As filed with the Securities and Exchange Commission on March 18, 2022
Securities Act Registration No. 333-261721
Investment Company Act Registration No. 811-08709
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 | ☒ | |||
Pre-Effective Amendment No. 1 | ☒ | |||
Post-Effective Amendment No. | ☐ |
and/or
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 | ☒ | |||
Amendment No. 7 | ☒ |
Western Asset High Income Fund II Inc.
(Exact Name of Registrant as Specified in Charter)
620 Eighth Avenue, 47th Floor
New York, New York 10018
(Address of Principal Executive Offices)
(888) 777-0102
(Registrants Telephone Number, Including Area Code)
Jane Trust
Franklin Templeton
620 Eighth Avenue, 47th Floor
New York, New York 10018
(Name and Address of Agent for Service)
Copies to:
David W. Blass, Esq. Ryan P. Brizek, Esq. Simpson Thacher & Bartlett LLP 900 G Street NW Washington, DC 20001 |
George P. Hoyt, Esq. Legg Mason & Co., LLC 100 First Stamford Place Stamford, CT 06902 |
Approximate Date of Proposed Public Offering: From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box ☐.
If any of the securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. ☒
If this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto, check the following box ☒.
If this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box ☐.
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box ☐.
It is proposed that this filing will become effective (check appropriate box)
☐ | when declared effective pursuant to Section 8(c) |
If appropriate, check the following box:
☐ | This post-effective amendment designates a new effective date for a previously filed registration statement. |
☐ | This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is . |
☐ | This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is . |
☐ | This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is . |
Check each box that appropriately characterizes the Registrant:
☒ | Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (Investment Company Act)). |
☐ | Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act). |
☐ | Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). |
☒ | A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
☐ | Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
☐ | Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (Exchange Act). |
☐ | If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
☐ | New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such dates as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this Preliminary Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Preliminary Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED MARCH 17, 2022
PRELIMINARY BASE PROSPECTUS
$175,000,000
Western Asset High Income Fund II Inc.
Common Stock
Subscription Rights to Purchase Common Stock
The Fund. Western Asset High Income Fund II Inc., a Maryland corporation (the Fund), is a diversified, closed-end management investment company.
Investment Objectives. The Funds primary investment objective is to maximize current income. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income. There can be no assurance that the Fund will achieve its investment objectives.
Investment Strategies. Under normal conditions, the Fund will invest at least 80% of its net assets plus any borrowings for investment purposes in high-yield debt securities. High yield securities are medium or lower rated securities and unrated securities of comparable quality, sometimes referred to as high yield or junk bonds. See RisksBelow Investment Grade Securities (High-Yield) Risk. Certain of the debt securities purchased by the Fund may be rated as low as C by Moodys Investor Service (Moodys) or D by Standard & Poors Ratings Services (S&P) or may be comparable to securities so rated. The Fund is not required to dispose of a debt security if its credit rating or credit quality declines. The Fund invests up to 35% of its total assets in debt securities of issuers located in emerging market countries. See RisksEmerging Markets Risk.
The Funds shares of common stock, par value $0.001 per share (Common Stock), are listed on the New York Stock Exchange (NYSE) under the trading or ticker symbol HIX. The net asset value of our Common Stock at the close of business on February 28, 2022 was $6.39 per share, and the last sale price per share of our Common Stock on the NYSE on that date was $6.37.
Offering. The Fund may offer, from time to time, in one or more offerings, shares of our Common Stock, which we also refer to as our securities, at prices and on terms to be set forth in one or more Prospectus Supplements to this Prospectus.
We may offer and sell our securities to or through underwriters, through dealers or agents that we designate from time to time, directly to purchasers, through at-the-market offerings or through a combination of these methods. If an offering of securities involves any underwriters, dealers or agents, then the applicable Prospectus Supplement will name the underwriters, dealers or agents and will provide information regarding any applicable purchase price, fee, commission or discount arrangements made with those underwriters, dealers or agents or the basis upon which such amount may be calculated. See Plan of Distribution. We may not sell any of our securities through agents, underwriters or dealers without delivery of a Prospectus Supplement describing the method and terms of the offering of our securities.
Investment Manager and Subadviser. Legg Mason Partners Fund Advisor, LLC (LMPFA or the Manager), the Funds investment manager, supervises the day-to-day management of the Funds portfolio by Western Asset Management Company, LLC (Western Asset), Western Asset Management Company Limited (Western Asset Limited) and Western Asset Management Company Pte. Ltd. (Western Asset Singapore) and provides administrative and management services to the Fund.
Investing in the Funds securities involves certain risks. You could lose some or all of your investment. See Risks beginning on page 32 of this Prospectus and any Prospectus Supplement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Prospectus dated , 2022.
Western Asset, the Funds subadviser, is responsible for the day-to-day portfolio management of the Fund, subject to the supervision of the Funds Board of Directors and the Manager. As of December 31, 2021, Western Assets and its supervised affiliates total assets under management were approximately $487.4 billion.
In connection with Western Assets service to the Fund, Western Asset Limited and Western Asset Singapore provide certain subadvisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated debt securities. The Manager, Western Asset, Western Asset Limited and Western Asset Singapore are wholly-owned subsidiaries of Franklin Resources, Inc., a global investment management organization operating as Franklin Templeton.
Leverage. The Fund may seek to enhance the level of its current distributions to holders of Common Stock (Common Stockholders) through the use of leverage. The Fund may use leverage directly at the fund level through borrowings, including loans from certain financial institutions, the use of reverse repurchase agreements and/or the issuance of debt securities (collectively, Borrowings), and through the issuance of preferred stock (Preferred Stock). The Fund may use leverage through Borrowings in an aggregate amount of up to approximately 33 1/3% of the Funds total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, total net assets) immediately after such Borrowings. Furthermore, the Fund may use leverage through the issuance of Preferred Stock in an aggregate amount of liquidation preference attributable to the Preferred Stock combined with the aggregate amount of any Borrowings of up to approximately 50% of the Funds total net assets immediately after such issuance. The Fund currently expects to use leverage through the issuance of Preferred Stock. In addition, the Fund may enter into additional reverse repurchase agreements and/or use similar investment management techniques that may provide leverage, but which are not subject to the foregoing 33 1/3% limitation so long as the Fund has covered its commitment with respect to such techniques by segregating liquid assets, entering into offsetting transactions or owning positions covering related obligations. As of February 28, 2022, the total amount of the Funds leverage was approximately $154,500,000 (approximately 29% of its portfolio). See Leverage, Description of SharesPreferred Stock and RisksRisks Related to the FundLeverage Risk.
This Prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission (the SEC), using the shelf registration process. Under the shelf registration process, we may offer, from time to time, separately or together in one or more offerings, the securities described in this Prospectus. The securities may be offered at prices and on terms described in one or more supplements to this Prospectus. This Prospectus provides you with a general description of the securities that we may offer. Each time we use this Prospectus to offer securities, we will provide a Prospectus Supplement that will contain specific information about the terms of that offering. The Prospectus Supplement may also add, update or change information contained in this Prospectus. This Prospectus, together with any Prospectus Supplement, sets forth concisely the information about us that a prospective investor ought to know before investing. You should read this Prospectus and the related Prospectus Supplement before deciding whether to invest and retain them for future reference. A Statement of Additional Information, dated , 2022 (the SAI), containing additional information about us, has been filed with the SEC and is incorporated by reference in its entirety into this Prospectus. You may request a free copy of the SAI (the table of contents of which is on page 65 of this Prospectus), annual and semi-annual reports to stockholders (when available), and additional information about the Fund by calling (888) 777-0102, by writing to the Fund at 620 Eighth Avenue, 47th Floor, New York, NY 10018 or visiting the Funds website (http://www.franklintempleton.com/investments/options/closed-end-funds). The information contained in, or accessed through, the Funds website is not part of this Prospectus. You may also obtain a copy of the SAI (and other information regarding the Fund) from the SECs Public Reference Room in Washington, D.C. Information relating to the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. Such materials, as well as the Funds annual and semi-annual reports (when available) and other information regarding the Fund, are also available on the SECs website (http://www.sec.gov). You may also e-mail requests for these documents to publicinfo@sec.gov or make a request in writing to the SECs Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549-0102.
As permitted by regulations adopted by the SEC, the Fund does not intend to mail paper copies of the Funds shareholder reports, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary (such as a broker-dealer or bank). Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you invest through a financial intermediary and you already elected to receive shareholder reports electronically (e-delivery), you will not be affected by this change and you need not take any action. If you have not already elected e-delivery, you may elect to receive shareholder reports and other communications from the Fund electronically by contacting your financial intermediary. You may elect to receive all reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you receive paper copies of your shareholder reports. That election will apply to all legacy Legg Mason funds held in your account at
that financial intermediary. If you are a direct shareholder with the Fund, you can call the Fund at 1-888-888-0151, or write to the Fund by regular mail at P.O. Box 505000, Louisville, KY 40233 or by overnight delivery to Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202 to let the Fund know you wish to receive paper copies of your shareholder reports. That election will apply to all legacy Legg Mason funds held in your account held directly with the fund complex.
Shares of common stock of closed-end investment companies frequently trade at discounts to their net asset values. If our Common Stock trades at a discount to our net asset value, the risk of loss may increase for purchasers of our Common Stock, especially for those investors who expect to sell their common stock in a relatively short period after purchasing shares in this offering. See RisksMarket Discount from Net Asset Value Risk.
The Funds securities do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency.
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Table of Contents of the Statement of Additional Information |
65 |
You should rely only on the information contained or incorporated by reference in this Prospectus and any related Prospectus Supplement. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. You should assume that the information appearing in this Prospectus and any Prospectus Supplement is accurate only as of the respective dates on their front covers, regardless of the time of delivery of this Prospectus, any Prospectus Supplement, or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
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This is only a summary. This summary does not contain all of the information that you should consider before investing in the Funds Common Stock. You should review the more detailed information contained elsewhere in this Prospectus, any related Prospectus Supplements and in the Statement of Additional Information (the SAI), especially the information under the heading Risks. Unless otherwise indicated or the content otherwise requires, references to we, us and our refer to Western Asset High Income Fund II Inc.
The Fund |
Western Asset High Income Fund II Inc., a Maryland corporation (the Fund), is a diversified, closed-end management investment company. |
The Offering |
The Fund may offer, from time to time, in one or more offerings, up to $175 million of our common stock, par value $0.001 per share (Common Stock), which we also refer to as our securities, at prices and on terms to be set forth in one or more prospectus supplements (each, a Prospectus Supplement) to this Prospectus. We may also offer subscription rights to purchase our Common Stock. |
We may offer and sell our securities to or through underwriters, through dealers or agents that we designate from time to time, directly to purchasers, through at-the-market offerings or through a combination of these methods. If an offering of securities involves any underwriters, dealers or agents, then the applicable Prospectus Supplement will name the underwriters, dealers or agents and will provide information regarding any applicable purchase price, fee, commission or discount arrangements made with those underwriters, dealers or agents or the basis upon which such amount may be calculated. See Plan of Distribution. We may not sell any of our securities through agents, underwriters or dealers without delivery of a Prospectus Supplement describing the method and terms of the offering of our securities. The offering price per share of Common Stock will not be less than the net asset value per share of Common Stock at the time we make the offering, exclusive of any underwriting commissions or discounts, provided that rights offerings that meet certain conditions may be offered at a price below the then current net asset value. See Rights Offerings. |
Who May Want to Invest |
Investors should consider their investment goals, time horizons and risk tolerance before investing in the Fund. An investment in the Fund is not appropriate for all investors, and the Fund is not intended to be a complete investment program. The Fund is designed as a long-term investment and not as a trading vehicle. The Fund may be an appropriate investment for investors who are seeking: |
| A portfolio consisting of high-yield corporate debt securities from both U.S. and non-U.S. corporations; |
| Access to an opportunistic investment strategy; |
| The potential for attractive monthly distributions and capital appreciation; and/or |
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| The professional, active management and high-yield experience of Western Asset. |
Investment Objectives and Strategies |
The Funds primary investment objective is to maximize current income. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income. There can be no assurance the Fund will achieve its investment objectives. See The Funds Investments. |
Under normal conditions, the Fund will invest at least 80% of its net assets plus any borrowings for investment purposes in high-yield debt securities. High yield securities are medium or lower rated securities and unrated securities of comparable quality, sometimes referred to as high yield or junk bonds. The Funds investment manager is free to invest in debt securities of any maturity. Certain of the debt securities purchased by the Fund may be rated as low as C by Moodys Investor Service (Moodys) or D by Standard & Poors Ratings Services (S&P) or may be comparable to securities so rated. The Fund is not required to dispose of a debt security if its credit rating or credit quality declines. |
The Fund invests up to 35% of its total assets in debt securities of issuers located in emerging market countries. Emerging market country is defined to include any country which is, at the time of investment, (i) represented in the J.P. Morgan Emerging Market Bond Index Global or the J.P. Morgan Corporate Emerging Market Bond Index Broad or (ii) categorized by the World Bank in its annual categorization as middle- or low-income. The Fund may also invest in securities denominated in currencies of emerging market countries. There is no minimum rating criteria for the Funds investments in such securities. The Funds investments in debt securities of emerging market issuers may include dollar and non-dollar-denominated (a) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities, including Brady bonds; (b) debt obligations of supranational entities; (c) debt obligations and other fixed-income securities of foreign corporate issuers; (d) debt obligations of U.S. corporate issuers; and (e) debt securities issued by corporations that generate significant profits from emerging market countries. The Fund may invest in securities with any market capitalization. |
The Fund may invest up to 30% of its assets in zero coupon securities, pay-in-kind bonds and deferred payment securities. The Fund may also invest up to 20% of its total assets in common stock, convertible securities (including contingent convertible securities), warrants, preferred stock or other equity securities of U.S. and foreign issuers when consistent with its objectives. |
The Fund may invest in high-yield foreign and U.S. corporate securities including bonds, debentures, notes, commercial paper and preferred stock and will generally be unsecured. The Fund may invest in corporate debt securities with variable rates of interest or which involve equity features, such as contingent interest or participations based on revenues, sales or profits (i.e., interest or other payments, often in addition to a fixed rate of return, that are based on the borrowers attainment of specified levels of revenues, sales or profits and thus enable the holder of the security to share in the potential success of the venture). The Fund may invest in high-yield debt securities with floating interest rates. The Funds portfolio may have significant exposure to the hotels, restaurants and leisure sector as well as in the oil, gas and consumable fuel sector. |
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The Fund may invest in Brady bonds, which are debt securities issued under the framework of the Brady Plan as a means for debtor nations to restructure their outstanding external indebtedness; participations in loans between emerging market governments and financial institutions; or fixed-income securities issued by supranational entities such as the World Bank or the European Economic Community. |
The Fund may invest in fixed and floating rate loans arranged through private negotiations between a corporate borrower or a foreign sovereign entity and one or more financial institutions in the form of participations in loans and assignments of all or a portion of loans from third parties. |
In times of adverse market conditions, the Fund may employ alternative strategies, including investment of a substantial portion of the Funds assets in securities rated higher than Baa by Moodys or BBB by S&P, or in unrated securities of comparable quality. In addition, in order to maintain liquidity, the Fund may invest up to 35% of its total assets in high-quality short-term money market instruments. Such instruments may include obligations of the U.S. Government or its agencies or instrumentalities; commercial paper of issuers rated, at the time of purchase, A-2 or better by S&P or P-2 or better by Moodys or which, in the opinion of management, are of comparable creditworthiness; certificates of deposit, bankers acceptances or time deposits of United States banks with total assets of at least $1 billion (including obligations of foreign branches of such banks) and of the 75 largest foreign commercial banks in terms of total assets (including domestic branches of such banks); and repurchase agreements with respect to the foregoing obligations. |
In times of adverse market conditions, the Fund may also invest its assets without limit in high-quality short-term money market instruments. |
It is impossible to predict when, or for how long, the Fund will use these alternative strategies. There can be no assurance that such strategies will be successful. See The Funds InvestmentsTemporary Defensive Strategies and RisksRisks Related to the FundTemporary Defensive Strategies Risk in this prospectus and Investment Policies and Techniques in the Funds Statement of Additional Information (the SAI). |
For a more complete discussion of the Funds portfolio composition, see The Funds Investments. |
Leverage |
The Fund may seek to enhance the level of its current distributions to Common Stockholders through the use of leverage. In an effort to mitigate the overall risk of leverage, the Fund does not intend to incur leverage that exceeds 33 1/3% of the Funds total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, total net assets) immediately after such Borrowings and/or issuances of Preferred Stock. |
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The Fund may use leverage through borrowings, including loans from certain financial institutions, the use of reverse repurchase agreements and/or the issuance of debt securities (collectively, Borrowings), and through the issuance of preferred stock (Preferred Stock). The Fund may use leverage through Borrowings in an aggregate amount of up to approximately 33 1/3% of the Funds total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, total net assets) immediately after such Borrowings. Furthermore, the Fund may use leverage through the issuance of Preferred Stock in an aggregate amount of liquidation preference attributable to the Preferred Stock combined with the aggregate amount of any Borrowings of up to approximately 50% of the Funds total net assets immediately after such issuance. The Fund has a revolving credit agreement with Pershing LLC (Credit Agreement) that allows the Fund to borrow up to an aggregate amount of $300,000,000, subject to approval by Pershing LLC. On March 10, 2022, the Board approved a consent and amendment agreement whereby Pershing transferred its interest in the Credit Agreement to the Bank of New York Mellon. As of April 30, 2021, the Fund had $158,000,000 of Borrowings outstanding. In addition, the Fund may enter into additional reverse repurchase agreements and/or use similar investment management techniques that may provide leverage, but which are not subject to the foregoing 33 1/3% limitation so long as the Fund has covered its commitment with respect to such techniques by segregating liquid assets, entering into offsetting transactions or owning positions covering related obligations. See Leverage, Description of SharesPreferred Stock and RisksRisks Related to the FundLeverage Risk. |
The Fund may borrow for temporary, emergency or other purposes as permitted under the Investment Company Act of 1940, as amended (the 1940 Act). Any such indebtedness would be in addition to the combined direct and implicit leverage ratio of up to 33 1/3% of the Funds total net assets. |
During periods when the Fund is using leverage through Borrowings or the issuance of Preferred Stock, the fees paid to the Manager, Western Asset, Western Asset Limited and Western Asset Singapore for advisory services will be higher than if the Fund did not use leverage because the fees paid will be calculated on the basis of the Funds Managed Assets, which includes the principal amount of the Borrowings and any assets attributable to the issuance of Preferred Stock. This means that the Manager, Western Asset, Western Asset Limited and Western Asset Singapore may have a financial incentive to increase the Funds use of leverage. See Leverage and RisksRisks Related to the FundLeverage Risk. |
There can be no assurance that the Funds leverage strategy will be successful. The use of leverage creates special risks for Common Stockholders. See Leverage and RisksRisks Related to the FundLeverage Risk. |
Derivatives |
Generally, derivatives are financial contracts whose values depend upon, or are derived from, the value of an underlying asset, reference rate or index, and may relate to individual debt or equity instruments, interest rates, currencies or currency exchange rates and related indexes. The Fund may use a variety of derivative instruments as part of its investment strategies or for hedging or risk management purposes. Examples of derivative instruments that the fund may use |
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include options contracts, futures contracts, options on futures contracts, credit default swaps and other swap agreements. The Fund may purchase and sell futures contracts, purchase and sell (or write) exchange-listed and OTC put and call options on securities, financial indices and futures contracts, enter into various interest rate and currency transactions and enter into other similar transactions which may be developed in the future to the extent the management determines that they are consistent with the funds investment objectives and policies and applicable regulatory requirements. The Fund may use any or all of these techniques at any time, and the use of any particular derivative transaction will depend on market conditions. |
The SEC has adopted new Rule 18f-4 under the 1940 Act, which will require a fund that is not a limited derivatives user as described in Rule 18f-4(c)(4) to adopt a derivatives risk management program providing for specific items as required by the rule, including compliance with a VaR test. The provisions of Rule 18f-4 will replace the 1940 Act cover requirements for reverse repurchase agreements, similar financing transactions and derivatives transactions discussed in this Prospectus. Under Rule 18f-4(d), a fund may enter into reverse repurchase agreements or similar financing transactions in reliance on the rule if the fund either (i) complies with the asset coverage requirements of Section 18 of the 1940 Act, and combines the aggregate amount of indebtedness associated with all reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness when calculating its asset coverage ratio; or (ii) treats all reverse repurchase agreements or similar financing transactions as derivatives transactions for all purposes under the rule. Compliance with Rule 18f-4 will be required by August 19, 2022. Using derivatives also can have a leveraging effect and increase Fund volatility. See Leverage and RisksRisks Related to the FundLeverage Risk. |
Distributions |
The Fund distributes its net investment income on a monthly basis and distributes annually any realized capital gains, subject in all respects to authorization by our Board of Directors. Your initial distribution is expected to be declared approximately 60 days, and paid approximately 90 days, after the completion of this offering, depending upon market conditions. |
We intend to continue to pay monthly distributions to our Common Stockholders. Payment of future distributions is subject to authorization by our Board of Directors, as well as meeting the covenants under our outstanding notes and credit facility and the asset coverage requirements of the 1940 Act. See Distributions. |
Unless you elect to receive distributions in cash (i.e., opt out), all of your distributions, including any capital gains distributions on your Common Stock, will be automatically reinvested in additional shares of Common Stock under the Funds Dividend Reinvestment Plan. See Distributions and Dividend Reinvestment Plan. |
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An affiliate of the Manager has received an exemptive order from the SEC under the 1940 Act facilitating the implementation of a managed distribution policy for certain funds for which it, or one of its affiliates, provides investment management services, including the Fund. The Fund does not intend to implement a managed distribution policy at this time; however, the Board of Directors may, at the request of the Manager and Western Asset, adopt a managed distribution policy in the future. See Distributions. |
The Fund has elected to be treated, and intends to qualify annually, as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code), which generally relieves the Fund of any liability for federal income tax to the extent its earnings are distributed to shareholders. The Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income (as that term is defined in the Code, but determined without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term capital gain over net short-term capital loss). |
The Fund reserves the right to change its distribution policy and the basis for establishing the rate of its monthly distributions at any time and may do so without prior notice to Common Stockholders. |
Investment Manager |
LMPFA is the Funds investment manager. The Manager, an indirect wholly-owned subsidiary of Franklin Resources, a global investment management organization operating as Franklin Templeton, is a registered investment adviser and provides administrative and management services to the Fund. In addition, the Manager performs administrative and management services necessary for the operation of the Fund, such as (1) supervising the overall administration of the Fund, including negotiation of contracts and fees with and the monitoring of performance and billings of the Funds transfer agent, stockholder servicing agents, custodian and other independent contractors or agents; (2) providing certain compliance, Fund accounting, regulatory reporting and tax reporting services; (3) preparing or participating in the preparation of Board materials, registration statements, proxy statements and reports and other communications to stockholders; (4) maintaining the Funds existence and (5) during such times as shares are publicly offered, maintaining the registration and qualification of the Funds shares under federal and state laws. As of December 31, 2021, the Managers total assets under management were approximately $235.1 billion. Franklin Templeton is a global asset management firm. As of December 31, 2021, Franklin Templetons asset management operation had aggregate assets under management of approximately $1.58 trillion. |
The Manager receives an annual fee, payable monthly, in an amount equal to 0.80% of the Funds Managed Assets. Managed Assets means the average weekly value of the total assets of the Fund (including any proceeds from the issuance of preferred stock, minus the sum of (i) accrued liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii) accumulated dividends on shares of preferred stock) plus the proceeds of any outstanding borrowings used for leverage. |
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The Fund will pay all of its offering expenses. The Funds management fees and other expenses are borne by the Common Stockholders. See Summary of Fund Expenses and Management of the Fund. |
Subadviser |
Western Asset, the Funds subadviser, has day-to-day responsibility for managing the Funds direct investments in high-yield products and other permitted investments, subject to the supervision of the Funds Board of Directors and the Manager. |
As of December 31, 2021, Western Asset and its supervised affiliates had approximately $487.4 billion in assets under management. |
Western Asset receives an annual subadvisory fee, payable monthly, from the Manager in an amount equal to 70% of the management fee paid to the Manager. No fee will be paid by the Fund directly to Western Asset. See Management of the Fund. |
Non-U.S. Subadvisers |
In connection with Western Assets service to the Fund, Western Asset Limited and Western Asset Singapore provide certain subadvisory services to the Fund pursuant to a subadvisory agreements with Western Asset (the Western Asset Limited Subadvisory Agreement and the Western Asset Singapore Subadvisory Agreement). Each of Western Asset Limited and Western Asset Singapore is generally responsible for managing investments denominated in currencies other than the U.S. dollar. |
Western Asset pays each of Western Asset Limited and Western Asset Singapore a fee for their services at no additional expense to the Fund. Western Asset pays Western Asset Limited and Western Asset Singapore a monthly subadvisory fee in an amount equal to 100% of the management fee paid to Western Asset on the assets that Western Asset allocates to Western Asset Limited and Western Asset Singapore, respectively, to manage. See Management of the Fund. |
Listing |
The Funds shares of Common Stock are listed on the New York Stock Exchange (NYSE) under the trading or ticker symbol HIX. The net asset value of our Common Stock at the close of business on February 28, 2022 was $6.39 per share, and the last sale price per share of our Common Stock on the NYSE on that date was $6.37. |
Custodian and Transfer Agent |
The Bank of New York Mellon serves as custodian of the Funds assets. Computershare Inc. serves as the Funds transfer agent. See Custodian and Transfer Agent. |
Special Principal Risk Considerations |
An investment in the Funds securities involves various principal risks. The following is a summary of certain of these risks. It is not complete and you should read and consider carefully the more complete list of risks described below under Risks before purchasing Common Stock in this offering. |
7
Risks Related to the Fund 8
Foreign (Non-U.S.) Investment Risk. A fund that invests in foreign (non-U.S.) securities may experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies. The securities markets of many foreign countries are relatively
small, with a limited number of companies representing a small number of industries. Investments in foreign securities (including those denominated in U.S. dollars) are subject to economic and political developments in the countries and regions
where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary policies. Values may also be affected by restrictions on receiving the investment proceeds from a foreign country. Less
information may be publicly available about foreign companies than about U.S. companies. Foreign companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, the
Funds investments in foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation,
political or financial instability and adverse diplomatic developments. In addition, there 9
may be difficulty in obtaining or enforcing a court judgment abroad. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to
non-U.S. withholding taxes, and special U.S. tax considerations may apply. Investment Controls; Repatriation. Foreign investment in certain emerging market issuers is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude foreign investment in certain emerging market issuers and increase the costs and expenses of the Fund. Certain emerging market countries require governmental approval
prior to investments by foreign persons in a particular issuer, limit the amount of investment by foreign persons in a particular issuer, limit the investment by 10
foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests. Financial Information and Standards. Issuers in emerging market countries generally are subject to accounting, auditing
and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements of an emerging market country issuer may not
reflect its financial position or results of operations in the way they would be reflected had the financial statements been prepared in accordance with U.S. generally accepted accounting principles. In addition, for an issuer that keeps accounting
records in local currency, inflation accounting rules may require that certain assets and liabilities be restated on the issuers balance sheet in order to express items in terms of currency of constant purchasing
11
power. Inflation accounting may indirectly generate losses or profits. Consequently, financial data may be materially affected by restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets. Substantially less information may be publicly available about issuers in emerging market countries than is available about U.S. issuers. 12
Derivatives Risk. The Fund may utilize a variety of derivative instruments for investment or risk management purposes,
such as options, futures contracts, swap agreements and credit default swaps. Using derivatives can increase Fund losses and reduce opportunities for gains when market prices, interest rates, currencies, or the derivatives themselves behave in a way
not anticipated by the Fund. Using derivatives also can have a leveraging effect and increase Fund volatility. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. Derivatives may not be
available at the time or price desired, may be difficult to sell, unwind or value, and the counterparty may default on its obligations to the Fund. Derivatives are generally subject to the risks applicable to the assets, rates, indices or other
indicators underlying the derivative. The value of a derivative may fluctuate more than the 13
underlying assets, rates, indices or other indicators to which it relates. Use of derivatives may have different tax consequences for the Fund than an investment in the underlying security, and
those differences may affect the amount, timing and character of income distributed to shareholders. The U.S. government and foreign governments are in the process of adopting and implementing regulations governing derivatives markets, including
mandatory clearing of certain derivatives, margin and reporting requirements. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives may make derivatives more costly, limit their availability or utility,
otherwise adversely affect their performance or disrupt markets. Mortgage-backed securities may be issued by private companies or by agencies of the U.S. Government and represent direct or
indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Asset-backed securities represent participations in, or are secured by and payable from, assets such as installment sales or loan
contracts, leases, credit card receivables and other categories of receivables. Certain debt instruments may only pay principal at maturity or may only represent the right to receive payments of principal or payments of interest on underlying pools
of mortgages, assets or government securities, but not both. The value of these types of instruments may change more drastically than debt securities that pay both principal and interest during periods of changing interest rates. The Fund may obtain
a below market yield or incur a loss on such instruments during periods of declining interest 14
rates. Principal only and interest only instruments are subject to extension risk. For mortgage derivatives and structured securities that have imbedded leverage features, small changes in
interest or prepayment rates may cause large and sudden price movements. Mortgage derivatives may be illiquid and hard to value in declining markets. 15
Anti-Takeover Provisions Risk. The charter (the Charter) and bylaws (the Bylaws) of the Fund
include provisions that are designed to limit the ability of other entities or persons to acquire control of the Fund for short-term objectives, including by converting the Fund to open-end status or changing
the composition of the Board, that may be detrimental to the Funds ability to achieve its primary investment objective of seeking current income. The Bylaws also contain a provision providing that the Board of Directors has adopted a
resolution to opt in the Fund to the provisions of the Maryland Control Share Acquisition Act 16
(MCSAA). Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund. There can be no assurance, however, that such provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned with the interests of long-term shareholders. See
Certain Provisions in the Charter and Bylaws and Certain Provisions in the Charter and BylawsMaryland Control Share Acquisition Act. 17
The purpose of the following table and example is to help you understand all fees and expenses holders of Common Stock would bear directly or
indirectly. The table below is based on the capital structure of the Fund as of December 31, 2021 (except as noted below), and assumes the issuance of $175 million of additional shares of Common Stock. SHAREHOLDER TRANSACTION EXPENSES Sales Load (percentage of offering price) Offering Expenses Borne by the Fund (percentage of offering price) Dividend Reinvestment Plan Per Transaction Fee to Sell Shares Obtained Pursuant to the
Plan TOTAL TRANSACTION EXPENSES (as a percentage of offering price)(4) ANNUAL EXPENSES Management Fees(5) Interest Payment on Borrowed
Funds(6) Other Expenses(7) TOTAL ANNUAL EXPENSES The sales load will apply only if the securities to which this Prospectus relates are sold to or through
underwriters. In such case, a corresponding Prospectus Supplement will disclose the applicable sales load. The related Prospectus Supplement will disclose the estimated amount of offering expenses, the offering price
and the offering expenses borne by the Fund as a percentage of the offering price. Common Stockholders will pay brokerage charges if they direct the Plan Agent (defined below) to sell Common
Stock held in a dividend reinvestment account. See Dividend Reinvestment Plan. There are no fees charged to stockholders for participating in the Funds dividend reinvestment plan. However, stockholders participating in the plan
that elect to sell their shares obtained pursuant to the plan would pay $5.00 per transaction to sell shares. The related Prospectus Supplement will disclose the offering price and the total stockholder transaction
expenses as a percentage of the offering price. The Manager receives an annual fee, payable monthly, in an amount equal to 0.80% of the Funds Managed
Assets. Managed Assets means the average weekly value of the total assets of the Fund (including any proceeds from the issuance of preferred stock, minus the sum of (i) accrued liabilities of the Fund, (ii) any accrued and
unpaid interest on outstanding borrowings and (iii) accumulated dividends on shares of preferred stock) plus the proceeds of any outstanding borrowings used for leverage. For the purposes of this table, we have assumed that the Fund has
utilized leverage in an aggregate amount of 30% of its Managed Assets (the actual average amount of Borrowings during the fiscal year ended April 30, 2021). If the Fund were to use leverage in excess of 30% of its Managed Assets, the management
fees shown would be higher. For the purposes of this table, we have assumed that the Fund has utilized Borrowings in an aggregate amount of
30% of its net assets (which equals the average level of leverage for the Funds fiscal year ended April 30, 2021). The expenses and rates associated with leverage may vary as and when Borrowings or issuances of Preferred Stock are made.
Estimated based on amounts annualized fiscal year to date December 31, 2021. Example1 The following example illustrates the hypothetical expenses that you would pay on a $1,000 investment in Common Stock, assuming (i)
Total Annual Expenses of 1.58% of net assets attributable to Common Stock (which assumes the Funds use of leverage in an aggregate amount equal to 30% of the Funds Managed Assets) and (ii) a 5% annual return: 1 Year 3 Years 5 Years 10 Years $16 18
The example above should not be considered a representation of future expenses. Actual expenses may be higher
or lower than those shown. The example assumes that all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Funds actual rate of return may be greater or less
than the hypothetical 5% return shown in the example. 19
The financial highlights table is intended to help you understand the Funds financial performance. Unless otherwise noted, the
information in this table has been derived from and should be read in conjunction with the Funds financial statements and the notes thereto. The financial information for the fiscal years ended April 30, 2021, 2020, 2019, 2018 and 2017
have been audited by PricewaterhouseCoopers LLP (PwC), the independent registered accounting firm of the Fund. PwCs reports on such financial statements, together with the financial statements of the Fund, is contained in the
Funds Annual Report and is incorporated by reference into this Prospectus and the SAI. The financial information for the period ended October 31, 2021 is unaudited. The information for the years prior to the fiscal year ended 2017 was audited
by the Funds prior independent registered public accounting firm. For a common share of capital stock outstanding throughout
each year ended April 30, unless otherwise noted: Net asset value, beginning of period Income (loss) from operations: Net investment income Net realized and unrealized gain (loss) Total income (loss) from operations Less distributions from: Net investment income Return of capital Total distributions Anti-dilutive impact of repurchase plan Anti-dilutive impact of tender offer Net asset value, end of period Market price, end of period Total return, based on NAV6,7
Total return, based on Market Price8
Net assets, end of period (millions) Ratios to average net assets: Gross expenses Net expenses Net investment income Portfolio turnover rate Supplemental data: Loan Outstanding, End of Period (000s) Asset Coverage Ratio for Loan
Outstanding13 Asset Coverage, per $1,000 Principal Amount of Loan Outstanding13 Weighted Average Loan (000s) Weighted Average Interest Rate on Loan Per share amounts have been calculated using the average shares method. For the six months ended October 31, 2021 (unaudited). The actual source of the Funds current fiscal year distributions may be from net investment income,
return of capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year. The repurchase plan was completed at an average repurchase price of $4.91 for 917,344 shares and $4,506,248 for
the year ended April 30, 2020 and $5.98 for 1,047,640 shares and $6,268,230 for the year ended April 30, 2019. The tender offer was completed at a price of $7.01 for 25,577,060 shares and $179,295,192 for the year ended
April 30, 2021. 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. Total returns for periods of less than one year are not
annualized. The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee
of future results. Total returns for periods of less than one year are not annualized. The total return calculation assumes that distributions are reinvested in accordance with the Funds
dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. Annualized. Included in the expense ratios are certain non-recurring legal and
transfer agent fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios would have been 2.37% and 2.35%, respectively. Reflects fee waivers and/or expense reimbursements. The manager has agreed to waive the Funds management fee to an extent sufficient to offset the net
management fee payable in connection with any investment in an affiliated money market fund. Represents value of net assets plus the loan outstanding at the end of the period divided by the loan
outstanding at the end of the period. 20
Net asset value, beginning of period Income (loss) from operations: Net investment income Net realized and unrealized gain (loss) Total income (loss) from operations Less distributions from: Net investment income Total distributions Net asset value, end of period Market price, end of period Total return, based on NAV2,3 Total return, based on Market
Price4 Net assets, end of period (000s) Ratios to average net assets: Gross expenses Net expenses Net investment income Portfolio turnover rate Supplemental data: Loan Outstanding, End of Period (000s) Asset Coverage Ratio for Loan
Outstanding5 Asset Coverage, per $1,000 Principal Amount of Loan Outstanding5 Weighted Average Loan (000s) Weighted Average Interest Rate on Loan Per share amounts have been calculated using the average shares method. 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. Total returns for periods of less than one year are not
annualized. The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee
of future results. Total returns for periods of less than one year are not annualized. The total return calculation assumes that distributions are reinvested in accordance with the Funds
dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. Represents value of net assets plus the loan outstanding at the end of the period divided by the loan
outstanding at the end of the period. Added to conform to current period presentation. 21
As of the end of the Funds last fiscal year, the Fund had a revolving credit facility with a financial institution described below under
Leverage. The table below sets forth the senior securities outstanding as of the end of the Funds fiscal years or periods ended 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021. Year Ended Revolving Credit Facility: April 30, 2012* April 30, 2013* April 30, 2014* April 30, 2015* April 30, 2016 April 30, 2017 April 30, 2018 April 30, 2019* April 30, 2020* April 30, 2021* The Fund had open reverse repurchase agreements at April 30, 2012, 2013, 2014, 2015, 2019, 2020, and 2021.
Not applicable, as these senior securities were not registered for public trading. 22
The Fund is a diversified, closed-end management investment company registered under the 1940 Act. The
Fund was incorporated as a Maryland corporation on March 19, 1998, pursuant to the Charter. The Funds principal executive office is located at 620 Eighth Avenue, 47th Floor, New York, New York 10018, and its telephone number is (888) 777-0102. Unless otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of any offering of its securities in
accordance with its investment objective and policies as stated herein. It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds in accordance with its investment objective and policies within three
months after the completion of any offering. Pending such investment, it is anticipated that the proceeds will be primarily invested in short-term money market instruments. The Fund may also invest in U.S. government securities. MARKET AND NET ASSET VALUE INFORMATION The Funds currently outstanding Common Stock is listed on the NYSE under the symbol HIX. Our Common Stock commenced trading
on the NYSE on May 21, 1998. Our Common Stock has traded both at a premium and at a discount in relation to the Funds net
asset value per share. Although our Common Stock has traded at a premium to net asset value, we cannot assure that this will occur after any offering or that the Common Stock will not trade at a discount in the future. Our issuance of additional
Common Stock may have an adverse effect on prices in the secondary market for our Common Stock by increasing the number of shares of Common Stock available, which may create downward pressure on the market price for our Common Stock. Shares of closed-end investment companies frequently trade at a discount to net asset value. See RisksMarket Discount from Net Asset Value Risk. The following table sets forth for each of the periods indicated the range of high and low closing sale price of our Common Stock and the quarter-end sale price, each as reported on the NYSE, the net asset value per share of Common Stock and the premium or discount to net asset value per share at which our shares were trading. Net asset value is
generally determined on each business day that the NYSE is open for business. See Net Asset Value for information as to the determination of our net asset value. Fiscal Year 2020 July 31, 2019 October 31, 2019 January 31, 2020 April 30, 2020 Fiscal Year 2021 July 31, 2020 October 31, 2020 January 31, 2021 April 30, 2021 Fiscal Year 2022 July 31, 2021 October 31, 2021 January 31, 2022 23
Source of market prices: Bloomberg. Net asset value per share is determined as of close of business on the last day of the relevant quarter and
therefore may not reflect the net asset value per share on the date of the high and low closing sales prices, which may or may not fall on the last day of the quarter. Net asset value per share is calculated as described in Net Asset
Value. Calculated as of the quarter-end closing sales price divided by the quarter-end net asset value. On February 28, 2022, the last reported sale price
of our Common Stock on the NYSE was $6.37, which represented a discount of approximately 0.3% to the net asset value per share reported by us on that date. As of February 28, 2022, we had approximately 58.9 million shares of Common Stock outstanding and we had net assets applicable to Common
Stockholders of approximately $376.1 million. 24
Investment Objectives The Funds primary investment objective is to maximize current income. As a secondary objective, the Fund seeks capital appreciation to
the extent consistent with its objective of seeking to maximize current income. There can be no assurance the Fund will achieve its investment objectives. This section provides additional information about the Funds investments and certain portfolio management techniques the Fund may use.
More information about the Funds investments and portfolio management techniques and the associated risks is included in the SAI. Investment Strategies Under normal conditions, the Fund will invest at least 80% of its net assets plus any borrowings for investment purposes in high-yield debt
securities. Western Asset is free to invest in debt securities of any maturity. Certain of the debt securities purchased by the Fund may be rated as low as C by Moodys Investor Service (Moodys) or D by
Standard & Poors Ratings Services (S&P) or may be comparable to securities so rated. The Fund is not required to dispose of a debt security if its credit rating or credit quality declines. The Fund also holds debt
securities in the hotels, restaurants and leisure sector as well as in the oil, gas and consumable fuel sector. The Fund invests up to
35% of its total assets in debt securities of issuers located in emerging market countries. Emerging market country is defined to include any country which is, at the time of investment, (i) represented in the J.P. Morgan Emerging
Market Bond Index Global or the J.P. Morgan Corporate Emerging Market Bond Index Broad or (ii) categorized by the World Bank in its annual categorization as middle- or low-income. The Fund may also invest
in securities denominated in currencies of emerging market countries. There is no minimum rating criteria for the Funds investments in such securities. The Funds investments in debt securities of emerging market issuers may include
dollar and non-dollar-denominated (a) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or
instrumentalities, including Brady bonds; (b) debt obligations of supranational entities; (c) debt obligations and other fixed-income securities of foreign corporate issuers; (d) debt obligations of U.S. corporate issuers; and
(e) debt securities issued by corporations that generate significant profits from emerging market countries. The Fund may invest in securities with any market capitalization. The Fund may invest up to 30% of its assets in zero coupon securities,
pay-in-kind bonds and deferred payment securities. The Fund may also invest up to 20% of its total assets in common stock, convertible securities (including contingent
convertible securities), warrants, preferred stock or other equity securities of U.S. and foreign issuers when consistent with its objectives. The Fund may invest in high-yield foreign and U.S. corporate securities including bonds, debentures, notes, commercial paper and preferred
stock and will generally be unsecured. The Fund may invest in corporate debt securities with variable rates of interest or which involve equity features, such as contingent interest or participations based on revenues, sales or profits (i.e.,
interest or other payments, often in addition to a fixed rate of return, that are based on the borrowers attainment of specified levels of revenues, sales or profits and thus enable the holder of the security to share in the potential success
of the venture). The Fund may invest in high-yield debt securities with floating interest rates. The Fund may invest in Brady bonds,
which are debt securities issued under the framework of the Brady Plan as a means for debtor nations to restructure their outstanding external indebtedness; participations in loans between emerging market governments and financial institutions; or
fixed-income securities issued by supranational entities such as the World Bank or the European Economic Community. The Fund may invest
in fixed and floating rate loans arranged through private negotiations between a corporate borrower or a foreign sovereign entity and one or more financial institutions in the form of participations in loans and assignments of all or a portion of
loans from third parties. 25
In times of adverse market conditions, the Fund may employ alternative strategies, including
investment of a substantial portion of the Funds assets in securities rated higher than Baa by Moodys or BBB by S&P, or in unrated securities of comparable quality. In addition, in order to maintain liquidity,
the Fund may invest up to 35% of its total assets in high-quality short-term money market instruments. Such instruments may include obligations of the U.S. Government or its agencies or instrumentalities; commercial paper of issuers rated, at the
time of purchase, A-2 or better by S&P or P-2 or better by Moodys or which, in the opinion of management, are of comparable creditworthiness; certificates of
deposit, bankers acceptances or time deposits of United States banks with total assets of at least $1 billion (including obligations of foreign branches of such banks) and of the 75 largest foreign commercial banks in terms of total
assets (including domestic branches of such banks); and repurchase agreements with respect to the foregoing obligations. In times of
adverse market conditions, the Fund may invest its assets without limit in high-quality short-term money market instruments. The Fund
generally utilizes leverage, and is authorized to use leverage in amounts of up to 33 1/3% of its total assets immediately after such borrowing and/or issuance (including the amount obtained from leverage). The Fund may, in addition to engaging in the transactions described above, borrow money for temporary or emergency purposes (including, for
example, clearance of transactions, share repurchases or payments of dividends to stockholders) in an amount not exceeding 5% of the value of the funds total assets (including the amount borrowed). The Fund may enter into repurchase agreements for cash management purposes. Reverse repurchase agreements and similar investment management
techniques that may provide leverage are not subject to the foregoing 33 1/3% limitation so long as the Fund has covered its commitment with respect to such techniques by segregating or earmarking liquid assets, entering into offsetting transactions
or owning positions covering related obligations. The Fund may engage in currency transactions with counterparties to hedge the value of
portfolio securities denominated in particular currencies against fluctuations in relative value or to generate income or gain. Currency transactions include currency forward contracts, exchange-listed currency futures contracts and options thereon,
exchange-listed and over-the-counter (OTC) options on currencies and currency swaps. The Fund may use a variety of derivative instruments as part of its investment strategies or for hedging or risk management purposes. Examples
of derivative instruments that the fund may use include options contracts, futures contracts, options on futures contracts, credit default swaps and other swap agreements. The Fund may purchase and sell futures contracts, purchase and sell (or
write) exchange-listed and OTC put and call options on securities, financial indices and futures contracts, enter into various interest rate and currency transactions and enter into other similar transactions which may be developed in the future to
the extent the management determines that they are consistent with the funds investment objectives and policies and applicable regulatory requirements. The Fund may use any or all of these techniques at any time, and the use of any particular
derivative transaction will depend on market conditions. The Fund may enter into interest rate swaps and may purchase interest rate caps,
floors and collars and may sell interest rate caps, floors and collars that it has purchased The Fund may also enter into
(a) contracts for the purchase or sale for future delivery (futures contracts) of debt securities, aggregates of securities, indices based upon the prices thereof and other financial indices and (b) put or call options on such
futures contracts. The Fund may purchase or sell exchange-traded or OTC put or call options on securities and indices based upon the
prices, yields or spreads of securities. The Fund may purchase securities on a firm commitment basis, including when-issued securities.
The Fund may also invest in delayed-delivery securities. 26
The Fund may lend portfolio securities to brokers or dealers or other financial institutions. The
Fund does not currently intend to make loans of portfolio securities with a value in excess of 33 1/3% of the value of its total net assets. The Fund may invest, without limitation, in illiquid securities, which are securities that cannot be sold within seven days at a price which
the fund would determine to be fair value. The Fund may purchase Rule 144A securities for which there is a secondary market of qualified institutional buyers, as defined in Rule 144A promulgated under the Securities Act of 1933, as amended (the
Securities Act). The Fund may purchase securities for which there is a limited trading market or which are subject to restrictions on resale to the public. The Fund may invest in dollar rolls, asset-backed securities and mortgage-backed securities. Percentage Limitations Percentage limitations described in this prospectus are as of the time of investment by the Fund and may be exceeded on a going-forward basis
as a result of credit rating downgrades or market value fluctuations of the Funds portfolio securities. Segregation and Cover
Requirements Certain portfolio management techniques, such as reverse repurchase agreements, purchasing securities on a
when-issued or delayed delivery basis, writing credit default swaps or futures contracts, engaging in short sales or writing options on portfolio securities, may be considered senior securities under the 1940 Act unless appropriate steps are taken
to segregate the Funds assets or otherwise cover its obligations. If the Fund utilizes these portfolio management techniques, it may segregate liquid assets, enter into offsetting transactions or own positions covering related obligations.
Although under no obligation to do so, Western Asset currently intends to cover the Funds commitment with respect to such techniques should the Fund enter into or engage in one or more of such management techniques. Under current law, to the
extent the Fund covers its commitment under such portfolio management techniques, such instrument will not be considered a senior security for the purposes of the 1940 Act. The Fund may cover such transactions using other methods currently or in the
future permitted under the 1940 Act, the rules and regulations thereunder, or orders issued by the SEC thereunder. For these purposes, interpretations and guidance provided by the SEC staff may be taken into account when deemed appropriate by the
Fund. These segregation and coverage requirements could result in the Fund maintaining securities positions that it would otherwise liquidate, segregating assets at a time when it might be disadvantageous to do so or otherwise restricting portfolio
management. Such segregation and cover requirements will not limit or offset losses on related positions. See Investment Policies and TechniquesPortfolio CompositionDerivativesUse of Segregated and Other Special
Accounts in the SAI. The SEC adopted a new rule on October 28, 2020 that will replace these asset segregation requirements with a requirement to ensure the Fund has a derivatives risk management program consistent with the new rule,
including compliance with a VaR test. The Fund will not be required to comply with the new rule until August 19, 2022. Portfolio Composition Additional information regarding the Funds investment policies, restrictions and portfolio investments is contained in the SAI. Temporary Defensive Strategies The Fund may take temporary defensive positions or depart from its principal investment strategies in response to or anticipation of adverse
or unusual market, economic, political or other conditions, including by investing in any type of money market instruments and short-term debt securities or holding cash or cash items without regard to any percentage limitations. For instance, for
temporary defensive purposes, the Fund may restrict the markets in which it invests or may hold uninvested cash or invest without limitation in cash equivalents such as money market instruments, U.S. Treasury bills, interests in short-term
investment funds, repurchase agreements, or shares of money market or short-term bond funds, even if the investments are inconsistent with the Funds principal 27
investment strategies. To the extent the Fund invests in these temporary investments in this manner, the Fund may succeed in avoiding losses but may not otherwise achieve its investment
objective. Although Western Asset has the ability to take defensive positions for the Fund, it may choose not to do so for a variety of reasons, even during volatile market condition. Portfolio Turnover The Fund does not
have a formal portfolio turnover policy and does not intend to adopt one. Although the Fund generally intends to hold most of its securities until maturity, it may, from time to time, sell any of its securities as part of its overall management of
its investment portfolio. When investments are realized, Western Asset will reinvest proceeds therefrom in the Funds target assets. Depending on market conditions, Western Asset will also make opportunistic dispositions of the Funds
investments in its target assets. Frequent trading also increases transaction costs, which could detract from the Funds performance. Regulation
as a Commodity Pool The Commodity Futures Trading Commission (the CFTC) subjects advisers to registered
investment companies to regulation by the CFTC if a fund that is advised by the investment adviser either (i) invests, directly or indirectly, more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps
(CFTC Derivatives), or (ii) markets itself as providing investment exposure to such instruments. To the extent the Fund uses CFTC Derivatives, it intends to do so below such prescribed levels and will not market itself as a
commodity pool or a vehicle for trading such instruments. Accordingly, the Manager has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange Act (CEA) pursuant
to Rule 4.5 under the CEA. The Manager is not, therefore, subject to registration or regulation as a commodity pool operator under the CEA in respect of the Fund Fundamental Investment Policies The
Funds (i) investment objectives and (ii) the specified investment restrictions listed in the SAI, are considered fundamental and may not be changed without the approval of the holders of a majority of the outstanding voting
securities (as defined in the 1940 Act). A majority of the outstanding voting securities means (i) 67% or more of the Funds outstanding voting securities present at a meeting, if the holders of more than 50% of the Funds
outstanding voting securities are present or represented by proxy at the meeting or (ii) more than 50% of the outstanding voting securities, whichever of (i) or (ii) is less. See Investment Restrictions in the SAI for a
complete list of the fundamental investment policies of the Fund. 28
The Fund may seek to enhance the level of its current distributions to Common Stockholders through the use of leverage. The Fund may use leverage through borrowings, including loans from certain financial institutions and/or the issuance of debt securities
(collectively, Borrowings), and through the issuance of shares of preferred stock (Preferred Stock). The Fund may use leverage through Borrowings in an aggregate amount of up to approximately 33 1/3% of the Funds total
net assets immediately after such Borrowings. Furthermore, the Fund may use leverage through the issuance of Preferred Stock in an aggregate amount of liquidation preference attributable to the Preferred Stock combined with the aggregate amount of
any Borrowings of up to approximately 50% of the Funds total net assets immediately after such issuance. The Fund may enter into reverse repurchase agreements and use similar investment management techniques that may provide leverage, but
which are not subject to the foregoing 33 1/3% limitation so long as the Fund has covered its commitment with respect to such techniques by segregating or earmarking liquid assets, entering into offsetting transactions or owning positions covering
related obligations. The Fund has a revolving credit agreement with Pershing LLC (Credit Agreement) that allows the Fund to borrow up to an aggregate amount of $300,000,000, subject to approval by Pershing LLC. On March 10, 2022,
the Board approved a consent and amendment agreement whereby Pershing transferred its interest in the Credit Agreement to the Bank of New York Mellon. The Fund pays interest on Borrowings calculated based on the Overnight Bank Funding Rate plus
applicable margin. The Overnight Bank Funding Rate means the Overnight Bank Funding Rate as reported by the New York Federal Reserve in the FR2420 Report of Selected Money Market Rates or any successor report or website. To the extent of the
borrowing outstanding, the Fund is required to maintain collateral in a special custody account at the Funds custodian on behalf of Pershing LLC. The Funds Credit Agreement contains customary covenants that, among other things, may limit
the Funds ability to pay distributions in certain circumstances, incur additional debt, change its fundamental investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in
addition to those required by the 1940 Act. In addition, the Credit Agreement may be subject to early termination under certain conditions and may contain other provisions that could limit the Funds ability to utilize borrowing under the
agreement. As of April 30, 2021, the Fund had $158,000,000 of Borrowings outstanding. The SEC has adopted new Rule 18f-4 under the 1940 Act, which will require a fund that is not a limited derivatives user as described in Rule 18f-4(c)(4) to adopt a derivatives risk management
program providing for specific items as required by the rule, including compliance with a VaR test. The provisions of Rule 18f-4 will replace the 1940 Act cover requirements for reverse repurchase agreements,
similar financing transactions and derivatives transactions discussed in this Prospectus. Under Rule 18f-4(d), a fund may enter into reverse repurchase agreements or similar financing transactions in reliance
on the rule if the fund either (i) complies with the asset coverage requirements of Section 18 of the 1940 Act, and combines the aggregate amount of indebtedness associated with all reverse repurchase agreements or similar financing
transactions with the aggregate amount of any other senior securities representing indebtedness when calculating its asset coverage ratio; or (ii) treats all reverse repurchase agreements or similar financing transactions as derivatives
transactions for all purposes under the rule. Compliance with Rule 18f-4 will be required by August 19, 2022. Using derivatives also can have a leveraging effect and increase Fund volatility. The Fund currently expects to use leverage through the issuance of Preferred Stock. Borrowings (and any Preferred Stock) will have seniority
over Common Stock. Any Borrowings and Preferred Stock (if issued) will leverage your investment in Common Stock. Holders of Common Stock will bear the costs associated with any Borrowings, and if the Fund issues Preferred Stock, Common Stockholders
will bear the offering costs of the Preferred Stock issuance. The Board of Directors of the Fund may authorize the use of leverage through Borrowings and Preferred Stock without the approval of the Common Stockholders. Changes in the value of the Funds portfolio securities, including costs attributable to Borrowings or Preferred Stock, will be borne
entirely by the holders of the Common Stock. If there is a net decrease (or increase) in the value of the Funds investment portfolio, the leverage will decrease (or increase) the net asset value per share of Common Stock to a greater extent
than if the Fund were not leveraged. During periods when the Fund is using leverage through Borrowings or the issuance of Preferred Stock the fees paid to the Manager, Western Asset, 29
Western Asset Limited and Western Asset Singapore for advisory services will be higher than if the Fund did not use leverage because the fees paid will be calculated on the basis of the
Funds Managed Assets, which includes the principal amount of the Borrowings and any assets attributable to the issuance of Preferred Stock. This means that the Manager, Western Asset, Western Asset Limited and Western Asset Singapore may have
a financial incentive to increase the Funds use of leverage. Under the 1940 Act, the Fund generally is not permitted to issue
commercial paper or notes or borrow unless immediately after the borrowing or commercial paper or note issuance the value of the Funds total assets less liabilities other than the principal amount represented by commercial paper, notes or
borrowings is at least 300% of such principal amount. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Stock unless, at the time of such declaration, the value of the Funds total assets,
less liabilities other than the principal amount represented by commercial paper, notes or borrowings, is at least 300% of such principal amount after deducting the amount of such dividend or distribution. If the Fund borrows, the Fund intends, to
the extent possible, to prepay all or a portion of the principal amount of any outstanding commercial paper, notes or borrowing to the extent necessary to maintain the required asset coverage. Failure to maintain certain asset coverage requirements
could result in an event of default and entitle the debt holders to elect a majority of the Board of Directors. Utilization of leverage
is a speculative investment technique and involves certain risks to the holders of Common Stock. These include the possibility of higher volatility of the net asset value of the Common Stock and potentially more volatility in the market value of,
and distributions on, the Common Stock. So long as the Fund is able to realize a higher net return on its investment portfolio than the then-current cost of any leverage together with other related expenses, the effect of the leverage will be to
cause holders of Common Stock to realize a higher rate of return than if the Fund were not so leveraged. On the other hand, to the extent that the then-current cost of any leverage, together with other related expenses, approaches the net return on
the Funds investment portfolio, the benefit of leverage to holders of Common Stock will be reduced, and if the then-current cost of any leverage together with related expenses were to exceed the net return on the Funds portfolio, the
Funds leveraged capital structure would result in a lower rate of return to holders of Common Stock than if the Fund were not so leveraged. There can be no assurance that the Funds leveraging strategy will be successful. Under the 1940 Act, the Fund is not permitted to issue Preferred Stock unless immediately after such issuance the value of the Funds
asset coverage is at least 200% of the liquidation value of the outstanding Preferred Stock (i.e., such liquidation value may not exceed 50% of the Funds asset coverage less all liabilities other than borrowings). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Stock unless, at the time of such
declaration, the value of the Funds asset coverage less liabilities other than borrowings satisfies the above-referenced 200% coverage requirement. If Preferred Stock is issued, the Fund intends, to the extent possible, to purchase or redeem
Preferred Stock from time to time to the extent necessary in order to maintain coverage of at least 200%. If Preferred Stock is
outstanding, two of the Funds Directors will be elected by the holders of Preferred Stock, voting separately as a class. The remaining Directors of the Fund will be elected by holders of Common Stock and Preferred Stock voting together as a
single class. In the unlikely event that the Fund fails to pay dividends on the Preferred Stock for two years, holders of Preferred Stock would be entitled to elect a majority of the Directors of the Fund. The failure to pay dividends or make
distributions could result in the Fund ceasing to qualify for taxation as a regulated investment company under the Code, which could have a material adverse effect on the value of the Common Stock. The Fund may be subject to certain restrictions imposed either by guidelines of a lender, if the Fund borrows from a lender, or by one or more
rating agencies which may issue ratings for Preferred Stock or debt securities. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. It is not
anticipated that these covenants or guidelines will impede the Manager, Western Asset, Western Asset Limited and Western Asset Singapore from managing the Funds portfolio in accordance with the Funds investment objectives and policies.
In addition to other considerations, to the extent that the Fund believes that the covenants and guidelines required by the rating agencies would impede its ability to meet its investment objectives, or if the Fund is unable to obtain its desired
rating on Preferred Stock or debt securities, the Fund will not issue Preferred Stock or debt securities. 30
Effects of Leverage The Fund may borrow up to an aggregate amount of $300,000,000 under its revolving credit agreement. As of April 30, 2021, the Fund had
$158,000,000 of Borrowings outstanding per this credit agreement. The credit agreement is currently scheduled to terminate on May 11, 2022. The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Stock
total return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Funds portfolio) of -10%, -5%,
0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. See Risks. The table further reflects the issuance of leverage representing 29% of the Funds total net assets, net of expenses. The Funds
currently projected annual interest on its leverage of 0.87%. Assumed Portfolio Total Return (Net of Expenses) Common Stock Total Return Common Stock Total Return is composed of two elements: the Common Stock dividends paid by the Fund (the
amount of which is largely determined by the net investment income of the Fund after paying dividends or interest on its leverage) and gains or losses on the value of the securities the Fund owns. As required by SEC rules, the table above assumes
that the Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0% the Fund must assume that the interest it receives on its debt security investments is entirely offset by losses in
the value of those investments. 31
The Fund is a diversified, closed-end management investment company designed primarily as a long-term
investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives. The
Funds performance and the value of its investments will vary in response to changes in interest rates, inflation, the financial condition of a securitys issuer, ratings on a security and other market factors. Your securities at any point
in time may be worth less than you invested, even after taking into account the reinvestment of Fund dividends and distributions. Below are the principal risks associated with an investment in the Fund. Investment Risk and Market Risk An investment in the Fund is subject to investment risk, including the possible loss of the entire principal amount that you invest. Your
investment in the Fund represents an indirect investment in the securities owned by the Fund. The value of these securities may increase or decrease, at times rapidly and unexpectedly. Your investment in the Fund may at any point in the future be
worth less than your original investment even after taking into account the reinvestment of dividends and distributions. Below Investment Grade
Securities (High-Yield) Risk At any one time, substantially all of the Funds Managed Assets may be invested in high-yield
debt securities. High yield debt securities are generally subject to greater credit risks than higher-grade debt securities, including the risk of default on the payment of interest or principal. High yield debt securities are considered
speculative, typically have lower liquidity and are more difficult to value than higher grade bonds. High yield debt securities tend to be volatile and more susceptible to adverse events, credit downgrades and negative sentiments and may be
difficult to sell at a desired price, or at all, during periods of uncertainty or market turmoil. Because of the substantial risks associated with investments in lower grade securities, you could lose money on your investment in Common Stock, both
in the short-term and the long-term. Low Rated and Unrated Securities The Fund may invest in instruments that are low rated or unrated. Debt securities of emerging market issuers may be considered to have a
credit quality rated below investment grade by internationally recognized credit rating organizations such as Moodys and S&P. Non-investment grade securities (that is, rated Ba1 or lower by
Moodys or BB+ or lower by S&P) are commonly referred to as junk bonds and are regarded as predominantly speculative with respect to the issuers capacity to pay interest and repay principal in accordance with the terms of
the obligations and involve major risk exposure to adverse conditions. Some of the emerging market issuer securities held by the Fund, which may not be paying interest currently or may be in payment default, may be comparable to securities rated as
low as C by Moodys or CCC or lower by S&P. These securities are considered to have extremely poor prospects of ever attaining any real investment standing, to have a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse business, financial or economic conditions and/or to be in default or not current in the payment of interest or principal. Low rated and unrated debt instruments generally offer a higher current yield than that available from higher grade issues, but typically
involve greater risk. Low rated and unrated securities are especially subject to adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to changes in interest
rates. During periods of economic downturn or rising interest rates, issuers of low rated and unrated instruments may experience financial stress that could adversely affect their ability to make payments of principal and interest and increase the
possibility of default. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the values and liquidity of low rated and unrated securities especially in a market characterized by a low volume of
trading. 32
Default Risk Investments in fixed-income securities are subject to the risk that the issuer of the security could default on its obligations, causing a
fund to sustain losses on those investments. A default could impact both interest and principal payments. High-yield fixed-income securities (commonly known as junk bonds) are considered speculative with respect to the issuers
capacity to pay interest and repay principal in accordance with the terms of the obligations. This means that, compared to issuers of higher rated securities, issuers of medium and lower rated securities are less likely to have the capacity to pay
interest and repay principal when due in the event of adverse business, financial or economic conditions and/or may be in default or not current in the payment of interest or principal. The market values of medium and lower rated securities tend to be more sensitive to company-specific developments and changes in economic
conditions than higher rated securities. The companies that issue these securities often are highly leveraged, and their ability to service their debt obligations during an economic downturn or periods of rising interest rates may be impaired. In
addition, these companies may not have access to more traditional methods of financing, and may be unable to repay debt at maturity by refinancing. The risk of loss due to default in payment of interest or principal by these issuers is significantly
greater than with higher rated securities because medium and lower rated securities generally are unsecured and subordinated to senior debt. Default, or the markets perception that an issuer is likely to default, could reduce the value and liquidity of securities held by the
Fund, thereby reducing the value of your investment in the Common Stock. In addition, default may cause the Fund to incur expenses in seeking recovery of principal or interest on its portfolio holdings. Foreign (Non-U.S.) Investment Risk A fund that invests in foreign (non-U.S.) securities may experience more rapid and extreme changes in
value than a fund that invests exclusively in securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Investments in foreign
securities (including those denominated in U.S. dollars) are subject to economic and political developments in the countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or
monetary policies. Values may also be affected by restrictions on receiving the investment proceeds from a foreign country. Less information may be publicly available about foreign companies than about U.S. companies. Foreign companies are generally
not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, the Funds investments in foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition
of currency exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial instability and adverse diplomatic developments. In addition, there may be difficulty in obtaining or enforcing a
court judgment abroad. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to non-U.S. withholding taxes, and special U.S. tax considerations may apply. The risks of foreign investment are greater for investments in emerging markets. Emerging market countries typically have economic and
political systems that are less fully developed, and that can be expected to be less stable, than those of more advanced countries. Low trading volumes may result in a lack of liquidity and in price volatility. Emerging market countries may have
policies that restrict investment by foreigners, that require governmental approval prior to investments by foreign persons, or that prevent foreign investors from withdrawing their money at will. An investment in emerging market securities should
be considered speculative. Emerging Markets Risks Investing in securities of emerging market issuers entails all of the risks of investing in securities of foreign issuers to a heightened
degree. The heightened risks include: (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of
trading, resulting in lack of liquidity and in price volatility; and (iii) certain national policies which may restrict HIXs investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant
national interests. Economic and Political Risks The economies of individual emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of developing countries generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they
trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. With respect to any emerging market country, there is the possibility of nationalization, expropriation or confiscatory taxation, political
changes, governmental regulation, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or the value of the Funds investments in those countries. Risks Related to Russias Invasion of Ukraine Russias military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the
potential for wider conflict could increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and
certain Russian individuals, banking entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support
Russias military invasion. These sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cybersecurity attacks on governments,
companies or individuals, may further decrease the value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion. To the extent that the Fund has
exposure to Russian investments or investments in countries affected by the invasion, the Funds the ability to price, buy, sell, receive or deliver such investments may be impaired. The Fund could determine at any time that certain of the most
affected securities have zero value. In addition, any exposure that the Fund may have to counterparties in Russia or in countries affected by the invasion could negatively impact the Funds portfolio. The extent and duration of Russias
military actions and the repercussions of such actions (including any retaliatory actions or countermeasures that may be taken by those subject to sanctions) are impossible to predict, but could result in significant market disruptions, including in
the oil and natural gas markets, and may negatively affect global supply chains, inflation and global growth. These and any related events could significantly impact the Funds performance and the value of an investment in the Fund, even beyond
any direct exposure the Fund may have to Russian issuers or issuers in other countries affected by the invasion. 33
Investment Controls; Repatriation Foreign investment in certain emerging market issuers is restricted or controlled to varying degrees. These restrictions or controls may at
times limit or preclude foreign investment in certain emerging market issuers and increase the costs and expenses of the Fund. Certain emerging market countries require governmental approval prior to investments by foreign persons in a particular
issuer, limit the amount of investment by foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of an issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on foreign investors. Certain emerging market countries may also restrict investment opportunities in issuers in industries deemed important to national interests. Emerging market countries may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an emerging market countrys balance of payments, the country could impose temporary restrictions on foreign capital remittances. The Fund could be adversely affected by
delays in, or a refusal to grant, any restrictions on investments. Investing in local markets in emerging market countries may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may
involve additional costs to the Fund. Market Illiquidity No established secondary markets may exist for many of the emerging market issuer securities in which the Fund may invest. Reduced secondary
market liquidity may have an adverse effect on market price and the Funds ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain emerging market issuer securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating
its net asset value. Market quotations are generally available on many emerging market issuer securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales. Currency Devaluations and Fluctuations The value of investments in securities denominated in foreign currencies increases or decreases as the rates of exchange between those
currencies and the U.S. dollar change. Currency conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can be volatile, and are affected by factors such as general economic
conditions, the actions of the U.S. and foreign governments or central banks, the imposition of currency controls and speculation. The Fund may be unable or may choose not to hedge its foreign currency exposure. Financial Information and Standards Issuers in emerging market countries generally are subject to accounting, auditing and financial standards and requirements that differ, in
some cases significantly, from those applicable to U.S. issuers. In particular, the assets and profits appearing on the financial statements of an emerging market country issuer may not reflect its financial position or results of operations in the
way they would be reflected had the financial statements been prepared in accordance with U.S. generally accepted accounting principles. In addition, for an issuer that keeps accounting records in local currency, inflation accounting rules may
require that certain assets and liabilities be restated on the issuers balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits. Consequently,
financial data may be materially affected by restatements for inflation and may not accurately reflect the real condition of those issuers and securities markets. Substantially less information may be publicly available about issuers in emerging
market countries than is available about U.S. issuers. 34
Smaller Company Risk The general risks associated with income-producing securities are particularly pronounced for securities issued by companies with smaller
market capitalizations. These companies may have limited product lines, markets or financial resources or they may depend on a few key employees. As a result, they may be subject to greater levels of credit, market and issuer risk. Securities of
smaller companies may trade less frequently and in lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. Companies with medium-sized market
capitalizations may have risks similar to those of smaller companies. Interest Rate Risk The market price of the Funds investments will change in response to changes in interest rates and other factors. During periods of
declining interest rates, the market price of fixed income securities generally rises. Conversely, during periods of rising interest rates, the market price of such securities generally declines. The magnitude of these fluctuations in the market
price of fixed income securities is generally greater for securities with longer maturities. Additionally, such risk may be greater during the current period of historically low interest rates. Fluctuations in the market price of the Funds
securities will not affect interest income derived from securities already owned by the Fund, but will be reflected in the Funds net asset value. The Fund may utilize certain strategies, including investments in structured notes or interest
rate swap or cap transactions, for the purpose of reducing the interest rate sensitivity of the portfolio and decreasing the Funds exposure to interest rate risk, although there is no assurance that it will do so or that such strategies will
be successful. Credit Risk and Counterparty Risk The value of your investment in the Fund could decline if the issuer of a security held by the Fund or another obligor for that security (such
as a party offering credit enhancement) or a counterparty to a financial contract with the Fund fails to pay, otherwise defaults, is perceived to be less creditworthy, becomes insolvent or files for bankruptcy. The value of your investment in the
Fund could also decline if the credit rating of a security held by the Fund is downgraded or the credit quality or value of any assets underlying the security or financial contract declines. If the Fund enters into financial contracts (such as
certain derivatives, repurchase agreements, reverse repurchase agreements, and when-issued, delayed delivery and forward commitment transactions), the Fund will be subject to the credit risk presented by the counterparty and any custodian of Fund
assets. In addition, the Fund may incur expenses in an effort to protect the Fund interests or to enforce its rights against an issuer, guarantor, counterparty or any custodian or may be hindered or delayed in exercising those rights. Credit risk is
broadly gauged by the credit ratings of the securities in which the Fund invests and the credit ratings of counterparties to financial contracts with the Fund. However, ratings are only the opinions of the companies issuing them and are not
guarantees as to quality. Securities rated in the lowest category of investment grade (Baa/BBB) may possess certain speculative characteristics. Credit risk is typically greatest for the Funds high yield debt securities, which are rated below
the Baa/BBB categories or unrated securities of comparable quality (junk bonds). The Fund may invest in securities which are
subordinated to more senior securities of the issuer, or which represent interests in pools of such subordinated securities. The Fund is more likely to suffer a credit loss on subordinated securities than on
non-subordinated securities of the same issuer. If there is a default, bankruptcy or liquidation of the issuer, most subordinated securities are paid only if sufficient assets remain after payment of the
issuers non-subordinated securities. In addition, any recovery of interest or principal may take more time. As a result, even a perceived decline in creditworthiness of the issuer is likely to have a
greater adverse impact on subordinated securities. Reinvestment Risk Reinvestment risk is the risk that income from the Funds portfolio will decline if and when the Fund invests the proceeds from matured,
traded or called debt obligations at market interest rates that are below the portfolios current earnings rate. A decline in income could affect the price of Common Stock or the Funds overall return. 35
Liquidity Risk The Fund has no limit on its ability to purchase illiquid securities. Liquidity risk exists when particular investments are difficult to sell.
Securities may become illiquid after purchase by the Fund, particularly during periods of market turmoil. When the Fund holds illiquid investments, the portfolio may be harder to value, especially in changing markets, and if the Fund is forced to
sell these investments in order to segregate assets or for other cash needs, the Fund may suffer a loss. Duration Risk The duration of a fixed-income security is a measure of the portfolios sensitivity to changes in interest rates. Prices of fixed-income
securities with longer effective maturities are more sensitive to interest rate changes than those with shorter effective maturities. Holding long duration investments may expose the Fund to certain magnified risks. These include interest rate risk,
credit risk and liquidity risk, as discussed above. Management Risk The Fund is subject to management risk because it is an actively managed investment portfolio. The Manager and each individual portfolio
manager will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results. Leverage Risk The Fund generally
utilizes leverage, and is authorized to use leverage in amounts of up to approximately 33 1/3% of its total assets immediately after such borrowing and/or issuance, and under current market conditions intends to continue to use leverage. The value
of your investment may be more volatile if the fund borrows or uses instruments, such as derivatives, that have a leveraging effect on the funds portfolio. Other risks described in the Prospectus also will be compounded because leverage
generally magnifies the effect of a change in the value of an asset and creates a risk of loss of value on a larger pool of assets than the fund would otherwise have had. The fund may also have to sell assets at inopportune times to satisfy its
obligations created by the use of leverage or derivatives. The use of leverage is considered to be a speculative investment practice and may result in the loss of a substantial amount, and possibly all, of the funds assets. In addition, the
funds portfolio will be leveraged if it exercises its right to delay payment on a redemption, and losses will result if the value of the funds assets declines between the time a redemption request is deemed to be received by the fund and
the time the fund liquidates assets to meet redemption requests. Derivatives Risk The Fund may utilize a variety of derivative instruments for investment or risk management purposes, such as options, futures contracts, swap
agreements and credit default swaps. Using derivatives can increase Fund losses and reduce opportunities for gains when market prices, interest rates, currencies, or the derivatives themselves behave in a way not anticipated by the Fund. Using
derivatives also can have a leveraging effect and increase Fund volatility. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. Derivatives may not be available at the time or price desired,
may be difficult to sell, unwind or value, and the counterparty may default on its obligations to the Fund. Derivatives are generally subject to the risks applicable to the assets, rates, indices or other indicators underlying the derivative. The
value of a derivative may fluctuate more than the underlying assets, rates, indices or other indicators to which it relates. Use of derivatives may have different tax consequences for the Fund than an investment in the underlying security, and those
differences may affect the amount, timing and character of income distributed to shareholders. The U.S. government and foreign governments are in the process of adopting and implementing regulations governing derivatives markets, including mandatory
clearing of certain derivatives, margin and reporting requirements. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives may make derivatives more costly, limit their availability or utility, otherwise
adversely affect their performance or disrupt markets. The Securities and Exchange Commission adopted a new rule on October 28, 2020
that mandates that a funds derivatives risk management program provide for specific items as required by the rule, including compliance with a VaR test. Compliance with these new requirements will be required after a transition period that
ends on 36
August 19, 2022. Following the compliance date, these requirements may limit the ability of the Fund to use derivatives and reverse repurchase agreements and similar financing transactions
as part of its investment strategies. These requirements may increase the cost of the Funds investments in derivatives, which could adversely affect shareholders. Credit default swap contracts involve heightened risks and may result in losses to the Fund. Credit default swaps may be illiquid and
difficult to value. When the Fund sells credit protection via a credit default swap, credit risk increases since the Fund has exposure to both the issuer whose credit is the subject of the swap and the counterparty to the swap. Dollar Rolls, Asset-Backed Securities and Mortgage-Backed Securities Risk The Fund may invest in dollar rolls, asset-backed securities and mortgage-backed securities. Under a dollar roll transaction, the Fund sells
securities for delivery in the current month, or sells securities it has purchased on a to-be-announced basis, and simultaneously contracts to repurchase
substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the purchased securities. Dollar rolls are speculative techniques involving leverage, and are
considered Borrowings by the Fund if the Fund does not establish and maintain a segregated account. In addition, dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase may decline below the
repurchase price. In the event the buyer of securities under a dollar roll files for bankruptcy or becomes insolvent, the Funds use of proceeds may be restricted pending a determination by the other party, or its trustee or receiver, whether
to enforce the Funds obligation to repurchase the securities. Successful use of dollar rolls may depend upon the ability of the Funds investment manager to correctly predict interest rates and prepayments. There is no assurance that
dollar rolls can be successfully employed. Mortgage-backed securities may be issued by private companies or by agencies of the U.S.
Government and represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Asset-backed securities represent participations in, or are secured by and payable from, assets such
as installment sales or loan contracts, leases, credit card receivables and other categories of receivables. Certain debt instruments may only pay principal at maturity or may only represent the right to receive payments of principal or payments of
interest on underlying pools of mortgages, assets or government securities, but not both. The value of these types of instruments may change more drastically than debt securities that pay both principal and interest during periods of changing
interest rates. The Fund may obtain a below market yield or incur a loss on such instruments during periods of declining interest rates. Principal only and interest only instruments are subject to extension risk. For mortgage derivatives and
structured securities that have imbedded leverage features, small changes in interest or prepayment rates may cause large and sudden price movements. Mortgage derivatives may be illiquid and hard to value in declining markets. Interest Rate Transactions Risk The Fund may enter into a swap or cap transaction to attempt to protect itself from increasing interest expenses on Borrowings resulting from
increasing short-term interest rates or dividend expenses on any preferred shares. A decline in interest rates may result in a decline in net amounts receivable by the Fund from the counterparty under the swap or cap (or an increase in the net
amounts payable by the Fund to the counterparty under the swap), which may result in a decline in the net asset value of the Fund. Risks of
Warrants and Rights Warrants and rights are subject to the same market risks as stocks, but may be more volatile in price.
Warrants and rights do not carry the right to dividends or voting rights with respect to their underlying securities, and they do not represent any rights in the assets of the issuer. An investment in warrants or rights may be considered
speculative. In addition, the value of a warrant or right does not necessarily change with the value of the underlying security and a warrant or right ceases to have value if it is not exercised prior to its expiration date. The purchase of warrants
or rights involves the risk that the Fund could lose the purchase value of a warrant or right if the right to subscribe to additional shares is not exercised prior to the warrants or rights expiration. Also, the purchase of warrants and
rights involves the risk that the effective price paid for the warrant or right added to the subscription price of the related security may exceed the value of the subscribed securitys market price such as when there is no movement in the
price of the underlying security. 37
Market Price Discount from Net Asset Value Shares of closed-end investment companies frequently trade at a discount from their net asset value.
This risk is separate and distinct from the risk that the Funds net asset value could decrease as a result of its investment activities and may be a greater risk to investors expecting to sell their Common Stock in a relatively short period
following completion of this offering. Whether investors will realize gains or losses upon the sale of the Common Stock will depend not upon the Funds net asset value but upon whether the market price of the Common Stock at the time of sale is
above or below the investors purchase price for the Common Stock. Inflation/Deflation Risk Inflation risk is the risk that the value of certain assets or income from the Funds investments will be worth less in the future as
inflation decreases the value of money. As inflation increases, the real value of the Common Stock and distributions on the Common Stock can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs
associated with the Funds use of leverage would likely increase, which would tend to further reduce returns to stockholders. Current economic indicators have shown inflation accelerating at a faster pace than in recent years. Deflation
risk is the risk that prices throughout the economy decline over timethe opposite of inflation. Deflation may have an adverse
effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Funds portfolio. Energy and Energy Infrastructure Sector Risk The Fund is subject to the risk of investments in the energy sector, which makes it more susceptible to factors adversely affecting issuers
within that industry than would a fund investing in a more diversified portfolio of securities. A downturn in the energy sector of the economy could have an adverse impact on the Fund. At times, the performance of securities of companies in the
energy sector of the economy may lag the performance of other sectors or the broader market as a whole. The profitability of companies in the energy infrastructure sector is related to worldwide energy prices and costs related to energy production.
The energy sector is cyclical and highly dependent on commodity prices. Energy-related companies can be significantly affected by the supply of, and demand for, particular energy products (such as oil and natural gas). Companies in the energy
infrastructure sector may be adversely affected by natural disasters or other catastrophes. These companies may be at risk for environmental damage claims and other types of litigation. Companies in the energy infrastructure sector also may be
adversely affected by changes in exchange rates, interest rates, economic conditions, tax treatment, government regulation and intervention, negative perception, efforts at energy conservation and world events in the regions in which the companies
operate (e.g., expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and repatriation of capital, military coups, social unrest, violence or labor unrest). Companies in the
energy infrastructure sector may have significant capital investments in, or engage in transactions involving, emerging market countries, which may heighten these risks. Hospitality and Leisure Sector Risk To the extent the Funds investments are exposed to issuers conducting business in the hospitality and leisure sectors, the Fund will be
subject to the risks of such sectors. The hospitality sector is highly competitive and influenced by factors such as general and local economic conditions, location, room rates, quality, service levels, reputation and reservation systems, among many
other factors. The hospitality or leisure industry generally experiences seasonal slowdown in the third quarter and, to a lesser extent, in the fourth quarter of each year. As a result of such seasonality, there may be fluctuations in results of
operations of any hospitality or leisure investments the Fund holds. The demand for such leisure activities often changes rapidly. The leisure industry can be significantly affected by the performance of the overall economy, changing consumer
tastes, intense competition, technological developments, and government regulation. In addition, any such investments that the Fund may hold may be adversely affected by unknown and unpredictable factors, such as extreme weather conditions or
natural disasters, terrorist attacks or alerts, outbreaks of contagious diseases, airline strikes, economic factors and other considerations affecting travel. Market Events Risk The market
values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve
or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, investor sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the
security or other asset. Economies and financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff arrangements, public health events, terrorism, natural disasters and other
circumstances in one country or region could have profound impacts on global economies or markets. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to the countries directly affected, the
value and liquidity of the Funds investments may be negatively affected. The current global outbreak of the novel strain of
coronavirus, COVID-19, has resulted in market closures and dislocations, extreme volatility, liquidity constraints and increased trading costs. Efforts to contain the spread of
COVID-19 have resulted in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced consumer demand, defaults and credit ratings downgrades, and
other significant economic impacts. The effects of COVID-19 have impacted global economic activity across many industries and may heighten other pre-existing political,
social and economic risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Funds performance. Legislative and Regulatory Risk Prices for high-yield securities may be affected by legislative and regulatory developments which could adversely affect the Funds net
asset value and investment practices, the secondary market for high-yield securities, the financial condition of issuers of these securities and the value of outstanding high-yield securities. These risks generally are higher than issuers in
emerging market countries. 38
Anti-Takeover Provisions Risk The Funds Charter and Bylaws include provisions that are designed to limit the ability of other entities or persons to acquire control
of the Fund for short-term objectives, including by converting the Fund to open-end status or changing the composition of the Board, that may be detrimental to the Funds ability to achieve its primary investment objective of seeking high
current income. The Funds Charter also contains a provision opting in to the provisions of the MCSAA subject to certain exceptions. Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market
prices by discouraging a third party from seeking to obtain control of the Fund. There can be no assurance, however, that such provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be
aligned with the interests of long-term shareholders. See Certain Provisions in the Charter and Bylaws and Certain Provisions in the Charter and BylawsMaryland Control Share Acquisition Act. A recent decision by the
U.S. District Court for the Southern District of New York held that a control share amendment to the bylaws of a closed-end fund organized in Massachusetts was inconsistent with Section 18(i) of the 1940 Act. This decision did not address whether a
closed-end fund organized in Maryland that opts in to the MCSAA violates Section 18(i). Moreover, the New York decision appears to be incompatible with a prior decision by the U.S. District Court for the District of Maryland, which permitted a
closed-end fund organized in Maryland to remain opted in to the MCSAA notwithstanding a counterclaim alleging that the funds decision to opt in to the MCSAA violated Section 18(i) of the 1940 Act. Nonetheless, there is a risk that a court
could follow the reasoning of the New York federal court, as opposed to the decision of the Maryland federal court, when determining whether a closed-end fund organized in Maryland can opt in to the MCSAA. LIBOR Risk The Funds
investments, payment obligations, and financing terms may be based on floating rates, such as LIBOR, which is the offered rate for short-term Eurodollar deposits between major international banks. On March 5, 2021, the ICE Benchmark
Administration, the administrator of LIBOR, stated that it will cease the publication of (i) the overnight and one-, three-, six- and twelve-month USD LIBOR
settings immediately following the LIBOR publication on Friday, June 30, 2023 and (ii) all other LIBOR settings, including the one-week and two-month USD LIBOR
settings, immediately following the LIBOR publication on Friday, December 31, 2021. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Funds transactions and the
financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Funds investments cannot yet be determined. Operational Risk The valuation
of the Funds investments may be negatively impacted because of the operational risks arising from factors such as processing errors and human errors, inadequate or failed internal or external processes, failures in systems and technology,
changes in personnel, and errors caused by third party service providers or trading counterparties. It is not possible to identify all of the operational risks that may affect the Fund or to develop processes and controls that completely eliminate
or mitigate the occurrence of such failures. The Fund and its shareholders could be negatively impacted as a result. Cybersecurity Risk
With the increased use of technologies such as mobile devices and Web-based or
cloud applications, and the dependence on the Internet and computer systems to conduct business, the Fund is susceptible to operational, information security and related risks. In general, cybersecurity incidents can result from
deliberate attacks or unintentional events (arising from external or internal sources) that may cause the Fund to lose proprietary information, suffer data corruption, physical damage to a computer or network system or lose operational capacity.
Cybersecurity attacks include, but are not limited to, infection by malicious software, such as malware or computer viruses or gaining unauthorized access to digital systems, networks or devices that are used to service the Funds operations
(e.g., through hacking, phishing or malicious software coding) or other means for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cybersecurity attacks
may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on the Funds websites
(i.e., efforts to make network services unavailable to intended users). In addition, authorized persons could inadvertently or intentionally release confidential or proprietary information stored on the Funds systems. Cybersecurity incidents affecting the Funds subadviser, Western Asset, other service providers to the Fund or its shareholders
(including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially
resulting in financial losses to both the Fund and its shareholders, interference with the Funds ability to calculate its net asset value, impediments to trading, the inability of Fund shareholders to transact business and the Fund to process
transactions, violations of applicable privacy and other laws (including the release of private shareholder information) and attendant breach notification and credit monitoring costs, regulatory fines, penalties, litigation costs, reputational
damage, reimbursement or other compensation costs, forensic investigation and remediation costs, and/or additional compliance costs. Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the
Fund invests, counterparties with which the Fund engages in transactions, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, 39
dealers, insurance companies and other financial institutions (including financial intermediaries and other service providers) and other parties. In addition, substantial costs may be incurred in
order to safeguard against and reduce the risk of any cybersecurity incidents in the future. In addition to administrative, technological and procedural safeguards, the Manager and Western Asset have established business continuity plans in the
event of, and risk management systems to prevent or reduce the impact of, such cybersecurity incidents. However, there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified, as well
as the rapid development of new threats. Furthermore, the Fund cannot control the cybersecurity plans and systems put in place by its service providers or any other third parties whose operations may affect the Fund and its shareholders. The Fund
and its shareholders could be negatively impacted as a result. 40
Directors and Officers The overall
management of the business and affairs of the Fund is vested in the Board of Directors. The Board of Directors approves all significant agreements between the Fund and persons or companies furnishing services to the Fund. The day-to-day operation of the Fund is delegated to the officers of the Fund, the Manager, Western Asset, Western Asset Limited and Western Asset Singapore, subject always to the
investment objectives, restrictions and policies of the Fund and to the general supervision of the Board of Directors. Certain Directors and officers of the Fund are affiliated with Franklin Templeton, the parent corporation of the Manager, Western
Asset, Western Asset Limited and Western Asset Singapore. All of the Funds executive officers hold similar offices with some or all of the other funds advised by the Manager. Investment Manager Legg Mason
Partners Fund Advisor, LLC, located at 620 Eighth Avenue, New York, New York 10018, serves as the Funds investment manager. The Manager is a registered investment adviser and provides administrative and management services to the Fund. As of
December 31, 2021, the Managers total assets under management were approximately $235.1 billion. The Manager is a wholly owned subsidiary of Franklin Templeton. Franklin Templeton is a global asset management firm. As of December 31, 2021,
Franklin Templetons asset management operation had aggregate assets under management of approximately $1.58 trillion. Subadviser Western Asset Management Company, LLC, located at 385 East Colorado Boulevard, Pasadena, California 91101, serves as the Funds
subadviser. Western Asset, a wholly-owned subsidiary of Franklin Templeton, is a registered investment adviser and has day-to-day responsibility for managing the
Funds direct investments in high-yield securities and other permitted investments, subject to the supervision of the Funds Board of Directors and the Manager. As of December 31, 2021, Western Asset and its investment advisory affiliates over which Western Asset has operational responsibility, or its
supervised affiliates, had approximately $487.4 billion in assets under management. However, investors should be aware that the
investments made by the Fund and the results achieved by the Fund at any given time are not expected to be the same as those made by other funds for which Western Asset acts as investment adviser, including funds with names, investment objectives
and policies similar to the Fund. Non-U.S. Subadvisers In connection with Western Assets service to the Fund, Western Asset Limited and Western Asset Singapore provide certain subadvisory
services pursuant to the Western Asset Limited Subadvisory Agreement. Western Asset Limited was founded in 1984 and has offices at 10 Exchange Square, Primrose Street, London EC2A2EN. Western Asset Singapore was established in 2000 and has offices
at 1 George Street #23-01, Singapore 049145. Western Asset Limited and Western Asset
Singapore are generally responsible for managing investments denominated in currencies other than U.S. dollars, including the related portions of Western Assets broader portfolios, as well as servicing these relationships. Western Asset
Limited and Western Asset Singapore undertake investment-related activities including investment management, research and analysis and securities settlement. While Western Asset will remain ultimately responsible for investment decisions relating to the Funds portfolio, Western Asset Limited
and Western Asset Singapore provide certain subadvisory services to the Fund relating to currency transactions and investments in non-U.S. dollar-denominated securities and related foreign currency
instruments. 41
Western Asset Limited and Western Asset Singapore are registered investment advisers and are
affiliates of Franklin Templeton, the Manager and Western Asset. Investment Management Agreement and
Sub-Advisory Agreement Investment Management Agreement Under the Funds management agreement with the Manager (the Investment Management Agreement), subject to the supervision and
direction of the Funds Board, the Manager is delegated the responsibility of managing the Funds portfolio in accordance with the Funds stated investment objectives and policies, making investment decisions for the Fund and placing
orders to purchase and sell securities. The Manager performs administrative and management services necessary for the operation of the Fund, such as (1) supervising the overall administration of the Fund, including negotiation of contracts and
fees with and the monitoring of performance and billings of the Funds transfer agent, stockholder servicing agents, custodian and other independent contractors or agents; (2) providing certain compliance, Fund accounting, regulatory
reporting and tax reporting services; (3) preparing or participating in the preparation of materials for the Funds Board of Directors, registration statements, proxy statements and reports and other communications to stockholders;
(4) maintaining the Funds existence and (5) maintaining the registration and qualification of the Funds shares under federal and (if required) state laws. The Manager also provides the office space, facilities, equipment and personnel necessary to perform the following services for the Fund: SEC
compliance, including record keeping, reporting requirements and registration statements and proxies; supervision of Fund operations, including coordination of functions of the transfer agent, custodian, accountants, counsel and other parties
performing services or operational functions for the Fund; and certain administrative and clerical services, including certain accounting services and maintenance of certain books and records. The Investment Management Agreement will continue in effect, unless otherwise terminated, until July 31, 2022 and then will continue from
year to year provided such continuance is specifically approved at least annually (a) by the Funds Board of Directors or by a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act) and (b) in either
event, by a majority of the Directors of the Fund who are not interested persons of the Fund within the meaning of Section 2(a)(19) of the 1940 Act (the Independent Directors) with such Independent Directors casting
votes in person at a meeting called for such purpose. The Investment Management Agreement provides that the Manager may render services to others. The Investment Management Agreement is terminable without penalty on not more than 60 days nor
less than 30 days written notice by the Fund when authorized either by a vote of holders of shares representing a majority of the voting power of the outstanding voting securities of the Fund (as defined in the 1940 Act) or by a vote of a
majority of the Funds Directors, or by the Manager on not less than 90 days written notice, and will automatically terminate in the event of its assignment. The Investment Management Agreement provides that neither the Manager nor its
personnel or affiliates shall be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in the execution of security transactions for the Fund, except for willful misfeasance, bad
faith or gross negligence or reckless disregard of its or their obligations and duties. Other than the cash management services it
provides for certain equity funds, the Manager does not provide day-to-day portfolio management services. Rather, portfolio management for the Fund is provided by
Western Asset. Western Asset Sub-Advisory Agreement Western Asset provides services to the Fund pursuant to a subadvisory agreement between the Manager and Western Asset (the Subadvisory
Agreement). Under the Subadvisory Agreement, subject to the supervision and direction of the Funds Board of Directors and the Manager, Western Asset will manage the Funds portfolio in accordance with the Funds investment
objectives and policies, make investment decisions for the Fund, place orders to purchase and sell securities, and employ professional portfolio managers and securities analysts who provide research services to the Fund. 42
The Subadvisory Agreement for the Fund will continue in effect, unless otherwise terminated,
until July 31, 2022 and then will continue from year to year provided such continuance is specifically approved at least annually (a) by the Board of Directors or by a majority of the outstanding voting securities of the Fund (as defined
in the 1940 Act), and (b) in either event, by a majority of the Independent Directors with such Independent Directors casting votes in person at a meeting called for such purpose. The Board of Directors or a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) may terminate the Subadvisory Agreement without penalty, in each case on not more than 60 days nor less than 30 days written notice to Western Asset. Western Asset may terminate the
subadvisory agreement on 90 days written notice to the Fund and the Manager. The Manager and Western Asset may terminate the Subadvisory Agreement upon their mutual written consent. The Subadvisory Agreement will terminate automatically in the
event of its assignment. Western Asset Limited Subadvisory Agreement Western Asset Limited provides services to the Fund pursuant to a subadvisory agreement between Western Asset Limited and Western Asset. The
Western Asset Limited Subadvisory Agreement provides that, subject to the supervision and direction of the Funds Board of Directors and the Manager, Western Asset Limited will manage the Funds portfolio in accordance with the Funds
investment objectives and policies, make investment decisions for the Fund, place orders to purchase and sell securities and employ professional portfolio managers and securities analysts who provide research services to the Fund. The Western Asset Limited Subadvisory Agreement for the Fund will continue in effect, unless otherwise terminated, until July 31, 2022
and then will continue from year to year provided such continuance is specifically approved at least annually (a) by the Board of Directors or by a majority of the outstanding voting securities of the Fund (as defined in the 1940 Act), and
(b) in either event, by a majority of the Independent Directors with such Independent Directors casting votes in person at a meeting called for such purpose. The Board of Directors or a majority of the outstanding voting securities of the Fund
(as defined in the 1940 Act) may terminate the Western Asset Limited Subadvisory Agreement without penalty, in each case on not more than 60 days nor less than 30 days written notice to Western Asset Limited. Western Asset Limited may
terminate the Western Asset Limited Subadvisory Agreement on 90 days written notice to the Fund and Western Asset. Western Asset and Western Asset Limited may terminate the Western Asset Limited Subadvisory Agreement upon their mutual written
consent. The Western Asset Limited Subadvisory Agreement will terminate automatically in the event of its assignment. Western
Asset Singapore Subadvisory Agreement Western Asset Singapore provides services to the Fund pursuant to a subadvisory agreement
between Western Asset Singapore and Western Asset. The Western Asset Singapore Subadvisory Agreement provides that, subject to the supervision and direction of the Funds Board of Directors and the Manager, Western Asset Limited will manage the
Funds portfolio in accordance with the Funds investment objectives and policies, make investment decisions for the Fund, place orders to purchase and sell securities and employ professional portfolio managers and securities analysts who
provide research services to the Fund. The Western Asset Singapore Subadvisory Agreement for the Fund will continue in effect, unless
otherwise terminated, until July 31, 2022 and then will continue from year to year provided such continuance is specifically approved at least annually (a) by the Board of Directors or by a majority of the outstanding voting securities of
the Fund (as defined in the 1940 Act), and (b) in either event, by a majority of the Independent Directors with such Independent Directors casting votes in person at a meeting called for such purpose. The Board of Directors or a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act) may terminate the Western Asset Singapore Subadvisory Agreement without penalty, in each case on not more than 60 days nor less than 30 days written notice to Western
Asset Limited. Western Asset Singapore may terminate the Western Asset Singapore Subadvisory Agreement on 90 days written notice to the Fund and Western Asset. Western Asset and Western Asset Singapore may terminate the Western Asset Singapore
Subadvisory Agreement upon their mutual written consent. The Western Asset Singapore Subadvisory Agreement will terminate automatically in the event of its assignment. 43
Advisory Fees For its services, the Fund has agreed to pay the Manager an annual fee, payable monthly, in an amount equal to 0.80% of the Funds
Managed Assets. Western Asset receives an annual subadvisory fee from the Manager, payable monthly, in an amount equal to 70% of the
management fee paid to the Manager. No advisory fee will be paid by the Fund directly to Western Asset. Western Asset pays Western Asset
Limited and Western Asset Singapore a fee for their services at no additional expense to the Fund. Western Asset pays Western Asset Limited and Western Asset Singapore a monthly subadvisory fee in an amount equal to 100% of the management fee paid
to Western Asset on the assets that Western Asset allocates to Western Asset Limited and Western Asset Singapore to manage. The basis
for the Board of Directors approval of the continuance of the Investment Management Agreement, Subadvisory Agreement, Western Asset Limited Subadvisory Agreement and Western Asset Singapore Subadvisory Agreement is provided in the Funds
annual or semi-annual stockholder report for the periods during which such continuance occurs. The basis for subsequent continuations of such agreements will be provided in annual or semi-annual reports to stockholders for the periods during which
such continuations occur. Subadviser Philosophy Western Assets high-yield portfolios are constructed using top-down economic and industry knowledge integrated with bottom-up
fundamental credit research. Portfolio managers combine Western Assets economic assessment along with industry sector insights from its dedicated research staff to derive the general framework for portfolio construction. This framework
provides the foundation for how the portfolio will be positioned with respect to risk (aggressive, neutral, conservative) as well as identifying sector overweights and underweights. Risk and weightings are formally re-visited on a monthly basis, but
informally evaluated on a continual basis. Once the general framework of the portfolio has been established, the bottom-up process
provides the basis for populating the targeted industry weightings through individual credit selection. Western Asset adheres to a
rigorous sell discipline. Credits are considered for sale when they satisfy one of three objectives: the security meets or exceeds its respective relative value target, the risk associated with holding the security no longer justifies the expected
return, or a material change has been made to the original investment premise that affects its fundamental valuation. In situations where a company is experiencing a perceived rapid credit deterioration (i.e., it breaks below a pre-determined price
threshold), a team approach is employed to implement an immediate and comprehensive review within 24 hours. The goal of these reviews is to quickly allocate the necessary resources needed to make a timely and informed re-assessment of Western
Assets position and determine the appropriate course of action. Integrated Team Approach Western Assets fixed income discipline emphasizes a team approach that unites groups of specialists dedicated to different market
sectors. A team of investment professionals at Western Asset has daily responsibility for the management of the portfolio and for the implementation of the investment process. The investment responsibilities of each sector group are distinct, yet
results are derived from the constant interaction that unites the specialty groups into a cohesive investment management team. The sector teams are comprised of Western Assets senior portfolio managers, research analysts, and an in-house economist who are highly skilled and experienced in all major areas of the fixed income market. They exchange views on a daily basis and meet more formally twice each month to review Western Assets
economic outlook and investment strategy. This structure seeks to ensure that client portfolios benefit from a consensus that draws on the expertise of all team members. Subadviser Investment Process Western Assets high-yield portfolio construction process begins with Western Assets view regarding the global macroeconomic
environment. Western Assets view is determined by the U.S. Broad Strategy Committee. This Committee includes Western Assets senior portfolio managers, the heads of the various fixed-income asset classes and senior officers of Western
Asset. This Committee discusses debates and determines Western Assets broad market portfolio strategies while considering various inputs including central bank policies, strength of the economy, direction of interest rates and shape of the
yield curve. The Global Credit Committee (GCC) considers the output of the U.S. Broad Strategy Committee particularly as it
relates to setting the overall risk profile for credit portfolios as well as when considering gaining non-benchmark sector exposure, if allowed by a funds guidelines. The members of the GCC include the heads of the various credit asset classes
including U.S. high-yield, U.S. investment-grade, U.S. bank loan, emerging market credit, non-U.S. high-yield and non-U.S. investment-grade credit. The GCC meets monthly, or as needed, with the primary objectives of rating the relative value
characteristics of the credit asset classes and providing guidance as to a portfolios relative risk profile. Western Assets
high-yield portfolio managers consider the outputs of both the U.S. Broad Strategy and GCC within the context of industry sector insights from the dedicated credit research staff to derive the general framework for portfolio construction. This
framework provides the foundation for how the portfolio will be positioned with respect to risk (aggressive, neutral, conservative) as well as identifying sector overweights and underweights. Risk and weightings are formally re-visited on a monthly
basis, discussed in regular weekly meetings and evaluated on a continual basis with additional ad-hoc meetings being held should market conditions require. At this point in the process, Western Assets credit portfolio managers, analysts,
traders, portfolio analysts and risk management combine efforts in the bottom-up process that attempts to discern relative value in the market place. Western Assets bottom-up process provides the basis for populating the targeted industry weightings through individual credit issuer
selection. Bottom-up fundamental issuer level credit research and analysis is performed by Western Assets dedicated high-yield analysts, with an average of 25 years of experience. Western Assets credit analysts conduct onsite visits,
management interviews, review financial statements, attend industry/issuer conferences (those held for the benefit of both fixed-income and equity investors), make projections and consult relevant reference material to aid in the fundamental credit
research process. Western Assets credit analysts are located on the trading desk and are exposed to market pricing throughout the course of the day. Western Assets credit analysts provide relative value analysis as part of their overall
fundamental review. Armed with the results of their fundamental analysis, pricing grids on each part of the capital structure for each issuer within the industry and full knowledge as to covenant features of each issue the credit analysts are
positioned to make relative value recommendations that are supported by their work and presented to the credit team. The recommendations of buy/hold or sell are based on the analysts view after conducting relative value analysis on all major issuers
within the industry and identifying those issuers that offer, and those that do not, compelling risk adjusted opportunities. With the
general framework determined and specific issuer opportunities identified, the credit team is ready to fund the portfolio. The portfolio managers will work with the traders and risk management in an effort to construct a portfolio that conforms to
the desired strategic structure and incorporates the issuer and issue recommendations of the research analysts. Risk management is fully integrated in the investment process. Risk managers dedicated to the high-yield strategy meet with the portfolio
managers regularly to formally review portfolio risk, sources of risk, concentrations, correlations and recent trading activity as well as other metrics. Risk managers and portfolio managers meet informally on a frequent basis for multiple reasons
including for the purpose of reviewing scenario analysis to consider the impact on risk metrics of trades under consideration. The role of risk analytics is to provide the portfolio managers with analysis that include, but is not limited to, ex-ante
tracking error, value at risk, issuer and industry concentrations versus the benchmark, duration, spread duration, stress testing and scenario analysis. Investment Management Team Set forth
below is information regarding the team of professionals at Western Asset responsible for overseeing the day-to-day operations of the Fund. Western Asset utilizes a team
approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of 44
Western Assets senior portfolio managers, research analysts and an in-house economist. Under this team approach, management of client fixed income
portfolios will reflect a consensus of interdisciplinary views. Name, Address and Title Principal Occupation(s) During Past 5 Years S. Kenneth Leech Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 Michael C. Buchanan Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 Christopher F. Kilpatrick Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 Additional information about the portfolio managers compensation, other accounts managed by them
and other information is provided in the SAI. Control Persons A control person is a person who beneficially owns more than 25% of the voting securities of a company. The Fund currently has no control
person. 45
The Fund determines the net asset value of its Common Stock on each day the NYSE is open for business, as of the close of the customary
trading session (normally 4:00 p.m. Eastern Time), or any earlier closing time that day. The Fund determines the net asset value per share of Common Stock by dividing the value of the Funds securities, cash and other assets (including the
value of derivatives and interest accrued but not collected) less all its liabilities (including accrued expenses, the liquidation preference of any outstanding preferred stock and dividends payable) by the total number of shares of Common Stock
outstanding. Securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service that are based on transactions in corporate obligations, quotations from corporate bond dealers, market
transactions in comparable securities and various other relationships between securities. The Fund values portfolio securities for which market quotations are readily available at the last reported sales price or official closing price on the
primary market or exchange on which they trade. Under the Funds valuation policies and procedures, which were adopted by the Board, the Funds short-term investments are valued at amortized cost when the security has 60 days or less to
maturity. Determination of the Common Stocks net asset value is made in accordance with U.S. generally accepted accounting principles. The Fund values all other securities and assets at their fair value. If events occur that materially affect the value of a security between
the time trading ends on the security and the close of the customary trading session of the NYSE, the Fund may value the security at its fair value as determined in good faith by or under the supervision of the Board of Directors of the Fund. The
effect of using fair value pricing is that the Common Stocks net asset value will be subject to the judgment of the Board of Directors or its designee instead of being determined by the market. Any swap transaction that the Fund enters into may, depending on the applicable interest rate environment, have a positive or negative value
for purposes of calculating net asset value. Any cap transaction that the Fund enters into may, depending on the applicable interest rate environment, have no value or a positive value. In addition, accrued payments to the Fund under such
transactions will be assets of the Fund and accrued payments by the Fund will be liabilities of the Fund. On December 3, 2020, the
SEC adopted new Rule 2a-5. The new rule will establish an updated regulatory framework for registered investment company valuation practices. The Fund will not be required to comply with the new rule until
September 8, 2022. 46
We have paid distributions to Common Stockholders every month since inception. The following table sets forth information about distributions
we paid to our Common Stockholders during the past three fiscal years, percentage participation by Common Stockholders in our dividend reinvestment program and reinvestments and related issuances of additional shares of Common Stock as a result of
such participation (the information in the table is unaudited): Distribution Payable Date to Common Stockholders May 1, 2018 June 1, 2018 July 2, 2018 August 1, 2018 September 4, 2018 October 1, 2018 November 1, 2018 December 3, 2018 December 31, 2018 February 1, 2019 March 1, 2019 April 1, 2019 May 1, 2019 June 3, 2019 July 1, 2019 August 1, 2019 September 3, 2019 October 1, 2019 November 1, 2019 December 2, 2019 December 31, 2019 February 3, 2020 March 2, 2020 April 1, 2020 May 1, 2020 June 1, 2020 July 1, 2020 August 3, 2020 September 1, 2020 October 1, 2020 November 2, 2020 December 1, 2020 December 31, 2020 February 1, 2021 March 1, 2021 April 1, 2021 Unless a Common Stockholder elects to receive distributions in cash (i.e., opt out), all of such
Common Stockholders distributions, including any capital gains distributions on Common Stock, will be automatically reinvested in additional shares of Common Stock under the Funds Dividend Reinvestment Plan. All distributions, prior to
payment, will be authorized by the Funds Board of Directors. See Dividend Reinvestment Plan. 47
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any
capital gain dividends and return of capital distributions, on your Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the Plan Agent), in additional shares of Common Stock
under the Funds Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to
you by Computershare Trust Company, N.A., as dividend paying agent. If you participate in the Plan, the number of shares of Common Stock
you will receive will be determined as follows: (1) If the market price of the Common Stock (plus
$0.03 per share commission) on the payment date (or, if the payment date is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE
on the payment date, the Fund will issue new Common Stock at a price equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date. (2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock
(plus $0.03 per share commission) at the close of trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as
soon as practicable commencing on the trading day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or
distribution to be made to the stockholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or
exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount
eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value
per share at the close of trading on the NYSE on the day prior to the issuance of shares for reinvestment or (b)95% of the then current market price per share. Common Stock in your account will be held by the Plan Agent in non-certificated form. Any proxy you
receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date; otherwise such
withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on the Common Stock. Plan participants who sell their shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is authorized to
deduct brokerage charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a pro rata share
of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common Stock, this allows you to add to your investment through
dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Funds net asset value declines. While dollar cost averaging
has definite advantages, it cannot assure profit or protect against loss in declining markets. 48
Automatically reinvesting dividends and distributions does not mean that you do not have to pay
income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan. The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. The Plan
may be terminated, amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to
be effective. Upon any termination, you will be sent cash for any fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Stock on
your behalf. Additional information about the Plan and your account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. 49
Common Stock As of February 28,
2022, we had approximately 58.9 million shares of Common Stock outstanding. All Common Stock offered pursuant to this Prospectus and any related Prospectus Supplement will be, upon issuance, duly authorized, fully paid and nonassessable, and will
have no pre-emptive, conversion or appraisal rights or rights to cumulative voting. All Common Stock offered pursuant to this Prospectus and any related Prospectus Supplement will be of the same class and will
have identical rights, as described below. The Charter authorizes the issuance of 100,000,000 shares of Common Stock, par value
$0.001 per share. All shares of Common Stock have equal rights with respect to the payment of dividends and the distribution of assets upon liquidation. Common Stock will, when issued, be fully paid and nonassessable, and will have no preemptive or
conversion rights or rights to cumulative voting. The Funds Common Stock is listed on the NYSE under the trading or
ticker symbol HIX. The Fund intends to hold annual meetings of stockholders so long as the Common Stock is listed on a national securities exchange and such meetings are required as a condition to such listing. The Fund must
continue to meet the NYSE requirements in order for the Common Stock to remain listed. Maryland law also requires the Fund to hold annual meetings each year. Unlike open-end funds, closed-end funds, like the Fund, do not
continuously offer shares and do not provide daily redemptions. Rather, if a stockholder determines to buy additional shares of Common Stock or sell shares of Common Stock already held, the stockholder may do so by trading on the NYSE through a
broker or otherwise. Shares of closed-end funds may frequently trade on an exchange at prices lower than net asset value. The market value of the Common Stock may be influenced by such factors as dividend
levels (which are in turn affected by expenses), call protection, dividend stability, portfolio credit quality, net asset value, relative demand for and supply of such Common Stock in the market, general market and economic conditions, and other
factors beyond the control of the Fund. The Fund cannot assure you that the Common Stock will trade at a price equal to or higher than net asset value in the future. The Funds Common Stock is designed primarily for long-term investors, and
investors in Common Stock should not view the Fund as a vehicle for trading purposes. See Repurchase of Fund Shares. Each
outstanding share of Common Stock entitles the holder to one vote on all matters submitted to a vote of Common Stockholders, including the election of Directors. Except as provided with respect to any other class or series, the Common Stockholders
will possess the exclusive voting power. Each director shall be elected by a majority of the votes entitled to be cast in the election of directors. There is no cumulative voting in the election of Directors, which means that the holders of a
majority of the outstanding shares of Common Stock can elect all of the Directors then standing for election, and the holders of the remaining shares of Common Stock will not be able to elect any Directors. Preferred Stock The Charter provides
that the Funds Board of Directors may classify and issue Preferred Stock with rights as determined by the Board of Directors, by action of the Board of Directors without the approval of the Common Stockholders. We do not currently have any
authorized shares of Preferred Stock. Common Stockholders have no preemptive right to purchase any Preferred Stock that might be issued. The Fund may elect to issue Preferred Stock as part of its leverage strategy. The Fund currently expects to issue leverage, which may include
Preferred Stock, representing up to 33 1/3% of the Funds total net assets immediately after the leverage is issued. The Board of
Directors also reserves the right to authorize the Fund to issue Preferred Stock to the extent permitted by the 1940 Act, which currently limits the aggregate liquidation preference of all outstanding Preferred Stock plus the principal amount of any
outstanding leverage consisting of debt to 50% of the value of the Funds total assets less liabilities and indebtedness of the Fund (other than leverage consisting of Preferred Stock). However, under current conditions it is unlikely that the
Fund will issue Preferred Stock. Although the terms of any Preferred Stock, including dividend rate, liquidation preference and redemption 50
provisions, will be set forth in articles supplementary classifying and designating such Preferred Stock, the Fund believes that it is likely that the liquidation preference, voting rights and
redemption provisions of the Preferred Stock may be similar to those stated below. Liquidation Preference In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Fund, the holders of Preferred Stock will be
entitled to receive a preferential liquidating distribution, which is expected to equal the original purchase price per share of Preferred Stock plus accrued and unpaid dividends, whether or not declared, before any distribution of assets is made to
Common Stockholders. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of Preferred Stock will not be entitled to any further participation in any distribution of assets by the Fund. Voting Rights The 1940 Act requires that the holders of any Preferred Stock, voting separately as a single class, have the right to elect at least two
directors at all times. The remaining directors will be elected by holders of Common Stock and Preferred Stock, voting together as a single class. In addition, subject to the prior rights, if any, of the holders of any other class of senior
securities outstanding, the holders of any Preferred Stock have the right to elect a majority of the directors of the Fund if at any time two years of dividends on any Preferred Stock are unpaid. The 1940 Act also requires that, in addition to any
approval by the stockholders that might otherwise be required, the approval of the holders of a majority of any outstanding Preferred Stock, voting separately as a class, would be required to: (i) adopt any plan of reorganization that would
adversely affect the Preferred Stock and (ii) take any action requiring a vote of security holders under Section 13(a) of the 1940 Act, including, among other things, changes in the Funds subclassification as a closed-end investment company or changes in its fundamental investment restrictions. See Certain Provisions in the Charter and Bylaws. As a result of these voting rights, the Funds ability to take
any such actions may be impeded to the extent that there are any shares of Preferred Stock outstanding. Except as otherwise indicated in this prospectus and except as otherwise required by applicable law or the Charter, holders of Preferred Stock
will have equal voting rights with Common Stockholders (one vote per share, unless otherwise required by the 1940 Act) and will vote together with Common Stockholders as a single class. The affirmative vote of the holders of a majority of the outstanding Preferred Stock, voting as a separate class, will be required to amend,
alter or repeal any of the preferences, rights or powers of holders of Preferred Stock so as to affect materially and adversely such preferences, rights or powers, or to increase or decrease the authorized number of shares of Preferred Stock. The
class vote of holders of Preferred Stock described above will in each case be in addition to any other vote required to authorize the action in question. Redemption, Purchase and Sale of Preferred Stock by the Fund The terms of any Preferred Stock issued are expected to provide that: (i) they are redeemable by the Fund in whole or in part at the
original purchase price per share plus accrued dividends per share; (ii) the Fund may tender for or purchase Preferred Stock; and (iii) the Fund may subsequently resell any shares so tendered for or purchased. Any redemption or purchase of
Preferred Stock by the Fund will reduce any leverage applicable to the Common Stock, while any resale of shares by the Fund will increase that leverage. The discussion above describes the possible offering of Preferred Stock by the Fund. If the Board of Directors determines to proceed with such
an offering, the terms of the Preferred Stock may be the same as, or different from, the terms described above, subject to applicable law and the Funds Charter. The Board of Directors, without the approval of the Common Stockholders, may
authorize an offering of Preferred Stock or may determine not to authorize such an offering, and may fix the terms of the Preferred Stock to be offered. 51
CERTAIN PROVISIONS IN THE CHARTER AND BYLAWS The Fund has provisions in its Charter and Bylaws that could have the effect of limiting the ability of other entities or persons to acquire
control of the Fund, to cause it to engage in certain transactions or to modify its structure. These provisions could have the effect of depriving stockholders of opportunities to sell their Common Stock at a premium over the then-current market
price of the Common Stock. At the Funds first annual meeting of stockholders, the Board of Directors was divided into three classes, having initial terms ending at the first, second and third annual meeting of stockholders thereafter,
respectively. Thus, at each annual meeting of stockholders, the term of one class will expire and Directors will be elected to serve in that class for terms ending at the third annual meeting of stockholders following their election. This provision
could delay for up to two years the replacement of a majority of the Board of Directors. A Director may be removed from office only for cause and then only by a vote of the holders of at least 75% of the votes entitled to be cast for the election of
Directors. The Bylaws provide that with respect to any annual or special meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, the business must be pursuant to the Funds notice of meeting, by or at the direction of the Board of Directors or properly
brought by a stockholder who was a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the annual meeting, at the time of giving of notice by the stockholder as
provided in the Bylaws and at the time of the annual meeting (and any postponement or adjournment thereof), who is entitled to vote at the meeting and who complied with the advance notice procedures of the Bylaws. To be properly brought before a
special meeting, the business must be pursuant to the Funds notice of meeting. Nominations of individuals for election to the Board of Directors may be properly brought before a special meeting of stockholders by or at the direction of the
Board of Directors or, if the special meeting has been called in accordance with the Bylaws for the purpose of electing directors, properly brought by a stockholder who was a stockholder of record at the record date set by the Board of Directors for
the purpose of determining stockholders entitled to vote at the special meeting, at the time of giving of notice by the stockholder as provided in the Bylaws and at the time of the special meeting (and any postponement or adjournment thereof), who
is entitled to vote at the meeting and who complied with the advance notice procedures of the Bylaws. The affirmative vote of at least
75% of the entire Board of Directors is required to authorize the conversion of the Fund from a closed-end to an open-end investment company, or any Charter amendments
related thereto. Such conversion or amendment also requires the affirmative vote of the holders of at least 75% of the votes entitled to be cast thereon by the stockholders of the Fund unless it is approved by a vote of at least 75% of the
Continuing Directors (as defined below), in which event such conversion requires the approval of the holders of a majority of the votes entitled to be cast thereon by the stockholders of the Fund. A Continuing Director is any member of
the Board of Directors of the Fund who (i) is not a person or affiliate of a person, other than an investment company advised by the Manager or any of its affiliates, who enters or proposes to enter into a Business Combination (as defined
below) with the Fund (an Interested Party) and (ii) who has been a member of the Board of Directors of the Fund for a period of at least 12 months, or has been a member of the Board of Directors since April 24, 1998, or is a
successor of a Continuing Director who is unaffiliated with an Interested Party and is recommended to succeed a Continuing Director by a majority of the Continuing Directors then on the Board of Directors of the Fund. To amend the Charter to change
any of the provisions of the first paragraph under this heading, or this paragraph, the Charter requires the affirmative vote of at least 75% of the entire Board of Directors and at least 75% of the votes entitled to be cast by stockholders. The affirmative votes of at least 75% of the entire Board of Directors and the holders of at least (i) 80% of the votes entitled to be cast
thereon by the stockholders of the Fund and (ii) in the case of a Business Combination, 66 2/3% of the votes entitled to be cast
thereon by the stockholders of the Fund other than votes held by an Interested Party who is (or whose affiliate is) a party to a Business Combination (as defined below) or an affiliate or associate of the Interested Party, are required to authorize
any of the following transactions: (i) a merger, consolidation or statutory share exchange of the Fund with or into any
other person; (ii) an issuance or transfer by the Fund (in one or a series of transactions in any 12-month period) of any securities of the Fund to any person or entity for cash, securities or other property (or combination thereof) having an aggregate fair market value of $1,000,000 or more, excluding issuances
or transfers of 52
debt securities of the Fund, sales of securities of the Fund in connection with a public offering, issuances of securities of the Fund pursuant to a dividend reinvestment plan adopted by the
Fund, issuances of securities of the Fund upon the exercise of any stock subscription rights distributed by the Fund and portfolio transactions effected by the Fund in the ordinary course of business; (iii) the sale, lease, exchange, mortgage, pledge, transfer or other disposition by the Fund (in one or a series of
transactions in any 12-month period) to or with any person or entity of any assets of the Fund having an aggregate fair market value of $1,000,000 or more except for portfolio transactions (including pledges
of portfolio securities in connection with borrowings) effected by the Fund in the ordinary course of its business (transactions within clauses (i), (ii) and (iii) above being known individually as a Business Combination); (iv) the voluntary liquidation or dissolution of the Fund or an amendment to the Charter to terminate the Funds
existence; or (v) unless the 1940 Act or federal law requires a lesser vote, any stockholder proposal as to specific
investment decisions made or to be made with respect to the Funds assets as to which stockholder approval is required under federal or Maryland law. However, the stockholder vote described above will not be required with respect to the foregoing transactions (other than those set forth in
(v) above) if they are approved by a vote of at least 75% of the Continuing Directors. In that case, if Maryland law requires stockholder approval, the affirmative vote of a majority of votes entitled to be cast thereon shall be required. The Charter and Bylaws contain provisions the effect of which is to prevent matters, including nominations of Directors, from being considered
at an annual meeting of stockholders where the Fund has not received notice of the matters generally at least 120 but no more than 150 days prior to the first anniversary of the date of the proxy statement for the preceding years annual
meeting. Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and
officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that is established by a final
judgment and is material to the cause of action. The Charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law. In addition, the Fund has provisions in its Charter and Bylaws that authorize the
Fund, to the maximum extent permitted by Maryland law, to indemnify any present or former Director or officer from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her
status as a present or former Director or officer of the Fund and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Pursuant to the Bylaws, absent a court determination that an officer or Director seeking
indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Fund to indemnify such person will be based
upon the reasonable determination of independent counsel or nonparty Independent Directors, after review of the facts, that such officer or Director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Reference is made to the Charter and Bylaws of the Fund, on file with the SEC, for the full
text of these provisions. These provisions could have the effect of depriving stockholders of an opportunity to sell their Common Stock at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the
Fund in a tender offer or similar transaction. These provisions, however, offer several possible advantages. They may require persons seeking control of the Fund to negotiate with its management regarding the price to be paid for the Common Stock
required to obtain such control, they promote continuity and stability and they enhance the Funds ability to pursue long-term strategies that are consistent with its investment objectives. 53
Maryland Business Combination Act The Maryland Business Combination Act will not be applicable to the Fund as a registered closed-end
investment company unless and until its Board of Directors adopts a resolution to be subject to the statute, provided that the resolution will not be effective with respect to a business combination with any person who has become an
interested stockholder before the time that the resolution is adopted. Under the Maryland Business Combination Act, business combinations between a Maryland corporation and an interested stockholder or an affiliate of an interested
stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as: any person who beneficially owns ten percent or more of the voting power of the corporations shares; or
an affiliate or associate of the corporation who, at any time within the
two-year period prior to the date in question, was the beneficial owner of ten percent or more of the voting power of the then outstanding voting stock of the corporation. A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he
otherwise would have become an interested stockholder. After the five-year prohibition, any business combination between the Maryland
corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least: 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
66
2/3% of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder
with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if the corporations Common Stockholders receive a minimum price, as defined under
Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The statute permits various exemptions from its provisions, including business combinations
that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. The
Maryland Business Combination Act may discourage others from trying to acquire control of the Fund and increase the difficulty of consummating any offer. Maryland Control Share Acquisition Act The Fund has elected, by resolution unanimously adopted by the Board of Directors of the Fund, to be subject to the MCSAA. The MCSAA provides
that a holder of control shares of a Maryland corporation acquired in a control share acquisition will not be entitled to vote its control shares except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter (i.e., entitled to vote on the restoration of voting rights for the holder of the control shares). Shares owned by the acquiror, by officers or by directors who are employees of the corporation are
excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the exercise
of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power: one-tenth or more but less than
one-third, 54
one-third or more but less than a majority, or a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder
approval as described above. A control share acquisition means the acquisition of control shares, subject to certain exceptions. A person
who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the holder of control
shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present
the question at any stockholders meeting. If voting rights for the holder of control shares are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved, subject
to compliance with the 1940 Act. The right of the corporation to redeem control shares is subject to certain conditions and limitations. Fair value is determined, without regard to the absence of voting rights for the holder of control shares, as of
the date of the last control share acquisition by the acquiror or, if a meeting of stockholders at which the voting rights of the shares are considered and not approved is held, as of the date of such meeting. If voting rights for the holder of
control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes
of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. The MCSAA
does not apply (a) to shares acquired in a merger, consolidation or share exchange if the Fund is a party to the transaction, (b) to shares acquired under the satisfaction of a pledge or other security interest created in good faith and
not for the purpose of circumventing the MCSAA, or (c) to acquisitions of shares approved or exempted by a provision contained in the Charter or Bylaws of the Fund and adopted at any time before the acquisition of the shares. Shareholders
(together with any associated persons (as defined in the MCSAA)) that own less than ten percent of the shares entitled to vote in the election of directors are not affected by the restrictions under the MCSAA. In addition, the Bylaws
provide that the MCSAA will not apply to any acquisition or proposed acquisition of shares of the Fund by any company that, in accordance with the 1940 Act or SEC exemptive order or other regulatory relief or guidance, votes the shares held by it in
the same proportion as the vote of all other holders of such security or all securities. The MCSAA is designed to discourage others from
trying to acquire control of the Fund for short-term objectives, including by converting the Fund to open-end status or changing the composition of the Board, that may be detrimental to the Funds ability
to achieve its primary investment objective of providing current income. Such provisions may limit the ability of stockholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund. There can be no assurance, however, that such provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned with the interests of long-term stockholders. 55
The Fund is a closed-end investment company, and as such the Common Stockholders do not have the right
to cause the Fund to redeem their Common Stock. Instead, liquidity will be provided through trading in the open market. Notice is hereby given in accordance with Section 23(c) of the 1940 Act that the Fund may purchase at market prices from
time to time shares of its Common Stock in the open market but is under no obligation to do so. On November 16, 2015, the Fund
announced that its Board of Directors had authorized the Fund to repurchase in the open market up to approximately 10% of the Funds outstanding Common Stock when the Funds shares are trading at a discount to net asset value. The Board
has directed management of the Fund to repurchase shares of Common Stock at such times and in such amounts as management reasonably believes may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount
levels or in any specific amounts. During the year ended December 31, 2021, the Fund did not repurchase any shares. 56
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The discussion below and certain disclosure in the SAI provide general tax information related to an investment in the Funds Common
Stock. Because tax laws are complex and often change, shareholders should consult their tax advisors about the tax consequences of an investment in the Common Stock. Unless otherwise noted, the following tax discussion applies only to U.S.
