ITEM 1. REPORT TO STOCKHOLDERS.
The
Annual
Report to Stockholders is filed herewith.
December 31, 2012
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Annual Report
Western Asset High Income Fund Inc.
(HIF)
INVESTMENT PRODUCTS: NOT FDIC INSURED
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NO BANK GUARANTEE
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MAY LOSE VALUE
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II
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Western Asset High Income Fund Inc.
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Fund objectives
The Fund seeks to maintain a high level of current income. As a secondary objective, the Fund seeks capital appreciation.
Whats inside
Letter from the chairman
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II
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Investment commentary
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III
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Fund overview
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1
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Fund at a glance
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7
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Spread duration
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8
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Effective duration
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9
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Schedule of investments
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10
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Statement of assets and liabilities
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27
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Statement of operations
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28
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Statement of changes in net assets
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29
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Financial highlights
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30
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Notes to financial statements
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31
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Report of independent registered public accounting firm
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49
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Board approval of management and subadvisory agreements
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51
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Additional information
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58
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Annual chief executive officer and principal financial officer certifications
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65
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Other shareholder communications regarding accounting matters
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66
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Dividend reinvestment plan
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67
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Letter from the chairman
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Dear Shareholder,
We are pleased to provide the annual report of Western Asset High Income Fund Inc. for the twelve-month reporting period ended December 31, 2012. Please read on for a detailed look at prevailing economic and market conditions during the Funds reporting period and to learn how those conditions have affected Fund performance.
Special shareholder notice
On February 15, 2013, Western Asset High Income Fund Inc. (the Fund) announced that it would solicit the approval of Fund stockholders to merge the Fund with and into Western Asset High Income Opportunity Fund Inc. (HIO) under a proposed plan of reorganization approved by the Boards of Directors of both the Fund and HIO (the Funds). If approved by stockholders of the Fund the merger is anticipated to occur by the end of the second quarter of 2013.
The Fund and HIO have near identical investment objectives. The primary investment objective of the Fund is to seek and maintain a high level of current income. As a secondary objective, the Funds both seek capital appreciation. The Fund maintains a small allocation to emerging market securities while HIO does not.
If the proposed merger is approved, stockholders of the Fund would receive common shares of HIO based on each Funds respective net asset value per share.
In recommending the merger to each Board, the Funds investment adviser and subadviser, Legg Mason Partners Fund Advisor, LLC and Western Asset Management Company, respectively, cited the near identical investment objectives and substantially similar policies and strategies of both Funds, and noted that the Fund is a small fund with higher operating expenses than HIO. Management and each Board believe it is in the best interests of stockholders to merge the Fund with and into HIO in part because the combined fund may benefit from economies of scale, as one set of fixed expenses would be spread over a larger asset base, as well as from enhanced market liquidity. Furthermore, stockholders of the Fund would likely benefit from greater asset diversification, lower overall expenses and enhanced
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Western Asset High Income Fund Inc.
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III
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market liquidity as part of a larger fund. Stockholders of HIO may benefit from a more streamlined high yield product offering, allowing for more focused marketing and shareholder servicing efforts.
In connection with the proposal to merge the Fund with and into HIO, the Fund intends to file a proxy statement with the Securities and Exchange Commission (SEC).
Investors and stockholders are advised to carefully read the proxy statement when it becomes available because it contains important information.
When filed with the SEC, the proxy statement and other documents filed by the Fund will be available free of charge at the SECs website, http://www.sec.gov. Stockholders can also obtain copies of these documents, when available, for free by calling the Fund at 1-888-777-0102.
HIO, its directors and executive officers and the Funds investment adviser, members of its management and employees may be deemed to be participants in the Funds solicitation of proxies from its stockholders in connection with the proposed merger. Information concerning the interests of the participants in the solicitation will be set forth in the Funds proxy statement and stockholder reports on Form N-CSR, to be filed with the SEC.
Recent regulations adopted by the Commodity Futures Trading Commission (the CFTC) require operators of registered investment companies, including closed-end funds, to register as commodity pool operators unless the fund limits its investments in commodity interests. Effective December 31, 2012, your Funds manager has claimed the exclusion from the definition of commodity pool operator. More information about the CFTC rules and their effect on the Fund is included later in this report on page 50.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.lmcef.com. Here you can gain immediate access to market and investment information, including:
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Fund prices and performance,
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Market insights and commentaries from our portfolio managers, and
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A host of educational resources.
We look forward to helping you meet your financial goals.
Sincerely,
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
February 14, 2013
IV
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Western Asset High Income Fund Inc.
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Investment commentary
Economic review
The U.S. economy continued to grow over the twelve months ended December 31, 2012, but it did so at an uneven pace. U.S. gross domestic product (GDP)
i
growth, as reported by the U.S. Department of Commerce, was 2.0% in the first quarter of 2012. The economy then slowed in the second quarter, as GDP growth was a tepid 1.3%. Economic growth accelerated to 3.1% in the third quarter, partially due to increased private inventory investment, higher federal government spending and moderating imports. However, this was a temporary uptick, as the Commerce Departments initial estimate showed that fourth quarter GDP contracted 0.1%. This was the first negative reading since the second quarter of 2009, and was driven by a reversal of the above factors, as private inventory investment and federal government spending weakened.
While there was some improvement in the U.S. job market, unemployment remained elevated throughout the reporting period. When the period began, unemployment, as reported by the U.S. Department of Labor, was 8.3%. Unemployment then generally declined and was 7.8% in September 2012, the lowest rate since January 2009, but still high by historical standards. The unemployment rate then rose to 7.9% in October, before falling to 7.8% in November, where it remained in December. The number of longer-term unemployed continued to be a headwind for the economy, as roughly 39% of the 12.2 million people without a job have been out of work for more than six months.
Meanwhile, the housing market brightened, as sales generally improved and home prices continued to rebound.
According to the National Association of Realtors (NAR), while existing-home sales dipped 1.0% on a seasonally adjusted basis in December 2012 versus the previous month, they were still 12.8% higher than in December 2011. In addition, the NAR reported that the median existing-home price for all housing types was $180,800 in December 2012, up 11.5% from December 2011. This marked the tenth consecutive month that home prices rose compared to the same period a year earlier. Furthermore, the inventory of homes available for sale fell 8.5% in December, which represents a 4.4 month supply at the current sales pace. This represents the lowest inventory since May 2005.
The manufacturing sector expanded during much of the reporting period, although it experienced several soft patches. Based on the Institute for Supply Managements PMI (PMI)
ii
, after expanding 34 consecutive months, the PMI fell to 49.7 in June 2012, which represented the first contraction in the manufacturing sector since July 2009 (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). Manufacturing continued to contract in July and August before ticking up to 51.5 in September and 51.7 in October. The PMI fell back to contraction territory with a reading of 49.5 in November, its lowest level since July 2009. However, manufacturing again expanded in December, with the PMI increasing to 50.7.
The Federal Reserve Board (Fed)
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took a number of actions as it sought to meet its dual mandate of fostering maximum employment and price stability. As has been the case since December 2008, the Fed kept the federal funds rate
iv
at a historically low
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Western Asset High Income Fund Inc.
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V
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range between zero and 0.25%. In January 2012, the Fed extended the period it expects to keep rates on hold until at least through late 2014. At its June 2012 meeting, the Fed announced that it would continue its program of purchasing longer-term Treasury securities and selling an equal amount of shorter-term Treasury securities (often referred to as Operation Twist) until the end of 2012. In September, the Fed announced a third round of quantitative easing (QE3), which involves purchasing $40 billion each month of agency mortgage-backed securities on an open-end basis. In addition, the Fed further extended the duration that it expects to keep the federal funds rate on hold, until at least mid-2015. Finally, at its meeting in December, the Fed announced that it would continue purchasing $40 billion per month of agency mortgage-backed securities, as well as initially purchasing $45 billion a month of longer-term Treasuries. The Fed also said that it would keep the federal funds rate on hold ...as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committees 2.0% longer-run goal, and longer-term inflation expectations continue to be well anchored.
As always, thank you for your confidence in our stewardship of your assets.
Sincerely,
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
January 31, 2013
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.
i
Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time.
ii
The Institute for Supply Managements PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the manufacturing sector.
iii
The Federal Reserve Board (Fed) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.
iv
The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.
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Western Asset High Income Fund Inc. 2012 Annual Report
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Fund overview
Q. What is the Funds investment strategy?
A.
The Fund seeks to maintain a high level of current income. As a secondary objective, the Fund seeks capital appreciation. The Fund invests in high-yield debt securities issued by U.S. and foreign corporations and foreign governments. The Fund may invest up to 50% of its total assets in non-U.S. dollar-denominated securities.
At Western Asset Management Company (Western Asset), the Funds subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Assets senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization. The individuals responsible for development of investment strategy, day-to-day portfolio management, oversight and coordination of the Fund are Stephen A. Walsh, Michael C. Buchanan and Christopher F. Kilpatrick.
Q. What were the overall market conditions during the Funds reporting period?
A.
The spread sectors (non-Treasuries) overcame several periods of heightened risk aversion and outperformed equal-duration
i
Treasuries over the twelve months ended December 31, 2012. To a great extent, demand for the spread sectors was robust during the first two months of the reporting period. This was due to several factors, including signs that the U.S. economy was gathering momentum and some progress in the European sovereign debt crisis. However, fears that the economy may be experiencing a soft patch and contagion fears from Europe led to flights to quality during portions of March, April and May 2012. The spread sectors then generally rallied over the last seven months of the period as investor sentiment was largely positive.
Short-term U.S. Treasury yields fluctuated in 2012, but ended the year where they began. In contrast, 10-year Treasury yields fell from 1.89% to 1.78% during the twelve months ended December 31, 2012. When the period began, two-year Treasury yields were 0.25%. They moved as low as 0.21% on January 17, 2012 and as high as 0.41% on March 20, 2012. Ten-year Treasury yields were 1.89% at the beginning of the period and peaked at 2.39% on March 19, 2012. On July 25, 2012, ten-year Treasuries closed at an all-time low of 1.43%. Yields then moved higher due to some positive developments in Europe and additional Federal Reserve Board (Fed)
ii
actions to stimulate the economy. When the reporting period ended on December 31, 2012, two-year Treasury yields were 0.25% and ten-year Treasury yields were 1.78%.
All told, the Barclays U.S. Aggregate Index
iii
returned 4.22% for the twelve months ended December 31, 2012. Comparatively, riskier fixed-income securities, including high-yield bonds and emerging market debt, produced superior results. Over the fiscal year, the Barclays U.S. Corporate High Yield 2% Issuer Cap Index
iv
(the Index) gained 15.78%. During this period, as measured by the Index, lower-quality CCC-rated bonds outperformed higher-quality BB-rated securities, as they returned 18.34% and 14.49%, respectively. The emerging
2
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Western Asset High Income Fund Inc. 2012 Annual Report
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Fund overview (contd)
market debt asset class, as measured by the JPMorgan Emerging Markets Bond Index Global (EMBI Global)
v
, returned 18.54% over the same period.
Q. How did we respond to these changing market conditions?
A.
A number of adjustments were made to the Funds portfolio during the reporting period. We maintained the Funds lower-quality bias given what we felt were favorable conditions in the high-yield market, including overall solid fundamentals, low defaults and positive supply/demand technicals. Against this backdrop, we increased the Funds allocation to B-rated and below securities. Elsewhere, we added to the Funds allocation to the Basic Industry
1
, Capital Goods
2
, Energy and Financials sectors, while reducing its weightings in the Communications
3
and Transportation sectors. The Funds emerging market debt exposure was also modestly reduced. Finally, we actively participated in the new issue market and purchased securities that we felt were attractively valued.
The Fund employed U.S. Treasury futures to manage its yield curve
vi
positioning and duration, which was a modest negative for performance during the reporting period. We covered our small short on five year Treasuries in mid-August 2012, after yields rose from 0.54% to over 0.80% in just three weeks. We ended the period with no Treasury futures in the Fund and a duration shorter than that of the high yield market index. We feel the Fund is less sensitive versus the market to changes in interest rates. Options on and high-yield index swaps were used to opportunistically manage the Funds exposure to the high-yield market. These market hedges were intended to protect the portfolio from risk-off periods, while maintaining the Funds exposure to higher beta
vii
(and higher income) idiosyncratic investments. All told, these swaps and swaptions were marginal detractors from performance during the period. Finally, currency forwards were used to hedge the Funds currency risk and manage our non-U.S. dollar currency exposures. We did not experience material gains or losses in our currency hedges. These hedges were intended to offset the decline or appreciation in the value of our euro bonds when translated back to U.S. dollars. All told, derivatives had a marginal negative impact to the net performance of the Fund during the reporting period.
Performance review
For the twelve months ended December 31, 2012, Western Asset High Income Fund Inc. returned 18.02% based on its net asset value (NAV)
viii
and 13.67% based on its New York Stock Exchange (NYSE) market price per share. The Funds unmanaged benchmarks, the Barclays U.S. Corporate High Yield 2% Issuer Cap Index and the EMBI Global, returned 15.78% and 18.54%, respectively, for the same period. The Lipper High Yield Closed-End Funds Category Average
ix
returned 18.55% over the same time frame. Please note that Lipper performance returns are based on each funds NAV.
During the twelve-month period, the Fund made distributions to shareholders totaling $0.73 per share. The performance table shows the Funds
1
Basic Industry consists of the following industries: Chemicals, Metals & Mining and Paper.
2
Capital Goods consists of the following industries: Aerospace & Defense, Building Materials, Diversified Manufacturing, Construction Machines, Packaging and Environmental.
3
Communications consists of the following industries: Media-Cable, Media-Non-Cable and Telecommunications.
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Western Asset High Income Fund Inc. 2012 Annual Report
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twelve-month total return based on its NAV and market price as of December 31, 2012.
Past performance is no guarantee of future results.
Performance Snapshot
as of December 31, 2012
Price Per Share
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12-Month
Total Return*
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$9.67 (NAV)
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18.02%
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$9.39 (Market Price)
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13.67%
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All figures represent past performance and are not a guarantee of future results.
*
Total returns are based on changes in NAV or market price, respectively.
Total return assumes the reinvestment of all distributions at NAV.
Total return assumes the reinvestment of all distributions in additional shares in accordance with the Funds Dividend Reinvestment Plan.
Q. What were the leading contributors to performance?
A.
The largest contributor to the Funds relative performance during the reporting period was our selection of certain securities. In particular, our overweight exposures to Realogy Corp., Sprint Nextel Corp. and Citigroup Inc. benefited performance. Realogy Corp. has a diversified business model that includes real estate franchising, brokerage, relocation and title services. Its business units include Better Homes and Gardens Real Estate, CENTURY 21, Coldwell Banker, Sothebys International Realty and Title Resource Group. Investor sentiment for Realogy improved as there were signs of a sustainable recovery in the housing market. In addition, in October 2012 the company went public and raised more than $1 billion in additional capital, which will help support its debt obligations. Bonds issued by Sprint Nextel Corp. (and Sprint Capital Corp.) rallied given their attractive valuation, as well as an improved outlook for the wireless competitive landscape and the pricing environment. In addition, Japans investment grade rated Softbank made a bid to acquire B-rated Sprint Nextel toward the end of the reporting period, sending Sprint Nextels bonds even higher. Our Citigroup Inc. exposure benefited performance as investor sentiment improved due to continued balance sheet and capital ratio improvement, as well as strengthening fundamentals.
Overweights to Turkish and the Republic of Venezuela sovereign debt were positives for performance. While economic growth in Turkey sharply decelerated in 2012, the government was able to manage the downturn and export activity improved during the year. In addition, Turkeys current account deficit, while still elevated, continues to improve. In November 2012, Turkey was upgraded by Fitch to investment grade. Venezuela sovereign bonds, which began the period at cheap valuations, benefited from higher oil prices and increased expectations that President Chavez would not be reelected. While Chavez was reelected in October 2012, it was not enough to offset the countrys sovereign bonds earlier strong results.
The Funds ratings biases were also additive to performance. In particular, an overweight to lower-rated CCC bonds was a positive, as they outperformed the Index. In addition, we underweighted bonds rated BB, which was beneficial given their underperformance versus the Index.
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Western Asset High Income Fund Inc. 2012 Annual Report
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Fund overview (contd)
From a sector allocation perspective, the Fund benefited from its overweight to Financials, the top performing sector in the Index. An overweight to the strong performing Transportation sector was also beneficial.
Q. What were the leading detractors from performance?
A.
A number of individual holdings detracted from performance including overweight positions in Petroplus Finance, Overseas Shipholding Group and Axtel SAB. Petroplus Finance is a European oil refiner. In December 2011, a $1 billion credit line to the company was frozen by its bank lenders. Petroplus Finance was unable to avoid bankruptcy as it reduced its output and closed several refineries. In hindsight, we should have exited the position completely at the beginning of the reporting period, as its bonds continued to move lower in 2012 given disappointing asset sales. Overseas Shipholding Group is one of the worlds largest oil tanker companies. It performed poorly as the companys fundamentals weakened given the volatile pricing environment for shipping rates and weaker oil demand in the U.S. and Europe led to a reduction in Atlantic crossings, an area of concentration for the company. In addition, in October 2012 Overseas Shipholding Group announced that investors could not rely on its financial statements for the last three years while they review their accounting treatment for taxes. In November 2012, the company filed for bankruptcy. All told, Overseas Shipholding Groups bonds significantly declined in value as spread sectors rallied. These bonds are currently trading around 40 cents on the dollar and we are anticipating a material recovery. Axtel is Mexicos second largest fixed line, integrated telecommunication company, with services in local and long distance telephone, Internet, data and consulting services. Axtel was negatively impacted by the sharp decline in the Mexican peso, which weakened its credit metrics due to its U.S. dollar-denominated debt. It was also impacted by the competitive telecommunication landscape and a volatile market environment which led to a general sell-off in many lower rated bonds. In addition, Axtels bonds were downgraded by Moodys to Caa2 from B3, by S&P to B- from B, and by Fitch to B+ from BB-. In January 2013, after the reporting period ended, a creditor group said it would reject the companys restructuring offer.
An additional detractor from the Funds performance during the reporting period was our minor reduction in emerging markets exposure in favor of high-yield corporate bonds. While both performed very well and contributed to the Funds performance during the period, the Fund would have performed marginally better had we not made the shift.
Finally, a sector allocation that was not beneficial to performance was increasing our overweight to Energy. While it posted double-digit gain, it was still was the worst performing sector in the Index during the reporting period.
Looking for additional information?
The Fund is traded under the symbol HIF and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line under the symbol XHIFX on most financial websites.
Barrons
and the
Wall Street Journals
Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund
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Western Asset High Income Fund Inc. 2012 Annual Report
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issues a quarterly press release that can be found on most major financial websites as well as www.lmcef.com.
In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Funds current NAV, market price and other information.
Thank you for your investment in Western Asset High Income Fund Inc. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Funds investment goals.
Sincerely,
Western Asset Management Company
January 22, 2013
RISKS:
Investing in foreign securities is subject to certain risks not associated with domestic investing, such as currency fluctuations and changes in political and economic conditions. These risks are magnified in emerging or developing markets. High-yield bonds involve greater credit and liquidity risks than investment grade bonds. The Funds investments are subject to credit risk, inflation risk and interest rate risk. As interest rates rise, bond prices fall, reducing the value of the fixed-income securities held by the Fund. The Fund may make significant investments in derivative instruments. Derivative instruments can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance.
