UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED
SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number
|
811- 10603
|
|
Western Asset Premier Bond Fund
|
(Exact name of registrant as
specified in charter)
|
|
385 East Colorado Boulevard, Pasadena, CA
|
|
91101
|
(Address of principal executive
offices)
|
|
(Zip code)
|
|
Robert I. Frenkel, Esq
Legg Mason & Co., LLC
100 First Stanford Place
Stanford, CT 06902
|
(Name and address of agent for
service)
|
|
Registrants telephone number, including
area code:
|
888-777-0102
|
|
|
Date of fiscal year end:
|
December 31,
|
|
|
Date of reporting period:
|
June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
ITEM 1.
REPORT TO STOCKHOLDERS.
The
Semi-
Annual
Report to Stockholders is filed herewith.
Western
Asset Premier Bond Fund
New York
Stock Exchange Symbol: WEA
Commentary
|
|
Investment Commentary
|
ii
|
|
|
Semi-Annual Report to Shareholders
|
|
Fund Highlights
|
1
|
Portfolio of Investments
|
6
|
Financial Statements
|
25
|
Notes to Financial Statements
|
29
|
For more information, visit us on the web
at www.leggmason.com/cef.
Western
Asset Premier Bond Fund
Fund Performance
Total
returns for the Fund for various periods ended June 30, 2009 are presented
below, along with those of comparative indices:
|
|
|
|
|
Average Annual
Total Returns
|
|
|
Six
Months
|
|
One
Year
|
|
Five
Years
|
|
Since
Inception
|
Fund Total Return Based on:
|
|
|
|
|
|
|
|
|
Net Asset Value
|
|
+23.81
|
%
|
|
-9.99
|
%
|
|
+2.02
%
|
|
+4.41
%
|
Market Value
|
|
+36.55
|
%
|
|
+5.65
|
%
|
|
+5.65
%
|
|
+5.53
%
|
Barclays Capital U.S. Corporate High Yield Index
A
|
|
+30.43
|
%
|
|
-2.40
|
%
|
|
+4.33
%
|
|
+6.39
%
|
Barclays Capital U.S. Credit Index
B
|
|
+6.87
|
%
|
|
+4.08
|
%
|
|
+4.08
%
|
|
+5.30
%
|
Lipper Corporate Debt Closed-End Funds BBB-Rated
Category Average
C
|
|
+12.61
|
%
|
|
-1.83
|
%
|
|
+3.39
%
|
|
+5.06
%
|
|
|
|
|
|
|
|
|
|
|
|
|
The
performance data quoted represent past performance and do not guarantee future
results. Current performance may be lower or higher than the performance data
quoted. The investment return and principal value of the Fund will fluctuate so
that an investors shares, when sold, may be worth more or less than the
original cost. Calculations assume the reinvestment of dividends and capital
gain distributions. Performance figures for periods shorter than one year
represent cumulative figures and are not annualized.
The
inception date of the Fund is March 28, 2002. Index and Lipper inception
returns are for the period beginning March 31, 2002. All Index performance
reflects no deduction for fees, expenses or taxes. Please note that an investor
cannot invest directly in an index.
For the six months ended June 30, 2009,
Western Asset Premier Bond Fund returned 23.81% based on its net asset value (NAV)
D
and 36.55% based on its New York Stock
Exchange (NYSE) market price per share. The Funds unmanaged benchmarks, the
Barclays Capital U.S. Corporate High Yield Index and the Barclays Capital U.S.
Credit Index, returned 30.43% and 6.87%, respectively, over the same time
frame. The Lipper Corporate Debt Closed-End Funds BBB-Rated Category Average
returned 12.61% for the same period. Please note that Lipper performance
returns are based on each funds NAV.
During this six-month period, the Fund made
distributions to shareholders totaling $0.57 per share, which may have included
a return of capital.
The largest contributors to the Funds
performance were its exposures to high-yield and investment grade corporate
bonds. In particular, the Funds holdings in the Industrials and Utilities
sectors were rewarded as their spreads substantially narrowed versus their
historically wide levels that occurred during the financial crisis in 2008. Its
interesting to note that returns for the April to May 2009 period
were among the highest total returns ever in the U.S. corporate bond market,
according to Barclays Capital. The use of leverage was beneficial, as it served
to magnify the Funds positive underlying returns. Also enhancing the Funds
results was its exposure to structured mortgage credits. These securities,
which detracted from performance in 2008, were positive contributors to
performance as their spreads also narrowed during the reporting period.
Marginally offsetting these strong results was
the Funds cash exposure. During the six-month period, we modestly reduced the
Funds investment grade bond position and raised its cash exposure. This was
done to increase the Funds liquidity and to have greater flexibility to pursue
changing opportunities in the marketplace.
During the reporting period, the Fund held
credit default swaps, which had an overall negative impact on performance. The
swaps we utilized to gain exposure to select individual high-yield companies
and the overall high-yield market contributed slightly to performance as
high-yield spreads tightened during the reporting period. In addition, the
swaps we held during the period allowed us to gain exposure to the subprime
component of the non-agency mortgage-backed securities (MBS) market. The Funds
exposure to these swaps detracted from performance as poor liquidity and weak
fundamentals on the underlying collateral drove prices of non-agency MBS lower.
Within the residential MBS market, swaps were utilized to hedge our exposure to
non-agency MBS. These swaps marginally contributed to performance as prices on
subordinate non-agency MBS were lower during the reporting period.
Financial Market Overview
To a great extent, the financial markets in
2008 were characterized by periods of extreme volatility, illiquidity, frozen
credit conditions and heightened risk aversion. Collectively, this caused
investors to flock to the safety of short-term Treasuries, driving their yields
lower and their prices higher. In contrast, non-Treasuries generally performed
poorly, with their spreads moving, in some cases, to historically wide levels.
The
Investment Commentary is not a part of the Semi-Annual Report to Shareholders.
ii
The market then largely stabilized during the
six-month reporting period ended June 30, 2009. A return to more normal
market conditions was due, in part, to the aggressive actions taken by the
Federal Reserve Board (Fed)
E
, the U.S. Department of the Treasury and other government agencies.
Looking back, in 2008 the Fed took several actions to improve liquidity in the
credit markets. In March 2008, it established a new lending program
allowing certain brokerage firms, known as primary dealers, to also borrow from
its discount window. In mid-September 2008, it announced an $85 billion
rescue plan for ailing AIG and pumped $70 billion into the financial system as
the Lehman Brothers bankruptcy and mounting troubles at other financial firms
roiled the markets. Toward the end of the year, the Fed took additional
measures to thaw the frozen credit markets, including the purchase of debt
issued by Fannie Mae and Freddie Mac, as well as introducing the Term
Asset-Backed Securities Loan Facility (TALF).
In March 2009, the Fed continued to pursue aggressive measures as
it announced its intentions to:
·
Purchase up to an additional
$750 billion of agency mortgage-backed securities, bringing its total purchases
of these securities to up to $1.25 trillion in 2009.
·
Increase its purchases of
agency debt this year by up to $100 billion to a total of up to $200 billion.
·
Buy up to $300 billion of
longer-term Treasury securities over the next six months.
After reducing the federal funds rate
F
from 5.25% in August 2007 to a range of 0
to 1/4 percent in December 2008a historic lowthe Fed has maintained this
stance thus far in 2009. In conjunction with its June meeting, the Fed
stated that it will maintain the target range for the federal funds rate at 0
to 1/4 percent and continues to anticipate that economic conditions are likely
to warrant exceptionally low levels of the federal funds rate for an extended
period.
The U.S. Department of the Treasury has also
taken an active role in attempting to stabilize the financial system, as it
orchestrated the governments takeover of mortgage giants Fannie Mae and
Freddie Mac in September 2008. In October, the Treasurys $700 billion
Troubled Asset Relief Program (TARP) was approved by Congress and signed into
law by former President Bush. Then, in March 2009, Treasury Secretary
Geithner introduced the Public-Private Partnership Investment Program (PPIP),
which is intended to facilitate the purchase of troubled mortgage assets from
bank balance sheets. The Treasury also announced its intentions to conduct stress
tests for major banks to determine if they needed to bolster their capital
levels. The results of the stress tests were released in May, and were not as
dire as initially feared.
Economic Review
Even though conditions in the financial
markets improved during the first half of 2009, the U.S. economy continued to
face numerous headwinds. Looking back, the U.S. Department of Commerce reported
that third and fourth quarter 2008 U.S. gross domestic product (GDP)
G
contracted 2.7% and 5.4%, respectively.
Economic contraction has continued in 2009 as GDP fell 6.4% during the first
quarter and the advance estimate for the second quarter is a 1.0% decline. The
economys more modest contraction in the second quarter was due, in part, to
smaller declines in exports and business spending.
While economic news was largely bleak during
the first quarter of 2009, there were some indications that things were
becoming less negative during the second quarter. While the unemployment rate
continued to move higher, the number of jobs lost on a monthly basis subsided
from the pace earlier in the year. Another strain on the economy, the
long-ailing housing market, may also be getting closer to reaching a bottom.
After plunging late last year, new single-family home starts have been fairly
stable in recent months. In addition, while home prices continued to fall, the
pace of the decline has moderated. Other recent economic news also seemed to be
less negative. Inflation remained low, manufacturing contracted at a slower
pace than during the first quarter of the year and inventory levels were drawn
down.
Market Review
Both short- and long-term Treasury yields
fluctuated during the reporting period. This was often prompted by changing
perceptions regarding the economy, future Fed policy decisions and the
governments initiatives to stabilize the financial system. When the reporting
period began, Treasury yields were extremely low, given numerous flights to
quality in 2008 that were triggered by the financial crisis. After starting
the period at 0.76% and 2.25%, respectively, two- and ten-year Treasury yields
drifted even lower (and their prices higher) in mid-January 2009. Yields
generally moved higher (and their prices lower) until early June. Two- and
ten-year yields peaked at 1.42% and 3.98%, respectively, before falling and
ending the period at 1.11% and 3.53%.
Over the six months ended June 30, 2009,
longer-term yields moved higher than their shorter-term counterparts due to
fears of future inflation given the governments massive stimulus program. In a
reversal from 2008, investor risk aversion faded as the six-month reporting
period progressed, driving spread sector (non-Treasury) prices higher. For the
six-month period ended June 30, 2009, the Barclays Capital U.S. Aggregate
Index
H
returned 1.90%.
Looking more closely at the market, there was
a dramatic shift in investor sentiment during the six-month reporting period.
This, in turn, had a major impact on the corporate bond market. When the period
began, investors were still reeling from last years turmoil in the financial
markets and data showing that the U.S. economy was rapidly contracting. This
triggered periods of heightened risk
The
Investment Commentary is not a part of the Semi-Annual Report to Shareholders.
iii
aversion, as investors were drawn to the relative
safety of U.S. Treasury securities. During the first half of the reporting
period, investment grade corporate spreads remained at extremely wide levels
that priced in future default levels that would surpass those experienced in
previous recessions. This was reflected in the poor performance of the Barclays
Capital U.S. Credit Index, as it returned -1.78% during the first quarter of
2009. Over the same period, while the high-yield bond market generated solid
results, BB-rated bonds outperformed riskier CCC-rated securities (9.01% versus
5.54%).
1
Overall, the Barclays Capital U.S. Corporate
High Yield 2% Issuer Cap Index
I
gained 6.61%
during the first quarter.
Then, in the second half of the reporting
period, investor sentiment greatly improved. The governments many initiatives
to stabilize the financial system began to bear fruit as the frozen credit
markets showed signs of thawing and liquidity also improved. This, coupled with
tentative signs that the global economy was nearing a bottom, served to
increase investor risk appetite. As a result, demand for spread sectors rose,
in particular, lifting the prices of investment grade and high-yield corporate
bonds. During the second quarter of 2009, the Barclays Capital U.S. Credit
Index rose an impressive 8.81% and ended the six-month reporting period
returning a solid 6.87%. Within the high-yield market, BB-rated and CCC-rated
bonds returned 14.93% and 40.71%, respectively, during the second quarter of
2009.
1
All told, during the six-month reporting
period, the Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index
returned an outstanding 30.92%.
Outlook
We believe the credit markets are likely to
take a breather in the third quarter following the exceptionally strong
performance posted in the second quarter of 2009. While the magnitude of spread
compression in high-yield and investment grade corporates was impressive, the
improvement was largely driven by a return to valuations that were more consistent
with underlying fundamentals. For spreads to tighten further, we will likely
need to see some positive signals from the economy, rather than merely a
leveling off of the rate of decline.
Spread volatility is likely to decline as we
are now at levels that are consistent with a weaker economy and reduced
availability of credit, rather than the economic Armageddon that pre-March 2009
spread levels suggested. Corporations with strong balance sheets should
continue to issue debt at yields close to those on outstanding debt. Companies
that are challenged by high-debt loads will likely have a more difficult time
raising new debt and their outstanding issues are likely to be more volatile.
Financial issuers should continue to benefit from increasingly stable loan
values and from improved capital bases, thanks to recent equity issuance.
With investment grade financial spreads at 400
basis points
J
(bps) over Treasuries as of June 30,
2009 and the Barclays Capital Corporate Index
K
as a whole at
300 bps over Treasuries, we believe there is currently significant compensation
for the elevated risk due to economic uncertainty. With high-yield spreads at
945 bps over Treasuries as of June 30, 2009, there should be similarly
adequate compensation in the high-yield sector despite the continuing increase
in restructurings and defaults.
Interest rates are likely to be stable to
modestly rising through the summer months as the U.S. Treasury continues to
issue debt at what can only be described as an unprecedented pace, and as
investors continue to dip their toes into more risky waters. Inflation remains
a key concern of bond market participants. We believe that price levels should
stabilize and deflationary forces will ebb as both monetary and fiscal stimuli
work their way through the system. Higher levels of inflation are unlikely to
be realized as resource and capacity utilization remains low, and the Fed is
likely to begin reducing the size of its balance sheet in the face of any
economic growth. Absent any improvement on the growth front, the current level
of announced monetary stimulus should persist. We expect little, if any,
additional action from the Fed and expect very low short-term rates and
continued purchases of mortgage-backed securities, Treasuries and agencies to
continue.
U.S. industrial sectors led the economys
plunge during the fourth quarter of 2008 and first quarter of 2009, as
inventories, capital expenditure budgets and procurement plans were slashed on
fears of credit unavailability. Stabilization in the economy should help these
activities return to more sustainable levels, which would provide an immediate
boost to industrial-sector output. Merchant inventory investment has already
displayed some stabilization at weak levels and factory orders have displayed
an incipient upturn. In order for an economic rebound to take hold, these
improvements will have to be sustained and built upon. In addition, we feel
they should soon trigger upturns in industrial production and factory
production hours, neither of which has yet to show any signs of stabilization.
We will track these four indicators for early signs of a recovery and, thus,
impetus for substantial further downward pressure on credit spreads.
Market participants will be intensely focused
on profit reports to determine the presence, pace and strength of the
anticipated economic recovery. These reports should have a significant impact
on equity prices, which would also influence the mood of the corporate bond
market.
Western
Asset Management Company
July 31,
2009
1
Returns
cited represent respective position and/or sector return within the Barclays
Capital U.S. Corporate High Yield 2% Issuer Cap Index.
The
Investment Commentary is not a part of the Semi-Annual Report to Shareholders.
iv
The mention of sector breakdowns is for informational
purposes only and should not be construed as a recommendation to purchase or
sell any securities. The information provided regarding such sectors is not a
sufficient basis upon which to make an investment decision. Investors seeking
financial advice regarding the appropriateness of investing in any securities
or investment strategies discussed should consult their financial professional.
Portfolio holdings are subject to change at any time and may not be
representative of the portfolio managers current or future investments. The
Funds top five sector holdings (as a percentage of net assets) as of June 30,
2009 were: Corporate Bonds (77.1%), Mortgage-Backed Securities (29.4%),
Asset-Backed Securities (29.0%), Repurchase Agreements (10.0%) and Yankee Bonds
(9.5%). The Funds portfolio composition is subject to change at any time.
Investment Risks: Bonds are subject to a variety of risks,
including interest rate, credit and inflation risk. As interest rates rise,
bond prices fall, reducing the value of a fixed-income investments price. The
Fund may invest in high-yield bonds, which are rated below investment grade and
carry more risk than higher-rated securities. 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 investments in
other fixed-income securities.
The views expressed in this commentary reflect those solely
of Western Asset Management Companys Investment Advisory Team as of the date
of this commentary and may differ from those of Legg Mason, Inc. as a
whole or from the other portfolio managers of its affiliates. Any such views
are subject to change at any time based on market or other conditions, and
Western Asset Premier Bond Fund (the Fund) and Western Asset Management
Company disclaim any responsibility to update such views. These views are not
intended to be a forecast of future events, a guarantee of future results or
advice. Because investment decisions for the Fund are based on numerous
factors, these views may not be relied upon as an indication of trading intent
on behalf of the Fund or any Legg Mason Fund. Forecasts are inherently limited
and should not be relied upon as an indicator of future results or used as the
basis for investment decisions. The information contained herein has been
prepared from sources believed to be reliable, but is not guaranteed by the
Fund or Western Asset Management Company as to its accuracy or completeness.
Please note that an investor cannot invest directly in an
index.
A
|
The Barclays Capital (former Lehman Brothers) U.S.
Corporate High Yield Index covers the universe of fixed-rate, non-investment
grade debt, including corporate and non-corporate sectors. Pay-in-kind
(PIK) bonds, Eurobonds and debt issues from countries designated as
emerging markets are excluded, but Canadian and global bonds (SEC registered)
of issuers in non-emerging market countries are included. Original issue zero
coupon bonds, step-up coupon structures and 144-As are also included.
|
B
|
The Barclays Capital (formerly Lehman Brothers) U.S.
Credit Index is an index composed of corporate and non-corporate debt issues
that are investment grade (rated Baa3/BBB- or higher).
|
C
|
Lipper, Inc., a wholly-owned subsidiary of
Reuters, provides independent insight on global collective investments. The
Lipper Corporate Debt Closed-End Funds BBB-Rated Category Average is
comprised of the Funds peer group of mutual funds.
|
D
|
Net asset value (NAV) is calculated by subtracting
total liabilities and outstanding preferred stock (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.
|
E
|
The Federal Reserve Board (Fed) is responsible for
the formulation of policies designed to promote economic growth, full
employment, stable prices and a sustainable pattern of international trade
and payments.
|
F
|
The federal funds rate is the rate charged by one
depository institution on an overnight sale of immediately available funds
(balances at the Federal Reserve) to another depository institution; the rate
may vary from depository institution to depository institution and from day
to day.
|
G
|
Gross domestic product (GDP) is the market value
of all final goods and services produced within a country in a given period
of time.
|
H
|
The Barclays Capital (formerly Lehman Brothers) U.S.
Aggregate Index is a broad-based bond index comprised of government,
corporate, mortgage- and asset-backed issues, rated investment grade or
higher, and having at least one year to maturity.
|
I
|
The Barclays Capital (formerly Lehman Brothers) U.S.