shareholders that hold the Common Stock as capital assets. A U.S. shareholder is a Common Stockholder who is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a U.S.
corporation, (iii) a trust if it (a) is subject to the primary supervision of a court in the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has made a valid
election to be treated as a U.S. person, or (iv) any estate the income of which is subject to U.S. federal income tax regardless of its source. The Fund has elected to be treated, and intends to qualify each taxable year, as a regulated investment company (a RIC) under
Subchapter M of the Code. To qualify under Subchapter M for the favorable tax treatment accorded to RICs, the Fund must, among other things: (1) distribute to its shareholders in each taxable year at least 90% of the sum of its investment
company taxable income (as that term is defined in the Code, but without regard to the deduction for dividends paid) and its net tax-exempt income; (2) derive in each taxable year at least 90% of its
gross income from (a) dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; and (b) net income derived from interests in certain publicly traded partnerships that are treated as partnerships
for U.S. federal income tax purposes and that derive less than 90% of their gross income from the items described in (a) above (each a Qualified Publicly Traded Partnership); and (3) diversify its holdings so that, at the end
of each quarter of each taxable year of the Fund (a) at least 50% of the value of the Funds total assets is represented by cash and cash items (including receivables), U.S. government securities, the securities of other RICs and other
securities, with such other securities limited, with respect to any one issuer, to an amount not greater in value than 5% of the value of the Funds total assets, and to not more than 10% of the outstanding voting securities of such issuer, and
(b) not more than 25% of the value of the Funds total assets is represented by the securities (other than U.S. government securities or the securities of other RICs) of (I) any one issuer, (II) any two or more issuers that the
Fund controls and that are determined to be engaged in the same or similar trades or businesses or related trades or businesses, or (III) any one or more Qualified Publicly Traded Partnerships. As a RIC, the Fund generally will not be subject
to U.S. federal income tax on its investment company taxable income and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that it distributes in each taxable year to its shareholders. The Fund
intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net capital gain. If the Fund fails to satisfy as of the close of any quarter the asset diversification test referred to in the preceding paragraph, it will
have 30 days to cure the failure by, for example, selling securities that are the source of the violation. Other cure provisions are available in the Code for a failure to satisfy the asset diversification test, but any such cure provision may
involve the payment of a penalty excise tax. If the Fund failed to qualify for the favorable tax treatment accorded to RICs in any
taxable year, the Fund would be subject to U.S. federal income tax at regular corporate rates on its taxable income (including distributions of net capital gain), even if such income were distributed to its shareholders, and all distributions out of
earnings and profits would be taxed to shareholders as ordinary dividend income. Such distributions generally would be eligible (i) to be treated as qualified dividend income in the case of individual and other noncorporate
shareholders and (ii) for the dividends received deduction in the case of corporate shareholders. To qualify again to be taxed as a RIC in a subsequent year, the Fund would be required to distribute to its Common Stockholders its earnings and
profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Fund to the Internal Revenue Service (the IRS). In addition, if the Fund
failed to qualify as a RIC for a period greater than two taxable years, then the Fund would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items
of income, over aggregate loss that would have been realized if the Fund had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of 5 years, in order to
qualify as a RIC in a subsequent year. 57
A RIC that fails to distribute, by the close of each calendar year, an amount at least equal to
the sum of 98% of its ordinary taxable income for such calendar year and 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the one-year period ending on October 31 of such
calendar year, plus any shortfalls from any prior years required distribution, is liable for a 4% excise tax on the portion of the undistributed amounts of such income that are less than the required distributions. For these purposes, the Fund
will be deemed to have distributed any income or gain on which it paid U.S. federal income tax. Distributions to Common Stockholders by
the Fund of ordinary income (including market discount realized by the Fund on the sale of debt securities), and of net short-term capital gains, if any, realized by the Fund will generally be taxable to Common Stockholders as ordinary
income to the extent such distributions are paid out of the Funds current or accumulated earnings and profits. Distributions, if any, of net capital gains properly reported as capital gain dividends will be taxable as long-term
capital gains, regardless of the length of time the Common Stockholder has owned Common Stock. A distribution of an amount in excess of the Funds current and accumulated earnings and profits (as determined for U.S. federal income tax purposes)
will be treated by a Common Stockholder as a return of capital which will be applied against and reduce the Common Stockholders basis in his or her Common Stock. To the extent that the amount of any such distribution exceeds the Common
Stockholders basis in his or her Common Stock, the excess will be treated by the Common Stockholder as gain from a sale or exchange of the Common Stock. Distributions paid by the Fund generally will not be eligible for the dividends received
deduction allowed to corporations or for the reduced rates applicable to certain qualified dividend income received by non-corporate Common Stockholders. A distribution by the Fund consisting of a return of capital should not be considered a dividend yield or total return of an investment in the
Funds Common Stock. Common Stockholders who receive the payment of a distribution consisting of a return of capital may be under the impression that they are receiving net profits when they are not. Stockholders should not assume that the
source of a distribution from the Fund is net profits. Distributions will be treated in the manner described above regardless of whether
such distributions are paid in cash or invested in additional Common Stock pursuant to the Dividend Reinvestment Plan. Common Stockholders receiving distributions in the form of additional Common Stock will be treated as receiving a distribution in
the amount of cash that they would have received if they had elected to receive the distribution in cash, unless the Fund issues additional Common Stock with a fair market value equal to or greater than net asset value, in which case such Common
Stockholders will be treated as receiving a distribution in the amount of the fair market value of the distributed Common Stock. The additional Common Stock received by a Common Stockholder pursuant to the Dividend Reinvestment Plan will have a new
holding period commencing on the day following the day on which the Common Stock is credited to the Common Stockholders account. Although dividends generally will be treated as distributed when paid, dividends declared in October, November or December, payable to
shareholders of record on a specified date in one of those months, and paid during the following January, will be treated as having been distributed by the Fund (and received by shareholders) on December 31 of the year in which declared. The Fund may elect to retain its net capital gain or a portion thereof for investment and be taxed at corporate rates on the amount retained.
In such case, the Fund may designate the retained amount as undistributed capital gains in a written notice to its shareholders, who will be treated as if each received a distribution of his pro rata share of such gain, with the result that each
Common Stockholder will (i) be required to report its pro rata share of such gain on its tax return as long-term capital gain, (ii) receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain and
(iii) increase the tax basis for its Common Stock by an amount equal to the deemed distribution less the tax credit. In general, the
sale, exchange or other disposition of Common Stock will result in capital gain or loss to Common Stockholders. A Common Stockholders gain or loss generally will be a long-term capital gain or loss if the Common Stock has been held for more
than one year. Present law taxes both long- and short-term capital gains of corporations at the rates applicable to ordinary income. For non-corporate taxpayers, however, long-term capital gains are currently
eligible for reduced rates of taxation. Losses realized by a holder on the sale, exchange or other disposition of Common Stock held for six months or less are treated as long-term capital losses to the extent of any distribution of long-term capital
gain received (or amounts designated as undistributed capital gains) with respect to 58
such Common Stock. In addition, no loss will be allowed on the sale, exchange or other disposition of Common Stock if the Common Stockholder acquires (including pursuant to the Dividend
Reinvestment Plan) or enters into a contract or option to acquire securities that are substantially identical to such Common Stock within 30 days before or after the disposition. In such case, the basis of the securities acquired will be adjusted to
reflect the disallowed loss. The Fund may be required to withhold from all distributions and redemption proceeds payable to U.S.
shareholders who fail to provide the Fund with their correct taxpayer identification numbers or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Certain shareholders specified in the
Code generally are exempt from such backup withholding. This backup withholding is not an additional tax. Any amounts withheld may be refunded or credited against a Common Stockholders U.S. federal income tax liability, provided the required
information is timely furnished to the IRS. If a shareholder is a nonresident alien individual, a foreign trust or estate or a foreign
corporation, as defined for U.S. federal income tax purposes (other than such a shareholder whose ownership of Common Stock is effectively connected with a U.S. trade or business), certain dividends received by such shareholder from the Fund may be
subject to U.S. federal withholding tax. To the extent that Fund distributions consist of ordinary dividends that are subject to withholding, the applicable withholding agent will generally be required to withhold U.S. federal income tax at the rate
of 30% (or such lower rate as may be determined in accordance with any applicable treaty). However, dividends paid by the Fund that are interest-related dividends or short-term capital gain dividends will generally be exempt
from such withholding, in each case to the extent the Fund properly reports such dividends to shareholders. For these purposes, interest-related dividends and short-term capital gain dividends generally represent distributions of interest or
short-term capital gains that would not have been subject to U.S. federal withholding tax at the source if received directly by a non-U.S. shareholder, and that satisfy certain other requirements. Net capital
gain dividends (that is, distributions of the excess of net long-term capital gain over net short-term capital loss) distributed by the Fund to a non-U.S. shareholder will not be subject to U.S. federal
withholding tax. The Fund may be required to withhold from distributions to non-U.S. shareholders
that are otherwise exempt from U.S. federal withholding tax (or taxable at a reduced treaty rate) unless the non-U.S. shareholder certifies his or her foreign status under penalties of perjury or otherwise
establishes an exemption. Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as FATCA), a 30%
U.S. federal withholding tax may apply to any dividends that the Fund pays to (i) a foreign financial institution (as specifically defined in the Code), whether such foreign financial institution is the beneficial owner or an
intermediary, unless such foreign financial institution agrees to verify, report and disclose its United States account holders (as specifically defined in the Code) and meets certain other specified requirements or (ii) a non-financial foreign entity, whether such non-financial foreign entity is the beneficial owner or an intermediary, unless such entity provides a certification that the
beneficial owner of the payment does not have any substantial United States owners or provides the name, address and taxpayer identification number of each such substantial United States owner and certain other specified requirements are met. In
certain cases, the relevant foreign financial institution or non-financial foreign entity may qualify for an exemption from, or be deemed to be in compliance with, these rules. In addition, foreign financial
institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. You should consult your own tax advisor regarding FATCA and whether it may be relevant to your
ownership of Common Stock. The foregoing tax discussion is for general information only. The provisions of the Code and regulations
thereunder presently in effect as they directly govern the taxation of the Fund and its Common Stockholders are subject to change by legislative or administrative action, and any such change may be retroactive with respect to the Funds
transactions. The foregoing does not represent a detailed description of the U.S. federal income tax considerations relevant to special classes of taxpayers including, without limitation, financial institutions, insurance companies, investors in
pass-through entities, U.S. shareholders whose functional currency is not the U.S. dollar, tax-exempt organizations, dealers in securities or currencies, traders in securities or commodities that
elect mark to market treatment, or persons that will hold Common Stock as a position in a straddle, hedge or as part of a constructive sale for U.S. federal income tax purposes. In addition, this discussion does
not address the application of the Medicare tax on net investment income or the U.S. federal alternative minimum tax. Shareholders are advised to consult with their own tax advisors for more detailed information concerning federal income tax
matters. 59
We may sell our Common Stock from time to time under this Prospectus and any related Prospectus Supplement in any one or more of the following
ways (1) directly to one or more purchasers, (2) through agents for the period of their appointment, (3) to underwriters as principals for resale to the public, (4) to dealers as principals for resale to the public,
(5) through at-the-market transactions or (6) pursuant to our Dividend Reinvestment Plan. Our securities may be sold from time to time in one or more transactions at a fixed price or fixed prices, which may change; at prevailing
market prices at the time of sale; prices related to prevailing market prices; at varying prices determined at the time of sale; or at negotiated prices. Our securities may be sold other than for cash, including in exchange transactions for non-control securities, or may be sold for a combination of cash and securities. The Prospectus Supplement will describe the method of distribution of our securities offered therein. Each Prospectus Supplement relating to an offering of our securities will state the terms of the offering, including: the names of any agents, underwriters or dealers; any sales loads, underwriting discounts and commissions or agency fees and other items constituting
underwriters or agents compensation; any discounts, commissions, fees or concessions allowed or reallowed or paid to dealers or agents;
the public offering or purchase price of the offered securities and the estimated net proceeds we will receive
from the sale; and any securities exchange on which the offered securities may be listed. Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. Direct Sales We may sell our securities
directly to, and solicit offers from, purchasers, including institutional investors or others who may be deemed to be underwriters as defined in the Securities Act for any resales of the securities. In this case, no underwriters or agents would be
involved. We may use electronic media, including the internet, to sell offered securities directly. We will describe the terms of any of those sales in a Prospectus Supplement. Distribution Through Agents We may
offer and sell our securities on a continuous basis through agents that we designate. We will name any agent involved in the offer and sale and describe any commissions payable by us in the Prospectus Supplement. Unless otherwise indicated in the
Prospectus Supplement, the agents will be acting on a best efforts basis for the period of their appointment. Offers to purchase our
securities may be solicited directly by the issuer or by agents designated by the issuer from time to time. Any such agent, who may be deemed to be an underwriter as the term is defined in the Securities Act, involved in the offer or sale of the
offered securities in respect of which this Prospectus is delivered will be named, and any commissions payable by the issuer to such agent set forth, in a Prospectus Supplement. Distribution Through Underwriters We
may offer and sell our securities from time to time to one or more underwriters who would purchase the securities as principal for resale to the public either on a firm commitment or best efforts basis. If we sell our securities to underwriters, we
will execute an underwriting agreement with them at the time of the sale and will 60
name them in the Prospectus Supplement. In connection with these sales, the underwriters may be deemed to have received compensation from us in the form of underwriting discounts and commissions.
The underwriters also may receive commissions from purchasers of our securities for whom they may act as agent. Unless otherwise stated in the Prospectus Supplement, the underwriters will not be obligated to purchase our securities unless the
conditions set forth in the underwriting agreement are satisfied, and if the underwriters purchase any of the securities, they will be required to purchase all of the offered securities. In the event of default by any underwriter, in certain
circumstances, the purchase commitments may be increased among the non-defaulting underwriters or the underwriting agreement may be terminated. The underwriters may sell the offered securities to or through
dealers, and those dealers may receive discounts, concessions or commissions from the underwriters as well as from the purchasers for whom they may act as agent. Sales of the offered securities by underwriters may be in one or more transactions,
including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The Prospectus Supplement will describe the method of reoffering by the underwriters. The Prospectus Supplement will also
describe the discounts and commissions to be allowed or paid to the underwriters, if any, all other items constituting underwriting compensation, and the discounts and commissions to be allowed or paid to dealers, if any. If a Prospectus Supplement
so indicates, we may grant the underwriters an option to purchase additional shares of our securities at the public offering price, less the underwriting discounts and commissions, within a specified number of days from the date of the Prospectus
Supplement, to cover any overallotments. Distribution Through Dealers We may offer and sell our securities from time to time to one or more dealers who would purchase the securities as principal. The dealers then
may resell the offered securities to the public at fixed or varying prices to be determined by those dealers at the time of resale. We will set forth the names of the dealers and the terms of the transaction in the Prospectus Supplement. Distribution Through At-the-Market Offerings We may engage in at-the-market offerings to or through a
market maker or into an existing trading market, on an exchange or otherwise, in accordance with Rule 415(a)(4). An at-the-market offering may be through one or more
underwriters or dealers acting as principal or agent for us. General Information Agents, underwriters, or dealers participating in an offering of our securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the offered securities for whom they may act as agent, may be deemed to be underwriting discounts and commissions under the Securities Act. We may offer to sell our securities either at a fixed price or at prices that may vary, at market prices prevailing at the time of sale, at
prices related to prevailing market prices, or at negotiated prices. If indicated in the applicable Prospectus Supplement, we may
authorize underwriters or other persons acting as our agents to solicit offers by certain institutions to purchase securities from us pursuant to contracts providing for payment and delivery on a future date. Institutions with which these contracts
may be made include: commercial and savings banks, insurance companies, pension funds, educational and charitable institutions and others, but in all cases these institutions must be approved by us. The obligations of any purchaser under any
contract will be subject only to those conditions described in the applicable Prospectus Supplement. The underwriters and the other agents will not have any responsibility for the validity or performance of the contracts. The applicable Prospectus
Supplement will describe the commission payable for solicitation of those contracts. In connection with any offering of the securities in
an underwritten transaction, the underwriters may engage in transactions that stabilize, maintain, or otherwise affect the market price of the Common Stock. Those transactions may include overallotment, entering stabilizing bids, effecting syndicate
covering transactions, and reclaiming selling concessions allowed to an underwriter or a dealer. 61
An overallotment in connection with an offering creates a short position in the offered securities for the
underwriters own account. An underwriter may place a stabilizing bid to purchase an offered security for the purpose of pegging, fixing, or
maintaining the price of that security. Underwriters may engage in syndicate covering transactions to cover overallotments or to stabilize the price of
the offered securities by bidding for, and purchasing, the offered securities or any other securities in the open market in order to reduce a short position created in connection with the offering. The managing underwriter may impose a penalty bid on a syndicate member to reclaim a selling concession in
connection with an offering when offered securities originally sold by the syndicate member are purchased in syndicate covering transactions or otherwise. Any of these activities may stabilize or maintain the market price of the securities above independent market levels. The underwriters are not
required to engage in these activities, and may end any of these activities at any time. Any underwriters that are qualified market
makers on the NYSE may engage in passive market making transactions in our securities on the NYSE in accordance with Regulation M under the Securities Exchange Act of 1934, as amended (the Exchange Act), during the business day prior to
the pricing of the offering, before the commencement of offers or sales of the common stock. Passive market makers must comply with applicable volume and price limitations and must be identified as passive market makers. In general, a passive market
maker must display its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive market makers bid, however, the passive market makers bid must then be lowered
when certain purchase limits are exceeded. Passive market making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open market and, if commenced, may be discontinued at any time. We will not require underwriters or dealers to make a market in the Common Stock. Any underwriters to whom the offered securities are sold for
offering and sale may make a market in the offered securities, but the underwriters will not be obligated to do so and may discontinue any market-making at any time without notice. Under agreements entered into with us, underwriters and agents may be entitled to indemnification by us against certain civil liabilities,
including liabilities under the Securities Act, or to contribution for payments the underwriters or agents may be required to make. The underwriters, agents, and their affiliates may engage in financial or other business transactions with us and our
subsidiaries, if any, in the ordinary course of business. The aggregate offering price specified on the cover of this Prospectus relates
to the offering of the securities not yet issued as of the date of this Prospectus. The place and time of delivery for the offered securities in respect of which this Prospectus is delivered are set forth in the accompanying Prospectus Supplement.
To the extent permitted under the 1940 Act and the rules and regulations promulgated thereunder, the underwriters may from time to time
act as a broker or dealer and receive fees in connection with the execution of our portfolio transactions after the underwriters have ceased to be underwriters and, subject to certain restrictions, each may act as a broker while it is an
underwriter. A Prospectus and accompanying Prospectus Supplement in electronic form may be made available on the websites maintained by
the underwriters. The underwriters may agree to allocate our securities for sale to their online brokerage account holders. Such allocations of our securities for internet distributions will be made on the same basis as other allocations. In
addition, our securities may be sold by the underwriters to securities dealers who resell securities to online brokerage account holders. 62
Dividend Reinvestment Plan We may issue and sell shares of Common Stock pursuant to our Plan. 63
The custodian of the assets of the Fund is The Bank of New York Mellon, 225 Liberty Street, New York, New York 10286. The custodian performs
custodial, fund accounting and portfolio accounting services. The Funds transfer, stockholder services and dividend paying agent is Computershare Inc., 462 South 4th Street, Suite 1600, Louisville, KY 40202. Certain legal matters in connection with the securities will be passed upon for the Fund by Simpson Thacher & Bartlett LLP,
Washington, D.C. Simpson Thacher & Bartlett LLP may rely as to certain matters of Maryland law on the opinion of Venable LLP, Baltimore, Maryland. As noted above, this prospectus is part of a registration statement filed with the SEC. Pursuant to the final rule and form amendments adopted
by the SEC on April 8, 2020, the Fund is permitted to incorporate by reference certain information filed with the SEC, which means that the Fund can disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this prospectus, and later information that the Fund files with the SEC will automatically update and supersede this information. The documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act
and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be incorporated by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such reports and
documents: the Funds Statement of Additional Information, dated [], 2022, filed with the accompanying
Prospectus; the Funds description of Common
Stock on Form 8-A, filed on May 11, 1998. You may obtain copies of
any information incorporated by reference into this prospectus, at no charge, by calling toll-free (888) 777-0102 or by writing to the Fund at 620 Eighth Avenue, 47th Floor, New York, NY 10018. The
Funds periodic reports filed pursuant to Section 30(b)(2) of the 1940 Act and Sections 13 and 15(d) of the Exchange Act, as well as this Prospectus and the Statement of Additional Information, are available on the Funds website
http://www.franklintempleton.com/investments/options/closed-end-funds. In addition, the SEC maintains a website at www.sec.gov, free of charge, that contains these reports, the Funds proxy and information statements, and other information
relating to the Fund. 64
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Appendix C Western Asset Management Company, LLC Proxy Voting Policies
And Procedures 65
The information in this Prospectus Supplement is not complete and may be changed. We may
not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED MARCH 17, 2022 Filed Pursuant to Rule 424(b)(5) Registration Statement No. 333-261721 FORM OF PROSPECTUS SUPPLEMENT (to Prospectus
dated , 2022) Western Asset High
Income Fund II Inc. Up to Shares of
Common Stock The Fund. Western Asset High
Income Fund II Inc., a Maryland corporation (the Fund), is a diversified, closed-end management investment company. Investment Objectives. The Funds primary investment objective is to maximize current income. As a secondary objective, the Fund
seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income. There can be no assurance that the Fund will achieve its investment objectives. Investment Strategies. Under normal conditions, the Fund will invest at least 80% of its net assets plus any borrowings for investment
purposes in high-yield debt securities. Certain of the debt securities purchased by the Fund may be rated as low as C by Moodys Investor Service (Moodys) or D by Standard & Poors Ratings
Services (S&P) or may be comparable to securities so rated. The Fund is not required to dispose of a debt security if its credit rating or credit quality declines. This Prospectus Supplement, together with the accompanying Prospectus
dated , 2022 sets forth the information that you should know before investing. The Funds shares of common stock, par value $0.001 per share (Common Stock), are listed on the New York Stock Exchange
(NYSE) under the trading or ticker symbol HIX. The net asset value of our Common Stock at the close of business on ,
2022 was $ per share, and the last sale price per share of our Common Stock on the NYSE on that date was
$ . Shares of closed-end funds often trade at a discount to net asset value. You should read this Prospectus Supplement and the accompanying Prospectus (which includes a Statement of Additional Information,
dated , 2022 (the SAI), incorporated by reference in its entirety therein, containing additional information about us, which has been filed
with the Securities and Exchange Commission (SEC)), before deciding whether to invest and retain it for future reference. You may request a free copy of the SAI (the table of contents of which is on page 65 of the accompanying
Prospectus), annual and semi-annual reports to stockholders (when available), and additional information about the Fund by calling (888) 777-0102, by writing to the Fund at 620 Eighth Avenue, 47th Floor, New
York, NY 10018 or visiting the Funds website (http://www.franklintempleton.com/investments/options/closed-end-funds). The information contained in, or accessed through, the Funds website is not part of this Prospectus. You may also
obtain a copy of the SAI (and other information regarding the Fund) from the SECs Public Reference Room in Washington, D.C. Information relating to the Public Reference Room may be obtained by calling the SEC at (202) 551-8090. Such materials, as well as the Funds annual and semi-annual reports (when available) and other information regarding the Fund, are also available on the SECs website (http://www.sec.gov). You
may also e-mail requests for these documents to publicinfo@sec.gov or make a request in writing to the SECs Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549-0102. Investing in the Funds securities involves certain risks. You could lose some or all of your investment. See Risks
beginning on page 32 of the accompanying Prospectus. Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Public offering price Sales load(2) Proceeds, after expenses, to the Fund(3) [We have granted the underwriters an option to purchase up to an additional shares of our Common Stock at the
public offering price, less the underwriting discount, to cover over-allotments, if any, within days from the date of this Prospectus Supplement. If the underwriters exercise the option in full, the total underwriting discount will be
$ , and the proceeds, before expenses, to us will be $ .]
[Underwriter(s)] This Prospectus Supplement is
dated , 2022.
The Funds securities do not represent a deposit or obligation of, and are not guaranteed or
endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other governmental agency. Capitalized terms used herein that are not otherwise defined shall have the meanings assigned to them in the accompanying Prospectus. ii
Prospectus Supplement Prospectus Table of Contents of the Statement of Additional
Information You should rely only on the information contained or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus. This Prospectus Supplement and the accompanying Prospectus set forth certain information about us that a prospective investor should carefully consider before making an investment in our securities. This
Prospectus Supplement, which describes the specific terms of this offering, also adds to and updates information contained in the accompanying Prospectus and the documents incorporated by reference in the Prospectus. The Prospectus gives more
general information, some of which may not apply to this offering. If the description of this offering varies between this Prospectus iii
Supplement and the accompanying Prospectus, you should rely on the information contained in this Prospectus Supplement; provided that if any statement in one of these documents is inconsistent
with a statement in another document having a later date and incorporated by reference into the Prospectus or Prospectus Supplement, the statement in the incorporated document having the later date modifies or supersedes the earlier statement. We
have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom
it is not permitted to make such offer or sale. The information contained in or incorporated by reference in this Prospectus Supplement and the accompanying Prospectus is accurate only as of the respective dates on their front covers, regardless of
the time of delivery of this Prospectus Supplement, the accompanying Prospectus, or the sale of the securities. Our business, financial condition, results of operations and prospects may have changed since that date. iv
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Prospectus Supplement, the accompanying Prospectus and the SAI contain forward-looking statements. All statements other than statements
of historical facts included in this Prospectus Supplement and the accompanying Prospectus that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements
including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our financial condition, results of operations and business. We have identified some of these forward-looking statements
with words like believe, may, could, might, forecast, possible, potential, project, will, should, expect,
intend, plan, predict, anticipate, estimate, approximate or continue and other words and terms of similar meaning and the negative of such terms. Such
forward-looking statements may be contained in this Prospectus Supplement as well as in the accompanying Prospectus and the SAI. These forward-looking statements are based on current expectations about future events affecting us and are subject to
uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this Prospectus Supplement and the
accompanying Prospectus, including the risks outlined under Risks in the accompanying Prospectus, will be important in determining future results. In addition, several factors that could materially affect our actual results are the
ability of the MBS in which we invest to achieve their objectives, the timing and amount of distributions and dividends from the MBS in which we intend to invest, the dependence of our future success on the general economy and its impact on the
industries in which we invest and other factors discussed in our periodic filings with the SEC. Although we believe that the expectations
reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. The factors
identified above are believed to be important factors, but not necessarily all of the important factors, that could cause our actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors
could also have material adverse effects on us. Since our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements, we cannot give any assurance that any of the
events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. All forward-looking statements included in this Prospectus Supplement, the
accompanying Prospectus or the SAI are expressly qualified in their entirety by the foregoing cautionary statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of such
documents. We do not undertake any obligation to update, amend or clarify these forward-looking statements or the risk factors contained therein, whether as a result of new information, future events or otherwise, except as may be required under the
federal securities laws. The forward-looking statements in this Prospectus Supplement, the accompanying Prospectus and the SAI are excluded from the safe harbor protection provided by Section 27A of the 1933 Act. v
This summary highlights selected information contained elsewhere in this prospectus supplement (the Prospectus Supplement) and the
accompanying prospectus (the Prospectus). This summary provides an overview of selected information and does not contain all of the information you should consider before investing in our common stock (the Common Stock). You
should read carefully the entire Prospectus Supplement, the accompanying Prospectus, including the section entitled Risks, the statement of additional information incorporated by reference into the Prospectus (the SAI) and
the financial statements and related notes, before making an investment decision. The Fund Investment Objectives and Strategies S-1
The Investment Manager The Manager receives an annual fee, payable monthly, in an amount equal to 0.80% of the Funds Managed Assets.
Managed Assets means the average weekly value of the total assets of the Fund (including any proceeds from the issuance of preferred stock, minus S-2
the sum of (i) accrued liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii) accumulated dividends on shares of preferred stock) plus
the proceeds of any outstanding borrowings used for leverage. Subadviser Non-U.S. Subadviser The Offering Risks S-3
The purpose of the following table and example is to help you understand all fees and expenses holders of Common Stock would bear directly or
indirectly. The table below is based on the capital structure of the Fund as of (except as noted below), adjusted for the
issuance of $ million of additional shares of Common Stock. SHAREHOLDER TRANSACTION EXPENSES Sales Load (percentage of offering price) Offering Expenses Borne by the Fund (percentage of offering price) Dividend Reinvestment Plan Per Transaction Fee to Sell Shares Obtained Pursuant to the
Plan TOTAL TRANSACTION EXPENSES (as a percentage of offering price)(4) ANNUAL EXPENSES Management Fees(5) Interest Payment on Borrowed
Funds(6) Other Expenses(7) Annual Expenses (exclusive of current and deferred income tax expense) Current/Deferred Income Tax
Expense(8) TOTAL ANNUAL EXPENSES (including current and deferred income tax expense) The sales load will apply only if the securities to which this Prospectus relates are sold to or through
underwriters. In such case, a corresponding Prospectus Supplement will disclose the applicable sales load. The related Prospectus Supplement will disclose the estimated amount of offering expenses, the offering price
and the offering expenses borne by the Fund as a percentage of the offering price. Common Stockholders will pay brokerage charges if they direct the Plan Agent (defined below) to sell Common
Stock held in a dividend reinvestment account. See Dividend Reinvestment Plan. There are no fees charged to stockholders for participating in the Funds dividend reinvestment plan. However, stockholders participating in the Plan
that elect to sell their shares obtained pursuant to the plan would pay $5.00 per transaction to sell shares. The related Prospectus Supplement will disclose the offering price and the total stockholder transaction
expenses as a percentage of the offering price. The Manager receives an annual fee, payable monthly, in an amount equal to 1.00% of the Funds Managed
Assets. Managed Assets means the average weekly value of the total assets of the Fund (including any proceeds from the issuance of preferred stock, minus the sum of (i) accrued liabilities of the Fund, (ii) any accrued and
unpaid interest on outstanding borrowings and (iii) accumulated dividends on shares of preferred stock) plus the proceeds of any outstanding borrowings used for leverage. For the purposes of this table, we have assumed that the Fund has
utilized Borrowings in an aggregate amount of % of its Managed Assets (after their issuance). If the Fund were to use financial leverage in excess
of % of its Managed Assets, the management fees shown would be higher. Based on the Funds outstanding Borrowings as
of of $ million, which represented financial leverage
of % of the Funds Managed Assets. The expenses and rates associated with leverage may vary as and when Borrowings are made. Estimated based on amounts incurred in the period
ended . For the period
ended , we recorded $ of current/deferred income tax
expense. The net income tax benefit is not reflected in the Funds expense ratio. The Fund has recorded a deferred income tax expense in prior years and may record such expense in future years. Example The following example
illustrates the hypothetical expenses that you would pay on a $1,000 investment in Common Stock, assuming (i) Total Annual Expenses of % of net assets attributable to Common Stock (which assumes the Funds use
of leverage in an aggregate amount equal to % of the Funds Managed Assets) and (ii) a 5% annual return*: 1 Year 3 Years 5 Years 10 Years $ S-4
The example above should not be considered a representation of future expenses. Actual expenses may be higher
or lower than those shown. The example assumes that all dividends and distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Funds actual rate of return may be greater or less
than the hypothetical 5% return shown in the example. S-5
Unless otherwise specified in a Prospectus Supplement, the Fund intends to invest the net proceeds of any offering of its securities in
accordance with its investment objective and policies as stated herein. It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds in accordance with its investment objective and policies within three
months after the completion of any offering. Pending such investment, it is anticipated that the proceeds will be primarily invested in short-term money market instruments. The Fund may also invest in U.S. government securities. The following table sets forth our capitalization (i) as of , 20[ ] and (ii) as adjusted to give effect to
the issuance of the shares of common stock offered hereby. As indicated below, Common Stockholders will bear the offering costs associated with this offering. Cash Total Debt: Senior Secured Notes Loan Payable Net Assets: Common Stock ($0.001 par value per share, 100,000,000 shares authorized, shares issued and
outstanding (actual), shares issued and outstanding (as adjusted) and issued and outstanding (as further adjusted)) Paid-in capital in excess of par value Accumulated net investment loss, net of income taxes Accumulated net realized gain on investments, net of income taxes Net unrealized gains on investments, net of income taxes Total Net Assets S-6
We have paid distributions to Common Stockholders every month since inception. The following table sets forth information about distributions
we paid to our Common Stockholders, percentage participation by Common Stockholders in our dividend reinvestment program and reinvestments and related issuances of additional shares of Common Stock as a result of such participation (the information
in the table is unaudited): Distribution Amount of Percentage of Amount of Additional Shares Unless a Common Stockholder elects to receive distributions in cash (i.e., opt out), all of such Common
Stockholders distributions, including any capital gains distributions on Common Stock, will be automatically reinvested in additional shares of Common Stock under the Funds Dividend Reinvestment Plan. See Dividend Reinvestment
Plan. S-7
MARKET AND NET ASSET VALUE INFORMATION The Funds currently outstanding Common Stock is listed on the NYSE under the symbol HIX. Our Common Stock commenced trading
on the NYSE on . Our Common Stock has
traded both at a premium and at a discount in relation to the Funds net asset value per share. Although our Common Stock has traded at a premium to net asset value, we cannot assure that this will occur after any offering or that the Common
Stock will not trade at a discount in the future. Our issuance of additional Common Stock may have an adverse effect on prices in the secondary market for our Common Stock by increasing the number of shares of Common Stock available, which may
create downward pressure on the market price for our Common Stock. Shares of closed-end investment companies frequently trade at a discount to net asset value. See RisksMarket Discount from Net
Asset Value Risk. The following table sets forth for each of the periods indicated the range of high and low closing sale price of
our Common Stock and the quarter-end sale price, each as reported on the NYSE, the net asset value per share of Common Stock and the premium or discount to net asset value per share at which our shares were
trading. Net asset value is generally determined on each business day that the NYSE is open for business. See Net Asset Value for information as to the determination of our net asset value. Fiscal Year 20[ ] Source of
market prices: Bloomberg. Net asset value per share is determined as of close of business on the last day of the relevant quarter and
therefore may not reflect the net asset value per share on the date of the high and low closing sales prices, which may or may not fall on the last day of the quarter. Net asset value per share is calculated as described in Net Asset
Value. Calculated as of the quarter-end closing sales price divided by the quarter-end net asset value. On
, the last reported sale price of our Common Stock on the NYSE was
$ , which represented a of approximately
% to the net asset value per share reported by us on that date. As of , we had approximately
million shares of Common Stock outstanding and we had net assets attributable to Common Stockholders of approximately
$ billion. S-8
UNDERWRITING/PLAN OF DISTRIBUTION [TO BE FURNISHED AT TIME OF OFFERING] S-9
Certain legal matters in connection with the securities will be passed upon for the Fund by Simpson Thacher & Bartlett LLP,
Washington, D.C. and for the underwriters by . Simpson Thacher & Bartlett LLP may rely as to certain matters of Maryland law on the opinion of
Venable LLP, Baltimore, Maryland. S-10
The audited financial statements included in the annual report to the Funds shareholders for the fiscal year ended April 30, 2021
and together with the report of PricewaterhouseCoopers LLP (PwC) for the Funds annual report, are incorporated herein by reference to the Funds annual report to shareholders. The unaudited financial statements for the six
months ended October 31, 2021 are included in the semi-annual report to the Funds shareholders for the period ended October 31, 2021 and are incorporated herein by the Funds semi-annual report to shareholders. All other
portions of the annual report and semi-annual report to shareholders are not incorporated herein by reference and are not part of the registration statement, the SAI, the Prospectus or any Prospectus Supplement. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PwC serves as the Independent Registered Public Accounting Firm of the Fund and audits the financial statements of the Fund. PwC is located at
100 East Pratt Street, Suite 2600, Baltimore, Maryland 21202-1096. WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act and the 1940 Act, and are required to file reports (including
our annual and semi-annual reports), proxy statements and other information with the SEC. Our most recent shareholder report filed with the SEC is for the period ended
. Such reports, proxy statements and other information, as well as the registration statement and the amendments, exhibits and schedules thereto, can be
inspected and copied at the public reference facilities maintained by the SEC in Washington, D.C. Information about the operation of the public reference facilities may be obtained by calling the SEC at (202)
551-8090. Copies of such material may also be obtained from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. You can obtain the same information free
of charge from the SECs website at www.sec.gov. You may also e-mail requests for these documents to publinfo@sec.gov or make a request in writing to the SECs Public Reference Section, 100 F Street,
N.E., Room 1580, Washington, D.C. 20549 This Prospectus Supplement and the accompanying Prospectus do not contain all of the information
in our registration statement, including amendments, exhibits, and schedules. Statements in this Prospectus Supplement and the accompanying Prospectus about the contents of any contract or other document are not necessarily complete and in each
instance reference is made to the copy of the contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by this reference. Additional information about us can be found in our
Registration Statement (including amendments, exhibits, and schedules) on Form N-2 filed with the SEC. The SEC maintains a web site (www.sec.gov) that contains our Registration Statement, other documents
incorporated by reference, and other information we have filed electronically with the SEC, including proxy statements and reports filed under the Exchange Act. S-11
[] Shares Western Asset High Income Fund II Inc. Common Stock $[]
per Share PROSPECTUS SUPPLEMENT [], 202[] [Underwriter(s)]
The information in this Preliminary Prospectus Supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus Supplement is not an offer to sell these securities and is not soliciting offers to buy these
securities in any jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION,
DATED MARCH 17, 2022 WESTERN ASSET HIGH INCOME FUND II INC. Rights for
Shares of Common Stock Subscription Rights to Acquire Shares of Common Stock Western Asset High Income Fund II Inc. (the Fund, we, us or our) is issuing subscription
rights (the Rights) to our common stockholders (the Common Stockholders) to purchase additional shares of common stock (Common Stock). The Fund is a diversified, closed-end management investment company registered under the Investment
Company Act of 1940, as amended (the 1940 Act). The Funds primary investment objective is to maximize current income. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of
seeking to maximize current income. The Funds investment adviser is Legg Mason Partners Fund Advisor, LLC (the Manager). The shares of Common Stock are listed on the New York Stock Exchange (NYSE) under the symbol HIX. Common Stockholders
of record on , 2022 (the Record Date) will receive
Rights for each share of Common Stock held. [These Rights are transferable and will allow the holders thereof to purchase additional shares of Common
Stock. The Rights will be listed for trading on the under the symbol
during the course of the Rights offering.] On , 2022 (the last trading date prior to the
Common Stock trading ex-Rights), the last reported net asset value per share of the Common Stock was $ and the
last reported sales price per share of Common Stock on the NYSE was $ . Shares of closed-end funds often trade at a discount to net asset value. An investment in the Fund is not appropriate for all investors. We cannot assure you that the Funds investment objectives
will be achieved. You should read this Prospectus Supplement and the accompanying Prospectus before deciding whether to invest in the Common Stock and retain it for future reference. The Prospectus Supplement and the accompanying
Prospectus contain important information about the Fund. Material that has been incorporated by reference, including the Funds audited annual financial statements, and other information about the Fund can be obtained from the
Fund by calling 1-888-777-0102, writing to the Fund at 620 Eighth Avenue, 47th Floor, New York, NY 10018, accessing the Funds website at
www.franklintempleton.com/investments/options/closed-end-funds or from the Securities and Exchange Commissions (SEC) website
(http://www.sec.gov). For additional information all holders of Rights should contact the Information Agent, , at
. Common Stockholders please call toll-free at (banks
and brokers please call ) or please send written requests to
. Investing in Common Stock
through Rights involves certain risks that are described in the Special Characteristics and Risks of the Rights Offering section of this Prospectus Supplement. Internet Delivery of Fund Reports Unless You Request Paper Copies: As permitted by regulations adopted by the SEC, the Fund does not
intend to mail paper copies of the Funds stockholder reports, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary (such as a broker-
dealer or bank). Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If
you invest through a financial intermediary and you already elected to receive stockholder reports electronically (e-delivery), you will not be affected by this change and you need not take any
action. If you have not already elected e-delivery, you may elect to receive stockholder reports and other communications from the Fund electronically by contacting your financial intermediary. You may elect
to receive all reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you receive paper copies of your stockholder reports. That election will apply to all legacy
Legg Mason funds held in your account at that financial intermediary. If you are a direct stockholder with the Fund, you can call the Fund at
1-888-888-0151, or write to the Fund by regular mail at P.O. Box 505000, Louisville, KY 40233 or by overnight delivery to
Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202 to let the Fund know you wish to receive paper copies of your stockholder reports. That election will apply to all legacy Legg Mason funds held in your account held directly with
the fund complex. SHAREHOLDERS WHO DO NOT FULLY EXERCISE THEIR RIGHTS MAY, AT THE COMPLETION OF THE OFFERING, OWN A SMALLER
PROPORTIONAL INTEREST IN THE FUND THAN IF THEY EXERCISED THEIR RIGHTS. AS A RESULT OF THE OFFERING YOU MAY EXPERIENCE SUBSTANTIAL DILUTION OF THE AGGREGATE NET ASSET VALUE OF YOUR COMMON STOCK DEPENDING UPON WHETHER THE FUNDS NET ASSET VALUE
PER SHARE OF COMMON STOCK IS ABOVE OR BELOW THE SUBSCRIPTION PRICE ON THE EXPIRATION DATE. ALL COSTS OF THE OFFERING WILL BE BORNE BY THE FUND, AND INDIRECTLY BY CURRENT STOCKHOLDERS WHETHER THEY EXERCISE THEIR RIGHTS OR NOT. RIGHTS EXERCISED BY A
STOCKHOLDER ARE IRREVOCABLE. ANY COMMON STOCK ISSUED AS A RESULT OF THE RIGHTS OFFERING WILL NOT BE RECORD DATE SHARES FOR THE
FUNDS MONTHLY DISTRIBUTION TO BE PAID ON , 2022 AND WILL NOT BE ENTITLED TO RECEIVE SUCH DISTRIBUTION. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Estimated subscription price of Common Stock to stockholders exercising Rights(1) Underwriting discounts and
commissions(2) Estimated proceeds, before expenses, to the
Fund(3) The estimated Subscription Price to the public is based upon
% of the last reported sales price of the Funds shares of Common Stock on the NYSE on
, 2022. For additional underwriting compensation information, please see Plan of Distribution.
Before deduction of expenses related to the Rights offering, which are estimated approximately at
$ . Any offering expenses are paid indirectly by stockholders. Such fees and expenses will immediately reduce the net asset value per share of each share
of Common Stock purchased by an investor in the Rights offering. The indirect expenses of the offering that stockholders will pay are estimated to be $
in the aggregate and $ per share. The amount of proceeds to the Fund net of any fees and expenses of the offering are estimated to be
$ in the aggregate and $ per share. Stockholders will not
directly bear any offering expenses. The shares of Common Stock are expected to be ready for delivery in book-entry
form through the Depository Trust Company on or about , 2022, unless extended. If the offering is extended, the shares of Common Stock are expected to be
ready for delivery in book-entry form through the Depository Trust Company on or about , 2022. The date of this Prospectus Supplement is ,
2022. ii
You should rely only on the information contained or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus. The Fund has not authorized anyone to provide you with different information. The Fund is not making an offer to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should not assume that the information contained in this Prospectus Supplement and the accompanying Prospectus is accurate as of any date other than the date of this Prospectus Supplement and the accompanying Prospectus, respectively.
This Prospectus Supplement will be amended to reflect material changes to the information contained herein and will be delivered to stockholders. Our business, financial condition, results of operations and prospects may have changed since those
dates. In this Prospectus Supplement and in the accompanying Prospectus, unless otherwise indicated, Fund, us, our and we refer to Western Asset High Income Fund II Inc., a Maryland corporation. This
Prospectus Supplement also includes trademarks owned by other persons. Prospectus Supplement iii
Prospectus iv
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Prospectus Supplement, the accompanying Prospectus and the Statement of Additional Information (SAI) contain
forward-looking statements. Forward-looking statements can be identified by the words may, will, intend, expect, estimate, continue, plan,
anticipate, and similar terms and the negative of such terms. Such forward-looking statements may be contained in this Prospectus Supplement as well as in the accompanying Prospectus and in the SAI. By their nature, all forward-looking
statements involve risks and uncertainties, and actual results could differ materially from those contemplated by the forward-looking statements. Several factors that could materially affect our actual results are the performance of the portfolio of
securities we hold, the price at which our shares will trade in the public markets and other factors discussed in our periodic filings with the SEC. Although we believe that the expectations expressed in our forward-looking statements are reasonable, actual results could differ materially
from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such
as those disclosed in the Risks section of the accompanying Prospectus and Special Characteristics and Risks of the Rights Offering in this Prospectus Supplement. All forward-looking statements contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus, or in the SAI, are made as of the date of this Prospectus Supplement or the accompanying Prospectus or SAI, as the case may be. Except for our ongoing obligations under the
federal securities laws, we do not intend, and we undertake no obligation, to update any forward-looking statement. The forward-looking statements contained in this Prospectus Supplement, the accompanying Prospectus and the SAI are excluded from the
safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended (the Securities Act). Currently
known risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors described in the Risks and Special Considerations section of the accompanying Prospectus as well
as in the Special Characteristics and Risks of the Rights Offering section of this Prospectus Supplement. We urge you to review carefully those sections for a more detailed discussion of the risks of an investment in the Common Stock.
1
SUMMARY OF THE TERMS OF THE RIGHTS OFFERING Terms of the Rights Offering Amount Available for Primary Subscription Title Subscription Price Record Date Number of Rights Issued Number of Rights Required to Purchase One Share of Common Stock Over-Subscription Privilege 2
Transfer of Rights Subscription Period Offering Expenses Sale of Rights [The Rights are transferable until the completion of the Subscription Period and will be admitted for trading on the
under the symbol . Although no assurance can
be given that a market for the Rights will 3
develop, trading in the Rights on the is expected to begin two Business Days prior to the Record
Date and may be conducted until the close of trading on the last trading day prior to the Expiration Date. For purposes of this Prospectus Supplement, a
Business Day shall mean any day on which trading is conducted on the . 4
Use of Proceeds Taxation/ERISA Rights Agent Information Agent 5
DESCRIPTION OF THE RIGHTS OFFERING Terms of the Rights Offering The
Fund is issuing to Record Date Stockholders Rights to subscribe for shares of Common Stock of the Fund. Each Record Date Stockholder is being issued one transferable Right for each share of Common Stock owned on the Record Date. The Rights entitle
the holder to acquire, at a subscription price per share of Common Stock (the Subscription Price) determined based upon a formula equal to %
of the average of the last reported sales price of the Funds shares of Common Stock on the NYSE on the Expiration Date (as defined below) and each of the [four] preceding trading days (the Formula Price),
new shares of Common Stock for each Rights held. If,
however, the Formula Price is less than % of the net asset value per share of Common Stock at the close of trading on the NYSE on the Expiration Date,
then the Subscription Price will be % of the Funds net asset value per share of Common Stock at the close of trading on the NYSE on that day. The
estimated Subscription Price to the public of $ is based upon
% of the last reported sales price of the Funds shares of Common Stock on the NYSE on
, 2022. Fractional shares will not be issued upon the exercise of the Rights. Accordingly, shares of Common Stock may be purchased only pursuant to the
exercise of Rights in integral multiples of . The number of Rights to be issued to a Record Date Stockholder will be rounded up to the nearest number of
Rights evenly divisible by . In the case of shares of Common Stock held of record by Cede & Co. (Cede), as nominee for the
Depository Trust Company (DTC), or any other depository or nominee, the number of Rights issued to Cede or such other depository or nominee will be adjusted to permit rounding up (to the nearest number of Rights evenly divisible by
) of the Rights to be received by beneficial owners for whom it is the holder of record only if Cede or such other depository or nominee provides to the
Fund on or before the close of business on , 2022 written representation of the number of Rights required for such rounding. Rights may be exercised at
any time during the period (the Subscription Period) which commences on , 2022, and ends at [5:00 PM Eastern Time] on
, 2022 (the Expiration Date), unless otherwise extended. Shares of the Fund, as a closed-end fund,
can trade at a discount to net asset value. Upon exercise of the Rights offering, Fund shares [are expected to] [may] be issued at a price below net asset value per share of Common Stock. The right to acquire one share of Common Stock for each
Rights held during the Subscription Period (or any extension of the Subscription Period) at the Subscription Price will be referred to in the remainder
of this Prospectus Supplement as the Rights offering. Rights will expire on the Expiration Date and thereafter may not be exercised. Any share of Common Stock issued as a result of the Rights offering will not be Record Date
shares for the Funds monthly distribution to be paid on , 2022 and will not be entitled to receive such distribution. The Fund has entered into a dealer manager agreement with the Dealer Manager that allows the Dealer Manager to take actions to seek to
facilitate the trading market for Rights and the placement of shares of Common Stock pursuant to the exercise of Rights. Those actions are expected to involve the Dealer Manager purchasing and exercising Rights during the Subscription Period at
prices determined at the time of such exercise, which are expected to vary from the Subscription Price. See Plan of Distribution for additional information. Rights may be evidenced by subscription certificates or may be uncertificated and evidenced by other appropriate documentation (i.e., a
rights card distributed to registered stockholders in lieu of a subscription certificate) (Subscription Certificates). The number of Rights issued to each holder will be stated on the Subscription Certificate delivered to the holder. The
method by which Rights may be exercised and shares of Common Stock paid for is set forth below in Method of Exercise of Rights, Payment for Shares and Plan of Distribution. A holder of Rights will have no right to
rescind a purchase after (the Rights Agent) has received payment. See Payment for Shares below. It is anticipated that the
shares of Common Stock issued pursuant to an exercise of Rights will be listed on the . [Holders of Rights [who are Record Date Stockholders] are entitled to subscribe for additional shares of Common Stock at the same Subscription
Price pursuant to the over-subscription privilege, subject to certain limitations, allotment and the right of the Board to eliminate the primary oversubscription privilege [or secondary] over-subscription privilege. See Over-Subscription
Privilege below.] For purposes of determining the maximum number of shares of Common Stock that may be acquired pursuant to the
Rights offering, broker-dealers, trust companies, banks or others whose shares are held of record by Cede or by any other depository or nominee will be deemed to be the holders of the Rights that are held by Cede or such other depository or nominee
on their behalf. 6
[The Rights are transferable until the completion of the Subscription Period and will be
admitted for trading on the under the symbol
. Assuming a market exists for the Rights, the Rights may be purchased and sold through usual brokerage channels and also sold through the
Rights Agent. Although no assurance can be given that a market for the Rights will develop, trading in the Rights on the is expected to begin two
Business Days prior to the Record Date and may be conducted until the close of trading on the last trading day prior to the Expiration Date. Trading of
the Rights on the is expected to be conducted on a when-issued basis until and including the date on which the Subscription Certificates are mailed to
Record Date Stockholders of record and thereafter is expected to be conducted on a regular way basis until and including the last trading day prior to
the Expiration Date. The method by which Rights may be transferred is set forth below under Method of Transferring Rights. The shares of Common Stock are expected to begin trading ex-Rights one
Business Day prior to the Record Date as determined and announced by the .] The Rights offering may be terminated or extended by the Fund at any time for
any reason before the Expiration Date. If the Fund terminates the Rights offering, the Fund will issue a press release announcing such termination and will direct the Rights Agent to return, without interest, all subscription proceeds received to
such stockholders who had elected to purchase shares of Common Stock. Nominees who hold shares of the Funds Common Stock for
the account of others, such as banks, broker-dealers, trustees or depositories for securities, should notify the respective beneficial owners of such shares of Common Stock as soon as possible to ascertain such beneficial owners intentions and
to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the nominee should complete the Subscription Certificate and submit it to the Rights Agent with proper payment. In addition, beneficial owners of the Common
Stock or Rights held through such a nominee should contact the nominee and request the nominee to effect transactions in accordance with such beneficial owners instructions. [Participants in the Funds Dividend Reinvestment Plan (the Plan) will be issued Rights in respect of the shares of Common
Stock held in their accounts in the Plan. Participants wishing to exercise these Rights must exercise the Rights in accordance with the procedures set forth in Method of Exercise of Rights and Payment for Shares.] Conditions of the Rights Offering The
rights offering is being made in accordance with the 1940 Act without stockholder approval. The staff of the SEC has interpreted the 1940 Act as not requiring stockholder approval of a transferable rights offering to purchase shares of Common Stock
at a price below the then current net asset value so long as certain conditions are met, including: (i) a good faith determination by a funds board that such offering would result in a net benefit to existing stockholders; (ii) the
offering fully protects stockholders preemptive rights and does not discriminate among stockholders (except for the possible effect of not offering fractional rights); (iii) management uses its best efforts to ensure an adequate trading market
in the rights for use by stockholders who do not exercise such rights; and (iv) the ratio of a transferable rights offering does not exceed one new share for each three rights held. Important Dates to Remember [Please
note that the dates in the table below may change if the rights offering is extended.] Event Date 7
A stockholder exercising Rights must deliver to the Rights Agent by [5:00 PM Eastern Time] on
, 2022 (unless the offer is extended) either (a) a Subscription Certificate and payment for shares of Common Stock or (b) a notice of
guaranteed delivery and payment for shares of Common Stock. Unless the offer is extended. [Over-Subscription Privilege The Board
has the right in its absolute discretion to eliminate the over-subscription privilege with respect to primary over-subscription shares and secondary over-subscription shares if it considers it to be in the best interest of the Fund to do so. The
Board may make that determination at any time, without prior notice to Rights holders or others, up to and including the fifth day following the Expiration Date. If the primary over-subscription privilege is not eliminated, it will operate as set
forth below. Rights holders [who are Record Date Stockholders and who fully exercise their Rights] are entitled to subscribe for
additional shares of Common Stock at the same Subscription Price pursuant to the over-subscription privilege, subject to certain limitations and subject to allotment. [Record Date Stockholders who fully exercise all Rights initially issued to them] are entitled to buy those shares of Common Stock, referred
to as primary over-subscription shares, that were not purchased by other holders of Rights at the same Subscription Price. If enough primary oversubscription shares are available, all such requests will be honored in full. If the
requests for primary over-subscription shares exceed the primary over-subscription shares available, the available primary over-subscription shares will be allocated pro rata among those fully exercising [Record Date Stockholders] who over-subscribe
based on the number of Rights originally issued to them by the Fund. Shares of Common Stock acquired pursuant to the over-subscription privilege are subject to allotment. [In addition, the Fund, in its sole discretion, may determine to issue additional shares of Common Stock at the same Subscription Price in an
amount of up to [ ]% of the shares issued pursuant to the primary subscription, referred to as secondary over-subscription shares. Should the Fund determine to issue some or all of the secondary over-subscription shares, they will be
allocated only among Record Date Stockholders who submitted over-subscription requests. Secondary over-subscription shares will be allocated pro rata among those fully exercising Record Date Stockholders who over-subscribe based on the number of
Rights originally issued to them by the Fund. Rights acquired in the secondary market may not participate in the over-subscription privilege.] Record Date Stockholders who are fully exercising their Rights during the Subscription Period should indicate, on the Subscription Certificate
that they submit with respect to the exercise of the Rights issued to them, how many shares of Common Stock they are willing to acquire pursuant to the over-subscription privilege. Rights acquired in the secondary market may not participate in the
over-subscription privilege. To the extent sufficient shares of Common Stock are not available to fulfill all over-subscription requests,
unsubscribed shares of Common Stock (the Excess Shares) will be allocated pro rata among those Record Date Stockholders who over-subscribe based on the number of Rights issued to them by the Fund. The allocation process may involve a
series of allocations in order to assure that the total number of shares of Common Stock available for over-subscriptions is distributed on a pro rata basis. The formula to be used in allocating the Excess Shares is as follows: Stockholders Record Date Position Banks, broker-dealers, trustees and other nominee holders of Rights will be required to certify to the Rights
Agent, before any oversubscription privilege may be exercised with respect to any particular beneficial owner, as to the aggregate number of Rights exercised during the Subscription Period and the number of shares of Common Stock subscribed for
pursuant to the over-subscription privilege by such beneficial owner and that such beneficial owners subscription was exercised in full. Nominee holder over-subscription forms and beneficial owner certification forms
8
will be distributed to banks, broker-dealers, trustees and other nominee holders of Rights with the Subscription Certificates. [Nominees should also notify holders purchasing Rights in the
secondary market that such Rights may not participate in the over-subscription privilege.] Common Stockholders who choose not to
exercise their full rights to purchase additional shares of Common Stock will permit Common Stockholders who exercise the Over-Subscription Privilege to purchase additional shares of Common Stock at a discount to net asset value without furnishing
additional rights or providing any compensation to the non-participating Common Stockholders for the dilution of their ownership percentage or voting rights. The Fund will not otherwise offer or sell any shares of Common Stock that are not subscribed for pursuant to the primary subscription, the
primary over-subscription privilege or the secondary over-subscription privilege pursuant to the Rights offering.] [Sales by Rights Agent Holders of Rights who are unable or do not wish to exercise any or all of their Rights may instruct the Rights Agent to sell any unexercised
Rights. The Subscription Certificates representing the Rights to be sold by the Rights Agent must be received prior to [5:00 PM, Eastern Time], on ,
2022, five Business Days prior to the Expiration Date (or, if the subscription period is extended, prior to [5:00 PM, Eastern Time], on the fifth Business Day prior to the extended Expiration Date). Upon the timely receipt of the appropriate
instructions to sell Rights, the Rights Agent will use its best efforts to complete the sale and will remit the proceeds of sale, net of any commissions, to the holders. The Rights Agent will also attempt to sell any Rights attributable to
stockholders of record whose addresses are outside the United States, or who have an APO or FPO address. The selling Rights holder will pay all brokerage commissions incurred by the Rights Agent. These sales may be effected by the Rights Agent. The
Rights Agent will automatically attempt to sell any unexercised Rights that remain unclaimed as a result of Subscription Certificates being returned by the postal authorities as undeliverable as of the
Business Day prior to the Expiration Date. The Rights Agent will attempt to sell such Rights, including by first offering such Rights to the Dealer
Manager for purchase by the Dealer Manager at the then-current market price on the . The Rights Agent will offer Rights to the Dealer Manager before
attempting to sell them on the , which may affect the market price for Rights on the
and reduce the number of Rights available for purchase on the
, thereby reducing the ability of new investors to participate in the offering. These sales will be made net of commissions,
taxes and any other expenses paid on behalf of the nonclaiming holders of Rights. Proceeds from those sales will be held by Computershare LLC in its capacity as the Funds transfer agent, for the account of the nonclaiming holder of Rights
until the proceeds are either claimed or escheated. There can be no assurance that the Rights Agent will be able to complete the sale of any of these Rights and neither the Fund nor the Rights Agent has guaranteed any minimum sales price for the
Rights. All of these Rights will be sold at the market price, if any, through an exchange or market trading the Rights. If the Rights can be sold, sales of the Rights will be deemed to have been effected at the weighted average price received by the
Rights Agent on the day such Rights are sold, less any applicable brokerage commissions, taxes and other expenses.] [Dealer Manager (the Dealer Manager), a
registered broker-dealer, may also act on behalf of its clients to purchase or sell Rights in the open market and may receive commissions from its clients for such services. Holders of Rights attempting to sell any unexercised Rights in the open
market through a broker-dealer other than the Dealer Manager may be charged a different commission and should consider the commissions and fees charged by the broker-dealer prior to selling their Rights on the open market. The Dealer Manager is not
expected to purchase Rights as principal for its own account in order to seek to facilitate the trading market for Rights or otherwise. See Plan of Distribution for additional information.] [Sale of Rights The Rights are
transferable and will be admitted for trading on the under the symbol
. Although no assurance can be given that a market for the Rights will develop, trading in the Rights on the
is expected to begin two Business Days prior to the Record Date and may be conducted until the close of trading on the last
trading day prior to the Expiration Date. The value of the Rights, if any, will be reflected by the market price. Rights may be sold by individual holders or may be submitted to the
Rights Agent for sale. Any Rights submitted to the Rights Agent for sale must be received by the Rights Agent prior to [5:00 PM, Eastern Time], on ,
2022, five Business Days prior to the Expiration Date (or, if the subscription period is extended, prior to [5:00 PM, Eastern Time], on the Business Day
prior to the extended Expiration Date). 9
[Rights that are sold will not confer any right to acquire any Common Stock in any primary
over-subscription privilege or secondary over-subscription privilege, if any, and any Record Date Stockholder who sells any Rights will not be eligible to participate in the primary oversubscription privilege or secondary over-subscription
privilege, if any.] Trading of the Rights on the
will be conducted on a when-issued basis until and including the date on which the Subscription Certificates (as defined below) are mailed to Record
Date Stockholders of record and thereafter will be conducted on a regular-way basis until and including the last
trading day prior to the Expiration Date. The shares of Common Stock are expected to begin trading ex-Rights one Business Day prior to the Record Date. Stockholders are urged to obtain a recent trading price for the Rights on the
from their broker, bank, financial advisor or the financial press.] [Method of Transferring Rights The
Rights evidenced by a single Subscription Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the accompanying instructions. A portion of the Rights evidenced by a single Subscription
Certificate (but not fractional Rights) may be transferred by delivering to the Rights Agent a Subscription Certificate properly endorsed for transfer, with instructions to register the portion of the Rights evidenced thereby in the name of the
transferee (and to issue a new Subscription Certificate to the transferee evidencing the transferred Rights). In this event, a new Subscription Certificate evidencing the balance of the Rights will be issued to the Rights holder or, if the Rights
holder so instructs, to an additional transferee. Holders wishing to transfer all or a portion of their Rights (but not fractional
Rights) should promptly transfer such Rights to ensure that: (i) the transfer instructions will be received and processed by the Rights Agent, (ii) a new Subscription Certificate will be issued and transmitted to the transferee or
transferees with respect to transferred Rights, and to the holder with respect to retained Rights, if any, and (iii) the Rights evidenced by the new Subscription Certificates may be exercised or sold by the recipients thereof prior to the
Expiration Date. Neither the Fund nor the Rights Agent shall have any liability to a transferee or holder of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. Except for the fees charged by the Rights Agent (which will be paid by the Fund as described below), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale, transfer or exercise of Rights will be for the account of the holder of the Rights, and none of these commissions, fees or expenses will be borne by
the Fund or the Rights Agent. The Fund anticipates that the Rights will be eligible for transfer through, and that the exercise of the
Rights may be effected through, the facilities of DTC (Rights exercised through DTC are referred to as DTC Exercised Rights).] Rights
Agent The Rights Agent is . The
Rights Agent will receive from the Fund an amount estimated to be $ , comprised of the fee for its services and the reimbursement for certain expenses
related to the Rights offering. The stockholders of the Fund will indirectly pay such amount. Information Agent INQUIRIES BY ALL HOLDERS OF RIGHTS SHOULD BE DIRECTED TO: THE INFORMATION AGENT,
; HOLDERS PLEASE CALL TOLL-FREE AT ; BANKS AND BROKERS
PLEASE CALL . 10
Method of Exercise of Rights Rights may be exercised by completing and signing the Subscription Certificate and mailing it in the envelope provided, or otherwise
delivering the completed and signed Subscription Certificate to the Rights Agent, together with payment for the shares of Common Stock as described below under Payment for Shares. Rights may also be exercised through the broker of a
holder of Rights, who may charge the holder of Rights a servicing fee in connection with such exercise. See Plan of Distribution for additional information regarding the purchase and exercise of Rights by the Dealer Manager. Completed Subscription Certificates and payment must be received by the Rights Agent prior to [5:00 PM Eastern Time], on the Expiration Date
(unless payment is effected by means of a notice of guaranteed delivery as described below under Payment for Shares). Your broker, bank, trust company or other intermediary may impose a deadline for exercising Rights earlier than [5:00
PM, Eastern Time], on the Expiration Date. The Subscription Certificate and payment should be delivered to the Rights Agent at the following address: If
By Mail: Western Asset High Income Fund II Inc. [] If By Overnight Courier: Western Asset High Income Fund II Inc. [] Payment for Shares Holders of Rights who acquire shares of Common Stock in the Rights offering may choose between the following methods of payment: A holder of Rights can send the Subscription Certificate, together with payment in the form of a check (which
must include the name of the stockholder on the check) for the shares of Common Stock subscribed for in the Rights offering and, if eligible, for any additional shares of Common Stock subscribed for pursuant to the over-subscription privilege, to
the Rights Agent based on the Subscription Price. To be accepted, the payment, together with the executed Subscription Certificate, must be received by the Rights Agent at one of the addresses noted above prior to [5:00 PM Eastern Time] on the
Expiration Date. The Rights Agent will deposit all share purchase checks received by it prior to the final due date into a segregated account pending proration and distribution of shares of Common Stock. The Rights Agent will not accept cash as a
means of payment for shares of Common Stock. Alternatively, a subscription will be accepted by the Rights Agent if, prior to [5:00 PM Eastern Time] on the
Expiration Date, the Rights Agent has received a written notice of guaranteed delivery by mail or email from a bank, trust company, or a NYSE member, guaranteeing delivery of a properly completed and executed Subscription Certificate. In order for
the notice of guarantee to be valid, full payment for the shares of Common Stock at the Subscription Price must be received with the notice. The Rights Agent will not honor a notice of guaranteed delivery unless a properly completed and executed
Subscription Certificate is received by the Rights Agent by the close of business on the [second] Business Day after the Expiration Date. The notice of guaranteed delivery must be emailed to the Rights Agent at [] or delivered to the Rights
Agent at one of the addresses noted above. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN UNITED STATES DOLLARS BY CHECK
(WHICH MUST INCLUDE THE NAME OF THE SHAREHOLDER ON THE CHECK) DRAWN ON A BANK LOCATED IN THE CONTINENTAL UNITED STATES, MUST BE PAYABLE TO WESTERN ASSET HIGH INCOME FUND II INC. AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
11
The method and timing of payment for shares of Common Stock acquired by the Dealer Manager
through the exercise of Rights is described under Plan of Distribution. If a holder of Rights who acquires shares of Common
Stock pursuant to the Rights offering does not make payment of all amounts due, the Fund reserves the right to take any or all of the following actions: (i) find other purchasers for such subscribed-for
and unpaid-for shares of Common Stock; (ii) apply any payment actually received by it toward the purchase of the greatest whole number of shares of Common Stock which could be acquired by such holder upon
exercise of the Rights or any over-subscription privilege; (iii) sell all or a portion of the shares of Common Stock purchased by the holder, in the open market, and apply the proceeds to the amounts owed; and (iv) exercise any and all
other rights or remedies to which it may be entitled, including, without limitation, the right to set off against payments actually received by it with respect to such subscribed shares of Common Stock and to enforce the relevant guarantee of
payment. Any payment required from a holder of Rights must be received by the Rights Agent prior to [5:00 PM Eastern Time] on the
Expiration Date. Issuance and delivery of the shares of Common Stock purchased are subject to collection of checks. Within
Business Days following the Expiration Date (the Confirmation Date), a confirmation will be sent by the Rights Agent to each holder of
Rights (or, if the shares of Common Stock are held by Cede or any other depository or nominee, to Cede or such other depository or nominee), showing (i) the number of shares of Common Stock acquired pursuant to the Subscription, (ii) the
number of shares of Common Stock, if any, acquired pursuant to the over-subscription privilege, and (iii) the per share and total purchase price for the shares of Common Stock. Any payment required from a holder of Rights must be received by
the Rights Agent on or prior to the Expiration Date. Any excess payment to be refunded by the Fund to a holder of Rights, or to be paid to a holder of Rights as a result of sales of Rights on its behalf by the Rights Agent, will be mailed by the
Rights Agent to the holder within Business Days after the Expiration Date. A holder of Rights will have no right to rescind a purchase after the Rights Agent has received payment either by means of a notice of
guaranteed delivery or a check, which must include the name of the stockholder on the check. Upon acceptance of a subscription, all funds
received by the Rights Agent shall be held by the Rights Agent as agent for the Fund and deposited in one or more bank accounts. Such funds may be invested by the Rights Agent in: bank accounts, short term certificates of deposit, bank repurchase
agreements, and disbursement accounts with commercial banks meeting certain standards. The Rights Agent may receive interest, dividends or other earnings in connection with such deposits or investments. Holders, such as broker-dealers, trustees or depositories for securities, who hold shares of Common Stock for the account of others, should
notify the respective beneficial owners of the shares of Common Stock as soon as possible to ascertain such beneficial owners intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the record
holder of the Rights should complete Subscription Certificates and submit them to the Rights Agent with the proper payment. In addition, beneficial owners of shares of Common Stock or Rights held through such a holder should contact the holder and
request that the holder effect transactions in accordance with the beneficial owners instructions. [Banks, broker-dealers, trustees and other nominee holders that hold shares of Common Stock of the Fund for the accounts of others are
advised to notify those persons that purchase Rights in the secondary market that such Rights may not participate in any oversubscription privilege offered.] THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATES SHOULD BE READ CAREFULLY AND FOLLOWED IN DETAIL. DO NOT SEND SUBSCRIPTION
CERTIFICATES TO THE FUND. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE RIGHTS AGENT
WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT THE CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE RIGHTS AGENT 12
AND CLEARANCE OF PAYMENT PRIOR TO [5:00 PM EASTERN TIME], ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIERS CHECK, WHICH MUST INCLUDE THE NAME OF THE SHAREHOLDER ON THE CHECK. All
questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or
permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or
cured within such time as the Fund determines in its sole discretion. Neither the Fund nor the Rights Agent will be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or
incur any liability for failure to give such notification. Foreign Restrictions Subscription Certificates will only be mailed to Record Date Stockholders of record whose addresses are within the United States (other than
an APO or FPO address). Because the Rights offering will not be registered in any jurisdiction other than the United States, the Rights Agent will attempt to sell all of the Rights issued to stockholders of record outside of these jurisdictions and
remit the net proceeds, if any, to such stockholders of record. If the Rights can be sold, sales of these Rights will be deemed to have been effected at the weighted average price received by the Rights Agent on the day the Rights are sold, less any
applicable brokerage commissions, taxes and other expenses. Notice of Net Asset Value Decline The Fund has, pursuant to the SECs regulatory requirements, undertaken to suspend the Rights offering until the Fund amends this
Prospectus Supplement if, after , 2022 (the date of this Prospectus Supplement), the Funds net asset value declines more than 10% from the
Funds net asset value as of that date. In that event, the Expiration Date will be extended and the Fund will notify Record Date Stockholders of record of any such decline and permit Rights holders to cancel their exercise of Rights. Employee Benefit Plan and IRA Considerations Employee benefit plans that are subject to the fiduciary duty provisions of the U.S. Employee Retirement Income Security Act of 1974, as
amended (ERISA) (including, without limitation, pension and profit-sharing plans), plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the
Code) or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA (collectively, Similar Laws), and entities whose underlying assets are
considered to include plan assets of any such plan, account or arrangement (each, a Plan), may purchase a Right and Common Stock. ERISA, for example, imposes certain responsibilities on persons who are fiduciaries with respect to an ERISA-covered Plan, including, without
limitation, the duties of prudence and diversification, as well as the need to avoid non-exempt prohibited transactions. In considering an investment in a Right or Common Stock involving a portion of the assets of any Plan, a fiduciary should determine whether
the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciarys duties to the Plan including, without limitation, the prudence,
diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any applicable Similar Law. Section
406 of ERISA and Section 4975 of the Code prohibit certain Plans (including, for example, ERISA Plans) from engaging in specified transactions involving plan assets with persons or entities who are parties in interest, within the meaning
of ERISA, or disqualified persons, within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engages in a non-exempt prohibited transaction may be subject to excise
taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of such Plan that engages in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code. Accordingly,
by acceptance of the Right or Common Stock, each purchaser and subsequent transferee of the Right or Common Stock will be deemed to have represented and warranted that either (i) no portion of the assets used by such purchaser or transferee to
acquire and hold the Right or Common Stock constitutes assets of any Plan or (ii) the purchase and holding of the Right or Common Stock by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code or similar violation under Similar Law. Because the Fund is registered as an investment company
under the 1940 Act, the underlying assets of the Fund will not be considered to be plan assets of any Plan investing in the Fund for purposes of the fiduciary responsibility and prohibited transaction rules under Title I of ERISA or
Section 4975 of the Code. Thus, neither the Fund nor the Manager will be a fiduciary, within the meaning of ERISA or Section 4975 of the Code with respect to the assets of any Plan that becomes a Stockholder, solely as a result
of the Plans investment in the Fund. The provisions of ERISA are subject to extensive and continuing administrative and judicial
interpretation and review. The discussion of ERISA contained herein is general in nature and may be affected by future regulations and rulings. Potential investors should consult their legal advisers regarding the consequences under ERISA, the Code
or other applicable law of an investment by a Plan in the Fund. 13
The following tables are intended to assist you in understanding the various costs and expenses directly or indirectly associated with
investing in our shares of Common Stock as a percentage of net assets attributable to shares of Common Stock. The table below is based on the capital structure of the Fund as of
(except as noted below), adjusted for the issuance of
Rights for shares of Common Stock. SHAREHOLDER TRANSACTION EXPENSES Sales Load (percentage of offering price) Offering Expenses Borne by the Fund (percentage of offering price) Dividend Reinvestment Plan Per Transaction Fee to Sell Shares Obtained Pursuant to the
Plan TOTAL TRANSACTION EXPENSES (as a percentage of offering price)(4) ANNUAL EXPENSES Management Fees(5) Interest Payment on Borrowed
Funds(6) Other Expenses(7) TOTAL ANNUAL EXPENSES The sales load will apply only if the securities to which this Prospectus relates are sold to or through
underwriters. In such case, a corresponding Prospectus Supplement will disclose the applicable sales load. The related Prospectus Supplement will disclose the estimated amount of offering expenses, the offering price
and the offering expenses borne by the Fund as a percentage of the offering price. Common Stockholders will pay brokerage charges if they direct the Plan Agent (defined below) to sell shares of
Common Stock held in a dividend reinvestment account. See Dividend Reinvestment Plan. There are no fees charged to stockholders for participating in the Funds dividend reinvestment plan. However, stockholders participating in the
plan that elect to sell their shares obtained pursuant to the plan would pay $5.00 per transaction to sell shares. The related Prospectus Supplement will disclose the offering price and the total stockholder transaction
expenses as a percentage of the offering price. The Manager receives an annual fee, payable monthly, in an amount equal to 0.80% of the Funds average
weekly net assets plus the proceeds of any outstanding Borrowings used for leverage. For the purposes of this table, we have assumed that the Fund has utilized leverage in an aggregate amount of
% of its net assets (the actual average amount of Borrowings during the period fiscal year ended April 30, 2021). If the Fund were to use leverage
in excess of % of its net assets, the management fees shown would be higher. For the purposes of this table, we have assumed that the Fund has utilized Borrowings in an aggregate amount of
% of its net assets (which equals the average level of leverage for the Funds fiscal year ended April 30, 2021). The expenses and rates
associated with leverage may vary as and when Borrowings or issuances of Preferred Stock are made. Estimated based on amounts incurred in the period ended April 30, 2021. The purpose of the table above and the examples below is to help you understand all fees and expenses that you, as a holder of Common Stock,
would bear directly or indirectly. 14
Example The following example illustrates the expenses you would pay on a $1,000 investment in shares of Common Stock, assuming a 5% annual portfolio
total return.* Total Expenses Incurred The example should not be considered a representation of future expenses. The example assumes that the amounts
set forth in the Table of Fees and Expenses table are accurate and that all distributions are reinvested at net asset value. Actual expenses may be greater or less than those assumed. Moreover, the Funds actual rate of return may be greater or
less than the hypothetical 5% return shown in the example. The Fund estimates the net proceeds of the Rights offering to be approximately
$ , based on the estimated Subscription Price per share of Common Stock of
$ ( % of the last reported sales price of the Funds
shares of Common Stock on the NYSE on , 2022), assuming all new shares of Common Stock offered are sold and that the expenses related to the Rights
offering estimated at approximately $ are paid. The Manager expects that it will initially invest the proceeds of the offering in high quality short term debt securities and instruments. The
Manager anticipates that the investment of the proceeds will be made in accordance with the Funds investment objectives and policies as appropriate investment opportunities are identified, which is expected to be substantially completed within
three months; however, the identification of appropriate investment opportunities pursuant to the Funds investment style or changes in market conditions may cause the investment period to extend as long as six months. Depending on market
conditions and operations, a portion of the cash held by the Fund, including any proceeds raised from the Rights offering, may be used to pay distributions in accordance with the Funds distribution policy and may be a return of capital. A
return of capital is a return to investors of a portion of their original investment in the Fund. In general terms, a return of capital would involve a situation in which a Fund distribution (or a portion thereof) represents a return of a portion of
a stockholders investment in the Fund, rather than making a distribution that is funded from the Funds earned income or other profits. Although return of capital distributions may not be currently taxable, such distributions would
decrease the basis of a stockholders shares (but not below zero), and therefore, may increase a stockholders tax liability for capital gains upon a sale of shares, even if sold at a loss to the stockholders original investment.
The following table sets forth the unaudited capitalization of the Fund as of
, 2022 and its adjusted capitalization assuming the shares of Common Stock available in the Rights offering discussed in this Prospectus Supplement had
been issued. [To be provided.] The following table sets forth for the quarters indicated, the high and low sale prices on the NYSE
per share of our Common Stock and the net asset value and the premium or discount from net asset value per share at which the shares of Common Stock were trading, expressed as a percentage of net asset value, at each of the high and low sale prices
provided. [ 15
NYSE Market Price Premium/(Discount) Trading High Low High Low Volume [December 30, 2021] [September 30, 2021] [June 30, 2021] [March 31, 2021] [December 31, 2020] [March 31, 2020] [June 30, 2020] [September 30, 2020] [December 31, 2019] [March 31, 2019] [June 30, 2019] [March 31, 2019] [December 31, 2018] Based on the Funds computations. Source: NYSE. Based on the Funds computations. Source: Bloomberg. On , 2022, the last reported net asset value
per share of Common Stock was $ and the last reported sales price per Common Stock on the NYSE was
$ . SPECIAL CHARACTERISTICS AND RISKS OF THE RIGHTS OFFERING Risk is inherent in all investing. Therefore, before investing in the shares of Common Stock, you should consider the risks associated with
such an investment carefully. See Risks in the Prospectus. The following summarizes some of the matters that you should consider before investing in the Fund through the Rights offering: Dilution. Record Date Stockholders who do not fully exercise their Rights will, at the completion of the Rights offering, own a smaller
proportional interest in the Fund than owned prior to the Rights offering. The completion of the Rights offering will result in immediate voting dilution for such stockholders. Further, both the sales load and the expenses associated with the Rights
offering will immediately reduce the net asset value of each outstanding share of Common Stock. In addition, if the Subscription Price is less than the net asset value per share of Common Stock as of the Expiration Date, the completion of this
Rights offering will result in an immediate dilution of the net asset value per share of Common Stock for all existing Common Stockholders (i.e., will cause the net asset value per Common Stock to decrease). It is anticipated that existing Common
Stockholders will experience immediate dilution even if they fully exercise their Rights. Such dilution is not currently determinable because it is not known how many shares of Common Stock will be subscribed for, what the net asset value per share
of Common Stock or market price of the share of Common Stock will be on the Expiration Date or what the Subscription Price per share of Common Stock will be. If the Subscription Price is substantially less than the current net asset value per share
of Common Stock, this dilution could be substantial. The Fund will pay expenses associated with the Rights offering, estimated at approximately $ . In
addition, the Fund has agreed to pay a dealer manager fee (sales load) equal to[] % of the Subscription Price per share of Common Stock issued pursuant to the exercise of Rights (including pursuant to the Over-Subscription Privilege). The
Fund, not investors, pays the sales load, which is ultimately borne by all Common Stockholders. All of the costs of the Rights offering will be borne by the Fund (and indirectly by the Funds Common Stockholders). See Table of Fees and
Expenses in this Prospectus Supplement and Summary of Fund Expenses in the accompanying Prospectus for more information. If you do not exercise all of your Rights, you may own a smaller proportional interest in the Fund when the Rights offering is over. In
addition, you will experience an immediate dilution of the aggregate net asset value per share of Common Stock if you do not participate in the Rights offering and will experience a reduction in the net asset value per share of Common Stock whether
or not you exercise your Rights, if the Subscription Price is below the Funds net asset value per share of Common Stock on the Expiration Date, because: the offered shares of Common Stock are being sold at less than their current net asset value;
16
you will indirectly bear the expenses of the Rights offering; and the number of shares of Common Stock outstanding after the Rights offering will have increased proportionately
more than the increase in the amount of the Funds net assets. On the other hand, if the Subscription Price is
above the Funds net asset value per share of Common Stock on the Expiration Date, you may experience an immediate accretion of the aggregate net asset value per share of your share of Common Stock even if you do not exercise your Rights and an
immediate increase in the net asset value per share of Common Stock whether or not you participate in the Rights offering, because: the offered Common Stock are being sold at more than their current net asset value after deducting the expenses
of the Rights offering; and the number of shares of Common Stock outstanding after the Rights offering will have increased proportionately
less than the increase in the amount of the Funds net assets. [Furthermore, if you do not participate in the
secondary over-subscription, if it is available, your percentage ownership will also be diluted.] The Fund cannot state precisely the amount of any dilution because it is not known at this time what the net asset value per share of Common Stock will
be on the Expiration Date or what proportion of the Rights will be exercised. The impact of the Rights offering on net asset value (NAV) per share of Common Stock is shown by the following examples, assuming the Rights offering is fully
subscribed and a $[] Subscription Price: Scenario 1: (assumes net asset value per share is above subscription price)(1) NAV(2) Subscription Price(3) Reduction in NAV ($)(4) Reduction in NAV (%) [Scenario 2: (assumes net asset value per share is below subscription price)(1) NAV(2) Subscription Price(3) Increase in NAV ($)(4) Increase in NAV (%) Both examples assume the full Primary Subscription [and Secondary Over-Subscription Privilege] are exercised.
Actual amounts may vary due to rounding. For illustrative purposes only; reflects the Funds net asset value per share of Common Stock as of
, 2022. It is not known at this time what the net asset value per share of Common Stock will be on the Expiration Date. For illustrative purposes only; reflects an estimated Subscription Price of
$ based upon % of the last reported sales price of the
Funds shares of Common Stock on the NYSE on , 2022. It is not known at this time what the Subscription Price will be on the Expiration Date.
Assumes $ in
estimated offering expenses. If you do not wish to exercise your Rights, you should consider selling them as set
forth in this Prospectus Supplement. Any cash you receive from selling your Rights may serve as partial compensation for any possible dilution of your interest in the Fund. The Fund cannot give assurance, however, that a market for the Rights will
develop or that the Rights will have any marketable value. [The Funds largest stockholders could increase their percentage
ownership in the Fund through the exercise of the primary subscription and over-subscription privilege.] 17
Risks of Investing in Rights. Shares of
closed-end funds such as the Fund frequently trade at a discount to net asset value. If the Formula Price is less than
% of net asset value on the Expiration Date, then the Subscription Price will likely be greater than the market price of a share of Common Stock on that
date. In addition, the Formula Price, even if above % of net asset value, may be still above the market price of a share of Common Stock on the
Expiration Date. If either event occurs, the Rights will have no value, and a person who exercises Rights will experience an immediate loss of value. Leverage. Leverage creates a greater risk of loss, as well as a potential for more gain, for the shares of Common Stock than if
leverage were not used. Following the completion of the Rights offering, the Funds amount of leverage outstanding will decrease. The leverage of the Fund as of
, 2022 was approximately % of the Funds net assets.
After the completion of the Rights offering, the amount of leverage outstanding is expected to decrease to approximately % of the Funds net assets.
The use of leverage for investment purposes creates opportunities for greater total returns but at the same time increases risk. When leverage is employed, the net asset value and market price of the shares of Common Stock and the yield to holders
of shares of Common Stock may be more volatile. Any investment income or gains earned with respect to the amounts borrowed in excess of the interest due on the borrowing will augment the Funds income. Conversely, if the investment performance
with respect to the amounts borrowed fails to cover the interest on such borrowings, the value of the Funds shares of Common Stock may decrease more quickly than would otherwise be the case, and distributions on the Common Stock could be
reduced or eliminated. Interest payments and fees incurred in connection with such borrowings will reduce the amount of net income available for distribution to holders of the shares of Common Stock. Because the fee paid to the Manager is calculated on the basis of the Funds net assets, which include the proceeds of leverage, the
dollar amount of the management fee paid by the Fund to the Manager will be higher (and the Manager will be benefited to that extent) when leverage is used. The Manager will use leverage only if it believes such action would result in a net benefit
to the Funds stockholders after taking into account the higher fees and expenses associated with leverage (including higher management fees). The Funds leveraging strategy may not be successful. Increase in Share Price Volatility; Decrease in Share Price. The Rights offering may result in an increase in trading of the shares of
Common Stock, which may increase volatility in the market price of the Common Stock. The Rights offering may result in an increase in the number of stockholders wishing to sell their shares of Common Stock, which would exert downward price pressure
on the price of shares of Common Stock. Under-Subscription. It is possible that the Rights offering will not be fully subscribed.
Under-subscription of the Rights offering would have an impact on the net proceeds of the Rights offering and whether the Fund achieves any benefits. The following is a general summary of certain U.S. federal income tax consequences of the Rights offering to Record Date Stockholders who are
U.S. persons for U.S. federal income tax purposes. The following summary supplements the discussion set forth in the accompanying Prospectus and SAI and is subject to the qualifications and assumptions set forth therein. The discussion set forth
herein does not constitute tax advice and potential investors are urged to consult their own tax advisers to determine the tax consequences of investing in the Fund. Please refer to the Certain United States Federal Income Tax Considerations section in the Funds Prospectus and SAI for a
description of the consequences of investing in the shares of Common Stock of the Fund. Special tax considerations relating to this Rights offering are summarized below: The value of a Right will not be includible in the income of a Common Stockholder at the time the Right is
issued. The basis of the Rights issued to a Common Stockholder will be zero, and the basis of the Common Stock with
respect to which the Rights were issued (the Old Common Stock) will not change, unless either (i) the fair market value of the Rights on the date of distribution is at least 15% of the fair market value of the Old Common Stock, or (ii)
such Common Stockholder affirmatively elects (in the manner set out in Treasury Regulations under the Code) to allocate to the Rights a portion of the basis of the Old Common Stock. In the case of clause (i) or (ii) above, such Common Stockholder
must generally allocate the basis of the Old Common Stock between the Old Common Stock and the Rights in proportion to their fair market values on the date of distribution, but as discussed below, the basis of the Old Common Stock may be allocated
to a Right only if the Right is sold or exercised. 18
The basis of a Right purchased will generally be its purchase price. A Common Stockholders holding period in a Right issued includes the holding period of the Old Common Stock.
A Common Stockholder will not recognize a loss if a Right distributed to such Common Stockholder expires
unexercised because the basis of the Old Common Stock may be allocated to a Right only if the Right is sold or exercised. If a Right that has been purchased in the market expires unexercised, there will be a recognized loss equal to the basis of the
Right. Any gain or loss on the sale of a Right will be a capital gain or loss if the Right is held as a capital asset
(which in the case of a Right issued to Record Date Stockholders will depend on whether the Old Common Stock is held as a capital asset), and will be a long term capital gain or loss if the holding period is deemed to exceed one year.
