The Board may amend the terms of the Plan or terminate the
Plan at any time without prior notice to the Fund’s shareholders, however, at this time there are no reasonably foreseeable circumstances that might cause the termination of the Plan. The amendment or termination of the Plan could have an
adverse effect on the market price of the Fund’s common shares. The Plan is subject to the periodic review by the Board to determine if an adjustment should be made.
Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the current distribution or
from the terms of the Fund’s Plan. The Fund will send a Form 1099-DIV to shareholders for the calendar year that will describe how to report the Fund’s distributions for federal income tax purposes.
At June 30, 2022, the Fund had the following open reverse repurchase agreements:
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
21 |
|
Statement of assets and liabilities (unaudited)
June 30, 2022
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
| Investments in unaffiliated securities, at value (Cost — $1,024,860,626) |
|
$ |
840,959,059 |
|
| Investments in affiliated securities, at value (Cost — $25,310,206) |
|
|
25,310,206 |
|
| Foreign currency, at value (Cost — $1,928,322) |
|
|
1,752,369 |
|
| Cash |
|
|
7,263,800 |
|
| Interest receivable |
|
|
14,688,750 |
|
| Deposits with brokers for open futures contracts |
|
|
2,505,703 |
|
| Unrealized appreciation on forward foreign currency contracts |
|
|
1,727,649 |
|
| Dividends receivable from affiliated investments |
|
|
12,498 |
|
| Deposits with brokers for centrally cleared swap contracts |
|
|
43 |
|
| Prepaid expenses |
|
|
722 |
|
| Total Assets |
|
|
894,220,799 |
|
|
|
| Liabilities: |
|
|
|
|
| Loan payable (Note 5) |
|
|
270,000,000 |
|
| Payable for securities purchased |
|
|
11,919,593 |
|
| Payable for open reverse repurchase agreements (Note 3) |
|
|
6,710,428 |
|
| Distributions payable |
|
|
4,819,681 |
|
| Payable to brokers — net variation margin on open futures contracts |
|
|
1,085,982 |
|
| Investment management fee payable |
|
|
636,254 |
|
| Deposits from brokers for OTC derivatives |
|
|
550,000 |
|
| Interest expense payable |
|
|
430,219 |
|
| Unrealized depreciation on forward foreign currency contracts |
|
|
267,108 |
|
| Deposits from brokers for open reverse repurchase agreements |
|
|
261,000 |
|
| Directors’ fees payable |
|
|
35,548 |
|
| Accrued foreign capital gains tax |
|
|
30,028 |
|
| Written options, at value (premiums received — $177,840) |
|
|
25,388 |
|
| Accrued expenses |
|
|
222,753 |
|
| Total Liabilities |
|
|
296,993,982 |
|
| Total Net Assets |
|
$ |
597,226,817 |
|
|
|
| Net Assets: |
|
|
|
|
| Par value ($0.001 par value; 60,246,012 shares issued and outstanding; 100,000,000 shares
authorized) |
|
$ |
60,246 |
|
| Paid-in capital in excess of par value |
|
|
1,033,723,146 |
|
| Total distributable earnings (loss) |
|
|
(436,556,575) |
|
| Total Net Assets |
|
$ |
597,226,817 |
|
|
|
| Shares Outstanding |
|
|
60,246,012 |
|
|
|
| Net Asset Value |
|
|
$9.91 |
|
See Notes to Financial Statements.
|
|
|
|
|
| 22 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
Statement of operations (unaudited)
For the Six Months Ended June 30, 2022
|
|
|
|
|
|
|
| Investment Income: |
|
|
|
|
| Interest |
|
$ |
30,613,931 |
|
| Dividends from affiliated investments |
|
|
22,411 |
|
| Less: Foreign taxes withheld |
|
|
(193,356) |
|
| Total Investment
Income |
|
|
30,442,986 |
|
|
|
| Expenses: |
|
|
|
|
| Investment management fee (Note 2) |
|
|
4,305,671 |
|
| Interest expense (Notes 3 and 5) |
|
|
1,720,897 |
|
| Transfer agent fees |
|
|
147,677 |
|
| Directors’ fees |
|
|
126,813 |
|
| Legal fees |
|
|
80,647 |
|
| Fund accounting fees |
|
|
37,462 |
|
| Custody fees |
|
|
35,121 |
|
| Audit and tax fees |
|
|
33,513 |
|
| Stock exchange listing fees |
|
|
15,427 |
|
| Shareholder reports |
|
|
10,322 |
|
| Insurance |
|
|
2,110 |
|
| Miscellaneous expenses |
|
|
4,846 |
|
| Total Expenses |
|
|
6,520,506 |
|
| Less: Fee waivers and/or expense reimbursements (Note 2) |
|
|
(4,074) |
|
| Net Expenses |
|
|
6,516,432 |
|
| Net Investment Income |
|
|
23,926,554 |
|
|
|
| Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency
Transactions (Notes 1, 3 and 4): |
|
|
|
|
| Net Realized Gain (Loss) From: |
|
|
|
|
| Investment transactions in unaffiliated securities |
|
|
(51,491,554) |
|
| Futures contracts |
|
|
13,704,829 |
|
| Written options |
|
|
840,166 |
|
| Swap contracts |
|
|
(1,489,794) |
|
| Forward foreign currency contracts |
|
|
3,244,771 |
|
| Foreign currency transactions |
|
|
62,572 |
|
| Net Realized Loss |
|
|
(35,129,010) |
|
| Change in Net Unrealized Appreciation (Depreciation) From: |
|
|
|
|
| Investments in unaffiliated securities |
|
|
(191,318,436) |
‡ |
| Futures contracts |
|
|
1,384,824 |
|
| Written options |
|
|
11,965 |
|
| Swap contracts |
|
|
1,575,971 |
|
| Forward foreign currency contracts |
|
|
1,556,321 |
|
| Foreign currencies |
|
|
(115,972) |
|
| Change in Net Unrealized Appreciation
(Depreciation) |
|
|
(186,905,327) |
|
| Net Loss on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions |
|
|
(222,034,337) |
|
| Decrease in Net Assets From Operations |
|
$ |
(198,107,783) |
|
| ‡ |
Net of change in accrued foreign capital gains tax of $30,028. |
See Notes to Financial Statements.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
23 |
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2022 (unaudited)
and the Year Ended December 31, 2021 |
|
2022 |
|
|
2021 |
|
|
|
|
| Operations: |
|
|
|
|
|
|
|
|
| Net investment income |
|
$ |
23,926,554 |
|
|
$ |
56,873,630 |
|
| Net realized loss |
|
|
(35,129,010) |
|
|
|
(13,475,034) |
|
| Change in net unrealized appreciation (depreciation) |
|
|
(186,905,327) |
|
|
|
(79,413,010) |
|
| Decrease in Net Assets From
Operations |
|
|
(198,107,783) |
|
|
|
(36,014,414) |
|
|
|
|
| Distributions to Shareholders From (Note 1): |
|
|
|
|
|
|
|
|
| Total distributable earnings |
|
|
(32,025,751) |
|
|
|
(38,642,868) |
|
| Return of capital |
|
|
— |
|
|
|
(26,962,825) |
|
| Decrease in Net Assets From Distributions
to Shareholders |
|
|
(32,025,751) |
|
|
|
(65,605,693) |
|
|
|
|
| Fund Share Transactions: |
|
|
|
|
|
|
|
|
| Cost of shares repurchased (500,000 and 0 shares repurchased, respectively) (Note
7) |
|
|
(5,175,727) |
|
|
|
— |
|
| Decrease in Net Assets From Fund Share
Transactions |
|
|
(5,175,727) |
|
|
|
— |
|
| Decrease in Net
Assets |
|
|
(235,309,261) |
|
|
|
(101,620,107) |
|
|
|
|
| Net Assets: |
|
|
|
|
|
|
|
|
| Beginning of period |
|
|
832,536,078 |
|
|
|
934,156,185 |
|
| End of period |
|
$ |
597,226,817 |
|
|
$ |
832,536,078 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
24 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
Statement of cash flows (unaudited)
For the Six Months Ended June 30, 2022
|
|
|
|
|
|
|
| Increase (Decrease) in Cash: |
|
|
|
|
| Cash Flows from Operating Activities: |
|
|
|
|
| Net decrease in net assets resulting from operations |
|
$ |
(198,107,783) |
|
| Adjustments to reconcile net decrease in net assets resulting from operations to
net cash provided (used) by operating activities: |
|
|
|
|
| Purchases of portfolio securities |
|
|
(220,399,891) |
|
| Sales of portfolio securities |
|
|
285,519,236 |
|
| Net purchases, sales and maturities of short-term investments |
|
|
(21,445,438) |
|
| Net amortization of premium (accretion of discount) |
|
|
(1,005,908) |
|
| Decrease in interest receivable |
|
|
3,508,503 |
|
| Decrease in prepaid expenses |
|
|
2,111 |
|
