
under the symbol XWIAX on most financial websites. Barrons and The Wall Street Journals Monday edition both carry closed-end fund tables that provide additional
information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.lmcef.com (click on the name of the Fund).
In a continuing effort to provide information concerning the Fund, shareholders may call
1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Funds current NAV,
market price and other information.
Thank you for your investment in Western Asset Inflation-Linked Income 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, LLC
June 30,
2020
RISKS: Bonds are subject to a variety of risks, including interest rate, credit
and inflation risks. As interest rates rise, bond prices fall, reducing the value of a fixed income investments price. The Fund is subject to the additional risks associated with inflation protected securities, including liquidity risk,
prepayment risk, extension risk and deflation risk. Investments in foreign companies, including emerging markets, involve risks beyond those inherent solely in domestic investments. Leverage may cause a fund to be more volatile than if the fund had
not been leveraged, which may increase the risk of investment loss. Derivatives, such as options, futures, forwards and swaps, can be illiquid, create counterparty risk, may disproportionately increase losses, and may have a potentially large impact
on fund performance. To the extent that the Fund invests in asset-backed, mortgage-backed or mortgage-related securities, its exposure to prepayment and extension risks may be greater than if it invested in other fixed income securities.
International investments are subject to currency fluctuations, as well as social, economic and political risks. These risks are magnified in emerging markets. Emerging market countries tend to have economic, political and legal systems that are
less developed and are less stable than those of more developed countries.
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VI
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Western Asset Inflation-Linked Income Fund
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An investment in the Fund is subject
to the following additional risks. Lower grade securities, or equivalent unrated securities, which are commonly known as junk bonds, typically entail greater potential price volatility and have lower liquidity than higher-rated
securities. The Fund may have to apply a greater degree of judgment in establishing a price for lower grade securities for purposes of valuing fund shares. Changes in economic conditions or developments regarding the individual issuer are more
likely to cause price volatility and weaken the capacity of such securities to make principal and interest payments than is the case for higher grade securities. Lower grade securities are regarded as having predominantly speculative characteristics
with respect to the issuers capacity to pay interest and repay principal. These securities may also be more susceptible to real or perceived adverse economic and competitive industry conditions than higher rated securities. Lower grade and
unrated securities are generally issued by less creditworthy issuers that may have a larger amount of outstanding debt relative to their assets than issuers of higher grade securities. In the event of an issuers bankruptcy, claims of other
creditors may have priority over the claims of lower grade security holders, leaving few or no assets available to repay lower grade security holders. The Fund may incur expenses to the extent necessary to seek recovery upon default or to negotiate
new terms with a defaulting issuer. Lower grade securities frequently have redemption features that permit an issuer to repurchase the security from the Fund before it matures. If the issuer redeems lower grade securities, the Fund may have to
invest the proceeds in securities with lower yields and may lose income. Lower grade and unrated securities involve the risk that the Funds investment manager may not accurately evaluate the securitys comparative rating. Analysis of the
creditworthiness of issuers of lower grade and unrated securities may be more complex than for issuers of higher-quality securities. To the extent that the Fund holds lower grade and/or unrated securities, the Funds success in achieving its
investment objectives may depend more heavily on the Funds investment managers credit analysis than if the Fund held exclusively higher-quality and rated securities. If changes in the currency exchange rates do not occur as anticipated,
the Fund may lose money on currency transactions. The Funds ability to use currency transactions successfully depends on a number of factors, including the currency transactions being available at prices that are not too costly, the
availability of liquid markets and the ability of the Fund to accurately predict the direction of changes in currency exchange rates. Currency exchange rates may be volatile. Currency transactions are subject to counterparty risk, which is the risk
that the other party in the transaction will not fulfill its contractual obligation. The Fund may gain exposure to the commodities markets by investing a portion of its assets in a wholly-owned subsidiary, Western Asset Inflation-Linked Income Fund
CFC (the Subsidiary), organized under the laws of the Cayman Islands. The Fund and the Subsidiary are deemed commodity pools and the investment adviser is considered a commodity pool operator with respect to the
Fund under the Commodity Exchange Act. The investment adviser, directly or through its affiliates, is therefore subject to dual regulation by the Securities and Exchange Commission (the SEC) and the Commodity Futures Trading Commission
(the CFTC).
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Western Asset Inflation-Linked Income Fund
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VII
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Performance review (contd)
Due to recent regulatory changes, additional regulatory requirements may be imposed,
and additional expenses may be incurred by the Fund. The regulatory requirements governing the use of commodity futures (which include futures on broad-based securities indexes, interest rate futures and currency futures), options on commodity
futures, certain swaps or certain other investments could change at any time. Investments by the Fund in commodity-linked derivatives may subject the Fund to greater volatility than investments in traditional securities. The value of
commodity-linked derivatives may be affected by changes in overall market movements, commodity index volatility, prolonged or intense speculation by investors, changes in interest rates or factors affecting a particular industry or commodity, such
as drought, floods, other weather phenomena, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. By investing in the Subsidiary, the Fund is indirectly exposed to the risks associated with the
Subsidiarys investments. The investments held by the Subsidiary are generally similar to those that are permitted to be held by the Fund and are subject to the same risks that apply to similar investments if held directly by the Fund. The
Subsidiary is not registered as an investment company and is not subject to all of the investor protections of the Investment Company Act of 1940 (the 1940 Act). Changes in the laws of the United States and/ or the Cayman Islands could
adversely affect the Fund. For example, the Cayman Islands does not currently impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax on the Subsidiary. If Cayman Islands law changes such that the
Subsidiary must pay Cayman Islands taxes, shareholders would likely suffer decreased investment returns. The Funds exposure to commodities markets, including through the Subsidiary, may be limited by its intention to qualify as a regulated
investment company for U.S. federal income tax purposes, and may interfere with its ability to qualify as such.
This material is not intended
as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of
investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax
advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
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.
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VIII
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Western Asset Inflation-Linked Income Fund
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i
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Net asset value (NAV) is calculated by subtracting total liabilities, including liabilities associated with financial leverage (if any), from the
closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the
Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Funds market price as determined by supply of and demand for the Funds shares.
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ii
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The Bloomberg Barclays U.S. Government Inflation-Linked 1-10 Year Index measures the performance of the intermediate U.S.
Treasury Inflation-Protected Securities (TIPS) market.
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iii
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The Bloomberg Barclays U.S. Government Inflation-Linked All Maturities Index measures the performance of the U.S. TIPS market. The Index includes TIPS with one
or more years remaining maturity with total outstanding issue size of $500 million or more.
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iv
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The Bloomberg Barclays World Government Inflation-Linked All Maturities Index measures the performance of the major government inflation-linked bond markets.
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v
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The Custom Benchmark is comprised of 90% Bloomberg Barclays U.S. Government Inflation-Linked All Maturities Index and 10% Bloomberg Barclays U.S. Credit Index.
The Bloomberg Barclays U.S. Credit Index is an index composed of corporate and non-corporate debt issues that are investment grade (rated Baa3/BBB- or higher).
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Western Asset Inflation-Linked Income Fund
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IX
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(This page intentionally left blank.)
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 May 31, 2020 and November 30, 2019 and does not include
derivatives such as written options, futures contracts, forward foreign currency contracts and swap 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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Represents less than 0.1%.
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Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
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1
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Consolidated schedule of investments (unaudited)
May 31,
2020
Western Asset Inflation-Linked Income Fund
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Security
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Rate
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Maturity
Date
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Face
Amount
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Value
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U.S. Treasury Inflation Protected Securities 111.5%
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U.S. Treasury Bonds, Inflation Indexed
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2.375
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%
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1/15/25
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10,954,640
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$
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12,402,592
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U.S. Treasury Bonds, Inflation Indexed
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2.000
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%
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1/15/26
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56,778,957
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64,767,719
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(a)
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U.S. Treasury Bonds, Inflation Indexed
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2.375
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%
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1/15/27
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5,119,680
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6,113,416
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U.S. Treasury Bonds, Inflation Indexed
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1.750
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%
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1/15/28
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24,641,400
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28,939,297
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(a)
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U.S. Treasury Bonds, Inflation Indexed
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2.500
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%
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1/15/29
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12,130,299
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15,283,737
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U.S. Treasury Bonds, Inflation Indexed
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3.875
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%
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4/15/29
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40,037,805
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55,460,881
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(a)
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U.S. Treasury Bonds, Inflation Indexed
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2.125
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%
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2/15/40
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3,582,630
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5,174,175
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U.S. Treasury Bonds, Inflation Indexed
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2.125
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%
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2/15/41
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6,588,709
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9,650,907
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U.S. Treasury Bonds, Inflation Indexed
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0.750
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%
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2/15/42
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20,561,400
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24,139,796
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U.S. Treasury Bonds, Inflation Indexed
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1.375
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%
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2/15/44
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26,015,410
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34,875,332
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(a)
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U.S. Treasury Bonds, Inflation Indexed
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0.750
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%
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2/15/45
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16,014,313
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19,201,097
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(b)
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U.S. Treasury Bonds, Inflation Indexed
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1.000
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%
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2/15/48
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5,233,550
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6,784,320
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U.S. Treasury Bonds, Inflation Indexed
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0.250
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%
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2/15/50
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3,614,292
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3,955,638
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(b)
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U.S. Treasury Notes, Inflation Indexed
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0.625
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%
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7/15/21
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6,298,710
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6,345,665
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U.S. Treasury Notes, Inflation Indexed
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0.125
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%
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1/15/22
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18,816,765
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18,862,956
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U.S. Treasury Notes, Inflation Indexed
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0.125
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%
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4/15/22
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45,001,240
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45,094,798
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(a)
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U.S. Treasury Notes, Inflation Indexed
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0.125
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%
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7/15/22
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25,703,418
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25,975,543
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(a)
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U.S. Treasury Notes, Inflation Indexed
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0.125
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%
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1/15/23
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6,709,440
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6,776,706
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U.S. Treasury Notes, Inflation Indexed
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0.625
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%
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4/15/23
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2,078,300
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2,130,438
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U.S. Treasury Notes, Inflation Indexed
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0.500
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%
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4/15/24
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5,117,100
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5,293,306
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U.S. Treasury Notes, Inflation Indexed
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0.625
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%
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1/15/26
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22,475,340
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23,885,615
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Total U.S. Treasury Inflation Protected Securities (Cost
$389,445,902)
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421,113,934
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Corporate Bonds & Notes 11.0%
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Communication Services 0.0%
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Wireless Telecommunication Services 0.0%
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T-Mobile USA Inc., Senior Secured Notes
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3.750
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%
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4/15/27
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40,000
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43,048
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(c)
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Energy 5.3%
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Energy Equipment & Services 0.0%
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Halliburton Co., Senior Notes
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3.800
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%
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11/15/25
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13,000
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13,768
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Oil, Gas & Consumable Fuels 5.3%
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Apache Corp., Senior Notes
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2.625
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%
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1/15/23
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115,000
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104,812
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Apache Corp., Senior Notes
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5.250
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%
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2/1/42
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440,000
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348,428
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Apache Corp., Senior Notes
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4.250
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%
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1/15/44
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1,310,000
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962,399
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BP Capital Markets America Inc., Senior Notes
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3.633
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%
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|
4/6/30
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300,000
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337,224
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Enterprise Products Operating LLC, Senior Notes
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3.125
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%
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|
7/31/29
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|
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1,170,000
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|
|
1,243,376
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EOG Resources Inc., Senior Notes
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4.375
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%
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4/15/30
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40,000
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47,424
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EOG Resources Inc., Senior Notes
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|
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4.950
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%
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|
|
4/15/50
|
|
|
|
120,000
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|
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157,039
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See Notes to Consolidated Financial Statements.
