WESTERN ASSET FUNDS, INC.
Prospectus 
May 1,
2023
Share class
(Symbol): A (WABAX), C
(WABCX), C1 (LWACX), FI (WAPIX), R (WABRX), I (WATFX), IS (WACSX)
WESTERN ASSET
CORE BOND FUND
The
Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this Prospectus is accurate or complete. Any
statement to the contrary is a crime.
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| INVESTMENT
PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
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Maximize
total return, consistent with prudent investment management and liquidity needs,
by investing to obtain the average duration specified
below.
Fees and expenses of the
fund
The
accompanying table describes the fees and expenses that you may pay if you buy,
hold and sell shares of the fund. You may pay other fees, such as brokerage
commissions and other fees to financial intermediaries, which are not reflected
in the tables and examples below.
You may qualify for sales charge discounts
if you and your family invest, or agree to invest in the future, at least
$100,000 in funds distributed through
Franklin Distributors, LLC (“Franklin Distributors” or the “Distributor”), the
fund’s distributor. More information about these and other
discounts is available from your Service Agent, in the fund’s Prospectus on page
32 under the heading “Additional information about each share class,” in the
appendix titled “Appendix: Waivers and Discounts Available from Certain Service
Agents” on page A‑1 of the fund’s Prospectus and in the fund’s Statement of
Additional Information (“SAI”) on page 86 under the heading “Sales Charge
Waivers and Reductions for Class A Shares.” “Service Agents” include banks,
brokers, dealers, insurance companies, investment advisers, financial
consultants or advisers, mutual fund supermarkets and other financial
intermediaries that have entered into an agreement with the Distributor to sell
shares of the fund.
If
you purchase Class I shares or Class IS shares through a Service Agent
acting solely as an agent on behalf of its customers, that Service Agent may
charge you a commission. Such commissions, if any, are not charged by the fund
and are not reflected in the fee table or expense example
below.
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| Shareholder fees
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| (fees paid directly from
your investment) |
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Class A |
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Class C |
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Class C1 |
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Class FI |
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Class R |
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Class I |
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Class IS |
| Maximum
sales charge (load) imposed on purchases (as a % of offering price) |
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3.751,2 |
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None |
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None |
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None |
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None |
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None |
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None |
| Maximum
deferred sales charge (load) (as a % of the lower of net asset value at
purchase or redemption)3 |
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None4 |
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1.00 |
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1.00 |
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None |
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None |
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None |
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None |
| Small
account fee5 |
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$15 |
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$15 |
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$15 |
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None |
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None |
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None |
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None |
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| Annual fund operating expenses (%)
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| (expenses that you pay each
year as a percentage of the value of your
investment) |
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Class A |
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Class C |
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Class C1 |
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Class FI |
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Class R |
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Class I |
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Class IS |
| Management
fees |
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0.40 |
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0.40 |
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0.40 |
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0.40 |
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0.40 |
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0.40 |
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0.40 |
| Distribution
and/or service (12b‑1) fees |
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0.25 |
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1.00 |
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0.70 |
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0.25 |
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0.50 |
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None |
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None |
| Other
expenses |
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0.18 |
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0.11 |
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0.19 |
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0.16 |
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0.24 |
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0.14 |
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0.02 |
| Total
annual fund operating expenses |
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0.83 |
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1.51 |
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1.29 |
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0.81 |
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1.14 |
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0.54 |
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0.42 |
| Fees
waived and/or expenses reimbursed6 |
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(0.01) |
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— |
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— |
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— |
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— |
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(0.09) |
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— |
| Total
annual fund operating expenses after waiving fees and/or reimbursing
expenses |
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0.82 |
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1.51 |
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1.29 |
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0.81 |
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1.14 |
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0.45 |
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0.42 |
| 1 |
The
sales charge is waived for shareholders purchasing Class A shares
through accounts where Franklin Distributors is the broker-dealer of
record (“Distributor Accounts”). |
| 2 |
Shareholders purchasing Class A
shares through certain Service Agents or in certain types of accounts may
be eligible for a waiver of the sales charge. For additional information,
see “Additional information about each share class — Sales charges” in the
Prospectus. |
| 3 |
Maximum
deferred sales charge (load) may be reduced over
time. |
| 4 |
You may buy
Class A shares in amounts of $500,000 or more at net asset value
(without an initial sales charge), but if you redeem those shares within
18 months of their purchase, you will pay a contingent deferred sales
charge of
1.00%. |
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| 2 |
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Western
Asset Core Bond Fund |
| 5 |
If
the value of your account is below $1,000 ($250 for retirement plans that
are not employer-sponsored), the fund may charge you a fee of $3.75 per
account that is determined and assessed quarterly by the fund or your
Service Agent (with an annual maximum of $15.00 per account). Please
contact your Service Agent or the fund for more information. |
| 6 |
The
manager has agreed to waive fees and/or reimburse operating expenses
(other than interest, brokerage commissions, taxes, extraordinary
expenses, deferred organizational expenses and acquired fund fees and
expenses), so that the ratio of total annual fund operating expenses will
not exceed 0.82% for Class A shares, 1.65% for Class C shares,
1.42% for Class C1 shares, 0.85% for Class FI shares, 1.15% for
Class R shares, 0.45% for Class I shares and 0.42% for
Class IS shares, subject to recapture as described below. In
addition, the ratio of total annual fund operating expenses for
Class IS shares will not exceed the ratio of total annual fund
operating expenses for Class I shares, subject to recapture as
described below. These arrangements cannot be terminated prior to
December 31,
2024 without the Board’s consent. The manager is permitted
to recapture amounts waived and/or reimbursed to a class within two years
after the fiscal year in which the manager earned the fee or incurred the
expense if the class’ total annual fund operating expenses have fallen to
a level below the limits described above. In no case will the manager
recapture any amount that would result, on any particular business day of
the fund, in the class’ total annual fund operating expenses exceeding the
applicable limits described above or any other lower limit then in effect.
In addition, the manager has agreed to waive the fund’s management fee to
an extent sufficient to offset the net management fee payable in
connection with any investment in an affiliated money market fund. This
management fee waiver is not subject to the recapture provision discussed
above. |
Example
This
example is intended to help you compare the cost of investing in the fund with
the cost of investing in other mutual funds. The example assumes:
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You
invest $10,000 in the fund for the time periods
indicated |
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Your
investment has a 5% return each year and the fund’s operating expenses
remain the same (except that any applicable fee waiver or expense
reimbursement is reflected only through its expiration
date) |
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You
reinvest all distributions and dividends without a sales
charge |
Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
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| Number of years you own
your shares ($) |
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1 year |
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3 years |
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5 years |
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10 years |
| Class A
(with or without redemption at end of period) |
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456 |
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630 |
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818 |
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1,362 |
| Class C
(with redemption at end of period) |
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254 |
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478 |
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824 |
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1,617 |
| Class C
(without redemption at end of period) |
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154 |
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478 |
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824 |
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1,617 |
| Class C1
(with redemption at end of period) |
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231 |
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408 |
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707 |
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1,429 |
| Class C1
(without redemption at end of period) |
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131 |
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408 |
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707 |
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1,429 |
| Class FI
(with or without redemption at end of period) |
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83 |
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259 |
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450 |
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1,003 |
| Class R
(with or without redemption at end of period) |
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116 |
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362 |
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627 |
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1,384 |
| Class I
(with or without redemption at end of period) |
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46 |
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164 |
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293 |
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669 |
| Class IS
(with or without redemption at end of period) |
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43 |
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135 |
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235 |
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529 |
Portfolio turnover.
The fund pays transaction
costs, such as commissions, when it buys and sells securities (or “turns over”
its portfolio). A higher portfolio turnover rate may indicate higher transaction
costs and may result in higher taxes when shares are held in a taxable account.
These costs, which are not reflected in annual fund operating expenses or in the
example, affect the fund’s performance. During the most recent fiscal year,
the fund’s portfolio turnover rate was 64% of the average value of its
portfolio.
Principal investment
strategies
The
fund invests in a portfolio of fixed income securities of various maturities
and, under normal market conditions, will invest at least 80% of its net assets,
including the amount of borrowing for investment purposes, if any, in debt and
fixed income securities. Although the fund may invest in debt and fixed income
securities of any maturity, under normal market conditions the target
dollar-weighted average effective duration for the fund is expected to range
within 20% of the average duration of the domestic bond market as a whole as
estimated by the fund’s subadviser. Effective duration seeks to measure the
expected sensitivity of market price to changes in interest rates, taking into
account the anticipated effects of structural complexities (for example, some
bonds can be prepaid by the issuer).
The
fund presently intends to limit its investments to U.S. dollar denominated
securities and currently anticipates that it will generally only purchase debt
securities that are rated in the Baa or BBB categories or above at the time of
purchase by one or more Nationally Recognized Statistical Rating Organizations
(“NRSROs”) or unrated securities of comparable quality at the time of purchase
(as determined by the subadviser). These securities are known as “investment
grade securities.” The fund may invest up to 25% of its total assets in the
securities of non‑U.S. issuers. The fund may invest a substantial portion of its
assets in mortgage-backed and asset-backed securities.
The
fund may also enter into various exchange-traded and over‑the‑counter derivative
transactions for both hedging and non‑hedging purposes, including for purposes
of enhancing returns. These derivative transactions include, but are not limited
to, futures, options and swaps.
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Fund |
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In
particular, the fund may use interest rate swaps, credit default swaps
(including buying and selling credit default swaps on individual securities
and/or baskets of securities), options (including options on credit default
swaps) and futures contracts to a significant extent, although the amounts
invested in these instruments may change from time to time. Other instruments
may also be used to a significant extent from time to
time.
Principal risks
Risk
is inherent in all investing. The value of your investment in the fund, as well
as the amount of return you receive on your investment, may fluctuate
significantly. You may lose part or all
of your investment in the fund or your investment may not perform as well as
other similar investments. An investment in the fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or by any
bank or government agency. The following is a summary
description of certain risks of investing in the
fund.
Market and interest
rate risk. The market prices of the
fund’s securities may go up or down, sometimes rapidly or unpredictably, due to
general market conditions, such as real or perceived adverse economic or
political conditions, tariffs and trade disruptions, inflation, substantial
economic downturn or recession, changes in interest rates, lack of liquidity in
the bond markets or adverse investor sentiment. If the market prices of the
fund’s securities fall, the value of your investment will decline. The value of
your investment will generally go down when interest rates rise. A rise in rates
tends to have a greater impact on the prices of longer term or duration
securities. A general rise in interest rates may cause investors to move out of
fixed income securities on a large scale, which could adversely affect the price
and liquidity of fixed income securities and could also result in increased
redemptions from the fund. Recently, there have been inflationary price
movements. As such, fixed income securities markets may experience heightened
levels of interest rate volatility and liquidity risk. Recently, the U.S.
Federal Reserve has been raising interest rates from historically low levels. It
may continue to raise interest rates. Any additional interest rate increases in
the future could cause the value of the fund’s holdings to decrease.
The
maturity of a security may be significantly longer than its duration. A
security’s maturity and other features may be more relevant than its duration in
determining the security’s sensitivity to other factors affecting the issuer or
markets generally such as changes in credit quality or in the yield premium that
the market may establish for certain types of
securities.
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.
Derivatives
risk. Using derivatives can increase
fund losses and reduce opportunities for gains, such as when market prices,
interest rates, currencies, or the derivatives themselves behave in a way not
anticipated by the fund’s subadviser. 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 asset, and those
differences may affect the amount, timing and character of income distributed to
shareholders. The U.S. government and foreign governments have adopted and
implemented or 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.
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.
Leverage
risk. The value of your investment may
be more volatile if the fund borrows or uses instruments, such as derivatives,
that have a leveraging effect on the fund’s portfolio. Other risks
described in the Prospectus also will be compounded because leverage generally
magnifies the effect of a change in the value of an asset and creates a risk of
loss of value on a larger pool of assets than the fund would otherwise have
had. The fund may also have to sell assets at inopportune times to satisfy
its obligations created by the use of leverage or derivatives. The use of
leverage is considered to be a speculative investment practice and may result in
the loss of a substantial amount, and possibly all, of the fund’s assets. In
addition, the fund’s portfolio will be leveraged if it exercises its right to
delay payment on a redemption, and losses will result if the value of the fund’s
assets declines between the time a redemption request is deemed to be received
by the fund and the time the fund liquidates assets to meet redemption requests.
Illiquidity
risk. Some assets held by the fund may
be or become impossible or difficult to sell and some assets that the fund wants
to invest in may be impossible or difficult to purchase, particularly during
times of market turmoil or due to adverse changes in the conditions of a
particular issuer. These illiquid assets may also be volatile and difficult to
value. Markets may become illiquid when, for instance, there are few, if any,
interested buyers or sellers or when dealers are unwilling or unable to make a
market for certain securities. As a general matter, dealers have been less
willing to make markets for fixed income securities. Federal banking regulations
may also cause certain dealers to reduce their inventories of certain
securities, which may further decrease the fund’s ability to buy or sell such
securities. During times of market turmoil, there have been, and may be, no
buyers or sellers for securities in entire asset classes. If the fund is forced
to sell an illiquid asset to meet redemption requests or other cash
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Western
Asset Core Bond Fund |
needs,
or to try to limit losses, the fund may be forced to sell at a substantial loss
or may not be able to sell at all. The fund may not receive its proceeds from
the sale of certain securities for an extended period (for example, several
weeks or even longer).
Foreign investments
and emerging markets risk. The fund’s investments in securities of
foreign issuers or issuers with significant exposure to foreign markets involve
additional risk as compared to investments in U.S. securities or issuers with
predominantly domestic exposure, such as less liquid, less transparent, less
regulated and more volatile markets. The value of the fund’s investments may
decline because of factors affecting the particular issuer as well as foreign
markets and issuers generally, such as unfavorable or unsuccessful government
actions, reduction of government or central bank support, inadequate accounting
standards and auditing and financial recordkeeping requirements, lack of
information, political, economic, financial or social instability, terrorism,
armed conflicts and other geopolitical events, and the impact of tariffs and
other restrictions on trade or economic sanctions. Geopolitical or other events
such as nationalization or expropriation could even cause the loss of the fund’s
entire investment in one or more countries.
In
addition, there may be significant obstacles to obtaining information necessary
for investigations into or litigation against issuers located in or operating in
certain foreign markets, particularly emerging market countries, and
shareholders may have limited legal remedies.
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 are affected by factors such as general economic and political
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.
Less
developed markets are more likely to experience problems with the clearing and
settling of trades and the holding of securities by local banks, agents and
depositories. Settlement of trades in these markets can take longer than in
other markets and the fund may not receive its proceeds from the sale of certain
securities for an extended period (possibly several weeks or even
longer).
The
risks of foreign investments are heightened when investing in issuers in
emerging market countries. Emerging market countries tend to have economic,
political and legal systems that are less developed and are less stable than
those of more developed countries. Their economies tend to be less diversified
than those of more developed countries. They typically have fewer medical and
economic resources than more developed countries, and thus they may be less able
to control or mitigate the effects of a pandemic or a natural disaster. They are
often particularly sensitive to market movements because their market prices
tend to reflect speculative expectations. Low trading volumes may result in
a lack of liquidity and in extreme price
volatility.
Prepayment or call
risk. Many issuers have a right to
prepay their fixed income securities. Issuers may be more likely to prepay their
securities if interest rates fall. If this happens, the fund may not benefit
from the rise in the market price of the securities that normally accompanies a
decline in interest rates, and will be forced to reinvest prepayment proceeds at
a time when yields on securities available in the market are lower than the
yield on prepaid securities. The fund may also lose any premium it paid to
purchase the securities.
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 fund’s share price to be
more volatile.
Risk of investing in
fewer issuers. To the extent the
fund invests its assets in a small number of issuers, or in issuers in related
businesses or that are subject to related operating risks, the fund will be more
susceptible to negative events affecting those issuers.
Valuation
risk. The sales price the fund could
receive for any particular portfolio investment may differ from the fund’s
valuation of the investment, particularly for securities that trade in thin or
volatile markets or that are valued using a fair value methodology. These
differences may increase significantly and affect fund investments more broadly
during periods of market volatility. Investors who purchase or redeem fund
shares on days when the fund is holding fair-valued securities may receive fewer
or more shares or lower or higher redemption proceeds than they would have
received if the fund had not fair-valued securities or had used a different
valuation methodology. The fund’s ability to value its investments may be
impacted by technological issues and/or errors by pricing services or other
third party service providers. The valuation of the fund’s investments involves
subjective judgment, which may prove to be incorrect.
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, armed conflicts, economic sanctions and countermeasures
in response to sanctions, major cybersecurity events, investor sentiment, the
global and domestic effects of a pandemic, and other factors that may or may not
be related to the issuer of the security or other asset. Economies and financial
markets throughout the world are increasingly interconnected. Economic,
financial or political events, trading and tariff arrangements, public health
events, terrorism, wars, natural disasters and other circumstances in one
country or 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 or markets directly affected, the
value and liquidity of the fund’s investments may be negatively affected.
Following Russia’s invasion of Ukraine, Russian stocks lost all, or nearly all,
of their market value. Other securities or markets could be similarly affected
by past or future geopolitical or other events or conditions. Furthermore,
events involving
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Fund |
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limited
liquidity, defaults, non‑performance or other adverse developments that affect
one industry, such as the financial services industry, or concerns or rumors
about any events of these kinds, have in the past and may in the future lead to
market-wide liquidity problems, may spread to other industries, and could
negatively affect the value and liquidity of the fund’s
investments.
The
fallout from the COVID‑19 pandemic and its subsequent variants, and the
long-term impact on economies, markets, industries and individual issuers, are
not known. Some sectors of the economy and individual issuers have experienced
or may experience particularly large losses. Periods of extreme volatility in
the financial markets; reduced liquidity of many instruments; and disruptions to
supply chains, consumer demand and employee availability, may continue for some
time.
Raising
the ceiling on U.S. government debt has become increasingly politicized. Any
failure to increase the total amount that the U.S. government is authorized to
borrow could lead to a default on U.S. government obligations, with
unpredictable consequences for economies and markets in the U.S. and elsewhere.
Recently, inflation and interest rates have increased and may rise further.
These circumstances could adversely affect the value and liquidity of the fund’s
investments, impair the fund’s ability to satisfy redemption requests, and
negatively impact the fund’s
performance.
The
United States and other countries are periodically involved in disputes over
trade and other matters, which may result in tariffs, investment restrictions
and adverse impacts on affected companies and securities. For example, the
United States has imposed tariffs and other trade barriers on Chinese exports,
has restricted sales of certain categories of goods to China, and has
established barriers to investments in China. Trade disputes may adversely
affect the economies of the United States and its trading partners, as well as
companies directly or indirectly affected and financial markets
generally. In addition, the Chinese government is involved in a
longstanding dispute with Taiwan that has included threats of invasion. If the
political climate between the United States and China does not improve or
continues to deteriorate, if China were to attempt unification of Taiwan by
force, or if other geopolitical conflicts develop or get worse, economies,
markets and individual securities may be severely affected both regionally and
globally, and the value of the fund’s assets may go
down.
LIBOR
risk. The fund’s investments, payment
obligations, and financing terms may be based on floating rates, such as the
London Interbank Offered Rate, or “LIBOR,” which is the offered rate for
short-term Eurodollar deposits between major international banks. In 2017, the
U.K. Financial Conduct Authority (“FCA”) announced its intention to cease
compelling banks to provide the quotations needed to sustain LIBOR after 2021.
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 the remaining 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.
In March 2022, the U.S. federal government enacted legislation to establish a
process for replacing LIBOR in certain existing contracts that do not already
provide for the use of a clearly defined or practicable replacement benchmark
rate as described in the legislation. Generally speaking, for contracts that do
not contain a fallback provision as described in the legislation, a benchmark
replacement recommended by the Federal Reserve Board will effectively
automatically replace the USD LIBOR benchmark in the contract after
June 30, 2023. The recommended benchmark replacement will be based on the
Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of
New York, including certain spread adjustments and benchmark replacement
conforming changes. Various financial industry groups have been planning for the
transition away from LIBOR, but there remains uncertainty regarding the impact
of the transition from LIBOR on the fund’s transactions and the financial
markets generally. The transition away from LIBOR may lead to increased
volatility and illiquidity in markets that rely on LIBOR and may adversely
affect the fund’s 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.
Hedging
risk. There can be no assurance
that the fund will engage in hedging transactions at any given time, even under
volatile market conditions, or that any hedging transactions the fund engages in
will be successful. Hedging transactions involve costs and may reduce gains
or result in losses.
Cash management and
defensive investing risk. The value of
the investments held by the fund for cash management or defensive investing
purposes can fluctuate. Like other fixed income securities, they are subject to
risk, including market, interest rate and credit risk. If the fund holds cash
uninvested, the cash will be subject to the credit risk of the depository
institution holding the cash and the fund will not earn income on the cash. If a
significant amount of the fund’s assets is used for cash management or defensive
investing purposes, the fund will be less likely to achieve its investment
objective. Defensive investing may not work as intended and the value of an
investment in the fund may still decline.
U.S. government
securities risk. The fund may hold U.S.
government securities that are not guaranteed or backed by the full faith and
credit of the U.S. government, such as those issued by Fannie Mae and Freddie
Mac. The maximum potential liability of the issuers of some U.S. government
obligations may greatly exceed their current resources, including any legal
right to support from the U.S. government. In addition, the events surrounding
the U.S. federal government debt ceiling and any resulting agreement (and
similar political, economic and other developments) could adversely affect the
fund’s ability to achieve its investment objective. For example, a downgrade of
the long-term sovereign credit rating of the U.S. could increase volatility in
both stock and bond markets, result in higher interest rates and lower Treasury
prices and increase the costs of all kinds of debt. These events and similar
events in other areas of the world could have significant adverse effects on the
economy generally and could result in significant adverse impacts on issuers of
securities held by the fund and the fund itself.
In
the past, the values of U.S. Government securities have been affected
substantially by increased demand for them around the world. Changes in the
demand for U.S. Government securities may occur at any time and may result in
increased volatility in the values of those
securities.
|
|
|
|
| |
| 6 |
|
| |
Western
Asset Core Bond Fund |
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. The ability of an issuer of
asset-backed securities to enforce its security interest in the underlying
assets may be limited, and therefore certain asset-backed securities present a
heightened level of risk.
Portfolio management
risk. The value of your investment may
decrease if the subadvisers’ judgment about the quality, relative yield, value
or market trends affecting a particular security, industry, sector or region, or
about interest rates or other market factors, is incorrect or does not produce
the desired results, or if there are imperfections, errors or limitations in the
models, tools and data used by the subadvisers. In addition, the fund’s
investment strategies or policies may change from time to time. Those changes
may not lead to the results intended by the subadvisers and could have an
adverse effect on the value or performance of the fund.
Portfolio turnover
risk. Active and frequent trading will
increase a shareholder’s tax liability and the fund’s transaction costs, which
could detract from fund performance.
Redemption
risk. The fund may experience heavy
redemptions that could cause the fund to liquidate its assets at inopportune
times or unfavorable prices or increase or accelerate taxable gains or
transaction costs and may negatively affect the fund’s net asset value,
performance, or ability to satisfy redemptions in a timely manner, which could
cause the value of your investment to decline.
Cybersecurity
risk. Cybersecurity incidents, whether
intentionally caused by third parties or otherwise, 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, the
manager, the subadvisers and/or their service providers (including, but not
limited to, fund accountants, custodians, sub‑custodians, transfer agents and
financial intermediaries) to suffer data breaches, data corruption or loss of
operational functionality, or prevent fund investors from purchasing, redeeming
or exchanging shares, receiving distributions or receiving timely information
regarding the fund or their investment in the fund. The fund, the manager, 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, the manager,
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 or mitigate 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.
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 fund’s ability to plan for or respond to a cyber attack. Like
other funds and business enterprises, the fund, the manager, the subadvisers and
their service providers are subject to the risk of cyber incidents occurring
from time to time.
These
and other risks are discussed in more detail in the Prospectus or in the
Statement of Additional Information.
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
7 |
|
Performance
The
accompanying bar chart and table provide some indication of the risks of
investing in the fund. The bar chart
shows changes in the fund’s performance from year to year for Class I
shares. The table shows the average annual total returns of each class of
the fund that has been in operation for at least one full calendar year and also
compares the fund’s performance with the average annual total returns of an
index or other benchmark. Performance for classes other
than those shown may vary from the performance shown to the extent the expenses
for those classes differ. The fund makes updated performance information,
including its current net asset value, available at www.franklintempleton.com/mutualfunds
(select fund and share class), or by calling the fund at
877‑6LM‑FUND/656‑3863.
The fund’s past performance
(before and after taxes) is not necessarily an indication of how the fund will
perform in the
future.
Sales charges are not reflected in
the accompanying bar chart, and if those charges were included, returns would be
less than those shown.
