The Board may amend the terms of the Plan or terminate the Plan at any time without prior notice to the Funds
shareholders, however, at this time there are no reasonably foreseeable circumstances that might cause the termination of the Plan. The amendment or termination of the Plan could have an adverse effect on the market price of the Funds common
shares. The Plan is subject to the periodic review by the Board to determine if an adjustment should be made.
Shareholders should not draw any conclusions about the
Funds investment performance from the amount of the current distribution or from the terms of the Funds Plan. The Fund will send a Form 1099-DIV to shareholders for the calendar year that will describe how to report the Funds
distributions for federal income tax purposes.
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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Western Asset Inflation-Linked Income Fund |
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II |
Letter from the president
Dear Shareholder,
We are pleased to provide the annual report of Western Asset Inflation-Linked Income Fund for the twelve-month reporting period ended November 30, 2022. Please read
on for a detailed look at prevailing economic and market conditions during the Funds reporting period and to learn how those conditions have affected Fund performance.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support
you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.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. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
President
December 30, 2022
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III |
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Western Asset Inflation-Linked Income Fund |
Fund overview
Q. What is the Funds investment strategy?
A. 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 assetsi in inflation-linked securities and at least 60% of its total
managed assets in U.S. Treasury Inflation Protected Securities (TIPS)ii. The Fund may also invest up to 40% of its total managed assets in non-U.S. dollar investments, which gives the
Fund flexibility to invest up to 40% of its total managed assets in non-U.S. dollar inflation-linked securities (no more than 20% of its non-U.S. dollar exposure may be unhedged). The Fund may invest no more than 10% of its total managed assets in
investments rated below investment grade at the time of purchase (or, if unrated, assets of comparable quality as determined by management). The Fund may engage in currency strategies, using instruments such as currency forwards, futures and
options, to take long and short foreign currency positions subject to a limit of exposure from such strategies to 40% of total managed assets. This capacity is in addition to the capacity to have 20% unhedged exposure to non-U.S. dollar currencies
through the purchase of fixed income securities. The Fund may utilize commodity-related strategies for up to 10% of its total managed assets. Exposure to commodities is expected to be achieved using a variety of instruments, such as futures
contracts, options and other derivatives, or through investments in exchange-traded products that offer exposure to commodities. The Fund does not expect to hold physical commodities.
Each of the foregoing policies is a non-fundamental policy that may be changed without shareholder approval. The Fund also has the following non-fundamental policy,
which, to the extent required by applicable law, may only be changed after notice to shareholders: under normal market conditions, the Fund will invest at least 80% of its total managed assets in inflation-protected securities and
non-inflation-protected securities and instruments with the potential to enhance the Funds income. To the extent permitted by the foregoing policies, the Fund may invest in emerging markets debt securities.
Reverse repurchase agreements and other forms of leverage will not exceed 38% of the Funds total managed assets. To the extent the Fund covers its commitments
under these transactions, investment in these transactions will not be considered leverage for purposes of the Funds policy on the amount of leverage it may incur. The Fund currently expects that the average effective duration of its portfolio
will range between zero and fifteen years, although this target duration may change from time to time. The Fund may enter into credit default swap contracts, interest rate swap contracts and total return swap contracts for investment purposes, to
manage its credit risk or to add leverage. There can be no assurance that the Fund will achieve its investment objectives.
The Fund seeks to offer an inflation
hedge through investments in global inflation-linked securities, and primarily in TIPS. The Fund also seeks to offer shareholders certain additional advantages through the ability to invest in other fixed income asset classes,
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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1 |
Fund overview (contd)
which may result in higher total returns and higher distribution rates. These asset classes
include select investments in high-yield and investment-grade credit, emerging markets and structured products.
At Western Asset Management Company, LLC
(Western Asset), the Funds investment adviser, we utilize a fixed income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western
Assets senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed income portfolios will reflect a consensus of interdisciplinary views within the Western Asset
organization. The individuals responsible for development of investment strategy, day-to-day portfolio management, oversight and coordination of the Fund are S. Kenneth Leech, Michael C. Buchanan, Frederick Marki and Chia-Liang Lian.
Q. What were the overall market conditions during the Funds reporting period?
A. Fixed income markets experienced periods of volatility and fell sharply over the twelve-month reporting period ended November 30, 2022. The markets
decline was driven by a number of factors, including rising inflation and interest rates, aggressive Federal Reserve Board (the Fed) monetary policy tightening, the repercussions from the COVID-19 pandemic and its variants, the weakening
global economy, and the war in Ukraine.
Short-term U.S. Treasury yields moved sharply higher as the Fed began to aggressively raise interest rates in March 2022.
Over the next eight months, the central bank hiked rates an additional five times, bringing the federal funds rate to a range between 3.75% and 4.00%, the highest level since 2008. The yield for the two-year Treasury note began the reporting period
at 0.52% (the low for the reporting period) and ended the period at 4.38%. The peak of 4.72% occurred on November 7, 2022. The yield for ten-year Treasury note began the reporting period at 1.43% and ended the period at 3.68%. The low of 1.35%
occurred on December 3, 2021, and the peak of 4.25% took place on October 24, 2022.
Inflation moved sharply higher during the reporting period. For the
twelve months ended November 30, 2022, the seasonally unadjusted rate of inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U)iii, was 7.1%. The CPI-U
less food and energy was 6.0% over the same time frame. TIPS, as measured by the Bloomberg U.S. Treasury Inflation-Linked Bond Indexiv, returned -10.66% during the reporting period.
Q. How did we respond to these changing market conditions?
A. A number of adjustments were made to the Funds portfolio during the reporting period. The portfolio generally maintained an overall duration stance that
was longer relative to the Funds Custom Benchmarkv. That said, the Funds portfolio duration and yield curve positioning were tactically managed throughout the reporting period.
TIPS exposure, in terms of duration contribution, was gradually increased in the portfolio. During the reporting period, the Fund also gradually increased its exposure
to investment-grade credit while reducing its exposure to emerging markets and structured products.
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
The Fund employed U.S. Treasury futures and
Eurodollar futures to manage its yield curve positioning and interest rate risk, or duration. The use of these instruments detracted from performance. Currency forwards and futures on foreign currencies, which were used to manage the Funds
currency exposure, in aggregate, detracted from performance. Interest rate and inflation swaps were also used to manage interest rate exposure and these had a net minimal impact on performance. Credit linked credit default swap (CDS) contracts were
employed to achieve a synthetic exposure to corporate bonds, and these modestly contributed to performance. Futures and options on commodities, which were used to manage the Funds commodity exposure, in aggregate contributed to performance
Reverse repurchase agreements were used to add yield to the portfolio by increasing the Funds exposure to non-TIPS asset classes, including credit and
commodities. The use of reverse repurchase agreements to purchase emerging market and securitized product bonds, amongst others, generated negative results during the reporting period.
Performance review
For the twelve months ended
November 30, 2022, the Fund returned -17.37% based on its net asset value (NAV)vi and -24.30% based on its New York Stock Exchange (NYSE) market price per share. The
Funds unmanaged benchmarks, the Bloomberg U.S. Government Inflation-Linked 1-10 Year Indexvii and the Bloomberg U.S. Government Inflation-Linked All Maturities Indexviii, returned -6.29% and -11.40%, respectively, for the same period. The Bloomberg World Government Inflation-Linked All Maturities Indexix and the
Funds Custom Benchmark returned -20.98% and -11.74%, respectively, over the same time frame.
The Fund has adopted a managed distribution policy. Pursuant to this policy, the Fund intends to make regular monthly distributions to common shareholders at a fixed
rate per common share, which rate may be adjusted from time to time by the Funds Board of Trustees. This policy has no impact on the Funds investment strategy and may reduce the Funds NAV. The Funds investment adviser
believes the policy helps maintain the Funds competitiveness and may benefit the Funds market price and premium/discount to the Funds NAV.
During
the twelve-month period, the Fund made distributions to shareholders totaling $1.98 per share.*The performance table shows the Funds twelve-month total return based on its NAV and market price as of November 30, 2022. Past performance
is no guarantee of future results.
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Performance Snapshot as of November 30, 2022 |
|
Price Per Share |
|
12-Month Total Return** |
|
$10.36 (NAV) |
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|
-17.37 |
% |
$8.99 (Market Price) |
|
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-24.30 |
% |
* |
For the tax character of distributions paid during the fiscal year ended November 30, 2022, please refer to page 44
of this report. |
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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3 |
Fund overview (contd)
All figures represent past performance and are not a guarantee of future results.
** 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 at NAV.
Total return assumes the reinvestment of all distributions 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 is no exception to this 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 investment products. While there are actions that may temporarily reduce the discount to NAV, which the Board of Trustees regularly evaluates, we believe that if investor demand for
inflation-linked investments increase, that development, among other factors, may help reduce the Funds share price discount to NAV over time. Western Asset 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.
Q. What were the leading contributors
to performance?
A. The largest contributor to the Funds performance during the reporting period was its yield curve positioning. Commodity
exposures comprised the second largest contributor to performance.
Q. What were the leading detractors from performance?
A. The most significant detractor from the Funds performance was its duration positioning, mainly due to U.S. duration, though non-U.S. duration exposure
was also negative for returns. The Funds U.S. Treasury exposure was the second largest detractor from performance. Finally, spread sector exposures, including allocations to emerging markets, corporate credit and structured products, also
detracted from performance as their spreads widened during the reporting period.
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
online 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,
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
the Fund issues a quarterly press release that can
be found on most major financial websites as well as www.franklintempleton.com.
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
December 13,
2022
RISKS: The Fund is a diversified closed-end management investment company designed primarily as a
long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives.
The Funds common shares are traded on the NYSE. Similar to stocks, the Funds share price will fluctuate with market conditions and, at the time of sale, may be worth more or less than the original investment. Shares of closed-end funds
often trade at a discount to their net asset value. Diversification does not assure against market loss. 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.
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 may be less liquid 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.
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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5 |
Fund overview (contd)
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 adviser 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 advisers 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).
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
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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. The Fund may also invest in money market funds, including funds affiliated with the Funds investment adviser. For more information on Fund risks, see Summary of information regarding the Fund - Principal Risk
Factors in this report.
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.
Portfolio holdings and breakdowns are as of November 30, 2022 and are subject to change and may not be representative of the
portfolio managers current or future investments. Please refer to pages 12 through 21 for a list and percentage breakdown of the Funds holdings.
The
mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an
investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Funds top five sector holdings (as a
percentage of net assets) as of November 30, 2022 were: U.S. treasury inflation protected securities (134.7%), corporate bonds & notes (11.4%), collateralized mortgage obligations (5.9%), sovereign bonds (3.4%) and non-U.S.
treasury inflation protected securities (2.0%). The Funds portfolio composition is subject to change at any time.
All investments are subject to risk
including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of
the firm as a whole.
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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7 |
Fund overview (contd)
i |
Total managed assets equals the total assets of the Fund (including any assets attributable to leverage) minus
accrued liabilities (other than liabilities representing leverage). |
ii |
U.S. Treasury Inflation-Protected Securities (TIPS) are inflation-indexed securities issued by the U.S.
Treasury in five-year, ten-year and thirty-year maturities. The principal is adjusted to the Consumer Price Index, the commonly used measure of inflation. The coupon rate is constant, but generates a different amount of interest when multiplied by
the inflation-adjusted principal. |
iii |
The Consumer Price Index for All Urban Consumers (CPI-U) is a measure of the average change in prices over
time of goods and services purchased by households, which covers approximately 93% of the total population and includes, in addition to wage earners and clerical worker households, groups such as professional, managerial and technical workers, the
self-employed, short-term workers, the unemployed and retirees and others not in the labor force. |
iv |
The Bloomberg U.S. Treasury Inflation-Linked Bond Index represents an unmanaged market index made up of U.S. Treasury
Inflation-Linked Index securities. |
v |
The Custom Benchmark is comprised of 90% Bloomberg U.S. Government Inflation-Linked All Maturities Index and 10% Bloomberg
U.S. Credit Index. The Bloomberg U.S. Credit Index is an index composed of corporate and non-corporate debt issues that are investment grade (rated Baa3/BBB- or higher). |
vi |
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.
