N-CSRS 1 d613879dncsrs.htm WESTERN ASSET TOTAL RETURN UNCONSTRAINED FUND Western Asset Total Return Unconstrained Fund
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-06110

 

 

Western Asset Funds, Inc.

(Exact name of registrant as specified in charter)

 

 

100 International Drive, Baltimore, MD, 21202

(Address of principal executive offices) (Zip code)

 

 

Marc A. De Oliveira

Franklin Templeton

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 877-6LM-FUND/656-3863

Date of fiscal year end: May 31

Date of reporting period: November 30, 2023

 

 

 


Table of Contents
ITEM 1.

REPORT TO STOCKHOLDERS.

The Semi-Annual Report to Stockholders is filed herewith.


Table of Contents

LOGO

 

Semi-Annual Report

 

 

November 30, 2023

 

WESTERN ASSET

TOTAL RETURN

UNCONSTRAINED FUND

 

 

 

 

 

 

 

The Securities and Exchange Commission has adopted new regulations that will result in changes to the design and delivery of annual and semi-annual shareholder reports beginning in July 2024.

If you have previously elected to receive shareholder reports electronically, you will continue to do so and need not take any action.

Otherwise, paper copies of the Fund’s shareholder reports will be mailed to you beginning in July 2024. If you would like to receive shareholder reports and other communications from the Fund electronically instead of by mail, you may make that request at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, enrolling at franklintempleton.com.

You may access franklintempleton.com by scanning the code below.

 

LOGO

 

LOGO

 

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


Table of Contents
What’s inside      
Letter from the president     II  
Performance review     III  
Fund at a glance     1  
Fund expenses     2  
Schedule of investments     4  
Statement of assets and liabilities     33  
Statement of operations     35  
Statements of changes in net assets     36  
Financial highlights     37  
Notes to financial statements     43  

Fund objective

The Fund seeks to maximize long-term total return.

 

Letter from the president

 

LOGO

 

Dear Shareholder,

We are pleased to provide the semi-annual report of Western Asset Total Return Unconstrained Fund for the six-month reporting period ended November 30, 2023. Please read on for Fund performance information during the Fund’s reporting period.

As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:

 

 

Fund prices and performance,

 

 

Market insights and commentaries from our portfolio managers, and

 

 

A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

 

LOGO

Jane Trust, CFA

President and Chief Executive Officer

December 29, 2023

 

 

II

   Western Asset Total Return Unconstrained Fund


Table of Contents

Performance review

 

For the six months ended November 30, 2023, Class I shares of Western Asset Total Return Unconstrained Fund returned 2.86%. The Fund’s unmanaged benchmarks, the Bloomberg U.S. Aggregate Indexi and the ICE BofA 3-Month U.S. Treasury Bill Indexii, returned -0.80% and 2.69%, respectively, for the same period.

 

Performance Snapshot as of November 30, 2023 (unaudited)      
(excluding sales charges)   6 months  
Western Asset Total Return Unconstrained Fund:  

Class A

    2.71

Class C

    2.26

Class FI

    2.56

Class R

    2.44

Class I

    2.86

Class IS

    2.92
Bloomberg U.S. Aggregate Index     -0.80
ICE BofA 3-Month U.S. Treasury Bill Index     2.69

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value, investment returns and yields will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.franklintempleton.com.

All share class returns assume the reinvestment of all distributions, including returns of capital, if any, at net asset value and the deduction of all Fund expenses. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. If sales charges were reflected, the performance quoted would be lower. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

Fund performance figures reflect fee waivers and/or expense reimbursements, without which the performance would have been lower.

The 30-Day SEC Yields for the period ended November 30, 2023 for Class A, Class C, Class FI, Class R, Class I and Class IS shares were 5.07%, 4.57%, 5.23%, 4.98%, 5.57% and 5.67%, respectively. Absent fee waivers and/or expense reimbursements, the 30-Day SEC Yields for Class A, Class C, Class FI, Class R and Class IS shares would have been 5.03%, 4.50%, 5.22%, 4.92% and 5.59%, respectively. The 30-Day SEC Yield, calculated pursuant to the standard SEC formula, is based on the Fund’s investments over an annualized trailing 30-day period, and not on the distributions paid by the Fund, which may differ.

 

Total Annual Operating Expenses (unaudited)

As of the Fund’s current prospectus dated September 29, 2023, the gross total annual fund operating expense ratios for Class A, Class C, Class FI, Class R, Class I and Class IS shares were 1.07%, 1.79%, 1.10%, 1.45%, 0.80% and 0.69%, respectively.

 

Western Asset Total Return Unconstrained Fund    

 

III


Table of Contents

Performance review (cont’d)

 

Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Fund expense ratios are more likely to increase when markets are volatile.

As a result of expense limitation arrangements, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets will not exceed 1.07% for Class A shares, 1.80% for Class C shares, 1.10% for Class FI shares, 1.35% for Class R shares, 0.75% for Class I shares and 0.65% for Class IS shares. In addition, the ratio of total annual fund operating expenses for Class IS shares will not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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. This management fee waiver is not subject to the recapture provision discussed below.

The manager is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which the manager earned the fee or incurred the expense if the class’ total annual fund 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 manager recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

As always, thank you for your confidence in our stewardship of your assets.

Sincerely,

 

LOGO

Jane Trust, CFA

President and Chief Executive Officer

December 29, 2023

RISKS: Fixed income securities involve interest rate, credit, inflation and reinvestment risks. As interest rates rise, the value of fixed income securities falls. High yield securities, commonly known as “junk bonds,” include greater price volatility, illiquidity and possibility of default. International investments are subject to special risks including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Emerging market countries tend to have economic, political and legal systems that are less developed and are less stable than those of more developed countries. The use of leverage may increase volatility and possibility of loss. Potential active and frequent trading may result in higher transaction costs and increased investor liability. Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks.

 

 

IV

   Western Asset Total Return Unconstrained Fund


Table of Contents

 

Derivatives, such as options, futures and swaps, can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, armed conflicts, economic sanctions and countermeasures in response to sanctions, major cybersecurity events, investor sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the security or other asset. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

 

 

 

i 

The Bloomberg U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage-and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.

 

ii 

The ICE BofA 3-Month U.S. Treasury Bill Index is an unmanaged index that comprises a single U.S. Treasury issue with approximately three months to final maturity, purchased at the beginning of each month and held for one full month.

 

Western Asset Total Return Unconstrained Fund    

 

V


Table of Contents

Fund at a glance (unaudited)

 

Investment breakdown (%) as a percent of total investments

 

 

LOGO

 

The bar graph above represents the composition of the Fund’s investments as of November 30, 2023 and May 31, 2023 and does not include derivatives, such as written options, futures contracts, forward foreign currency contracts and swap contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

1


Table of Contents

Fund expenses (unaudited)

 

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested on June 1, 2023 and held for the six months ended November 30, 2023.

Actual expenses

The table below titled “Based on actual total return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.

Hypothetical example for comparison purposes

The table below titled “Based on hypothetical total return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

Based on actual total return1                 Based on hypothetical total return1  
    

Actual
Total Return

Without

Sales

Charge2

   

Beginning

Account

Value

   

Ending

Account

Value

   

Annualized

Expense

Ratio

   

Expenses

Paid

During

the

Period3

              

Hypothetical

Annualized

Total Return

   

Beginning

Account

Value

   

Ending

Account

Value

   

Annualized

Expense
Ratio

    Expenses
Paid
During
the
Period3
 
Class A     2.71   $ 1,000.00     $ 1,027.10       1.06   $ 5.37       Class A     5.00   $ 1,000.00     $ 1,019.70       1.06   $ 5.35  
Class C     2.26       1,000.00       1,022.60       1.78       9.00       Class C     5.00       1,000.00       1,016.10       1.78       8.97  
Class FI     2.56       1,000.00       1,025.60       1.09       5.52       Class FI     5.00       1,000.00       1,019.55       1.09       5.50  
Class R     2.44       1,000.00       1,024.40       1.35       6.83       Class R     5.00       1,000.00       1,018.25       1.35       6.81  
Class I     2.86       1,000.00       1,028.60       0.75       3.80       Class I     5.00       1,000.00       1,021.25       0.75       3.79  
Class IS     2.92       1,000.00       1,029.20       0.65       3.30       Class IS     5.00       1,000.00       1,021.75       0.65       3.29  

 

 

2

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

1 

For the six months ended November 30, 2023.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the year. 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.

 

3 

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (183), then divided by 366.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

3


Table of Contents

Schedule of investments (unaudited)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Corporate Bonds & Notes — 25.8%                                
Communication Services — 2.1%                                

Entertainment — 0.5%

                               

Netflix Inc., Senior Notes

    3.875     11/15/29       840,000 EUR    $ 917,257  (a) 

Walt Disney Co., Senior Notes

    8.450     8/1/34       350,000       422,926  

Total Entertainment

                            1,340,183  

Media — 1.2%

                               

CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes

    4.250     1/15/34       2,110,000       1,647,550  (b) 

Charter Communications Operating LLC/Charter Communications Operating Capital Corp., Senior Secured Notes

    5.375     4/1/38       160,000       138,630  

Charter Communications Operating LLC/Charter Communications Operating Capital Corp., Senior Secured Notes

    3.500     3/1/42       40,000       26,462  

Charter Communications Operating LLC/Charter Communications Operating Capital Corp., Senior Secured Notes

    4.800     3/1/50       180,000       134,034  

Charter Communications Operating LLC/Charter Communications Operating Capital Corp., Senior Secured Notes

    5.500     4/1/63       545,000       431,536  

DISH DBS Corp., Senior Secured Notes

    5.250     12/1/26       380,000       306,251  (b) 

DISH DBS Corp., Senior Secured Notes

    5.750     12/1/28       320,000       237,619  (b) 

Time Warner Cable LLC, Senior Secured Notes

    6.550     5/1/37       10,000       9,451  

Time Warner Cable LLC, Senior Secured Notes

    7.300     7/1/38       500,000       500,563  

Total Media

                            3,432,096  

Wireless Telecommunication Services — 0.4%

                               

CSC Holdings LLC, Senior Notes

    4.500     11/15/31       680,000       481,821  (b) 

CSC Holdings LLC, Senior Notes

    5.000     11/15/31       1,240,000       693,941  (b) 

Total Wireless Telecommunication Services

 

            1,175,762  

Total Communication Services

                            5,948,041  
Consumer Discretionary — 2.5%                                

Automobiles — 1.1%

                               

Ford Motor Co., Senior Notes

    3.250     2/12/32       1,290,000       1,029,369  

Ford Motor Co., Senior Notes

    6.100     8/19/32       210,000       204,397  

Ford Motor Credit Co. LLC, Senior Notes

    2.300     2/10/25       660,000       627,428  

Ford Motor Credit Co. LLC, Senior Notes

    3.625     6/17/31       340,000       282,533  

General Motors Co., Senior Notes

    5.600     10/15/32       70,000       68,516  

 

See Notes to Financial Statements.

 

 

4

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


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Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  

Automobiles — continued

                               

General Motors Co., Senior Notes

    6.600     4/1/36       30,000     $ 30,753  

Nissan Motor Co. Ltd., Senior Notes

    3.522     9/17/25       790,000       753,498  (b) 

Total Automobiles

                            2,996,494  

Broadline Retail — 0.3%

                               

Prosus NV, Senior Notes

    3.061     7/13/31       1,110,000       868,928 (b) 

Diversified Consumer Services — 0.0%††

                               

California Institute of Technology, Senior Notes

    3.650     9/1/2119       260,000       165,408  

Hotels, Restaurants & Leisure — 1.1%

                               

Las Vegas Sands Corp., Senior Notes

    3.200     8/8/24       640,000       625,984  

Las Vegas Sands Corp., Senior Notes

    2.900     6/25/25       110,000       104,706  

Sands China Ltd., Senior Notes

    5.375     8/8/25       740,000       723,742  

Sands China Ltd., Senior Notes

    2.550     3/8/27       500,000       441,016  

Sands China Ltd., Senior Notes

    5.650     8/8/28       590,000       565,237  

Sands China Ltd., Senior Notes

    3.100     3/8/29       330,000       276,845  

Sands China Ltd., Senior Notes

    3.500     8/8/31       200,000       159,765  

Wynn Resorts Finance LLC/Wynn Resorts Capital Corp., Senior Notes

    7.125     2/15/31       120,000       119,552  (b) 

Total Hotels, Restaurants & Leisure

                            3,016,847  

Total Consumer Discretionary

                            7,047,677  
Consumer Staples — 0.2%                                

Tobacco — 0.2%

                               

Altria Group Inc., Senior Notes

    3.875     9/16/46       120,000       84,512  

Altria Group Inc., Senior Notes

    5.950     2/14/49       50,000       48,777  

Altria Group Inc., Senior Notes

    6.200     2/14/59       188,000       189,863  

BAT Capital Corp., Senior Notes

    4.540     8/15/47       180,000       131,885  

Total Consumer Staples

                            455,037  
Energy — 5.8%                                

Oil, Gas & Consumable Fuels — 5.8%

                               

Cheniere Energy Partners LP, Senior Notes

    4.000     3/1/31       350,000       308,957  

Cheniere Energy Partners LP, Senior Notes

    3.250     1/31/32       360,000       296,605  

Continental Resources Inc., Senior Notes

    2.268     11/15/26       320,000       289,181  (b) 

Continental Resources Inc., Senior Notes

    5.750     1/15/31       630,000       611,751  (b) 

Coterra Energy Inc., Senior Notes

    3.900     5/15/27       325,000       309,903  

Coterra Energy Inc., Senior Notes

    4.375     3/15/29       230,000       217,407  

Devon Energy Corp., Senior Notes

    5.250     10/15/27       26,000       25,754  

Devon Energy Corp., Senior Notes

    5.875     6/15/28       26,000       26,097  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

5


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  

Oil, Gas & Consumable Fuels — continued

                               

Devon Energy Corp., Senior Notes

    4.500     1/15/30       84,000     $ 78,162  

Devon Energy Corp., Senior Notes

    5.600     7/15/41       145,000       133,702  

Devon Energy Corp., Senior Notes

    4.750     5/15/42       160,000       132,207  

Ecopetrol SA, Senior Notes

    5.375     6/26/26       220,000       212,792  

Ecopetrol SA, Senior Notes

    5.875     5/28/45       1,180,000       841,509  

Energy Transfer LP, Junior Subordinated Notes (3 mo. USD LIBOR + 4.028%)

    9.669     12/18/23       1,930,000       1,835,739  (c)(d) 

Energy Transfer LP, Junior Subordinated Notes (6.500% to 11/15/26 then 5 year Treasury Constant Maturity Rate + 5.694%)

    6.500     11/15/26       80,000       75,111  (c)(d) 

Energy Transfer LP, Junior Subordinated Notes (7.125% to 5/15/30 then 5 year Treasury Constant Maturity Rate + 5.306%)

    7.125     5/15/30       310,000       275,271  (c)(d) 

Energy Transfer LP, Senior Notes

    4.950     6/15/28       90,000       87,855  

Energy Transfer LP, Senior Notes

    3.750     5/15/30       120,000       107,714  

Energy Transfer LP, Senior Notes

    5.300     4/1/44       60,000       52,392  

Energy Transfer LP, Senior Notes

    5.400     10/1/47       10,000       8,811  

Energy Transfer LP, Senior Notes

    6.250     4/15/49       505,000       497,365  

Energy Transfer LP, Senior Notes

    5.000     5/15/50       230,000       194,225  

Enterprise Products Operating LLC, Senior Notes (5.375% to 2/15/28 then 3 mo. Term SOFR + 2.832%)

    5.375     2/15/78       130,000       112,602  (d) 

EQT Corp., Senior Notes

    6.125     2/1/25       144,000       144,295  

EQT Corp., Senior Notes

    3.900     10/1/27       1,190,000       1,122,572  

EQT Corp., Senior Notes

    5.000     1/15/29       250,000       242,117  

KazMunayGas National Co. JSC, Senior Notes

    4.750     4/19/27       750,000       715,337  (b) 

KazMunayGas National Co. JSC, Senior Notes

    6.375     10/24/48       530,000       452,745  (b) 

Kinder Morgan Inc., Senior Notes

    7.750     1/15/32       310,000       344,463  

NGPL PipeCo LLC, Senior Notes

    4.875     8/15/27       1,390,000       1,337,263  (b) 

Occidental Petroleum Corp., Senior Notes

    7.950     6/15/39       530,000       590,419  

Parsley Energy LLC/Parsley Finance Corp., Senior Notes

    4.125     2/15/28       70,000       66,197  (b) 

Petrobras Global Finance BV, Senior Notes

    6.850     6/5/2115       560,000       494,716  

Southwestern Energy Co., Senior Notes

    5.375     3/15/30       120,000       113,871  

Southwestern Energy Co., Senior Notes

    4.750     2/1/32       320,000       285,595  

 

See Notes to Financial Statements.