Best Quarter (06/30/2020): 5.65 Worst
Quarter (03/31/ 2022): (7.78)
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Average annual total returns (%)
|
|
| (for periods ended
December 31, 2022) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Class I |
|
|
1 year |
|
|
|
5 years |
|
|
|
10 years |
|
| Return
before taxes |
|
|
(16.93) |
|
|
|
(0.48) |
|
|
|
1.33 |
|
| Return
after taxes on distributions |
|
|
(17.85) |
|
|
|
(1.68) |
|
|
|
0.14 |
|
| Return
after taxes on distributions and sale of fund shares |
|
|
(10.00) |
|
|
|
(0.78) |
|
|
|
0.54 |
|
|
|
|
| |
| Other Classes
(Return before taxes only) |
|
|
|
|
|
|
|
|
|
|
|
|
| Class A |
|
|
(20.75) |
|
|
|
(1.70) |
|
|
|
0.51 |
|
| Class C |
|
|
(18.54) |
|
|
|
(1.53) |
|
|
|
0.24 |
|
| Class C1 |
|
|
(18.39) |
|
|
|
(1.21) |
|
|
|
0.57 |
|
| Class FI |
|
|
(17.22) |
|
|
|
(0.83) |
|
|
|
0.99 |
|
| Class R |
|
|
(17.47) |
|
|
|
(1.16) |
|
|
|
0.65 |
|
| Class IS |
|
|
(16.87) |
|
|
|
(0.44) |
|
|
|
1.37 |
|
| Bloomberg
U.S. Aggregate Index (reflects no deduction for fees, expenses or
taxes) |
|
|
(13.01) |
|
|
|
0.02 |
|
|
|
1.06 |
|
The after‑tax returns are shown
only for Class I shares, are calculated using the historical highest
individual federal marginal income tax rates and do not reflect the impact of
state and local taxes. Actual after‑tax returns
depend on an investor’s tax situation and may differ from those shown, and the
after‑tax returns shown are not relevant to investors who hold their fund shares
through tax‑deferred arrangements, such as 401(k) plans or individual retirement
accounts. After‑tax returns for classes other than Class I
will vary from returns shown for Class I. Returns after taxes on
distributions and sale of fund shares are higher than returns before taxes for
certain periods shown because they reflect the tax benefit of capital losses
realized on the redemption of fund
shares.
Management
Investment
manager: Legg Mason Partners Fund
Advisor, LLC (“LMPFA”)
Subadvisers: Western Asset Management Company, LLC (“Western
Asset”) and Western Asset Management Company Limited in London (“Western Asset
London”). References to the “subadviser” include each applicable subadviser.
Investment
professionals: Primary responsibility
for the day‑to‑day management of the fund lies with the following investment
professionals. These investment professionals, all of whom are employed by
Western Asset, work together with a broader investment management team.
|
|
|
|
| |
| 8 |
|
| |
Western
Asset Core Bond Fund |
|
|
|
|
| |
| Investment professional |
|
Title |
|
Investment professional of the fund since |
| |
|
|
|
S.
Kenneth Leech |
|
Chief
Investment Officer |
|
2013* |
| |
|
|
|
John
Bellows |
|
Portfolio Manager and Research Analyst |
|
2018 |
| |
|
|
|
Mark
S. Lindbloom |
|
Portfolio
Manager |
|
2006 |
| |
|
|
|
Frederick
R. Marki |
|
Portfolio
Manager |
|
2018 |
| |
|
|
|
Julien
A. Scholnick |
|
Portfolio
Manager |
|
2016 |
| * |
In
addition, Mr. Leech had previously served as a member of the
portfolio management team of the fund. |
Purchase and sale of fund
shares
You
may purchase, redeem or exchange shares of the fund each day the New York Stock
Exchange is open, at the fund’s net asset value determined after receipt of your
request in good order, subject to any applicable sales charge.
The
fund’s initial and subsequent investment minimums generally are set forth in the
accompanying table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Investment minimum initial/additional investment
($) |
|
|
|
|
| |
|
Class A |
|
Class C1 |
|
Class C12 |
|
Class FI3 |
|
Class R |
|
Class I |
|
Class IS |
| General |
|
1,000/50 |
|
1,000/50 |
|
1,000/50 |
|
N/A |
|
N/A |
|
1 million/None4 |
|
N/A |
| Uniform
Gifts or Transfers to Minor Accounts |
|
1,000/50 |
|
1,000/50 |
|
1,000/50 |
|
N/A |
|
N/A |
|
1 million/None4 |
|
N/A |
| IRAs |
|
250/50 |
|
250/50 |
|
250/50 |
|
N/A |
|
N/A |
|
1 million/None4,5 |
|
N/A5 |
| SIMPLE
IRAs |
|
None/None |
|
None/None |
|
None/None |
|
N/A |
|
N/A |
|
1 million/None4 |
|
N/A |
| Systematic
Investment Plans |
|
25/25 |
|
25/25 |
|
25/25 |
|
N/A |
|
N/A |
|
1 million/None4,6 |
|
N/A6 |
| Clients
of Eligible Financial Intermediaries |
|
None/None |
|
N/A |
|
N/A |
|
None/None |
|
None/None |
|
None/None7 |
|
None/None7 |
| Eligible
Investment Programs |
|
None/None |
|
N/A |
|
N/A |
|
None/None |
|
None/None |
|
None/None |
|
None/None |
| Omnibus
Retirement Plans |
|
None/None |
|
None/None |
|
N/A |
|
None/None |
|
None/None |
|
None/None |
|
None/None |
| Individual
Retirement Plans except as noted |
|
None/None |
|
None/None |
|
N/A |
|
N/A |
|
N/A |
|
1 million/None4 |
|
N/A |
| Institutional
Investors |
|
1,000/50 |
|
1,000/50 |
|
1,000/50 |
|
N/A |
|
N/A |
|
1
million/None |
|
1 million/None |
| 1 |
Initial
investments in Class C shares may be combined with existing
investment amounts in Class C1 shares for the purposes of satisfying
the initial investment minimums of Class C shares. Class C
shares are not available for purchase through Distributor
Accounts. |
| 2 |
Class
C1 shares are not available for purchase by new or existing investors
(except for certain retirement plan programs authorized by the Distributor
prior to August 1, 2012). Class C1 shares will continue to be
available for dividend reinvestment and incoming
exchanges. |
| 3 |
Class
FI shares are not available for purchase through Distributor
Accounts. |
| 4 |
Available
to investors investing directly with the fund. |
| 5 |
IRA
accountholders who purchase Class I or Class IS shares through a
Service Agent acting as agent on behalf of its customers are subject to
the initial and subsequent minimums of $250/$50. If a Service Agent does
not have this arrangement in place with the Distributor, the initial and
subsequent minimums listed in the table apply. Please contact your Service
Agent for more information. |
| 6 |
Investors
investing through a Systematic Investment Plan who purchase Class I
or Class IS shares through a Service Agent acting as agent on behalf
of its customers are subject to the initial and subsequent minimums of
$25/$25. If a Service Agent does not have this arrangement in place with
the Distributor, the initial and subsequent minimums listed in the table
apply. Please contact your Service Agent for more
information. |
| 7 |
Individual
investors who purchase Class I shares or Class IS shares through
a Service Agent acting as agent on behalf of its customers are subject to
the initial and subsequent minimums of $1,000/$50. If a Service Agent does
not have this arrangement in place with the Distributor, the initial and
subsequent minimums listed in the table apply. Please contact your Service
Agent for more information. |
Your
Service Agent may impose higher or lower investment minimums, or may impose no
minimum investment requirement.
For
more information about how to purchase, redeem or exchange shares, and to learn
which classes of shares are available to you, you should contact your Service
Agent, or, if you hold your shares or plan to purchase shares through the fund,
you should contact the fund by phone at 877-
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
9 |
|
6LM‑FUND/656‑3863,
by regular mail at Legg Mason Funds, P.O. Box 33030, St. Petersburg, FL
33733-8030 or by express, certified or registered mail at Legg Mason Funds, 100
Fountain Parkway, St. Petersburg, FL 33716-1205.
Tax information
The
fund’s distributions are generally taxable as ordinary income or capital
gains.
Payments to
broker/dealers and other financial intermediaries
The
fund’s related companies pay Service Agents for the sale of fund shares,
shareholder services and other purposes. These payments create a conflict of
interest by influencing your Service Agent or its employees or associated
persons to recommend the fund over another investment. Ask your financial
adviser or salesperson or visit your Service Agent’s or salesperson’s website
for more information.
|
|
|
|
| |
| 10 |
|
| |
Western
Asset Core Bond Fund |
More on the fund’s
investment strategies, investments and risks
Important information
The
fund seeks to maximize total return, consistent with prudent investment
management and liquidity needs, by investing to obtain the average duration
specified below.
There
is no assurance that the fund will meet its investment objective.
The
fund will consider an issuer to be a “non‑U.S. issuer” if the issuer is a
non‑U.S. government (including any sub‑division, agency or instrumentality of a
non‑U.S. government), a supranational entity or any other issuer (including
corporate issuers) organized under the laws of a country outside of the United
States and having a principal place of business outside of the United States.
The fund will consider all other issuers to be “U.S. issuers.”
The
fund invests in a portfolio of fixed income securities of various maturities
and, under normal market conditions, will invest at least 80% of its net assets
in debt and fixed income securities.
The
fund’s 80% investment policy may be changed by the Board without shareholder
approval upon 60 days’ prior notice to shareholders.
The
fund’s other investment strategies and policies may be changed from time to time
without shareholder approval, unless specifically stated otherwise in this
Prospectus or in the SAI.
Maturity and duration
The
fund may invest in securities of any maturity. The maturity of a fixed income
security is a measure of the time remaining until the final payment on the
security is due. Under normal market conditions the target dollar-weighted
average effective duration for the fund is expected to range within 20% of the
average duration of the domestic bond market as a whole as estimated by the
fund’s subadviser. The dollar-weighted average effective duration of the fund
may fall outside of its expected range due to market movements. If this happens,
the fund’s subadviser will take action to bring the fund’s dollar-weighted
average effective duration back within its expected range within a reasonable
period of time.
Effective
duration seeks to measure the expected sensitivity of market price to changes in
interest rates, taking into account the anticipated effects of particular
features of a security (for example, some bonds can be prepaid by the issuer).
The assumptions that are made about a security’s features and options when
calculating effective duration may prove to be incorrect. As a result, investors
should be aware that effective duration is not an exact measurement and may not
reliably predict a security’s price sensitivity to changes in yield or interest
rates.
Generally,
the longer a fund’s effective duration, the more sensitive it will be to changes
in interest rates. For example, if interest rates rise by 1%, a fund with a
two‑year effective duration would expect the value of its portfolio to decrease
by 2% and a fund with a ten‑year effective duration would expect the value of
its portfolio to decrease by 10%, all other factors being equal.
The
maturity of a security may be significantly longer than its effective duration.
A security’s maturity may be more relevant than its effective duration in
determining the security’s sensitivity to other factors such as changes in
credit quality or in the difference in yield between U.S. Treasuries and certain
other types of securities.
Credit quality
The
fund currently anticipates that it will generally only purchase debt securities
that are rated in the Baa or BBB categories or above at the time of purchase by
one or more NRSROs or unrated securities of comparable quality at the time of
purchase (as determined by the subadviser). These securities are known as
“investment grade securities.” The continued holding of a security downgraded
below its rating at the time of purchase will be evaluated on a case by case
basis. As a result, the fund may from time to time hold debt securities that are
rated below investment grade in excess of the amounts described in its
investment limitations. Securities rated below investment grade are commonly
referred to as “junk” bonds or “high yield securities.” High yield bonds are
those rated below investment grade (that is, securities rated below the Baa/BBB
categories) or, if unrated, determined to be of comparable credit quality by the
subadviser. 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. Rating categories may include sub‑categories or gradations indicating
relative standing.
Derivatives
The
fund may engage in a variety of transactions using derivatives, such as futures,
options (including options on credit default swaps), swaps (including interest
rate swaps and buying and selling credit default swaps), forwards, warrants and
other synthetic instruments. Derivatives are financial instruments whose value
depends upon, or is derived from, the value of something else, such as one or
more underlying investments, indexes or currencies. Derivatives may be used by
the fund for any of the following purposes:
| • |
|
As
a hedging technique in an attempt to manage risk in the fund’s
portfolio |
| • |
|
As
a substitute for buying or selling securities |
| • |
|
As
a means of changing investment characteristics of the fund’s
portfolio |
| • |
|
As
a cash flow management technique |
| • |
|
As
a means of attempting to enhance returns |
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
11 |
|
| • |
|
As
a means of providing additional exposure to types of investments or market
factors |
The
fund from time to time may sell protection on debt securities by entering into
credit default swaps. In these transactions, the fund is generally required to
pay the par (or other agreed-upon) value of a referenced debt security to the
counterparty in the event of a default on or downgrade of the debt security
and/or a similar credit event. In return, the fund receives from the
counterparty a periodic stream of payments over the term of the contract. If no
default occurs, the fund keeps the stream of payments and has no payment
obligations. As the seller, the fund would effectively add leverage to its
portfolio because, in addition to its net assets, the fund would be subject to
loss on the par (or other agreed-upon) value it had undertaken to pay. Credit
default swaps may also be structured based on an index or the debt of a basket
of issuers, rather than a single issuer, and may be customized with respect to
the default event that triggers purchase or other factors (for example, a
particular number of defaults within a basket, or defaults by a particular
combination of issuers within the basket, may trigger a payment
obligation).
The
fund may buy credit default swaps to hedge against the risk of default of debt
securities held in its portfolio or for other reasons. As the buyer of a
credit default swap, the fund would make the stream of payments described in the
preceding paragraph to the seller of the credit default swap and would expect to
receive from the seller a payment in the event of a default on the underlying
debt security or other specified event.
Using
derivatives, especially for non‑hedging purposes, may involve greater risks to
the fund than investing directly in securities, particularly as these
instruments may be very complex and may not behave in the manner anticipated by
the fund. Certain derivative transactions may have a leveraging effect on the
fund.
Use
of derivatives or similar instruments may have different tax consequences for
the fund than an investment in the underlying asset, and those differences may
affect the amount, timing and character of income distributed to
shareholders.
Instead
of, and/or in addition to, investing directly in particular securities, the fund
may use derivatives and other synthetic instruments that are intended to provide
economic exposure to securities, issuers or other measures of market or economic
value. The fund may use one or more types of these instruments to the extent
consistent with its 80% policy. The fund’s investments in derivatives and other
synthetic instruments that the subadviser believes have economic characteristics
similar to those securities described in the fund’s 80% investment policy will
be counted towards satisfaction of that investment policy.
Rule
18f‑4 under the Investment Company Act of 1940, as amended, which became
effective August 19, 2022, governs the use of derivative investments and
certain financing transactions (e.g. reverse repurchase agreements) by
registered investment companies. Among other things, Rule 18f‑4 requires funds
that invest in derivative instruments beyond a specified limited amount to apply
a value‑at‑risk based limit to their use of certain derivative instruments and
financing transactions and to adopt and implement a derivatives risk management
program. A fund that uses derivative instruments in a limited amount is not
subject to the full requirements of Rule 18f‑4. Compliance with Rule 18f‑4 by
the fund could, among other things, make derivatives more costly, limit their
availability or utility, or otherwise adversely affect their performance. Rule
18f‑4 may limit the fund’s ability to use derivatives as part of its investment
strategy.
The
fund’s subadvisers may choose not to make use of derivatives.
Fixed income securities
Fixed
income securities represent obligations of corporations, governments and other
entities to repay money borrowed, usually at the maturity of the security. These
securities may pay fixed, variable or floating rates of interest. However, some
fixed income securities, such as zero coupon bonds, do not pay current interest
but are issued at a discount from their face values. Other debt instruments,
such as certain mortgage-backed and other asset-backed securities, make periodic
payments of interest and/or principal. Some debt instruments are partially or
fully secured by collateral supporting the payment of interest and principal.
“Fixed income securities” are commonly referred to as “fixed income
instruments,” “fixed income obligations,” “notes,” “loans,” “debt,” “debt
obligations,” “debt instruments,” “debt securities,” “corporate debt,” “bonds”
and “corporate bonds.” Fixed income securities also include certain hybrid
securities, such as preferred stock. When these terms are used in this
Prospectus, they are not intended to be limiting.
Variable and floating
rate securities
Variable
rate securities reset at specified intervals, while floating rate securities
reset whenever there is a change in a specified index rate. In most cases,
these reset provisions reduce the impact of changes in market interest rates on
the value of the security. However, the value of these securities may
decline if their interest rates do not rise as much, or as quickly, as other
interest rates. Conversely, these securities will not generally increase in
value if interest rates decline. The fund may also invest in inverse floating
rate debt instruments (“inverse floaters”). Interest payments on inverse
floaters vary inversely with changes in interest rates. Inverse floaters pay
higher interest (and therefore generally increase in value) when interest rates
decline, and vice versa. An inverse floater may exhibit greater price volatility
than a fixed rate obligation of similar credit quality.
Stripped securities
Certain
fixed income securities, called stripped securities, represent the right to
receive either payments of principal (“POs”) or payments of interest (“IOs”) on
underlying pools of mortgages or on government securities. The value of these
types of instruments may change more drastically during periods of changing
interest rates than debt securities that pay both principal and interest.
Interest-only and principal-only mortgage-backed securities are especially
sensitive to interest rate changes, which can affect not only their prices but
can also change the prepayment assumptions about those investments and income
flows the fund receives from them.
|
|
|
|
| |
| 12 |
|
| |
Western
Asset Core Bond Fund |
Corporate debt
Corporate
debt securities are fixed income securities usually issued by businesses to
finance their operations. Various types of business entities may issue these
securities, including corporations, trusts, limited partnerships, limited
liability companies and other types of non‑governmental legal
entities. Notes, bonds, debentures and commercial paper are the most common
types of corporate debt securities, with the primary difference being their
maturities and secured or unsecured status. Commercial paper has the shortest
term and is usually unsecured. The broad category of corporate debt securities
includes debt issued by U.S. or non‑U.S. companies of all kinds, including those
with small, mid and large capitalizations. Corporate debt may carry variable or
floating rates of interest.
Loans
The
primary risk in an investment in loans is that borrowers may be unable to meet
their interest and/or principal payment obligations. Loans in which the fund
invests may be made to finance highly leveraged borrowers which may make such
loans especially vulnerable to adverse changes in economic or market conditions.
Loans in which the fund may invest may be either collateralized or
uncollateralized and senior or subordinate. Investments in uncollateralized
and/or subordinate loans entail a greater risk of nonpayment than do investments
in loans that hold a more senior position in the borrower’s capital structure
and/or are secured with collateral. In addition, loans are generally subject to
illiquidity risk. The fund may acquire an interest in loans by purchasing
participations in and/or assignments of portions of loans from third parties or
by investing in pools of loans, such as collateralized debt obligations as
further described under “Mortgage-backed and asset-backed securities.”
Transactions in loans may settle on a delayed basis. As a result, the proceeds
from the sale of a loan may not be available to make additional investments or
to meet the fund’s redemption obligations. Bank loans may not be considered
securities and therefore, the fund may not have the protections afforded by U.S.
federal securities laws with respect to such investments.
U.S. government
obligations
U.S.
government obligations include U.S. Treasury obligations and other obligations
of, or guaranteed by, the U.S. government, its agencies or government-sponsored
entities. Although the U.S. government guarantees principal and interest
payments on securities issued by the U.S. government and some of its agencies,
such as securities issued by the U.S. Government National Mortgage Association
(“Ginnie Mae”), this guarantee does not apply to losses resulting from declines
in the market value of these securities. U.S. government obligations include
zero coupon securities that make payments of interest and principal only upon
maturity and which therefore tend to be subject to greater volatility than
interest bearing securities with comparable maturities.
Some
of the U.S. government securities that the fund may hold are not guaranteed or
backed by the full faith and credit of the U.S. government, such as those issued
by Fannie Mae (formally known as the Federal National Mortgage Association) and
Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation). The
maximum potential liability of the issuers of some U.S. government obligations
may greatly exceed their current resources, including any legal right to support
from the U.S. government.
Sovereign debt
The
fund may invest in sovereign debt, including emerging market sovereign debt.
Sovereign debt securities may include:
| • |
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Fixed
income securities issued or guaranteed by governments, governmental
agencies or instrumentalities and their political
subdivisions |
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Fixed
income securities issued by government-owned, controlled or sponsored
entities |
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Interests
issued for the purpose of restructuring the investment characteristics of
instruments issued by any of the above issuers |
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Brady
Bonds, which are debt securities issued under the framework of the Brady
Plan as a means for debtor nations to restructure their outstanding
external indebtedness |
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Participations
in loans between governments and financial
institutions |
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Fixed
income securities issued by supranational entities such as the World Bank.
A supranational entity is a bank, commission or company established or
financially supported by the national governments of one or more countries
to promote reconstruction or development |
Sovereign
government and supranational debt involve many of the risks of foreign and
emerging markets investments as well as the risk of debt moratorium, repudiation
or renegotiation and the fund may be unable to enforce its rights against the
issuers.
Mortgage-backed and
asset-backed securities
Mortgage-backed
securities may be issued by private issuers, by U.S. government-sponsored
entities such as Fannie Mae or Freddie Mac or by agencies of the U.S.
government, such as Ginnie Mae. Mortgage-backed securities represent direct or
indirect participations in, or are collateralized by and payable from, mortgage
loans secured by real property.
Unlike
mortgage-backed securities issued or guaranteed by agencies of the U.S.
government or government-sponsored entities, mortgage-backed securities issued
by private issuers do not have a government or government-sponsored entity
guarantee (but may have other credit enhancement), and may, and frequently do,
have less favorable collateral, credit risk or other underwriting
characteristics.
Residential
mortgage-backed securities (“RMBS”) are comprised of a pool of mortgage loans
created by banks and other financial institutions. Commercial mortgage-backed
securities (“CMBS”) are a type of mortgage-backed security backed by commercial
mortgages rather than residential real estate.
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Asset-backed
securities represent participations in, or are secured by and payable from,
assets such as installment sales or loan contracts, leases, credit card
receivables and other categories of receivables.
Collateralized
mortgage obligations (“CMOs”) are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. CMOs are a type of mortgage-backed
security. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or
Freddie Mac Certificates, but may also be collateralized by whole loans or
private pass-throughs (referred to as “Mortgage Assets”). Payments of principal
and of interest on the Mortgage Assets, and any reinvestment income thereon,
provide the issuer with income to pay debt service on the CMOs. In a CMO, a
series of bonds or certificates is issued in multiple classes. Each class of
CMOs, often referred to as a “tranche,” is issued at a specified fixed or
floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
As market conditions change, and particularly during periods of rapid or
unanticipated changes in market interest rates, the attractiveness of the CMO
classes and the ability of the structure to provide the anticipated investment
characteristics may be significantly reduced. Such changes can result in
volatility in the market value, and in some instances reduced liquidity, of the
CMO class.
Collateralized
debt obligations (“CDOs”) are a type of asset-backed security. CDOs include
collateralized bond obligations (“CBOs”), collateralized loan obligations
(“CLOs”) and other similarly structured securities. A CBO is a trust or other
special purpose entity which is typically backed by a diversified pool of fixed
income securities (which may include high risk, below investment grade
securities). A CLO is a trust or other special purpose entity that is typically
collateralized by a pool of loans, which may also include, among others,
domestic and non‑U.S. senior secured loans, senior unsecured loans, and
subordinated corporate loans, including loans that may be rated below investment
grade or equivalent unrated loans. Like CMOs, CDOs generally issue separate
series or “tranches” which vary with respect to risk and yield. These tranches
can experience substantial losses due to actual defaults, increased sensitivity
to defaults due to collateral default and disappearance of subordinate tranches,
market anticipation of defaults, as well as investor aversion to CDO securities
as a class. Interest on certain tranches of a CDO may be paid in kind (paid in
the form of obligations of the same type rather than cash), which involves
continued exposure to default risk with respect to such payments.
Municipal securities
Municipal
securities include debt obligations issued by any of the 50 U.S. states and the
District of Columbia or their political subdivisions, agencies and public
authorities, certain other U.S. governmental issuers (such as Puerto Rico, the
U.S. Virgin Islands and Guam) and other qualifying issuers, participation or
other interests in these securities and other structured securities. Although
municipal securities are issued by qualifying issuers, payments of principal and
interest on municipal securities may be derived solely from revenues from
certain facilities, mortgages or private industries, and may not be backed by
the issuers themselves. These securities include participation or other
interests in municipal securities issued or backed by banks, insurance companies
and other financial institutions.
Municipal
securities include general obligation bonds, revenue bonds, housing authority
bonds, private activity bonds, industrial development bonds, residual interest
bonds, tender option bonds, tax and revenue anticipation notes, bond
anticipation notes, tax‑exempt commercial paper, municipal leases, participation
certificates and custodial receipts. General obligation bonds are backed by the
full faith and credit of the issuing entity. Revenue bonds are typically used to
fund public works projects, such as toll roads, airports and transportation
facilities, that are expected to produce income sufficient to make the payments
on the bonds, since they are not backed by the full taxing power of the
municipality. Housing authority bonds are used primarily to fund low to middle
income residential projects and may be backed by the payments made on the
underlying mortgages. Tax and revenue anticipation notes are generally issued in
order to finance short-term cash needs or, occasionally, to finance
construction. Tax and revenue anticipation notes are expected to be repaid from
taxes or designated revenues in the related fiscal period, and they may or may
not be general obligations of the issuing entity. Bond anticipation notes
are issued with the expectation that their principal and interest will be paid
out of proceeds from renewal notes or bonds and may be issued to finance such
items as land acquisition, facility acquisition and/or construction and capital
improvement projects.
Municipal
securities include municipal lease obligations, which are undivided interests
issued by a state or municipality in a lease or installment purchase contract
which generally relates to equipment or facilities. In some cases, payments
under municipal leases do not have to be made unless money is specifically
approved for that purpose by an appropriate legislative body.
Foreign and emerging
markets securities
The
fund may invest its assets in securities of foreign issuers, including
mortgage-backed securities and asset-backed securities issued by foreign
entities. The value of the fund’s foreign securities may decline because of
unfavorable government actions, political instability or the more limited
availability of accurate information about foreign issuers, as well as factors
affecting the particular issuers. The fund may invest in foreign securities
issued by issuers located in emerging market countries. The fund considers a
country to be an emerging market country, if, at the time of investment, it is
represented in the J.P. Morgan Emerging Market Bond Index Global or the J.P.