No gain or loss will be recognized by a Common Stockholder upon the exercise of a Right, and the basis of any
Common Stock acquired upon exercise (the New Common Stock) will equal the sum of the basis, if any, of the Right and the subscription price for the New Common Stock. The holding period for the New Common Stock will begin on the date when
the Right is exercised (or, in the case of a Right purchased in the market, potentially the day after the date of exercise). The foregoing is a general and brief summary of certain U.S. federal income tax consequences of the Rights offering, and applies with respect
to U.S. federal income taxation only. Other tax issues such as state and local taxation may apply. The foregoing discussion is based upon present provisions of the Code, the regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change or differing interpretations (possibly with retroactive effect). Investors are urged to consult their own tax advisors to determine the tax consequences of the Rights offering and investing in the
Fund. [Distribution Arrangements []
will act as Dealer Manager for this Rights offering. Under the terms and subject to the conditions contained in the Dealer Manager Agreement among the Dealer Manager, the Fund and the Manager, the Dealer Manager will provide financial structuring
and solicitation services in connection with the Rights offering and will solicit the exercise of Rights and participation in the over-subscription privilege. The Rights offering is not contingent upon any number of Rights being exercised. The
Dealer Manager will also be responsible for forming and managing a group of selling broker-dealers (each a Selling Group Member and collectively the Selling Group Members), whereby each Selling Group Member will enter into a
Selling Group Agreement with the Dealer Manager to solicit the exercise of Rights and to sell shares of Common Stock purchased by the Selling Group Member from the Dealer Manager. In addition, the Dealer Manager will enter into a Soliciting Dealer
Agreement with other soliciting broker-dealers (each a Soliciting Dealer and collectively the Soliciting Dealers) to solicit the exercise of Rights. See Compensation to Dealer Manager for a discussion of
fees and other compensation to be paid to the Dealer Manager, Selling Group Members and Soliciting Dealers in connection with the Rights offering. The Fund and the Manager have each agreed to indemnify the Dealer Manager for losses arising out of certain liabilities, including liabilities
under the Securities Act. The Dealer Manager Agreement also provides that the Dealer Manager will not be subject to any liability to the Fund in rendering the services contemplated by the Dealer Manager Agreement except for any act of willful
misfeasance, bad faith or gross negligence of the Dealer Manager or reckless disregard by the Dealer Manager of its obligations and duties under the Dealer Manager Agreement. 19
In order to seek to facilitate the trading market in the Rights for the benefit of non-exercising stockholders, and the placement of the shares of Common Stock to new or existing investors pursuant to the exercise of the Rights, the Dealer Manager Agreement provides for special arrangements with
the Dealer Manager. Under these arrangements, the Dealer Manager is expected to purchase Rights on the , as well as Rights received by the Rights Agent
for sale by Record Date Stockholders and offered to the Dealer Manager and unexercised Rights of Record Date Stockholders whose record addresses are outside the United States that are held by the Subscription Agent and for which no instructions are
received. The number of rights, if any, purchased by the Dealer Manager will be determined by the Dealer Manager in its sole discretion. The Dealer Manager is not obligated to purchase Rights or shares of Common Stock as principal for its own
account to facilitate the trading market for Rights or for investment purposes. Rather, its purchases are expected to be closely related to interest in acquiring shares of Common Stock generated by the Dealer Manager through its marketing and
soliciting activities. The Dealer Manager intends to exercise Rights purchased by it during the Subscription Period but prior to the Expiration Date. The Dealer Manager may exercise those Rights at its option on one or more dates, which are expected
to be prior to the Expiration Date. The subscription price for the shares of Common Stock issued through the exercise of Rights by the Dealer Manager prior to the Expiration Date will be the greater of
% of the last reported sale price of a share of Common Stock on the NYSE on the date of exercise or
% of the last reported net asset value of a share of Common Stock on the date prior to the date of exercise. The price and timing of these exercises are
expected to differ from those described herein for the Rights offering. The subscription price will be paid to the Fund and the dealer manager fee with respect to such proceeds will be paid by the Fund on the applicable settlement date(s) of such
exercise(s). In connection with the exercise of Rights and receipt of shares of Common Stock, the Dealer Manager intends to offer
those shares of Common Stock for sale to the public and/or through a group of selling members it has established. The Dealer Manager may set the price for those shares of Common Stock at any price that it determines, in its sole discretion. The
Dealer Manager has advised that the price at which such shares of Common Stock are offered is expected to be at or slightly below the closing price of the shares of Common Stock on the NYSE on the date the Dealer Manager exercises Rights. No portion
of the amount paid to the Dealer Manager or to a selling group member from the sale of shares of Common Stock in this manner will be paid to the Fund. If the sales price of the shares of Common Stock is greater than the subscription price paid by
the Dealer Manager for such shares of Common Stock plus the costs to purchase Rights for the purpose of acquiring those shares of Common Stock, the Dealer Manager will receive a gain. Alternatively, if the sales price of the shares of Common Stock
is less than the subscription price for such shares of Common Stock plus the costs to purchase Rights for the purpose of acquiring those shares of Common Stock, the Dealer Manager will incur a loss. The Dealer Manager will pay a concession to
selling group members in an amount equal to approximately % of the aggregate price of the shares of Common Stock sold by the respective selling group
member. Neither the Fund nor the Manager has a role in setting the terms, including the sales price, on which the Dealer Manager offers for sale and sells shares of Common Stock it has acquired through purchasing and exercising Rights or the timing
of the exercise of Rights or sales of shares of Common Stock by the Dealer Manager. Persons who purchase shares of Common Stock from the Dealer Manager or the selling group will purchase shares at a price set by the Dealer Manager, which may be more
or less than the Subscription Price, and at a time set by the Dealer Manager, which is expected to be prior to the Expiration Date. The
Dealer Manager may purchase Rights as principal or act as agent on behalf of its clients for the resale of such Rights. The Dealer Manager may realize gains (or losses) in connection with the purchase and sale of Rights and the sale of shares of
Common Stock, although such transactions are intended by the Dealer Manager to facilitate the trading market in the Rights and the placement of the shares of Common Stock to new or existing investors pursuant to the exercise of the Rights. Any gains
(or losses) realized by the Dealer Manager from the purchase and sale of Rights and the sale of shares of Common Stock is independent of and in addition to its fee as Dealer Manager. The Dealer Manager has advised that any such gains (or losses) are
expected to be immaterial relative to its fee as Dealer Manager. Since neither the Dealer Manager nor persons who purchase shares of
Common Stock from the Dealer Manager or members of the selling group were Record Date Stockholders, they would not be able to participate in the over-subscription privilege. Persons who purchase Common Stock from the Dealer Manager or the selling group will not purchase shares at the Subscription Price based on the
formula price mechanism through which shares of Common Stock will be sold in the Rights Offering. Instead, those persons will purchase shares Common Stock at a price set by the Dealer Manager, which may be more or less than the Subscription Price,
and will not have the uncertainty of waiting for the determination of the Subscription Price on the Expiration Date. 20
There is no limit on the number of Rights the Dealer Manager can purchase or exercise. Shares of
Common Stock acquired by the Dealer Manager pursuant to the exercise of Rights acquired by it will reduce the number of shares of Common Stock available pursuant to the over-subscription privilege, perhaps materially, depending on the number of
Rights purchased and exercised by the Dealer Manager. Although the Dealer Manager can seek to facilitate the trading market for
Rights as described above, investors can acquire shares of Common Stock at the Subscription Price by acquiring Rights on the and exercising them in the
method described above under Description of the RightsMethod of Exercise of Rights and Description of the RightsPayment for Shares. In the ordinary course of their businesses, the Dealer Manager and/or its affiliates may engage in investment banking or financial
transactions with the Fund, the Manager and their affiliates. In addition, in the ordinary course of their businesses, the Dealer Manager and/or its affiliates may, from time to time, own securities of the Fund or its affiliates. The principal business address of the Dealer Manager is
. Compensation to Dealer Manager Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay the Dealer Manager a fee for its financial structuring and solicitation
services equal to % of the Subscription Price per share of Common Stock for each share of Common Stock issued pursuant to the exercise of Rights,
including the over-subscription privilege. The Dealer Manager will reallow to Selling Group Members in the Selling Group to be formed and
managed by the Dealer Manager selling fees equal to % of the Subscription Price for each share of Common Stock issued pursuant to the Rights offering or
the over-subscription privilege as a result of their selling efforts. In addition, the Dealer Manager will reallow to Soliciting Dealers that have executed and delivered a Soliciting Dealer Agreement and have solicited the exercise of Rights,
solicitation fees equal to % of the Subscription Price for each share of Common Stock issued pursuant to the exercise of Rights as a result of their
soliciting efforts, subject to a maximum fee based on the number of shares of Common Stock held by such Soliciting Dealer through DTC on the Record Date. Fees will be paid to the broker-dealer designated on the applicable portion of the subscription
certificates or, in the absence of such designation, to the Dealer Manager. In addition, the Fund, has agreed to pay the Dealer Manager
an amount up to $ as a partial reimbursement of its expenses incurred in connection with the Rights offering, including reasonable out-of-pocket fees and expenses, if any and not to exceed $ , incurred by the
Dealer Manager, Selling Group Members, Soliciting Dealers and other brokers, dealers and financial institutions in connection with their customary mailing and handling of materials related to the Rights offering to their customers. No other fees
will be payable by the Fund or the Manager to the Dealer Manager in connection with the Rights offering. Certain legal matters in connection with the securities will be passed upon for the Fund by Simpson
Thacher & Bartlett LLP, Washington, D.C. and for the underwriters by . Simpson Thacher & Bartlett LLP may rely
as to certain matters of Maryland law on the opinion of Venable LLP, Baltimore, Maryland. The audited financial statements included in the annual report to the Funds shareholders for the fiscal year
ended April 30, 2021 and together with the report of for the Funds annual report, are incorporated herein by reference to the Funds
annual report to shareholders. All other portions of the annual report to shareholders are not incorporated herein by reference and are not part of the registration statement, the SAI, the Prospectus or any Prospectus Supplement.. 21
The information in this Statement of Additional Information is not complete and may be
changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION DATED MARCH 17, 2022 WESTERN ASSET HIGH INCOME FUND II INC. STATEMENT OF ADDITIONAL INFORMATION Western Asset High Income Fund II Inc. (the Fund) is a diversified, closed-end management
investment company. This Statement of Additional Information relating to the Funds common stock, par value $0.001 per share
(Common Stock), which we also refer to as our securities, does not constitute a prospectus, but should be read in conjunction with the Funds prospectus relating thereto dated
, 2022, and as it may be supplemented (the Prospectus). This Statement of Additional Information does not include all information
that a prospective investor should consider before purchasing the Funds securities, and investors should obtain and read the Funds Prospectus prior to purchasing such securities. A copy of the Funds Prospectus, annual and
semi-annual reports (when available) and additional information about the Fund may be obtained without charge by calling (888) 777-0102, by writing to the Fund at 620 Eighth Avenue, 47th Floor, New York, NY
10018 or by visiting the Funds website (http://www.franklintempleton.com/investments/options/closed-end-funds). The information contained in, or accessed through,
the Funds website is not part of the Funds Prospectus or this Statement of Additional Information. Prospective investors may also obtain a copy of the Funds Prospectus on the Securities and Exchange Commissions website
(http://www.sec.gov). Capitalized terms used but not defined in this Statement of Additional Information have the meanings ascribed to them in the Prospectus. This Statement of Additional Information is dated
, 2022.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Appendix C Western Asset Management Company, LLC Proxy Voting Policies
And Procedures
The Funds primary investment objective is to maximize current income. As a secondary objective, the Fund seeks capital appreciation to
the extent consistent with its objective of seeking to maximize current income. There can be no assurance the Fund will achieve its investment objectives. The following restrictions, along with the Funds investment objectives, are the Funds only fundamental policiesthat is,
policies that cannot be changed without the approval of the holders of a majority of the Funds outstanding voting securities (a 1940 Act Vote). For the purposes of the foregoing, a majority of the Funds outstanding
voting securities means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares. The other policies and investment
restrictions are not fundamental polices of the Fund and may be changed by the Funds Board of Directors (the Board of Directors) without stockholder approval. Except with respect to the Funds ability to borrow under
subparagraph (7) below, if a percentage restriction set forth below is adhered to at the time a transaction is effected, later changes in percentage resulting from any cause other than actions by the Fund will not be considered a violation.
Under its fundamental restrictions: (1) The Fund may not purchase any securities which would cause
more than 25% of the value of its total assets at the time of such purchase to be invested in securities of one or more issuers conducting their principal business activities in the same industry, provided that there is no limitation with respect to
investment in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or repurchase agreements collateralized by any of such obligations. (2) The Fund may not make any investment inconsistent with the funds classification as a
diversified company under the 1940 Act. (3) The Fund may not issue senior securities or borrow
money except as permitted by Section 18 of the 1940 Act. (4) The may not purchase or sell
commodities or commodity contracts, except that it may engage in derivative transactions. (5) The
Fund may not make loans except that (1) it may (a) purchase and hold debt instruments (including, without limitation, commercial paper notes, bonds, debentures or other secured or unsecured obligations and certificates of deposit,
bankers acceptances and fixed time deposits) in accordance with its investment objectives and policies; (b) invest in or purchase loans through participations and assignments; (c) enter into repurchase agreements with respect to
portfolio securities; (d) make loans of portfolio securities, provided that collateral arrangements with respect to options, forward currency and futures transactions will not be deemed to involve loans; and (2) delays in the settlement of
securities transactions shall not be considered loans. (6) The may not purchase real estate, real
estate mortgage loans or real estate limited partnership interests (other than securities secured by real estate or interests therein or securities issued by companies that invest in real estate or interests therein, including real estate investment
trusts). (7) The Fund may not underwrite the securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter. (8) The Fund may not invest for the purpose of exercising control over management of any company. 1
With respect to the fundamental policy relating to concentration set forth in subparagraph
(1), the 1940 Act does not define what constitutes concentration in an industry. The SEC staff has taken the position that investment of 25% or more of a funds total assets in one or more issuers conducting their principal
activities in the same industry or group of industries constitutes concentration. It is possible that interpretations of concentration could change in the future. A fund that invests a significant percentage of its total assets in a single industry
may be particularly susceptible to adverse events affecting that industry and may be more risky than a fund that does not concentrate in an industry. The policy above will be interpreted to refer to concentration as that term may be interpreted from
time to time. In addition, the term industry will be interpreted to include a related group of industries. The policy also will be interpreted to permit investment without limit in the following: securities of the U.S. government and its agencies or
instrumentalities (including, for the avoidance of doubt, U.S. agency mortgage-backed securities); securities of state, territory, possession or municipal governments and their authorities, agencies, instrumentalities or political subdivisions;
securities of foreign governments; and repurchase agreements collateralized by any such obligations. Accordingly, issuers of the foregoing securities will not be considered to be members of any industry. There also will be no limit on investment in
issuers domiciled in a single jurisdiction or country. The policy also will be interpreted to give broad authority to the Fund as to how to classify issuers within or among industries or groups of industries. The Fund has been advised by the staff
of the SEC that the staff currently views securities issued by a foreign government to be in a single industry for purposes of calculating applicable limits on concentration. The Fund considers investments in private activity municipal debt
securities, the principal and interest of which are derived principally from the assets and revenues of a non-governmental entity, when determining compliance with its concentration policy. With respect to the limitation regarding diversification policy set forth in subparagraph (2), the Fund may not purchase securities of an
issuer (other than obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities) if, with respect to 75% of its total assets, (a) more than 5% of the Funds total assets would be invested in securities of that
issuer, or (b) the Fund would hold more than 10% of the outstanding voting securities of that issuer. With respect to the remaining 25% of its total assets, the Fund can invest more than 5% of its assets in one issuer. When the assets and
revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating the issuing entity and only the assets and revenues of such entity back the security, such entity is deemed to be the
sole issuer. Similarly, in the case of a private activity bond, if only the assets and revenues of the nongovernmental user back that bond, then such nongovernmental user is deemed to be the sole issuer. If, however, in either case, the creating
government or some other entity guarantees a security, such a guarantee would be considered a separate security and is to be treated as an issue of such government or other entity. The Fund may only change to
non-diversified status with a 1940 Act Vote. With respect to the limitation regarding the
issuance of senior securities set forth in subparagraph (3) above, senior securities are defined as any bond, debenture, note, or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock of
a class having priority over any other class as to distribution of assets or payment of dividends. The ability of a closed-end fund to issue senior securities is severely circumscribed by complex regulatory constraints under the 1940 Act that restrict, for instance, the amount, timing and form of senior securities that may be
issued. Certain portfolio management techniques, such as credit default swaps, the purchase of securities on margin, short sales or the writing of puts on portfolio securities, may be considered senior securities unless appropriate steps are taken
to segregate the Funds assets or otherwise cover its obligations. To the extent the Fund covers its commitment under these transactions, including by the segregation of liquid assets, equal in value to the amount of the Funds commitment,
such instrument will not be considered a senior security by the Fund and therefore will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by the Fund. Under the 1940 Act, a senior security does not include any promissory note or evidence of indebtedness where such loan is for
temporary purposes only and in an amount not exceeding 5% of the value of the total assets of the issuer at the time the loan is made. A loan is presumed to be for temporary purposes if it is repaid within sixty days and is not extended or renewed.
With respect to the limitation regarding the purchase or sale of commodities, commodity futures contracts or commodity options set forth
in subparagraph (4) above, the 1940 Act does not prohibit a fund from owning commodities, whether physical commodities and contracts related to physical commodities (such as oil or grains and related futures contracts), or financial commodities
and contracts related to financial commodities (such as 2
currencies and, possibly, currency futures). The value of commodities and commodity-related instruments may be extremely volatile and may be affected either directly or indirectly by a variety of
factors. There also may be storage charges and risks of loss associated with physical commodities. With respect to the limitation
regarding making loans to other persons set forth in subparagraph (5) above, the 1940 Act does not prohibit a fund from making loans; however, SEC staff interpretations currently prohibit funds from lending more than one third of their total
assets, except through the purchase of debt obligations or the use of repurchase agreements. A repurchase agreement is an agreement to purchase a security, coupled with an agreement to sell that security back to the original seller on an agreed-upon
date at a price that reflects current interest rates. The SEC frequently treats repurchase agreements as loans. With respect to the
limitation regarding real estate set forth in subparagraph (6) above, the 1940 Act does not prohibit a fund from owning real estate. Investing in real estate may involve risks, including that real estate is generally considered illiquid and may
be difficult to value and sell. Owners of real estate may be subject to various liabilities, including environmental liabilities. The policy above will be interpreted not to prevent the Fund from investing in real estate-related companies, companies
whose businesses consist in whole or in part of investing in real estate, instruments (like mortgages) that are secured by real estate or interests therein, or real estate investment trust securities. With respect to the limitation regarding underwriting the securities of other issuers set forth in subparagraph (7) above, a technical
provision of the Securities Act deems certain persons to be underwriters if they purchase a security from an issuer and later sell it to the public. Although it is not believed that the application of this Securities Act provision would
cause a fund to be engaged in the business of underwriting, the policy set forth in subparagraph (3) will be interpreted not to prevent the Fund from engaging in transactions involving the acquisition or disposition of portfolio securities,
regardless of whether the Fund may be considered to be an underwriter under the Securities Act. Under the Securities Act, an underwriter may be liable for material omissions or misstatements in an issuers registration statement or prospectus.
3
INVESTMENT POLICIES AND TECHNIQUES The following information supplements the discussion of the Funds investment objectives, policies, and techniques that are described in
the Prospectus. Under normal conditions, the Fund will invest at least 80% of its net assets plus any Borrowings for investment purposes
in high-yield debt securities. Western Asset is free to invest in debt securities of any maturity. Certain of the debt securities purchased by the Fund may be rated as low as C by Moodys Investor Service (Moodys)
or D by Standard & Poors Ratings Services (S&P) or may be comparable to securities so rated. The Fund is not required to dispose of a debt security if its credit rating or credit quality declines. The Fund
invests up to 35% of its total assets in debt securities of issuers located in emerging market countries. As used throughout the
Funds Prospectus and this Statement of Additional Information, Managed Assets means the average weekly value of the total assets of the Fund (including any proceeds from the issuance of preferred stock, minus the sum of
(i) accrued liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii) accumulated dividends on shares of preferred stock) plus the proceeds of any outstanding borrowings used for leverage. Alternative Strategies and Temporary Defensive Positions At times the Funds portfolio manager may judge that conditions in the securities markets make pursuing the Funds typical
investment strategy inconsistent with the best interest of its shareholders. At such times, the portfolio manager may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of the Funds assets. In
implementing these defensive strategies, the Fund may invest without limit in securities that the portfolio manager believes present less risk to the Fund, including equity securities, debt and fixed income securities, preferred stocks, U.S.
government and agency obligations, cash or money market instruments, certificates of deposit, demand and time deposits, bankers acceptance or other securities the portfolio manager considers consistent with such defensive strategies, such as,
but not limited to, options or futures. During periods in which such strategies are used, the duration of the Fund may diverge from the duration range for the Fund disclosed in its Prospectus (if applicable). It is impossible to predict when, or for
how long, the Fund will use these alternative strategies. As a result of using these alternative strategies, the Fund may not achieve its investment objective. Bank Obligations The Fund may invest in
all types of bank obligations, including certificates of deposit (CDs), time deposits and bankers acceptances. CDs are short-term negotiable obligations of commercial banks. Time deposits
are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates. Bankers acceptances are time drafts drawn on commercial banks by borrowers
usually in connection with international transactions. U.S. commercial banks organized under federal law are supervised and examined by
the Comptroller of the Currency and are required to be members of the Federal Reserve System and to be insured by the Federal Deposit Insurance Corporation (the FDIC). U.S. banks organized under state law are supervised and examined by
state banking authorities, but are members of the Federal Reserve System only if they elect to join. Most state banks are insured by the FDIC (although such insurance may not be of material benefit to the Fund, depending upon the principal amount of
CDs of each bank held by the Fund) and are subject to federal examination and to a substantial body of federal law and regulation. As a result of federal and state laws and regulations, U.S. branches of U.S. banks are, among other things, generally
required to maintain specified levels of reserves, and are subject to other supervision and regulation designed to promote financial soundness. Banks may be particularly susceptible to certain economic factors, such as interest rate changes and
adverse developments in the market for real estate. Fiscal and monetary policy and general economic cycles can affect the availability and cost of funds, loan demand and asset quality and thereby impact the earnings and financial conditions of
banks. Obligations of foreign branches of U.S. banks, such as CDs and time deposits, may be general obligations of the parent bank in
addition to the issuing branch, or may be limited by the terms of a specific obligation and governmental regulation. Such obligations are subject to different risks than are those of U.S. banks or U.S.
4
branches of foreign banks. These risks relate to foreign economic and political developments, foreign governmental restrictions that may adversely affect payment of principal and interest on the
obligations, foreign exchange controls and foreign withholding and other taxes on interest income. Foreign branches of U.S. banks and foreign branches of foreign banks are not necessarily subject to the same or similar regulatory requirements that
apply to U.S. banks, such as mandatory reserve requirements, loan limitations and accounting, auditing and financial recordkeeping requirements. In addition, less information may be publicly available about a foreign branch of a U.S. bank or about a
foreign bank than about a U.S. bank. Obligations of U.S. branches of foreign banks may be general obligations of the parent bank, in
addition to the issuing branch, or may be limited by the terms of a specific obligation and by federal and state regulation as well as governmental action in the country in which the foreign bank has its head office. A U.S. branch of a foreign bank
with assets in excess of $1 billion may or may not be subject to reserve requirements imposed by the Federal Reserve System or by the state in which the branch is located if the branch is licensed in that state. In addition, branches licensed
by the Comptroller of the Currency and branches licensed by certain states (State Branches) may or may not be required to: (a) pledge to the regulator, by depositing assets with a designated bank within the state; and
(b) maintain assets within the state in an amount equal to a specified percentage of the aggregate amount of liabilities of the foreign bank payable at or through all of its agencies or branches within the state. The deposits of State Branches
may not necessarily be insured by the FDIC. In addition, there may be less publicly available information about a U.S. branch of a foreign bank than about a U.S. bank. Borrowings The Fund may engage in
borrowing transactions to raise additional cash to be invested by the Fund in other securities or instruments in an effort to increase the Funds investment returns, or for temporary or emergency purposes. Reverse repurchase agreements may be
considered to be a type of borrowing. When the Fund invests borrowing proceeds in other securities, the Fund will be at risk for any
fluctuations in the market value of the securities in which the proceeds are invested. Like other leveraging risks, this makes the value of an investment in the Fund more volatile and increases the Funds overall investment exposure. In
addition, if the Funds return on its investment of the borrowing proceeds does not equal or exceed the interest that the Fund is obligated to pay under the terms of a borrowing, engaging in these transactions will lower the Funds return.
The Fund may be required to liquidate portfolio securities at a time when it would be disadvantageous to do so in order to make payments
with respect to its borrowing obligations. Interest on any Borrowings will be an expense to the Fund and will reduce the value of the Funds shares. The Fund may borrow on a secured or on an unsecured basis. If the Fund enters into a secured
borrowing arrangement, a portion of the Funds assets will be used as collateral. During the term of the borrowing, the Fund will remain at risk for any fluctuations in the market value of these assets in addition to any securities purchased
with the proceeds of the loan. In addition, the Fund may be unable to sell the collateral at a time when it would be advantageous to do so, which could result in lower returns. The Fund would also be subject to the risk that the lender may file for
bankruptcy, become insolvent, or otherwise default on its obligations to return the collateral to the Fund. In the event of a default by the lender, there may be delays, costs and risks of loss involved in the Funds exercising its rights with
respect to the collateral or those rights may be limited by other contractual agreements or obligations or by applicable law. The 1940
Act requires the Fund to maintain an asset coverage of at least 300% of the amount of its borrowings, provided that in the event that the Funds asset coverage falls below 300%, the Fund is required to reduce the amount of its
borrowings so that it meets the 300% asset coverage threshold within three days (not including Sundays and holidays). Asset coverage means the ratio that the value of the Funds total assets, minus liabilities other than borrowings and other
senior securities, bears to the aggregate amount of all borrowings. Although complying with this guideline would have the effect of limiting the amount that the Fund may borrow, it does not otherwise mitigate the risks of entering into borrowing
transactions. Convertible Securities Convertible securities are fixed income securities (usually debt or preferred stock) that may be converted or exchanged for a prescribed
amount of common shares or other equity securities of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is 5
redeemed, converted or exchanged. Before conversion or exchange, convertible securities ordinarily provide a stream of income with generally higher yields than those of common shares of the same
or similar issuers, but lower than the yield of nonconvertible debt. However, there can be no assurance of current income because the issuers of the convertible securities may default on their obligations. Convertible securities are usually
subordinated to comparable nonconvertible debt or preferred stock, but rank senior to common shares in a corporations capital structure. The value of a convertible security is generally related to (1) its yield in comparison with the yields of other securities of comparable
maturity and quality that do not have a conversion privilege and/or (2) its worth, at market value, if converted or exchanged into the underlying common shares. A convertible security may be subject to redemption at the option of the issuer at
a price established in the convertible securitys governing instrument, which may be less than the ultimate conversion or exchange value. Convertible securities are subject both to the stock market risk associated with equity securities and to the credit and interest rate risks
associated with fixed income securities. As the market price of the equity security underlying a convertible security falls, the convertible security tends to trade on the basis of its yield and other fixed income characteristics. As the market
price of such equity security rises, the convertible security tends to trade on the basis of its equity conversion features. Investments in convertible securities generally entail less risk than investments in common shares of the same issuer. Synthetic Convertible Securities A
synthetic convertible security is comprised of two distinct securities that together resemble convertible securities in certain respects. Synthetic convertible securities are created by
combining non-convertible bonds or preferred shares with common shares, warrants or stock call options. The options that will form elements of synthetic convertible securities will be listed on a
securities exchange. The two components of a synthetic convertible security, which will be issued with respect to the same entity, generally are not offered as a unit, and may be purchased and sold by the Fund at different times. Synthetic
convertible securities differ from convertible securities in certain respects, including that each component of a synthetic convertible security has a separate market value and responds differently to market fluctuations. Investing in synthetic
convertible securities involves the risk normally involved in holding the securities comprising the synthetic convertible security. Contingent
Convertible Securities Contingent Convertible Securities (CoCos) are debt or preferred securities with loss absorption
characteristics built into the terms of the security for the benefit of the issuer, for example, an automatic write-down of principal or a mandatory conversion into common stock of the issuer under certain circumstances, such as the issuers
capital ratio falling below a certain level. CoCos may be subject to an automatic write-down (i.e., the automatic write-down of the principal amount or value of the securities, potentially to zero, and the cancellation of the securities) under
certain circumstances, which could result in the Fund losing a portion or all of its investment in such securities. In addition, the Fund may not have any rights with respect to repayment of the principal amount of the securities that has not become
due or the payment of interest or dividends on such securities for any period from (and including) the interest or dividend payment date falling immediately prior to the occurrence of such automatic write-down. An automatic write-down could also
result in a reduced income rate if the dividend or interest payment is based on the securitys par value. If a CoCo provides for mandatory conversion of the security into common shares of the issuer under certain circumstances, such as an
adverse event, the Fund could experience a reduced income rate, potentially to zero, as a result of the issuers common shares not paying a dividend. In addition, a conversion event would likely be the result of or related to the deterioration
of the issuers financial condition (e.g., a decrease in the issuers capital ratio) and status as a going concern, so the market price of the issuers common shares received by the Fund may have declined, perhaps substantially, and
may continue to decline, which may adversely affect the Funds NAV. Further, the issuers common shares would be subordinate to the issuers other security classes and therefore worsen the Funds standing in a bankruptcy
proceeding. In addition, most CoCos are considered to be high yield or junk securities and are therefore subject to the risks of investment in below investment grade securities. Custodial Receipts The Fund may acquire
custodial receipts or certificates underwritten by securities dealers or banks that evidence ownership of future interest payments, principal payments or both on certain municipal obligations. The underwriter of these certificates or receipts
typically purchases municipal obligations and deposits the obligations in an irrevocable trust or custodial account with a custodian bank, which then issues receipts or certificates that evidence ownership of the periodic unmatured coupon payments
and the final principal payment on the obligations. Although under the terms of a custodial receipt, the Fund would be typically authorized to assert its rights directly against the issuer of the underlying obligation, the Fund could be required to
assert through the custodian bank those rights as may exist against the underlying issuer. Thus, in the event the underlying issuer fails to pay principal and/or interest when due, the Fund may be subject to delays, expenses and risks that are
greater than those that would have been involved if the Fund had purchased a direct obligation of the issuer. In addition, in the event that the trust or custodial account in which the underlying security has been deposited is determined to be an
association taxable as a corporation for U.S. federal income tax purposes, the yield on the underlying security would be reduced by any entity-level corporate taxes paid by such entity. Custodial receipts may also evidence ownership of future interest payments, principal payments or both on certain U.S. government obligations.
Such obligations are held in custody by a bank on behalf of the owners. Custodial receipts are generally not considered obligations of the U.S. government for purposes of securities laws. Cybersecurity Risks With the increased
use of technologies such as mobile devices and Web-based or cloud applications, and the dependence on the Internet and computer systems to conduct business, the Fund is susceptible to
operational, information security and related risks. In general, cybersecurity incidents can result from deliberate attacks or 6
unintentional events (arising from external or internal sources) that may cause the Fund to lose proprietary information, suffer data corruption, physical damage to a computer or network system
or lose operational capacity. Cybersecurity attacks include, but are not limited to, infection by malicious software, such as malware or computer viruses or gaining unauthorized access to digital systems, networks or devices that are used to service
the Funds operations (e.g., through hacking, phishing or malicious software coding) or other means for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption.
Cybersecurity attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on the
Funds websites (i.e., efforts to make network services unavailable to intended users). In addition, authorized persons could inadvertently or intentionally release confidential or proprietary information stored on the Funds systems. Cybersecurity incidents affecting the Funds Manager, subadvisers, other service providers to the Fund or its shareholders (including,
but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial intermediaries) have the ability to cause disruptions and impact business operations, potentially
resulting in financial losses to both the Fund and its shareholders, interference with the Funds ability to calculate its net asset value, impediments to trading, the inability of Fund shareholders to transact business and the Fund to process
transactions, violations of applicable privacy and other laws (including the release of private shareholder information) and attendant breach notification and credit monitoring costs, regulatory fines, penalties, litigation costs, reputational
damage, reimbursement or other compensation costs, forensic investigation and remediation costs, and/or additional compliance costs. Similar adverse consequences could result from cybersecurity incidents affecting issuers of securities in which the
Fund invests, counterparties with which the Fund engages in transactions, governmental and other regulatory authorities, exchange and other financial market operators, banks, brokers, dealers, insurance companies and other financial institutions
(including financial intermediaries and other service providers) and other parties. In addition, substantial costs may be incurred in order to safeguard against and reduce the risk of any cybersecurity incidents in the future. In addition to
administrative, technological and procedural safeguards, the Manager and Western Asset have established business continuity plans in the event of, and risk management systems to prevent or reduce the impact of, such cybersecurity incidents. However,
there are inherent limitations in such plans and systems, including the possibility that certain risks have not been identified, as well as the rapid development of new threats. Furthermore, the Fund cannot control the cybersecurity plans and
systems put in place by its service providers or any other third parties whose operations may affect the Fund and its shareholders. The Fund and its shareholders could be negatively impacted as a result. Debt and Fixed Income Securities The
Fund may invest in a variety of debt and fixed income securities, which may be issued by governmental, corporate or other issuers. Debt securities may pay fixed, floating or variable rates of interest or interest at a rate contingent upon some other
factor. Variable rate securities reset at specified intervals, while floating rate securities reset whenever there is a change in a specified index rate. In most cases, these reset provisions reduce the effect of market interest rates on the value
of the security. However, some securities do not track the underlying index directly, but reset based on formulas that can produce an effect similar to leveraging; others may provide for interest payments that vary inversely with market rates. The
market prices of these securities may fluctuate significantly when interest rates change. These securities share principal risks. For
example, the level of interest income generated by the Funds fixed income investments may decline due to a decrease in market interest rates. Thus, when fixed income securities mature or are sold, they may be replaced by lower-yielding
investments. Also, their values fluctuate with changes in interest rates. A decrease in interest rates will generally result in an increase in the value of the Funds fixed income investments. Conversely, during periods of rising interest
rates, the value of the Funds fixed income investments will generally decline. However, a change in interest rates will not have the same impact on all fixed rate securities. For example, the magnitude of these fluctuations will generally be
greater when the Funds duration or average maturity is longer. In addition, certain fixed income securities are subject to credit risk, which is the risk that an issuer of securities will be unable to pay principal and interest when due, or
that the value of the security will suffer because investors believe the issuer is unable to pay. Fixed Income Securities Ratings.
Securities rated in the fourth highest ratings category by a NRSRO, such as those rated BBB by S&P, or Baa by Moodys, and unrated securities of comparable quality, are generally regarded as having adequate capacity to pay interest and
repay principal but may have some speculative characteristics. 7
Securities rated below the fourth highest ratings category by an NRSRO, including those rated below Baa by Moodys or BBB by S&P, and unrated securities of comparable quality, are
generally considered below investment grade, and may have speculative characteristics, including a greater possibility of default or bankruptcy of the issuers of such securities, market price volatility based upon interest rate
sensitivity, questionable creditworthiness and relative liquidity of the secondary trading market. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity for lower rated securities to make principal and
interest payments, including a greater possibility of default or bankruptcy of the issuer, than is the case for high rated securities. Appendix A to this SAI contains further information concerning the rating categories of NRSROs and their
significance. Derivatives Generally A derivative is a financial instrument that has a value based on, or derived from, the value of one or more underlying reference assets or
instruments or measures of value or interest rates (underlying instruments), such as a security, a commodity, a currency, an index, an interest rate or a currency exchange rate. A derivative can also have a value based on the likelihood
that an event will or will not occur. The Fund may engage in a variety of transactions using derivatives, including without limitation futures, options, forwards, interest rate swaps and other swaps (including buying and selling credit default swaps
and options on credit default swaps), foreign currency futures, forwards and options, and futures contracts, warrants and other synthetic instruments that are intended to provide economic exposure to particular securities, assets or issuers or to be
used as a hedging technique. The Fund may use one or more types of these instruments without limit. The Fund reserves the ability to enter into other similar transactions which may be developed in the future to the extent Western Asset determines
that they are consistent with the Funds investment objectives and policies and applicable regulatory requirements. The Fund may use
derivatives for any purpose, including but not limited to, in order to seek to enhance income, yield or return, as a substitute for investing directly in a security or asset, or as a hedging technique in order to seek to manage risk in the
Funds portfolio. The Fund may choose not to make use of derivatives for a variety of reasons, and no assurance can be given that any derivatives strategy employed will be successful. The Funds use of derivative instruments may be limited
from time to time by applicable law and regulation, availability or by policies adopted by the Board or Manager. The Fund may utilize
multiple derivative instruments and combinations of derivative instruments to seek to adjust the risk and return characteristics of its overall position. Combined positions will typically contain elements of risk that are present in each of its
component transactions. It is possible that the combined position will not achieve its intended goal and will instead increase losses or risk to the Fund. Because combined positions involve multiple trades, they result in higher transaction costs
and may be more difficult to open and close out. The Fund may enter into derivatives with standardized terms that have no or few special
or unusual components, which are generally traded on an exchange, as well as derivatives with more complex features, singly or in combination. Non-standardized derivatives are generally traded OTC.
OTC derivatives may be standardized or have customized features and may have limited or no liquidity. The Funds derivatives contracts may be centrally cleared or settled bilaterally directly with a counterparty. The Funds derivatives
contracts may be cash settled or physically settled. In addition to the instruments and strategies discussed in this section, additional
opportunities in connection with derivatives and other similar or related techniques may become available to the Fund as a result of the development of new techniques, the development of new derivative instruments or a regulatory authority changing
the range of permitted transactions. The Fund may utilize these opportunities and techniques to the extent that they are consistent with the Funds investment objectives and permitted by its investment limitations and applicable law and
regulation. These opportunities and techniques may involve risks different from or in addition to those summarized herein. Risks of
Derivatives Generally. The use of derivatives involves special considerations and risks, certain of which are summarized below, and may result in losses to the Fund. In general, derivatives may increase the volatility of the Fund and may involve
a small amount of cash to establish the derivative position relative to the magnitude of the risk or exposure assumed. Even a small investment in derivatives may magnify or otherwise increase investment losses to the Fund. 8
Market risk. Derivatives can be complex, and their success depends in part upon the
portfolio managers ability to forecast correctly future market or other trends or occurrences or other financial or economic factors or the value of the underlying instrument. Even if the portfolio managers forecasts are correct, other
factors may cause distortions or dislocations in the markets that result in losses or otherwise unsuccessful transactions. Derivatives may behave in unexpected ways, especially in abnormal or volatile market conditions. The market value of the
derivative itself or the market value of underlying instruments may change in a way that is adverse to the Funds interest. There is no assurance that the use of derivatives will be advantageous to the Fund or that the portfolio manager will
use derivatives to hedge appropriately. Illiquidity risk. The Funds ability to exit a derivative position depends on the
existence of a liquid market or, in the absence of such a market, the ability and willingness of the other party to the transaction (the counterparty) to enter into a transaction closing out the position. If there is no market or the
Fund is not successful in its negotiations, the Fund may not be able to sell or unwind the derivative position at an advantageous or anticipated time or price. This may also be the case if the counterparty becomes insolvent or otherwise defaults
under the derivative transaction. The Fund may be required to make delivery of portfolio securities or other underlying instruments in order to close out a position or to sell portfolio securities or assets at a disadvantageous time or price in
order to obtain cash to close out the position. While a position remains open, the Fund continues to be subject to investment risk on a derivative. The Fund may or may not be able to take other actions or enter into other transactions, including
hedging transactions, to limit or reduce its exposure under the derivative. Illiquidity risk may be enhanced if a derivative transaction is particularly large. Certain derivatives, including certain OTC options and swaps, may be considered illiquid
and therefore subject to the Funds limitation on illiquid investments. Leverage risk. Certain derivative transactions may
have a leveraging effect on the Fund, meaning that the Fund can obtain significant investment exposure in return for meeting a relatively small margin or other investment requirement. An adverse change in the value of an underlying instrument can
result in losses substantially greater than the amount required to establish the derivative position. When the Fund engages in transactions that have a leveraging effect, the value of the Fund is likely to be more volatile and certain other risks
also are likely to be compounded. This is because leverage generally magnifies the effect of any increase or decrease in the value of an investment. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial
investment. Margin risk. Certain derivatives require the Fund to make margin payments, a form of security deposit intended to
protect against nonperformance of the derivative contract. The Fund may have to post additional margin if the value of the derivative position changes in a manner adverse to the Fund or if collateral provided by the Fund to secure its performance
under the derivative contract decreases in value. Derivatives may be difficult to value, which may result in increased payment requirements to counterparties or a loss of value to the Fund. If the Fund has insufficient cash to meet additional margin
requirements, it might need to sell assets or liquidate its derivative position at a disadvantageous time or price. Speculation
risk. Derivatives used for non-hedging purposes may result in losses that are not offset by increases in the value of portfolio holdings or declines in the cost of securities or other assets to
be acquired. In the event that the Fund uses a derivative as an alternative to purchasing or selling other investments or in order to obtain desired exposure to an index or market, the Fund will be exposed to the same risks as are incurred in
purchasing or selling the other investments directly, as well as the risks of the derivative transaction itself, such as market risk and counterparty credit risk. Cover risk. As described below, the Fund may be required to maintain segregated assets as cover, or make margin payments
when it takes positions in derivatives involving obligations to third parties (i.e., derivatives other than purchased options). If the Fund were unable to close out its positions in such derivatives, it might be required to continue to maintain such
assets or accounts or make such payments until the position expired or matured. These requirements might impair the Funds ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a disadvantageous time. Counterparty risk. Certain derivatives involve the risk
of loss resulting from the actual or potential insolvency or bankruptcy of the counterparty or the failure by the counterparty to make required payments or otherwise comply with the terms of the contract. In the event of default by a counterparty,
the Fund may have contractual remedies pursuant to the agreements related to the transaction, which may be limited by applicable law in the case of the counterpartys bankruptcy. The Fund may not be able to recover amounts owed to it by an
insolvent counterparty. 9
Operational risk. There may be incomplete or erroneous documentation or inadequate
collateral or margin, or transactions may fail to settle. The Fund may have only contractual remedies in the event of a counterparty default, and there may be delays, costs or disagreements as to the meaning of contractual terms and litigation in
enforcing those remedies. Uncleared OTC risk. Uncleared OTC derivative transactions, such as options, swaps, forward
contracts, and options on foreign currencies, are entered into directly with counterparties or financial institutions acting as market makers, rather than being traded on exchanges or other trading platforms. Because uncleared OTC derivatives and
other transactions are traded between counterparties based on contractual relationships, the Fund is subject to the credit risk of the counterparty rather than that of the clearinghouse and clearing broker. Although the Fund intends to enter into
such transactions only with counterparties which the Fund believes to be creditworthy, there can be no assurance that a counterparty will not default and that the Fund will not sustain a loss on a transaction as a result. Information available on
counterparty creditworthiness may be incomplete or outdated, thus reducing the ability to anticipate counterparty defaults. The Fund bears the risk of loss of the amount expected to be received under an uncleared OTC derivative in the event of the
default or bankruptcy of the counterparty. To the extent a counterpartys obligations are not fully secured by collateral, then the Fund is essentially an unsecured creditor of the counterparty. If the counterparty defaults, the Fund will have
contractual remedies, but there is no assurance that a counterparty will be able to meet its obligations pursuant to such contracts or that, in the event of default, the Fund will succeed in enforcing contractual remedies. Counterparty credit risk
still exists even if a counterpartys obligations are secured by collateral because the Funds interest in collateral may not be perfected or additional collateral may not be promptly posted as required. Counterparty credit risk also may
be more pronounced if a counterpartys obligations exceed the amount of collateral held by the Fund (if any), the Fund is unable to exercise its interest in collateral upon default by the counterparty, or if the termination value of the
instrument varies significantly from the marked-to-market value of the instrument. Non-U.S. derivatives risk. Derivative transactions may be conducted OTC
outside of the United States or traded on foreign exchanges or other trading platforms. Such transactions may not be regulated as effectively as similar transactions in the United States, may not involve a clearing mechanism and related guarantees
and are subject to the risk of governmental actions affecting trading in, or the price of, foreign securities or currencies. The value of such positions also could be adversely affected by (1) other foreign political, legal and economic
factors, (2) lesser availability than in the United States of data on which to make trading decisions, (3) delays in the Funds ability to act upon economic events occurring in foreign markets
during non-business hours in the United States, (4) the imposition of different exercise and settlement terms, procedures, margin requirements, fees, taxes or other charges than in the United
States and (5) lower levels of volume and liquidity relative to United States derivatives markets. Currency derivatives risk.
Currency related transactions may be negatively affected by government exchange controls, blockages, and manipulations. Exchange rates may be influenced by factors extrinsic to a countrys economy. Also, there is no systematic reporting of last
sale information with respect to foreign currencies. As a result, the information on which trading in currency derivatives is based may not be as complete as, and may be delayed beyond, comparable data for other types of transactions. Turnover risk. Use of derivatives involves transaction costs, which may be significant. The Fund may be required to sell or purchase
investments in connection with derivative transactions, potentially increasing the Funds portfolio turnover rate and transaction costs. Use of derivatives also may increase the amount of taxable income to shareholders. Risks Associated with Hedging with Derivatives. Derivative linked hedging strategies may fail to achieve their intended objectives,
which may reduce the Funds return. Successful use of derivatives to hedge positions depends on the correlation between the price of the derivative and the price of the hedged asset. Derivatives hedging involves basis risk, or the
risk that changes in the value of the derivative transaction will correlate imperfectly with changes in value of the hedged asset. For
example, the Fund may attempt to protect against declines in the value of the Funds portfolio assets by entering into a variety of derivatives transactions, including selling futures contracts, entering into swaps or purchasing puts on indices
or futures contracts (short hedging). To the extent the short hedge derivative transaction fails to perfectly offset declines in the value of hedged Fund assets, the value of the Funds assets would decline, and the short hedge would not hedge
or mitigate the loss in the value of the assets. 10
If the Fund has used derivatives to hedge or otherwise reduce the Funds risk exposure to a
particular position and then disposes of that position at a time at which it cannot also settle, terminate or close out the corresponding hedge position, this may create net short investment exposure. Certain short derivative positions
involve investment leverage, and the amount of the Funds potential loss is theoretically unlimited. The Fund can use derivative
instruments to establish a position in the market as a temporary substitute for the purchase of individual securities or other assets (long hedging) by buying futures contracts and/or calls on such futures contracts, indices or on securities or
other assets, or entering into swaps. It is possible that when the Fund does so the market might decline. If the Fund then decides not to invest in the assets because of concerns that the market might decline further or for other reasons, the Fund
will realize a loss on the hedge position that is not offset by a reduction in the price of the asset the Fund had intended to purchase. Risk of Government Regulation of Derivatives. The regulation of derivatives transactions and funds that engage in such transactions is
an evolving area of law and is subject to modification by government and judicial action. It is impossible to fully predict the effects of new and existing legislation and regulation, but the effects could be substantial and adverse. Additional
regulation could, among other things, make derivatives more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets. Such regulation may limit or prevent the Fund from using derivatives as part of
its investment strategy and could ultimately prevent the Fund from being able to achieve its investment goals. Limitations or restrictions applicable to the counterparties with which the Fund engages in derivative transactions could also prevent the
Fund from using derivatives, adversely affect pricing or other factors relating to derivatives or adversely affect the availability of certain investments. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) has mandated broad changes to the OTC
derivatives market and granted significant authority to the SEC and the CFTC to regulate OTC derivatives markets. Pursuant to the Dodd-Frank Act and related regulations, OTC derivatives transactions are subject to comprehensive regulation, including
mandatory clearing, margin and reporting requirements, among others. Similar regulations are being adopted in other jurisdictions around the world. While the new rules and regulations are designed to reduce systemic risk (i.e., the risk that the
interdependence of large derivatives dealers could cause them to suffer liquidity, solvency or other challenges simultaneously), there is no assurance that they will achieve that result, and the ultimate impact of the regulations remains unclear.
Additional regulation of derivatives may make derivatives more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets. Additionally, new regulations may result in increased uncertainty about counterparty risk and may limit the flexibility of the Fund to protect
its interests in the event of an insolvency of a derivatives counterparty. In the event of a counterpartys (or its affiliates) insolvency, the Funds ability to exercise remedies, such as the termination of transactions, netting of
obligations and realization on collateral, could be stayed or eliminated under the rules of the applicable exchange or clearing corporation or under new special resolution regimes adopted in the United States, the European Union and various other
jurisdictions. Such regimes provide government authorities with broad authority to intervene when a financial institution is experiencing financial difficulty. In particular, with respect to counterparties who are subject to such proceedings in the
European Union, the liabilities of such counterparties to the Fund could be reduced, eliminated, or converted to equity in such counterparties (sometimes referred to as a bail in). Cover. The Funds use of derivatives may create financial obligations to third parties which if not covered could be construed as
senior securities (as defined in the 1940 Act). To the extent that the Fund determined that such obligations may be deemed to create senior securities, the Fund intends to segregate or earmark liquid assets or otherwise
cover such obligations. The Fund may cover such obligations using methods that are currently or in the future permitted under the 1940 Act, the rules and regulations thereunder or orders issued by the SEC thereunder and to the extent
deemed appropriate by the Fund, interpretations and guidance of the SEC staff. The Fund segregates with its custodian or otherwise
earmarks cash, cash equivalents or liquid assets in an amount the Fund believes to be adequate to ensure that it has sufficient liquid assets to meet its obligations under its derivatives contracts, or the Fund may engage in other measures to
cover its obligations with respect to such transactions. The amounts that are segregated or earmarked may be based on the derivatives notional value or on the
daily mark-to-market obligation under the derivatives contract and may be reduced by amounts on deposit with the applicable broker or counterparty to the
derivatives transaction. The Fund may segregate or earmark amounts in addition to the amounts described above. For example, if the Fund writes a physically settled put option, it may 11
segregate or earmark liquid assets equal to the exercise price of the option, less margin on deposit, or hold the underlying instrument directly; if the Fund writes a cash settled put option, it
may segregate or earmark liquid assets equal to the amount the option is in the money (meaning the difference between the exercise price of the option and the current market price of the underlying instrument, when the exercise price of the option
is higher than the market price of the underlying instrument), marked to market on a daily basis, less margin on deposit. Alternatively, the Fund may, in certain circumstances, enter into an offsetting position rather than segregating or designating
liquid assets (e.g., the Fund may cover a written put option with a purchased put option with the same or higher exercise price or cover a written call option with a purchased call option with the same or lower exercise price). The segregation of assets does not reduce the risks to the Fund of entering into transactions in derivatives. Additionally, although the
portfolio manager attempts to ensure that the Fund has sufficient liquid assets in respect of its obligations under its derivative contracts, it is possible that the Funds liquid assets may be insufficient to support such obligations under its
derivatives positions. The Fund may modify its asset segregation policies from time to time. The SEC has adopted new Rule 18f-4 under the 1940 Act, which will require a fund that is not a limited
derivatives user as described in Rule 18f-4(c)(4) to adopt a derivatives risk management program providing for specific items as required by the rule, including compliance with a VaR test. The provisions
of Rule 18f-4 will replace the 1940 Act cover requirements for reverse repurchase agreements, similar financing transactions and derivatives transactions discussed in this Prospectus. Under Rule 18f-4(d), a fund may enter into reverse repurchase agreements or similar financing transactions in reliance on the rule if the fund either (i) complies with the asset coverage requirements of Section 18 of
the 1940 Act, and combines the aggregate amount of indebtedness associated with all reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness when calculating
its asset coverage ratio; or (ii) treats all reverse repurchase agreements or similar financing transactions as derivatives transactions for all purposes under the rule. Compliance with Rule 18f-4 will be
required by August 19, 2022. Following the compliance date, these requirements may limit the ability of the Fund to use derivatives and reverse repurchase agreements and similar financing transactions as part of its investment strategies. These
requirements may also increase the cost of the Funds investments in derivatives reverse repurchase agreements and similar financing transactions, which could adversely affect the value of your investment. Foreign Currency Instruments and Hedging Strategies The Fund may use options and futures contracts on foreign currencies and forward currency contracts and currency swap agreements
(collectively, Currency Instruments), in order to seek to hedge against movements in the values of the foreign currencies in which the Funds securities are denominated or in order to seek to enhance the Funds return or yield.
The Fund may also use such investments in order to seek to establish a short position or to obtain exposure to a market that would be more costly or difficult to access with other types of investments, such as bonds or currency. The Fund may also
engage in foreign currency transactions on a spot (cash) basis at the rate prevailing in the currency exchange market at the time of the transaction. The Fund may determine not to hedge, and the Fund may be completely unhedged at any point in time.
In cases when a particular currency is difficult to hedge or difficult to hedge against the U.S. dollar, the Fund may seek to hedge against price movements in that currency by entering into transactions using Currency Instruments on another currency
or a basket of currencies, the value of which the portfolio manager believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the Currency Instrument will not
correlate perfectly with movements in the price of the currency subject to the hedging transaction is magnified when this strategy is used. Currency Instruments Risks. In addition to the risks found under Derivatives Risks of Derivatives Generally,
Currency Instruments are subject to the following risks: The value of Currency Instruments depends on the value of the underlying foreign
currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the Funds use of such Currency Instruments, the Fund could be
disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of
last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large
transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. 12
To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying
markets that cannot be reflected in the U.S. markets for the Currency Instruments until they reopen. Settlement of hedging transactions
involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, the Fund might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign
regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country. Forward Currency Contracts The Fund may
enter into forward currency contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another currency at a future date and at a price set by the parties to the forward currency contract. Forward currency contracts are
traded directly between currency traders (usually large commercial banks) and their customers (such as the Fund). The Fund may purchase a
forward currency contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Fund intends to acquire (a long hedge). The Fund may sell a forward currency contract to lock in the U.S. dollar equivalent of the
proceeds from the anticipated sale of a security, dividend or interest payment denominated in a foreign currency (a short hedge). A position hedge is when the Fund owns a security denominated in, for example, euros and to protect against
a possible decline in the euros value, the Fund enters into a forward currency contract to sell euros in return for U.S. dollars. A position hedge tends to offset both positive and negative currency fluctuations but would not
offset changes in security values caused by other factors. A proxy hedge is when the Fund owns a security denominated in, for example, euros and to protect against a possible decline in the euros value, the Fund enters into a
forward currency contract to sell a currency expected to perform similarly to the euro in return for U.S. dollars. A proxy hedge could offer advantages in terms of cost, yield or efficiency, but generally would not hedge currency
exposure as effectively as a position hedge to the extent the proxy currency does not perform similarly to the targeted currency. The Fund could, in fact, lose money on both legs of the hedge, i.e., between the euro and proxy currency, and between
the proxy currency and the dollar. The Fund also may use forward currency contracts to attempt to enhance return or yield. The Fund could use forward currency contracts to increase its exposure to foreign currencies that the portfolio manager
believes might rise in value relative to the U.S. dollar, or shift its exposure to foreign currency fluctuations from one country to another. For example, if the Funds portfolio manager believes that the U.S. dollar will increase in value
relative to the euro, the Fund could write a forward contract to buy U.S. dollars in three months at the current price in order to sell those U.S. dollars for a profit if the U.S. dollar does in fact appreciate in value relative to the euro. The
cost to the Fund of engaging in forward currency contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward currency contracts are usually entered into on
a principal basis, no fees or commissions are involved. When the Fund enters into a forward currency contract, it relies on the counterparty to make or take delivery of the underlying currency at the maturity of the contract. Failure by the
counterparty to do so would result in the loss of any expected benefit of the transaction. The precise matching of forward currency
contract amounts, and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the forward currency contract has been established. Thus, the Fund
may need to purchase or sell foreign currencies in the spot (i.e., cash) market to the extent such foreign currencies are not covered by forward currency contracts. The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Successful use of forward currency
contracts depends on the portfolio managers skill in analyzing and predicting currency values, among other factors. Forward currency contracts may substantially change the Funds exposure to changes in currency exchange rates and could
result in losses to the Fund if currencies do not perform as the portfolio manager anticipates. There is no assurance that the portfolio managers use of forward currency contracts will be advantageous to the Fund or that the portfolio manager
will hedge at an appropriate time. Non-deliverable Forwards. The
consummation of a deliverable foreign exchange forward requires the actual exchange of the principal amounts of the two currencies in the contract (i.e., settlement on a physical basis). Forward currency contracts in which the Fund may engage also include non-deliverable forwards (NDFs). NDFs are cash-settled, short-term forward contracts on foreign currencies (each a Reference Currency) that
are non- 13
convertible and that may be thinly traded or illiquid. NDFs involve an obligation to pay an amount equal to the difference between the prevailing market exchange rate for the Reference
Currency and the agreed upon exchange rate, with respect to an agreed notional amount. NDFs are subject to many of the risks associated with derivatives in general and forward currency transactions, including risks associated with fluctuations in
foreign currency and the risk that the counterparty will fail to fulfill its obligations. Under the Dodd-Frank Act, NDFs are classified
as swaps and are therefore subject to the full panoply of CFTC swap regulations under the Dodd-Frank Act. Although NDFs have historically been traded OTC, in the future, pursuant to the Dodd-Frank Act, they may be subject to mandatory
clearing. For more information on central clearing and trading of cleared swaps, see Swaps below. Non-centrally-cleared NDFs are subject to mandatory minimum margin requirements for
uncleared swaps. Deliverable foreign exchange forwards that solely involve the exchange of two different currencies on a specific future date at a fixed rate agreed upon by the parties are not considered swaps and accordingly are not
subject to many of the regulations that apply to NDFs. Futures Contracts and Options on Future Contracts Generally, a futures contract is an exchange-traded, standardized agreement that obligates the seller of the contract to deliver a specified
quantity of an underlying instrument, such as a security, currency or commodity, to the purchaser of the contract, who has the obligation to take delivery of the underlying instrument, at a specified price and date. In the case of futures on
indices, the two parties agree to take or make delivery of an amount of cash equal to the difference between the level of the index at the close of the last trading day of the contract and the price at which the contract originally was written.
Options on futures give the purchaser the right to assume a position in a futures contract at the specified exercise price at any time during the period of the option. Futures contracts, by their terms, have stated expirations and, at a specified point in time prior to expiration, trading in a futures
contract for the current delivery month will cease. As a result, an investor wishing to maintain exposure to a futures contract with the nearest expiration must close out the position in the expiring contract and establish a new position in the
contract for the next delivery month, a process referred to as rolling. The process of rolling a futures contract can be profitable or unprofitable depending in large part on whether the futures price for the subsequent delivery month is
less than or more than the price of the expiring contract. Futures contracts may be used for hedging
and non-hedging purposes, such as to simulate full investment in the underlying instrument while retaining a cash balance for portfolio management purposes, as a substitute for direct investment in
the underlying instrument, to facilitate trading, to reduce transaction costs, or to seek higher investment returns (e.g., when a futures contract or option is priced more attractively than the underlying instrument). In addition, futures strategies
can be used to manage the average duration of the Funds fixed income portfolio, if applicable. The Fund may sell a debt futures contract or a call option thereon or purchase a put option on that futures contract to attempt to shorten the
portfolios average duration. Alternatively, the Fund may buy a debt futures contract or a call option thereon or sell a put option thereon to attempt to lengthen the portfolios average duration. At the inception of a futures contract the Fund is required to deposit initial margin with a futures commission merchant
(FCM) in an amount at least equal to the amount designated by the futures exchange . Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in
securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is required to be returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, the Fund may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be
increased generally in the future by regulatory action. In addition to initial margin payments, during the life of the transaction
variation margin or settlement variation payments are made to and from the FCM as the value of the margin and the underlying derivative transaction varies, a process known as marking-to-market. Variation margin is intended to represent a daily settlement of the Funds obligations to or from an FCM. When the Fund purchases an option on a futures
contract, the premium paid plus transaction costs is all that is at risk. However, there may be circumstances when the purchase of an option on a futures contract would result in a loss to the Fund when the use of a futures contract would not, such
as when there is no movement in the value of the assets or currencies being hedged. In that case, the 14
Fund would lose the premium it paid for the option plus transaction costs. In contrast, when the Fund purchases or sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of adverse price movements. If the Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are
disadvantageous. Although some futures and options on futures call for making or taking delivery of the underlying instrument, generally
those contracts are closed out prior to delivery by offsetting purchases or sales of matching futures or options (involving the same instrument and delivery month). If an offsetting purchase price is less than the original sale price, the Fund
realizes a gain, or if it is more, the Fund realizes a loss. If an offsetting sale price is more than the original purchase price, the Fund realizes a gain, or if it is less, the Fund realizes a loss. The Fund will also bear transaction costs for
each contract, which will be included in these calculations. Positions in futures and options on futures may be closed only on an exchange or board of trade that provides a secondary market. However, there can be no assurance that a liquid secondary
market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract or options position. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous days settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If the Fund were unable to liquidate a futures contract or an option on a futures position due to the absence of a liquid
secondary market, the imposition of price limits or otherwise, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund would
continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the future or option or to segregate cash or securities (or designate these assets on its books as segregated). Among other factors, successful use of futures contracts and related options depends upon the ability of the portfolio manager to assess
movements in the direction of prices of securities, commodities, measures of value, or interest or exchange rates, which requires different skills and techniques than assessing the value of individual securities. Moreover, futures contracts relate
not to the current price level of the underlying instrument, but to the anticipated price level at some point in the future; accordingly trading of stock index futures may not reflect the trading of the securities that are used to formulate the
index or even actual fluctuations in the index itself. There is, in addition, the risk that movements in the price of the futures contract will not correlate with the movements in the prices of the securities being hedged. Price distortions in the
marketplace, resulting from increased participation by speculators in the futures market (among other things), may also impair the correlation between movements in the prices of futures contracts and movements in the prices of the hedged securities.
If the price of the futures contract moves less than the price of securities that are the subject of the hedge, the hedge will not be fully effective; but if the price of the securities being hedged has moved in an unfavorable direction, the Fund
would be in a better position than if it had not hedged at all. If the price of the securities being hedged has moved in a favorable direction, this advantage may be partially offset by losses on the futures position. Positions in futures contracts may be closed out only on an exchange or board of trade that provides a market for such futures contracts.
Although the Fund intends to purchase and sell futures only on exchanges or boards of trade where there appears to be a liquid market, there is no assurance that such a market will exist for any particular contract at any particular time. In such
event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make variation margin payments. Options have a limited life and thus can be disposed of only within a
specific time period. Purchasers of options on futures contracts pay a premium in cash at the time of purchase which, in the event of
adverse price movements, could be lost. Sellers of options on futures contracts must post initial margin and are subject to additional margin calls that could be substantial in the event of adverse price movements. Because of the low margin deposits
required, futures trading involves a high degree of leverage; as a result, a relatively small price movement in a futures contract may result in immediate and substantial loss, or gain, to the Fund. In addition, the Funds activities in the
futures markets may result in a higher portfolio turnover rate and additional transaction costs in the form of added brokerage commissions. In addition, applicable position limits may affect the hedging and investment activities of participants in
derivatives markets and in the markets for the assets underlying such derivatives contracts, which could reduce the liquidity and adversely affect the pricing of derivatives contracts impacted by such position limits, thereby adversely affecting the
performance of the Fund. 15
As noted above, exchanges may impose limits on the amount by which the price of a futures
contract or related option is permitted to change in a single day. If the price of a contract moves to the limit for several consecutive days, the Fund may be unable during that time to close its position in that contract and may have to continue
making payments of variation margin. The Fund may also be unable to dispose of securities or other instruments being used as cover during such a period. The CFTC and domestic exchanges have also established speculative position limits on
the maximum speculative position that any person, or group of persons acting in concert, may hold or control in particular contracts and certain related swaps. Under current regulations, other accounts managed by the Manager or, if applicable, the
subadviser are combined with the positions held by the Fund under the Managers or, if applicable, the subadvisers management for position limit purposes. This trading could preclude additional trading by the Fund in such contracts. When the Fund engages in futures transactions, it will also be exposed to the credit risk of its FCM. If the Funds FCM becomes bankrupt
or insolvent, or otherwise defaults on its obligations to the Fund, the Fund may not receive all amounts owed to it in respect of its trading, even if the clearinghouse fully discharges all of its obligations. If an FCM were not to appropriately
segregate client assets to the full extent required by the CEA, the Fund might not be fully protected in the event of the bankruptcy of an FCM. In the event of an FCMs bankruptcy, the Fund would be limited to recovering only a pro rata share
of all available funds segregated on behalf of an FCMs combined customer accounts, even if certain property held by an FCM is specifically traceable to the Fund (for example, U.S. Treasury bills deposited by the Fund). Such situations could
arise due to various factors, or a combination of factors, including inadequate FCM capitalization, inadequate controls on customer trading and inadequate customer capital. In addition, in the event of the bankruptcy or insolvency of a
clearinghouse, the Fund might experience a loss of funds deposited through its FCM as margin with the clearinghouse, a loss of unrealized profits on its open positions and the loss of funds owed to it as realized profits on closed positions. Such a
bankruptcy or insolvency might also cause a substantial delay before the Fund could obtain the return of funds owed to it by an FCM who is a member of such clearinghouse. Options A call option gives the
purchaser the right to buy, and obligates the writer to sell, a specified amount or value of a particular underlying asset or interest (such as a specified security, commodity, currency, interest rate, currency exchange rate or index) at an
agreed-upon price (strike price). A put option gives the purchaser the right to sell, and obligates the writer to buy, a specified amount or value of a particular underlying asset or interest at an agreed-upon price. An American-style
option may be exercised at any time during the term of the option, while a European-style option may be exercised only at the expiration of the option. Purchasers of options pay an amount, known as a premium, to the option writer in exchange for the
right granted under the option contract. The value of an option position will reflect, among other things, the current market value of
the underlying instrument, the time remaining until expiration, the relationship of the strike price to the market price of the underlying instrument, the historical price volatility of the underlying instrument and general market conditions. If the
purchaser does not exercise the option, it will expire and the purchaser will have only lost the premium paid. If a secondary market exists, a purchaser or the writer may terminate a put option position prior to its exercise by selling it in the
secondary market at its current price. The Fund will pay a brokerage commission each time it buys or sells an option. Such commissions may be higher than those that would apply to direct purchases or sales of the underlying instrument. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed
and are standardized with respect to the underlying instrument, expiration date, contract size and strike price. In contrast, OTC options (options not traded on exchanges) are contracts between the Fund and a counterparty (usually a securities
dealer or a bank) with no clearing organization guarantee. The terms of OTC options generally are established through negotiation with the other party to the option contract (the counterparty). For a discussion on options on futures see
Futures Contracts and Options on Futures Contracts. Put Options. In return for receipt of the premium, the writer of a
put option assumes the obligation to pay the strike price for the options underlying instrument if the buyer exercises the option. A put writer would generally expect to profit, although its gain would be limited to the amount of the premium
it received, if the underlying instruments price remains greater than or equal to the strike price. If the underlying instruments price falls below 16
the strike price, the put writer would expect to suffer a loss. The buyer of a put option can expect to realize a gain if the underlying instruments price falls enough to offset the cost of
purchasing the option. Any losses suffered by the buyer would be limited to the amount of the premium plus related transaction costs. Optional delivery standby commitments are a type of put that gives the buyer of an underlying instrument the right to sell the underlying
instrument back to the seller on specified terms to induce a purchase of the underlying instrument. Call Options. In return for
the receipt of the premium, the writer of a call option assumes the obligation to sell the underlying instrument at the strike price to the buyer upon exercise of the option. A call writer would generally expect to profit, although its gain would be
limited to the amount of the premium it received, if the option goes unexercised, which typically occurs when the underlying instruments price remains less than or equal to the strike price. If the underlying instruments prices were to
rise above the strike price, the writer of the call option would generally expect to suffer a loss, which is theoretically unlimited. A call buyers maximum loss is the premium paid for the call option, whereas the buyers maximum profit
is theoretically unlimited. Straddles. A long straddle is the purchase of a call and a put option with the same expiration date
and relating to the same underlying instrument where the strike price of the put is less than or equal to the strike price of the call. The Fund may enter into a long straddle when its portfolio manager believes that the underlying instruments
price will move significantly during the term of the options. A short straddle is a combination of a call and a put written on the same underlying instrument with the same expiration date where the strike price of the put is less than or equal to
the strike price of the call. In a covered short straddle, the underlying instrument is considered cover for both the put and the call that the Fund has written. The Fund may enter into a short straddle when the portfolio manager believes that it is
unlikely that underlying instruments prices will experience volatility during the term of the options. Options on Indices.
Puts and calls on indices are similar to puts and calls on other underlying instruments except that all settlements are in cash and gains or losses depend on changes in the level of the index rather than on price movements of individual underlying
instruments. The writer of a call on an index receives a premium and the obligation to pay the purchaser an amount of cash equal to the difference between the closing level of the index and the strike price times a specified multiple
(multiplier), if the closing level of the index is greater than the strike price of the call. The writer of a put on an index receives a premium and the obligation to deliver to the buyer an amount of cash equal to the difference between
the closing level of the index and strike price times the multiplier if the closing level is less than the strike price. Options on
Indices Risk. The risks of investment in options on indices may be greater than options on securities and other instruments. Because index options are settled in cash, when the Fund writes a call on an index it generally cannot provide in
advance for other underlying instruments because it may not be practical for the call writer to hedge its potential settlement obligations by acquiring and holding the underlying securities. The Fund can offset some of the risk of writing a call
index option by holding a diversified portfolio of securities similar to those on which the underlying index is based. However, the Fund cannot, as a practical matter, acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held will vary from the value of the index. If the Fund
exercises an index option before the closing index value for that day is available, there is the risk that the level of the underlying index may subsequently change. If such a change causes the exercised option to fall out-of-the-money, the Fund will be required to pay the difference between the closing index value and the strike price of the option (times the
applicable multiplier) to the assigned writer. Timing Risk. The hours of trading for options may not conform to the hours during
which the underlying instrument are traded. To the extent that the options markets close before the markets for the underlying instrument, significant price and rate movements can take place in the underlying markets that cannot be reflected in the
options markets. Options are marked to market daily and their value will be affected by changes in the value of the underlying instrument, changes in the dividend rates of the underlying securities, an increase in interest rates, changes in the
actual or perceived volatility of the stock market and the underlying instrument and the remaining time to the options expiration. Additionally, the exercise price of an option may be adjusted downward before the options expiration as a
result of the occurrence of certain corporate or other events affecting the underlying instrument, such as extraordinary dividends, stock splits, merger or other extraordinary distributions or events. A reduction in the exercise price of an option
would reduce the Funds capital appreciation potential on an underlying instrument. 17
Swaps Generally, a swap agreement involves the exchange between two parties of their respective commitments to pay or receive cash flows, e.g., an
exchange of floating rate payments for fixed-rate payments. Swaps may be negotiated bilaterally and traded OTC (OTC swaps) or, for certain types of swaps, must be executed through a centralized exchange or trading platform and be cleared through a
regulated clearinghouse (cleared swaps). Swaps include but are not limited to, interest rate swaps, total return swaps, index swaps, inflation indexed swaps, currency swaps, credit default swaps and options on swaps or swaptions. OTC swap agreements can be individually negotiated and structured to include exposure to a variety of different types of investments (such as
individual securities, baskets of securities and securities indices) or market factors. The swap returns are generally calculated with respect to a notional amount, that is, the nominal or face amount used to calculate the payments to be made
between the parties to the OTC swap. The Fund may enter into one or more swap agreements for hedging
or non-hedging purposes, including but not limited to, to enhance returns, increase liquidity, protect against currency and security price fluctuations, manage duration and gain exposure to certain
markets or securities in a more cost-efficient manner. When the Fund enters into a swap agreement on a net basis, the net amount of the
excess, if any, of the Funds obligations over its entitlements with respect to each swap will be accrued on a daily basis and an amount of cash, cash equivalent or liquid assets having an aggregate market value at least equal to the accrued
excess will be segregated in an account with the Funds custodian that satisfies the requirements of the 1940 Act. The Fund will take similar action with respect to its total obligations under any swaps that are not entered into on a net basis
and with respect to any caps or floors that are written by the Fund. Depending on their structure, swap agreements may increase or
decrease the overall volatility of the Funds investments and its share price and yield and may affect the Funds exposure to long- or short-term interest rates (in the United States or abroad), foreign currency values, mortgage-backed
security values, corporate borrowing rates or other market factors such as security prices or inflation rates. Swap agreements used for
hedging purposes may shift the Funds investment exposure from one type of investment to another. For example, if the Fund agrees to exchange payments in U.S. dollars for payments in foreign currency, the swap agreement would tend to decrease
the Funds exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. The absence of a
central exchange or market for swap transactions may lead, in some instances, to difficulties in trading and valuation, especially in the event of market disruptions. Cleared Swaps. Recent legislation and implementing regulations require certain swaps to be cleared through a regulated clearinghouse.
Although this clearing mechanism is generally intended to reduce counterparty credit risk, it may disrupt or limit the swap market and may result in swaps being more difficult to trade or value. As swaps become more standardized, the Fund may not be
able to enter into swaps that meet its investment needs. The Fund also may not be able to find a clearinghouse willing to accept a swap for clearing. In the context of a cleared swap, a clearing broker will act as intermediary on behalf of the fund,
and a central clearing organization will be the counterparty to the transaction. The Fund will assume the risk that the clearing broker or clearing organization may be unable to perform its obligations. When the Fund enters into a cleared swap transaction, the Fund is subject to the credit and counterparty risk of the clearing house and the
clearing broker through which it holds its cleared position. Counterparty risk of market participants with respect to centrally cleared swaps is concentrated in a few clearing houses, and it is not clear how an insolvency proceeding of a clearing
house would be conducted and what impact an insolvency of a clearing house would have on the financial system. A clearing broker is obligated by contract and by applicable law and regulation to segregate all funds received from customers with
respect to cleared derivatives transactions from the clearing members proprietary assets. However, all funds and other property received by a clearing broker from its customers generally are held by the clearing broker on a commingled basis in
an omnibus account, and the clearing member may invest those funds in certain instruments permitted under the applicable regulations. The assets of the Fund might not be fully protected in the event of the bankruptcy or default of the Funds
clearing member, because 18
the Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing brokers customers for a relevant account class. In addition, the
clearing member is required to transfer to the clearing organization the amount of margin required by the clearing organization, which amounts generally are held in an omnibus account at the clearing organization for all customers of the clearing
broker. Regulations promulgated by the CFTC require that the clearing broker notify the clearing house of the amount of initial margin provided by the clearing broker to the clearing organization that is attributable to each customers cleared
swaps positions. However, if the clearing broker does not provide accurate reporting, the Fund is subject to the risk that a clearing organization will use the Funds assets held in an omnibus account at the clearing organization to satisfy
payment obligations of a defaulting customer of the clearing broker to the clearing organization. In addition, clearing brokers generally provide to the clearing organization the net amount of variation margin required for cleared swaps for all of
its customers in the aggregate, rather than the gross amount of each customer. The Fund is therefore subject to the risk that a clearing organization will not make variation margin payments owed to the Fund if another customer of the clearing broker
has suffered a loss and is in default, and the risk that the Fund will be required to provide additional variation margin to the clearing house before the clearing house will move the Funds cleared derivatives transactions to another clearing
broker. In addition, if a clearing broker does not comply with the applicable regulations or its agreement with the Fund, or in the event of fraud or misappropriation of customer assets by a clearing member, the Fund could have only an unsecured
creditor claim in an insolvency of the clearing broker with respect to the margin held by the clearing broker. In some ways, centrally
cleared swaps arrangements are less favorable to the Fund than OTC swaps arrangements. For example, the Fund may be required to provide greater amounts of margin for cleared swaps than for OTC swaps. In addition, in contrast to OTC swaps, following
a period of notice to the Fund, a clearing broker generally can require termination or transfer of existing cleared swaps at any time or increase applicable margin requirements above the margin that the clearing member broker previously required.
Clearing houses also have broad rights to increase margin requirements for existing transactions or to terminate transactions at any time. Any increase in margin requirements or termination by the clearing member or the clearing house could
interfere with the ability of the Fund to pursue its investment strategy. Further, any increase in margin requirements by a clearing broker could also expose the Fund to greater credit risk of its clearing broker, because margin for cleared swaps in
excess of clearing house margin requirements typically is held by the clearing broker. While the documentation in place between the Fund and its clearing brokers generally provides that the clearing broker will accept for clearing all transactions
submitted for clearing that are within credit limits (specified in advance) for the Fund, the Fund is still subject to the risk that no clearing member and clearing house will be willing or able to clear a transaction. In those cases, the
transaction might have to be terminated, and the Fund could lose some or all of the benefit of the transaction, including loss of an increase in the value of the transaction and/or loss of hedging protection offered by the transaction. In addition,
the documentation governing the relationship between the Fund and its clearing brokers is developed by the clearing brokers and generally is less favorable to the Fund than typical uncleared swap documentation. For example, this documentation
generally includes a one-way indemnity by the Fund in favor of the clearing member, indemnifying the clearing broker against losses it incurs in connection with acting as the Funds clearing broker, and
the documentation typically does not give the Fund any rights to exercise remedies if the clearing broker defaults or becomes insolvent. Some types of cleared swaps are required to be executed on an exchange or on a swap execution facility (SEF). A SEF is a trading
platform where multiple market participants can execute swaps by accepting bids and offers made by multiple other participants in the platform. While this execution requirement is designed to increase transparency and liquidity in the cleared swap
market, trading on a SEF can create additional costs and risks for the Fund. For example, SEFs typically charge fees, and if the Fund executes swaps on a SEF through a broker intermediary, the intermediary may impose fees as well. In addition, the
Fund may be obligated to a SEF, or a broker intermediary who executes cleared swaps on a SEF on the Funds behalf, against any losses or costs that may be incurred as a result of the Funds transactions on the SEF. The Fund may enter into swap transactions with certain counterparties pursuant to master netting agreements. A master netting agreement
provides that all swaps entered into between the Fund and that counterparty shall be regarded as parts of an integral agreement. If amounts are payable on a particular date in the same currency in respect of more than one swap transaction, the
amount payable shall be the net amount. In addition, the master netting agreement may provide that if one party defaults generally or on any swap, the counterparty can terminate all outstanding swaps with that party. As a result, to the extent the
Fund enters into master netting agreements with a counterparty, the Fund may be required to terminate a greater number of swap agreements than if it had not entered into such an agreement in the event of a counterparty default, which may result in
losses to the Fund. 19
Interest Rate Swaps, Caps and Floors. Interest rate swaps are agreements between two
parties to exchange interest rate payment obligations. Typically, one partys obligation is based on a fixed interest rate while the other partys obligation is based on an interest rate that fluctuates with changes in a designated
benchmark. An interest rate cap transaction entitles the purchaser, to the extent that a specified index exceeds a predetermined value, to receive payments on a notional amount from the party selling the cap. An interest rate floor transaction
entitles the purchaser, to the extent that a specified index falls below a predetermined value, to receive payments on a notional amount from the party selling the floor. A collar combines elements of buying a cap and a floor. Caps and floors have
an effect similar to buying or writing options. Caps and floors typically have lower liquidity than swaps. Options on Swaps
(Swaptions). A swaption is a contract that gives the counterparty the right, but not the obligation to enter into a new swap agreement or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated
future time on specified terms. The Fund may write (sell) and purchase put and call swaptions. Swaptions are generally subject to the same risks involved in the use of options and swaps. Depending on the terms of the option agreement, the Fund will
generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When the Fund purchases a swaption, only the amount of premium the Fund paid is at risk should the option expire unexercised.
However, when a Fund writes a swaption, upon exercise of the option the Fund will become obligated according to the terms of the underlying agreement, which may result in losses to the Fund in excess of the premium it received. Credit Default Swaps and Related Investments. The Fund may enter into credit default swap contracts for investment purposes and to add
leverage to its investment portfolio. In these transactions, the Fund is generally required to pay the par (or other agreed-upon) value of a referenced debt obligation to the counterparty in the event of a default on, restructuring or downgrade of
the debt obligation and/or a similar credit event. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Fund
would keep the stream of payments and would have no payment obligations. As the seller, the Fund would effectively add leverage to its portfolio because, in addition to its net assets, the Fund would be subject to potential loss of the par (or other
agreed-upon) value it had undertaken to pay following the occurrence of a credit event. Credit default swap contracts involve special risks and may result in losses to the Fund. Credit default swaps may in some cases be illiquid, and they may
increase the Funds aggregate market and credit risk since the Fund has exposure to both the issuer of the referenced obligation and the counterparty to the credit default swap and any custodian. As there is no central exchange or market for
certain credit default swap transactions, they may be difficult to trade or value, especially in the event of market disruptions. It is possible that developments in the swap market, including new or modified government regulation, could adversely
affect the Funds ability to terminate existing credit default swap agreements or to realize amounts to be received under such agreements. The Fund may also purchase credit default swap contracts to attempt to hedge against the risk of default of debt obligations held in its
portfolio, in which case the Fund would function as the counterparty referenced in the preceding paragraph. This would involve the risk that the investment may expire worthless and would only generate income in the event of an actual default or
other credit event in relation to the obligor under the referenced obligation (or, as applicable, a credit downgrade or other indication of financial instability). It would also involve credit riskthat the seller may fail to satisfy its
payment obligations to the Fund in the event of a default. The Fund may invest in credit default swap index products that provide
exposure to multiple credits. The Fund can either buy the index (take on credit exposure) or sell the index (pass credit exposure to a counterparty). Such investments are subject to the associated risks with investments in credit default swaps
discussed above. Regulation as a Commodity Pool The CFTC subjects advisers to registered investment companies to regulation by the CFTC if a fund that is advised by the investment adviser
either (i) invests, directly or indirectly, more than a prescribed level of its liquidation value in CFTC Derivatives, or (ii) markets itself as providing investment exposure to such instruments. To the extent the Fund uses CFTC
Derivatives, it intends to do so below such prescribed levels and will not market itself as a commodity pool or a vehicle for trading such instruments. Accordingly, the Manager has claimed an exclusion from the definition of the term
commodity pool operator under the CEA pursuant to Rule 4.5 under the CEA. The Manager is not, therefore, subject to registration or regulation as a commodity pool operator under the CEA in respect of the Fund. 20
Distressed Debt Securities Distressed debt securities are debt securities that are purchased in the secondary market and are the subject of bankruptcy proceedings or
otherwise in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or are rated in the lower rating categories (Ca or lower by Moodys and CC or lower by S&P) or, if unrated, are in the judgment of
the portfolio manager of equivalent quality. Investment in distressed debt securities is speculative and involves significant risk. The risks associated with high yield securities are heightened when investing in distressed debt securities. The Fund may make such investments when the portfolio manager believes it is reasonably likely that the issuer of the distressed debt
securities will make an exchange offer or will be the subject of a plan of reorganization pursuant to which the Fund will receive new securities (e.g., equity securities) and/or other assets. However, there can be no assurance that such an exchange
offer will be made or that such a plan of reorganization will be adopted. In addition, a significant period of time may pass between the time at which the Fund makes its investment in distressed debt securities and the time that any such exchange
offer or plan of reorganization is completed. During this period, it is unlikely that the Fund will receive any interest payments on the distressed debt securities, the Fund will be subject to significant uncertainty as to whether the exchange offer
or plan will be completed and the Fund may be required to bear extraordinary expenses to protect or recover its investment. Even if an exchange offer is made or a plan of reorganization is adopted with respect to the distressed debt securities held
by the Fund, there can be no assurance that the securities or other assets received by the Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the
investment was made. Moreover, any securities received by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. As a result of the Funds participation in negotiations with respect to any
exchange offer or plan of reorganization with respect to an issuer of distressed debt securities, the Fund may be restricted from disposing of such securities. Duration For the simplest fixed income
securities, duration indicates the average time at which the securitys cash flows are to be received. For simple fixed income securities with interest payments occurring prior to the payment of principal, duration is always less
than maturity. For example, a current coupon bullet bond with a maturity of 3.5 years (i.e., a bond that pays interest at regular intervals and that will have a single principal payment of the entire principal amount in 3.5 years) might
have a duration of approximately three years. In general, the lower the stated or coupon rate of interest of a fixed income security, the closer its duration will be to its final maturity; conversely, the higher the stated or coupon rate of interest
of a fixed income security, the shorter its duration will be compared to its final maturity. Determining duration becomes more complex
when fixed income security features like floating or adjustable coupon payments, optionality (for example, the right of the issuer to prepay or call the security), and structuring (for example, the right of the holders of certain securities to
receive priority as to the issuers cash flows) are considered. The calculation of effective duration attempts to take into account optionality and other complex features. Generally, the longer the effective duration of a security,
the greater will be the expected change in the percentage price of the security with respect to a change in the securitys own yield. By way of illustration, a security with an effective duration of 3.5 years might normally be expected to go
down in price by 35 bps if its yield goes up by 10 bps, while another security with an effective duration of 4.0 years might normally be expected to go down in price by 40 bps if its yield goes up by 10 bps. The assumptions that are made about a
securitys features and options when calculating effective duration may prove to be incorrect. For example, many mortgage pass-through securities may have stated final maturities of 30 years, but current prepayment rates, which can vary widely
under different economic conditions, may have a large influence on the pass-through securitys response to changes in yield. In these situations, the Funds portfolio manager may consider other analytical techniques that seek to
incorporate the securitys additional features into the determination of its response to changes in its yield. 21
A security may change in price for a variety of reasons. For example, floating rate securities
may have final maturities of ten or more years, but their effective durations will tend to be very short. If there is an adverse credit event, or a perceived change in the issuers creditworthiness, these securities could experience a far
greater negative price movement than would be predicted by the change in the securitys yield in relation to its effective duration. As a result, investors should be aware that effective duration is not an exact measurement and may not reliably
predict a securitys price sensitivity to changes in yield or interest rates. Equity Securities Equity securities include exchange-traded and OTC common and preferred stocks, warrants and rights, and securities convertible into
common shares. Equity securities fluctuate in price based on changes in a companys financial condition and overall market and economic conditions. The value of a particular security may decline due to factors that affect a particular industry
or industries, such as an increase in production costs, competitive conditions or labor shortages; or due to general market conditions, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings,
changes in interest or currency rates or generally adverse investor sentiment. The value of an equity security can be more volatile than the market as a whole and can perform differently from the value of the market as a whole. The value of a
companys equity securities may deteriorate because of a variety of factors, including disappointing earnings reports by the issuer, unsuccessful products or services, loss of major customers, major litigation against the issuer or changes in
government regulations affecting the issuer or the competitive environment. Exchange-Traded Funds (ETFs) ETFs are ownership interests in investment companies, unit investment trusts, depositary receipts and other pooled investment vehicles that
are traded on an exchange and that hold a portfolio of securities or other financial instruments (the Underlying Assets). The Underlying Assets are typically selected to correspond to the securities that comprise a particular broad based
sector or international index, or to provide exposure to a particular industry sector or asset class, including precious metals or other commodities. Short ETFs seek a return similar to the inverse, or a multiple of the inverse, of a
reference index. Short ETFs carry additional risks because their Underlying Assets may include a variety of financial instruments, including futures and options on futures, options on securities and securities indices, swap agreements and forward
contracts, and a short ETF may engage in short sales. An ETFs losses on short sales are potentially unlimited; however, the Funds risk would be limited to the amount it invested in the ETF. Certain ETFs are actively managed by a
portfolio manager or management team that makes investment decisions on Underlying Assets without seeking to replicate the performance of a reference index or industry sector or asset class. Unlike shares of typical open-end management investment companies or unit investment trusts,
shares of ETFs are designed to be traded throughout the trading day and bought and sold based on market price rather than net asset value. Shares can trade at either a premium or discount to net asset value. The portfolios held by ETFs are typically
publicly disclosed on each trading day and an approximation of actual net asset value is disseminated throughout the trading day. Because of this transparency, the trading prices of ETFs tend to closely track the actual net asset value of the
Underlying Assets and the ETF will generally gain or lose value depending on the performance of the Underlying Assets. In the future, as new products become available, the Fund may invest in ETFs that do not have this same level of transparency and,
therefore, may be more likely to trade at a larger discount or premium to actual net asset values. Gains or losses on the Funds
investment in ETFs will ultimately depend on the purchase and sale price of the ETF. An active trading market for an ETFs shares may not develop or be maintained and trading of an ETFs shares may be halted if the listing exchanges
officials deem such action appropriate, the shares are delisted from the exchange or the activation of market-wide circuit breakers (which are tied to large decreases in stock prices) halts stock trading generally. The performance of an
ETF will be reduced by transaction and other expenses, including fees paid by the ETF to service providers. Investors in ETFs are eligible to receive their portion of income, if any, accumulated on the securities held in the portfolio, less fees and
expenses of the ETF. An investment in an ETF involves risks similar to investing directly in the Underlying Assets, including the risk
that the value of the Underlying Assets may fluctuate in accordance with changes in the financial condition of their issuers, the value of securities and other financial instruments generally, and other market factors. 22
If an ETF is a registered investment company (as defined in the 1940 Act), the limitations
applicable to the Funds ability to purchase securities issued by other investment companies apply absent exemptive relief. The SEC has granted orders for exemptive relief to certain ETFs that permit investments in those ETFs by other
investment companies (such as the Fund) in excess of these limits. Under the orders, other investment companies generally may acquire up to 25% of the assets of an ETF. Some ETFs are not structured as investment companies and thus are not regulated
under the 1940 Act. Foreign Securities The risks of investing in securities of non-U.S. issuers or issuers with significant
exposure to non-U.S. markets may be related, among other things, to (i) differences in size, liquidity and volatility of, and the degree and manner of regulation of, the securities markets of certain non-U.S. markets compared to the securities markets in the U.S.; (ii) economic, political and social factors; and (iii) foreign exchange matters, such as restrictions on the repatriation of
capital, fluctuations in exchange rates between the U.S. dollar and the currencies in which the Funds portfolio securities are quoted or denominated, exchange control regulations and costs associated with currency exchange. The political and
economic structures in certain foreign countries, particularly emerging markets, are expected to undergo significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristic of more
developed countries. Unanticipated political or social developments may affect the values of the Funds investments in such
countries. The economies and securities and currency markets of many emerging markets have experienced significant disruption and declines. There can be no assurances that these economic and market disruptions will not continue. Legal remedies available to investors in certain foreign countries may be less extensive than those available to investors in the U.S. or
other foreign countries. Accounting standards in other countries are also not necessarily the same as in the United States. If the accounting standards in another country do not require as much detail as U.S. accounting standards, it may be harder
for the portfolio manager to completely and accurately determine a companys financial condition. In addition, the U.S. Government has from time to time in the past imposed restrictions, through penalties and otherwise, on foreign investments
by U.S. investors such as the Fund. Also, brokerage commissions and other costs of buying or selling securities often are higher in foreign countries than they are in the U.S. This reduces the amount the Fund can earn on its investments. The Fund generally holds its foreign securities and cash in foreign banks and securities depositories. Some foreign banks and securities
depositories may be recently organized or new to the foreign custody business. In addition, there may be limited or no regulatory oversight over their operations. Also, the laws of certain countries may put limits on the Funds ability to
recover its assets if a foreign bank or depository or issuer of a security or any of their agents goes bankrupt. In addition, it is often more expensive for the Fund to buy, sell and hold securities in certain foreign markets than in the U.S. The
increased expense of investing in foreign markets reduces the amount the Fund can earn on its investments and typically results in a higher operating expense ratio for the Fund as compared to investment companies that invest only in the United
States. Securities of some foreign companies have lower liquidity, and their prices are more volatile, than securities of comparable
domestic companies. Certain foreign countries are known to experience long delays between the trade and settlement dates of securities purchased or sold resulting in increased exposure of the Fund to market and foreign exchange fluctuations brought
about by such delays, and to the corresponding negative impact on Fund liquidity. Foreign Currency Risks The U.S. dollar value of investments denominated in a foreign currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currency in which the Funds investments are denominated relative to the U.S. dollar will affect the Funds net asset value. Exchange rates are generally affected by the forces of supply
and demand in the international currency markets, the relative merits of investing in different countries and the intervention or failure to intervene of U.S. or foreign governments and central banks. However, currency exchange rates may fluctuate
based on factors intrinsic to a countrys economy. Some emerging market countries also may have managed currencies, which are not free floating against the U.S. dollar. In addition, emerging markets are subject to the risk of restrictions upon
the free conversion of their currencies into other currencies. Any devaluations relative to the U.S. dollar in the currencies in which the Funds securities are quoted may reduce the Funds net asset value per share. 23
Investments in Emerging Markets Investors are strongly advised to consider carefully the special risks involved in emerging markets, which are in addition to the usual risks
of investing in developed foreign markets around the world. The risks of investing in securities in emerging countries include:
(i) less social, political and economic stability; (ii) the smaller size of the markets for such securities and lower volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national
policies that may restrict the Funds investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; (v) the absence of developed structures
governing private or foreign investment or allowing for judicial redress for injury to private property; and (vi) military unrest, war and terrorism. Investors should note that upon the accession to power of authoritarian regimes, the governments of a number of emerging market countries
previously expropriated large quantities of real and personal property similar to the property which may be represented by the securities purchased by the Fund. The claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by securities purchased by the Fund will not also be expropriated, nationalized, or otherwise confiscated at some time in the future. If such confiscation were to occur, the Fund could lose a
substantial portion or all of its investments in such countries. The Funds investments would similarly be adversely affected by exchange control regulation in any of those countries. Certain countries in which the Fund may invest may have vocal minorities that advocate radical religious or revolutionary philosophies or
support ethnic independence. Any disturbance on the part of such individuals could carry the potential for widespread destruction or confiscation of property owned by individuals and entities foreign to such country and could cause the loss of the
Funds investment in those countries. Settlement mechanisms in emerging market securities may be less efficient and reliable than in
more developed markets. In such emerging securities markets there may be delays and failures in share registration and delivery. In certain markets there have been times when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of the Fund to make intended securities purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of a
portfolio security caused by settlement problems could result either in losses to the Fund due to subsequent declines in the value of the portfolio security or, if the Fund has entered into a contract to sell the security, in possible liability to
the purchaser. There may also be a danger that, because of uncertainties in the operation of settlement systems in individual markets, competing claims may arise in respect of securities held by or to be transferred to the Fund. Furthermore,
compensation schemes may be non-existent, limited or inadequate to meet the Funds claims in any of these events. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, very negative effects on the economies and securities
markets of certain emerging markets. While some emerging market countries have sought to develop a number of corrective mechanisms to reduce inflation or mitigate its effects, inflation may continue to have significant effects both on emerging
market economies and their securities markets. In addition, many of the currencies of emerging market countries have experienced steady devaluations relative to the U.S. dollar and major devaluations have occurred in certain countries. Economies in
emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by economic conditions, trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries with which they trade. Because of the high levels of
foreign-denominated debt owed by many emerging market countries, fluctuating exchange rates can significantly affect the debt service obligations of those countries. This could, in turn, affect local interest rates, profit margins and exports, which
are a major source of foreign exchange earnings. To the extent an emerging market country faces a liquidity crisis with respect to its
foreign exchange reserves, it may increase restrictions on the outflow of any foreign exchange. Repatriation is ultimately dependent on the ability of the Fund to liquidate its investments and convert the local currency proceeds obtained from such
liquidation into U.S. dollars. Where this conversion must be done through official channels (usually the central bank 24
or certain authorized commercial banks), the ability to obtain U.S. dollars is dependent on the availability of such U.S. dollars through those channels and, if available, upon the willingness of
those channels to allocate those U.S. dollars to the Fund. The Funds ability to obtain U.S. dollars may be adversely affected by any increased restrictions imposed on the outflow of foreign exchange. If the Fund is unable to repatriate any
amounts due to exchange controls, it may be required to accept an obligation payable at some future date by the central bank or other governmental entity of the jurisdiction involved. If such conversion can legally be done outside official channels,
either directly or indirectly, the Funds ability to obtain U.S. dollars may not be affected as much by any increased restrictions except to the extent of the price which may be required to be paid in U.S. dollars. Furthermore, repatriation of
investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some countries. Many emerging market countries have little experience with the corporate form of business organization and may not have well-developed
corporation and business laws or concepts of fiduciary duty in the business context. The Fund may encounter substantial difficulties in obtaining and enforcing judgments against individuals and companies located in certain emerging market countries.
It may be difficult or impossible to obtain or enforce legislation or remedies against governments, their agencies and sponsored entities. Disclosure and regulatory standards in emerging markets in many respects are less stringent than in the United States and other major markets.
There also may be a lower level of monitoring and regulation of emerging markets and the activities of investors in such markets; enforcement of existing regulations has been extremely limited. Trading in the securities of emerging markets presents additional credit and financial risks. The Fund may have limited access to, or there
may be a limited number of, potential counterparties that trade in the securities of emerging market issuers. Governmental regulations may restrict potential counterparties to certain financial institutions located or operating in the particular
emerging market. Potential counterparties may not possess, adopt or implement creditworthiness standards, financial reporting standards or legal and contractual protections similar to those in developed markets. Currency hedging techniques may not
be available or may be limited. The Fund may not be able to reduce or mitigate risks related to trading with emerging market counterparties. The risk also exists that an emergency situation may arise in one or more emerging markets as a result of which trading of securities may
cease or may be substantially curtailed and prices for the Funds portfolio securities in such markets may not be readily available. Although it might be theoretically possible to hedge for anticipated income and gains, the ongoing and
indeterminate nature of the risks associated with emerging market investing (and the costs associated with hedging transactions) makes it very difficult to hedge effectively against such risks. Investment in Chinese debt instruments through China Interbank Bond Market (CIBM) Direct Access Program. The Fund may
invest in renminbi-denominated bonds issued in China (RMB Bonds). RMB Bonds, including government and corporate bonds, are available in the CIBM to eligible foreign investors through the CIBM Direct Access Program. The program is
relatively new and laws, rules, regulations, policies and guidelines relating to the program are untested and subject to change. The CIBM
Direct Access Program, established by the Peoples Bank of China, allows eligible foreign institutional investors to conduct trading in the CIBM, subject to other rules and regulations as promulgated by Chinese authorities. Eligible foreign
institutional investors who wish to invest directly in the CIBM through the CIBM Direct Access Program may do so through an onshore settlement agent, who would be responsible for making the relevant filings and account opening with the relevant
authorities. The Fund is therefore subject to the risk of default or errors on the part of such agent. Investing in the CIBM will also
expose the Fund to renminbi currency risks. The ability to hedge renminbi currency risks may be limited. In addition, given the renminbi is subject to exchange control restrictions, the Fund could be adversely affected by delays in converting other
currencies into renminbi and vice versa and at times when there are unfavorable market conditions. Europe Recent Events A number of countries in Europe have experienced severe economic and financial difficulties.
Many non-governmental issuers, and even certain governments, have defaulted on, or been forced to restructure, their debts; 25
many other issuers have faced difficulties obtaining credit or refinancing existing obligations; financial institutions have in many cases required government or central bank support, have needed
to raise capital, and/or have been impaired in their ability to extend credit; and financial markets in Europe and elsewhere have experienced extreme volatility and declines in asset values and liquidity. These difficulties may continue, worsen or
spread within and outside of Europe. Responses to the financial problems by European governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth and economic
recovery or have other unintended consequences. Further defaults or restructurings by governments and others of their debt could have
additional adverse effects on economies, financial markets and asset valuations around the world. In addition, on June 23, 2016, voters in the United Kingdom approved withdrawal from the European Union. On March 29, 2017, the United
Kingdom formally notified the European Council of its intention to leave the European Union. On December 24, 2020, the United Kingdom and the European Union struck a new trade and cooperation deal governing the future relationship of the two
parties. The deal was approved by the United Kingdom Parliament on December 30, 2020 and is expected to be formally ratified by the European Union Parliament in 2021. Given the size and importance of the United Kingdoms economy,
uncertainty about its legal, political, and economic relationship with the remaining member states of the European Union may continue to be a source of instability. Moreover, other countries may seek to withdraw from the European Union and/or
abandon the euro, the common currency of the European Union. A number of countries in Europe have suffered terror attacks, and additional attacks may occur in the future. Ukraine has experienced ongoing military conflict; this conflict may expand
and military attacks could occur elsewhere in Europe. Europe has also been struggling with mass migration from the Middle East and Africa. The ultimate effects of these events and other socio-political or geopolitical issues are not known but could profoundly affect global
economies and markets. Whether or not the Fund invests in securities of issuers located in Europe or with significant exposure to European issuers or countries, these events could negatively affect the value and liquidity of the Funds
investments. Russias Invasion of Ukraine Russias military invasion of Ukraine in February 2022 resulted in the United States, other countries and certain international
organizations levying broad economic sanctions against Russia. These sanctions froze certain Russian assets and prohibited, among other things, trading in certain Russian securities and doing business with specific Russian corporate entities, large
financial institutions, officials and oligarchs. The sanctions also included the removal of some Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the electronic network that connects banks globally, and
imposed restrictive measures to prevent the Russian Central Bank from undermining the impact of the sanctions. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that
support Russias military invasion. A number of large corporations and U.S. states have also announced plans to divest interests or otherwise curtail business dealings with certain Russian businesses. These sanctions and any additional
sanctions or other intergovernmental actions that may be undertaken against Russia or other countries that support Russias military invasion in the future may result in the devaluation of Russian or other affected currencies, a downgrade in
the sanctioned countrys credit rating, and a decline in the value and liquidity of Russian securities and securities of issuers in other countries that support the invasion. The potential for wider conflict may further decrease the value and
liquidity of certain Russian securities and securities of issuers in other countries affected by the invasion. In addition, the ability to price, buy, sell, receive, or deliver such securities is also affected due to these measures. For example, a
Fund may be prohibited from investing in securities issued by companies subject to such sanctions. In addition, the sanctions may require a Fund to freeze its existing investments in companies operating in or having dealings with Russia or other
sanctioned countries, which would prevent the Fund from selling these investments. Any exposure that the Fund may have to Russian counterparties or counterparties in other sanctioned countries also could negatively impact the Funds portfolio.
The extent and duration of Russias military actions and the repercussions of such actions, including any retaliatory actions or
countermeasures that may be taken by Russia or others subject to sanctions (such as cybersecurity attacks on other governments, corporations or individuals) are unpredictable, but could result in significant market disruptions, including in the oil
and natural gas markets, and may negatively affect global supply chains, inflation and global growth. These and any related events could significantly impact the Funds performance and the value of an investment in the Fund, even beyond any
direct exposure the Fund may have to Russian issuers or issuers in other countries affected by the invasion. Eurodollar or Yankee Obligations
Eurodollar bank obligations are U.S. dollar denominated debt obligations issued outside the U.S. capital markets by non-U.S. branches of U.S. banks and by non-U.S. banks. Yankee obligations are U.S. dollar denominated obligations issued in the U.S. capital markets by non-U.S. issuers. Eurodollar (and to a limited extent, Yankee) obligations are subject to certain sovereign risks. One such risk is the possibility that
a non-U.S. government might prevent U.S. dollar denominated funds from flowing across its borders. Other risks include: adverse political and economic developments in
a non-U.S. country; the extent and quality of government regulation of financial markets and institutions; the imposition of non-U.S. withholding
taxes; and expropriation or nationalization of non-U.S. issuers. Sovereign Government and
Supranational Debt Obligations The Fund may invest in all types of debt securities of governmental issuers in all countries,
including emerging markets. These sovereign debt securities may include: debt securities issued or guaranteed by governments, governmental agencies or instrumentalities and political subdivisions located in emerging market countries; debt securities
issued by government owned, controlled or sponsored entities located in emerging market countries; interests issued for the purpose of restructuring the investment characteristics of instruments issued by any of the above issuers; Brady Bonds, which
are debt securities issued under the framework of the Brady Plan as a means for debtor nations to restructure their outstanding external indebtedness; participations in loans between emerging market governments and financial institutions; or debt
securities issued by supranational entities such as the World Bank. A supranational entity is a bank, commission or company established or financially supported by the national governments of one or more countries to promote reconstruction or
development. Included among these entities are the Asian Development Bank, the European Union, the European Investment Bank, the Inter-American Development Bank, the International Monetary Fund, the United Nations, the World Bank and the European
Bank for Reconstruction and Development. Supranational organizations have no taxing authority and are dependent on their members for payments of interest and principal. There is no guarantee that one or more members of a supranational organization
will continue to make capital contributions. If such contributions are not made, the organization may be unable to pay interest or repay principal on its debt securities, and the Fund may lose money on such investments. Further, the lending
activities of such entities are limited to a percentage of their total capital, reserves and net income. 26
Sovereign debt is subject to risks in addition to those relating
to non-U.S. investments generally. As a sovereign entity, the issuing government may be immune from lawsuits in the event of its failure or refusal to pay the obligations when due. The debtors
willingness or ability to repay in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availability of sufficient foreign currency exchange on the date a payment is due,
the relative size of the debt service burden to the economy as a whole, the sovereign debtors policy toward principal international lenders and the political constraints to which the sovereign debtor may be subject. Sovereign debtors may also
be dependent on disbursements or assistance from foreign governments or multinational agencies, the countrys access to trade and other international credits, and the countrys balance of trade. Assistance may be dependent on a
countrys implementation of austerity measures and reforms, economic performance and/or the timely service of such debtors obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or
interest when due may result in the cancellation of such third parties commitments to lend funds to the governmental entity, which may further impair such debtors ability or willingness to service its debts in a timely manner. Some
sovereign debtors have rescheduled their debt payments, declared moratoria on payments or restructured their debt to effectively eliminate portions of it, and similar occurrences may happen in the future. There is no bankruptcy proceeding by which
sovereign debt on which governmental entities have defaulted may be collected in whole or in part. Depository Receipts Depositary receipts demonstrate ownership of shares of a foreign issuer and are alternatives to directly purchasing the underlying foreign
security. Depositary receipts may be sponsored or unsponsored and include American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs), European Depositary Receipts (EDRs)
and non-voting depositary receipts (NVDRs). ADRs in registered form are typically issued by a U.S. bank or trust company, traded in U.S. dollars, and are designed for use in the domestic
market. GDRs, EDRs, NVDRs and other similar instruments may be issued by a U.S. or non-U.S. entity and may be traded in other currencies. GDRs are tradable both in the United States and Europe and
are designed for use throughout the world. EDRs are issued in bearer form and are designed for use in European securities markets. Depositary receipts in general are subject to many of the risks associated with foreign investing (e.g., increased market, illiquidity,
currency, political, information and other risks), and even where traded in U.S. dollars are subject to currency risk if the underlying security is traded in a foreign currency. Unsponsored depositary receipts are issued without the participation of
the issuer of the underlying foreign security and there may be less information available about such issuers than there is with respect to domestic companies and issuers of securities underlying sponsored depositary receipts. Even if there is
information available, there may not be a correlation between such information and the market value of the depositary receipts. High Yield
(Junk) Bonds High yield securities are medium or lower rated securities and unrated securities of comparable quality,
sometimes referred to as high yield or junk bonds. Generally, such securities offer a higher current yield than is offered by higher rated securities, but also are predominantly speculative with respect to the issuers
capacity to pay interest and repay principal in accordance with the terms of the securities. The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than
higher quality bonds. In addition, medium and lower rated securities and comparable unrated securities generally present a higher degree of credit risk. The risk of loss because of default by issuers of these securities is significantly greater
because medium and lower rated securities generally are unsecured and frequently subordinated to senior indebtedness. In addition, the market value of securities in lower rated categories is generally more volatile than that of higher quality
securities, and the markets in which medium and lower rated securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate
market quotations for purposes of valuing its securities and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict the availability of securities for the Fund to purchase and may also limit the ability of the
Fund to sell securities at their fair value to respond to changes in the economy or the financial markets. 27
Lower rated debt obligations often have redemption features that permit an issuer to repurchase
the security from the Fund before it matures. If an issuer exercises that right, the Fund may have to replace the security with a lower yielding security, resulting in a decreased return for investors. If the Fund has to reduce its structural
leverage, it may be forced to sell its higher rated bonds, resulting in a decline in the overall credit quality of the securities held by the Fund and increasing the exposure of the Fund to the risks of lower rated securities. Investments in lower
rated zero coupon bonds may be more speculative and subject to greater fluctuations in value because of changes in interest rates than lower rated bonds that pay interest currently. Subsequent to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required
for purchase by the Fund (if applicable). Neither event will require sale of these securities by the Fund, but the portfolio manager will consider the event in determining whether the Fund should continue to hold the security. Illiquid Investments and Restricted Securities An illiquid security is any security which the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven
calendar days or less without the sale or disposition significantly changing the market value of the security. Illiquid securities may be difficult to value, and the Fund may have difficulty disposing of such securities promptly. The Fund does not
consider non-U.S. securities to be restricted if they can be freely sold in the principal markets in which they are traded, even if they are not registered for sale in the United States. Restricted securities are securities subject to legal or contractual restrictions on their resale, such as private placements. Such
restrictions might prevent the sale of restricted securities at a time when the sale would otherwise be desirable. Under SEC regulations, certain restricted securities acquired through private placements can be traded freely among qualified
purchasers. While restricted securities are generally presumed to be illiquid, it may be determined that a particular restricted security is liquid. Investing in these restricted securities could have the effect of increasing the Funds
illiquidity if qualified purchasers become, for a time, uninterested in buying these securities. Restricted securities may be sold only
(1) pursuant to SEC Rule 144A or another exemption, (2) in privately negotiated transactions or (3) in public offerings with respect to which a registration statement is in effect under the 1933 Act. Rule 144A securities, although not
registered in the U.S., may be sold to qualified institutional buyers in accordance with Rule 144A under the 1933 Act. As noted above, the Fund may determine that some Rule 144A securities are liquid. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a restricted security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than prevailed when it decided to sell. Investments in Other Investment Companies Subject to applicable statutory and regulatory limitations described below, the Fund may invest in shares of other investment companies,
including shares of open-end and closed-end investment companies affiliated or unaffiliated with the Fund, business development companies,
exchange-traded funds and unregistered investment companies. An investment in an investment company is subject to the risks associated
with that investment companys portfolio securities. Investments in closed-end funds may entail the additional risk that the market value of such investments may be substantially less than their
net asset value. To the extent the Fund invests in shares of another investment company, the Fund will indirectly bear a proportionate share of that investment companys advisory fees and other operating expenses. These fees are in addition to
the advisory fees and other operational expenses incurred directly by the Fund. In addition, the Fund could incur a sales charge in connection with purchasing an investment company security or a redemption fee upon the redemption of such security.
