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
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811- 10603
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Western Asset Premier Bond Fund
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(Exact name of registrant as
specified in charter)
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55 Water Street, New York, NY
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10041
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(Address of principal executive
offices)
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(Zip code)
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Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
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(Name and address of agent for
service)
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Registrants telephone number, including
area code:
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(888) 777-0102
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Date of fiscal year end:
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December 31
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Date of reporting period:
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December 31,
2009
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Item 1. Report to Shareholders.
The Annual Report to
Stockholders is filed herewith.
Western Asset Premier Bond Fund
New York Stock Exchange Symbol: WEA
Investment Commentary
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ii
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Managements Discussion of Fund Performance
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1
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Fund Highlights
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3
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Portfolio Diversification
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6
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Portfolio of Investments
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7
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Financial Statements
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28
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Notes to Financial Statements
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32
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Report of Independent Registered Public Accounting Firm
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45
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Important Tax Information
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46
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Trustees and Officers
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47
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Board Consideration of the Investment Advisory and Subadvisory
Agreement
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51
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For more information, visit us on
the web
at www.leggmason.com/cef.
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Annual Report to
Shareholders
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Investment Commentary (unaudited)
Western Asset Premier Bond Fund
Financial Market
Overview
While 2008 was characterized
by upheaval in the financial markets, periods of extreme volatility,
illiquidity and heightened risk aversion, 2009 was largely a return to more
normal conditions and increased investor risk appetite.
Looking back at the tail end
of 2008, investors fled fixed-income securities that were seen as being risky
and flocked to the relative safety of short-term Treasuries, driving the latters
prices higher and their yields to historically low levels. In contrast,
non-Treasury spreads widened to historically wide levels in some cases, as the
market priced in worst-case scenarios. This caused nearly every spread sector
to lag equal-duration
i
Treasuries
during the year. While this trend continued in early 2009, some encouraging
economic data and a thawing of the once frozen credit markets helped bolster
investor confidence.
In a stunning turnaround, by
the end of the first quarter of 2009, risk aversion had been replaced by robust
demand for riskier, and higher-yielding, fixed-income securities. Despite some
temporary setbacks, riskier assets continued to perform well during the
remainder of the year. Looking at 2009 as a whole, every spread sector
outperformed equal-duration Treasuries.
While economic news often
surprised on the upside during 2009, incoming economic data did not suggest a
dramatic rebound in growth in 2010. As such, the Federal Reserve Board (Fed)
ii
continued its
accommodative monetary policy during 2009. The Fed met eight times in 2009 and,
on each occasion, kept the federal funds rate
iii
in a range of 0 to 1/4 percent. This
trend continued at the Feds meeting in January 2010. At that time, the
Fed said 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,
including low rates of resource utilization, subdued inflation trends, and
stable inflation expectations, are likely to warrant exceptionally low levels
of the federal funds rate for an extended period.
Economic Review
While the U.S. economy was
weak during the first half of the twelve-month reporting period ended December 31,
2009, the lengthiest recession since the Great Depression finally appeared to
have ended during the second half of the year.
Looking back, the U.S.
Department of Commerce reported that first quarter 2009 U.S. gross domestic product
(GDP)
iv
contracted
6.4%. The economic environment then started to get relatively better during the
second quarter, as GDP fell 0.7%. The economys more modest contraction was
due, in part, to smaller declines in both exports and business spending. After
contracting four consecutive quarters, the Commerce Department reported that
third quarter 2009 GDP growth was 2.2%. A variety of factors helped the economy
to expand, including the governments $787 billion stimulus program, its Cash
for Clunkers car rebate program, which helped spur an increase in car sales,
and tax credits for first-time home buyers. Economic growth then accelerated
during the fourth quarter of 2009, as the advance estimate for GDP growth was
5.7%. The Commerce Department cited a slower drawdown in business inventories
and consumer spending as contributing factors spurring the economys higher
growth rate.
Even before GDP advanced in
the third quarter, there were signs that the economy was starting to regain its
footing. The manufacturing sector, as measured by the Institute for Supply
Managements PMI
v
, rose to 52.9
in August 2009, the first time it surpassed 50 since January 2008 (a
reading below 50 indicates a contraction, whereas a reading above 50 indicates
an expansion). PMI data subsequently showed that manufacturing expanded from September through
December as well. In addition, Decembers PMI reading of 55.9 was the
highest since April 2006.
There were some mixed signals
from the housing market toward the end of the reporting period. According to
its most recent data, the S&P/Case-Shiller Home Price Index
vi
indicated that
month-over-month home prices rose for the sixth straight month in November.
However, according to the National Association of Realtors, while existing home
sales rose 7.4% in November, sales fell by nearly 17% in December.
ii
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Annual Report to
Shareholders
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One area that remained
weakand could hamper the magnitude of economic recoverywas the labor market.
While monthly job losses have moderated compared to earlier in the year, the
unemployment rate remained elevated during the reporting period. After reaching
a twenty-six-year high of 10.1% in October 2009, the unemployment rate
fell to 10.0% in November and remained unchanged the following month.
Since December 2007, the unemployment rate has more than doubled and the
number of unemployed workers has risen by more than eight million.
Market Review
Both short- and long-term
Treasury yields fluctuated during the reporting period. When the period began,
Treasury yields were extremely low, given numerous flights to quality that
were triggered by the fallout from the financial crisis in 2008. After starting
the period at 0.76% and 2.25%, respectively, two- and ten-year Treasury yields
then 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 reporting period at 1.14% and 3.85%, respectively. Over the twelve
months ended December 31, 2009, longer-term yields moved higher than their
shorter-term counterparts as economic data improved and there were concerns
regarding future inflation given the governments massive stimulus program. In
a reversal from 2008, investor risk aversion faded during the twelve-month
reporting period, driving spread sector (non-Treasury) prices higher. For the
twelve months ended December 31, 2009, the Barclays Capital U.S. Aggregate
Index
vii
returned
5.93%.
During the reporting period,
there was a shift in terms of expectations for inflation. Fears of inflation
had increased in mid-2008 (before the reporting period began). This was, in
part, due to sharply rising oil prices, which peaked at $145 a barrel in July 2008.
Fears of inflation were then replaced with fears of deflation, as global
economic conditions weakened and the financial crisis took hold in the fall of
2008. By the end of 2008, oil prices had fallen to $45 a barrel as demand waned
and oil reserves moved higher. While inflation, as measured by the Consumer
Price Index for All Urban Consumers (CPI-U)
viii
, was 2.7% during the twelve-month period
ended December 31, 2009, there were fears of higher inflation in the
future. This was due to central banks accommodative monetary policies, signs
that the global economy was recovering and rising oil prices, which hit $79 a
barrel in December 2009. Inflation expectations led to increased demand
for U.S. Treasury Inflation-Protected Securities (TIPS)
ix
, and the Barclays Capital
Global Real Index: U.S. TIPS
x
gained 11.41% during the twelve months ended December 31,
2009.
The investment grade bond
market generated solid results during the reporting period. Spreads on these
securities had moved to extremely wide levels in late 2008, as the weakening
economy and credit crunch triggered fears of escalating default rates.
Investment grade bond spreads then significantly narrowed in 2009, as the
economic environment improved and corporate profits were often better than
expected. All told, the investment grade bond asset class, as measured by the
Barclays Capital U.S. Credit Index
xi
, returned 16.04% during the twelve-month period
ended December 31, 2009.
In the mortgage-backed
securities market, both agency and non-agency issues did well during the year.
Agencies were supported by the governments purchase programs of these
securities as they sought to keep long-term interest rates low in an attempt to
revive the housing market. The non-agency sector improved, particularly later
in the year, as housing data stabilized and there was positive sentiment
surrounding the launch of the Public-Private Investment Program (PPIP).
The high-yield bond market
produced very strong results during the twelve months ended December 31,
2009. In sharp contrast to its poor results in 2008, the asset class posted
positive returns during eleven of the twelve months of the reporting period.
This strong rally was due to a variety of factors, including the unfreezing of
the credit markets, improving economic data and strong investor demand. All
told, the Barclays Capital U.S. Corporate High Yield 2% Issuer Cap Index
xii
returned 58.76% for the
twelve months ended December 31, 2009.
Emerging market debt prices
rallied sharplyposting positive returns during every month but February of
2009. This rally was triggered by rising commodity prices, optimism that the
worst of the global recession was over and increased investor risk appetite.
Over the twelve months ended December 31, 2009, the JPMorgan Emerging
Markets Bond Index Global (EMBI Global)
xiii
returned 28.18%.
iii
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Annual Report to
Shareholders
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Investment Commentary (unaudited)Continued
Market Outlook
Some economists have floated
the notion of a double-dip economic recession because of the expiration of
various fiscal and monetary stimulus programs. However, we believe this
economic phenomenon seems unlikely. As long as the Fed maintains the current
low rate environment, which we believe it will, access to credit should remain
sufficient. Given the elevated levels of unemployment, the recent dip in
jobless claims is a positive sign that the labor market is stabilizing. The
financial market is focused on consumer spending, but we believe more sustained
gains in capital expenditures and exports will be key to the U.S. recovery.
We believe that the Fed is
likely to keep the federal funds rate anchored at 0 to 1/4 percent in the near
future. A large concern the Fed now faces is excess bank reserves. Government
support from the Troubled Asset Relief Program (TARP) and the Feds various
special liquidity programs helped banks restore their balance sheets, but banks
then held on to reserves in excess of their capital requirements. As the
recovery accelerates, banks may quickly reduce these excess reserves by
extending credit. We believe increased lending should stimulate economic
activity but, in doing so, might also contribute to inflationary pressures.
Therefore, as the Fed manages the level of bank reserves, in our opinion, it
must be careful not to inhibit economic growth and increase inflation. As long
as the economic recovery is still in its infancy, we believe the Fed should
continue its current policies.
Although the labor market is
stabilizing, the declining trend in jobless claims reflects a drop-off in
layoffs rather than an increase in hires. For unemployment to truly decline, we
will need to see specific types of job growth. We believe the source of new job
growth will probably have to come from the service sector, as the housing
market remains weak and is unlikely to contribute significant new jobs any time
soon. The recent increase in industrial production and capacity utilization
indicates that factory-related jobs could increase in the coming year.
Despite an uptick in consumer
spending in November, most likely due to the holidays, we think consumers will
likely continue to demonstrate a more conservative mindset with increased
savings and less consumption. Businesses, especially those that are export-oriented,
should benefit from a lower U.S. dollar and increased future spending.
Corporate profits in the fourth quarter of 2009 showed improvement, leading to
a better outlook for the business sector compared to a year ago. Therefore, we
think that businesses, rather than consumers, are likely to be the primary
contributors to future economic growth. Considering current Fed policies, the
likelihood of moderate inflation in the months ahead, a stabilizing labor
market and an improved business climate, we find fears of a double-dip
recession to be exaggerated.
Western Asset Management Company
January 29, 2010
iv
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Annual Report to
Shareholders
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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.
All
investments are subject to risk including loss of principal. All index
performance reflects no deduction for fees, expenses or taxes. Please note that
an investor cannot invest directly in an index.
i
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Duration is the measure of the
price sensitivity of a fixed-income security to an interest rate change of
100 basis points. Calculation is based on the weighted average of the present
values for all cash flows.
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ii
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The Federal Reserve Board (Fed)
is responsible for the formulation of policies designed to promote economic
growth, full employment, stable prices and a sustainable pattern of
international trade and payments.
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iii
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The federal funds rate is the
rate charged by one depository institution on an overnight sale of
immediately available funds (balances at the Federal Reserve) to another
depository institution; the rate may vary from depository institution to
depository institution and from day to day.
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iv
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Gross domestic product (GDP) is
the market value of all final goods and services produced within a country in
a given period of time.
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v
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The Institute for Supply
Managements PMI is based on a survey of purchasing executives who buy the
raw materials for manufacturing at more than 350 companies. It offers an
early reading on the health of the manufacturing sector.
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vi
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The S&P/Case-Shiller Home
Price Index measures the residential housing market, tracking changes in the
value of the residential real estate market in twenty metropolitan regions
across the United States.
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vii
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The Barclays Capital U.S.
Aggregate Index is a broad-based bond index comprised of government,
corporate, mortgage- and asset-backed issues, rated investment grade or
higher, and having at least one year to maturity.
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viii
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The Consumer Price Index for All
Urban Consumers (CPI-U) is a measure of the average change in prices over
time of goods and services purchased by households, which covers
approximately 87% of the total population and includes, in addition to wage
earners and clerical worker households, groups such as professional,
managerial and technical workers, the self-employed, short-term workers, the
unemployed and retirees and others not in the labor force.
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ix
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U.S. Treasury Inflation-Protected
Securities (TIPS) are inflation-indexed securities issued by the U.S.
Treasury in five-year, ten-year and twenty-year maturities. The principal is
adjusted to the Consumer Price Index, the commonly used measure of inflation.
The coupon rate is constant, but generates a different amount of interest
when multiplied by the inflation-adjusted principal.
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x
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The Barclays Capital Global
Index: U.S. TIPS represents an unmanaged market index made up of U.S.
Treasury Inflation-Linked Index securities.
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xi
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The Barclays Capital U.S. Credit
Index is an index composed of corporate and non-corporate debt issues that
are investment grade (rated Baa3/BBB- or higher).
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xii
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The Barclays Capital 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.
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xiii
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The
JPMorgan Emerging Markets Bond Index Global (EMBI Global) tracks total
returns for U.S. dollar-denominated debt instruments issued by emerging
market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds
and local market instruments.
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v
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Annual Report to
Shareholders
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Managements
Discussion of Fund Performance
Performance
Review
For the twelve months ended December 31,
2009, Western Asset Premier Bond Fund returned 60.98% based on its net asset
value (NAV)
i
and 68.84% 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
ii
and the
Barclays Capital U.S. Credit Index
iii
, returned 58.21% and 16.04%, respectively,
over the same time frame. The Lipper Corporate Debt Closed-End Funds BBB-Rated
Category Average
iv
returned 28.22% for the same period. Please
note that Lipper performance returns are based on each funds NAV.
During the twelve-month period, the Fund made
distributions to shareholders totaling $1.28 per share. The performance table
shows the Funds twelve-month total return based on its NAV and market price as
of December 31, 2009.
Past performance
is no guarantee of future results.
PERFORMANCE
SNAPSHOT
as of December 31, 2009
PRICE PER SHARE
|
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12-MONTH
TOTAL RETURN
*
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$12.39
(NAV)
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60.98%
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$13.36
(Market Price)
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68.84%
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All figures represent past
performance and are not a guarantee of future results.
* Total returns are based on changes in NAV or market price,
respectively. Total returns assume the reinvestment of all distributions in
additional shares.
The largest contributor to the Funds
performance for the period was its exposure to the high-yield sector,
particularly in Consumer Cyclicals
1
, Communications
2
and Consumer
Noncyclicals
3
. The Funds
best performing high-yield holding was
Ford
Motor Credit Co.
, as its spread tightened from its elevated level in
2008 and early 2009. Our exposure to investment grade bonds was also rewarded.
In particular, our Airlines holdings, including
Continental Airlines Inc., Northwest Airlines
and
American West Airlines Inc.
, boosted the
Funds return.
Our exposure to non-agency mortgage-backed
securities (MBS) was another meaningful contributor to performance. The asset
class generated strong results as liquidity improved in the market due to the
positive sentiment surrounding the launch of the Public-Private Investment
Program (PPIP). In addition, investors were attracted to this area of the
market given signs of improvement in housing data. The use of leverage was also
beneficial, as it served to magnify the Funds positive underlying returns and
helped to generate additional income.
Marginally offsetting these strong results
were several corporate holdings whose issuers filed for bankruptcy protection
in 2009. These included
Georgia Gulf Corp.
,
a North American polyvinyl chloride producer, and
Nortek Inc.
, a manufacturer of residential and commercial
heating, ventilation and air conditioning and other home-related products.
Georgia Gulfs use of leverage was too high and unsustainable given the
weakness in the economy. Nortek was negatively impacted by the weak economy and
the downturn in the housing market.
We made several adjustments to the portfolio
during the twelve-month reporting period. We added to the portfolios exposure
to non-agency MBS as we found them to be attractively valued. In contrast, we
reduced our exposure to investment grade bonds given the substantial narrowing
of their spreads.
1
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Consumer Cyclicals consists of the following
industries: Automotive, Entertainment, Gaming, Home Construction, Lodging,
Retailers, Restaurants, Textiles and other consumer services.
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2
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Communications consists of the following industries:
Media - Cable, Media - Non-Cable and Telecommunications.
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3
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Consumer Noncyclicals consists of
the following industries: Consumer Products, Food/Beverage, Health Care,
Pharmaceuticals, Supermarkets and Tobacco.
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1
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Annual Report to
Shareholders
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Managements
Discussion of Fund PerformanceContinued
During the reporting period, the Fund held
credit default swaps to gain exposure to select individual high-yield companies
and the overall high-yield market. In addition, the swaps we held during the
period allowed us to gain exposure to the subprime component of the non-agency
MBS market. Within the residential MBS market, swaps were also utilized to
hedge our exposure to individual non-agency MBS. Overall, the use of these
derivative instruments detracted from performance.
Western
Asset Management Company
January 19,
2010
The
information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio
holdings and breakdowns are as of December 31, 2009 and are subject to
change and may not be representative of the portfolio managers current or
future investments. Please refer to pages 7 through 27 for a list and
percentage breakdown of the Funds holdings.
The mention
of sector breakdowns is for informational purposes only and should not be
construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon
which to make an investment decision. Investors seeking financial advice
regarding the appropriateness of investing in any securities or investment
strategies discussed should consult their financial professional. The Funds
top five sector holdings (as a percentage of net assets) as of December 31,
2009 were: Corporate Bonds and Notes (64.3%), Mortgage-Backed Securities
(36.0%), Asset-Backed Securities (26.3%), Yankee Bonds (7.4%) and Repurchase
Agreement (4.5%). The Funds portfolio composition is subject to change at any
time.
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.
All index
performance reflects no deduction for fees, expenses or taxes. Please note that
an investor cannot invest directly in an index.
i
|
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.
|
ii
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The Barclays Capital 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.
|
iii
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The Barclays Capital U.S. Credit Index is an index
composed of corporate and non-corporate debt issues that are investment grade
(rated Baa3/BBB- or higher).
|
iv
|
Lipper, Inc., a wholly-owned
subsidiary of Reuters, provides independent insight on global collective
investments. Returns are based on the twelve-month period ended
December 31, 2009, including the reinvestment of all distributions,
including returns of capital, if any, calculated among the 21 funds in the
Funds Lipper category.
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2
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Annual Report to
Shareholders
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Fund
Highlights
|
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December 31,
|
|
|
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2009
|
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2008
|
|
Net Asset Value
|
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$143,858,719
|
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$100,102,064
|
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Per Share
|
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$12.39
|
|
$8.72
|
|
Market Value Per Share
|
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$13.36
|
|
$8.90
|
|
Net Investment Income
|
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$18,942,993
|
|
$16,751,431
|
|
Per Common Share
|
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$1.64
|
|
$1.46
|
|
Dividends Paid to Common Shareholders:
|
|
|
|
|
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Ordinary Income
|
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$14,754,747
|
|
$12,090,786
|
|
Per Common Share
|
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$1.28
|
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$1.05
|
|
Long-Term Capital Gains
|
|
|
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$1,121,178
|
|
Per Common Share
|
|
|
|
$0.10
|
|
Dividends Paid to Preferred Shareholders:
|
|
|
|
|
|
Ordinary Income
|
|
$266,195
|
|
$2,236,599
|
|
Per Common Share
|
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$0.02
|
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$0.19
|
|
Long-Term Capital Gains
|
|
|
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$238,432
|
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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.
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
3
|
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.
Annual
Certifications
In May 2009, the Fund submitted its
annual Chief Executive Officer certification to the NYSE in which the Funds
principal executive officer certified that he was not aware, as of the date of
the certification, of any violation by the Fund of the NYSEs Corporate
Governance listing standards. In addition, as required by Section 302 of
the Sarbanes-Oxley Act of 2002 and related SEC rules, the Funds principal
executive and principal financial officers have made quarterly certifications,
included in filings with the SEC on Forms N-CSR and N-Q, relating to, among
other things, the Funds disclosure controls and procedures and internal control
over financial reporting.
4
|
Annual Report to
Shareholders
|
|
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)
|
|
March 31, 2009
|
|
$ 9.10
|
|
$ 8.44
|
|
7.82%
|
|
37,089
|
|
June 30, 2009
|
|
11.45
|
|
10.13
|
|
13.03
|
|
32,450
|
|
September 30, 2009
|
|
13.02
|
|
11.76
|
|
10.71
|
|
25,709
|
|
December 31, 2009
|
|
13.36
|
|
12.39
|
|
7.83
|
|
39,666
|
|
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.
5
|
Annual Report to
Shareholders
|
|
Portfolio
Diversification
December 31,
2009
A
The pie and bar charts above represent the
composition of the Funds portfolio as of December 31, 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.