Corporate High Yield 2% Issuer Cap Index is an index of the 2% Issuer Cap
component of the Barclays Capital U.S. Corporate High Yield Index, which
covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable
corporate bond market.
|
J
|
A basis point is one one-hundredth (1/100 or 0.01)
of one percent.
|
K
|
The Barclays Capital (formerly
Lehman Brothers) Corporate Bond Index is composed of all publicly issued,
fixed-rate, non-convertible, U.S. dollar-denominated, investment grade
corporate debt.
|
The
Investment Commentary is not a part of the Semi-Annual Report to Shareholders.
v
Western Asset
Premier Bond Fund
Semi-Annual Report
to Shareholders
June 30, 2009
|
Semi-Annual Report to Shareholders
|
|
Fund
Highlights
(Unaudited)
|
|
Six Months Ended
June 30, 2009
|
|
Year Ended
December 31, 2008
|
|
Net
Asset Value
|
|
$117,143,417
|
|
$100,102,064
|
|
Per Share
|
|
$10.13
|
|
$8.72
|
|
Market Value Per Share
|
|
$11.45
|
|
$8.90
|
|
Net Investment Income
|
|
$9,505,781
|
|
$16,751,431
|
|
Per Common Share
|
|
$0.83
|
|
$1.46
|
|
Dividends Paid to Common Shareholders:
|
|
|
|
|
|
Ordinary Income
|
|
$6,551,799
|
|
$12,090,786
|
|
Per Common Share
|
|
$0.57
|
|
$1.05
|
|
Long-Term Capital Gains
|
|
|
|
$1,121,178
|
|
Per Common Share
|
|
|
|
$0.10
|
|
Dividends Paid to Preferred Shareholders:
|
|
|
|
|
|
Ordinary Income
|
|
$169,577
|
|
$2,236,599
|
|
Per Common Share
|
|
$0.01
|
|
$0.19
|
|
Long-Term Capital Gains
|
|
|
|
$238,432
|
|
Per Common Share
|
|
|
|
$0.02
|
|
The Fund
Western Asset Premier Bond Fund (WEA or the Fund)
is a diversified, closed-end management investment company which seeks to
provide current income and capital appreciation for its shareholders by
investing primarily in a diversified portfolio of investment grade bonds.
Substantially all of the Funds net investment income (after payment of
dividends to holders of preferred shares and interest in connection with other
forms of leverage (if applicable)) is distributed to the Funds common
shareholders. A Dividend Reinvestment Plan is available to those common
shareholders of record desiring it. The Funds common shares are listed on the
New York Stock Exchange (NYSE) where they trade under the symbol WEA.
Certain
Investment Policies
Each limitation below applies only at the time
a transaction is entered into. Any subsequent change in a rating assigned to a
security, or change in the percentage of the Funds assets invested in certain
securities or other instruments, resulting from market fluctuations or other
changes in the Funds total assets, will not require the Fund to dispose of an
investment.
Under normal market conditions, the Fund
expects to:
·
Invest
substantially all (but at least 80%) of its total managed assets (the total
assets of the Fund, including any assets attributable to leverage, less accrued
liabilities) in bonds, including corporate bonds, U.S. government and agency
securities and mortgage related securities.
·
Invest at
least 65% of its total managed assets in bonds that at the time of investment
are investment grade quality. The Fund may invest up to 35% of its total
managed assets in bonds of below investment grade quality.
The Fund may invest in securities or
instruments other than bonds (including preferred stock) and may invest up to
10% of its total managed assets in instruments denominated in currencies other
than the U.S. dollar.
Dividend
Reinvestment Plan
The Fund and American Stock Transfer &
Trust Company LLC (Agent), as the Transfer Agent and Registrar of the Fund,
offer a convenient way to add shares of the Fund to your account. The Fund
offers to all common shareholders a Dividend Reinvestment Plan (Plan). Under
the Plan, cash distributions (e.g., dividends and capital gains) of registered
shareholders (those who own shares in their own name on the Funds records) on
the common shares are automatically invested in shares of the Fund unless the
shareholder elects
1
|
Semi-Annual Report to Shareholders
|
|
Fund
HighlightsContinued
otherwise by contacting the Agent at the address set
forth below. Shareholders who own shares in a brokerage, bank or other
financial institution account must contact the company where their account is
held in order to participate in the Plan.
As a participant in the Dividend Reinvestment
Plan you will automatically receive your dividend or net capital gains
distribution in newly issued shares of the Fund if the market price of a share
on the date of the distribution is at or above the NAV of a Fund share, 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, minus
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 the Fund through a broker on the open market. The
price per share of shares purchased for each participants account with respect
to a particular dividend or other distribution will be the average price
(including brokerage commissions, transfer taxes and any other costs of
purchase) of all shares purchased with respect to that dividend or other
distribution. All common shares acquired on your behalf through the Plan will
be automatically credited to an account maintained on the books of the Agent.
Full and fractional shares will be voted by the Agent in accordance with your
instructions.
Additional
Information Regarding the Plan
The Fund will pay all costs applicable to the
Plan, except for brokerage commissions for open market purchases by the Agent
under the Plan, which will be charged to participants. All shares acquired
through the Plan receive voting rights and are eligible for any stock split,
stock dividend, or other rights accruing to shareholders that the Board of
Trustees may declare.
Registered shareholder 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. Shareholders who own shares in a brokerage, bank or other
financial institution account must contact the company where their account is
held in order to terminate participation in the Plan.
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 (IRS) 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 American Stock Transfer &
Trust Company LLC, 59 Maiden Lane, New York, NY, 10038. Investor Relations
Telephone number 1-888-888-0151.
Quarterly Comparison of Market Price and Net Asset Value (NAV),
Discount or Premium to NAV and Average Daily Volume of Shares Traded
|
|
Market
Price
|
|
Net Asset
Value
|
|
Premium/
(Discount)
|
|
Average
Daily Volume/(Shares)
|
|
September 30, 2008
|
|
$ 9.20
|
|
$10.82
|
|
(14.97
|
)
%
|
|
24,108
|
|
December 31, 2008
|
|
8.90
|
|
8.72
|
|
2.06
|
|
|
43,032
|
|
March 31, 2009
|
|
9.10
|
|
8.44
|
|
7.82
|
|
|
37,089
|
|
June 30, 2009
|
|
11.45
|
|
10.13
|
|
13.03
|
|
|
32,450
|
|
2
|
Semi-Annual Report to Shareholders
|
|
Looking
for Additional Information?
The Fund is traded under the symbol WEA and
its closing market price is available in most newspapers under the NYSE
listings. The daily NAV is available on-line under the symbol XWEAX on most
financial websites.
Barrons
and
The Wall Street Journals
Monday edition both carry
closed-end fund tables that provide additional information. In addition, the
Fund issues a quarterly press release that can be found on most major financial
websites, as well as www.leggmason.com/cef.
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.
3
|
Semi-Annual Report to Shareholders
|
|
Special
Shareholder Notices
On May 20, 2009, the Fund announced
monthly distributions of $0.1000 per common share for the months of June, July,
August and September 2009. The Fund had previously paid a monthly
distribution of $0.09375 per share since March 2005. In declaring the new
rate, the Fund cited an increase in net investment income generated by its investment
portfolio as a result of high reinvestment rates on the types of securities in
which it invests. The lower cost of leverage on the Funds preferred shares
also contributed to the increase in net investment income available to common
shareholders.
Additionally, the Fund announced that it will
declare distributions quarterly while maintaining its policy of paying
distributions monthly, effective with the July 2009 distribution.
This information is not for tax reporting
purposes, but is being provided to announce the amount of the Funds
distributions that have been declared by the Board of Trustees. In early 2010,
after definitive information is available, the Fund will send shareholders a Form 1099-DIV,
if applicable, specifying how the distributions paid by the Fund during the
prior calendar year should be characterized for purposes of reporting the
distributions on a shareholders tax return (e.g., ordinary income, long-term
capital gain or return of capital).
4
|
Semi-Annual Report to Shareholders
|
|
Portfolio
Diversification
June 30,
2009
A
The pie and bar charts above represent the
composition of the Funds portfolio as of June 30, 2009 and do not include
derivatives such as Futures Contracts, Options Written, and Credit Default
Swaps.
A
The Fund is actively managed. As a result, the
composition of its portfolio holdings and sectors is subject to change at any
time.
B
Standard & Poors Ratings Services
provides capital markets with credit ratings for the evaluation and assessment
of credit risk.
C
Yankee BondA dollar-denominated bond issued
in the U.S. by foreign entities.
5
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of Investments
June 30,
2009 (Unaudited)
Western Asset Premier
Bond Fund
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Long-Term Securities
|
|
149.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds and Notes
|
|
77.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Corp.
|
|
|
|
|
6.375
|
%
|
|
10/15/15
|
|
$
|
535,000
|
|
$
|
485,512
|
|
Northrop Grumman Corp.
|
|
|
|
|
7.750
|
%
|
|
2/15/31
|
|
1,000,000
|
|
1,251,334
|
|
The Boeing Co.
|
|
|
|
|
6.125
|
%
|
|
2/15/33
|
|
600,000
|
|
610,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,347,729
|
|
Airlines
|
|
10.5
|
%
|
|
|
|
|
|
|
|
|
|
|
America West Airlines Inc.
|
|
|
|
|
8.057
|
%
|
|
7/2/20
|
|
2,755,598
|
|
2,232,035
|
|
Continental Airlines Inc.
|
|
|
|
|
7.160
|
%
|
|
3/24/13
|
|
669,978
|
|
559,432
|
|
Continental Airlines Inc.
|
|
|
|
|
6.900
|
%
|
|
1/2/18
|
|
946,155
|
|
823,155
|
|
Continental Airlines Inc.
|
|
|
|
|
6.820
|
%
|
|
5/1/18
|
|
913,728
|
|
721,845
|
|
Continental Airlines Inc.
|
|
|
|
|
6.545
|
%
|
|
2/2/19
|
|
1,737,143
|
|
1,606,858
|
|
Continental Airlines Inc.
|
|
|
|
|
8.048
|
%
|
|
11/1/20
|
|
636,843
|
|
534,948
|
|
Continental Airlines Inc.
|
|
|
|
|
6.703
|
%
|
|
6/15/21
|
|
819,937
|
|
688,747
|
|
DAE Aviation Holdings Inc.
|
|
|
|
|
11.250
|
%
|
|
8/1/15
|
|
460,000
|
|
266,800
|
A
|
Northwest Airlines Corp.
|
|
|
|
|
7.575
|
%
|
|
9/1/20
|
|
611,898
|
|
458,924
|
|
Northwest Airlines Inc.
|
|
|
|
|
1.487
|
%
|
|
8/6/13
|
|
3,003,56
|
|
2,072,796
|
B,C
|
United Air Lines Inc.
|
|
|
|
|
7.032
|
%
|
|
10/1/10
|
|
82,728
|
|
81,074
|
|
United Air Lines Inc.
|
|
|
|
|
7.186
|
%
|
|
4/1/11
|
|
17,378
|
|
17,117
|
|
United Air Lines Inc.
|
|
|
|
|
6.602
|
%
|
|
9/1/13
|
|
51,805
|
|
51,287
|
|
US Airways Pass-Through Trust
|
|
|
|
|
6.850
|
%
|
|
1/30/18
|
|
2,937,253
|
|
2,144,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,259,212
|
|
Auto Components
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
|
Visteon Corp.
|
|
|
|
|
8.250
|
%
|
|
8/1/10
|
|
122,000
|
|
3,660
|
D
|
Visteon Corp.
|
|
|
|
|
12.250
|
%
|
|
12/31/16
|
|
306,000
|
|
10,710
|
A,D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,370
|
|
Automobiles
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
|
|
DaimlerChrysler NA Holding Corp.
|
|
|
|
|
7.300
|
%
|
|
1/15/12
|
|
1,000,000
|
|
1,035,545
|
|
DaimlerChrysler NA Holding Corp.
|
|
|
|
|
8.500
|
%
|
|
1/18/31
|
|
1,000,000
|
|
1,051,965
|
|
General Motors Corp.
|
|
|
|
|
8.375
|
%
|
|
7/15/33
|
|
410,000
|
|
52,275
|
D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,139,785
|
|
Building Products
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Associated Materials Inc.
|
|
|
|
|
11.250
|
%
|
|
3/1/14
|
|
590,000
|
|
259,600
|
|
Nortek Inc.
|
|
|
|
|
8.500
|
%
|
|
9/1/14
|
|
45,000
|
|
12,825
|
|
NTK Holdings Inc.
|
|
|
|
|
0.000
|
%
|
|
3/1/14
|
|
500,000
|
|
40,000
|
E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Markets
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Morgan Stanley
|
|
|
|
|
6.600
|
%
|
|
4/1/12
|
|
$
|
1,000,000
|
|
$
|
1,058,756
|
|
The Goldman Sachs Group Inc.
|
|
|
|
|
6.600
|
%
|
|
1/15/12
|
|
900,000
|
|
958,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,017,009
|
|
Chemicals
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Georgia Gulf Corp.
|
|
|
|
|
9.500
|
%
|
|
10/15/14
|
|
20,000
|
|
6,000
|
F
|
Georgia Gulf Corp.
|
|
|
|
|
10.750
|
%
|
|
10/15/16
|
|
415,000
|
|
41,500
|
F
|
The Dow Chemical Co.
|
|
|
|
|
6.000
|
%
|
|
10/1/12
|
|
1,000,000
|
|
1,012,409
|
|
Westlake Chemical Corp.
|
|
|
|
|
6.625
|
%
|
|
1/15/16
|
|
70,000
|
|
61,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121,159
|
|
Commercial Services and Supplies
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Rental Service Corp.
|
|
|
|
|
9.500
|
%
|
|
12/1/14
|
|
300,000
|
|
240,750
|
|
US Investigations Services Inc.
|
|
|
|
|
10.500
|
%
|
|
11/1/15
|
|
310,000
|
|
252,650
|
A
|
Waste Management Inc.
|
|
|
|
|
7.375
|
%
|
|
5/15/29
|
|
2,000,000
|
|
1,972,088
|
|
Waste Management Inc.
|
|
|
|
|
7.750
|
%
|
|
5/15/32
|
|
40,000
|
|
42,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,507,885
|
|
Communications Equipment
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
EchoStar DBS Corp.
|
|
|
|
|
7.000
|
%
|
|
10/1/13
|
|
600,000
|
|
570,000
|
|
EchoStar DBS Corp.
|
|
|
|
|
7.750
|
%
|
|
5/31/15
|
|
120,000
|
|
114,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
684,300
|
|
Consumer Finance
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Ford Motor Credit Co.
|
|
|
|
|
3.889
|
%
|
|
1/13/12
|
|
70,000
|
|
54,162
|
B
|
Ford Motor Credit Co.
|
|
|
|
|
12.000
|
%
|
|
5/15/15
|
|
1,030,000
|
|
963,212
|
|
Ford Motor Credit Co.
|
|
|
|
|
8.000
|
%
|
|
12/15/16
|
|
680,000
|
|
519,880
|
|
GMAC LLC
|
|
|
|
|
6.875
|
%
|
|
8/28/12
|
|
94,000
|
|
78,490
|
A
|
GMAC LLC
|
|
|
|
|
8.000
|
%
|
|
11/1/31
|
|
939,000
|
|
657,300
|
A
|
HSBC Finance Corp.
|
|
|
|
|
4.750
|
%
|
|
7/15/13
|
|
1,670,000
|
|
1,630,688
|
|
SLM Corp.
|
|
|
|
|
1.252
|
%
|
|
7/26/10
|
|
1,020,000
|
|
925,806
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,829,538
|
|
Distributors
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Keystone Automotive Operations Inc.
|
|
|
|
|
9.750
|
%
|
|
11/1/13
|
|
250,000
|
|
82,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Consumer Services
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Education Management LLC
|
|
|
|
|
10.250
|
%
|
|
6/1/16
|
|
310,000
|
|
303,025
|
|
Service Corp. International
|
|
|
|
|
6.750
|
%
|
|
4/1/16
|
|
140,000
|
|
126,350
|
|
Service Corp. International
|
|
|
|
|
7.625
|
%
|
|
10/1/18
|
|
5,000
|
|
4,638
|
|
Service Corp. International
|
|
|
|
|
7.500
|
%
|
|
4/1/27
|
|
60,000
|
|
47,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
AAC Group Holding Corp.
|
|
|
|
|
10.250
|
%
|
|
10/1/12
|
|
$
|
440,000
|
|
$
|
319,000
|
A
|
Air 2 US
|
|
|
|
|
8.027
|
%
|
|
10/1/19
|
|
361,007
|
|
256,315
|
A
|
CCM Merger Inc.
|
|
|
|
|
8.000
|
%
|
|
8/1/13
|
|
140,000
|
|
96,600
|
A
|
Citigroup Inc.
|
|
|
|
|
6.625
|
%
|
|
6/15/32
|
|
1,000,000
|
|
819,924
|
|
DI Finance LLC
|
|
|
|
|
9.500
|
%
|
|
2/15/13
|
|
502,000
|
|
484,430
|
|
JPMorgan Chase and Co.
|
|
|
|
|
5.125
|
%
|
|
9/15/14
|
|
1,300,000
|
|
1,293,707
|
|
Liberty Media LLC
|
|
|
|
|
3.750
|
%
|
|
2/15/30
|
|
1,860,000
|
|
669,600
|
G
|
TNK-BP Finance SA
|
|
|
|
|
7.875
|
%
|
|
3/13/18
|
|
420,000
|
|
346,500
|
A
|
Vanguard Health Holding Co. II LLC
|
|
|
|
|
9.000
|
%
|
|
10/1/14
|
|
535,000
|
|
512,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,798,338
|
|
Diversified Telecommunication
Services
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Cincinnati Bell Inc.
|
|
|
|
|
6.300
|
%
|
|
12/1/28
|
|
25,000
|
|
15,500
|
|
Citizens Communications Co.
|
|
|
|
|
9.250
|
%
|
|
5/15/11
|
|
90,000
|
|
93,825
|
|
Hawaiian Telcom Communications Inc.
|
|
|
|
|
12.500
|
%
|
|
5/1/15
|
|
135,000
|
|
14
|
D,F
|
Level 3 Financing Inc.
|
|
|
|
|
9.250
|
%
|
|
11/1/14
|
|
660,000
|
|
541,200
|
|
MetroPCS Wireless Inc.
|
|
|
|
|
9.250
|
%
|
|
11/1/14
|
|
15,000
|
|
14,906
|
|
Qwest Communications International Inc.
|
|
|
|
|
7.250
|
%
|
|
2/15/11
|
|
160,000
|
|
155,200
|
|
Qwest Communications International Inc.
|
|
|
|
|
7.500
|
%
|
|
2/15/14
|
|
140,000
|
|
127,750
|
|
Qwest Corp.
|
|
|
|
|
7.875
|
%
|
|
9/1/11
|
|
390,000
|
|
390,000
|
|
Qwest Corp.
|
|
|
|
|
7.500
|
%
|
|
10/1/14
|
|
150,000
|
|
143,063
|
|
Telcordia Technologies Inc.
|
|
|
|
|
10.000
|
%
|
|
3/15/13
|
|
485,000
|
|
297,062
|
A
|
Univision Communications Inc.
|
|
|
|
|
12.000
|
%
|
|
7/1/14
|
|
420,000
|
|
412,650
|
A
|
Windstream Corp.
|
|
|
|
|
8.625
|
%
|
|
8/1/16
|
|
635,000
|
|
608,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,799,182
|
|
Electric Utilities
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Duke Energy Corp.
|
|
|
|
|
6.250
|
%
|
|
1/15/12
|
|
250,000
|
|
268,843
|
|
Energy Future Holdings Corp.
|
|
|
|
|
11.250
|
%
|
|
11/1/17
|
|
1,674,800
|
|
1,021,628
|
H
|
FirstEnergy Corp.
|
|
|
|
|
6.450
|
%
|
|
11/15/11
|
|
610,000
|
|
636,694
|
|
FirstEnergy Corp.
|
|
|
|
|
7.375
|
%
|
|
11/15/31
|
|
3,040,000
|
|
2,869,328
|
|
Orion Power Holdings Inc.
