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Legg Mason Partners Income Trust – ‘N-CSR’ for 3/31/15

On:  Tuesday, 5/26/15, at 2:52pm ET   ·   Effective:  5/26/15   ·   For:  3/31/15   ·   Accession #:  1193125-15-199951   ·   File #:  811-04254

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/26/15  Legg Mason Partners Income Trust  N-CSR       3/31/15    4:2.3M                                   RR Donnelley/FAWestern Asset Intermediate-Term Municipals Fund Class A (SBLTX) — Class C (SMLLX) — Class FIClass I (SBTYX)

Certified Annual Shareholder Report of a Management Investment Company   —   Form N-CSR
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Lmp Income Trust--Western Asset Intermediate Term   HTML   1.16M 
                          Municipals Fund                                        
 4: EX-99.906CERT  Certifications (906)                             HTML      7K 
 3: EX-99.CERT  Certifications (302)                                HTML     17K 
 2: EX-99.CODE  Code of Ethics                                      HTML     26K 


N-CSR   —   Lmp Income Trust--Western Asset Intermediate Term Municipals Fund
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Letter from the president
"Investment commentary
"Fund overview
"Fund at a glance
"Fund expenses
"Fund performance
"Spread duration
"Effective duration
"Schedule of investments
"Statement of assets and liabilities
"Statement of operations
"Statements of changes in net assets
"Financial highlights
"Notes to financial statements
"Report of independent registered public accounting firm
"Board approval of management and subadvisory agreements
"Additional information
"Important tax information

This is an HTML Document rendered as filed.  [ Alternative Formats ]



  LMP Income Trust--Western Asset Intermediate Term Municipals Fund  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-04254

 

 

Legg Mason Partners Income Trust

(Exact name of registrant as specified in charter)

 

 

620 Eighth Avenue, 49th Floor, New York, NY 10018

(Address of principal executive offices) (Zip code)

 

 

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

 

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

Date of fiscal year end: March 31

Date of reporting period: March 31, 2015

 

 

 


ITEM 1. REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.


LOGO

 

Annual Report   March 31, 2015

 

WESTERN ASSET

INTERMEDIATE-TERM

MUNICIPALS FUND

 

 

 

LOGO

 

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


What’s inside      
Letter from the president     II   
Investment commentary     III   
Fund overview     1   
Fund at a glance     5   
Fund expenses     6   
Fund performance     8   
Spread duration     10   
Effective duration     11   
Schedule of investments     12   
Statement of assets and liabilities     32   
Statement of operations     33   
Statements of changes in net assets     34   
Financial highlights     35   
Notes to financial statements     38   
Report of independent registered public
accounting firm
    48   
Board approval of management and subadvisory agreements     49   
Additional information     53   
Important tax information     60   



Fund objective

The Fund seeks to provide as high a level of income exempt from regular federal income tax* as is consistent with prudent investing.

 

* A portion of the income may be subject to the federal alternative minimum tax (“AMT”), and state and local taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.

 

Letter from the president

 

LOGO

 

Dear Shareholder,

We are pleased to provide the annual report of Western Asset Intermediate-Term Municipals Fund for the twelve-month reporting period ended March 31, 2015. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

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

 

Ÿ  

Fund prices and performance,

 

Ÿ  

Market insights and commentaries from our portfolio managers, and

 

Ÿ  

A host of educational resources.

Sincerely,

 

LOGO

Kenneth D. Fuller

President and Chief Executive Officer

April 24, 2015

 

II    Western Asset Intermediate-Term Municipals Fund


Investment commentary

 

Economic review

The U.S. economy continued to expand, but the pace sharply decelerated during the twelve month period ended March 31, 2015 (the “reporting period”). The U.S. Department of Commerce reported that second quarter 2014 U.S. gross domestic product (“GDP”)i growth was 4.6%. The economy then gained momentum as third quarter GDP growth was 5.0%, its strongest reading since the third quarter of 2003. This was driven by contributions from personal consumption expenditures (“PCE”), exports, nonresidential fixed investment and government spending. However, fourth quarter 2014 GDP growth was a modest 2.2%. The deceleration in growth primarily reflected an upturn in imports, a downturn in federal government spending and moderating nonresidential fixed investment. After the reporting period ended, the U.S. Department of Commerce reported that its initial estimate for first quarter 2015 GDP growth was 0.2%. Slower growth was attributed to a number of factors, including a deceleration in PCE and downturns in exports, nonresidential fixed investment and state and local government spending.

Activity in the U.S. manufacturing sector also moderated during the reporting period. Based on the Institute for Supply Management’s Purchasing Managers’ Index (“PMI”)ii, U.S. manufacturing expanded during all twelve months of the reporting period (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). After a reading of 55.3 in April 2014, the PMI generally rose over the next several months, reaching a high of 58.1 in August, its best reading since April 2011. Manufacturing activity then decelerated over much of the last seven months of the reporting period and the PMI was 51.5 in March 2015.

The labor market was largely a tailwind for the economy during the reporting period. When the period began, unemployment was 6.2%, as reported by the U.S. Department of Labor. Unemployment generally declined during the reporting period and was 5.5% in March 2015, equaling its lowest level since May 2008.

The Federal Reserve Board (“Fed”)iii took a number of actions as it sought to meet its dual mandate of fostering maximum employment and price stability. As it has since December 2008, the Fed kept the federal funds rateiv at a historically low range between zero and 0.25%. The Fed also ended its asset purchase program that was announced in December 2012. In December 2014, the Fed said that “it can be patient in beginning to normalize the stance of monetary policy.” Finally, at its meeting that ended on April 29, 2015, after the reporting period ended, the Fed said, “…economic growth slowed during the winter months, in part reflecting transitory factors…The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

As always, thank you for your confidence in our stewardship of your assets.

 

Western Asset Intermediate-Term Municipals Fund   III


Investment commentary (cont’d)

 

 

Sincerely,

 

LOGO

Kenneth D. Fuller

President and Chief Executive Officer

April 24, 2015

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 Management’s 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 U.S. 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.

 

IV    Western Asset Intermediate-Term Municipals Fund


Fund overview

 

Q. What is the Fund’s investment strategy?

A. The Fund seeks to provide as high a level of income exempt from regular federal income tax as is consistent with prudent investing.

We select portfolio holdings primarily by identifying undervalued sectors and individual securities, while also selecting securities that we believe will benefit from changes in market conditions. Under normal circumstances, the Fund invests at least 80% of its assets in “municipal securities,” which include debt obligations issued by any of the fifty states and certain other municipal issuers and their political subdivisions, agencies and public authorities, certain other governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) and other qualifying issuers, and investments with similar economic characteristics, the income from which is exempt from regular federal income tax. The interest on municipal securities is exempt from regular federal income tax, but may be subject to the federal alternative minimum tax (“AMT”). These securities include participation or other interests in municipal securities issued or backed by banks, insurance companies and other financial institutions.

Although the Fund may invest in securities of any maturity, the Fund normally maintains an average effective maturity of between three and ten years. The Fund focuses on investment grade bonds (that is, securities rated in the Baa/BBB categories or above or, if unrated, securities we determine to be of comparable quality), but may invest up to 20% of its assets in below investment grade bonds, commonly referred to as “junk bonds.” Instead of, and/or in addition to, investing directly in particular securities, the Fund may use derivatives that are intended to provide economic exposure to a security, an issuer, an index or basket of securities, or a market or to be used as a hedging technique — to the extent consistent with its 80% policy. The Fund may also engage in a variety of transactions using derivatives in order to change the investment characteristics of its portfolio (such as shortening or lengthening durationi) and for other purposes.

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

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

A. The spread sectors (non-Treasuries) experienced several periods of volatility and produced mixed results versus equal-duration Treasuries over the twelve months ended March 31, 2015. Risk aversion was prevalent at times given mixed economic data, questions surrounding the outlook for global growth, changing monetary policy by the Federal Reserve Board (“Fed”)ii, and numerous geopolitical issues. However, these factors were overshadowed at times by solid demand from investors looking to generate incremental yield.

Short-term Treasury yields moved higher, whereas long-term Treasury yields declined during the twelve months ended March 31, 2015. Two-year Treasury yields rose from

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   1


Fund overview (cont’d)

 

0.44% at the beginning of the period to 0.56% at the end of the period. Their peak of 0.73% occurred on several occasions in December 2014 and again on March 6, 2015, and they were as low as 0.34% on October 15, 2014. Ten-year Treasury yields were 2.73% at the beginning of the period and reached a low of 1.68% at the end of January and early February 2015. Their peak of 2.82% occurred on April 2, 2014 and they ended the reporting period at 1.94%.

The municipal bond market outperformed its taxable bond counterpart during the twelve month reporting period. Over that time, the Barclays Municipal Bond Index (the “Index”)iii and the Barclays U.S. Aggregate Indexiv returned 6.62% and 5.72%, respectively. The overall creditworthiness of the municipal bond market has improved as the U.S. economy continues its pace of expansion, resulting in a better labor market and higher confidence levels. The municipal bond market generated positive results during the first ten months covered by this report. This was due to a number of factors, including improving municipal fundamentals, declining yields and generally robust demand. As was the case for the taxable fixed income market, the municipal bond market posted a negative return in February 2015, as yields moved higher during the month. However, this was a temporary setback, as the municipal market again produced a positive return in March 2015.

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

A. There were several changes to the Fund during the reporting period. We reduced the Fund’s overall risk exposure into market strength by modestly paring its duration. The Fund employed the use of short U.S. Treasury futures during the reporting period to manage duration. This strategy detracted from performance.

Performance review

For the twelve months ended March 31, 2015, Class A shares of Western Asset Intermediate-Term Municipals Fund, excluding sales charges, returned 5.37%. The Fund’s unmanaged benchmark, the Barclays 1-15 Year Municipal Bond Indexv, returned 4.89% for the same period. The Lipper Intermediate Municipal Debt Funds Category Average1 returned 4.24% over the same time frame.

Certain investors may be subject to the AMT, and state and local taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.

 

Performance Snapshot as of March 31, 2015
(unaudited)
 
(excluding sales charges)   6 months     12 months  
Western Asset Intermediate-Term Municipals Fund:    

Class A

    1.83     5.37

Class C

    1.54     4.77

Class I

    1.75     5.37
Barclays 1-15 Year Municipal Bond Index     1.75     4.89
Lipper Intermediate Municipal Debt Funds Category Average1     1.17     4.24

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value, investment returns and yields will fluctuate

 

1 

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended March 31, 2015, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 223 funds for the six-month period and among the 219 funds for the twelve-month period in the Fund’s Lipper category, and excluding sales charges.

 

2    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/individualinvestors.

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

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

The 30-Day SEC Yields for the period ended March 31, 2015 for Class A, Class C and Class I shares were 2.18%, 1.67% and 2.38%, respectively. Absent fee waivers and/or expense reimbursements, the 30-Day SEC Yield for Class I shares would have been 2.36%. The 30-Day SEC Yield is subject to change and is based on the yield to maturity of the Fund’s investments over a 30-day period and not on the dividends paid by the Fund, which may differ.

 

Total Annual Operating Expenses (unaudited)

As of the Fund’s current prospectus dated August 1, 2014, the gross total annual operating expense ratios for Class A, Class C and Class I shares were 0.75%, 1.33% and 0.71%, respectively.

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

As a result of an expense limitation arrangement, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets is not expected to exceed 0.60% for Class I shares. This expense limitation arrangement cannot be terminated prior to December 31, 2016 without the Board of Trustees’ consent.

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

Q. What were the leading contributors to performance?

A. The largest contributor to the Fund’s relative performance during the reporting period was its sector positioning. In particular, overweights and security selection in Industrial Revenue and Health Care were additive for results given their outperformance versus the Index. Security selection in the Water & Sewer sector was also rewarded, as were underweights to State and Local General Obligation bonds, as well as Pre-Refunded securities.

Elsewhere, the Fund’s quality biases contributed to results. In particular, having an overweight to municipal securities rated A and below, along with an underweight to securities rated AA and higher, benefited results as lower rated municipal bonds outperformed their higher rated counterparts over the twelve month period.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   3


Fund overview (cont’d)

 

 

Q. What were the leading detractors from performance?

A. The largest detractor from relative performance during the reporting period was the Fund’s duration positioning. Having a duration that was slightly shorter than that of the benchmark was a drag on results as rates generally declined during the reporting period. Security selection of State General Obligation bonds was also negative for performance.

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

Sincerely,

Western Asset Management Company

April 14, 2015

RISKS: The Fund’s investments are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the Fund’s share price. Municipal securities purchased by the Fund may be adversely affected by changes in the financial condition of municipal issuers and insurers, regulatory and political developments, uncertainties and public perceptions, and other factors. Lower rated, higher yielding bonds known as “junk bonds” are subject to greater credit risk, including the risk of default, than higher-rated obligations. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. Please see the Fund’s prospectus for a more complete discussion of these and other risks, and the Fund’s investment strategies.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio managers’ current or future investments. The Fund’s 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.

 

 

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 Municipal Bond Index is a market value weighted index of investment grade municipal bonds with maturities of one year or more.

 

iv 

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.

 

v 

The Barclays 1–15 Year Municipal Bond Index is a market value weighted index of investment grade (Baa3/BBB- or higher) fixed-rate municipal bonds with maturities of one to fifteen years.

 

4    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


Fund at a glance (unaudited)

 

Investment breakdown (%) as a percent of total investments

 

LOGO

 

The bar graph above represents the composition of the Fund’s investments as of March 31, 2015 and March 31, 2014 and does not include derivatives, such as futures contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.
Represents less than 0.1%

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   5


Fund expenses (unaudited)

 

Example

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

This example is based on an investment of $1,000 invested on October 1, 2014 and held for the six months ended March 31, 2014.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

Based on actual total return1               Based on hypothetical total return1  
     Actual
Total Return
Without
Sales
Charge2
    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio
    Expenses
Paid
During
the
Period3
             Hypothetical
Annualized
Total Return
    Beginning
Account
Value
    Ending
Account
Value
    Annualized
Expense
Ratio
    Expenses
Paid
During
the
Period3
 
Class A     1.83   $ 1,000.00      $ 1,018.30        0.74   $ 3.72        Class A     5.00   $ 1,000.00      $ 1,021.24        0.74   $ 3.73   
Class C     1.54        1,000.00        1,015.40        1.32        6.63        Class C     5.00        1,000.00        1,018.35        1.32        6.64   
Class I     1.75        1,000.00        1,017.50        0.60        3.02        Class I     5.00        1,000.00        1,021.94        0.60        3.02   

 

6    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


1 

For the six months ended March 31, 2015.