| Increase in dividends receivable from affiliated investments |
|
|
(12,467) |
|
| Decrease in payable to broker — net variation margin on centrally cleared swap
contracts |
|
|
(9,650) |
|
| Decrease in deposits from brokers for open reverse repurchase agreements |
|
|
(1,092,000) |
|
| Increase in deposits from brokers for OTC derivatives |
|
|
550,000 |
|
| Increase in payable for securities purchased |
|
|
11,919,593 |
|
| Decrease in investment management fee payable |
|
|
(211,418) |
|
| Decrease in Directors’ fees payable |
|
|
(5,384) |
|
| Increase in interest expense payable |
|
|
268,582 |
|
| Increase in accrued expenses |
|
|
30,438 |
|
| Decrease in premiums received from written options |
|
|
(138,962) |
|
| Increase in payable to broker — net variation margin on open futures
contracts |
|
|
827,919 |
|
| Net realized loss on investments |
|
|
51,491,554 |
|
| Change in net unrealized appreciation (depreciation) of investments, written options and
forward foreign currency contracts |
|
|
189,750,150 |
|
| Net Cash Provided in Operating
Activities* |
|
|
101,439,185 |
|
|
|
| Cash Flows from Financing Activities: |
|
|
|
|
| Distributions paid on common stock (net of distributions payable) |
|
|
(27,206,070) |
|
| Repayment of loan facility borrowings |
|
|
(25,000,000) |
|
| Decrease in payable for open reverse repurchase agreements |
|
|
(38,273,635) |
|
| Payment for Fund shares repurchased |
|
|
(5,175,727) |
|
| Net Cash Used by Financing
Activities |
|
|
(95,655,432) |
|
| Net Increase in Cash and Restricted Cash |
|
|
5,783,753 |
|
| Cash and restricted cash at beginning of period |
|
|
5,738,162 |
|
| Cash and restricted cash at end of period |
|
$ |
11,521,915 |
|
| * |
Included in operating expenses is $1,452,315 paid for interest on borrowings. |
See Notes to Financial Statements.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
25 |
|
Statement of cash flows
(unaudited) (cont’d)
For the Six Months Ended June 30, 2022
| |
The following table provides a reconciliation of cash (including foreign currency) and restricted cash reported within the
Statement of Assets and Liabilities that sums to the total of such amounts shown on the Statement of Cash Flows. |
|
|
|
|
|
| |
|
June 30, 2022 |
|
| Cash |
|
$ |
9,016,169 |
|
| Restricted cash |
|
|
2,505,746 |
|
| Total cash and restricted cash shown in the Statement of Cash Flows |
|
$ |
11,521,915 |
|
| |
Restricted cash consists of cash that has been segregated to cover the Fund’s collateral or margin obligations under
derivative contracts. It is separately reported on the Statement of Assets and Liabilities as Deposits with brokers. |
See Notes to Financial Statements.
|
|
|
|
|
|
26 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
Financial highlights
|
For a share of capital stock outstanding throughout each year ended December 31,
unless otherwise noted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
20221,2 |
|
|
20211 |
|
|
20201 |
|
|
20191 |
|
|
20181 |
|
|
20171 |
|
|
|
|
|
|
|
|
| Net asset value, beginning of period |
|
|
$13.71 |
|
|
|
$15.38 |
|
|
|
$15.78 |
|
|
|
$14.71 |
|
|
|
$17.59 |
|
|
|
$17.10 |
|
|
|
|
|
|
|
|
| Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income |
|
|
0.40 |
|
|
|
0.94 |
|
|
|
0.96 |
|
|
|
1.16 |
|
|
|
1.06 |
|
|
|
1.17 |
|
| Net realized and unrealized gain (loss) |
|
|
(3.68) |
|
|
|
(1.53) |
|
|
|
(0.18) |
|
|
|
1.11 |
|
|
|
(2.74) |
|
|
|
0.53 |
|
| Total income (loss) from
operations |
|
|
(3.28) |
|
|
|
(0.59) |
|
|
|
0.78 |
|
|
|
2.27 |
|
|
|
(1.68) |
|
|
|
1.70 |
|
|
|
|
|
|
|
|
| Less distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income |
|
|
(0.53) |
3 |
|
|
(0.64) |
|
|
|
(0.62) |
|
|
|
(1.02) |
|
|
|
(1.07) |
|
|
|
(1.13) |
|
| Return of capital |
|
|
— |
|
|
|
(0.44) |
|
|
|
(0.56) |
|
|
|
(0.18) |
|
|
|
(0.13) |
|
|
|
(0.08) |
|
| Total
distributions |
|
|
(0.53) |
|
|
|
(1.08) |
|
|
|
(1.18) |
|
|
|
(1.20) |
|
|
|
(1.20) |
|
|
|
(1.21) |
|
| Anti-dilutive impact of repurchase plan |
|
|
0.01 |
4 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
| Net asset value, end of period |
|
|
$9.91 |
|
|
|
$13.71 |
|
|
|
$15.38 |
|
|
|
$15.78 |
|
|
|
$14.71 |
|
|
|
$17.59 |
|
|
|
|
|
|
|
|
| Market price, end of period |
|
|
$8.83 |
|
|
|
$12.80 |
|
|
|
$13.90 |
|
|
|
$14.27 |
|
|
|
$12.29 |
|
|
|
$15.55 |
|
| Total return, based on NAV5,6 |
|
|
(24.29) |
% |
|
|
(4.06) |
% |
|
|
5.86 |
% |
|
|
15.76 |
% |
|
|
(9.78) |
% |
|
|
10.17 |
% |
| Total return, based on Market Price7 |
|
|
(27.40) |
% |
|
|
(0.34) |
% |
|
|
6.80 |
% |
|
|
26.49 |
% |
|
|
(13.68) |
% |
|
|
14.22 |
% |
|
|
|
|
|
|
|
| Net assets, end of period (millions) |
|
|
$597 |
|
|
|
$833 |
|
|
|
$934 |
|
|
|
$958 |
|
|
|
$893 |
|
|
|
$1,068 |
|
|
|
|
|
|
|
|
| Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross expenses |
|
|
1.84 |
%8 |
|
|
1.59 |
% |
|
|
1.85 |
% |
|
|
2.49 |
% |
|
|
2.39 |
% |
|
|
1.83 |
%9 |
| Net expenses10 |
|
|
1.84 |
8,11 |
|
|
1.59 |
11 |
|
|
1.84 |
11 |
|
|
2.49 |
|
|
|
2.35 |
11 |
|
|
1.79 |
9,11 |
| Net investment income |
|
|
6.75 |
8 |
|
|
6.43 |
|
|
|
6.59 |
|
|
|
7.41 |
|
|
|
6.66 |
|
|
|
6.66 |
|
|
|
|
|
|
|
|
| Portfolio turnover rate |
|
|
22 |
% |
|
|
34 |
% |
|
|
57 |
% |
|
|
29 |
% |
|
|
42 |
% |
|
|
33 |
% |
|
|
|
|
|
|
|
| Supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loan Outstanding, End of Period (000s) |
|
|
$270,000 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
| Asset Coverage Ratio for Loan Outstanding12
|
|
|
321 |
% |
|
|
382 |
% |
|
|
417 |
% |
|
|
425 |
% |
|
|
403 |
% |
|
|
462 |
% |
| Asset Coverage, per $1,000 Principal Amount of Loan Outstanding12 |
|
|
$3,212 |
|
|
|
$3,822 |
|
|
|
$4,167 |
|
|
|
$4,248 |
|
|
|
$4,028 |
|
|
|
$4,622 |
|
| Weighted Average Loan (000s) |
|
|
$287,818 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
|
|
$295,000 |
|
| Weighted Average Interest Rate on Loan |
|
|
1.16 |
% |
|
|
0.79 |
% |
|
|
1.19 |
% |
|
|
2.96 |
% |
|
|
2.82 |
% |
|
|
1.89 |
% |
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
27 |
|
Financial highlights (cont’d)
| 1 |
Per share amounts have been calculated using the average shares method. |
| 2 |
For the six months ended June 30, 2022 (unaudited). |
| 3 |
The actual source of the Fund’s current fiscal year distributions may be from net investment income, return of
capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year. |
| 4 |
The repurchase plan was completed at an average repurchase price of $10.35 for 500,000 shares and $5,175,727 for the six
months ended June 30, 2022. |
| 5 |
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the
absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
|
| 6 |
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future
results. Total returns for periods of less than one year are not annualized. |
| 7 |
The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend
reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 9 |
Included in the expense ratios are certain non-recurring reorganization fees that
were incurred by the Fund during the period. Without these fees, the gross and net expense ratios would have been 1.82% and 1.78%, respectively, for the year ended December 31, 2017. |
| 10 |
The manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee
payable in connection with any investment in an affiliated money market fund. |
| 11 |
Reflects fee waivers and/or expense reimbursements. |
| 12 |
Represents value of net assets plus the loan outstanding at the end of the period divided by the loan outstanding at the
end of the period. |
See Notes to
Financial Statements.