|
vii |
The Bloomberg U.S. Government Inflation-Linked 1-10 Year Index measures the performance of the intermediate U.S. TIPS
market. |
viii |
The Bloomberg 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. |
ix |
The Bloomberg World Government Inflation-Linked All Maturities Index measures the performance of the major government
inflation-linked bond markets. |
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Fund at a glance (unaudited)
Investment breakdown (%) as a percent of total investments
|
The bar graph above represents the composition of the Funds investments as of November 30, 2022 and
November 30, 2021 and does not include derivatives such as 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%. |
* |
Prior year percentanges have been restated to reflect current classifications. |
Western Asset Inflation-Linked Income Fund
(Percentages shown based on Fund net assets)
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Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount |
|
|
Value |
|
Mexico 0.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexican Bonos, Bonds |
|
|
8.000 |
% |
|
|
11/7/47 |
|
|
|
16,190,000 |
MXN |
|
$ |
737,482 |
|
Mexico Government International Bond, Senior Notes |
|
|
4.500 |
% |
|
|
4/22/29 |
|
|
|
1,480,000 |
|
|
|
1,438,953 |
|
Total Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,176,435 |
|
Nigeria 0.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nigeria Government International Bond, Senior Notes |
|
|
6.500 |
% |
|
|
11/28/27 |
|
|
|
200,000 |
|
|
|
160,484 |
(d) |
Total Sovereign Bonds (Cost
$10,102,365) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,147,465 |
|
Non-U.S. Treasury Inflation Protected Securities 2.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil 1.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional Serie B, Notes |
|
|
6.000 |
% |
|
|
8/15/50 |
|
|
|
14,467,704 |
BRL |
|
|
2,773,364 |
|
Russia 0.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russian Federal Inflation Linked Bond OFZ, Senior Notes |
|
|
2.500 |
% |
|
|
2/2/28 |
|
|
|
298,934,253 |
RUB |
|
|
2,106,378 |
*(h)
|
Total Non-U.S. Treasury Inflation Protected
Securities (Cost $8,333,130) |
|
|
|
4,879,742 |
|
Asset-Backed Securities 1.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Countrywide Home Equity Loan Trust, 2005-C 2A (1 mo. USD LIBOR + 0.180%) |
|
|
4.055 |
% |
|
|
7/15/35 |
|
|
|
210,389 |
|
|
|
194,554 |
(f) |
Countrywide Home Equity Loan Trust, 2006-I 2A (1 mo. USD LIBOR + 0.140%) |
|
|
4.015 |
% |
|
|
1/15/37 |
|
|
|
335,174 |
|
|
|
306,907 |
(f) |
First Franklin Mortgage Loan Trust, 2006-FF15 A5 (1 mo. USD LIBOR + 0.160%) |
|
|
4.204 |
% |
|
|
11/25/36 |
|
|
|
360,311 |
|
|
|
350,800 |
(f) |
Morgan Stanley ABS Capital Inc. Trust, 2004-HE7 M1 (1 mo. USD LIBOR + 0.900%) |
|
|
4.944 |
% |
|
|
8/25/34 |
|
|
|
575,704 |
|
|
|
542,459 |
(f) |
Saxon Asset Securities Trust, 2006-3 A4 (1 mo. USD LIBOR + 0.240%) |
|
|
4.284 |
% |
|
|
10/25/46 |
|
|
|
1,110,000 |
|
|
|
923,676 |
(f) |
Total Asset-Backed Securities (Cost
$2,441,581) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,318,396 |
|
Mortgage-Backed Securities 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (FNMA) |
|
|
2.680 |
% |
|
|
1/1/35-2/1/35 |
|
|
|
300,000 |
|
|
|
246,513 |
|
Federal National Mortgage Association (FNMA) |
|
|
2.790 |
% |
|
|
1/1/35 |
|
|
|
463,656 |
|
|
|
397,388 |
(f) |
Total Mortgage-Backed Securities (Cost
$766,875) |
|
|
|
|
|
|
|
643,901 |
|
U.S. Government & Agency Obligations 0.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Obligations
0.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes (Cost $88,773) |
|
|
1.375 |
% |
|
|
11/15/31 |
|
|
|
90,000 |
|
|
|
74,464 |
|
Total Investments before Short-Term Investments
(Cost $415,927,743) |
|
|
|
383,620,647 |
|
See Notes to Consolidated Financial Statements.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
17 |
Consolidated schedule of investments (contd)
November 30, 2022
Western Asset Inflation-Linked Income Fund
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security |
|
Rate |
|
|
|
|
|
Shares |
|
|
Value |
|
Short-Term Investments 1.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Asset Premier Institutional Government Reserves, Premium Shares (Cost
$3,529,871) |
|
|
3.749 |
% |
|
|
|
|
|
|
3,529,871 |
|
|
$ |
3,529,871 |
(i)(j) |
Total Investments 160.2% (Cost
$419,457,614) |
|
|
|
|
|
|
|
|
|
|
|
387,150,518 |
|
Liabilities in Excess of Other Assets (60.2)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145,452,939) |
|
Total Net Assets 100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
241,697,579 |
|
|
Face amount denominated in U.S. dollars, unless otherwise noted. |
|
Represents less than 0.1%. |
* |
Non-income producing security. |
(a) |
All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements.
|
(b) |
All or a portion of this security is held at the broker as collateral for open swap contracts. |
(c) |
All or a portion of this security is held at the broker as collateral for open futures contracts. |
(d) |
Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in
transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees. |
(e) |
Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities
offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees. |
(f) |
Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate
securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.
|
(g) |
Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates
that are structured to direct payments on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial
indicators and may be subject to an upper and/or lower limit. |
(h) |
The coupon payment on this security is currently in default as of November 30, 2022. |
(i) |
Rate shown is one-day yield as of the end of the reporting period. |
(j) |
In this instance, as defined in the Investment Company Act of 1940, an Affiliated Company represents Fund
ownership of at least 5% of the outstanding voting securities of an issuer, or a company which is under common ownership or control with the Fund. At November 30, 2022, the total market value of investments in Affiliated Companies was
$3,529,871 and the cost was $3,529,871 (Note 8). |
See Notes to Consolidated Financial Statements.
|
|
|
|
|
18 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Western Asset Inflation-Linked Income Fund
|
|
|
Abbreviation(s) used in this
schedule: |
|
|
ARM |
|
Adjustable Rate Mortgage |
|
|
BRL |
|
Brazilian Real |
|
|
CAS |
|
Connecticut Avenue Securities |
|
|
CLP |
|
Chilean Peso |
|
|
GTD |
|
Guaranteed |
|
|
IDR |
|
Indonesian Rupiah |
|
|
IO |
|
Interest Only |
|
|
JSC |
|
Joint Stock Company |
|
|
LIBOR |
|
London Interbank Offered Rate |
|
|
MXN |
|
Mexican Peso |
|
|
OFZ |
|
Obligatsyi Federalnovo Zaima (Russian Federal Loan Obligation) |
|
|
REMIC |
|
Real Estate Mortgage Investment Conduit |
|
|
RUB |
|
Russian Ruble |
|
|
SOFR |
|
Secured Overnight Financing Rate |
|
|
USD |
|
United States Dollar |
At November 30, 2022, 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. |
|
|
3.100 |
% |
|
|
9/6/2022 |
|
|
12/5/2022 |
|
$ |
158,900,000 |
|
|
|
U.S. Treasury Inflation Protected Securities |
|
|
$ |
155,262,258 |
|
|
|
Cash |
|
|
|
7,729,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
158,900,000 |
|
|
|
|
|
|
$ |
162,991,258 |
|
* |
Refer to the Consolidated Schedule of Investments for positions held at the counterparty as collateral for reverse
repurchase agreements. |
** |
Including accrued interest. |
At November 30, 2022, the Fund had the following open futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts |
|
|
Expiration
Date |
|
|
Notional
Amount |
|
|
Market
Value |
|
|
Unrealized
Appreciation (Depreciation) |
|
Contracts to Buy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper |
|
|
56 |
|
|
|
3/23 |
|
|
$ |
5,027,819 |
|
|
$ |
5,233,200 |
|
|
$ |
205,381 |
|
Euro |
|
|
4 |
|
|
|
12/22 |
|
|
|
510,242 |
|
|
|
521,425 |
|
|
|
11,183 |
|
Gold 100 Ounce |
|
|
43 |
|
|
|
2/23 |
|
|
|
7,587,888 |
|
|
|
7,567,570 |
|
|
|
(20,318) |
|
Japanese Yen |
|
|
35 |
|
|
|
12/22 |
|
|
|
3,096,050 |
|
|
|
3,178,218 |
|
|
|
82,168 |
|
U.S. Treasury 10-Year Notes |
|
|
33 |
|
|
|
3/23 |
|
|
|
3,722,684 |
|
|
|
3,745,500 |
|
|
|
22,816 |
|
WTI Crude |
|
|
182 |
|
|
|
4/23 |
|
|
|
15,803,725 |
|
|
|
14,667,380 |
|
|
|
(1,136,345) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(835,115) |
|
See Notes to Consolidated
Financial Statements.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
19 |
Consolidated schedule of investments (contd)
November 30, 2022
Western Asset Inflation-Linked Income Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts |
|
|
Expiration
Date |
|
|
Notional
Amount |
|
|
Market
Value |
|
|
Unrealized
Appreciation (Depreciation) |
|
Contracts to Sell: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Long-Term Bonds |
|
|
57 |
|
|
|
3/23 |
|
|
$ |
7,244,673 |
|
|
$ |
7,239,000 |
|
|
$ |
5,673 |
|
U.S. Treasury Ultra Long- Term Bonds |
|
|
37 |
|
|
|
3/23 |
|
|
|
5,119,811 |
|
|
|
5,042,406 |
|
|
|
77,405 |
|
WTI Crude |
|
|
83 |
|
|
|
12/22 |
|
|
|
7,202,641 |
|
|
|
6,685,650 |
|
|
|
516,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,069 |
|
Net unrealized depreciation on open futures contracts |
|
|
|
|
|
|
$ |
(235,046) |
|
At November 30, 2022, the Fund had the following open forward foreign currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased |
|
|
Currency
Sold |
|
|
Counterparty |
|
Settlement
Date |
|
|
Unrealized
Appreciation (Depreciation) |
|
INR |
|
|
219,765,423 |
|
|
USD |
|
|
2,645,545 |
|
|
Goldman Sachs Group Inc. |
|
|
1/18/23 |
|
|
$ |
46,391 |
|
MYR |
|
|
11,350,000 |
|
|
USD |
|
|
2,437,191 |
|
|
Goldman Sachs Group Inc. |
|
|
1/18/23 |
|
|
|
120,353 |
|
BRL |
|
|
3,283,876 |
|
|
USD |
|
|
614,268 |
|
|
JPMorgan Chase & Co. |
|
|
1/18/23 |
|
|
|
12,652 |
|
USD |
|
|
1,023,288 |
|
|
IDR |
|
|
15,639,930,000 |
|
|
JPMorgan Chase & Co. |
|
|
1/18/23 |
|
|
|
29,768 |
|
USD |
|
|
1,972,468 |
|
|
JPY |
|
|
282,422,892 |
|
|
JPMorgan Chase & Co. |
|
|
1/18/23 |
|
|
|
(86,285) |
|
CAD |
|
|
1,400,000 |
|
|
USD |
|
|
1,020,023 |
|
|
Morgan Stanley & Co. Inc. |
|
|
1/18/23 |
|
|
|
21,574 |
|
CAD |
|
|
1,900,000 |
|
|
USD |
|
|
1,380,173 |
|
|
Morgan Stanley & Co. Inc. |
|
|
1/18/23 |
|
|
|
33,423 |
|
COP |
|
|
19,717,872,601 |
|
|
USD |
|
|
4,175,569 |
|
|
Morgan Stanley & Co. Inc. |
|
|
1/18/23 |
|
|
|
(126,532) |
|
USD |
|
|
1,974,560 |
|
|
CAD |
|
|
2,696,401 |
|
|
Morgan Stanley & Co. Inc. |
|
|
1/18/23 |
|
|
|
(31,556) |
|
USD |
|
|
2,139,273 |
|
|
CLP |
|
|
2,055,477,440 |
|
|
Morgan Stanley & Co. Inc. |
|
|
1/18/23 |
|
|
|
(150,520) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(130,732) |
|
|
|
|
Abbreviation(s) used in this
table: |
|
|
BRL |
|
Brazilian Real |
|
|
CAD |
|
Canadian Dollar |
|
|
CLP |
|
Chilean Peso |
|
|
COP |
|
Colombian Peso |
|
|
IDR |
|
Indonesian Rupiah |
|
|
INR |
|
Indian Rupee |
|
|
JPY |
|
Japanese Yen |
|
|
MYR |
|
Malaysian Ringgit |
|
|
USD |
|
United States Dollar |
See Notes to Consolidated
Financial Statements.
|
|
|
|
|
20 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Western Asset Inflation-Linked Income Fund
At November 30, 2022, the Fund had the following open swap contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.39 Index |
|
$ |
7,024,000 |
|
|
|
12/20/27 |
|
|
5.000% quarterly |
|
$ |
131,762 |
|
|
$ |
(337,219) |
|
|
$ |
468,981 |
|
Markit CDX.NA.IG.38 Index |
|
|
16,226,000 |
|
|
|
6/20/27 |
|
|
1.000% quarterly |
|
|
214,459 |
|
|
|
190,007 |
|
|
|
24,452 |
|
Markit CDX.NA.IG.39 Index |
|
|
48,028,000 |
|
|
|
12/20/27 |
|
|
1.000% quarterly |
|
|
523,515 |
|
|
|
9,129 |
|
|
|
514,386 |
|
Total |
|
$ |
71,278,000 |
|
|
|
|
|
|
|
|
$ |
869,736 |
|
|
$ |
(138,083) |
|
|
$ |
1,007,819 |
|
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. |
See Notes to Consolidated Financial Statements.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
21 |
Consolidated statement of assets and liabilities
November 30, 2022
|
|
|
|
|
|
|
Assets: |
|
|
|
|
Investments in unaffiliated securities, at value (Cost $415,927,743) |
|
$ |
383,620,647 |
|
Investments in affiliated securities, at value (Cost $3,529,871) |
|
|
3,529,871 |
|
Foreign currency, at value (Cost $781,389) |
|
|
791,398 |
|
Deposits with brokers for open reverse repurchase agreements |
|
|
7,729,000 |
|
Deposits with brokers for centrally cleared swap contracts |
|
|
2,511,868 |
|
Interest receivable |
|
|
1,687,363 |
|
Deposits with brokers for open futures contracts |
|
|
1,273,570 |
|
Receivable from brokers net variation margin on open futures contracts |
|
|
408,312 |
|
Unrealized appreciation on forward foreign currency contracts |
|
|
264,161 |
|
Deposits with brokers for OTC derivatives |
|
|
250,000 |
|
Receivable from brokers net variation margin on centrally cleared swap
contracts |
|
|
222,786 |
|
Foreign currency collateral for open futures contracts, at value (Cost
$129,614) |
|
|
126,147 |
|
Dividends receivable from affiliated investments |
|
|
19,784 |
|
Prepaid expenses |
|
|
2,095 |
|
Total Assets |
|
|
402,437,002 |
|
|
|
Liabilities: |
|
|
|
|
Payable for open reverse repurchase agreements (Note 3) |
|
|
158,900,000 |
|
Interest expense payable |
|
|
1,176,743 |
|
Unrealized depreciation on forward foreign currency contracts |
|
|
394,893 |
|
Investment management fee payable |
|
|
113,009 |
|
Administration fee payable |
|
|
16,228 |
|
Trustees fees payable |
|
|
2,493 |
|
Accrued expenses |
|
|
136,057 |
|
Total Liabilities |
|
|
160,739,423 |
|
Total Net Assets |
|
$ |
241,697,579 |
|
|
|
Net Assets: |
|
|
|
|
Common shares, no par value, unlimited number of shares authorized, 23,322,256 shares
issued and outstanding |
|
$ |
298,679,256 |
|
Total distributable earnings (loss) |
|
|
(56,981,677) |
|
Total Net Assets |
|
$ |
241,697,579 |
|
|
|
Shares Outstanding |
|
|
23,322,256 |
|
|
|
Net Asset Value |
|
|
$10.36 |
|
See Notes to Consolidated
Financial Statements.
