At December 31, 2021, the Fund had the following open reverse repurchase agreements:
At December 31, 2021, the Fund had the following open forward foreign currency contracts:
EUR Euro
GBP British Pound
USD United States Dollar
See Notes to Financial Statements.
|
|
|
30 |
|
Western Asset Premier Bond Fund 2021 Annual Report |
Statement of assets and liabilities
December 31, 2021
|
|
|
|
|
|
|
Assets: |
|
|
|
|
Investments in unaffiliated securities, at value (Cost $216,406,718) |
|
$ |
237,885,943 |
|
Investments in affiliated securities, at value (Cost $912,279) |
|
|
912,279 |
|
Foreign currency, at value (Cost $336,196) |
|
|
333,024 |
|
Cash |
|
|
128,838 |
|
Interest and dividends receivable from unaffiliated investments |
|
|
2,701,329 |
|
Deposits with brokers for futures contracts |
|
|
157,003 |
|
Unrealized appreciation on forward foreign currency contracts |
|
|
18,923 |
|
Dividends receivable from affiliated investments |
|
|
24 |
|
Other receivables |
|
|
17,196 |
|
Prepaid expenses |
|
|
535 |
|
Total Assets |
|
|
242,155,094 |
|
|
|
Liabilities: |
|
|
|
|
Loan payable (Note 5) |
|
|
57,500,000 |
|
Payable for open reverse repurchase agreements (Note 3) |
|
|
13,175,186 |
|
Payable for securities purchased |
|
|
1,407,868 |
|
Investment management fee payable |
|
|
86,642 |
|
Administration fee payable |
|
|
25,510 |
|
Interest expense payable |
|
|
5,255 |
|
Unrealized depreciation on forward foreign currency contracts |
|
|
2,002 |
|
Trustees fees payable |
|
|
538 |
|
Accrued expenses |
|
|
69,279 |
|
Total Liabilities |
|
|
72,272,280 |
|
Total Net Assets |
|
$ |
169,882,814 |
|
|
|
Net Assets: |
|
|
|
|
Common shares, no par value, unlimited number of shares authorized, 11,865,600 shares
issued and outstanding |
|
$ |
156,301,491 |
|
Total distributable earnings (loss) |
|
|
13,581,323 |
|
Total Net Assets |
|
$ |
169,882,814 |
|
|
|
Shares Outstanding |
|
|
11,865,600 |
|
|
|
Net Asset Value |
|
$ |
14.32 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
|
|
31 |
|
Statement of operations
For the Year Ended December 31, 2021
|
|
|
|
|
|
|
Investment Income: |
|
|
|
|
Interest |
|
$ |
12,393,669 |
|
Dividends from unaffiliated investments |
|
|
44,788 |
|
Dividends from affiliated investments |
|
|
250 |
|
Less: Foreign taxes withheld |
|
|
(43,582) |
|
Total Investment
Income |
|
|
12,395,125 |
|
|
|
Expenses: |
|
|
|
|
Investment management fee (Note 2) |
|
|
1,033,482 |
|
Interest expense (Notes 3 and 5) |
|
|
482,332 |
|
Administration fees (Note 2) |
|
|
303,965 |
|
Audit and tax fees |
|
|
70,192 |
|
Legal fees |
|
|
56,879 |
|
Trustees fees |
|
|
32,224 |
|
Fund accounting fees |
|
|
30,000 |
|
Commitment fees (Note 5) |
|
|
29,403 |
|
Transfer agent fees |
|
|
27,650 |
|
Excise tax (Note 1) |
|
|
14,000 |
|
Stock exchange listing fees |
|
|
12,501 |
|
Shareholder reports |
|
|
7,786 |
|
Insurance |
|
|
2,778 |
|
Custody fees |
|
|
2,102 |
|
Miscellaneous expenses |
|
|
12,995 |
|
Total Expenses |
|
|
2,118,289 |
|
Less: Fee waivers and/or expense reimbursements (Note 2) |
|
|
(613) |
|
Net Expenses |
|
|
2,117,676 |
|
Net Investment Income |
|
|
10,277,449 |
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions (Notes 1, 3 and
4): |
|
|
|
|
Net Realized Gain (Loss) From: |
|
|
|
|
Investment transactions in unaffiliated securities |
|
|
1,119,696 |
|
Futures contracts |
|
|
75,006 |
|
Forward foreign currency contracts |
|
|
(46,602) |
|
Foreign currency transactions |
|
|
439 |
|
Net Realized Gain |
|
|
1,148,539 |
|
Change in Net Unrealized Appreciation (Depreciation) From: |
|
|
|
|
Investments in unaffiliated securities |
|
|
(8,434,716) |
|
Forward foreign currency contracts |
|
|
84,480 |
|
Foreign currencies |
|
|
(15,912) |
|
Change in Net Unrealized Appreciation
(Depreciation) |
|
|
(8,366,148) |
|
Net Loss on Investments, Futures Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions |
|
|
(7,217,609) |
|
Increase in Net Assets From Operations |
|
$ |
3,059,840 |
|
See Notes to Financial
Statements.
|
|
|
|
|
32 |
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
2021 |
|
|
2020 |
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
10,277,449 |
|
|
$ |
10,363,674 |
|
Net realized gain (loss) |
|
|
1,148,539 |
|
|
|
(6,689,965) |
|
Change in net unrealized appreciation (depreciation) |
|
|
(8,366,148) |
|
|
|
7,796,490 |
|
Increase in Net Assets From
Operations |
|
|
3,059,840 |
|
|
|
11,470,199 |
|
|
|
|
Distributions to Shareholders From (Note 1): |
|
|
|
|
|
|
|
|
Total distributable earnings |
|
|
(9,396,192) |
|
|
|
(9,401,589) |
|
Decrease in Net Assets From Distributions
to Shareholders |
|
|
(9,396,192) |
|
|
|
(9,401,589) |
|
|
|
|
Fund Share Transactions: |
|
|
|
|
|
|
|
|
Reinvestment of distributions (2,263 and 1,070 shares issued, respectively) |
|
|
32,850 |
|
|
|
15,815 |
|
Cost of shares repurchased (0 and 44,671 shares repurchased, respectively) (Note
7) |
|
|
|
|
|
|
(462,743) |
|
Increase (Decrease) in Net Assets From
Fund Share Transactions |
|
|
32,850 |
|
|
|
(446,928) |
|
Increase (Decrease) in Net
Assets |
|
|
(6,303,502) |
|
|
|
1,621,682 |
|
|
|
|
Net Assets: |
|
|
|
|
|
|
|
|
Beginning of year |
|
|
176,186,316 |
|
|
|
174,564,634 |
|
End of year |
|
$ |
169,882,814 |
|
|
$ |
176,186,316 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report. |
|
|
|
|
33 |
|
Statement of cash flows
For the Year Ended December 31, 2021
|
|
|
|
|
|
|
Increase (Decrease) in Cash: |
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
3,059,840 |
|
Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided (used) by operating activities: |
|
|
|
|
Purchases of portfolio securities |
|
|
(82,812,339) |
|
Sales of portfolio securities |
|
|
75,856,514 |
|
Net purchases, sales and maturities of short-term investments |
|
|
2,653,540 |
|
Payment-in-kind |
|
|
(59,352) |
|
Net inflation adjustment |
|
|
(2,892) |
|
Return of capital |
|
|
9,756 |
|
Net amortization of premium (accretion of discount) |
|
|
(1,383,825) |
|
Decrease in receivable for securities sold |
|
|
2,844,458 |
|
Decrease in interest and dividends receivable |
|
|
44,403 |
|
Decrease in prepaid expenses |
|
|
1,429 |
|
Increase in other receivables |
|
|
(16,526) |
|
Increase in dividends receivable from affiliated investments |
|
|
(24) |
|
Decrease in payable for securities purchased |
|
|
(449,199) |
|
Decrease in investment management fee payable |
|
|
(26,230) |
|
Increase in Trustees fees payable |
|
|
115 |
|
Increase in administration fee payable |
|
|
25,510 |
|
Increase in interest expense payable |
|
|
881 |
|
Increase in accrued expenses |
|
|
31,491 |
|
Net realized gain on investments |
|
|
(1,119,696) |
|
Change in net unrealized appreciation (depreciation) of investments and forward foreign
currency contracts |
|
|
8,350,236 |
|
Net Cash Provided in Operating
Activities* |
|
|
7,008,090 |
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
Distributions paid on common stock (net of distributions payable) |
|
|
(9,363,342) |
|
Increase in payable for open reverse repurchase agreements |
|
|
2,655,873 |
|
Net Cash Used by Financing Activities |
|
|
(6,707,469) |
|
Net Increase in Cash and Restricted Cash |
|
|
300,621 |
|
Cash and restricted cash at beginning of year |
|
|
318,244 |
|
Cash and restricted cash at end of year |
|
$ |
618,865 |
|
* |
Included in operating expenses is cash of $510,854 paid for interest and commitment fees on borrowings.
|
See Notes to Financial Statements.
|
|
|
|
|
34 |
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
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.
|
|
|
|
|
|
|
December 31, 2021 |
|
Cash |
|
|
$461,862 |
|
Restricted cash |
|
|
157,003 |
|
Total cash and restricted cash shown in the Statement of Cash Flows |
|
|
$618,865 |
|
Restricted cash consists of cash that has been segregated to cover the Funds collateral or margin obligations under derivative contracts. It is separately reported
on the Statement of Assets and Liabilities as Deposits with brokers.