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2
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Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
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Western
Asset Inflation-Linked Income Fund
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Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Oil, Gas & Consumable Fuels continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exxon Mobil Corp., Senior Notes
|
|
|
4.327
|
%
|
|
|
3/19/50
|
|
|
|
3,500,000
|
|
|
$
|
4,389,814
|
|
Exxon Mobil Corp., Senior Notes
|
|
|
3.452
|
%
|
|
|
4/15/51
|
|
|
|
330,000
|
|
|
|
365,299
|
|
Gazprom OAO Via Gaz Capital SA, Senior Notes
|
|
|
5.150
|
%
|
|
|
2/11/26
|
|
|
|
1,830,000
|
|
|
|
2,035,818
|
(c)
|
KazTransGas JSC, Senior Notes
|
|
|
4.375
|
%
|
|
|
9/26/27
|
|
|
|
2,000,000
|
|
|
|
2,019,260
|
(c)
|
MEG Energy Corp., Secured Notes
|
|
|
6.500
|
%
|
|
|
1/15/25
|
|
|
|
8,000
|
|
|
|
7,890
|
(c)
|
Noble Energy Inc., Senior Notes
|
|
|
3.900
|
%
|
|
|
11/15/24
|
|
|
|
200,000
|
|
|
|
197,894
|
|
Noble Energy Inc., Senior Notes
|
|
|
4.950
|
%
|
|
|
8/15/47
|
|
|
|
1,590,000
|
|
|
|
1,375,732
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
5.550
|
%
|
|
|
3/15/26
|
|
|
|
110,000
|
|
|
|
94,050
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
3.000
|
%
|
|
|
2/15/27
|
|
|
|
810,000
|
|
|
|
558,900
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
6.200
|
%
|
|
|
3/15/40
|
|
|
|
1,330,000
|
|
|
|
914,375
|
|
Petrobras Global Finance BV, Senior Notes
|
|
|
5.999
|
%
|
|
|
1/27/28
|
|
|
|
1,820,000
|
|
|
|
1,838,400
|
|
Range Resources Corp., Senior Notes
|
|
|
5.000
|
%
|
|
|
3/15/23
|
|
|
|
900,000
|
|
|
|
816,934
|
|
Williams Cos. Inc., Senior Notes
|
|
|
5.750
|
%
|
|
|
6/24/44
|
|
|
|
1,340,000
|
|
|
|
1,566,667
|
|
YPF SA, Senior Notes
|
|
|
8.500
|
%
|
|
|
7/28/25
|
|
|
|
800,000
|
|
|
|
523,884
|
(d)
|
Total Oil, Gas & Consumable Fuels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,905,619
|
|
Total Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,919,387
|
|
Financials 1.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co., Senior Notes (3.109% to 4/22/50 then SOFR + 2.440%)
|
|
|
3.109
|
%
|
|
|
4/22/51
|
|
|
|
430,000
|
|
|
|
436,193
|
(e)
|
Wells Fargo & Co., Senior Notes (5.013% to 4/4/50 then 3 mo. USD LIBOR + 4.240%)
|
|
|
5.013
|
%
|
|
|
4/4/51
|
|
|
|
2,440,000
|
|
|
|
3,202,583
|
(e)
|
Total Banks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,638,776
|
|
Diversified Financial Services 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ILFC E-Capital Trust II, Ltd. GTD ((Highest of 3 mo. USD LIBOR, 10 year Treasury
Constant Maturity Rate or 30 year Treasury Constant Maturity Rate) + 1.800%)
|
|
|
3.570
|
%
|
|
|
12/21/65
|
|
|
|
1,010,000
|
|
|
|
458,838
|
(c)(e)
|
Total Financials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,097,614
|
|
Health Care 1.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals 1.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bausch Health Americas Inc., Senior Notes
|
|
|
9.250
|
%
|
|
|
4/1/26
|
|
|
|
1,390,000
|
|
|
|
1,546,632
|
(c)
|
Bausch Health Americas Inc., Senior Notes
|
|
|
8.500
|
%
|
|
|
1/31/27
|
|
|
|
970,000
|
|
|
|
1,062,310
|
(c)
|
Bausch Health Cos. Inc., Senior Notes
|
|
|
9.000
|
%
|
|
|
12/15/25
|
|
|
|
1,280,000
|
|
|
|
1,407,226
|
(c)
|
Total Health Care
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,016,168
|
|
See Notes to Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
3
|
Consolidated schedule of investments
(unaudited) (contd)
May 31, 2020
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Industrials 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace & Defense 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Dynamics Corp., Senior Notes
|
|
|
4.250
|
%
|
|
|
4/1/40
|
|
|
|
10,000
|
|
|
$
|
12,459
|
|
General Dynamics Corp., Senior Notes
|
|
|
4.250
|
%
|
|
|
4/1/50
|
|
|
|
2,560,000
|
|
|
|
3,354,605
|
|
Total Aerospace & Defense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,367,064
|
|
Industrial Conglomerates 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Electric Co., Senior Notes
|
|
|
3.450
|
%
|
|
|
5/1/27
|
|
|
|
50,000
|
|
|
|
49,758
|
|
General Electric Co., Senior Notes
|
|
|
3.625
|
%
|
|
|
5/1/30
|
|
|
|
110,000
|
|
|
|
108,981
|
|
General Electric Co., Senior Notes
|
|
|
4.250
|
%
|
|
|
5/1/40
|
|
|
|
110,000
|
|
|
|
107,198
|
|
General Electric Co., Senior Notes
|
|
|
4.350
|
%
|
|
|
5/1/50
|
|
|
|
130,000
|
|
|
|
127,169
|
|
Total Industrial Conglomerates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
393,106
|
|
Total Industrials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,760,170
|
|
Information Technology 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductors & Semiconductor Equipment
0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcom Inc., Senior Notes
|
|
|
4.700
|
%
|
|
|
4/15/25
|
|
|
|
370,000
|
|
|
|
405,628
|
(c)
|
Materials 2.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals & Mining 2.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alcoa Nederland Holding BV, Senior Notes
|
|
|
6.125
|
%
|
|
|
5/15/28
|
|
|
|
720,000
|
|
|
|
703,933
|
(c)
|
Anglo American Capital PLC, Senior Notes
|
|
|
4.000
|
%
|
|
|
9/11/27
|
|
|
|
800,000
|
|
|
|
821,746
|
(c)
|
ArcelorMittal SA, Senior Notes
|
|
|
6.125
|
%
|
|
|
6/1/25
|
|
|
|
350,000
|
|
|
|
380,285
|
|
Barrick Gold Corp., Senior Notes
|
|
|
5.250
|
%
|
|
|
4/1/42
|
|
|
|
170,000
|
|
|
|
223,026
|
|
Barrick North America Finance LLC, Senior Notes
|
|
|
5.750
|
%
|
|
|
5/1/43
|
|
|
|
530,000
|
|
|
|
731,674
|
|
BHP Billiton Finance USA Ltd., Senior Notes
|
|
|
5.000
|
%
|
|
|
9/30/43
|
|
|
|
810,000
|
|
|
|
1,128,221
|
|
Glencore Finance Canada Ltd., Senior Notes
|
|
|
5.550
|
%
|
|
|
10/25/42
|
|
|
|
1,170,000
|
|
|
|
1,240,560
|
(c)
|
Glencore Funding LLC, Senior Notes
|
|
|
4.125
|
%
|
|
|
3/12/24
|
|
|
|
370,000
|
|
|
|
391,911
|
(c)
|
Glencore Funding LLC, Senior Notes
|
|
|
4.000
|
%
|
|
|
3/27/27
|
|
|
|
200,000
|
|
|
|
212,086
|
(c)
|
Glencore Funding LLC, Senior Notes
|
|
|
3.875
|
%
|
|
|
10/27/27
|
|
|
|
800,000
|
|
|
|
835,080
|
(c)
|
Southern Copper Corp., Senior Notes
|
|
|
5.250
|
%
|
|
|
11/8/42
|
|
|
|
1,670,000
|
|
|
|
1,867,931
|
|
Yamana Gold Inc., Senior Notes
|
|
|
4.625
|
%
|
|
|
12/15/27
|
|
|
|
670,000
|
|
|
|
697,564
|
|
Total Materials
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,234,017
|
|
Total Corporate Bonds & Notes (Cost $40,481,413)
|
|
|
|
|
|
|
|
|
|
|
|
41,476,032
|
|
Non-U.S. Treasury Inflation Protected Securities 8.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentina 0.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentina Treasury Bond
|
|
|
1.000
|
%
|
|
|
8/5/21
|
|
|
|
54,556,426
|
ARS
|
|
|
437,933
|
(f)
|
Brazil 2.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional Serie B, Notes
|
|
|
6.000
|
%
|
|
|
8/15/30
|
|
|
|
13,294,939
|
BRL
|
|
|
2,997,442
|
|
Brazil Notas do Tesouro Nacional Serie B, Notes
|
|
|
6.000
|
%
|
|
|
8/15/50
|
|
|
|
23,388,025
|
BRL
|
|
|
5,499,644
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
4
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Western
Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Brazil continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Brazil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,497,086
|
|
Canada 0.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada Government Real Return Bond
|
|
|
0.500
|
%
|
|
|
12/1/50
|
|
|
|
3,058,527
|
CAD
|
|
$
|
2,466,680
|
|
Italy 3.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Italy Buoni Poliennali Del Tesoro
|
|
|
3.100
|
%
|
|
|
9/15/26
|
|
|
|
10,900,979
|
EUR
|
|
|
13,707,111
|
|
Mexico 0.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican Udibonos
|
|
|
2.000
|
%
|
|
|
6/9/22
|
|
|
|
67,160,718
|
MXN
|
|
|
3,024,430
|
|
Russia 0.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russian Federal Inflation Linked Bond OFZ
|
|
|
2.500
|
%
|
|
|
2/2/28
|
|
|
|
239,838,301
|
RUB
|
|
|
3,434,315
|
|
Total Non-U.S. Treasury Inflation Protected Securities (Cost
$33,611,266)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,567,555
|
|
Collateralized Mortgage Obligations (g)
7.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Loan Trust, 2007-12T1 A3
|
|
|
6.000
|
%
|
|
|
6/25/37
|
|
|
|
1,467,646
|
|
|
|
1,049,648
|
|
BCAP LLC Trust, 2011-RR5 11A4 (1 mo. USD LIBOR + 0.150%)
|
|
|
0.787
|
%
|
|
|
5/28/36
|
|
|
|
396,712
|
|
|
|
395,791
|
(c)(e)
|
Bear Stearns ARM Trust, 2004-9 24A1
|
|
|
4.536
|
%
|
|
|
11/25/34
|
|
|
|
20,389
|
|
|
|
18,736
|
(e)
|
BHMS, 2018-ATLS D (1 mo. USD LIBOR + 2.250%)
|
|
|
2.434
|
%
|
|
|
7/15/35
|
|
|
|
2,520,000
|
|
|
|
2,009,511
|
(c)(e)
|
BXMT Ltd., 2020-FL2 A (1 mo. USD LIBOR + 0.900%)
|
|
|
1.084
|
%
|
|
|
2/16/37
|
|
|
|
660,000
|
|
|
|
629,844
|
(c)(e)
|
Chase Mortgage Finance Trust, 2007-A1 2A3
|
|
|
4.450
|
%
|
|
|
2/25/37
|
|
|
|
3,854
|
|
|
|
3,724
|
(e)
|
CSMC Trust, 2014-11R 9A2 (1 mo. USD LIBOR + 0.140%)
|
|
|
0.627
|
%
|
|
|
10/27/36
|
|
|
|
2,430,000
|
|
|
|
1,875,499
|
(c)(e)
|
CSMC Trust, 2019-NQM1 A1
|
|
|
2.656
|
%
|
|
|
10/25/59
|
|
|
|
1,228,140
|
|
|
|
1,241,878
|
(c)
|
Federal Home Loan Mortgage Corp. (FHLMC) Multifamily Structured Pass-Through Certificates, K721 X1, IO
|
|
|
0.322
|
%
|
|
|
8/25/22
|
|
|
|
146,431,447
|
|
|
|
952,873
|
(e)
|
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, 4057 UI, IO
|
|
|
3.000
|
%
|
|
|
5/15/27
|
|
|
|
701,855
|
|
|
|
42,642
|
|
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, 4085 IO, IO
|
|
|
3.000
|
%
|
|
|
6/15/27
|
|
|
|
1,867,500
|
|
|
|
105,206
|
|
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2017-DNA2 M2 (1 mo. USD LIBOR +
3.450%)
|
|
|
3.618
|
%
|
|
|
10/25/29
|
|
|
|
1,300,000
|
|
|
|
1,335,674
|
(e)
|
Federal National Mortgage Association (FNMA) CAS, 2014-C04 1M2 (1 mo. USD
LIBOR + 4.900%)
|
|
|
5.068
|
%
|
|
|
11/25/24
|
|
|
|
793,992
|
|
|
|
827,022
|
(c)(e)
|
Federal National Mortgage Association (FNMA) CAS, 2017-C03 1B1 (1 mo. USD
LIBOR + 4.850%)
|
|
|
5.018
|
%
|
|
|
10/25/29
|
|
|
|
1,340,000
|
|
|
|
1,192,475
|
(c)(e)
|
See Notes to
Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
5
|
Consolidated schedule of investments
(unaudited) (contd)
May 31, 2020
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Collateralized Mortgage Obligations (g)
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (FNMA) CAS, 2017-C03 1M2 (1 mo. USD
LIBOR + 3.000%)
|
|
|
3.168
|
%
|
|
|
10/25/29
|
|
|
|
1,310,000
|
|
|
$
|
1,324,757
|
(c)(e)
|
GMACM Mortgage Loan Trust, 2005-AF2 A1
|
|
|
6.000
|
%
|
|
|
12/25/35
|
|
|
|
1,009,685
|
|
|
|
940,960
|
|
Government National Mortgage Association (GNMA), 2011-142 IO, IO
|
|
|
0.000
|
%
|
|
|
9/16/46
|
|
|
|
2,616,289
|
|
|
|
9,135
|
(e)
|
Government National Mortgage Association (GNMA), 2012-44 IO, IO
|
|
|
0.243
|
%
|
|
|
3/16/49
|
|
|
|
901,082
|
|
|
|
5,163
|
(e)
|
Government National Mortgage Association (GNMA), 2012-112 IO, IO
|
|
|
0.237
|
%
|
|
|
2/16/53
|
|
|
|
1,647,746
|
|
|
|
20,093
|
(e)
|
Government National Mortgage Association (GNMA), 2012-152 IO, IO
|
|
|
0.814
|
%
|
|
|
1/16/54
|
|
|
|
5,612,312
|
|
|
|
274,777
|
(e)
|
Government National Mortgage Association (GNMA), 2013-145 IO, IO
|
|
|
1.036
|
%
|
|
|
9/16/44
|
|
|
|
1,771,285
|
|
|
|
66,336
|
(e)
|
Government National Mortgage Association (GNMA), 2014-47 IA, IO
|
|
|
0.128
|
%
|
|
|
2/16/48
|
|
|
|
409,434
|
|
|
|
6,439
|
(e)
|
Government National Mortgage Association (GNMA), 2014-50 IO, IO
|
|
|
0.754
|
%
|
|
|
9/16/55
|
|
|
|
1,388,784
|
|
|
|
63,691
|
(e)
|
Government National Mortgage Association (GNMA), 2014-169 IO, IO
|
|
|
0.785
|
%
|
|
|
10/16/56
|
|
|
|
12,479,147
|
|
|
|
492,000
|
(e)
|
Government National Mortgage Association (GNMA), 2015-101 IO, IO
|
|
|
0.762
|
%
|
|
|
3/16/52
|
|
|
|
16,142,969
|
|
|
|
678,581
|
(e)
|
Government National Mortgage Association (GNMA), 2015-183 IO, IO
|
|
|
0.866
|
%
|
|
|
9/16/57
|
|
|
|
22,061,556
|
|
|
|
1,198,371
|
(e)
|
GSR Mortgage Loan Trust, 2004-11 1A1
|
|
|
4.679
|
%
|
|
|
9/25/34
|
|
|
|
52,987
|
|
|
|
51,023
|
(e)
|
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNN FFL (1 mo. USD
LIBOR + 2.500%)
|
|
|
2.682
|
%
|
|
|
1/16/37
|
|
|
|
2,310,000
|
|
|
|
2,058,059
|
(c)(e)
|
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNN GFL (1 mo. USD
LIBOR + 3.000%)
|
|
|
3.182
|
%
|
|
|
1/16/37
|
|
|
|
2,310,000
|
|
|
|
1,933,487
|
(c)(e)
|
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNN
GFX
|
|
|
4.688
|
%
|
|
|
1/16/37
|
|
|
|
2,270,000
|
|
|
|
2,013,033
|
(c)(e)
|
Merrill Lynch Mortgage Investors Trust, 2004-A1 2A1
|
|
|
3.707
|
%
|
|
|
2/25/34
|
|
|
|
6,050
|
|
|
|
5,916
|
(e)
|
MRCD Mortgage Trust, 2019-PARK A
|
|
|
2.718
|
%
|
|
|
12/15/36
|
|
|
|
850,000
|
|
|
|
847,768
|
(c)
|
Natixis Commercial Mortgage Securities Trust, 2019-TRUE A (1 mo. USD LIBOR + 2.011%)
|
|
|
2.193
|
%
|
|
|
4/18/24
|
|
|
|
2,050,000
|
|
|
|
2,013,856
|
(c)(e)
|
New Residential Mortgage Loan Trust, 2014-1A A
|
|
|
3.750
|
%
|
|
|
1/25/54
|
|
|
|
655,210
|
|
|
|
677,822
|
(c)(e)
|
See Notes to Consolidated Financial Statements.