|
|
|
|
|
|
28 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
Western Asset Emerging Markets Debt Fund Inc. (the “Fund”) was incorporated in Maryland on April 16, 2003 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Directors authorized
100 million shares of $0.001 par value common stock. The Fund’s primary investment objective is to seek high current income and the Fund’s secondary objective is to seek capital appreciation.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles
(“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The valuations for fixed income securities (which may include, but are not
limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which
may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield curves,
prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of
valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or
official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern
Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from
one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of
a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in
accordance with procedures approved by the Fund’s Board of Directors.
The Board of Directors is responsible for the valuation process and has delegated the
supervision of the daily valuation process to the Global Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value
determinations, evaluating the
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
29 |
|
Notes to financial statements
(unaudited) (cont’d)
effectiveness of the Fund’s pricing policies, and reporting to the Board of Directors. When
determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews
transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value
determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield
analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not
limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and
observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar
securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been
fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and
fair valuation occurrences are reported to the Board of Directors quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the
market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities.
The income approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes the
inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| • |
|
Level 1 — quoted prices in active markets for identical investments |
| • |
|
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates,
prepayment speeds, credit risk, etc.) |
| • |
|
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair
value of investments) |
|
|
|
|
|
|
30 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
The inputs or methodologies used to value securities
are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the
Fund’s assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS |
|
| Description |
|
Quoted Prices
(Level 1) |
|
|
Other Significant
Observable Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
| Long-Term Investments†: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sovereign Bonds |
|
|
— |
|
|
$ |
487,899,108 |
|
|
|
— |
|
|
$ |
487,899,108 |
|
| Corporate Bonds & Notes |
|
|
— |
|
|
|
352,900,017 |
|
|
|
— |
|
|
|
352,900,017 |
|
| Purchased Options |
|
|
— |
|
|
|
159,934 |
|
|
|
— |
|
|
|
159,934 |
|
| Total Long-Term Investments |
|
|
— |
|
|
|
840,959,059 |
|
|
|
— |
|
|
|
840,959,059 |
|
| Short-Term Investments† |
|
$ |
25,310,206 |
|
|
|
— |
|
|
|
— |
|
|
|
25,310,206 |
|
| Total Investments |
|
$ |
25,310,206 |
|
|
$ |
840,959,059 |
|
|
|
— |
|
|
$ |
866,269,265 |
|
| Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Futures Contracts†† |
|
$ |
691,027 |
|
|
|
— |
|
|
|
— |
|
|
$ |
691,027 |
|
| Forward Foreign Currency Contracts†† |
|
|
— |
|
|
$ |
1,727,649 |
|
|
|
— |
|
|
|
1,727,649 |
|
| Total Other Financial Instruments |
|
$ |
691,027 |
|
|
$ |
1,727,649 |
|
|
|
— |
|
|
$ |
2,418,676 |
|
| Total |
|
$ |
26,001,233 |
|
|
$ |
842,686,708 |
|
|
|
— |
|
|
$ |
868,687,941 |
|
|
| LIABILITIES |
|
| Description |
|
Quoted Prices
(Level 1) |
|
|
Other Significant
Observable Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
| Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Written Options |
|
|
— |
|
|
$ |
25,388 |
|
|
|
— |
|
|
$ |
25,388 |
|
| Forward Foreign Currency Contracts†† |
|
|
— |
|
|
|
267,108 |
|
|
|
— |
|
|
|
267,108 |
|
| Total |
|
|
— |
|
|
$ |
292,496 |
|
|
|
— |
|
|
$ |
292,496 |
|
| † |
See Schedule of Investments for additional detailed categorizations. |
| †† |
Reflects the unrealized appreciation (depreciation) of the instruments. |
(b) Purchased options. When the Fund purchases an option, an amount equal
to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities, the value of which is marked-to-market to reflect the current
market value of the option purchased. If the purchased option expires, the Fund realizes a loss equal to the amount of premium paid. When an instrument is purchased or sold through the exercise of an option, the related premium paid is added to the
basis of the instrument acquired or deducted from the proceeds of the instrument sold. The risk associated with purchasing put and call options is limited to the premium paid.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
31 |
|
Notes to financial statements
(unaudited) (cont’d)
(c) Written options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a
written call option is exercised, the difference between the premium received plus the option exercise price and the Fund’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying
security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the
security purchased by the Fund from the exercise of the written put option to form the Fund’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of
the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option
is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to the
risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(d) Futures contracts. The Fund uses futures contracts generally to gain
exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a
specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain
percentage of the contract amount. This is known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the
value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized
appreciation or depreciation in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve,
to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(e) Forward foreign currency contracts. The Fund enters into a forward
foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction.
A forward foreign currency contract is an agreement between two
|
|
|
|
|
|
32 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
parties to buy and sell a currency at a set price
with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When
a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the
time it was opened and the value of the contract at the time it is closed.
Non-deliverable forward foreign currency exchange
contracts are settled with the counterparty in cash without the delivery of foreign currency.
Forward foreign currency contracts involve elements of market risk in
excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these
contracts from the potential inability of the counterparties to meet the terms of their contracts.
(f) Swap
agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those
associated with other portfolio transactions. Swap agreements are privately negotiated in the over-the-counter market and may be entered into as a bilateral contract
(“OTC Swaps”) or centrally cleared (“Centrally Cleared Swaps”). Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.
In a Centrally Cleared Swap, immediately following execution of the swap, the swap agreement is submitted to a clearinghouse or central counterparty (the
“CCP”) and the CCP becomes the ultimate counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker, acting in an agency capacity. All payments are settled with the CCP through the broker. Upon
entering into a Centrally Cleared Swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities.
Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is
recorded as a net receivable or payable for variation margin on the Statement of Assets and Liabilities. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required
to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted 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.
OTC Swap 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.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
33 |
|
Notes to financial statements
(unaudited) (cont’d)
These upfront payments are amortized over the life of the swap and are recognized as realized gain
or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.
The Fund’s maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of June 30, 2022, the
Fund did not hold any credit default swaps to sell protection.
For average notional amounts of swaps held during the six months ended June 30, 2022, see Note
4.
Credit default swaps
The
Fund enters into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to
receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the
referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to
the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller
of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a CDS agreement would be an amount
equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its
portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit
event occurs.
Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and
when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit
spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined
under the terms of the agreement. Credit spreads utilized in determining the period end market value of CDS agreements on corporate or sovereign issues are disclosed in the Schedule of Investments and serve as an indicator of the current status of
the payment/ performance risk and represent the likelihood or risk of default for credit derivatives. For CDS agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the
notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/ performance risk.
|
|
|
|
|
|
34 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
The Fund’s 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 Fund’s exposure to the counterparty). As the protection seller, the Fund’s maximum risk is the notional amount of the contract. CDS are
considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the
Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the
contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.