6
|
Annual Report to
Shareholders
|
|
Portfolio
of Investments
December 31,
2009
Western Asset Premier
Bond Fund
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Long-Term Securities
|
|
141.6
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds and Notes
|
|
64.3
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
2.0
%
|
|
|
|
|
|
|
|
|
|
L-3 Communications Corp.
|
|
|
|
6.375
%
|
|
10/15/15
|
|
$
|
535,000
|
|
$
|
537,006
|
|
Northrop Grumman Corp.
|
|
|
|
7.750
%
|
|
2/15/31
|
|
1,000,000
|
|
1,235,542
|
|
The Boeing Co.
|
|
|
|
6.125
%
|
|
2/15/33
|
|
600,000
|
|
623,047
|
|
TransDigm Inc.
|
|
|
|
7.750
%
|
|
7/15/14
|
|
405,000
|
|
411,075
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,806,670
|
|
Airlines
|
|
9.2
%
|
|
|
|
|
|
|
|
|
|
America West Airlines Inc.
|
|
|
|
8.057
%
|
|
7/2/20
|
|
2,577,779
|
|
2,320,002
|
|
Continental Airlines Inc.
|
|
|
|
7.160
%
|
|
9/24/14
|
|
577,647
|
|
555,986
|
|
Continental Airlines Inc.
|
|
|
|
6.900
%
|
|
1/2/18
|
|
931,816
|
|
901,532
|
|
Continental Airlines Inc.
|
|
|
|
6.820
%
|
|
5/1/18
|
|
913,728
|
|
831,492
|
|
Continental Airlines Inc.
|
|
|
|
6.545
%
|
|
2/2/19
|
|
1,435,863
|
|
1,407,146
|
|
Continental Airlines Inc.
|
|
|
|
8.048
%
|
|
11/1/20
|
|
620,188
|
|
609,335
|
|
Continental Airlines Inc.
|
|
|
|
6.703
%
|
|
6/15/21
|
|
749,748
|
|
697,266
|
|
DAE Aviation Holdings Inc.
|
|
|
|
11.250
%
|
|
8/1/15
|
|
460,000
|
|
388,700
|
A
|
Delta Air Lines Inc.
|
|
|
|
9.500
%
|
|
9/15/14
|
|
75,000
|
|
77,906
|
A
|
Delta Air Lines Inc.
|
|
|
|
12.250
%
|
|
3/15/15
|
|
80,000
|
|
80,000
|
A
|
Northwest Airlines Corp.
|
|
|
|
7.575
%
|
|
9/1/20
|
|
586,536
|
|
527,882
|
|
Northwest Airlines Inc.
|
|
|
|
0.758
%
|
|
2/6/15
|
|
2,899,994
|
|
2,522,995
|
B
|
United Air Lines Inc.
|
|
|
|
7.032
%
|
|
10/1/10
|
|
19,228
|
|
19,228
|
|
United Air Lines Inc.
|
|
|
|
7.186
%
|
|
4/1/11
|
|
4,042
|
|
4,062
|
|
US Airways Pass-Through Trust
|
|
|
|
6.850
%
|
|
1/30/18
|
|
2,824,448
|
|
2,316,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,259,579
|
|
Auto Components
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Visteon Corp.
|
|
|
|
8.250
%
|
|
8/1/10
|
|
42,000
|
|
11,025
|
C
|
Visteon Corp.
|
|
|
|
12.250
%
|
|
12/31/16
|
|
136,000
|
|
57,120
|
A,C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,145
|
|
Automobiles
|
|
1.6
%
|
|
|
|
|
|
|
|
|
|
DaimlerChrysler NA Holding Corp.
|
|
|
|
7.300
%
|
|
1/15/12
|
|
1,000,000
|
|
1,087,142
|
|
DaimlerChrysler NA Holding Corp.
|
|
|
|
8.500
%
|
|
1/18/31
|
|
1,000,000
|
|
1,228,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,315,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Biotechnology
|
|
0.1
%
|
|
|
|
|
|
|
|
|
|
Talecris Biotherapeutics Holdings Corp.
|
|
|
|
7.750
%
|
|
11/15/16
|
|
90,000
|
|
91,350
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Building Products
|
|
0.4%
|
|
|
|
|
|
|
|
|
|
Associated Materials Inc.
|
|
|
|
11.250%
|
|
3/1/14
|
|
$
|
590,000
|
|
$
|
569,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Markets
|
|
1.4%
|
|
|
|
|
|
|
|
|
|
Morgan Stanley
|
|
|
|
6.600%
|
|
4/1/12
|
|
1,000,000
|
|
1,087,994
|
|
The Goldman Sachs Group Inc.
|
|
|
|
6.600%
|
|
1/15/12
|
|
900,000
|
|
978,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,066,419
|
|
Chemicals
|
|
0.9%
|
|
|
|
|
|
|
|
|
|
Terra Capital Inc.
|
|
|
|
7.750%
|
|
11/1/19
|
|
90,000
|
|
96,300
|
A
|
The Dow Chemical Co.
|
|
|
|
6.000%
|
|
10/1/12
|
|
1,000,000
|
|
1,075,707
|
|
Westlake Chemical Corp.
|
|
|
|
6.625%
|
|
1/15/16
|
|
70,000
|
|
66,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,238,944
|
|
Commercial Services and Supplies
|
|
0.6%
|
|
|
|
|
|
|
|
|
|
ACCO Brands Corp.
|
|
|
|
10.625%
|
|
3/15/15
|
|
195,000
|
|
214,500
|
A
|
RCS Equipment Rental Inc.
|
|
|
|
9.500%
|
|
12/1/14
|
|
300,000
|
|
300,375
|
|
US Investigations Services Inc.
|
|
|
|
10.500%
|
|
11/1/15
|
|
310,000
|
|
276,675
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
791,550
|
|
Communications Equipment
|
|
0.5%
|
|
|
|
|
|
|
|
|
|
EchoStar DBS Corp.
|
|
|
|
7.000%
|
|
10/1/13
|
|
600,000
|
|
617,250
|
|
EchoStar DBS Corp.
|
|
|
|
7.750%
|
|
5/31/15
|
|
120,000
|
|
125,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
742,950
|
|
Construction Materials
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
Headwaters Inc.
|
|
|
|
11.375%
|
|
11/1/14
|
|
90,000
|
|
93,825
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Finance
|
|
2.7%
|
|
|
|
|
|
|
|
|
|
Ford Motor Credit Co.
|
|
|
|
7.500%
|
|
8/1/12
|
|
70,000
|
|
70,592
|
|
Ford Motor Credit Co.
|
|
|
|
12.000%
|
|
5/15/15
|
|
1,030,000
|
|
1,194,417
|
|
Ford Motor Credit Co.
|
|
|
|
8.000%
|
|
12/15/16
|
|
680,000
|
|
680,904
|
|
GMAC LLC
|
|
|
|
6.875%
|
|
8/28/12
|
|
94,000
|
|
92,120
|
A
|
GMAC LLC
|
|
|
|
8.000%
|
|
11/1/31
|
|
939,000
|
|
845,100
|
A
|
SLM Corp.
|
|
|
|
0.442%
|
|
7/26/10
|
|
1,020,000
|
|
998,255
|
B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,881,388
|
|
Distributors
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
Keystone Automotive Operations Inc.
|
|
|
|
9.750%
|
|
11/1/13
|
|
250,000
|
|
107,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Consumer Services
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Service Corp. International
|
|
|
|
7.625%
|
|
10/1/18
|
|
5,000
|
|
4,950
|
|
Service Corp. International
|
|
|
|
7.500%
|
|
4/1/27
|
|
60,000
|
|
53,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
Annual Report to Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services
|
|
4.9
%
|
|
|
|
|
|
|
|
|
|
AAC Group Holding Corp.
|
|
|
|
10.250
|
%
|
|
10/1/12
|
|
$
|
440,000
|
|
$
|
441,100
|
A
|
Air 2 US
|
|
|
|
8.027
|
%
|
|
10/1/19
|
|
420,153
|
|
362,119
|
A
|
CCM Merger Inc.
|
|
|
|
8.000
|
%
|
|
8/1/13
|
|
140,000
|
|
113,575
|
A
|
Citigroup Inc.
|
|
|
|
6.625
|
%
|
|
6/15/32
|
|
1,000,000
|
|
909,359
|
|
DI Finance LLC
|
|
|
|
9.500
|
%
|
|
2/15/13
|
|
362,000
|
|
366,525
|
|
HSBC Finance Corp.
|
|
|
|
4.750
|
%
|
|
7/15/13
|
|
1,670,000
|
|
1,738,874
|
|
JPMorgan Chase and Co.
|
|
|
|
5.125
|
%
|
|
9/15/14
|
|
1,300,000
|
|
1,371,192
|
|
Liberty Media LLC
|
|
|
|
3.750
|
%
|
|
2/15/30
|
|
1,860,000
|
|
930,000
|
D
|
TNK-BP Finance SA
|
|
|
|
7.875
|
%
|
|
3/13/18
|
|
220,000
|
|
226,050
|
A
|
UPC Germany GmbH
|
|
|
|
8.125
|
%
|
|
12/1/17
|
|
100,000
|
|
101,125
|
A
|
Vanguard Health Holding Co. II LLC
|
|
|
|
9.000
|
%
|
|
10/1/14
|
|
535,000
|
|
554,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,114,313
|
|
Diversified Telecommunication
Services
|
|
1.6
%
|
|
|
|
|
|
|
|
|
|
|
Cincinnati Bell Inc.
|
|
|
|
6.300
|
%
|
|
12/1/28
|
|
25,000
|
|
19,500
|
|
Hawaiian Telcom Communications Inc.
|
|
|
|
12.500
|
%
|
|
5/1/15
|
|
135,000
|
|
14
|
C,E
|
Intelsat Corp.
|
|
|
|
9.250
|
%
|
|
8/15/14
|
|
140,000
|
|
143,850
|
|
Level 3 Financing Inc.
|
|
|
|
9.250
|
%
|
|
11/1/14
|
|
660,000
|
|
623,700
|
|
Qwest Communications International Inc.
|
|
|
|
7.250
|
%
|
|
2/15/11
|
|
160,000
|
|
160,800
|
|
Qwest Communications International Inc.
|
|
|
|
7.500
|
%
|
|
2/15/14
|
|
140,000
|
|
140,525
|
|
Qwest Corp.
|
|
|
|
7.875
|
%
|
|
9/1/11
|
|
390,000
|
|
408,525
|
|
Qwest Corp.
|
|
|
|
7.500
|
%
|
|
10/1/14
|
|
150,000
|
|
155,812
|
|
Windstream Corp.
|
|
|
|
8.625
|
%
|
|
8/1/16
|
|
635,000
|
|
646,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,298,838
|
|
Electric Utilities
|
|
3.7
%
|
|
|
|
|
|
|
|
|
|
|
Duke Energy Corp.
|
|
|
|
6.250
|
%
|
|
1/15/12
|
|
250,000
|
|
270,281
|
|
Energy Future Holdings Corp.
|
|
|
|
11.250
|
%
|
|
11/1/17
|
|
1,775,288
|
|
1,256,016
|
F
|
FirstEnergy Corp.
|
|
|
|
6.450
|
%
|
|
11/15/11
|
|
27,000
|
|
28,951
|
|
FirstEnergy Corp.
|
|
|
|
7.375
|
%
|
|
11/15/31
|
|
3,040,000
|
|
3,295,062
|
|
MidAmerican Energy Holdings Co.
|
|
|
|
5.875
|
%
|
|
10/1/12
|
|
250,000
|
|
272,273
|
|
Orion Power Holdings Inc.
|
|
|
|
12.000
|
%
|
|
5/1/10
|
|
150,000
|
|
153,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,276,333
|
|
Energy Equipment and Services
|
|
1.4
%
|
|
|
|
|
|
|
|
|
|
|
Complete Production Services Inc.
|
|
|
|
8.000
|
%
|
|
12/15/16
|
|
150,000
|
|
147,937
|
|
EEB International Ltd.
|
|
|
|
8.750
|
%
|
|
10/31/14
|
|
820,000
|
|
885,600
|
A
|
Gulfmark Offshore Inc.
|
|
|
|
7.750
|
%
|
|
7/15/14
|
|
270,000
|
|
268,650
|
|
Hercules Offshore LLC
|
|
|
|
10.500
|
%
|
|
10/15/17
|
|
155,000
|
|
163,525
|
A
|
Parker Drilling Co.
|
|
|
|
9.625
|
%
|
|
10/1/13
|
|
300,000
|
|
308,250
|
|
Pride International Inc.
|
|
|
|
7.375
|
%
|
|
7/15/14
|
|
240,000
|
|
247,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,021,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Food and Staples Retailing
|
|
5.6%
|
|
|
|
|
|
|
|
|
|
|
CVS Corp.
|
|
|
|
9.350
|
%
|
|
1/10/23
|
|
$
|
700,000
|
|
$
|
682,087
|
A,E
|
CVS Corp.
|
|
|
|
5.789
|
%
|
|
1/10/26
|
|
836,645
|
|
773,596
|
A
|
CVS Lease Pass-Through Trust
|
|
|
|
5.880
|
%
|
|
1/10/28
|
|
939,032
|
|
878,502
|
|
CVS Lease Pass-Through Trust
|
|
|
|
6.036
|
%
|
|
12/10/28
|
|
928,067
|
|
878,267
|
|
CVS Pass-Through Trust
|
|
|
|
6.943
|
%
|
|
1/10/30
|
|
1,921,563
|
|
1,931,652
|
|
CVS Pass-Through Trust
|
|
|
|
7.507
|
%
|
|
1/10/32
|
|
2,000,000
|
|
2,094,980
|
A
|
Delhaize America Inc.
|
|
|
|
9.000
|
%
|
|
4/15/31
|
|
166,000
|
|
212,530
|
|
Safeway Inc.
|
|
|
|
5.800
|
%
|
|
8/15/12
|
|
500,000
|
|
540,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,991,636
|
|
Food Products
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
Dole Food Co. Inc.
|
|
|
|
8.000
|
%
|
|
10/1/16
|
|
80,000
|
|
81,200
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Utilities
|
|
0.4%
|
|
|
|
|
|
|
|
|
|
|
Southern Natural Gas Co.
|
|
|
|
8.000
|
%
|
|
3/1/32
|
|
20,000
|
|
22,999
|
|
Suburban Propane Partners LP
|
|
|
|
6.875
|
%
|
|
12/15/13
|
|
580,000
|
|
580,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602,999
|
|
Health Care Providers and
Services
|
|
1.4%
|
|
|
|
|
|
|
|
|
|
|
Community Health Systems Inc.
|
|
|
|
8.875
|
%
|
|
7/15/15
|
|
200,000
|
|
207,000
|
|
DaVita Inc.
|
|
|
|
7.250
|
%
|
|
3/15/15
|
|
260,000
|
|
260,650
|
|
HCA Inc.
|
|
|
|
6.250
|
%
|
|
2/15/13
|
|
85,000
|
|
82,663
|
|
HCA Inc.
|
|
|
|
6.375
|
%
|
|
1/15/15
|
|
430,000
|
|
405,813
|
|
HCA Inc.
|
|
|
|
9.250
|
%
|
|
11/15/16
|
|
195,000
|
|
209,381
|
|
HCA Inc.
|
|
|
|
9.625
|
%
|
|
11/15/16
|
|
399,000
|
|
431,917
|
F
|
HCA Inc.
|
|
|
|
7.690
|
%
|
|
6/15/25
|
|
90,000
|
|
82,413
|
|
HCA Inc.
|
|
|
|
7.500
|
%
|
|
11/15/95
|
|
185,000
|
|
146,172
|
|
U.S. Oncology Holdings Inc.
|
|
|
|
7.178
|
%
|
|
3/15/12
|
|
275,000
|
|
257,125
|
B,F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,083,134
|
|
Hotels, Restaurants and Leisure
|
|
1.2%
|
|
|
|
|
|
|
|
|
|
|
Dennys Holdings Inc.
|
|
|
|
10.000
|
%
|
|
10/1/12
|
|
90,000
|
|
92,025
|
|
El Pollo Loco Inc.
|
|
|
|
11.750
|
%
|
|
11/15/13
|
|
395,000
|
|
359,450
|
|
Harrahs Operating Co. Inc.
|
|
|
|
10.750
|
%
|
|
2/1/16
|
|
300,000
|
|
244,500
|
|
Inn of the Mountain Gods Resort and Casino
|
|
|
|
12.000
|
%
|
|
11/15/10
|
|
530,000
|
|
219,288
|
C,E
|
Landrys Restaurants Inc.
|
|
|
|
11.625
|
%
|
|
12/1/15
|
|
110,000
|
|
116,600
|
A
|
MGM MIRAGE
|
|
|
|
11.375
|
%
|
|
3/1/18
|
|
175,000
|
|
156,625
|
A
|
Mohegan Tribal Gaming Authority
|
|
|
|
11.500
|
%
|
|
11/1/17
|
|
170,000
|
|
173,400
|
A
|
River Rock Entertainment Authority
|
|
|
|
9.750
|
%
|
|
11/1/11
|
|
180,000
|
|
169,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
Annual Report to Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants and
LeisureContinued
|
|
|
|
|
|
|
|
|
|
|
|
Sbarro Inc.
|
|
|
|
10.375
|
%
|
|
2/1/15
|
|
$
|
90,000
|
|
$
|
70,650
|
|
Snoqualmie Entertainment Authority
|
|
|
|
4.683
|
%
|
|
2/1/14
|
|
110,000
|
|
53,900
|
A,B
|
Station Casinos Inc.
|
|
|
|
7.750
|
%
|
|
8/15/16
|
|
205,000
|
|
32,031
|
C,E
|
Station Casinos Inc.
|
|
|
|
6.625
|
%
|
|
3/15/18
|
|
100,000
|
|
500
|
C,E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,688,619
|
|
Household Durables
|
|
0.3%
|
|
|
|
|
|
|
|
|
|
|
American Greetings Corp.
|
|
|
|
7.375
|
%
|
|
6/1/16
|
|
20,000
|
|
19,500
|
|
Norcraft Cos.
|
|
|
|
9.000
|
%
|
|
11/1/11
|
|
360,000
|
|
360,450
|
E
|
Norcraft Holdings LP
|
|
|
|
9.750
|
%
|
|
9/1/12
|
|
71,000
|
|
68,160
|
E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448,110
|
|
Independent Power Producers and
Energy Traders
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
Dynegy Holdings Inc.
|
|
|
|
7.750
|
%
|
|
6/1/19
|
|
650,000
|
|
563,875
|
|
Edison Mission Energy
|
|
|
|
7.750
|
%
|
|
6/15/16
|
|
180,000
|
|
153,000
|
|
Edison Mission Energy
|
|
|
|
7.625
|
%
|
|
5/15/27
|
|
179,000
|
|
121,273
|
|
Mirant North America LLC
|
|
|
|
7.375
|
%
|
|
12/31/13
|
|
350,000
|
|
346,062
|
|
NRG Energy Inc.
|
|
|
|
7.375
|
%
|
|
2/1/16
|
|
500,000
|
|
500,625
|
|
NRG Energy Inc.
|
|
|
|
7.375
|
%
|
|
1/15/17
|
|
225,000
|
|
225,563
|
|
The AES Corp.
|
|
|
|
9.750
|
%
|
|
4/15/16
|
|
360,000
|
|
394,200
|
A
|
The AES Corp.
|
|
|
|
8.000
|
%
|
|
10/15/17
|
|
525,000
|
|
538,781
|
|
The AES Corp.
|
|
|
|
8.000
|
%
|
|
6/1/20
|
|
100,000
|
|
101,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,945,129
|
|
Industrial Conglomerates
|
|
0.8%
|
|
|
|
|
|
|
|
|
|
|
Tyco International Ltd./Tyco International
Finance SA
|
|
|
|
6.875
|
%
|
|
1/15/21
|
|
995,000
|
|
1,116,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IT Services
|
|
0.5%
|
|
|
|
|
|
|
|
|
|
|
Ceridian Corp.
|
|
|
|
12.250
|
%
|
|
11/15/15
|
|
138,450
|
|
130,835
|
F
|
Electronic Data Systems Corp.
|
|
|
|
7.450
|
%
|
|
10/15/29
|
|
500,000
|
|
591,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
722,485
|
|
Leisure Equipment and Products
|
|
0.4%
|
|
|
|
|
|
|
|
|
|
|
Eastman Kodak Co.
|
|
|
|
7.250
|
%
|
|
11/15/13
|
|
760,000
|
|
627,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
5.2%
|
|
|
|
|
|
|
|
|
|
|
Affinion Group Inc.
|
|
|
|
10.125
|
%
|
|
10/15/13
|
|
430,000
|
|
441,825
|
|
Affinion Group Inc.
|
|
|
|
11.500
|
%
|
|
10/15/15
|
|
225,000
|
|
235,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
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
|
|
|
|
|
|
|
|
|
|
|
|
MediaContinued
|
|
|
|
|
|
|
|
|
|
|
|
CCH II Holdings LLC
|
|
|
|
13.500
|
%
|
|
11/30/16
|
|
$
|
108,083
|
|
$
|
126,187
|
A
|
Charter Communications Operating LLC
|
|
|
|
10.875
|
%
|
|
9/15/14
|
|
280,000
|
|
313,600
|
A
|
CMP Susquehanna Corp.
|
|
|
|
4.774
|
%
|
|
5/15/14
|
|
14,000
|
|
4,845
|
A,E,G,H
|
Comcast Corp.
|
|
|
|
5.900
|
%
|
|
3/15/16
|
|
400,000
|
|
430,768
|
|
Comcast Corp.
|
|
|
|
7.050
|
%
|
|
3/15/33
|
|
1,000,000
|
|
1,091,834
|
|
CSC Holdings Inc.
|
|
|
|
6.750
|
%
|
|
4/15/12
|
|
250,000
|
|
258,125
|
|
DISH DBS Corp.
|
|
|
|
7.875
|
%
|
|
9/1/19
|
|
385,000
|
|
403,769
|
|
News America Holdings Inc.
|
|
|
|
8.875
|
%
|
|
4/26/23
|
|
400,000
|
|
466,779
|
|
R.H. Donnelley Corp.
|
|
|
|
8.875
|
%
|
|
10/15/17
|
|
320,000
|
|
30,000
|
C
|
Time Warner Inc.
|
|
|
|
6.875
|
%
|
|
5/1/12
|
|
1,400,000
|
|
1,532,640
|
|
Time Warner Inc.
|
|
|
|
7.700
|
%
|
|
5/1/32
|
|
1,150,000
|
|
1,350,485
|
|
TL Acquisitions Inc.
|
|
|
|
10.500
|
%
|
|
1/15/15
|
|
270,000
|
|
258,187
|
A
|
Univision Communications Inc.
|
|
|
|
12.000
|
%
|
|
7/1/14
|
|
420,000
|
|
462,525
|
A
|
Virgin Media Finance PLC
|
|
|
|
9.500
|
%
|
|
8/15/16
|
|
100,000
|
|
107,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,514,632
|
|
Metals and Mining
|
|
1.8%
|
|
|
|
|
|
|
|
|
|
|
Alcoa Inc.
|
|
|
|
5.375
|
%
|
|
1/15/13
|
|
750,000
|
|
782,176
|
|
CII Carbon LLC
|
|
|
|
11.125
|
%
|
|
11/15/15
|
|
580,000
|
|
583,625
|
A
|
Freeport-McMoRan Copper & Gold Inc.
|
|
|
|
8.375
|
%
|
|
4/1/17
|
|
730,000
|
|
799,350
|
|
Metals USA Inc.
|
|
|
|
11.125
|
%
|
|
12/1/15
|
|
445,000
|
|
450,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,615,157
|
|
Multi-Utilities
|
|
0.6%
|
|
|
|
|
|
|
|
|
|
|
Dominion Resources Inc.
|
|
|
|
5.700
|
%
|
|
9/17/12
|
|
770,000
|
|
832,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiline Retail
|
|
0.4%
|
|
|
|
|
|
|
|
|
|
|
Dollar General Corp.