Morgan Corporate Emerging Market Bond Index Broad or categorized by the World
Bank in its annual categorization as middle- or low‑income. To the extent the
fund invests in these securities, the risks associated with investment in
foreign issuers will generally be more pronounced.
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Preferred stock and
convertible securities
The
fund may invest in preferred stock and convertible securities, including
contingent convertible securities (“CoCos”). Preferred stock represents equity
ownership of an issuer that generally entitles the holder to receive, in
preference to the holders of common stock, dividends and a fixed share of the
proceeds resulting from a liquidation of the company. Preferred stocks may pay
dividends at fixed or variable rates. Convertible fixed income securities
convert into shares of common stock of their issuer. Preferred stock and
convertible fixed income securities share investment characteristics of both
fixed income and equity securities. However, the value of these securities tends
to vary more with fluctuations in the underlying common stock and less with
fluctuations in interest rates and tends to exhibit greater volatility.
Equity securities
Although
the fund invests principally in fixed income securities and related investments,
the fund may from time to time invest in or receive equity securities and
equity-like securities, which may include warrants, rights, exchange traded and
over‑the‑counter common stocks, preferred stock, depositary receipts, trust
certificates, limited partnership interests and shares of other investment
companies, including exchange-traded funds, and real estate investment trusts.
The fund may invest in or receive equity securities for which there exists no
private or public market.
Equity
securities represent an ownership interest in the issuing company. Holders of
equity securities are not creditors of the company, and in the event of the
liquidation of the company, would be entitled to their pro rata share of the
company’s assets, if any, after creditors, including the holders of fixed income
securities, and holders of any senior equity securities are paid. Equity
securities typically fluctuate in price more than fixed income securities.
Warrants
and rights permit, but do not obligate, their holders to subscribe for other
securities. Warrants and rights are subject to the same market risks as stocks,
but may be more volatile in price. An investment in warrants or rights may be
considered speculative. In addition, the value of a warrant or right does not
necessarily change with the value of the underlying securities and a warrant or
right ceases to have value if it is not exercised prior to its expiration
date.
Securities of other
investment companies
The
fund may invest in securities of other investment companies to the extent
permitted under the Investment Company Act of 1940, as amended, and the rules
thereunder (the “1940 Act”). The return on investments in other registered
investment companies will be reduced by the operating expenses, including
investment advisory expenses, of such companies, and by any sales loads or other
distribution and/or service fees or charges incurred in purchasing or selling
shares of such companies, in addition to the fund’s own fees and expenses. As
such, there is a layering of fees and expenses.
Credit downgrades and
other credit events
Credit
rating or credit quality of a security is determined at the time of
purchase. If, after purchase, the credit rating on a security is downgraded
or the credit quality deteriorates, or if the duration of a security is
extended, the subadvisers will decide whether the security should be held or
sold. Upon the occurrence of certain triggering events or defaults on a security
held by the fund, or if an obligor of such a security has difficulty meeting its
obligations, the fund may obtain a new or restructured security or underlying
assets. In that case, the fund may become the holder of securities or other
assets that it could not purchase or might not otherwise hold (for example,
because they are of lower quality or are subordinated to other obligations of
the issuer) at a time when those assets may be difficult to sell or can be sold
only at a loss. In addition, the fund may incur expenses in an effort to
protect the fund’s interest in securities experiencing these events.
Zero coupon, pay‑in‑kind
and deferred interest securities
Zero
coupon, pay‑in‑kind and deferred interest securities may be used by issuers to
manage cash flow and maintain liquidity. Zero coupon securities pay no interest
during the life of the obligation but are issued at prices below their stated
maturity value. Because zero coupon securities pay no interest until maturity,
their prices may fluctuate more than other types of securities with the same
maturity in the secondary market. However, zero coupon bonds are useful as a
tool for managing duration.
Pay‑in‑kind
securities have a stated coupon, but the interest is generally paid in the form
of obligations of the same type as the underlying pay‑in‑kind securities (e.g.,
bonds) rather than in cash. These securities are more sensitive to the credit
quality of the underlying issuer and their secondary market prices may fluctuate
more than other types of securities with the same maturity.
Deferred
interest securities are obligations that generally provide for a period of delay
before the regular payment of interest begins and are issued at a significant
discount from face value.
Certain
zero coupon, pay‑in‑kind and deferred interest securities are subject to tax
rules applicable to debt obligations acquired with “original issue discount.”
The fund would generally have to accrue income on these securities for federal
income tax purposes before it receives corresponding cash payments. Because the
fund intends to make sufficient annual distributions of its taxable income,
including accrued non‑cash income, in order to maintain its federal income tax
status and avoid fund-level income and excise taxes, the fund might be required
to liquidate portfolio securities at a disadvantageous time, or borrow cash, to
make these distributions. The fund also accrues income on these securities prior
to receipt for accounting purposes. To the extent it is deemed collectible,
accrued income is taken into account when calculating the value of these
securities and the fund’s net asset value per share, in accordance with the
fund’s valuation policies.
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When-issued securities,
delayed delivery, to be announced and forward commitment transactions
Securities
purchased in when-issued, delayed delivery, to be announced or forward
commitment transactions will not be delivered or paid for immediately. Such
transactions involve a risk of loss, for example, if the value of the securities
declines prior to the settlement date. Therefore, these transactions may have a
leveraging effect on the fund, making the value of an investment in the fund
more volatile and increasing the fund’s overall investment exposure. Typically,
no income accrues on securities the fund has committed to purchase prior to the
time delivery of the securities is made. Financial Industry Regulatory Authority
(“FINRA”) rules may impose mandatory margin requirements for certain types of
when-issued, to be announced or forward commitment transactions, with limited
exceptions.
Forward roll transactions
In
a forward roll transaction (also referred to as a mortgage dollar roll), the
fund sells a mortgage-backed security while simultaneously agreeing to purchase
a similar security from the same party (the counterparty) on a specified future
date at a lower fixed price. During the roll period, the fund forgoes principal
and interest paid on the securities. The fund is compensated by the
difference between the current sales price and the forward price for the future
purchase as well as by the interest earned on the cash proceeds of the initial
sale. The fund may enter into a forward roll transaction with the intention of
entering into an offsetting transaction whereby, rather than accepting delivery
of the security on the specified date, the fund sells the security and agrees to
repurchase a similar security at a later time.
Investments
in forward roll transactions involve a risk of loss if the value of the
securities that the fund is obligated to purchase declines below the purchase
price prior to the repurchase date. Forward roll transactions may have a
leveraging effect on the fund (see “When-issued securities, delayed delivery, to
be announced and forward commitment transactions”).
Short-term investments
The
fund may invest, directly or indirectly, in cash, money market instruments and
short-term securities, including repurchase agreements, U.S. government
securities, bank obligations and commercial paper. Bank obligations include bank
notes, certificates of deposit, time deposits, banker’s acceptances and other
similar obligations. A repurchase agreement is a transaction in which the fund
purchases a security from a seller, subject to the obligation of the seller to
repurchase that security from the fund at a higher price. The repurchase
agreement thereby determines the yield during the fund’s holding period, while
the seller’s obligation to repurchase is secured by the value of the underlying
security held by the fund. The fund may also invest in money market funds, which
may or may not be registered under the Investment Company Act of 1940, as
amended, and/or affiliated with the fund’s manager or the subadvisers. The
return on investment in these money market funds may be reduced by such money
market funds’ operating expenses in addition to the fund’s own fees and
expenses. As such, there is a layering of fees and expenses.
Borrowings and reverse
repurchase agreements
The
fund may enter into borrowing transactions. Borrowing may make the value of an
investment in the fund more volatile and increase the fund’s overall investment
exposure. The fund may be required to liquidate portfolio securities at a time
when it would be disadvantageous to do so in order to make payments with respect
to any borrowings. Interest on any borrowings will be a fund expense and
will reduce the value of the fund’s shares.
The
fund may enter into reverse repurchase agreements, which have characteristics
like borrowings. In a reverse repurchase agreement, the fund sells
securities to a counterparty, in return for cash, and the fund agrees to
repurchase the securities at a later date and for a higher price, representing
the cost to the fund for the cash received.
Restricted and illiquid
securities
Restricted
securities are securities subject to legal or contractual restrictions on their
resale. An “illiquid security” is any security which the fund reasonably expects
cannot be sold or disposed of in current market conditions in seven calendar
days or less without the sale or disposition significantly changing the market
value of the security. Such conditions might prevent the sale of such securities
at a time when the sale would otherwise be desirable. The fund will not acquire
“illiquid securities” if such acquisition would cause the aggregate value of
illiquid securities to exceed 15% of the fund’s net assets. The fund may
determine that some restricted securities can be more readily sold, for example
to qualified institutional buyers pursuant to SEC Rule 144A, and therefore may
treat certain such securities as “liquid” for purposes of limitations on the
amount of illiquid securities it may own. Investing in these restricted
securities could have the effect of increasing the fund’s illiquidity if
qualified buyers become, for a time, uninterested in buying these securities.
These securities may be difficult to value, and the fund may have difficulty
disposing of such securities promptly. The fund does not consider non‑U.S.
securities to be restricted if they can be freely sold in the principal markets
in which they are traded, even if they are not registered for sale in the United
States.
Structured instruments
The
fund may invest in various types of structured instruments, including securities
that have demand, tender or put features, or interest rate reset features. These
may include instruments issued by structured investment or special purpose
vehicles or conduits, and may be asset-backed or mortgage-backed securities.
Structured instruments may take the form of participation interests or receipts
in underlying securities or other assets, and in some cases are backed by a
financial institution serving as a liquidity provider. The interest rate or
principal amount payable at maturity on a structured instrument may vary based
on changes in one or more specified reference factors, such as currencies,
interest rates, commodities, indices or other financial indicators. Changes in
the underlying reference factors may result in disproportionate changes in
amounts payable under a structured instrument. Some of these instruments may
have an interest rate swap feature which substitutes a floating or variable
interest rate for the
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fixed
interest rate on an underlying asset or index. Structured instruments are a type
of derivative instrument and the payment and credit qualities of these
instruments derive from the assets embedded in the structure. For structured
securities that have embedded leverage features, small changes in interest or
prepayment rates may cause large and sudden price movements. Structured
instruments are often subject to heightened illiquidity risk.
Inflation-indexed,
inflation-protected and related securities
Inflation-indexed
and inflation-protected securities are fixed income securities that are
structured to provide protection against inflation and whose principal value or
coupon (interest payment) is periodically adjusted according to the rate of
inflation. If the index measuring inflation falls, the principal value or coupon
of these securities will be adjusted downward. Consequently, the interest
payable on these securities will be reduced. Also, if the principal value of
these securities is adjusted according to the rate of inflation, the adjusted
principal value repaid at maturity may be less than the original
principal.
Inflation-protected
securities denominated in the U.S. dollar include U.S. Treasury Inflation
Protected Securities (“U.S. TIPS”), as well as other bonds issued by U.S. and
non‑U.S. government agencies and instrumentalities or corporations and
derivatives related to these securities. U.S. TIPS are inflation-protected
securities issued by the U.S. Department of the Treasury the principal amounts
of which are adjusted daily based upon changes in the rate of inflation (as
currently represented by the non‑seasonally adjusted Consumer Price Index for
All Urban Consumers, calculated with a three-month lag). U.S. TIPS pay interest
semiannually, equal to a fixed percentage of the inflation-adjusted principal
amount. The interest rate on these bonds is fixed at issuance, but over the life
of the bond, this interest may be paid on an increasing or decreasing principal
amount that has been adjusted for inflation. The current market value of U.S.
TIPS is not guaranteed and will fluctuate.
The
value of inflation-indexed and inflation-protected securities held by the fund
fluctuates in response to changes in real interest rates. In addition, if
nominal interest rates increase at a faster rate than inflation, causing real
interest rates to rise, it will lead to a decrease in the value of
inflation-indexed or inflation-protected securities.
The
fund may invest in other fixed-income securities that, in the belief of the
fund’s subadvisers, will provide protection against inflation, including
floating rate and other short duration securities. Floating rate securities bear
interest at rates that are not fixed but vary with changes in specified market
rates or indices, such as the prime rate, and at specified intervals.
Defensive investing
The
fund may depart from its principal investment strategies in response to adverse
market, economic or political conditions by taking temporary defensive
positions, including by investing in any type of money market instruments and
short-term debt securities or holding cash without regard to any percentage
limitations. If a significant amount of the fund’s assets is used for
defensive investing purposes, the fund will be less likely to achieve its
investment objective. Although the subadvisers have the ability to take
defensive positions, they may choose not to do so for a variety of reasons, even
during volatile market conditions.
Other investments
The
fund may also use other strategies and invest in other investments that are
described, along with their risks, in the Statement of Additional Information
(“SAI”). However, the fund might not use all of the strategies and
techniques or invest in all of the types of investments described in this
Prospectus or in the SAI. New types of mortgage-backed and asset-backed
securities, derivative instruments, hedging instruments and other securities or
instruments are developed and marketed from time to time. Consistent with its
investment limitations, the fund may invest in new types of securities and
instruments.
Percentage and other
limitations
For
purposes of the fund’s limitations expressed as a percentage of assets or net
assets, the term “assets” or “net assets,” as applicable, means net assets plus
the amount of any borrowings for investment purposes. The fund’s compliance with
its investment limitations and requirements described in this Prospectus is
usually determined at the time of investment. If such a percentage limitation is
complied with at the time of an investment, any subsequent change in percentage
resulting from a change in asset values or characteristics, a sale of securities
or a change in credit quality will not constitute a violation of that
limitation.
More on risks of
investing in the fund
Following
is more information on the principal risks summarized above and additional risks
of investing in the fund.
Market and interest
rate risk. The market prices of the
fund’s securities may go up or down, sometimes rapidly or unpredictably. If the
market prices of the fund’s securities fall, the value of your investment in the
fund will decline. The market price of a security may fall due to general market
conditions, such as real or perceived adverse economic or political conditions,
tariffs and trade disruptions, inflation, substantial economic downturn or
recession, changes in interest or currency rates, lack of liquidity in the bond
markets or adverse investor sentiment. Changes in market conditions will not
typically have the same impact on all types of securities. The market price of a
security may also fall due to specific conditions that affect a particular
sector of the securities market or a particular issuer. Your fund shares at any
point in time may be worth less than what you invested, even after taking into
account the reinvestment of fund dividends and distributions.
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The
market prices of securities may fluctuate significantly when interest rates
change. When interest rates rise, the value of fixed income securities, and
therefore the value of your investment in the fund, generally goes down.
Generally, the longer the maturity or duration of a fixed income security, the
greater the impact of a rise in interest rates on the security’s market price.
However, calculations of duration and maturity may be based on estimates and may
not reliably predict a security’s price sensitivity to changes in interest
rates. Recently, there have been inflationary price movements. As such, fixed
income securities markets may experience heightened levels of interest rate
volatility and liquidity risk. Recently, the U.S. Federal Reserve has been
raising interest rates from historically low levels. It may continue to raise
interest rates. Any additional interest rate increases in the future could cause
the value of the fund’s holdings to decrease. Moreover, securities can change in
value in response to other factors, such as credit risk. In addition, different
interest rate measures (such as short- and long-term interest rates and U.S. and
non‑U.S. interest rates), or interest rates on different types of securities or
securities of different issuers, may not necessarily change in the same amount
or in the same direction. When interest rates go down, the fund’s yield will
decline. Also, when interest rates decline, investments made by the fund may pay
a lower interest rate, which would reduce the income received by the
fund.
Credit
risk. The value of your investment
in the fund could decline if the issuer of a security held by the fund or
another obligor for that security (such as a party offering credit enhancement)
fails to pay, otherwise defaults, is perceived to be less creditworthy, becomes
insolvent or files for bankruptcy. The value of your investment in the fund
could also decline if the credit rating of a security held by the fund is
downgraded or the credit quality or value of any assets underlying the security
declines. Changes in actual or perceived creditworthiness may occur quickly. If
the fund enters into financial contracts (such as certain derivatives,
repurchase agreements, reverse repurchase agreements, and when-issued, delayed
delivery and forward commitment transactions), the fund will be subject to the
credit risk presented by the counterparty. In addition, the fund may incur
expenses in an effort to protect the fund’s interests or to enforce its rights
against an issuer, guarantor or counterparty or may be hindered or delayed in
exercising those rights. Credit risk is broadly gauged by the credit
ratings of the securities in which the fund invests. However, ratings are only
the opinions of the companies issuing them and are not guarantees as to
quality. Securities rated in the lowest category of investment grade
(Baa/BBB) may possess certain speculative characteristics. Credit risk is
typically greatest for the fund’s high yield debt securities (“junk” bonds),
which are rated below the Baa/BBB categories or unrated securities of comparable
quality.
Derivatives
risk. Derivatives involve special risks
and costs and may result in losses to the fund, even when used for hedging
purposes. Using derivatives can increase losses and reduce opportunities for
gains, such as when market prices, interest rates, currencies, or the
derivatives themselves behave in a way not anticipated by the fund’s subadviser,
especially in abnormal market conditions. Using derivatives also can have a
leveraging effect which may increase investment losses and increase the fund’s
volatility, which is the degree to which the fund’s share price may fluctuate
within a short time period. Certain derivatives have the potential for unlimited
loss, regardless of the size of the initial investment. The other parties to
certain derivatives transactions present the same types of credit risk as
issuers of fixed income securities.
The
fund’s counterparty to a derivative transaction may not honor its obligations in
respect to the transaction. In certain cases, the fund may be hindered or
delayed in exercising remedies against or closing out derivative instruments
with a counterparty, which may result in additional losses.
Derivatives
also tend to involve greater illiquidity risk and they may be difficult to
value. The fund may be unable to terminate or sell its derivative positions. In
fact, many over‑the‑counter derivatives will not have liquidity except through
the counterparty to the instrument. 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 or similar instruments may have different tax consequences for the
fund than an investment in the underlying asset, and those differences may
affect the amount, timing and character of income distributed to shareholders.
The fund’s use of derivatives may also increase the amount of taxes payable by
shareholders. The U.S. government and foreign governments have adopted and
implemented or 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. The fund may be exposed
to additional risks as a result of the additional regulations. The extent and
impact of the additional regulations are not yet fully known and may not be for
some time.
Investments
by the fund in structured securities, a type of derivative, raise certain tax,
legal, regulatory and accounting issues that may not be presented by direct
investments in securities. These issues could be resolved in a manner that could
hurt the performance of the fund.
Swap
agreements tend to shift the fund’s investment exposure from one type of
investment to another. For example, the fund may enter into interest rate swaps,
which involve the exchange of interest payments by the fund with another party,
such as an exchange of floating rate payments for fixed interest rate payments
with respect to a notional amount of principal. If an interest rate swap
intended to be used as a hedge negates a favorable interest rate movement, the
investment performance of the fund would be less than what it would have been if
the fund had not entered into the interest rate swap.
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. If the fund
buys a credit default swap, it will be subject to the risk that the credit
default swap may expire worthless, as the credit default swap would only
generate income in the event of a default on the underlying debt security or
other specified event. As a buyer, the fund would also be subject to credit risk
relating to the seller’s payment of its obligations in the event of a default
(or similar event). If the fund sells a credit default swap, it will be exposed
to the credit risk of the issuer of the obligation to which the credit default
swap relates. As a seller, the fund would also be subject to leverage risk,
because it would be liable for the full notional amount of the swap in the event
of a default (or similar event).
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The
absence of a central exchange or market for over‑the‑counter swap transactions
may lead, in some instances, to difficulties in trading and valuation,
especially in the event of market disruptions. Relatively recent
legislation requires certain swaps to be executed through a centralized exchange
or regulated facility and be cleared through a regulated clearinghouse. Although
this clearing mechanism is generally expected to reduce counterparty credit
risk, it may disrupt or limit the swap market and may not result in swaps being
easier to trade or value. As swaps become more standardized, the fund may not be
able to enter into swaps that meet its investment needs. The fund also may not
be able to find a clearinghouse willing to accept a swap for clearing. In a
cleared swap, a central clearing organization will be the counterparty to the
transaction. The fund will assume the risk that the clearinghouse and/or
the broker through which it holds its position may be unable to perform its
obligations.
The
fund will be required to maintain its positions with a clearing organization
through one or more clearing brokers. The clearing organization will require the
fund to post margin and the broker may require the fund to post additional
margin to secure the fund’s obligations. The amount of margin required may
change from time to time. In addition, cleared transactions may be more
expensive to maintain than over‑the‑counter transactions and may require the
fund to deposit larger amounts of margin. The fund may not be able to recover
margin amounts if the broker has financial difficulties. Also, the broker may
require the fund to terminate a derivatives position under certain
circumstances. This may cause the fund to lose money.
Futures
are standardized, exchange-traded contracts that obligate a purchaser to buy,
and a seller to sell, a specific amount of an asset on a specified future date
at a specified price. The primary risks associated with the use of futures
contracts are: (a) the imperfect correlation between the change in market
value of the instruments held by the fund and the price of the futures contract;
(b) the possible lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures contract when desired;
(c) losses caused by unanticipated market movements, which are potentially
unlimited; (d) the subadviser’s inability to predict correctly the
direction of securities prices, interest rates, currency exchange rates and
other economic factors; and (e) the possibility that the counterparty will
default in the performance of its obligations.
An
option is an agreement that, for a premium payment or fee, gives the option
holder (the purchaser) the right but not the obligation to buy (a “call option”)
or sell (a “put option”) the underlying asset (or settle for cash in an amount
based on an underlying asset, rate, or index) at a specified price (the
“exercise price”) during a period of time or on a specified date. The fund may
write a call or put option where it (i) owns or is short the underlying
security in the case of a call or put option, respectively (sometimes referred
to as a “covered option”), or (ii) does not own or is not short such
security (sometimes referred to as a “naked option”). When the fund purchases an
option, it may lose the total premium paid for it if the price of the underlying
security or other assets decreased, remained the same or failed to increase to a
level at or beyond the exercise price (in the case of a call option) or
increased, remained the same or failed to decrease to a level at or below the
exercise price (in the case of a put option). If a put or call option purchased
by the fund were permitted to expire without being sold or exercised, its
premium would represent a loss to the fund. To the extent that the fund writes
or sells an option, in particular a naked option, if the decline or increase in
the underlying asset is significantly below or above the exercise price of the
written option, the fund could experience a substantial loss.
Risks
associated with the use of derivatives are magnified to the extent that an
increased portion of the fund’s assets is committed to derivatives in general or
is invested in just one or a few types of derivatives.
Leverage
risk. The use of traditional borrowing
(including to meet redemption requests), reverse repurchase agreements and
derivatives creates leverage (i.e., a fund’s investment exposures exceed its net
asset value). Leverage increases a fund’s losses when the value of its
investments (including derivatives) declines. Because many derivatives have a
leverage component (i.e., a notional value in excess of the assets needed to
establish or maintain the derivative position), adverse changes in the value or
level of the underlying asset, rate, or index may result in a loss substantially
greater than the amount invested in the derivative itself. In the case of swaps,
the risk of loss generally is related to a notional principal amount, even if
the parties have not made any initial investment. Some derivatives, similar to
short sales, have the potential for unlimited loss, regardless of the size of
the initial investment. Similarly, the fund’s portfolio will be leveraged and
can incur losses if the value of the fund’s assets declines between the time a
redemption request is received or deemed to be received by the fund (which in
some cases may be the business day prior to actual receipt of the transaction
activity by the fund) and the time at which the fund liquidates assets to meet
redemption requests. Such a decline in the value of a fund’s assets is more
likely in the case of funds managed from non‑U.S. offices for which the time
period between the NAV determination and corresponding liquidation of assets
could be longer due to time zone differences and market schedules. In the case
of redemptions representing a significant portion of the fund’s portfolio, the
leverage effects described above can be significant and could expose a fund and
non‑redeeming shareholders to material losses.
The
fund may manage some of its derivative positions by offsetting derivative
positions against one another or against other assets. To the extent offsetting
positions do not behave in relation to one another as expected, the fund may
perform as if it were leveraged.
To
the extent the fund purchases securities on margin or sells securities short, it
will create leverage in the fund’s portfolio. To the extent the market prices of
securities pledged to counterparties to secure the fund’s margin account or
short sale decline, the fund may be required to deposit additional funds with
the counterparty to avoid having the pledged securities liquidated to compensate
for the decline.
New
derivatives regulations require the fund, to the extent it uses derivatives
beyond a specified limited amount, to, among other things, comply with certain
overall limits on leverage. These regulations may limit the ability of the fund
to pursue its investment strategies and may not be effective to mitigate the
fund’s risk of loss from derivatives.
Illiquidity
risk. Illiquidity risk exists when
particular investments are or may become impossible or difficult to sell and
some assets that the fund wants to invest in may be impossible or difficult to
purchase. Although most of the fund’s investments must be liquid at the time of
investment, investments may be or become illiquid after purchase by the fund,
particularly during periods of market turmoil or due to adverse changes in the
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conditions
of a particular issuer. Markets may become illiquid when, for instance, there
are few, if any, interested buyers or sellers or when dealers are unwilling or
unable to make a market for certain securities. As a general matter, dealers
have been less willing to make markets for fixed income securities. Federal
banking regulations may also cause certain dealers to reduce their inventories
of certain securities, which may further decrease the ability to buy or sell
such securities. 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 to meet redemption requests or for other cash needs, or
to try to limit losses, the fund may be forced to sell at a loss or may not be
able to sell at all. The fund may experience heavy redemptions that could cause
the fund to liquidate its assets at inopportune times or at a loss or depressed
value, which could cause the value of your investment to decline. In addition,
when there is illiquidity in the market for certain investments, the fund, due
to limitations on illiquid investments, may be unable to achieve its desired
level of exposure to a certain sector, industry or issuer. The liquidity of
certain assets, particularly of privately-issued and non‑investment grade
mortgage-backed securities, asset-backed securities and collateralized debt
obligations, may be difficult to ascertain and may change over time.