(g) Reverse
repurchase agreements. The Fund may enter into reverse repurchase agreements. Under the terms of a typical reverse repurchase agreement, a fund sells a security subject to an obligation to repurchase the
security from the buyer at an agreed upon time and price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds of the agreement may be restricted
pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Fund’s obligation to repurchase the securities. In entering into reverse repurchase agreements, the Fund will pledge cash, U.S. government
securities or other liquid debt obligations at least equal in value to its obligations with respect to reverse repurchase agreements or will take other actions permitted by law to cover its obligations. If the market value of the collateral declines
during the period, the Fund may be required to post additional collateral to cover its obligation. Cash collateral that has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any, will be reported separately in the
Statement of Assets and Liabilities. Securities pledged as collateral are noted in the Schedule of Investments. Interest payments made on reverse repurchase agreements are recognized as a component of “Interest expense” on the Statement of
Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
(h) Inflation-indexed bonds. Inflation-indexed bonds are fixed income
securities whose principal value or interest rate is periodically adjusted according to the rate of inflation. As the index measuring inflation changes, the principal value or interest rate of inflation-indexed bonds will be adjusted accordingly.
Inflation adjustments to the principal amount of inflation-indexed bonds are reflected as an increase or decrease to investment income on the Statement of Operations. Repayment of the original bond principal upon maturity (as adjusted for inflation)
is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
35 |
|
Notes to financial statements
(unaudited) (cont’d)
(i) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in
the Statements of Changes in Net Assets and additional information on cash receipts and cash payments is presented in the Statement of Cash Flows.
(j) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar
amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange
rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in
foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or
losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions
as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(k) Credit and market risk. The Fund invests in high-yield and emerging
market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s investments in securities rated
below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid
secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Fund’s investments in
non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
|
|
|
|
|
|
36 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
(l) Foreign investment risks.
The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or dividends in
foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(m) Other risks. Consistent with its objective to seek high current income,
the Fund may invest in instruments whose values and interest rates are linked to foreign currencies, interest rates, indices or some other financial indicator. The value at maturity or interest rates for these instruments will increase or decrease
according to the change in the indicator to which they are indexed, amongst other factors. These securities are generally more volatile in nature, and the risk of loss of principal may be greater.
(n) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other transactions where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may
also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The
Fund’s subadviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based
on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the subadviser. In addition,
declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and centrally cleared
derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract;
therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of
the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement
(“ISDA Master Agreement”) or similar agreement, with certain of its derivative counterparties that govern over-the-counter (“OTC”) derivatives and
provide for general obligations, representations, agreements,
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
37 |
|
Notes to financial statements
(unaudited) (cont’d)
collateral posting terms, netting provisions in the event of default or termination and credit
related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or net asset value per share over a specified period of time. If these credit related contingent
features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master
Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. However, absent an
event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities
across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by jurisdiction.
Collateral requirements
differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been
pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Schedule of
Investments.
As of June 30, 2022, the Fund held forward foreign currency contracts and OTC written options with credit related contingent features which had a
liability position of $292,496. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivative counterparties.
At June 30, 2022, the Fund held cash collateral from Citibank N.A. in the amount of $550,000 and the Fund held non-cash
collateral from Citibank N.A. and Goldman Sachs Group Inc. in the amounts of $479,147 and $146,051, respectively. This amount could be used to reduce the Fund’s exposure to the counterparty in the event of default.
(o) Security transactions and investment income. Security transactions are
accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of
discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the
specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of
default or credit event.
|
|
|
|
|
|
38 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
(p) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Pursuant to its Managed
Distribution Policy, the Fund intends to make regular monthly distributions to shareholders at a fixed rate per common share, which rate may be adjusted from time to time by the Fund’s Board of Directors. Under the Fund’s Managed
Distribution Policy, if, for any monthly distribution, the value of the Fund’s net investment income and net realized capital gain is less than the amount of the distribution, the difference will be distributed from the Fund’s net assets
(and may constitute a “return of capital”). The actual source of the Fund’s monthly distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax characteristics
of the distributions after the close of the 2022 fiscal year. The Board of Directors may modify, terminate or suspend the Managed Distribution Policy at any time, including when certain events would make part of the return of capital taxable to
shareholders. Any such modification, termination or suspension could have an adverse effect on the market price of the Fund’s shares. Distributions to shareholders of the Fund are recorded on the
ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(q) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by
credits earned on the Fund’s cash on deposit with the bank.
(r) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly,
the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Fund’s
financial statements.
Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of
December 31, 2021, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not
expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be
imposed on interest, dividends and capital gains at various rates. As of June 30, 2022, there were $30,028 of capital gains tax liabilities accrued on unrealized gains.
(s) Reclassification. GAAP requires that certain components of net assets
be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
39 |
|
Notes to financial statements
(unaudited) (cont’d)
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company, LLC (“Western
Asset”), Western Asset Management Company Limited (“Western Asset Limited”) and Western Asset Management Company Pte. Ltd. (“Western Asset Singapore”) are the Fund’s subadvisers. LMPFA, Western Asset, Western Asset
Limited and Western Asset Singapore are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).
Under the investment
management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.85% of the Fund’s average daily net assets plus the proceeds of any outstanding borrowings used for leverage and any
proceeds from the issuance of preferred stock.
LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to Western Asset the day-to-day portfolio management of the Fund. Western Asset Limited and Western Asset Singapore provide certain subadvisory services to the Fund relating to currency
transactions and investments in non-U.S. dollar denominated debt securities. Western Asset Limited and Western Asset Singapore do not receive any compensation from the Fund and are compensated by Western Asset
for their services to the Fund. For its services, LMPFA pays Western Asset a fee monthly, at an annual rate equal to 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Asset Limited and Western Asset
Singapore a monthly subadvisory fee in an amount equal to 100% of the management fee paid to Western Asset on the assets that Western Asset allocates to each such non-U.S. subadviser to manage.
During periods in which the Fund utilizes financial leverage, the fees paid to LMPFA will be higher than if the Fund did not utilize leverage because the fees are
calculated as a percentage of the Fund’s assets, including those investments purchased with leverage.
The manager has agreed to waive the Fund’s
management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund (the “affiliated money market fund waiver”).
During the six months ended June 30, 2022, fees waived and/or expenses reimbursed amounted to $4,074, all of which was an affiliated money market fund waiver.
All officers and one Director of the Fund are employees of Franklin Resources or its affiliates and do not receive compensation from the Fund.
|
|
|
|
|
|
40 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
3. Investments
During the six months ended June 30, 2022, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S.
Government & Agency Obligations were as follows:
|
|
|
|
|
|
|
|
|
| |
|
Investments |
|
|
U.S. Government &
Agency Obligations |
|
| Purchases |
|
$ |
220,399,891 |
|
|
|
— |
|
| Sales |
|
|
284,381,353 |
|
|
$ |
1,137,883 |
|
At June 30, 2022, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments
for federal income tax purposes were substantially as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost/Premiums
Paid (Received) |
|
|
Gross
Unrealized
Appreciation |
|
|
Gross
Unrealized
Depreciation |
|
|
Net
Unrealized
Appreciation
(Depreciation) |
|
| Securities |
|
$ |
1,050,170,832 |
|
|
$ |
8,519,058 |
|
|
$ |
(192,420,625) |
|
|
$ |
(183,901,567) |
|
| Written options |
|
|
(177,840) |
|
|
|
152,452 |
|
|
|
— |
|
|
|
152,452 |
|
| Futures contracts |
|
|
— |
|
|
|
691,027 |
|
|
|
— |
|
|
|
691,027 |
|
| Forward foreign currency contracts |
|
|
— |
|
|
|
1,727,649 |
|
|
|
(267,108) |
|
|
|
1,460,541 |
|
Transactions in reverse repurchase agreements for the Fund during the six months ended June 30, 2022 were as follows:
|
|
|
|
|
Average Daily
Balance* |
|
Weighted Average
Interest Rate* |
|
Maximum Amount
Outstanding |
| $25,408,089 |
|
0.499% |
|
$44,984,063 |
| * |
Averages based on the number of days that the Fund had reverse repurchase agreements outstanding. |
Interest rates on reverse repurchase agreements ranged from 0.280% to 1.850% during the six months ended June 30, 2022. Interest expense incurred on reverse
repurchase agreements totaled $43,991.