Portfolio holdings and breakdowns are as of December 31, 2012 and are subject to change and may not be representative of the portfolio managers current or future investments. Please refer to pages 10 through 26 for a list and percentage breakdown of the Funds holdings.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Funds top five sector holdings (as a percentage of net assets) as of December 31, 2012 were: Industrials (17.5%), Consumer Discretionary (17.1%), Energy (13.4%), Financials (12.4%) and Materials (10.9%). The Funds portfolio composition is subject to change at any time.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
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Western Asset High Income Fund Inc. 2012 Annual Report
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Fund overview (contd)
i
Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.
ii
The Federal Reserve Board (Fed) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.
iii
The Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.
iv
The Barclays U.S. Corporate High Yield 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.
v
The JPMorgan Emerging Markets Bond Index Global (EMBI Global) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments.
vi
The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.
vii
Beta measures the sensitivity of the investment to the movements of its benchmark. A beta higher than 1.0 indicates the investment has been more volatile than the benchmark and a beta of less than 1.0 indicates that the investment has been less volatile than the benchmark.
viii
Net asset value (NAV) is calculated by subtracting total liabilities and outstanding preferred stock (if any) from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total investments) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Funds market price as determined by supply of and demand for the Funds shares.
ix
Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period ended December 31, 2012, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 7 funds in the Funds Lipper category.
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Western Asset High Income Fund Inc. 2012 Annual Report
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7
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Fund at a glance
(unaudited)
Investment breakdown
(%) as a percent of total investments
The bar graph above represents the composition of the Funds investments as of December 31, 2012 and December 31, 2011 and does not include derivatives, such as futures contracts, written options, swap contracts and forward foreign currency contracts. The Fund is actively managed. As a result, the composition of the Funds investments is subject to change at any time.
8
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Western Asset High Income Fund Inc. 2012 Annual Report
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Spread duration (unaudited)
Economic Exposure
December 31, 2012
Total Spread Duration
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HIF
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3.43 years
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Benchmark
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4.85 years
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Spread duration measures the sensitivity to changes in spreads. The spread over Treasuries is the annual risk-premium demanded by investors to hold non-Treasury securities. Spread duration is quantified as the % change in price resulting from a 100 basis points change in spreads. For a security with positive spread duration, an increase in spreads would result in a price decline and a decline in spreads would result in a price increase. This chart highlights the market sector exposure of the Funds sectors relative to the selected benchmark sectors as of the end of the reporting period.
Benchmark
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80% of Barclays U.S. High Yield 2% Issuer Cap Index and
20% of JPMorgan Emerging Markets Bond Index Global
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EM
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Emerging Markets
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HIF
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Western Asset High Income Fund Inc.
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HY
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High Yield
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IG Credit
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Investment Grade Credit
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Western Asset High Income Fund Inc. 2012 Annual Report
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9
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Effective duration (unaudited)
Interest Rate Exposure
December 31, 2012
Total Effective Duration
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HIF
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3.70 years
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Benchmark
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4.83 years
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Effective duration measures the sensitivity to changes in relevant interest rates. Effective duration is quantified as the % change in price resulting from a 100 basis points change in interest rates. For a security with positive effective duration, an increase in interest rates would result in a price decline and a decline in interest rates would result in a price increase. This chart highlights the interest rate exposure of the Funds sectors relative to the selected benchmark sectors as of the end of the reporting period.
Benchmark
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80% of Barclays U.S. High Yield
2% Issuer Cap Index and 20% of JPMorgan Emerging Markets Bond Index Global
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EM
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Emerging Markets
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HIF
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Western Asset High Income Fund Inc.
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HY
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High Yield
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IG Credit
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Investment Grade Credit
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10
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Western Asset High Income Fund Inc. 2012 Annual Report
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Schedule of investments
December 31, 2012
Western Asset High Income Fund Inc.
Security
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Rate
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Maturity
Date
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Face
Amount
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Value
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Corporate Bonds & Notes 86.3%
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Consumer Discretionary 15.6%
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Automobiles 0.5%
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Chrysler Group LLC/CG Co.-Issuer Inc., Secured Notes
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8.250
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%
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6/15/21
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200,000
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$221,000
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Escrow GCB General Motors
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250,000
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0
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*
(a)(b)(c)
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Escrow GCB General Motors
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435,000
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0
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*
(a)(b)(c)
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Jaguar Holding Co. II/Jaguar Merger Sub Inc., Senior Notes
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9.500
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%
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12/1/19
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50,000
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57,000
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(d)
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Total Automobiles
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278,000
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Diversified Consumer Services 0.8%
|
|
|
|
|
|
|
|
|
|
Laureate Education Inc., Senior Notes
|
|
9.250
|
%
|
9/1/19
|
|
90,000
|
|
94,500
|
(d)
|
Service Corp. International, Senior Notes
|
|
7.500
|
%
|
4/1/27
|
|
120,000
|
|
129,600
|
|
ServiceMaster Co., Senior Notes
|
|
8.000
|
%
|
2/15/20
|
|
70,000
|
|
73,325
|
|
ServiceMaster Co., Senior Notes
|
|
7.000
|
%
|
8/15/20
|
|
120,000
|
|
120,900
|
(d)
|
Total Diversified Consumer Services
|
|
|
|
|
|
|
|
418,325
|
|
Hotels, Restaurants & Leisure 6.3%
|
|
|
|
|
|
|
|
|
|
Affinity Gaming LLC/Affinity Gaming Finance Corp., Senior Notes
|
|
9.000
|
%
|
5/15/18
|
|
110,000
|
|
115,500
|
(d)
|
Bossier Casino Venture Holdco Inc., Senior Secured Bonds
|
|
14.000
|
%
|
2/9/18
|
|
130,420
|
|
116,661
|
(a)(c)(d)(e)
|
Boyd Gaming Corp., Senior Notes
|
|
9.125
|
%
|
12/1/18
|
|
40,000
|
|
41,000
|
|
Boyd Gaming Corp., Senior Notes
|
|
9.000
|
%
|
7/1/20
|
|
160,000
|
|
158,400
|
(d)
|
Caesars Entertainment Operating Co. Inc., Senior Notes
|
|
10.750
|
%
|
2/1/16
|
|
249,000
|
|
202,935
|
|
Caesars Entertainment Operating Co. Inc., Senior Secured Notes
|
|
10.000
|
%
|
12/15/15
|
|
140,000
|
|
124,600
|
|
Caesars Operating Escrow LLC/Caesars Escrow Corp., Senior Secured Notes
|
|
9.000
|
%
|
2/15/20
|
|
70,000
|
|
70,350
|
(d)
|
Carrols Restaurant Group Inc., Senior Secured Notes
|
|
11.250
|
%
|
5/15/18
|
|
130,000
|
|
143,000
|
(d)
|
CCM Merger Inc., Senior Notes
|
|
9.125
|
%
|
5/1/19
|
|
130,000
|
|
131,625
|
(d)
|
Downstream Development Quapaw, Senior Secured Notes
|
|
10.500
|
%
|
7/1/19
|
|
130,000
|
|
141,050
|
(d)
|
El Pollo Loco Inc., Secured Notes
|
|
17.000
|
%
|
1/1/18
|
|
118,623
|
|
127,520
|
(d)(e)
|
Hoa Restaurant Group LLC/Hoa Finance Corp., Senior Secured Notes
|
|
11.250
|
%
|
4/1/17
|
|
160,000
|
|
145,600
|
(d)
|
Landrys Holdings II Inc., Senior Notes
|
|
10.250
|
%
|
1/1/18
|
|
70,000
|
|
70,000
|
(d)
|
Landrys Inc., Senior Notes
|
|
9.375
|
%
|
5/1/20
|
|
130,000
|
|
137,800
|
(d)
|
Mastros Restaurants LLC/RRG Finance Corp., Senior Secured Notes
|
|
12.000
|
%
|
6/1/17
|
|
121,869
|
|
127,353
|
(d)
|
MGM Resorts International, Senior Notes
|
|
5.875
|
%
|
2/27/14
|
|
160,000
|
|
167,200
|
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
11
|
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Hotels, Restaurants & Leisure continued
|
|
|
|
|
|
|
|
|
|
Mohegan Tribal Gaming Authority, Senior Secured Notes
|
|
10.500
|
%
|
12/15/16
|
|
320,000
|
|
$ 316,800
|
(d)
|
NCL Corp. Ltd., Senior Notes
|
|
9.500
|
%
|
11/15/18
|
|
280,000
|
|
312,200
|
|
NCL Corp. Ltd., Senior Secured Notes
|
|
11.750
|
%
|
11/15/16
|
|
170,000
|
|
192,950
|
|
Pinnacle Entertainment Inc., Senior Notes
|
|
8.625
|
%
|
8/1/17
|
|
85,000
|
|
91,694
|
|
Rivers Pittsburgh Borrower LP/Rivers Pittsburgh Finance Corp., Senior Secured Notes
|
|
9.500
|
%
|
6/15/19
|
|
35,000
|
|
38,150
|
(d)
|
Seven Seas Cruises S de RL LLC, Senior Secured Notes
|
|
9.125
|
%
|
5/15/19
|
|
190,000
|
|
201,875
|
|
Snoqualmie Entertainment Authority, Senior Secured Notes
|
|
9.125
|
%
|
2/1/15
|
|
38,000
|
|
38,380
|
(d)
|
Total Hotels, Restaurants & Leisure
|
|
|
|
|
|
|
|
3,212,643
|
|
Household Durables 0.2%
|
|
|
|
|
|
|
|
|
|
William Lyon Homes Inc., Senior Notes
|
|
8.500
|
%
|
11/15/20
|
|
110,000
|
|
114,950
|
(d)
|
Internet & Catalog Retail 0.3%
|
|
|
|
|
|
|
|
|
|
Netflix Inc., Senior Notes
|
|
8.500
|
%
|
11/15/17
|
|
130,000
|
|
138,775
|
|
Media 5.6%
|
|
|
|
|
|
|
|
|
|
Carmike Cinemas Inc., Secured Notes
|
|
7.375
|
%
|
5/15/19
|
|
50,000
|
|
54,250
|
|
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes
|
|
8.125
|
%
|
4/30/20
|
|
200,000
|
|
225,000
|
|
Cengage Learning Acquisitions Inc., Senior Secured Notes
|
|
11.500
|
%
|
4/15/20
|
|
200,000
|
|
173,500
|
(d)
|
Clear Channel Worldwide Holdings Inc., Senior Notes
|
|
6.500
|
%
|
11/15/22
|
|
40,000
|
|
41,300
|
(d)
|
Clear Channel Worldwide Holdings Inc., Senior Subordinated Notes
|
|
7.625
|
%
|
3/15/20
|
|
90,000
|
|
91,125
|
|
Clear Channel Worldwide Holdings Inc., Senior Subordinated Notes
|
|
7.625
|
%
|
3/15/20
|
|
10,000
|
|
10,025
|
|
DISH DBS Corp., Senior Notes
|
|
6.625
|
%
|
10/1/14
|
|
20,000
|
|
21,550
|
|
DISH DBS Corp., Senior Notes
|
|
7.875
|
%
|
9/1/19
|
|
45,000
|
|
53,550
|
|
DISH DBS Corp., Senior Notes
|
|
6.750
|
%
|
6/1/21
|
|
60,000
|
|
68,700
|
|
EchoStar DBS Corp., Senior Notes
|
|
7.125
|
%
|
2/1/16
|
|
70,000
|
|
78,750
|
|
Global Generations Merger Subsidiary Inc., Senior Notes
|
|
11.000
|
%
|
12/15/20
|
|
100,000
|
|
102,250
|
(d)
|
Good Sam Enterprises LLC, Secured Notes
|
|
11.500
|
%
|
12/1/16
|
|
160,000
|
|
172,000
|
|
LBI Media Inc., Senior Secured Notes
|
|
9.250
|
%
|
4/15/19
|
|
130,000
|
|
122,525
|
(d)
|
Nara Cable Funding Ltd., Senior Secured Notes
|
|
8.875
|
%
|
12/1/18
|
|
200,000
|
|
204,500
|
(d)
|
NET Servicos de Comunicacao SA, Bonds
|
|
7.500
|
%
|
1/27/20
|
|
100,000
|
|
115,500
|
|
Ono Finance II PLC, Senior Bonds
|
|
10.875
|
%
|
7/15/19
|
|
180,000
|
|
172,800
|
(d)
|
Univision Communications Inc., Senior Notes
|
|
8.500
|
%
|
5/15/21
|
|
50,000
|
|
51,875
|
(d)
|
Univision Communications Inc., Senior Secured Notes
|
|
7.875
|
%
|
11/1/20
|
|
100,000
|
|
108,750
|
(d)
|
See Notes to Financial Statements.
12
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Media continued
|
|
|
|
|
|
|
|
|
|
Univision Communications Inc., Senior Secured Notes
|
|
6.750
|
%
|
9/15/22
|
|
250,000
|
|
$ 259,375
|
(d)
|
UPC Holding BV, Junior Secured Subordinated Notes
|
|
6.375
|
%
|
9/15/22
|
|
220,000
|
EUR
|
297,649
|
(d)
|
UPC Holding BV, Senior Notes
|
|
9.875
|
%
|
4/15/18
|
|
65,000
|
|
73,775
|
(d)
|
UPCB Finance II Ltd., Senior Notes
|
|
6.375
|
%
|
7/1/20
|
|
250,000
|
EUR
|
353,087
|
(d)
|
Total Media
|
|
|
|
|
|
|
|
2,851,836
|
|
Multiline Retail 0.5%
|
|
|
|
|
|
|
|
|
|
Bon-Ton Department Stores Inc., Senior Notes
|
|
10.250
|
%
|
3/15/14
|
|
30,000
|
|
29,850
|
|
Bon-Ton Department Stores Inc., Senior Secured Notes
|
|
10.625
|
%
|
7/15/17
|
|
70,000
|
|
68,425
|
(d)
|
Neiman Marcus Group Inc., Senior Secured Notes
|
|
7.125
|
%
|
6/1/28
|
|
130,000
|
|
130,000
|
|
Total Multiline Retail
|
|
|
|
|
|
|
|
228,275
|
|
Specialty Retail 1.2%
|
|
|
|
|
|
|
|
|
|
American Greetings Corp., Senior Notes
|
|
7.375
|
%
|
12/1/21
|
|
70,000
|
|
72,275
|
|
Edcon Proprietary Ltd., Senior Secured Notes
|
|
9.500
|
%
|
3/1/18
|
|
210,000
|
|
202,650
|
(d)
|
Gymboree Corp., Senior Notes
|
|
9.125
|
%
|
12/1/18
|
|
80,000
|
|
71,600
|
|
Michaels Stores Inc., Senior Subordinated Bonds
|
|
11.375
|
%
|
11/1/16
|
|
110,000
|
|
115,225
|
|
New Academy Finance Co. LLC/New Academy Finance Corp., Senior Notes
|
|
8.000
|
%
|
6/15/18
|
|
30,000
|
|
30,525
|
(d)(e)
|
Spencer Spirit Holdings Inc./Spencer Gifts LLC/Spirit Halloween Superstores, Senior Notes
|
|
11.000
|
%
|
5/1/17
|
|
110,000
|
|
118,525
|
(d)
|
Total Specialty Retail
|
|
|
|
|
|
|
|
610,800
|
|
Textiles, Apparel & Luxury Goods 0.2%
|
|
|
|
|
|
|
|
|
|
Empire Today LLC/Empire Today Finance Corp., Senior Secured Notes
|
|
11.375
|
%
|
2/1/17
|
|
80,000
|
|
85,400
|
(d)
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
7,939,004
|
|
Consumer Staples 1.5%
|
|
|
|
|
|
|
|
|
|
Food & Staples Retailing 0.4%
|
|
|
|
|
|
|
|
|
|
Post Holdings Inc., Senior Notes
|
|
7.375
|
%
|
2/15/22
|
|
180,000
|
|
198,112
|
(d)
|
Food Products 0.5%
|
|
|
|
|
|
|
|
|
|
Harmony Foods Corp., Senior Secured Notes
|
|
10.000
|
%
|
5/1/16
|
|
60,000
|
|
64,950
|
(d)
|
Simmons Foods Inc., Senior Secured Notes
|
|
10.500
|
%
|
11/1/17
|
|
210,000
|
|
191,625
|
(d)
|
Total Food Products
|
|
|
|
|
|
|
|
256,575
|
|
Household Products 0.1%
|
|
|
|
|
|
|
|
|
|
Harbinger Group Inc., Senior Secured Notes
|
|
7.875
|
%
|
7/15/19
|
|
80,000
|
|
79,700
|
(d)
|
Tobacco 0.5%
|
|
|
|
|
|
|
|
|
|
Alliance One International Inc., Senior Notes
|
|
10.000
|
%
|
7/15/16
|
|
230,000
|
|
243,225
|
|
Total Consumer Staples
|
|
|
|
|
|
|
|
777,612
|
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
13
|
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Energy 12.6%
|
|
|
|
|
|
|
|
|
|
Energy Equipment & Services 2.0%
|
|
|
|
|
|
|
|
|
|
Atwood Oceanics Inc., Senior Notes
|
|
6.500
|
%
|
2/1/20
|
|
70,000
|
|
$ 75,600
|
|
GulfMark Offshore Inc., Senior Notes
|
|
6.375
|
%
|
3/15/22
|
|
120,000
|
|
124,200
|
(d)
|
Hercules Offshore Inc., Senior Notes
|
|
10.250
|
%
|
4/1/19
|
|
80,000
|
|
88,000
|
(d)
|
Hercules Offshore Inc., Senior Secured Notes
|
|
10.500
|
%
|
10/15/17
|
|
245,000
|
|
265,212
|
(d)
|
Parker Drilling Co., Senior Notes
|
|
9.125
|
%
|
4/1/18
|
|
140,000
|
|
150,150
|
|
Petroleum Geo-Services ASA, Senior Notes
|
|
7.375
|
%
|
12/15/18
|
|
200,000
|
|
217,000
|
(d)
|
Vantage Drilling Co., Senior Secured Notes
|
|
11.500
|
%
|
8/1/15
|
|
73,000
|
|
79,753
|
|
Total Energy Equipment & Services
|
|
|
|
|
|
|
|
999,915
|
|
Oil, Gas & Consumable Fuels 10.6%
|
|
|
|
|
|
|
|
|
|
Arch Coal Inc., Senior Notes
|
|
8.750
|
%
|
8/1/16
|
|
180,000
|
|
188,100
|
|
Arch Coal Inc., Senior Notes
|
|
9.875
|
%
|
6/15/19
|
|
70,000
|
|
73,150
|
(d)
|
Calumet Specialty Products Partners LP/Calumet Finance Corp., Senior Notes
|
|
9.375
|
%
|
5/1/19
|
|
100,000
|
|
109,000
|
|
Calumet Specialty Products Partners LP/Calumet Finance Corp., Senior Notes
|
|
9.375
|
%
|
5/1/19
|
|
40,000
|
|
43,600
|
|
Calumet Specialty Products Partners LP/Calumet Finance Corp., Senior Notes
|
|
9.625
|
%
|
8/1/20
|
|
70,000
|
|
76,475
|
(d)
|
Carrizo Oil & Gas Inc., Senior Notes
|
|
7.500
|
%
|
9/15/20
|
|
70,000
|
|
72,275
|
|
Chesapeake Energy Corp., Senior Notes
|
|
6.775
|
%
|
3/15/19
|
|
70,000
|
|
70,175
|
|
Chesapeake Energy Corp., Senior Notes
|
|
6.625
|
%
|
8/15/20
|
|
70,000
|
|
75,425
|
|
Chesapeake Energy Corp., Senior Notes
|
|
6.125
|
%
|
2/15/21
|
|
140,000
|
|
145,950
|
|
Compagnie Generale de Geophysique-Veritas, Senior Notes
|
|
9.500
|
%
|
5/15/16
|
|
160,000
|
|
172,400
|
|
Comstock Resources Inc., Senior Notes
|
|
9.500
|
%
|
6/15/20
|
|
110,000
|
|
118,800
|
|
CONSOL Energy Inc., Senior Notes
|
|
8.250
|
%
|
4/1/20
|
|
140,000
|
|
152,250
|
|
Corral Petroleum Holdings AB, Senior Notes
|
|
15.000
|
%
|
12/31/17
|
|
247,277
|
|
192,258
|
(a)(d)(e)
|
Crosstex Energy LP/Crosstex Energy Finance Corp., Senior Notes
|
|
8.875
|
%
|
2/15/18
|
|
50,000
|
|
54,250
|
|
Crosstex Energy LP/Crosstex Energy Finance Corp., Senior Notes
|
|
7.125
|
%
|
6/1/22
|
|
170,000
|
|
178,075
|
(d)
|
Energy Transfer Equity LP, Senior Notes
|
|
7.500
|
%
|
10/15/20
|
|
130,000
|
|
150,800
|
|
Enterprise Products Operating LLP, Junior Subordinated Notes
|
|
8.375
|
%
|
8/1/66
|
|
100,000
|
|
114,214
|
(f)
|
Enterprise Products Operating LLP, Subordinated Notes
|
|
7.034
|
%
|
1/15/68
|
|
75,000
|
|
85,967
|
(f)
|
EPE Holdings LLC/EP Energy Bond Co. Inc., Senior Notes
|
|
8.125
|
%
|
12/15/17
|
|
110,000
|
|
109,313
|
(d)(e)
|
EXCO Resources Inc., Senior Notes
|
|
7.500
|
%
|
9/15/18
|
|
80,000
|
|
78,000
|
|
Halcon Resources Corp., Senior Notes
|
|
9.750
|
%
|
7/15/20
|
|
150,000
|
|
162,750
|
(d)
|
Halcon Resources Corp., Senior Notes
|
|
8.875
|
%
|
5/15/21
|
|
90,000
|
|
95,850
|
(d)
|
See Notes to Financial Statements.