|
|
|
|
|
|
|
Non-Cash Financing Activities: |
|
|
|
|
Proceeds from reinvestment of distributions |
|
$ |
32,850 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
|
|
35 |
|
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a common share outstanding throughout each year ended December 31: |
|
|
|
20211 |
|
|
20221 |
|
|
20191 |
|
|
20181 |
|
|
20171 |
|
|
|
|
|
|
|
Net asset value, beginning of year |
|
$ |
14.85 |
|
|
$ |
14.66 |
|
|
$ |
13.00 |
|
|
$ |
14.51 |
|
|
$ |
13.88 |
|
|
|
|
|
|
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
0.87 |
|
|
|
0.87 |
|
|
|
0.82 |
|
|
|
0.75 |
|
|
|
0.81 |
|
Net realized and unrealized gain (loss) |
|
|
(0.61) |
|
|
|
0.10 |
|
|
|
1.63 |
|
|
|
(1.47) |
|
|
|
0.69 |
|
Total income (loss) from
operations |
|
|
0.26 |
|
|
|
0.97 |
|
|
|
2.45 |
|
|
|
(0.72) |
|
|
|
1.50 |
|
|
|
|
|
|
|
Less distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
(0.79) |
|
|
|
(0.79) |
|
|
|
(0.79) |
|
|
|
(0.79) |
|
|
|
(0.87) |
|
Total
distributions |
|
|
(0.79) |
|
|
|
(0.79) |
|
|
|
(0.79) |
|
|
|
(0.79) |
|
|
|
(0.87) |
|
Anti-dilutive impact of repurchase plan |
|
|
|
|
|
|
0.01 |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year |
|
$ |
14.32 |
|
|
$ |
14.85 |
|
|
$ |
14.66 |
|
|
$ |
13.00 |
|
|
$ |
14.51 |
|
Market price, end of year |
|
$ |
14.33 |
|
|
|
$14.17 |
|
|
$ |
14.65 |
|
|
$ |
12.09 |
|
|
$ |
13.81 |
|
Total return, based on NAV3,4 |
|
|
1.80 |
% |
|
|
7.28 |
% |
|
|
19.22 |
% |
|
|
(5.13) |
% |
|
|
11.03 |
% |
Total return, based on Market Price5 |
|
|
6.87 |
% |
|
|
2.64 |
% |
|
|
28.35 |
% |
|
|
(6.85) |
% |
|
|
13.50 |
% |
|
|
|
|
|
|
Net assets, end of year (millions) |
|
$ |
170 |
|
|
$ |
176 |
|
|
$ |
175 |
|
|
$ |
155 |
|
|
$ |
173 |
|
|
|
|
|
|
|
Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses |
|
|
1.22 |
% |
|
|
1.50 |
% |
|
|
2.14 |
% |
|
|
1.93 |
% |
|
|
1.58 |
% |
Net expenses6 |
|
|
1.22 |
7 |
|
|
1.50 |
|
|
|
2.14 |
|
|
|
1.93 |
|
|
|
1.58 |
|
Net investment income |
|
|
5.93 |
|
|
|
6.24 |
|
|
|
5.78 |
|
|
|
5.49 |
|
|
|
5.66 |
|
|
|
|
|
|
|
Portfolio turnover rate |
|
|
32 |
% |
|
|
55 |
% |
|
|
47 |
% |
|
|
106 |
% |
|
|
70 |
% |
|
|
|
|
|
|
Supplemental data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Outstanding, End of Year (000s) |
|
$ |
57,500 |
|
|
$ |
57,500 |
|
|
$ |
57,000 |
|
|
$ |
57,000 |
|
|
$ |
58,000 |
|
Asset Coverage Ratio for Loan Outstanding8
|
|
|
395 |
% |
|
|
406 |
% |
|
|
406 |
% |
|
|
372 |
% |
|
|
398 |
% |
Asset Coverage, per $1,000 Principal Amount of Loan Outstanding8 |
|
$ |
3,954 |
|
|
$ |
4,064 |
|
|
$ |
4,063 |
|
|
$ |
3,715 |
|
|
$ |
3,979 |
|
Weighted Average Loan (000s) |
|
$ |
57,500 |
|
|
$ |
57,448 |
|
|
$ |
57,000 |
|
|
$ |
56,803 |
|
|
$ |
58,000 |
|
Weighted Average Interest Rate on Loan |
|
|
0.80 |
% |
|
|
1.48 |
% |
|
|
3.09 |
% |
|
|
2.72 |
% |
|
|
1.79 |
% |
See Notes to Financial
Statements.
|
|
|
|
|
36 |
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
1 |
Per share amounts have been calculated using the average shares method. |
2 |
The repurchase plan was completed at an average repurchase price of $10.38 for 44,671 shares and $462,743 for the year
ended December 31, 2020. |
3 |
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the
absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
4 |
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future
results. |
5 |
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend
reinvestment plan. Past performance is no guarantee of future results. |
6 |
The investment adviser has agreed to waive the Funds management fee to an extent sufficient to offset the net
management fee payable in connection with any investment in an affiliated money market fund. |
7 |
Reflects fee waivers and/or expense reimbursements. |
8 |
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.
|
|
|
|
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
|
|
37 |
|
Notes to financial statements
1. Organization and significant accounting policies
Western Asset Premier Bond Fund (the Fund) is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a diversified closed-end management investment company. The Fund commenced investment operations on March 28, 2002. The Funds investment objective is to provide current income and capital appreciation by investing
primarily in a diversified portfolio of investment grade bonds.
The following are significant accounting policies consistently followed by the Fund and are in
conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are
prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were
issued.
(a) Investment valuation. The valuations for fixed income securities (which may include, but
are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services,
which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield
curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the
day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales
price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m.
(Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using
quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as
when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as
determined in accordance with procedures approved by the Funds Board of Trustees.
The Board of Trustees is responsible for the valuation process and has
delegated the supervision of the daily valuation process to the Global Fund Valuation Committee (known as Legg Mason North Atlantic Fund Valuation Committee prior to March 1, 2021) (the
|
|
|
|
|
38 |
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
Valuation Committee). The Valuation
Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Funds pricing policies, and reporting to the Board of Trustees. When determining the
reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among
market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples
of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to
maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of
security; the issuers financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts research and observations from financial
institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or
comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the
policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are
reported to the Board of Trustees quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income
approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses
valuation techniques to discount estimated future cash flows to present value.
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Western Asset Premier Bond Fund 2021 Annual Report |
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|
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|
39 |
|
Notes to financial statements
(contd)
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are
summarized in the three broad levels listed below:
|
|
Level 1 quoted prices in active markets for identical investments |
|
|
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates,
prepayment speeds, credit risk, etc.) |
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair
value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing
in those securities.
The following is a summary of the inputs used in valuing the Funds assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
Description |
|
Quoted Prices (Level 1) |
|
|
Other Significant Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
Long-Term Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Bonds & Notes |
|
|
|
|
|
$ |
181,888,411 |
|
|
|
|
|
|
$ |
181,888,411 |
|
Sovereign Bonds |
|
|
|
|
|
|
18,151,747 |
|
|
|
|
|
|
|
18,151,747 |
|
Senior Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary |
|
|
|
|
|
|
4,828,713 |
|
|
$ |
658,950 |
|
|
|
5,487,663 |
|
Other Senior Loans |
|
|
|
|
|
|
11,591,209 |
|
|
|
|
|
|
|
11,591,209 |
|
U.S. Government & Agency Obligations |
|
|
|
|
|
|
13,209,709 |
|
|
|
|
|
|
|
13,209,709 |
|
Asset-Backed Securities |
|
|
|
|
|
|
3,411,444 |
|
|
|
|
|
|
|
3,411,444 |
|
Convertible Bonds & Notes |
|
|
|
|
|
|
2,063,198 |
|
|
|
|
|
|
|
2,063,198 |
|
Collateralized Mortgage Obligations |
|
|
|
|
|
|
1,447,727 |
|
|
|
|
|
|
|
1,447,727 |
|
Convertible Preferred Stocks |
|
|
|
|
|
|
627,401 |
|
|
|
|
|
|
|
627,401 |
|
Warrants |
|
$ |
6,224 |
|
|
|
|
|
|
|
|
|
|
|
6,224 |
|
Preferred Stocks |
|
|
|
|
|
|
|
|
|
|
1,210 |
|
|
|
1,210 |
|
Common Stocks |
|
|
|
|
|
|
|
|
|
|
0 |
* |
|
|
0 |
* |
Total Long-Term Investments |
|
|
6,224 |
|
|
|
237,219,559 |
|
|
|
660,160 |
|
|
|
237,885,943 |
|
Short-Term Investments |
|
|
912,279 |
|
|
|
|
|
|
|
|
|
|
|
912,279 |
|
Total Investments |
|
$ |
918,503 |
|
|
$ |
237,219,559 |
|
|
$ |
660,160 |
|
|
$ |
238,798,222 |
|
Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Foreign Currency Contracts |
|
|
|
|
|
$ |
18,923 |
|
|
|
|
|
|
$ |
18,923 |
|
Total |
|
$ |
918,503 |
|
|
$ |
237,238,482 |
|
|
$ |
660,160 |
|
|
$ |
238,817,145 |
|
|
|
|
|
|
40 |
|
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|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
Description |
|
Quoted Prices (Level 1) |
|
|
Other Significant Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Foreign Currency Contracts |
|
|
|
|
|
$ |
2,002 |
|
|
|
|
|
|
$ |
2,002 |
|
|
See Schedule of Investments for additional detailed categorizations. |
* |
Amount represents less than $1. |
|
Reflects the unrealized appreciation (depreciation) of the instruments. |
(b) 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.
(c) 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 Funds return. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a
future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency
contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the
value of the contract at the time it is closed.
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.
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Western Asset Premier Bond Fund 2021 Annual Report |
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|
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|
41 |
|
Notes to financial statements (contd)
(d) Loan participations. The Fund
may invest in loans arranged through private negotiation between one or more financial institutions. The Funds investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing
participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund
may not benefit directly from any collateral supporting the loan in which it has purchased the participation.
The Fund assumes the credit risk of the borrower, the
lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and
may not benefit from any off-set between the lender and the borrower.
(e)
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 borrowers discretion. The
commitments are disclosed in the accompanying Schedule of Investments. At December 31, 2021, the Fund had sufficient cash and/or securities to cover these commitments.
(f) Stripped securities. The Fund may invest in Stripped Securities, a term used
collectively for components, or strips, of fixed income securities. Stripped Securities can be principal only securities (PO), which are debt obligations that have been stripped of unmatured interest coupons, or interest only securities
(IO), which are unmatured interest coupons that have been stripped from debt obligations. The market value of Stripped Securities will fluctuate in response to changes in economic conditions, rates of prepayment, interest rates and the
markets 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 IOs 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 IOs.
(g) Reverse repurchase agreements. The Fund may enter into reverse repurchase
agreements. Under the terms of a typical reverse repurchase agreement, a fund sells a security subject to an obligation to repurchase the security from the buyer at an agreed upon time and price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, the Funds 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 Funds
obligation to repurchase the securities. In entering
|
|
|
|
|
42 |
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
into reverse repurchase agreements, the Fund will
pledge cash, U.S. government securities or other liquid debt obligations at least equal in value to its obligations with respect to reverse repurchase agreements or will take other actions permitted by law to cover its obligations. If the market
value of the collateral declines during the period, the Fund may be required to post additional collateral to cover its obligation. Cash collateral that has been pledged to cover obligations of the Fund under reverse repurchase agreements, if any,
will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral are noted in the Schedule of Investments. Interest payments made on reverse repurchase agreements are recognized as a component of
Interest expense on the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
(h) Inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value or
interest rate is periodically adjusted according to the rate of inflation. As the index measuring inflation changes, the principal value or interest rate of inflation-indexed bonds will be adjusted accordingly. Inflation adjustments to the principal
amount of inflation-indexed bonds are reflected as an increase or decrease to investment income on the Statement of Operations. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S.
Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
(i) Cash flow information. The Fund invests in securities and distributes dividends from net investment
income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Statements of Changes in Net Assets and additional information on cash receipts and cash payments is
presented in the Statement of Cash Flows.
(j) Foreign currency translation. Investment securities and
other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The
Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with
the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains
and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the
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Western Asset Premier Bond Fund 2021 Annual Report |
|
|
|
|
43 |
|
Notes to financial statements
(contd)
difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a
result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(k) Credit and market risk. The Fund invests in high-yield and emerging market instruments that are subject
to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Funds investments in securities rated below investment grade typically
involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The
consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Funds investments in non-U.S. dollar denominated
securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
Investments in securities that are collateralized by
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.
(l) Foreign investment
risks. The Funds investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or
dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign
government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(m) 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.
|
|
|
|
|
44 |
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|
Western Asset Premier Bond Fund 2021 Annual Report |
The Fund may invest in securities of issuers, which
may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations.
The Funds investment adviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual
counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment
adviser. 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 Funds 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.
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|
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|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
|
|
45 |
|
Notes to financial statements
(contd)
As of December 31, 2021, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $2,002. If a
contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.
(n) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Paydown gains and losses on mortgage- and asset-backed securities are recorded as
adjustments to interest income. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. 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.
(o) 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. 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.
(p) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds
cash on deposit with the bank.
(q) Federal and other taxes. It is the Funds policy to comply
with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net
realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements.
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 Funds
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 year, the Fund accrued $14,000 of federal excise taxes attributable to calendar year 2021.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2021, no
provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal
|
|
|
|
|
46 |
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to
examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be imposed on interest,
dividends and capital gains at various rates.
(r) Reclassification. GAAP requires that certain
components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the Fund had no
reclassifications.
2. Investment management agreement and other transactions with affiliates
The Fund has a management agreement with Western Asset Management Company, LLC (Western Asset). Pursuant to the terms of the management agreement, the Fund
pays Western Asset an annual fee, payable monthly, in an amount equal to 0.55% of the average weekly value of the Funds total managed assets. Total managed assets means the total assets of the Fund (including any assets
attributable to leverage) minus accrued liabilities (other than liabilities representing leverage). Pursuant to a Portfolio Management Agreement between Western Asset and Western Asset Management Company Limited (Western London), Western
Asset pays monthly a portion of the fees it receives from the Fund to Western London at an annual rate of 0.425% of the average weekly value of the Funds total managed assets that Western London manages. Western Asset Management Company Pte.
Ltd. (Western Asset Singapore) and Western Asset Management Company Ltd (Western Asset Japan) are additional investment advisers to the Fund under portfolio management agreements between Western Asset and Western Asset
Singapore, and Western Asset and Western Asset Japan.
Western Asset Singapore and Western Asset Japan provide certain advisory services to the Fund relating to
currency transactions and investments in non-U.S. dollar-denominated securities and related foreign currency instruments in Asia (excluding Japan) and Japan, respectively.
Under the terms of the administration services agreement between Western Asset and Legg Mason Partners Fund Advisor, LLC (LMPFA), Western Asset pays LMPFA a
monthly fee at an annual rate of 0.125% of the Funds average weekly total managed assets, subject to a monthly minimum fee of $12,500.
The investment adviser
has agreed to waive the Funds 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 year ended December 31, 2021, fees waived and/or expenses reimbursed amounted to $613, all of which included an affiliated money market fund waiver.
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|
Western Asset Premier Bond Fund 2021 Annual Report |
|
47 |
Notes to financial statements
(contd)
LMPFA, Western Asset, Western London, Western Asset Singapore and
Western Asset Japan are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (Franklin Resources).
During periods in which the Fund utilizes
financial leverage, the fees paid to the investment adviser will be higher than if the Fund did not utilize leverage because the fees are calculated as a percentage of the Funds assets, including those investments purchased with leverage.
All officers and one Trustee of the Fund are employees of Franklin Resources or its affiliates and do not receive compensation from the Fund.
3. Investments
During the year ended
December 31, 2021, 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 |
|
$ |
74,550,704 |
|
|
$ |
8,261,635 |
|
Sales |
|
|
65,780,411 |
|
|
|
10,076,103 |
|
At December 31, 2021, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of
investments for federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
Gross Unrealized Appreciation |
|
|
Gross Unrealized Depreciation |
|
|
Net Unrealized Appreciation |
|
Securities |
|
$ |
217,829,124 |
|
|
$ |
22,785,139 |
|
|
$ |
(1,816,041) |
|
|
$ |
20,969,098 |
|
Forward foreign currency contracts |
|
|
|
|
|
|
18,923 |
|
|
|
(2,002) |
|
|
|
16,921 |
|
Transactions in reverse repurchase agreements for the Fund during the year ended December 31, 2021 were as follows:
|
|
|
|
|
Average Daily Balance* |
|
Weighted Average Interest Rate* |
|
Maximum Amount Outstanding |
$12,240,617 |
|
0.130% |
|
$13,434,000 |
* |
Averages based on the number of days that the Fund had reverse repurchase agreements outstanding. |
Interest rates on reverse repurchase agreements ranged from 0.070% to 0.750% during the year ended December 31, 2021. Interest expense incurred on reverse
repurchase agreements totaled $16,115.
|
|
|
|
|
|
48 |
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Western Asset Premier Bond Fund 2021 Annual Report |
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 December 31, 2021.
|
|
|
|
|
|
|
ASSET DERIVATIVES1 |
|
|
|
Foreign Exchange Risk |
|
Forward foreign currency contracts |
|
$ |
18,923 |
|
|
LIABILITY DERIVATIVES1 |
|
|
|
Foreign Exchange Risk |
|
Forward foreign currency contracts |
|
$ |
2,002 |
|
1 |
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability
derivatives is payables/net unrealized depreciation. |
The following tables provide information about the effect of derivatives and hedging
activities on the Funds Statement of Operations for the year ended December 31, 2021. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table
provides additional information about the change in unrealized appreciation (depreciation) resulting from the Funds
derivatives and hedging activities during
the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED |
|
|
|
Interest Rate Risk |
|
|
Foreign Exchange Risk |
|
|
Total |
|
Futures contracts |
|
$ |
75,006 |
|
|
|
|
|
|
$ |
75,006 |
|
Forward foreign currency contracts |
|
|
|
|
|
$ |
(46,602) |
|
|
|
(46,602) |
|
Total |
|
$ |
75,006 |
|
|
$ |
(46,602) |
|
|
$ |
28,404 |
|
|
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED |
|
|
|
|
Foreign
Exchange Risk |
|
Forward foreign currency contracts |
|
|
$ |
84,480 |
|
During the year ended December 31, 2021, the volume of derivative activity for the Fund was as follows:
|
|
|
|
|
|
|
Average Market Value |
|
Futures contracts (to sell) |
|
$ |
3,813,642 |
|
Forward foreign currency contracts (to buy) |
|
|
41,885 |
|
Forward foreign currency contracts (to sell) |
|
|
1,891,182 |
|
|
At December 31, 2021, there were no open positions held in this derivative. |
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
49 |
Notes to financial statements
(contd)
The following table presents the Funds 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 December 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty |
|
Gross Assets Subject to Master Agreements1
|
|
|
Gross Liabilities Subject to Master Agreements1
|
|
|
Net Assets (Liabilities) Subject to Master Agreements |
|
|
Collateral Pledged (Received) |
|
|
Net Amount2
|
|
BNP Paribas SA |
|
$ |
190 |
|
|
|
|
|
|
$ |
190 |
|
|
|
|
|
|
$ |
190 |
|
Goldman Sachs Group Inc. |
|
|
18,733 |
|
|
$ |
(2,002) |
|
|
|
16,731 |
|
|
|
|
|
|
|
16,731 |
|
Total |
|
$ |
18,923 |
|
|
$ |
(2,002) |
|
|
$ |
16,921 |
|
|
|
|
|
|
$ |
16,921 |
|
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 |
Represents the net amount receivable (payable) from (to) the counterparty in the event of default. |
5. Loan
The Fund has a revolving credit
agreement with National Australia Bank Limited (Credit Agreement) that allows the Fund to borrow up to an aggregate amount of $72,000,000. The Credit Agreement automatically renews daily for a six month term unless notice to the contrary
is given to the Fund. The Fund pays a commitment fee at an annual rate of 0.20%, on the unutilized portion of the loan. The interest on the loan is calculated at a variable rate based on a benchmark (currently LIBOR, but subject to an alternative
benchmark upon the occurrence of certain benchmark transition events including the cessation of publication of LIBOR) plus any applicable margin. Securities held by the Fund are subject to a lien granted to National Australia Bank Limited, to the
extent of the borrowing outstanding and any additional expenses. The Funds Credit Agreement contains customary covenants that, among other things, may limit the Funds ability to pay distributions in certain circumstances, incur
additional debt, change its fundamental investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. In addition, the Credit Agreement
may be subject to early termination under certain conditions and may contain other provisions that could limit the Funds ability to utilize borrowing under the agreement. For the year ended December 31, 2021, the Fund incurred a
commitment fee in the amount of $29,403. Interest expense related to this loan for the year ended December 31, 2021 was $465,859. For the year ended December 31, 2021, the Fund had an average daily loan balance outstanding of $57,500,000
and the weighted average interest rate was 0.80%. At December 31, 2021, the Fund had $57,500,000 of borrowings outstanding.
6.
Distributions subsequent to December 31, 2021
The following distributions have been declared by the Funds Board of Trustees and are payable
subsequent to the period end of this report:
|
|
|
|
|
Record Date |
|
Payable Date |
|
Amount |
1/24/2022 |
|
2/1/2022 |
|
$0.0660 |
|
|
|
|
|
|
50 |
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
|
|
|
Record Date |
|
Payable Date |
|
Amount |
2/18/2022 |
|
3/1/2022 |
|
$0.0660 |
3/24/2022 |
|
4/1/2022 |
|
$0.0660 |
4/22/2022 |
|
5/2/2022 |
|
$0.0660 |
5/23/2022 |
|
6/1/2022 |
|
$0.0660 |
7. Stock repurchase program
On November 20, 2015, the Fund announced that the Funds Board of Trustees (the Board) had authorized the Fund to repurchase in the open market up
to approximately 10% of the Funds outstanding common shares when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase the Funds common shares at such times and
in such amounts as management reasonably believes may enhance shareholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the year ended December 31, 2021, the Fund
did not repurchase any shares.