4. Derivative instruments and hedging activities
Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and
Liabilities at June 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
| ASSET DERIVATIVES1 |
| |
|
Interest
Rate Risk |
|
|
Foreign
Exchange Risk |
|
|
Total |
|
| Purchased options2 |
|
|
— |
|
|
$ |
159,934 |
|
|
$ |
159,934 |
|
| Futures contracts3 |
|
$ |
691,027 |
|
|
|
— |
|
|
|
691,027 |
|
| Forward foreign currency contracts |
|
|
— |
|
|
|
1,727,649 |
|
|
|
1,727,649 |
|
| Total |
|
$ |
691,027 |
|
|
$ |
1,887,583 |
|
|
$ |
2,578,610 |
|
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
41 |
|
Notes to financial statements
(unaudited) (cont’d)
|
|
|
|
|
| LIABILITY DERIVATIVES1 |
|
| |
|
Foreign
Exchange Risk |
|
| Written options |
|
$ |
25,388 |
|
| Forward foreign currency contracts |
|
|
267,108 |
|
| Total |
|
$ |
292,496 |
|
| 1 |
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability
derivatives is payables/net unrealized depreciation. |
| 2 |
Market value of purchased options is reported in Investments in unaffiliated securities at value in the Statement of
Assets and Liabilities. |
| 3 |
Includes cumulative unrealized appreciation (depreciation) of futures contracts as reported in the Schedule of
Investments. Only net variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities. |
The
following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the six months ended June 30, 2022. The first table provides additional detail about the amounts and
sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during
the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED |
|
| |
|
Interest
Rate Risk |
|
|
Foreign
Exchange Risk |
|
|
Credit Risk |
|
|
Total |
|
| Purchased options1 |
|
|
— |
|
|
$ |
(812,401) |
|
|
|
— |
|
|
$ |
(812,401) |
|
| Futures contracts |
|
$ |
13,704,829 |
|
|
|
— |
|
|
|
— |
|
|
|
13,704,829 |
|
| Written options |
|
|
— |
|
|
|
840,166 |
|
|
|
— |
|
|
|
840,166 |
|
| Swap contracts |
|
|
— |
|
|
|
— |
|
|
$ |
(1,489,794) |
|
|
|
(1,489,794) |
|
| Forward foreign currency contracts |
|
|
— |
|
|
|
3,244,771 |
|
|
|
— |
|
|
|
3,244,771 |
|
| Total |
|
$ |
13,704,829 |
|
|
$ |
3,272,536 |
|
|
$ |
(1,489,794) |
|
|
$ |
15,487,571 |
|
| 1 |
Net realized gain (loss) from purchased options is reported in Net Realized Gain (Loss) From Investment transactions in
unaffiliated securities in the Statement of Operations. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED |
|
| |
|
Interest
Rate Risk |
|
|
Foreign
Exchange Risk |
|
|
Credit Risk |
|
|
Total |
|
| Purchased options1 |
|
|
— |
|
|
$ |
(3,611) |
|
|
|
— |
|
|
$ |
(3,611) |
|
| Futures contracts |
|
$ |
1,384,824 |
|
|
|
— |
|
|
|
— |
|
|
|
1,384,824 |
|
| Written options |
|
|
— |
|
|
|
11,965 |
|
|
|
— |
|
|
|
11,965 |
|
| Swap contracts |
|
|
— |
|
|
|
— |
|
|
$ |
1,575,971 |
|
|
|
1,575,971 |
|
| Forward foreign currency contracts |
|
|
— |
|
|
|
1,556,321 |
|
|
|
— |
|
|
|
1,556,321 |
|
| Total |
|
$ |
1,384,824 |
|
|
$ |
1,564,675 |
|
|
$ |
1,575,971 |
|
|
$ |
4,525,470 |
|
| 1 |
The change in unrealized appreciation (depreciation) from purchased options is reported in the Change in Net Unrealized
Appreciation (Depreciation) From Investments in unaffiliated securities in the Statement of Operations. |
|
|
|
|
|
| 42 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
During the six months ended June 30, 2022, the
volume of derivative activity for the Fund was as follows:
|
|
|
|
|
| |
|
Average Market
Value |
|
| Purchased options |
|
$ |
535,415 |
|
| Written options |
|
|
1,046,065 |
|
| Futures contracts (to sell) |
|
|
119,435,257 |
|
| Forward foreign currency contracts (to buy) |
|
|
7,244,984 |
|
| Forward foreign currency contracts (to sell) |
|
|
75,487,987 |
|
|
|
| |
|
Average Notional
Balance |
|
| Credit default swap contracts (buy protection)† |
|
$ |
28,142,857 |
|
| † |
At June 30, 2022, there were no open positions held in this derivative. |
The following table presents the Fund’s OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and
net of the related collateral pledged (received) by the Fund as of June 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Counterparty |
|
Gross Assets
Subject to
Master
Agreements1 |
|
|
Gross
Liabilities
Subject to
Master
Agreements1 |
|
|
Net Assets
(Liabilities)
Subject
to
Master Agreements |
|
Collateral
Pledged
(Received)2,3 |
|
|
Net
Amount4,5 |
|
| Bank of America N.A. |
|
$ |
429,542 |
|
|
|
— |
|
|
$429,542 |
|
|
— |
|
|
$ |
429,542 |
|
| Citibank N.A. |
|
|
1,140,575 |
|
|
$ |
(25,724) |
|
|
1,114,851 |
|
$ |
(1,029,147) |
|
|
|
85,704 |
|
| Goldman Sachs Group Inc. |
|
|
159,934 |
|
|
|
(25,388) |
|
|
134,546 |
|
|
(146,051) |
|
|
|
(11,505) |
|
| JPMorgan Chase & Co. |
|
|
157,532 |
|
|
|
(241,384) |
|
|
(83,852) |
|
|
— |
|
|
|
(83,852) |
|
| Total |
|
$ |
1,887,583 |
|
|
$ |
(292,496) |
|
|
$1,595,087 |
|
$ |
(1,175,198) |
|
|
$ |
419,889 |
|
| 1 |
Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in
the Statement of Assets and Liabilities. |
| 2 |
Gross amounts are not offset in the Statement of Assets and Liabilities. |
| 3 |
In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to
overcollateralization. |
| 4 |
Net amount may also include forward foreign currency exchange contracts that are not required to be collateralized.
|
| 5 |
Represents the net amount receivable (payable) from (to) the counterparty in the event of default. |
5. Loan
On May 11, 2022, the Fund entered
into a Master Margin Loan Agreement (the “BNYM Credit Agreement”) with The Bank of New York Mellon, as lender (“BNYM”). The BNYM Credit Agreement provides for borrowings in an aggregate principal amount of up to $325,000,000,
subject to the terms and conditions therein. Each loan under the BNYM Credit Agreement constitutes an open commitment by BNYM terminable upon 180 days’ notice by the Fund or BNYM. The Fund pays interest on borrowings calculated based on the
Overnight Bank Funding Rate plus applicable margin. The Overnight Bank Funding Rate is a
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
43 |
|
Notes to financial statements
(unaudited) (cont’d)
volume weighted median measure of U.S. dollar funding costs for U.S. based banks calculated using
both federal funds transactions and overnight eurodollar time deposits. The Fund pays a commitment fee on the unutilized portion of the loan commitment amount at an annual rate of 0.25% except that no commitment fee is accrued when the aggregate
outstanding balance of the loan is equal to or greater than 75% of the margin loan commitment amount. To the extent of the borrowing outstanding, the Fund is required to maintain collateral in a special custody account at the Fund’s custodian
on behalf of BNYM. The BNYM Credit Agreement contains certain covenants that, among other things, may limit the Fund’s ability to pay distributions in certain circumstances, incur additional debt, change its fundamental investment policies and
engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. In addition, the BNYM Credit Agreement may be subject to early termination under certain
conditions and may contain other provisions that could limit the Fund’s ability to utilize borrowing under the agreement. Interest expense related to the BNYM Credit Agreement for the period ended June 30, 2022 was $665,775. For the period
ended June 30, 2022, the Fund incurred no commitment fees. For the period ended June 30, 2022, based on the number of days during the reporting period that the Fund had a loan balance outstanding per the BNYM Credit Agreement, the average
daily loan balance was $270,000,000 and the weighted average interest rate was 1.74%. At June 30, 2022, the Fund had $270,000,000 of borrowings outstanding.
