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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, 2022

 

 

 


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ITEM 1.

REPORT TO STOCKHOLDERS.

The Semi-Annual Report to Stockholders is filed herewith.


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LOGO

 

Semi-Annual Report

 

 

November 30, 2022

 

WESTERN ASSET

TOTAL RETURN

UNCONSTRAINED FUND

 

 

 

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     38  
Statement of operations     40  
Statements of changes in net assets     42  
Financial highlights     43  
Notes to financial statements     49  

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, 2022. 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 30, 2022

 

II    Western Asset Total Return Unconstrained Fund


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Performance review

 

For the six months ended November 30, 2022, Class I shares of Western Asset Total Return Unconstrained Fund returned -4.68%. The Fund’s unmanaged benchmarks, the Bloomberg U.S. Aggregate Indexi and the ICE BofA 3-Month U.S. Treasury Bill Indexii, returned -4.06% and 0.97%, respectively, for the same period. The Lipper Absolute Return Bond Funds Category Averageiii returned -2.23% over the same time frame.

 

Performance Snapshot as of November 30, 2022 (unaudited)      
(excluding sales charges)   6 months  
Western Asset Total Return Unconstrained Fund:  

Class A

    -4.90

Class C

    -5.25

Class FI

    -4.91

Class R

    -5.00

Class I

    -4.68

Class IS

    -4.68
Bloomberg U.S. Aggregate Index     -4.06
ICE BofA 3-Month U.S. Treasury Bill Index     0.97
Lipper Absolute Return Bond Funds Category Average     -2.23

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, 2022 for Class A, Class C, Class FI, Class R, Class I and Class IS shares were 4.89%, 4.37%, 4.96%, 4.79%, 5.38% and 5.48%, respectively. Absent fee waivers and/or expense reimbursements, the 30-Day SEC Yields for Class C and Class IS shares would have been 4.32% and 5.43%, 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 30, 2022, the gross total annual fund operating expense ratios for Class A, Class C, Class FI, Class R, Class I and Class IS shares were 1.08%, 1.77%, 1.05%, 1.30%, 0.74% and 0.65%, respectively.

 

Western Asset Total Return Unconstrained Fund         III  


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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, 2024 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 30, 2022

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


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Derivatives, such as options, futures and swaps, can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. 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.

 

iii 

Lipper, Inc., a wholly-owned subsidiary of Refinitiv, provides independent insight on global collective investments. Returns are based on the six-month period ended November 30, 2022, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 105 funds in the Fund’s Lipper category, and excluding sales charges, if any.

 

Western Asset Total Return Unconstrained Fund         V  


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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, 2022 and May 31, 2022 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.

 

*

Prior year percentages have been restated to reflect current classifications.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report     1


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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, 2022 and held for the six months ended November 30, 2022.

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     -4.90   $ 1,000.00     $ 951.00       1.07   $ 5.23       Class A     5.00   $ 1,000.00     $ 1,019.70       1.07   $ 5.42  
Class C     -5.25       1,000.00       947.50       1.80       8.79       Class C     5.00       1,000.00       1,016.04       1.80       9.10  
Class FI     -4.91       1,000.00       950.90       1.07       5.23       Class FI     5.00       1,000.00       1,019.70       1.07       5.42  
Class R     -5.00       1,000.00       950.00       1.35       6.60       Class R     5.00       1,000.00       1,018.30       1.35       6.83  
Class I     -4.68       1,000.00       953.20       0.75       3.67       Class I     5.00       1,000.00       1,021.31       0.75       3.80  
Class IS     -4.68       1,000.00       953.20       0.65       3.18       Class IS     5.00       1,000.00       1,021.81       0.65       3.29  

 

2     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


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1 

For the six months ended November 30, 2022.

 

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 365.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report     3


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Schedule of investments (unaudited)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Corporate Bonds & Notes — 39.1%                                
Communication Services — 4.5%                                

Diversified Telecommunication Services — 0.6%

                               

Altice France SA, Senior Secured Notes

    5.500     10/15/29       310,000     $ 248,974  (a) 

AT&T Inc., Senior Notes

    1.700     3/25/26       710,000       640,320  

AT&T Inc., Senior Notes

    2.250     2/1/32       1,670,000       1,324,849  

AT&T Inc., Senior Notes

    2.550     12/1/33       120,000       94,385  

NTT Finance Corp., Senior Notes

    4.372     7/27/27       580,000       572,515  (a)  

Total Diversified Telecommunication Services

                            2,881,043  

Entertainment — 0.6%

                               

Netflix Inc., Senior Notes

    3.875     11/15/29       840,000  EUR      838,738  (b)  

Warnermedia Holdings Inc., Senior Notes

    3.755     3/15/27       800,000       729,455  (a)  

Warnermedia Holdings Inc., Senior Notes

    5.050     3/15/42       950,000       761,620  (a)  

Warnermedia Holdings Inc., Senior Notes

    5.141     3/15/52       300,000       232,802  (a)  

Total Entertainment

                            2,562,615  

Media — 1.9%

                               

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

    5.000     2/1/28       60,000       55,256  (a)  

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

    4.500     8/15/30       2,060,000       1,738,104  (a) 

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

    4.250     2/1/31       1,080,000       878,472  (a)  

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

    4.750     2/1/32       200,000       167,499  (a)  

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

    4.500     5/1/32       550,000       454,476  

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

    4.250     1/15/34       2,560,000       1,997,350  (a) 

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

    4.908     7/23/25       270,000       265,900  

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

    5.375     4/1/38       710,000       608,369  

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

    3.500     3/1/42       40,000       27,155  

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

    4.800     3/1/50       180,000       135,311  

 

See Notes to Financial Statements.

 

4     Western Asset Total Return Unconstrained Fund 2022 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  

Media — continued

                               

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

    5.500     4/1/63       820,000     $ 658,373  

Comcast Corp., Senior Notes

    2.800     1/15/51       90,000       58,935  

Comcast Corp., Senior Notes

    2.887     11/1/51       290,000       193,918  

DISH DBS Corp., Senior Secured Notes

    5.250     12/1/26       380,000       326,943  (a)  

DISH DBS Corp., Senior Secured Notes

    5.750     12/1/28       320,000       260,136  (a)  

Time Warner Cable LLC, Senior Secured Notes

    6.550     5/1/37       10,000       9,598  

Time Warner Cable LLC, Senior Secured Notes

    7.300     7/1/38       500,000       512,008  

Walt Disney Co., Senior Notes

    8.450     8/1/34       350,000       439,689  

Total Media

                            8,787,492  

Wireless Telecommunication Services — 1.4%

                               

CSC Holdings LLC, Senior Notes

    3.375     2/15/31       1,590,000       1,149,745  (a) 

CSC Holdings LLC, Senior Notes

    4.500     11/15/31       680,000       519,042  (a)  

CSC Holdings LLC, Senior Notes

    5.000     11/15/31       1,240,000       785,614  (a)  

Sprint Capital Corp., Senior Notes

    8.750     3/15/32       80,000       95,758  

T-Mobile USA Inc., Senior Notes

    2.250     2/15/26       120,000       110,018  

T-Mobile USA Inc., Senior Notes

    5.375     4/15/27       570,000       567,228  

T-Mobile USA Inc., Senior Notes

    2.625     2/15/29       360,000       307,171  

T-Mobile USA Inc., Senior Notes

    3.375     4/15/29       120,000       106,242  

T-Mobile USA Inc., Senior Notes

    2.875     2/15/31       2,330,000       1,949,498  

T-Mobile USA Inc., Senior Notes

    3.500     4/15/31       1,310,000       1,143,042  

Total Wireless Telecommunication Services

                            6,733,358  

Total Communication Services

                            20,964,508  
Consumer Discretionary — 2.6%                                

Automobiles — 1.4%

                               

Ford Motor Co., Senior Notes

    3.250     2/12/32       1,290,000       1,021,628  

Ford Motor Co., Senior Notes

    6.100     8/19/32       210,000       201,761  

Ford Motor Credit Co. LLC, Senior Notes

    3.664     9/8/24       200,000       192,257  

Ford Motor Credit Co. LLC, Senior Notes

    2.300     2/10/25       660,000       606,283  

Ford Motor Credit Co. LLC, Senior Notes

    4.271     1/9/27       246,000       228,084  

Ford Motor Credit Co. LLC, Senior Notes

    4.125     8/17/27       1,860,000       1,699,175  

Ford Motor Credit Co. LLC, Senior Notes

    2.900     2/16/28       200,000       167,303  

Ford Motor Credit Co. LLC, Senior Notes

    5.113     5/3/29       220,000       205,379  

Ford Motor Credit Co. LLC, Senior Notes

    3.625     6/17/31       340,000       279,244  

General Motors Co., Senior Notes

    6.600     4/1/36       30,000       30,367  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       5  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security

  Rate    

Maturity

Date

   

Face

Amount†

    Value  

Automobiles — continued

                               

General Motors Financial Co. Inc., Senior Notes

    4.250     5/15/23       600,000     $ 597,934  

General Motors Financial Co. Inc., Senior Notes

    3.800     4/7/25       510,000       493,183  

General Motors Financial Co. Inc., Senior Notes

    3.100     1/12/32       120,000       96,375  

Nissan Motor Co. Ltd., Senior Notes

    3.522     9/17/25       790,000       732,505  (a)  

Total Automobiles

                            6,551,478  

Hotels, Restaurants & Leisure — 0.9%

                               

GLP Capital LP/GLP Financing II Inc., Senior Notes

    5.250     6/1/25       20,000       19,623  

GLP Capital LP/GLP Financing II Inc., Senior Notes

    5.375     4/15/26       140,000       135,895  

Las Vegas Sands Corp., Senior Notes

    3.200     8/8/24       860,000       822,250  

Las Vegas Sands Corp., Senior Notes

    2.900     6/25/25       110,000       101,655  

Sands China Ltd., Senior Notes

    5.625     8/8/25       1,650,000       1,598,520  

Sands China Ltd., Senior Notes

    2.800     3/8/27       500,000       417,915  

Sands China Ltd., Senior Notes

    5.900     8/8/28       590,000       550,957  

Sands China Ltd., Senior Notes

    3.350     3/8/29       330,000       269,572  

Sands China Ltd., Senior Notes

    3.750     8/8/31       200,000       160,380  

Total Hotels, Restaurants & Leisure

                            4,076,767  

Household Durables — 0.1%

                               

Lennar Corp., Senior Notes

    4.500     4/30/24       350,000       345,079  

Lennar Corp., Senior Notes

    4.750     5/30/25       110,000       107,893  

Lennar Corp., Senior Notes

    5.000     6/15/27       40,000       39,264  

Total Household Durables

                            492,236  

Internet & Direct Marketing Retail — 0.2%

                               

Prosus NV, Senior Notes

    3.061     7/13/31       1,600,000       1,195,756  (a) 

Total Consumer Discretionary

                            12,316,237  
Consumer Staples — 0.9%                                

Beverages — 0.4%

                               

Anheuser-Busch Cos. LLC/Anheuser-Busch InBev Worldwide Inc., Senior Notes

    3.650     2/1/26       1,490,000       1,446,690  

Anheuser-Busch InBev Worldwide Inc., Senior Notes

    4.600     4/15/48       60,000       54,607  

Anheuser-Busch InBev Worldwide Inc., Senior Notes

    5.550     1/23/49       100,000       102,576  

Total Beverages

                            1,603,873  

 

See Notes to Financial Statements.

 

6     Western Asset Total Return Unconstrained Fund 2022 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  

Food & Staples Retailing — 0.0%††

                               

CVS Pass-Through Trust, Senior Secured Trust

    5.298     1/11/27       8,930     $ 8,857  (a)  

CVS Pass-Through Trust, Senior Secured Trust

    6.036     12/10/28       38,321       38,475  

Total Food & Staples Retailing

                            47,332  

Food Products — 0.0%††

                               

Kraft Heinz Foods Co., Senior Notes

    4.250     3/1/31       130,000       123,229  

Kraft Heinz Foods Co., Senior Notes

    6.750     3/15/32       20,000       22,053  

Total Food Products

                            145,282  

Tobacco — 0.5%

                               

Altria Group Inc., Senior Notes

    4.400     2/14/26       870,000       855,657  

Altria Group Inc., Senior Notes

    3.875     9/16/46       180,000       122,957  

Altria Group Inc., Senior Notes

    5.950     2/14/49       50,000       44,484  

Altria Group Inc., Senior Notes

    6.200     2/14/59       428,000       403,039  

BAT Capital Corp., Senior Notes

    2.789     9/6/24       260,000       248,720  

BAT Capital Corp., Senior Notes

    4.540     8/15/47       1,100,000       799,452  

Total Tobacco

                            2,474,309  

Total Consumer Staples

                            4,270,796  
Energy — 8.5%                                

Energy Equipment & Services — 0.0%††

                               

Halliburton Co., Senior Notes

    4.850     11/15/35       320,000       300,514  

Oil, Gas & Consumable Fuels — 8.5%

                               

Cameron LNG LLC, Senior Secured Notes

    3.302     1/15/35       530,000       439,096  (a)  

Cheniere Energy Inc., Senior Notes

    4.625     10/15/28       280,000       258,875  

Cheniere Energy Partners LP, Senior Notes

    4.000     3/1/31       620,000       542,860  

Cheniere Energy Partners LP, Senior Notes

    3.250     1/31/32       460,000       374,902  

Continental Resources Inc., Senior Notes

    2.268     11/15/26       460,000       398,337  (a)  

Continental Resources Inc., Senior Notes

    5.750     1/15/31       1,100,000       1,032,127  (a) 

Coterra Energy Inc., Senior Notes

    3.900     5/15/27       820,000       774,237  (a)  

Coterra Energy Inc., Senior Notes

    4.375     3/15/29       230,000       219,263  (a)  

Devon Energy Corp., Senior Notes

    8.250     8/1/23       1,370,000       1,392,744  

Devon Energy Corp., Senior Notes

    5.850     12/15/25       160,000       163,780  

Devon Energy Corp., Senior Notes

    5.250     10/15/27       26,000       26,104  

Devon Energy Corp., Senior Notes

    5.875     6/15/28       26,000       26,023  

Devon Energy Corp., Senior Notes

    4.500     1/15/30       304,000       285,538  

Devon Energy Corp., Senior Notes

    5.600     7/15/41       780,000       755,552  

Devon Energy Corp., Senior Notes

    4.750     5/15/42       220,000       192,037  

Diamondback Energy Inc., Senior Notes

    3.250     12/1/26       190,000       178,203  

Diamondback Energy Inc., Senior Notes

    3.500     12/1/29       280,000       249,502  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       7  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

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

                               

Ecopetrol SA, Senior Notes

    5.375     6/26/26       570,000     $ 533,064  

Ecopetrol SA, Senior Notes

    5.875     5/28/45       1,180,000       814,200  

Energy Transfer LP, Junior Subordinated Notes (6.250% to 2/15/23 then 3 mo. USD LIBOR + 4.028%)

    6.250     2/15/23       5,230,000       4,452,346  (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       69,054  (c)(d) 

Energy Transfer LP, Junior Subordinated Notes (6.750% to 5/15/25 then 5 year Treasury Constant Maturity Rate + 5.134%)

    6.750     5/15/25       30,000       26,219  (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       261,175  (c)(d) 

Energy Transfer LP, Senior Notes

    4.950     6/15/28       90,000       87,165  

Energy Transfer LP, Senior Notes

    5.250     4/15/29       130,000       126,649  

Energy Transfer LP, Senior Notes

    3.750     5/15/30       410,000       363,847  

Energy Transfer LP, Senior Notes

    5.300     4/1/44       60,000       51,497  

Energy Transfer LP, Senior Notes

    5.400     10/1/47       10,000       8,648  

Energy Transfer LP, Senior Notes

    6.250     4/15/49       920,000       872,854  

Energy Transfer LP, Senior Notes

    5.000     5/15/50       230,000       189,922  

Enterprise Products Operating LLC, Senior Notes

    3.750     2/15/25       720,000       704,196  

Enterprise Products Operating LLC, Senior Notes

    6.875     3/1/33       500,000       554,232  

Enterprise Products Operating LLC, Senior Notes

    3.700     1/31/51       520,000       386,193  

Enterprise Products Operating LLC, Senior Notes (5.375% to 2/15/28 then 3 mo. USD LIBOR + 2.570%)

    5.375     2/15/78       130,000       98,485  (d) 

EOG Resources Inc., Senior Notes

    4.950     4/15/50       200,000       196,808  

EQM Midstream Partners LP, Senior Notes

    5.500     7/15/28       30,000       27,834  

EQT Corp., Senior Notes

    6.125     2/1/25       260,000       261,099  

EQT Corp., Senior Notes

    5.678     10/1/25       450,000       449,307  

EQT Corp., Senior Notes

    3.900     10/1/27       2,250,000       2,085,529  

EQT Corp., Senior Notes

    5.000     1/15/29       250,000       238,649  

KazMunayGas National Co. JSC, Senior Notes

    4.750     4/19/27       1,010,000       937,795  (a) 

KazMunayGas National Co. JSC, Senior Notes

    6.375     10/24/48       530,000       426,642  (a) 

 

See Notes to Financial Statements.

