|
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
23
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Six Months Ended January 31, 2014 (unaudited)
and the Year Ended July 31, 2013
|
|
2014
|
|
|
2013
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
9,926,326
|
|
|
$
|
20,826,091
|
|
Net realized gain (loss)
|
|
|
(131,461)
|
|
|
|
9,367,708
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
(690,759)
|
|
|
|
(16,672,216)
|
|
Increase in Net Assets From Operations
|
|
|
9,104,106
|
|
|
|
13,521,583
|
|
|
|
|
Distributions to Shareholders From (Notes 1 and 6):
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(10,655,044)
|
|
|
|
(20,967,072)
|
|
Decrease in Net Assets From Distributions to
Shareholders
|
|
|
(10,655,044)
|
|
|
|
(20,967,072)
|
|
|
|
|
Fund Share Transactions (Note 7):
|
|
|
|
|
|
|
|
|
Net proceeds from sale of shares
|
|
|
17,904,524
|
|
|
|
75,890,096
|
|
Reinvestment of distributions
|
|
|
10,064,859
|
|
|
|
19,919,531
|
|
Cost of shares repurchased
|
|
|
(81,009,209)
|
|
|
|
(126,013,274)
|
|
Decrease in Net Assets From Fund Share Transactions
|
|
|
(53,039,826)
|
|
|
|
(30,203,647)
|
|
Decrease in Net Assets
|
|
|
(54,590,764)
|
|
|
|
(37,649,136)
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
439,935,711
|
|
|
|
477,584,847
|
|
End of period*
|
|
$
|
385,344,947
|
|
|
$
|
439,935,711
|
|
* Includes undistributed net investment income of:
|
|
|
$10,747,248
|
|
|
|
$11,475,966
|
|
See Notes to Financial
Statements.
|
|
|
24
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of
beneficial interest outstanding throughout each year ended July 31,
unless otherwise noted:
|
|
Class A Shares
1
|
|
2014
2
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$6.88
|
|
|
|
$7.00
|
|
|
|
$6.70
|
|
|
|
$6.40
|
|
|
|
$5.68
|
|
|
|
$5.82
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.17
|
|
|
|
0.32
|
|
|
|
0.25
|
|
|
|
0.26
|
|
|
|
0.28
|
|
|
|
0.37
|
|
Net realized and unrealized gain (loss)
|
|
|
(0.01)
|
|
|
|
(0.12)
|
|
|
|
0.32
|
|
|
|
0.34
|
|
|
|
0.73
|
|
|
|
(0.12)
|
|
Proceeds from settlement of a regulatory matter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
Total income from operations
|
|
|
0.16
|
|
|
|
0.20
|
|
|
|
0.57
|
|
|
|
0.60
|
|
|
|
1.02
|
|
|
|
0.25
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.18)
|
|
|
|
(0.32)
|
|
|
|
(0.27)
|
|
|
|
(0.30)
|
|
|
|
(0.30)
|
|
|
|
(0.39)
|
|
Total distributions
|
|
|
(0.18)
|
|
|
|
(0.32)
|
|
|
|
(0.27)
|
|
|
|
(0.30)
|
|
|
|
(0.30)
|
|
|
|
(0.39)
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$6.86
|
|
|
|
$6.88
|
|
|
|
$7.00
|
|
|
|
$6.70
|
|
|
|
$6.40
|
|
|
|
$5.68
|
|
Total return
3
|
|
|
2.40
|
%
|
|
|
2.81
|
%
|
|
|
8.75
|
%
|
|
|
9.62
|
%
|
|
|
18.37
|
%
4
|
|
|
5.28
|
%
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
|
$314,344
|
|
|
|
$361,872
|
|
|
|
$388,726
|
|
|
|
$369,884
|
|
|
|
$394,057
|
|
|
|
$363,290
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
1.17
|
%
5
|
|
|
1.15
|
%
|
|
|
1.11
|
%
|
|
|
1.11
|
%
|
|
|
1.08
|
%
|
|
|
1.12
|
%
|
Net expenses
6
|
|
|
1.17
|
5
|
|
|
1.15
|
|
|
|
1.11
|
|
|
|
1.11
|
|
|
|
1.08
|
|
|
|
1.09
|
7,8
|
Net investment income
|
|
|
4.93
|
5
|
|
|
4.46
|
|
|
|
3.79
|
|
|
|
3.97
|
|
|
|
4.63
|
|
|
|
7.12
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
34
|
%
|
|
|
83
|
%
9
|
|
|
84
|
%
9
|
|
|
144
|
%
9
|
|
|
83
|
%
9
|
|
|
32
|
%
9
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended January 31, 2014 (unaudited).
|
3
|
Performance figures, exclusive of sales charges, 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.
|
4
|
The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 18.19%.