 

 

6

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  

Oil, Gas & Consumable Fuels — continued

                               

Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes

    6.500     7/15/27       210,000     $ 212,166  

Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes

    6.875     1/15/29       30,000       30,475  

Western Midstream Operating LP, Senior Notes

    4.050     2/1/30       1,390,000       1,260,709  

Western Midstream Operating LP, Senior Notes

    5.450     4/1/44       230,000       197,298  

Western Midstream Operating LP, Senior Notes

    5.500     8/15/48       410,000       344,864  

Western Midstream Operating LP, Senior Notes

    5.250     2/1/50       200,000       166,829  

Williams Cos. Inc., Senior Notes

    3.500     11/15/30       320,000       284,270  

Williams Cos. Inc., Senior Notes

    5.750     6/24/44       130,000       123,927  

YPF SA, Senior Secured Notes

    9.000     2/12/26       673,234       675,571  (b) 

Total Energy

                            15,936,811  
Financials — 9.2%                                

Banks — 4.7%

                               

Banco Santander SA, Senior Notes (4.175% to 3/24/27 then 1 year Treasury Constant Maturity Rate + 2.000%)

    4.175     3/24/28       800,000       754,692  (d) 

Bank of America Corp., Senior Notes (2.551% to 2/4/27 then SOFR + 1.050%)

    2.551     2/4/28       820,000       747,318  (d) 

Bank of America Corp., Senior Notes (2.972% to 2/4/32 then SOFR + 1.330%)

    2.972     2/4/33       700,000       571,525  (d) 

Bank of Nova Scotia, Senior Notes

    3.450     4/11/25       825,000       801,716  

BNP Paribas SA, Senior Notes (2.871%to 4/19/31 then 3 mo. Term SOFR + 1.387%)

    2.871     4/19/32       1,130,000       916,048  (b)(d) 

Citigroup Inc., Senior Notes

    4.650     7/30/45       98,000       84,182  

Citigroup Inc., Senior Notes (3.785% to 3/17/32 then SOFR + 1.939%)

    3.785     3/17/33       390,000       337,614  (d) 

Cooperatieve Rabobank UA, Junior Subordinated Notes (4.625% to 12/29/25 then EUR 5 year Swap Rate + 4.098%)

    4.625     12/29/25       2,200,000  EUR      2,257,005  (a)(c)(d) 

Cooperatieve Rabobank UA, Senior Notes (3.649% to 4/6/27 then 1 year Treasury Constant Maturity Rate + 1.220%)

    3.649     4/6/28       450,000       421,116  (b)(d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

7


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  

Banks — continued

                               

Credit Agricole SA, Junior Subordinated Notes (8.125% to 12/23/25 then USD 5 year ICE Swap Rate + 6.185%)

    8.125     12/23/25       1,020,000     $ 1,025,753  (b)(c)(d) 

Danske Bank A/S, Senior Notes (3.773% to 3/28/24 then 1 year Treasury Constant Maturity Rate + 1.450%)

    3.773     3/28/25       1,290,000       1,279,254  (b)(d) 

Danske Bank A/S, Senior Notes (4.298% to 4/1/27 then 1 year Treasury Constant Maturity Rate + 1.750%)

    4.298     4/1/28       520,000       493,233  (b)(d) 

JPMorgan Chase & Co., Senior Notes (2.947% to 2/24/27 then SOFR + 1.170%)

    2.947     2/24/28       650,000       602,368  (d) 

Lloyds Banking Group PLC, Junior Subordinated Notes (4.947% to 6/27/25 then EUR 5 year Swap Rate + 5.290%)

    4.947     6/27/25       1,312,000  EUR      1,369,781  (a)(c)(d) 

Lloyds Banking Group PLC, Subordinated Notes

    4.500     11/4/24       470,000       461,749  

Wells Fargo & Co., Senior Notes (3.350% to 3/2/32 then SOFR + 1.500%)

    3.350     3/2/33       140,000       117,246  (d) 

Wells Fargo & Co., Senior Notes (5.013% to 4/4/50 then 3 mo. Term SOFR + 4.502%)

    5.013     4/4/51       660,000       587,303  (d) 

Total Banks

                            12,827,903  

Capital Markets — 2.7%

                               

Credit Suisse AG, Senior Notes

    3.700     2/21/25       360,000       349,577  

Credit Suisse AG AT1 Claim

                1,680,000       193,200  *(e) 

Goldman Sachs Group Inc., Senior Notes (3.615% to 3/15/27 then SOFR + 1.846%)

    3.615     3/15/28       480,000       451,801  (d) 

Goldman Sachs Group Inc., Subordinated Notes

    5.150     5/22/45       590,000       532,033  

Morgan Stanley, Senior Notes (2.475% to 1/21/27 then SOFR + 1.000%)

    2.475     1/21/28       760,000       692,826  (d) 

UBS Group AG, Junior Subordinated Notes (7.000% to 1/31/24 then USD 5 year ICE Swap Rate + 4.344%)

    7.000     1/31/24       3,910,000       3,901,415  (b)(c)(d) 

UBS Group AG, Senior Notes (3.091% to 5/14/31 then SOFR + 1.730%)

    3.091     5/14/32       1,440,000       1,176,216  (b)(d) 

Total Capital Markets

                            7,297,068  

Consumer Finance — 0.6%

                               

American Express Co., Senior Notes

    3.950     8/1/25       1,825,000       1,782,505  

 

See Notes to Financial Statements.

 

 

8

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  

Financial Services — 1.0%

                               

AerCap Ireland Capital DAC/AerCap Global Aviation Trust, Senior Notes

    4.625     10/15/27       1,040,000     $ 998,111  

AerCap Ireland Capital DAC/AerCap Global Aviation Trust, Senior Notes

    3.300     1/30/32       640,000       530,766  

Park Aerospace Holdings Ltd., Senior Notes

    5.500     2/15/24       770,000       767,939  (b) 

Vanguard Group Inc.

    3.050     8/22/50       1,000,000       579,529  

Total Financial Services

                            2,876,345  

Insurance — 0.2%

                               

MetLife Inc., Junior Subordinated Notes

    6.400     12/15/36       510,000       502,665  

Total Financials

                            25,286,486  
Health Care — 1.9%                                

Health Care Providers & Services — 1.0%

                               

CommonSpirit Health, Secured Notes

    4.350     11/1/42       490,000       400,261  

CommonSpirit Health, Senior Secured Notes

    3.817     10/1/49       390,000       280,177  

CVS Pass-Through Trust, Senior Secured Trust

    6.036     12/10/28       32,806       32,694  

Dignity Health, Secured Notes

    5.267     11/1/64       860,000       758,344  

Hackensack Meridian Health Inc., Senior Secured Notes

    4.211     7/1/48       310,000       254,377  

Humana Inc., Senior Notes

    8.150     6/15/38       480,000       561,820  

Humana Inc., Senior Notes

    4.625     12/1/42       30,000       25,746  

Willis-Knighton Medical Center, Secured Notes

    4.813     9/1/48       580,000       485,739  

Total Health Care Providers & Services

                            2,799,158  

Pharmaceuticals — 0.9%

                               

Teva Pharmaceutical Finance Netherlands III BV, Senior Notes

    3.150     10/1/26       1,830,000       1,668,431  

Teva Pharmaceutical Finance Netherlands III BV, Senior Notes

    5.125     5/9/29       730,000       679,221  

Total Pharmaceuticals

                            2,347,652  

Total Health Care

                            5,146,810  
Industrials — 1.9%                                

Aerospace & Defense — 0.3%

                               

Boeing Co., Senior Notes

    3.250     2/1/35       130,000       104,566  

Boeing Co., Senior Notes

    3.550     3/1/38       150,000       114,820  

Boeing Co., Senior Notes

    5.705     5/1/40       265,000       261,457  

Boeing Co., Senior Notes

    5.930     5/1/60       230,000       223,524  

Total Aerospace & Defense

                            704,367  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

9


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  

Building Products — 0.0%††

                               

Builders FirstSource Inc., Senior Notes

    4.250     2/1/32       30,000     $ 25,759 (b) 

Passenger Airlines — 0.9%

                               

American Airlines Inc., Senior Secured Notes

    8.500     5/15/29       110,000       113,538  (b)(f) 

Delta Air Lines Inc./SkyMiles IP Ltd., Senior Secured Notes

    4.500     10/20/25       238,000       232,345  (b) 

Spirit Loyalty Cayman Ltd./Spirit IP Cayman Ltd., Senior Secured Notes

    8.000     9/20/25       390,000       286,650  (b) 

United Airlines Inc., Senior Secured Notes

    4.625     4/15/29       2,010,000       1,795,653  (b) 

Total Passenger Airlines

                            2,428,186  

Trading Companies & Distributors — 0.7%

                               

H&E Equipment Services Inc., Senior Notes

    3.875     12/15/28       2,280,000       2,020,591 (b) 

Total Industrials

                            5,178,903  
Materials — 1.6%                                

Chemicals — 0.7%

                               

Braskem America Finance Co., Senior Notes

    7.125     7/22/41       810,000       725,899  (a) 

OCP SA, Senior Notes

    5.625     4/25/24       1,100,000       1,096,381  (b) 

Total Chemicals

                            1,822,280  

Metals & Mining — 0.9%

                               

Anglo American Capital PLC, Senior Notes

    3.625     9/11/24       740,000       726,889  (b) 

Anglo American Capital PLC, Senior Notes

    4.000     9/11/27       290,000       274,767  (b) 

Freeport-McMoRan Inc., Senior Notes

    4.625     8/1/30       200,000       185,994  

Freeport-McMoRan Inc., Senior Notes

    5.450     3/15/43       400,000       359,169  

Vale Overseas Ltd., Senior Notes

    6.875     11/21/36       910,000       945,030  

Total Metals & Mining

                            2,491,849  

Total Materials

                            4,314,129  
Utilities — 0.6%                                

Electric Utilities — 0.6%

                               

Pacific Gas and Electric Co., First Mortgage Bonds

    4.950     6/8/25       800,000       787,259  

 

See Notes to Financial Statements.

 

 

10

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  

Electric Utilities — continued

                               

Pacific Gas and Electric Co., First Mortgage Bonds

    3.000     6/15/28       460,000     $ 406,474  

Trans-Allegheny Interstate Line Co., Senior Notes

    3.850     6/1/25       550,000       535,158  (b) 

Total Utilities

                            1,728,891  

Total Corporate Bonds & Notes (Cost — $76,863,711)

 

                    71,042,785  
Mortgage-Backed Securities — 20.0%

 

                       

FHLMC — 6.5%

                               

Federal Home Loan Mortgage Corp. (FHLMC)

    2.000     10/1/41-5/1/51       2,632,728       2,078,836  

Federal Home Loan Mortgage Corp. (FHLMC)

    4.500     3/1/47-12/1/52       1,163,697       1,097,195  

Federal Home Loan Mortgage Corp. (FHLMC)

    4.000     7/1/49-2/1/53       564,657       521,351  

Federal Home Loan Mortgage Corp. (FHLMC)

    2.500     7/1/50-4/1/52       7,006,944       5,751,548  

Federal Home Loan Mortgage Corp. (FHLMC)

    3.000     11/1/51-3/1/52       3,846,354       3,288,778  

Federal Home Loan Mortgage Corp. (FHLMC)

    1.500     3/1/52       370,324       273,421  

Federal Home Loan Mortgage Corp. (FHLMC)

    3.500     6/1/52       2,999,757       2,642,799  

Federal Home Loan Mortgage Corp. (FHLMC)

    5.500     9/1/52-5/1/53       731,709       723,203  

Federal Home Loan Mortgage Corp. (FHLMC)

    5.000     1/1/53-5/1/53       1,159,693       1,120,130  

Federal Home Loan Mortgage Corp. (FHLMC)

    6.500     2/1/53       183,511       187,041  

Federal Home Loan Mortgage Corp. (FHLMC)

    6.000     3/1/53       186,567       187,400  

Total FHLMC

                            17,871,702  

FNMA — 7.6%

                               

Federal National Mortgage Association (FNMA)

    2.850     9/1/31       97,907       85,644  

Federal National Mortgage Association (FNMA)

    5.100     12/1/33       100,000       98,562  (e)(g)(h) 

Federal National Mortgage Association (FNMA)

    2.000     3/1/42-3/1/52       2,737,417       2,151,428  

Federal National Mortgage Association (FNMA)

    4.000     4/1/44-4/1/52       2,371,978       2,170,582  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

11


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  

FNMA — continued

                               

Federal National Mortgage Association (FNMA)

    3.500     12/1/47-6/1/52       837,523     $ 746,768  

Federal National Mortgage Association (FNMA)

    4.500     7/1/49-8/1/58       1,075,529       1,013,500  

Federal National Mortgage Association (FNMA)

    3.000     10/1/50-1/1/52       1,380,131       1,180,026  

Federal National Mortgage Association (FNMA)

    2.500     8/1/51-2/1/52       691,944       565,702  

Federal National Mortgage Association (FNMA)

    5.000     6/1/52-2/1/53       897,279       867,407  

Federal National Mortgage Association (FNMA)

    6.000     4/1/53       93,018       93,541  

Federal National Mortgage Association (FNMA)

    5.500     5/1/53       98,820       98,164  

Federal National Mortgage Association (FNMA)

    5.000     12/1/53       400,000       384,936  (h) 

Federal National Mortgage Association (FNMA)

    5.500     1/1/54       4,300,000       4,237,810  (h) 

Federal National Mortgage Association (FNMA)

    6.000     1/1/54       5,400,000       5,413,938  (h) 

Federal National Mortgage Association (FNMA)

    6.500     1/1/54       1,800,000       1,827,492  (h) 

Total FNMA

                            20,935,500  

GNMA — 5.9%

                               

Government National Mortgage Association (GNMA)

    3.000     10/15/42-11/15/42       228,122       198,826  

Government National Mortgage Association (GNMA)

    4.000     3/15/50       31,806       29,334  

Government National Mortgage Association (GNMA)

    3.500     5/15/50       40,073       36,200  

Government National Mortgage Association (GNMA) II

    4.500     4/20/41-9/20/52       1,231,228       1,173,580  

Government National Mortgage Association (GNMA) II

    4.000     3/20/48-5/20/52       833,097       778,586  

Government National Mortgage Association (GNMA) II

    5.000     5/20/48-6/20/53       2,104,335       2,051,984  

Government National Mortgage Association (GNMA) II

    3.500     10/20/49-12/20/52       1,287,998       1,152,203  

Government National Mortgage Association (GNMA) II

    3.000     1/20/50-3/20/52       2,050,946       1,779,128  

 

See Notes to Financial Statements.