|
|
|
6
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Western
Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Collateralized Mortgage Obligations (g)
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nomura Resecuritization Trust, 2015-4R 2A2 (1 mo. USD LIBOR +
0.306%)
|
|
|
0.627
|
%
|
|
|
10/26/36
|
|
|
|
2,817,807
|
|
|
$
|
2,338,662
|
(c)(e)
|
RAMP Trust, 2004-SL4 A5
|
|
|
7.500
|
%
|
|
|
7/25/32
|
|
|
|
45,987
|
|
|
|
30,387
|
|
Washington Mutual MSC Mortgage Pass- Through Certificates Trust, 2004-RA1
2A
|
|
|
7.000
|
%
|
|
|
3/25/34
|
|
|
|
5,755
|
|
|
|
6,051
|
|
Total Collateralized Mortgage Obligations (Cost $32,274,422)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,736,890
|
|
Sovereign Bonds 4.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil 0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional Serie F, Notes
|
|
|
10.000
|
%
|
|
|
1/1/23
|
|
|
|
2,920,000
|
BRL
|
|
|
621,038
|
|
Chile 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonos de la Tesoreria de la Republica en pesos, Bonds
|
|
|
5.000
|
%
|
|
|
3/1/35
|
|
|
|
2,330,000,000
|
CLP
|
|
|
3,805,791
|
|
Indonesia 1.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indonesia Government International Bond, Senior Notes
|
|
|
5.125
|
%
|
|
|
1/15/45
|
|
|
|
200,000
|
|
|
|
242,658
|
(c)
|
Indonesia Government International Bond, Senior Notes
|
|
|
4.750
|
%
|
|
|
7/18/47
|
|
|
|
400,000
|
|
|
|
464,015
|
(c)
|
Indonesia Government International Bond, Senior Notes
|
|
|
4.350
|
%
|
|
|
1/11/48
|
|
|
|
290,000
|
|
|
|
323,114
|
|
Indonesia Treasury Bond
|
|
|
7.000
|
%
|
|
|
5/15/27
|
|
|
|
49,188,000,000
|
IDR
|
|
|
3,340,980
|
|
Total Indonesia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,370,767
|
|
Mexico 0.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican Bonos, Bonds
|
|
|
8.000
|
%
|
|
|
11/7/47
|
|
|
|
21,750,000
|
MXN
|
|
|
1,083,287
|
|
Mexico Government International Bond, Senior Notes
|
|
|
4.500
|
%
|
|
|
4/22/29
|
|
|
|
1,830,000
|
|
|
|
1,981,680
|
|
Total Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,064,967
|
|
Nigeria 0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria Government International Bond, Senior Notes
|
|
|
6.500
|
%
|
|
|
11/28/27
|
|
|
|
200,000
|
|
|
|
178,287
|
(c)
|
Qatar 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qatar Government International Bond, Senior Notes
|
|
|
4.000
|
%
|
|
|
3/14/29
|
|
|
|
1,850,000
|
|
|
|
2,090,546
|
(c)
|
Russia 0.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russian Federal Bond OFZ
|
|
|
7.050
|
%
|
|
|
1/19/28
|
|
|
|
120,000,000
|
RUB
|
|
|
1,902,352
|
|
United Arab Emirates 0.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abu Dhabi Government International Bond, Senior Notes
|
|
|
3.875
|
%
|
|
|
4/16/50
|
|
|
|
1,260,000
|
|
|
|
1,441,125
|
(c)
|
Total Sovereign Bonds (Cost $17,442,709)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,474,873
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
7
|
Consolidated schedule of investments
(unaudited) (contd)
May 31, 2020
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
Value
|
|
Asset-Backed Securities 2.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ameriquest Mortgage Securities Inc., Asset- Backed Pass-Through Certificates,
2005-R7 M2 (1 mo. USD LIBOR + 0.500%)
|
|
|
0.668
|
%
|
|
|
9/25/35
|
|
|
|
872,893
|
|
|
$
|
869,056
|
(e)
|
Ameriquest Mortgage Securities Inc., Asset- Backed Pass-Through Certificates,
2005-R10 M5 (1 mo. USD LIBOR + 0.630%)
|
|
|
0.798
|
%
|
|
|
1/25/36
|
|
|
|
4,660,000
|
|
|
|
4,040,634
|
(e)
|
CWHEQ Revolving Home Equity Loan Trust, 2005-C 2A (1 mo. USD LIBOR +
0.180%)
|
|
|
0.364
|
%
|
|
|
7/15/35
|
|
|
|
453,661
|
|
|
|
430,702
|
(e)
|
CWHEQ Revolving Home Equity Loan Trust, 2006-I 2A (1 mo. USD LIBOR +
0.140%)
|
|
|
0.324
|
%
|
|
|
1/15/37
|
|
|
|
696,282
|
|
|
|
649,583
|
(e)
|
First Franklin Mortgage Loan Trust, 2006- FF15 A5 (1 mo. USD LIBOR + 0.160%)
|
|
|
0.328
|
%
|
|
|
11/25/36
|
|
|
|
1,148,929
|
|
|
|
1,098,195
|
(e)
|
Legacy Mortgage Asset Trust, 2019-GS1 A1
|
|
|
4.000
|
%
|
|
|
1/25/59
|
|
|
|
1,034,279
|
|
|
|
1,047,024
|
(c)
|
Structured Asset Securities Corp. Mortgage Loan Trust, 2005-WF4 M8 (1 mo. USD
LIBOR + 2.625%)
|
|
|
2.793
|
%
|
|
|
11/25/35
|
|
|
|
2,600,000
|
|
|
|
2,531,570
|
(e)
|
Total Asset-Backed Securities (Cost $9,835,970)
|
|
|
|
|
|
|
|
|
|
|
|
10,666,764
|
|
Mortgage-Backed Securities 0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA 0.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (FNMA)
|
|
|
2.680
|
%
|
|
|
1/1/35-
2/1/35
|
|
|
|
300,000
|
|
|
|
331,476
|
|
Federal National Mortgage Association (FNMA)
|
|
|
2.790
|
%
|
|
|
1/1/35
|
|
|
|
469,282
|
|
|
|
522,504
|
(e)
|
Total Mortgage-Backed Securities (Cost $783,317)
|
|
|
|
|
|
|
|
|
|
|
|
853,980
|
|
Total Investments before Short-Term Investments (Cost
$523,874,999)
|
|
|
|
551,890,028
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Short-Term Investments 3.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dreyfus Government Cash Management, Institutional Shares (Cost $13,696,090)
|
|
|
0.095
|
%
|
|
|
|
|
|
|
13,696,090
|
|
|
|
13,696,090
|
|
Total Investments 149.8% (Cost $537,571,089)
|
|
|
|
|
|
|
|
|
|
|
|
565,586,118
|
|
Liabilities in Excess of Other Assets (49.8)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187,910,186
|
)
|
Total Net Assets 100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
377,675,932
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
8
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Western
Asset Inflation-Linked Income Fund
|
Face amount denominated in U.S. dollars, unless otherwise noted.
|
(a)
|
All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements.
|
(b)
|
All or a portion of this security is held at the broker as collateral for open futures contracts.
|
(c)
|
Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees.
|
(d)
|
Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the
United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees.
|
(e)
|
Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published
reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.
|
(f)
|
Security is valued in good faith in accordance with procedures approved by the Board of Trustees (Note 1).
|
(g)
|
Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates that are structured to direct payments
on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial indicators and may be subject to an
upper and/or lower limit.
|
|
|
|
Abbreviation(s) used in this schedule:
|
|
|
ARM
|
|
Adjustable Rate Mortgage
|
|
|
ARS
|
|
Argentine Peso
|
|
|
BRL
|
|
Brazilian Real
|
|
|
CAD
|
|
Canadian Dollar
|
|
|
CAS
|
|
Connecticut Avenue Securities
|
|
|
CLP
|
|
Chilean Peso
|
|
|
EUR
|
|
Euro
|
|
|
GTD
|
|
Guaranteed
|
|
|
IDR
|
|
Indonesian Rupiah
|
|
|
IO
|
|
Interest Only
|
|
|
JSC
|
|
Joint Stock Company
|
|
|
LIBOR
|
|
London Interbank Offered Rate
|
|
|
MXN
|
|
Mexican Peso
|
|
|
OFZ
|
|
Obligatsyi Federalnovo Zaima (Russian Federal Loan Obligation)
|
|
|
REMIC
|
|
Real Estate Mortgage Investment Conduit
|
|
|
RUB
|
|
Russian Ruble
|
|
|
SOFR
|
|
Secured Overnight Financing Rate
|
|
|
USD
|
|
United States Dollar
|
See Notes to
Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
9
|
Consolidated schedule of investments
(unaudited) (contd)
May 31, 2020
Western Asset Inflation-Linked Income Fund
At May 31, 2020, the Fund had the following open reverse repurchase agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Rate
|
|
|
Effective
Date
|
|
|
Maturity
Date
|
|
Face Amount
of Reverse
Repurchase
Agreements
|
|
|
Asset Class of Collateral*
|
|
|
Collateral
Value
|
|
Morgan Stanley & Co. Inc.
|
|
|
1.830
|
%
|
|
|
12/13/2019
|
|
|
6/12/2020
|
|
$
|
161,530,700
|
|
|
|
U.S. Treasury Inflation Protected Securities
|
|
|
$
|
169,235,575
|
|
Morgan Stanley & Co. Inc.
|
|
|
1.830
|
%
|
|
|
3/9/2020
|
|
|
6/12/2020
|
|
|
29,737,500
|
|
|
|
U.S. Treasury Inflation Protected Securities
|
|
|
|
29,681,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
191,268,200
|
|
|
|
|
|
|
$
|
198,917,027
|
|
*
|
Refer to the Consolidated Schedule of Investments for positions held at the counterparty as collateral for reverse repurchase agreements.
|
Schedule of Written Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC Written Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Counterparty
|
|
|
Expiration
Date
|
|
|
Strike
Price
|
|
Contracts
|
|
|
Notional
Amount
|
|
|
Value
|
|
U.S. Dollar/Mexican Peso, Put (Premiums received $71,481)
|
|
|
Goldman Sachs
Group Inc.
|
|
|
|
7/24/20
|
|
|
25.52 MXN
|
|
|
1,870,000
|
|
|
|
1,870,000
|
|
|
$
|
(270,339)
|
|
|
Notional amount denominated in U.S. dollars, unless otherwise noted.
|
|
|
|
Abbreviation(s) used in this schedule:
|
|
|
MXN
|
|
Mexican Peso
|
At May 31, 2020, the Fund had the following open futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts
|
|
|
Expiration
Date
|
|
|
Notional
Amount
|
|
|
Market
Value
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90-Day Eurodollar
|
|
|
587
|
|
|
|
6/20
|
|
|
$
|
144,230,345
|
|
|
$
|
146,306,081
|
|
|
$
|
2,075,736
|
|
90-Day Eurodollar
|
|
|
38
|
|
|
|
3/21
|
|
|
|
9,347,605
|
|
|
|
9,479,100
|
|
|
|
131,495
|
|
Brent Crude
|
|
|
188
|
|
|
|
12/20
|
|
|
|
5,953,362
|
|
|
|
7,409,080
|
|
|
|
1,455,718
|
|
Copper
|
|
|
196
|
|
|
|
9/20
|
|
|
|
11,167,672
|
|
|
|
11,946,200
|
|
|
|
778,528
|
|
Euro
|
|
|
53
|
|
|
|
6/20
|
|
|
|
7,596,090
|
|
|
|
7,354,412
|
|
|
|
(241,678)
|
|
Gold 100 Ounce
|
|
|
21
|
|
|
|
8/20
|
|
|
|
3,705,686
|
|
|
|
3,678,570
|
|
|
|
(27,116)
|
|
Japanese Yen
|
|
|
35
|
|
|
|
6/20
|
|
|
|
4,169,025
|
|
|
|
4,058,469
|
|
|
|
(110,556)
|
|
Mexican Peso
|
|
|
146
|
|
|
|
6/20
|
|
|
|
3,135,715
|
|
|
|
3,282,080
|
|
|
|
146,365
|
|
U.S. Treasury 2-Year Notes
|
|
|
177
|
|
|
|
9/20
|
|
|
|
39,081,115
|
|
|
|
39,089,344
|
|
|
|
8,229
|
|
U.S. Treasury 5-Year Notes
|
|
|
180
|
|
|
|
9/20
|
|
|
|
22,601,002
|
|
|
|
22,612,500
|
|
|
|
11,498
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
10
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts
|
|
|
Expiration
Date
|
|
|
Notional
Amount
|
|
|
Market
Value
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
Contracts to Buy continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 10-Year Notes
|
|
|
16
|
|
|
|
9/20
|
|
|
$
|
2,219,067
|
|
|
$
|
2,225,000
|
|
|
$
|
5,933
|
|
U.S. Treasury Ultra Long- Term Bonds
|
|
|
75
|
|
|
|
9/20
|
|
|
|
16,284,505
|
|
|
|
16,352,344
|
|
|
|
67,839
|
|
WTI Crude
|
|
|
163
|
|
|
|
12/20
|
|
|
|
4,458,868
|
|
|
|
6,017,960
|
|
|
|
1,559,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,861,083
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pound
|
|
|
33
|
|
|
|
6/20
|
|
|
|
2,602,174
|
|
|
|
2,542,238
|
|
|
|
59,936
|
|
U.S. Treasury Long-Term Bonds
|
|
|
656
|
|
|
|
9/20
|
|
|
|
116,950,560
|
|
|
|
117,014,000
|
|
|
|
(63,440)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,504)
|
|
Net unrealized appreciation on open futures contracts
|
|
|
|
|
|
|
$
|
5,857,579
|
|
At May 31, 2020, the Fund had the following open forward foreign currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased
|
|
|
Currency
Sold
|
|
|
Counterparty
|
|
Settlement
Date
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
MXN
|
|
|
39,500,000
|
|
|
USD
|
|
|
1,780,763
|
|
|
Citibank N.A.
|
|
|
6/17/20
|
|
|
$
|
(4,468)
|
|
MXN
|
|
|
61,500,000
|
|
|
USD
|
|
|
2,592,749
|
|
|
Citibank N.A.
|
|
|
6/17/20
|
|
|
|
172,875
|
|
EUR
|
|
|
3,750,000
|
|
|
USD
|
|
|
4,153,125
|
|
|
Goldman Sachs Group Inc.
|
|
|
6/17/20
|
|
|
|
11,118
|
|
MXN
|
|
|
44,500,000
|
|
|
USD
|
|
|
1,993,996
|
|
|
Goldman Sachs Group Inc.
|
|
|
6/17/20
|
|
|
|
7,147
|
|
USD
|
|
|
15,285,615
|
|
|
EUR
|
|
|
14,030,000
|
|
|
BNP Paribas SA
|
|
|
7/16/20
|
|
|
|
(303,888)
|
|
EUR
|
|
|
600,000
|
|
|
USD
|
|
|
654,246
|
|
|
Citibank N.A.
|
|
|
7/16/20
|
|
|
|
12,447
|
|
BRL
|
|
|
1,140,000
|
|
|
USD
|
|
|
215,115
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/16/20
|
|
|
|
(1,954)
|
|
BRL
|
|
|
4,720,000
|
|
|
USD
|
|
|
890,650
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/16/20
|
|
|
|
(8,088)
|
|
GBP
|
|
|
1,928,058
|
|
|
USD
|
|
|
2,404,789
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/16/20
|
|
|
|
(23,157)
|
|
JPY
|
|
|
880,310
|
|
|
USD
|
|
|
8,128
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/16/20
|
|
|
|
41
|
|
RUB
|
|
|
1,082,834,559
|
|
|
USD
|
|
|
13,497,050
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/16/20
|
|
|
|
1,793,415
|
|
USD
|
|
|
10,107,976
|
|
|
MXN
|
|
|
248,822,986
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/16/20
|
|
|
|
(1,032,708)
|
|
USD
|
|
|
1,391,633
|
|
|
RUB
|
|
|
100,000,000
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/16/20
|
|
|
|
(20,444)
|
|
BRL
|
|
|
7,450,000
|
|
|
USD
|
|
|
1,409,143
|
|
|
JPMorgan Chase & Co.
|
|
|
7/16/20
|
|
|
|
(16,117)
|
|
BRL
|
|
|
11,246,828
|
|
|
USD
|
|
|
2,166,184
|
|
|
JPMorgan Chase & Co.
|
|
|
7/16/20
|
|
|
|
(63,213)
|
|
IDR
|
|
|
26,052,151,242
|
|
|
USD
|
|
|
1,574,909
|
|
|
JPMorgan Chase & Co.
|
|
|
7/16/20
|
|
|
|
197,245
|
|
INR
|
|
|
311,074,531
|
|
|
USD
|
|
|
3,972,855
|
|
|
JPMorgan Chase & Co.
|
|
|
7/16/20
|
|
|
|
121,650
|
|
USD
|
|
|
230,865
|
|
|
AUD
|
|
|
370,501
|
|
|
JPMorgan Chase & Co.