Class A received $666,652 related to this distribution.
|
6
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
7
|
Reflects fee waivers and/or expense reimbursements.
|
8
|
As a result of a contractual expense limitation, effective March 5, 2007 through December 1, 2008, the ratio of expenses, other than brokerage, taxes,
extraordinary expenses, to average net assets of Class A shares did not exceed 1.00%.
|
9
|
Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 89%, 274%, 482%,
200% and 181% for the years ended July 31, 2013, 2012, 2011, 2010 and 2009, respectively.
|
See Notes to Financial Statements.
|
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
25
|
Financial highlights (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of
beneficial interest outstanding throughout each year ended July 31,
unless otherwise noted:
|
|
Class B Shares
1
|
|
2014
2
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$6.80
|
|
|
|
$6.92
|
|
|
|
$6.86
|
|
|
|
$6.56
|
|
|
|
$5.71
|
|
|
|
$5.85
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.14
|
|
|
|
0.26
|
|
|
|
0.20
|
|
|
|
0.22
|
|
|
|
0.25
|
|
|
|
0.34
|
|
Net realized and unrealized gain (loss)
|
|
|
(0.01)
|
|
|
|
(0.12)
|
|
|
|
0.32
|
|
|
|
0.35
|
|
|
|
0.74
|
|
|
|
(0.12)
|
|
Proceeds from settlement of a regulatory matter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.13
|
|
|
|
|
|
Total income from operations
|
|
|
0.13
|
|
|
|
0.14
|
|
|
|
0.52
|
|
|
|
0.57
|
|
|
|
1.12
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.15)
|
|
|
|
(0.26)
|
|
|
|
(0.46)
|
|
|
|
(0.27)
|
|
|
|
(0.27)
|
|
|
|
(0.36)
|
|
Total distributions
|
|
|
(0.15)
|
|
|
|
(0.26)
|
|
|
|
(0.46)
|
|
|
|
(0.27)
|
|
|
|
(0.27)
|
|
|
|
(0.36)
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$6.78
|
|
|
|
$6.80
|
|
|
|
$6.92
|
|
|
|
$6.86
|
|
|
|
$6.56
|
|
|
|
$5.71
|
|
Total return
3
|
|
|
1.94
|
%
|
|
|
2.02
|
%
|
|
|
8.00
|
%
|
|
|
8.81
|
%
|
|
|
19.95
|
%
4
|
|
|
4.60
|
%
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
|
$9,432
|
|
|
|
$11,623
|
|
|
|
$16,726
|
|
|
|
$23,200
|
|
|
|
$34,422
|
|
|
|
$47,642
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
2.06
|
%
5
|
|
|
1.91
|
%
|
|
|
1.87
|
%
|
|
|
1.81
|
%
|
|
|
1.69
|
%
|
|
|
1.76
|
%
|
Net expenses
6
|
|
|
2.06
|
5
|
|
|
1.91
|
|
|
|
1.87
|
|
|
|
1.81
|
|
|
|
1.69
|
|
|
|
1.76
|
|
Net investment income
|
|
|
4.03
|
5
|
|
|
3.70
|
|
|
|
3.05
|
|
|
|
3.27
|
|
|
|
4.08
|
|
|
|
6.49
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
34
|
%
|
|
|
83
|
%
7
|
|
|
84
|
%
7
|
|
|
144
|
%
7
|
|
|
83
|
%
7
|
|
|
32
|
%
7
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended January 31, 2014 (unaudited).
|
3
|
Performance figures, exclusive of CDSC, 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.
|
4
|
The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 17.58%. Class B
received $764,991 related to this distribution.
|
6
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
7
|
Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 89%, 274%, 482%,
200% and 181% for the years ended July 31, 2013, 2012, 2011, 2010 and 2009, respectively.
|
See Notes to Financial Statements.
|
|
|
26
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
|
|
|
|
|
|
|
|
For a share of each class of
beneficial interest outstanding throughout each year ended July 31,
unless otherwise noted:
|
|
Class C Shares
1
|
|
2014
2
|
|
|
2013
3
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$6.87
|
|
|
|
$6.99
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.14
|
|
|
|
0.26
|
|
Net realized and unrealized loss
|
|
|
(0.00)
|
4
|
|
|
(0.11)
|
|
Total income from operations
|
|
|
0.14
|
|
|
|
0.15
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.16)
|
|
|
|
(0.27)
|
|
Total distributions
|
|
|
(0.16)
|
|
|
|
(0.27)
|
|
|
|
|
Net asset value, end of period
|
|
|
$6.85
|
|
|
|
$6.87
|
|
Total return
5
|
|
|
1.85
|
%
|
|
|
2.23
|
%
|
|
|
|
Net assets, end of period (000s)
|
|
|
$3,117
|
|
|
|
$2,087
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
Gross expenses
6
|
|
|
2.09
|
%
|
|
|
1.88
|
%
|
Net expenses
6,7,8,9
|
|
|
1.95
|
|
|
|
1.87
|
|
Net investment income
6
|
|
|
4.18
|
|
|
|
3.69
|
|
|
|
|
Portfolio turnover rate
|
|
|
34
|
%
|
|
|
83
|
%
10
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended January 31, 2014 (unaudited).
|
3
|
For the period August 1, 2012 (inception date) to July 31, 2013.
|
4
|
Amount represents less than $0.01 per share.
|
5
|
Performance figures, exclusive of CDSC, 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.
|
7
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
8
|
Reflects fee waivers and/or expense reimbursements.
|
9
|
As a result of an expense limitation arrangement, the ratio of expenses, other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and
expenses, to average net assets of Class C shares did not exceed 1.95%. This expense limitation arrangement cannot be terminated prior to December 31, 2015 without the Board of Trustees consent.
