N-CSRS 1 dncsrs.htm WESTERN ASSET INCOME FUND Western Asset Income Fund

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:    811-02351
Name of Registrant:    Western Asset Income Fund
Address of Principal Executive Offices:    385 East Colorado Boulevard, Pasadena, CA 91101
Name and address of agent for service:   

Richard M. Wachterman, Esq.

Legg Mason Wood Walker, Incorporated

100 Light Street

Baltimore, MD 21202

Registrant’s telephone number, including area code:    (626) 844-9400
Date of fiscal year end:    12/31/2005
Date of reporting period:    06/30/2005

Item 1. Report to Shareholders.

 

 

Western Asset Income Fund

 

Semi-Annual Report to Shareholders

 

June 30, 2005

 

Semi-Annual Report to Shareholders

FUND HIGHLIGHTS

(Amounts in Thousands, except per share amounts) (Unaudited)

 

       Six Months
Ended
June 30,		     

Year

Ended

December 31,

       2005      2004

Net Asset Value

      $151,712      $153,289

Per Share

      $16.16      $16.33

Net Investment Income

      $4,087      $8,805

Per Share

      $0.44      $0.94

Dividends Paid:

              

Ordinary Income

      $4,131      $8,756

Per Share

      $0.44      $0.93

Capital Gains

      $1,653      $4,882

Per Share

      $0.18      $0.52

 

The Fund

Western Asset Income Fund (“WAIF” or the “Fund”) is a closed-end, diversified management investment company which seeks for its shareholders a high level of current income through investment in a diversified portfolio of debt securities. Substantially all of the net investment income is distributed to the shareholders. A Dividend Reinvestment Plan is available to those shareholders of record desiring it. The Fund’s common shares are listed on the New York Stock Exchange (“NYSE”) where they are traded under the symbol PAI, and price quotations can be found in publications under the abbreviation WstAssetIncoFd.

 

Investment Policies

The Fund’s investment policies provide that its portfolio must be invested as follows:

 

  •   At least 75% in debt securities rated within the four highest grades, and in government securities, bank debt, commercial paper, cash or cash equivalents.

 

  •   Up to 25% in other fixed income securities, convertible bonds, convertible preferred and preferred stock.

 

  •   Not more than 25% in securities restricted as to resale.

 

Dividend Reinvestment Plan and Optional Cash Investment Service

WAIF and EquiServe Trust Company, N.A. (“EquiServe” or the “Agent”), as the Transfer Agent and Registrar of the Fund, offer two convenient ways to add shares of the Fund to your account. First, WAIF offers to all shareholders a Dividend Reinvestment Plan (“Plan”). Under the Plan, cash distributions (e.g., dividends and capital gains) are automatically invested in shares of WAIF unless the shareholder elects otherwise. Second, the Fund offers to registered shareholders (those who own shares in their own name on the Fund’s records) the option to purchase additional whole and partial shares of WAIF—the Optional Cash Investment Service (“Optional Cash Investment Service”).

 

Dividend Reinvestment Plan

As a participant in the Dividend Reinvestment Plan, you will automatically receive your dividend or net capital gains distribution in newly issued shares of WAIF, if the market price of the shares on the date of the distribution is at or above the net asset value (“NAV”) of the shares. The number of shares to be issued to you will be determined by dividing the amount of the cash distribution to which you are entitled (net of any applicable withholding taxes) by the greater of the NAV per share on such date or 95% of the market price of a share on such date. If the market price of a share on such distribution date is below the NAV, the Agent will, as agent for the participants, buy shares of WAIF stock through a broker on the open market. The price per share of shares purchased for each participant’s account with respect to a particular dividend or other distribution will be the average price (including brokerage commissions, transfer taxes and any other costs of purchase) of all shares purchased with respect to that dividend or other distribution. All shares of common stock acquired on your behalf through the Plan will be automatically credited to an account maintained on the books of the Agent. Full and fractional shares will be voted by EquiServe in accordance with your instructions.

 

1

Semi-Annual Report to Shareholders

 

Optional Cash Investment Service

Under the Optional Cash Investment Service (offered to registered shareholders only), funds received from shareholders for stock purchases will be pooled once per month. The Agent will then purchase shares of WAIF stock through a broker on the open market. For the purposes of making purchases, the Agent will commingle each participant’s funds with those of all participants in the Plan. The Agent will hold the total shares purchased for all participants in its name or the name of its nominee and will have no responsibility for the value of such shares after their purchase.

 

Beneficial shareholders (those who own shares held in a brokerage, bank or other financial institution account) are not eligible to participate in this option because there is no way to make payments through a broker, bank or nominee. A beneficial shareholder may, however, have his or her shares taken out of “street name” and re-register such shares in his or her own name, becoming a registered shareholder in order to participate. If you wish to do so, please contact your broker, bank or nominee.

 

Additional Information Regarding the Plan and the Optional Cash Investment Service

WAIF will pay all costs applicable to the Plan and Optional Cash Investment Service, with the exceptions noted below. Brokerage commissions, transfer taxes and any other costs of purchase or sale by the Agent under the Plan or Optional Cash Investment Service will be charged to participants. In the event WAIF determines to no longer pay such costs, the Agent will terminate the Plan and Optional Cash Investment Service and may, but is not obligated to, offer a new plan under which it would impose a direct service charge on participants.

 

All shares acquired through the Plan or the Optional Cash Investment Service receive voting rights and are eligible for any stock split, stock dividend, or other rights accruing to shareholders that the Board of Directors may declare.

 

You may terminate participation in the Plan or the Optional Cash Investment Service at any time by giving written notice to the Agent. Such termination will be effective prior to the record date next succeeding the receipt of such instructions or by a later date of termination specified in such instructions. Upon termination, a participant may request a certificate for the full shares credited to his or her account or may request the sale of all or part of such shares. If the participant instructs the Agent to sell the shares credited to the participant’s account, the Agent may accumulate such shares and those of any other terminating participants for purposes of such sale. Brokerage charges, transfer taxes, and any other costs of sale will be allocated pro rata among the selling participants. Any such sale may be made on any securities exchange where such shares are traded, in the over-the-counter market or in negotiated transactions, and may be subject to such terms of price, delivery, etc., as the Agent may agree to. Fractional shares credited to a terminating account will be paid for in cash at the current market price at the time of termination.

 

Dividends and other distributions invested in additional shares under the Plan are subject to income tax just as if they had been received in cash. After year end, dividends paid on the accumulated shares will be included in the Form 1099-DIV information return to the Internal Revenue Service (“IRS”) and only one Form 1099-DIV will be sent to each participant each year.

