UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-23598
(Exact name of registrant as specified in charter)
One Madison Avenue, 17th Floor, New York, NY 10010
(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: 1-888-777-0102
Date of fiscal year end: December 31
Date of reporting period:
| ITEM 1. | REPORT TO STOCKHOLDERS |
(a) The Report to Shareholders is filed herewith
Semi-Annual Report
June 30, 2026
WESTERN ASSET
DIVERSIFIED INCOME
FUND (WDI)
DIVERSIFIED INCOME
FUND (WDI)
If you need assistance accessing this content, please reach out to your sales representative
or send an email to accessibility@franklintempleton.com.
Fund objectives
The Fund’s primary investment objective is to seek high current income. As a secondary investment objective, the Fund will seek capital appreciation.
The Fund seeks to achieve its investment objectives by investing, under normal market conditions, across fixed income sectors and securities in seeking to deliver a well-diversified portfolio. It is anticipated that the Fund will dissolve on or about June 24, 2033, unless an Eligible Tender Offer is conducted and certain other conditions are satisfied, as described in this report.
The Fund seeks to achieve its investment objectives by investing, under normal market conditions, across fixed income sectors and securities in seeking to deliver a well-diversified portfolio. It is anticipated that the Fund will dissolve on or about June 24, 2033, unless an Eligible Tender Offer is conducted and certain other conditions are satisfied, as described in this report.
What’s inside
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III
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IV
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1
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2
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40
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41
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42
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43
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45
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47
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72
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79
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80
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II
Western Asset Diversified Income Fund
Letter from the president
Dear Shareholder,
We are pleased to provide the semi-annual report of Western Asset Diversified Income
Fund for the six-month reporting period ended June 30, 2026. Please read on for Fund
performance information during the Fund’s reporting period.
Special shareholder notice
Effective September 30, 2026, Christopher Kilpatrick will no longer be a member of
the portfolio management team for the Fund.
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,
Jane Trust, CFA
President and Chief Executive Officer
President and Chief Executive Officer
July 31, 2026
Western Asset Diversified Income Fund
III
Performance review
For the six months ended June 30, 2026, Western Asset Diversified Income Fund returned
2.50% based on its net asset value (NAV)i and 3.61% based on its New York Stock Exchange (NYSE) market price per share. The Fund’s unmanaged benchmark, the Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index (USD)ii, returned 1.96% for the same period.
The Fund has a practice of seeking to maintain a relatively stable level of distributions
to shareholders. This practice has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. The Fund’s manager believes the practice helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV.
During the six-month period, the Fund made distributions to shareholders totaling
$0.74 per share. As of June 30, 2026, the Fund estimates that all of the distributions were
sourced from net investment income.* The performance table shows the Fund’s six-month total return based on its NAV and market price as of June 30, 2026. Past performance is no guarantee of future results.
|
Performance Snapshot as of June 30, 2026 (unaudited)
|
|
|
Price Per Share
|
6-Month
Total Return**
|
|
$14.20 (NAV)
|
2.50
%†
|
|
$13.56 (Market Price)
|
3.61
%‡
|
All figures represent past performance and are not a guarantee of future results.
Performance figures for periods shorter than one year represent cumulative figures and are not
annualized.
** Total returns are based on changes in NAV or market price, respectively. Returns
reflect the deduction of all Fund expenses, including management fees, operating expenses, and
other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that
investors may pay on distributions or the sale of shares.
† Total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV.
‡ Total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.
Looking for additional information?
The Fund is traded under the symbol “WDI” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available online under the symbol
“XWDIX” on most financial websites. Barron’s and The Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In
addition,
*
These estimates are not for tax purposes. The Fund will issue a Form 1099 with final
composition of the distributions for tax purposes after year-end. A return of capital is not taxable
and results in a reduction in the tax basis of a shareholder’s investment. For more information about a distribution’s composition, please refer to the Fund’s distribution press release or, if applicable, the Section 19 notice located in the press release section of our website, www.franklintempleton.com.
IV
Western Asset Diversified Income Fund
the Fund issues a quarterly press release that can be found on most major financial
websites as well as www.franklintempleton.com.
In a continuing effort to provide information concerning the Fund, shareholders may
call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern
Time, for the Fund’s current NAV, market price and other information.
Thank you for your investment in the Western Asset Diversified Income Fund. As always,
we appreciate that you have chosen us to manage your assets and we remain focused
on achieving the Fund’s investment goals.
Sincerely,
Jane Trust, CFA
President and Chief Executive Officer
President and Chief Executive Officer
July 31, 2026
RISKS: The Fund is a diversified limited term closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund
is not intended to be a complete investment program and, due to the uncertainty inherent
in all investments, there can be no assurance that the Fund will achieve its investment objectives.
The Fund’s common shares are traded on the New York Stock Exchange. Similar to stocks, the Fund’s share price will fluctuate with market conditions and, at the time of sale, may be
worth more or less than the original investment. Shares of closed-end funds often trade at a discount
to their net asset value. Diversification does not assure against market loss. The Fund’s investments are subject to a number of risks, such as credit risk, inflation risk and interest rate
risk. As interest rates rise, the value of fixed income securities falls. The Fund may invest in lower-rated
high yield bonds (commonly known as “junk bonds”), which are subject to greater liquidity risk and credit risk (risk of default) than higher-rated obligations. Asset-backed, mortgage-backed
or mortgage-related securities are subject to prepayment and extension risks. The Fund
may invest in securities backed by subprime mortgages which involve a higher degree of risk and
chance of loss. 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 Fund may make significant investments in derivative instruments. Derivative
instruments can be illiquid, may disproportionately increase losses, and have a potentially
large impact on Fund performance. Leverage may result in greater volatility of NAV and the
market price of common shares and increases a shareholder’s risk of loss. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due
to changes in general market conditions, overall economic trends or events, governmental actions
or intervention, actions taken by the U.S. Federal Reserve or foreign central banks,
market
Western Asset Diversified Income Fund
V
Performance review (cont’d)
disruptions caused by trade disputes or other factors, political developments, armed
conflicts, economic sanctions and countermeasures in response to sanctions, major cybersecurity
events, investor sentiment, the global and domestic effects of a pandemic, and other factors
that may or may not be related to the issuer of the security or other asset. The Fund may also
invest in money market funds, including funds affiliated with the Fund’s investment manager and subadvisers. For more information on Fund risks, see Summary of information regarding
the Fund – Principal Risk Factors in the Annual Report.
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
Net asset value (NAV) is calculated by subtracting total liabilities, including liabilities
associated with financial leverage (if any), from the closing value of all securities held by the Fund (plus
all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The
NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price
at which an investor may buy or sell shares of the Fund is the Fund’s market price as determined by supply of and demand for the Fund’s shares.
ii
The Bloomberg U.S. Corporate High Yield - 2% Issuer Cap Index (USD) measures the performance
of U.S. dollar-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. The
Index limits the maximum exposure to any one issuer to 2%.
Important data provider notices and terms available at www.franklintempletondatasources.com.
VI
Western Asset Diversified Income Fund
Fund at a glance† (unaudited)
Investment breakdown (%) as a percent of total investments
†
The bar graph above represents the composition of the Fund’s investments as of June 30, 2026, and December 31, 2025, 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.
‡
Represents less than 0.1%.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
1
Schedule of investments (unaudited)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
Corporate Bonds & Notes — 80.4%
|
|||||
|
Communication Services — 12.8%
|
|||||
|
Diversified Telecommunication Services — 2.9%
|
|||||
|
Altice Financing SA, Senior Secured
Notes
|
5.000%
|
1/15/28
|
5,890,000
|
$4,157,869
(a)(b)
|
|
|
Altice Financing SA, Senior Secured
Notes
|
5.750%
|
8/15/29
|
940,000
|
658,155
(a)(b)
|
|
|
Altice France Lux 3/Altice Holdings 1,
Senior Notes
|
10.000%
|
1/15/33
|
1,200,000
|
1,181,634
(a)
|
|
|
Altice France SA, Senior Secured
Notes
|
9.500%
|
11/1/29
|
1,316,349
|
1,337,261
(a)
|
|
|
Altice France SA, Senior Secured
Notes
|
6.500%
|
4/15/32
|
762,196
|
737,243
(a)
|
|
|
Altice France SA, Senior Secured
Notes
|
6.875%
|
7/15/32
|
762,196
|
739,974
(a)
|
|
|
Cogent Communications Group LLC/
Cogent Finance Inc., Senior Notes
|
7.000%
|
6/15/27
|
3,200,000
|
3,180,751
(a)
|
|
|
Grupo Televisa SAB, Senior Notes
|
5.000%
|
5/13/45
|
1,910,000
|
1,307,739
(b)
|
|
|
Level 3 Financing Inc., Senior Notes
|
8.500%
|
1/15/36
|
2,840,000
|
3,051,946
(a)
|
|
|
Level 3 Financing Inc., Senior Notes
|
7.500%
|
2/15/37
|
830,000
|
852,641
(a)
|
|
|
WULF Compute LLC, Senior Secured
Notes
|
7.750%
|
10/15/30
|
1,710,000
|
1,797,147
(a)(b)
|
|
|
Yondr JK 1 LLC, Senior Secured Notes
|
6.875%
|
6/30/31
|
2,410,000
|
2,417,847
(a)
|
|
|
Total Diversified Telecommunication Services
|
21,420,207
|
||||
|
Entertainment — 1.3%
|
|||||
|
Allen Media LLC/Allen Media
Co-Issuer Inc., Senior Notes
|
10.500%
|
2/15/28
|
7,160,000
|
2,899,800
(a)(b)
|
|
|
AMC Entertainment Holdings Inc.,
Senior Secured Notes
|
7.500%
|
2/15/29
|
4,780,000
|
4,443,892
(a)(b)
|
|
|
Discovery Global Holdings Inc., Senior
Notes
|
5.050%
|
3/15/42
|
800,000
|
587,056
|
|
|
OAK-Eagle Acquireco Inc., Senior
Notes
|
8.750%
|
7/1/34
|
750,000
|
796,442
(a)
|
|
|
Pioneer Opco LLC, Senior Secured
Notes
|
7.000%
|
5/15/33
|
550,000
|
560,370
(a)
|
|
|
Total Entertainment
|
9,287,560
|
||||
|
Media — 7.8%
|
|||||
|
CCO Holdings LLC/CCO Holdings
Capital Corp., Senior Notes
|
4.750%
|
2/1/32
|
5,000,000
|
4,463,233
(a)(b)
|
|
|
CCO Holdings LLC/CCO Holdings
Capital Corp., Senior Notes
|
7.000%
|
2/1/33
|
5,000,000
|
4,907,579
(a)(b)
|
|
See Notes to Financial Statements.
2
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
Media — continued
|
|||||
|
Clear Channel Outdoor Holdings Inc.,
Senior Notes
|
7.500%
|
6/1/29
|
3,590,000
|
$3,594,236
(a)
|
|
|
DirecTV Financing LLC/DirecTV
Financing Co-Obligor Inc., Senior
Secured Notes
|
10.000%
|
2/15/31
|
7,230,000
|
7,507,307
(a)(b)
|
|
|
DirecTV Financing LLC/DirecTV
Financing Co-Obligor Inc., Senior
Secured Notes
|
9.250%
|
6/1/32
|
2,500,000
|
2,541,940
(a)
|
|
|
Discovery Communications LLC, Senior
Notes
|
5.000%
|
9/20/37
|
5,000,000
|
3,950,000
|
|
|
DISH DBS Corp., Senior Secured Notes
|
5.250%
|
12/1/26
|
4,500,000
|
4,454,730
(a)
|
|
|
DISH Network Corp., Senior Secured
Notes
|
11.750%
|
11/15/27
|
1,000,000
|
1,028,247
(a)
|
|
|
EchoStar Corp., Senior Secured Notes
|
10.750%
|
11/30/29
|
6,198,500
|
6,701,816
(b)
|
|
|
EchoStar Corp., Senior Secured Notes
(6.750% Cash or 6.750% PIK)
|
6.750%
|
11/30/30
|
3,183,257
|
3,240,081
(b)(c)
|
|
|
Getty Images Inc., Senior Secured
Notes
|
11.250%
|
2/21/30
|
2,500,000
|
2,069,375
(a)(b)
|
|
|
Getty Images Inc., Senior Secured
Notes
|
10.500%
|
11/15/30
|
1,820,000
|
1,518,978
(a)(b)
|
|
|
Mcclatchy Media Co. LLC, Senior
Secured Notes (11.000% Cash or
12.500% PIK)
|
11.000%
|
12/1/31
|
8,511,546
|
9,841,475
(a)(c)
|
|
|
Versant Media Group Inc., Senior
Secured Notes
|
7.250%
|
1/30/31
|
1,070,000
|
1,107,659
(a)(b)
|
|
|
VZ Secured Financing BV, Senior
Secured Notes
|
7.500%
|
1/15/33
|
790,000
|
756,833
(a)
|
|
|
Total Media
|
57,683,489
|
||||
|
Wireless Telecommunication Services — 0.8%
|
|||||
|
CSC Holdings LLC, Senior Notes
|
7.500%
|
4/1/28
|
5,000,000
|
1,355,130
(a)
|
|
|
CSC Holdings LLC, Senior Notes
|
11.250%
|
5/15/28
|
4,000,000
|
2,589,792
(a)
|
|
|
CSC Holdings LLC, Senior Notes
|
11.750%
|
1/31/29
|
3,780,000
|
2,327,525
(a)
|
|
|
Total Wireless Telecommunication Services
|
6,272,447
|
||||
|
|
|||||
|
Total Communication Services
|
94,663,703
|
||||
|
Consumer Discretionary — 14.6%
|
|||||
|
Automobile Components — 3.7%
|
|||||
|
American Axle & Manufacturing Inc.,
Senior Notes
|
7.750%
|
10/15/33
|
7,810,000
|
7,720,513
(a)(b)
|
|
|
Carbon Revolution Ltd., Senior Secured
Notes
|
8.500%
|
5/15/27
|
3,383,754
|
3,354,146
(a)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
3
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Automobile Components — continued
|
|||||
|
JB Poindexter & Co. Inc., Senior Notes
|
8.750%
|
12/15/31
|
5,535,000
|
$5,697,591
(a)
|
|
|
ZF North America Capital Inc., Senior
Notes
|
6.875%
|
4/14/28
|
2,000,000
|
2,046,952
(a)
|
|
|
ZF North America Capital Inc., Senior
Notes
|
6.875%
|
4/23/32
|
8,455,000
|
8,323,355
(a)
|
|
|
Total Automobile Components
|
27,142,557
|
||||
|
Automobiles — 1.8%
|
|||||
|
Aston Martin Capital Holdings Ltd.,
Senior Secured Notes
|
10.000%
|
3/31/29
|
2,000,000
|
1,557,833
(a)(b)
|
|
|
Ford Motor Co., Senior Notes
|
6.100%
|
8/19/32
|
1,000,000
|
1,018,718
(b)
|
|
|
PM General Purchaser LLC, Senior
Secured Notes
|
9.500%
|
10/1/28
|
12,500,000
|
10,832,437
(a)(b)
|
|
|
Total Automobiles
|
13,408,988
|
||||
|
Hotels, Restaurants & Leisure — 2.9%
|
|||||
|
Full House Resorts Inc., Senior Secured
Notes
|
8.250%
|
2/15/28
|
7,059,000
|
6,917,820
(a)
|
|
|
Gaia Purchaser Inc., Senior Secured
Notes
|
7.625%
|
7/15/33
|
1,250,000
|
1,265,109
(a)(d)
|
|
|
Kingpin Intermediate Holdings LLC,
Senior Secured Notes
|
7.250%
|
10/15/32
|
4,000,000
|
3,382,461
(a)(b)
|
|
|
Pinnacle Bidco PLC, Senior Secured
Notes
|
10.000%
|
10/11/28
|
2,500,000
GBP
|
3,446,188
(a)
|
|
|
Six Flags Entertainment Corp./Canada’s
Wonderland Co./Millennium
Operations LLC, Senior Notes
|
8.625%
|
1/15/32
|
2,830,000
|
2,915,866
(a)
|
|
|
Wynn Macau Ltd., Senior Notes
|
5.500%
|
10/1/27
|
3,000,000
|
2,992,134
(a)
|
|
|
Total Hotels, Restaurants & Leisure
|
20,919,578
|
||||
|
Household Durables — 0.9%
|
|||||
|
Newell Brands Inc., Senior Notes
|
8.500%
|
6/1/28
|
2,500,000
|
2,613,245
(a)
|
|
|
Newell Brands Inc., Senior Notes
|
7.500%
|
4/1/46
|
4,500,000
|
4,202,567
|
|
|
Total Household Durables
|
6,815,812
|
||||
|
Specialty Retail — 5.3%
|
|||||
|
Arko Corp., Senior Notes
|
5.125%
|
11/15/29
|
4,000,000
|
3,702,935
(a)
|
|
|
Bath & Body Works Inc., Senior Notes
|
6.750%
|
7/1/36
|
3,250,000
|
3,258,798
(b)
|
|
|
Bath & Body Works Inc., Senior Notes
|
7.600%
|
7/15/37
|
4,275,000
|
4,292,796
(b)
|
|
|
Gee Automotive Holdings LLC, Senior
Notes
|
7.250%
|
3/1/31
|
1,870,000
|
1,896,126
(a)
|
|
|
Global Auto Holdings Ltd./AAG FH UK
Ltd., Senior Notes
|
11.500%
|
8/15/29
|
9,730,000
|
10,079,178
(a)
|
|
|
Michaels Cos. Inc., Secured Notes
|
11.000%
|
3/15/34
|
6,060,000
|
5,939,860
(a)
|
|
See Notes to Financial Statements.
4
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Specialty Retail — continued
|
|||||
|
Petco Health & Wellness Co. Inc.,
Senior Secured Notes
|
8.250%
|
2/1/31
|
1,930,000
|
$1,946,344
(a)(b)
|
|
|
PetSmart LLC/PetSmart Finance Corp.,
Senior Notes
|
10.000%
|
9/15/33
|
6,000,000
|
6,013,812
(a)(b)
|
|
|
Upbound Group Inc., Senior Notes
|
6.375%
|
2/15/29
|
2,000,000
|
1,983,788
(a)
|
|
|
Total Specialty Retail
|
39,113,637
|
||||
|
|
|||||
|
Total Consumer Discretionary
|
107,400,572
|
||||
|
Consumer Staples — 0.8%
|
|||||
|
Consumer Staples Distribution & Retail — 0.1%
|
|||||
|
Boots Group Finco LP, Senior Secured
Notes
|
7.375%
|
8/31/32
|
640,000
GBP
|
878,882
(a)
|
|
|
Food Products — 0.4%
|
|||||
|
TKC Holdings Inc., Senior Secured
Notes
|
8.500%
|
8/15/30
|
2,900,000
|
2,986,617
(a)
|
|
|
Tobacco — 0.3%
|
|||||
|
Turning Point Brands Inc., Senior
Secured Notes
|
7.625%
|
3/15/32
|
2,000,000
|
2,074,594
(a)(b)
|
|
|
|
|||||
|
Total Consumer Staples
|
5,940,093
|
||||
|
Energy — 11.5%
|
|||||
|
Energy Equipment & Services — 0.5%
|
|||||
|
Nabors Industries Inc., Senior Notes
|
8.875%
|
8/15/31
|
3,770,000
|
3,873,256
(a)
|
|
|
Oil, Gas & Consumable Fuels — 11.0%
|
|||||
|
Blue Racer Midstream LLC/Blue Racer
Finance Corp., Senior Notes
|
7.250%
|
7/15/32
|
1,000,000
|
1,035,168
(a)
|
|
|
Crescent Energy Finance LLC, Senior
Notes
|
7.625%
|
4/1/32
|
3,000,000
|
3,026,064
(a)(b)
|
|
|
Crescent Energy Finance LLC, Senior
Notes
|
8.375%
|
1/15/34
|
3,790,000
|
3,906,031
(a)(b)
|
|
|
Energy Transfer LP, Junior Subordinated
Notes (6.625% to 2/15/28 then 3 mo.
Term SOFR + 4.417%)
|
6.625%
|
2/15/28
|
6,645,000
|
6,702,074
(e)(f)
|
|
|
EQT Corp., Senior Notes
|
6.500%
|
7/15/48
|
3,000,000
|
3,067,270
(b)
|
|
|
Granite Ridge Resources Inc., Senior
Notes
|
8.875%
|
11/5/29
|
6,790,000
|
6,652,730
(a)(b)
|
|
|
New Generation Gas Gathering LLC,
Senior Secured Notes (3 mo. Term
SOFR + 5.750%)
|
9.414%
|
9/30/29
|
4,474,324
|
4,505,153
(a)(f)(g)(h)
|
|
|
Northern Oil & Gas Inc., Senior Notes
|
7.875%
|
10/15/33
|
2,500,000
|
2,485,849
(a)(b)
|
|
|
Occidental Petroleum Corp., Senior
Notes
|
7.500%
|
11/1/96
|
8,906,000
|
9,616,610
(b)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
5
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Oil, Gas & Consumable Fuels — continued
|
|||||
|
Permian Resources Operating LLC,
Senior Notes
|
9.875%
|
7/15/31
|
1,294,000
|
$1,360,662
(a)(b)
|
|
|
Plains All American Pipeline LP, Junior
Subordinated Notes (3 mo. Term SOFR
+ 4.372%)
|
8.023%
|
7/30/26
|
7,000,000
|
7,023,678
(e)(f)
|
|
|
Rockies Express Pipeline LLC, Senior
Notes
|
7.500%
|
7/15/38
|
7,500,000
|
7,897,080
(a)(b)
|
|
|
Sunoco LP, Junior Subordinated Notes
(7.875% to 9/18/30 then 5 year
Treasury Constant Maturity Rate +
4.230%)
|
7.875%
|
9/18/30
|
5,000,000
|
5,202,911
(a)(e)(f)
|
|
|
Venture Global LNG Inc., Junior
Subordinated Notes (9.000% to
9/30/29 then 5 year Treasury Constant
Maturity Rate + 5.440%)
|
9.000%
|
9/30/29
|
2,000,000
|
1,953,670
(a)(e)(f)
|
|
|
Venture Global LNG Inc., Senior
Secured Notes
|
8.375%
|
6/1/31
|
5,000,000
|
5,206,516
(a)(b)
|
|
|
Venture Global LNG Inc., Senior
Secured Notes
|
9.875%
|
2/1/32
|
4,510,000
|
4,816,509
(a)(b)
|
|
|
Venture Global Plaquemines LNG LLC,
Senior Secured Notes
|
6.500%
|
6/15/34
|
2,450,000
|
2,553,574
(a)(b)
|
|
|
Venture Global Plaquemines LNG LLC,
Senior Secured Notes
|
7.750%
|
5/1/35
|
2,125,000
|
2,384,137
(a)(b)
|
|
|
Venture Global Plaquemines LNG LLC,
Senior Secured Notes
|
6.750%
|
1/15/36
|
1,180,000
|
1,251,722
(a)(b)
|
|
|
Total Oil, Gas & Consumable Fuels
|
80,647,408
|
||||
|
|
|||||
|
Total Energy
|
84,520,664
|
||||
|
Financials — 5.8%
|
|||||
|
Banks — 0.5%
|
|||||
|
Citigroup Inc., Junior Subordinated
Notes (6.625% to 2/15/31 then 5 year
Treasury Constant Maturity Rate +
3.001%)
|
6.625%
|
2/15/31
|
1,920,000
|
1,957,012
(e)(f)
|
|
|
Ueno Bank SA, Senior Notes
|
6.700%
|
3/6/31
|
1,500,000
|
1,462,275
(a)
|
|
|
Total Banks
|
3,419,287
|
||||
|
Capital Markets — 0.4%
|
|||||
|
StoneX Group Inc., Secured Notes
|
7.875%
|
3/1/31
|
2,620,000
|
2,752,509
(a)(b)
|
|
|
Consumer Finance — 1.4%
|
|||||
|
Midcap Financial Issuer Trust, Junior
Subordinated Notes (3 mo. Term SOFR
+ 3.750%)
|
7.423%
|
1/15/56
|
1,890,000
|
1,878,795
(a)(b)(f)
|
|
See Notes to Financial Statements.