|
10
|
Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 89% for the year
ended July 31, 2013.
|
See Notes to Financial Statements.
|
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
27
|
Financial highlights (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of
beneficial interest outstanding throughout each year ended July 31,
unless otherwise noted:
|
|
Class C1 Shares
1,2
|
|
2014
3
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$6.89
|
|
|
|
$7.01
|
|
|
|
$6.72
|
|
|
|
$6.42
|
|
|
|
$5.69
|
|
|
|
$5.83
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.16
|
|
|
|
0.29
|
|
|
|
0.22
|
|
|
|
0.23
|
|
|
|
0.26
|
|
|
|
0.34
|
|
Net realized and unrealized gain (loss)
|
|
|
(0.01)
|
|
|
|
(0.12)
|
|
|
|
0.32
|
|
|
|
0.35
|
|
|
|
0.73
|
|
|
|
(0.11)
|
|
Proceeds from settlement of a regulatory matter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
Total income from operations
|
|
|
0.15
|
|
|
|
0.17
|
|
|
|
0.54
|
|
|
|
0.58
|
|
|
|
1.01
|
|
|
|
0.23
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.17)
|
|
|
|
(0.29)
|
|
|
|
(0.25)
|
|
|
|
(0.28)
|
|
|
|
(0.28)
|
|
|
|
(0.37)
|
|
Total distributions
|
|
|
(0.17)
|
|
|
|
(0.29)
|
|
|
|
(0.25)
|
|
|
|
(0.28)
|
|
|
|
(0.28)
|
|
|
|
(0.37)
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$6.87
|
|
|
|
$6.89
|
|
|
|
$7.01
|
|
|
|
$6.72
|
|
|
|
$6.42
|
|
|
|
$5.69
|
|
Total return
4
|
|
|
2.20
|
%
|
|
|
2.38
|
%
|
|
|
8.20
|
%
|
|
|
9.17
|
%
|
|
|
18.02
|
%
5
|
|
|
4.78
|
%
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
|
$48,520
|
|
|
|
$54,376
|
|
|
|
$64,473
|
|
|
|
$64,105
|
|
|
|
$69,630
|
|
|
|
$72,302
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
1.57
|
%
6
|
|
|
1.57
|
%
|
|
|
1.55
|
%
|
|
|
1.58
|
%
|
|
|
1.52
|
%
|
|
|
1.58
|
%
|
Net expenses
7
|
|
|
1.57
|
6
|
|
|
1.57
|
|
|
|
1.55
|
|
|
|
1.58
|
|
|
|
1.52
|
|
|
|
1.58
|
|
Net investment income
|
|
|
4.53
|
6
|
|
|
4.04
|
|
|
|
3.35
|
|
|
|
3.51
|
|
|
|
4.21
|
|
|
|
6.65
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
34
|
%
|
|
|
83
|
%
8
|
|
|
84
|
%
8
|
|
|
144
|
%
8
|
|
|
83
|
%
8
|
|
|
32
|
%
8
|
1
|
On August 1, 2012, Class C shares were reclassified as Class C1 shares.
|
2
|
Per share amounts have been calculated using the average shares method.
|
3
|
For the six months ended January 31, 2014 (unaudited).
|
4
|
Performance figures, exclusive of CDSC, 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.
|
5
|
The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 17.65%. Class C1
received $211,891 related to this distribution.
|
7
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
8
|
Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 89%, 274%, 482%,
200% and 181% for the years ended July 31, 2013, 2012, 2011, 2010 and 2009, respectively.
|
See Notes to Financial Statements.
|
|
|
28
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of each class of
beneficial interest outstanding throughout each year ended July 31,
unless otherwise noted:
|
|
Class I Shares
1
|
|
2014
2
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
|
$6.91
|
|
|
|
$7.03
|
|
|
|
$6.73
|
|
|
|
$6.42
|
|
|
|
$5.70
|
|
|
|
$5.83
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.18
|
|
|
|
0.34
|
|
|
|
0.27
|
|
|
|
0.28
|
|
|
|
0.28
|
|
|
|
0.41
|
|
Net realized and unrealized gain (loss)
|
|
|
(0.00)
|
3
|
|
|
(0.12)
|
|
|
|
0.31
|
|
|
|
0.34
|
|
|
|
0.75
|
|
|
|
(0.13)
|
|
Total income from operations
|
|
|
0.18
|
|
|
|
0.22
|
|
|
|
0.58
|
|
|
|
0.62
|
|
|
|
1.03
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.20)
|
|
|
|
(0.34)
|
|
|
|
(0.28)
|
|
|
|
(0.31)
|
|
|
|
(0.31)
|
|
|
|
(0.41)
|
|
Total distributions
|
|
|
(0.20)
|
|
|
|
(0.34)
|
|
|
|
(0.28)
|
|
|
|
(0.31)
|
|
|
|
(0.31)
|
|
|
|
(0.41)
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
|
$6.89
|
|
|
|
$6.91
|
|
|
|
$7.03
|
|
|
|
$6.73
|
|
|
|
$6.42
|
|
|
|
$5.70
|
|
Total return
4
|
|
|
2.42
|
%
|
|
|
3.27
|
%
|
|
|
8.93
|
%
|
|
|
9.86
|
%
|
|
|
18.43
|
%
|
|
|
5.81
|
%
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
|
$9,932
|
|
|
|
$9,978
|
|
|
|
$7,660
|
|
|
|
$4,802
|
|
|
|
$4,110
|
|
|
|
$841
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
0.97
|
%
5
|
|
|
0.93
|
%
|
|
|
0.93
|
%
|
|
|
0.90
|
%
|
|
|
1.03
|
%
|
|
|
0.72
|
%
|
Net expenses
6,7
|
|
|
0.85
|
5,8
|
|
|
0.85
|
8
|
|
|
0.92
|
8
|
|
|
0.90
|
8
|
|
|
0.95
|
8
|
|
|
0.70
|
9
|
Net investment income
|
|
|
5.26
|
5
|
|
|
4.77
|
|
|
|
3.95
|
|
|
|
4.20
|
|
|
|
4.55
|
|
|
|
7.77
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
34
|
%
|
|
|
83
|
%
10
|
|
|
84
|
%
10
|
|
|
144
|
%
10
|
|
|
83
|
%
10
|
|
|
32
|
%
10
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
For the six months ended January 31, 2014 (unaudited).