 

Inquiries regarding the Plan and the Optional Cash Investment Service, as well as notices of termination, should be directed to EquiServe Trust Company, N.A., c/o Computershare Investor Services P.O. Box 43010, Providence, RI 02940-3010—Investor Relations telephone number 1-866-290-4386.

 

Schedule of Portfolio Holdings

The Fund files a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. You may obtain a free copy of the Fund’s Form N-Q by calling 1-800-799-4932 or by writing to the Fund, or you may obtain a copy of this report (and other information relating to the Fund) from the SEC’s website (http://www.sec.gov). Additionally, the Fund’s Form N-Q can be viewed or copied at the SEC’s Public Reference Room in Washington D.C. Information about the operation of the Public Reference Room can be obtained by calling 1-800-SEC-0330.

 

2

Semi-Annual Report to Shareholders

 

Proxy Voting

You may request a free description of the policies and procedures that the Fund uses to determine how proxies relating to the Fund’s portfolio securities are voted by calling 1-800-799-4932 or by writing to the Fund, or you may obtain a copy of these policies and procedures (and other information regarding the Fund) from the SEC’s web site (http://www.sec.gov). You may request a free report regarding the Fund’s voting of proxies relating to portfolio securities during the most recent twelve-month period ended June 30 by calling 1-800-799-4932 or by writing to the Fund, or you may obtain a copy of this report (and other information relating to the Fund) from the SEC’s website (http://www.sec.gov).

 

 

PORTFOLIO DIVERSIFICATION

June 30, 2005

 

LOGO

 

The pie chart and bar chart above represent the Fund’s assets as of June 30, 2005. The Fund’s portfolio is actively managed, and its portfolio composition, credit quality breakdown, and other portfolio characteristics will vary from time to time.

 

A   Ratings shown are expressed as a percentage of the portfolio. Standard & Poor’s Ratings Services provides capital markets with credit ratings for the evaluation and assessment of credit risk.
B   Expressed as a percentage of the portfolio.

 

3

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

June 30, 2005 (Unaudited)

(Amounts in Thousands)

 

Western Asset Income Fund

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Long-Term Securities

    97.8%                          

Corporate Bonds and Notes

    71.8%                          

Aerospace/Defense

    1.1%                          

L-3 Communications Corp.

         7.625%    6/15/12    $ 275    $ 293  

Raytheon Company

         5.375%    4/1/13      905      943 A

Systems 2001 Asset Trust

         6.664%    9/15/13      450      490 B
                          
                             1,726  
                          

Auto Parts and Equipment

    0.2%                          

American Axle & Manufacturing Inc.

         5.250%    2/11/14      300      264 A
                          

Automotive

    1.0%                          

Ford Motor Company

         7.450%    7/16/31      600      501 A

Ford Motor Company

         8.900%    1/15/32      260      237 A

General Motors Corporation

         8.250%    7/15/23      190      157 A

General Motors Corporation

         8.375%    7/15/33      760      635 A
                          
                             1,530  
                          

Banking and Finance

    9.9%                          

AIFUL Corporation

         4.450%    2/16/10      455      450 B

Boeing Capital Corporation

         5.800%    1/15/13      150      163  

Ford Motor Credit Company

         6.625%    6/16/08      3,010      2,973  

Ford Motor Credit Company

         7.375%    10/28/09      1,425      1,392  

Ford Motor Credit Company

         7.375%    2/1/11      510      497  

Ford Motor Credit Company

         7.250%    10/25/11      1,615      1,554  

Ford Motor Credit Company

         7.000%    10/1/13      70      67 A

Fuji Co., Ltd.

         9.870%    12/31/49      620      702 B

General Motors Acceptance Corporation

         6.125%    2/1/07      570      566  

General Motors Acceptance Corporation

         6.125%    8/28/07      3,190      3,157 A

General Motors Acceptance Corporation

         6.311%    11/30/07      110      107  

General Motors Acceptance Corporation

         5.625%    5/15/09      510      478  

HSBC Finance Corporation

         4.750%    4/15/10      1,790      1,815  

International Lease Finance Corporation

         6.375%    3/15/09      330      349  

SB Treasury Company LLC

         9.400%    12/29/49      600      673B  
                          
                             14,943  
                          

Banks

    1.9%                          

Bank of America Corporation

         3.375%    2/17/09      1,075      1,048 A

Bank of America Corporation

         7.800%    9/15/16      250      312  

BankAmerica Capital

         3.711%    1/15/27      215      206 C

Chase Capital II

         3.710%    2/1/27      725      677 C

RBS Capital Trust III

         5.512%    9/29/49      570      592 B
                          
                             2,835  
                          

 

4

Semi-Annual Report to Shareholders

 

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Corporate Bonds and Notes—Continued

                               

Building Materials

    0.5%                          

American Standard, Inc.

         8.250%    6/1/09    $ 500    $ 565  

Nortek, Inc.

         8.500%    9/1/14      225      209  
                          
                             774  
                          

Cable

    1.4%                          

Comcast Corporation

         7.050%    3/15/33      160      189  

Cox Communications, Inc.

         4.625%    1/15/10      510      509  

CSC Holdings Inc.

         7.250%    7/15/08      700      702  

TCI Communications, Inc.

         8.750%    8/1/15      160      205  

Tele-Communications, Inc.

         9.800%    2/1/12      375      477  
                          
                             2,082  
                          

Casino Resorts

    0.4%                          

Caesars Entertainment Inc.

         8.125%    5/15/11      250      287  

Harrah’s Operating Company, Inc.

         5.500%    7/1/10      340      351  
                          
                             638  
                          

Chemicals

    0.9%                          

FMC Corporation

         10.250%    11/1/09      265      299  

The Dow Chemical Company

         7.375%    11/1/29      800      1,033  
                          
                             1,332  
                          

Computer Services and Systems

    0.7%                          

Electronic Data Systems Corporation

         7.125%    10/15/09      600      646 A

Electronic Data Systems Corporation

         7.450%    10/15/29      420      447  
                          
                             1,093  
                          

Containers and Packaging

    0.1%                          

Graphic Packaging International Corp.

         9.500%    8/15/13      200      202  
                          

Diversified Financial Services

    2.9%                          

AIG SunAmerica Global Financing VI

         6.300%    5/10/11      1,880      2,049 B

Beaver Valley Funding Corp.