Prior to May 11, 2022, the Fund had a revolving credit agreement with Pershing LLC (“Credit Agreement”), which permitted the Fund to borrow up to
$395,000,000, subject to approval by Pershing LLC, and renewed daily for a 180-day term unless notice to the contrary was given to the Fund. Pursuant to a Consent and Amendment Agreement dated March 14,
2022, the Fund’s Credit Agreement between the Fund and Pershing LLC, as lender, was amended to transfer Pershing LLC’s interest to BNYM. The amended Credit Agreement, terminated effective May 11, 2022, allowed the Fund to borrow up to
an aggregate amount of $395,000,000, subject to approval by BNYM, and renewed daily for a 180-day term unless notice to the contrary was given to the Fund. The Fund paid interest on borrowings calculated based
on the Overnight Bank Funding Rate plus applicable margin. Interest expense related to the Credit Agreement for the period ended May 10, 2022 was $1,009,694. For the period ended May 10, 2022, based on the number of days during the
reporting period that the Fund had a loan balance outstanding per the Credit Agreement, the Fund had an average daily loan balance outstanding of $294,807,692 and the weighted average interest rate was 0.95%.
6. Distributions subsequent to June 30, 2022
The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period end of this report:
|
|
|
|
|
|
|
|
|
| Record Date |
|
Payable Date |
|
|
Amount |
|
| 6/23/2022 |
|
|
7/1/2022 |
|
|
$ |
0.0800 |
|
| 7/22/2022 |
|
|
8/1/2022 |
|
|
$ |
0.0800 |
|
| 8/24/2022 |
|
|
9/1/2022 |
|
|
$ |
0.0800 |
|
| 9/23/2022 |
|
|
10/3/2022 |
|
|
$ |
0.0800 |
|
| 10/24/2022 |
|
|
11/1/2022 |
|
|
$ |
0.0800 |
|
| 11/22/2022 |
|
|
12/1/2022 |
|
|
$ |
0.0800 |
|
|
|
|
|
|
| 44 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
7. Stock repurchase program
On November 16, 2015, the Fund announced that the Fund’s Board of Directors (the “Board”) had authorized the Fund to repurchase in
the open market up to approximately 10% of the Fund’s outstanding common stock when the Fund’s shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such
times and in such amounts as management reasonably believes may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts.
During the six months ended June 30, 2022, the Fund repurchased and retired 0.82% of its common shares outstanding under the repurchase plan. The weighted average
discount per share on these repurchases was 11.99% for the six months ended June 30, 2022. During the year ended December 31, 2021, the Fund did not repurchase any shares. Shares repurchased and the corresponding dollar amount are included
in the Statements of Changes in Net Assets. The anti-dilutive impact of these share repurchases is included in the Financial Highlights.
Since the commencement of
the stock repurchase program through June 30, 2022, the Fund repurchased 500,000 shares or 0.82% of its common shares outstanding for a total amount of $5,175,727.
8. Transactions with affiliated company
As
defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities, or a company which is under common ownership or control with the Fund. The following company was considered an affiliated
company for all or some portion of the six months ended June 30, 2022. The following transactions were effected in such company for the six months ended June 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Affiliate
Value at
December 31,
2021 |
|
|
Purchased |
|
|
Sold |
|
| |
|
Cost |
|
|
Shares |
|
|
Cost |
|
|
Shares |
|
| Western Asset Premier Institutional Government Reserves, Premium Shares |
|
$ |
2,054,211 |
|
|
$ |
157,613,473 |
|
|
|
157,613,473 |
|
|
$ |
134,357,478 |
|
|
|
134,357,478 |
|
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
45 |
|
Notes to financial statements
(unaudited) (cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (cont’d) |
|
Realized
Gain (Loss) |
|
|
Dividend
Income |
|
|
Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation) |
|
|
Affiliate
Value at
June 30,
2022 |
|
| Western Asset Premier Institutional Government Reserves, Premium Shares |
|
|
— |
|
|
$ |
22,411 |
|
|
|
— |
|
|
$ |
25,310,206 |
|
9. Deferred capital losses
As of December 31, 2021, the Fund had deferred capital losses of $203,673,169, which have no expiration date, that will be available to offset future taxable
capital gains.
10. Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04,
Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, with further amendments to
Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other
interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has
reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.
11. Other
matters
The outbreak of the respiratory illness COVID-19 (commonly referred to as “coronavirus”) has
continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual
issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Fund’s investments and negatively impact the Fund’s performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
* * *
The
Fund’s investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or “LIBOR,” which is the offered rate for short-term Eurodollar deposits between major
international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of the overnight and one-, three-, six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023. All other LIBOR settings, including the one-week and two-month USD LIBOR settings, have ceased
|
|
|
|
|
| 46 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
publication as of January 1, 2022. There remains uncertainty regarding the nature of any replacement rate and the
impact of the transition from LIBOR on the Fund’s transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Fund’s investments cannot yet be determined.
* * *
Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could
increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking
entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These
sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the
value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion. To the extent that the Fund has exposure to Russian investments or investments in
countries affected by the invasion, the Fund’s ability to price, buy, sell, receive or deliver such investments was impaired. The Fund could determine at any time that certain of the most affected securities have little or no value. In
addition, any exposure that the Fund may have to counterparties in Russia or in countries affected by the invasion could negatively impact the Fund’s portfolio. The extent and duration of Russia’s military actions and the repercussions of
such actions (including any retaliatory actions or countermeasures that may be taken by those subject to sanctions) are impossible to predict, but could result in significant market disruptions, including in the oil and natural gas markets, and may
negatively affect global supply chains, inflation and global growth. These and any related events could significantly impact the Fund’s performance and the value of an investment in the Fund, even beyond any direct exposure the Fund may have to
Russian issuers or issuers in other countries affected by the invasion. At June 30, 2022, the Fund had 0.75% of its net assets invested in securities with significant economic risk or exposure to Russia.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
47 |
|
Board approval of management and subadvisory agreements (unaudited)
Background
The Investment Company Act of 1940,
as amended (the “1940 Act”), requires that the Board of Directors (the “Board”) of Western Asset Emerging Markets Debt Fund Inc. (the “Fund”), including a majority of its members who are not considered to be
“interested persons” under the 1940 Act (the “Independent Directors”) voting separately, approve on an annual basis the continuation of the investment management agreement (the “Management Agreement”) between the Fund
and the Fund’s manager, Legg Mason Partners Fund Advisor, LLC (the “Manager”), and the sub-advisory agreements (individually, a “Sub-Advisory
Agreement,” and collectively, the “Sub-Advisory Agreements”) with the Manager’s affiliates, Western Asset Management Company, LLC (“Western Asset”), Western Asset Management
Company Limited (“Western Asset London”) and Western Asset Management Company Pte. Ltd. (“Western Asset Singapore,” and together with Western Asset and Western Asset London, collectively, the
“Sub-Advisers”), with respect to the Fund.
At an in-person meeting (the
“Contract Renewal Meeting”) held on May 10-11, 2022, the Board, including the Independent Directors, considered and approved the continuation of each of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period. To assist in its consideration of the renewal of each of the Management Agreement and the Sub-Advisory Agreements, the Board received and considered extensive information (together with the information provided at the Contract Renewal Meeting, the “Contract Renewal Information”) about the
Manager and the Sub-Advisers, as well as the management and sub-advisory arrangements for the Fund and the other closed-end funds
in the same complex under the Board’s purview (the “Franklin Templeton/Legg Mason Closed-end Funds”), certain portions of which are discussed below.