|
|
|
|
10.625
|
%
|
|
7/15/15
|
|
50,000
|
|
55,375
|
|
The Neiman-Marcus Group Inc.
|
|
|
|
9.000
|
%
|
|
10/15/15
|
|
279,478
|
|
273,190
|
F
|
The Neiman-Marcus Group Inc.
|
|
|
|
7.125
|
%
|
|
6/1/28
|
|
330,000
|
|
290,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
618,965
|
|
Oil, Gas and Consumable Fuels
|
|
7.9%
|
|
|
|
|
|
|
|
|
|
|
Belden and Blake Corp.
|
|
|
|
8.750
|
%
|
|
7/15/12
|
|
750,000
|
|
701,250
|
|
Berry Petroleum Co.
|
|
|
|
10.250
|
%
|
|
6/1/14
|
|
160,000
|
|
174,000
|
|
Chesapeake Energy Corp.
|
|
|
|
6.375
|
%
|
|
6/15/15
|
|
480,000
|
|
470,400
|
|
Chesapeake Energy Corp.
|
|
|
|
6.625
|
%
|
|
1/15/16
|
|
30,000
|
|
29,700
|
|
Chesapeake Energy Corp.
|
|
|
|
7.250
|
%
|
|
12/15/18
|
|
300,000
|
|
302,250
|
|
Colorado Interstate Gas Co.
|
|
|
|
6.800
|
%
|
|
11/15/15
|
|
150,000
|
|
165,610
|
|
DCP Midstream LP
|
|
|
|
7.875
|
%
|
|
8/16/10
|
|
750,000
|
|
779,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
Annual Report to Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Corporate Bonds and Notes
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Oil, Gas and Consumable
FuelsContinued
|
|
|
|
|
|
|
|
|
|
|
|
Devon Energy Corp.
|
|
|
|
7.950
|
%
|
|
4/15/32
|
|
$ 310,000
|
|
$
|
394,092
|
|
Devon Financing Corp. ULC
|
|
|
|
6.875
|
%
|
|
9/30/11
|
|
1,000,000
|
|
1,086,315
|
|
El Paso Corp.
|
|
|
|
7.750
|
%
|
|
6/15/10
|
|
1,496,000
|
|
1,511,689
|
|
El Paso Corp.
|
|
|
|
7.800
|
%
|
|
8/1/31
|
|
190,000
|
|
178,872
|
|
Hess Corp.
|
|
|
|
7.875
|
%
|
|
10/1/29
|
|
1,640,000
|
|
1,966,941
|
|
Hess Corp.
|
|
|
|
7.300
|
%
|
|
8/15/31
|
|
60,000
|
|
68,183
|
|
International Coal Group Inc.
|
|
|
|
10.250
|
%
|
|
7/15/14
|
|
220,000
|
|
211,475
|
|
Kinder Morgan Energy Partners LP
|
|
|
|
7.125
|
%
|
|
3/15/12
|
|
500,000
|
|
545,229
|
|
Petrohawk Energy Corp.
|
|
|
|
9.125
|
%
|
|
7/15/13
|
|
145,000
|
|
151,525
|
|
Plains Exploration and Production Co.
|
|
|
|
10.000
|
%
|
|
3/1/16
|
|
140,000
|
|
153,300
|
|
Plains Exploration and Production Co.
|
|
|
|
8.625
|
%
|
|
10/15/19
|
|
125,000
|
|
128,437
|
|
Quicksilver Resources Inc.
|
|
|
|
11.750
|
%
|
|
1/1/16
|
|
185,000
|
|
209,975
|
|
Sonat Inc.
|
|
|
|
7.625
|
%
|
|
7/15/11
|
|
500,000
|
|
515,350
|
|
Stone Energy Corp.
|
|
|
|
8.250
|
%
|
|
12/15/11
|
|
160,000
|
|
159,400
|
|
The Williams Cos. Inc.
|
|
|
|
7.500
|
%
|
|
1/15/31
|
|
902,000
|
|
973,017
|
|
The Williams Cos. Inc.
|
|
|
|
8.750
|
%
|
|
3/15/32
|
|
85,000
|
|
101,717
|
|
Valero Energy Corp.
|
|
|
|
7.500
|
%
|
|
4/15/32
|
|
400,000
|
|
411,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,389,797
|
|
Paper and Forest Products
|
|
1.2%
|
|
|
|
|
|
|
|
|
|
|
Appleton Papers Inc.
|
|
|
|
11.250
|
%
|
|
12/15/15
|
|
235,000
|
|
198,869
|
A
|
NewPage Corp.
|
|
|
|
11.375
|
%
|
|
12/31/14
|
|
595,000
|
|
600,950
|
A
|
Weyerhaeuser Co.
|
|
|
|
7.375
|
%
|
|
3/15/32
|
|
1,000,000
|
|
948,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,747,891
|
|
Pharmaceuticals
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
Leiner Health Products Inc.
|
|
|
|
11.000
|
%
|
|
6/1/12
|
|
280,000
|
|
28
|
C,E
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Investment Trusts
(REITs)
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
|
Ventas Inc.
|
|
|
|
6.750
|
%
|
|
4/1/17
|
|
260,000
|
|
251,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Management and
Development
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
|
Ashton Woods USA LLC
|
|
|
|
0.000
|
%
|
|
6/30/15
|
|
65,000
|
|
16,250
|
A,E,I
|
Realogy Corp.
|
|
|
|
10.500
|
%
|
|
4/15/14
|
|
170,000
|
|
147,050
|
|
Realogy Corp.
|
|
|
|
12.375
|
%
|
|
4/15/15
|
|
165,000
|
|
128,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Road and Rail
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
RailAmerica Inc.
|
|
|
|
9.250
|
%
|
|
7/1/17
|
|
$
|
234,000
|
|
$
|
248,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductors and Semiconductor
Equipment
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
Advanced Micro Devices Inc.
|
|
|
|
8.125
|
%
|
|
12/15/17
|
|
50,000
|
|
49,812
|
A
|
Freescale Semiconductor Inc.
|
|
|
|
8.875
|
%
|
|
12/15/14
|
|
25,000
|
|
22,938
|
|
Freescale Semiconductor Inc.
|
|
|
|
10.125
|
%
|
|
12/15/16
|
|
80,000
|
|
64,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,150
|
|
Specialty Retail
|
|
0.3%
|
|
|
|
|
|
|
|
|
|
|
Blockbuster Inc.
|
|
|
|
11.750
|
%
|
|
10/1/14
|
|
330,000
|
|
313,500
|
A
|
Michaels Stores Inc.
|
|
|
|
10.000
|
%
|
|
11/1/14
|
|
80,000
|
|
82,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,300
|
|
Textiles, Apparel and Luxury
Goods
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
|
Oxford Industries Inc.
|
|
|
|
11.375
|
%
|
|
7/15/15
|
|
255,000
|
|
280,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tobacco
|
|
0.1%
|
|
|
|
|
|
|
|
|
|
|
Alliance One International Inc.
|
|
|
|
10.000
|
%
|
|
7/15/16
|
|
90,000
|
|
94,500
|
A
|
Alliance One International Inc.
|
|
|
|
10.000
|
%
|
|
7/15/16
|
|
70,000
|
|
73,500
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,000
|
|
Trading Companies and
Distributors
|
|
0.6%
|
|
|
|
|
|
|
|
|
|
|
Ashtead Capital Inc.
|
|
|
|
9.000
|
%
|
|
8/15/16
|
|
129,000
|
|
129,161
|
A
|
H&E Equipment Services Inc.
|
|
|
|
8.375
|
%
|
|
7/15/16
|
|
245,000
|
|
245,307
|
|
Penhall International Corp.
|
|
|
|
12.000
|
%
|
|
8/1/14
|
|
390,000
|
|
244,725
|
A,E
|
RSC Equipment Rental Inc.
|
|
|
|
10.000
|
%
|
|
7/15/17
|
|
170,000
|
|
184,875
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804,068
|
|
Transportation Infrastructure
|
|
0.2%
|
|
|
|
|
|
|
|
|
|
|
Hawker Beechcraft Acquisition Co.
|
|
|
|
8.875
|
%
|
|
4/1/15
|
|
524,062
|
|
319,678
|
F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless Telecommunication
Services
|
|
1.2%
|
|
|
|
|
|
|
|
|
|
|
AT&T Mobility LLC
|
|
|
|
6.500
|
%
|
|
12/15/11
|
|
250,000
|
|
271,832
|
|
Sprint Capital Corp.
|
|
|
|
8.375
|
%
|
|
3/15/12
|
|
1,450,000
|
|
1,500,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,772,582
|
|
Total
Corporate Bonds and Notes
(Cost$93,028,388)
|
|
|
|
|
|
|
|
|
|
|
92,498,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
Annual Report to Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Asset-Backed Securities
|
|
26.3%
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
8.4%
|
|
|
|
|
|
|
|
|
|
Associates Manufactured Housing
Pass Through Certificates 1997-CLB2
|
|
|
|
8.900
|
%
|
|
6/15/28
|
|
$3,178,584
|
|
$
|
2,916,033
|
G
|
Bear Stearns Asset Backed Securities
Trust 2007-SD1 1A3A
|
|
|
|
6.500
|
%
|
|
10/25/36
|
|
1,406,517
|
|
726,751
|
|
Centex Home Equity 2003-B AF4
|
|
|
|
3.735
|
%
|
|
2/25/32
|
|
349,152
|
|
270,121
|
|
Contimortgage Home Equity Trust
1997-4 B1F
|
|
|
|
7.330
|
%
|
|
10/15/28
|
|
506,738
|
|
439,706
|
|
Firstfed Corp. Manufactured Housing
Contract 1996-1 B
|
|
|
|
8.060
|
%
|
|
10/15/22
|
|
2,100,000
|
|
2,097,190
|
A,G
|
Global Franchise Trust 1998-1 A2
|
|
|
|
6.659
|
%
|
|
10/10/11
|
|
798,765
|
|
519,200
|
A,G
|
Green Tree Financial Corp. 1992-2 B
|
|
|
|
9.150
|
%
|
|
1/15/18
|
|
221,829
|
|
149,009
|
|
Green Tree Financial Corp. 1993-1 B
|
|
|
|
8.450
|
%
|
|
4/15/18
|
|
296,573
|
|
254,955
|
|
Green Tree Home Improvement
Loan Trust 1996-D HIB2
|
|
|
|
8.000
|
%
|
|
9/15/27
|
|
79,209
|
|
56,883
|
|
Green Tree Recreational Equiptment &
Consumer Trust 1996-C CTFS
|
|
|
|
7.650
|
%
|
|
10/15/17
|
|
230,069
|
|
174,136
|
|
Indymac Manufactured Housing
Contract 1997-1 A5
|
|
|
|
6.970
|
%
|
|
2/25/28
|
|
291,389
|
|
213,596
|
|
Lehman XS Trust 2007-1 WF1
|
|
|
|
7.000
|
%
|
|
1/25/37
|
|
1,078,767
|
|
621,134
|
|
PAMCO CLO 1997-1A B
|
|
|
|
7.910
|
%
|
|
8/6/10
|
|
882,476
|
|
132,371
|
C
|
Pegasus Aviation Lease Securitization
2000-1 A2
|
|
|
|
8.370
|
%
|
|
3/25/30
|
|
1,600,000
|
|
496,000
|
A,G
|
Renaissance Home Equity Loan Trust
2004-2 AF4
|
|
|
|
5.392
|
%
|
|
7/25/34
|
|
773,485
|
|
697,774
|
|
Settlement Fee Finance LLC 2004-1A A
|
|
|
|
9.100
|
%
|
|
7/25/34
|
|
1,099,118
|
|
989,206
|
A,G
|
Structured Asset Securities Corp.
2002-AL1 A3
|
|
|
|
3.450
|
%
|
|
2/25/32
|
|
987,525
|
|
808,399
|
|
Structured Asset Securities Corp.
2003-AL1
|
|
|
|
3.357
|
%
|
|
4/25/31
|
|
140,084
|
|
121,719
|
A
|
Vanderbilt Mortgage Finance 1997-B 1B2
|
|
|
|
8.155
|
%
|
|
10/7/26
|
|
451,012
|
|
375,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,059,386
|
|
Indexed Securities
B
|
|
10.8%
|
|
|
|
|
|
|
|
|
|
|
ACE Securities Corp. 2005-SD1 A1
|
|
|
|
0.631
|
%
|
|
11/25/50
|
|
49,986
|
|
48,908
|
|
AmeriCredit Automobile Receivables
Trust 2007-CM A3B
|
|
|
|
0.265
|
%
|
|
5/7/12
|
|
1,101,407
|
|
1,097,544
|
|
Bayview Financial Acquisition
Trust 2007-B 2A1
|
|
|
|
0.531
|
%
|
|
8/28/47
|
|
1,478,611
|
|
1,356,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Bayview Financial Asset Trust
2004-SSRA A1
|
|
|
|
0.831
|
%
|
|
12/25/39
|
|
$ 468,401
|
|
$
|
344,275
|
A
|
Bayview Financial Asset Trust
2007-SR1A A
|
|
|
|
0.681
|
%
|
|
3/25/37
|
|
2,550,259
|
|
1,096,611
|
A
|
Bayview Financial Asset Trust
2007-SR1A M3
|
|
|
|
1.381
|
%
|
|
3/25/37
|
|
636,119
|
|
190,836
|
A
|
Bayview Financial Asset Trust
2007-SR1A M4
|
|
|
|
1.731
|
%
|
|
3/25/37
|
|
173,487
|
|
21,339
|
A,G
|
Citigroup Mortgage Loan Trust Inc.
2006-SHL1 A1
|
|
|
|
0.431
|
%
|
|
11/25/45
|
|
283,330
|
|
207,756
|
A
|
Citigroup Mortgage Loan Trust Inc.
2007-SHL1 A
|
|
|
|
0.631
|
%
|
|
11/25/46
|
|
1,256,175
|
|
596,436
|
A
|
Countrywide Asset-Backed Certificates
2007-13 2A1
|
|
|
|
1.131
|
%
|
|
10/25/47
|
|
1,294,188
|
|
830,813
|
|
Countrywide Asset-Backed Certificates
2007-SEA2 1A1
|
|
|
|
1.231
|
%
|
|
8/25/47
|
|
71,957
|
|
39,349
|
A
|
Countrywide Home Equity Loan Trust
2007-B A
|
|
|
|
0.383
|
%
|
|
2/15/37
|
|
939,055
|
|
657,519
|
|
Countrywide Home Equity Loan Trust
2007-GW A
|
|
|
|
0.983
|
%
|
|
11/15/28
|
|
2,607,378
|
|
1,843,093
|
|
Credit-Based Asset Servicing and
Securitization 2004-CB2 M1
|
|
|
|
0.751
|
%
|
|
7/25/33
|
|
2,209,205
|
|
1,562,440
|
|
CS First Boston Mortgage Securities
Corp. 2004-CF2 2A1
|
|
|
|
0.701
|
%
|
|
5/25/44
|
|
109,973
|
|
95,296
|
A
|
Ellington Loan Acquisition Trust
2007-1 A2A1
|
|
|
|
1.231
|
%
|
|
5/26/37
|
|
325,841
|
|
274,741
|
A
|
EMC Mortgage Loan Trust 2003-B
|
|
|
|
0.781
|
%
|
|
11/25/41
|
|
142,425
|
|
112,523
|
A
|
Fremont Home Loan Trust 2006-2 2A2
|
|
|
|
0.424
|
%
|
|
2/25/36
|
|
705,459
|
|
688,274
|
|
GMAC Mortgage Corp. Loan Trust
2004-VF1 A1
|
|
|
|
0.981
|
%
|
|
2/25/31
|
|
661,536
|
|
399,227
|
A
|
GSAA Home Equity Trust 2006-19 A3A
|
|
|
|
0.471
|
%
|
|
12/25/36
|
|
1,000,000
|
|
436,606
|
|
IXIS Real Estate Capital Trust
2005-HE3 A4
|
|
|
|
0.601
|
%
|
|
12/25/35
|
|
12,018
|
|
11,795
|
|
Lehman XS Trust 2006-GP4
|
|
|
|
0.301
|
%
|
|
8/25/46
|
|
203,841
|
|
182,956
|
|
Long Beach Mortgage Loan Trust
2005-WL2 3A1
|
|
|
|
0.411
|
%
|
|
8/25/35
|
|
8,351
|
|
8,289
|
|
Morgan Stanley ABS Capital I
2003-SD1 A1
|
|
|
|
0.731
|
%
|
|
3/25/33
|
|
25,114
|
|
18,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
Annual Report to Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Asset-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Securities
B
Continued
|
|
|
|
|
|
|
|
|
|
|
|
MSDWCC Heloc Trust 2003-2 A
|
|
|
|
0.491
|
%
|
|
4/25/16
|
|
$ 218,478
|
|
$
|
140,476
|
|
New Century Home Equity Loan Trust
2004-2 A2
|
|
|
|
0.601
|
%
|
|
8/25/34
|
|
475,320
|
|
321,371
|
|
RAAC Series 2007-RP1 M1
|
|
|
|
0.781
|
%
|
|
5/25/46
|
|
210,000
|
|
6,825
|
A
|
Renaissance Home Equity Loan Trust
2005-3 AV3
|
|
|
|
0.611
|
%
|
|
11/25/35
|
|
800,000
|
|
645,150
|
|
Residential Asset Mortgage Products
Inc. 2004-RZ1 AII
|
|
|
|
0.711
|
%
|
|
3/25/34
|
|
417,512
|
|
256,630
|
|
Residential Asset Securities Corp.
2001-KS3 AII
|
|
|
|
0.691
|
%
|
|
9/25/31
|
|
315,944
|
|
206,335
|
|
Salomon Brothers Mortgage
Securities VII 2002-CIT1
|
|
|
|
0.831
|
%
|
|
3/25/32
|
|
230,399
|
|
221,618
|
|
Structured Asset Securities Corp.
2005-4XS 2A1A
|
|
|
|
5.070
|
%
|
|
3/25/35
|
|
706,901
|
|
511,597
|
|
Structured Asset Securities Corp.
2007-BC1 A2
|
|
|
|
0.281
|
%
|
|
2/25/37
|
|
883,658
|
|
831,614
|
|
Wachovia Asset Securitization Inc.
2002-HE1
|
|
|
|
0.601
|
%
|
|
9/27/32
|
|
226,069
|
|
133,853
|
|
Wachovia Asset Securitization Inc.
2002-HE2
|
|
|
|
0.661
|
%
|
|
12/25/32
|
|
82,640
|
|
53,577
|
|
Wachovia Asset Securitization Inc.
2003-HE1
|
|
|
|
0.521
|
%
|
|
3/25/33
|
|
30,514
|
|
18,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,469,565
|
|
Stripped Securities
|
|
0.6%
|
|
|
|
|
|
|
|
|
|
|
Bear Stearns Asset Backed Securities
Trust 2006-SD3 1P0
|
|
|
|
0.000
|
%
|
|
8/25/36
|
|
1,559,504
|
|
913,471
|
G,J2
|
Oakwood Mortgage Investors Inc.
2002-C AIO
|
|
|
|
6.000
|
%
|
|
8/15/10
|
|
493,345
|
|
17,267
|
E,J1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
930,738
|
|
Variable Rate Securities
H
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
|
BankAmerica Manufactured Housing
Contract 1997-2 M
|
|
|
|
6.900
|
%
|
|
4/10/28
|
|
100,000
|
|
127,145
|
|
Conseco Finance Securitizations Corp.
2002-1 A
|
|
|
|
6.681
|
%
|
|
12/1/33
|
|
461,786
|
|
456,485
|
|
Greenpoint Manufactured Housing
1999-5 A5
|
|
|
|
7.820
|
%
|
|
12/15/29
|
|
706,000
|
|
668,682
|
|
GSAMP Trust 2003-SEA2 A1
|
|
|
|
4.422
|
%
|
|
7/25/33
|
|
2,246,001
|
|
1,756,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Securities
H
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Merit Securities Corp. 13 A4
|
|
|
|
7.963
|
%
|
|
12/28/33
|
|
$3,409,919
|
|
$
|
3,370,333
|
|
Oakwood Mortgage Investors Inc.
2002-B A3
|
|
|
|
6.060
|
%
|
|
3/15/25
|
|
301,887
|
|
222,990
|
|
Residential Asset Securities Corp.
2002-KS2 AI6
|
|
|
|
6.228
|
%
|
|
4/25/32
|
|
862,078
|
|
766,172
|
|
Residential Asset Securities Corp.
2003-KS8 AI6
|
|
|
|
4.830
|
%
|
|
10/25/33
|
|
1,125,455
|
|
1,003,122
|
|
Saxon Asset Securities Trust 2000-2 MF1
|
|
|
|
8.870
|
%
|
|
7/25/30
|
|
113,076
|
|
110,940
|
|
Vanderbilt Mortgage Finance 1997-C
|
|
|
|
7.830
|
%
|
|
8/7/27
|
|
125,692
|
|
96,614
|
|
Vanderbilt Mortgage Finance
2000-B IB2
|
|
|
|
9.250
|
%
|
|
7/7/30
|
|
886,010
|
|
752,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,330,803
|
|
Total
Asset-Backed Securities
(Cost$37,059,375)
|
|
|
|
|
|
|
|
|
|
|
37,790,492
|
|
Mortgage-Backed Securities
|
|
36.0%
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
3.8%
|
|
|
|
|
|
|
|
|
|
|
Banc of America Commercial Mortgage
Inc. 2007-5 A3
|
|
|
|
5.620
|
%
|
|
2/10/51
|
|
800,000
|
|
776,440
|
|
Bear Stearns Asset Backed Securities
Trust 2002-AC1 B4
|
|
|
|
7.000
|
%
|
|
1/25/32
|
|
986,754
|
|
188,841
|
A
|
Enterprise Mortgage Acceptance Co.
1999-1 A1
|
|
|
|
6.420
|
%
|
|
10/15/25
|
|
6,067
|
|
3,942
|
A,G
|
GMAC Commercial Mortgage Securities
Inc. 1998-C2 F
|
|
|
|
6.500
|
%
|
|
5/15/35
|
|
1,000,000
|
|
1,006,729
|
|
JP Morgan Chase Commercial Mortgage
Securities Corp. 2008-C2 A1
|
|
|
|
5.017
|
%
|
|
2/12/51
|
|
288,420
|
|
294,032
|
|
Metropolitan Asset Funding Inc.