Section 12(d)(1)(A) of the 1940 Act provides that a fund may not purchase or otherwise acquire the securities of other
registered investment companies (as defined in the 1940 Act) if, as a result of such purchase or acquisition, it would own: (i) more than 3% of the total outstanding voting stock of the acquired investment company;
(ii) securities issued by any one investment company having a value in excess of 5% of the funds total 28
assets; or (iii) securities issued by all investment companies having an aggregate value in excess of 10% of the funds total assets. Certain exceptions may be available from these
limits such as when the Fund invests in certain exchange-traded funds or money-market funds or in investment companies that are part of the same group of investment companies as the Fund. On October 7, 2020, the SEC adopted new Rule 12d1-4 that will permit investment companies,
including the Fund, to invest in other investment companies beyond the statutory limits set forth in Section 12(d)(1) without obtaining an exemptive order, provided certain conditions are met. Investments in Affiliated Money Market Funds The Fund may invest, to the extent permitted by applicable law, all or some of its short-term cash investments in a money market fund or
similarly-managed pool advised by the Manager, Western Asset or an affiliate of the Manager that may or may not be required to register with the SEC as an investment company. In connection with any such investments, the Fund, to the extent
permitted by the 1940 Act, may pay its share of expenses of the fund in which it invests, which may result additional expenses for the Fund. London
Interbank Offered Rate (LIBOR) Replacement and Other Reference Rates Risk Many debt securities, derivatives, and other
financial instruments, including some of the Funds investments, utilize benchmark or reference rates such as LIBOR, European Interbank Offer Rate (EURIBOR), Sterling Overnight Interbank Average Rate (SONIA), and other
similar types of reference rates for variable interest rate calculations. Instruments in which the Fund invests may pay interest at floating rates based on LIBOR or other similar types of reference rates or may be subject to interest caps or floors
based on such reference rates. The Fund and issuers of instruments in which the Fund invests may also obtain financing at floating rates based on such reference rates. The elimination of a reference rate or any other changes or reforms to the
determination or supervision of reference rates could have an adverse impact on the market foror value ofany securities or payments linked to those reference rates. The use of LIBOR came under pressure following manipulation allegations in 2012. Despite increased regulation and other corrective actions
since that time, concerns have arisen regarding its viability as a benchmark due largely to reduced activity in the financial markets that it measures. In 2017, the U.K. Financial Conduct Authority (the FCA) announced that it will no
longer encourage nor require banks to submit rates for the calculation of LIBOR after 2021. Subsequently, the FCA and the administrator of LIBOR announced a delay in the phase out of a majority of the U.S. dollar LIBOR publications (overnight and
one, three, six and 12 months) until June 30, 2023, with the remainder of LIBOR publications to be phased out on schedule at the end of 2021. It is unclear whether LIBOR will continue to exist in its current or a modified form. Actions by
regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies. Based on the recommendations of the New York Federal Reserves Alternative Reference Rate Committee (comprised of major derivative
market participants and their regulators), the U.S. Federal Reserve began publishing a Secured Overnight Funding Rate (SOFR) that is intended to replace U.S. Dollar LIBOR. Proposals for alternative reference rates for other
currencies have also been announced or have already begun publication, such as SONIA in the United Kingdom. Markets are slowly developing
in response to these new rates, and transition planning is at a relatively early stage. Neither the effect of the transition process nor its ultimate success is known. The transition process may lead to increased volatility and illiquidity in
markets that currently rely on LIBOR to determine interest rates. The effect of any changes toor discontinuation ofLIBOR on the Fund will vary depending on, among other things, provisions in individual contracts and whether, how, and
when industry participants develop and adopt new reference rates and alternative reference rates for both legacy and new products and instruments. Because the usefulness of LIBOR as a benchmark may deteriorate during the transition period, these
effects could materialize prior to the end of 2021. Loans Loans are negotiated and underwritten by a bank or syndicate of banks and other institutional investors. The Fund may acquire an interest in
loans through the primary market by acting as one of a group of lenders of a loan. 29
The primary risk in an investment in loans is that the borrower may be unable to meet its interest and/or principal payment obligations. The occurrence of such a default with regard to a loan in
which the Fund had invested would have an adverse effect on the Funds net asset value. In addition, a sudden and significant increase in market interest rates may cause a decline in the value of these investments and in the Funds net
asset value. Other factors, such as rating downgrades, credit deterioration, or large downward movement in stock prices, a disparity in supply and demand of certain securities or market conditions that reduce liquidity could reduce the value of
loans, impairing the Funds net asset value. Loans may not be considered securities for certain purposes and purchasers, such as the Fund, therefore may not be entitled to rely on the anti-fraud protections of the federal securities
laws. Loans in which the Fund may invest may be collateralized or uncollateralized and senior or subordinate. Investments in
uncollateralized and/or subordinate loans entail a greater risk of nonpayment than do investments in loans which hold a more senior position in the borrowers capital structure or that are secured with collateral. In the case of collateralized
senior loans, however, there is no assurance that sale of the collateral would raise enough cash to satisfy the borrowers payment obligation or that the collateral can or will be liquidated. As a result, the Fund might not receive payments to
which it is entitled and thereby may experience a decline in the value of its investment and its net asset value. In the event of bankruptcy, liquidation may not occur and the court may not give lenders the full benefit of their senior positions. If
the terms of a senior loan do not require the borrower to pledge additional collateral, the Fund will be exposed to the risk that the value of the collateral will not at all times equal or exceed the amount of the borrowers obligations under
the senior loans. To the extent that a senior loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of bankruptcy of the borrower. The Fund may also acquire an interest in loans by purchasing participations (Participations) in and/or assignments
(Assignments) of portions of loans from third parties. By purchasing a Participation, the Fund acquires some or all of the interest of a bank or other lending institution in a loan to a borrower. Participations typically will result in
the Funds having a contractual relationship only with the lender and not the borrower. The Fund will have the right to receive payments or principal, interest and any fees to which it is entitled only from the lender selling the Participation
and only upon receipt by the lender of the payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the
loan, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the loan in which it has purchased the Participation. As a result, the Fund
will assume the credit risk of both the borrower and the lender that is selling the Participation. When the Fund purchases Assignments
from lenders, the Fund will acquire direct rights against the borrower on the loan. However, since Assignments are arranged through private negotiations between potential assignees and assignors, the rights and obligations acquired by the Fund as
the purchaser of an Assignment may differ from, and be more limited than, those held by the lender from which the Fund is purchasing the Assignments. Certain of the Participations or Assignments acquired by the Fund may involve unfunded commitments
of the lenders or revolving credit facilities under which a borrower may from time to time borrow and repay amounts up to the maximum amount of the facility. In such cases, the Fund would have an obligation to advance its portion of such additional
borrowings upon the terms specified in the loan documentation. The Fund may acquire loans of borrowers that are experiencing, or are more
likely to experience, financial difficulty, including loans of borrowers that have filed for bankruptcy protection. Although loans in which the Fund will invest generally will be secured by specific collateral, there can be no assurance that
liquidation of such collateral would satisfy the borrowers obligation in the event of nonpayment of scheduled interest or principal, or that such collateral could be readily liquidated. In the event of bankruptcy of a borrower, the Fund could
experience delays or limitations with respect to its ability to realize the benefits of the collateral securing a senior loan. In
addition, the Fund may have difficulty disposing of its investments in loans. The liquidity of such securities is limited and the Fund anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a
liquid secondary market could have an adverse impact on the value of such securities and on the Funds ability to dispose of particular loans or Assignments or Participations when necessary to meet the Funds liquidity needs or in response
to a specific economic event, such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for loans may also make it more difficult for the Fund to assign a value to those securities for purposes of valuing
the Funds investments and calculating its net asset value. The issuer of a loan may offer to provide
material, non-public information about the issuer to investors, such as the Fund. The Funds portfolio manager may avoid receiving this type of information about the issuer of a loan
30
either held by or considered for investment by the Fund, because of prohibitions on trading in securities of issuers while in possession of such information. The decision not to receive material, non-public information may place the Fund at a disadvantage, relative to other loan investors, in assessing a loan or the loans issuer. Mortgage-Backed and Other Asset-Backed Securities An asset-backed security is a fixed income security that derives its value primarily from cash flows relating to a pool of assets. There are a
number of different types of asset-backed and related securities, including mortgage-backed securities, securities backed by other pools of collateral (such as automobile loans, student
loans, sub-prime mortgages, and credit card receivables), collateralized mortgage obligations, and collateralized debt obligations. Asset-backed and mortgage-backed securities differ from conventional bonds in that principal is paid over the life of the securities rather
than at maturity. As a result, payments of principal of and interest on mortgage-backed securities and asset-backed securities are made more frequently than are payments on conventional debt securities. The average life of asset-backed and
mortgage-backed securities is likely to be substantially less than the original maturity of the underlying asset pools as a result of prepayments or foreclosures of mortgages, as applicable. In addition, holders of mortgage-backed securities and of
certain asset-backed securities (such as asset-backed securities backed by home equity loans) may receive unscheduled payments of principal at any time representing prepayments on the underlying mortgage loans or financial assets. When the holder of
the security attempts to reinvest prepayments or even the scheduled payments of principal and interest, it may receive a rate of interest that is higher or lower than the rate on the mortgage-backed security or asset-backed security originally held.
To the extent that mortgage-backed securities or asset-backed securities are purchased by the Fund at a premium, mortgage foreclosures and principal prepayments may result in a loss to the extent of the premium paid. To the extent the loans
underlying a security representing an interest in a pool of mortgages or other assets are prepaid, the Fund may experience a loss (if the price at which the respective security was acquired by the Fund was at a premium over par, which represents the
price at which the security will be redeemed upon prepayment) or a gain (if the price at which the respective security was acquired by the Fund was at a discount from par). In addition, prepayments of such securities held by the Fund will reduce the
share price of the Fund to the extent the market value of the securities at the time of prepayment exceeds their par value, and will increase the share price of the Fund to the extent the par value of the securities exceeds their market value at the
time of prepayment. Prepayments may occur with greater frequency in periods of declining interest rates because, among other reasons, it may be possible for borrowers to refinance their outstanding obligation at lower interest rates. When market
interest rates increase, the market values of asset-backed and mortgage-backed securities decline. At the same time, however, refinancing slows, which lengthens the effective maturities of these securities. As a result, the negative effect of the
rate increase on the market value of asset-backed and mortgage-backed securities is usually more pronounced than it is for other types of fixed income securities. Changes in the markets perception of the mortgages or assets backing the security, the creditworthiness of the servicing agent for the
loan pool, the originator of the loans, or the financial institution providing any credit enhancement, will all affect the value of an asset-backed or mortgage-backed security, as will the exhaustion of any credit enhancement. The risks of investing in asset-backed and mortgage-backed securities ultimately depend upon the payment of the underlying loans by the
individual borrowers. In its capacity as purchaser of an asset-backed security or mortgage-backed security, the Fund would generally have no recourse to the entity that originated the loans in the event of default by the borrower. The risk of non-payment is greater for asset-backed and mortgage-backed securities that are backed by pools that contain subprime loans, but a level of risk exists for all loans. Market factors adversely affecting
loan repayments may include a general economic turndown and high unemployment. Mortgage-backed securities may be adversely affected by a general slowdown in the real estate market, a drop in the market prices of real estate, or an increase in
interest rates resulting in higher mortgage payments by holders of adjustable rate mortgages. Additional information regarding different
types of asset-backed and mortgage-backed securities is provided below. Governmental, government-related or private entities may create pools of loan assets offering pass-through investments in addition to those described below. As new types of
asset-backed or mortgage-backed securities are developed and offered to investors, the portfolio manager may, consistent with the Funds investment objective and policies, consider making investments in such new types of securities. 31
Mortgage-Backed Securities. Mortgage-backed securities (MBS) represent
interests in pools of mortgage loans made by lenders such as savings and loan institutions, mortgage bankers, commercial banks and others, to finance purchases of homes, commercial buildings or other real estate. The individual mortgage loans are
assembled for sale to investors (such as the Fund) by various governmental or government-related agencies and private organizations, such as dealers. Government-sponsored MBS. Some government sponsored mortgage-related securities are backed by the full faith and credit of the United
States. The Government National Mortgage Association (Ginnie Mae), the principal guarantor of such securities, is a wholly owned United States government corporation within the Department of Housing and Urban Development. Other
government-sponsored mortgage-related securities are not backed by the full faith and credit of the United States government. Issuers of such securities include Fannie Mae (formally known as the Federal National Mortgage Association) and Freddie Mac
(formally known as the Federal Home Loan Mortgage Corporation). Fannie Mae is a government-sponsored corporation which is subject to general regulation by the Secretary of Housing and Urban Development. Pass-through securities issued by Fannie Mae
are guaranteed as to timely payment of principal and interest by Fannie Mae. Freddie Mac is a stockholder-owned corporation chartered by Congress and subject to general regulation by the Department of Housing and Urban Development. Participation
certificates representing interests in mortgages from Freddie Macs national portfolio are guaranteed as to the timely payment of interest and ultimate collection of principal by Freddie Mac. The U.S. government has provided financial support
to Fannie Mae and Freddie Mac in the past, but there can be no assurances that it will support these or other government-sponsored entities in the future. Under the Federal Housing Finance Agencys Single Security Initiative, Fannie Mae and Freddie Mac have entered into a joint
initiative to operate a common securitization platform for the issuance of Uniform Mortgage-Backed Securities (UMBS), which generally aligns the characteristics of Fannie Mae and Freddie Mac participation certificates. In June 2019
Fannie Mae and Freddie Mac began issuing UMBS in place of their to be announced- eligible mortgage-backed securities. The effect of the issuance of UMBS on the market for mortgage-backed securities is uncertain. Privately Issued MBS. Unlike MBS issued or guaranteed by the U.S. government or certain government-sponsored entities, MBS issued by
private issuers do not have a government or government-sponsored entity guarantee, but may have credit enhancement provided by external entities such as banks or financial institutions or achieved through the structuring of the transaction itself.
In addition, MBS that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that
are applicable to those MBS that have a government or government-sponsored entity guarantee. As a result, the mortgage loans underlying private MBS may, and frequently do, have less favorable collateral, credit risk or other underwriting
characteristics than government or government-sponsored MBS and have wider variances in a number of terms including interest rate, term, size, purpose and borrower characteristics. Privately issued pools more frequently include second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying mortgage loans in a private-label MBS pool may vary to
a greater extent than those included in a government guaranteed pool, and the pool may include subprime mortgage loans. Subprime loans refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments
on their loans. For these reasons, the loans underlying these securities have had in many cases higher default rates than those loans that meet government underwriting requirements. Privately issued mortgage-backed securities are not traded on an exchange and there may be a limited market for the securities, especially
when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, mortgage-backed securities held in the Funds portfolio may be particularly difficult to value because of the complexities
involved in assessing the value of the underlying mortgage loans. Adjustable rate mortgage-backed securities. Adjustable rate
mortgage-backed securities (ARMBS) are pass-through securities collateralized by mortgages with adjustable rather than fixed rates. Adjustable rate mortgages eligible for inclusion in a mortgage pool generally provide for a fixed initial
mortgage interest rate for a set number of scheduled monthly payments. After that schedule of payments has been completed, the interest rates of the adjustable rate mortgages are subject to periodic adjustment based on changes to a designated
benchmark index. Mortgages underlying most ARMBS may contain maximum and minimum rates beyond which the mortgage interest rate may not
vary over the lifetime of the mortgage. In addition, certain adjustable rate mortgages provide for additional limitations on the maximum amount by which the mortgage interest rate may adjust for any single
32
adjustment period. In the event that market rates of interest rise more rapidly to levels above that of the maximum rate for the adjustable rate mortgages underlying an ARMBS, the ARMBS
coupon may represent a below market rate of interest. In these circumstances, the market value of the ARMBS will likely have fallen. During periods of declining interest rates, income to the Fund derived from adjustable rate mortgages that remain in
the mortgage pool underlying the ARMBS may decrease in contrast to the income on fixed rate mortgages, which will remain constant. Adjustable rate mortgages also have less potential for appreciation in value as interest rates decline than do fixed
rate investments. In addition, the current yields on ARMBS may be different than market yields during interim periods between coupon reset dates. Stripped mortgage-backed securities. Stripped mortgage-backed securities (SMBS) are structured with two or more classes of
securities that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have at least one class receiving only a small portion of the principal. In the most extreme case, one
class will receive all of the interest (IO or interest-only class), while the other class will receive all of the principal (PO or principal-only class). The yield to maturity on IOs, POs and other mortgage-backed securities
that are purchased at a substantial premium or discount generally are extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets,
and a rapid rate of principal payments may have a material adverse effect on such securities yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup
its initial investment in these securities even if the securities have received the highest rating by a NRSRO. SMBS have greater
volatility than other types of securities. Although SMBS are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, the market for such securities has not yet been fully developed.
Accordingly, the secondary market for SMBS may be more volatile and have lower liquidity than that for other MBS, potentially limiting the Funds ability to buy or sell SMBS at any particular time. Collateralized mortgage obligations. Another type of security representing an interest in a pool of mortgage loans is known as a
collateralized mortgage obligation (CMO). CMOs represent interests in a short-term, intermediate-term or long-term portion of a mortgage pool. Each portion of the pool receives monthly interest payments, but the principal repayments pass
through to the short-term CMO first and to the long-term CMO last. A CMO permits an investor to more accurately predict the rate of principal repayments. CMOs are issued by private issuers, such as broker-dealers, and by government agencies, such as
Fannie Mae and Freddie Mac. Investments in CMOs are subject to the same risks as direct investments in the underlying mortgage-backed securities. In addition, in the event of a bankruptcy or other default of a broker that issued the CMO held by the
Fund, the Fund could experience delays in liquidating both its position and losses. The Fund may invest in CMOs in any rating category of the recognized rating services and may invest in unrated CMOs. The Fund may also invest in stripped
CMOs, which represent only the income portion or the principal portion of the CMO. The values of stripped CMOs are very sensitive to interest rate changes; accordingly, these instruments present a greater risk of loss than conventional
mortgage-backed securities. Tiered index bonds. Tiered index bonds are relatively new forms of mortgage-related securities. The
interest rate on a tiered index bond is tied to a specified index or market rate. So long as this index or market rate is below a predetermined strike rate, the interest rate on the tiered index bond remains fixed. If, however, the
specified index or market rate rises above the strike rate, the interest rate of the tiered index bond will decrease. Thus, under these circumstances, the interest rate on a tiered index bond, like an inverse floater, will move in the
opposite direction of prevailing interest rates, with the result that the price of the tiered index bond would decline and may be considerably more volatile than that of a fixed-rate bond. Other Asset-Backed Securities Additional Information Similar to mortgage-backed securities, other types of asset-backed securities may be issued by agencies or instrumentalities of the U.S.
government (including those whose securities are neither guaranteed nor insured by the U.S. government), foreign governments (or their agencies or instrumentalities), or non-governmental issuers.
These securities include securities backed by pools of automobile loans, educational loans, home equity loans, and credit card receivables. The underlying pools of assets are securitized through the use of trusts and special purpose entities. These
securities may be subject to the risks described above under Mortgage-Backed and Other Asset-Backed Securities General, including risks associated with changes in interest rates and prepayment of underlying obligations. 33
Certain types of asset-backed securities present additional risks that are not presented by
mortgage-backed securities. In particular, certain types of asset-backed securities may not have the benefit of a security interest in the related assets. For example, many securities backed by credit card receivables are unsecured. Even when
security interests are present, the ability of an issuer of certain types of asset-backed securities to enforce those interests may be more limited than that of an issuer of mortgage-backed securities. For instance, automobile receivables generally
are secured by automobiles rather than by real property. Most issuers of automobile receivables permit loan servicers to retain possession of the underlying assets. In addition, because of the large number of underlying vehicles involved in a
typical issue of asset-backed securities and technical requirements under state law, the trustee for the holders of the automobile receivables may not have a proper security interest in all of the automobiles. Therefore, recoveries on repossessed
automobiles may not be available to support payments on these securities. In addition, certain types of asset-backed securities may
experience losses on the underlying assets as a result of certain rights provided to consumer debtors under federal and state law. In the case of certain consumer debt, such as credit card debt, debtors are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on their credit cards (or other debt), thereby reducing their balances due. For instance, a debtor may be able to offset certain
damages for which a court has determined that the creditor is liable to the debtor against amounts owed to the creditor by the debtor on his or her credit card. Additionally, an asset-backed security is subject to risks associated with the servicing agents or originators performance. For
example, a servicing agent or originators mishandling of documentation related to the underlying collateral (e.g., failure to properly document a security interest in the underlying collateral) may affect the rights of the security holders in
and to the underlying collateral. Asset-backed commercial paper. The Fund may purchase commercial paper, including asset-backed
commercial paper (ABCP) that is issued by structured investment vehicles or other conduits. These conduits may be sponsored by mortgage companies, investment banking firms, finance companies, hedge funds, private equity firms and special
purpose finance entities. ABCP typically refers to a debt security with an original term to maturity of up to 270 days, the payment of which is supported by cash flows from underlying assets, or one or more liquidity or credit support providers, or
both. Assets backing ABCP, which may be included in revolving pools of assets with large numbers of obligors, include credit card, car loan and other consumer receivables and home or commercial mortgages, including subprime mortgages. The repayment
of ABCP issued by a conduit depends primarily on the cash collections received from the conduits underlying asset portfolio and the conduits ability to issue new ABCP. Therefore, there could be losses to the Fund investing in ABCP in the
event of credit or market value deterioration in the conduits underlying portfolio, mismatches in the timing of the cash flows of the underlying asset interests and the repayment obligations of maturing ABCP, or the conduits inability to
issue new ABCP. To protect investors from these risks, ABCP programs may be structured with various protections, such as credit enhancement, liquidity support, and commercial paper stop-issuance and wind-down triggers. However there can be no
guarantee that these protections will be sufficient to prevent losses to investors in ABCP. Some ABCP programs provide for an extension
of the maturity date of the ABCP if, on the related maturity date, the conduit is unable to access sufficient liquidity through the issue of additional ABCP. This may delay the sale of the underlying collateral and the Fund may incur a loss if the
value of the collateral deteriorates during the extension period. Alternatively, if collateral for ABCP deteriorates in value, the collateral may be required to be sold at inopportune times or at prices insufficient to repay the principal and
interest on the ABCP. ABCP programs may provide for the issuance of subordinated notes as an additional form of credit enhancement. The subordinated notes are typically of a lower credit quality and have a higher risk of default. A fund purchasing
these subordinated notes will therefore have a higher likelihood of loss than investors in the senior notes. Collateralized debt
obligations. The Fund may invest in collateralized debt obligations (CDOs), which include collateralized bond obligations (CBOs), CLOs and other similarly structured securities. CDOs are types of asset-backed securities.
A CBO is a trust or other special purpose entity (SPE) which is typically backed by a diversified pool of fixed income securities (which may include high risk, below investment grade securities). A CLO is a trust or other SPE that is
typically collateralized by a pool of loans, which may include, among others, domestic and non-U.S. senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that
may be rated below investment grade or equivalent unrated loans. Although certain CDOs may receive credit 34
enhancement in the form of a senior-subordinate structure, over-collateralization or bond insurance, such enhancement may not always be present, and may fail to protect the Fund against the risk
of loss on default of the collateral. Certain CDOs may use derivatives contracts to create synthetic exposure to assets rather than holding such assets directly, which entails the risks of derivative instruments described elsewhere in
this SAI. CDOs may charge management fees and administrative expenses, which are in addition to those of the Fund. For both CBOs and
CLOs, the cashflows from the SPE are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the equity tranche, which bears the first loss from defaults from the bonds or loans in the SPE and
serves to protect the other, more senior tranches from default (though such protection is not complete). Since it is partially protected from defaults, a senior tranche from a CBO or CLO typically has higher ratings and lower yields than its
underlying securities, and may be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and
disappearance of protecting tranches, market anticipation of defaults, as well as investor aversion to CBO or CLO securities as a class. Interest on certain tranches of a CDO may be paid in kind (paid in the form of obligations of the same type
rather than cash), which involves continued exposure to default risk with respect to such payments. The risks of an investment in a CDO
depend largely on the type of the collateral securities and the class of the CDO in which the Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus, are not registered under the securities laws. As a result,
investments in CDOs may be characterized by the Fund as illiquid securities. However, an active dealer market may exist for CDOs, allowing a CDO to qualify for Rule 144A transactions. In addition to the normal risks associated with fixed income
securities discussed elsewhere in this SAI and the Prospectus (e.g., interest rate risk and credit risk), CDOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not be
adequate to make interest or other payments; (ii) the collateral may decline in value or default or its credit rating may be downgraded, if rated by a nationally recognized statistical rating organization; (iii) the Fund may invest in
tranches of CDOs that are subordinate to other tranches; (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results; and
(v) the CDOs manager may perform poorly. Mortgage Dollar Rolls In a mortgage dollar roll, also known as a forward roll transaction, the Fund sells MBS for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity) MBS on a specified future date. The Fund may enter into a mortgage dollar roll commitment with the intention of entering into an offsetting transaction whereby, rather
than accepting delivery of the security on the specified future date, the Fund sells the security and then agrees to repurchase a similar security at a later time. In this case, the Fund forgoes interest on the security during the roll period and is
compensated by the interest earned on the cash proceeds of the initial sale of the security and by the difference between the sale price and the lower repurchase price at the future date. At the time the Fund enters into a mortgage dollar roll
commitment, the Fund will set aside cash or other appropriate liquid securities with a value at least equal to the Funds obligation under the commitment. The Funds liquidity and ability to manage its assets might be affected when it sets
aside cash or portfolio securities to cover such commitments. Mortgage dollar rolls involve the risk that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Funds use of proceeds
of the dollar roll may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Funds obligation to repurchase the securities. Forward roll transactions may have a leveraging effect on the Fund, making the value of an investment in the Fund more volatile and increasing
the Funds overall investment exposure. Successful use of mortgage dollar rolls may depend on the portfolio managers ability to correctly predict interest rates and prepayments. There is no assurance that mortgage dollar rolls can be
successfully employed. Municipal Securities Municipal securities (which are also referred to herein as municipal obligations or municipal bonds) generally include
debt obligations (including, but not limited to bonds, notes or commercial paper) issued by or on behalf of any of the 50 U.S. states and their political subdivisions, agencies and public authorities, certain other
35
governmental issuers (such as Puerto Rico, the U.S. Virgin Islands and Guam) or other qualifying issuers, participations or other interests in these securities and other related investments. The
interest paid on municipal securities is generally excluded from gross income for regular U.S. federal income tax purposes, although it may be subject to the U.S. federal alternative minimum tax. The Fund does not anticipate holding municipal
securities in sufficient quantities to qualify to pay exempt-interest dividends. As a result, distributions to the Funds shareholders of interest earned by the Fund are expected to be treated for federal income tax purposes as ordinary
dividends without regard to the character of any interest that was received on municipal securities. Preferred Securities There are two basic types of preferred securities: traditional and hybrid-preferred securities. Traditional preferred securities consist of
preferred stock issued by an entity taxable as a corporation. Preferred stocks, which may offer fixed or floating rate dividends, are perpetual instruments and considered equity securities. Preferred stocks are subordinated to debt instruments in a
companys capital structure, in terms of priority to corporate income and claim to corporate assets, and therefore will be subject to greater credit risk than debt instruments. Alternatively, hybrid-preferred securities may be issued by
corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated trust or partnership of the corporation, generally in the form of preferred interests in subordinated debentures or
similarly structured securities. The hybrid-preferred securities market consists of both fixed and adjustable coupon rate securities that are either perpetual in nature or have stated maturity dates. Traditional Preferred Securities. Traditional preferred securities pay fixed or floating dividends to investors and have
preference over common shares in the payment of dividends and the liquidation of a companys assets. This means that a company must pay dividends on preferred stock before paying any dividends on its common shares. In order to be
payable, distributions on such preferred securities must be declared by the issuers board of trustees. Income payments on preferred securities may be cumulative, causing dividends and distributions to accumulate even if not declared by the
board of trustees or otherwise made payable. In such a case, all accumulated dividends must be paid before any dividend on the common shares can be paid. However, many traditional preferred stocks
are non-cumulative, in which case dividends do not accumulate and need not ever be paid. There is no assurance that dividends or distributions on the traditional preferred securities in which the
Fund invests will be declared or otherwise made payable. Preferred securities may also contain provisions under which payments must be stopped (i.e., stoppage is compulsory, not discretionary). The conditions under which this occurs may relate to,
for instance, capitalization levels. Hence, if a company incurs significant losses that deplete retained earnings automatic payment stoppage could occur. In some cases the terms of the preferred securities provide that the issuer would be obligated
to attempt to issue common shares to raise funds for the purpose of making the preferred payments. However, there is no guarantee that the issuer would be successful in placing common shares. Preferred stockholders usually have no right to vote for corporate trustees or on other matters. Shares of traditional preferred securities
have a liquidation preference that generally equals the original purchase price at the date of issuance. The market value of preferred securities may be affected by, among other factors, favorable and unfavorable changes impacting the issuer or
industries in which they operate, movements in interest rates and inflation, and the broader economic and credit environments, and by actual and anticipated changes in tax laws, such as changes in corporate and individual income tax rates. Because
the claim on an issuers earnings represented by traditional preferred securities may become onerous when interest rates fall below the rate payable on such securities, the issuer may redeem the securities. Thus, in declining interest rate
environments in particular, the Funds holdings of higher rate-paying fixed rate preferred securities may be reduced, and the Fund may be unable to acquire securities of comparable credit quality paying comparable rates with the redemption
proceeds. Hybrid-Preferred Securities. Hybrid-preferred securities are typically junior and fully subordinated liabilities of an
issuer or the beneficiary of a guarantee that is junior and fully subordinated to the other liabilities of the guarantor. In addition, hybrid-preferred securities typically permit an issuer to defer the payment of income for eighteen months or more
without triggering an event of default. Generally, the maximum deferral period is five years. Because of their subordinated position in the capital structure of an issuer, the ability to defer payments for extended periods of time without default
consequences to the issuer, and certain other features (such as restrictions on common dividend payments by the issuer or ultimate guarantor when full cumulative payments on the hybrid preferred securities have not been made), these hybrid-preferred
securities are often treated as close substitutes for traditional preferred securities, both by issuers and investors. Hybrid-preferred securities have many of the key characteristics of equity due to their subordinated position in an issuers
capital structure and because their quality 36
and value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows. Hybrid-preferred securities include, but are not limited to,
trust preferred securities (TRUPS®); enhanced trust preferred securities (Enhanced TRUPS®); trust-originated preferred securities
(TOPrS®); monthly-income preferred securities (MIPS®); quarterly-income bond securities (QUIBS®); quarterly-income debt securities (QUIDS®); quarterly-income preferred securities (QUIPSSM); corporate trust securities (CorTS®); public income notes (PINES®); and other hybrid-preferred securities. Hybrid-preferred securities are typically issued with a final
maturity date. In certain instances, a final maturity date may be extended and/or the final payment of principal may be deferred at the issuers option for a specified time without default. No redemption can typically take place unless all
cumulative payment obligations have been met, although issuers may be able to engage in open-market repurchases without regard to whether all payments have been paid. Many hybrid-preferred securities are issued by trusts or other special purpose entities established by operating companies and are not a
direct obligation of an operating company. At the time the trust or special purpose entity sells such preferred securities to investors, it purchases debt of the operating company (with terms comparable to those of the trust or special purpose
entity securities), and the operating company deducts for tax purposes the interest paid on the debt held by the trust or special purpose entity. The trust or special purpose entity is generally required to be treated as transparent for U.S. federal
income tax purposes such that the holders of the trust preferred securities are treated as owning beneficial interests in the underlying debt of the operating company. Accordingly, payments on the hybrid-preferred securities are generally treated as
interest rather than dividends for U.S. federal income tax purposes and, as such, are not eligible for the dividends received deduction for corporate taxpayers or the reduced rates of tax that apply to qualified dividend income for non-corporate taxpayers. The trust or special purpose entity in turn is a holder of the operating companys debt and has priority with respect to the operating companys earnings and profits
over the operating companys common shareholders, but is typically subordinated to other classes of the operating companys debt. Typically a preferred security has a credit rating that is lower than that of its corresponding operating
companys senior debt securities. Within the category of hybrid-preferred securities are senior debt instruments that trade in the
broader preferred securities market. These debt instruments, which are sources of long-term capital for the issuers, have structural features similar to other preferred securities such as maturities ranging from 30 years to perpetuity, call
features, quarterly payments, exchange listings and the inclusion of accrued interest in the trading price. Preferred securities may be subject to changes in regulations and there can be no assurance that the current regulatory treatment of
preferred securities will continue. Ratings as Investment Criteria In general, the ratings of NRSROs represent the opinions of these agencies as to the quality of securities that they rate. Such ratings,
however, are relative and subjective, are not absolute standards of quality and do not evaluate the market value risk of the securities. These ratings will be used by the Fund as initial criteria for the selection of portfolio securities, but the
Fund also will rely upon the independent advice of the portfolio manager to evaluate potential investments. Among the factors that will be considered are the long-term ability of the issuer to pay principal and interest and general economic trends.
Appendix A to this SAI contains further information concerning the rating categories of NRSROs and their significance. If a security is
rated by different agencies and receives different ratings from these agencies, the Fund will treat the security as being rated in the highest rating category received from an agency. Real Estate Investment Trusts (REITs) REITs are pooled investment vehicles which invest primarily in income producing real estate or real estate-related loans or interests. REITs
are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive income primarily from the collection of rents. Equity REITs
can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of interest payments. REITs are not taxed on
income distributed to shareholders provided they comply with the applicable requirements of the Code. Debt securities issued by REITs, for the most part, are general and unsecured obligations and are subject to risks associated with REITs. Like
mutual funds, REITs have expenses, including advisory and administration fees paid by certain REITs and, as a result, the Fund is indirectly subject to those fees if the Fund invests in REITs. 37
Investing in REITs involves certain risks, including declines in the value of the underlying real
estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds, overbuilding, extended vacancies of properties, increased competition, increases in property taxes and operating expenses, changes in
zoning laws, losses due to costs resulting from the clean-up of environmental problems, liability to third parties for damages resulting from environmental problems, casualty or condemnation losses,
limitations on rents, changes in neighborhood values and in the appeal of properties to tenants. Equity REITs may also be subject to property and casualty risks as their insurance policies may not completely recover repair or replacement of assets
damaged by fires, floods, earthquakes or other natural disasters. REITs whose underlying assets are concentrated in properties used by a particular industry, such as healthcare, are also subject to industry-related risks. Certain special
purpose REITs may invest their assets in specific real estate sectors, such as hotels, nursing homes or warehouses, and are therefore subject to the risks associated with adverse developments in any such sectors. REITs (especially mortgage REITs) are subject to interest rate risks. When interest rates decline, the value of a REITs investment in
fixed income obligations can be expected to rise. Conversely, when interest rates rise, the value of a REITs investment in fixed-rate obligations can be expected to decline. If the REIT invests in adjustable rate debt instruments the interest
rates on which are reset periodically, yields on a REITs investments in such loans will gradually align themselves to reflect changes in market interest rates. This causes the value of such investments to fluctuate less dramatically in
response to interest rate fluctuations than would investments in fixed-rate obligations. However, REIT shares can be more volatile than, and perform differently from, larger company securities since REITs tend to be small- to medium-sized companies in relation to the equity markets as a whole. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or
erratic price movements than larger company securities. REITs are dependent upon the skills of their managers and are generally not
diversified. REITs may be highly leveraged, and financial covenants may affect the ability of REITs to operate effectively. REITs are generally dependent upon maintaining cash flows to repay borrowings, to cover operating costs, and to make
distributions to shareholders and are subject to the risk of default by lessees and borrowers. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting its investments. If REITs are net sellers of assets or do not reinvest principal, they are also subject to self-liquidation. In addition, REITs could possibly fail to qualify for tax-free pass-through of net income and gains under the Code or to maintain their exemptions from registration as an investment company under the 1940 Act. In the event of any such failure to qualify
as a REIT under the Code, the company would be subject to corporate level taxation, significantly reducing the return to the Fund on its investment in such company. Repurchase Agreements Under the terms
of a typical repurchase agreement, the Fund would acquire one or more underlying debt securities from a counterparty (typically a bank or a broker-dealer), subject to the counterpartys obligation to repurchase, and the Fund to resell, the
securities at an agreed-upon time and price. The Fund may enter into repurchase agreements where the underlying collateral consists entirely of cash items and/or securities of the U.S. Government, its agencies, its instrumentalities, or U.S.
Government sponsored enterprises. The Fund may also enter into repurchase agreements where the underlying collateral consists of other types of securities, including securities the Fund could not purchase directly. For such repurchase agreements,
the underlying securities which serve as collateral may include, but are not limited to, U.S. government securities, municipal securities, corporate debt obligations, asset-backed securities (including collateralized mortgage obligations
(CMOs)), convertible securities and common and preferred stock and may be of below investment grade quality. The repurchase price is typically greater than the purchase price paid by the Fund, thereby determining the Funds yield. A
repurchase agreement is similar to, and may be treated as, a secured loan, where the Fund loans cash to the counterparty and the loan is secured by the underlying securities as collateral. All repurchase agreements entered into by the Fund are
required to be collateralized so that at all times during the term of a repurchase agreement, the value of the underlying securities is at least equal to the amount of the repurchase price. Also, the Fund or its custodian is required to have control
of the collateral, which the portfolio manager believes will give the Fund a valid, perfected security interest in the collateral. Repurchase agreements could involve certain risks in the event of default or insolvency of the counterparty, including possible delays or
restrictions upon the Funds ability to dispose of the underlying securities, the risk of a possible decline in the value of the underlying securities during the period in which the Fund seeks to assert its right to them, the risk that there
may be a limited market or no market for disposition of such underlying securities, the 38
risk of incurring expenses associated with asserting those rights and the risk of losing all or part of the income from the agreement. The Fund will seek to mitigate these risks but there is no
guarantee that such efforts will be successful. If the Fund enters into a repurchase agreement involving securities the Fund could not purchase directly, and the counterparty defaults, the Fund may become the holder of such securities. Repurchase
agreements collateralized by securities other than U.S. government securities may be subject to greater risks and are more likely to have a term to maturity of longer than seven days. Repurchase agreements with a maturity of more than seven days are
considered to be illiquid. Repurchase agreements may be entered into or novated with a financial clearinghouse, which would become the
Funds counterparty. The Fund would then become subject to the rules of the clearinghouse, which may limit the Funds rights and remedies (including recourse to collateral) or delay or restrict the rights and remedies, and expose the Fund
to the risks of the clearinghouses insolvency. Pursuant to an exemptive order issued by the SEC, the Fund, along with other
affiliated entities managed by the Manager, may transfer uninvested cash balances into one or more joint accounts for the purpose of entering into repurchase agreements secured by cash and U.S. government securities, subject to certain conditions.
Reverse Repurchase Agreements The
Fund may enter into reverse repurchase agreements. A reverse repurchase agreement has the characteristics of a secured borrowing by the Fund and creates leverage in the Funds portfolio. In a reverse repurchase transaction, the Fund sells a
portfolio instrument to another person, such as a financial institution or broker-dealer, in return for cash. At the same time, the Fund agrees to repurchase the instrument at an agreed-upon time and at a price that is greater than the amount of
cash that the Fund received when it sold the instrument, representing the equivalent of an interest payment by the Fund for the use of the cash. During the term of the transaction, the Fund will continue to receive any principal and interest
payments (or the equivalent thereof) on the underlying instruments. The Fund may engage in reverse repurchase agreements as a form of
leverage and for temporary or emergency purposes. Unless otherwise limited in the Funds Prospectus or this SAI, the Fund may also engage in reverse repurchase agreements to the extent permitted by its fundamental investment policies in order
to raise additional cash to be invested by the Funds portfolio manager in other securities or instruments in an effort to increase the Funds investment returns. During the term of the transaction, the Fund will remain at risk for any fluctuations in the market value of the instruments subject to the
reverse repurchase agreement as if it had not entered into the transaction. When the Fund reinvests the proceeds of a reverse repurchase agreement in other securities, the Fund will also be at risk for any fluctuations in the market value of the
securities in which the proceeds are invested. Like other forms of leverage, this makes the value of an investment in the Fund more volatile and increases the Funds overall investment exposure. In addition, if the Funds return on its
investment of the proceeds of the reverse repurchase agreement does not equal or exceed the implied interest that it is obligated to pay under the reverse repurchase agreement, engaging in the transaction will lower the Funds return. When the Fund enters into a reverse repurchase agreement, it is subject to the risk that the buyer under the agreement may file for
bankruptcy, become insolvent or otherwise default on its obligations to the Fund. In the event of a default by the counterparty, there may be delays, costs and risks of loss involved in the Funds exercising its rights under the agreement, or
those rights may be limited by other contractual agreements or obligations or by applicable law. In addition, the Fund may be unable to
sell the instruments subject to the reverse repurchase agreement at a time when it would be advantageous to do so, or may be required to liquidate portfolio securities at a time when it would be disadvantageous to do so in order to make payments
with respect to its obligations under a reverse repurchase agreement. This could adversely affect the Funds strategy and result in lower fund returns. At the time the Fund enters into a reverse repurchase agreement, the Fund is required to set
aside cash or other appropriate liquid securities in the amount of the Funds obligation under the reverse repurchase agreement or take certain other actions in accordance with SEC guidelines, which may affect the Funds liquidity and
ability to manage its assets. Although complying with SEC guidelines would have the effect of limiting the amount of fund assets that may be committed to reverse repurchase agreements and other similar transactions at any time, it does not otherwise
mitigate the risks of entering into reverse repurchase agreements. 39
The Fund will not engage in reverse repurchase agreements if its total Borrowings exceed 33
1/3% of its total net assets. Securities Lending The Fund may lend its portfolio securities, provided that cash or equivalent collateral, equal to at least 100% of the market value of such
securities, is continuously maintained by the other party with the Fund. During the pendency of the transaction, the other party will pay the Fund an amount equivalent to any dividends or interest paid on such securities, and the Fund may invest the
cash collateral and earn additional income, or it may receive an agreed upon amount of interest income from the other party who has delivered equivalent collateral. These transactions are subject to termination at the option of the Fund or the other
party. The Fund may pay administrative and custodial fees in connection with these transactions and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the other party or placing agent or broker. Although voting rights or rights to consent with respect to the relevant securities generally pass to the other party, the Fund will make
arrangements to vote or consent with respect to a material event affecting such securities. SEC guidance currently states that a fund may loan securities equal in value to no more than one third of its total asset value, including collateral
received in connection with such transactions (at market value computed at the time of the transaction). The risks in lending portfolio securities include possible delay in recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. The Fund runs the risk that the counterparty to a loan transaction will default on its obligation and that the value of the collateral received may decline before the Fund can dispose of it. If the Fund receives
cash as collateral and invests that cash, the Fund is subject to the risk that the collateral will decline in value before the Fund must return it to the counterparty. Subject to the foregoing, loans of fund securities are effectively borrowings by
the Fund and have economic characteristics similar to reverse repurchase agreements. The Fund does not currently intend to engage in securities lending, although it may engage in transactions (such as reverse repurchase agreements) which have
similar characteristics. Short-Term Trading Fund transactions will be undertaken principally to accomplish the Funds investment objective in relation to anticipated movements in
the general level of interest rates, but the Fund may also engage in short-term trading consistent with its investment objective. Stripped Securities
Stripped securities may be issued by agencies or instrumentalities of the U.S. government, or by private originators of, or investors
in, government securities or mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. Stripped securities have greater volatility than other types
of securities. Although mortgage securities are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, the market for such securities has not yet been fully developed. Accordingly,
stripped securities may be illiquid. Stripped securities are structured with two or more classes of securities that receive different
proportions of the interest and principal distributions on a pool of assets. A common type of stripped mortgage security will have at least one class receiving only a small portion of the principal. In the most extreme case, one class will receive
all of the interest (IO or interest-only class), while the other class will receive all of the principal (PO or principal-only class). The yield to maturity on IOs, POs and other mortgage-backed securities that are purchased
at a substantial premium or discount generally are extremely sensitive not only to changes in prevailing interest rates but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on such securities yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial
investment in these securities even if the securities have received the highest rating by a NRSRO. Structured Notes and Related Instruments Structured notes and other related instruments, including indexed securities and credit-linked notes, are derivative debt
instruments, the interest rate or principal of which is determined by an unrelated underlying instrument (for example, a currency, security, commodity or index thereof). Structured instruments are generally privately negotiated debt obligations
issued by corporations, including banks, as well as by governmental agencies and frequently are assembled in the form of medium-term notes, but a variety of forms are available and may be 40
used in particular circumstances. The terms of such structured instruments normally provide that their principal and/or interest payments are to be adjusted upwards or downwards (but ordinarily
not below zero) to reflect changes in the underlying instrument while the instruments are outstanding. As a result, the interest and/or principal payments that may be made on a structured product may vary widely. The rate of return on structured
notes may be determined by applying a multiplier to the performance or differential performance of the underlying instrument or other asset(s). Application of a multiplier involves leverage that will serve to magnify the potential for gain and the
risk of loss. Investment in indexed securities and structured notes involves certain risks, including the credit risk of the issuer and the normal risks of price changes in response to changes in interest rates. Further, in the case of certain
indexed securities or structured notes, a decline in the underlying instrument may cause the interest rate to be reduced to zero, and any further declines in the underlying instrument may then reduce the principal amount payable on maturity.
Finally, these securities may have lower liquidity than other types of securities and may be more volatile than their underlying instruments. Subordinated structured notes, which are subordinated to the right of payment of another class
of the structured note, typically have higher yields and present greater risks than unsubordinated structured notes. Subordinated
Securities Subordinated securities include securities which are subordinated or junior to more senior securities of the
issuer, or which represent interests in pools of such subordinated or junior securities. Such securities may include so-called high yield securities or junk bonds (i.e., bonds
that are rated below investment grade by a rating agency or that are determined by the Funds portfolio manager to be of equivalent quality) and preferred stock. Under the terms of subordinated securities, payments that would otherwise be made
to their holders may be required to be made to the holders of more senior securities, and/or the subordinated or junior securities may have junior liens, if they have any rights at all, in any collateral (meaning proceeds of the collateral are
required to be paid first to the holders of more senior securities). As a result, subordinated or junior securities will be disproportionately adversely affected by a default or even a perceived decline in creditworthiness of the issuer. U.S. Government Securities U.S.
Government securities include (1) U.S. Treasury bills (maturity of one year or less), U.S. Treasury notes (maturity of one to ten years) and U.S. Treasury bonds (maturities generally greater than ten years); (2) obligations issued or guaranteed
by U.S. Government agencies or instrumentalities which are supported by any of the following: (a) the full faith and credit of the U.S. Government (such as certificates issued by the Government National Mortgage Association (Ginnie
Mae)); (b) the right of the issuer to borrow an amount limited to a specific line of credit from the U.S. Government (such as obligations of the Federal Home Loan Banks); (c) the discretionary authority of the U.S. Government to purchase
certain obligations of agencies or instrumentalities (such as securities issued by the Federal National Mortgage Association); or (d) only the credit of the agency or instrumentality (such as securities issued by the Federal Home Loan Mortgage
Corporation); and (3) obligations issued by non-governmental entities (like financial institutions) that carry direct guarantees from U.S. government agencies as part of government initiatives
in response to a market crisis or otherwise. Agencies and instrumentalities of the U.S. Government include but are not limited to: Farmers Home Administration, Export-Import Bank of the United States, Federal Housing Administration, Federal Land
Banks, Federal Financing Bank, Central Bank for Cooperatives, Federal Intermediate Credit Banks, Farm Credit Bank System, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, General Services
Administration, Government National Mortgage Association, Student Loan Marketing Association, United States Postal Service, Maritime Administration, Small Business Administration, Tennessee Valley Authority, Washington D.C. Armory Board and any
other instrumentality established or sponsored by the U.S. Government. In the case of obligations not backed by the full faith and credit
of the United States, the Fund must look principally to the agency or instrumentality issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Neither the U.S. Government nor any of its agencies or instrumentalities guarantees the market value of the securities they issue. Therefore, the market value of such securities will fluctuate in
response to changes in interest rates and other factors. In addition, any downgrade of the credit rating of the securities issued by the U.S. Government may result in a downgrade of securities issued by its agencies or instrumentalities, including
government-sponsored entities. 41
U.S. Treasury Obligations U.S. Treasury obligations are direct debt obligations issued by the U.S. government. Treasury bills, with maturities normally from 4 weeks to
52 weeks, are typically issued at a discount as they pay interest only upon maturity. Treasury bills are non-callable. Treasury notes have a maturity between two and ten years and typically pay
interest semi-annually, while Treasury bonds have a maturity of over ten years and pay interest semi-annually. U.S. Treasury obligations also include STRIPS, TIPS, and FRNs. STRIPS are Treasury obligations with separately traded principal and
interest component parts of such obligations that are transferable through the federal book-entry system. The principal and interest components of U.S. Treasury bonds with remaining maturities of longer than ten years are eligible to be traded
independently under the STRIPS program. Under the STRIPS program, the principal and interest components are separately issued through depository financial institutions, which then trade the component parts separately. Each interest payment and the
principal payment becomes a separate zero-coupon security. STRIPS pay interest only at maturity. The interest component of STRIPS may be more volatile than that of U.S. Treasury bills with comparable
maturities. TIPS are Treasury Inflation-Protected Securities, the principal of which increases with inflation and decreases with deflation. The inflation adjustment is based on a two month-lagged value of
the non-seasonally adjusted Consumer Price Index for Urban Consumers (CPI-U). TIPS entitle the holder, upon maturity, to the adjusted principal or
original principal, whichever is greater, thus providing a deflation floor. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with
deflation. However, because the interest rate is fixed, TIPS may lose value when market interest rates increase, particularly during periods of low inflation. FRNs are floating rate notes, the interest on which is indexed to the most recent 13-week Treasury bill auction High Rate, which is the highest accepted discount rate in a Treasury bill auction. Variable and Floating Rate Securities Variable and floating rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The terms of such
obligations provide that interest rates are adjusted periodically based upon an interest rate adjustment index as provided in the respective obligations. The adjustment intervals may be regular, and range from daily up to annually, or may be
event-based, such as based on a change in the prime rate. The Fund may invest in floating rate debt instruments (floaters)
and engage in credit spread trades. The interest rate on a floater is a variable rate which is tied to another interest rate, such as a corporate bond index or U.S. Treasury bill rate. The interest rate on a floater resets periodically, typically
every six months. While, because of the interest rate reset feature, floaters may provide the Fund with a certain degree of protection against rising interest rates, the Fund will participate in any declines in interest rates as well. A credit
spread trade is an investment position relating to a difference in the prices or interest rates of two bonds or other securities or currencies, where the value of the investment position is determined by movements in the difference between the
prices or interest rates, as the case may be, of the respective securities or currencies. The Fund may also invest in inverse floating
rate debt instruments (inverse floaters). The interest rate on an inverse floater resets in the opposite direction from the market rate of interest to which the inverse floater is indexed. An inverse floating rate security may exhibit
greater price volatility than a fixed rate obligation of similar credit quality. A floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest. The higher degree of leverage inherent in some floaters is associated with greater volatility in their market values. The Fund may also invest in variable amount master demand notes, which permit the indebtedness thereunder to vary in addition to providing for
periodic adjustments in the interest rate. The absence of an active secondary market with respect to particular variable and floating rate instruments could make it difficult for the Fund to dispose of a variable or floating rate note if the issuer
were to default on its payment obligation or during periods that the Fund is not entitled to exercise its demand rights, and the Fund could, for these or other reasons, suffer a loss with respect to such instruments. In determining average-weighted
portfolio maturity, an instrument will be deemed to have a maturity equal to either the period remaining until the next interest rate adjustment or the time the Fund can recover payment of principal as specified in the instrument, depending on the
type of instrument involved. When-Issued Securities and Forward Commitments The Fund may purchase securities on a when-issued or to be announced or forward delivery basis. The
payment obligation and the interest rate that will be received on the when-issued securities are fixed at the time 42
the buyer enters into the commitment although settlement, i.e., delivery of and payment for the securities, takes place at a later date. In a to be announced transaction, the Fund
commits to purchase securities for which all specific information is not known at the time of the trade. Securities purchased on a
when-issued or forward delivery basis are subject to changes in value based upon the markets perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. The value
of these securities experiences appreciation when interest rates decline and depreciation when interest rates rise. Purchasing securities on a when-issued or forward delivery basis can involve a risk that the yields available
in the market on the settlement date may actually be higher or lower than those obtained in the transaction itself. At the time the Fund enters into a when-issued or forward delivery commitment, the Fund will set aside cash
or other appropriate liquid securities with a value at least equal to the Funds obligation under the commitment. The Funds liquidity and ability to manage its assets might be affected when it sets aside cash or portfolio securities to
cover such commitments. An increase in the percentage of the Funds assets committed to the purchase of securities on a
when-issued basis may increase the volatility of its net asset value. Zero-Coupon, Pay-In-Kind and Deferred Interest Securities
Zero Coupon Bond. A zero coupon bond is a security that makes no fixed interest payments but instead is sold at a discount
from its face value. The bond is redeemed at its face value on the specified maturity date. Zero coupon bonds may be issued as such, or they may be created by a broker who strips the coupons from a bond and separately sells the rights to receive
principal and interest. The prices of zero coupon bonds tend to fluctuate more in response to changes in market interest rates than do the prices of interest-paying debt securities with similar maturities. Zero coupon bonds with a fixed maturity
date of more than one year from the date of issuance will be treated as debt obligations that are issued with original issue discount (OID) for U.S. federal income tax purposes. Generally, the OID is treated as interest income and is
included in the Funds income and required to be distributed by the Fund over the term of the bond, even though payment of that amount is not received until a later time, upon partial or full repayment or disposition of the bond. The Fund may
thus be required to pay out as an income distribution each year an amount which is greater than the total amount of cash the Fund actually received, and may have to dispose of other securities, including at times when it may be disadvantageous to do
so, to generate the cash necessary for the distribution of income attributable to its zero coupon bonds. Pay-In-Kind Securities. Pay-in-kind securities are bonds which
pay interest through the issuance of additional debt or equity securities. Pay-in-kind securities have characteristics similar to those of zero coupon
securities, but interest on such securities may be paid in the form of obligations of the same type rather than cash. Similar to zero coupon
obligations, pay-in-kind bonds also carry additional risk as holders of these types of securities realize no cash until the cash payment date unless a portion
of such securities is sold and, if the issuer defaults, the Fund may obtain no return at all on its investment. The market price of pay-in-kind bonds is
affected by interest rate changes to a greater extent, and therefore tends to be more volatile, than that of securities which pay interest in cash. Similar to zero coupon bonds, current federal income tax law requires the holder of pay-in-kind bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment
company and avoid liability for federal income and excise taxes, the Fund may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements. Deferred Interest Bonds. Deferred interest bonds are debt obligations
that generally provide for a period of delay before the regular payment of interest begins and that are issued at a significant discount from face value. The original discount approximates the total amount of interest the bonds will accrue and
compound over the period until the first interest accrual date at a rate of interest reflecting the market rate of the security at the time of issuance. Although this period of delay is different for each deferred interest bond, a typical period is approximately one-third of the bonds term to maturity. Such investments benefit the issuer by mitigating its initial need for cash to meet debt service, but some also provide a higher rate of return
to attract investors who are willing to defer receipt of such cash. Similar to zero coupon bonds, current federal income tax law generally requires the holder of deferred interest bonds to accrue income with respect to these securities before the
regular payment of interest begins. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise taxes, the Fund may be required to distribute income accrued with respect to these securities and
may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements. 43
Zero-coupon, pay-in-kind and deferred interest
securities may be subject to greater fluctuation in value and lesser liquidity in the event of adverse market conditions than comparably rated securities paying cash interest at regular interest payment periods. 44
Board of Directors The overall
management of the business and affairs of the Fund is vested in the Board of Directors. The Board of Directors is classified, with respect to the time for which Directors severally hold office, into three classesClass I, Class II and
Class III, with the Directors in each Class to hold office until the third annual meeting following the election of the applicable class and until their successors are elected and qualified. At each succeeding annual meeting of
stockholders, the successors to the Class of Directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the later of the annual meeting of stockholders held in the third year following the year of their
election or the election and qualification of their successors. The terms of office of Class I directors, Class II directors and Class III directors expire at the 2023, 2024 and 2022 Annual Meeting of Stockholders, respectively. The Directors of the Fund, their ages, their principal occupations during the past five years (their titles may have varied during that
period), the number of investment companies or portfolios in the Fund Complex that each Director oversees, and the other board memberships held by each Director is set forth below. Name, Address(1) and Age Principal Occupation(s) During Past 5 Years Other Directorships Held by Director During Past Five Years INTERESTED DIRECTOR: Jane E. Trust, CFA Born 1962 Class III NON-INTERESTED DIRECTORS: Robert D. Agdern Birth Year: 1950 Class I 45
Name, Address(1) and Age Principal Occupation(s) During Past 5 Years Other Directorships Held by Director During Past Five Years Carol L. Colman Birth Year: 1946 Class III Daniel P. Cronin Birth Year: 1946 Class I Paolo M. Cucchi Birth Year: 1941 Class II 46
Name, Address(1) and Age Principal Occupation(s) During Past 5 Years Other Directorships Held by Director During Past Five Years William R. Hutchinson Birth Year: 1942 Class III Eileen A. Kamerick Birth Year: 1958 Class I 47
Name, Address(1) and Age Principal Occupation(s) During Past 5 Years Other Directorships Held by Director During Past Five Years Nisha Kumar Birth Year: 1970 Class II Ms. Trust is an interested person as defined in the 1940 Act because she is an officer of the
Manager and certain of its affiliates. Unless otherwise indicated, the business address of the persons listed above is c/o Chairman of the Fund,
Franklin Templeton, 620 Eighth Avenue, 47th Floor, New York, NY 10018. The term Fund Complex means two or more registered investment companies that:
hold themselves out to investors as related companies for purposes of investment and investor services; or
have a common investment adviser or that have an investment adviser that is an affiliated person of the
investment adviser of any of the other registered investment companies. Each of the Directors has served as a director
of the Fund as indicated in the table above. The Directors were selected to join the Board based upon the following as to each Board Member: his or her character and integrity; such persons service as a board member of other funds in the Fund
Complex; such persons willingness to serve and willingness and ability to commit the time necessary to perform the duties of a Director; as to each Director other than Ms. Trust, his or her status as not being an interested
person as defined in the 1940 Act; and, as to Ms. Trust, her role with Franklin Templeton. No factor, by itself, was controlling. In addition to the information provided in the table included above, each Director possesses the following attributes: Ms. Colman,
experience as a consultant and investment professional; Mr. Agdern, experience in business and as a legal professional; Mr. Cronin, legal and managerial experience; Mr. Cucchi, experience as a college professor and leadership
experience as an academic dean; Mr. Hutchinson, experience in accounting and working with auditors, consulting, business and finance and service as a board member of another highly regulated financial services company; Ms. Kamerick,
experience in business and finance, including financial reporting, and experience as a board member of another highly regulated financial services company; Ms. Kumar, financial and accounting experience as the chief financial officer of other
companies and experience as a board member of private equity funds; and Ms. Trust, investment management and risk oversight experience as an executive and portfolio manager and leadership roles within Franklin Templeton and affiliated entities.
References to the qualifications, attributes and skills of the Directors are pursuant to requirements of the Securities and Exchange Commission, do not constitute holding out of the Board or any Director as having any special expertise or
experience, and shall not impose any greater responsibility or liability on any such person or on the Board by reason thereof. 48
Responsibilities of the Board of Directors The Board of Directors is responsible under applicable state law for overseeing generally the management and operations of the Fund. The
Directors oversee the Funds operations by, among other things, meeting at its regularly scheduled meetings and as otherwise needed with the Funds management and evaluating the performance of the Funds service providers including
the Manager, Western Asset, Western Asset Limited, the custodian and the transfer agent. As part of this process, the Directors consult with the Funds independent auditors and with their own separate independent counsel. The Directors review the Funds financial statements, performance, net asset value and market price and the relationship between them, as
well as the quality of the services being provided to the Fund. As part of this process, the Directors review the Funds fees and expenses in light of the nature, quality and scope of the services being received while also seeking to ensure
that the Fund continues to have access to high quality services in the future. The Board of Directors has four regularly scheduled
meetings each year, and additional meetings may be scheduled as needed. In addition, the Board has a standing Audit Committee, Corporate Governance and Nominating Committee (the Nominating Committee), Compensation Committee and Pricing
and Valuation Committee that meet periodically and whose responsibilities are described below. During the fiscal year ended
April 30, 2021, the Board of Directors held four regular meetings and five special meetings. Each Director attended at least 75% of the aggregate number of meetings of the Board and the committees for which he or she was eligible. The Fund does
not have a formal policy regarding attendance by Directors at annual meetings of stockholders. Each of the Audit Committee, the
Nominating Committee, Compensation Committee and Pricing and Valuation Committee is composed of all Directors who have been determined not to be interested persons of the Fund, the Manager, Western Asset or their affiliates, within the
meaning of the 1940 Act, and who are independent as defined in the New York Stock Exchange listing standards (Independent Directors), and is chaired by an Independent Director. The Board in its discretion from time to time
may establish ad hoc committees. The Board of Directors is currently comprised of eight directors, seven of whom are Independent
Directors. Jane E. Trust serves as Chairman of the Board. Ms. Trust is an interested person of the Fund. The appointment of Ms. Trust as Chairman reflects the Boards belief that her experience, familiarity with the
Funds day-to-day operations and access to individuals with responsibility for the Funds management and operations provides the Board with insight into the
Funds business and activities and, with her access to appropriate administrative support, facilitates the efficient development of meeting agendas that address the Funds business, legal and other needs and the orderly conduct of board
meetings. Mr. Hutchinson serves as Lead Independent Director. The Chairman develops agendas for Board meetings in consultation with the Lead Independent Director and presides at all meetings of the Board. The Lead Independent Director, among
other things, chairs executive sessions of the Independent Directors, serves as a spokesperson for the Independent Directors and serves as a liaison between the Independent Directors and the Funds management between Board meetings. The
Independent Directors regularly meet outside the presence of management and are advised by independent legal counsel. The Board also has determined that its leadership structure, as described above, is appropriate in light of the size and complexity
of the Fund, the number of Independent Directors (who constitute a super-majority of the Boards membership) and the Boards general oversight responsibility. The Board also believes that its leadership structure not only facilitates the
orderly and efficient flow of information to the Independent Directors from management, including Western Asset and Western Asset Limited, the Funds subadvisers, but also enhances the independent and orderly exercise of its responsibilities.
Audit Committee The Funds
Audit Committee is composed entirely of all of the Independent Directors: Mses. Colman, Kamerick and Kumar and Messrs. Agdern, Cronin, Cucchi, and Hutchinson. Ms. Kamerick serves as the Chair of the Audit Committee and has been determined by
the Board to be an audit committee financial expert. The principal functions of the Audit Committee are: to (a) oversee the scope of the Funds audit, the Funds accounting
49
and financial reporting policies and practices and its internal controls and enhance the quality and objectivity of the audit function; (b) approve, and recommend to the Independent Board
Members (as such term is defined in the Audit Committee Charter) for their ratification, the selection, appointment, retention or termination of the Funds independent registered public accounting firm, as well as approving the compensation
thereof; and (c) approve all audit and permissible non-audit services provided to the Fund and certain other persons by the Funds independent registered public accounting firm. This Committee met
five times during the fiscal year ended April 30, 2021. The Audit Committee operates under a written charter adopted and approved by the Board, a copy of which is available on the Funds website at
http://www.franklintempleton.com/investments/options/closed-end-funds and click on the name of the Fund. Nominating Committee The Funds Nominating Committee, the principal function of which is to select and nominate candidates for election as Directors of the
Fund, is composed of all of the Independent Directors: Mses. Colman, Kamerick and Kumar and Messrs. Agdern, Cronin, Cucchi, and Hutchinson. Mr. Cronin serves as the Chair of the Nominating Committee. The Nominating Committee may consider
nominees recommended by the stockholder as it deems appropriate. Stockholders who wish to recommend a nominee should send recommendations to the Funds Secretary that include all information relating to such person that is required to be
disclosed in solicitations of proxies for the election of Directors. A recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board of Directors and to serve if elected by the
stockholders. The Nominating Committee met four times during the fiscal year ended April 30, 2021. The Nominating Committee operates under a written charter adopted and approved by the Board, a copy of which is available on the Funds
website at http://www.franklintempleton.com/investments/options/closed-end-funds and click on the name of the Fund. The Nominating
Committee identifies potential nominees through its network of contacts, and in its discretion may also engage a professional search firm. The Nominating Committee meets to discuss and consider such candidates qualifications and then chooses a
candidate by majority vote. The Nominating Committee does not have specific, minimum qualifications for nominees and has not established specific qualities or skills that it regards as necessary for one or more of the Funds Directors to
possess (other than any qualities or skills that may be required by applicable law, regulation or listing standard). However, as set forth in the Nominating Committee Charter, in evaluating a person as a potential nominee to serve as a Director of
the Fund, the Nominee Committee may consider the following factors, among any others it may deem relevant: whether or not the person is an interested person as defined in the 1940 Act and whether the person
is otherwise qualified under applicable laws and regulations to serve as a Director of the Fund; whether or not the person has any relationships that might impair his or her independence, such as any business,
financial or family relationships with Fund management, the investment manager of the Fund, Fund service providers or their affiliates; whether or not the person serves on boards of, or is otherwise affiliated with, competing financial service
organizations or their related mutual fund complexes; whether or not the person is willing to serve, and willing and able to commit the time necessary for the
performance of the duties of a Director of the Fund; the contribution which the person can make to the Board and the Fund (or, if the person has previously served as
a Director of the Fund, the contribution which the person made to the Board during his or her previous term of service), with consideration being given to the persons business and professional experience, education and such other factors as
the Committee may consider relevant; the character and integrity of the person; and whether or not the selection and nomination of the person would be consistent with the requirements of the
Funds retirement policies. 50
The Nominating Committee does not have a formal diversity policy with regard to the consideration
of diversity in identifying potential director nominees but may consider diversity of professional experience, education and skills when evaluating potential nominees for Board membership. Pricing and Valuation Committee The
Funds Pricing and Valuation Committee is composed of all of the Independent Directors. The members of the Pricing and Valuation Committee are Mses. Colman, Kamerick and Kumar and Messrs. Agdern, Cronin, Cucchi, and Hutchinson. Ms. Colman
serves as Chair of the Funds Pricing and Valuation Committee. The principal function of the Pricing and Valuation Committee is to assist the Board with its oversight of the process for valuing portfolio securities in light of applicable law,
regulatory guidance and applicable policies and procedures adopted by the Fund. The Pricing and Valuation Committee met four times during the fiscal year ended April 30, 2021. Compensation Committee The Funds
Compensation Committee is composed entirely of all of the Independent Members. The members of the Investment Committee are Mses. Colman, Kamerick and Kumar and Messrs. Agdern, Cronin, Cucchi, and Hutchinson. Mr. Cucchi serves as Chair of the
Funds Compensation Committee. The principal function of the Compensation Committee is to recommend the appropriate compensation of the Independent Directors for their service on the Board and the committees of the Board. The Compensation
Committee met once during the fiscal year ended April 30, 2021. The Compensation Committee operates under a written charter adopted and approved by the Board, a copy of which is available on the Funds website at
http://www.franklintempleton.com/investments/options/closed-end-funds and click on the name of the Fund. Risk Oversight The Boards role in risk oversight of the Fund reflects its responsibility under applicable state law to oversee generally, rather than
to manage, the operations of the Fund. In line with this oversight responsibility, the Board receives reports and makes inquiry at its regular meetings and as needed regarding the nature and extent of significant Fund risks (including investment,
compliance and valuation risks) that potentially could have a materially adverse impact on the business operations, investment performance or reputation of the Fund, but relies upon the Funds management (including the Funds portfolio
managers) and Chief Compliance Officer, who reports directly to the Board, and the Manager to assist it in identifying and understanding the nature and extent of such risks and determining whether, and to what extent, such risks may be eliminated or
mitigated. In addition to reports and other information received from Fund management and the Manager regarding the Funds investment program and activities, the Board as part of its risk oversight efforts meets at its regular meetings and as
needed with the Funds Chief Compliance Officer to discuss, among other things, risk issues and issues regarding the policies, procedures and controls of the Fund. The Board may be assisted in performing aspects of its role in risk oversight by
the Audit Committee and such other standing or special committees as may be established from time to time by the Board. For example, the Audit Committee of the Board regularly meets with the Funds independent public accounting firm to review,
among other things, reports on the Funds internal controls for financial reporting. The Board believes that not all risks that may
affect the Fund can be identified, that it may not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Funds goals, and that
the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover, reports received by the Directors as to risk management matters are typically summaries of relevant information and may be
inaccurate or incomplete. As a result of the foregoing and other factors, the Boards risk management oversight is subject to substantial limitations. Security Ownership of Management The following table provides information concerning the dollar range of equity securities owned beneficially by each Director and nominee for
election as Director as of December 31, 2021. 51
Name of Director Non-Interested Directors: Robert D. Agdern Carol L. Colman Daniel P. Cronin Paolo M. Cucchi William R. Hutchinson Eileen Kamerick Nisha Kumar Interested Director: Jane Trust Key: A: none, B: $1-$10,000, C: $10,001-$50,000, D: $50,001-$100,000, E: over $100,000. The term family of investment companies means any two or more registered investment companies that
share the same investment adviser or principal underwriter or hold themselves out to investors as related companies for purposes of investment and investor services. As of December 31, 2021, the nominees, Directors and officers of the Fund as a group beneficially owned less than 1% of the outstanding
shares of the Funds Common Stock. No Director or nominee for election as Director who is not an interested person of
the Fund as defined in the 1940 Act, nor any immediate family members, to the best of the Funds knowledge, had any interest in the Funds investment adviser, or any person or entity (other than the Fund) directly or indirectly
controlling, controlled by, or under common control with Franklin Templeton as of December 31, 2021. Director Compensation Under the federal securities laws, and in connection with the Meeting, the Fund is required to provide to stockholders in connection with the
Meeting information regarding compensation paid to the Directors by the Fund, as well as by the various other investment companies advised by the Manager. The following table provides information concerning the compensation paid to each Director by
the Fund during the fiscal year ended April 31, 2021 and the total compensation paid to each Director during the calendar year ended December 31, 2021. The Directors listed below are members of the Funds Audit, Nominating, Compensation and
Pricing and Valuation Committees, as well as committees of the boards of certain other investment companies advised by the Manager. Accordingly, the amounts provided in the table include compensation for service on all such committees. The Fund does
not provide any pension or retirement benefits to Directors. In addition, no remuneration was paid during the fiscal year ended April 30, 2021 by the Fund to Ms. Trust who is an interested person as defined in the 1940 Act.
Name of Director Non-Interested Directors:(2) Robert D. Agdern 52
Name of Director Carol L. Colman Daniel P. Cronin Paolo M. Cucchi William R. Hutchinson Eileen A. Kamerick Nisha Kumar Fund Complex means two or more Funds (a registrant or, where the registrant is a series company, a
separate portfolio of the registrant) that hold themselves out to investors as related companies for purposes of investment and investor services or have a common investment adviser or have an investment adviser that is an affiliated person of the
investment adviser of any of the other Funds. Each Non-Interested Director currently holds 20 investment company
directorships within this Fund Complex. Officers of the Fund The Funds executive officers are chosen each year at a regular meeting of the Board to hold office until their respective successors are
duly elected and qualified. Officers of the Fund receive no compensation from the Fund, although they may be reimbursed by the Fund for reasonable out-of-pocket travel
expenses for attending Board meetings. In addition to Ms. Trust, the Funds Chairman, CEO and President, the executive officers of the Fund currently are: Name, Address and Age Principal Occupation(s) During Past 5 Years Fred Jensen Legg Mason & Co. 620 Eighth Avenue, 47th Floor, New York, NY 10018 Birth Year: 1963 Jenna Bailey Legg Mason & Co. 100 First Stamford Place Stamford, CT 06902 Birth Year: 1978 53
Name, Address and Age Principal Occupation(s) During Past 5 Years George P. Hoyt Legg Mason & Co. 100 First Stamford Place Stamford, CT 06902 Birth year: 1965 Thomas C. Mandia Legg Mason & Co. 100 First Stamford Place Stamford, CT 06902 Birth Year: 1962 Jeanne M. Kelly Legg Mason & Co. 620 Eighth Ave, 47th Floor New York, NY 10018 Birth Year: 1951 Christopher Berarducci Legg Mason &
Co. 620 Eighth Avenue, 47th Floor New York, NY 10018 Birth year: 1974 54
Investment Manager and Subadviser The
Fund retains the Manager to act as its investment manager. The Manager is a wholly-owned subsidiary of Franklin Templeton. The Manager serves as the investment manager to numerous individuals and institutions and other investment companies. The
investment management agreement (the Management Agreement) between the Manager and the Fund provides that the Manager will manage the operations of the Fund, subject to the supervision, direction and approval of the Funds Board of
Directors and the objective and the policies stated in the Prospectus and this Statement of Additional Information. Pursuant to the
Management Agreement, the Manager manages the Funds investment portfolio, directs purchases and sales of portfolio securities and reports thereon to the Funds officers and Directors regularly. The Manager also provides the office space,
facilities, equipment and personnel necessary to perform the following services for the Fund: SEC compliance, including record keeping, reporting requirements and registration statements and proxies; supervision of Fund operations, including
coordination of functions of the transfer agent, custodian, accountants, counsel and other parties performing services or operational functions for the Fund; and certain administrative and clerical services, including certain accounting services and
maintenance of certain books and records. Advisory Fee. The Fund paid the Manager approximate fees of Pursuant to a subadvisory agreement (the Subadvisory Agreement), subject to the supervision
and direction of the Funds Board and the Manager, Western Asset will manage the Funds portfolio in accordance with the Funds investment objectives and policies, make investment decisions for the Fund, place orders to purchase and
sell securities, and employ professional portfolio managers and securities analysts who provide research services to the Fund. Western Asset is a wholly-owned subsidiary of Franklin Templeton. Investment decisions for the Fund are made independently
from those of other funds or accounts managed by Western Asset. Such other funds or accounts may also invest in the same securities as the Fund. If those funds or accounts are prepared to invest in, or desire to dispose of, the same security at the
same time as the Fund, however, transactions in such securities will be made, insofar as feasible, for the respective funds and accounts in a manner deemed equitable to all. In some cases, this procedure may adversely affect the size of the position
obtained for or disposed of by the Fund or the price paid or received by the Fund. In addition, because of different investment objectives, a particular security may be purchased for one or more funds or accounts when one or more funds or accounts
are selling the same security. In connection with Western Assets service to the Fund, Western Asset Management Company Limited
(Western Asset Limited) and Western Asset Management Company Pte. Ltd. (Western Asset Singapore) provides certain subadvisory services to the Fund pursuant to subadvisory agreement with the Subadvisor (Western Asset
Limited Subadvisory Agreement and Western Asset Singapore Subadvisory Agreement). Western Asset Limited and Western Asset Singapore are responsible, generally, for managing investments denominated in currencies other than U.S.
dollars. Western Asset Limited was founded in 1984 and has offices at 10 Exchange Square, Primrose Street, London EC2A2EN. Western Asset Singapore was established in 2000 and has offices at 1 George Street
#23-01, Singapore 049145. Western Asset pays Western Asset Limited and Western Asset Singapore a fee for their services at no additional expense to the Fund. Each of the Management Agreement, the Subadvisory Agreement, the Western Asset Limited Subadvisory Agreement and the Western Asset Singapore
Subadvisory Agreement had an initial term of two years and continues in effect from year to year thereafter if such continuance is specifically approved at least annually by the Funds Board or by a majority of the outstanding voting securities
of the Fund, and in either event, by a majority of the disinterested Directors of the Board with such disinterested Directors casting votes in person at a meeting called for 55
such purpose. The Board of Directors or the holders of a majority of the Funds shares may terminate the Management Agreement on 60 days written notice without penalty and the Manager
may terminate the agreement on 90 days written notice without penalty. The Management Agreement terminates automatically in the event of an assignment (as defined in the 1940 Act). The Subadvisory Agreement may be terminated without penalty by
the Board of Directors or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than 60 days nor less than 30 days written notice by Western Asset upon not less than 90 days written notice
to the Fund and the Manager, and will be terminated upon the mutual written consent of the Manager and Western Asset. The Subadvisory Agreement terminates automatically in the event of an assignment (as defined in the 1940 Act). The Western Asset
Limited Subadvisory Agreement and the Western Asset Singapore Subadvisory Agreement may be terminated without penalty by the Board of Directors or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than
60 days nor less than 30 days written notice to Western Asset Limited or Western Asset Singapore, or by Western Asset Limited or Western Asset Singapore upon not less than 90 days written notice to the Fund and the Manager, and
will be terminated upon the mutual written consent of the Manager and Western Asset Limited and Western Asset Singapore. The Western Asset Limited Subadvisory Agreement and the Western Asset Singapore Subadvisory Agreement terminate automatically in
the event of an assignment (as defined in the 1940 Act). Under the terms of the Management Agreement, the Subadvisory Agreement, the
Western Asset Limited Subadvisory Agreement and the Western Asset Singapore Subadvisory Agreement, none of the Manager, Western Asset, Western Asset Limited or Western Asset Singapore, respectively, will be liable for losses or damages incurred by
the Fund, unless such losses or damages are attributable to the willful misfeasance, bad faith or gross negligence on the part of the Manager, Western Asset, Western Asset Limited or Western Asset Singapore, as the case may be, or from reckless
disregard by them of their obligations and duties under the relevant agreement. Both Western Asset Limited and Western Asset
Singapore are corporations organized under the laws of England and Singapore, respectively. Each is registered under the Investment Advisers Act of 1940, as amended and has irrevocably designated the Secretary of the SEC, as its agent to accept
service of process in any suit, action or proceeding to enforce the provisions of U.S. securities laws. There can be no assurance that Western Asset Limited or Western Asset Singapore will have any assets in the United States that could be attached
in connection with any action, suit or proceeding. In addition, it may not be possible to enforce judgments of U.S. courts or liabilities in original actions predicated upon civil liability provisions of U.S. law in foreign courts against Western
Asset Limited or Western Asset Singapore. Codes of Ethics Pursuant to Rule 17j-1 under the 1940 Act, the Fund, the Manager, Western Asset, Western Asset Limited
and Western Asset Singapore have each adopted codes of ethics that permit their respective personnel to invest in securities for their own accounts, including securities that may be purchased or held by a Fund. All personnel must place the interests
of clients first and avoid activities, interests and relationships that might interfere with the duty to make decisions in the best interests of the clients. All personal securities transactions by employees must adhere to the requirements of the
codes and must be conducted in such a manner as to avoid any actual or potential conflict of interest, the appearance of such a conflict, or the abuse of an employees position of trust and responsibility. When personnel covered by the Funds Code of Ethics are employed by more than one of the managers affiliated with Franklin Templeton,
those employees may be subject to such affiliates Code of Ethics adopted pursuant to Rule 17j-1, rather than the Funds Code of Ethics. Copies of the Codes of Ethics of the Fund, the Manager, Western Asset, Western Asset Limited and Western Asset Singapore are on file with the
SEC. These Codes of Ethics can be reviewed and copied at the SECs Public Reference Room in Washington, D.C. Information relating to the Public Reference Room may be obtained by calling the SEC at (202)
551-8090. Such materials are also available on EDGAR on the SECs website (http://www.sec.gov). You may also e-mail requests for these documents to
publicinfo@sec.gov, or make a request in writing to the SECs Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549-0102. 56
Proxy Voting Policies Although individual Directors may not agree with particular policies or votes by the Manager, Western Asset, Western Asset Limited or Western
Asset Singapore, the Funds Board of Directors has delegated proxy voting discretion to the Manager, Western Asset, Western Asset Limited and/or Western Asset Singapore, believing that the Manager, Western Asset, Western Asset Limited and/or
Western Asset Singapore should be responsible for voting because it is a matter relating to the investment decision making process. The
Manager delegates the responsibility for voting proxies for the Fund to Western Asset through its contract with Western Asset. With respect to assets that are allocated to Western Asset Limited and Western Asset Singapore, Western Asset delegates
responsibility for voting proxies to Western Asset Limited. Each of Western Asset, Western Asset Limited and Western Asset Singapore will use their own proxy voting policies and procedures to vote proxies. Accordingly, the Manager does not expect to
have proxy voting responsibility for the Fund. Should the Manager become responsible for voting proxies for any reason, such as the inability of Western Asset, Western Asset Limited or Western Asset Singapore to provide investment advisory services,
the Manager shall utilize the proxy voting guidelines established by the most recent subadviser to vote proxies until a new subadviser is retained. In the case of a material conflict between the interests of the Manager (or its affiliates if such
conflict is known to persons responsible for voting at the Manager) and the Fund, the Board of Directors of the Manager shall consider how to address the conflict and/or how to vote the proxies. The Manager shall maintain records of all proxy votes
in accordance with applicable securities laws and regulations, to the extent that the Manager votes proxies. The Manager shall be responsible for gathering relevant documents and records related to proxy voting from Western Asset, Western Asset
Limited and Western Asset Singapore and providing them to the Fund as required for the Fund to comply with applicable rules under the 1940 Act. The Managers proxy voting policy governs in determining how proxies relating to the Funds portfolio securities are voted and is
attached as Appendix B hereto. Western Assets proxy voting policy is attached as Appendix C hereto. The proxy voting policy of Western Asset Limited is attached hereto as Appendix C. The proxy voting policy for Western Asset Singapore is
attached hereto as Appendix C. Information regarding how the Fund voted proxies (if any) relating to portfolio securities during the most recent 12-month period ended April 30 will be available without charge
(1) by calling 888-425-6432, (2) on the Funds website at http://www.leggmason.com/cef and (3) on the SECs website at http://www.sec.gov on Form N-PX. 57
Unless otherwise indicated, the information below is provided as of the date of this SAI. The table below identifies the number of accounts (other than the Fund) for which the Funds portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories, as of April 30, 2021: registered investment
companies, other pooled investment vehicles and other accounts. None of these accounts have fees based on performance. Number of Accounts Managed Number of Fee is Assets Managed
for Advisory Fee is The numbers above reflect the overall number of portfolios managed by employees of Western Asset Management
Company, LLC (Western Asset). Mr. Leech is involved in the management of all the Firms portfolios, but they are not solely responsible for particular portfolios. Western Assets investment discipline emphasizes a team
approach that combines the efforts of groups of specialists working in different market sectors. They are responsible for overseeing implementation of Western Assets overall investment ideas and coordinating the work of the various sector
teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members. Investment Professional Compensation With respect to the compensation of the Funds investment professionals, the Western Assets compensation system assigns each
employee a total compensation range, which is derived from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market
value of their skills, experience and ability to produce desired results. Standard compensation includes competitive base salaries, generous employee benefits and a retirement plan. In addition, the Western Assets employees are eligible for bonuses. These are structured to closely align the interests of employees
with those of the Western Asset, and are determined by the professionals job function and pre-tax performance as measured by a formal review process. All bonuses are completely discretionary. The principal factor considered is an investment
professionals investment performance versus appropriate peer groups and benchmarks (i.e., a securities index and with respect to the Fund, the benchmark set forth in the Funds Prospectus to which the Funds average annual
total returns are compared or, if none, the benchmark set forth in the Funds annual report). Performance is reviewed on a 1, 3 and 5 year basis for compensationwith 3 and 5 years having a larger emphasis. The Western Asset may also
measure an investment professionals pre-tax investment performance against other benchmarks, as it determines appropriate. Because investment professionals are generally responsible for multiple accounts (including the Fund) with similar
investment strategies, they are generally compensated on the performance of the aggregate group of similar accounts, rather than a specific account. Other factors that may be considered when making bonus decisions include client service, business
development, length of service to the Western Asset, management or supervisory responsibilities, contributions to developing business strategy and overall contributions to the Western Assets business. Finally, in order to attract and retain top talent, all investment professionals are eligible for additional incentives in recognition of
outstanding performance. These are determined based upon the factors described above and include long-term incentives that vest over a set period of time past the award date. 58
Potential Conflicts of Interest Potential conflicts of interest may arise when the funds portfolio managers also have day-to-day management responsibilities with respect to one or more other funds or other accounts, as is the case for the funds portfolio managers. Western Asset and the fund have adopted compliance policies and procedures that are designed to address various conflicts of interest that may
arise for Western Asset and the individuals that each employs. For example, the Manager and Western Asset each seek to minimize the effects of competing interests for the time and attention of portfolio managers by assigning portfolio managers to
manage funds and accounts that share a similar investment style. Western Asset has also adopted trade allocation procedures that are designed to facilitate the fair allocation of limited investment opportunities among multiple funds and accounts.
There is no guarantee, however, that the policies and procedures adopted by Western Asset and the fund will be able to detect and/or prevent every situation in which an actual or potential conflict may appear. These potential conflicts include: Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote
unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as
might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have
different investment strategies. Allocation of Limited Investment Opportunities. If a portfolio manager identifies an investment
opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a funds ability to take full advantage of the investment opportunity. Pursuit of Differing Strategies. At times, a portfolio manager may determine that an investment opportunity may be appropriate for only
some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases, the portfolio
manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and/or accounts. Selection of Broker/Dealers. In addition to executing trades, some broker/dealers provide brokerage and research services (as those
terms are defined in Section 28(e) of the 1934 Act), which may result in the payment of higher brokerage fees than might have otherwise been available. These services may be more beneficial to certain funds or accounts than to others. For this
reason, Western Asset has formed a brokerage committee that reviews, among other things, the allocation of brokerage to broker/dealers, best execution and soft dollar usage. Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the portfolio manager
differ among the funds and/or accounts that he or she manages. If the structure of the Managers management fee (and the percentage paid to Western Asset) and/or the portfolio managers compensation differs among funds and/or accounts
(such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. The portfolio manager might be motivated to favor
funds and/or accounts in which he or she has an interest or in which the Manager and/or its affiliates have interests. Similarly, the desire to maintain assets under management or to enhance the portfolio managers performance record or to
derive other rewards, financial or otherwise, could influence the portfolio manager in affording preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager. Portfolio Manager Securities Ownership The portfolio managers held the following amounts of securities of the Fund as of April 30, 2021. 59
Portfolio Manager S. Kenneth Leech Christopher F. Kilpatrick Michelle C. Buchanan Dollar Range ownership is as follows: none $1$10,000 10,001$50,000 $50,001$100,000 $100,001$500,000 $500,001$1 million over $1 million 60
PORTFOLIO TRANSACTIONS AND BROKERAGE The Fund does not have an obligation to deal with any brokers or dealers in the execution of transactions in portfolio securities. Subject to
policy established by the Board of Directors, Western Asset is responsible for the Funds portfolio decisions and the placing of the Funds portfolio transactions. Portfolio securities normally will be purchased or sold from or to dealers serving as market makers for the securities at a net price, which
may include dealer spreads and underwriting commissions. In placing orders, it is the policy of the Fund to obtain the best results taking into account the general execution and operational facilities of the broker or dealer, the type of transaction
involved and other factors such as the risk of the broker or dealer in positioning the securities involved. While the Manager, Western Asset, Western Asset Limited or Western Asset Singapore generally seek the best price in placing orders, the Fund
may not necessarily be paying the lowest price available. Subject to seeking the best price and execution, securities firms which provide supplemental research to the Manager, Western Asset, Western Asset Limited or Western Asset Singapore may
receive orders for transactions by the Fund. Information so received will be in addition to and not in lieu of the services required to be performed by the Manager, Western Asset or Western Asset Limited under the Management Agreement, Subadvisory
Agreement, Western Asset Limited Subadvisory Agreement or Western Asset Singapore Subadvisory Agreement, and the expenses of the Manager, Western Asset, Western Asset Limited or Western Asset Singapore will not necessarily be reduced as a result of
the receipt of such supplemental information. The Fund expects that all portfolio transactions will be effected on a principal basis
and, accordingly, does not expect to pay any brokerage commissions. To the extent the Fund does effect brokerage transactions, affiliated persons (as such term is defined in the 1940 Act) of the Fund, or affiliated persons of such persons, may from
time to time be selected to perform brokerage services for the Fund, subject to the considerations discussed above, but are prohibited by the 1940 Act from dealing with the Fund as principal in the purchase or sale of securities. In order for such
an affiliated person to be permitted to effect any portfolio transactions for the Fund, the commissions, fees or other remuneration received by such affiliated person must be reasonable and fair compared to the commissions, fees or other
remuneration received by other brokers in connection with comparable transactions involving similar securities being purchased or sold during a comparable period of time. This standard would allow such an affiliated person to receive no more than
the remuneration which would be expected to be received by an unaffiliated broker in a commensurate arms-length transaction. Investment decisions for the Fund are made independently from those for other funds and accounts advised or managed by the Manager, Western
Asset or Western Asset Limited or their affiliates. Such other funds and accounts may also invest in the same securities as the Fund. When a purchase or sale of the same security is made at substantially the same time on behalf of the Fund and
another fund or account, the transaction will be averaged as to price, and available investments allocated as to amount, in a manner which the Manager, Western Asset, Western Asset Limited or Western Asset Singapore believes to be equitable to the
Fund and such other fund or account. In some instances, this investment procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or sold by the Fund. To the extent permitted by law, the Manager,
Western Asset, Western Asset Limited or Western Asset Singapore may aggregate the securities to be sold or purchased for the Fund with those to be sold or purchased for other funds and accounts in order to obtain best execution. Although the Fund does not have any restrictions on portfolio turnover, it is not the Funds policy to engage in transactions with the
objective of seeking profits from short-term trading. It is expected that the annual portfolio turnover rate of the Fund will not exceed 100%. The portfolio turnover rate is calculated by dividing the lesser of sales or purchases of portfolio
securities by the average monthly value of the Funds portfolio securities. For purposes of this calculation, portfolio securities exclude all securities having a maturity when purchased of one year or less. A high rate of portfolio turnover
involves correspondingly greater transaction costs than a lower rate, which costs are borne by the Fund and their stockholders. 61
The Fund determines the net asset value of its Common Stock on each day the NYSE is open for business, as of the close of the customary
trading session (normally 4:00 p.m. Eastern Time), or any earlier closing time that day. The Fund determines the net asset value per share of Common Stock by dividing the value of the Funds securities, cash and other assets (including the
value of derivatives and interest accrued but not collected) less all its liabilities (including accrued expenses, the liquidation preference of any outstanding preferred shares and dividends payable) by the total number of shares of Common Stock
outstanding. Securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service that are based on transactions in corporate fixed income securities, quotations from corporate bond dealers,
market transactions in comparable securities and various other relationships between securities. The Fund values portfolio securities for which market quotations are readily available at the last reported sales price or official closing price on the
primary market or exchange on which they trade. Under the Funds valuation policies and procedures, the Fund values its short-term investments at amortized cost when the security has 60 days or less to maturity which the Board of Directors
believes under normal circumstances represents the fair value of those securities. Determination of the Common Stocks net asset value is made in accordance with U.S. generally accepted accounting principles. The Fund values all other securities and assets at their fair value. If events occur that materially affect the value of a security between
the time trading ends on the security and the close of the customary trading session of the NYSE, the Fund may value the security at its fair value as determined in good faith by or under the supervision of the Board of Directors. The effect of
using fair value pricing is that the Common Stocks net asset value will be subject to the judgment of the Board of Directors or its designee instead of being determined by the market. Any swap transaction that the Fund enters into may, depending on the applicable interest rate environment, have a positive or negative value
for purposes of calculating net asset value. Any cap transaction that the Fund enters into may, depending on the applicable interest rate environment, have no value or a positive value. In addition, accrued payments to the Fund under such
transactions will be assets of the Fund and accrued payments by the Fund will be liabilities of the Fund. 62
Certain Provisions in the Charter and Bylaws The Charter includes provisions that could limit the ability of other entities or persons to acquire control of the Fund. These provisions
could have the effect of depriving Common Stockholders of opportunities to sell their Common Stock at a premium over the then-current market price of the Common Stock. As described more completely in the Prospectus, the Charter divides the Directors
into three classes of approximately equal size. As a result of this staggered structure of the Board of Directors, it would take a minimum of two years for other entities or groups of persons to gain a majority of seats on the Board of Directors. In
addition, the Bylaws require that stockholders provide advance notice to the Fund in order to nominate candidates for election to the Board or to bring proposals before the annual meeting of stockholders. This prevents other entities or groups of
persons from nominating Directors or raising proposals during an annual meeting of stockholders unless they have provided such advance notice to the Fund. 63
REPURCHASE OF FUND SHARES; CONVERSION TO AN OPEN-END FUND Although it is under no obligation to do so, the Fund reserves the right to
repurchase the Common Stock on the open market in accordance with the 1940 Act and the rules and regulations thereunder. Subject to its investment limitations, the Fund may borrow to finance the repurchase of stock or to make a tender offer.
Interest on any Borrowings to finance Common Stock repurchase transactions or the accumulation of cash by the Fund in anticipation of Common Stock repurchases or tenders will reduce the Funds net income. Any Common Stock repurchase, tender
offer or borrowing that might be approved by the Board of Directors would also have to comply with the Securities Exchange Act of 1934, as amended, and the 1940 Act and the rules and regulations thereunder. The repurchase by the Fund of shares of its Common Stock at prices below net asset value may result in an increase in the net asset value of
those shares that remain outstanding. However, there can be no assurance that Common Stock repurchases or tenders at or below net asset value will result in shares of the Funds Common Stock trading at a price equal to their net asset value. In
addition, a purchase by the Fund of its Common Stock will decrease the Funds total assets, which would likely have the effect of increasing the Funds expense ratio. If the Fund converted to an open-end investment company, the Common Stock would no longer be listed on
the NYSE. In contrast to a closed-end investment company, stockholders of an open-end investment company may require the company to redeem their shares at any time
(except in certain circumstances as authorized by the 1940 Act or the rules thereunder) at their net asset value, less any redemption charge that is in effect at the time of redemption. In order to avoid maintaining large cash positions or
liquidating favorable investments to meet redemptions, open-end investment companies typically engage in a continuous offering of their shares. Open-end investment
companies are thus subject to periodic asset in-flows and out-flows that can complicate portfolio management. 64
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS Set forth below is a discussion of certain U.S. federal income tax aspects concerning the Fund and the purchase, ownership and disposition of
Common Stock. This discussion does not purport to be complete or to deal with all aspects of U.S. federal income taxation that may be relevant to shareholders in light of their particular circumstances. Unless otherwise noted, this discussion
applies only to U.S. shareholders that hold Common Stock as capital assets. A U.S. shareholder is a Common Stockholder who is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States,
(ii) a U.S. corporation, (iii) a trust if it (a) is subject to the primary supervision of a court in the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has
made a valid election to be treated as a U.S. person, or (iv) any estate the income of which is subject to U.S. federal income tax regardless of its source. This discussion is based upon present provisions of the Code, the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all of which are subject to change, or differing interpretations (possibly with retroactive effect). This discussion does not represent a detailed description of the U.S.
federal income tax consequences relevant to special classes of taxpayers including, without limitation, financial institutions, insurance companies, investors in pass-through entities, U.S. shareholders whose functional currency is not
the U.S. dollar, tax-exempt organizations, dealers in securities or currencies, traders in securities or commodities that elect mark to market treatment, or persons that will hold Common Stock as a position in
a straddle, hedge or as part of a constructive sale for U.S. federal income tax purposes. In addition, this discussion does not address the application of the Medicare tax on net investment income or the U.S.
federal alternative minimum tax. Prospective investors should consult their tax advisors with regard to the U.S. federal tax
consequences of the purchase, ownership, or disposition of Common Stock, as well as the tax consequences arising under the laws of any state, foreign country or other taxing jurisdiction. Taxation of the Fund The Fund has
elected to be treated, and intends to qualify annually, as a regulated investment company (a RIC) under Subchapter M of the Code. To qualify for the favorable U.S. federal income tax treatment generally accorded to RICs, the Fund must, among other things: (i) derive
in each taxable year at least 90% of its gross income from (a) dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies or other income
(including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; and (b) net income derived from interests in certain publicly traded
partnerships that are treated as partnerships for U.S. federal income tax purposes and that derive less than 90% of their gross income from the items described in (a) above (each a Qualified Publicly Traded Partnership); and
(ii) diversify its holdings so that, at the end of each quarter of each taxable year, (a) at least 50% of the value of the Funds total assets is represented by cash and cash items (including receivables), U.S. government securities,
the securities of other RICs and other securities, with such other securities limited, with respect to any one issuer, to an amount not greater in value than 5% of the value of the Funds total assets, and to not more than 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the value of the Funds total assets is represented by the securities (other than U.S. government securities or the securities of other RICs) of (I) any one
issuer, (II) any two or more issuers that the Fund controls and that are determined to be engaged in the same or similar trades or businesses or related trades or businesses, or (III) any one or more Qualified Publicly Traded Partnerships.
If the Fund fails to satisfy as of the close of any quarter the asset diversification test referred to in the preceding paragraph, it
will have 30 days to cure the failure by, for example, selling securities that are the source of the violation. Other cure provisions are available in the Code for a failure to satisfy the asset diversification test, but any such cure provision may
involve the payment of a penalty excise tax. As a RIC, the Fund generally will not be subject to U.S. federal income tax on its
investment company taxable income (as that term is defined in the Code, but determined without regard to the deduction for dividends paid) and net capital gain (the excess of net long-term capital gain over net short-term capital loss), if any, that
it distributes in each taxable year to its shareholders, provided that it distributes at least 90% of the sum of its 65
investment company taxable income and its net tax-exempt income for such taxable year. The Fund intends to distribute to its shareholders, at least
annually, substantially all of its investment company taxable income and net capital gain. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax. To prevent imposition of the excise tax, the Fund must distribute during each calendar year an amount at least equal to the sum of
(i) 98% of its ordinary income (not taking into account any capital gains or losses) for the calendar year, (ii) 98.2% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the
one-year period ending October 31 of the calendar year, and (iii) any ordinary income and capital gains for previous years that were not distributed during those years. For these purposes, the Fund
will be deemed to have distributed any income or gains on which it paid U.S. federal income tax. Although dividends generally will be
treated as distributed when paid, dividends declared in October, November or December, payable to shareholders of record on a specified date in one of those months, and paid during the following January, will be treated as having been distributed by
the Fund (and received by shareholders) on December 31 of the year in which declared. If the Fund failed to qualify as a RIC or
failed to satisfy the 90% distribution requirement in any taxable year, the Fund would be subject to U.S. federal income tax at regular corporate rates on its taxable income (including distributions of net capital gain), even if such income were
distributed to its shareholders, and all distributions out of earnings and profits would be taxed to shareholders as ordinary dividend income. Such distributions generally would be eligible (i) to be treated as qualified dividend
income in the case of individual and other noncorporate shareholders and (ii) for the dividends received deduction in the case of corporate shareholders. To qualify again to be taxed as a RIC in a subsequent year, the Fund would be
required to distribute to its Common Stockholders its earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Fund to the IRS. In
addition, if the Fund failed to qualify as a RIC for a period greater than two taxable years, then the Fund would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate
gain, including items of income, over aggregate loss that would have been realized if the Fund had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of 5
years, in order to qualify as a RIC in a subsequent year. Distributions Distributions to Common Stockholders by the Fund of ordinary income (including market discount realized by the Fund on the sale of
debt securities), and of net short-term capital gains, if any, realized by the Fund will generally be taxable to Common Stockholders as ordinary income to the extent such distributions are paid out of the Funds current or accumulated earnings
and profits. Distributions, if any, of net capital gains properly reported as capital gain dividends will be taxable as long-term capital gains, regardless of the length of time the Common Stockholder has owned Common Stock. A
distribution of an amount in excess of the Funds current and accumulated earnings and profits (as determined for U.S. federal income tax purposes) will be treated by a Common Stockholder as a return of capital which will be applied against and
reduce the Common Stockholders basis in his or her Common Stock. To the extent that the amount of any such distribution exceeds the Common Stockholders basis in his or her Common Stock, the excess will be treated by the Common
Stockholder as gain from a sale or exchange of the Common Stock. Distributions paid by the Fund generally will not be eligible for the dividends received deduction allowed to corporations or for the reduced rates applicable to certain qualified
dividend income received by non-corporate Common Stockholders. A distribution by the Fund
consisting of a return of capital should not be considered a dividend yield or total return of an investment in the Funds Common Stock. Common Stockholders who receive the payment of a distribution consisting of a return of capital may be
under the impression that they are receiving net profits when they are not. Stockholders should not assume that the source of a distribution from the Fund is net profits. Distributions will be treated in the manner described above regardless of whether such distributions are paid in cash or invested in
additional Common Stock pursuant to the Dividend Reinvestment Plan. Common Stockholders receiving distributions in the form of additional Common Stock will be treated as receiving a distribution in the amount of cash that they would have received if
they had elected to receive the distribution in 66
cash, unless the Fund issues additional Common Stock with a fair market value equal to or greater than net asset value, in which case such Common Stockholders will be treated as receiving a
distribution in the amount of the fair market value of the distributed Common Stock. The additional Common Stock received by a Common Stockholder pursuant to the Dividend Reinvestment Plan will have a new holding period commencing on the day
following the day on which the Common Stock is credited to the Common Stockholders account. The Fund may elect to retain its net
capital gain or a portion thereof for investment and be taxed at corporate rates on the amount retained. In such case, the Fund may designate the retained amount as undistributed capital gains in a written notice to its shareholders, who will be
treated as if each received a distribution of his pro rata share of such gain, with the result that each Common Stockholder will (i) be required to report its pro rata share of such gain on its tax return as long-term capital gain,
(ii) receive a refundable tax credit for its pro rata share of tax paid by the Fund on the gain and (iii) increase the tax basis for its Common Stock by an amount equal to the deemed distribution less the tax credit. The IRS currently requires that a RIC that has two or more classes of stock allocate to each such class proportionate amounts of each type of
its income (such as ordinary income and capital gains) based upon the percentage of total dividends paid to each class for the tax year. Accordingly, if the Fund issues Preferred Stock, the Fund intends to allocate capital gain dividends, if any,
between its Common Stock and Preferred Stock in proportion to the total dividends paid to each class with respect to such tax year. Shareholders will be notified annually as to the U.S. federal tax status of distributions. Sale or Exchange of Common Stock Upon
the sale, exchange or other disposition of Common Stock, a Common Stockholder will generally realize a capital gain or loss in an amount equal to the difference between the amount realized and the Common Stockholders adjusted tax basis in the
Common Stock. Such gain or loss will be long-term or short-term, depending upon the Common Stockholders holding period for the Common Stock. Generally, a Common Stockholders gain or loss will be a long-term gain or loss if the Common
Stock has been held for more than one year. For non-corporate taxpayers, long-term capital gains are currently eligible for reduced rates of taxation. No loss will be allowed on the sale, exchange or other disposition of Common Stock if the owner acquires (including pursuant to the Dividend
Reinvestment Plan) or enters into a contract or option to acquire securities that are substantially identical to such Common Stock within 30 days before or after the disposition. In such a case, the basis of the securities acquired will be adjusted
to reflect the disallowed loss. Losses realized by a Common Stockholder on the sale, exchange or other disposition of Common Stock held for six months or less are treated as long-term capital losses to the extent of any distribution of long-term
capital gain received (or amounts designated as undistributed capital gains) with respect to such Common Stock. Under U.S. Treasury
regulations, if a shareholder recognizes a loss with respect to Common Stock of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure
statement on IRS Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a RIC are not excepted. Future guidance may extend the current exception
from this reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayers treatment of the loss is proper. Shareholders
should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances. Nature of
Funds Investments Certain of the Funds investment practices are subject to special and complex U.S. federal income tax
provisions that may, among other things, (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (ii) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income,
(iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (iv) cause the Fund to recognize income or gain without a corresponding receipt of cash, (v) adversely affect the
67
time as to when a purchase or sale of stock or securities is deemed to occur, (vi) adversely alter the intended characterization of certain complex financial transactions and
(vii) produce income that will not be treated as qualifying income for purposes of the 90% gross income test described above. These
rules could therefore affect the character, amount and timing of distributions to Common Stockholders and the Funds status as a RIC. The Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of
these provisions. Below Investment Grade Instruments The Fund invests a portion of its Managed Assets in below investment grade (high yield) instruments, commonly known as high yield
instruments. Investments in these types of instruments may present special tax issues for the Fund. U.S. federal income tax rules are not entirely clear about issues such as when the Fund may cease to accrue interest, original issue discount or
market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a
bankruptcy or workout context are taxable. These and other issues will be addressed by the Fund, to the extent necessary, to preserve its status as a RIC and to distribute sufficient income to not become subject to U.S. federal income tax. Original Issue Discount Investments by
the Fund in debt obligations that are treated under applicable tax rules as having original issue discount (such as zero coupon securities, pay-in-kind bonds, deferred
interest bonds or other discount securities) will result in income to the Fund equal to the accrued original issue discount each year during which the Fund holds the securities, even if the Fund receives no cash interest payments. If the Fund
purchases debt instruments as part of a package of investments where the Fund also invests in common stock, other equity securities or warrants, the Fund might be required to accrue original issue discount in an amount equal to the value of such
common stock, other equity securities or warrants (even if the face amount of such debt instruments does not exceed the Funds purchase price for such package of investments). Any original issue discount might reflect doubt as to whether the
entire principal amount of a debt obligation will ultimately prove to be collectible. The Fund will, however, generally be required to recognize original issue discount based on the assumption that all future projected payments due on such debt
obligation will be made. Original issue discount is included in determining the amount of income which the Fund must distribute to maintain its qualification for the favorable U.S. federal income tax treatment generally accorded to RICs and to avoid
the payment of U.S. federal income tax and the nondeductible 4% U.S. federal excise tax. Because such income may not be matched by a corresponding cash distribution to the Fund, the Fund may be required to borrow money or dispose of other securities
to be able to make distributions to its shareholders. Market Discount Securities In general, the Fund will be treated as having acquired a debt instrument with market discount if its stated redemption price at maturity (or,
in the case of a debt instrument issued with original issue discount, its revised issue price) exceeds the Funds initial tax basis in the debt instrument by more than a statutory de minimis amount. The Fund will be required to treat any
principal payments on, or any gain derived from the disposition of, any debt instruments acquired with market discount as ordinary income to the extent of the accrued market discount, unless the Fund makes an election to accrue market discount on a
current basis. If this election is not made, all or a portion of any deduction for interest expense incurred to purchase or carry a market discount debt instrument may be deferred until the Fund sells or otherwise disposes of such debt instrument.
The discount at which debt instruments are acquired may reflect doubts about their ultimate collectability rather than current market
interest rates. The amount of such discount will nevertheless generally be treated as market discount for U.S. federal income tax purposes. 68
Stock Dividends In certain circumstances, the Fund may make distributions of its Common Stock to satisfy the distribution requirements necessary to maintain
the Funds status as a RIC for U.S. federal income tax purposes and to avoid U.S. federal income and excise taxes. Under IRS Revenue Procedure 2017-45, the Fund may distribute taxable dividends that are
payable in cash or Common Stock at the election of each Common Stockholder, with up to 80% of any taxable dividends payable in the Funds Common Stock and the 20% or greater balance paid in cash. IRS Revenue Procedure 2021-53 temporarily lowers the minimum cash requirement for such dividends by allowing up to 90% of any taxable dividends payable in the Funds Common Stock and the 10% or greater balance paid in cash, but only
for distributions declared on or after November 1, 2021, and on or before June 30, 2022. Common Stockholders receiving any such dividends will be required to include the full amount of the dividends as taxable income to the extent of the
Funds current or accumulated earnings and profits for U.S. federal income tax purposes. As a result, Common Stockholders may be required to pay U.S. federal income taxes with respect to such dividends in excess of the cash dividends received.