A presentation made by the Manager and the Sub-Advisers to the Board at the Contract Renewal Meeting in connection with the
Board’s evaluation of each of the Management Agreement and the Sub-Advisory Agreements encompassed the Fund and other Franklin Templeton/Legg Mason Closed-end
Funds. In addition to the Contract Renewal Information, the Board received performance and other information throughout the year related to the respective services rendered by the Manager and the Sub-Advisers
to the Fund. The Board’s evaluation took into account the information received throughout the year and also reflected the knowledge and experience gained as members of the Boards of the Fund and other Franklin Templeton/Legg Mason Closed-end Funds with respect to the services provided to the Fund by the Manager and the Sub-Advisers. The information received and considered by the Board (including its
various committees) in conjunction with the Contract Renewal Meeting and throughout the year was both written and oral. The contractual arrangements discussed below are the product of multiple years of review and negotiation and information received
and considered by the Board during each of those years.
|
|
|
|
|
| 48 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. |
At a meeting held by videoconference on
April 19, 2022, the Independent Directors, in preparation for the Contract Renewal Meeting, met in a private session with their independent legal counsel to review the Contract Renewal Information regarding the Franklin Templeton/Legg Mason Closed-end Funds, including the Fund, received to date. No representatives of the Manager or the Sub-Advisers participated in this meeting. Following the April 19, 2022
meeting, the Independent Directors submitted certain questions and requests for additional information to Fund management. The Independent Directors also met in private sessions with their independent legal counsel to consider the Contract Renewal
Information and Fund management’s responses to the Independent Directors’ questions and requests for additional information in advance of and during the Contract Renewal Meeting. The discussion below reflects all of these reviews.
The Manager provides the Fund with investment advisory and administrative services pursuant to the Management Agreement and the
Sub-Advisers together provide the Fund with investment sub-advisory services pursuant to the Sub-Advisory Agreements. The
discussion below covers both the advisory and administrative functions being rendered by the Manager, each such function being encompassed by the Management Agreement, and the investment sub-advisory functions
being rendered by the Sub-Advisers pursuant to the Sub-Advisory Agreements.
Board Approval of Management Agreement and Sub-Advisory Agreements
The Independent Directors
were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Directors received a memorandum discussing the legal standards for their consideration of the proposed continuation of the Management
Agreement and the Sub-Advisory Agreements. The Independent Directors considered the Management Agreement and each Sub-Advisory Agreement separately during the course of
their review. In doing so, they noted the respective roles of the Manager and the Sub-Advisers in providing services to the Fund.
In approving the continuation of the Management Agreement and Sub-Advisory Agreements, the Board, including the Independent
Directors, considered a variety of factors, including those factors discussed below. No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the continuation of the Management
Agreement and the Sub-Advisory Agreements. Each Director may have attributed different weight to the various factors in evaluating the Management Agreement and the
Sub-Advisory Agreements.
After considering all relevant factors and information, the Board, exercising its reasonable
business judgment, determined that the continuation of the Management Agreement and Sub-Advisory Agreements were in the best interests of the Fund’s shareholders and approved the continuation of each such
agreement for an additional one-year period.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. |
|
|
|
|
49 |
|
Board approval of management and subadvisory agreements (unaudited) (cont’d)
Nature, Extent and Quality of the Services under the Management Agreement and Sub-Advisory Agreements
The Board received and considered Contract Renewal Information regarding the nature, extent, and quality of services provided to the Fund by the Manager
and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, during the past year. The Board noted information received at regular
meetings throughout the year related to the services provided by the Manager in its management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Sub-Advisers and the
Fund’s other service providers. The Board observed that the scope of services provided by the Manager and the Sub-Advisers, and of the undertakings required of the Manager and Sub-Advisers in connection with those services, including maintaining and monitoring their respective compliance programs as well as the Fund’s compliance programs, had expanded over time as a result of
regulatory, market and other developments. The Board also noted that on a regular basis it received and reviewed information from the Manager and the Sub-Advisers regarding the Fund’s compliance policies
and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the risks borne by the Manager, the Sub-Advisers and their respective
affiliates on behalf of the Fund, including entrepreneurial, operational, reputational, litigation and regulatory risks, as well as the Manager’s and the Sub-Advisers’ risk management processes.
The Board reviewed the qualifications, backgrounds, and responsibilities of the Manager’s senior personnel and the
Sub-Advisers’ portfolio management teams primarily responsible for the day-to-day portfolio management of the Fund. The
Board also considered, based on its knowledge of the Manager and its affiliates, the financial resources of Franklin Resources, Inc., the parent organization of the Manager and the Sub-Advisers. The Board
recognized the importance of having a fund manager with significant resources.
The Board considered the division of responsibilities between the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, including the Manager’s coordination and oversight of the services provided to
the Fund by the Sub-Advisers and other fund service providers and Western Asset’s coordination and oversight of the services provided to the Fund by Western Asset London and Western Asset Singapore. The
Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties thereunder, provided that the Manager, in each case, will supervise the activities of the delegee.
In reaching its determinations regarding continuation of the Management Agreement and the Sub-Advisory Agreements, the Board took
into account that Fund stockholders, in pursuing their investment goals and objectives, may have purchased their shares of the Fund based upon the reputation and the investment style, philosophy and strategy of the Manager and the Sub-Advisers, as well as the resources available to the Manager and the Sub-Advisers.
|
|
|
|
|
|
50 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. |
The Board concluded that, overall, the nature,
extent, and quality of the management and other services provided (and expected to be provided) to the Fund, under the Management Agreement and the Sub-Advisory Agreements were satisfactory.
Fund Performance
The Board received and
considered information regarding Fund performance, including information and analyses (the “Broadridge Performance Information”) for the Fund, as well as for a group of comparable funds (the “Performance Universe”) selected by
Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third-party provider of investment company data. The Board was provided with a description of the methodology Broadridge used to determine the similarity of the Fund with
the funds included in the Performance Universe. It was noted that while the Board found the Broadridge Performance Information generally useful, they recognized its limitations, including that the data may vary depending on the end date selected,
and that the results of the performance comparisons may vary depending on the selection of the peer group and its composition over time. The Board also noted that Board members had received and discussed with the Manager and the Sub-Advisers information throughout the year at periodic intervals comparing the Fund’s performance against its benchmark and against the Fund’s peers. In addition, the Board considered the Fund’s
performance in view of overall financial market conditions.
The Broadridge Performance Information comparing the Fund’s performance to that of its Performance
Universe, consisting of the Fund and all leveraged closed-end emerging markets hard currency debt funds, regardless of asset size, showed, among other data, that based on net asset value per share, the
Fund’s performance was below the median for the 1-year period ended December 31, 2021, and was above the median for the 3-,
5- and 10-year periods ended December 31, 2021. The Board noted the explanations from the Manager and the Sub-Advisers
regarding the Fund’s relative performance versus the Performance Universe for the various periods. The Board also noted the limited size of the Performance Universe.
Based on the reviews and discussions of Fund performance and considering other relevant factors, including those noted above, the Board concluded, under the
circumstances, that continuation of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period would be consistent with the interests of
the Fund and its stockholders.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. |
|
|
|
|
51 |
|
Board approval of management and subadvisory agreements (unaudited) (cont’d)
Management and Sub-Advisory Fees and Expense Ratios
The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) and the actual management fee (the “Actual Management
Fee”) payable by the Fund to the Manager under the Management Agreement and the sub-advisory fees (the “Sub-Advisory Fees”) payable by the Manager to the Sub-Advisers under the Sub-Advisory Agreements in view of the nature, extent and overall quality of the management, investment advisory and other services provided by the
Manager and the Sub-Advisers, respectively. The Board noted that the Sub-Advisory Fee payable to Western Asset under its
Sub-Advisory Agreement with the Manager is paid by the Manager, not the Fund, and, accordingly, that the retention of Western Asset does not increase the fees or expenses otherwise incurred by the Fund’s
stockholders. Similarly, the Board noted that the Sub-Advisory Fees payable to Western Asset London and Western Asset Singapore under their respective Sub-Advisory
Agreements with Western Asset are paid by Western Asset, not the Fund, and, accordingly, that the retention of Western Asset London and Western Asset Singapore does not increase the fees or expenses otherwise incurred by the Fund’s
stockholders.
In addition, the Board received and considered information and analyses prepared by Broadridge (the “Broadridge Expense Information”)
comparing the Contractual Management Fee and the Actual Management Fee and the Fund’s total actual expenses with those of funds in an expense group (the “Expense Group”), as well as a broader group of funds, each selected and provided
by Broadridge. The comparison was based upon the constituent funds’ latest fiscal years. It was noted that while the Board found the Broadridge Expense Information generally useful, they recognized its limitations, including that the data may
vary depending on the selection of the peer group.
The Broadridge Expense Information showed that the Fund’s Contractual Management Fee was below the median.