 

2 

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

 

3 

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

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   7


Fund performance (unaudited)

 

Average annual total returns                     
Without sales charges1    Class A      Class C      Class I  
Twelve Months Ended 3/31/15      5.37      4.77      5.37
Five Years Ended 3/31/15      4.21         3.60         4.34   
Ten Years Ended 3/31/15      4.22         3.60         N/A   
Inception* through 3/31/15                      4.51   
With sales charges2    Class A      Class C      Class I  
Twelve Months Ended 3/31/15      2.99      4.77      5.37
Five Years Ended 3/31/15      3.73         3.60         4.34   
Ten Years Ended 3/31/15      3.98         3.60         N/A   
Inception* through 3/31/15                      4.51   

 

Cumulative total returns       
Without sales charges1        
Class A (3/31/05 through 3/31/15)      51.22
Class C (3/31/05 through 3/31/15)      42.40   
Class I (Inception date of 9/28/07 through 3/31/15)      39.30   

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

lower.

 

1

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares.

 

2

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum initial sales charge of 2.25%.

 

* Inception dates for Class A, C and I shares are November 28, 1988, December 19, 2001 and September 28, 2007, respectively.

 

8    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


Historical performance

Value of $10,000 invested

Class A Shares of Western Asset Intermediate-Term Municipals Fund vs. Barclays 1-15 Year Municipal Bond Index and Lipper Intermediate Municipal Debt Funds Category Average† — March 2005 - March 2015

 

LOGO

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

Hypothetical illustration of $10,000 invested in Class A shares of Western Asset Intermediate-Term Municipals Fund on March 31, 2005, assuming the deduction of the maximum initial sales charge of 2.25% at the time of investment and the reinvestment of all distributions, including returns of capital, if any, at net asset value through March 31, 2015. The hypothetical illustration also assumes a $10,000 investment in the Barclays 1-15 Year Municipal Bond Index and the Lipper Intermediate Municipal Debt Funds Category Average. The Barclays 1-15 Year Municipal Bond Index is a market value weighted index of investment grade (Baa3/BBB- or higher) fixed-rate municipal bonds with maturities of one to fifteen years. The Index is unmanaged and is not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index. The Lipper Intermediate Municipal Debt Funds Category Average is comprised of the Fund’s peer group of mutual funds. The performance of the Fund’s other classes may be greater or less than the Class A shares’ performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   9


Spread duration (unaudited)

 

Economic exposure March 31, 2015

LOGO

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 Fund’s sectors relative to the selected benchmark sectors as of the end of the reporting period.

 

Benchmark   — Barclays 1-15 Year Municipal Bond Index
WA Intermediate-Term   — Western Asset Intermediate-Term Municipals Fund

 

10    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


Effective duration (unaudited)

 

Interest rate exposure March 31, 2015

LOGO

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 Fund’s sectors relative to the selected benchmark sectors as of the end of the reporting period.

 

Benchmark   — Barclays 1-15 Year Municipal Bond Index
WA Intermediate-Term   — Western Asset Intermediate-Term Municipals Fund

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   11


Schedule of investments

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  
Municipal Bonds — 95.0%                                

Alabama — 0.3%

                               

Clarke & Mobile County, AL, Gas District, Gas Revenue, AMBAC

    5.250     1/1/24      $ 1,935,000      $ 1,950,828  (a) 

Jefferson County, AL, Sewer Revenue

    5.000     10/1/22        2,000,000        2,249,540   

Jefferson County, AL, Sewer Revenue, Warrants

    5.000     10/1/23        4,000,000        4,512,800   

Total Alabama

                            8,713,168   

Arizona — 0.2%

                               

Phoenix, AZ, Civic Improvement Corp., Wastewater System Revenue, Junior Lien

    5.000     7/1/27        4,000,000        4,871,600   

California — 14.6%

                               

Anaheim, CA, Public Financing Authority Lease Revenue

    5.000     5/1/28        1,100,000        1,302,455   

Anaheim, CA, Public Financing Authority Lease Revenue

    5.000     5/1/29        1,255,000        1,477,148   

Anaheim, CA, Public Financing Authority Lease Revenue

    5.000     5/1/30        1,700,000        1,987,538   

Anaheim, CA, Public Financing Authority Lease Revenue

    5.000     5/1/31        1,850,000        2,151,661   

Bay Area Toll Authority, CA, Toll Bridge Revenue:

                               

San Francisco Bay Area

    0.720     10/1/19        10,000,000        10,163,700  (b)(c) 

San Francisco Bay Area

    0.920     5/1/23        37,000,000        37,352,610  (b)(c) 

San Francisco Bay Area

    1.120     4/1/24        10,000,000        10,222,900  (b)(c) 

California Health Facilities Financing Authority Revenue, Stanford Hospital

    5.000     11/15/25        27,465,000        32,123,613   

California State Economic Recovery, GO

    5.000     7/1/20        35,000,000        40,708,150  (a)(d) 

California State PCFA, Water Furnishing Revenue

    5.000     7/1/27        8,190,000        9,243,398  (e)(f) 

California State PCFA, Water Furnishing Revenue

    5.000     7/1/27        3,665,000        3,861,187  (f) 

California State Public Works Board, Lease Revenue:

                               

Department of Corrections

    5.250     9/1/16        4,245,000        4,261,768   

Various Capital Project

    5.250     10/1/25        4,000,000        4,815,080   

Various Capital Project

    5.250     10/1/26        4,385,000        5,263,666   

Various Capital Project

    5.000     10/1/27        5,180,000        6,080,698   

California Statewide CDA Revenue, John Muir Health

    5.000     7/1/29        6,660,000        7,503,689   

California Statewide CDA, Student Housing Revenue, Provident Group-Pomona Properties LLC

    5.600     1/15/36        9,000,000        9,146,610   

Long Beach, CA, Bond Finance Authority, Natural Gas Purchase Revenue

    5.250     11/15/23        3,975,000        4,656,116   

Los Angeles, CA, Convention & Exhibition Center Authority, Lease Revenue

    5.125     8/15/22        7,250,000        8,191,195   

M-S-R Energy Authority, CA, Gas Revenue

    6.125     11/1/29        19,900,000        24,939,277   

Modesto, CA, Irrigation District Financing Authority, Electric System Revenue

    5.000     10/1/27        10,000,000        11,666,900   

Northern, CA, Power Agency Revenue

    5.000     7/1/21        1,575,000        1,814,857   

 

See Notes to Financial Statements.

 

12    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

California — continued

                               

Northern, CA, Power Agency Revenue:

                               

Lodi Energy Center

    5.000     6/1/19      $ 2,000,000      $ 2,276,100   

Lodi Energy Center

    5.000     6/1/20        2,000,000        2,299,140   

Lodi Energy Center

    5.000     6/1/25        15,805,000        18,520,141   

Palomar, CA, Pomerado Health Care District, COP

    6.625     11/1/29        10,000,000        11,154,100   

River Islands, CA, Public Financing Authority Special Tax:

                               

Community Facilities District No. 2003-1

    5.000     9/1/27        750,000        764,063   

Community Facilities District No. 2003-1

    5.250     9/1/34        5,570,000        5,711,088   

Riverside County, CA, Transportation Commission Sales Tax Revenue, Limited Tax

    5.250     6/1/26        4,700,000        5,828,799   

Sacramento, CA, Cogeneration Authority Project Revenue:

                               

Procter & Gamble Project

    5.000     7/1/18        800,000        892,104   

Procter & Gamble Project

    5.000     7/1/19        900,000        1,024,668   

Procter & Gamble Project

    5.250     7/1/20        1,250,000        1,466,225   

Procter & Gamble Project

    5.250     7/1/21        1,000,000        1,191,150   

San Bernardino County, CA, COP:

                               

Arrowhead Project

    5.500     8/1/21        11,855,000        13,705,210   

Arrowhead Project

    5.000     8/1/22        8,755,000        9,904,532   

Arrowhead Project

    5.125     8/1/24        10,000,000        11,373,700   

San Francisco, CA, City & County Airports Commission, International Airport Revenue

    4.900     5/1/29        42,250,000        47,840,942   

Southern California Public Power Authority, Natural Gas Project Revenue, Project Number 1

    5.250     11/1/26        2,000,000        2,400,460   

Total California

                            375,286,638   

Colorado — 3.1%

                               

Colorado Health Facilities Authority Revenue:

                               

Sisters of Charity Leavenworth Health System Inc.

    5.250     1/1/25        12,735,000        14,780,623   

Sisters of Charity Leavenworth Health System Inc.

    5.000     1/1/30        13,500,000        15,245,685   

E-470 Public Highway Authority Revenue, CO

    5.250     9/1/25        7,105,000        8,196,825   

E-470 Public Highway Authority Revenue, CO

    5.375     9/1/26        3,000,000        3,470,100   

Public Authority for Colorado Energy, Natural Gas Purchase Revenue

    6.125     11/15/23        14,210,000        17,547,077   

Public Authority for Colorado Energy, Natural Gas Purchase Revenue

    6.250     11/15/28        8,000,000        10,326,000   

Regional Transportation District, CO, COP

    5.000     6/1/25        10,000,000        11,405,900   

Total Colorado

                            80,972,210   

Connecticut — 0.6%

                               

Connecticut State, GO

    0.670     9/15/17        7,000,000        7,046,970  (b)(c) 

Connecticut State, GO

    0.790     9/15/18        3,000,000        3,028,560  (b) 

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   13


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Connecticut — continued

                               

Connecticut State, GO

    0.940     9/15/19      $ 4,000,000      $ 4,022,560  (b) 

Total Connecticut

                            14,098,090   

Florida — 7.6%

                               

Broward County, FL, Airport System Revenue

    5.000     10/1/24        3,000,000        3,435,030   

Broward County, FL, Airport System Revenue

    5.375     10/1/29        12,000,000        13,827,360   

Broward County, FL, School Board, COP

    5.000     7/1/27        4,000,000        4,778,880   

Broward County, FL, School Board, COP

    5.000     7/1/28        5,500,000        6,501,055   

Broward County, FL, School Board, COP

    5.000     7/1/30        5,000,000        5,818,600   

Citizens Property Insurance Corp., FL

    5.000     6/1/16        25,000,000        26,336,750   

Citizens Property Insurance Corp., FL

    5.375     6/1/16        20,000,000        21,156,200   

Citizens Property Insurance Corp., FL

    5.250     6/1/17        5,000,000        5,465,550   

Cityplace, FL, Community Development District, Special Assessment Revenue

    5.000     5/1/22        1,860,000        2,072,989   

Florida State Development Finance Corp., Senior Living Revenue, Tuscan Isle Obligated Group

    7.000     6/1/35        1,000,000        1,035,140  (f) 

Florida State Municipal Loan Council Revenue, NATL

    5.250     11/1/16        265,000        265,967   

Jacksonville, FL, Sales Tax Revenue, Better Jacksonville

    5.000     10/1/25        4,750,000        5,667,937   

Lee County, FL, Airport Revenue:

                               

Assured Guaranty

    5.000     10/1/21        12,245,000        13,821,176  (e) 

Assured Guaranty

    5.000     10/1/22        8,000,000        9,029,760  (e) 

Miami-Dade County, FL, Aviation Revenue:

                               

Miami International Airport

    5.500     10/1/27        3,000,000        3,369,960  (e) 

Miami International Airport

    5.000     10/1/29        5,000,000        5,682,000   

Miami-Dade County, FL, Expressway Authority Toll System Revenue

    5.000     7/1/24        3,000,000        3,609,540   

Miami-Dade County, FL, Expressway Authority Toll System Revenue

    5.000     7/1/25        3,730,000        4,443,810   

Miami-Dade County, FL, Expressway Authority Toll System Revenue

    5.000     7/1/26        1,700,000        2,007,003   

Miami-Dade County, FL, Expressway Authority Toll System Revenue

    5.000     7/1/27        2,350,000        2,747,244   

Miami-Dade County, FL, Expressway Authority Toll System Revenue

    5.000     7/1/28        1,000,000        1,159,380   

Miami-Dade County, FL, Expressway Authority Toll System Revenue

    5.000     7/1/30        2,500,000        2,868,025   

Miami-Dade County, FL, Expressway Authority Toll System Revenue

    5.000     7/1/31        2,750,000        3,140,610   

Miami-Dade County, FL, Expressway Authority Toll System Revenue, Assured Guaranty

    3.000     7/1/16        1,205,000        1,241,560   

Miami-Dade County, FL, School Board, COP

    5.000     2/1/24        8,000,000        8,986,800   

 

See Notes to Financial Statements.

 

14    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Florida — continued

                               

Orange County, FL, Health Facilities Authority Revenue:

                               

Orlando Health Inc.

    5.250     10/1/21      $ 6,935,000      $ 8,012,214   

Orlando Health Inc.

    5.250     10/1/22        7,095,000        8,197,066   

Orlando Health Inc.

    5.125     10/1/26        4,050,000        4,640,206   

Palm Beach County, FL, Solid Waste Authority Revenue

    5.000     10/1/24        3,500,000        4,069,205   

Palm Beach County, FL, Solid Waste Authority Revenue

    5.000     10/1/25        3,350,000        3,890,020   

Palm Beach County, FL, Solid Waste Authority Revenue

    5.000     10/1/27        1,155,000        1,334,418   

South Broward, FL, Hospital District Revenue

    5.000     5/1/28        5,920,000        6,520,170   

Sterling Hill, FL, Community Development District

    5.500     11/1/10        610,000        384,300  (g) 

Total Florida

                            195,515,925   

Georgia — 2.6%

                               

Atlanta & Fulton County, GA, Recreational Authority Revenue:

                               

Zoo

    5.000     12/1/19        1,770,000        1,969,302   

Zoo

    5.000     12/1/20        1,860,000        2,068,915   

Atlanta, GA, Water & Wastewater Revenue

    6.000     11/1/23        5,465,000        6,627,296  (a) 

Atlanta, GA, Water & Wastewater Revenue

    6.000     11/1/24        15,885,000        19,263,422  (a) 

Burke County, GA, Development Authority, PCR, Oglethorpe Power Corp.