|
|
|
7/16/20
|
|
|
|
(16,098)
|
|
USD
|
|
|
2,369,346
|
|
|
CAD
|
|
|
3,347,196
|
|
|
JPMorgan Chase & Co.
|
|
|
7/16/20
|
|
|
|
(61,751)
|
|
USD
|
|
|
11,052,747
|
|
|
EUR
|
|
|
10,078,609
|
|
|
JPMorgan Chase & Co.
|
|
|
7/16/20
|
|
|
|
(146,149)
|
|
COP
|
|
|
33,243,638,583
|
|
|
USD
|
|
|
8,088,969
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/16/20
|
|
|
|
785,823
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
11
|
Consolidated schedule of investments
(unaudited) (contd)
May 31, 2020
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased
|
|
|
Currency
Sold
|
|
|
Counterparty
|
|
Settlement
Date
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
MYR
|
|
|
14,965,762
|
|
|
USD
|
|
|
3,413,723
|
|
|
Morgan Stanley & Co. Inc.
|
|
|
7/16/20
|
|
|
$
|
21,567
|
|
USD
|
|
|
849,683
|
|
|
CLP
|
|
|
733,403,765
|
|
|
Goldman Sachs Group Inc.
|
|
|
7/17/20
|
|
|
|
(66,646)
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
1,358,647
|
|
|
|
|
Abbreviation(s) used in this table:
|
|
|
AUD
|
|
Australian Dollar
|
|
|
BRL
|
|
Brazilian Real
|
|
|
CAD
|
|
Canadian Dollar
|
|
|
CLP
|
|
Chilean Peso
|
|
|
COP
|
|
Colombian Peso
|
|
|
EUR
|
|
Euro
|
|
|
GBP
|
|
British Pound
|
|
|
IDR
|
|
Indonesian Rupiah
|
|
|
INR
|
|
Indian Rupee
|
|
|
JPY
|
|
Japanese Yen
|
|
|
MXN
|
|
Mexican Peso
|
|
|
MYR
|
|
Malaysian Ringgit
|
|
|
RUB
|
|
Russian Ruble
|
|
|
USD
|
|
United States Dollar
|
At May 31, 2020, the Fund had the following open swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CENTRALLY CLEARED INTEREST RATE SWAPS
|
|
|
|
Notional
Amount
|
|
|
Termination
Date
|
|
|
Payments
Made by
the Fund
|
|
Payments
Received by
the
Fund
|
|
Upfront
Premiums
Paid
(Received)
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
|
|
$
|
19,547,000
|
|
|
|
8/31/23
|
|
|
2.500% semi-annually
|
|
3-Month LIBOR quarterly
|
|
$
|
(1,219
|
)
|
|
$
|
(1,419,347
|
)
|
|
|
|
3,560,000
|
|
|
|
8/31/24
|
|
|
Daily U.S. Federal Funds Intraday Effective Rate annually
|
|
0.125% annually
|
|
|
1,009
|
|
|
|
8,343
|
|
|
|
|
43,903,000
|
|
|
|
8/31/24
|
|
|
3-Month LIBOR quarterly
|
|
0.380% semi-annually
|
|
|
12,647
|
|
|
|
120,062
|
|
|
|
|
7,110,000
|
|
|
|
4/7/25
|
|
|
0.802%*
|
|
CPURNSA*
|
|
|
45,882
|
|
|
|
(19,257
|
)
|
Total
|
|
$
|
74,120,000
|
|
|
|
|
|
|
|
|
|
|
$
|
58,319
|
|
|
$
|
(1,310,199
|
)
|
See Notes to
Consolidated Financial Statements.
|
|
|
12
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Western
Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTC INTEREST RATE SWAPS
|
|
Swap Counterparty
|
|
Notional
Amount
|
|
|
Termination
Date
|
|
|
Payments
Made by
the
Fund
|
|
Payments
Received by
the Fund
|
|
|
Upfront
Premiums
Paid
(Received)
|
|
|
Unrealized
Appreciation
|
|
Citibank N.A.
|
|
$
|
15,000,000
|
|
|
|
3/31/30
|
|
|
1.158%*
|
|
|
CPURNSA
|
*
|
|
|
|
|
|
$
|
242,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CREDIT INDICES SELL PROTECTION1
|
|
Reference Entity
|
|
Notional
Amount2
|
|
|
Termination
Date
|
|
|
Periodic
Payments
Received by
the Fund
|
|
Market
Value3
|
|
|
Upfront
Premiums
Paid
(Received)
|
|
|
Unrealized
Appreciation
|
|
Markit CDX.NA.HY.34 Index
|
|
$
|
13,948,600
|
|
|
|
6/20/25
|
|
|
5.000% quarterly
|
|
$
|
(275,898)
|
|
|
$
|
(634,609)
|
|
|
$
|
358,711
|
|
Markit CDX.NA.IG.34 Index
|
|
|
97,760,000
|
|
|
|
6/20/25
|
|
|
1.000% quarterly
|
|
|
1,059,476
|
|
|
|
(290,484)
|
|
|
|
1,349,960
|
|
Total
|
|
$
|
111,708,600
|
|
|
|
|
|
|
|
|
$
|
783,578
|
|
|
$
|
(925,093)
|
|
|
$
|
1,708,671
|
|
1
|
If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay
to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or
securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.
|
2
|
The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event
occurs as defined under the terms of that particular swap agreement.
|
3
|
The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the
current status of the payment/performance risk and represent the likelihood of an expected loss (or profit) for the credit derivative had the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values (sell
protection) or increasing market values (buy protection) when compared to the notional amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood or risk of default or other credit event
occurring as defined under the terms of the agreement.
|
|
Percentage shown is an annual percentage rate.
|
*
|
One time payment made at termination date.
|
|
|
|
Abbreviation(s) used in this table:
|
|
|
CPURNSA
|
|
U.S. CPI Urban Consumers NSA Index
|
|
|
LIBOR
|
|
London Interbank Offered Rate
|
See Notes to
Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
13
|
Consolidated statement of assets and liabilities (unaudited)
May 31,
2020
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
Investments, at value (Cost $537,571,089)
|
|
|
$565,586,118
|
|
Foreign currency, at value (Cost $1,911,729)
|
|
|
1,993,040
|
|
Deposits with brokers for open futures contracts
|
|
|
4,055,859
|
|
Unrealized appreciation on forward foreign currency contracts
|
|
|
3,123,328
|
|
Deposits with brokers for centrally cleared swap contracts
|
|
|
2,542,868
|
|
Interest receivable
|
|
|
2,517,100
|
|
OTC swaps, at value (premiums paid $0)
|
|
|
242,801
|
|
Receivable from broker net variation margin on centrally cleared swap contracts
|
|
|
164,601
|
|
Foreign currency collateral for open futures contracts, at value (Cost $129,614)
|
|
|
134,567
|
|
Receivable for securities sold
|
|
|
55,534
|
|
Prepaid expenses
|
|
|
17,695
|
|
Total Assets
|
|
|
580,433,511
|
|
|
|
Liabilities:
|
|
|
|
|
Payable for open reverse repurchase agreements (Note 3)
|
|
|
191,268,200
|
|
Deposits from brokers for open reverse repurchase agreements
|
|
|
4,509,000
|
|
Payable for securities purchased
|
|
|
2,920,910
|
|
Unrealized depreciation on forward foreign currency contracts
|
|
|
1,764,681
|
|
Interest expense payable
|
|
|
1,531,084
|
|
Written options, at value (premiums received $71,481)
|
|
|
270,339
|
|
Investment management fee payable
|
|
|
165,614
|
|
Payable to broker net variation margin on open futures contracts
|
|
|
141,938
|
|
Administration fee payable
|
|
|
23,659
|
|
Trustees fees payable
|
|
|
20,093
|
|
Accrued expenses
|
|
|
142,061
|
|
Total Liabilities
|
|
|
202,757,579
|
|
Total Net Assets
|
|
|
$377,675,932
|
|
|
|
Net Assets:
|
|
|
|
|
Common shares, no par value, unlimited number of shares authorized, 29,152,820 shares issued and
outstanding
|
|
|
$381,494,996
|
|
Total distributable earnings (loss)
|
|
|
(3,819,064)
|
|
Total Net Assets
|
|
|
$377,675,932
|
|
|
|
Shares Outstanding
|
|
|
29,152,820
|
|
|
|
Net Asset Value
|
|
|
$12.96
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
14
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Consolidated statement of operations (unaudited)
For the
Six Months Ended May 31, 2020
|
|
|
|
|
|
|
Investment Income:
|
|
|
|
|
Interest
|
|
|
$ 6,483,101
|
|
Less: Foreign taxes withheld
|
|
|
(15,157)
|
|
Total Investment Income
|
|
|
6,467,944
|
|
|
|
Expenses:
|
|
|
|
|
Interest expense (Note 3)
|
|
|
1,751,027
|
|
Investment management fee (Note 2)
|
|
|
990,192
|
|
Administration fees (Note 2)
|
|
|
141,456
|
|
Legal fees
|
|
|
137,706
|
|
Trustees fees
|
|
|
52,198
|
|
Fund accounting fees
|
|
|
39,819
|
|
Transfer agent fees
|
|
|
35,734
|
|
Audit and tax fees
|
|
|
25,806
|
|
Custody fees
|
|
|
21,122
|
|
Commodity pool reports
|
|
|
13,507
|
|
Shareholder reports
|
|
|
8,505
|
|
Stock exchange listing fees
|
|
|
7,425
|
|
Insurance
|
|
|
3,630
|
|
Miscellaneous expenses
|
|
|
5,030
|
|
Total Expenses
|
|
|
3,233,157
|
|
Net Investment Income
|
|
|
3,234,787
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency
Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
|
|
|
|
|
Net Realized Gain (Loss) From:
|
|
|
|
|
Investment transactions
|
|
|
(2,502,792)
|
|
Futures contracts
|
|
|
(21,287,701)
|
|
Written options
|
|
|
2,653,540
|
|
Swap contracts
|
|
|
(728,890)
|
|
Forward foreign currency contracts
|
|
|
(5,334,886)
|
|
Foreign currency transactions
|
|
|
(317,543)
|
|
Net Realized Loss
|
|
|
(27,518,272)
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
|
|
Investments
|
|
|
14,311,178
|
|
Futures contracts
|
|
|
5,838,454
|
|
Written options
|
|
|
(111,496)
|
|
Swap contracts
|
|
|
1,080,490
|
|
Forward foreign currency contracts
|
|
|
1,488,687
|
|
Foreign currencies
|
|
|
192,090
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
|
|
22,799,403
|
|
Net Loss on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency
Transactions
|
|
|
(4,718,869)
|
|
Decrease in Net Assets From Operations
|
|
|
$ (1,484,082)
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
15
|
Consolidated statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Six Months Ended May 31, 2020 (unaudited)
and the Year Ended November 30, 2019
|
|
2020
|
|
|
2019
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
$ 3,234,787
|
|
|
|
$ 9,287,983
|
|
Net realized loss
|
|
|
(27,518,272)
|
|
|
|
(2,040,701)
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
22,799,403
|
|
|
|
30,094,049
|
|
Increase (Decrease) in Net Assets From Operations
|
|
|
(1,484,082)
|
|
|
|
37,341,331
|
|
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
|
|
|
|
|
Total distributable earnings
|
|
|
(6,034,634)
|
|
|
|
(12,069,267)
|
|
Decrease in Net Assets From Distributions to
Shareholders
|
|
|
(6,034,634)
|
|
|
|
(12,069,267)
|
|
Increase (Decrease) in Net Assets
|
|
|
(7,518,716)
|
|
|
|
25,272,064
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
385,194,648
|
|
|
|
359,922,584
|
|
End of period
|
|
|
$377,675,932
|
|
|
|
$385,194,648
|
|
See Notes to
Consolidated Financial Statements.
|
|
|
16
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Consolidated statement of cash flows (unaudited)
For the
Six Months Ended May 31, 2020
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
Cash Provided (Used) by Operating Activities:
|
|
|
|
|
Net decrease in net assets resulting from operations
|
|
$
|
(1,484,082)
|
|
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided (used) by operating
activities:
|
|
|
|
|
Purchases of portfolio securities
|
|
|
(182,967,447)
|
|
Sales of portfolio securities
|
|
|
179,785,080
|
|
Net purchases, sales and maturities of short-term investments
|
|
|
6,324,350
|
|
Net inflation adjustment
|
|
|
(2,103,149)
|
|
Net amortization of premium (accretion of discount)
|
|
|
1,893,608
|
|
Decrease in receivable for securities sold
|
|
|
8,688,473
|
|
Decrease in interest receivable
|
|
|
219,492
|
|
Increase in receivable from broker net variation margin on centrally cleared swap contracts
|
|
|
(164,601)
|
|
Increase in prepaid expenses
|
|
|
(3,886)
|
|
Decrease in payable to broker net variation margin on centrally cleared swap contracts
|
|
|
(8,863)
|
|
Decrease in payable for securities purchased
|
|
|
(8,778,112)
|
|
Increase in investment management fee payable
|
|
|
1,822
|
|
Increase in Trustees fees payable
|
|
|
6,334
|
|
Increase in administration fee payable
|
|
|
260
|
|
Increase in interest expense payable
|
|
|
970,249
|
|
Decrease in accrued expenses
|
|
|
(67,052)
|
|
Decrease in premiums received from written options
|
|
|
(1,044,766)
|
|
Decrease in payable to broker net variation margin on open futures contracts
|
|
|
(98,683)
|
|
Net realized loss on investments
|
|
|
2,502,792
|
|
Change in net unrealized appreciation (depreciation) of investments, written options,
|
|
|
|
|
OTC swap contracts and forward foreign currency contracts
|
|
|
(15,868,931)
|
|
Net Cash Used by Operating Activities*
|
|
|
(12,197,112)
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
Distributions paid on common stock
|
|
|
(6,034,634)
|
|
Increase in payable for reverse repurchase agreements
|
|
|
8,882,800
|
|
Net Cash Provided in Financing Activities
|
|
|
2,848,166
|
|
Net Decrease in Cash and Restricted Cash
|
|
|
(9,348,946)
|
|
Cash and restricted cash at beginning of period
|
|
|
13,566,280
|
|
Cash and restricted cash at end of period
|
|
$
|
4,217,334
|
|
*
|
Included in operating expenses is cash of $780,778 paid for interest on borrowings.
|
See Notes to Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
17
|
Consolidated statement of cash flows
(unaudited) (contd)
For the Six Months Ended May 31, 2020
The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Statement of Assets and Liabilities that sums to the total of such amounts shown on the Consolidated
Statement of Cash Flows.
|
|
|
|
|
|
|
May 31, 2020
|
|
Cash
|
|
$
|
1,993,040
|
|
Restricted cash
|
|
|
2,224,294
|
|
Total cash and restricted cash shown in the Consolidated Statement of Cash Flows
|
|
$
|
4,217,334
|
|
|
Restricted cash consists of cash that has been segregated to cover the Funds collateral or margin obligations under derivative contracts. It is
separately reported on the Consolidated Statement of Assets and Liabilities as Deposits with brokers.
|
See Notes to Consolidated Financial Statements.