|
|
|
|
|
22 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Consolidated statement of operations
For the Year Ended November 30, 2022
|
|
|
|
|
|
|
Investment Income: |
|
|
|
|
Interest |
|
$ |
30,063,745 |
|
Dividends from affiliated investments |
|
|
62,216 |
|
Less: Foreign taxes withheld |
|
|
(36,210) |
|
Total Investment
Income |
|
|
30,089,751 |
|
|
|
Expenses: |
|
|
|
|
Interest expense (Note 3) |
|
|
1,900,952 |
|
Investment management fee (Note 2) |
|
|
1,562,171 |
|
Excise tax (Note 1) |
|
|
494,345 |
|
Administration fees (Note 2) |
|
|
223,168 |
|
Transfer agent fees |
|
|
86,298 |
|
Fund accounting fees |
|
|
78,814 |
|
Audit and tax fees |
|
|
64,413 |
|
Legal fees |
|
|
46,956 |
|
Shareholder reports |
|
|
18,639 |
|
Trustees fees |
|
|
15,884 |
|
Stock exchange listing fees |
|
|
12,500 |
|
Commodity pool reports |
|
|
12,000 |
|
Custody fees |
|
|
11,589 |
|
Insurance |
|
|
2,358 |
|
Miscellaneous expenses |
|
|
2,262 |
|
Total Expenses |
|
|
4,532,349 |
|
Less: Fee waivers and/or expense reimbursements (Note 2) |
|
|
(4,068) |
|
Net Expenses |
|
|
4,528,281 |
|
Net Investment Income |
|
|
25,561,470 |
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions (Notes 1, 3
and 4): |
|
|
|
|
Net Realized Loss From: |
|
|
|
|
Investment transactions in unaffiliated securities |
|
|
(5,151,064) |
|
Futures contracts |
|
|
(9,653,970) |
|
Swap contracts |
|
|
(291,406) |
|
Forward foreign currency contracts |
|
|
(292,054) |
|
Foreign currency transactions |
|
|
(276,143) |
|
Net Realized Loss |
|
|
(15,664,637) |
|
Change in Net Unrealized Appreciation (Depreciation) From: |
|
|
|
|
Investments in unaffiliated securities |
|
|
(65,415,261) |
|
Futures contracts |
|
|
732,961 |
|
Swap contracts |
|
|
691,566 |
|
Forward foreign currency contracts |
|
|
(13,964) |
|
Foreign currencies |
|
|
23,964 |
|
Change in Net Unrealized Appreciation
(Depreciation) |
|
|
(63,980,734) |
|
Net Loss on Investments, Futures Contracts, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions |
|
|
(79,645,371) |
|
Decrease in Net Assets From Operations |
|
$ |
(54,083,901) |
|
See Notes to Consolidated
Financial Statements.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
23 |
Consolidated statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Years Ended November 30, |
|
2022 |
|
|
2021 |
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
25,561,470 |
|
|
$ |
20,440,469 |
|
Net realized gain (loss) |
|
|
(15,664,637) |
|
|
|
32,250,406 |
|
Change in net unrealized appreciation (depreciation) |
|
|
(63,980,734) |
|
|
|
(20,447,557) |
|
Increase (Decrease) in Net Assets From
Operations |
|
|
(54,083,901) |
|
|
|
32,243,318 |
|
|
|
|
Distributions to Shareholders From (Note 1): |
|
|
|
|
|
|
|
|
Total distributable earnings |
|
|
(46,178,067) |
|
|
|
(23,517,580) |
|
Decrease in Net Assets From Distributions
to Shareholders |
|
|
(46,178,067) |
|
|
|
(23,517,580) |
|
|
|
|
Fund Share Transactions: |
|
|
|
|
|
|
|
|
Cost of shares repurchased through tender offer (0 and 5,830,564 shares repurchased,
respectively) (Note 5) |
|
|
|
|
|
|
(81,569,590) |
|
Decrease in Net Assets From Fund Share
Transactions |
|
|
|
|
|
|
(81,569,590) |
|
Decrease in Net
Assets |
|
|
(100,261,968) |
|
|
|
(72,843,852) |
|
|
|
|
Net Assets: |
|
|
|
|
|
|
|
|
Beginning of year |
|
|
341,959,547 |
|
|
|
414,803,399 |
|
End of year |
|
$ |
241,697,579 |
|
|
$ |
341,959,547 |
|
See Notes to Consolidated
Financial Statements.
|
|
|
|
|
24 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Consolidated statement of cash flows
For the Year Ended November 30, 2022
|
|
|
|
|
|
|
Increase (Decrease) in Cash: |
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
Net decrease in net assets resulting from operations |
|
$ |
(54,083,901) |
|
Adjustments to reconcile net decrease in net assets resulting from operations to net cash
provided (used) by operating activities: |
|
|
|
|
Purchases of portfolio securities |
|
|
(129,050,086) |
|
Sales of portfolio securities |
|
|
193,860,888 |
|
Net purchases, sales and maturities of short-term investments |
|
|
3,290,543 |
|
Net inflation adjustment |
|
|
(26,832,445) |
|
Net amortization of premium (accretion of discount) |
|
|
5,234,996 |
|
Securities litigation proceeds |
|
|
4,320 |
|
Decrease in interest receivable |
|
|
207,519 |
|
Increase in receivable from brokers net variation margin on centrally cleared swap
contracts |
|
|
(222,786) |
|
Decrease in prepaid expenses |
|
|
633 |
|
Increase in dividends receivable from affiliated investments |
|
|
(19,784) |
|
Increase in receivable from brokers net variation margin on open futures
contracts |
|
|
(408,312) |
|
Decrease in payable to brokers net variation margin on centrally cleared swap
contracts |
|
|
(107,965) |
|
Decrease in deposits from brokers for open reverse repurchase agreements |
|
|
(1,381,000) |
|
Decrease in payable for securities purchased |
|
|
(138,826) |
|
Decrease in investment management fee payable |
|
|
(33,944) |
|
Increase in Trustees fees payable |
|
|
1,727 |
|
Decrease in administration fee payable |
|
|
(4,766) |
|
Increase in interest expense payable |
|
|
1,123,684 |
|
Decrease in accrued expenses |
|
|
(111,728) |
|
Decrease in payable to brokers net variation margin on futures contracts |
|
|
(735,767) |
|
Net realized loss on investments |
|
|
5,151,064 |
|
Change in net unrealized appreciation (depreciation) of investments and forward foreign
currency contracts |
|
|
65,429,225 |
|
Net Cash Provided in Operating
Activities* |
|
|
61,173,289 |
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
Distributions paid on common stock |
|
|
(46,178,067) |
|
Decrease in payable for open reverse repurchase agreements |
|
|
(7,487,500) |
|
Net Cash Used by Financing
Activities |
|
|
(53,665,567) |
|
Net Increase in Cash and Restricted Cash |
|
|
7,507,722 |
|
Cash and restricted cash at beginning of year |
|
|
5,174,261 |
|
Cash and restricted cash at end of year |
|
$ |
12,681,983 |
|
* |
Included in operating expenses is $777,268 paid for interest on borrowings. |
See Notes to Consolidated Financial Statements.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
25 |
Consolidated statement of cash flows (contd)
For the Year Ended November 30, 2022
|
The following table provides a reconciliation of cash (including foreign currency) and restricted cash reported within the
Consolidated Statement of Assets and Liabilities that sums to the total of such amounts shown on the Consolidated Statement of Cash Flows. |
|
|
|
|
|
|
|
November 30, 2022 |
|
Cash |
|
$ |
791,398 |
|
Restricted cash |
|
|
11,890,585 |
|
Total cash and restricted cash shown in the Consolidated Statement of Cash Flows |
|
$ |
12,681,983 |
|
|
Restricted cash consists of cash that has been segregated to cover the Funds collateral or margin obligations under
derivative contracts and for reverse repurchase agreements. It is separately reported on the Consolidated Statement of Assets and Liabilities as Deposits with brokers. |
See Notes to Consolidated Financial Statements.
|
|
|
|
|
26 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Consolidated financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of common stock outstanding throughout each year ended November 30: |
|
|
|
20221 |
|
|
20211 |
|
|
20201 |
|
|
20191 |
|
|
20181 |
|
|
|
|
|
|
|
Net asset value, beginning of year |
|
|
$14.66 |
|
|
|
$14.23 |
|
|
|
$13.21 |
|
|
|
$12.35 |
|
|
|
$13.09 |
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
1.10 |
|
|
|
0.86 |
|
|
|
0.29 |
|
|
|
0.32 |
|
|
|
0.33 |
|
Net realized and unrealized gain (loss) |
|
|
(3.42) |
|
|
|
0.44 |
|
|
|
1.11 |
|
|
|
0.95 |
|
|
|
(0.66) |
|
Total income (loss) from
operations |
|
|
(2.32) |
|
|
|
1.30 |
|
|
|
1.40 |
|
|
|
1.27 |
|
|
|
(0.33) |
|
|
|
|
|
|
|
Less distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income2 |
|
|
(1.37) |
|
|
|
(0.01) |
|
|
|
(0.12) |
|
|
|
(0.41) |
|
|
|
(0.41) |
|
Net realized gains2 |
|
|
(0.61) |
|
|
|
(0.89) |
|
|
|
(0.26) |
|
|
|
|
|
|
|
|
|
Total
distributions |
|
|
(1.98) |
|
|
|
(0.90) |
|
|
|
(0.38) |
|
|
|
(0.41) |
|
|
|
(0.41) |
|
Anti-dilutive impact of tender offer |
|
|
|
|
|
|
0.03 |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year |
|
|
$10.36 |
|
|
|
$14.66 |
|
|
|
$14.23 |
|
|
|
$13.21 |
|
|
|
$12.35 |
|
|
|
|
|
|
|
Market price, end of year |
|
|
$8.99 |
|
|
|
$14.09 |
|
|
|
$13.17 |
|
|
|
$11.96 |
|
|
|
$10.69 |
|
Total return, based on NAV4,5 |
|
|
(17.37) |
% |
|
|
9.68 |
% |
|
|
10.88 |
% |
|
|
10.43 |
% |
|
|
(2.49) |
% |
Total return, based on Market Price6 |
|
|
(24.30) |
% |
|
|
14.29 |
% |
|
|
13.70 |
% |
|
|
16.03 |
% |
|
|
(4.61) |
% |
|
|
|
|
|
|
Net assets, end of year (millions) |
|
|
$242 |
|
|
|
$342 |
|
|
|
$415 |
|
|
|
$385 |
|
|
|
$360 |
|
|
|
|
|
|
|
Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses |
|
|
1.62 |
% |
|
|
0.83 |
% |
|
|
1.31 |
% |
|
|
1.93 |
% |
|
|
1.83 |
% |
Net expenses7 |
|
|
1.61 |
8 |
|
|
0.83 |
8 |
|
|
1.31 |
|
|
|
1.93 |
|
|
|
1.62 |
8 |
Net investment income |
|
|
9.12 |
|
|
|
5.96 |
|
|
|
2.20 |
|
|
|
2.46 |
|
|
|
2.60 |
|
|
|
|
|
|
|
Portfolio turnover rate |
|
|
30 |
% |
|
|
26 |
% |
|
|
47 |
% |
|
|
38 |
% |
|
|
45 |
% |
1 |
Per share amounts have been calculated using the average shares method. |
2 |
Per share amounts for the fiscal years ended November 30, 2021 and November 30, 2020 have been updated to
reflect the final character of distributions paid. |
3 |
The tender offer was completed at a price of $13.99 for 5,830,564 shares and $81,569,590 for the year ended
November 30, 2021. |
4 |
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. |
5 |
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future
results. |
6 |
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. |
7 |
The investment adviser has agreed to waive the Funds management fee to an extent sufficient to offset the net
management fee payable in connection with any investment in an affiliated money market fund. |
8 |
Reflects fee waivers and/or expense reimbursements. |
See Notes to Consolidated Financial Statements.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
27 |
Notes to consolidated financial statements
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 Fund follows the accounting and reporting guidance in Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946,
Financial Services - Investment Companies (ASC 946). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP),
including, but not limited to, ASC 946. Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The valuations for fixed income securities (which
may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party
pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest
rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures
contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing
price
|
|
|
|
|
28 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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 adviser to be unreliable, the market price may be determined by the adviser 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.
Pursuant to policies adopted by the Board of Trustees, the Funds adviser has been designated as the valuation designee and is responsible for the oversight of
the daily valuation process. The Funds adviser is assisted by the Global Fund Valuation Committee (the Valuation Committee). The Valuation Committee is responsible for making fair value determinations, evaluating the effectiveness
of the Funds pricing policies, and reporting to the Funds adviser and the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other
things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation
Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely
traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and
appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuers financial statements; the purchase price of the security; the discount from market value of
unrestricted securities of the same class at the time of purchase; analysts research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals
or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last
available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the
particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash
flows to present value.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
29 |
Notes to consolidated financial statements (contd)
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used
to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
|
|
Level 1 unadjusted quoted prices in active markets for identical investments |
|
|
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates,
prepayment speeds, credit risk, etc.) |
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of
investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those
securities.