    7.000     1/1/23        5,000,000        5,664,200   

De Kalb County, GA, Water & Sewer Revenue

    5.250     10/1/26        2,500,000        3,007,725   

DeKalb, Newton & Gwinnett Counties, GA, Joint Development Authority Revenue, GGC Foundation LLC Project

    6.000     7/1/29        6,000,000        6,963,780   

Georgia State Higher EFA Revenue, USG Real Estate Foundation II LLC Project

    5.375     6/15/29        3,000,000        3,442,380   

Main Street Natural Gas Inc., GA, Gas Project Revenue

    5.000     3/15/18        5,000,000        5,495,500   

Main Street Natural Gas Inc., GA, Gas Project Revenue

    5.250     9/15/19        1,500,000        1,728,675   

Main Street Natural Gas Inc., GA, Gas Project Revenue

    5.000     3/15/21        7,110,000        8,095,375   

Private Colleges & Universities Authority, GA, Revenue, Savannah College of Art & Design Inc. Project

    5.000     4/1/28        2,000,000        2,236,320   

Savannah, GA, Downtown Authority Revenue, Refunding, Chatham County Project, NATL

    5.000     1/1/19        660,000        682,539   

Total Georgia

                            67,245,429   

Illinois — 4.1%

                               

Chicago, IL, Metropolitan Water Reclamation District Greater Chicago:

                               

Green Bond

    5.000     12/1/25        1,235,000        1,510,158   

Green Bond

    5.000     12/1/26        1,275,000        1,546,830   

Green Bond

    5.000     12/1/27        1,360,000        1,634,434   

Green Bond

    5.000     12/1/28        1,425,000        1,696,477   

Green Bond

    5.000     12/1/30        1,575,000        1,851,680   

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   15


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Illinois — continued

                               

Green Bond

    5.000     12/1/31      $ 1,650,000      $ 1,930,764   

Green Bond

    5.000     12/1/32        1,735,000        2,022,299   

Green Bond

    5.000     12/1/33        1,820,000        2,114,749   

Green Bond

    5.000     12/1/34        1,910,000        2,217,586   

Chicago, IL, O’Hare International Airport Revenue

    5.250     1/1/19        5,625,000        6,376,950  (e) 

Chicago, IL, O’Hare International Airport Revenue

    5.000     1/1/22        4,000,000        4,629,200   

Chicago, IL, Wastewater Transmission Revenue:

                               

Second Lien

    5.000     1/1/30        1,635,000        1,844,558   

Second Lien

    5.000     1/1/31        1,500,000        1,678,950   

Second Lien

    5.000     1/1/32        1,000,000        1,115,290   

Second Lien

    5.000     1/1/33        1,035,000        1,151,024   

Chicago, IL, Waterworks Revenue:

                               

Second Lien Project

    5.000     11/1/30        1,785,000        2,035,560   

Second Lien Project

    5.000     11/1/31        2,000,000        2,271,920   

Second Lien Project

    5.000     11/1/33        1,500,000        1,690,830   

Second Lien Project

    5.000     11/1/34        1,000,000        1,123,750   

Glendale Heights, IL, Hospital Revenue, Refunding Glendale Heights Project

    7.100     12/1/15        720,000        753,149  (h) 

Illinois Finance Authority Revenue:

                               

AGM

    5.250     1/1/22        2,000,000        2,227,680   

Edward Hospital, AMBAC

    6.000     2/1/28        1,000,000        1,122,920   

Memorial Health System

    5.250     4/1/29        11,000,000        12,447,270   

Rush University Medical Center

    6.375     11/1/29        3,000,000        3,613,350  (a) 

Illinois State Sports Facilities Authority Revenue:

                               

State Tax Supported

    5.250     6/15/30        5,000,000        5,721,000   

State Tax Supported, AGM

    5.250     6/15/31        8,000,000        9,092,720   

State Tax Supported, AGM

    5.250     6/15/32        9,500,000        10,757,610   

Illinois State Unemployment Insurance Fund, Building Receipts Revenue

    5.000     6/15/18        5,000,000        5,378,600   

Illinois State Unemployment Insurance Fund, Building Receipts Revenue

    5.000     12/15/18        4,000,000        4,214,080   

Illinois State Unemployment Insurance Fund, Building Receipts Revenue

    5.000     6/15/19        4,000,000        4,037,800   

Illinois State Unemployment Insurance Fund, Building Receipts Revenue

    5.000     12/15/19        1,500,000        1,514,175   

University of Illinois:

                               

COPS

    5.000     3/15/25        1,250,000        1,502,538   

COPS

    5.000     3/15/26        1,800,000        2,120,922   

Total Illinois

                            104,946,823   

 

See Notes to Financial Statements.

 

16    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Indiana — 3.0%

                               

Indiana Municipal Power Agency, Power Supply Systems Revenue

    5.375     1/1/25      $ 4,000,000      $ 4,579,560   

Indiana Municipal Power Agency, Power Supply Systems Revenue

    5.500     1/1/26        5,480,000        6,298,876   

Indiana Municipal Power Agency, Power Supply Systems Revenue

    5.500     1/1/27        3,460,000        3,972,945   

Indiana State Finance Authority Revenue, Trinity Health Credit Group

    5.000     12/1/28        5,000,000        5,770,000   

Indiana State Finance Authority, Environmental Revenue, U.S. Steel Corp.

    6.000     12/1/19        12,000,000        13,432,560   

Indianapolis, IN, Thermal Energy System, Multi-Mode

    5.000     10/1/23        19,625,000        22,033,380   

Jasper County, IN, PCR:

                               

Northern Indiana Public Service, AMBAC

    5.700     7/1/17        5,000,000        5,479,150   

Northern Indiana Public Service, NATL

    5.850     4/1/19        3,000,000        3,451,260   

North Manchester, IN, EDR:

                               

Peabody Retirement Community Project

    1.000     12/1/45        888,581        17,772  (i) 

Peabody Retirement Community Project

    6.050     12/1/45        1,038,384        522,151  (b) 

Valparaiso, IN, Exempt Facilities Revenue, Pratt Paper LLC Project

    5.875     1/1/24        1,500,000        1,740,525  (e) 

Whiting, IN, Environmental Facilities Revenue, BP Products North America Inc.

    5.250     1/1/21        8,000,000        9,370,880   

Total Indiana

                            76,669,059   

Iowa — 2.3%

                               

Iowa Finance Authority Health Care Facilities Revenue:

                               

Genesis Health Systems

    5.000     7/1/18        2,775,000        3,096,345   

Genesis Health Systems

    5.000     7/1/19        4,075,000        4,632,256   

Genesis Health Systems

    5.000     7/1/20        2,500,000        2,881,000   

Genesis Health Systems

    5.000     7/1/21        4,170,000        4,862,095   

Iowa Finance Authority Health Facilities Revenue:

                               

Central Iowa Health System, Assured Guaranty

    5.000     2/15/17        1,600,000        1,729,280   

Central Iowa Health System, Assured Guaranty

    5.000     2/15/18        1,350,000        1,497,353   

Central Iowa Health System, Assured Guaranty

    5.000     2/15/19        1,000,000        1,135,430   

Iowa Health System, Assured Guaranty

    5.000     8/15/17        1,000,000        1,095,290   

Iowa Health System, Assured Guaranty

    5.000     8/15/18        1,350,000        1,515,901   

Iowa Health System, Assured Guaranty

    5.000     8/15/19        1,150,000        1,318,441   

Iowa State Finance Authority Midwestern Disaster Area Revenue:

                               

Iowa Fertilizer Co. Project

    5.000     12/1/19        14,525,000        15,766,161   

Iowa Fertilizer Co. Project

    5.250     12/1/25        17,290,000        19,382,090   

Total Iowa

                            58,911,642   

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   17


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Kansas — 0.1%

                               

Kansas State Development Finance Authority Revenue, Sisters Leavenworth

    5.250     1/1/25      $ 3,000,000      $ 3,481,890   

Kentucky — 0.5%

                               

Kentucky Economic Development Finance Authority, Hospital Facilities Revenue, Owensboro Medical Health System Inc.

    5.250     6/1/23        1,835,000        2,087,386   

Kentucky State Economic Development Finance Authority Revenue, Catholic Health Initiatives

    2.700     11/10/21        11,000,000        11,126,280  (b)(c) 

Total Kentucky

                            13,213,666   

Louisiana — 0.7%

                               

East Baton Rouge, LA, Parish Park & Recreation District, GO, AGM

    5.000     5/1/20        500,000        501,900  (a) 

Louisiana State Citizens Property Insurance Corp., Assessment Revenue

    5.625     6/1/21        1,830,000        2,073,097   

Louisiana State Citizens Property Insurance Corp., Assessment Revenue

    5.875     6/1/23        4,435,000        5,049,469   

St. Charles Parish, LA, Gulf Zone Opportunity Zone Revenue, Valero Refining-New Orleans LLC

    4.000     6/1/22        10,000,000        10,936,500  (b)(c) 

Total Louisiana

                            18,560,966   

Maryland — 0.9%

                               

Anne Arundel County, MD, GO, Consolidated Solid Waste Project

    5.300     2/1/17        450,000        451,575  (e) 

Maryland State EDC, EDR:

                               

Term Project

    5.375     6/1/25        5,055,000        5,546,295   

Transportation Facilities Project

    5.125     6/1/20        5,000,000        5,456,850   

Transportation Facilities Project

    5.375     6/1/25        7,500,000        8,228,925   

Maryland State Health & Higher EFA Revenue, Washington County Hospital

    6.000     1/1/28        4,000,000        4,400,240   

Total Maryland

                            24,083,885   

Massachusetts — 1.1%

                               

Massachusetts State HEFA Revenue:

                               

Cape Cod Healthcare Obligation Inc., AGM

    6.000     11/15/28        1,500,000        1,778,595   

Caregroup Inc.

    5.375     7/1/23        3,500,000        3,956,365   

Caregroup Inc.

    5.375     7/1/24        5,500,000        6,209,665   

Caregroup Inc.

    5.375     7/1/25        3,570,000        4,025,782   

UMass Memorial Health Care Inc.

    5.000     7/1/20        2,500,000        2,779,325   

UMass Memorial Medical Center Inc.

    5.000     7/1/19        1,500,000        1,662,195   

Massachusetts State, GO, Consolidated Loan

    0.450     1/1/18        8,500,000        8,510,625  (b) 

Total Massachusetts

                            28,922,552   

 

See Notes to Financial Statements.

 

18    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Michigan — 7.5%

                               

Detroit, MI, GO:

                               

District State Aid

    5.250     11/1/24      $ 5,000,000      $ 5,747,100   

District State Aid

    5.000     11/1/30        22,325,000        24,029,067   

Michigan Finance Authority, Trinity Health Corp.

    5.000     12/1/27        4,500,000        5,216,445   

Michigan State Building Authority Revenue, Facilities Program, AGM

    5.000     10/15/26        5,000,000        5,700,500   

Michigan State Finance Authority Limited Obligation Revenue, Higher Education, Thomas M Cooley Law School Project

    6.250     7/1/29        7,780,000        8,214,902  (f) 

Michigan State Finance Authority Revenue:

                               

Detroit School District

    5.500     6/1/21        15,000,000        17,172,600   

Detroit School District, Q-SBLF

    5.000     5/1/23        2,000,000        2,366,840   

Detroit School District, Q-SBLF

    5.000     5/1/24        2,000,000        2,380,520   

Detroit School District, Q-SBLF

    5.000     5/1/25        1,500,000        1,795,275   

Local Government Loan Program, Detroit Water & Sewer

    5.000     7/1/24        11,500,000        13,609,330   

Local Government Loan Program, Detroit Water & Sewer, AGM

    5.000     7/1/28        3,660,000        4,192,896   

Michigan State Hospital Finance Authority Revenue:

                               

McLaren Health Care Corp.

    5.625     5/15/28        23,690,000        26,685,127  (a) 

Refunding, Hospital, Sparrow Obligated

    5.000     11/15/19        1,000,000        1,103,590   

Michigan State Strategic Fund Ltd. Obligation Revenue:

                               

Detroit Edison

    5.500     8/1/16        5,000,000        5,282,300  (b)(c) 

Events Center Project

    4.125     1/1/19        10,000,000        10,183,500  (b)(c) 

Michigan Senate Offices Project

    5.000     10/15/28        1,190,000        1,403,438   

Michigan Senate Offices Project

    5.000     10/15/31        1,640,000        1,900,416   

Michigan Senate Offices Project

    5.000     10/15/33        1,985,000        2,273,480   

Michigan Senate Offices Project

    5.000     10/15/35        1,000,000        1,138,660   

Royal Oak, MI, Hospital Finance Authority Revenue, William Beaumont Hospital

    8.000     9/1/29        2,000,000        2,470,600  (a) 

Wayne County, MI, Airport Authority Revenue:

                               

Detroit Metropolitan Airport

    5.000     12/1/16        7,865,000        8,368,439  (e) 

Detroit Metropolitan Airport

    5.000     12/1/17        21,250,000        23,276,187  (e) 

Detroit Metropolitan Airport

    5.000     12/1/18        17,000,000        18,893,120  (e) 

Total Michigan

                            193,404,332   

Minnesota — 0.6%

                               

Minnesota Agricultural & Economic Development Board Revenue, Essentia Healthcare, AGM

    5.000     2/15/30        5,725,000        6,299,618   

St. Cloud, MN, Health Care Revenue, Centracare Health System

    5.000     5/1/25        10,000,000        10,037,600  (a) 

Total Minnesota

                            16,337,218   

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   19


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Missouri — 0.9%

                               

Boone County, MO, Hospital Revenue, Boone Hospital Center

    5.750     8/1/28      $ 9,080,000      $ 10,299,353   

Missouri Joint Municipal Electric Utility Commission Power Project Revenue, Iatan Second Project

    5.250     1/1/19        4,485,000        5,041,095   

Missouri State Environmental Improvement & Energy Resource Authority, Water Pollution State Revolving Funds Programs

    5.250     1/1/16        1,500,000        1,506,030   

Missouri State Health & EFA Revenue, St. Lukes Episcopal

    5.000     12/1/20        5,070,000        5,435,497   

Total Missouri

                            22,281,975   

Nevada — 0.7%

                               

Humboldt County, NV, PCR, Idaho Power Co. Project

    5.150     12/1/24        13,000,000        14,621,750   

Reno, NV, Hospital Revenue:

                               

Renown Regional Medical Center Project

    5.000     6/1/15        1,000,000        1,007,590   

Renown Regional Medical Center Project

    5.000     6/1/16        1,000,000        1,039,880   

Renown Regional Medical Center Project

    5.000     6/1/17        2,190,000        2,365,507   

Total Nevada

                            19,034,727   

New Jersey — 4.9%

                               

Casino Reinvestment Development Authority, NJ, Luxury Tax Revenue:

                               

AGM

    5.000     11/1/26        1,000,000        1,149,230   

AGM

    5.000     11/1/27        1,500,000        1,705,260   

AGM

    5.000     11/1/29        1,500,000        1,676,535   

AGM

    5.000     11/1/31        1,000,000        1,107,410   

New Jersey EDA, Water Facilities Revenue:

                               

New Jersey American Water Co.

    5.100     6/1/23        6,075,000        6,879,208  (e) 

New Jersey American Water Co.

    4.700     12/1/25        8,000,000        8,650,960  (e) 

New Jersey Health Care Facilities Financing Authority Revenue:

                               

Atlanticare Regional Medical Center

    5.000     7/1/15        1,840,000        1,860,424   

Atlanticare Regional Medical Center

    5.000     7/1/16        1,350,000        1,419,876   

New Jersey State EDA Revenue:

                               

Continental Airlines Inc. Project

    4.875     9/15/19        13,610,000        14,328,880  (e) 

School Facilities Construction

    1.620     3/1/28        20,000,000        19,513,400  (b) 

New Jersey State EFA Revenue, University of Medicine & Dentistry

    7.125     12/1/23        3,000,000        3,717,930  (a) 

New Jersey State Higher Education Assistance Authority, Student Loan Revenue

    5.375     6/1/24        19,255,000        21,312,782   

New Jersey State Housing & Mortgage Finance Agency, Multi-Family Revenue

    5.250     5/1/23        1,070,000        1,073,606   

New Jersey State Transportation Trust Fund Authority

    5.250     6/15/24        7,000,000        7,829,080   

New Jersey State Turnpike Authority Revenue

    0.500     1/1/17        10,000,000        10,008,400  (b) 

 

See Notes to Financial Statements.