1998-BI B1
|
|
|
|
8.000
|
%
|
|
11/20/24
|
|
912,197
|
|
385,480
|
|
Residential Asset Mortgage Products
Inc. 2004-SL4
|
|
|
|
7.500
|
%
|
|
7/25/32
|
|
1,589,717
|
|
1,506,257
|
|
Washington Mutual Alternative
Mortgage Pass-Through Certificates
2006-5 3A3
|
|
|
|
6.221
|
%
|
|
7/25/36
|
|
905,000
|
|
463,088
|
|
Washington Mutual Alternative
Mortgage Pass-Through Certificates
2006-7 A2A
|
|
|
|
5.667
|
%
|
|
9/25/36
|
|
1,519,910
|
|
694,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
Annual Report to Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Mortgage-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate SecuritiesContinued
|
|
|
|
|
|
|
|
|
|
|
|
Washington Mutual Alternative
Mortgage Pass-Through Certificates
2006-7 A3
|
|
|
|
6.081
|
%
|
|
9/25/36
|
|
$ 185,000
|
|
$
|
79,258
|
|
Washington Mutual MSC Mortgage
Pass-Through Certificates 2004-RA1
|
|
|
|
7.000
|
%
|
|
3/25/34
|
|
68,494
|
|
69,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,467,808
|
|
Indexed Securities
B
|
|
26.5%
|
|
|
|
|
|
|
|
|
|
|
American Home Mortgage Investment
Trust 2007-A 4A
|
|
|
|
0.681
|
%
|
|
7/25/46
|
|
947,652
|
|
559,115
|
A
|
Bayview Commercial Asset Trust
2005-3A A2
|
|
|
|
0.631
|
%
|
|
11/25/35
|
|
790,656
|
|
450,002
|
A,G
|
Bayview Commercial Asset Trust
2005-4A A1
|
|
|
|
0.531
|
%
|
|
1/25/36
|
|
453,232
|
|
283,409
|
A
|
Bayview Commercial Asset Trust
2007-5A A1
|
|
|
|
0.881
|
%
|
|
10/25/37
|
|
313,420
|
|
309,551
|
A
|
Bear Stearns Alt-A Trust 2004-3 A1
|
|
|
|
0.886
|
%
|
|
4/25/34
|
|
561,600
|
|
423,893
|
|
Bear Stearns Alt-A Trust 2004-8 1A
|
|
|
|
0.581
|
%
|
|
9/25/34
|
|
309,749
|
|
228,341
|
|
Bella Vista Mortgage Trust 2004-2 A1
|
|
|
|
0.601
|
%
|
|
2/25/35
|
|
2,397,482
|
|
1,488,873
|
|
BlackRock Capital Finance LP
1997-R2 B5
|
|
|
|
6.188
|
%
|
|
12/25/35
|
|
480,371
|
|
9,007
|
A
|
CBA Commercial Small Balance
Commercial Trust 2005-1A
|
|
|
|
0.551
|
%
|
|
7/25/35
|
|
1,936,363
|
|
968,181
|
A
|
Chevy Chase Mortgage Funding Corp.
2004-3A A1
|
|
|
|
0.481
|
%
|
|
8/25/35
|
|
1,770,844
|
|
1,067,493
|
A
|
Chevy Chase Mortgage Funding Corp.
2004-4A A1
|
|
|
|
0.461
|
%
|
|
10/25/35
|
|
2,516,497
|
|
1,444,976
|
A
|
Chevy Chase Mortgage Funding Corp.
2005-4A A1
|
|
|
|
0.431
|
%
|
|
10/25/36
|
|
2,285,429
|
|
1,073,326
|
A
|
CNL Funding 1998-1 C2
|
|
|
|
0.983
|
%
|
|
9/18/11
|
|
3,360,000
|
|
1,008,000
|
A,G
|
Countrywide Alternative Loan Trust
2005-J12
|
|
|
|
0.501
|
%
|
|
8/25/35
|
|
304,173
|
|
152,971
|
|
Countrywide Home Loans
2004-HYB5 7A1
|
|
|
|
2.342
|
%
|
|
4/20/35
|
|
3,920,334
|
|
2,022,500
|
|
Countrywide Home Loans 2004-R1 1AF
|
|
|
|
0.631
|
%
|
|
11/25/34
|
|
2,202,447
|
|
1,646,410
|
A
|
Countrywide Home Loans 2004-R2 1AF1
|
|
|
|
0.651
|
%
|
|
11/25/34
|
|
674,261
|
|
543,596
|
A
|
Countrywide Home Loans 2005-09 1A1
|
|
|
|
0.531
|
%
|
|
5/25/35
|
|
1,865,456
|
|
1,013,955
|
|
Countrywide Home Loans 2005-7 1A1
|
|
|
|
0.501
|
%
|
|
3/25/35
|
|
1,601,627
|
|
1,081,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
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
|
|
|
|
|
|
|
|
|
|
|
|
Greenpoint Mortgage Funding Trust
2005-AR5 2A2
|
|
|
|
0.501%
|
|
11/25/46
|
|
$3,404,366
|
|
$
|
1,015,089
|
|
Greenpoint Mortgage Funding Trust
2005-AR5 3A2
|
|
|
|
0.501%
|
|
11/25/46
|
|
2,069,092
|
|
700,124
|
|
GSMPS Mortgage Loan Trust
2005-RP1 1AF
|
|
|
|
0.581%
|
|
1/25/35
|
|
312,810
|
|
243,445
|
A
|
GSMPS Mortgage Loan Trust
2005-RP1 2A1
|
|
|
|
4.982%
|
|
1/25/35
|
|
1,791,615
|
|
1,256,016
|
A
|
GSMPS Mortgage Loan Trust 2005-RP3
|
|
|
|
0.581%
|
|
9/25/35
|
|
1,451,482
|
|
1,076,150
|
A
|
Harborview Mortgage Loan Trust
2004-8 3A2
|
|
|
|
0.633%
|
|
11/19/34
|
|
205,512
|
|
105,030
|
|
Harborview Mortgage Loan Trust
2005-9 B10
|
|
|
|
1.983%
|
|
6/20/35
|
|
1,146,065
|
|
112,963
|
|
Impac CMB Trust 2004-9 1A1
|
|
|
|
0.991%
|
|
1/25/35
|
|
64,088
|
|
42,871
|
|
Impac CMB Trust 2A-10
|
|
|
|
0.871%
|
|
3/25/35
|
|
541,761
|
|
234,589
|
|
IndyMac Index Mortgage Loan Trust
2007-AR15 2A1
|
|
|
|
5.609%
|
|
8/25/37
|
|
6,007,339
|
|
3,125,608
|
|
Jefferies & Co. 2009-B 9A
|
|
|
|
0.567%
|
|
11/21/35
|
|
230,388
|
|
318,258
|
A,G
|
Luminent Mortgage Trust 2006-6 A1
|
|
|
|
0.431%
|
|
10/25/46
|
|
1,295,445
|
|
696,803
|
|
MASTR Adjustable Rate Mortgages Trust 2004-13
|
|
|
|
3.096%
|
|
11/21/34
|
|
2,000,000
|
|
1,622,950
|
|
MASTR Alternative Loans Trust
2003-7 7A1
|
|
|
|
0.631%
|
|
11/25/33
|
|
458,769
|
|
392,319
|
|
Merit Securities Corp. 11PA B3
|
|
|
|
2.481%
|
|
9/28/32
|
|
850,000
|
|
222,345
|
A
|
Regal Trust IV 1999-1 A
|
|
|
|
2.912%
|
|
9/29/31
|
|
131,192
|
|
107,578
|
A
|
Residential Asset Securitization Trust
2003-A1 A2
|
|
|
|
0.731%
|
|
3/25/33
|
|
551,166
|
|
498,677
|
|
Sequoia Mortgage Trust 2003-2 A2
|
|
|
|
0.931%
|
|
6/20/33
|
|
58,444
|
|
49,907
|
|
Sequoia Mortgage Trust 2004-10 A1A
|
|
|
|
0.543%
|
|
11/20/34
|
|
31,424
|
|
22,963
|
|
Sequoia Mortgage Trust 2004-11 A1
|
|
|
|
0.533%
|
|
12/20/34
|
|
47,944
|
|
38,597
|
|
Sequoia Mortgage Trust 2004-12 A1
|
|
|
|
0.503%
|
|
1/20/35
|
|
393,789
|
|
307,622
|
|
Structured Asset Securities Corp.
2002-9 A2
|
|
|
|
0.531%
|
|
10/25/27
|
|
1,157,599
|
|
937,606
|
|
Structured Asset Securities Corp.
2005-RF3 2A
|
|
|
|
5.044%
|
|
6/25/35
|
|
2,390,357
|
|
1,971,832
|
A
|
Thornburg Mortgage Securities Trust
2003-4 A1
|
|
|
|
0.551%
|
|
9/25/43
|
|
1,141,285
|
|
993,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
Annual Report to
Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Mortgage-Backed Securities
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indexed Securities
B
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Thornburg Mortgage Securities Trust
2004-3 A
|
|
|
|
0.601%
|
|
9/25/44
|
|
$1,142,521
|
|
$
|
988,498
|
|
WaMu Mortgage Pass-Through
Certificates 2004-AR13 A1A
|
|
|
|
0.610%
|
|
11/25/34
|
|
1,649,779
|
|
1,222,917
|
|
WaMu Mortgage Pass-Through
Certificates 2004-AR13 A2A
|
|
|
|
0.620%
|
|
11/25/34
|
|
2,320,130
|
|
1,397,858
|
|
WaMu Mortgage Pass-Through
Certificates 2005-AR06 2A1A
|
|
|
|
0.461%
|
|
4/25/45
|
|
479,726
|
|
352,898
|
|
WaMu Mortgage Pass-Through
Certificates 2005-AR08 1A1A
|
|
|
|
0.501
%
|
|
7/25/45
|
|
36,985
|
|
26,870
|
|
WaMu Mortgage Pass-Through
Certificates 2005-AR13 A1A1
|
|
|
|
0.521
%
|
|
10/25/45
|
|
427,049
|
|
305,828
|
|
WaMu Mortgage Pass-Through
Certificates 2005-AR19 A1A1
|
|
|
|
0.501
%
|
|
12/25/45
|
|
882,618
|
|
616,647
|
|
WaMu Mortgage Pass-Through
Certificates 2005-AR8 2A1A
|
|
|
|
0.521
%
|
|
7/25/45
|
|
535,574
|
|
390,729
|
|
WaMu Mortgage Pass-Through
Certificates 2005-AR9 A1A
|
|
|
|
0.551
%
|
|
7/25/45
|
|
258,687
|
|
191,558
|
|
Washington Mutual Inc.
2004-AR12 A2A
|
|
|
|
0.640
%
|
|
10/25/44
|
|
221,758
|
|
149,314
|
|
Washington Mutual Mortgage
Pass-Through Certificates 2006-AR5 3A
|
|
|
|
1.484
%
|
|
7/25/46
|
|
1,490,080
|
|
624,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,135,884
|
|
Stripped Securities
|
|
0.6
%
|
|
|
|
|
|
|
|
|
|
Indymac Index Mortgage Loan Trust
2005-AR14 BX
|
|
|
|
2.400
%
|
|
7/25/35
|
|
4,543,950
|
|
50,892
|
E,J1
|
LB-UBS Commercial Mortgage Trust
2001-C3 X
|
|
|
|
0.918
%
|
|
6/15/36
|
|
2,479,430
|
|
26,450
|
A,E,J1
|
Prime Mortgage Trust 2005-2 2XB
|
|
|
|
1.740
%
|
|
10/25/32
|
|
3,724,814
|
|
162,953
|
J1
|
Prime Mortgage Trust 2005-5 1X
|
|
|
|
0.940
%
|
|
7/25/34
|
|
9,156,898
|
|
153,431
|
J1
|
Prime Mortgage Trust 2005-5 1XB
|
|
|
|
1.430
%
|
|
7/25/34
|
|
3,158,900
|
|
128,358
|
J1
|
Residential Asset Mortgage Products,
Inc. 2005-SL2 AP0
|
|
|
|
0.000
%
|
|
2/25/32
|
|
391,324
|
|
308,139
|
J2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
830,223
|
|
Variable Rate Securities
H
|
|
5.1
%
|
|
|
|
|
|
|
|
|
|
BCAP LLC Trust 2009-RR12 2A2
|
|
|
|
0.596
%
|
|
3/26/35
|
|
1,844,014
|
|
571,644
|
A
|
Bear Stearns Alt-A Trust 2005 -10 21A1
|
|
|
|
3.820
%
|
|
1/25/36
|
|
1,355,708
|
|
747,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Securities
H
Continued
|
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse Mortgage Capital
Certificates 2007-C3 A4
|
|
|
|
5.723
%
|
|
6/15/39
|
|
$ 242,000
|
|
$
|
193,561
|
|
GSMPS Mortgage Loan Trust 2001-2 A
|
|
|
|
7.500
%
|
|
6/19/32
|
|
1,785,614
|
|
1,459,185
|
A
|
Harborview Mortgage Loan Trust
2004-10 4A
|
|
|
|
3.275
%
|
|
1/19/35
|
|
521,775
|
|
439,469
|
|
JP Morgan Mortgage Trust
2007-A2 4A2
|
|
|
|
6.024
%
|
|
4/25/37
|
|
300,000
|
|
222,058
|
|
Merrill Lynch Mortgage Investors Inc.
2005-A2
|
|
|
|
4.258
%
|
|
2/25/35
|
|
463,793
|
|
402,682
|
|
Nomura Asset Acceptance Corp.
2004-AR4 1A1
|
|
|
|
2.764
%
|
|
12/25/34
|
|
569,718
|
|
526,889
|
|
Thornburg Mortgage Securities Trust
2007-4 2A1
|
|
|
|
6.200
%
|
|
9/25/37
|
|
940,694
|
|
751,416
|
|
Thornburg Mortgage Securities Trust
2007-4 3A1
|
|
|
|
6.198
%
|
|
9/25/37
|
|
948,571
|
|
758,022
|
|
WaMu Mortgage Pass-Through
Certificates 2004-AR11
|
|
|
|
2.896
%
|
|
10/25/34
|
|
105,555
|
|
92,628
|
|
WaMu Mortgage Pass-Through
Certificates 2007-HY7 2A3
|
|
|
|
5.792
%
|
|
7/25/37
|
|
2,000,000
|
|
1,229,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,395,046
|
|
Total
Mortgage-Backed Securities
(Cost$56,551,818)
|
|
|
|
|
|
|
|
|
|
51,828,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Agency
Obligations
|
|
1.2
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
1.2
%
|
|
|
|
|
|
|
|
|
|
United States Treasury Bonds
|
|
|
|
4.500
%
|
|
8/15/39
|
|
600,000
|
|
586,406
|
|
United States Treasury Notes
|
|
|
|
3.625
%
|
|
8/15/19
|
|
570,000
|
|
560,381
|
|
United States Treasury Notes
|
|
|
|
3.375
%
|
|
11/15/19
|
|
620,000
|
|
596,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
Government and Agency
Obligations
(Cost$1,818,192)
|
|
|
|
|
|
|
|
|
|
1,743,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency
Mortgage-Backed Securities
|
|
0.5
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
0.5
%
|
|
|
|
|
|
|
|
|
|
Fannie Mae
|
|
|
|
6.500
%
|
|
8/25/44
|
|
668,266
|
|
723,423
|
K
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
Government Agency
Mortgage-Backed Securities
(Cost$689,643)
|
|
|
|
|
|
|
|
|
|
723,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
Annual Report to
Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Yankee Bonds
L
|
|
7.4
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace and Defense
|
|
0.1
%
|
|
|
|
|
|
|
|
|
|
Systems 2001 Asset Trust
|
|
|
|
6.664
|
%
|
|
9/15/13
|
|
$ 163,688
|
|
$
|
167,456
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Banks
|
|
0.1
%
|
|
|
|
|
|
|
|
|
|
|
ICICI Bank Ltd.
|
|
|
|
6.375
|
%
|
|
4/30/22
|
|
184,000
|
|
165,179
|
A,I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Containers and Packaging
|
|
0.1
%
|
|
|
|
|
|
|
|
|
|
|
Smurfit Kappa Funding PLC
|
|
|
|
7.750
|
%
|
|
4/1/15
|
|
150,000
|
|
144,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services
|
|
0.6
%
|
|
|
|
|
|
|
|
|
|
|
Lukoil International Finance BV
|
|
|
|
6.356
|
%
|
|
6/7/17
|
|
340,000
|
|
334,050
|
A
|
UFJ Finance Aruba AEC
|
|
|
|
6.750
|
%
|
|
7/15/13
|
|
500,000
|
|
556,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
890,728
|
|
Diversified Telecommunication
Services
|
|
1.9
%
|
|
|
|
|
|
|
|
|
|
|
Deutsche Telekom
International
Finance BV
|
|
|
|
5.250
|
%
|
|
7/22/13
|
|
600,000
|
|
636,905
|
|
France Telecom SA
|
|
|
|
8.500
|
%
|
|
3/1/31
|
|
600,000
|
|
798,488
|
M
|
Intelsat Bermuda Ltd.
|
|
|
|
11.250
|
%
|
|
6/15/16
|
|
340,000
|
|
368,050
|
|
Intelsat Jackson Holdings Ltd.
|
|
|
|
9.500
|
%
|
|
6/15/16
|
|
35,000
|
|
37,450
|
|
Nordic Telephone Co. Holdings ApS
|
|
|
|
8.875
|
%
|
|
5/1/16
|
|
285,000
|
|
301,388
|
A
|
Wind Acquisition Finance SA
|
|
|
|
12.000
|
%
|
|
12/1/15
|
|
500,000
|
|
535,000
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,677,281
|
|
Energy Equipment and Services
|
|
0.2
%
|
|
|
|
|
|
|
|
|
|
|
Compagnie Generale de
Geophysique-Veritas
|
|
|
|
7.500
|
%
|
|
5/15/15
|
|
210,000
|
|
208,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Governments
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
|
Republic of Honduras
|
|
|
|
0.235
|
%
|
|
10/1/11
|
|
67,525
|
|
66,658
|
B
|
Republic of Venezuela
|
|
|
|
9.375
|
%
|
|
1/13/34
|
|
2,000
|
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,003
|
|
Hotels, Restaurants and Leisure
|
|
0.1
%
|
|
|
|
|
|
|
|
|
|
|
NCL Corp. Ltd.
|
|
|
|
11.750
|
%
|
|
11/15/16
|
|
170,000
|
|
167,875
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
0.7
%
|
|
|
|
|
|
|
|
|
|
|
XL Capital Ltd.
|
|
|
|
5.250
|
%
|
|
9/15/14
|
|
1,000,000
|
|
979,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
Annual Report to
Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Yankee Bonds
L
Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine
|
|
0.2
%
|
|
|
|
|
|
|
|
|
|
Trico Shipping AS
|
|
|
|
11.875
|
%
|
|
11/1/14
|
|
$ 200,000
|
|
$
|
208,250
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
0.3
%
|
|
|
|
|
|
|
|
|
|
|
NTL Cable PLC
|
|
|
|
9.125
|
%
|
|
8/15/16
|
|
335,000
|
|
353,006
|
|
Sun Media Corp.
|
|
|
|
7.625
|
%
|
|
2/15/13
|
|
55,000
|
|
50,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403,125
|
|
Metals and Mining
|
|
0.2
%
|
|
|
|
|
|
|
|
|
|
|
Novelis Inc.
|
|
|
|
7.250
|
%
|
|
2/15/15
|
|
115,000
|
|
109,538
|
|
Vedanta Resources PLC
|
|
|
|
8.750
|
%
|
|
1/15/14
|
|
130,000
|
|
132,925
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,463
|
|
Oil, Gas and Consumable Fuels
|
|
1.8
%
|
|
|
|
|
|
|
|
|
|
|
Anadarko Finance Co.
|
|
|
|
6.750
|
%
|
|
5/1/11
|
|
750,000
|
|
792,549
|
|
Anadarko Finance Co.
|
|
|
|
7.500
|
%
|
|
5/1/31
|
|
1,000,000
|
|
1,121,846
|
|
Burlington Resources Finance Co.
|
|
|
|
7.400
|
%
|
|
12/1/31
|
|
450,000
|
|
526,809
|
|
OPTI Canada Inc.
|
|
|
|
7.875
|
%
|
|
12/15/14
|
|
45,000
|
|
36,900
|
|
OPTI Canada Inc.
|
|
|
|
8.250
|
%
|
|
12/15/14
|
|
190,000
|
|
156,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,634,616
|
|
Paper and Forest Products
|
|
0.2
%
|
|
|
|
|
|
|
|
|
|
|
Abitibi-Consolidated Co. of Canada
|
|
|
|
13.750
|
%
|
|
4/1/11
|
|
221,896
|
|
222,173
|
A
|
PE Paper Escrow GmbH
|
|
|
|
12.000
|
%
|
|
8/1/14
|
|
100,000
|
|
110,500
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332,673
|
|
Road and Rail
|
|
0.4
%
|
|
|
|
|
|
|
|
|
|
|
Grupo Transportacion Ferroviaria
Mexicana SA de CV
|
|
|
|
9.375
|
%
|
|
5/1/12
|
|
370,000
|
|
383,875
|
|
Kansas City Southern de Mexico
SA de CV
|
|
|
|
12.500
|
%
|
|
4/1/16
|
|
170,000
|
|
195,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
579,375
|
|
Wireless Telecommunication
Services
|
|
0.5
%
|
|
|
|
|
|
|
|
|
|
|
True Move Co. Ltd.
|
|
|
|
10.750
|
%
|
|
12/16/13
|
|
200,000
|
|
193,000
|
A
|
True Move Co. Ltd.
|
|
|
|
10.750
|
%
|
|
12/16/13
|
|
590,000
|
|
569,350
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
762,350
|
|
Total
Yankee Bonds
(Cost$10,204,668)
|
|
|
|
|
|
|
|
|
|
|
10,631,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
Annual Report to
Shareholders
|
|
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Common Stocks and Equity Interests
|
|
0.3
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Products
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Nortek Inc.
|
|
|
|
|
|
|
|
1,208
|
shs
|
$
|
42,272
|
N
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
0.1
%
|
|
|
|
|
|
|
|
|
|
Georgia Gulf Corp.
|
|
|
|
|
|
|
|
8,950
|
|
155,551
|
N
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
0.2
%
|
|
|
|
|
|
|
|
|
|
Charter Communications Inc.
|
|
|
|
|
|
|
|
4,936
|
|
175,228
|
N
|
Idearc Inc.