The following is a summary of the inputs used in valuing the Funds assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
Description |
|
Quoted Prices (Level 1) |
|
|
Other Significant Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs
(Level 3) |
|
|
Total |
|
Long-Term Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Inflation Protected Securities |
|
|
|
|
|
$ |
325,640,522 |
|
|
|
|
|
|
$ |
325,640,522 |
|
Corporate Bonds & Notes |
|
|
|
|
|
|
27,553,649 |
|
|
|
|
|
|
|
27,553,649 |
|
Collateralized Mortgage Obligations |
|
|
|
|
|
|
14,362,508 |
|
|
|
|
|
|
|
14,362,508 |
|
Sovereign Bonds |
|
|
|
|
|
|
8,147,465 |
|
|
|
|
|
|
|
8,147,465 |
|
Non-U.S. Treasury Inflation Protected Securities |
|
|
|
|
|
|
4,879,742 |
|
|
|
|
|
|
|
4,879,742 |
|
Asset-Backed Securities |
|
|
|
|
|
|
2,318,396 |
|
|
|
|
|
|
|
2,318,396 |
|
Mortgage-Backed Securities |
|
|
|
|
|
|
643,901 |
|
|
|
|
|
|
|
643,901 |
|
U.S. Government & Agency Obligations |
|
|
|
|
|
|
74,464 |
|
|
|
|
|
|
|
74,464 |
|
Total Long-Term Investments |
|
|
|
|
|
|
383,620,647 |
|
|
|
|
|
|
|
383,620,647 |
|
Short-Term Investments |
|
$ |
3,529,871 |
|
|
|
|
|
|
|
|
|
|
|
3,529,871 |
|
Total Investments |
|
$ |
3,529,871 |
|
|
$ |
383,620,647 |
|
|
|
|
|
|
$ |
387,150,518 |
|
Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts |
|
$ |
921,617 |
|
|
|
|
|
|
|
|
|
|
$ |
921,617 |
|
Forward Foreign Currency Contracts |
|
|
|
|
|
$ |
264,161 |
|
|
|
|
|
|
|
264,161 |
|
Centrally Cleared Credit Default Swaps on Credit Indices Sell
Protection |
|
|
|
|
|
|
1,007,819 |
|
|
|
|
|
|
|
1,007,819 |
|
Total Other Financial Instruments |
|
$ |
921,617 |
|
|
$ |
1,271,980 |
|
|
|
|
|
|
$ |
2,193,597 |
|
Total |
|
$ |
4,451,488 |
|
|
$ |
384,892,627 |
|
|
|
|
|
|
$ |
389,344,115 |
|
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|
|
|
|
30 |
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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LIABILITIES |
|
Description |
|
Quoted Prices (Level 1) |
|
|
Other Significant Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs
(Level 3) |
|
|
Total |
|
Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts |
|
$ |
1,156,663 |
|
|
|
|
|
|
|
|
|
|
$ |
1,156,663 |
|
Forward Foreign Currency Contracts |
|
|
|
|
|
$ |
394,893 |
|
|
|
|
|
|
|
394,893 |
|
Total |
|
$ |
1,156,663 |
|
|
$ |
394,893 |
|
|
|
|
|
|
$ |
1,551,556 |
|
|
See Consolidated Schedule of Investments for additional detailed categorizations. |
|
Reflects the unrealized appreciation (depreciation) of the instruments. |
(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) 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 appreciation or
depreciation in the Consolidated Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to
varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(d) Forward foreign currency contracts. The Fund enters into a forward
foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is
an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a
forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract,
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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31 |
Notes to consolidated financial statements (contd)
the Fund recognizes a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value of the contract at the time it is closed.
Non-deliverable forward foreign currency exchange contracts are settled
with the counterparty in cash without the delivery of foreign currency.
Forward foreign currency contracts involve elements of market risk in excess of the amounts
reflected on the Consolidated Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms of their contracts.
(e) Swap
agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those
associated with other portfolio transactions. Swap agreements are privately negotiated in the over-the-counter market and may be entered into as a bilateral contract (OTC Swaps) or centrally cleared (Centrally Cleared Swaps).
Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.
In a Centrally Cleared Swap, immediately following execution
of the swap, the swap agreement is submitted to a clearinghouse or central counterparty (the CCP) and the CCP becomes the ultimate counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker,
acting in an agency capacity. All payments are settled with the CCP through the broker. Upon entering into a Centrally Cleared Swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities.
Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared
Swaps, if any, is recorded as a net receivable or payable for variation margin on the Consolidated Statement of Assets and Liabilities. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash
or securities, may be required to be held in segregated accounts with the Funds custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the 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.
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32 |
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
As of November 30, 2022, the total notional
value of all credit default swaps to sell protection was $71,278,000. This amount would be offset by the value of the swaps reference entity, upfront premiums received on the swap and any amounts received from the settlement of a credit
default swap where the Fund bought protection for the same referenced security/entity.
For average notional amounts of swaps held during the year ended
November 30, 2022, see Note 4.
Credit default swaps
The Fund enters into credit default swap (CDS) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one
party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a
write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has
exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuers default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the
term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted)
that the Fund could be required to make under a CDS 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 CDS 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 CDS 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
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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33 |
Notes to consolidated financial statements (contd)
Funds maximum risk is the notional amount of the contract. CDS are considered to have credit
risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.
Entering
into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Consolidated Statement of Assets and Liabilities. Such risks involve the possibility that there
will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net
interest rates.
Interest rate swaps
The Fund enters into interest rate swap contracts to manage its exposure to interest rate risk. Interest rate swaps are agreements between two parties to exchange cash
flows based on a notional principal amount. The Fund may elect to pay a fixed rate and receive a floating rate, receive a fixed rate and pay a floating rate, or pay and receive a floating rate, on a notional principal amount. Interest rate swaps are
marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized appreciation or depreciation in the Consolidated Statement of Operations. When a swap contract is terminated early, the Fund records
a realized gain or loss equal to the difference between the original cost and the settlement amount of the closing transaction.
The risks of interest rate swaps
include changes in market conditions that will affect the value of the contract or changes in the present value of the future cash flow streams and the possible inability of the counterparty to fulfill its obligations under the agreement. The
Funds maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contracts remaining life, to the extent that amount is positive. This risk is mitigated
by the posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty.
(f) Stripped securities. The Fund may invest in Stripped
Securities, a term used collectively for components, or strips, of fixed income securities. Stripped Securities can be 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.
(g) Reverse repurchase agreements. The Fund may enter into reverse repurchase agreements. Under the terms of a typical reverse repurchase agreement, a fund sells a security subject to an obligation to repurchase the security from the buyer at an agreed
|
|
|
|
|
34 |
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
upon time and price. In the event the buyer of
securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds use of the proceeds of the agreement may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to
enforce the Funds obligation to repurchase the securities. In entering into reverse repurchase agreements, the Fund will pledge cash, U.S. government securities or other liquid debt obligations at least equal in value to its obligations with
respect to reverse repurchase agreements or will take other actions permitted by law to cover its obligations. If the market value of the collateral declines during the period, the Fund may be required to post additional collateral to cover its
obligation. Cash collateral that has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any, will be reported separately in the Consolidated Statement of Assets and Liabilities. Securities pledged as collateral are
noted in the Consolidated Schedule of Investments. Interest payments made on reverse repurchase agreements are recognized as a component of Interest expense on the Consolidated Statement of Operations. In periods of increased demand for
the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
(h) Inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value or interest rate is periodically adjusted according to the
rate of inflation. As the index measuring inflation changes, the principal value or interest rate of inflation-indexed bonds will be adjusted accordingly. Inflation adjustments to the principal amount of inflation-indexed bonds are reflected as an
increase or decrease to investment income on the Consolidated Statement of Operations. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds
that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
(i) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and
may be reinvested at the discretion of shareholders. These activities are reported in the Consolidated Statements of Changes in Net Assets and additional information on cash receipts and cash payments is presented in the Consolidated Statement of
Cash Flows.
(j) Foreign currency translation. Investment
securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense
items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized
foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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|
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35 |
Notes to consolidated financial statements (contd)
received or paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and
currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and
regulation of foreign securities markets and the possibility of political or economic instability.
(k) Credit and
market risk. The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among
other things, perceived credit and market risks. The Funds investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and
ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of
investments held by the Fund. The Funds investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
Investments in securities that are collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an
increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and
principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.
(l) Foreign investment risks. The Funds investments in foreign
securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or dividends in foreign currencies, changes in the
relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation,
taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(m) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other
transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may
increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Funds investment adviser attempts to mitigate counterparty risk by
(i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the
counterparty for certain transactions.
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36 |
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the
investment adviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and
centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of
the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of
a default of the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc.
Master Agreement (ISDA Master Agreement) or similar agreement, with certain of its derivative counterparties that govern over-the-counter (OTC) derivatives and provide for general obligations, representations, agreements,
collateral posting terms, netting provisions in the event of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets
or net asset value per share over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments payables and/or
receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of
reported amounts of financial assets and financial liabilities in the Consolidated Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by
jurisdiction.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange
traded derivatives while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Consolidated
Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Consolidated Schedule of Investments.
As of
November 30, 2022, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $394,893. 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. As of November 30, 2022, the Fund had posted with its counterparties cash and/or securities as collateral to cover the net liability of these derivatives amounting to
$250,000 which could be used to reduce the required payment.
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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37 |
Notes to consolidated financial statements (contd)
At November 30, 2022, the Fund held non-cash collateral from Goldman Sachs Group Inc. and
JPMorgan Chase & Co. in the amount of $96,831 and $12,503, respectively. This amount could be used to reduce the Funds exposure to the counterparty in the event of default.
(n) Security transactions and investment income. Security transactions are
accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Paydown gains and losses on mortgage-
and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon
as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or
a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(o) Distributions to shareholders. Distributions from net investment income
of the Fund, if any, are declared and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Pursuant to its Managed Distribution Policy, the Fund intends to make regular monthly distributions to
shareholders at a fixed rate per common share, which rate may be adjusted from time to time by the Funds Board of Trustees. The actual source of the Funds monthly distributions may be from net investment income, realized capital gains,
return of capital or a combination thereof. Under the Funds Managed Distribution Policy, if, for any monthly distribution, the value of the Funds net investment income and net realized capital gain is less than the amount of the
distribution, the difference will be distributed from the Funds net assets (and may constitute a return of capital). Shareholders will be informed of the tax characteristics of the distributions after the close of the 2022 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.
(p) Compensating balance arrangements. The Fund has an
arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(q) Federal and other taxes. It is the Funds policy to comply with
the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized
gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements.
However, due to the timing of when distributions are made by the Fund, the Fund may be subject to an excise tax of 4% of the amount by which 98% of the Funds
annual taxable income and 98.2% of net realized gains exceed the distributions from such taxable income
|
|
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38 |
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
and realized gains for the calendar year. During the period, the Fund paid $599,258 of federal income taxes attributable to
calendar year 2021. The Fund anticipates being subject to an excise tax of approximately $561,000 for the calendar year 2022, of which $34,000 was accrued as of November 30, 2022.
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, 2022, no
provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to
examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be imposed on interest,
dividends and capital gains at various rates.
(r) Reclassification.
GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset
value per share. During the current year, the following reclassifications have been made:
|
|
|
|
|
|
|
|
|
|
|
Total Distributable
Earnings (Loss) |
|
|
Paid-in
Capital |
|
(a) |
|
$ |
494,345 |
|
|
$ |
(494,345) |
|
(a) |
Reclassifications are due to a non-deductible excise tax accrued by the Fund. |
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, the Non-U.S. Advisers) 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.
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Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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|
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39 |
Notes to consolidated financial statements (contd)
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.
The Investment Adviser has agreed to waive the Funds management fee to an
extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund (the affiliated money market fund waivers).
During the year ended November 30, 2022, fees waived and/or expenses reimbursed amounted to $4,068, all of which was an affiliated money market fund waiver.
Western Asset, Western Asset Singapore, Western Asset London, Western Asset Japan and LMFPA are indirect, wholly-owned subsidiaries of Franklin Resources, Inc.
3. Investments
During the year ended
November 30, 2022, 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 |
|
$ |
2,069,884 |
|
|
$ |
126,980,202 |
|
Sales |
|
|
27,504,371 |
|
|
|
166,356,517 |
|
At November 30, 2022, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of
investments for federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost/Premiums
Paid (Received) |
|
|
Gross
Unrealized Appreciation |
|
|
Gross
Unrealized Depreciation |
|
|
Net
Unrealized Appreciation (Depreciation) |
|
Securities |
|
$ |
419,398,284 |
|
|
$ |
494,631 |
|
|
$ |
(32,742,397) |
|
|
$ |
(32,247,766) |
|
Futures contracts |
|
|
|
|
|
|
921,617 |
|
|
|
(1,156,663) |
|
|
|
(235,046) |
|
Forward foreign currency contracts |
|
|
|
|
|
|
264,161 |
|
|
|
(394,893) |
|
|
|
(130,732) |
|
Swap contracts |
|
|
(138,083) |
|
|
|
1,007,819 |
|
|
|
|
|
|
|
1,007,819 |
|
Transactions in reverse repurchase agreements for the Fund during the year ended November 30, 2022 were as follows:
|
|
|
|
|
Average Daily
Balance* |
|
Weighted Average
Interest Rate* |
|
Maximum Amount
Outstanding |
$164,472,580 |
|
1.139% |
|
$166,387,500 |
* |
Averages based on the number of days that the Fund had reverse repurchase agreements outstanding. |
Interest rates on reverse repurchase agreements ranged from 0.140% to 3.100% during the year ended November 30, 2022. Interest expense incurred on reverse
repurchase agreements totaled $1,899,829.