 

20    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

New Jersey — continued

                               

New Jersey State Turnpike Authority Revenue

    0.640     1/1/17      $ 20,000,000      $ 20,081,200  (b)(c) 

Passaic Valley, NJ, Sewage Commissioners Sewer System, AMBAC

    5.625     12/1/17        3,095,000        3,106,916   

Total New Jersey

                            125,421,097   

New Mexico — 1.3%

                               

Bernalillo County, NM, Gross Receipts Tax Revenue, AMBAC

    5.250     10/1/21        1,100,000        1,328,349   

Farmington, NM, PCR, Arizona Public Service Co.

    4.700     9/1/24        27,000,000        29,985,120   

New Mexico Finance Authority Revenue, Subordinated Lien, Public Project Revolving Fund, NATL

    5.000     6/15/20        1,490,000        1,571,771   

Total New Mexico

                            32,885,240   

New York — 5.9%

                               

Brooklyn Arena, NY, Local Development Corp., Barclays Center Project

    6.000     7/15/30        33,640,000        39,462,411   

MTA, NY, Revenue

    5.250     11/15/22        6,000,000        7,101,000   

MTA, NY, Revenue

    5.250     11/15/24        22,995,000        27,120,303   

MTA, NY, Revenue

    5.000     11/15/25        5,000,000        5,874,400   

Nassau County, NY, Industrial Development Agency, Continuing Care Retirement Community Revenue:

                               

Amsterdam At Harborside

    5.875     1/1/23        1,136,250        1,148,078   

Amsterdam At Harborside

    2.000     1/1/49        406,193        32,496   

New York City, NY, Industrial Development Agency Revenue, Queens Baseball Stadium, Pilot, AMBAC

    5.000     1/1/19        1,500,000        1,597,815   

New York City, NY, TFA, Building Aid Revenue:

                               

Fiscal 2015

    5.000     7/15/29        2,500,000        2,972,450   

Fiscal 2015

    5.000     7/15/30        4,000,000        4,725,840   

New York State Dormitory Authority Revenue:

                               

Municipal Health Facility

    5.000     1/15/25        9,150,000        10,072,320   

Non-State Supported Debt, North Shore Long Island Jewish Medical Center

    5.000     5/1/21        2,500,000        2,828,925   

New York State Dormitory Authority, State Personal Income Tax Revenue, General Purpose

    5.000     2/15/25        10,000,000        12,190,100   

New York State Liberty Development Corp., Liberty Revenue, 3 World Trade Center Project

    5.150     11/15/34        2,500,000        2,748,500  (f) 

New York State Thruway Authority General Revenue, Junior Indebtedness Obligations

    5.000     5/1/19        7,000,000        7,984,410   

New York State Thruway Authority, State Personal Income Tax Revenue, Transportation

    5.000     3/15/26        1,800,000        2,158,470   

Port Authority of New York & New Jersey Revenue

    5.000     9/1/27        5,000,000        5,886,300  (e) 

Port Authority of New York & New Jersey Revenue

    5.000     9/1/28        5,000,000        5,836,850  (e) 

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   21


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

New York — continued

                               

Port Authority of New York & New Jersey, Special Obligation Revenue, JFK International Air Terminal LLC

    5.000     12/1/20      $ 4,000,000      $ 4,604,480   

Troy, NY, Capital Resource Corp. Revenue, Rensselaer Polytechnical Institute

    5.000     9/1/30        3,000,000        3,378,930   

Utility Debt Securitization Authority, NY, Revenue, Restructuring

    5.000     12/15/27        3,000,000        3,637,350   

Total New York

                            151,361,428   

North Carolina — 1.7%

                               

Charlotte-Mecklenburg Hospital Authority, NC, Health Care System Revenue, Carolinas Healthcare

    5.000     1/15/26        2,000,000        2,248,620   

North Carolina Eastern Municipal Power Agency, Power Systems Revenue

    5.000     1/1/26        25,250,000        28,475,435   

North Carolina Turnpike Authority, Triangle Expressway System Revenue:

                               

Assured Guaranty

    5.250     1/1/25        7,000,000        7,835,380   

Assured Guaranty

    5.375     1/1/26        4,590,000        5,151,357   

Total North Carolina

                            43,710,792   

Ohio — 2.7%

                               

Jackson, OH, Local School District, Stark & Summit Counties, AGM

    5.000     12/1/18        1,240,000        1,248,023   

Ohio State Air Quality Development Authority Revenue:

                               

FirstEnergy Generation Corp.

    5.625     6/1/18        20,000,000        22,132,800   

FirstEnergy Generation Corp.

    5.700     8/1/20        9,000,000        10,331,100   

FirstEnergy Nuclear Generation Corp.

    5.750     6/1/16        7,500,000        7,885,875  (b)(c) 

Ohio State Water Development Authority, Pollution Control Facilities Revenue, FirstEnergy Nuclear Generation Corp.

    3.375     7/1/15        26,650,000        26,818,161  (b)(c) 

Total Ohio

                            68,415,959   

Oregon — 0.6%

                               

Lane & Douglas Counties, OR, School District # 28J Fern Ridge, GO:

                               

Convertible Deferred Interest, School Board Guaranty

    0.000     6/15/30        3,170,000        3,588,060  (b) 

Convertible Deferred Interest, School Board Guaranty

    0.000     6/15/36        2,000,000        2,218,360  (b) 

Oregon State Department of Administrative Services, COP

    5.000     5/1/29        2,250,000        2,544,142   

Oregon State Facilities Authority Revenue, Legacy Health System Project

    5.250     5/1/20        5,000,000        5,881,250   

Total Oregon

                            14,231,812   

Pennsylvania — 3.3%

                               

Berks County, PA, Municipal Authority Revenue, Reading Hospital Medical Center

    1.520     7/1/22        7,500,000        7,699,575  (b)(c) 

Montgomery County, PA, Higher Education & Health Authority, Hospital Revenue, Abington Memorial Hospital

    5.000     6/1/25        11,000,000        12,471,030   

 

See Notes to Financial Statements.

 

22    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Pennsylvania — continued

                               

Montgomery County, PA, IDA Revenue:

                               

New Regional Medical Center Project, FHA

    5.000     8/1/24      $ 5,755,000      $ 6,708,719   

New Regional Medical Center Project, FHA

    5.750     8/1/30        2,990,000        3,039,006   

Pennsylvania Economic Development Financing Authority, Exempt Facilities Revenue, PPL Energy Supply LLC

    3.000     9/1/15        20,000,000        20,129,600  (b)(c) 

Pennsylvania Economic Development Financing Authority, Sewer Sludge Disposal Revenue, Philadelphia Biosolids Facility

    5.375     1/1/17        2,385,000        2,499,552   

Pennsylvania State Higher EFA Revenue, University of Pittsburgh Medical Center

    5.000     5/15/31        9,200,000        10,378,152   

Pennsylvania State Turnpike Commission Revenue

    1.000     12/1/21        11,000,000        11,045,430  (b) 

Pennsylvania State Turnpike Commission Revenue

    5.250     12/1/31        6,750,000        7,660,507   

Philadelphia, PA, School District, GO

    5.000     9/1/28        2,285,000        2,606,294  (j) 

Total Pennsylvania

                            84,237,865   

Puerto Rico — 0.7%

                               

Puerto Rico Commonwealth, GO, Public Improvement

    5.250     7/1/23        21,315,000        15,364,918   

Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue

    5.000     8/1/22        4,000,000        3,480,720   

Total Puerto Rico

                            18,845,638   

Rhode Island — 0.0%

                               

Providence, RI, Public Building Authority, General Revenue, NATL

    5.375     12/15/21        230,000        230,481   

Woonsocket, RI, GO, FGIC

    5.375     10/1/20        335,000        335,171   

Total Rhode Island

                            565,652   

South Carolina — 0.4%

                               

SCAGO, SC, Educational Facilities Corp. for Pickens School District Revenue

    5.000     12/1/29        3,500,000        4,075,715  (j) 

SCAGO, SC, Educational Facilities Corp. for Pickens School District Revenue

    5.000     12/1/30        2,250,000        2,611,575  (j) 

South Carolina Jobs, EDA, Hospital Revenue, Anmed Health

    5.000     2/1/22        2,355,000        2,648,292   

Total South Carolina

                            9,335,582   

Tennessee — 4.7%

                               

Clarksville, TN, Natural Gas Acquisition Corp., Gas Revenue

    5.000     12/15/17        2,000,000        2,192,320   

Memphis-Shelby County, TN, Airport Authority Revenue

    5.000     7/1/19        2,960,000        3,342,728  (e) 

Memphis-Shelby County, TN, Airport Authority Revenue

    5.000     7/1/20        6,390,000        7,329,458  (e) 

Memphis-Shelby County, TN, Airport Authority Revenue

    5.000     7/1/21        4,795,000        5,513,818  (e) 

Tennessee Energy Acquisition Corp., Gas Revenue

    5.250     9/1/19        8,260,000        9,470,668   

Tennessee Energy Acquisition Corp., Gas Revenue

    5.250     9/1/20        31,000,000        35,814,920   

Tennessee Energy Acquisition Corp., Gas Revenue

    5.250     9/1/23        15,000,000        17,687,400   

Tennessee Energy Acquisition Corp., Gas Revenue

    5.000     2/1/24        25,000,000        29,041,000   

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   23


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Tennessee — continued

                               

Tennessee Energy Acquisition Corp., Gas Revenue

    5.250     9/1/24      $ 6,885,000      $ 8,140,618   

Tennessee Housing Development Agency

    5.000     7/1/23        2,145,000        2,237,492  (e) 

Total Tennessee

                            120,770,422   

Texas — 11.8%

                               

Austin, TX, Airport Systems Revenue

    5.000     11/15/26        1,000,000        1,191,760  (e) 

Austin, TX, Airport Systems Revenue

    5.000     11/15/28        1,500,000        1,753,050  (e) 

Austin, TX, Airport Systems Revenue

    5.000     11/15/29        3,000,000        3,478,890  (e) 

Austin, TX, Airport Systems Revenue

    5.000     11/15/30        2,730,000        3,146,134  (e) 

Galveston, TX, Wharves & Terminal Revenue

    5.000     2/1/22        2,055,000        2,292,948   

Galveston, TX, Wharves & Terminal Revenue

    5.000     2/1/26        2,000,000        2,185,480   

Gulf Coast, TX, IDA Revenue, Citgo Petroleum Corp. Project

    4.875     5/1/25        3,000,000        3,166,530  (e) 

Harris County, TX, Cultural Education Facilities Finance Corp. Revenue:

                               

Memorial Hermann Healthcare System

    0.620     6/1/18        1,000,000        1,005,230  (b) 

Memorial Hermann Healthcare System

    0.720     6/1/19        2,250,000        2,267,055  (b) 

Memorial Hermann Healthcare System

    0.770     6/1/20        2,000,000        2,012,640  (b) 

Memorial Hermann Healthcare System

    0.850     6/1/21        3,710,000        3,733,225  (b) 

Harris County, TX, Cultural Education Facilities Finance Corp., Medical Facilities Revenue, Baylor College of Medicine

    5.375     11/15/28        11,000,000        12,478,290   

Harris County, TX, GO, Capital Appreciation, Refunding, Permanent Improvement, NATL

    0.000     10/1/17        1,000,000        975,670   

Harris County, TX, Houston Sports Authority Revenue, Senior Lien, AGM

    5.000     11/15/25        9,000,000        10,776,330   

Harris County, TX, Industrial Development Corp., Solid Waste Disposal Revenue, Deer Park Refining Project

    4.700     5/1/18        46,250,000        48,875,150   

Harris County, TX, Revenue, Toll Road

    0.610     8/15/15        30,000,000        30,007,200   (b)(c) 

Houston, TX, Airport Systems Revenue:

                               

Senior Lien

    5.000     7/1/26        8,215,000        9,141,406   

Senior Lien

    5.125     7/1/27        11,180,000        12,443,452   

Houston, TX, Utility System Revenue:

                               

Combined First Lien

    5.000     5/15/27        5,000,000        6,031,400   

Combined First Lien

    5.000     5/15/28        5,000,000        5,977,250   

Limestone County, TX, Public Facility Corp. Revenue, County Jail Project

    5.000     11/1/19        2,030,000        2,073,077   

Love Field, TX, Airport Modernization Corp., Special Facilities Revenue:

                               

Southwest Airlines Co. Project

    5.000     11/1/20        3,700,000        4,270,355   (e) 

Southwest Airlines Co. Project

    5.000     11/1/21        8,780,000        10,248,455   (e) 

Southwest Airlines Co. Project

    5.000     11/1/22        2,205,000        2,583,356   (e) 

 

See Notes to Financial Statements.