|
|
|
|
|
|
|
|
568
|
|
18,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,977
|
|
Oil, Gas and Consumable Fuels
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
SemGroup Corp., Class A
|
|
|
|
|
|
|
|
789
|
|
18,940
|
G,N
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Common Stocks and Equity
Interests
(Cost$1,024,869)
|
|
|
|
|
|
|
|
|
|
410,740
|
|
Preferred Stocks
|
|
1.2
%
|
|
|
|
|
|
|
|
|
|
Citigroup Inc.
|
|
|
|
7.500
%
|
|
|
|
2,200
|
|
229,548
|
D
|
CMP Susquehanna Radio
Holdings Corp.
|
|
|
|
0.000
%
|
|
|
|
3,171
|
|
3
|
A,E,G,H,N
|
Fannie Mae
|
|
|
|
5.375
%
|
|
|
|
15
|
|
41,250
|
D,K,N
|
Freddie Mac
|
|
|
|
5.160
%
|
|
|
|
100
|
|
154
|
D,K,N
|
Freddie Mac
|
|
|
|
5.000
%
|
|
|
|
200
|
|
352
|
K,N
|
Freddie Mac
|
|
|
|
8.375
%
|
|
|
|
20,500
|
|
21,525
|
I,K,N
|
General Motors Corp.
|
|
|
|
5.250
%
|
|
|
|
225,000
|
|
1,282,500
|
D
|
GMAC Inc.
|
|
|
|
7.000
%
|
|
|
|
254
|
|
167,418
|
A
|
Total
Preferred Stocks
(Cost$5,864,586)
|
|
|
|
|
|
|
|
|
|
1,742,750
|
|
Trust Preferred Securities
|
|
4.4
%
|
|
|
|
|
|
|
|
|
|
Corp-Backed Trust Certificates
|
|
|
|
7.375
%
|
|
|
|
33,900
|
|
113,565
|
C
|
Corp-Backed Trust Certificates
|
|
|
|
8.000
%
|
|
|
|
15,600
|
|
346,320
|
|
CORTS Trust for Ford Motor Co.
|
|
|
|
8.000
%
|
|
|
|
155,100
|
|
3,435,465
|
|
PreferredPlus TR-CCR1
|
|
|
|
8.250
%
|
|
|
|
5,100
|
|
112,965
|
|
SATURNS-F 2003-5
|
|
|
|
8.125
%
|
|
|
|
104,100
|
|
2,326,635
|
|
Total
Trust Preferred Securities
(Cost$5,033,601)
|
|
|
|
|
|
|
|
|
|
6,334,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
Annual Report to
Shareholders
|
|
Portfolio
of InvestmentsContinued
Western Asset Premier
Bond FundContinued
|
|
% OF
NET ASSETS
|
|
RATE
|
|
MATURITY
DATE
|
|
PAR/
SHARES
|
|
VALUE
|
|
Warrants
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Building
Products
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Nortek Inc.
|
|
|
|
|
|
12/7/14
|
|
576
|
wts
|
$
|
7,344
|
G,N
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Banks
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
CNB Capital Trust
|
|
|
|
|
|
3/23/19
|
|
3,624
|
|
4
|
A,E,G,N
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels,
Restaurants and Leisure
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Buffets Restaurants
Holdings Inc.
|
|
|
|
|
|
4/28/14
|
|
224
|
|
|
E,G,N
|
|
|
|
|
|
|
|
|
|
|
|
|
Media
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
Charter Communications
Inc.
|
|
|
|
|
|
11/30/14
|
|
266
|
|
1,330
|
N
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil,
Gas and Consumable Fuels
|
|
N.M.
|
|
|
|
|
|
|
|
|
|
SemGroup Corp.
|
|
|
|
|
|
11/30/14
|
|
831
|
|
|
E,G,N
|
Total Warrants
(Cost$7,976)
|
|
|
|
|
|
|
|
|
|
8,678
|
|
Total
Long-Term Securities
(Cost$211,283,116)
|
|
|
|
|
|
|
|
|
|
203,713,228
|
|
Short-Term Securities
|
|
6.4
%
|
|
|
|
|
|
|
|
|
|
U.S.
Government and Agency Obligations
|
|
1.9
%
|
|
|
|
|
|
|
|
|
|
United States Treasury
Bill
|
|
|
|
0.16%
|
|
4/29/10
|
|
$2,800,000
|
|
2,799,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
Agreement
|
|
4.5
%
|
|
|
|
|
|
|
|
|
|
Interest in $6,470,000
repurchase
agreement dated 12/31/09 with
JPMorgan Chase & Co., 0.005%
due 1/4/10; Proceeds at
maturity$6,470,004; (Fully
collateralized by U.S. government
agency obligation, 0.930% due
3/30/10; Market value$6,599,402)
|
|
|
|
|
|
|
|
6,470,000
|
|
6,470,000
|
|
Total
Short-Term Securities
(Cost$9,268,577)
|
|
|
|
|
|
|
|
|
|
9,269,221
|
|
Total
Investments
(Cost$220,551,693)
#
|
|
148.0%
|
|
|
|
|
|
|
|
212,982,449
|
|
Other Assets Less Liabilities
|
|
2.0
%
|
|
|
|
|
|
|
|
2,876,270
|
|
Liquidation value of Preferred
Shares
|
|
(50.0)%
|
|
|
|
|
|
|
|
(72,000,000
|
)
|
Net
Assets Applicable to Common
Shareholders
|
|
100.0
%
|
|
|
|
|
|
|
|
$
|
143,858,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
Annual Report to
Shareholders
|
|
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 28.42% 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 December 31, 2009.
|
C
|
The coupon payment on these securities is currently in
default as of December 31, 2009.
|
D
|
Convertible Security Security may be converted into the
issuers common stock.
|
E
|
Illiquid security.
|
F
|
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.
|
G
|
Security is valued in good faith at fair value by or under
the direction of the Board of Trustees.
|
H
|
The coupon rates shown on variable rate securities are the
rates at December 31, 2009. These rates vary with the weighted average
coupon of the underlying loans.
|
I
|
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.
|
J
|
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.
|
K
|
On September 7, 2008, the Federal Housing Finance
Agency placed Fannie Mae (FNMA) and Freddie Mac (FHLMC) into conservatorship.
|
L
|
Yankee Bond A dollar-denominated bond issued in the U.S.
by foreign entities.
|
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
|
Zero coupon bond A bond with no periodic interest
payments which is sold at such a discount as to produce a current yield to
maturity.
|
#
|
Aggregate
cost for federal income tax purposes is $222,426,814.
|
See notes to financial statements.
27
|
Annual Report to
Shareholders
|
|
Statement
of Assets and Liabilities
December 31,
2009
Western Asset Premier
Bond Fund
Assets:
|
|
|
|
|
|
Investment securities at value (Cost$211,283,116)
|
|
|
|
$203,713,228
|
|
Short-term securities at value (Cost$9,268,577)
|
|
|
|
9,269,221
|
|
Cash
|
|
|
|
668
|
|
Foreign currency at value (Cost$891)
|
|
|
|
924
|
|
Interest receivable
|
|
|
|
2,417,293
|
|
Unrealized appreciation of swaps
|
|
|
|
772,509
|
|
Restricted cash pledged as collateral for swaps
|
|
|
|
600,000
|
|
Receivable for securities sold
|
|
|
|
551,788
|
|
Amounts receivable for open swaps
|
|
|
|
5,693
|
|
Other assets
|
|
|
|
2,013
|
|
Total assets
|
|
|
|
217,333,337
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Payable for securities purchased
|
|
$521,524
|
|
|
|
Unrealized depreciation of swaps
|
|
344,457
|
|
|
|
Accrued management fee
|
|
98,845
|
|
|
|
Premiums received on open swaps
|
|
31,211
|
|
|
|
Amounts payable for open swaps
|
|
4,105
|
|
|
|
Accrued expenses
|
|
474,476
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
1,474,618
|
|
|
|
|
|
|
|
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
|
|
|
|
$143,858,719
|
|
|
|
|
|
|
|
Composition of Net Assets
Applicable to Common Shareholders:
|
|
|
|
|
|
Common shares, no par value, unlimited number of
shares authorized, 11,606,761 shares issued and outstanding (Note 5)
|
|
|
|
$163,331,793
|
|
Undistributed net investment income
|
|
|
|
9,235,872
|
|
Accumulated net realized loss on investments, swaps
and foreign currency transactions
|
|
|
|
(21,567,787
|
)
|
Net unrealized depreciation of investments, swaps
and foreign currency translations
|
|
|
|
(7,141,159
|
)
|
|
|
|
|
|
|
Net Assets Applicable to Common
Shareholders
|
|
|
|
$143,858,719
|
|
|
|
|
|
|
|
Net Asset Value Per Common Share:
($143,858,719 ÷ 11,606,761 common shares issued and outstanding)
|
|
|
|
|
$12.39
|
|
|
|
|
|
|
|
|
See notes to financial statements.
28
|
Annual Report to
Shareholders
|
|
Statement
of Operations
For the
Year Ended December 31, 2009
Western Asset Premier
Bond Fund
Investment Income:
|
|
|
|
|
|
Interest
|
|
$
|
20,469,279
|
|
|
|
Dividends
|
|
758,115
|
|
|
|
Total income
|
|
|
|
$
|
21,227,394
|
|
Expenses:
|
|
|
|
|
|
Management fees (Note 2)
|
|
1,046,609
|
|
|
|
Excise tax (Note 1)
|
|
409,003
|
|
|
|
Audit and legal fees
|
|
366,478
|
|
|
|
Preferred shares auction agent fee expense
|
|
176,370
|
|
|
|
Reports to shareholders
|
|
79,342
|
|
|
|
Custodian fees
|
|
56,813
|
|
|
|
Preferred shares rating agency fees
|
|
40,878
|
|
|
|
Transfer agent and shareholder servicing expense
|
|
30,944
|
|
|
|
Registration fees
|
|
24,122
|
|
|
|
Trustees fees and expenses
|
|
14,474
|
|
|
|
Other expenses
|
|
39,368
|
|
|
|
Net expenses
|
|
|
|
2,284,401
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
|
18,942,993
|
|
|
|
|
|
|
|
Net Realized and Unrealized
Gain/(Loss) on Investments (Note 1, 3 and 4):
|
|
|
|
|
|
Net realized loss on:
|
|
|
|
|
|
Investments
|
|
(5,107,780
|
)
|
|
|
Swaps
|
|
(10,944,180
|
)
|
|
|
Foreign currency transactions
|
|
(70,448
|
)
|
|
|
|
|
|
|
(16,122,408
|
)
|
Change in unrealized appreciation/(depreciation)
of:
|
|
|
|
|
|
Investments
|
|
44,437,965
|
|
|
|
Swaps
|
|
10,100,151
|
|
|
|
Foreign currency translations
|
|
63,401
|
|
|
|
|
|
|
|
54,601,517
|
|
Net Realized and Unrealized Gain
on Investments
|
|
|
|
38,479,109
|
|
Change in Net Assets Resulting
From Operations
|
|
|
|
57,422,102
|
|
|
|
|
|
|
|
Dividends to Preferred
Shareholders from:
|
|
|
|
|
|
Net investment income
|
|
(266,195
|
)
|
|
|
|
|
|
|
(266,195
|
)
|
Change in Net Assets Applicable to
Common Shareholders Resulting From Operations
|
|
|
|
$
|
57,155,907
|
|
|
|
|
|
|
|
|
|
See notes to financial statements.
29
|
Annual Report to
Shareholders
|
|
Statement
of Changes in Net Assets
Western Asset Premier
Bond Fund
|
|
FOR THE
YEARS ENDED
DECEMBER 31,
|
|
|
|
2009
|
|
2008
|
|
Change in Net Assets:
|
|
|
|
|
|
Net investment income
|
|
$ 18,942,993
|
|
$ 16,751,431
|
|
Net realized loss
|
|
(16,122,408
|
)
|
(1,820,141
|
)
|
Change in unrealized appreciation/(depreciation)
|
|
54,601,517
|
|
(62,747,908
|
)
|
Change in net assets resulting from operations
|
|
57,422,102
|
|
(47,816,618
|
)
|
|
|
|
|
|
|
Dividends to Preferred
Shareholders from:
|
|
|
|
|
|
Net investment income
|
|
(266,195
|
)
|
(2,236,599
|
)
|
Net realized gain on investments
|
|
|
|
(238,432
|
)
|
Change in Net Assets Applicable to
Common Shareholders Resulting from Operations
|
|
57,155,907
|
|
(50,291,649
|
)
|
|
|
|
|
|
|
Distributions to Common
Shareholders from (Notes 1 and 8):
|
|
|
|
|
|
Net investment income
|
|
(14,754,747
|
)
|
(12,090,786
|
)
|
Net realized gain on investments
|
|
|
|
(1,121,178
|
)
|
|
|
|
|
|
|
Capital Transactions:
|
|
|
|
|
|
Reinvestment of dividends resulting in the issuance
of 132,221 and 4,597 common shares, respectively
|
|
1,355,495
|
|
61,654
|
|
Change in net assets
|
|
43,756,655
|
|
(63,441,959
|
)
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
Beginning of year
|
|
100,102,064
|
|
163,544,023
|
|
End of year
|
|
$143,858,719
|
|
$100,102,064
|
|
Undistributed net investment income
|
|
$ 9,235,872
|
|
$ 4,620,320
|
|
|
|
|
|
|
|
See notes to financial statements.
30
|
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.
|
|
YEARS
ENDED DECEMBER 31,
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Net asset value per common share, beginning of year
|
|
$ 8.72
|
|
$ 14.26
|
|
$ 15.15
|
|
$ 14.93
|
|
$ 15.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment operations:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
A
|
|
1.64
|
|
1.46
|
|
1.27
|
|
1.37
|
|
1.37
|
|
Net realized and unrealized gain/(loss)
|
|
3.33
|
|
(5.64
|
)
|
(.60
|
)
|
.45
|
|
(.55
|
)
|
Dividends paid to preferred shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(.02
|
)
|
(.19
|
)
|
(.25
|
)
|
(.30
|
)
|
(.21
|
)
|
Net realized gain on investments
|
|
|
|
(.02
|
)
|
(.09
|
)
|
(.01
|
)
|
|
|
Total from investment operations applicable to common
shareholders
|
|
4.95
|
|
(4.39
|
)
|
.33
|
|
1.51
|
|
.61
|
|
Distributions paid to common shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(1.28
|
)
|
(1.05
|
)
|
(.97
|
)
|
(1.10
|
)
|
(1.20
|
)
|
Net realized gain on investments
|
|
|
|
(.10
|
)
|
(.25
|
)
|
(.19
|
)
|
|
|
Total distributions paid to common shareholders
|
|
(1.28
|
)
|
(1.15
|
)
|
(1.22
|
)
|
(1.29
|
)
|
(1.20
|
)
|
Net asset value per common share, end of year
|
|
$ 12.39
|
|
$ 8.72
|
|
$ 14.26
|
|
$ 15.15
|
|
$ 14.93
|
|
Market value, end of year
|
|
$ 13.36
|
|
$ 8.90
|
|
$ 13.13
|
|
$ 15.15
|
|
$ 13.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Return Based On:
B
|
|
|
|
|
|
|
|
|
|
|
|
Market value
|
|
68.84
|
%
|
(24.60
|
)%
|
(5.79
|
)%
|
20.43
|
%
|
(7.83
|
)%
|
Net asset value
|
|
60.98
|
%
|
(32.45
|
)%
|
2.17
|
%
|
10.67
|
%
|
4.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets
Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses (including interest expense)
C
|
|
1.95
|
%
|
2.06
|
%
|
1.72
|
%
|
1.86
|
%
|
1.63
|
%
|
Expenses (including interest expense) net of
waivers, if any
C
|
|
1.95
|
%
|
2.06
|
%
|
1.71
|
%
|
1.86
|
%
|
1.63
|
%
|
Expenses (including interest expense) net of all
reductions
C
|
|
1.95
|
%
|
2.06
|
%
|
1.71
|
%
|
1.86
|
%
|
1.63
|
%
|
Expenses (excluding interest expense) net of all
reductions
C
|
|
1.95
|
%
|
1.83
|
%
|
1.15
|
%
|
1.15
|
%
|
1.13
|
%
|
Net investment income
D
|
|
15.94
|
%
|
10.68
|
%
|
6.76
|
%
|
7.18
|
%
|
7.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
29.0
|
%
|
45.3
|
%
|
90.3
|
%
|
65.0
|
%
|
41.0
|
%
|
Net assets applicable to common shareholders, end
of year (in thousands)
|
|
$143,859
|
|
$100,102
|
|
$163,544
|
|
$173,707
|
|
$171,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred share information at end
of the year:
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amount outstanding (in thousands)
|
|
$ 72,000
|
|
$ 72,000
|
|
$ 72,000
|
|
$ 72,000
|
|
$ 72,000
|
|
Asset coverage on preferred shares, end of year
E
|
|
300
|
%
|
239
|
%
|
327
|
%
|
341
|
%
|
337
|
%
|
Liquidation and market value per share (in
thousands)
|
|
$ 25
|
|
$ 25
|
|
$ 25
|
|
$ 25
|
|
$ 25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
Computed
using average daily shares outstanding.
B
Performance
figures may reflect compensating balance credits, fee waivers and/or expense
reimbursements. In the absence of compensating balance credits, fee waivers
and/or expense reimbursements, the total return would have been lower. Past
performance is no guarantee of future results.
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
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 16.17%, 12.33%, 9.21%, 8.99%
and 8.85%, years ended December 31, 2009, 2008, 2007, 2006 and 2005,
respectively.
E
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.
31
|
Annual Report to
Shareholders
|
|
Notes to
Financial Statements
1.
Organization and 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 required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in
the economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ. Subsequent
events have been evaluated through February 19, 2010, the issuance date of
the financial statements.
(a) Investment
Valuation
Debt securities are valued at the last quoted
bid 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 reported sales price or official closing price on the primary market or
exchange on which they trade. 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 values these securities at fair value as determined
in accordance with procedures approved by the Funds Board of Trustees.
The Fund has adopted Financial Accounting
Standards Board Codification Topic 820 (formerly, Statement of Financial
Accounting Standards No. 157) (ASC Topic 820). ASC Topic 820 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)
|
The inputs or methodology used for valuing
securities are not necessarily an indication of the risk associated with
investing in those securities.
The Fund uses valuation techniques to measure
fair value that are consistent with the market approach and/or income approach,
depending on the type of the security and the particular circumstance. The
market approach uses prices and other relevant information generated by market
transactions involving identical or comparable securities. The income approach
uses valuation techniques to convert future amounts to a single present amount.
32
|
Annual Report to
Shareholders
|
|
The following is a summary of the inputs used in
valuing the Funds assets carried at fair value:
Description
|
|
Quoted Prices
(Level 1)
|
|
Other
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Long-Term Investments
:
|
|
|
|
|
|
|
|
|
|
Corporate Bonds and Notes
|
|
|
|
$ 92,498,773
|
|
|
|
$ 92,498,773
|
|
Asset-Backed Securities
|
|
|
|
33,863,914
|
|
$3,926,578
|
|
37,790,492
|
|
Mortgage-Backed Securities
|
|
|
|
51,828,961
|
|
|
|
51,828,961
|
|
U.S. Government and Agency Obligations
|
|
|
|
1,743,153
|
|
|
|
1,743,153
|
|
U.S. Government Agency Mortgage-Backed Securities
|
|
|
|
723,423
|
|
|
|
723,423
|
|
Yankee Bonds
|
|
|
|
10,631,308
|
|
|
|
10,631,308
|
|
Common Stocks and Equity Interests
|
|
$ 391,800
|
|
|
|
18,940
|
|
410,740
|
|
Preferred Stocks
|
|
251,579
|
|
1,491,168
|
|
3
|
|
1,742,750
|
|
Trust Preferred Securities
|
|
6,334,950
|
|
|
|
|
|
6,334,950
|
|
Warrants
|
|
|
|
1,330
|
|
7,348
|
|
8,678
|
|
Total Long-Term Investments
|
|
6,978,329
|
|
192,782,030
|
|
3,952,869
|
|
203,713,228
|
|
Short-Term Investments
|
|
|
|
9,269,221
|
|
|
|
9,269,221
|
|
Total Investments
|
|
$6,978,329
|
|
$202,051,251
|
|
$3,952,869
|
|
$212,982,449
|
|
Other Financial Instruments:
|
|
|
|
|
|
|
|
|
|
Credit Default Swaps on Corporate IssuesBuy
Protection
|
|
|
|
$ 529,760
|
|
|
|
$ 529,760
|
|
Credit Default Swaps on Credit IndicesSell
Protection
|
|
|
|
(132,919
|
)
|
|
|
(132,919
|
)
|
Total Other Financial Instruments
|
|
|
|
396,841
|
|
|
|
396,841
|
|
Total
|
|
$6,978,329
|
|
$202,448,092
|
|
$3,952,869
|
|
$213,379,290
|
|
See Portfolio of Investments for additional
detailed categorizations.
Values
include any premiums paid or received with respect to swap contracts.
Following is a reconciliation of investments
in which significant unobservable inputs (Level 3) were used in determining
fair value:
Investments in
Securities
|
|
Asset-Backed
Securities
|
|
Mortgage-
Backed
Securities
|
|
Common
Stocks and
Equity
Interests
|
|
Preferred
Stocks
|
|
Warrants
|
|
Total
|
|
Balance as of December 31, 2008
|
|
$ 276,041
|
|
$ 185,045
|
|
|
|
|
|
|
|
$ 461,086
|
|
Accrued Premiums/Discounts
|
|
87,727
|
|
23,120
|
|
|
|
|
|
|
|
110,847
|
|
Realized Gain/(Loss)
(1)
|
|
(160,662
|
)
|
|
|
|
|
|
|
|
|
(160,662
|
)
|
Change in Unrealized Appreciation (Depreciation)
(2)
|
|
1,527,102
|
|
14,180
|
|
$ (5,464
|
)
|
$(1,345
|
)
|
$ (96
|
)
|
1,534,377
|
|
Net Purchases (Sales)
|
|
2,196,370
|
|
|
|
24,404
|
|
1,348
|
|
7,444
|
|
2,229,566
|
|
Net transfers in and/or out of Level 3
|
|
|
|
(222,345
|
)
|
|
|
|
|
|
|
(222,345
|
)
|
Balance as of December 31, 2009
|
|
$3,926,578
|
|
$
|
|
$18,940
|
|
$ 3
|
|
$7,348
|
|
$3,952,869
|
|
Net Unrealized Appreciation (Depreciation) for
Investments in securities still held at December 31, 2009
(2)
|
|
$1,507,516
|
|
|
|
$(5,464
|
)
|
$(1,345
|
)
|
$ (96
|
)
|
$1,500,611
|
|
(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.