14
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Oil, Gas & Consumable Fuels continued
|
|
|
|
|
|
|
|
|
|
Hiland Partners LP/Hiland Partners Finance Corp., Senior Notes
|
|
7.250
|
%
|
10/1/20
|
|
50,000
|
|
$ 53,750
|
(d)
|
Kodiak Oil & Gas Corp., Senior Notes
|
|
8.125
|
%
|
12/1/19
|
|
130,000
|
|
143,975
|
|
LUKOIL International Finance BV, Bonds
|
|
6.356
|
%
|
6/7/17
|
|
140,000
|
|
160,860
|
(d)
|
Magnum Hunter Resources Corp., Senior Notes
|
|
9.750
|
%
|
5/15/20
|
|
110,000
|
|
114,675
|
(d)
|
Magnum Hunter Resources Corp., Senior Notes
|
|
9.750
|
%
|
5/15/20
|
|
80,000
|
|
83,400
|
(d)
|
MarkWest Energy Partners LP/MarkWest Energy Finance Corp., Senior Notes
|
|
6.750
|
%
|
11/1/20
|
|
50,000
|
|
54,750
|
|
MarkWest Energy Partners LP/MarkWest Energy Finance Corp., Senior Notes
|
|
6.500
|
%
|
8/15/21
|
|
20,000
|
|
21,950
|
|
Milagro Oil & Gas Inc., Secured Notes
|
|
10.500
|
%
|
5/15/16
|
|
160,000
|
|
119,200
|
|
Overseas Shipholding Group Inc., Senior Notes
|
|
8.750
|
%
|
12/1/13
|
|
50,000
|
|
18,250
|
(g)
|
Overseas Shipholding Group Inc., Senior Notes
|
|
8.125
|
%
|
3/30/18
|
|
300,000
|
|
109,500
|
(g)
|
Pacific Drilling V Ltd., Senior Secured Notes
|
|
7.250
|
%
|
12/1/17
|
|
200,000
|
|
208,500
|
(d)
|
Peabody Energy Corp., Senior Notes
|
|
7.875
|
%
|
11/1/26
|
|
40,000
|
|
43,400
|
|
Petrobras International Finance Co., Senior Notes
|
|
6.875
|
%
|
1/20/40
|
|
55,000
|
|
70,420
|
|
Petrobras International Finance Co., Senior Notes
|
|
6.750
|
%
|
1/27/41
|
|
20,000
|
|
25,442
|
|
Pioneer Energy Services Corp., Senior Notes
|
|
9.875
|
%
|
3/15/18
|
|
20,000
|
|
21,850
|
|
Plains Exploration & Production Co., Senior Notes
|
|
8.625
|
%
|
10/15/19
|
|
115,000
|
|
131,388
|
|
Plains Exploration & Production Co., Senior Notes
|
|
6.750
|
%
|
2/1/22
|
|
20,000
|
|
22,550
|
|
Quicksilver Resources Inc., Senior Notes
|
|
11.750
|
%
|
1/1/16
|
|
295,000
|
|
292,787
|
|
Samson Investment Co., Senior Notes
|
|
9.750
|
%
|
2/15/20
|
|
290,000
|
|
308,125
|
(d)
|
SandRidge Energy Inc., Senior Notes
|
|
7.500
|
%
|
3/15/21
|
|
50,000
|
|
53,750
|
|
SandRidge Energy Inc., Senior Notes
|
|
7.500
|
%
|
2/15/23
|
|
90,000
|
|
96,750
|
|
Shelf Drilling Holdings Ltd., Senior Secured Notes
|
|
8.625
|
%
|
11/1/18
|
|
90,000
|
|
92,700
|
(d)
|
Sidewinder Drilling Inc., Senior Notes
|
|
9.750
|
%
|
11/15/19
|
|
50,000
|
|
50,500
|
(d)
|
Teekay Corp., Senior Notes
|
|
8.500
|
%
|
1/15/20
|
|
190,000
|
|
201,400
|
|
TNK-BP Finance SA, Senior Notes
|
|
7.500
|
%
|
7/18/16
|
|
210,000
|
|
244,125
|
(d)
|
Xinergy Ltd., Senior Secured Notes
|
|
9.250
|
%
|
5/15/19
|
|
240,000
|
|
140,400
|
(d)
|
Total Oil, Gas & Consumable Fuels
|
|
|
|
|
|
|
|
5,403,474
|
|
Total Energy
|
|
|
|
|
|
|
|
6,403,389
|
|
Financials 9.1%
|
|
|
|
|
|
|
|
|
|
Capital Markets 0.5%
|
|
|
|
|
|
|
|
|
|
Goldman Sachs Group Inc., Subordinated Notes
|
|
6.750
|
%
|
10/1/37
|
|
110,000
|
|
125,063
|
|
Onex USI Acquisition Corp., Senior Notes
|
|
7.750
|
%
|
1/15/21
|
|
130,000
|
|
128,700
|
(d)
|
Total Capital Markets
|
|
|
|
|
|
|
|
253,763
|
|
Commercial Banks 2.6%
|
|
|
|
|
|
|
|
|
|
Barclays Bank PLC, Subordinated Notes
|
|
10.179
|
%
|
6/12/21
|
|
180,000
|
|
246,041
|
(d)
|
BBVA US Senior SAU, Senior Notes
|
|
4.664
|
%
|
10/9/15
|
|
200,000
|
|
205,196
|
|
Credit Agricole SA, Subordinated Notes
|
|
8.375
|
%
|
10/13/19
|
|
100,000
|
|
106,500
|
(d)(f)(h)
|
Intesa Sanpaolo SpA, Senior Notes
|
|
3.625
|
%
|
8/12/15
|
|
250,000
|
|
250,302
|
(d)
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
15
|
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Commercial Banks continued
|
|
|
|
|
|
|
|
|
|
M&T Bank Corp., Junior Subordinated Notes
|
|
6.875
|
%
|
6/15/16
|
|
170,000
|
|
$ 177,702
|
(d)(h)
|
Royal Bank of Scotland Group PLC, Junior Subordinated Bonds
|
|
7.648
|
%
|
9/30/31
|
|
120,000
|
|
122,400
|
(f)(h)
|
Royal Bank of Scotland Group PLC, Subordinated Notes
|
|
5.000
|
%
|
10/1/14
|
|
90,000
|
|
92,514
|
|
Santander Issuances SAU, Notes
|
|
5.911
|
%
|
6/20/16
|
|
100,000
|
|
102,979
|
(d)
|
Total Commercial Banks
|
|
|
|
|
|
|
|
1,303,634
|
|
Consumer Finance 0.3%
|
|
|
|
|
|
|
|
|
|
GMAC International Finance BV, Senior Bonds
|
|
7.500
|
%
|
4/21/15
|
|
100,000
|
EUR
|
144,897
|
|
Diversified Financial Services 4.5%
|
|
|
|
|
|
|
|
|
|
Bank of America Corp., Senior Notes
|
|
6.500
|
%
|
8/1/16
|
|
50,000
|
|
57,785
|
|
Bankrate Inc., Senior Secured Notes
|
|
11.750
|
%
|
7/15/15
|
|
275,000
|
|
304,906
|
|
Capital One Capital V, Junior Subordinated Notes, Cumulative Trust Preferred Securities
|
|
10.250
|
%
|
8/15/39
|
|
110,000
|
|
110,000
|
|
International Lease Finance Corp., Medium-Term Notes, Senior Notes
|
|
5.625
|
%
|
9/20/13
|
|
70,000
|
|
72,013
|
|
International Lease Finance Corp., Senior Notes
|
|
8.750
|
%
|
3/15/17
|
|
100,000
|
|
116,000
|
|
International Lease Finance Corp., Senior Notes
|
|
8.875
|
%
|
9/1/17
|
|
390,000
|
|
460,231
|
|
International Lease Finance Corp., Senior Notes
|
|
8.250
|
%
|
12/15/20
|
|
280,000
|
|
334,600
|
|
Nationstar Mortgage LLC/Nationstar Capital Corp., Senior Notes
|
|
7.875
|
%
|
10/1/20
|
|
130,000
|
|
137,800
|
(d)
|
TransUnion Holding Co. Inc., Senior Notes
|
|
8.125
|
%
|
6/15/18
|
|
50,000
|
|
51,875
|
(d)(e)
|
TransUnion Holding Co. Inc., Senior Notes
|
|
9.625
|
%
|
6/15/18
|
|
130,000
|
|
138,125
|
|
ZFS Finance USA Trust II, Bonds
|
|
6.450
|
%
|
12/15/65
|
|
500,000
|
|
537,500
|
(d)(f)
|
Total Diversified Financial Services
|
|
|
|
|
|
|
|
2,320,835
|
|
Insurance 0.8%
|
|
|
|
|
|
|
|
|
|
A-S Co-Issuer Subsidiary Inc./A-S Merger Subsidiary LLC, Senior Notes
|
|
7.875
|
%
|
12/15/20
|
|
60,000
|
|
60,300
|
(d)
|
American International Group Inc., Senior Notes
|
|
8.250
|
%
|
8/15/18
|
|
100,000
|
|
131,698
|
|
ING Capital Funding Trust III, Junior Subordinated Bonds
|
|
3.962
|
%
|
3/31/13
|
|
40,000
|
|
38,156
|
(f)(h)
|
Liberty Mutual Group Inc., Junior Subordinated Bonds
|
|
7.800
|
%
|
3/15/37
|
|
90,000
|
|
100,575
|
(d)
|
MetLife Capital Trust IV, Junior Subordinated Notes
|
|
7.875
|
%
|
12/15/37
|
|
60,000
|
|
74,100
|
(d)
|
Total Insurance
|
|
|
|
|
|
|
|
404,829
|
|
Real Estate Management & Development 0.4%
|
|
|
|
|
|
|
|
|
|
Realogy Corp., Senior Secured Notes
|
|
7.625
|
%
|
1/15/20
|
|
180,000
|
|
204,750
|
(d)
|
Total Financials
|
|
|
|
|
|
|
|
4,632,708
|
|
Health Care 4.1%
|
|
|
|
|
|
|
|
|
|
Health Care Equipment & Supplies 0.1%
|
|
|
|
|
|
|
|
|
|
Hologic Inc., Senior Notes
|
|
6.250
|
%
|
8/1/20
|
|
70,000
|
|
75,775
|
(d)
|
See Notes to Financial Statements.
16
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Health Care Providers & Services 3.7%
|
|
|
|
|
|
|
|
|
|
Acadia Healthcare Co. Inc., Senior Notes
|
|
12.875
|
%
|
11/1/18
|
|
130,000
|
|
$ 157,950
|
|
American Renal Holdings, Senior Secured Notes
|
|
8.375
|
%
|
5/15/18
|
|
110,000
|
|
116,325
|
|
CHS/Community Health Systems Inc., Senior Notes
|
|
8.000
|
%
|
11/15/19
|
|
230,000
|
|
250,125
|
|
CRC Health Corp., Senior Subordinated Notes
|
|
10.750
|
%
|
2/1/16
|
|
445,000
|
|
436,100
|
|
DJO Finance LLC/DJO Finance Corp., Senior Notes
|
|
9.875
|
%
|
4/15/18
|
|
80,000
|
|
83,000
|
(d)
|
ExamWorks Group Inc., Senior Notes
|
|
9.000
|
%
|
7/15/19
|
|
100,000
|
|
107,500
|
|
Fresenius Medical Care U.S. Finance Inc., Senior Notes
|
|
6.875
|
%
|
7/15/17
|
|
80,000
|
|
91,600
|
|
Fresenius U.S. Finance II Inc., Senior Notes
|
|
9.000
|
%
|
7/15/15
|
|
140,000
|
|
162,050
|
(d)
|
HCA Inc., Senior Secured Notes
|
|
7.875
|
%
|
2/15/20
|
|
235,000
|
|
262,612
|
|
HCA Inc., Senior Secured Notes
|
|
7.250
|
%
|
9/15/20
|
|
40,000
|
|
44,500
|
|
INC Research LLC, Senior Notes
|
|
11.500
|
%
|
7/15/19
|
|
50,000
|
|
52,000
|
(d)
|
Physiotherapy Associates Holdings Inc., Senior Notes
|
|
11.875
|
%
|
5/1/19
|
|
40,000
|
|
36,000
|
(d)
|
US Oncology Inc. Escrow
|
|
|
|
|
|
110,000
|
|
2,338
|
*
|
Vanguard Health Holdings Co., II LLC, Senior Notes
|
|
8.000
|
%
|
2/1/18
|
|
60,000
|
|
62,400
|
|
Total Health Care Providers & Services
|
|
|
|
|
|
|
|
1,864,500
|
|
Pharmaceuticals 0.3%
|
|
|
|
|
|
|
|
|
|
Valeant Pharmaceuticals International, Senior Notes
|
|
6.375
|
%
|
10/15/20
|
|
90,000
|
|
96,750
|
(d)
|
VPI Escrow Corp., Senior Notes
|
|
6.375
|
%
|
10/15/20
|
|
50,000
|
|
53,875
|
(d)
|
Total Pharmaceuticals
|
|
|
|
|
|
|
|
150,625
|
|
Total Health Care
|
|
|
|
|
|
|
|
2,090,900
|
|
Industrials 16.3%
|
|
|
|
|
|
|
|
|
|
Aerospace & Defense 1.3%
|
|
|
|
|
|
|
|
|
|
Ducommun Inc., Senior Notes
|
|
9.750
|
%
|
7/15/18
|
|
100,000
|
|
108,000
|
|
Kratos Defense & Security Solutions Inc., Senior Secured Notes
|
|
10.000
|
%
|
6/1/17
|
|
250,000
|
|
275,625
|
|
Triumph Group Inc., Senior Notes
|
|
8.625
|
%
|
7/15/18
|
|
70,000
|
|
78,050
|
|
Wyle Services Corp., Senior Subordinated Notes
|
|
10.500
|
%
|
4/1/18
|
|
205,000
|
|
224,475
|
(d)
|
Total Aerospace & Defense
|
|
|
|
|
|
|
|
686,150
|
|
Airlines 1.8%
|
|
|
|
|
|
|
|
|
|
American Airlines Pass-Through Trust, Secured Notes
|
|
7.000
|
%
|
1/31/18
|
|
71,580
|
|
74,085
|
(d)
|
Continental Airlines Inc., Pass-Through Certificates
|
|
9.250
|
%
|
5/10/17
|
|
10,877
|
|
11,883
|
|
Continental Airlines Inc., Pass-Through Certificates, Senior Secured Notes
|
|
6.125
|
%
|
4/29/18
|
|
70,000
|
|
70,525
|
|
Continental Airlines Inc., Pass-Through Certificates, Subordinated Secured Notes
|
|
7.339
|
%
|
4/19/14
|
|
73,391
|
|
76,327
|
|
DAE Aviation Holdings Inc., Senior Notes
|
|
11.250
|
%
|
8/1/15
|
|
378,000
|
|
390,285
|
(d)
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
17
|
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Airlines continued
|
|
|
|
|
|
|
|
|
|
Delta Air Lines Inc., Pass-Through Certificates, Secured Notes
|
|
8.021
|
%
|
8/10/22
|
|
77,008
|
|
$ 84,223
|
|
Delta Air Lines Inc., Pass-Through Certificates, Subordinated Secured Notes
|
|
9.750
|
%
|
12/17/16
|
|
30,830
|
|
34,529
|
|
United Air Lines Inc., Senior Secured Notes
|
|
9.875
|
%
|
8/1/13
|
|
158,000
|
|
159,284
|
(d)
|
Total Airlines
|
|
|
|
|
|
|
|
901,141
|
|
Building Products 0.8%
|
|
|
|
|
|
|
|
|
|
Ashton Woods USA LLC/Ashton Woods Finance Co., Senior Subordinated Notes
|
|
11.000
|
%
|
6/30/15
|
|
124,600
|
|
124,600
|
(c)(d)
|
Building Materials Corp. of America, Senior Notes
|
|
6.750
|
%
|
5/1/21
|
|
140,000
|
|
155,050
|
(d)
|
Rearden G Holdings EINS GmbH, Senior Notes
|
|
7.875
|
%
|
3/30/20
|
|
100,000
|
|
112,000
|
(d)
|
Total Building Products
|
|
|
|
|
|
|
|
391,650
|
|
Commercial Services & Supplies 2.6%
|
|
|
|
|
|
|
|
|
|
Algeco Scotsman Global Finance PLC, Senior Notes
|
|
10.750
|
%
|
10/15/19
|
|
200,000
|
|
198,000
|
(d)
|
Altegrity Inc., Senior Subordinated Notes
|
|
11.750
|
%
|
5/1/16
|
|
260,000
|
|
196,300
|
(d)
|
American Reprographics Co., Senior Notes
|
|
10.500
|
%
|
12/15/16
|
|
200,000
|
|
197,500
|
|
JM Huber Corp., Senior Notes
|
|
9.875
|
%
|
11/1/19
|
|
80,000
|
|
89,200
|
(d)
|
Monitronics International Inc., Senior Notes
|
|
9.125
|
%
|
4/1/20
|
|
250,000
|
|
258,750
|
|
RSC Equipment Rental Inc./RSC Holdings III LLC, Senior Notes
|
|
8.250
|
%
|
2/1/21
|
|
80,000
|
|
90,600
|
|
Taylor Morrison Communities Inc./Monarch Communities Inc., Senior Notes
|
|
7.750
|
%
|
4/15/20
|
|
230,000
|
|
244,950
|
(d)
|
Taylor Morrison Communities Inc./Monarch Communities Inc., Senior Notes
|
|
7.750
|
%
|
4/15/20
|
|
40,000
|
|
42,600
|
(d)
|
Total Commercial Services & Supplies
|
|
|
|
|
|
|
|
1,317,900
|
|
Construction & Engineering 1.0%
|
|
|
|
|
|
|
|
|
|
Abengoa Finance SAU, Senior Notes
|
|
8.875
|
%
|
11/1/17
|
|
150,000
|
|
141,750
|
(d)
|
Odebrecht Finance Ltd., Senior Notes
|
|
6.000
|
%
|
4/5/23
|
|
220,000
|
|
255,475
|
(d)
|
PH Holding LLC, Secured Notes
|
|
9.750
|
%
|
12/31/17
|
|
100,000
|
|
98,643
|
(a)(c)
|
Total Construction & Engineering
|
|
|
|
|
|
|
|
495,868
|
|
Electrical Equipment 0.8%
|
|
|
|
|
|
|
|
|
|
313 Group Inc., Senior Secured Notes
|
|
6.375
|
%
|
12/1/19
|
|
120,000
|
|
119,550
|
(d)
|
International Wire Group Holdings Inc., Senior Secured Notes
|
|
8.500
|
%
|
10/15/17
|
|
100,000
|
|
101,500
|
(d)
|
NES Rentals Holdings Inc., Senior Secured Notes
|
|
12.250
|
%
|
4/15/15
|
|
170,000
|
|
176,375
|
(d)
|
Total Electrical Equipment
|
|
|
|
|
|
|
|
397,425
|
|
Industrial Conglomerates 0.3%
|
|
|
|
|
|
|
|
|
|
Leucadia National Corp., Senior Notes
|
|
8.125
|
%
|
9/15/15
|
|
120,000
|
|
135,600
|
|
Machinery 2.1%
|
|
|
|
|
|
|
|
|
|
Cleaver-Brooks Inc., Senior Secured Notes
|
|
8.750
|
%
|
12/15/19
|
|
40,000
|
|
41,400
|
(d)
|
Dematic SA, Senior Secured Notes
|
|
8.750
|
%
|
5/1/16
|
|
220,000
|
|
235,675
|
(d)
|
See Notes to Financial Statements.