|
|
|
|
|
12.000
|
%
|
|
5/1/10
|
|
150,000
|
|
155,250
|
|
TXU Electric Delivery Co.
|
|
|
|
|
7.000
|
%
|
|
9/1/22
|
|
250,000
|
|
264,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,215,761
|
|
Energy Equipment and Services
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Complete Production Services Inc.
|
|
|
|
|
8.000
|
%
|
|
12/15/16
|
|
150,000
|
|
128,250
|
|
EEB International Ltd.
|
|
|
|
|
8.750
|
%
|
|
10/31/14
|
|
820,000
|
|
846,650
|
A
|
Gulfmark Offshore Inc.
|
|
|
|
|
7.750
|
%
|
|
7/15/14
|
|
270,000
|
|
247,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Equipment and
ServicesContinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pride International Inc.
|
|
|
|
|
7.375
|
%
|
|
7/15/14
|
|
$
|
240,000
|
|
$
|
238,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,460,150
|
|
Food and Staples Retailing
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
CVS Caremark Corp.
|
|
|
|
|
6.943
|
%
|
|
1/10/30
|
|
1,943,259
|
|
1,758,319
|
A
|
CVS Corp.
|
|
|
|
|
5.789
|
%
|
|
1/10/26
|
|
852,727
|
|
733,345
|
A
|
CVS Lease Pass-Through Trust
|
|
|
|
|
5.880
|
%
|
|
1/10/28
|
|
935,088
|
|
785,782
|
A
|
CVS Lease Pass-Through Trust
|
|
|
|
|
6.036
|
%
|
|
12/10/28
|
|
941,075
|
|
804,073
|
A,F
|
Delhaize America Inc.
|
|
|
|
|
9.000
|
%
|
|
4/15/31
|
|
166,000
|
|
201,514
|
|
Safeway Inc.
|
|
|
|
|
5.800
|
%
|
|
8/15/12
|
|
500,000
|
|
535,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,818,329
|
|
Food Products
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Dole Food Co. Inc.
|
|
|
|
|
7.250
|
%
|
|
6/15/10
|
|
285,000
|
|
280,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Utilities
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Southern Natural Gas Co.
|
|
|
|
|
8.000
|
%
|
|
3/1/32
|
|
20,000
|
|
21,162
|
|
Suburban Propane Partners LP
|
|
|
|
|
6.875
|
%
|
|
12/15/13
|
|
580,000
|
|
533,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
554,762
|
|
Health Care Providers and
Services
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems Inc.
|
|
|
|
|
8.875
|
%
|
|
7/15/15
|
|
200,000
|
|
196,000
|
|
DaVita Inc.
|
|
|
|
|
6.625
|
%
|
|
3/15/13
|
|
70,000
|
|
65,975
|
|
DaVita Inc.
|
|
|
|
|
7.250
|
%
|
|
3/15/15
|
|
300,000
|
|
282,000
|
|
HCA Inc.
|
|
|
|
|
6.250
|
%
|
|
2/15/13
|
|
85,000
|
|
74,375
|
|
HCA Inc.
|
|
|
|
|
6.375
|
%
|
|
1/15/15
|
|
430,000
|
|
349,375
|
|
HCA Inc.
|
|
|
|
|
9.250
|
%
|
|
11/15/16
|
|
195,000
|
|
192,075
|
|
HCA Inc.
|
|
|
|
|
9.625
|
%
|
|
11/15/16
|
|
399,000
|
|
395,010
|
H
|
HCA Inc.
|
|
|
|
|
7.690
|
%
|
|
6/15/25
|
|
90,000
|
|
55,270
|
|
HCA Inc.
|
|
|
|
|
7.500
|
%
|
|
11/15/95
|
|
185,000
|
|
96,960
|
|
U.S. Oncology Holdings Inc.
|
|
|
|
|
6.904
|
%
|
|
3/15/12
|
|
265,000
|
|
223,262
|
B,H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,930,302
|
|
Hotels, Restaurants and Leisure
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Caesars Entertainment Inc.
|
|
|
|
|
8.125
|
%
|
|
5/15/11
|
|
920,000
|
|
763,600
|
|
Dennys Holdings Inc.
|
|
|
|
|
10.000
|
%
|
|
10/1/12
|
|
90,000
|
|
87,300
|
|
El Pollo Loco Inc.
|
|
|
|
|
11.750
|
%
|
|
11/15/13
|
|
195,000
|
|
156,000
|
|
Inn of the Mountain Gods Resort and Casino
|
|
|
|
|
12.000
|
%
|
|
11/15/10
|
|
530,000
|
|
212,000
|
D
|
Pokagon Gaming Authority
|
|
|
|
|
10.375
|
%
|
|
6/15/14
|
|
83,000
|
|
81,340
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants and
LeisureContinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
River Rock Entertainment Authority
|
|
|
|
|
9.750
|
%
|
|
11/1/11
|
|
$
|
180,000
|
|
$
|
135,000
|
|
Sbarro Inc.
|
|
|
|
|
10.375
|
%
|
|
2/1/15
|
|
90,000
|
|
54,900
|
|
Snoqualmie Entertainment Authority
|
|
|
|
|
5.384
|
%
|
|
2/1/14
|
|
110,000
|
|
52,800
|
A,B
|
Station Casinos Inc.
|
|
|
|
|
7.750
|
%
|
|
8/15/16
|
|
205,000
|
|
70,725
|
F
|
Station Casinos Inc.
|
|
|
|
|
6.625
|
%
|
|
3/15/18
|
|
100,000
|
|
2,000
|
F
|
Wendys/Arbys Group Inc.
|
|
|
|
|
10.000
|
%
|
|
7/15/16
|
|
100,000
|
|
95,625
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,711,290
|
|
Household Durables
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
American Greetings Corp.
|
|
|
|
|
7.375
|
%
|
|
6/1/16
|
|
20,000
|
|
14,300
|
|
K Hovnanian Enterprises Inc.
|
|
|
|
|
8.625
|
%
|
|
1/15/17
|
|
120,000
|
|
56,400
|
|
Norcraft Cos.
|
|
|
|
|
9.000
|
%
|
|
11/1/11
|
|
360,000
|
|
356,400
|
|
Norcraft Holdings LP
|
|
|
|
|
9.750
|
%
|
|
9/1/12
|
|
155,000
|
|
144,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
572,025
|
|
Independent Power Producers and
Energy Traders
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Dynegy Holdings Inc.
|
|
|
|
|
7.750
|
%
|
|
6/1/19
|
|
650,000
|
|
506,187
|
|
Edison Mission Energy
|
|
|
|
|
7.750
|
%
|
|
6/15/16
|
|
180,000
|
|
146,700
|
|
Edison Mission Energy
|
|
|
|
|
7.625
|
%
|
|
5/15/27
|
|
179,000
|
|
114,560
|
|
Exelon Generation Co. LLC
|
|
|
|
|
6.950
|
%
|
|
6/15/11
|
|
2,000,000
|
|
2,117,904
|
|
Mirant North America LLC
|
|
|
|
|
7.375
|
%
|
|
12/31/13
|
|
350,000
|
|
336,000
|
|
NRG Energy Inc.
|
|
|
|
|
7.375
|
%
|
|
2/1/16
|
|
505,000
|
|
477,856
|
|
NRG Energy Inc.
|
|
|
|
|
7.375
|
%
|
|
1/15/17
|
|
225,000
|
|
212,063
|
|
The AES Corp.
|
|
|
|
|
9.750
|
%
|
|
4/15/16
|
|
360,000
|
|
364,500
|
A
|
The AES Corp.
|
|
|
|
|
8.000
|
%
|
|
10/15/17
|
|
525,000
|
|
488,250
|
|
The AES Corp.
|
|
|
|
|
8.000
|
%
|
|
6/1/20
|
|
100,000
|
|
89,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,853,770
|
|
Industrial Conglomerates
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Tyco International Ltd. / Tyco International
Finance SA
|
|
|
|
|
6.875
|
%
|
|
1/15/21
|
|
2,615,000
|
|
|
2,472,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT Services
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Ceridian Corp.
|
|
|
|
|
12.250
|
%
|
|
11/15/15
|
|
130,000
|
|
93,763
|
H
|
Electronic Data Systems Corp.
|
|
|
|
|
7.450
|
%
|
|
10/15/29
|
|
500,000
|
|
603,642
|
|
SunGard Data Systems Inc.
|
|
|
|
|
10.250
|
%
|
|
8/15/15
|
|
520,000
|
|
480,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,177,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leisure Equipment and Products
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Eastman Kodak Co.
|
|
|
|
|
7.250
|
%
|
|
11/15/13
|
|
$
|
910,000
|
|
$
|
555,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Affinion Group Inc.
|
|
|
|
|
10.125
|
%
|
|
10/15/13
|
|
180,000
|
|
166,500
|
|
Affinion Group Inc.
|
|
|
|
|
11.500
|
%
|
|
10/15/15
|
|
225,000
|
|
192,375
|
|
CCH I Holdings LLC
|
|
|
|
|
11.000
|
%
|
|
10/1/15
|
|
927,000
|
|
111,240
|
D,F
|
CCH II Holdings LLC
|
|
|
|
|
10.250
|
%
|
|
10/1/13
|
|
150,000
|
|
157,500
|
D,F
|
Charter Communications Holdings LLC
|
|
|
|
|
11.750
|
%
|
|
5/15/11
|
|
80,000
|
|
240
|
D,F
|
Charter Communications Holdings LLC
|
|
|
|
|
12.125
|
%
|
|
1/15/12
|
|
40,000
|
|
600
|
D,F
|
Charter Communications Operating LLC
|
|
|
|
|
10.875
|
%
|
|
9/15/14
|
|
280,000
|
|
289,800
|
A,D,F
|
CMP Susquehanna Corp.
|
|
|
|
|
0.000
|
%
|
|
5/15/14
|
|
14,000
|
|
5,950
|
A,C,I
|
Comcast Corp.
|
|
|
|
|
5.900
|
%
|
|
3/15/16
|
|
400,000
|
|
413,769
|
|
Comcast Corp.
|
|
|
|
|
7.050
|
%
|
|
3/15/33
|
|
1,000,000
|
|
1,064,256
|
|
CSC Holdings Inc.
|
|
|
|
|
7.625
|
%
|
|
4/1/11
|
|
50,000
|
|
49,500
|
|
CSC Holdings Inc.
|
|
|
|
|
6.750
|
%
|
|
4/15/12
|
|
250,000
|
|
241,250
|
|
Idearc Inc.
|
|
|
|
|
8.000
|
%
|
|
11/15/16
|
|
720,000
|
|
18,900
|
D
|
News America Holdings Inc.
|
|
|
|
|
8.875
|
%
|
|
4/26/23
|
|
400,000
|
|
383,787
|
|
R.H. Donnelley Corp.
|
|
|
|
|
8.875
|
%
|
|
10/15/17
|
|
320,000
|
|
16,400
|
D
|
Time Warner Inc.
|
|
|
|
|
6.875
|
%
|
|
5/1/12
|
|
1,400,000
|
|
1,497,643
|
|
Time Warner Inc.
|
|
|
|
|
7.700
|
%
|
|
5/1/32
|
|
1,150,000
|
|
1,130,066
|
|
TL Acquisitions Inc.
|
|
|
|
|
10.500
|
%
|
|
1/15/15
|
|
270,000
|
|
218,700
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,958,476
|
|
Metals and Mining
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Alcoa Inc.
|
|
|
|
|
5.375
|
%
|
|
1/15/13
|
|
750,000
|
|
732,232
|
|
CII Carbon LLC
|
|
|
|
|
11.125
|
%
|
|
11/15/15
|
|
580,000
|
|
418,325
|
A
|
Freeport-McMoRan Copper & Gold Inc.
|
|
|
|
|
8.375
|
%
|
|
4/1/17
|
|
730,000
|
|
735,475
|
|
Metals USA Inc.
|
|
|
|
|
11.125
|
%
|
|
12/1/15
|
|
445,000
|
|
365,456
|
|
Noranda Aluminium Acquisition Corp.
|
|
|
|
|
6.163
|
%
|
|
5/15/15
|
|
155,508
|
|
85,724
|
B,H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,337,212
|
|
Multi-Utilities
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Dominion Resources Inc.
|
|
|
|
|
5.700
|
%
|
|
9/17/12
|
|
770,000
|
|
819,048
|
|
MidAmerican Energy Holdings Co.
|
|
|
|
|
5.875
|
%
|
|
10/1/12
|
|
250,000
|
|
266,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,085,299
|
|
Multiline Retail
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Dollar General Corp.
|
|
|
|
|
10.625
|
%
|
|
7/15/15
|
|
170,000
|
|
183,600
|
|
Dollar General Corp.
|
|
|
|
|
11.875
|
%
|
|
7/15/17
|
|
45,000
|
|
48,600
|
H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiline RetailContinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Neiman-Marcus Group Inc.
|
|
|
|
|
9.000
|
%
|
|
10/15/15
|
|
$
|
266,337
|
|
$
|
157,139
|
H
|
The Neiman-Marcus Group Inc.
|
|
|
|
|
7.125
|
%
|
|
6/1/28
|
|
330,000
|
|
199,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588,989
|
|
Oil, Gas and Consumable Fuels
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Belden and Blake Corp.
|
|
|
|
|
8.750
|
%
|
|
7/15/12
|
|
750,000
|
|
607,500
|
|
Berry Petroleum Co.
|
|
|
|
|
10.250
|
%
|
|
6/1/14
|
|
130,000
|
|
131,300
|
|
Chesapeake Energy Corp.
|
|
|
|
|
6.375
|
%
|
|
6/15/15
|
|
480,000
|
|
427,200
|
|
Chesapeake Energy Corp.
|
|
|
|
|
6.625
|
%
|
|
1/15/16
|
|
30,000
|
|
26,325
|
|
Chesapeake Energy Corp.
|
|
|
|
|
7.250
|
%
|
|
12/15/18
|
|
300,000
|
|
261,000
|
|
Colorado Interstate Gas Co.
|
|
|
|
|
6.800
|
%
|
|
11/15/15
|
|
150,000
|
|
154,093
|
|
DCP Midstream LP
|
|
|
|
|
7.875
|
%
|
|
8/16/10
|
|
750,000
|
|
784,564
|
|
Devon Energy Corp.
|
|
|
|
|
7.950
|
%
|
|
4/15/32
|
|
1,000,000
|
|
1,192,501
|
|
Devon Financing Corp. ULC
|
|
|
|
|
6.875
|
%
|
|
9/30/11
|
|
1,000,000
|
|
1,086,091
|
|
El Paso Corp.
|
|
|
|
|
7.750
|
%
|
|
6/15/10
|
|
1,496,000
|
|
1,497,771
|
|
El Paso Corp.
|
|
|
|
|
7.800
|
%
|
|
8/1/31
|
|
190,000
|
|
154,985
|
|
Exco Resources Inc.
|
|
|
|
|
7.250
|
%
|
|
1/15/11
|
|
465,000
|
|
451,050
|
|
Hess Corp.
|
|
|
|
|
7.875
|
%
|
|
10/1/29
|
|
1,640,000
|
|
1,778,819
|
|
Hess Corp.
|
|
|
|
|
7.300
|
%
|
|
8/15/31
|
|
60,000
|
|
61,935
|
|
International Coal Group Inc.
|
|
|
|
|
10.250
|
%
|
|
7/15/14
|
|
220,000
|
|
155,100
|
|
KazMunaiGaz Exploration ProductionGDR
|
|
|
|
|
8.375
|
%
|
|
7/2/13
|
|
230,000
|
|
212,175
|
A
|
Kinder Morgan Energy Partners LP
|
|
|
|
|
7.125
|
%
|
|
3/15/12
|
|
500,000
|
|
534,649
|
|
Parker Drilling Co.
|
|
|
|
|
9.625
|
%
|
|
10/1/13
|
|
300,000
|
|
277,500
|
|
Petrohawk Energy Corp.
|
|
|
|
|
9.125
|
%
|
|
7/15/13
|
|
145,000
|
|
144,275
|
|
Plains Exploration and Production Co.
|
|
|
|
|
10.000
|
%
|
|
3/1/16
|
|
140,000
|
|
143,850
|
|
Quicksilver Resources Inc.
|
|
|
|
|
11.750
|
%
|
|
1/1/16
|
|
185,000
|
|
191,475
|
|
SemGroup LP
|
|
|
|
|
8.750
|
%
|
|
11/15/15
|
|
305,000
|
|
12,200
|
A,D,F
|
Sonat Inc.
|
|
|
|
|
7.625
|
%
|
|
7/15/11
|
|
500,000
|
|
489,916
|
|
Stone Energy Corp.
|
|
|
|
|
8.250
|
%
|
|
12/15/11
|
|
160,000
|
|
131,200
|
|
The Williams Cos. Inc.
|
|
|
|
|
7.500
|
%
|
|
1/15/31
|
|
902,000
|
|
793,760
|
|
The Williams Cos. Inc.
|
|
|
|
|
8.750
|
%
|
|
3/15/32
|
|
85,000
|
|
85,425
|
|
Valero Energy Corp.
|
|
|
|
|
7.500
|
%
|
|
4/15/32
|
|
400,000
|
|
382,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,169,397
|
|
Paper and Forest Products
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Appleton Papers Inc.
|
|
|
|
|
8.125
|
%
|
|
6/15/11
|
|
5,000
|
|
3,250
|
F
|
Appleton Papers Inc.
|
|
|
|
|
9.750
|
%
|
|
6/15/14
|
|
305,000
|
|
103,700
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper and Forest Products
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NewPage Corp.
|
|
|
|
|
7.278
|
%
|
|
5/1/12
|
|
$
|
375,000
|
|
$
|
183,750
|
B
|
Weyerhaeuser Co.
|
|
|
|
|
6.750
|
%
|
|
3/15/12
|
|
800,000
|
|
800,288
|
|
Weyerhaeuser Co.
|
|
|
|
|
7.375
|
%
|
|
3/15/32
|
|
1,000,000
|
|
798,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,889,143
|
|
Pharmaceuticals
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
Leiner Health Products Inc.
|
|
|
|
|
11.000
|
%
|
|
6/1/12
|
|
280,000
|
|
700
|
D,F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trusts
(REITs)
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Ventas Inc.
|
|
|
|
|
6.750
|
%
|
|
4/1/17
|
|
260,000
|
|
233,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Management and
Development
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Ashton Woods USA LLC
|
|
|
|
|
0.000
|
%
|
|
6/30/15
|
|
65,000
|
|
24,375
|
A,E,F
|
Realogy Corp.
|
|
|
|
|
12.375
|
%
|
|
4/15/15
|
|
495,000
|
|
138,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,975
|
|
Road and Rail
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Hertz Corp.
|
|
|
|
|
10.500
|
%
|
|
1/1/16
|
|
90,000
|
|
80,100
|
|
RailAmerica Inc.
|
|
|
|
|
9.250
|
%
|
|
7/1/17
|
|
220,000
|
|
212,300
|
A
|
Swift Transportation Co.
|
|
|
|
|
8.633
|
%
|
|
5/15/15
|
|
90,000
|
|
29,700
|
A,B
|
Swift Transportation Co.
|
|
|
|
|
12.500
|
%
|
|
5/15/17
|
|
325,000
|
|
113,750
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435,850
|
|
Semiconductors and Semiconductor
Equipment
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Freescale Semiconductor Inc.
|
|
|
|
|
8.875
|
%
|
|
12/15/14
|
|
25,000
|
|
12,625
|
|
Freescale Semiconductor Inc.
|
|
|
|
|
10.125
|
%
|
|
12/15/16
|
|
130,000
|
|
44,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,825
|
|
Software
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
Activant Solutions Inc.