Transactions in less liquid or illiquid securities may entail transaction costs
that are higher than those for transactions in liquid securities. Further, such
securities, once sold, may not settle for an extended period (for example,
several weeks or even longer). The fund will not receive its sales proceeds
until that time, which may constrain the fund’s ability to meet its obligations
(including obligations to redeeming shareholders).
Foreign investments
and emerging markets risk. The fund’s
investments in securities of foreign issuers or issuers with significant
exposure to foreign markets involve additional risk as compared to investments
in U.S. securities or issuers with predominantly domestic exposure, such as less
liquid, less regulated, less transparent and more volatile markets. The markets
for some foreign securities are relatively new, and the rules and policies
relating to these markets are not fully developed and may change. The value of
the fund’s investments may decline because of factors affecting the particular
issuer as well as foreign markets and issuers generally, such as unfavorable or
unsuccessful government actions, tariffs and trade disputes, economic sanctions,
reduction of government or central bank support, inadequate accounting standards
and auditing and financial recordkeeping requirements, lack of information,
political, economic, financial or social instability, terrorism, armed conflicts
and other geopolitical events. Geopolitical or other events such as
nationalization or expropriation could even cause the loss of the fund’s entire
investment in one or more countries.
The
Public Company Accounting Oversight Board, which regulates auditors of U.S.
public companies, is unable to inspect audit work papers in certain foreign or
emerging market 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 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.
The
value of the fund’s foreign investments may also be affected by foreign tax
laws, special U.S. tax considerations and restrictions on receiving the
investment proceeds from a foreign country. Dividends or interest on, or
proceeds from the sale or disposition of, foreign securities may be subject to
non‑U.S. withholding or other taxes.
It
may be difficult for the fund to pursue claims against a foreign issuer or other
parties in the courts of a foreign country. Some securities issued by non‑U.S.
governments or their subdivisions, agencies and instrumentalities may not be
backed by the full faith and credit of such governments. Even where a security
is backed by the full faith and credit of a government, it may be difficult for
the fund to pursue its rights against the government. In the past, some non‑U.S.
governments have defaulted on principal and interest payments.
If
the fund buys securities denominated in a foreign currency, receives income in
foreign currencies, or holds foreign currencies from time to time, the value of
the fund’s assets, as measured in U.S. dollars, can be affected unfavorably by
changes in exchange rates relative to the U.S. dollar or other foreign
currencies. Currency exchange rates can be volatile, and are affected by factors
such as general economic and political 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.
In
certain foreign markets, settlement and clearance of trades may experience
delays in payment for or delivery of securities not typically associated with
settlement and clearance of U.S. investments. Settlement of trades in these
markets can take longer than in other markets and the fund may not receive its
proceeds from the sale of certain securities for an extended period (possibly
several weeks or even longer) due to, among other factors, low trading volumes
and volatile prices. The custody or holding of securities, cash and other assets
by local banks, agents and depositories in securities markets outside the United
States may entail additional risks. Governments or trade groups may compel local
agents to hold securities in designated depositories that may not be subject to
independent evaluation. Local agents are held only to the standards of care of
their local markets, and thus may be subject to limited or no government
oversight. In extreme cases, the fund’s securities may be misappropriated or the
fund may be unable to sell its securities. In general, the less developed a
country’s securities market is, the greater the likelihood of custody
problems.
The
risks of foreign investments are heightened when investing in issuers in
emerging market countries. Emerging market countries tend to have economic,
political and legal systems that are less developed and are less stable than
those of more developed countries. Their economies tend to be less diversified
than those of more developed countries. They typically have fewer medical and
economic resources than more developed countries, and thus they may be less able
to control or mitigate the effects of a pandemic or a natural disaster. They are
often particularly sensitive to market movements because their market prices
tend to reflect speculative expectations. Low trading volumes may result in
a lack of liquidity and in extreme price volatility. Investors should be able to
tolerate sudden, sometimes substantial, fluctuations in the value of investments
in emerging
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markets. Emerging
market countries may have policies that restrict investment by foreigners or
that prevent foreign investors from withdrawing their money at will.
Risks related to
Russia’s invasion of Ukraine. Russia’s
military invasion of Ukraine in February 2022, the resulting responses by the
United States and other countries, and the potential for wider conflict have
increased volatility and uncertainty in the financial markets and adversely
affected regional and global economies. The United States and other countries
have imposed broad-ranging economic sanctions on Russia and certain Russian
individuals, banking entities and corporations as a response to its invasion of
Ukraine. The United States and other countries have also imposed economic
sanctions on Belarus and may impose sanctions on other countries that support
Russia’s military invasion. These sanctions, as well as any other economic
consequences related to the invasion, such as additional sanctions, boycotts or
changes in consumer or purchaser preferences or cyberattacks on governments,
companies or individuals, may further decrease the value and liquidity of
certain Russian securities and securities of issuers in other countries that are
subject to economic sanctions related to the invasion. To the extent that the
fund has exposure to Russian investments or investments in countries affected by
the invasion, the fund’s ability to price, buy, sell, receive or deliver such
investments may be impaired. The fund may determine that certain affected
securities have zero value. In addition, any exposure that the fund may have to
counterparties in Russia or in countries affected by the invasion could
negatively impact the fund’s portfolio. The extent and duration of Russia’s
military actions and the repercussions of such actions (including any
retaliatory actions or countermeasures that may be taken by those subject to
sanctions) are impossible to predict, but could continue to result in
significant market disruptions, including in the oil and natural gas markets,
and may continue to negatively affect global supply chains (including global
food supplies), inflation and global growth. These and any related events could
significantly impact the fund’s performance and the value of an investment in
the fund, even beyond any direct exposure the fund may have to Russian issuers
or issuers in other countries directly affected by the invasion.
Risk of increase in
expenses. Your actual costs of investing
in the fund may be higher than the expenses shown in “Annual fund operating
expenses” for a variety of reasons. For example, expenses may be higher if the
fund’s average net assets decrease, as a result of redemptions or otherwise, or
if a fee limitation is changed or terminated. Net assets are more likely to
decrease and fund expense ratios are more likely to increase when markets are
volatile.
Prepayment or call
risk. Many fixed income securities give
the issuer the option to repay or call the security prior to its maturity date.
Issuers often exercise this right when interest rates fall. Accordingly, if the
fund holds a fixed income security subject to prepayment or call risk, it may
not benefit fully from the increase in value that other fixed income securities
generally experience when interest rates fall. Upon prepayment of the
security, the fund would also be forced to reinvest the proceeds at then current
yields, which would be lower than the yield of the security that was paid off.
In addition, if the fund purchases a fixed income security at a premium (at a
price that exceeds its stated par or principal value), the fund may lose the
amount of the premium paid in the event of prepayment. Prepayment further tends
to reduce the yield to maturity and the average life of the security.
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 fund’s share price to be
more volatile.
Risk of investing in
fewer issuers. To the extent the
fund invests its assets in a small number of issuers, or in issuers in related
businesses or that are subject to related operating risks, the fund will be more
susceptible to negative events affecting those issuers.
Convertible
securities risk. Convertible securities
are subject to stock market and other risks associated with equity securities,
as well as the credit, interest rate and other risks associated with fixed
income securities. Credit risk is the risk that the issuer or obligor will not
make timely payments of principal or interest or that its credit may be
downgraded or perceived to be less creditworthy. Interest rate risk is the risk
that the value of a fixed income security will fall when interest rates rise. A
rise in rates tends to have a greater impact on the prices of longer term or
duration securities. A general rise in interest rates may cause investors to
move out of fixed income securities on a large scale, which could adversely
affect the price and liquidity of fixed income securities. As the market price
of the equity security underlying a convertible security falls, the convertible
security tends to trade on the basis of its yield and other fixed income
characteristics. As the market price of the equity security underlying a
convertible security rises, the convertible security tends to trade on the basis
of its equity conversion features.
Contingent
convertible securities (“CoCos”) risk.
CoCos are hybrid securities most commonly issued by banking institutions that
present risks similar to debt securities and convertible securities. CoCos are a
form of hybrid security that are intended to either convert into equity or have
their principal written down upon the occurrence of certain triggers. When an
issuer’s capital ratio falls below a specified trigger level, or in a
regulator’s discretion depending on the regulator’s judgment about the issuer’s
solvency prospects, a CoCo may be written down, written off or converted into an
equity security. Due to the contingent write-down, write‑off and conversion
feature, CoCos may have substantially greater risk than other securities in
times of financial stress. If the trigger level is breached, the issuer’s
decision to write down, write off or convert a CoCo may be outside its control,
and the fund may suffer a complete loss on an investment in CoCos with no chance
of recovery even if the issuer remains in existence. The value of CoCos is
unpredictable and may be influenced by many factors including, without
limitation: the creditworthiness of the issuer and/or fluctuations in such
issuer’s applicable capital ratios; supply and demand for CoCos; general market
conditions and available liquidity; and economic, financial and political events
that affect the issuer, its particular market or the financial markets in
general.
Valuation
risk. Many factors may influence
the price at which the fund could sell any particular portfolio investment. The
sales price may well differ—higher or lower—from the fund’s last valuation, and
such differences could be significant, particularly for illiquid securities and
securities
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that
trade in relatively thin markets and/or markets that experience extreme
volatility. If market conditions make it difficult to value some investments,
the fund may value these investments using more subjective methods, such as fair
value methodologies. These differences may increase significantly and affect
fund investments more broadly during periods of market volatility. Investors who
purchase or redeem fund shares on days when the fund is holding fair-valued
securities may receive fewer or more shares, or lower or higher redemption
proceeds, than they would have received if the fund had not fair-valued
securities or had used a different valuation methodology. The value of non‑U.S.
securities, certain fixed income securities and currencies, as applicable, may
be materially affected by events after the close of the markets in which they
are traded, but before the fund determines its net asset value. The fund’s
ability to value its investments may also be impacted by technological issues
and/or errors by pricing services or other third party service providers. The
valuation of the fund’s investments involves subjective judgment, which may
prove to be incorrect.
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, armed conflicts, economic sanctions and countermeasures
in response to sanctions, major cybersecurity events, investor sentiment, the
global and domestic effects of a pandemic, and other factors that may or may not
be related to the issuer of the security or other asset. Economies and financial
markets throughout the world are increasingly interconnected. Economic,
financial or political events, trading and tariff arrangements, public health
events, terrorism, wars, natural disasters and other circumstances in one
country or 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 or markets directly affected, the
value and liquidity of the fund’s investments may be negatively affected.
Following Russia’s invasion of Ukraine, Russian stocks lost all, or nearly all,
of their market value. Other securities or markets could be similarly affected
by past or future geopolitical or other events or conditions. Furthermore,
events involving limited liquidity, defaults, non‑performance or other adverse
developments that affect one industry, such as the financial services industry,
or concerns or rumors about any events of these kinds, have in the past and may
in the future lead to market-wide liquidity problems, may spread to other
industries, and could negatively affect the value and liquidity of the fund’s
investments.
The
fallout from the COVID‑19 pandemic and its subsequent variants, and the
long-term impact on economies, markets, industries and individual issuers, are
not known. Some sectors of the economy and individual issuers have experienced
or may experience particularly large losses. Periods of extreme volatility in
the financial markets; reduced liquidity of many instruments; and disruptions to
supply chains, consumer demand and employee availability, may continue for some
time. The U.S. government and the Federal Reserve, as well as certain foreign
governments and central banks, have taken extraordinary actions to support local
and global economies and the financial markets in response to the COVID‑19
pandemic. This and other government intervention into the economy and financial
markets may not work as intended, and have resulted in a large expansion of
government deficits and debt, the long term consequences of which are not known.
In addition, the COVID‑19 pandemic, and measures taken to mitigate its effects,
could result in disruptions to the services provided to the fund by its service
providers.
Raising
the ceiling on U.S. government debt has become increasingly politicized. Any
failure to increase the total amount that the U.S. government is authorized to
borrow could lead to a default on U.S. government obligations, with
unpredictable consequences for economies and markets in the U.S. and elsewhere.
Recently, inflation and interest rates have increased and may rise further.
These circumstances could adversely affect the value and liquidity of the fund’s
investments, impair the fund’s ability to satisfy redemption requests, and
negatively impact the fund’s performance.
The
United States and other countries are periodically involved in disputes over
trade and other matters, which may result in tariffs, investment restrictions
and adverse impacts on affected companies and securities. For example, the
United States has imposed tariffs and other trade barriers on Chinese exports,
has restricted sales of certain categories of goods to China, and has
established barriers to investments in China. Trade disputes may adversely
affect the economies of the United States and its trading partners, as well as
companies directly or indirectly affected and financial markets generally. The
United States government has prohibited U.S. persons from investing in Chinese
companies designated as related to the Chinese military. These and possible
future restrictions could limit the fund’s opportunities for investment and
require the sale of securities at a loss or make them illiquid. Moreover, the
Chinese government is involved in a longstanding dispute with Taiwan that has
included threats of invasion. If the political climate between the United States
and China does not improve or continues to deteriorate, if China were to attempt
unification of Taiwan by force, or if other geopolitical conflicts develop or
get worse, economies, markets and individual securities may be severely affected
both regionally and globally, and the value of the fund’s assets may go
down.
LIBOR
risk. The fund’s investments, payment
obligations, and financing terms may be based on floating rates, such as the
London Interbank Offered Rate, or “LIBOR,” which is the offered rate for
short-term Eurodollar deposits between major international banks. In 2017, the
U.K. Financial Conduct Authority (“FCA”) announced its intention to cease
compelling banks to provide the quotations needed to sustain LIBOR after 2021.
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 the remaining 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.
In March 2022, the U.S. federal government enacted legislation to establish a
process for replacing LIBOR in certain existing contracts that do not already
provide for the use of a clearly defined or practicable replacement benchmark
rate as described in the legislation. Generally speaking, for contracts that do
not contain a fallback provision as described in the legislation, a benchmark
replacement recommended by the Federal Reserve Board will effectively
automatically replace the USD LIBOR benchmark in the contract after
June 30, 2023. The recommended benchmark replacement will be based on the
Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of
New York, including certain spread adjustments and benchmark replacement
conforming changes.
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Various
financial industry groups have been planning for the transition away from LIBOR,
but there remains uncertainty regarding the impact of the transition from LIBOR
on the fund’s transactions and the financial markets generally. The transition
away from LIBOR may lead to increased volatility and illiquidity in markets that
rely on LIBOR and may adversely affect the fund’s 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.
Cash management and
defensive investing risk. The value of
the investments held by the fund for cash management or defensive investing
purposes can fluctuate. Like other fixed income securities, they are subject to
risk, including market, interest rate and credit risk. If the fund holds cash
uninvested, the cash will be subject to the credit risk of the depository
institution holding the cash and the fund will not earn income on the cash. If a
significant amount of the fund’s assets is used for cash management or defensive
investing purposes, the fund will be less likely to achieve its investment
objective. Defensive investing may not work as intended and the value of an
investment in the fund may still decline.
Hedging
risk. The decision as to whether
and to what extent the fund will engage in hedging transactions to hedge against
risks such as currency risk, credit risk, and interest rate risk will depend on
a number of factors, including prevailing market conditions, the composition of
the fund, the availability of suitable transactions and regulatory restrictions.
The fund may not engage in hedging transactions even when it would have been
advantageous to do so. Hedges are sometimes subject to imperfect matching
between the derivative and the underlying asset or index, so the fund could lose
money on both a hedging transaction and the transaction being hedged;
accordingly, there can be no assurance that hedging strategies, if used, will be
successful. Hedging transactions involve costs and may reduce gains or result in
losses.
Risks relating to
inflation-indexed securities. The value
of inflation-indexed fixed income securities generally fluctuates in response to
changes in real interest rates, which are in turn tied to the relationship
between nominal interest rates and the rate of inflation. Therefore, if
inflation were to rise at a faster rate than nominal interest rates, real
interest rates might decline, leading to an increase in value of
inflation-indexed securities. In contrast, if nominal interest rates increase at
a faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed securities. The principal value of
inflation-indexed securities declines in periods of deflation, and holders of
such securities may experience a loss. Although the holders of U.S. TIPS
receive no less than the par value of the security at maturity, if the fund
purchases U.S. TIPS in the secondary market whose principal values have been
adjusted upward due to inflation since issuance, it may experience a loss if
there is a subsequent period of deflation. If inflation is lower than expected
during the period the fund holds an inflation-indexed security, the fund may
earn less on the security than on a conventional bond.
Any
increase in principal value caused by an increase in the index the
inflation-indexed securities are tied to is taxable in the year the increase
occurs, even though the fund will not receive cash representing the increase at
that time. As a result, the fund could be required at times to liquidate other
investments, including when it is not advantageous to do so, in order to satisfy
the distribution requirements applicable to regulated investment companies under
the Internal Revenue Code of 1986, as amended. See “Taxes” in the
SAI.
If
real interest rates rise (i.e., if interest rates rise for reasons other than
inflation, for example, due to changes in currency exchange rates), the value of
inflation-indexed securities held by the fund will decline. Moreover, because
the principal amount of inflation-indexed securities would be adjusted downward
during a period of deflation, the fund will be subject to deflation risk with
respect to its investments in these securities. Inflation-indexed securities are
tied to indices that are calculated based on rates of inflation for prior
periods. There can be no assurance that such indices will accurately measure the
actual rate of inflation in the prices of goods and services.
U.S. government
securities risk. The fund may hold U.S.
government securities that are not guaranteed or backed by the full faith and
credit of the U.S. government, such as those issued by Fannie Mae and Freddie
Mac. The maximum potential liability of the issuers of some U.S. government
obligations may greatly exceed their current resources, including any legal
right to support from the U.S. government. In addition, the events surrounding
the U.S. federal government debt ceiling and any resulting agreement (and
similar political, economic and other developments) could adversely affect the
fund’s ability to achieve its investment objective. For example, a downgrade of
the long-term sovereign credit rating of the U.S. could increase volatility in
both stock and bond markets, result in higher interest rates and lower Treasury
prices and increase the costs of all kinds of debt. These events and similar
events in other areas of the world could have significant adverse effects on the
economy generally and could result in significant adverse impacts on issuers of
securities held by the fund and the fund itself.
In
the past, the values of U.S. Government securities have been affected
substantially by increased demand for them around the world. Changes in the
demand for U.S. Government securities may occur at any time and may result in
increased volatility in the values of those securities.
Mortgage-backed and
asset-backed securities risk.
Mortgage-backed securities are particularly susceptible to prepayment and
extension risks, because prepayments on the underlying mortgages tend to
increase when interest rates fall and decrease when interest rates rise.
Prepayments may also occur on a scheduled basis or due to foreclosure. When
market interest rates increase, 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 rates of prepayment of the
underlying mortgages tend 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.
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23 |
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At
times, some of the mortgage-backed securities in which the fund may invest will
have higher than market interest rates and therefore will be purchased at a
premium above their par value. Prepayments may cause losses on securities
purchased at a premium.
The
value of mortgage-backed securities may be affected by changes in credit quality
or value of the mortgage loans or other assets that support the securities. In
addition, for mortgage-backed securities, when market conditions result in an
increase in the default rates on the underlying mortgages and the foreclosure
values of the underlying real estate are below the outstanding amount of the
underlying mortgages, collection of the full amount of accrued interest and
principal on these investments may be doubtful. For mortgage derivatives and
structured securities that have embedded leverage features, small changes in
interest or prepayment rates may cause large and sudden price movements.
Mortgage derivatives can also become illiquid and hard to value in declining
markets.
Asset-backed
securities are structured like mortgage-backed securities and are subject to
many of the same risks. The ability of an issuer of asset-backed securities to
enforce its security interest in the underlying assets or to otherwise recover
from the underlying obligor may be limited. Certain asset-backed securities
present a heightened level of risk because, in the event of default, the
liquidation value of the underlying assets may be inadequate to pay any unpaid
principal or interest.
Portfolio management
risk. The value of your investment may
decrease if the subadvisers’ judgment about the quality, relative yield, value
or market trends affecting a particular security, industry, sector or region, or
about interest rates or other market factors, is incorrect or does not produce
the desired results, or if there are imperfections, errors or limitations in the
models, tools and data used by the subadvisers. In addition, the fund’s
investment strategies or policies may change from time to time. Those changes
may not lead to the results intended by the subadvisers and could have an
adverse effect on the value or performance of the fund.
Investment in other
investment companies risk. Investments
in other investment companies are subject to market and portfolio selection
risk, as well as portfolio management 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 LMPFA or its affiliates through waivers).
Portfolio turnover
risk. Active and frequent trading will
increase a shareholder’s tax liability and the fund’s transaction costs, which
could detract from fund performance.
Redemptions by
affiliated funds and by other significant investors. The fund may be an investment option for mutual
funds and ETFs that are managed by LMPFA and its affiliates, including Franklin
Templeton investment managers, unaffiliated mutual funds and ETFs and other
investors with substantial investments in the fund. As a result, from time to
time, the fund may experience relatively large redemptions and could be required
to liquidate its assets at inopportune times or at a loss or depressed value,
which could cause the value of your investment to decline.
Redemption
risk. The fund may experience periods of
heavy redemptions, particularly during periods of declining or illiquid markets,
that could cause the fund to liquidate its assets at inopportune times or
unfavorable prices or increase or accelerate taxable gains or transaction costs
and may negatively affect the fund’s net asset value, performance, or ability to
satisfy redemptions in a timely manner which could cause the value of your
investment to decline. Redemption risk is greater to the extent that the fund
has investors with large shareholdings, short investment horizons, unpredictable
cash flow needs or where one decision maker has control of fund shares owned by
separate fund shareholders, including clients or affiliates of the fund’s
manager. In addition, redemption risk is heightened during periods of overall
market turmoil. The redemption by one or more large shareholders of their
holdings in the fund could hurt performance and/or cause the remaining
shareholders in the fund to lose money.
Operational
risk. Your ability to transact with
the fund or the valuation of your investment 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 (including those due to cybersecurity incidents), 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 eliminate or
mitigate the occurrence of such failures. The fund and its shareholders could be
negatively impacted as a result.
Cybersecurity
risk. Cybersecurity incidents, whether
intentionally caused by third parties or otherwise, 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, the
manager, the subadvisers and/or their service providers (including, but not
limited to, fund accountants, custodians, sub‑custodians, transfer agents and
financial intermediaries) to suffer data breaches, data corruption or loss of
operational functionality, or prevent fund investors from purchasing, redeeming
or exchanging shares, receiving distributions or receiving timely information
regarding the fund or their investment in the fund. The fund, the manager, 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, the manager,
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 or mitigate 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.
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 fund’s ability to plan for or respond to a cyber attack. Like
other funds and business enterprises, the fund, the manager, the subadvisers and
their service providers are subject to the risk of cyber incidents occurring
from time to time.
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Western
Asset Core Bond Fund |
Please
note that there are other factors that could adversely affect your investment
and that could prevent the fund from achieving its investment objective. More
information about risks appears in the SAI. Before investing, you should
carefully consider the risks that you will assume.
Portfolio holdings
A
description of the fund’s policies and procedures with respect to the disclosure
of the fund’s portfolio holdings is available in the SAI. The fund intends to
make complete portfolio holdings information available on a monthly basis at
www.franklintempleton.com/mutualfunds (click on the name of the fund) no sooner
than 8 business days following the month‑end.
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More on fund management
Legg
Mason Partners Fund Advisor, LLC (“LMPFA” or the “manager”) is the fund’s
investment manager. LMPFA, with offices at 280 Park Avenue, New York,
New York 10017, also serves as the investment manager of other Legg
Mason-sponsored funds. LMPFA provides administrative and certain oversight
services to the fund. As of December 31, 2022, LMPFA’s total assets
under management were approximately $190.4 billion.
Western
Asset Management Company, LLC (“Western Asset”) and Western Asset Management
Company Limited (“Western Asset London” and collectively with Western Asset, the
“subadvisers”) provide the day‑to‑day portfolio management of the fund as
subadvisers. Western Asset, established in 1971, has offices at 385 East
Colorado Boulevard, Pasadena, California 91101 and 620 Eighth Avenue, New York,
New York 10018. Western Asset London was founded in 1984 and has offices at 10
Exchange Square, Primrose Street, London EC2A 2EN.
Western
Asset London undertakes investment-related activities including investment
management, research and analysis, and securities settlement. Western Asset
London provides certain subadvisory services relating to currency transactions
and investments in non‑U.S. dollar-denominated securities and related foreign
currency instruments. Western Asset London generally manages global and non‑U.S.
dollar fixed income mandates. Western Asset London provides services relating to
relevant portions of Western Asset’s broader portfolios as appropriate.
Western
Asset employs a team approach to investment management that utilizes relevant
staff in multiple offices around the world. Expertise from Western Asset
investment professionals in those offices add local sector investment experience
as well as the ability to trade in local markets. Although the investment
professionals at Western Asset London are responsible for the management of the
investments in their local sectors, Western Asset provides overall supervision
of their activities for the fund to maintain a cohesive investment management
approach.
Western
Asset and Western Asset London act as investment advisers to institutional
accounts, such as corporate pension plans, mutual funds and endowment funds. As
of December 31, 2022, the total assets under management of Western Asset
and its supervised affiliates, including Western Asset London, were
approximately $390.72 billion.
