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CVS – Form N-CSR WESTERN ASSET FUNDS INC For: May 31


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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED
SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-06110

 

 

Western Asset Funds, Inc.

(Exact name of registrant as specified in charter)

 

 

620 Eighth
Avenue, 47th Floor, New York, NY 10018

(Address of principal executive offices)
(Zip code)

 

 

Marc A. De Oliveira

Franklin Templeton

100
First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code:
1-877-721-1926

Date of fiscal year end: May 31

Date of reporting period: May 31, 2021

 

 

 


ITEM 1.

REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.


 

Annual Report   May 31, 2021

WESTERN ASSET

INTERMEDIATE BOND FUND

 

 

 

The Fund intends to no longer mail paper copies of the Fund’s shareholder reports like this one, unless you
specifically request paper copies of the reports from the Fund or from your Service Agent or financial intermediary (such as a broker-dealer or bank). Instead, the reports will be made available on a website, and you will be notified by mail each
time a report is posted and provided with a website link to access the report.

If you already elected to receive
shareholder reports electronically (“e-delivery”), you will not be affected by this change and you need not take any action. If you have not already elected
e-delivery, you may elect to receive shareholder reports and other communications from the Fund electronically by contacting your Service Agent or, if you are a direct shareholder with the Fund, by calling 1-877-721-1926.

You may elect to receive all future reports in paper free of charge. If you invest through a Service Agent, you can contact your Service Agent to request that you continue to receive paper copies of your
shareholder reports. That election will apply to all Legg Mason Funds held in your account at that Service Agent. If you are a direct shareholder with the Fund, you can call the Fund at
1-877-721-1926, or write to the Fund by regular mail at Legg Mason Funds, P.O. Box 9699, Providence, RI 02940-9699 or by express,
certified or registered mail to Legg Mason Funds, 4400 Computer Drive, Westborough, MA 01581 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your
account held directly with the fund complex.

 

LOGO

 

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO (BA)NK GUARANTEE • MAY LOSE
VALUE

 

 

Fund objective

The Fund seeks to maximize total return, consistent with prudent investment management and liquidity needs, by investing to obtain an average duration which is expected to range within 20% of the duration of its
benchmark.

 

Letter from the
president

 

LOGO

 

Dear Shareholder,

We are pleased to provide the annual report of Western Asset Intermediate Bond Fund for the twelve-month reporting period ended May 31, 2021.
Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

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

 

•  

Fund prices and performance,

 

•  

Market insights and commentaries from our portfolio managers, and

 

•  

A host of educational resources.

We look
forward to helping you meet your financial goals.

Sincerely,

 

LOGO

Jane Trust, CFA

President and
Chief Executive Officer

June 30, 2021

 

 

II    Western Asset Intermediate Bond Fund

Fund overview

 

Q. What is the Fund’s investment strategy?

A. The Fund seeks to maximize total return, consistent with prudent investment management and liquidity needs, by investing to obtain the average durationi specified below. 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. Although the Fund may invest in debt and fixed income securities of any maturity,
under normal market conditions, the target dollar-weighted average effective durationii for the Fund, as estimated by the Fund’s subadviser, is expected to range within 20% of the duration of its benchmark, the Bloomberg Barclays Intermediate
U.S. Government/Credit Indexiii.

The Fund presently intends to limit its investments to U.S. dollar-denominated securities and currently anticipates
that it will 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 that we
determined to be of comparable quality at the time of purchase (that is, “investment grade securities”). The Fund may invest up to 25% of its total assets in the securities of non-U.S. issuers. The
Fund intends to 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, bond and interest rate futures, options on
bonds and swaps, options on bond and interest rate futures, futures, options and swaps.

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/or futures contracts (including options on 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.

At Western Asset Management Company, LLC (“Western Asset”), the Fund’s subadviser, we utilize a fixed income team approach, with decisions derived from interaction among various investment management
sector specialists. The sector teams are comprised of Western Asset’s senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client
fixed income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization.

Q. What were the
overall market conditions during the Fund’s reporting period?

A. Fixed income markets experienced periods of elevated volatility and,
overall, modestly declined over the twelve-month reporting period ended May 31, 2021. Volatility was driven by a number of factors, including risk aversion as the COVID-19 pandemic escalated, sharply

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

1


Fund overview (cont’d)

 

falling global growth, nascent inflation concerns, and a number of geopolitical events.
Most spread sectors (non-Treasuries) outperformed similar duration Treasuries, especially as the reporting period progressed. This was driven by continued monetary policy accommodation from the Federal Reserve
Board (the “Fed”)iv, prospects for increased fiscal spending under a Democrat-controlled U.S. federal government and the rollout of several COVID-19 vaccines which triggered increased investor risk
appetite.