6
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Consumer Finance — continued
|
|||||
|
Navient Corp., Senior Notes
|
5.500%
|
3/15/29
|
8,900,000
|
$8,548,110
(b)
|
|
|
Total Consumer Finance
|
10,426,905
|
||||
|
Financial Services — 1.5%
|
|||||
|
LD Holdings Group LLC, Senior Notes
|
8.750%
|
11/1/27
|
1,500,000
|
1,382,944
(a)
|
|
|
LD Holdings Group LLC, Senior Notes
|
6.125%
|
4/1/28
|
4,100,000
|
3,431,536
(a)
|
|
|
Rocket Mortgage LLC/Rocket Mortgage
Co-Issuer Inc., Senior Notes
|
4.000%
|
10/15/33
|
1,000,000
|
900,591
(a)(b)
|
|
|
VistaJet Malta Finance PLC/Vista
Management Holding Inc., Senior
Notes
|
8.750%
|
1/15/32
|
5,330,000
|
5,284,373
(a)
|
|
|
Total Financial Services
|
10,999,444
|
||||
|
Insurance — 0.9%
|
|||||
|
APH Somerset Investor 2 LLC/APH2
Somerset Investor 2 LLC/APH3
Somerset Investor 2 LLC, Senior Notes
|
7.875%
|
11/1/29
|
2,170,000
|
2,199,165
(a)(b)
|
|
|
Asurion LLC/Asurion Co-Issuer Inc.,
Senior Secured Notes
|
8.000%
|
12/31/32
|
4,790,000
|
4,830,099
(a)(b)
|
|
|
Total Insurance
|
7,029,264
|
||||
|
Mortgage Real Estate Investment Trusts (REITs) — 1.1%
|
|||||
|
Arbor Realty SR Inc., Senior Notes
|
8.500%
|
12/15/28
|
2,970,000
|
2,930,438
(a)(b)
|
|
|
Ladder Capital Finance Holdings LLLP/
Ladder Capital Finance Corp., Senior
Notes
|
4.750%
|
6/15/29
|
5,000,000
|
4,889,475
(a)(b)
|
|
|
Total Mortgage Real Estate Investment Trusts (REITs)
|
7,819,913
|
||||
|
|
|||||
|
Total Financials
|
42,447,322
|
||||
|
Health Care — 8.4%
|
|||||
|
Health Care Providers & Services — 5.8%
|
|||||
|
Akumin Inc., Senior Secured Notes
|
9.750%
|
8/31/31
|
6,982,000
|
6,702,406
(a)(b)
|
|
|
CHS/Community Health Systems Inc.,
Secured Notes
|
6.875%
|
4/15/29
|
13,930,000
|
13,712,500
(a)(b)
|
|
|
CHS/Community Health Systems Inc.,
Secured Notes
|
6.125%
|
4/1/30
|
600,000
|
539,251
(a)
|
|
|
CHS/Community Health Systems Inc.,
Senior Secured Notes
|
4.750%
|
2/15/31
|
1,888,000
|
1,738,202
(a)
|
|
|
CHS/Community Health Systems Inc.,
Senior Secured Notes
|
10.875%
|
1/15/32
|
1,742,000
|
1,878,209
(a)
|
|
|
CHS/Community Health Systems Inc.,
Senior Secured Notes
|
9.750%
|
1/15/34
|
1,550,000
|
1,620,263
(a)
|
|
|
LifePoint Health Inc., Senior Secured
Notes
|
9.875%
|
8/15/30
|
3,000,000
|
3,164,730
(a)(b)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
7
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Health Care Providers & Services — continued
|
|||||
|
LifePoint Health Inc., Senior Secured
Notes
|
7.000%
|
5/1/34
|
2,050,000
|
$1,966,333
(a)(b)
|
|
|
Sotera Health Holdings LLC, Senior
Secured Notes
|
7.375%
|
6/1/31
|
2,500,000
|
2,595,278
(a)(b)
|
|
|
Team Health Holdings Inc., Senior
Secured Notes (9.000% Cash and
4.500% PIK)
|
13.500%
|
6/30/28
|
5,000,000
|
5,115,350
(a)(c)
|
|
|
TEAM Services Holding Inc., Senior
Secured Notes
|
9.000%
|
2/15/33
|
1,760,000
|
1,782,730
(a)
|
|
|
U.S. Renal Care Inc., Senior Secured
Notes
|
10.625%
|
6/28/28
|
1,883,000
|
1,751,190
(a)
|
|
|
Total Health Care Providers & Services
|
42,566,442
|
||||
|
Health Care Technology — 0.2%
|
|||||
|
Claritev Corp., Senior Secured Notes
(6.000% Cash and 0.750% PIK)
|
6.750%
|
3/31/31
|
1,947,887
|
1,149,254
(a)(c)
|
|
|
MPH Acquisition Holdings LLC, Senior
Secured Notes
|
5.750%
|
12/31/30
|
223,925
|
186,972
(a)
|
|
|
MPH Acquisition Holdings LLC, Senior
Secured Notes (6.500% Cash and
5.000% PIK)
|
11.500%
|
12/31/30
|
360,064
|
356,758
(a)(c)
|
|
|
Total Health Care Technology
|
1,692,984
|
||||
|
Pharmaceuticals — 2.4%
|
|||||
|
1261229 BC Ltd., Senior Secured Notes
|
10.000%
|
4/15/32
|
2,920,000
|
2,959,438
(a)(b)
|
|
|
Bausch Health Cos. Inc., Senior Notes
|
7.000%
|
1/15/28
|
5,000,000
|
4,521,875
(a)
|
|
|
Bausch Health Cos. Inc., Senior Notes
|
6.250%
|
2/15/29
|
7,616,000
|
5,735,800
(a)
|
|
|
Teva Pharmaceutical Finance Co. LLC,
Senior Notes
|
6.150%
|
2/1/36
|
2,000,000
|
2,110,800
|
|
|
Teva Pharmaceutical Finance
Netherlands III BV, Senior Notes
|
4.100%
|
10/1/46
|
3,000,000
|
2,317,347
|
|
|
Total Pharmaceuticals
|
17,645,260
|
||||
|
|
|||||
|
Total Health Care
|
61,904,686
|
||||
|
Industrials — 15.3%
|
|||||
|
Air Freight & Logistics — 0.7%
|
|||||
|
GB AIT Buyer Inc., Senior Notes
|
8.750%
|
4/30/34
|
5,000,000
|
5,019,546
(a)(b)
|
|
|
Commercial Services & Supplies — 2.9%
|
|||||
|
CoreCivic Inc., Senior Notes
|
8.250%
|
4/15/29
|
3,359,000
|
3,500,424
|
|
|
GEO Group Inc., Senior Notes
|
10.250%
|
4/15/31
|
2,100,000
|
2,270,184
(b)
|
|
|
Neptune Bidco US Inc., Senior Secured
Notes
|
10.375%
|
5/15/31
|
2,280,000
|
2,364,873
(a)(b)
|
|
See Notes to Financial Statements.
8
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Commercial Services & Supplies — continued
|
|||||
|
Neptune Bidco US Inc., Senior Secured
Notes
|
9.500%
|
2/15/33
|
1,300,000
|
$1,315,999
(a)(b)
|
|
|
RR Donnelley & Sons Co., Secured
Notes
|
10.875%
|
8/1/29
|
3,830,000
|
3,940,342
(a)
|
|
|
RR Donnelley & Sons Co., Senior
Secured Notes
|
9.500%
|
8/1/29
|
3,500,000
|
3,632,286
(a)(b)
|
|
|
Veritiv Operating Co., Senior Secured
Notes
|
10.500%
|
11/30/30
|
4,000,000
|
4,095,936
(a)
|
|
|
Total Commercial Services & Supplies
|
21,120,044
|
||||
|
Construction & Engineering — 3.0%
|
|||||
|
ATP Tower Holdings/Andean Telecom
Partners Chile SpA/Andean Tower
Partners Colombia SAS, Senior
Secured Notes
|
7.875%
|
2/3/30
|
1,900,000
|
1,967,811
(a)(b)
|
|
|
Empire Communities Corp., Senior
Notes
|
9.750%
|
5/1/29
|
3,000,000
|
3,105,114
(a)
|
|
|
Tutor Perini Corp., Senior Notes
|
11.875%
|
4/30/29
|
9,921,000
|
10,814,009
(a)
|
|
|
Tutor Perini Corp., Senior Notes
|
6.625%
|
7/15/33
|
6,600,000
|
6,645,738
(a)(d)
|
|
|
Total Construction & Engineering
|
22,532,672
|
||||
|
Electrical Equipment — 1.0%
|
|||||
|
Babcock & Wilcox Enterprises Inc.,
Secured Notes
|
8.750%
|
6/30/30
|
5,000,000
|
5,003,125
(a)(b)
|
|
|
GrafTech Global Enterprises Inc.,
Secured Notes
|
9.875%
|
12/23/29
|
3,000,000
|
2,220,000
(a)
|
|
|
Total Electrical Equipment
|
7,223,125
|
||||
|
Ground Transportation — 1.1%
|
|||||
|
Carriage Purchaser Inc., Senior Notes
|
7.875%
|
10/15/29
|
8,250,000
|
8,219,337
(a)
|
|
|
Machinery — 2.5%
|
|||||
|
Chart Industries Inc., Senior Secured
Notes
|
7.500%
|
1/1/30
|
3,000,000
|
3,101,052
(a)(b)
|
|
|
Park-Ohio Industries Inc., Senior
Secured Notes
|
8.500%
|
8/1/30
|
9,690,000
|
10,117,814
(a)(b)
|
|
|
Titan International Inc., Senior Secured
Notes
|
7.000%
|
4/30/28
|
5,230,000
|
5,238,902
|
|
|
Total Machinery
|
18,457,768
|
||||
|
Marine Transportation — 0.5%
|
|||||
|
Stena International SA, Senior Secured
Notes
|
7.625%
|
2/15/31
|
3,690,000
|
3,817,054
(a)(b)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
9
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Passenger Airlines — 1.7%
|
|||||
|
JetBlue Airways Corp./JetBlue
Loyalty LP, Senior Secured Notes
|
9.875%
|
9/20/31
|
7,620,000
|
$6,911,857
(a)(b)
|
|
|
Latam Airlines Group SA, Senior
Secured Notes
|
7.875%
|
4/15/30
|
1,000,000
|
1,041,750
(a)(b)
|
|
|
RJET 2023-1 A
|
8.000%
|
6/15/30
|
4,312,500
|
4,471,978
|
|
|
Total Passenger Airlines
|
12,425,585
|
||||
|
Trading Companies & Distributors — 1.2%
|
|||||
|
EquipmentShare.com Inc., Secured
Notes
|
9.000%
|
5/15/28
|
3,890,000
|
3,973,102
(a)
|
|
|
EquipmentShare.com Inc., Secured
Notes
|
7.125%
|
7/1/34
|
2,090,000
|
2,056,118
(a)(d)
|
|
|
Herc Holdings Inc., Senior Notes
|
7.000%
|
6/15/30
|
420,000
|
435,226
(a)
|
|
|
Herc Holdings Inc., Senior Notes
|
7.250%
|
6/15/33
|
420,000
|
438,168
(a)
|
|
|
QXO Building Products Inc., Senior
Notes
|
6.875%
|
7/15/34
|
1,680,000
|
1,725,655
(a)
|
|
|
Total Trading Companies & Distributors
|
8,628,269
|
||||
|
Transportation Infrastructure — 0.7%
|
|||||
|
Railworks Holdings LP/Railworks
Rally Inc., Secured Notes
|
8.250%
|
11/15/28
|
5,000,000
|
5,011,680
(a)
|
|
|
|
|||||
|
Total Industrials
|
112,455,080
|
||||
|
Information Technology — 5.7%
|
|||||
|
Communications Equipment — 0.5%
|
|||||
|
Connect Finco SARL/Connect US
Finco LLC, Senior Secured Notes
|
9.000%
|
9/15/29
|
2,000,000
|
2,106,988
(a)(b)
|
|
|
Viasat Inc., Senior Secured Notes
|
5.625%
|
4/15/27
|
2,000,000
|
2,001,950
(a)(b)
|
|
|
Total Communications Equipment
|
4,108,938
|
||||
|
IT Services — 2.3%
|
|||||
|
APLD ComputeCo 3 LLC, Senior
Secured Notes
|
7.000%
|
6/15/31
|
3,170,000
|
3,167,465
(a)(b)
|
|
|
APLD ComputeCo LLC, Senior Secured
Notes
|
9.250%
|
12/15/30
|
2,050,000
|
2,212,676
(a)(b)
|
|
|
Core Scientific Finance I LLC, Senior
Secured Notes
|
7.750%
|
5/15/31
|
3,320,000
|
3,369,139
(a)(b)
|
|
|
CoreWeave Inc., Senior Notes
|
9.250%
|
6/1/30
|
6,380,000
|
6,426,130
(a)(b)
|
|
|
Sabre GLBL Inc., Senior Secured Notes
|
11.125%
|
7/15/30
|
2,000,000
|
1,920,980
(a)
|
|
|
Total IT Services
|
17,096,390
|
||||
|
Software — 2.8%
|
|||||
|
Citrix Systems Inc., Senior Secured
Notes
|
4.500%
|
12/1/27
|
8,164,000
|
7,897,446
(b)
|
|
|
NCR Voyix Corp., Senior Notes
|
5.125%
|
4/15/29
|
3,000,000
|
2,928,382
(a)(b)
|
|
See Notes to Financial Statements.
10
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Software — continued
|
|||||
|
Oracle Corp., Senior Notes
|
6.900%
|
11/9/52
|
8,000,000
|
$7,675,937
(b)
|
|
|
Oracle Corp., Senior Notes
|
6.000%
|
8/3/55
|
2,200,000
|
1,874,593
|
|
|
Total Software
|
20,376,358
|
||||
|
Technology Hardware, Storage & Peripherals — 0.1%
|
|||||
|
Vericast Corp./Harland Clarke/Checks
in the Mail/Valassis Comm/Valassis
Direct, Secured Notes (13.000% Cash)
|
13.000%
|
12/15/30
|
676,658
|
828,865
(a)(c)
|
|
|
|
|||||
|
Total Information Technology
|
42,410,551
|
||||
|
Materials — 2.8%
|
|||||
|
Chemicals — 1.5%
|
|||||
|
ARC Falcon I Inc./Arclin USA LLC/New
Arclin US Holding Corp., Senior
Secured Notes
|
9.750%
|
3/1/33
|
3,990,000
|
3,842,510
(a)(b)
|
|
|
Cerdia Finanz GmbH, Senior Secured
Notes
|
9.375%
|
10/3/31
|
3,620,000
|
3,251,954
(a)(b)
|
|
|
Consolidated Energy Finance SA,
Senior Notes
|
5.625%
|
10/15/28
|
3,505,000
|
3,369,181
(a)
|
|
|
Orbia Advance Corp. SAB de CV, Senior
Notes
|
2.875%
|
5/11/31
|
1,080,000
|
897,961
(i)
|
|
|
Total Chemicals
|
11,361,606
|
||||
|
Construction Materials — 0.3%
|
|||||
|
Smyrna Ready Mix Concrete LLC,
Senior Secured Notes
|
8.875%
|
11/15/31
|
2,070,000
|
2,183,749
(a)(b)
|
|
|
Metals & Mining — 1.0%
|
|||||
|
First Quantum Minerals Ltd., Senior
Notes
|
8.625%
|
6/1/31
|
2,000,000
|
2,084,817
(a)
|
|
|
First Quantum Minerals Ltd., Senior
Notes
|
8.000%
|
3/1/33
|
2,420,000
|
2,533,144
(a)
|
|
|
First Quantum Minerals Ltd., Senior
Notes
|
7.250%
|
2/15/34
|
1,380,000
|
1,415,778
(a)
|
|
|
WS Escrow LLC, Senior Secured Notes
|
7.750%
|
6/1/33
|
960,000
|
986,483
(a)
|
|
|
Total Metals & Mining
|
7,020,222
|
||||
|
|
|||||
|
Total Materials
|
20,565,577
|
||||
|
Real Estate — 2.3%
|
|||||
|
Diversified REITs — 1.5%
|
|||||
|
MPT Operating Partnership LP/MPT
Finance Corp., Senior Notes
|
5.000%
|
10/15/27
|
5,610,000
|
5,445,009
|
|
|
MPT Operating Partnership LP/MPT
Finance Corp., Senior Notes
|
4.625%
|
8/1/29
|
3,890,000
|
3,129,783
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
11
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Diversified REITs — continued
|
|||||
|
MPT Operating Partnership LP/MPT
Finance Corp., Senior Secured Notes
|
8.500%
|
2/15/32
|
900,000
|
$922,041
(a)
|
|
|
Uniti Group LP/Uniti Group
Finance Inc./CSL Capital LLC, Senior
Notes
|
8.625%
|
6/15/32
|
1,420,000
|
1,482,566
(a)
|
|
|
Total Diversified REITs
|
10,979,399
|
||||
|
Health Care REITs — 0.2%
|
|||||
|
Diversified Healthcare Trust, Senior
Secured Notes
|
7.250%
|
10/15/30
|
1,170,000
|
1,205,705
(a)
|
|
|
Real Estate Management & Development — 0.6%
|
|||||
|
Add Hero Holdings Ltd., Senior Secured
Notes (7.500% Cash or 8.500% PIK)
|
8.500%
|
9/30/29
|
557,668
|
6,971
*(c)(i)(j)
|
|
|
Add Hero Holdings Ltd., Senior Secured
Notes (8.000% Cash or 9.000% PIK)
|
9.000%
|
9/30/30
|
454,176
|
2,498
*(c)(i)(j)
|
|
|
Add Hero Holdings Ltd., Senior Secured
Notes (8.800% Cash or 9.800% PIK)
|
9.800%
|
9/30/31
|
599,523
|
3,298
*(c)(i)(j)
|
|
|
China Aoyuan Group Ltd., Senior
Notes, Step bond (0.000% to 9/30/31
then 1.000%)
|
0.000%
|
3/30/2173
|
786,962
|
5,902
(e)(i)
|
|
|
China Aoyuan Group Ltd., Senior
Secured Notes (5.500% PIK)
|
5.500%
|
9/30/31
|
225,321
|
1,690
(c)(i)
|
|
|
Country Garden Holdings Co. Ltd.,
Senior Secured Notes (2.500% Cash or
5.000% PIK)
|
5.000%
|
12/31/32
|
1,268,733
|
145,904
(c)(i)
|
|
|
Cushman & Wakefield US
Borrower LLC, Senior Secured Notes
|
8.875%
|
9/1/31
|
1,000,000
|
1,050,145
(a)
|
|
|
ELK Grove Village Property LLC, Senior
Secured Notes
|
7.500%
|
6/15/31
|
1,130,000
|
1,138,488
(a)
|
|
|
Five Point Operating Co. LP, Senior
Notes
|
8.000%
|
10/1/30
|
2,170,000
|
2,223,039
(a)(b)
|
|
|
Total Real Estate Management & Development
|
4,577,935
|
||||
|
|
|||||
|
Total Real Estate
|
16,763,039
|
||||
|
Utilities — 0.4%
|
|||||
|
Electric Utilities — 0.2%
|
|||||
|
Pampa Energia SA, Senior Notes
|
7.950%
|
9/10/31
|
1,210,000
|
1,266,621
(a)
|
|
|
Independent Power and Renewable Electricity Producers — 0.2%
|
|||||
|
Saavi Energia Sarl, Senior Notes
|
8.875%
|
2/10/35
|
1,800,000
|
1,971,450
(a)
|
|
|
|
|||||
|
Total Utilities
|
3,238,071
|
||||
|
Total Corporate Bonds & Notes (Cost — $581,762,031)
|
592,309,358
|
||||
See Notes to Financial Statements.
12
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
Collateralized Mortgage Obligations(k) — 28.8%
|
|||||
|
Atrium Hotel Portfolio Trust, 2017-
ATRM E (1 mo. Term SOFR + 3.347%)
|
6.973%
|
12/15/36
|
780,000
|
$759,135
(a)(f)
|
|
|
BANK, 2021-BN35 H
|
1.771%
|
6/15/64
|
9,451,000
|
3,929,400
(a)(f)
|
|
|
BANK, 2021-BN35 K
|
1.771%
|
6/15/64
|
21,846,154
|
8,448,867
(a)(f)
|
|
|
Benchmark Mortgage Trust, 2021-B27 F
|
2.250%
|
7/15/54
|
5,000,000
|
2,968,255
(a)(f)
|
|
|
Benchmark Mortgage Trust, 2021-B27
G
|
2.250%
|
7/15/54
|
5,000,000
|
2,434,709
(a)(f)
|
|
|
BFLD Commercial Mortgage Trust,
2025-5MW F
|
10.155%
|
10/10/42
|
5,600,000
|
5,933,208
(a)(f)
|
|
|
BRES Commercial Mortgage Trust,
2025-ATCAP F (1 mo. Term SOFR +
5.189%)
|
8.814%
|
11/15/42
|
2,000,000
|
1,994,450
(a)(f)
|
|
|
BSREP Commercial Mortgage Trust,
2021-DC HRR (1 mo. Term SOFR +
5.614%)
|
9.240%
|
8/15/38
|
15,903,970
|
3,129,424
(a)(f)
|
|
|
BWAY Mortgage Trust, 2013-1515 F
|
4.058%
|
3/10/33
|
3,000,000
|
2,639,915
(a)(f)
|
|
|
BX Commercial Mortgage Trust, 2019-
IMC G (1 mo. Term SOFR + 3.646%)
|
7.271%
|
4/15/34
|
2,000,000
|
1,825,790
(a)(f)
|
|
|
BX Commercial Mortgage Trust, 2026-
VLT9 E (1 mo. Term SOFR + 4.250%)
|
7.875%
|
3/15/45
|
2,150,000
|
2,158,442
(a)(f)
|
|
|
CAFL Issuer LLC, 2024-RTL1 A2
|
10.180%
|
11/28/31
|
4,570,000
|
4,618,048
(a)(b)
|
|
|
CIM Trust, 2021-INV1 AXS, IO
|
0.190%
|
7/1/51
|
167,422,333
|
1,492,788
(a)(b)(f)
|
|
|
Citigroup Commercial Mortgage Trust,
2015-P1 D
|
3.225%
|
9/15/48
|
12,456
|
12,212
(a)
|
|
|
CONE Commercial Mortgage Trust,
2026-DFW3 E
|
8.103%
|
5/15/43
|
1,650,000
|
1,666,084
(a)(f)
|
|
|
CSMC Trust, 2021-ADV G (1 mo. Term
SOFR + 6.364%)
|
9.990%
|
7/15/38
|
7,860,000
|
802
(a)(f)
|
|
|
Easy Street Mortgage Loan Trust, 2025-
RTL1 A2
|
8.299%
|
5/25/40
|
2,990,000
|
3,031,954
(a)(b)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) Multifamily Structured Credit
Risk Trust, 2021-MN2 B1 (30 Day
Average SOFR + 5.500%)
|
9.128%
|
7/25/41
|
2,500,000
|
2,533,730
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) Multifamily Structured Credit
Risk Trust, 2023-MN7 B1 (30 Day
Average SOFR + 8.850%)
|
12.478%
|
9/25/43
|
1,960,000
|
2,268,868
(a)(b)(f)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
13
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
Collateralized Mortgage Obligations(k) — continued
|
|||||
|
Federal Home Loan Mortgage Corp.
(FHLMC) Multifamily Structured Credit
Risk Trust, 2026-MN14 B1 (30 Day
Average SOFR + 4.300%)
|
7.890%
|
6/25/46
|
6,500,000
|
$6,541,123
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) REMIC, Structured Agency
Credit Risk Trust, 2020-DNA1 B2 (30
Day Average SOFR + 5.364%)
|
8.992%
|
1/25/50
|
2,225,000
|
2,465,906
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) REMIC, Structured Agency
Credit Risk Trust, 2020-DNA2 B2 (30
Day Average SOFR + 4.914%)
|
8.542%
|
2/25/50
|
5,437,500
|
5,961,946
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) REMIC, Structured Agency
Credit Risk Trust, 2020-DNA6 B2 (30
Day Average SOFR + 5.650%)
|
9.278%
|
12/25/50
|
5,000,000
|
5,757,298
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) REMIC, Structured Agency
Credit Risk Trust, 2021-DNA1 B2 (30
Day Average SOFR + 4.750%)
|
8.378%
|
1/25/51
|
6,000,000
|
6,691,036
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) REMIC, Structured Agency
Credit Risk Trust, 2021-DNA2 B2 (30
Day Average SOFR + 6.000%)
|
9.628%
|
8/25/33
|
4,500,000
|
5,550,954
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) REMIC, Structured Agency
Credit Risk Trust, 2021-DNA3 B2 (30
Day Average SOFR + 6.250%)
|
9.878%
|
10/25/33
|
5,000,000
|
6,268,102
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) Seasoned Credit Risk Transfer
Trust, 2018-3 BX
|
2.239%
|
8/25/57
|
9,334,541
|
2,797,458
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) Seasoned Credit Risk Transfer
Trust, 2022-1 M
|
4.500%
|
11/25/61
|
5,000,000
|
4,657,879
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) Structured Agency Credit Risk
Trust, 2018-HRP1 B2 (30 Day Average
SOFR + 11.864%)
|
15.492%
|
5/25/43
|
4,652,928
|
5,404,988
(a)(b)(f)
|
|
|
Federal Home Loan Mortgage Corp.
(FHLMC) Structured Agency Credit Risk
Trust, 2019-FTR1 B2 (30 Day Average
SOFR + 8.464%)
|
12.092%
|
1/25/48
|
3,460,000
|
4,080,854
(a)(b)(f)
|
|
See Notes to Financial Statements.