|
3
|
Amount represents less than $0.01 per share.
|
4
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.
|
6
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
7
|
Reflects fee waivers and/or expense reimbursements.
|
8
|
As a result of an expense limitation arrangement, the ratio of expenses, other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and
expenses, to average net assets of Class I shares did not exceed 0.85%. This expense limitation arrangement cannot be terminated prior to December 31, 2015 without the Board of Trustees consent. Prior to August 1, 2012, the expense
limitation was 0.95%.
|
9
|
As a result of a contractual expense limitation, effective March 5, 2007 through December 1, 2008, the ratio of expenses, other than brokerage, taxes
and extraordinary expenses, to average net assets of Class I shares did not exceed 0.68%.
|
10
|
Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 89%, 274%, 482%,
200% and 181% for the years ended July 31, 2013, 2012, 2011, 2010 and 2009, respectively.
|
See Notes to Financial Statements.
|
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
29
|
Notes to financial statements
(unaudited)
1. Organization and significant accounting policies
Western Asset Global Strategic Income Fund (the Fund) is a separate diversified investment series of Legg Mason Partners Income Trust (the Trust). The Trust, a Maryland statutory trust, is
registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company.
The following
are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and
changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.
Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation.
The valuations for fixed income securities (which may include, but are not limited to, corporate, government,
municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or
broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit
risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an
investments fair value. 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 Funds Board of Trustees.
The Board of Trustees is responsible for the
valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the Valuation Committee). The Valuation Committee, pursuant to the policies adopted by the
Board of Trustees, is responsible for making fair value determinations,
|
|
|
30
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
evaluating the effectiveness of the Funds pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned
by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible
methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or
fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the
issuers financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts research and observations from financial institutions;
information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable
companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the
policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are
reported to the Board of Trustees quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach
and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income
approach uses valuation techniques to discount estimated future cash flows to present value.
GAAP establishes a disclosure hierarchy that categorizes
the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
|
|
Level 1 quoted prices in active markets for identical investments
|
|
|
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk,
etc.)
|
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
|
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those
securities.
|
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
31
|
Notes to financial statements
(unaudited)
(contd)
The following is a summary of the inputs used in valuing the Funds assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds & notes
|
|
|
|
|
|
$
|
197,190,525
|
|
|
$
|
2,402,659
|
|
|
$
|
199,593,184
|
|
Asset-backed securities
|
|
|
|
|
|
|
14,344,178
|
|
|
|
|
|
|
|
14,344,178
|
|
Collateralized mortgage obligations
|
|
|
|
|
|
|
16,174,916
|
|
|
|
|
|
|
|
16,174,916
|
|
Convertible bonds & notes
|
|
|
|
|
|
|
1,836,875
|
|
|
|
|
|
|
|
1,836,875
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
32,310
|
|
|
|
|
|
|
|
32,310
|
|
Senior loans
|
|
|
|
|
|
|
1,681,571
|
|
|
|
|
|
|
|
1,681,571
|
|
Sovereign bonds
|
|
|
|
|
|
|
135,210,924
|
|
|
|
|
|
|
|
135,210,924
|
|
U.S. government & agency obligations
|
|
|
|
|
|
|
141,304
|
|
|
|
|
|
|
|
141,304
|
|
Common stocks
|
|
$
|
14,816
|
|
|
|
|
|
|
|
|
|
|
|
14,816
|
|
Convertible preferred stocks
|
|
|
574,105
|
|
|
|
|
|
|
|
|
|
|
|
574,105
|
|
Preferred stocks
|
|
|
3,609,232
|
|
|
|
|
|
|
|
|
|
|
|
3,609,232
|
|
Purchased options
|
|
|
307,500
|
|
|
|
|
|
|
|
|
|
|
|
307,500
|
|
Total investments
|
|
$
|
4,505,653
|
|
|
$
|
366,612,603
|
|
|
$
|
2,402,659
|
|
|
$
|
373,520,915
|
|
Other financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$
|
1,713,358
|
|
|
|
|
|
|
|
|
|
|
$
|
1,713,358
|
|
Forward foreign currency contracts
|
|
|
|
|
|
$
|
1,166,776
|
|
|
|
|
|
|
|
1,166,776
|
|
OTC total return swaps
|
|
|
|
|
|
|
471,492
|
|
|
|
|
|
|
|
471,492
|
|
Total other financial instruments
|
|
$
|
1,713,358
|
|
|
$
|
1,638,268
|
|
|
|
|
|
|
$
|
3,351,626
|
|
Total
|
|
$
|
6,219,011
|
|
|
$
|
368,250,871
|
|
|
$
|
2,402,659
|
|
|
$
|
376,872,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Other financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written options
|
|
$
|
187,500
|
|
|
|
|
|
|
|
|
|
|
$
|
187,500
|
|
Futures contracts
|
|
|
947,808
|
|
|
|
|
|
|
|
|
|
|
|
947,808
|
|
Forward foreign currency contracts
|
|
|
|
|
|
$
|
1,299,383
|
|
|
|
|
|
|
|
1,299,383
|
|
OTC total return swaps
|
|
|
|
|
|
|
259,941
|
|
|
|
|
|
|
|
259,941
|
|
Total
|
|
$
|
1,135,308
|
|
|
$
|
1,559,324
|
|
|
|
|
|
|
$
|
2,694,632
|
|
|
See Schedule of Investments for additional detailed categorizations.