Since the commencement of the stock repurchase program through December 31, 2021, the Fund repurchased 44,671 shares or 0.38% of
its common shares outstanding for a total amount of $462,743.
8. Transactions with affiliated company
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities, or a company which is under common
ownership or control with the Fund. The following company was considered an affiliated company for all or some portion of the year ended December 31, 2021. The following transactions were effected in such company for the year ended
December 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Value
at December 31, 2020 |
|
|
Purchased |
|
|
Sold |
|
|
|
Cost |
|
|
Shares |
|
|
Cost |
|
|
Shares |
|
Western Asset Premier Institutional Government Reserves, Premium Shares |
|
|
$3,565,819 |
|
|
|
$45,890,438 |
|
|
|
45,890,438 |
|
|
|
$48,543,978 |
|
|
|
48,543,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(contd) |
|
Realized Gain (Loss) |
|
|
Dividend Income |
|
Net Increase (Decrease) in Unrealized Appreciation (Depreciation) |
|
|
Affiliate Value at December 31, 2021 |
|
Western Asset Premier Institutional Government Reserves, Premium Shares |
|
|
|
|
|
$250 |
|
|
|
|
|
|
$912,279 |
|
|
|
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
51 |
|
Notes to financial statements (contd)
9. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended December 31, was as follows:
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
Distributions paid from: |
|
|
|
|
|
|
|
|
Ordinary income |
|
|
$9,396,192 |
|
|
|
$9,401,589 |
|
|
|
|
|
|
As of December 31, 2021, the components of distributable earnings (loss) on a tax basis were as follows:
|
|
Undistributed ordinary income net |
|
$ |
1,240,434 |
|
Deferred capital losses* |
|
|
(8,417,368) |
|
Other book/tax temporary differences(a) |
|
|
(224,155) |
|
Unrealized appreciation (depreciation)(b) |
|
|
20,982,412 |
|
Total distributable earnings (loss) net |
|
$ |
13,581,323 |
|
* |
These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be
deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains. |
(a) |
Other book/tax temporary differences are attributable to the tax deferral of losses on straddles, the realization for tax
purposes of unrealized gains (losses) on certain foreign currency contracts, book/tax differences in the accrual of interest income on securities in default and book/tax differences in the timing of the deductibility of various expenses.
|
(b) |
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is attributable to the tax deferral of losses on wash sales and other book/tax basis adjustments. |
10.
Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU
No. 2021-01, with further amendments to Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract
modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the
period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.
11. Other matters
The outbreak of the
respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets.
The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and
liquidity of the Funds investments and negatively impact the Funds performance. In addition, the outbreak of
|
|
|
|
|
|
52 |
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
* * *
The Funds investments, payment
obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. On March 5, 2021,
the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of the overnight and one-, three-, six- and twelve-month USD
LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023. All other LIBOR settings, including the one-week and two-month USD LIBOR
settings, have ceased publication as of January 1, 2022. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Funds transactions and the financial markets generally. As
such, the potential effect of a transition away from LIBOR on the Fund or the Funds investments cannot yet be determined.
|
|
|
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
|
|
53 |
|
Report of independent registered public accounting firm
To the Board of Trustees and Shareholders ofWestern Asset Premier Bond
Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, ofWestern Asset Premier Bond Fund (the Fund) as
of December 31, 2021, the related statements of operations and cash flows for the year ended December 31, 2021, the statement of changes in net assets for each of the two years in the period ended December 31, 2021, including the
related notes, and the financial highlights for each of the five years in the period ended December 31, 2021 (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Fund as of December 31, 2021, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period ended
December 31, 2021 and the financial highlights for each of the five years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are
the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our
procedures included confirmation of securities owned as of December 31, 2021 by correspondence with the custodian, transfer agent, agent banks and brokers. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
February 22, 2022
We have served as the auditor of one or more investment
companies in the Franklin Templeton Group of Funds since 1948.
|
|
|
|
|
|
54 |
|
|
Western Asset Premier Bond Fund 2021 Annual Report |
Additional information (unaudited)
Information about Trustees and Officers
The business and
affairs of Western Asset Premier Bond Fund (the Fund) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o Jane Trust, Legg Mason, 100
International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Trustees and officers of the Fund is set forth below.
The Funds
annual proxy statement includes additional information about Trustees and is available, without charge, upon request by calling the Fund at
1-888-777-0102.
|
|
|
Independent Trustees |
|
|
Robert Abeles, Jr. |
|
|
|
|
Year of birth |
|
1945 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 2013 |
Principal occupation(s) during the past five years |
|
Board Member, Great Public Schools Now (since 2018); Senior Vice President Emeritus (since 2016) and formerly, Senior Vice President, Finance and Chief Financial Officer (2009 to 2016) at
University of Southern California; Board Member, Excellent Education Development (since 2012) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
None |
|
|
Jane F. Dasher |
|
|
|
|
Year of birth |
|
1949 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 1999 |
Principal occupation(s) during the past five years |
|
Chief Financial Officer, Long Light Capital, LLC, formerly known as Korsant Partners, LLC (a family investment company) (since 1997) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Director, Visual Kinematics, Inc. (since 2018) |
|
|
Anita L. DeFrantz |
|
|
|
|
Year of birth |
|
1952 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 1998 |
Principal occupation(s) during the past five years |
|
President of Tubman Truth Corp. (since 2015); President Emeritus (since 2015) and formerly, President (1987 to 2015) and Director (1990 to 2015) of LA84 (formerly Amateur Athletic
Foundation of Los Angeles); Member (since 1986), Member of the Executive Board (since 2013) and Vice President (since 2017) of the International Olympic Committee |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
None |
|
|
|
|
|
|
|
Western Asset Premier Bond Fund |
|
|
|
|
55 |
|
Additional information
(unaudited) (contd)
Information about Trustees and Officers
|
|
|
Independent Trustees (contd) |
|
|
Susan B. Kerley |
|
|
|
|
Year of birth |
|
1951 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 1992 |
Principal occupation(s) during the past five years |
|
Investment Consulting Partner, Strategic Management Advisors, |
|
|
LLC (investment consulting) (since 1990) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Director and Trustee (since 1990) and Chairman (since 2017 and 2005 to 2012) of various series of MainStay Family of Funds (66 funds); formerly, Investment Company Institute (ICI) Board of
Governors (2006 to 2014); ICI Executive Committee (2011 to 2014); Chairman of the Independent Directors Council (2012 to 2014) |
|
|
Michael Larson |
|
|
|
|
Year of birth |
|
1959 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 2004 |
Principal occupation(s) during the past five years |
|
Chief Investment Officer for William H. Gates III (since 1994)3 |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Republic Services, Inc. (since 2009); Fomento Economico Mexicano, SAB (since 2011); Ecolab Inc. (since 2012); formerly, AutoNation, Inc. (2010 to 2018) |
|
|
Avedick B. Poladian |
|
|
|
|
Year of birth |
|
1951 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 2007 |
Principal occupation(s) during the past five years |
|
Director and Advisor (since 2017) and former Executive Vice President and Chief Operating Officer (2002 to 2016) of Lowe Enterprises, Inc. (privately held real estate and hospitality firm);
formerly, Partner, Arthur Andersen, LLP (1974 to 2002) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Occidental Petroleum Corporation (since 2008); California Resources Corporation (2014 to 2021); and Public Storage (since 2010) |
|
|
|
|
|
56 |
|
|
|
Western Asset Premier Bond Fund |
|
|
|
Independent Trustees (contd) |
|
|
William E.B. Siart |
|
|
|
|
Year of birth |
|
1946 |
Position(s) with Fund |
|
Trustee and Chairman of the Board |
Term of office and length of time served1 |
|
Since 1997 |
Principal occupation(s) during the past five years |
|
Chairman of Excellent Education Development (since 2000); formerly, Chairman of Great Public Schools Now (2015 to 2020); Trustee of The Getty Trust (since 2005 to 2017); Chairman of Walt
Disney Concert Hall, Inc. (1998 to 2006) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Member of Board of United States Golf Association, Executive Committee Member (since 2017); Trustee, University of Southern California (since 1994) |
|
|
Jaynie Miller Studenmund |
|
|
|
|
Year of birth |
|
1954 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 2004 |
Principal occupation(s) during the past five years |
|
Corporate Board Member and Advisor (since 2004); formerly, Chief Operating Officer of Overture Services, Inc. (publicly traded internet company that created search engine marketing) (2001
to 2004); President and Chief Operating Officer, PayMyBills (internet innovator in bill presentment/payment space) (1999 to 2001); Executive vice president for consumer and business banking for three national financial institutions (1984 to
1997) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Director of Pacific Premier Bancorp Inc. and Pacific Premier Bank (since 2019); Director of EXL (operations management and analytics company) (since 2018); Director of CoreLogic, Inc.