|
|
|
|
|
9.500
|
%
|
|
5/1/16
|
|
45,000
|
|
34,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Retail
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Blockbuster Inc.
|
|
|
|
|
9.000
|
%
|
|
9/1/12
|
|
210,000
|
|
100,800
|
|
Michaels Stores Inc.
|
|
|
|
|
10.000
|
%
|
|
11/1/14
|
|
40,000
|
|
33,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134,400
|
|
Textiles, Apparel and Luxury
Goods
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Oxford Industries Inc.
|
|
|
|
|
11.375
|
%
|
|
7/15/15
|
|
255,000
|
|
253,725
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY DATE
|
|
PAR/ SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tobacco
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Alliance One International Inc.
|
|
|
|
|
11.000
|
%
|
|
5/15/12
|
|
$
|
205,000
|
|
$
|
214,225
|
|
Alliance One International Inc.
|
|
|
|
|
10.000
|
%
|
|
7/15/16
|
|
170,000
|
|
161,075
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
375,300
|
|
Trading Companies and
Distributors
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Ashtead Capital Inc.
|
|
|
|
|
9.000
|
%
|
|
8/15/16
|
|
129,000
|
|
109,328
|
A
|
H&E Equipment Services Inc.
|
|
|
|
|
8.375
|
%
|
|
7/15/16
|
|
345,000
|
|
276,862
|
|
Penhall International Corp.
|
|
|
|
|
12.000
|
%
|
|
8/1/14
|
|
390,000
|
|
140,400
|
A,F
|
RSC Equipment Rental Inc.
|
|
|
|
|
10.000
|
%
|
|
7/15/17
|
|
170,000
|
|
170,000
|
A,C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
696,590
|
|
Transportation Infrastructure
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Hawker Beechcraft Acquisition Co.
|
|
|
|
|
8.875
|
%
|
|
4/1/15
|
|
500,000
|
|
210,000
|
H
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless Telecommunication
Services
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
AT&T Mobility LLC
|
|
|
|
|
6.500
|
%
|
|
12/15/11
|
|
250,000
|
|
269,706
|
|
Sprint Capital Corp.
|
|
|
|
|
8.375
|
%
|
|
3/15/12
|
|
1,450,000
|
|
1,428,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,697,956
|
|
Total
Corporate Bonds and Notes
(Cost$103,780,065)
|
|
|
|
|
|
|
|
|
|
|
|
90,318,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-Backed Securities
|
|
29.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Associates Manufactured Housing Pass Through
Certificates 1997-CLB2
|
|
|
|
|
8.900
|
%
|
|
6/15/28
|
|
3,403,183
|
|
1,603,998
|
C
|
Bear Stearns Asset Backed Securities Trust 2007-SD1
1A3A
|
|
|
|
|
6.500
|
%
|
|
10/25/36
|
|
1,443,274
|
|
778,605
|
|
Captiva CBO 1997-1A A
|
|
|
|
|
6.860
|
%
|
|
11/30/09
|
|
295,431
|
|
207,806
|
A,C,J
|
Contimortgage Home Equity Trust 1997-4 B1F
|
|
|
|
|
7.330
|
%
|
|
10/15/28
|
|
550,654
|
|
398,123
|
|
Firstfed Corp. Manufactured Housing Contract 1996-1
B
|
|
|
|
|
8.060
|
%
|
|
10/15/22
|
|
2,100,000
|
|
1,875,961
|
A,C
|
Global Franchise Trust 1998-1 A2
|
|
|
|
|
6.659
|
%
|
|
10/10/11
|
|
918,530
|
|
505,184
|
A,C
|
Green Tree Financial Corp. 1992-2 B
|
|
|
|
|
9.150
|
%
|
|
1/15/18
|
|
258,006
|
|
168,817
|
|
Green Tree Financial Corp. 1993-1 B
|
|
|
|
|
8.450
|
%
|
|
4/15/18
|
|
345,396
|
|
252,914
|
|
Green Tree Home Improvement Loan Trust 1996-D HIB2
|
|
|
|
|
8.000
|
%
|
|
9/15/27
|
|
90,412
|
|
65,708
|
|
Green Tree Recreational Equiptment &
Consumer Trust 1996-C CTFS
|
|
|
|
|
7.650
|
%
|
|
10/15/17
|
|
300,786
|
|
204,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Asset-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate SecuritiesContinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indymac Manufactured Housing Contract 1997-1 A5
|
|
|
|
|
6.970
|
%
|
|
2/25/28
|
|
$
|
311,706
|
|
$
|
226,417
|
|
Lehman XS Trust 2007-1 WF1
|
|
|
|
|
7.000
|
%
|
|
1/25/37
|
|
1,175,539
|
|
664,179
|
|
PAMCO CLO 1997-1A B
|
|
|
|
|
7.910
|
%
|
|
8/6/09
|
|
895,691
|
|
89,569
|
|
Pegasus Aviation Lease Securitization 2000-1 A2
|
|
|
|
|
8.370
|
%
|
|
3/25/30
|
|
1,600,000
|
|
400,000
|
A
|
Renaissance Home Equity Loan Trust 2004-2 AF4
|
|
|
|
|
5.392
|
%
|
|
7/25/34
|
|
858,164
|
|
638,397
|
|
Settlement Fee Finance LLC 2004-1A A
|
|
|
|
|
9.100
|
%
|
|
7/25/34
|
|
891,851
|
|
694,752
|
A,C
|
Structured Asset Securities Corp. 2002-AL1 A3
|
|
|
|
|
3.450
|
%
|
|
2/25/32
|
|
1,059,190
|
|
801,413
|
|
Structured Asset Securities Corp. 2003-AL1
|
|
|
|
|
3.357
|
%
|
|
4/25/31
|
|
150,658
|
|
130,458
|
A
|
Vanderbilt Mortgage Finance 1997-B 1B2
|
|
|
|
|
8.155
|
%
|
|
10/7/26
|
|
472,238
|
|
311,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,018,246
|
|
Indexed Securities
B
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
ACE Securities Corp. 2005-SD1 A1
|
|
|
|
|
0.714
|
%
|
|
11/25/50
|
|
90,573
|
|
85,550
|
|
AmeriCredit Automobile Receivables Trust 2007-CM
A3B
|
|
|
|
|
0.348
|
%
|
|
5/7/12
|
|
1,855,486
|
|
1,830,628
|
|
Bayview Financial Acquisition Trust 2007-B 2A1
|
|
|
|
|
0.616
|
%
|
|
8/28/47
|
|
1,913,702
|
|
1,457,061
|
|
Bayview Financial Asset Trust 2004-SSRA A1
|
|
|
|
|
0.909
|
%
|
|
12/25/39
|
|
514,832
|
|
335,568
|
A
|
Bayview Financial Asset Trust 2007-SR1A A
|
|
|
|
|
0.764
|
%
|
|
3/25/37
|
|
2,121,043
|
|
827,207
|
A
|
Bayview Financial Asset Trust 2007-SR1A M3
|
|
|
|
|
1.464
|
%
|
|
3/25/37
|
|
664,714
|
|
132,943
|
A
|
Bayview Financial Asset Trust 2007-SR1A M4
|
|
|
|
|
1.814
|
%
|
|
3/25/37
|
|
181,286
|
|
22,298
|
A,C
|
Citigroup Mortgage Loan Trust Inc. 2006-SHL1 A1
|
|
|
|
|
0.514
|
%
|
|
11/25/45
|
|
339,645
|
|
193,125
|
A
|
Citigroup Mortgage Loan Trust Inc. 2007-SHL1 A
|
|
|
|
|
0.714
|
%
|
|
11/25/46
|
|
1,345,161
|
|
503,225
|
A
|
Countrywide Asset-Backed Certificates 2007-13 2A1
|
|
|
|
|
1.214
|
%
|
|
10/25/47
|
|
1,353,481
|
|
835,771
|
|
Countrywide Asset-Backed Certificates 2007-SEA2 1A1
|
|
|
|
|
1.314
|
%
|
|
8/25/47
|
|
77,440
|
|
42,084
|
A,C
|
Countrywide Home Equity Loan Trust 2007-GW A
|
|
|
|
|
0.869
|
%
|
|
11/15/28
|
|
1,945,275
|
|
870,900
|
C
|
Credit-Based Asset Servicing and Securitization
2004-CB2 M1
|
|
|
|
|
0.834
|
%
|
|
7/25/33
|
|
2,209,205
|
|
1,259,309
|
|
CS First Boston Mortgage Securities Corp. 2004-CF2
2A1
|
|
|
|
|
0.784
|
%
|
|
5/25/44
|
|
129,769
|
|
87,048
|
A
|
Ellington Loan Acquisition Trust 2007-1 A2A1
|
|
|
|
|
1.314
|
%
|
|
5/26/37
|
|
384,905
|
|
272,520
|
A
|
Fremont Home Loan Trust 2006-2 2A2
|
|
|
|
|
0.424
|
%
|
|
2/25/36
|
|
1,029,603
|
|
952,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Asset-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Securities
B
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMAC Mortgage Corp. Loan Trust 2004-VF1 A1
|
|
|
|
|
1.064
|
%
|
|
2/25/31
|
|
$
|
737,266
|
|
$
|
290,196
|
A
|
GSAA Home Equity Trust 2006-19 A3A
|
|
|
|
|
0.554
|
%
|
|
12/25/36
|
|
1,000,000
|
|
342,059
|
|
IXIS Real Estate Capital Trust 2005-HE3 A4
|
|
|
|
|
0.684
|
%
|
|
12/25/35
|
|
33,409
|
|
31,421
|
|
Lehman XS Trust 2006-GP4
|
|
|
|
|
0.384
|
%
|
|
8/25/46
|
|
368,042
|
|
298,231
|
|
Long Beach Mortgage Loan Trust 2005-WL2 3A1
|
|
|
|
|
0.494
|
%
|
|
8/25/35
|
|
49,133
|
|
47,748
|
|
Morgan Stanley ABS Capital I 2003-SD1 A1
|
|
|
|
|
0.814
|
%
|
|
3/25/33
|
|
25,114
|
|
15,033
|
|
MSDWCC Heloc Trust 2003-2 A
|
|
|
|
|
0.574
|
%
|
|
4/25/16
|
|
253,292
|
|
141,852
|
|
New Century Home Equity Loan Trust 2004-2 A2
|
|
|
|
|
0.684
|
%
|
|
8/25/34
|
|
475,320
|
|
237,794
|
|
RAAC Series 2007-RP1 M1
|
|
|
|
|
0.864
|
%
|
|
5/25/46
|
|
210,000
|
|
4,725
|
A
|
Renaissance Home Equity Loan Trust 2005-3 AV3
|
|
|
|
|
0.694
|
%
|
|
11/25/35
|
|
800,000
|
|
347,224
|
|
Residential Asset Mortgage Products Inc. 2004-RZ1
AII
|
|
|
|
|
0.794
|
%
|
|
3/25/34
|
|
446,709
|
|
161,529
|
|
Residential Asset Securities Corp. 2001-KS3 AII
|
|
|
|
|
0.774
|
%
|
|
9/25/31
|
|
342,595
|
|
207,511
|
|
Salomon Brothers Mortgage Securities VII 2002-CIT1
|
|
|
|
|
0.614
|
%
|
|
3/25/32
|
|
443,908
|
|
395,722
|
|
Structured Asset Securities Corp. 2007-BC1 A2
|
|
|
|
|
0.364
|
%
|
|
2/25/37
|
|
1,138,641
|
|
1,021,881
|
|
Wachovia Asset Securitization Inc. 2002-HE1
|
|
|
|
|
0.684
|
%
|
|
9/27/32
|
|
244,949
|
|
117,289
|
|
Wachovia Asset Securitization Inc. 2002-HE2
|
|
|
|
|
0.744
|
%
|
|
12/25/32
|
|
91,298
|
|
37,441
|
|
Wachovia Asset Securitization Inc. 2003-HE1
|
|
|
|
|
0.604
|
%
|
|
3/25/33
|
|
33,582
|
|
19,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,424,877
|
|
Stripped Securities
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Bear Stearns Asset Backed Securities Trust 2006-SD3
1P0
|
|
|
|
|
0.000
|
%
|
|
8/25/36
|
|
1,649,582
|
|
575,832
|
C,K2
|
Oakwood Mortgage Investors Inc. 2002-C AIO
|
|
|
|
|
6.000
|
%
|
|
8/15/10
|
|
549,460
|
|
30,736
|
F,K1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
606,568
|
|
Variable Rate Securities
I
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
BankAmerica Manufactured Housing Contract 1997-2 M
|
|
|
|
|
6.900
|
%
|
|
4/10/28
|
|
100,000
|
|
124,622
|
|
Conseco Finance Securitizations Corp. 2002-1 A
|
|
|
|
|
6.681
|
%
|
|
12/1/33
|
|
523,187
|
|
445,959
|
|
GMAC Mortgage Corp. Loan Trust 2005-HE2 A3
|
|
|
|
|
4.622
|
%
|
|
11/25/35
|
|
547,763
|
|
518,714
|
I
|
Green Tree 2008-MH1 A1
|
|
|
|
|
7.000
|
%
|
|
4/25/38
|
|
88,906
|
|
86,835
|
A
|
Greenpoint Manufactured Housing 1999-5 A5
|
|
|
|
|
7.820
|
%
|
|
12/15/29
|
|
706,000
|
|
565,790
|
|
GSAMP Trust 2003-SEA2 A1
|
|
|
|
|
4.422
|
%
|
|
7/25/33
|
|
2,348,025
|
|
1,846,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Asset-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Securities
I
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merit Securities Corp. 13 A4
|
|
|
|
|
7.988
|
%
|
|
12/28/33
|
|
$
|
3,642,074
|
|
$
|
3,368,885
|
|
Oakwood Mortgage Investors Inc. 2002-B A3
|
|
|
|
|
6.060
|
%
|
|
3/15/25
|
|
315,161
|
|
232,915
|
|
Residential Asset Securities Corp. 2002-KS2 AI6
|
|
|
|
|
6.228
|
%
|
|
4/25/32
|
|
965,189
|
|
782,199
|
|
Residential Asset Securities Corp. 2003-KS8 AI6
|
|
|
|
|
4.830
|
%
|
|
10/25/33
|
|
1,193,234
|
|
877,027
|
|
Saxon Asset Securities Trust 2000-2 MF1
|
|
|
|
|
8.870
|
%
|
|
7/25/30
|
|
187,695
|
|
182,349
|
|
Vanderbilt Mortgage Finance 1997-C
|
|
|
|
|
7.830
|
%
|
|
8/7/27
|
|
137,387
|
|
99,979
|
I
|
Vanderbilt Mortgage Finance 2000-B IB2
|
|
|
|
|
9.250
|
%
|
|
7/7/30
|
|
975,773
|
|
753,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,885,275
|
|
Total
Asset-Backed Securities
(Cost$38,776,250)
|
|
|
|
|
|
|
|
|
|
|
|
33,934,966
|
|
Mortgage-Backed Securities
|
|
29.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Banc of America Commercial Mortgage Inc. 2007-5 A3
|
|
|
|
|
5.620
|
%
|
|
2/10/51
|
|
800,000
|
|
600,070
|
|
Bear Stearns Asset Backed Securities Trust 2002-AC1
B4
|
|
|
|
|
7.000
|
%
|
|
1/25/32
|
|
1,054,426
|
|
207,870
|
A
|
Enterprise Mortgage Acceptance Co. 1999-1 A1
|
|
|
|
|
6.420
|
%
|
|
10/15/25
|
|
15,884
|
|
8,099
|
A,C
|
GMAC Commercial Mortgage Securities Inc. 1998-C2 F
|
|
|
|
|
6.500
|
%
|
|
5/15/35
|
|
1,000,000
|
|
893,499
|
|
JPMorgan Chase Commercial Mortgage Securities Corp.