|
(b) Repurchase agreements.
The Fund may enter
into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to
an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield
|
|
|
32
|
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Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
during the Funds holding period. When entering into repurchase agreements, it is the Funds policy that its custodian or a third party custodian, acting on the Funds behalf, take
possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity
exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use
the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the
seller of the security, realization of the collateral by the Fund may be delayed or limited.
(c) Futures contracts.
The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain
exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents 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. Futures contracts are valued daily at the settlement price established by
the board of trade or exchange on which they are traded. The daily changes in contract value are recorded as unrealized gains or losses 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.
(d) Forward foreign currency contracts.
The Fund enters into a forward foreign currency contract to hedge against foreign currency exchange
rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set
price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or
offset by entering into another forward foreign currency contract, 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.
|
|
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Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
33
|
Notes to financial statements
(unaudited)
(contd)
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the
risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their
contracts.
(e) Written options.
When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the
premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Funds basis in the underlying security (in the case of a covered
written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of
the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Funds basis in the underlying security purchased. The writer or buyer of an option traded on an
exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is
exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(f) Loan participations.
The Fund may invest
in loans arranged through private negotiation between one or more financial institutions. The Funds investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing
participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any
collateral supporting the loan in which it has purchased the participation.
The Fund assumes the credit risk of the borrower, the lender that is selling
the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from
any off-set between the lender and the borrower.
(g) 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
|
|
|
34
|
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Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
involves risks that are different from those associated with other portfolio transactions. Swap agreements are privately negotiated in the over-the-counter market (OTC Swaps) or may
be executed on a registered exchange (Centrally Cleared Swaps). Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.
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 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 Funds 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. 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 Funds maximum
exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of January 31, 2014, the Fund did not hold any credit default swaps to sell protection.
For average notional amounts of swaps held during the six months ended January 31, 2014, see Note 4.
Interest rate swaps
The Fund enters into interest rate swap contracts to manage
its exposure to interest rate risk. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional principal amount. The Fund may elect to pay a fixed rate and receive a floating rate, or receive a fixed rate and
pay a floating rate, on a notional principal amount. Interest rate swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized gain or loss in the Statement of Operations. When a
swap contract is terminated early, the Fund records a realized gain or loss equal to the difference between the original cost and the settlement amount of the closing transaction.
The risks of interest rate swaps include changes in market conditions that will affect the value of the contract or changes in the present value of the future cash flow streams and the possible inability of the
counterparty to fulfill its obligations under the agreement. The Funds maximum risk of loss from counterparty credit risk is the discounted net value of the
|
|
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Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
35
|
Notes to financial statements
(unaudited)
(contd)
cash flows to be received from the counterparty over the contracts remaining life, to the extent that amount is positive. This risk is mitigated by the posting of collateral by the
counterparty to the Fund to cover the Funds exposure to the counterparty.
Total return swaps
The Fund enters into total return swaps for investment purposes. Total return swaps are agreements to exchange the return generated by one instrument for the return
generated by another instrument. For example, the agreement to pay a predetermined or fixed interest rate in exchange for a market-linked return based on a notional amount. To the extent the total return of a referenced index or instrument exceeds
the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent it is less, the Fund will make a payment to the counterparty.
(h) Swaptions.
The Fund purchases and writes swaption contracts to manage exposure to an
underlying instrument. The Fund may also purchase or write swaptions to manage exposure to fluctuations in interest rates or to enhance yield. Swaption contracts written by the Fund represent an option that gives the purchaser the right, but not the
obligation, to enter into a previously agreed upon swap contract at a future date. Swaption contracts purchased by the Fund represent an option that gives the Fund the right, but not the obligation, to enter into a previously agreed upon swap
contract at a future date.