|
|
|
|
|
40 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 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 November 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSET DERIVATIVES1 |
|
|
|
Interest
Rate Risk |
|
|
Foreign
Exchange Risk |
|
|
Credit
Risk |
|
|
Commodity
Risk |
|
|
Total |
|
Futures contracts2 |
|
$ |
105,894 |
|
|
$ |
93,351 |
|
|
|
|
|
|
$ |
722,372 |
|
|
$ |
921,617 |
|
Forward foreign currency contracts |
|
|
|
|
|
|
264,161 |
|
|
|
|
|
|
|
|
|
|
|
264,161 |
|
Centrally cleared swap contracts3 |
|
|
|
|
|
|
|
|
|
$ |
1,007,819 |
|
|
|
|
|
|
|
1,007,819 |
|
Total |
|
$ |
105,894 |
|
|
$ |
357,512 |
|
|
$ |
1,007,819 |
|
|
$ |
722,372 |
|
|
$ |
2,193,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITY DERIVATIVES1 |
|
|
|
Foreign
Exchange Risk |
|
|
Commodity
Risk |
|
|
Total |
|
Futures contracts2 |
|
|
|
|
|
$ |
1,156,663 |
|
|
$ |
1,156,663 |
|
Forward foreign currency contracts |
|
$ |
394,893 |
|
|
|
|
|
|
|
394,893 |
|
Total |
|
$ |
394,893 |
|
|
$ |
1,156,663 |
|
|
$ |
1,551,556 |
|
1 |
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability
derivatives is payables/net unrealized depreciation. |
2 |
Includes cumulative unrealized appreciation (depreciation) of futures contracts as reported in the Consolidated Schedule
of Investments. Only net variation margin is reported within the receivables and/or payables on the Consolidated Statement of Assets and Liabilities. |
3 |
Includes cumulative unrealized appreciation (depreciation) of centrally cleared swap contracts as reported in the
Consolidated Schedule of Investments. Only net variation margin is reported within the receivables and/or payables on the Consolidated Statement of Assets and Liabilities. |
The following tables provide information about the effect of derivatives and hedging activities on the Funds Consolidated Statement of Operations for the year
ended November 30, 2022. 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 net unrealized
appreciation (depreciation) resulting from the Funds derivatives and hedging activities during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNT OF NET REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED |
|
|
|
Interest
Rate Risk |
|
|
Foreign
Exchange Risk |
|
|
Credit
Risk |
|
|
Commodity
Risk |
|
|
Total |
|
Purchased options1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(60,568) |
|
|
$ |
(60,568) |
|
Futures contracts |
|
$ |
(10,985,198) |
|
|
$ |
(235,828) |
|
|
|
|
|
|
|
1,567,056 |
|
|
|
(9,653,970) |
|
Swap contracts |
|
|
759,732 |
|
|
|
|
|
|
$ |
(1,051,138) |
|
|
|
|
|
|
|
(291,406) |
|
Forward foreign currency contracts |
|
|
|
|
|
|
(292,054) |
|
|
|
|
|
|
|
|
|
|
|
(292,054) |
|
Total |
|
$ |
(10,225,466) |
|
|
$ |
(527,882) |
|
|
$ |
(1,051,138) |
|
|
$ |
1,506,488 |
|
|
$ |
(10,297,998) |
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
41 |
Notes to consolidated financial statements (contd)
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 NET UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED |
|
|
|
Interest
Rate Risk |
|
|
Foreign Exchange Risk |
|
|
Credit
Risk |
|
|
Commodity Risk |
|
|
Total |
|
Futures contracts |
|
$ |
(116,486) |
|
|
$ |
444,136 |
|
|
|
|
|
|
$ |
405,311 |
|
|
$ |
732,961 |
|
Swap contracts |
|
|
(672,733) |
|
|
|
|
|
|
$ |
1,364,299 |
|
|
|
|
|
|
|
691,566 |
|
Forward foreign currency contracts |
|
|
|
|
|
|
(13,964) |
|
|
|
|
|
|
|
|
|
|
|
(13,964) |
|
Total |
|
$ |
(789,219) |
|
|
$ |
430,172 |
|
|
$ |
1,364,299 |
|
|
$ |
405,311 |
|
|
$ |
1,410,563 |
|
During the year ended November 30, 2022, the volume of derivative activity for the Fund was as follows:
|
|
|
|
|
|
|
Average Market Value |
|
Purchased options |
|
$ |
5,169 |
|
Futures contracts (to buy) |
|
|
218,223,786 |
|
Futures contracts (to sell) |
|
|
49,856,981 |
|
Forward foreign currency contracts (to buy) |
|
|
21,964,212 |
|
Forward foreign currency contracts (to sell) |
|
|
17,809,615 |
|
|
|
|
|
Average Notional Balance |
|
Interest rate swap contracts |
|
$ |
38,669,231 |
|
Credit default swap contracts (sell protection) |
|
|
77,627,237 |
|
|
At November 30, 2022, there were no open positions held in this derivative. |
The following table presents the Funds OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and
net of the related collateral pledged (received) by the Fund as of November 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty |
|
Gross Assets Subject to Master Agreements1 |
|
|
Gross Liabilities Subject to Master Agreements1 |
|
|
Net Assets (Liabilities) Subject to Master Agreements |
|
|
Collateral Pledged (Received)2,3 |
|
|
Net Amount4,5 |
|
Goldman Sachs Group Inc. |
|
$ |
166,744 |
|
|
|
|
|
|
$ |
166,744 |
|
|
$ |
(96,831) |
|
|
$ |
69,913 |
|
JPMorgan Chase & Co. |
|
|
42,420 |
|
|
$ |
(86,285) |
|
|
|
(43,865) |
|
|
|
(12,503) |
|
|
|
(56,368) |
|
Morgan Stanley & Co. Inc. |
|
|
54,997 |
|
|
|
(308,608) |
|
|
|
(253,611) |
|
|
|
250,000 |
|
|
|
(3,611) |
|
Total |
|
$ |
264,161 |
|
|
$ |
(394,893) |
|
|
$ |
(130,732) |
|
|
$ |
140,666 |
|
|
$ |
9,934 |
|
|
|
|
|
|
42 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
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 |
Net amount may also include forward foreign currency exchange contracts that are not required to be collateralized.
|
5 |
Represents the net amount receivable (payable) from (to) the counterparty in the event of default. |
5. Tender offer
On November 24, 2020, the
Fund announced that the Funds Board of Trustees had approved a cash tender offer for up to 20% of the Funds outstanding common shares (the Shares) at a price per Share equal to 99% of the Funds net asset value per Share
as of the business day immediately following the expiration date of the tender offer. On November 25, 2020, the Fund commenced its tender offer. On December 28, 2020, the tender offer expired. Pursuant to the terms of the tender offer, the
Fund repurchased Shares tendered and accepted in the tender offer in exchange for cash. On December 30, 2020, the Fund announced the final results of the tender offer. A total of 20,871,974 Shares were duly tendered and not withdrawn. Because
the number of Shares tendered exceeded 5,830,564 Shares, the tender offer was oversubscribed. Therefore, in accordance with the terms and conditions specified in the tender offer, the Fund purchased Shares from all tendering shareholders on a pro
rata basis, disregarding fractions. Payment for such shares was made on December 31, 2020. The purchase price of properly tendered Shares was $13.99 per Share, equal to 99% of the per Share net asset value of $14.13 as of the close of the
regular trading session on the New York Stock Exchange on December 29, 2020. Shares that were not tendered remain outstanding.
6.
Distributions subsequent to November 30, 2022
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 |
|
12/22/2022 |
|
|
12/30/2022 |
|
|
$ |
0.2700 |
* |
1/24/2023 |
|
|
1/31/2023 |
|
|
$ |
0.0500 |
|
2/21/2023 |
|
|
2/28/2023 |
|
|
$ |
0.0500 |
|
* |
December 2022 distributions consist of the regular monthly distribution of $0.0500 and a special distribution of $0.2200
per share. |
7. Share 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 shares when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase the Funds common shares at such times and in
such amounts as management reasonably believes may enhance shareholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the years ended November 30, 2022 and
November 30, 2021, the Fund did not repurchase any shares.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
43 |
Notes to consolidated financial statements (contd)
8. Transactions with affiliated company
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities, or a company which is under common
ownership or control with the Fund. The following company was considered an affiliated company for all or some portion of the year ended November 30, 2022. The following transactions were effected in such company for the year ended
November 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate
Value at November 30, |
|
|
Purchased |
|
|
Sold |
|
|
2021 |
|
|
Cost |
|
|
Shares |
|
|
Proceeds |
|
|
Shares |
|
Western Asset Premier Institutional Government Reserves, Premium Shares |
|
$ |
4,624,134 |
|
|
$ |
190,472,230 |
|
|
|
190,472,230 |
|
|
$ |
191,566,493 |
|
|
|
191,566,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(contd) |
|
Realized Gain (Loss) |
|
Dividend
Income |
|
|
Net Increase (Decrease) in Unrealized Appreciation (Depreciation) |
|
Affiliate
Value at November 30, 2022 |
|
Western Asset Premier Institutional Government Reserves, Premium Shares |
|
|
|
$ |
62,216 |
|
|
|
|
$ |
3,529,871 |
|
9. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended November 30, was as follows:
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
Distributions paid from: |
|
|
|
|
|
|
|
|
Ordinary income |
|
$ |
45,725,291 |
|
|
$ |
15,172,994 |
|
Net long-term capital gains |
|
|
452,776 |
|
|
|
8,344,586 |
|
Total distributions paid |
|
$ |
46,178,067 |
|
|
$ |
23,517,580 |
|
As of November 30, 2022, the components of distributable earnings (loss) on a tax basis were as follows:
|
|
|
|
|
Undistributed ordinary income net |
|
$ |
25,780,717 |
|
Deferred capital losses* |
|
|
(50,802,344) |
|
Other book/tax temporary differences(a) |
|
|
(360,990) |
|
Unrealized appreciation (depreciation)(b) |
|
|
(31,599,060) |
|
Total distributable earnings (loss) net |
|
$ |
(56,981,677) |
|
|
|
|
|
|
44 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
* |
These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be
deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains. |
(a) |
Other book/tax temporary differences are attributable to the tax deferral of losses on straddles, the realization for tax
purposes of unrealized gains (losses) on certain futures and foreign currency contracts and book/tax differences in the timing of the deductibility of various expenses. |
(b) |
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral
of losses on wash sales, book/tax differences in the accrual of interest income on securities in default and the difference between the book and tax cost basis in underlying investments. |
10. Recent accounting pronouncement
In March
2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January
2021, the FASB issued ASU No. 2021-01, with further amendments to Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications
due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period
March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.
11. Other matters
The outbreak of the
respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the
pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Funds investments and negatively impact the Funds
performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
* * *
The
Funds investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or LIBOR, which is the offered rate for short-term Eurodollar deposits between major
international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of the overnight and one-, three-, six- and twelve-month USD LIBOR settings immediately following the
LIBOR publication on Friday, June 30, 2023. All other LIBOR settings, including the one-week and two-month USD LIBOR settings, have ceased publication as of January 1, 2022. 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.
* * *
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
45 |
Notes to consolidated financial statements (contd)
Russias military invasion of Ukraine in February 2022, the resulting responses by the United
States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging
economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions
on other countries that support Russias military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or
cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion. To the
extent that the Fund has exposure to Russian investments or investments in countries affected by the invasion, the Funds ability to price, buy, sell, receive or deliver such investments was impaired. The Fund could determine at any time that
certain of the most affected securities have little or no value. In addition, any exposure that the Fund may have to counterparties in Russia or in countries affected by the invasion could negatively impact the Funds portfolio. The extent and
duration of Russias military actions and the repercussions of such actions (including any retaliatory actions or countermeasures that may be taken by those subject to sanctions) are impossible to predict, but could result in significant market
disruptions, including in the oil and natural gas markets, and may negatively affect global supply chains, inflation and global growth. These and any related events could significantly impact the Funds performance and the value of an
investment in the Fund, even beyond any direct exposure the Fund may have to Russian issuers or issuers in other countries affected by the invasion. At November 30, 2022, the Fund had 0.87% of its net assets invested in securities with
significant economic risk or exposure to Russia.
|
|
|
|
|
46 |
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
Report of independent registered public accounting firm
To the Board of Trustees and Shareholders of Western Asset
Inflation-Linked Income Fund
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of Western Asset Inflation-Linked
Income Fund and its subsidiary (the Fund) as of November 30, 2022, the related consolidated statements of operations and cash flows for the year ended November 30, 2022, the consolidated statement of changes in net assets for
each of the two years in the period ended November 30, 2022, including the related notes, and the consolidated financial highlights for each of the five years in the period ended November 30, 2022 (collectively referred to as the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Fund as of November 30, 2022, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of the two years in the period ended November 30, 2022 and the financial highlights for each of the five years in the period ended November 30, 2022 in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these
consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities
owned as of November 30, 2022 by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
January 25, 2023
We have served as the auditor of one or more investment
companies in the Franklin Templeton Group of Funds since 1948.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund 2022 Annual Report |
|
|
|
47 |
Additional information (unaudited)
Information about Trustees and Officers
The business and
affairs of Western Asset Inflation-Linked Income Fund (the Fund) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o Jane Trust, Franklin
Templeton, 100 International Drive, 11th Floor, Baltimore, Maryland 21202.