 

24    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Texas — continued

                               

North Forest, TX, ISD, ACA

    6.500     8/15/17      $ 1,230,000      $ 1,390,970   

North Texas Tollway Authority Revenue:

                               

NATL

    5.125     1/1/28        18,000,000        19,691,460   

System Second Tier

    5.000     1/1/31        4,000,000        4,551,760   

SA Energy Acquisition, PFC, TX, Gas Supply Revenue

    5.500     8/1/21        2,000,000        2,346,520   

Sabine River Authority, Texas PCR, Southwestern Electric Power Co., NATL

    4.950     3/1/18        13,000,000        14,292,200   

Tarrant County, TX, Health Facilities Development Corp., Health System Revenue, Original Issue Discount, FGIC

    5.000     9/1/15        320,000        326,415   (h) 

Texas Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue

    5.625     12/15/17        5,760,000        6,206,573   

Texas Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue

    5.250     12/15/18        3,650,000        4,108,476   

Texas Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue

    6.250     12/15/26        24,270,000        30,073,200   

Texas State Municipal Gas Acquisition & Supply Corp. III, Gas Supply Revenue

    5.000     12/15/18        4,000,000        4,488,160   

Texas State Municipal Gas Acquisition & Supply Corp. III, Gas Supply Revenue

    5.000     12/15/19        5,000,000        5,696,050   

Texas State Municipal Gas Acquisition & Supply Corp. III, Gas Supply Revenue

    5.000     12/15/20        5,750,000        6,621,182   

Texas State Transportation Commission Turnpike System Revenue

    5.000     8/15/31        10,000,000        11,239,700   

Texas State Transportation Commission Turnpike System Revenue

    5.000     8/15/32        10,000,000        11,205,700   

Total Texas

                            304,352,699   

U.S. Virgin Islands — 0.4%

                               

Virgin Islands Public Finance Authority Revenue:

                               

Matching Fund Loan

    5.000     10/1/25        3,560,000        3,991,935   

Matching Fund Loan

    6.625     10/1/29        5,000,000        5,848,450   

Total U.S. Virgin Islands

                            9,840,385   

Utah — 0.0%

                               

Provo, UT, Electric Revenue

    10.125     4/1/15        140,000        140,000   (h) 

Provo, UT, Electric Revenue, NATL

    10.125     4/1/15        150,000        150,000  (h) 

Total Utah

                            290,000   

Vermont — 0.5%

                               

Vermont State Student Assistance Corp., Education Loan Revenue, Vermont Student Assistance Corporation

    1.761     6/1/22        13,498,442        13,536,103  (b)(e)  

Virginia — 1.0%

                               

Pittsylvania County, VA, GO

    5.600     2/1/25        1,330,000        1,537,546   

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   25


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Virginia — continued

                               

Virginia State Resources Authority Infrastructure Revenue:

                               

Senior, Pooled Financing Program

    5.000     11/1/19      $ 690,000      $ 764,348  (a) 

Senior, Pooled Financing Program

    5.000     11/1/19        485,000        538,049   

Virginia State Small Business Financing Authority Revenue:

                               

Elizabeth River Crossings OpCo LLC Project

    5.000     1/1/24        1,760,000        1,976,621  (e) 

Elizabeth River Crossings OpCo LLC Project

    5.000     7/1/24        2,900,000        3,272,998  (e) 

Elizabeth River Crossings OpCo LLC Project

    5.000     7/1/25        3,875,000        4,317,331  (e) 

Elizabeth River Crossings OpCo LLC Project

    5.000     1/1/26        3,290,000        3,640,911  (e) 

Elizabeth River Crossings OpCo LLC Project

    5.000     7/1/26        4,700,000        5,201,302  (e) 

Washington County, VA, IDA Hospital Facilities Revenue, Mountain States Health Alliance

    7.250     7/1/19        4,195,000        4,709,685   

Total Virginia

                            25,958,791   

Washington — 0.9%

                               

King County, WA, Public Hospital District, GO

    5.250     12/1/28        6,725,000        7,485,396   

Port of Seattle, WA, Revenue

    5.000     9/1/24        2,300,000        2,684,583  (e) 

Washington State Health Care Facilities Authority Revenue:

                               

Central Washington Health Services Association

    6.750     7/1/29        7,080,000        8,259,386   

Multicare Health System

    5.750     8/15/29        3,000,000        3,507,810   

Total Washington

                            21,937,175   

West Virginia — 0.8%

                               

West Virginia Higher Education Policy Commission Revenue, Higher Education Facilities

    5.000     4/1/26        6,440,000        7,470,207   

West Virginia State Hospital Finance Authority Revenue, AGM

    5.375     6/1/28        6,000,000        6,795,300   

West Virginia State Hospital Finance Authority, Hospital Revenue, United Health Systems

    5.250     6/1/29        5,785,000        6,549,256   

Total West Virginia

                            20,814,763   

Wisconsin — 1.4%

                               

Central Brown County, WI, Water Authority System Revenue

    5.000     11/1/31        2,510,000        2,904,773   

Central Brown County, WI, Water Authority System Revenue

    5.000     11/1/32        2,000,000        2,303,820   

Central Brown County, WI, Water Authority System Revenue

    5.000     11/1/33        2,000,000        2,293,120   

Central Brown County, WI, Water Authority System Revenue

    5.000     11/1/34        2,000,000        2,286,040   

Milwaukee County, WI, Airport Revenue

    4.000     12/1/21        1,700,000        1,848,971  (e) 

Milwaukee County, WI, Airport Revenue

    5.000     12/1/22        1,345,000        1,523,051  (e) 

Milwaukee County, WI, Airport Revenue

    5.000     12/1/23        1,000,000        1,131,420  (e) 

Sheboygan, WI, PCR, Wisconsin Power Convention, FGIC

    5.000     9/1/15        2,610,000        2,659,355   

Wisconsin State General Fund Annual Appropriation Revenue

    5.375     5/1/25        10,000,000        11,665,200   

Wisconsin State HEFA Revenue, Children’s Hospital

    5.500     8/15/29        5,950,000        6,910,985   

Total Wisconsin

                            35,526,735   

 

See Notes to Financial Statements.

 

26    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

Wyoming — 0.6%

                               

Sweetwater County, WY, PCR, Idaho Power Co. Project

    5.250     7/15/26      $ 14,000,000      $ 16,084,180   

Total Municipal Bonds (Cost — $2,241,149,018)

                            2,444,674,113   
                   Shares         
Statutory Trust Certificates — 0.0%                                

CMS Liquidating Trust (Cost — $989,420)

                    200        593,986  (f)(k)  

Total Investments before Short-Term Investments (Cost — $2,242,138,438)

  

    2,445,268,099   
                   Face
Amount
        
Short-Term Investments — 4.2%                                

California — 0.0%

                               

Alameda County, CA, IDA Revenue, JMS Family Partnership, LOC-Wells Fargo Bank N.A.

    0.040     10/1/25      $ 100,000        100,000  (e)(l)(m) 

California Statewide CDA Revenue, Young Men’s Christian Association of The East Bay Project, LOC-Wells Fargo Bank N.A.

    0.010     6/1/27        640,000        640,000  (l)(m) 

Eastern, CA, Municipal Water District, Water & Wastewater Revenue, SPA-Wells Fargo Bank N.A.

    0.010     7/1/30        100,000        100,000  (l)(m) 

Total California

                            840,000   

Florida — 0.1%

                               

Florida Housing Finance Corp., Multi-Family Mortgage Revenue, Cutler Riverside Preservation Apartments, LIQ-FHLMC

    0.040     6/1/48        100,000        100,000  (e)(l)(m) 

North Broward, FL, Hospital District Revenue, NATL, LOC-Wells Fargo Bank N.A.

    0.020     1/15/27        2,250,000        2,250,000  (l)(m) 

Total Florida

                            2,350,000   

Illinois — 0.1%

                               

Illinois State Toll Highway Authority, Toll Highway Revenue, AGM, SPA-JPMorgan Chase

    0.040     1/1/31        1,400,000        1,400,000   (l)(m) 

Minnesota — 0.0%

                               

Rochester, MN, Health Care Facilities Revenue, Mayo Foundation, SPA-Bank of America N.A.

    0.010     8/15/32        100,000        100,000   (l)(m) 

Missouri — 0.0%

                               

Missouri State HEFA Revenue, BJC Health System

    0.010     5/15/38        200,000        200,000  (l)(m) 

Missouri State HEFA, Educational Facilities Revenue, St. Louis University, LOC-Bank of America N.A.

    0.010     10/1/35        395,000        395,000  (l)(m) 

Total Missouri

                            595,000   

New Hampshire — 0.2%

                               

New Hampshire State Business Finance Authority, Lonza Biologies Inc. Project, LOC-Landesbank Hessen-Thuringen

    0.130     11/1/20        4,500,000        4,500,000   (e)(l)(m) 

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   27


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

New Jersey — 0.0%

                               

New Jersey State Health Care Facilities Financing Authority Revenue, LOC-Wells Fargo Bank N.A.

    0.010     7/1/36      $ 100,000      $ 100,000  (l)(m) 

Salem County, NJ, PCFA Revenue, Public Service Electric & Gas

    0.160     11/1/33        100,000        100,000  (l)(m) 

Total New Jersey

                            200,000   

New York — 2.8%

                               

New York City, NY, GO:

                               

AGM, SPA-Dexia Credit Local

    0.130     11/1/26        8,050,000        8,050,000  (l)(m) 

LIQ-Dexia Credit Local

    0.110     4/1/35        10,100,000        10,100,000  (l)(m) 

SPA-Dexia Credit Local

    0.120     8/1/28        9,325,000        9,325,000  (l)(m) 

Subordinated, LOC-Dexia Credit Local

    0.120     3/1/34        200,000        200,000  (l)(m) 

New York City, NY, Municipal Water Finance Authority, Water & Sewer System Revenue:

                               

Second General Resolution, SPA-Dexia Credit Local

    0.110     6/15/32        7,100,000        7,100,000  (l)(m) 

SPA-Dexia Credit Local

    0.120     6/15/32        12,400,000        12,400,000  (l)(m) 

New York City, NY, TFA Revenue:

                               

Future Tax Secured, SPA-Dexia Credit Local

    0.120     8/1/22        8,600,000        8,600,000  (l)(m) 

Future Tax Secured, SPA-Dexia Credit Local

    0.120     8/1/23        6,675,000        6,675,000  (l)(m) 

New York City Recovery Project, Subordinated, LIQ-Dexia Credit Local

    0.120     11/1/22        7,120,000        7,120,000  (l)(m) 

New York State Housing Finance Agency Revenue:

                               

Gotham West Housing, LOC-Wells Fargo Bank N.A.

    0.010     5/1/45        1,100,000        1,100,000  (l)(m) 

Worth Street

    0.030     5/15/33        1,000,000        1,000,000  (e)(l)(m) 

Total New York

                            71,670,000   

North Carolina — 0.1%

                               

Charlotte, NC, Water & Sewer System Revenue, SPA-Wells Fargo Bank N.A.

    0.010     7/1/27        250,000        250,000  (l)(m) 

North Carolina Capital Facilities Finance Agency Revenue, Triangle Aquatic Center Project, LOC-Wells Fargo Bank N.A.

    0.020     8/1/28        990,000        990,000  (l)(m) 

Orange, NC, Water & Sewer Authority, System Revenue, SPA-Wells Fargo Bank N.A.

    0.020     7/1/29        700,000        700,000  (l)(m) 

Total North Carolina

                            1,940,000   

Ohio — 0.3%

                               

Montgomery County, OH, Revenue:

                               

Catholic Health Initiatives

    0.100     3/1/27        3,900,000        3,900,000  (l)(m) 

Catholic Health Initiatives

    0.100     10/1/41        3,800,000        3,800,000  (l)(m) 

Total Ohio

                            7,700,000   

Pennsylvania — 0.2%

                               

Mercer County, PA, GO

    0.080     10/1/31        4,960,000        4,960,000   (l)(m) 

 

See Notes to Financial Statements.

 

28    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

Security   Rate     Maturity
Date
    Face
Amount
    Value  

South Carolina — 0.0%

                               

North Charleston, SC, Tax Indicator Revenue, Noisette Community Redevelopment Project, SPA-Bank of America N.A.

    0.020     12/1/18      $ 1,030,000      $ 1,030,000  (l)(m)  

Vermont — 0.4%

                               

Vermont State Housing Finance Agency Revenue

    0.030     5/1/33        900,000        900,000  (e)(l)(m) 

Vermont State Housing Finance Agency Revenue:

                               

AGM

    0.030     5/1/37        5,500,000        5,500,000  (e)(l)(m) 

Multiple Purpose, SPA-Bank of New York Mellon

    0.030     11/1/37        4,900,000        4,900,000  (e)(l)(m) 

Total Vermont

                            11,300,000   

Washington — 0.0%

                               

Vancouver, WA, Housing Authority Revenue, LIQ-FHLMC

    0.010     12/1/38        700,000        700,000  (l)(m) 

Washington State Health Care Facilities Authority Revenue, Multicare Health System, LOC-Barclays Bank PLC

    0.010     8/15/41        100,000        100,000  (l)(m) 

Total Washington

                            800,000   

Total Short-Term Investments (Cost — $109,385,000)

  

    109,385,000   

Total Investments — 99.2% (Cost — $2,351,523,438#)

  

    2,554,653,099   

Other Assets in Excess of Liabilities — 0.8%

  

    20,649,613   

Total Net Assets — 100.0%

  

  $ 2,575,302,712   

 

(a) 

Pre-Refunded bonds are escrowed with U.S. government obligations and/or U.S. government agency securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings.

 

(b) 

Variable rate security. Interest rate disclosed is as of the most recent information available.

 

(c) 

Maturity date shown represents the mandatory tender date.

 

(d) 

All or a portion of this security is held at the broker as collateral for open futures contracts.

 

(e) 

Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (“AMT”).

 

(f) 

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

 

(g) 

The maturity principal is currently in default as of March 31, 2015.

 

(h) 

Bonds are escrowed to maturity by government securities and/or U.S. government agency securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings.

 

(i) 

The coupon payment on these securities is currently in default as of March 31, 2015.

 

(j) 

Security is purchased on a when-issued basis.

 

(k) 

Security is valued in good faith in accordance with procedures approved by the Board of Trustees (See Note 1).

 

(l) 

Variable rate demand obligations have a demand feature under which the Fund can tender them back to the issuer or liquidity provider on no more than 7 days notice.

 

(m) 

Maturity date shown is the final maturity date. The security may be sold back to the issuer before final maturity.

 

# Aggregate cost for federal income tax purposes is $2,349,448,870.

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   29


Schedule of investments (cont’d)

March 31, 2015

 

Western Asset Intermediate-Term Municipals Fund

 

 

Abbreviations used in this schedule:

ACA   — American Capital Assurance — Insured Bonds
AGM   — Assured Guaranty Municipal Corporation — Insured Bonds
AMBAC   — American Municipal Bond Assurance Corporation — Insured Bonds
CDA   — Communities Development Authority
COP   — Certificates of Participation
EDA   — Economic Development Authority
EDC   — Economic Development Corporation
EDR   — Economic Development Revenue
EFA   — Educational Facilities Authority
FGIC   — Financial Guaranty Insurance Company — Insured Bonds
FHA   — Federal Housing Administration
FHLMC   — Federal Home Loan Mortgage Corporation
GO   — General Obligation
HEFA   — Health & Educational Facilities Authority
IDA   — Industrial Development Authority
ISD   — Independent School District
LIQ   — Liquidity Facility
LOC   — Letter of Credit
MTA   — Metropolitan Transportation Authority
NATL   — National Public Finance Guarantee Corporation — Insured Bonds
PCFA   — Pollution Control Financing Authority
PCR   — Pollution Control Revenue
PFC   — Public Facilities Corporation
Q-SBLF   — Qualified School Board Loan Fund
SCAGO   — South Carolina Association of Governmental Organizations
SPA   — Standby Bond Purchase Agreement — Insured Bonds
TFA   — Transitional Finance Authority

 

See Notes to Financial Statements.

 

30    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


 

 

Western Asset Intermediate-Term Municipals Fund

 

 

Ratings table* (unaudited)       
Standard & Poor’s/Moody’s/Fitch**         
AAA/Aaa      3.4
AA/Aa      33.1   
A      41.8   
BBB/Baa      10.9   
BB/Ba      3.7   
B/B      1.3   
A-1/VMIG 1      4.3   
NR***      1.5   
       100.0

 

* As a percentage of total investments.