 

 

12

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  

GNMA — continued

                               

Government National Mortgage Association (GNMA) II

    2.500     12/20/50-12/20/51       1,822,227     $ 1,511,601  

Government National Mortgage Association (GNMA) II

    2.000     2/20/51       207,478       167,820  

Government National Mortgage Association (GNMA) II

    5.500     1/20/53       768,541       763,487  

Government National Mortgage Association (GNMA) II

    6.000     7/20/53       693,356       698,864  

Government National Mortgage Association (GNMA) II

    3.500     12/20/53       900,000       804,565  (h) 

Government National Mortgage Association (GNMA) II

    4.000     12/20/53       600,000       552,738  (h) 

Government National Mortgage Association (GNMA) II

    4.500     12/20/53       600,000       567,442  (h) 

Government National Mortgage Association (GNMA) II

    5.000     12/20/53       200,000       194,294  (h) 

Government National Mortgage Association (GNMA) II

    5.500     1/20/54       1,800,000       1,786,753  (h) 

Government National Mortgage Association (GNMA) II

    6.000     1/20/54       900,000       906,448  (h) 

Government National Mortgage Association (GNMA) II

    6.500     1/20/54       900,000       914,801  (h) 

Total GNMA

                            16,068,654  

Total Mortgage-Backed Securities (Cost — $56,269,036)

 

            54,875,856  
Collateralized Mortgage Obligations (i) — 13.5%                                

BANK, 2018-BN15 B

    4.815     11/15/61       1,050,000       905,688  (d) 

BANK, 2022-BNK39 A4

    2.928     2/15/55       240,000       198,381  (d) 

Bear Stearns Mortgage Funding Trust, 2007-AR1 1A1 (1 mo. Term SOFR + 0.274%)

    5.617     1/25/37       1,037,538       872,961  (d) 

Benchmark Mortgage Trust, 2023-V3 A3

    6.363     7/15/56       230,000       235,689  (d) 

BX Commercial Mortgage Trust, 2021-VOLT G (1 mo. Term SOFR + 2.964%)

    8.287     9/15/36       850,000       797,508  (b)(d) 

BX Commercial Mortgage Trust, 2021-XL2 J (1 mo. Term SOFR + 4.004%)

    9.327     10/15/38       836,665       785,775  (b)(d) 

BX Commercial Mortgage Trust, 2023-VLT2 A (1 mo. Term SOFR + 2.281%)

    7.604     6/15/40       160,000       160,170  (b)(d) 

BX Trust, 2018-GWMZ MC (1 mo. Term SOFR + 5.785%)

    11.108     5/15/37       1,170,000       1,155,857  (b)(d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

13


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  
Collateralized Mortgage Obligations (i) — continued                                

BX Trust, 2021-ARIA G (1 mo. Term SOFR + 3.257%)

    8.580     10/15/36       1,030,000     $ 941,303  (b)(d) 

BX Trust, 2021-SDMF F (1 mo. Term SOFR + 2.051%)

    7.374     9/15/34       860,000       794,473  (b)(d) 

CD Mortgage Trust, 2017-CD5 A4

    3.431     8/15/50       340,000       310,965  

CENT Trust, 2023-CITY A (1 mo. Term SOFR + 2.620%)

    7.943     9/15/28       730,000       735,422  (b)(d) 

CHL Mortgage Pass-Through Trust, 2001- HYB1 1A1

    5.257     6/19/31       3,125       3,018  (d) 

CHL Mortgage Pass-Through Trust, 2003-60 1A1

    4.198     2/25/34       18,946       18,319  (d) 

Citigroup Commercial Mortgage Trust, 2016-C1 A4

    3.209     5/10/49       150,000       140,220  

Citigroup Commercial Mortgage Trust, 2017-C4 A4

    3.471     10/12/50       170,000       155,221  

Citigroup Commercial Mortgage Trust, 2023-SMRT A

    6.015     10/12/40       330,000       327,763  (b)(d) 

Citigroup Mortgage Loan Trust, 2005-9 1A1 (1 mo. Term SOFR + 0.374%)

    5.717     11/25/35       83,803       67,751  (d) 

Countrywide Alternative Loan Trust, 2005-28CB 2A3

    5.750     8/25/35       751,239       495,474  

Countrywide Alternative Loan Trust, 2005-52CB 1A2, IO (-1.000 x 1 mo. Term SOFR + 4.986%, 0.000% floor)

    0.000     11/25/35       3,115,105       154,638  (d) 

Countrywide Alternative Loan Trust, 2005-76 3A1 (1 mo. Term SOFR + 0.634%)

    5.977     1/25/46       63,890       51,791  (d) 

Countrywide Alternative Loan Trust, 2006-4CB 1A4, IO (-1.000 x 1 mo. Term SOFR + 5.186%, 0.000% floor)

    0.000     4/25/36       5,485,241       351,519  (d) 

Countrywide Alternative Loan Trust, 2006-8T1 1A2, IO (-1.000 x 1 mo. Term SOFR + 5.386%)

    0.043     4/25/36       3,386,112       294,578  (d) 

Countrywide Alternative Loan Trust, 2006-21CB A6, IO (-1.000 x 1 mo. Term SOFR + 5.486%)

    0.143     7/25/36       1,468,770       123,645  (d) 

CSMC OA LLC, 2014-USA F

    4.373     9/15/37       4,400,000       1,632,586  (b) 

CSMC Trust, 2015-2R 7A1

    4.265     8/27/36       14,989       14,982  (b)(d) 

CSMC Trust, 2017-CHOP H (Prime Index + 4.294%)

    12.794     7/15/32       1,229,000       1,069,138  (b)(d) 

CSMC Trust, 2021-RPL1 A2

    3.937     9/27/60       870,000       775,337  (b) 

 

See Notes to Financial Statements.

 

 

14

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  
Collateralized Mortgage Obligations (i) — continued                                

CSMC Trust, 2022-7R 1A1 (30 Day Average SOFR + 3.500%)

    8.817     10/25/66       1,012,030     $ 1,006,490  (b)(d) 

DC Commercial Mortgage Trust, 2023-DC A

    6.314     9/12/40       600,000       602,372  (b) 

Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2004-4 7AR2 (1 mo. Term SOFR + 0.564%)

    5.907     6/25/34       2,708       2,434  (d) 

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 M1

    4.000     8/25/56       793,961       779,042  (b)(d) 

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2020-2 M

    4.250     11/25/59       2,120,000       1,831,621  (b)(d) 

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2021-DNA2 B1 (30 Day Average SOFR + 3.400%)

    8.728     8/25/33       520,000       541,680  (b)(d) 

Federal National Mortgage Association (FNMA) — CAS, 2019-R05 1B1 (30 Day Average SOFR + 4.214%)

    9.543     7/25/39       1,559,587       1,620,320  (b)(d) 

Federal National Mortgage Association (FNMA) — CAS, 2020-R01 1B1 (30 Day Average SOFR + 3.364%)

    8.693     1/25/40       1,790,000       1,813,485  (b)(d) 

Federal National Mortgage Association (FNMA) REMIC, 2012-51 B

    7.000     5/25/42       23,609       25,051  

First Horizon Alternative Mortgage Securities Trust, 2005-AA12 1A1

    5.541     2/25/36       33,190       25,121  (d) 

Government National Mortgage Association (GNMA), 2011-142 IO, IO

    0.000     9/16/46       2,126,454       21  (d) 

Government National Mortgage Association (GNMA), 2012-112 IO, IO

    0.111     2/16/53       1,052,703       2,487  (d) 

Government National Mortgage Association (GNMA), 2014-47 IA, IO

    0.152     2/16/48       176,653       636  (d) 

Government National Mortgage Association (GNMA), 2014-50 IO, IO

    0.628     9/16/55       917,335       22,902  (d) 

Government National Mortgage Association (GNMA), 2014-134 IA, IO

    0.146     1/16/55       30,639,745       138,253  (d) 

Government National Mortgage Association (GNMA), 2017-21 IO, IO

    0.633     10/16/58       2,856,310       98,324  (d) 

Government National Mortgage Association (GNMA), 2017-41 IO, IO

    0.591     7/16/58       492,639       13,898  (d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

15


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Collateralized Mortgage Obligations (i) — continued

 

                       

GreenPoint Mortgage Funding Trust, 2006-AR3 3A1 (1 mo. Term SOFR + 0.574%)

    5.917     4/25/36       1,028     $ 2,748  (d) 

GS Mortgage Securities Trust, 2015- GC30 D

    3.384     5/10/50       1,000,000       680,290  

HarborView Mortgage Loan Trust, 2006-13 A (1 mo. Term SOFR + 0.294%)

    5.626     11/19/46       68,457       46,313  (d) 

JPMorgan Chase Commercial Mortgage Securities Trust, 2007-LD12 AJ

    6.561     2/15/51       23,740       21,840  (d) 

JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST G (1 mo. Term SOFR + 4.614%)

    9.937     12/15/36       2,079,000       114,604  (b)(d) 

JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST H (1 mo. Term SOFR + 7.114%)

    12.437     12/15/36       2,173,000       74,267  (b)(d) 

JPMorgan Chase Commercial Mortgage Securities Trust, 2018-PHMZ M (1 mo. Term SOFR + 8.622%)

    13.945     6/15/35       10,150,000       101  (b)(d) 

JPMorgan Chase Commercial Mortgage Securities Trust, 2021-HTL5 F (1 mo. Term SOFR + 4.379%)

    9.702     11/15/38       640,000       607,272  (b)(d) 

Legacy Mortgage Asset Trust, 2021-GS2 A2, Step bond (3.500% to 4/25/24, 6.500% to 4/25/25 then 7.500%)

    3.500     4/25/61       1,200,000       1,084,328  (b) 

Lehman XS Trust, 2006-16N A4B (1 mo. Term SOFR + 0.594%)

    5.937     11/25/46       8,428       9,633  (d) 

Med Trust, 2021-MDLN E (1 mo. Term SOFR + 3.264%)

    8.587     11/15/38       1,522,692       1,462,137  (b)(d) 

Merrill Lynch Mortgage Investors Trust, 2004-A3 4A3

    4.580     5/25/34       25,632       22,205  (d) 

ML-CFC Commercial Mortgage Trust, 2007-5 AJ

    5.450     8/12/48       245,209       38,621  (d) 

ML-CFC Commercial Mortgage Trust, 2007-5 AJFL

    5.450     8/12/48       316,204       49,802  (b)(d) 

ML-CFC Commercial Mortgage Trust, 2007-9 AJ

    6.193     9/12/49       9,604       8,692  (d) 

Morgan Stanley Capital Trust, 2019-H7 A4

    3.261     7/15/52       178,000       156,208  

Morgan Stanley Capital Trust, 2021-L7 XA, IO

    1.208     10/15/54       6,360,408       337,560  (d) 

 

See Notes to Financial Statements.

 

 

16

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Collateralized Mortgage Obligations (i) — continued

 

                       

MSWF Commercial Mortgage Trust, 2023-1 A4

    5.472     5/15/56       160,000     $ 158,050  

Natixis Commercial Mortgage Securities Trust, 2019-FAME D

    4.544     8/15/36       2,862,000       1,674,304  (b)(d) 

New Residential Mortgage Loan Trust, 2019-RPL3 A1

    2.750     7/25/59       157,688       147,331  (b)(d) 

Nomura Asset Acceptance Corp. Alternative Loan Trust, 2006-AF2 4A

    6.360     8/25/36       63,104       60,302  (d) 

PRKCM Trust, 2022-AFC1 A1A

    4.100     4/25/57       600,917       559,122  (b)(d) 

Residential Asset Securitization Trust, 2005-A15 2A11, IO (-1.000 x 1 mo. Term SOFR + 5.436%)

    0.093     2/25/36       8,161,258       656,159  (d) 

SMR Mortgage Trust, 2022-IND F (1 mo. Term SOFR + 6.000%)

    11.323     2/15/39       640,130       498,854  (b)(d) 

Starwood Retail Property Trust, 2014- STAR E

    8.500     11/15/27       7,530,000       36,792  (b)(d) 

Structured Adjustable Rate Mortgage Loan Trust, 2004-4 3A2

    6.624     4/25/34       18,845       18,573  (d) 

Tharaldson Hotel Portfolio Trust, 2018- THL E (1 mo. Term SOFR + 3.594%)

    8.916     11/11/34       1,603,959       1,579,308  (b)(d) 

Towd Point Mortgage Trust, 2019-4 B1B

    3.500     10/25/59       1,840,000       1,294,680  (b)(d) 

UBS Commercial Mortgage Trust, 2017-C7 A3

    3.418     12/15/50       497,220       463,793  

Verus Securitization Trust, 2022-6 A3

    4.910     6/25/67       1,332,400       1,279,745  (b) 

WaMu Mortgage Pass-Through Certificates Trust, 2006-AR3 A1B (Federal Reserve U.S. 12 mo. Cumulative Avg 1 Year CMT + 1.000%)

    5.929     2/25/46       1,193,961       1,017,435  (d) 

Wells Fargo Commercial Mortgage Trust, 2022-ONL F

    5.092     12/15/39       1,190,000       889,566  (b)(d) 

Total Collateralized Mortgage Obligations (Cost — $67,150,457)

 

            37,144,944  
Sovereign Bonds — 12.2%

 

                       

Argentina — 0.6%

                               

Argentine Republic Government International Bond, Senior Notes

    1.000     7/9/29       143,435       52,363  

Argentine Republic Government International Bond, Senior Notes, Step bond (0.750% to 7/9/27 then 1.750%)

    0.750     7/9/30       648,100       242,776  

Argentine Republic Government International Bond, Senior Notes, Step bond (3.500% to 7/9/29 then 4.875%)

    3.500     7/9/41       1,190,000       392,261  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

17


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  

Argentina — continued

                               

Provincia de Buenos Aires, Senior Notes, Step bond (6.375% to 9/1/24 then 6.625%)

    6.375     9/1/37       2,668,882     $ 981,482  (b) 

Provincia de Buenos Aires, Senior Notes, Step bond (6.375% to 9/1/24 then 6.625%)

    6.375     9/1/37       100,000       36,775  (a) 

Total Argentina

                            1,705,657  

Brazil — 5.0%

                               

Brazil Notas do Tesouro Nacional Serie F, Notes

    10.000     1/1/27       26,142,000 BRL      5,286,422  

Brazil Notas do Tesouro Nacional Serie F, Notes

    10.000     1/1/31       37,057,000 BRL      7,253,318  

Brazil Notas do Tesouro Nacional Serie F, Notes

    10.000     1/1/33       6,665,000 BRL      1,288,376  

Total Brazil

                            13,828,116  

Colombia — 0.1%

                               

Colombia Government International Bond, Senior Notes

    5.000     6/15/45       370,000       263,295  

Dominican Republic — 0.1%

                               

Dominican Republic International Bond, Senior Notes

    11.250     9/15/35       15,700,000 DOP      278,546 (b) 

India — 2.3%

                               

India Government Bond

    7.590     1/11/26       220,000,000 INR      2,654,971  

India Government Bond, Senior Notes

    5.790     5/11/30       200,000,000 INR      2,217,193  

India Government Bond, Senior Notes

    7.260     8/22/32       120,000,000 INR      1,432,268  

Total India

                            6,304,432  

Indonesia — 1.2%

                               

Indonesia Government International Bond, Senior Notes

    3.500     1/11/28       490,000       461,149  

Indonesia Treasury Bond

    8.250     5/15/29       12,451,000,000  IDR      857,220  

Indonesia Treasury Bond

    7.125     6/15/42       29,657,000,000  IDR      1,964,510  

Total Indonesia

                            3,282,879  

Jamaica — 0.1%

                               

Jamaica Government International Bond, Senior Notes

    9.625     11/3/30       30,000,000 JMD      195,247  

Kenya — 0.3%

                               

Republic of Kenya Government International Bond, Senior Notes

    7.000     5/22/27       1,000,000       905,021 (b) 

 

See Notes to Financial Statements.