Information pertaining to the Trustees and officers of the Fund is set forth below. The
Funds annual proxy statement includes additional information about Trustees and is available, without charge, upon request by calling the Fund at 1-888-777-0102.
|
|
|
Independent Trustees |
|
|
|
|
Robert Abeles, Jr. |
|
|
|
|
Year of birth |
|
1945 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class II |
Term of office1 and length of time served2 |
|
Since 2013 |
Principal occupation(s) during the past five years |
|
Board Member, Great Public Schools Now (since 2018); Senior Vice President Emeritus (since 2016) and formerly, Senior Vice President, Finance and Chief Financial Officer (2009 to 2016) at
University of Southern California; Board Member, Excellent Education Development (since 2012) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
None |
|
|
Jane F. Dasher |
|
|
|
|
Year of birth |
|
1949 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class II |
Term of office1 and length of time served2 |
|
Since 1999 |
Principal occupation(s) during the past five years |
|
Director (since 2022) and formerly Chief Financial Officer, Long Light Capital, LLC, formerly known as Korsant Partners, LLC (a family investment company) (since 1997) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Director, Visual Kinematics, Inc. (2018 to 2022) |
|
|
|
|
|
48 |
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
Independent Trustees (contd) |
|
|
|
Anita L. DeFrantz |
|
|
Year of birth |
|
1952 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class II |
Term of office1 and length of time served2 |
|
Since 1998 |
Principal occupation(s) during the past five years |
|
President of Tubman Truth Corp. (since 2015); President Emeritus (since 2015) and formerly, President (1987 to 2015) and Director (1990 to 2015) of LA84 (formerly Amateur Athletic
Foundation of Los Angeles); Member (since 1986), Member of the Executive Board (since 2013) and Vice President (since 2017) of the International Olympic Committee |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
None |
|
|
Susan B. Kerley |
|
|
|
|
Year of birth |
|
1951 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class I |
Term of office1 and length of time served2 |
|
Since 1992 |
Principal occupation(s) during the past five years |
|
Investment Consulting Partner, Strategic Management Advisors, LLC (investment consulting) (since 1990) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Director and Trustee (since 1990) and Chairman (since 2017 and 2005 to 2012) of various series of MainStay Family of Funds (66 funds); formerly, Investment Company Institute (ICI) Board of
Governors (2006 to 2014); ICI Executive Committee (2011 to 2014); and Chairman of the Independent Directors Council (2012 to 2014) |
|
|
Michael Larson |
|
|
|
|
Year of birth |
|
1959 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class I |
Term of office1 and length of time served2 |
|
Since 2004 |
Principal occupation(s) during the past five years |
|
Chief Investment Officer for William H. Gates III (since 1994)4 |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Republic Services, Inc. (since 2009); Fomento Economico Mexicano, SAB (since 2011); Ecolab Inc. (since 2012); and formerly, AutoNation, Inc. (2010 to
2018) |
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
|
49 |
|
Additional information
(unaudited) (contd)
Information about Trustees and Officers
|
|
|
Independent Trustees (contd) |
|
|
|
|
Avedick B. Poladian |
|
|
|
|
Year of birth |
|
1951 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class I |
Term of office1 and length of time served2 |
|
Since 2007 |
Principal occupation(s) during the past five years |
|
Director and Advisor (since 2017) and former Executive Vice President and Chief Operating Officer (2002 to 2016) of Lowe Enterprises, Inc. (privately held real estate and hospitality firm);
formerly, Partner, Arthur Andersen, LLP (1974 to 2002) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Occidental Petroleum Corporation (since 2008); California Resources Corporation (2014 to 2021); and Public Storage (since 2010) |
|
|
William E.B. Siart |
|
|
|
|
Year of birth |
|
1946 |
Position(s) with Fund |
|
Trustee and Chairman of the Board and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class III |
Term of office1 and length of time served2 |
|
Since 1997 (Chairman of the Board since 2020) |
Principal occupation(s) during the past five years |
|
Chairman of Excellent Education Development (since 2000); formerly, Chairman of Great Public Schools Now (2015 to 2020); Trustee of The Getty Trust (since 2005 to 2017); Chairman of Walt
Disney Concert Hall, Inc. (1998 to 2006) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Member of Board of United States Golf Association, Executive Committee Member (since 2017); and Trustee, University of Southern California (since
1994) |
|
|
|
|
|
50 |
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
Independent Trustees (contd) |
|
|
|
|
Jaynie Miller Studenmund |
|
|
|
|
Year of birth |
|
1954 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, Class III |
Term of office1 and length of time served2 |
|
Since 2004 |
Principal occupation(s) during the past five years |
|
Corporate Board Member and Advisor (since 2004); formerly, Chief Operating Officer of Overture Services, Inc. (publicly traded internet company that created search engine marketing) (2001
to 2004); President and Chief Operating Officer, PayMyBills (internet innovator in bill presentment/payment space) (1999 to 2001); Executive vice president for consumer and business banking for three national financial institutions (1984 to
1997) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Director of Pacific Premier Bancorp Inc. and Pacific Premier Bank (since 2019); Director of EXL (operations management and analytics company) (since 2018); Director of CoreLogic, Inc.
(information, analytics and business services company) (2012 to 2021); formerly, Director of Pinnacle Entertainment, Inc. (gaming and hospitality company) (2012 to 2018); Director of LifeLock, Inc. (identity theft protection company) (2015 to 2017);
and Director of Orbitz Worldwide, Inc. (online travel company) (2007 to 2014) |
|
|
Peter J. Taylor |
|
|
|
|
Year of birth |
|
1958 |
Position(s) with Fund |
|
Trustee and Member of Audit, Executive and Contracts, Investment and Performance and Governance and Nominating Committees, and Coordinator of Alternative Investments, Class III |
Term of office1 and length of time served2 |
|
Since 2019 |
Principal occupation(s) during the past five years |
|
President, ECMC Foundation (nonprofit organization) (since 2014); formerly, Executive Vice President and Chief Financial Officer for University of California system (2009 to 2014) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Director of 23andMe, Inc. (genetics and health care services company) (since 2021); Director of Pacific Mutual Holding Company5 (since
2016); Member of the Board of Trustees of California State University system (2015 to 2022); Ralph M. Parson Foundation (since 2015); Kaiser Family Foundation (since 2012); and Edison International (since 2011) |
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
|
51 |
|
|
|
|
Interested Trustee |
|
|
|
|
Ronald L. Olson6 |
|
|
|
|
Year of birth |
|
1941 |
Position(s) with Fund |
|
Trustee and Member of Investment and Performance Committee, Class I |
Term of office1 and length of time served2 |
|
Since 2005 |
Principal occupation(s) during the past five years |
|
Partner of Munger, Tolles & Olson LLP (law partnership) (since 1968) |
Number of funds in fund complex overseen by Trustee3 |
|
51 |
Other Trusteeships held by Trustee during the past five years |
|
Berkshire Hathaway, Inc. (since 1997) |
|
|
|
Interested Trustee and Officer |
|
|
|
|
Jane Trust, CFA7 |
|
|
|
|
Year of birth |
|
1962 |
Position(s) with Fund |
|
Trustee, President and Chief Executive Officer, Class II |
Term of office1 and length of time served2 |
|
Since 2015 |
Principal occupation(s) during the past five years |
|
Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 128 funds associated with LMPFA or its affiliates (since 2015); President
and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (Legg Mason & Co.); Senior Vice President of LMPFA
(2015) |
Number of funds in fund complex overseen by Trustee3 |
|
128 |
Other Trusteeships held by Trustee during the past five years |
|
None |
|
|
|
Additional Officers |
|
|
|
Ted P. Becker Franklin Templeton
280 Park Avenue, 8th Floor, New York, NY
10017 |
|
|
Year of birth |
|
1951 |
Position(s) with Fund |
|
Chief Compliance Officer |
Term of office1 and length of time served2 |
|
Since 2007 |
Principal occupation(s) during the past five years |
|
Vice President, Global Compliance of Franklin Templeton (since 2020); Chief Compliance Officer of LMPFA (since 2006); Chief Compliance Officer of certain funds associated with Legg Mason
& Co. or its affiliates (since 2006); formerly, Director of Global Compliance at Legg Mason, Inc. (2006 to 2020); Managing Director of Compliance of Legg Mason & Co. (2005 to 2020) |
|
|
|
|
|
52 |
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
Additional Officers (contd) |
|
|
|
Marc A. De Oliveira Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT
06902 |
|
|
Year of birth |
|
1971 |
Position(s) with Fund |
|
Secretary and Chief Legal Officer |
Term of office1 and length of time served2 |
|
Since 2020 |
Principal occupation(s) during the past five years |
|
Associate General Counsel of Franklin Templeton (since 2020); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Managing
Director (2016 to 2020) and Associate General Counsel of Legg Mason & Co. (2005 to 2020) |
|
Thomas C. Mandia* Franklin Templeton 100 First Stamford Place, 6th Floor, Stamford, CT
06902 |
|
|
Year of birth |
|
1962 |
Position(s) with Fund |
|
Senior Vice President |
Term of office1 and length of time served2 |
|
Since 2022 |
Principal occupation(s) during the past five years |
|
Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of LMPFA (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its
affiliates (since 2006); Secretary of LM Asset Services, LLC (LMAS) (since 2002) and Legg Mason Fund Asset Management, Inc. (LMFAM) (since 2013) (formerly registered investment advisers); formerly, Managing Director and
Deputy General Counsel of Legg Mason & Co. (2005 to 2020) and Assistant Secretary of certain funds in the fund complex (2020 to 2022) |
|
Christopher Berarducci Franklin Templeton 280 Park Avenue, 8th Floor, New York, NY 10017 |
|
|
Year of birth |
|
1974 |
Position(s) with Fund |
|
Treasurer and Principal Financial Officer |
Term of office1 and length of time served2 |
|
Since 2019 |
Principal occupation(s) during the past five years |
|
Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg
Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co. |
|
|
|
|
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
|
53 |
|
|
|
|
Additional Officers (contd) |
|
|
|
Jeanne M. Kelly Franklin Templeton 280 Park Avenue, 8th Floor, New York, NY 10017 |
Year of birth |
|
1951 |
Position(s) with Fund |
|
Senior Vice President |
Term of office1 and length of time served2 |
|
Since 2007 |
Principal occupation(s) during the past five years |
|
U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice
President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM (2013 to 2015) |
|
Trustees who are not interested persons of the Fund within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, as amended (the 1940 Act). |
* |
Effective February 10, 2022, Mr. Mandia became a Senior Vice President. |
1 |
The Funds Board of Trustees is divided into three classes: Class I, Class II and Class III. The terms of office of
the Class I, II and III Trustees expire at the Annual Meetings of Stockholders in the year 2025, year 2023 and year 2024, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Funds
executive officers are chosen each year, to hold office until their successors are duly elected and qualified. |
2 |
Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the
officer took such office. |
3 |
Each board member also serves as a member of the Boards of Western Asset Inflation-Linked Opportunities & Income
Fund, Western Asset Investment Grade Income Fund Inc. and Western Asset Premier Bond Fund (each a closed-end investment company) and the portfolios of Western Asset Funds, Inc., Legg Mason Partners Income Trust, Legg Mason Partners Institutional
Trust, Legg Mason Partners Money Market Trust, Legg Mason Partners Premium Money Market Trust, Legg Mason Partners Variable Income Trust and Master Portfolio Trust (each an open-end investment company), which are all considered part of the same fund
complex as the Fund. |
4 |
Mr. Larson is the chief investment officer for William H. Gates III and in that capacity oversees the investments of
Mr. Gates and the investments of the Bill and Melinda Gates Foundation Trust (such combined investments are referred to as the Accounts). Since 1997, Western Asset has provided discretionary investment advice with respect to one or
more Accounts. |
5 |
Western Asset and its affiliates provide investment advisory services with respect to registered investment companies
sponsored by an affiliate of Pacific Mutual Holding Company (Pacific Holdings). Affiliates of Pacific Holdings receive compensation from LMPFA or its affiliates for shareholder or distribution services provided with respect to registered
investment companies for which Western Asset or its affiliates serve as investment adviser. |
6 |
Mr. Olson is an interested person of the Fund, as defined in the 1940 Act, because his law firm has
provided legal services to Western Asset. |
7 |
Ms. Trust is an interested person of the Fund, as defined in the 1940 Act, because of her position with
LMPFA and/or certain of its affiliates. |
|
|
|
|
|
54 |
|
|
|
Western Asset Inflation-Linked Income Fund |
Annual principal executive officer and principal financial officer
certifications (unaudited)
The Funds Principal Executive Officer (PEO) has submitted to the NYSE the
required annual certification and the Fund also has included the Certifications of the Funds PEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Funds Form N-CSR filed with the SEC for the
period of this report.
|
|
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
55 |
Other shareholder communications regarding accounting matters (unaudited)
The Funds Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal
accounting controls or auditing matters (collectively, Accounting Matters). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (CCO). Persons who are
uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Funds Audit Committee Chair. Complaints may be submitted on an anonymous basis.
The CCO may be contacted at:
Franklin Resources Inc.
Compliance Department
280 Park Ave, 8th Floor
New York, NY 10017
Complaints may also be submitted by telephone at 1-800-742-5274.
Complaints submitted through this number will be received by the CCO.
|
|
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|
|
56 |
|
|
|
Western Asset Inflation-Linked Income Fund |
Summary of information regarding the Fund (unaudited)
Investment Objectives
The Funds primary
investment objective is to provide current income. Capital appreciation, when consistent with current income, is a secondary investment objective.
Principal Investment Policies and Strategies
Under normal market conditions and at the time of purchase, the Fund will invest at
least 80% of its total managed assets1 in inflation-linked securities and at least 60% of its total managed assets in U.S. Treasury Inflation Protected Securities (TIPS).2 The Fund may also invest up to 40% of its total managed assets in non-U.S. dollar investments, which gives the Fund flexibility to invest up to 40% of its total managed assets in non-U.S. dollar
inflation-linked securities (no more than 20% of its non-U.S. dollar exposure may be unhedged). The Fund may invest no more than 10% of its total managed assets in investments rated below investment grade at the time of purchase (or, if unrated,
assets of comparable quality as determined by management).
The Fund may engage in currency strategies, using instruments such as currency forwards, futures and
options, to take long and short foreign currency positions subject to a limit of exposure from such strategies to 40% of total managed assets. This capacity is in addition to the capacity to have 20% unhedged exposure to non-U.S. dollar currencies
through the purchase of fixed income securities.
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. Exposure to commodities is expected to be achieved using a variety of instruments, such as futures contracts, options
and other derivatives, or through investments in exchange-traded products that offer exposure to commodities. The Fund does not expect to hold physical commodities.
Each of the foregoing policies is a non-fundamental policy that may be changed without shareholder approval. The Fund also has the following non-fundamental policy,
which, to the extent required by applicable law, may only be changed after notice to shareholders: under normal market conditions, the Fund will invest at least 80% of its total managed assets in inflation-protected securities and
non-inflation-protected securities and
1 |
Total managed assets means the total assets of the Fund (including any assets attributable to leverage) minus
accrued liabilities (other than liabilities representing leverage). |
2 |
U.S. Treasury Inflation-Protected Securities (TIPS) are inflation-indexed securities issued by the U.S.