It is unclear whether and to what extent the Fund will be able to pay taxable dividends in cash and Common Stock (whether pursuant to Revenue Procedure 2017-45, Revenue Procedure
2021-53 or otherwise). Currency Fluctuations Under Section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time the Fund accrues income or
receivables or expenses or other liabilities denominated in a foreign currency and the time the Fund actually collects such income or receivables or pays such liabilities are generally treated as ordinary income or loss. Similarly, gains or losses
on foreign currency, foreign currency forward contracts, certain foreign currency options or futures contracts and the disposition of debt securities denominated in foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates, are also treated as ordinary income or loss. Foreign Taxes The Funds investment in non-U.S. securities may be subject to
non-U.S. withholding taxes. In that case, the Funds yield on those securities would be decreased. Shareholders will generally not be entitled to claim a credit or deduction with respect to foreign taxes
paid by the Fund. Preferred Shares or Borrowings If the Fund utilizes leverage through the issuance of Preferred Stock or Borrowings, it may be restricted by certain covenants with respect to
the declaration of, and payment of, dividends on Common Stock in certain circumstances. Limits on the Funds payments of dividends on Common Stock may prevent the Fund from meeting the distribution requirements described above, and may,
therefore, jeopardize the Funds qualification for taxation as a RIC and possibly subject the Fund to the 4% excise tax. The Fund will endeavor to avoid restrictions on its ability to make dividend payments. Backup Withholding The Fund may be
required to withhold from all distributions and redemption proceeds payable to U.S. shareholders who fail to provide the Fund with their correct taxpayer identification numbers or to make required certifications, or who have been notified by the IRS
that they are subject to backup withholding. Certain shareholders specified in the Code generally are exempt from such backup withholding. This backup withholding is not an additional tax. Any amounts withheld may be refunded or credited against the
shareholders U.S. federal income tax liability, provided the required information is timely furnished to the IRS. 69
Foreign Shareholders U.S. taxation of a shareholder who is a nonresident alien individual, a foreign trust or estate or a foreign corporation, as defined for U.S.
federal income tax purposes (a foreign shareholder), depends on whether the income from the Fund is effectively connected with a U.S. trade or business carried on by the shareholder. If the income from the Fund is not effectively connected with a U.S. trade or business carried on by the foreign shareholder,
distributions of investment company taxable income will be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally withheld from such distributions. However, dividends paid by the Fund that are interest-related
dividends or short-term capital gain dividends will generally be exempt from such withholding, in each case to the extent the Fund properly reports such dividends to shareholders. For these purposes, interest-related dividends and
short-term capital gain dividends generally represent distributions of interest or short-term capital gains that would not have been subject to U.S. federal withholding tax at the source if received directly by a foreign shareholder, and that
satisfy certain other requirements. A foreign shareholder whose income from the Fund is not effectively connected with a U.S. trade or business would generally be exempt from U.S. federal income tax on capital gain dividends, any amounts
retained by the Fund that are designated as undistributed capital gains and any gains realized upon the sale, exchange or other disposition of Common Stock. However, a foreign shareholder who is a nonresident alien individual and is physically
present in the United States for more than 182 days during the taxable year and meets certain other requirements will nevertheless be subject to a U.S. tax of 30% on such capital gain dividends, undistributed capital gains and gains realized upon
the sale, exchange or other disposition of Common Stock. If the income from the Fund is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then distributions of investment company taxable income, any capital gain dividends, any amounts retained by the Fund that are designated as undistributed capital gains and any gains realized
upon the sale, exchange or other disposition of Common Stock will be subject to U.S. federal income tax at the rates applicable to U.S. citizens, residents or domestic corporations. Foreign corporate shareholders may also be subject to the branch
profits tax imposed by the Code. Very generally, special tax rules would apply if the Fund holds United States real property
interests (USRPIs) (or if the Fund holds assets that would be treated as USRPIs but for certain exceptions applicable to RICs) the fair market value of which equals or exceeds 50% of the sum of the fair market values of the
Funds USRPIs, interests in real property located outside the United States, and other assets used or held for use in a trade or business. Such rules could result in U.S. tax withholding from certain distributions to foreign shareholders.
Furthermore, such shareholders may be required to file a U.S. tax return and pay tax on such distributionsand, in certain cases, gain realized on sale, exchange or other disposition of Common Stockat regular U.S. federal income tax
rates. The Fund does not expect to invest in a significant percentage of USRPIs, so these special tax rules are not likely to apply. The
Fund may be required to withhold from distributions that are otherwise exempt from U.S. federal withholding tax (or taxable at a reduced treaty rate) unless the foreign shareholder certifies his or her foreign status under penalties of perjury or
otherwise establishes an exemption. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax
treaty may differ from those described herein. Foreign shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. Additional Withholding Requirements Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as FATCA), a 30% U.S. federal withholding tax may
apply to any dividends that the Fund pays to (i) a foreign financial institution (as specifically defined in the Code), whether such foreign financial institution is the beneficial owner or an intermediary, unless such foreign
financial institution agrees to verify, report and disclose its United States account holders (as specifically defined in the Code) and meets certain other specified requirements or (ii) a
non-financial foreign entity, whether such non-financial foreign entity is the beneficial owner or an intermediary, unless such entity provides a certification that the
beneficial owner of the payment does not have any substantial United 70
States owners or provides the name, address and taxpayer identification number of each such substantial United States owner and certain other specified requirements are met. In certain cases, the
relevant foreign financial institution or non-financial foreign entity may qualify for an exemption from, or be deemed to be in compliance with, these rules. In addition, foreign financial institutions located
in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules. You should consult your own tax advisor regarding FATCA and whether it may be relevant to your ownership of Common
Stock . Other Taxation Common
Stockholders may be subject to state, local and foreign taxes on their Fund distributions. Common Stockholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Fund. 71
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES A control person is a person who beneficially owns more than 25% of the voting securities of a company. The Fund currently has no control
person. To the Funds knowledge, beneficial owners of more than 5% of any class of the Funds outstanding equity securities are set forth below based on public filings. As a group, the Funds directors and officers own less than 1% of
the Funds Common Stock. Name Suite 400 Wheaton, IL 60187 Based upon information obtained from Schedule 13G/A filed with the SEC on January 15, 2021.
72
The audited financial statements included in the annual report to the Funds shareholders for the fiscal year ended April 30, 2021
and together with the report of PricewaterhouseCoopers LLP (PwC) for the Funds annual report, are incorporated herein by reference to the Funds annual report to shareholders. The unaudited financial statements for the six
months ended October 31, 2021 are included in the semi-annual report to the Funds shareholders for the period ended October 31, 2021 and are incorporated herein by the Funds semi-annual report to shareholders. All other
portions of the annual report and semi-annual report to shareholders are not incorporated herein by reference and are not part of the registration statement, the SAI, the Prospectus or any Prospectus Supplement. 73
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PwC serves as the Independent Registered Public Accounting Firm of the Fund and audits the financial statements of the Fund. PwC is located at
100 East Pratt Street, Suite 2600, Baltimore, Maryland 21202-1096. 74
The custodian of the assets of the Fund is The Bank of New York Mellon, 225 Liberty Street, New York, New York 10286. The custodian performs
custodial, fund accounting and portfolio accounting services. The Funds transfer, stockholder services and dividend paying agent is Computershare Inc., 462 South 4th Street, Suite 1600, Louisville, KY 40202. 75
As noted above, this statement of additional information is part of a registration statement filed with the SEC. Pursuant to the final rule
and form amendments adopted by the SEC on April 8, 2020, the Fund is permitted to incorporate by reference certain information filed with the SEC, which means that the Fund can disclose important information to you by referring you
to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information that the Fund files with the SEC will automatically update and supersede this information. The documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the 1940 Act
and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering will be incorporated by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such reports and
documents: the Funds Statement of Additional Information, dated [], 2021, filed with the accompanying
Prospectus; the Funds description of Common
Stock on Form 8-A, filed on May 11, 1998. You may obtain copies of
any information incorporated by reference into this prospectus, at no charge, by calling toll-free (888) 777-0102 or by writing to the Fund at 620 Eighth Avenue, 47th Floor, New York, NY 10018. The
Funds periodic reports filed pursuant to Section 30(b)(2) of the 1940 Act and Sections 13 and 15(d) of the Exchange Act, as well as this Prospectus and the Statement of Additional Information, are available on the Funds website
http://www.franklintempleton.com/investments/options/closed-end-funds. In addition, the SEC maintains a website at www.sec.gov, free of charge, that contains these reports, the Funds proxy and information statements, and other information
relating to the Fund 76
A Registration Statement on Form N-2, including amendments thereto, relating to the shares of the Fund
offered hereby, has been filed by the Fund with the SEC in Washington, D.C. The Funds Prospectus and this Statement of Additional Information do not contain all of the information set forth in the Registration Statement, including any exhibits
and schedules thereto. For further information with respect to the Fund and the Common Stock offered hereby, reference is made to the Funds Registration Statement. Statements contained in the Funds Prospectus and this Statement of
Additional Information as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference. Copies of the Registration Statement may be inspected without charge at the SECs principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the SEC upon the payment of certain fees prescribed by the SEC or on the SECs website at http://www.sec.gov. 77
DESCRIPTION OF S&P, MOODYS AND FITCH RATINGS1 S&P Global RatingsA brief description of the applicable S&P Global Ratings and its affiliates (collectively,
S&P) rating symbols and their meanings (as published by S&P) follows: ISSUE CREDIT RATING DEFINITIONS An S&P issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other
forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects S&P Global Ratings view of the obligors capacity and willingness to meet its financial
commitments as they come due, and this opinion may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default. Issue credit ratings can be either long-term or short-term. Short-term issue credit ratings are generally assigned to those obligations
considered short-term in the relevant market. Short-term issue credit ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. Medium-term notes are assigned long-term ratings. Long-Term Issue Credit Ratings* Issue credit ratings are based, in varying degrees, on S&Ps analysis of the following considerations: The likelihood of paymentthe capacity and willingness of the obligor to meet its financial commitments on
an obligation in accordance with the terms of the obligation; The nature and provisions of the financial obligation, and the promise we impute; and The protection afforded by, and relative position of, the financial obligation in the event of a bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights. An
issue rating is an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect lower priority in
bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.) AAA AA The ratings indicated herein are believed to be the most recent ratings available at the date of this Statement
of Additional Information for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
indicated do not necessarily represent ratings which would be given to these securities on the date of the Funds fiscal year end. A-1
A BBB BB, B, CCC, CC, and C BB B CCC CC C D PLUS (+) OR MINUS (-) Short-Term Issue Credit Ratings A-1 A-2
A-2 A-3 B C D Active Qualifiers (Currently applied and/or outstanding) S&P uses the following qualifiers that limit the scope of a rating. The structure of the transaction can require the use of a qualifier
such as a p qualifier, which indicates the rating addresses the principal portion of the obligation only. A qualifier appears as a suffix and is part of the rating. Federal deposit insurance limit: L qualifier Principal: p qualifier Preliminary Ratings: prelim qualifier A-3
Preliminary ratings may be assigned to obligations, most commonly
structured and project finance issues, pending receipt of final documentation and legal opinions. Preliminary ratings may be assigned to obligations that will likely be
issued upon the obligors emergence from bankruptcy or similar reorganization, based on late-stage reorganization plans, documentation and discussions with the obligor. Preliminary ratings may also be assigned to the obligors. These ratings
consider the anticipated general credit quality of the reorganized or post-bankruptcy issuer as well as attributes of the anticipated obligation(s). Preliminary ratings may be assigned to entities that are being formed or
that are in the process of being independently established when, in S&Ps opinion, documentation is close to final. Preliminary ratings may also be assigned to the obligations of these entities. Preliminary ratings may be assigned when a previously unrated entity is
undergoing a well-formulated restructuring, recapitalization, significant financing or other transformative event, generally at the point that investor or lender commitments are invited. The preliminary rating may be assigned to the entity and to
its proposed obligation(s). These preliminary ratings consider the anticipated general credit quality of the obligor, as well as attributes of the anticipated obligation(s), assuming successful completion of the transformative event. Should the
transformative event not occur, S&P would likely withdraw these preliminary ratings. A preliminary recovery rating may be assigned to an obligation that has a
preliminary issue credit rating. Termination Structures: t qualifier Counterparty Instrument Rating: cir qualifier Inactive Qualifiers (No longer applied or outstanding) Contingent upon final documentation: * inactive qualifier A-4
Termination of obligation to tender: c inactive
qualifier U.S. direct government securities: Public Information Ratings: Provisional Ratings: Quantitative Analysis of public
information q inactive qualifier Extraordinary risks r inactive qualifier Moodys Investors Service, Inc.A brief description of the applicable Moodys Investors
Service, Inc. (Moodys) rating symbols and their meanings (as published by Moodys) follows: A-5
LONG-TERM OBLIGATIONS RATINGS Ratings assigned on Moodys global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of
financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities. Moodys defines credit risk as the risk
that an entity may not meet its contractual financial obligations as they come due and any estimated financial loss in the event of default or impairment. The contractual financial obligations2
addressed by Moodys ratings are those that call for, without regard to enforceability, the payment of an ascertainable amount, which may vary based upon standard sources of variation (e.g., floating interest rates), by an ascertainable date.
Moodys rating addresses the issuers ability to obtain cash sufficient to service the obligation, and its willingness to pay.3 Moodys ratings do not address non- standard sources of variation in the amount of the principal obligation (e.g., equity indexed), absent an express statement to the contrary in a press release accompanying an initial rating.4 Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default or impairment on contractual financial
obligations and the expected financial loss suffered in the event of default or impairment. Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or
impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment.5, 6 Moodys issues ratings at the issuer level and instrument level on both the long- term scale and the short-term scale. Typically, ratings are made publicly available although private and
unpublished ratings may also be assigned.7 Moodys differentiates structured
finance ratings from fundamental ratings (i.e., ratings on nonfinancial corporate, financial institution, and public sector entities) on the global long-term scale by adding (sf ) to all structured finance ratings.8 7 The addition of (sf ) to structured finance ratings should eliminate any presumption that In the case of impairments, there can be a financial loss even when contractual obligations are met.
In some cases the relevant credit risk relates to a third party, in addition to, or instead of the issuer.
Examples include credit-linked notes and guaranteed obligations. Because the number of possible features or structures is limited only by the creativity of issuers,
Moodys cannot comprehensively catalogue all the types of non-standard variation affecting financial obligations, but examples include indexed values, equity values and cash flows, prepayment penalties,
and an obligation to pay an amount that is not ascertainable at the inception of the transaction. For certain structured finance, preferred stock and hybrid securities in which payment default events are
either not defined or do not match investors expectations for timely payment, long-term and short-term ratings reflect the likelihood of impairment (as defined below in this publication) and financial loss in the event of impairment.
Supranational institutions and central banks that hold sovereign debt or extend sovereign loans, such as the
IMF or the European Central Bank, may not always be treated similarly to other investors and lenders with similar credit exposures. Long-term and short-term ratings assigned to obligations held by both supranational institutions and central banks,
as well as other investors, reflect only the credit risks faced by other investors unless specifically noted otherwise. Supranational institutions and central banks that hold sovereign debt or extend sovereign loans, such as the
IMF or the European Central Bank, may not always be treated similarly to other investors and lenders with similar credit exposures. Long-term and short-term ratings assigned to obligations held by both supranational institutions and central banks,
as well as other investors, reflect only the credit risks faced by other investors unless specifically noted otherwise. Like other global scale ratings, (sf) ratings reflect both the likelihood of a default and the expected loss
suffered in the event of default. Ratings are assigned based on a rating committees assessment of a securitys expected loss rate (default probability multiplied by expected loss severity), and may be subject to the constraint that the
final expected loss rating assigned would not be more than a certain number of notches, typically three to five notches, above the rating that would be assigned based on an assessment of default probability alone. The magnitude of this constraint
may vary with the level of the rating, the seasoning of the transaction, and the uncertainty around the assessments of expected loss and probability of default. A-6
Long-Term Rating Definitions: Aaa Aa A Baa Ba B Caa Ca C Note: Moodys appends numerical modifiers 1, 2, and 3 to each generic rating classification
Investment and Market Risk. An investment in the Fund is subject to investment risk, including the possible loss of the entire amount that you invest.
An investment in our Common Stock is not intended to constitute a complete investment program and should not be viewed as such. The value of the Funds portfolio securities may move up or down, sometimes rapidly
and unpredictably. At any point in time, your securities may be worth less than your original investment. We are primarily a long-term investment vehicle and should not be used for short-term trading.
Below Investment Grade Securities (High-Yield) Risk. At any one time, substantially all of the Funds Managed Assets may be invested in high-yield debt securities. High yield debt securities are generally
subject to greater credit risks than higher-grade debt securities, including the risk of default on the payment of interest or principal. High yield debt securities are considered speculative, typically have lower liquidity and are more difficult to
value than higher grade bonds. High yield debt securities tend to be volatile and more susceptible to adverse events, credit downgrades and negative sentiments and may be difficult to sell at a desired price, or at all, during periods of uncertainty
or market turmoil.
Low Rated and Unrated Securities. The Fund may invest in instruments that are low rated or unrated. Debt securities of emerging market issuers may be considered to have a credit quality rated below investment
grade by internationally recognized credit rating organizations such as Moodys and S&P. Non-investment grade securities (that is, rated Ba1 or lower by Moodys or BB+ or lower by S&P) are
commonly referred to as junk bonds and are regarded as predominantly speculative with respect to the issuers capacity to pay interest and repay principal in accordance with the terms of the obligations and involve major risk
exposure to adverse conditions. Some of the emerging market issuer securities held by the Fund, which may not be paying interest currently or may be in payment default, may be comparable to securities rated as low as C by Moodys or CCC or
lower by S&P. These securities are considered to have extremely poor prospects of ever attaining any real investment standing, to have a current identifiable vulnerability to default, to be unlikely to have the capacity to pay interest and repay
principal when due in the event of adverse business, financial or economic conditions and/or to be in default or not current in the payment of interest or principal.
Low rated and unrated debt instruments generally offer a higher current yield than that available from higher grade issues, but typically involve greater risk. Low rated and unrated securities are especially subject to
adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of low
rated and unrated instruments may experience financial stress that could adversely affect their ability to make payments of principal and interest and increase the possibility of default. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the values and liquidity of low rated and unrated securities especially in a market characterized by a low volume of trading.
Default Risk. Investments in fixed-income securities are subject to the risk that the issuer of the security could default on its obligations, causing a fund to sustain losses on those investments. A default
could impact both interest and principal payments. High-yield fixed-income securities (commonly known as junk bonds) are considered speculative with respect to the issuers capacity to pay interest and repay principal in accordance
with the terms of the obligations. This means that, compared to issuers of higher rated securities, issuers of medium and lower rated securities are less likely to have the capacity to pay interest and repay principal when due in the event of
adverse business, financial or economic conditions and/or may be in default or not current in the payment of interest or principal.
The market values of medium and lower rated securities tend to be more sensitive to company-specific developments and changes in economic conditions than higher rated securities. The companies that issue these
securities often are highly leveraged, and their ability to service their debt obligations during an economic downturn or periods of rising interest rates may be impaired. In addition, these companies may not have access to more traditional methods
of financing, and may be unable to repay debt at maturity by refinancing. The risk of loss due to default in payment of interest or principal by these issuers is significantly greater than with higher rated securities because medium and lower rated
securities generally are unsecured and subordinated to senior debt.
Default, or the markets perception that an issuer is likely to default, could reduce the value and liquidity of securities held by the Fund, thereby reducing the value of your investment in the Common Stock. In
addition, default may cause the Fund to incur expenses in seeking recovery of principal or interest on its portfolio holdings.
The risks of foreign investment are greater for investments in emerging markets. Emerging market countries typically have economic and political systems that are less fully developed, and that can be expected to be less
stable, than those of more advanced countries. Low trading volumes may result in a lack of liquidity and in price volatility. Emerging market countries may have policies that restrict investment by foreigners, that require governmental approval
prior to investments by foreign persons, or that prevent foreign investors from withdrawing their money at will. An investment in emerging market securities should be considered speculative.
Emerging Markets Risks. Investing in securities of emerging market issuers entails all of the risks of investing in securities of foreign issuers to a heightened degree. The heightened risks include:
(i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting in lack of
liquidity and in price volatility; and (iii) certain national policies which may restrict HIXs investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests.
Economic and Political Risks. The economies of individual emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of developing countries generally are heavily dependent upon international trade and, accordingly, have been
and may continue to be adversely affected by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the countries with which they trade.
With respect to any emerging market country, there is the possibility of nationalization, expropriation or confiscatory taxation, political changes, governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or the value of the Funds investments in those countries.
Emerging market countries may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an
emerging market countrys balance of payments, the country could impose temporary restrictions on foreign capital remittances. The Fund could be adversely affected by delays in, or a refusal to grant, any restrictions on investments. Investing
in local markets in emerging market countries may require the Fund to adopt special procedures, seek local government approvals or take other actions, each of which may involve additional costs to the Fund.
Market Illiquidity. No established secondary markets may exist for many of the emerging market issuer securities in which the Fund may invest. Reduced secondary market liquidity may have an adverse effect on
market price and the Funds ability to dispose of particular instruments when necessary to meet its liquidity requirements or in response to specific economic events such as a deterioration in the creditworthiness of the issuer. Reduced
secondary market liquidity for certain emerging market issuer securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Market quotations
are generally available on many emerging market issuer securities only from a limited number of dealers and may not necessarily represent firm bids of those dealers or prices for actual sales.
Currency Devaluations and Fluctuations. The value of investments in securities denominated in foreign currencies increases or decreases as the rates of exchange between those currencies and the U.S. dollar
change. Currency conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can be volatile, and are affected by factors such as general economic conditions, the actions of the U.S.
and foreign governments or central banks, the imposition of currency controls and speculation. The Fund may be unable or may choose not to hedge its foreign currency exposure.
Smaller Company Risk. The general risks associated with income-producing securities are particularly pronounced for securities issued by companies with smaller market capitalizations. These companies may have
limited product lines, markets or financial resources or they may depend on a few key employees. As a result, they may be subject to greater levels of credit, market and issuer risk. Securities of smaller companies may trade less frequently and in
lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. Companies with medium-sized market capitalizations may have risks similar to those of smaller
companies.
Interest Rate Risk. The market price of the Funds investments will change in response to changes in interest rates and other factors. During periods of declining interest rates, the market price of fixed
income securities generally rises. Conversely, during periods of rising interest rates, the market price of such securities generally declines. The magnitude of these fluctuations in the market price of fixed income securities is generally greater
for securities with longer maturities. Additionally, such risk may be greater during the current period of historically low interest rates. Fluctuations in the market price of the Funds securities will not affect interest income derived from
securities already owned by the Fund, but will be reflected in the Funds net asset value. The Fund may utilize certain strategies, including investments in structured notes or interest rate swap or cap transactions, for the purpose of reducing
the interest rate sensitivity of the portfolio and decreasing the Funds exposure to interest rate risk, although there is no assurance that it will do so or that such strategies will be successful.
Credit Risk and Counterparty Risk. If an issuer or guarantor of a security held by the Fund or a counterparty to a financial contract with the Fund defaults or its credit is downgraded, or is perceived to be less
creditworthy, or if the value of the assets underlying a security declines, the value of your investment will typically decline. Changes in actual or perceived creditworthiness may occur quickly. The Fund could be delayed or hindered in its
enforcement of rights against an issuer, guarantor or counterparty. Subordinated securities are more likely to suffer a credit loss than non-subordinated securities of the same issuer and will be
disproportionately affected by a default, downgrade or perceived decline in creditworthiness.
Reinvestment Risk. Reinvestment risk is the risk that income from the Funds portfolio will decline if and when the Fund invests the proceeds from matured, traded or called debt obligations at market
interest rates that are below the portfolios current earnings rate. A decline in income could affect the price of Common Stock or the Funds overall return.
Liquidity Risk. The Fund has no limit on its ability to purchase illiquid securities. Liquidity risk exists when particular investments are difficult to sell. Securities may become illiquid after purchase by the
Fund, particularly during periods of market turmoil. When the Fund holds illiquid investments, the portfolio may be harder to value, especially in changing markets, and if the Fund is forced to sell these investments in order to segregate assets or
for other cash needs, the Fund may suffer a loss.
Duration Risk. The duration of a fixed-income security is a measure of the portfolios sensitivity to changes in interest rates. Prices of fixed-income securities with longer effective maturities are more
sensitive to interest rate changes than those with shorter effective maturities. Holding long duration investments may expose the Fund to certain magnified risks. These include interest rate risk, credit risk and liquidity risk, as discussed above.
Management Risk. The Fund is subject to management risk because it is an actively managed investment portfolio. The Manager and each individual portfolio manager will apply investment techniques and risk analyses
in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.
Leverage Risk. The Fund generally utilizes leverage and under current market conditions intends to continue to use leverage. The value of your investment may be more volatile if the Fund borrows, issues preferred
stock or uses instruments, such as derivatives, that have a leveraging effect on the Funds portfolio. Other risks described in the Prospectus also will be compounded because leverage generally magnifies the effect of a change in the value of
an asset and creates a risk of loss of value on a larger pool of assets than the fund would otherwise have had. The Fund may also have to sell assets at inopportune times to satisfy its obligations created by the use of leverage or derivatives. The
use of leverage is considered to be a speculative investment practice and may result in the loss of a substantial amount, and possibly all, of the Funds assets. In addition, the Funds portfolio will be leveraged if it exercises its right
to delay payment on a redemption, and losses will result if the value of the Funds assets declines between the time a redemption request is deemed to be received by the Fund and the time the Fund liquidates assets to meet redemption requests.
Credit default swap contracts involve heightened risks and may result in losses to the Fund. Credit default swaps may be illiquid and difficult to value. When the Fund sells credit protection via a credit default swap,
credit risk increases since the Fund has exposure to both the issuer whose credit is the subject of the swap and the counterparty to the swap.
Dollar Rolls, Asset-Backed Securities and Mortgage-Backed Securities Risk. The Fund may invest in dollar rolls, asset-backed securities and
mortgage-backed securities. Under a dollar roll transaction, the Fund sells securities for delivery in the current month, or sells securities it has purchased on a
to-be-announced basis, and simultaneously contracts to repurchase substantially similar (same type and coupon) securities on a specified future date. During
the roll period, the Fund forgoes principal and interest paid on the purchased securities. Dollar rolls are speculative techniques involving leverage, and are considered Borrowings by the Fund if the Fund does not establish and maintain a segregated
account. In addition, dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price. In the event the buyer of securities under a dollar roll files for bankruptcy or
becomes insolvent, the Funds use of proceeds may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Funds obligation to repurchase the securities. Successful use of dollar rolls
may depend upon the ability of the Funds investment manager to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully employed.
Interest Rate Transactions Risk. The Fund may enter into a swap or cap transaction to attempt to protect itself from increasing interest expenses on borrowings resulting from increasing short-term interest rates
or dividend expenses on any preferred shares. A decline in interest rates may result in a decline in net amounts receivable by the Fund from the counterparty under the swap or cap (or an increase in the net amounts payable by the Fund to the
counterparty under the swap), which may result in a decline in the net asset value of the Fund.
Risks of Warrants and Rights. Warrants and rights are subject to the same market risks as stocks, but may be more volatile in price. Warrants and rights do not carry the right to dividends or voting rights with
respect to their underlying securities, and they do not represent any rights in the assets of the issuer. An investment in warrants or rights may be considered speculative. In addition, the value of a warrant or right does not necessarily change
with the value of the underlying security and a warrant or right ceases to have value if it is not exercised prior to its expiration date. The purchase of warrants or rights involves the risk that the Fund could lose the purchase value of a warrant
or right if the right to subscribe to additional shares is not exercised prior to the warrants or rights expiration. Also, the purchase of warrants and rights involves the risk that the effective price paid for the warrant or right added
to the subscription price of the related security may exceed the value of the subscribed securitys market price such as when there is no movement in the price of the underlying security.
Market Price Discount from Net Asset Value. Shares of closed-end investment companies frequently trade at a discount from their net asset value. This risk is separate and
distinct from the risk that the Funds net asset value could decrease as a result of its investment activities and may be a greater risk to investors expecting to sell their Common Stock in a relatively short period following completion of this
offering. Whether investors will realize gains or losses upon the sale of the Common Stock will depend not upon the Funds net asset value but upon whether the market price of the Common Stock at the time of sale is above or below the
investors purchase price for the Common Stock.
Inflation/Deflation Risk. Inflation risk is the risk that the value of certain assets or income from the Funds investments will be worth less in the future as inflation decreases the value of money. As
inflation increases, the real value of the Common Stock and distributions on the Common Stock can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with the Funds use of leverage
would likely increase, which would tend to further reduce returns to stockholders. Current economic indicators have shown inflation accelerating at a faster pace than in recent years. Deflation risk is the risk that prices throughout the economy
decline over timethe opposite of inflation.
Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Funds portfolio.
Market Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events,
governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, investor sentiment, the global and domestic effects of a
pandemic, and other factors that may or may not be related to the issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and
tariff arrangements, public health events, terrorism, natural disasters and other circumstances in one country or region could have profound impacts on global economies or markets. As a result, whether or not the Fund invests in securities of
issuers located in or with significant exposure to the countries directly affected, the value and liquidity of the Funds investments may be negatively affected.
The current global outbreak of the novel strain of coronavirus, COVID-19, has resulted in market closures and dislocations, extreme volatility, liquidity constraints and increased
trading costs. Efforts to contain the spread of COVID-19 have resulted in global travel restrictions and disruptions of healthcare systems, business operations and supply chains, layoffs, reduced consumer
demand, defaults and credit ratings downgrades, and other significant economic impacts. The effects of COVID-19 have impacted global economic activity across many industries and may heighten other pre-existing political, social and economic risks, locally or globally. The full impact of the COVID-19 pandemic is unpredictable and may adversely affect the Funds
performance.
Legislative and Regulatory Risk. Prices for high-yield securities may be affected by legislative and regulatory developments which could adversely affect the Funds net asset value and investment practices,
the secondary market for high-yield securities, the financial condition of issuers of these securities and the value of outstanding high-yield securities. These risks generally are higher than issuers in emerging market countries.
LIBOR Risk. The Funds investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or LIBOR, which is the offered rate for
short-term Eurodollar deposits between major international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of (i) the overnight and one-, three-, six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023 and (ii) all other LIBOR settings,
including the one-week and two-month USD LIBOR settings, immediately following the LIBOR publication on Friday, December 31, 2021. There remains uncertainty
regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Funds transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the
Funds investments cannot yet be determined.
Operational Risk. The valuation of the Funds investments may be negatively impacted because of the operational risks arising from factors such as processing errors and human errors, inadequate or failed
internal or external processes, failures in systems and technology, changes in personnel, and errors caused by third party service providers or trading counterparties. It is not possible to identify all of the operational risks that may affect the
Fund or to develop processes and controls that completely eliminate or mitigate the occurrence of such failures. The Fund and its shareholders could be negatively impacted as a result.
Cybersecurity Risk. Cybersecurity incidents, both intentional and unintentional, may allow an unauthorized party to gain access to Fund assets, Fund or proprietary information, cause the Fund, Western Asset, the
subadvisers and/or their service providers to suffer data breaches, data corruption or loss of operational functionality or prevent fund investors from purchasing, redeeming or exchanging shares or receiving distributions. The Fund, Western Asset,
and the subadvisers have limited ability to prevent or mitigate cybersecurity incidents affecting third party service providers, and such third party service providers may have limited indemnification obligations to the Fund or the Manager.
Cybersecurity incidents may result in financial losses to the fund and its shareholders, and substantial costs may be incurred in order to prevent any future cybersecurity incidents. Issuers of securities in which the fund invests are also subject
to cybersecurity risks, and the value of these securities could decline if the issuers experience cybersecurity incidents.
%(1)
%(2)
$
5.00
(3)
Percentage of
Net Assets
Attributable to
shares of
Common Stock
(Assumes Leverage
is Used)
1.14
%
0.33
%
0.11
%
1.58
%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
$50
$86
$188
1
20211,2
20211
20201
20191
20181
20171
$
7.15
$
6.19
$
7.31
$
7.39
$
7.78
$
7.12
0.27
0.51
0.55
0.52
0.56
0.66
(0.12
)
1.03
(1.11
)
(0.06
)
(0.37
)
0.69
0.15
1.54
(0.56
)
0.46
0.19
1.35
(0.29
)3
(0.46
)
(0.48
)
(0.50
)
(0.57
)
(0.63
)
(0.13
)
(0.09
)
(0.05
)
(0.01
)
(0.06
)
(0.29
)
(0.59
)
(0.57
)
(0.55
)
(0.58
)
(0.69
)
0.01
4
0.01
4
0.01
5
$
7.01
$
7.15
$
6.19
$
7.31
$
7.39
$
7.78
$
7.27
$
7.09
$
5.51
$
6.69
$
6.55
$
7.42
2.16
%
25.68
%
(8.11
)%
6.77
%
2.41
%
19.76
%
6.83
%
40.48
%
(10.02
)%
11.29
%
(4.15
)%
18.36
%
$
412
$
419
$
521
$
622
$
637
$
671
1.61
%9
1.59
%
2.57
%10
2.47
%
1.97
%
1.73
%
1.61
9,11,12
1.59
11
2.55
10,11
2.45
11
1.97
1.73
7.58
9
7.37
7.76
7.31
7.26
8.72
23
%
50
%
66
%
105
%
91
%
77
%
$
154,500
$
158,000
$
208,000
$
246,500
$
235,000
$
240,000
367
%
365
%
351
%
352
%
371
%
380
%
$
3,669
$
3,654
$
3,506
$
3,524
$
3,710
$
3,796
$
155,641
$
178,800
$
241,971
$
242,889
$
239,548
$
240,000
0.85
%
0.86
%
2.58
%
3.08
%
2.17
%
1.41
%
1
2
3
4
5
6
7
8
9
10
11
12
13
20161
20151
20141
20131
20121
$
8.57
$
9.47
$
9.56
$
8.86
$
9.57
0.73
0.79
0.85
0.90
0.96
(1.36
)
(0.86
)
(0.05
)
0.77
(0.67
)
(0.63
)
(0.07
)
0.80
1.67
0.29
(0.82
)
(0.83
)
(0.89
)
(0.97
)
(1.00
)
(0.82
)
(0.83
)
(0.89
)
(0.97
)
(1.00
)
$
7.12
$
8.57
$
9.47
$
9.56
$
8.86
$
6.90
$
8.15
$
9.39
$
10.20
$
10.10
(7.12
)%
(0.65
)%
8.89
%
20.03
%
3.80
%
(4.40
)%
(4.54
)%
1.30
%
11.68
%
11.89
%
$
613,632
$
738,419
$
816,304
$
822,403
$
756,448
1.59
%
1.45
%
1.45
%
1.41
%
1.51
%
1.59
1.45
1.45
1.41
1.51
9.78
8.90
9.10
9.84
10.93
65
%
41
%
45
%
52
%
45
%
$
240,000
$
260,000
$
255,000
$
215,000
$
215,000
356
%
384
%
420
%
483
%
452
%
$
3,557
$
3,840
$
4,201
6
$
4,825
6
$
4,518
6
$
241,803
$
251,712
$
248,493
$
215,000
$
211,038
1.05
%
0.91
%
0.92
%
0.97
%
1.09
%
1
2
3
4
5
6
Total Amount
Outstanding
Asset
Coverage per
1,000
Average
Market
Value Per
Unit**
$
215,000,000
4,518
N/A
$
215,000,000
4,825
N/A
$
255,000,000
4,201
N/A
$
260,000,000
3,840
N/A
$
240,000,000
3,557
N/A
$
240,000,000
3,796
N/A
$
235,000,000
3,710
N/A
$
246,500,000
3,524
N/A
$
208,000,000
3,506
N/A
$
158,000,000
3,654
N/A
*
**
Quarterly Closing Sale Price
Quarter-End Closing
High
Low
Sale
Price
Net Asset
Value Per
Share of
Common
Stock(1)
Premium/
(Discount) of
Quarter-End
Sale Price to
Net Asset
Value(2)
7.10
6.47
6.97
7.47
-6.69
%
7.03
6.56
6.73
7.29
-7.68
%
6.91
6.55
6.83
7.43
-8.08
%
7.11
3.86
5.51
6.19
-10.99
%
6.58
5.33
6.54
6.93
-5.63
%
6.75
6.38
6.44
6.82
-5.57
%
7.07
6.48
6.83
7.17
-4.74
%
7.09
6.75
7.09
7.15
-0.84
%
7.40
7.11
7.38
7.19
2.64
%
7.75
7.10
7.27
7.01
3.71
%
7.30
6.35
6.70
6.62
1.21
%
(1)
(2)
-10%
-5%
0%
5%
10%
-14.55%
-7.51%
-0.47%
6.73%
13.77%
Responsible for the day-to-day management with other members of the Funds portfolio management team; Chief Investment Officer of Western Asset
from 1998 to 2008 and since 2014; Senior Advisor/Chief Investment Officer Emeritus of Western Asset from 2008-2013; Co-Chief Investment Officer of Western Asset from 2013-2014.
Responsible for the day-to-day management with other members of the Funds portfolio management team; employed by Western Asset as an investment
professional for at least the past five years; Managing Director and head of U.S. Credit Products from 2003-2005 at Credit Suisse Asset Management.
Responsible for the day-to-day management with other members of the Funds portfolio management team; employed by Western Asset as an investment
professional for at least the past five years.
Amount of
Distribution Per
Share
Percentage of
Common
Stockholders Electing
to Participate in
Dividend
Reinvestment
Program
Amount of
Corresponding
Reinvestment through
Dividend
Reinvestment
Program
Additional Shares of
Common Stock Issued
through Dividend
Reinvestment
Program
$
0.04550
4.64
%
181,995
$
0.04550
4.60
%
180,568
$
0.04550
4.54
%
178,196
$
0.04550
4.50
%
176,646
$
0.04550
4.49
%
176,240
$
0.04550
4.53
%
177,864
$
0.04550
4.46
%
174,468
$
0.04550
4.45
%
173,514
$
0.04550
4.63
%
179,706
$
0.04550
4.20
%
162,865
$
0.04550
4.25
%
164,813
$
0.04600
4.23
%
165,775
$
0.04600
5.22
%
204,311
$
0.04600
4.25
%
166,625
$
0.04650
4.33
%
171,266
$
0.04650
4.32
%
171,204
$
0.04650
4.35
%
172,374
$
0.04700
5.62
%
224,789
$
0.04700
4.41
%
176,365
$
0.04700
4.40
%
175,938
$
0.04850
4.42
%
182,625
$
0.04850
4.47
%
184,549
$
0.04850
4.60
%
189,801
$
0.04900
4.60
%
191,275
$
0.04900
4.69
%
193,534
$
0.04900
4.87
%
201,151
$
0.04900
4.86
%
200,800
$
0.04900
4.69
%
193,636
$
0.04900
4.73
%
195,295
$
0.04900
4.70
%
194,069
$
0.04900
4.69
%
193,394
$
0.04900
6.24
%
179,321
$
0.04900
6.13
%
176,079
$
0.04900
5.84
%
167,883
$
0.04900
5.79
%
166,439
$
0.04900
5.75
%
165,423
1
1
4
45
55
58
61
62
63
64
65
72
73
74
75
76
77
A-1
B-1
C-1
Per Share
Total(1)
Page
v
S-1
S-4
S-6
S-6
S-7
S-8
S-9
S-10
S-11
S-11
S-11
Page
1
18
20
22
23
23
23
25
29
32
41
46
47
48
50
52
56
57
60
64
64
64
65
Western Asset High Income Fund II Inc., a Maryland corporation (the Fund), is a diversified, closed-end management investment company.
The Funds primary investment objective is to maximize current income. As a secondary objective, the Fund seeks capital appreciation to the extent consistent with its objective of seeking to maximize current income. There can be no
assurance the Fund will achieve its investment objectives. See The Funds Investments.
Under normal conditions, the Fund will invest at least 80% of its net assets plus any Borrowings for investment purposes in high-yield debt securities. The Funds investment manager is free to invest in debt
securities of any maturity. Certain of the debt securities purchased by the Fund may be rated as low as C by Moodys Investor Service (Moodys) or D by Standard & Poors Ratings Services
(S&P) or may be comparable to securities so rated. The Fund is not required to dispose of a debt security if its credit rating or credit quality declines.
The Fund invests up to 35% of its total assets in debt securities of issuers located in emerging market countries. Emerging market country is defined to include any country which is, at the time of
investment, (i) represented in the J.P. Morgan Emerging Market Bond Index Global or the J.P. Morgan Corporate Emerging Market Bond Index Broad or (ii) categorized by the World Bank in its annual categorization as middle- or low-income. The Fund may also invest in securities denominated in currencies of emerging market countries. There is no minimum rating criteria for the Funds investments in such securities. The Funds
investments in debt securities of emerging market issuers may include dollar and non-dollar-denominated (a) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or other
governments with taxing authority or by their agencies or instrumentalities, including Brady bonds; (b) debt obligations of supranational entities; (c) debt obligations and other fixed-income securities of foreign corporate issuers;
(d) debt obligations of U.S. corporate issuers; and (e) debt securities issued by corporations that generate significant profits from emerging market countries. The Fund may invest in securities with any market capitalization.
The Fund may invest up to 30% of its assets in zero coupon securities, pay-in-kind bonds and deferred payment securities. The Fund may also
invest up to 20% of its total assets in common stock, convertible securities (including contingent convertible securities), warrants, preferred stock or other equity securities of U.S. and foreign issuers when consistent with its objectives.
The Fund may invest in high-yield foreign and U.S. corporate securities including bonds, debentures, notes, commercial paper and preferred stock and will generally be unsecured. The Fund may invest in corporate debt
securities with variable rates of interest or which involve equity features, such as contingent interest or participations based on revenues, sales or profits (i.e., interest or other payments, often in addition to a fixed rate of return, that are
based on the borrowers attainment of specified levels of revenues, sales or profits and thus enable the holder of the security to share in the potential success of the venture). The Fund may invest in high-yield debt securities with floating
interest rates.
The Fund may invest in Brady bonds, which are debt securities issued under the framework of the Brady Plan as a means for debtor nations to restructure their outstanding external indebtedness; participations in loans
between emerging market governments and financial institutions; or fixed-income securities issued by supranational entities such as the World Bank or the European Economic Community.
The Fund may invest in fixed and floating rate loans arranged through private negotiations between a corporate borrower or a foreign sovereign entity and one or more financial institutions in the form of participations
in loans and assignments of all or a portion of loans from third parties.
The Manager is the Funds investment manager. The Manager, an indirect wholly-owned subsidiary of Franklin Resources, Inc., a global investment management organization operating as Franklin Templeton, is a registered investment adviser and
provides administrative and management services to the Fund. In addition, the Manager performs administrative and management services necessary for the operation of the Fund, such as (1) supervising the overall administration of the Fund,
including negotiation of contracts and fees with and the monitoring of performance and billings of the Funds transfer agent, stockholder servicing agents, custodian and other independent contractors or agents; (2) providing certain
compliance, Fund accounting, regulatory reporting and tax reporting services; (3) preparing or participating in the preparation of Board materials, registration statements, proxy statements and reports and other communications to stockholders;
(4) maintaining the Funds existence and (5) during such times as shares are publicly offered, maintaining the registration and qualification of the Funds shares under federal and state laws. As
of , , the Managers total assets under management were approximately $ billion. Franklin Templeton is a global asset
management firm. As of , , Franklin Templetons asset
management operation had aggregate assets under management of approximately $ billion.
The Fund will pay all of its offering expenses. The Funds management fees and other expenses are borne by the Common Stockholders. See Summary of Fund Expenses and Management of the Fund.
Western Asset Management Company, LLC (Western Asset), the Funds subadviser, has day-to-day responsibility for managing the Funds direct
investments in MBS and other permitted investments, subject to the supervision of the Funds Board of Directors and the Manager.
As of , , Western Asset and
its supervised affiliates had approximately $ billion in assets under management.
Western Asset receives an annual subadvisory fee, payable monthly, from the Manager in an amount equal to 70% of the management fee paid to the Manager. No fee will be paid by the Fund directly to Western Asset. See
Management of the Fund.
In connection with Western Assets service to the Fund, Western Asset Management Company Limited (Western Asset Limited) and Western Asset Management Pte. Ltd (Western Asset Singapore) provide certain subadvisory
services to the Fund pursuant to a subadvisory agreement with Western Asset (the Western Asset Limited Subadvisory Agreement and the Western Asset Singapore Subadvisory Agreement). Western Asset Limited and Western Asset
Singapore are generally responsible for managing investments denominated in currencies other than the U.S. dollar.
Western Asset pays Western Asset Limited and Western Asset Singapore a fee for their services at no additional expense to the Fund. Western Asset pays Western Asset Limited and Western Asset Singapore a monthly
subadvisory fee in an amount equal to 100% of the management fee paid to Western Asset on the assets that Western Asset allocates to Western Asset Limited and Western Asset Singapore to manage. See Management of the Fund.
Common Stock offered: shares
Shares outstanding after the offering: shares
Shares outstanding after the offering: shares
See Risks beginning on page 32 of the accompanying Prospectus for a discussion of factors you should consider carefully before deciding to invest in the Funds Common Stock.
%(1)
%(2)
$
5.00
(3)
Percentage of
Net Assets
Attributable to
shares of
Common Stock
(Assumes
Leverage is
Used)
%
%
%
%
%
%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
$
$
$
*
Actual
As Adjusted
(Unaudited)
Payable Date
to
Common
Stockholders
Distribution Per
Share
Common
Stockholders
Electing
to
Participate in
Dividend
Reinvestment
Program
Corresponding
Reinvestment
through
Dividend
Reinvestment
Program
of Common Stock
Issued
through
Dividend
Reinvestment
Program
Quarterly Closing Sale Price
Quarter-End Closing
High
Low
Sale Price
Net Asset Value
Per Share of
Common
Stock(1)
Premium/(Discount)
of Quarter-End
Sale Price to
Net Asset
Value(2)
(1)
(2)
PRELIMINARY PROSPECTUS SUPPLEMENT
Filed Pursuant to Rule 424(b)(5)
(To Prospectus dated , 2022)
Registration Statement No. 333-261721
Per Share
Total
$
$
$
$
$
$
(1)
(2)
(3)
PAGE
1
2
6
14
15
15
15
16
18
19
21
21
PAGE
1
18
20
22
23
23
23
25
29
32
41
46
47
48
50
52
56
57
60
64
64
64
65
One transferable subscription right (a Right) will be issued for each share of common stock of the Fund (Common Stock) held on the record date. Rights are expected to trade on the
under the symbol . The Rights will allow
Common Stockholders to subscribe for new shares of Common Stock of the Fund. shares of Common Stock of the Fund are outstanding as of
, 2022. Rights will be required to purchase one share of
Common Stock. Shares of the Fund, as a closed-end fund, can trade at a discount to net asset value. Upon exercise of the Rights offering, Fund shares [are expected to] [may] issued at a price below net asset
value per share of Common Stock. [An over-subscription privilege will be offered, [subject to the right of the Board of Directors of the Fund (the Board) to eliminate the over-subscription privilege.]
shares of Common Stock of the Fund will be issued if all Rights are exercised. See Terms of the Rights Offering. Any shares of Common Stock
issued as a result of the Rights offering will not be record date shares for the Funds monthly distribution to be paid on , 2022 and will not be
entitled to receive such distribution. The exercise of rights by a stockholder is irrevocable.
Approximately $ , before expenses.
Subscription Rights to Acquire Shares of Common Stock
The final subscription price per share of Common Stock (the Subscription Price) will be determined based upon a formula equal to % of the
average of the last reported sales price per share of the Funds Common Stock on the NYSE on the Expiration Date (as defined below) and each of the [four] preceding trading days (the Formula Price). If, however, the Formula Price is
less than % of the net asset value per share of Common Stock at the close of trading on the NYSE on the Expiration Date, then the Subscription Price will
be % of the Funds net asset value per share of Common Stock at the close of trading on the NYSE on that day. See Terms of the Rights
Offering.
Rights will be issued to holders of record of the Funds Common Stock as of the close of business on , 2022 (the Record Date). See
Terms of the Rights Offering.
One Right will be issued in respect of each share of Common Stock of the Fund outstanding as of the close of business on the Record Date. See Terms of the Rights Offering.
A holder of Rights may purchase shares of Common Stock of the Fund for every
Rights exercised. The number of Rights to be issued to a stockholder as of the close of business on the Record Date will be rounded up to the nearest
number of Rights evenly divisible by . See Terms of the Rights Offering.
Holders of shares of Common Stock as of the close of business on the Record Date (Record Date Stockholders) who fully exercise all Rights initially issued to them are entitled to buy those shares of Common Stock,
referred to as primary oversubscription shares, that were not purchased by other Rights holders at the same Subscription Price. If enough primary over-subscription shares are available, all such requests
will be honored in full. If the requests for primary over-subscription shares exceed the primary over-subscription shares available, the available primary oversubscription shares will be allocated pro rata among those fully exercising Record Date
Stockholders who oversubscribe based on the number of Rights originally issued to them by the Fund. Shares of Common Stock acquired pursuant to the primary over-subscription privilege are subject to allotment. Rights acquired in the secondary
market may not participate in the primary oversubscription privilege.
[In addition, the Fund, in its sole discretion, may determine to issue additional shares of Common Stock at the same Subscription Price in an amount of up to
% of the shares issued pursuant to the primary subscription, referred to as secondary over-subscription shares. Should the Fund determine to
issue some or all of the secondary oversubscription shares, they will be allocated only among Record Date Stockholders who submitted over-subscription requests. Secondary over-subscription shares will be allocated pro rata among those fully
exercising Record Date Stockholders who over-subscribe based on the number of Rights originally issued to them by the Fund. Rights acquired in the secondary market may not participate in the secondary over-subscription privilege.]
Notwithstanding the above, the Board has the right in its absolute discretion to eliminate the primary over-subscription privilege and/or secondary over-subscription privilege (together, the over-subscription
privilege) if it considers it to be in the best interest of the Fund to do so. The Board may make that determination at any time, without prior notice to Rights holders or others, up to and including the fifth day following the Expiration Date
(as defined below). See Over-Subscription Privilege.
Common Stockholders who choose not to exercise their full rights to purchase additional shares of Common Stock will permit Common Stockholders who exercise the Over-Subscription Privilege to purchase additional shares
of Common Stock at a discount to net asset value without furnishing additional rights or providing any compensation to the non-participating Common Stockholders for the dilution of their ownership percentage or voting rights.
Any shares of Common Stock issued pursuant to the over-subscription privilege will be shares registered under the Prospectus.
[The Rights will be transferable. See Terms of the Rights Offering, Sales by Rights Agent and Method of Transferring Rights.]
The Rights may be exercised at any time after issuance and prior to expiration of the Rights (the Subscription Period), which will be [5:00 PM Eastern Time] on
, 2022 (the Expiration Date), unless otherwise extended. See Terms of the Rights Offering and Method of Exercise of
Rights. The Rights offering may be terminated [or extended] by the Fund at any time for any reason before the Expiration Date. If the Fund terminates the rights offering, the Fund will issue a press release announcing such termination and will
direct the Rights Agent (defined below) to return, without interest, all subscription proceeds received to such stockholders who had elected to purchase shares of Common Stock.
The expenses of the Rights offering are expected to be approximately $ and will be borne by the Fund (and indirectly by holders of the Funds
shares of Common Stock). See Use of Proceeds.
The value of the Rights, if any, will be reflected by their market price on the . Rights may be sold by individual holders
through their broker or financial advisor or may be submitted to the Rights Agent (defined below) for sale. Any Rights submitted to the Rights Agent for sale must be received by the Rights Agent prior to [5:00 PM, Eastern Time], on or before
, 2022, Business Days prior to the Expiration Date (or,
if the subscription period is extended, prior to [5:00 PM, Eastern Time], on the Business Day prior to the extended Expiration Date).
Rights that are sold will not confer any right to acquire any shares of Common Stock in any over-subscription, and any Record Date Stockholder who sells any Rights will not be eligible to participate in the
over-subscription privilege, if any.
Trading of the Rights on the will be conducted on a when-issued basis until and including the date on which the
Subscription Certificates (as defined below) are mailed to Record Date Stockholders of record and thereafter will be conducted on a regular-way basis until and including the last
trading day prior to the completion of the Subscription Period. The shares of Common Stock are expected to begin trading
ex-Rights one Business Day prior to the Record Date.
If the Rights Agent receives Rights for sale in a timely manner, the Rights Agent will use its best efforts to sell the Rights on the
. The Rights Agent will also attempt to sell any Rights attributable to stockholders of record whose addresses are outside the United States, or who have
an APO or FPO address. See Foreign Restrictions. The Rights Agent will attempt to sell such Rights, including by first offering such Rights to the Dealer Manager for purchase by the Dealer Manager at the then-current market price on the
. The Rights Agent will offer Rights to the Dealer Manager before attempting to sell them on the
.
Any commissions will be paid by the selling Rights holders. Neither the Fund nor the Rights Agent will be responsible if Rights cannot be sold and neither has guaranteed any minimum sales price for the Rights. If the
Rights can be sold, sales of these Rights will be deemed to have been effected at the weighted average price received by the Rights Agent on the day such Rights are sold, less any applicable brokerage commissions, taxes and other expenses (i.e.,
costs incidental to the sale of Rights).
For a discussion of actions that may be taken by (the Dealer Manager) to seek to facilitate the trading market
for Rights and the placement of shares of Common Stock pursuant to the exercise of Rights, including the purchase of Rights and the sale during the Subscription Period by the Dealer Manager of Common Stock acquired through the exercise of Rights and
the terms on which such sales will be made, see Plan of Distribution.
Stockholders are urged to obtain a recent trading price for the Rights on the from their broker, bank, financial advisor or
the financial press.
Banks, broker-dealers and trust companies that hold shares of Common Stock for the accounts of others are advised to notify those persons that purchase Rights in the secondary market that such Rights will not
participate in any over-subscription privilege. See Terms of the Rights Offering and Sales by Rights Agent.]
The Fund estimates the net proceeds of the Rights offering to be approximately $ . This figure is based on the Subscription Price per share of Common
Stock of $ ( % of the last reported sales price of the
Funds Common Stock on the NYSE on , 2022) and assumes all new shares of Common Stock offered are sold and that the expenses related to the Rights
offering estimated at approximately $ are paid.
The Manager anticipates that investment of the proceeds will be made in accordance with the Funds investment objectives and policies as appropriate investment opportunities are identified, which is expected to be
substantially completed in approximately three months; however, the identification of appropriate investment opportunities pursuant to the Funds investment style or changes in market conditions may cause the investment period to extend as long
as six months. Pending such investment, the proceeds will be held in cash and/or high quality short term debt securities and instruments. Depending on market conditions and operations, a portion of the cash held by the Fund, including any proceeds
raised from the offering, may be used to pay distributions in accordance with the Funds distribution policy and may be a return of capital. A return of capital is a return to investors of a portion of their original investment in the Fund. In
general terms, a return of capital would involve a situation in which a Fund distribution (or a portion thereof) represents a return of a portion of a stockholders investment in the Fund, rather than making a distribution that is funded from
the Funds earned income or other profits. Although return of capital distributions may not be currently taxable, such distributions would decrease the basis of a stockholders shares of Common Stock (but not below zero), and therefore,
may increase a stockholders tax liability for capital gains upon a sale of shares of Common Stock, even if sold at a loss to the stockholders original investment. See Use of Proceeds.
See Taxation and Employee Benefit Plan and IRA Considerations.
[]. See Rights Agent.
[]. See Information Agent.
Record Date
2022
Subscription Period
2022 through , 2022
Expiration Date*
2022
Payment for Guarantees Delivery Due*
2022
Issuance Date
2022
Confirmation Date
2022
*
X
Excess Shares Remaining
Total Record Date Position of All Over-Subscribers
(1)
(2)
%(1)
%(2)
$5.00(3)
Percentage of
Net Assets
Attributable to
Shares of Common
Stock
%
%
%
%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
1 Year
3 Years
5 Years
10 Years
$
$
$
$
*
NAV per Common
Stock on Date of
Market Price(1)
per Common
Stock(2)
on Date of Market
Price(3)
During Quarter Ended
High
Low
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]%
[ ]%
[ ]
(1)
(2)
(3)
(4)
(1)
(2)
(3)
(4)
Page
1
1
4
45
55
58
61
62
63
64
65
72
73
74
75
76
77
A-1
B-1
C-1
Position(s)
with Fund
Term of
Office
and
Length
of Time
Served
Number
of
Investment
Companies in
Fund
Complex(2)
Overseen by
Director
Chairman,
President and
Chief
Executive
Officer
Since
2015
Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 147 funds associated with the Manager or its affiliates (since 2015); President and Chief Executive Officer of the
Manager (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (Legg Mason & Co.); Senior Vice President of the Manager (2015)
144
None
Director and
Member of
Audit,
Nominating,
Compensation,
Pricing and
Valuation
Committees
Since
2015
Member of the Advisory Committee of the Dispute Resolution Research Center at the Kellogg Graduate School of Business, Northwestern University (2002-2016); Deputy General Counsel responsible for western hemisphere matters for BP PLC
from 1999 to 2001; Associate General Counsel at Amoco Corporation responsible for corporate, chemical, and refining and marketing matters and special assignments from 1993 to 1998 (Amoco merged with British Petroleum in 1998 forming BP PLC)
20
None
Position(s)
with Fund
Term of
Office
and
Length
of Time
Served
Number of
Investment
Companies in
Fund
Complex(2)
Overseen
by
Director
Director and
Member of
Audit,
Nominating,
Compensation,
Pricing and
Valuation
Committees
Since
2002
President, Colman Consulting Co.
20
None
Director and
Member of
Audit,
Nominating,
Compensation,
Pricing and
Valuation
Committees
Since
2007
Retired; formerly, Associate General Counsel, Pfizer, Inc.
20
None
Director and
Member of
Audit,
Nominating,
Compensation,
Pricing and
Valuation
Committees
Since
2007
Emeritus Professor of French and Italian at Drew University (since 2014); formerly, Professor of French and Italian at Drew University (2009 to 2014); Vice President and Dean of College of Liberal Arts at Drew University (1984 to
2009)
20
None
Position(s)
with Fund
Term of
Office
and
Length
of Time
Served
Number of
Investment
Companies in
Fund
Complex(2)
Overseen
by
Director
Director and
Member of
Audit,
Nominating,
Compensation,
Pricing and
Valuation
Committees
Since
2003
President, W.R. Hutchinson & Associates Inc. (consulting)
20
Director (Non-Executive Chairman of the Board (since December 1, 2009)), Associated Banc-Corp. (since 1994)
Director and
Member of
Audit,
Nominating,
Compensation,
Pricing and
Valuation
Committees
Since
2013
Chief Executive Officer, The Governance Partners, LLC (consulting firm) (since 2015); National Association of Corporate Directors Board Leadership Fellow (since 2016) and financial expert; Adjunct Professor, Georgetown University
Law Center (since 2021); Adjunct Professor, The University of Chicago Law School (since 2018); Adjunct Professor, Washington University in St. Louis and University of Iowa law schools (since 2007); formerly, Senior Advisor to the Chief Executive
Officer and Executive Vice President and Chief Financial Officer of ConnectWise, Inc. (software and services company) (2015 to 2016); Chief Financial Officer, Press Ganey Associates (health care informatics company) (2012 to 2014); Managing Director
and Chief Financial Officer, Houlihan Lokey (international investment bank) and President, Houlihan Lokey Foundation (2010 to 2012)
20
Director of ACV Auctions Inc. (since 2021); Hochschild Mining plc (precious metals company) (since 2016); Director of Associated Banc-Corp (financial services company) (since
2007)
Position(s)
with Fund
Term of
Office
and
Length
of Time
Served
Number of
Investment
Companies in
Fund
Complex(2)
Overseen
by
Director
Director and
Member of
Audit,
Nominating,
Compensation
and Pricing
and Valuation
Committees
Since
2019
Managing Director and the Chief Financial Officer and Chief Compliance Officer of Greenbriar Equity Group, LP (since 2011); formerly, Chief Financial Officer and Chief Administrative Officer of Rent the Runway, Inc. (2011);
Executive Vice President and Chief Financial Officer of AOL LLC, a subsidiary of Time Warner Inc. (2007 to 2009). Member of the Council on Foreign Relations.
20
Director of The India Fund, Inc. (since 2016); GB Flow Investment LLC; EDAC Technologies Corp.; Nordco Holdings, LLC; and SEKO Global Logistics Network, LLC; formerly, Director of Aberdeen Income Credit Strategies Fund (2017-2018);
and Director of The Asia Tigers Fund, Inc. (2016 to 2018)
*
(1)
(2)
(a)
(b)
Dollar Range of Equity
Securities in the Fund ($)
Aggregate Dollar Range of Equity
Securities in All Registered
Investment Companies Overseen
by the
Director in the Family of
Investment Companies(1) ($)
A
C
C
E
A
E
A
C
A
E
B
E
A
A
A
E
(1)
Aggregate
Compensation
from the Fund for
Fiscal Period
Ended 04/30/21
Total
Compensation
from the Fund
and Fund
Complex(1)
for
Calendar Year
Ended 12/31/21
$23,809
$284,000
Aggregate
Compensation
from the Fund for
Fiscal Period
Ended 04/30/21
Total
Compensation
from the Fund
and Fund
Complex(1)
for
Calendar Year
Ended 12/31/21
$25,311
$304,000
$24,891
$299,000
$23,633
$284,000
$28,424
$341,000
$26,570
$319,000
$23,633
$284,000
(1)
(2)
Position(s)
with Fund
Term of Office
and Length of
Time Served
Chief
Compliance
Officer
Since 2020
DirectorGlobal Compliance of Franklin Templeton (since 2020); Managing Director of Legg Mason & Co. (2006 to 2020); Director of Compliance, Legg Mason Office of the Chief Compliance Officer (2006 to 2020); formerly,
Chief Compliance Officer of Legg Mason Global Asset Allocation (prior to 2014); Chief Compliance Officer of Legg Mason Private Portfolio Group (prior to 2013); formerly, Chief Compliance Officer of The Reserve Funds (investment adviser, funds and
broker-dealer) (2004) and Ambac Financial Group (investment adviser, funds and broker-dealer) (2000 to 2003).
Identity
Theft
Prevention
Officer
Since 2015
Senior Compliance Analyst of Franklin Templeton (since 2020); Identity Theft Prevention Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2015); formerly, Compliance Officer of Legg
Mason & Co. (2013 to 2020); Assistant Vice President of Legg Mason & Co. (2011 to 2020)
Position(s)
with Fund
Term of Office
and Length of
Time Served
Secretary
and Chief
Legal
Officer
Since 2020
Associate General Counsel of Franklin Templeton (since 2020); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2020); formerly, Managing Director (2016 to
2020) and Associate General Counsel for Legg Mason & Co. and Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (2006 to 2020)
Assistant
Secretary
Since 2006
Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of the Manager (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); Secretary of
LM Asset Services, LLC (LMAS) (since 2002) and Legg Mason Fund Asset Management, Inc. (LMFAM) (since 2013) (formerly registered investment advisers); formerly, Managing Director and Deputy General Counsel of Legg
Mason & Co. (2005 to 2020)
Senior Vice
President
Since 2007
U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of the Manager (since 2006);
President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (since 2005 to 2020); Senior Vice President of LMFAM (2013 to 2015)
Treasurer
and
Principal
Financial
Officer
Since 2019
Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg Mason & Co. or its affiliates;
formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co.
Fiscal Year or Period Ended April 30,
2021
2020
2019
2018
2017
2016
$
5,664,621
$
6,953,832
$
6,899,396
$
7,222,359
$
7,098,454
$
7,124,277
Name of PM
Type of Account
Total Assets
Managed
Accounts
Managed
for
which
Advisory
Performance-
Based
which
Performance-
Based
S. Kenneth Leech
Other Registered Investment Companies
97
$170.22 billion
None
None
Other Pooled Vehicles
234
$81.28 billion
10
$1.19 billion
Other Accounts
644
$227.54 billion
25
$17.29 billion
Michael C. Buchanan
Other Registered Investment Companies
33
$19.77 billion
None
None
Other Pooled Vehicles
69
$24.41 billion
5
$481 million
Other Accounts
161
$76.81 billion
10
$7.72 billion
Christopher Kilpatrick
Other Registered Investment Companies
8
$2.34 billion
None
None
Other Pooled Vehicles
5
$556 million
None
None
Other Accounts
None
None
None
None
Dollar Range of Securities
Beneficially Owned ($)
E
A
A
A:
B:
C:
D:
E:
F:
G:
Number
of Shares
Percent
Address
3,779,397
6.44
%(1)
First Trust Portfolios L.P. and its affiliates
120 East Liberty Drive
(1)
An obligation rated AAA has the highest rating assigned by S&P. The obligors capacity to meet its financial commitments on the obligation is extremely strong.
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitments on the obligation is very strong.
1
An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligors capacity to meet
its financial commitments on the obligation is still strong.
An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligors capacity to meet its financial commitments
on the obligation.
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and
C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposure to adverse conditions.
An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead
to the obligors inadequate capacity to meet its financial commitments on the obligation.
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitments on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitments on the obligation.
An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitments on the obligation.
An obligation rated CC is currently highly vulnerable to nonpayment. The CC rating is used when a default has not yet occurred but S&P expects default to be a virtual certainty, regardless of the
anticipated time to default.
An obligation rated C is currently highly vulnerable to nonpayment and the obligation is expected to have lower relative seniority or lower ultimate recovery compared with obligations that are rated higher.
An obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on an
obligation are not made on the date due, unless S&P believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The
D rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is
lowered to D if it is subject to a distressed exchange offer.
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
A short-term obligation rated A-1 is rated in the highest category by S&P. The obligors capacity to meet its financial commitments on the obligation is strong. Within
this category, certain obligations are designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitments on these obligations is extremely
strong.
A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating
categories. However, the obligors capacity to meet its financial commitments on the obligation is satisfactory.
A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken an
obligors capacity to meet its financial commitments on the obligation.
A short-term obligation rated B is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing
uncertainties that could lead to the obligors inadequate capacity to meet its financial commitments.
A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the
obligation.
A short-term obligation rated D is in default or in breach of an imputed promise. For non-hybrid capital instruments, the D rating category is used when payments on
an obligation are not made on the date due, unless S&P believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The
D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is
lowered to D if it is subject to a distressed exchange offer.
Ratings qualified with L apply only to amounts invested up to federal deposit insurance
limits.
This suffix is used for issues in which the credit factors, the terms, or both that determine the likelihood of receipt of payment of principal are different from the credit factors, terms or both that determine the likelihood of
receipt of interest on the obligation. The p suffix indicates that the rating addresses the principal portion of the obligation only and that the interest is not rated.
Preliminary ratings, with the prelim suffix, may be assigned to obligors or obligations, including financial programs, in the circumstances described below. Assignment of a final rating is conditional on the receipt
by S&P of appropriate documentation. S&P reserves the right not to issue a final rating. Moreover, if a final rating is issued, it may differ from the preliminary rating.
This symbol indicates termination structures that are designed to honor their contracts to full maturity or, should certain events occur, to terminate and cash settle all their contracts before their final maturity
date.
This symbol indicates a Counterparty Instrument Rating (CIR), which is a forward-looking opinion about the creditworthiness of an issuer in a securitization structure with respect to a specific financial obligation to a
counterparty (including interest rate swaps, currency swaps, and liquidity facilities). The CIR is determined on an ultimate payment basis; these opinions do not take into account timeliness of payment.
This symbol indicated that the rating was contingent upon S&Ps receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. Discontinued use in August
1998.
This qualifier was used to provide additional information to investors that the bank may terminate its obligation to purchase tendered bonds if the long-term credit rating of the issuer was lowered to below an investment-grade
level and/or the issuers bonds were deemed taxable. Discontinued use in January 2001.
G inactive qualifier
The letter G followed the rating symbol when a funds portfolio consisted primarily of direct U.S. government securities.
pi inactive qualifier
This qualifier was used to indicate ratings that were based on an analysis of an issuers published financial information, as well as additional information in the public domain. Such ratings did not, however, reflect in-depth meetings with an issuers management and therefore, could have been based on less comprehensive information than ratings without a pi suffix. Discontinued use as of December 2014 and as of
August 2015 for Lloyds Syndicate Assessments.
pr qualifier
The letters pr indicate that the rating was provisional. A provisional rating assumed the successful completion of a project financed by the debt being rated and indicates that payment of debt service requirements was
largely or entirely dependent upon the successful, timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, made no comment on the likelihood of or the risk of default upon
failure of such completion.
A q subscript indicates that the rating is based solely on quantitative analysis of publicly available information. Discontinued use in April 2001.
The r modifier was assigned to securities containing extraordinary risks, particularly market risks, that are not covered in the credit rating.
The absence of an r modifier should not be taken as an indication that an obligation would not exhibit extraordinary non-credit related risks. S&P discontinued the use of
the r modifier for most obligations in June 2000 and for the balance of obligations (mainly structured finance transactions) in November 2002.
2
3
4
5
6
7
8
such ratings and fundamental ratings at the same letter grade level will behave the same. The (sf ) indicator for structured finance security ratings indicates that otherwise similarly rated
structured finance and fundamental securities may have different risk characteristics. Through its current methodologies, however, Moodys aspires to achieve broad expected equivalence in structured finance and fundamental rating performance
when measured over a long period of time.
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
Obligations rated B are considered speculative and are subject to high credit risk.
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
* | By their terms, hybrid securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk associated with that security. |
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MEDIUM-TERM NOTE PROGRAM RATINGS
Moodys assigns provisional ratings to medium-term note (MTN) programs and definitive ratings to the individual debt securities issued from them (referred to as drawdowns or notes).
MTN program ratings are intended to reflect the ratings likely to be assigned to drawdowns issued from the program with the specified priority of claim (e.g. senior or subordinated). To capture the contingent nature of a program rating, Moodys assigns provisional ratings to MTN programs. A provisional rating is denoted by a (P) in front of the rating and is defined elsewhere in this document.
The rating assigned to a drawdown from a rated MTN or bank/deposit note program is definitive in nature, and may differ from the program rating if the drawdown is exposed to additional credit risks besides the issuers default, such as links to the defaults of other issuers, or has other structural features that warrant a different rating. In some circumstances, no rating may be assigned to a drawdown.
Moodys encourages market participants to contact Moodys Ratings Desks or visit www.moodys.com directly if they have questions regarding ratings for specific notes issued under a medium-term note program. Unrated notes issued under an MTN program may be assigned an NR (not rated) symbol.
Short-Term Rating Definitions:
Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the likelihood of a default or impairment on contractual financial obligations and the expected financial loss suffered in the event of default or impairment.9 10
Moodys employs the following designations to indicate the relative repayment ability of rated issuers:
P-1 |
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations. | |
P-2 |
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations. | |
P-3 |
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations. | |
NP |
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories. |
Fitch IBCA, Inc.A brief description of the applicable Fitch IBCA, Inc. (Fitch) ratings symbols and meanings (as published by Fitch) follows:
9 | For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investors expectations for timely payment, the ratings reflect the likelihood of impairment (as defined below in this publication). |
10 | Supranational institutions and central banks that hold sovereign debt or extend sovereign loans, such as the IMF or the European Central Bank, may not always be treated similarly to other investors and lenders with similar credit exposures. Long-term and short-term ratings assigned to obligations held by both supranational institutions and central banks, as well as other investors, reflect only the credit risks faced by other investors unless specifically noted otherwise. |
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INTERNATIONAL ISSUER AND CREDIT RATING SCALES
The Primary Credit Rating Scales (those featuring the symbols AAA-D and Fi-D) are used for debt and financial strength ratings. The below section describes their use for issuers and obligations in corporate, public and structured finance debt markets.
Long-Term Ratings ScalesIssuer Credit Ratings Scales
Rated entities in a number of sectors, including financial and non-financial corporations, sovereigns, insurance companies and certain sectors within public finance, are generally assigned Issuer Default Ratings (IDRs). IDRs are also assigned to certain entities or enterprises in global infrastructure, project finance and public finance. IDRs opine on an entitys relative vulnerability to default on financial obligations. The threshold default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such, IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts.
In aggregate, IDRs provide an ordinal ranking of issuers based on the agencys view of their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default.
AAA |
Highest credit quality. AAA ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. | |
AA |
Very high credit quality. AA ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. | |
A |
High credit quality. A ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings. | |
BBB |
Good credit quality. BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity. | |
BB |
Speculative. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists that supports the servicing of financial commitments. | |
B |
Highly speculative. B ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment. | |
CCC |
Substantial credit risk. Default is a real possibility. | |
CC |
Very high levels of credit risk. Default of some kind appears probable. | |
C |
Near default. A default or default-like process has begun, or the issuer is in standstill, or for a closed funding vehicle, payment capacity is irrevocably impaired. Conditions that are indicative of a C category rating for an issuer include: | |
a. The issuer has entered into a grace or cure period following non-payment of a material financial obligation; |
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RD Restricted default. RD ratings indicate an issuer that in Fitch Ratings opinion has experienced: a. an uncured payment default or distressed debt exchange on a bond, loan or other
material financial obligation, but b. has not entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure, and This would include: D Default. D ratings indicate an issuer that in Fitch Ratings opinion has entered into bankruptcy filings,
administration, receivership, liquidation or other formal winding-up procedure, or which has otherwise ceased business. Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an
instrument that contains a deferral feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or
by a distressed debt exchange. In all cases, the assignment of a default rating
reflects the agencys opinion as to the most appropriate rating category consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuers financial obligations or local
commercial practice.
b. The issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation;
c. The formal announcement by the issuer or their agent of a distressed debt exchange; or
d. a closed financing vehicle where payment capacity is irrevocably impaired such that it is not expected to pay interest and/or principal in full during the life of the transaction, but where no payment default is
imminent.
i. The selective payment default on a specific class or currency of debt;
ii. The uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
iii. The extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; ordinary execution of a distressed debt exchange on one or more
material financial obligations.
Note: The modifiers + or - may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the AAA Long-Term IDR category, or to Long-Term IDR categories below B.
Limitations of the Issuer Credit Rating Scale:
Specific limitations relevant to the issuer credit rating scale include:
| The ratings do not predict a specific percentage of default likelihood or failure likelihood over any given time period. |
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| The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
| The ratings do not opine on the liquidity of the issuers securities or stock. |
| The ratings do not opine on the possible loss severity on an obligation should an issuer default. |
| The ratings do not opine on the suitability of an issuer as a counterparty to trade credit. |
| The ratings do not opine on any quality related to an issuers business, operational or financial profile other than the agencys opinion on its relative vulnerability to default. |
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
Short-Term RatingsShort-Term Ratings Assigned to
Obligations in Corporate, Public and Structured Finance
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-term deposit ratings may be adjusted for loss severity. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as short term based on market convention. Typically, this means up to 13 months for corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1 |
Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added + to denote any exceptionally strong credit feature. | |
F2 |
Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments. | |
F3 |
Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate. | |
B |
Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions. | |
C |
High short-term default risk. Default is a real possibility. | |
RD |
Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Typically applicable to entity ratings only. | |
D |
Default. Indicates a broad-based default event for an entity, or the default of a specific short-term obligation. |
Limitations of the Short-Term Ratings Scale:
Specific limitations relevant to the Short-Term Ratings scale include:
| The ratings do not predict a specific percentage of default likelihood over any given time period. |
| The ratings do not opine on the market value of any issuers securities or stock, or the likelihood that this value may change. |
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| The ratings do not opine on the liquidity of the issuers securities or stock. |
| The ratings do not opine on the possible loss severity on an obligation should an obligation default. |
| The ratings do not opine on any quality related to an issuer or transactions profile other than the agencys opinion on the relative vulnerability to default of the rated issuer or obligation. |
Ratings assigned by Fitch Ratings articulate an opinion on discrete and specific areas of risk. The above list is not exhaustive, and is provided for the readers convenience.
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LEGG MASON PARTNERS FUND ADVISOR, LLC
Proxy Voting Policy
The Manager delegates to each sub-adviser the responsibility for voting proxies for its funds, as applicable, through its contracts with each sub-adviser. Each sub-adviser may use its own proxy voting policies and procedures to vote proxies of the funds if the funds Board reviews and approves the use of those policies and procedures. Accordingly, the Manager does not expect to have proxy-voting responsibility for any of the funds.
Should the Manager become responsible for voting proxies for any reason, such as the inability of a sub-adviser to provide investment advisory services, the Manager shall utilize the proxy voting guidelines established by the most recent sub-adviser to vote proxies until a new sub-adviser is retained and the use of its proxy voting policies and procedures is authorized by the Board. In the case of a material conflict between the interests of the Manager (or its affiliates if such conflict is known to persons responsible for voting at the Manager) and any fund, the Board of Directors of the Manager shall consider how to address the conflict and/or how to vote the proxies. The Manager shall maintain records of all proxy votes in accordance with applicable securities laws and regulations.
The Manager shall be responsible for gathering relevant documents and records related to proxy voting from each sub-adviser and providing them to the funds as required for the funds to comply with applicable rules under the Investment Company Act of 1940. The Manager shall also be responsible for coordinating the provision of information to the Board with regard to the proxy voting policies and procedures of each sub-adviser, including the actual proxy voting policies and procedures of each sub-adviser, changes to such policies and procedures, and reports on the administration of such policies and procedures.
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WESTERN ASSET MANAGEMENT COMPANY, LLC
PROXY VOTING POLICIES AND PROCEDURES
BACKGROUND
An investment adviser is required to adopt and implement policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (Advisers Act). The authority to vote the proxies of our clients is established through investment management agreements or comparable documents. In addition to SEC requirements governing advisers, long-standing fiduciary standards and responsibilities have been established for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the investment manager.
POLICY
As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)- 6 under the Investment Advisers Act of 1940 (Advisers Act). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firms contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
PROCEDURE
Responsibility and Oversight
The Western Asset Legal and Compliance Department (Compliance Department) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (Corporate Actions). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
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Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (Proxy Recipients) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
1. | Proxies are reviewed to determine accounts impacted. |
2. | Impacted accounts are checked to confirm Western Asset voting authority. |
3. | Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.) |
4. | If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the clients proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party. |
5. | Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into the account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analysts or portfolio managers basis for their decision is documented and maintained by the Legal and Compliance Department. |
6. | Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials. |
Timing
Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering, and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:
a. | A copy of Western Assets policies and procedures. |
b. | Copies of proxy statements received regarding client securities. |
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c. | A copy of any document created by Western Asset that was material to making a decision how to vote proxies. |
d. | Each written client request for proxy voting records and Western Assets written response to both verbal and written client requests. |
e. | A proxy log including: |
1. | Issuer name; |
2. | Exchange ticker symbol of the issuers shares to be voted; |
3. | Committee on Uniform Securities Identification Procedures (CUSIP) number for the shares to be voted; |
4. | A brief identification of the matter voted on; |
5. | Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
6. | Whether a vote was cast on the matter; |
7. | A record of how the vote was cast; and |
8. | Whether the vote was cast for or against the recommendation of the issuers management team. |
Records are maintained in an easily accessible place for five years, the first two in Western Assets offices.
Disclosure
Western Assets proxy policies are described in the firms Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
Conflicts of Interest
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest.
Issues to be reviewed include, but are not limited to:
1. | Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
2. | Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, Voting Persons) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and |
3. | Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
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Voting Guidelines
Western Assets substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a companys board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
1. | Board Approved Proposals |
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
a. | Matters relating to the Board of Directors |
Western Asset votes proxies for the election of the companys nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
i. | Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
ii. | Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
iii. | Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
iv. | Votes are cast on a case-by-case basis in contested elections of directors. |
b. | Matters relating to Executive Compensation |
Western Asset generally favors compensation programs that relate executive compensation to a companys long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
i. | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution. |
ii. | Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options. |
iii. | Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stocks current market price. |
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iv. | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
c. | Matters relating to Capitalization |
The management of a companys capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a companys capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
i. | Western Asset votes for proposals relating to the authorization of additional common stock. |
ii. | Western Asset votes for proposals to effect stock splits (excluding reverse stock splits). |
iii. | Western Asset votes for proposals authorizing share repurchase programs. |
d. | Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions |
Western Asset votes these issues on a case-by-case basis on board-approved transactions.
e. | Matters relating to Anti-Takeover Measures |
Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:
i. | Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans. |
ii. | Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions. |
f. | Other Business Matters |
Western Asset votes for board-approved proposals approving such routine business matters such as changing the companys name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
i. | Western Asset votes on a case-by-case basis on proposals to amend a companys charter or bylaws. |
ii. | Western Asset votes against authorization to transact other unidentified, substantive business at the meeting. |
2. | Shareholder Proposals |
SEC regulations permit shareholders to submit proposals for inclusion in a companys proxy statement. These proposals generally seek to change some aspect of a companys corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the companys board of directors on all shareholder proposals, except as follows:
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i. | Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans. |
ii. | Western Asset votes for shareholder proposals that are consistent with Western Assets proxy voting guidelines for board-approved proposals. |
iii. | Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors. |
3. | Voting Shares of Investment Companies |
Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
a. | Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients portfolios. |
b. | Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
4. | Voting Shares of Foreign Issuers |
In the event Western Asset is required to vote on securities held in non-U.S. issuers i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
a. | Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management. |
b. | Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees. |
c. | Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated. |
d. | Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a companys outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a companys outstanding common stock where shareholders have preemptive rights. |
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RETIREMENT ACCOUNTS
For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (DOL) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager.
In order to comply with the DOLs position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.
Western Asset Management Company Limited
Proxy Voting and Corporate Actions Policy
As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (Advisers Act). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firms contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
RESPONSIBILITY AND OVERSIGHT
The Western Asset Legal and Compliance Department (Compliance Department) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (Corporate Actions). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
CLIENT AUTHORITY
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
PROXY GATHERING
Registered owners of record, client custodians, client banks and trustees (Proxy Recipients) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or,
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if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
PROXY VOTING
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
Proxies are reviewed to determine accounts impacted.
Impacted accounts are checked to confirm Western Asset voting authority.
Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.)
If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the clients proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.
Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analysts or portfolio managers basis for their decision is documented and maintained by the Legal and Compliance Department.
Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.
TIMING
Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
RECORDKEEPING
Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include: A copy of Western Assets policies and procedures.
Copies of proxy statements received regarding client securities.
A copy of any document created by Western Asset that was material to making a decision how to vote proxies.
Each written client request for proxy voting records and Western Assets written response to both verbal and written client requests.
A proxy log including:
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| Issuer name; |
| Exchange ticker symbol of the issuers shares to be voted; |
| Committee on Uniform Securities Identification Procedures (CUSIP) number for the shares to be voted; |
| A brief identification of the matter voted on; |
| Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
| Whether a vote was cast on the matter; |
| A record of how the vote was cast; and |
| Whether the vote was cast for or against the recommendation of the issuers management team. |
Records are maintained in an easily accessible place for five years, the first two in Western Assets offices.
DISCLOSURE
Western Assets proxy policies are described in the firms Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
CONFLICT OF INTEREST
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:
Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company;
Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, Voting Persons) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders.
VOTING GUIDELINES
Western Assets substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a companys board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
BOARD APPROVAL PROPOSALS
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
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Matters relating to the Board of Directors Western Asset votes proxies for the election of the companys nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors.
Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director.
Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences.
Votes are cast on a case-by-case basis in contested elections of directors.
Matters relating to Executive Compensation Western Asset generally favors compensation programs that relate executive compensation to a companys long-term performance. Votes are cast on a case-by- case basis on board-approved proposals relating to executive compensation, except as follows:
Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution.
Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options.
Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stocks current market price.
Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less.
Matters relating to Capitalization The management of a companys capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board- approved proposals involving changes to a companys capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
Western Asset votes for proposals relating to the authorization of additional common stock;
Western Asset votes for proposals to effect stock splits (excluding reverse stock splits);
Western Asset votes for proposals authorizing share repurchase programs;
Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions;
Western Asset votes these issues on a case-by-case basis on board-approved transactions;
Matters relating to Anti-Takeover Measures Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:
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Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans; Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions.
Other Business Matters Western Asset votes for board-approved proposals approving such routine business matters such as changing the companys name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
Western Asset votes on a case-by-case basis on proposals to amend a companys charter or bylaws;
Western Asset votes against authorization to transact other unidentified, substantive business at the meeting.
SHAREHOLDER PROPOSALS
SEC regulations permit shareholders to submit proposals for inclusion in a companys proxy statement. These proposals generally seek to change some aspect of a companys corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the companys board of directors on all shareholder proposals, except as follows:
Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans;
Western Asset votes for shareholder proposals that are consistent with Western Assets proxy voting guidelines for board-approved proposals;
Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.
VOTING SHARES OF INVESTMENT COMPANIES
Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients portfolios;
Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided.
VOTING SHARES OF FOREIGN ISSUERS
In the event Western Asset is required to vote on securities held in non-U.S. issuers i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management;
Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees;
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Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated;
Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a companys outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a companys outstanding common stock where shareholders have preemptive rights.
RETIREMENT ACCOUNTS
For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (DOL) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary.
Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager.
In order to comply with the DOLs position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.
CORPORATE ACTIONS
Western Asset must pay strict attention to any corporate actions that are taken with respect to issuers whose securities are held in client accounts. For example, Western Asset must review any tender offers, rights offerings, etc., made in connection with securities owned by clients. Western Asset must also act in a timely manner and in the best interest of each client with respect to any such corporate actions.
Western Asset Management Company Ltd (WAMJ)
Proxy Voting Policies and Procedures
POLICY
As a fixed income only manager, the occasion to vote proxies for WAMJ is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firms contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, WAMJ will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
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PROCEDURE
Responsibility and Oversight
The WAMJ Legal and Compliance Department (Compliance Department) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Operations (Corporate Actions). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority, WAMJ will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (Proxy Recipients) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if WAMJ becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If WAMJ personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
a. Proxies are reviewed to determine accounts impacted.
b. Impacted accounts are checked to confirm WAMJ voting authority.
c. Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.)
d. If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and WAMJ obtains the clients proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle), WAMJ seeks voting instructions from an independent third party.
e. Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, WAMJ may vote the same proxy differently for different clients. The analysts or portfolio managers basis for their decision is documented and maintained by the Legal and Compliance Department.
f. Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.
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Timing
WAMJ personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
WAMJ maintains records of proxies. These records include:
a. A copy of WAMJs policies and procedures.
b. Copies of proxy statements received regarding client securities.
c. A copy of any document created by WAMJ that was material to making a decision how to vote proxies.
d. Each written client request for proxy voting records and WAMJs written response to both verbal and written client requests.
e. A proxy log including:
i. | Issuer name; |
ii. | Exchange ticker symbol of the issuers shares to be voted; |
iii. | Committee on Uniform Securities Identification Procedures (CUSIP) number for the shares to be voted; |
iv. | A brief identification of the matter voted on; |
v. | Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
vi. | Whether a vote was cast on the matter; |
vii. | A record of how the vote was cast; and |
viii. | Whether the vote was cast for or against the recommendation of the issuers management team. |
Records are maintained in an easily accessible place for five years, the first two in WAMJs offices.
Disclosure
WAMJs proxy policies are described in the firms Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
Conflicts of Interest
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:
1. | Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
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2. | Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, Voting Persons) is a close relative of or has a personal or business relationship with an executive, director or person who is a |
3. | Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
Voting Guidelines
WAMJs substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a companys board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
1b. Board Approved Proposals
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, WAMJ generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
1. | Matters relating to the Board of Directors |
WAMJ votes proxies for the election of the companys nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
i. | Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
ii. | Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
iii. | Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
iv. | Votes are cast on a case-by-case basis in contested elections of directors. |
b. | Matters relating to Executive Compensation |
WAMJ generally favors compensation programs that relate executive compensation to a companys long- term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
i. | Except where the firm is otherwise withholding votes for the entire board of directors, WAMJ votes for stock option plans that will result in a minimal annual dilution. |
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ii. | WAMJ votes against stock option plans or proposals that permit replacing or repricing of underwater options. |
iii. | WAMJ votes against stock option plans that permit issuance of options with an exercise price below the stocks current market price. |
iv. | Except where the firm is otherwise withholding votes for the entire board of directors, WAMJ votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
c. | Matters relating to Capitalization |
The management of a companys capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, WAMJ votes on a case-by-case basis on board-approved proposals involving changes to a companys capitalization except where WAMJ is otherwise withholding votes for the entire board of directors.
i. | WAMJ votes for proposals relating to the authorization of additional common stock. |
ii. | WAMJ votes for proposals to effect stock splits (excluding reverse stock splits). |
iii. | WAMJ votes for proposals authorizing share repurchase programs. |
d. | Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions |
WAMJ votes these issues on a case-by-case basis on board-approved transactions.
e. | Matters relating to Anti-Takeover Measures |
WAMJ votes against board-approved proposals to adopt anti-takeover measures except as follows:
i. | WAMJ votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans. |
ii. | WAMJ votes on a case-by-case basis on proposals to adopt fair price provisions. |
f. | Other Business Matters |
WAMJ votes for board-approved proposals approving such routine business matters such as changing the companys name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
i. | WAMJ votes on a case-by-case basis on proposals to amend a companys charter or bylaws. |
ii. | WAMJ votes against authorization to transact other unidentified, substantive business at the meeting. |
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2b. Shareholder Proposals
SEC regulations permit shareholders to submit proposals for inclusion in a companys proxy statement. These proposals generally seek to change some aspect of a companys corporate governance structure or to change some aspect of its business operations. WAMJ votes in accordance with the recommendation of the companys board of directors on all shareholder proposals, except as follows:
a. | WAMJ votes for shareholder proposals to require shareholder approval of shareholder rights plans. |
i. | WAMJ votes for shareholder proposals that are consistent with WAMJs proxy voting guidelines for board-approved proposals. |
ii. | WAMJ votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors. |
3b. Voting Shares of Investment Companies
WAMJ may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
| WAMJ votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients portfolios. |
| WAMJ votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
4b. Voting Shares of Foreign Issuers
In the event WAMJ is required to vote on securities held in non-U.S. issuers i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
1. | WAMJ votes for shareholder proposals calling for a majority of the directors to be independent of management. |
a. | WAMJ votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees. |
b. | WAMJ votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated. |
WAMJ votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a companys outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a companys outstanding common stock where shareholders have preemptive rights.
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Western Asset Management Company Pte. Ltd. (WAMS)
Compliance Policies and Procedures
Proxy Voting
WAMS has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and the applicable laws and regulations. In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firms contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, WAMS will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
Procedure
Responsibility and Oversight
The Western Asset Legal and Compliance Department is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (Corporate Actions). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (Proxy Recipients) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
1. | Proxies are reviewed to determine accounts impacted. |
2. | Impacted accounts are checked to confirm Western Asset voting authority. |
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3. | Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. [See conflicts of interest section of these procedures for further information on determining material conflicts of interest.] |
4. | If a material conflict of interest exists, (4.1) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the clients proxy voting instructions, and (4.2) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party. |
5. | Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analysts or portfolio managers basis for their decision is documented and maintained by the Legal and Compliance Department. |
6. | Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (4) or (5) and returns the voted proxy as indicated in the proxy materials. |
Timing
Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:
| A copy of Western Assets policies and procedures. |
| Copies of proxy statements received regarding client securities. |
| A copy of any document created by Western Asset that was material to making a decision how to vote proxies. |
| Each written client request for proxy voting records and Western Assets written response to both verbal and written client requests. |
| A proxy log including: |
| Issuer name; |
| Exchange ticker symbol of the issuers shares to be voted; |
| Committee on Uniform Securities Identification Procedures (CUSIP) number for the shares to be voted; |
| A brief identification of the matter voted on; |
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| Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
| Whether a vote was cast on the matter; |
| A record of how the vote was cast; and |
Whether the vote was cast for or against the recommendation of the issuers management team. Records are maintained in an easily accessible place for five years, the first two in Western Assets offices.
Disclosure
Western Assets proxy policies are described in the firms Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
Conflicts of Interest
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:
| Whether Western (or, to the extent required to be considered by applicable law, it affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
| Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, Voting Persons) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and |
| Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
Voting Guidelines
Western Assets substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part 1 deals with proposals which have been approved and are recommended by a companys board of directors; Part 2 deals with proposals submitted by shareholders for inclusion in proxy statements; Part 3 addresses issues relating to voting shares of investment companies; and Part 4 addresses unique considerations pertaining to foreign issuers.
Part 1 Board Approved Proposals
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
| Matters relating to the Board of Directors. |
Western Asset votes proxies for the election of the companys nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
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| Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
| Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
| Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
| Votes are cast on a case-by-case basis in contested elections of directors. |
| Matters relating to Executive Compensation. |
Western Asset generally favors compensation programs that relate executive compensation to a companys long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
| Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution. |
| Western Asset votes against stock option plans or proposals that permit replacing or re-pricing of underwater options. |
| Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stocks current market price. |
| Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
| Matters relating to Capitalization. |
The management of a companys capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a companys capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
| Western Asset votes for proposals relating to the authorization of additional common stock. |
| Western Asset votes for proposals to effect stock splits (excluding reverse stock splits). |
| Western Asset votes for proposals authorizing share repurchase programs. |
| Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions. Western Asset votes these issues on a case-by-case basis on board-approved transactions. |
| Matters relating to Anti-Takeover Measures. Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows: |
| Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder right plans. |
| Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions. |
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| Other Business Matters. Western Asset votes for board-approved proposals approving such routine business matters such as changing the companys name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting. |
| Western Asset votes on a case-by-case basis on proposals to amend a companys charter |
| or bylaws. |
| Western Asset votes against authorization to transact other unidentified, substantive business at the meeting. |
Part 2 Shareholder Proposals SEC regulations permit shareholders to submit proposals for inclusion in a companys proxy statement. These proposals generally seek to change some aspect of a companys corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the companys board of directors on all shareholder proposals, except as follows:
| Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans. |
| Western Asset votes for shareholder proposals that are consistent with Western Assets proxy voting guidelines for board-approved proposals. |
| Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors. |
Part 3 Voting Shares of Investment Companies Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts 1 and 2 above are voted in accordance with those guidelines.
| Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients portfolios. |
| Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g. proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
Part 4 Voting Shares of Foreign Issuers
In the event Western Asset is required to vote on securities held in non-U.S. issuers i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
| Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management. |
| Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees. |
| Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated. |
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| Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a companys outstanding common stock where shareholders do not have pre-emptive rights, or (2) the issuance of common stock in excess of 100% of a companys outstanding common stock where shareholders have pre-emptive rights. |
Retirement Accounts
For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (DOL) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager.
In order to comply with the DOLs position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (1) the right to vote proxies has been reserved to a named fiduciary of the client, and (2) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.
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PART C
Other Information
Item 25. Financial Statements and Exhibits
(1) | Financial Statements for the fiscal years April 30, 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013, and 2012 | |||
Part A | Financial Highlights | |||
Part B | Incorporated into Part B by reference to Registrants most recent Certified Shareholder Report on Form N-CSR, filed June 28, 2021 (File No. 811-0879): | |||
Schedule of Investments as of April 30, 2021 | ||||
Statement of Assets and Liabilities as of April 30, 2021 | ||||
Statement of Operations for the Year Ended April 30, 2021 | ||||
Statement of Changes in Net Assets for the Year Ended April 30, 2021 | ||||
Notes to Financial Statements for the Year Ended April 30, 2021 | ||||
Report of Independent Registered Public Accounting Firm for the Year Ended April 30, 2021 | ||||
(2) | Exhibits |
|||
(a)(1) | Amended and Restated Articles of Incorporation(1) | |||
(a)(2) | Articles of Amendment, dated September 20, 2006(2) | |||
(b)(1) | Third Amended and Restated Bylaws(3) | |||
(c) | Not Applicable | |||
(d) | Articles V and VIII of Registrants Articles of Incorporation are incorporated herein by reference. | |||
(e) | Dividend Reinvestment Plan* | |||
(f) | Not Applicable | |||
(g)(1) | Investment Management Agreement between the Registrant and Legg Mason Partners Fund Advisor, LLC* | |||
(g)(2) | Subadvisory Agreement between Legg Mason Partners Fund Advisor, LLC and Western Asset Management Company, LLC* | |||
(g)(3) | Subadvisory Agreement between Western Asset Management Company, LLC and Western Asset Management Company Limited* | |||
(g)(4) | Subadvisory Agreement between Western Management Company, LLC and Western Asset Management Company Pte. Ltd.* |
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(1) | Filed on May 21, 1998 with Pre-Effective Amendment No. 2 to the Registrants Registration Statement on Form N-2 (File Nos. 333-48351 and 811-08709) and incorporated by reference herein |
(2) | Filed as Exhibit 99 to NSAR-B as filed with the Commission on June 29, 2007 and incorporated herein by reference |
(3) | Filed on August 18, 2020 with Form 8-K and incorporated by reference herein. |
(4) | Filed on December 17, 2021 with the Registrants Registration Statement on Form N-2 (File Nos. 333-261721 and 811-08709) and incorporated by reference herein. |
* | Filed herewith |
** | To be filed by amendment. |
Item 26. Marketing Arrangements
Reference is made to the sales agreement for the Registrants common stock incorporated by reference herein or the form of underwriting agreement to be filed as an exhibit in a post-effective amendment to the Registrants Registration Statement and the section entitled Plan of Distribution contained in Registrants Prospectus incorporated by reference herein.
Item 27. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
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SEC registration fees |
$ | 16,222.50 | ||
Financial Industry Regulatory Authority fees |
26,250 | |||
Accounting fees and expenses |
8,000 | |||
Legal fees and expenses |
295,000 | |||
|
|
|||
Total |
$ | 345,472.50 | ||
|
|
Item 28. Persons Controlled by or Under Common Control with Registrant
None.
Item 29. Number of Holders of Securities
At February 28, 2022:
Title of Class |
Number of Record Holders |
|||
Common Stock, par value $0.001 per share |
14,882 |
Item 30. Indemnification
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. The Registrants Charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law. In addition, the Registrant has provisions in its Charter and the Bylaws that authorize the Registrant, to the maximum extent permitted by Maryland law, to indemnify any present or former Director or officer from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former Director or officer of the Registrant and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Pursuant to the Bylaws, absent a court determination that an officer or Director seeking indemnification was not liable on the merits or guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office, the decision by the Registrant to indemnify such person will be based upon the reasonable determination of independent counsel or nonparty Independent Directors, after review of the facts, that such officer or Director is not guilty of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
Insofar as indemnification for liability arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 31. Business and Other Connections of Adviser
The descriptions of the Manager, Western Asset, Western Asset Limited and Western Asset Singapore under the caption Management of the Fund in the Prospectus and Statement of Additional Information of this registration statement are incorporated by reference herein. Information as to the directors and officers of the Manager, Western Asset, Western Asset Limited and Western Asset Singapore, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the directors and officers of the Manager, Western Asset, Western Asset Limited and Western Asset Singapore in the last two years, is
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included in their respective applications for registration as an investment adviser on Form ADV (File Nos. 801-66785, 801-08162, 801-21068 and 801-67298, respectively) filed under the Investment Advisers Act of 1940, as amended, and is incorporated herein by reference.
Item 32. Location of Accounts and Records
The accounts and records of the Registrant are maintained at the office of the Registrant at 620 Eighth Avenue, New York, New York 10018.
Item 33. Management Services
Not applicable.
Item 34. Undertakings
1. | Not applicable. |
2. | Not applicable. |
3. | The Registrant undertakes: |
(a) to file, during a period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the Securities Act;
(2) to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement.
(3) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.
Provided, however, that paragraphs a(1), a(2), and a(3) of this section do not apply to the extent the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference into the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(b) that, for the purpose of determining any liability under the Securities Act, each post-effective amendment to this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof;
(c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
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(d) that, for the purpose of determining liability under the Securities Act to any purchaser:
(1) if the Registrant is relying on Rule 430B [17 CFR 230.430B]:
(A) Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (x), or (xi) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
(2) if the Registrant is subject to Rule 430C: each prospectus filed pursuant to Rule 424(b) under the Securities Act as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(e) that for the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution of securities:
The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:
(1) any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act;
(2) free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;
(3) the portion of any other free writing prospectus or advertisement pursuant to Rule 482 under the Securities Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
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(4) any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser
4. Registrant undertakes that, for the purpose of determining any liability under the Securities Act:
(a) the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 424(b)(1) shall be deemed to be a part of this registration statement as of the time it was declared effective; and
(b) each post-effective amendment that contains a form of prospectus will be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
5. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrants annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference into the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
6. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the Securities Act), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
7. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any prospectus or Statement of Additional Information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the 1933 Act) and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on the 17th day of March, 2022.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ Jane Trust | |
Chairman, Chief Executive Officer and President |
Pursuant to the requirements of the 1933 Act, this Amendment to the Registration Statement has been signed by the following person in the capacity and on the date indicated.
Signature |
Title |
Date | ||
/s/ Jane Trust |
Chairman, Chief Executive Officer, President and Director (Principal Executive Officer) |
March 17, 2022 | ||
Jane Trust | ||||
/s/ Christopher Berarducci |
Principal Financial Officer (Principal Financial and Accounting Officer) |
March 17, 2022 | ||
Christopher Berarducci | ||||
/s/ Robert D. Agdern* |
Director |
March 17, 2022 | ||
Robert D. Agdern | ||||
/s/ Carol L. Colman* |
Director |
March 17, 2022 | ||
Carol L. Colman | ||||
/s/ Daniel P. Cronin* |
Director |
March 17, 2022 | ||
Daniel P. Cronin | ||||
/s/ Paolo M. Cucchi* |
Director |
March 17, 2022 | ||
Paolo M. Cucchi | ||||
/s/ William R. Hutchinson* |
Director |
March 17, 2022 | ||
William R. Hutchinson | ||||
/s/ Eileen A. Kamerick* |
Director |
March 17, 2022 | ||
Eileen A. Kamerick | ||||
/s/ Nisha Kumar* |
Director |
March 17, 2022 | ||
Nisha Kumar |
*By: | /s/ Jane Trust | |
Jane Trust | ||
As Agent or Attorney-in-fact |
March 17, 2022
The original power of attorney authorizing Jane Trust to execute this Registration Statement, and any amendments thereto, for the Directors of the Registrant on whose behalf this Registration Statement are filed herewith as an exhibit to the Registrants Registration Statement on Form N-2.
EXHIBIT INDEX
Exhibit (e)
DIVIDEND REINVESTMENT PLAN
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and return of capital distributions, on your Common Shares will be automatically reinvested by Computershare Trust Company, N.A., as agent for the shareholders (the Plan Agent), in additional Common Shares under the Funds Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare Trust Company, N.A., as dividend paying agent.
In the case of a registered shareholder such as a broker, bank or other nominee (together, a nominee) that holds Common Shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified by the nominee/record shareholder as representing the total amount registered in such shareholders name and held for the account of beneficial owners who are to participate in the Plan. If your Common Shares are held through a nominee and are not registered with the Plan Agent, neither you nor the nominee will be participants in or have distributions reinvested under the Plan. If you are a beneficial owner of Common Shares and wish to participate in the Plan, and your nominee is unable or unwilling to become a registered shareholder and a Plan participant on your behalf, you may request that your nominee arrange to have all or a portion of your shares re-registered with the Plan Agent in your name so that you may be enrolled as a participant in the Plan. Please contact your nominee for details or for other possible alternatives. Registered shareholders whose shares are registered in the name of one nominee firm may not be able to transfer the shares to another firm and continue to participate in the Plan.
If you participate in the Plan, the number of Common Shares you will receive will be determined as follows:
(1) If the market price of the Common Shares (plus $0.03 per share processing fee which includes any brokerage commission the Plan Agent is required to pay) on the payment date (or, if the payment date is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Shares at the close of trading on the NYSE on the payment date, the Fund will issue new Common Shares at a price equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Shares on the payment date.
(2) If the net asset value per share of the Common Shares exceeds the market price of the Common Shares (plus $0.03 per share processing fee) at the close of trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Shares in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the shareholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share processing fee) rises so that it equals or exceeds the net asset value per share of the Common Shares at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Shares in the open market and the Fund shall issue the remaining Common Shares at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the day prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.
Common Shares in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all Common Shares you have received under the Plan.
You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent through the Internet at www.computershare.com/investor, in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent prior to any dividend or distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on the Common Shares.
Plan participants who sell their shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is authorized to deduct per share processing fees actually incurred from the proceeds (currently $0.05 per share, which includes any brokerage commission the Plan Agent is required to pay). There is no service charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay per share processing fees (currently $0.03 per share) incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional Common Shares, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Shares over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Funds net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Trustees, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to shareholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to be effective. Upon any termination, you will be sent cash for any fractional share of Common Shares in your account less any applicable fees. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Shares on your behalf. Additional information about the Plan and your account may be obtained from the Plan Agent through the Internet at www.computershare.com/investor, in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151.
Exhibit (g)(1)
MANAGEMENT AGREEMENT
Legg Mason Partners Fund Advisor, LLC
This MANAGEMENT AGREEMENT (Agreement) is made this 31st day of July, 2020, by and between Western Asset High Income Fund II Inc. (the Fund) and Legg Mason Partners Fund Advisor, LLC, a Delaware limited liability company (the Manager).
WHEREAS, the Fund is registered as a management investment company under the Investment Company Act of 1940, as amended (the 1940 Act);
WHEREAS, the Manager is engaged primarily in rendering investment advisory, management and administrative services and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended;
WHEREAS, the Fund wishes to retain the Manager to provide investment advisory, management, and administrative services to the Fund; and
WHEREAS, the Manager is willing to furnish such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows:
1. The Fund hereby appoints the Manager to act as investment adviser and administrator of the Fund for the period and on the terms set forth in this Agreement. The Manager accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. The Fund shall at all times keep the Manager fully informed with regard to the securities owned by it, its funds available, or to become available, for investment, and generally as to the condition of its affairs. It shall furnish the Manager with such other documents and information with regard to its affairs as the Manager may from time to time reasonably request.
3. (a) Subject to the supervision of the Funds Board of Directors (the Board), the Manager shall regularly provide the Fund with investment research, advice, management and supervision and shall furnish a continuous investment program for the Funds portfolio of securities and other investments consistent with the Funds investment objectives, policies and restrictions, as stated in the Funds Prospectus and Statement of Additional Information. The Manager shall determine from time to time what securities and other investments will be purchased, retained, sold or exchanged by the Fund and what portion of the assets of the Funds portfolio will be held in the various securities and other investments in which the Fund invests, and shall implement those decisions, all subject to the provisions of the Funds Articles of Incorporation and By-Laws (collectively, the Governing Documents), the 1940 Act, and the applicable rules and regulations promulgated thereunder by the Securities and Exchange Commission (the SEC) and interpretive guidance issued thereunder by the SEC staff and any other applicable federal and state law, as well as the investment objectives, policies and restrictions of the Fund referred to above, and any other specific policies adopted by the Board and disclosed to the Manager. The Manager is authorized as the agent of the Fund to give instructions to the custodian of the Fund as to deliveries of securities and other investments and payments of cash for the account of the Fund. Subject to applicable provisions of the 1940 Act and direction from the Board, the investment program to be provided hereunder may entail the investment of all or substantially all of the assets of the Fund in one or more investment companies. The Manager will place orders pursuant to its investment
1
determinations for the Fund either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. In connection with the selection of such brokers or dealers and the placing of such orders, subject to applicable law, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Fund and/or the other accounts over which the Manager or its affiliates exercise investment discretion. The Manager is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Manager determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Manager and its affiliates have with respect to accounts over which they exercise investment discretion. The Board may adopt policies and procedures that modify and restrict the Managers authority regarding the execution of the Funds portfolio transactions provided herein. The Manager shall also provide advice and recommendations with respect to other aspects of the business and affairs of the Fund, shall exercise voting rights, rights to consent to corporate action and any other rights pertaining to the Funds portfolio securities subject to such direction as the Board may provide, and shall perform such other functions of investment management and supervision as may be directed by the Board.
(b) Subject to the direction and control of the Board, the Manager shall perform such administrative and management services as may from time to time be reasonably requested by the Fund as necessary for the operation of the Fund, such as (i) supervising the overall administration of the Fund, including negotiation of contracts and fees with and the monitoring of performance and billings of the Funds transfer agent, shareholder servicing agents, custodian and other independent contractors or agents, (ii) providing certain compliance, fund accounting, regulatory reporting, and tax reporting services, (iii) preparing or participating in the preparation of Board materials, registration statements, proxy statements and reports and other communications to shareholders, (iv) maintaining the Funds existence, and (v) during such times as shares are publicly offered, maintaining the registration and qualification of the Funds shares under federal and state laws. Notwithstanding the foregoing, the Manager shall not be deemed to have assumed any duties with respect to, and shall not be responsible for, the distribution of the shares of the Fund, nor shall the Manager be deemed to have assumed or have any responsibility with respect to functions specifically assumed by any transfer agent, fund accounting agent, custodian, shareholder servicing agent or other agent, in each case employed by the Fund to perform such functions.
(c) The Fund hereby authorizes any entity or person associated with the Manager which is a member of a national securities exchange to effect any transaction on the exchange for the account of the Fund which is permitted by Section 11(a) of the Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv). Notwithstanding the foregoing, the Manager agrees that it will not deal with itself, or with members of the Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor will it purchase any securities from an underwriting or selling group in which the Manager or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by the Manager or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time, and will comply with all other provisions of the Governing Documents and the Funds Prospectus and Statement of Additional Information relative to the Manager and its directors and officers.