 

8     Western Asset Total Return Unconstrained Fund 2022 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

                               

Kinder Morgan Inc., Senior Notes

    7.750     1/15/32       890,000     $ 1,020,285  

MPLX LP, Senior Notes

    4.875     6/1/25       430,000       424,528  

NGPL PipeCo LLC, Senior Notes

    4.875     8/15/27       1,980,000       1,886,337  (a) 

Occidental Petroleum Corp., Senior Notes

    7.950     6/15/39       1,530,000       1,653,963  

Occidental Petroleum Corp., Senior Notes

    4.100     2/15/47       670,000       523,826  

Parsley Energy LLC/Parsley Finance Corp., Senior Notes

    4.125     2/15/28       70,000       64,422  (a) 

Petrobras Global Finance BV, Senior Notes

    6.850     6/5/2115       690,000       571,937  

Rockies Express Pipeline LLC, Senior Notes

    6.875     4/15/40       1,920,000       1,601,923  (a) 

Southwestern Energy Co., Senior Notes

    5.375     3/15/30       120,000       112,969  

Southwestern Energy Co., Senior Notes

    4.750     2/1/32       320,000       280,133  

Targa Resources Corp., Senior Notes

    5.200     7/1/27       860,000       849,315  

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

    6.500     7/15/27       210,000       211,413  

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

    6.875     1/15/29       30,000       30,859  

Transcontinental Gas Pipe Line Co. LLC, Senior Notes

    4.450     8/1/42       930,000       806,898  

Venture Global Calcasieu Pass LLC, Senior Secured Notes

    3.875     11/1/33       250,000       203,750  (a) 

Western Midstream Operating LP, Senior Notes

    3.350     2/1/25       280,000       268,744  

Western Midstream Operating LP, Senior Notes

    4.500     3/1/28       290,000       269,480  

Western Midstream Operating LP, Senior Notes

    4.750     8/15/28       479,000       443,889  

Western Midstream Operating LP, Senior Notes

    4.300     2/1/30       3,400,000       3,034,415  

Western Midstream Operating LP, Senior Notes

    5.450     4/1/44       750,000       617,621  

Western Midstream Operating LP, Senior Notes

    5.500     8/15/48       710,000       587,063  

Western Midstream Operating LP, Senior Notes

    5.500     2/1/50       460,000       375,809  

Williams Cos. Inc., Senior Notes

    3.750     6/15/27       680,000       643,587  

Williams Cos. Inc., Senior Notes

    3.500     11/15/30       520,000       460,686  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       9  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

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

                               

Williams Cos. Inc., Senior Notes

    5.750     6/24/44       130,000     $ 126,982  

YPF SA, Senior Secured Notes, Step bond (4.000% to 2/12/23 then 9.000%)

    4.000     2/12/26       1,382,450       1,284,884  (a) 

Total Oil, Gas & Consumable Fuels

                            39,888,307  

Total Energy

                            40,188,821  
Financials — 12.7%                                

Banks — 7.2%

                               

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       1,000,000       927,567  (d) 

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

    2.551     2/4/28       1,310,000       1,172,786  (d) 

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

    2.972     2/4/33       1,970,000       1,611,936  (d) 

Bank of America Corp., Senior Notes (3.841% to 4/25/24 then SOFR + 1.110%)

    3.841     4/25/25       1,170,000       1,141,361  (d) 

Bank of America Corp., Senior Notes (4.827% to 7/22/25 then SOFR + 1.750%)

    4.827     7/22/26       950,000       937,980  (d) 

Bank of Nova Scotia, Senior Notes

    3.450     4/11/25       1,390,000       1,345,919  

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

    2.871     4/19/32       1,580,000       1,249,017  (a)(d) 

Citigroup Inc., Senior Notes

    4.650     7/30/45       788,000       700,771  

Citigroup Inc., Senior Notes (3.070% to 2/24/27 then SOFR + 1.280%)

    3.070     2/24/28       470,000       427,374  (d) 

Citigroup Inc., Senior Notes (3.290% to 3/17/25 then SOFR + 1.528%)

    3.290     3/17/26       1,060,000       1,008,032  (d) 

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

    3.785     3/17/33       540,000       471,907  (d) 

Citigroup Inc., Subordinated Notes

    5.500     9/13/25       980,000       995,394  

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      2,139,615  (b)(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       415,208  (a)(d) 

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       1,250,000       1,274,256  (a)(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       1,242,445  (a)(d) 

 

See Notes to Financial Statements.

 

10     Western Asset Total Return Unconstrained Fund 2022 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  

Banks — continued

                               

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       1,190,000     $ 1,089,890  (a)(d) 

ING Groep NV, Senior Notes (4.017% to 3/28/27 then SOFR + 1.830%)

    4.017     3/28/28       600,000       560,353  (d) 

Intesa Sanpaolo SpA, Senior Notes

    3.375     1/12/23       530,000       528,467  (a) 

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

    2.947     2/24/28       790,000       719,259  (d) 

JPMorgan Chase & Co., Senior Notes (4.080% to 4/26/25 then SOFR + 1.320%)

    4.080     4/26/26       1,120,000       1,092,153  (d) 

JPMorgan Chase & Co., Senior Notes (4.851% to 7/25/27 then SOFR + 1.990%)

    4.851     7/25/28       1,790,000       1,753,830  (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      1,315,571  (b)(c)(d) 

Lloyds Banking Group PLC, Subordinated Notes

    4.500     11/4/24       670,000       654,104  

Mitsubishi UFJ Financial Group Inc., Senior Notes (3.837% to 4/17/25 then 1 year Treasury Constant Maturity Rate + 1.125%)

    3.837     4/17/26       460,000       442,751  (d) 

Mitsubishi UFJ Financial Group Inc., Senior Notes (4.080% to 4/19/27 then 1 year Treasury Constant Maturity Rate + 1.300%)

    4.080     4/19/28       260,000       245,958  (d) 

Royal Bank of Canada, Senior Notes

    3.375     4/14/25       1,680,000       1,627,733  

Toronto-Dominion Bank, Senior Notes

    4.693     9/15/27       980,000       970,319  

Toronto-Dominion Bank, Senior Notes

    4.456     6/8/32       1,670,000       1,598,926  

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

    3.350     3/2/33       140,000       119,865  (d) 

Wells Fargo & Co., Senior Notes (3.908% to 4/25/25 then SOFR + 1.320%)

    3.908     4/25/26       2,150,000       2,083,894  (d) 

Wells Fargo & Co., Senior Notes (4.808% to 7/25/27 then SOFR + 1.980%)

    4.808     7/25/28       870,000       850,334  (d) 

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

    5.013     4/4/51       1,030,000       969,233  (d) 

Total Banks

                            33,684,208  

Capital Markets — 3.8%

                               

Credit Suisse AG, Senior Notes

    3.700     2/21/25       360,000       327,968  

Credit Suisse Group AG, Junior Subordinated Notes (9.750% to 12/23/27 then 5 year Treasury Constant Maturity Rate + 6.383%)

    9.750     6/23/27       1,680,000       1,436,568  (a)(c)(d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       11  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  

Capital Markets — continued

                               

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

    3.091     5/14/32       2,590,000     $ 1,766,877  (a)(d) 

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

    3.615     3/15/28       1,400,000       1,302,918  (d) 

Goldman Sachs Group Inc., Subordinated Notes

    5.150     5/22/45       1,040,000       993,318  

Intercontinental Exchange Inc., Senior Notes

    4.000     9/15/27       1,760,000       1,726,991  

Intercontinental Exchange Inc., Senior Notes

    4.600     3/15/33       1,060,000       1,020,048  

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

    2.475     1/21/28       1,260,000       1,120,293  (d) 

Morgan Stanley, Senior Notes (3.620% to 4/17/24 then SOFR + 1.160%)

    3.620     4/17/25       1,330,000       1,296,695  (d) 

Morgan Stanley, Senior Notes (4.679% to 7/17/25 then SOFR + 1.669%)

    4.679     7/17/26       1,690,000       1,671,411  (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       5,040,000       4,977,000  (a)(c)(d) 

Total Capital Markets

                            17,640,087  

Consumer Finance — 0.5%

                               

American Express Co., Senior Notes

    3.950     8/1/25       2,610,000       2,557,426  

Diversified Financial Services — 1.1%

                               

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

    4.625     10/15/27       1,580,000       1,479,575  

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

    3.300     1/30/32       640,000       510,510  

Indian Railway Finance Corp. Ltd., Senior Secured Notes

    7.270     6/15/27       100,000,000  INR      1,224,773  

Park Aerospace Holdings Ltd., Senior Notes

    4.500     3/15/23       270,000       268,684  (a) 

Park Aerospace Holdings Ltd., Senior Notes

    5.500     2/15/24       1,150,000       1,133,532  (a) 

Vanguard Group Inc.

    3.050     8/22/50       1,000,000       660,951  (e)(f) 

Total Diversified Financial Services

                            5,278,025  

Insurance — 0.1%

                               

MetLife Inc., Junior Subordinated Notes

    6.400     12/15/36       630,000       594,147  

Total Financials

                            59,753,893  
Health Care — 3.6%                                

Biotechnology — 0.0%††

                               

AbbVie Inc., Senior Notes

    3.200     11/21/29       90,000       82,256  

AbbVie Inc., Senior Notes

    4.875     11/14/48       60,000       56,494  

Total Biotechnology

                            138,750  

 

See Notes to Financial Statements.

 

12     Western Asset Total Return Unconstrained Fund 2022 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  

Health Care Providers & Services — 2.4%

                               

Cigna Corp., Senior Notes

    3.400     3/1/27       1,900,000     $ 1,795,995  

Cigna Corp., Senior Notes

    4.375     10/15/28       10,000       9,756  

Cigna Corp., Senior Notes

    4.900     12/15/48       60,000       55,504  

CommonSpirit Health, Secured Notes

    4.350     11/1/42       1,620,000       1,374,718  

CommonSpirit Health, Senior Secured Notes

    3.817     10/1/49       600,000       444,405  

CVS Health Corp., Senior Notes

    1.300     8/21/27       2,140,000       1,836,197  

CVS Health Corp., Senior Notes

    1.875     2/28/31       90,000       71,781  

CVS Health Corp., Senior Notes

    5.050     3/25/48       60,000       55,794  

Dignity Health, Secured Notes

    5.267     11/1/64       860,000       731,671  

Elevance Health Inc., Senior Notes

    4.100     5/15/32       1,090,000       1,028,030  

Hackensack Meridian Health Inc., Senior Secured Notes

    4.211     7/1/48       1,060,000       903,802  

HCA Inc., Senior Notes

    5.625     9/1/28       20,000       19,997  

HCA Inc., Senior Notes

    3.500     9/1/30       380,000       327,267  

Humana Inc., Senior Notes

    2.150     2/3/32       110,000       86,839  

Humana Inc., Senior Notes

    8.150     6/15/38       480,000       570,554  

Humana Inc., Senior Notes

    4.625     12/1/42       180,000       159,418  

UnitedHealth Group Inc., Senior Notes

    3.700     5/15/27       980,000       950,811  

UnitedHealth Group Inc., Senior Notes

    2.300     5/15/31       70,000       58,587  

Willis-Knighton Medical Center, Secured Notes

    4.813     9/1/48       710,000       625,197  

Total Health Care Providers & Services

                            11,106,323  

Pharmaceuticals — 1.2%

                               

Teva Pharmaceutical Finance Co. BV, Senior Notes

    2.950     12/18/22       2,170,000       2,167,036  

Teva Pharmaceutical Finance Netherlands BV, Senior Notes

    2.800     7/21/23       1,200,000       1,171,710  

Teva Pharmaceutical Finance Netherlands III BV, Senior Notes

    3.150     10/1/26       1,830,000       1,594,150  

Teva Pharmaceutical Finance Netherlands III BV, Senior Notes

    5.125     5/9/29       730,000       656,270  

Total Pharmaceuticals

                            5,589,166  

Total Health Care

                            16,834,239  
Industrials — 2.7%                                

Aerospace & Defense — 0.6%

                               

Boeing Co., Senior Notes

    2.700     2/1/27       560,000       506,246  

Boeing Co., Senior Notes

    3.250     2/1/35       570,000       432,931  

Boeing Co., Senior Notes

    3.550     3/1/38       150,000       111,252  

Boeing Co., Senior Notes

    5.705     5/1/40       670,000       639,420  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       13  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate     Maturity
Date
    Face
Amount†
    Value  

Aerospace & Defense — continued

                               

Boeing Co., Senior Notes

    5.805     5/1/50       590,000     $ 557,605  

Boeing Co., Senior Notes

    5.930     5/1/60       540,000       502,321  

Total Aerospace & Defense

                            2,749,775  

Airlines — 1.5%

                               

Delta Air Lines Inc., Senior Secured Notes

    7.000     5/1/25       1,810,000       1,845,804  (a)  

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

    4.500     10/20/25       970,000       945,398  (a)  

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

    4.750     10/20/28       360,000       341,492  (a)  

Mileage Plus Holdings LLC/Mileage Plus Intellectual Property Assets Ltd., Senior Secured Notes

    6.500     6/20/27       475,000       473,216  (a)  

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

    8.000     9/20/25       390,000       394,834  (a)  

United Airlines Inc., Senior Secured Notes

    4.375     4/15/26       260,000       242,327  (a)  

United Airlines Inc., Senior Secured Notes

    4.625     4/15/29       2,910,000       2,593,572  (a)  

Total Airlines

                            6,836,643  

Building Products — 0.0%††

                               

Builders FirstSource Inc., Senior Notes

    4.250     2/1/32       30,000       24,369  (a) 

Commercial Services & Supplies — 0.2%

                               

Allied Universal Holdco LLC/Allied Universal Finance Corp./Atlas Luxco 4 Sarl, Senior Secured Notes

    4.625     6/1/28       660,000       556,050  (a) 

California Institute of Technology, Senior Notes

    3.650     9/1/2119       870,000       573,785  

Total Commercial Services & Supplies

                            1,129,835  

Road & Rail — 0.0%††

                               

XPO Logistics Inc., Senior Notes

    6.250     5/1/25       28,000       28,409  (a) 

Trading Companies & Distributors — 0.4%

                               

H&E Equipment Services Inc., Senior Notes

    3.875     12/15/28       2,280,000       1,974,241  (a) 

Total Industrials

                            12,743,272  
Information Technology — 0.9%                                

Semiconductors & Semiconductor Equipment — 0.4%

                               

Broadcom Corp./Broadcom Cayman Finance Ltd., Senior Notes

    3.875     1/15/27       940,000       890,406  

TSMC Global Ltd., Senior Notes

    4.375     7/22/27       1,030,000       1,018,167  (a) 

Total Semiconductors & Semiconductor Equipment

 

                    1,908,573  

 

See Notes to Financial Statements.