 

** The ratings shown are based on each portfolio security’s rating as determined by Standard & Poor’s, Moody’s or Fitch, each a Nationally Recognized Statistical Rating Organization (“NRSRO”). These ratings are the opinions of the NRSRO and are not measures of quality or guarantees of performance. Securities may be rated by other NRSROs, and these ratings may be higher or lower. In the event that a security is rated by multiple NRSROs and receives different ratings, the Fund will treat the security as being rated in the highest rating category received from a NRSRO.

 

*** The credit quality of unrated investments is evaluated based upon certain factors including, but not limited to, credit ratings for similar investmens and financial analysis of sectors and individual investments.

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   31


Statement of assets and liabilities

March 31, 2015

 

Assets:         

Investments, at value (Cost — $2,351,523,438)

   $ 2,554,653,099   

Interest receivable

     30,509,602   

Receivable for Fund shares sold

     4,464,262   

Receivable for securities sold

     3,797,865   

Prepaid expenses

     72,861   

Other assets

     458   

Total Assets

     2,593,498,147   
Liabilities:         

Payable for securities purchased

     9,259,246   

Payable for Fund shares repurchased

     5,873,572   

Investment management fee payable

     1,077,547   

Service and/or distribution fees payable

     634,176   

Distributions payable

     365,332   

Payable to broker — variation margin on open futures contracts

     129,188   

Trustees’ fees payable

     8,476   

Due to custodian

     3,437   

Accrued expenses

     844,461   

Total Liabilities

     18,195,435   
Total Net Assets    $ 2,575,302,712   
Net Assets:         

Par value (Note 7)

   $ 3,885   

Paid-in capital in excess of par value

     2,500,727,460   

Undistributed net investment income

     1,024,679   

Accumulated net realized loss on investments and futures contracts

     (128,873,096)   

Net unrealized appreciation on investments and futures contracts

     202,419,784   
Total Net Assets    $ 2,575,302,712   
Shares Outstanding:         

Class A

     199,904,959   

Class C

     110,030,661   

Class I

     78,612,727   
Net Asset Value:         

Class A (and redemption price)

     $6.63   

Class C (and redemption price)

     $6.64   

Class I (and redemption price)

     $6.62   
Maximum Public Offering Price Per Share:         

Class A (based on maximum initial sales charge of 2.25%)

     $6.78   

 

See Notes to Financial Statements.

 

32    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


Statement of operations

For the Year Ended March 31, 2015

 

Investment Income:         

Interest

   $ 95,149,958   
Expenses:         

Investment management fee (Note 2)

     12,321,187   

Service and/or distribution fees (Notes 2 and 5)

     7,383,816   

Transfer agent fees (Note 5)

     1,640,576   

Fund accounting fees

     179,329   

Registration fees

     143,573   

Legal fees

     135,109   

Audit and tax fees

     58,459   

Insurance

     44,462   

Shareholder reports

     44,227   

Trustees’ fees

     37,094   

Custody fees

     11,549   

Miscellaneous expenses

     13,826   

Total Expenses

     22,013,207   

Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)

     (99,949)   

Net Expenses

     21,913,258   
Net Investment Income      73,236,700   
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts (Notes 1, 3 and 4):         

Net Realized Loss From:

        

Investment transactions

     (8,959,933)   

Futures contracts

     (13,812,981)   

Net Realized Loss

     (22,772,914)   

Change in Net Unrealized Appreciation (Depreciation) From:

        

Investments

     72,574,854   

Futures contracts

     666,948   

Change in Net Unrealized Appreciation (Depreciation)

     73,241,802   
Net Gain on Investments and Futures Contracts      50,468,888   
Increase in Net Assets from Operations    $ 123,705,588   

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   33


Statements of changes in net assets

 

For the Years Ended March 31,   2015      2014  
Operations:                 

Net investment income

  $ 73,236,700       $ 86,058,361   

Net realized loss

    (22,772,914)         (31,989,287)   

Change in net unrealized appreciation (depreciation)

    73,241,802         (121,787,536)   

Increase (Decrease) in Net Assets from Operations

    123,705,588         (67,718,462)   
Distributions to Shareholders from (Notes 1 and 6):                 

Net investment income

    (72,912,181)         (84,806,818)   

Decrease in Net Assets from Distributions to Shareholders

    (72,912,181)         (84,806,818)   
Fund Share Transactions (Note 7):                 

Net proceeds from sale of shares

    710,499,302         726,942,618   

Reinvestment of distributions

    68,441,875         78,960,303   

Cost of shares repurchased

    (585,014,780)         (1,423,102,558)   

Increase (Decrease) in Net Assets from Fund Share Transactions

    193,926,397         (617,199,637)   

Increase (Decrease) in Net Assets

    244,719,804         (769,724,917)   
Net Assets:                 

Beginning of year

    2,330,582,908         3,100,307,825   

End of year*

  $ 2,575,302,712       $ 2,330,582,908   

*Includesundistributed net investment income of:

    $1,024,679         $1,237,930   

 

See Notes to Financial Statements.

 

34    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


Financial highlights

 

For a share of each class of beneficial interest outstanding throughout each year ended March 31:  
Class A Shares1    2015      2014      2013      2012      2011  
Net asset value, beginning of year      $6.49         $6.80         $6.65         $6.14         $6.41   
Income (loss) from operations:               

Net investment income

     0.21         0.22         0.21         0.24         0.25   

Net realized and unrealized gain (loss)

     0.13         (0.31)         0.15         0.51         (0.27)   

Total income (loss) from operations

     0.34         (0.09)         0.36         0.75         (0.02)   
Less distributions from:               

Net investment income

     (0.20)         (0.22)         (0.21)         (0.24)         (0.25)   

Total distributions

     (0.20)         (0.22)         (0.21)         (0.24)         (0.25)   
Net asset value, end of year      $6.63         $6.49         $6.80         $6.65         $6.14   

Total return2

     5.37      (1.32)      5.52      12.36      (0.31)
Net assets, end of year (millions)      $1,324         $1,203         $1,521         $1,300         $1,208   
Ratios to average net assets:               

Gross expenses

     0.75      0.75      0.73      0.72      0.72

Net expenses3

     0.75         0.75         0.73         0.72         0.72   

Net investment income

     3.11         3.38         3.16         3.71         4.00   
Portfolio turnover rate      7      9      7      15      25

 

1 

Per share amounts have been calculated using the average shares method.

 

2 

Performance figures, exclusive of sales charges, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

3 

The impact of compensating balance arrangements, if any, was less than 0.01%.

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   35


Financial highlights (cont’d)

 

For a share of each class of beneficial interest outstanding throughout each year ended March 31:  
Class C Shares1    2015      2014      2013      2012      2011  
Net asset value, beginning of year      $6.50         $6.81         $6.66         $6.15         $6.42   
Income (loss) from operations:               

Net investment income

     0.17         0.18         0.17         0.20         0.22   

Net realized and unrealized gain (loss)

     0.14         (0.31)         0.15         0.51         (0.27)   

Total income (loss) from operations

     0.31         (0.13)         0.32         0.71         (0.05)   
Less distributions from:               

Net investment income

     (0.17)         (0.18)         (0.17)         (0.20)         (0.22)   

Total distributions

     (0.17)         (0.18)         (0.17)         (0.20)         (0.22)   
Net asset value, end of year      $6.64         $6.50         $6.81         $6.66         $6.15   

Total return2

     4.77      (1.88)      4.90      11.68      (0.89)
Net assets, end of year (millions)      $730         $727         $1,075         $917         $808   
Ratios to average net assets:               

Gross expenses

     1.32      1.33      1.31      1.32      1.32

Net expenses3

     1.32         1.33         1.31         1.32         1.32   

Net investment income

     2.54         2.79         2.57         3.11         3.40   
Portfolio turnover rate      7      9      7      15      25

 

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 impact of compensating balance arrangements, if any, was less than 0.01%.

 

See Notes to Financial Statements.

 

36    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


For a share of each class of beneficial interest outstanding throughout each year ended March 31:  
Class I Shares1   2015     2014     2013     2012     2011  
Net asset value, beginning of year     $6.49        $6.80        $6.66        $6.14        $6.41   
Income (loss) from operations:          

Net investment income

    0.22        0.23        0.23        0.25        0.26   

Net realized and unrealized gain (loss)

    0.12        (0.31)        0.14        0.52        (0.27)   

Total income (loss) from operations

    0.34        (0.08)        0.37        0.77        (0.01)   
Less distributions from:          

Net investment income

    (0.21)        (0.23)        (0.23)        (0.25)        (0.26)   

Total distributions

    (0.21)        (0.23)        (0.23)        (0.25)        (0.26)   
Net asset value, end of year     $6.62        $6.49        $6.80        $6.66        $6.14   

Total return2

    5.37     (1.17)     5.54     12.71     (0.16)
Net assets, end of year (000s)     $520,803        $401,067        $503,867        $597,323        $314,561   
Ratios to average net assets:          

Gross expenses

    0.62     0.71     0.58     0.57     0.56

Net expenses3,4

    0.60 5      0.60 5      0.55 5      0.57        0.56   

Net investment income

    3.26        3.53        3.34        3.82        4.17   
Portfolio turnover rate     7     9     7     15     25

 

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 impact of compensating balance arrangements, if any, was less than 0.01%.

 

4

As a result of an expense limitation arrangement, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.60%. This expense limitation arrangement cannot be terminated prior to December 31, 2016 without the Board of Trustees’ consent.

 

5

Reflects fee waivers and/or expense reimbursements.

 

See Notes to Financial Statements.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   37


Notes to financial statements

 

1. Organization and significant accounting policies

Western Asset Intermediate-Term Municipals Fund (the “Fund”) is a separate diversified investment series of Legg Mason Partners Income Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

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 investment’s fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.

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

 

38    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


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

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

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

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

 

Ÿ  

Level 1 — quoted prices in active markets for identical investments

 

Ÿ  

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

 

Ÿ  

Level 3 — significant unobservable inputs (including the Fund’s 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.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   39


Notes to financial statements (cont’d)

 

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

 

ASSETS  
Description   Quoted Prices
(Level 1)
    Other Significant
Observable Inputs
(Level 2)
   

Significant
Unobservable
Inputs

(Level 3)

    Total  
Long-term investments†:                                

Municipal bonds

         $ 2,444,674,113             $ 2,444,674,113   

Statutory trust certificates

                $ 593,986        593,986   
Total long-term investments          $ 2,444,674,113      $ 593,986      $ 2,445,268,099   
Short-term investments†            109,385,000               109,385,000   
Total investments          $ 2,554,059,113      $ 593,986      $ 2,554,653,099   
LIABILITIES  
Description   Quoted Prices
(Level 1)
   

Other Significant
Observable Inputs

(Level 2)

   

Significant
Unobservable
Inputs

(Level 3)

    Total  
Other financial instruments:                                

Futures contracts

  $ 709,877                    $ 709,877   

 

See Schedule of Investments for additional detailed categorizations.

(b) 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. 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.

(c) 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. 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.

 

40    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


(d) Securities traded on a when-issued basis. The Fund may trade securities on a when-issued basis. In a when-issued transaction, the securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction. Purchasing such securities involves risk of loss if the value of the securities declines prior to settlement. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

(e) Distributions to shareholders. Distributions from net investment income of the Fund are declared each business day to shareholders of record, and are paid monthly. The Fund intends to satisfy conditions that will enable interest from municipal securities, which is exempt from federal and certain state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Fund. Distributions of net realized gains, if any, are taxable and 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.

(f) Share class accounting. Investment income, common expenses and realized/unrealized gains (losses) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.

(g) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.

(h) Federal and other taxes. It is the Fund’s 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 Fund’s financial statements.

Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of March 31, 2015, no provision for income tax is required in the Fund’s financial statements. The Fund’s 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.

(i) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   41


Notes to financial statements (cont’d)

 

reclassifications have no effect on net assets or net asset values per share. During the current year, the following reclassifications have been made:

 

        Undistributed Net
Investment Income
       Accumulated Net
Realized Loss
       Paid-in
Capital
 
(a)                $ 283,837         $ (283,837)   
(b)      $ (537,770)           537,770             

 

(a) 

Reclassifications are due to the expiration of a capital loss carryforward.

 

(b) 

Reclassifications are due to differences between book and tax accretion of market discount on fixed income securities.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and Western Asset Management Company (“Western Asset”) is the Fund’s subadviser. LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.50% of the Fund’s average daily net assets.

LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser 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.

As a result of an expense limitation arrangement between the Fund and LMPFA, the ratio of expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.60%. This expense limitation arrangement cannot be terminated prior to December 31, 2016 without the Board of Trustees’ consent.

During the year ended March 31, 2015, fees waived and/or expenses reimbursed amounted to $99,949.

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

Legg Mason Investor Services, LLC (“LMIS”), a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Fund’s sole and exclusive distributor.

There is a maximum initial sales charge of 2.25% for Class A shares. There is a contingent deferred sales charge (“CDSC”) of on Class C shares, which applies if redemption occurs within 12 months from purchase payment. In certain cases, Class A shares have a 0.50% CDSC, which applies if redemption occurs within 18 months from purchase payment. This

 

42    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of other shares of funds sold by LMIS, equal or exceed $500,000 in the aggregate. These purchases do not incur an initial sales charge.

For the year ended March 31, 2015, LMIS and its affiliates retained sales charges of $64,381 on sales of the Fund’s Class A shares. In addition, for the year ended March 31, 2015, CDSCs paid to LMIS and its affiliates were:

 

        Class A  
CDSCs      $ 19,921   

The Fund had adopted an unfunded, non-qualified deferred compensation plan (the “Plan”) which allowed non-interested trustees (“Independent Trustees”) to defer the receipt of all or a portion of their fees earned until a later date specified by the Independent Trustees. The deferred balances are reported in the Statement of Assets and Liabilities under Trustees’ fees payable and are considered a general obligation of the Fund and any payments made pursuant to the Plan will be made from the Fund’s general assets. The Plan was terminated effective January 1, 2007. This change had no effect on fees previously deferred. As of March 31, 2015, the Fund had accrued $1,082 as deferred compensation payable.

All officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.

3. Investments

During the year ended March 31, 2015, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

 

Purchases      $ 280,907,051   
Sales        162,661,404   

At March 31, 2015, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

 

Gross unrealized appreciation      $ 216,588,805   
Gross unrealized depreciation        (11,384,576)   
Net unrealized appreciation      $ 205,204,229   

At March 31, 2015, the Fund had the following open futures contracts:

 

     Number of
Contracts
    Expiration
Date
    Basis
Value
    Market
Value
    Unrealized
Depreciation
 
Contracts to Sell:                                        
U.S. Treasury Long-Term Bonds     318        6/15      $ 51,402,373      $ 52,112,250      $ (709,877)   

4. Derivative instruments 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 March 31, 2015.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   43


Notes to financial statements (cont’d)

 

 

LIABILITY DERIVATIVES1

 
      Interest
Rate Risk
 

Futures contracts2

   $ 709,877   

 

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 

Includes cumulative appreciation (depreciation) of futures contracts as reported in the footnotes. Only variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities.