33
|
Annual Report to
Shareholders
|
|
Notes to
Financial StatementsContinued
(b) 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 or a third party
custodian, acting on the Funds behalf, take possession of the underlying
collateral securities, the market value of which, at all times, at least equals
the principal amount of the repurchase transaction, including accrued interest.
To the extent that any repurchase transaction maturity exceeds one business
day, the value of the collateral is marked to market and measured against the
value of the agreement 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.
(c) Foreign Currency Translation
Investment securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts based upon prevailing exchange rates on the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts based
upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting
from fluctuations in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss on
investments.
Net realized foreign exchange gains or losses
arise from sales of foreign currencies, including gains and losses on forward
foreign currency contracts, currency gains or losses realized between the trade
and settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the fair values of assets and liabilities, other than investments in
securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may
involve certain considerations and risks not typically associated with those of
U.S. dollar denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
(d) Forward Foreign Currency
Contracts
The Fund may enter into a forward foreign
currency contract to hedge against foreign currency exchange rate risk on its
non-U.S. dollar denominated securities or to facilitate settlement of a foreign
currency denominated portfolio transaction. A forward foreign currency contract
is an agreement between two parties to buy and sell a currency at a set price
with delivery and settlement at a future date. The contract is marked to market
daily and the change in value is recorded by the Fund as an unrealized gain or
loss. When a forward foreign currency contract is closed, through either delivery
or offset by entering into another forward foreign currency contract, the Fund
recognizes a realized gain or loss equal to the difference between the value of
the contract at the time it was opened and the value of the contract at the
time it is closed.
Forward foreign currency contracts involve
elements of market risk in excess of the amounts reflected on the Statement of
Assets and Liabilities. The Fund bears the risk of an unfavorable change in the
foreign exchange rate underlying the forward foreign currency contract. Risks
may also arise upon entering into these contracts from the potential inability
of the counterparties to meet the terms of their contracts.
(e) Swap Agreements
The Fund 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.
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 the Fund are recognized in the
Statement of Operations as realized gains or losses, respectively. Collateral,
in the form of restricted cash or securities,
34
|
Annual Report to
Shareholders
|
|
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 Schedule
of Investments and restricted cash, if any, is identified on the Statement of
Assets and Liabilities. Risks may exceed amounts recorded 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.
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 or payment in the
Statement of Operations.
As disclosed in the Funds summary of open
swap contracts, the aggregate fair value of credit default swaps in a net
liability position as of December 31, 2009 was $344,457. The aggregate
fair value of assets posted as collateral, for all swaps was $1,399,777. If a
defined credit event had occurred as of December 31, 2009, the swaps
credit-risk-related contingent features would have been triggered and the Fund
would have been required to pay up to $21,666,202 less the value of the
contracts related reference obligations
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 the 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 is subject to investment exposure on the notional amount of the swap. As a
buyer of protection, the Fund generally receives an amount up to the notional
value of the swap if a credit event occurs.
Implied spreads are the theoretical prices a
lender receives for credit default protection. When spreads rise, market
perceived credit risk rises and when spreads fall, market perceived credit risk
falls. The implied credit spread of a particular referenced entity reflects the
cost of buying/selling protection and may include upfront payments required to
enter into the agreement. Wider credit spreads and decreasing market values,
when compared to the notional amount of the swap, represent a deterioration of
the referenced entitys credit soundness and a greater likelihood or risk of
default or other credit event occurring as defined under the terms of the
agreement. Credit spreads utilized in determining the period end market value
of credit default swap agreements on corporate or sovereign issues are
disclosed in the 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.
The Funds maximum risk of loss from
counterparty risk, as the protection buyer, is the fair value of the contract
(this risk is mitigated by the posting of collateral by the counterparty to the
Fund to cover the Funds exposure to the counterparty). As the protection
seller, the Funds maximum risk is the notional amount of the contract. Credit
default swaps are considered to have credit risk-related contingent features
since they require payment by the protection seller to the protection buyer
upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to
varying degrees, elements of credit, market and documentation risk in excess of
the related amounts recognized on the Statement of Assets and Liabilities. Such
risks involve the possibility that there will be no liquid market for these
35
|
Annual Report to Shareholders
|
|
Notes to
Financial StatementsContinued
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.
(f) Credit and Market Risk
Investments in securities that are
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 foreclosure values of underlying
real estate properties are materially below the outstanding amount of these
underlying mortgages, collection of the full amount of accrued interest and
principal on these investments may be doubtful. Such market conditions may
significantly impair the value and liquidity of these investments and may
result in a lack of correlation between their credit ratings and values.
(g) Security
Transactions and Investment Income
Security transactions are accounted for on a
trade date basis. Interest income, adjusted for amortization of premium and
accretion of discount, is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. The cost of investments sold is determined by
use of the specific identification method. To the extent any issuer defaults or
credit event occurs by the issuer, the Fund may halt any additional interest
income accruals and consider the realizability of interest accrued up to the
date of default or credit event.
(h) Distributions
to Shareholders
Distributions from net investment income for
the Fund, if any, are declared and paid on a monthly basis. On May 20,
2009 the Fund announced that it will declare distibutions quarterly while
maintaining its policy of paying distributions monthly. Distributions of net
realized gains, if any, are declared at least annually. Distributions are
recorded on the ex-dividend date and are determined in accordance with income
tax regulations, which may differ from GAAP.
(i) Compensating
Balance Agreements
The Fund has an arrangement with its custodian
bank whereby a portion of the custodians fees is paid indirectly by credits
earned on the Funds cash deposit with the bank.
(j) 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.
(k) Single
Sourced Securities
Certain securities held by the Fund at December 31,
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 December 31, 2009, 14.67% 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).
(l) Federal
and Other Taxes
It is the Funds policy to comply with the
federal income and excise tax requirements of the Internal Revenue Code of 1986
(the Code) as amended, applicable to regulated investment companies. Accordingly,
the Fund intends to distribute its taxable income and net realized gains, if
any, to shareholders in accordance with the requirements imposed by the Code.
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 $409,003 of Federal excise tax attributable to
the year ended December 31, 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 December 31, 2009, no provision for income tax is
required in the Funds financial statements. The Funds federal and state
income and federal excise tax returns for tax years for which the applicable
statutes of limitations have not expired are subject to examination by Internal
Revenue Service and state departments of revenue
36
|
Annual Report to
Shareholders
|
|
(m) Reclassification
GAAP requires that certain components of net
assets be adjusted to reflect permanent differences between financial and tax
reporting. These reclassifications have no effect on net assets or net asset
value per share. During the current year, the following reclassifications have
been made:
|
|
Undistributed Net
Investment Income
|
|
Accumulated Net
Realized Loss
|
|
Paid-in Capital
|
|
(a)
|
|
|
$409,003
|
|
|
|
|
|
|
|
$(409,003
|
)
|
|
(b)
|
|
|
$284,498
|
|
|
|
$(284,498
|
)
|
|
|
|
|
|
(a)
Reclassifications
are primarily due to a non-deductible excise tax paid by the Fund.
(b)
Reclassifications
are primarily due to foreign currency transactions treated as ordinary income
for tax purposes, losses from mortgage backed securities treated as capital
losses for tax purposes, book/tax differences in the treatment of swaps and
book/tax differences in the treatment of certain securities.
2.
Investment Management Agreement and Other 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 (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 pays (not the Fund) Legg Mason Partners
Funds Advisor, LLC (LMPFA), 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 approved the substitution of LMPFA for Legg Mason Fund
Adviser, Inc. (LMFA). Effective September 30, 2009 LMPFA assumed
the rights and responsibilities of LMFA under its administrative services
agreement.
LMPFA, Western Asset, WAML, Western Singapore
and Western Japan are wholly-owned subsidiaries of Legg Mason, Inc.
3.
Investments:
During the year ended December 31, 2009,
the aggregate cost of purchases and proceeds from sales of investments
(excluding short-term investments) and U.S Government & Agency
Obligations were as follows:
|
|
Investments
|
|
U.S. Government &
Agency Obligations
|
|
Purchases
|
|
$58,578,737
|
|
$1,818,369
|
|
Sales
|
|
47,861,103
|
|
4,275,910
|
|
37
|
Annual Report to
Shareholders
|
|
Notes to
Financial StatementsContinued
At December 31, 2009, the aggregate gross
unrealized appreciation and depreciation of investments for federal income tax
purposes were as follows:
Gross unrealized appreciation
|
|
$
|
15,900,395
|
|
Gross unrealized depreciation
|
|
(25,344,760
|
)
|
Net unrealized depreciation
|
|
$
|
(9,444,365
|
)
|
As of December 31, 2009, the one-month
London Interbank Offered Rate (LIBOR) was 0.2309%. At December 31, 2009,
the Fund had the following open swap contracts:
CREDIT DEFAULT SWAPS ON CORPORATE
ISSUESBUY PROTECTION
1
Swap Counterparty
|
|
Termination
|
|
Periodic
Payments
Made
by the
|
|
Notional
|
|
Market
|
|
Upfront
Premiums
Paid/
|
|
Unrealized
Appreciation/
|
|
(Reference
Entity)
|
|
|
Date
|
|
Fund
|
|
Amount
2
|
|
Value
|
|
(Received)
|
|
(Depreciation)
|
|
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
|
|
$
|
9,172
|
|
$
|
7,190
|
|
|
|
$ 7,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
16,068
|
|
|
|
16,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
13,742
|
|
13,669
|
|
|
|
13,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
16,422
|
|
9,608
|
|
|
|
9,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
24,553
|
|
21,569
|
|
|
|
21,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
15,974
|
|
|
|
15,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
14,055
|
|
13,805
|
|
|
|
13,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
15,548
|
|
|
|
15,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
1,200
|
|
1,200
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
Annual Report to
Shareholders
|
|
Swap
Counterparty
|
|
Termination
|
|
Periodic
Payments
Made
by the
|
|
Notional
|
|
Market
|
|
Upfront
Premiums
Paid/
|
|
Unrealized
Appreciation/
|
|
(Reference
Entity)
|
|
|
Date
|
|
Fund
|
|
Amount
2
|
|
Value
|
|
(Received)
|
|
(Depreciation)
|
|
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
|
|
$
|
23,627
|
|
|
|
$ 23,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
21,895
|
|
|
|
21,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
42,958
|
|
|
|
42,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
216
|
|
215
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
33,686
|
|
|
|
33,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
13,342
|
|
|
|
13,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2,008
|
|
2,003
|
|
|
|
2,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
16,630
|
|
|
|
16,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
16,717
|
|
16,603
|
|
|
|
16,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
18,889
|
|
18,811
|
|
|
|
18,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
20,848
|
|
|
|
20,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
16,769
|
|
|
|
16,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
Annual Report to
Shareholders
|
|
Notes to
Financial StatementsContinued
Swap Counterparty
|
|
Termination
|
|
Periodic
Payments
Made
by the
|
|
Notional
|
|
Market
|
|
Upfront
Premiums
Paid/
|
|
Unrealized
Appreciation/
|
|
(Reference Entity)
|
|
|
Date
|
|
Fund
|
|
Amount
2
|
|
Value
|
|
(Received)
|
|
(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
|
|
$
|
20,117
|
|
|
|
$ 20,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
42,959
|
|
|
|
42,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (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
|
|
17,679
|
|
|
|
17,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
10,283
|
|
10,067
|
|
|
|
10,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
41,688
|
|
|
|
41,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
41,057
|
|
|
|
41,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
41,134
|
|
|
|
41,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
41,944
|
|
|
|
41,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
13,797
|
|
|
|
13,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
10,729
|
|
|
|
10,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
14,560
|
|
|
|
14,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
Annual Report to
Shareholders
|
|
Swap Counterparty
|
|
Termination
|
|
Periodic
Payments
Made
by the
|
|
Notional
|
|
Market
|
|
Upfront
Premiums
Paid/
|
|
Unrealized
Appreciation/
|
|
(Reference Entity)
|
|
|
Date
|
|
Fund
|
|
Amount
2
|
|
Value
|
|
(Received)
|
|
(Depreciation)
|
|
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
|
|
$
|
14,705
|
|
|
|
|
$ 14,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
42,068
|
|
|
|
|
42,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
21,084
|
|
20,978
|
|
|
|
|
20,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Goldman Sachs Group, Inc. (Citigroup Inc., 6.5%, due 1/18/11)
|
|
March 20,
2014
|
|
4.7% Monthly
|
|
1,700,000
|
|
(211,538
|
)
|
|
|
|
(211,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Goldman Sachs Group, Inc. (CVS Corporation, 4.875%, due 9/15/2014)
|
|
December 20,
2014
|
|
0.68
|
|
2,000,000
|
|
(17,166
|
)
|
|
$(31,211
|
)
|
|
14,045
|
|
|
Total
|
|
|
|
|
|
$4,494,022
|
|
$529,760
|
|
|
$(31,211
|
)
|
|
$ 560,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CREDIT DEFAULT SWAP ON CREDIT
INDICESSELL PROTECTION
3
Swap
Counterparty
|
|
Termination
|
|
Periodic
Payments
Received
by the
|
|
Contract
Notional
|
|
Market
|
|
Upfront
Premiums
Paid/
|
|
Unrealized
Appreciation/
|
|
(Reference Entity)
|
|
|
Date
|
|
Fund
|
|
Amount
2
|
|
Value
4
|
|
(Received)
|
|
(Depreciation)
|
|
Merrill
Lynch & Co., Inc.
(CDX HY 8)
|
|
June 20, 2012
|
|
0.86% Quarterly
|
|
$21,666,202
|
|
$(132,919
|
)
|
|
|
$(132,919)
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
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.
|
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
|
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.
|
4
|
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 amount of the swap, represent a
deterioration of the referenced entitys credit soundness and a greater
likelihood or risk of default or other credit event occurring as defined
under the terms of the agreement.
|
|
Percentage shown is an annual percentage rate.
|
*
|
Security is valued in good faith
at fair value by or under the direction of the Board of Trustees.
|
41
|
Annual Report to
Shareholders
|
|
Notes to
Financial StatementsContinued
4.
Derivative Instruments and Hedging Activities:
Financial Accounting Standards Board Codification
Topic 815 (formerly, Statement of Financial Accounting Standards No. 161)
(ASC Topic 815) 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 December 31, 2009.
Asset Derivatives
1
|
|
Credit
Contracts Risk
|
|
Other
Contracts Risk
|
|
Total
|
|
Swap Contracts
2
|
|
$772,509
|
|
|
|
$772,509
|
|
Liability Derivatives
1
|
|
Credit
Contracts Risk
|
|
Other
Contracts Risk
|
|
Total
|
|
Swap Contracts
2
|
|
$375,668
|
|
|
|
$375,668
|
|
1
|
Generally, the balance sheet location for asset
derivatives is receivables/net unrealized appreciation(depreciation) and for
liability derivatives is payables/net unrealized appreciation(depreciation).
|
2
|
Values include premiums
paid/(received) on swap contracts which are shown separately in the Statement
of Assets and liabilities.
|
The following tables provide information about
the effect of derivatives and hedging activities on the Funds Statement of
Operations for the year ended December 31, 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
|
|
Total
|
|
Swap Contracts
|
|
$(10,944,180)
|
|
|
|
$(10,944,180
|
)
|
Change in Unrealized
Appreciation/Depreciation on Derivatives Recognized
|
|
Credit
Contracts Risk
|
|
Other
Contracts Risk
|
|
Total
|
|
Swap Contracts
|
|
$10,100,151
|
|
|
|
$10,100,151
|
|
During the year ended December 31, 2009,
the Fund had average notional balances of $2,500,973 and $26,872,286 in credit
default swap contracts to buy protection and credit default swap contracts to
sell protection, respectively.
The Fund has several credit related contingent
features that if triggered would allow its derivatives counterparties to close
out and demand payment or additional collateral to cover their exposure from
the Fund. Credit related contingent features are established between the Fund and
its derivatives counterparties to reduce the risk that the Fund will not
fulfill its payment obligations to its counterparties. These triggering
features include, but are not limited to, a percentage decrease in the Funds
net assets and or percentage decrease in the Funds Net Asset Value or NAV. The
contingent features are established within the Funds International Swap and
Derivatives Association, Inc. master agreements which govern positions in
swaps, over-the-counter options, and forward currency exchange contracts for
each individual counterparty.
5.
Common Shares:
Of the 11,606,761 shares of common stock
outstanding at December 31, 2009, Western Asset owns 14,099 shares.
42
|
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.
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
impacted by the 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.
Dividend rates ranged from 0.135% to 1.727% between January 1, 2009 to December 31,
2009.
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 trustees 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, effective on August 3, 2009 and December 14, 2009, Citigroup
Global Markets Inc. and Merrill Lynch, Inc., respectively, 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.
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
43
|
Annual Report to
Shareholders
|
|
Notes to
Financial StatementsContinued
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.
8.
Income Tax Information and Distributions to Shareholders:
Subsequent to the fiscal year end, the Fund has made
the following distributions:
Record Date
Payable Date
|
|
|
|
Record Date
Payable Date
|
|
|
|
1/15/2010
|
|
|
|
2/12/2010
|
|
|
|
1/29/2010
|
|
$0.100000
|
|
2/26/2010
|
|
$0.100000
|
|
The tax character of distributions paid during the
fiscal years ended December 31, was as follows:
|
|
2009
|
|
2008
|
|
Distributions paid to Common Shareholders from:
|
|
|
|
|
|
Ordinary Income
|
|
$14,754,747
|
|
$12,908,788
|
|
Net Long-term Capital Gains
|
|
|
|
303,176
|
|
Total Paid to Common Shareholders
|
|
14,754,747
|
|
13,211,964
|
|
Distributions paid to Preferred Shareholders from:
|
|
|
|
|
|
Ordinary Income
|
|
$ 266,195
|
|
$ 2,311,153
|
|
Net Long-term Capital Gains
|
|
|
|
163,878
|
|
Total Paid to Common Shareholders
|
|
266,195
|
|
2,475,031
|
|
Total Distributions Paid
|
|
$15,020,942
|
|
$15,686,995
|
|
As of December 31, 2009, the components of
accumulated earnings on a tax basis were as follows:
Undistributed ordinary incomenet
|
|
$ 10,878,231
|
|
Capital loss carryforward
*
|
|
(19,934,533
|
)
|
Other book/tax temporary differences
(a)
|
|
(1,400,492
|
)
|
Unrealized appreciation/(depreciation)
(b)
|
|
(9,016,280
|
)
|
Total accumulated earnings/(losses)net
|
|
$(19,473,074
|
)
|
*
As of December 31, 2009, the Fund had the
following net capital loss carryforward remaining:
Year of Expiration
|
|
|
Amount
|
|
12/31/2016
|
|
|
$ (3,000,112
|
)
|
12/31/2017
|
|
|
(16,934,421
|
)
|
|
|
|
$(19,934,533
|
)
|
These amounts will be available to
offset any future taxable capital gains.
(a)
Other book/tax
temporary differences are attributable primarily to the deferral of post-October capital
losses for tax purposes, interest accrued for tax purposes on defaulted
securities and book/tax differences in the timing of the deductibility of
various expenses.
(b)
The
difference between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral of
losses on wash sales and book/tax differences in the accrual of income on
certain securities.
44
|
Annual Report to
Shareholders
|
|
Report
of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Western
Asset Premier Bond Fund:
In our opinion, the accompanying statement of
assets and liabilities, including the portfolio of investments, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Western Asset Premier Bond Fund (the Fund) at December 31, 2009, the
results of its operations, the changes in its net assets, and the financial
highlights for each of the periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as financial statements) are
the responsibility of the Funds management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2009 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers
LLP
Baltimore,
Maryland
February 19,
2010
45
|
Annual Report to
Shareholders
|
|
Important
Tax Information (Unaudited)
The following information is provided with respect to
the distributions paid to Common Shareholders during the taxable year ended December 31,
2009:
Record Date:
|
|
|
Monthly
|
|
June 15,
2009
|
|
Monthly
|
|
Payable Date:
|
|
|
January 2009
-
May 2009
|
|
June 30,
2009
|
|
July 2009 -
December 2009
|
|
|
|
|
|
|
|
|
|
Ordinary Income:
|
|
|
|
|
|
|
|
Qualified Dividend Income for Individuals
|
|
|
1.93%
|
|
|
|
0.78%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Qualifying for the Dividends Received
Deduction for Corporations
|
|
|
1.93%
|
|
|
|
0.83%
|
|
|
|
|
|
|
Please retain this information for your records.
46
|
Annual Report to
Shareholders
|
|
Trustees
and Officers
The Trustees and officers of the Fund, their
year of birth and a description of their principal occupations during the past
five years are listed below. Except as shown, each Trustees and officers
principal occupation and business experience for the last five years has been
with the employer(s) indicated, although in some cases the Trustee or
officer may have held different positions with such employer(s). Unless
otherwise indicated, the business address of the persons listed below is c/o
Western Asset Management Company, 385 East Colorado Blvd., Pasadena, California
91101.
Name and
Year of Birth
|
|
|
Position(s)
Held With
Fund
|
|
|
Term of
Office and
Length of
Time Served
(A)
|
|
|
Principal
Occupations
During the Past 5 Years
|
|
|
Number of
Portfolios
in Fund
Complex
Overseen
(B)
|
|
|
Other
Directorships Held
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald J. Arnault
1943
|
|
|
Trustee
|
|
|
Served
since 1997
|
|
|
Retired.
|
|
|
13
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anita L. DeFrantz
1953
|
|
|
Trustee
|
|
|
Served
since 1998
|
|
|
President
(1987-present) and Director (1990-present) of LA84 (formerly Amateur Athletic
Foundation of Los Angeles); President and Director of Kids in Sports
(1994-present); Vice President, International Rowing Federation
(1986-present); Member of the International Olympic Committee (1986-present).
|
|
|
13
|
|
|
OBN
Holdings, Inc. (film, television and media company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avedick B. Poladian
1952
|
|
|
Trustee
|
|
|
Served
since 2007
|
|
|
Executive
Vice President and Chief Operating Officer of Lowe Enterprises, Inc.