(information, analytics and business services company) (since 2012); formerly, Director of Pinnacle Entertainment, Inc. (gaming and hospitality company) (2012 to 2018); Director of LifeLock, Inc. (identity theft protection company) (2015 to 2017);
Director of Orbitz Worldwide, Inc. (online travel company) (2007 to 2014) |
|
|
Peter J. Taylor |
|
|
|
|
Year of birth |
|
1958 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 2019 |
Principal occupation(s) during the past five years |
|
President, ECMC Foundation (nonprofit organization) (since 2014); formerly, Executive Vice President and Chief Financial Officer for University of California system (2009 to 2014) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Director of Pacific Mutual Holding Company4 (since 2016); Member of the Board of Trustees of California State University system (since
2015); Ralph M. Parson Foundation (since 2015), Kaiser Family Foundation (since 2012), and Edison International (since 2011) |
|
|
|
|
|
|
|
Western Asset Premier Bond Fund |
|
|
|
|
57 |
|
Additional information
(unaudited) (contd)
Information about Trustees and Officers
|
|
|
Interested Trustees |
|
|
Ronald L. Olson5 |
|
|
|
|
Year of birth |
|
1941 |
Position(s) with Fund |
|
Trustee |
Term of office and length of time served1 |
|
Since 2005 |
Principal occupation(s) during the past five years |
|
Partner of Munger, Tolles & Olson LLP (law partnership) (since 1968) |
Number of funds in fund complex overseen by Trustee2 |
|
51 |
Other board memberships held by Trustee during the past five years |
|
Berkshire Hathaway, Inc. (since 1997) |
|
|
|
Interested Trustee and Officer |
|
|
Jane Trust, CFA6 |
|
|
|
|
Year of birth |
|
1962 |
Position(s) with Fund |
|
Trustee, President and Chief Executive Officer |
Term of office and length of time served1 |
|
Since 2015 |
Principal occupation(s) during the past five years |
|
Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 131 funds associated with LMPFA or its affiliates (since 2015); President
and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (Legg Mason & Co.); Senior Vice President of LMPFA
(2015) |
Number of funds in fund complex overseen by Trustee2 |
|
129 |
Other board memberships held by Trustee during the past five years |
|
None |
|
|
|
Additional Officers |
|
|
Ted P. Becker Franklin Templeton 620 Eighth Avenue, 47th Floor, New York, NY 10018 |
|
|
|
|
Year of birth |
|
1951 |
Position(s) with Fund |
|
Chief Compliance Officer |
Term of office1 and length of time served7 |
|
Since 2007 |
Principal occupation(s) during the past five years |
|
Vice President, Global Compliance of Franklin Templeton (since 2020); Chief Compliance Officer of LMPFA (since 2006); Chief Compliance Officer of certain funds associated with Legg
Mason & Co. or its affiliates (since 2006); formerly, Director of Global Compliance at Legg Mason, Inc. (2006 to 2020); Managing Director of Compliance of Legg Mason & Co. (2005 to 2020) |
|
|
|
|
|
58 |
|
|
|
Western Asset Premier Bond Fund |
|
|
|
Additional Officers (contd) |
|
|
|
|
Jenna Bailey
Franklin Templeton 100 First
Stamford Place, 5th Floor, Stamford, CT 06902 |
|
|
|
|
Year of birth |
|
1978 |
Position(s) with Fund |
|
Identity Theft Prevention Officer |
Term of office1 and length of time served7 |
|
Since 2015 |
Principal occupation(s) during the past five years |
|
Senior Compliance Analyst of Franklin Templeton (since 2020); Identity Theft Prevention Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2015);
formerly, Compliance Officer of Legg Mason & Co. (2013 to 2020); Assistant Vice President of Legg Mason & Co. (2011 to 2020) |
|
|
Marc A. De Oliveira Franklin Templeton 100 First Stamford Place, 6th Floor, Stamford, CT 06902 |
|
|
|
|
Year of birth |
|
1971 |
Position(s) with Fund |
|
Secretary and Chief Legal Officer |
Term of office1 and length of time served7 |
|
Since 2020 |
Principal occupation(s) during the past five years |
|
Associate General Counsel of Franklin Templeton (since 2020); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly,
Managing Director (2016 to 2020) and Associate General Counsel of Legg Mason & Co. (2005 to 2020) |
|
|
Thomas C. Mandia* Franklin Templeton 100 First Stamford Place, 6th Floor, Stamford, CT 06902 |
|
|
|
|
Year of birth |
|
1962 |
Position(s) with Fund |
|
Senior Vice President |
Term of office1 and length of time served7 |
|
Since 2022 |
Principal occupation(s) during the past five years |
|
Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of LMPFA (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its
affiliates (since 2006); Secretary of LM Asset Services, LLC (LMAS) (since 2002) and Legg Mason Fund Asset Management, Inc. (LMFAM) (since 2013) (formerly registered investment advisers); formerly, Managing Director and
Deputy General Counsel of Legg Mason & Co. (2005 to 2020) and Assistant Secretary of certain funds in the fund complex (2020 to 2022) |
|
|
|
|
|
|
|
Western Asset Premier Bond Fund |
|
|
|
|
59 |
|
Additional information
(unaudited) (contd)
Information about Trustees and
Officers
|
|
|
Additional Officers (contd) |
|
|
Christopher Berarducci Franklin Templeton 620 Eighth Avenue, 47th Floor, New York, NY 10018 |
|
|
|
|
Year of birth |
|
1974 |
Position(s) with Fund |
|
Treasurer and Principal Financial Officer |
Term of office1 and length of time served7 |
|
Since 2019 |
Principal occupation(s) during the past five years |
|
Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg
Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co. |
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Jeanne M. Kelly Franklin Templeton 620 Eighth Avenue, 47th Floor, New York, NY 10018 |
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Year of birth |
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1951 |
Position(s) with Fund |
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Senior Vice President |
Term of office1 and length of time served7 |
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Since 2007 |
Principal occupation(s) during the past five years |
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U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice
President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM (2013 to 2015) |
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Trustees who are not interested persons of the Fund within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940, as amended (the 1940 Act). |
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Effective February 7, 2022, Mr. Mandia became a Senior Vice President. |
1 |
Each of the Trustees of the Fund holds office until his or her successor shall have been duly elected and shall qualify,
subject to prior death, resignation, retirement, disqualification or removal from office and applicable law and the rules of the New York Stock Exchange. Each officer holds office until his or her respective successor is chosen and qualified, or in
each case until he or she sooner dies, resigns, is removed with or without cause or becomes disqualified. |
2 |
Each board member also serves as a member of the Boards of Western Asset Inflation-Linked Opportunities & Income Fund,
Western Asset Inflation-Linked Income Fund and Western Asset Investment Grade Income Fund Inc. (each a closed-end investment company) and the portfolios of Western Asset Funds, Inc., Legg Mason Partners Income
Trust, Legg Mason Partners Institutional Trust, Legg Mason Partners Money Market Trust, Legg Mason Partners Premium Money Market Trust, Legg Mason Partners Variable Income Trust and Master Portfolio Trust (each an
open-end investment company), which are all considered part of the same fund complex as the Fund. |
3 |
Mr. Larson is the chief investment officer for William H. Gates III and in that capacity oversees the investments of
Mr. Gates and the investments of the Bill and Melinda Gates Foundation Trust (such combined investments are referred to as the Accounts). Since 1997, Western Asset has provided discretionary investment advice with respect to one or
more Accounts. |
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60 |
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Western Asset Premier Bond Fund |
4 |
Western Asset and its affiliates provide investment advisory services with respect to registered investment companies
sponsored by an affiliate of Pacific Mutual Holding Company (Pacific Holdings). Affiliates of Pacific Holdings receive compensation from LMPFA or its affiliates for shareholder or distribution services provided with respect to registered
investment companies for which Western Asset or its affiliates serve as investment adviser. |
5 |
Mr. Olson is an interested person of the Fund, as defined in the 1940 Act, because his law firm has
provided legal services to Western Asset. |
6 |
Ms. Trust is an interested person of the Fund, as defined in the 1940 Act, because of her position with
LMPFA and/or certain of its affiliates. |
7 |
Indicates the earliest year in which the officer took such office. Each officer of the Fund is an interested
person (as defined above) of the Fund. |
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Western Asset Premier Bond Fund |
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Annual chief executive officer and principal financial officer
certifications (unaudited)
The Funds Chief Executive Officer (CEO) has submitted to the NYSE the required
annual certification and the Fund also has included the Certifications of the Funds CEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Funds Form
N-CSR filed with the SEC for the period of this report.
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62 |
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Western Asset Premier Bond Fund |
Other shareholder communications regarding accounting matters (unaudited)
The Funds Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal
accounting controls or auditing matters (collectively, Accounting Matters). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (CCO). Persons who are
uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Funds Audit Committee Chair. Complaints may be submitted on an anonymous basis.
The CCO may be contacted at:
Legg Mason & Co., LLC
Compliance Department
620 Eighth Avenue, 47th Floor
New York, New York 10018
Complaints may also be submitted by telephone at 1-800-742-5274. Complaints submitted through this number will be received by the CCO.
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Western Asset Premier Bond Fund |
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63 |
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Summary of information regarding the Fund (unaudited)
Investment Objective
The Funds investment
objective is to provide current income and capital appreciation by investing primarily in a diversified portfolio of investment grade bonds.
Principal Investment Policies and Strategies
Under normal market conditions, the Fund expects to invest substantially all (but at least 80%) of its total managed assets1 in bonds, including corporate bonds, U.S.
government and agency securities and mortgage-related securities, and at least 65% of its total managed assets in bonds that, at the time of purchase, are of investment grade quality. Investment grade quality bonds are bonds rated within a rating
agencys four highest grades (Baa or BBB or higher by Moodys Investors Service, Inc. (Moodys), S&P Global Ratings (S&P) or Fitch Ratings, Inc. (Fitch) or another nationally recognized
rating agency) or bonds that are unrated but judged to be of comparable quality by Western Asset. The Fund may invest up to 35% of its total managed assets in bonds of below investment grade quality (commonly referred to as junk bonds)
at the time of purchase.
The Fund expects that the average effective duration2 of its portfolio will range between 3.5 and seven years, although this target
duration may change from time to time. If a security is rated by multiple nationally recognized statistical rating organizations (NRSROs) and receives different ratings, the Fund will treat the security as being rated in the highest
rating category received from an NRSRO.
The Fund may invest in commercial mortgage-related securities. Other mortgage-related securities in which the Fund may
invest include residential mortgage-related securities, mortgage pass-through securities, collateralized mortgage obligations (CMOs), mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (SMBSs),
interests in real estate mortgage investment conduits, adjustable rate mortgages, real estate investment trusts (REITs), including debt and preferred stock issued by REITs, and other securities that directly or indirectly represent a
participation in, or are secured by and payable from, mortgage loans on real property. The Fund may also invest in other types of asset-backed securities that are offered in the marketplace.
The Fund may also enter into dollar roll transactions in which the Fund sells a fixed income security for delivery in the current month and simultaneously contracts to
purchase substantially similar (same type, coupon and maturity) securities at an agreed upon future time.
1 |
Total managed assets equals the total assets of the Fund (including any assets attributable to leverage) minus
accrued liabilities (other than liabilities representing leverage). |
2 |
Effective duration is a duration calculation for bonds with embedded options. Effective duration takes into account that
expected cash flows will fluctuate as interest rates change. Please note, duration measures the sensitivity of price (the value of principal) of a fixed-income investment to a change in interest rates. Funds that employ leverage calculate effective
duration based off of net assets. |
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Western Asset Premier Bond Fund |
The Fund currently anticipates leveraging its
portfolio by borrowing an aggregate amount of up to 33 1/3% of its total managed assets from one or more banks or other financial institutions. The Fund may also borrow through reverse repurchase agreements, credit default swaps, dollar rolls and
other investment techniques. The Fund may (but is not required to) cover its commitments under these instruments by the segregation of liquid assets, equal in value to the amount of the Funds commitments, or by entering into offsetting
transactions or owning positions covering its obligations. To the extent these instruments are so covered, investment in the instruments will not be considered leverage by the Fund. The Fund is permitted to incur leverage in an amount up
to 38% of its total managed assets. The precise amount of leverage used by the Fund may vary from time to time, and the Fund will not necessarily incur the maximum amount of leverage permitted.