 

 

18

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  

Mexico — 2.5%

                               

Mexican Bonos, Bonds

    8.000     11/7/47       87,460,000  MXN    $ 4,392,312  

Mexican Bonos, Senior Notes

    7.750     11/13/42       50,771,900  MXN      2,508,734  

Total Mexico

                            6,901,046  

Total Sovereign Bonds (Cost — $35,947,792)

 

                    33,664,239  
Asset-Backed Securities — 9.8%                                

AccessLex Institute, 2004-A B1 (28 day Auction Rate Security)

    6.957     7/1/39       200,000       173,775  (d) 

Amortizing Residential Collateral Trust, 2002-BC5 M1 (1 mo. Term SOFR + 1.149%)

    6.492     7/25/32       11,547       11,634  (d) 

Barings CLO Ltd., 2018-2A B (3 mo. Term SOFR + 2.162%)

    7.555     4/15/30       2,480,000       2,469,212  (b)(d) 

Bristol Park CLO Ltd., 2016-1A DR (3 mo. Term SOFR + 3.212%)

    8.605     4/15/29       1,420,000       1,392,175  (b)(d) 

BRSP Ltd., 2021-FL1 A (1 mo. Term SOFR + 1.264%)

    6.596     8/19/38       1,469,682       1,430,148  (b)(d) 

Cook Park CLO Ltd., 2018-1A D (3 mo. Term SOFR + 2.862%)

    8.264     4/17/30       840,000       770,972  (b)(d) 

Cook Park CLO Ltd., 2018-1A E (3 mo. Term SOFR + 5.662%)

    11.064     4/17/30       250,000       212,258  (b)(d) 

Countrywide Home Equity Loan Trust, 2007-A A (1 mo. Term SOFR + 0.234%)

    5.557     4/15/37       592,441       544,314  (d) 

Dividend Solar Loans LLC, 2018-1 C

    5.140     7/20/38       2,159,565       1,880,756  (b) 

Foundation Finance Trust, 2017-1A C

    5.400     7/15/33       2,600,000       2,545,088  (b) 

Fremont Home Loan Trust, 2006-B 2A2 (1 mo. Term SOFR + 0.314%)

    5.657     8/25/36       311,187       98,821  (d) 

GoldenTree Loan Opportunities Ltd., 2014-9A CR2 (3 mo. Term SOFR + 2.362%)

    7.752     10/29/29       2,270,000       2,279,063  (b)(d) 

GoldenTree Loan Opportunities Ltd., 2014-9A DR2 (3 mo. Term SOFR + 3.262%)

    8.652     10/29/29       1,550,000       1,555,373  (b)(d) 

Golub Capital Partners CLO Ltd., 2019- 45A C (3 mo. Term SOFR + 4.062%)

    9.477     10/20/31       950,000       950,900  (b)(d) 

GoodLeap Sustainable Home Solutions Trust, 2022-1GS C

    3.500     1/20/49       1,557,122       1,056,228  (b) 

Greywolf CLO Ltd., 2019-1A CR (3 mo. Term SOFR + 3.910%)

    9.313     4/17/34       1,840,000       1,780,681  (b)(d) 

Halsey Point CLO Ltd., 2019-1A F (3 mo. Term SOFR + 8.462%)

    13.877     1/20/33       860,000       755,575  (b)(d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

19


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Asset-Backed Securities — continued                                

HPS Loan Management Ltd., 10A-16 CR (3 mo. Term SOFR + 3.412%)

    8.827     4/20/34       1,520,000     $ 1,432,600  (b)(d) 

Katayma CLO Ltd., 2023-1A D (3 mo. Term SOFR + 5.250%)

    10.623     10/20/36       230,000       232,628  (b)(d) 

Lehman XS Trust, 2006-GP3 2A2 (1 mo. Term SOFR + 0.554%)

    5.897     6/25/46       10,585       23,379  (d) 

Magnetite Ltd., 2023-39A E (3 mo. Term SOFR + 6.600%)

    11.985     10/25/33       680,000       661,129  (b)(d) 

Marathon CLO Ltd., 2019-2A BA (3 mo. Term SOFR + 3.562%)

    8.977     1/20/33       1,410,000       1,415,990  (b)(d) 

MASTR Specialized Loan Trust, 2006-3 A (1 mo. Term SOFR + 0.634%)

    5.977     6/25/46       64,694       61,430  (b)(d) 

Mosaic Solar Loan Trust, 2021-1A D

    3.710     12/20/46       437,256       370,313  (b) 

National Collegiate Student Loan Trust, 2007-2 A4 (1 mo. Term SOFR + 0.404%)

    5.747     1/25/33       605,050       565,944  (d) 

Sierra Timeshare Receivables Funding LLC, 2021-2A A

    1.350     9/20/38       196,161       182,717  (b) 

UCFC Manufactured Housing Contract, 1997-3 M

    7.115     1/15/29       654,328       605,930  

Whitehorse Ltd., 2018-12A D (3 mo. Term SOFR + 3.912%)

    9.305     10/15/31       1,000,000       972,291  (b)(d) 

Z Capital Credit Partners CLO Ltd., 2021-1A D (3 mo. Term SOFR + 4.462%)

    9.855     7/15/33       500,000       457,488  (b)(d) 

Total Asset-Backed Securities (Cost — $28,509,866)

 

                    26,888,812  
U.S. Government & Agency Obligations — 6.3%                                

U.S. Government Obligations — 6.3%

                               

U.S. Treasury Bonds

    3.625     8/15/43       570,000       489,577  

U.S. Treasury Bonds

    3.750     11/15/43       5,600,000       4,890,156  (j) 

U.S. Treasury Bonds

    2.875     5/15/49       260,000       191,202  

U.S. Treasury Bonds

    3.625     5/15/53       180,000       153,703  

U.S. Treasury Bonds

    4.750     11/15/53       1,830,000       1,902,628  

U.S. Treasury Notes

    4.500     9/30/28       390,000       395,180  

U.S. Treasury Notes

    3.875     7/31/30       7,350,000       7,193,238  

U.S. Treasury Notes

    3.875     8/15/33       2,250,000       2,164,394  

Total U.S. Government & Agency Obligations (Cost — $18,725,906)

 

                    17,380,078  
U.S. Treasury Inflation Protected Securities — 1.2%                                

U.S. Treasury Notes, Inflation Indexed (Cost—$3,529,309)

    1.125     1/15/33       3,554,483       3,256,071  

 

See Notes to Financial Statements.

 

 

20

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


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Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security  

Expiration

Date

    Contracts    

Notional

Amount†

    Value  
Purchased Options — 0.2%                                
Exchange-Traded Purchased Options — 0.2%                                

3-Month SOFR Futures, Call @ $94.875

    12/15/23       405       1,012,500     $ 2,531  

3-Month SOFR Futures, Call @ $95.875

    6/14/24       118       295,000       33,188  

3-Month SOFR Futures, Call @ $96.000

    6/14/24       360       900,000       87,750  

SOFR 1-Year Mid-Curve Futures, Call @ $95.688

    12/15/23       100       250,000       48,125  

SOFR 1-Year Mid-Curve Futures, Put @ $95.875

    12/15/23       59       147,500       26,919  

SOFR 1-Year Mid-Curve Futures, Put @ $96.000

    12/15/23       15       37,500       10,125  

U.S. Treasury 5-Year Notes Futures, Call @ $106.750

    12/1/23       179       179,000       40,555  

U.S. Treasury 5-Year Notes Futures, Call @ $107.000

    12/1/23       40       40,000       4,375  

U.S. Treasury 5-Year Notes Futures, Call @ $107.250

    12/1/23       135       135,000       6,328  

U.S. Treasury 5-Year Notes Futures, Call @ $108.000

    12/8/23       468       468,000       32,906  

U.S. Treasury 5-Year Notes Futures, Put @ $105.500

    12/1/23       274       274,000       0  (k) 

U.S. Treasury 5-Year Notes Futures, Put @ $105.750

    12/1/23       80       80,000       0  (k) 

U.S. Treasury 5-Year Notes Futures, Put @ $106.500

    12/1/23       234       234,000       9,141  

U.S. Treasury 5-Year Notes Futures, Put @ $106.500

    12/8/23       468       468,000       102,375  

U.S. Treasury 10-Year Notes Futures, Call @ $110.750

    12/22/23       291       291,000       131,859  

U.S. Treasury 6 to 7-Year Notes Futures, Call @ $110.000

    12/1/23       40       40,000       5,625  

U.S. Treasury 6 to 7-Year Notes Futures, Call @ $110.250

    12/1/23       137       137,000       10,703  

U.S. Treasury 6 to 7-Year Notes Futures, Call @ $110.500

    12/1/23       117       117,000       3,656  

U.S. Treasury 6 to 7-Year Notes Futures, Put @ $108.000

    12/1/23       234       234,000       0  (k) 

U.S. Treasury 6 to 7-Year Notes Futures, Put @ $108.250

    12/1/23       20       20,000       0  (k) 

U.S. Treasury 6 to 7-Year Notes Futures, Put @ $108.500

    12/1/23       40       40,000       0  (k) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

21


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security  

Expiration

Date

    Contracts    

Notional

Amount†

    Value  
Exchange-Traded Purchased Options — continued                                

U.S. Treasury 6 to 7-Year Notes Futures, Put @ $109.250

    12/1/23       97       97,000     $ 4,547  

U.S. Treasury 6 to 7-Year Notes Futures, Put @ $109.750

    12/1/23       117       117,000       25,594  

U.S. Treasury Long-Term Bonds Futures, Call @ $118.000

    12/8/23       20       20,000       7,500  

U.S. Treasury Long-Term Bonds Futures, Call @ $118.500

    12/8/23       40       40,000       10,625  

U.S. Treasury Long-Term Bonds Futures, Put @ $114.500

    12/8/23       40       40,000       10,625  

U.S. Treasury Long-Term Bonds Futures, Put @ $115.000

    12/8/23       20       20,000       7,813  

Total Purchased Options (Cost — $881,636)

 

                    622,865  
     Rate    

Maturity

Date

    Face
Amount†
        
Municipal Bonds — 0.2%                                

California — 0.2%

                               

Morongo Band of Mission Indians, CA, Revenue, Tribal Economic Development, Series A

    7.000     10/1/39       360,000       368,123  (b) 

Regents of the University of California, CA, Medical Center Pooled Revenue, Taxable Bonds, Series N

    3.706     5/15/2120       190,000       119,869  

Total Municipal Bonds (Cost — $550,000)

 

                    487,992  
                   Shares         
Investments in Underlying Funds — 0.1%                                

VanEck J.P. Morgan EM Local Currency Bond ETF (Cost — $497,296)

                    16,200       403,218  
     Rate     Maturity
Date
    Face
Amount†
        
Non-U.S. Treasury Inflation Protected Securities — 0.1%

 

                       

Uruguay — 0.1%

                               

Uruguay Government International Bond, Senior Notes (Cost — $163,083)

    3.875     7/2/40       6,342,002 UYU      169,436  

Total Investments before Short-Term Investments (Cost — $289,088,092)

 

            245,936,296  
Short-Term Investments — 10.8%                                
U.S. Treasury Bills — 0.8%                                

U.S. Treasury Bills (Cost — $2,036,708)

    5.033     12/12/23       2,040,000       2,036,718  (l) 

 

See Notes to Financial Statements.

 

 

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Western Asset Total Return Unconstrained Fund

(Percentages shown based on Fund net assets)

 

Security   Rate              Shares     Value  
Money Market Funds — 10.0%                                

Western Asset Premier Institutional Government Reserves, Premium Shares (Cost — $27,610,042)

    5.282             27,610,042     $ 27,610,042  (m)(n) 

Total Short-Term Investments (Cost — $29,646,750)

 

                    29,646,760  

Total Investments — 100.2% (Cost — $318,734,842)

 

                    275,583,056  

Liabilities in Excess of Other Assets — (0.2)%

 

                    (485,777

Total Net Assets — 100.0%

                          $ 275,097,279  

 

Face amount/notional amount denominated in U.S. dollars, unless otherwise noted.

 

††

Represents less than 0.1%.

 

*

Non-income producing security.

 

(a) 

Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors.

 

(b) 

Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors.

 

(c) 

Security has no maturity date. The date shown represents the next call date.

 

(d) 

Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.

 

(e) 

Security is fair valued in accordance with procedures approved by the Board of Directors (Note 1).

 

(f) 

Securities traded on a when-issued or delayed delivery basis.

 

(g) 

Security is valued using significant unobservable inputs (Note 1).

 

(h) 

This security is traded on a to-be-announced (“TBA”) basis. At November 30, 2023, the Fund held TBA securities with a total cost of $17,162,215.

 

(i) 

Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates that are structured to direct payments on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial indicators and may be subject to an upper and/or lower limit.

 

(j) 

All or a portion of this security is held at the broker as collateral for open centrally cleared swap contracts.

 

(k) 

Value is less than $1.

 

(l) 

Rate shown represents yield-to-maturity.

 

(m) 

Rate shown is one-day yield as of the end of the reporting period.

 

(n) 

In this instance, as defined in the Investment Company Act of 1940, an “Affiliated Company” represents Fund ownership of at least 5% of the outstanding voting securities of an issuer, or a company which is under common ownership or control with the Fund. At November 30, 2023, the total market value of investments in Affiliated Companies was $27,610,042 and the cost was $27,610,042 (Note 8).

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

23


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

 

Abbreviation(s) used in this schedule:

BRL    — Brazilian Real
CAS    — Connecticut Avenue Securities
CD    — Certificate of Deposit
CLO    — Collateralized Loan Obligation
CMT    — Constant Maturity Treasury
DOP    — Dominican Peso
ETF    — Exchange-Traded Fund
EUR    — Euro
ICE    — Intercontinental Exchange
IDR    — Indonesian Rupiah
INR    — Indian Rupee
IO    — Interest Only
JMD    — Jamaican Dollar
JSC    — Joint Stock Company
LIBOR    — London Interbank Offered Rate
MXN    — Mexican Peso
REMIC    — Real Estate Mortgage Investment Conduit
SOFR    — Secured Overnight Financing Rate
USD    — United States Dollar
UYU    — Uruguayan Peso

At November 30, 2023, the Fund had the following written options contracts:

 

Exchange-Traded Written Options

 

                 
Security    Expiration
Date
     Strike
Price
     Contracts      Notional
Amount
     Value  
3-Month SOFR Futures, Call      12/15/23      $ 95.125        405      $ 1,012,500      $ (2,531)  
3-Month SOFR Futures, Call      6/14/24        98.000        178        445,000        (5,563)  
3-Month SOFR Futures, Call      9/13/24        96.875        359        897,500        (112,187)  
3-Month SOFR Futures, Call      9/13/24        97.000        1,030        2,575,000        (283,250)  
3-Month SOFR Futures, Put      6/14/24        94.500        442        1,105,000        (52,487)  
SOFR 1-Year Mid-Curve Futures, Put      12/15/23        95.375        89        222,500        (3,338)  
U.S. Treasury 5-Year Notes Futures, Call      12/1/23        106.000        78        78,000        (66,422)  
U.S. Treasury 5-Year Notes Futures, Call      12/1/23        106.250        40        40,000        (24,375)  
U.S. Treasury 5-Year Notes Futures, Call      12/8/23        107.250        156        156,000        (34,125)  
U.S. Treasury 5-Year Notes Futures, Call      12/22/23        106.500        159        159,000        (120,492)  
U.S. Treasury 5-Year Notes Futures, Put      12/1/23        106.000        78        78,000        0 (a) 
U.S. Treasury 5-Year Notes Futures, Put      12/1/23        106.250        40        40,000        (313)  
U.S. Treasury 5-Year Notes Futures, Put      12/8/23        107.250        156        156,000        (96,281)  
U.S. Treasury 6 to 7-Year Notes Futures, Call      12/1/23        108.750        78        78,000        (81,656)  

 

See Notes to Financial Statements.

 

 

24

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Western Asset Total Return Unconstrained Fund

 

Security    Expiration
Date
     Strike
Price
     Contracts      Notional
Amount
     Value  
U.S. Treasury 6 to 7-Year Notes Futures, Call      12/1/23      $ 109.250        20      $ 20,000      $ (11,875)  
U.S. Treasury 6 to 7-Year Notes Futures, Put      12/1/23        108.750        78        78,000        0 (a) 
U.S. Treasury Long-Term Bonds Futures, Call      12/8/23        116.500        20        20,000        (18,125)  
U.S. Treasury Long-Term Bonds Futures, Call      12/22/23        118.000        21        21,000        (18,375)  
U.S. Treasury Long-Term Bonds Futures, Put      12/8/23        116.500        20        20,000        (19,375)  
Total Exchange-Traded Written Options (Premiums received — $1,285,017)

 

     (950,770)  

 

OTC Written Options                                             
      Counterparty                                        
Interest rate swaption, Put (Premiums received — $80,500)    Citibank N.A.      10/7/24        500.000 bps       3,500,000        3,500,000        (28,153)  
Total Written Options (Premiums received — $1,365,517)

 

                     $ (978,923)  

 

(a) 

Value is less than $1.