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the year ended March 31, 2015. 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 Fund’s derivatives and hedging activities during the period.

 

AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED  
      Interest
Rate Risk
 
Futures contracts    $ (13,812,981)   

 

CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED  
      Interest
Rate Risk
 
Futures contracts    $ 666,948   

During the year ended March 31, 2015, the volume of derivative activity for the Fund was as follows:

 

        Average Market
Value
 
Futures contracts (to sell)      $ 107,517,743   

The following table presents by financial instrument, the Fund’s derivative liabilities net of the related collateral pledged by the Fund at March 31, 2015:

 

      Gross Amount of Derivative
Liabilities in the Statement  of
Assets and Liabilities1
     Collateral
Pledged2,3,4
     Net
Amount
 
Futures contracts5    $ 129,188       $ (129,188)           

 

1 

Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.

 

2 

Gross amounts are not offset in the Statement of Assets and Liabilities.

 

3 

In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization.

 

4 

See the Schedule of Investments for securities pledged as collateral.

 

5 

Amount represents the current day’s variation margin as reported in the Statement of Assets and Liabilities. It differs from the cumulative appreciation (depreciation) presented in the previous table.

 

44    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


5. Class specific expenses, waivers and/or expense reimbursements

The Fund has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan the Fund pays distribution and/or service fees with respect to its Class A and Class C shares calculated at the annual rate of 0.15% and 0.75% of the average daily net assets of each class, respectively. Service and distribution fees are accrued daily and paid monthly.

For the year ended March 31, 2015, class specific expenses were as follows:

 

        Service and/or
Distribution Fees
       Transfer Agent
Fees
 
Class A      $ 1,914,837         $ 884,847   
Class C        5,468,979           322,216   
Class I                  433,513   
Total      $ 7,383,816         $ 1,640,576   

For the year ended March 31, 2015, waivers and/or expense reimbursements by class were as follows:

 

        Waivers/Expense
Reimbursements
 
Class A          
Class C          
Class I      $ 99,949   
Total      $ 99,949   

6. Distributions to shareholders by class

 

        Year Ended
March 31, 2015
       Year Ended
March 31, 2014
 
Net Investment Income:                      
Class A      $ 39,577,845         $ 45,215,097   
Class C        18,448,752           23,955,810   
Class I        14,885,584           15,635,911   
Total      $ 72,912,181         $ 84,806,818   

7. Shares of beneficial interest

At March 31, 2015, the Fund had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Fund has the ability to issue multiple classes of shares. Each class of shares represents an identical interest and has the same rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   45


Notes to financial statements (cont’d)

 

Transactions in shares of each class were as follows:

 

     Year Ended
March 31, 2015
     Year Ended
March 31, 2014
 
      Shares      Amount      Shares      Amount  
Class A                                    
Shares sold      54,694,906       $ 360,459,200         53,156,563       $ 348,519,551   
Shares issued on reinvestment      5,683,956         37,568,145         6,571,618         42,703,256   
Shares repurchased      (45,924,132)         (303,109,623)         (98,002,485)         (634,414,722)   
Net increase (decrease)      14,454,730       $ 94,917,722         (38,274,304)       $ (243,191,915)   
Class C                                    
Shares sold      22,025,220       $ 145,736,151         24,639,029       $ 163,997,227   
Shares issued on reinvestment      2,664,303         17,632,925         3,503,606         22,818,624   
Shares repurchased      (26,504,509)         (175,182,403)         (74,182,498)         (484,078,584)   
Net decrease      (1,814,986)       $ (11,813,327)         (46,039,863)       $ (297,262,733)   
Class I                                    
Shares sold      30,930,596       $ 204,303,951         32,709,866       $ 214,425,840   
Shares issued on reinvestment      2,003,000         13,240,805         2,068,179         13,438,423   
Shares repurchased      (16,154,144)         (106,722,754)         (47,049,916)         (304,609,252)   
Net increase (decrease)      16,779,452       $ 110,822,002         (12,271,871)       $ (76,744,989)   

8. Income tax information and distributions to shareholders

The tax character of distributions paid during the fiscal years ended March 31, was as follows:

 

        2015        2014  
Distributions paid from:                      
Tax-exempt income      $ 72,706,498         $ 84,806,818   
Ordinary income        205,683             
Total taxable distributions      $ 205,683             
Total distributions paid      $ 72,912,181         $ 84,806,818   

As of March 31, 2015, the components of accumulated earnings on a tax basis were as follows:

 

Undistributed tax-exempt income — net      $ 1,102,734   
Deferred capital losses*        (63,845,039)   
Capital loss carryforward**        (67,812,502)   
Other book/tax temporary differences(a)        631,822   
Unrealized appreciation (depreciation)(b)        204,494,352   
Total accumulated earnings (losses) — net      $ 74,571,367   

 

* These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future capital gains. These losses must be utilized before any of the Fund’s capital loss carryforward may be utilized.

 

46    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


** As of March 31, 2015, the Fund had the following net capital loss carryforward remaining:

 

Year of Expiration      Amount  
3/31/2018      $ (20,981,898
3/31/2019        (46,830,604
       $ (67,812,502

These amounts will be available to offset any future taxable capital gains.

 

(a) 

Other book/tax temporary differences are attributable to the realization for tax purposes of unrealized gains (losses) on certain futures contracts 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 to the difference between book & tax accretion methods for market discount on fixed income securities.

 

Western Asset Intermediate-Term Municipals Fund 2015 Annual Report   47


Report of independent registered public accounting firm

 

The Board of Trustees and Shareholders

Legg Mason Partners Income Trust:

We have audited the accompanying statement of assets and liabilities of Western Asset Intermediate-Term Municipals Fund (the “Fund”), a series of Legg Mason Partners Income Trust, including the schedule of investments, as of March 31, 2015, 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 Fund’s 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 March 31, 2015, 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 Intermediate-Term Municipals Fund as of March 31, 2015, 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.

 

LOGO

New York, New York

May 19, 2015

 

48    Western Asset Intermediate-Term Municipals Fund 2015 Annual Report


Board approval of management and subadvisory agreements (unaudited)

 

At an in-person meeting of the Board of Trustees of Legg Mason Partners Income Trust (the “Trust”) held on November 10-11, 2014, the Board, including the Trustees who are not considered to be “interested persons” of the Trust (the “Independent Trustees”) under the Investment Company Act of 1940, as amended (the “1940 Act”), approved for an annual period the continuation of the management agreement (the “Management Agreement”) between the Trust and Legg Mason Partners Fund Advisor, LLC (the “Manager”) with respect to the Western Asset Intermediate-Term Municipals Fund, a series of the Trust (the “Fund”), and the sub-advisory agreement (the “Sub-Advisory Agreement”) between the Manager and Western Asset Management Company (the “Subadviser”), an affiliate of the Manager, with respect to the Fund.

Background

The Board received information in advance of the meeting from the Manager to assist it in its consideration of the Management Agreement and the Sub-Advisory Agreement and was given the opportunity to ask questions and request additional information from management. In addition, prior to the meeting the Independent Trustees met with their independent legal counsel to discuss and consider the information provided by management and submitted questions to management, and they considered the responses provided. The Board received and considered a variety of information about the Manager and the Subadviser, as well as the management and sub-advisory arrangements for the Fund and other funds overseen by the Board, certain portions of which are discussed below. The information provided and presentations made to the Board encompassed the Fund and all funds for which the Board has responsibility. The discussion below covers both the advisory and the administrative functions being rendered by the Manager, both of which functions are encompassed by the Management Agreement, as well as the advisory functions rendered by the Subadviser pursuant to the Sub-Advisory Agreement.

Board approval of management agreement and sub-advisory agreement

The Independent Trustees were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Trustees received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the proposed continuation of the Management Agreement and the Sub-Advisory Agreement. The Independent Trustees also reviewed the proposed continuation of the Management Agreement and the Sub-Advisory Agreement in private sessions with their independent legal counsel at which no representatives of the Manager or Subadviser were present. The Independent Trustees considered the Management Agreement and the Sub-Advisory Agreement separately in the course of their review. In doing so, they noted the respective roles of the Manager and the Subadviser in providing services to the Fund.

In approving the Management Agreement and Sub-Advisory Agreement, the Board, including the Independent Trustees, considered a variety of factors, including those factors discussed below. No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the Management Agreement and the

 

Western Asset Intermediate-Term Municipals Fund   49


Board approval of management and subadvisory agreements (unaudited) (cont’d)

 

Sub-Advisory Agreement. Each Trustee may have attributed different weight to the various factors in evaluating the Management Agreement and the Sub-Advisory Agreement.

Nature, extent and quality of the services under the management agreement and sub-advisory agreement

The Board received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Subadviser under the Management Agreement and the Sub-Advisory Agreement, respectively, during the past year. The Board noted information received at regular meetings throughout the year related to the services rendered by the Manager in its management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Fund’s other service providers. The Board’s evaluation of the services provided by the Manager and the Subadviser took into account the Board’s knowledge gained as Trustees of funds in the Legg Mason fund complex, including knowledge gained regarding the scope and quality of the investment management and other capabilities of the Manager and the Subadviser, and the quality of the Manager’s administrative and other services. The Board observed that the scope of services provided by the Manager and the Subadviser, and of the undertakings required of the Manager and Subadviser in connection with those services, including maintaining and monitoring their own and the Fund’s compliance programs, had expanded over time as a result of regulatory, market and other developments. The Board also noted that on a regular basis it received and reviewed information from the Manager and the Subadviser regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Manager’s and the Subadviser’s risk management processes.

The Board reviewed the qualifications, backgrounds and responsibilities of the Manager’s and the Subadviser’s senior personnel and the team of investment professionals 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 financial resources of Legg Mason, Inc., the parent organization of the Manager and the Subadviser.

The Board considered the division of responsibilities between the Manager and the Subadviser and the oversight provided by the Manager. The Board also considered the Manager’s and the Subadviser’s policies and practices regarding the selection of brokers and dealers and the execution of portfolio transactions. In addition, management also reported to the Board on, among other things, its business plans and organizational changes.

The Board received and considered 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 Board also noted that it had received and discussed with management information throughout the year at periodic intervals comparing the Fund’s performance against its benchmark and against the Fund’s peers. In addition, the Board considered the Fund’s performance in light of overall financial market conditions.

 

50    Western Asset Intermediate-Term Municipals Fund


 

The information comparing the Fund’s performance to that of its Performance Universe, consisting of all retail and institutional funds classified as intermediate municipal debt funds by Lipper, showed, among other data, that the Fund’s performance for the 1-year period ended June 30, 2014 was below the median and that its performance for the 3-, 5- and 10-year periods ended June 30, 2014 was above the median. The Board noted the explanations from the Manager and the Subadviser concerning the Fund’s relative performance versus the peer group for the various periods.

The Board concluded that, overall, the nature, extent and quality of services provided (and expected to be provided), including performance, under the Management Agreement and the Sub-Advisory Agreement were sufficient for renewal.

Management fees and expense ratios

The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) and the actual management fees paid by the Fund to the Manager (the “Actual Management Fee”) in light of the nature, extent and quality of the management and sub-advisory services provided by the Manager and the Subadviser. The Board also considered that fee waiver and/or expense reimbursement arrangements are currently in place for certain share classes of the Fund. In addition, the Board noted that the compensation paid to the Subadviser is paid by the Manager, not the Fund.

In addition, the Board received and considered information provided by Lipper comparing the Contractual Management Fee and the Actual Management Fee and the Fund’s total actual expenses with those of funds in both the relevant expense group and a broader group of funds, each selected by Lipper. The Board also reviewed 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, separate accounts.

The Manager reviewed with the Board the differences in services provided to these different types of accounts, noting that the Fund is provided with certain administrative services, office facilities, and Fund officers (including the Fund’s 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 Board considered the fee comparisons in light of the differences in management of these different types of accounts.

The Board considered the overall management fee, the Subadviser’s fee and the amount of the management fee retained by the Manager after payment of the subadvisory fee in each case in light of the services rendered for those amounts. The Board also received an analysis of complex-wide management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes.

The information comparing the Fund’s Contractual and Actual Management Fees as well as its actual total expense ratio to its expense group, consisting of a group of retail front-end load funds (including the Fund) classified as intermediate municipal debt funds and chosen by Lipper to be comparable to the Fund, showed that the Fund’s Contractual Management

 

Western Asset Intermediate-Term Municipals Fund   51


Board approval of management and subadvisory agreements (unaudited) (cont’d)

 

Fee and Actual Management Fee were above the median. The Board noted that the Fund’s actual total expense ratio was above the median. The Board took into account management’s discussion of the Fund’s expenses. The Board also considered that the current expense limitation applicable to certain of the Fund’s share classes is expected to continue through December 2016.

Taking all of the above into consideration, as well as the factors identified below, the Board determined that the management fee and the subadvisory fee for the Fund were reasonable in light of the nature, extent and quality of the services provided to the Fund under the Management Agreement and the Sub-Advisory Agreement.

Manager profitability

The Board received and considered an analysis of the profitability of the Manager and its affiliates in providing services to the Fund. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received information with respect to the Manager’s allocation methodologies used in preparing this profitability data. It was noted that the allocation methodologies had been reviewed previously by an outside consultant. The profitability of the Manager and its affiliates was considered by the Board not excessive in light of the nature, extent and quality of the services provided to the Fund and the type of fund it represented.

Economies of scale

The Board received and discussed information concerning whether the Manager realizes economies of scale as the Fund’s assets grow.

The Board determined that the management fee structure for the Fund was reasonable.

Other benefits to the manager and the subadviser

The Board considered other benefits received by the Manager, the Subadviser and their affiliates as a result of their relationship with the Fund, including the opportunity to offer additional products and services to Fund shareholders.

In light of the costs of providing investment management and other services to the Fund and the ongoing commitment of the Manager and the Subadviser to the Fund, the Board considered that the ancillary benefits that the Manager and its affiliates received were reasonable.

*  *  *

In light of all of the foregoing, the Board determined that the continuation of each of the Management Agreement and Sub-Advisory Agreement would be in the best interests of the Fund’s shareholders and approved the continuation of such agreements for another year.

 

52    Western Asset Intermediate-Term Municipals Fund


Additional information (unaudited)

Information about Trustees and Officers

 

The business and affairs of Western Asset Intermediate-Term Municipals Fund (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o Kenneth D. Fuller, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Trustees and officers of the Fund is set forth below.

The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Fund at 1-877-721-1926.