14
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
Collateralized Mortgage Obligations(k) — continued
|
|||||
|
FREMF Mortgage Trust, 2021-F117 CS
(30 Day Average SOFR + 6.400%)
|
9.992%
|
7/25/31
|
3,292,803
|
$3,154,822
(a)(f)
|
|
|
Greystone CRE Notes LLC, 2025-HC4 D
(1 mo. Term SOFR + 3.940%)
|
7.565%
|
10/15/42
|
3,500,000
|
3,489,563
(a)(f)
|
|
|
GS Mortgage Securities Corp., 2024-
70P HRR
|
10.333%
|
3/10/41
|
17,680,000
|
17,599,537
(a)(f)
|
|
|
GS Mortgage Securities Corp. Trust,
2018-LUAU G (1 mo. Term SOFR +
4.747%)
|
8.372%
|
11/15/32
|
5,000,000
|
4,956,047
(a)(f)
|
|
|
HIH Trust, 2024-61P F (1 mo. Term
SOFR + 5.437%)
|
9.062%
|
10/15/41
|
3,281,936
|
3,311,945
(a)(f)
|
|
|
INCREF LLC, 2026-FL2 D (1 mo. Term
SOFR + 2.600%)
|
6.270%
|
12/19/43
|
1,990,000
|
1,996,949
(a)(f)
|
|
|
JPMorgan Chase Commercial
Mortgage Securities Trust, 2018-WPT
GFX
|
5.542%
|
7/5/33
|
4,000,000
|
378,000
(a)(f)
|
|
|
KIND Trust, 2021-KIND F (1 mo. Term
SOFR + 4.064%)
|
7.690%
|
8/15/38
|
5,951,129
|
5,924,710
(a)(f)
|
|
|
MIRA Trust, 2023-MILE HRR
|
9.300%
|
6/10/38
|
13,750,000
|
13,727,532
(a)
|
|
|
Morgan Stanley Capital I Trust, 2021-L6
F
|
2.250%
|
6/15/54
|
7,195,000
|
4,476,348
(a)(f)
|
|
|
Multifamily CAS Trust, 2019-1 CE (30
Day Average SOFR + 8.864%)
|
12.492%
|
10/25/49
|
2,000,000
|
2,046,775
(a)(f)
|
|
|
Multifamily CAS Trust, 2020-1 CE (30
Day Average SOFR + 7.614%)
|
11.242%
|
3/25/50
|
2,500,000
|
2,592,199
(a)(b)(f)
|
|
|
Multifamily CAS Trust, 2023-01 B1 (30
Day Average SOFR + 9.750%)
|
13.378%
|
11/25/53
|
5,000,000
|
6,032,695
(a)(f)
|
|
|
Natixis Commercial Mortgage
Securities Trust, 2022-JERI G (1 mo.
Term SOFR + 7.608%)
|
11.233%
|
1/15/39
|
2,500,000
|
1,146,688
(a)(f)
|
|
|
Natixis Commercial Mortgage
Securities Trust, 2022-RRI E (1 mo.
Term SOFR + 5.193%)
|
8.818%
|
3/15/35
|
804,404
|
807,115
(a)(f)
|
|
|
New Residential Mortgage Loan Trust,
2017-2A B5
|
5.149%
|
3/25/57
|
2,819,937
|
2,522,516
(a)(b)(f)
|
|
|
New Residential Mortgage Loan Trust,
2018-1A B6
|
5.535%
|
12/25/57
|
5,714,701
|
5,052,518
(a)(b)(f)
|
|
|
NYC Commercial Mortgage Trust,
2025-28L F
|
8.401%
|
11/5/38
|
1,500,000
|
1,503,428
(a)(f)
|
|
|
NYC Commercial Mortgage Trust,
2025-28L G
|
9.631%
|
11/5/38
|
3,500,000
|
3,481,026
(a)(f)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
15
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
Collateralized Mortgage Obligations(k) — continued
|
|||||
|
NYC Commercial Mortgage Trust,
2026-1325 E
|
8.497%
|
5/9/41
|
4,500,000
|
$4,669,132
(a)(f)
|
|
|
PNW Trust, 2026-ARTE E (1 mo. Term
SOFR + 5.007%)
|
8.632%
|
4/15/41
|
1,000,000
|
999,883
(a)(f)
|
|
|
Redwood Funding Trust, 2025-3 A
|
6.231%
|
12/27/56
|
3,671,973
|
3,700,738
(a)(b)
|
|
|
ROCK Trust, 2024-CNTR E
|
8.819%
|
11/13/41
|
3,700,000
|
3,866,856
(a)
|
|
|
SFO Commercial Mortgage Trust, 2021-
555 E (1 mo. Term SOFR + 3.264%)
|
6.889%
|
5/15/38
|
1,650,000
|
1,647,448
(a)(f)
|
|
|
Soho Trust, 2021-SOHO D
|
2.786%
|
8/10/38
|
4,050,000
|
2,948,051
(a)(f)
|
|
|
Verus Securitization Trust, 2026-4 B1
|
6.666%
|
4/25/71
|
2,000,000
|
1,996,694
(a)(f)
|
|
|
|
|||||
|
Total Collateralized Mortgage Obligations (Cost — $234,906,358)
|
212,052,840
|
||||
|
|
|
|
|
Face
Amount†/
Units
|
|
|
Asset-Backed Securities — 25.1%
|
|||||
|
720 East CLO Ltd., 2022-1A ER (3 mo.
Term SOFR + 5.900%)
|
9.575%
|
1/20/38
|
590,000
|
595,806
(a)(f)
|
|
|
720 East CLO Ltd., 2025-7A E (3 mo.
Term SOFR + 4.750%)
|
8.425%
|
4/20/37
|
2,600,000
|
2,574,350
(a)(b)(f)
|
|
|
Abry Liquid Credit CLO Ltd., 2025-2A E
(3 mo. Term SOFR + 5.850%)
|
9.535%
|
1/15/39
|
2,810,000
|
2,846,044
(a)(b)(f)
|
|
|
AGL CLO Ltd., 2022-17A ER (3 mo. Term
SOFR + 4.650%)
|
8.322%
|
1/21/35
|
1,530,000
|
1,378,338
(a)(b)(f)
|
|
|
AGL CLO Ltd., 2025-44A E (3 mo. Term
SOFR + 4.750%)
|
8.414%
|
10/22/37
|
3,600,000
|
3,580,214
(a)(b)(f)
|
|
|
AGL CLO Ltd., 2021-16A DR (3 mo.
Term SOFR + 2.400%)
|
6.075%
|
1/20/35
|
380,000
|
368,597
(a)(b)(f)
|
|
|
ALLO Issuer LLC, 2026-1A C
|
7.456%
|
6/20/56
|
4,000,000
|
4,041,891
(a)
|
|
|
AMMC CLO Ltd., 2020-23A D2R3 (3
mo. Term SOFR + 4.900%)
|
8.580%
|
7/17/38
|
1,500,000
|
1,511,524
(a)(b)(f)
|
|
|
AMSR Trust, 2026-SFR1 F1
|
3.775%
|
4/17/43
|
5,100,000
|
4,414,772
(a)(b)
|
|
|
AMSR Trust, 2026-SFR1 F2
|
3.775%
|
4/17/43
|
1,258,000
|
1,036,944
(a)(b)
|
|
|
Apex Credit CLO LLC, 2021-2A CR (3
mo. Term SOFR + 3.750%)
|
7.425%
|
10/20/34
|
970,000
|
947,148
(a)(b)(f)
|
|
|
Apidos CLO Ltd., 2023-46A SUB
|
18.506%
|
10/24/36
|
3,500,000
|
2,428,680
(a)(b)(f)(l)
|
|
|
Apidos Loan Fund Ltd., 2024-1A ER (3
mo. Term SOFR + 4.750%)
|
8.417%
|
10/25/38
|
1,750,000
|
1,741,270
(a)(b)(f)
|
|
|
Arini US CLO Ltd., 3A E (3 mo. Term
SOFR + 5.250%)
|
9.011%
|
1/15/39
|
1,440,000
|
1,441,641
(a)(b)(f)
|
|
See Notes to Financial Statements.
16
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†/
Units
|
Value
|
|
Asset-Backed Securities — continued
|
|||||
|
Avis Budget Rental Car Funding
AESOP LLC, 2023-6A D
|
7.370%
|
12/20/29
|
1,320,000
|
$1,335,946
(a)
|
|
|
Avis Budget Rental Car Funding
AESOP LLC, 2024-2A D
|
7.430%
|
10/20/28
|
640,000
|
648,869
(a)
|
|
|
Balboa Bay Loan Funding Ltd., 2020-1A
ERR (3 mo. Term SOFR + 7.150%)
|
10.825%
|
10/20/35
|
2,620,000
|
2,621,415
(a)(b)(f)
|
|
|
Balboa Bay Loan Funding Ltd., 2023-1A
D2RR (3 mo. Term SOFR + 4.250%)
|
7.925%
|
4/20/36
|
2,250,000
|
2,232,483
(a)(b)(f)
|
|
|
Balboa Bay Loan Funding Ltd., 2024-2A
E (3 mo. Term SOFR + 5.750%)
|
9.425%
|
1/20/38
|
1,630,000
|
1,645,890
(a)(b)(f)
|
|
|
Balboa Bay Loan Funding Ltd., 2024-2A
F (3 mo. Term SOFR + 7.800%)
|
11.475%
|
1/20/38
|
200,000
|
197,218
(a)(f)
|
|
|
Bayfront IABS Pte Ltd., 7A C (SOFR +
2.950%)
|
2.543%
|
4/11/48
|
3,000,000
|
3,004,583
(a)(f)(l)
|
|
|
Bayview Opportunity Master Fund LLC,
2025-EDU1 D (30 Day Average SOFR +
2.250%)
|
5.878%
|
7/27/48
|
1,455,856
|
1,457,992
(a)(f)
|
|
|
Black Diamond CLO Ltd., 2021-1A CR (3
mo. Term SOFR + 3.900%)
|
7.564%
|
11/22/34
|
2,270,000
|
2,280,387
(a)(b)(f)
|
|
|
BlueMountain Fuji US CLO Ltd.,
2017-2A D (3 mo. Term SOFR + 6.412%)
|
10.087%
|
10/20/30
|
6,350,000
|
4,379,144
(a)(b)(f)
|
|
|
Capital Four US CLO Ltd., 2022-1A ER
(3 mo. Term SOFR + 8.500%)
|
12.175%
|
1/20/37
|
1,500,000
|
1,444,397
(a)(b)(f)
|
|
|
Capital Four US CLO Ltd., 2025-4A E (3
mo. Term SOFR + 6.130%)
|
9.805%
|
10/18/38
|
2,660,000
|
2,700,725
(a)(b)(f)
|
|
|
CarVal CLO Ltd., 2024-3A E (3 mo. Term
SOFR + 6.350%)
|
10.025%
|
10/20/37
|
2,070,000
|
2,064,945
(a)(b)(f)
|
|
|
Davis Park CLO Ltd., 2022-1A ER (3 mo.
Term SOFR + 6.000%)
|
9.675%
|
7/20/38
|
2,500,000
|
2,253,598
(a)(b)(f)
|
|
|
Dryden CLO Ltd., 2021-95A SUB
|
51.572%
|
8/20/34
|
6,870,000
|
1,694,110
(a)(b)(f)(l)
|
|
|
Dryden CLO Ltd., 2022-113A D1R3 (3
mo. Term SOFR + 3.000%)
|
6.673%
|
10/15/37
|
1,970,000
|
1,974,785
(a)(b)(f)
|
|
|
Dryden CLO Ltd., 2024-119A ER (3 mo.
Term SOFR + 5.750%)
|
9.376%
|
7/15/39
|
2,000,000
|
1,995,117
(a)(f)
|
|
|
Elevation CLO Ltd., 2021-14A ER (3 mo.
Term SOFR + 6.450%)
|
10.125%
|
1/20/38
|
4,400,000
|
4,135,380
(a)(b)(f)
|
|
|
Elmwood CLO Ltd., 2019-2A SUB
|
27.622%
|
4/20/34
|
4,600,000
|
1,613,959
(a)(b)(f)(l)
|
|
|
Fortress Credit BSL Ltd., 2021-4A E (3
mo. Term SOFR + 7.392%)
|
11.065%
|
10/15/34
|
3,000,000
|
2,735,160
(a)(b)(f)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
17
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†/
Units
|
Value
|
|
Asset-Backed Securities — continued
|
|||||
|
GGAM Master Trust International Ltd.,
2025-1A A
|
5.923%
|
9/30/60
|
1,792,688
|
$1,784,765
(a)
|
|
|
GGAM Master Trust International Ltd.,
2026-1A Y
|
9.317%
|
9/30/60
|
2,000,000
|
1,999,998
(a)(d)(g)
|
|
|
GoldenTree Loan Management US CLO
Ltd., 2020-8A FR (3 mo. Term SOFR +
8.312%)
|
11.987%
|
10/20/34
|
7,000,000
|
6,228,375
(a)(b)(f)
|
|
|
GoldenTree Loan Management US CLO
Ltd., 2023-18A ER (3 mo. Term SOFR +
4.750%)
|
8.425%
|
1/20/37
|
2,500,000
|
2,514,475
(a)(f)
|
|
|
Greywolf CLO Ltd., 2015-1A DR (3 mo.
Term SOFR + 6.112%)
|
9.778%
|
1/27/31
|
6,250,000
|
6,290,042
(a)(b)(f)
|
|
|
Greywolf CLO Ltd., 2018-1A D (3 mo.
Term SOFR + 6.012%)
|
9.678%
|
4/26/31
|
3,000,000
|
3,018,371
(a)(b)(f)
|
|
|
HalseyPoint CLO Ltd., 2019-1A FR (3
mo. Term SOFR + 10.730%)
|
14.405%
|
10/20/37
|
2,930,000
|
2,528,315
(a)(b)(f)
|
|
|
Hertz Vehicle Financing LLC, 2026-1A D
|
7.910%
|
11/25/30
|
3,200,000
|
3,208,846
(a)
|
|
|
Hildene Community Funding CDO Ltd.,
2015-1A ARR
|
2.600%
|
11/1/35
|
427,583
|
384,930
(a)(b)
|
|
|
Huntington Bank Auto Credit-Linked
Notes, 2025-1 D (30 Day Average SOFR
+ 3.500%)
|
7.109%
|
3/21/33
|
673,563
|
666,765
(a)(f)
|
|
|
Huntington Bank Auto Credit-Linked
Notes, 2025-2 D (30 Day Average SOFR
+ 3.250%)
|
6.859%
|
9/20/33
|
598,153
|
582,066
(a)(f)
|
|
|
Lakeside Park CLO Ltd., 2025-1A E (3
mo. Term SOFR + 4.600%)
|
8.273%
|
4/15/38
|
2,000,000
|
1,915,524
(a)(b)(f)
|
|
|
LCM Ltd., 33A E (3 mo. Term SOFR +
6.612%)
|
10.287%
|
7/20/34
|
3,000,000
|
1,760,425
(a)(b)(f)
|
|
|
Lighthouse Park CLO Ltd., 2025-1A E (3
mo. Term SOFR + 4.650%)
|
8.317%
|
10/24/37
|
1,140,000
|
1,133,694
(a)(b)(f)
|
|
|
Lunar Structured Aircraft Portfolio
Notes, 2021-1 C
|
5.682%
|
10/15/46
|
2,603,217
|
2,541,737
(a)
|
|
|
Magnetite Ltd., 2020-26A ER2 (3 mo.
Term SOFR + 4.700%)
|
8.367%
|
1/25/38
|
2,750,000
|
2,721,381
(a)(b)(f)
|
|
|
Magnetite Ltd., 2022-32A ER (3 mo.
Term SOFR + 4.600%)
|
8.273%
|
10/15/37
|
2,420,000
|
2,393,844
(a)(b)(f)
|
|
|
MidOcean Credit CLO LLC, 2025-18A E
(3 mo. Term SOFR + 5.400%)
|
9.075%
|
10/18/35
|
2,680,000
|
2,687,960
(a)(b)(f)
|
|
See Notes to Financial Statements.
18
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†/
Units
|
Value
|
|
Asset-Backed Securities — continued
|
|||||
|
National Collegiate Class A-3L
Commutation Trust, 2007-4VI O (1 mo.
USD LIBOR + 0.850%)
|
5.819%
|
3/29/38
|
27,730,208
|
$1,935,263
(a)(f)
|
|
|
Navesink CLO Ltd., 2024-2A ER (3 mo.
Term SOFR + 7.040%)
|
10.713%
|
1/15/36
|
1,750,000
|
1,774,279
(a)(b)(f)
|
|
|
Nelnet Student Loan Trust, 2025-DA D
|
5.860%
|
8/20/54
|
1,500,000
|
1,463,097
(a)
|
|
|
NMEF Funding LLC, 2025-A D
|
8.070%
|
7/15/32
|
3,420,000
|
3,518,046
(a)
|
|
|
Obra CLO Ltd., 2025-3A E (3 mo. Term
SOFR + 5.900%)
|
9.575%
|
1/20/39
|
2,750,000
|
2,785,585
(a)(b)(f)
|
|
|
Ocean Trails CLO Ltd., 2020-10A ER (3
mo. Term SOFR + 7.832%)
|
11.505%
|
10/15/34
|
3,750,000
|
3,636,819
(a)(b)(f)
|
|
|
Ocean Trails CLO Ltd., 2024-16A E (3
mo. Term SOFR + 6.690%)
|
10.365%
|
1/20/38
|
1,020,000
|
1,002,725
(a)(b)(f)
|
|
|
OCP CLO Ltd., 2023-26A ER (3 mo. Term
SOFR + 4.450%)
|
8.130%
|
4/17/37
|
1,780,000
|
1,753,317
(a)(b)(f)
|
|
|
OFSI BSL CLO Ltd., 2024-13A ER (3 mo.
Term SOFR + 6.780%)
|
10.406%
|
7/20/39
|
3,500,000
|
3,522,855
(a)(f)
|
|
|
Phantom Aviation, 2026-1A B
|
6.027%
|
1/15/51
|
2,364,622
|
2,306,007
(a)
|
|
|
Point Broadband Funding LLC, 2025-1A
C
|
8.156%
|
7/20/55
|
2,000,000
|
2,046,920
(a)
|
|
|
Renew, 2024-1A B
|
9.001%
|
11/20/59
|
439,002
|
441,537
(a)
|
|
|
Renew Financial, 2024-2A B
|
8.223%
|
11/20/60
|
1,525,173
|
1,520,795
(a)
|
|
|
Riserva CLO Ltd., 2016-3A FRR (3 mo.
Term SOFR + 8.772%)
|
12.447%
|
1/18/34
|
2,500,000
|
1,541,925
(a)(b)(f)
|
|
|
Rockford Tower CLO Ltd., 2022-2A ER2
(3 mo. Term SOFR + 6.840%)
|
10.515%
|
3/20/38
|
500,000
|
464,133
(a)(b)(f)
|
|
|
RR Ltd., 2021-18A DR (3 mo. Term
SOFR + 4.900%)
|
8.573%
|
7/15/40
|
2,370,000
|
2,373,394
(a)(b)(f)
|
|
|
Saratoga Investment Corp. CLO Ltd.,
2013-1A (3 mo. Term SOFR + 10.262%)
|
13.996%
|
4/20/33
|
4,000,000
|
645,382
(b)
|
|
|
SEB Funding LLC, 2024-1A A2
|
7.386%
|
4/30/54
|
2,024,925
|
2,053,003
(a)
|
|
|
Silver Point CLO Ltd., 2026-16A E (3
mo. Term SOFR + 4.750%)
|
8.405%
|
4/18/39
|
3,380,000
|
3,349,656
(a)(b)(f)
|
|
|
Sixth Street CLO Ltd., 2021-19A FR (3
mo. Term SOFR + 7.910%)
|
11.590%
|
7/17/38
|
450,000
|
443,406
(a)(b)(f)
|
|
|
SMB Private Education Loan Trust,
2015-C R
|
8.388%
|
9/18/46
|
7,570
|
2,232,524
(a)(l)
|
|
|
Sound Point CLO Ltd., 2020-1A ER (3
mo. Term SOFR + 7.122%)
|
10.797%
|
7/20/34
|
4,200,000
|
3,771,621
(a)(b)(f)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
19
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†/
Units
|
Value
|
|
Asset-Backed Securities — continued
|
|||||
|
Sunnova Hellios II Issuer LLC, 2018-1A
B
|
7.710%
|
7/20/48
|
3,252,830
|
$3,076,816
(a)
|
|
|
Symphony CLO Ltd., 2019-21A ER (3
mo. Term SOFR + 6.862%)
|
10.535%
|
7/15/32
|
2,800,000
|
2,571,798
(a)(b)(f)
|
|
|
Symphony CLO Ltd., 2021-28A SUB
|
17.455%
|
10/23/50
|
10,325,000
|
2,762,993
(a)(b)(f)(l)
|
|
|
Symphony CLO Ltd., 2021-28I SBPF
|
—
|
10/23/50
|
249,757
|
37
*(f)(g)(h)
|
|
|
Venture CLO Ltd., 2021-43A D (3 mo.
Term SOFR + 3.732%)
|
7.405%
|
4/15/34
|
1,500,000
|
1,405,590
(a)(b)(f)
|
|
|
Voya CLO Ltd., 2018-2A E (3 mo. Term
SOFR + 5.512%)
|
9.185%
|
7/15/31
|
6,750,000
|
6,228,261
(a)(b)(f)
|
|
|
Voya CLO Ltd., 2020-3A D1RR (3 mo.
Term SOFR + 2.700%)
|
6.372%
|
1/20/38
|
1,250,000
|
1,244,143
(a)(b)(f)
|
|
|
Wave LLC, 2019-1 B
|
4.581%
|
9/15/44
|
244,692
|
239,720
(a)
|
|
|
Wellesley Park CLO Ltd., 2025-1A E (3
mo. Term SOFR + 4.600%)
|
8.267%
|
1/24/39
|
1,130,000
|
1,124,127
(a)(b)(f)
|
|
|
Whitebox CLO Ltd., 2020-2A E1R2 (3
mo. Term SOFR + 5.750%)
|
9.417%
|
10/24/37
|
1,430,000
|
1,440,486
(a)(b)(f)
|
|
|
Whitebox CLO Ltd., 2023-4AR ER2 (3
mo. Term SOFR + 5.150%)
|
8.906%
|
7/20/39
|
2,000,000
|
2,005,000
(a)(d)(f)
|
|
|
Wind River CLO Ltd., 2021-4A E3 (3 mo.
Term SOFR + 8.512%)
|
12.187%
|
1/20/35
|
3,000,000
|
2,308,221
(a)(b)(f)
|
|
|
Wind River CLO Ltd., 2021-4A F (3 mo.
Term SOFR + 6.522%)
|
10.197%
|
1/20/35
|
2,450,000
|
464,100
(a)(b)(f)
|
|
|
|
|||||
|
Total Asset-Backed Securities (Cost — $221,965,667)
|
185,138,416
|
||||
|
|
|
|
|
Face
Amount†
|
|
|
Senior Loans — 14.4%
|
|||||
|
Communication Services — 1.5%
|
|||||
|
Entertainment — 0.5%
|
|||||
|
Allen Media LLC, Term Loan B (3 mo.
Term SOFR + 5.650%)
|
9.382%
|
2/10/27
|
4,653,143
|
3,207,179
(f)(m)(n)
|
|
|
OAK-Eagle Acquireco Inc., Term Loan B
|
—
|
3/24/33
|
750,000
|
752,692
(o)
|
|
|
Total Entertainment
|
3,959,871
|
||||
|
Media — 1.0%
|
|||||
|
CB Poly US Holdings Inc., Initial Term
Loan (3 mo. Term SOFR + 5.500%)
|
9.232%
|
5/18/29
|
4,812,500
|
4,567,375
(f)(m)(n)
|
|
See Notes to Financial Statements.
20
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
Media — continued
|
|||||
|
Nexstar Media Inc., Term Loan B7 (1
mo. Term SOFR + 2.750%)
|
6.394%
|
3/18/33
|
2,448,714
|
$2,427,509
(f)(m)(n)
|
|
|
Total Media
|
6,994,884
|
||||
|
|
|||||
|
Total Communication Services
|
10,954,755
|
||||
|
Consumer Discretionary — 3.0%
|
|||||
|
Automobile Components — 0.9%
|
|||||
|
ABC Technologies Inc., Term Loan B
|
11.894-
11.982%
|
1/2/40
|
4,080,370
|
4,060,110
(f)(g)(h)(m)(n)
|
|
|
Autokiniton US Holdings Inc., 2024
Replacement Term Loan B (1 mo. Term
SOFR + 4.114%)
|
7.758%
|
4/6/28
|
2,793,263
|
2,788,459
(f)(m)(n)
|
|
|
Total Automobile Components
|
6,848,569
|
||||
|
Diversified Consumer Services — 0.6%
|
|||||
|
WW International Inc., Take-Back Term
Loan (3 mo. Term SOFR + 6.800%)
|
10.528%
|
6/24/30
|
5,871,415
|
4,456,756
(f)(m)(n)
|
|
|
Hotels, Restaurants & Leisure — 0.4%
|
|||||
|
Catawba Nation Gaming Authority,
Initial Term Loan B (3 mo. Term SOFR +
4.750%)
|
8.413%
|
3/29/32
|
3,000,000
|
3,005,085
(f)(m)(n)
|
|
|
Specialty Retail — 1.1%
|
|||||
|
Harbor Freight Tools USA Inc., Initial
Term Loan (1 mo. Term SOFR + 2.250%)
|
5.894%
|
6/11/31
|
1,666,303
|
1,662,529
(f)(m)(n)
|
|
|
Michaels Cos. Inc., Term Loan B (3 mo.