2008-C2 A1
|
|
|
|
|
5.017
|
%
|
|
2/12/51
|
|
315,840
|
|
315,949
|
|
Metropolitan Asset Funding Inc. 1998-BI B1
|
|
|
|
|
8.000
|
%
|
|
11/20/24
|
|
943,070
|
|
387,403
|
|
Washington Mutual Alternative Mortgage Pass-Through
Certificates 2006-5 3A3
|
|
|
|
|
6.221
|
%
|
|
7/25/36
|
|
905,000
|
|
427,537
|
|
Washington Mutual Alternative Mortgage Pass-Through
Certificates 2006-7 A2A
|
|
|
|
|
5.667
|
%
|
|
9/25/36
|
|
1,519,910
|
|
744,992
|
|
Washington Mutual Alternative Mortgage Pass-Through
Certificates 2006-7 A3
|
|
|
|
|
6.081
|
%
|
|
9/25/36
|
|
185,000
|
|
72,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,658,319
|
|
Indexed Securities
B
|
|
21.1
|
%
|
|
|
|
|
|
|
|
|
|
|
American Home Mortgage Investment Trust 2007-A 4A
|
|
|
|
|
0.764
|
%
|
|
7/25/46
|
|
1,021,535
|
|
504,555
|
A,C
|
Bayview Commercial Asset Trust 2005-3A A2
|
|
|
|
|
0.714
|
%
|
|
11/25/35
|
|
833,121
|
|
449,854
|
A,C
|
Bayview Commercial Asset Trust 2005-4A A1
|
|
|
|
|
0.614
|
%
|
|
1/25/36
|
|
484,144
|
|
263,981
|
A
|
Bayview Commercial Asset Trust 2007-5A A1
|
|
|
|
|
0.964
|
%
|
|
10/25/37
|
|
632,932
|
|
547,486
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Mortgage-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Securities
B
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bella Vista Mortgage Trust 2004-2 A1
|
|
|
|
|
0.684
|
%
|
|
2/25/35
|
|
$
|
2,472,296
|
|
$
|
1,207,550
|
|
BlackRock Capital Finance LP 1997-R2 B5
|
|
|
|
|
6.650
|
%
|
|
12/25/35
|
|
615,665
|
|
61,566
|
A
|
CBA Commercial Small Balance Commercial Trust
2005-1A
|
|
|
|
|
0.634
|
%
|
|
7/25/35
|
|
2,056,708
|
|
1,181,692
|
A,C
|
Chevy Chase Mortgage Funding Corp. 2004-3A A1
|
|
|
|
|
0.564
|
%
|
|
8/25/35
|
|
1,903,267
|
|
1,230,780
|
A
|
Chevy Chase Mortgage Funding Corp. 2004-4A A1
|
|
|
|
|
0.544
|
%
|
|
10/25/35
|
|
2,728,121
|
|
1,423,790
|
A
|
Chevy Chase Mortgage Funding Corp. 2005-4A A1
|
|
|
|
|
0.514
|
%
|
|
10/25/36
|
|
2,470,872
|
|
1,092,039
|
A
|
CNL Funding 1998-1 C2
|
|
|
|
|
1.068
|
%
|
|
9/18/11
|
|
3,360,000
|
|
907,632
|
A,C
|
Countrywide Alternative Loan Trust 2005-J12
|
|
|
|
|
0.584
|
%
|
|
8/25/35
|
|
332,522
|
|
150,647
|
|
Countrywide Home Loans 2004-HYB5 7A1
|
|
|
|
|
2.502
|
%
|
|
4/20/35
|
|
4,219,874
|
|
1,603,552
|
|
Countrywide Home Loans 2004-R1 1AF
|
|
|
|
|
0.714
|
%
|
|
11/25/34
|
|
1,410,686
|
|
1,279,569
|
A
|
Countrywide Home Loans 2004-R2 1AF1
|
|
|
|
|
0.734
|
%
|
|
11/25/34
|
|
694,079
|
|
479,350
|
A
|
Countrywide Home Loans 2005-09 1A1
|
|
|
|
|
0.614
|
%
|
|
5/25/35
|
|
1,929,413
|
|
864,234
|
|
Greenpoint Mortgage Funding Trust 2005-AR5 2A2
|
|
|
|
|
0.584
|
%
|
|
11/25/46
|
|
3,647,647
|
|
1,189,842
|
|
Greenpoint Mortgage Funding Trust 2005-AR5 3A2
|
|
|
|
|
0.584
|
%
|
|
11/25/46
|
|
2,166,525
|
|
734,888
|
|
GSMPS Mortgage Loan Trust 2005-RP1 1AF
|
|
|
|
|
0.664
|
%
|
|
1/25/35
|
|
333,259
|
|
216,007
|
A
|
GSMPS Mortgage Loan Trust 2005-RP1 2A1
|
|
|
|
|
5.323
|
%
|
|
1/25/35
|
|
1,892,328
|
|
1,309,674
|
A
|
GSMPS Mortgage Loan Trust 2005-RP3
|
|
|
|
|
0.664
|
%
|
|
9/25/35
|
|
1,524,272
|
|
1,049,527
|
A
|
Harborview Mortgage Loan Trust 2004-8 3A2
|
|
|
|
|
0.713
|
%
|
|
11/19/34
|
|
232,514
|
|
108,418
|
|
Harborview Mortgage Loan Trust 2005-9 B10
|
|
|
|
|
2.065
|
%
|
|
6/20/35
|
|
1,173,313
|
|
87,002
|
|
Impac CMB Trust 2004-9 1A1
|
|
|
|
|
1.074
|
%
|
|
1/25/35
|
|
69,277
|
|
35,515
|
|
Impac CMB Trust 2A-10
|
|
|
|
|
0.954
|
%
|
|
3/25/35
|
|
575,118
|
|
208,703
|
|
IndyMac Index Mortgage Loan Trust 2007-AR15 2A1
|
|
|
|
|
5.694
|
%
|
|
8/25/37
|
|
6,339,049
|
|
2,874,495
|
|
Luminent Mortgage Trust 2006-6 A1
|
|
|
|
|
0.514
|
%
|
|
10/25/46
|
|
1,393,077
|
|
572,332
|
|
MASTR Alternative Loans Trust 2003-7 7A1
|
|
|
|
|
0.714
|
%
|
|
11/25/33
|
|
509,926
|
|
444,499
|
|
Merit Securities Corp. 11PA B3
|
|
|
|
|
2.566
|
%
|
|
9/28/32
|
|
850,000
|
|
185,045
|
A,C
|
Regal Trust IV 1999-1 A
|
|
|
|
|
3.955
|
%
|
|
9/29/31
|
|
148,731
|
|
126,633
|
A,C
|
Residential Asset Securitization Trust 2 003-A1 A2
|
|
|
|
|
0.814
|
%
|
|
3/25/33
|
|
772,532
|
|
679,312
|
|
Sequoia Mortgage Trust 2003-2 A2
|
|
|
|
|
1.447
|
%
|
|
6/20/33
|
|
62,947
|
|
47,418
|
|
Sequoia Mortgage Trust 2004-11 A1
|
|
|
|
|
0.615
|
%
|
|
12/20/34
|
|
49,368
|
|
33,547
|
|
Structured Asset Securities Corp. 2002-9 A2
|
|
|
|
|
0.614
|
%
|
|
10/25/27
|
|
1,270,218
|
|
1,013,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Mortgage-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Securities
B
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Washington Mutual Inc. 2004-AR12 A2A
|
|
|
|
|
0.703
|
%
|
|
10/25/44
|
|
$
|
235,839
|
|
$
|
132,701
|
|
Washington Mutual Mortgage Pass-Through
Certificates 2006-AR5 3A
|
|
|
|
|
2.280
|
%
|
|
7/25/46
|
|
1,561,666
|
|
473,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,771,041
|
|
Stripped Securities
|
|
0.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Indymac Index Mortgage Loan Trust 2005-AR14 BX
|
|
|
|
|
2.400
|
%
|
|
7/25/35
|
|
8,499,375
|
|
84,994
|
F,K1
|
LB-UBS Commercial Mortgage Trust 2001-C3 X
|
|
|
|
|
1.144
|
%
|
|
6/15/36
|
|
2,534,946
|
|
38,320
|
A,F,K1
|
Prime Mortgage Trust 2005-2 2XB
|
|
|
|
|
1.740
|
%
|
|
10/25/32
|
|
3,815,192
|
|
279,402
|
K1
|
Prime Mortgage Trust 2005-5 1X
|
|
|
|
|
0.860
|
%
|
|
7/25/34
|
|
11,454,296
|
|
192,124
|
K1
|
Prime Mortgage Trust 2005-5 1XB
|
|
|
|
|
1.480
|
%
|
|
7/25/34
|
|
3,182,043
|
|
121,121
|
K1
|
Residential Asset Mortgage Products, Inc.
2005-SL2 AP0
|
|
|
|
|
0.000
|
%
|
|
2/25/32
|
|
437,243
|
|
325,741
|
K2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,041,702
|
|
Variable Rate Securities
I
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Bear Stearns Alt-A Trust 2005 -10 21A1
|
|
|
|
|
4.714
|
%
|
|
1/25/36
|
|
1,449,262
|
|
725,016
|
C
|
Credit Suisse Mortgage Capital Certificates 2007-C3
A4
|
|
|
|
|
5.912
|
%
|
|
6/15/39
|
|
242,000
|
|
164,714
|
|
Harborview Mortgage Loan Trust 2004-10 4A
|
|
|
|
|
5.238
|
%
|
|
1/19/35
|
|
571,448
|
|
457,510
|
|
JPMorgan Mortgage Trust 2007-A2 4A2
|
|
|
|
|
6.036
|
%
|
|
4/25/37
|
|
300,000
|
|
167,159
|
|
Merrill Lynch Mortgage Investors Inc. 2005-A2
|
|
|
|
|
4.482
|
%
|
|
2/25/35
|
|
531,764
|
|
426,608
|
|
Nomura Asset Acceptance Corp. 2004-AR4 1A1
|
|
|
|
|
4.872
|
%
|
|
12/25/34
|
|
601,069
|
|
519,925
|
C
|
Thornburg Mortgage Securities Trust 2007-4 2A1
|
|
|
|
|
6.207
|
%
|
|
9/25/37
|
|
1,062,613
|
|
767,986
|
|
Thornburg Mortgage Securities Trust 2007-4 3A1
|
|
|
|
|
6.190
|
%
|
|
9/25/37
|
|
1,010,888
|
|
649,708
|
|
WaMu Mortgage Pass-Through Certificates 2004-AR11
|
|
|
|
|
4.435
|
%
|
|
10/25/34
|
|
118,611
|
|
99,896
|
|
WaMu Mortgage Pass-Through Certificates 2007-HY7
2A3
|
|
|
|
|
5.805
|
%
|
|
7/25/37
|
|
2,000,000
|
|
1,003,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,981,549
|
|
Total
Mortgage-Backed Securities
(Cost$43,015,709)
|
|
|
|
|
|
|
|
|
|
|
|
34,452,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
U.S. Government Agency
Mortgage-Backed Securities
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Fannie Mae (Cost$758,975)
|
|
|
|
|
6.500
|
%
|
|
8/25/44
|
|
$
|
734,512
|
|
$
|
782,140
|
L
|
Yankee Bonds
J
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Systems 2001 Asset Trust
|
|
|
|
|
6.664
|
%
|
|
9/15/13
|
|
173,539
|
|
173,539
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Methanex Corp.
|
|
|
|
|
8.750
|
%
|
|
8/15/12
|
|
85,000
|
|
81,175
|
|
Sensata Technologies BV
|
|
|
|
|
8.000
|
%
|
|
5/1/14
|
|
110,000
|
|
54,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,212
|
|
Commercial Banks
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
ICICI Bank Ltd.
|
|
|
|
|
6.375
|
%
|
|
4/30/22
|
|
284,000
|
|
221,479
|
A,E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Containers and Packaging
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Smurfit Kappa Funding PLC
|
|
|
|
|
7.750
|
%
|
|
4/1/15
|
|
150,000
|
|
115,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Lukoil International Finance BV
|
|
|
|
|
6.356
|
%
|
|
6/7/17
|
|
340,000
|
|
302,600
|
A
|
UFJ Finance Aruba AEC
|
|
|
|
|
6.750
|
%
|
|
7/15/13
|
|
500,000
|
|
517,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820,321
|
|
Diversified Telecommunication
Services
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Axtel SA
|
|
|
|
|
11.000
|
%
|
|
12/15/13
|
|
221,000
|
|
216,580
|
|
Deutsche Telekom International Finance BV
|
|
|
|
|
5.250
|
%
|
|
7/22/13
|
|
600,000
|
|
616,279
|
|
France Telecom SA
|
|
|
|
|
8.500
|
%
|
|
3/1/31
|
|
600,000
|
|
770,598
|
M
|
Intelsat Bermuda Ltd.
|
|
|
|
|
9.500
|
%
|
|
6/15/16
|
|
35,000
|
|
35,175
|
A
|
Intelsat Bermuda Ltd.
|
|
|
|
|
11.250
|
%
|
|
6/15/16
|
|
340,000
|
|
346,800
|
|
Nordic Telephone Co. Holdings ApS
|
|
|
|
|
8.875
|
%
|
|
5/1/16
|
|
285,000
|
|
275,025
|
A
|
NTL Cable PLC
|
|
|
|
|
9.125
|
%
|
|
8/15/16
|
|
790,000
|
|
760,375
|
|
Wind Acquisition Finance SA
|
|
|
|
|
10.750
|
%
|
|
12/1/15
|
|
500,000
|
|
500,000
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,520,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Yankee Bonds
J
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Equipment and Services
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Compagnie Generale de Geophysique-Veritas
|
|
|
|
|
7.500
|
%
|
|
5/15/15
|
|
$
|
210,000
|
|
$
|
192,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Governments
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Republic of Honduras
|
|
|
|
|
1.926
|
%
|
|
10/1/11
|
|
84,158
|
|
81,526
|
B
|
Republic of Venezuela
|
|
|
|
|
9.375
|
%
|
|
1/13/34
|
|
2,000
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,776
|
|
Insurance
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
XL Capital Ltd.
|
|
|
|
|
5.250
|
%
|
|
9/15/14
|
|
1,000,000
|
|
839,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
Sun Media Corp.
|
|
|
|
|
7.625
|
%
|
|
2/15/13
|
|
55,000
|
|
36,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals and Mining
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Evraz Group SA
|
|
|
|
|
8.875
|
%
|
|
4/24/13
|
|
100,000
|
|
82,000
|
A
|
Novelis Inc.
|
|
|
|
|
7.250
|
%
|
|
2/15/15
|
|
115,000
|
|
87,400
|
|
Vedanta Resources PLC
|
|
|
|
|
8.750
|
%
|
|
1/15/14
|
|
330,000
|
|
300,300
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469,700
|
|
Oil, Gas and Consumable Fuels
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Anadarko Finance Co.
|
|
|
|
|
6.750
|
%
|
|
5/1/11
|
|
750,000
|
|
780,600
|
|
Anadarko Finance Co.
|
|
|
|
|
7.500
|
%
|
|
5/1/31
|
|
1,000,000
|
|
975,769
|
|
Burlington Resources Finance Co.
|
|
|
|
|
7.400
|
%
|
|
12/1/31
|
|
450,000
|
|
502,551
|
|
Gazprom
|
|
|
|
|
6.212
|
%
|
|
11/22/16
|
|
280,000
|
|
233,800
|
A
|
Gazprom
|
|
|
|
|
6.510
|
%
|
|
3/7/22
|
|
130,000
|
|
97,500
|
A
|
OPTI Canada Inc.
|
|
|
|
|
7.875
|
%
|
|
12/15/14
|
|
240,000
|
|
155,400
|
|
OPTI Canada Inc.
|
|
|
|
|
8.250
|
%
|
|
12/15/14
|
|
190,000
|
|
125,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,871,020
|
|
Paper and Forest Products
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Abitibi-Consolidated Co. of Canada
|
|
|
|
|
13.750
|
%
|
|
4/1/11
|
|
520,000
|
|
478,400
|
A,D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Road and Rail
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Grupo Transportacion Ferroviaria Mexicana SA de CV
|
|
|
|
|
9.375
|
%
|
|
5/1/12
|
|
370,000
|
|
351,500
|
|
Kansas City Southern de Mexico
|
|
|
|
|
12.500
|
%
|
|
4/1/16
|
|
170,000
|
|
172,550
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Yankee Bonds
J
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless Telecommunication
Services
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
|
True Move Co. Ltd.
|
|
|
|
|
10.750
|
%
|
|
12/16/13
|
|
200,000
|
|
$
|
153,000
|
A
|
True Move Co. Ltd.
|
|
|
|
|
10.750
|
%
|
|
12/16/13
|
|
590,000
|
|
451,350
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
604,350
|
|
Total
Yankee Bonds
(Cost$11,912,958)
|
|
|
|
|
|
|
|
|
|
|
|
11,085,662
|
|
Common Stocks and Equity Interests
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants and Leisure
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
Buffets Restaurants Holdings Inc.
(Cost$262,700)
|
|
|
|
|
|
|
|
|
|
506
|
shs
|
455
|
C,O
|
Preferred Stocks
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
CMP Susquehanna Radio Holdings Corp.
|
|
|
|
|
0.000
|
%
|
|
|
|
3,171
|
|
1,348
|
A,C,I,N
|
Fannie Mae
|
|
|
|
|
5.375
|
%
|
|
|
|
15
|
|
45,000
|
G,L,N
|
Freddie Mac
|
|
|
|
|
5.160
|
%
|
|
|
|
100
|
|
100
|
G,L,N
|
Freddie Mac
|
|
|
|
|
5.000
|
%
|
|
|
|
200
|
|
280
|
L,N
|
Freddie Mac
|
|
|
|
|
8.375
|
%
|
|
|
|
20,500
|
|
25,010
|
E,L,N
|
General Motors Corp.
|
|
|
|
|
5.250
|
%
|
|
|
|
225,000
|
|
590,625
|
G
|
Preferred Blocker Inc.
|
|
|
|
|
7.000
|
%
|
|
|
|
254
|
|
109,236
|
A
|
Total
Preferred Stocks
(Cost$5,644,586)
|
|
|
|
|
|
|
|
|
|
|
|
771,599
|
|
Trust Preferred Securities
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Corp-Backed Trust Certificates
|
|
|
|
|
7.375
|
%
|
|
|
|
33,900
|
|
55,935
|
|
Corp-Backed Trust Certificates
|
|
|
|
|
8.000
|
%
|
|
|
|
15,600
|
|
212,160
|
|
CORTS Trust for Ford Motor Co.
|
|
|
|
|
8.000
|
%
|
|
|
|
155,100
|
|
2,117,115
|
|
PreferredPlus TR-CCR1
|
|
|
|
|
8.250
|
%
|
|
|
|
5,100
|
|
70,380
|
|
SATURNS-F 2003-5
|
|
|
|
|
8.125
|
%
|
|
|
|
104,100
|
|
1,440,744
|
|
Total
Trust Preferred Securities
(Cost$5,033,601)
|
|
|
|
|
|
|
|
|
|
|
|
3,896,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
Semi-Annual Report to Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Warrants
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Commercial Banks
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
CNB Capital Trust
|
|
|
|
0.000%
|
|
3/23/19
|
|
3,624
|
wts
|
$
|
100
|
A,C,N
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants and Leisure
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Buffets Restaurants Holdings Inc.
|
|
|
|
0.000%
|
|
4/28/14
|
|
224
|
|
|
F,N
|
Total
Warrants
(Cost$100)
|
|
|
|
|
|
|
|
|
|
100
|
|
Total
Long-Term Securities
(Cost$209,184,944)
|
|
|
|
|
|
|
|
|
|
175,242,112
|
|
Short-Term Securities
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
Repurchase Agreements
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
JPMorgan Chase and Co. 0.04% dated 6/30/09, to be
repurchased at $11,500,013 on 7/1/09 (Collateral: $11,749,000 Freddie Mac
Discount Note, 0.000%, due 9/30/09, valued $11,730,000)
|
|
|
|
|
|
|
|
$
|
11,500,000
|
|
11,500,000
|
|
Morgan Stanley 0.01%, dated 6/30/09, to be
repurchased at $176,000 on 7/1/09 (Collateral: $180,000 Federal Home Loan
Bank Bonds, 0.930% due 3/30/10, value $179,520)
|
|
|
|
|
|
|
|
176,000
|
|
176,000
|
|
Total
Short-Term Securities
(Cost$11,676,000)
|
|
|
|
|
|
|
|
|
|
11,676,000
|
|
Total Investments
(Cost$220,860,944)
O
|
|
159.6
|
%
|
|
|
|
|
|
|
186,918,112
|
|
Other Assets Less Liabilities
|
|
1.9
|
%
|
|
|
|
|
|
|
2,225,305
|
|
Liquidation value of preferred
shares
|
|
(61.5
|
)%
|
|
|
|
|
|
|
(72,000,000
|
)
|
Net Assets Applicable to Common
Shareholders
|
|
100.0
|
%
|
|
|
|
|
|
|
$
|
117,143,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M.
Not Meaningful.
A
Rule 144a Security A security purchased
pursuant to Rule 144a under the Securities Act of 1933 which may not be
resold subject to that rule except to qualified institutional buyers.
These securities, which the Funds investment adviser has determined to be
liquid, unless otherwise noted, represent 28.73% of net assets.
B
Indexed Security The rates of interest
earned on these securities are tied to the London Interbank Offered Rate (LIBOR),
the Euro Interbank Offered Rate (EURIBOR) Index, the Consumer Price Index (CPI),
the one-year Treasury Bill Rate or the ten-year Japanese Government Bond Rate.
The coupon rates are the rates as of June 30, 2009.
C
Security is valued in good faith at fair value
by or under the direction of the Board of Trustees.
D
Bond is currently in default.
E
Stepped Coupon Security A security with a
predetermined schedule of interest or dividend rate changes at which time it
begins to accrue interest or pay dividends according to the predetermined
schedule.
F
Illiquid security valued at fair value under
the procedures approved by the Board of Trustees.
G
Convertible Security Security may be
converted into the issuers common stock.
23
|
Semi-Annual Report to Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
H
Pay-in-Kind (PIK) security A security in
which interest or dividends during the initial few years is paid in additional
PIK securities rather than in cash.
I
The coupon rates shown on variable rate
securities are the rates at June 30, 2009. These rates vary with the
weighted average coupon of the underlying loans.
J
Yankee Bond
A dollar-denominated bond issued in the U.S. by foreign entities.
K
Stripped Security Security with
interest-only or principal-only payment streams, denoted by a 1 or 2,
respectively. For interest-only securities, the amount shown as principal is
the notional balance used to calculate the amount of interest due.
L
On September 7, 2008, the Federal Housing
Finance Agency placed Fannie Mae and Freddie Mac into conservatorship.
M
Credit Linked Security The rates of interest
earned on these securities are tied to the credit rating assigned by Standard &
Poors Rating Service and/or Moodys Investors Services.
N
Non-income producing.
O
Aggregate cost for federal income tax purposes
is substantially the same as book cost. At June 30, 2009, the aggregate
gross unrealized appreciation and depreciation of investments for federal
income tax purposes were substantially as follows:
Gross unrealized appreciation
|
|
$
|
8,755,977
|
|
Gross unrealized depreciation
|
|
(42,698,809
|
)
|
Net unrealized depreciation
|
|
$
|
(33,942,832
|
)
|
See notes to financial statements.
