WESTERN ASSET INFLATION-LINKED INCOME FUND

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-21403

Western Asset Inflation-Linked Income Fund

(Exact name of registrant as specified in charter)

385 East Colorado Boulevard Pasadena, CA 91101

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-888-777-0102

Date of fiscal year end: November 30

Date of reporting period: February 28, 2019

 

 

 


 

ITEM 1.

SCHEDULE OF INVESTMENTS.


WESTERN ASSET INFLATION-LINKED INCOME FUND

FORM N-Q

FEBRUARY 28, 2019


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited)    February 28, 2019

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT†
     VALUE  
U.S. TREASURY INFLATION PROTECTED SECURITIES - 109.7%

 

       

U.S. Treasury Bonds, Inflation Indexed

     2.375     1/15/25        10,662,560      $ 11,720,358  

U.S. Treasury Bonds, Inflation Indexed

     2.000     1/15/26        53,999,028        58,759,272 (a) 

U.S. Treasury Bonds, Inflation Indexed

     1.750     1/15/28        33,458,238        36,292,168 (a) 

U.S. Treasury Bonds, Inflation Indexed

     3.625     4/15/28        155,331        194,102  

U.S. Treasury Bonds, Inflation Indexed

     2.500     1/15/29        7,126,274        8,290,836  

U.S. Treasury Bonds, Inflation Indexed

     3.875     4/15/29        32,093,040        41,674,985 (a) 

U.S. Treasury Bonds, Inflation Indexed

     2.125     2/15/40        3,487,110        4,196,451  

U.S. Treasury Bonds, Inflation Indexed

     2.125     2/15/41        3,544,941        4,284,601  

U.S. Treasury Bonds, Inflation Indexed

     1.375     2/15/44        21,354,784        22,600,062 (a) 

U.S. Treasury Bonds, Inflation Indexed

     0.750     2/15/45        15,107,162        13,866,526  

U.S. Treasury Bonds, Inflation Indexed

     1.000     2/15/48        3,056,400        2,971,772  

U.S. Treasury Bonds, Inflation Indexed

     1.000     2/15/49        3,005,184        2,930,543  

U.S. Treasury Notes, Inflation Indexed

     0.125     4/15/19        10,721,800        10,728,920  

U.S. Treasury Notes, Inflation Indexed

     0.125     4/15/20        53,748,282        53,346,569 (a) 

U.S. Treasury Notes, Inflation Indexed

     1.125     1/15/21        11,484,800        11,588,630  

U.S. Treasury Notes, Inflation Indexed

     0.125     4/15/21        11,660,220        11,511,051  

U.S. Treasury Notes, Inflation Indexed

     0.625     7/15/21        15,605,660        15,671,398  

U.S. Treasury Notes, Inflation Indexed

     0.125     4/15/22        38,222,850        37,565,646 (a) 

U.S. Treasury Notes, Inflation Indexed

     0.125     7/15/22        25,018,021        24,709,917 (a) 

U.S. Treasury Notes, Inflation Indexed

     0.125     1/15/23        6,530,580        6,406,453  

U.S. Treasury Notes, Inflation Indexed

     0.625     1/15/24        5,943,550        5,949,825  

U.S. Treasury Notes, Inflation Indexed

     0.625     1/15/26        21,876,158        21,795,119  
          

 

 

 

TOTAL U.S. TREASURY INFLATION PROTECTED SECURITIES
(Cost - $408,567,836)

 

     407,055,204  
          

 

 

 
CORPORATE BONDS & NOTES - 7.0%           
CONSUMER STAPLES - 0.1%           

Tobacco - 0.1%

          

Pyxus International Inc., Secured Notes

     9.875     7/15/21        160,000        143,600  
          

 

 

 
ENERGY - 3.6%           

Energy Equipment & Services - 0.1%

          

Halliburton Co., Senior Notes

     3.800     11/15/25        200,000        201,148  
          

 

 

 

Oil, Gas & Consumable Fuels - 3.5%

          

Anadarko Petroleum Corp., Senior Notes

     5.550     3/15/26        110,000        117,777  

Anadarko Petroleum Corp., Senior Notes

     6.200     3/15/40        1,330,000        1,462,732  

Apache Corp., Senior Notes

     2.625     1/15/23        115,000        110,699  

Apache Corp., Senior Notes

     5.250     2/1/42        440,000        426,112  

Apache Corp., Senior Notes

     4.250     1/15/44        1,310,000        1,123,029  

BP Capital Markets America Inc., Senior Notes

     3.119     5/4/26        200,000        195,353  

Exxon Mobil Corp., Senior Notes

     3.043     3/1/26        200,000        198,634  

 

See Notes to Consolidated Schedule of Investments.