When the Fund writes a swaption, 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 swaption written. If the swaption expires, the Fund realizes a gain equal to the amount of the premium received.
When the Fund purchases a swaption, 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 daily to reflect
the current market value of the swaption purchased. If the swaption expires, the Fund realizes a loss equal to the amount of the premium paid.
Swaptions
are marked-to-market daily based upon quotations from market makers. Changes in the value of the swaption are reported as unrealized gains or losses in the Statement of Operations.
(i) 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.
|
|
|
36
|
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Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on
forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the
Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date
of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not
typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or
economic instability.
(j) Credit and market risk.
The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things,
perceived credit and market risks. The Funds investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate
payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held
by the Fund. The Funds investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
Investments in securities that are collateralized by residential real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the
underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may
be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.
(k) Foreign investment risks.
The Funds investments in foreign securities may involve
risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political,
social or economic developments, all of which affect the market and/or credit risk of the investments.
|
|
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Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
37
|
Notes to financial statements
(unaudited)
(contd)
(l) Counterparty risk and credit-risk-related contingent features of derivative
instruments.
The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may
invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise
fails to meet its contractual obligations. The Funds investment manager attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of
its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such
counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit
related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets or NAV over a specified period of time. If these credit related contingent features were
triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Collateral requirements
differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral
that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the
Schedule of Investments.
Absent an event of default by the counterparty or a termination of the agreement, the terms of the 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.
As of January 31, 2014, the Fund held written options, forward foreign currency contracts and OTC total return swaps with credit
related contingent features which had a liability position of $1,746,824. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties. As of
January 31, 2014, the Fund had posted with its counterparties cash and/or securities as collateral to cover the net liability of these derivatives amounting to $400,000, which could be used to reduce the required payment.
(m) Security transactions and investment
income.
Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium
|
|
|
38
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. 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.
(n) Distributions to shareholders.
Distributions from net investment income of the Fund are declared each business day to shareholders of record, and are paid monthly. Distributions of net realized gains, if any, are declared at least annually. 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.
(o) Share class accounting.
Investment income, common expenses and realized/unrealized gains (losses) on investments are allocated to the
various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.
(p) Compensating balance arrangements.
The
Fund has an arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(q) Federal and other taxes.
It is the Funds policy to comply with the federal income and
excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to
shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of January 31, 2014, no provision for income tax is required in the
Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and
state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at
various rates.
(r)
Reclassification.
GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on
net assets or net asset value per share.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager. Western Asset Management Company (Western Asset),
Western Asset Management
|
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
39
|
Notes to financial statements
(unaudited)
(contd)
Company Limited (Western Asset Limited), Western Asset Management Company Pte. Ltd. (Western Singapore) and Western Asset Management Company Ltd (Western
Japan) are the Funds subadvisers. LMPFA, Western Asset, Western Asset Limited, Western Singapore and Western Japan are wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason).
Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, in accordance with the following
breakpoint schedule:
|
|
|
|
|
Average Daily Net Assets
|
|
Annual Rate
|
|
First $1 billion
|
|
|
0.650
|
%
|
Next $1 billion
|
|
|
0.625
|
|
Next $3 billion
|
|
|
0.600
|
|
Next $5 billion
|
|
|
0.575
|
|
Over $10 billion
|
|
|
0.550
|
|
LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadvisers the day-to-day
portfolio management of the Fund. Western Asset Limited, Western Singapore and Western Japan provide certain advisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated securities and related
foreign currency investments. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Asset Limited, Western Singapore and Western Japan a subadvisory fee of 0.30% on
the assets managed by Western Asset Limited, Western Singapore and Western Japan.
As a result of an expense limitation arrangement between the Fund and
LMPFA, the ratio of expenses other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class C and Class I shares did not exceed 1.95% and 0.85%, respectively. These expense
limitation arrangements cannot be terminated prior to December 31, 2015 without the Board of Trustees consent.
During the six months ended
January 31, 2014, fees waived and/or expenses reimbursed amounted to $7,453.
The investment manager is permitted to recapture amounts waived or
reimbursed to a class during the same fiscal year if the class total annual operating expenses have fallen to a level below the expense limitation (expense cap) in effect at the time the fees were earned or the expenses incurred.
In no case will the investment manager recapture any amount that would result, on any particular business day of the Fund, in the class total annual operating expenses exceeding the expense cap or any other lower limit then in effect.
Legg Mason Investor Services, LLC (LMIS), a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Funds sole and
exclusive distributor.
|
|
|
40
|
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Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
There is a maximum initial sales charge of 4.25% for Class A shares. There is a contingent deferred sales charge
(CDSC) of 4.50% on Class B shares, which applies if redemption occurs within 12 months from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is
incurred. Class C and Class C1 shares (formerly Class C) have a 1.00% CDSC, which applies if redemption occurs within 12 months from purchase payment. In certain cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs within
18 months from purchase payment. This CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of other shares of Funds sold by LMIS, equal or exceed $1,000,000 in the aggregate. These purchases do not
incur an initial sales charge.