Short-term U.S. Treasury yields edged lower, as the Fed held the federal funds ratev in a range between 0.00% and 0.25%. The yield for the two-year Treasury note began the reporting period at 0.16% and ended the period at 0.14%. The low of 0.09% occurred on February 5, 2021 and the high of 0.22% took place on June 5 and June 8, 2020. In
contrast, long-term U.S. Treasury yields moved sharply higher, as positive economic data and a fiscal relief bill contributed to inflationary concerns and fears that the Fed may remove its monetary policy accommodations sooner than previously
anticipated. The yield for the ten-year Treasury note began the reporting period at 0.65%. The low of 0.52% occurred on August 4, 2020, and the high of 1.74% took place on March 19 and March 31,
2021. The ten-year Treasury yield then ended the period at 1.58%. All told, the Bloomberg Barclays U.S. Aggregate Indexvi returned -0.40% for the twelve months ended
May 31, 2021.

Q. How did we respond to these changing market conditions?

A. A number of adjustments were made to the Fund during the reporting period. We generally maintained an overweight duration position relative to the
benchmark for most of the reporting period, as a risk-off hedge for spread product positions (non-Treasuries) and as the market had
priced-in an aggressive pace of Fed rate hikes. Additionally, we added to the Fund’s overweight exposure to investment-grade corporate bonds early in the reporting period when spreads were relatively
wide. As spreads tightened significantly later in the reporting period, we began to trim some of the Fund’s exposure to certain high-quality investment-grade corporate bonds that we felt were close to being fully valued. We meaningfully reduced
the Fund’s overweight allocation to Treasury Inflation-Protected Securities (“TIPS”)vii as breakeven inflation rates rose. In contrast, we gradually reduced the Fund’s underweight allocation to Treasury securities. We maintained
an overweight exposure in spread sectors where we saw relative value, including agency mortgage-backed securities (“MBS”), high-yield corporate bonds, structured products and emerging market debt.

During the reporting period, U.S. Treasury futures, options and interest rate swaps and Eurodollar futures were used to manage the Fund’s duration and yield
curveviii exposure. These instruments contributed to performance in aggregate. Index credit default swaps (CDX) were used to manage the Fund’s exposure to credit index spread levels and contributed to results.

 

2    Western Asset Intermediate Bond Fund 2021 Annual Report

Performance review

For the twelve months ended May 31, 2021, Class I shares of Western Asset Intermediate Bond Fund returned 2.66%. The Fund’s unmanaged benchmark, the Bloomberg Barclays Intermediate U.S.
Government/Credit Index, returned 0.73% for the same period. The Lipper Core Plus Bond Funds Category Averageix returned 3.38% over the same time frame.

 

Performance Snapshot as of May 31, 2021
(unaudited)
 
(excluding sales charges)   6 months     12 months  
Western Asset Intermediate Bond Fund:    

Class A

    -0.84     2.51

Class C

    -1.18     1.75

Class R

    -0.99     2.14

Class I

    -0.78     2.66

Class IS

    -0.65     2.86
Bloomberg Barclays Intermediate U.S. Government/Credit Index     -0.77     0.73
Lipper Core Plus Bond Funds Category Average     -1.12     3.38

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

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

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

The 30-Day SEC Yields for the period ended May 31, 2021 for Class A, Class C, Class R, Class I
and Class IS shares were 0.84%, 0.21%, 0.63%, 1.25% and 1.32%, respectively. Absent fee waivers and/or expense reimbursements, the 30-Day SEC Yield for Class R shares would have been 0.61%. The 30-Day SEC Yield, calculated pursuant to the standard SEC formula, is based on a Fund’s investments over an annualized trailing 30-day period, and not on the
distributions paid by the Fund, which may differ.

 

Total Annual Operating Expenses (unaudited)

As of the Fund’s current prospectus dated September 30, 2020, the
gross total annual fund operating expense ratios for Class A, Class C, Class R, Class I and Class IS shares were 0.90%, 1.56%, 1.57%, 0.55% and 0.44%, respectively.

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

As a result of expense limitation arrangements, the ratio of total
annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets will not exceed 0.90% for

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

3


Fund overview (cont’d)

 

Class A shares, 1.65% for Class C shares, 1.15% for Class R shares
and 0.45% for Class IS shares. In addition, the ratio of total annual fund operating expenses for Class IS shares will not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation
arrangements cannot be terminated prior to December 31, 2022 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee
payable in connection with any investment in an affiliated money market fund. This management fee waiver is not subject to the recapture provision discussed below.

The manager is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which the manager earned the fee or incurred the expense if the class’ total
annual operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will the manager recapture any amount that would result, on any
particular business day of the Fund, in the class’ total annual operating expenses exceeding the expense cap or any other lower limit then in effect.

Q. What were the leading contributors to performance?

A. The Fund’s largest
contributor to performance was its structured product exposure. In particular, overweight to asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”) and agency residential mortgage-backed securities
(“RMBS”) were additive for returns as their spreads narrowed.

The Fund’s allocations to investment-grade and high-yield corporate bonds
were additive for performance. Their spreads narrowed given improving economic conditions and rising corporate earnings, coupled with generally solid demand. An allocation to emerging markets was also rewarded, as was the Fund’s TIPS exposure.