18
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Machinery continued
|
|
|
|
|
|
|
|
|
|
Dematic SA/DH Services Luxembourg Sarl, Senior Notes
|
|
7.750
|
%
|
12/15/20
|
|
200,000
|
|
$ 201,000
|
(d)
|
Global Brass and Copper Inc., Senior Secured Notes
|
|
9.500
|
%
|
6/1/19
|
|
120,000
|
|
130,800
|
(d)
|
Mirror PIK SA, Senior Notes
|
|
9.000
|
%
|
11/1/16
|
|
200,000
|
|
202,000
|
(d)(e)
|
Silver II Borrower/Silver II U.S. Holdings LLC, Senior Notes
|
|
7.750
|
%
|
12/15/20
|
|
150,000
|
|
156,000
|
(d)
|
SPL Logistics Escrow LLC, Senior Secured Notes
|
|
8.875
|
%
|
8/1/20
|
|
80,000
|
|
85,200
|
(d)
|
Total Machinery
|
|
|
|
|
|
|
|
1,052,075
|
|
Marine 0.9%
|
|
|
|
|
|
|
|
|
|
Horizon Lines LLC, Secured Notes
|
|
13.000
|
%
|
10/15/16
|
|
139,212
|
|
126,335
|
|
Horizon Lines LLC, Senior Secured Notes
|
|
11.000
|
%
|
10/15/16
|
|
90,000
|
|
90,000
|
|
Navios Maritime Acquisition Corp./Navios Acquisition Finance U.S. Inc., Senior Secured Notes
|
|
8.625
|
%
|
11/1/17
|
|
290,000
|
|
273,325
|
|
Total Marine
|
|
|
|
|
|
|
|
489,660
|
|
Road & Rail 2.1%
|
|
|
|
|
|
|
|
|
|
Florida East Coast Holdings Corp., Senior Notes
|
|
10.500
|
%
|
8/1/17
|
|
274,734
|
|
273,360
|
(e)
|
Jack Cooper Holdings Corp., Senior Secured Notes
|
|
13.750
|
%
|
12/15/15
|
|
230,000
|
|
247,825
|
(d)
|
Kansas City Southern de Mexico, Senior Notes
|
|
12.500
|
%
|
4/1/16
|
|
111,000
|
|
122,100
|
|
Kansas City Southern de Mexico, Senior Notes
|
|
8.000
|
%
|
2/1/18
|
|
180,000
|
|
200,250
|
|
Quality Distribution LLC/QD Capital Corp., Secured Notes
|
|
9.875
|
%
|
11/1/18
|
|
200,000
|
|
217,000
|
|
Total Road & Rail
|
|
|
|
|
|
|
|
1,060,535
|
|
Trading Companies & Distributors 1.1%
|
|
|
|
|
|
|
|
|
|
Ashtead Capital Inc., Senior Secured Notes
|
|
6.500
|
%
|
7/15/22
|
|
140,000
|
|
152,600
|
(d)
|
H&E Equipment Services Inc., Senior Notes
|
|
7.000
|
%
|
9/1/22
|
|
130,000
|
|
139,100
|
(d)
|
UR Financing Escrow Corp., Senior Notes
|
|
7.625
|
%
|
4/15/22
|
|
250,000
|
|
280,625
|
(d)
|
Total Trading Companies & Distributors
|
|
|
|
|
|
|
|
572,325
|
|
Transportation 1.2%
|
|
|
|
|
|
|
|
|
|
CMA CGM, Senior Notes
|
|
8.500
|
%
|
4/15/17
|
|
280,000
|
|
226,100
|
(d)
|
Hapag-Lloyd AG, Senior Notes
|
|
9.750
|
%
|
10/15/17
|
|
100,000
|
|
101,500
|
(d)
|
Syncreon Global Ireland Ltd./Syncreon Global Finance US Inc., Senior Notes
|
|
9.500
|
%
|
5/1/18
|
|
280,000
|
|
292,600
|
(d)
|
Syncreon Global Ireland Ltd./Syncreon Global Finance US Inc., Senior Notes
|
|
9.500
|
%
|
5/1/18
|
|
20,000
|
|
20,900
|
(d)
|
Total Transportation
|
|
|
|
|
|
|
|
641,100
|
|
Transportation Infrastructure 0.3%
|
|
|
|
|
|
|
|
|
|
Aguila 3 SA, Senior Secured Notes
|
|
7.875
|
%
|
1/31/18
|
|
150,000
|
|
159,750
|
(d)
|
Total Industrials
|
|
|
|
|
|
|
|
8,301,179
|
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
19
|
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Information Technology 2.2%
|
|
|
|
|
|
|
|
|
|
Communications Equipment 0.2%
|
|
|
|
|
|
|
|
|
|
CyrusOne LP/CyrusOne Finance Corp., Senior Notes
|
|
6.375
|
%
|
11/15/22
|
|
110,000
|
|
$
115,225
|
(d)
|
Computers & Peripherals 0.5%
|
|
|
|
|
|
|
|
|
|
Hewlett-Packard Co., Senior Notes
|
|
4.650
|
%
|
12/9/21
|
|
250,000
|
|
251,428
|
|
Electronic Equipment, Instruments & Components 0.2%
|
|
|
|
|
|
|
|
NXP BV/NXP Funding LLC, Senior Secured Notes
|
|
9.750
|
%
|
8/1/18
|
|
100,000
|
|
116,375
|
(d)
|
Internet Software & Services 0.2%
|
|
|
|
|
|
|
|
|
|
Zayo Group LLC/Zayo Capital Inc., Senior Secured Notes
|
|
8.125
|
%
|
1/1/20
|
|
90,000
|
|
100,575
|
|
IT Services 0.8%
|
|
|
|
|
|
|
|
|
|
First Data Corp., Senior Notes
|
|
10.550
|
%
|
9/24/15
|
|
342,872
|
|
352,729
|
|
First Data Corp., Senior Secured Notes
|
|
6.750
|
%
|
11/1/20
|
|
50,000
|
|
50,750
|
(d)
|
Total IT Services
|
|
|
|
|
|
|
|
403,479
|
|
Semiconductors & Semiconductor Equipment 0.2%
|
|
|
|
|
|
|
|
|
|
Advanced Micro Devices Inc., Senior Notes
|
|
7.500
|
%
|
8/15/22
|
|
30,000
|
|
24,825
|
(d)
|
Freescale Semiconductor Inc., Senior Subordinated Notes
|
|
10.125
|
%
|
12/15/16
|
|
66,000
|
|
68,145
|
|
Total Semiconductors & Semiconductor Equipment
|
|
|
|
|
|
|
|
92,970
|
|
Software 0.1%
|
|
|
|
|
|
|
|
|
|
Legend Acquisition Sub Inc., Senior Notes
|
|
10.750
|
%
|
8/15/20
|
|
50,000
|
|
45,750
|
(d)
|
Total Information Technology
|
|
|
|
|
|
|
|
1,125,802
|
|
Materials 10.6%
|
|
|
|
|
|
|
|
|
|
Chemicals 0.5%
|
|
|
|
|
|
|
|
|
|
Georgia Gulf Corp., Senior Secured Notes
|
|
9.000
|
%
|
1/15/17
|
|
18,000
|
|
20,115
|
(d)
|
Ineos Finance PLC, Senior Secured Notes
|
|
9.000
|
%
|
5/15/15
|
|
100,000
|
|
106,750
|
(d)
|
Kerling PLC, Senior Secured Notes
|
|
10.625
|
%
|
2/1/17
|
|
93,000
|
EUR
|
118,152
|
(d)
|
Total Chemicals
|
|
|
|
|
|
|
|
245,017
|
|
Construction Materials 0.3%
|
|
|
|
|
|
|
|
|
|
Cemex SAB de CV, Senior Secured Notes
|
|
9.000
|
%
|
1/11/18
|
|
140,000
|
|
152,250
|
(d)
|
Containers & Packaging 3.1%
|
|
|
|
|
|
|
|
|
|
Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc., Senior Notes
|
|
9.125
|
%
|
10/15/20
|
|
400,000
|
|
436,000
|
(d)
|
Beverage Packaging Holdings Luxembourg II SA, Senior Secured Notes
|
|
9.500
|
%
|
6/15/17
|
|
180,000
|
EUR
|
248,283
|
(d)
|
Longview Fibre Paper & Packaging Inc., Senior Secured Notes
|
|
8.000
|
%
|
6/1/16
|
|
120,000
|
|
126,600
|
(d)
|
Pretium Packaging LLC/Pretium Finance Inc., Senior Secured Notes
|
|
11.500
|
%
|
4/1/16
|
|
220,000
|
|
227,975
|
|
Reynolds Group Issuer Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer (Luxembourg) SA, Senior Notes
|
|
9.000
|
%
|
4/15/19
|
|
310,000
|
|
323,950
|
|
See Notes to Financial Statements.
20
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Containers & Packaging continued
|
|
|
|
|
|
|
|
|
|
Viskase Cos. Inc., Senior Secured Notes
|
|
9.875
|
%
|
1/15/18
|
|
210,000
|
|
$ 215,250
|
(d)
|
Total Containers & Packaging
|
|
|
|
|
|
|
|
1,578,058
|
|
Metals & Mining 5.9%
|
|
|
|
|
|
|
|
|
|
ArcelorMittal, Senior Notes
|
|
6.000
|
%
|
3/1/21
|
|
200,000
|
|
199,745
|
|
Cliffs Natural Resources Inc., Senior Notes
|
|
5.900
|
%
|
3/15/20
|
|
150,000
|
|
159,735
|
|
Cliffs Natural Resources Inc., Senior Notes
|
|
4.800
|
%
|
10/1/20
|
|
10,000
|
|
9,954
|
|
Evraz Group SA, Notes
|
|
9.500
|
%
|
4/24/18
|
|
100,000
|
|
114,500
|
(d)
|
Evraz Group SA, Senior Notes
|
|
9.500
|
%
|
4/24/18
|
|
100,000
|
|
114,500
|
(d)
|
FMG Resources (August 2006) Pty Ltd., Senior Notes
|
|
7.000
|
%
|
11/1/15
|
|
50,000
|
|
52,750
|
(d)
|
FMG Resources (August 2006) Pty Ltd., Senior Notes
|
|
8.250
|
%
|
11/1/19
|
|
210,000
|
|
224,700
|
(d)
|
JW Aluminum Co., Senior Secured Notes
|
|
11.500
|
%
|
11/15/17
|
|
160,000
|
|
156,000
|
(d)
|
Midwest Vanadium Pty Ltd., Senior Secured Notes
|
|
11.500
|
%
|
2/15/18
|
|
360,000
|
|
214,200
|
(c)(d)
|
Mirabela Nickel Ltd., Senior Notes
|
|
8.750
|
%
|
4/15/18
|
|
80,000
|
|
69,200
|
(d)
|
Molycorp Inc., Senior Secured Notes
|
|
10.000
|
%
|
6/1/20
|
|
130,000
|
|
121,550
|
(d)
|
Novelis Inc., Senior Notes
|
|
8.750
|
%
|
12/15/20
|
|
20,000
|
|
22,400
|
|
Optima Specialty Steel Inc., Senior Secured Notes
|
|
12.500
|
%
|
12/15/16
|
|
110,000
|
|
115,225
|
(d)
|
Prince Mineral Holding Corp., Senior Secured Notes
|
|
11.500
|
%
|
12/15/19
|
|
70,000
|
|
72,800
|
(d)
|
Rain CII Carbon LLC/CII Carbon Corp., Senior Secured Notes
|
|
8.250
|
%
|
1/15/21
|
|
200,000
|
|
205,500
|
(d)
|
Ryerson Inc./Joseph T Ryerson & Son Inc., Senior Notes
|
|
11.250
|
%
|
10/15/18
|
|
50,000
|
|
46,188
|
(d)
|
Ryerson Inc./Joseph T Ryerson & Son Inc., Senior Secured Notes
|
|
9.000
|
%
|
10/15/17
|
|
200,000
|
|
204,750
|
(d)
|
Steel Dynamics Inc., Senior Notes
|
|
6.125
|
%
|
8/15/19
|
|
60,000
|
|
63,900
|
(d)
|
Tempel Steel Co., Senior Secured Notes
|
|
12.000
|
%
|
8/15/16
|
|
90,000
|
|
82,575
|
(d)
|
Thompson Creek Metals Co. Inc., Senior Notes
|
|
12.500
|
%
|
5/1/19
|
|
150,000
|
|
145,500
|
|
Thompson Creek Metals Co. Inc., Senior Secured Notes
|
|
9.750
|
%
|
12/1/17
|
|
120,000
|
|
127,800
|
|
Vale Overseas Ltd., Notes
|
|
8.250
|
%
|
1/17/34
|
|
62,000
|
|
85,411
|
|
Vale Overseas Ltd., Notes
|
|
6.875
|
%
|
11/21/36
|
|
68,000
|
|
84,631
|
|
Vedanta Resources PLC, Senior Notes
|
|
8.750
|
%
|
1/15/14
|
|
100,000
|
|
105,500
|
(d)
|
Vedanta Resources PLC, Senior Notes
|
|
6.750
|
%
|
6/7/16
|
|
200,000
|
|
211,500
|
(d)
|
Total Metals & Mining
|
|
|
|
|
|
|
|
3,010,514
|
|
Paper & Forest Products 0.8%
|
|
|
|
|
|
|
|
|
|
Appleton Papers Inc., Senior Secured Notes
|
|
10.500
|
%
|
6/15/15
|
|
90,000
|
|
95,850
|
(d)
|
Appleton Papers Inc., Senior Secured Notes
|
|
11.250
|
%
|
12/15/15
|
|
176,000
|
|
190,960
|
|
Verso Paper Holdings LLC/Verso Paper Inc., Senior Secured Notes
|
|
11.750
|
%
|
1/15/19
|
|
90,000
|
|
94,950
|
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
21
|
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Paper & Forest Products continued
|
|
|
|
|
|
|
|
|
|
Verso Paper Holdings LLC/Verso Paper Inc., Senior Secured Notes
|
|
11.750
|
%
|
1/15/19
|
|
28,000
|
|
$ 20,020
|
|
Verso Paper Holdings LLC/Verso Paper Inc., Senior Subordinated Notes
|
|
11.375
|
%
|
8/1/16
|
|
36,000
|
|
14,580
|
|
Total Paper & Forest Products
|
|
|
|
|
|
|
|
416,360
|
|
Total Materials
|
|
|
|
|
|
|
|
5,402,199
|
|
Telecommunication Services 8.3%
|
|
|
|
|
|
|
|
|
|
Diversified Telecommunication Services 4.7%
|
|
|
|
|
|
|
|
|
|
Axtel SAB de CV, Senior Notes
|
|
7.625
|
%
|
2/1/17
|
|
250,000
|
|
136,250
|
(c)(d)
|
Axtel SAB de CV, Senior Notes
|
|
9.000
|
%
|
9/22/19
|
|
8,000
|
|
4,440
|
(d)
|
Cogent Communications Group Inc., Senior Secured Notes
|
|
8.375
|
%
|
2/15/18
|
|
130,000
|
|
143,325
|
(d)
|
Intelsat Jackson Holdings SA, Senior Notes
|
|
7.250
|
%
|
10/15/20
|
|
200,000
|
|
218,250
|
|
Intelsat Jackson Holdings SA, Senior Notes
|
|
7.500
|
%
|
4/1/21
|
|
60,000
|
|
66,450
|
|
Intelsat Luxembourg SA, Senior Notes
|
|
11.250
|
%
|
2/4/17
|
|
300,000
|
|
318,375
|
|
Level 3 Financing Inc., Senior Notes
|
|
8.625
|
%
|
7/15/20
|
|
150,000
|
|
167,062
|
|
TW Telecom Holdings Inc., Senior Notes
|
|
8.000
|
%
|
3/1/18
|
|
170,000
|
|
187,000
|
|
TW Telecom Holdings Inc., Senior Notes
|
|
5.375
|
%
|
10/1/22
|
|
30,000
|
|
31,538
|
(d)
|
UBS Luxembourg SA for OJSC Vimpel Communications, Loan Participation Notes
|
|
8.250
|
%
|
5/23/16
|
|
130,000
|
|
147,069
|
(d)
|
Vimpel Communications, Loan Participation Notes
|
|
8.375
|
%
|
4/30/13
|
|
100,000
|
|
102,480
|
(d)
|
West Corp., Senior Notes
|
|
8.625
|
%
|
10/1/18
|
|
150,000
|
|
157,875
|
|
Wind Acquisition Finance SA, Senior Notes
|
|
11.750
|
%
|
7/15/17
|
|
130,000
|
|
136,825
|
(d)
|
Wind Acquisition Holdings Finance SpA, Senior Notes
|
|
12.250
|
%
|
7/15/17
|
|
350,212
|
|
358,967
|
(d)(e)
|
Windstream Corp., Senior Notes
|
|
7.500
|
%
|
4/1/23
|
|
200,000
|
|
211,500
|
|
Total Diversified Telecommunication Services
|
|
|
|
|
|
|
|
2,387,406
|
|
Wireless Telecommunication Services 3.6%
|
|
|
|
|
|
|
|
|
|
MetroPCS Wireless Inc., Senior Notes
|
|
7.875
|
%
|
9/1/18
|
|
20,000
|
|
21,750
|
|
MetroPCS Wireless Inc., Senior Notes
|
|
6.625
|
%
|
11/15/20
|
|
140,000
|
|
149,275
|
|
Sprint Capital Corp., Senior Notes
|
|
6.875
|
%
|
11/15/28
|
|
220,000
|
|
229,900
|
|
Sprint Capital Corp., Senior Notes
|
|
8.750
|
%
|
3/15/32
|
|
480,000
|
|
589,200
|
|
Sprint Nextel Corp.
|
|
6.000
|
%
|
12/1/16
|
|
20,000
|
|
21,850
|
|
Sprint Nextel Corp., Senior Notes
|
|
9.000
|
%
|
11/15/18
|
|
300,000
|
|
371,250
|
(d)
|
Sprint Nextel Corp., Senior Notes
|
|
6.000
|
%
|
11/15/22
|
|
40,000
|
|
41,300
|
|
Syniverse Holdings Inc., Senior Notes
|
|
9.125
|
%
|
1/15/19
|
|
155,000
|
|
166,238
|
|
VimpelCom Holdings BV, Senior Notes
|
|
7.504
|
%
|
3/1/22
|
|
200,000
|
|
229,750
|
(d)
|
Total Wireless Telecommunication Services
|
|
|
|
|
|
|
|
1,820,513
|
|
Total Telecommunication Services
|
|
|
|
|
|
|
|
4,207,919
|
|
See Notes to Financial Statements.