The Fund may invest in securities or instruments other than bonds (including preferred stock) and may invest up to 10% of its total managed assets in instruments
denominated in currencies other than the U.S. dollar. Trust preferred interests and capital securities are considered bonds and not preferred stock for purposes of the foregoing guidelines. Western Asset may, but is not required to, use a variety of
derivative instruments to earn income, facilitate portfolio management and mitigate risks, including currency risk. Examples of derivative instruments that the Fund may use include options contracts, futures contracts, options on futures contracts,
warrants and swaps, including credit default swaps.
Upon Western Assets recommendation, during temporary defensive periods and in order to keep the
Funds cash fully invested, the Fund may invest up to 100% of its total managed assets in short-term investments, including, but not limited to, U.S. government securities, certificates of deposit, bankers acceptances, commercial paper
and repurchase agreements. Short-term investments will be counted as bonds for purposes of the 80% test described above. The Fund may not achieve its investment objective under these circumstances.
The Fund may invest in structured notes and other related instruments, which are privately negotiated debt obligations the principal and/or interest of which
is determined by reference to the performance of a benchmark asset or market (an embedded index), such as selected securities or an index of securities, or the differential performance of two assets or markets, such as indices reflecting
bonds.
The Fund may invest up to 10% of its total managed assets in securities of other closed-end or open-end investment companies that invest primarily in bonds or other securities and instruments of the types in which the Fund may invest directly. This limitation applies only at the time a security is purchased,
and the Fund is not required to dispose of securities if, due to market movements, greater than 10% of the Funds assets are invested in securities of other investment companies. The Fund may also invest in money market funds, including funds
affiliated with Western Asset or the Funds subadvisers.
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Western Asset Premier Bond Fund |
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65 |
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Summary of information regarding the Fund (unaudited) (contd)
The Fund may borrow money in an amount up to 5% of its total assets as a temporary measure for extraordinary or emergency purposes, including the payment of dividends
and the settlement of securities transactions that otherwise might require untimely dispositions of Fund securities.
Consistent with the Funds investment
objective and policies, Western Asset may invest in new types of securities and engage in new types of investment practices if Western Asset believes that these investments and investment techniques may assist the Fund in achieving its investment
objective. In addition, Western Asset may use investment techniques and instruments that are not specifically described herein.
Principal
Risk Factors
The Fund is a diversified, 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 objective.
The Funds 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.
Investment and Market Risk. An investment in the Fund is subject to investment risk,
including the possible loss of the entire amount that you invest. Your investment in the Funds common shares represents an indirect investment in the fixed income securities and other investments owned by the Fund. The value of the Funds
portfolio securities may move up or down, sometimes rapidly and unpredictably. At any point in time, your shares may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.
Market Discount Risk. Shares of closed-end investment companies frequently trade at a discount from their net asset
value. This risk is separate and distinct from the risk that the Funds net asset value could decrease as a result of its investment activities. Whether investors will realize gains or losses upon the sale of the common share will depend not
upon the Funds net asset value but upon whether the market price of the common share at the time of sale is above or below the investors purchase price for the common share.
Because the market price of the common share will be determined by factors such as relative supply of and demand for the common share in the market, general market and
economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether the common share will trade at, above or below net asset value or at,
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Western Asset Premier Bond Fund |
above or below the initial public offering price.
The Funds common share is designed primarily for long term investors and you should not view the Fund as a vehicle for trading purposes.
Fixed Income
Securities Risk. In addition to the risks described elsewhere in this section with respect to valuations and liquidity, fixed income securities, including high-yield securities, are also subject to certain risks, including:
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Issuer Risk. The value of fixed income securities may decline for a number of reasons that directly relate to the
issuer, such as management performance, financial leverage and reduced demand for the issuers goods and services. |
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Interest Rate Risk. The market price of the Funds investments will change in response to changes in interest
rates and other factors. During periods of declining interest rates, the market price of fixed income securities generally rises. Conversely, during periods of rising interest rates, the market price of such securities generally declines. The
magnitude of these fluctuations in the market price of fixed income securities is generally greater for securities with longer maturities. Additionally, such risk may be greater during the current period of historically low interest rates.
Fluctuations in the market price of the Funds securities will not affect interest income derived from securities already owned by the Fund, but will be reflected in the Funds net asset value. The Fund may utilize certain strategies,
including swaps, futures contracts, options on futures and options based on U.S. Treasury securities, for the purpose of reducing the interest rate sensitivity of the portfolio, although there is no assurance that it will do so or that such
strategies will be successful. |
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Prepayment Risk. During periods of declining interest rates, the issuer of a security may exercise its option to
prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result in a decline in the Funds income and distributions to shareholders. This is known as
prepayment or call risk. Debt securities frequently have call features that allow the issuer to redeem the security at dates prior to its stated maturity at a specified price (typically greater than par) only if certain prescribed
conditions are met. An issuer may choose to redeem a debt security if, for example, the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. |
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Reinvestment Risk. Reinvestment risk is the risk that income from the Funds portfolio will decline if and when
the Fund invests the proceeds from matured, traded or called fixed income securities at market interest rates that are below the portfolios current earnings rate. A decline in income could affect the Funds common share price, its
distributions or its overall return. |
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Western Asset Premier Bond Fund |
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67 |
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Summary of information regarding the Fund (unaudited) (contd)
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Duration Risk. For the simplest fixed income securities, duration indicates the average time at which
the securitys cash flows are to be received. For simple fixed income securities with interest payments occurring prior to the payment of principal, duration is always less than maturity. In general, the lower the stated or coupon rate of
interest of a fixed income security, the closer its duration will be to its final maturity; conversely, the higher the stated or coupon rate of interest of a fixed income security, the shorter its duration will be compared to its final maturity.
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Determining duration becomes more complex when fixed income security features like floating or adjustable coupon payments,
optionality (for example, the right of the issuer to prepay or call the security), and structuring (for example, the right of the holders of certain securities to receive priority as to the issuers cash flows) are considered. The calculation
of effective duration attempts to take into account optionality and other complex features. Generally, the longer the effective duration of a security, the greater will be the expected change in the percentage price of the security with
respect to a change in the securitys own yield. By way of illustration, a security with an effective duration of 3.5 years might normally be expected to go down in price by 35 bps if its yield goes up by 10 bps, while another security with an
effective duration of 4.0 years might normally be expected to go down in price by 40 bps if its yield goes up by 10 bps. The assumptions that are made about a securitys features and options when calculating effective duration may prove to be
incorrect. For example, many mortgage pass-through securities may have stated final maturities of 30 years, but current prepayment rates, which can vary widely under different economic conditions, may have a large influence on the pass-through
securitys response to changes in yield. In these situations, the Funds portfolio manager may consider other analytical techniques that seek to incorporate the securitys additional features into the determination of its response to
changes in its yield.
A security may change in price for a variety of reasons. For example, floating rate securities may have final maturities of
ten or more years, but their effective durations will tend to be very short. If there is an adverse credit event, or a perceived change in the issuers creditworthiness, these securities could experience a far greater negative price movement
than would be predicted by the change in the securitys yield in relation to its effective duration. As a result, investors should be aware that effective duration is not an exact measurement and may not reliably predict a securitys price
sensitivity to changes in yield or interest rates.
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Extension Risk. When interest rates rise, repayments of fixed income securities, particularly asset- and mortgage-
backed securities, may occur more slowly than anticipated, extending the effective duration of these fixed income securities at below market interest rates and causing their market prices to decline more than they would have declined due to the rise
in interest rates alone. This may cause the Funds share price to be more volatile. |
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68 |
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Western Asset Premier Bond Fund |
Financials Sector Risk. The Fund may be
susceptible to adverse economic or regulatory occurrences affecting the financial services sector. Financial services companies are subject to extensive government regulation and, as a result, their profitability may be affected by new regulations
or regulatory interpretations. Unstable interest rates can have a disproportionate effect on the financial services sector and financial services companies whose securities the Fund may purchase may themselves have concentrated portfolios, which
makes them vulnerable to economic conditions that affect that sector. Financial services companies have also been affected by increased competition, which could adversely affect the profitability or viability of such companies.
Energy Sector Risk. The Fund may be susceptible to adverse economic or regulatory occurrences affecting the energy sector. The Funds performance may be
susceptible to fluctuations in commodity prices, changes in the supply of or demand for energy commodities, an inability to acquire additional energy deposits sufficient to replace the natural depletion of existing reserves, environmental and safety
regulations, seasonal and extreme weather, catastrophic events or accidents, acquisition costs and erroneous assumptions regarding new acquisitions and the cyclical fluctuation and intense price competition inherent to the energy industry.
Additionally, companies operating in the energy sector are subject to industry-specific risks related to infrastructure, which includes transportation via pipeline, the gathering, processing and midstream storage of resources, variations in upstream
and downstream demand, and the effects of land, weather and unforeseen events on oil, oilfields, coal stockpiles, power infrastructure and marine transportation.
Credit Risk. If an issuer or guarantor of a security held by the Fund or a counterparty to a financial contract with the Fund defaults or its credit is
downgraded, or is perceived to be less creditworthy, or if the value of the assets underlying a security declines, the value of your investment will typically decline. Changes in actual or perceived creditworthiness may occur quickly. The Fund could
be delayed or hindered in its enforcement of rights against an issuer, guarantor or counterparty. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same
issuer and will be disproportionately affected by a default, downgrade or perceived decline in creditworthiness.
Counterparty Risk. The Fund may enter into
transactions with counterparties that become unable or unwilling to fulfill their contractual obligations. There can be no assurance that any such counterparty will not default on its obligations to the Fund. In the event of a counterparty default,
the Fund may be hindered or delayed in exercising rights against a counterparty and may experience significant losses. To the extent that the Fund enters into multiple transactions with a single or small set of counterparties, the Fund will be
subject to increased counterparty risk.
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Western Asset Premier Bond Fund |
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69 |
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Summary of information regarding the Fund (unaudited) (contd)
Lower and Unrated Securities Risk. The Fund may invest in below investment grade securities (commonly referred to as high-yield securities or
junk bonds) at the time of investment. High yield debt securities are generally subject to greater credit risks than higher-grade debt securities, including the risk of default on the payment of interest or principal. High yield debt
securities are considered speculative, typically have lower liquidity and are more difficult to value than higher grade bonds. High yield debt securities tend to be volatile and more susceptible to adverse events, credit downgrades and negative
sentiments and may be difficult to sell at a desired price, or at all, during periods of uncertainty or market turmoil.