(real estate and hospitality firm) (2002-present); Partner, Arthur Andersen,
LLP (1974-2002).
|
|
|
13
|
|
|
Occidental
Petroleum Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William E. B. Siart
1947
|
|
|
Trustee
and Chairman
|
|
|
Served
since 1997
|
|
|
Vice
Chairman of The Getty Trust (2005-present); Chairman of Walt Disney Concert Hall, Inc.
(1998-2006); Chairman of Excellent Education Development (2000-present).
|
|
|
13
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jaynie Miller Studenmund
1954
|
|
|
Trustee
|
|
|
Served
since 2004
|
|
|
Chief
Operating Officer of Overture Services, Inc. (online marketing firm)
(2001-2004); President and Chief Operating Officer of Paymybills.com
(2000-2001).
|
|
|
13
|
|
|
Orbitz
Worldwide (global on-line travel company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
Annual Report to
Shareholders
|
|
Trustees
and OfficersContinued
Name and
Year of Birth
|
|
|
Position(s)
Held With
Fund
|
|
|
Term of
Office and
Length of
Time Served
(A)
|
|
|
Principal
Occupations
During the Past 5 Years
|
|
|
Number of
Portfolios
in Fund
Complex
Overseen
(B)
|
|
|
Other
Directorships Held
|
|
Interested Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R.
Jay Gerken
(C)
1951
|
|
|
Trustee
and President
|
|
|
Served
as a Director since 2006 and as President since 2007
|
|
|
Managing
Director of Legg Mason & Co., LLC, Chairman, President and Chief
Executive Officer of certain mutual funds associated with Legg
Mason & Co., LLC or its affiliates (2005-present); President of Legg
Mason Partners Fund Advisor, LLC (LMPFA) (2006-present); Chairman of Smith
Barney Fund Management LLC and Citi Fund Management Inc. (2002-2005);
Chairman, President and Chief Executive Officer of Travelers Investment
Adviser, Inc. (2002-2005).
|
|
|
147
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
L. Olson
(D)
1941
|
|
|
Trustee
|
|
|
Served
since 2005
|
|
|
Senior
Partner of Munger, Tolles & Olson LLP (a law partnership)
(1968-present).
|
|
|
13
|
|
|
Edison
International, City National Corporation (financial services company), The
Washington Post Company, and Berkshire Hathaway, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
(E)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gavin
L. James
1961
|
|
|
Vice
President
|
|
|
Served
since 2001
|
|
|
Director
of Global Client Services and Marketing of Western Asset (1998-present).
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S.
Kenneth Leech
1954
|
|
|
Vice
President
|
|
|
Served
since 1990
|
|
|
Chief
Investment Officer Emeritus of Western Asset (1998-present); Vice President
of Western Asset Income Fund (1998-present) and Western Asset Premier Bond
Fund (2001-present).
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
A. Walsh
1959
|
|
|
Vice
President
|
|
|
Served
since 1994
|
|
|
Chief
Investment Officer of Western Asset (2000-present); Vice President of Western
Asset Income Fund (1999-present) and Western Asset Premier Bond Fund
(2001-present).
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frances M. Guggino
1957
55
Water Street
New York, NY 10041
|
|
|
Principal
Financial and Accounting Officer
|
|
|
Served
since 2009
|
|
|
Director
of Legg Mason & Co. (since 2005); Director at Citigroup Asset
Management (CAM) (1992 to 2005); Treasurer and/or Controller of certain
funds associated with Legg Mason & Co. (since 2005); Treasurer
and/or Controller of certain funds associated with CAM (1992 to 2005)
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
Annual Report to
Shareholders
|
|
Name and
Year of Birth
|
|
|
Position(s)
Held With
Fund
|
|
|
Term of
Office and
Length of
Time Served
(A)
|
|
|
Principal Occupations
During the Past 5 Years
|
|
|
Number of
Portfolios
in Fund
Complex
Overseen
(B)
|
|
|
Other
Directorships Held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erin
K. Morris
1966
100
International Drive
Baltimore,
MD 21202
|
|
|
Treasurer
|
|
|
Served
since 2006
|
|
|
Vice
President and Manager, Global Funds Administration, Legg Mason &
Co., LLC (2005-present); Assistant Vice President and Manager, Fund
Accounting Legg Mason Wood Walker, Incorporated (2002-2005); Treasurer,
Western Asset Funds, Inc., Western Asset Income Fund and Western Asset
Premier Bond Fund (2006-present); Assistant Treasurer, Legg Mason Partners Fund
complex (2007-present), Western Asset/Claymore Inflation-Linked
Securities & Income Fund (2003-present), Western Asset/Claymore
Inflation-Linked Opportunities & Income Fund (2004-present);
Assistant Treasurer, Western Asset Funds, Inc., Western Asset Income Fund,
Western Asset Premier Bond Fund, Legg Mason Income Trust, Inc. and Legg
Mason Tax-Free Income Fund (2001-2006).
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
F. Kuehl
1968
100
International Drive
Baltimore,
MD 21202
|
|
|
Chief
Compliance Officer
|
|
|
Served
since 2007
|
|
|
Director,
Legg Mason & Co., LLC (2006-present); Chief Compliance Officer of
Legg Mason Private Portfolio Group (2009-present); Chief Compliance Officer
of Western Asset/Claymore Inflation-Linked Securities & Income Fund,
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund,
Western Asset Income Fund, Western Asset Premier Bond Fund and Western Asset
Funds, Inc. (2007-present) and Barrett Growth Fund and Barrett
Opportunity Fund (2006-2008); Branch Chief, Division of Investment
Management, U.S. Securities and Exchange Commission (2002-2006).
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
Annual Report to
Shareholders
|
|
Trustees
and OfficersContinued
Name and
Year of Birth
|
|
|
Position(s)
Held With
Fund
|
|
|
Term of
Office and
Length of
Time Served
(A)
|
|
|
Principal
Occupations
During the Past 5 Years
|
|
|
Number of
Portfolios
in Fund
Complex
Overseen
(B)
|
|
|
Other
Directorships Held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
I. Frenkel
1954
100
First Stamford Place
Stamford,
CT 06902
|
|
|
Secretary
and Chief Legal Officer
|
|
|
Served
since 2009
|
|
|
Managing
Director and General Counsel of Global Mutual Funds for Legg Mason &
Co. (2005-present); Secretary and Chief Legal Officer of certain mutual funds
associated with Legg Mason & Co. (2003-present); formerly, Managing
Director and General Counsel of Global Mutual Funds for CAM (2000 to 2005);
formerly, Secretary of CFM (2001 to 2004).
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
Each
Officer holds office until his or her respective successor is chosen and
qualified, or in each case until he or she sooner dies, resigns, is removed
with or without cause or becomes disqualified. Each of the Trustees of the Fund
holds office until his or her successor shall have been duly elected and shall
qualify, subject to prior death, resignation, retirement, disqualification or
removed from office and applicable law and the rules of the New York Stock
Exchange.
(B)
Each
Trustee also serves as a Director of Western Asset Income Fund (closed-end
investment company) and as a Director of Western Asset Funds, Inc.
(open-end investment company), which are considered part of the same Fund
Complex as the Fund. In addition, Mr. Gerken serves as Director/Trustee to
136 other portfolios associated with Legg Mason & Co., LLC or its
affiliates. Legg Mason & Co., LLC is an affiliate of Western Asset
Management Co. (WAM).
(C)
Mr. Gerken
is an Interested person (as defined in section 2(a)(19) of the Investment
Company Act of 1940, as amended (the 1940 Act)) of the Fund because of his
positions with subsidiaries of, and ownership of shares of common stock of,
Legg Mason, Inc., the parent company of WAM.
(D)
Mr. Olson
is an Interested person (as defined above) of the Fund because his law firm
has provided legal services to WAM.
(E)
Each
officer of the Fund is an Interested person (as defined above) of the Fund.
50
|
Annual Report to
Shareholders
|
|
Board
Consideration of the Investment Advisory and Subadvisory Agreements
The Executive and Contracts Committee of the
Board of Trustees considered the Investment Management Agreement (the Management
Agreement) between the Fund and Western Asset Management Company (Western
Asset) and the Portfolio Management Agreements (together with the Management
Agreement, the Agreements) between Western Asset and each of Western Asset
Management Company Limited (WAML), Western Asset Management Company Pte. Ltd.
in Singapore (Western Singapore) and Western Asset Management Company Ltd in
Japan (Western Japan, and together with Western Singapore and WAML the Non-U.S.
Advisers and together with Western Asset, the Advisers) with respect to the
Fund at meetings held on September 15, October 23 and November 3,
2009. At a meeting held on November 17, 2009, the Executive and Contracts
Committee reported to the full Board of Trustees its considerations and
recommendation with respect to the Agreements, and the Board of Trustees,
including a majority of the Independent Trustees, considered and approved
renewal of the Agreements.
The Trustees noted that although Western Assets
business is operated through separate legal entities, such as the Non-U.S.
Advisers, its business is highly integrated and senior investment personnel at
Western Asset have supervisory oversight responsibility over the investment
decisions made by the Non-U.S. Advisers. Therefore, in connection with their deliberations
noted below, the Trustees primarily focused on the information provided by
Western Asset when considering the approval of the Portfolio Management
Agreements. The Trustees also noted that the Fund does not pay any management
fees directly to any of the Non-U.S. Advisers because Western Asset pays the
Non-U.S. Advisers for services provided to the Fund out of the management fees
Western Asset receives from the Fund.
In arriving at their decision to renew the
Agreements, the Trustees met with representatives of Western Asset, including
relevant investment advisory personnel; reviewed a variety of information
prepared by Western Asset and materials provided by Lipper Inc. (Lipper) and
counsel to the Independent Trustees; and reviewed performance and expense
information for a peer group of comparable funds selected and prepared by
Lipper and for certain other comparable products available from Western Asset,
including separate accounts managed by Western Asset. These reviews were in
addition to information obtained by the Trustees at their regular quarterly
meetings with respect to the Funds performance and other relevant matters,
such as information on differences between the Funds share price and net asset
value per share, and related discussions with the Advisers personnel.
As part of their review, the Trustees examined
the Advisers ability to provide high quality investment management services to
the Fund. The Trustees considered the investment philosophy and research and
decision-making processes of the Advisers; the experience of their key advisory
personnel responsible for management of the Fund; the ability of the Advisers
to attract and retain capable research and advisory personnel; the capability
and integrity of the Advisers senior management and staff; and the level of
skill required to manage the Fund. In addition, the Trustees reviewed the
quality of the Advisers services with respect to regulatory compliance and
compliance with the investment policies of the Fund and conditions that might
affect the Advisers ability to provide high quality services to the Fund in
the future under the Agreements, including their business reputation, financial
condition and operational stability. Based on the foregoing, the Trustees
concluded that the Advisers investment process, research capabilities and
philosophy were well suited to the Fund given its investment objectives and
policies, and that the Advisers would be able to meet any reasonably
foreseeable obligations under the Agreements.
In reviewing the quality of the services
provided to the Fund, the Trustees also reviewed comparisons of the performance
of the Fund to the performance of certain comparable leveraged funds in a peer
group consisting of funds that invest at least 65% of their assets in corporate
and government debt issues rated in the top four grades. The Trustees noted
that the performance of the Fund was slightly above average for the one-year
period ended August 31, 2009, but was below average for the three- and
five-year periods ended August 31, 2009 as compared to its peer group.
The Trustees also considered the management
fee and total expenses payable by the Fund. They reviewed information
concerning management fees paid to investment advisers of similarly-managed
funds, as well as fees paid by the Advisers other clients, including separate
accounts managed by the Advisers. The Trustees observed that although the Funds
total expenses were above the median of the funds in its Lipper peer group, the
management fee paid by the Fund to Western Asset, whether measured as a
percentage of net assets attributable to common shares or total assets, was
below the median of the funds in its Lipper peer group. They noted that the
management fee paid by the Fund was generally higher than the fees paid by
other clients of the Advisers with similar investment
51
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Annual Report to
Shareholders
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Board
Consideration of the Investment Advisory and Subadvisory AgreementsContinued
strategies, but that Western Asset was responsible
for payment of the management fee to the Non-U.S. Advisers and that the
administrative and operational responsibilities for the Advisers with respect
to the Fund were also relatively higher. In light of these differences, the
Trustees concluded that the difference in management fees paid by the Fund from
those paid by the Advisers other clients was reasonable.
The Trustees further evaluated the benefits of
the advisory relationship to the Advisers, including, among others, the
profitability of the relationship to the Advisers and the direct and indirect
benefits that the Advisers may receive from their relationship with the Fund,
including any fallout benefits, such as reputational value derived from serving
as investment adviser; and the affiliation between the Advisers and Legg Mason
Partners Funds Advisor, LLC, the Funds administrator. In that connection, the
Trustees concluded that the Advisers profitability was consistent with levels
of profitability that had been determined by courts not to be excessive. The
Trustees noted that Western Asset does not have soft dollar arrangements.
Finally, the Trustees considered, in light of
the profitability information provided by Western Asset, the extent to which
economies of scale would be realized by the Advisers as the assets of the Fund
grow. The Trustees concluded that because the Fund is a closed-end fund and
does not make a continuous offer of its securities, the Funds size was
relatively fixed and it would be unlikely that the Advisers would realize
economies of scale from the Funds growth.
In their deliberations with respect to these
matters, the Independent Trustees were advised by their independent counsel,
who are independent of the Advisers within the meaning of the Securities and
Exchange Commission rules regarding the independence of counsel. The
Independent Trustees weighed the foregoing matters in light of the advice given
to them by their independent counsel as to the law applicable to the review of
investment advisory contracts. In arriving at a decision, the Trustees,
including the Independent Trustees, did not identify any single matter as
all-important or controlling, and the foregoing summary does not detail all the
matters considered. The Trustees judged the terms and conditions of the
Agreements, including the investment advisory fees, in light of all of the
surrounding circumstances.
Based upon their review, the Trustees,
including all of the Independent Trustees, determined, in the exercise of their
business judgment, that they were generally satisfied with the quality of
investment advisory services being provided by the Advisers, but would continue
to closely monitor the Advisers performance in light of the Funds relative
underperformance for the three- and five-year periods; that the fees to be paid
to the Advisers under the Agreements were fair and reasonable given the scope
and quality of the services rendered by the Advisers; and that approval of the
Agreements was in the best interest of the Fund and its shareholders.
52
Western Asset Premier Bond Fund
The
Board of Trustees
William E. B. Siart,
Chairman
R. Jay Gerken
Ronald J. Arnault
Anita L. DeFrantz
Ronald L. Olson
Avedick B. Poladian
Jaynie Miller
Studenmund
Officers
R. Jay Gerken,
President
Gavin L. James, Vice
President
S. Kenneth Leech, Vice
President
Stephen A. Walsh, Vice
President
Frances
M. Guggino, Principal Financial and Accounting Officer
Todd F. Kuehl, Chief
Compliance Officer
Erin K. Morris,
Treasurer
Robert I. Frenkel,
Secretary and Chief Legal Officer
Investment
Advisers
Western Asset
Management Company
385 East Colorado
Boulevard
Pasadena, California
91101
Western Asset
Management Company Limited
10 Exchange Square
London, England EC2A2EN
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Western Asset
Management Company Pte. Ltd.
1 George Street #23-01
Singapore 049145
Western Asset
Management Company Ltd
367 Shin-Marunouchi
Building
5-1 Marunouchi 1-Chrome
Chiyoda-Ku
Tokyo 100-6536
Custodian
State Street Bank and
Trust Company
1 Lincoln Street
Boston, Massachusetts
02111
Counsel
Ropes & Gray
LLP
1211 Avenue of the
Americas
New York, New York
10036
Independent
Registered Public Accounting Firm
PricewaterhouseCoopers
LLP
100 East Pratt Street
Baltimore, Maryland
21202
Transfer
Agent
American Stock
Transfer & Trust Company LLC
59 Maiden Lane
New York, New York,
10038
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Privacy
Policy
We are committed to keeping nonpublic personal
information about you secure and confidential. This notice is intended to help
you understand how we fulfill this commitment. From time to time, we may
collect a variety of personal information about you, including:
·
Information
we receive from you on applications and forms, via the telephone and through
our websites;
·
Information
about your transactions with us, our affiliates or others (such as your
purchases, sales or account balances); and
·
Information
we receive from consumer reporting agencies.
We do not disclose nonpublic personal
information about our customers or former customers, except to our affiliates
(such as broker-dealers or investment advisers within the Legg Mason family of
companies) or as is otherwise permitted by applicable law or regulation. For
example, we may share this information with others in order to process your
transactions or service an account. We may also provide this information to
companies that perform marketing services on our behalf, such as printing and
mailing, or to other financial institutions with whom we have joint marketing
agreements. When we enter into such agreements, we will require these companies
to protect the confidentiality of this information and to use it only to
perform the services for which we hired them.
With respect to our internal security
procedures, we maintain physical, electronic and procedural safeguards to
protect your nonpublic personal information, and we restrict access to this
information.
If you decide at some point either to close
your account(s) or become an inactive customer, we will continue to adhere
to our privacy policies and practices with respect to your nonpublic personal
information.
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NOT PART OF THE ANNUAL
REPORT
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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/A(02/10)SR10-1043
Item 2.
Code of Ethics.
(a)
Western Asset Premier Bond Fund
(Registrant) has adopted a Code of Ethics, as defined in the instructions to
Item 2 of Form N-CSR, that applies to the
Registrants principal executive, financial and accounting officers, a copy of
which is attached as an exhibit to this Form N-CSR.
(b)
Omitted.
(c)
Not applicable.
(d)
Not applicable.
(e)
Not applicable.
Item 3.
Audit Committee Financial Expert.
The Audit Committee of the Registrants Board of
Directors is comprised solely of Directors who are independent (as such term
has been defined by the Securities and Exchange Commission (SEC) in
regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002
(the Regulations)). In addition, the Board of Directors of the Registrant has
determined that Mr. Ronald J. Arnault qualifies as an audit
committee financial expert (as such term has been defined in the Regulations)
based on its review of his pertinent experience, knowledge and education. The
SEC has stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are greater
than the duties, obligations and liabilities imposed on such person as a member
of the Audit Committee and the Board of Directors in absence of such
designation or identification
Item 4.
Principal Accountant
Fees and Services.
(a)
Audit Fees
Fiscal Year Ended December 31, 2008$36,950
Fiscal Year Ended December 31, 2009$40,000
(b)
Audit-Related Fees
Fiscal Year Ended December 31, 2008$12,000
Fiscal Year Ended December 31, 2009$13,000
Services include interim audit security pricing and
review of the rating agency compliance testing for the Registrants auction
market preferred shares outstanding.
PricewaterhouseCoopers LLP billed fees in the amount
of $230,000 and $230,000 for non-audit services that required preapproval by
the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X during the Registrants fiscal years ended December 31,
2008 and December 31, 2009, respectively.
During each of the years ended December 31, 2008
and December 31, 2009, PricewaterhouseCoopers LLP conducted a SAS 70 audit
to review and test operating effectiveness of controls placed in operation for
Western Asset Management Company. During the year ended December 31, 2009,
PricewaterhouseCoopers LLP reviewed the Australian Superannuation Circular.
(c)
Tax Fees
Fiscal Year Ended December 31, 2008$4,000
Fiscal Year Ended December 31, 2009$4,000
Services include preparation of federal and state
income tax returns and preparation of excise tax returns.
PricewaterhouseCoopers LLP did not bill fees for tax
services that required pre-approval by the Audit Committee pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the
Registrants last two fiscal years.
(d)
All Other Fees
There were no fees billed to the Registrant during
each of the last two fiscal years by PricewaterhouseCoopers LLP that were not
disclosed in Items 4(a), (b) or (c).
PricewaterhouseCoopers LLP did not bill fees for
services not included in Items 4(a), (b) or (c) above that required
preapproval by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01
of Regulation S-X during the Registrants last two fiscal years.
(e)
(1) The Audit Committee has
determined that all work performed for the Registrant by PricewaterhouseCoopers
LLP will be preapproved by the full Audit Committee and, therefore, has not
adopted preapproval policies and procedures.
(2) None.
(f)
Not applicable.
(g)
Non-Audit Fees
Fiscal Year Ended December 31, 2008$315,300
Fiscal Year Ended December 31, 2009$35,000
(h)
The Audit Committee of the Registrant has
considered whether the non-audit services that were rendered by the
Registrants principal accountant to the Registrants investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and any entity
controlling, controlled by, or under common control with the investment adviser
and that were not preapproved by the Audit Committee are compatible with
maintaining the principal accountants independence.
Item 5.
Audit Committee of Listed
Registrants.
a) Registrant has a
separately-designated standing Audit Committee established in accordance with
Section 3(a)58(A) of
the Exchange Act
. The Audit Committee consists of the following
Board members:
Ronald
J. Arnault
William
E.B. Siart
Avedick
B. Poladian
Jaynie
Miller Studenmund
b)
Not applicable
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.
Proxy Voting Guidelines and Procedures
The Registrant has delegated
the voting of proxies relating to its portfolio securities to its investment
advisers, Western Asset Management Company and Western Asset Management Company
Limited.
The Proxy Voting Policies
and Procedures govern in determining how proxies relating to the funds
portfolio securities are voted and are provided below. Information regarding how each fund voted
proxies (if any) relating to portfolio securities during the most recent
12-month period ended June 30 is available without charge (1) by
calling 888-425-6432, (2) on the funds website at
http://www.leggmason.com/individualinvestors
and (3) on the SECs website at http://www.sec.gov.
Background
Western Asset Management
Company (WA), Western Asset Management Company Limited (WAML), Western
Asset Management Company Ltd (WAMCL) and Western Asset Management Company
Pte.
Ltd. (WAMC) (together Western Asset) have adopted and implemented
policies and procedures that we believe are reasonably designed to ensure that
proxies are voted in the best interest of clients, in accordance with our
fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act
of 1940 (Advisers Act). Our authority to vote the proxies of our clients is
established through investment management agreements or comparable documents,
and our proxy voting guidelines have been tailored to reflect these specific
contractual obligations. In addition to SEC requirements governing advisers,
our proxy voting policies reflect the long-standing fiduciary standards and
responsibilities for ERISA accounts. Unless a manager of ERISA assets has been
expressly precluded from voting proxies, the Department of Labor has determined
that the responsibility for these votes lies with the Investment Manager.
In exercising its voting
authority, Western Asset will not consult or enter into agreements with
officers, directors or employees of Legg Mason Inc. or any of its affiliates
(except that WA, WAML, WAMCL and
WAMC may so consult and
agree with each other) regarding the voting of any securities owned by its
clients.
Policy
Western Assets proxy voting
procedures are designed and implemented in a way that is reasonably expected to
ensure that proxy matters are handled in the best interest of our clients.