22
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Utilities 6.0%
|
|
|
|
|
|
|
|
|
|
Electric Utilities 1.9%
|
|
|
|
|
|
|
|
|
|
AES Red Oak LLC, Secured Notes
|
|
9.200
|
%
|
11/30/29
|
|
280,000
|
|
$ 310,800
|
|
GenOn REMA LLC, Pass-Through Certificates
|
|
9.237
|
%
|
7/2/17
|
|
105,021
|
|
115,786
|
|
GenOn REMA LLC, Pass-Through Certificates
|
|
9.681
|
%
|
7/2/26
|
|
440,000
|
|
473,000
|
|
Midwest Generation LLC, Pass-Through Certificates
|
|
8.560
|
%
|
1/2/16
|
|
84,860
|
|
82,315
|
(k)
|
Total Electric Utilities
|
|
|
|
|
|
|
|
981,901
|
|
Gas Utilities 0.3%
|
|
|
|
|
|
|
|
|
|
Suburban Propane Partners LP/Suburban Energy Finance Corp., Senior Notes
|
|
7.375
|
%
|
3/15/20
|
|
120,000
|
|
130,500
|
|
Independent Power Producers & Energy Traders 3.8%
|
|
|
|
|
|
|
|
|
|
Atlantic Power Corp., Senior Notes
|
|
9.000
|
%
|
11/15/18
|
|
110,000
|
|
115,500
|
|
Calpine Corp., Senior Secured Notes
|
|
7.875
|
%
|
7/31/20
|
|
18,000
|
|
20,295
|
(d)
|
Calpine Corp., Senior Secured Notes
|
|
7.875
|
%
|
1/15/23
|
|
162,000
|
|
183,870
|
(d)
|
Colbun SA, Senior Notes
|
|
6.000
|
%
|
1/21/20
|
|
100,000
|
|
111,731
|
(d)
|
Dynegy Inc., Bonds
|
|
7.670
|
%
|
11/8/16
|
|
160,000
|
|
4,000
|
(a)(g)
|
Energy Future Intermediate Holding Co. LLC/EFIH Finance Inc., Secured Notes
|
|
11.750
|
%
|
3/1/22
|
|
270,000
|
|
301,050
|
(d)
|
Energy Future Intermediate Holding Co. LLC/EFIH Finance Inc., Senior Secured Notes
|
|
6.875
|
%
|
8/15/17
|
|
150,000
|
|
160,500
|
(d)
|
Energy Future Intermediate Holding Co. LLC/EFIH Finance Inc., Senior Secured Notes
|
|
10.000
|
%
|
12/1/20
|
|
125,000
|
|
141,563
|
|
First Wind Holdings Inc., Senior Secured Notes
|
|
10.250
|
%
|
6/1/18
|
|
170,000
|
|
175,525
|
(d)
|
Foresight Energy LLC/Foresight Energy Corp., Senior Notes
|
|
9.625
|
%
|
8/15/17
|
|
340,000
|
|
365,500
|
(d)
|
Mirant Americas Generation LLC, Senior Notes
|
|
9.125
|
%
|
5/1/31
|
|
290,000
|
|
320,450
|
|
Mirant Mid Atlantic LLC, Pass-Through Certificates
|
|
10.060
|
%
|
12/30/28
|
|
48,715
|
|
55,169
|
|
Total Independent Power Producers & Energy Traders
|
|
|
|
|
|
1,955,153
|
|
Total Utilities
|
|
|
|
|
|
|
|
3,067,554
|
|
Total Corporate Bonds & Notes (Cost $41,484,348)
|
|
|
|
|
|
|
|
43,948,266
|
|
Collateralized Senior Loans 2.2%
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 1.0%
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure 1.0%
|
|
|
|
|
|
|
|
|
|
El Pollo Loco Inc., First Lien Term Loan
|
|
9.250
|
%
|
7/14/17
|
|
118,200
|
|
123,224
|
(i)
|
Equinox Fitness Clubs, 2nd Lien Term Loan
|
|
0.000
|
%
|
5/16/20
|
|
120,000
|
|
120,600
|
(i)
|
Stockbridge/SBE Holdings LLC, Term Loan B
|
|
13.000
|
%
|
5/2/17
|
|
250,000
|
|
249,687
|
(i)
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
493,511
|
|
Consumer Staples 0.1%
|
|
|
|
|
|
|
|
|
|
Food Products 0.1%
|
|
|
|
|
|
|
|
|
|
AdvancePierre Foods Inc., 2nd Lien Term Loan
|
|
9.500
|
%
|
10/10/17
|
|
50,000
|
|
51,250
|
(i)
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
23
|
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Energy 0.2%
|
|
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 0.2%
|
|
|
|
|
|
|
|
|
|
Chesapeake Energy Corp., New Term Loan
|
|
5.750
|
%
|
12/1/17
|
|
90,000
|
|
$
90,287
|
(i)
|
Industrials 0.5%
|
|
|
|
|
|
|
|
|
|
Machinery 0.4%
|
|
|
|
|
|
|
|
|
|
Intelligrated Inc., Second Lien Term Loan
|
|
10.500
|
%
|
12/31/19
|
|
210,000
|
|
213,938
|
(i)
|
Marine 0.1%
|
|
|
|
|
|
|
|
|
|
Trico Shipping AS, New Term Loan A
|
|
10.000
|
%
|
5/13/14
|
|
19,739
|
|
19,739
|
(c)(i)
|
Trico Shipping AS, New Term Loan B
|
|
|
|
5/13/14
|
|
34,754
|
|
34,754
|
(c)(j)
|
Total Marine
|
|
|
|
|
|
|
|
54,493
|
|
Total Industrials
|
|
|
|
|
|
|
|
268,431
|
|
Information Technology 0.2%
|
|
|
|
|
|
|
|
|
|
IT Services 0.2%
|
|
|
|
|
|
|
|
|
|
CompuCom Systems Inc., 2nd Lien Term Loan
|
|
10.250
|
%
|
10/2/19
|
|
120,000
|
|
119,700
|
(i)
|
Materials 0.2%
|
|
|
|
|
|
|
|
|
|
Chemicals 0.2%
|
|
|
|
|
|
|
|
|
|
Kronos Inc., 2nd Lien New Term Loan
|
|
9.750
|
%
|
4/30/20
|
|
90,000
|
|
90,450
|
(i)
|
Total Collateralized Senior Loans (Cost $1,075,968)
|
|
|
|
|
|
|
|
1,113,629
|
|
Convertible Bonds & Notes 0.1%
|
|
|
|
|
|
|
|
|
|
Materials 0.1%
|
|
|
|
|
|
|
|
|
|
Chemicals 0.1%
|
|
|
|
|
|
|
|
|
|
Hercules Inc. (Cost $34,426)
|
|
6.500
|
%
|
6/30/29
|
|
40,000
|
|
33,475
|
|
Sovereign Bonds 4.2%
|
|
|
|
|
|
|
|
|
|
Argentina 0.7%
|
|
|
|
|
|
|
|
|
|
Republic of Argentina, Senior Bonds
|
|
7.000
|
%
|
9/12/13
|
|
358,000
|
|
355,617
|
|
Brazil 0.5%
|
|
|
|
|
|
|
|
|
|
Brazil Nota do Tesouro Nacional, Notes
|
|
10.000
|
%
|
1/1/14
|
|
43,000
|
BRL
|
21,569
|
|
Brazil Nota do Tesouro Nacional, Notes
|
|
10.000
|
%
|
1/1/17
|
|
472,000
|
BRL
|
243,288
|
|
Brazil Nota do Tesouro Nacional, Notes
|
|
10.000
|
%
|
1/1/21
|
|
24,000
|
BRL
|
12,376
|
|
Total Brazil
|
|
|
|
|
|
|
|
277,233
|
|
Colombia 0.3%
|
|
|
|
|
|
|
|
|
|
Republic of Colombia, Senior Notes
|
|
7.375
|
%
|
3/18/19
|
|
100,000
|
|
131,950
|
|
Indonesia 0.3%
|
|
|
|
|
|
|
|
|
|
Republic of Indonesia, Senior Bonds
|
|
10.250
|
%
|
7/15/22
|
|
537,000,000
|
IDR
|
75,978
|
|
Republic of Indonesia, Senior Bonds
|
|
9.750
|
%
|
5/15/37
|
|
408,000,000
|
IDR
|
59,935
|
|
Total Indonesia
|
|
|
|
|
|
|
|
135,913
|
|
Peru 0.2%
|
|
|
|
|
|
|
|
|
|
Republic of Peru, Bonds
|
|
7.840
|
%
|
8/12/20
|
|
192,000
|
PEN
|
94,988
|
|
Russia 0.3%
|
|
|
|
|
|
|
|
|
|
RSHB Capital, Loan Participation Notes, Senior Secured Bonds
|
|
6.299
|
%
|
5/15/17
|
|
140,000
|
|
155,400
|
(d)
|
See Notes to Financial Statements.
24
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Turkey 1.0%
|
|
|
|
|
|
|
|
|
|
Republic of Turkey, Senior Notes
|
|
7.000
|
%
|
6/5/20
|
|
12,000
|
|
$ 15,330
|
|
Republic of Turkey, Senior Notes
|
|
6.875
|
%
|
3/17/36
|
|
377,000
|
|
510,364
|
|
Total Turkey
|
|
|
|
|
|
|
|
525,694
|
|
Venezuela 0.9%
|
|
|
|
|
|
|
|
|
|
Bolivarian Republic of Venezuela
|
|
5.750
|
%
|
2/26/16
|
|
386,000
|
|
369,595
|
(d)
|
Bolivarian Republic of Venezuela
|
|
7.650
|
%
|
4/21/25
|
|
16,000
|
|
14,160
|
|
Bolivarian Republic of Venezuela, Collective Action Securities, Global Senior Bonds
|
|
9.375
|
%
|
1/13/34
|
|
53,000
|
|
52,735
|
|
Bolivarian Republic of Venezuela, Collective Action Securities, Notes
|
|
10.750
|
%
|
9/19/13
|
|
28,000
|
|
28,910
|
|
Bolivarian Republic of Venezuela, Global Senior Bonds
|
|
8.500
|
%
|
10/8/14
|
|
12,000
|
|
12,336
|
|
Total Venezuela
|
|
|
|
|
|
|
|
477,736
|
|
Total Sovereign Bonds (Cost $1,958,200)
|
|
|
|
|
|
|
|
2,154,531
|
|
|
|
Shares
|
|
|
|
Common Stocks 3.6%
|
|
|
|
|
|
Consumer Discretionary 0.5%
|
|
|
|
|
|
Hotels, Restaurants & Leisure 0.0%
|
|
|
|
|
|
Bossier Casino Venture Holdco Inc.
|
|
8,531
|
|
17,062
|
*
(a)(c)
|
Media 0.5%
|
|
|
|
|
|
Charter Communications Inc., Class A Shares
|
|
3,345
|
|
255,023
|
*
|
Total Consumer Discretionary
|
|
|
|
272,085
|
|
Energy 0.6%
|
|
|
|
|
|
Energy Equipment & Services 0.6%
|
|
|
|
|
|
KCAD Holdings I Ltd.
|
|
23,996,707
|
|
287,433
|
*
(a)(c)
|
Financials 1.9%
|
|
|
|
|
|
Diversified Financial Services 0.4%
|
|
|
|
|
|
Citigroup Inc.
|
|
5,585
|
|
220,934
|
|
Real Estate Management & Development 1.5%
|
|
|
|
|
|
Realogy Holdings Corp.
|
|
18,440
|
|
749,494
|
(a)(c)
|
Total Financials
|
|
|
|
970,428
|
|
Industrials 0.6%
|
|
|
|
|
|
Building Products 0.0%
|
|
|
|
|
|
Nortek Inc.
|
|
71
|
|
4,704
|
*
|
Marine 0.6%
|
|
|
|
|
|
DeepOcean Group Holding AS
|
|
9,303
|
|
188,596
|
*
(a)(c)
|
Horizon Lines Inc., Class A Shares
|
|
72,502
|
|
108,753
|
*
|
Total Marine
|
|
|
|
297,349
|
|
Total Industrials
|
|
|
|
302,053
|
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
25
|
Western Asset High Income Fund Inc.
Security
|
|
|
|
|
|
Shares
|
|
Value
|
|
Utilities 0.0%
|
|
|
|
|
|
|
|
|
|
Independent Power Producers & Energy Traders 0.0%
|
|
|
|
|
|
|
|
|
|
Dynegy Inc.
|
|
|
|
|
|
633
|
|
$ 12,109
|
*
|
Total Common Stocks (Cost $1,499,370)
|
|
|
|
|
|
|
|
1,844,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
|
|
|
|
|
|
|
|
Preferred Stocks 1.5%
|
|
|
|
|
|
|
|
|
|
Financials 1.4%
|
|
|
|
|
|
|
|
|
|
Capital Markets 0.1%
|
|
|
|
|
|
|
|
|
|
Goldman Sachs Group Inc.
|
|
5.950
|
%
|
|
|
2,285
|
|
57,079
|
*
|
Consumer Finance 0.9%
|
|
|
|
|
|
|
|
|
|
GMAC Capital Trust I
|
|
8.125
|
%
|
|
|
17,381
|
|
463,204
|
(f)
|
Diversified Financial Services 0.4%
|
|
|
|
|
|
|
|
|
|
Citigroup Capital XIII
|
|
7.875
|
%
|
|
|
7,225
|
|
201,578
|
(f)
|
Total Financials
|
|
|
|
|
|
|
|
721,861
|
|
Industrials 0.1%
|
|
|
|
|
|
|
|
|
|
Road & Rail 0.1%
|
|
|
|
|
|
|
|
|
|
Jack Cooper Holdings Corp.
|
|
20.000
|
%
|
|
|
434
|
|
47,740
|
(a)(d)(f)
|
Total Preferred Stocks (Cost $698,443)
|
|
|
|
|
|
|
|
769,601
|
|
|
|
|
|
Expiration
Date
|
|
Notional
Amount
|
|
|
|
Purchased Options 0.1%
|
|
|
|
|
|
|
|
|
|
Credit default swaption with BNP Paribas to buy protection on Markit CDX.NA.HY.19 Index, Put @ $99.00
|
|
|
|
2/20/13
|
|
2,200,000
|
|
29,018
|
|
Credit default swaption with Credit Suisse First Boston Inc. to buy protection on Markit CDX.NA.HY.19 Index, Put @ $100.00
|
|
|
|
3/20/13
|
|
1,260,000
|
|
29,298
|
|
Total Purchased Options (Cost $39,172)
|
|
|
|
|
|
|
|
58,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
Warrants 0.1%
|
|
|
|
|
|
|
|
|
|
Charter Communications Inc.
|
|
|
|
11/30/14
|
|
209
|
|
5,695
|
*
|
Jack Cooper Holdings Corp.
|
|
|
|
12/15/17
|
|
210
|
|
26,145
|
*
|
Jack Cooper Holdings Corp.
|
|
|
|
5/6/18
|
|
97
|
|
12,077
|
*
|
SemGroup Corp.
|
|
|
|
11/30/14
|
|
912
|
|
13,479
|
*
(c)
|
Total Warrants (Cost $5,721)
|
|
|
|
|
|
|
|
57,396
|
|
Total Investments 98.1% (Cost $46,795,648#)
|
|
|
|
|
|
|
|
49,979,322
|
|
Other Assets in Excess of Liabilities 1.9%
|
|
|
|
|
|
|
|
944,649
|
|
Total Net Assets 100.0%
|
|
|
|
|
|
|
|
$50,923,971
|
|
See Notes to Financial Statements.
26
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Schedule of investments (contd)
December 31, 2012
Western Asset High Income Fund Inc.
Face amount/notional amount denominated in U.S. dollars, unless otherwise noted.
*
Non-income producing security.
(a)
Security is valued in good faith in accordance with procedures approved by the Board of Directors (See Note 1).
(b)
Value is less than $1.
(c)
Illiquid security (unaudited).
(d)
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 Directors, unless otherwise noted.
(e)
Payment-in-kind security for which part of the income earned may be paid as additional principal.
(f)
Variable rate security. Interest rate disclosed is as of the most recent information available.
(g)
The coupon payment on these securities is currently in default as of December 31, 2012.
(h)
Security has no maturity date. The date shown represents the next call date.
(i)
Interest rates disclosed represent the effective rates on collateralized senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan.
(j)
All or a portion of this loan is unfunded as of December 31, 2012. The interest rate for fully unfunded term loans is to be determined.
(k)
The issuer filed for bankruptcy.
#
Aggregate cost for federal income tax purposes is $46,871,567.
Abbreviations used in this schedule:
BRL
Brazilian Real
EUR
Euro
GDP
Gross Domestic Product
IDR
Indonesian Rupiah
OJSC
Open Joint Stock Company
PEN
Peruvian Nuevo Sol
Schedule of Written Options
Security
|
|
Expiration
Date
|
|
Strike
Price
|
|
Notional
Amount
|
|
Value
|
|
Credit default swaption with BNP Paribas to buy protection on Markit CDX.NA.HY.19 Index, Call
|
|
2/20/13
|
|
$102.50
|
|
1,100,000
|
|
$ 4,096
|
|
Credit default swaption with BNP Paribas to sell protection on Markit CDX.NA.HY.19 Index, Put
|
|
2/20/13
|
|
96.00
|
|
2,200,000
|
|
14,275
|
|
Credit default swaption with Credit Suisse First Boston Inc. to sell protection on Markit CDX.NA.HY.19 Index, Put
|
|
3/20/13
|
|
96.50
|
|
2,520,000
|
|
29,636
|
|
Total Written Options (Premiums received $32,192)
|
|
|
|
|
|
|
|
$48,007
|
|
Notional amount denominated in U.S. dollars, unless otherwise noted.
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
27
|
Statement of assets and liabilities
December 31, 2012
Assets:
|
|
|
|
Investments, at value (Cost $46,795,648)
|
|
$49,979,322
|
|
Foreign currency, at value (Cost $5,800)
|
|
5,818
|
|
Cash
|
|
304,589
|
|
Interest receivable
|
|
1,002,930
|
|
Receivable for securities sold
|
|
14,226
|
|
Prepaid expenses
|
|
10,028
|
|
Total Assets
|
|
51,316,913
|
|
|
|
|
|
Liabilities:
|
|
|
|
Payable for securities purchased
|
|
145,403
|
|
Written options, at value (premiums received $32,192)
|
|
48,007
|
|
Unrealized depreciation on forward foreign currency contracts
|
|
32,021
|
|
Investment management fee payable
|
|
29,978
|
|
Swaps, at value (net premiums received $29,044)
|
|
28,953
|
|
Accrued foreign capital gains tax
|
|
3,308
|
|
Payable for open swap contracts
|
|
2,556
|
|
Accrued expenses
|
|
102,716
|
|
Total Liabilities
|
|
392,942
|
|
Total Net Assets
|
|
$50,923,971
|
|
|
|
|
|
Net Assets:
|
|
|
|
Par value ($0.001 par value; 5,268,336 shares issued and outstanding; 100,000,000 shares authorized)
|
|
$ 5,268
|
|
Paid-in capital in excess of par value
|
|
57,264,810
|
|
Overdistributed net investment income
|
|
(81,167)
|
|
Accumulated net realized loss on investments, futures contracts, written options, swap contracts and foreign currency transactions
|
|
(9,340,312)
|
|
Net unrealized appreciation on investments, written options, swap contracts and foreign currencies
|
|
3,075,372
|
|
Total Net Assets
|
|
$50,923,971
|
|
|
|
|
|
Shares Outstanding
|
|
5,268,336
|
|
|
|
|
|
Net Asset Value
|
|
$9.67
|
|
See Notes to Financial Statements.