 

1


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT†
     VALUE  

Oil, Gas & Consumable Fuels - (continued)

          

KazTransGas JSC, Senior Notes

     4.375     9/26/27        2,000,000      $ 1,937,942 (b) 

MEG Energy Corp., Secured Notes

     6.500     1/15/25        30,000        29,588 (b)  

MEG Energy Corp., Senior Notes

     7.000     3/31/24        50,000        46,000 (b)  

Noble Energy Inc., Senior Notes

     3.900     11/15/24        200,000        197,548  

Noble Energy Inc., Senior Notes

     4.950     8/15/47        1,590,000        1,490,115  

Oasis Petroleum Inc., Senior Notes

     6.875     1/15/23        450,000        448,313  

Occidental Petroleum Corp., Senior Notes

     3.000     2/15/27        810,000        788,413  

Transcontinental Gas Pipe Line Co. LLC, Senior Notes

     7.850     2/1/26        200,000        245,295  

Whiting Petroleum Corp., Senior Notes

     6.250     4/1/23        2,000,000        2,020,000  

Williams Cos. Inc., Senior Notes

     5.750     6/24/44        1,340,000        1,416,283  

YPF Sociedad Anonima, Senior Notes

     8.500     7/28/25        800,000        783,840 (c)  
          

 

 

 

Total Oil, Gas & Consumable Fuels

             13,037,673  
          

 

 

 

TOTAL ENERGY

             13,238,821  
          

 

 

 
FINANCIALS - 0.9%           

Banks - 0.7%

          

Barclays Bank PLC, Subordinated Notes

     7.625     11/21/22        2,440,000        2,634,188  
          

 

 

 

Diversified Financial Services - 0.2%

          

ILFC E-Capital Trust II, Ltd. Gtd. ((Highest of 3 mo. USD LIBOR, 10 year U.S. Treasury Constant Maturity Rate and 30 year U.S. Treasury Constant Maturity Rate) + 1.800%)

     4.800     12/21/65        1,010,000        782,750 (b)(d) 
          

 

 

 

TOTAL FINANCIALS

             3,416,938  
          

 

 

 
HEALTH CARE - 1.0%           

Pharmaceuticals - 1.0%

          

Bausch Health Cos. Inc., Senior Notes

     6.125     4/15/25        2,380,000        2,296,700 (b) 

Bausch Health Cos. Inc., Senior Notes

     9.000     12/15/25        1,280,000        1,376,000 (b) 
          

 

 

 

TOTAL HEALTH CARE

             3,672,700  
          

 

 

 
MATERIALS - 1.4%           

Metals & Mining - 1.4%

          

Alcoa Nederland Holding BV, Senior Notes

     6.125     5/15/28        720,000        738,900 (b)  

Anglo American Capital PLC, Senior Notes

     4.000     9/11/27        800,000        754,653 (b)  

ArcelorMittal, Senior Notes

     6.125     6/1/25        350,000        382,909  

Barrick Gold Corp., Senior Notes

     5.250     4/1/42        200,000        209,469  

Glencore Funding LLC, Senior Notes

     4.000     3/27/27        200,000        190,622 (b)  

Glencore Funding LLC, Senior Notes

     3.875     10/27/27        800,000        754,903 (b)  

 

See Notes to Consolidated Schedule of Investments.