24
|
Semi-Annual Report to Shareholders
|
|
Statement
of Assets and Liabilities
June 30,
2009 (Unaudited)
Western Asset Premier
Bond Fund
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Investment securities at value (Cost$209,184,944)
|
|
|
|
$
|
175,242,112
|
|
Short-term securities at value (Cost$11,676,000)
|
|
|
|
11,676,000
|
|
Cash
|
|
|
|
149,626
|
|
Foreign currency at value (Cost$891)
|
|
|
|
904
|
|
Interest and dividends receivable
|
|
|
|
2,717,628
|
|
Unrealized appreciation of swaps
|
|
|
|
834,533
|
|
Restricted cash pledged as collateral for swaps
|
|
|
|
800,000
|
|
Receivable for securities sold
|
|
|
|
309,563
|
|
Amounts receivable for open swaps
|
|
|
|
4,700
|
|
Other assets
|
|
|
|
20,986
|
|
Total assets
|
|
|
|
191,756,052
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Payable for securities purchased
|
|
$
|
1,602,398
|
|
|
|
Unrealized depreciation of swaps
|
|
748,659
|
|
|
|
Accrued management fee
|
|
101,445
|
|
|
|
Amounts payable for open swaps
|
|
2,122
|
|
|
|
Accrued expenses
|
|
158,011
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
2,612,635
|
|
|
|
|
|
|
|
Preferred Shares:
|
|
|
|
|
|
No par value, 2,880 shares authorized, issued and
outstanding, $25,000 liquidation value per share (Note 6)
|
|
|
|
72,000,000
|
|
Net Assets Applicable to Common
Shareholders
|
|
|
|
$
|
117,143,417
|
|
|
|
|
|
|
|
Composition of Net Assets
Applicable to Common Shareholders:
|
|
|
|
|
|
Common shares, no par value, unlimited number of
shares authorized, 11,561,030 shares issued and outstanding (Note 5)
|
|
|
|
$
|
163,195,328
|
|
Undistributed net investment income
|
|
|
|
7,404,725
|
|
Accumulated net realized loss on investments, swaps
and foreign currency transactions
|
|
|
|
(19,599,691
|
)
|
Net unrealized depreciation of investments, swaps
and foreign currency translations
|
|
|
|
(33,856,945
|
)
|
Net Assets Applicable to Common
Shareholders
|
|
|
|
$
|
117,143,417
|
|
|
|
|
|
|
|
Net Asset Value Per Common Share:
($117,143,417 ÷ 11,561,030 common shares issued and outstanding)
|
|
|
|
$
|
10.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
25
|
Semi-Annual Report to Shareholders
|
|
Statement
of Operations
For the
Six Months Ended June 30, 2009 (Unaudited)
Western Asset Premier
Bond Fund
|
|
|
|
|
|
Investment Income:
|
|
|
|
|
|
Interest
|
|
$
|
10,101,756
|
|
|
|
Dividends
|
|
467,488
|
|
|
|
Total income
|
|
|
|
$
|
10,569,244
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Management fees
|
|
476,906
|
|
|
|
Audit and legal fees
|
|
321,274
|
|
|
|
Reports to shareholders
|
|
48,772
|
|
|
|
Custodian fees
|
|
28,030
|
|
|
|
Registration fees
|
|
29,442
|
|
|
|
Excise tax
|
|
24,504
|
|
|
|
Trustees fees and expenses
|
|
14,272
|
|
|
|
Transfer agent and shareholder servicing expense
|
|
9,081
|
|
|
|
Other expenses
|
|
20,513
|
|
|
|
Preferred shares auction agent fee expense
|
|
90,669
|
|
|
|
Net expenses
|
|
|
|
1,063,463
|
|
Net Investment Income
|
|
|
|
9,505,781
|
|
|
|
|
|
|
|
Net Realized and Unrealized
Gain/(Loss) on Investments:
|
|
|
|
|
|
Net realized gain/(loss) on:
|
|
|
|
|
|
Investments
|
|
(3,309,219
|
)
|
|
|
Swaps
|
|
(11,059,142
|
)
|
|
|
Foreign currency transactions
|
|
(70,449
|
)
|
|
|
|
|
|
|
(14,438,810
|
)
|
Change in unrealized appreciation/(depreciation)
of:
|
|
|
|
|
|
Investments
|
|
18,064,439
|
|
|
|
Swaps
|
|
9,757,973
|
|
|
|
Foreign currency translations
|
|
63,319
|
|
|
|
|
|
|
|
27,885,731
|
|
Net realized and unrealized gain
on investments
|
|
|
|
13,446,921
|
|
Change in net assets resulting
from operations
|
|
|
|
$
|
22,952,702
|
|
Dividends to Preferred
Shareholders from:
|
|
|
|
|
|
Net investment income
|
|
(169,577
|
)
|
|
|
|
|
|
|
(169,577
|
)
|
Change in Net Assets Applicable to
Common Shareholders Resulting From Operations
|
|
|
|
$
|
22,783,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
26
|
Semi-Annual Report to Shareholders
|
|
Statement
of Changes in Net Assets
Western Asset Premier
Bond Fund
|
|
FOR THE
SIX MONTHS ENDED
JUNE 30, 2009
(Unaudited)
|
|
FOR THE
YEAR ENDED
DECEMBER 31, 2008
|
|
Change in Net Assets:
|
|
|
|
|
|
Net investment income
|
|
$ 9,505,781
|
|
$ 16,751,431
|
|
Net realized loss
|
|
(14,438,810
|
)
|
(1,820,141
|
)
|
Change in unrealized appreciation/(depreciation)
|
|
27,885,731
|
|
(62,747,908
|
)
|
Change in net assets resulting from operations
|
|
22,952,702
|
|
(47,816,618
|
)
|
|
|
|
|
|
|
Dividends to Preferred
Shareholders From:
|
|
|
|
|
|
Net investment income
|
|
(169,577
|
)
|
(2,236,599
|
)
|
Net realized gain on investments
|
|
|
|
(238,432
|
)
|
Change in Net Assets Applicable to
Common Shareholders Resulting from Operations
|
|
22,783,125
|
|
(50,291,649
|
)
|
|
|
|
|
|
|
Distributions to Common
Shareholders From:
|
|
|
|
|
|
Net investment income
|
|
(6,551,799
|
)
|
(12,090,786
|
)
|
Net realized gain on investments
|
|
|
|
(1,121,178
|
)
|
|
|
|
|
|
|
Capital transactions:
|
|
|
|
|
|
Reinvestment of dividends resulting in the issuance
of 86,490 and 4,597 common shares, respectively
|
|
810,027
|
|
61,654
|
|
Change in net assets
|
|
17,041,353
|
|
(63,441,959
|
)
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
Beginning of period
|
|
100,102,064
|
|
163,544,023
|
|
End of period
|
|
$117,143,417
|
|
$100,102,064
|
|
Undistributed net investment income
|
|
$ 7,404,725
|
|
$ 4,620,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
27
|
Semi-Annual Report to Shareholders
|
|
Financial
Highlights
Contained below is per share operating
performance data for a share of common stock outstanding throughout each period
shown, total investment return, ratios to average net assets and other supplemental
data. This information has been derived from information in the financial
statements.
|
|
SIX MONTHS
ENDED
|
|
YEARS ENDED
DECEMBER 31,
|
|
|
|
JUNE 30, 2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per common share, beginning of
period
|
|
$
|
8.72
|
|
$
|
14.26
|
|
$
|
15.15
|
|
$
|
14.93
|
|
$
|
15.52
|
|
$
|
15.00
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
A
|
|
.83
|
|
1.46
|
|
1.27
|
|
1.37
|
|
1.37
|
|
1.33
|
|
Net realized and unrealized gain/(loss)
|
|
1.16
|
|
(5.64
|
)
|
(.60
|
)
|
.45
|
|
(.55
|
)
|
.56
|
|
Dividends paid to preferred shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(.01
|
)
|
(.19
|
)
|
(.25
|
)
|
(.30
|
)
|
(.21
|
)
|
(.09
|
)
|
Net realized gain on investments
|
|
|
|
(.02
|
)
|
(.09
|
)
|
(.01
|
)
|
|
|
|
|
Total from investment operations applicable to
common shareholders
|
|
1.98
|
|
(4.39
|
)
|
.33
|
|
1.51
|
|
.61
|
|
1.80
|
|
Distributions paid to common shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(.57
|
)
|
(1.05
|
)
|
(.97
|
)
|
(1.10
|
)
|
(1.20
|
)
|
(1.28
|
)
|
Net realized gain on investments
|
|
|
|
(.10
|
)
|
(.25
|
)
|
(.19
|
)
|
|
|
|
|
Total distributions paid to common shareholders
|
|
(.57
|
)
|
(1.15
|
)
|
(1.22
|
)
|
(1.29
|
)
|
(1.20
|
)
|
(1.28
|
)
|
Net asset value per common share, end of period
|
|
$
|
10.13
|
|
$
|
8.72
|
|
$
|
14.26
|
|
$
|
15.15
|
|
$
|
14.93
|
|
$
|
15.52
|
|
Market value, end of period
|
|
$
|
11.45
|
|
$
|
8.90
|
|
$
|
13.13
|
|
$
|
15.15
|
|
$
|
13.72
|
|
$
|
16.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment return based on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value
|
|
36.55
|
%
B
|
(24.60
|
)
%
|
(5.79
|
)
%
|
20.43
|
%
|
(7.83
|
)
%
|
10.79
|
%
|
Net Asset Value
|
|
23.81
|
%
B
|
(32.45
|
)
%
|
2.17
|
%
|
10.67
|
%
|
4.31
|
%
|
12.57
|
%
|
Ratios to Average Net Assets
Applicable to Common Shareholders:
C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses (including interest expense)
|
|
2.13
|
%
D
|
2.06
|
%
|
1.72
|
%
|
1.86
|
%
|
1.63
|
%
|
1.17
|
%
|
Expenses (including interest expense) net of
waivers, if any
|
|
2.13
|
%
D
|
2.06
|
%
|
1.71
|
%
|
1.86
|
%
|
1.63
|
%
|
1.17
|
%
|
Expenses (including interest expense) net of all
reductions
|
|
2.13
|
%
D
|
2.06
|
%
|
1.71
|
%
|
1.86
|
%
|
1.63
|
%
|
1.17
|
%
|
Expenses (excluding interest expense) net of all
reductions
|
|
2.13
|
%
D
|
1.83
|
%
|
1.15
|
%
|
1.15
|
%
|
1.13
|
%
|
1.13
|
%
|
Net investment income
E
|
|
18.77
|
%
D
|
10.68
|
%
|
6.76
|
%
|
7.18
|
%
|
7.58
|
%
|
8.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
11.7
|
%
B
|
45.3
|
%
|
90.3
|
%
|
65.0
|
%
|
41.0
|
%
|
39.0
|
%
|
Net assets applicable to common shareholders, end
of period (in thousands)
|
|
$
|
117,143
|
|
$
|
100,102
|
|
$
|
163,544
|
|
$
|
173,707
|
|
$
|
171,010
|
|
$
|
177,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share information at end
of the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amount outstanding (in thousands)
|
|
$
|
72,000
|
|
$
|
72,000
|
|
$
|
72,000
|
|
$
|
72,000
|
|
$
|
72,000
|
|
$
|
72,000
|
|
Asset coverage on preferred shares, end of period
F
|
|
261
|
%
|
239
|
%
|
327
|
%
|
341
|
%
|
337
|
%
|
346
|
%
|
Liquidation and market value per share (in
thousands)
|
|
$
|
25
|
|
$
|
25
|
|
$
|
25
|
|
$
|
25
|
|
$
|
25
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
Computed using average daily shares
outstanding.
B
Not annualized.
C
Total expenses reflects operating expenses
prior to any voluntary expense waivers and/or compensating balance credits.
Expenses net of waivers reflects total expenses before compensating balance
credits but net of any voluntary expense waivers. Expenses net of all
reductions reflects expenses less any compensating balance credits and/or
voluntary expense waivers.
D
Annualized.
E
Ratios are calculated on the basis of income
and expenses applicable to both the common and preferred shares relative to the
average net assets of common shareholders. Ratios of net investment income
before preferred share dividends to average net assets of common shareholders
are 19.11%, 12.33%, 9.21%, 8.99%, 8.85% and 9.11%, for the six months ended June 30,
2009 and the years ended December 31, 2008, 2007, 2006, 2005 and 2004,
respectively.
F
Asset coverage on preferred shares equals net
assets of common shares plus the redemption value of the preferred shares
divided by the value of outstanding preferred stock.
See notes to financial statements.
28
|
Semi-Annual Report to Shareholders
|
|
Notes to
Financial Statements
(Unaudited)
1.
Significant Accounting Policies:
Western Asset Premier Bond Fund (the Fund)
is registered under the Investment Company Act of 1940, as amended (the 1940
Act), as a diversified, closed-end management investment company. The Fund
commenced investment operations on March 28, 2002.
The Funds investment objective is to provide
current income and capital appreciation by investing primarily in a diversified
portfolio of investment grade bonds. The Fund currently seeks to achieve its
investment objective by investing substantially all of its assets in bonds,
including corporate bonds, U.S. government and agency securities and
mortgage-related securities. The ability of the issuers of the securities held
by the Fund to meet their obligations might be affected by, among other things,
economic developments in a specific state, industry or region.
The following are significant accounting
policies consistently followed by the Fund and are in conformity with U.S.
generally accepted accounting principles (GAAP). Estimates and assumptions
are requited 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 August 24, 2009, the issuance date of
the financial statements.
Investment Valuation
The Funds securities are valued under
policies approved by and under the general oversight of the Board of Trustees.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS
157). FAS 157 establishes a single definition of fair value, creates a
three-tier hierarchy as a framework for measuring fair value based on inputs
used to value the Funds investments, and requires additional disclosure about
fair value. The hierarchy of inputs is summarized below.
·
Level 1quoted prices in active markets for
identical investments
·
Level 2other
significant observable inputs (including quoted prices for similar investments,
interest rates, prepayment speeds, credit risk, etc.)
·
Level
3significant unobservable inputs (including the Funds own assumptions in
determining the fair value of investments)
Debt securities are valued at the last quoted
bid prices provided by an independent pricing service that are based on
transactions in debt obligations, quotations from bond dealers, market
transactions in comparable securities and various other relationships between
securities. Equity securities for which market quotations are available are
valued at the last sale price or official closing price on the primary market
or exchange on which they trade. Publicly traded foreign government debt
securities are typically traded internationally in the over-the-counter market
and are valued at the bid price as of the close of business of that market.
When prices are not readily available, or are determined not to reflect fair
value, 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 may value these securities at fair value as determined in accordance with
the procedures approved by the Funds Board of Trustees.
The inputs or methodology used for valuing
securities are not necessarily an indication of the risk associated with
investing in those securities.
29
|
Semi-Annual Report to Shareholders
|
|
Notes to
Financial StatementsContinued
The following is a summary of the inputs used
in valuing the Funds assets carried at fair value:
Description
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Long-Term Securities:
|
|
|
|
|
|
|
|
|
|
Corporate Bonds and Notes
|
|
|
|
$
|
90,117,920
|
|
$
|
200,325
|
|
$
|
90,318,245
|
|
Asset-Backed Securities
|
|
|
|
32,097,125
|
|
1,837,841
|
|
33,934,966
|
|
Mortgage-Backed Securities
|
|
|
|
33,085,874
|
|
1,366,737
|
|
34,452,611
|
|
U.S. Government Agency Mortgage-Backed Securities
|
|
|
|
782,140
|
|
|
|
782,140
|
|
Yankee Bonds
|
|
|
|
11,085,662
|
|
|
|
11,085,662
|
|
Common Stocks and Equity Interests: Consumer
Discretionary
|
|
|
|
|
|
455
|
|
455
|
|
Preferred Stocks
|
|
$
|
616,015
|
|
154,236
|
|
1,348
|
|
771,599
|
|
Trust Preferred Securities
|
|
3,896,334
|
|
|
|
|
|
3,896,334
|
|
Warrants
|
|
|
|
|
|
100
|
|
100
|
|
Long-Term Securities
|
|
4,512,349
|
|
167,322,957
|
|
3,406,806
|
|
175,242,112
|
|
Short-Term Investments:
|
|
|
|
|
|
|
|
|
|
Repurchase Agreements
|
|
|
|
11,676,000
|
|
|
|
11,676,000
|
|
Total Investments
|
|
$
|
4,512,349
|
|
$
|
178,998,957
|
|
$
|
3,406,806
|
|
$
|
186,918,112
|
|
Other Financial Instruments:
|
|
|
|
|
|
|
|
|
|
Credit Default Swaps on Corporate
|
|
|
|
|
|
|
|
|
|
IssuesBuy
|
|
|
|
803,342
|
|
|
|
803,342
|
|
Credit Default Swaps on Credit
|
|
|
|
|
|
|
|
|
|
IndicesSell
|
|
|
|
(717,468
|
)
|
|
|
(717,468
|
)
|
Other Financial Instruments
|
|
|
|
$
|
85,874
|
|
|
|
$
|
85,874
|
|
Total
|
|
$
|
4,512,349
|
|
$
|
179,115,022
|
|
$
|
3,406,806
|
|
$
|
187,003,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
fair value:
|
|
Corporate
Bonds and
Notes
|
|
Asset-Backed
Securities
|
|
Mortgage-
Backed
Securities
|
|
Common
Stocks and
Equity
Interests
Consumer
Discretionary
|
|
Preferred
Stocks
|
|
Warrants
|
|
Total
|
|
Balance as of December 31, 2008
|
|
|
|
$ 276,041
|
|
$ 185,045
|
|
|
|
|
|
|
|
$ 461,086
|
|
Accrued Premiums/ Discounts
|
|
$ 1,853
|
|
7,724
|
|
11,031
|
|
|
|
|
|
|
|
20,608
|
|
Realized Gain/(Loss)
(1)
|
|
|
|
14,449
|
|
4,979
|
|
$ (312
|
)
|
|
|
|
|
19,116
|
|
Change in Unrealized Appreciation (Depreciation)
(2)
|
|
(3,238
|
)
|
118,260
|
|
594,233
|
|
(262,245
|
)
|
|
|
|
|
447,010
|
|
Net Purchases
|
|
201,710
|
|
576,295
|
|
578,364
|
|
263,012
|
|
$1,348
|
|
$100
|
|
1,620,829
|
|
Net Sales
|
|
|
|
25,828
|
|
6,915
|
|
|
|
|
|
|
|
32,743
|
|
Net transfers in to Level 3
|
|
|
|
870,900
|
|
|
|
|
|
|
|
|
|
870,900
|
|
Net transfers out of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009
|
|
$200,325
|
|
$1,837,841
|
|
$1,366,737
|
|
$ 455
|
|
$1,348
|
|
$100
|
|
$3,406,806
|
|
Net Unrealized Appreciation (Depreciation) for
Investments in securities still held at the reporting period
(2)
|
|
$ (3,238
|
)
|
$ (940,129
|
)
|
$ 478,510
|
|
$ (262,245
|
)
|
|
|
|
|
$ (727,102
|
)
|
(1)
This
amount is included in net realized gain (loss) from investment transactions in
the accompanying Statement of Operations.
(2)
This
amount is included in the change in net unrealized appreciation (depreciation)
in the accompanying Statement of Operations. Change in unrealized appreciation
(depreciation) includes net unrealized appreciation (depreciation) resulting
from changes in investment values during the reporting period and the reversal
of previously recorded unrealized appreciation (depreciation) when gains or
losses are realized.