         9.000%    6/1/17      300      356  

Capital One Bank

         5.750%    9/15/10      310      327  

Capital One Bank

         6.500%    6/13/13      330      363  

Capital One Financial Corporation

         8.750%    2/1/07      350      374  

Capital One Financial Corporation

         7.125%    8/1/08      90      96 A

General Electric Capital Corporation

         6.750%    3/15/32      225      278  

iStar Financial Inc.

         5.375%    4/15/10      230      233  

iStar Financial Inc.

         6.000%    12/15/10      230      239  

Mizuho Preferred Capital Corp. LLC

         8.790%    12/29/49      110      121 B
                          
                             4,436  
                          

 

5

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

 

Western Asset Income Fund—Continued

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Corporate Bonds and Notes—Continued

                               

Electric

    2.0%                          

AEP Texas Central Company

         5.500%    2/15/13    $ 420    $ 440  

American Electric Power Company, Inc.

         5.250%    6/1/15      490      506 A

Dominion Resources, Inc.

         5.125%    12/15/09      210      216  

FirstEnergy Corp.

         6.450%    11/15/11      60      65  

FirstEnergy Corp.

         7.375%    11/15/31      710      868  

System Energy Resources, Inc.

         4.875%    10/1/07      380      384  

Tampa Electric Company

         6.375%    8/15/12      145      160  

The AES Corporation

         9.500%    6/1/09      39      43 A

The Cleveland Electric Illuminating Company

         5.650%    12/15/13      300      316  
                          
                             2,998  
                          

Energy

    6.6%                          

Alabama Power Company

         3.125%    5/1/08      360      351  

Calpine Generating Company, LLC

         11.500%    4/1/11      35      31  

Calpine Generating Company, LLC

         12.390%    4/1/11      45      41 C

CenterPoint Energy, Inc.

         6.850%    6/1/15      1,150      1,287  

DTE Energy Company

         6.375%    4/15/33      330      361  

Exelon Corporation

         6.750%    5/1/11      1,500      1,666  

MidAmerican Energy Holdings Company

         5.875%    10/1/12      500      531  

Pacific Gas and Electric Company

         6.050%    3/1/34      1,890      2,083  

Peabody Energy Corporation

         6.875%    3/15/13      285      302  

Sempra Energy

         3.754%    5/21/08      635      636 C

TXU Corp.

         6.375%    6/15/06      750      762  

TXU Corp.

         6.550%    11/15/34      520      511 A,B

TXU Energy Co.

         3.920%    1/17/06      125      125 C

TXU Energy Co.

         6.125%    3/15/08      500      519  

TXU Energy Co.

         7.000%    3/15/13      370      413  

Xcel Energy, Inc.

         7.000%    12/1/10      350      389  
                          
                             10,008  
                          

Environmental Services

    0.3%                          

Waste Management, Inc.

         7.375%    5/15/29      415      499  
                          

Food, Beverage and Tobacco

    2.5%                          

Altria Group, Inc.

         7.000%    11/4/13      305      342  

Altria Group, Inc.

         7.750%    1/15/27      340      408  

Domino's, Inc.

         8.250%    7/1/11      200      213  

Kraft Foods Inc.

         6.250%    6/1/12      75      82  

Nabisco Incorporated

         7.550%    6/15/15      650      791  

R.J. Reynolds Tobacco Holdings, Inc.

         7.250%    6/1/12      1,360      1,384 A

Tyson Foods, Inc.

         7.000%    1/15/28      500      570 A
                          
                             3,790  
                          

 

6

Semi-Annual Report to Shareholders

 

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Corporate Bonds and Notes—Continued

                               

Gas and Pipeline Utilities

    2.4%                          

Dynegy Holdings Inc.

         6.875%    4/1/11    $ 1,300    $ 1,284 A

Dynegy Holdings Inc.

         8.750%    2/15/12      735      801 A

The Williams Companies, Inc.

         7.500%    1/15/31      102      110  

The Williams Companies, Inc.

         8.750%    3/15/32      1,250      1,502  
                          
                             3,697  
                          

Health Care

    1.1%                          

Tenet Healthcare Corporation

         6.375%    12/1/11      1,465      1,395 A

Tenet Healthcare Corporation

         6.875%    11/15/31      250      210  
                          
                             1,605  
                          

Homebuilding

    0.4%                          

D.R. Horton, Inc.

         5.250%    2/15/15      410      397 A

Pulte Homes, Inc.

         6.250%    2/15/13      145      155 A
                          
                             552  
                          

Insurance

    0.2%                          

Willis Group North America

         5.125%    7/15/10      280      282  
                          

Investment Banking/Brokerage

    2.4%                          

J.P. Morgan Capital Trust II

         7.950%    2/1/27      150      163 A

J.P. Morgan Chase & Co.

         5.125%    9/15/14      2,100      2,148 A

Merrill Lynch & Co., Inc.

         5.000%    1/15/15      60      61 A

Morgan Stanley

         4.750%    4/1/14      500      493  

The Goldman Sachs Group, Inc.

         6.345%    2/15/34      755      818  
                          
                             3,683  
                          

Lodging/Hotels

    0.4%                          

Hilton Hotels Corporation

         7.625%    12/1/12      450      520 A
                          

Machinery

    0.3%                          

Case New Holland Incorporated

         9.250%    8/1/11      275      289 B

Case New Holland Incorporated

         9.250%    8/1/11      200      210 B
                          
                             499  
                          

Media

    4.3%                          

AMFM Inc.

         8.000%    11/1/08      210      226 A

Clear Channel Communications, Inc.

         5.500%    9/15/14      915      868  

Liberty Media Corporation

         4.910%    9/17/06      455      458 C

Liberty Media Corporation

         7.875%    7/15/09      750      800  

Liberty Media Corporation

         8.500%    7/15/29      130      131 A

Liberty Media Corporation

         8.250%    2/1/30      65      65 A

News America, Inc.

         6.550%    3/15/33      545      591  

 

7

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

 

Western Asset Income Fund—Continued

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Corporate Bonds and Notes—Continued

                               

Media—Continued

                               

News America, Inc.

         6.200%    12/15/34    $ 160    $ 168  

Readers Digest Association, Inc.

         6.500%    3/1/11      300      304  

Sinclair Broadcast Group, Inc.

         8.750%    12/15/11      210      221  

Time Warner Entertainment Company, L.P.

         8.375%    7/15/33      680      902  

Time Warner Inc.

         6.150%    5/1/07      390      403  

Time Warner Inc.