 

2


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT†
    VALUE  

Metals & Mining - (continued)

         

Southern Copper Corp., Senior Notes

     5.250     11/8/42        1,670,000     $ 1,659,481  

Yamana Gold Inc., Senior Notes

     4.625     12/15/27        670,000       632,383  
         

 

 

 

TOTAL MATERIALS

            5,323,320  
         

 

 

 

TOTAL CORPORATE BONDS & NOTES
(Cost - $25,287,455)

 

         25,795,379  
         

 

 

 
NON-U.S. TREASURY INFLATION PROTECTED SECURITIES - 6.8%

 

    

Brazil - 3.1%

         

Brazil Notas do Tesouro Nacional Serie B, Notes

     6.000     8/15/30        12,814,724 BRL      3,952,469  

Brazil Notas do Tesouro Nacional Serie B, Notes

     6.000     8/15/50        22,543,281 BRL      7,521,742  
         

 

 

 

Total Brazil

            11,474,211  
         

 

 

 

Italy - 3.7%

         

Italy Buoni Poliennali Del Tesoro

     3.100     9/15/26        10,831,185 EUR      13,619,771 (c) 
         

 

 

 

TOTAL NON-U.S. TREASURY INFLATION PROTECTED SECURITIES
(Cost - $23,597,529)

 

    25,093,982  
         

 

 

 
COLLATERALIZED MORTGAGE OBLIGATIONS(e) - 5.9%

 

    

Alternative Loan Trust, 2007-12T1 A3

     6.000     6/25/37        1,655,644       1,223,199  

BCAP LLC Trust, 2011-RR5 11A4 (1 mo. USD LIBOR + 0.150%)

     2.660     5/28/36        897,769       891,811 (b)(d) 

Bear Stearns ARM Trust, 2004-9, 24A1

     4.880     11/25/34        27,839       27,485 (d)  

Chase Mortgage Finance Trust, 2007-A1, 2A3

     4.478     2/25/37        6,334       6,451 (d)  

CSMC Trust, 2014-11R 9A2 (1 mo. USD LIBOR + 0.140%)

     2.650     10/27/36        2,430,000       1,903,728 (b)(d) 

Federal Home Loan Mortgage Corp. (FHLMC) Multifamily Structured Pass-Through Certificates, K721, X1, IO

     0.332     8/25/22        149,809,422       1,589,028 (d) 

Federal Home Loan Mortgage Corp. (FHLMC) REMIC, 4057, IO, U1

     3.000     5/15/27        990,678       76,443  

Federal Home Loan Mortgage Corp. (FHLMC) REMIC, 4085 IO, IO

     3.000     6/15/27        2,678,710       200,148  

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2017-DNA2 M2 (1 mo. USD LIBOR + 3.450%)

     5.940     10/25/29        1,300,000       1,412,047 (d) 

Federal National Mortgage Association (FNMA)-CAS, 2014-C04 1M2 (1 mo. USD LIBOR + 4.900%)

     7.390     11/25/24        991,377       1,119,726 (b)(d) 

Federal National Mortgage Association (FNMA)-CAS, 2016-C04 1M1 (1 mo. USD LIBOR + 1.450%)

     3.940     1/25/29        352,033       353,587 (b)(d) 

 

See Notes to Consolidated Schedule of Investments.

 

3


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT†
     VALUE  
COLLATERALIZED MORTGAGE OBLIGATIONS(e) - (continued)           

Federal National Mortgage Association (FNMA)-CAS, 2017-C03 1B1 (1 mo. USD LIBOR + 4.850%)

     7.340     10/25/29        1,340,000      $ 1,498,931 (b)(d) 

Federal National Mortgage Association (FNMA)-CAS, 2017-C03, 1M2 (1 mo. USD LIBOR + 3.000%)

     5.490     10/25/29        1,310,000        1,395,213 (b)(d) 

GMACM Mortgage Loan Trust, 2005-AF2 A1

     6.000     12/25/35        1,237,563        1,194,594  

Government National Mortgage Association (GNMA), 2011-142, IO

     0.295     9/16/46        3,659,308        33,553 (d)  

Government National Mortgage Association (GNMA), 2012-112, IO

     0.277     2/16/53        1,848,727        35,947 (d)  

Government National Mortgage Association (GNMA), 2012-152, IO

     0.789     1/16/54        6,017,535        306,395 (d)  

Government National Mortgage Association (GNMA), 2012-44, IO

     0.434     3/16/49        1,065,599        13,693 (d)  

Government National Mortgage Association (GNMA), 2013-145, IO

     1.066     9/16/44        2,509,068        120,811 (d)  

Government National Mortgage Association (GNMA), 2014-50, IO

     0.839     9/16/55        1,587,364        84,012 (d)  

Government National Mortgage Association (GNMA), 2014-169, IO

     0.827     10/16/56        13,810,561        671,018 (d)  

Government National Mortgage Association (GNMA), 2014-47, IA, IO

     0.246     2/16/48        620,666        13,931 (d)  

Government National Mortgage Association (GNMA), 2015-101, IO

     0.825     3/16/52        21,736,392        1,136,437 (d) 

Government National Mortgage Association (GNMA), 2015-183, IO

     0.946     9/16/57        26,765,583        1,830,137 (d) 

GSR Mortgage Loan Trust, 2004-11, 1A1

     4.680     9/25/34        67,337        69,152 (d)  

Merrill Lynch Mortgage Investors Trust Series MLMI, 2004-A1 2A1

     4.456     2/25/34        9,233        9,259 (d)  

New Residential Mortgage Loan Trust, 2014-1A A

     3.750     1/25/54        852,925        856,633 (b)(d) 

Nomura Resecuritization Trust, 2015-4R 2A2 (1 mo. USD LIBOR + 0.306%)

     4.272     10/26/36        2,745,446        2,342,102 (b)(d) 

RAMP Series Trust, 2004-SL4 A5

     7.500     7/25/32        55,218        41,290  

 

See Notes to Consolidated Schedule of Investments.

 

4


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT†
    VALUE  
COLLATERALIZED MORTGAGE OBLIGATIONS(e) - (continued)

 

      

WaMu Mortgage Pass-Through Certificates

         

Trust, 2007-OA2 1A (Federal Reserve US 12 mo. Cumulative Avg 1 Year CMT + 0.700%)

     3.032     3/25/47        1,448,278     $ 1,349,766 (d) 

Washington Mutual MSC Mortgage Pass-Through Certificates Series Trust, 2004-RA1, 2A

     7.000     3/25/34        8,379       9,111  
         

 

 

 

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS

(Cost - $22,786,925)

 

 

         21,815,638  
         

 

 

 
SOVEREIGN BONDS - 4.6%          

Argentina - 0.5%

         

Argentina POM Politica Monetaria, Bonds (Argentina Central Bank 7 Day Repo Reference Rate)

     53.666     6/21/20        64,160,000 ARS      1,784,410 (d) 
         

 

 

 

Chile - 1.0%

         

Bonos de la Tesoreria de la Republica en pesos, Bonds

     5.000     3/1/35        2,330,000,000 CLP      3,773,049  
         

 

 

 

Ecuador - 0.6%

         

Ecuador Government International Bond, Senior Notes

     10.500     3/24/20        1,520,000       1,592,124 (b) 

Ecuador Government International Bond, Senior Notes

     7.950     6/20/24        520,000       517,114 (c)  
         

 

 

 

Total Ecuador

            2,109,238  
         

 

 

 

Indonesia - 1.1%

         

Indonesia Government International Bond, Senior Notes

     5.125     1/15/45        200,000       206,668 (b)  

Indonesia Government International Bond, Senior Notes

     4.750     7/18/47        400,000       395,888 (b)  

Indonesia Government International Bond, Senior Notes

     4.350     1/11/48        290,000       275,739  

Indonesia Treasury Bond, Senior Notes

     7.000     5/15/27        49,188,000,000 IDR      3,324,224  
         

 

 

 

Total Indonesia

            4,202,519  
         

 

 

 

Mexico - 0.5%

         

Mexican Bonos, Senior Notes

     7.750     11/13/42        10,990,000 MXN      515,906  

Mexican Bonos, Senior Notes

     8.000     11/7/47        25,110,000 MXN      1,204,808  
         

 

 

 

Total Mexico

            1,720,714  
         

 

 

 

Nigeria - 0.0%

         

Nigeria Government International Bond, Senior Notes

     6.500     11/28/27        200,000       197,114 (b)  
         

 

 

 

Russia - 0.9%

         

Russian Federal Bond-OFZ

     7.050     1/19/28        236,150,000 RUB      3,343,673  
         

 

 

 

TOTAL SOVEREIGN BONDS

(Cost - $19,978,008)

 

 

    17,130,717  
         

 

 

 

 

See Notes to Consolidated Schedule of Investments.

 

5


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT†
    VALUE  
ASSET-BACKED SECURITIES - 3.4%          

Ameriquest Mortgage Securities Inc., 2005-R7 M2 (1 mo. USD LIBOR + 0.500%)

     2.990     9/25/35        1,300,000     $ 1,302,443 (d) 

Ameriquest Mortgage Securities Inc. Asset-Backed Pass-Through Certificates Series, 2005-R10, M5 (1 mo. USD LIBOR + 0.630%)

     3.120     1/25/36        4,660,000       4,327,663 (d)  

CWHEQ Revolving Home Equity Loan Trust Series, 2005-C, 2A (1 mo. USD LIBOR + 0.180%)

     2.669     7/15/35        645,286       625,420 (d)  

CWHEQ Revolving Home Equity Loan Trust Series, 2006-I 2A (1 mo. USD LIBOR + 0.140%)

     2.629     1/15/37        933,129       885,188 (d)  

First Franklin Mortgage Loan Trust, 2006-FF15, A5 (1 mo. USD LIBOR + 0.160%)

     2.650     11/25/36        1,396,229       1,358,032 (d)  

Legacy Mortgage Asset Trust, 2019-GS1 A1

     4.000     1/25/59        1,340,000       1,338,980 (b)  

Structured Asset Securities Corp. Mortgage Loan Trust, 2005-WF4, M8 (1 mo. USD LIBOR + 2.625%)

     5.115     11/25/35        2,600,000       2,645,115 (d)  
         

 

 

 

TOTAL ASSET-BACKED SECURITIES

(Cost - $11,025,351)

 

 

    12,482,841  
         

 

 

 
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 0.2%          

U.S. Government Obligations - 0.2%

         

U.S. Treasury Bonds

(Cost - $916,029)

     3.000     2/15/49        920,000       904,691  
         

 

 

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS

(Cost - $512,159,133)

 

 

    510,278,452  
         

 

 

 
SHORT-TERM INVESTMENTS - 5.3%          

Repurchase Agreements - 2.4%

         

Deutsche Bank Securities Inc., repurchase agreement dated 2/28/19, Proceeds at Maturity - $9,000,640; (Fully collateralized by U.S. Treasury Notes, 0.375% due 7/15/25; Market value - $9,181,693) (Cost - $9,000,000)

     2.560     3/1/19        9,000,000       9,000,000  
         

 

 

 

Sovereign Bonds - 0.1%

         

Argentina Treasury Bill

(Cost - $493,581)

     (89.597 )%      3/29/19        15,956,000 ARS      488,092 (f)  
         

 

 

 

 

See Notes to Consolidated Schedule of Investments.

 

6


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

SECURITY

          RATE     SHARES      VALUE  

Money Market Funds - 2.8%

          

Dreyfus Government Cash Management, Institutional Shares
(Cost - $10,283,726)

        2.374     10,283,726      $ 10,283,726  
          

 

 

 

TOTAL SHORT-TERM INVESTMENTS

(Cost - $19,777,307)

             19,771,818  
          

 

 

 

TOTAL INVESTMENTS - 142.9%

(Cost - $531,936,440)

             530,050,270  

Liabilities in Excess of Other Assets - (42.9)%

             (159,118,990
          

 

 

 

TOTAL NET ASSETS - 100.0%

           $ 370,931,280  
          

 

 

 

 

Face amount denominated in U.S. dollars, unless otherwise noted.

 

(a)

All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements.

 

(b)

Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees.

 

(c)

Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees.

 

(d)

Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.

 

(e)

Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates that are structured to direct payments on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial indicators and may be subject to an upper and/or lower limit.

 

(f)

Rate shown represents yield-to-maturity.

Abbreviations used in this schedule:

 

ARM    — Adjustable Rate Mortgage
ARS    — Argentine Peso
BRL    — Brazilian Real
CAS    — Connecticut Avenue Securities
CLP    — Chilean Peso
CMT    — Constant Maturity Treasury
EUR    — Euro
IDR    — Indonesian Rupiah
IO    — Interest Only
JSC    — Joint Stock Company
LIBOR    — London Interbank Offered Rate
MXN    — Mexican Peso
REMIC    — Real Estate Mortgage Investment Conduit
RUB    — Russian Ruble
USD    — United States Dollar

 

See Notes to Consolidated Schedule of Investments.

 

7


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

At February 28, 2019, the Fund had the following open reverse repurchase agreements:

 

Counterparty

   Rate      Effective
Date
     Maturity
Date
     Face Amount of
Reverse
Repurchase
Agreements
    

Asset Class

of Collateral*

   Collateral
Value
 

Deutsche Bank

     2.720      1/11/2019        4/11/2019      $ 167,322,188      U.S. Treasury inflation protected securities    $ 171,612,500  
               Cash      370,000  
           

 

 

       

 

 

 
            $ 167,322,188         $ 171,982,500  
           

 

 

       

 

 

 

 

*

Refer to the Consolidated Schedule of Investments for positions held at the counterparty as collateral for reverse repurchase agreements.

At February 28, 2019, the Fund had the following open futures contracts:

 

     Number of
Contracts
     Expiration
Date
     Notional
Amount
     Market
Value
     Unrealized
Appreciation
(Depreciation)
 
Contracts to Buy:               

90-Day EuroDollar

     92        12/19      $ 22,367,666      $ 22,392,800      $ 25,134  

Copper

     165        5/19        11,245,580        12,160,500        914,920  

Euro

     83        3/19        11,888,751        11,820,756        (67,995

Gold 100 Ounce

     54        6/19        6,997,995        7,142,580        144,585  

Japanese Yen

     35        3/19        3,896,243        3,932,031        35,788  

Mexican Peso

     205        3/19        5,035,096        5,302,325        267,229  

U.S. Treasury Ultra

              

Long-Term Bonds

     176        6/19        28,421,317        28,088,500        (332,817

WTI Crude

     80        11/19        4,351,273        4,734,400        383,127  

WTI Crude

     212        12/19        11,941,073        12,535,560        594,487  
              

 

 

 
                 1,964,458  
              

 

 

 
Contracts to Sell:               

British Pound

     33        3/19        2,614,137        2,738,588        (124,451

Euro-Bund

     93        3/19        17,059,530        17,486,963        (427,433

Euro-Bund

     15        6/19        2,780,169        2,777,141        3,028  

U.S. Treasury 5-Year Notes

     1,025        6/19        117,453,232        117,426,562        26,670  

U.S. Treasury 10-Year Notes

     584        6/19        71,315,429        71,248,000        67,429  

U.S. Treasury Long-Term Bonds

     22        6/19        3,200,930        3,178,312        22,618  

WTI Crude

     203        8/19        11,328,151        11,942,490        (614,339
              

 

 

 
                 (1,046,478
              

 

 

 
Net unrealized appreciation on open futures contracts

 

         $ 917,980  
              

 

 

 

 

See Notes to Consolidated Schedule of Investments.

 

8


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

At February 28, 2019, the Fund had the following open forward foreign currency contracts:

 

Currency
Purchased
     Currency
Sold
    

Counterparty

   Settlement
Date
     Unrealized
Appreciation
(Depreciation)
 
INR      508,118,791        USD        7,162,706      Barclays Bank PLC      4/16/19      $ (63,571
AUD      2,482        USD        1,776      Barclays Bank PLC      4/17/19        (15
BRL      5,350,173        USD        1,442,251      Barclays Bank PLC      4/17/19        (22,524
BRL      13,592,136        USD        3,626,988      Barclays Bank PLC      4/17/19        (20,167
MYR      18,766,939        USD        4,568,388      Barclays Bank PLC      4/17/19        42,213  
USD      233,211        AUD        325,001      Barclays Bank PLC      4/17/19        2,489  
USD      9,310,369        CAD        12,357,281      Barclays Bank PLC      4/17/19        (90,765
USD      9,825,752        TWD        301,120,000      Barclays Bank PLC      4/17/19        8,308  
COP      5,871,388,331        USD        1,829,378      Citibank N.A.      4/17/19        71,293  
COP      41,617,990,000        USD        12,995,672      Citibank N.A.      4/17/19        476,795  
GBP      1,928,058        USD        2,474,623      Citibank N.A.      4/17/19        89,132  
IDR      26,052,151,242        USD        1,811,064      Citibank N.A.      4/17/19        31,782  
JPY      880,310        USD        8,195      Citibank N.A.      4/17/19        (266
RUB      1,049,151,000        USD        15,463,940      Citibank N.A.      4/17/19        338,973  
USD      113,521        EUR        100,000      Citibank N.A.      4/17/19        (694
USD      115,060        EUR        100,000      Citibank N.A.      4/17/19        844  
USD      26,742,665        EUR        23,038,609      Citibank N.A.      4/17/19        429,101  
USD      432,900        MXN        8,399,264      Citibank N.A.      4/17/19        578  
BRL      8,610,000        USD        2,296,674      JPMorgan Chase & Co.      4/17/19        (11,917
CAD      12,357,281        USD        9,281,105      JPMorgan Chase & Co.      4/17/19        120,030  
                 

 

 

 

Total

      $ 1,401,619  
                 

 

 

 

Abbreviations used in this table:

 

AUD    — Australian Dollar
BRL    — Brazilian Real
CAD    — Canadian Dollar
COP    — Colombian Peso
EUR    — Euro
GBP    — British Pound
IDR    — Indonesian Rupiah
INR    — Indian Rupee
JPY    — Japanese Yen
MXN    — Mexican Peso
MYR    — Malaysian Ringgit
RUB    — Russian Ruble
TWD    — Taiwan Dollar
USD    — United States Dollar

 

See Notes to Consolidated Schedule of Investments.

 

9


WESTERN ASSET INFLATION-LINKED INCOME FUND

 

Consolidated schedule of investments (unaudited) (cont’d)    February 28, 2019

 

At February 28, 2019, the Fund had the following open swap contracts:

 

CENTRALLY CLEARED INTEREST RATE SWAPS

 

NOTIONAL
AMOUNT

   TERMINATION
DATE
     PAYMENTS
MADE BY
THE FUND†
  PAYMENTS
RECEIVED BY
THE FUND†
   UPFRONT
PREMIUMS PAID
(RECEIVED)
    UNREALIZED
APPRECIATION
 

$19,547,000

     8/31/23      2.500% semi-annually   3-month LIBOR quarterly    $ (1,219   $ 39,781  

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION1

 

REFERENCE ENTITY

   NOTIONAL
AMOUNT2
     TERMINATION
DATE
     PERIODIC
PAYMENTS
RECEIVED BY
THE FUND†
  MARKET
VALUE3
     UPFRONT
PREMIUMS PAID
(RECEIVED)
     UNREALIZED
APPRECIATION
 
Markit CDX.NA.IG.31 Index    $ 32,170,000        12/20/23      1.000% quarterly   $ 572,883      $ 537,793      $ 35,090  

 

1

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

 

2

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

3

The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected loss (or profit) for the credit derivative had the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values (sell protection) or increasing market values (buy protection) when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

Percentage shown is an annual percentage rate.

Abbreviations used in this table:

 

LIBOR    — London Interbank Offered Rate

This Consolidated Schedule of Investments is unaudited and is intended to provide information about the Fund’s investments as of the date of the schedule. Other information regarding the Fund is available in the Fund’s most recent annual or semi-annual shareholder report.

 

See Notes to Consolidated Schedule of Investments.

 

10


Notes to Consolidated Schedule of Investments (unaudited)

 

1. Organization and significant accounting policies

Western Asset Inflation-Linked Income Fund (the “Fund”) is registered under the Investment Company Act of 1940, as amended (“1940 Act”), as a diversified, closed-end management investment company. The Fund commenced operations on September 26, 2003.

The Fund’s primary investment objective is to provide current income for its shareholders. Capital appreciation, when consistent with current income, is a secondary investment objective.

The Fund may gain exposure to the commodities markets by investing a portion of its assets in a wholly-owned subsidiary, Western Asset Inflation-Linked Income Fund CFC (the “Subsidiary”), organized under the laws of the Cayman Islands. Among other investments, the Subsidiary may invest in commodity-linked instruments. The Fund may invest up to 25% of its total assets in the Subsidiary; although 10% of total managed assets may be utilized for commodity-related strategies. This schedule of investments is the consolidated schedule of investments of the Fund and the Subsidiary.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.

 

11


Notes to Consolidated Schedule of Investments (unaudited) (continued)

 

The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

 

   

Level 1 – quoted prices in active markets for identical investments

 

   

Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

   

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

 

12


Notes to Consolidated Schedule of Investments (unaudited) (continued)

 

The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities carried at fair value:

 

ASSETS

 

DESCRIPTION

   QUOTED PRICES
(LEVEL 1)
     OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
     SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
     TOTAL  

Long-Term Investments†:

           

U.S. Treasury Inflation Protected Securities

     —        $ 407,055,204        —        $ 407,055,204  

Corporate Bonds & Notes

     —          25,795,379        —          25,795,379  

Non-U.S. Treasury Inflation Protected Securities

     —          25,093,982        —          25,093,982  

Collateralized Mortgage Obligations

     —          21,815,638        —          21,815,638  

Sovereign Bonds

     —          17,130,717        —          17,130,717  

Asset-Backed Securities

     —          12,482,841        —          12,482,841  

U.S. Government & Agency Obligations

     —          904,691        —          904,691  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Long-Term Investments

     —          510,278,452        —          510,278,452  
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-Term Investments†:

           

Repurchase Agreements

     —          9,000,000        —          9,000,000  

Sovereign Bonds

     —          488,092        —          488,092  

Money Market Funds

   $ 10,283,726        —          —          10,283,726  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Short-Term Investments

     10,283,726        9,488,092        —          19,771,818  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 10,283,726      $ 519,766,544        —        $ 530,050,270  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Notes to Consolidated Schedule of Investments (unaudited) (continued)

 

ASSETS

 

DESCRIPTION

   QUOTED PRICES
(LEVEL 1)
     OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
     SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
     TOTAL  

Other Financial Instruments:

           

Futures Contracts

   $ 2,485,015        —          —        $ 2,485,015  

Forward Foreign Currency Contracts

     —        $ 1,611,538        —          1,611,538  

Centrally Cleared Interest Rate Swaps

     —          39,781        —          39,781  

Centrally Cleared Credit Default Swaps on Credit Indices-Sell Protection

     —          35,090        —          35,090  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Other Financial Instruments

   $ 2,485,015      $ 1,686,409        —        $ 4,171,424  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 12,768,741      $ 521,452,953        —        $ 534,221,694  
  

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES

 

DESCRIPTION

   QUOTED PRICES
(LEVEL 1)
     OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
     SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
     TOTAL  

Other Financial Instruments:

           

Futures Contracts

   $ 1,567,035        —          —        $ 1,567,035  

Forward Foreign Currency Contracts

     —        $ 209,919        —          209,919  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,567,035      $ 209,919        —        $ 1,776,954  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

See Consolidated Schedule of Investments for additional detailed categorizations.

 

14


 

ITEM 2.

CONTROLS AND PROCEDURES.

 

  (a)

The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

 

  (b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 3.

EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.


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 Inflation-Linked Income Fund

 

By   /s/    JANE TRUST        
  Jane Trust
  President

Date:

 

April 23, 2019

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

 

By   /s/    JANE TRUST        
  Jane Trust
  President

Date:

 

April 23, 2019

By   /s/    RICHARD F. SENNETT        
  Richard F. Sennett
  Principal Financial Officer

Date:

 

April 23, 2019