|
|
|
18
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Consolidated financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of capital stock outstanding throughout each year ended November 30,
unless
otherwise noted:
|
|
|
|
20201,2
|
|
|
20191
|
|
|
20181
|
|
|
20171
|
|
|
20161,3
|
|
|
20151,4
|
|
|
20141,4
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$13.21
|
|
|
|
$12.35
|
|
|
|
$13.09
|
|
|
|
$12.66
|
|
|
|
$12.47
|
|
|
|
$13.21
|
|
|
|
$13.14
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.11
|
|
|
|
0.32
|
|
|
|
0.33
|
|
|
|
0.34
|
|
|
|
0.27
|
|
|
|
0.07
|
|
|
|
0.29
|
|
Net realized and unrealized gain (loss)
|
|
|
(0.15)
|
|
|
|
0.95
|
|
|
|
(0.66)
|
|
|
|
0.48
|
|
|
|
0.27
|
|
|
|
(0.46)
|
|
|
|
0.20
|
|
Total income (loss) from operations
|
|
|
(0.04)
|
|
|
|
1.27
|
|
|
|
(0.33)
|
|
|
|
0.82
|
|
|
|
0.54
|
|
|
|
(0.39)
|
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.21)
|
5
|
|
|
(0.41)
|
|
|
|
(0.41)
|
|
|
|
(0.40)
|
|
|
|
(0.23)
|
|
|
|
(0.09)
|
|
|
|
(0.35)
|
|
Net realized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.00)
|
6
|
|
|
(0.07)
|
|
Return of capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.12)
|
|
|
|
(0.26)
|
|
|
|
|
|
Total distributions
|
|
|
(0.21)
|
|
|
|
(0.41)
|
|
|
|
(0.41)
|
|
|
|
(0.40)
|
|
|
|
(0.35)
|
|
|
|
(0.35)
|
|
|
|
(0.42)
|
|
Payment by servicing agent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$12.96
|
|
|
|
$13.21
|
|
|
|
$12.35
|
|
|
|
$13.09
|
|
|
|
$12.66
|
|
|
|
$12.47
|
|
|
|
$13.21
|
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
|
$11.40
|
|
|
|
$11.96
|
|
|
|
$10.69
|
|
|
|
$11.62
|
|
|
|
$11.23
|
|
|
|
$10.57
|
|
|
|
$11.60
|
|
Total return, based on NAV7,8
|
|
|
(0.31)
|
%
|
|
|
10.43
|
%
|
|
|
(2.49)
|
%
|
|
|
6.77
|
%9
|
|
|
4.28
|
%
|
|
|
(3.00)
|
%
|
|
|
3.68
|
%
|
Total return, based on Market Price10
|
|
|
(2.97)
|
%
|
|
|
16.03
|
%
|
|
|
(4.61)
|
%
|
|
|
7.15
|
%
|
|
|
9.61
|
%
|
|
|
(5.95)
|
%
|
|
|
5.20
|
%
|
|
|
|
|
|
|
|
|
Net assets, end of period (millions)
|
|
|
$378
|
|
|
|
$385
|
|
|
|
$360
|
|
|
|
$382
|
|
|
|
$369
|
|
|
|
$363
|
|
|
|
$385
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
1.71
|
%11
|
|
|
1.93
|
%
|
|
|
1.83
|
%
|
|
|
1.44
|
%
|
|
|
1.33
|
%11
|
|
|
1.10
|
%
|
|
|
0.89
|
%
|
Net expenses
|
|
|
1.71
|
11
|
|
|
1.93
|
|
|
|
1.62
|
12
|
|
|
1.44
|
|
|
|
1.33
|
11
|
|
|
1.10
|
|
|
|
0.89
|
|
Net investment income
|
|
|
1.71
|
11
|
|
|
2.46
|
|
|
|
2.60
|
|
|
|
2.63
|
|
|
|
2.33
|
11
|
|
|
0.50
|
|
|
|
2.17
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
33
|
%
|
|
|
38
|
%
|
|
|
45
|
%
|
|
|
59
|
%
|
|
|
88
|
%
|
|
|
59
|
%
|
|
|
30
|
%
|
See Notes to
Consolidated Financial Statements.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
19
|
Consolidated financial highlights (contd)
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended May 31, 2020 (unaudited).
|
3
|
For the period January 1, 2016 through November 30, 2016.
|
4
|
For the year ended December 31.
|
5
|
The actual source of the Funds current fiscal year distributions may be from net investment income, realized capital gains, return of capital or a
combination thereof. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year.
|
6
|
Amount represents less than $0.005 per share.
|
7
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
|
8
|
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of
less than one year are not annualized.
|
9
|
The total return includes payment by the servicing agent. Without this payment, the total return would have been 6.69% for the year ended November 30, 2017.
|
10
|
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no
guarantee of future results. Total returns for periods of less than one year are not annualized.
|
See Notes to Consolidated Financial Statements.
|
|
|
20
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Notes to consolidated financial statements (unaudited)
1. Organization and significant accounting policies
Western Asset Inflation-Linked Income Fund (the Fund) is registered under the Investment Company Act of 1940, as amended (1940 Act), as a diversified,
closed-end management investment company. The Fund commenced operations on September 26, 2003.
The
Funds primary investment objective is to provide current income for its shareholders. Capital appreciation, when consistent with current income, is a secondary investment objective. Under normal market conditions and at the time of purchase,
the Fund will invest at least 80% of its total managed assets in inflation-linked securities and at least 60% of its total managed assets in U.S. Treasury Inflation Protected Securities (TIPS). The Fund may also invest up to 40% of its
total managed assets in non-U.S. dollar investments. The Fund can invest no more than 10% of its total managed assets in securities rated below investment grade at the time of purchase (or, if unrated, assets
of comparable quality as determined by management). If a security is rated by multiple nationally recognized statistical rating organizations (NRSROs) and receives different ratings, the Fund will treat the security as being rated in the
highest rating category received from an NRSRO.
The Fund may gain exposure to the commodities markets by investing a portion of its assets in a
wholly-owned subsidiary, Western Asset Inflation-Linked Income Fund CFC (the Subsidiary), organized under the laws of the Cayman Islands. Among other investments, the Subsidiary may invest in commodity-linked instruments. The Fund may
invest up to 25% of its total assets in the Subsidiary; although 10% of total managed assets may be utilized for commodity-related strategies. These financial statements are consolidated financial statements of the Fund and the Subsidiary. All
interfund transactions have been eliminated in consolidation.
The following are significant accounting policies consistently followed by the Fund and
are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements
were issued.
(a) Investment valuation. The valuations for fixed income securities
(which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third
party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest
rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each
fund on the day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
21
|
Notes to consolidated financial statements (unaudited) (contd)
exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price
on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent
third party pricing 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 Atlantic 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, 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.
|
|
|
22
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
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 Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
23
|
Notes to consolidated financial statements (unaudited) (contd)
The following is a summary of the inputs used in valuing the Funds assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Long-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Inflation Protected Securities
|
|
|
|
|
|
$
|
421,113,934
|
|
|
|
|
|
|
$
|
421,113,934
|
|
Corporate Bonds & Notes
|
|
|
|
|
|
|
41,476,032
|
|
|
|
|
|
|
|
41,476,032
|
|
Non-U.S. Treasury Inflation Protected Securities
|
|
|
|
|
|
|
31,567,555
|
|
|
|
|
|
|
|
31,567,555
|
|
Collateralized Mortgage Obligations
|
|
|
|
|
|
|
28,736,890
|
|
|
|
|
|
|
|
28,736,890
|
|
Sovereign Bonds
|
|
|
|
|
|
|
17,474,873
|
|
|
|
|
|
|
|
17,474,873
|
|
Asset-Backed Securities
|
|
|
|
|
|
|
10,666,764
|
|
|
|
|
|
|
|
10,666,764
|
|
Mortgage-Backed Securities
|
|
|
|
|
|
|
853,980
|
|
|
|
|
|
|
|
853,980
|
|
Total Long-Term Investments
|
|
|
|
|
|
|
551,890,028
|
|
|
|
|
|
|
|
551,890,028
|
|
Short-Term Investments
|
|
$
|
13,696,090
|
|
|
|
|
|
|
|
|
|
|
|
13,696,090
|
|
Total Investments
|
|
$
|
13,696,090
|
|
|
$
|
551,890,028
|
|
|
|
|
|
|
$
|
565,586,118
|
|
Other Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts
|
|
$
|
6,300,369
|
|
|
|
|
|
|
|
|
|
|
$
|
6,300,369
|
|
Forward Foreign Currency Contracts
|
|
|
|
|
|
$
|
3,123,328
|
|
|
|
|
|
|
|
3,123,328
|
|
Centrally Cleared Interest Rate Swaps
|
|
|
|
|
|
|
128,405
|
|
|
|
|
|
|
|
128,405
|
|
OTC Interest Rate Swaps
|
|
|
|
|
|
|
242,801
|
|
|
|
|
|
|
|
242,801
|
|
Centrally Cleared Credit Default Swaps on Credit Indices Sell Protection
|
|
|
|
|
|
|
1,708,671
|
|
|
|
|
|
|
|
1,708,671
|
|
Total Other Financial Instruments
|
|
$
|
6,300,369
|
|
|
$
|
5,203,205
|
|
|
|
|
|
|
$
|
11,503,574
|
|
Total
|
|
$
|
19,996,459
|
|
|
$
|
557,093,233
|
|
|
|
|
|
|
$
|
577,089,692
|
|
|
|
|
24
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Other Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written Options
|
|
|
|
|
|
$
|
270,339
|
|
|
|
|
|
|
$
|
270,339
|
|
Futures Contracts
|
|
$
|
442,790
|
|
|
|
|
|
|
|
|
|
|
|
442,790
|
|
Forward Foreign Currency Contracts
|
|
|
|
|
|
|
1,764,681
|
|
|
|
|
|
|
|
1,764,681
|
|
Centrally Cleared Interest Rate Swaps
|
|
|
|
|
|
|
1,438,604
|
|
|
|
|
|
|
|
1,438,604
|
|
Total
|
|
$
|
442,790
|
|
|
$
|
3,473,624
|
|
|
|
|
|
|
$
|
3,916,414
|
|
|
See Consolidated Schedule of Investments for additional detailed categorizations.
|
(b) Purchased options. When the Fund purchases an option, an amount equal to the premium paid
by the Fund is recorded as an investment on the Consolidated Statement of Assets and Liabilities, the value of which is marked-to-market to reflect the current market
value of the option purchased. If the purchased option expires, the Fund realizes a loss equal to the amount of premium paid. When an instrument is purchased or sold through the exercise of an option, the related premium paid is added to the basis
of the instrument acquired or deducted from the proceeds of the instrument sold. The risk associated with purchasing put and call options is limited to the premium paid.
(c) Written options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value
of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain.
When a written call option is exercised, the difference between the premium received plus the option exercise price and the Funds basis in the underlying security (in the case of a covered written call option), or the cost to purchase the
underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost
of the security purchased by the Fund from the exercise of the written put option to form the Funds basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the
exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to
the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
25
|
Notes to consolidated financial statements (unaudited) (contd)
(d) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or
hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain percentage of
the contract amount. This is known as the initial margin and subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuation in the value of the
contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized gains or
losses in the Consolidated Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts
involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(e) Forward foreign currency contracts. The Fund enters into a forward foreign
currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A
forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is
marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either
delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time
it is closed.
Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in
cash without the delivery of foreign currency.
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on
the Consolidated Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the
potential inability of the counterparties to meet the terms of their contracts.
(f) Swap agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those associated with
other portfolio transactions.
|
|
|
26
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Swap agreements are privately negotiated in the
over-the-counter market and may be entered into as a bilateral contract (OTC Swaps) or centrally cleared (Centrally Cleared Swaps). Unlike
Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.
In a Centrally Cleared Swap, immediately following execution
of the swap, the swap agreement is submitted to a clearinghouse or central counterparty (the CCP) and the CCP becomes the ultimate counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker,
acting in an agency capacity. All payments are settled with the CCP through the broker. Upon entering into a Centrally Cleared Swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities.
Swap contracts are marked-to-market daily and changes in value are recorded as
unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is recorded as a net receivable or payable for variation margin on the Consolidated Statement of Assets and Liabilities. Gains or losses are
realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Funds custodian in compliance with the terms of the swap contracts.
Securities posted as collateral for swap contracts are identified in the Consolidated Schedule of Investments and restricted cash, if any, is identified on the Consolidated Statement of Assets and Liabilities. Risks may exceed amounts recorded in
the Consolidated Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts terms, and the possible lack of liquidity with respect
to the swap agreements.
OTC swap payments received or made at the beginning of the measurement period are reflected as a premium or deposit,
respectively, on the Consolidated Statement of Assets and Liabilities. These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Consolidated Statement of Operations. Net periodic payments
received or paid by the Fund are recognized as a realized gain or loss in the Consolidated Statement of Operations.
The Funds maximum exposure in
the event of a defined credit event on a credit default swap to sell protection is the notional amount.
As of May 31, 2020, the total notional
value of all credit default swaps to sell protection was $111,708,600. This amount would be offset by the value of the swaps reference entity, upfront premiums received on the swap and any amounts received from the settlement of a credit
default swap where the Fund bought protection for the same referenced security/ entity.
For average notional amounts of swaps held during the six months
ended May 31, 2020, see Note 4.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
27
|
Notes to consolidated financial statements (unaudited) (contd)
Credit default swaps
The Fund
enters into credit default swap (CDS) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a
specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced
entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the
likelihood of a particular issuers default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of
protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be
an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage
to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a
credit event occurs.
Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived
credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the
agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood or risk of default or other credit
event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Consolidated Schedule of
Investments and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the
quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.
The Funds maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of
collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty). As the protection seller, the Funds maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit
risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.
|
|
|
28
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in
excess of the related amounts recognized on the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its
obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.
Interest rate swaps
The Fund enters into interest rate swap contracts to manage
its exposure to interest rate risk. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional principal amount. The Fund may elect to pay a fixed rate and receive a floating rate, receive a fixed rate and pay
a floating rate, or pay and receive a floating rate, on a notional principal amount. Interest rate swaps are marked-to-market daily based upon quotations from market
makers and the change, if any, is recorded as an unrealized gain or loss in the Consolidated Statement of Operations. When a swap contract is terminated early, the Fund records a realized gain or loss equal to the difference between the original
cost and the settlement amount of the closing transaction.
The risks of interest rate swaps include changes in market conditions that will affect the
value of the contract or changes in the present value of the future cash flow streams and the possible inability of the counterparty to fulfill its obligations under the agreement. The Funds maximum risk of loss from counterparty credit risk
is the discounted net value of the cash flows to be received from the counterparty over the contracts remaining life, to the extent that amount is positive. This risk is mitigated by the posting of collateral by the counterparty to the Fund to
cover the Funds exposure to the counterparty.
(g) Stripped securities. The
Fund may invest in Stripped Securities, a term used collectively for components, or strips, of fixed income securities. Stripped Securities can be principal only securities (PO), which are debt obligations that
have been stripped of unmatured interest coupons, or interest only securities (IO), which are unmatured interest coupons that have been stripped from debt obligations. The market value of Stripped Securities will fluctuate in response to
changes in economic conditions, rates of prepayment, interest rates and the markets perception of the securities. However, fluctuations in response to interest rates may be greater in Stripped Securities than for debt obligations of comparable
maturities that pay interest currently. The amount of fluctuation may increase with a longer period of maturity.
The yield to maturity on IOs is
sensitive to the rate of principal repayments (including prepayments) on the related underlying debt obligation and principal payments may have a material effect on yield to maturity. If the underlying debt obligation experiences greater than
anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IOs.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
29
|
Notes to consolidated financial statements (unaudited) (contd)
(h) Repurchase agreements. The Fund may enter into repurchase agreements with institutions
that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase,
and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Funds holding period. When entering into repurchase agreements, it is the Funds policy that its custodian or a third party
custodian, acting on the Funds behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the
extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement
in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines
during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(i) Reverse repurchase agreements. The Fund may enter into reverse repurchase agreements.