LMPFA
pays the subadvisers all of the management fee that it receives from the fund.
The fund does not pay any additional advisory or other fees for advisory
services provided by Western Asset or Western Asset London.
LMPFA,
Western Asset and Western Asset London are indirect, wholly-owned subsidiaries
of Franklin Resources, Inc. (“Franklin Resources”). Franklin Resources, whose
principal executive offices are at One Franklin Parkway, San Mateo, California
94403, is a global investment management organization operating, together with
its subsidiaries, as Franklin Templeton. As of December 31, 2022, Franklin
Templeton’s asset management operations had aggregate assets under management of
approximately $1.39 trillion.
Investment professionals
Primary
responsibility for the day‑to‑day portfolio management, development of
investment strategy, oversight and coordination of the fund lies with the
following investment professionals. The fund is managed by a broad team of
investment professionals. Senior members of the portfolio management team are
responsible for the development of investment strategy and oversight for the
fund and coordination of other relevant investment team members.
|
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| |
| Investment
professional |
|
Title and recent
biography |
|
Investment
professional of the fund since |
| S.
Kenneth Leech |
|
Chief
Investment Officer and has been employed by Western Asset as an investment
professional for at least the past five years. |
|
2013* |
| John
Bellows |
|
Portfolio
Manager/Research Analyst and has been employed by Western Asset as an
investment professional for at least the past five years. |
|
2018 |
| Mark
S. Lindbloom |
|
Portfolio
Manager and has been employed by Western Asset as an investment
professional for at least the past five years. |
|
2006 |
| Frederick
R. Marki |
|
Portfolio
Manager and has been employed by Western Asset as an investment
professional for at least the past five years. |
|
2018 |
| Julien
A. Scholnick |
|
Portfolio
Manager and has been employed by Western Asset as an investment
professional for at least the past five years. |
|
2016 |
| * |
In
addition, Mr. Leech had previously served as a member of the
portfolio management team of the fund. |
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Western
Asset Core Bond Fund |
The
SAI provides information about the compensation of the investment professionals,
other accounts managed by the investment professionals and any fund shares held
by the investment professionals.
Management fee
The
fund pays a management fee at an annual rate that decreases as assets increase,
as follows: 0.45% of the first $500 million of average daily net assets,
0.425% of the next $500 million of average daily net assets and 0.40% of
average daily net assets over $1 billion.
For
the fiscal year ended December 31, 2022, the fund paid LMPFA an effective
management fee of 0.34%, inclusive of fees recaptured pursuant to the fund’s
expense limitation arrangements, of the fund’s average daily net assets for
management services. The effective management fee reflects any fees waived by
the manager (including any fees waived in connection with investments by the
fund in affiliated investment companies for which the fund paid a management
fee).
A
discussion regarding the basis for the Board’s approval of the fund’s management
agreement and subadvisory agreements is available in the fund’s Semi-Annual
Report for the period ended June 30, 2022.
Expense limitation
The
manager has agreed to waive fees and/or reimburse operating expenses (other than
interest, brokerage commissions, taxes, extraordinary expenses, deferred
organizational expenses and acquired fund fees and expenses) so that the ratio
of total annual fund operating expenses will not exceed 0.82% for Class A
shares, 1.65% for Class C shares, 1.42% for Class C1 shares, 0.85% for
Class FI shares, 1.15% for Class R shares, 0.45% for Class I
shares and 0.42% for Class IS shares, subject to recapture as described
below. In addition, the ratio of total annual fund operating expenses for
Class IS shares will not exceed the ratio of total annual fund operating
expenses for Class I shares, subject to recapture as described below. These
arrangements are expected to continue until December 31, 2024, may be
terminated prior to that date by agreement of the manager and the Board, and may
be terminated at any time after that date by the manager. These arrangements,
however, may be modified by the manager to decrease total annual fund operating
expenses at any time. The manager is also permitted to recapture amounts waived
and/or reimbursed to a class within two years after the fiscal year in which the
manager earned the fee or incurred the expense if the class’ total annual fund
operating expenses have fallen to a level below the limits described above. In
no case will the manager recapture any amount that would result, on any
particular business day of the fund, in the class’ total annual fund operating
expenses exceeding the applicable limits described above or any other lower
limit then in effect. The manager has agreed to waive the fund’s management
fee to an extent sufficient to offset the net management fee payable in
connection with any investment in an affiliated money market fund. This
management fee waiver is not subject to recapture.
Additional information
The
fund enters into contractual arrangements with various parties, including, among
others, the fund’s manager and the subadvisers, who provide services to the
fund. Shareholders are not parties to, or intended (or “third-party”)
beneficiaries of, those contractual arrangements.
This
Prospectus and the SAI provide information concerning the fund that you should
consider in determining whether to purchase shares of the fund. The fund may
make changes to this information from time to time. Neither this Prospectus nor
the SAI is intended to give rise to any contract rights or other rights in any
shareholder, other than rights conferred by federal or state securities
laws.
Distribution
Franklin
Distributors, LLC (“Franklin Distributors” or the “Distributor”), an indirect,
wholly-owned broker/dealer subsidiary of Franklin Resources, serves as the
fund’s sole and exclusive distributor.
The
fund has adopted a shareholder services and distribution plan pursuant to Rule
12b‑1 under the Investment Company Act of 1940, as amended. Under the plan, the
fund pays distribution and/or service fees based on an annualized percentage of
average daily net assets of up to 0.25% for Class A shares; up to 1.00% for
Class C shares; up to 0.70% for Class C1 shares; up to 0.25% for
Class FI shares; and up to 0.50% for Class R shares. Payments by the
fund under its plan go to the Distributor, financial intermediaries and other
parties that provide services in connection with or are otherwise involved in
the distribution of its shares or administration of plans or programs that use
its shares as their funding medium, and to reimburse certain other expenses and
payments. From time to time, the Distributor and/or financial intermediaries may
agree to a reduction or waiver of these fees. These fees are an ongoing
expense and, over time, will increase the cost of your investment and may cost
you more than other types of sales charges. Class I shares and
Class IS shares are not subject to distribution and/or service fees under
the plan.
Additional payments
In
addition to payments made to intermediaries under the fund’s shareholder
services and distribution plan and other payments made by the fund for
shareholder services and/or recordkeeping, the Distributor, the manager and/or
their affiliates make payments for distribution, shareholder servicing,
marketing and promotional activities and related expenses out of their profits
and other available sources, including profits from their relationships with the
fund. These payments are not reflected as additional expenses in the fee table
contained in this Prospectus. The recipients of these payments may include the
Distributor and affiliates of the manager, as well as Service Agents through
which investors may purchase shares of the fund, including your Service Agent.
The total amount of these payments is substantial, may be substantial to any
given recipient and may exceed the costs and expenses incurred by the recipient
for any fund-related marketing or shareholder servicing activities. The payments
described in this
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paragraph
are often referred to as “revenue sharing payments.” Revenue sharing
arrangements are separately negotiated between the Distributor, the manager
and/or their affiliates, and the recipients of these payments.
Revenue
sharing payments create an incentive for an intermediary or its employees or
associated persons to recommend or sell shares of the fund to you. Contact your
Service Agent for details about revenue sharing payments it receives or may
receive. Additional information about revenue sharing payments is available in
the SAI. Revenue sharing payments, as well as payments by the fund under the
shareholder services and distribution plan or for recordkeeping and/or
shareholder services, also benefit the manager, the Distributor and their
affiliates to the extent the payments result in more assets being invested in
the fund on which fees are being charged.
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Western
Asset Core Bond Fund |
Choosing a share class
The
fund offers multiple share classes. Each share class represents an investment in
the same portfolio of securities, but each has different availability (for
example, not all Service Agents offer all share classes), eligibility criteria,
expense structures and arrangements for shareholder services or distribution,
allowing you to choose the class that best meets your needs. You should read
this section carefully and speak with your Service Agent (if applicable) to
determine which share class is most appropriate for you. When choosing the
appropriate share class, you should consider the following factors:
| • |
|
the
amount you plan to invest; |
| • |
|
the
length of time you expect to own the shares; |
| • |
|
the
total costs associated with your investment, including any sales charges
that you pay when you buy or sell fund shares and expenses that are paid
out of fund assets over time; |
| • |
|
whether
you qualify for any reduction or waiver of the sales
charge; |
| • |
|
the
availability of the share class; |
| • |
|
the
services that will be available to you and whether you meet any
eligibility criteria; and |
| • |
|
the
amount of compensation that your Service Agent will
receive. |
For
example, when choosing between Class A or Class C shares, you should
be aware that, generally speaking, the larger the size of your investment and
the longer your investment horizon, the more likely it will be that Class C
shares will not be as advantageous as Class A shares. The annual
distribution and/or service fees on Class C shares may cost you more over
the longer term than the front‑end sales charge and service fees you would pay
for larger purchases of Class A shares. If you are eligible to purchase
Class I shares, you should be aware that Class I shares are not
subject to a front‑end sales charge or distribution or service fees and
generally have lower annual expenses than Class A or Class C
shares.
Generally
speaking, Class A shares have lower annual operating expenses than
Class C/Class C1 shares but not as low as Class I/Class IS shares.
Overall, Class IS shares generally have the lowest annual expenses of all
share classes.
More
information about the fund’s classes of shares is available through the fund’s
website. You’ll find detailed information, free of charge and in a clear and
prominent format, about sales charges and ways you can qualify for reduced or
waived sales charges.
The
fund’s shares are distributed by Franklin Distributors.
Share class features
summary
The
following table summarizes key features of the fund’s share classes. In
addition, you should read carefully this Prospectus, including the fee table and
the expense example at the front of this Prospectus before choosing your share
class. If you are not purchasing shares directly from the fund, you should
contact your Service Agent for help choosing a share class that may be
appropriate for you. Capitalized terms used in the table have the definition
given to them in this Prospectus.
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Minimum initial investments1 |
|
Initial sales
charge |
|
Contingent deferred
sales charge |
|
Annual distribution
and/or service (12b‑1)
fees |
|
Exchange privilege2 |
|
Conversion to Class A
shares |
|
|
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| |
| Class A |
|
Generally,
$1,000 for all accounts except:
(i) $25
if establishing a Systematic Investment Plan;
(ii) $250
for IRAs; and
(iii) none
for certain fee‑based programs and retirement plans |
|
Up to
3.75%; reduced or waived for large purchases and certain investors. No
charge for purchases of $500,000 or more |
|
1.00%
on purchases of $500,000 or more if you redeem within 18 months of
purchase; waived for certain investors |
|
0.25%
of average daily net assets |
|
Class A
shares of funds sold by the Distributor |
|
N/A |
|
|
|
|
|
|
| |
| Class C |
|
Generally,
$1,000 for all accounts except:
(i) $25
if establishing a Systematic Investment Plan;
(ii) $250
for IRAs; and
(iii) none
for certain fee‑based programs and retirement plans |
|
None |
|
1.00%
if you redeem within 1 year of purchase; waived for certain
investors |
|
1.00%
of average daily net assets |
|
Class C
shares of funds sold by the Distributor |
|
Yes;
generally converts to Class A in the month of, or the month
following, the 8 year anniversary of the Class C share purchase date
(conversion date occurs typically on a Friday in the middle of the month);
please consult your Service Agent for more information |
|
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| |
| Class C1 |
|
• Class C1
shares are not available for purchase by new or existing
investors |
|
None |
|
1.00%
if you redeem within 1 year of purchase; waived for |
|
0.70%
of average daily net assets |
|
Class C1
shares of funds sold by the Distributor or if a fund does not |
|
Yes;
generally converts to Class A in the month of, or the month
following, the 8 |
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(except
for investors previously authorized prior to the closure of such share
class)
• Class C1
shares will continue to be available for dividend reinvestment and
incoming exchanges |
|
|
|
certain
investors |
|
|
|
offer
Class C1 shares, Class C shares |
|
year
anniversary of the Class C1 share purchase date (conversion date
occurs typically on a Friday in the middle of the month); please consult
your Service Agent for more information |
|
|
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| |
| Class FI |
|
None |
|
None |
|
None |
|
0.25%
of average daily net assets |
|
Class FI
shares of funds sold by the Distributor* |
|
No |
|
|
|
|
|
|
| |
| Class R |
|
None |
|
None |
|
None |
|
0.50%
of average daily net assets |
|
Class R
shares of funds sold by the Distributor* |
|
No |
|
|
|
|
|
|
| |
| Class I |
|
• $1,000,000;
• Waived for
certain Service Agents with arrangements with the Distributor, Omnibus
Retirement Plans and certain individuals affiliated with
Legg Mason;
• However,
investors investing through a Service Agent acting as agent on behalf of
its customers will be subject to the following minimums:
(i) if
investing through a Systematic Investment Plan, $25;
(ii) if
an individual investor, $1,000; and
(iii) none
for certain fee‑based programs |
|
None |
|
None |
|
None |
|
Class I
shares of funds sold by the Distributor* |
|
No |
|
|
|
|
|
|
| |
| Class IS |
|
• $1,000,000;
• Waived for
certain Service Agents with arrangements with the Distributor and Omnibus
Retirement Plans
• However,
investors investing through a Service Agent acting as agent on behalf of
its customers will be subject to the following minimums:
(i) if
investing through a Systematic Investment Plan, $25;
(ii) if
an individual investor $1,000; and
(iii) none
for certain fee-based programs |
|
None |
|
None |
|
None |
|
Class IS
shares of funds sold by the Distributor* |
|
No |
| 1 |
Please
note that the minimum initial investment amount must be met on a per class
basis. However, initial investments in Class C shares may be combined
with existing investment amounts in Class C1 shares for the purposes
of satisfying the initial investment minimums of Class C shares. In
addition, your Service Agent may impose higher or lower investment
minimums, or may impose no minimum investment
requirement. |
| 2 |
You
or your Service Agent may instruct the fund to exchange shares of any
class for shares of the same class of any other fund sold by the
Distributor, provided that the fund shares to be acquired in the exchange
are available to new investors in such other fund and that you are
eligible to invest in such shares. For investors investing through
retirement and benefit plans or fee‑based programs, you should contact
your Service Agent that administers your plan or sponsors the fee‑based
program to request an exchange. Certain retirement plan programs with
exchange features in effect prior to November 20, 2006, as approved
by the Distributor, remain eligible for exchange from Class C shares
to Class A shares in accordance with the program terms. Please see
the SAI for more details. In addition, you may exchange shares of the fund
for another share class of the same fund if you meet the eligibility
requirements of that particular class. Please contact your Service Agent
or the fund about funds available for exchange. |
| * |
If
this share class is not available, you may be eligible to exchange into a
different share class of such fund; see “Exchanging shares—Exchangeability
between funds without the same share class”
below. |
Share class availability
You
may buy shares of the fund either directly from the fund or through a Service
Agent. Please note that your Service Agent may not offer all classes of shares
since each Service Agent determines which share class(es) to make available to
its clients. Your Service Agent may receive
|
|
|
|
| |
| 30 |
|
| |
Western
Asset Core Bond Fund |
different
compensation for selling one class of shares than for selling another class,
which may depend on, among other things, the type of investor account and the
practices adopted by your Service Agent. Each class of shares, except
Class IS shares, is authorized to pay fees for recordkeeping services,
account servicing, networking, or similar services to Service Agents. As a
result, operating expenses of classes that incur new or additional recordkeeping
fees may increase over time. Certain Service Agents may impose their own
investment fees and maintain their own practices for purchasing and selling fund
shares, including higher or lower investment minimums or none at all; these
practices are not described in this Prospectus or the SAI and will depend on the
policies, procedures and trading platforms of the Service Agent. Your Service
Agent may provide shareholder services that differ from the services provided by
other Service Agents. Services provided by your Service Agent may vary by
class.
Plan
sponsors, plan fiduciaries and other Service Agents may choose to impose
qualification requirements that differ from the fund’s share class eligibility
standards as stated in this Prospectus. In certain cases, this could result in
the selection of a share class with higher distribution and/or service fees than
otherwise would have been incurred. The fund is not responsible for, and has no
control over, the decision of any plan sponsor, plan fiduciary or Service Agent
to impose such differing requirements. Please consult with your plan sponsor,
plan fiduciary or Service Agent for more information about available share
classes.
Please
contact your Service Agent about the availability of fund shares, the
shareholder services it provides for each class, the compensation it receives in
connection with the sale of each share class and the Service Agent’s practices
and other information.
The
following table provides information on the availability of each share class
based on investor type, subject to the share class’ eligibility requirements.
Your Service Agent can help you determine which share class is appropriate for
you. The fund reserves the right to modify or
waive the eligibility policies for share class availability at any
time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
A |
|
C1 |
|
C1 |
|
FI1 |
|
R |
|
I |
|
IS |
| Individual
Investors |
|
✓ |
|
✓ |
|
|
|
|
|
|
|
✓2,3 |
|
✓2 |
| Omnibus
Retirement Plans |
|
✓ |
|
✓ |
|
✓4 |
|
✓ |
|
✓1 |
|
✓ |
|
✓ |
| Individual
Retirement Plans |
|
✓ |
|
✓ |
|
✓ |
|
|
|
|
|
✓ |
|
|
| Clients
of Eligible Financial Intermediaries |
|
✓ |
|
✓ |
|
|
|
✓ |
|
✓ |
|
✓5 |
|
✓5 |
| Institutional
Investors |
|
✓ |
|
✓ |
|
|
|
|
|
|
|
✓ |
|
✓ |
| 1 |
Shares
are not available for purchase through accounts where the Distributor is
the broker-dealer of record (“Distributor
Accounts”). |
| 2 |
Individual
investors investing through a Service Agent may be eligible to invest in
Class I or Class IS shares, if such Service Agent is acting
solely as an agent on behalf of its customers pursuant to an agreement
with the Distributor and such investor’s shares are held in an omnibus
account on the books of the fund. Please contact your Service Agent for
more information. |
| 3 |
Class
I shares may be purchased directly from the fund by the following persons:
(i) current employees of the manager and its affiliates;
(ii) former employees of the manager and its affiliates with existing
accounts; (iii) current and former board members of investment
companies managed by affiliates of Franklin Resources; (iv) current
and former board members of Franklin Resources; and (v) the
“immediate families” of such persons. “Immediate families” are such
person’s spouse (including the surviving spouse of a deceased board
member), parents, grandparents, and children and grandchildren (including
step-relationships). For such investors, the minimum initial investment is
$1,000 and the minimum for each purchase of additional shares is $50.
Current employees may purchase additional Class I shares through a
systematic investment plan. |
| 4 |
Class
C1 shares are not available for purchase by new or existing investors
(except for certain retirement plan programs authorized by the Distributor
prior to August 1, 2012). Class C1 shares will continue to be
available for dividend reinvestment and incoming
exchanges. |
| 5 |
Investors
who qualify as Clients of Eligible Financial Intermediaries or who
participate in Eligible Investment Programs made available through their
Service Agents (such as investors in fee‑based advisory or mutual fund
“wrap” programs) are eligible to purchase, directly or via exchange,
Class I or Class IS shares, among other share classes. In such
cases your ability to hold Class I or Class IS shares may be
premised on your continuing participation in a fee‑based advisory or
mutual fund wrap program. Your Service Agent may reserve the right to
redeem your Class I or Class IS shares or exchange your
Class I or Class IS shares or exchange them for Class A
shares of the same fund, as applicable, if you terminate your fee‑based
advisory or mutual fund wrap program and are no longer eligible for
Class I or Class IS shares. You may be subject to an initial
sales charge in connection with such exchange, and you will be subject to
the annual distribution and/or service fee applicable to Class A
shares. Any redemption may generate a taxable gain or loss and
significantly change the asset allocation of your
account. |
|
| |
| Omnibus
Retirement Plans are retirement plans held on the books of the fund in a
plan level or omnibus level account and include: (i) 401(k) plans; (ii) 457 plans;
(iii) employer-sponsored 403(b) plans; (iv) profit-sharing
plans; (v) non‑qualified deferred compensation plans;
(vi) employer-sponsored benefit plans (including health savings
accounts); (vii) defined benefit plans; (viii) other similar
employer-sponsored retirement and benefit plans; (ix) individual
retirement accounts that are administered on the same IRA recordkeeping
platform and that invest in the fund through a single omnibus account
pursuant to a special contractual arrangement with the fund or the
Distributor; and (x) investors who rollover fund shares from a
retirement plan into an individual retirement account administered on the
same retirement plan platform. SIMPLE IRAs are considered Omnibus
Retirement Plans if they are employer-sponsored and held at the plan
level. |
| |
| Individual Retirement Plans include: (i) retirement plans investing through
brokerage accounts; (ii) certain retirement plans with direct
relationships to the fund that are not Institutional Investors nor
investing through omnibus accounts; and (iii) individual retirement
vehicles not held through an omnibus account, such as:
(a) traditional and Roth IRAs; (b) Coverdell education savings
accounts; (c) individual 403(b)(7) custodial accounts; (d) Keogh
plans; (e) SEPs; (f) SARSEPs; and (g) SIMPLE IRAs or similar
accounts. Individual Retirement Plans include plans held at the individual
participant level. Individual Retirement Plans are treated like individual
investors for purposes of determining sales charges and
any |
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
31 |
|
|
| |
| applicable sales charge reductions or
waivers. |
| |
| Clients
of Eligible Financial Intermediaries include: investors who invest in the fund through
Service Agents that (a) charge such investors an ongoing fee for
advisory, investment, consulting or similar services, or (b) have
entered into an agreement with the Distributor to offer Class A,
Class C, Class FI, Class R, Class I or Class IS
shares through a no‑load network or platform (including college savings
vehicles) (“Eligible Investment Programs”). These investors may include
(i) investors who invest in the fund through the program of a Service
Agent where the investor typically invests $10 million or more in
assets under management in accounts with the Service Agent (“Management
Accounts”); (ii) pension and profit sharing plans; (iii) other
employee benefit trusts; (iv) endowments; (v) foundations;
(vi) corporations; (vii) college savings vehicles such as
Section 529 plans; and (viii) direct retail investment platforms
through mutual fund “supermarkets,” where the sponsor links its client’s
account (including IRA accounts on such platforms) to a master account in
the sponsor’s name. |
| |
| Institutional Investors may include: (i) corporations; (ii) banks;
(iii) trust companies; (iv) insurance companies;
(v) investment companies; (vi) foundations; (vii) endowments;
and (viii) other similar entities. The Distributor or the Service
Agent may impose additional eligibility requirements or criteria to
determine if an investor, including the types of investors listed above,
qualifies as an Institutional Investor. |
To visit the website, go
to www.franklintempleton.com/mutualfunds, and click on the name of the fund. On
the selected fund’s page, scroll to the bottom of the page and click on the
disclosure labeled “Click here for funds sales charge and breakpoint
information.”
Additional information
about each share class
Class A shares
The
public offering price of Class A shares is the net asset value per share
plus the applicable sales charge, unless you qualify for a sales charge
waiver.
Sales charges
The
following table shows the front‑end sales charge that you may pay, depending on
the amount you purchase. You pay a lower rate as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge on
the fund’s distributions or dividends that you reinvest in additional
Class A shares.
It
also shows the amount of compensation that will be paid to your Service Agent
out of the sales charge if you buy shares from a Service Agent. As shown below,
the sales charge may be allocated between your Service Agent and the
Distributor. Service Agents will receive a distribution and/or service fee
payable on Class A shares at an annual rate of up to 0.25% of the average
daily net assets represented by the Class A shares serviced by them. The
Distributor may not pay Service Agents selling Class A shares to Omnibus
Retirement Plans a commission on the purchase price of Class A shares sold
by them. However, for Omnibus Retirement Plans that are permitted to purchase
shares at net asset value, the Distributor may pay Service Agents commissions of
up to 1.00% of the purchase price of the Class A shares that are purchased
with regular ongoing plan contributions. Please contact your Service Agent for
more information.
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Amount of investment |
|
Sales charge
as a %
of
offering price |
|
|
Sales charge
as a % of net
amount
invested |
|
|
Service
Agent
commission as
a % of
offering price |
|
| Less
than $100,000 |
|
|
3.75 |
|
|
|
3.90 |
|
|
|
3.50 |
|
| $100,000
but less than $250,000 |
|
|
3.25 |
|
|
|
3.36 |
|
|
|
3.00 |
|
| $250,000
but less than $500,000 |
|
|
2.25 |
|
|
|
2.30 |
|
|
|
2.25 |
|
| $500,000
or more1 |
|
|
-0- |
|
|
|
-0- |
|
|
|
up to 1.00 |
|
| 1 |
The
Distributor may pay a commission of up to 1.00% to a Service Agent for
purchase amounts of $500,000 or more. In such cases, starting in the
thirteenth month after purchase, the Service Agent will also receive an
annual distribution and/or service fee of up to 0.25% of the average daily
net assets represented by the Class A shares held by its
clients. Prior to the thirteenth month, the Distributor will retain
this fee. Where the Service Agent does not receive the payment of
this commission, the Service Agent will instead receive the annual
distribution and/or service fee starting immediately after
purchase. Please contact your Service Agent for more
information. |
Reductions, waivers or
elimination of sales charges for Class A shares
Larger purchases
You
may reduce or eliminate your Class A front‑end sales charge by purchasing
greater quantities. You pay a lower rate as the size of your investment
increases to the breakpoint levels indicated in the chart above. You do not pay
an initial sales charge when you buy $500,000 or more of Class A shares.