Term SOFR + 5.000%)
|
8.732%
|
3/15/33
|
2,650,000
|
2,642,381
(f)(m)(n)
|
|
|
Petco Health & Wellness Co. Inc., 2026
Term Loan (3 mo. Term SOFR + 4.250%)
|
7.982%
|
2/3/31
|
3,600,975
|
3,563,093
(f)(m)(n)
|
|
|
Total Specialty Retail
|
7,868,003
|
||||
|
|
|||||
|
Total Consumer Discretionary
|
22,178,413
|
||||
|
Consumer Staples — 1.3%
|
|||||
|
Consumer Staples Distribution & Retail — 1.3%
|
|||||
|
VCI Asset Holdings 1 LLC, Term Loan
|
10.000%
|
11/20/30
|
3,846,316
|
4,104,346
(m)(n)
|
|
|
VCI Asset Holdings 2 LLC, Initial Term
Loan
|
7.375%
|
2/6/31
|
4,045,925
|
4,179,946
(m)(n)
|
|
|
VCI Asset Holdings 3 LLC, Term Loan
|
6.875%
|
4/24/30
|
1,230,000
|
1,248,450
(f)(g)(h)(m)(n)
|
|
|
|
|||||
|
Total Consumer Staples
|
9,532,742
|
||||
|
Financials — 1.5%
|
|||||
|
Capital Markets — 0.2%
|
|||||
|
Edelman Financial Engines Center LLC,
Term Loan B (1 mo. Term SOFR +
4.000%)
|
7.644%
|
12/1/31
|
1,300,000
|
1,305,181
(f)(m)(n)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
21
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Financial Services — 0.9%
|
|||||
|
Greystone Select Holdings LLC, Term
Loan B (3 mo. Term SOFR + 5.262%)
|
8.925%
|
6/16/28
|
3,283,951
|
$3,270,273
(f)(m)(n)
|
|
|
Nexus Buyer LLC, Amendment No. 9
Refinancing Term Loan (1 mo. Term
SOFR + 3.500%)
|
7.144%
|
7/31/31
|
3,879,195
|
3,748,272
(f)(m)(n)
|
|
|
Total Financial Services
|
7,018,545
|
||||
|
Insurance — 0.4%
|
|||||
|
Asurion LLC, New Term Loan B14 (1
mo. Term SOFR + 3.750%)
|
7.413%
|
2/23/33
|
967,575
|
917,469
(f)(m)(n)
|
|
|
Asurion LLC, New Term Loan B4 (1 mo.
Term SOFR + 5.512%)
|
9.175%
|
1/20/29
|
1,962,617
|
1,944,953
(f)(m)(n)
|
|
|
Total Insurance
|
2,862,422
|
||||
|
|
|||||
|
Total Financials
|
11,186,148
|
||||
|
Health Care — 1.8%
|
|||||
|
Health Care Providers & Services — 0.9%
|
|||||
|
EyeCare Partners LLC, Term Loan B (3
mo. Term SOFR + 4.710%)
|
8.340%
|
11/30/28
|
1,111,050
|
538,859
(c)(f)(m)(n)
|
|
|
LifePoint Health Inc., Term Loan B (3
mo. Term SOFR + 3.750%)
|
7.423%
|
5/16/31
|
686,934
|
677,602
(f)(m)(n)
|
|
|
TEAM Services Holding Inc., Initial
Term Loan (3 mo. Term SOFR + 5.250%)
|
8.982%
|
3/31/33
|
5,370,000
|
5,269,313
(f)(m)(n)
|
|
|
Total Health Care Providers & Services
|
6,485,774
|
||||
|
Health Care Technology — 0.6%
|
|||||
|
MPH Acquisition Holdings LLC, First
Out Term Loan (3 mo. Term SOFR +
3.750%)
|
7.413%
|
12/31/30
|
527,433
|
529,191
(f)(m)(n)
|
|
|
MPH Acquisition Holdings LLC, Second
Out Term Loan (3 mo. Term SOFR +
4.600%)
|
8.263%
|
12/31/30
|
4,372,085
|
3,860,792
(f)(m)(n)
|
|
|
Total Health Care Technology
|
4,389,983
|
||||
|
Pharmaceuticals — 0.3%
|
|||||
|
Gainwell Acquisition Corp., Term Loan
B (3 mo. Term SOFR + 4.100%)
|
7.832%
|
10/1/27
|
2,309,452
|
2,278,667
(f)(m)(n)
|
|
|
|
|||||
|
Total Health Care
|
13,154,424
|
||||
|
Industrials — 0.7%
|
|||||
|
Commercial Services & Supplies — 0.5%
|
|||||
|
DS Parent Inc., Term Loan B (3 mo.
Term SOFR + 5.500%)
|
9.232%
|
1/31/31
|
4,454,545
|
3,675,000
(f)(m)(n)
|
|
See Notes to Financial Statements.
22
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Passenger Airlines — 0.2%
|
|||||
|
Spirit Airlines LLC, Contingent DIP
Facility
|
—
|
7/14/26
|
3,190,690
|
$893,393
*(h)(j)
|
|
|
Spirit Airlines LLC, Contingent DIP
Facility Initial Term Loan
|
—
|
7/14/26
|
1,215,610
|
24,312
*(h)(j)
|
|
|
Spirit Airlines LLC, New Money Term
Loan (1 mo. Term SOFR + 8.000%)
|
11.637%
|
7/14/26
|
529,320
|
502,854
(c)(f)(h)(m)(n)
|
|
|
Spirit Airlines LLC, Second New Money
Term Loan (1 mo. Term SOFR + 8.000%)
|
11.637%
|
7/14/26
|
131,275
|
124,711
(c)(f)(h)(m)(n)
|
|
|
Spirit Airlines LLC, Third DIP New
Money Term Loan (1 mo. Term SOFR +
8.000%)
|
11.637%
|
7/14/26
|
259,272
|
246,309
(c)(f)(h)(m)(n)
|
|
|
Total Passenger Airlines
|
1,791,579
|
||||
|
|
|||||
|
Total Industrials
|
5,466,579
|
||||
|
Information Technology — 2.8%
|
|||||
|
Software — 1.8%
|
|||||
|
Coreweave Compute Acquisition Co.
IV LLC, Additional Delayed Draw Term
Loan (1 mo. Term SOFR + 4.500%)
|
8.120%
|
11/6/31
|
1,100,000
|
1,123,633
(f)(m)(n)(p)
|
|
|
DCert Buyer Inc., Second Lien Initial
Term Loan (1 mo. Term SOFR + 7.000%)
|
10.644%
|
2/19/29
|
5,000,000
|
4,207,825
(f)(m)(n)
|
|
|
Magenta Security Holdings LLC, First
Out Term Loan (3 mo. Term SOFR +
7.010%)
|
10.673%
|
7/27/28
|
377,438
|
255,126
(f)(m)(n)
|
|
|
Planview Parent Inc., 2024 Incremental
Term Loan B (3 mo. Term SOFR +
3.500%)
|
7.232%
|
12/17/27
|
4,069,676
|
3,519,130
(f)(m)(n)
|
|
|
Starlight Parent LLC, Term Loan (3 mo.
Term SOFR + 4.000%)
|
7.670%
|
4/16/32
|
3,473,750
|
2,917,950
(f)(m)(n)
|
|
|
UKG Inc., Term Loan B (3 mo. Term
SOFR + 2.250%)
|
5.913%
|
2/10/31
|
1,601,930
|
1,512,366
(f)(m)(n)
|
|
|
Total Software
|
13,536,030
|
||||
|
Technology Hardware, Storage & Peripherals — 1.0%
|
|||||
|
Vericast Corp., 2024 Extended Term
Loan (3 mo. Term SOFR + 7.750%)
|
11.500%
|
6/14/30
|
7,113,199
|
7,084,320
(f)(m)(n)
|
|
|
|
|||||
|
Total Information Technology
|
20,620,350
|
||||
|
Materials — 1.8%
|
|||||
|
Chemicals — 1.5%
|
|||||
|
ARC Falcon I Inc., Initial Term Loan B (1
mo. Term SOFR + 4.500%)
|
8.120%
|
4/1/33
|
1,600,000
|
1,471,144
(f)(m)(n)
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
23
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Chemicals — continued
|
|||||
|
Hexion Holdings Corp., 2024
Refinancing Term Loan (1 mo. Term
SOFR + 4.000%)
|
7.652%
|
3/15/29
|
2,689,492
|
$2,605,445
(f)(m)(n)
|
|
|
Natgasoline LLC, Term Loan B (1 mo.
Term SOFR + 5.500%)
|
9.144%
|
3/29/30
|
2,421,875
|
2,427,930
(f)(h)(m)(n)
|
|
|
Plastics Management LLC, First Lien
Initial Term Loan (3 mo. Term SOFR +
5.000%)
|
8.732%
|
8/3/27
|
4,768,214
|
4,755,759
(f)(m)(n)
|
|
|
Total Chemicals
|
11,260,278
|
||||
|
Metals & Mining — 0.3%
|
|||||
|
Worthington Steel Inc., Initial Term
Loan (1 mo. Term SOFR + 4.000%)
|
7.620%
|
6/1/33
|
1,880,000
|
1,877,951
(f)(m)(n)
|
|
|
|
|||||
|
Total Materials
|
13,138,229
|
||||
|
Total Senior Loans (Cost — $113,450,497)
|
106,231,640
|
||||
|
Sovereign Bonds — 6.6%
|
|||||
|
Angola — 0.8%
|
|||||
|
Angolan Government International
Bond, Senior Notes
|
8.000%
|
11/26/29
|
1,600,000
|
1,629,305
(a)
|
|
|
Angolan Government International
Bond, Senior Notes
|
8.750%
|
4/14/32
|
3,500,000
|
3,535,939
(a)
|
|
|
Angolan Government International
Bond, Senior Notes
|
9.875%
|
3/31/37
|
420,000
|
433,867
(a)
|
|
|
Angolan Government International
Bond, Senior Notes
|
9.125%
|
11/26/49
|
620,000
|
582,041
(i)
|
|
|
Total Angola
|
6,181,152
|
||||
|
Argentina — 0.3%
|
|||||
|
Ciudad Autonoma De Buenos Aires,
Senior Notes
|
7.500%
|
6/1/27
|
1,700,340
|
1,738,087
(a)
|
|
|
Ciudad Autonoma De Buenos Aires,
Senior Notes
|
7.500%
|
6/1/27
|
666,800
|
681,603
(i)
|
|
|
Total Argentina
|
2,419,690
|
||||
|
Bahamas — 0.5%
|
|||||
|
Bahamas Government International
Bond, Senior Notes
|
8.250%
|
6/24/36
|
3,000,000
|
3,369,720
(a)
|
|
|
Brazil — 0.5%
|
|||||
|
Brazil Notas do Tesouro Nacional Serie
F, Notes
|
10.000%
|
1/1/31
|
21,052,000
BRL
|
3,543,041
|
|
|
Dominican Republic — 0.4%
|
|||||
|
Dominican Republic International Bond,
Senior Notes
|
4.500%
|
1/30/30
|
430,000
|
415,638
(i)
|
|
See Notes to Financial Statements.
24
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Dominican Republic — continued
|
|||||
|
Dominican Republic International Bond,
Senior Notes
|
4.875%
|
9/23/32
|
2,750,000
|
$2,617,587
(i)
|
|
|
Total Dominican Republic
|
3,033,225
|
||||
|
Ecuador — 0.5%
|
|||||
|
Ecuador Government International
Bond, Senior Notes
|
8.750%
|
1/29/34
|
930,000
|
940,230
(a)
|
|
|
Ecuador Government International
Bond, Senior Notes
|
6.900%
|
7/31/35
|
1,000,000
|
920,500
(i)
|
|
|
Ecuador Government International
Bond, Senior Notes, Step bond
(5.000% to 7/31/26 then 5.500%)
|
5.000%
|
7/31/40
|
2,500,000
|
2,098,175
(a)
|
|
|
Total Ecuador
|
3,958,905
|
||||
|
Egypt — 0.1%
|
|||||
|
Egypt Government International Bond,
Senior Notes
|
7.053%
|
1/15/32
|
700,000
|
702,749
(i)
|
|
|
El Salvador — 0.2%
|
|||||
|
El Salvador Government International
Bond, Senior Notes
|
9.250%
|
4/17/30
|
440,000
|
475,253
(a)
|
|
|
El Salvador Government International
Bond, Senior Notes
|
9.650%
|
11/21/54
|
900,000
|
1,034,244
(a)
|
|
|
Total El Salvador
|
1,509,497
|
||||
|
Ethiopia — 0.1%
|
|||||
|
Ethiopia International Bond, Senior
Notes
|
6.625%
|
12/11/26
|
560,000
|
610,761
(i)
|
|
|
Ghana — 0.1%
|
|||||
|
Ghana Government International Bond,
Senior Notes
|
0.000%
|
7/3/26
|
7,760
|
7,743
(a)
|
|
|
Ghana Government International Bond,
Senior Notes, Step bond (5.000% to
7/3/28 then 6.000%)
|
5.000%
|
7/3/29
|
205,397
|
203,248
(a)
|
|
|
Ghana Government International Bond,
Senior Notes, Step bond (5.000% to
7/3/28 then 6.000%)
|
5.000%
|
7/3/35
|
337,560
|
313,407
(a)
|
|
|
Total Ghana
|
524,398
|
||||
|
Ivory Coast — 0.4%
|
|||||
|
Ivory Coast Government International
Bond, Senior Notes
|
7.625%
|
1/30/33
|
2,040,000
|
2,182,816
(a)
|
|
|
Ivory Coast Government International
Bond, Senior Notes
|
8.250%
|
1/30/37
|
1,000,000
|
1,107,188
(a)
|
|
|
Total Ivory Coast
|
3,290,004
|
||||
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
25
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Jamaica — 0.1%
|
|||||
|
Jamaica Government International
Bond, Senior Notes
|
9.625%
|
11/3/30
|
82,000,000
JMD
|
$551,808
|
|
|
Kenya — 0.2%
|
|||||
|
Republic of Kenya Government
International Bond, Senior Notes
|
8.000%
|
5/22/32
|
1,006,000
|
1,034,467
(a)
|
|
|
Republic of Kenya Government
International Bond, Senior Notes
|
6.300%
|
1/23/34
|
550,000
|
506,610
(i)
|
|
|
Total Kenya
|
1,541,077
|
||||
|
Mexico — 0.3%
|
|||||
|
Eagle Funding Luxco Sarl, Senior Notes
|
5.500%
|
8/17/30
|
1,150,000
|
1,156,095
(a)
|
|
|
Mexican Bonos, Senior Notes
|
8.500%
|
5/31/29
|
23,320,000
MXN
|
1,351,703
|
|
|
Total Mexico
|
2,507,798
|
||||
|
Mozambique — 0.1%
|
|||||
|
Mozambique International Bond,
Senior Notes
|
9.000%
|
9/15/31
|
460,000
|
406,911
(i)
|
|
|
Nigeria — 0.1%
|
|||||
|
Nigeria Government International
Bond, Senior Notes
|
7.143%
|
2/23/30
|
940,000
|
958,136
(i)
|
|
|
Romania — 0.1%
|
|||||
|
Romanian Government International
Bond, Senior Notes
|
7.500%
|
2/10/37
|
850,000
|
919,651
(a)
|
|
|
Senegal — 0.0%††
|
|||||
|
Senegal Government International
Bond, Senior Notes
|
6.250%
|
5/23/33
|
550,000
|
294,057
(i)
|
|
|
South Africa — 0.2%
|
|||||
|
Republic of South Africa Government
International Bond, Senior Notes
|
6.125%
|
12/11/37
|
1,340,000
|
1,319,036
(a)
|
|
|
Sri Lanka — 0.1%
|
|||||
|
Sri Lanka Government International
Bond, Senior Notes
|
4.000%
|
4/15/28
|
40,062
|
38,766
(a)
|
|
|
Sri Lanka Government International
Bond, Senior Notes, Step bond
(3.100% to 7/15/27 then 3.350%)
|
3.100%
|
1/15/30
|
59,046
|
60,325
(a)
|
|
|
Sri Lanka Government International
Bond, Senior Notes, Step bond
(3.350% to 9/15/27 then 3.600%)
|
3.350%
|
3/15/33
|
115,818
|
111,600
(a)
|
|
|
Sri Lanka Government International
Bond, Senior Notes, Step bond
(3.600% to 12/15/27 then 5.100%)
|
3.600%
|
6/15/35
|
78,204
|
65,438
(a)
|
|
See Notes to Financial Statements.
26
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
Value
|
|
|
|||||
|
Sri Lanka — continued
|
|||||
|
Sri Lanka Government International
Bond, Senior Notes, Step bond
(3.600% to 11/15/27 then 3.850%)
|
3.600%
|
5/15/36
|
54,275
|
$54,626
(a)
|
|
|
Sri Lanka Government International
Bond, Senior Notes, Step bond
(3.600% to 8/15/27 then 3.850%)
|
3.600%
|
2/15/38
|
108,597
|
109,901
(a)
|
|
|
Total Sri Lanka
|
440,656
|
||||
|
Supranational — 0.8%
|
|||||
|
International Bank for Reconstruction &
Development, Senior Notes
|
8.050%
|
5/10/28
|
227,000,000
UYU
|
5,718,303
|
|
|
Turkey — 0.4%
|
|||||
|
Turkiye Ihracat Kredi Bankasi AS,
Senior Notes
|
5.750%
|
7/6/26
|
3,200,000
|
3,206,397
(a)
|
|
|
Ukraine — 0.2%
|
|||||
|
Ukraine Government International
Bond, Senior Notes, Step bond
(0.000% to 2/1/27 then 3.000%)
|
0.000%
|
2/1/30
|
59,069
|
42,466
(i)
|
|
|
Ukraine Government International
Bond, Senior Notes, Step bond
(0.000% to 2/1/27 then 3.000%)
|
0.000%
|
2/1/34
|
220,732
|
124,917
(i)
|
|
|
Ukraine Government International
Bond, Senior Notes, Step bond
(4.500% to 2/1/27 then 6.000%)
|
4.500%
|
2/1/34
|
216,271
|
152,201
(i)
|
|
|
Ukraine Government International
Bond, Senior Notes, Step bond
(0.000% to 2/1/27 then 3.000%)
|
0.000%
|
2/1/35
|
186,534
|
112,435
(i)
|
|
|
Ukraine Government International
Bond, Senior Notes, Step bond
(4.500% to 2/1/27 then 6.000%)
|
4.500%
|
2/1/35
|
378,474
|
262,617
(i)
|
|
|
Ukraine Government International
Bond, Senior Notes, Step bond
(0.000% to 2/1/27 then 3.000%)
|
0.000%
|
2/1/36
|
155,445
|
93,551
(i)
|
|
|
Ukraine Government International
Bond, Senior Notes, Step bond
(4.500% to 2/1/27 then 6.000%)
|
4.500%
|
2/1/36
|
486,610
|
334,782
(i)
|
|
|
Total Ukraine
|
1,122,969
|
||||
|
Uzbekistan — 0.1%
|
|||||
|
Republic of Uzbekistan International
Bond, Senior Notes
|
3.900%
|
10/19/31
|
590,000
|
548,837
(i)
|
|
|
|
|||||
|
Total Sovereign Bonds (Cost — $45,492,014)
|
48,678,778
|
||||
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
27
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
|
Shares
|
Value
|
|
Preferred Stocks — 0.7%
|
|||||
|
Financials — 0.7%
|
|||||
|
Mortgage Real Estate Investment Trusts (REITs) — 0.7%
|
|||||
|
AGNC Investment Corp., Non Voting
Shares (3 mo. Term SOFR + 4.959%)
|
8.632%
|
|
49,407
|
$1,232,705
(f)
|
|
|
Chimera Investment Corp., Non Voting
Shares (3 mo. Term SOFR + 5.005%)
|
8.737%
|
|
77,758
|
1,760,441
(f)
|
|
|
MFA Financial Inc., Non Voting Shares
(3 mo. Term SOFR + 5.607%)
|
9.340%
|
|
107,413
|
2,418,941
(f)
|
|
|
|
|||||
|
Total Preferred Stocks (Cost — $5,603,718)
|
5,412,087
|
||||
|
|
|
|
Maturity
Date
|
Face
Amount†
|
|
|
Convertible Bonds & Notes — 0.3%
|
|||||
|
Financials — 0.3%
|
|||||
|
Mortgage Real Estate Investment Trusts (REITs) — 0.3%
|
|||||
|
Blackstone Mortgage Trust Inc., Senior
Notes
|
5.500%
|
3/15/27
|
2,000,000
|
2,000,000
|
|
|
|
|||||
|
Real Estate — 0.0%††
|
|||||
|
Real Estate Management & Development — 0.0%††
|
|||||
|
China Aoyuan Group Ltd., Senior Notes
|
0.000%
|
9/30/28
|
70,334
|
527
(i)
|
|
|
Country Garden Holdings Co. Ltd.,
Senior Notes
|
0.000%
|
12/31/31
|
2,628,484
|
183,994
(i)
|
|
|
|
|||||
|
Total Real Estate
|
184,521
|
||||
|
Total Convertible Bonds & Notes (Cost — $2,348,602)
|
2,184,521
|
||||
|
|
|
|
|
Shares
|
|
|
Common Stocks — 0.3%
|
|||||
|
Consumer Discretionary — 0.0%††
|
|||||
|
Specialty Retail — 0.0%††
|
|||||
|
Empire Today LLC, Class A
|
|
1,193
|
17,895
|
||
|
|
|||||
|
Consumer Staples — 0.3%
|
|||||
|
Beverages — 0.2%
|
|||||
|
Altice France Luxco
|
|
61,743
|
1,233,207
*
|
||
|
Consumer Staples Distribution & Retail — 0.1%
|
|||||
|
VCI Asset Holdings 2 LLC
|
|
785,808
|
829,027
*(g)(h)
|
||
|
|
|||||
|
Total Consumer Staples
|
2,062,234
|
||||
|
Industrials — 0.0%††
|
|||||
|
Passenger Airlines — 0.0%††
|
|||||
|
Spirit Airlines LLC
|
|
977
|
20
*(q)
|
||
See Notes to Financial Statements.
28
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
|
|
Shares
|
Value
|
|
|
|||||
|
Passenger Airlines — continued
|
|||||
|
Spirit Aviation Holdings Inc.
|
|
168,247
|
$3,365
*
|
||
|
|
|||||
|
Total Industrials
|
3,385
|
||||
|
Real Estate — 0.0%††
|
|||||
|
Real Estate Management & Development — 0.0%††
|
|||||
|
China Aoyuan Group Ltd.
|
|
196,741
|
982
*(g)
|
||
|
Country Garden Holdings Co. Ltd.
|
|
10,500
|
225
*(g)
|
||
|
|
|||||
|
Total Real Estate
|
1,207
|
||||
|
Total Common Stocks (Cost — $3,166,820)
|
2,084,721
|
||||
|
|
|
Expiration
Date
|
Contracts
|
Notional
Amount†
|
|
|
Purchased Options — 0.0%††
|
|||||
|
Exchange-Traded Purchased Options — 0.0%††
|
|||||
|
3-Month SOFR Futures, Call @
$97.500 (Cost — $129,568)
|
6/11/27
|
596
|
1,490,000
|
96,850
|
|
|
|
Counterparty
|
|
|
|
|
|
OTC Purchased Options — 0.0%††
|
|||||
|
U.S. Dollar/Canadian
Dollar, Put @ 1.422CAD
|
BNP Paribas
SA
|
7/24/26
|
3,900,000
|
3,900,000
|
23,490
|
|
U.S. Dollar/Euro, Call
@ $1.156
|
JPMorgan
Chase & Co.
|
8/12/26
|
7,301,000
|
7,301,000
|
98,940
|
|
U.S. Dollar/Japanese
Yen, Put @ 161.350JPY
|
BNP Paribas
SA
|
7/23/26
|
3,900,000
|
3,900,000
|
21,771
|
|
|
|||||
|
Total OTC Purchased Options (Cost — $88,843)
|
144,201
|
||||
|
|
|||||
|
Total Purchased Options (Cost — $218,411)
|
241,051
|
||||
|
|
|
Rate
|
Maturity
Date
|
Face
Amount†
|
|
|
Non-U.S. Treasury Inflation Protected Securities — 0.0%††
|
|||||
|
Uruguay — 0.0%††
|
|||||
|
Uruguay Government International
Bond, Senior Notes (Cost — $105,472)
|
3.400%
|
5/16/45
|
4,084,828
UYU
|
110,008
|
|
|
|
|
|
Expiration
Date
|
Rights
|
|
|
Rights — 0.0%††
|
|||||
|
Consumer Staples — 0.0%††
|
|||||
|
Beverages — 0.0%††
|
|||||
|
Altice France Luxco (Cost — $0)
|
|
—
|
5,018
|
80,270
*
|
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
29
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
(Percentages shown based on Fund net assets)
|
Security
|
|
|
Expiration
Date
|
Warrants
|
Value
|
|
Warrants — 0.0%††
|
|||||
|
Industrials — 0.0%††
|
|||||
|
Passenger Airlines — 0.0%††
|
|||||
|
Spirit Airlines LLC (Cost — $1,455,203)
|
|
3/12/30
|
119,540
|
$2,391
*(a)(g)(q)
|
|
|
Total Investments before Short-Term Investments (Cost — $1,210,474,793)
|
1,154,526,081
|
||||
|
|
|
Rate
|
|
Shares
|
|
|
Short-Term Investments — 3.2%
|
|||||
|
Western Asset Premier Institutional
Government Reserves, Premium Shares
(Cost — $23,470,415)
|
3.577%
|
|
23,470,415
|
23,470,415
(r)(s)
|
|
|
Total Investments — 159.8% (Cost — $1,233,945,208)
|
1,177,996,496
|
||||
|
Liabilities in Excess of Other Assets — (59.8)%
|
(440,871,284
)
|
||||
|
Total Net Assets — 100.0%
|
$737,125,212
|
||||
See Notes to Financial Statements.