 

14     Western Asset Total Return Unconstrained Fund 2022 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  

Software — 0.5%

                               

Workday Inc., Senior Notes

    3.500     4/1/27       1,200,000     $ 1,135,085  

Workday Inc., Senior Notes

    3.800     4/1/32       1,170,000       1,046,467  

Total Software

                            2,181,552  

Total Information Technology

                            4,090,125  
Materials — 2.2%                                

Chemicals — 0.8%

                               

Braskem America Finance Co., Senior Notes

    7.125     7/22/41       1,440,000       1,335,899  (b)  

Celanese US Holdings LLC, Senior Notes

    5.900     7/5/24       780,000       775,504  

OCP SA, Senior Notes

    5.625     4/25/24       1,550,000       1,556,781  (a)  

Total Chemicals

                            3,668,184  

Containers & Packaging — 0.1%

                               

Ardagh Metal Packaging Finance USA LLC/ Ardagh Metal Packaging Finance PLC, Senior Notes

    4.000     9/1/29       250,000       200,341  (a)  

Metals & Mining — 1.3%

                               

Anglo American Capital PLC, Senior Notes

    3.625     9/11/24       940,000       910,968  (a)  

Anglo American Capital PLC, Senior Notes

    4.000     9/11/27       290,000       272,152  (a)  

Freeport-McMoRan Inc., Senior Notes

    4.625     8/1/30       200,000       182,948  

Freeport-McMoRan Inc., Senior Notes

    5.450     3/15/43       1,450,000       1,301,846  

Glencore Funding LLC, Senior Notes

    4.125     3/12/24       1,260,000       1,240,167  (a)  

Glencore Funding LLC, Senior Notes

    4.000     3/27/27       1,110,000       1,057,293  (a)  

Vale Overseas Ltd., Senior Notes

    6.875     11/21/36       1,220,000       1,262,324  

Total Metals & Mining

                            6,227,698  

Total Materials

                            10,096,223  
Utilities — 0.5%                                

Electric Utilities — 0.5%

                               

American Transmission Systems Inc., Senior Notes

    2.650     1/15/32       130,000       106,357  (a)  

Pacific Gas and Electric Co., First Mortgage Bonds

    4.950     6/8/25       1,240,000       1,218,041  

Pacific Gas and Electric Co., First Mortgage Bonds

    3.000     6/15/28       580,000       500,016  

Trans-Allegheny Interstate Line Co., Senior Notes

    3.850     6/1/25       730,000       706,271  (a)  

Total Utilities

                            2,530,685  

Total Corporate Bonds & Notes (Cost — $199,903,427)

 

                    183,788,799  
Collateralized Mortgage Obligations (g) — 14.0%

 

                       

Banc of America Funding Trust, 2015-R2 4A2 (1 mo. USD LIBOR + 0.165%)

    3.563     9/29/36       6,854,944       5,579,127  (a)(d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       15  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Collateralized Mortgage Obligations (g) — continued

 

                       

BANK, 2018-BN15 B

    4.811     11/15/61       1,050,000     $ 954,446  (d) 

Bear Stearns Mortgage Funding Trust, 2007- AR1 1A1 (1 mo. USD LIBOR + 0.160%)

    4.204     1/25/37       1,099,806       921,093  (d)  

BIG Commercial Mortgage Trust, 2022-BIG F (1 mo. Term SOFR + 5.436%)

    9.230     2/15/39       1,950,000       1,810,728  (a)(d) 

BX Commercial Mortgage Trust, 2021-VOLT G (1 mo. USD LIBOR + 2.850%)

    6.725     9/15/36       850,000       780,115  (a)(d) 

BX Commercial Mortgage Trust, 2021-XL2 J (1 mo. USD LIBOR + 3.890%)

    7.765     10/15/38       991,585       912,358  (a)(d) 

BX Trust, 2018-GWMZ MC (1 mo. USD LIBOR + 5.488%)

    9.363     5/15/37       3,000,000       2,867,969  (a)(d) 

BX Trust, 2021-ARIA G (1 mo. USD LIBOR + 3.142%)

    7.017     10/15/36       1,030,000       897,042  (a)(d) 

BX Trust, 2021-SDMF F (1 mo. USD LIBOR + 1.937%)

    5.812     9/15/34       860,000       795,888  (a)(d) 

CFK Trust, 2020-MF2 E

    3.573     3/15/39       1,440,000       1,163,763  (a)(d) 

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

    3.248     6/19/31       3,675       3,512  (d)  

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

    2.168     2/25/34       30,865       29,077  (d)  

Citigroup Mortgage Loan Trust Inc., 2005-9 1A1 (1 mo. USD LIBOR + 0.260%)

    4.304     11/25/35       92,368       75,850  (d)  

Countrywide Alternative Loan Trust, 2005- 28CB 2A3

    5.750     8/25/35       817,813       572,840  

Countrywide Alternative Loan Trust, 2005- 52CB 1A2, IO (-1.000 x 1 mo. USD LIBOR + 5.100%)

    1.056     11/25/35       3,395,135       243,379  (d)  

Countrywide Alternative Loan Trust, 2005-76 3A1 (1 mo. USD LIBOR + 0.520%)

    4.564     1/25/46       65,298       55,770  (d)  

Countrywide Alternative Loan Trust, 2006- 4CB 1A4, IO (-1.000 x 1 mo. USD LIBOR + 5.300%)

    1.256     4/25/36       5,760,191       469,362  (d)  

Countrywide Alternative Loan Trust, 2006- 8T1 1A2, IO (-1.000 x 1 mo. USD LIBOR + 5.500%)

    1.456     4/25/36       3,402,883       383,461  (d)  

Countrywide Alternative Loan Trust, 2006- 21CB A6, IO (-1.000 x 1 mo. USD LIBOR + 5.600%)

    1.556     7/25/36       1,547,534       174,081  (d)  

CSMC OA LLC, 2014-USA F

    4.373     9/15/37       4,400,000       2,330,751  (a) 

CSMC Trust, 2015-2R 7A1

    3.097     8/27/36       118,850       118,481  (a)(d) 

 

See Notes to Financial Statements.

 

16     Western Asset Total Return Unconstrained Fund 2022 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 (g) — continued

 

                       

CSMC Trust, 2017-CHOP H (1 mo. USD LIBOR + 7.350%)

    11.225     7/15/32       3,659,000     $ 3,305,438  (a)(d) 

CSMC Trust, 2019-RIO A (1 mo. USD LIBOR + 3.024%)

    6.899     12/15/22       3,650,769       3,649,307  (a)(d) 

CSMC Trust, 2021-RPL1 A2

    3.937     9/27/60       870,000       816,993  (a)  

CSMC Trust, 2022-7R 1A1

    5.038     10/25/66       1,092,803       1,095,478  (a) 

DBJPM Mortgage Trust, 2016-C3 A5

    2.890     8/10/49       440,000       401,152  

Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2004-4 7AR2 (1 mo. USD LIBOR + 0.450%)

    4.494     6/25/34       2,940       2,645  (d)  

Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Debt Notes, 2020-DNA1 B1 (1 mo. USD LIBOR + 2.300%)

    6.316     1/25/50       2,310,000       2,205,868  (a)(d) 

Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Debt Notes, 2021-DNA3 B1 (30 Day Average SOFR + 3.500%)

    7.021     10/25/33       1,210,000       1,075,993  (a)(d) 

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

    4.000     8/25/56       1,157,073       1,118,178  (a)(d) 

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

    4.250     11/25/59       2,120,000       1,735,948  (a)(d) 

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2013-DN1 M2 (1 mo. USD LIBOR + 7.150%)

    11.166     7/25/23       312,781       320,903  (d)  

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

    6.921     8/25/33       520,000       468,678  (a)(d) 

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2021-DNA2 M2 (30 Day Average SOFR + 2.300%)

    5.821     8/25/33       460,000       445,064  (a)(d) 

Federal National Mortgage Association (FNMA) — CAS, 2019-R05 1B1 (1 mo. USD LIBOR + 4.100%)

    8.116     7/25/39       1,770,390       1,733,206  (a)(d) 

Federal National Mortgage Association (FNMA) — CAS, 2019-R07 1B1 (1 mo. USD LIBOR + 3.400%)

    7.416     10/25/39       1,300,000       1,244,360  (a)(d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       17  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Collateralized Mortgage Obligations (g) — continued

 

                       

Federal National Mortgage Association (FNMA) — CAS, 2020-R01 1B1 (1 mo. USD LIBOR + 3.250%)

    7.266     1/25/40       1,790,000     $ 1,645,436  (a)(d) 

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

    7.000     5/25/42       28,419       30,679  

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

    3.864     2/25/36       34,807       26,481  (d)  

Flagstar Mortgage Trust, 2018-2 A4

    3.500     4/25/48       29,426       28,877  (a)(d)  

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

    0.000     9/16/46       2,542,356       25  (d)  

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

    0.128     2/16/53       1,426,486       4,910  (d)  

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

    0.146     2/16/48       221,773       1,412  (d)  

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

    0.629     9/16/55       938,420       24,513  (d)  

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

    0.148     1/16/55       32,760,198       169,003  (d)  

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

    0.633     10/16/58       2,916,356       105,168  (d)  

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

    0.606     7/16/58       526,300       15,523  (d)  

GreenPoint Mortgage Funding Trust, 2006- AR3 3A1 (1 mo. USD LIBOR + 0.460%)

    4.504     4/25/36       8,926       10,115  (d)  

HarborView Mortgage Loan Trust, 2006-13 A (1 mo. USD LIBOR + 0.180%)

    4.119     11/19/46       75,257       52,417  (d)  

JPMorgan Chase Commercial Mortgage Securities Trust, 2007-LD12 AJ

    6.724     2/15/51       76,756       68,881  (d)  

JPMorgan Chase Commercial Mortgage Securities Trust, 2018-PHMZ M (1 mo. USD LIBOR + 8.508%)

    12.383     6/15/35       10,150,000       10,160  (a)(d)  

JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST G (1 mo. USD LIBOR + 4.250%)

    8.125     12/15/36       2,079,000       1,090,704  (a)(d) 

JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST H (1 mo. USD LIBOR + 6.750%)

    10.625     12/15/36       2,173,000       1,051,788  (a)(d) 

JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNNZ M

    8.542     1/16/37       264,876       227,475  (a)  

 

See Notes to Financial Statements.

 

18     Western Asset Total Return Unconstrained Fund 2022 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 (g) — continued

 

                       

JPMorgan Chase Commercial Mortgage Securities Trust, 2021-HTL5 F (1 mo. USD LIBOR + 4.265%)

    8.141     11/15/38       2,140,000     $ 1,922,959  (a)(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       1,010,531  (a) 

Med Trust, 2021-MDLN E (1 mo. USD LIBOR + 3.150%)

    7.026     11/15/38       1,530,000       1,417,365  (a)(d) 

Merrill Lynch Mortgage Investors Trust, 2004-A3 4A3

    3.068     5/25/34       32,653       28,837  (d)  

ML-CFC Commercial Mortgage Trust, 2007-5 AJ

    5.450     8/12/48       351,214       92,190  (d)  

ML-CFC Commercial Mortgage Trust, 2007-5 AJFL

    5.450     8/12/48       452,901       118,881  (a)(d) 

ML-CFC Commercial Mortgage Trust, 2007-9 AJ

    6.193     9/12/49       9,825       9,674  (d)  

Morgan Stanley Capital I Trust, 2021-L7 XA, IO

    1.215     10/15/54       6,390,189       387,212  (d)  

Natixis Commercial Mortgage Securities Trust, 2019-FAME D

    4.544     8/15/36       2,862,000       2,512,638  (a)(d) 

New Residential Mortgage Loan Trust, 2019-2A A1

    4.250     12/25/57       1,228,054       1,166,750  (a)(d) 

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

    3.782     8/25/36       66,173       39,228  (d)  

PRKCM Trust, 2022-AFC1 A1A

    4.100     4/25/57       664,662       617,756  (a)(d) 

Residential Asset Securitization Trust, 2005- A15 2A11, IO (-1.000 x 1 mo. USD LIBOR + 5.550%)

    1.506     2/25/36       8,163,783       973,033  (d)  

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

    9.794     2/15/39       665,567       613,600  (a)(d) 

Starwood Retail Property Trust, 2014-STAR E (1 mo. USD LIBOR + 4.400%)

    8.276     11/15/27       7,530,000       15,098  (a)(d)  

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

    3.946     4/25/34       38,921       38,371  (d)  

Tharaldson Hotel Portfolio Trust, 2018-THL E (1 mo. USD LIBOR + 3.480%)

    7.327     11/11/34       1,603,959       1,503,053  (a)(d) 

Towd Point Mortgage Trust, 2019-4 B1B

    3.500     10/25/59       1,840,000       1,239,521  (a)(d) 

TTAN, 2021-MHC A (1 mo. USD LIBOR + 0.850%)

    4.726     3/15/38       1,649,641       1,594,164  (a)(d) 

Verus Securitization Trust, 2022-6 A3

    4.910     6/25/67       1,492,333       1,388,740  (a) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       19  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Collateralized Mortgage Obligations (g) — continued

 

                       

WaMu Mortgage Pass-Through Certificates Trust, 2004-AR13 A1A (1 mo. USD LIBOR + 0.720%)

    4.736     11/25/34       1,529,743     $ 1,393,053  (d) 

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

    2.689     2/25/46       1,320,786       1,143,885  (d) 