Q. What were the leading detractors from performance?

A. The Fund significantly outperformed its benchmark during the reporting period. Duration and yield curve positioning were the largest detractors from performance as the portfolio was generally positioned
for a yield curve flattening environment. Over the course of the reporting period the broad swath of the yield curve steepened. Elsewhere, an allocation to agency MBS was also a modest headwind for results.

Thank you for your investment in Western Asset Intermediate Bond Fund. As always, we appreciate that you have chosen us to manage your assets and we remain focused
on achieving the Fund’s investment goals.

Sincerely,

Western Asset Management Company, LLC

June 16, 2021

RISKS: Fixed income securities involve interest rate, credit, inflation and reinvestment risks.
As interest rates rise, the value of fixed income securities falls. Derivatives, such as options, futures and swaps, can be illiquid, may disproportionately increase losses, and have a potentially large

 

4    Western Asset Intermediate Bond Fund 2021 Annual Report

impact on Fund performance. International investments are subject to special risks including currency fluctuations
and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging 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 Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks. Please see the Fund’s prospectus for a more complete discussion of these and other
risks and the Fund’s investment strategies.

Portfolio holdings and breakdowns are as of May 31, 2021 and are subject to change and may not
be representative of the portfolio managers’ current or future investments. Please refer to pages 12 through 53 for a list and percentage breakdown of the Fund’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a
sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio
holdings are subject to change at any time and may not be representative of the portfolio managers’ current or future investments. The Fund’s top five sector holdings (as a percentage of net assets) as of May 31, 2021 were: U.S.
Government & Agency Obligations (32.4%), Financials (16.0%), Mortgage-Backed Securities (7.4%), Asset-Backed Securities (7.1%) and Collateralized Mortgage Obligations (6.9%). The Fund’s portfolio composition is subject to change at any
time.

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

The information provided
is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

5


Fund overview (cont’d)

 

 

 

 

 

 

 

 

 

 

i 

Duration is the measure of the price sensitivity of a fixed income security to an interest rate change of 100 basis points. Calculation is based on the weighted
average of the present values for all cash flows.

 

ii 

Effective duration is a duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as
interest rates change. Please note, duration measures the sensitivity of price (the value of principal) of a fixed income investment to a change in interest rates.

 

iii 

The Bloomberg Barclays Intermediate U.S. Government/Credit Index is a market value weighted performance benchmark for government and corporate fixed-rate debt
issues (rated Baa/ BBB or higher) with maturities between one and ten years.

 

iv 

The Federal Reserve Board (the “Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable
prices, and a sustainable pattern of international trade and payments.

 

v

The federal funds rate is the target interest rate set by the Federal Open Market Committee at which commercial banks borrow and lend their excess reserves to
each other overnight.

 

vi 

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

 

vii 

U.S. Treasury Inflation-Protected Securities (“TIPS”) are inflation-indexed securities issued by the U.S. Treasury in five-year, ten-year and thirty-year maturities. The principal is adjusted to the Consumer price Index, the commonly used measure of inflation. The coupon rate is constant, but generates a different amount of interest when
multiplied by the inflation-adjusted principal.

 

viii 

The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.

 

ix 

Lipper, Inc., a wholly-owned subsidiary of Refinitiv, provides independent insight on global collective investments. Returns are based on the period ended
May 31, 2021, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 315 funds for the six-month period and among the 307 funds for the twelve-month
period in the Fund’s Lipper category, and excluding sales charges, if any.

 

6    Western Asset Intermediate Bond Fund 2021 Annual Report

Fund at a
glance
† (unaudited)

 

Investment breakdown (%) as a percent of total investments

 

LOGO

 

†

The bar graph above represents the composition of the Fund’s investments as of May 31, 2021 and May 31, 2020 and does not include
derivatives such as written options, futures contracts and swap contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

 

‡

Represents less than 0.1%

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

7


Fund expenses
(unaudited)

 

Example

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

This example is based on an investment of $1,000 invested on
December 1, 2020 and held for the six months ended May 31, 2021.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

Based on actual total return1                 Based on hypothetical total return1  
     Actual
Total Return
Without
Sales
Charge2
    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio
    Expenses
Paid
During
the
Period3
               Hypothetical
Annualized
Total Return
   

Beginning

Account
Value

    Ending
Account
Value
    Annualized
Expense
Ratio
   

Expenses
Paid

During

the
Period3

 
Class A     -0.84   $ 1,000.00     $ 991.60       0.75   $ 3.72       Class A     5.00   $ 1,000.00     $ 1,021.19       0.75   $ 3.78  
Class C     -1.18       1,000.00       988.20       1.54       7.63       Class C     5.00       1,000.00       1,017.25       1.54       7.75  
Class R     -0.99       1,000.00       990.10       1.15       5.71     Class R     5.00       1,000.00       1,019.20       1.15       5.79  
Class I     -0.78       1,000.00       992.20       0.54       2.68       Class I     5.00       1,000.00       1,022.24       0.54       2.72  
Class IS     -0.65       1,000.00       993.50       0.44       2.19       Class IS     5.00       1,000.00       1,022.74       0.44       2.22  

 

8    Western Asset Intermediate Bond Fund 2021 Annual Report

 

1  

For the six months ended May 31, 2021.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable
sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the
year. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been
lower. Past performance is no guarantee of future results.