30
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income 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 Trustees.
|
|
(b)
|
All or a portion of this security is held by the counterparty as collateral for open
reverse repurchase agreements.
|
|
(c)
|
Payment-in-kind security for which the issuer has the option at each interest payment
date of making interest
payments in cash or additional securities.
|
|
(d)
|
Securities traded on a when-issued or delayed delivery basis.
|
|
(e)
|
Security has no maturity date. The date shown represents the next call date.
|
|
(f)
|
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.
|
|
(g)
|
Security is fair valued in accordance with procedures approved by the Board of Trustees (Note 1).
|
|
(h)
|
Security is valued using significant unobservable inputs (Note 1).
|
|
(i)
|
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 Trustees.
|
|
(j)
|
The coupon payment on this security is currently in default as of June 30, 2026.
|
|
(k)
|
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.
|
|
(l)
|
Rate shown is the current yield based on income received over the trailing twelve
months.
|
|
(m)
|
Interest rates disclosed represent the effective rates on senior loans. Ranges in
interest rates are attributable to
multiple contracts under the same loan.
|
|
(n)
|
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.
|
|
(o)
|
All or a portion of this loan has not settled as of June 30, 2026. Interest rates
are not effective until settlement
date. Interest rates shown, if any, are for the settled portion of the loan.
|
|
(p)
|
All or a portion of this loan is unfunded as of June 30, 2026. The interest rate for
fully unfunded term loans is to be
determined. At June 30, 2026, the total principal amount and market value of unfunded
commitments totaled
$709,323 and $724,563, respectively.
|
|
(q)
|
Restricted security (Note 10).
|
|
(r)
|
Rate shown is one-day yield as of the end of the reporting period.
|
|
(s)
|
In this instance, as defined in the Investment Company Act of 1940, as amended (the
“1940 Act”), 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 June 30, 2026,
the total market value of
investments in Affiliated Companies was $23,470,415 and the cost was $23,470,415 (Note 9).
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
31
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
|
Abbreviation(s) used in this schedule:
|
||
|
BRL
|
—
|
Brazilian Real
|
|
CAD
|
—
|
Canadian Dollar
|
|
CAS
|
—
|
Connecticut Avenue Securities
|
|
CDO
|
—
|
Collateralized Debt Obligation
|
|
CLO
|
—
|
Collateralized Loan Obligation
|
|
DIP
|
—
|
Debtor-in-possession
|
|
GBP
|
—
|
British Pound
|
|
IO
|
—
|
Interest Only
|
|
JMD
|
—
|
Jamaican Dollar
|
|
JPY
|
—
|
Japanese Yen
|
|
LIBOR
|
—
|
London Interbank Offered Rate
|
|
MXN
|
—
|
Mexican Peso
|
|
PIK
|
—
|
Payment-In-Kind
|
|
REMIC
|
—
|
Real Estate Mortgage Investment Conduit
|
|
SOFR
|
—
|
Secured Overnight Financing Rate
|
|
USD
|
—
|
United States Dollar
|
|
UYU
|
—
|
Uruguayan Peso
|
At June 30, 2026, the Fund had the following open reverse repurchase agreements:
|
Counterparty
|
Rate
|
Effective
Date
|
Maturity
Date
|
Face Amount
of Reverse
Repurchase
Agreements
|
Asset Class
of Collateral*
|
Collateral
Value**
|
|
Nomura Securities Inc.
|
5.394%
|
5/13/2026
|
5/11/2028
|
$301,871,000
|
Collateralized Mortgage
Obligations
Corporate Bonds &
Notes
Asset-Backed Securities
|
$77,634,347
143,654,544
127,893,463
|
|
Nomura Securities Inc.
|
5.394%
|
5/13/2026
|
4/15/2027
|
1,744,000
|
Corporate Bonds &
Notes
|
2,025,700
|
|
Nomura Securities Inc.
|
5.394%
|
5/18/2026
|
5/11/2028
|
16,236,000
|
Corporate Bonds &
Notes
Asset-Backed Securities
|
12,057,134
7,209,434
|
|
Nomura Securities Inc.
|
5.394%
|
5/18/2026
|
12/1/2027
|
6,795,000
|
Corporate Bonds &
Notes
|
7,928,060
|
|
Nomura Securities Inc.
|
5.394%
|
6/1/2026
|
5/11/2028
|
46,264,000
|
Corporate Bonds &
Notes
|
53,249,537
|
|
Nomura Securities Inc.
|
5.394%
|
6/10/2026
|
5/11/2028
|
12,391,000
|
Corporate Bonds &
Notes
|
13,598,852
|
|
Nomura Securities Inc.
|
5.394%
|
6/11/2026
|
5/11/2028
|
5,713,000
|
Collateralized Mortgage
Obligations
|
6,569,616
|
|
Nomura Securities Inc.
|
5.394%
|
6/12/2026
|
5/11/2028
|
12,228,000
|
Corporate Bonds &
Notes
|
14,448,171
|
See Notes to Financial Statements.
32
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
|
Counterparty
|
Rate
|
Effective
Date
|
Maturity
Date
|
Face Amount
of Reverse
Repurchase
Agreements
|
Asset Class
of Collateral*
|
Collateral
Value**
|
|
Nomura Securities Inc.
|
5.394%
|
6/15/2026
|
5/11/2028
|
$7,447,000
|
Corporate Bonds &
Notes
|
$8,878,389
|
|
Nomura Securities Inc.
|
5.394%
|
6/15/2026
|
1/14/2028
|
3,673,000
|
Corporate Bonds &
Notes
|
4,293,667
|
|
Nomura Securities Inc.
|
5.394%
|
6/15/2026
|
2/15/2028
|
2,534,000
|
Corporate Bonds &
Notes
|
3,183,813
|
|
Nomura Securities Inc.
|
5.394%
|
6/23/2026
|
5/11/2028
|
20,708,000
|
Corporate Bonds &
Notes
|
24,206,018
|
|
Nomura Securities Inc.
|
5.394%
|
6/25/2026
|
5/11/2028
|
11,974,000
|
Corporate Bonds &
Notes
|
13,914,678
|
|
|
|
|
|
$449,578,000
|
|
$520,745,423
|
|
*
|
Refer to the Schedule of Investments for positions held at the counterparty as collateral
for reverse repurchase
agreements.
|
|
**
|
Including accrued interest.
|
At June 30, 2026, the Fund had the following open written options contracts:
|
|
||||||
|
OTC Written Options
|
||||||
|
Security
|
Counterparty
|
Expiration
Date
|
Strike
Price
|
Contracts
|
Notional
Amount
|
Value
|
|
U.S. Dollar/Euro, Call
(Premiums received —
$31,981)
|
BNP Paribas SA
|
8/12/26
|
$1.140
|
6,594,000
|
6,594,000
|
$(39,009
)
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
33
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
At June 30, 2026, the Fund had the following open futures contracts:
|
|
Number of
Contracts
|
Expiration
Date
|
Notional
Amount
|
Market
Value
|
Unrealized
Appreciation
(Depreciation)
|
|
Contracts to Buy:
|
|
|
|
|
|
|
Euro-Bund
|
34
|
9/26
|
$4,883,269
|
$4,946,955
|
$63,686
|
|
U.S. Treasury 10-Year
Notes
|
1,003
|
9/26
|
109,577,847
|
110,220,302
|
642,455
|
|
U.S. Treasury Long-Term
Bonds
|
336
|
9/26
|
37,425,746
|
38,136,000
|
710,254
|
|
U.S. Treasury Ultra
10-Year Notes
|
170
|
9/26
|
18,859,358
|
19,119,688
|
260,330
|
|
|
|
|
|
|
1,676,725
|
|
Contracts to Sell:
|
|
|
|
|
|
|
U.S. Treasury 2-Year
Notes
|
318
|
9/26
|
65,641,800
|
65,550,234
|
91,566
|
|
U.S. Treasury 5-Year
Notes
|
343
|
9/26
|
36,668,934
|
36,717,080
|
(48,146
)
|
|
U.S. Treasury Ultra Long-
Term Bonds
|
149
|
9/26
|
16,802,913
|
17,307,281
|
(504,368
)
|
|
|
|
|
|
|
(460,948
)
|
|
Net unrealized appreciation on open futures contracts
|
$1,215,777
|
||||
At June 30, 2026, the Fund had the following open forward foreign currency contracts:
|
Currency
Purchased
|
Currency
Sold
|
Counterparty
|
Settlement
Date
|
Unrealized
Appreciation
(Depreciation)
|
||
|
AUD
|
643,643
|
USD
|
443,316
|
Bank of America N.A.
|
7/16/26
|
$2,179
|
|
AUD
|
665,458
|
USD
|
459,983
|
Bank of America N.A.
|
7/16/26
|
612
|
|
AUD
|
800,000
|
USD
|
554,585
|
Bank of America N.A.
|
7/16/26
|
(867
)
|
|
AUD
|
800,000
|
USD
|
554,157
|
Bank of America N.A.
|
7/16/26
|
(439
)
|
|
EUR
|
660,000
|
USD
|
754,905
|
Bank of America N.A.
|
7/16/26
|
(289
)
|
|
JPY
|
325,400,000
|
USD
|
2,014,977
|
BNP Paribas SA
|
7/16/26
|
(11,116
)
|
|
JPY
|
344,495,589
|
USD
|
2,134,011
|
BNP Paribas SA
|
7/16/26
|
(12,556
)
|
|
USD
|
402,868
|
EUR
|
340,000
|
BNP Paribas SA
|
7/16/26
|
14,126
|
|
USD
|
430,914
|
EUR
|
363,933
|
BNP Paribas SA
|
7/16/26
|
14,809
|
|
USD
|
1,856,185
|
EUR
|
1,571,770
|
BNP Paribas SA
|
7/16/26
|
59,090
|
|
USD
|
4,651,768
|
GBP
|
3,514,416
|
BNP Paribas SA
|
7/16/26
|
(9,869
)
|
|
USD
|
16,856
|
JPY
|
2,650,000
|
BNP Paribas SA
|
7/16/26
|
537
|
|
USD
|
2,649,196
|
JPY
|
416,500,000
|
BNP Paribas SA
|
7/16/26
|
84,328
|
|
AUD
|
1,246,000
|
USD
|
886,672
|
Citibank N.A.
|
7/16/26
|
(24,257
)
|
|
AUD
|
5,291,394
|
USD
|
3,665,269
|
Citibank N.A.
|
7/16/26
|
(2,846
)
|
See Notes to Financial Statements.
34
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
|
Currency
Purchased
|
Currency
Sold
|
Counterparty
|
Settlement
Date
|
Unrealized
Appreciation
(Depreciation)
|
||
|
EUR
|
167,036
|
USD
|
190,419
|
Citibank N.A.
|
7/16/26
|
$563
|
|
EUR
|
394,301
|
USD
|
449,129
|
Citibank N.A.
|
7/16/26
|
1,698
|
|
EUR
|
514,140
|
USD
|
586,108
|
Citibank N.A.
|
7/16/26
|
1,737
|
|
EUR
|
950,842
|
USD
|
1,083,939
|
Citibank N.A.
|
7/16/26
|
3,213
|
|
USD
|
1,152,503
|
AUD
|
1,602,000
|
Citibank N.A.
|
7/16/26
|
43,683
|
|
USD
|
769,020
|
CAD
|
1,065,003
|
Citibank N.A.
|
7/16/26
|
17,550
|
|
USD
|
845,835
|
EUR
|
716,211
|
Citibank N.A.
|
7/16/26
|
26,950
|
|
USD
|
607,936
|
JPY
|
98,180,000
|
Citibank N.A.
|
7/16/26
|
3,329
|
|
USD
|
1,235,630
|
JPY
|
199,590,303
|
Citibank N.A.
|
7/16/26
|
6,524
|
|
CAD
|
2,593,000
|
USD
|
1,823,877
|
JPMorgan Chase & Co.
|
7/16/26
|
5,752
|
|
EUR
|
1,900,458
|
USD
|
2,208,237
|
JPMorgan Chase & Co.
|
7/16/26
|
(35,334
)
|
|
JPY
|
826,888,000
|
USD
|
5,213,834
|
JPMorgan Chase & Co.
|
7/16/26
|
(121,736
)
|
|
USD
|
1,265,278
|
EUR
|
1,068,967
|
JPMorgan Chase & Co.
|
7/16/26
|
43,067
|
|
USD
|
2,593,757
|
JPY
|
407,738,000
|
JPMorgan Chase & Co.
|
7/16/26
|
82,846
|
|
USD
|
1,981,708
|
MXN
|
35,495,568
|
Morgan Stanley & Co. Inc.
|
7/16/26
|
(45,336
)
|
|
USD
|
2,012,000
|
CAD
|
2,861,064
|
BNP Paribas SA
|
7/27/26
|
(7,816
)
|
|
USD
|
1,818,000
|
JPY
|
293,334,300
|
BNP Paribas SA
|
7/27/26
|
9,973
|
|
USD
|
2,626,621
|
BRL
|
13,578,845
|
JPMorgan Chase & Co.
|
9/2/26
|
36,155
|
|
Net unrealized appreciation on open forward foreign currency contracts
|
$186,260
|
|||||
|
Abbreviation(s) used in this table:
|
||
|
AUD
|
—
|
Australian Dollar
|
|
BRL
|
—
|
Brazilian Real
|
|
CAD
|
—
|
Canadian Dollar
|
|
EUR
|
—
|
Euro
|
|
GBP
|
—
|
British Pound
|
|
JPY
|
—
|
Japanese Yen
|
|
MXN
|
—
|
Mexican Peso
|
|
USD
|
—
|
United States Dollar
|
At June 30, 2026, the Fund had the following open swap contracts:
|
OTC INTEREST RATE SWAPS
|
|||||||
|
Swap Counterparty
|
Notional
Amount*
|
Termination
Date
|
Payments
Made by
the Fund†
|
Payments
Received by
the Fund†
|
Market
Value
|
Upfront
Premiums
Paid
(Received)
|
Unrealized
Depreciation
|
|
JPMorgan Chase &
Co.
|
63,990,000BRL
|
1/2/29
|
BRL-CDI**
|
10.230%**
|
$(1,506,993)
|
$—
|
$(1,506,993)
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
35
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income Fund
|
CENTRALLY CLEARED INTEREST RATE SWAPS
|
|||||||
|
|
Notional
Amount*
|
Termination
Date
|
Payments
Made by
the Fund†
|
Payments
Received by
the Fund†
|
Market
Value
|
Upfront
Premiums
Paid
(Received)
|
Unrealized
Appreciation
|
|
|
173,910,000MXN
|
11/10/34
|
28-Day MXN TIIE -
Banxico
every 28 days
|
8.885%
every 28 days
|
$541,159
|
$—
|
$541,159
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — SELL PROTECTION1
|
|||||||
|
Reference Entity
|
Notional
Amount2
|
Termination
Date
|
Implied
Credit
Spread at
June 30,
20263
|
Periodic
Payments
Received by
the Fund†
|
Market
Value
|
Upfront
Premiums
Paid
(Received)
|
Unrealized
Appreciation
(Depreciation)
|
|
Caesars
Entertainment Inc.,
4.625%, due
10/15/29
|
$1,123,000
|
6/20/30
|
2.873%
|
5.000% quarterly
|
$83,348
|
$98,392
|
$(15,044)
|
|
Nabors
Industries Inc.,
9.125%, due
1/31/30
|
604,000
|
6/20/29
|
1.806%
|
1.000% quarterly
|
(13,364)
|
(65,445)
|
52,081
|
|
Total
|
$1,727,000
|
|
|
|
$69,984
|
$32,947
|
$37,037
|
|
CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — BUY PROTECTION4
|
|||||||
|
Reference Entity
|
Notional
Amount2
|
Termination
Date
|
Implied
Credit
Spread at
June 30,
20263
|
Periodic
Payments
Made by
the Fund†
|
Market
Value
|
Upfront
Premiums
Paid
(Received)
|
Unrealized
Depreciation
|
|
MGM Resorts
International,
4.750%, due
10/15/28
|
$1,123,000
|
6/20/30
|
1.708%
|
5.000% quarterly
|
$(132,039)
|
$(120,371)
|
$(11,668)
|
|
Transocean Inc.,
8.000%, due
2/1/27
|
604,000
|
6/20/29
|
1.471%
|
1.000% quarterly
|
7,872
|
40,937
|
(33,065)
|
|
Total
|
$1,727,000
|
|
|
|
$(124,167)
|
$(79,434)
|
$(44,733)
|
See Notes to Financial Statements.
36
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
|
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.46 Index
|
$3,276,999
|
6/20/31
|
5.000% quarterly
|
$(264,605)
|
$(122,841)
|
$(141,764)
|
|
OTC TOTAL RETURN SWAPS
|
|||||||
|
Swap
Counterparty
|
Notional
Amount
|
Termination
Date
|
Periodic
Payments
Made by
the Fund†
|
Periodic
Payments
Received by
the Fund‡
|
Market
Value
|
Upfront
Premiums
Paid
(Received)
|
Unrealized
Appreciation
|
|
JPMorgan
Chase & Co.
|
$5,323,570
|
7/9/26
|
Daily SOFR
Compound +
1.100%**
|
JPEIFNTR^**
|
$416,671
|
—
|
$416,671
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
37
Schedule of investments (unaudited) (cont’d)
June 30, 2026
Western Asset Diversified Income 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.
|
|
‡
|
Periodic payments made/received by the Fund are based on the total return of the referenced
entity.
|
|
^
|
Custom emerging markets debt basket is comprised of 41 bonds in the Sovereign Frontier
sector.
|
|
*
|
Notional amount denominated in U.S. dollars, unless otherwise noted.
|
|
**
|
One time payment made at termination date.
|
Reference rate(s) and their value(s) as of period end used in this table:
|
Reference Index
|
Reference
Rate
|
|
28-Day MXN TIIE - Banxico
|
6.766%
|
|
BRL-CDI
|
14.150%
|
|
Daily SOFR Compound
|
3.680%
|
See Notes to Financial Statements.
38
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Western Asset Diversified Income Fund
|
Abbreviation(s) used in this table:
|
||
|
BRL
|
—
|
Brazilian Real
|
|
BRL-CDI
|
—
|
Brazilian Cetip InterBank Deposit Rate
|
|
JPEIFNTR
|
—
|
Western Asset Management Emerging Markets Frontier Custom Basket
|
|
MXN
|
—
|
Mexican Peso
|
|
SOFR
|
—
|
Secured Overnight Financing Rate
|
|
TIIE
|
—
|
Tasa de Intere’s Interbancaria de Equilibrio (Equilibrium Interbanking Interest Rate)
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
39
Statement of assets and liabilities (unaudited)
June 30, 2026
|
Assets:
|
|
|
Investments in unaffiliated securities, at value (Cost — $1,210,474,793)
|
$1,154,526,081
|
|
Investments in affiliated securities, at value (Cost — $23,470,415)
|
23,470,415
|
|
Foreign currency, at value (Cost — $4,601,538)
|
4,496,476
|
|
Cash
|
246,593
|
|
Interest receivable
|
17,686,598
|
|
Deposits with brokers for open futures contracts and exchange-traded options
|
3,039,972
|
|
Deposits with brokers for centrally cleared swap contracts
|
1,865,800
|
|
Deposits with brokers for OTC derivatives
|
1,000,000
|
|
Deferred loan financing costs
|
604,651
|
|
Unrealized appreciation on forward foreign currency contracts
|
458,721
|
|
OTC swaps, at value (premiums received — $0)
|
416,671
|
|
Receivable for securities sold
|
119,471
|
|
Foreign currency collateral for open futures contracts and/or exchange-traded options,
at
value (Cost — $85,396)
|
85,030
|
|
Dividends receivable from affiliated investments
|
42,386
|
|
Prepaid expenses
|
444,411
|
|
Total Assets
|
1,208,503,276
|
|
Liabilities:
|
|
|
Payable for open reverse repurchase agreements (Note 3)
|
449,578,000
|
|
Payable for securities purchased
|
15,388,071
|
|
Interest and commitment fees payable
|
2,888,108
|
|
OTC swaps, at value (paid — $0)
|
1,506,993
|
|
Investment management fee payable
|
1,045,512
|
|
Payable to brokers — net variation margin on open futures contracts
|
403,014
|
|
Unrealized depreciation on forward foreign currency contracts
|
272,461
|
|
Payable for open OTC swap contracts
|
60,301
|
|
Payable to brokers — net variation margin on centrally cleared swap contracts
|
58,155
|
|
Written options, at value (premiums received — $31,981)
|
39,009
|
|
Trustees’ fees payable
|
304
|
|
Accrued expenses
|
138,136
|
|
Total Liabilities
|
471,378,064
|
|
Total Net Assets
|
$737,125,212
|
|
Net Assets:
|
|
|
Par value ($0.001 par value; 51,912,116 shares issued and outstanding; Unlimited shares
authorized)
|
$51,912
|
|
Paid-in capital in excess of par value
|
1,034,887,903
|
|
Total distributable earnings (loss)
|
(297,814,603
)
|
|
Total Net Assets
|
$737,125,212
|
|
Shares Outstanding
|
51,912,116
|
|
Net Asset Value
|
$14.20
|
See Notes to Financial Statements.
40
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Statement of operations (unaudited)
For the Six Months Ended June 30, 2026
|
Investment Income:
|
|
|
Interest
|
$58,396,655
|
|
Dividends from unaffiliated investments
|
250,818
|
|
Dividends from affiliated investments
|
159,614
|
|
Total Investment Income
|
58,807,087
|
|
Expenses:
|
|
|
Interest expense (Notes 3 and 5)
|
9,049,944
|
|
Investment management fee (Note 2)
|
6,112,115
|
|
Legal fees
|
228,316
|
|
Commitment fees (Note 5)
|
140,580
|
|
Trustees’ fees
|
129,269
|
|
Audit and tax fees
|
49,038
|
|
Fund accounting fees
|
47,534
|
|
Amortization of deferred loan financing costs
|
45,349
|
|
Transfer agent fees
|
29,445
|
|
Shareholder reports
|
19,515
|
|
Excise tax (Note 1)
|
15,474
|
|
Stock exchange listing fees
|
13,278
|
|
Custody fees
|
4,650
|
|
Insurance
|
3,840
|
|
Miscellaneous expenses
|
5,378
|
|
Total Expenses
|
15,893,725
|
|
Less: Fee waivers and/or expense reimbursements (Note 2)
|
(5,030
)
|
|
Net Expenses
|
15,888,695
|
|
Net Investment Income
|
42,918,392
|
|
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
|
(10,441,574
)
|
|
Futures contracts
|
(2,317,366
)
|
|
Written options
|
45,641
|
|
Swap contracts
|
(201,605
)
|
|
Forward foreign currency contracts
|
(261,078
)
|
|
Foreign currency transactions
|
(354,101
)
|
|
Net Realized Loss
|
(13,530,083
)
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
Investments in unaffiliated securities
|
(13,295,166
)
|
|
Futures contracts
|
1,702,063
|
|
Written options
|
(7,028
)
|
|
Swap contracts
|
202,540
|
|
Forward foreign currency contracts
|
219,926
|
|
Foreign currencies
|
58,936
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
(11,118,729
)
|
|
Net Loss on Investments, Futures Contracts, Written Options, Swap Contracts,
Forward Foreign Currency Contracts and Foreign Currency Transactions
|
(24,648,812
)
|
|
Increase in Net Assets From Operations
|
$18,269,580
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
41
Statements of changes in net assets
|
For the Six Months Ended June 30, 2026 (unaudited)
and the Year Ended December 31, 2025
|
2026
|
2025
|
|
Operations:
|
|
|
|
Net investment income
|
$42,918,392
|
$84,948,072
|
|
Net realized loss
|
(13,530,083
)
|
(29,194,613
)
|
|
Change in net unrealized appreciation (depreciation)
|
(11,118,729
)
|
15,827,279
|
|
Increase in Net Assets From Operations
|
18,269,580
|
71,580,738
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
Total distributable earnings
|
(38,544,746
)
|
(100,100,280
)
|
|
Decrease in Net Assets From Distributions to Shareholders
|
(38,544,746
)
|
(100,100,280
)
|
|
Fund Share Transactions:
|
|
|
|
Net proceeds from sale of shares (0 and 15,124 shares issued,
respectively) (Note 8)
|
—
|
221,416
†
|
|
Reinvestment of distributions (0 and 108,782 shares issued, respectively)
|
—
|
1,617,230
|
|
Increase in Net Assets From Fund Share Transactions
|
—
|
1,838,646
|
|
Decrease in Net Assets
|
(20,275,166
)
|
(26,680,896
)
|
|
Net Assets:
|
|
|
|
Beginning of period
|
757,400,378
|
784,081,274
|
|
End of period
|
$737,125,212
|
$757,400,378
|
|
†
|
Net of sales charges of $2,245 and shelf registration offering costs of $1,256 (Note
8).
|
See Notes to Financial Statements.