         6.875%    5/1/12      270      305  

Time Warner Inc.

         7.700%    5/1/32      430      544  

Viacom Inc.

         5.625%    8/15/12      520      532  
                          
                             6,518  
                          

Medical Care Facilities

    1.6%                          

Coventry Health Care, Inc.

         5.875%    1/15/12      400      407  

HCA, Inc.

         5.250%    11/6/08      105      105  

HCA, Inc.

         7.875%    2/1/11      250      275  

HCA, Inc.

         6.300%    10/1/12      180      185  

HCA, Inc.

         6.250%    2/15/13      690      705  

HCA, Inc.

         5.750%    3/15/14      305      304  

Health Care REIT, Inc.

         8.000%    9/12/12      370      432  
                          
                             2,413  
                          

Oil and Gas

    6.2%                          

Amerada Hess Corporation

         7.300%    8/15/31      1,440      1,737  

Conoco Inc.

         6.950%    4/15/29      90      113  

ConocoPhillips

         4.750%    10/15/12      200      205  

Devon Energy Corporation

         7.950%    4/15/32      350      460  

El Paso Corporation

         7.625%    8/16/07      300      308 B

El Paso Corporation

         7.800%    8/1/31      2,000      1,945  

Kerr-McGee Corporation

         7.875%    9/15/31      1,315      1,497  

Occidental Petroleum Corporation

         6.750%    1/15/12      1,000      1,132  

Ocean Energy Inc.

         4.375%    10/1/07      430      430  

Panhandle Eastern Pipe Line Company

         4.800%    8/15/08      445      451  

Valero Energy Corporation

         6.875%    4/15/12      215      240  

Vintage Petroleum, Inc.

         7.875%    5/15/11      250      264  

XTO Energy, Inc.

         6.250%    4/15/13      560      606  
                          
                             9,388  
                          

Paper and Forest Products

    1.9%                          

Georgia-Pacific Corporation

         8.000%    1/15/24      250      288  

Georgia-Pacific Corporation

         9.500%    12/1/11      325      392 A

International Paper Company

         5.500%    1/15/14      490      500  

Weyerhaeuser Company

         6.750%    3/15/12      995      1,095  

Weyerhaeuser Company

         7.375%    3/15/32      540      637  
                          
                             2,912  
                          

 

8

Semi-Annual Report to Shareholders

 

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Corporate Bonds and Notes—Continued

                               

Photo Equipment and Supplies

    0.5%                          

Eastman Kodak Company

         3.625%    5/15/08    $ 375    $ 361 A

Eastman Kodak Company

         7.250%    11/15/13      345      363 A
                          
                             724  
                          

Real Estate

    0.2%                          

Forest City Enterprises, Inc.

         7.625%    6/1/15      225      241  

Socgen Real Estate Co. LLC

         1.000%    12/29/49      80      85 A,B
                          
                             326  
                          

Retail

    0.2%                          

Toys "R" Us, Inc.

         6.875%    8/1/06      350      355 A
                          

Special Purpose

    13.3%                          

Ahold Finance USA, Inc.

         8.250%    7/15/10      355      391  

ASIF Global Financing XIX

         4.900%    1/17/13      410      416 B

Conoco Funding Company

         6.350%    10/15/11      470      520  

DaimlerChrysler NA Holding Corporation

         3.859%    9/10/07      1,570      1,570 C

DaimlerChrysler NA Holding Corporation

         7.300%    1/15/12      415      464  

DaimlerChrysler NA Holding Corporation

         6.500%    11/15/13      160      173  

Duke Capital Corporation

         6.250%    2/15/13      1,200      1,295 A

NiSource Finance Corp.

         3.200%    11/1/06      375      371  

PNPP II Funding Corporation

         9.120%    5/30/16      2,425      2,911 A

Qwest Capital Funding, Inc.

         7.250%    2/15/11      1,150      1,101 A

Rabobank Capital Funding Trust II

         5.260%    12/31/49      115      118  

Rabobank Capital Funding Trust III

         5.254%    12/29/49      1,145      1,175 B

Reed Elsevier Capital Inc.

         4.625%    6/15/12      900      896  

Sithe Independence Funding Corporation

         9.000%    12/30/13      1,500      1,614  

Sprint Capital Corporation

         8.750%    3/15/32      1,420      1,975  

TCI Communications Financing III

         9.650%    3/31/27      3,000      3,399  

The Williams Companies, Inc. Credit Certificate Trust

         6.750%    4/15/09      1,740      1,801 B
                          
                             20,190  
                          

Telecommunications

    1.7%                          

BellSouth Corporation

         4.750%    11/15/12      320      322  

Emmis Operating Company

         6.875%    5/15/12      250      248  

Qwest Communications International Inc.

         7.500%    2/15/14      850      804 B

Qwest Corporation

         6.875%    9/15/33      1,000      866  

Verizon New York Inc.

         6.875%    4/1/12      340      376  
                          
                             2,616  
                          

 

9

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

 

Western Asset Income Fund—Continued

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Corporate Bonds and Notes—Continued

                               

Telecommunications (Cellular/Wireless)

    1.4%                          

AT&T Wireless Services Inc.

         7.500%    5/1/07    $ 500    $ 529  

AT&T Wireless Services Inc.

         8.125%    5/1/12      155      186  

AT&T Wireless Services Inc.

         8.750%    3/1/31      475      666  

Motorola, Inc.

         7.625%    11/15/10      350      401  

Nextel Communications, Inc.

         5.950%    3/15/14      88      91  

Nextel Communications, Inc.

         7.375%    8/1/15      285      308  
                          
                             2,181  
                          

Transportation

    0.9%                          

Continental Airlines, Inc.

         6.545%    2/2/19      181      182  

Continental Airlines, Inc.

         7.256%    3/15/20      242      244  

Delta Air Lines, Inc.

         7.570%    11/18/10      40      38  

Delta Air Lines, Inc.

         6.417%    7/2/12      400      421  

Delta Air Lines, Inc.

         6.718%    7/2/24      282      296  

Northwest Airlines Corporation

         7.575%    3/1/19      84      85  

United Airlines, Inc.