Leverage Risk. The value of your
investment may be more volatile if the Fund uses leverage through borrowing of money and, under certain circumstances, reverse repurchase agreements, credit default swaps, dollar roll transactions and other investment techniques. The Funds
leveraging strategy may not be successful. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. Increases and decreases in the value of the Funds portfolio will be magnified when the Fund uses
leverage. As a result, leverage will cause greater changes in the Funds net asset value than if leverage were not used. The Fund will also have to pay interest with respect to its leverage, which may reduce the Funds return. This expense
may be greater than the Funds return on the underlying investments. It is anticipated that interest with respect to leverage will be based on shorter-term interest rates that would be periodically reset. There can be no assurance that the use
of leverage will result in a higher yield on the shares. When leverage is employed, the net asset value and market price of the shares and the yield to shareholders will be more volatile. The use of leverage will cause the Funds net asset
value to fall more sharply in response to increases in interest rates than it would in the absence of the use of leverage. Leverage creates two major types of risks for shareholders: the likelihood of greater volatility of net asset value and market
price of the shares because changes in the value of the Funds assets, including investments bought with the proceeds from the use of leverage, are borne entirely by the shareholders; and the possibility either that net investment income will
fall if the interest and dividend rates on leverage rise or that net investment income will fluctuate because the interest and dividend rates on leverage vary.
Because the fees received by Western Asset are based on the average weekly value of the Funds total managed assets, Western Asset has a financial incentive for the
Fund to incur leverage, which may create a conflict of interest between Western Asset and the shareholders. The fees paid to Legg Mason Partners Fund Adviser are also based on the average weekly assets of the Fund.
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70 |
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Western Asset Premier Bond Fund |
Foreign Securities and Emerging Markets Risk.
A fund that invests in foreign (non-U.S.) securities may experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies. The securities markets of
many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Investments in foreign securities (including those denominated in U.S. dollars) are subject to economic and political
developments in the countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary policies. Values may also be affected by restrictions on receiving the investment
proceeds from a foreign country. Less information may be publicly available about foreign companies than about U.S. companies. Foreign companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S.
companies. The Public Company Accounting Oversight Board, which regulates auditors of U.S. public companies, is unable to inspect audit work papers in certain foreign countries. Investors in foreign countries often have limited rights and few
practical remedies to pursue shareholder claims, including class actions or fraud claims, and the ability of the Securities and Exchange Commission (the SEC), the U.S. Department of Justice and other authorities to bring and enforce
actions against foreign issuers or foreign persons is limited. Foreign investments may also be adversely affected by U.S. government or international interventions, restrictions or economic sanctions, which could negatively affect the value of an
investment or result in the Fund selling an investment at a disadvantageous time. In addition, the Funds investments in foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency
exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial instability and adverse diplomatic developments. In addition, there may be difficulty in obtaining or enforcing a court judgment
abroad. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to non-U.S. withholding taxes, and special U.S. tax considerations may apply.
The risks of foreign investment are greater for investments in emerging markets. Emerging market countries typically have economic and political systems that are less
fully developed, and that can be expected to be less stable, than those of more advanced countries. Low trading volumes may result in a lack of liquidity and in price volatility. Emerging market countries may have policies that restrict investment
by foreigners, that require governmental approval prior to investments by foreign persons, or that prevent foreign investors from withdrawing their money at will. An investment in emerging market securities should be considered speculative.
Foreign Currency Risk. The value of investments in securities denominated in foreign currencies increases or decreases as the rates of exchange between those
currencies and the U.S. dollar change. Currency conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can be volatile, and
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Western Asset Premier Bond Fund |
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71 |
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Summary of information regarding the Fund (unaudited)
(contd)
are affected by factors such as general economic conditions, the actions
of the U.S. and foreign governments or central banks, the imposition of currency controls and speculation. The Fund may be unable or may choose not to hedge its foreign currency exposure.
Mortgage-backed and Asset-backed Securities Risk. When market interest rates increase, the market values of mortgage-backed securities decline. At the same time,
mortgage refinancings and prepayments slow, which lengthens the effective duration of these securities. As a result, the negative effect of the interest rate increase on the market value of mortgage-backed securities is usually more pronounced than
it is for other types of fixed income securities, potentially increasing the volatility of the Fund. Conversely, when market interest rates decline, while the value of mortgage-backed securities may increase, the rate of prepayment of the underlying
mortgages also tends to increase, which shortens the effective duration of these securities. Mortgage-backed securities are also subject to the risk that underlying borrowers will be unable to meet their obligations and the value of property that
secures the mortgage may decline in value and be insufficient, upon foreclosure, to repay the associated loan. Investments in asset-backed securities are subject to similar risks.
Derivatives Risk. Using derivatives can increase Fund losses and reduce opportunities for gains when market prices, interest rates, currencies, or the derivatives
themselves behave in a way not anticipated by the Fund. Using derivatives also can have a leveraging effect and increase Fund volatility. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.
Derivatives may not be available at the time or price desired, may be difficult to sell, unwind or value, and the counterparty may default on its obligations to the Fund. Derivatives are generally subject to the risks applicable to the assets,
rates, indices or other indicators underlying the derivative. The value of a derivative may fluctuate more than the underlying assets, rates, indices or other indicators to which it relates. Use of derivatives may have different tax consequences for
the Fund than an investment in the underlying security, and those differences may affect the amount, timing and character of income distributed to shareholders. The U.S. government and foreign governments are in the process of adopting and
implementing regulations governing derivatives markets, including mandatory clearing of certain derivatives, margin and reporting requirements. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives may make
derivatives more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets.
Futures contracts require the Fund to
deposit initial margin and may require the Fund to increase the level of its initial margin payment as a result of margin calls. If the Fund has insufficient cash to meet daily variation margin requirements, it might need to sell
securities at a disadvantageous time or price. If the Fund were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid secondary market,
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Western Asset Premier Bond Fund |
the imposition of price limits or otherwise, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case
of purchased options, the Fund would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the future or option or to maintain cash or securities in a segregated account.
The SEC adopted a new rule on October 28, 2020 that mandates that a funds derivatives risk management program provide for specific items as required by the
rule, including compliance with a value-at-risk (VaR) test. Compliance with these new requirements will be required after an eighteen month transition period
following the rules effective date of February 19, 2021. Following the compliance date, these requirements may limit the ability of the Fund to use derivatives and reverse repurchase agreements and similar financing transactions as part
of its investment strategies. These requirements may increase the cost of the Funds investments in derivatives, which could adversely affect shareholders.
Credit default swap contracts involve heightened risks and may result in losses to the Fund. Credit default swaps may be illiquid and difficult to value. When the Fund
sells credit protection via a credit default swap, credit risk increases since the Fund has exposure to both the issuer whose credit is the subject of the swap and the counterparty to the swap.
Inflation/Deflation Risk. Inflation risk is the risk that the Funds assets or income from the Funds investments may be worth less in the future as
inflation decreases the value of money. As inflation increases, the real value of the Funds portfolio could decline. Common shares and distributions on the common shares can decline. In addition, during any periods of rising inflation, the
dividend rates or borrowing costs associated with the Funds use of leverage would likely increase, which would tend to further reduce returns to shareholders Deflation risk is the risk that prices throughout the economy may decline over time--the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Funds
portfolio.
Portfolio Turnover Risk. The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A
change in the securities held by the Fund is known as portfolio turnover. As a result of the Funds investment policies, under certain market conditions the Funds turnover rate may be higher than that of other investment
companies. Portfolio turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other
securities. These transactions may result in realization of taxable capital gains.
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Western Asset Premier Bond Fund |
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73 |
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Summary of information regarding the Fund (unaudited) (contd)
Higher portfolio turnover rates, such as those above 100%, are likely to result in higher brokerage commissions or other transaction costs and could give rise to a
greater amount of taxable capital gains.
Management Risk. The Fund is subject to management risk because it is an actively managed investment portfolio.
Western Asset will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.
Liquidity Risk. Liquidity risk exists when particular investments are difficult to sell. Securities may become illiquid securities after purchase by
the Fund, particularly during periods of market turmoil. When the Fund holds illiquid investments, the portfolio may be harder to value, especially in changing markets, and if the Fund is forced to sell these investments in order to segregate assets
or for other cash needs, the Fund may suffer a loss.
Investment in Other Investment Companies Risk. If the Fund acquires shares of investment companies,
including ones affiliated with the Fund, shareholders bear both their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies (to the extent not offset by Western
Asset or its affiliates through waivers).
Anti-Takeover Provisions Risk. The Funds Agreement and Declaration of Trust and Bylaws include provisions
that are intended to limit the ability of other entities or persons to acquire control of the Fund for short-term objectives, including by converting the Fund to open-end status or changing the composition of
the Board, that may be detrimental to the Funds ability to achieve its investment objective. Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party
from seeking to obtain control of the Fund. There can be no assurance, however, that such provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned with the interests of long-term
shareholders.
Market Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in
general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political
developments, 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. Economies and financial markets throughout the world are increasingly
interconnected. Economic, financial or political events, trading and tariff arrangements, public health events, terrorism, natural disasters and other circumstances in one country or
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74 |
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Western Asset Premier Bond Fund |
region could have profound impacts on global economies or markets. As a result, whether or not the Fund invests in
securities of issuers located in or with significant exposure to the countries directly affected, the value and liquidity of the Funds investments may be negatively affected.
The rapid and global spread of a highly contagious novel coronavirus respiratory disease, designated COVID-19, has resulted in
extreme volatility in the financial markets and severe losses; reduced liquidity of many instruments; restrictions on international and, in some cases, local travel; significant disruptions to business operations (including business closures);
strained healthcare systems; disruptions to supply chains, consumer demand and employee availability; and widespread uncertainty regarding the duration and long-term effects of this pandemic. Some sectors of the economy and individual issuers have
experienced particularly large losses. In addition, the COVID-19 pandemic may result in a sustained domestic or even global economic downturn or recession, domestic and foreign political and social
instability, damage to diplomatic and international trade relations and increased volatility and/or decreased liquidity in the securities markets. Developing or emerging market countries may be more impacted by the
COVID-19 pandemic as they may have less established health care systems and may be less able to control or mitigate the effects of the pandemic. The impact of the
COVID-19 pandemic may last for an extended period of time. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known.