2
4. Subject to the Boards approval, the Manager or the Fund may enter into contracts with one or more investment subadvisers or subadministrators, including without limitation, affiliates of the Manager, in which the Manager delegates to such investment subadvisers or subadministrators any or all its duties specified hereunder, on such terms as the Manager will determine to be necessary, desirable or appropriate, provided that in each case the Manager shall supervise the activities of each such subadviser or subadministrator and further provided that such contracts impose on any investment subadviser or subadministrator bound thereby all the conditions to which the Manager is subject hereunder and that such contracts are entered into in accordance with and meet all applicable requirements of the 1940 Act.
5. (a) The Manager, at its expense, shall supply the Board and officers of the Fund with all information and reports reasonably required by them and reasonably available to the Manager and shall furnish the Fund with office facilities, including space, furniture and equipment and all personnel reasonably necessary for the operation of the Fund. The Manager shall oversee the maintenance of all books and records with respect to the Funds securities transactions and the keeping of the Funds books of account in accordance with all applicable federal and state laws and regulations. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Manager hereby agrees that any records that it maintains for the Fund are the property of the Fund, and further agrees to surrender promptly to the Fund any of such records upon the Funds request. The Manager further agrees to arrange for the preservation of the records required to be maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act. The Manager shall authorize and permit any of its directors, officers and employees, who may be elected as Board members or officers of the Fund, to serve in the capacities in which they are elected.
(b) The Manager shall bear all expenses, and shall furnish all necessary services, facilities and personnel, in connection with its responsibilities under this Agreement. Other than as herein specifically indicated, the Manager shall not be responsible for the Funds expenses, including, without limitation, advisory fees; distribution fees; interest; taxes; governmental fees; voluntary assessments and other expenses incurred in connection with membership in investment company organizations; organization costs of the Fund; the cost (including brokerage commissions, transaction fees or charges, if any) in connection with the purchase or sale of the Funds securities and other investments and any losses in connection therewith; fees and expenses of custodians, transfer agents, registrars, independent pricing vendors or other agents; legal expenses; loan commitment fees; expenses relating to share certificates; expenses relating to the issuing and redemption or repurchase of the Funds shares and servicing shareholder accounts; expenses of registering and qualifying the Funds shares for sale under applicable federal and state law; expenses of preparing, setting in print, printing and distributing prospectuses and statements of additional information and any supplements thereto, reports, proxy statements, notices and dividends to the Funds shareholders; costs of stationery; website costs; costs of meetings of the Board or any committee thereof, meetings of shareholders and other meetings of the Fund; Board fees; audit fees; travel expenses of officers, members of the Board and employees of the Fund, if any; and the Funds pro rata portion of premiums on any fidelity bond and other insurance covering the Fund and its officers, Board members and employees; litigation expenses and any non-recurring or extraordinary expenses as may arise, including, without limitation, those relating to actions, suits or proceedings to which the Fund is a party and the legal obligation which the Fund may have to indemnify the Funds Board members and officers with respect thereto.
3
6. No member of the Board, officer or employee of the Fund shall receive from the Fund any salary or other compensation as such member of the Board, officer or employee while he is at the same time a director, officer, or employee of the Manager or any affiliated company of the Manager, except as the Board may decide. This paragraph shall not apply to Board members, executive committee members, consultants and other persons who are not regular members of the Managers or any affiliated companys staff.
7. As compensation for the services performed and the facilities furnished and expenses assumed by the Manager, including the services of any consultants retained by the Manager, the Fund shall pay the Manager, as promptly as possible after the last day of each month, a fee, computed weekly at an annual rate set forth on Schedule A annexed hereto, provided however, that if the Fund invests all or substantially all of its assets in another registered investment company for which the Manager or an affiliate of the Manager serves as investment adviser or investment manager, the annual fee computed as set forth on such Schedule A shall be reduced by the aggregate management fees allocated to that Fund for the Funds then-current fiscal year from such other registered investment company. The first payment of the fee shall be made as promptly as possible at the end of the month succeeding the effective date of this Agreement, and shall constitute a full payment of the fee due the Manager for all services prior to that date. If this Agreement is terminated as of any date not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average weekly net assets of the Fund in that period from the beginning of such month to such date of termination, and shall be that proportion of such average weekly net assets used for leverage as the number of business days in such period bears to the number of business days in such month. The average weekly net assets of the Fund shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Board.
8. The Manager assumes no responsibility under this Agreement other than to render the services called for hereunder, in good faith, and shall not be liable for any error of judgment or mistake of law, or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund, provided that nothing in this Agreement shall protect the Manager against any liability to the Fund to which the Manager would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties hereunder. As used in this Section 8, the term Manager shall include any affiliates of the Manager performing services for the Fund contemplated hereby and the partners, shareholders, directors, officers and employees of the Manager and such affiliates.
9. Nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of the Manager who may also be a Board member, officer, or employee of the Fund, to engage in any other business or to devote his time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature, nor to limit or restrict the right of the Manager to engage in any other business or to render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association. If the purchase or sale of securities consistent with the investment policies of the Fund or one or more other accounts of the Manager is considered at or about the same time, transactions in such securities will be allocated among the accounts in a manner deemed equitable by the Manager. Such transactions may be combined, in accordance with applicable laws and regulations, and consistent with the Managers policies and procedures as presented to the Board from time to time.
4
10. For the purposes of this Agreement, the Funds net assets shall be determined as provided in the Funds Prospectus and Statement of Additional Information and the terms assignment, interested person, and majority of the outstanding voting securities shall have the meanings given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may be granted by the SEC by any rule, regulation or order.
11. This Agreement will become effective with respect to the Fund on the date set forth on Schedule A annexed hereto, provided that it shall have been approved by the Funds Board and by the shareholders of the Fund in accordance with the requirements of the 1940 Act and, unless sooner terminated as provided herein, will continue in effect until the second anniversary of the date of effectiveness. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Fund, so long as such continuance is specifically approved at least annually (i) by the Board or (ii) by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by a majority of the Board members who are not interested persons of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.
12. This Agreement is terminable with respect to the Fund without penalty by the Board or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than 60 days nor less than 30 days written notice to the Manager, or by the Manager upon not less than 90 days written notice to the Fund, and will be terminated upon the mutual written consent of the Manager and the Fund. This Agreement shall terminate automatically in the event of its assignment by the Manager and shall not be assignable by the Fund without the consent of the Manager.
13. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no material amendment of the Agreement shall be effective until approved, if so required by the 1940 Act, by vote of the holders of a majority of the Funds outstanding voting securities.
14. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. Should any part of this Agreement be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors.
15. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the State of New York.
[signature page to follow]
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: |
![]() | |
| ||
Name: | Jane Trust | |
Title: | President and Chief Executive Officer |
LEGG MASON PARTNERS FUND ADVISOR, LLC | ||
By: |
![]() | |
| ||
Name: | Jane Trust | |
Title: | President and Chief Executive Officer |
6
Schedule A
Western Asset High Income Fund II Inc.
Date:
July 31, 2020
Annual Rate:
0.800%*
* | The fee payable under this Agreement shall be calculated by multiplying this annual rate by the value of the Funds average weekly net assets plus the proceeds of any outstanding borrowings used for leverage (average weekly net assets means the average weekly value of the total assets of the Fund, including any proceeds from the issuance of preferred stock, minus the sum of (i) accrued liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding borrowings and (iii) accumulated dividends on shares of preferred stock). |
7
Exhibit (g)(2)
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT (Agreement) is made this 31st day of July, 2020, by and between Legg Mason Partners Fund Advisor, LLC, a Delaware limited liability company (the Manager), and Western Asset Management Company, LLC, a California limited liability company (the Subadviser).
WHEREAS, the Manager has been retained by Western Asset High Income Fund II Inc. (the Fund), a registered management investment company under the Investment Company Act of 1940, as amended (the 1940 Act) to provide investment advisory, management, and administrative services to the Fund; and
WHEREAS, the Manager wishes to engage the Subadviser to provide certain investment advisory services to the Fund, and the Subadviser is willing to furnish such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows:
1. In accordance with and subject to the Management Agreement between the Fund and the Manager (the Management Agreement), the Manager hereby appoints the Subadviser to act as Subadviser with respect to the Fund for the period and on the terms set forth in this Agreement. The Subadviser accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. The Manager shall cause the Subadviser to be kept fully informed at all times with regard to the securities owned by the Fund, its funds available, or to become available, for investment, and generally as to the condition of the Funds affairs. The Manager shall furnish the Subadviser with such other documents and information with regard to the Funds affairs as the Subadviser may from time to time reasonably request.
3. (a) Subject to the supervision of the Funds Board of Directors (the Board) and the Manager, Subadviser shall regularly provide the Fund with respect to such portion of the Funds assets as shall be allocated to the Subadviser by the Manager from time to time (the Allocated Assets) with investment research, advice, management and supervision and shall furnish a continuous investment program for the Allocated Assets consistent with the Funds investment objectives, policies and restrictions, as stated in the Funds Prospectus and Statement of Additional Information. The Subadviser shall, with respect to the Allocated Assets, determine from time to time what securities and other investments will be purchased (including, as permitted in accordance with this paragraph, swap agreements, options and futures), retained, sold or exchanged by the Fund and what portion of the Allocated Assets will be held in the various securities and other investments in which the Fund invests, and shall implement those decisions (including the execution of investment documentation), all subject to the provisions of the Funds Articles of Incorporation and By-Laws (collectively, the Governing Documents), the 1940 Act, and the applicable rules and regulations promulgated thereunder by the Securities and Exchange Commission (the SEC) and interpretive guidance issued thereunder by the SEC staff and any other applicable federal and state law, as well as the investment objectives, policies and restrictions of the Fund referred to above, and any other specific policies adopted by the Board and disclosed to the Subadviser. The Subadviser is authorized as the agent of the Fund to give instructions with respect to the Allocated Assets to the custodian of the Fund as to deliveries of securities and other investments and payments of cash for the account of the Fund. Subject to applicable provisions of the
1
1940 Act, the investment program to be provided hereunder may entail the investment of all or substantially all of the assets of the Fund in one or more investment companies. The Subadviser will place orders pursuant to its investment determinations for the Fund either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. In connection with the selection of such brokers or dealers and the placing of such orders, subject to applicable law, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Fund and/or the other accounts over which the Subadviser or its affiliates exercise investment discretion. The Subadviser is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if the Subadviser determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which the Subadviser and its affiliates have with respect to accounts over which they exercise investment discretion. The Board may adopt policies and procedures that modify and restrict the Subadvisers authority regarding the execution of the Funds portfolio transactions provided herein. The Subadviser shall exercise voting rights, rights to consent to corporate action and any other rights pertaining to the Allocated Assets subject to such direction as the Board may provide, and shall perform such other functions of investment management and supervision as may be directed by the Board.
(b) The Fund hereby authorizes any entity or person associated with the Subadviser which is a member of a national securities exchange to effect any transaction on the exchange for the account of the Fund which is permitted by Section 11(a) of the Exchange Act and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv). Notwithstanding the foregoing, the Subadviser agrees that it will not deal with itself, or with members of the Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor will it purchase any securities from an underwriting or selling group in which the Subadviser or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by the Subadviser or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time, and will comply with all other provisions of the Governing Documents and the Funds Prospectus and Statement of Additional Information relative to the Subadviser and its directors and officers.
4. The Subadviser may delegate to any other one or more companies that the Subadviser controls, is controlled by, or is under common control with, or to specified employees of any such companies, certain of the Subadvisers duties under this Agreement, provided in each case the Subadviser will supervise the activities of each such entity or employees thereof, that such delegation will not relieve the Subadviser of any of its duties or obligations under this Agreement and provided further that any such arrangements are entered into in accordance with all applicable requirements of the 1940 Act.
5. The Subadviser agrees that it will keep records relating to its services hereunder in accordance with all applicable laws, and in compliance with the requirements of Rule 31a-3 under the 1940 Act, the Subadviser hereby agrees that any records that it maintains for the Fund are the property of the Fund, and further agrees to surrender promptly to the Fund any of such records upon the Funds request. The Subadviser further agrees to arrange for the preservation of the records required to be maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act.
2
6. (a) The Subadviser, at its expense, shall supply the Board, the officers of the Fund, and the Manager with all information and reports reasonably required by them and reasonably available to the Subadviser relating to the services provided by the Subadviser hereunder.
(b) The Subadviser shall bear all expenses, and shall furnish all necessary services, facilities and personnel, in connection with its responsibilities under this Agreement. Other than as herein specifically indicated, the Subadviser shall not be responsible for the Funds expenses, including, without limitation, advisory fees; distribution fees; interest; taxes; governmental fees; voluntary assessments and other expenses incurred in connection with membership in investment company organizations; organization costs of the Fund; the cost (including brokerage commissions, transaction fees or charges, if any) in connection with the purchase or sale of the Funds securities and other investments and any losses in connection therewith; fees and expenses of custodians, transfer agents, registrars, independent pricing vendors or other agents; legal expenses; loan commitment fees; expenses relating to share certificates; expenses relating to the issuing and redemption or repurchase of the Funds shares and servicing shareholder accounts; expenses of registering and qualifying the Funds shares for sale under applicable federal and state law; expenses of preparing, setting in print, printing and distributing prospectuses and statements of additional information and any supplements thereto, reports, proxy statements, notices and dividends to the Funds shareholders; costs of stationery; website costs; costs of meetings of the Board or any committee thereof, meetings of shareholders and other meetings of the Fund; Board fees; audit fees; travel expenses of officers, members of the Board and employees of the Fund, if any; and the Funds pro rata portion of premiums on any fidelity bond and other insurance covering the Fund and its officers, Board members and employees; litigation expenses and any non-recurring or extraordinary expenses as may arise, including, without limitation, those relating to actions, suits or proceedings to which the Fund is a party and the legal obligation which the Fund may have to indemnify the Funds Board members and officers with respect thereto.
7. No member of the Board, officer or employee of the Fund shall receive from the Fund any salary or other compensation as such member of the Board, officer or employee while he is at the same time a director, officer, or employee of the Subadviser or any affiliated company of the Subadviser, except as the Board may decide. This paragraph shall not apply to Board members, executive committee members, consultants and other persons who are not regular members of the Subadvisers or any affiliated companys staff.
8. As compensation for the services performed by the Subadviser, including the services of any consultants retained by the Subadviser, the Manager shall pay the Subadviser out of the management fee it receives with respect to the Fund, and only to the extent thereof, as promptly as possible after the last day of each month, a fee, computed daily at an annual rate set forth on Schedule A annexed hereto. The first payment of the fee shall be made as promptly as possible at the end of the month succeeding the effective date of this Agreement, and shall constitute a full payment of the fee due the Subadviser for all services prior to that date. If this Agreement is terminated as of any date not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average daily net assets of the Fund or, if less, the portion thereof comprising the Allocated Assets in that period from the beginning of such month to such date of termination, and shall be that proportion of such average daily net assets as the number of business days in such period bears to the number of business days in such month. The average daily net assets of the Fund or the portion thereof comprising the Allocated Assets shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Board.
3
9. The Subadviser assumes no responsibility under this Agreement other than to render the services called for hereunder, in good faith, and shall not be liable for any error of judgment or mistake of law, or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund, provided that nothing in this Agreement shall protect the Subadviser against any liability to the Manager or the Fund to which the Subadviser would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties hereunder. As used in this Section 9, the term Subadviser shall include any affiliates of the Subadviser performing services for the Fund contemplated hereby and the partners, shareholders, directors, officers and employees of the Subadviser and such affiliates.
10. Nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of the Subadviser who may also be a Board member, officer, or employee of the Fund, to engage in any other business or to devote his time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature, nor to limit or restrict the right of the Subadviser to engage in any other business or to render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association. If the purchase or sale of securities consistent with the investment policies of the Fund or one or more other accounts of the Subadviser is considered at or about the same time, transactions in such securities will be allocated among the accounts in a manner deemed equitable by the Subadviser. Such transactions may be combined, in accordance with applicable laws and regulations, and consistent with the Subadvisers policies and procedures as presented to the Board from time to time.
11. For the purposes of this Agreement, the Funds net assets shall be determined as provided in the Funds Prospectus and Statement of Additional Information and the terms assignment, interested person, and majority of the outstanding voting securities shall have the meanings given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may be granted by the SEC by any rule, regulation or order.
12. This Agreement will become effective with respect to the Fund on the date set forth opposite the Funds name on Schedule A annexed hereto, provided that it shall have been approved by the Funds Board and, if so required by the 1940 Act, by the shareholders of the Fund in accordance with the requirements of the 1940 Act and, unless sooner terminated as provided herein, will continue in effect through the second anniversary of the date of effectiveness. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Fund, so long as such continuance is specifically approved at least annually (i) by the Board or (ii) by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by a majority of the Board members who are not interested persons of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.
13. This Agreement is terminable with respect to the Fund without penalty by the Board or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than 60 days nor less than 30 days written notice to the Subadviser, or by the Subadviser upon not less than 90 days written notice to the Fund and the Manager, and will be terminated upon the mutual written consent of the Manager and the Subadviser. This Agreement shall terminate automatically in the event of its assignment by the Subadviser and shall not be assignable by the Manager without the consent of the Subadviser.
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14. The Subadviser agrees that for any claim by it against the Fund in connection with this Agreement or the services rendered under this Agreement, it shall look only to assets of the Fund for satisfaction and that it shall have no claim against the assets of any other portfolios of the Fund.
15. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no material amendment of the Agreement shall be effective until approved, if so required by the 1940 Act, by vote of the holders of a majority of the Funds outstanding voting securities.
16. This Agreement, and any supplemental terms contained on Annex I hereto, if applicable, embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. Should any part of this Agreement be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors.
17. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the State of New York.
[signature page to follow]
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized.
LEGG MASON PARTNERS FUND ADVISOR, LLC | ||
By: |
![]() | |
| ||
Name: | Jane Trust | |
Title: | President and Chief Executive Officer |
WESTERN ASSET MANAGEMENT COMPANY, LLC | ||
By: |
![]() | |
| ||
Name: | Daniel E. Giddings | |
Title: | Manager of Global Legal Affairs |
The foregoing is acknowledged:
The undersigned officer of the Fund has executed this Agreement not individually but in his/her capacity as an officer of the Fund. The Fund does not hereby undertake, on behalf of the Fund or otherwise, any obligation to the Subadviser.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: |
![]() | |
| ||
Name: | Jane Trust | |
Title: | President and Chief Executive Officer |
6
ANNEX I
Not applicable.
7
SCHEDULE A
Western Asset High Income Fund II Inc.
Date:
July 31, 2020
Fee:
The sub-advisory fee will be 70% of the management fee paid to Legg Mason Partners Fund Advisor, LLC, net of expense waivers and reimbursements.
8
Exhibit (g)(3)
SUBADVISORY AGREEMENT
This SUBADVISORY AGREEMENT (Agreement) is made this 31st day of July, 2020, by and between Western Asset Management Company, LLC, a California limited liability company (the Subadviser) and Western Asset Management Company Limited, a corporation organized under the laws of England and Wales (WAML).
WHEREAS, the Subadviser has been retained by Legg Mason Partners Fund Advisor, LLC to provide investment advisory, management, and administrative services to Western Asset High Income Fund II Inc. (the Fund), a registered management investment company under the Investment Company Act of 1940, as amended (the 1940 Act); and
WHEREAS, the Subadviser wishes to engage WAML to provide certain investment advisory services to the Fund, and WAML is willing to furnish such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows:
1. In accordance with and subject to the Subadvisory Agreement between the Subadviser and Legg Mason Partners Fund Advisor, LLC with respect to the Fund (the Subadvisory Agreement), the Subadviser hereby appoints WAML to act as a subadviser with respect to the Fund for the period and on the terms set forth in this Agreement. WAML accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. The Subadviser shall cause WAML to be kept fully informed at all times with regard to the securities owned by the Fund, its funds available, or to become available, for investment, and generally as to the condition of the Funds affairs. The Subadviser shall furnish WAML with such other documents and information with regard to the Funds affairs as WAML may from time to time reasonably request.
3. (a) Subject to the supervision of the Funds Board of Directors (the Board), Legg Mason Partners Fund Advisor, LLC and the Subadviser, WAML shall regularly provide the Fund with respect to such portion of the Funds assets as shall be allocated to WAML by the Subadviser from time to time (the Allocated Assets), with investment research, advice, management and supervision and shall furnish a continuous investment program for the Allocated Assets consistent with the Funds investment objectives, policies and restrictions, as stated in the Funds current Prospectus and Statement of Additional Information. WAML shall, with respect to the Allocated Assets, determine from time to time what securities and other investments will be purchased (including, as permitted in accordance with this paragraph, swap agreements, options and futures), retained, sold or exchanged by the Fund and what portion of the Allocated Assets will be held in the various securities and other investments in which the Fund invests, and shall implement those decisions (including the execution of investment documentation), all subject to the provisions of the Funds Articles of Incorporation and By-Laws (collectively, the Governing Documents), the 1940 Act, and the applicable rules and regulations promulgated thereunder by the Securities and Exchange Commission (the SEC) and interpretive guidance issued thereunder by the SEC staff and any other applicable federal and state law, as well as the investment objectives, policies and restrictions of the Fund referred to above, and any other specific policies adopted by the Board and disclosed to WAML. WAML is authorized as the agent of the Fund to give instructions with respect to the Allocated Assets to the custodian of the Fund as to deliveries of securities and other investments and payments of cash for the account of the Fund. Subject to applicable provisions of the 1940 Act, the
1
investment program to be provided hereunder may entail the investment of all or substantially all of the assets of the Fund in one or more investment companies. WAML will place orders pursuant to its investment determinations for the Fund either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. In connection with the selection of such brokers or dealers and the placing of such orders, subject to applicable law, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Fund and/or the other accounts over which WAML or its affiliates exercise investment discretion. WAML is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if WAML determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which WAML and its affiliates have with respect to accounts over which they exercise investment discretion. The Board may adopt policies and procedures that modify and restrict WAMLs authority regarding the execution of the Funds portfolio transactions provided herein. WAML shall exercise voting rights, rights to consent to corporate action and any other rights pertaining to the Allocated Assets subject to such direction as the Board may provide, and shall perform such other functions of investment management and supervision as may be directed by the Board.
(b) The Fund hereby authorizes any entity or person associated with WAML which is a member of a national securities exchange to effect any transaction on the exchange for the account of the Fund which is permitted by Section 11(a) of the Exchange Act and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv). Notwithstanding the foregoing, WAML agrees that it will not deal with itself, or with members of the Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor will it purchase any securities from an underwriting or selling group in which WAML or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by WAML or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time, and will comply with all other provisions of the Governing Documents and the Funds then-current Prospectus and Statement of Additional Information relative to WAML and its directors and officers.
4. WAML may delegate to any other one or more companies that WAML controls, is controlled by, or is under common control with, or to specified employees of any such companies, certain of WAMLs duties under this Agreement, provided in each case WAML will supervise the activities of each such entity or employees thereof, that such delegation will not relieve WAML of any of its duties or obligations under this Agreement and provided further that any such arrangements are entered into in accordance with all applicable requirements of the 1940 Act.
5. WAML agrees that it will keep records relating to its services hereunder in accordance with all applicable laws, and in compliance with the requirements of Rule 31a-3 under the 1940 Act, WAML hereby agrees that any records that it maintains for the Fund are the property of the Fund, and further agrees to surrender promptly to the Fund any of such records upon the Funds request. WAML further agrees to arrange for the preservation of the records required to be maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act.
2
6. (a) WAML, at its expense, shall supply the Board, the officers of the Fund, LeggMason Partners Fund Advisor, LLC and the Subadviser with all information and reports reasonably required by them and reasonably available to WAML relating to the services provided by WAML hereunder.
(b) WAML shall bear all expenses, and shall furnish all necessary services, facilities and personnel, in connection with its responsibilities under this Agreement. Other than as herein specifically indicated, WAML shall not be responsible for the Funds expenses, including, without limitation, advisory fees; distribution fees; interest; taxes; governmental fees; voluntary assessments and other expenses incurred in connection with membership in investment company organizations; organization costs of the Fund; the cost (including brokerage commissions, transaction fees or charges, if any) in connection with the purchase or sale of the Funds securities and other investments and any losses in connection therewith; fees and expenses of custodians, transfer agents, registrars, independent pricing vendors or other agents; legal expenses; loan commitment fees; expenses relating to share certificates; expenses relating to the issuing and redemption or repurchase of the Funds shares and servicing shareholder accounts; expenses of registering and qualifying the Funds shares for sale under applicable federal and state law; expenses of preparing, setting in print, printing and distributing prospectuses and statements of additional information and any supplements thereto, reports, proxy statements, notices and dividends to the Funds shareholders; costs of stationery; website costs; costs of meetings of the Board or any committee thereof, meetings of shareholders and other meetings of the Fund; Board fees; audit fees; travel expenses of officers, members of the Board and employees of the Fund, if any; and the Funds pro rata portion of premiums on any fidelity bond and other insurance covering the Fund and its officers, Board members and employees; litigation expenses and any non-recurring or extraordinary expenses as may arise, including, without limitation, those relating to actions, suits or proceedings to which the Fund is a party and the legal obligation which the Fund may have to indemnify the Funds Board members and officers with respect thereto.
7. No member of the Board, officer or employee of the Fund shall receive from the Fund any salary or other compensation as such member of the Board, officer or employee while he is at the same time a director, officer, or employee of WAML or any affiliated company of WAML, except as the Board may decide. This paragraph shall not apply to Board members, executive committee members, consultants and other persons who are not regular members of WAMLs or any affiliated companys staff.
8. As compensation for the services performed by WAML, including the services of any consultants retained by WAML, the Subadviser shall pay WAML out of the subadvisory fee it receives with respect to the Fund, and only to the extent thereof, as promptly as possible after the last day of each month, a fee, computed daily at an annual rate set forth on Schedule A annexed hereto. The first payment of the fee shall be made as promptly as possible at the end of the month succeeding the effective date of this Agreement, and shall constitute a full payment of the fee due WAML for all services prior to that date. If this Agreement is terminated as of any date not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average daily net assets of the Fund or, if less, the portion thereof comprising the Allocated Assets in that period from the beginning of such month to such date of termination, and shall be that proportion of such average daily net assets as the number of business days in such period bears to the number of business days in such month. The average daily net assets of the Fund or the portion thereof comprising the Allocated Assets shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Board.
3
9. WAML assumes no responsibility under this Agreement other than to render the services called for hereunder, in good faith, and shall not be liable for any error of judgment or mistake of law, or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund, provided that nothing in this Agreement shall protect WAML against any liability to the Subadviser, Legg Mason Partners Fund Advisor, LLC or the Fund to which WAML would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties hereunder. As used in this Section 9, the term WAML shall include any affiliates of WAML performing services for the Fund contemplated hereby and the partners, shareholders, directors, officers and employees of WAML and such affiliates.
10. Nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of WAML who may also be a Board member, officer, or employee of the Fund, to engage in any other business or to devote his time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature, nor to limit or restrict the right of WAML to engage in any other business or to render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association. If the purchase or sale of securities consistent with the investment policies of the Fund or one or more other accounts of WAML is considered at or about the same time, transactions in such securities will be allocated among the accounts in a manner deemed equitable by WAML. Such transactions may be combined, in accordance with applicable laws and regulations, and consistent with WAMLs policies and procedures as presented to the Board from time to time.
11. For the purposes of this Agreement, the Funds net assets shall be determined as provided in the Funds then-current Prospectus and Statement of Additional Information and the terms assignment, interested person, and majority of the outstanding voting securities shall have the meanings given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may be granted by the SEC by any rule, regulation or order.
12. This Agreement will become effective with respect to the Fund on the date set forth opposite the Funds name on Schedule A annexed hereto, provided that it shall have been approved by the Funds Board and, if so required by the 1940 Act, by the shareholders of the Fund in accordance with the requirements of the 1940 Act and, unless sooner terminated as provided herein, will continue in effect through the second anniversary of the date of effectiveness. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Fund, so long as such continuance is specifically approved at least annually (i) by the Board or (ii) by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by a majority of the Board members who are not interested persons of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.
13. This Agreement is terminable with respect to the Fund without penalty by the Board or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than 60 days nor less than 30 days written notice to WAML, or by WAML upon not less than 90 days written notice to the Fund and the Subadviser, and will be terminated upon the mutual written consent of the Subadviser and WAML. This Agreement shall terminate automatically in the event of its assignment by WAML and shall not be assignable by the Subadviser without the consent of WAML.
4
14. WAML agrees that for any claim by it against the Fund in connection with this Agreement or the services rendered under the Agreement, it shall look only to assets of the Fund for satisfaction and that it shall have no claim against the assets of any other portfolios of the Fund.
15. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no material amendment of the Agreement shall be effective until approved, if so required by the 1940 Act, by vote of the holders of a majority of the Funds outstanding voting securities.
16. This Agreement, and any supplemental terms contained on Annex I hereto, if applicable, embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. Should any part of this Agreement be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors.
17. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the State of New York.
[signature page to follow]
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized.
WESTERN ASSET MANAGEMENT COMPANY, LLC | ||
By: |
![]() | |
| ||
Name: | Daniel E. Giddings | |
Title: | Manager of Global Legal Affairs |
WESTERN ASSET MANAGEMENT COMPANY LIMITED | ||
By: |
![]() | |
| ||
Name: Title: |
Daniel E. Giddings | |
Manager of Global Legal Affairs |
The foregoing is acknowledged:
The undersigned officer of the Fund has executed this Agreement not individually but in his/her capacity as an officer of the Fund. The Fund does not hereby undertake, on behalf of the Fund or otherwise, any obligation to Western Asset Management Company Limited.
.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: |
![]() | |
| ||
Name: | Jane Trust | |
Title: | President and Chief Executive Officer |
6
ANNEX I
This Annex I forms a part of the Subadvisory Agreement dated as of July 31, 2020 by and between Western Asset Management Company, LLC, a California limited liability company, and Western Asset Management Company Limited (WAML), an entity authorized and regulated in the United Kingdom by the Financial Conduct Authority (the FCA).
1. WAML represents, warrants and covenants that it is authorized and regulated by the FCA.
2. WAML has classified the Fund as a Professional Customer as defined by the FCA Rules.
7
SCHEDULE A
Western Asset High Income Fund II Inc.
Date:
July 31, 2020
Fee:
The sub-advisory fee payable to Western Asset Management Company Limited will be 100% of the fee that the Subadviser receives from Legg Mason Partners Fund Advisor, LLC with respect to the Allocated Assets.
8
Exhibit (g)(4)
This SUBADVISORY AGREEMENT (Agreement) is made this 31st day of July, 2020, by and between Western Asset Management Company, LLC, a California limited liability company (the Subadviser) and Western Asset Management Company Pte. Ltd., a corporation organized under the laws of SINGAPORE (WESTERN SINGAPORE).
WHEREAS, the Subadviser has been retained by Legg Mason Partners Fund Advisor, LLC to provide investment advisory, management, and administrative services to WESTERN ASSET HIGH INCOME FUND II INC. (the Fund), a registered management investment company under the Investment Company Act of 1940, as amended (the 1940 Act); and
WHEREAS, the Subadviser wishes to engage WESTERN SINGAPORE to provide certain investment advisory services to the Fund, and WESTERN SINGAPORE is willing to furnish such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed as follows:
1. In accordance with and subject to the Subadvisory Agreement between the Subadviser and Legg Mason Partners Fund Advisor, LLC with respect to the Fund (the Subadvisory Agreement), the Subadviser hereby appoints WESTERN SINGAPORE to act as a subadviser with respect to the Fund for the period and on the terms set forth in this Agreement. WESTERN SINGAPORE accepts such appointment and agrees to render the services herein set forth, for the compensation herein provided.
2. The Subadviser shall cause WESTERN SINGAPORE to be kept fully informed at all times with regard to the securities owned by the Fund, its funds available, or to become available, for investment, and generally as to the condition of the Funds affairs. The Subadviser shall furnish WESTERN SINGAPORE with such other documents and information with regard to the Funds affairs as WESTERN SINGAPORE may from time to time reasonably request.
3. (a) Subject to the supervision of the Funds Board of Directors (the Board), Legg Mason Partners Fund Advisor, LLC and the Subadviser, WESTERN SINGAPORE shall regularly provide the Fund with respect to such portion of the Funds assets as shall be allocated to WESTERN SINGAPORE by the Subadviser from time to time (the Allocated Assets), with investment research, advice, management and supervision and shall furnish a continuous investment program for the Allocated Assets consistent with the Funds investment objectives, policies and restrictions, as stated in the Funds current Prospectus and Statement of Additional Information. WESTERN SINGAPORE shall, with respect to the Allocated Assets, determine from time to time what securities and other investments will be purchased (including, as permitted in accordance with this paragraph, swap agreements, options and futures), retained, sold or exchanged by the Fund and what portion of the Allocated Assets will be held in the various securities and other investments in which the Fund invests, and shall implement those decisions (including the execution of investment documentation), all subject to the provisions of the Funds Articles of Incorporation and By-Laws (collectively, the Governing Documents), the 1940 Act, and the applicable rules and regulations promulgated thereunder by the Securities and Exchange Commission (the SEC) and interpretive guidance issued thereunder by the SEC staff and any other applicable federal and state law, as well as the investment objectives, policies and restrictions of the Fund referred to above, and any other specific policies adopted by the Board and disclosed to WESTERN SINGAPORE. WESTERN SINGAPORE is authorized as the agent of the Fund to give instructions with respect to the Allocated Assets to the custodian of the Fund as to deliveries of securities and other investments and payments of cash for the account of the Fund. Subject to applicable provisions of the 1940 Act, the investment program to be provided hereunder may entail the investment of all or
1
substantially all of the assets of the Fund in one or more investment companies. WESTERN SINGAPORE will place orders pursuant to its investment determinations for the Fund either directly with the issuer or with any broker or dealer, foreign currency dealer, futures commission merchant or others selected by it. In connection with the selection of such brokers or dealers and the placing of such orders, subject to applicable law, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) to the Fund and/or the other accounts over which WESTERN SINGAPORE or its affiliates exercise investment discretion. WESTERN SINGAPORE is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if WESTERN SINGAPORE determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer. This determination may be viewed in terms of either that particular transaction or the overall responsibilities which WESTERN SINGAPORE and its affiliates have with respect to accounts over which they exercise investment discretion. The Board may adopt policies and procedures that modify and restrict WESTERN SINGAPOREs authority regarding the execution of the Funds portfolio transactions provided herein. WESTERN SINGAPORE shall exercise voting rights, rights to consent to corporate action and any other rights pertaining to the Allocated Assets subject to such direction as the Board may provide, and shall perform such other functions of investment management and supervision as may be directed by the Board.
(b) The Fund hereby authorizes any entity or person associated with WESTERN SINGAPORE which is a member of a national securities exchange to effect any transaction on the exchange for the account of the Fund which is permitted by Section 11(a) of the Exchange Act and Rule 11a2-2(T) thereunder, and the Fund hereby consents to the retention of compensation for such transactions in accordance with Rule 11a2-2(T)(a)(2)(iv). Notwithstanding the foregoing, WESTERN SINGAPORE agrees that it will not deal with itself, or with members of the Board or any principal underwriter of the Fund, as principals or agents in making purchases or sales of securities or other property for the account of the Fund, nor will it purchase any securities from an underwriting or selling group in which WESTERN SINGAPORE or its affiliates is participating, or arrange for purchases and sales of securities between the Fund and another account advised by WESTERN SINGAPORE or its affiliates, except in each case as permitted by the 1940 Act and in accordance with such policies and procedures as may be adopted by the Fund from time to time, and will comply with all other provisions of the Governing Documents and the Funds then-current Prospectus and Statement of Additional Information relative to WESTERN SINGAPORE and its directors and officers.
4. WESTERN SINGAPORE may delegate to any other one or more companies that WESTERN SINGAPORE controls, is controlled by, or is under common control with, or to specified employees of any such companies, certain of WESTERN SINGAPOREs duties under this Agreement, provided in each case WESTERN SINGAPORE will supervise the activities of each such entity or employees thereof, that such delegation will not relieve WESTERN SINGAPORE of any of its duties or obligations under this Agreement and provided further that any such arrangements are entered into in accordance with all applicable requirements of the 1940 Act.
5. WESTERN SINGAPORE agrees that it will keep records relating to its services hereunder in accordance with all applicable laws, and in compliance with the requirements of Rule 31a-3 under the 1940 Act, WESTERN SINGAPORE hereby agrees that any records that it maintains for the Fund are the property of the Fund, and further agrees to surrender promptly to the Fund any of such records upon the Funds request. WESTERN SINGAPORE further agrees to arrange for the preservation of the records required to be maintained by Rule 31a-1 under the 1940 Act for the periods prescribed by Rule 31a-2 under the 1940 Act.
2
6. (a) WESTERN SINGAPORE, at its expense, shall supply the Board, the officers of the Fund, Legg Mason Partners Fund Advisor, LLC and the Subadviser with all information and reports reasonably required by them and reasonably available to WESTERN SINGAPORE relating to the services provided by WESTERN SINGAPORE hereunder.
(b) WESTERN SINGAPORE shall bear all expenses, and shall furnish all necessary services, facilities and personnel, in connection with its responsibilities under this Agreement. Other than as herein specifically indicated, WESTERN SINGAPORE shall not be responsible for the Funds expenses, including, without limitation, advisory fees; distribution fees; interest; taxes; governmental fees; voluntary assessments and other expenses incurred in connection with membership in investment company organizations; organization costs of the Fund; the cost (including brokerage commissions, transaction fees or charges, if any) in connection with the purchase or sale of the Funds securities and other investments and any losses in connection therewith; fees and expenses of custodians, transfer agents, registrars, independent pricing vendors or other agents; legal expenses; loan commitment fees; expenses relating to share certificates; expenses relating to the issuing and redemption or repurchase of the Funds shares and servicing shareholder accounts; expenses of registering and qualifying the Funds shares for sale under applicable federal and state law; expenses of preparing, setting in print, printing and distributing prospectuses and statements of additional information and any supplements thereto, reports, proxy statements, notices and dividends to the Funds shareholders; costs of stationery; website costs; costs of meetings of the Board or any committee thereof, meetings of shareholders and other meetings of the Fund; Board fees; audit fees; travel expenses of officers, members of the Board and employees of the Fund, if any; and the Funds pro rata portion of premiums on any fidelity bond and other insurance covering the Fund and its officers, Board members and employees; litigation expenses and any non-recurring or extraordinary expenses as may arise, including, without limitation, those relating to actions, suits or proceedings to which the Fund is a party and the legal obligation which the Fund may have to indemnify the Funds Board members and officers with respect thereto.
7. No member of the Board, officer or employee of the Fund shall receive from the Fund any salary or other compensation as such member of the Board, officer or employee while he is at the same time a director, officer, or employee of WESTERN SINGAPORE or any affiliated company of WESTERN SINGAPORE, except as the Board may decide. This paragraph shall not apply to Board members, executive committee members, consultants and other persons who are not regular members of WESTERN SINGAPOREs or any affiliated companys staff.
8. As compensation for the services performed by WESTERN SINGAPORE, including the services of any consultants retained by WESTERN SINGAPORE, the Subadviser shall pay WESTERN SINGAPORE out of the subadvisory fee it receives with respect to the Fund, and only to the extent thereof, as promptly as possible after the last day of each month, a fee, computed daily at an annual rate set forth on Schedule A annexed hereto. The first payment of the fee shall be made as promptly as possible at the end of the month succeeding the effective date of this Agreement, and shall constitute a full payment of the fee due WESTERN SINGAPORE for all services prior to that date. If this Agreement is terminated as of any date not the last day of a month, such fee shall be paid as promptly as possible after such date of termination, shall be based on the average daily net assets of the Fund or, if less, the portion thereof comprising the Allocated Assets in that period from the beginning of such month to such date of termination, and shall be that proportion of such average daily net assets as the number of business
3
days in such period bears to the number of business days in such month. The average daily net assets of the Fund or the portion thereof comprising the Allocated Assets shall in all cases be based only on business days and be computed as of the time of the regular close of business of the New York Stock Exchange, or such other time as may be determined by the Board.
9. WESTERN SINGAPORE assumes no responsibility under this Agreement other than to render the services called for hereunder, in good faith, and shall not be liable for any error of judgment or mistake of law, or for any loss arising out of any investment or for any act or omission in the execution of securities transactions for the Fund, provided that nothing in this Agreement shall protect WESTERN SINGAPORE against any liability to the Subadviser, Legg Mason Partners Fund Advisor, LLC or the Fund to which WESTERN SINGAPORE would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of its duties or by reason of its reckless disregard of its obligations and duties hereunder. As used in this Section 9, the term WESTERN SINGAPORE shall include any affiliates of WESTERN SINGAPORE performing services for the Fund contemplated hereby and the partners, shareholders, directors, officers and employees of WESTERN SINGAPORE and such affiliates.
10. Nothing in this Agreement shall limit or restrict the right of any director, officer, or employee of WESTERN SINGAPORE who may also be a Board member, officer, or employee of the Fund, to engage in any other business or to devote his time and attention in part to the management or other aspects of any other business, whether of a similar nature or a dissimilar nature, nor to limit or restrict the right of WESTERN SINGAPORE to engage in any other business or to render services of any kind, including investment advisory and management services, to any other fund, firm, individual or association. If the purchase or sale of securities consistent with the investment policies of the Fund or one or more other accounts of WESTERN SINGAPORE is considered at or about the same time, transactions in such securities will be allocated among the accounts in a manner deemed equitable by WESTERN SINGAPORE. Such transactions may be combined, in accordance with applicable laws and regulations, and consistent with WESTERN SINGAPOREs policies and procedures as presented to the Board from time to time.
11. For the purposes of this Agreement, the Funds net assets shall be determined as provided in the Funds then-current Prospectus and Statement of Additional Information and the terms assignment, interested person, and majority of the outstanding voting securities shall have the meanings given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may be granted by the SEC by any rule, regulation or order.
12. This Agreement will become effective with respect to the Fund on the date set forth opposite the Funds name on Schedule A annexed hereto, provided that it shall have been approved by the Funds Board and, if so required by the 1940 Act, by the shareholders of the Fund in accordance with the requirements of the 1940 Act and, unless sooner terminated as provided herein, will continue in effect through the second anniversary of the date of effectiveness. Thereafter, if not terminated, this Agreement shall continue in effect with respect to the Fund, so long as such continuance is specifically approved at least annually (i) by the Board or (ii) by a vote of a majority of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by a majority of the Board members who are not interested persons of any party to this Agreement, by vote cast in person at a meeting called for the purpose of voting on such approval.
13. This Agreement is terminable with respect to the Fund without penalty by the Board or by vote of a majority of the outstanding voting securities of the Fund, in each case on not more than 60 days
4
nor less than 30 days written notice to WESTERN SINGAPORE, or by WESTERN SINGAPORE upon not less than 90 days written notice to the Fund and the Subadviser, and will be terminated upon the mutual written consent of the Subadviser and WESTERN SINGAPORE. This Agreement shall terminate automatically in the event of its assignment by WESTERN SINGAPORE and shall not be assignable by the Subadviser without the consent of WESTERN SINGAPORE.
14. WESTERN SINGAPORE agrees that for any claim by it against the Fund in connection with this Agreement or the services rendered under the Agreement, it shall look only to assets of the Fund for satisfaction and that it shall have no claim against the assets of any other portfolios of the Fund.
15. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought, and no material amendment of the Agreement shall be effective until approved, if so required by the 1940 Act, by vote of the holders of a majority of the Funds outstanding voting securities.
16. This Agreement, and any supplemental terms contained on Annex I hereto, if applicable, embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. Should any part of this Agreement be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding on and shall inure to the benefit of the parties hereto and their respective successors.
17. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of the State of New York.
[signature page to follow]
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized.
WESTERN ASSET MANAGEMENT COMPANY, LLC | ||
By: |
![]() | |
| ||
Name: | Daniel E. Giddings | |
Title: | Manager of Global Legal Affairs |
WESTERN ASSET MANAGEMENT COMPANY PTE. LTD. | ||
By: |
![]() | |
| ||
Name: | Daniel E. Giddings | |
Title: | Manager of Global Legal Affairs |
The foregoing is acknowledged:
The undersigned officer of the Fund has executed this Agreement not individually but in his/her capacity as an officer of the Fund. The Fund does not hereby undertake, on behalf of the Fund or otherwise, any obligation to Western Asset Management Company Pte. Ltd.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: |
![]() | |
| ||
Name: | Jane Trust | |
Title: | President and Chief Executive Officer |
6
SCHEDULE A
Western Asset High Income Fund II Inc.
Date:
July 31, 2020
Fee:
The sub-advisory fee payable to Western Asset Management Company Pte. Ltd. will be 100% of the fee that the Subadviser receives from Legg Mason Partners Fund Advisor, LLC with respect to the Allocated Assets.
7
Exhibit (j)(1)
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of January 1, 2018 by and among each Fund (as defined below) on behalf of each of its Portfolios (as defined below) and The Bank of New York Mellon (the Custodian).
WHEREAS, the Custodian is a bank having at least the minimum qualifications required by Section 17(f)(1) of the 1940 Act to act as custodian of the portfolio securities and other assets of investment companies; and
WHEREAS, each of the Funds on behalf of each of its Portfolios wishes to retain the Custodian to act as custodian of its portfolio securities and other assets, and the Custodian has indicated its willingness to so act;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, and intending to be legally bound hereby, the parties hereto agree as follows:
1. | DEFINITIONS. As used in this Agreement: |
Authorized Person means any of the persons duly authorized by the applicable Funds Board of Trustees or Directors to give Proper Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of the Fund or one or more of its Portfolios as set forth in a certificate (which shall also set forth any limitations on such persons scope of authority), such certificate to be executed by the Secretary or Assistant Secretary of the applicable Fund, as the same may be revised from time to time.
Board means the Board of Trustees or Directors of the applicable Fund.
CEA means the Commodities Exchange Act, as amended, and CFTC means the Commodity Futures Trading Commission.
Domestic Securities means securities and other Financial Assets or instruments and other investments of a Portfolio to be held in places within the United States.
Domestic Sub-Custodian shall have the meaning set forth in Section 2.6(b).
Federal Securities Laws means the 1933 Act, the 1934 Act, the 1940 Act and the CEA.
Financial Assets has the meaning set forth in the Uniform Commercial Code.
FINRA means the Financial Industry Regulatory Authority, Inc.
Foreign Assets means any of the Portfolios investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios transactions in such investments.
Foreign Custody Manager has the meaning set forth in Section (a)(3) of Rule 17f-5 promulgated under the 1940 Act.
Foreign Securities means securities and other Financial Assets of a Portfolio for which the primary market is outside the United States.
Foreign Securities Depository means a foreign securities clearing system qualifying as an Eligible Securities Depository (as defined in Section (b)(1) of Rule 17f-7 under the 1940 Act) that is listed on Schedule B annexed hereto, as amended from time to time pursuant to Section 4.5 hereof.
Foreign Sub-Custodian means a foreign banking institution qualifying as an Eligible Foreign Custodian (as defined in Section (a)(1) of Rule 17f-5 promulgated under the 1940 Act) that has been selected by the Custodian and is listed on Schedule A annexed hereto, as amended from time to time pursuant to Section 4.3 hereof.
Funds means the investment companies, or wholly owned subsidiaries thereof, identified on Exhibit A annexed hereto, and such additional Funds made subject to this Agreement pursuant to Section 13(e) hereof.
Governing Documents means, with respect to each of the Portfolios, (i) the declaration of trust, charter or other constituting document of the Fund of which the Portfolio is a series or portfolio, (ii) in the case of a Portfolio identified to the Custodian in writing as being an open-end fund, the currently effective prospectus and statement of additional information under the 1933 Act and the most recent statement of additional information or, as applicable, the most recent offering circular, offering circular or other comparable document, and (iii) a certified copy of the applicable Fund Boards resolution approving the engagement of the Custodian to act as custodian of the securities and other assets of its Portfolio(s).
1933 Act means the Securities Act of 1933, as amended.
1934 Act means the Securities Exchange Act of 1934, as amended.
1940 Act means the Investment Company Act of 1940, as amended.
Portfolios means the separate series or portfolios of the Funds identified on Exhibit A hereto, and such additional Portfolios made subject to this Agreement pursuant to Section 13(e) hereof, and, in the case of any closed-end investment company or other Fund for which no separate series or portfolio is so identified, the Fund itself.
Proper Instructions means (1) written instructions given by an Authorized Person (or a person reasonably believed by the Custodian to be an Authorized Person) to the Custodian in such form and manner as the Custodian and the Funds shall agree upon from time to time, including communications effected directly between protected electromechanical or electronic devices, in each case in accordance with such testing and authentication procedures as may be agreed to from time to time by the Custodian and the Funds (Written Instructions) and (2) subject to any limitations in scope of authority, oral instructions (Oral Instructions) received by the Custodian in such manner and in accordance with such testing and authentication procedures
as the Custodian and the Funds shall agree upon from time to time, from a person reasonably believed by the Custodian to be an Authorized Person. It is understood that the Funds must follow such security procedures as the Custodian and the Funds shall agree upon from time to time. Special Instructions shall be Written Instructions accompanied by a copy of a resolution by the appropriate Board authorizing the action, or, if so approved by the Board, Written Instructions given by two Authorized Persons (or persons reasonably believed by the Custodian to be Authorized Persons) with authority (as specified in a certificate executed by the Secretary or Assistant Secretary of the applicable Fund) to give such Special Instructions.
Repo Custodian means a custodian appointed by a Fund for the purpose of engaging in tri-party repurchase agreement transactions.
Rule 17f-5 means Rule 17f-5 under the 1940 Act.
Rule 17f-7 means Rule 17f-7 under the 1940 Act.
SEC means the Securities and Exchange Commission.
Securities System means a clearing agency which acts as a securities depository or a book-entry system authorized by the United States Department of the Treasury or another federal agency.
Shares mean the shares of beneficial interest of any Portfolio.
Transfer Agent means, with respect to each Fund, any transfer agent appointed by its Board.
Underlying Fund Shares means uncertificated shares of registered investment companies (as defined in Section 3(a)(1) of the 1940 Act) that are held by, or under the control of, the Custodian, the ownership of which is evidenced through entries in the books and records of the transfer agent of the applicable registered investment company.
Underlying Transfer Agent means the transfer agent with respect to Underlying Fund Shares.
U.S. Clearing System means a clearing agency located in the United States which is registered with the SEC as a clearing agency under Section 17A of the 1934 Act or a book-entry system authorized by the U.S. Department of the Treasury.
2. | APPOINTMENT OF CUSTODIAN; GENERAL DUTIES. |
2.1. | Appointment. |
(a) Each of the Funds hereby appoints the Custodian as the custodian of the cash, securities and other assets of each of its Portfolios, including Domestic Securities and Foreign Securities.
(b) Upon becoming a party to this Agreement, each of the Funds shall provide the Custodian with a copy of its Governing Documents (unless the same has previously been provided to the Custodian), and will provide the Custodian with a copy of amendments, supplements and modifications thereof from time to time.
(c) The Custodian hereby accepts appointment as custodian of the securities and assets of the Portfolios of the Funds, agrees to keep safely all cash, securities and other assets of each Portfolio delivered to the Custodian in accordance with the provisions of this Agreement and applicable statutes, laws, rules and regulations, and agrees to perform the duties of such custodian in accordance with the provisions of this Agreement and all statutes, laws, rules and regulations with which the Custodian or the Funds are required to comply in the performance of the services set forth in this Agreement. The duties of the Custodian shall only be those specifically undertaken pursuant to this Agreement.
2.2. | Delivery of Portfolio Assets. |
(a) Each Fund, on behalf of its Portfolio(s), shall deliver, or cause to be delivered, to the Custodian all securities, cash and other assets of such Portfolio(s), and from time to time all payments of income, payments of principal or capital distributions received by it with respect to Portfolio securities and other assets, and the cash consideration received by it for such new or treasury Shares representing interests in its Portfolio(s) as may be issued or sold from time to time. Securities may be delivered to the Custodian in physical form or by means of book-entry.
(b) The Custodian shall not be responsible for any property of a Portfolio which is not delivered to the Custodian or which has been delivered out by the Custodian in accordance with Proper Instructions, including without limitation Portfolio property (i) held by brokers, private bankers or other entities on behalf of the Portfolio, (ii) held by a sub-custodian or Repo Custodian authorized pursuant to Section 2.6(b) hereof, (iii) held by entities which have advanced monies to or on behalf of the Portfolio and which have received Portfolio property as security for such advance(s), or (iv) delivered or otherwise removed from the custody of the Custodian in advance of payment therefor pursuant to Section 2.5(vii) hereof. With respect to Underlying Fund Shares, the holding of confirmation statements that identify the shares as being recorded in the Custodians name on behalf of the Portfolios will be deemed custody for purposes hereof.
2.3. | Reliance on Instructions and Authority. |
(a) Concurrently with the execution of this Agreement, and from time to time thereafter, as appropriate, each Fund shall deliver to the Custodian, duly certified by such Funds Secretary or Assistant Secretary, a certificate setting forth: (i) the names, titles, signatures and scope of authority of all Authorized Persons, (ii) the names, titles and signatures of those Authorized Persons, if any, who are authorized to give Special Instructions, and (iii) a copy of resolutions of the Boards of the applicable Funds effecting the authorizations referred to in the preceding clauses (i) and (ii). Such certificate may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until receipt by the Custodian of a similar certificate to the contrary.
(b) The Custodian will be protected in acting upon any Proper or Special Instructions which are transmitted with testing or authentication pursuant to terms and conditions agreed to by the Custodian and the Fund from time to time, provided that such instructions comply with the other provisions of this Agreement. The Funds shall promptly confirm any Oral Instructions with Written Instructions, provided that failure of such confirming Written Instructions to be received by the Custodian or to conform to the Oral Instructions shall in no way invalidate the transactions or enforceability of the transactions authorized by the Oral Instructions and effected prior to receipt by the Custodian of non-conforming Written Instructions, and provided further that if Written Instructions confirming Oral Instructions are inconsistent with such Oral Instructions the only obligation of the Custodian in connection therewith shall be to promptly notify the Fund of such inconsistency.
(c) The Custodian may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of any Fund as conclusive evidence (i) of the authority of any person to act in accordance with such resolution or (ii) of any determination or of any action by the applicable Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.
(d) Third party providers of information to the Custodian may impose terms and conditions on a Funds use of that information, which can be found at http://www.bnymellon.com/products/assetservicing/vendoragreement.pdf (or any successor website the address of which is provided by Custodian to the Funds) (the Data Terms Website), and the Funds agree to those terms as they are posted in the Data Terms Website from time to time. The Custodian shall promptly notify the Funds in writing of any new postings or changes to the terms of any conditions previously posted in the Data Terms Website.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of each Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the banking department of the Custodian or with sub-custodians appointed pursuant to Sections 2.6(b) or (c) hereof. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. The Custodian shall take reasonable steps to ensure that, to the extent reasonably possible, such funds are covered by federal deposit insurance.
2.5 Payment of Fund Moneys. Upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only (other than as set forth in Section 4.7(b) hereof; the provisions of Section 4.7(b) govern with respect to the transactions referenced therein):
(i) Upon the purchase of Domestic Securities for the account of the Portfolio but only (A) against the delivery of such securities or evidence of title thereto to the
Custodian or its agent appointed pursuant to Section 2.6(a) hereof registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 3.3 hereof or in proper form for transfer; (B) in the case of a purchase effected through a U.S. Clearing System, in accordance with the conditions set forth in Section 3.5 hereof; (C) in the case of a purchase of Underlying Fund Shares, in accordance with the conditions set forth in Section 3.7 hereof; (D) in the case of repurchase agreements entered into between the applicable Fund on behalf of a Portfolio and the Custodian or another bank, or a broker-dealer, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodians account at the U.S. Clearing System with such securities or (ii) where the counterparty is the Custodian, against delivery of the receipt evidencing purchase by the Portfolio of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Portfolio; or (E) for transfer to a time deposit account of the Fund in any bank; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined herein.
(ii) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 3.2(viii) hereof;
(iii) For the redemption or repurchase of Shares issued as set forth in Section 5 hereof;
(iv) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;
(v) For the payment of any declared dividends on Shares;
(vi) For payment of the amount of dividends received in respect of securities sold short;
(vii) Upon the purchase of domestic investments that cannot, in accordance with domestic market practice, be delivered versus payment for such security, including without limitation repurchase agreement transactions involving delivery of Portfolio monies to a Repo Custodian in advance of delivery of the purchased securities, in accordance with Written Instructions, which (except in the case of a repurchase agreement transaction) have been signed by two Authorized Persons (or persons reasonably believed by the Custodian to be Authorized Persons), that set forth (A) that such payment is to be made as a free delivery, (B) the amount of such payment and (C) the person(s) to whom such payment is to be made;
(viii) For delivery in accordance with the provisions of any agreement among the Fund on behalf of a Portfolio, the Custodian and a broker-dealer, relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund on behalf of such Portfolio;
(ix) For delivery in accordance with the provisions of any agreement among the Fund on behalf of a Portfolio, the Custodian and a futures commission merchant, relating to compliance with the rules of the CFTC and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund on behalf of such Portfolio; and
(x) For any other purpose, but only upon receipt of Special Instructions from the Fund on behalf of the applicable Portfolio setting forth (A) the amount of such payment and (B) the person(s) to whom such payment is to be made.
2.6. | Appointment of Agents and Sub-Custodians. |
(a) Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian (as such term is defined in Rule 17f-4 under the 1940 Act), as its agent, as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities hereunder. (The Underlying Transfer Agent and any securities depository or clearing system shall not be deemed an agent or subcustodian of the Custodian for purposes of this Section 2.6 or any other provision of this Agreement.)
(b) Domestic Sub-Custodians. Upon receipt of Proper Instructions, the Custodian shall with respect to the applicable Portfolio(s) from time to time employ one or more subcustodians located in the United States that qualify to serve as custodians for registered management companies under the 1940 Act (Domestic Sub-Custodians), including without limitation any Repo Custodian or other sub-custodian appointed by a Fund for special purposes, provided that the Custodian shall have no more or less responsibility or liability to any Fund on account of any actions or omissions of any sub-custodian so employed than any such subcustodian has to the Custodian; provided further, however, that the Custodian shall be liable to the Fund, in accordance with Section 8 hereof, for the Custodians own actions in transmitting any instructions received by it from the Fund and for the Custodians own actions in connection with the delivery of any securities, cash or other assets held by it to any sub-custodian. In addition, if, at any time, a Portfolio suffers or incurs any loss, damage, cost, expense, liability or claim as a result of any action or omission on the part of any such sub-custodian, then, to the extent that the Custodian has a claim in connection therewith against such sub-custodian, the Custodian shall use commercially reasonable efforts to pursue such claim on behalf of the applicable Portfolio and shall promptly remit to the account of such Portfolio the amount of any recovery by the Custodian in connection therewith (less reasonable expenses incurred by the Custodian). Notwithstanding the immediately foregoing sentence, at a Funds election, the applicable Portfolio shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against any such sub-custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolio has not been made whole for any such loss, damage, cost, expense, liability or claim.
(c) Foreign Sub-Custodians. The Custodian may employ as sub-custodian for each Funds Foreign Securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Section 4 hereof.
2.7. Actions Permitted Without Express Authority. The Custodian may in its discretion, without express authority from the applicable Fund on behalf of each applicable Portfolio:
(i) Surrender securities in temporary form for securities in definitive form;
(ii) Endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and
(iii) In general, attend to all non-discretionary details and mandatory actions in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by Proper Instructions.
2.8. | Records and Reports. |
(a) The Custodian shall, with respect to each Portfolio, create and maintain all records relating to its activities and obligations under this Agreement in such manner as will, to the extent applicable, meet the obligations of each Fund under (i) the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, and (ii) the CEA for any Portfolio identified to the Custodian in writing as being a commodity pool operated by a registered commodity pool operator.
(b) All records created for or on behalf of any Fund, including those maintained by the Custodian pursuant to Section 2.8(a) above, shall be the property of the applicable Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees, agents or independent auditors of such Fund and employees and agents of the SEC.
(c) The Custodian shall promptly provide or otherwise make available to the Funds on a daily or less frequent basis, such notifications, reports, statements, summaries, schedule, balances and trial balances, rollforwards, reconciliations and other information as may be mutually acceptable to the Funds and the Custodian, which may be included on a schedule to this Agreement.
(d) If a Fund elects to receive communications via the internet, the Fund acknowledges that there are risks inherent in receiving communications via such method (including but not limited to virus contamination, disruptions in service and the fact that such communications may not be secure) and that by electing to receive communications via the internet the Fund is assuming the risks of such communication method. For purposes of clarification, nothing in this Section 2.8(d) shall be deemed to reduce the standard of care or any obligation of the Custodian set forth elsewhere in this Agreement.
2.9. | Accountants; Compliance Matters. |
(a) The Custodian shall take all reasonable action, as a Fund with respect to a Portfolio may from time to time request, in order for the Funds to obtain from year to year favorable opinions from the Funds independent accountants with respect to the Custodians activities hereunder and/or in connection with the preparation of the Funds Form N-lA or Form N-2, as applicable, and Form N-CSR, Form N-SAR (or any comparable successor thereto, including Form N-PORT and Form N-CEN), or other reports to the SEC and with respect to any other requirements thereof.
(b) The Custodian shall provide the applicable Fund, on behalf of each of the Portfolios, as such Fund may reasonably request, with a SOC 1 report under SSAE 18 (or any comparable successor report thereto) by independent public accountants on the Custodians system, relating to the services provided by the Custodian under this Agreement; such reports shall be of sufficient scope and in sufficient detail to provide reasonable assurance that any material inadequacies would be disclosed by such examination. The Custodian shall reasonably promptly (but, in any event, in not greater than sixty (60) days) notify each Fund of each determination of a significant deficiency, material weakness or inadequacy in the accounting controls of the Custodian which notification may be accomplished, among other means, by delivery of such SOC 1 report under SSAE 18.
(c) The Custodian further agrees to provide such information and assistance from time to time as may be reasonably requested by any of the Funds in connection with the Custodians compliance procedures as applicable to the Funds and/or in connection with the Funds periodic compliance audits of the Custodian. Without limiting the preceding sentence, the Custodian agrees to provide: (i) in connection with the Funds compliance programs pursuant to Rule 38a-l promulgated under the 1940 Act, such periodic reports, documentation and certifications as any Fund or its compliance officers may reasonably request, and reasonably prompt notification of any Material Compliance Matter (as such term is defined in Rule 38a-1 under the 1940 Act) that comes to the attention of the Custodian related to the performance of the services under this Agreement; (ii) reasonably prompt notification of any event that could materially adversely impact the services provided by the Custodian to the Funds under this Agreement; (iii) summary information about each business continuity plan, disaster recovery plan and similar plan enacted by the Custodian and applicable to the services provided under this Agreement and such amendments thereto as may be adopted from time to time, in order for the Fund to meet its regulatory obligations; (iv) sub-certificates in connection with the certification requirements of the Sarbanes-Oxley Act of 2002 applicable to services for the Funds and (v) a copy of each SSAE 18 (SOC 1) audit report (or any comparable successor report thereto) prepared in accordance with all applicable industry standards by an independent third party with respect to services hereunder.
2.10. | Advances by the Custodian. |
(a) The Custodian may, in its sole discretion, advance funds on behalf of any of the Portfolios to make any payment permitted by this Agreement.
(b) Upon mutual agreement between a Fund, on behalf of each applicable Portfolio, and the Custodian, the Custodian shall, upon receipt of Proper Instructions from the Fund on behalf of the Portfolio make federal funds available to such Portfolio as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received and/or wire transfers initiated in payment for Shares of such Portfolio which are deposited into the Portfolios account.
(c) Should a payment or payments pursuant to Section 2.10(a) or (b) above, with advanced funds, result in an overdraft (due to insufficiencies of the Portfolios account with the Custodian, or for any other reason), any such overdraft or indebtedness shall be deemed for purposes of this Agreement a loan made by the Custodian to the Fund for the account of the Portfolio payable on demand. Such overdraft or indebtedness shall bear interest, on any day, at the rate per annum set forth in the then-current written agreement between the Parties under Section 6 hereof. Each of the Funds agrees that the Custodian has and grants to the Custodian a continuing first lien and security interest (i) to the extent of any overdraft or indebtedness (prior to any rights of any other entity except as granted by statute, law, rule or regulation), and (ii) to the extent of any unpaid fees and expenses owing hereunder, after giving effect to applicable notice and cure periods, if any (or, in the absence of any notice and cure period stated herein, after giving written notice of any past due fees and expenses and providing a cure period of 30 days), in and to any property at any time held by the Custodian for the benefit of the applicable Portfolio or in which the applicable Portfolio has an interest and which is then in the Custodians possession or control (or in the possession or control of any third party acting on the Custodians behalf). Each of the Funds authorizes the Custodian, in the Custodians sole discretion, at any time to charge any overdraft or indebtedness, together with interest due thereon, against any balance of account standing to the credit of the applicable Portfolio on the Custodians books. In addition, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolios Financial Assets and other assets to the extent necessary to obtain reimbursement, provided, however, the Custodian shall have provided the Fund three (3) days notice with respect thereto. In this regard, the Custodian shall be entitled to all the rights and remedies of a pledgee and secured creditor under applicable laws, rules and regulations as then in effect.
2.11. Disruption of Services; Contingency Facilities. In order to minimize the disruption of the services to be provided under this Agreement or any exhibit, schedule or annex hereto, the Custodian shall implement and maintain directly or through third parties contingency facilities and procedures reasonably designed to provide for periodic back-up of the computer files and data with respect to the Portfolios and emergency use of electronic data processing equipment to provide services under this Agreement or any exhibit, schedule or annex hereto. The Custodian shall, upon reasonable request, discuss with senior management of the Funds such disaster recovery plan and shall, upon reasonable request, provide a high-level presentation summarizing such plan. In the event of equipment failure, work stoppage, governmental action, communication disruption or other impossibility of performance beyond the Custodians control, the Custodian shall, at no additional expense to the Funds, take reasonable steps to minimize service interruptions.
2.12 Not Payor. In making payments to service providers pursuant to Proper Instructions, each Fund acknowledges that the Custodian is acting in an administrative or in a ministerial capacity, and not as the payor, for tax information reporting and withholding purposes.
2.13. Float. Each Fund acknowledges that, as part of the Custodians compensation, the Custodian, to the extent permissible under applicable statutes, laws, rules and regulations, will earn interest on cash balances held by the Custodian as provided in the Custodians indirect compensation disclosures.
2.14. Contractual Settlement and Income. The Custodian may, as a matter of bookkeeping convenience, credit a Portfolio with the proceeds from the sale, redemption or other disposition of securities or interest, dividends or other distributions payable on securities prior to its actual receipt of final payment therefor. All such credits shall be conditional until the Custodians actual receipt of final payment and may be reversed by the Custodian to the extent that final payment is not received. Payment with respect to a transaction will not be final until the Custodian shall have received immediately available funds that under applicable local law, rule and practice are irreversible and not subject to any security interest, levy or other encumbrance, and that are specifically applicable to such transaction.
3. | CUSTODY WITH RESPECT TO DOMESTIC SECURITIES |
3.1. Holding Domestic Securities. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States, including all Domestic Securities owned by such Portfolio other than (i) securities which are maintained pursuant to Section 3.5 in a U.S. Clearing System and (ii) Underlying Fund Shares owned by each Fund which are maintained pursuant to Section 3.7 hereof in an account with the Underlying Transfer Agent.
3.2. Delivery of Securities. The Custodian shall release and deliver Domestic Securities owned by a Portfolio held by the Custodian, or in a U.S. Clearing System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions (other than those actions which are expressly permitted to be taken without Proper Instructions under Section 2.7 hereof) on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
(i) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor as provided in this Agreement;
(ii) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio;
(iii) In the case of a sale effected through a U.S. Clearing System, in accordance with the provisions of Section 3.5 hereof;
(iv) To the depository agent in connection with tender or other similar offers for securities of the Portfolio;
(v) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;
(vi) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent or any sub-custodian appointed pursuant to Section 2.6; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian;
(vii) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with street delivery custom;
(viii) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
(ix) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
(x) For delivery in connection with any loans of securities made by the Portfolio under a securities lending agreement to the lending agent, or the lending agents custodian, in accordance with Written Instructions (provided that the applicable Fund executes such agreement as the Custodian may reasonably require in connection with such arrangement, in such form as shall be reasonably negotiated by the Custodian, the lending agent and the applicable Fund);
(xi) For delivery as security in connection with any borrowing by a Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio, but only against receipt of amounts borrowed;
(xii) For delivery in accordance with the provisions of any agreement among the Fund on behalf of a Portfolio, the Custodian and a broker-dealer, relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund on behalf of such Portfolio;
(xiii) For delivery in accordance with the provisions of any agreement among a Fund on behalf of a Portfolio, the Custodian, and a futures commission merchant, relating to compliance with the rules of the CFTC and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund on behalf of such Portfolio;
(xiv) Upon the sale or other delivery of such investments (including, without limitation, to one or more sub-custodians authorized pursuant to Section 2.6(b)), as set forth in Written Instructions, provided that such Written Instructions shall set forth (x) the securities of the Portfolio to be delivered and (y) the person(s) to whom delivery of such securities shall be made;
(xv) For delivery to the Portfolios Transfer Agent or to the holders of Shares in connection with distributions or redemptions in kind in satisfaction of requests by holders of Shares for repurchase or redemption;
(xvi) In the case of a sale processed through the Underlying Transfer Agent for Underlying Fund Shares, in accordance with Section 3.7 hereof; and
(xvii) For any other purpose, but only upon receipt of Special Instructions from the Fund on behalf of the applicable Portfolio specifying (A) the Domestic Securities of the Portfolio to be delivered and (B) the person(s) to whom delivery of such securities shall be made.
3.3. Registration of Securities. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Agreement shall be in street name or other good delivery form. Domestic Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of a Fund on behalf of the Portfolio or of any nominee of the Custodian, or in the name or nominee name of any agent or any sub-custodian appointed pursuant to Section 2.6. If, however, a Fund directs the Custodian to maintain securities in street name, the Custodian shall utilize commercially reasonable efforts only to timely collect income due the Fund on such securities and to notify the Fund on a commercially reasonable efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers.
3.4. Collection of Income. Except with respect to Portfolio property released and delivered pursuant to Section 3.2(xiv) or purchased pursuant to Section 2.5(vii), and subject to the last sentence of Section 3.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered Domestic Securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer Domestic Securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to such Portfolios custodian account maintained hereunder. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 3.2(x) shall be the responsibility of the applicable Fund. The Custodian, in its capacity as custodian hereunder, will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled. The Custodian shall as soon as reasonably practicable notify the Fund in such manner as the Fund and the Custodian may agree in writing if any amount payable to the Fund or other asset of the Fund is not received by the Custodian when due.
3.5. Deposit of Fund Assets in U.S. Clearing Systems. The Custodian may deposit and/or maintain securities or other Financial Assets owned by a Portfolio in a U.S. Clearing System in compliance with the conditions of Rule 17f-4 under the 1940 Act, as amended from time to time.
3.6. Segregated Account. The Custodian shall upon receipt of Proper Instructions on behalf of each applicable Portfolio, which may be continuing instructions, establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 3.5 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer (or any futures commission merchant), relating to compliance with the rules of The Options Clearing Corporation or of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating cash or securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent rule or release of the SEC, or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other purpose in accordance with Proper Instructions and as required or permitted by applicable statutes, laws, rules and regulations and agreed between the Custodian and the applicable Fund.
3.7. Deposit of Fund Assets with the Underlying Transfer Agent. Underlying Fund Shares shall be deposited and/or maintained in an account or accounts maintained with the Underlying Transfer Agent, provided that such securities are maintained in an account or accounts on the books and records of the Underlying Transfer Agent in the name of the Custodian as custodian for the Portfolio. The records of the Custodian with respect to Underlying Fund Shares which are maintained with the Underlying Transfer Agent shall identify by book-entry those Underlying Fund Shares belonging to each Portfolio.
3.8. Ownership Certificates for Tax Purposes. The Custodian shall execute as soon as reasonably practicable, and shall require any Domestic Sub-Custodian to execute as soon as reasonably practicable, ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to Domestic Securities of each Portfolio held by it and in connection with transfers of securities.
3.9. Voting Domestic Shares. The Custodian shall, with respect to the Domestic Securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.
3.10. | Communications Relating to Portfolio Securities. |
(a) The Custodian shall transmit promptly to the applicable Fund for each Portfolio all written information and notices received by the Custodian in its capacity as custodian from issuers with regard to the Domestic Securities being held for the Portfolio and/or any corporate action by such issuer affecting such securities (including without limitation stock splits, stock dividends, reorganizations, pendency of calls and maturities of Domestic Securities and expirations of rights in connection therewith, notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Fund on behalf of the Portfolio). For clarity, matters relating to bankruptcy cases are the responsibility of the applicable Fund; provided that the Custodian shall continue to be responsible for transmission of initial notice of the bankruptcy case received by the Custodian in its capacity as custodian and transmission of any required action relating to the bankruptcy case.
(b) With respect to tender or exchange offers, the Custodian shall transmit promptly to the applicable Fund all written information received by the Custodian in its capacity as custodian from issuers of the Domestic Securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If a Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian prior to the deadline established by the Custodian in its reasonable discretion as will give the Custodian sufficient time to take such action, which deadline shall in no event be longer than three (3) business days prior to the date on which the Custodian is to take action. If the Fund provides the Custodian with such notification after such deadline, the Custodian shall continue to use commercially reasonable efforts to take such action but will not be responsible if such efforts are unsuccessful. The Custodian shall inform the Fund or its appointed investment adviser a reasonable time in advance, to the extent reasonably possible, of pertinent deadlines in each case.
4. | CUSTODY WITH RESPECT TO FOREIGN SECURITIES |
4.1. | Foreign Custody Manager. |
(a) Each Fund, by resolution adopted by its Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5 under the 1940 Act, the responsibilities set forth in Sections 4.1 through 4.4 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios.
(b) The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by any Fund with the consent of the Foreign Custody Manager, which consent will not be unreasonably withheld, or as set forth in Section 4.1(d) hereof. Schedule A further lists the Foreign Sub-Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios.
(c) Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by each Fund, on behalf of the applicable Portfolio(s), of the applicable account
opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by such Funds Board on behalf of such Portfolio(s) responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall, to the extent any particular Fund has or will have Foreign Assets, be deemed to be a Proper Instruction to open an account or to place or maintain Foreign Assets in each country listed on Schedule A in which the Custodian has previously placed or currently maintains such Funds Foreign Assets pursuant to the terms of the Agreement. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Foreign Sub-Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of such Portfolio to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager with respect to such Portfolio with respect to that country and shall use commercially reasonable efforts to effect the closing of such account.
(d) The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon at least 60 days (or such longer period which the parties may agree) prior written notice to the Fund.
4.2. | Foreign Sub-Custodians. |
(a) Subject to the provisions of this Section 4, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of a Foreign Sub-Custodian in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with a Foreign Sub-Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Foreign Sub-Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f- 5(c)(1) under the 1940 Act.
(b) The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Foreign Sub-Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
(c) In each case in which the Foreign Custody Manager maintains Foreign Assets with a Foreign Sub-Custodian, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Foreign Sub-Custodian and (ii) the performance of the contract governing the custody arrangements established by the Foreign Custody Manager with the Foreign Sub-Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with any Foreign Sub-Custodian it has selected are no longer appropriate pursuant to the requirements of Rule 17f-5, the Foreign Custody Manager shall notify the Board in accordance with Section 4.3 hereunder.
(d) The applicable Board shall, or in the event such Board shall have delegated to the applicable Adviser such duty in accordance with Rule 17f-5, such Adviser shall consider the Country Risk incurred by placing and maintaining the Foreign Assets in each country listed on
Schedule A (for which the Custodian is serving as Foreign Custody Manager of the Portfolios). For these purposes, Country Risk means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such countrys political environment, economic and financial infrastructure (including any securities depositories or clearing systems operating in that country), prevailing or developing custody and settlement practices, governmental actions, market conditions which affect the orderly execution of transactions or affect the value of assets, and laws and regulations applicable to the safekeeping or recovery of Foreign Assets held in custody in that country; provided, however, that Country Risk shall not include the custody or settlement practices and procedures of a Foreign Sub-Custodian selected by the Foreign Custody Manager that are not substantially consistent with prevailing practices in the country in which the Foreign Assets are held or to be held by such Foreign Sub-Custodian. The Custodians responsibilities with respect to selection of Foreign Sub-Custodians do not include consideration of Country Risk, except to the extent necessary for the Custodian to perform its duties under Section 4.2.
(e) Upon reasonable request of a Fund, and subject to restrictions under applicable law, the Custodian will use reasonable efforts to arrange for the independent accountants of the Fund to be afforded reasonable access to the books and records of any foreign banking institution employed as a Foreign Sub-Custodian as may be required in connection with the examination of the Funds books and records.
4.3. Reporting Requirements. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from any Foreign Sub-Custodian and the placement of such Foreign Assets with another Foreign Sub-Custodian by providing the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such schedule has occurred. The Foreign Custody Manager shall make reasonably prompt written reports to the Board of any other material change in the foreign custody arrangements of the Portfolios described in this Section 4 after the occurrence of the material change.
4.4. Representations with respect to Rule 17f-5. The Foreign Custody Manager represents to each Fund that it is a U.S. Bank as defined in Section (a)(7) of Rule 17f-5. Each Fund represents to the Custodian that its Board has determined that it is reasonable for such Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Portfolios.
4.5. Foreign Securities Depositories. The Custodian shall provide the Fund with an analysis of the custody risks associated with maintaining assets with the Foreign Securities Depositories set forth on Schedule B hereto, in accordance with Section (a)(l)(i)(A) of Rule 17f- 7. The Custodian shall monitor such risks on a continuing basis and shall promptly notify the Fund of any material change in such risks, in accordance with Section (a)( 1 )(i)(B) of Rule 17f-7, and the Funds shall, as soon as reasonably practicable and via Proper Instructions to the Custodian, withdraw the Funds assets from a Foreign Securities Depository if the custody arrangements with such Foreign Securities Depository no longer meet the requirements of Rule 17f-7. Notwithstanding anything to the contrary in Section 8 of this Agreement, for the avoidance of doubt the Custodian shall have no obligation to withdraw assets from a Foreign Securities Depository other than upon receipt of such Proper Instructions from the Funds. Schedule B shall be updated from time to time by the Custodians provision to the Fund of an updated Schedule B at the end of the calendar quarter in which an amendment to such schedule has occurred.
4.6. | Holding Foreign Securities. |
(a) The Custodian shall identify on its books as belonging to the Portfolios the Foreign Securities held by each Foreign Sub-Custodian or Foreign Securities Depository. The Custodian may hold Foreign Securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers; provided, however, that (i) the records of the Custodian with respect to Foreign Securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii) to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.
(b) Foreign securities shall be maintained in a Foreign Securities Depository in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country.
4.7. | Transactions in Foreign Custody Account. |
(a) The Custodian or a Foreign Sub-Custodian shall release and deliver Foreign Securities of the Portfolios held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities Depository account, only upon receipt of Proper Instructions (other than those actions which are expressly permitted to be taken without Proper Instructions under Section 2.7 hereof), which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
(i) Upon the sale of such Foreign Securities for the Portfolio in accordance with market practice for institutional customers in the country where such Foreign Securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment, provided the Custodian has advised the Fund or its duly appointed investment adviser of such practice in accordance with Section 4.7A(b) below; or (B) in the case of a sale effected through a Foreign Securities Depository, in accordance with the rules governing the operation of the Foreign Securities Depository;
(ii) In connection with any repurchase agreement related to Foreign Securities;
(iii) To the depository agent in connection with tender or other similar offers for Foreign Securities of the Portfolios;
(iv) To the issuer thereof or its agent when such Foreign Securities are called, redeemed, retired or otherwise become payable;
(v) To the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the
Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;
(vi) To brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom;
(vii) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;
(viii) In the case of warrants, rights or similar Foreign Securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;
(ix) For delivery as security in connection with any borrowing by a Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio, but only against receipt of amounts borrowed;
(x) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(xi) Subject to Section 4.7(a)(i) hereof, upon the sale or other delivery of such Foreign Securities (including, without limitation, to one or more Repo Custodians) in advance of payment therefor, provided that applicable Proper Instructions shall set forth (A) the Foreign Securities to be delivered and (B) the person(s) to whom delivery shall be made;
(xii) In connection with the lending of Foreign Securities (provided that the applicable Fund executes such agreement as the Custodian may reasonably require in connection with such arrangement, in such form as shall be reasonably negotiated by the Custodian, the applicable Fund, the lending agent and/or such other party or parties as may be applicable);
(xiii) For delivery to the Portfolios Transfer Agent or to the holders of Shares in connection with distributions or redemptions in kind (or, with respect to a closed-end investment company, as may otherwise be described in writing in the Proper Instructions), in satisfaction of requests by holders of Shares for repurchase or redemption; and
(xiv) For any other purpose, but only upon receipt of Special Instructions specifying (A) the Foreign Securities to be delivered and (B) the person(s) to whom delivery of such securities shall be made.
(b) Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities Depository to pay out, monies of a Portfolio in the following cases only:
(i) Upon the purchase of Foreign Securities for the Portfolio in accordance with market practices for institutional customers in the country where such Foreign Securities are held or traded, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such Foreign Securities provided the Custodian has advised the Fund or its duly appointed investment adviser of such practice in accordance with Section 4.7A(b) below; or (B) in the case of a purchase effected through a Foreign Securities Depository, in accordance with the rules governing the operation of such Foreign Securities Depository;
(ii) In connection with the conversion, exchange or surrender of Foreign Securities of the Portfolio as set forth in Section 4.7(a)(vii) hereof;
(iii) For the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses of the related Portfolio;
(iv) For the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;
(v) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(vi) Subject to Section 4.7(a)(i) hereof, upon the purchase of foreign investments including, without limitation, repurchase agreement transactions involving delivery of Portfolio monies to Repo Custodian(s), in advance of delivery of the purchased securities, provided that applicable Proper Instructions shall set forth (A) the amount of such payment and (B) the person(s) to whom payment shall be made;
(vii) For payment of part or all of the dividends received in respect of securities sold short;
(viii) In connection with the borrowing or lending of Foreign Securities; and
(ix) For any other purpose, but only upon receipt of Special Instructions specifying (A) the amount of such payment and (B) the person(s) to whom such payment is to be made.
4.7A. Market Conditions.
(c) Except as more particularly set forth in Sections 4.7(a)(i) and 4.7(b)(i), settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs.
(d) The Custodian shall provide to each Board or its duly authorized designee information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian.
4.8. Registration of Foreign Securities. The Foreign Securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Foreign SubCustodian or in the name of any nominee of the foregoing, and the applicable Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.
4.9. Bank Accounts. With respect to transactions under this Section 4, the Custodian shall identify on its books as belonging to the applicable Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian in accordance with the provisions of this Agreement and Rule 17f-5. The Custodian shall take reasonable steps to ensure that, to the extent reasonably possible, such funds arc covered by any deposit insurance provided by the local government or other similar protections. All accounts referred to in this Section 4.9 shall be subject only to draft or order by the Custodian (or, if applicable, a Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio.
4.10. Collection of Income. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled either by law or pursuant to custom in the securities business and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures and the Custodians services with respect thereto shall be subject to agreement regarding such measures. The Custodian shall as soon as reasonably practicable notify the Fund in such manner as the Fund and the Custodian may agree in writing if any amount payable to the Fund or other asset of the Fund is not received by the Custodian when due.
4.11. Shareholder Voting Rights. With respect to the Foreign Securities held pursuant to this Section 4, the Custodian shall use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. Each Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of such Fund to exercise shareholder rights.
4.12. Communications Relating to Foreign Securities. The Custodian shall transmit promptly to the applicable Fund written information with respect to materials received by the Custodian in its capacity as custodian via the Foreign Sub-Custodians from issuers of the Foreign Securities being held for the account of the Portfolios (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). For clarity, matters relating to bankruptcy cases are the responsibility of the applicable Fund; provided that the Custodian shall continue to be responsible for transmission of initial notice of the bankruptcy case received by the Custodian in its capacity as custodian and transmission of any required action relating to the bankruptcy case. With respect to tender or exchange offers, the Custodian shall transmit promptly to the applicable Fund written information received by the Custodian in its capacity as custodian from issuers of the Foreign Securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer and shall promptly forward to the Foreign Sub-Custodian or the issuer, as applicable, any instructions, forms or other documents as the Custodian shall receive from the Fund in connection therewith. All primary written communications to the Funds with respect to Foreign Securities shall be in English. If a Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian prior to the deadline established by the Custodian in its reasonable discretion as will give the Custodian (including any Foreign Sub-Custodian) sufficient time to take such action. If the Fund provides the Custodian with such notification after such deadline, the Custodian shall continue to use commercially reasonable efforts to take such action (or to cause the Foreign Sub-Custodian to take such action) but will not be responsible if such efforts are unsuccessful. The Custodian shall inform the Fund or its duly appointed investment adviser a reasonable time in advance, to the extent reasonably possible, of pertinent deadlines in each case.
4.13. | Liability in Respect of Foreign Assets. |
(a) Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall meet the requirements set forth in Rule 17f-5(c)(2). If, at any time, a Portfolio suffers or incurs any loss, damage, cost, expense, liability or claim as a result of any action or omission on the part of a Foreign Sub-Custodian, then, to the extent that the Custodian has a claim in connection therewith against such Foreign Sub-Custodian under the Custodians agreement with the Foreign Sub-Custodian or under applicable law, the Custodian shall use commercially reasonable efforts to pursue such claim on behalf of the applicable Portfolio and shall promptly remit to the account of such Portfolio the amount of any recovery by the Custodian in connection therewith (less reasonable expenses incurred by the Custodian). Notwithstanding the immediately foregoing sentence, at a Funds election, the applicable Portfolio shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolio has not been made whole for any such loss, damage, cost, expense, liability or claim by such Foreign Sub-Custodian. Such subrogation shall not relieve the Custodian to any extent from its liability or obligations to a Fund or Portfolio hereunder, provided that any recovery by the applicable Fund or Portfolio pursuant to such subrogation shall relieve the Custodian of liability and obligations to the extent of such recovery.
(b) Subject to Sections 8(a), 8(b) and 8(c) of this Agreement, the Custodian shall be responsible for the acts and omissions of any Foreign or Domestic Sub-Custodian as follows, taking into account established market practices and local laws prevailing in the jurisdiction in which the acts and omissions of the Foreign or Domestic Sub-Custodian occur: (1) with respect to damages incurred by a Fund as a result of an act or omission of a Foreign or Domestic Subcustodian relating to such Sub-Custodians provision of sub-custody services in a market listed in Schedule D hereto at the time such damages were incurred, the Custodian will be liable for such damages to the same extent as if the act or omission was that of the Custodian under this Agreement and (2) with respect to damages incurred by a Fund as a result of an act or omission of a Foreign or Domestic Sub-Custodian relating to such Sub-Custodians provision of subcustody services in a market other than one listed in Schedule D hereto at the time such damages were incurred, the Custodian shall take appropriate action to recover such damages from such Sub-Custodian and the Custodians liability with respect to such damages shall be limited to amounts recovered from such Sub-Custodian (less reasonable expenses incurred by the Custodian). If the Custodian no longer maintains client assets with a Foreign or Domestic SubCustodian in a market listed in Schedule D hereto or if the Custodian intends to remove all client assets from all Foreign and Domestic Sub-Custodians in a market listed in Schedule D hereto, the Custodian may remove that market from the list in Schedule D hereto upon prior notice to the applicable Fund; in all other circumstances the Custodian may not remove a market listed in Schedule D hereto without prior agreement of the applicable Fund.
(c) Subject to and to the extent of receipt by the Custodian of relevant and necessary information with respect to the Funds and Portfolios that the Custodian has requested, the Custodian shall perform the following services: (i) file claims for exemptions, reductions in withholding taxes, or refunds of any tax with respect to withheld foreign (non-U.S.) taxes in instances in which such claims are appropriate; (ii) withhold appropriate amounts as required by U.S. tax laws with respect to amounts received on behalf of nonresident aliens; and (iii) provide to the Funds such information actually received by the Custodian that could, in the Custodians reasonable belief and sole discretion, assist any of the Funds in their submission of any reports or returns with respect to taxes, it being specifically understood and agreed that the Custodian shall not thereby or otherwise be considered any Funds tax advisor or tax counsel. Other than the servicing responsibilities identified herein, the Custodian shall have no responsibility or liability for any tax payment obligations now or hereafter imposed on any Fund, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of each Fund to notify, or cause to be notified, the Custodian of the obligations imposed by such countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibilities of the Custodian with regard to such tax law shall be to use reasonable efforts to effect the withholding of local taxes and related charges with regard to market entitlement/payment in accordance with local law and subject to local market practice or custom and to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which such Fund has provided such information. Except as specifically provided in this Agreement or otherwise agreed to in writing by the Custodian, the Custodian shall have no independent obligation to determine the tax obligations now or hereafter imposed on any of the Funds by any taxing authority or to obtain or provide information relating thereto. Without limiting the Custodians obligations set forth in this Section 4.13(c), the Custodian shall have no obligation
or liability for tax obligations of the Funds. Each of the Funds agrees that the Custodian is authorized to deduct from any cash received or credited to the account of a Portfolio any taxes or levies required by any tax or other governmental authority having jurisdiction in respect of such Portfolios transactions, and that the Custodian is authorized to disclose any information required by any such tax or other governmental authority in relation to processing any claim for exemption from or reduction or refund of any taxes relating to Portfolio transactions and holdings.
4.14. Foreign Exchange Transactions. Any foreign exchange transaction effected by the Custodian in connection with this Agreement may be entered with the Custodian or an affiliate of the Custodian acting as a principal or otherwise through customary channels. A Fund may issue standing instructions with respect to foreign exchange transactions (including for the establishment of rate methodology), but the Custodian may establish rules or limitations concerning any foreign exchange facility made available to the Fund. With respect to foreign exchange transactions done through the Custodians foreign exchange desk, it is acting as a principal counterparty on its own behalf and is not acting as a fiduciary or agent for, or in connection with, a Fund or its investment manager. Nevertheless, the Custodian will make full and appropriate disclosure of the rate methodology for all foreign exchange transactions.
5. | PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES. |
(a) The Custodian shall receive from the distributor of the Shares or from the Transfer Agent and deposit into the account of the appropriate Portfolio such payments as are received for Shares thereof issued or sold from time to time by the applicable Fund. The Custodian will provide timely notification to such Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio.
(b) From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by a Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between such Fund and the Custodian.
6. | COMPENSATION OF CUSTODIAN. The Custodian shall be entitled to compensation for its services and expenses as may be agreed to from time to time in writing by the Funds and the Custodian. |
7. | ADDITIONAL SERVICES. The Funds engage the Custodian to provide, and the Custodian agrees to provide, those additional services (if any) set forth in Exhibit B annexed hereto. |
8. | STANDARD OF CARE; LIMITATION OF LIABILITY; INDEMNIFICATION |
(a) In performing its responsibilities under this Agreement (including without limitation in regard to its capacity as Foreign Custody Manager), the Custodian agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise (Standard of Care) and shall not be liable for any damages arising out of the Custodians performance of or failure to perform its duties under this Agreement except to the extent that such damages arise out of the Custodians willful misfeasance, bad faith, negligence or otherwise from a breach of this Agreement. Without limiting the foregoing, the Custodian shall not be liable for any damages arising out of any matter with respect to which the Custodian is otherwise relieved of liability as provided elsewhere in the Agreement. In no event shall a party to this Agreement be liable for any special, indirect or consequential damages, or lost profits or loss of business, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action.
(b) The Custodian shall not be liable for any defect in the title, validity or genuineness of any property or in the evidence of title thereto received by it or delivered by it pursuant to this Agreement. Without limiting the Custodians obligations under Section 2.11 of this Agreement, the Custodian shall not be liable for any losses suffered by any of the Funds due to items within Country Risk or factors beyond the Custodians reasonable control (including acts of civil or military authority, national emergencies, general work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riots, terrorism, nationalization or expropriation, currency restrictions, or failure of the mails, transportation, communication or power supply), provided that, for the avoidance of doubt, a Funds failure to perform its obligations under this Agreement shall be excused to the extent that such failure to perform is caused by or results from the Custodians aforementioned failure to perform. Further, the Custodian shall not be liable for the validity or invalidity or authority or lack thereof of any Oral Instruction or Written Instruction delivered in accordance with Section 2.3(b) hereof.
(c) The Custodian shall be without liability for any loss, damage or expense caused by or resulting from the insolvency of any Domestic Sub-Custodian or Foreign Sub-Custodian that is not a majority-owned subsidiary of the Custodian; provided, however, that the foregoing exculpation of the Custodian with respect to the insolvency of a particular Foreign SubCustodian shall not be applicable if the Custodian fails to comply with its obligations as a Foreign Custody Manager pursuant to Rule 17f-5 with respect to such Foreign Sub-Custodian.
(d) Without limiting the Custodians responsibilities set forth in Section 4.5 hereof, the Custodian shall be without liability for any loss, damage or expense caused by or resulting from the action, inaction or insolvency of any U.S. Clearing System or Foreign Securities Depository; provided, however, that the foregoing exculpation of the Custodian with respect to the insolvency of any Foreign Securities Depository shall not be applicable if the Custodian fails to comply with its obligations under Section 4.5 of this Agreement or under Rule 17f-7 with respect to such Foreign Securities Depository.
(e) At any time, the Custodian may request Written Instructions from a Fund and may seek advice from legal counsel for the Fund, or its own legal counsel, with respect to any matter
arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with the opinion of counsel for the Fund or for the Custodian, provided that the Custodian at its own expense communicates to the Fund such opinion of counsel to the Custodian within a reasonable period of time prior to taking the action in question. Written Instructions requested by the Custodian will be provided by a Fund within a reasonable period of time.
(f) The applicable Fund shall indemnify and hold harmless the Custodian from all taxes, charges, assessments, claims, damages and liabilities (including, without limitation, liabilities arising under the Federal Securities Laws and any state or foreign securities and blue sky laws, and amendments thereto), and costs and expenses, including without limitation reasonable attorneys fees and reasonable disbursements (including, without limitation, those incurred in asserting any claim by the Custodian against the Fund arising from the obligations of the Fund hereunder), arising from any action which the Custodian takes in accordance with the terms of this Agreement or any omission by the Custodian to act or any other matter with respect to which the Custodian is otherwise relieved of liability or entitled to be held harmless as provided elsewhere in the Agreement; provided that the Custodian shall not be indemnified against any liability (or any expenses incident to such liability) to the extent arising out of the Custodians own, or its affiliates or agents (for whose actions the Custodian is responsible under this Agreement) willful misfeasance, bad faith, negligence or breach of this Agreement.
(g) The Custodian shall indemnify and hold harmless the Funds from all taxes, charges, assessments, claims, damages and liabilities arising directly from the Custodians failure to meet its obligations pursuant to this Agreement (including, without limitation, liabilities arising under the Federal Securities Laws, and any state and foreign securities and blue sky laws, and amendments thereto) and costs and expenses, including without limitation reasonable attorneys fees and reasonable disbursements (including, without limitation, those incurred in asserting any claim by any Fund against the Custodian arising from the obligations of the Custodian hereunder), to the extent that such damages arise out of the Custodians own, or its affiliates or agents (for whose actions the Custodian is responsible under this Agreement) willful misfeasance, bad faith, negligence or breach of this Agreement, provided that the Funds shall not be indemnified against any liability (or any expenses incident to such liability) to the extent arising out of any Funds own willful misfeasance, bad faith, negligence or breach of this Agreement.
(h) Upon the occurrence of any event relating to the services provided under this Agreement that causes or may cause any loss, damage or expense to one or more Funds or Portfolios, the Custodian (i) shall reasonably promptly notify each such Fund or Portfolio of the occurrence of such event and (ii) shall use (and shall use its reasonable best efforts to cause any applicable agent or domestic or foreign sub-custodian to use) commercially reasonable efforts and take reasonable steps under the circumstances to attempt to mitigate the effects of such event and avoid continuing harm to each such Fund or Portfolio. Upon the occurrence of any event that causes or may cause any loss, damage or expense to the Custodian, the applicable Fund (i) shall reasonably promptly notify the Custodian of the occurrence of such event and (ii) shall use commercially reasonable efforts and take reasonable steps under the circumstances to attempt to mitigate the effects of such event and avoid continuing harm to the Custodian.
(i) The Custodian will maintain, at all times during the term of this Agreement, errors and omissions insurance, fidelity bonds and such other insurance as the Custodian may deem appropriate, in each case in a commercially reasonable amount deemed by the Custodian to be sufficient to cover its potential liabilities under this Agreement, including without limitation cyberliability insurance coverage deemed by the Custodian to be appropriate (with due regard for industry standards, if any) to address damages arising from a Security Breach (as defined in Section 10(i)). The Custodian agrees to provide the Funds with summaries of its applicable insurance coverage, and agrees to provide updated summaries monthly or as requested by the Funds.
(j) In order that the indemnification provisions contained in this Section 8 shall apply, upon the assertion of a claim for which either party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The party who may be required to indemnify shall have the right to control the defense of the claim, and the party seeking indemnification shall have the option to participate in the defense of such claim, at its own cost and expense. The party seeking indemnification will cooperate reasonably, at the indemnifying partys expense, with the indemnifying party in the defense of such claim; provided, however, that the party seeking indemnification shall not be required to take any action that would impair any claim it may have against the indemnifying party. The party seeking indemnification shall in no case confess any claim or make any compromise in any case in which the other party may be required to indemnify it except with the other partys prior written consent. The indemnifying party shall not settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder without the prior written consent of the party seeking indemnification, which consent shall not be unreasonably withheld, delayed or conditioned.
9. | DURATION AND TERMINATION. |
(a) Term. This Agreement shall be effective on the date first written above and shall continue in full force and effect until 11:59:59 PM (Eastern time) on December 31, 2021 (the Initial Term). The effective date of the Agreement for each Fund or Portfolio thereof listed at Exhibit A will be the first day the assets of the Fund or Portfolio are held in custody by the Custodian and the Custodian commences providing the services contemplated hereunder. This Agreement shall automatically renew for successive periods of one (1) year each (each a Renewal Term), unless a particular Fund or the Custodian gives written notice to the other party of its intent not to renew and such notice is received by the other party not less than ninety (90) days prior to the expiration of the Initial Term or the then-current Renewal Term (a NonRenewal Notice). In the event a party provides a Non-Renewal Notice this Agreement shall terminate with respect to the relevant Fund at 11:59:59 PM (Eastern time) on the last day of the Initial Term or Renewal Term, as applicable. For purposes of this Agreement, Term shall mean the Initial Term including, if applicable, any Renewal Term.
(b) Termination for Cause. Notwithstanding the preceding paragraph (a) of this Section 9, in the event that the Custodian or a Fund (as applicable, a Defaulting Party) shall fail in any material respect to perform its duties and obligations hereunder pursuant to the applicable standard of care set forth herein (including, in the case of the Custodian, through
(I) persistent non-material failures to perform its duties or obligations hereunder or (II) the persistent failure to meet key performance indicators pursuant to Section 11 of this Agreement, including the failure, as determined by a Fund in its sole discretion, of the Custodian to deliver the Anticipated Improvements under a Rectification Plan), the other party (the Other Party) shall have given written notice thereof to the Defaulting Party, and such material failure shall not have been remedied to the reasonable satisfaction of the Other Parly within thirty (30) days after such written notice is received, then, as applicable, the Fund or Funds may terminate this Agreement by providing thirty (30) days written notice of such termination to the Custodian, or the Custodian may terminate this Agreement by providing one-hundred twenty (120) days written notice of such termination to the Fund or Funds. In addition, notwithstanding the preceding sentence, this Agreement may be terminated by one or more Funds (i) immediately in the event of an appointment of a conservator or receiver for the Custodian or any parent of the Custodian by a regulatory agency or court of competent jurisdiction or, (ii) by providing thirty (30) days written notice of such termination to the Custodian in the event that the Custodian is indicted for a crime, commences any bankruptcy or insolvency proceeding or has such a proceeding initiated against it which is not dismissed within sixty (60) days, or suffers any other material adverse change in its condition, operations or professional reputation that is determined by a Fund in its reasonable discretion to threaten the continuing performance of services hereunder or the reputation of the Fund. Upon termination of this Agreement pursuant to this paragraph (b) with respect to any Fund or Portfolio, the applicable Fund shall pay Custodian its compensation due through, and shall reimburse Custodian for its reasonable costs, expenses and disbursements incurred through, the effective date of such termination.
(c) Termination for Convenience. Any Fund may terminate this Agreement with respect to such Fund or its Portfolio(s) for any reason provided that (i) the applicable Fund shall be required to provide the Custodian at least sixty (60) days notice of the effective date of such termination (the Termination for Convenience Date); (ii) on the Termination for Convenience Date, the applicable Fund shall pay the Custodian its compensation due through the Termination for Convenience Date and shall reimburse Custodian for its reasonable out-of-pocket costs, expenses and disbursements incurred through the Termination for Convenience Date; provided, however, that if the applicable Fund provides less than sixty (60) days notice of the Termination for Convenience Date, then on the Termination for Convenience Date the Fund shall pay the Custodian its compensation due through the date occurring sixty (60) days after the date of delivery of such lesser notice (based upon the average compensation previously earned by Custodian with respect to such Fund or Portfolio for the two (2) calendar months most recently preceding the delivery date of such notice) and shall reimburse the Custodian for its reasonable out-of-pocket costs, expenses and disbursements incurred through the Termination for Convenience Date; and (iii) notwithstanding the foregoing, if the end of the Term (as defined in paragraph (a) of this Section 9) is to occur less than sixty (60) days from the date of notice of termination, the applicable Fund shall provide such lesser notice as may be reasonably practicable, and on the Termination for Convenience Date the applicable Fund shall pay the Custodian its compensation due through the Termination for Convenience Date and shall reimburse Custodian for its reasonable out-of-pocket costs, expenses and disbursements incurred through the Termination for Convenience Date.
(d) Termination of this Agreement with respect to the coverage of any one particular Fund or Portfolio shall in no way affect the rights and duties under this Agreement with respect to any other Fund or Portfolio.
(e) If a successor custodian for one or more Portfolios shall be appointed by the applicable Board, the Custodian shall, upon termination pursuant to this Agreement and receipt of Proper Instructions, deliver to such successor custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or at the Underlying Transfer Agent. The Custodian shall also provide to the successor custodian a Funds records (as described in Section 2.8 of this Agreement) as reasonably requested by the Fund. The Custodian also agrees to reasonably cooperate with the successor custodian and the Fund in the execution of such documents and the performance of such other necessary actions as is in accordance with standard industry practice in order to substitute the successor custodian for the Custodian. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of Proper Instructions, transfer such securities, funds and other properties in accordance with such instructions. In the event that no Proper Instructions designating a successor custodian or alternative arrangements shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a bank as defined in the 1940 Act, doing business in Boston, Massachusetts or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $250,000,000 and which satisfies any other then applicable criteria for service as a custodian for registered management companies under the 1940 Act, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement. All reasonable out-of-pocket expenses associated with the transfer of custody hereunder upon termination hereof shall be borne by the respective Funds (except as may be specifically agreed in writing by the parties in relation to special arrangements) and the Custodian shall not be required to undertake any non-industry standard activity until assured to its reasonable satisfaction of payment therefor.
(f) In the event that securities, funds and other properties remain in the possession of the Custodian after the effective date of the termination hereof owing to failure of any Fund to provide Proper Instructions as aforesaid, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.
(g) Notwithstanding any provision of this Section 9 to the contrary, in the event that this Agreement is terminated in its entirety, the parties agree to continue operating under the terms of this Agreement as if this Agreement remained in full force and effect for one year or for such shorter period of time as the parties mutually agree is necessary for the Custodian to deliver the books and records and any other properties of the Funds held hereunder by the Custodian to a successor custodian in an orderly manner.
(h) Any termination of services under this Agreement shall not affect the rights and obligations of the parties under Sections 4.13(c), 8, 9 and 10 hereof.
10. | CONFIDENTIALITY AND DATA SECURITY. |
(a) The Custodian agrees to keep confidential, and to cause its employees and agents to keep confidential, all records of the Funds and information relating to the Funds, including without limitation information as to their respective shareholders and their respective portfolio holdings, unless the release of such records or information is made (i) in connection with the services provided under this Agreement, (ii) at the written direction of the applicable Fund or otherwise consented to, in writing, by the respective Funds, (iii) in response to a request of a governmental, regulatory or self-regulatory authority or agency or pursuant to a subpoena, court order or other legal process, in each case with respect to which the Custodian has determined, on the advice of counsel, that it is required to comply, or (iv) where the Custodian has determined, on the advice of counsel, that the failure to release such information would expose the Custodian to civil or criminal contempt proceedings; provided in the case of clause (iii) or (iv) the Custodian provides the applicable Fund written notice of such requirement to release such records or information, to the extent such notice is permitted. The foregoing shall not be applicable to any information that is publicly available when provided and shall cease to be applicable to any information that thereafter becomes publicly available, other than through a breach of this Section 10(a), or that is independently derived by any party hereto without the use of any information derived in connection with the services provided under this Agreement. Notwithstanding the foregoing but subject to Section 10(d), (1) the Custodian may use information regarding the Funds in connection with certain functions performed on a centralized basis by the Custodian, its affiliates or its or their service providers (including audit, accounting, risk, legal, compliance, sales, administration, product communication, relationship management, compilation and analysis of customer-related data and storage) and disclose such information to its affiliates and to its or their service providers who are subject to the confidentiality obligations hereunder with respect to such information, but only for the purpose of servicing the Funds in connection with the relationship contemplated by this Agreement or providing additional services to the Funds, and (2) the Custodian may aggregate Fund or Portfolio data with similar data of other customers of the Custodian (Aggregated Data) and may use Aggregated Data so long as such Aggregated Data represents such a sufficiently large sample that no Fund or Portfolio data can be identified either directly or by inference or implication.
(b) Each Fund agrees to keep confidential all information obtained hereunder relating to the Custodians business (it being understood, however, that the existence and the terms of this Agreement are required to be publicly disclosed by the Funds), unless the release of such records or information is (i) necessary to facilitate the receipt of services provided under this Agreement, (ii) in response to a request of a governmental, regulatory or self-regulatory authority or agency or pursuant to a subpoena, court order or other legal process, in each case with respect to which the Fund has determined, on the advice of counsel, that it is required to comply, or (iii) where the Fund has determined, on the advice of counsel, that the failure to release such information would expose the Fund to civil or criminal contempt proceedings;
provided in the case of clause (ii) or (iii) the Fund provides the Custodian written notice of such requirement to release such records or information, to the extent such notice is permitted. The foregoing shall not be applicable to any information that is publicly available when provided and shall cease to be applicable to any information that thereafter becomes publicly available, other than through a breach of this Agreement, or that is independently derived by any party hereto without the use of any information derived in connection with the services provided under this Agreement.
(c) Notwithstanding any provision herein to the contrary, each party hereto agrees that any Nonpublic Personal Information, as defined under Section 248.3(t) of Regulation S-P (Regulation S-P), promulgated under the Gramm-Leach-Bliley Act (the GLB Act), disclosed or otherwise made accessible by a party hereunder is for the specific purpose of permitting the other party to perform its duties as set forth in this Agreement. Each party agrees that, with respect to such information, it will comply with Regulation S-P and the GLB Act and that it will not disclose any Nonpublic Personal Information received in connection with this Agreement to any other party, except to the extent necessary to carry out the services set forth in this Agreement or as otherwise permitted by Regulation S-P or the GLB Act.
(d) Without limiting the generality of Section 10(a) hereof, the Custodian acknowledges and agrees that the Funds are prohibited by law from making selective public disclosure of information regarding portfolio holdings, that disclosure of any and all such information to the Custodian hereunder is made strictly under the conditions of confidentiality set forth in Section 10(a) hereof and solely for the purposes of the performance of custodial services hereunder, that any unauthorized disclosure or misuse of such information (including by the Custodian or any of its employees or agents, or any trading on the basis of such information by anyone in receipt of such information) may constitute a criminal offense of trading on or tipping of material inside information regarding publicly traded securities, that access to any and all such information regarding portfolio holdings of the Funds shall be restricted to those persons needing such information in the course of the performance of duties hereunder, and that the Custodian shall apprise all such persons having access of the obligation hereunder and under applicable law to prevent unauthorized disclosure of such confidential information.