42
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Statement of cash flows (unaudited)
For the Six Months Ended June 30, 2026
|
Increase (Decrease) in Cash:
|
|
|
Cash Flows from Operating Activities:
|
|
|
Net increase in net assets resulting from operations
|
$18,269,580
|
|
Adjustments to reconcile net increase in net assets resulting from operations to net
cash
provided (used) by operating activities:
|
|
|
Purchases of portfolio securities
|
(305,305,632
)
|
|
Sales of portfolio securities
|
245,611,154
|
|
Net purchases, sales and maturities of short-term investments
|
(23,023,599
)
|
|
Payment-in-kind
|
(335,343
)
|
|
Net inflation adjustment
|
(2,790
)
|
|
Net amortization of premium (accretion of discount)
|
(10,045,833
)
|
|
Amortization of deferred loan financing costs
|
45,349
|
|
Increase in receivable for securities sold
|
(119,471
)
|
|
Increase in interest receivable
|
(306,260
)
|
|
Decrease in receivable from brokers — net variation margin on centrally cleared swap
contracts
|
12,774
|
|
Increase in prepaid expenses
|
(9,921
)
|
|
Increase in dividends receivable from affiliated investments
|
(42,386
)
|
|
Decrease in principal paydown receivable
|
4,156
|
|
Increase in payable to brokers — net variation margin on centrally cleared swap
contracts
|
58,155
|
|
Decrease in deposits from brokers for open reverse repurchase agreements
|
(52,239
)
|
|
Increase in payable for securities purchased
|
9,678,532
|
|
Decrease in investment management fee payable
|
(16,915
)
|
|
Decrease in Trustees’ fees payable
|
(1,106
)
|
|
Increase in interest and commitment fees payable
|
1,413,577
|
|
Increase in premiums received from written options
|
31,981
|
|
Increase in payable to brokers — net variation margin on futures contracts
|
236,143
|
|
Decrease in payable for open OTC swap contracts
|
(2,477
)
|
|
Decrease in accrued expenses
|
(111,034
)
|
|
Net realized loss on investments
|
10,441,574
|
|
Change in net unrealized appreciation (depreciation) of investments, written options,
OTC swap contracts and forward foreign currency contracts
|
12,776,156
|
|
Net Cash Used in Operating Activities*
|
(40,795,875
)
|
|
Cash Flows from Financing Activities:
|
|
|
Distributions paid on common stock (net of distributions payable)
|
(46,253,695
)
|
|
Repayment of loan facility borrowings
|
(364,000,000
)
|
|
Increase in payable for open reverse repurchase agreements
|
441,504,493
|
|
Loan financing costs paid
|
(650,000
)
|
|
Net Cash Provided by Financing Activities
|
30,600,798
|
|
Net Decrease in Cash and Restricted Cash
|
(10,195,077
)
|
|
Cash and restricted cash at beginning of period
|
20,928,948
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
43
Statement of cash flows (unaudited) (cont’d)
For the Six Months Ended June 30, 2026
|
Cash and restricted cash at end of period
|
$10,733,871
|
|
*
|
Included in operating expenses is $7,776,947 paid for interest and commitment fees
on borrowings.
|
The following table provides a reconciliation of cash (including foreign currency)
and restricted cash reported within the Statement of Assets and Liabilities that sums to the total of such amounts
shown on the Statement of
Cash Flows.
|
|
June 30, 2026
|
|
Cash
|
$4,743,069
|
|
Restricted cash
|
5,990,802
|
|
Total cash and restricted cash shown in the Statement of Cash Flows
|
$10,733,871
|
Restricted cash consists of cash that has been segregated to cover the Fund’s collateral or margin obligations under derivative contracts and for reverse repurchase agreements. It is separately
reported on the Statement of Assets and Liabilities as Deposits with brokers.
See Notes to Financial Statements.
44
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Financial highlights
|
For a share of capital stock outstanding throughout each year ended December 31,
unless otherwise noted:
|
||||||
|
|
20261,2
|
20251
|
20241
|
20231
|
20221
|
20211,3
|
|
Net asset value, beginning of
period
|
$14.59
|
$15.14
|
$15.54
|
$14.74
|
$19.65
|
$20.00
|
|
Income (loss) from operations:
|
||||||
|
Net investment income
|
0.83
|
1.64
|
1.73
|
1.73
|
1.59
|
0.58
|
|
Net realized and unrealized gain
(loss)
|
(0.48
)
|
(0.26
)
|
(0.37
)
|
0.68
|
(5.05
)
|
(0.34
)
|
|
Total income (loss)
from operations
|
0.35
|
1.38
|
1.36
|
2.41
|
(3.46)
|
0.24
|
|
Less distributions from:
|
|
|
|
|
|
|
|
Net investment income
|
(0.74
)4
|
(1.93
)
|
(1.76
)
|
(1.61
)
|
(1.45
)
|
(0.59
)
|
|
Total distributions
|
(0.74
)
|
(1.93
)
|
(1.76
)
|
(1.61
)
|
(1.45
)
|
(0.59
)
|
|
Net asset value, end of period
|
$14.20
|
$14.59
|
$15.14
|
$15.54
|
$14.74
|
$19.65
|
|
Market price, end of period
|
$13.56
|
$13.81
|
$14.25
|
$14.10
|
$12.70
|
$18.31
|
|
Total return, based on NAV5,6
|
2.50
%
|
9.69
%
|
9.10
%
|
17.32
%
|
(18.07
)%
|
1.19
%
|
|
Total return, based on Market
Price7
|
3.61
%
|
10.58
%
|
13.78
%
|
24.97
%
|
(23.44
)%
|
(5.62
)%
|
|
Net assets, end of period
(millions)
|
$737
|
$757
|
$784
|
$805
|
$763
|
$1,018
|
|
Ratios to average net assets:
|
||||||
|
Gross expenses8
|
4.28
%9
|
4.25
%
|
4.66
%
|
4.79
%
|
2.98
%
|
1.82
%9
|
|
Net expenses8,10,11
|
4.27
9
|
4.25
|
4.66
|
4.79
|
2.98
|
1.82
9
|
|
Net investment income
|
11.55
9
|
10.98
|
11.13
|
11.46
|
9.48
|
5.57
9
|
|
Portfolio turnover rate
|
22
%
|
41
%
|
36
%
|
35
%
|
42
%
|
19
%
|
|
Supplemental data:
|
|
|
|
|
|
|
|
Loan Outstanding, End of Period
(000s)
|
—
|
$364,000
|
$358,000
|
$358,000
|
$358,000
|
$370,000
|
|
Asset Coverage Ratio for Loan
Outstanding12
|
—
|
308
%
|
319
%
|
325
%
|
313
%
|
375
%
|
|
Asset Coverage, per $1,000
Principal Amount of Loan
Outstanding12
|
—
|
$3,081
|
$3,190
|
$3,248
|
$3,133
|
$3,751
|
|
Weighted Average Loan (000s)
|
$355,477
|
$358,395
|
$358,000
|
$358,000
|
$370,288
|
$314,938
|
|
Weighted Average Interest Rate
on Loan
|
4.65
%
|
5.21
%
|
6.13
%
|
6.11
%
|
2.71
%
|
1.13
%
|
See Notes to Financial Statements.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
45
Financial highlights (cont’d)
|
1
|
Per share amounts have been calculated using the average shares method.
|
|
2
|
For the six months ended June 30, 2026 (unaudited).
|
|
3
|
For the period June 25, 2021 (commencement of operations) to December 31, 2021.
|
|
4
|
The actual source of the Fund’s current fiscal year distributions may be from net investment income, return of
capital or a combination of both. Shareholders will be informed of the tax characteristics
of the distributions after
the close of the fiscal year.
|
|
5
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or
expense reimbursements.
In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements,
the total
return would have been lower. Past performance is no guarantee of future results.
Total returns for periods of less
than one year are not annualized.
|
|
6
|
The total return calculation assumes that distributions are reinvested at NAV. Past
performance is no guarantee of
future results. Total returns for periods of less than one year are not annualized.
|
|
7
|
The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend
reinvestment plan. Past performance is no guarantee of future results. Total returns
for periods of less than one
year are not annualized.
|
|
8
|
Includes expenses related to borrowings of 2.48%, 2.51%, 2.86%, 2.98%, 1.23% and 0.34%,
for the six months
ended June 30, 2026, and years ended December 31, 2025, 2024, 2023, 2022 and 2021,
respectively.
|
|
9
|
Annualized.
|
|
10
|
Reflects fee waivers and/or expense reimbursements.
|
|
11
|
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.
|
|
12
|
Represents value of net assets plus the loan outstanding at the end of the period
divided by the loan outstanding
at the end of the period.
|
See Notes to Financial Statements.
46
Western Asset Diversified Income Fund 2026 Semi-Annual Report
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
Western Asset Diversified Income Fund (the “Fund”) was organized in Maryland on July 27, 2020 and is registered as a diversified, closed-end management investment company
under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Trustees (the “Board”) has authorized the issuance of an unlimited number of common shares of beneficial interest, $0.001 par value per share (the “Common Shares”). The Fund’s primary investment objective is to seek high current income. As a secondary investment objective,
the Fund will seek capital appreciation. The Fund seeks to achieve its investment
objectives by investing, under normal market conditions, across fixed income sectors and securities
in seeking to deliver a well-diversified portfolio. The Fund expects to dissolve on or
about June 24, 2033 (the “Dissolution Date”); provided that the Board may, without shareholder approval, extend the Dissolution Date for up to two years. As of a date within the
6-18 months preceding the Dissolution Date, the Board may cause the Fund to conduct a tender
offer to all shareholders to purchase 100% of the then outstanding Common Shares of
the Fund at a price equal to the NAV per Common Share on the expiration date of the tender
offer (the “Eligible Tender Offer”). The Board has established that the Fund must have at least $200 million of aggregate net assets immediately following the completion of
an Eligible Tender Offer to ensure the continued viability of the Fund (the “Dissolution Threshold”). In an Eligible Tender Offer, the Fund will offer to purchase all Common Shares held by each Common Shareholder; provided that if the payment for properly tendered
Common Shares would result in the Fund having aggregate net assets below the Dissolution Threshold, the Eligible Tender Offer will be canceled, no Common Shares
will be repurchased and the Fund will dissolve as scheduled. If an Eligible Tender Offer is
conducted and the payment for properly tendered Common Shares would result in the
Fund having aggregate net assets greater than or equal to the Dissolution Threshold, all
Common Shares properly tendered and not withdrawn will be purchased by the Fund pursuant
to the terms of the Eligible Tender Offer. Following the completion of an Eligible Tender
Offer, the Board may eliminate the Dissolution Date without shareholder approval and provide
for the Fund’s perpetual existence. Upon its dissolution, it is anticipated that the Fund will have distributed substantially all of its net assets to shareholders, although securities
for which no market exists or securities trading at depressed prices, if any, may be placed
in a liquidating trust.
The Fund follows the accounting and reporting guidance in Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies (“ASC 946”). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted
accounting principles (“GAAP”), including, but not limited to, ASC 946. Estimates and assumptions are required to be made regarding assets, liabilities and changes in net
assets resulting from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining these
Western Asset Diversified Income Fund 2026 Semi-Annual Report
47
Notes to financial statements (unaudited) (cont’d)
estimates could cause actual results to differ. Subsequent events have been evaluated
through the date the financial statements were issued.
(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed,
collateralized mortgage obligations and asset-backed securities) and certain derivative
instruments are typically the prices supplied by independent third party pricing services,
which may use market prices or broker/dealer quotations or a variety of valuation
techniques and methodologies. The independent third party pricing services typically
use inputs that are observable such as issuer details, interest rates, yield curves, prepayment
speeds, credit risks/spreads, default rates and quoted prices for similar securities.
Investments in open-end funds are valued at the closing net asset value per share
of each fund on the day of valuation. Futures contracts are valued daily at the settlement
price established by the board of trade or exchange on which they are traded. Equity securities
for which market quotations are available are valued at the last reported sales price
or official closing price on the primary market or exchange on which they trade. When
the Fund holds securities or other assets that are denominated in a foreign currency,
the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent
third party pricing services are unable to supply prices for a portfolio investment,
or if the prices supplied are deemed by the manager to be unreliable, the market price may be
determined by the manager using quotations from one or more broker/dealers or at the
transaction price if the security has recently been purchased and no value has yet
been obtained from a pricing service or pricing broker. When reliable prices are not readily
available, such as when the value of a security has been significantly affected by
events after the close of the exchange or market on which the security is principally traded,
but before the Fund calculates its net asset value, the Fund values these securities as
determined in accordance with procedures approved by the Board.
Pursuant to policies adopted by the Board, the Fund’s manager has been designated as the valuation designee and is responsible for the oversight of the daily valuation process.
The Fund’s manager is assisted by the Global Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Fund’s manager and the Board. 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
48
Western Asset Diversified Income Fund 2026 Semi-Annual Report
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, 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 quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with
the market approach and/or income approach, depending on the type of security and the
particular circumstance. The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable securities. The
income approach uses valuation techniques to discount estimated future cash flows to present
value.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques
used to value assets and liabilities at measurement date. These inputs are summarized
in the three broad levels listed below:
•
Level 1 — unadjusted quoted prices in active markets for identical investments
•
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
•
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodologies used to value securities are not necessarily an indication
of the risk associated with investing in those securities.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
49
Notes to financial statements (unaudited) (cont’d)
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:
|
|
|
|
|
|
Energy
|
—
|
$80,015,511
|
$4,505,153
|
$84,520,664
|
|
Other Corporate Bonds &
Notes
|
—
|
507,788,694
|
—
|
507,788,694
|
|
Collateralized Mortgage
Obligations
|
—
|
212,052,840
|
—
|
212,052,840
|
|
Asset-Backed Securities
|
—
|
185,138,379
|
37
|
185,138,416
|
|
Senior Loans:
|
|
|
|
|
|
Consumer Discretionary
|
—
|
18,118,303
|
4,060,110
|
22,178,413
|
|
Consumer Staples
|
—
|
8,284,292
|
1,248,450
|
9,532,742
|
|
Industrials
|
—
|
3,675,000
|
1,791,579
|
5,466,579
|
|
Materials
|
—
|
10,710,299
|
2,427,930
|
13,138,229
|
|
Other Senior Loans
|
—
|
55,915,677
|
—
|
55,915,677
|
|
Sovereign Bonds
|
—
|
48,678,778
|
—
|
48,678,778
|
|
Preferred Stocks
|
$5,412,087
|
—
|
—
|
5,412,087
|
|
Convertible Bonds & Notes
|
—
|
2,184,521
|
—
|
2,184,521
|
|
Common Stocks:
|
|
|
|
|
|
Consumer Staples
|
—
|
1,233,207
|
829,027
|
2,062,234
|
|
Industrials
|
3,365
|
20
|
—
|
3,385
|
|
Other Common Stocks
|
—
|
19,102
|
—
|
19,102
|
|
Purchased Options:
|
|
|
|
|
|
Exchange-Traded
Purchased Options
|
96,850
|
—
|
—
|
96,850
|
|
OTC Purchased Options
|
—
|
144,201
|
—
|
144,201
|
|
Non-U.S. Treasury Inflation
Protected Securities
|
—
|
110,008
|
—
|
110,008
|
|
Rights
|
—
|
80,270
|
—
|
80,270
|
|
Warrants
|
—
|
2,391
|
—
|
2,391
|
|
Total Long-Term Investments
|
5,512,302
|
1,134,151,493
|
14,862,286
|
1,154,526,081
|
|
Short-Term Investments†
|
23,470,415
|
—
|
—
|
23,470,415
|
|
Total Investments
|
$28,982,717
|
$1,134,151,493
|
$14,862,286
|
$1,177,996,496
|
50
Western Asset Diversified Income Fund 2026 Semi-Annual Report
|
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††
|
$1,768,291
|
—
|
—
|
$1,768,291
|
|
Forward Foreign Currency
Contracts††
|
—
|
$458,721
|
—
|
458,721
|
|
Centrally Cleared Interest
Rate Swaps††
|
—
|
541,159
|
—
|
541,159
|
|
Centrally Cleared Credit
Default Swaps on
Corporate Issues — Sell
Protection††
|
—
|
52,081
|
—
|
52,081
|
|
OTC Total Return Swaps
|
—
|
416,671
|
—
|
416,671
|
|
Total Other Financial
Instruments
|
$1,768,291
|
$1,468,632
|
—
|
$3,236,923
|
|
Total
|
$30,751,008
|
$1,135,620,125
|
$14,862,286
|
$1,181,233,419
|
|
LIABILITIES
|
||||
|
Description
|
Quoted Prices
(Level 1)
|
Other Significant
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
|
Other Financial Instruments:
|
|
|
|
|
|
Written Options
|
—
|
$39,009
|
—
|
$39,009
|
|
Futures Contracts††
|
$552,514
|
—
|
—
|
552,514
|
|
Forward Foreign Currency
Contracts††
|
—
|
272,461
|
—
|
272,461
|
|
OTC Interest Rate Swaps
|
—
|
1,506,993
|
—
|
1,506,993
|
|
Centrally Cleared Credit
Default Swaps on
Corporate Issues — Sell
Protection††
|
—
|
15,044
|
—
|
15,044
|
|
Centrally Cleared Credit
Default Swaps on
Corporate Issues — Buy
Protection††
|
—
|
44,733
|
—
|
44,733
|
|
Centrally Cleared Credit
Default Swaps on Credit
Indices — Buy
Protection††
|
—
|
141,764
|
—
|
141,764
|
|
Total
|
$552,514
|
$2,020,004
|
—
|
$2,572,518
|
|
†
|
See Schedule of Investments for additional detailed categorizations.
|
|
††
|
Reflects the unrealized appreciation (depreciation) of the instruments.
|
Western Asset Diversified Income Fund 2026 Semi-Annual Report
51
Notes to financial statements (unaudited) (cont’d)
The following is a reconciliation of investments in which significant unobservable
inputs (Level 3) were used in determining fair value:
|
Investments in
Securities
|
Balance
as of
December 31,
2025
|
Accrued
premiums/
discounts
|
Realized
gain
(loss)1
|
Change in
unrealized
appreciation
(depreciation)2
|
Purchases
|
|
Corporate Bonds &
Notes:
|
|
|
|
|
|
|
Energy
|
$4,653,297
|
$6,439
|
—
|
$(154,583)
|
—
|
|
Asset-Backed
Securities
|
—
|
—
|
—
|
—
|
—
|
|
Senior Loans:
|
|
|
|
|
|
|
Consumer
Discretionary
|
4,007,797
|
12,823
|
$(1,777,246)
|
1,668,060
|
$4,010,294
|
|
Consumer Staples
|
—
|
390
|
—
|
30,360
|
1,217,700
|
|
Financials
|
3,280,764
|
(2,617)
|
(80)
|
13,811
|
—
|
|
Industrials
|
1,796,449
|
1,817,963
|
(504,050)
|
(2,187,717)
|
1,075,084
|
|
Materials
|
—
|
6,433
|
779
|
(26,707)
|
—
|
|
Common Stocks:
|
|
|
|
|
|
|
Consumer Staples
|
—
|
—
|
—
|
43,219
|
785,808
|
|
Total
|
$13,738,307
|
$1,841,431
|
$(2,280,597)
|
$(613,557)
|
$7,088,886
|
|
Investments in
Securities (cont’d)
|
Sales
|
Transfers
into
Level 33
|
Transfers
out of
Level 34
|
Balance
as of
June 30, 2026
|
Net change
in unrealized
appreciation
(depreciation)
for
investments
in securities
still held at
June 30, 20262
|
|
Corporate Bonds &
Notes:
|
|
|
|
|
|
|
Energy
|
—
|
—
|
—
|
$4,505,153
|
$(154,583)
|
|
Asset-Backed
Securities
|
—
|
$37
|
—
|
37
|
—
|
|
Senior Loans:
|
|
|
|
|
|
|
Consumer
Discretionary
|
$(3,861,618)
|
—
|
—
|
4,060,110
|
104,958
|
|
Consumer Staples
|
—
|
—
|
—
|
1,248,450
|
30,360
|
|
Financials
|
(21,605)
|
—
|
$(3,270,273)
|
—
|
—
|
|
Industrials
|
(1,840,342)
|
1,634,192
|
—
|
1,791,579
|
(2,187,717)
|
|
Materials
|
(31,250)
|
2,478,675
|
—
|
2,427,930
|
(26,706)
|
|
Common Stocks:
|
|
|
|
|
|
|
Consumer Staples
|
—
|
—
|
—
|
829,027
|
43,219
|
|
Total
|
$(5,754,815)
|
$4,112,904
|
$(3,270,273)
|
$14,862,286
|
$(2,190,469)
|
52
Western Asset Diversified Income Fund 2026 Semi-Annual Report
|
1
|
This amount is included in net realized gain (loss) from investment transactions in
the accompanying Statement of
Operations.
|
|
2
|
This amount is included in the change in net unrealized appreciation (depreciation)
in the accompanying Statement
of Operations. Change in unrealized appreciation (depreciation) includes net unrealized
appreciation (depreciation)
resulting from changes in investment values during the reporting period and the reversal
of previously recorded
unrealized appreciation (depreciation) when gains or losses are realized.
|
|
3
|
Transferred into Level 3 as a result of the unavailability of a quoted price in an
active market for an identical
investment or the unavailability of other significant observable inputs in the valuation
obtained from independent
third party pricing services or broker/dealer quotations.
|
|
4
|
Transferred out of Level 3 as a result of the availability of a quoted price in an
active market for an identical
investment or the availability of other significant observable inputs.
|
The following table summarizes the valuation techniques used and unobservable inputs
approved by the Valuation Committee to determine the fair value of certain material
Level 3 investments. The table does not include Level 3 investments with values derived utilizing
prices from prior transactions or third party pricing information without adjustment
(e.g., broker quotes, pricing services, net asset values).
|
|
Fair Value
at 06/30/26
(000’s)
|
Valuation
Technique(s)
|
Unobservable
Input(s)
|
Range/Weighted
Average
|
Impact to Valuation
from an Increase in
Input*
|
|
Senior Loans
|
$4,060
|
Discounted
Cash Flow
Method
|
Yield
|
13.00%
|
Decrease
|
|
* This column represents the directional change in the fair value of the Level 3 investments
that would result in an
increase from the corresponding unobservable input. A decrease to the unobservable
input would have the opposite
effect. Significant increases and decreases in these unobservable inputs in isolation
could result in significantly higher
or lower fair value measurements.
|
|||||
(b) Purchased options. The Fund may purchase option contracts generally to gain or reduce exposure to certain types of investments or market factors or as a means of
attempting to enhance returns. When the Fund purchases an option, an amount equal
to the premium paid by the Fund is recorded as an investment on the Statement of Assets and
Liabilities, the value of which is marked-to-market to reflect the current market
value of the option purchased. If the purchased option expires, the Fund realizes a loss equal
to the amount of premium paid. When an instrument is purchased or sold through the exercise
of an option, the related premium paid is added to the basis of the instrument acquired
or deducted from the proceeds of the instrument sold. The risk associated with purchasing
put and call options is limited to the premium paid.
(c) Written options. The Fund may write option contracts generally to gain or reduce exposure to certain types of investments or market factors or as a means of attempting
to enhance returns. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market
daily to reflect the current market value of the option written. If the option expires,
the premium received is recorded as a realized gain. When a written call option is exercised,
the
Western Asset Diversified Income Fund 2026 Semi-Annual Report
53
Notes to financial statements (unaudited) (cont’d)
difference between the premium received plus the option exercise price and the Fund’s basis in the underlying security (in the case of a covered written call option), or
the cost to purchase the underlying security (in the case of an uncovered written call option),
including brokerage commission, is recognized as a realized gain or loss. When a written put
option is exercised, the amount of the premium received is subtracted from the cost of the security
purchased by the Fund from the exercise of the written put option to form the Fund’s basis in the underlying security purchased. The writer or buyer of an option traded on an
exchange can liquidate the position before the exercise of the option by entering
into a closing transaction. The cost of a closing transaction is deducted from the original
premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity
of profit if the market price of the underlying security increases and the option is exercised.
The risk in writing a put option is that the Fund may incur a loss if the market price of the
underlying security decreases and the option is exercised. The risk in writing an uncovered call
option is that the Fund is exposed to the risk of loss if the market price of the underlying
security increases. In addition, there is the risk that the Fund may not be able to enter into
a closing transaction because of an illiquid secondary market.
(d) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes
in certain asset classes. A futures contract represents a commitment for the future purchase
or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities
with a broker in an amount equal to a certain percentage of the contract amount. This is
known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract.
For certain futures, including foreign denominated futures, variation margin is not settled
daily, but is recorded as a net variation margin payable or receivable. The daily changes
in contract value are recorded as unrealized appreciation or depreciation in the Statement
of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk of loss in excess of the amounts
reflected in the financial statements. In addition, there is the risk that the Fund may not
be able to enter into a closing transaction because of an illiquid secondary market.
(e) Forward foreign currency contracts. The Fund enters into a forward foreign currency contract to hedge 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
54
Western Asset Diversified Income Fund 2026 Semi-Annual Report
offset by entering into another forward foreign currency contract, the Fund recognizes
a realized gain or loss equal to the difference between the value of the contract at
the time it was opened and the value of the contract at the time it is closed.
Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in cash without the delivery of foreign currency.
Forward foreign currency contracts involve elements of market risk in excess of the
amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an
unfavorable change in the foreign exchange rate underlying the forward foreign currency
contract. Risks may also arise upon entering into these contracts from the potential
inability of the counterparties to meet the terms of their contracts.