 

3 

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class’ respective annualized expense ratio
multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (182), then divided by 365.

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

9


Fund performance (unaudited)

 

Average annual total returns                                   
Without sales charges1    Class A      Class C      Class R      Class I      Class IS  
Twelve Months Ended 5/31/21      2.51      1.75      2.14      2.66      2.86
Five Years Ended 5/31/21      3.30        2.62        3.07        3.69        3.77  
Ten Years Ended 5/31/21      N/A        N/A        N/A        3.43        3.50  
Inception* through 5/31/21      2.89        2.19        2.64        —        —  
With sales charges2    Class A      Class C      Class R      Class I      Class IS  
Twelve Months Ended 5/31/21      -1.89      0.77      2.14      2.66      2.86
Five Years Ended 5/31/21      2.41        2.62        3.07        3.69        3.77  
Ten Years Ended 5/31/21      N/A        N/A        N/A        3.43        3.50  
Inception* through 5/31/21      2.40        2.19        2.64        —        —  

 

Cumulative total returns  
Without sales charges1        
Class A (Inception date of 4/30/12 through 5/31/21)      29.55
Class C (Inception date of 4/30/12 through 5/31/21)      21.73  
Class R (Inception date of 4/30/12 through 5/31/21)      26.70  
Class I (5/31/11 through 5/31/21)      40.15  
Class IS (5/31/11 through 5/31/21)      41.12  

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an
investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares. 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.

 

1 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable
sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares.

 

2 

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 4.25%. Class C shares reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment.

 

* 

Inception dates for Class A, C, R, I and IS shares are April 30, 2012, April 30, 2012, April 30, 2012, July 1, 1994 and October 3,
2008, respectively.

 

10    Western Asset Intermediate Bond Fund 2021 Annual Report

Historical performance

Value of $1,000,000 invested in

Class I Shares of Western Asset
Intermediate Bond Fund vs. Bloomberg Barclays Intermediate U.S. Government/ Credit Index† — May 2011 – May 2021

 

LOGO

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an
investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares. 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.

 

†

Hypothetical illustration of $1,000,000 invested in Class I shares of Western Asset Intermediate Bond Fund on May 31, 2011, assuming the
reinvestment of all distributions, including returns of capital, if any, at net asset value through May 31, 2021. The hypothetical illustration also assumes a $1,000,000 investment in the Bloomberg Barclays Intermediate U.S. Government/Credit
Index. The Bloomberg Barclays Intermediate U.S. Government/Credit Index (the “Index”) is a market value weighted performance benchmark for government and corporate fixed-rate debt issues (rated Baa/BBB or higher) with maturities between
one and ten years. The Index is unmanaged and not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index. The performance of the Fund’s other classes may be greater
or less than the performance of Class I shares performance indicated on this chart, depending on whether higher or lower sales charges and fees were incurred by shareholders investing in the other classes.

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

11


Schedule of investments

May 31, 2021

 

Western Asset Intermediate Bond Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  
Corporate Bonds & Notes — 39.4%                                
Communication Services — 2.7%                                

Diversified Telecommunication Services —
1.1%

 

                       

AT&T Inc., Senior Notes

    4.250     3/1/27     $ 580,000     $ 660,055  

AT&T Inc., Senior Notes

    2.300     6/1/27       790,000       818,712  

AT&T Inc., Senior Notes

    1.650     2/1/28       40,000       39,484  

AT&T Inc., Senior Notes

    2.250     2/1/32       50,000       48,149  

Telefonica Emisiones SA, Senior Notes

    4.895     3/6/48       870,000       999,813  

Verizon Communications Inc., Senior Notes

    3.500     11/1/24       740,000       804,569  

Verizon Communications Inc., Senior Notes

    3.376     2/15/25       559,000       609,570  

Verizon Communications Inc., Senior Notes

    0.850     11/20/25       320,000       317,027  

Verizon Communications Inc., Senior Notes

    1.450     3/20/26       430,000       434,383  

Verizon Communications Inc., Senior Notes

    2.625     8/15/26       300,000       319,133  

Verizon Communications Inc., Senior Notes

    4.125     3/16/27       930,000       1,062,838  

Verizon Communications Inc., Senior Notes

    3.000     3/22/27       140,000       150,923  

Verizon Communications Inc., Senior Notes

    2.100     3/22/28       530,000       537,348  

Verizon Communications Inc., Senior Notes

    4.329     9/21/28       484,000       556,842  

Verizon Communications Inc., Senior Notes

    3.875     2/8/29       360,000       406,357  

Verizon Communications Inc., Senior Notes

    1.680     10/30/30       954,000       895,981  

Verizon Communications Inc., Senior Notes

    2.550     3/21/31       840,000       845,332  

Verizon Communications Inc., Senior Notes

    2.650     11/20/40       1,800,000       1,661,544  

Verizon Communications Inc., Senior Notes

    3.850     11/1/42       30,000       32,886  

Verizon Communications Inc., Senior Notes

    4.125     8/15/46       110,000       123,936  

 

See Notes to Financial Statements.