 

Abbreviation(s) used in this schedule:

bps   — basis point spread (100 basis points = 1.00%)
SOFR   — Secured Overnight Financing Rate

At November 30, 2023, the Fund had the following open futures contracts:

 

      Number of
Contracts
     Expiration
Date
    

Notional

Amount

    

Market

Value

     Unrealized
Appreciation
(Depreciation)
 
Contracts to Buy:                                             
3-Month SOFR      63        3/25      $ 15,288,451      $ 15,087,712      $ (200,739)  
3-Month SOFR      133        12/23        32,010,054        31,470,293        (539,761)  
3-Month SOFR      18        3/24        4,255,688        4,258,013        2,325  
3-Month SOFR      456        12/25        110,267,458        109,884,600        (382,858)  
Australian 10-Year Bonds      116        12/23        8,836,439        8,635,023        (201,416)  
Euro-Bobl      30        12/23        3,811,357        3,836,963        25,606  
U.S. Treasury 2-Year Notes      205        3/24        41,778,553        41,914,492        135,939  
U.S. Treasury 5-Year Notes      1,563        3/24        166,197,885        167,008,988        811,103  
U.S. Treasury Long-Term Bonds      569        3/24        65,691,513        66,252,938        561,425  
U.S. Treasury Ultra Long-Term Bonds      150        3/24        18,224,905        18,450,000        225,095  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

25


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

 

     

Number of

Contracts

     Expiration
Date
    

Notional

Amount

    

Market

Value

     Unrealized
Appreciation
(Depreciation)
 
Contracts to Buy continued                                             
United Kingdom Long Gilt Bonds      41        3/24      $ 5,015,129      $ 5,004,200      $ (10,929)  
                                           425,790  
Contracts to Sell:                                             
3-Month SOFR      456        12/26        110,388,817        109,867,500        521,317  
Euro-Schatz      150        12/23        17,177,151        17,206,736        (29,585)  
Japanese 10-Year Bonds      20        12/23        19,707,163        19,757,183        (50,020)  
U.S. Treasury 10-Year Notes      1,877        3/24        205,306,474        206,088,744        (782,270)  
U.S. Treasury Ultra 10-Year Notes      256        3/24        28,841,732        29,060,001        (218,269)  
                                           (558,827)  
Net unrealized depreciation on open futures contracts

 

   $ (133,037)  

 

Abbreviation(s) used in this table:

Bobl   — Bundesobligation (Medium-term German Federal Government Bond)
SOFR   — Secured Overnight Financing Rate

At November 30, 2023, the Fund had the following open forward foreign currency contracts:

 

Currency

Purchased

   

Currency

Sold

    Counterparty   Settlement
Date
   

Unrealized

Appreciation
(Depreciation)

 
CAD     4,018,701     USD     2,950,068     Bank of America N.A.     1/19/24     $ 13,879  
AUD     4,655,124     USD     2,962,368     BNP Paribas SA     1/19/24       118,422  
USD     163,665     AUD     254,000     BNP Paribas SA     1/19/24       (4,434)  
USD     4,497,914     EUR     4,242,510     BNP Paribas SA     1/19/24       (130,548)  
USD     529,594     GBP     433,303     BNP Paribas SA     1/19/24       (17,660)  
CNH     25,489,063     USD     3,510,262     Citibank N.A.     1/19/24       70,284  
USD     237,758     JPY     34,810,000     Citibank N.A.     1/19/24       1,039  
MXN     7,566,910     USD     427,643     JPMorgan Chase & Co.     1/19/24       4,445  
NZD     2,278,631     USD     1,373,300     JPMorgan Chase & Co.     1/19/24       30,153  
USD     7,304,282     CNY     52,744,223     JPMorgan Chase & Co.     1/19/24       (129,404)  
USD     2,271,298     IDR     35,609,404,898     JPMorgan Chase & Co.     1/19/24       (23,551)  
USD     276,121     JPY     40,937,000     JPMorgan Chase & Co.     1/19/24       (2,263)  
USD     226,967     MXN     4,196,000     JPMorgan Chase & Co.     1/19/24       (12,635)  
USD     1,095,328     MXN     20,101,668     JPMorgan Chase & Co.     1/19/24       (52,525)  
EUR     1,688,804     NOK     19,556,768     Morgan Stanley & Co. Inc.     1/19/24       32,268  
JPY     22,373,800     USD     151,460     Morgan Stanley & Co. Inc.     1/19/24       689  

 

See Notes to Financial Statements.

 

 

26

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

 

Currency

Purchased

   

Currency

Sold

    Counterparty   Settlement
Date
   

Unrealized

Appreciation
(Depreciation)

 
JPY     24,397,000     USD     165,056     Morgan Stanley & Co. Inc.     1/19/24     $ 852  
JPY     24,723,000     USD     166,527     Morgan Stanley & Co. Inc.     1/19/24       1,597  
JPY     38,333,000     USD     259,715     Morgan Stanley & Co. Inc.     1/19/24       962  
JPY     40,142,000     USD     274,055     Morgan Stanley & Co. Inc.     1/19/24       (1,077)  
JPY     40,285,800     USD     269,684     Morgan Stanley & Co. Inc.     1/19/24       4,273  
JPY     722,026,240     USD     4,900,871     Morgan Stanley & Co. Inc.     1/19/24       9,138  
NOK     50,511,065     USD     4,691,042     Morgan Stanley & Co. Inc.     1/19/24       (15,747)  
USD     14,155,255     BRL     72,476,322     Morgan Stanley & Co. Inc.     1/19/24       (486,082)  
USD     2,567,276     INR     214,436,892     Morgan Stanley & Co. Inc.     1/19/24       (993)  
USD     130,000     JPY     19,366,000     Morgan Stanley & Co. Inc.     1/19/24       (1,695)  
USD     160,537     JPY     23,629,000     Morgan Stanley & Co. Inc.     1/19/24       (148)  
USD     206,397     JPY     30,391,000     Morgan Stanley & Co. Inc.     1/19/24       (272)  
USD     322,628     JPY     48,379,000     Morgan Stanley & Co. Inc.     1/19/24       (6,365)  
Net unrealized depreciation on open forward foreign currency contracts

 

  $ (597,398)  

 

Abbreviation(s) used in this table:

AUD   — Australian Dollar
BRL   — Brazilian Real
CAD   — Canadian Dollar
CNH   — Chinese Offshore Yuan
CNY   — Chinese Yuan Renminbi
EUR   — Euro
GBP   — British Pound
IDR   — Indonesian Rupiah
INR   — Indian Rupee
JPY   — Japanese Yen
MXN   — Mexican Peso
NOK   — Norwegian Krone
NZD   — New Zealand Dollar
USD   — United States Dollar

At November 30, 2023, the Fund had the following open swap contracts:

 

CENTRALLY CLEARED INTEREST RATE SWAPS  
Notional
Amount*
  Termination
Date
 

Payments

Made by

the Fund†

 

Payments
Received by

the Fund†

 

Market

Value

   

Upfront
Premiums

Paid

(Received)

    Unrealized
Appreciation
(Depreciation)
 
119,278,000   7/11/24   Daily SOFR Compound annually   1.323% annually     $ (2,882,476)     $ (1,375,170   $ (1,507,306

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

27


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

 

CENTRALLY CLEARED INTEREST RATE SWAPS (cont’d)  
Notional
Amount*
    Termination
Date
   

Payments

Made by

the Fund†

 

Payments

Received by

the Fund†

 

Market

Value

   

Upfront
Premiums

Paid

(Received)

    Unrealized
Appreciation
(Depreciation)
 
  76,758,000       3/10/26     Daily SOFR Compound annually   4.100% annually   $ (266,061   $ 364,491     $ (630,552
  25,588,000       2/29/28     Daily SOFR Compound annually   4.000% annually     (61,998     707       (62,705
  46,664,000       2/29/28     Daily SOFR Compound annually   4.180% annually     215,092       33,819       181,273  
  5,549,000       2/15/29     2.850% annually   Daily SOFR Compound annually     300,785       21,602       279,183  
  13,949,000       4/30/29     3.270% annually   Daily SOFR Compound annually     496,668       (245,462     742,130  
  312,170,000  MXN      7/18/29     28-Day MXN TIIE — Banxico every 28 days   7.450% every 28 days     (1,107,800     124,888       (1,232,688
  5,162,000       9/30/29     3.250% annually   Daily SOFR Compound annually     197,883       3,201       194,682  
  16,566,000       5/15/32     3.220% annually   Daily SOFR Compound annually     891,976       (64,755     956,731  
  10,838,000       7/11/32     1.800% annually   Daily SOFR Compound annually     1,705,557             1,705,557  
  17,129,000       3/10/34     3.400% annually   Daily SOFR Compound annually     743,556       (145,690     889,246  
  7,166,000       2/15/48     2.600% annually   Daily SOFR Compound annually     1,484,280       492,576       991,704  
  14,778,000       2/15/48     3.050% annually   Daily SOFR Compound annually     2,033,681       620,937       1,412,744  

 

See Notes to Financial Statements.

 

 

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Western Asset Total Return Unconstrained Fund

 

CENTRALLY CLEARED INTEREST RATE SWAPS (cont’d)  
Notional
Amount*
    Termination
Date
   

Payments

Made by

the Fund†

 

Payments

Received by

the Fund†

 

Market

Value

   

Upfront
Premiums

Paid

(Received)

    Unrealized
Appreciation
(Depreciation)
 
  3,368,000       4/21/52     2.500% annually   Daily SOFR Compound annually   $ 780,521     $ 453,691     $ 326,830  
  2,182,760,000  JPY      10/27/53     1.750% annually   Daily TONA Compound annually     (792,874           (792,874
  Total                     $ 3,738,790     $ 284,835     $ 3,453,955  

 

OTC CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — SELL PROTECTION1  
Swap Counterparty
(Reference Entity)
  Notional
Amount2*
    Termination
Date
    Implied
Credit
Spread at
November 30,
20233
  Periodic
Payments
Received by
the Fund†
 

Market

Value

    Upfront
Premiums
Paid
(Received)
   

Unrealized

Appreciation

 
BNP Paribas SA (Volkswagen International Finance NV, 5.349%, due 11/16/24)4     7,380,000  EUR      12/20/24     0.489%   1.000% quarterly   $ 42,753     $ 19,443     $ 23,310  

 

OTC CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — BUY PROTECTION5  
Swap Counterparty
(Reference Entity)
  Notional
Amount2*
    Termination
Date
    Implied
Credit
Spread at
November 30,
20233
  Periodic
Payments
Made by
the Fund†
  Market
Value
    Upfront
Premiums
Paid
(Received)
    Unrealized
Depreciation
 
BNP Paribas SA (Mercedes-Benz Group AG, 1.400%, due 1/12/24)     7,380,000  EUR      12/20/24     0.213%   1.000% quarterly   $  (66,072)     $ (38,177)     $ (27,895)  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

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Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CREDIT INDICES — SELL PROTECTION1  
Reference Entity   Notional
Amount2
    Termination
Date
    Periodic
Payments
Received by
the Fund†
  Market
Value6
    Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation
 
Markit CDX.NA.HY.41 Index   $ 2,039,796       12/20/28     5.000% quarterly   $ 79,194     $ 15,096     $ 64,098  
Markit CDX.NA.IG.40 Index     23,498,000       6/20/28     1.000% quarterly     416,548       405,364       11,184  
Total   $ 25,537,796                 $ 495,742     $ 420,460     $ 75,282  

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CREDIT INDICES — BUY PROTECTION5  
Reference Entity   Notional
Amount2
    Termination
Date
    Periodic
Payments
Made by
the Fund†
  Market
Value6
    Upfront
Premiums
Paid
(Received)
    Unrealized
Depreciation
 
Markit CDX.NA.IG.40 Index   $  23,498,000       6/20/33     1.000% quarterly   $ (4,815)     $ 358,078     $ (362,893)  
Markit CDX.NA.IG.41 Index     21,499,000       12/20/28     1.000% quarterly     (361,027)       (349,390     (11,637)  
Total   $  44,997,000                 $ (365,842)     $ 8,688     $ (374,530)  

 

See Notes to Financial Statements.

 

 

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1 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

 

2 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

3 

Implied credit spreads, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end, serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads 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. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation.

 

4 

Variable rate security. Interest rate disclosed is as of the most recent information available.

 

5 

If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or the underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or the underlying securities comprising the referenced index.

 

6 

The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected loss (or profit) for the credit derivative had the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values (sell protection) or increasing market values (buy protection) when compared to the notional amount of the swap, represent a deterioration of the referenced 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.

 

Percentage shown is an annual percentage rate.

 

*

Notional amount denominated in U.S. dollars, unless otherwise noted.

Reference rate(s) and their value(s) as of period end used in this table:

 

Reference Index    Reference
Rate
 
 28-Day MXN TIIE - Banxico      11.506
 Daily SOFR Compound      5.320
 Daily TONA Compound      (0.022 )% 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

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Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2023

 

Western Asset Total Return Unconstrained Fund

 

Abbreviation(s) used in this table:

EUR   — Euro
JPY   — Japanese Yen
MXN   — Mexican Peso
SOFR   — Secured Overnight Financing Rate
TIIE   — Tasa de Intere’s Interbancaria de Equilibrio (Equilibrium Interbanking Interest Rate)
TONA   — Tokyo Overnight Average Rate

 

See Notes to Financial Statements.

 

 

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Statement of assets and liabilities (unaudited)

November 30, 2023

 

Assets:         

Investments in unaffiliated securities, at value (Cost — $291,124,800)

   $ 247,973,014  

Investments in affiliated securities, at value (Cost — $27,610,042)

     27,610,042  

Foreign currency, at value (Cost — $7,185,413)

     7,207,365  

Cash

     999,977  

Deposits with brokers for centrally cleared swap contracts

     4,227,950  

Interest receivable

     2,704,823  

Foreign currency collateral for open futures contracts and exchange-traded options, at value (Cost — $1,347,797)

     1,403,787  

Deposits with brokers for open futures contracts and exchange-traded options

     1,241,058  

Deposits with brokers for OTC derivatives

     880,000  

Unrealized appreciation on forward foreign currency contracts

     288,001  

Receivable for Fund shares sold

     227,505  

Receivable for securities sold

     181,098  

Dividends receivable from affiliated investments

     126,101  

Foreign currency collateral for centrally cleared swap contracts, at value (Cost — $47,504)

     54,073  

OTC swaps, at value (premiums paid — $19,443)

     42,753  

Receivable for premiums on written options

     38,681  

Receivable for open OTC swap contracts

     15,753  

Prepaid expenses

     23,675  

Total Assets

     295,245,656  
Liabilities:         

Payable for securities purchased

     17,311,204  

Written options, at value (premiums received — $1,365,517)

     978,923  

Unrealized depreciation on forward foreign currency contracts

     885,399  

Payable to brokers — net variation margin on open futures contracts

     295,079  

Investment management fee payable

     121,939  

Payable for Fund shares repurchased

     96,632  

Accrued foreign capital gains tax

     78,621  

Deposits from brokers for OTC derivatives

     70,000  

OTC swaps, at value (premiums received — $38,177)

     66,072  

Payable for open OTC swap contracts

     15,753  

Payable to brokers — net variation margin on centrally cleared swap contracts

     12,633  

Service and/or distribution fees payable

     4,940  

Directors’ fees payable

     2,488  

Accrued expenses

     208,694  

Total Liabilities

     20,148,377  
Total Net Assets    $ 275,097,279  
Net Assets:         

Par value (Note 7)

   $ 31,077  

Paid-in capital in excess of par value

     440,853,991  

Total distributable earnings (loss)

     (165,787,789)  
Total Net Assets    $ 275,097,279  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

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Table of Contents

Statement of assets and liabilities (unaudited) (cont’d)

November 30, 2023

 

Net Assets:         

Class A

     $7,365,659  

Class C

     $3,239,196  

Class FI

     $3,393,782  

Class R

     $161,928  

Class I

     $69,271,953  

Class IS

     $191,664,761  
Shares Outstanding:         

Class A

     832,311  

Class C

     366,250  

Class FI

     383,747  

Class R

     18,294  

Class I

     7,813,960  

Class IS

     21,662,685  
Net Asset Value:         

Class A (and redemption price)

     $8.85  

Class C*

     $8.84  

Class FI (and redemption price)

     $8.84  

Class R (and redemption price)

     $8.85  

Class I (and redemption price)

     $8.87  

Class IS (and redemption price)

     $8.85  
Maximum Public Offering Price Per Share:         

Class A (based on maximum initial sales charge of 3.75%)

     $9.19  

 

*

Redemption price per share is NAV of Class C shares reduced by a 1.00% CDSC if shares are redeemed within one year from purchase payment (Note 2).