For the six months ended January 31, 2014, LMIS and its affiliates retained sales charges of $19,859 on sales of the
Funds Class A shares. In addition, for the six months ended January 31, 2014, CDSCs paid to LMIS and its affiliates were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Class C
|
|
|
Class C1
|
|
CDSCs
|
|
$
|
20
|
|
|
$
|
4,343
|
|
|
$
|
328
|
|
|
$
|
1,466
|
|
The Fund had adopted an unfunded, non-qualified deferred compensation plan (the Plan) which allowed non-interested
trustees (Independent Trustees) to defer the receipt of all or a portion of their fees earned until a later date specified by the Independent Trustees. The deferred balances are reported in the Statement of Assets and Liabilities under
Trustees fees payable and are considered a general obligation of the Fund and any payments made pursuant to the Plan will be made from the Funds general assets. The Plan was terminated effective January 1, 2007. This change had no
effect on fees previously deferred. As of January 31, 2014, the Fund had accrued $4,039 as deferred compensation payable.
All officers and one
Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.
3. Investments
During the six months ended January 31, 2014, 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
|
|
$
|
129,448,573
|
|
|
$
|
1,579,530
|
|
Sales
|
|
|
157,578,414
|
|
|
|
1,543,387
|
|
At January 31, 2014, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax
purposes were substantially as follows:
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
11,926,252
|
|
Gross unrealized depreciation
|
|
|
(28,868,530)
|
|
Net unrealized depreciation
|
|
$
|
(16,942,278)
|
|
|
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
41
|
Notes to financial statements
(unaudited)
(contd)
At January 31, 2014, the Fund had the following open futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Contracts
|
|
|
Expiration
Date
|
|
|
Basis
Value
|
|
|
Market
Value
|
|
|
Unrealized
Gain (Loss)
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAC 40 10 Euro Index
|
|
|
240
|
|
|
|
2/14
|
|
|
$
|
13,511,206
|
|
|
$
|
13,488,074
|
|
|
$
|
(23,132)
|
|
Russell 2000 Mini Index
|
|
|
164
|
|
|
|
3/14
|
|
|
|
18,616,623
|
|
|
|
18,504,120
|
|
|
|
(112,503)
|
|
U.S. Treasury 10-Year Notes
|
|
|
336
|
|
|
|
3/14
|
|
|
|
42,240,053
|
|
|
|
42,252,000
|
|
|
|
11,947
|
|
U.S. Treasury Ultra Long-Term Bonds
|
|
|
300
|
|
|
|
3/14
|
|
|
|
41,792,381
|
|
|
|
43,143,750
|
|
|
|
1,351,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,227,681
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amsterdam Index
|
|
|
129
|
|
|
|
2/14
|
|
|
|
13,506,453
|
|
|
|
13,431,429
|
|
|
|
75,024
|
|
E-mini S&P 500 Index
|
|
|
207
|
|
|
|
3/14
|
|
|
|
18,562,877
|
|
|
|
18,387,810
|
|
|
|
175,067
|
|
U.S. Treasury 2-Year Notes
|
|
|
104
|
|
|
|
3/14
|
|
|
|
22,906,475
|
|
|
|
22,901,125
|
|
|
|
5,350
|
|
U.S. Treasury 5-Year Notes
|
|
|
214
|
|
|
|
3/14
|
|
|
|
25,908,351
|
|
|
|
25,813,750
|
|
|
|
94,601
|
|
U.S. Treasury 30-Year Bonds
|
|
|
301
|
|
|
|
3/14
|
|
|
|
39,399,545
|
|
|
|
40,211,718
|
|
|
|
(812,173)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(462,131)
|
|
Net unrealized gain on open futures contracts
|
|
|
|
|
|
|
|
|
|
|
$
|
765,550
|
|
At January 31, 2014, the Fund had the following open forward foreign currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
Counterparty
|
|
Local
Currency
|
|
|
Market
Value
|
|
|
Settlement
Date
|
|
|
Unrealized
Gain (Loss)
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
Citibank N.A.
|
|
|
790,000
|
|
|
$
|
1,065,477
|
|
|
|
2/18/14
|
|
|
$
|
(4,396)
|
|
Swedish Krona
|
|
Citibank N.A.
|
|
|
12,109,999
|
|
|
|
1,848,031
|
|
|
|
2/18/14
|
|
|
|
(1,351)
|
|
Swedish Krona
|
|
Citibank N.A.
|
|
|
7,535,790
|
|
|
|
1,149,990
|
|
|
|
2/18/14
|
|
|
|
(1,955)
|
|
Japanese Yen
|
|
Bank of America N.A.
|
|
|
736,254,070
|
|
|
|
7,207,488
|
|
|
|
3/14/14
|
|
|
|
28,954
|
|
Japanese Yen
|
|
Citibank N.A.
|
|
|
900,047,000
|
|
|
|
8,810,923
|
|
|
|
3/14/14
|
|
|
|
47,537
|
|
Philippine Peso
|
|
Citibank N.A.
|
|
|
423,973,000
|
|
|
|
9,349,175
|
|
|
|
3/14/14
|
|
|
|
(133,559)
|
|
Indian Rupee
|
|
Bank of America N.A.
|
|
|
310,000,000
|
|
|
|
4,866,180
|
|
|
|
4/16/14
|
|
|
|
11,051
|
|
Indian Rupee
|
|
Citibank N.A.