 

12    Western Asset Intermediate Bond Fund 2021 Annual Report

 

 

Western Asset Intermediate Bond Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Diversified Telecommunication Services — continued

                               

Verizon Communications Inc., Senior Notes

    4.862     8/21/46     $ 190,000     $ 236,045  

Verizon Communications Inc., Senior Notes

    4.000     3/22/50       160,000       175,278  

Total Diversified Telecommunication Services

                            11,736,205  

Entertainment — 0.0%††

 

                       

Walt Disney Co., Senior Notes

    3.000     9/15/22       170,000       176,152  

Interactive Media & Services —
0.2%

 

                       

Alphabet Inc., Senior Notes

    0.450     8/15/25       100,000       99,292  

Alphabet Inc., Senior Notes

    0.800     8/15/27       220,000       214,195  

Alphabet Inc., Senior Notes

    1.100     8/15/30       240,000       224,526  

Alphabet Inc., Senior Notes

    2.050     8/15/50       400,000       338,430  

Tencent Holdings Ltd., Senior Notes

    3.595     1/19/28       1,200,000       1,297,172  (a)  

Total Interactive Media & Services

                            2,173,615  

Media — 1.1%

 

                       

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

    4.908     7/23/25       4,930,000       5,609,380  

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

    4.800     3/1/50       170,000       186,921  

Comcast Corp., Senior Notes

    3.375     2/15/25       280,000       305,876  

Comcast Corp., Senior Notes

    3.100     4/1/25       30,000       32,550  

Comcast Corp., Senior Notes

    3.950     10/15/25       1,910,000       2,145,410  

Comcast Corp., Senior Notes

    3.150     3/1/26       330,000       360,443  

Comcast Corp., Senior Notes

    3.300     4/1/27       190,000       209,511  

Comcast Corp., Senior Notes

    4.150     10/15/28       1,520,000       1,753,368  

Comcast Corp., Senior Notes

    3.400     4/1/30       290,000       316,311  

Comcast Corp., Senior Notes

    3.250     11/1/39       210,000       216,869  

Comcast Corp., Senior Notes

    3.750     4/1/40       50,000       54,957  

Comcast Corp., Senior Notes

    4.700     10/15/48       60,000       74,450  

Comcast Corp., Senior Notes

    3.450     2/1/50       100,000       104,217  

Comcast Corp., Senior Notes

    2.800     1/15/51       50,000       46,150  

Fox Corp., Senior Notes

    4.030     1/25/24       170,000       184,925  

Fox Corp., Senior Notes

    4.709     1/25/29       210,000       243,665  

Total Media

                            11,845,003  

Wireless Telecommunication Services — 0.3%

 

                       

Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC, Senior Secured Notes

    3.360     9/20/21       148,750       149,233  (a)  

 

See Notes to Financial
Statements.

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

13


Schedule of investments (cont’d)

May 31, 2021

 

Western Asset Intermediate Bond Fund

 

Security    Rate      Maturity
Date
     Face
Amount
     Value  

Wireless Telecommunication Services —
continued

 

                          

T-Mobile USA Inc., Senior Secured Notes

     3.500      4/15/25      $ 490,000      $ 532,412  

T-Mobile USA Inc., Senior Secured Notes

     3.750      4/15/27        90,000        99,089  

T-Mobile USA Inc., Senior Secured Notes

     2.050      2/15/28        90,000        89,752  

T-Mobile USA Inc., Senior Secured Notes

     3.875      4/15/30        1,120,000        1,229,732  

T-Mobile USA Inc., Senior Secured Notes

     2.550      2/15/31        290,000        287,993  

T-Mobile USA Inc., Senior Secured Notes

     2.250      11/15/31        250,000        240,440  

T-Mobile USA Inc., Senior Secured Notes

     3.000      2/15/41        200,000        188,056  

T-Mobile USA Inc., Senior Secured Notes

     3.300      2/15/51        40,000        37,691  

Total Wireless Telecommunication Services

 

                       2,854,398  

Total Communication Services

                                28,785,373  
Consumer Discretionary — 2.0%                                    

Automobiles — 0.4%

                                   

BMW US Capital LLC, Senior Notes

     1.850      9/15/21        80,000        80,283  (a)  

Ford Motor Credit Co. LLC, Senior Notes

     5.875      8/2/21        800,000        805,000  

Ford Motor Credit Co. LLC, Senior Notes

     3.664      9/8/24        200,000        209,109  

General Motors Financial Co. Inc., Senior Notes

     3.450      4/10/22        880,000        899,257  

General Motors Financial Co. Inc., Senior Notes

     3.700      5/9/23        1,230,000        1,296,062  

Toyota Motor Corp., Senior Notes

     1.339      3/25/26        1,150,000        1,166,982  

Total Automobiles

                                4,456,693  

Hotels, Restaurants & Leisure —
0.6%

 