(e) The parties acknowledge and agree that any breach of Section 10(a) hereof would cause not only financial damage, but irreparable harm to the other party, for which money damages will not provide an adequate remedy. Accordingly, in the event of a breach of Section 10(a) hereof, the non-breaching party shall (in addition to all other rights and remedies it may have pursuant to this Agreement, including without limitation Section 8(g) hereof, and at law and in equity) be entitled to an injunction, without the necessity of posting any bond or surety, to restrain disclosure or misuse, in whole or in part, of any information in violation of Section 10(a) hereof.
(f) The Custodian will implement and maintain a written information security program (the Security Program) that contains appropriate security measures designed to safeguard confidential records and information of the Funds consistent with applicable statutes, laws, rules and regulations, and definitive and binding guidance or interpretations by applicable authorities of any of the foregoing from time to time, including without limitation the personal information of the Funds shareholders, employees, trustees, directors and/or officers that the
Custodian receives, stores, maintains, processes or otherwise accesses in connection with the provision of services hereunder. For these purposes, personal information shall mean (i) an individuals name (first initial and last name or first name and last name), plus (a) social security number, (b) drivers license number, (c) state identification card number, (d) debit or credit card number, (e) financial account number or (f) personal identification number or password that would permit access to a persons account or (ii) any combination of the foregoing that would allow a person to log onto or access an individuals account with the Custodian. Notwithstanding the foregoing personal information shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public.
(g) The Security Program shall have administrative, technical and physical safeguards, appropriate to the type of information concerned, designed: (i) to maintain the security and confidentiality of records and information of the Funds; (ii) to protect against anticipated threats or hazards to the security or integrity of such records and information; and (iii) to protect against unauthorized access to or use of such records and information. The Custodian shall develop, implement and maintain, at its sole expense, a system or methodology to audit for compliance with the requirements of the preceding sentence that is consistent with the SOC controls framework. Such safeguards will include, but shall not be limited to, virus protection, password protection and encryption of data in transmission at a minimum standard of AES 256. The Custodian will provide the Fund, at least annually, with the most recent SOC reports of its systems and methodologies prepared by an independent third party, and will provide executive summaries of its most recent penetration and ethical hack testing of its internet-facing environment relevant to the systems used to provide services under this Agreement (in the form generally provided by the Custodian to other similarly situated customers of services similar to the services provided under this Agreement), as conducted by a qualified, independent third party selected by the Custodian. The Custodian shall maintain books and records sufficient to demonstrate its compliance with the terms of this Section 10(g).
(h) Upon reasonable notice to the Custodian, the Custodian will arrange for its relevant subject matter experts to meet with the relevant subject matter experts of the Funds once annually and at such other times as the Funds may reasonably request to review the Custodians security controls and any deficiencies identified in the SSAE-18 audit reports, and for the Custodian to review with the Funds the penetration testing results and provide such additional information concerning the penetration tests as the Custodian determines to be prudent. At such meeting, the Funds may view the Custodians security-related policies and procedures; however, no documentation may be copied, shared, transmitted or removed from the Custodians premises, except as mutually agreed. In the event that the Funds identify any control deficiencies, the Custodian will discuss such findings with the Funds and will use reasonable efforts to develop a mutually agreeable remediation plan. All nonpublic documentation and information disclosed to the Funds in accordance with this Section 10(h) shall be deemed proprietary and confidential information of the Custodian. The Funds shall not disclose such documentation or information to any third party (except to the extent permitted, necessary or required pursuant to Section 10(b)) or use it for any purpose other than evaluating the Custodians security controls, except that the Funds may disclose the Custodians SSAE-18 summary to the Funds external auditors provided that such external auditors are required to maintain the confidentiality of the summary and any related information.
(i) In the event of any actual or reasonably suspected, based on Custodians experience, breach of security of its systems resulting in the actual, probable or reasonably suspected unauthorized access to or acquisition, use, loss, destruction, compromise or disclosure of any of the confidential records or information of a Fund (each, a Security Breach), upon learning of the Security Breach, the Custodian shall notify such Fund as promptly as reasonably possible of the relevant facts related to such Security Breach then known to the Custodian, and of additional relevant facts promptly after they become known to the Custodian, in the manner provided in Section 12 hereof and also by sending notice to cybersecurity@leggmason.com and/or such other electronic mail address or addresses as a Fund may specify by written notice to the Custodian. The Custodian shall at its sole cost: (i) promptly investigate such Security Breach; (ii) resolve or mitigate the vulnerability that facilitated the Security Breach to the extent possible; (iii) restore any lost or damaged data using generally accepted data restoration techniques; and (iv) conduct a root cause analysis to provide the Fund with a summary of the findings and actions taken to prevent recurrence of such Security Breach. If a Security Breach occurs with respect to personal information in the possession or under the control of the Custodian or any of its affiliates, subsidiaries, agents or employees the Custodian shall be responsible for each Funds reasonable costs associated with responding to such Security Breach, including, but not limited to, the costs of notifying affected individuals and taking any remedial action required by applicable statutes, laws, rules and regulations and any such other remedial action that the Custodian reasonably deems necessary (with due regard for industry standards, if any).
(j) If the Custodian uses any subsidiary or affiliate or, pursuant to Section 2.6(a), agent to perform the duties assigned to the Custodian by this Agreement, such subsidiary, affiliate or agent shall have appropriate controls in place to meet the objectives of this Section 10, and the Custodian shall exercise oversight over each such subsidiary, affiliate or agent to ensure ongoing compliance with the objectives of this Section 10. The Custodian will require each Foreign Sub-Custodian that it engages to provide services under this Agreement to establish and maintain reasonably designed safeguards and controls against the unauthorized access to and use of Fund data and information.
11. | KEY PERFORMANCE INDICATORS |
(a) The Custodian and the Funds may from time to time agree to document the manner in which they expect to deliver and receive the services contemplated by this Agreement. The parties agree that any such key performance indicators (hereinafter referred to as KPIs or, individually as a KPI) shall be agreed upon in writing by the parties and shall be reflected in one or more schedules to this Agreement. The Custodian and the Funds acknowledge that any failure to perform in accordance with KPIs shall not in and of itself be considered a breach of contract that gives rise to contractual or other remedies provided that such failure may be a breach giving rise to contractual or other remedies if it is persistent and not remedied after consultation. Nothing in this Section 11 shall modify any partys applicable standard of care under this Agreement; nor shall any meeting or discussion among the parties regarding KPIs be construed to prevent a party from pursuing any remedy otherwise available to it pursuant to this Agreement.
(b) The parties agree to periodically review the Custodians performance against the KPIs. Where any such review reveals that the Custodians performance with respect to any KPI
has been unsatisfactory, as measured in accordance with any schedule to this Agreement pertaining to such KPI, for three consecutive months (a Rectification Trigger), the Funds may, in their sole discretion, invoke the process set out in this Section 11(b):
(i) The Custodian shall investigate, assemble and preserve (in accordance with its records management policy) all pertinent information with respect to, and report the root causes of the problem that led to, the Rectification Trigger;
(ii) The Custodian shall propose an appropriate written corrective action plan (Rectification Plan) with respect to such failure and in any event within ten (10) business days, or as otherwise reasonably agreed by the parties. The Rectification Plan shall set out the anticipated improvements (Anticipated Improvements) and the timeline over which those improvements are expected to be realized (Plan Period), which shall be no longer than sixty (60) days (without the Funds prior written consent). The Funds shall review the Rectification Plan within five (5) business days and shall (without liability or any resulting obligation or deemed acceptance of approach) comment on the Rectification Plan, suggest improvements and challenge any assumptions and ideas embodied in the Rectification Plan. It is acknowledged that the Funds shall not be obligated or required to acknowledge the Rectification Plan will achieve the relevant KPIs. Upon approval of the Rectification Plan, the Custodian shall, as soon as reasonably practicable, implement the Rectification Plan so as to deliver the anticipated improvements;
(iii) The Custodian shall provide the Funds with regular updates of the progress of the Rectification Plan and the parties shall periodically review the progress during the Plan Period;
(iv) The Custodian shall as soon as reasonably practicable notify the Funds in writing of any material changes to the Rectification Plan from time to time and the reasons for those changes; and
(v) At the end of the Plan Period, the Custodian shall report on whether the Rectification Plan has delivered the Anticipated Improvements in accordance with this Section 11(b).
12. | NOTICES. |
All notices and other communications, excluding Oral Instructions, shall be in writing or by confirming telegram, cable, telex or facsimile sending device. If notice is sent by confirming telegram, cable, telex or facsimile sending device, it shall be deemed to have been given immediately. If notice is sent by first-class mail, it shall be deemed to have been given three days after it has been mailed. If notice is sent by messenger, it shall be deemed to have been given on the day it is delivered. Notices shall be addressed,
if to the Custodian, to:
The Bank of New York Mellon
135 Santilli Highway
Everett, MA 02149
Attention: Christopher Healy
with a copy to:
The Bank of New York Mellon
225 Liberty Street
New York, NY 10286
Attention: Asset Servicing Legal
if to any of the Funds, to:
Legg Mason & Co., LLC
Attn: General Counsel
100 First Stamford PL, 6th FL
Stamford, CT 06902
or at such other address as shall have been provided by like notice to the sender of any such notice or other communication by the other party.
13. | FUNDS AS PARTIES; LIMITATION ON FUND LIABILITIES. |
(a) The Custodian acknowledges and agrees that the obligations assumed by each of the Funds hereunder shall be limited in all cases to the assets of the Fund or Portfolio(s) thereof, as applicable, and that the Custodian may not seek satisfaction of any such obligation from the officers, agents, employees, trustees, directors or shareholders of the Fund or of any Portfolio of the Fund, and to the extent such trustees or officers are regarded as entering into this Agreement, they do so only as trustees or officers and not individually and that the obligations of this Agreement are not binding upon any such trustee, officer, employee or shareholder individually, but are binding only upon the assets and property of said Fund (or Portfolio thereof). The Custodian hereby agrees that such trustees, officers, employees or shareholders shall not be personally liable under this Agreement and that the Custodian shall look solely to the property of the Fund (or Portfolio thereof) for the performance of the Agreement or payment of any claim under the Agreement.
(b) A person who is not a party to this Agreement shall have no rights to enforce any provision of this Agreement, and no Fund or Portfolio shall have a right to enforce any provision of this Agreement as it relates to another Fund or Portfolio.
(c) This Agreement is an agreement entered into between the Custodian and each of the Funds with respect to each of such Funds Portfolios, as applicable. With respect to any obligation of the Fund on behalf of any Portfolio arising out of this Agreement, the Custodian shall look for payment or satisfaction of such obligation solely to the assets of the Portfolio to which such obligation relates with the same effect as if the Custodian had separately contracted with the Fund by separate written instrument with respect to each Portfolio.
(d) Notwithstanding that certain Funds are not registered with the SEC as investment companies under the 1940 Act, all services provided hereunder by the Custodian to or for the benefit of such Funds shall be performed as if such Funds were so registered.
(e) Additional management investment companies (each a New Fund) may from time to time become parties as Funds to this Agreement by (A) delivery to the Custodian of (i) an instrument of adherence agreeing to become bound by and party to this Agreement executed by any such New Fund on behalf of each of its series or portfolios and (ii) an amendment and restatement of Exhibit A setting forth the appropriate information as to such New Fund and its series or portfolios and (B) the Custodians receipt of the foregoing documents, whereupon the Custodian, shall agree in writing to the addition of such New Fund and its series or portfolios, which agreement shall not be unreasonably withheld, it being understood that the Custodian shall not be deemed to be unreasonable in the event that (i) the Custodians ability to provide services hereunder to the New Fund is otherwise restricted by regulatory requirements or (ii) the Custodian does not generally offer custodial services to institutional clients regarding the particular type of fund or assets.
(f) Additional portfolios or series of existing management investment companies that are already party to this Agreement (each a New Portfolio) may from time to time be added to the list of series or portfolios serviced under this Agreement by (A) delivery to the Custodian of (i) an instrument of adherence agreeing to become bound by and party to this Agreement executed by the existing party Fund on behalf its New Portfolio and (ii) an amendment and restatement of Exhibit A setting forth the appropriate information as to such New Portfolio and (B) the Custodians receipt of the foregoing documents, whereupon the Custodian, subject to satisfactory completion of its customary due diligence, shall agree in writing to the addition of such New Portfolio, which agreement shall not be unreasonably withheld, it being understood that the Custodian shall not be deemed to be unreasonable in the event that (i) the Custodians ability to provide services hereunder to the New Portfolio is otherwise restricted by regulatory requirements or (ii) the Custodian does not generally offer custodial services to institutional clients regarding the particular type of fund or assets.
14. | MISCELLANEOUS. |
(a) This Agreement, or any term thereof, may be changed or waived only by written amendment, signed by the party against whom enforcement of such change or waiver is sought.
(b) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by either party, nor may the duties of either party be delegated, without the prior written consent of the other party, except that (1) the Custodian may assign or delegate certain of its noncustodial obligations hereunder to an affiliate or subsidiary of the Custodian without the Funds prior written consent, provided that the Custodian shall remain responsible for the actions and omissions of such affiliate or subsidiary as if such actions or omissions were taken by the Custodian, (2) the Custodian may utilize sub-custodians as contemplated in this Agreement without limitation by this Section 14(b) and (3) the Custodian may assign or transfer this Agreement in connection with a sale of a majority or more of its assets, equity interests or voting control, provided that the Custodian gives the relevant Funds ninety (90) days prior written notice of such assignment or transfer, such assignment or transfer does not impair the provision of services under this Agreement in any material respect, in the reasonable view of the Funds, and the assignee or transferee agrees to be bound by all terms of this Agreement in place of the Custodian. The Custodian shall notify the Funds promptly following the execution of any agreement that would result in, or would be expected to result in, a change of control of the Custodian or any parent of the Custodian.
(c) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement and all schedules, exhibits, appendices, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
(d) Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
(e) This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof.
(f) The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
(g) This Agreement shall be deemed to be a contract made in the State of New York and governed by the laws of the State of New York, without regard to principles of conflicts of law. Each of the parties hereby consents to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder, and waives to the fullest extent permitted by law its right to a trial by jury. To the extent that in any jurisdiction any Fund may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, such Fund irrevocably agrees not to claim, and it hereby waives, such immunity.
(h) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
(i) Regulation GG. Each Fund hereby represents and warrants that it does not engage in an Internet gambling business, as such term is defined in Section 233.2(r) of Federal Reserve Regulation GG (12 CFR 233) (Regulation GG). For the avoidance of doubt, the term engage shall not be deemed to include a passive investment made in the ordinary course of business. Each Fund hereby covenants and agrees that it shall not engage in an Internet gambling business. In accordance with Regulation GG, each Fund is hereby notified that restricted transactions, as such term is defined in Section 233.2(y) of Regulation GG, are prohibited in any dealings with the Custodian pursuant to this Agreement or otherwise between or among any party hereto.
(j) Shareholder Communications Election. With respect to securities issued in the United States, Rule 14b-2 under the 1934 Act requires banks that hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs each Fund to indicate whether it authorizes the Custodian to provide such Funds name, address, and share position to requesting companies whose securities the Fund owns. If a Fund tells the Custodian no, the Custodian will not provide this information to requesting companies. If a Fund tells the Custodian yes or does not check either yes or no below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For a Funds protection, Rule 14b-2 prohibits the requesting company from using the Funds name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below.
YES ☐ |
The Custodian is authorized to release the Funds name, address, and share positions | |
NO ☒ |
The Custodian is not authorized to release the Funds name, address, and share positions. |
With respect to securities issued outside the United States, the Custodian will disclose information required by law, regulation, rules of a stock exchange or organizational documents of an issuer.
A Fund will provide to the Custodian any required information if it is not otherwise reasonably available to the Custodian.
(k) As an accommodation to the Funds, the Custodian may provide consolidated recordkeeping services pursuant to which the Custodian reflects on statements securities and other assets not held by, or under the control of, the Custodian (Non-Custody Assets). NonCustody Assets shall be designated on the Custodians books as shares not held or by other similar characterization. Each Fund acknowledges and agrees that it shall have no security entitlement against the Custodian with respect to Non-Custody Assets, that the Custodian shall rely, without independent verification, on information provided by the Fund, its designee or the entity having custody regarding Non-Custody Assets (including but not limited to positions and market valuations), and that the Custodian shall have no responsibility whatsoever with respect to Non-Custody Assets or the accuracy of any information maintained on the Custodians books or set forth on account statements concerning Non-Custody Assets.
(l) The Funds acknowledge and agree that the Custodian is not a fiduciary by virtue of accepting and carrying out its obligations under this Agreement.
(m) Each Fund represents that it maintains compliance policies and procedures reasonably designed to prevent the Fund from violating any applicable laws, rules, regulations, executive orders or requirements administered by any governmental authority of the United States (including the U.S. Office of Foreign Assets Control) concerning economic sanctions.
Unless otherwise prohibited, a Fund will promptly provide to the Custodian such information in the Funds possession as the Custodian reasonably requests in connection with the matters referenced in this Section 14(m), including information regarding its accounts, the assets held or to be held in its accounts, the source thereof, and the identity of any individual or entity having or claiming an interest therein. The Custodian may decline to act or provide services in respect of an account if the Custodian determines, on the advice of legal counsel, that it is not permitted to take such action or provide such service under applicable law. If the Custodian declines to act or provide services as provided in the preceding sentence, the Custodian will inform the applicable Fund as soon as reasonably practicable and will communicate to the Fund the advice received from counsel to the Custodian.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative as of the date first above-written.
EACH INVESTMENT COMPANY IDENTIFIED ON EXHIBIT A HERETO | ||
By: | /s/ Jane Trust | |
Name: Jane Trust Title: President | ||
THE BANK OF NEW YORK MELLON | ||
By: | /s/ Christopher Healy | |
Name: Christopher Healy Title: Manager Director |
List of Exhibits/Schedules
Exhibit A:
List of Funds and Portfolios1
Exhibit B:
Additional Services
Schedule A:
Foreign Sub-Custodians
Schedule B:
Foreign Securities Depositories
Schedule C:
Information Provided regarding Foreign Custody and Settlement Practices
Schedule D:
Markets Relating to Sub-Custodian Liability
1 | Note that open-end Funds, closed-end Funds and Cayman Islands Funds should be identified as such in Exhibit A. |
Exhibit A
Western Asset High Income Fund II Inc.
Exhibit B
Reserved
Exhibit C
None
Exhibit (j)(2)
Amendment No. 9
To
Custodian Services Agreement
This Amendment No. 9 To Custodian Services Agreement (Amendment No. 9), dated as of May 1, 2021 (Effective Date), is being entered into by and among The Bank of New York Mellon (the Custodian) and each Fund identified on Exhibit A to this Amendment No. 9 on behalf of each of its Portfolios identified on Exhibit A. Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Original Agreement (as defined below).
Background
The Custodian and certain of the Funds on behalf of certain of the Portfolios previously entered into the Custodian Services Agreement made as of January 1, 2018 (Original Agreement). The parties wish to amend the Original Agreement as set forth in this Amendment No. 9.
Terms
NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree to all statements made above and as follows:
1. Modifications to Original Agreement. The Original Agreement is hereby amended by deleting Exhibit A in its entirety and replacing it with the Exhibit A attached to this Amendment No. 9.
2. Adoption of Amended Agreement by New Funds and New Portfolios. Each Fund and each Portfolio of a Fund that has been added to Exhibit A by virtue of this Amendment No. 9 acknowledges and agrees that (i) by virtue of its execution of this Amendment No. 9 it becomes and is a party to the Original Agreement as amended by this Amendment No. 9 (Amended Agreement) as of the Effective Date, or if the Custodian commenced providing services to the Fund or Portfolio, respectively, prior to the Effective Date, as of the date the Custodian first provided services to such Fund or Portfolio, respectively, (ii) it is bound by all terms and conditions of the Amended Agreement as of such date, and (iii) the duly authorized officer of the Fund or Portfolio identified on the signature page annexed hereto has full power and authority to enter into this Amendment No. 9 on behalf of such Fund or Portfolio.
3. Remainder of Original Agreement. Except as specifically modified by this Amendment No. 9, all terms and conditions of the Original Agreement shall remain in full force and effect.
4. Governing Law. The governing law of the Original Agreement shall be the governing law of this Amendment No. 9.
5. Entire Agreement. This Amendment No. 9 constitutes a complete, exclusive and fully integrated record of the agreement of the parties with respect to the subject matter herein and the amendment of the Original Agreement with respect to such subject matter.
6. Signatures; Counterparts. The parties expressly agree that this Amendment No. 9 may be executed in one or more counterparts and expressly agree that such execution may occur by manual signature on a physically delivered copy of this Amendment No. 9, by a manual signature on a copy of this Amendment No. 9 transmitted by facsimile transmission, by a manual signature on a copy of this Amendment No. 9 transmitted as an imaged document attached to an email, or by Electronic Signature, which is hereby defined to mean inserting an image, representation or symbol of a signature into an electronic copy of this Amendment No. 9 by electronic, digital or other technological methods. Each counterpart executed in accordance with the foregoing shall be deemed an original, with all such counterparts together constituting one and the same instrument. The exchange of executed counterparts of this Amendment No. 9 or of executed signature pages to counterparts of this Amendment No. 9, in either case by facsimile transmission or as an imaged document attached to an email transmission, shall constitute effective execution and delivery of this Amendment No. 9 and may be used for all purposes in lieu of a manually executed and physically delivered copy of this Amendment No. 9.
1
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 9 to be executed as of the Effective Date by its duly authorized representative indicated below. An authorized representative, if executing this Amendment No. 9 by Electronic Signature, affirms authorization to execute this Amendment No. 9 by Electronic Signature and that the Electronic Signature represents an intent to enter into this Amendment No. 9 and an agreement with its terms.
EACH FUND ON BEHALF OF EACH OF ITS PORTFOLIOS IDENTIFIED ON EXHIBIT A ANNEXED HERETO | ||
By: | /s/ Jane Trust | |
Name: | Jane Trust | |
Title: | President and Chief Executive Officer | |
THE BANK OF NEW YORK MELLON | ||
By: | /s/ Armando Fernandez | |
Name: | Armando Fernandez | |
Title: | Vice President |
2
EXHIBIT A1
(Dated: May 1, 2021)
This Exhibit A, amended and restated effective as of May 1, 2021, is Exhibit A to the Original Agreement, as amended through the Effective Date.
Funds/Portfolios
Open-End Funds
Legg Mason Global Asset Management Trust
BrandywineGLOBAL Alternative Credit Fund
BrandywineGLOBAL Diversified US Large Cap Value Fund
BrandywineGLOBAL Dynamic US Large Cap Value Fund
BrandywineGLOBAL Global Flexible Income Fund
BrandywineGLOBAL Global High Yield Fund
BrandywineGLOBAL Global Opportunities Bond Fund
BrandywineGLOBAL Global Opportunities Bond Fund (USD Hedged)
BrandywineGLOBAL Global Unconstrained Bond Fund
BrandywineGLOBAL International Opportunities Bond Fund
ClearBridge International Growth Fund
ClearBridge Small Cap Fund
ClearBridge Value Trust
Martin Currie Emerging Markets Fund
Martin Currie International Unconstrained Equity Fund
Martin Currie SMASh Series EM Fund
QS Global Market Neutral Fund
QS International Equity Fund
QS Strategic Real Return Fund
QS U.S. Small Capitalization Equity Fund
ClearBridge Global Infrastructure Income Fund
Legg Mason Partners Equity Trust
BrandywineGLOBAL Corporate Credit Fund
BrandywineGLOBAL High Yield Fund
ClearBridge Aggressive Growth Fund
ClearBridge All Cap Value Fund
ClearBridge Appreciation F und
ClearBridge Dividend Strategy Fund
ClearBridge International Small Cap Fund
ClearBridge International Value Fund
ClearBridge Large Cap Growth Fund
ClearBridge Large Cap Value Fund
ClearBridge Mid Cap Fund
ClearBridge Mid Cap Growth Fund
ClearBridge Select Fund
ClearBridge Small Cap Growth Fund
ClearBridge Small Cap Value Fund
1 | Note that open-end Funds, closed-end Funds and Cayman Islands Funds should be identified as such in Exhibit A. |
3
ClearBridge Sustainability Leaders Fund
ClearBridge Tactical Dividend Income Fund
QS Conservative Growth Fund
QS Defensive Growth Fund
QS Global Dividend Fund
QS Global Equity Fund
QS Growth Fund
QS Moderate Growth Fund
QS S&P 500 Index Fund
QS U. S. Large Cap Equity Fund
Legg Mason Partners Income Trust
Western Asset Ultra-Short Income Fund
Western Asset California Municipals Fund
Western Asset Corporate Bond Fund
Western Asset Emerging Markets Debt Fund
Western Asset Global High Yield Bond Fund
Western Asset Income Fund
Western Asset Intermediate Maturity California Municipals Fund
Western Asset Intermediate Maturity New York Municipals Fund
Western Asset Intermediate-Term Municipals Fund
Western Asset Managed Municipals Fund
Western Asset Massachusetts Municipals Fund
Western Asset Mortgage Total Return Fund
Western Asset Municipal High Income Fund
Western Asset New Jersey Municipals Fund
Western Asset New York Municipals Fund
Western Asset Oregon Municipals Fund
Western Asset Pennsylvania Municipals Fund
Western Asset Short Duration High Income Fund
Western Asset Short Duration Municipal Income Fund
Western Asset Short-Term Bond Fund
Legg Mason Partners Institutional Trust
Western Asset Institutional Government Reserves
Western Asset Institutional Liquid Reserves
Western Asset Institutional U.S. Treasury Obligations Money Market Fund
Western Asset Institutional U.S. Treasury Reserves
Western Asset Premier Institutional Government Reserves
Western Asset Premier Institutional Liquid Reserves
Western Asset Premier Institutional U.S. Treasury Reserves
Western Asset Select Tax Free Reserves
Western Asset SMASh Series C Fund
Western Asset SMASh Series EC Fund
Western Asset SMASh Series M Fund
Western Asset SMASh Series TF Fund
Western Asset SMASh Series Core Completion Fund
Legg Mason Partners Money Market Trust
Western Asset Government Reserves
4
Western Asset New York Tax Free Money Market Fund
Western Asset Prime Obligations Money Market Fund
Western Asset Tax Free Reserves
Western Asset U.S. Treasury Reserves
Legg Mason Partners Premium Money Market Trust
Western Asset Premium Liquid Reserves
Western Asset Premium U.S. Treasury Reserves
Legg Mason Partners Variable Equity Trust
ClearBridgc Variable Aggressive Growth Portfolio
ClearBridge Variable Appreciation Portfolio
ClearBridge Variable Dividend Strategy Portfolio
ClearBridgc Variable Large Cap Growth Portfolio
ClearBridge Variable Large Cap Value Portfolio
ClearBridge Variable Mid Cap Portfolio
ClearBridge Variable Small Cap Growth Portfolio
Franklin Templeton Aggressive Model Portfolio (formerly, Legg Mason/QS Aggressive Model Portfolio)
Franklin Templeton Conservative Model Portfolio (formerly, Legg Mason/QS Conservative Model Portfolio)
Franklin Templeton Moderate Model Portfolio (formerly, Legg Mason/QS Moderate Model Portfolio)
Franklin Templeton Moderately Aggressive Model Portfolio (formerly, Legg Mason/QS Moderately Aggressive Model Portfolio)
Franklin Templeton Moderately Conservative Model Portfolio (formerly, Legg Mason/QS Moderately Conservative Model Portfolio)
QS Legg Mason Dynamic Multi-Strategy VIT Portfolio
QS Variable Conservative Growth
QS Variable Growth
QS Variable Moderate Growth
Legg Mason Partners Variable Income Trust
Western Asset Core Plus VIT Portfolio
Western Asset Variable Global High Yield Bond Portfolio
Master Portfolio Trust
Government Portfolio
Liquid Reserves Portfolio
Tax Free Reserves Portfolio
U.S. Treasury Obligations Portfolio
U.S. Treasury Reserves Portfolio
Western Asset Funds, Inc.
Western Asset Core Bond Fund
Western Asset Core Plus Bond Fund
Western Asset High Yield Fund
Western Asset Inflation Indexed Plus Bond Fund
Western Asset Intermediate Bond Fund
Western Asset Macro Opportunities Fund
Western Asset Total Return Unconstrained Fund
5
Open-End Funds (ETFs)
Legg Mason ETF Investment Trust
BrandywineGLOBAL - Global Total Return ETF
ClearBridge All Cap Growth ETF
ClearBridge Dividend Strategy ESG ETF
ClearBridge Large Cap Growth ESG ETF
Legg Mason Emerging Markets Low Volatility High Dividend ETF
Legg Mason Global Infrastructure ETF
Legg Mason International Low Volatility High Dividend ETF
Legg Mason Low Volatility High Dividend ETF
Legg Mason Small-Cap Quality Value ETF
Western Asset Short Duration Income ETF
Western Asset Total Return ETF
ActiveShares® ETF Trust
ClearBridge Focus Value ETF
Closed-End Funds
Clarion Partners Real Estate Income Fund Inc.
ClearBridge MLP and Midstream Fund Inc.
ClearBridge Energy Midstream Opportunity Fund Inc.
ClearBridge Energy MLP and Midstream Total Return Fund Inc.
BrandywineGLOBAL-Global Income Opportunities Fund Inc.
LMP Capital and Income Fund Inc.
Western Asset Corporate Loan Fund Inc.
Western Asset Diversified Income Fund*
Western Asset Emerging Markets Debt Fund Inc.
Western Asset Global Corporate Defined Opportunity Fund Inc.
Western Asset Global High Income Fund Inc.
Western Asset High Income Fund II Inc.
Western Asset High Income Opportunity Fund Inc.
Western Asset High Yield Defined Opportunity Fund Inc.
Western Asset Intermediate Muni Fund Inc.
Western Asset Investment Grade Defined Opportunity Trust Inc.
6
Western Asset Investment Grade Income Fund Inc.
Western Asset Managed Municipals Fund Inc.
Western Asset Middle Market Debt Fund Inc.
Western Asset Middle Market Income Fund Inc.
Western Asset Mortgage Opportunity Fund Inc.
Western Asset Municipal Defined Opportunity Trust Inc.
Western Asset Municipal High Income Fund Inc.
Western Asset Municipal Partners Fund Inc.
Western Asset Premier Bond Fund
Western Asset Variable Rate Strategic Fund Inc.
Western Asset Inflation-Linked Opportunities & Income Fund
Western Asset Inflation-Linked Income Fund
Cayman Island Funds
Western Asset Government Money Market Fund, Ltd.
Western Asset Institutional Cash Reserves, Ltd.
Western Asset Institutional Liquid Reserves, Ltd.
Western Asset Premier Institutional Liquid Reserves, Ltd.
Western Asset U.S. Treasury Obligations Money Market Fund, Ltd.
Western Asset U.S. Treasury Reserves, Ltd.
Cayman Island Funds (CFCs)
Alternative Core Fund, Ltd.
Real Return Fund, Ltd.
Western Asset Inflation-Linked Opportunities & Income Fund CFC
Western Asset Inflation-Linked Income Fund CFC
* | Added to Exhibit as of the Effective Date |
7
Exhibit (k)(1)
TRANSFER AGENCY AND SERVICES AGREEMENT
AGREEMENT, dated as of March 14, 2016 (the Effective Date) by and between each of the investment companies listed on Schedule A attached hereto, as amended from time to time (each a Fund and collectively the Funds) and each having its principal place of business as listed on Schedule A, as amended from time to time, and Computershare Inc., a Delaware corporation (Computershare), and its fully owned subsidiary Computershare Trust Company, N.A., a federally chartered trust company (Trust Company, and together with Computershare, Transfer Agent) each having a principal office and place of business at 250 Royall Street, Canton, Massachusetts 02021. Any references herein to the Fund are meant to encompass each applicable Fund or any series thereof, as the context requires.
WITNESSETH
WHEREAS, each Fund desires to appoint Trust Company as its sole transfer agent and registrar for the Shares, and any dividend reinvestment plan or direct stock purchase plan for each Fund, and Computershare as dividend disbursement agent and as processer of all payments received or made by each Fund under this Agreement;
WHEREAS, Trust Company and Computershare will each separately provide specified services covered by this Agreement and, in addition, Trust Company may arrange for Computershare to act on behalf of Trust Company in providing certain of its services covered by this Agreement; and
WHEREAS, Trust Company and Computershare desire to accept such respective appointments and perform the services related to such appointments;
NOW, THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, each Fund and Transfer Agent agree as follows:
Article 1 | Definitions |
1.1 Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:
(a) Account means the account of each Shareholder which reflects any full or fractional Shares held by such Shareholder, outstanding funds, or reportable tax information.
(b) Agreement means this agreement and any and all exhibits or schedules attached hereto and any and all amendments or modifications which may from time to time be executed.
- 1 -
(c) Articles of Incorporation shall mean the Articles of Incorporation, Declaration of Trust, or other similar organizational document as the case may be, of a Fund as the same may be amended from time to time.
(d) Authorized Person shall be any person, whether or not such person is an officer or employee of a Fund, duly authorized to give Oral Instructions or Written Instructions on behalf of a Fund as indicated in a written document that has been executed by the Secretary or the Assistant Secretary of the Fund and delivered to Transfer Agent from time to time.
(e) Board Members shall mean the Directors or Trustees of the governing body of the Fund, as the case may be.
(f) Board of Directors shall mean the Board of Directors or Board of Trustees of the Fund, as the case may be.
(g) Code shall mean the Internal Revenue Code of 1986, as amended.
(h) Commission shall mean the Securities and Exchange Commission.
(i) Confidential Information shall have the meaning set forth in Article 17.1(a) herein.
(j) Custodian refers to any custodian or subcustodian of securities and/or other property which a Fund may from time to time deposit, or cause to be deposited or held under the name or account of such a custodian pursuant to a custodian agreement.
(k) DSPP means direct stock purchase plan.
(l) FATCA shall mean Sections 1471 through 1474 of the Code and any regulations or agreements thereunder or official interpretations thereof or any intergovernmental agreement between the United States and another jurisdiction facilitating the implementation thereof (or any law implementing such an intergovernmental agreement).
(m) IRS shall mean the United States Internal Revenue Service.
(n) 1933 Act shall mean the Securities Act of 1933 and the rules and regulations promulgated thereunder, all as amended from time to time.
(o) 1934 Act shall mean the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, all as amended from time to time.
(p) 1940 Act shall mean the Investment Company Act of 1940 and the rules and regulations promulgated thereunder, all as amended from time to time.
- 2 -
(q) Oral Instructions shall mean instructions (including via electronic mail), other than Written Instructions, received by Transfer Agent from a person reasonably believed by Transfer Agent to be an Authorized Person, with subsequent Written Instructions confirming the instructions (as described below), provided acceptance of Oral Instructions by Transfer Agent is subject to its policies and/or procedures for the specific type of instruction submitted;
(r) Plans means any dividend reinvestment plan, DSPP, or other investment programs administered by Trust Company for each Fund, whether as of the Effective Date or at any time during the term of this Agreement.
(s) Prohibited Person shall mean (1) a person, entity, or organization named on the U.S. Department of the Treasurys Office of Foreign Assets Control (OFAC) List of Specially Designated Nationals and Blocked Persons (the SDN List), as amended from time or (2) a person resident in, an entity organized under the laws of or having a place of business in, or the government of, a country or territory subject to the country-based U.S. trade sanctions programs administered and enforced by OFAC pursuant to any authorizing statute including, but not limited to, the International Economic Emergency Powers Act (50 U.S.C. § § 1701 et seq.), the Trading with the Enemy Act (50 U.S.C. App. 1 et seq.) and any executive order, rule, or regulation promulgated thereunder.
(t) Prospectus shall mean the currently effective Fund Prospectus and Statement of Additional Information, including supplements thereto, if any, which has been filed under the 1933 Act and the 1940 Act.
(u) Services means all services performed or made available by Transfer Agent pursuant to this Agreement.
(v) Shareholder shall mean a holder of Shares of a Fund.
(w) Shareholder Data means all information maintained on the records database of Transfer Agent concerning Shareholders.
(x) Shares refers collectively to such shares of capital stock or beneficial interest, as the case may be, of a Fund as may be issued from time to time.
(y) Side Agreement means the Side Agreement for Transfer Agency Services between the Funds and Transfer Agent dated as of March 1, 2016.
(z) Written Instructions shall mean (i) a written instruction signed by an Authorized Person, including manually executed originals and telefacsimile of a manually executed original or other process; (ii) trade instructions transmitted (and received by Transfer Agent) by means of an electronic transaction reporting system access to which requires use of a password or other authorized identifier; and (iii) electronic mail from an Authorized Person in a format mutually acceptable to the parties to this Agreement, provided acceptance of Written Instructions by Transfer Agent is subject to its policies and/or procedures for the specific type of instruction submitted.
- 3 -
Article 2 | Appointment of Transfer Agent |
2.1 Each Fund hereby appoints Trust Company to act as sole Transfer Agent and registrar for all Shares and as administrator of Plans in accordance with the terms and conditions hereof and appoints Computershare as the service provider to Trust Company and as processor of all payments received or made by or on behalf of the Fund under this Agreement. Transfer Agent accepts each such appointment and agrees to perform the duties hereinafter set forth.
2.2 In connection with the appointments herein, each Fund will provide the following appointment and corporate authority documents to Transfer Agent:
(a) Copies of resolutions appointing Trust Company as the Transfer Agent;
(b) If applicable, specimens of all forms of outstanding Share certificates, in forms approved by the Board of Directors of the Fund, with a certificate of the Secretary of the Fund as to such approval;
(c) Specimens of the signatures of the officers or other authorized persons of the Fund authorized to sign Written Instructions and requests and, if applicable, sign Share certificates;
(d) Any and all opinions of counsel issued to the underwriter for any new Fund or future original issuance of Shares for any Fund added after the Effective Date for which Transfer Agent will act as transfer agent hereunder that may include:
(i) | Fund is duly organized, validly existing and in good standing under the laws of its state of organization; |
(ii) | All Shares issued and outstanding on the date hereof were issued as part of an offering that was registered under the Securities Act of 1933, as amended (1933 Act) and any other applicable federal or state statute or that was exempt from such registration; |
(iii) | All Shares issued and outstanding on the date hereof are duly authorized, validly issued, fully paid and non-assessable; and |
(iv) | The use of facsimile signatures by Transfer Agent in connection with the countersigning and registering of Share certificates has been duly authorized by the Fund and is valid and effective. |
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(e) A certificate of each Fund as to the Shares authorized, issued and outstanding, as well as a description of all reserves of unissued Shares relating to the exercise of options;
(f) A completed Internal Revenue Service Form 2678; and
(g) A completed W-8 or W-9, as applicable.
2.3 Fund shall, if applicable, inform Transfer Agent as soon as possible in advance as to: (a) the existence or termination of any restrictions on the transfer of Shares, the application to or removal from any Share of any legend restricting the transfer of such Shares (subject, in the case of removal of any legend, to delivery of a legal opinion from counsel to Fund in form and substance acceptable to Transfer Agent), or the substitution for such Share of a Share without such legend; (b) any authorized but unissued Shares reserved for specific purposes; (c) any outstanding Shares which are exchangeable for Shares and the basis for exchange; (d) reserved Shares subject to option and the details of such reservation; (e) any Share split or Share dividend; (f) any other relevant event or special instructions which may affect the Shares; and (g) any bankruptcy, insolvency or other proceeding regarding Fund affecting the enforcement of creditors rights.
2.4 Fund shall perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, documents, instruments and assurances as Transfer Agent may reasonably require in order to carry out or perform its obligations under this Agreement.
2.5 Scope of Agency.
(a) Transfer Agent shall act solely as agent for each Fund under this Agreement and owes no duties hereunder to any other person. Transfer Agent undertakes to perform the duties and only the duties that are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement under Transfer Agent.
(b) Transfer Agent may rely upon, and shall be protected in acting or refraining from acting in reliance upon, (i) any communication from Fund, any predecessor transfer agent or co-transfer agent or any registrar (other than Transfer Agent), predecessor registrar or co-registrar; (ii) any instruction, notice, request, direction, consent, report, certificate, opinion or other instrument, paper, document or electronic transmission believed by Transfer Agent in good faith to be genuine and to have been signed or given by the proper parties; (iii) any guaranty of signature by an eligible guarantor institution that is a member or participant in the Securities Transfer Agents Medallion Program or other comparable signature guarantee program or insurance program in addition to, or in substitution for, the foregoing; or (iv) any instructions received through Direct Registration System/Profile. In addition, Transfer Agent is authorized to refuse to make any transfer that it determines in good faith not to be in good order.
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Article 3 | Duties of Transfer Agent |
3.1 Transfer Agent shall be responsible for:
(a) Administering and/or performing the customary services of a transfer agent, agent of each Funds dividend reinvestment plan, and dividend disbursing agent; acting as service agent in connection with dividend and distribution functions; and, if applicable for performing shareholder account and administrative agent functions in connection with the Shares of each Fund, as more fully described in the written schedule of Duties of Transfer Agent in Exhibit 2 of the Side Agreement, and in accordance with applicable laws, regulations and requirements of any governmental authority having jurisdiction over Transfer Agent with respect to the duties of Transfer Agent hereunder, and the procedures established from time to time between a Fund and Transfer Agent, provide services requested by a Fund to assist with liquidation or termination of the Fund, or provide assistance with any rights offerings to Shareholders, on terms and fees agreed upon by the parties. Transfer Agent shall perform its services as agent under each Funds dividend reinvestment plan in accordance with the plan described in the Funds reports to Shareholders.
(b) Transfer Agent shall perform its services as agent under each Funds dividend reinvestment plan in accordance with the plan described in the Funds reports to Shareholders. Trust Company shall perform all services under the Plans, as the administrator of such Plans, with the exception of payment processing for which Computershare has been appointed as agent by a Fund, and certain other services that Trust Company may subcontract to Computershare as permitted by applicable law (e.g., ministerial services).
(c) To the extent that a Fund does not have a DSPP as of the Effective Date, the Fund agrees that Trust Company may implement and administer Trust Companys DSPP on behalf of the Fund at any time during the term of this Agreement, upon providing prior written notice to the Fund. In consideration of Trust Company receiving service and transaction fees from the DSPP participants in connection with its administration of the DSPP, Transfer Agent shall not charge any fees to the Fund for such administration.
(d) Transfer Agent shall act as agent for Shareholders pursuant to the Plans in accordance with the terms and conditions of such Plans. If applicable, each Fund hereby authorizes Computershare to receive all payments made to the Fund (i.e., optional cash purchases) or Transfer Agent under the Plans and make all payments required to be made under such Plans, including all payments required to be made to the Fund. For optional cash purchases, in the event funds are unavailable for any reason (including, without limitation, due to a rejection or reversal of the payment), Computershare shall sell the Shares purchased and any gain thereon shall accrue to Computershare.
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(e) Recording the issuance of Shares and maintaining pursuant to Rule 17Ad-10(e) under the 1934 Act a record of the total number of Shares of each Fund which are authorized, based upon data provided to it by the Fund, and issued and outstanding. Transfer Agent shall provide each Fund on a regular basis, at such intervals as the parties hereto shall agree from time to time, with the total number of Shares that are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. Transfer Agent will comply with all requirements applicable to a transfer agent under the 1934 Act and other state or federal securities laws, as applicable.
(f) Providing a quarterly certification in its standard form and, upon request, information, access and reports to a Fund or the Funds Chief Compliance Officer, as necessary for the Chief Compliance Officer or Fund to comply with Rule 38a-1 under the 1940 Act.
3.2 In addition to the duties set forth in Exhibit 2 of the Side Agreement Transfer Agent shall perform such other duties and functions, and shall be paid such amounts therefor, as may from time to time be agreed upon in writing between a Fund and Transfer Agent. The compensation for such other duties and functions shall be reflected in a written amendment to Exhibit 3 of the Side Agreement and the duties and functions shall be reflected in an amendment to Exhibit 2 of the Side Agreement, both dated and signed by authorized persons of the parties hereto.
3.3 In the event that any requests or demands are made for the disclosure of Confidential Information, other than requests to Transfer Agent for Shareholder records pursuant to subpoenas from state or federal government authorities (e.g., probate, divorce and criminal actions), the party receiving such request will promptly notify the other party to secure instructions from an authorized officer of such party as to such request and to enable the other party the opportunity to obtain a protective order or other confidential treatment, unless such notification is otherwise prohibited by law or court order. Each party expressly reserves the right, however, to disclose Confidential Information to any person whenever it is advised by counsel that it may be held liable for the failure to disclose such Confidential Information or if required by law or court order.
3.4 If the parties mutually agree, they will negotiate in good faith certain service level standards that, once agreed upon, may be incorporated into this Agreement subsequent to the effective date of the Agreement.
3.5 Transfer Agent shall make available to each Fund and its Shareholders, through www.computershare.com (Web Site), online access to certain Account and Shareholder information and certain transaction capabilities (Internet Services), subject to Transfer Agents security procedures and the terms and conditions set forth herein and on the Web Site. Transfer Agent provides Internet Services as is, on an as available basis, and hereby specifically disclaims any and all representations or warranties, express or implied, regarding such Internet Services, including any implied warranty of merchantability or fitness for a particular purpose and implied warranties arising from course of dealing or course of performance.
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3.6 Fund agrees that the databases, programs, screen and report formats, interactive design techniques, Internet Services, software (including methods or concepts used therein, source code, object code, or related technical information) and documentation manuals furnished to a Fund by Transfer Agent as part of the Services are under the control and ownership of Transfer Agent or a third party (including its affiliates) and constitute copyrighted, trade secret, or other proprietary information (collectively, Proprietary Information). In no event shall Proprietary Information be deemed Shareholder Data. Each Fund agrees that Proprietary Information is of substantial value to Transfer Agent or other third party and will treat all Proprietary Information as confidential in accordance with Article 17 of this Agreement. Each Fund shall take reasonable efforts to advise its relevant employees and agents of its obligations pursuant to this Section 3.6.
3.7 Transfer Agent may provide real-time or delayed quotations and other market information and messages (Market Data), which Market Data is provided to Transfer Agent by certain third parties who may assert a proprietary interest in Market Data disseminated by them but do not guarantee the timeliness, sequence, accuracy or completeness thereof. Each Fund agrees and acknowledges that Transfer Agent shall not be liable in any way for any loss or damage arising from or occasioned by any inaccuracy, error, delay in, omission of, or interruption in any Market Data or the transmission thereof.
3.8 Lost Shareholders; In-Depth Shareholder Search.
(a) | Transfer Agent shall conduct such database searches to locate lost Shareholders as are required by Rule 17Ad-17 under the Securities Exchange Act of 1934, as amended (1934 Act), without charge to the Shareholder. If a new address is so obtained in a database search for a lost Shareholder, Transfer Agent shall conduct a verification mailing and update its records for such Shareholder accordingly. |
(b) | Computershare may facilitate the performance of a more in-depth search for the purpose of (i) locating lost Shareholders for whom a new address is not obtained in accordance with clause (a) above, (ii) identifying Shareholders who are deceased (or locating the deceased Shareholders estate representative, heirs or other party entitled to act with respect to such Shareholders account (Authorized Representative)), and (iii) locating Shareholders whose accounts contain an uncashed check older than 180 days, in each case using the services of a locating service provider selected by Computershare, which service provider may be an affiliate of Computershare. Such provider may compensate Computershare for processing and other services that Computershare provides in connection with such in-depth search, including providing Computershare a portion of its service fees. |
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(c) | Upon locating any Shareholder (or such Shareholders Authorized Representative) pursuant to clause (b) above, the locating service provider shall clearly identify to such Shareholder (or such Shareholders Authorized Representative) all assets held in such Shareholders account. Such provider shall inform any such located Shareholders (or such Shareholders Authorized Representative) that such Shareholder (or such Shareholders Authorized Representative) may choose either (i) to contact Transfer Agent directly to obtain the assets in such account, at no charge other than any applicable fees to replace lost certificates, if applicable, or (ii) to use the services of such provider for a processing fee, which may not exceed 20% of the asset value of such Shareholders property where the registered Shareholder is living, deceased, or not a natural person; provided that in no case shall such fee exceed the maximum statutory fee permitted by the applicable state jurisdiction. If a Fund selects a locating service provider other than one selected by Computershare, then Transfer Agent shall not be responsible for the terms of any agreement between such provider and the Fund and additional fees may apply. |
(d) | Pursuant to Section 6.2 of this Agreement, each Fund hereby authorizes and instructs Transfer Agent to provide a Shareholder file or list of those Shareholders not located following the required Rule 17Ad-17 searches to any service provider administering any in-depth shareholder location program on behalf of Transfer Agent or a Fund. Each Fund hereby authorizes Computershare to stop payment of checks issued in payment of sales proceeds and of dividends, if applicable, but not presented for payment, when the payees thereof allege either that they have not received the checks or that such checks have been mislaid, lost, stolen, destroyed or, through no fault of theirs, are otherwise beyond their control and cannot be produced by them for presentation and collection, and Computershare shall issue and deliver duplicate checks in replacement thereof, and each Fund shall indemnify Transfer Agent against any loss or damage resulting from reissuance of the checks. |
Article 4 | Delegation of Responsibilities |
4.1 With respect to any Fund, Transfer Agent may without the consent of the Funds delegate some or all of its duties under this Agreement to the subcontractors listed on Exhibit 4 of the Side Agreement, and to any new or existing subcontractor except with respect to the functions set forth in Section 4.2. Transfer Agent shall provide the Funds with written notice in the form of a quarterly report of any new subcontractor with access to Shareholder Data and a description of the services to be provided by each such subcontractor. Transfer Agent shall be as fully responsible to the applicable Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions.
4.2 Transfer Agent may delegate any transfer agent functions set forth in Section 3(a)(25) of the Securities Exchange Act of 1934 with the consent of the applicable Funds, which shall not be unreasonably withheld, to other parties that after reasonable inquiry Transfer Agent deems to be competent to assume such duties. In the event of any such delegation, Transfer Agent shall enter into a written agreement with the delegate in which the delegate will, among other things:
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(a) agree to provide the services delegated consistent with the terms of this Agreement, a written schedule of performance standards developed by Transfer Agent as deemed necessary to comply with the terms of this Agreement, and applicable laws, regulations and requirements of any governmental authority having jurisdiction over the provision of such services; and
(b) represent and warrant that it is duly registered as may be required under all federal and state securities laws to perform the services delegated.
In any such circumstance, Transfer Agent will be responsible for the services of the delegates, as if Transfer Agent were performing the services itself.
4.3 Nothing herein shall impose any duty upon Transfer Agent in connection with or make Transfer Agent liable for the actions or omissions to act of unaffiliated third parties other than delegates referenced in Section 4.2 and subcontractors referenced in Sections 4.1 of this Agreement such as, by way of example and not limitation, airborne services, delivery services, the U.S. mails, and telecommunication companies, provided, if Transfer Agent selected such company, Transfer Agent exercised due care in selecting the same.
Article 5 | Recordkeeping and Other Information |
5.1 Transfer Agent may adopt as part of its records all Shareholder lists, Share ledgers, records, books, and documents which have been employed by a Fund or any of its agents and which are certified to be true, authentic and complete. Transfer Agent shall keep records as set forth in Exhibit 2 of the Side Agreement, in a form and manner it deems advisable, but in any event in accordance with all applicable laws, rules and regulations, and consistent with the reasonable standards of the transfer agency industry. Transfer Agent agrees that all records prepared or maintained by it relating to the services provided under this Agreement, including records held in electronic storage, are the property of the applicable Fund and will be preserved, maintained and made available in accordance with the requirements of law and Transfer Agents records management policy, and will be surrendered promptly to the applicable Fund in accordance with its request subject to applicable law and Transfer Agents records management policy. The Transfer Agent will employ commercially reasonable security measures (including, but not limited to, virus protection safeguards, password protection and encryption minimum AES 256 standard at rest and in transit) reasonably acceptable to the Funds.
5.2 Transfer Agent agrees that all records prepared or maintained by Transfer Agent pertaining to the Services provided to a Fund hereunder are the property of the Fund and will be preserved, maintained and made available in accordance with Articles 5 and 15, and will be
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surrendered promptly to the Fund on and in accordance with the Funds request subject to applicable law and Transfer Agents records management policy. Transfer Agent will provide the Fund, at least annually, with the most recent SSAE16 or equivalent controls report in support of the services provided hereunder prepared by an independent third-party, and will provide executive summaries of the results of the most recent penetration and ethical hack testing conducted by a qualified independent third party on behalf of the Transfer Agent. The Transfer Agent shall cooperate with the Funds on any reasonable ongoing due diligence request, including, but not limited to, completion of Legg Masons Service Provider Security and Global Business Continuity questionnaires. Transfer Agent shall, upon 30 days written notice and no more frequently than once per year and at mutually agreed dates and times, allow a Fund, its auditors and/or its regulators, to inspect, examine, and audit (each, an Audit) Transfer Agents operations, procedures and business records that are relevant to the Services provided hereunder by Transfer Agent (collectively, Records) solely to determine Transfer Agents compliance with this Agreement and only to the extent that such Records were not included within the scope of the SSAE 16, AT 101, or equivalent audit conducted for Transfer Agent within the previous calendar year. Notwithstanding the foregoing, Transfer Agent may, in its sole discretion, prohibit the Fund from entering certain areas of its facilities for security reasons, in which case Transfer Agent will provide a Fund with alternative access to the Records, information or personnel in such restricted area, to the extent reasonably possible. Audits shall not include penetration testing. Further, the Fund agrees that any Audit includes the right of the Fund to inspect Records on site at Transfer Agents office, but not the right to copy Records, except for Fund records or Shareholder Data. The Fund will provide Transfer Agent with a written Scope of Work including a mutually agreed level of detail, at least 10 business days in advance of commencement of an Audit. Transfer Agent shall cooperate reasonably and in good faith with the Funds internal or external auditors to ensure a prompt and accurate Audit. In addition, Transfer Agent shall address within a reasonable time period and in the manner determined by Transfer Agent any practices found to be non-compliant with this Agreement after receipt of the Funds Audit report. The Fund acknowledges that Transfer Agent may require any such auditors and/or regulators of the Fund to agree to written confidentiality provisions relating to Transfer Agents proprietary and confidential information that such auditors and/or regulators may have access to during any such Audit. The Fund agrees to compensate Transfer Agent for all out of pocket expenses incurred in connection with any Audit, and also agrees to compensate Transfer Agent in accordance with the Transfer Agent fee schedule in effect at the time such Audit, for the time of each Transfer Agent employee required to assist such Audit; provided, however, that in no event shall the Fund be charged for the time incurred by Transfer Agents Relationship Management employees required to assist such Audit. Such fees must be pre-approved by Fund. For the avoidance of doubt, a Funds reasonable request to review a sampling of Fund records in connection with any routine diligence will not constitute an Audit.
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Article 6 | Fund Instructions |
6.1 Transfer Agent will not be liable for its acting upon Written or Oral Instructions reasonably believed to have been delivered by an Authorized Person in accordance with the terms of this Agreement and the standard of care provided in Article 10, and Transfer Agent will not be held to have any notice of any change of authority of any person, including any Authorized Person, until receipt of a Written Instruction thereof from a Fund. Transfer Agent will maintain written procedures reasonably designed to promptly respond to changes in the identities of Authorized Persons.
6.2 At any time, Transfer Agent may request Written Instructions from a Fund with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions. Written Instructions requested by Transfer Agent will be provided by a Fund within a reasonable period of time. At any time, Transfer Agent may seek advice from legal counsel for the Fund, or its own legal counsel, with respect to any question of law arising in the course of Transfer Agent performing its duties in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with the opinion of counsel for a Fund or for Transfer Agent, provided that Transfer Agent at its own expense communicates to a Fund such opinion of counsel to Transfer Agent prior to taking the action in question.
6.3 Transfer Agent, its officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them by any person representing or acting on behalf of a Fund only if said representative is an Authorized Person.
Article 7 | Compensation |
7.1 Each Fund will compensate Transfer Agent or cause Transfer Agent to be compensated for the performance of its obligations hereunder (including for providing support services after a Funds termination, liquidation, reorganization or merger if requested) in accordance with the fees set forth in the written schedule of fees in Exhibit 3 of the Side Agreement. Transfer Agent will transmit an invoice to a Fund as soon as practicable after the end of each calendar month which will be detailed in accordance with Exhibit 3 of the Side Agreement, and the Fund will pay to Transfer Agent the amount of such invoice within thirty (30) days after the Funds receipt of the invoice, except for any fees or expenses that are subject to a good faith dispute. In the event of such a dispute, a Fund may only withhold that portion of the fee or expense subject to the good faith dispute. A Fund shall notify Transfer Agent in writing within thirty (30) days following the receipt of each invoice if the Fund is intends to dispute any amounts in good faith.
7.2 In addition, each Fund agrees to pay, and will be billed separately for, reasonable out-of-pocket expenses incurred by Transfer Agent in the performance of its duties hereunder. Out-of-pocket expenses shall be the items specified in the written schedule of out-of-pocket charges in Exhibit 3 of the Side Agreement, and such other items to which the parties may agree from time to time. Exhibit 3 of the Side Agreement may be modified only by written agreement between the parties. Unspecified out-of-pocket expenses shall be limited to those unexpected
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and non-routine out-of-pocket expenses reasonably incurred by Transfer Agent in the performance of its obligations hereunder. Out-of-pocket rates may change from time to time based upon charges received from Transfer Agents vendors, at Transfer Agents sole discretion, including any postal rate increases.
7.3 Any compensation agreed to hereunder may be adjusted from time to time by attaching to Exhibit 3 of the Side Agreement a revised fee schedule executed and dated by the parties hereto.
7.4 All funds received by Computershare under this Agreement that are to be distributed or applied by Computershare in the performance of Services (the Monies) shall be held by Computershare as agent for the Fund and deposited in one or more bank accounts to be maintained by Computershare in its name as agent for the Fund. Until paid pursuant to this Agreement, Computershare may hold or invest the Monies through such accounts in: (i) obligations of, or guaranteed by, the United States of America, (ii) commercial paper obligations rated A-1 or P-1 or better by Standard & Poors Corporation (S&P) or Moodys Investors Service, Inc. (Moodys), respectively, (iii) AAA rated money market funds with a Fixed NAV that comply with Rule 2a-7 of the Investment Company Act of 1940, or (iv) bank deposit accounts of commercial banks with Tier 1 capital exceeding $1 billion or with an average rating above investment grade by S&P (LT Local Issuer Credit Rating), Moodys (Long Term Rating) and Fitch Ratings, Inc. (LT Issuer Default Rating) (each as reported by Bloomberg Finance L.P.). The Funds shall have no responsibility or liability for any diminution of the Monies that may result from any deposit or investment made by Computershare in accordance with this paragraph, except for any losses resulting from a default by any bank, financial institution or other third party. Computershare may from time to time receive interest, dividends or other earnings in connection with such deposits or investments. Computershare shall not be obligated to pay such interest, dividends or earnings to the Fund, any Shareholder or any other party.
Article 8 | Representations and Warranties |
8.1 Each Fund represents and warrants to Transfer Agent that:
(a) it is duly organized, existing and in good standing under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles of Incorporation and/or By-laws to enter into this Agreement;
(c) all corporate proceedings required by said Articles of Incorporation, By-laws and applicable laws have been taken to authorize it to enter into this Agreement; and
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(d) a registration statement under the 1933 Act and the 1940 Act on behalf of the Fund, with respect to all Funds subject to this Agreement that are to be sold in transactions requiring such registration, is currently effective and will remain effective, and all appropriate state securities law filings have been made with respect to all Shares being offered for sale except for any Shares which are offered in a transaction or series of transactions which are exempt from the registration requirements of the 1933 Act, 1934 Act and state securities laws..
(e) The Shares issued and outstanding on the date hereof have been duly authorized, validly issued and are fully paid and are non-assessable; and any Shares to be issued hereafter, when issued, shall have been duly authorized, validly issued and fully paid and will be non-assessable.
(f) The use of facsimile signatures by Transfer Agent in connection with the countersigning and registering of Share certificates has been duly authorized by Fund and is valid and effective.
8.2 Transfer Agent makes the representations and warranties below, which are and shall remain true and correct throughout the term of the Agreement:
(a) Trust Company is a federally chartered trust company duly organized, validly existing, and in good standing under the laws of the United States and Computershare is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and each has full power, authority and legal right to execute, deliver and perform this Agreement.
(b) it is qualified to carry on its business in jurisdictions in which it is present;
(c) it is empowered under applicable laws and by its Articles of Incorporation and By-laws to enter into and perform this Agreement;
(d) all corporate proceedings required by said Articles of Incorporation, By-laws and applicable laws have been taken to authorize it to enter into and perform this Agreement, which constitutes the legal, valid and binding obligation of Transfer Agent enforceable against Transfer Agent in accordance with its terms;
(e) it is a transfer agent fully registered as a transfer agent pursuant to Section 17A(c)(2) of the 1934 Act, and such registration will remain in effect for the duration of this Agreement and Transfer Agent will promptly notify the Funds in the event of any change in its status as a registered transfer agent;
(f) it is in compliance with all federal and state laws, rules and regulations applicable to its transfer agency business and the performance of its duties, obligations and services under this Agreement;
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(g) the various procedures and systems which it has implemented with regard to safeguarding from loss or damage attributable to fire, theft, data/security breaches or any other cause, each Funds records and other data and Transfer Agents records, data equipment facilities and other property used in the performance of its obligations hereunder are consistent with industry standards applicable to serving as a transfer agent and that Transfer Agent will make such changes therein from time to time as it may deem reasonably necessary to make this representation and warranty true throughout the term of this Agreement and any extensions thereof;
(h) it will provide to a Fund, upon request, its certification by a senior officer relating to the adequacy of its internal controls for handling of the Funds information and it will engage a certified public accounting firm to conduct a SSAE 16, AT 101, or equivalent audit of the control environment and activities of Transfer Agent and prepare a report on an annual basis. Transfer Agent shall make available to the Funds a copy of each such report prepared in connection with each such audit, within a reasonable amount of time after receipt; and
(i) it has access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.
8.3 If any out-of-proof condition caused by Fund or any of its prior agents arises during any term of this Agreement, Fund will, promptly upon Transfer Agents request, provide Transfer Agent with funds or shares sufficient to resolve the out-of-proof condition.
Article 9 | Indemnification |
9.1 Transfer Agent shall not be responsible for, and the relevant Fund shall indemnify and hold Transfer Agent harmless from and against, any and all losses, damages, reasonable costs, charges, reasonable counsel fees, payments, reasonable expenses and liability (collectively referred to as Losses) arising out of or attributable to:
(a) All actions of Transfer Agent or its agents or delegates required to be taken pursuant to this Agreement with respect to such Fund, provided that such actions are taken in good faith and without negligence, bad faith, willful misconduct or reckless disregard of its duties or their own duties hereunder and are not violations of applicable law or regulation pertaining to the manner transfer agency services are performed and not otherwise a breach of this Agreement (including the standard of care provided in Article 10);
(b) The reasonable reliance by Transfer Agent or its agents or delegates upon, and any subsequent use of or action taken or omitted by Transfer Agent or its agents or delegates pursuant to: (i) any Written Instructions of any Authorized Person; or (ii) any paper or document, reasonably believed, in conformity with security procedures established by Transfer Agent from time to time, to be genuine, authentic and signed by an Authorized Person; unless, in each case, such Losses are due to its failure to perform in accordance with its procedures, or its negligence, bad faith, willful misconduct or reckless disregard, violations of applicable law or regulation pertaining to the manner transfer agency services are performed or otherwise a breach of this Agreement (including the standard of care provided in Article 10); or
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(c) The offer or sale of Shares in violation of federal or state securities laws or regulations requiring that such Shares be registered or in violation of any stop order or other determination or ruling by any federal or any state agency with respect to the offer or sale of such Shares.
9.2 A Fund shall not be responsible for, and Transfer Agent shall indemnify and hold each Fund, and its affiliates, Board Members, officers, employees, successors, permitted assigns, agents and representatives (the Fund Indemnitees), harmless from and against any and all Losses arising out of or attributable to all actions of Transfer Agent or its agents taken outside of the scope of this Agreement or caused by Transfer Agents negligence, bad faith, willful misconduct, its breach of Article 17 of this Agreement or reckless disregard of its duties hereunder, or violations of applicable laws or regulations pertaining to the manner in which transfer agency services are performed or otherwise are a breach of this Agreement. Any liability of the Transfer Agent shall be limited as set forth in Exhibit 1 of the Side Agreement.
9.3 In any case in which a party hereto (the Indemnifying Party) may be asked to indemnify or hold the other party (the Indemnified Party) harmless, the Indemnifying Party shall be promptly advised of all pertinent facts concerning the situation in question. The Indemnified Party will notify the Indemnifying Party promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Indemnifying Party although the failure to do so shall not prevent recovery by the Indemnified Party, except to the extent that the Indemnifying Party shall have been prejudiced by such failure. The Indemnified Party shall keep the Indemnifying Party advised with respect to all such developments concerning any claim, demand, action or suit or other proceeding (a Claim), which may be the subject of this indemnification. The Indemnifying Party shall have the option to participate with the Indemnified Party in defending against any Claim which may be the subject of this indemnification, and, in the event that the Indemnifying Party so elects, such defense shall be conducted by counsel chosen by the Indemnifying Party and reasonably satisfactory to the Indemnified Party, and thereupon the Indemnifying Party shall take over complete defense of the Claim and the Indemnified Party shall sustain no further legal or other expenses in respect of such Claim. The Indemnified Party will not confess any Claim or make any compromise in any case in which the Indemnifying Party will be asked to provide indemnification, except with the Indemnifying Partys prior written consent. The parties shall cooperate with each other in defense of any Claim. In no event will either party be liable for any settlement of any action or Claim effected without its prior written consent. The obligations of the parties hereto under this Article 9 shall survive the termination of this Agreement.
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9.4 Except for remedies that cannot be waived as a matter of law (and injunctive or provisional relief), the provisions of this Article 9 shall be a partys sole and exclusive remedy for Claims or other actions or proceedings to which the other partys indemnification obligations pursuant to this Article 9 may apply.
9.5 The Board Members of a Fund, its officers and Shareholders shall not be liable for any obligations of the Fund under this Agreement, and Transfer Agent agrees that in asserting any rights or claims under this Agreement against a Fund, it shall look only to the assets and property of the Fund in settlement of such rights or Claims and not to such members of the Board, its officers or Shareholders, or any other Fund.
9.6 Transfer Agent agrees to provide each Fund with certificates of its insurance coverage for errors and omissions insurance, fidelity bonds or crime insurance, electronic data processing coverages and any other insurance coverage related to Transfer Agents services to the Funds, and agrees to provide updated certificates annually or as requested by the Fund.
Article 10 | Standard of Care |
10.1 Transfer Agent shall provide its services as transfer agent in accordance with the applicable provisions of Section 17A under the 1934 Act. In performing the responsibilities delegated to it under this Agreement, Transfer Agent shall at all times act in good faith and agrees to exercise reasonable care, diligence and expertise of a transfer agent having responsibility for providing transfer agent services, but shall not be liable for any damages arising out of Transfer Agents performance of or failure to perform its duties under this Agreement, except to the extent set forth in Section 9.2 of this Agreement and subject to Exhibit 1 of the Side Agreement.
Article 11 | Consequential Damages |
11.1 Notwithstanding anything in this Agreement to the contrary, neither Transfer Agent nor a Fund shall be liable to the other party for any consequential, special or indirect losses or damages which the party may incur or suffer by or as a consequence of the other partys performance of the services provided hereunder.
Article 12 | Insurance |
12.1 Transfer Agent shall maintain insurance coverage including, without limitation, errors and omissions, fidelity bond or equivalent crime insurance and electronic data processing coverages at levels of coverage consistent with those customarily maintained by other high quality transfer agents for registered investment companies. Upon the request of a Fund, Transfer Agent shall provide evidence that such coverage is in place. Transfer Agent shall promptly notify the Funds in the event that such coverage is materially reduced or cancelled. To the extent that policies of insurance may provide for coverage of claims for liability or indemnity by the parties set forth in this Agreement, the contracts of insurance shall take precedence, and to the extent permitted by Transfer Agents respective policies no provision of this Agreement shall be construed to relieve an insurer of any obligation to pay claims to the Fund, Transfer Agent or other insured party which would otherwise be a covered claim in the absence of any provision of this Agreement.
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Article 13 | Security |
13.1 Transfer Agent represents, warrants and agrees that it shall itself implement and, as required, enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable procedures and systems with regard to the safeguarding from loss or damage attributable to fire, theft or any other cause (including provision for twenty-four hours a day restricted access) of Confidential Information and each Funds records and other data and Transfer Agents records, data equipment facilities and other property used in the performance of its obligations hereunder, that are consistent with industry standards applicable to entities, including those serving as a transfer agent, that hold personally identifiable information, as defined by the National Institute of Standards and Technology and, provided further, that Transfer Agent will make such changes therein from time to time as it may deem reasonably necessary for the secure performance of its obligations hereunder, and that Transfer Agents equipment, facilities and other property used in the performance of its obligations hereunder are and shall be reasonable and comply with all applicable laws, rules, regulations and governmental standards, and it will make such changes therein from time to time as in its reasonable judgment, are required for the secure performance of its obligations hereunder, or as agreed upon by the parties. Transfer Agent agrees to review and consider the implementation of any written safeguarding policy concerning the security, confidentiality and privacy of a Funds blank checks, records and other data, which policy may be changed from time to time. Transfer Agent shall review such systems and procedures on a periodic basis (no less than annually). In no event shall Transfer Agents systems and procedures described in this Article 13.1 be less protective than those systems and procedures provided by Transfer Agent to other registered investment companies.
13.2 In the event of a breach of Confidential Information arising out of Transfer Agents negligence or willful misconduct, Transfer Agent will provide notices to and offer credit monitoring or other similar services for a one-year period to Fund Shareholders, subject to the limitation of liability in Exhibit 1 of the Side Agreement. Transfer Agent agrees that a breach of this Article 13.2 would irreparably damage each Fund and accordingly agrees that each Fund is entitled, without bond or other security, to an injunction or injunctions to prevent or halt breaches of this Article 13.2. The provisions of this Article 13.2 shall survive termination of this Agreement.
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13.3 Unauthorized Disclosure. As may be required by law and without limiting any partys rights in respect of a breach of this Section 13, each party will promptly:
(a) | notify the other party in writing of any unauthorized possession, use or disclosure of the other partys Confidential Information by any person or entity that may become known to such party; |
(b) | furnish to the other party full details of the unauthorized possession, use or disclosure; and |
(c) | use commercially reasonable efforts to prevent a recurrence of any such unauthorized possession, use or disclosure of Confidential Information. |
13.4 Costs. Each party will bear the costs it incurs as a result of compliance with this Article 13.
Article 14 | Disaster Recovery |
14.1 Transfer Agent shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provisions for periodic backup of computer files and data with respect to a Fund and emergency use of electronic data processing equipment. In the event of equipment failures, Transfer Agent shall, at no additional expense to a Fund, take reasonable steps to minimize service interruptions caused by equipment failure.
14.2 Transfer Agent shall: (i) maintain a comprehensive business recovery plan that: (A) is not less protective than the plan overview provided to a Fund by Transfer Agent as part of the Funds periodic review of its service providers; and (B) provides for sufficient recovery of its back office and administrative operations to enable Transfer Agent, within 24 hours or such other period as may be agreed upon in writing between the parties after any event necessitating the use of such plan to fulfill its obligations under this Agreement, and (ii) test such business recovery plan no less frequently than annually and upon request, the Fund may test its ability to access Issuer Online or similar issuer portal to Transfer Agents recordkeeping system during the disaster recovery test. Transfer Agent, upon request, will provide Fund a copy of its annual disaster recovery attestation letter. Transfer Agent shall maintain, at a location other than its normal location, appropriate redundant facilities for operational back-up in the event of a power failure, disaster or other interruption. Transfer Agent shall back-up each Funds records maintained by Transfer Agent, and shall store the backup in a secure manner at a location other than its normal location, so that, in the event of a power failure, disaster or other interruption at such normal location, the records will be maintained intact and will enable Transfer Agent to perform the Services under this Agreement. In the event of a business disruption that materially impacts Transfer Agents provision of Services under this Agreement, Transfer Agent will promptly notify the Funds of the disruption and the steps being implemented under the business continuity plan.
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Article 15 | The U.S. Foreign Account Tax Compliance Act |
15.1 Transfer Agent shall collect from all shareholders registered on the books of each Fund (each a Customer, and, collectively, the Customers), valid documentation sufficient to establish the US-status or non-US status, as the case may be, of each such Customer, for purposes of FATCA including by requiring Customers to provide Transfer Agent with an executed IRS Form W-8BEN, Form W-8BEN-E or other applicable IRS Form W-8 (or any successor thereto) and/or an IRS Form W-9 (or any successor thereto). All such documentation is hereinafter referred to as the Customer Information. Transfer Agent shall resolve to the reasonable satisfaction of a Fund any discrepancies in any Customer Information.
15.2 Transfer Agent shall monitor Customers and Customer Information for any changes with respect to a Customers US or non-US status in accordance with IRS FATCA regulations.
15.3 Transfer Agent shall comply with all applicable provisions of FATCA to the extent it is US Withholding Agent as that term is defined under FATCA, and shall take such actions as are necessary to ensure that (i) it is not and does not become subject to any withholding under FATCA on any payments made to it pursuant to this Agreement and (ii) the Funds do not become subject to any withholding under FATCA solely as a result of this Agreement or the provision of services by the Transfer Agent hereunder.
Article 16 | Term and Termination |
16.1 This Agreement shall be effective on the date first written above and shall continue for a period of 4 years from the date first stated above (the Initial Term) unless terminated pursuant to the provisions of this Article 16 or, with respect to any individual Fund, until the earlier liquidation and/or merger of such Fund, as applicable. This Agreement will renew automatically from year to year (each a Renewal Term), unless a terminating party gives; written notice at least 90 days prior to termination of the then-current Initial Term or Renewal Term. This Agreement may be terminated by Transfer Agent or the Funds upon written notice to the other party of a material breach of this Agreement that is not cured within thirty (30) days after receipt of such notice (provided a material breach by Transfer Agent could be as a result of persistent non-material breaches or persistent failure to meet the key performance indicators pursuant to Article 31, which taken together amount to a material breach), in which case the termination shall be effective as soon as practicable or such later date as may be specified in the breach termination notice. A material breach includes (i) the loss or suspension of the Transfer Agents registration as a transfer agent pursuant to Section 17(a)(c)2 of the 1934 Act, or any other license or registration necessary for the Transfer Agent to perform its duties under this Agreement and (2) the insolvency or bankruptcy of either party or the appointment of a receiver for a party. In all cases, termination by the non-breaching party shall not constitute a waiver by the non-breaching party of any other rights it might have under this Agreement or otherwise against the defaulting party. For purposes of this Agreement, the merger, reorganization or liquidation of a Fund shall not be deemed a termination of the Agreement with respect to any other Fund. Fees with respect to such Fund shall cease on the date of such merger, reorganization or liquidation.
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16.2 In the event a termination notice is given by a Fund (other than in connection with the liquidation, reorganization or merger of the Fund), the Fund shall provide to Transfer Agent a resolution of the Board of Directors, certified by the Secretary of the Fund, designating a successor transfer agent or transfer agents. Until such a successor transfer agent or transfer agents are designated, this Agreement will remain in effect unless Transfer Agent is notified otherwise by the applicable Fund.
16.3 Upon any notice of termination of services hereunder (whether as to only certain Funds or as to some or all of the non-core transfer agency services under this Agreement), Transfer Agent shall commence taking commercially reasonable steps, without additional compensation (except as provided below), to transfer the books and records and any other property of the applicable Fund held hereunder to a successor transfer agent, in a mutually agreed upon format, and to provide reasonable assistance and cooperation in connection with the transition, provided however, that such reasonable assistance and cooperation shall be limited to a period of one hundred and eighty (180) days from the date of termination of this Agreement (or such longer period to which Transfer Agent and a Fund may agree, including any period of post-termination services for the Fund), under the terms that the parties may agree upon. Upon termination or expiration of this Agreement for any reason, (a) all fees earned and expenses incurred by Transfer Agent up to and including the date of such termination or expiration shall be immediately due and payable to Agent on or before the effective date of such termination or expiration, (b) any applicable Fund shall pay (i) all reasonable out-of-pocket costs as contemplated by Article 7.2 and (ii) a conversion fee in an amount equal to 10% of the aggregate fees (not including reimbursable expenses) incurred by Funds during the immediately preceding twelve (12) month period, for standard conversion services.
16.4 A Fund will not be responsible for any fees, other than as set forth in Section 16.3, to Transfer Agent after the date of the Funds termination, liquidation, reorganization or merger unless the Fund requests Transfer Agent to provide support services after such action and Transfer Agent agrees to provide such services.
Article 17 | Confidentiality/Privacy |
17.1 Each party shall keep the Confidential Information (as defined in subsection (a) below) of the other party in confidence and will not use or disclose or allow access to or use of such Confidential Information except as further set forth herein or as otherwise expressly agreed in writing. Each party acknowledges that the Confidential Information of the disclosing party will remain the sole property of such party. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, without bond or other security, to an injunction or injunctions to prevent or halt breaches of this provision. Notwithstanding the foregoing, or anything in this Agreement to the contrary, each Fund is hereby authorized to identify Transfer Agent in its reports to Shareholders, registration statement filed with the Securities and Exchange Commission under the 1933 Act and the 1940 Act, and to file this Agreement as an exhibit to such registration statement.
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(a) Confidential Information means (i) any and all technical or business information relating to a party, including, without limitation, financial, marketing and product development information and Proprietary Information, (ii) non-public personal information of a Funds Shareholders, including Customer Information, (iii) the terms and conditions (but not the existence) of this Agreement, including all compensation agreements, arrangements and understandings (including waivers) respecting this Agreement, disputes pertaining to this Agreement, (iv) information related to security, disaster recovery, business continuity and any other operational plans, procedures, practices and protocols, and (v) anything designated as confidential, that is disclosed or otherwise becomes known to the other party or its affiliates, agents or representatives before or during the term of this Agreement.
(b) Information or data that would otherwise constitute Confidential Information under subsection (a) above shall not constitute Confidential Information to the extent it: (i) is already known to the receiving party without a duty of confidentiality at the time it is obtained; (ii) is or becomes publicly known or available through no wrongful act of the receiving party; (iii) is rightfully received from a third party who, to the receiving partys knowledge, is not under a duty of confidentiality; (iv) is released by the protected party to a third party without restriction; or (v) has been or is independently developed or obtained by the receiving party without reference to the Confidential Information provided by the protected party.
(c) To the extent that a party hereto discloses the Confidential Information of another party hereto in accordance with Article 3.3, such disclosing party shall make reasonable efforts to ensure that the recipient of such Confidential Information is bound, contractually or otherwise, to confidentiality terms consistent with this Article 17.1.
(d) The provisions of this Article 17.1 shall survive termination of this Agreement.
17.2 Each party represents, warrants and agrees that it has adopted and implemented, and shall maintain written policies and procedures that are reasonably designed to prevent unauthorized access to or use of, or other compromise of Confidential Information, and address administrative, technical and physical safeguards, including encryption where required or appropriate, for the protection of Confidential Information in compliance with Regulation S-P promulgated under the Gramm-Leach-Bliley Act of 1999 (Regulation S-P), to the extent applicable, and all other applicable laws, rules, regulations, and governmental standards. Each party represents, warrants and agrees that it will use Confidential Information only in compliance with all of the following: (i) the provisions of this Agreement, including without limitation Article 17; (ii) its own privacy policy, as amended and updated from time to time; and (iii) privacy laws and regulations applicable to it, including the Gramm-Leach-Bliley Act of 1999.
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When each party disposes of Confidential Information, it shall properly dispose of Confidential Information, including, without limitation, any electronic or physical copies in any form subject to the terms of Section 5.1, by taking reasonable measures to protect against unauthorized access to or use of the records or information in connection with its disposal by properly destroying such records and data so that the information contained therein cannot be practicably read or reconstructed, as required by all applicable laws, rules, regulations and governmental standards. The provisions of this Article 17.2 shall survive termination of this Agreement.
Article 18 | Force Majeure |
18.1 No party shall be liable for any default or delay in the performance of its obligations under this Agreement if and to the extent such default or delay is caused, directly or indirectly, by (i) fire, flood, elements of nature or other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or civil disorders in any country; (iii) any act or omission of any governmental authority; (iv) any labor disputes beyond the reasonable control of such party; (v) terrorist acts; or (v) nonperformance by a third party or any similar cause beyond the reasonable control of such party, including without limitation, failures or fluctuations in telecommunications or other equipment; except, in each case, to the extent that the non-performing party shall have failed to use its commercially reasonable efforts to minimize the likelihood of occurrence of such circumstances or to mitigate any loss or damage to the other party caused by such circumstances, or has not complied with the terms of Article 14. In any such event, the non-performing party shall be excused from any further performance and observance of the obligations so affected only for as long as such circumstances prevail and such party continues to use commercially reasonable efforts to mitigate damages and to recommence performance or observance as soon as practicable. This Article 18 shall not in any way limit Transfer Agents obligations under Article 14.
18.2 Upon request, Transfer Agent shall provide the Funds with a summary of any business continuity plan and disaster recovery plan during the term of this Agreement.
Article 19 | Assignment |
19.1 This Agreement may not be assigned or otherwise transferred by either party, without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however, that Transfer Agent may, upon 90 days notice to the Fund, in its sole discretion, assign all its right, title and interest in this Agreement to an affiliate, parent or subsidiary of Transfer Agent who meets all qualifications required of Transfer Agent under this Agreement and is qualified to act as such under the 1934 Act. In any event, the assignment or transfer of this Agreement shall not relieve Transfer Agent of any of its duties or obligations under this Agreement.
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Article 20 | Notices |
20.1 Any notice or other instrument authorized or required by this Agreement to be given in writing to a Fund or Transfer Agent, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing.
To the Funds:
Legg Mason Funds
100 First Stamford Place - 7th Floor
Stamford, Connecticut 06902
Attn: Robert I. Frenkel, Secretary
Fax: (203) 703-6248
For a data or cybersecurity breach:
E-mail: Cybersecurity@leggmason.com
To Transfer Agent:
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
Attn: General Counsel
Article 21 | Governing Law/Venue |
21.1 The laws of the State of New York, shall govern the interpretation, validity, and enforcement of this agreement, without regard to the laws on conflicts of laws.
21.2 Any action arising out of or relating to this Agreement shall be brought only in the Chosen Court. The Chosen Court shall be the United States District Court for the Southern District of New York (SDNY), unless such action cannot be brought in SDNY, in which case the Chosen Court shall be the appropriate New York State court located in New York (Manhattan), New York. Each Fund and Transfer Agent (a) waive any objection to the jurisdiction of the Chosen Court; (b) waive any objection to venue in the Chosen Court; and (c) waive any objection that the Chosen Court is an inconvenient forum.
Article 22 | Counterparts |
22.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument. A signature to this Agreement executed and/or transmitted electronically shall have the same authority, effect, and enforceability as an original signature.
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Article 23 | Captions |
23.1 The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
Article 24 | Survival |
24.1 All provisions regarding indemnification, warranty, liability and limits thereon, compensation and expenses and confidentiality and protection of proprietary rights and trade secrets shall survive the termination and expiration of this Agreement.
Article 25 | Priorities |
25.1 In the event of any conflict, discrepancy, or ambiguity between the terms and conditions contained in this Agreement and any schedules or attachments hereto, the terms and conditions contained in this Agreement shall take precedence.
Article 26 | Reserved |
Article 27 | Publicity |
27.1 Neither a Fund nor Transfer Agent shall release or publish news releases, public announcements, advertising or other publicity relating to this Agreement or to the transactions contemplated by it without the prior review and written approval of the other party; provided, however, that either party may make such disclosures as are required by legal, accounting or regulatory requirements after making reasonable efforts under the circumstances to notify the other party in advance.
Article 28 | Relationship of Parties |
28.1 The parties agree that they are independent contractors and not partners or coventurers and nothing contained herein shall be interpreted or construed otherwise.
28.2 Except as explicitly stated elsewhere in this Agreement, nothing under this Agreement shall be construed to give any rights or benefits in this Agreement to anyone other than Transfer Agent and the Funds, and the duties and responsibilities undertaken pursuant to this Agreement shall be for the sole and exclusive benefit of Transfer Agent and the Funds. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns.
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Article 29 | Entire Agreement; Severability |
29.1 This Agreement, including Schedules and Exhibits hereto and any agreed-upon procedures referenced herein, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous proposals, agreements, contracts, representations, and understandings, whether written or oral, between the parties with respect to the subject matter hereof. No change, termination, modification, or waiver of any term or condition of the Agreement shall be valid unless in writing signed by the Transfer Agent and the applicable Fund. A partys waiver of a breach of any term or condition in the Agreement shall not be deemed a waiver of any subsequent breach of the same or another term or condition.
29.2 The parties intend every provision of this Agreement to be severable. If a court of competent jurisdiction determines that any term or provision is illegal or invalid for any reason, the illegality or invalidity shall not affect the validity of the remainder of this Agreement. In such case, the parties shall in good faith modify or substitute such provision consistent with the original intent of the parties. Without limiting the generality of this Article 29.2, if a court determines that any remedy stated in this Agreement has failed of its essential purpose, then all other provisions of this Agreement, including the limitations on liability and exclusion of damages, shall remain fully effective.
Article 30 | Customer Identification Program Notice |
30.1 To help the U.S. government fight the funding of terrorism and money laundering activities, U.S. Federal law requires each financial institution to obtain, verify, and record certain information that identifies each person who initially opens an account with that financial institution. Transfer Agent and certain of Transfer Agents affiliates are financial institutions, and Transfer Agent may, as a matter of policy, request (or may have already requested) a Funds name, address and taxpayer identification number or other government-issued identification number. Transfer Agent may also ask (and may have already asked) for additional identifying information, and Transfer Agent may take steps (and may have already taken steps) to verify the authenticity and accuracy of these data elements.
Article 31 | Key Performance Indicators |
31.1 The Transfer Agent and the Funds may from time to time agree to document the manner in which they expect to deliver and receive the services contemplated by this Agreement. The parties agree that such measures (hereinafter referred to as a KPI (s)) listed in Exhibit 5 of the Side Agreement reflect performance goals and any failure to perform in accordance with the provisions thereof shall not in and of itself be considered a breach of contract that gives rise to contractual or other remedies unless such failure is persistent and not remedied after consultation. Nothing in this Article 31 shall modify any partys applicable standard of care under this Agreement, and the holding of such meeting of the parties shall not be construed to prevent a party from pursuing any remedy otherwise available to it pursuant to this Agreement.
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31.2 The parties agree to periodically review the Transfer Agents performance against the KPIs.
31.3 Where any such review reveals that one specific KPI has measured at a red or amber status for three consecutive months (Rectification Trigger) (provided there have been at least 50 transactions during each month for such KPI), the Funds may, in their sole discretion invoke the process set out in this Article 31.3:
(a) | The Transfer Agent shall investigate, assemble and preserve (in accordance with its records management policy) all pertinent information with respect to, and report the root causes of the problem that led to the Rectification Trigger and the Funds shall provide such assistance as the Transfer Agent may request; |
(b) | The Transfer Agent shall propose an appropriate written corrective action plan (Rectification Plan) with respect to such failure and in any event within ten (10) Business Days, or as otherwise reasonably agreed by the Parties. The Rectification Plan shall set out the anticipated improvements (Anticipated Improvements) and the timeline over which those improvements are expected to be realized (Plan Period), which shall be no longer than sixty (60) days (without the Funds prior written consent, not to be unreasonably withheld or delayed). The Funds shall review the Rectification Plan within five (5) Business Days and shall (without liability or any resulting obligation or deemed acceptance of approach) comment on the Rectification Plan, suggest improvements and challenge any assumptions and ideas embodied in the Rectification Plan. It is acknowledged that the Funds shall not be obligated or required to acknowledge the Rectification Plan will achieve the relevant KPIs. Upon approval of the Rectification Plan, the Transfer Agent shall, as soon as reasonably practicable, implement the Rectification Plan so as to deliver the anticipated improvements; |
(c) | The Transfer Agent shall provide the Funds with regular updates of the progress of the Rectification Plan and the parties shall periodically review the progress during the Plan Period; |
(d) | The Transfer Agent shall as soon as reasonably practicable notify the Funds in writing of any minor changes to the Rectification Plan from time to time and the reasons for those changes; and |
(e) | At the end of the Plan Period, the Transfer Agent shall report on whether the Rectification Plan has delivered the Anticipated Improvements in accordance with this Article 31.3. |
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the day and year first above written.
Each of the Investment Companies Listed On Schedule A Hereto,
Each of Which Is Acting On Its Own Behalf And
Not On Behalf Of Any Other Investment Company
By: | /s/ Jane Trust | |
Name: Jane Trust | ||
Title: President and Chief Executive Officer |
Computershare Trust Company, N.A and
Computershare Inc.
By: | /s/ Martin J. McHale, Jr. | |
Name: Martin J. McHale, Jr. | ||
Title: President, U.S. Equity Services |
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SCHEDULE A
LIST OF FUNDS AND PRINCIPAL PLACES OF BUSINESS
List of Funds
ClearBridge American Energy MLP Fund Inc.
ClearBridge Energy MLP Fund Inc.
ClearBridge Energy MLP Opportunity Fund Inc.
ClearBridge Energy MLP Total Return Fund Inc.
Legg Mason BW Global Income Opportunities Fund Inc.
LMP Capital and Income Fund Inc.
LMP Corporate Loan Fund Inc.
LMP Real Estate Income Fund Inc.
Western Asset Diversified Income Fund
Western Asset Emerging Markets Debt Fund Inc.
Western Asset Emerging Markets Income Fund Inc.
Western Asset Global Corporate Defined Opportunity Fund Inc.
Western Asset Global High Income Fund Inc.
Western Asset Global Partners Income Fund Inc.
Western Asset High Income Fund II Inc.
Western Asset High Income Opportunity Fund Inc.
Western Asset High Yield Defined Opportunity Fund Inc.
Western Asset Income Fund
Western Asset Intermediate Muni Fund Inc.
Western Asset Investment Grade Defined Opportunity Trust Inc.
Western Asset Managed High Income Fund Inc.
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Western Asset Managed Municipals Fund Inc.
Western Asset Middle Market Debt Fund Inc.
Western Asset Middle Market Income Fund Inc.
Western Asset Mortgage Defined Opportunity Fund Inc.
Western Asset Municipal Defined Opportunity Trust Inc.
Western Asset Municipal High Income Fund Inc.
Western Asset Municipal Partners Fund Inc.
Western Asset Premier Bond Fund
Western Asset Variable Rate Strategic Fund Inc.
Western Asset Worldwide Income Fund Inc.
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund
Western Asset/Claymore Inflation-Linked Securities & Income Fund
Principal Places of Business
The principal place of business for all Funds is:
620 Eighth Avenue
49th Floor
New York, NY 10018
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Exhibit (k)(2)
Amendment No. 9
To
Transfer Agency and Services Agreement
This Amendment No. 9 To Transfer Agency and Services Agreement (Amendment No. 9), dated as of March 19, 2021 (Effective Date), is being entered into by and between Computershare Inc. (Computershare), Computershare Trust Company, N.A. (Trust Company, and together with Computershare, Transfer Agent) and the investment companies listed on the signature page to this Amendment No. 9 (each a Fund and collectively the Funds).
Background
Transfer Agent and the Funds, on their own behalf, previously entered into the Transfer Agency and Services Agreement, made as of March 14, 2016 (Current Agreement. The parties wish to amend the Current Agreement as set forth in this Amendment No. 9.
Terms
NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree to all statements made above and as follows:
NOW THEREORE, for good and valuable consideration, the receipt and adequacy for which we are hereby acknowledged, the parties, hereby agree as follows:
1. Addition of Party and Amendment to Schedule A of the Agreement. Western Asset Diversified Income Fund is added as a party to the Agreement and is included as a Fund for all purposes. Schedule A of the Agreement is hereby amended to include the Western Asset Diversified Income Fund.
2. Modifications to Current Agreement. The Current Agreement is hereby amended as follows: Schedule A is hereby deleted in its entirety and replaced by the new Schedule A attached to this Amendment No. 9.
3. Adoption of Amended Agreement by New Funds. Each Fund that has been added to Schedule A by virtue of this Amendment No. 9 acknowledges and agrees that (i) by virtue of its execution of this Amendment No. 9 it becomes and is a party to the Current Agreement as amended by this Amendment No. 9 (Amended Agreement) as of the date first written above, or If Transfer Agent commenced providing services to the Fund prior to the date first written above, as of the date Transfer Agent first provided services to the Fund, and (ii) it is bound by all terms and conditions of the Amended Agreement as of such date.
4. Remainder of Current Agreement. Except as specifically modified by this Amendment No. 9, all terms and conditions of the Current Agreement shall remain in full force and effect.
5. Governing Law. The governing law of the Current Agreement shall be the governing law of this Amendment No. 9.
Page 1
5. Entire Agreement. This Amendment No. 9 constitutes a complete, exclusive and fully integrated record of the agreement of the parties with respect to the subject matter herein and the amendment of the Current Agreement with respect to such subject matter.
6. Facsimile Signatures; Counterparts. This Amendment No. 9 may be executed in one more counterparts; such execution of counterparts may occur by manual signature, facsimile signature, manual signature transmitted by means of facsimile transmission or manual signature contained in an imaged document attached to an email transmission; and each such counterpart executed in accordance with the foregoing shall be deemed an original, with all such counterparts together constituting one and the same instrument. The exchange of executed copies of this Amendment No. 9 or of executed signature pages to this Amendment No. 9 by facsimile transmission or as an imaged document attached to an email transmission shall constitute effective execution and delivery hereof and may be used for all purposes in lieu of a manually executed copy of this Amendment No. 9.
[Remainder Of Page Intentionally Blank - Signatures Appear On Following Page]
Page 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 9 to Transfer Agency and Services Agreement, dated as of March 14, 2016, to be executed by their duly authorized officers as of the date first written above.
Computershare Inc. and
Computershare Trust Company, N.A.
On Behalf of Both Entities:
By: | /s/ Rachel Fisher | |
Name: Rachel Fisher | ||
Title: Sr Contract Negotiation Specialist |
On behalf of each Fund listed in Schedule A attached hereto in its individual
and separate capacity, and not on behalf of any other Fund
By: | /s/ Jane Trust | |
Name: Jane Trust | ||
Title: President and Chief Executive Officer |
Page 3
SCHEDULE A
LIST OF FUNDS
BWG | BrandywineGLOBAL - Global Income Opportunities Fund Inc. | |
CEM | ClearBridge MLP and Midstream Fund Inc. | |
CTR | ClearBridge MLP and Midstream Total Return Fund Inc. | |
DMO | Western Asset Mortgage Opportunity Fund Inc. | |
EHI | Western Asset Global High Income Fund Inc. | |
EMO | Clearbridge Energy Midstream Opportunity Fund Inc | |
EMD | Western Asset Emerging Markets Debt Fund Inc | |
GDO | Western Asset Global Corporate Defined Opportunity Fund Inc | |
HIO | Western Asset High Income Opportunity Fund Inc. | |
HIX | Western Asset High Income Fund II Inc. | |
HYI | Western Asset High Yield Defined Opportunity Fund Inc | |
IGI | Western Asset Investment Grade Defined Opportunity Trust Inc | |
MHF | Western Asset Municipal High Income Fund Inc. | |
MMU | Western Asset Managed Municipals Fund Inc. | |
MNP | Western Asset Municipal Partners Fund Inc. | |
MTT | Western Asset Municipal Defined Opportunity Trust Inc. | |
PAl | Western Asset Investment Grade Income Fund Inc. | |
SBI | Western Asset Intermediate Muni Fund Inc. | |
SCD | LMP Capital and Income Fund Inc | |
WEA | Western Asset Premier Bond Fund | |
WIA | Western Asset Inflation-Linked Income Fund | |
WIW | Western Asset Inflation-Linked Opportunities & Income Fund | |
XWMFX | Western Asset Middle Market Income Fund Inc. | |
TBD | Western Asset Diversified Income Fund |
Page 4
Exhibit (k)(3)
CREDIT AGREEMENT FOR MARGIN FINANCING
CREDIT AGREEMENT FOR MARGIN FINANCING (this Agreement), dated as of December 15, 2010, by and between WESTERN ASSET HIGH INCOME FUND II INC., a Maryland corporation that is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company (the Client), and PERSHING LLC (Pershing).
WHEREAS, Pershing is an SEC registered member of several national securities exchanges and is a clearing member of The Options Clearing Corporation (OCC); and
WHEREAS, Client seeks to obtain margin financing from Pershing, and Pershing is willing to provide such financing, on the terms and conditions provided for in this Agreement; and
WHEREAS, Client intends to pledge assets held at State Street Bank and Trust Company (Custodian) to Pershing to secure performance of Clients obligations with respect to margin financing obtained from Pershing hereunder and for that purpose has executed a Special Custody and Pledge Agreement (as amended, supplemented or otherwise modified from time to time, the Special Custody and Pledge Agreement) with Pershing and Custodian; and
WHEREAS, Pershing is required to comply with applicable laws and regulations, including the margin regulations of the Board of Governors of the Federal Reserve System, the OCC, any relevant securities exchanges, other self-regulatory associations (the Margin Rules) and Pershings internal policies; and
WHEREAS, Client and Pershing desire to establish procedures for their compliance with the Margin Rules; and
WHEREAS, Custodian acts as custodian of certain assets of Client pursuant to a contract with Client (the Custodian Contract) and holds such assets in an account (the Custodial Account) and is further prepared to act as custodian for Collateral (as defined in the Special Custody and Pledge Agreement) pursuant to the terms and conditions of the Special Custody and Pledge Agreement;
THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
MARGIN FINANCING
This Agreement relates to Pershing providing margin financing to Client and sets forth terms and conditions under which Client may borrow funds from Pershing which shall be collateralized by assets held in a Special Custody Account held at Custodian pursuant to the Special Custody and Pledge Agreement. Capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned to such terms in the Special Custody and Pledge Agreement.
Commitment to Lend. Subject to the terms and conditions set forth in this Agreement, Pershing agrees to lend to Client and Client may borrow, repay and reborrow from time to time during the term of this Agreement, such sums as are requested by Client up to a maximum aggregate principal amount outstanding (after giving effect to all amounts outstanding and all amounts requested and subject to sufficient collateral to justify the amount) at any one time equal to $300,000,000 (or such greater amount agreed to by Pershing). Each borrowing under this Section shall mature and become due and payable 364 days from of the date of this Agreement, subject to Article VI of this Agreement.
1.01 Conditions Precedent. The obligation of Pershing to make a loan hereunder is subject to the satisfaction, on the date of such loan, of the following conditions precedent:
(a). all representations and warranties of Client contained in this Agreement or the Special Custody and Pledge Agreement shall be true and correct in all material respects;
(b). no Event of Default (as defined below) under this Agreement or Client Default under the Special Custody and Pledge Agreement shall have occurred and be continuing; and
(c). unless otherwise agreed by the parties hereto, the debit balance shall be less than the amount specified in Appendix A hereto as the maximum margin debit.
1.02 Risk Factors. By applying for a margin account, Client acknowledges receipt of Pershings Margin Risk Disclosure Statement. Client further acknowledges that it has carefully considered all of the factors set forth in this paragraph as well as the terms set forth in this Article I and, has thereupon, decided that margin financing is appropriate for Client.
Margin transactions involve the possibility of greater loss than transactions for which Client is not borrowing money. If the value of the securities in Clients Special Custody Account falls, Client may be required to deposit additional assets to secure Clients loans hereunder. Alternatively, subject to Article VI below, Pershing may sell Clients securities to pay down or pay off such loans and at a loss or at lower prices than under other circumstances. Client remains solely liable for any deficiencies arising from such sales.
Client agrees to carefully consider Clients own financial condition, tolerance for risk and investment objectives, as well as market conditions, before Client decides to use margin credit. Client acknowledges that Pershing has made available to Client certain information relating to margin and that before submitting Clients application for a margin account, Client represents and warrants to Pershing that Client has had an opportunity to discuss with Pershing the risks associated with the use of margin and that the use of margin is consistent with Clients investment objectives as provided to Pershing.
1.03 Special Custody Account Operation. Client agrees to maintain Adequate Performance Assurance for Clients Special Custody Account as agreed to by Pershing and Client, which may exceed that required by applicable rules and regulations. Client agrees to pay on demand and satisfy all margin and maintenance calls and pay in accordance with Article II interest charges which are imposed, in accordance with Pershings usual custom, with respect to Clients Special Custody Account. For the purposes of this Section, on demand shall mean: if such demand is made on or prior to 12:00 noon New York time on a Business Day, by the close of business on such day; if such demand is made after 12:00 noon New York time on a Business Day, by 10:00 a.m. on the next Business Day.
Pershing may, in its reasonable discretion, require Client to (a) deliver collateral to the Special Custody Account (i) to maintain margin as required by Pershing in accordance with Appendix A to this Agreement and (ii) secure Clients performance of any obligations due to Pershing hereunder or (b) pay any amount that may become due hereunder in order to meet requests for additional deposits or marks to market for any transactions, including transactions involving foreign exchange and unissued securities that Client may purchase or sell.
The parties acknowledge that the cash loans provided hereunder are each a margin loan as used in the definition of securities contract in the United States Bankruptcy Code (11 U.S.C. Section 741).
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ARTICLE II
INTEREST CHARGES DISCLOSURE STATEMENT
2.01 Interest Rates. Interest charged on any debit balances in cash accounts or credit extended in margin accounts shall be agreed to by the parties and set forth in Appendix A to this Agreement.
2.02 Interest Period. The interest period begins on the 20th of each month and ends on the 19th of the following month. Accordingly, the interest charges for the period as shown on Clients monthly statement are based only on the daily net debit and credit balances for the interest period.
2.03 Method of Interest Computation. At the close of each interest period during which credit was extended to Client, an interest charge is computed by multiplying the average daily debit balance for that currency by the applicable schedule rate and by the number of days during which a debit balance was outstanding and then dividing by 360. If there has been a change in the rate agreed upon between Pershing and Client for that currency, separate computations will be made with respect to each rate of charge for the appropriate number of days at each rate during the interest period. If not paid, the interest charge for credit extended to Clients account at the close of the interest period is added to the opening debit balance for that currency for the next interest period.
All credit and debit balances in the same currency will be combined daily and interest will be charged on the resulting average daily net debit balances for that currency for the interest period. Credit balances in one currency will not be combined or netted with debit balances in a different currency.
ARTICLE III
MODIFICATION/TERMINATION
3.01 Except as otherwise provided herein, or as otherwise required by applicable law, regulation or the rules of any self-regulatory organization to which Pershing is subject applicable to margin accounts generally, for a period of 364 days from the date of this Agreement, Pershing may not,:
(a). modify without Clients explicit consent the margin levels set forth in Appendix A attached hereto;
(b). recall any outstanding loan under this Agreement;
(c). modify without Clients explicit consent the interest rate spread on loans hereunder, as set forth in Appendix A of this Agreement;
(d). modify without Clients explicit consent the fees, charges or expenses in Appendix A; or
(e). terminate or amend this Agreement
3.02 Termination and Renewal. Unless earlier terminated pursuant to Article VI hereof, this Agreement shall terminate 364 days from the date of this Agreement and shall not automatically renew. Client shall notify Pershing at least 30 days prior to the expiration of this Agreement if it intends to seek renewal or extension hereof. Within 10 days of such notice, Pershing shall advise Client of its decision to renew or extend this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Client represents and warrants that:
4.01 Existence and Power. Client is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. The Client is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business, assets, and properties requires such qualification, except where failure to be so qualified or in good standing would not be reasonably expected to have a Material Adverse Effect.
4.02 Authorization; Execution and Delivery, Etc. The execution and delivery by Client of, and the performance by Client of its obligations under this Agreement and the Special Custody and Pledge Agreement are within its corporate powers, and have been duly authorized by all requisite corporate action by Client. This Agreement and the Special Custody and Pledge Agreement have been duly executed and delivered by Client, and constitute the legal, valid and binding obligations of Client enforceable against Client in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and an implied covenant of good faith and fair dealing.
4.03 Noncontravention. Neither the execution and delivery by Client of this Agreement, the Special Custody and Pledge Agreement nor the consummation of the transactions herein or therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof by Client will (a) conflict with, or result in a breach of, any of its charter documents or (b) conflict with (i) any Applicable Law, (ii) any contractual restriction binding on or affecting Client or any of its assets, or (iii) any order, writ, judgment, award, injunction or decree binding on or affecting Client or any of its assets, in each case except where such conflict or breach would not reasonably be expected to have a Material Adverse Effect. For the purposes of this Agreement, Applicable Laws means, with respect to any person, all laws, rules, regulations or orders of any governmental authority to which such person is subject or by which such persons property is bound. For the purposes of this Agreement, Material Adverse Effect means a material adverse effect on (x) the business, financial condition, operations, assets or properties of the Borrower or (y) the validity or enforceability of this Agreement or the Special Custody and Pledge Agreement or the rights and remedies of Pershing hereunder or thereunder.
4.04 Governmental Authorizations. Client has obtained all necessary governmental authorizations, and made all governmental filings necessary for the execution and delivery by Client of, and the performance by Client of its Obligations under, this Agreement and the Special Custody and Pledge Agreement, except where the failure would not reasonably be expected to have a Material Adverse Effect.
4.05 Regulations T, U and X. The execution, delivery and performance by Client of this Agreement and the Special Custody and Pledge Agreement and the transactions contemplated hereunder and thereunder will not violate any provision of Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System.
4.06 Financial Information. The statement of assets and liabilities of Client, as of the date of the Clients most current annual report, and the related Statements of Operations and Changes in Net Assets for the fiscal year ended on such date, reported on by KPMG LLP and set forth in the Annual Report for the fiscal year ended on such date, together with the notes and schedules thereto, presents fairly, in all material respects, in conformity with generally accepted accounting principles, the financial position of Client as of such date.
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4.07 Litigation. There is no action, suit, proceeding or investigation of any kind pending against, or to the knowledge of Client, threatened against or affecting, Client before any court or arbitrator or any Authority which would reasonably be expected to have a Material Adverse Effect.
4.08 Taxes. The Client has timely filed all material United States federal income tax returns and all other material tax returns which are required to be filed by it, if any, and has paid all taxes due pursuant to such returns, if any, or pursuant to any assessment received by the Client, except for any taxes or assessments which are being contested in good faith or for which non-payment would not reasonably be expected to have a Material Adverse Effect.
4.09 Compliance. Client is in compliance with all Applicable Laws except where the necessity of compliance therewith is being contested in good faith or exemptive relief has been obtained therefrom and remains in effect or where noncompliance therewith would not be reasonably expected to have a Material Adverse Effect. Client is in compliance with all agreements and instruments to which it is a party or to which any of its properties may be bound, in each case where the violation thereof would be reasonably expected to have a Material Adverse Effect.
4.10 Full Disclosure. All information heretofore furnished by Client to the Pershing for purposes of or in connection with this Agreement or the Special Custody and Pledge Agreement or any transaction contemplated hereby or thereby is true and accurate in all material respects on the date as of which such information is stated or certified, and such information does not contain, when taken as a whole, on such date, any material misrepresentation or any omission to state therein, in light of the circumstances in which they were made, matters necessary to make the statements made therein not misleading in any material respect.
4.11 Title to Assets. Client has good and marketable title to all its material properties, assets and rights, except where failure to have such title would not reasonably be expected to have a Material Adverse Effect.
ARTICLE V
COVENANTS
Client agrees that, so long as the Pershing provides margin financing hereunder or any amount payable hereunder remains unpaid:
5.01 Information. Client will deliver to Pershing any financial statements or financial information available to the Client which has been reasonably requested by Pershing within five Business Days following Clients receipt of a request therefor from Pershing.
5.02 Payment of Obligations. Client will pay, at or before maturity, all of Clients material obligations, including, without limitation, tax liabilities, except where the same may be contested in good faith or for which non-payment would not reasonably be expected to have a Material Adverse Effect.