Certain risks, such as interest rate risk, credit risk, liquidity risk and counterparty risk, may be heightened as a result of such market events. The U.S. government and the Federal Reserve, as well as certain foreign governments and central banks,
are taking extraordinary actions to support local and global economies and the financial markets in response to the COVID-19 pandemic, including by pushing interest rates to very low levels. These actions have
resulted in significant expansion of public debt, including in the U.S. This and other government intervention into the economy and financial markets to address the COVID-19 pandemic may not work as intended,
particularly if the efforts are perceived by investors as being unlikely to achieve the desired results. Government actions to mitigate the economic impact of the pandemic have resulted in a large expansion of government deficits and debt, the long
term consequences of which are not known. The COVID-19 pandemic could adversely affect the value and liquidity of the Funds investments and negatively impact the Funds performance. In addition, the
outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
LIBOR Risk. The Funds investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or
LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. In 2017, the U.K. Financial Conduct Authority (FCA) announced its intention to cease
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Western Asset Premier Bond Fund |
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75 |
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Summary of information regarding the Fund (unaudited)
(contd)
compelling banks to provide the quotations needed to sustain LIBOR after 2021. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of most LIBOR
settings on a representative basis at the end of 2021 and is expected to cease publication of a majority of U.S. dollar LIBOR settings on a representative basis after June 30, 2023. In addition, global regulators have announced that, with
limited exceptions, no new LIBOR-based contracts should be entered into after 2021. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies. Various financial industry groups have
been planning for the transition away from LIBOR, but there remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Funds transactions and the financial markets generally. The
transition away from LIBOR may lead to increased volatility and illiquidity in markets that rely on LIBOR and may adversely affect the Funds performance. The transition may also result in a reduction in the value of certain LIBOR-based
investments held by the Fund or reduce the effectiveness of related transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses for the Fund. Since the usefulness of
LIBOR as a benchmark could also deteriorate during the transition period, effects could occur at any time.
Operational Risk. The valuation of the Funds
investments may be negatively impacted because of the operational risks arising from factors such as processing errors and human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel,
and errors caused by third party service providers or trading counterparties. It is not possible to identify all of the operational risks that may affect the Fund or to develop processes and controls that completely eliminate or mitigate the
occurrence of such failures. The Fund and its shareholders could be negatively impacted as a result.
Cybersecurity Risk. Cybersecurity incidents, both
intentional and unintentional, may allow an unauthorized party to gain access to Fund assets, Fund or customer data (including private shareholder information), or proprietary information, cause the Fund, Western Asset, the subadvisers and/or their
service providers to suffer data breaches, data corruption or loss of operational functionality or prevent fund investors from purchasing, redeeming or exchanging shares or receiving distributions. The Fund, Western Asset, and the subadvisers have
limited ability to prevent or mitigate cybersecurity incidents affecting third party service providers, and such third party service providers may have limited indemnification obligations to the Fund, Western Asset and/or the subadvisers.
Cybersecurity incidents may result in financial losses to the Fund and its shareholders, and substantial costs may be incurred in order to prevent any future cybersecurity incidents. Issuers of securities in which the Fund invests are also subject
to cybersecurity risks, and the value of these securities could decline if the issuers experience cybersecurity incidents.
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76 |
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Western Asset Premier Bond Fund |
Because technology is frequently changing, new ways to carry out cyber attacks are always developing. Therefore, there is a
chance that some risks have not been identified or prepared for, or that an attack may not be detected, which puts limitations on the Funds ability to plan for or respond to a cyber attack. Like other funds and business enterprises, the Fund,
Western Asset, Western London and their service providers are subject to the risk of cyber incidents occurring from time to time.
More
Information
For a complete list of the Funds fundamental investment restrictions and more detailed descriptions of the Funds investment
policies, strategies and risks, see the Funds prospectus and statement of additional information, dated March 25, 2002, as amended or superseded by subsequent disclosures. The Funds fundamental investment restrictions may not be
changed without the approval of the holders of a majority of the outstanding voting securities, as defined in the 1940 Act.
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Western Asset Premier Bond Fund |
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77 |
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Dividend reinvestment plan (unaudited)
The Fund and Computershare Inc. (Agent), as the Transfer Agent and Registrar of the Fund, offer a convenient way to add shares of the Fund to your account.
The Fund offers to all common shareholders a Dividend Reinvestment Plan (Plan). Under the Plan, cash distributions (e.g., dividends and capital gains) of registered shareholders (those who own shares in their own name on the Funds
records) on the common shares are automatically invested in shares of the Fund unless the shareholder elects otherwise by contacting the Agent at the address set forth below. Shareholders who own shares in a brokerage, bank or other financial
institution account must contact the company where their account is held in order to participate in the Plan.
As a participant in the Dividend Reinvestment Plan you
will automatically receive your dividend or net capital gains distribution in newly issued shares of the Fund if the market price of a share on the date of the distribution is at or above the NAV of a Fund share, minus estimated brokerage
commissions that would be incurred upon the purchase of common shares on the open market. The number of shares to be issued to you will be determined by dividing the amount of the cash distribution to which you are entitled (net of any applicable
withholding taxes) by the greater of the NAV per share on such date or 95% of the market price of a share on such date. If the market price of a share on such distribution date is below the NAV, minus estimated brokerage commissions that would be
incurred upon the purchase of common shares on the open market, the Agent will, as agent for the participants, buy shares of the Fund through a broker on the open market. The price per share of shares purchased for each participants account
with respect to a particular dividend or other distribution will be the average price (including brokerage commissions, transfer taxes and any other costs of purchase) of all shares purchased with respect to that dividend or other distribution. All
common shares acquired on your behalf through the Plan will be automatically credited to an account maintained on the books of the Agent. Full and fractional shares will be voted by the Agent in accordance with your instructions.
Additional information regarding the plan
The
Fund will pay all costs applicable to the Plan, except for brokerage commissions for open market purchases by the Agent under the Plan, which will be charged to participants. All shares acquired through the Plan receive voting rights and are
eligible for any stock split, stock dividend, or other rights accruing to shareholders that the Board of Trustees may declare. Registered shareholder may terminate participation in the Plan at any time by giving notice to the Agent. Such termination
will be effective prior to the record date next succeeding the receipt of such instructions or by a later date of termination specified in such instructions. Upon termination, a participant will receive a certificate for the full shares credited to
his or her account or may request the sale of all or part of such shares. Fractional shares credited to a terminating account will be paid for in cash at the current market price at the time of termination. Shareholders who own shares in a
brokerage, bank or other financial institution account must contact the company where their account is held in order to terminate participation in the Plan.
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78 |
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Western Asset Premier Bond Fund |
Dividends and other distributions invested in additional shares under the Plan are subject to income tax just as if they
had been received in cash. After year end, dividends paid on the accumulated shares will be included in the Form 1099-DIV information return to the Internal Revenue Service (IRS) and only one Form 1099-DIV will be sent to participants each year. Inquiries regarding the Plan, as well as notices of termination, should be directed to Computershare Inc., 462 South 4th Street, Suite 1600, Louisville, KY
40202. Investor Relations Telephone number 1-888-888-0151.
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Western Asset Premier Bond Fund |
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79 |
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Important tax information (unaudited)
By mid-February, tax information related to a shareholders proportionate share of distributions paid during the preceding
calendar year will be received, if applicable. Please also refer to www.franklintempleton.com for per share tax information related to any distributions paid during the preceding calendar year. Shareholders are advised to consult with their tax
advisors for further information on the treatment of these amounts on their tax returns.
The following tax information for the Fund is required to be furnished to
shareholders with respect to income earned and distributions paid during its fiscal year.
The Fund hereby reports the following amounts, or if subsequently
determined to be different, the maximum allowable amounts, for the fiscal year ended December 31, 2021:
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Pursuant to: |
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Amount Reported |
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Qualified Net Interest Income (QII) |
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§ |
871(k)(1)(C) |
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$ |
5,389,040 |
|
Section 163(j) Interest Earned |
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§ |
163(j) |
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$ |
11,708,646 |
|
Interest Earned from Federal Obligations |
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Note (1) |
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$ |
2,892 |
|
Note (1) The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is
exempt from state income tax. Shareholders are advised to consult with their tax advisors to determine if any portion of the dividends received is exempt from state income taxes.
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80 |
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|
Western Asset Premier Bond Fund |
Western Asset
Premier Bond Fund
Trustees
Robert Abeles, Jr
Jane F. Dasher
Anita L. DeFrantz
Susan B. Kerley
Michael Larson
Ronald L. Olson
Avedick B. Poladian
William E.B. Siart
Chairman
Jaynie M. Studenmund
Peter J. Taylor
Jane Trust
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Ted P. Becker
Chief Compliance Officer
Jenna Bailey
Identity Theft Prevention Officer
Marc A. De Oliveira
Secretary and Chief Legal Officer
Thomas C. Mandia*
Senior Vice President
Jeanne M. Kelly
Senior Vice President
* |
Effective February 7, 2022, Mr. Mandia became a Senior Vice President. |
Western Asset Premier Bond Fund
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment advisers
Western Asset Management Company, LLC
Western Asset Management Company Limited
Western Asset Management Company Pte. Ltd.
Western Asset Management Company Ltd
Custodian
The Bank of New York Mellon
Independent registered public accounting firm
PricewaterhouseCoopers LLP
100 East Pratt Street
Baltimore, MD 21202
Legal counsel
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
New York Stock Exchange Symbol
WEA
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very
Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and
data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Franklin Distributors, LLC, as well as Legg Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited
to:
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Personal information included on applications or other forms; |
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Account balances, transactions, and mutual fund holdings and positions; |
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Bank account information, legal documents, and identity verification documentation; |
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Online account access user IDs, passwords, security challenge question responses; and |
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Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of
an individuals total debt, payment history, etc.). |
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other
financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services
you have authorized or as permitted or required by law.
The Funds may disclose information about you to:
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Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business, or
to comply with obligations to government regulators; |
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Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business
(such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely
for the Funds; |
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Permit access to transfer, whether in the United States or countries outside of the United States to such Funds
employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
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The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary
business, or to comply with obligations to government regulators; |
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Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
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NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds behalf,
including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to
perform. The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory
request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds
practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as
required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard
your nonpublic personal information. The Funds internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to
them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary, so you can take appropriate protective steps. If you have
consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is
incomplete, not accurate or not current, if you have questions about the Funds privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by
clicking on the Contact Us section of the Funds website at www.franklintempleton.com, or contact the Fund at
1-888-777-0102.
Revised April 2018
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is nonpublic personal information subject to federal law, residents of California may, in certain
circumstances, have additional rights under the California Consumer Privacy Act (CCPA). For example, if you are a broker,
|
NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (contd)
dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any
other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal
information (as defined by the CCPA).
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In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the
categories and specific pieces of personal information we have collected about you. |
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You also have the right to request the deletion of the personal information collected or maintained by the Funds.
|
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set
forth below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process
described below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request
on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other
applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if
suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg
Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2020
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NOT PART OF THE ANNUAL REPORT |
Western Asset Premier Bond Fund
Western Asset Premier Bond Fund
620 Eighth Avenue
47th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices,
shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third
quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Funds Forms N-PORT are available on the SECs website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at 1-888-777-0102 or
visit the Funds website at www.franklintempleton.com.
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 SECs 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 Templetons website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templetons 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 Templetons website in this report.
This report is
transmitted to the shareholders of Western Asset Premier Bond 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.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WASX013147 2/22 SR22-4352