30
|
Semi-Annual Report to Shareholders
|
|
Security Transactions
Security transactions are accounted for as of
the trade date. Realized gains and losses from security transactions are
reported on an identified cost basis for both financial reporting and federal
income tax purposes.
For the six months ended June 30, 2009, security
transactions (excluding short-term investments) were as follows:
Purchases
|
|
Proceeds from
Sales
|
U.S. Govt. Securities
|
|
Other
|
|
U.S. Govt.
Securities
|
|
Other
|
|
|
$29,104,305
|
|
$3,775,132
|
|
$15,498,646
|
Foreign Currency Translation
Assets and liabilities initially expressed in
non-U.S. currencies are translated into U.S. dollars using currency exchange
rates determined prior to the close of trading on the New York Stock Exchange,
usually at 2:00 p.m. Eastern time. Purchases and sales of securities and
income and expenses are translated into U.S. dollars at the prevailing market
rates on the dates of such transactions. The effects of changes in non-U.S.
currency exchange rates on investment securities and other assets and
liabilities are included with the net realized and unrealized gain or loss on
investment securities.
Repurchase Agreements
The Fund may enter into repurchase agreements
with institutions that its investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. Under the terms of a typical
repurchase agreement, a fund takes possession of an underlying debt obligation
subject to an obligation of the seller to repurchase, and of the fund to
resell, the obligation at an agreed-upon price and time, thereby determining
the yield during a funds holding period. When entering into repurchase
agreements, it is the Funds policy that its custodian acting on the funds
behalf, or a third party custodian take possession of the underlying collateral
securities, the market value of which, at all times, at least equals the
principal amount of the repurchase transaction, including accrued interest. To
the extent that any repurchase transaction exceeds one business day, the value
of the collateral is marked to market to ensure the adequacy of the collateral.
If the counterparty defaults, the Fund generally has the right to use the
collateral to satisfy the terms of the repurchase transaction. However, if the
market value of the collateral declines during the period in which the Fund
seeks to assert its rights or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase
agreements. Under the terms of a typical reverse repurchase agreement, a fund
sells a security subject to an obligation to repurchase the security from the
buyer at an agreed-upon time and price, thereby determining the yield to the
buyer during the buyers holding period. A reverse repurchase agreement
involves the risk, among others, that the market value of the collateral
retained by the fund may decline below the price of the securities the fund has
sold but is obligated to repurchase under the agreement. 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 party, or its trustee or receiver,
whether to enforce the Funds obligation to repurchase the securities. In
entering into reverse repurchase agreements, the Fund will maintain cash, U.S.
government securities or other liquid debt obligations at least equal in value
to its obligations with respect to reverse repurchase agreements or will take
other actions permitted by law to cover its obligations.
Forward Currency Exchange Contracts
As part of its investment program, the Fund
may utilize forward currency exchange contracts. Forward foreign exchange
contracts are marked-to-market daily using foreign currency exchange rates
supplied by an independent pricing service. The change in the contracts market
value is recorded by the Fund as an unrealized gain or loss. When a contract is
closed or delivery is taken, the Fund records a realized gain or loss equal to
the difference between the value of the contact at the time it was opened and
the value at the time it was closed.
The use of forward foreign currency exchange
contracts does not eliminate fluctuations in the underlying prices of the Funds
securities, but it does establish a rate of exchange that can be achieved in
the future. These forward foreign currency exchange contracts involve market
risk in excess of amounts reflected in the financial statements. Although
forward foreign currency exchange contracts used for hedging purposes limit the
risk of loss due to the decline in the value of the hedged currency, they also
limit any potential gain that
31
|
Semi-Annual Report to Shareholders
|
|
Notes to
Financial StatementsContinued
might result should the value of the currency
increase. In addition, the Fund could be exposed to risks if the counterparties
to the contracts are unable to meet the terms of their contracts.
The Fund had no outstanding forward foreign currency
exchange contracts as of June 30, 2009.
Distributions to Common Shareholders
Investment income and distributions to
shareholders are recorded on the ex-dividend date. Dividends from net
investment income are declared and paid monthly. On May 20, 2009 the Fund
announced that it will declare distibutions quarterly while maintaining its
policy of paying distributions monthly. Net capital gain distributions are
declared and paid after the end of the tax year in which the gain is realized.
An additional distribution may be made in December to the extent necessary
in order to comply with federal excise tax requirements. Distributions are
determined in accordance with federal income tax regulations, which may differ
from those determined in accordance with accounting principles generally accepted
in the United States of America; accordingly, periodic reclassifications are
made within the Funds capital accounts to reflect income and gains available
for distribution under federal income tax regulations. Interest income and
expenses are recorded on the accrual basis. Bond discounts and premiums are
amortized and included in interest income for financial reporting and federal
income tax purposes.
Compensating Balance Credits
The Fund has an arrangement with its custodian
bank, whereby a portion of the custodians fee is paid indirectly by credits
earned on the Funds cash on deposit with the bank. This deposit arrangement is
an alternative to purchasing overnight investments.
Credit and Market Risk
Investments in structured securities
collateralized by residential 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 accrued interest and principal on
these investments may be doubtful. Such market conditions may significantly
impair the value of these investments resulting in a lack of correlation
between their credit ratings and values.
Other
In the normal course of business, the Fund
enters into contracts that provide general indemnifications. The Funds maximum
exposure under these arrangements is dependent upon claims that may be made
against the Fund in the future and, therefore, cannot be estimated; however,
based on experience, the risk of material loss from such claims is considered
remote.
Single Sourced Securities
Certain securities held by the Fund at June 30,
2009 are valued based on a price provided by a single source or dealer. The
prices provided may differ from the value that would be realized if the
securities were sold. As of June 30, 2009, 12.01% of the securities held
by the Fund were either fair valued securities or were valued based on a price
provided by a single independent pricing service or dealer (single source
securities).
2.
Federal Income Taxes:
It is the Funds policy to comply with the
federal income and excise tax requirements of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies. Accordingly, the Fund
intends to distribute to shareholders substantially all of its income and net
realized gains on investments, if any, to shareholders each year. Therefore, no
federal income tax provision is required in the Funds financial statements.
However, due to the timing of when distributions are made, the Fund may be
subject to an excise tax of 4% of the amount by which 98% of the Funds annual
taxable income exceeds the distributions from such taxable income for the year.
The Fund has accrued $24,504 of Federal excise tax attributable to the six
months ended June 30, 2009.
Management has analyzed the Funds tax
positions taken on federal income tax returns for all open tax years and has
concluded that as of June 30, 2009, no provision for income tax
would be 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.
32
|
Semi-Annual Report to Shareholders
|
|
Under the applicable foreign tax laws, a
withholding tax may be imposed on interest, dividends and capital gains at
various rates.
As of December 31, 2008, the Fund had a
net capital loss carryforward of approximately $3,000,112 all of which expires
in 2016.
3.
Financial Instruments:
Swap Agreements
The Fund may invest 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 ordinary portfolio transactions.
Credit Default Swaps
The Fund may enter 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 a Fund
has exposure to a sovereign issuer) or to take an active long or short position
with respect to the likelihood of a particular issuers default. As a seller of
protection, the Fund generally receives an upfront payment or a stream of
payments throughout the term of the swap provided that there is no credit
event. If the Fund is a seller of protection and a credit event occurs, as
defined under the terms of that particular swap agreement, the maximum
potential amount of future payments (undiscounted) that the Fund could be
required to make under a credit default swap agreement would be an amount equal
to the notional amount of the agreement. These amounts of potential payments
will be partially offset by any recovery of values from the respective
referenced obligations. As a seller of protection, the Fund effectively adds
leverage to its portfolio because, in addition to its total net assets, the
Fund would be subject to investment exposure on the notional amount of the
swap. As a buyer of protection, the Fund generally receives an amount up to the
notional value of the swap if a credit event occurs.
Implied spreads are the theoretical prices a
lender receives for credit default protection. When spreads rise, market
perceived credit risk rises and when spreads fall, market perceived credit risk
falls. The implied credit spread of a particular referenced entity reflects the
cost of buying/selling protection and may include upfront payments required to
enter into the agreement. Wider credit spreads and decreasing market values,
when compared to the notional amount of the swap, represent a deterioration of
the referenced entitys credit soundness and a greater likelihood or risk of
default or other credit event occurring as defined under the terms of the
agreement. Credit spreads utilized in determining the period end market value
of credit default swap agreements on corporate or sovereign issues are
disclosed in the Notes to Financial Statements and serve as an indicator of the
current status of the payment/performance risk and represent the likelihood or
risk of default for credit derivatives. For credit default swap agreements on asset-backed
securities and credit indices, the quoted market prices and resulting values,
particularly in relation to the notional amount of the contract as well as the
annual payment rate, serve as an indication of the current status of the
payment/performance risk.
Payments received or made at the beginning of
the measurement period are reflected as a premium or deposit, respectively, on
the 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
Statement of Operations. A liquidation payment received or made at the
termination of the swap is recognized as realized gain or loss in the Statement
of Operations. Net periodic payments received or paid by the Fund are
recognized as realized gain or loss at the time of receipt of payment on the
Statement of Operations.
The Funds maximum risk of loss from
counterparty risk, either as the protection seller or 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). Credit default swaps are considered to have credit risk-related
contingent features since they require payment by the protection seller to the
protection buyer upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to
varying degrees, elements of credit, market and documentation risk in excess of
the related amounts recognized in the 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.
33
|
Semi-Annual Report to Shareholders
|
|
Notes to
Financial StatementsContinued
Swap contracts are marked-to-market daily and
changes in value are recorded as unrealized appreciation/(depreciation). Gains
or losses are realized upon termination of the swap agreement. Periodic
payments and premiums received or made by a Fund are recorded in the Statement
of Operations as realized gains or losses, respectively. 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 held as collateral for swap contracts are identified in
the Portfolio of Investments and restricted cash, if any, is identified in the
Statement of Assets and Liabilities. Risks may exceed amounts recognized in the
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.
As disclosed in the Fair Values of
DerivativesBalance Sheet table that follows each Funds summary of open swap
contracts, the aggregate fair value of credit default swaps in a net liability
position as of June 30, 2009 was $748,659. The aggregate fair value of
assets posted as collateral for all swaps was $800,000. If a defined credit
event had occurred as of June 30, 2009, the swaps credit-risk-related
contingent features would have been triggered and the Fund would have been
required to pay up to $21,858,317 less the value of the contracts related
reference obligations.
As of June 30, 2009, the one-month London Interbank Offered Rates (LIBOR)
was 0.31%.
CREDIT
DEFAULT SWAP ON CREDIT INDICESSELL PROTECTION
1
Swap Counterparty
(Reference Entity):
|
|
|
Termination Date
|
|
Periodic
Payments
Received
by the Fund
|
|
Contract
Notional
Amount
2
|
|
Market
Value
3
|
|
Upfront
Premiums
Paid/
(Received)
|
|
Unrealized
Depreciation
|
|
Merrill
Lynch & Co., Inc.
(CDX HY 8)
|
|
June 20, 2012
|
|
0.86%
|
|
$21,858,317
|
|
$(717,468
|
)
|
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
|
|
|
|
$(717,468
|
)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized depreciation on sales of credit default swaps on credit indices
|
|
|
|
|
|
$ (717,468
|
)
|
CREDIT
DEFAULT SWAPS ON CORPORATE ISSUESBUY PROTECTION
4
Swap Counterparty
(Reference Entity):
|
|
|
Termination Date
|
|
Periodic
Payments
Made
by the Fund
|
|
Contract
Notional
Amount
2
|
|
Market
Value
|
|
Upfront
Premiums
Paid/
(Received)
|
|
Unrealized
Appreciation/
Depreciation
|
|
Credit Suisse First Boston USA
(AAMES Mortgage Investment Trust 2005-1 M8, 1-Month LIBOR + 160 bp, due
6/25/35)
|
|
June 25,
2035
|
|
1.28
%
Monthly
|
|
$
|
43,000
|
|
$
40,547
|
|
|
|
$
40,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(AAMES Mortgage Investment Trust 2005-1 M9, 1-Month LIBOR + 250 bp, due
6/25/35)
|
|
June 25,
2035
|
|
2.05
%
Monthly
|
|
43,000
|
|
41,217
|
|
|
|
41,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(ACE Securities Corp. 2005-HE1 M8, 1-Month
LIBOR + 138 bp, due 2/25/35)
|
|
February 25,
2035
|
|
1.31
%
Monthly
|
|
33,283
|
|
32,496
|
|
|
|
32,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Aegis Asset Backed Securities Trust 2004-4 B2, 1-Month
LIBOR + 190bp, due 10/25/34)
|
|
October 25,
2034
|
|
1.37
%
Monthly
|
|
32,243
|
|
28,486
|
|
|
|
28,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
Semi-Annual Report to Shareholders
|
|
Swap Counterparty
(Reference Entity):
|
|
|
Termination Date
|
|
Periodic
Payments
Made
by the Fund
|
|
Contract
Notional
Amount
2
|
|
Market
Value
|
|
Upfront
Premiums
Paid/
(Received)
|
|
Unrealized
Appreciation/
Depreciation
|
|
Credit Suisse First Boston USA
(Aegis Asset Backed Securities Trust 2005 B2, 1-Month LIBOR + 130 bp, due
3/25/35)
|
|
March 25,
2035
|
|
1.31
%
Monthly
|
|
$
|
43,000
|
|
$ 42,681
|
|
|
|
$ 42,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Aegis Asset Backed Securities Trust 2005 B3, 1-Month LIBOR + 200 bp, due
3/25/35)
|
|
March 25,
2035
|
|
2.18
%
Monthly
|
|
43,000
|
|
42,964
|
|
|
|
42,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Argent Securities Inc. 2004-W11 M10, 1-Month LIBOR + 350bp, due 11/25/34)
|
|
November 25,
2034
|
|
2.15
%
Monthly
|
|
16,384
|
|
15,905
|
|
|
|
15,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA (Argent Securities
Inc. 2004-W11 M9, 1-Month LIBOR + 225bp, due 11/25/34)
|
|
November 25,
2034
|
|
1.33
%
Monthly
|
|
16,384
|
|
15,773
|
|
|
|
15,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Argent Securities Inc. 2004-W4 M3, 1-Month LIBOR + 300 bp, due 3/25/34)
|
|
March 25,
2034
|
|
2.2
%
Monthly
|
|
20,620
|
|
16,236
|
|
|
|
16,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Finance America Mortgage Loan Trust 2004-3 M8, 1-Month LIBOR + 180bp, due
11/25/34)
|
|
November 25,
2034
|
|
1.31
%
Monthly
|
|
15,633
|
|
15,041
|
|
|
|
15,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Finance America Mortgage Loan Trust 2004-3 M9, 1-Month LIBOR + 315bp, due
11/25/34)
|
|
November 25,
2034
|
|
2.18
%
Monthly
|
|
8,580
|
|
8,409
|
|
|
|
8,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Fremont Home Loan Trust 2005-A M8, 1-Month LIBOR + 135 bp, due 1/25/35)-
|
|
January 25,
2035
|
|
1.31
%
Monthly
|
|
17,046
|
|
16,617
|
|
|
|
16,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Fremont Home Loan Trust 2005-A, 1-Month LIBOR + 100bp, due 1/25/35)
|
|
January 25,
2035
|
|
2.08
%
Monthly
|
|
4,181
|
|
4,159
|
|
|
|
4,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M8, 1-Month LIBOR +
190bp, due 3/25/35)
|
|
March 25,
2035
|
|
1.28
%
Monthly
|
|
22,446
|
|
20,586
|
|
|
|
20,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M9, 1-Month LIBOR +
325bp, due 3/25/35)
|
|
March 25,
2035
|
|
2.05
%
Monthly
|
|
17,912
|
|
16,651
|
|
|
|
16,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2004-1 M9, 1-Month LIBOR + 350bp, due
2/25/34)
|
|
February 25,
2034
|
|
2.15
%
Monthly
|
|
12,052
|
|
7,021
|
|
|
|
7,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
Semi-Annual Report to Shareholders
|
|
Notes to
Financial StatementsContinued
Swap Counterparty
(Reference Entity):
|
|
|
Termination Date
|
|
Periodic
Payments
Made
by the Fund
|
|
Contract
Notional
Amount
2
|
|
Market
Value
|
|
Upfront
Premiums
Paid/
(Received)
|
|
Unrealized
Appreciation/
Depreciation
|
|
Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2005-1 M8, 1-Month LIBOR + 170 bp, due
2/25/35)
|
|
February 25,
2035
|
|
1.31
%
Monthly
|
|
$
|
20,879
|
|
$ 20,390
|
|
|
|
$ 20,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2005-1 M9, 1-Month LIBOR + 275bp, due
2/25/35)
|
|
February 25,
2035
|
|
2.08
%
Monthly
|
|
13,092
|
|
13,063
|
|
|
|
13,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(MASTR Asset Backed Securities Trust 2005-NC1 M8, 1-Month LIBOR + 153bp, due
12/25/34)
|
|
December 25,
2034
|
|
1.31
%
Monthly
|
|
25,304
|
|
23,876
|
|
|
|
23,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(MASTR Asset Backed Securities Trust 2005-NC1 M9, 1-Month LIBOR + 240bp, due
12/25/34)
|
|
December 25,
2034
|
|
2.08
%
Monthly
|
|
22,737
|
|
21,806
|
|
|
|
21,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2004-WMC1 B3, 1-Month LIBOR + 225bp,
due 9/25/35)
|
|
September 25,
2035
|
|
2.05
%
Monthly
|
|
11,329
|
|
10,388
|
|
|
|
10,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2004-WMC4 B3, 1-Month LIBOR + 375bp,
due 4/25/35)
|
|
April 25,
2035
|
|
2.15
%
Monthly
|
|
12,666
|
|
12,260
|
|
|
|
12,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-NC1 B2, 1-Month LIBOR + 130bp,
due 10/25/35)
|
|
October 25,
2035
|
|
1.28
%
Monthly
|
|
15,387
|
|
14,066
|
|
|
|
14,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-NC1 B3, 1-Month LIBOR + 205bp,
due 10/25/35)
|
|
October 25,
2035
|
|
2.05
%
Monthly
|
|
15,461
|
|
14,443
|
|
|
|
14,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-WMC1 B2, 1-Month LIBOR + 135bp,
due 9/25/35)
|
|
September 25,
2035
|
|
1.28
%
Monthly
|
|
14,594
|
|
13,504
|
|
|
|
13,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B2, 1-Month LIBOR + 130 bp, due
1/25/35)
|
|
January 25,
2035
|
|
1.31
%
Monthly
|
|
13,639
|
|
13,238
|
|
|
|
13,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B3, 1-Month LIBOR + 215bp, due
1/25/35)
|
|
January 25,
2035
|
|
2.18
%
Monthly
|
|
6,000
|
|
5,974
|
|
|
|
5,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2004-2 M9, 1-Month LIBOR + 325bp, due
8/25/34)
|
|
August 25,
2034
|
|
2.15
%
Monthly
|
|
17,236
|
|
10,364
|
|
|
|
10,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
Semi-Annual Report to Shareholders
|
|
Swap Counterparty
(Reference Entity):
|
|
|
Termination Date
|
|
Periodic
Payments
Made
by the Fund
|
|
Contract
Notional
Amount
2
|
|
Market
Value
|
|
Upfront
Premiums
Paid/
(Received)
|
|
Unrealized
Appreciation/
Depreciation
|
|
Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2005-1 M8, 1-Month LIBOR + 140 bp, due
3/25/35)
|
|
March 25,
2035
|
|
1.31
%
Monthly
|
|
$
|
21,085
|
|
$ 18,165
|
|
|
|
$
18,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2005-1 M9, 1-Month LIBOR + 205 bp, due
3/25/35)
|
|
March 25,
2035
|
|
2.18
%
Monthly
|
|
18,390
|
|
16,101
|
|
|
|
16,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Novastar Home Equity Loan 2005-1 B2, 1-Month LIBOR + 135 bp, due 6/25/35)
|
|
June 25,
2035
|
|
1.28
%
Monthly
|
|
43,000
|
|
38,669
|
|
|
|
38,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Novastar Home Equity Loan 2005-4 B3, 1-Month LIBOR + 195 bp, due 6/25/35)
|
|
June 25,
2035
|
|
2.05
%
Monthly
|
|
43,000
|
|
39,886
|
|
|
|
39,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Park Place Securities Inc. 2005-WCH1 M8, 1-Month LIBOR + 155bp, due 1/25/36)
|
|
January 25,
2036
|
|
1.36
%
Monthly
|
|
43,000
|
|
41,132
|
|
|
|
41,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Park Place Securities, Inc. 2005-WCH1 M9, 1-Month LIBOR + 250 bp, due
1/25/36)
|
|
January 25,
2036
|
|
2.18
%
Monthly
|
|
41,462
|
|
40,423
|
|
|
|
40,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Peoples Choice Home Loan Securities Trust 2004-1 M6, 1-Month LIBOR + 230bp,
due 6/25/34)
|
|
June 25,
2034
|
|
1.37
%
Quarterly
|
|
26,740
|
|
26,244
|
|
|
|
26,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Peoples Choice Home Loan Securities Trust 2005-1 B3, 1-Month LIBOR + 260bp,
due 1/25/35)
|
|
January 25,
2035
|
|
2.05
%
Monthly
|
|
33,714
|
|
33,685
|
|
|
|
33,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse First Boston USA
(Peoples Choice Home Loan Securities Trust 2005-1, 1-Month LIBOR + 165bp,
due 1/25/35)
|
|
January 25,
2035
|
|
1.28
%
Monthly
|
|
43,000
|
|
42,067
|
|
|
|
42,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Goldman Sachs Group, Inc.