|
|
|
300,000,000
|
|
|
|
4,709,207
|
|
|
|
4/16/14
|
|
|
|
10,694
|
|
Malaysian Ringgit
|
|
Bank of America N.A.
|
|
|
45,568,800
|
|
|
|
13,559,181
|
|
|
|
4/16/14
|
|
|
|
(215,735)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(258,760)
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australian Dollar
|
|
Citibank N.A.
|
|
|
5,874,205
|
|
|
|
5,135,961
|
|
|
|
2/18/14
|
|
|
|
396,013
|
|
Australian Dollar
|
|
Citibank N.A.
|
|
|
770,899
|
|
|
|
674,016
|
|
|
|
2/18/14
|
|
|
|
17,820
|
|
British Pound
|
|
Citibank N.A.
|
|
|
9,464,629
|
|
|
|
15,557,282
|
|
|
|
2/18/14
|
|
|
|
(389,665)
|
|
British Pound
|
|
Citibank N.A.
|
|
|
4,531,193
|
|
|
|
7,448,052
|
|
|
|
2/18/14
|
|
|
|
(11,005)
|
|
British Pound
|
|
Citibank N.A.
|
|
|
1,156,992
|
|
|
|
1,901,781
|
|
|
|
2/18/14
|
|
|
|
15,735
|
|
Euro
|
|
Citibank N.A.
|
|
|
12,125,405
|
|
|
|
16,353,588
|
|
|
|
2/18/14
|
|
|
|
(142,346)
|
|
Euro
|
|
Citibank N.A.
|
|
|
180,000
|
|
|
|
242,767
|
|
|
|
2/18/14
|
|
|
|
1,984
|
|
Euro
|
|
UBS AG
|
|
|
150,000
|
|
|
|
202,306
|
|
|
|
2/18/14
|
|
|
|
1,023
|
|
Euro
|
|
UBS AG
|
|
|
2,455,002
|
|
|
|
3,311,072
|
|
|
|
2/18/14
|
|
|
|
(2,540)
|
|
New Zealand Dollar
|
|
Citibank N.A.
|
|
|
8,373,326
|
|
|
|
6,764,094
|
|
|
|
2/18/14
|
|
|
|
189,250
|
|
Japanese Yen
|
|
Bank of America N.A.
|
|
|
736,254,070
|
|
|
|
7,207,488
|
|
|
|
3/14/14
|
|
|
|
(144,313)
|
|
Japanese Yen
|
|
Citibank N.A.
|
|
|
953,047,000
|
|
|
|
9,329,761
|
|
|
|
3/14/14
|
|
|
|
(252,518)
|
|
|
|
|
42
|
|
Western Asset Global Strategic Income Fund 2014 Semi-Annual Report
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
Counterparty
|
|
Local
Currency
|
|
|
Market
Value
|
|
|
Settlement
Date
|
|
|
Unrealized
Gain (Loss)
|
|
Contracts to Sell:
continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philippine Peso
|
|
Citibank N.A.
|
|
|
423,973,000
|
|
|
|
9,349,175
|
|
|
|
3/14/14
|
|
|
|
22,466
|
|
Australian Dollar
|
|
Bank of America N.A.
|
|
|
6,324,668
|
|
|
|
5,508,714
|
|
|
|
4/16/14
|
|
|
|
6,207
|
|
Australian Dollar
|
|
Goldman Sachs
|
|
|
2,336,000
|
|
|
|
2,034,630
|
|
|
|
4/16/14
|
|
|
|
2,482
|
|
Brazilian Real
|
|
Morgan Stanley &
Co. Inc.
|
|
|
17,600,000
|
|
|
|
7,159,198
|
|
|
|
4/16/14
|
|
|
|
141,586
|
|
Canadian Dollar
|
|
Citibank N.A.
|
|
|
8,885,854
|
|
|
|
7,964,795
|
|
|
|
4/16/14
|
|
|
|
152,772
|
|
Canadian Dollar
|
|
Goldman Sachs
|
|
|
2,600,000
|
|
|
|
2,330,498
|
|
|
|
4/16/14
|
|
|
|
12,477
|
|
Malaysian Ringgit
|
|
Bank of America N.A.
|
|
|
45,568,800
|
|
|
|
13,559,181
|
|
|
|
4/16/14
|
|
|
|
108,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,153
|
|
Net unrealized loss on open forward foreign currency contracts
|
|
|
|
|
|
|
$
|
(132,607)
|
|
During the six months ended January 31, 2014, written option transactions for the Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Contracts/
Notional Amount
|
|
|
Premiums
|
|
Written options, outstanding as of July 31, 2013
|
|
|
660,002,136
|
|
|
$
|
2,096,527
|
|
Options written
|
|
|
27,571,783
|
|
|
|
368,440
|
|
Options closed
|
|
|
(1,451)
|
|
|
|
(455,878)
|
|
Options exercised
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
(687,572,268)
|
|
|
|
(1,877,239)
|
|
Written options, outstanding as of January 31, 2014
|
|
|
200
|
|
|
$
|
131,850
|
|
At January 31, 2014, the Fund held the following open swap contracts: