WIA
Western Asset/Claymore Inflation-Linked Securities & Income Fund
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COMMON SHARES
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DAILY DATA as of
11/6/09
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Closing Share Price
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$12.36
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Closing NAV
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$12.85
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Premium/(Discount)
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(3.81%)
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52-Week Average Premium/Discount
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(4.39%)
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Current Distribution Rate6
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3.69%
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Monthly Dividend Per Share1
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$0.03800
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Daily Volume
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40,363
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Ex-Dividend Date
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11/10/09
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Payable Date
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11/30/09
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52 Week High/Low Share Price 2
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$12.43/$9.32
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52 Week High/Low NAV2
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$12.85/$10.72
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Intraday Trading Information
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NYSE
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Data subject to change on a daily basis.
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WEEKLY DATA as of
10/30/09
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Closing Share Price
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$12.40
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Closing NAV
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$12.82
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Closing Volume
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50,768
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Premium/(Discount)
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(3.28%)
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Distribution Rate
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3.68%
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Total Managed Assets
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$396,607,744
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Common Shares Outstanding
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29,152,821
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Percent Leveraged
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5.77%
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Data subject to change on a daily basis.
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SEMI-ANNUAL DATA as of
6/30/09
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Fiscal Year-End
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12/31
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Expense Ratio (Total Fund)5
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0.69%
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Expense Ratio (Common Shares)5
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0.96%
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Portfolio Turnover Rate4
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14%
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Portfolio Manager
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Western Asset Management
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Shareholder Servicing Agent
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Claymore Securities
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Data subject to change on a daily basis.
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INCEPTION INFORMATION
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Common Shares 3
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Inception Date
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September 25, 2003
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NYSE Symbol
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WIA
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NAV Symbol
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XWIAX
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The Wall Street Journal Listing
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WstAstClymrInfLnkSec
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CUSIP
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95766Q106
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Inception Share Price
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$15.00
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Inception NAV
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$14.33
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QUARTERLY TOTAL RETURNS
as of 9/30/09
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MARKET PRICE
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NAV
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2009 YTD
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14.95 %
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13.53 %
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1 Year
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21.77 %
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9.68 %
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3 Year
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7.51 %
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4.38 %
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5 Year
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4.12 %
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3.32 %
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Since Inception
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2.41 %
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3.57 %
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Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. Since Inception returns assume a purchase of common shares at the initial offering price of $15.00 per share for market price returns or initial net asset value (NAV) of $14.33 per share for NAV returns. Returns for periods of less than one year are not annualized. All distributions are assumed to be reinvested either in accordance with the dividend reinvestment plan (DRIP) for market price returns or NAV for NAV returns. Until the DRIP price is available from the Plan Agent, the market price returns reflect the reinvestment at the closing market price on the last business day of the month. Once the DRIP is available around mid-month, the market price returns are updated to reflect reinvestment at the DRIP price.
1
Dividend per share is subject to change on the ex-dividend date. The distribution amount may include net investment income, capital gains and/or return of capital. The distribution amount alone is not indicative of Fund performance.
2
Figures are based on market close.
3
Based on the prospectus information.
4
Not annualized
5
Expense ratio is annualized.
6
Latest declared monthly dividend per share annualized and divided by the current share price. To the extent any portion of the current distribution is estimated to be sourced from something other than income, such as return of capital, the source would be disclosed on a Section 19a-1 letter located under the “Fund News” section of the “News & Literature” section of the Fund’s website. The distribution rate may include net investment income, capital gains and/or return of capital. The distribution rate alone is not indicative of Fund performance.
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INVESTMENT OBJECTIVE
The Fund’s investment objective is to provide current income. Capital appreciation, when consistent with current income, is a secondary investment objective. Under normal market conditions, the Fund will invest at least 80% of its total assets in inflation-linked securities and at least 60% of its total managed assets in U.S. TIPS. The Fund may also invest up to 40% of its total managed assets in non-U.S. dollar investments, which gives the Fund flexibility to invest up to 40% of its total managed assets in non-U.S. dollar inflation-linked securities (no more than 20% of it’s non-U.S. dollar exposure may be unhedged). The Fund will continue its policy of not investing in bonds below investment-grade quality at the time of purchase. The Fund currently expects that the average effective duration of its portfolio will range between zero and 15 years, although this target duration may change from time to time. There can be no assurance that the Fund will achieve its investment objectives.
Hedging Strategy
The Fund uses various
investment strategies designed to help limit risk and to preserve capital.
Though the Fund is not required to be hedged at all times, the hedging
strategies include, among others, the use of swaps, futures contracts, short
sales, options on futures or options based on U.S. Treasury securities, an index
of longer-term securities or other instruments. We are particularly focused on
hedging high-volatility market events such as employment release dates. The
hedging strategies employed seek to achieve a relatively stable net asset value.
There can be no guarantee that the Funds’ hedging strategies will be employed
under all market conditions or will be successful. Additionally, the cost paid
for the hedging strategies may result in a reduction of the net asset value of a
Fund and, as a result, could make the Fund worse off than if such hedging
strategies had not been used.
For periodic shareholder reports and recent fund-specific filings, please visit the U.S. Securities and Exchange Commission (“SEC”) website via the following link, click here.
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FREQUENTLY ASKED QUESTIONS
Why did the Fund reduce its March 2009 dividend?
As noted in its March 2009 dividend press release, the Fund declared a monthly dividend of $0.038 which represents a reduction of approximately 17.4% from its previous level.
As stated in the Fund’s most recent quarterly review, for the period ended December 31, 2008, the increase in inflation in 2008 was driven by the run up in commodities which have since shed most of their gains in the latter-half of 2008. By the middle of 2009, CPI-U is expected to be negative on a year-over-year basis for several months and, we believe, long-term prospects for inflation remain contained. We believe that some of this reduced inflation outlook has already been evidenced in the market. For example, CPI-U decreased 1.7% in December 2008, on a seasonally adjusted basis –the largest one-month decrease on record. Should inflation continue to decrease, U.S. TIPS may suffer in the short-run from lower inflation accretion which, in turn, may result in a decrease in income received by the Fund. Conversely, should inflation increase, U.S. TIPS may prosper in the short-run from higher inflation accretion which, in turn, may result in an increase in income received by the Fund.
How much experience does the manager have with managing U.S. TIPS?
Managing U.S. TIPS in institutional clients portfolios has been an area of expertise of Western since U.S. TIPS were issued back in 1997.
What are the mechanics of TIPS and how is the income affected by inflation (CPI-U)?
U.S. TIPS are issued by the U.S. Treasury Department and pay a fixed coupon on a principal value that adjusts for inflation as measured by the CPI-U. Historically, inflation has exhibited a certain seasonality, which may be attributed to varying economic and business cycles. Inflation has generally trended up at the beginning of the year, down in the summer, up slightly in the fall and down dramatically in November and December.
One of the mechanics of U.S. TIPS is the principal value’s adjustment for inflation, which occurs after a brief lag from the Bureau of Labor Statistics’ announcement date. In other words, the CPI-U announced in December (which actually refers to November’s inflation) impacts the accretion on U.S. TIPS for January. The CPI-U announced in January (in reference to December’s inflation) impacts the accretion for U.S. TIPS in February. Accretion is essentially the adjustment of principal value due to changes in the CPI-U.
Since the income from U.S. TIPS is based on both a fixed coupon and a variable component based on principal value that adjusts for inflation, this seasonality may cause U.S. TIPS’ income to fluctuate. One of the Fund’s goals is to “smooth out” the seasonality of its income by seeking to provide a relatively stable monthly dividend to shareholders based upon the outlook for the year. In years where inflation follows its historical trend, the Fund would generate significantly less income during January and February than the remaining months of the year. As a result, it is likely that in some months (like January and February), the dividend in a given month may exceed the Fund’s income that month. If such a deficit occurs, it is because the Fund expects to make up the deficit in months where the Fund’s income exceeds the dividend, although there is no assurance this will happen. Should the Fund’s net income be insufficient to meet the distributions to shareholders in a given month, the Fund will send a notice to shareholders indicating the source of these distributions. For each calendar year, the final characterization of the Fund’s distributions will be reported to shareholders on Form 1099-DIV the following January.
Describe the differences between closed-end and open-end funds?
An open-end fund may be purchased or sold at NAV. An open-end fund will issue new shares when an investor wants to purchases shares in the fund and will sell assets to redeem shares when an investor wants to sell shares. When selling an open-end fund the price the seller receives is established at the close of the market when the NAV is calculated. Unlike the open-end fund, a closed-end fund has a limited number of shares outstanding and trades on an exchange at the market price based on supply and demand. An investor may purchase or sell shares at market price while the exchange is open. The common shares may trade at a discount or premium to the NAV.
How will the dividends from the Fund be taxed?
We anticipate that the dividends paid by the Fund will be ordinary income to the shareholders. If the Fund has realized gains during a fiscal year, the Fund’s Board will determine if they will be distributed to shareholders.
Does the protective hedge guarantee safety?
There are no guarantees in hedging. The Fund uses various investment strategies designed to help limit risk and to preserve capital. Though the Fund is not required to be hedged at all times, the hedging strategies include, among others, the use of swaps, futures contracts, short sales, options on futures or options based on U.S. Treasury securities, an index of longer-term securities or other instruments. We are particularly focused on hedging high-volatility market events such as employment release dates. The hedging strategies employed seek to achieve a relatively stable net asset value. There can be no guarantee that the Funds’ hedging strategies will be employed under all market conditions or will be successful. Additionally, the cost paid for the hedging strategies may result in a reduction of the net asset value of a Fund and, as a result, could make the Fund worse off than if such hedging strategies had not been used.
When does the protective hedge come into effect?
The protective hedge is generally created by purchasing out-of-the-money put options on Treasury securities. As interest rates rise, the options increase in value, helping to offset any declines in the valuation of the U.S. TIPS and corporate securities.
What does the "Ex-Div" or the "Ex-Dividend" date refer to?
Every month the Fund pays dividends and those investors who purchase the Fund before the ex-dividend date will receive the next dividend distribution. Investors who purchase on or after the ex-dividend date will not receive the next dividend distribution. The value of the dividend is subtracted from the Fund's NAV on the ex-dividend date each month. So when the NAV is reported with an "ex-div" behind it, this means that the amount of the dividend has already been taken out of the NAV.
What is the DRIP and how does it work?
DRIP is the Dividend Reinvestment Plan. The number of shares of common stock distributed to participants in the Plan in lieu of a cash dividend is determined in the following manner. Whenever the market price per share of the Fund’s common stock is equal to or exceeds the net asset value per share on the valuation date, participants in the Plan will be issued new shares valued at the higher of net asset value or 95% of the then-current market value. Otherwise, the Administrator will buy shares of the common stock in the open market, on the NYSE or elsewhere.
The Fund’s prospectus offers a more thorough discussion of the risks and considerations associated with an investment in the Fund. Such risks and considerations include, but are not limited to: Investment Risk, Market Discount Risk, Interest Rate Risk, Inflation-Linked Securities Risk, U.S. TIPS Risk, Credit Risk, Lower Grade and Unrated Securities Risk, Leverage Risk, Issuer Risk, Country Risk, Prepayment Risk, Reinvestment Risk, Derivatives Risk, Inflation/Deflation Risk, Mortgage-Related Securities Risk, Management Risk, Turnover Risk, Anti-Takeover Provisions, Smaller Company Risk, and Market Disruption and Geopolitical Risk.
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WIA FUND MANAGER
The Fund will be managed by Western Asset, founded in 1971, one of the world’s premier
fixed-income managers, with offices in Pasadena, London and Singapore.
Exclusively focused on fixed income, Western Asset’s client base includes
several of the largest companies in the world as well as numerous public
entities, healthcare organizations, foundations and public pension plans.
Western Asset’s objective is to provide fixed-income clients with value-oriented
portfolios that are managed for the long term. Western Asset believes
significant inefficiencies exist in the fixed-income markets and by combining
traditional analysis with innovative technology, the firm attempts to add value
by exploiting these inefficiencies across eligible sectors. For the Fund,
Western Asset intends to employ proprietary risk management techniques that were
developed specifically to enhance other leveraged funds.
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INVESTMENT TEAM
Portfolio Management
S. Kenneth Leech | Chief Investment Officer Emeritus
| 1990-present |
Chief Investment Officer Emeritus |
| 1988-1990 |
Greenwich Capital Markets, Portfolio Manager |
| 1980-1988 |
The First Boston Corporation, Fixed Income Manager |
| 1977-1980 |
National Bank of Detroit, Portfolio Manager |
The Wharton School,University of Pennsylvania, M.B.A., B.S., B.A.
Peter Stutz, CFA | Portfolio Manager/Research Analyst
| 1997-present |
Portfolio Manager/Research Analyst |
| 1996-1997 |
Pacific Telesis Group, Portfolio Manager |
| 1993-1996 |
Wells Fargo Nikko Investment Advisors, Trader |
University of Chicago, M.B.A.
University of Illinois, B.S.
Stephen A. Walsh | Chief Investment Officer
| 1991-present |
Chief Investment Officer |
| 1989-1991 |
Security Pacific Investment Managers, Inc., Portfolio
Manager |
| 1981-1988 |
Atlantic Richfield Company, Portfolio Manager |
University of Colorado at Boulder, B.S.
Keith J. Gardner | Portfolio Manager, Research Analyst
| 1994-present |
Portfolio Manager, Research Analyst
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| 1992-1994 |
Legg Mason, Portfolio Manager |
| 1985-1992 |
T. Rowe Price, Portfolio Manager |
| 1983-1985 |
Salomon Brothers, Research Analyst |
State University of New York at Binghamton , B.S.
Michael C. Buchanan, CFA | Head of Credit
| 2005-present |
Head of Credit
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| 2003-2005 |
Credit Suisse Asset Management, Managing Director, Head of U.S. Credit Products |
| 2003 |
Janus Capital Management, Executive Vice President, Portfolio Manager |
| 1998-2003 |
Blackrock Financial Management, Managing Director, Portfolio Manager, Head of High Yield Trading |
| 1990-1998 |
Conseco Capital Management, Vice President, Portfolio Manager |
Brown University, B.A.
Paul E. Wynn | Portfolio Manager
| 1992-present |
Portfolio Manager |
| 1982-1992 |
Morgan Grenfell, Portfolio
Manager |
Keele University, B.S.
WIA Investment Adviser
Western Asset Management Company
385 East Colorado Boulevard
Pasadena CA, 91105
If you would like to view the Investment Manager's website, you may click on the link below.
It is important to note that by clicking on the link, you will be leaving this website
and any information viewed there is not the property of Claymore Securities, Inc.
www.westernasset.com
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RISKS AND OTHER CONSIDERATIONS
There can be no assurance that the Fund will achieve its investment objectives. The value of the Fund will fluctuate with the value of the underlying securities. Historically, closed-end funds often trade at a discount to their net asset value. Risk is inherent in all investing, including the loss of your entire principal. Therefore, before investing you should consider the following risks carefully.
Market Discount Risk. Shares of closed-end management investment companies frequently trade at a discount from their net asset value, and the Fund’s shares may trade at a price that is less than the initial offering price. Net asset value will be reduced immediately following the initial offering by a 4.5% sales load charge and offering costs paid by the Fund. The risk of investing in a newly organized closed-end investment company may be greater for investors who sell their shares in a relatively short period of time after completion of the initial offering. The common shares are designed for long-term investors and should not be treated as trading vehicles.
Interest Rate Risk. Interest rate risk is the risk that the bonds in the Fund’s portfolio (including inflation-linked securities and U.S. TIPS) will decline in value because of increases in market interest rates. The prices of longer-term bonds generally fluctuate more than prices of shorter-term bonds as interest rates change. Because the Fund will invest primarily in intermediate- to longer-term bonds, the common share net asset value and market price per share will fluctuate more in response to changes in market interest rates than if the Fund invested primarily in shorter-term bonds. Because market interest rates are currently near their lowest levels in many years, there is a greater risk that the Fund’s portfolio will decline in value. The Fund’s use of leverage, as described below, will increase interest rate risk. See ‘‘Risks—Leverage Risk.’’