         7.783%    1/1/14      102      94  
                          
                             1,360  
                          

Total Corporate Bonds and Notes (Identified Cost—$103,683)

                       108,971  

Mortgage-Backed Securities

    0.8%                          

Glendale Federal Savings Bank 1978-A

         9.125%    1/25/08      8      8  

Nomura Asset Securities Corporation 1996-MD5

         7.120%    4/13/39      1,170      1,196  
                          

Total Mortgage-Backed Securities (Identified Cost—$1,178)

                       1,204  

U.S. Government and Agency Obligations

    3.0%                          

Fixed Rate Securities

    0.8%                          

United States Treasury Notes

         3.750%    3/31/07      315      315 A

United States Treasury Notes

         3.375%    2/15/08      870      864 A

United States Treasury Notes

         4.000%    2/15/15      5      5 A
                          
                             1,184  
                          

Indexed Securities

    2.2%                          

United States Treasury Inflation-Protected Security

         0.875%    4/15/10      3,358      3,275 A,E
                          

Total U.S. Government and Agency Obligations (Identified Cost—$4,505)

                  4,459  

 

10

Semi-Annual Report to Shareholders

 

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

U.S. Government Agency Mortgage-Backed Securities

    0.1%                          

Fannie Mae

         8.000%    4/25/06    $ 18    $ 19  

Fannie Mae

         11.500%    11/1/17      24      27  

Fannie Mae

         14.000%    2/1/18      22      26  

Freddie Mac

         10.250%    5/1/09      24      26  
                          

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$91)

             98  

Yankee BondsF

    22.1%                          

Banking and Finance

    1.7%                          

Corporacion Andina de Fomento

         3.520%    1/26/07      470      470 C

HBOS Capital Funding LP

         6.071%    6/30/49      560      605 B

HBOS Treasury Services plc

         4.000%    9/15/09      420      417 B

Mizuho Financial Group, Inc.

         5.790%    4/15/14      1,100      1,157 B
                          
                             2,649  
                          

Cable

    0.2%                          

British Sky Broadcasting Group plc

         6.875%    2/23/09      330      355  
                          

Diversified Financial Services

    0.5%                          

Encana Holdings Finance Corp

         5.800%    5/1/14      770      826  
                          

Electric

    0.5%                          

Empresa Nacional de Electricidad S.A.

         8.500%    4/1/09      670      745 A
                          

Foreign Governments

    10.2%                          

Federative Republic of Brazil

         14.500%    10/15/09      180      234 A

Federative Republic of Brazil

         12.000%    4/15/10      210      255 A

Federative Republic of Brazil

         4.313%    4/15/12      148      143 C

Federative Republic of Brazil

         4.313%    4/15/12      231      222 C

Federative Republic of Brazil

         8.000%    4/15/14      2,385      2,443 A

Federative Republic of Brazil

         11.000%    8/17/40      340      409 A

Quebec Province

         7.220%    7/22/36      650      998 D

Republic of Bulgaria

         8.250%    1/15/15      20      25 B

Republic of Bulgaria

         8.250%    1/15/15      508      638 B

Republic of Chile

         3.587%    1/28/08      150      151 C

Republic of Colombia

         10.500%    7/9/10      170      202 A

Republic of Colombia

         11.750%    2/25/20      290      382  

Republic of Panama

         9.625%    2/8/11      120      143  

Republic of Panama

         10.750%    5/15/20      230      312 A

Republic of Panama

         9.375%    1/16/23      130      160  

 

11

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

 

Western Asset Income Fund—Continued

 

 

     % OF
NET ASSETS		    RATE    MATURITY
DATE		    PAR/
SHARES		    VALUE  

Yankee Bonds—Continued

                               

Foreign Governments—Continued

                               

Republic of Peru

         5.000%    3/7/17    $ 294    $ 280 D

Republic of Peru

         8.750%    11/21/33      230      259  

Republic of South Africa

         7.375%    4/25/12      250      288 A

Republic of South Africa

         6.500%    6/2/14      260      290  

Russian Federation

         5.000%    3/31/30      1,950      2,177 D

Russian Ministry of Finance

         3.000%    5/14/06      80      79  

United Mexican States

         8.375%    1/14/11      1,290      1,501  

United Mexican States

         11.500%    5/15/26      960      1,541 A

United Mexican States

         8.300%    8/15/31      340      423  

United Mexican States

         7.500%    4/8/33      1,660      1,905  
                          
                             15,460  
                          

Insurance

    1.0%                          

Axa

         8.600%    12/15/30      550      749  

Oil Insurance Ltd

         5.150%    8/15/33      220      222 B

XL Capital Ltd.

         5.250%    9/15/14      500      507  
                          
                             1,478  
                          

Manufacturing (Diversified)

    1.1%                          

Tyco International Group SA

         6.375%    10/15/11      1,450      1,593  
                          

Oil and Gas

    1.4%                          

Gazprom

         9.625%    3/1/13      50      61 B

Gazprom

         9.625%    3/1/13      20      25  

Petrobras International Finance Company (PIFCO)

         9.750%    7/6/11      345      409  

Petroliam Nasional Berhad

         7.625%    10/15/26      1,260      1,602 B
                          
                             2,097  
                          

Special Purpose

    2.7%                          

Deutsche Telekom International Finance BV

         8.750%    6/15/30      500      677  

Petrozuata Finance, Inc.

         8.220%    4/1/17      3,205      3,005 B

UFJ Finance Aruba AEC

         6.750%    7/15/13      355      396  
                          
                             4,078  
                          

Telecommunications

    2.2%                          

British Telecommunications plc

         8.875%    12/15/30      330      466  

France Telecom SA

         8.750%    3/1/31      560      781  

Tele Norte Leste Participacoes S.A.

         8.000%    12/18/13      410      422 A

Telecom Italia Capital S.p.A.

         5.250%    11/15/13      750      762  

Telecom Italia Capital S.p.A.

         4.950%    9/30/14      695      688 B

Telus Corporation

         7.500%    6/1/07      250      264  
                          
                             3,383  
                          

 

12

Semi-Annual Report to Shareholders

 

 

 

    % OF
NET ASSETS		   RATE   MATURITY
DATE		   PAR/
SHARES		   VALUE  

Yankee Bonds—Continued

                          

Telecommunications (Cellular/Wireless)

   0.2%                      

Rogers Wireless Communications Inc.