The Broadridge Expense Information also showed that the Fund’s Actual Management Fee was below the median compared on the basis of both common share assets and leveraged assets. The Broadridge Expense Information also showed that the
Fund’s actual total expenses were below the median on the basis of both common share assets and leveraged assets. The Board took into account management’s discussion of the Fund’s expenses and noted the limited size of the Expense
Group.
The Board also reviewed Contract Renewal Information regarding fees charged by the Manager and/or the Sub-Advisers to
other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, institutional and separate accounts. The Manager reviewed with the Board the differences in services provided to these different types
of accounts, noting that the Fund is provided with certain administrative services, office facilities, and Fund officers, and that the Fund is subject not only to heightened regulatory requirements relative to institutional clients but also to
requirements
|
|
|
|
|
| 52 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. |
for listing on the New York Stock Exchange, and that
the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Board considered the fee comparisons in view of the different services provided in managing these other types of clients and funds.
The Board considered the overall management fee, the fees of the Sub-Advisers and the amount of the management fee retained by
the Manager after payment of the subadvisory fees in each case in view of the services rendered for those amounts. The Board also received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a
framework of fees based on asset classes.
Taking all of the above into consideration, as well as the factors identified below, the Board determined that the
management fee and the Sub-Advisory Fees were reasonable in view of the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager and the Sub-Advisers to the Fund under the Management Agreement and the Sub-Advisory Agreements, respectively.
Manager Profitability
The Board, as part of the
Contract Renewal Information, received an analysis of the profitability to the Manager and its affiliates in providing services to the Fund for the Manager’s fiscal years ended September 30, 2021 and September 30, 2020. The Board also
received profitability information with respect to the Franklin Templeton/Legg Mason fund complex as a whole. In addition, the Board received Contract Renewal Information with respect to the Manager’s revenue and cost allocation methodologies
used in preparing such profitability data. It was noted that the allocation methodologies had been reviewed by an outside consultant. The profitability to each of the Sub-Advisers was not considered to be a
material factor in the Board’s considerations since the Sub-Advisory Fee is paid by the Manager in the case of Western Asset and by Western Asset in the case of Western Asset London and Western Asset
Singapore, not the Fund, although the Board noted the affiliation of the Manager with the Sub-Advisers. The profitability of the Manager and its affiliates was considered by the Board to be reasonable in view
of the nature, extent and quality of services provided to the Fund.
Economies of Scale
The Board received and discussed Contract Renewal Information concerning whether the Manager realizes economies of scale if the Fund’s assets grow. The Board noted
that because the Fund is a closed-end fund, it has limited ability to increase its assets. The Board determined that the management fee structure was appropriate under the circumstances. For similar reasons as
stated above with respect to the Sub-Advisers’ profitability and the costs of the Sub-Advisers’ provision of services, the Board did not consider the potential
for economies of scale in the Sub-Advisers’ management of the Fund to be a material factor in the Board’s consideration of the Sub-Advisory Agreements.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. |
|
|
|
|
53 |
|
Board approval of management and subadvisory agreements (unaudited) (cont’d)
Other Benefits to the Manager and the Sub-Advisers
The Board considered other benefits received by the Manager, the Sub-Advisers and their affiliates as a result of their
relationship with the Fund, including the opportunity to offer additional products and services to the Fund’s shareholders. In view of the costs of providing investment management and other services to the Fund and the ongoing commitment of the
Manager and the Sub-Advisers to the Fund, the Board considered that the ancillary benefits that the Manager and its affiliates, including the Sub-Advisers, were
reasonable.
|
|
|
|
|
| 54 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. |
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and return
of capital distributions, on your Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the “Plan Agent”), in additional shares of Common Stock under the Fund’s Dividend
Reinvestment Plan (the “Plan”). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare Trust
Company, N.A., as dividend paying agent.
If you participate in the Plan, the number of shares of Common Stock you will receive will be determined as follows:
(1) If the market price of the Common Stock (plus $0.03 per share commission) on the payment date (or, if the payment date is not a NYSE trading day, the
immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date, the Fund will issue new Common Stock at a price equal to the greater of (a) the
net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.
(2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock (plus $0.03 per share commission) at the close of
trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day
following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the stockholders; except
when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or exceeds the net asset value per share of the Common
Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the
Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the day
prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.
Common Stock in your account will be held by the Plan Agent
in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e., opt-out)
by notifying the Plan Agent in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at
1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business
days prior to any dividend or distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agent’s investment of the most recently declared dividend or distribution on the Common Stock.
|
|
|
|
|
|
|
| Western Asset Emerging Markets Debt Fund Inc. |
|
|
|
|
55 |
|
Dividend reinvestment plan
(unaudited) (cont’d)
Plan participants who sell their shares will be charged a service charge (currently $5.00 per
transaction) and the Plan Agent is authorized to deduct brokerage charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for reinvestment of your dividends or distributions in Common Stock.
However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common
Stock, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the
Fund’s net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors
will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of
Directors, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund
for which the termination or amendment is to be effective. Upon any termination, you will be sent cash for any fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan
Agent sell part or all of your Common Stock on your behalf. Additional information about the Plan and your account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151.
|
|
|
|
|
| 56 |
|
|
|
Western Asset Emerging Markets Debt Fund Inc. |
Western Asset
Emerging Markets Debt Fund Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
William R. Hutchinson
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Fred Jensen
Chief Compliance Officer
George P. Hoyt
Secretary and Chief Legal Officer
Thomas C. Mandia
Senior Vice President
Jeanne M. Kelly
Senior Vice President
Western Asset Emerging Markets
Debt Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadvisers
Western Asset Management Company, LLC
Western Asset Management Company
Limited
Western Asset Management Company Pte. Ltd.
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett
LLP
900 G Street NW
Washington, DC 20001
New York Stock Exchange Symbol
EMD
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very
Important to the Legg Mason Funds
This Privacy and Security Notice (the “Privacy Notice”) addresses the Legg Mason Funds’ privacy and
data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds’ distributor, Franklin Distributors, LLC, as well as Legg Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited
to:
| • |
|
Personal information included on applications or other forms; |
| • |
|
Account balances, transactions, and mutual fund holdings and positions; |
| • |
|
Bank account information, legal documents, and identity verification documentation; |
| • |
|
Online account access user IDs, passwords, security challenge question responses; and |
| • |
|
Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of
an individual’s total debt, payment history, etc.). |
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other
financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services
you have authorized or as permitted or required by law.
The Funds may disclose information about you to:
| • |
|
Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business, or
to comply with obligations to government regulators; |
| • |
|
Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business
(such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services solely
for the Funds; |
| • |
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds’
employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
| • |
|
The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary
business, or to comply with obligations to government regulators; |
| • |
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
| NOT PART OF THE SEMI-ANNUAL
REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf,
including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to
perform. The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory
request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’
practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds’ Privacy and Security Practices
The Funds will notify you annually of their privacy policy as
required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds’ Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard
your nonpublic personal information. The Funds’ internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to
them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary, so you can take appropriate protective steps. If you have
consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is
incomplete, not accurate or not current, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by
clicking on the Contact Us section of the Funds’ website at www.franklintempleton.com, or contact the Fund at
1-888-777-0102.
Revised April 2018
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is “nonpublic personal information” subject to federal law, residents of California may, in certain
circumstances, have additional rights under the California Consumer Privacy Act (“CCPA”). For example, if you are a broker,
|
| NOT PART OF THE SEMI-ANNUAL
REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any
other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal
information (as defined by the CCPA).
| • |
|
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the
categories and specific pieces of personal information we have collected about you. |
| • |
|
You also have the right to request the deletion of the personal information collected or maintained by the Funds.
|
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set
forth below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process
described below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request
on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other
applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if
suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg
Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2020
|
| NOT PART OF THE SEMI-ANNUAL
REPORT |
Western Asset Emerging Markets Debt Fund Inc.
Western Asset Emerging Markets Debt Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market
prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first
and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
To obtain information on Form N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th
of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.franklintempleton.com and (3) on the SEC’s website at www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on Franklin Templeton’s website,
which can be accessed at www.franklintempleton.com. Any reference to Franklin Templeton’s website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate
Franklin Templeton’s website in this report.
This report is transmitted to the shareholders of Western Asset Emerging Markets Debt Fund Inc. for their
information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WAS04052 8/22 SR22-4484