Waterfall Commercial Mortgage Trust, 2015- SBC5 A

    4.104     9/14/22       136,831       134,528  (a)(d)  

Wells Fargo Commercial Mortgage Trust, 2022-ONL F

    5.092     12/15/39       1,190,000       920,450  (a)(d)  

Total Collateralized Mortgage Obligations (Cost — $93,293,099)

 

            65,603,388  
U.S. Government & Agency Obligations — 13.9%

 

                       

U.S. Government Obligations — 13.9%

                               

U.S. Treasury Bonds

    1.125     8/15/40       8,800,000       5,594,359  

U.S. Treasury Bonds

    2.250     5/15/41       3,720,000       2,860,695  

U.S. Treasury Bonds

    2.000     11/15/41       1,270,000       925,661  

U.S. Treasury Bonds

    3.625     8/15/43       570,000       537,648  

U.S. Treasury Bonds

    3.750     11/15/43       7,350,000       7,058,153  (h) 

U.S. Treasury Bonds

    2.875     8/15/45       7,660,000       6,312,768  

U.S. Treasury Bonds

    2.750     8/15/47       6,390,000       5,131,719  

U.S. Treasury Bonds

    1.625     11/15/50       5,570,000       3,442,848  

U.S. Treasury Bonds

    2.375     5/15/51       7,270,000       5,409,760  

U.S. Treasury Bonds

    1.875     11/15/51       11,910,000       7,835,943  

U.S. Treasury Bonds

    2.875     5/15/52       8,460,000       7,035,019  

U.S. Treasury Bonds

    3.000     8/15/52       7,510,000       6,432,784  

U.S. Treasury Notes

    3.125     8/31/29       3,340,000       3,213,315  

U.S. Treasury Notes

    4.000     10/31/29       3,420,000       3,472,369  

U.S. Treasury Notes

    2.750     8/15/32       200,000       185,281  

Total U.S. Government & Agency Obligations (Cost — $81,180,886)

 

            65,448,322  
Sovereign Bonds — 13.6%                                

Argentina — 0.5%

                               

Argentine Bonos del Tesoro, Bonds

    16.000     10/17/23       44,960,000  ARS      77,911  (e)  

Argentine Republic Government International Bond, Senior Notes

    1.000     7/9/29       143,435       36,695  

Argentine Republic Government International Bond, Senior Notes, Step bond (0.500% to 7/9/23 then 0.750%)

    0.500     7/9/30       1,998,100       517,454  

 

See Notes to Financial Statements.

 

20     Western Asset Total Return Unconstrained Fund 2022 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  

Argentina — continued

                               

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

    3.500     7/9/41       1,460,000     $ 398,691  

Provincia de Buenos Aires, Senior Notes, Step bond (5.250% to 9/1/23 then 6.375%)

    5.250     9/1/37       3,510,882       1,182,711  (a) 

Total Argentina

                            2,213,462  

Brazil — 1.7%

                               

Brazil Notas do Tesouro Nacional Serie F, Notes

    10.000     1/1/27       38,342,000  BRL       6,785,962  

Brazil Notas do Tesouro Nacional Serie F, Notes

    10.000     1/1/33       6,665,000  BRL       1,097,125  

Total Brazil

                            7,883,087  

China — 0.4%

                               

China Government Bond

    3.290     5/23/29       14,980,000  CNY       2,170,336  

Colombia — 0.0%††

                               

Colombia Government International Bond, Senior Notes

    5.000     6/15/45       370,000       245,525  

Ghana — 0.2%

                               

Ghana Government International Bond, Senior Notes

    10.750     10/14/30       1,380,000       968,760  (a)  

India — 2.3%

                               

India Government Bond

    7.350     6/22/24       370,000,000  INR      4,566,482  

India Government Bond

    7.590     1/11/26       220,000,000  INR      2,740,711  

India Government Bond, Senior Notes

    5.220     6/15/25       100,000,000  INR      1,178,991  

India Government Bond, Senior Notes

    5.790     5/11/30       200,000,000  INR      2,252,856  

Total India

                            10,739,040  

Indonesia — 2.0%

                               

Indonesia Government International Bond, Senior Notes

    3.500     1/11/28       490,000       464,240  

Indonesia Treasury Bond

    7.000     5/15/27       8,027,000,000  IDR      518,414  

Indonesia Treasury Bond

    8.250     5/15/29       39,614,000,000  IDR      2,697,549  

Indonesia Treasury Bond

    7.125     6/15/42       88,000,000,000  IDR      5,607,214  

Total Indonesia

                            9,287,417  

Kenya — 0.2%

                               

Republic of Kenya Government International Bond, Senior Notes

    7.000     5/22/27       1,230,000       1,112,166  (a) 

Mexico — 4.8%

                               

Mexican Bonos, Bonds

    7.500     6/3/27       115,450,000  MXN      5,571,851  

Mexican Bonos, Bonds

    8.000     11/7/47       98,030,000  MXN      4,465,433  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       21  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  

Mexico — continued

                               

Mexican Bonos, Senior Notes

    8.500     5/31/29       48,370,000  MXN    $ 2,406,198  

Mexican Bonos, Senior Notes

    7.750     11/13/42       225,611,900  MXN      10,011,242  

Total Mexico

                            22,454,724  

Russia — 1.5%

                               

Russian Federal Bond — OFZ

    6.000     10/6/27       180,300,000  RUB      1,270,446  *(i) 

Russian Federal Bond — OFZ

    7.050     1/19/28       506,371,000  RUB      3,568,038  *(i) 

Russian Federal Bond — OFZ

    6.900     5/23/29       173,973,000  RUB      1,225,865  *(i) 

Russian Foreign Bond — Eurobond, Senior Notes

    4.875     9/16/23       1,400,000       1,027,600  *(a)(i) 

Total Russia

                            7,091,949  

Total Sovereign Bonds (Cost — $81,289,923)

 

                    64,166,466  
Mortgage-Backed Securities — 10.3%                                

FHLMC — 0.5%

                               

Federal Home Loan Mortgage Corp. (FHLMC)

    2.000     5/1/51       2,175,047       1,800,128  (j)  

Federal Home Loan Mortgage Corp. (FHLMC)

    2.500     10/1/51-4/1/52       793,910       685,304  (j)  

Total FHLMC

                            2,485,432  

FNMA — 6.9%

                               

Federal National Mortgage Association (FNMA)

    2.000     5/1/51-11/1/51       1,689,825       1,398,479  (j)  

Federal National Mortgage Association (FNMA)

    3.000     1/1/52-12/15/52       5,800,000       5,138,534  (k)  

Federal National Mortgage Association (FNMA)

    3.500     1/1/52     4,400,000       4,031,156  (k)  

Federal National Mortgage Association (FNMA)

    2.500     2/1/52       571,208       491,778  (j)  

Federal National Mortgage Association (FNMA)

    4.000     2/1/52-1/15/53       3,300,000       3,122,894  (k)  

Federal National Mortgage Association (FNMA)

    5.000     2/1/52       3,500,000       3,482,910  (k)  

Federal National Mortgage Association (FNMA)

    5.500     2/1/52       3,400,000       3,436,340  (k)  

Federal National Mortgage Association (FNMA)

    6.000     2/1/52       3,400,000       3,471,035  (k)  

Federal National Mortgage Association (FNMA)

    2.000     12/1/52       2,100,000       1,730,613  (k)  

Federal National Mortgage Association (FNMA)

    2.500     12/15/52       4,900,000       4,193,711  (k)  

 

See Notes to Financial Statements.

 

22     Western Asset Total Return Unconstrained Fund 2022 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  

FNMA — continued

                               

Federal National Mortgage Association (FNMA)

    4.500     1/15/53       2,200,000     $ 2,142,078  (k) 

Federal National Mortgage Association (FNMA)

    4.500     8/1/58       40,217       39,585  

Total FNMA

                            32,679,113  

GNMA — 2.9%

                               

Government National Mortgage Association (GNMA)

    3.000     10/15/42-11/15/42       252,630       234,743  

Government National Mortgage Association (GNMA)

    4.000     3/15/50       32,428       31,086  

Government National Mortgage Association (GNMA)

    3.500     5/15/50       43,391       40,952  

Government National Mortgage Association (GNMA)

    4.000     2/1/52       400,000       382,281  (k)  

Government National Mortgage Association (GNMA) II

    4.500     4/20/41-3/20/50       160,038       159,415  

Government National Mortgage Association (GNMA) II

    3.500     10/20/49-2/20/50       98,353       93,933  

Government National Mortgage Association (GNMA) II

    3.000     1/20/50       254,106       231,294  

Government National Mortgage Association (GNMA) II

    4.000     1/20/50-4/20/50       533,706       524,942  

Government National Mortgage Association (GNMA) II

    2.500     12/20/50       484,159       422,206  

Government National Mortgage Association (GNMA) II

    2.500     3/20/51-4/20/51       1,587,366       1,404,174  (j)  

Government National Mortgage Association (GNMA) II

    3.000     1/1/52-12/15/52       1,000,000       903,856  (k)  

Government National Mortgage Association (GNMA) II

    3.500     1/1/52       900,000       836,297  (k)  

Government National Mortgage Association (GNMA) II

    5.000     2/1/52       900,000       899,156  (k)  

Government National Mortgage Association (GNMA) II

    5.500     2/1/52       3,400,000       3,436,871  (k)  

Government National Mortgage Association (GNMA) II

    4.500     1/20/53       400,000       391,922  (k)  

Government National Mortgage Association (GNMA) II

    6.000     2/15/53       3,400,000       3,462,402  (k)  

Total GNMA

                            13,455,530  

Total Mortgage-Backed Securities (Cost — $47,768,639)

 

            48,620,075  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       23  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Asset-Backed Securities — 9.9%                                

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

    5.571     7/1/39       450,000     $ 427,961  (d) 

Amortizing Residential Collateral Trust, 2002-BC5 M1 (1 mo. USD LIBOR + 1.035%)

    5.079     7/25/32       29,396       28,920  (d)  

Apex Credit CLO Ltd., 2019-2A D (3 mo. USD LIBOR + 4.050%)

    8.408     10/25/32       1,000,000       910,055  (a)(d) 

Barings CLO Ltd., 2018-2A B (3 mo. USD LIBOR + 1.900%)

    5.979     4/15/30       2,480,000       2,351,620  (a)(d) 

Barings CLO Ltd., 2018-3A D (3 mo. USD LIBOR + 2.900%)

    7.143     7/20/29       1,270,000       1,176,281  (a)(d) 

Bristol Park CLO Ltd., 2016-1A DR (3 mo. USD LIBOR + 2.950%)

    7.029     4/15/29       1,420,000       1,302,513  (a)(d) 

BRSP Ltd., 2021-FL1 A (1 mo. USD LIBOR + 1.150%)

    5.089     8/19/38       1,600,000       1,550,685  (a)(d) 

Cook Park CLO Ltd., 2018-1A D (3 mo. USD LIBOR + 2.600%)

    6.679     4/17/30       840,000       726,389  (a)(d) 

Cook Park CLO Ltd., 2018-1A E (3 mo. USD LIBOR + 5.400%)

    9.479     4/17/30       250,000       200,462  (a)(d) 

Countrywide Home Equity Loan Trust, 2007-A A (1 mo. USD LIBOR + 0.120%)

    3.995     4/15/37       698,225       647,165  (d)  

Dividend Solar Loans LLC, 2018-1 C

    5.140     7/20/38       2,636,764       2,370,213  (a) 

Foundation Finance Trust, 2017-1A C

    5.400     7/15/33       2,600,000       2,504,488  (a) 

Fremont Home Loan Trust, 2006-B 2A2 (1 mo. USD LIBOR + 0.200%)

    4.244     8/25/36       323,592       111,396  (d)  

Goldentree Loan Management CLO Ltd., 2018-3A C (3 mo. USD LIBOR + 1.900%)

    6.143     4/20/30       2,170,000       2,052,473  (a)(d) 

GoldenTree Loan Opportunities Ltd., 2014-9A CR2 (3 mo. USD LIBOR + 2.100%)

    6.515     10/29/29       2,270,000       2,168,381  (a)(d) 

GoldenTree Loan Opportunities Ltd., 2014-9A DR2 (3 mo. USD LIBOR + 3.000%)

    7.415     10/29/29       1,550,000       1,462,336  (a)(d) 

Golub Capital Partners CLO Ltd., 2019-45A C (3 mo. USD LIBOR + 3.800%)

    8.043     10/20/31       950,000       883,827  (a)(d) 

GoodLeap Sustainable Home Solutions Trust, 2022-1GS C

    3.500     1/20/49       1,577,237       1,016,368  (a) 

Greenwood Park CLO Ltd., 2018-1A E (3 mo. USD LIBOR + 4.950%)

    9.029     4/15/31       1,000,000       828,397  (a)(d) 

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

    7.774     4/17/34       1,840,000       1,638,247  (a)(d) 

Halsey Point CLO Ltd., 2019-1A F (3 mo. USD LIBOR + 8.200%)

    12.443     1/20/33       860,000       698,883  (a)(d) 

 

See Notes to Financial Statements.