                          

Las Vegas Sands Corp., Senior Notes

     3.200      8/8/24        310,000        326,100  

Las Vegas Sands Corp., Senior Notes

     2.900      6/25/25        40,000        41,783  

McDonald’s Corp., Senior Notes

     3.350      4/1/23        800,000        843,358  

McDonald’s Corp., Senior Notes

     3.300      7/1/25        320,000        348,656  

McDonald’s Corp., Senior Notes

     1.450      9/1/25        80,000        81,854  

McDonald’s Corp., Senior Notes

     3.700      1/30/26        130,000        144,649  

McDonald’s Corp., Senior Notes

     3.500      3/1/27        560,000        619,575  

McDonald’s Corp., Senior Notes

     3.500      7/1/27        160,000        177,853  

McDonald’s Corp., Senior Notes

     3.800      4/1/28        650,000        731,104  

McDonald’s Corp., Senior Notes

     3.600      7/1/30        240,000        265,775  

McDonald’s Corp., Senior Notes

     3.625      9/1/49        60,000        63,107  

McDonald’s Corp., Senior Notes

     4.200      4/1/50        510,000        590,217  

Sands China Ltd., Senior Notes

     4.600      8/8/23        1,320,000        1,412,974  

Total Hotels, Restaurants & Leisure

                                5,647,005  

 

See Notes to Financial
Statements.

 

14    Western Asset Intermediate Bond Fund 2021 Annual Report

 

 

Western Asset Intermediate Bond Fund

 

Security    Rate      Maturity
Date
     Face
Amount
     Value  

Household Durables — 0.0%††

 

                          

Newell Brands Inc., Senior Notes

     4.350      4/1/23      $ 198,000      $ 208,513  

Newell Brands Inc., Senior Notes

     4.700      4/1/26        10,000        11,250  

Total Household Durables

                                219,763  

Internet & Direct Marketing Retail —
0.4%

 

                          

Amazon.com Inc., Senior Notes

     0.400      6/3/23        1,040,000        1,044,990  

Amazon.com Inc., Senior Notes

     0.800      6/3/25        240,000        241,723  

Amazon.com Inc., Senior Notes

     1.200      6/3/27        350,000        349,011  

Amazon.com Inc., Senior Notes

     3.150      8/22/27        2,080,000        2,296,324  

Amazon.com Inc., Senior Notes

     1.500      6/3/30        250,000        241,471  

Amazon.com Inc., Senior Notes

     2.100      5/12/31        100,000        100,361  

Amazon.com Inc., Senior Notes

     2.500      6/3/50        240,000        215,811  

Amazon.com Inc., Senior Notes

     4.250      8/22/57        60,000        72,484  

Total Internet & Direct Marketing
Retail

 

                       4,562,175  

Multiline Retail — 0.0%††

                                   

Dollar General Corp., Senior Notes

     3.250      4/15/23        50,000        52,285  

Specialty Retail — 0.5%

 

                          

Home Depot Inc., Senior Notes

     2.500      4/15/27        3,020,000        3,220,573  

Home Depot Inc., Senior Notes

     3.900      12/6/28        40,000        45,891  

Home Depot Inc., Senior Notes

     3.300      4/15/40        210,000        221,399  

Home Depot Inc., Senior Notes

     3.900      6/15/47        30,000        34,060  

Lowe’s Cos. Inc., Senior Notes

     4.500      4/15/30        210,000        245,629  

Target Corp., Senior Notes

     2.250      4/15/25        450,000        475,844  

(TJX) Cos. Inc., Senior Notes

     3.500      4/15/25        320,000        350,559  

(TJX) Cos. Inc., Senior Notes

     3.750      4/15/27        90,000        101,108  

Total Specialty Retail

                                4,695,063  

Textiles, Apparel & Luxury Goods —
0.1%

 

                          

NIKE Inc., Senior Notes

     2.400      3/27/25        260,000        275,811  

NIKE Inc., Senior Notes

     2.750      3/27/27        420,000        454,193  

NIKE Inc., Senior Notes

     2.850      3/27/30        410,000        439,273  

NIKE Inc., Senior Notes

     3.250      3/27/40        100,000        105,947  

NIKE Inc., Senior Notes

     3.375      3/27/50        20,000        21,564  

Total Textiles, Apparel & Luxury Goods

 

                       1,296,788  

Total Consumer Discretionary

                                20,929,772  
Consumer Staples — 1.7%                                    

Beverages — 0.4%

                                   

Anheuser-Busch InBev Worldwide Inc., Senior Notes

     3.500      6/1/30        1,450,000        1,588,801  

Coca-Cola Co., Senior Notes

     3.375      3/25/27        1,090,000        1,219,270  

Coca-Cola Co., Senior Notes

     1.450      6/1/27        520,000        527,961  

 

See Notes to Financial
Statements.

