Investment Commentary and Annual Report to ... - Western Asset

Annual Report to ShareholdersSwap Counterparty(Reference Entity):Credit Suisse First Boston USA(Merrill Lynch MortgageInvestors, Inc. 2004-WMC4 B3,1-Month LIBOR + 375bp, due4/25/35)Termination DatePeriodicPaymentsMade by theFund‡ Notional Amount (2) Market ValueApril 25, 2035 2.15%MonthlyUpfrontPremiumsPaid/(Received)UnrealizedAppreciation/Depreciation$12,666 $11,815 $— $11,815Credit Suisse First Boston USA(Merrill Lynch MortgageInvestors, Inc. 2005-NC1 B2, 1-Month LIBOR + 130bp, due10/25/35)Credit Suisse First Boston USA(Merrill Lynch MortgageInvestors, Inc. 2005-NC1 B3, 1-Month LIBOR + 205bp, due10/25/35)Credit Suisse First Boston USA(Merrill Lynch MortgageInvestors, Inc. 2005-WMC1 B2,1-Month LIBOR + 135bp, due9/25/35)Credit Suisse First Boston USA(Morgan Stanley ABS Capital I2005-WMC1 B2, 1-Month LIBOR+ 130 bp, due 1/25/35)Credit Suisse First Boston USA(Morgan Stanley ABS Capital I2005-WMC1 B3, 1-Month LIBOR+ 215bp, due 1/25/35)Credit Suisse First Boston USA(New Century Home EquityLoan Trust 2004-2 M9, 1-MonthLIBOR + 325bp, due 8/25/34)Credit Suisse First Boston USA(New Century Home EquityLoan Trust 2005-1 M8, 1-MonthLIBOR + 140 bp, due 3/25/35)October 25, 2035 1.28%MonthlyOctober 25, 2035 2.05%MonthlySeptember 25, 2035 1.28%MonthlyJanuary 25, 2035 1.31%MonthlyJanuary 25, 2035 2.18%MonthlyAugust 25, 2034 2.15%MonthlyMarch 25, 2035 1.31%Monthly43,000 12,398 — 12,39828,715 14,524 — 14,52443,000 16,714 — 16,71413,639 13,237 — 13,23715,067 14,763 — 14,76318,514 11,708 — 11,70824,840 19,949 — 19,94939