28
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
Statement of operations
For the Year Ended December 31, 2012
Investment Income:
|
|
|
|
Interest
|
|
$4,295,329
|
|
Dividends
|
|
79,957
|
|
Less: Foreign taxes withheld
|
|
(2,938)
|
|
Total Investment Income
|
|
4,372,348
|
|
|
|
|
|
Expenses:
|
|
|
|
Investment management fee (Note 2)
|
|
342,342
|
|
Audit and tax
|
|
75,250
|
|
Transfer agent fees
|
|
48,411
|
|
Shareholder reports
|
|
37,253
|
|
Stock exchange listing fees
|
|
17,851
|
|
Legal fees
|
|
13,029
|
|
Directors fees
|
|
8,083
|
|
Custody fees
|
|
4,905
|
|
Fund accounting fees
|
|
4,653
|
|
Insurance
|
|
1,974
|
|
Miscellaneous expenses
|
|
10,034
|
|
Total Expenses
|
|
563,785
|
|
Net Investment Income
|
|
3,808,563
|
|
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
|
|
|
|
Net Realized Gain (Loss) From:
|
|
|
|
Investment transactions
|
|
318,083
|
|
Futures contracts
|
|
(27,657)
|
|
Written options
|
|
183,988
|
|
Swap contracts
|
|
(193,196)
|
|
Foreign currency transactions
|
|
58,952
|
|
Net Realized Gain
|
|
340,170
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
|
Investments
|
|
4,052,629
|
|
Futures contracts
|
|
8,547
|
|
Written options
|
|
(15,815)
|
|
Swap contracts
|
|
(57,997)
|
|
Foreign currencies
|
|
(60,421)
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
|
3,926,943
|
|
Net Gain on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions
|
|
4,267,113
|
|
Increase in Net Assets from Operations
|
|
$8,075,676
|
|
See Notes to Financial Statements.
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
29
|
Statements of changes in net assets
For the years ended December 31,
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
Net investment income
|
|
$ 3,808,563
|
|
$ 3,834,390
|
|
Net realized gain (loss)
|
|
340,170
|
|
(154,339)
|
|
Change in net unrealized appreciation (depreciation)
|
|
3,926,943
|
|
(2,693,486)
|
|
Increase in Net Assets From Operations
|
|
8,075,676
|
|
986,565
|
|
|
|
|
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
|
|
Net investment income
|
|
(3,832,326)
|
|
(4,438,049)
|
|
Decrease in Net Assets From Distributions to Shareholders
|
|
(3,832,326)
|
|
(4,438,049)
|
|
|
|
|
|
|
|
Fund Share Transactions:
|
|
|
|
|
|
Reinvestment of distributions (25,707 and 38,188 shares issued, respectively)
|
|
239,007
|
|
360,083
|
|
Increase in Net Assets From Fund Share Transactions
|
|
239,007
|
|
360,083
|
|
Increase (Decrease) in Net Assets
|
|
4,482,357
|
|
(3,091,401)
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
Beginning of year
|
|
46,441,614
|
|
49,533,015
|
|
End of year*
|
|
$50,923,971
|
|
$46,441,614
|
|
* Includes overdistributed net investment income of:
|
|
$(81,167)
|
|
$(70,236)
|
|
See Notes to Financial Statements.
30
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Financial highlights
For a share of capital stock outstanding throughout each year ended December 31:
|
|
2012
1
|
|
2011
1
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$8.86
|
|
$9.52
|
|
$9.07
|
|
$6.41
|
|
$10.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
0.72
|
|
0.73
|
|
0.81
|
|
0.90
|
|
0.86
|
|
Net realized and unrealized gain (loss)
|
|
0.82
|
|
(0.54)
|
|
0.54
|
|
2.64
|
|
(3.81)
|
|
Total income (loss) from operations
|
|
1.54
|
|
0.19
|
|
1.35
|
|
3.54
|
|
(2.95)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(0.73)
|
|
(0.85)
|
|
(0.90)
|
|
(0.88)
|
|
(0.83)
|
|
Total distributions
|
|
(0.73)
|
|
(0.85)
|
|
(0.90)
|
|
(0.88)
|
|
(0.83)
|
|
Net asset value, end of year
|
|
$9.67
|
|
$8.86
|
|
$9.52
|
|
$9.07
|
|
$6.41
|
|
Market price, end of year
|
|
$9.39
|
|
$8.93
|
|
$10.05
|
|
$9.23
|
|
$5.96
|
|
Total return, based on NAV
2,3
|
|
18.02
|
%
|
1.90
|
%
|
15.67
|
%
|
58.66
|
%
|
(30.63)
|
%
|
Total return, based on Market Price
4
|
|
13.67
|
%
|
(2.80)
|
%
|
19.79
|
%
|
73.50
|
%
|
(26.23)
|
%
|
Net assets, end of year (000s)
|
|
$50,924
|
|
$46,442
|
|
$49,533
|
|
$46,927
|
|
$32,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
1.15
|
%
|
1.11
|
%
|
1.16
|
%
|
1.31
|
%
|
1.22
|
%
|
Net expenses
5
|
|
1.15
|
|
1.11
|
|
1.16
|
|
1.31
|
|
1.22
|
|
Net investment income
|
|
7.78
|
|
7.84
|
|
8.75
|
|
11.76
|
|
9.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
60
|
%
|
58
|
%
|
92
|
%
|
78
|
%
|
46
|
%
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.
|
3
|
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results.
|
4
|
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no guarantee of future results.
|
5
|
The impact of compensating balance arrangements, if any, was less than 0.01%.
|
See Notes to Financial Statements.
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
31
|
Notes to financial statements
1. Organization and significant accounting policies
Western Asset High Income Fund Inc. (the Fund) was incorporated in Maryland and is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the 1940 Act). The Fund seeks to maintain a high level of current income by investing at least 80% of its net assets in high-yield debt securities issued by U.S. and foreign corporations and foreign governments. As a secondary objective, the Fund seeks capital appreciation.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation.
The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services 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. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investments fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund
32
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Funds Board of Directors.
The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the Valuation Committee). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Funds pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuers financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Directors, 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 Directors 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.
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
33
|
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
·
Level 1 quoted prices in active markets for identical investments
·
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
·
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Funds assets and liabilities carried at fair value:
ASSETS
|
Description
|
|
Quoted Prices
(Level 1)
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
Corporate bonds & notes
|
|
|
|
$43,536,704
|
|
$ 411,562
|
|
$43,948,266
|
|
Collateralized senior loans
|
|
|
|
1,113,629
|
|
|
|
1,113,629
|
|
Convertible bonds & notes
|
|
|
|
33,475
|
|
|
|
33,475
|
|
Sovereign bonds
|
|
|
|
2,154,531
|
|
|
|
2,154,531
|
|
Common stocks:
|
|
|
|
|
|
|
|
|
|
Consumer discretionary
|
|
$ 255,023
|
|
|
|
17,062
|
|
272,085
|
|
Energy
|
|
|
|
|
|
287,433
|
|
287,433
|
|
Financials
|
|
220,934
|
|
|
|
749,494
|
|
970,428
|
|
Industrials
|
|
113,457
|
|
|
|
188,596
|
|
302,053
|
|
Utilities
|
|
12,109
|
|
|
|
|
|
12,109
|
|
Preferred stocks:
|
|
|
|
|
|
|
|
|
|
Financials
|
|
721,861
|
|
|
|
|
|
721,861
|
|
Industrials
|
|
|
|
47,740
|
|
|
|
47,740
|
|
Purchased options
|
|
|
|
58,316
|
|
|
|
58,316
|
|
Warrants
|
|
|
|
57,396
|
|
|
|
57,396
|
|
Total investments
|
|
$1,323,384
|
|
$47,001,791
|
|
$1,654,147
|
|
$49,979,322
|
|
34
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
LIABILITIES
|
Description
|
|
Quoted Prices
(Level 1)
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Other financial instruments:
|
|
|
|
|
|
|
|
|
|
Written options
|
|
|
|
$ 48,007
|
|
|
|
$ 48,007
|
|
Forward foreign currency contracts
|
|
|
|
32,021
|
|
|
|
32,021
|
|
Credit default swaps on credit indices buy protection
|
|
|
|
28,953
|
|
|
|
28,953
|
|
Total
|
|
|
|
$108,981
|
|
|
|
$108,981
|
|
See Schedule of Investments for additional detailed categorizations.
Values include any premiums paid or received with respect to swap contracts.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
|
|
|
|
|
|
Common Stocks
|
|
Preferred
Stocks
|
|
|
|
|
|
Investments in
Securities
|
|
Corporate
Bonds &
Notes
|
|
Collateralized
Senior Loans
|
|
Consumer
Discretionary
|
|
Energy
|
|
Financials
|
|
Industrials
|
|
Industrials
|
|
Warrants
|
|
Total
|
|
Balance as of December 31, 2011
|
|
$ 578,591
|
|
$ 220,000
|
|
|
|
$206,218
|
|
|
|
$158,151
|
|
$ 43,400
|
|
$ 25,202
|
|
$1,231,562
|
|
Accrued premiums/ discounts
|
|
3,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,189
|
|
Realized gain (loss)
1
|
|
(217,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(217,767
|
)
|
Change in unrealized appreciation (depreciation)
2
|
|
235,532
|
|
|
|
|
|
65,073
|
|
$251,614
|
|
30,445
|
|
4,340
|
|
30,821
|
|
617,825
|
|
Purchases
|
|
251,634
|
|
|
|
$17,062
|
|
16,142
|
|
497,880
|
|
|
|
|
|
|
|
782,718
|
|
Sales
|
|
(195,792
|
)
|
(220,000)
|
|
|
|
|
|
|
|
|
|
|
|
(4,322
|
)
|
(420,114
|
)
|
Transfers into Level 3
3
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
Transfers out of Level 3
4
|
|
(247,825
|
)
|
|
|
|
|
|
|
|
|
|
|
(47,740
|
)
|
(51,701
|
)
|
(347,266
|
)
|
Balance as of December 31, 2012
|
|
$ 411,562
|
|
|
|
$17,062
|
|
$287,433
|
|
$749,494
|
|
$188,596
|
|
|
|
|
|
$1,654,147
|
|
Net change in unrealized appreciation (depreciation) for investments in securities still held at December 31, 2012
1
|
|
$ 14,429
|
|
|
|
|
|
$ 65,073
|
|
$251,614
|
|
$ 30,445
|
|
|
|
|
|
$ 361,561
|
|
|
The Funds policy is to recognize transfers between levels as of the end of the reporting period.
|
1
|
This amount is included in net realized gain (loss) from investment transactions in the accompanying Statement of Operations.
|
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
35
|
2
|
This amount is included in the change in net unrealized appreciation (depreciation) in the accompanying Statement of Operations. Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.
|
3
|
Transferred into Level 3 as a result of the unavailability of a quoted price in an active market for an identical investment or the unavailability of other significant observable inputs.
|
4
|
Transferred out of Level 3 as a result of the availability of a quoted price in an active market for an identical investment or the availability of other significant observable inputs.
|
The following table summarizes the valuation techniques used and unobservable inputs approved by the Valuation Committee to determine the fair value of certain, material Level 3 investments. The table does not include Level 3 investments with values derived utilizing prices from prior transactions or third party pricing information without adjustment (e.g., broker quotes, pricing services, net asset values).
|
|
Fair Value at
12/31/12
(000s)
|
|
Valuation
Technique(s)
|
|
Unobservable
Input(s)
|
|
Weighted
Average
|
|
Impact to
Valuation from
an Increase in
Input*
|
|
Equity Securities
|
|
$749
|
|
Market approach
|
|
Liquidity discount
|
|
2.6%
|
|
Decrease
|
|
*
|
This column represents the directional change in the fair value of the Level 3 investments that would result in an increase from the corresponding input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.
|
(b) Repurchase agreements.
The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Funds holding period. When entering into repurchase agreements, it is the Funds policy that its custodian or a third party custodian, acting on the Funds behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(c) Forward foreign currency contracts.
The Fund enters into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a
36
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it is closed.
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
(d) Futures contracts.
The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the initial margin and subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. The daily changes in contract value are recorded as unrealized gains or losses in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(e) Written options.
When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Funds basis in the underlying security (in the case of a covered written call option), or the cost
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
37
|
to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Funds basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(f) Swaptions.
The Fund purchases and writes swaption contracts to manage exposure to an underlying instrument. The Fund may also purchase or write options to manage exposure to fluctuations in interest rates or to enhance yield. Swaption contracts written by the Fund represent an option that gives the purchaser the right, but not the obligation, to enter into a previously agreed upon swap contract at a future date. Swaption contracts purchased by the Fund represent an option that gives the Fund the right, but not the obligation, to enter into a previously agreed upon swap contract at a future date.
When the Fund writes a swaption, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the swaption written. If the swaption expires, the Fund realizes a gain equal to the amount of the premium received.
When the Fund purchases a swaption, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities, the value of which is marked-to-market daily to reflect the current market value of the swaption purchased. If the swaption expires, the Fund realizes a loss equal to the amount of the premium paid.
Swaptions are marked-to-market daily based upon quotations from market makers. Changes in the value of the swaption are reported as unrealized gains or losses in the Statement of Operations.
(g) Swap agreements.
The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes.
38
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
The use of swaps involves risks that are different from those associated with other portfolio transactions.
Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Funds custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts terms, and the possible lack of liquidity with respect to the swap agreements.
Payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities. These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.
For average notional amounts of swaps held during the year ended December 31, 2012, see Note 4.
Credit default swaps
The Fund enters into credit default swap (CDS) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuers default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
39
|
to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.
Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Notes to Financial Statements and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.
The Funds maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty). As the protection seller, the Funds maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.
(h) Loan participations.
The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Funds investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.
40
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.
(i) Unfunded loan commitments.
The Fund may enter into certain credit agreements all or a portion of which may be unfunded. The Fund is obligated to fund these commitments at the borrowers discretion. The commitments are disclosed in the accompanying Schedule of Investments. At December 31, 2012, the Fund had sufficient cash and/or securities to cover these commitments.
(j) Foreign currency translation.
Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(k) Credit and market risk.
The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Funds investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
41
|
and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Funds investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
(l) Foreign investment risks.
The Funds investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(m) Counterparty risk and credit-risk-related contingent features of derivative instruments.
The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Funds investment manager attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
As of December 31, 2012, the Fund held written options, forward foreign currency contracts and credit default swaps, with credit related contingent features which had a liability position of $108,981. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.
42
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
(n) Security transactions and investment income.
Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(o) Distributions to shareholders.
Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(p) Compensating balance arrangements.
The Fund has an arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(q) Federal and other taxes.
It is the Funds policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2012, no provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates. Realized gains upon disposition of Indonesian securities held by the Fund are subject to capital gains tax in that country. As of December 31, 2012, there were $3,308 of capital gains tax liabilities accrued on unrealized gains.
(r) Reclassification.
GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
43
|
values per share. During the current year, the following reclassifications have been made:
|
|
Overdistributed Net
Investment Income
|
|
Accumulated Net
Realized Loss
|
|
(a)
|
|
$12,832
|
|
$(12,832)
|
|
(a)
|
Reclassifications are primarily due to foreign currency transactions treated as ordinary income for tax purposes, differences between book and tax amortization of premium on fixed income securities and book/tax differences in the treatment of swaps.
|
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager. Western Asset Management Company (Western Asset), Western Asset Management Company Limited (Western Asset Limited) and Western Asset Management Company Pte. Ltd. (Western Singapore) are the Funds subadvisers. LMPFA, Western Asset, Western Asset Limited and Western Singapore are wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason).
LMPFA provides administrative and certain oversight services to the Fund. The Fund pays LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.70% of the Funds average weekly net assets.
LMPFA delegates to Western Asset the day-to-day portfolio management of the Fund. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund. Western Singapore and Western Asset Limited provide certain advisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated securities. Western Singapore and Western Asset Limited do not receive any compensation from the Fund. Western Asset pays Western Singapore and Western Asset Limited a subadvisory fee of 0.30% on the assets managed by each subadviser.
All officers and one Director of the Fund are employees of Legg Mason or its affiliates and do not receive compensation from the Fund.
3. Investments
During the year ended December 31, 2012, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
Purchases
|
|
$29,542,927
|
|
Sales
|
|
28,765,760
|
|
44
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
At December 31, 2012, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation
|
|
$ 4,424,156
|
|
Gross unrealized depreciation
|
|
(1,316,401
|
)
|
Net unrealized appreciation
|
|
$
3,107,755
|
|
During the year ended December 31, 2012, written option transactions for the Fund were as follows:
|
|
Notional Amount
|
|
Premiums
|
|
Written options, outstanding as of December 31, 2011
|
|
|
|
|
|
|
Options written
|
|
$ 32,337,700
|
|
|
$ 322,430
|
|
Options closed
|
|
(8,192,800
|
)
|
|
(163,856
|
)
|
Options exercised
|
|
(3,187,800
|
)
|
|
(19,038
|
)
|
Options expired
|
|
(15,137,100
|
)
|
|
(107,344
|
)
|
Written options, outstanding as of December 31, 2012
|
|
$
5,820,000
|
|
|
$ 32,192
|
|
At December 31, 2012, the Fund had the following open forward foreign currency contracts:
Foreign Currency
|
|
Counterparty
|
|
Local
Currency
|
|
Market
Value
|
|
Settlement
Date
|
|
Unrealized
Loss
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
Citibank, N.A.
|
|
20,000
|
|
$ 26,409
|
|
2/15/13
|
|
$ (74
|
)
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
Citibank, N.A.
|
|
200,000
|
|
264,088
|
|
2/15/13
|
|
(9,136
|
)
|
|
Euro
|
|
Royal Bank of Scotland PLC
|
|
600,000
|
|
792,264
|
|
2/15/13
|
|
(22,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(31,947
|
)
|
|
Net unrealized loss on open forward foreign currency contracts
|
|
|
|
|
|
$(32,021
|
)
|
|
At December 31, 2012, the Fund held the following credit default swap contracts:
CREDIT DEFAULT SWAPS ON CREDIT INDICES BUY PROTECTION
1
|
Swap Counterparty
(Reference Entity)
|
|
Notional
Amount
2
|
|
Termination
Date
|
|
Periodic
Payments
Made
by the
Fund
|
|
Market
Value
3
|
|
Upfront
Premiums
Paid
(Received)
|
|
Unrealized
(Depreciation)
|
|
BNP Paribas
(Markit CDX.NA.HY.17 Index)
|
|
$ 480,000
|
|
12/20/16
|
|
5.000% Quarterly
|
|
$(11,786
|
)
|
$11,298
|
|
$(23,084
|
)
|
|
BNP Paribas
(Markit CDX.NA.HY.17 Index)
|
|
192,000
|
|
12/20/16
|
|
5.000% Quarterly
|
|
(4,715
|
)
|
4,715
|
|
(9,430
|
)
|
|
BNP Paribas
(Markit CDX.NA.HY.18 Index)
|
|
198,000
|
|
6/20/17
|
|
5.000% Quarterly
|
|
(2,863
|
)
|
8,009
|
|
(10,872
|
)
|
|
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
45
|
Swap Counterparty
(Reference Entity)
|
|
Notional
Amount
2
|
|
Termination
Date
|
|
Periodic
Payments
Made
by the
Fund
|
|
Market
Value
3
|
|
Upfront
Premiums
Paid
(Received)
|
|
Unrealized
(Depreciation)
|
|
Bank of America Securities LLC
(Markit CDX.NA.HY.18 Index)
|
|
$ 19,800
|
|
6/20/17
|
|
5.000% Quarterly
|
|
$ (286
|
)
|
$ 86
|
|
$ (372
|
)
|
|
Barclays Capital Inc.
(Markit CDX.NA.HY.18 Index)
|
|
247,500
|
|
6/20/17
|
|
5.000% Quarterly
|
|
(3,578
|
)
|
2,963
|
|
(6,541
|
)
|
|
Barclays Capital Inc.
(Markit CDX.NA.HY.18 Index)
|
|
396,000
|
|
6/20/17
|
|
5.000% Quarterly
|
|
(5,725
|
)
|
1,973
|
|
(7,698
|
)
|
|
Total
|
|
$1,533,300
|
|
|
|
|
|
$(28,953
|
)
|
$29,044
|
|
$(57,997
|
)
|
|
1
|
If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or the underlying securities comprising the referenced index or (ii) receive 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 the 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 liability (or profit) for the credit derivative should 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 entitys 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.
|
4. Derivative instruments and hedging activities
GAAP requires enhanced disclosure about an entitys derivative and hedging activities.
Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at December 31, 2012.
ASSET DERIVATIVES
1
|
|
|
Foreign Exchange
Risk
|
|
Credit Risk
|
|
Total
|
|
Purchased options
2
|
|
|
|
$58,316
|
|
$58,316
|
|
LIABILITY DERIVATIVES
1
|
|
|
Foreign Exchange
Risk
|
|
Credit Risk
|
|
Total
|
|
Written options
|
|
|
|
$48,007
|
|
$ 48,007
|
|
Swap contracts
3
|
|
|
|
28,953
|
|
28,953
|
|
Forward foreign currency contracts
|
|
$32,021
|
|
|
|
32,021
|
|
Total
|
|
$32,021
|
|
$76,960
|
|
$108,981
|
|
1
|
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation (depreciation) and for liability derivatives is payables/net unrealized appreciation (depreciation).
|
2
|
Market value of purchased options is reported in Investments at value in the Statement of Assets and Liabilities.
|
3
|
Values include premiums paid (received) on swap contracts which are shown separately in the Statement of Assets and Liabilities.
|
46
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
The following tables provide information about the effect of derivatives and hedging activities on the Funds Statement of Operations for the year ended December 31, 2012. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Funds derivatives and hedging activities during the period.
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
|
|
|
Interest Rate
Risk
|
|
Foreign
Exchange
Risk
|
|
Credit Risk
|
|
Total
|
|
Purchased options
1
|
|
|
|
|
|
$(147,481)
|
|
$(147,481
|
)
|
Written options
|
|
|
|
|
|
183,988
|
|
183,988
|
|
Futures contracts
|
|
$(27,657)
|
|
|
|
|
|
(27,657
|
)
|
Swap contracts
|
|
|
|
|
|
(193,196)
|
|
(193,196
|
)
|
Forward foreign currency contracts
|
|
|
|
$62,255
|
|
|
|
62,255
|
|
Total
|
|
$(27,657)
|
|
$62,255
|
|
$(156,689)
|
|
$(122,091
|
)
|
1
|
Net realized gain (loss) from purchased options is reported in net realized gain (loss) from investment transactions in the Statement of Operations.
|
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|
|
Interest Rate
Risk
|
|
Foreign
Exchange
Risk
|
|
Credit Risk
|
|
Total
|
|
Purchased options
1
|
|
|
|
|
|
$ 19,144
|
|
$ 19,144
|
|
Written options
|
|
|
|
|
|
(15,815)
|
|
(15,815
|
)
|
Futures contracts
|
|
$8,547
|
|
|
|
|
|
8,547
|
|
Swap contracts
|
|
|
|
|
|
(57,997)
|
|
(57,997
|
)
|
Forward foreign currency contracts
|
|
|
|
$(65,833)
|
|
|
|
(65,833
|
)
|
Total
|
|
$8,547
|
|
$(65,833)
|
|
$(54,668)
|
|
$(111,954
|
)
|
1
|
The change in unrealized appreciation (depreciation) from purchased options is reported in the change in net unrealized appreciation (depreciation) from investments in the Statement of Operations.
|
During the year ended December 31, 2012, the volume of derivative activity for the Fund was as follows:
|
|
Average Market
Value
|
|
Purchased options
|
|
$ 51,581
|
|
Written options
|
|
44,217
|
|
Futures contracts (to sell)
|
|
1,294,288
|
|
Forward foreign currency contracts (to buy)
|
|
12,553
|
|
Forward foreign currency contracts (to sell)
|
|
714,146
|
|
|
|
|
|
|
|
Average
Notional Balance
|
|
Credit default swap contracts (to buy protection)
|
|
$1,775,608
|
|
At December 31, 2012, there were no open positions held in this derivative.
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
47
|
5. Distributions subsequent to December 31, 2012
On November 8, 2012, the Funds Board of Directors (the Board) declared three distributions, each in the amount of $0.0595 per share, payable on December 21, 2012, January 25, 2013 and February 22, 2013 to shareholders of record on December 14, 2012, January 18, 2013 and February 15, 2013, respectively. The January and February record date distributions were made subsequent to the period end of this report.
On February 14, 2013, the Board declared three distributions, each in the amount of $0.0592 per share, payable on March 22, 2013, April 26, 2013 and May 31, 2013 to shareholders of record on March 15, 2013, April 19, 2013 and May 24, 2013, respectively.
6. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended December 31, were as follows:
|
|
2012
|
|
2011
|
|
Distributions Paid From:
|
|
|
|
|
|
Ordinary income
|
|
$3,832,326
|
|
$4,438,049
|
|
As of December 31, 2012, the components of accumulated earnings on a tax basis were as follows:
Undistributed ordinary income net
|
|
$ 23,171
|
|
Capital loss carryforward*
|
|
(9,200,053
|
)
|
Other book/tax temporary differences
(a)
|
|
(168,678
|
)
|
Unrealized appreciation (depreciation)
(b)
|
|
2,999,453
|
|
Total accumulated earnings (losses) net
|
|
$(6,346,107
|
)
|
*
|
During the taxable year ended December 31, 2012, the Fund utilized $ 417,947 of its capital loss carryforward available from prior years. As of December 31, 2012, the Fund had the following net capital loss carryforwards remaining:
|
Year of Expiration
|
|
Amount
|
|
12/31/2016
|
|
$(2,204,741
|
)
|
12/31/2017
|
|
(6,995,312
|
)
|
|
|
$(9,200,053
|
)
|
|
These amounts will be available to offset any future taxable capital gains.
|
(a)
|
Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized losses on certain foreign currency contracts, the deferral of a qualified late-year loss, book/tax difference in the accrual of interest income on securities in default and book/tax differences in the timing of the deductibility of various expenses.
|
(b)
|
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the difference between book and tax amortization methods for premiums on fixed income securities.
|
48
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
7. Subsequent Event
The Funds Board of Directors has approved a reorganization pursuant to which the Funds assets would be acquired, and its liabilities would be assumed, by Western Asset High Income Opportunity Fund Inc. (the Acquiring Fund), in exchange for shares of the Acquiring Fund. The Fund would then be terminated, and shares of the Acquiring Fund would be distributed to Fund shareholders. The reorganization is subject to the satisfaction of certain conditions, including approval by Fund shareholders. Proxy materials describing the reorganization will be mailed and if the reorganization is approved by Fund shareholders, it is expected to occur by the end of the second quarter of 2013.
|
|
Western Asset High Income Fund Inc. 2012 Annual Report
|
|
49
|
Report of independent registered public accounting firm
The Board of Directors and Shareholders
Western Asset High Income Fund Inc.:
We have audited the accompanying statement of assets and liabilities of Western Asset High Income Fund Inc., including the schedule of investments, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Western Asset High Income Fund Inc. as of December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
February 21, 2013
50
|
|
Western Asset High Income Fund Inc.
|
|
|
Commodity exchange act regulation exclusion (unaudited)
The Fund is operated by persons who have claimed an exclusion, granted to operators of registered investment companies like the Fund, from registration as a commodity pool operator with respect to the Fund under the Commodity Exchange Act (the CEA), and, therefore, are not subject to registration or regulation with respect to the Fund under the CEA. As a result, effective December 31, 2012, the Fund is limited in its ability to use commodity futures (which include futures on broad-based securities indexes and interest rate futures) (collectively, commodity interests) or options on commodity futures, engage in certain swaps transactions or make certain other investments (whether directly or indirectly through investments in other investment vehicles) for purposes other than bona fide hedging, as defined in the rules of the Commodity Futures Trading Commission. With respect to transactions other than for bona fide hedging purposes, either: (1) the aggregate initial margin and premiums required to establish the Funds positions in such investments may not exceed 5% of the liquidation value of the Funds portfolio (after accounting for unrealized profits and unrealized losses on any such investments); or (2) the aggregate net notional value of such instruments, determined at the time the most recent position was established, may not exceed 100% of the liquidation value of the Funds portfolio (after accounting for unrealized profits and unrealized losses on any such positions). In addition to meeting one of the foregoing trading limitations, the Fund may not market itself as a commodity pool or otherwise as a vehicle for trading in the futures, options or swaps markets.
|
|
Western Asset High Income Fund Inc.
|
|
51
|
Board approval of management and sub-advisory agreements
Background
The Investment Company Act of 1940, as amended (the 1940 Act), requires that the Board of Directors (the Board) of Western Asset High Income Fund Inc. (the Fund), including a majority of its members that are not considered to be interested persons under the 1940 Act (the Independent Directors) voting separately, approve on an annual basis the continuation of the investment management contract (the Management Agreement) with the Funds manager, Legg Mason Partners Fund Advisor, LLC (the Manager), and the sub-advisory agreements (individually, a Sub-Advisory Agreement and, collectively, the Sub-Advisory Agreements) with the Managers affiliates, Western Asset Management Company (Western Asset), Western Asset Management Company Pte. Ltd. in Singapore (Western Asset Singapore) and Western Asset Management Company Limited in London (Western Asset London). Western Asset, Western Asset Singapore and Western Asset London collectively are hereinafter referred to as the Sub-Advisers, and Western Asset Singapore and Western Asset London together are hereinafter referred to as the Non-U.S. Sub-Advisers. At a meeting (the Contract Renewal Meeting) held in-person on November 7 and 8, 2012, the Board, including the Independent Directors, considered and approved the continuation of each of the Management Agreement and the Sub-Advisory Agreements for an additional one-year term. To assist in its consideration of the renewals of the Management Agreement and the Sub-Advisory Agreements, the Board received and considered a variety of information (together with the information provided at the Contract Renewal Meeting, the Contract Renewal Information) about the Manager and the Sub-Advisers, as well as the management and sub-advisory arrangements for the Fund and the other closed-end funds in the same complex under the Boards supervision (collectively, the Legg Mason Closed-end Funds), certain portions of which are discussed below. A presentation made by the Manager and Western Asset to the Board at the Contract Renewal Meeting in connection with its evaluations of the Management Agreement and the Sub-Advisory Agreements encompassed the Fund and other Legg Mason Closed-end Funds. In addition to the Contract Renewal Information, the Board received performance and other information throughout the year related to the respective services rendered by the Manager and the Sub-Advisers to the Fund. The Boards evaluation took into account the information received throughout the year and also reflected the knowledge and familiarity gained as members of the Board of the Fund and the other Legg Mason Closed-end Funds with respect to the services provided to the Fund by the Manager and the Sub-Advisers.
The Manager provides the Fund with investment advisory and administrative services pursuant to the Management Agreement and the Sub-Advisers provide, or in the case of the Non-U.S. Sub-Advisers help to provide, the Fund with certain investment sub-advisory services pursuant to the
52
|
|
Western Asset High Income Fund Inc.
|
|
|
Board approval of management and sub-advisory agreements (contd)
Sub-Advisory Agreements. The discussion below covers both the advisory and administrative functions being rendered by the Manager, each such function being encompassed by the Management Agreement, and the investment sub-advisory functions being rendered by the Sub-Advisers.
Board approval of management agreement and sub-advisory agreements
In its deliberations regarding renewal of the Management Agreement and the Sub-Advisory Agreements, the Board, including the Independent Directors, considered the factors below.
Nature, extent and quality of the services under the management agreement and sub-advisory agreements
The Board received and considered Contract Renewal Information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, during the past year. The Board also reviewed Contract Renewal Information regarding the Funds compliance policies and procedures established pursuant to the 1940 Act. The Board reviewed the qualifications, backgrounds and responsibilities of the Funds senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered, based on its knowledge of the Manager and its affiliates, the Contract Renewal Information and the Boards discussions with the Manager and Western Asset at the Contract Renewal Meeting, the general reputation and investment records of the Manager, Western Asset and their affiliates and the financial resources available to the corporate parent of the Manager and the Sub-Advisers, Legg Mason, Inc. (Legg Mason), to support their activities in respect of the Fund and the other Legg Mason Closed-end Funds.
The Board considered the responsibilities of the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, including the Managers coordination and oversight of the services provided to the Fund by the Sub-Advisers and others and Western Assets coordination and oversight of services provided to the Fund by the Non-U.S. Sub-Advisers. The Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties thereunder, provided that the Manager, in each case, will supervise the activities of the delegee. Pursuant to this provision of the Management Agreement, the Manager does not provide day-to-day portfolio management services to the Fund. Rather, portfolio management services for the Fund are provided by Western Asset pursuant to the Sub-Advisory Agreement (the Western Asset Sub-Advisory Agreement) between the Manager and Western Asset. The Western Asset Sub-Advisory Agreement permits Western Asset to delegate certain of its responsibilities, including its sub-advisory duties thereunder, provided that Western Asset, in each case,
|
|
Western Asset High Income Fund Inc.
|
|
53
|
will supervise the activities of the delegee. Each Non-U.S. Sub-Adviser helps to provide certain sub-advisory services to the Fund pursuant to a separate Sub-Advisory Agreement with Western Asset.
In reaching its determinations regarding continuation of the Management Agreement and Sub-Advisory Agreements, the Board took into account that Fund shareholders, in pursuing their investment goals and objectives, likely purchased their shares based upon the reputation and the investment style, philosophy and strategy of the Manager and Western Asset, as well as the resources available to the Manager and the Sub-Advisers.
In evaluating the nature, extent and quality of the investment advisory and other services provided, and which are expected to be provided, to the Fund pursuant to the Management Agreement and the Sub-Advisory Agreements, the Board inquired as to any impact on the Funds operations of significant changes in the senior management of the Manager and Legg Mason and other personnel providing services to the Fund during the past two years to the date of the Contract Renewal Meeting, including the resignation of Legg Masons Chief Executive Officer (CEO). At the Contract Renewal Meeting, the interim CEO and other senior representatives of Legg Mason and the Manager discussed these changes with the Board and assured the Board that such changes have not resulted, and are not expected in the future to result, in any diminution in the nature, extent or quality of services provided to the Fund and that the Board of Directors of Legg Mason had undertaken a search for a permanent CEO. In addition, the Board inquired as to published reports speculating that control of Legg Mason, the Manager or certain affiliates of Legg Mason, including the Sub-Advisers, might change. The senior representatives of Legg Mason discussed these published reports with the Board, confirming Legg Masons continuing commitment to its current business model and its affiliations with the Manager and the Sub-Advisers.
The Board concluded that, overall, the nature, extent and quality of the management, investment advisory and other services provided to the Fund under the Management Agreement and the Sub-Advisory Agreements have been satisfactory under the circumstances.
Fund performance
The Board received and considered performance information and analyses (the Lipper Performance Information) for the Fund, as well as for a group of funds (the Performance Universe) selected by Lipper, Inc. (Lipper), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the similarity of the Fund with the funds included in the Performance Universe. The Performance Universe included the Fund and all non-leveraged high yield closed-end funds, as classified by Lipper, regardless of asset size. The Performance Universe consisted of seven funds for the 1-year period ended
54
|
|
Western Asset High Income Fund Inc.
|
|
|
Board approval of management and sub-advisory agreements (contd)
June 30, 2012 and of five funds for each of the 3-, 5- and 10-year periods ended June 30, 2012. The Board noted that it had received and discussed with the Manager and Western Asset information throughout the year at periodic intervals comparing the Funds performance against its benchmarks and its peer funds as selected by Lipper.
The Lipper Performance Information comparing the Funds performance to that of the Performance Universe based on net asset value per share showed, among other things, that the Funds performance for each of the 1-, 3- and 5-year periods ended June 30, 2012 was ranked fourth among the funds in the Performance Universe for that period and that its performance for the 10-year period ended June 30, 2012 was ranked first among the funds in the Performance Universe for that period. The Funds performance for each of the 1- and 10-year periods was at or better than the Performance Universe median but was worse than the Performance Universe median for each of the 3- and 5-year periods. Among other things, the Board noted that the small number of funds in the Performance Universe, which included other Legg Mason Closed-end Funds managed by Western Asset, made meaningful comparisons difficult. The Board also noted the Funds performance record for the 10-year period was achieved, in part, by a different portfolio management team. The Board also considered the Funds performance relative to its benchmarks and in absolute terms, as well as the volatile market conditions during 2008.
Based on its review of the Funds performance, the Board concluded that, under the circumstances, continuation of the Management Agreement and the Sub-Advisory Agreements for an additional period not to exceed one year would be in the interests of the Fund and its shareholders.
Management fees and expense ratios
The Board reviewed and considered the management fee (the Management Fee) payable by the Fund to the Manager under the Management Agreement and the sub-advisory fees (the Sub-Advisory Fees) payable to the Sub-Advisers under the Sub-Advisory Agreements in light of the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager and the Sub-Advisers. The Board noted that the Sub-Advisory Fees payable to Western Asset under the Western Asset Sub-Advisory Agreement are paid by the Manager, not the Fund, and accordingly, that the retention of Western Asset does not increase the fees or expenses otherwise incurred by the Funds shareholders. Similarly, the Board noted that the Sub-Advisory Fees payable to each of the Non-U.S. Sub-Advisers under its Sub-Advisory Agreement with Western Asset are paid by Western Asset, not the Fund, and, accordingly, that the retention of such Non-U.S. Sub-Adviser does not increase the fees or expenses otherwise incurred by the Funds shareholders.
|
|
Western Asset High Income Fund Inc.
|
|
55
|
Additionally, the Board received and considered information and analyses prepared by Lipper (the Lipper Expense Information) comparing the Management Fee and the Funds overall expenses with those of funds in an expense group (the Expense Universe) selected and provided by Lipper. The comparison was based upon the constituent funds latest fiscal years. The Expense Universe consisted of the Fund and six other non-leveraged high yield closed-end funds, as classified by Lipper. The Expense Universe funds, which included three other funds managed by Western Asset, had average net assets ranging from the Funds $49.0 million to $687.6 million.
The Lipper Expense Information, comparing the Management Fee as well as the Funds actual total expenses to the Funds Expense Universe, showed, among other things, that the Management Fee, whether compared on a contractual basis or an actual basis (i.e., giving effect to any voluntary fee waivers implemented by the Manager with respect to the Fund and by the managers of the other Expense Universe funds), was ranked second among the funds in the Expense Universe and was better than the Expense Universe median for that expense component and that its actual total expenses ranked fifth among the funds in the Expense Universe and were worse than the Expense Universe median. The Board considered the Managers belief that the small number of funds, which included three other Legg Mason Closed-end Funds, and the varying size of the funds in the Expense Universe made meaningful comparisons difficult.
The Board also reviewed Contract Renewal Information regarding fees charged by the Manager to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, institutional and separate accounts. The Board was advised that the fees paid by such institutional, separate account and other clients generally are lower, and may be significantly lower, than the Management Fee. The Contract Renewal Information discussed the significant differences in scope of services provided to the Fund and to these other clients, noting that the Fund is provided with administrative services, office facilities, Fund officers (including the Funds chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Contract Renewal Information included information regarding management fees paid by open-end mutual funds in the same complex (the Legg Mason Open-end Funds) and such information indicated that the management fees paid by the Legg Mason Closed-end Funds generally were higher than those paid by the Legg Mason Open-end Funds. The Manager, in response to an inquiry by the Board as to the reasons for the fee differential, provided information as to differences between the services provided to the Fund and the other Legg Mason Closed-end Funds and services provided to the Legg Mason Open-end Funds. The Board considered the fee comparisons in light of the different services provided in managing these other types of clients and funds.
56
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Western Asset High Income Fund Inc.
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Board approval of management and sub-advisory agreements (contd)
Taking all of the above into consideration, the Board determined that the Management Fee and the Sub-Advisory Fees were reasonable in light of the nature, extent and overall quality of the management, investment advisory and other services provided to the Fund under the Management Agreement and the Sub-Advisory Agreements.