However, if you redeem these Class A shares within 18 months of purchase,
you will pay a contingent deferred sales charge of 1.00%. Please see “Contingent
deferred sales charges—Class A, Class C and Class C1 shares”
below.
|
|
|
|
| |
| 32 |
|
| |
Western
Asset Core Bond Fund |
Letter of intent and
accumulation privilege
There
are several ways you can combine Eligible Purchases (as defined below) within
Eligible Accounts (as defined below) to take advantage of the breakpoints in the
Class A sales charge schedule. In order to take advantage of
reductions in sales charges that may be available to you when you purchase fund
shares, you must inform your Service Agent or the fund if you believe you are
eligible for a letter of intent or a right of accumulation. Whether you made
Eligible Purchases through one or more Service Agents, directly from the fund or
through a combination of the foregoing, it is your responsibility to inform your
Service Agent or the fund if you own Eligible Purchases that you believe are
eligible to be aggregated with your purchases. If you do not do so, you may not receive all sales
charge reductions for which you are eligible. Account statements may be
necessary in order to verify your eligibility for a reduced sales charge.
Eligible
Purchases include: (i) any class of shares of any other Legg Mason or
Franklin Templeton fund other than shares of such funds offered through
separately managed accounts that are managed by Legg Mason or Franklin
Templeton; and (ii) units of a Section 529 Plan managed by Legg Mason
or Franklin Templeton. For purposes of a letter of intent and the accumulation
privilege, Legg Mason and Franklin Templeton funds include BrandywineGLOBAL
funds, ClearBridge Investments funds, Martin Currie funds, and Western Asset
funds. They do not include the funds in the Franklin Templeton Variable
Insurance Products Trust, Legg Mason Partners Variable Equity Trust, Legg Mason
Partners Variable Income Trust or Legg Mason Partners Money Market Trust (except
for shares held in Distributor Accounts). Please contact your Service Agent or
the fund for more information.
Eligible
Accounts include shares of Legg Mason and Franklin Templeton funds registered to
(or held by a financial intermediary for):
| |
• |
|
Your
“family member,” defined as your spouse or domestic partner, as recognized
by applicable state law, or your children; |
| |
• |
|
You
jointly with one or more family members; |
| |
• |
|
You
jointly with one or more persons who are not family members if that other
person has not included the value of the jointly-owned shares for purposes
of the accumulation privilege (as described below) for that person’s
separate investments in Legg Mason or Franklin Templeton fund
shares; |
| |
• |
|
A
Coverdell Education Savings account for which you or a family member is
the identified responsible person; |
| |
• |
|
A
trustee/custodian of an IRA (which includes a Roth IRA and an employer
sponsored IRA such as a SIMPLE IRA) or your non‑ERISA covered 403(b) plan
account, if the shares are registered/recorded under your or a family
member’s Social Security number; |
| |
• |
|
A
529 college savings plan over which you or a family member has investment
discretion and control; |
| |
• |
|
Any
entity over which you or a family member has individual or shared
authority, as principal, has investment discretion and control (for
example, an UGMA/UTMA account for a child on which you or a family member
is the custodian, a trust on which you or a family member is the trustee,
a business account (not to include retirement plans) for your solely owned
business (or the solely owned business of a family member) on which you or
a family member is the authorized signer); or |
| |
• |
|
A
trust established by you or a family member as
grantor. |
Legg
Mason and Franklin Templeton fund shares held through an administrator or
trustee/custodian of an Employer Sponsored Retirement Plan (see definition
below) such as a 401(k) plan do not qualify for the accumulation
privilege.
Legg
Mason and Franklin Templeton fund assets held in multiple Employer Sponsored
Retirement Plans (as defined below) may be combined in order to qualify for
sales charge breakpoints at the plan level if the plans are sponsored by the
same employer.
An
“Employer Sponsored Retirement Plan” is a Qualified Retirement Plan (as defined
below), ERISA covered 403(b) plan or certain non‑qualified deferred compensation
arrangements that operate in a similar manner to a Qualified Retirement Plan,
such as 457 plans and executive deferred compensation arrangements, but not
including employer sponsored IRAs. A “Qualified Retirement Plan” is an employer
sponsored pension or profit sharing plan that qualifies under section 401(a) of
the Internal Revenue Code, including 401(k), money purchase pension, profit
sharing and defined benefit plans.
Letter of intent. You may qualify for a reduced front‑end sales charge
by signing a “Letter of Intent”. A Letter of Intent allows you to combine the
current or cost value, whichever is higher, of Eligible Purchases in Eligible
Accounts with the value that you intend to purchase within the next 13 months,
which would, if bought all at once, qualify you for a reduced sales charge. In
addition, current holdings under the accumulation privilege may be included in
the Letter of Intent. Shares or units redeemed or sold prior to reaching the
threshold for a reduced sales charge will not be counted for these purposes. The
13‑month period begins when the Letter of Intent is received by the fund or your
Service Agent and you must inform your Service Agent or the fund that later
purchases are subject to a Letter of Intent. Account statements may be necessary
in order to verify your eligibility. If you hold Eligible Purchases in accounts
at two or more Service Agents, please contact your Service Agent to determine
which shares/units may be credited toward the Letter of Intent. Certain
directors, trustees and fiduciaries may be entitled to combine accounts in
determining their sales charge.
During
the term of the Letter of Intent, the fund will hold Class A shares
representing up to 5% of the indicated amount in an escrow account for payment
of the sales charge due if you do not meet the intended asset level goal during
the 13‑month term of the Letter of Intent. If the full amount is not purchased
during the 13‑month period, shares in the amount of any sales charge due, based
on the amount of actual purchases will be redeemed from your account.
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
33 |
|
Accumulation privilege. The accumulation privilege allows you to combine the
current or cost value, whichever is higher, of Eligible Purchases in Eligible
Accounts with the dollar amount of your next purchase of Class A shares in
determining whether you qualify for a breakpoint and a reduced front‑end sales
charge. The current value of shares is determined by multiplying the number of
shares as of the day prior to your current purchase by their public offering
price. The cost value of shares is determined by aggregating the amount of
Eligible Purchases in Eligible Accounts (including reinvested dividends and
capital gains, but excluding capital appreciation), less any withdrawals, as of
the date prior to your current purchase. The cost value of Eligible Purchases in
Eligible Accounts, however, may only be aggregated for share purchases that took
place within 18 months of your current purchase or your letter of intent start
date, if applicable. You must inform your Service Agent or the fund if you are
eligible for the accumulation privilege and of the other Eligible Purchases you
own that are eligible to be aggregated with your purchases. Account statements
may be necessary in order to verify your eligibility. If you hold Eligible
Purchases in accounts at two or more Service Agents, please contact your Service
Agent to determine which Eligible Purchases may be credited toward the
accumulation privilege.
Waivers for certain
Class A investors
Class A
initial sales charges are waived for certain types of investors,
including:
| • |
|
Shareholders
investing in Class A shares through Distributor
Accounts |
| • |
|
Investors
who redeemed at least the same amount of Class A shares of a fund
sold by the Distributor in the past 90 days, if the investor’s Service
Agent is notified |
| • |
|
Directors
and officers of any Legg Mason or Franklin Templeton
fund |
| • |
|
Employees
of Franklin Resources and its subsidiaries |
| • |
|
Investors
investing through certain retirement plans |
| • |
|
Investors
who rollover fund shares from an employer-sponsored retirement plan into
an individual retirement account administered on the same retirement plan
platform |
If
you qualify for a waiver of the Class A initial sales charge, you must
notify your Service Agent or the fund at 877‑6LM‑FUND/656‑3863 at the time of
purchase and provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the initial sales charge
waiver.
Different
Service Agents may impose different sales loads or offer different ways to
reduce sales loads. These variations are described at the end of this Prospectus
in the appendix titled “Appendix: Waivers and Discounts Available from Certain
Service Agents.”
For additional
information regarding waivers of Class A initial sales charges, contact
your Service Agent or the fund, consult the SAI or visit
www.franklintempleton.com/mutualfunds and click on the name of the fund. On the
selected fund’s page, scroll to the bottom of the page and click on the
disclosure labeled “Click here for funds sales charge and breakpoint
information.”
Class C shares
You
buy Class C shares at net asset value with no initial sales charge.
However, if you redeem your Class C shares within one year of purchase, you
will pay a contingent deferred sales charge of 1.00%. Omnibus Retirement Plans
may not be subject to a contingent deferred sales charge.
Except
as noted below, the Distributor generally will pay Service Agents selling
Class C shares a commission of up to 1.00% of the purchase price of the
Class C shares they sell. The Distributor will retain the contingent
deferred sales charges and an annual distribution and/or service fee of up to
1.00% of the average daily net assets represented by the Class C shares
serviced by these Service Agents until the thirteenth month after purchase.
Starting in the thirteenth month after purchase, these Service Agents will
receive an annual distribution and/or service fee of up to 1.00% of the average
daily net assets represented by the Class C shares serviced by them. The
Distributor may not pay Service Agents selling Class C shares to Omnibus
Retirement Plans a commission on the purchase price of Class C shares sold
by them. Instead, immediately after purchase, the Distributor may pay these
Service Agents an annual distribution and/or service fee of up to 1.00% of the
average daily net assets represented by the Class C shares serviced by
them.
Class C1 shares
Class C1
shares are not available for purchase by new or existing investors (except for
certain retirement plan programs authorized by the Distributor prior to
August 1, 2012). Class C1 shares are available for dividend
reinvestment and incoming exchanges of Class C1 shares from other funds
sold by the Distributor. You buy Class C1 shares at net asset value with no
initial sales charge. However, if you redeem your Class C1 shares within
one year of purchase, you will pay a contingent deferred sales charge of 1.00%.
However, if you exchange Class C1 shares that were not subject to a
contingent deferred sales charge when initially purchased for Class C1
shares of a fund that imposes a contingent deferred sales charge, your
contingent deferred sales charge will be measured from the date of your
exchange.
The
Distributor will retain the contingent deferred sales charges and an annual
distribution and/or service fee of up to 0.70% of the average daily net assets
represented by the Class C1 shares serviced by these Service Agents until
the thirteenth month after purchase. Starting in the thirteenth month after
purchase, these Service Agents will receive an annual distribution and/or
service fee of up to 0.70% of the average daily net assets represented by the
Class C1 shares serviced by them.
|
|
|
|
| |
| 34 |
|
| |
Western
Asset Core Bond Fund |
Class C and
Class C1 share conversion
Except
as noted below, Class C and Class C1 shares automatically convert to
Class A shares after the shares have been held for 8 years from the
purchase date; the shares will be converted in the month of, or the month
following, the 8‑year anniversary of purchase. The monthly conversion processing
date typically occurs around the middle of every month and generally falls on a
Friday. It is the responsibility of your Service Agent and not the fund or the
Distributor to ensure that you are credited with the proper holding period. If
your Service Agent does not have records verifying that your shares have been
held for at least 8 years, your Service Agent may not convert your Class C
or Class C1 shares to Class A shares. Group retirement plans held in
an omnibus recordkeeping platform through a Service Agent that does not track
participant-level share lot aging may not convert Class C or Class C1
shares to Class A shares. Customers of certain Service Agents may be
subject to different terms or conditions, as set by their Service Agent, in
connection with such conversions. Please refer to the appendix titled “Appendix:
Waivers and Discounts Available from Certain Service Agents” on page A‑1 of this
Prospectus or contact your Service Agent for more information.
For
Class C and Class C1 shares that have been acquired through an
exchange from another fund sold by the Distributor, the purchase date is
calculated from the date the shares were originally acquired in the other fund.
When Class C and Class C1 shares that a shareholder acquired through a
purchase or exchange convert, any other Class C and Class C1 shares
that the shareholder acquired as reinvested dividends and distributions related
to those shares also will convert into Class A shares on a pro rata
basis.
All
conversions from Class C or Class C1 shares to Class A shares
will be based on the per share net asset value without the imposition of any
sales load, fee or other charge. The conversion from Class C or
Class C1 shares to Class A shares is not considered a taxable event
for federal income tax purposes.
Contingent deferred sales
charges—Class A, Class C and Class C1 shares
The
contingent deferred sales charge is based on the net asset value at the time of
purchase or redemption, whichever is less, and therefore you do not pay a sales
charge on amounts representing appreciation or depreciation.
In
addition, you do not pay a contingent deferred sales charge:
| • |
|
When
you exchange shares for shares of the same share class of another fund
sold by the Distributor |
| • |
|
On
shares representing reinvested distributions and
dividends |
| • |
|
On
shares no longer subject to the contingent deferred sales
charge |
Each
time you place a request to redeem shares, the fund will first redeem any shares
in your account that are not subject to a contingent deferred sales charge and
then redeem the shares in your account that have been held the longest.
If
you redeem shares of a fund sold by the Distributor and pay a contingent
deferred sales charge, you may, under certain circumstances, reinvest all or
part of the redemption proceeds within 90 days in any other fund sold by the
Distributor and receive pro rata credit for any contingent deferred sales charge
imposed on the prior redemption. Please contact your Service Agent or the fund
for additional information.
The
Distributor receives contingent deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Service Agent.
Contingent deferred sales
charge waivers
The
contingent deferred sales charge for each share class will generally be
waived:
| • |
|
On
payments made through certain systematic withdrawal
plans |
| • |
|
On
certain distributions from a retirement plan |
| • |
|
For
certain Omnibus Retirement Plans |
| • |
|
For
involuntary redemptions of small account
balances |
| • |
|
For
12 months following the death or disability of a
shareholder |
| • |
|
On
redemptions with respect to investors where the Distributor did not pay
the Service Agent a commission |
To
have your contingent deferred sales charge waived, you or your Service Agent
must let the fund know at the time you redeem shares that you qualify for such a
waiver.
Different
Service Agents may offer different contingent deferred sales charge waivers.
These variations are described at the end of this Prospectus in the appendix
titled “Appendix: Waivers and Discounts Available from Certain Service
Agents.”
For additional
information regarding waivers of contingent deferred sales charges, contact your
Service Agent or the fund, consult the SAI or visit the fund’s website,
www.franklintempleton.com/mutualfunds, and click on the name of the fund. On the
selected fund’s page, scroll to the bottom of the page and click on the
disclosure labeled “Click here for funds sales charge and breakpoint
information.”
|
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|
| |
| Western Asset Core Bond
Fund |
|
| |
|
35 |
|
Class FI shares
You
buy Class FI shares at net asset value with no initial sales charge and no
contingent deferred sales charge when redeemed. Service Agents receive an annual
distribution and/or service fee of up to 0.25% of the average daily net assets
represented by the Class FI shares serviced by them.
Class R shares
You
buy Class R shares at net asset value with no initial sales charge and no
contingent deferred sales charge when redeemed.
Service
Agents receive an annual distribution and/or service fee of up to 0.50% of the
average daily net assets represented by the Class R shares serviced by
them.
Class I and
Class IS shares
You
buy Class I or Class IS shares at net asset value with no initial
sales charge, no contingent deferred sales charge when redeemed and no
asset-based fee for sales or distribution. However, if you purchase Class I
or Class IS shares through a Service Agent acting solely as an agent on
behalf of its customers pursuant to an agreement with the Distributor, that
Service Agent may charge you a commission in an amount determined and separately
disclosed to you by the Service Agent.
Because
the fund is not a party to any commission arrangement between you and your
Service Agent, any purchases and redemptions of Class I or Class IS
shares will be made by the fund at the applicable net asset value (before
imposition of the sales commission). Any commissions charged by a Service Agent
are not reflected in the fees and expenses listed in the fee table or expense
example in this Prospectus nor are they reflected in the performance in the bar
chart and table in this Prospectus because these commissions are not charged by
the fund.
|
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| 36 |
|
| |
Western
Asset Core Bond Fund |
Buying shares
|
|
| |
| |
|
| Generally |
|
You
may buy shares at their net asset value next determined after receipt by
your Service Agent or the transfer agent of your purchase request in good
order, plus any applicable sales charge.
The
fund may not be available for sale in certain states. Prospective
investors should inquire as to whether the fund is available for sale in
their state of residence.
You
must provide the following information for your order to be
processed:
• Name of
fund being bought
• Class of
shares being bought
• Dollar
amount or number of shares being bought (as applicable)
• Account
number (if existing account)
|
|
| |
| Through a Service
Agent |
|
You
should contact your Service Agent to open an account and make arrangements
to buy shares.
Your
Service Agent may charge an annual account maintenance fee.
|
|
| |
Through the
fund |
|
Investors
should contact the fund at 877‑6LM‑FUND/656‑3863 to open an account and
make arrangements to buy shares.
For
initial purchases, complete and send your account application to the fund
at one of the following addresses:
Regular
Mail:
Legg Mason Funds
P.O. Box 33030
St. Petersburg, FL 33733-8030
Express,
Certified or Registered Mail:
Legg Mason Funds
100 Fountain Parkway
St. Petersburg, FL
33716-1205
Subsequent
purchases should be sent to the same address. Enclose a check to pay for
the shares. The fund will accept checks from other fund families and
investment companies as long as the registration name on your fund account
is the same as that listed on the check.
|
|
| |
| Through a
systematic investment plan |
|
You
may authorize your Service Agent or the fund transfer agent to transfer
funds automatically from (i) a regular bank account, (ii) cash
held in a brokerage account with a Service Agent, (iii) another fund
sold by the Distributor or (iv) certain money market funds, in order
to buy shares on a regular basis.
• Amounts
transferred must meet the applicable minimums (see “Purchase and sale of
fund shares”)
• If you do
not have sufficient funds in your account on a transfer date, you may be
charged a fee
• For
amounts transferred from other funds sold by the Distributor, please see
the section titled “Exchanging shares—Through a systematic exchange plan”
in such fund’s prospectus
For more
information, please contact your Service Agent or the fund, or consult the
SAI.
|
|
| |
|
Franklin
Templeton
VIP Services® |
|
You
may be eligible for Franklin Templeton VIP Services® if you currently have
$500,000 or more invested in Franklin Templeton affiliated funds based
solely on shares registered directly with the fund and excluding shares
held indirectly through brokerage accounts. Franklin Templeton VIP
Services®
shareholders enjoy enhanced services and transaction capabilities. Please
contact Shareholder Services at (800) 632‑2301 for additional information
on this program.
|
Additional information
about purchases
If
you pay with a check or electronic transfer (ACH) that does not clear or if your
payment is not received in a timely manner, your purchase may be cancelled and
you may be liable for any loss to the fund. Please note that the fund will not
accept cash, third-party checks, credit card convenience
|
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| Western Asset Core Bond
Fund |
|
| |
|
37 |
|
checks,
pre‑paid debit cards, non‑bank money orders, traveler’s checks or checks drawn
on foreign banks for purchase of fund shares. The fund and its agents have the
right to reject or cancel any purchase due to nonpayment.
Account registration
changes
Changes
in registration or certain account options for accounts held directly with the
fund must be made in writing. Medallion signature guarantees may be required.
(See “Other things to know about transactions—Medallion signature guarantees”
below.) All correspondence must include the account number and must be sent to
one of the following addresses:
Regular
Mail:
Legg Mason Funds
P.O. Box 33030
St. Petersburg, FL
33733-8030
Express,
Certified or Registered Mail:
Legg Mason Funds
100 Fountain Parkway
St. Petersburg, FL
33716-1205
|
|
|
|
| |
| 38 |
|
| |
Western
Asset Core Bond Fund |
Exchanging shares
|
|
|
|
|
|
|
|
| |
| |
|
| Generally |
|
You
or your Service Agent may instruct the fund to exchange shares of any
class for shares of the same class of any other fund sold by the
Distributor, provided that the fund shares to be acquired in the exchange
are available to new investors in such other fund and you are eligible to
invest in such shares. Additionally, if the fund into which you wish to
exchange your shares does not offer the class of shares in which you are
currently invested, you may be able to exchange for a different share
class (see “Exchangeability between funds without the same share class”
below).
In
addition, you may exchange shares of a fund for a different share class of
the same fund provided you meet the eligibility requirements of the share
class into which you are exchanging. You may exchange shares of the fund
for the same class of shares (or a different share class, if permitted) of
other funds sold by the Distributor on any day that both the fund and the
fund into which you are exchanging are open for business. Please contact
your Service Agent or the fund about funds available for exchange.
If
you hold Class C1 shares, you may exchange those shares for
Class C1 shares of other funds sold by the distributor, or if a fund
does not offer Class C1 shares, for Class C shares. However,
once you exchange Class C1 shares for Class C shares, you would
not be permitted to exchange from Class C shares back to
Class C1 shares.
An
exchange of shares of one fund for shares of another fund is considered a
sale and generally results in a capital gain or loss for federal income
tax purposes, unless you are investing through an IRA, 401(k) or other
tax‑advantaged account. An exchange of shares of one class directly for
shares of another class of the same fund normally should not be taxable
for federal income tax purposes. You should talk to your tax professional
before making an exchange.
The
exchange privilege is not intended as a vehicle for short-term trading.
The fund may suspend or terminate your exchange privilege if you engage in
a pattern of excessive exchanges.
|
|
| |
| Exchangeability
between funds without the same share class |
|
If
the fund you are exchanging into does not offer your share class, you may
be able to exchange your shares for a different share class.
|
| |
| |
Exchange from share class |
|
Exchangeable for |
|
|
| |
| |
Class I |
|
Class A
shares of Franklin U.S. Government Money Fund, Advisor Class or
Class Z |
|
|
| |
| |
Class IS |
|
Advisor
Class, Class Z or Class R6 |
|
|
| |
| |
Class FI |
|
Class R |
|
|
| |
| |
Class R |
|
Class FI |
|
|
|
| |
| |
|
| |
|
| Franklin Templeton
offers a distinctive family of funds tailored to help meet the varying
needs of large and small investors |
|
You
may exchange shares at their net asset value next determined after receipt
by your Service Agent or the transfer agent of your exchange request in
good order.
• If you
bought shares through a Service Agent, contact your Service Agent to learn
which funds your Service Agent makes available to you for exchanges
• If you
bought shares directly from the fund, contact the fund at
877‑6LM‑FUND/656‑3863 to learn which funds are available to you for
exchanges
• Generally,
exchanges may be made only between accounts that have identical
registrations, unless you send written instructions with a signature
guarantee
• Not all
funds offer all classes
• Some funds
are offered only in a limited number of states. Your Service Agent or the
fund will provide information about the funds offered in your state
Always
be sure to read the prospectus of the fund into which you are exchanging
shares.
|
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| |
| Western Asset Core Bond
Fund |
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| |
|
39 |
|
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|
| |
|
| |
| Investment
minimums, sales charges and other requirements |
|
• In most
instances, your shares will not be subject to an initial sales charge or a
contingent deferred sales charge at the time of the exchange. You may be
charged an initial or contingent deferred sales charge if the shares being
exchanged were not subject to a sales charge
• Except as
noted above, your contingent deferred sales charge (if any) will continue
to be measured from the date of your original purchase of shares subject
to a contingent deferred sales charge, and you will be subject to the
contingent deferred sales charge of the fund that you originally
purchased
• You will
generally be required to meet the minimum investment requirement for the
class of shares of the fund or share class into which your exchange is
made (except in the case of systematic exchange plans or in exchanges of
an entire account balance)
• Your
exchange will also be subject to any other requirements of the fund or
share class into which you are exchanging shares
• The fund
may suspend or terminate your exchange privilege if you engage in a
pattern of excessive exchanges
|
|
| |
| By
telephone |
|
Contact
your Service Agent or, if you hold shares directly with the fund, call the
fund at 877‑6LM‑FUND/656‑3863 for information. Exchanges are priced at the
net asset value next determined. Telephone exchanges may be made only
between accounts that have identical registrations and may be made on any
day the New York Stock Exchange (“NYSE”) is open.
|
|
| |
| By mail |
|
Contact
your Service Agent or, if you hold shares directly with the fund, write to
the fund at one of the following addresses:
Regular
Mail:
Legg Mason Funds
P.O. Box 33030
St. Petersburg, FL 33733-8030
Express,
Certified or Registered Mail:
Legg Mason Funds
100 Fountain Parkway
St. Petersburg, FL
33716-1205
|
|
| |
| Through a
systematic exchange plan |
|
You
may be permitted to schedule automatic exchanges of shares of the fund for
shares of other funds available for exchange. All requirements for
exchanging shares described above apply to these exchanges. In
addition:
• Exchanges
may be made monthly, every alternate month, quarterly, semi-annually
or annually
• Each
exchange must meet the applicable investment minimums for systematic
investment plans (see “Purchase and sale of fund shares”)
For more
information, please contact your Service Agent or the fund or consult the
SAI. |
|
|
|
|
| |
| 40 |
|
| |
Western
Asset Core Bond Fund |
Redeeming shares
|
|
| |
| |
|
| Generally |
|
You
may redeem shares at their net asset value next determined after receipt
by your Service Agent or the fund transfer agent of your redemption
request in good order, less any applicable contingent deferred sales
charge. Redemptions made through your Service Agent may be subject to
transaction fees or other conditions as set by your Service Agent.
If
the shares are held by a fiduciary or corporation, partnership or similar
entity, other documents may be required. |
|
| |
| Redemption
proceeds |
|
Your
redemption proceeds normally will be sent within 2 business days after
your request is received in good order, but in any event within 7 days,
regardless of the method the fund uses to make such payment (e.g., check,
wire or electronic transfer (ACH)). If you make a redemption request
before the fund has collected payment for the purchase of shares, the fund
may delay your proceeds until payment is collected, for up to 10
days.
Your
redemption proceeds may be delayed, or your right to receive redemption
proceeds suspended beyond 7 days, if the NYSE is closed (other than on
weekends or holidays) or trading is restricted, if an emergency exists, or
otherwise as permitted by order of the Securities and Exchange
Commission.