While the guidelines included in the procedures are intended to provide a
benchmark for voting standards, each vote is ultimately cast on a case-by-case
basis, taking into consideration Western Assets contractual obligations to our
clients and all other relevant facts and circumstances at the time of the vote
(such that these guidelines may be overridden to the extent Western Asset deems
appropriate).
Procedures
Responsibility and Oversight
The Western Asset Compliance
Department (Compliance Department) is responsible for administering and
overseeing the proxy voting process. The gathering of proxies is coordinated
through the Corporate Actions area of Investment Support (Corporate Actions).
Research analysts and portfolio managers are responsible for determining
appropriate voting positions on each proxy utilizing any applicable guidelines
contained in these procedures.
Client Authority
Prior to August 1,
2003, all existing client investment management agreements (IMAs) will be
reviewed to determine whether Western Asset has authority to vote client
proxies. At account start-up, or upon amendment of an IMA, the applicable client IMA are similarly reviewed. If an agreement is silent
on proxy voting, but contains an overall delegation of discretionary authority
or if the account represents assets of an ERISA plan, Western Asset will assume
responsibility for proxy voting. The Client Account Transition Team maintains a
matrix of proxy voting authority.
Proxy Gathering
Registered owners of record,
client custodians, client banks and trustees (Proxy Recipients) that receive
proxy materials on behalf of clients should forward them to Corporate Actions.
Prior to August 1, 2003, Proxy Recipients of existing clients will be
reminded of the appropriate routing to Corporate Actions for proxy materials
received and reminded of their responsibility to forward all proxy materials on
a timely basis. Proxy Recipients for new clients (or, if Western Asset becomes
aware that the applicable Proxy Recipient for an existing client has changed,
the Proxy Recipient for the existing client) are notified at start-up of
appropriate routing to Corporate Actions of proxy materials received and
reminded of their responsibility to forward all proxy materials on a timely
basis. If Western Asset personnel other than Corporate Actions receive proxy
materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are
received by Corporate Actions, they are forwarded to the Compliance Department
for coordination and the following actions:
a.
Proxies are reviewed to determine accounts impacted.
b.
Impacted accounts are checked to confirm Western Asset voting authority.
c
. Compliance Department staff reviews proxy issues
to determine any material conflicts of interest. (See conflicts of interest
section of these procedures for further information on determining material
conflicts of interest.)
d.
If a material conflict of interest exists, (i) to the extent reasonably
practicable and permitted by applicable law, the client is promptly notified,
the conflict is disclosed and Western Asset obtains the clients proxy voting
instructions, and (ii) to the extent that it is not reasonably practicable
or permitted by applicable law to notify the client and obtain such
instructions (e.g., the client is a mutual fund or other commingled vehicle or
is an ERISA plan client), Western Asset seeks voting instructions from an
independent third party.
e
. Compliance Department staff provides proxy
material to the appropriate research analyst or portfolio manager to obtain
their recommended vote. Research analysts and portfolio managers determine
votes on a case-by-case basis taking into account the voting guidelines
contained in these procedures. For avoidance of doubt, depending on the best
interest of each individual client, Western Asset may vote the same proxy
differently for different clients. The analysts or portfolio managers basis
for their decision is documented and maintained by the Compliance Department.
f
. Compliance Department staff votes the proxy
pursuant to the instructions received in (d) or (e) and returns the
voted proxy as indicated in the proxy materials.
Timing
Western Asset personnel act
in such a manner to ensure that, absent special circumstances, the proxy
gathering and proxy voting steps noted above can be completed before the
applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains
records of proxies voted pursuant to Section 204-2 of the Advisers Act and
ERISA DOL Bulletin 94-2. These records include:
a.
A copy of Western Assets policies and procedures.
b.
Copies of proxy statements received regarding client securities.
c.
A copy of any document created by Western Asset that was material to making a
decision how to vote proxies.
d.
Each written client request for proxy voting records and Western Assets
written response to both verbal and written client requests.
e.
A proxy log including:
1.
Issuer name;
2.
Exchange ticker symbol of the issuers shares to be voted;
3.
Council on Uniform Securities Identification Procedures (CUSIP) number for
the shares to be voted;
4.
A brief identification of the matter voted on;
5.
Whether the matter was proposed by the issuer or by a shareholder of the
issuer;
6.
Whether a vote was cast on the matter;
7.
A record of how the vote was cast; and
8.
Whether the vote was cast for or against the recommendation of the issuers
management team.
Records are maintained in an
easily accessible place for five years, the first two in Western Assets
offices.
Disclosure
Part II of the WA Form ADV,
the WAML Form ADV, the WAMCL Form ADV and WAMC Form ADV, each, contain a description of Western Assets proxy
policies. Prior to August 1, 2003, Western Asset will deliver Part II
of its revised Form ADV to all existing clients, along with a letter
identifying the new disclosure. Clients will be provided a copy of these
policies and procedures upon request. In addition, upon request, clients may
receive reports on how their proxies have been voted.
Conflicts of Interest
All proxies are reviewed by
the Compliance Department for material conflicts of interest. Issues to be
reviewed include, but are not limited to:
1.
Whether Western Asset (or, to the extent required to be considered by
applicable law, its affiliates) manages assets for the company or an employee
group of the company or otherwise has an interest in the company;
2.
Whether Western Asset or an officer or director of Western Asset or the
applicable portfolio manager or analyst responsible for recommending the proxy
vote (together, Voting Persons) is a close relative of or has a personal or
business relationship with an executive, director or person who is a candidate
for director of the company or is a participant in a proxy contest; and
3.
Whether there is any other business or personal relationship where a Voting
Person has a personal interest in the outcome of the matter before
shareholders.
Voting Guidelines
Western Assets substantive
voting decisions turn on the particular facts and circumstances of each proxy
vote and are evaluated by the designated research analyst or portfolio manager.
The examples outlined below are meant as guidelines to aid in the decision
making process.
Guidelines are grouped
according to the types of proposals generally presented to shareholders. Part I
deals with proposals which have been approved and are recommended by a
companys board of directors; Part II deals with proposals submitted by
shareholders for inclusion in proxy statements; Part III addresses issues
relating to voting shares of investment companies; and Part IV addresses
unique considerations pertaining to foreign issuers.
I.
Board Approved Proposals
The vast majority of matters
presented to shareholders for a vote involve proposals made by a company itself
that have been approved and recommended by its board of directors. In view of
the enhanced corporate governance practices currently being implemented in
public companies, Western Asset generally votes in
support
of decisions
reached by independent boards of directors. More specific guidelines related to
certain board-approved proposals are as follows:
1. Matters relating to the
Board of Directors
Western Asset votes proxies
for the election of the companys nominees for directors and for board-approved
proposals on other matters relating to the board of directors with the
following exceptions:
a.
Votes are withheld for the entire board of directors if the board does not have
a majority of independent directors or the board does not have nominating,
audit and compensation committees composed solely of independent directors.
b.
Votes are withheld for any nominee for director who is considered an
independent director by the company and who has received compensation from the
company other than for service as a director.
c.
Votes are withheld for any nominee for director who attends less than 75% of
board and committee meetings without valid reasons for absences.
d.
Votes are cast on a case-by-case basis in contested elections of directors.
2.
Matters relating to Executive Compensation
Western Asset generally
favors compensation programs that relate executive compensation to a companys
long-term performance. Votes are cast on a case-by-case basis on board-approved
proposals relating to executive compensation, except as follows:
a.
Except where the firm is otherwise withholding votes for the entire board of
directors, Western Asset votes for stock option plans that will result in a
minimal annual dilution.
b. Western
Asset votes against stock option plans or
proposals that permit replacing or repricing of underwater options.
c. Western
Asset votes against stock option plans that
permit issuance of options with an exercise price below the stocks current
market price.
d.
Except where the firm is otherwise withholding votes for the entire board of
directors, Western Asset votes for employee stock purchase plans that limit the
discount for shares purchased under the plan to no more than 15% of their
market value, have an offering period of 27 months or less and result in
dilution of 10% or less.
3.
Matters relating to Capitalization
The management of a
companys capital structure involves a number of important issues, including
cash flows, financing needs and market conditions that are unique to the circumstances
of each company. As a result, Western Asset votes on a case-by-case basis on
board-approved proposals involving changes to a companys capitalization except
where Western Asset is otherwise withholding votes for the entire board of
directors.
a. Western
Asset votes for proposals relating to the
authorization of additional common stock.
b. Western
Asset votes for proposals to effect stock
splits (excluding reverse stock splits).
c. Western
Asset votes for proposals authorizing share
repurchase programs.
4.
Matters relating to Acquisitions, Mergers, Reorganizations and Other
Transactions
Western Asset votes these
issues on a case-by-case basis on board-approved transactions.
5.
Matters relating to Anti-Takeover Measures
Western Asset votes against
board-approved proposals to adopt anti-takeover measures except as follows:
a. Western
Asset votes on a case-by-case basis on
proposals to ratify or approve shareholder rights plans.
b. Western
Asset votes on a case-by-case basis on
proposals to adopt fair price provisions.
6.
Other Business Matters
Western Asset votes for
board-approved proposals approving such routine business matters such as
changing the companys name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting.
a. Western
Asset votes on a case-by-case basis on
proposals to amend a companys charter or bylaws.
b. Western
Asset votes against authorization to
transact other unidentified, substantive business at the meeting.
II.
Shareholder Proposals
SEC regulations permit
shareholders to submit proposals for inclusion in a companys proxy statement.
These proposals generally seek to change some aspect of a companys corporate
governance structure or to change some aspect of its business operations.
Western Asset votes in accordance with the recommendation of the companys
board of directors on all shareholder proposals, except as follows:
1. Western Asset votes for
shareholder proposals to require shareholder approval of shareholder rights
plans.
2. Western Asset votes for
shareholder proposals that are consistent with Western Assets proxy voting
guidelines for board-approved proposals.
3. Western Asset votes on a
case-by-case basis on other shareholder proposals where the firm is otherwise
withholding votes for the entire board of directors.
III.
Voting Shares of Investment Companies
Western Asset may utilize
shares of open or closed-end investment companies to implement its investment
strategies. Shareholder votes for investment companies that fall within the
categories listed in Parts I and II above are voted in accordance with those
guidelines.
1. Western Asset votes on a
case-by-case basis on proposals relating to changes in the investment
objectives of an investment company taking into account the original intent of
the fund and the role the fund plays in the clients portfolios.
2. Western Asset votes on a
case-by-case basis all proposals that would result in increases in expenses
(e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements
or approve fund mergers) taking into account comparable expenses for similar
funds and the services to be provided.
IV.
Voting Shares of Foreign Issuers
In the event Western Asset
is required to vote on securities held in foreign issuers i.e. issuers that
are incorporated under the laws of a foreign jurisdiction and that are not
listed on a U.S. securities exchange or the NASDAQ stock market, the following
guidelines are used, which are premised on the existence of a sound corporate
governance and disclosure framework. These guidelines, however, may not be
appropriate under some circumstances for foreign issuers and therefore apply
only where applicable.
1. Western Asset votes for
shareholder proposals calling for a majority of the directors to be independent
of management.
2. Western Asset votes for
shareholder proposals seeking to increase the independence of board nominating,
audit and compensation committees.
3. Western Asset votes for
shareholder proposals that implement corporate governance standards similar to
those established under U.S. federal law and the listing requirements of U.S.
stock exchanges, and that do not otherwise violate the
laws of the jurisdiction under which the company is incorporated.
4. Western Asset votes on a
case-by-case basis on proposals relating to (1) the issuance of common
stock in excess of 20% of a companys outstanding common stock where
shareholders do not have preemptive rights, or (2) the issuance of common
stock in excess of 100% of a companys outstanding common stock where
shareholders have preemptive rights.
Item 8.
Portfolio Managers of
Closed-End Management Investment Companies.
(a)(1):
NAME AND
ADDRESS
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PRINCIPAL OCCUPATION(S) DURING
PAST 5 YEARS
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S.
Kenneth Leech
Western
Asset
385 East
Colorado Blvd.
Pasadena, CA
91101
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Co-portfolio
manager of the fund; Chief Investment Officer of Western Asset from 1998 to
2008; Senior Advisor/Chief Investment Officer Emeritus of Western Asset.
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Stephen
A. Walsh
Western
Asset
385 East
Colorado Blvd.
Pasadena, CA
91101
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Co-portfolio
manager of the fund; Deputy Chief Investment Officer of Western Asset from
2000 to 2008; Chief Investment Officer of Western Asset since 2008.
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Ron
D. Mass
Western Asset
385 East
Colorado
Blvd.
Pasadena, CA
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Co-portfolio
manager of the fund; portfolio manager/research analyst with Western Asset
and has been employed as portfolio manager/research analyst with Western
Asset for at least the past five years.
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(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect to the funds portfolio managers for the fund. Unless noted otherwise, all information is provided as of December 31, 2009.
Other Accounts Managed by Portfolio Managers
The table below identifies the number of accounts (other than the fund) for which the funds portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.
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Registered
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Other Pooled
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Portfolio
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Investment
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Investment
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Other
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Manager(s)
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Companies
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Vehicles
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Accounts
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S.
Kenneth Leech
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108
registered investment companies with $184.2 billion in total assets under
management
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229
Other pooled investment vehicles with $107.7 billion in assets under management*
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832
Ot
her accounts with $190.2 on in total assets under management**
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Stephen
A. Walsh
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108
registered investment companies with $184.2 billion in total assets under
management
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229
Other pooled investment vehicles with $107.7 billion in assets under
management*
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832
Other
accounts with $190.2 billion in total assets under management**
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Ron D. Mass
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0
registered investment Companies with $0 billion in total assets Under
management
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10 Other pooled investment
vehicles with $1.7 billion in assets under management ***
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3
Other accounts with $0.3 billion in total assets under management
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*
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Includes
6 accounts managed, totaling $1.1 billion, for which advisory fee is
performance based.
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**
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Includes 93 accounts managed,
totaling $24.2 billion, for which advisory fee is performance based.
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***
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Includes 3 accounts managed,
totaling $0.6 billion, for which advisory fee is performance based.
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The numbers above reflect the overall number of portfolios
managed by employees of Western Asset Management Company (Western
Asset). Mr. Leech and Mr. Walsh
are involved in the management of all the Firms portfolios, but they are not
solely responsible for particular portfolios.
Western Assets investment discipline emphasizes a team approach that
combines the efforts of groups of specialists working in different market
sectors. They are responsible for overseeing implementation of Western Assets
overall investment ideas and coordinating the work of the various sector teams.
This structure ensures that client portfolios benefit from a consensus that
draws on the expertise of all team members.
(a)(3):
Portfolio Manager Compensation
With respect to the
compensation of the portfolio managers, Western Assets compensation system
assigns each employee a total compensation range, which is derived from annual
market surveys that benchmark each role with its job function and peer
universe. This method is designed to reward employees with total compensation
reflective of the external market value of their skills, experience, and
ability to produce desired results. Standard compensation includes competitive
base salaries, generous employee benefits, and a retirement plan.
In addition, the
subadvisers employees are eligible for bonuses. These are structured to
closely align the interests of employees with those of the subadviser, and are
determined by the professionals job function and pre-tax performance as
measured by a formal review process. All bonuses are completely discretionary.
The principal factor considered is a portfolio managers investment performance
versus appropriate peer groups and benchmarks (
e.g
.,
a securities index and with respect to a fund, the benchmark set forth in the
funds Prospectus to which the funds average annual total returns are compared
or, if none, the benchmark set forth in the funds annual report). Performance
is reviewed on a 1, 3 and 5 year basis for compensationwith 3 years having the
most emphasis. The subadviser may also measure a portfolio
managers
pre-tax
investment performance against other benchmarks, as it determines appropriate.
Because portfolio managers are generally responsible for multiple accounts
(including the funds) with similar investment strategies, they are generally
compensated on the performance of the aggregate group of similar accounts,
rather than a specific account. Other factors that may be considered when
making bonus decisions include client service, business development, length of
service to the subadviser, management or supervisory responsibilities,
contributions to developing business strategy and overall contributions to the
subadvisers business.
Finally, in order to attract
and retain top talent, all professionals are eligible for additional incentives
in recognition of outstanding performance. These are determined based upon the
factors described above and include Legg Mason stock options and long-term
incentives that vest over a set period of time past the award date.
Potential Conflicts of Interest
Conflicts of Interest
The manager, subadvisers and
portfolio managers have interests which conflict with the interests of the
fund. There is no guarantee that the policies and procedures adopted by the
manager, the subadvisers and the fund will be able to identify or mitigate
these conflicts of interest.
Some examples of material
conflicts of interest include:
Allocation of Limited Time and Attention
.
A portfolio
manager who is responsible for managing multiple funds and/or accounts may
devote unequal time and attention to the management of those funds and/or
accounts. A portfolio manager may not be able to formulate as complete a
strategy or identify equally attractive investment opportunities for each of
those funds and accounts as might be the case if he or she were to devote
substantially more attention to the management of a single fund. Such a
portfolio manager may make general determinations across multiple funds, rather
than tailoring a unique approach for each fund. The effects of this conflict
may be more pronounced where funds and/or accounts overseen by a particular
portfolio manager have different investment strategies.
Allocation of Limited Investment Opportunities; Aggregation
of Orders
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If a portfolio manager
identifies a limited investment opportunity that may be suitable for multiple
funds and/or accounts, the opportunity may be allocated among these several
funds or accounts, which may limit the funds ability to take full advantage of
the investment opportunity. Additionally, a subadviser may aggregate transaction
orders for multiple accounts for purpose of execution. Such aggregation may
cause the price or brokerage costs to be less favorable to a particular client
than if similar transactions were not being executed concurrently for other
accounts. In addition, a subadvisers trade allocation policies may result in
the funds orders not being fully executed or being delayed in execution.
Pursuit of Differing Strategies
.
At times, a
portfolio manager may determine that an investment opportunity may be appropriate
for only some of the funds and/or accounts for which he or she exercises
investment responsibility, or may decide that certain of the funds and/or
accounts should take differing positions with respect to a particular security.
In these cases, the portfolio manager may place separate transactions for one
or more funds or accounts which may affect the market price of the security or
the execution of the transaction, or both, to the detriment or benefit of one
or more other funds and/or accounts. For example, a portfolio manager may
determine that it would be in the interest of another account to sell a
security that the fund holds long, potentially resulting in a decrease in the
market value of the security held by the fund.
Cross
Trades
. Portfolio managers may manage funds that engage in cross trades,
where one of the managers funds or accounts sells a particular security to
another fund or account managed by the same manager. Cross trades may pose
conflicts of interest because of, for example, the possibility that one account
sells a security to another account at a higher price than an independent third
party would pay or otherwise enters into a transaction that it would not enter
into with an independent party, such as the sale of a difficult-to-obtain
security.
Selection of Broker/Dealers
.
Portfolio
managers may select or influence the selection of the brokers and dealers that
are used to execute securities transactions for the funds and/or accounts that
they supervise. In addition to executing trades, some brokers and dealers
provide subadvisers with brokerage and research services, These services may be
taken into account in the selection of brokers and dealers whether a broker is
being selected to effect a trade on an agency basis for a commission or (as is
normally the case for the funds) whether a dealer is being selected to effect a
trade on a principal basis. This may result in the payment of higher brokerage
fees and/or execution at a less favorable price than might have otherwise been
available. The services obtained may ultimately be more beneficial to certain
of the managers funds or accounts than to others (but not necessarily to the
funds that pay the increased commission or incur the less favorable execution).
A decision as to the selection of brokers and dealers could therefore yield
disproportionate costs and benefits among the funds and/or accounts managed.
Variation
in Financial and Other Benefits
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A conflict of
interest arises where the financial or other benefits available to a portfolio
manager differ among the funds and/or accounts that he or she manages. If the
amount or structure of the investment managers management fee and/or a
portfolio managers compensation differs among funds and/or accounts (such as
where certain funds or accounts pay higher management fees or performance-based
management fees), the portfolio manager might be motivated to help certain
funds and/or accounts over others. Similarly, the desire to maintain assets
under management or to enhance the portfolio managers performance record or to
derive other rewards, financial or otherwise, could influence the portfolio
manager in affording preferential treatment to those funds and/or accounts that
could most significantly benefit the portfolio manager. A portfolio manager
may, for example, have an incentive to allocate favorable or limited
opportunity investments or structure the timing of investments to favor such
funds and/or accounts. Also, a portfolio managers or the managers or a
subadvisers desire to increase assets under management could influence the
portfolio manager to keep a fund open for new investors without regard to
potential benefits of closing the fund to new investors. Additionally, the
portfolio manager might be motivated to favor funds and/or accounts in which he
or she has an ownership interest or in which the investment manager and/or its
affiliates have ownership interests. Conversely, if a portfolio manager does
not personally hold an investment in the fund, the portfolio managers conflicts
of interest with respect to the fund may be more acute.
Related
Business Opportunities
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The investment manager or
its affiliates may provide more services (such as distribution or
recordkeeping) for some types of funds or accounts than for others. In such
cases, a portfolio manager may benefit, either directly or indirectly, by
devoting disproportionate attention to the management of funds and/or accounts
that provide greater overall returns to the investment manager and its
affiliates.
(a)(4):
Portfolio Manager Securities Ownership
The table below identifies the dollar range of
securities beneficially owned by each portfolio managers as of December 31,
2009.
Portfolio Manager(s)
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Dollar Range of
Portfolio
Securities
Beneficially
Owned
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S.
Kenneth Leech
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A
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Stephen
A. Walsh
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C
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Ron
D. Mass
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A
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Dollar
Range ownership is as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
Item 9.
Purchases of Equity Securities
by Closed-End Management Investment Companies and Affiliated Purchasers.
None.
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)
Code
of Ethics subject to the disclosure required by Item 2 filed as an
exhibit hereto.
(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.
(c)
Proxy Voting Policies and Procedures
pursuant to the disclosure required by Item 7 filed as an exhibit
hereto.
SIGNATURES
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:
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/s/ R. Jay Gerken
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R. Jay Gerken
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Trustee and President
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Western Asset Premier Bond Fund
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Date:
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March 1, 2010
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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:
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/s/ R. Jay Gerken
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R. Jay Gerken
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Trustee and President
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Western Asset Premier Bond Fund
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Date:
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March 1, 2010
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By:
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/s/ Frances M. Guggino
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Frances M. Guggino
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Principal Financial and
Accounting Officer
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Western Asset Premier Bond Fund
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Date:
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March 1, 2010
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