 

See Notes to Financial Statements.

 

 

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Statement of operations (unaudited)

For the Six Months Ended November 30, 2023

 

Investment Income:         

Interest

   $ 8,249,261  

Dividends from affiliated investments

     347,641  

Dividends from unaffiliated investments

     12,665  

Less: Foreign taxes withheld

     (105,917)  

Total Investment Income

     8,503,650  
Expenses:         

Investment management fee (Note 2)

     863,680  

Transfer agent fees (Notes 2 and 5)

     68,248  

Fund accounting fees

     52,901  

Registration fees

     48,811  

Service and/or distribution fees (Notes 2 and 5)

     33,480  

Audit and tax fees

     33,001  

Shareholder reports

     11,942  

Custody fees

     8,295  

Legal fees

     8,186  

Commodity pool reports

     6,000  

Directors’ fees

     4,767  

Insurance

     2,569  

Commitment fees (Note 9)

     1,392  

Interest expense

     689  

Miscellaneous expenses

     7,496  

Total Expenses

     1,151,457  

Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)

     (135,407)  

Net Expenses

     1,016,050  
Net Investment Income      7,487,600  

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

     (23,365,658) † 

Futures contracts

     (71,563)  

Written options

     4,775,702  

Swap contracts

     1,394,339  

Forward foreign currency contracts

     (1,140,640)  

Foreign currency transactions

     34,655  

Net Realized Loss

     (18,373,165)  

Change in Net Unrealized Appreciation (Depreciation) From:

        

Investments in unaffiliated securities

     19,891,926 ‡ 

Futures contracts

     (1,103,859)  

Written options

     (212,100)  

Swap contracts

     13,625  

Forward foreign currency contracts

     302,219  

Foreign currencies

     29,672  

Change in Net Unrealized Appreciation (Depreciation)

     18,921,483  
Net Gain on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions      548,318  
Increase in Net Assets From Operations    $ 8,035,918  

 

Net of foreign capital gains tax of $25,038.

 

Net of change in accrued foreign capital gains tax of $24,738.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

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Table of Contents

Statements of changes in net assets

 

 

For the Six Months Ended November 30, 2023 (unaudited)
and the Year Ended May 31, 2023
   November 30      May 31  
Operations:                  

Net investment income

   $ 7,487,600      $ 22,364,516  

Net realized loss

     (18,373,165)        (120,018,265)  

Change in net unrealized appreciation (depreciation)

     18,921,483        70,116,620  

Increase (Decrease) in Net Assets From Operations

     8,035,918        (27,537,129)  
Distributions to Shareholders From (Notes 1 and 6):                  

Total distributable earnings

     (5,900,029)        (2,400,038)  

Decrease in Net Assets From Distributions to Shareholders

     (5,900,029)        (2,400,038)  
Fund Share Transactions (Note 7):                  

Net proceeds from sale of shares

     23,357,139        62,278,245  

Reinvestment of distributions

     5,564,908        2,128,453  

Cost of shares repurchased

     (68,426,648)        (548,020,513)  

Decrease in Net Assets From Fund Share Transactions

     (39,504,601)        (483,613,815)  

Decrease in Net Assets

     (37,368,712)        (513,550,982)  
Net Assets:                  

Beginning of period

     312,465,991        826,016,973  

End of period

   $ 275,097,279      $ 312,465,991  

 

See Notes to Financial Statements.

 

 

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Table of Contents

Financial highlights

 

For a share of each class of capital stock outstanding throughout each year ended May 31,

unless otherwise noted:

 
Class A Shares1   20232     2023     2022     2021     2020     2019  
Net asset value, beginning of period     $8.78       $9.18       $10.65       $10.00       $10.28       $10.36  
Income (loss) from operations:            

Net investment income

    0.21       0.38       0.27       0.20       0.35       0.38  

Net realized and unrealized gain (loss)

    0.02       (0.76)       (1.33)       0.52       (0.25)       (0.08)  

Total income (loss) from operations

    0.23       (0.38)       (1.06)       0.72       0.10       0.30  
Less distributions from:            

Net investment income

    (0.16)       (0.02)       (0.22)       (0.07)       (0.22)       (0.30

Net realized gains

                (0.19)             (0.02)        

Return of capital

                            (0.14)       (0.08)  

Total distributions

    (0.16)       (0.02)       (0.41)       (0.07)       (0.38)       (0.38)  
Net asset value, end of period     $8.85       $8.78       $9.18       $10.65       $10.00       $10.28  

Total return3

    2.71     (4.13)     (10.28)     7.11     0.98 %4      3.05
Net assets, end of period (000s)     $7,366       $8,402       $9,584       $14,641       $11,965       $13,086  
Ratios to average net assets:            

Gross expenses

    1.14 %5      1.08 %6      1.08     1.10 %6      1.37 %6      1.50 %6 

Net expenses7,8

    1.06 5      1.05 6      1.07       1.10 6      1.10 6      1.10 6 

Net investment income

    4.86 5      4.30       2.65       1.93       3.38       3.70  
Portfolio turnover rate9     23     55     64     63     63     49

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

For the six months ended November 30, 2023 (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 includes gains from settlement of security litigations. Without these gains, the total return would have been 0.88% for the year ended May 31, 2020.

 

5 

Annualized.

 

6 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

7 

As a result of an expense limitation arrangement, effective May 21, 2021, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class A shares did not exceed 1.07%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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. Prior to May 21, 2021, the expense limitation was 1.10%.

 

8 

Reflects fee waivers and/or expense reimbursements.

 

9 

Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 38% for the six months ended November 30, 2023, 60%, 64%, 67%, 72% and 51% for the years ended May 31, 2023, 2022, 2021, 2020 and 2019, respectively.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

37


Table of Contents

Financial highlights (cont’d)

 

For a share of each class of capital stock outstanding throughout each year ended May 31,

unless otherwise noted:

 
Class C Shares1   20232     2023     2022     2021     2020     2019  
Net asset value, beginning of period     $8.72       $9.15       $10.62       $10.00       $10.28       $10.35  
Income (loss) from operations:            

Net investment income

    0.18       0.31       0.20       0.13       0.27       0.31  

Net realized and unrealized gain (loss)

    0.01       (0.74)       (1.34)       0.51       (0.24)       (0.07)  

Total income (loss) from operations

    0.19       (0.43)       (1.14)       0.64       0.03       0.24  
Less distributions from:            

Net investment income

    (0.07)             (0.14)       (0.02)       (0.18)       (0.24)  

Net realized gains

                (0.19)             (0.02)        

Return of capital

                            (0.11)       (0.07)  

Total distributions

    (0.07)             (0.33)       (0.02)       (0.31)       (0.31)  
Net asset value, end of period     $8.84       $8.72       $9.15       $10.62       $10.00       $10.28  

Total return3

    2.26     (4.70)     (10.98)     6.45     0.30 %4      2.36
Net assets, end of period (000s)     $3,239       $4,117       $8,978       $13,227       $13,319       $11,858  
Ratios to average net assets:            

Gross expenses

    1.86 %5      1.79     1.77     1.78 %6      1.81 %6      1.81 %6 

Net expenses7,8

    1.78 5      1.76       1.77       1.78 6      1.80 6      1.80 6 

Net investment income

    4.14 5      3.50       1.94       1.26       2.65       3.01  
Portfolio turnover rate9     23     55     64     63     63     49

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

For the six months ended November 30, 2023 (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 includes gains from settlement of security litigations. Without these gains, the total return would have been unchanged for the year ended May 31, 2020.

5 

Annualized.

6 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

7 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class C shares did not exceed 1.80%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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.

8 

Reflects fee waivers and/or expense reimbursements.

9 

Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 38% for the six months ended November 30, 2023, 60%, 64%, 67%, 72% and 51% for the years ended May 31, 2023, 2022, 2021, 2020 and 2019, respectively.

 

See Notes to Financial Statements.

 

 

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Table of Contents

 

For a share of each class of capital stock outstanding throughout each year ended May 31,

unless otherwise noted:

 
Class FI Shares1   20232     2023     2022     2021     2020     2019  
Net asset value, beginning of period     $8.78       $9.17       $10.64       $9.99       $10.27       $10.35  
Income (loss) from operations:            

Net investment income

    0.21       0.37       0.27       0.21       0.35       0.38  

Net realized and unrealized gain (loss)

    0.01       (0.74)       (1.33)       0.51       (0.24)       (0.08)  

Total income (loss) from operations

    0.22       (0.37)       (1.06)       0.72       0.11       0.30  
Less distributions from:            

Net investment income

    (0.16)       (0.02)       (0.22)       (0.07)       (0.23)       (0.30)  

Net realized gains

                (0.19)             (0.02)        

Return of capital

                            (0.14)       (0.08)  

Total distributions

    (0.16)       (0.02)       (0.41)       (0.07)       (0.39)       (0.38)  
Net asset value, end of period     $8.84       $8.78       $9.17       $10.64       $9.99       $10.27  

Total return3

    2.56     (4.08)     (10.28)     7.18     0.93 %4      3.10
Net assets, end of period (000s)     $3,394       $4,202       $11,518       $16,871       $34,171       $52,650  
Ratios to average net assets:            

Gross expenses

    1.18 %5      1.10     1.05     1.07 %6      1.11 %6      1.11 %6 

Net expenses7,8

    1.09 5      1.06       1.05       1.07 6      1.10 6      1.10 6 

Net investment income

    4.82 5      4.22       2.66       1.99       3.42       3.70  
Portfolio turnover rate9     23     55     64     63     63     49

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

For the six months ended November 30, 2023 (unaudited).

 

3 

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.

 

4 

The total return includes gains from settlement of security litigations. Without these gains, the total return would have been 0.83% for the year ended May 31, 2020.

 

5 

Annualized.

 

6 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

7 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class FI shares did not exceed 1.10%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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.

 

8 

Reflects fee waivers and/or expense reimbursements.

 

9 

Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 38% for the six months ended November 30, 2023, 60%, 64%, 67%, 72% and 51% for the years ended May 31, 2023, 2022, 2021, 2020 and 2019, respectively.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

39


Table of Contents

Financial highlights (cont’d)

 

For a share of each class of capital stock outstanding throughout each year ended May 31,

unless otherwise noted:

 
Class R Shares1   20232     2023     2022     2021     2020     2019  
Net asset value, beginning of period     $8.79       $9.20       $10.65       $10.01       $10.28       $10.36  
Income (loss) from operations:            

Net investment income

    0.20       0.37       0.23       0.20       0.32       0.36  

Net realized and unrealized gain (loss)

    0.01       (0.76)       (1.32)       0.50       (0.23)       (0.09)  

Total income (loss) from operations

    0.21       (0.39)       (1.09)       0.70       0.09       0.27  
Less distributions from:            

Net investment income

    (0.15)       (0.02)       (0.17)       (0.06)       (0.21)       (0.28)  

Net realized gains

                (0.19)             (0.02)        

Return of capital

                            (0.13)       (0.07)  

Total distributions

    (0.15)       (0.02)       (0.36)       (0.06)       (0.36)       (0.35)  
Net asset value, end of period     $8.85       $8.79       $9.20       $10.65       $10.01       $10.28  

Total return3

    2.44     (4.27)     (10.57)     7.05     0.74 %4      2.80
Net assets, end of period (000s)     $162       $157       $78       $477       $487       $457  
Ratios to average net assets:            

Gross expenses

    1.55 %5      1.45     1.35 %6      1.44     1.51 %6      1.37 %6 

Net expenses7,8

    1.35 5      1.35       1.35 6      1.35       1.35 6      1.35 6 

Net investment income

    4.57 5      4.22       2.21       1.94       3.14       3.50  
Portfolio turnover rate9     23     55     64     63     63     49

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

For the six months ended November 30, 2023 (unaudited).

 

3 

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.

 

4 

The total return includes gains from settlement of security litigations. Without these gains, the total return would have been unchanged for the year ended May 31, 2020.

 

5 

Annualized.

 

6 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

7 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class R shares did not exceed 1.35%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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.

 

8 

Reflects fee waivers and/or expense reimbursements.

 

9 

Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 38% for the six months ended November 30, 2023, 60%, 64%, 67%, 72% and 51% for the years ended May 31, 2023, 2022, 2021, 2020 and 2019, respectively.

 

See Notes to Financial Statements.

 

 

40

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

For a share of each class of capital stock outstanding throughout each year ended May 31,

unless otherwise noted:

 
Class I Shares1   20232     2023     2022     2021     2020     2019  
Net asset value, beginning of period     $8.80       $9.19       $10.67       $10.00       $10.28       $10.36  
Income (loss) from operations:            

Net investment income

    0.23       0.39       0.30       0.25       0.38       0.41  

Net realized and unrealized gain (loss)

    0.02       (0.74)       (1.34)       0.51       (0.24)       (0.08)  

Total income (loss) from operations

    0.25       (0.35)       (1.04)       0.76       0.14       0.33  
Less distributions from:            

Net investment income

    (0.18)       (0.04)       (0.25)       (0.09)       (0.25)       (0.32)  

Net realized gains

                (0.19)             (0.02)        

Return of capital

                            (0.15)       (0.09)  

Total distributions

    (0.18)       (0.04)       (0.44)       (0.09)       (0.42)       (0.41)  
Net asset value, end of period     $8.87       $8.80       $9.19       $10.67       $10.00       $10.28  

Total return3

    2.86     (3.76)     (10.06)     7.61     1.26 %4      3.43
Net assets, end of period (000s)     $69,272       $83,835       $530,018       $718,829       $1,017,885       $1,131,616  
Ratios to average net assets:            

Gross expenses

    0.86 %5      0.80     0.74     0.74 %6      0.76 %6      0.76 %6 

Net expenses7,8

    0.75 5      0.75       0.74       0.73 6      0.75 6      0.75 6 

Net investment income

    5.15 5      4.35       2.96       2.34       3.74       4.06  
Portfolio turnover rate9     23     55     64     63     63     49

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

For the six months ended November 30, 2023 (unaudited).

 

3 

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.

 

4 

The total return includes gains from settlement of security litigations. Without these gains, the total return would have been unchanged for the year ended May 31, 2020.

 

5 

Annualized.

 

6 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

7 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.75%. This expense limitation arrangement cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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.

 

8 

Reflects fee waivers and/or expense reimbursements.

 

9 

Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 38% for the six months ended November 30, 2023, 60%, 64%, 67%, 72% and 51% for the years ended May 31, 2023, 2022, 2021, 2020 and 2019, respectively.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

41


Table of Contents

Financial highlights (cont’d)

 

For a share of each class of capital stock outstanding throughout each year ended May 31,

unless otherwise noted:

 
Class IS Shares1   20232     2023     2022     2021     2020     2019  
Net asset value, beginning of period     $8.78       $9.18       $10.66       $9.99       $10.26       $10.34  
Income (loss) from operations:            

Net investment income

    0.23       0.41       0.31       0.25       0.39       0.43  

Net realized and unrealized gain (loss)

    0.02       (0.75)       (1.34)       0.52       (0.23)       (0.09)  

Total income (loss) from operations

    0.25       (0.34)       (1.03)       0.77       0.16       0.34  
Less distributions from:            

Net investment income

    (0.18)       (0.06)       (0.26)       (0.10)       (0.25)       (0.33)  

Net realized gains

                (0.19)             (0.02)        

Return of capital

                            (0.16)       (0.09)  

Total distributions

    (0.18)       (0.06)       (0.45)       (0.10)       (0.43)       (0.42)  
Net asset value, end of period     $8.85       $8.78       $9.18       $10.66       $9.99       $10.26  

Total return3

    2.92     (3.69)     (9.99)     7.69     1.44 %4      3.52
Net assets, end of period (millions)     $192       $212       $266       $287       $202       $206  
Ratios to average net assets:            

Gross expenses

    0.73 %5      0.69     0.65     0.66     0.66 %6      0.66 %6 

Net expenses7,8

    0.65 5      0.65       0.65       0.65       0.65 6      0.65 6 

Net investment income

    5.27 5      4.69       3.08       2.42       3.82       4.21  
Portfolio turnover rate9     23     55     64     63     63     49

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

For the six months ended November 30, 2023 (unaudited).