Treasury in five-year, ten-year and thirty-year maturities. The principal is adjusted to the Consumer Price Index, the commonly used measure of inflation. The coupon rate is constant, but generates a different amount of interest when multiplied by
the inflation-adjusted principal. |
|
|
|
|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
57 |
Summary of information regarding the Fund (unaudited) (contd)
instruments with the potential to enhance the Funds income.
To the extent
permitted by the foregoing policies, the Fund may invest in emerging markets debt securities.
Reverse repurchase agreements and other forms of leverage will not
exceed 38% of the Funds total managed assets. To the extent the Fund covers its commitments under these transactions, investment in these transactions will not be considered leverage for purposes of the Funds policy on the amount of
leverage it may incur. The Fund currently expects that the average effective duration3 of its portfolio will range between zero and fifteen years, although this target duration may change from
time to time. The Fund may enter into credit default swap contracts, interest rate swap contracts and total return swap contracts for investment purposes, to manage its credit risk or to add leverage. There can be no assurance that the Fund will
achieve its investment objectives.
The Fund seeks to offer an inflation hedge through investments in global inflation-linked securities, and primarily in U.S. TIPS.
The Fund also seeks to offer shareholders certain additional advantages through the ability to invest in other fixed income asset classes, which may result in higher total returns and higher distribution rates. These asset classes include select
investments in high-yield and investment grade credit, emerging markets and structured products.
The Fund may invest up to 20% of its total managed assets in
securities that are not inflation-linked securities, such as corporate debt that is not inflation-linked, that are investment grade in quality at the time of their purchase. The Fund may invest up to 10% of its total managed assets in securities
that are not inflation-linked securities, such as corporate debt that is not inflation-linked, that are 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. Investment grade
quality debt securities are debt securities rated within a rating agencys four highest grades (Baa or BBB or higher by Moodys Investors Service, Inc. (Moodys), S&P Global Ratings (S&P) or Fitch
Ratings, Inc. (Fitch) or a similar rating of another nationally recognized rating agency) or debt securities that are unrated but judged to be of comparable quality by Western Asset.
The Fund may enter into short sales, use reverse repurchase agreements and dollar rolls, and engage in other types of transactions, including derivative transactions
(such as
3 |
Effective duration is a duration calculation for bonds with embedded options. Effective duration takes into account that
expected cash flows will fluctuate as interest rates change. Please note, duration measures the sensitivity of price (the value of principal) of a fixed-income investment to a change in interest rates. Funds that employ leverage calculate effective
duration based off of net assets. |
|
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58 |
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Western Asset Inflation-Linked Income Fund |
options, futures contracts and swaps, including credit default swaps), for risk management purposes or as part of its
investment strategies.
The Fund may borrow money in an amount up to 5% of its total assets as a temporary measure for extraordinary or emergency purposes, including
the payment of dividends and the settlement of securities transactions that otherwise might require untimely dispositions of Fund securities. Such borrowings are not considered leverage for purposes of the Funds policy on the amount of
leverage it may incur.
Principal Risk Factors
The Fund is a diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended
to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives. Your common shares at any point in time may be worth less than you invested,
even after taking into account the reinvestment of Fund dividends and distributions.
Investment and Market Risk. An investment in the Fund is subject to
investment risk, including the possible loss of the entire amount that you invest. Your investment in the common shares represents an indirect investment in the fixed income securities and other investments owned by the Fund, most of which could be
purchased directly. The value of the Funds portfolio securities may move up or down, sometimes rapidly and unpredictably. At any point in time, your common shares may be worth less than your original investment, even after taking into account
the reinvestment of Fund dividends and distributions.
Market Discount Risk. Shares of closed-end investment companies frequently trade at a discount from
their net asset value. This risk is separate and distinct from the risk that the Funds net asset value could decrease as a result of its investment activities. Whether investors will realize gains or losses upon the sale of the common share
will depend not upon the Funds net asset value but upon whether the market price of the common share at the time of sale is above or below the investors purchase price for the common share.
Because the market price of the common share will be determined by factors such as relative supply of and demand for the common share in the market, general market and
economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether the common share will trade at, above or below net asset value or at, above or below the initial public offering price. The Funds common
share is designed primarily for long term investors and you should not view the Fund as a vehicle for trading purposes.
Risks Relating to U.S. TIPS. The
value of inflation-protected securities such as U.S. TIPS generally fluctuates in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if
|
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|
|
Western Asset Inflation-Linked Income Fund |
|
|
|
59 |
Summary of information regarding the Fund (unaudited) (contd)
inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of U.S. TIPS. In contrast, if
nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of U.S. TIPS.
Although the
principal value of U.S. TIPS declines in periods of deflation, holders at maturity receive no less than the par value of the bond. However, if the Fund purchases U.S. TIPS in the secondary market whose principal values have been adjusted upward due
to inflation since issuance, the Fund may experience a loss if there is a subsequent period of deflation. If inflation is lower than expected during the period the Fund holds U.S. TIPS, the Fund may earn less on the securities than on conventional
debt securities. Any increase in principal value of U.S. TIPS caused by an increase in the CPI-U is taxable in the year the increase occurs, even though the Fund will not receive cash representing the increase at that time. As a result, the Fund
could be required at times to liquidate other investments, including when it is not advantageous to do so, in order to satisfy its distribution requirements as a regulated investment company and to eliminate any fund-level income tax liability under
the Internal Revenue Code of 1986, as amended (the Code).
If real interest rates rise (i.e., if interest rates rise due to reasons other than
inflation), the value of the U.S. TIPS in the Funds portfolio will decline. In addition, because the principal amount of U.S. TIPS would be adjusted downward during a period of deflation, the Fund will be subject to deflation risk with respect
to its investments in these securities.
The daily adjustment of the principal value of U.S. TIPS is currently tied to the non-seasonally adjusted CPI-U, which is
calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. Its calculation includes a three-month lag. There can be
no assurance that such index will accurately measure the real rate of inflation in the prices of goods and services. In addition, calculation of the CPI-U includes a three-month lag for purposes of determining the principal value of U.S. TIPS which,
consequently, could have a negative impact on the value of U.S. TIPS under certain market conditions.
Fixed Income Securities Risk. In addition to the risks
described elsewhere in this section with respect to valuations and liquidity, fixed income securities, including high-yield securities, are also subject to certain risks, including:
|
|
Issuer Risk. The value of fixed income securities may decline for a number of reasons that directly relate to the
issuer, such as management performance, financial leverage and reduced demand for the issuers goods and services. |
|
|
Interest Rate Risk. The market price of the Funds investments will change in response to changes in interest
rates and other factors. During periods of declining interest rates, the |
|
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60 |
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Western Asset Inflation-Linked Income Fund |
|
market price of fixed income securities generally rises. Conversely, during periods of rising interest rates, the market price of such securities generally declines. The magnitude of these
fluctuations in the market price of fixed income securities is generally greater for securities with longer maturities. Additionally, such risk may be greater during the current period of historically low interest rates. Fluctuations in the market
price of the Funds securities will not affect interest income derived from securities already owned by the Fund, but will be reflected in the Funds net asset value. The Fund may utilize certain strategies, including swaps, futures
contracts, options on futures and options based on U.S. Treasury securities, for the purpose of reducing the interest rate sensitivity of the portfolio, although there is no assurance that it will do so or that such strategies will be successful.
Recently, there have been inflationary price movements. As such, fixed income securities markets may experience heightened levels of interest rate volatility and liquidity risk. |
|
|
Prepayment Risk. During periods of declining interest rates, the issuer of a security may exercise its option to
prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result in a decline in the Funds income and distributions to shareholders. This is known as
prepayment or call risk. Debt securities frequently have call features that allow the issuer to redeem the security at dates prior to its stated maturity at a specified price (typically greater than par) only if certain prescribed
conditions are met. An issuer may choose to redeem a debt security if, for example, the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. |
|
|
Reinvestment Risk. Reinvestment risk is the risk that income from the Funds portfolio will decline if and when
the Fund invests the proceeds from matured, traded or called fixed income securities at market interest rates that are below the portfolios current earnings rate. A decline in income could affect the Funds common share price, its
distributions or its overall return. |
|
|
Extension Risk. When interest rates rise, repayments of fixed income securities, particularly asset- and mortgage-
backed securities, may occur more slowly than anticipated, extending the effective duration of these fixed income securities at below market interest rates and causing their market prices to decline more than they would have declined due to the rise
in interest rates alone. This may cause the funds share price to be more volatile. |
Credit Risk. If an issuer or guarantor of a
security held by the Fund or a counterparty to a financial contract with the Fund defaults or its credit is downgraded, or is perceived to be less creditworthy, or if the value of the assets underlying a security declines, the value of your
investment will typically decline. Changes in actual or perceived creditworthiness may
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Western Asset Inflation-Linked Income Fund |
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61 |
Summary of information regarding the Fund (unaudited) (contd)
occur quickly. The Fund could be delayed or hindered in its enforcement of rights against an issuer, guarantor or counterparty. Subordinated securities are more likely
to suffer a credit loss than non-subordinated securities of the same issuer and will be disproportionately affected by a default, downgrade or perceived decline in creditworthiness.
Lower and Unrated Securities Risk. The Fund may invest in below investment grade securities (commonly referred to as high-yield securities or
junk bonds) at the time of investment. High yield debt securities are generally subject to greater credit risks than higher-grade debt securities, including the risk of default on the payment of interest or principal. High yield debt
securities are considered speculative, typically have lower liquidity and are more difficult to value than higher grade bonds. High yield debt securities tend to be volatile and more susceptible to adverse events, credit downgrades and negative
sentiments and may be difficult to sell at a desired price, or at all, during periods of uncertainty or market turmoil.
Leverage risk. The value of your
investment may be more volatile if the fund uses leverage-through borrowing of money and, under certain circumstances, reverse repurchase agreements, short sales, futures contracts, credit default swaps, dollar roll transactions and other investment
techniques shareholder. The Funds leveraging strategy may not be successful. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. Increases and decreases in the value of the Funds portfolio
will be magnified when the Fund uses leverage. As a result, leverage will cause greater changes in the Funds net asset value than if leverage were not used. The Fund will also have to pay interest with respect to its leverage, which may reduce
the Funds return. This expense may be greater than the Funds return on the underlying investments. It is anticipated that interest with respect to leverage will be based on shorter-term interest rates that would be periodically reset.
There can be no assurance that the use of leverage will result in a higher yield on the shares. When leverage is employed, the net asset value and market price of the shares and the yield to shareholders will be more volatile. The use of leverage
will cause the Funds net asset value to fall more sharply in response to increases in interest rates than it would in the absence of the use of leverage. Leverage creates two major types of risks for shareholders: the likelihood of greater
volatility of net asset value and market price of the shares because changes in the value of the Funds assets, including investments bought with the proceeds from the use of leverage, are borne entirely by the shareholders; and the possibility
either that net investment income will fall if the interest and dividend rates on leverage rise or that net investment income will fluctuate because the interest and dividend rates on leverage vary.
Because the fees received by Western Asset are based on the average weekly assets of the Fund (including assets represented by leverage), Western Asset has a financial
incentive for the Fund to incur leverage, which may create a conflict of interest between Western Asset
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62 |
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Western Asset Inflation-Linked Income Fund |
and the shareholders. The fees paid to Legg Mason Partners Fund Adviser are also based on the average weekly assets of the Fund.
Foreign Securities and Emerging Markets Risk. A fund that invests in foreign (non-U.S.) securities may experience more rapid and extreme changes in value than a
fund that invests exclusively in securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Investments in foreign securities
(including those denominated in U.S. dollars) are subject to economic and political developments in the countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary
policies. Values may also be affected by restrictions on receiving the investment proceeds from a foreign country. Less information may be publicly available about foreign companies than about U.S. companies. Foreign companies are generally not
subject to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, the Funds investments in foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of
currency exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial instability and adverse diplomatic developments. In addition, there may be difficulty in obtaining or enforcing a court
judgment abroad. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to non-U.S. withholding taxes, and special U.S. tax considerations may apply.
The risks of foreign investment are greater for investments in emerging markets. Emerging market countries typically have economic and political systems that are less
fully developed, and that can be expected to be less stable, than those of more advanced countries. Low trading volumes may result in a lack of liquidity and in price volatility. Emerging market countries may have policies that restrict investment
by foreigners, that require governmental approval prior to investments by foreign persons, or that prevent foreign investors from withdrawing their money at will. An investment in emerging market securities should be considered speculative.
Foreign Currency Risk. The value of investments in securities denominated in foreign currencies increases or decreases as the rates of exchange between those
currencies and the U.S. dollar change. Currency conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can be volatile, and are affected by factors such as general economic
conditions, the actions of the U.S. and foreign governments or central banks, the imposition of currency controls and speculation. The Fund may be unable or may choose not to hedge its foreign currency exposure.
Short Sales Risk. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the
Fund will realize a loss, which may be substantial. A fund that engages in a short sale or short position may lose
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Western Asset Inflation-Linked Income Fund |
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63 |
Summary of information regarding the Fund (unaudited) (contd)
more money than the actual cost of the short sale or short position and its potential losses may be unlimited if the fund does not own the security sold short or the
reference instrument and it is unable to close out of the short sale or short position.
Commodities Market Risk. The Fund may gain exposure to the
commodities markets, including 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 subject to dual regulation by the Securities and Exchange Commission (the SEC) and the Commodity Futures Trading Commission (the CFTC).
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.
Mortgage-backed and Asset-backed Securities Risk. When market interest rates increase, the market values of mortgage-backed
securities decline. At the same time, mortgage refinancings and prepayments slow, which lengthens the effective duration of these
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64 |
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Western Asset Inflation-Linked Income Fund |
securities. As a result, the negative effect of the interest rate increase on the market value of mortgage-backed securities is usually more pronounced than it is for other types of fixed income
securities, potentially increasing the volatility of the fund. Conversely, when market interest rates decline, while the value of mortgage-backed securities may increase, the rate of prepayment of the underlying mortgages also tends to increase,
which shortens the effective duration of these securities. Mortgage-backed securities are also subject to the risk that underlying borrowers will be unable to meet their obligations and the value of property that secures the mortgage may decline in
value and be insufficient, upon foreclosure, to repay the associated loan. Investments in asset-backed securities are subject to similar risks.