 

24     Western Asset Total Return Unconstrained Fund 2022 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  
Asset-Backed Securities — continued                                

HPS Loan Management Ltd., 10A-16 CR (3 mo. USD LIBOR + 3.150%)

    7.393     4/20/34       1,520,000     $ 1,409,754  (a)(d) 

LCM Ltd., 37A D (3 mo. Term SOFR + 3.650%)

    7.514     4/15/34       940,000       858,407  (a)(d) 

Lehman XS Trust, 2006-16N A4B (1 mo. USD LIBOR + 0.480%)

    4.524     11/25/46       9,038       9,105  (d)  

Lehman XS Trust, 2006-GP3 2A2 (1 mo. USD LIBOR + 0.440%)

    4.484     6/25/46       10,952       21,091  (d)  

Marathon CLO Ltd., 2019-2A BA (3 mo. USD LIBOR + 3.300%)

    7.543     1/20/33       1,410,000       1,328,969  (a)(d) 

MASTR Specialized Loan Trust, 2006-3 A (1 mo. USD LIBOR + 0.260%)

    4.304     6/25/46       77,841       73,678  (a)(d)  

Mercury Financial Credit Card Master Trust, 2021-1A B

    2.330     3/20/26       2,000,000       1,847,159  (a) 

Midocean Credit CLO, 2017-7A D (3 mo. USD LIBOR + 3.880%)

    7.959     7/15/29       1,000,000       846,253  (a)(d) 

Mosaic Solar Loan Trust, 2021-1A D

    3.710     12/20/46       518,633       440,642  (a)  

National Collegiate Student Loan Trust, 2007-2 A4 (1 mo. USD LIBOR + 0.290%)

    4.306     1/25/33       795,348       744,955  (d)  

Oaktree CLO Ltd., 2019-1A D (3 mo. USD LIBOR + 3.800%)

    8.125     4/22/30       1,000,000       860,200  (a)(d) 

OZLM Ltd., 2018-18A D (3 mo. USD LIBOR + 2.850%)

    6.929     4/15/31       800,000       720,264  (a)(d) 

Palmer Square Loan Funding Ltd., 2022-3A C (3 mo. Term SOFR + 5.400%)

    9.405     4/15/31       580,000       577,887  (a)(d) 

Saranac CLO Ltd., 2014-3A DR (3 mo. USD LIBOR + 3.250%)

    6.852     6/22/30       2,000,000       1,810,249  (a)(d) 

Sierra Timeshare Receivables Funding LLC, 2021-2A A

    1.350     9/20/38       330,719       305,158  (a)  

Stewart Park CLO Ltd., 2015-1A CR (3 mo. USD LIBOR + 1.800%)

    5.879     1/15/30       1,130,000       1,051,175  (a)(d) 

TSTAT Ltd., 2022-2A C (3 mo. Term SOFR + 4.800%)

    9.313     1/20/31       820,000       820,000  (a)(d) 

UCFC Manufactured Housing Contract, 1997-3 M

    7.115     1/15/29       914,806       832,726  

Venture CLO Ltd., 2014-17A ERR (3 mo. USD LIBOR + 5.740%)

    9.819     4/15/27       1,000,000       815,499  (a)(d) 

Voya CLO Ltd., 2019-3A CR (3 mo. USD LIBOR + 2.150%)

    6.229     10/17/32       3,000,000       2,829,816  (a)(d) 

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       25  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security   Rate    

Maturity

Date

   

Face

Amount†

    Value  
Asset-Backed Securities — continued                                

Whitehorse Ltd., 2018-12A D (3 mo. USD LIBOR + 3.650%)

    7.729     10/15/31       2,260,000     $ 2,095,117  (a)(d) 

Z Capital Credit Partners CLO Ltd., 2021-1A D (3 mo. USD LIBOR + 4.200%)

    8.279     7/15/33       1,450,000       1,321,896  (a)(d) 

Total Asset-Backed Securities (Cost — $50,909,673)

 

                    46,677,060  
Municipal Bonds — 0.9%                                

California — 0.1%

                               

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

    7.000     10/1/39       360,000       385,531  (a)  

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

    3.706     5/15/2120       190,000       122,649  

Total California

                            508,180  

Illinois — 0.7%

                               

State of Illinois, GO

    5.100     6/1/33       3,100,000       2,991,678  

Michigan — 0.1%

                               

Detroit, MI, GO, Financial Recovery, Series B-1, Step bond (4.000% to 4/1/34 then 6.000%)

    4.000     4/1/44       790,000       581,644  

Total Municipal Bonds (Cost — $4,256,679)

 

                    4,081,502  
    

Expiration

Date

    Contracts    

Notional

Amount†

        
Purchased Options — 0.3%                                
Exchange-Traded Purchased Options — 0.3%                                

3-Month SOFR Futures, Call @ $95.63

    12/16/22       643       1,607,500       4,019  

3-Month SOFR Futures, Call @ $95.25

    6/16/23       595       1,487,500       368,156  

90-Day Eurodollar Futures, Call @ $96.00

    12/19/22       509       1,272,500       3,181  

90-Day Eurodollar Futures, Call @ $97.00

    12/19/22       1       2,500       6  

90-Day Eurodollar Futures, Call @ $98.63

    12/19/22       962       2,405,000       6,013  

SOFR 1-Year Mid-Curve Futures, Call @ $95.50

    12/16/22       255       637,500       124,313  

SOFR 1-Year Mid-Curve Futures, Call @ $95.63

    12/16/22       391       977,500       129,519  

SOFR 1-Year Mid-Curve Futures, Call @ $95.75

    12/16/22       638       1,595,000       135,575  

SOFR 1-Year Mid-Curve Futures, Call @ $96.50

    12/16/22       298       745,000       3,725  

 

See Notes to Financial Statements.

 

26     Western Asset Total Return Unconstrained Fund 2022 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  
Exchange-Traded Purchased Options — continued

 

               

SOFR 1-Year Mid-Curve Futures, Put @ $95.63

            1/13/23       187       467,500     $ 40,906  

U.S. Treasury 5-Year Notes Futures, Call @ $108.75

            12/2/22       237       237,000       49,992  

U.S. Treasury 5-Year Notes Futures, Call @ $109.00

            12/2/22       474       474,000       59,250  

U.S. Treasury 10-Year Notes Futures, Call @ $110.00

            12/23/22       76       76,000       271,938  

U.S. Treasury 10-Year Notes Futures, Call @ $113.00

            12/23/22       22       22,000       26,469  

U.S. Treasury 10-Year Notes Futures, Call @ $113.50

            12/23/22       253       253,000       233,234  

Total Exchange-Traded Purchased Options (Cost — $2,381,660)

 

                    1,456,296  
     Counterparty                              
OTC Purchased Options — 0.0%††                                        

Credit default swaption to sell protection on Markit CDX.NA.HY.39 Index, Call @ 101.00 bps (Cost — $43,680)

   
JPMorgan
Chase & Co.
 
 
    1/18/23       4,800,000       4,800,000       66,934  

Total Purchased Options (Cost — $2,425,340)

 

                    1,523,230  
            Rate    

Maturity

Date

   

Face

Amount†

        
Senior Loans — 0.3%                                        
Consumer Discretionary — 0.2%                                        

Diversified Consumer Services — 0.2%

                                       

WW International Inc., Initial Term Loan (1 mo. USD LIBOR + 3.500%)

            7.580%       4/13/28       1,207,000       755,884  (d)(l)(m) 
Information Technology — 0.1%                                        

IT Services — 0.1%

                                       

Redstone Holdco 2 LP, Second Lien Initial Term Loan (3 mo. USD LIBOR + 7.750%)

            12.108%       4/27/29       1,500,000       682,185  (d)(l)(m) 

Software — 0.0%††

                                       

Magenta Buyer LLC, First Lien Initial Term Loan (3 mo. USD LIBOR + 4.750%)

            9.170%       7/27/28       64,880       58,635  (d)(l)(m) 

Total Information Technology

                                    740,820  

Total Senior Loans (Cost — $2,748,495)

 

                            1,496,704  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       27  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

(Percentages shown based on Fund net assets)

 

Security          Shares     Value  
Investments in Underlying Funds — 0.1%                        

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

            16,200     $ 392,688  

Total Investments before Short-Term Investments (Cost — $564,273,457)

 

    481,798,234  
     Rate                
Short-Term Investments — 3.6%                        

Western Asset Premier Institutional Government Reserves, Premium Shares (Cost — $16,993,040)

    3.749     16,993,040       16,993,040  (n)(o) 

Total Investments — 106.0% (Cost — $581,266,497)

 

            498,791,274  

Liabilities in Excess of Other Assets — (6.0)%

 

            (28,261,577

Total Net Assets — 100.0%

                  $ 470,529,697  

 

See Notes to Financial Statements.

 

28     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


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Western Asset Total Return Unconstrained Fund

 

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 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.

 

(b) 

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.

 

(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 valued in good faith in accordance with procedures approved by the Board of Directors (Note 1).

 

(f) 

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

 

(g) 

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.

 

(h) 

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

 

(i) 

The coupon payment on this security is currently in default as of November 30, 2022.

 

(j) 

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

 

(k) 

This security is traded on a to-be-announced (“TBA”) basis. At November 30, 2022, the Fund held TBA securities with a total cost of $40,038,932.

 

(l) 

Interest rates disclosed represent the effective rates on senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan.

 

(m) 

Senior loans may be considered restricted in that the Fund ordinarily is contractually obligated to receive approval from the agent bank and/or borrower prior to the disposition of a senior loan.

 

(n) 

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

 

(o) 

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, 2022, the total market value of investments in Affiliated Companies was $16,993,040 and the cost was $16,993,040 (Note 8).

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       29  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

Abbreviation(s) used in this schedule:

ARS   — Argentine Peso
bps   — basis point spread (100 basis points = 1.00%)
BRL   — Brazilian Real
CAS   — Connecticut Avenue Securities
CLO   — Collateralized Loan Obligation
CMT   — Constant Maturity Treasury
CNY   — Chinese Yuan Renminbi
ETF   — Exchange-Traded Fund
EUR   — Euro
GO   — General Obligation
ICE   — Intercontinental Exchange
IDR   — Indonesian Rupiah
INR   — Indian Rupee
IO   — Interest Only
JSC   — Joint Stock Company
LIBOR   — London Interbank Offered Rate
MXN   — Mexican Peso
OFZ   — Obligatsyi Federal’novo Zaima (Russian Federal Loan Obligation)
REMIC   — Real Estate Mortgage Investment Conduit
RUB   — Russian Ruble
SOFR   — Secured Overnight Financing Rate
USD   — United States Dollar

At November 30, 2022, 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      12/16/22      $ 95.75        643      $ 1,607,500      $ (4,019)  
3-Month SOFR Futures, Call      6/16/23        97.25        677        1,692,500        (46,544)  
3-Month SOFR Futures, Call      9/15/23        98.25        836        2,090,000        (52,250)  
3-Month SOFR Futures, Call      12/15/23        96.50        531        1,327,500        (335,194)  
3-Month SOFR Futures, Call      12/15/23        96.63        547        1,367,500        (307,687)  
3-Month SOFR Futures, Call      12/15/23        96.88        391        977,500        (173,506)  
90-Day Eurodollar Futures, Call      12/19/22        96.50        158        395,000        (987)  
90-Day Eurodollar Futures, Call      12/19/22        97.50        1,019        2,547,500        (6,369)  
90-Day Eurodollar Futures, Call      12/19/22        98.00        1,019        2,547,500        (6,369)  
90-Day Eurodollar Futures, Call      12/19/22        98.13        386        965,000        (2,412)  
90-Day Eurodollar Futures, Call      12/19/22        98.38        576        1,440,000        (3,600)  
90-Day Eurodollar Futures, Call      12/19/22        98.88        1,758        4,395,000        (10,987)  
90-Day Eurodollar Futures, Call      6/19/23        97.13        370        925,000        (25,437)  
90-Day Eurodollar Futures, Call      6/19/23        97.50        360        900,000        (18,000)  
SOFR 1-Year Mid-Curve Futures, Call      6/16/23        96.88        595        1,487,500        (401,625)  

 

See Notes to Financial Statements.

 

30     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


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Western Asset Total Return Unconstrained Fund

 

Security   

Expiration

Date

    

Strike

Price

     Contracts     

Notional

Amount

     Value  
U.S. Treasury 5-Year Notes Futures, Call      12/2/22      $ 108.25        237      $ 237,000      $ (114,797)  
U.S. Treasury 5-Year Notes Futures, Call      12/23/22        108.75        482        482,000        (267,360)  
U.S. Treasury 5-Year Notes Futures, Call      1/27/23        109.50        501        501,000        (277,899)  
U.S. Treasury 5-Year Notes Futures, Put      12/23/22        106.25        501        501,000        (35,227)  
U.S. Treasury 10-Year Notes Futures, Call      12/23/22        111.50        208        208,000        (471,250)  
U.S. Treasury 10-Year Notes Futures, Call      12/23/22        112.00        193        193,000        (361,875)  
U.S. Treasury 10-Year Notes Futures, Call      1/27/23        115.00        239        239,000        (182,984)  
U.S. Treasury 10-Year Notes Futures, Put      1/27/23        109.00        129        129,000        (26,203)  
U.S. Treasury Long-Term Bonds Futures, Put      12/23/22        118.00        62        62,000        (4,844)  
Total Exchange-Traded Written Options (Premiums received — $5,930,351)

 

   $ (3,137,425)  

 

OTC Written Options                                        
     Counterparty                                   
Credit default swaption to buy protection on Markit CDX.NA.HY.39 Index, Call   JPMorgan
Chase & Co.
    1/18/23       103.00  bps      7,200,000     $ 7,200,000  ‡    $ (32,603)  
Credit default swaption to sell protection on Markit CDX.NA.HY.39 Index, Put   JPMorgan
Chase & Co.
    1/18/23       95.00  bps      4,800,000       4,800,000  ‡      (9,752)  
Total OTC Written Options (Premiums received — $45,600)

 

                  $ (42,355)  
Total Written Options (Premiums received — $5,975,951)

 

                  $ (3,179,780)  

 

In the event an option is exercised and a credit event occurs as defined under the terms of the swap agreement, the notional amount is the maximum potential amount that could be required to be paid as a seller of credit protection or received as a buyer of credit protection.

 

Abbreviation(s) used in this schedule:

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

At November 30, 2022, 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      243        12/23      $ 58,484,535      $ 57,870,450      $ (614,085)  
3-Month SOFR      4        9/23        965,508        950,850        (14,658)  
3-Month SOFR      304        3/25        73,597,851        73,590,800        (7,051)  
90-Day Eurodollar      1,998        12/22        486,860,415        475,036,988        (11,823,427)  
90-Day Eurodollar      154        3/23        36,884,043        36,513,400        (370,643)  
Australian 10-Year Bonds      116        12/22        9,475,258        9,500,131        24,873  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       31  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

      Number of
Contracts
     Expiration
Date
     Notional
Amount
    

Market

Value

     Unrealized
Appreciation
(Depreciation)
 
Contracts to Buy continued                                             
Euro-Bobl      30        12/22      $ 3,826,750      $ 3,747,096      $ (79,654)  
U.S. Treasury 2-Year Notes      664        3/23        136,198,962        136,358,626        159,664  
U.S. Treasury 5-Year Notes      839        3/23        90,878,006        91,090,490        212,484  
U.S. Treasury Long-Term Bonds      359        3/23        45,216,576        45,593,000        376,424  
United Kingdom Long Gilt Bonds      37        3/23        4,701,067        4,681,950        (19,117)  
                                           (12,155,190)  
Contracts to Sell:                                             
3-Month SOFR      208        3/24        49,958,305        49,701,600        256,705  
90-Day Eurodollar      367        3/25        89,799,725        88,680,962        1,118,763  
Euro-Bund      144        12/22        21,542,280        21,110,361        431,919  
Euro-Schatz      163        12/22        18,308,342        18,111,789        196,553  
Japanese 10-Year Bonds      15        12/22        16,121,428        16,154,682        (33,254)  
U.S. Treasury 10-Year Notes      343        3/23        38,740,893        38,930,500        (189,607)  
U.S. Treasury Ultra 10-Year Notes      449        3/23        53,205,411        53,725,656        (520,245)  
U.S. Treasury Ultra Long-Term Bonds      13        3/23        1,798,852        1,771,656        27,196  
                                           1,288,030  
Net unrealized depreciation on open futures contracts

 

                     $ (10,867,160)  

 

Abbreviation(s) used in this table:

Bobl   — Bundesobligation
SOFR   — Secured Overnight Financing Rate

At November 30, 2022, the Fund had the following open forward foreign currency contracts:

 

Currency
Purchased
    Currency
Sold
    Counterparty   Settlement
Date
    Unrealized
Appreciation
(Depreciation)
 
USD     19,078,805     MXN     388,711,577     Bank of America N.A.     1/18/23     $ (895,675)  
USD     213,555     JPY     31,400,000     Citibank N.A.     1/18/23       (15,339)  
GBP     1,710,493     USD     1,968,478     Goldman Sachs Group Inc.     1/18/23       96,614  
JPY     44,000,000     USD     300,557     Goldman Sachs Group Inc.     1/18/23       20,186  
JPY     44,800,000     USD     307,703     Goldman Sachs Group Inc.     1/18/23       18,872  
JPY     58,300,000     USD     393,503     Goldman Sachs Group Inc.     1/18/23       31,481  

 

See Notes to Financial Statements.