Under the terms of a typical reverse repurchase agreement, a fund sells a security subject to an obligation to repurchase the security from the buyer at an agreed upon time and price. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the Funds use of the proceeds of the agreement may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Funds obligation to
repurchase the securities. In entering into reverse repurchase agreements, the Fund will maintain cash, U.S. government securities or other liquid debt obligations at least equal in value to its obligations with respect to reverse repurchase
agreements or will take other actions permitted by law to cover its obligations. If the market value of the collateral declines during the period, the Fund may be required to post additional collateral to cover its obligation. Cash collateral that
has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any, will be reported separately in the Consolidated Statement of Assets and Liabilities. Securities pledged as collateral are noted in the Consolidated
Schedule of Investments. Interest payments made on reverse repurchase agreements are recognized as a component of Interest expense on the Consolidated Statement of Operations. In periods of increased demand for the security, the Fund may
receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
|
|
|
30
|
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Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
(j) Inflation-indexed bonds. Inflation-indexed
bonds are fixed income securities whose principal value or interest rate is periodically adjusted according to the rate of inflation. As the index measuring inflation changes, the principal value or interest rate of inflation-indexed bonds will be
adjusted accordingly. Inflation adjustments to the principal amount of inflation-indexed bonds are reflected as an increase or decrease to investment income on the Consolidated Statement of Operations. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original
principal.
(k) Cash flow information. The Fund invests in securities and
distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Consolidated Statement of Changes in Net Assets and
additional information on cash receipts and cash payments are presented in the Consolidated Statement of Cash Flows.
(l) Foreign
currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the
date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions
as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
|
|
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Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
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|
31
|
Notes to consolidated financial statements (unaudited) (contd)
(m) Credit and market risk. The Fund invests in high-yield and emerging market instruments
that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Funds investments in securities rated below investment grade
typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The
consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Funds investments in non-U.S. dollar denominated
securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
Investments in securities that are
collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are
materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of
these investments and may result in a lack of correlation between their credit ratings and values.
(n) Foreign investment
risks. The Funds investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in
foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may
also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(o) Counterparty risk and credit-risk-related contingent features of derivative instruments.
The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered
counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Funds
investment adviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on
its assessment and (iii) requiring collateral from the counterparty for certain transactions.
Market events and changes in overall economic
conditions may impact the assessment of such counterparty risk by the investment adviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
|
|
|
32
|
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Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
With exchange traded and centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange
or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While
offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement)
or similar agreement, with certain of its derivative counterparties that govern over-the-counter derivatives and provide for general obligations, representations,
agreements, collateral posting terms, netting provisions in the event of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds
net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments payables
and/or receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of
reported amounts of financial assets and financial liabilities in the Consolidated Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by
jurisdiction.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse
for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover
obligations of the Fund under derivative contracts, if any, will be reported separately in the Consolidated Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Consolidated Schedule of
Investments.
As of May 31, 2020, the Fund held OTC written options and forward foreign currency contracts with credit related contingent features
which had a liability position of $2,035,020. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.
At May 31, 2020, the Fund held collateral from Citibank N.A., Goldman Sachs Group Inc. and JPMorgan Chase & Co. in the amounts of $268,353, $1,398,255
and $214,038, respectively. This amount could be used to reduce the Funds exposure to the counterparty in the event of default.
|
|
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Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
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|
33
|
Notes to consolidated financial statements (unaudited) (contd)
(p) Security transactions and investment income. Security transactions are accounted for on a
trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is
recorded on the accrual basis. Paydown gains and losses on mortgage- and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date for
dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after
exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional
interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(q)
Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared and paid on a monthly basis. Distributions of net realized gains, if any, are declared at
least annually. Pursuant to its Managed Distribution Policy, the Fund intends to make regular monthly distributions to shareholders at a fixed rate per common share, which rate may be adjusted from time to time by the Funds Board of Trustees.
The actual source of the Funds monthly distributions may be from net investment income, realized capital gains, return of capital or a combination thereof. Under the Funds Managed Distribution Policy, if, for any monthly distribution,
the value of the Funds net investment income and net realized capital gain is less than the amount of the distribution, the difference will be distributed from the Funds net assets (and may constitute a return of capital).
Shareholders will be informed of the tax characteristics of the distributions after the close of the 2020 fiscal year. The Board of Trustees may modify, terminate or suspend the Managed Distribution Policy at any time, including when certain events
would make part of the return of capital taxable to shareholders. Any such modification, termination or suspension could have an adverse effect on the market price of the Funds shares. Distributions to shareholders of the Fund are recorded on
the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(r) 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.
(s) 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.
|
|
|
34
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has
concluded that as of November 30, 2019, no provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of
limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign
tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(t)
Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on
net assets or net asset value per share.
2. Investment management agreement and other transactions with affiliates
The Fund has entered into an Investment Management Agreement with Western Asset Management Company, LLC (Western Asset or the Investment
Adviser), which provides for payment of a monthly fee computed at the annual rate of 0.35% of the Funds average weekly assets. Average weekly assets means the average weekly value of the total assets of the Fund (including
any assets attributable to leverage) minus accrued liabilities (other than liabilities representing leverage). For purposes of calculating average weekly assets, liabilities associated with any instrument or transactions used by the
Investment Adviser to leverage the Funds portfolio (whether or not such instruments or transactions are covered as described in the prospectus) are not considered a liability.
During periods when the Fund is using leverage, the fee paid to the Investment Adviser for advisory services will be higher than if the Fund did not use leverage
because the fee paid will be calculated on the basis of the Funds average weekly assets, which includes the assets attributable to leverage.
Western Asset Management Company Pte. Ltd. (Western Asset Singapore), Western Asset Management Company Limited (Western Asset London) and
Western Asset Management Company Ltd (Western Asset Japan and together with Western Asset Singapore and Western Asset London) are also the Funds investment advisers. Western Asset Singapore, Western Asset London and Western Asset
Japan provide certain advisory services to the Fund relating to currency transactions and investment in non-U.S. denominated securities. Western Asset Singapore, Western Asset London and Western Asset Japan do
not receive any compensation from the Fund.
Legg Mason Partners Fund Advisor, LLC (LMPFA or the Administrator), an affiliate of
the Investment Adviser, provides certain administrative, accounting, shareholder servicing and corporate secretarial and related functions pursuant to an Administrative Services Agreement with the Fund. The Fund pays the Administrator a monthly fee
at the annual rate of 0.05% of the Funds average weekly assets.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
35
|
Notes to consolidated financial statements (unaudited) (contd)
3. Investments
During the six months ended
May 31, 2020, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
U.S. Government &
Agency Obligations
|
|
Purchases
|
|
$
|
46,700,272
|
|
|
$
|
136,267,175
|
|
Sales
|
|
|
22,129,646
|
|
|
|
157,655,434
|
|
At May 31, 2020, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of
investments for federal income tax purposes were substantially as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost/Premiums
Paid (Received)
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
Depreciation
|
|
|
Net
Unrealized
Appreciation
(Depreciation)
|
|
Securities
|
|
$
|
537,571,089
|
|
|
$
|
38,744,372
|
|
|
$
|
(10,729,343)
|
|
|
$
|
28,015,029
|
|
Swap contracts
|
|
|
(866,774)
|
|
|
|
2,079,877
|
|
|
|
(1,438,604)
|
|
|
|
641,273
|
|
Written options
|
|
|
(71,481)
|
|
|
|
|
|
|
|
(198,858)
|
|
|
|
(198,858)
|
|
Futures contracts
|
|
|
|
|
|
|
6,300,369
|
|
|
|
(442,790)
|
|
|
|
5,857,579
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
3,123,328
|
|
|
|
(1,764,681)
|
|
|
|
1,358,647
|
|
Transactions in reverse repurchase agreements for the Fund during the six months ended May 31, 2020 were as follows:
|
|
|
|
|
Average Daily
Balance*
|
|
Weighted Average
Interest Rate*
|
|
Maximum Amount
Outstanding
|
$186,710,107
|
|
1.87%
|
|
$191,268,200
|
*
|
Averages based on the number of days that the Fund had reverse repurchase agreements outstanding.
|
Interest rates on reverse repurchase agreements ranged from 1.83% to 2.05% during the six months ended May 31, 2020. Interest expense incurred on reverse
repurchase agreements totaled $1,750,246.
|
|
|
36
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
4. Derivative instruments and hedging activities
Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Consolidated Statement of
Assets and Liabilities at May 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET
DERIVATIVES1
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Credit Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Futures contracts2
|
|
$
|
2,300,730
|
|
|
$
|
206,301
|
|
|
|
|
|
|
$
|
3,793,338
|
|
|
$
|
6,300,369
|
|
OTC swap contracts
|
|
|
242,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,801
|
|
Centrally cleared swap contracts3
|
|
|
128,405
|
|
|
|
|
|
|
$
|
1,708,671
|
|
|
|
|
|
|
|
1,837,076
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
3,123,328
|
|
|
|
|
|
|
|
|
|
|
|
3,123,328
|
|
Total
|
|
$
|
2,671,936
|
|
|
$
|
3,329,629
|
|
|
$
|
1,708,671
|
|
|
$
|
3,793,338
|
|
|
$
|
11,503,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITY
DERIVATIVES1
|
|
|
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Written options
|
|
|
|
|
|
|
|
|
|
$
|
270,339
|
|
|
|
|
|
|
$
|
270,339
|
|
Futures contracts2
|
|
|
|
|
|
$
|
63,440
|
|
|
|
352,234
|
|
|
$
|
27,116
|
|
|
|
442,790
|
|
Centrally cleared swap contracts3
|
|
|
|
|
|
|
1,438,604
|
|
|
|
|
|
|
|
|
|
|
|
1,438,604
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
1,764,681
|
|
|
|
|
|
|
|
1,764,681
|
|
Total
|
|
|
|
|
|
$
|
1,502,044
|
|
|
$
|
2,387,254
|
|
|
$
|
27,116
|
|
|
$
|
3,916,414
|
|
1
|
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability derivatives is payables/net unrealized
depreciation.
|
2
|
Includes cumulative appreciation (depreciation) of futures contracts as reported in the Consolidated Schedule of Investments. Only variation margin is reported
within the receivables and/or payables on the Consolidated Statement of Assets and Liabilities.
|
3
|
Includes cumulative appreciation (depreciation) of centrally cleared swap contracts as reported in the Consolidated Schedule of Investments. Only variation
margin is reported within the receivables and/or payables on the Consolidated Statement of Assets and Liabilities.
|
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
37
|
Notes to consolidated financial statements (unaudited) (contd)
The following tables provide information about the effect of derivatives and hedging activities on the Funds Consolidated Statement of Operations for the six
months ended May 31, 2020. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized
appreciation (depreciation) resulting from the Funds derivatives and hedging activities during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Credit
Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Purchased options1
|
|
$
|
(366,070)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(366,070)
|
|
Written options
|
|
|
2,653,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,653,540
|
|
Futures contracts
|
|
|
(10,385,074)
|
|
|
$
|
(142,155)
|
|
|
|
|
|
|
$
|
(10,760,472)
|
|
|
|
(21,287,701)
|
|
Swap contracts
|
|
|
138,752
|
|
|
|
|
|
|
$
|
(867,642)
|
|
|
|
|
|
|
|
(728,890)
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
(5,334,886)
|
|
|
|
|
|
|
|
|
|
|
|
(5,334,886)
|
|
Total
|
|
$
|
(7,958,852)
|
|
|
$
|
(5,477,041)
|
|
|
$
|
(867,642)
|
|
|
$
|
(10,760,472)
|
|
|
$
|
(25,064,007)
|
|
1
|
Net realized gain (loss) from purchased options is reported in Net Realized Gain (Loss) From Investment transactions in the Consolidated Statement of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|
|
|
Interest
Rate Risk
|
|
|
Foreign
Exchange Risk
|
|
|
Credit
Risk
|
|
|
Commodity
Risk
|
|
|
Total
|
|
Purchased options1
|
|
$
|
(2,486)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,486)
|
|
Written options
|
|
|
87,362
|
|
|
$
|
(198,858)
|
|
|
|
|
|
|
|
|
|
|
|
(111,496)
|
|
Futures contracts
|
|
|
1,335,637
|
|
|
|
154,066
|
|
|
|
|
|
|
$
|
4,348,751
|
|
|
|
5,838,454
|
|
Swap contracts
|
|
|
(470,498)
|
|
|
|
|
|
|
$
|
1,550,988
|
|
|
|
|
|
|
|
1,080,490
|
|
Forward foreign currency contracts
|
|
|
|
|
|
|
1,488,687
|
|
|
|
|
|
|
|
|
|
|
|
1,488,687
|
|
Total
|
|
$
|
950,015
|
|
|
$
|
1,443,895
|
|
|
$
|
1,550,988
|
|
|
$
|
4,348,751
|
|
|
$
|
8,293,649
|
|
1
|
The change in unrealized appreciation (depreciation) from purchased options is reported in the Change in Net Unrealized Appreciation (Depreciation) From
Investments in the Consolidated Statement of Operations.
|
During the six months ended May 31, 2020, the volume of derivative
activity for the Fund was as follows:
|
|
|
|
|
|
|
Average Market
Value
|
|
Purchased options
|
|
$
|
20,719
|
|
Written options
|
|
|
750,249
|
|
Futures contracts (to buy)
|
|
|
393,073,181
|
|
Futures contracts (to sell)
|
|
|
120,987,988
|
|
Forward foreign currency contracts (to buy)
|
|
|
53,838,957
|
|
Forward foreign currency contracts (to sell)
|
|
|
43,373,246
|
|
|
|
|
|
Average Notional
Balance
|
|
Interest rate swap contracts
|
|
$
|
48,282,143
|
|
Credit default swap contracts (to sell protection)
|
|
|
61,453,371
|
|
|
At May 31, 2020, there were no open positions held in this derivative.
|
|
|
|
38
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
The following table presents the Funds OTC derivative assets and liabilities by counterparty net of amounts
available for offset under an ISDA Master Agreement and net of the related collateral pledged (received) by the Fund as of May 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Gross Assets
Subject to
Master
Agreements1
|
|
|
Gross Liabilities
Subject to
Master
Agreements
|
|
|
Net Assets
(Liabilities)
Subject to
Master
Agreements
|
|
|
Collateral
Pledged
(Received)2,3
|
|
|
Net
Amount4
|
|
BNP Paribas SA
|
|
|
|
|
|
$
|
(303,888)
|
|
|
$
|
(303,888)
|
|
|
|
|
|
|
$
|
(303,888)
|
|
Citibank N.A.
|
|
$
|
428,123
|
|
|
|
(4,468)
|
|
|
|
423,655
|
|
|
$
|
(268,353)
|
|
|
|
155,302
|
|
Goldman Sachs Group Inc.
|
|
|
1,811,721
|
|
|
|
(1,423,336)
|
|
|
|
388,385
|
|
|
|
(1,398,255)
|
|
|
|
(1,009,870)
|
|
JPMorgan Chase & Co.
|
|
|
318,895
|
|
|
|
(303,328)
|
|
|
|
15,567
|
|
|
|
(214,038)
|
|
|
|
(198,471)
|
|
Morgan Stanley & Co. Inc.
|
|
|
807,390
|
|
|
|
|
|
|
|
807,390
|
|
|
|
|
|
|
|
807,390
|
|
Total
|
|
$
|
3,366,129
|
|
|
$
|
(2,035,020)
|
|
|
$
|
1,331,109
|
|
|
$
|
(1,880,646)
|
|
|
$
|
(549,537)
|
|
1
|
Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Consolidated Statement of Assets and
Liabilities.
|
2
|
Gross amounts are not offset in the Consolidated Statement of Assets and Liabilities.
|
3
|
In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization.
|
4
|
Represents the net amount receivable (payable) from (to) the counterparty in the event of default.
|
5. Distributions subsequent to May 31, 2020
The following distributions have been declared by the Funds Board of Trustees and are payable subsequent to the period end of this report:
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payable Date
|
|
|
Amount
|
|
6/23/2020
|
|
|
6/30/2020
|
|
|
$
|
0.0295
|
|
7/24/2020
|
|
|
7/31/2020
|
|
|
$
|
0.0295
|
|
8/24/2020
|
|
|
8/31/2020
|
|
|
$
|
0.0295
|
|
9/23/2020
|
|
|
9/30/2020
|
|
|
$
|
0.0295
|
|
6. Stock repurchase program
On March 2, 2016, the Fund announced that the Funds Board of Trustees (the Board) had authorized the Fund to repurchase in the open market up to approximately 10% of the Funds
outstanding common stock when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such times and in such amounts as management reasonably believes
may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the six months ended May 31, 2020, the Fund did not repurchase any shares.
|
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
|
39
|
Notes to consolidated financial statements (unaudited) (contd)
7. Other matters
On February 18, 2020,
Franklin Resources, Inc. (Franklin Resources) and Legg Mason announced that they have entered into a definitive agreement for Franklin Resources to acquire Legg Mason in an all-cash transaction. As
part of this transaction, the Funds investment manager and subadvisers, each currently a subsidiary of Legg Mason, would become a subsidiary of Franklin Resources. The transaction is subject to approval by Legg Masons shareholders and
customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of the other conditions, the transaction is expected to be consummated later this year.