Counterparty
Risk. The Fund may enter into transactions with counterparties that become unable or unwilling to fulfill their contractual obligations. There can be no assurance that any such counterparty will not default on its obligations to the Fund. In the
event of a counterparty default, the Fund may be hindered or delayed in exercising rights against a counterparty and may experience significant losses. To the extent that the Fund enters into multiple transactions with a single or small set of
counterparties, the Fund will be subject to increased counterparty risk.
Derivatives Risk. Using derivatives can increase Fund losses and reduce
opportunities for gains when market prices, interest rates, currencies, or the derivatives themselves behave in a way not anticipated by the Fund. Using derivatives also can have a leveraging effect and increase Fund volatility. Certain derivatives
have the potential for unlimited loss, regardless of the size of the initial investment. Derivatives may not be available at the time or price desired, may be difficult to sell, unwind or value, and the counterparty may default on its obligations to
the Fund. Derivatives are generally subject to the risks applicable to the assets, rates, indices or other indicators underlying the derivative. The value of a derivative may fluctuate more than the underlying assets, rates, indices or other
indicators to which it relates. Use of derivatives may have different tax consequences for the Fund than an investment in the underlying security, and those differences may affect the amount, timing and character of income distributed to
shareholders. The U.S. government and foreign governments are in the process of adopting and implementing regulations governing derivatives markets, including mandatory clearing of certain derivatives, margin and reporting requirements. The ultimate
impact of the regulations remains unclear. Additional regulation of derivatives may make derivatives more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets.
Effective August 19, 2022, the Fund began operating under Rule 18f-4 under the 1940 Act which, among other things, governs the use of derivative investments and
certain financing transactions (e.g. reverse repurchase agreements) by registered investment companies. Among other things, Rule 18f-4 requires funds that invest in derivative instruments beyond
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Western Asset Inflation-Linked Income Fund |
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65 |
Summary of information regarding the Fund (unaudited) (contd)
a specified limited amount to apply a value at risk (VaR) based limit to their use of certain derivative instruments and financing transactions and to adopt and
implement a derivatives risk management program. A fund that uses derivative instruments in a limited amount is not subject to the full requirements of Rule 18f-4. Compliance with Rule 18f-4 by the Fund could, among other things, make derivatives
more costly, limit their availability or utility, or otherwise adversely affect their performance. Rule 18f-4 may limit the Funds ability to use derivatives as part of its investment strategy.
Credit default swap contracts involve heightened risks and may result in losses to the Fund. Credit default swaps may be illiquid and difficult to value. When the Fund
sells credit protection via a credit default swap, credit risk increases since the Fund has exposure to both the issuer whose credit is the subject of the swap and the counterparty to the swap.
Valuation Risk. The sales price the Fund could receive for any particular portfolio investment may differ from the Funds valuation of the investment,
particularly for securities that trade in thin or volatile markets or that are valued using a fair value methodology. These differences may increase significantly and affect Fund investments more broadly during periods of market volatility. The
Funds ability to value its investments may be impacted by technological issues and/or errors by pricing services or other third party service providers. The valuation of the Funds investments involves subjective judgment.
Inflation/Deflation Risk. Inflation risk is the risk that the Funds assets or income from the Funds investments may be worth less in the future as
inflation decreases the value of money. As inflation increases, the real value of the Funds portfolio could decline. Inflation risk is expected to be greater with respect to the Funds investments in securities or instruments other than
U.S. TIPS. Common shares and distributions on the common shares can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with the Funds use of leverage would likely increase, which
would tend to further reduce returns to shareholders Deflation risk is the risk that prices throughout the economy may decline over time--the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make
issuer default more likely, which may result in a decline in the value of the Funds portfolio. Because the principal amounts of U.S. TIPS would be adjusted downward during a period of deflation, the Fund will be subject to deflation risk with
respect to its investments in such securities.
Management Risk. The Fund is subject to management risk because it is an actively managed investment
portfolio. Western Asset will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.
Anti-Takeover Provisions Risk. The Funds Agreement and Declaration of Trust and Bylaws include provisions that are intended to limit the ability of other
entities or persons to
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66 |
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Western Asset Inflation-Linked Income Fund |
acquire control of the Fund for short-term objectives, including by converting the Fund to open-end status or changing the composition of the Board, that may be detrimental to the Funds
ability to achieve its investment objective. Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. There can be
no assurance, however, that such provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned with the interests of long-term shareholders.
Market Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market
conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, armed
conflicts, economic sanctions, major cybersecurity events, investor sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the security or other asset. Economies and financial
markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff arrangements, public health events, terrorism, wars, natural disasters and other circumstances in one country or region could
have profound impacts on global economies or markets. As a result, whether or not the fund invests in securities of issuers located in or with significant exposure to the countries or markets directly affected, the value and liquidity of the
funds investments may be negatively affected. Following Russias recent invasion of Ukraine, Russian stocks lost all, or nearly all, of their market value. Other securities or markets could be similarly affected by past or future
geopolitical or other events or conditions.
For example, the ongoing impact of COVID-19 and its subsequent variants have been rapidly evolving and have resulted in
extreme volatility in the financial markets; reduced liquidity of many instruments; restrictions on international and, in some cases, local travel; significant disruptions to business operations (including business closures); strained healthcare
systems; and disruptions to supply chains, consumer demand and employee availability. Some sectors of the economy and individual issuers have experienced particularly large losses. While in the process of gradually reversing, these circumstances may
continue for an extended period of time and may result in a sustained domestic or even global economic downturn or recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations and increased
volatility and/or decreased liquidity in the securities markets. Developing or emerging market countries may be more impacted by the COVID-19 pandemic as they may have less established health care systems and may be less able to control or mitigate
the effects of the pandemic. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The U.S. government and the Federal
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Western Asset Inflation-Linked Income Fund |
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67 |
Summary of information regarding the Fund (unaudited) (contd)
Reserve, as well as certain foreign governments and central banks, have taken extraordinary actions to support local and global economies and the financial markets in
response to the COVID-19 pandemic. This and other government intervention into the economy and financial markets to address the COVID-19 pandemic may not work as intended, particularly if the efforts are perceived by investors as being unlikely to
achieve the desired results. Government actions to mitigate the economic impact of the pandemic have resulted in a large expansion of government deficits and debt, the long term consequences of which are not known. Recently, inflation and interest
rates have increased and may rise further. The COVID-19 pandemic could adversely affect the value and liquidity of the funds investments, impair the funds ability to satisfy redemption requests, and negatively impact the funds
performance. In addition, the COVID-19 pandemic, and measures taken to mitigate its effects, could result in disruptions to the services provided to the fund by its service providers.
Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. Securities may become illiquid securities after purchase by
the Fund, particularly during periods of market turmoil. When the Fund holds illiquid investments, the portfolio may be harder to value, especially in changing markets, and if the Fund is forced to sell these investments in order to segregate assets
or for other cash needs, the Fund may suffer a loss.
LIBOR Risk. 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. In 2017, the U.K. Financial Conduct Authority (FCA)
announced its intention to cease compelling banks to provide the quotations needed to sustain LIBOR after 2021. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of most LIBOR settings on a representative basis at the end
of 2021 and is expected to cease publication of a majority of U.S. dollar LIBOR settings on a representative basis after June 30, 2023. In addition, global regulators have announced that, with limited exceptions, no new LIBOR-based contracts
should be entered into after 2021. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies. In March 2022, the U.S. federal government enacted legislation to establish a process for
replacing LIBOR in certain existing contracts that do not already provide for the use of a clearly defined or practicable replacement benchmark rate as described in the legislation. Generally speaking, for contracts that do not contain a fallback
provision as described in the legislation, a benchmark replacement recommended by the Federal Reserve Board will effectively automatically replace the USD LIBOR benchmark in the contract after June 30, 2023. The recommended benchmark
replacement will be based on the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York, including certain spread adjustments and benchmark replacement conforming changes. Various financial industry
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68 |
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Western Asset Inflation-Linked Income Fund |
groups have been planning for the transition away from LIBOR, but there remains uncertainty regarding the impact of the transition from LIBOR on the funds transactions and the financial
markets generally. The transition away from LIBOR may lead to increased volatility and illiquidity in markets that rely on LIBOR and may adversely affect the funds performance. The transition may also result in a reduction in the value of
certain LIBOR-based investments held by the fund or reduce the effectiveness of related transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses for the fund. Since
the usefulness of LIBOR as a benchmark could also deteriorate during the transition period, effects could occur at any time.
Operational risk. The valuation
of the Funds investments may be negatively impacted because of the operational risks arising from factors such as processing errors and human errors, inadequate or failed internal or external processes, failures in systems and technology,
changes in personnel, and errors caused by third party service providers or trading counterparties. It is not possible to identify all of the operational risks that may affect the Fund or to develop processes and controls that completely eliminate
or mitigate the occurrence of such failures. The Fund and its shareholders could be negatively impacted as a result.
Cybersecurity risk. Cybersecurity
incidents, both intentional and unintentional, may allow an unauthorized party to gain access to Fund assets, Fund or proprietary information, cause the Fund, Western Asset, the subadvisers and/or their service providers to suffer data breaches,
data corruption or loss of operational functionality or prevent fund investors from purchasing or exchanging shares or receiving distributions. The Fund, Western Asset, and the subadvisers have limited ability to prevent or mitigate cybersecurity
incidents affecting third party service providers, and such third party service providers may have limited indemnification obligations to the Fund or the manager. Cybersecurity incidents may result in financial losses to the Fund and its
shareholders, and substantial costs may be incurred in an effort to prevent or mitigate future cybersecurity incidents. Issuers of securities in which the Fund invests are also subject to cybersecurity risks, and the value of these securities could
decline if the issuers experience cybersecurity incidents.
More Information
For a complete list of the Funds fundamental investment restrictions and more detailed descriptions of the Funds investment policies, strategies and risks,
see the Funds prospectus and statement of additional information, dated September 25, 2003, as amended or superseded by subsequent disclosures. The Funds fundamental investment restrictions may not be changed without the approval of
the holders of a majority of the outstanding voting securities, as defined in the 1940 Act.
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Western Asset Inflation-Linked Income Fund |
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69 |
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 share split, share 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., P.O. Box 43006 Providence, RI 02940-3078. Investor Relations telephone number 1-888-888-0151.
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70 |
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Western Asset Inflation-Linked Income Fund |
Important tax information (unaudited)
By mid-February, tax information related to a shareholders proportionate share of distributions paid during the preceding calendar year will be received, if
applicable. Please also refer to www.franklintempleton.com for per share tax information related to any distributions paid during the preceding calendar year. Shareholders are advised to consult with their tax advisors for further information on the
treatment of these amounts on their tax returns.
The following tax information for the Fund is required to be furnished to shareholders with respect to income
earned and distributions paid during its fiscal year.
The Fund hereby reports the following amounts, or if subsequently determined to be different, the maximum
allowable amounts, for the fiscal year ended November 30, 2022:
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Pursuant to: |
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Amount Reported |
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Long-Term Capital Gain Dividends Distributed |
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§852(b)(3)(C) |
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$ 452,776 |
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Qualified Net Interest Income (QII) |
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§871(k)(1)(c) |
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$25,353,251 |
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Short-Term Capital Gain Dividends Distributed |
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§871(k)(2)(C) |
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$13,884,585 |
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Section 163(j) Interest Earned |
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§163(j) |
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$33,588,056 |
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Interest Earned from Federal Obligations |
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Note (1) |
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$29,507,000 |
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Note (1) - The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is
exempt from state income tax. Shareholders are advised to consult with their tax advisors to determine if any portion of the dividends received is exempt from state income taxes.
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Western Asset Inflation-Linked Income Fund |
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71 |
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
Marc A. De Oliveira
Secretary and Chief Legal Officer
Thomas C. Mandia*
Senior Vice President
Jeanne M. Kelly
Senior Vice President
Western Asset Inflation-Linked Income Fund
620
Eighth Avenue
47th Floor
New York, NY 10018
Investment advisers
Western Asset Management
Company, LLC
Western Asset Management Company Limited
Western Asset Management
Company Pte. Ltd.
Western Asset Management Company Ltd
Administrator
Legg Mason Partners Fund Advisor,
LLC
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
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
* |
Effective February 10, 2022, Mr. Mandia became a Senior Vice President. |
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very
Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and
data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include the Western Asset Money Market Funds sold by the Funds distributor, Franklin Distributors, 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; and |
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Online account access user IDs, passwords, security challenge question responses. |
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, 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 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 Contact Us section of the Funds website at www.franklintempleton.com, or contact the Funds at 1-877-721-1926 for the Western Asset Money Market
Funds or
1-888-777-0102 for the Legg Mason-sponsored closed-end funds.
Revised October 2022
|
NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is nonpublic personal information subject to federal law, residents of California may, in certain
circumstances, have additional rights under the California Consumer Privacy Act (CCPA). For example, if you are a broker, dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any other person(s)
or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal information (as defined
by the CCPA).
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces
of personal information we have collected about you.
You also have the right to request the deletion of the personal information collected or maintained by the
Funds.
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth
below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described
below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request
on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other
applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if
suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg Mason Funds have not sold any of your
personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone:
1-800-396-4748
Revised October 2022
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NOT PART OF THE ANNUAL REPORT |
Western Asset Inflation-Linked Income Fund
Western Asset Inflation-Linked Income Fund
620 Eighth Avenue
47th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market
prices, its common shares.
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.franklintempleton.com
and (3) on the SECs website at www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding
the Fund may be found on Franklin Templetons website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templetons website in this report is intended to allow investors public access to information regarding
the Fund and does not, and is not intended to, incorporate Franklin Templetons website in this report.
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.
P.O. Box 43006
Providence, RI 02940-3078
WASX013148 1/23 SR22-4575