5.03 Maintenance of Insurance. Client will maintain with financially sound and reputable insurance companies, policies with respect to its assets and property and business against at least such risks and contingencies as are customary in the case of registered closed-end investment companies.
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5.04 Conduct of Business and Maintenance of Existence. Client will preserve and keep in full force and effect its existence as a Maryland corporation, except as permitted by Section 5.08. Client will preserve, renew and keep in full force and effect its rights, privileges and franchises necessary in the normal conduct of its business except where failure to do so would not be reasonably expected to have a Material Adverse Effect.
5.05 Compliance with Laws. Client will comply in all material respects with all Applicable Laws and requirements of any regulatory or governmental authority having jurisdiction over Client except where the necessity of compliance therewith is contested in good faith or exemptive relief has been obtained therefrom and remains in effect or where noncompliance therewith would not reasonably be expected to have a Material Adverse Effect. Client will file all material federal and other material tax returns required by all relevant jurisdictions on or before the due dates for such returns, and will pay all taxes due pursuant to such returns as and when they become due, except those that are being contested in good faith by the Client or for which non-payment would not reasonably be expected to have a Material Adverse Effect.
5.06 Books and Records. Client will keep proper books of record and account in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities in accordance with Applicable Law.
5.07 Liens. The Client will not create, assume, incur or suffer to exist any lien on any of the Collateral except (a) liens of Pershing created or permitted by or pursuant to this Agreement or the Special Custody and Pledge Agreement and (b) any liens of Custodian created by or pursuant to the Custodian Contract, provided, however, that no lien under the Custodian Contract shall be permitted other than for customary fees and expenses.
5.08 Consolidations, Mergers and Sales of Assets. Client will not consolidate or merge with or into any other entity, nor will Client sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of its assets to any other entity (in each case, whether in one transaction or a series of related transactions), except (a) a merger or consolidation where Client is the survivor and (b) Client may dispose of its assets in the ordinary course of business.
5.09 Use of Proceeds. Proceeds of margin financing may be used to buy, carry or trade in securities or an investment contract security and for any other purpose permitted by the investment objectives, strategies and policies of Client.
5.10 Collateral. Client will at all times place and maintain the Collateral in the custody of the Custodian subject to the provisions of the Special Custody and Pledge Agreement.
ARTICLE VI
DEFAULT
6.01 If any one or more of he following events (each, an Event of Default) shall occur and be continuing:
(a). Client fails to meet and pay any margin call when due; or
(b). Client fails to deliver any financial statements or financial information available to the Client which has been reasonably requested by Pershing and such failure shall continue unremedied for a period of five Business Days after Clients receipt of notice thereof from Pershing; or
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(c). Client fails to observe or perform any other covenant or agreement contained in this Agreement or the Special Custody and Pledge Agreement provided however, if clients failure to pay any amount on demand, as required by this Agreement, is due to a ministerial or operational error and client has made a good faith, verifiable effort to transmit payment, client shall be granted twenty-four additional hours before default is declared; or
(d). Client becomes bankrupt, insolvent or subject to any voluntary or involuntary bankruptcy, reorganization, insolvency or similar proceeding; or
(e). any representation, warranty, certification or statement made (or deemed made) by Client in this Agreement or the Special Custody and Pledge Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement or the Special Custody and Pledge Agreement shall prove to have been incorrect in any material respect when made (or deemed made); or
(f). Pershings security interest under the Special Custody and Pledge Agreement is not or ceases to be a first priority perfected security interest (subject to liens permitted by Section 5.07) in the Collateral; or
(g). Legg Mason Partners Fund Advisor, LLC (the Investment Manager) is subject to a Change of Control. For purposes of this Section, Change of Control shall mean (i) the approval by the directors, shareholders or managers of Investment Manager of a merger or consolidation of Investment Manager with any other corporation or entity (other than an affiliate thereof), (ii) the approval by the directors, shareholders or managers of Investment Manager of a plan of complete liquidation of Investment Manager or an agreement for the sale or disposition by Investment Manager of all or substantially all of its assets (other than sales of assets in the ordinary course of business and dispositions of assets to an affiliate thereof), or (iii) a change in the composition of the board of directors or managers of Investment Manager, as a result of which fewer than a majority of the directors or managers are Incumbent Directors. Incumbent Directors shall mean directors or managers who either (A) are directors or managers of Investment Manager as of the date hereof, or (B) are elected, or nominated for election, to the board with the affirmative votes of at least a majority of those directors or managers whose election or nomination was not in connection with any transactions described in this Agreement or in connection with an actual or threatened proxy contest relating to the election of directors or managers of Investment Manager; or
(h). An allegation of fraud, misconduct, embezzlement, money laundering, insider trading, market manipulation abuse or other material illegality, breach of regulation or impropriety is made against Client, or any of its principals, executive officers or directors, that in the good faith and commercially reasonable business judgment of Pershing could reasonably be expected to present a risk of material damage to the reputation of Pershing;
then, and in every such event, Pershing may by notice to Client (i) terminate this Agreement and (ii) declare the loans hereunder (together with accrued and unpaid interest thereon) to be immediately due and payable.
6.02 Remedies. During the continuance of an Event of Default, Pershing may, upon notice to Client, and at such times and places as Pershing may reasonably determine, cancel, terminate, accelerate, liquidate and/or close-out any or all transactions and agreements hereunder between Client and Pershing, sell or otherwise transfer any securities or other property which Pershing may hold for Client or which has been pledged to Pershing by Client and apply the proceeds to the discharge of Clients obligations, set-off, net and recoup any obligations to Client against any obligations to Pershing, exercise all rights and remedies of a secured creditor in respect of all collateral in which Pershing has a security interest under the UCC
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(whether or not the UCC is otherwise applicable in the relevant jurisdiction), cover any open positions of Client (by buying in or borrowing securities or otherwise) and take such other actions as Pershing reasonably deems appropriate. Client shall remain liable for any deficiency and shall promptly reimburse Pershing for any loss or expense incurred thereby, including losses sustained by reason of an inability to borrow any securities or other property sold for Clients Account. Client agrees to promptly notify Pershing upon the occurrence of an Event of Default, but the failure to provide such notice shall not prejudice Pershings right to determine that an Event of Default has occurred.
ARTICLE VII
MISCELLANEOUS
7.01 Conflicts with Other Agreements. In the event of a conflict between any provision of this Agreement and the Special Custody and Pledge Agreement between the parties, this Agreement shall prevail.
7.02 Confidential Information. Confidential Information of a party shall mean all data and information submitted to the other party or obtained by the other party in connection with the transactions contemplated hereby, including information relating to a partys customers (which includes, without limitation, Non-Public Personal Information as that term is defined in Securities and Exchange Commission Regulation S-P), technology, operations, facilities, consumer markets, products, capacities, systems, procedures, security practices, research, development, business affairs, ideas, concepts, innovations, inventions, designs, business methodologies, improvements, trade secrets, copyrightable subject matter and other proprietary information.
All Confidential Information relating to a party shall be held in confidence by the other party to the same extent and in at least the same manner as such party protects its own confidential or proprietary information. Neither party shall disclose, publish, release, transfer or otherwise make available Confidential Information of the other party in any form to, or for the use or benefit of, any person or entity without the other partys prior written consent. Each party shall, however, be permitted to disclose relevant aspects of the other partys Confidential Information to its officers, agents, subcontractors and employees to the extent such disclosure is reasonably necessary for the performance of its duties and obligations under this Agreement and such disclosure is not prohibited by Gramm-Leach-Bliley Act of 1999 (GLBA"), which amends the Securities and Exchange Act of 1934, as it may be amended from time to time, the regulations promulgated by the Securities and Exchange Commission thereunder or other Applicable Law; provided, however, that such party shall take all reasonable measures to ensure that Confidential Information of the other party is not disclosed or duplicated in contravention of the provisions of this Agreement by such officers, agents, subcontractors and employees. The obligations in this Section shall not restrict any disclosure by either party pursuant to any Applicable Law, or by order of any court or government agency (provided that the disclosing party shall give prompt notice to the non-disclosing party of such order) and shall not apply with respect to information which (i) is developed by the other party without violating the disclosing partys proprietary rights; (ii) is or becomes publicly known (other than through unauthorized disclosure); (iii) is disclosed by the owner of such information to a third party free of any obligation of confidentiality; (iv) is already known by such party without an obligation of confidentiality other than pursuant to this Agreement or any confidentiality agreements entered into between the parties before the effective date of this Agreement; or (v) is rightfully received by a party free of any obligation of confidentiality. If the GLBA, the regulations promulgated by the Securities and Exchange Commission thereunder or other Applicable Law now or hereafter in effect imposes a higher standard of confidentiality to the Confidential Information, such standard shall prevail over the provisions of this Section.
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Client acknowledges that the services Pershing provides hereunder involve Client access to proprietary technology, trading and other systems, and that techniques, algorithms and processes contained in such systems constitute trade secrets and shall be safeguarded by Client, and that Client shall exercise reasonable care to protect Pershings interest in such trade secrets. Client agrees to make the proprietary nature of such systems known to those of its consultants, staff, agents or clients who may reasonably be expected to come into contact with such systems. Client agrees that any breach of this confidentiality provision may result in its being liable for damages as provided by law.
This Section shall survive the termination of this Agreement.
7.03 Governing Law. This Agreement is governed by and construed in accordance with the laws of the State of New York. Any dispute arising out of or relating to this Agreement shall be subject to the arbitration as specified below.
7.04 Limitation of Liability. Pershing shall have no consequential or punitive liability for any system or inputting errors that results in an incorrect determination of margin requirements hereunder other than to correct such error as soon as reasonably practicable; provided that the foregoing limitation of liability shall not apply in the case of Pershings gross negligence, bad faith or willful misconduct. For the avoidance of doubt, correcting such error includes refunding to Client any excess margin interest charged prior to such correction.
7.05 Amendments; Waivers. Any provision of this Agreement or the Special Custody and Pledge Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by Client and Pershing.
7.06 Counterparts. This Agreement may be executed in facsimile counterparts, each of which will be deemed an original instrument and all of which together will constitute one and the same agreement.
7.07 Use of Name. Client and Pershing agree not to use the other partys name for any purpose without the other partys prior written consent, including, but not limited to, in any advertisement, publication or offering material; provided, however, that Pershing consents to Clients stating in its offering documents that Pershing is providing margin financing so long as such statement is factually accurate at the time the statement is made and it is made clear in such disclosure that Pershing has no responsibility for the preparation and accuracy of such offering documents.
7.08 Notices. Written communications and notices hereunder shall be sent by electronic mail, facsimile transmission, regular mail, overnight delivery, or hand delivered as required herein or by any other means agreed to by the parties, in any such case addressed:
(a) if to Client, to: |
Western Asset High Income Fund II Inc. | |
c/o Legg Mason, Inc. | ||
620 Eighth Avenue, 49th Floor | ||
New York, NY 10018 | ||
Attention: William Renahan | ||
Fax No.: 212-986-9756 | ||
Phone No.: 212-805-6024 | ||
E-Mail: wrenahan@leggmason.com | ||
(b) if to Pershing, to: |
Pershing LLC | |
1 Pershing Plaza | ||
Jersey City, NJ. 07399 | ||
Attention: Peter Murphy | ||
Fax No.: 201-395-1299 | ||
Phone No.: 201-413-2637 | ||
E-Mail: pemurphy@pershing.com |
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Each such notice, request, consent or other communication shall be effective (i) if given by facsimile, transmission, when such facsimile is transmitted to the facsimile number specified in this Section and the appropriate confirmation is received, (b) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (c) if given by overnight delivery, hand delivery, electronic mail or any other means, when delivered at the address specified in this Section. For the avoidance of doubt, e-mail notice and facsimile transmission (for example, notice of a margin call) is effective upon transmission to the relevant address above. In the event of the failure of these communications, actual telephone notice shall suffice.
7.09 Arbitration. This Agreement contains a predispute arbitration clause. By signing an arbitration agreement, the parties agree as follows:
(a) All parties to this Agreement are giving up the right to sue each other in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
(b) Arbitration awards are generally final and binding; a partys ability to have a court reverse or modify an arbitration award is very limited.
(c) The ability of the parties to obtain documents, witness statements and other discovery is generally more limited in arbitration than in court proceedings.
(d) The arbitrators do not have to explain the reason(s) for their award.
(e) The panel of arbitrators will typically include a minority of arbitrators who were or are affiliated with the securities industry, unless Client is a member of the organization sponsoring the arbitration facility, in which case all arbitrators may be affiliated with the securities industry.
(f) The rules of some arbitration forums may impose time limits for bringing a claim in arbitration. In some cases, a claim that is ineligible for arbitration may be brought in court.
(g) The rules of the arbitration forum in which the claim is filed, and any amendments thereto, shall be incorporated into this Agreement.
Any controversy between Pershing (and any of Pershings affiliates also involved in such controversy) or any of its or their partners, officers, managing directors, directors or employees on the one hand, and Client or Clients agents on the other hand, arising out of or relating to this Agreement, the transactions contemplated hereby or the accounts established hereunder, shall be settled by arbitration. The arbitration will be conducted before The Financial Industry Regulatory Authority Dispute Resolution (FINRA-DR). If FINRA-DR should decline to hear the matter, before the American Arbitration Association, in accordance with their arbitration rules then in force. The award of the arbitrator shall be final, and judgment upon the award rendered may be entered in any court, state or federal, having jurisdiction.
No person shall bring a putative or certified class action to arbitration nor seek to enforce any pro-dispute arbitration agreement against any person who has initiated in court a putative class action or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; (ii) the class is decertified; or (iii) Client is excluded from the class by the court.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ R. Jay Gerken | |
Name: R. Jay Gerken | ||
Title: President and CEO | ||
PERSHING LLC | ||
By: | /s/ Peter R. Murphy | |
Name: Peter R. Murphy | ||
Title: Director |
APPENDIX A
Interest Rate: One Month LIBOR Offered Rate plus 0.90% (90 basis points)
LIBOR Offered Rate means the rate of interest equal to (a) the rate for deposits in U.S. dollars for an interest period of one month which appears on the Bloomberg Page BTMM as of 12:00 noon (New York City time) two LIBOR Business Days before the first day of such interest period, or (b) if such rate does not appear on Bloomberg Page BTMM two LIBOR Business Days before the first day of such interest period, then the rate for British bankers LIBOR as quoted by Reuters or Bloomberg as of 12:00 noon (New York City time) two LIBOR Business Days before the first day of such interest period, or (c) if such rate is not quoted by Reuters or Bloomberg, then the rate for deposits in U.S. dollars which appeared on the Bloomberg Page BTMM as of 12:00 noon (New York City time) three LIBOR Business Days before the first day of such interest period.
Maximum Margin Release: | In no event shall the total credit extended under this Agreement be greater than 40% of the total value of all eligible assets held in the special custody account. | |
Margin Eligibility: | Securities eligible for margin shall be those defined under Regulation T of the Federal Reserve Board, NYSE Rule 431 and FINRA Rule 2520, provided however that, margin shall not be extended against any security: (a) valued at less than $40; (b) any security or security position not capable, in Pershings commercially reasonable discretion (the reasonableness of any determination by Pershing shall, in part, be based upon any information supplied to Pershing by Western Asset Management Company), of being liquidated measured against 3 trading days; or (c) any 144A security restricted from sale within 30 days or (d) any Foreign Security (as the term is defined in the Special Custody and Pledge Agreement) pledged as Collateral not held directly by State Street as Custodian or in State Streets accounts at DTC, Euroclear or Clearstream, provided however, Pershing, in its commercially reasonable discretion, may consider, on a case by case basis, accepting as Collateral Eligible Investment Grade Bonds and Eligible Non-Investment Grade Bonds (as the terms are defined in the Special Custody and Pledge Agreement) that are issued by foreign governments or companies domiciled outside the U.S. that are not held directly by Custodian or in Custodians accounts at DTC, Euroclear or Clearstream. | |
Diversification: | The Margin Requirements specified above shall remain in effect provided the Special Custody Account maintains a diversified group of securities wherein: (a) no individual security position, based upon by CUSIP, ISIN or SEDOL, accounts for no more than 5% of the gross market value of all securities pledged in the Special Custody |
Account; (b) the securities of a single sector, as the term is defined by the U.S. Barclays High Yield Index (or its successor index), do not account for more than 20% of the gross market value of all securities pledged in the Special Custody Account; or (c) the securities of any single issuer do not account for more than 20% of the gross market value of all securities pledged in the Special Custody Account. | ||
Maximum Debit: | Client will not exceed the margin debit limit of US$300 million without the mutual agreement of both parties. | |
Fees and Charges: | There are no other fees or charges currently contemplated in connection with this Agreement other than interest. To the extent any fees and/or charges arise, the parties agree to negotiate in good faith to determine such fees and/or charges. To the extent fees or charges may arise in connection with services not provided under this Agreement, such fees and charges will be covered under an agreement related to those services. |
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Exhibit (k)(4)
AMENDMENT NO. 1
TO
CREDIT AGREEMENT FOR MARGIN FINANCING
AMENDMENT NO. 1, dated as of December 14, 2011 (this Amendment), to the Credit Agreement, dated as of December 15, 2010, between WESTERN ASSET HIGH INCOME FUND II INC., (Client) and PERSHING LLC (Pershing).
WHEREAS, Pershing and Client are parties to the Credit Agreement for Margin Financing, dated as of December 15, 2010 (as amended, supplemented or otherwise modified, the Credit Agreement). Unless defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement.
WHEREAS, Client has requested that Pershing amend the Credit Agreement to provide for an open commitment terminable upon 180 days notice with the understanding that Pershing shall not require that any outstanding amount under this Credit Agreement become due and payable prior to December 12, 2012 subject to the early termination provisions contained in Section 6.02 of the Credit Agreement.
WHEREAS, Pershing has advised Client that it is willing to revise the interest rate to One Month LIBOR offered rate plus 75 basis points.
WHEREAS, Pershing has agreed to revise the maximum margin release to 50% of the total of all eligible assets held in the special custody account.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. | Pershings Commitment to Lend pursuant to Article I of the Credit Agreement shall be extended until at least December 12, 2012. Any and all outstanding loans under the Credit Agreement shall become due and payable upon 180 days written notice; provided, however, that no outstanding amount under the Credit Agreement shall become due and payable prior to December 12, 2012 subject to the early termination provisions contained in Section 6.02 of the Credit Agreement. |
2. | Article III, Section 3.01 shall be amended and restated as follows: |
Except as otherwise provided herein, or as otherwise required by applicable law, regulation or the rules of any self-regulatory organization to which Pershing is subject applicable to margin accounts generally, Pershing may not except upon 180 days written notice:
(a). modify without Clients explicit consent the margin levels set forth in Appendix A, as amended;
(b). recall any outstanding loan under this Agreement;
(c). modify without Clients explicit consent the interest rate spread on loans hereunder, as set forth in Appendix A of this Agreement, as amended;
(d). modify without Clients explicit consent the fees, charges or expenses in Appendix A, as amended; or
(e). terminate or amend this Agreement;
; provided, however, that in no event shall any outstanding amount under this Credit Agreement become due and payable prior to December 12, 2012 subject to the early termination provisions contained in Section 6.02 of the Credit Agreement.
3. | Article III, Section 3.02 shall be deleted in its entirety. |
4. | Appendix A is hereby amended to reflect that effective December 15, 2011 the Interest Rate shall be One Month LIBOR offered rate plus 75 basis points (0.75%). |
5. | Appendix A is hereby amended to reflect the Maximum Margin Release shall not be greater than 50% of the total value of all eligible assets held in the Special Custody Account. |
6. | Appendix A is further amended to include as eligible assets sovereign and corporate debt held in U.S. dollars from the following countries: Brazil, Chile, Colombia, Mexico, and Peru. Corporate debt in the above listed countries must be rated A or better by one nationally recognized statistical rating organization. The margin loan extended against such securities cannot exceed 20% of the total margin loan for Client, and the margin loan extended on securities from a single country cannot account for more than 5% of the total margin loan for Client. |
7. | All references to NYSE Rule 431 and FINRA Rule 2520 shall be amended and replaced with a reference to FINRA Rule 4210. |
8. | Article IV, Section 4.06 shall be amended and restated as follows: |
The statement of assets and liabilities of Client, as of April 30, 2011 and the related Statement of Operations on such date, reported on by KPMG LLP and set forth in the financial statements dated April 30, 2011 together with the notes and schedules thereto, presents fairly, in all material respects, in conformity with generally accepted accounting principles, the financial position of Client as of such date.
Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Amendment, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) represents and warrants that, both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Except as expressly amended hereby, the Credit Agreement is and shall remain in full force and effect, and no amendment in respect of any term or condition of the Credit Agreement shall be deemed to be an amendment in respect of any other term or condition contained in the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ R. Jay Gerken | |
Name: R. Jay Gerken | ||
Title: President and CEO | ||
PERSHING LLC | ||
By: | /s/ Peter R. Murphy | |
Name: Peter R. Murphy | ||
Title: Managing Director |
Exhibit (k)(5)
Amendment No. 2
To the
Credit Agreement for Margin Financing
AMENDMENT No. 2, dated as of Sept. 1, 2016 (this Amendment) to the Credit Agreement for Margin Financing, dated as of December 15, 2010 between Western Asset High Income Fund II Inc. (Client) and Pershing LLC (Pershing).
WHEREAS, Pershing and Client are parties to the Credit Agreement for Margin Financing, dated as of December 15, 2010 (as amended, supplemented or otherwise modified prior to the date hereof, the Credit Agreement). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement; and
WHEREAS, Pershing has requested that Client amend the Credit Agreement to reflect certain definitional changes as described herein.
NOW, THEREFORE, the parties hereby agree as follows, effective immediately:
1. | The second paragraph of the introduction to Article IMargin Financing beginning Commitment to Lend shall be deleted and replaced in its entirety by the following: |
Financing. Subject to the terms and conditions set forth in this Agreement, Pershing agrees to lend to Client and Client may borrow from time to time during the term of this Agreement, such sums as are requested by Client and approved by Pershing up to a Maximum Covered Amount, as defined herein, (after giving effect to all amounts outstanding and all amounts requested and subject to sufficient collateral to justify the amount).
Repayment of the Financing
Covered Amount Repayable upon 180 Calendar Days Notice. In the absence of an Event of Default or a Termination Event and subject to Article V, Client shall only be required to repay the Covered Amount (or any portion thereof) by no later than One Hundred Eighty (180) days following Pershings demand (such 180-day period, the Term).
2. | The following new defined terms shall be added to the Credit Agreement: |
Covered Amount means, as of any Business Day (the Determination Date), an amount equal to the lesser of (i) the Financing Amount on such Determination Date (inclusive of any amounts disbursed on the Determination Date) or (ii) the Maximum Covered Amount.
Financing means Clients debit balance under the Credit Agreement.
Financing Amount means, on any Business Day, the aggregate amount of the Financing provided by Pershing outstanding on such Business Day net of any credit balances. For the purposes of calculating the aggregate net amount of such Financing, Pershing will convert any Financing and credit balances denominated in non-USD currencies into USD.
Maximum Covered Amount means, the amount set forth on Appendix A hereto, as amended or otherwise modified from time to time.
Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Amendment, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) represents and warrants that, both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Except as expressly amended hereby, the Credit Agreement is and shall remain in full force and effect, and no amendment in respect of any term or condition of the Credit Agreement shall be deemed to be an amendment in respect of any other term or condition contained in the Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ Jane Trust | |
Name: Jane Trust | ||
Title: President and CEO |
PERSHING LLC | ||
By: | /s/ MELISSA A HOLLERAN | |
Name: MELISSA A HOLLERAN | ||
Title: CHIEF ADMINISTRATIVE OFFICER PERSHING PRIME SERVICES |
Exhibit (k)(6)
Amendment No. 3
To
Credit Agreement for Margin Financing
AMENDMENT No. 3, dated as of March 28, 2018 (this Amendment) to the Credit Agreement for Margin Financing, dated as of December 15, 2010 between WESTERN ASSET HIGH INCOME FUND II INC. (Client) and Pershing LLC (Pershing).
WHEREAS, Pershing and Client are parties to the Credit Agreement for Margin Financing, dated as of December 15, 2010 (as amended, supplemented or otherwise modified prior to the date hereof, the Credit Agreement). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement; and
WHEREAS, Pershing, Client and State Street Bank and Trust Company (State Street) have entered into a Special Custody and Pledge Agreement, dated as of December 15,2009 (State Street SCPA); and
WHEREAS, Client has terminated the State Street SCPA, changed its custodian from State Street to Bank of New York Mellon, N.A. (BNYM) and has entered into a Special Custody and Pledge Agreement dated as of March 28, 2018 (the SCPA) with Pershing and BNYM, as custodian; and
WHEREAS, Pershing and Client desire to amend the Credit Agreement as set forth below.
NOW, THEREFORE, based upon the foregoing, the parties hereby agree as follows:
I. | Effective immediately: |
1. All references in the Credit Agreement to the State Street SCPA shall be deleted and replaced with references to the SCPA between the Client, Pershing and BNYM, as Custodian.
2. All references in the Credit Agreement to State Street as Custodian shall be deleted and replaced with references to BNYM as Custodian.
3. The Maximum Margin Release section of Appendix A to the Credit Agreement shall be deleted and restated as follows:
Margin Release: | US investment grade bonds | 75% | ||
US non-investment grade bonds | 50% | |||
US Exchange Listed Common Stock at or above $5 | 70% | |||
US Exchange Listed Preferred Stock at or above $5 | 50% |
Non-US investment grade bonds for certain countries* |
50%/75% | |||
Non-US non-investment grade bonds for certain countries* | 40%/50% | |||
Non-US Sovereign bonds for certain countries* | 40%/50%/75% | |||
* Pershing will provide a list of such certain countries upon request. Margin release for other countries to be determined on a case by case basis. | ||||
Non-investment grade bonds rated CCC/Caa2 or below (including non-rated bonds) that account for more than 25% of the corporate bond gross market value of securities will be held at 100% margin requirement. | ||||
Margin release for all other asset classes or other collateral to be determined on a case by case basis. |
4. | The following language in the Margin Eligibility section of Appendix A shall be deleted, |
(d) any Foreign Security (as the term is defined in the Special Custody and Pledge Agreement) pledged as Collateral not held directly by State Street as Custodian or in State Streets accounts at DTC, Euroclear or Clearstream,
and replaced by,
(d) any Foreign Security (as the term is defined in the Special Custody and Pledge Agreement) pledged as Collateral not held directly by Custodian or in Custodians accounts at DTC, Euroclear or Clearstream,
II. | Miscellaneous. |
Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Amendment, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) represents and warrants that, both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Except as expressly amended hereby, the Credit Agreement is and shall remain in full force and effect, and no amendment in respect of any term or condition of the Credit Agreement shall be deemed to be an amendment in respect of any other term or condition contained in the Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: |
/s/ Jeanne M. Kelly | |
Name: Jeanne M. Kelly | ||
Title: Senior Vice President | ||
PERSHING LLC | ||
By: |
/s/ Peter R. Murphy | |
Name: Peter R. Murphy | ||
Title: Managing Director |
Exhibit (k)(7)
Amendment No. 4
To
Credit Agreement for Margin Financing
AMENDMENT No. 4, dated as of June 26, 2019 (this Amendment) to the Credit Agreement for Margin Financing, dated as of December 15, 2010 between WESTERN ASSET HIGH INCOME FUND II INC. (Client) and Pershing LLC (Pershing).
WHEREAS, Pershing and Client are parties to the Credit Agreement for Margin Financing, dated as of December 15, 2010 (as amended, supplemented or otherwise modified prior to the date hereof, the Credit Agreement). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement; and
WHEREAS, Pershing and Client desire to amend the Credit Agreement as set forth below.
NOW, THEREFORE, based upon the foregoing, the parties hereby agree as follows:
I. | Effective June 20, 2019, the Interest Rate section of Appendix A to the Credit Agreement shall be deleted and restated as follows: |
Interest Rate: One Month LIBOR Offered Rate plus 70 basis points
II. | Miscellaneous. |
Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Amendment, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) represents and warrants that, both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Except as expressly amended hereby, the Credit Agreement is and shall remain in full force and effect, and no amendment in respect of any term or condition of the Credit Agreement shall be deemed to be an amendment in respect of any other term or condition contained in the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ Jeanne M. Kelly | |
Name: | Jeanne M. Kelly | |
Title: | Senior Vice President |
PERSHING LLC | ||
By: | /s/ Peter R. Murphy | |
Name: | Peter R. Murphy | |
Title: | Managing Director |
Exhibit (k)(8)
Amendment No. 5
To
Credit Agreement for Margin Financing
AMENDMENT No. 5, dated as of September 4, 2019 (this Amendment) to the Credit Agreement for Margin Financing, dated as of December 15, 2010 between Western Asset High Income Fund II Inc. (Client) and Pershing LLC (Pershing).
WHEREAS, Pershing and Client are parties to the Credit Agreement for Margin Financing, dated as of December 15,2010 (as amended, supplemented or otherwise modified prior to the date hereof, the Credit Agreement). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement; and
WHEREAS, Pershing and Client desire to amend the Credit Agreement as set forth below.
NOW, THEREFORE, the parties hereby agree as follows, effective immediately:
I. | Appendix A to the Credit Agreement shall be deleted in its entirety and replaced with Appendix A hereto. |
II | Miscellaneous. |
Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Amendment, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) represents and warrants that, both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Except as expressly amended hereby, the Credit Agreement is and shall remain in full force and effect, and no amendment in respect of any term or condition of the Credit Agreement shall be deemed to be an amendment in respect of any other term or condition contained in the Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ Jane Trust | |
Name: | Jane Trust | |
Title: | President & CEO |
PERSHING LLC | ||
By: | /s/ Peter R. Murphy | |
Name: | Peter R. Murphy | |
Title: | Managing Director |
WESTERN ASSET HIGH INCOME FUND II INC.
APPENDIX A
Interest Rate: |
One Month LIBOR Offered Rate plus 70 bps |
LIBOR Offered Rate means the rate of interest equal to (a) the rate for deposits in U.S. dollars for an interest period of one month which appears on the Bloomberg Page BTMM as of 12:00 noon (new York City time) two LIBOR Business Days before the first day of such interest period, or (b) if such rate does not appear on Bloomberg Page BTMM two LIBOR Business Days before the first day of such interest period, then the rate for British bankers LIBOR as quoted by Reuters or Bloomberg as of 12:00 noon (New York City time) two LIBOR Business Days before the first day of such interest period, or (c) if such rate is not quoted by Reuters or Bloomberg, then the rate for deposits in U.S. dollars which appeared on the Bloomberg Page BTMM as of 12:00 noon (New York City time) three LIBOR Business Days before the first day of such interest period.
Margin Eligibility: | Securities eligible for margin shall be those defined under Regulation T of the Federal Reserve Board and FINRA RULE 4210, provided however that margin shall not be extended against: (a) any bond valued at less than $40; (b) any common or preferred stock not capable, in Pershings commercially reasonable discretion (the reasonableness of any determination by Pershing shall, in part, be based upon any information supplied to Pershing by Western Asset Management Company), of being liquidated measured against 3 trading days; (c) any 144A security restricted from sale within 30 days; (d) any non-U.S. security not able to be held by DTC, Euroclear or Clearstream, provided, however, that Pershing, in its commercially reasonable discretion, may consider, on a case by case basis, accepting eligible investment grade bonds and eligible non-investment grade bonds that are issued by foreign governments or companies domiciled outside the U.S. that are not able to be held by DTC, Euroclear or Clearstream. |
Diversification: | The Margin Release specified above shall remain in effect provided the Special Custody Account maintains a diversified group of securities wherein: (a) no individual security position, based upon CUSIP, ISIN or SEDOL, accounts for no more than 5% of the gross market value of all securities pledged in the Special Custody Account; (b) the securities of any single issuer do not account for more than 10% of the gross market value of all securities pledged in the Special Custody Account; (c) the securities of a single sector, as the term is defined by the U.S. Barclays High Yield Index (or its successor index), or the securities of a single country, do not account for more than 20% of the gross market value of all securities pledged in the Special Custody Account; or (d) the securities of non-G22 countries do not account for more than 50% of the gross market value of all securities pledged in the Special Custody Account. | |
Maximum Debit: | Client will not exceed the margin debit limit of $300 million without the mutual agreement of both parties. | |
Fees and Charges: | There are no other fees or charges currently contemplated in connection with this Agreement other than interest. To the extent any fees and/or charges arise, the parties agree to negotiate in good faith to determine such fees and/ or charges. To the extent fees or charges may arise in connection with services not provided under this Agreement, such fees and charges will be covered under an agreement related to those services. |
Exhibit (k)(9)
PDQ002003
Amendment No. 6
To
Credit Agreement for Margin Financing
AMENDMENT No. 6, dated as of August 3, 2020 (this Amendment) to the Credit Agreement for Margin Financing, dated as of December 15, 2010 between Western Asset High Income Fund II Inc. (Client) and Pershing LLC (Pershing).
WHEREAS, Pershing and Client are parties to the Credit Agreement for Margin Financing, dated as of December 15, 2010 (as amended, supplemented or otherwise modified prior to the date hereof, the Credit Agreement). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement; and
WHEREAS, Pershing and Client desire to amend the Credit Agreement as set forth below.
NOW, THEREFORE, the parties hereby agree as follows, effective immediately:
I. | Margin release for Non-US Investment Grade Bonds and Non-US Non-Investment Grade Bonds, including Sovereign Bonds, as stated on Appendix A, shall exclude securities where the issuer is domiciled in Turkey. |
II. | Miscellaneous. |
Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Amendment, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) represents and warrants that, both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Except as expressly amended hereby, the Credit Agreement is and shall remain in full force and effect, and no amendment in respect of any term or condition of the Credit Agreement shall be deemed to be an amendment in respect of any other term or condition contained in the Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: |
/s/ Jane Trust | |
Name: Jane Trust | ||
Title: Senior Managing Director |
PERSHING LLC | ||
By: |
/s/ Peter R Murphy | |
Name: Peter R Murphy | ||
Title: Managing Director |
Exhibit (k)(10)
Amendment No. 7
To
Credit Agreement for Margin Financing
AMENDMENT No. 7, dated as of May 27, 2021 (this Amendment) to the Credit Agreement for Margin Financing, dated as of December 15, 2010 between Western Asset High Income Fund II Inc. (Client) and Pershing LLC (Pershing).
WHEREAS, Pershing and Client are parties to the Credit Agreement for Margin Financing, dated as of December 15, 2010 (as amended, supplemented or otherwise modified prior to the date hereof, the Credit Agreement). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement; and
WHEREAS, Pershing and Client desire to amend the Credit Agreement as set forth below.
NOW, THEREFORE, the parties hereby agree as follows, effective immediately:
I. | Effective June 20, 2021, the Interest Rate section of Appendix A to the Credit Agreement shall be deleted and restated as follows: |
Interest Rate: Overnight Bank Funding Rate plus 80 basis points
Overnight Bank Funding Rate means the Overnight Bank Funding Rate as reported by the New York Federal Reserve in the FR2420 Report of Selected Money Market Rates or any successor report or website.
II. | Miscellaneous. |
Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Amendment, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) represents and warrants that, both before and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.
Except as expressly amended hereby, the Credit Agreement is and shall remain in full force and effect, and no amendment in respect of any term or condition of the Credit Agreement shall be deemed to be an amendment in respect of any other term or condition contained in the Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ Jane Trust | |
Name: Jane Trust | ||
Title: Senior Managing Director |
PERSHING LLC | ||
By: | /s/ Mark Aldoroty | |
Name: Mark Aldoroty | ||
Title: Managing Director |
Exhibit (k)(11)
ASSIGNMENT, CONSENT AND AMENDMENT AGREEMENT
This ASSIGNMENT, CONSENT AND AMENDMENT AGREEMENT (this Agreement) is dated as of March 10, 2022, by and between THE BANK OF NEW YORK MELLON, as assignee (Bank), PERSHING LLC, as assignor (Broker), WESTERN ASSET HIGH INCOME FUND II INC., as pledgor (Customer), and THE BANK OF NEW YORK MELLON, as custodian (Custodian).
WHEREAS, Broker and Customer have entered into a certain Credit Agreement for Margin Financing, dated as of December 15, 2010 (including all annexes, exhibits and schedules thereto, and as amended, modified or supplemented from time to time, the Credit Agreement); and
WHEREAS, Broker, Customer and Custodian have entered into a certain Special Custody and Pledge Agreement, dated as of March 28, 2018 (including all annexes, exhibits and schedules thereto, and as amended, modified or supplemented from time to time, the SCPA), pursuant to which Customer granted a security interest to Broker over certain assets to secure Customers obligations to Broker; and
WHEREAS, Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement or the SCPA, as applicable; and
WHEREAS, Pershing has transferred its interest in the Credit Agreement to BNYM and in connection with such transfer the parties thereto have made certain amendments thereto; and
WHEREAS, Broker desires to transfer and assign all of its rights and obligations under the SCPA, and Bank desires to assume all of such rights and obligations, and in connection with such assignment, certain amendments to the SCPA are required to be made; and
WHEREAS, each of Customer and Custodian desires to provide its consent to such transfer, and each of the parties desires to agree to such amendments.
NOW, THEREFORE, the parties hereto, each intending to be legally bound, do hereby agree as follows:
1. | Assignment and Assumption. Broker hereby transfers and assigns to Bank, and Bank hereby accepts and assumes, all of Brokers rights and obligations under the SCPA. |
2. | Amendments. |
(a) | All references in the SCPA to Pershing LLC and Broker shall be deleted and replaced with references to The Bank of New York Mellon and Bank. |
(b) | The first WHEREAS clause is deleted in its entirety and replaced with the following: |
WHEREAS, Bank is a New York State chartered bank; and
(c) | The second WHEREAS clause is deleted in its entirety and replaced with the following: |
WHEREAS, Bank and Customer are parties to a Credit Agreement for Margin Financing (as amended, supplemented or otherwise modified from time to time, the Credit Agreement), pursuant to which Customer has obtained margin financing; and
(d) | The fourth WHEREAS clause is deleted in its entirety and replaced with the following: |
WHEREAS, Bank is required to comply with applicable laws and regulations, including margin regulations (Margin Rules) Banks internal policies;
(e) | The separate account referred to in Section 2(a) of the SCPA shall be renamed to be Special Custody Account for The Bank of New York Mellon, as Pledgee of WESTERN ASSET HIGH INCOME FUND II INC. |
(f) | Section 14(c) of the SCPA is hereby deleted in its entirety and replaced with the following: |
if to Bank, to: |
The Bank of New York Mellon | |
240 Greenwich Street, 4th Floor | ||
New York, NY 10286 | ||
Attention: STL Desk Steve Brennan | ||
Telephone no.: 212-815-2270 | ||
E-mail: stephen.brennan@bnymellon.com |
(g) | Section 17 of the SCPA is hereby deleted in its entirety and replaced with the following: |
(17) Each of the parties hereto hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in the Borough of Manhattan in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby and to the jurisdiction of any other court located elsewhere as the Bank may select to enforce any judgment hereunder. Each of the parties hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. EACH OF THE PARTIES WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(h) | Section 22 of the SCPA is hereby deleted in its entirety. |
3. Representations. Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Agreement, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) no Default or Event of Default has occurred and is continuing
4. Consent. Each of Customer and Custodian hereby consents to the transfer and assignment of the SCPA from Broker to Bank as set forth herein and approves the amendments made pursuant to this Agreement.
5. Miscellaneous.
(a) | Except as expressly amended hereby, all of the provisions of the SCPA shall continue in full force and effect; and are hereby ratified and confirmed in all respects. Upon the effectiveness of this Agreement, all references in the SCPA to this Agreement (and all indirect references such as herein, hereby, hereunder and hereof) shall be deemed to refer to the SCPA as amended by this Agreement. |
(b) | This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which shall constitute but one agreement. Delivery of an executed signature page of this Agreement by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. |
(c) | This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). |
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above.
THE BANK OF NEW YORK MELLON, as assignee | ||
By: | /s/ Stephen Brennan | |
Name: | Stephen Brennan | |
Title: | Director | |
By: | /s/ Kieran Lynch | |
Name: | Kieran Lynch | |
Title: | MD | |
PERSHING LLC, as assignor | ||
By: | /s/ Jason Lofling | |
Name: | Jason Lofling | |
Title: | CFO | |
WESTERN ASSET HIGH INCOME FUND II INC., as pledgor | ||
By: | /s/ Jane Trust | |
Name: | Jane Trust | |
Title: | President and CEO | |
THE BANK OF NEW YORK MELLON, as custodian | ||
By: | /s/ Michael Keenan | |
Name: | Michael Keenan | |
Title: | Director |
[Signature page to Assignment, Consent and Amendment Agreement]
Exhibit (k)(12)
CONSENT AND AMENDMENT AGREEMENT
This CONSENT AND AMENDMENT AGREEMENT (this Agreement) is dated as of March 10, 2022 by and between THE BANK OF NEW YORK MELLON (BNYM), PERSHING LLC (Pershing), and WESTERN ASSET HIGH INCOME FUND II INC. (Client).
WHEREAS, Pershing and Client have entered into a certain Credit Agreement for Margin Financing, dated as of December 15, 2010, (including all annexes, exhibits and schedules thereto, and as amended, modified or supplemented from time to time, the Credit Agreement). Unless otherwise defined herein, all capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement;
WHEREAS, Pershing desires to transfer its interest in the Credit Agreement to BNYM and in connection with such proposed transfer, certain amendments to the Credit Agreement are required to be made; and
WHEREAS, Client desires to provide its consent to such transfer, and each of the parties desires to agree to such amendments.
NOW, THEREFORE, the parties hereto, each intending to be legally bound, do hereby agree as follows:
1. | Amendments to the Agreement. |
(a) | All references in the Credit Agreement to Pershing shall be deleted and replaced with references to BNYM. |
(b) | The first WHEREAS clause is deleted in its entirety and replaced with the following: |
WHEREAS, BNYM is a New York State chartered bank; and
(c) | The fourth WHEREAS clause is deleted in its entirety and replaced with the following: |
WHEREAS, BNYM is required to comply with applicable laws and regulations, including margin regulations (Margin Rules) and BNYMs internal policies; and
(d) | Section 7.08 (b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: |
if to BNYM, to: |
The Bank of New York Mellon | |
240 Greenwich Street, 4th Floor | ||
New York, NY 10286 | ||
Attention: STL Desk Steve Brennan | ||
Telephone no.: 212-815-2270 | ||
E-mail: stephen.brennan@bnymellon.com |
(e) | Section 7.09 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: |
Section 7.09 Jurisdiction; Jury Trial. Each of the parties hereto hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in the Borough of Manhattan in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby and to the jurisdiction of any other court located elsewhere as the Bank may select to enforce any judgment hereunder. Each of the parties hereto hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. EACH OF THE PARTIES WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(f) | In addition to the restrictions on securities eligible for margin contained in the Margin Eligibility provision in Appendix A, margin shall also not be extended against any security issued by BNYM (or any affiliate thereof) or the Client (or any affiliate thereof). |
(g) | Appendix B to the Credit Agreement shall be modified by deleting Russian Federation and Ukraine from Eligible Countries for Margin Release Category B. |
2. Representations. Client hereby reaffirms, represents and warrants that, both before and after giving effect to this Agreement, (a) each representation and warranty made in the Credit Agreement is true and correct in all material respects as of the date hereof and (b) no Default or Event of Default has occurred and is continuing
3. Consent. Client hereby consents to the transfer of the Credit Agreement from Pershing to BNYM and approves the amendments made pursuant to this Agreement.
4. Miscellaneous.
(a) | Except as expressly amended hereby, all of the provisions of the Credit Agreement shall continue in full force and effect; and are hereby ratified and confirmed in all respects. Upon the effectiveness of this Agreement, all references in the Credit Agreement to this Agreement (and all indirect references such as herein, hereby, hereunder and hereof) shall be deemed to refer to the Credit Agreement as amended by this Agreement. |
(b) | This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which shall constitute but one agreement. Delivery of an executed signature page of this Agreement by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. |
(c) | This Agreement will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). |
(d) | Each party shall bear its own costs incurred in connection with the negotiation and execution of this Agreement. |
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above.
THE BANK OF NEW YORK MELLON | ||
By: | /s/ Stephen Brennan | |
Name: | Stephen Brennan | |
Title: | Director | |
By: | /s/ Kieran Lynch | |
Name: | Kieran Lynch | |
Title: | MD | |
PERSHING LLC | ||
By: | /s/ Jason Lofling | |
Name: | Jason Lofling | |
Title: | CFO | |
WESTERN ASSET HIGH INCOME FUND II INC. | ||
By: | /s/ Jane Trust | |
Name: | Jane Trust | |
Title: | President and CEO |
[Signature page to Consent and Amendment Agreement]
Exhibit (l)
March 17, 2022
Western Asset High Income Fund II Inc.
620 Eighth Avenue, 49th Floor
New York, New York 10018
Re: Registration Statement on Form N-2:
1933 Act File No. 333-261721
1940 Act File No. 811-08709
Ladies and Gentlemen:
We have served as Maryland counsel to Western Asset High Income Fund II Inc., a Maryland corporation registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a closed-end management investment company (the Company), in connection with certain matters of Maryland law arising out of the registration of the following securities of the Company having an aggregate initial offering price of up to $175,000,000 (collectively, the Securities): (i) shares (Common Shares) of common stock, $0.001 par value per share (Common Stock); and (ii) subscription rights for shares of Common Stock (Subscription Rights), covered by the above-referenced Registration Statement, and all amendments thereto (the Registration Statement), filed by the Company with the United States Securities and Exchange Commission (the Commission) under the Securities Act of 1933, as amended (the 1933 Act), and the 1940 Act.
In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (collectively, the Documents):
1. The Registration Statement and the related form of prospectus included therein, substantially in the form transmitted to the Commission under the 1933 Act and the 1940 Act;
2. The charter of the Company (the Charter), certified by the State Department of Assessments and Taxation of Maryland (the SDAT);
3. The Third Amended and Restated Bylaws of the Company, certified as of the date hereof by an officer of the Company;
4. A certificate of the SDAT as to the good standing of the Company, dated as of a recent date;
5. Resolutions (the Resolutions) adopted by the Board of Directors of the Company (the Board) relating to the registration and issuance of the Securities, certified as of the date hereof by an officer of the Company;
Western Asset High Income Fund II Inc.
March 17, 2022
Page 2
6. A certificate executed by an officer of the Company, dated as of the date hereof; and
7. Such other documents and matters as we have deemed necessary or appropriate to express the opinion set forth below, subject to the assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed the following:
1. Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such partys obligations set forth therein are legal, valid and binding and are enforceable in accordance with all stated terms.
4. All Documents submitted to us as originals are authentic. The form and content of all Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all such Documents are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete. All representations, warranties, statements and information contained in the Documents are true and complete. There has been no oral or written modification of or amendment to any of the Documents, and there has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise.
5. The issuance, and certain terms, of the Securities to be issued by the Company from time to time will be authorized and approved by the Board, or a duly authorized committee thereof, in accordance with the Maryland General Corporation Law, the Charter, the Bylaws, the Registration Statement and the Resolutions; and with respect to any Subscription Rights, a Subscription Rights Certificate representing such Subscription Rights will be duly authorized by all necessary corporate action of the Company and the specific terms of such Subscription Rights will be duly established by the Board, and such Subscription Rights will be duly distributed by the Company, in accordance with the Charter, the Bylaws, the Registration Statement and the Resolutions (such approvals referred to herein as the Corporate Proceedings).
Western Asset High Income Fund II Inc.
March 17, 2022
Page 3
6. Upon the issuance of any Securities that are Common Shares, including Common Shares that may be issued upon the conversion or exercise of any other Securities convertible into or exercisable into Common Shares, the total number of shares of Common Stock issued and outstanding will not exceed the total number of shares of Common Stock that the Company is then authorized to issue under the Charter.
Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT.
2. Upon the completion of all Corporate Proceedings relating to the Common Shares, the issuance of the Common Shares will be duly authorized and, when and if issued and delivered against payment therefor in accordance with the Registration Statement, the Resolutions and the Corporate Proceedings, the Common Shares will be validly issued, fully paid and nonassessable.
3. Upon the completion of all Corporate Proceedings relating to the Subscription Rights, the issuance of the Subscription Rights will be duly authorized.
The foregoing opinion is limited to the laws of the State of Maryland and we do not express any opinion herein concerning any other law. We express no opinion as to the applicability or effect of the 1940 Act or other federal securities laws, or state securities laws, including the securities laws of the State of Maryland. To the extent that any matter as to which our opinion is expressed herein would be governed by the laws of any jurisdiction other than the State of Maryland, we do not express any opinion on such matter. The opinion expressed herein is subject to the effect of judicial decisions which may permit the introduction of parol evidence to modify the terms or the interpretation of agreements.
The opinion expressed herein is limited to the matters specifically set forth herein and no other opinion shall be inferred beyond the matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the Commission as an exhibit to the Registration Statement. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act.
Very truly yours, | ||
/s/ Venable LLP |
Exhibit (n)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form N-2 (the Registration Statement) of our report dated March 17, 2022, relating to the financial statements and financial highlights of Western Asset High Income Fund II Inc., which appears in such Registration Statement. We also consent to the references to us under the headings Financial Highlights, Independent Registered Public Accounting Firm and Financial Statements and Report of Independent Registered Public Accounting Firm in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
March 17, 2022
Exhibit (r)(1)
I. | Introduction |
A. | Individuals Covered by the Code |
This Code applies to all employees of Legg Mason & Co., LLC and interested directors of the Proprietary Funds who are not otherwise subject to another code of ethics adopted pursuant to either Rule 17j-1 under the
Investment Company Act or Rule 204A-1 under the Investment Advisers Act (Covered Persons).
1. | Without limiting the generality of the foregoing, this Code covers all employees of Legg Mason & Co., LLC who perform services on behalf of the Proprietary Funds as part of the following regulated entities: |
a. | Legg Mason Investor Services, LLC (LMIS). |
b. | Legg Mason Partners Fund Advisor, LLC (LMPFA). |
2. | For the avoidance of doubt, each of the Legg Mason Registered Advisers (other than LMPFA) have adopted their own codes of ethics, and employees of the Legg Mason Registered Advisers who are subject to the requirements of those codes of ethics (including any who may be registered representatives of LMIS) are not subject to the requirements of this Code. |
B. | Standards of Business Conduct |
This Code is based on the principle that Legg Mason and its affiliates owe a fiduciary duty to Legg Masons clients, and that all Covered Persons must therefore avoid activities, interests and relationships that might (i) present a conflict of interest or the appearance of a conflict of interest, or (ii) otherwise interfere with Legg
Masons ability to make decisions in the best interests of any of its clients. In particular, Covered Persons must at all times comply with the following standards of business conduct:
1. | Compliance with Applicable Law. All Covered Persons must comply with the Federal Securities Laws that apply to the business of Legg Mason. |
2. | Clients Come First. Covered Persons must scrupulously avoid serving their personal interests ahead of the interests of clients. For example, a Covered Person may not induce or cause a client to take action, or not to take action, for the Covered Persons personal benefit at the expense of the clients best interests. |
3. | Avoid Taking Advantage. Covered Persons may not use their knowledge of the Legg Mason Registered Advisers investment activities or client portfolio holdings to profit by the market effect of such activities or to engage in short-term or other abusive trading in Reportable Funds. |
4. | Avoid Other Inappropriate Relationships or Activities. Covered Persons should avoid relationships or activities that could call into question the Covered Persons ability to exercise independent judgment in the best interests of Legg Masons clients. In particular, Covered Persons should take note of the provisions of the Legg Mason Code of Conduct and the Legg Mason Employee Handbook that pertain to confidentiality, corporate opportunities, gifts and entertainment, insider trading and outside business activities. In addition, Covered Persons who are registered representatives of LMIS should also take note of LMISs policies and procedures pertaining to these activities. |
5. | Observe the Spirit of the Code. Doubtful situations should be resolved in favor of Legg Masons clients. Technical compliance with the Codes procedures will not automatically insulate from scrutiny any personal Securities Transactions or other course of conduct that might indicate an abuse of these governing principles. |
C. | Duty to Report Violations |
Covered Persons must promptly report all violations of this Code to the Compliance Department.
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D. | Fiduciary Duty / Political Contributions |
Covered Persons are prohibited from making political contributions for the purpose of obtaining or retaining any Legg Mason Registered Adviser or its affiliates as investment advisers. Covered Persons are specifically prohibited from making political contributions to any person for the purpose of influencing the selection or retention of an investment adviser by a government entity. Covered Persons will be required to certify annually that they have and will comply with this provision.
II. | Personal Securities Transactions |
A. | Prohibited Transactions in Individual Securities |
Covered Persons are subject to the following restrictions on their personal trading activities in individual securities:
1. | Fraudulent Transactions. In connection with the purchase or sale, directly or indirectly, by a Covered Person of (A) a Reportable Security which, within the most recent fifteen (15) calendar days, (i) is or has been held by a Legg Mason client, or (ii) is being or has been considered by a Legg Mason Registered Adviser for purchase by a client, or (B) an Equivalent Security thereof, Covered Persons are prohibited from: |
a. | Employing any device, scheme or artifice to defraud Legg Masons clients; |
b. | Making any untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading; |
c. | Engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on Legg Masons clients; or |
d. | Engaging in any manipulative practice with respect to Legg Masons clients. |
2. | Inside Information. Covered Persons are prohibited from engaging in any transaction in a Security (or Equivalent Security) at a time when the Covered Person is in possession of material non-public information regarding the Security or the issuer of the Security. |
3. | Market Manipulation. Covered Persons are prohibited from engaging in any transactions in a Security (or Equivalent Security) intended to raise, lower or maintain the price of that Security or to create a false appearance of active trading in that Security. |
4. | Trading on the Knowledge of Client Transactions. Covered Persons are prohibited from engaging in any transactions in a Security (or an Equivalent Security) on the basis of any information they may be in possession of to the effect that (i) a Legg Mason Registered Adviser is or may be considering an investment in or sale of such Security on behalf of its clients or (ii) has or may have an open order in such Security on behalf of its clients. |
5. | Legg Mason, Inc. Stock. Covered Persons are prohibited from engaging in any transaction in Legg Mason securities that is not in compliance with the Legg Mason, Inc. Policies and Procedures Regarding Acquisitions and Dispositions of Legg Mason Securities, as the same may be amended from time to time. A copy of this policy is available on the Governance page of LMEX. |
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B. | Prohibited Transactions in Reportable Funds |
1. | Market Timing in Reportable Funds. No Covered Person may use his or her knowledge of the portfolio holdings or investment activities of a Reportable Fund to engage in any short-term or other abusive trading strategy involving such Fund that may conflict with the best interests of the Fund and its shareholders. |
2. | 60-Day Holding Period for Investments in Proprietary Funds. Subject to the exemptions set forth below, no Covered Person may sell (or exchange out of) shares of a Proprietary Fund in which the Covered Person has a Beneficial Interest if the Covered Person has not held the shares of the same Proprietary Fund for sixty (60) calendar days, including any individual retirement account or 401(k) participant account. |
3. | Additionally, Proprietary Funds that are sold in the LM 401(k) account are also subject to a 60-day minimum waiting period. No Covered Person may buy (or exchange into) shares of a Proprietary Fund within sixty (60) calendar days of a sell of (or exchange out of) shares of the same Proprietary Fund within the same LM 401(k) account. |
The following Securities Transactions involving Proprietary Funds are exempt from the 60-day minimum holding period requirement set forth in this Section II.B.2 and II.B.3:
a. | Money Market Funds and Other Short-Term Trading Vehicles. Purchases or redemptions of Proprietary Funds that are money market funds or that hold themselves out as short-term trading vehicles. |
b. | Managed Accounts. Transactions in Proprietary Funds held in a Managed Account in connection with which the Covered Person has no direct or indirect influence or control over the account, is neither consulted nor advised of the trade before it is executed, and has no knowledge of specific management actions taken by a trustee or investment manager. |
c. | Systematic Investment. Purchases or redemptions of Proprietary Funds pursuant to an Automatic Investment Plan where a prescribed purchase or sale is made automatically on a regular predetermined basis without affirmative action by the Covered Person or pursuant to a similar arrangement approved by the Compliance Department (for example, automated payroll deduction investments by 401(k) participants or automatic dividend reinvestment). |
C. | Pre-Approval of Investments in Initial Public Offerings and Private Placements |
Covered Persons are prohibited from acquiring a Beneficial Interest in a Reportable Security through an initial public offering (other than a new offering of securities issued by a registered open-end investment company) or Private Placement without the prior written approval of the Compliance Department. Requests for such approval shall be submitted to the Compliance Department through Fidelity National Information Services, Inc. (FIS)/PTA using substantially the form of Request for Approval to Invest in an Initial Public Offering or Private Placement attached hereto as Appendix A.
D. | Reporting and Trading Requirements |
1. | Acknowledgement of Receipt; Initial and Periodic Disclosure of Personal Holdings; Annual Certification. |
a. | Within ten (10) calendar days of being identified as a Covered Person under this Code, each Covered Person must acknowledge that he or she has received and reviewed a copy of the Code, and has disclosed all Securities holdings in which such Covered Person has a Beneficial Interest.. |
b. | Thereafter, on an annual basis, each Covered Person shall give the same acknowledgements and, in addition, shall certify that he or she has complied with all applicable provisions of the Code. |
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c. | Such acknowledgments and certifications shall be provided through FIS/PTA using substantially the form of the Acknowledgement of Receipt of Code of Ethics, Personal Holdings Report and Annual Certification attached hereto as Appendix B. |
2. | Execution of Personal Securities Transactions. |
a. | Approved Accounts. Unless one of the following exceptions applies, Covered Persons must execute their personal securities transactions involving any Reportable Securities or Reportable Funds in which they have or acquire a Beneficial Interest through one of the following two types of accounts (Approved Accounts): |
i. | Approved Securities Accounts. Securities accounts (including IRA accounts) with financial intermediaries that have been approved by the Compliance Department (an Approved Securities Account); or |
ii. | Approved Retirement Accounts. Participant accounts in retirement plans approved by the Compliance Department on the grounds that either (i) automated feeds into FIS/PTA have been established, or (ii) sufficient policies and procedures are in place to protect any Reportable Funds that may be in the plan from the types of activities prohibited by Sections A and B above (an Approved Retirement Account).1 |
b. | Exceptions. The following types of accounts are exempt from the requirements of section 2.a above, subject to compliance with the conditions set forth below: |
i. | Mutual Fund-Only and Managed Accounts. Covered Persons may have or acquire a Beneficial Interest in Mutual Fund-Only and Managed Accounts that are not Approved Securities Accounts, provided that the requirement set forth in this Code relating to a Managed Account or Mutual Fund-Only Account, as the case may be, are satisfied. To qualify for this exemption, a Covered Person must deliver to the Compliance Department through FIS/PTA a certification in substantially the form of the Certificate for Managed Accounts or Mutual Fund-Only Accounts attached hereto as Appendix D. |
ii. | Outside Retirement Accounts. Covered Persons may have or acquire a Beneficial Interest in a retirement account other than an Approved Retirement Account (an Outside Retirement Account), provided that the Covered Person complies with the certification or reporting requirements set forth in Section 3.c below, and provided further that, for purposes of this Code, an IRA account shall be treated as a securities account and not as a retirement account. |
iii. | Dividend Reinvestment Plans. Covered Person may have or acquire a Beneficial Interest in securities held in a dividend reinvestment plan account directly with the issuer of the securities or its transfer agent (a Dividend Reinvestment Plan), subject to compliance with the requirements of Section 3.a below. |
iv. | Crypto Security Accounts. Covered Persons may have or acquire a Beneficial Interest in a Crypto Security Account subject to compliance with the requirements of Section 3.d below. |
c. | Outside Securities Accounts. Covered Persons that have or acquire a Beneficial Interest in a securities account (including an IRA account) other than an Approved Account, Mutual Fund-Only Account, Managed Account or Outside Retirement Account (an Outside Securities Account) must obtain the prior written approval to maintain such account from the Compliance Department. |
1 | A list of the approved financial intermediaries and retirement plans may be found on the Governance page on LMEX. |
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i. | A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of Request for Approval for an Outside Securities Account attached hereto as Appendix C. Such approvals will only be granted in extraordinary circumstances. |
ii. | If the Compliance Department does not approve such request, the Covered Person must arrange to transfer or convert such account into an Approved Account, Managed Account, Mutual Fund-Only Account or Outside Retirement Account as promptly as practicable. |
3. | Transaction Reporting Requirements. Covered Persons shall report all Securities Transactions in which they have a Beneficial Interest to the Compliance Department in accordance with the following provisions: |
a. | Approved Accounts, Managed Accounts, Mutual Fund Only and Dividend Reinvestment Plan Accounts. Covered Persons will not be required to arrange for the delivery of duplicate copies of confirmations or periodic statements for any Approved Accounts, Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans in which they have or acquire a Beneficial Interest. However, the existence of all such accounts must be disclosed to the Compliance Department pursuant to either Section II.D.1 above or II.D.4 below. In addition, copies of any statements for any Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans must be made available for review at the specific request of the Compliance Department. |
b. | Outside Securities Accounts. For any Outside Securities Account approved by the Compliance Department, a Covered Person must arrange for the Compliance Department to receive, directly from the applicable broker- dealer, bank or other financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Securities Account. |
i. | Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. Confirmations must be delivered to the Compliance Department contemporaneously with delivery to the applicable Covered Person. |
ii. | A form of letter that may be used to request duplicate confirmations and periodic statements from financial intermediaries is attached as Appendix E. If a Covered Person is not able to arrange for duplicate confirmations and periodic statements to be sent, the Covered Person must immediately cease trading in such account and notify the Compliance Department. |
iii. | It shall be the Covered Persons responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Securities Account. and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account. |
c. | Outside Retirement Accounts. For any Outside Retirement Account in which a Covered Person has a Beneficial Interest, such Covered Person must either: |
i. | Certify that such account does not hold any shares of a Reportable Fund or Reportable Security and that no Securities Transactions involving a Reportable Fund or Reportable Security have been executed in such account (such certifications shall be provided to the Compliance Department through FIS/PTA using substantially the form of the Certificate for Outside Retirement Accounts attached hereto as Appendix F); or. |
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ii. | If a Covered Person is unable to provide such certification with respect to an Outside Retirement Account, the Covered Person must notify the Compliance Department and provide the Compliance Department with duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Retirement Account. |
(a) | Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. |
(b) | It shall be the Covered Persons responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Retirement Account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account. |
d. | Crypto Security Accounts. For Crypto Security Accounts in which the aggregate value of the assets in the accounts is $25,000 or greater, the Covered Person must notify the Compliance Department and provide the Compliance Department with a periodic statement of transactions and holdings. |
4. | New Reportable Accounts. If a Covered Person opens a new reportable account that has not previously been disclosed, the Covered Person must notify the Compliance Department in writing within ten (10) calendar days of the existence of the account and make arrangements to comply with the requirements set forth in Sections II.D.2 & 3 above. |
5. | Disclaimers. Any report of a Securities Transaction for the benefit of a person other than the individual in whose account the transaction is placed may contain a statement that the report should not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the Security to which the report relates. |
6. | Availability of Reports. All information supplied pursuant to this Code may be made available for inspection to the CCO of any affected Legg Mason Registered Adviser or Reportable Fund, the board of directors of each company employing the Covered Person, the board of directors of any affected Reportable Fund, the Compliance Department, the Covered Persons department manager (or designee), any party to which any investigation is referred by any of the foregoing, the Securities and Exchange Commission, any self-regulatory organization of which Legg Mason is a member, any state securities commission, and any attorney or agent of the foregoing or of the Reportable Funds. |
7. | Outside Business Activities. No Covered Person may engage in outside business activities or serve on the board of directors of a publicly-held company absent prior written authorization of (i) the Compliance Department, and (ii) in the case of service on the board of directors of a publicly-held company, the General Counsel of Legg Mason, Inc. |
a. | A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of Request for Approval of Outside Business Activities attached hereto as Appendix G. |
b. | Requests for approval to serve as a director of a publicly held company will rarely be approved. |
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III. | Compliance with the Code of Ethics |
A. | Surveillance |
The Compliance Department shall be responsible for maintaining a surveillance program reasonably designed to monitor the personal trading activities of all Covered Persons for compliance with the provisions of this Code and for investigating any suspected violation of the Code. Upon reaching the conclusion that a violation of the Code has occurred, the Compliance Department shall report the results of such investigation to the applicable Covered Person, the Covered Persons department manager and to the CCOs of any affected Legg Mason Registered Adviser or Reportable Fund.
B. | Remedies |
1. | Authority. The Compliance Department has authority to determine the remedy for any violation of the Code, including appropriate disposition of any monies forfeited pursuant to this provision. Failure to promptly comply with any sanction directive may result in the imposition of additional sanctions.. |
2. | Sanctions. If the Compliance Department determines that a Covered Person has committed a violation of the Code, the Compliance Department may, in consultation with the Human Resources Department and the Covered Persons supervisor, as appropriate, impose sanctions and take other actions as it deems appropriate, including a verbal warning, a letter of caution or warning, suspension of personal trading rights, suspension of employment (with or without compensation), fine, civil referral to the Securities and Exchange Commission, criminal referral, and termination of employment of the violator for cause. The Compliance Department may also require the Covered Person to reverse the transaction in question and forfeit any profit or absorb any loss associated or derived as a result. The amount of profit shall be calculated by the Compliance Department. No member of the Compliance Department may review his or her own transaction or those of his or her supervisors. If necessary, the General Counsel of Legg Mason or the CCO of the relevant Legg Mason Registered Adviser shall review these transactions. |
C. | Exceptions to the Code |
Although exceptions to the Code will rarely be granted, the Compliance Department may grant exceptions to the requirements of the Code if the Compliance Department finds that the proposed conduct involves negligible opportunity for abuse. All such exceptions must be in writing..
IV. | Definitions |
When used in the Code, the following terms have the meanings set forth below:
A. | General Defined Terms |
CCO means the Chief Compliance Officer of any Reportable Fund, Legg Mason Registered Adviser or Legg Mason entity that is a principal underwriter of a Reportable Fund.
Code means this Code of Ethics, as the same may be amended from time to time.
Compliance Department means Legg Mason Legal and Compliance.
Covered Person means any employee of Legg Mason & Co., LLC who is covered by this Code in accordance with the provisions of Section I.A above.
Federal Securities Laws means the Securities Act of 1933, as amended, the Securities Exchange Act of 1934,
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as amended, the Sarbanes-Oxley Act of 2002, the Investment Company Act, the Investment Advisers Act, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to Legg Mason and any Reportable Funds, and any rule adopted thereunder by the Securities and Exchange Commission or the Department of the Treasury.
Investment Advisers Act means the Investment Advisers Act of 1940, as amended. Investment Company Act means the Investment Company Act of 1940, as amended. Legg Mason means Legg Mason, Inc. and its subsidiaries and affiliates.
Legg Mason Registered Advisers means those subsidiaries of Legg Mason that are registered as investment advisers under the Investment Advisers Act.
FIS/PTA means FIS Personal Trading Assistant, a web browser-based automated personal trading compliance platform used by the Compliance Department to administer this Code.
B. | Terms Defining the Scope of a Beneficial Interest in a Security |
Beneficial Interest means the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to profit, or share in any profit derived from, a transaction in the subject Securities.
A Covered Person is deemed to have a Beneficial Interest in the following:
1. | Any Security owned individually by the Covered Person. |
2. | Any Security owned jointly by the Covered Person with others (for example, joint accounts, spousal accounts, partnerships, trusts and controlling interests in corporations). |
3. | Any Security in which a member of the Covered Persons Immediate Family has a Beneficial Interest if: |
a. | The Security is held in an account over which the Covered Person has decision making authority (for example, the Covered Person acts as trustee, executor, or guardian); or |
b. | The Security is held in an account for which the Covered Person acts as a broker or investment adviser representative. |
A Covered Person is presumed to have a Beneficial Interest in any Security in which a member of the Covered Persons Immediate Family has a Beneficial Interest if the Immediate Family member resides in the same household as the Covered Person.
Any uncertainty as to whether a Covered Person has a Beneficial Interest in a Security should be brought to the attention of the Compliance Department. Such questions will be resolved in accordance with, and this definition shall be subject to, the definition of beneficial owner found in Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of 1934, as amended.
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Immediate Family of a Covered Person means any of the following persons:
child |
grandparent |
son-in-law | ||
stepchild |
spouse |
daughter-in-law | ||
grandchild |
sibling |
brother-in-law | ||
parent |
mother-in-law |
sister-in-law | ||
stepparent |
father-in-law |
Immediate Family includes adoptive relationships, domestic partner relationships and other relationships (whether or not recognized by law) that the Compliance Department determines could lead to the possible conflicts of interest, diversions of corporate opportunity, or appearances of impropriety, which this Code is intended to prevent.
C. | Terms Defining the Scope of a Reportable Transaction |
Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
Crypto Security is a digitally native asset (Bitcoin and Ethereum are not considered securities and are therefore excluded) that is deemed a security for purposes of federal securities laws.
Equivalent Security means any Security issued by the same entity as the issuer of a subject Security, including options, rights, stock appreciation rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and other obligations of that company or Security otherwise convertible into that Security. Options on Securities are included even if, technically, they are issued by the Options Clearing Corporation or a similar entity.
Managed Account means an account where a Covered Person has no:
| Direct or indirect influence or control over the account (for example, the trustee or investment manager simply summarizes, describes, or explains account activity without the Covered Person providing directions or suggestions); |
| Knowledge of the transaction before it is completed (for example, transactions effected for a Covered Person by a trustee of a blind trust, or discretionary trades made by an investment manager retained by the Covered Person, in connection with which the Covered Person is neither consulted nor advised of the trade before it is executed); and |
| Knowledge of the specific management actions taken by a trustee or investment manager and no right to intervene in the trustees or investment managers management (for example, the Covered Person is not consulted as to the allocation of investments for the account). |
Mutual Fund-Only Account means a Securities account or account held directly with a mutual fund that holds only non-Reportable Funds and in which no other type of Securities may be held. For purposes of this Code, a Mutual Fund-Only Account includes a 529 plan or variable annuity life insurance account that holds only non-Reportable Funds and in which no other type of Securities may be held.
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Private Placement means a Securities offering that is exempt from registration pursuant to Section 4(2) or Section 4(6) of the Securities Act of 1933, as amended (the Securities Act), or pursuant to Rules 504, 505 or 506 of Regulation D under the Securities Act.
Proprietary Fund means an open-end investment company including ETFs registered under the Investment Company Act (or any portfolio or series thereof, as the case may be) that is part of one of the fund families sponsored by Legg Mason or its affiliates.
Reportable Fund means (a) any fund registered under the Investment Company Act for which a Legg Mason Registered Adviser serves as an investment adviser, or (b) any fund registered under the Investment Company Act whose investment adviser or principal underwriter is controlled by or under common control with Legg Mason. For purposes of this definition, investment adviser has the same meaning as it does in section 2(a)(20) of the Investment Company Act, and control has the same meaning as it does in Section 2(a)(9) of the Investment Company Act.
Reportable Security means any Security (as defined herein) other than the following types of Securities:
1. | Direct obligations of the Government of the United States; |
2. | Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and |
3. | Shares of open-end mutual funds that are not Reportable Funds. |
Securities Transaction means a purchase or sale of Securities in which a Covered Person has or acquires a Beneficial Interest.
Security includes stock, notes, bonds, debentures, and other evidences of indebtedness (including loan participations and assignments), limited partnership interests, investment contracts, closed-end investment companies, and all derivative instruments of the foregoing, such as options and warrants. Security does not include futures or options on futures, but the purchase and sale of such instruments are nevertheless subject to the reporting requirements of the Code.
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Exhibit (r)(2)
CODE OF ETHICS
Western Asset Income Fund
Western Asset Management Company
Western Asset Management Company Limited
Western Asset Management Company Pte. Ltd.
Western Asset Funds, Inc.
Western Asset Premier Bond Fund
Western Asset/Claymore Inflation-Linked Securities & Income Fund
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund
Revised January 1, 2016
TABLE OF CONTENTS
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WHAT ARE THE OBJECTIVES AND SPIRIT OF THE CODE?
Adoption of Code of Ethics by Western Asset and the Funds. Western Asset Management Company, Western Asset Management Company Pte. Ltd. and Western Asset Management Company Limited (referred to generally as Western Asset) act as fiduciaries and, as such, are entrusted to act in the best interests of all clients, including investment companies. Accordingly, Western Asset has adopted this Code of Ethics in order to ensure that employees uphold their fiduciary obligations and to place the interests of clients, including the Funds, before their own.
In addition, Western Asset Income Fund, Western Asset Premier Bond Fund, Western Asset Funds, Inc., Western Asset/Claymore Inflation-Linked Securities & Income Fund and Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (referred to generally as the Funds) have also adopted this Code of Ethics in order to ensure that persons associated with the Funds, including Directors/Trustees (Directors), honor their fiduciary commitment to place the interests of the Funds before their own.
Regulatory Requirement. The Investment Company Act of 1940 requires each investment company (i.e., the Funds), as well as its investment adviser and principal underwriter, to adopt a code of ethics. In addition, the Investment Advisers Act of 1940 requires each investment adviser (i.e., Western Asset) to adopt a code of ethics. Both Acts also require that records be kept relating to the administration of the Code of Ethics. This Code of Ethics shall be read and interpreted in a manner consistent with these Acts and their related rules.
Compliance with Applicable Law. All persons associated with Western Asset are obligated to understand and comply with their obligations under applicable law. Among other things, laws and regulations make clear that it is illegal to defraud clients and Funds in any manner, mislead clients or Funds by affirmative statement or by omitting a material fact that should be disclosed, or to engage in any manipulative conduct with respect to clients, Funds, or the trading of securities.
Confidential Information. All persons associated with Western Asset and the Funds may be in a position to know about client identities, investment objectives, funding levels, and future plans as well as information about the transactions that Western Asset executes on their behalf and the securities holdings in their accounts. All this information is considered confidential and must not be shared unless otherwise permitted.
Avoiding Conflicts of Interest. Neither Western Asset employees nor Fund Directors may take advantage of their knowledge or position to place their interests ahead of Western Asset clients or the Funds, as the case may be. Different obligations may apply to different persons under this Code of Ethics, but this duty includes an obligation not to improperly trade in personal investment accounts, as well as an obligation to maintain complete objectivity and independence in making decisions that impact the management of client assets, including the Funds. Western Asset employees and Fund Directors must disclose all material facts concerning any potential conflict of interest that may arise to the Funds Chief Compliance Officer or the Western Asset Chief Compliance Officer, as appropriate.
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Upholding the Spirit of the Code of Ethics. The Code of Ethics sets forth principles and standards of conduct, but it does not and cannot cover every possible scenario or circumstance. Each person is expected to act in accordance with the spirit of the Code of Ethics and their fiduciary duty. Technical compliance with the Code of Ethics is not sufficient if a particular action or series of actions would violate the spirit of the Code of Ethics.
Western Asset Compliance Policies and Procedures. In addition to the Code of Ethics, Western Asset has established policies and procedures that are designed to address compliance requirements and conflicts and potential conflicts of interest not related to personal trading. Employees have an obligation to follow Western Assets compliance policies and procedures.
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While the spirit and objectives of the Code generally are the same for each person covered by the Code of Ethics, different specific requirements may apply to different categories of people. Western Asset and the Funds have both adopted the Code of Ethics, and the requirements for Western Asset employees differ from those for Fund Directors. You must understand what category or categories apply to you in order to understand which requirements you are subject to.
Western Asset Employees, Officers and Directors. As a condition of employment, all Western Asset employees, officers and directors (generally referred to as Western Asset employees) must read, understand and agree to comply with the Code of Ethics. You have an obligation to seek guidance or take any other appropriate steps to make sure you understand your obligations under the Code of Ethics. On an annual basis, you are required to certify that you have read and understand the Code of Ethics and agree to comply.
Western Asset Independent Contractors. Independent contractors may be subject to the Code of Ethics depending on the length of time with Western Asset, the nature of the engagement and the access to information. If designated, you are required to comply with the Code of Ethics and make all the required certifications. All independent contractors are still obliged to observe obligations of confidentiality and other terms of their engagements.
Directors of the Funds. The Code of Ethics applies to interested Directors of the Funds who are also Western Asset employees or otherwise interested persons because of their business affiliations with Western Asset. Interested Directors who are also employees or are otherwise interested persons because of their business affiliations with Legg Mason or Guggenheim are subject to the Legg Mason and Guggenheim Codes of Ethics, respectively.
| What are the Funds? |
○ | Western Asset Funds, Inc. |
○ | Western Asset Income Fund |
○ | Western Asset Premier Bond Fund |
○ | Western Asset/Claymore Inflation-Linked Securities & Income Fund |
○ | Western Asset/Claymore Inflation-Linked Opportunities & Income Fund. |
| If a Director is considered to be an interested person of a Fund, its investment adviser or principal underwriter within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, then he or she is considered an Interested Director. |
| If a Director is not considered to be an interested person, then he or she is considered to be a Disinterested Director. |
| If you are both a Fund Director and an employee of Western Asset, you are subject to the requirements that apply to you as an employee of Western Asset, as applicable. |
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| Western Asset Interested Directors are subject to those requirements forth in the Section below titled Requirements for Fund Directors. |
Access Persons. Western Asset employees and Fund Officers and Directors are considered Access Persons because they may have access to information regarding investment decisions, transactions and holdings. Other people may also be considered to be Access Persons and subject to the same requirements as Western Asset employees including the following:
| Any natural person that has the power to exercise a controlling influence over the management and policies of Western Asset or the Funds and who obtains information concerning recommendations made to a client account, including a Fund, with regard to the purchase or sale of a security. |
| Any person who provides advice on behalf of Western Asset and is subject to Western Assets supervision and control. |
| Any other such person as the Chief Compliance Officer of Western Asset or the Funds designate. |
Investment Persons. If you are a Western Asset employee and you also make recommendations or investment decisions on behalf of Western Asset as part of your regular functions or duties, or you make or participate in making recommendations regarding the purchase or sale of securities for a Western Asset client or account, you are considered an Investment Person. Investment Persons are subject to all the requirements of Western Asset employees, but also must comply with additional restrictions due to their knowledge and involvement with investment decisions Western Asset is considering or planning for the future.
Other Codes of Ethics. If you are an Access Person under this Code, but you are employed principally by affiliates of Western Asset and you are subject to a Code of Ethics that complies with applicable law, you are subject to the relevant provisions of the Code of Ethics of your principal employer and not subject to this Code.
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Western Asset Operations Committee:
| Responsibilities. The Western Asset Operations Committee has ultimate responsibility for the Code of Ethics. The Operations Committee shall review and approve or deny any changes or proposed changes to the Code of Ethics. The Operations Committee shall also receive periodic reports from the Legal and Compliance Department regarding violations of the Code of Ethics. The Operations Committee shall determine the appropriate policy with respect to sanctions for Code of Ethics violations. The Operations Committee may delegate the administration of this Code of Ethics to other individuals or departments, including the power to impose sanctions for particular violations according to the framework approved by the Committee. |
| Interpretation: The Operations Committee is the final arbiter of questions of interpretation under this Code of Ethics. |
Western Asset Chief Compliance Officer:
| Receipt of Violations. The Chief Compliance Officer (known as the CCO) for Western Asset is the person designated to receive all violations of the Code of Ethics. If a Western Asset employee becomes aware of a violation of this Code of Ethics or a violation of applicable law, they have an obligation to report the matter promptly to the CCO. |
| Review of Violations. The Western Asset CCO must review all violations of the Code of Ethics and oversee any appropriate investigation and subsequent response with respect to Western Asset. |
Chief Compliance Officer for the Funds:
| Responsibilities. The Chief Compliance Officer for the Funds is responsible for overseeing the administration of the Funds compliance policies and procedures. |
| Reporting of Violations. All violations of the Funds Code of Ethics must be reported to the Funds Chief Compliance Officer. To the extent that a violation involves a Fund Director, the Funds CCO shall oversee any appropriate investigation and subsequent response with respect to the Funds. |
Sanctions for Violations of the Code of Ethics:
| If you violate the Code of Ethics, you may be subject to sanctions. Violations may take a variety of forms, depending on the facts and circumstances and should reflect the nature of the violation, the risk to clients and other similar factors. |
| In evaluating a violation, a variety of factors may be considered including any evidence of a violation of the law, potential or actual harm to client interests, evidence of fraud, neglect or indifference to the Code of Ethics, frequency of violations, prior violations, and cooperation or mitigation efforts of the employee. |
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| Sanctions may include any of the following types of sanctions or such other sanctions as may be deemed appropriate: |
○ | Verbal or written warnings |
○ | Written warnings with copies to the employees supervisor and/or personnel file |
○ | Limits on personal trading activities, such as limits on the ability to trade or open new positions |
○ | Requirements to disgorge profits and/or reverse trades |
○ | Referrals to Human Resources for disciplinary action |
○ | Terminations |
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FIDUCIARY DUTY TO CLIENTS AND FUNDS
Comply with Applicable Law. A variety of securities laws, including those described in this Code of Ethics, apply to the operation of Western Asset and the Funds. It is your responsibility to understand your obligations under these laws and to comply with those requirements. You have an obligation to seek assistance from the Legal and Compliance Department if you are unsure of what your obligations are under this Code of Ethics.
Fiduciary Duty. As a fiduciary for Western Asset clients, including the Funds, you have an obligation to act in clients best interests. You must scrupulously avoid serving your personal interests ahead of the interests of clients and the Funds. That includes making sure that client interests come first and that you avoid any potential or actual conflicts of interest. That fiduciary duty extends to all aspects of the business. Conflicts and potential conflicts can arise in a variety of situations. You may have information regarding clients, their investment strategies, strategic plans, assets, holdings, transactions, personnel matters and other information. This information may not be communicated in any manner to benefit yourself or other persons. This obligation extends to avoiding potential conflicts between client accounts as well. You may not inappropriately favor the interests of one client over another.
Compliance with the Code of Ethics. All new staff are provided with a copy of this Code of Ethics upon joining the Firm and the current version is posted on the Firms intranet. From time to time, the Firm may revise the Code of Ethics and you will be provided with a copy of any such amendments to the Code. On an annual basis and when the Code of Ethics is amended, you will be required to acknowledge in writing that you have received, understand and agree to comply with the Code of Ethics.
Personal Interests. As a general matter, you may not improperly take personal advantage of your knowledge of recent, pending or intended securities activities for clients, including the Funds. In addition, you may not improperly take advantage of your position to personally gain at the expense of the interests of Western Asset, clients, or the Funds.
Maintaining the Best Interests of Clients. The provisions of this Code of Ethics address some of the ways in which you are expected to uphold the fiduciary duty to clients and the Funds. It is not an exclusive list.
Confidentiality. Unless otherwise permitted, information regarding clients or their accounts may not be shared with persons outside of the Firm, such as vendors, family members, or market participants. In particular, information regarding the trading intentions of clients or Western Asset on behalf of its clients may not be shared.
Personal trading:
| A potential conflict exists between the interests of clients (including the Funds) and your personal investment activities. This conflict may take shape in a variety of ways, including the particular trades you execute and the volume of trading you do. |
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| You may not engage in an excessive volume of trading in your personal accounts. High volumes of personal trading may raise concerns that your energies and interests are not aligned with client interests. |
| Depending on the particular security that you choose to buy, a holding period may also apply that requires you to hold that security for a minimum period of time. |
| At all times, you have an obligation to refrain from personally trading to manipulate the prices of securities and trading on material non-public information. |
| Given the potential conflict that exists between client transactions, holdings and intentions and your personal trading activity, the Code of Ethics contains detailed requirements regarding your personal conduct and the monitoring of your personal trading activity. The remaining sections of the Code of Ethics provide guidance on the requirements that must be followed in connection with your personal trading activity. |
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You must provide information regarding your personal investment accounts as required under this Code of Ethics. Reporting obligations take effect at the inception of your involvement with Western Asset or a Fund, and continue on a monthly, quarterly and annual basis. As with other provisions of the Code of Ethics, you are expected to understand and comply with the obligations that apply to you. (Applicable provisions for Western Asset Interested Directors are described more fully below in the Section titled Requirements for Fund Directors.)
In order to monitor potential conflicts of interest and your compliance with the Code, Western Asset employees and Interested Directors must identify investment accounts and provide information on particular securities transactions in those accounts.
Western Asset Management Company employees (i.e., those located in the Pasadena and New York offices) must maintain personal brokerage accounts only with brokers approved by the Firm. New hires must transfer their accounts within 90-days of hire. The criterion for broker approval is whether a broker is willing and able to provide electronic feeds to Western Asset for purposes of monitoring and administration of the Code of Ethics and Western Assets systems can effectively accommodate the electronic feeds. A list of approved brokers shall be published by the Legal and Compliance Department for reference by employees. Limited exceptions may be granted by the General Counsel or Chief Compliance Officer in such cases as may be necessary or prudent on a case by case basis (such as for accounts of family members of employees).
Which investment accounts do Western Asset employees and Western Asset Interested Directors need to report?
Report any of the following investment accounts:
| Any investment account with a broker-dealer or bank in which you have a direct or indirect interest, including accounts that are yours or that you share jointly with another person. This includes joint accounts, spousal accounts, UTMA accounts, partnerships, trusts and controlling interests in corporations. |
○ | This requirement generally will cover any type of brokerage account opened with a broker-dealer or bank. |
○ | You must also report any Individual Retirement Account (IRA) held with a broker-dealer or bank. |
| Any investment account with a broker-dealer or bank over which you have investment decision-making authority (including accounts you are named on, such as being a guardian, executor or trustee, as well as accounts you are not named on, such as an account owned by another person for which you have been granted trading authority). |
| Any investment account with a broker-dealer or bank established by partnership, corporation, or other entity in which you have a direct or indirect interest through any formal or informal understanding or agreement. |
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| Any college savings account in which you hold securities issued under Section 529 of the Internal Revenue Code and in which you have a direct or indirect interest. |
| Any other account that the Western Asset Operations Committee or its delegate deems appropriate in light of your interest or involvement. |
| You are presumed to have investment decision-making authority for, and therefore must report, any investment account of a member of your immediate family if they live in the same household as you. (Immediate family includes a spouse, child, grandchild, stepchild, parent, grandparent, sibling, mother or father-in-law, son or daughter in-law, or brother or sister in-law.) You may rebut this presumption if you are able to provide Western Asset with satisfactory assurances that you have no material interest in the account and exercise no control over investment decisions made regarding the account. Consult with the Legal and Compliance Department for guidance regarding this process. |
Do not report any of the following accounts:
| Do not report investment accounts that are not held at a broker-dealer or bank that permit investments only in shares of open-end investment companies or funds: |
○ | Do not report such an investment account if the account holds only shares in money market funds. |
○ | Do not report such an investment account if you only invest in open-end funds not advised or sub-advised by Western Asset or a Legg Mason affiliate. If you begin investing in open-end funds advised or sub-advised by Western Asset or an affiliate, you must report the investment account. |
| Do not report any 401(k), 403(b) or other company sponsored retirement accounts unless there is trading activity in funds advised or sub-advised by Western Asset or an affiliate. The list is available from the Legal and Compliance Department. Note: If you have a Legg Mason 401(k) account, no additional reporting is required, but you are subject to the holding period requirements described in the Section below titled Personal Trading Restrictions. |
What reports are Western Asset employees and Western Asset Interested Directors required to provide?
At hire: What information is required when you are hired or become a Western Asset employee or a Western Asset Interested Director of a Fund?
| You must report all of your investment accounts. (See information above for more detail on which accounts must be reported.) |
| The report must either include copies of statements or the name of the broker, dealer or bank, title on the account, security names, and the number of shares and principal amount of all holdings. |
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| You must sign and date all initial reports. |
| You must report required information within 10 calendar days from the date of hire or the date on which you become a Western Asset employee or Western Asset Interested Director. |
| All the information that you report must be no more than 45 days old. |
| The Legal and Compliance Department will attempt to arrange with your brokerage firm to receive duplicate confirmations and statements to enable the firm to monitor your trading activities, but your assistance may be required. |
Electronic Confirmations and Statements: The Western Asset Legal and Compliance Department will attempt to arrange to receive duplicate copies of transaction confirmations and account statements for each investment account directly from each financial institution with whom you have reported having an investment account. To the extent that Western Asset is able to directly obtain such information, you will not be required to separately provide the information described below for quarterly or annual transaction reports. You may be asked to confirm Western Assets records in lieu of providing your own holdings or transaction reports. Your assistance may be required for information Western Asset does not have or is not able to obtain otherwise, which may include providing statements to Western Asset yourself or coordinating with your financial institution to send confirmations and statements to Western Asset.
Quarterly Transaction Reports: What information is required on a quarterly basis?
| You must report all transactions in covered securities in which you have a direct or indirect beneficial interest during a quarter to the Legal and Compliance Department within 30 days after quarter end, regardless of whether the account is required to be reported as described above. |
○ | What are covered securities? Covered securities are any security as defined by the Investment Advisers Act of 1940, Investment Company Act of 1940, any financial instrument related to a security, including fixed income securities, any equity securities, any derivatives on fixed income or equity securities, ETFs, closed-end mutual funds, and any open-end mutual funds managed, advised or sub-advised by Western Asset or an affiliate. |
○ | Covered securities does not include obligations of the US government, bankers acceptances, bank certificates of deposit, commercial paper and high quality short term debt instruments such as repurchase agreements and other instruments as described below in the Section titled What Trades are Not Required to be Precleared? |
| The report shall state the title and number of shares, the principal amount of the security involved, the interest rate and maturity date if applicable, the date and nature of the transaction, the price at which the transaction was effected and the name of the broker, dealer or bank with or through whom the transaction was effected. |
| The report must also include the date it was submitted. |
| You may not be required to file a quarterly report if the Legal and Compliance Department received duplicate copies of your broker confirmations and statements within the 30 day time period. From |
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time to time, however, the Legal and Compliance Department may not receive all duplicate statements from brokers or may not receive them on a timely basis. In those cases, you will be notified by the Legal and Compliance Department and you have an obligation to provide copies of the statements or report all transactions you execute during the quarter in some other form. |
| If you have no investment accounts or executed no transactions in covered securities, you may be asked to confirm that you had no investment activity (either independent of an account or in a newly opened account). |
Annual Holdings Reports: What information is required on an annual basis?
| You must provide a list of all covered securities in which you have a direct or indirect interest, including those not held in an account at a broker-dealer or bank. The list must include the title, number of shares and principal amount of each covered security. Copies of investment account statements containing such information are sufficient. |
| You must report the account number, account name and financial institution for each investment account with a broker-dealer of bank for which you are required to report. |
| While the Western Asset Legal and Compliance Department may be receiving duplicate statements and confirmations for your investment accounts, this annual reporting requirement is intended to serve as a check to make sure that all of Western Assets information is accurate and current. |
| The information in the annual report must be current as of a date no more than 45 days before the report is submitted and the annual report must include the date it was submitted to the Western Asset Legal and Compliance Department. |
| You also must certify annually that you have complied with the requirements of this Code of Ethics and that you have disclosed or reported all transactions and holdings required to be disclosed or reported pursuant to the requirements of this Code. |
New Investment Accounts: When do I need to report new investment accounts that are required to be reported under the Code of Ethics?
| After you open an account or after you assume a role or obtain an interest in an account that requires reporting (as discussed in the Section titled Reporting of Personal Trading), you have 30 calendar days after the end of the quarter to report the account. |
| You must report the title of the account, the name of the financial institution for the account, the date the account was established (or the date on which you gained an interest or authority that requires the account to be reported) and the date reported. |
Additional Reporting for Certain Persons. What additional reporting obligations exist for Directors and Officers of Closed-End Investment Companies, officers or Western Asset, or designated members of the Western Asset Investment Strategy Group?
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| Section 16 of the Securities Exchange Act of 1934 requires Directors and Officers of any closed-end investment company to report to the Securities and Exchange Commission changes in their personal ownership of that closed-end investment companys stock. Note that reporting is not required for all close-end investment companies, but only the shares of those closed-end funds for which a person serves as a director or officer. |
| In addition, Section 16 requires Western Asset officers and designated members of the Western Asset Investment Strategy Group to forfeit to the Fund any profit realized from any purchase and sale, or any sale and purchase, of Fund shares within any period of less than six months. Under Section 16, holding periods operate on a last in, first out methodology, so the six month holding period for all holdings re-sets with each new purchase. Such persons should consult the Western Asset Legal and Compliance Department for further guidance regarding specific provisions of the law, including applicable reporting requirements |
| If provided with the necessary information, the Western Asset Legal and Compliance Department will assist and make the filings with the Securities and Exchange Commission on your behalf. |
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PRECLEARANCE PROCESS FOR PERSONAL TRADING
Before you execute a personal trade, the trade may need to be precleared to ensure that there is no conflict with Western Assets current trading activities on behalf of its clients (including the Funds). All Western Asset employees are required to preclear trades in securities except as provided below.
WHAT TRADES MUST BE PRECLEARED?
Any Security (unless excluded below). You must preclear trades in any security, which means any bond, stock, debenture, certificate of interest or participation in any profit sharing venture, warrant, right and generally anything that meets the definition of security under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Except for money market instruments and G-7 government direct obligations, all fixed income securities must be precleared.
Restricted List. Subject to the caveat below for common stock, you are required to preclear the securities of any issuer that are listed on the Western Asset restricted list.
Common Stocks. You are only required to preclear publicly traded common stocks if the issuer of the common stock is listed on the Western Asset restricted list. In cases where the common stock is on the restricted list, designated as being eligible for trading, and the issuer has USD$10 billion or more in market capitalization, pre-clearance is only required if your trade is over USD$100,000 in value. Restrictions also apply to investments in private placements (including private funds) or initial public offerings (see discussion below). Preclearance is not required, however, for trading in stocks issued by Legg Mason as long as all other restrictions regarding Legg Mason securities such as restricted periods are followed.
Stocks of Brazilian Issuers. You must preclear all Brazilian equity trades except trades of a de minimis amount (i.e., trades of 500 shares or less per day for any issuer with a market capitalization in excess of USD$10 billion). This preclearance requirement includes both common and preferred shares as well as local shares and GDR/ADR securities.
Derivatives. Trades in any financial instrument related to a security that is required to be pre-cleared, including options on securities, futures contracts, single stock futures, options on futures contracts and any other derivative must be precleared.
Shares in any Affiliated Open or Closed-end Mutual Fund or REIT. Preclearance is required if you purchase or sell shares of open-end or closed-end funds and/or REITs advised or sub-advised by Western Asset outside of your Legg Mason 401(k) participant account. This includes preclearance for such purchases or sales in a spouses retirement account. You are not required to preclear trades in your Legg Mason 401(k) participant account. Note: No preclearance is required for investments in any money market funds.
Systematic Investment Plans. Preclearance is required when executing an initial instruction for any purchases or sales that are made pursuant to a systematic investment or withdrawal plan involving a security that requires preclearance. For example, a systematic investment plan that regularly purchases
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shares of a Western Asset Fund would need to be precleared when the initial instruction was made, but not for each specific subsequent purchase. A systematic investment or withdrawal plan is one pursuant to which a prescribed purchase or sale will be automatically made on a regular, predetermined basis without affirmative action by the Access Person. As such, only the initial investment instruction (and any subsequent changes to the instruction) requires preclearance.
Private Placement Securities. All Western Asset employees must preclear any trades in private placement securities (i.e., any offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or 4(6) or pursuant to rule 504, rule 505, or rule 506 under the Securities Act of 1933) whether or not fixed income related. This requirement includes all private investment partnerships or funds such as hedge funds and private real estate holding partnerships.
Initial Public Offerings. Investment Persons are prohibited from participating in Initial Public Offerings, but other Western Asset employees may participate after obtaining preclearance.
529 College Savings Plans. Any transaction in units of a college savings plan established under Section 529 of the Internal Revenue Code where the underlying investments are open-end funds advised or sub-advised by Western Asset or an affiliate. A list of such funds is available from the Legal and Compliance Department.
Transactions in Retirement Accounts and Deferred Compensation Plans. All purchases or sales of investment companies or funds advised or sub-advised by Western Asset in any retirement account other than your Legg Mason 401(k) participant account or Deferred Compensation Plan must be precleared. Note: Trades in your Legg Mason 401(k) account are not required to be precleared, but are subject to a 60-day holding period if they are Legg Mason funds or if they are advised or sub-advised by Western Asset.
Shares of Preferred Stock. You are required to preclear all transactions in shares of preferred stock.
WHAT TRADES ARE NOT REQUIRED TO BE PRECLEARED?
Common Stocks. As long as the issuer of the securities is not listed on the Western Asset restricted list, you are not required to preclear publicly traded common stocks. All Western Asset employees are also required to preclear an equity security in the case of a private placement or an initial public offering (see discussion above).
Government Securities. Trades in any direct obligations of the U.S. Government or any G7 government are not required to be precleared.
High Quality Short-term Debt Instruments. High quality short term debt instruments including bankers acceptances, bank certificates of deposit, commercial paper, variable-rate demand notes, repurchase agreements and other high quality short-term debt instruments (meaning any instrument that has a maturity at issuance of less than 366 days and that is rated in one of the two highest rating categories by a nationally recognized statistical rating organization, such as S&P or Moodys) are not required to be precleared.
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Money Market Funds. Trades in any investment company or fund that is a money market fund are not required to be precleared.
Open-End Mutual Funds. Trades in open-end mutual funds that are not advised or sub-advised by Western Asset are not required to be precleared.
Closed-End Mutual Funds, Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs). Transactions of closed end mutual funds, ETFs and REITs are not required to be precleared unless they are advised by Western Asset.
Transactions Retirement Accounts and Deferred Compensation Plans. Purchases or sales of investment companies or funds in your Legg Mason 401(k) participant account or Deferred Compensation Plan are not required to be precleared. Note: Trades in your Legg Mason 401(k) account are not required to be precleared, but are subject to a holding period requirement if they are advised or sub-advised by Western Asset.
Systematic Investment Plans. Any purchases or sales that are made pursuant to a systematic investment or withdrawal plan that has previously been approved by a Preclearance Officer. A systematic investment plan is any plan where a sale or purchase will be automatically made on a regular, predetermined basis without your authorization for each transaction. The first instruction must be precleared, but each subsequent purchase is not required to be precleared unless changes are made to the terms of the standing order.
No Knowledge. Securities transactions where you have no knowledge of the transaction before it is completed (for example, a transaction effected by a Trustee of a blind trust or discretionary trades involving an investment partnership or investment club, when you are neither consulted nor advised of the trade before it is executed) are not required to be precleared.
Certain Corporate Actions. Any acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, spin-offs, exercise of rights or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities is not required to be precleared.
Options-Related Activity. Any acquisition or disposition of a security in connection with an option-related transaction that has been previously approved. For example, if you receive approval to write a covered call, and the call is later exercised, you are not required to obtain preclearance in order to exercise the call. Preclearance of a derivative of a security is required only if the underlying security requires preclearance.
Commodities, Futures and Options on Futures. Any transaction involving commodities, futures (including currency futures and futures on securities comprising part of a broad-based, publicly traded market based index of stocks) and options on futures. Preclearance is required for any single issuer derivatives, such as single stock futures.
529 College Savings Plans. Any transaction in units of a college savings plan established under Section 529 of the Internal Revenue Code, unless the underlying investment includes open-end funds advised or sub-advised by Western Asset or an affiliate.
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Miscellaneous. Any transaction in any other securities as the Western Asset Chief Compliance Officer may designate on the grounds that the risk of abuse is minimal or non-existent.
HOW DOES THE PRECLEARANCE PROCESS WORK?
Understand the Preclearance requirements. Review the Section above titled Preclearance Process for Personal Trading to determine if the security requires preclearance.
Trading Authorization Form. Obtain and complete a Trading Authorization Form.
Submission for approval. Submit the completed form to a Preclearance Officer for a determination of approval or denial. The Chief Compliance Officer shall designate Preclearance Officers to consider requests for approval or denials.
Approval or Denial. The Preclearance Officer shall determine whether approval of the proposed trade would place the individuals interests ahead of the interests of Western Asset clients (including the Funds). To be valid, a Preclearance Officer must sign the Trading Authorization Form or otherwise evidence approval.
Expiration of Trading Permission. Trade authorizations expire at the end of the trading day during which authorization is granted. Trade authorizations also expire if they are revoked or if you learn that the information provided in the Trade Authorization request is not accurate. If the authorization expires, a new authorization must be obtained before the trade order may be placed. If an order is placed but has not been executed before the authorization expires (e.g., a limit order), no new authorization is necessary unless the order is amended in any way.
Transactions of a Preclearance Officer. A Preclearance Officer may not approve his or her own Trading Authorization Form.
Proxies. You may designate a representative to complete and submit a Trade Authorization Form if you are unable to complete the form on your behalf in order to obtain proper authorization.
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In addition to reporting and preclearance obligations, you are also subject to restrictions regarding the manner in which you trade and hold securities in any personal investment accounts for which you report transactions. (The Section above titled Reporting of Personal Trading describes which accounts must be reported.)
For all Western Asset employees:
| Market Manipulation. You shall not execute any securities transactions with the intent to raise, lower, or maintain the price of any security or to falsely create the appearance of trading activity. |
| Spread Betting. Spread Betting is a speculative transaction that involves taking a bet on the price movement of a security, index or other financial product via a spread betting company. Spread betting on financial products is not permitted and employees may not use spread betting accounts to circumvent the Code of Ethics. Spread betting on non-financial products, such as sporting events, is not covered by the Code of Ethics. |
| Trading on Inside Information. You shall not purchase or sell any security if you have material nonpublic information about the security or the issuer of the security. You are also subject to Western Assets policy on insider trading. This policy applies both to personal transactions and to transactions executed by Western Asset personnel on behalf of client accounts. |
| Excessive Personal Trading. You are limited to 75 transactions per calendar quarter. Transactions are defined as executionstherefore, a buy and a sell of the same security are considered as two transactions and multiple fills for limit orders are each considered a transaction unless brokers provide information to permit independent confirmation that multiple confirmations originated from a single order. This does not apply to accounts held by family members where you do not have any trading authority, fully managed accounts where you have given permission to another party to manage your account, and rebalancing of investments in the 401(k), 403(b) or any other company sponsored retirement accounts. Single expressions of investment intent with multiple executions are counted as a single trade (i.e., multiple fills on a limit or a block trade across multiple family accounts). |
| Initial Public Offerings for Investment Persons: Investment Persons may not purchase any securities through an initial public offering. |
Regardless of whether a transaction is specifically prohibited in this Code of Ethics, you may not engage in any personal securities transactions that (i) impact your ability to carry out your assigned duties or (ii) increase the possibility of an actual or apparent conflict of interest.
Holding Periods for securities in personal accounts for all Western Asset employees:
| After making a purchase, you must hold that security for at least 30 calendar days unless specified otherwise below. |
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| Holding periods apply for all securities except transactions in money market funds, government/sovereign securities issued by G-7 countries and derivatives on such securities, high quality short-term debt instruments, ETFs or other index securities, options on broad-based indices, currencies, and open-end mutual funds not advised by Western Asset. |
| A 60-day holding period applies for all mutual funds, investment companies, unit trusts, REITs, or other commingled vehicles for which Western Asset serves as adviser or sub-adviser. |
| This limitation applies to any purchases or sales in your individual retirement account, 401(k), deferred compensation plan, or any similar retirement plan or investment account for you or your immediate family. There is no holding period for purchases or sales done through a systematic investment or withdrawal plan. |
| There is no holding period for accounts held by family members where you do not have any trading authority or fully managed accounts where you have given permission to another party to manage your account. You may not direct or recommend trades or take any other action that serves to circumvent the provisions of the Code of Ethics. |
| The holding period may be deemed inapplicable in circumstances such as stop-loss orders declared in advance or extreme market volatility if prudent and consistent with the Firms overarching fiduciary duties to clients and regulatory obligations. |
| One Day Blackout period for all Western Asset employees: |
○ | You may not purchase or sell a fixed-income security (or any security convertible into a fixed income security) of an issuer on the same day in which Western Asset is purchasing or selling a fixed-income security from that same issuer. |
○ | Contemporaneous trading activity will be the basis for a denial of a request for trading preclearance. |
| Seven Day Blackout period for Investment Persons: |
○ | You may not purchase or sell a fixed income security (or any security convertible into a fixed income security) if Western Asset purchases or sells securities of the same issuer within seven calendar days before or after the date of your purchase or sale. |
Preclearance Sought and Obtained in Good Faith:
| The blackout period restriction may be deemed inapplicable if, consistent with the overarching duty to put client interests ahead of personal or Firm interests, an Access Person making a personal transaction has sought and received preclearance. This determination will take into account such factors as the degree of involvement in or access to the persons or teams making the investment decision. |
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REQUIREMENTS FOR FUND DIRECTORS
Interested Directors of the Funds that are also Western Asset employees
| If you are an Interested Director and also a Western Asset, Legg Mason or Guggenheim employee, you are subject to all the Code of Ethics requirements that apply to you as a Western Asset, Legg Mason or Guggenheim employee. Accordingly, if you are a Western Asset employee, you are required to comply with all provisions of this Code of Ethics. If you are a Legg Mason or Guggenheim employee, you are not subject to the provision of this Code of Ethics, but you are required to comply with the Legg Mason or Guggenheim Code of Ethics, as applicable |
| You are also subject to the requirements under Section 16 of the Securities and Exchange Act of 1934. For Interested Directors who are also Western Asset employees, this obligation is addressed in the Section above titled Reporting of Personal Trading. |
Interested Directors of the Funds that are not Western Asset employees
| Applicable Provisions of the Code of Ethics. For an Interested Director that is not a Western Asset employee, only the requirements as set forth in the following Sections of the Code of Ethics shall apply: |
○ | Objectives and Spirit of the Code |
○ | Persons Subject to the Code |
○ | Persons Who Administer the Code |
○ | Reporting of Personal Trading |
○ | Requirements for Fund Directors |
These sections may also incorporate other parts of the Code of Ethics by reference.
| Rule 17j-1 Requirements with Respect to Reporting of Personal Trading. The requirements described above in the Section titled Reporting of Personal Trading shall only apply to the extent required by Rule 17j-1. In particular, no reporting of any open-end mutual funds is required. |
| Section 16 Reporting. Section 16 of the Securities and Exchange Act of 1934 requires all Directors of closed-end investment companies to report changes in your personal ownership of shares of investment companies for which you a Director. If provided with the necessary information, the Legal and Compliance Department will assist and make filings with the Securities and Exchange Commission on your behalf. |
| Section 16 Personal Trading Restrictions. Section 16 of the Securities and Exchange Act requires a Director to forfeit to the Fund any profit realized from any purchase and sale, or any sale and purchase, of Fund shares within any period of less than six months. Under Section 16, holding periods operate on a last in, first out methodology, so the six month holding period for all holdings re-sets with each new purchase. |
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Calculation of Filing Fee Tables
FORM N-2
(Form Type)
Western Asset High Income Fund II Inc.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered and Carry Forward Securities
Security Type |
Security Class Title |
Fee Calculation or Carry Forward Rule |
Amount Registered |
Proposed Maximum Offering Price Per Unit |
Maximum Aggregate Offering Price |
Fee Rate | Amount of Registration Fee |
Carry Form |
Carry Forward File Number |
Carry Forward Initial effective date |
Filing Fee Previously Paid In Connection with Unsold Securities to be Carried Forward | |||||||||||||
Newly Registered Securities | ||||||||||||||||||||||||
Fees to Be Paid |
Equity | Common Stock | 457(o) | $175,000,000 | $92.70 | $16,222.50 | ||||||||||||||||||
Fees to Be Paid |
Other | Rights to Purchase Shares of Common Stock(1) | | | ||||||||||||||||||||
Fees Previously Paid |
Equity | Common Stock | 457(o) | $1,000,000 | $92.70 | $92.70 | ||||||||||||||||||
Carry Forward Securities | ||||||||||||||||||||||||
Carry Forward Securities |
||||||||||||||||||||||||
Total Offering Amounts | $175,000,000 | $16,222.50 | ||||||||||||||||||||||
Total Fees Previously Paid | $92.70 | |||||||||||||||||||||||
Total Fee Offsets | ||||||||||||||||||||||||
Net Fee Due | $16,129.80 |
(1) | No separate consideration will be received by the Registrant. Any shares issued pursuant to an offering of rights to purchase shares of common stock, including any shares issued pursuant to an over-subscription privilege or a secondary over-subscription privilege, will be shares registered under this Registration Statement. |