(f) Swap agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes, including
to increase the Fund’s return. The use of swaps involves risks that are different from those associated with other portfolio transactions. Swap agreements are privately negotiated in the
over-the-counter market and may be entered into as a bilateral contract (“OTC Swaps”) or centrally cleared (“Centrally Cleared Swaps”). Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.
In a Centrally Cleared Swap, immediately following execution of the swap, the swap
agreement is submitted to a clearinghouse or central counterparty (the “CCP”) and the CCP becomes the ultimate counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker, acting in an agency capacity. All payments
are settled with the CCP through the broker. Upon entering into a Centrally Cleared Swap,
the Fund is required to deposit initial margin with the broker in the form of cash or
securities.
Swap contracts are marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps,
if any, is recorded as a net receivable or payable for variation margin on the Statement
of Assets and Liabilities. Gains or losses are realized upon termination of the swap
agreement. Collateral, in the form of restricted cash or securities, may be required
to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified
in the Schedule of Investments and restricted cash, if any, is identified on the Statement
of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and
Liabilities. These risks include changes in the returns of the underlying instruments,
failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.
OTC Swap payments received or made at the beginning of the measurement period are
reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities.
These upfront payments are amortized over the life of the swap and are recognized
as
Western Asset Diversified Income Fund 2026 Semi-Annual Report
55
Notes to financial statements (unaudited) (cont’d)
realized gain or loss in the Statement of Operations. Net periodic payments received
or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.
The Fund’s maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of June 30, 2026, the total notional
value of all credit default swaps to sell protection was $1,727,000. This amount 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 June 30, 2026, see Note 4.
Credit default swaps
The Fund enters into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making
a stream of payments to another party in exchange for the right to receive a specified
return in the event of a default by a third party, typically corporate or sovereign issuers,
on a specified obligation, or in the event of a write-down, principal shortfall, interest
shortfall or default of all or part of the referenced entities comprising a credit index. The Fund
may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk
where the Fund has exposure to an issuer) or to take an active long or short position with respect
to the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap,
provided that there is no credit event. If the Fund is a seller of protection and
a credit event occurs, as defined under the terms of that particular swap agreement, the maximum
potential amount of future payments (undiscounted) that the Fund could be required
to make under a CDS agreement would be an amount equal to the notional amount of the
agreement. These amounts of potential payments will be partially offset by any recovery
of values from the respective referenced obligations. As a seller of protection, the
Fund effectively adds leverage to its portfolio because, in addition to its total net assets,
the Fund is subject to investment exposure on the notional amount of the swap. As a buyer
of protection, the Fund generally receives an amount up to the notional value of the
swap if a credit event occurs.
Implied spreads are the theoretical prices a lender receives for credit default protection.
When spreads rise, market perceived credit risk rises and when spreads fall, market
perceived credit risk falls. The implied credit spread of a particular referenced
entity reflects the cost of buying/selling protection and may include upfront payments required to
enter into the agreement. Wider credit spreads and decreasing market values, when compared
to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring
as defined under the terms of the agreement. Credit spreads utilized in determining the
period
56
Western Asset Diversified Income Fund 2026 Semi-Annual Report
end market value of CDS agreements on corporate or sovereign issues are disclosed
in the Schedule of Investments and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For
CDS agreements on asset-backed securities and credit indices, the quoted market prices
and resulting values, particularly in relation to the notional amount of the contract
as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.
The Fund’s maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the
counterparty to the Fund to cover the Fund’s exposure to the counterparty). As the protection seller, the Fund’s maximum risk is the notional amount of the contract. CDS are considered to have credit risk-related contingent features since they require payment by the protection
seller to the protection buyer upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to varying degrees, elements of credit, market
and documentation risk in excess of the related amounts recognized on the Statement of
Assets and Liabilities. Such risks involve the possibility that there will be no liquid market
for these agreements, that the counterparty to the agreement may default on its obligation to
perform or disagree as to the meaning of the contractual terms in the agreement, and
that there will be unfavorable changes in net interest rates.
Interest rate swaps
The Fund enters into interest rate swap contracts to manage its exposure to interest
rate risk. Interest rate swaps are agreements between two parties to exchange cash flows
based on a notional principal amount. The Fund may elect to pay a fixed rate and receive
a floating rate, or receive a fixed rate and pay a floating rate, on a notional principal
amount. Interest rate swaps are marked-to-market daily based upon quotations from market makers
and the change in value, 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.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
57
Notes to financial statements (unaudited) (cont’d)
Total return swaps
The Fund enters into total return swaps for investment purposes. Total return swaps
are agreements to exchange the return generated by one instrument for the return generated
by another instrument. For example, the agreement to pay a predetermined or fixed interest
rate in exchange for a market-linked return based on a notional amount. To the extent
the total return of a referenced index or instrument exceeds the offsetting interest obligation,
the Fund will receive a payment from the counterparty. To the extent it is less, the
Fund will make a payment to the counterparty.
(g) 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.
(h) Loan participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Fund’s investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection
with purchasing participations, the Fund generally will have no right to enforce compliance
by the borrower with the terms of the loan agreement related to the loan, or any rights
of offset against the borrower and the Fund may not benefit directly from any collateral
supporting the loan in which it has purchased the participation.
The Fund assumes the credit risk of the borrower, the lender that is selling the participation
and any other persons interpositioned between the Fund and the borrower. In the event
of the insolvency of the lender selling the participation, the Fund may be treated as
a general creditor of the lender and may not benefit from any offset between the lender and
the borrower.
58
Western Asset Diversified Income Fund 2026 Semi-Annual Report
(i) Unfunded loan commitments. The Fund may enter into certain credit agreements where all or a portion of the total amount committed may be unfunded. The Fund is
obligated to fund these commitments at the borrower’s discretion. The commitments are disclosed in the accompanying Schedule of Investments. At June 30, 2026, the Fund
had sufficient cash and/or securities to cover these commitments.
(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) Reverse repurchase agreements. The Fund may enter into reverse repurchase agreements. Under the terms of a typical reverse repurchase agreement, a fund sells
a security subject to an obligation to repurchase the security from the buyer at an
agreed upon time and price. In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds of the agreement may be restricted pending a determination by the counterparty, or its trustee
or receiver, whether to enforce the Fund’s obligation to repurchase the securities. In entering into reverse repurchase agreements, the Fund will pledge cash, U.S. government securities
or other liquid debt obligations at least equal in value to its obligations with respect
to reverse repurchase agreements or will take other actions permitted by law to cover
its obligations. If the market value of the collateral declines during the period, the
Fund may be required to post additional collateral to cover its obligation. Cash collateral that
has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any,
will be reported separately in the Statement of Assets and Liabilities. Securities pledged
as collateral are noted in the Schedule of Investments. Interest payments made on reverse
repurchase agreements are recognized as a component of “Interest expense” on the Statement of Operations. In periods of increased demand for the security, the Fund
may receive a fee for use of the security by the counterparty, which may result in interest
income to the Fund.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
59
Notes to financial statements (unaudited) (cont’d)
(l) 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.
(m) 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.
(n) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the
Statements of Changes in Net Assets and additional information on cash receipts and cash payments
is presented in the Statement of Cash Flows.
(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
60
Western Asset Diversified Income Fund 2026 Semi-Annual Report
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 instruments that are subject to certain credit and market risks. The yields of high-yield 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.
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) 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.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
61
Notes to financial statements (unaudited) (cont’d)
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 June 30, 2026, the Fund held OTC written options, forward foreign currency contracts
and OTC interest rate swaps with credit related contingent features which had a liability
position of $1,818,463. If a contingent feature in the master agreements would have
been triggered, the Fund would have been required to pay this amount to its derivatives
62
Western Asset Diversified Income Fund 2026 Semi-Annual Report
counterparties. As of June 30, 2026, the Fund had posted with its counterparties cash
and/or securities as collateral to cover the net liability of these derivatives amounting
to $1,000,000 which could be used to reduce the required payment.
(s) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind
securities) is recorded on the accrual basis. Amortization of premiums and accretion
of discounts on debt securities are recorded to interest income over the lives of the
respective securities, except for premiums on certain callable debt securities, which are amortized
to the earliest call date. Paydown gains and losses on mortgage- and asset-backed securities
are recorded as adjustments to interest income. Dividend income is recorded on the
ex-dividend date. 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) Partnership accounting policy. The Fund records its pro rata share of the income (loss) and capital gains (losses), to the extent of distributions it has received,
allocated from the underlying partnerships and accordingly adjusts the cost basis of the underlying
partnerships for return of capital. These amounts are included in the Fund’s Statement of Operations.
(u) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. Distributions of net realized
gains, if any, are declared at least annually. The actual source of the Fund’s monthly distributions may be from net investment income, realized capital gains, return of
capital or a combination of such amounts. Shareholders will be informed of the tax characteristics
of the distributions after the close of the fiscal year. 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.
(v) 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, as amended (the “Code”), 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.
However, due to the timing of when distributions are made by the Fund, the Fund may
be subject to an excise tax of 4% of the amount by which 98% of the Fund’s annual taxable income and 98.2% of net realized gains exceed the distributions from such taxable
income and realized gains for the calendar year. During the six months ended June 30, 2026,
the Fund paid $13,402 of federal income taxes attributable to calendar year 2024.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
63
Notes to financial statements (unaudited) (cont’d)
Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2025, no provision for income
tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for the prior three fiscal years 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. In some cases, the Fund may be entitled
to reclaim all or a portion of such taxes, and such reclaim amounts, if any, are reflected
as a dividend receivable in the Statement of Assets and Liabilities and dividend income
in the Statement of Operations. In many cases, however, the Fund may not receive such amounts
for an extended period of time, depending on the country of investment.
(w) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share.
2. Investment management agreement and other transactions with affiliates
Franklin Templeton Fund Adviser, LLC (“FTFA”) is the Fund’s investment manager. Western Asset Management Company, LLC (“Western Asset”), Western Asset Management Company Pte. Ltd. (“Western Asset Singapore”), Western Asset Management Company Ltd (“Western Asset Japan”) and Western Asset Management Company Limited (“Western Asset London”) are the Fund’s sub-subadvisers. FTFA, Western Asset, Western Asset Singapore, Western Asset Japan and Western Asset London are indirect, wholly-owned
subsidiaries of Franklin Templeton, Inc. (“Franklin Templeton”) (prior to August 17, 2026, known as Franklin Resources, Inc.).
FTFA provides administrative and certain oversight services to the Fund. The Fund
pays FTFA an investment management fee, calculated daily and paid monthly, at an annual rate
of 1.10% of the Fund’s average daily managed assets, which are the net assets of the Fund plus the principal amount of any borrowings or preferred shares that may be outstanding,
reverse repurchase agreements, dollar rolls or similar transactions.
FTFA delegates to Western Asset the day-to-day portfolio management of the Fund. Western Asset Singapore, Western Asset Japan and Western Asset London provide certain
subadvisory services to the Fund relating to currency transactions and investments
in non-U.S. dollar denominated securities and related foreign currency instruments. For its services, FTFA pays Western Asset a fee monthly, at an annual rate equal to 70% of
the net management fee it receives from the Fund. In turn, Western Asset pays Western Asset
Singapore, Western Asset Japan and Western Asset London a monthly subadvisory fee
in an amount equal to 100% of the management fee paid to Western Asset on the assets
that Western Asset allocates to each such non-U.S. subadviser to manage.
Effective June 30, 2026, Western Asset Japan ceased to serve as a subadviser to the
Fund.
64
Western Asset Diversified Income Fund 2026 Semi-Annual Report
During periods in which the Fund utilizes financial leverage, the fees paid to FTFA
will be higher than if the Fund did not utilize leverage because the fees are calculated as
a percentage of the Fund’s assets, including those investments purchased with leverage.
The manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated
money market fund (the “affiliated money market fund waiver”).
During the six months ended June 30, 2026, fees waived and/or expenses reimbursed amounted to $5,030, all of which was an affiliated money market fund waiver.
All officers and one Trustee of the Fund are employees of Franklin Templeton or its
affiliates and do not receive compensation from the Fund.
3. Investments
During the six months ended June 30, 2026, 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
|
$305,300,023
|
$5,609
|
|
Sales
|
226,735,088
|
18,876,066
|
At June 30, 2026, the aggregate cost of investments and the aggregate gross unrealized
appreciation and depreciation of investments for federal income tax purposes were
substantially as follows:
|
|
Cost/Premiums
Paid (Received)
|
Gross
Unrealized
Appreciation
|
Gross
Unrealized
Depreciation
|
Net
Unrealized
Appreciation
(Depreciation)
|
|
Securities
|
$1,236,609,393
|
$43,661,231
|
$(102,274,128)
|
$(58,612,897)
|
|
Written options
|
(31,981)
|
—
|
(7,028)
|
(7,028)
|
|
Futures contracts
|
—
|
1,768,291
|
(552,514)
|
1,215,777
|
|
Forward foreign currency contracts
|
—
|
458,721
|
(272,461)
|
186,260
|
|
Swap contracts
|
(169,328)
|
1,009,911
|
(1,708,534)
|
(698,623)
|
Transactions in reverse repurchase agreements for the Fund during the six months ended June 30, 2026, were as follows:
|
Average Daily
Balance*
|
Weighted Average
Interest Rate*
|
Maximum Amount
Outstanding
|
|
$124,234,117
|
5.349%
|
$449,578,000
|
|
* Averages based on the number of days that the Fund had reverse repurchase agreements
outstanding.
|
Western Asset Diversified Income Fund 2026 Semi-Annual Report
65
Notes to financial statements (unaudited) (cont’d)
Interest rates on reverse repurchase agreements ranged from 4.250% to 5.394% during
the six months ended June 30, 2026. Interest expense incurred on reverse repurchase agreements totaled $2,990,536.
4. Derivative instruments and hedging activities
Below is a table, grouped by derivative type, that provides information about the
fair value and the location of derivatives within the Statement of Assets and Liabilities at
June 30, 2026.
|
ASSET DERIVATIVES1
|
|||||
|
|
Interest
Rate Risk
|
Foreign
Exchange Risk
|
Credit
Risk
|
Market
Risk
|
Total
|
|
Purchased options2
|
$96,850
|
$144,201
|
—
|
—
|
$241,051
|
|
Futures contracts3
|
1,768,291
|
—
|
—
|
—
|
1,768,291
|
|
Forward foreign currency contracts
|
—
|
458,721
|
—
|
—
|
458,721
|
|
OTC swap contracts4
|
—
|
—
|
—
|
$416,671
|
416,671
|
|
Centrally cleared swap contracts5
|
541,159
|
—
|
$52,081
|
—
|
593,240
|
|
Total
|
$2,406,300
|
$602,922
|
$52,081
|
$416,671
|
$3,477,974
|
|
LIABILITY DERIVATIVES1
|
||||
|
|
Interest
Rate Risk
|
Foreign
Exchange Risk
|
Credit
Risk
|
Total
|
|
Written options
|
—
|
$39,009
|
—
|
$39,009
|
|
Futures contracts3
|
$552,514
|
—
|
—
|
552,514
|
|
Forward foreign currency contracts
|
—
|
272,461
|
—
|
272,461
|
|
OTC swap contracts4
|
1,506,993
|
—
|
—
|
1,506,993
|
|
Centrally cleared swap contracts5
|
—
|
—
|
$201,541
|
201,541
|
|
Total
|
$2,059,507
|
$311,470
|
$201,541
|
$2,572,518
|
|
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 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.
|
66
Western Asset Diversified Income Fund 2026 Semi-Annual Report
The following tables provide information about the effect of derivatives and hedging
activities on the Fund’s Statement of Operations for the six months ended June 30, 2026. 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
|
Market
Risk
|
Total
|
|
Purchased options1
|
—
|
$(113,629
)
|
—
|
—
|
$(113,629
)
|
|
Futures contracts
|
$(2,317,366
)
|
—
|
—
|
—
|
(2,317,366
)
|
|
Written options
|
30,827
|
14,814
|
—
|
—
|
45,641
|
|
Swap contracts
|
(600,323
)
|
—
|
$107,114
|
$291,604
|
(201,605
)
|
|
Forward foreign currency
contracts
|
—
|
(261,078
)
|
—
|
—
|
(261,078
)
|
|
Total
|
$(2,886,862
)
|
$(359,893
)
|
$107,114
|
$291,604
|
$(2,848,037
)
|
|
1
|
Net realized gain (loss) from purchased options is reported in Net Realized Gain (Loss)
From Investment
transactions in the Statement of Operations.
|
|
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|||||
|
|
Interest
Rate Risk
|
Foreign
Exchange Risk
|
Credit
Risk
|
Market
Risk
|
Total
|
|
Purchased options1
|
$(32,718
)
|
$(221
)
|
—
|
—
|
$(32,939
)
|
|
Futures contracts
|
1,702,063
|
—
|
—
|
—
|
1,702,063
|
|
Written options
|
—
|
(7,028
)
|
—
|
—
|
(7,028
)
|
|
Swap contracts
|
383,840
|
—
|
$(162,554
)
|
$(18,746
)
|
202,540
|
|
Forward foreign currency contracts
|
—
|
219,926
|
—
|
—
|
219,926
|
|
Total
|
$2,053,185
|
$212,677
|
$(162,554
)
|
$(18,746
)
|
$2,084,562
|
|
1
|
The change in net unrealized appreciation (depreciation) from purchased options is
reported in the Change in Net
Unrealized Appreciation (Depreciation) From Investments in the Statement of Operations.
|
During the six months ended June 30, 2026, the volume of derivative activity for the Fund was as follows:
|
|
Average Market
Value*
|
|
Purchased options
|
$114,160
|
|
Written options
|
9,474
|
|
Futures contracts (to buy)
|
175,812,804
|
|
Futures contracts (to sell)
|
112,251,265
|
|
Forward foreign currency contracts (to buy)
|
20,317,273
|
|
Forward foreign currency contracts (to sell)
|
30,310,865
|
Western Asset Diversified Income Fund 2026 Semi-Annual Report
67
Notes to financial statements (unaudited) (cont’d)
|
|
Average Notional
Balance**
|
|
Interest rate swap contracts
|
$25,874,017
|
|
Credit default swap contracts (buy protection)
|
5,018,185
|
|
Credit default swap contracts (sell protection)
|
1,862,429
|
|
Total return swap contracts
|
5,308,244
|
|
*
|
Based on the average of the market values at each month-end during the period.
|
|
**
|
Based on the average of the notional amounts at each month-end during the period.
|
The following table presents the Fund’s OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and net of the
related collateral pledged (received) by the Fund as of June 30, 2026.
|
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.
|
$2,791
|
$(1,595)
|
$1,196
|
—
|
$1,196
|
|
BNP Paribas SA
|
228,124
|
(80,366)
|
147,758
|
—
|
147,758
|
|
Citibank N.A.
|
105,247
|
(27,103)
|
78,144
|
—
|
78,144
|
|
JPMorgan Chase & Co.
|
683,431
|
(1,664,063)
|
(980,632)
|
$1,000,000
|
19,368
|
|
Morgan Stanley & Co. Inc.
|
—
|
(45,336)
|
(45,336)
|
—
|
(45,336)
|
|
Total
|
$1,019,593
|
$(1,818,463)
|
$(798,870)
|
$1,000,000
|
$201,130
|
|
1
|
Absent an event of default or early termination, derivative assets and liabilities
are presented gross and not
offset in the Statement of Assets and Liabilities.
|
|
2
|
Gross amounts are not offset in the Statement of Assets and Liabilities.
|
|
3
|
In some instances, the actual collateral received and/or pledged may be more than
the amount shown here due
to overcollateralization.
|
|
4
|
Net amount may also include forward foreign currency exchange contracts that are not
required to be
collateralized.
|
|
5
|
Represents the net amount receivable (payable) from (to) the counterparty in the event
of default.
|
5. Loan
Prior to May 13, 2026, the Fund had a revolving credit agreement (the “BNYM Credit Agreement”) with The Bank of New York Mellon (“BNYM”) that allowed the Fund to borrow up to an aggregate amount of $385,000,000. Effective May 13, 2026, the Credit Agreement
was terminated. The Fund paid interest on borrowings calculated based on SOFR plus
applicable margin. The Fund paid a commitment fee on the unutilized portion of the
loan commitment amount at an annual rate of 0.25% except that the commitment fee is 0.00%
when the aggregate outstanding balance of the loan was equal to or greater than 75%
of the maximum commitment amount. To the extent of the borrowing outstanding, the Fund
was required to maintain collateral in a special custody account at the Fund’s custodian on behalf of BNYM. The BNYM Credit Agreement contained customary covenants that, among
other things, limited the Fund’s ability to pay distributions in certain circumstances, incur
68
Western Asset Diversified Income Fund 2026 Semi-Annual Report
additional debt, change certain material investment policies and engage in certain
transactions, including mergers and consolidations, and required asset coverage ratios
in addition to those required by the 1940 Act. In addition, the BNYM Credit Agreement
was subject to early termination under certain conditions and contained other provisions
that limited the Fund’s ability to utilize borrowing under the agreement. Interest expense related to the loan for the six months ended June 30, 2026 was $6,059,407. For the six months
ended June 30, 2026, the Fund incurred commitment fees in the amount of $0. For the
six months ended June 30, 2026, based on the number of days during the reporting period
that the Fund had a loan balance outstanding, the average daily loan balance was $355,477,273
and the weighted average interest rate was 4.65%. At June 30, 2026, the Fund had no
borrowings outstanding per the Credit Agreement.
6. Distributions subsequent to June 30, 2026
The following distributions have been declared by the Board and are payable subsequent
to the period end of this report:
|
Record Date
|
Payable Date
|
Amount
|
|
7/24/2026
|
7/31/2026
|
$0.1485
|
|
8/24/2026
|
8/31/2026
|
$0.1485
|
|
9/23/2026
|
9/30/2026
|
$0.1485
|
|
10/23/2026
|
10/30/2026
|
$0.1485
|
|
11/20/2026
|
11/30/2026
|
$0.1485
|
7. Stock repurchase program
On July 29, 2021, the Fund announced that the Board had authorized the Fund to repurchase
in the open market up to approximately 10% of the Fund’s outstanding common stock when the Fund’s shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such times and in such
amounts as management reasonably believes may enhance stockholder value. The Fund
is under no obligation to purchase shares at any specific discount levels or in any specific
amounts. During the six months ended June 30, 2026 and the year ended December 31,
2025, the Fund did not repurchase any shares.
8. Capital shares
The Fund filed a registration statement with the Securities and Exchange Commission,
effective December 18, 2024, authorizing the Fund to offer and sell shares of common
stock having an aggregate offering price of up to $75,000,000. Under the equity shelf offering
program, the Fund, subject to market conditions, may raise additional equity capital
from time to time in varying amounts and offering methods at a net price at or above the Fund’s then-current net asset value per common share. Costs incurred by the Fund in connection
with the shelf offering are recorded as a prepaid expense. These costs are amortized
on a pro-rata basis as shares are sold and are presented as a reduction to the net proceeds
from
Western Asset Diversified Income Fund 2026 Semi-Annual Report
69
Notes to financial statements (unaudited) (cont’d)
the sale of shares on the Statement of Changes in Net Assets, if applicable. Any deferred
shares remaining at the end of the life of the shelf offering period will be expensed.
9. Transactions with affiliated company
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5%
or more of the outstanding voting securities, or a company which is under common ownership
or control with the Fund. The following company was considered an affiliated company
for all or some portion of the six months ended June 30, 2026. The following transactions were effected in such company for the six months ended June 30, 2026.
|
|
Affiliate
Value at
December 31, 2025
|
Purchased
|
Sold
|
||
|
Cost
|
Shares
|
Proceeds
|
Shares
|
||
|
Western Asset
Premier
Institutional
Government
Reserves, Premium
Shares
|
—
|
$226,958,074
|
226,958,074
|
$203,487,659
|
203,487,659
|
|
(cont’d)
|
Realized
Gain (Loss)
|
Dividend
Income
|
Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation)
|
Affiliate
Value at
June 30,
2026
|
|
Western Asset Premier
Institutional
Government Reserves,
Premium Shares
|
—
|
$159,614
|
—
|
$23,470,415
|
10. Restricted securities
The following Fund investments are restricted as to resale and, in the absence of
readily ascertainable market values, are fair valued in accordance with procedures approved
by the Board.
|
Security
|
Number of
Shares/
Warrants
|
Acquisition
Date
|
Cost
|
Fair Value
at 6/30/2026
|
Value Per
Share/Warrant
|
Percent of
Net Assets
|
|
Spirit Airlines LLC,
Common Shares
|
977
|
3/25
|
$11,893
|
$20
|
$0.02
|
0.00
%(a)
|
|
Spirit Airlines LLC,
Warrants
|
119,540
|
3/25
|
1,455,203
|
2,391
(b)
|
0.02
|
0.00
(a)
|
|
Total
|
|
|
$1,467,096
|
$2,411
|
|
0.00
%(a)
|
|
(a)
|
Amount represents less than 0.005%.
|
|
(b)
|
Security is exempt from registration under Rule 144A of the Securities Act of 1933.
This security may be resold in
transactions that are exempt from registration, normally to qualified institutional
buyers. This security has been
deemed liquid pursuant to guidelines approved by the Board.
|
70
Western Asset Diversified Income Fund 2026 Semi-Annual Report
11. Deferred capital losses
As of December 31, 2025, the Fund had deferred capital losses of $233,295,665, which
have no expiration date, that will be available to offset future taxable capital gains.