Manager profitability
The Board, as part of the Contract Renewal Information, received an analysis of the profitability to the Manager and its affiliates in providing services to the Fund for the Managers fiscal years ended March 31, 2012 and March 31, 2011. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received Contract Renewal Information with respect to the Managers revenue and cost allocation methodologies used in preparing such profitability data. The Board received a report from an outside consultant engaged by the Manager that had reviewed the Managers revenue and cost allocation methodologies. The profitability to each of the Sub-Advisers was not considered to be a material factor in the Boards considerations since Western Assets Sub-Advisory Fees are paid by the Manager and the Sub-Advisory Fees for the Non-U.S. Sub-Advisers, in each case, are paid by Western Asset. The profitability analysis presented to the Board as part of the Contract Renewal Information indicated that the Fund was not profitable to the Manager during the period covered by the analysis. The Board noted prior advice from the Manager that the Fund has not been profitable largely because of its small size.
Economies of scale
The Board received and discussed Contract Renewal Information concerning whether the Manager realizes economies of scale if the Funds assets grow. The Board noted that because the Fund is a closed-end fund with no current plans to seek additional assets beyond maintaining its dividend reinvestment plan, any significant growth in its assets generally will occur through appreciation in the value of the Funds investment portfolio, rather than sales of additional shares in the Fund. The Board determined that the Management Fee structure, which incorporates no breakpoints reducing the Management Fee at specified increased asset levels, was appropriate under present circumstances.
Other benefits to the manager and the sub-advisers
The Board considered other benefits received by the Manager, the Sub-Advisers and their affiliates as a result of their relationship with the Fund and did not regard such benefits as excessive.
* * * * * *
In light of all of the foregoing and other relevant factors, the Board determined that, under the circumstances, continuation of the Management Agreement and the Sub-Advisory Agreements would be consistent with the
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Western Asset High Income Fund Inc.
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57
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interests of the Fund and its shareholders and unanimously voted to continue each Agreement for a period of one additional year.
No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve continuation of the Management Agreement and the Sub-Advisory Agreements, and each Board member attributed different weights to the various factors. The Independent Directors were advised by separate independent legal counsel throughout the process. Prior to the Contract Renewal Meeting, the Board received a memorandum prepared by the Manager discussing its responsibilities in connection with the proposed continuation of the Management Agreement and the Sub-Advisory Agreements as part of the Contract Renewal Information and the Independent Directors separately received a memorandum discussing such responsibilities from their independent counsel. Prior to voting, the Independent Directors also discussed the proposed continuation of the Management Agreement and the Sub-Advisory Agreements in private sessions with their independent legal counsel at which no representatives of the Manager were present.
58
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Western Asset High Income Fund Inc.
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Additional information (unaudited)
Information about Directors and Officers
The business and affairs of Western Asset High Income Fund Inc. (the Fund) are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c/o R. Jay Gerken, 620 Eighth Avenue, 49th Floor, New York, New York 10018. Information pertaining to the Directors and officers of the Fund is set forth below.
Independent Directors:
Carol L. Colman
|
|
|
Year of birth
|
|
1946
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class III
|
Term of office
1
and length of time served
|
|
Since 2002
|
Principal occupation(s) during past five years
|
|
President, Colman Consulting Company (consulting)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
None
|
|
|
|
Daniel P. Cronin
|
|
|
Year of birth
|
|
1946
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since 1993
|
Principal occupation(s) during past five years
|
|
Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
None
|
|
|
|
Paolo M. Cucchi
|
|
|
Year of birth
|
|
1941
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class III
|
Term of office
1
and length of time served
|
|
Since 2007
|
Principal occupation(s) during past five years
|
|
Professor of French and Italian at Drew University; formerly, Vice President and Dean of College of Liberal Arts at Drew University (1984 to 2009)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
None
|
|
|
Western Asset High Income Fund Inc.
|
|
59
|
Independent Directors contd
Leslie H. Gelb
|
|
|
Year of birth
|
|
1937
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class II
|
Term of office
1
and length of time served
|
|
Since 2001
|
Principal occupation(s) during past five years
|
|
President Emeritus and Senior Board Fellow (since 2003), The Council on Foreign Relations; formerly, President, (prior to 2003), the Council on Foreign Relations; formerly, Columnist, Deputy Editorial Page Editor and Editor, Op-Ed Page, The New York Times
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
Director of two registered investment companies advised by Aberdeen Asset Management Asia Limited (since 1994)
|
|
|
|
William R. Hutchinson
|
|
|
Year of birth
|
|
1942
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since 2003
|
Principal occupation(s) during past five years
|
|
President, W.R. Hutchinson & Associates Inc. (Consulting) (since 2001)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
Director (Non-Executive Chairman of the Board (since December 1, 2009)), Associated Banc Corp. (banking) (since 1994)
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60
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Western Asset High Income Fund Inc.
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Additional information (unaudited) (contd)
Information about Directors and Officers
Independent Directors contd
Eileen A. Kamerick
2
|
|
|
Year of birth
|
|
1958
|
Position(s) held with Fund
|
|
Director and Member of Nominating and Audit Committees, Class II
|
Term of office
1
and length of time served
|
|
Since 2013
|
Principal occupation(s) during past five years
|
|
CFO, Press Ganey Associates (health care informatics company) (since 2012); formerly Managing Director and CFO, Houlihan Lokey (international investment bank) (2010 to 2012); Senior Vice President, CFO & CLO, Tecta America Corp (commercial roofing company) (2008 to 2010); Executive Vice President and CFO, Bearing Point Inc. (management and technology consulting firm) (2008); Executive Vice President, CFO and CAO Heidrick & Struggles (international executive search and leadership consulting firm) (2004 to 2008)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
Director of Associated Banc-Corp (financial services company) (since 2007); Westell Technologies, Inc. (technology company) (since 2003)
|
|
|
|
Riordan Roett
|
|
|
Year of birth
|
|
1938
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class II
|
Term of office
1
and length of time served
|
|
Since 1995
|
Principal occupation(s) during past five years
|
|
The Sarita and Don Johnston Professor of Political Science and Director of Western Hemisphere Studies, Paul H. Nitze School of Advanced International Studies, The Johns Hopkins University (since 1973)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
None
|
|
|
Western Asset High Income Fund Inc.
|
|
61
|
Independent Directors contd
Jeswald W. Salacuse
|
|
|
Year of birth
|
|
1938
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since 1993
|
Principal occupation(s) during past five years
|
|
Henry J. Braker Professor of Commercial Law, The Fletcher School of Law and Diplomacy, Tufts University (since 1986); President and Member, Arbitration Tribunal, World Bank/ICSID (since 2004)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
29
|
Other board memberships held by Director
|
|
Director of two registered investment companies advised by Aberdeen Asset Management Asia Limited (since 1993)
|
Interested Director and Officer:
R. Jay Gerken
3
|
|
|
Year of birth
|
|
1951
|
Position(s) held with Fund
1
|
|
Director, Chairman, President and Chief Executive Officer, Class III
|
Term of office
1
and length of time served
|
|
Since 2002
|
Principal occupation(s) during past five years
|
|
Managing Director of Legg Mason & Co., LLC (Legg Mason & Co.) (since 2005); Officer and Trustee/Director of 161 funds associated with Legg Mason Partners Fund Advisor, LLC (LMPFA) or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); President and Chief Executive Officer (CEO) of LMPFA (since 2006); President and CEO of Smith Barney Fund Management LLC (SBFM) (formerly a registered investment advisers) (since 2002)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
161
|
Other board memberships held by Director
|
|
None
|
62
|
|
Western Asset High Income Fund Inc.
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|
|
Additional information (unaudited) (contd)
Information about Directors and Officers
Additional Officers:
Ted P. Becker
|
|
|
Legg Mason
|
|
|
620 Eighth Avenue, New York, NY 10018
|
|
|
Year of birth
|
|
1951
|
Position(s) held with Fund
1
|
|
Chief Compliance Officer
|
Term of office
1
and length of time served
|
|
Since 2006
|
Principal occupation(s) during past five years
|
|
Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)
|
|
|
|
Vanessa A. Williams
|
|
|
Legg Mason
|
|
|
100 First Stamford Place, Stamford, CT 06902
|
|
|
Year of birth
|
|
1979
|
Position(s) with Fund
1
|
|
Identity Theft Prevention Officer
|
Term of office
1
and length of time served
|
|
Since 2011
|
Principal occupation(s) during past five years
|
|
Vice President of Legg Mason & Co. (since 2012); Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); formerly, Senior Compliance Officer of Legg Mason & Co. (2008 to 2011); formerly, Compliance Analyst of Legg Mason & Co. (2006 to 2008) and Legg Mason & Co. predecessors (prior to 2006)
|
|
|
|
Robert I. Frenkel
|
|
|
Legg Mason
|
|
|
100 First Stamford Place, Stamford, CT 06902
|
|
|
Year of birth
|
|
1954
|
Position(s) held with Fund
1
|
|
Secretary and Chief Legal Officer
|
Term of office
1
and length of time served
|
|
Since 2003
|
Principal occupation(s) during past five years
|
|
Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel of Global Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)
|
|
|
Western Asset High Income Fund Inc.
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|
63
|
Additional Officers contd
Thomas C. Mandia
|
|
|
Legg Mason
|
|
|
100 First Stamford Place, Stamford, CT 06902
|
|
|
Year of birth
|
|
1962
|
Position(s) held with Fund
1
|
|
Assistant Secretary
|
Term of office
1
and length of time served
|
|
Since 2006
|
Principal occupation(s) during past five years
|
|
Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary of SBFM (since 2002)
|
|
|
|
Richard F. Sennett
|
|
|
Legg Mason
|
|
|
100 International Drive, Baltimore, MD 21202
|
|
|
Year of birth
|
|
1970
|
Position(s) held with Fund
1
|
|
Principal Financial Officer
|
Term of office
1
and length of time served
|
|
Since 2011
|
Principal occupation(s) during past five years
|
|
Principal Financial Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); Managing Director of Legg Mason & Co. and Senior Manager of the Treasury Policy group for Legg Mason & Co.s Global Fiduciary Platform (since 2011); formerly, Chief Accountant within the SECs Division of Investment Management (2007 to 2011); formerly, Assistant Chief Accountant within the SECs Division of Investment Management (2002 to 2007)
|
|
|
|
Steven Frank
|
|
|
Legg Mason
|
|
|
620 Eighth Avenue, New York, NY 10018
|
|
|
Year of birth
|
|
1967
|
Position(s) held with Fund
1
|
|
Treasurer
|
Term of office
1
and length of time served
|
|
Since 2010
|
Principal occupation(s) during past five years
|
|
Vice President of Legg Mason & Co. and Legg Mason & Co. predecessors (since 2002); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010); formerly, Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010)
|
64
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Western Asset High Income Fund Inc.
|
|
|
Additional information (unaudited) (contd)
Information about Directors and Officers
Additional Officers contd
Jeanne M. Kelly
|
|
|
Legg Mason
|
|
|
620 Eighth Avenue, New York, NY 10018
|
|
|
Year of birth
|
|
1951
|
Position(s) with Fund
1
|
|
Senior Vice President
|
Term of office
1
and length of time served
|
|
Since 2007
|
Principal occupation(s) during past five years
|
|
Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005)
|
|
Directors who are not interested persons of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.
|
1
|
The Funds Board of Directors is divided into three classes: Class I, Class II and Class III. The terms of office of the Class I, II and III Directors expire at the Annual Meetings of Stockholders in the year 2013, year 2014 and year 2015, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Funds executive officers are chosen each year at the first meeting of the Funds Board of Directors following the Annual Meeting of Stockholders, to hold office until the meeting of the Board following the next Annual Meeting of Stockholders and until their successors are duly elected and qualified.
|
2
|
Effective February 1, 2013, Ms. Kamerick became a Director.
|
3
|
Mr. Gerken is an interested person of the Fund as defined in the 1940 Act because Mr. Gerken is an officer of LMPFA and certain of its affiliates.
|
|
|
Western Asset High Income Fund Inc.
|
|
65
|
Annual chief executive officer and principal financial officer certifications (unaudited)
The Funds Chief Executive Officer (CEO) has submitted to the NYSE the required annual certification and the Fund also has included the certifications of the Funds CEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Funds Form N-CSR filed with the SEC for the period of this report.
66
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|
Western Asset High Income Fund Inc.
|
|
|
Other shareholder communications regarding accounting matters (unaudited)
The Funds Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, Accounting Matters). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (CCO). Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Funds Audit Committee Chair (together with the CCO, Complaint Officers). Complaints may be submitted on an anonymous basis.
The CCO may be contacted at:
Legg Mason & Co., LLC
Compliance Department
620 Eighth Avenue, 49th Floor
New York, New York 10018
Complaints may also be submitted by telephone at 1-800-742-5274.
Complaints submitted through this number will be received by the CCO.
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Western Asset High Income Fund Inc.
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67
|
Dividend reinvestment plan (unaudited)
Pursuant to certain rules of the SEC the following additional disclosure is provided.
Pursuant to the Funds Dividend Reinvestment and Cash Purchase Plan (Plan) shareholders whose shares of Common Stock are registered in their own names will be deemed to have elected to have all distributions automatically reinvested by American Stock Transfer & Trust Company (Plan Agent) in Fund shares pursuant to the Plan, unless such shareholders elect to receive distributions in cash. Shareholders who elect to receive distributions in cash will receive all distributions in cash paid by check in dollars mailed directly to the shareholder by American Stock Transfer & Trust Company, as dividend paying agent. Shareholders who do not wish to have distributions automatically reinvested should notify the Plan Agent. In the case of shareholders, such as banks, brokers or nominees, that hold shares for others who are beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the shareholders as representing the total amount registered in such shareholders names and held for the account of beneficial owners that have not elected to receive distributions in cash. Investors that own shares registered in the name of a bank, broker or other nominee should consult with such nominee as to participation in the Plan through such nominee, and may be required to have their shares registered in their own names in order to participate in the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan. If the Directors of the Fund declare a distribution payable either in the Funds Common Stock or in cash, nonparticipants in the Plan will receive cash and participants in the Plan will receive Common Stock, to be issued by the Fund or purchased by the Plan Agent in the open market, as provided below. If the market price per share on the valuation date equals or exceeds net asset value per share on that date, the Fund will issue new shares to participants at net asset value; provided, however, if the net asset value is less than 95% of the market price on the valuation date, then such shares will be issued at 95% of the market price. The valuation date will be the distribution payment date or, if that date is not a NYSE trading day, the next preceding trading day. If net asset value exceeds the market price of Fund shares at such time, or if the Fund should declare a distribution payable only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market, on the NYSE or elsewhere, for the participants accounts on, or shortly after, the payment date. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value of a Fund share, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Funds shares, resulting in the acquisition of fewer shares than if the distribution had been paid in shares issued by the Fund on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full distribution amount in open-market purchases during the
68
|
|
Western Asset High Income Fund Inc.
|
|
|
Dividend reinvestment plan (unaudited) (contd)
purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases and will receive the uninvested portion of the distribution amount in newly issued shares at the close of business on the last purchase date.
Participants have the option of making additional cash payments to the Plan Agent, monthly, in a minimum amount of $250, for investment in the Funds Common Stock. The Plan Agent will use all such funds received from participants to purchase Fund shares in the open market on or about the first business day of each month. Any voluntary cash payments received more than 30 days prior to these dates will be returned by the Plan Agent, and interest will not be paid on any uninvested cash payments. To avoid unnecessary cash accumulations, and also to allow ample time for receipt and processing by the Plan Agent, it is suggested that participants send in voluntary cash payments to be received by the Plan Agent approximately ten days before an applicable purchase date specified above. A participant may withdraw a voluntary cash payment by written notice if the notice is received by the Plan Agent not less than 48 hours before such payment is to be invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in an account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in the name of the participant, and each shareholders proxy will include those shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting distributions or voluntary cash payments. The Plan Agents fees for the reinvestment of distributions and voluntary cash payments will be paid by the Fund. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of distributions payable either in stock or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agents open market purchases in connection with the reinvestment of distributions and voluntary cash payments made by the participant or any distributions payable only in cash. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions, because the Plan Agent will be purchasing stock for all participants in blocks and prorating the lower commission thus attainable.
The reinvestment of distributions under the Plan will not relieve participants of any income tax which may be payable on such distributions.
Participants may terminate their accounts under the Plan by notifying the Plan Agent in writing. Such termination will be effective immediately if notice is received by the Plan Agent not less than ten days prior to any distribution record date. Upon termination, the Plan Agent will send the
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Western Asset High Income Fund Inc.
|
|
69
|
participant a certificate for the full shares held in the account and a cash adjustment for any fractional shares to be delivered to each shareholder without charge.
Experience under the Plan may indicate that changes in the Plan are desirable. Accordingly, the Fund and the Plan Agent reserve the right to terminate the Plan as applied to any voluntary cash payments made and any distribution paid subsequent to notice of the termination sent to members of the Plan at least 30 days before the record date for such distribution. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary or appropriate to comply with applicable law, rules or policies of a regulatory authority) only by at least 30 days written notice to participants in the Plan. All correspondence concerning the Plan should be directed to the Plan Agent at 5201 15th Avenue, Brooklyn, New York 11219.
Western Asset
High Income Fund Inc.
Directors
|
|
Western Asset High Income Fund Inc.
|
|
Independent registered public accounting firm
|
Carol L. Colman
|
|
620 Eighth Avenue
|
|
KPMG LLP
|
Daniel P. Cronin
|
|
49th Floor
|
|
345 Park Avenue
|
Paolo M. Cucchi
|
|
New York, NY 10018
|
|
New York, NY 10154
|
Leslie H. Gelb
|
|
|
|
|
R. Jay Gerken
|
|
Investment manager
|
|
Legal counsel
|
Chairman
|
|
Legg Mason Partners Fund Advisor, LLC
|
|
Simpson Thacher & Bartlett LLP
|
William R. Hutchinson
|
|
|
|
425 Lexington Avenue
|
Eileen A. Kamerick*
|
|
Subadvisers
|
|
New York, NY 10017
|
Riordan Roett
|
|
Western Asset Management Company
|
|
|
Jeswald W. Salacuse
|
|
Western Asset Management Company Limited
|
|
New York Stock Exchange Symbol
|
|
|
Western Asset Management Company Pte. Ltd.
|
|
HIF
|
|
|
|
|
|
Officers
|
|
Custodian
|
|
|
R. Jay Gerken
|
|
State Street Bank and Trust Company
|
|
|
President and Chief Executive Officer
|
|
1 Lincoln Street
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Richard F. Sennett
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Boston, MA 02111
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Principal Financial Officer
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Ted P. Becker
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Transfer agent
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Chief Compliance Officer
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American Stock Transfer & Trust Company
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Vanessa A. Williams
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5201 15th Avenue
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Identity Theft Prevention Officer
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Brooklyn, New York 11219
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Robert I. Frenkel
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Secretary and Chief Legal Officer
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Thomas C. Mandia
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Assistant Secretary
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Steven Frank
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Treasurer
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Jeanne M. Kelly
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Senior Vice President
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* Effective February 1, 2013, Ms. Kamerick became a Director.
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end funds and certain closed-end funds managed or sub-advised by Legg Mason or its affiliates. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
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Personal information included on applications or other forms;
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Account balances, transactions, and mutual fund holdings and positions;
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Online account access user IDs, passwords, security challenge question responses; and
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Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt, payment history, etc.).
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How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law. The Funds may disclose information about you to:
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Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business or comply with obligations to government regulators;
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Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform marketing services solely for the Funds;
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The Funds representatives such as legal counsel, accountants and auditors; and
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Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
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NOT PART OF THE ANNUAL REPORT
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Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds behalf are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, or if you have questions about the Funds privacy practices, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds website at www.leggmason.com, or contact the Fund at 1-888-777-0102.
Revised April 2011
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NOT PART OF THE ANNUAL REPORT
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Western Asset High Income Fund Inc.
Western Asset High Income Fund Inc.
620 Eighth Avenue
49th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time, the Fund may purchase at market prices shares of its common stock in the open market.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q are available on the SECs website at www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the SEC Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) on the Funds website at www.lmcef.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of the Western Asset High Income Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
American Stock
Transfer & Trust Company
5201 15th Avenue
Brooklyn, New York 11219
WASX04018 2/13 SR13-1865