If
you have a brokerage account with a Service Agent, your redemption
proceeds may be sent to your Service Agent. Your redemption proceeds can
be sent by check to your address of record or by wire or electronic
transfer (ACH) to a bank account designated by you. To change the bank
account designated to receive wire or electronic transfers, you will be
required to deliver a new written authorization and may be asked to
provide other documents. You may be charged a fee by your bank on a
wire or an electronic transfer (ACH).
In
other cases, unless you direct otherwise, your proceeds will be paid by
check mailed to your address of record.
Under
normal circumstances, the fund expects to meet redemption requests by
using cash or cash equivalents in its portfolio and/or selling portfolio
assets to generate cash. The fund also may pay redemption proceeds using
cash obtained through borrowing arrangements that may be available from
time to time.
The
fund may pay all or a portion of your redemption proceeds by giving you
securities (for example, if the fund reasonably believes that a cash
redemption may have a substantial impact on the fund and its remaining
shareholders). You may pay transaction costs to dispose of the securities,
and you may receive less for them than the price at which they were valued
for purposes of the redemption.
The
fund has available an unsecured revolving credit facility (the “Global
Credit Facility”) that may be used as an additional source of liquidity to
fund redemptions of shares. There can be no assurance that the Global
Credit Facility will remain available to the fund generally or that any
available credit under the Global Credit Facility will be available to the
fund when the fund seeks to draw on the Global Credit Facility.
During
periods of deteriorating or stressed market conditions, when an increased
portion of the fund’s portfolio may be comprised of investments that have
lower liquidity, or during extraordinary or emergency circumstances, the
fund may be more likely to pay redemption proceeds with cash obtained
through short-term borrowing arrangements (if available) or by giving you
securities. |
|
| |
| By mail |
|
Contact
your Service Agent or, if you hold shares directly with the fund, write to
the fund at one of the following addresses:
Regular
Mail:
Legg Mason Funds
P.O. Box 33030
St. Petersburg, FL 33733-8030
Express,
Certified or Registered Mail:
Legg Mason Funds
100 Fountain Parkway
St. Petersburg, FL
33716-1205 |
|
| |
| |
|
Your
written request must provide the following:
• The fund
name, the class of shares being redeemed and your account number
• The dollar
amount or number of shares being redeemed
• Signature
of each owner exactly as the account is registered
• Medallion
signature guarantees, as applicable (see “Other things to know about
transactions”)
|
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
41 |
|
|
|
| |
|
| |
| By
telephone |
|
If
your account application permits, you may be eligible to redeem shares by
telephone. Contact your Service Agent or, if you hold shares directly with
the fund, call 877‑6LM‑FUND/656‑3863 for more information. Please have the
following information ready when you call:
• Name of
fund being redeemed
• Class of
shares being redeemed
• The dollar
amount or number of shares being redeemed
• Account
number
|
|
| |
| Systematic
withdrawal plans |
|
You
may be permitted to schedule automatic redemptions of a portion of your
shares. To qualify, you must own shares of the fund with a value of at
least $5,000 and each automatic redemption must be at least $50 per
transaction per month. For retirement plans subject to mandatory
distribution requirements, the minimum withdrawal amounts will not
apply.
The
following conditions apply:
• Redemptions
may be made monthly, quarterly, semi-annually or annually. Redemptions may
be processed on the 1st, 5th, 10th, 15th, 20th and 25th days of the month, if
no day is indicated, redemptions will be made on the 20th day of the
month.
• If your
shares are subject to a contingent deferred sales charge, the charge will
be required to be paid upon redemption. However, the charge will be waived
if your automatic redemptions do not exceed 1% monthly, 3% quarterly, 6%
semiannually or 12% annually of your account’s net asset value, depending
on the frequency of your plan.
• Your
Service Agent may impose a lower minimum amount for each automatic
redemption on a monthly and quarterly basis.
For more
information, please contact your Service Agent or the fund or consult the
SAI. |
|
|
|
|
| |
| 42 |
|
| |
Western
Asset Core Bond Fund |
Other things to know
about transactions
When
you buy, exchange or redeem shares, your request must be in good order. This
means you have provided the following information, without which your request
may not be processed:
| • |
|
In
the case of a purchase (including a purchase as part of an exchange
transaction), the class of shares being bought |
| • |
|
In
the case of an exchange or redemption, the class of shares being exchanged
or redeemed (if you own more than one class) |
| • |
|
Dollar
amount or number of shares being bought, exchanged or
redeemed |
| • |
|
In
certain circumstances, the signature of each owner exactly as the account
is registered (see “Redeeming shares”) |
In
certain circumstances, such as during periods of market volatility, severe
weather and emergencies, shareholders may experience difficulties placing
exchange or redemption orders by telephone. In that case, shareholders should
consider using the fund’s other exchange and redemption procedures described
under “Exchanging shares” and “Redeeming shares.”
The
transfer agent or the fund will employ reasonable procedures to confirm that any
telephone, electronic or other exchange or redemption request is genuine, which
may include recording calls, asking the caller to provide certain personal
identification information, employing identification numbers, sending you a
written confirmation or requiring other confirmation procedures from time to
time. If these procedures are followed, neither the fund nor its agents will
bear any liability for these transactions, subject to applicable law.
The
fund does not consider the U.S. Postal Service or private delivery services to
be its agents. Therefore, deposits in the mail or with such delivery services,
or receipt at the fund’s post office box, of purchase requests or redemption
orders, do not constitute receipt by the fund or its transfer agent.
The
fund has the right to:
| • |
|
Suspend
the offering of shares permanently or for a period of
time |
| • |
|
Waive
or change minimum initial and additional investment
amounts |
| • |
|
Reject
any purchase or exchange order |
| • |
|
Change,
revoke or suspend the exchange privilege |
| • |
|
Suspend
telephone transactions |
| • |
|
Suspend
or postpone redemptions of shares on any day when trading on the NYSE is
restricted or as otherwise permitted by the SEC |
| • |
|
Redeem
shares if information provided in the application should prove to be
incorrect in any manner judged by the fund to be material (e.g., in a
manner such as to render the shareholder ineligible to purchase shares of
that class) |
| • |
|
Delay
sending out redemption proceeds for up to seven days if, in the judgment
of the subadviser, the fund could be adversely affected by immediate
payment. The fund may delay redemptions beyond seven days, or suspend
redemptions, only as permitted by the SEC or the Investment Company Act of
1940, as amended |
| • |
|
Close
your account after a period of inactivity, as determined by state law, and
transfer your shares to the appropriate state |
For
your protection, the fund or your Service Agent may request additional
information in connection with large redemptions, unusual activity in your
account, or otherwise to ensure your redemption request is in good order. Please
contact your Service Agent or the fund for more information.
Medallion signature
guarantees
To
be in good order, you may be asked to include a Medallion signature guarantee
with your redemption request if you:
| • |
|
are
redeeming shares and sending the proceeds to an address or bank account
not currently on file or to an account in another fund sold by the
Distributor with a different account
registration |
| • |
|
are
redeeming more than $250,000 worth of shares |
| • |
|
changed
your account registration or your address within 15 calendar
days |
| • |
|
want
the check paid to someone other than the account
owner(s) |
| • |
|
are
transferring the redemption proceeds to an account with a different
registration |
For
other types of transactions involving changes to your account registration
information, please contact the fund or your Service Agent.
When
a Medallion signature guarantee is called for, the shareholder should have a
Medallion signature guarantee stamped under his or her signature. You can obtain
a signature guarantee from most banks, dealers, brokers, credit unions and
federal savings and loan institutions, national securities exchanges, registered
securities associations and clearing agencies (each an “Eligible Guarantor
Institution”), but not from a notary public.
The
fund and its agents reserve the right to reject any Medallion signature
guarantee pursuant to written signature guarantee standards or procedures, which
may be revised in the future to permit them to reject Medallion signature
guarantees from Eligible Guarantor Institutions. The fund may change the
signature guarantee requirements from time to time without prior notice to
shareholders.
|
|
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|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
43 |
|
Restrictions on the
availability of the fund outside the United States
The
distribution of this Prospectus and the offering of shares of the fund are
restricted in certain jurisdictions. This Prospectus is not an offer or
solicitation in any jurisdiction where such offer or solicitation is unlawful,
where the person making an offer or solicitation is not authorized to make it or
a person receiving an offer or solicitation may not lawfully receive it or may
not lawfully invest in the fund. Investors should inform themselves as to the
legal requirements within their own country before investing in the fund.
This
Prospectus, and the offer of shares hereunder, are not directed at persons
outside the United States. In particular, the fund is not intended to be
marketed to prospective investors in any member state of the European Union,
Iceland, Liechtenstein or Norway (collectively, the “European Economic Area” or
“EEA”). No notification or application has been made to the competent authority
of any member state of the EEA under the Alternative Investment Fund Managers
Directive (or any applicable legislation or regulations made thereunder) to
market the fund to investors in the EEA and it is not intended that any such
notification or application shall be made.
U.S.
citizens with addresses in the United States, and non‑U.S. citizens who reside
in the United States and have U.S. addresses, are permitted to establish
accounts with the fund. For these purposes, the “United States” and “U.S.”
include U.S. territories.
The
fund generally does not permit persons who do not reside in the United States or
who do not have U.S. addresses to establish accounts. Therefore, U.S. citizens
residing in foreign countries, as well as non‑U.S. citizens residing in foreign
countries, generally will not be permitted to establish accounts with the
fund.
For
further information, you or your Service Agent may contact the fund at
877‑6LM‑FUND/656‑3863.
Anti-money laundering
Federal
anti-money laundering regulations require all financial institutions to obtain,
verify and record information that identifies each person who opens an account.
When you sign your account application, you may be asked to provide additional
information in order for the fund to verify your identity in accordance with
these regulations. If you are opening the account in the name of a legal entity
(e.g. partnership, limited liability company, business trust, corporation,
etc.), you may also be required to supply the identity of the beneficial owners
and a control individual with management authority, prior to the opening of your
account. Accounts may be restricted and/or closed, and the monies withheld,
pending verification of this information or as otherwise required under these
and other federal regulations.
Small account
fees/Mandatory redemptions
Small
accounts may be subject to a small account fee or to mandatory redemption, as
described below. Please contact your Service Agent or the fund for information
on the policy applicable to your account.
Small account fees
To
offset the relatively higher impact on fund expenses of servicing smaller
accounts, the fund may charge you a fee of $3.75 per account that is determined
and assessed quarterly by your Service Agent or by the Distributor for
Distributor Accounts on the next‑to‑last business day of the quarter (with an
annual maximum of $15.00 per account) if the value of your account is below
$1,000 (if applicable, $250 for retirement plans that are not
employer-sponsored) for any reason (including declines in net asset value). The
small account fee will be charged by redeeming shares in your account. If the
value of your account is $3.75 or less, the amount in the account may be
exhausted to pay the small account fee. If your Service Agent or the Distributor
assesses a small account fee, the small account fee will not be assessed on
systematic investment plans until the end of the first quarter after the account
has been established for 21 months. Payment of the small account fee through a
redemption of fund shares may result in tax consequences to you (see “Taxes” for
more information).
The
small account fee will not be charged on, if applicable: (i) retirement
plans (but will be charged on other plans that are not employer-sponsored such
as traditional and Roth individual retirement accounts, Coverdell education
savings accounts, individual 403(b)(7) custodial accounts, Keogh plans, SEPs,
SARSEPs, SIMPLE IRAs or similar accounts); (ii) Legg Mason funds that have been
closed to subsequent purchases for all classes; (iii) accounts that do not
have a valid address as evidenced by mail being returned to the fund or its
agents; (iv) Class FI, Class R, Class I and Class IS
shares; and (v) for new accounts (except for new accounts opened by way of
an exchange), a small account fee will not be charged during the calendar
quarter in which you open your account.
If
your share class is no longer offered, you may not be able to bring your account
up to the minimum investment amount (although you may exchange into existing
accounts of other funds sold by the Distributor in which you hold the same share
class, to the extent otherwise permitted by those funds and subject to any
applicable sales charges).
The
small account fee is calculated on a fund‑by‑fund basis. If you have accounts in
multiple funds, they will not be aggregated for the purpose of calculating the
small account fee.
Some
shareholders who hold accounts in Classes A, C and C1 of the same fund, may have
those accounts aggregated for the purposes of these calculations. Please contact
the fund or your Service Agent for more information.
Small account balance
liquidations
The
fund reserves the right to ask you to bring your account up to a minimum
investment amount determined by your Service Agent if your account has been open
for more than one year and the aggregate value of the fund shares in your
account is less than $500. You will be notified in writing
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| 44 |
|
| |
Western
Asset Core Bond Fund |
and
will have 30 days to make an additional investment to bring your account value
up to the required level. If you choose not to do so within this 30‑day period,
the fund may close your account and send you the redemption proceeds. You will
not be charged a contingent deferred sales charge, if applicable, if your
account is closed for this reason. If your share class is no longer offered, you
may not be able to bring your account up to the minimum investment amount.
If
your account is closed, you will not be eligible to have your account reinstated
without imposition of any sales charges that may apply to your new purchase.
Please contact your Service Agent for more information. Any redemption of fund
shares may result in tax consequences to you (see “Taxes” for more
information).
This
policy does not apply to: (i) certain broker-controlled accounts
established through the National Securities Clearing Corporation’s Networking
system; (ii) Class A accounts established pursuant to a conversion
from Class C or C1, and any remaining Class C or C1 accounts involved
in the conversion with a low balance due to the conversion;
(iii) tax‑deferred retirement plan accounts; (iv) accounts with an
active systematic investment plan; (v) accounts held through a 529 college
saving program; (vi) accounts that do not have a valid address as evidenced
by mail being returned to the fund or its agents, (vii) Coverdell Education
Saving Plan accounts; and (viii) accounts identified to us by the applicable
Service Agent as being fee‑based accounts.
General
The
fund may, with prior notice, change the minimum size of accounts subject to
mandatory redemption, which may vary by class, implement fees for other small
accounts or change the amount of the fee for small direct accounts.
Subject
to applicable law, the fund may, with prior notice, adopt other policies from
time to time requiring mandatory redemption of shares in certain
circumstances.
For more information,
please contact your Service Agent or the fund or consult the SAI.
Frequent trading of fund
shares
The
Board has adopted the following policies and procedures with respect to frequent
trading in fund shares (“Frequent Trading Policy”).
The
fund does not intend to accommodate short-term or frequent purchases and
redemptions of fund shares that may be detrimental to the fund. For example,
this type of trading activity could interfere with the efficient management of
the fund’s portfolio or materially increase the fund’s transaction costs,
administrative costs or taxes.
In
addition, since the fund may invest in foreign securities, it may be vulnerable
to a form of short-term trading that is sometimes referred to as “time-zone
arbitrage.” Time-zone arbitrage occurs when an investor seeks to take advantage
of delays between changes in the value of a mutual fund’s portfolio holdings and
the reflection of those changes in the fund’s net asset value per share. These
delays are more likely to occur in the case of foreign investments, due to
differences between the times during which the fund’s international portfolio
securities trade on foreign markets and the time as of which the fund’s net
asset value is calculated (generally as of the close of the NYSE). Time-zone
arbitrage traders seek to purchase or redeem shares of a fund based on events
occurring after foreign market closing prices are established, but before
calculation of the fund’s net asset value. This can result in the value of the
fund’s shares being diluted. One of the objectives of the fund’s fair value
pricing procedures is to minimize the possibility of this type of arbitrage;
however, there can be no assurance that the fund’s valuation procedures will be
successful in eliminating it.
Since
the fund may invest in securities that are, or may be, restricted, unlisted,
traded infrequently, thinly traded, or relatively illiquid (“relatively illiquid
securities”), it may be particularly vulnerable to arbitrage short-term trading.
Such arbitrage traders may seek to take advantage of a possible differential
between the last available market prices for one or more of those relatively
illiquid securities that are used to calculate the fund’s net asset value and
the latest indications of market values for those securities. One of the
objectives of the fund’s fair value pricing procedures is to minimize the
possibilities of this type of arbitrage; however, there can be no assurance that
the fund’s valuation procedures will be successful in eliminating it.
Through
its transfer agent, the fund performs ongoing monitoring of shareholder trading
in shares of the fund and other Franklin Templeton affiliated funds in order to
try and identify shareholder trading patterns that suggest an ongoing short-term
trading strategy. If shareholder trading patterns identified by the transfer
agent through monitoring or from other information regarding the shareholder’s
trading activity in non‑Franklin Templeton affiliated funds leads the transfer
agent to reasonably conclude that such trading may be detrimental to the fund as
described in this Frequent Trading Policy, the transfer agent, on behalf of the
fund, may temporarily or permanently bar future purchases into the fund or,
alternatively, may limit the amount, number or frequency of any future purchases
and/or the method by which you may request future purchases and redemptions
(including purchases and/or redemptions by an exchange or transfer between the
fund and any other mutual fund).
In
considering an investor’s trading patterns, the fund may consider, among other
factors, the investor’s trading history both directly and, if known, through
financial intermediaries, in the fund, in other Franklin Templeton affiliated
funds, in non‑Franklin Templeton affiliated mutual funds, or in accounts under
common control or ownership. The transfer agent may also reject any purchase
request, whether or not it represents part of any ongoing trading pattern, if
the manager or the fund’s transfer agent reasonably concludes that the amount of
the requested transaction may disrupt or otherwise interfere with the efficient
management of the fund’s portfolio. In determining what actions should be taken,
the fund’s transfer agent may consider a variety of factors, including the
potential impact of such remedial actions on the fund and its shareholders. If
the fund is a “fund of
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Fund |
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45 |
|
funds,”
the fund’s transfer agent may consider the impact of the trading activity and of
any proposed remedial action on both the fund and the affiliated underlying
funds in which the fund invests.
Frequent trading
through financial intermediaries. You
are an investor subject to this Frequent Trading Policy whether you are a direct
shareholder of the fund or you are investing indirectly in the fund through a
financial intermediary, such as a broker-dealer, bank, trust company, insurance
company product such as an annuity contract, investment advisor, or an
administrator or trustee of an IRS‑recognized tax‑deferred savings plan such as
a 401(k) retirement plan and a 529 college savings plan.
Some
financial intermediaries maintain master accounts with the fund on behalf of
their customers (“omnibus accounts”). The fund has entered into “information
sharing agreements” with these financial intermediaries, which permit the fund
to obtain, upon request, information about the trading activity of the
intermediary’s customers that invest in the fund. If the fund’s transfer agent
identifies omnibus account level trading patterns that have the potential to be
detrimental to the fund, the transfer agent may, in its sole discretion, request
from the financial intermediary information concerning the trading activity of
its customers. Based upon its review of the information, if the transfer agent
determines that the trading activity of any customer may be detrimental to the
fund, it may, in its sole discretion, request the financial intermediary to
restrict or limit further trading in the fund by that customer. There can be no
assurance that the transfer agent’s monitoring of omnibus account level trading
patterns will enable it to identify all short-term trading by a financial
intermediary’s customers.
Record ownership
If
you hold shares through a Service Agent, your Service Agent may establish and
maintain your account and be the shareholder of record. In the event that the
fund holds a shareholder meeting, your Service Agent, as record holder, will be
entitled to vote your shares and may seek voting instructions from you. If you
do not give your Service Agent voting instructions, your Service Agent, under
certain circumstances, may nonetheless be entitled to vote your shares.
Confirmations and account
statements
If
you bought shares directly from the fund, you will receive a confirmation from
the fund after each transaction (except a reinvestment of dividends or capital
gain distributions, an investment made through the Systematic Investment Plan,
exchanges made through a systematic exchange plan and withdrawals made through
the Systematic Withdrawal Plan). Shareholders will receive periodic account
statements.
To
assist you in the management of your account you may direct the transfer agent
to send copies of your confirmations and/or periodic statements to another party
whom you designate, at no charge.
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| 46 |
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| |
Western
Asset Core Bond Fund |
Dividends, other
distributions and taxes
Dividends and other
distributions
The
fund declares dividends from any net investment income daily and pays them
monthly. Shares will generally begin to earn dividends on the settlement date of
purchase. The fund generally distributes capital gain, if any, once a year,
typically in December. The fund may pay additional distributions and dividends
in order to avoid a federal tax.
You
can elect to receive dividends and/or other distributions in cash.
Unless
you elect to receive dividends and/or other distributions in cash, your
dividends and capital gain distributions will be automatically reinvested in
shares of the same class you hold, at the net asset value determined on the
reinvestment date. You do not pay a sales charge on reinvested distributions or
dividends.
If
you hold shares directly with the fund and you elect to receive dividends and/or
distributions in cash, you have the option to receive such dividends and/or
distributions via a direct deposit to your bank account or by check.
If
you hold Class A, Class C1 or Class C shares directly with the
fund, you may instruct the fund to have your dividends and/or distributions
invested in the corresponding class of shares (or if Class C1 shares are
not available, Class C shares) of another fund sold by the Distributor
(excluding Western Asset Government Reserves), subject to the following
conditions:
| • |
|
You
meet the minimum initial investment requirement of the other fund;
and |
| • |
|
The
other fund is available for sale in your state. |
To
change those instructions, you must notify your Service Agent or the fund at
least three days before the next distribution is to be paid.
Please
contact your Service Agent or the fund to discuss what options are available to
you for receiving your dividends and other distributions.
The
Board reserves the right to revise the dividend policy or postpone the payment
of dividends, if warranted in the Board’s judgment, due to unusual
circumstances.
Taxes
The
following discussion is very general, applies only to shareholders who are U.S.
persons, and does not address shareholders subject to special rules, such as
those who hold fund shares through an IRA, 401(k) plan or other tax‑advantaged
account. Except as specifically noted, the discussion is limited to federal
income tax matters, and does not address state, local, foreign or non‑income
taxes. Further information regarding taxes, including certain federal income tax
considerations relevant to non‑U.S. persons, is included in the SAI. Because
each shareholder’s circumstances are different and special tax rules may apply,
you should consult your tax professional about federal, state, local and/or
foreign tax considerations that may be relevant to your particular
situation.
In
general, redeeming shares, exchanging shares and receiving dividends and
distributions (whether received in cash or reinvested in additional shares or
shares of another fund) are all taxable events. An exchange between classes of
shares of the same fund normally is not taxable for federal income tax purposes,
whether or not the shares are held in a taxable account.
The
following table summarizes the tax status of certain transactions related to the
fund.
|
|
| |
| Transaction |
|
Federal income tax status |
| Redemption
or exchange of shares |
|
Usually
capital gain or loss; long-term only if shares are owned more than one
year |
Dividends
of investment income and distributions of net short-term
capital
gain |
|
Ordinary
income, or in certain cases qualified dividend income |
|
Distributions
of net capital gain (excess of net long-term capital gain over net
short-term
capital loss) |
|
Long-term
capital gain if reported as capital gain dividends by the
fund |
Distributions
attributable to short-term capital gains are taxable to you as ordinary income.
Distributions attributable to qualified dividend income received by the fund, if
any, may be eligible to be taxed to noncorporate shareholders at the reduced
rates applicable to long-term capital gain if certain requirements are
satisfied. Distributions of net capital gain reported by the fund as capital
gain dividends are taxable to you as long-term capital gain regardless of how
long you have owned your shares. Noncorporate shareholders ordinarily pay tax at
reduced rates on long-term capital gain.
If
the fund realizes capital gains in excess of realized capital losses in any
fiscal year, it generally expects to make capital gain distributions to
shareholders. You may receive distributions that are attributable to
appreciation of portfolio securities that happened before you made your
investment but had not been realized at the time you made your investment, or
that are attributable to capital gains or other income that, although realized
by the fund, had not yet been distributed at the time you made your investment.
Unless you purchase shares through a tax‑advantaged account, these distributions
will be taxable to you even though they economically represent a return of a
portion of your investment. You may want
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47 |
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to
avoid buying shares when the fund is about to declare a dividend or capital gain
distribution. You should consult your tax professional before buying shares no
matter when you are investing.
A
Medicare contribution tax is imposed at the rate of 3.8% on all or a portion of
net investment income of U.S. individuals if their income exceeds specified
thresholds and on all or a portion of undistributed net investment income of
certain estates and trusts. Net investment income generally includes for this
purpose dividends and capital gain distributions paid by the fund and gain on
the redemption or exchange of fund shares.
A
dividend declared by the fund in October, November or December and paid during
January of the following year will, in certain circumstances, be treated as paid
in December for tax purposes.
The
fund’s investment in certain foreign securities, foreign currencies or foreign
currency derivatives may affect the amount, timing, and character of fund
distributions to shareholders.
After
the end of each year, your Service Agent or the fund will provide you with
information about the distributions and dividends you received and any
redemptions of shares during the previous year. Because each shareholder’s
circumstances are different and special tax rules may apply, you should consult
your tax professional about your investment in the fund.
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| 48 |
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Western
Asset Core Bond Fund |
Share price
You
may buy, exchange or redeem shares at their net asset value next determined
after receipt of your request in good order, adjusted for any applicable sales
charge. The fund’s net asset value per share is the value of its assets minus
its liabilities divided by the number of shares outstanding. Net asset value is
calculated separately for each class of shares.
The
fund calculates its net asset value every day the NYSE is open. The fund
generally values its securities and other assets and calculates its net asset
value as of the scheduled close of regular trading on the NYSE, normally at 4:00
p.m. (Eastern time). If the NYSE closes at a time other than the scheduled
closing time, the fund will calculate its net asset value as of the scheduled
closing time. The NYSE is closed on certain holidays listed in the SAI.
In
order to buy, redeem or exchange shares at a certain day’s price, you must place
your order with your Service Agent or the fund transfer agent before the
scheduled close of regular trading on the NYSE on that day to receive that day’s
price. If the NYSE closes early on that day, you must place your order prior to
the scheduled closing time. It is the responsibility of the Service Agent to
transmit all orders to buy, exchange or redeem shares to the fund transfer agent
on a timely basis.