12. Operating segments
The Fund operates as a single operating segment, which is an investment portfolio.
A management group assigned to the Fund within the Fund’s investment manager serves as the Chief Operating Decision Maker (“CODM”) and is responsible for evaluating the Fund’s operating results and allocating resources in accordance with the Fund’s investment strategy. Internal reporting provided to the CODM aligns with the accounting policies
and measurement principles used in the financial statements.
For information regarding segment assets, segment profit or loss, and significant
expenses, refer to the Statement of Assets and Liabilities and the Statement of Operations,
along with the related Notes to Financial Statements. The Fund’s Schedule of Investments provides details of the Fund’s investments that generate returns such as interest, dividends, and realized and unrealized gains or losses. Performance metrics, including portfolio
turnover and expense ratios, are disclosed in the Financial Highlights.
Western Asset Diversified Income Fund 2026 Semi-Annual Report
71
Board approval of management and
subadvisory agreements (unaudited)
Background
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the Board of Trustees (the “Board”) of Western Asset Diversified Income Fund (the “Fund”), including a majority of its members who are not considered to be “interested persons” under the 1940 Act (the “Independent Trustees”) voting separately, approve on an annual basis the continuation of the investment management agreement (the “Management Agreement”) between the Fund and the Fund’s manager, Franklin Templeton Fund Adviser, LLC (the “Manager”), and the sub-advisory agreements (individually, a “Sub-Advisory Agreement,” and collectively, the “Sub-Advisory Agreements”) with the Manager’s affiliates, Western Asset Management Company, LLC (“Western Asset”), Western Asset Management Company Limited (“Western Asset London”) and Western Asset Management Company Pte. Ltd. (“Western Asset Singapore,” and together with Western Asset and Western Asset London, the “Sub-Advisers”), with respect to the Fund.
At an in-person meeting (the “Contract Renewal Meeting”) held on May 12-13, 2026, the Board, including the Independent Trustees, considered and approved the continuation
of each of the Management Agreement and the Sub-Advisory Agreements for an additional
one-year period. To assist in its consideration of the renewal of each of the Management
Agreement and the Sub-Advisory Agreements, the Board received and considered extensive
information (together with the information provided at the Contract Renewal Meeting,
the “Contract Renewal Information”) about the Manager and the Sub-Advisers, as well as the management and sub-advisory arrangements for the Fund and the other closed-end funds
in the same complex under the Board’s purview (the “Franklin Templeton Closed-end Funds”), certain portions of which are discussed below.
A presentation made by the Manager and the Sub-Advisers to the Board at the Contract
Renewal Meeting in connection with the Board’s evaluation of each of the Management Agreement and the Sub-Advisory Agreements encompassed the Fund and other Franklin
Templeton Closed-end Funds. In addition to the Contract Renewal Information, the Board
received performance and other information throughout the year related to the respective
services rendered by the Manager and the Sub-Advisers to the Fund. The Board’s evaluation took into account the information received throughout the year and also reflected
the knowledge and experience gained as members of the Boards of the Fund and other Franklin
Templeton Closed-end Funds with respect to the services provided to the Fund by the
Manager and the Sub-Advisers. The information received and considered by the Board
(including its various committees) in conjunction with both the Contract Renewal Meeting
and throughout the year was both written and oral. The contractual arrangements discussed
below are the product of multiple years of review and negotiation and information
received and considered by the Board during each of those years.
72
Western Asset Diversified Income Fund
At an in-person meeting held on April 24, 2026, the Independent Trustees, in preparation
for the Contract Renewal Meeting, met in a private session with their independent legal
counsel to review the Contract Renewal Information regarding the Franklin Templeton
Closed-end Funds, including the Fund, received to date. No representatives of the
Manager or the Sub-Advisers participated in this meeting. Following the April 24, 2026 meeting,
the Independent Trustees submitted certain questions and requests for additional information
to Fund management. The Independent Trustees also met in private sessions with their
independent legal counsel to consider the Contract Renewal Information and Fund management’s responses to the Independent Trustees’ questions and requests for additional information in advance of and during the Contract Renewal Meeting. The
discussion below reflects all of these reviews.
The Manager provides the Fund with investment advisory and administrative services
pursuant to the Management Agreement, and the Sub-Advisers together provide the Fund
with investment sub-advisory services pursuant to the Sub-Advisory Agreements. The
discussion below covers both the advisory and administrative functions being rendered
by the Manager, each such function being encompassed by the Management Agreement, and
the investment sub-advisory functions being rendered by the Sub-Advisers pursuant
to the Sub-Advisory Agreements.
Board Approval of Management Agreement and Sub-Advisory Agreements
The Independent Trustees were advised by separate independent legal counsel throughout
the process. Prior to voting, the Independent Trustees received a memorandum discussing
the legal standards for their consideration of the proposed continuation of the Management
Agreement and the Sub-Advisory Agreements. The Independent Trustees considered the
Management Agreement and each Sub-Advisory Agreement separately during the course
of their review. In doing so, they noted the respective roles of the Manager and the
Sub-Advisers in providing services to the Fund.
In approving the continuation of the Management Agreement and Sub-Advisory Agreements, the Board, including the Independent Trustees, considered a variety of
factors, including those factors discussed below. No single factor reviewed by the Board was
identified by the Board as the principal factor in determining whether to approve
the continuation of the Management Agreement and the Sub-Advisory Agreements. Each Board
member may have attributed different weight to the various factors in evaluating the
Management Agreement and the Sub-Advisory Agreements.
After considering all relevant factors and information, the Board, exercising its
reasonable business judgment, determined that the continuation of the Management Agreement and
Sub-Advisory Agreements was in the best interests of the Fund’s stockholders and approved the continuation of each such agreement for an additional one-year period.
Western Asset Diversified Income Fund
73
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
Nature, Extent and Quality of the Services under the Management Agreement and Sub-Advisory Agreements
The Board received and considered Contract Renewal Information regarding the nature,
extent, and quality of services provided to the Fund by the Manager and the Sub-Advisers
under the Management Agreement and the Sub-Advisory Agreements, respectively, during
the past year. The Board noted information received at regular meetings throughout
the year related to the services provided by the Manager in its management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Sub-Advisers and the Fund’s other service providers. The Board observed that the scope of services provided by the Manager
and the Sub-Advisers, and of the undertakings required of the Manager and Sub-Advisers
in connection with those services, including maintaining and monitoring their respective
compliance programs as well as the Fund’s compliance programs, had expanded over time as a result of regulatory, market and other developments. The Board also noted that
on a regular basis it received and reviewed information from the Manager and the Sub-Advisers
regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the risks borne by the Manager, the
Sub-Advisers and their respective affiliates on behalf of the Fund, including entrepreneurial,
operational, reputational, litigation and regulatory risks, as well as the Manager’s and the Sub-Advisers’ risk management processes.
The Board reviewed the qualifications, backgrounds, and responsibilities of the Manager’s senior personnel and the Sub-Advisers’ portfolio management teams primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered, based
on its knowledge of the Manager and its affiliates, the financial resources of Franklin
Templeton, Inc. (prior to August 17, 2026, known as Franklin Resources, Inc.), the
parent organization of the Manager and the Sub-Advisers. The Board recognized the importance
of having a fund manager with significant resources.
The Board considered the division of responsibilities between the Manager and the
Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, including the Manager’s coordination and oversight of the services provided to the Fund by the Sub-Advisers and the Fund’s other service providers and Western Asset’s coordination and oversight of the services provided to the Fund by Western Asset London
and Western Asset Singapore. The Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties
thereunder, provided that the Manager, in each case, will supervise the activities of the delegee.
In reaching its determinations regarding continuation of the Management Agreement
and the Sub-Advisory Agreements, the Board took into account that Fund stockholders, in
pursuing their investment goals and objectives, may have purchased their shares of
the
74
Western Asset Diversified Income Fund
Fund based upon the reputation and the investment style, philosophy and strategy of
the Manager and the Sub-Advisers, as well as the resources available to the Manager and
the Sub-Advisers.
The Board concluded that, overall, the nature, extent, and quality of the management
and other services provided (and expected to be provided) to the Fund, under the Management
Agreement and the Sub-Advisory Agreements were satisfactory.
Fund Performance
The Board received and considered information regarding Fund performance, including
information and analyses (the “Broadridge Performance Information”) for the Fund, as well as for a group of comparable funds (the “Performance Universe”) selected by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third-party provider of investment company data. The Board was provided with a description of the methodology Broadridge
used to determine the similarity of the Fund with the funds included in the Performance
Universe, which included all leveraged closed-end general bond funds. It was noted
that while the Board found the Broadridge Performance Information generally useful, they
recognized its limitations, including that the data may vary depending on the end
date selected, and that the results of the performance comparisons may vary depending on
the selection of the peer group and its composition over time. The Board also noted that
Board members had received and discussed with the Manager and the Sub-Advisers information
throughout the year at periodic intervals comparing the Fund’s performance against its benchmark and against the Fund’s peers. In addition, the Board considered the Fund’s performance in view of overall financial market conditions.
The Broadridge Performance Information comparing the Fund’s performance to that of its Performance Universe, consisting of the Fund and all leveraged closed-end general
bond funds classified by Broadridge, regardless of asset size, showed, among other data,
that based on net asset value per share, the Fund’s performance was above the median for the 1- and 3-year periods ended December 31, 2025. The Board noted the explanations from
the Manager and the Sub-Advisers regarding the Fund’s relative performance versus the Performance Universe for the various periods.
Based on the reviews and discussions of Fund performance and considering other relevant
factors, including those noted above, the Board concluded, under the circumstances,
that continuation of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period would be consistent with the interests of the Fund and
its stockholders.
Management and Sub-Advisory Fees and Expense Ratios
The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) and the actual management fee (the “Actual Management Fee”)
Western Asset Diversified Income Fund
75
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
payable by the Fund to the Manager under the Management Agreement and the sub-advisory fees (the “Sub-Advisory Fees”) payable by the Manager to the Sub-Advisers under the Sub-Advisory Agreements in view of the nature, extent and overall quality of the
management, investment advisory and other services provided by the Manager and the
Sub-Advisers, respectively. The Board noted that the Sub-Advisory Fee payable to Western
Asset under its Sub-Advisory Agreement with the Manager is paid by the Manager, not
the Fund, and, accordingly, that the retention of Western Asset does not increase the
fees or expenses otherwise incurred by the Fund’s stockholders. Similarly, the Board noted that the Sub-Advisory Fees payable to Western Asset London and Western Asset Singapore under
their respective Sub-Advisory Agreements with Western Asset are paid by Western Asset,
not the Fund, and, accordingly, that the retention of Western Asset London and Western
Asset Singapore does not increase the fees or expenses otherwise incurred by the Fund’s stockholders.
In addition, the Board received and considered information and analyses prepared by
Broadridge (the “Broadridge Expense Information”) comparing the Contractual Management Fee and the Actual Management Fee and the Fund’s actual total expenses with those of funds in an expense group (the “Expense Group”), as well as a broader group of funds, each selected and provided by Broadridge. The comparison was based upon the constituent
funds’ latest fiscal years. It was noted that while the Board found the Broadridge Expense Information generally useful, they recognized its limitations, including that the
data may vary depending on the selection of the peer group.
The Broadridge Expense Information showed that the Fund’s Contractual Management Fee was above the Expense Group median. The Broadridge Expense Information also showed
that the Fund’s Actual Management Fee was above the Expense Group median based on both common stock assets and total managed assets, which includes common stock assets
and leveraged assets. The Broadridge Expense Information also showed that the Fund’s actual total expenses were above the Expense Group median based on both common stock
assets and total managed assets. The Board took into account management’s discussion of the Fund’s expenses.
The Board also reviewed Contract Renewal Information regarding fees charged by the
Manager and/or the Sub-Advisers to other U.S. clients investing primarily in an asset
class similar to that of the Fund, including, where applicable, institutional and separate
accounts. The Manager reviewed with the Board the differences in services provided to these
different types of accounts, noting that the Fund is provided with certain administrative
services, office facilities, and Fund officers, and that the Fund is subject not only
to heightened regulatory requirements relative to institutional clients but also to requirements
for listing on the New York Stock Exchange, and that the Manager coordinates and oversees the provision of services to the Fund by the Fund’s other service providers. The
76
Western Asset Diversified Income Fund
Board considered the fee comparisons in view of the different services provided in
managing these other types of clients and funds.
The Board considered the overall management fee, the fees of the Sub-Advisers and
the amount of the management fee retained by the Manager after payment of the Sub-Advisory
Fees in each case in view of the services rendered for those amounts. The Board also
received an analysis of complex-wide management fees provided by the Manager, which,
among other things, set out a framework of fees based on asset classes.
Taking all of the above into consideration, as well as the factors identified below,
the Board determined that the management fee and the Sub-Advisory Fees were reasonable in view
of the nature, extent and overall quality of the management, investment advisory and
other services provided by the Manager and the Sub-Advisers to the Fund under the Management
Agreement and the Sub-Advisory Agreements, respectively.
Manager Profitability
The Board, as part of the Contract Renewal Information, received an analysis of the
profitability to the Manager and its affiliates in providing services to the Fund
for the Manager’s fiscal years ended September 30, 2025 and September 30, 2024. The Board also received profitability information with respect to the Franklin Templeton fund complex
as a whole. In addition, the Board received Contract Renewal Information with respect to
the Manager’s revenue and cost allocation methodologies used in preparing such profitability data. It was noted that the allocation methodologies had been reviewed by an outside
consultant. In response to the Board’s request, the Manager provided and the Board reviewed information comparing the profitability of Franklin Templeton, Inc. with
that of publicly traded peer fund management companies. The profitability to each of the Sub-Advisers was not considered to be a material factor in the Board’s considerations since the Sub-Advisory Fee is paid by the Manager in the case of Western Asset and by Western
Asset in the case of Western Asset London and Western Asset Singapore, not the Fund,
although the Board noted the affiliation of the Manager with the Sub-Advisers. The
profitability of the Manager and its affiliates was considered by the Board to be
reasonable in view of the nature, extent and quality of services provided to the Fund.
Economies of Scale
The Board received and discussed Contract Renewal Information concerning whether the
Manager realizes economies of scale if the Fund’s assets grow. The Board noted that because the Fund is a closed-end fund, it has limited ability to increase its assets.
The Board determined that the management fee structure was appropriate under the circumstances. For similar reasons as stated above with respect to the Sub-Advisers’ profitability and the costs of the Sub-Advisers’ provision of services, the Board did not consider the potential for economies of scale in the Sub-Advisers’ management of the Fund to be a material factor in the Board’s consideration of the Sub-Advisory Agreements.
Western Asset Diversified Income Fund
77
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
Other Benefits to the Manager and the Sub-Advisers
The Board considered other benefits received by the Manager, the Sub-Advisers and
their affiliates as a result of their relationship with the Fund, including the opportunity
to offer additional products and services to the Fund’s stockholders. In view of the costs of providing investment management and other services to the Fund and the ongoing commitment of
the Manager and the Sub-Advisers to the Fund, the Board considered that the ancillary
benefits received by the Manager and its affiliates, including the Sub-Advisers, were reasonable.
78
Western Asset Diversified Income Fund
Additional shareholder information (unaudited)
Results of annual meeting of shareholders
The Annual Meeting of Shareholders Western Asset Diversified Income Fund was held
on April 17, 2026 for the purpose of considering and voting upon the proposals presented
at the Meeting. The following table provides information concerning the matters voted
upon at the Meeting:
Election of trustees
|
Nominees
|
FOR
|
WITHHELD
|
ABSTAIN
|
|
Eileen A. Kamerick
|
32,513,993
|
9,313,959
|
611,485
|
|
Hillary A. Sale
|
41,026,886
|
784,611
|
627,940
|
At the Meeting, Mses. Kamerick and Sale were each duly elected by the shareholders
to serve as Class II Directors of the Fund until the 2029 Annual Meeting of Shareholders,
or until their successors have been duly elected and qualified or until their resignation
or are otherwise removed.
At June 30, 2026, in addition to Mses. Kamerick and Sale, the other Trustees of the
Fund were as follows:
Robert D. Agdern
Carol L. Colman
Anthony Grillo
Nisha Kumar
Peter Mason
Jane E. Trust
Carol L. Colman
Anthony Grillo
Nisha Kumar
Peter Mason
Jane E. Trust
Ratification of Selection of Independent Registered Public Accountants
To ratify the selection of PricewaterhouseCoopers LLP (“PwC”) as independent registered public accountants of the Fund for the fiscal year ended December 31, 2025.
|
FOR
|
AGAINST
|
ABSTAIN
|
BROKER NON-VOTES
|
|
34,044,605
|
7,940,734
|
454,098
|
N/A
|
Western Asset Diversified Income Fund
79
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends,
including any capital gain dividends and return of capital distributions, on your Common Shares
will be automatically reinvested by Computershare Trust Company, N.A., as agent for the shareholders (the “Plan Agent”), in additional Common Shares under the Fund’s Dividend Reinvestment Plan (the “Plan”). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions
paid by check mailed directly to you by Computershare Trust Company, N.A., as dividend paying
agent.
In the case of a registered shareholder such as a broker, bank or other nominee (together,
a “nominee”) that holds Common Shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified
by the nominee/record shareholder as representing the total amount registered in such
shareholder’s name and held for the account of beneficial owners who are to participate in the Plan. If your Common Shares are held through a nominee and are not registered
with the Plan Agent, neither you nor the nominee will be participants in or have distributions
reinvested under the Plan. If you are a beneficial owner of Common Shares and wish
to participate in the Plan, and your nominee is unable or unwilling to become a registered
shareholder and a Plan participant on your behalf, you may request that your nominee
arrange to have all or a portion of your shares re-registered with the Plan Agent
in your name so that you may be enrolled as a participant in the Plan. Please contact your
nominee for details or for other possible alternatives. Registered shareholders whose shares
are registered in the name of one nominee firm may not be able to transfer the shares
to another firm and continue to participate in the Plan.
If you participate in the Plan, the number of Common Shares you will receive will
be determined as follows:
(1) If the market price of the Common Shares (plus $0.03 per share processing fee
which includes any brokerage commission the Plan Agent is required to pay) on the payment
date (or, if the payment date is not a NYSE trading day, the immediately preceding
trading day) is equal to or exceeds the net asset value per share of the Common Shares
at the close of trading on the NYSE on the payment date, the Fund will issue new Common Shares at a price equal to the greater of (a) the net asset value per share
at the close of trading on the NYSE on the payment date or (b) 95% of the market price per
share of the Common Shares on the payment date.
(2) If the net asset value per share of the Common Shares exceeds the market price
of the Common Shares (plus $0.03 per share processing fee) at the close of trading on
the NYSE on the payment date, the Plan Agent will receive the dividend or distribution
in cash and will buy Common Shares in the open market, on the NYSE or elsewhere, for
your account as soon as practicable commencing on the trading day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend
or distribution payment date, or (b) the payment date for the next succeeding dividend
or distribution to be made to the shareholders; except when necessary to comply with
80
Western Asset Diversified Income Fund
applicable provisions of the federal securities laws. If during this period: (i) the
market price (plus $0.03 per share processing fee) rises so that it equals or exceeds the
net asset value per share of the Common Shares at the close of trading on the NYSE on
the payment date before the Plan Agent has completed the open market purchases or (ii)
if the Plan Agent is unable to invest the full amount eligible to be reinvested in open
market purchases, the Plan Agent will cease purchasing Common Shares in the open market and the Fund will issue the remaining Common Shares at a price per share equal
to the greater of (a) the net asset value per share at the close of trading on the
NYSE on the day prior to the issuance of shares for reinvestment or (b) 95% of the then current
market price per share.
Common Shares in your account will be held by the Plan Agent in non-certificated form.
Any proxy you receive will include all Common Shares you have received under the Plan.
You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent through
the Internet at www.computershare.com/investor, in writing at P.O. Box 43006 Providence,
RI 02940-3078 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be
effective immediately if notice is received by the Plan Agent prior to any dividend
or distribution record date; otherwise such withdrawal will be effective as soon as practicable
after the Plan Agent’s investment of the most recently declared dividend or distribution on the Common Shares.
Plan participants who sell their shares will be charged a service charge (currently
$5.00 per transaction) and the Plan Agent is authorized to deduct per share processing fees
actually incurred from the proceeds (currently $0.05 per share, which includes any brokerage
commission the Plan Agent is required to pay). There is no service charge for reinvestment
of your dividends or distributions in Common Shares. However, all participants will
pay per share processing fees (currently $0.03 per share) incurred by the Plan Agent when
it makes open market purchases. Because all dividends and distributions will be automatically
reinvested in additional Common Shares, this allows you to add to your investment
through dollar cost averaging, which may lower the average cost of your Common Shares over
time. Dollar cost averaging is a technique for lowering the average cost per share over
time if the Fund’s net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean that you do not
have to pay income taxes due upon receiving dividends and distributions. Investors will be
subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of
the Board of Trustees, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to shareholders at least 30
days prior to the record date for the payment of any dividend or distribution by the Fund
for which the termination or amendment is to be effective. Upon any termination, you will be
sent cash for any fractional share of Common Shares in your account less any applicable
fees.
Western Asset Diversified Income Fund
81
Dividend reinvestment plan (unaudited) (cont’d)
You may elect to notify the Plan Agent in advance of such termination to have the
Plan Agent sell part or all of your Common Shares on your behalf. Additional information
about the Plan and your account may be obtained from the Plan Agent through the Internet
at www.computershare.com/investor, in writing at P.O. Box 43006 Providence, RI 02940-3078
or by calling the Plan Agent at 1-888-888-0151.
82
Western Asset Diversified Income Fund
Western Asset
Diversified Income Fund
Trustees
Robert D. Agdern
Carol L. Colman
Anthony Grillo
Eileen A. Kamerick
Chair
Nisha Kumar
Peter Mason
Hillary A. Sale
Jane Trust
Officers
Jane Trust
President and Chief Executive
Officer
President and Chief Executive
Officer
Christopher Berarducci
Treasurer and Principal Financial
Officer
Treasurer and Principal Financial
Officer
Fred Jensen
Chief Compliance Officer
Chief Compliance Officer
Marc A. De Oliveira
Secretary and Chief Legal Officer
Secretary and Chief Legal Officer
Thomas C. Mandia
Senior Vice President
Senior Vice President
Jeanne M. Kelly
Senior Vice President
Senior Vice President
Western Asset Diversified Income Fund
One Madison Avenue
17th Floor
New York, NY 10010
17th Floor
New York, NY 10010
Investment manager
Franklin Templeton Fund Adviser, LLC
Subadvisers
Western Asset Management Company, LLC
Western Asset Management Company Limited
Western Asset Management Company Ltd*
Western Asset Management Company Pte. Ltd.
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
P.O. Box 43006
Providence, RI 02940-3078
Independent registered
public accounting firm
public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett LLP
900 G Street NW
Washington, DC 20001
900 G Street NW
Washington, DC 20001
New York Stock
Exchange Symbol
Exchange Symbol
WDI
*Effective June 30, 2026, Western Asset Management Company Ltd will cease to serve
as a subadviser to the Fund.
Western Asset Diversified Income Fund
Western Asset Diversified Income Fund
One Madison Avenue
17th Floor
New York, NY 10010
One Madison Avenue
17th Floor
New York, NY 10010
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.franklintempleton.com and (3) on the SEC’s website at www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on Franklin Templeton’s website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templeton’s website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate Franklin Templeton’s website in this report.
This report is transmitted to the shareholders of Western Asset Diversified Income Fund for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
P.O. Box 43006
Providence, RI 02940-3078
96370-S 8/26
(b) Not applicable
| 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. |
| (a) | Please see schedule of investments contained in the Financial Statements and Financial Highlights included under Item 1 of this Form N-CSR. |
| (b) | Not applicable. |
| ITEM 7. | FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 9. | PROXY DISCLOSURES FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 10. | REMUNERATION PAID TO DIRECTORS, OFFICERS, AND OTHERS OF OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 11. | STATEMENT REGARDING BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACT. |
The information is disclosed as part of the Financial Statements included in Item 1 of this Form N-CSR, as applicable.
| ITEM 12. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 13. | INVESTMENT PROFESSIONALS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 14. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
| ITEM 15. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
| ITEM 16. | CONTROLS AND PROCEDURES. |
| (a) | The Registrants acknowledge the Staff’s comment. In future filings on Form N-CSR, the certifications required by Rule 30a-2 and Item 19(a)(3) will include the designations “Principal Executive Officer” and “Principal Financial Officer” in the signature blocks, reflecting the capacity in which each signatory executes the certification, in conformity with the language of the Rule and Form N-CSR. The Registrants may also include each signatory’s actual title with respect to the Funds alongside the required designation. |
| (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. |
| ITEM 17. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 18. | RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION. |
| (a) | Not applicable. |
| (b) | Not applicable. |
| ITEM 19. | EXHIBITS. |
(a) (1) Not applicable.
Exhibit 99.CODE ETH
(a) (3) 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
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 Diversified Income Fund
| By: | /s/ Jane Trust | |
| Jane Trust | ||
| Chief Executive Officer | ||
| Date: | August 28, 2026 |
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: | August 28, 2026 |
| By: | /s/ Christopher Berarducci | |
| Christopher Berarducci | ||
| Principal Financial Officer |
| Date: | August 28, 2026 |