 

32     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

 

Currency
Purchased
    Currency
Sold
    Counterparty   Settlement
Date
    Unrealized
Appreciation
(Depreciation)
 
JPY     172,500,000     USD     1,206,251     Goldman Sachs Group Inc.     1/18/23     $ 51,206  
USD     258,882     JPY     37,000,000     Goldman Sachs Group Inc.     1/18/23       (10,834)  
USD     544,801     JPY     75,000,000     Goldman Sachs Group Inc.     1/18/23       (1,920)  
USD     836,108     JPY     119,517,015     Goldman Sachs Group Inc.     1/18/23       (35,125)  
USD     1,377,606     JPY     196,893,000     Goldman Sachs Group Inc.     1/18/23       (57,667)  
BRL     2,497,969     USD     467,259     JPMorgan Chase & Co.     1/18/23       9,624  
CNH     44,068,048     USD     6,190,028     JPMorgan Chase & Co.     1/18/23       88,757  
EUR     1,002,826     NOK     10,509,027     JPMorgan Chase & Co.     1/18/23       (21,275)  
EUR     8,009,780     USD     8,313,479     JPMorgan Chase & Co.     1/18/23       55,178  
JPY     35,000,000     USD     241,629     JPMorgan Chase & Co.     1/18/23       13,508  
JPY     1,744,372,238     USD     12,182,859     JPMorgan Chase & Co.     1/18/23       532,935  
MXN     16,000,000     USD     815,127     JPMorgan Chase & Co.     1/18/23       7,055  
NZD     2,952,058     USD     1,676,586     JPMorgan Chase & Co.     1/18/23       184,962  
USD     771,112     CNH     5,479,831     JPMorgan Chase & Co.     1/18/23       (9,650)  
USD     194,819     CNY     1,380,000     JPMorgan Chase & Co.     1/18/23       856  
USD     934,610     CNY     6,660,966     JPMorgan Chase & Co.     1/18/23       (1,609)  
USD     1,719,947     CNY     12,240,000     JPMorgan Chase & Co.     1/18/23       (423)  
USD     8,587,563     CNY     60,830,000     JPMorgan Chase & Co.     1/18/23       37,717  
USD     992,261     IDR     15,165,711,352     JPMorgan Chase & Co.     1/18/23       28,865  
USD     1,677,690     IDR     25,593,160,000     JPMorgan Chase & Co.     1/18/23       51,895  
USD     2,354,250     MXN     46,355,142     JPMorgan Chase & Co.     1/18/23       (27,773)  
AUD     1,911,495     USD     1,204,840     Morgan Stanley & Co. Inc.     1/18/23       95,329  
AUD     6,458,625     USD     4,172,272     Morgan Stanley & Co. Inc.     1/18/23       220,784  
CAD     8,876,294     USD     6,500,065     Morgan Stanley & Co. Inc.     1/18/23       103,878  
EUR     2,912,790     USD     2,926,597     Morgan Stanley & Co. Inc.     1/18/23       116,701  
NOK     51,538,608     USD     4,817,278     Morgan Stanley & Co. Inc.     1/18/23       425,496  
USD     465,952     CAD     638,620     Morgan Stanley & Co. Inc.     1/18/23       (9,180)  
USD     839,983     CAD     1,156,800     Morgan Stanley & Co. Inc.     1/18/23       (20,673)  
USD     1,222,653     CAD     1,678,470     Morgan Stanley & Co. Inc.     1/18/23       (26,125)  
USD     721,147     CNH     5,180,000     Morgan Stanley & Co. Inc.     1/18/23       (16,896)  
USD     594,678     EUR     570,000     Morgan Stanley & Co. Inc.     1/18/23       (861)  
USD     7,959,887     INR     656,551,393     Morgan Stanley & Co. Inc.     1/18/23       (82,299)  
Total

 

                          $ 958,575  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       33  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

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, 2022, 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†
  Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation
(Depreciation)
 
  146,317,000       7/11/24     Daily SOFR Compound annually   1.323% annually   $ (4,418,166   $ (2,992,419
  160,183,000       8/10/25     Daily SOFR Compound annually   2.725% annually     (591,373     (2,627,454
  7,817,000       3/4/27     Daily SOFR Compound annually   1.550% annually     (10,752     (637,216
  33,010,000       3/16/27     Daily SOFR Compound annually   2.980% annually     (255,957     93,707  
  25,026,000       7/11/27     Daily SOFR Compound annually   1.600% annually           (2,132,269
  4,524,000       8/15/28     1.130% annually   Daily SOFR Compound annually     21,770       530,191  
  8,260,000       8/15/28     1.220% annually   Daily SOFR Compound annually     (3,973     973,817  

 

See Notes to Financial Statements.

 

34     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


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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†
  Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation
(Depreciation)
 
  6,807,000       2/15/29     2.850% annually   Daily SOFR Compound annually   $ 5,534     $ 233,538  
  28,287,000       4/30/29     3.270% annually   Daily SOFR Compound annually     (497,770     820,207  
  412,170,000  MXN      7/18/29     28-Day MXN TIIE — Banxico every 28 days   7.450% every 28 days     157,654       (1,403,604
  5,055,000       1/18/32     CPURNSA**   2.640%**     (2,895     (186,110
  3,948,000       3/18/32     2.000% annually   Daily SOFR Compound annually     32,001       401,131  
  20,322,000       5/15/32     3.220% annually   Daily SOFR Compound annually     (79,437     319,665  
  13,295,000       7/11/32     1.800% annually   Daily SOFR Compound annually           1,705,309  
  35,629,000       8/10/33     2.480% annually   Daily SOFR Compound annually     451,499       1,843,406  
  1,916,000       2/15/47     1.520% annually   Daily SOFR Compound annually     9,300       534,632  
  2,608,760,000  JPY      4/19/47     0.785% semi-annually   6-Month JPY LIBOR semi-annually     2,140       1,775,788  
  19,008,000       5/15/47     1.630% annually   Daily SOFR Compound annually     1,068,578       3,998,232  
  15,086,000       2/15/48     2.600% annually   Daily SOFR Compound annually     1,036,981       512,786  
  2,502,000       2/15/48     3.050% annually   Daily SOFR Compound annually     77,128       (15,185
  5,087,000       7/11/52     1.780% annually   Daily SOFR Compound annually           1,270,365  
  Total                     $ (2,997,738   $ 5,018,517  

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       35  


Table of Contents

Schedule of investments (unaudited) (cont’d)

November 30, 2022

 

Western Asset Total Return Unconstrained Fund

 

OTC CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — SELL PROTECTION1  
Swap Counterparty
(Reference Entity)
  Notional
Amount2*
    Termination
Date
    Implied
Credit
Spread at
November 30,
20223
  Periodic
Payments
Received by
the Fund†
  Market
Value
    Upfront
Premiums
Paid
(Received)
   

Unrealized

Depreciation

 
BNP Paribas SA (Volkswagen International Finance NV, 0.875%, due 1/16/23)     7,380,000  EUR      12/20/24     0.847%   1.000% quarterly   $ 23,523     $ 37,546     $ (14,023)  

 

OTC CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — BUY PROTECTION4  
Swap Counterparty
(Reference Entity)
  Notional
Amount2*
    Termination
Date
    Implied
Credit
Spread at
November 30,
20223
  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     0.458%   1.000% quarterly   $ (83,720)     $ (73,725)     $ (9,995)  

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CREDIT INDICES — SELL PROTECTION1  
Reference Entity   Notional
Amount2
    Termination
Date
    Periodic
Payments
Received by
the Fund†
  Market
Value5
    Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation
 
Markit CDX.NA.IG.39 Index   $ 7,109,000       12/20/27     1.000% quarterly   $ 77,490     $ (14,603)     $ 92,093  

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CREDIT INDICES — BUY PROTECTION4  
Reference Entity   Notional
Amount2
    Termination
Date
    Periodic
Payments
Made by
the Fund†
  Market
Value5
    Upfront
Premiums
Paid
(Received)
    Unrealized
Depreciation
 
Markit CDX.NA.HY.39 Index   $ 28,629,600       12/20/27     5.000% quarterly   $ (537,055)     $ 1,091,026     $ (1,628,081)  
Markit CDX.NA.IG.38 Index     36,918,000       6/20/32     1.000% quarterly     190,423       211,984       (21,561)  
Total   $ 65,547,600                 $ (346,632)     $ 1,303,010     $ (1,649,642)  

 

See Notes to Financial Statements.

 

36     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


Table of Contents

 

 

Western Asset Total Return Unconstrained Fund

 

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 

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.

 

5 

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.

 

**

One time payment made at termination date.

 

Abbreviation(s) used in this table:

CPURNSA   — U.S. CPI Urban Consumers NSA Index
EUR   — Euro
JPY   — Japanese Yen
LIBOR   — London Interbank Offered Rate
MXN   — Mexican Peso
SOFR   — Secured Overnight Financing Rate
TIIE   — Equilibrium Interbanking Interest Rate (Tasa de Intere’s Interbancaria de Equilibrio)

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       37  


Table of Contents

Statement of assets and liabilities (unaudited)

November 30, 2022

 

Assets:         

Investments in unaffiliated securities, at value (Cost — $564,273,457)

   $ 481,798,234  

Investments in affiliated securities, at value (Cost — $16,993,040)

     16,993,040  

Foreign currency, at value (Cost — $5,411,174)

     5,239,793  

Cash

     968,624  

Receivable for securities sold

     24,432,438  

Deposits with brokers for centrally cleared swap contracts

     6,398,950  

Interest receivable

     5,273,006  

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

     4,254,062  

Foreign currency collateral for open futures contracts and exchange-traded options, at value (Cost — $2,458,858)

     2,585,312  

Unrealized appreciation on forward foreign currency contracts

     2,191,899  

Receivable from brokers — net variation margin on open futures contracts

     565,072  

Deposits with brokers for OTC derivatives

     150,000  

Receivable for Fund shares sold

     122,622  

Receivable from brokers — net variation margin on centrally cleared swap contracts

     62,351  

Dividends receivable from affiliated investments

     51,733  

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

     47,899  

OTC swaps, at value (premiums paid — $37,546)

     23,523  

Receivable for open OTC swap contracts

     14,731  

Prepaid expenses

     44,715  

Total Assets

     551,218,004  
Liabilities:         

Payable for securities purchased

     69,454,698  

Payable for Fund shares repurchased

     6,201,789  

Written options, at value (premiums received — $5,975,951)

     3,179,780  

Unrealized depreciation on forward foreign currency contracts

     1,233,324  

Investment management fee payable

     228,357  

OTC swaps, at value (premiums received — $73,725)

     83,720  

Accrued foreign capital gains tax

     23,024  

Payable for written options closed

     15,285  

Payable for open OTC swap contracts

     14,731  

Service and/or distribution fees payable

     8,913  

Directors’ fees payable

     4,108  

Accrued expenses

     240,578  

Total Liabilities

     80,688,307  
Total Net Assets    $ 470,529,697  
Net Assets:         

Par value (Note 7)

   $ 53,762  

Paid-in capital in excess of par value

     640,879,223  

Total distributable earnings (loss)

     (170,403,288)  
Total Net Assets    $ 470,529,697  

 

See Notes to Financial Statements.

 

38     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


Table of Contents

 

 

Net Assets:         

Class A

     $9,001,404  

Class C

     $5,474,499  

Class FI

     $9,872,981  

Class R

     $236,967  

Class I

     $220,174,747  

Class IS

     $225,769,099  
Shares Outstanding:         

Class A

     1,031,244  

Class C

     631,137  

Class FI

     1,132,233  

Class R

     27,113  

Class I

     25,140,143  

Class IS

     25,800,387  
Net Asset Value:         

Class A (and redemption price)

     $8.73  

Class C*

     $8.67  

Class FI (and redemption price)

     $8.72  

Class R (and redemption price)

     $8.74  

Class I (and redemption price)

     $8.76  

Class IS (and redemption price)

     $8.75  
Maximum Public Offering Price Per Share:         

Class A (based on maximum initial sales charge of 3.75%; 4.25% prior to August 15, 2022)

     $9.07  

 

*

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.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       39  


Table of Contents

Statement of operations (unaudited)

For the Six Months Ended November 30, 2022

 

Investment Income:         

Interest from unaffiliated investments

   $ 15,018,551  

Interest from affiliated investments

     18,098  

Dividends from unaffiliated investments

     11,458  

Dividends from affiliated investments

     142,036  

Less: Foreign taxes withheld

     (18,237)  

Total Investment Income

     15,171,906  
Expenses:         

Investment management fee (Note 2)

     1,848,333  

Transfer agent fees (Note 5)

     210,772  

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

     62,674  

Registration fees

     52,197  

Custody fees

     49,451  

Fund accounting fees

     46,584  

Audit and tax fees

     33,110  

Legal fees

     14,392  

Shareholder reports

     13,458  

Directors’ fees

     9,514  

Commodity pool reports

     5,079  

Commitment fees (Note 9)

     3,178  

Interest expense

     2,420  

Insurance

     2,084  

Miscellaneous expenses

     7,444  

Total Expenses

     2,360,690  

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

     (109,997)  

Net Expenses

     2,250,693  
Net Investment Income      12,921,213  
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts,
Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
        

Net Realized Gain (Loss) From:

        

Investment transactions in unaffiliated securities

     (51,627,552) † 

Investment transactions in affiliated securities

     (88,711)  

Futures contracts

     (32,093,219)  

Written options

     11,060,666  

Swap contracts

     (11,767,996)  

Forward foreign currency contracts

     (3,646,147)  

Foreign currency transactions

     (416,793)  

Net Realized Loss

     (88,579,752)  

Change in Net Unrealized Appreciation (Depreciation) From:

        

Investments in unaffiliated securities

     19,381,239 ‡ 

Investments in affiliated securities

     65,921  

Futures contracts

     5,412,261  

Written options

     6,570,994  

Swap contracts

     9,655,178  

 

See Notes to Financial Statements.

 

40     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


Table of Contents

 

 

Forward foreign currency contracts

     2,101,546  

Foreign currencies

     54,623  

Change in Net Unrealized Appreciation (Depreciation)

     43,241,762  
Net Loss on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions      (45,337,990)  
Decrease in Net Assets From Operations    $ (32,416,777)  

 

Net of foreign capital gains tax of $11,194.