Valuation
of the fund’s securities and other assets is performed in accordance with the
valuation policy approved by the Board. As of the date of this Prospectus, the
fund’s manager serves as the fund’s valuation designee for purposes of
compliance with Rule 2a‑5 under the Investment Company Act of 1940, as amended.
Under the valuation policy, assets are valued as follows:
| • |
|
The
valuations for fixed income 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 fair valuation techniques and
methodologies. |
| • |
|
Equity
securities and certain derivative instruments that are traded on an
exchange are valued at the closing price (which may be reported at a
different time than the time at which the fund’s net asset value is
calculated) or, if that price is unavailable or deemed by the manager not
representative of market value, the last sale price. Where a security is
traded on more than one exchange (as is often the case overseas), the
security is generally valued at the price on the exchange considered by
the manager to be the primary exchange. In the case of securities not
traded on an exchange, or if exchange prices are not otherwise available,
the prices are typically determined by independent third party pricing
services that use a variety of techniques and methodologies. Investments
in mutual funds are valued at the net asset value per share of the class
of the underlying fund held by the fund as determined on each business
day. |
| • |
|
The
valuations of securities traded on foreign markets and certain fixed
income securities will generally be based on prices determined as of the
earlier closing time of the markets in which they primarily trade. The
prices of foreign equity securities typically are adjusted using a fair
value model developed by an independent third party pricing service to
estimate the value of those securities at the time of closing of the NYSE.
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). Foreign markets are open for trading on
weekends and other days when the fund does not price its shares.
Therefore, the value of the fund’s shares may change on days when you will
not be able to purchase or redeem the fund’s
shares. |
| • |
|
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. When such prices or quotations
are not available, or when the manager believes that they are unreliable,
the manager may price securities in accordance with the valuation policy.
The valuation policy permits, among other things, the use of a formula or
other method that takes into consideration market indices, yield curves
and other specific adjustments to determine fair value. These
determinations are subject to the Board’s oversight. Fair value of a
security is the amount, as determined by the manager in good faith, that
the fund might reasonably expect to receive upon a current sale of the
security. The fund may also use fair value procedures if the manager
determines that a significant event has occurred between the time at which
a market price is determined and the time at which the fund’s net asset
value is calculated. |
Many
factors may influence the price at which the fund could sell any particular
portfolio investment. The sales price may well differ—higher or lower—from the
fund’s last valuation, and such differences could be significant, particularly
for securities that trade in relatively thin markets and/or markets that
experience extreme volatility. Moreover, valuing securities using fair value
methodologies involves greater reliance on judgment than valuing securities
based on market quotations. A fund that uses fair value methodologies may value
those securities higher or lower than another fund using market quotations or
its own fair value methodologies to price the same securities. There can be no
assurance that the fund could obtain the value assigned to a security if it were
to sell the security at approximately the time at which the fund determines its
net asset value. Investors who purchase or redeem fund shares on days when the
fund is holding fair-valued securities may receive a greater or lesser number of
shares, or higher or lower redemption proceeds, than they would have received if
the fund had not fair-valued the security or had used a different
methodology.
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| Western Asset Core Bond
Fund |
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|
49 |
|
Financial highlights
The
financial highlights tables are intended to help you understand the performance
of each class for the past five years, unless otherwise noted. Certain
information reflects financial results for a single fund share. Total return
represents the rate that an investor would have earned (or lost) on an
investment in the fund, assuming reinvestment of all dividends and other
distributions. Unless otherwise noted, the information below has been audited by
the fund’s independent registered public accounting firm, PricewaterhouseCoopers
LLP, whose report, along with the fund’s financial statements, is incorporated
by reference into the fund’s SAI (see back cover) and is included in the fund’s
annual report. The fund’s annual report is available upon request by calling
toll-free 877‑6LM‑FUND/656‑3863 or via the following hyperlink: (
https://www.sec.gov/Archives/edgar/data/863520/000119312523052917/d433414dncsr.htm).
|
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|
| |
| For a share of each class of capital stock
outstanding throughout each year ended December
31: |
|
| Class A Shares1 |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
| |
| Net asset value,
beginning of year |
|
|
$13.09 |
|
|
|
$13.65 |
|
|
|
$13.01 |
|
|
|
$12.21 |
|
|
|
$12.66 |
|
|
|
|
|
|
| |
| Income (loss) from operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
0.25 |
|
|
|
0.15 |
|
|
|
0.21 |
|
|
|
0.32 |
|
|
|
0.30 |
|
|
Net
realized and unrealized gain (loss) |
|
|
(2.50) |
|
|
|
(0.45) |
|
|
|
0.92 |
|
|
|
0.91 |
|
|
|
(0.44) |
|
|
Total income (loss) from
operations |
|
|
(2.25) |
|
|
|
(0.30) |
|
|
|
1.13 |
|
|
|
1.23 |
|
|
|
(0.14) |
|
|
|
|
|
|
| |
| Less distributions from: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
(0.26) |
|
|
|
(0.22) |
|
|
|
(0.28) |
|
|
|
(0.34) |
|
|
|
(0.31) |
|
|
Net
realized gains |
|
|
— |
|
|
|
(0.04) |
|
|
|
(0.21) |
|
|
|
(0.09) |
|
|
|
— |
|
|
Total
distributions |
|
|
(0.26) |
|
|
|
(0.26) |
|
|
|
(0.49) |
|
|
|
(0.43) |
|
|
|
(0.31) |
|
|
|
|
|
|
| |
| Net asset value,
end of year |
|
|
$10.58 |
|
|
|
$13.09 |
|
|
|
$13.65 |
|
|
|
$13.01 |
|
|
|
$12.21 |
|
|
Total return2
|
|
|
(17.24) |
% |
|
|
(2.20) |
% |
|
|
8.72 |
% |
|
|
10.03 |
% |
|
|
(0.99) |
% |
|
|
|
|
|
| |
| Net assets, end of
year (millions) |
|
|
$579 |
|
|
|
$731 |
|
|
|
$700 |
|
|
|
$520 |
|
|
|
$320 |
|
|
|
|
|
|
| |
| Ratios to average net assets: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Gross
expenses |
|
|
0.83 |
% |
|
|
0.82 |
% |
|
|
0.83 |
%3 |
|
|
0.84 |
%3 |
|
|
0.84 |
%3 |
|
Net
expenses4,5
|
|
|
0.82 |
|
|
|
0.82 |
|
|
|
0.82 |
3 |
|
|
0.82 |
3 |
|
|
0.82 |
3 |
|
Net
investment income |
|
|
2.19 |
|
|
|
1.16 |
|
|
|
1.55 |
|
|
|
2.50 |
|
|
|
2.48 |
|
|
|
|
|
|
| |
| Portfolio turnover
rate6
|
|
|
64 |
% |
|
|
72 |
% |
|
|
111 |
% |
|
|
125 |
%7 |
|
|
115 |
% |
| 1 |
Per
share amounts have been calculated using the average shares
method. |
| 2 |
Performance
figures, exclusive of sales charges, may reflect compensating balance
arrangements, fee waivers and/or expense reimbursements. In the absence of
compensating balance arrangements, fee waivers and/or expense
reimbursements, the total return would have been lower. Past performance
is no guarantee of future results. |
| 3 |
Reflects
recapture of expenses waived/reimbursed from prior fiscal
years. |
| 4 |
Reflects
fee waivers and/or expense reimbursements. |
| 5 |
As
a result of an expense limitation arrangement, the ratio of total annual
fund operating expenses, other than interest, brokerage commissions,
taxes, extraordinary expenses, deferred organizational expenses and
acquired fund fees and expenses, to average net assets of Class A
shares did not exceed 0.82%. This expense limitation arrangement cannot be
terminated prior to December 31, 2024 without the Board of Directors’
consent. In addition, the manager has agreed to waive the Fund’s
management fee to an extent sufficient to offset the net management fee
payable in connection with any investment in an affiliated money market
fund. |
| 6 |
Excluding
mortgage dollar roll transactions. If mortgage dollar roll transactions
had been included, the portfolio turnover rate would have been 72%, 109%,
159%, 201% and 380% for the years ended December 31, 2022, 2021,
2020, 2019 and 2018, respectively. |
| 7 |
Excludes
securities delivered as a result of a redemption
in‑kind. |
|
|
|
|
| |
| 50 |
|
| |
Western
Asset Core Bond Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For a share of each class of capital stock
outstanding throughout each year ended December
31: |
|
| Class C Shares1 |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
| |
| Net asset value,
beginning of year |
|
|
$13.09 |
|
|
|
$13.65 |
|
|
|
$13.01 |
|
|
|
$12.22 |
|
|
|
$12.67 |
|
|
|
|
|
|
| |
| Income (loss) from operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
0.17 |
|
|
|
0.06 |
|
|
|
0.11 |
|
|
|
0.23 |
|
|
|
0.22 |
|
|
Net
realized and unrealized gain (loss) |
|
|
(2.49) |
|
|
|
(0.45) |
|
|
|
0.92 |
|
|
|
0.90 |
|
|
|
(0.44) |
|
|
Total income (loss) from
operations |
|
|
(2.32) |
|
|
|
(0.39) |
|
|
|
1.03 |
|
|
|
1.13 |
|
|
|
(0.22) |
|
|
|
|
|
|
| |
| Less distributions from: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
(0.19) |
|
|
|
(0.13) |
|
|
|
(0.18) |
|
|
|
(0.25) |
|
|
|
(0.23) |
|
|
Net
realized gains |
|
|
— |
|
|
|
(0.04) |
|
|
|
(0.21) |
|
|
|
(0.09) |
|
|
|
— |
|
|
Total
distributions |
|
|
(0.19) |
|
|
|
(0.17) |
|
|
|
(0.39) |
|
|
|
(0.34) |
|
|
|
(0.23) |
|
|
|
|
|
|
| |
| Net asset value,
end of year |
|
|
$10.58 |
|
|
|
$13.09 |
|
|
|
$13.65 |
|
|
|
$13.01 |
|
|
|
$12.22 |
|
|
Total return2
|
|
|
(17.73) |
% |
|
|
(2.88) |
% |
|
|
7.96 |
% |
|
|
9.27 |
% |
|
|
(1.76) |
% |
|
|
|
|
|
| |
| Net assets, end of
year (000s) |
|
|
$45,614 |
|
|
|
$83,677 |
|
|
|
$98,221 |
|
|
|
$65,850 |
|
|
|
$46,145 |
|
|
|
|
|
|
| |
| Ratios to average net assets: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Gross
expenses |
|
|
1.51 |
% |
|
|
1.52 |
% |
|
|
1.52 |
% |
|
|
1.52 |
% |
|
|
1.53 |
% |
|
Net
expenses3,4 |
|
|
1.51 |
|
|
|
1.52 |
|
|
|
1.51 |
|
|
|
1.52 |
|
|
|
1.52 |
|
|
Net
investment income |
|
|
1.44 |
|
|
|
0.46 |
|
|
|
0.84 |
|
|
|
1.80 |
|
|
|
1.78 |
|
|
|
|
|
|
| |
| Portfolio turnover
rate5
|
|
|
64 |
% |
|
|
72 |
% |
|
|
111 |
% |
|
|
125 |
%6
|
|
|
115 |
% |
| 1 |
Per
share amounts have been calculated using the average shares
method. |
| 2 |
Performance
figures, exclusive of CDSC, may reflect compensating balance arrangements,
fee waivers and/or expense reimbursements. In the absence of compensating
balance arrangements, fee waivers and/or expense reimbursements, the total
return would have been lower. Past performance is no guarantee of future
results. |
| 3 |
Reflects
fee waivers and/or expense reimbursements. |
| 4 |
As
a result of an expense limitation arrangement, the ratio of total annual
fund operating expenses, other than interest, brokerage commissions,
taxes, extraordinary expenses, deferred organizational expenses and
acquired fund fees and expenses, to average net assets of Class C
shares did not exceed 1.65%. This expense limitation arrangement cannot be
terminated prior to December 31, 2024 without the Board of Directors’
consent. In addition, the manager has agreed to waive the Fund’s
management fee to an extent sufficient to offset the net management fee
payable in connection with any investment in an affiliated money market
fund. |
| 5 |
Excluding
mortgage dollar roll transactions. If mortgage dollar roll transactions
had been included, the portfolio turnover rate would have been 72%, 109%,
159%, 201% and 380% for the years ended December 31, 2022, 2021,
2020, 2019 and 2018, respectively. |
| 6 |
Excludes
securities delivered as a result of a redemption
in‑kind. |
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For a share of each class of capital stock
outstanding throughout each year ended December
31: |
|
| Class C1 Shares1 |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
| |
| Net asset value,
beginning of year |
|
|
$13.12 |
|
|
|
$13.66 |
|
|
|
$13.02 |
|
|
|
$12.22 |
|
|
|
$12.67 |
|
|
|
|
|
|
| |
| Income (loss) from operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
0.19 |
|
|
|
0.09 |
|
|
|
0.16 |
|
|
|
0.29 |
|
|
|
0.26 |
|
|
Net
realized and unrealized gain (loss) |
|
|
(2.50) |
|
|
|
(0.43) |
|
|
|
0.91 |
|
|
|
0.89 |
|
|
|
(0.44) |
|
|
Total income (loss) from
operations |
|
|
(2.31) |
|
|
|
(0.34) |
|
|
|
1.07 |
|
|
|
1.18 |
|
|
|
(0.18) |
|
|
|
|
|
|
| |
| Less distributions from: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
(0.21) |
|
|
|
(0.16) |
|
|
|
(0.22) |
|
|
|
(0.29) |
|
|
|
(0.27) |
|
|
Net
realized gains |
|
|
— |
|
|
|
(0.04) |
|
|
|
(0.21) |
|
|
|
(0.09) |
|
|
|
— |
|
|
Total
distributions |
|
|
(0.21) |
|
|
|
(0.20) |
|
|
|
(0.43) |
|
|
|
(0.38) |
|
|
|
(0.27) |
|
|
|
|
|
|
| |
| Net asset value,
end of year |
|
|
$10.60 |
|
|
|
$13.12 |
|
|
|
$13.66 |
|
|
|
$13.02 |
|
|
|
$12.22 |
|
|
Total return2
|
|
|
(17.58) |
% |
|
|
(2.48) |
% |
|
|
8.24 |
% |
|
|
9.73 |
% |
|
|
(1.43) |
% |
|
|
|
|
|
| |
| Net assets, end of
year (000s) |
|
|
$373 |
|
|
|
$658 |
|
|
|
$1,649 |
|
|
|
$2,686 |
|
|
|
$12,024 |
|
|
|
|
|
|
| |
| Ratios to average net assets: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Gross
expenses |
|
|
1.29 |
% |
|
|
1.26 |
% |
|
|
1.25 |
% |
|
|
1.19 |
% |
|
|
1.19 |
% |
|
Net
expenses3,4
|
|
|
1.29 |
|
|
|
1.25 |
|
|
|
1.25 |
|
|
|
1.19 |
|
|
|
1.19 |
|
|
Net
investment income |
|
|
1.66 |
|
|
|
0.69 |
|
|
|
1.17 |
|
|
|
2.30 |
|
|
|
2.11 |
|
|
|
|
|
|
| |
| Portfolio turnover
rate5
|
|
|
64 |
% |
|
|
72 |
% |
|
|
111 |
% |
|
|
125 |
%6 |
|
|
115 |
% |
| 1 |
Per
share amounts have been calculated using the average shares
method. |
| 2 |
Performance
figures, exclusive of CDSC, may reflect compensating balance arrangements,
fee waivers and/or expense reimbursements. In the absence of compensating
balance arrangements, fee waivers and/or expense reimbursements, the total
return would have been lower. Past performance is no guarantee of future
results. |
| 3 |
Reflects
fee waivers and/or expense reimbursements. |
| 4 |
As
a result of an expense limitation arrangement, the ratio of total annual
fund operating expenses, other than interest, brokerage commissions,
taxes, extraordinary expenses, deferred organizational expenses and
acquired fund fees and expenses, to average net assets of Class C1
shares did not exceed 1.42%. This expense limitation arrangement cannot be
terminated prior to December 31, 2024 without the Board of Directors’
consent. In addition, the manager has agreed to waive the Fund’s
management fee to an extent sufficient to offset the net management fee
payable in connection with any investment in an affiliated money market
fund. |
| 5 |
Excluding
mortgage dollar roll transactions. If mortgage dollar roll transactions
had been included, the portfolio turnover rate would have been 72%, 109%,
159%, 201% and 380% for the years ended December 31, 2022, 2021,
2020, 2019 and 2018, respectively. |
| 6 |
Excludes
securities delivered as a result of a redemption
in‑kind. |
|
|
|
|
| |
| 52 |
|
| |
Western
Asset Core Bond Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For a share of each class of capital stock
outstanding throughout each year ended December
31: |
|
| Class FI Shares1 |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
| |
| Net asset value,
beginning of year |
|
|
$13.10 |
|
|
|
$13.66 |
|
|
|
$13.01 |
|
|
|
$12.22 |
|
|
|
$12.67 |
|
|
|
|
|
|
| |
| Income (loss) from operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
0.25 |
|
|
|
0.16 |
|
|
|
0.22 |
|
|
|
0.32 |
|
|
|
0.31 |
|
|
Net
realized and unrealized gain (loss) |
|
|
(2.50) |
|
|
|
(0.46) |
|
|
|
0.92 |
|
|
|
0.90 |
|
|
|
(0.45) |
|
|
Total income (loss) from
operations |
|
|
(2.25) |
|
|
|
(0.30) |
|
|
|
1.14 |
|
|
|
1.22 |
|
|
|
(0.14) |
|
|
|
|
|
|
| |
| Less distributions from: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
(0.26) |
|
|
|
(0.22) |
|
|
|
(0.28) |
|
|
|
(0.34) |
|
|
|
(0.31) |
|
|
Net
realized gains |
|
|
— |
|
|
|
(0.04) |
|
|
|
(0.21) |
|
|
|
(0.09) |
|
|
|
— |
|
|
Total
distributions |
|
|
(0.26) |
|
|
|
(0.26) |
|
|
|
(0.49) |
|
|
|
(0.43) |
|
|
|
(0.31) |
|
|
|
|
|
|
| |
| Net asset value,
end of year |
|
|
$10.59 |
|
|
|
$13.10 |
|
|
|
$13.66 |
|
|
|
$13.01 |
|
|
|
$12.22 |
|
|
Total return2
|
|
|
(17.22) |
% |
|
|
(2.18) |
% |
|
|
8.73 |
% |
|
|
10.13 |
% |
|
|
(1.06) |
% |
|
|
|
|
|
| |
| Net assets, end of
year (millions) |
|
|
$126 |
|
|
|
$199 |
|
|
|
$207 |
|
|
|
$234 |
|
|
|
$181 |
|
|
|
|
|
|
| |
| Ratios to average net assets: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Gross
expenses |
|
|
0.81 |
% |
|
|
0.80 |
% |
|
|
0.80 |
% |
|
|
0.81 |
% |
|
|
0.81 |
% |
|
Net
expenses3,4
|
|
|
0.81 |
|
|
|
0.80 |
|
|
|
0.79 |
|
|
|
0.80 |
|
|
|
0.81 |
|
|
Net
investment income |
|
|
2.16 |
|
|
|
1.18 |
|
|
|
1.60 |
|
|
|
2.54 |
|
|
|
2.49 |
|
|
|
|
|
|
| |
| Portfolio turnover
rate5
|
|
|
64 |
% |
|
|
72 |
% |
|
|
111 |
% |
|
|
125 |
%6 |
|
|
115 |
% |
| 1 |
Per
share amounts have been calculated using the average shares
method. |
| 2 |
Performance
figures may reflect compensating balance arrangements, fee waivers and/or
expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return
would have been lower. Past performance is no guarantee of future
results. |
| 3 |
Reflects
fee waivers and/or expense reimbursements. |
| 4 |
As
a result of an expense limitation arrangement, the ratio of total annual
fund operating expenses, other than interest, brokerage commissions,
taxes, extraordinary expenses, deferred organizational expenses and
acquired fund fees and expenses, to average net assets of Class FI
shares did not exceed 0.85%. This expense limitation arrangement cannot be
terminated prior to December 31, 2024 without the Board of Directors’
consent. In addition, the manager has agreed to waive the Fund’s
management fee to an extent sufficient to offset the net management fee
payable in connection with any investment in an affiliated money market
fund. |
| 5 |
Excluding
mortgage dollar roll transactions. If mortgage dollar roll transactions
had been included, the portfolio turnover rate would have been 72%, 109%,
159%, 201% and 380% for the years ended December 31, 2022, 2021,
2020, 2019 and 2018, respectively. |
| 6 |
Excludes
securities delivered as a result of a redemption
in‑kind. |
|
|
|
|
|
|
| |
| Western Asset Core Bond
Fund |
|
| |
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For a share of each class of capital stock
outstanding throughout each year ended December
31: |
|
| Class R Shares1 |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
| |
| Net asset value,
beginning of year |
|
|
$13.10 |
|
|
|
$13.66 |
|
|
|
$13.02 |
|
|
|
$12.23 |
|
|
|
$12.68 |
|
|
|
|
|
|
| |
| Income (loss) from operations: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
0.21 |
|
|
|
0.11 |
|
|
|
0.17 |
|
|
|
0.28 |
|
|
|
0.26 |
|
|
Net
realized and unrealized gain (loss) |
|
|
(2.49) |
|
|
|
(0.45) |
|
|
|
0.91 |
|
|
|
0.90 |
|
|
|
(0.44) |
|
|
Total income (loss) from
operations |
|
|
(2.28) |
|
|
|
(0.34) |
|
|
|
1.08 |
|
|
|
1.18 |
|
|
|
(0.18) |
|
|
|
|
|
|
| |
| Less distributions from: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Net
investment income |
|
|
(0.23) |
|
|
|
(0.18) |
|
|
|
(0.23) |
|
|
|
(0.30) |
|
|
|
(0.27) |
|
|
Net
realized gains |
|
|
— |
|
|
|
(0.04) |
|
|
|
(0.21) |
|
|
|
(0.09) |
|
|
|
— |
|
|
Total
distributions |
|
|
(0.23) |
|
|
|
(0.22) |
|
|
|
(0.44) |
|
|
|
(0.39) |
|
|
|
(0.27) |
|
|
|
|
|
|
| |
| Net asset value,
end of year |
|
|
$10.59 |
|
|
|
$13.10 |
|
|
|
$13.66 |
|
|
|
$13.02 |
|
|
|
$12.23 |
|
|
Total return2
|
|
|
(17.47) |
% |
|
|
(2.50) |
% |
|
|
8.37 |
% |
|
|
9.68 |
% |
|
|
(1.39) |
% |
|
|
|
|
|
| |
| Net assets, end of
year (000s) |
|
|
$23,893 |
|
|
|
$35,216 |
|
|
|
$31,357 |
|
|
|
$26,359 |
|
|
|
$24,268 |
|
|
|
|
|
|
| |
| Ratios to average net assets: |
|
|
|
| |
|
|
| |
|
|
| |
|
|
| |
|
| |
|
Gross
expenses |
|
|
1.14 |
% |
|
|
1.15 |
% |
|
|
1.13 |
% |
|
|
1.13 |
% |
|
|
1.14 |
%3 |
|
Net
expenses4,5
|
|
|
1.13 |
|
|
|
1.14 |
|
|
|
1.13 |
|
|
|
1.13 |
|
|
|
1.14 |
3 |
|
Net
investment income |
|
|
1.85 |
|
|
|
0.84 |
|
|
|
1.24 |
|
|
|
2.23 |
|
|
|
2.16 |
|
|
|
|
|
|
| |
| Portfolio turnover
rate6
|
|
|
64 |
% |
|
|
72 |
% |
|
|
111 |
% |
|
|
125 |
%7
|
|
|
115 |
% |
| 1 |
Per
share amounts have been calculated using the average shares
method. |
| 2 |
Performance
figures may reflect compensating balance arrangements, fee waivers and/or
expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return
would have been lower. Past performance is no guarantee of future
results. |
| 3 |
Reflects
recapture of expenses waived/reimbursed from prior fiscal
years. |
| 4 |
Reflects
fee waivers and/or expense reimbursements. |
| 5 |
As
a result of an expense limitation arrangement, the ratio of total annual
fund operating expenses, other than interest, brokerage commissions,
taxes, extraordinary expenses, deferred organizational expenses and
acquired fund fees and expenses, to average net assets of Class R
shares did not exceed 1.15%. This expense limitation arrangement cannot be
terminated prior to December 31, 2024 without the Board of Directors’
consent. In addition, the manager has agreed to waive the Fund’s
management fee to an extent sufficient to offset the net management fee
payable in connection with any investment in an affiliated money market
fund. |
| 6 |
Excluding
mortgage dollar roll transactions. If mortgage dollar roll transactions
had been included, the portfolio turnover rate would have been 72%, 109%,
159%, 201% and 380% for the years ended December 31, 2022, 2021,
2020, 2019 and 2018, respectively. |
| 7 |
Excludes
securities delivered as a result of a redemption
in‑kind. |
|
|
|
|
| |
| 54 |
|
| |
Western
Asset Core Bond Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| For a share of each class of capital stock
outstanding throughout each year ended December
31: |
|
| Class I Shares1 |
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
| |
| Net asset value,
beginning of year |
|
|
$13.09 |
|
|
|
$13.65 |
|
|
|
$13.01 |
|
|
|
$12.21 |
|
|
|
$12.66 |
|
|
|
|
|
|
| |
| Income (loss) from operations: |
|
|
|
| |
|
|