 

3 

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.

 

4 

The total return includes gains from settlement of security litigations. Without these gains, the total return would have been unchanged for the year ended May 31, 2020.

 

5 

Annualized.

 

6 

Reflects recapture of fees waived and/or expenses reimbursed from prior fiscal years.

 

7 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class IS shares did not exceed 0.65%. In addition, the ratio of total annual fund operating expenses for Class IS shares did not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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.

 

8 

Reflects fee waivers and/or expense reimbursements.

 

9 

Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 38% for the six months ended November 30, 2023, 60%, 64%, 67%, 72% and 51% for the years ended May 31, 2023, 2022, 2021, 2020 and 2019, respectively.

 

See Notes to Financial Statements.

 

 

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    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

Notes to financial statements (unaudited)

 

1. Organization and significant accounting policies

Western Asset Total Return Unconstrained Fund (the “Fund”) is a separate diversified investment series of Western Asset Funds, Inc. (the “Corporation”). The Corporation, a Maryland corporation, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

The Fund follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies (“ASC 946”). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”), including, but not limited to, ASC 946. Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.

(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities, including exchange-traded funds (“ETFs”), 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.

Pursuant to policies adopted by the Board of Directors, the Fund’s manager has been designated as the valuation designee and is responsible for the oversight of the daily valuation process. The Fund’s manager is assisted by the Global Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee is responsible for making fair value

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

43


Table of Contents

Notes to financial statements (unaudited) (cont’d)

 

determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Fund’s manager and 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 — unadjusted quoted prices in active markets for identical investments

 

 

Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

 

Level 3 — significant unobservable inputs (including the Fund’s 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.

 

 

44

    Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report


Table of Contents

 

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†:                                

Corporate Bonds & Notes

        $ 71,042,785           $ 71,042,785  

Mortgage-Backed Securities

          54,777,294     $ 98,562       54,875,856  

Collateralized Mortgage Obligations

          37,144,944             37,144,944  

Sovereign Bonds

          33,664,239             33,664,239  

Asset-Backed Securities

          26,888,812             26,888,812  

U.S. Government & Agency Obligations

          17,380,078             17,380,078  

U.S. Treasury Inflation Protected Securities

          3,256,071             3,256,071  

Purchased Options

  $ 622,865                   622,865  

Municipal Bonds

          487,992             487,992  

Investments in Underlying Funds

    403,218                   403,218  

Non-U.S. Treasury Inflation Protected Securities

          169,436             169,436  
Total Long-Term Investments     1,026,083       244,811,651       98,562       245,936,296  
Short-Term Investments†:                                

U.S. Treasury Bills

          2,036,718             2,036,718  

Money Market Funds

    27,610,042                   27,610,042  
Total Short-Term Investments     27,610,042       2,036,718             29,646,760  
Total Investments   $ 28,636,125     $ 246,848,369     $ 98,562     $ 275,583,056  
Other Financial Instruments:                                

Futures Contracts††

  $ 2,282,810                 $ 2,282,810  

Forward Foreign Currency Contracts††

        $ 288,001             288,001  

Centrally Cleared Interest Rate Swaps††

          7,680,080             7,680,080  

OTC Credit Default Swaps on Corporate Issues — Sell Protection‡

          42,753             42,753  

Centrally Cleared Credit Default Swaps on Credit Indices — Sell Protection††

          75,282             75,282  
Total Other Financial Instruments   $ 2,282,810     $ 8,086,116           $ 10,368,926  
Total   $ 30,918,935     $ 254,934,485     $ 98,562     $ 285,951,982  

 

Western Asset Total Return Unconstrained Fund 2023 Semi-Annual Report    

 

45


Table of Contents

Notes to financial statements (unaudited) (cont’d)

 

LIABILITIES  
Description  

Quoted Prices

(Level 1)

   

Other Significant

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

    Total  
Other Financial Instruments:                                

Written Options:

                               

Exchange-Traded Written Options

  $ 950,770                 $ 950,770  

OTC Written Options

        $ 28,153             28,153  

Futures Contracts††

    2,415,847                   2,415,847  

Forward Foreign Currency Contracts††

          885,399             885,399  

Centrally Cleared Interest Rate Swaps††

          4,226,125             4,226,125  

OTC Credit Default Swaps on Corporate Issues — Buy Protection‡

          66,072             66,072  

Centrally Cleared Credit Default Swaps on Credit Indices — Buy Protection††

          374,530             374,530  
Total   $ 3,366,617     $ 5,580,279           $ 8,946,896  

 

See Schedule of Investments for additional detailed categorizations.

 

††

Reflects the unrealized appreciation (depreciation) of the instruments.

 

Value includes any premium paid or received with respect to swap contracts.

(b) Purchased options. The Fund may purchase option contracts generally to gain or reduce exposure to types of investments or market factors or as a means of attempting to enhance returns. 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.

(c) Written options. The Fund may write option contracts generally to gain or reduce exposure to types of investments or market factors or as a means of attempting to enhance returns. 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

 

 

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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) Options on futures contracts. The Fund may purchase or write option contracts generally to gain or reduce exposure to types of investments or market factors or as a means of attempting to enhance returns. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in the underlying futures contract at the specified option exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer’s futures margin account that represents the amount by which the market price of the futures contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract is limited to the premium paid for the option plus transaction costs. Because the value of the option is fixed at the point of purchase, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value of the option changes daily and that change would be reflected in the net asset value of the Fund. The potential for loss related to writing call options is unlimited. The potential for loss related to writing put options is limited only by the aggregate strike price of the put option less the premium received.

(e) 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.

 

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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.

(f) Forward foreign currency contracts. The Fund enters into a forward foreign currency contract to hedge exposure of bond positions or in an attempt to increase the Fund’s return. 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.

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.

(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 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

 

 

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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 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 November 30, 2023, the total notional value of all credit default swaps to sell protection was EUR 7,380,000 and $25,537,796. These amounts would be offset by the value of the swap’s reference entity, upfront premiums received on the swap and any amounts received from the settlement of a credit default swap where the Fund bought protection for the same referenced security/entity.

For average notional amounts of swaps held during the six months ended November 30, 2023, 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

 

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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.

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.

Interest rate swaps

The Fund enters into interest rate swap contracts to manage its exposure to interest rate risk. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional principal amount. The Fund may elect to pay a fixed rate and receive a floating rate, receive a fixed rate and pay a floating rate, or pay and receive a floating rate, on a notional principal amount. Interest rate swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized appreciation or depreciation in the 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 Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s 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 Fund’s exposure to the counterparty.

(h) Swaptions. The Fund may purchase or write swaption contracts to manage exposure to fluctuations in interest rates or to enhance yield. The Fund may also purchase and write swaption contracts to manage exposure to an underlying instrument. Swaption contracts

 

 

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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) Loan participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Fund’s 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 offset 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 offset between the lender and the borrower.

(j) Stripped securities. The Fund may invest in ‘‘Stripped Securities,’’ a term used collectively for components, or strips, of fixed income securities. Stripped Securities can be principal only securities (“PO”), which are debt obligations that have been stripped of unmatured interest coupons, or interest only securities (“IO”), which are unmatured interest coupons that have been stripped from debt obligations. The market value of Stripped Securities will fluctuate in response to changes in economic conditions, rates of prepayment, interest rates and the market’s perception of the securities. However, fluctuations in response to interest rates may be greater in Stripped Securities than for debt obligations of comparable maturities that pay interest currently. The amount of fluctuation may increase with a longer period of maturity.

The yield to maturity on IO’s is sensitive to the rate of principal repayments (including prepayments) on the related underlying debt obligation and principal payments may have a material effect on yield to maturity. If the underlying debt obligation experiences greater

 

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than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IO’s.

(k) Securities traded on a when-issued and delayed delivery basis. The Fund may trade securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction.

Purchasing such securities involves risk of loss if the value of the securities declines prior to settlement. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

(l) Securities traded on a to-be-announced basis. The Fund may trade securities on a to-be-announced (“TBA”) basis. In a TBA transaction, the Fund commits to purchasing or selling securities which have not yet been issued by the issuer and for which specific information, such as the face amount, maturity date and underlying pool of investments in U.S. government agency mortgage pass-through securities, is not announced. Securities purchased on a TBA basis are not settled until they are delivered to the Fund. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

(m) Mortgage dollar rolls. The Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month, realizing a gain or loss, and simultaneously entering into contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date.

The Fund executes its mortgage dollar rolls entirely in the TBA market, whereby the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by a sale of the security with a simultaneous agreement to repurchase at a future date. The Fund accounts for mortgage dollar rolls as purchases and sales.

The risk of entering into mortgage dollar rolls is that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds of the mortgage dollar roll 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.

(n) 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

 

 

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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.

(o) 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.

(p) 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.

Investments in securities that are collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be

 

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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.

(q) 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.

(r) 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, 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

 

 

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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 November 30, 2023, the Fund held OTC written options, forward foreign currency contracts and OTC credit default swaps with credit related contingent features which had a liability position of $979,624. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties. As of November 30, 2023, the Fund had posted with its counterparties cash and/or securities as collateral to cover the net liability of these derivatives amounting to $880,000 which could be used to reduce the required payment.

At November 30, 2023, the Fund held cash collateral from Citibank N.A. in the amount of $70,000. This amount could be used to reduce the Fund’s exposure to the counterparty in the event of default.

(s) 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) is recorded on the accrual basis. Amortization of premiums and accretion of discounts on debt securities are recorded to interest income over the lives of the respective securities, except for premiums on certain callable debt securities, which are amortized to the earliest call date. Paydown gains and losses on mortgage- and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.

(t) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared and paid on a quarterly basis. 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.

 

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(u) 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.

(v) 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.

(w) 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 May 31, 2023, 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. Realized gains upon disposition of securities issued in or by certain foreign countries are subject to capital gains tax imposed by those countries. As of November 30, 2023, there were $78,621 of capital gains tax liabilities accrued on unrealized gains.

(x) 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

Franklin Templeton Fund Adviser, LLC (“FTFA”) (formerly known as Legg Mason Partners Fund Advisor, LLC prior to November 30, 2023) is the Fund’s investment manager. Western Asset Management Company, LLC (“Western Asset”), Western Asset Management Company Pte. Ltd. in Singapore (“Western Asset Singapore”), Western Asset Management Company Ltd in Japan (“Western Asset Japan”) and Western Asset Management Company Limited (“Western Asset London”) are the Fund’s subadvisers. FTFA, Western Asset, Western Asset Singapore, Western Asset Japan and Western Asset London are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).

FTFA provides the Fund with management and administrative services for which the Fund pays a fee calculated daily and paid monthly, at an annual rate of 0.60% of the Fund’s average daily net assets. For their services, FTFA pays Western Asset, Western Asset Singapore, Western Asset Japan and Western Asset London monthly all of the management fee that it receives from the Fund. The Fund does not pay any additional

 

 

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advisory or other fees for advisory services provided by Western Asset, Western Asset Singapore, Western Asset Japan or Western Asset London.

As a result of expense limitation arrangements between the Fund and FTFA, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class A, Class C, Class FI, Class R, Class I and Class IS shares did not exceed 1.07%, 1.80%, 1.10%, 1.35%, 0.75% and 0.65%, respectively. In addition, the ratio of total annual fund operating expenses for Class IS shares did not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2025 without the Board of Directors’ consent. In addition, 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”). The affiliated money market fund waiver is not subject to the recapture provision discussed below.

During the six months ended November 30, 2023, fees waived and/or expenses reimbursed amounted to $135,407, which included an affiliated money market fund waiver of $5,081.

FTFA is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which FTFA earned the fee or incurred the expense if the class’ total annual fund 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 FTFA recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

Pursuant to these arrangements, at November 30, 2023, the Fund had remaining fee waivers and/or expense reimbursements subject to recapture by FTFA and respective dates of expiration as follows:

 

      Class A      Class C      Class FI      Class R      Class I      Class IS  
Expires May 31, 2024                                       $ 5,563  
Expires May 31, 2025    $ 2,896      $ 1,995      $ 2,825      $ 162      $ 124,401        90,613  
Expires May 31, 2026      3,057        1,476        1,515        160        42,466        81,652  
Total fee waivers/expense reimbursements subject to recapture    $ 5,953      $ 3,471      $ 4,340      $ 322      $ 166,867      $ 177,828  

For the six months ended November 30, 2023, FTFA did not recapture any fees.

Franklin Distributors, LLC (“Franklin Distributors”) serves as the Fund’s sole and exclusive distributor. Franklin Distributors is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources. Franklin Templeton Investor Services, LLC (“Investor Services”) serves as the Fund’s shareholder servicing agent and acts as the Fund’s transfer agent and dividend-paying agent. Investor Services is an indirect, wholly-owned subsidiary of Franklin Resources. Each class of shares of the Fund pays transfer agent fees to Investor Services

 

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Notes to financial statements (unaudited) (cont’d)

 

for its performance of shareholder servicing obligations. Investor Services charges account-based fees based on the number of individual shareholder accounts, as well as a fixed percentage fee based on the total account-based fees charged. In addition, each class reimburses Investor Services for out of pocket expenses incurred. For the six months ended November 30, 2023, the Fund incurred transfer agent fees as reported on the Statement of Operations, of which $1,403 was earned by Investor Services.

There is a maximum initial sales charge of 3.75% for Class A shares. There is a contingent deferred sales charge (“CDSC”) of 1.00% on Class C shares, 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 Franklin Distributors, equal or exceed $500,000 in the aggregate. These purchases do not incur an initial sales charge.

For the six months ended November 30, 2023, sales charges retained by and CDSCs paid to Franklin Distributors and its affiliates, if any, were as follows:

 

      Class A  
Sales charges    $ 163  
CDSCs       

All officers and one Director of the Corporation are employees of Franklin Resources or its affiliates and do not receive compensation from the Corporation.

3. Investments

During the six months ended November 30, 2023, 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      $ 16,538,670        $ 86,552,509  
Sales        76,085,585          70,009,315  

At November 30, 2023, 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    $ 318,734,842      $ 2,527,278      $ (45,679,064)      $ (43,151,786)  
Written options      (1,365,517)        564,811        (178,217)        386,594  
Futures contracts             2,282,810        (2,415,847)        (133,037)  
Forward foreign currency contracts             288,001        (885,399)        (597,398)  
Swap contracts      695,249        7,778,672        (4,628,550)        3,150,122  

 

 

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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 November 30, 2023.

 

ASSET DERIVATIVES1  
     

Interest

Rate Risk

    

Foreign

Exchange Risk

    

Credit

Risk

     Total  
Purchased options2    $ 622,865                    $ 622,865  
Futures contracts3      2,282,810                      2,282,810  
Forward foreign currency contracts           $ 288,001               288,001  
OTC swap contracts4                  $ 42,753        42,753  
Centrally cleared swap contracts5      7,680,080               75,282        7,755,362  
Total    $ 10,585,755      $ 288,001      $ 118,035      $ 10,991,791  

 

LIABILITY DERIVATIVES1  
     

Interest

Rate Risk

    

Foreign

Exchange Risk

    

Credit

Risk

     Total  
Written options    $ 978,923                    $ 978,923  
Futures contracts3      2,415,847                      2,415,847  
Forward foreign currency contracts           $ 885,399               885,399  
OTC swap contracts4                  $ 66,072        66,072  
Centrally cleared swap contracts5      4,226,125               374,530        4,600,655  
Total    $ 7,620,895      $ 885,399      $ 440,602      $ 8,946,896  

 

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.