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

15


Schedule of investments (cont’d)

May 31, 2021

 

Western Asset Intermediate Bond Fund

 

Security    Rate      Maturity
Date
     Face
Amount
     Value  

Beverages — continued

 

                          

Diageo Capital PLC, Senior Notes

     3.500      9/18/23      $ 220,000      $ 235,306  

PepsiCo Inc., Senior Notes

     0.750      5/1/23        560,000        566,184  

PepsiCo Inc., Senior Notes

     2.250      3/19/25        50,000        52,887  

PepsiCo Inc., Senior Notes

     2.625      3/19/27        60,000        64,802  

PepsiCo Inc., Senior Notes

     1.625      5/1/30        300,000        292,021  

PepsiCo Inc., Senior Notes

     3.625      3/19/50        40,000        44,528  

PepsiCo Inc., Senior Notes

     3.875      3/19/60        140,000        164,187  

Total Beverages

                                4,755,947  

Food & Staples Retailing — 0.2%

 

                          

Costco Wholesale Corp., Senior Notes

     1.375      6/20/27        830,000        835,278  

Costco Wholesale Corp., Senior Notes

     1.600      4/20/30        170,000        164,921  

Walmart Inc., Senior Notes

     3.400      6/26/23        180,000        191,081  

Walmart Inc., Senior Notes

     3.550      6/26/25        140,000        155,371  

Walmart Inc., Senior Notes

     3.050      7/8/26        530,000        582,185  

Walmart Inc., Senior Notes

     3.700      6/26/28        320,000        363,385  

Total Food & Staples Retailing

                                2,292,221  

Food Products — 0.5%

 

                          

Danone SA, Senior Notes

     2.077      11/2/21        1,840,000        1,851,670  (a) 

Hershey Co., Senior Notes

     0.900      6/1/25        140,000        140,797  

Mars Inc., Senior Notes

     2.700      4/1/25        360,000        383,941  (a) 

Mars Inc., Senior Notes

     3.200      4/1/30        1,160,000        1,258,005  (a) 

Mondelez International Holdings Netherlands BV, Senior Notes

     2.125      9/19/22        300,000        306,989  (a) 

Mondelez International Inc., Senior Notes

     1.500      5/4/25        900,000        921,280  

Total Food Products

                                4,862,682  

Household Products — 0.1%

 

                          

Kimberly-Clark Corp., Senior Notes

     3.100      3/26/30        130,000        141,999  

Procter & Gamble Co., Senior Notes

     2.800      3/25/27        80,000        87,121  

Procter & Gamble Co., Senior Notes

     3.000      3/25/30        260,000        283,491  

Total Household Products

                                512,611  

Tobacco — 0.5%

 

                          

Altria Group Inc., Senior Notes

     2.350      5/6/25        130,000        136,266  

Altria Group Inc., Senior Notes

     4.800      2/14/29        269,000        308,355  

Altria Group Inc., Senior Notes

     2.450      2/4/32        2,620,000        2,483,421  

Altria Group Inc., Senior Notes

     6.200      2/14/59        115,000        144,589  

(BA)T Capital Corp., Senior Notes

     3.557      8/15/27        1,500,000        1,594,804  

Cargill Inc., Senior Notes

     1.375      7/23/23        470,000        479,974  (a) 

 

See Notes to Financial
Statements.

 

16    Western Asset Intermediate Bond Fund 2021 Annual Report

 

 

Western Asset Intermediate Bond Fund

 

Security    Rate      Maturity
Date
     Face
Amount
     Value  

Tobacco — continued

 

                          

Philip Morris International Inc., Senior Notes

     1.125      5/1/23      $ 280,000      $ 284,770  

Philip Morris International Inc., Senior Notes

     2.100      5/1/30        310,000        303,472  

Total Tobacco

 

                       5,735,651  

Total Consumer Staples

                                18,159,112  
Energy — 5.6%                                    

Energy Equipment & Services — 0.0%††

                                   

Halliburton Co., Senior Notes

     3.800      11/15/25        45,000        49,899  

Oil, Gas & Consumable Fuels — 5.6%

                                   

Apache Corp., Senior Notes

     3.250      4/15/22        485,000        491,317  

Apache Corp., Senior Notes

     4.375      10/15/28        1,030,000        1,058,068  

Apache Corp., Senior Notes

     4.250      1/15/30        180,000        181,581  

BP Capital Markets America Inc., Senior Notes

     3.216      11/28/23        510,000        543,607  

BP Capital Markets America Inc., Senior Notes

     3.410      2/11/26        420,000        462,997  

BP Capital Markets America Inc., Senior Notes

     3.119      5/4/26        1,990,000        2,170,466  

BP Capital Markets America Inc., Senior Notes

     3.588      4/14/27        970,000        1,080,188  

BP Capital Markets America Inc., Senior Notes

     3.633      4/6/30        320,000        355,323  

BP Capital Markets PLC, Senior Notes

     3.535      11/4/24        80,000        87,745  

BP Capital Markets PLC, Senior Notes

     3.506      3/17/25        500,000        551,065  

Cameron LNG LLC, Senior Secured Notes

     2.902      7/15/31        350,000        364,207  (a)  