(Citigroup Inc., 6.5%, due 1/18/2011)
|
|
March 20,
2014
|
|
4.7
%
Quarterly
|
|
1,700,000
|
|
(31,191
|
)
|
|
|
(31,191)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation on buys of credit
default swaps on corporate issues
|
|
|
|
$803,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 make 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 liability (or profit) for the credit
derivative should the notional amount of the swap agreement been closed/sold
as of the period end. Decreasing market values when compared to the notional
|
37
|
Semi-Annual Report to Shareholders
|
|
Notes to
Financial StatementsContinued
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.
4
If
the Fund is a buyer of protection and a credit event occurs, as defined under
the terms of that particular swap agreement, the Fund will either (i) receive
from the seller of protection an amount equal to the notional amount of the
swap and deliver the underlying securities comprising the referenced index or (ii) receive
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 underlying securities
comprising the referenced index.
Percentage
shown is an annual percentage rate.
*
Security
is valued in good faith at fair value by or under the direction of the Board of
Directors.
4.
Derivative Instruments and Hedging Activities
Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 161,
Disclosures
about Derivative Instruments and Hedging Activities
, requires
enhanced disclosure about an entitys derivative 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 Statement of Assets and Liabilities at June 30, 2009.
Asset Derivatives
|
|
|
Credit
Contracts Risk
1
|
|
Other
Contracts Risk
1
|
|
Total
|
|
Swap Contracts
|
|
$834,533
|
|
|
|
$834,533
|
|
1
Balance
sheet location: Receivables
Liability Derivatives
|
|
|
Credit
Contracts Risk
1
|
|
Other
Contracts Risk
1
|
|
Total
|
|
Swap Contracts
|
|
$748,659
|
|
|
|
$748,659
|
|
1
Balance
sheet location: Payables
The following tables provide information about
the effect of derivatives and hedging activities on the Funds Statement of
Operations for the six months ended June 30, 2009. 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 changes in unrealized appreciation/(depreciation)
resulting from the Funds derivatives and hedging activities during the period.
Amount of Realized Gain or (Loss) on Derivatives
Recognized
|
|
|
Credit
Contracts Risk
|
|
Other
Contracts Risk
1
|
|
Total
|
|
Swap Contracts
|
|
$(11,059,142
)
|
|
|
|
$(11,059,142
)
|
|
|
|
|
|
|
|
|
|
Change in Unrealized Appreciation/Depreciation on
Derivatives Recognized
|
|
|
Credit
Contracts Risk
|
|
Other
Contracts Risk
1
|
|
Total
|
|
Swap Contracts
|
|
$9,757,973
|
|
|
|
$9,757,973
|
|
5.
Common Shares:
Of the 11,561,030 shares of common stock
outstanding at June 30, 2009, Western Asset owns 13,522 shares.
38
|
Semi-Annual Report to Shareholders
|
|
6.
Preferred Shares:
There are 2,880 shares of Auction Market
Preferred Shares (Preferred Shares) authorized. The Preferred Shares have
rights as set forth in the Funds Agreement and Declaration of Trust, as amended
to date, and its Bylaws, as amended to date (the Bylaws), or as otherwise
determined by the Trustees. The 2,880 Preferred Shares outstanding consist of
two series, 1,440 shares of Series M and 1,440 shares of Series W.
The Preferred Shares have a liquidation value of $25,000 per share, plus any
accumulated but unpaid dividends whether or not earned or declared.
Dividends on the Series M and Series W
Preferred Shares are cumulative and are paid at a rate typically reset every
seven and twenty-eight days, respectively, based on the results of an auction.
Dividend rates ranged from 0.135% to 1.727% between January 1, 2009 to June 30,
2009. The weekly auctions for Series M and W have all failed during the
fiscal year 2009; consequently, the dividend rate paid on the preferred shares
has moved to the maximum rate as defined in the prospectus. Since mid-February 2008,
holders of actions-rate preferred shares (ARPS) issued by the Fund has been
directly impacted by an unprecedented lack of liquidity, which has similarly
affected ARPS holders in many if the nations closed-end funds. Since then,
regularly scheduled auctions for ARPS issued by the Fund has consistently failed
because of insufficient demand (bids to buy shares) to meet the supply (shares
offered for sale) at each auction. In a repeated auction failures have affected
the liquidity for ARPS, they do not constitute a default or automatically alter
the credit quality of the ARPS, and ARPS holders have continued to receive
dividends at the defined maximum rate. The maximum rate is calculated at 150%
of the reference rates, which is the 7-day AA Financial Composite Commercial
Paper rate for Series M and the 30-day AA Commercial Paper rate for Series W.
These rates are typically higher than the rates that would have otherwise been
set through a successful auction.
The Preferred Shares are redeemable at the
option of the Fund, in whole or in part, on the second business day preceding
any dividend payment date at $25,000 per share plus any accumulated but unpaid
dividends.
The Fund is subject to certain restrictions
relating to the Preferred Stock. The Fund may not declare dividends or make
other distributions on shares of common stock or purchase any such shares if,
at the time of the declaration, distribution or purchase, asset coverage with
respect to the outstanding Preferred Stock would be less than 200%. The
Preferred Stock is also subject to mandatory redemption at $25,000 per share
plus any accumulated or unpaid dividends, whether or not declared, if certain
requirements relating to the composition of the assets and liabilities of the
Fund as set forth in Bylaws are not satisfied.
The Preferred Stock Shareholders are entitled
to one vote per share and generally vote with the common shareholders but vote
separately as a class to elect two directors and on certain matters affecting
the rights of the Preferred Stock. The issuance of Preferred Stock poses
certain risks to holders of common stock, including, among others, the
possibility of greater market price volatility, and in certain market
conditions, the yield to holders of common stock may be adversely affected. The
Fund is required to maintain certain asset coverages with respect to the
Preferred Stock. If the Fund fails to maintain these coverages and does not
cure any such failure within the required time period, the Fund is required to
redeem a requisite number of shares of the Preferred Stock in order to meet the
applicable requirement. The Preferred Stock is otherwise not redeemable by
holders of the shares. Additionally, failure to meet the foregoing asset
coverage requirements would restrict the Funds ability to pay dividends to
common shareholders.
After each auction, the auction agent will pay
to each broker/dealer, from monies the Fund provides, a participation fee. For
the period of the report and for all previous periods since the ARPS have been
outstanding, the participation fee has been paid at the annual rate of 0.25% of
the purchase price of the ARPS that the broker/dealer places at the auction.
However, subsequent to the period of this report, effective on August 3,
2009, Citigroup Global Markets Inc. reduced its participation fee to an annual
rate of 0.05% of the purchase price of the ARPS, in the case of a failed
auction.
7.
Transactions With Affiliates:
The Fund has a management agreement with
Western Asset Management Company (Western Asset). Pursuant to the terms of
the management agreement, the Fund pays Western Asset an annual fee, payable
monthly, in an amount equal to 0.55% of the average weekly value of the Funds
total managed assets. Total managed assets means the total assets of the Fund
(including any assets attributable to leverage) minus accrued liabilities. The
liquidation preference of any Preferred Shares outstanding is not considered a
liability. Pursuant to a Portfolio Management Agreement between Western Asset
and Western Asset Management Company Limited (WAML), Western Asset pays a
portion of the fees it receives from the Fund to WAML at an annual rate of
0.425% of the average weekly value of the Funds total managed assets that WAML
manages. Effective February 3, 2009, Western Asset Management Company Pte.
Ltd. in Singapore
39
|
Semi-Annual Report to Shareholders
|
|
Notes to
Financial StatementsContinued
(Western Singapore) and Western Asset Management
Company Ltd in Japan (Western Japan) became additional subadvisers to the
Fund under portfolio management agreements between Western Asset and Western
Singapore, and Western Asset and Western Japan.
Western Singapore and Western Japan provide
certain subadvisory services to the Fund relating to currency transactions and
investments in non-U.S. dollar-denominated securities and related foreign
currency instruments in Asia (excluding Japan) and Japan, respectively. The
Funds current management fee remains unchanged. WAML will continue to provide
subadvisory services with respect to other aspects of the non-U.S.
dollar-denominated portions of the Funds investment portfolio.
Under the terms of the administration services
agreement among the Fund, Western Asset and Legg Mason Fund Adviser, Inc.
(LMFA), Western Asset pays (not the Fund) LMFA, a monthly fee at an annual
rate of 0.125% of the Funds average weekly total managed assets, subject to a
monthly minimum fee of $12,500.
The Board has approved the substitution of
Legg Mason Partners Funds Advisor, LLC (LMPFA) for LMFA. Effective upon the
substitution, LMPFA will assume the rights and responsibilities of LMFA under
its administrative services agreement. This substitution is expected to occur
in the third quarter of 2009.
LMFA, LMPFA, Western Asset, WAML, Western
Singapore and Western Japan are wholly owned subsidiaries of Legg Mason, Inc.
8.
Trustee Compensation:
Each Independent Trustee receives an aggregate
fee of $70,000 annually for serving on the combined Board of Trustees/Directors
of the Fund, Western Asset Income Fund and Western Asset Funds, Inc. Each
Trustee also receives a fee of $7,500 and related expenses for each meeting of
the Board or of a committee attended in-person and a fee of $2,500 for
participating in each telephonic meeting. The Chairman of the Board and the
Chairman of the Audit Committee each receive an additional $25,000 per year for
serving in such capacities. Each member of the Audit Committee receives a fee
of $6,000 for serving as a member of the Audit Committee. Other committee
members receive a fee of $3,000 for serving as a member of each committee upon which
they serve. All such fees are allocated among the Fund, Western Asset Income
Fund and Western Asset Funds, Inc. according to each such investment
companys annual net assets. Trustee Ronald Olson receives from Western Asset
an aggregate fee of $70,000 annually for serving on the combined Board of
Trustees/Directors of the Fund, Western Asset Income Fund and Western Asset
Funds, Inc., as well as a fee of $7,500 and related expenses for each
meeting of the Board attended in person and a fee of $2,500 for participating
in each telephonic meeting.
9.
Shareholder Meeting Results:
The Funds annual meeting of shareholders was
held on May 27, 2009. Of the 11,539,217 common shares outstanding, the
following shares were voted in the meeting:
|
|
For
|
|
Withheld
|
|
Election
of Trustees:
|
|
|
|
|
|
Ronald J. Arnault
|
|
10,028,865
|
|
243,738
|
|
Anita L. DeFrantz
|
|
10,021,472
|
|
251,131
|
|
William E. B. Siart
|
|
10,031,625
|
|
240,978
|
|
Jaynie Miller Studenmund
|
|
10,017,800
|
|
254,803
|
|
Avedick B. Poladian
|
|
10,015,175
|
|
257,428
|
|
40
|
Semi-Annual Report to Shareholders
|
|
Of the 2,880 preferred shares outstanding, the
following shares were voted in the meeting:
|
|
For
|
|
Withheld
|
|
Election of Trustees:
|
|
|
|
|
|
Ronald J. Arnault
|
|
2,589
|
|
51
|
|
Anita L. DeFrantz
|
|
2,589
|
|
51
|
|
William E.B. Siart
|
|
2,589
|
|
51
|
|
Jaynie Miller Studenmund
|
|
2,589
|
|
51
|
|
Avedick B. Poladian
|
|
2,589
|
|
51
|
|
*R.
Jay Gerken
|
|
2,589
|
|
51
|
|
*Ronald
L. Olson
|
|
2,589
|
|
51
|
|
* Mr. Gerken and Mr. Olson are the
Preferred Trustees elected by a plurality vote of the preferred shares, voting
as a separate class.
41
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
Western Asset Premier Bond Fund
|
|
|
|
The
Board of Trustees
|
Western Asset
Management Company Pte. Ltd.
|
William E. B. Siart,
Chairman
|
1 George Street #23-01
|
R. Jay Gerken
|
Singapore 049145
|
Ronald J. Arnault
|
|
Anita L. DeFrantz
|
Western Asset
Management Company Ltd
|
Ronald L. Olson
|
367 Shin-Marunouchi
Building
|
Avedick B. Poladian
|
5-1 Marunouchi 1-Chrome
Chiyoda-Ku
|
Jaynie Miller
Studenmund
|
Tokyo 100-6536
|
|
|
Officers
|
Custodian
|
R. Jay Gerken,
President
|
State Street Bank and
Trust Company
|
Gavin L. James, Vice
President
|
1 Lincoln Street
|
S. Kenneth Leech, Vice
President
|
Boston, Massachusetts
02111
|
Stephen A. Walsh, Vice
President
|
|
Frances M. Guggino,
Principal Financial and Accounting Officer
|
Counsel
|
Todd F. Kuehl, Chief
Compliance Officer
|
Ropes & Gray
LLP
|
Erin K. Morris,
Treasurer
|
1211 Avenue of the
Americas
|
Robert I. Frenkel,
Secretary and Chief Legal Officer
|
New York, New York
10036
|
|
|
Investment
Advisers
|
Independent
Registered Public Accounting Firm
|
Western Asset
Management Company
|
PricewaterhouseCoopers
LLP
|
385 East Colorado
Boulevard
|
100 East Pratt Street
|
Pasadena, California
91101
|
Baltimore, Maryland
21202
|
|
|
Western Asset
Management Company Limited
|
Transfer
Agent
|
10 Exchange Square
|
American Stock
Transfer & Trust Company LLC
|
London, England EC2A2EN
|
59 Maiden Lane
|
|
New York, New York, 10038
|
Western Asset Premier Bond Fund
WESTERN ASSET PREMIER
BOND FUND
55 Water Street
New York, New York 10041
In
accordance with Section 23(c) of the Investment Company Act of 1940,
the Fund hereby gives notice that it may, from time to time, repurchase its
common shares or preferred shares in the open market at the option of the Board
of Trustees, and on such terms as the Board of Trustees shall determine.
The
Fund files its complete schedule of portfolio holdings with the Securities and
Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The Funds Forms N-Q are available on the SECs website
at www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the SECs
Public Reference Room in Washington D.C., and information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To
obtain information on Form N-Q from the Fund, shareholders can call
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
relating to portfolio transactions are available (1) without charge, upon
request, by calling 1-888-777-0102, (2) on the Funds website at
www.leggmason.com/cef and (3) on the SECs website at www.sec.gov.
This report is transmitted to the
shareholders of Western Asset Premier Bond 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.
AMERICAN STOCK
TRANSFER & TRUST COMPANY
59 Maiden Lane,
New York, New York 10038
LMF-WEA/S(08/09)SR09-892
Item 2.
Code of Ethics.
Not applicable for semi-annual reports.
Item 3.
Audit Committee
Financial Expert.
Not applicable for semi-annual reports.
Item 4.
Principal Accountant
Fees and Services.
Not applicable for semi-annual reports.
Item 5.
Audit Committee of
Listed Registrants.
Not applicable for semi-annual reports.
Item 6.
Schedule of Investments
The schedule of investments in securities of
unaffiliated issuers as of the close of the reporting period is included as
part of the report to shareholders filed under Item 1 of this Form.
Item 7.
Disclosure of Proxy
Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
Item 8.
Portfolio Managers of
Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
Item 9.
Purchases of Equity
Securities by Closed-End Management Investment Companies and Affiliated
Purchasers.
Not applicable.
Item 10.
Submission of Matters to
a Vote of Security Holders.
There
have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrants Board of Directors that have been
implemented since the Registrant last provided disclosure in response to the
requirements of this Item 10.
Item 11.
Controls and Procedures.
(a) The
Registrants principal executive and principal financial officers have
concluded, based on their evaluation of the Registrants disclosure controls
and procedures as of a date within 90 days of the filing date of this report,
that the Registrants disclosure controls and procedures are reasonably
designed to ensure that information required to be disclosed by the Registrant
on Form N-CSR is recorded, processed, summarized and reported within the
required time periods in the SECs rules and forms and that information
required to be disclosed by the Registrant in the reports that it files or
submits on Form N-CSR is accumulated and communicated to the Registrants
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
(b) There
were no changes in the Registrants internal control over financial reporting
during the Registrants second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the Registrants internal control over financial reporting.
Item 12.
Exhibits.
(a) (1)
|
Not applicable for
semi-annual reports.
|
|
|
(a) (2)
|
Certifications pursuant
to Rule 30a-2(a) under the Investment Company Act of 1940 filed
as an exhibit hereto.
|
|
|
(a) (3)
|
Not applicable.
|
|
|
(b)
|
Certifications pursuant
to Rule 30a-2(b) under the Investment Company Act of 1940 filed
as an exhibit hereto.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Western Asset Premier Bond Fund
|
|
|
|
By:
|
/s/ R. Jay Gerken
|
|
|
R. Jay Gerken
|
|
|
President
|
|
|
Western Asset Premier Bond Fund
|
|
|
|
|
Date:
|
August 31, 2009
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates indicated.
By:
|
/s/ R. Jay Gerken
|
|
|
R. Jay Gerken
|
|
|
President
|
|
|
Western Asset Premier Bond Fund
|
|
|
|
|
Date:
|
August 31, 2009
|
|
|
|
|
By:
|
/s/ Frances M. Guggino
|
|
|
Frances M. Guggino
|
|
|
Principal Financial and
Accounting Officer
|
|
|
Western Asset Premier Bond Fund
|
|
|
|
|
Date:
|
August 31, 2009
|
|
Grafico Azioni Western Asset Premier (NYSE:WEA)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Western Asset Premier (NYSE:WEA)
Storico
Da Lug 2023 a Lug 2024