       6.375%   3/1/14   $ 300   $ 305  
                     

Utilities

   0.4%                      

United Utilities plc

       5.375%   2/1/19     580     587  
                     

Total Yankee Bonds (Identified Cost—$30,149)

                       33,556  

Total Long-Term Securities (Identified Cost—$139,606)

                       148,288  

Investment of Collateral from Securities Lending

                          

State Street Navigator Securities Lending Prime Portfolio

   17.7%             26,910 shs     26,910  
                     

Total Investment of Collateral From Securities Lending (Identified Cost—$26,910)

                       26,910  

Short-Term Securities

   0.5%                      

Repurchase Agreements

   0.5%                      

Merrill Lynch Government Securities, Inc.
3.2%, dated 6/30/05, to be repurchased at $809 on 7/1/05 (Collateral: $785 Tennessee Valley Authority bonds, 4.875%, due 12/15/16, value $831)

               $ 809     809  
                     

Total Short-Term Securities
(Identified Cost—$809)

                       809  
                           

Total Investments
(Identified Cost—$140,415)

   116.0%                   176,007  

Obligation to Return Collateral For Securities Loaned

   (17.7)%                   (26,910 )

Other Assets Less Liabilities

   1.7%                   2,615  
                     

Net Assets

   100.0%                 $ 151,712  
                     
                           
A   All or a portion of this security is on loan. See Note 3 to the financial statements.
B   Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 12.6% of net assets.
C   Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of June 30, 2005.
D   Stepped coupon security – A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.
E   Treasury Inflation-Protected Security – Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.
F   Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

 

See notes to financial statements.

 

13

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES

June 30, 2005 (Unaudited)

(Amounts in Thousands)

 

Western Asset Income Fund

 

 

Assets:

              

Investment securities at market value (Identified Cost—$166,515)A

           $ 175,198

Short-term securities at market value (Identified Cost—$809)

             809

Cash

             1,134

Interest receivable

             2,257

Other assets

             14
           

Total Assets

             179,412
           

Liabilities:

              

Payable for securities purchased

    $ 585       

Accrued advisory fee

      63       

Obligation to return collateral for securities loaned

      26,910       

Accrued expenses

      142       
    
      

Total Liabilities

             27,700
           

Net Assets Applicable to Common Shareholders

           $ 151,712
           

Summary of Stockholders’ Equity:

              

Common stock, par value $.01 per share: authorized 20,000 shares;
9,389 issued and outstanding shares

           $ 94

Additional paid-in capital

             141,896

Under/(over) distributed net investment income

             131

Accumulated net realized gain/(loss) on investments

             908

Unrealized appreciation/(depreciation) of investments

             8,683
           

Net assets applicable to outstanding common stock

           $ 151,712
           

Net asset value per common share ($151,712÷9,389) common shares issued and outstanding

           $ 16.16
           
               
A   Market value of securities on loan is $26,368.

 

See notes to financial statements.

 

14

Semi-Annual Report to Shareholders

STATEMENTS OF OPERATIONS

(Amounts in Thousands) (Unaudited)

 

Western Asset Income Fund

 

     FOR THE SIX
MONTHS ENDED
JUNE 30, 2005		  

Investment Income:

         

Interest income

    $ 4,646  
    

Expenses:

         

Advisory fees

      390  

Custodian fees

      32  

Audit and legal fees

      42  

Directors’ fees and expenses

      7  

Registration fees

      13  

Reports to shareholders

      44  

Taxes, other than federal income taxes

      19  

Transfer agent and shareholder serving expense

      19  

Other

      5  
    
       571  

Less: Fees waived

      (12 )

         Compensating balance credits

      —A  
    

Total expenses, net of waivers and compensating balance credits

      559  
    

Net Investment Income

      4,087  
    

Realized and Unrealized Gain/(Loss) on Investments:

         

Net realized gain/(loss) on investments

      934  

Unrealized appreciation/(depreciation) of investments

      (814 )
    

Net Realized and Unrealized Gain/(Loss) on Investments

      120  
    

Change in Net Assets Resulting From Operations

    $ 4,207  
    
          

A Amount less than $1.

 

See notes to financial statements.

 

15

Semi-Annual Report to Shareholders

STATEMENTS OF CHANGES IN NET ASSETS

(Amounts in Thousands)

 

Western Asset Income Fund

 

     FOR THE SIX
MONTHS ENDED
JUNE 30, 2005		     FOR THE YEAR
ENDED
DECEMBER 31, 2004		  
Operations:    (Unaudited)         

Net investment income

    $ 4,087     $ 8,805  

Net realized gain/(loss) on investments

      934       6,443  

Increase/(decrease) in unrealized appreciation of investments

      (814 )     (3,460 )
    
 

Change in net assets resulting from operations

      4,207       11,788  
    
 

Distributions to shareholders from:

                 

Net investment income

      (4,131 )     (8,756 )

Net realized gain on investments

      (1,653 )     (4,882 )
    
 

Total increase/(decrease)

      (1,577 )     (1,850 )
    
 

Net Assets:

                 

Beginning of period

      153,289       155,139  
    
 

End of period

    $ 151,712     $ 153,289  
    
 

Undistributed net investment income

    $ 131     $ 175  
    
 
                  

 

See notes to financial statements.

 

16

Semi-Annual Report to Shareholders

FINANCIAL HIGHLIGHTS

 

Contained below is per share operating performance data for a share of common stock outstanding throughout each period shown, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information in the financial statements.

 

     SIX MONTHS
ENDED JUNE 30,
2005
     FOR THE YEARS ENDED DECEMBER 31,
  
       2004     2003     2002     2001     2000  
Per Share Operating Performance:    (Unaudited)                                     

Net asset value, beginning of period

    $ 16.33     $ 16.52     $ 15.04     $ 15.12     $ 14.84     $ 14.54  
    
 
 
 
 
 

Net investment income

      .44       .94       .92       1.00       1.03       1.08  

Net realized and unrealized gain/(loss) on investments

      .01       .32       1.54       (.08 )     .31       .29  
    
 
 
 
 
 

Total from investment operations

      .45       1.26       2.46       .92       1.34       1.37  
    
 
 
 
 
 

Distributions paid from:

                                                 

Net investment income

      (.44 )     (.93 )     (.98 )     (1.00 )     (1.06 )     (1.07 )

Net realized gain on investments

      (.18 )     (.52 )     —       —       —       —  
    
 
 
 
 
 

Total distributions

      (.62 )     (1.45 )     (.98 )     (1.00 )     (1.06 )     (1.07 )
    
 
 
 
 
 

Net asset value, end of period

    $ 16.16     $ 16.33     $ 16.52     $ 15.04     $ 15.12     $ 14.84  
    
 
 
 
 
 

Market value per share, end of year

    $ 15.00     $ 15.44     $ 15.35     $ 14.35     $ 14.56     $ 13.50  
    
 
 
 
 
 

Total Return:

                                                 

Based on net asset value per share

      2.82 %A     8.50 %     17.13 %     6.35 %     9.45 %     10.73 %

Based on market value per share

      1.26 %A     10.41 %     14.07 %     5.38 %     15.86 %     23.34 %

Ratios To Average Net Assets:

                                                 

Expenses

      .75 %B     .76 %     .94 %     .80 %     .77 %     .78 %

Net investment income

      5.46 %B     5.71 %     5.78 %     6.75 %     6.66 %     7.48 %

Supplemental Data:

                                                 

Portfolio turnover rate

      43 %A     81 %     47 %     43 %     116 %     78 %

Net assets at end of period (in thousands)

    $ 151,7 12   $ 153,28 9   $ 155,13 9   $ 141,23 8   $ 141,93 2   $ 139,34 4
                                                  
A   Not annualized
B   Annualized

 

See notes to financial statements.

 

17

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS

(Amounts in Thousands) (Unaudited)

 

Note 1—Organization and Significant Accounting Policies:

Western Asset Income Fund (the “Fund”) is registered under the Investment Company Act of 1940, as amended (“1940 Act”), as a closed-end diversified investment company. The significant accounting policies of the Fund which are in accordance with U.S. generally accepted accounting principles, include the following:

 

(a) Cash—Cash includes demand deposits held with the Fund’s custodian and does not include short-term investments.

 

(b) Security Valuation—Securities owned by the Fund for which market quotations are readily available are valued at current market value. Current market value means the last sale price of the day or, in the absence of any such sales, the bid price obtained from quotation reporting systems, pricing services or other approved methods. Other assets and securities for which no quotations are readily available are valued at fair value pursuant to procedures adopted by the Board of Directors. The factors considered in making such valuations are subject to change over time and are reviewed periodically. The values assigned to fair value investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Further, because of the inherent uncertainty of valuation, such estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.

 

(c) Investments—Security transactions are recorded on the trade date. Investment securities owned at June 30, 2005, are reflected in the accompanying Portfolio of Investments at their value on June 30, 2005. In valuing portfolio securities, securities listed or traded on a national securities exchange are valued at the last sales price. Each security traded in the over-the-counter market, including listed debt securities whose primary market is believed to be over-the-counter, is generally valued at the mean of the bid and asked prices at the time of computation. Prices are obtained from at least two dealers regularly making a market in the security, unless such prices can be obtained from only a single market maker. Securities for which market quotations are not readily available are valued at fair value as described above. The difference between cost and market value is reflected separately as unrealized appreciation or depreciation of investments. Short-term securities are generally stated at cost plus interest earned, which approximates market value.

 

The net realized gain or loss on investment transactions is determined for federal income tax and financial reporting purposes on the basis of identified cost. Purchases and sales of securities other than short-term and U.S. government securities for the six months ended June 30, 2005, aggregated $33,016 and $24,775, respectively. Purchases and sales of U.S. government securities for the six months ended June 30, 2005, were $32,434 and $38,501, respectively.

 

(d) Repurchase Agreements—The Fund may engage in repurchase agreement transactions. Under the terms of a typical repurchase agreement, a fund takes possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and a fund to resell, the obligation at an agreed-upon price and time, thereby determining the yield during a fund’s holding period. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the fund’s holding period. The value of the collateral is at all times at least equal to the total amount of the repurchase obligation, including interest. In the event of counterparty default, a fund has the right to use the collateral to satisfy the terms of the repurchase agreement. However, there could be potential loss to the fund in the event the fund is delayed or prevented from exercising its right to dispose of the collateral securities, including the risk of a possible decline in the value of the collateral securities during the period in which the fund seeks to assert its rights. The Fund’s investment adviser reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements to evaluate potential risks.

 

(e) Compensating Balance Credits—The Fund has an arrangement with its custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. For the six months ended June 30, 2005, the Fund earned compensating balance credits of less than $1.

 

(f) Recognition of income, expenses and distributions to shareholders—The Fund accrues interest income and expenses on a daily basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date.

 

(g) Federal income taxes—No provision for federal income or excise taxes is required since the Fund intends to continue to qualify as a regulated investment company and distribute substantially all of its taxable income and capital gains to its

 

18

Semi-Annual Report to Shareholders

 

shareholders. Because federal income tax regulations differ from accounting principles generally accepted in the United States of America, income and capital gains distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes differ from those reflected in the accompanying financial statements.

 

The Fund intends to retain realized capital gains that may be offset against available capital loss carryforwards for federal income tax purposes. As of June 30, 2005, the Fund has no capital loss carryforwards.

 

(h) Use of estimates—Preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

 

(i) Foreign currency translation—Assets and liabilities initially expressed in non-U.S. currencies are translated into U.S. dollars using currency exchange rates determined prior to the close of trading on the Exchange, usually at 2:00 p.m. Eastern time. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in non-U.S. currency exchange rates on investment securities and other assets and liabilities are included with the net realized and unrealized gain or loss on investment securities.

 

(j) Other—In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is dependent on claims that may be made against the Fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims is considered remote.

 

Note 2—Investment Advisory Agreement and Affiliated Persons:

The Fund has entered into an investment advisory agreement with Western Asset Management Company (“Adviser”), which is a wholly owned subsidiary of Legg Mason, Inc., pursuant to which the Adviser provides investment advice and administrative services to the Fund. In return for its services, the Fund pays the Adviser a monthly fee at an annual rate of 0.70% of the average monthly net assets of the Fund up to $60,000 and 0.40% of such net assets in excess of $60,000. If expenses (including the Adviser’s fee but excluding interest, taxes, brokerage fees, the expenses of any offering by the Fund of its securities, and extraordinary expenses beyond the control of the Fund) borne by the Fund in any fiscal year exceed 1.5% of average net assets up to $30,000 and 1% of average net assets over $30,000, the Adviser will reimburse the Fund for any excess. No expense reimbursement is due for the six months ended June 30, 2005.

 

Western Asset Management Company Limited (“WAML”) provides the Fund with investment research, advice, management and supervision and a continuous investment program for the Fund’s portfolio of non-dollar securities consistent with the Fund’s investment objectives and policies. As compensation, the Adviser pays WAML a fee based on the pro rata assets of the Fund managed by WAML during the month.

 

Under the terms of an Administrative Services Agreement among the Fund, the Adviser, and Legg Mason Fund Adviser, Inc. (the “Administrator”), the Adviser (not the Fund) pays the Administrator a monthly fee of $3, an annual rate of $36.

 

Note 3—Securities Loaned:

The Fund lends its securities to approved brokers to earn additional income and receives cash and U.S. government securities as collateral against the loans. Cash collateral received is invested in a money market pooled account by the Fund’s lending agent. Collateral is maintained over the life of the loan in an amount not less than 100% of the value of loaned securities. At June 30, 2005, the market value of the securities on loan to broker-dealers was $26,368, for which the Fund received collateral of $26,910 in cash. Such collateral is in the possession of the Fund’s custodian. The cash was invested in the State Street Navigator Securities Lending Prime Portfolio and is included in the Fund’s schedule of investments. As with other extensions of credit, the Fund may bear the risk of delay in recovery or even loss of rights to the collateral should the borrower of the securities fail financially.

 

Note 4—Forward Currency Exchange Contracts:

Forward foreign currency contracts are marked-to-market daily using foreign currency exchange rates supplied by an independent pricing service. The change in a contract’s market value is recorded by the Fund as an unrealized gain or loss.

 

19

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

 

When the contract is closed or delivery is taken, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

 

The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of the Fund’s securities, but it does establish a rate of exchange that can be achieved in the future. These forward foreign currency contracts involve market risk in excess of amounts reflected in the financial statements. Although forward foreign currency contracts used for hedging purposes limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts.

 

At June 30, 2005, there were no open forward currency exchange contracts.

 

Note 5—Director Compensation (dollar amounts are not in thousands):

Each Director receives an aggregate fee of $50,000 annually for serving on the combined Board of Directors/Trustees of the Fund, Western Asset Funds, Inc. and Western Asset Premier Bond Fund. Each Director also receives a fee of $5,000 and related expenses for each meeting of the Board attended in-person and a fee of $2,500 for participating in a telephonic meeting. The Chairman of the Board and the Chairman of the Audit Committee each receive an additional $20,000 per year for serving in such capacities. Audit Committee members receive an annual fee of $5,000 for serving as a member of the Audit Committee. Other committee members receive an annual fee of $2,500 for serving as a member of each committee upon which they serve. Committee members also receive a fee of $2,500 for participating in each telephonic committee meeting. All such fees are allocated among the Fund, Western Asset Funds, Inc. and Western Asset Premier Bond Fund according to each such investment company’s average net assets.

 

Note 6—Common Shares

Of the 9,389 shares of common stock outstanding, Western Asset Management Company and affiliated shareholders own 208 shares.

 

Note 7—Shareholder Meeting Results:

The Fund’s annual meeting of shareholders was held on May 10, 2005. Of the 9,389 common shares outstanding, the following shares were voted in the meeting:

 

       For
             Withheld

Election of Directors:

                     

Ronald J. Arnault

      7,866             150

John E. Bryson

      7,853             163

Anita L. DeFrantz

      7,833             182

Ronald L. Olson

      7,844             171

William E.B. Siart

      7,869             147

Louis A. Simpson

      7,869             147

Jaynie Miller Studenmund

      7,833             183

 

       For
      Against
      Abstain

Approval of amendment to the
Fund’s Certificate of Incorporation
In order to change the name of the
Fund to “Western Asset Income Fund”

      7,606      260      150

 

20

Western Asset Income Fund

 

The Board of Directors

William E. B. Siart, Chairman

Ronald J. Arnault

John E. Bryson

Anita L. DeFrantz

Ronald L. Olson

Louis A. Simpson

Jaynie Miller Studenmund

 

Officers

James W. Hirschmann, President

Scott F. Grannis, Vice President

Ilene S. Harker, Vice President

S. Kenneth Leech, Vice President

Stephen A. Walsh, Vice President

Marie K. Karpinski, Treasurer and Principal Financial and Accounting Officer

Amy M. Olmert, Chief Compliance Officer

Erin K. Morris, Assistant Treasurer

Lisa G. Mrozek, Secretary

 

Investment Advisers

Western Asset Management Company

385 East Colorado Boulevard

Pasadena, CA 91101

 

Western Asset Management Company Limited

155 Bishopsgate

London, England EC2N3TY

 

Custodian

State Street Bank & Trust Company

P.O. Box 1031

Boston, MA 02103

 

Counsel

Ropes & Gray LLP

45 Rockefeller Plaza

New York, NY 10111

 

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

250 West Pratt Street

Baltimore, MD 21201

 

Transfer Agent

EquiServe Trust Company, N.A.

c/o Computershare Investor Services

P.O. Box 43010

Providence, RI 02940-3010

 

Western Asset Income Fund

P.O. Box 983

Pasadena, California 91105

 

In accordance with Section 23(c) of the Investment Company Act of 1940, the Fund hereby gives notice that it may, from time to time, repurchase its shares in the open market at the option of the Board of Directors, and on such terms as the Board of Directors shall determine.

 

PACAM-SAR-05

Item 2. Code of Ethics.

 

Not applicable for semi-annual reports.

 

Item 3. Audit Committee Financial Expert.

 

Not applicable for semi-annual reports.

 

Item 4. Principal Accountant Fees and Services.

 

Not applicable for semi-annual reports.

Item 5. Audit Committee of Listed Registrants.

 

Not applicable for semi-annual reports.

 

Item 6. Schedule of Investments

 

The schedule of investments in securities of unaffiliated issuers is included as part of the report to shareholders filed under Item 1 of this Form.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

 

Not applicable for semi-annual reports.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

 

Not applicable for semi-annual reports.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

 

Not applicable.

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

Not applicable.

 

Item 11. Controls and Procedures.

 

(a) The Registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) that the design and operation of such procedures are effective to provide reasonable assurance that the information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed is properly communicated to the Registrant’s officers, as appropriate, to allow timely decisions regarding the required disclosures.

 

(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

Item 12. Exhibits.

 

(a) (1) Not applicable for semi-annual reports.

 

(a) (2) Separate certifications for the Registrant’s principal executive officer and principal financial officer are attached.

 

(b) Separate certifications for the Registrant’s principal executive officer and principal financial officer are attached.

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Western Asset Income Fund

By:

  

/s/ James W. Hirschmann

James W. Hirschmann

President

Western Asset Income Fund

Date: August 29, 2005

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By:

  

/s/ James W. Hirschmann

James W. Hirschmann

President

Western Asset Income Fund

Date: August 29, 2005

 

By:

  

/s/ Marie K. Karpinski

Marie K. Karpinski

Treasurer and Principal Accounting and Financial Officer

Western Asset Income Fund

Date: August 24, 2005