 

Independent Trustees†:    
Elliott J. Berv  
Year of birth   1943
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1989
Principal occupation(s) during past five years   President and Chief Executive Officer, Catalyst (consulting) (since 1984); formerly, Chief Executive Officer, Rocket City Enterprises (media) (2000 to 2005)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   None
Jane F. Dasher  
Year of birth   1949
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1999
Principal occupation(s) during past five years   Chief Financial Officer, Long Light Capital, LLC, formerly known as Korsant Partners, LLC (a family investment company) (since 1997)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   None
Mark T. Finn  
Year of birth   1943
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1989
Principal occupation(s) during past five years   Adjunct Professor, College of William & Mary (since 2002); Chairman, Chief Executive Officer and Owner, Vantage Consulting Group, Inc. (investment management) (since 1988); Principal/Member, Balvan Partners (investment management) (2002 to 2009)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   None

 

Western Asset Intermediate-Term Municipals Fund   53


Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Independent Trustees cont’d    
Stephen R. Gross  
Year of birth   1947
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1986
Principal occupation(s) during past five years   Chairman Emeritus (since 2011) and formerly Chairman, HLB Gross Collins, P.C. (accounting and consulting firm) (1974 to 2011); Executive Director of Business Builders Team, LLC (since 2005); Principal, Gross Consulting Group, LLC (since 2011); CEO, Gross Capital Advisors, LLC (since 2011); CEO, Trusted CFO Solutions, LLC (since 2011)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   None
Richard E. Hanson, Jr.  
Year of birth   1941
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1985
Principal occupation(s) during past five years   Retired; formerly Headmaster, The New Atlanta Jewish Community High School, Atlanta, Georgia (1996 to 2000)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   None
Diana R. Harrington  
Year of birth   1940
Position(s) with Trust   Trustee and Chair
Term of office1 and length of time served2   Since 1992 (Chair of the Board since 2013)
Principal occupation(s) during past five years   Babson Distinguished Professor of Finance, Babson College (since 1992)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   None
Susan M. Heilbron  
Year of birth   1945
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1994
Principal occupation(s) during past five years   Retired; formerly, President, Lacey & Heilbron (communications consulting) (1990 to 2002); formerly, General Counsel and Executive Vice President, The Trump Organization (1986 to 1990); formerly, Senior Vice President, New York State Urban Development Corporation (1984 to 1986); formerly, Associate, Cravath, Swaine & Moore (1980 to 1984) and (1977 to 1979)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   Formerly, Director, Lincoln Savings Bank, FSB (1991 to 1994); formerly, Director, Trump Shuttle, Inc. (air transportation) (1989 to 1990); formerly, Director, Alexander’s Inc. (department store) (1987 to 1990)

 

54    Western Asset Intermediate-Term Municipals Fund


 

Independent Trustees cont’d    
Susan B. Kerley  
Year of birth   1951
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1992
Principal occupation(s) during past five years   Investment Consulting Partner, Strategic Management Advisors, LLC (investment consulting) (since 1990)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   Director and Trustee (since 1990) and formerly, Chairman (2005 to 2012) of various series of MainStay Family of Funds (66 funds); Investment Company Institute (ICI) Board of Governors (2006 to 2014); ICI Executive Committee (2011 to 2014); Chairman of the Independent Directors Council (2012 to 2014)
Alan G. Merten  
Year of birth   1941
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1990
Principal occupation(s) during past five years   President Emeritus (since 2012) and formerly, President, George Mason University (1996 to 2012)
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   Director Emeritus (since 2012) and formerly, Director, Cardinal Financial Corporation (2006 to 2012); Trustee, First Potomac Realty Trust (since 2005); Director, DeVry Inc. (educational services) (since 2012); formerly, Director, Xybernaut Corporation (information technology) (2004 to 2006); formerly, Director, Digital Net Holdings, Inc. (2003 to 2004); formerly, Director, Comshare, Inc. (information technology) (1985 to 2003)
R. Richardson Pettit  
Year of birth   1942
Position(s) with Trust   Trustee
Term of office1 and length of time served2   Since 1990
Principal occupation(s) during past five years   Retired; Duncan Professor of Finance Emeritus, University of Houston (1977 to 2006); previous academic or management positions include: University of Washington, University of Pennsylvania and Purdue University
Number of funds in fund complex overseen by Trustee   54
Other board memberships held by Trustee during past five years   None

 

Western Asset Intermediate-Term Municipals Fund   55


Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Interested Trustee and Officer:
Kenneth D. Fuller3  
Year of birth   1958
Position(s) with Trust   Trustee, President, and Chief Executive Officer
Term of office1 and length of time served2   Since 2013
Principal occupation(s) during past five years   Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2013); Officer and/or Trustee/Director of 157 funds associated with Legg Mason Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2013); President and Chief Executive Officer of LMPFA (since 2013); President and Chief Executive Officer of LM Asset Services, LLC (“LMAS”) and Legg Mason Fund Asset Management Inc. (“LMFAM”) (formerly registered investment advisers) (since 2013); formerly, Senior Vice President of LMPFA (2012 to 2013); formerly, Director of Legg Mason & Co. (2012 to 2013); formerly, Vice President of Legg Mason & Co. (2009 to 2012); formerly, Vice President – Equity Division of T. Rowe Price Associates (1993 to 2009), as well as Investment Analyst and Portfolio Manager for certain asset allocation accounts (2004 to 2009).
Number of funds in fund complex overseen by Trustee   147
Other board memberships held by Trustee during past five years   None
 
Additional Officers:

Ted P. Becker

Legg Mason

620 Eighth Avenue, 49th Floor, New York, NY 10018

 
Year of birth   1951
Position(s) with Trust   Chief Compliance Officer
Term of office1 and length of time served2   Since 2007
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)

 

56    Western Asset Intermediate-Term Municipals Fund


 

Additional Officers cont’d

Susan Kerr

Legg Mason

620 Eighth Avenue, 49th Floor, New York, NY 10018

 
Year of birth   1949
Position(s) with Trust   Chief Anti-Money Laundering Compliance Officer
Term of office1 and length of time served2   Since 2013
Principal occupation(s) during past five years   Assistant Vice President of Legg Mason & Co. and Legg Mason Investor Services, LLC (“LMIS”) (since 2010); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2013) and Anti-Money Laundering Compliance Officer of LMIS (since 2012); Senior Compliance Officer of LMIS (since 2011); formerly, AML Consultant, DTCC (2010); formerly, AML Consultant, Rabobank Netherlands, (2009); formerly, First Vice President, Director of Marketing & Advertising Compliance and Manager of Communications Review Group at Citigroup Inc. (1996 to 2008)

Vanessa A. Williams

Legg Mason

100 First Stamford Place, 6th Floor, Stamford, CT 06902

 
Year of birth   1979
Position(s) with Trust   Identity Theft Prevention Officer
Term of office1 and length of time served2   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); formerly, Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (2011 to 2013); 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, 6th Floor, Stamford, CT 06902

Year of birth   1954
Position(s) with Trust   Secretary and Chief Legal Officer
Term of office1 and length of time served2   Since 2007
Principal occupation(s) during past five years   Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel — U.S. 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 Intermediate-Term Municipals Fund   57


Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Additional Officers cont’d

Thomas C. Mandia

Legg Mason

100 First Stamford Place, 6th Floor, Stamford, CT 06902

 
Year of birth   1962
Position(s) with Trust   Assistant Secretary
Term of office1 and length of time served2   Since 2007
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 to LMAS (since 2002) and LMFAM (since 2013)

Richard F. Sennett

Legg Mason

100 International Drive, 7th Floor, Baltimore, MD 21202

 
Year of birth   1970
Position(s) with Trust   Principal Financial Officer
Term of office1 and length of time served2   Since 2011
Principal occupation(s) during past five years   Principal Financial Officer and Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011 and since 2013); 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 SEC’s Division of Investment Management (2007 to 2011); formerly, Assistant Chief Accountant within the SEC’s Division of Investment Management (2002 to 2007)

Steven Frank
Legg Mason

620 Eighth Avenue, 49th Floor, New York, NY 10018

 
Year of birth   1967
Position(s) with Trust   Treasurer
Term of office1 and length of time served2   Since 2014
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); formerly, Assistant Controller of certain mutual funds associated with Legg Mason & Co. predecessors (prior to 2005)

 

58    Western Asset Intermediate-Term Municipals Fund


 

Additional Officers cont’d

Jeanne M. Kelly

Legg Mason

620 Eighth Avenue, 49th Floor, New York, NY 10018

 
Year of birth   1951
Position(s) with Trust   Senior Vice President
Term of office1 and length of time served2   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) and LMFAM (since 2013); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005)

 

Trustees who are not “interested persons” of the Fund within the meaning of section 2(a)(19) of the 1940 Act.

 

1 

Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal.

 

2 

Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office.

 

3 

Mr. Fuller is an “interested person” of the Fund, as defined in the 1940 Act, because of his position with LMPFA and/or certain of its affiliates.

 

Western Asset Intermediate-Term Municipals Fund   59


Important tax information (unaudited)

 

The following information is provided with respect to the distributions paid during the taxable year ended March 31, 2015:

 

Record date:    Daily    Daily    Daily
Payable date:    April 2014 through
September 2014
   October 31, 2014    November 2014
through March 2015
Tax-exempt interest    100.00%    96.79%    100.00%
Ordinary income         —    3.21% *         —

The following information is applicable to non-U.S. resident shareholders:

 

* All of the ordinary income distributions paid by the Fund represent Qualified Net Interest Income and Qualified Short-Term Gain eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

Please retain this information for your records.

 

60    Western Asset Intermediate-Term Municipals Fund


Western Asset

Intermediate-Term Municipals Fund

 

Trustees

Elliott J. Berv

Jane F. Dasher

Mark T. Finn

Kenneth D. Fuller

President

Stephen R. Gross

Richard E. Hanson, Jr.

Diana R. Harrington

Chair

Susan M. Heilbron

Susan B. Kerley

Alan G. Merten

R. Richardson Pettit

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadviser

Western Asset Management Company

Distributor

Legg Mason Investor Services, LLC

Custodian

State Street Bank and Trust Company

Transfer agent

BNY Mellon Investment Servicing (US) Inc.

4400 Computer Drive

Westborough, MA 01581

Independent registered public accounting firm

KPMG LLP

345 Park Avenue

New York, NY 10154

 

Western Asset Intermediate-Term Municipals Fund

The Fund is a separate investment series of Legg Mason Partners Income Trust, a Maryland statutory trust.

Western Asset Intermediate-Term Municipals Fund

Legg Mason Funds

620 Eighth Avenue, 49th Floor

New York, NY 10018

 

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 Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s 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, shareholders can call the Fund at 1-877-721-1926.

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 related to portfolio transactions are available (1) without charge, upon request, by calling the Fund 1-877-721-1926, (2) on the Fund’s website at www.leggmason.com/individualinvestors and (3) on the SEC’s website at www.sec.gov.

 

This report is submitted for the general information of the shareholders of Western Asset Intermediate-Term Municipals Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.

Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.

www.leggmason.com/individualinvestors

© 2015 Legg Mason Investor Services, LLC

Member FINRA, SIPC


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:

 

Ÿ  

Personal information included on applications or other forms;

 

Ÿ  

Account balances, transactions, and mutual fund holdings and positions;

 

Ÿ  

Online account access user IDs, passwords, security challenge question responses; and

 

Ÿ  

Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individual’s total debt, payment history, etc.).

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:

 

Ÿ  

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;

 

Ÿ  

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;

 

Ÿ  

The Funds’ representatives such as legal counsel, accountants and auditors; and

 

Ÿ  

Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.

 

NOT PART OF THE ANNUAL REPORT


Legg Mason Funds Privacy and Security Notice (cont’d)

 

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 1-877-721-1926.

 

NOT PART OF THE ANNUAL REPORT


www.leggmason.com/individualinvestors

© 2015 Legg Mason Investor Services, LLC Member FINRA, SIPC

FD2305 5/15 SR15-2468


ITEM 2. CODE OF ETHICS.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

The Board of Trustees of the registrant has determined that Stephen R. Gross and Jane F. Dasher, possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as “audit committee financial experts,” and have designated Mr. Gross and Ms. Dasher as the Audit Committee’s financial experts. Mr. Gross and Ms. Dasher are “independent” Trustees pursuant to paragraph (a) (2) of Item 3 to Form N-CSR.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

a) Audit Fees. The aggregate fees billed in the last two fiscal years ending March 31, 2014 and March 31, 2015 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $157,344 in 2014 and $163,351 in 2015.

b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in 2014 and $0 in 2015.

(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $28,200 in 2014 and $15,260 in 2015. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.

There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.

d) All Other Fees. There was no other fee billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) for the Item for the Legg Mason Partners Income Trust.

All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Legg Mason Partners Income Trust requiring pre-approval by the Audit Committee in the Reporting Period.

(e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of
Regulation S-X.

(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.

The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax


services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.

Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.

(2) For the Legg Mason Partners Income Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for 2014 and 2015; Tax Fees were 100% and 100% for 2014 and 2015; and Other Fees were 100% and 100% for 2014 and 2015.

(f) N/A

(g) Non-audit fees billed by the Auditor for services rendered to Legg Mason Partners Income Trust, LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Legg Mason Partners Income Trust during the reporting period were $0 in 2015.

(h) Yes. Legg Mason Partners Income Trust’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Legg Mason Partners Income Trust or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.


ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

 

  a) The independent board members are acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) of the Exchange Act .The Audit Committee consists of the following Board members:

Elliott J. Berv

Jane F. Dasher

Mark T. Finn

Stephen R. Gross

Richard E. Hanson, Jr.

Diana R. Harrington

Susan M. Heilbron

Susan B. Kerley

Alan G. Merten

R. Richardson Pettit

 

  b) Not applicable

 

ITEM 6. SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 9. PURCHASES OF INCOME SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

 

ITEM 11. CONTROLS AND PROCEDURES.

 

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

 

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


ITEM 12. EXHIBITS.

(a) (1) Code of Ethics attached hereto.

Exhibit 99.CODE ETH

(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.CERT

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.906CERT


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.

Legg Mason Partners Income Trust

 

By:

/s/ Kenneth D. Fuller

Kenneth D. Fuller
Chief Executive Officer
Date: May 22, 2015

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

 

By:

/s/ Kenneth D. Fuller

Kenneth D. Fuller
Chief Executive Officer
Date: May 22, 2015
By:

/s/ Richard F. Sennett

Richard F. Sennett
Principal Financial Officer
Date: May 22, 2015

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
12/31/16
Filed on / Effective on:5/26/15N-CSR
5/22/15N-Q
5/19/15
4/29/15
4/24/15
4/14/15
For Period End:3/31/15485BPOS,  497K,  N-CSR,  N-Q
3/6/15
10/31/1424F-2NT,  40-17G,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
10/15/14485BPOS
10/1/14485BPOS
8/1/14485BPOS,  497K
6/30/14485BPOS,  497K,  N-CSRS,  N-PX,  N-Q,  NSAR-A
4/2/14
3/31/1424F-2NT,  485BPOS,  497K,  N-CSR,  N-Q,  NSAR-B
9/28/07485BPOS,  NSAR-B
1/1/07
3/31/05N-Q
12/19/01
 List all Filings 
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