Chevron Corp., Senior Notes

     1.554      5/11/25        470,000        485,564  

Chevron Corp., Senior Notes

     1.995      5/11/27        260,000        270,166  

Chevron Corp., Senior Notes

     3.078      5/11/50        60,000        59,749  

Chevron USA Inc., Senior Notes

     3.850      1/15/28        620,000        707,925  

Chevron USA Inc., Senior Notes

     3.250      10/15/29        490,000        538,424  

Cimarex Energy Co., Senior Notes

     4.375      6/1/24        180,000        196,877  

Cimarex Energy Co., Senior Notes

     3.900      5/15/27        1,830,000        2,013,239  

Cimarex Energy Co., Senior Notes

     4.375      3/15/29        100,000        112,382  

ConocoPhillips, Senior Notes

     3.750      10/1/27        160,000        180,013  (a) 

ConocoPhillips, Senior Notes

     4.300      8/15/28        770,000        885,009  (a) 

Continental Resources Inc., Senior Notes

     3.800      6/1/24        1,020,000        1,072,346  

Devon Energy Corp., Senior Notes

     5.850      12/15/25        1,360,000        1,610,164  

Diamondback Energy Inc., Senior Notes

     2.875      12/1/24        1,990,000        2,117,208  

Diamondback Energy Inc., Senior Notes

     3.250      12/1/26        170,000        183,115  

 

See Notes to Financial
Statements.

 

Western Asset Intermediate Bond Fund 2021 Annual Report  

 

17


Schedule of investments (cont’d)

May 31, 2021

 

Western Asset Intermediate Bond Fund

 

Security    Rate      Maturity
Date
     Face
Amount
     Value  

Oil, Gas & Consumable Fuels —
continued

 

                          

Diamondback Energy Inc., Senior Notes

     3.500      12/1/29      $ 20,000      $ 21,216  

Ecopetrol SA, Senior Notes

     5.375      6/26/26        2,440,000        2,684,683  

Energy Transfer LP, Senior Notes

     4.500      4/15/24        20,000        21,926  

Energy Transfer LP, Senior Notes

     2.900      5/15/25        400,000        421,471  

Energy Transfer LP, Senior Notes

     4.950      6/15/28        70,000        80,242  

Energy Transfer LP, Senior Notes

     3.750      5/15/30        1,120,000        1,193,178  

Energy Transfer LP/Regency Energy Finance Corp., Senior Notes

     4.500      11/1/23        500,000        537,971  

Enterprise Products Operating LLC, Senior Notes

     4.150      10/16/28        2,290,000        2,603,895  

Enterprise Products Operating LLC, Senior Notes

     3.125      7/31/29        720,000        766,706  

Enterprise Products Operating LLC, Senior Notes

     2.800      1/31/30        430,000        447,773  

EOG Resources Inc., Senior Notes

     4.150      1/15/26        740,000        835,606  

EOG Resources Inc., Senior Notes

     4.375      4/15/30        210,000        244,732  

Exxon Mobil Corp., Senior Notes

     1.571      4/15/23        80,000        81,960  

Exxon Mobil Corp., Senior Notes

     2.992      3/19/25        1,850,000        1,998,421  

Exxon Mobil Corp., Senior Notes

     3.043      3/1/26        1,670,000        1,819,669  

Exxon Mobil Corp., Senior Notes

     4.327      3/19/50        30,000        35,586  

KazMunayGas National Co. JSC, Senior Notes

     5.375      4/24/30        1,070,000        1,279,011  (a) 

KazMunayGas National Co. JSC, Senior Notes

     5.750      4/19/47        660,000        814,613  (a)  

Kinder Morgan Inc., Senior Notes

     4.300      6/1/25        410,000        458,286  

Kinder Morgan Inc., Senior Notes

     4.300      3/1/28        290,000        328,169  

MPLX LP, Senior Notes

     4.125      3/1/27        780,000        874,542  

MPLX LP, Senior Notes

     4.800      2/15/29        1,120,000        1,299,345  

Occidental Petroleum Corp., Senior Notes

     2.700      2/15/23        642,000        646,664  

Occidental Petroleum Corp., Senior Notes

     6.950      7/1/24        120,000        133,590  

Occidental Petroleum Corp., Senior Notes

     2.900      8/15/24        430,000        429,463  

Occidental Petroleum Corp., Senior Notes

     5.550      3/15/26        1,730,000        1,848,938  

Occidental Petroleum Corp., Senior Notes

     3.400      4/15/26        910,000        888,438  

Occidental Petroleum Corp., Senior Notes

     3.000      2/15/27        500,000        473,675  

Pertamina Persero PT, Senior Notes

     6.000      5/3/42        580,000        696,272  (a)  

Petrobras Global Finance BV, Senior Notes

     4.375      5/20/23        420,000        445,830  

Petrobras Global Finance BV, Senior Notes

     6.250      3/17/24        470,000        528,111  

Petrobras Global Finance BV, Senior Notes

     6.850      6/5/2115