Under the Investment Company Act of 1940, consummation of the transaction will result in the automatic termination of the Funds management contract, and any
related subadvisory contract(s), where applicable. Therefore, the Funds Board has approved new management and subadvisory contracts that have been presented to the shareholders of the Fund for their approval.
* * *
The
outbreak of the respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and
financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely
affect the value and liquidity of the Funds investments and negatively impact the Funds performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result
in disruptions to the services provided to the Fund by its service providers.
* * *
The Funds investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or
LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. Plans are underway to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the nature of any replacement
rate and the impact of the transition from LIBOR on the Funds transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Funds investments cannot yet be determined.
|
|
|
40
|
|
Western Asset Inflation-Linked Income Fund 2020 Semi-Annual Report
|
Board approval of new management and new subadvisory agreements (unaudited)
On February 18, 2020, Franklin Resources, Inc., a global investment management organization operating, together with its subsidiaries, as Franklin Templeton
(Franklin Templeton) and Legg Mason, Inc. (Legg Mason) announced that they have entered into a definitive agreement (the Transaction Agreement) for Franklin Templeton to acquire Legg Mason in an all-cash transaction. As part of this transaction, the Funds investment manager, Western Asset Management Company, LLC (Western Asset), and the Funds subadvisers, Western Asset Management
Company Limited in London, Western Asset Management Company Pte. Ltd. in Singapore and Western Asset Management Company Ltd in Japan (each a Subadviser, and together, the Subadvisers, and collectively with Western Asset, the
Advisers), each currently a wholly owned subsidiary of Legg Mason, would become a wholly owned subsidiary of Franklin Templeton (the Transaction). The Transaction is subject to approval by Legg Masons shareholders and
customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of the other conditions, the Transaction is expected to be consummated in the latter part of 2020. Under the
Investment Company Act of 1940, as amended (the 1940 Act), consummation of the Transaction will result in the automatic termination of the Funds current management agreement with Western Asset (the Current Management
Agreement) and the current subadvisory agreements between Western Asset and each of the Subadvisers (the Current Subadvisory Agreements and, collectively, the Current Agreements). Therefore, at a meeting of the Board of
Trustees of the Fund held on May 14, 20201, the Board, including the Trustees who are not considered to be interested persons of the Fund (the Independent Trustees) under the 1940 Act, approved a new management agreement
(the New Management Agreement) between the Fund and Western Asset and the new sub-advisory agreements (the New Sub-Advisory Agreements,
collectively, the New Agreements) between Western Asset and the Subadvisers, each an affiliate of Western Asset, with respect to the Fund. The Board also authorized the Funds officers to submit the New Agreements to Fund
shareholders for their approval. Fund shareholders were sent notice of the shareholder meeting and a proxy statement in May, 2020. In the event the Funds shareholders do not approve the New Agreements and the Transaction is completed, the
Directors have also approved an interim investment management agreement between Western Asset and the Fund (the Interim Management Agreement) and interim sub-advisory agreements between Western
Asset and the Subadvisers (the Interim Sub-advisory Agreements and, collectively, the Interim Agreements) that will take effect upon the closing of the Transaction to enable Western
Asset and the Subadvisers to serve as investment managers of the Fund following the termination of the Current Agreements and pending shareholder approval of the New Agreements.
1
|
This meeting was held telephonically in reliance on an exemptive order issued by the Securities and Exchange Commission on March 25, 2020. Reliance on the
exemptive order is necessary and appropriate due to circumstances related to current or potential effects of COVID-19. All Trustees participating in the telephonic meeting were able to hear each other
simultaneously during the meeting. Reliance on the exemptive order requires Trustees, including a majority of the Independent Trustees, to ratify actions taken pursuant to the exemptive order by vote cast at the next
in-person.
|
|
|
|
Western Asset Inflation-Linked Income Fund
|
|
41
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
At the May 14 meeting, which included a meeting of the full Board and a separate meeting of the Independent Trustees, the Board considered, among other things,
whether it would be in the best interests of the Fund and its shareholders to approve the New Agreements, and the anticipated impacts of the Transaction on the Fund and its shareholders. To assist the Board in its consideration of the New
Agreements, Franklin Templeton provided materials and information about Franklin Templeton, including its financial condition and asset management capabilities and organization, and Franklin Templeton and Legg Mason provided materials and
information about the proposed Transaction between Legg Mason and Franklin Templeton.
On May 6, 2020, the Independent Trustees met by video
conference with representatives of Legg Mason to discuss the Transaction and the New Agreements. In addition, the Independent Trustees met separately, with the assistance of their independent legal counsel, to discuss and evaluate the information
provided and to consider what additional information was desired.
The Independent Trustees considered, among other things, whether it would be in the
best interests of the Fund and its shareholders to approve the New Agreements, and the anticipated impacts of the Transaction on the Fund and its shareholders. To assist the Trustees in their consideration of the New Agreements, Franklin Templeton
provided materials and information about Franklin Templeton, including its financial condition and asset management capabilities and organization, and Franklin Templeton and Legg Mason provided materials and information about the proposed
Transaction between Legg Mason and Franklin Templeton.
Before or during the May 14, 2020 meeting, the Trustees sought additional information as
they deemed necessary and appropriate. In connection with the Trustees consideration of the New Agreements, the Independent Trustees worked with their independent legal counsel to prepare requests for information that were submitted to
Franklin Templeton and Legg Mason. The Trustees requested information relevant to the consideration of the New Agreements and other anticipated impacts of the Transaction on the Fund and its shareholders. Franklin Templeton and Legg Mason provided
documents and information in response to the request for information. Following their review of this information, the Independent Trustees submitted supplemental due diligence requests for additional information to Franklin Templeton and Legg Mason.
Franklin Templeton and Legg Mason provided further information in response to this supplemental diligence request, which the Trustees reviewed. Senior management representatives from Franklin Templeton and Legg Mason participated in a portion of the
meeting and addressed various questions raised by the Trustees.
|
|
|
42
|
|
Western Asset Inflation-Linked Income Fund
|
At the May 14, 2020 meeting,
representatives of Legg Mason (including representatives of each Adviser) and Franklin Templeton made presentations to, and responded to questions from, the Trustees. After the presentations and after reviewing the written materials provided, the
Independent Trustees met in executive session with their counsel to consider the New Agreements.
The Trustees evaluation of the New Agreements
reflected the information provided specifically in connection with their review of the New Agreements, as well as, where relevant, information that was previously furnished to the Board in connection with the most recent renewal of the Current
Agreements at in-person meetings and at other prior Board meetings.
Among other things, the Trustees considered:
(i)
|
the reputation, experience, financial strength and resources of Franklin Templeton and its investment advisory subsidiaries;
|
(ii)
|
that Franklin Templeton has informed the Trustees that it intends to maintain the investment autonomy of the Legg Mason investment advisory
subsidiaries;
|
(iii)
|
that Franklin Templeton and Legg Mason have informed the Trustees that, following the Transaction, there is not expected to be any diminution in the
nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, and have represented that there are not expected to be
any changes in the portfolio management personnel managing the Fund as a result of the Transaction;
|
(iv)
|
that Franklin Templeton and Legg Mason have informed the Trustees regarding transition plans, including Legg Masons provision of retention
incentives for certain Legg Mason corporate personnel until the transaction closes, and Franklin Templetons provision of long-term retention mechanisms for certain personnel following the closing;
|
(v)
|
that there are not expected to be any changes to the Funds custodian or other service providers as a result of the Transaction;
|
(vi)
|
that Franklin Templeton does not expect to propose any changes to the investment objective of the Fund or any changes to the principal investment
strategies of the Fund as a result of the Transaction;
|
(vii)
|
the potential benefits to Fund shareholders from being part of a combined fund family with Franklin Templeton-sponsored funds and access to a broader
array of investment opportunities;
|
|
|
|
Western Asset Inflation-Linked Income Fund
|
|
43
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
(viii)
|
that Franklin Templeton and Legg Mason will each derive benefits from the Transaction and that, as a result, they have a financial interest in the
matters that were being considered;
|
(ix)
|
the fact that the Funds contractual management fee rates will remain the same and will not increase by virtue of the New Agreements;
|
(x)
|
the terms and conditions of the New Agreements, including that each New Agreement is identical to its corresponding Current Agreement except for their
respective dates of execution, effectiveness and termination;
|
(xi)
|
the support expressed by the current senior management team at Legg Mason for the Transaction and Legg Masons recommendation that the Trustees
approve the New Agreements;
|
(xii)
|
that the Current Agreements are the product of multiple years of review and negotiation and information received and considered by the Trustees in the
exercise of their business judgment during those years, and that within the past year the Trustees had performed a full review of and approved the Current Agreements as required by the 1940 Act and had determined in the exercise of the
Trustees business judgment that each applicable Adviser had the capabilities, resources and personnel necessary to provide the services provided to the Fund, and that the management and subadvisory fees paid by or in respect of the Fund,
represented reasonable compensation to the Advisers in light of the services provided, the costs to the applicable Adviser of providing those services, the fees and other expenses paid by similar funds, and such other matters as the Trustees
considered relevant in the exercise of their business judgment, and represented an appropriate sharing between Fund shareholders and the Advisers of any economies of scale in the management of the Fund at current and anticipated asset levels;
|
(xiii)
|
that the Current Agreements were considered and approved in November 2019;
|
(xiv)
|
that the Fund will not bear the costs of obtaining shareholder approval of the New Agreements, including proxy solicitation costs, legal fees and the
costs of printing and mailing the proxy statement, regardless of whether the Transaction is consummated; and
|
(xv)
|
that under the Transaction Agreement Franklin Templeton acknowledged that Legg Mason had entered into the Transaction Agreement in reliance upon the
benefits and protections provided by Section 15(f) of the 1940 Act, and that, in furtherance of the foregoing, Franklin Templeton represented to the Trustees that it would conduct its business such that (a) for a period of not less than
three years after the closing of the Transaction no more than 25% of the members of the Board shall be interested
|
|
|
|
44
|
|
Western Asset Inflation-Linked Income Fund
|
|
persons (as defined in the 1940 Act) of any investment adviser for a Fund, and (b) for a period of not less than two years after the closing, neither Franklin Templeton nor any of its
affiliates shall impose an unfair burden (within the meaning of the 1940 Act, including any interpretations or no-action letters of the Securities and Exchange Commission) on the Fund as a result
of the transactions contemplated by the Transaction Agreement or any express or implied terms, conditions or understandings applicable thereto.
|
Certain of these considerations are discussed in more detail below.
In their deliberations, the Trustees considered
information received in connection with the most recent Board approval/continuation of each Current Agreement in addition to information provided by Franklin Templeton and Legg Mason in connection with their evaluation of the terms and conditions of
the New Agreements. The Trustees noted that, although Western Assets business is operated through separate legal entities, such as the Subadvisers, its business is highly integrated and senior investment personnel at Western Asset have
supervisory oversight responsibility over the investment decisions made by the Subadvisers. Therefore, in connection with their deliberations noted below, the Trustees primarily focused on the information provided by Western Asset when considering
the approval of the New Sub-Advisory Agreements between Western Asset and the Subadvisers with respect to the Fund in addition to the information provided by Franklin Templeton in connection with their
evaluation of the New Agreements. The Trustees also noted that the Fund does not pay any management fees directly to any of the Subadvisers because Western Asset pays the Subadvisers for services provided to the Fund out of the management fee
Western Asset receives from the Fund. In connection with the most recent approval/continuation of each Current Agreement, and in connection with their review of each New Agreement, the Trustees did not identify any particular information that was all-important or controlling, and each Trustee may have attributed different weights to the various factors.
The
information provided and presentations made to the Trustees encompassed the Fund and all other funds for which the Trustees have responsibility. The discussion below covers both the advisory and the administrative functions rendered by Western
Asset, both of which functions are encompassed by the New Management Agreement, as well as the advisory functions rendered by the Subadvisers pursuant to the New Subadvisory Agreements.
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 approval of the New Management Agreement and the New Subadvisory Agreements. The Independent Trustees also reviewed the proposed approval of the New
|
|
|
Western Asset Inflation-Linked Income Fund
|
|
45
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
Management Agreement and the New Subadvisory Agreements in private sessions with their independent legal counsel at which no representatives of Western Asset and
the Subadvisers were present. The Independent Trustees considered the New Management Agreement and the New Subadvisory Agreements separately in the course of their review. In doing so, they noted the respective roles of Western Asset and the
Subadvisers in providing services to the Fund.
The Trustees received and considered information regarding the nature, extent and quality of services
provided to the Fund by Western Asset and the Subadvisers under the Current Agreements. In evaluating the nature, quality and extent of the services to be provided by the Advisers under the New Agreements, the Trustees considered, among other
things, the expected impact, if any, of the Transaction on the operations, facilities, organization and personnel of each Adviser, and that Franklin Templeton and Legg Mason have advised the Board that, following the Transaction, there is not
expected to be any diminution in the nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, and that there are
not expected to be any changes in portfolio management personnel as a result of the Transaction. The Trustees have received information at regular meetings throughout the past year related to the services rendered by Western Asset in its management
of the Funds affairs and Western Assets role in coordinating the activities of the Funds other service providers. The Trustees evaluation of the services provided by Western Asset and the Subadvisers took into account the
Trustees knowledge gained as Trustees of funds in the Legg Mason fund complex, including knowledge gained regarding the scope and quality of the investment management and other capabilities of Western Asset and the Subadvisers, and the quality
of Western Assets administrative and shareholder support services. In addition, the Trustees reviewed the quality of Western Assets and the Subadvisers services with respect to compliance with the investment policies of the Fund
and conditions that might affect Western Assets or a Subadvisers ability to provide high quality services to the Fund in the future under the New Agreements, including its business reputation, financial condition and operational
stability. The Trustees observed that the scope of services provided by Western Asset and the Subadvisers, and the undertakings required of Western Asset and Subadvisers in connection with those services, including maintaining and monitoring their
own and the Funds compliance programs, liquidity management programs and cybersecurity programs, had expanded over time as a result of regulatory, market and other developments. The Trustees also noted that on a regular basis they received and
reviewed information from Western Asset and the Subadvisers regarding the Funds compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act, and took that information into
account in their evaluation of the New Agreements. The Trustees also considered the risks associated with the Fund borne by Western Asset and its affiliates (such as entrepreneurial, operational, reputational, litigation and regulatory risk), as
well as Western Assets and the Subadvisers risk management processes.
|
|
|
46
|
|
Western Asset Inflation-Linked Income Fund
|
The Trustees considered information
provided by Franklin Templeton regarding its business and operating structure, scale of operation, leadership and reputation, distribution capabilities, and financial condition.