 

Net of change in accrued foreign capital gains tax of $12,151.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       41  


Table of Contents

Statements of changes in net assets

 

 

For the Six Months Ended November 30, 2022 (unaudited)
and the Year Ended May 31, 2022
   November 30      May 31  
Operations:                  

Net investment income

   $ 12,921,213      $ 29,501,904  

Net realized loss

     (88,579,752)        (10,530,257)  

Change in net unrealized appreciation (depreciation)

     43,241,762        (119,424,637)  

Decrease in Net Assets From Operations

     (32,416,777)        (100,452,990)  
Distributions to Shareholders From (Notes 1 and 6):                  

Total distributable earnings

            (42,915,161)  

Decrease in Net Assets From Distributions to Shareholders

            (42,915,161)  
Fund Share Transactions (Note 7):                  

Net proceeds from sale of shares

     32,847,727        229,266,987  

Reinvestment of distributions

            39,876,895  

Cost of shares repurchased

     (355,918,226)        (352,346,210)  

Decrease in Net Assets From Fund Share Transactions

     (323,070,499)        (83,202,328)  

Decrease in Net Assets

     (355,487,276)        (226,570,479)  
Net Assets:                  

Beginning of period

     826,016,973        1,052,587,452  

End of period

   $ 470,529,697      $ 826,016,973  

 

See Notes to Financial Statements.

 

42     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


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   20222     2022     2021     2020     2019     2018  
Net asset value, beginning of period     $9.18       $10.65       $10.00       $10.28       $10.36       $10.59  
Income (loss) from operations:            

Net investment income

    0.18       0.27       0.20       0.35       0.38       0.31  

Net realized and unrealized gain (loss)

    (0.63)       (1.33)       0.52       (0.25)       (0.08)       (0.16)  

Total income (loss) from operations

    (0.45)       (1.06)       0.72       0.10       0.30       0.15  
Less distributions from:            

Net investment income

          (0.22)       (0.07)       (0.22)       (0.30)       (0.38)  

Net realized gains

          (0.19)             (0.02)              

Return of capital

                      (0.14)       (0.08)        

Total distributions

          (0.41)       (0.07)       (0.38)       (0.38)       (0.38)  
Net asset value, end of period     $8.73       $9.18       $10.65       $10.00       $10.28       $10.36  

Total return3

    (4.90)     (10.28)     7.11     0.98 %4      3.05     1.34
Net assets, end of period (000s)     $9,001       $9,584       $14,641       $11,965       $13,086       $27,536  
Ratios to average net assets:            

Gross expenses

    1.15 %5      1.08     1.10 %6      1.37 %6      1.50 %6      1.31 %6 

Net expenses7,8

    1.07 5      1.07       1.10 6      1.10 6      1.10 6      1.10 6 

Net investment income

    3.97 5      2.65       1.93       3.38       3.70       2.92  
Portfolio turnover rate     36     64 %9      63 %9      63 %9      49 %9      49 %9 

 

1 

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

 

2 

For the six months ended November 30, 2022 (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 expenses waived/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, 2024 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 64%, 67%, 72%, 51% and 67% for the years ended May 31, 2022, 2021, 2020, 2019 and 2018, respectively.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       43  


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   20222     2022     2021     2020     2019     2018  
Net asset value, beginning of period     $9.15       $10.62       $10.00       $10.28       $10.35       $10.59  
Income (loss) from operations:            

Net investment income

    0.14       0.20       0.13       0.27       0.31       0.26  

Net realized and unrealized gain (loss)

    (0.62)       (1.34)       0.51       (0.24)       (0.07)       (0.19)  

Total income (loss) from operations

    (0.48)       (1.14)       0.64       0.03       0.24       0.07  
Less distributions from:            

Net investment income

          (0.14)       (0.02)       (0.18)       (0.24)       (0.31)  

Net realized gains

          (0.19)             (0.02)              

Return of capital

                      (0.11)       (0.07)        

Total distributions

          (0.33)       (0.02)       (0.31)       (0.31)       (0.31)  
Net asset value, end of period     $8.67       $9.15       $10.62       $10.00       $10.28       $10.35  

Total return3

    (5.25)     (10.98)     6.45     0.30 %4      2.36     0.59
Net assets, end of period (000s)     $5,474       $8,978       $13,227       $13,319       $11,858       $16,966  
Ratios to average net assets:            

Gross expenses

    1.83 %5      1.77     1.78 %6      1.81 %6      1.81 %6      1.84 %6 

Net expenses7,8

    1.80 5      1.77       1.78 6      1.80 6      1.80 6      1.76 6 

Net investment income

    3.17 5      1.94       1.26       2.65       3.01       2.41  
Portfolio turnover rate     36     64 %9      63 %9      63 %9      49 %9      49 %9 

 

1 

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

 

2 

For the six months ended November 30, 2022 (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 expenses waived/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, 2024 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 64%, 67%, 72%, 51% and 67% for the years ended May 31, 2022, 2021, 2020, 2019 and 2018, respectively.

 

See Notes to Financial Statements.

 

44     Western Asset Total Return Unconstrained Fund 2022 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 FI Shares1   20222     2022     2021     2020     2019     2018  
Net asset value, beginning of period     $9.17       $10.64       $9.99       $10.27       $10.35       $10.58  
Income (loss) from operations:            

Net investment income

    0.17       0.27       0.21       0.35       0.38       0.33  

Net realized and unrealized gain (loss)

    (0.62)       (1.33)       0.51       (0.24)       (0.08)       (0.18)  

Total income (loss) from operations

    (0.45)       (1.06)       0.72       0.11       0.30       0.15  
Less distributions from:            

Net investment income

          (0.22)       (0.07)       (0.23)       (0.30)       (0.38)  

Net realized gains

          (0.19)             (0.02)              

Return of capital

                      (0.14)       (0.08)        

Total distributions

          (0.41)       (0.07)       (0.39)       (0.38)       (0.38)  
Net asset value, end of period     $8.72       $9.17       $10.64       $9.99       $10.27       $10.35  

Total return3

    (4.91)     (10.28)     7.18     0.93 %4      3.10     1.39
Net assets, end of period (000s)     $9,873       $11,518       $16,871       $34,171       $52,650       $90,923  
Ratios to average net assets:            

Gross expenses

    1.11 %5      1.05     1.07 %6      1.11 %6      1.11 %6      1.12 %6 

Net expenses7,8

    1.07 5      1.05       1.07 6      1.10 6      1.10 6      1.05 6 

Net investment income

    3.94 5      2.66       1.99       3.42       3.70       3.10  
Portfolio turnover rate     36     64 %9      63 %9      63 %9      49 %9      49 %9 

 

1 

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

 

2 

For the six months ended November 30, 2022 (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 expenses waived/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, 2024 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 64%, 67%, 72%, 51% and 67% for the years ended May 31, 2022, 2021, 2020, 2019 and 2018, respectively.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       45  


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   20222     2022     2021     2020     2019     2018  
Net asset value, beginning of period     $9.20       $10.65       $10.01       $10.28       $10.36       $10.59  
Income (loss) from operations:            

Net investment income

    0.17       0.23       0.20       0.32       0.36       0.31  

Net realized and unrealized gain (loss)

    (0.63)       (1.32)       0.50       (0.23)       (0.09)       (0.19)  

Total income (loss) from operations

    (0.46)       (1.09)       0.70       0.09       0.27       0.12  
Less distributions from:            

Net investment income

          (0.17)       (0.06)       (0.21)       (0.28)       (0.35)  

Net realized gains

          (0.19)             (0.02)              

Return of capital

                      (0.13)       (0.07)        

Total distributions

          (0.36)       (0.06)       (0.36)       (0.35)       (0.35)  
Net asset value, end of period     $8.74       $9.20       $10.65       $10.01       $10.28       $10.36  

Total return3

    (5.00)     (10.57)     7.05     0.74 %4      2.80     1.11
Net assets, end of period (000s)     $237       $78       $477       $487       $457       $356  
Ratios to average net assets:            

Gross expenses

    1.49 %5      1.35 %6      1.44     1.51 %6      1.37 %6      1.40 %6 

Net expenses7,8

    1.35 5      1.35 6      1.35       1.35 6      1.35 6      1.34 6 

Net investment income

    4.02 5      2.21       1.94       3.14       3.50       2.87  
Portfolio turnover rate     36     64 %9      63 %9      63 %9      49 %9      49 %9 

 

1 

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

 

2 

For the six months ended November 30, 2022 (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 expenses waived/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, 2024 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 64%, 67%, 72%, 51% and 67% for the years ended May 31, 2022, 2021, 2020, 2019 and 2018, respectively.

 

See Notes to Financial Statements.

 

46     Western Asset Total Return Unconstrained Fund 2022 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   20222     2022     2021     2020     2019     2018  
Net asset value, beginning of period     $9.19       $10.67       $10.00       $10.28       $10.36       $10.59  
Income (loss) from operations:            

Net investment income

    0.18       0.30       0.25       0.38       0.41       0.37  

Net realized and unrealized gain (loss)

    (0.61)       (1.34)       0.51       (0.24)       (0.08)       (0.18)  

Total income (loss) from operations

    (0.43)       (1.04)       0.76       0.14       0.33       0.19  
Less distributions from:            

Net investment income

          (0.25)       (0.09)       (0.25)       (0.32)       (0.42)  

Net realized gains

          (0.19)             (0.02)              

Return of capital

                      (0.15)       (0.09)        

Total distributions

          (0.44)       (0.09)       (0.42)       (0.41)       (0.42)  
Net asset value, end of period     $8.76       $9.19       $10.67       $10.00       $10.28       $10.36  

Total return3

    (4.68)     (10.06)     7.61     1.26 %4      3.43     1.70
Net assets, end of period (millions)     $220       $530       $719       $1,018       $1,132       $1,321  
Ratios to average net assets:            

Gross expenses

    0.78 %5      0.74     0.74 %6      0.76 %6      0.76 %6      0.83 %6 

Net expenses7,8

    0.75 5      0.74       0.73 6      0.75 6      0.75 6      0.75 6 

Net investment income

    4.10 5      2.96       2.34       3.74       4.06       3.44  
Portfolio turnover rate     36     64 %9      63 %9      63 %9      49 %9      49 %9 

 

1 

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

 

2 

For the six months ended November 30, 2022 (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 expenses waived/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, 2024 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 64%, 67%, 72%, 51% and 67% for the years ended May 31, 2022, 2021, 2020, 2019 and 2018, respectively.

 

See Notes to Financial Statements.

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       47  


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   20222     2022     2021     2020     2019     2018  
Net asset value, beginning of period     $9.18       $10.66       $9.99       $10.26       $10.34       $10.57  
Income (loss) from operations:            

Net investment income

    0.19       0.31       0.25       0.39       0.43       0.38  

Net realized and unrealized gain (loss)

    (0.62)       (1.34)       0.52       (0.23)       (0.09)       (0.18)  

Total income (loss) from operations

    (0.43)       (1.03)       0.77       0.16       0.34       0.20  
Less distributions from:            

Net investment income

          (0.26)       (0.10)       (0.25)       (0.33)       (0.43)  

Net realized gains

          (0.19)             (0.02)              

Return of capital

                      (0.16)       (0.09)        

Total distributions

          (0.45)       (0.10)       (0.43)       (0.42)       (0.43)  
Net asset value, end of period     $8.75       $9.18       $10.66       $9.99       $10.26       $10.34  

Total return3

    (4.68)     (9.99)     7.69     1.44 %4      3.52     1.79
Net assets, end of period (millions)     $226       $266       $287       $202       $206       $160  
Ratios to average net assets:            

Gross expenses

    0.69 %5      0.65     0.66     0.66 %6      0.66 %6      0.72 %6 

Net expenses7,8

    0.65 5      0.65       0.65       0.65 6      0.65 6      0.65 6 

Net investment income

    4.37 5      3.08       2.42       3.82       4.21       3.54  
Portfolio turnover rate     36     64 %9      63 %9      63 %9      49 %9      49 %9 

 

1 

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

 

2 

For the six months ended November 30, 2022 (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 expenses waived/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, 2024 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 64%, 67%, 72%, 51% and 67% for the years ended May 31, 2022, 2021, 2020, 2019 and 2018, respectively.

 

See Notes to Financial Statements.

 

48     Western Asset Total Return Unconstrained Fund 2022 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 Standard 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

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       49  


Table of Contents

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

 

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 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.

 

50     Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report


Table of Contents

 

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.

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:

                               

Financials

        $ 59,092,942     $ 660,951     $ 59,753,893  

Other Corporate Bonds & Notes

          124,034,906             124,034,906  

Collateralized Mortgage Obligations

          65,603,388             65,603,388  

U.S. Government & Agency Obligations

          65,448,322             65,448,322  

Sovereign Bonds

          64,166,466             64,166,466  

Mortgage-Backed Securities

          48,620,075             48,620,075  

Asset-Backed Securities

          46,677,060             46,677,060  

Municipal Bonds

          4,081,502             4,081,502  

Purchased Options:

                               

Exchange-Traded Purchased Options

  $ 1,456,296                   1,456,296  

OTC Purchased Options

          66,934             66,934  

Senior Loans

          1,496,704             1,496,704  

Investments in Underlying Funds

    392,688                   392,688  
Total Long-Term Investments     1,848,984       479,288,299       660,951       481,798,234  
Short-Term Investments†     16,993,040                   16,993,040  
Total Investments   $ 18,842,024     $ 479,288,299     $ 660,951     $ 498,791,274  

 

Western Asset Total Return Unconstrained Fund 2022 Semi-Annual Report       51  


Table of Contents

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

 

ASSETS (cont’d)  
Description  

Quoted Prices

(Level 1)

   

Other Significant

Observable Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

    Total  
Other Financial Instruments:                                

Futures Contracts††

  $ 2,804,581                 $ 2,804,581  

Forward Foreign Currency Contracts††

        $ 2,191,899             2,191,899  

Centrally Cleared Interest Rate Swaps††

          15,012,774             15,012,774  

OTC Credit Default Swaps on Corporate Issues — Sell Protection‡

          23,523             23,523  

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

          92,093             92,093  
Total Other Financial Instruments   $ 2,804,581     $ 17,320,289           $ 20,124,870  
Total   $ 21,646,605     $ 496,608,588     $ 660,951     $ 518,916,144  

 

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

  $ 3,137,425                 $ 3,137,425  

OTC Written Options

        $ 42,355             42,355  

Futures Contracts††

    13,671,741                   13,671,741  

Forward Foreign Currency Contracts††

          1,233,324             1,233,324  

Centrally Cleared Interest Rate Swaps††

          9,994,257             9,994,257  

OTC Credit Default Swaps on Corporate Issues — Buy Protection‡

          83,720             83,720  

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

          1,649,642             1,649,642  
Total   $ 16,809,166     $ 13,003,298           $ 29,812,464  

 

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. 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

 

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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. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Fund’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Fund’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.

The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

(d) Options on futures contracts. 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.

 

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(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.

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.

 

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In a Centrally Cleared Swap, immediately following execution of the swap, the swap agreement is submitted to a clearinghouse or central counterparty (the “CCP”) and the CCP becomes the ultimate counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker, acting in an agency capacity. All payments are settled with the CCP through the broker. Upon entering into a Centrally Cleared Swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities.

Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is recorded as a net receivable or payable for variation margin on the Statement of Assets and Liabilities. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.

OTC Swap payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities. 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, 2022, the total notional value of all credit default swaps to sell protection was EUR 7,380,000 and $7,109,000. 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, 2022, see Note 4.

Credit default swaps

The Fund enters into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to

 

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the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a CDS agreement would be an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.

Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of CDS agreements on corporate or sovereign issues are disclosed in the Schedule of Investments and serve as an indicator of the current status of the payment/ performance risk and represent the likelihood or risk of default for credit derivatives. For CDS agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/ performance risk.

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.

 

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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 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 off-set against the

 

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borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.

The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.

(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 pre-payment, 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 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.

 

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(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 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

 

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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 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)

 

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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 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, 2022, 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 $1,359,399. If a contingent feature in the master agreements would

 

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have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties. As of November 30, 2022, the Fund had posted with its counterparties cash and/or securities as collateral to cover the net liability of these derivatives amounting to $150,000 which could be used to reduce the required payment.

At November 30, 2022, the Fund held non-cash collateral from JPMorgan Chase & Co. in the amount of $747,908. 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), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. 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.

(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, 2022, no provision for income tax is

 

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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, 2022, there were $23,024 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

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) 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 in London (“Western Asset London”) are the Fund’s subadvisers. LMPFA, Western Asset, Western Asset Singapore, Western Asset Japan and Western Asset London are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).

LMPFA 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, LMPFA 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 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 LMPFA, 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, 2024 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

 

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recapture provision discussed below.

During the six months ended November 30, 2022, fees waived and/or expenses reimbursed amounted to $109,997, which included an affiliated money market fund waiver of $4,471.

LMPFA is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which LMPFA 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 LMPFA 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, 2022, the Fund had remaining fee waivers and/or expense reimbursements subject to recapture by LMPFA and respective dates of expiration as follows:

 

      Class A      Class C      Class FI      Class R      Class I      Class IS  
Expires May 31, 2023                         $ 348             $ 6,365  
Expires May 31, 2024    $ 923                                    5,563  
Expires May 31, 2025      3,907      $ 1,186      $ 1,700        87      $ 54,622        44,024  
Total fee waivers/expense reimbursements subject to recapture    $ 4,830      $ 1,186      $ 1,700      $ 435      $ 54,622      $ 55,952  

For the six months ended November 30, 2022, LMPFA did not recapture any fees.

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. 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.

There is a maximum initial sales charge of 3.75% (4.25% prior to August 15, 2022) 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 ($1,000,000 prior to August 15, 2022) in the aggregate. These purchases do not incur an initial sales charge.

 

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For the six months ended November 30, 2022, sales charges retained by and CDSCs paid to Franklin Distributors and its affiliates, if any, were as follows:

 

      Class A      Class C  
Sales charges    $ 549         
CDSCs           $ 27  

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, 2022, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:

 

        Investments       

U.S. Government &

Agency Obligations

 
Purchases      $ 57,091,070        $ 154,760,943  
Sales        219,887,138          279,255,166  

At November 30, 2022, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

     

Cost/Premiums

Paid (Received)

    

Gross

Unrealized

Appreciation

    

Gross

Unrealized

Depreciation

    

Net

Unrealized

Appreciation

(Depreciation)

 
Securities    $ 581,266,497      $ 3,395,064      $ (85,870,287)      $ (82,475,223)  
Written options      (5,975,951)        3,296,740        (500,569)        2,796,171  
Futures contracts             2,804,581        (13,671,741)        (10,867,160)  
Forward foreign currency contracts             2,191,899        (1,233,324)        958,575  
Swap contracts      (1,745,510)        15,104,867        (11,667,917)        3,436,950  

 

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

 

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, 2022.

 

ASSET DERIVATIVES1  
     

Interest

Rate Risk

    

Foreign

Exchange Risk

     Credit
Risk
     Total  
Purchased options2    $ 1,456,296             $ 66,934      $ 1,523,230  
Futures contracts3      2,804,581                      2,804,581  
Forward foreign currency contracts           $ 2,191,899               2,191,899  
OTC swap contracts4                    23,523        23,523  
Centrally cleared swap contracts5      15,012,774               92,093        15,104,867  
Total    $ 19,273,651      $ 2,191,899      $ 182,550      $ 21,648,100  

 

LIABILITY DERIVATIVES1  
     

Interest

Rate Risk

    

Foreign

Exchange Risk

    

Credit

Risk

     Total  
Written options    $ 3,137,425             $ 42,355      $ 3,179,780  
Futures contracts3      13,671,741                      13,671,741  
Forward foreign currency contracts           $ 1,233,324               1,233,324  
OTC swap contracts4                    83,720        83,720  
Centrally cleared swap contracts5      9,994,257               1,649,642        11,643,899  
Total    $ 26,803,423      $ 1,233,324      $ 1,775,717      $ 29,812,464  

 

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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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, 2022. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in 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    $ (6,955,955)      $ (442,623)      $ (265,508)      $ (7,664,086)  
Futures contracts      (32,093,219)                      (32,093,219)  
Written options      10,697,375        100,381        262,910        11,060,666  
Swap contracts      (13,499,418)               1,731,422        (11,767,996)  
Forward foreign currency contracts             (3,646,147)               (3,646,147)  
Total    $ (41,851,217)      $ (3,988,389)      $ 1,728,824      $ (44,110,782)  

 

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    $ (1,353,469)      $ 54,441      $ 5,324      $ (1,293,704)  
Futures contracts      5,412,261                      5,412,261  
Written options      6,804,338        (64,345)        (168,999)        6,570,994  
Swap contracts      12,885,724               (3,230,546)        9,655,178  
Forward foreign currency contracts             2,101,546               2,101,546  
Total    $ 23,748,854      $ 2,091,642      $ (3,394,221)      $ 22,446,275  

 

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.

During the six months ended November 30, 2022, the volume of derivative activity for the Fund was as follows:

 

       

Average Market

Value

 
Purchased options      $ 2,491,853  
Written options        8,860,690  
Futures contracts (to buy)        1,088,755,546  
Futures contracts (to sell)        502,932,619  
Forward foreign currency contracts (to buy)        60,968,017  
Forward foreign currency contracts (to sell)        67,260,634  

 

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

 

       

Average Notional

Balance

 
Interest rate swap contracts      $ 716,386,138  
Credit default swap contracts (buy protection)        108,150,259  
Credit default swap contracts (sell protection)        10,592,659  

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, 2022.

 

Counterparty   

Gross Assets

Subject to

Master

Agreements1

    

Gross

Liabilities

Subject to

Master

Agreements1

    

Net Assets

(Liabilities)

Subject to

Master

Agreements

    

Collateral

Pledged

(Received)2,3

    

Net
Amount4,5

 
Bank of America N.A.           $ (895,675)      $ (895,675)             $ (895,675)  
BNP Paribas SA    $ 23,523        (83,720)        (60,197)      $ 83,720        23,523  
Citibank N.A.             (15,339)        (15,339)               (15,339)  
Goldman Sachs Group Inc.      218,359        (105,546)        112,813               112,813  
JPMorgan Chase & Co.      1,078,286        (103,085)        975,201        (747,908)        227,293  
Morgan Stanley & Co. Inc.      962,188        (156,034)        806,154        50,000        856,154  
Total    $ 2,282,356      $ (1,359,399)      $ 922,957      $ (614,188)      $ 308,769  

 

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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For the six months ended November 30, 2022, class specific expenses were as follows:

 

       

Service and/or

Distribution Fees

      

Transfer Agent

Fees

 
Class A      $ 11,700        $ 10,329  
Class C        37,296          5,524  
Class FI        13,366          9,241  
Class R        312          185  
Class I                 180,421  
Class IS                 5,072  
Total      $ 62,674        $ 210,772  

For the six months ended November 30, 2022, waivers and/or expense reimbursements by class were as follows:

 

       

Waivers/Expense

Reimbursements

 
Class A      $ 3,987  
Class C        1,244  
Class FI        1,788  
Class R        89  
Class I        56,826  
Class IS        46,063  
Total      $ 109,997  

6. Distributions to shareholders by class

 

       

Six Months Ended

November 30, 2022

      

Year Ended

May 31, 2022

 
Net Investment Income:                      
Class A               $ 334,277  
Class A2†                  
Class C                 165,909  
Class FI                 349,734  
Class R                 3,157  
Class I                 16,013,425  
Class IS                 7,733,704  
Total               $ 24,600,206  

 

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

 

       

Six Months Ended

November 30, 2022

      

Year Ended

May 31, 2022

 
Net Realized Gains:                      
Class A               $ 294,335  
Class A2†                  
Class C                 223,045  
Class FI                 299,398  
Class R                 3,723  
Class I                 11,886,572  
Class IS                 5,607,882  
Total               $ 18,314,955  

 

On June 24, 2021, the Fund converted its Class A2 shares into Class A shares.

7. Capital shares

At November 30, 2022, 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, 2022
     Year Ended
May 31, 2022
 
      Shares      Amount      Shares      Amount  
Class A                                    
Shares sold      285,913      $ 2,509,415        465,908      $ 4,883,918  
Shares issued on reinvestment                    58,669        595,292  
Shares repurchased      (299,171)        (2,622,552)        (854,431)        (8,237,091)  
Net decrease      (13,258)      $ (113,137)        (329,854)      $ (2,757,881)  
Class A2†                                    
Shares sold                    152      $ 968  
Shares issued on reinvestment                            
Shares repurchased                    (122,919)        (1,315,228)  
Net decrease                    (122,767)      $ (1,314,260)  
Class C                                    
Shares sold      6,932      $ 61,122        90,605      $ 938,543  
Shares issued on reinvestment                    38,313        388,463  
Shares repurchased      (357,011)        (3,107,816)        (393,355)        (3,898,779)  
Net decrease      (350,079)      $ (3,046,694)        (264,437)      $ (2,571,773)  
Class FI                                    
Shares sold      30,109      $ 264,266        169,366      $ 1,755,271  
Shares issued on reinvestment                    63,807        646,404  
Shares repurchased      (154,523)        (1,343,079)        (562,022)        (5,393,181)  
Net decrease      (124,414)      $ (1,078,813)        (328,849)      $ (2,991,506)  

 

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     Six Months Ended
November 30, 2022
     Year Ended
May 31, 2022
 
      Shares      Amount      Shares      Amount  
Class R                                    
Shares sold      18,651      $ 161,061        39,873      $ 416,428  
Shares issued on reinvestment                    671        6,880  
Shares repurchased      (0)      (0) ‡       (76,822)        (804,975)  
Net increase (decrease)      18,651      $ 161,061        (36,278)      $ (381,667)  
Class I                                    
Shares sold      2,246,195      $ 20,020,096        10,818,285      $ 110,414,916  
Shares issued on reinvestment                    2,671,702        27,143,907  
Shares repurchased      (34,782,662)        (311,174,447)        (23,185,738)        (234,217,595)  
Net decrease      (32,536,467)      $ (291,154,351)        (9,695,751)      $ (96,658,772)  
Class IS                                    
Shares sold      1,126,090      $ 9,831,767        10,623,164      $ 110,856,943  
Shares issued on reinvestment                    1,092,537        11,095,949  
Shares repurchased      (4,289,290)        (37,670,332)        (9,704,219)        (98,479,361)  
Net increase (decrease)      (3,163,200)      $ (27,838,565)        2,011,482      $ 23,473,531  

 

On June 24, 2021, the Fund converted 122,673 Class A2 shares into 122,559 Class A shares, valued at $1,312,602. These amounts are reflected in the Class A shares sold and Class A2 shares repurchased, respectively.

 

*

Less than 1 share.

 

Amount represents less than $1.

8. Transactions with affiliated companies

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 Fund invested in Western Asset Premier Institutional Government Reserves, Premium Shares, an affiliated registered money market fund managed by Western Asset. Benefit Street Partners is a wholly-owned subsidiary of Franklin Resources. The following companies were considered affiliated companies for all

 

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

 

or some portion of the six months ended November 30, 2022. The following transactions were effected in such companies for the six months ended November 30, 2022.

 

    Affiliate
Value  at
May 31,
2022
    Purchased     Sold  
     Cost     Shares     Proceeds     Shares  
Benefit Street Partners CLO Ltd., 2014-IVA CRRR   $ 1,384,079                 $ 1,361,289       1,450,000  
Western Asset Premier Institutional Government Reserves, Premium Shares     936,636     $ 188,265,049       188,265,049       172,208,645       172,208,645  
    $ 2,320,715     $ 188,265,049             $ 173,569,934          

 

(cont’d)   

Realized

Gain
(Loss)

    

Interest/

Dividend

Income

    

Net Increase

(Decrease) in

Unrealized

Appreciation

(Depreciation)

    

Affiliate

Value at

November 30,

2022

 
Benefit Street Partners CLO Ltd., 2014-IVA CRRR    $ (88,711)      $ 18,098      $ 65,921         
Western Asset Premier Institutional Government Reserves, Premium Shares             142,036             $ 16,993,040  
     $ (88,711)      $ 160,134      $ 65,921      $ 16,993,040  

9. Redemption facility

The Fund and certain other participating funds within the Corporation, together with other U.S. registered and foreign investment funds (collectively, the “Borrowers”) managed by LMPFA or Franklin Resources, are borrowers 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 3, 2023.

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, 2022.

 

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10. Deferred capital losses

As of May 31, 2022, the Fund had deferred capital losses of $18,812,843, 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, the FASB issued ASU No. 2021-01, with further amendments to Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.

12. Other matters

The outbreak of the respiratory illness COVID-19 (commonly referred to as “coronavirus”) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Fund’s investments, impair the Fund’s ability to satisfy redemption requests, and negatively impact the Fund’s performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.

*  *  *

The Fund’s investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or “LIBOR,” which is the offered rate for short-term Eurodollar deposits between major international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of the overnight and one-, three-, six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023. All other LIBOR settings, including the one-week and two-month USD LIBOR settings, have ceased publication as of January 1, 2022. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Fund’s transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Fund’s investments cannot yet be determined.

*  *  *

 

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

 

Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion. To the extent that the Fund has exposure to Russian investments or investments in countries affected by the invasion, the Fund’s ability to price, buy, sell, receive or deliver such investments was impaired. The Fund could determine at any time that certain of the most affected securities have little or no value. In addition, any exposure that the Fund may have to counterparties in Russia or in countries affected by the invasion could negatively impact the Fund’s portfolio. The extent and duration of Russia’s military actions and the repercussions of such actions (including any retaliatory actions or countermeasures that may be taken by those subject to sanctions) are impossible to predict, but could result in significant market disruptions, including in the oil and natural gas markets, and may negatively affect global supply chains, inflation and global growth. These and any related events could significantly impact the Fund’s performance and the value of an investment in the Fund, even beyond any direct exposure the Fund may have to Russian issuers or issuers in other countries affected by the invasion. At November 30, 2022, the Fund had 1.51% of its net assets invested in securities with significant economic risk or exposure to Russia.

 

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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

Legg Mason Partners Fund Advisor, 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

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

© 2023 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.


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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


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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

© 2023 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.

WASX012827 1/23 SR22-4563


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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.

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 27, 2023

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 27, 2023
By:  

/s/ Christopher Berarducci

  Christopher Berarducci
  Principal Financial Officer
Date:   January 27, 2023

ATTACHMENTS / EXHIBITS

ATTACHMENTS / EXHIBITS

CERTIFICATION (302)

CERTIFICATION (906)