 

4 

Values include premiums paid (received) on swap contracts which are shown separately in the Statement of Assets and Liabilities.

 

5 

Includes cumulative unrealized appreciation (depreciation) of centrally cleared swap 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.

 

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Notes to financial statements (unaudited) (cont’d)

 

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 November 30, 2023. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in net unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during the period.

 

AMOUNT OF NET REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED  
     

Interest

Rate Risk

    

Foreign

Exchange Risk

    

Credit

Risk

     Total  
Purchased options1    $ (3,234,979)      $ (38,338)      $ (84,693)      $ (3,358,010)  
Futures contracts      (71,563)                      (71,563)  
Written options      4,691,009               84,693        4,775,702  
Swap contracts      2,327,102               (932,763)        1,394,339  
Forward foreign currency contracts             (1,140,640)               (1,140,640)  
Total    $ 3,711,569      $ (1,178,978)      $ (932,763)      $ 1,599,828  

 

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 NET UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED  
     

Interest

Rate Risk

    

Foreign

Exchange Risk

    

Credit

Risk

     Total  
Purchased options1    $ 924,914      $ 26,965             $ 951,879  
Futures contracts      (1,103,859)                      (1,103,859)  
Written options      (212,100)                      (212,100)  
Swap contracts      (101,117)             $ 114,742        13,625  
Forward foreign currency contracts             302,219               302,219  
Total    $ (492,162)      $ 329,184      $ 114,742      $ (48,236)  

 

1 

The change in net 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.

 

 

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During the six months ended November 30, 2023, the volume of derivative activity for the Fund was as follows:

 

       

Average Market

Value

 
Purchased options      $ 685,548  
Written options        1,595,109  
Futures contracts (to buy)        489,958,095  
Futures contracts (to sell)        403,333,687  
Forward foreign currency contracts (to buy)        25,665,748  
Forward foreign currency contracts (to sell)        39,850,602  
       

Average Notional

Balance

 
Interest rate swap contracts      $ 416,252,587  
Credit default swap contracts (buy protection)        63,315,997  
Credit default swap contracts (sell protection)        12,194,483  

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 November 30, 2023.

 

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.    $ 13,879             $ 13,879             $ 13,879  
BNP Paribas SA      161,175      $ (218,714)        (57,539)      $ 40,000        (17,539)  
Citibank N.A.      71,323        (28,153)        43,170        (70,000)        (26,830)  
JPMorgan Chase & Co.      34,598        (220,378)        (185,780)        200,000        14,220  
Morgan Stanley & Co. Inc.      49,779        (512,379)        (462,600)        512,379        49,779  
Total    $ 330,754      $ (979,624)      $ (648,870)      $ 682,379      $ 33,509  

 

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. Class specific expenses, waivers and/or expense reimbursements

The Fund has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan the Fund pays service and/or distribution fees with respect to its Class A, Class C, Class FI and Class R shares calculated at the annual rate of 0.25%, 1.00%, 0.25% and 0.50% of the average daily net assets of each class, respectively. Service and/or distribution fees are accrued daily and paid monthly.

 

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Notes to financial statements (unaudited) (cont’d)

 

For the six months ended November 30, 2023, class specific expenses were as follows:

 

       

Service and/or

Distribution Fees

      

Transfer Agent

Fees

 
Class A      $ 9,656        $ 6,132  
Class C        18,645          2,499  
Class FI        4,784          3,772  
Class R        395          255  
Class I                 51,117  
Class IS                 4,473  
Total      $ 33,480        $ 68,248  

For the six months ended November 30, 2023, waivers and/or expense reimbursements by class were as follows:

 

       

Waivers/Expense

Reimbursements

 
Class A      $ 3,193  
Class C        1,539  
Class FI        1,580  
Class R        163  
Class I        43,827  
Class IS        85,105  
Total      $ 135,407  

6. Distributions to shareholders by class

 

       

Six Months Ended

November 30, 2023

      

Year Ended

May 31, 2023

 
Net Investment Income:                      
Class A      $ 145,073        $ 21,000  
Class C        30,791           
Class FI        71,424          13,760  
Class R        2,715          465  
Class I        1,574,946          827,902  
Class IS        4,075,080          1,536,911  
Total      $ 5,900,029        $ 2,400,038  

 

 

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7. Capital shares

At November 30, 2023, the Corporation had 42.7 billion shares of capital stock authorized with a par value of $0.001 per share. Transactions in shares of each class were as follows:

 

    

Six Months Ended

November 30, 2023

 

 

    

Year Ended

May 31, 2023

 

 

      Shares      Amount      Shares      Amount  
Class A                                    
Shares sold      63,294      $ 553,585        441,566      $ 3,876,191  
Shares issued on reinvestment      16,170        140,516        2,318        20,366  
Shares repurchased      (203,676)        (1,786,175)        (531,863)        (4,664,843)  
Net decrease      (124,212)      $ (1,092,074)        (87,979)      $ (768,286)  
Class C                                    
Shares sold      652      $ 5,746        13,051      $ 114,816  
Shares issued on reinvestment      3,576        30,791                
Shares repurchased      (110,071)        (958,064)        (522,174)        (4,555,253)  
Net decrease      (105,843)      $ (921,527)        (509,123)      $ (4,440,437)  
Class FI                                    
Shares sold      3,714      $ 32,521        45,142      $ 396,840  
Shares issued on reinvestment      8,124        70,605        1,560        13,677  
Shares repurchased      (106,834)        (937,299)        (824,606)        (7,222,002)  
Net decrease      (94,996)      $ (834,173)        (777,904)      $ (6,811,485)  
Class R                                    
Shares sold      342      $ 2,990        19,401      $ 167,649  
Shares issued on reinvestment      312        2,715        53        465  
Shares repurchased      (209)        (1,844)        (10,067)        (87,100)  
Net increase      445      $ 3,861        9,387      $ 81,014  
Class I                                    
Shares sold      1,454,855      $ 12,839,582        3,319,354      $ 29,470,744  
Shares issued on reinvestment      177,402        1,542,372        92,219        810,471  
Shares repurchased      (3,345,587)        (29,285,383)        (51,560,893)        (459,237,071)  
Net decrease      (1,713,330)      $ (14,903,429)        (48,149,320)      $ (428,955,856)  
Class IS                                    
Shares sold      1,133,347      $ 9,922,715        3,231,920      $ 28,252,005  
Shares issued on reinvestment      435,108        3,777,909        146,295        1,283,474  
Shares repurchased      (4,016,626)        (35,457,883)        (8,230,946)        (72,254,244)  
Net decrease      (2,448,171)      $ (21,757,259)        (4,852,731)      $ (42,718,765)  

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

 

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Notes to financial statements (unaudited) (cont’d)

 

all or some portion of the six months ended November 30, 2023. The following transactions were effected in such company for the six months ended November 30, 2023.

 

     Affiliate
Value  at
May 31,
2023
     Purchased      Sold  
      Cost      Shares      Proceeds      Shares  
Western Asset Premier Institutional Government Reserves, Premium Shares    $ 13,448,457      $ 74,068,648        74,068,648      $ 59,907,063        59,907,063  

 

(cont’d)   

Realized

Gain (Loss)

    

Dividend

Income

    

Net Increase

(Decrease) in

Unrealized

Appreciation

(Depreciation)

    

Affiliate

Value at

November 30,

2023

 
Western Asset Premier Institutional Government Reserves, Premium Shares           $ 347,641             $ 27,610,042  

9. Redemption facility

The Fund, together with other U.S. registered and foreign investment funds (collectively, the “Borrowers”) managed by Franklin Resources or its affiliates, is a borrower in a joint syndicated senior unsecured credit facility totaling $2.675 billion (the “Global Credit Facility”). The Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Unless renewed, the Global Credit Facility will terminate on February 2, 2024.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility. These fees are reflected in the Statement of Operations. The Fund did not utilize the Global Credit Facility during the six months ended November 30, 2023.

10. Deferred capital losses

As of May 31, 2023, the Fund had deferred capital losses of $110,945,040, which have no expiration date, that will be available to offset future taxable capital gains.

11. 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 and December 2022, the FASB issued ASU No. 2021-01 and ASU No. 2022-06, with further

 

 

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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 London Interbank Offered Rate (LIBOR) and other interbank-offered based reference rates as of the end of 2021 for certain LIBOR settings and 2023 for the remainder. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2024. Management has reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.

12. Other matter

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 was the offered rate for short-term Eurodollar deposits between major international banks. In 2017, the U.K. Financial Conduct Authority (“FCA”) announced its intention to cease compelling banks to provide the quotations needed to sustain LIBOR after 2021. In addition, global regulators have announced that, with limited exceptions, no new LIBOR-based contracts should be entered into after 2021. In connection with the global transition away from LIBOR led by regulators and market participants, LIBOR is no longer published on a representative basis. Alternative references rates have been established in most major currencies. In March 2022, the U.S. federal government enacted legislation to establish a process for replacing LIBOR in certain existing contracts that do not already provide for the use of a clearly defined or practicable replacement benchmark rate as described in the legislation. Generally speaking, for contracts that do not contain a fallback provision as described in the legislation, a benchmark replacement recommended by the Federal Reserve Board effectively automatically replaced the USD LIBOR benchmark in the contract upon LIBOR’s cessation at the end of June 2023. The recommended benchmark replacement is based on the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York, including certain spread adjustments and benchmark replacement conforming changes. Various industry groups are in the process of facilitating the transition away from LIBOR, but there remains uncertainty regarding the impact of the transition from LIBOR on the Fund’s transactions and the financial markets generally.

 

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Western Asset

Total Return Unconstrained Fund

 

Directors

Robert Abeles, Jr.

Jane F. Dasher

Anita L. DeFrantz

Susan B. Kerley

Michael Larson

Ronald L. Olson

Avedick B. Poladian

William E.B. Siart

Chairman

Jaynie M. Studenmund

Peter J. Taylor

Jane Trust

Investment manager

Franklin Templeton Fund Adviser, LLC*

Subadvisers

Western Asset Management Company, LLC

Western Asset Management Company Limited

Western Asset Management Company Ltd

Western Asset Management Company Pte. Ltd.

Distributor

Franklin Distributors, LLC

 

*

Formerly known as Legg Mason Partners Fund Advisor, LLC.

 

Custodian

The Bank of New York Mellon

Transfer agent

Franklin Templeton Investor

Services, LLC

3344 Quality Drive

Rancho Cordova, CA 95670-7313

Independent registered public accounting firm

PricewaterhouseCoopers LLP

Baltimore, MD

 

Western Asset Total Return Unconstrained Fund

The Fund is a separate investment series of Western Asset Funds, Inc.

Western Asset Total Return Unconstrained Fund

Legg Mason Funds

100 International Drive

Baltimore, MD 21202

 

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 877-6LM-FUND/656-3863.

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 the Fund at 877-6LM-FUND/656-3863, (2) at www.franklintempleton.com and (3) on the SEC’s website at www.sec.gov.

 

This report is submitted for the general information of the shareholders of Western Asset Total Return Unconstrained Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.

Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.

www.franklintempleton.com

© 2024 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.


Table of Contents

Legg Mason Funds Privacy and Security Notice

 

Your Privacy Is Our Priority

Franklin Templeton* is committed to safeguarding your personal information. This notice is designed to provide you with a summary of the non-public personal information Franklin Templeton may collect and maintain about current or former individual investors; our policy regarding the use of that information; and the measures we take to safeguard the information. We do not sell individual investors’ non-public personal information to anyone and only share it as described in this notice.

Information We Collect

When you invest with us, you provide us with your non-public personal information. We collect and use this information to service your accounts and respond to your requests. The non-public personal information we may collect falls into the following categories:

 

 

Information we receive from you or your financial intermediary on applications or other forms, whether we receive the form in writing or electronically. For example, this information may include your name, address, tax identification number, birth date, investment selection, beneficiary information, and your personal bank account information and/or email address if you have provided that information.

 

 

Information about your transactions and account history with us, or with other companies that are part of Franklin Templeton, including transactions you request on our website or in our app. This category also includes your communications to us concerning your investments.

 

 

Information we receive from third parties (for example, to update your address if you move, obtain or verify your email address or obtain additional information to verify your identity).

 

 

Information collected from you online, such as your IP address or device ID and data gathered from your browsing activity and location. (For example, we may use cookies to collect device and browser information so our website recognizes your online preferences and device information.) Our website contains more information about cookies and similar technologies and ways you may limit them.

 

 

Other general information that we may obtain about you such as demographic information.

Disclosure Policy

To better service your accounts and process transactions or services you requested, we may share non-public personal information with other Franklin Templeton companies. From time to time we may also send you information about products/services offered by other Franklin Templeton companies although we will not share your non-public personal information with these companies without first offering you the opportunity to prevent that sharing.

We will only share non-public personal information with outside parties in the limited circumstances permitted by law. For example, this includes situations where we need to share information with companies who work on our behalf to service or maintain your account or process transactions you requested, when the disclosure is to companies assisting us with our own marketing efforts, when the disclosure is to a party representing you, or when required by law (for example, in response to legal process). Additionally, we will ensure that any outside

 

NOT PART OF THE SEMI-ANNUAL  REPORT


Table of Contents

Legg Mason Funds Privacy and Security Notice (cont’d)

 

companies working on our behalf, or with whom we have joint marketing agreements, are under contractual obligations to protect the confidentiality of your information, and to use it only to provide the services we asked them to perform.

Confidentiality and Security

Our employees are required to follow procedures with respect to maintaining the confidentiality of our investors’ non-public personal information. Additionally, we maintain physical, electronic and procedural safeguards to protect the information. This includes performing ongoing evaluations of our systems containing investor information and making changes when appropriate.

At all times, you may view our current privacy notice on our website at franklintempleton.com or contact us for a copy at (800) 632-2301.

*For purposes of this privacy notice Franklin Templeton shall refer to the following entities:

Fiduciary Trust International of the South (FTIOS), as custodian for individual retirement plans

Franklin Advisers, Inc.

Franklin Distributors, LLC, including as program manager of the Franklin Templeton 529 College Savings Plan and the NJBEST 529 College Savings Plan

Franklin Mutual Advisers, LLC

Franklin, Templeton and Mutual Series Funds

Franklin Templeton Institutional, LLC

Franklin Templeton Investments Corp., Canada

Franklin Templeton Investments Management, Limited UK

Franklin Templeton Portfolio Advisors, Inc.

Legg Mason Funds serviced by Franklin Templeton Investor Services, LLC

Templeton Asset Management, Limited

Templeton Global Advisors, Limited

Templeton Investment Counsel, LLC

If you are a customer of other Franklin Templeton affiliates and you receive notices from them, you will need to read those notices separately.

 

NOT PART OF THE SEMI-ANNUAL  REPORT


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Western Asset Management Company, LLC

Legg Mason, Inc. Subsidiaries

www.franklintempleton.com

© 2024 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.

WASX012827 1/24 SR23-4795


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ITEM 2.

CODE OF ETHICS.

Not applicable.

 

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable.

 

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable.

 

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable.

 

ITEM 6.

SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

 

ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 9.

PURCHASES OF SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

 

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

 

ITEM 11.

CONTROLS AND PROCEDURES.

 

  (a)

The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

 

  (b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.


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ITEM 12.

DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 13.

RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION.

 

  (a)

Not applicable.

 

  (b)

Not applicable.

 

ITEM 14.

EXHIBITS.

(a) (1) Not applicable.

Exhibit  99.CODE ETH

(a) (2)  Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.CERT

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.906CERT


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.

 

Western Asset Funds, Inc.
By:  

/s/ Jane Trust

  Jane Trust
  Chief Executive Officer
Date:   January 26, 2024

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:  

/s/ Jane Trust

  Jane Trust
  Chief Executive Officer
Date:   January 26, 2024
By:  

/s/ Christopher Berarducci

  Christopher Berarducci
  Principal Financial Officer
Date:   January 26, 2024