The Trustees also reviewed the qualifications, backgrounds and responsibilities of Western Assets and the Subadvisers senior personnel and the team of investment professionals primarily responsible for
the day-to-day portfolio management of the Fund. The Trustees considered the experience of each Advisers personnel in providing the types of services that the
Adviser is responsible for providing to the Fund; the ability of each Adviser to attract and retain capable personnel; the investment philosophy and research and decision-making processes of the Subadvisers; the capability and integrity of each
Advisers senior management and staff; and the level of skill required to provide the applicable services to the Fund. The Trustees also considered the financial resources of Legg Mason and Franklin Templeton and the importance of having a Fund
manager with, or with access to, significant organizational and financial resources. The Trustees considered the benefits to the Fund of being part of a larger combined organization with greater financial resources following the Transaction,
particularly during periods of market disruptions and volatility. The Trustees also considered the policies and practices of Western Asset and the Subadvisers regarding the selection of brokers and dealers and the execution of portfolio transactions
for the Fund. In addition, the Trustees considered managements periodic reports to the Trustees on, among other things, its business plans and any organizational changes. Based on the foregoing, the Trustees concluded that the
Subadvisers investment process, research capabilities and philosophy were well suited to the Fund given the Funds investment objectives and policies, and that Western Asset and each of the Subadvisers would be able to meet any reasonably
foreseeable obligations under the Agreements.
In reviewing the quality of the services provided to the Fund, the Trustees received and considered
performance information for the Fund as well as for a group of closed-end bond funds and the Bloomberg Barclays U.S. Government Inflation-Linked 1-10 Year Index (the
Index). The Trustees were provided with a description of the methodology used to determine the similarity of the Fund with the funds included in the Funds peer group. As in previous reviews, it was noted that while the Trustees
found the Broadridge data generally useful they recognized its limitations, including that the data may vary depending on the end date selected and that the results of the performance comparisons may vary depending on the selection of the peer group
and its composition over time. The Trustees also noted that they 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 Trustees considered the Funds performance in light of overall financial market conditions.
|
|
|
Western Asset Inflation-Linked Income Fund
|
|
47
|
Board approval of new management and new subadvisory agreements (unaudited) (contd)
The Trustees noted that the Fund had met its primary objective of providing current income to shareholders, the performance of the Fund exceeded its peer
groups average performance for the one-, three-, five- and ten-year periods ended December 31, 2019. With respect to the Fund, the Trustees considered the
factors involved in the Funds performance relative to the performance of the Index and the Funds peer group.
Based on their review of the
materials provided and the assurances received from Franklin Templeton and Legg Mason, the Trustees determined that the Transaction was not expected to affect adversely the nature, extent and quality of services provided by each Adviser and that the
Transaction was not expected to have an adverse effect on the ability of Western Asset and Subadvisers to provide those services, and the Trustees concluded that, overall, the nature, extent and quality of services expected to be provided, including
performance, under the New Agreements were sufficient for approval.
The Trustees considered that they had reviewed the Funds management fee and
total expense ratio at the 2019 contract renewal meetings. The Trustees considered that the New Agreements do not change the Funds management fee rate or the computation method for calculating such fees.
The Trustees also considered the management fee payable by the Fund and the total expenses payable by the Fund. They reviewed information concerning management fees
paid to investment advisers of similarly managed funds, as well as fees paid by Western Assets other U.S. clients investing primarily in an asset class similar to that of the Fund, including separate accounts managed by Western Asset. The
Trustees observed that, when measured as a percentage of net assets (including assets attributable to leverage) for its most recently completed fiscal year, the Funds management fee paid by the Fund to Western Asset was below the average of
the advisory fees paid by funds in its peer group and that total expenses for the Fund were below the average of the total expenses of the funds in its peer group. The Trustees noted that Western Asset manages one other account with a similar
investment strategy to the Fund and it has the same management fee rate as the Fund. The Trustees further noted that Western Asset does not manage open-end funds or separate accounts with similar investment
strategies to the Fund, although they noted that the management fee paid by the Fund was higher than the average of the fees paid by clients of Western Asset for certain other accounts (Other Accounts). The Trustees noted that the
administrative and operational responsibilities undertaken and associated risks incurred by Western Asset with respect to the Fund were also relatively higher and that the Funds investment strategy included certain asset classes and other
features not included in the Other Accounts. In light of the foregoing, the Trustees concluded that the difference in management fees paid by the Fund from those paid to Western Asset with respect to the Other Accounts was reasonable.
|
|
|
48
|
|
Western Asset Inflation-Linked Income Fund
|
In evaluating the costs of the services
to be provided by Western Asset and Subadvisers under the New Agreements, the Trustees considered, among other things, whether management fees or other expenses would change as a result of the Transaction. Based on their review of the materials
provided and the assurances they had received from Franklin Templeton and Legg Mason, the Trustees determined that the Transaction would not increase the total fees payable by the Fund for management services.
Taking all of the above into consideration, as well as the factors identified below, the Trustees 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 to be provided to the Fund under the New Agreements.
The Trustees
received and considered an analysis of the profitability of Western Asset and its affiliates in providing services to the Fund. The Trustees also received profitability information with respect to the Legg Mason fund complex as a whole. In addition,
the Trustees received information with respect to Western Assets allocation methodologies used in preparing this profitability data. It was noted that the allocation methodologies had been previously reviewed by an outside consultant. The
profitability of Western Asset and its affiliates was considered by the Trustees not excessive in light of the nature, extent and quality of the services provided to the Fund. The Trustees noted that Western Asset does not have soft dollar
arrangements.
The Trustees considered, in light of the profitability information provided by Western Asset, the extent to which economies of scale would
be realized by the Advisers as the assets of the Fund grow. The Trustees concluded that because the Fund is a closed-end fund and does not make a continuous offer of its securities, the Funds size was
relatively fixed and it would be unlikely that the Advisers would realize economies of scale from the Funds growth.
The Trustees noted that
Franklin Templeton and Legg Mason are expected to realize cost savings from the Transaction based on synergies of operations. However, they noted that other factors could also affect profitability and potential economies of scale, and that it was
not possible to predict with any degree of certainty how the Transaction would affect the Advisers profitability from their relationship with the Fund, nor to quantify at this time any possible future economies of scale. The Trustees noted
they will have the opportunity to periodically re-examine such profitability and any economies of scale going forward.
The Trustees further evaluated the benefits of the advisory relationship to Western Asset and the Subadvisers, including, among others, the profitability of the relationship to Western Asset and the Subadvisers,
the direct and indirect benefits that Western Asset and
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Western Asset Inflation-Linked Income Fund
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49
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Board approval of new management and new subadvisory agreements (unaudited) (contd)
each Subadviser may receive from its relationship with the Fund, including any fallout benefits, such as reputational value derived from serving as
investment manager or adviser to the Fund; and the affiliations between Western Asset, the Subadvisers and Legg Mason Partners Fund Advisor, LLC, the Funds administrator. The Trustees considered other benefits received by Western Asset, the
Subadvisers and their affiliates as a result of 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 Western Asset and the Subadvisers to the Fund, the Trustees considered that the ancillary benefits that Western Asset and its affiliates received are
reasonable. In evaluating the fall-out benefits to be received by Western Asset and the Subadvisers under the New Agreements, the Trustees considered whether the Transaction would have an impact on the fall-out benefits received by virtue of the Current Agreements. The Board considered that Franklin Templeton may derive reputational and other benefits from its ability to use the Legg Mason investment
affiliates names in connection with operating and marketing the Fund. The Board also considered that the Transaction, if completed, would significantly increase Franklin Templetons assets under management and expand Franklin
Templetons investment capabilities.
Based upon their review, the Trustees, including all of the Independent Trustees, determined, in the exercise
of their business judgment that they were generally satisfied with the quality of services being provided by Western Asset and the Subadvisers, but they would continue to closely monitor the performance of Western Asset and the Subadvisers. After
consideration of all the factors and information, and in the exercise of their business judgment, the Trustees, including the Independent Trustees, concluded that the New Agreements, including the fees payable thereunder, were fair and reasonable
and that entering into the New Agreements for the Fund was in the best interests of the Funds shareholders and approved the New Agreements and recommended that shareholders approve the New Agreements.
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50
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Western Asset Inflation-Linked Income Fund
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Additional shareholder information (unaudited)
Results of annual meeting of shareholders
The Annual Meeting of Shareholders of Western Asset Inflation-Linked Income Fund was held on April 24, 2020 for the purpose of considering and voting upon the
proposal presented at the Meeting. The following table provides information concerning the matters voted upon at the Meeting:
Election of Trustees
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Nominees
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For
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Withheld
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Robert Abeles, Jr.
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17,356,851
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9,440,781
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Jane F. Dasher
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17,341,647
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9,455,985
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Anita L. DeFrantz
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17,339,005
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9,458,627
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Susan B. Kerley
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17,342,769
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9,454,863
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Ronald L. Olson
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17,374,326
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9,423,306
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Avedick B. Poladian
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17,386,356
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9,411,276
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William E. B. Siart
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17,359,530
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9,438,102
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Jaynie Miller Studenmund
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17,342,647
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9,454,985
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Peter J. Taylor
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17,393,387
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9,404,245
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Jane E. Trust
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17,359,298
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9,438,334
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At May 31, 2020, the Trustees of the Fund were Robert Abeles, Jr., Jane F. Dasher, Anita L. DeFrantz, Susan B. Kerley, Michael
Larson, Ronald L. Olson, Avedick B. Poladian, William E.B. Siart, Jaynie Miller Studenmund, Peter J. Taylor and Jane E. Trust.
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Western Asset Inflation-Linked Income Fund
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51
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Dividend reinvestment plan (unaudited)
The Fund and Computershare Inc. (Agent), as the Transfer Agent and Registrar of WIA, offer a convenient way to add shares of WIA to your account. WIA
offers to all common shareholders a Dividend Reinvestment Plan (Plan). Under the Plan, cash distributions (e.g., dividends and capital gains) on the common shares are automatically invested in shares of WIA unless the shareholder elects
otherwise by contacting the Agent at the address set forth below.
As a participant in the Dividend Reinvestment Plan, you will automatically receive
your dividend or net capital gains distribution in newly issued shares of WIA, if the market price of the shares on the date of the distribution is at or above the net asset value (NAV) of the shares, minus estimated brokerage commissions that would
be incurred upon the purchase of common shares on the open market. The number of shares to be issued to you will be determined by dividing the amount of the cash distribution to which you are entitled (net of any applicable withholding taxes) by the
greater of the NAV per share on such date or 95% of the market price of a share on such date. If the market price of a share on such distribution date is below the NAV, less estimated brokerage commissions that would be incurred upon the purchase of
common shares on the open market, the Agent will, as agent for the participants, buy shares of WIA through a broker on the open market. All common shares acquired on your behalf through the Plan will be automatically credited to an account
maintained on the books of the Agent.
Additional information regarding the plan
WIA will pay all costs applicable to the Plan, except for brokerage commissions for open market purchases by the Agent under the Plan, which will be charged to
participants. All shares acquired through the Plan receive voting rights and are eligible for any stock split, stock dividend, or other rights accruing to shareholders that the Board of Trustees may declare.
You may terminate participation in the Plan at any time by giving notice to the Agent. Such termination will be effective prior to the record date next succeeding
the receipt of such instructions or by a later date of termination specified in such instructions. Upon termination, a participant will receive a certificate for the full shares credited to his or her account or may request the sale of all or part
of such shares. Fractional shares credited to a terminating account will be paid for in cash at the current market price at the time of termination.
Dividends and other distributions invested in additional shares under the Plan are subject to income tax just as if they had been received in cash. After year end,
dividends paid on the accumulated shares will be included in the Form 1099-DIV information return to the Internal Revenue Service and only one Form 1099-DIV will be sent
to participants each year.
Inquiries regarding the Plan, as well as notices of termination, should be directed to Computershare Inc, 462 South 4th
Street, Suite 1600 Louisville, KY 40202. Investor Relations telephone number 1-888-888-0151.
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Western Asset Inflation-Linked Income Fund
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Western Asset
Inflation-Linked Income Fund
Trustees*
Robert Abeles, Jr.
Jane F. Dasher
Anita L. DeFrantz
Susan B. Kerley
Michael Larson
Ronald L. Olson
Avedick B. Poladian
William E.B. Siart
Chairman
Jaynie M. Studenmund
Peter J. Taylor
Jane Trust
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Ted P. Becker
Chief Compliance Officer
Jenna Bailey
Identity Theft Prevention Officer
Robert I. Frenkel
Secretary and Chief Legal Officer
Thomas C. Mandia
Assistant Secretary
Jeanne M. Kelly
Senior Vice President
Western Asset Inflation-Linked Income Fund
620 Eighth Avenue
49th Floor
New York, NY 10018
Investment advisers
Western Asset Management Company, LLC
Western Asset Management
Company Limited
Western Asset Management Company Pte. Ltd.
Western Asset Management Company Ltd
Administrator
Legg Mason Partners Fund Advisor, LLC
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD 21202
Legal counsel
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
New York Stock Exchange Symbol
WIA
*
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During the Funds annual meeting held April 24, 2020, shareholders elected a new group of board members to the Funds Board of Trustees,
who join Michael Larson (previously elected by shareholders).
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Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Funds privacy and data protection practices with respect to nonpublic
personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end funds. The
provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and
maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
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Personal information included on applications or other forms;
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Account balances, transactions, and mutual fund holdings and positions;
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Bank account information, legal documents, and identity verification documentation;
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Online account access user IDs, passwords, security challenge question responses; and
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Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt,
payment history, etc.).
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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:
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Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business or to comply with obligations to
government regulators;
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Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or
processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;
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Permit access to transfer, whether in the United States or countries outside of the United States to such Funds employees, agents and affiliates and
service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
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The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations
to government regulators;
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Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
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NOT PART OF THE
SEMI-ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds
behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them
to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as
permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be
required to disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will
remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they
will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data
security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event
of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications
or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In
order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the
Funds privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Funds website at www.lmcef.com, or contact the Funds
at 1-888-777-0102.
Revised
April 2018
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NOT PART OF THE
SEMI-ANNUAL REPORT
|
Western Asset Inflation-Linked Income Fund
Western Asset Inflation-Linked Income Fund
620 Eighth Avenue
49th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at
market prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission
(SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Funds Forms N-PORT are available on the
SECs website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at
1-888-777-0102.
Information on
how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to
vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102,
(2) at www.lmcef.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of Western Asset
Inflation-Linked Income Fund for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WASX013850 7/20 SR20-3924