Risks Relating to U.S. TIPS. The value of inflation-protected securities such as U.S. TIPS generally fluctuates in response to changes in real interest rates, which are in turn tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of U.S. TIPS. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of U.S. TIPS. Although the principal value of U.S. TIPS declines in periods of deflation, holders at maturity receive no less than the par value of the bond. However, if the Fund purchases U.S. TIPS in the secondary market whose principal values have been adjusted upward due to inflation since issuance, the Fund may experience a loss if there is a subsequent period of deflation. If inflation is lower than expected during the period the Fund holds U.S. TIPS, the Fund may earn less on the securities than on conventional bonds. Any increase in principal value of U.S. TIPS caused by an increase in the index is taxable in the year the increase occurs, even though the Fund will not receive cash representing the increase at that time. As a result, the Fund could be required at times to liquidate other investments, including when it is not advantageous to do so, in order to satisfy its distribution requirements as a regulated investment company under the Code. If real interest rates rise (i.e., if interest rates rise due to reasons other than inflation), the value of the U.S. TIPS in the Fund’s portfolio will decline. In addition, because the principal amount of U.S. TIPS would be adjusted downward during a period of deflation, the Fund will be subject to deflation risk with respect to its investments in these securities. The daily adjustment of the principal value of U.S. TIPS is currently tied to the non-seasonally adjusted Consumer Price Index for All Urban Consumers, which is calculated monthly by the U.S. Bureau of Labor Statistics. The Consumer Price Index for All Urban Consumers is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. There can no assurance that such index will accurately measure the real rate of inflation in the prices of goods and services. The U.S. Treasury only began issuing inflation-protected securities in 1997, and the market for such securities may be less developed or liquid, and more volatile, than certain other securities markets as a result. The U.S. Treasury currently issues U.S. TIPS in only ten-year maturities, although U.S. TIPS with different maturities have been issued in the past and may be issued in the future.
Risks Relating to Inflation-Linked Securities. The Fund invest in inflation-protected securities with other structures or characteristics as such securities become available in the market. It is currently expected that other types of inflation-protected securities would have characteristics similar to those described above in Risks Relating to U.S. TIPS.
Credit Risk. Credit risk is the risk that one or more bonds in the Fund’s portfolio will decline in price, or fail to pay interest or principal when due, because the issuer of the bond experiences a decline in its financial status. Not all U.S. government securities are backed by the full faith and credit of the United States. Some securities, such as securities issued by Freddie Mac, are backed only by the credit of the issuing agency or instrumentality. Accordingly, credit risk exists with respect to these securities.
Lower Grade and Unrated Securities Risk. Although the Fund will not invest in securities that are below investment grade quality at the time of purchase, the Fund is not required to dispose of a security if a rating agency or Western Asset downgrades its assessment of the credit characteristics of a particular issue. As a result the Fund may, from time to time, hold bonds of below investment grade quality. Lower grade securities, or equivalent unrated securities, which are commonly known as ‘‘junk bonds,’’ typically entail greater potential price volatility and may be less liquid than higher-rated securities. Lower grade securities are regarded as having predominately speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. These securities may also be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-rated securities. Unrated securities may be less liquid than comparable rated securities and involve the risk that Western Asset may not accurately evaluate the security’s comparative credit rating. Analysis of the creditworthiness of issuers of lower grade securities may be more complex than for issuers of higher-quality debt obligations. To the extent that the Fund holds lower grade and/or unrated securities, the Fund’s success in achieving its investment objectives may depend more heavily on Western Asset’s credit analysis than if the Fund held exclusively higher-quality and rated securities.
Leverage Risk. The use of leverage—through the issuance of preferred shares and borrowing of money and, under certain circumstances, reverse repurchase agreements, short sales, futures contracts, credit default swaps, dollar roll transactions and other investment techniques—to purchase additional investments creates an opportunity for increased common share net investment income dividends and capital appreciation, but also creates special risks for Common Shareholders. The Fund’s leveraging strategy may not be successful. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. Increases and decreases in the value of the Fund’s portfolio will be magnified when the Fund uses leverage. As a result, leverage will cause greater changes in the Fund’s net asset value. The Fund will also have to pay dividends with respect to preferred shares and/or interest with respect to other forms of leverage, which may reduce the Fund’s return. This expense may be greater than the Fund’s return on the underlying investments. It is anticipated that dividends with respect to preferred shares and/or interest with respect to other forms of leverage will be based on shorter-term interest rates that would be periodically reset. The Fund intends to invest the proceeds from the issuance of preferred shares or the use of other forms of leverage principally in intermediate- and longer-term bonds. So long as the Fund’s portfolio provides a higher rate of return (net of Fund expenses) than dividend rates on preferred shares and interest rates on other forms of leverage, as reset periodically, the use of leverage will allow Common Shareholders to receive a higher current return than if the Fund were not leveraged. If, however, shorter-term interest rates rise relative to intermediate- and long-term interest rates or the rate of return on the Fund’s portfolio, dividend rates on preferred shares and interest rates on other forms of leverage could exceed the rate of return on intermediate- and longer-term bonds and other investments held by the Fund, reducing the return to Common Shareholders. There can be no assurance that the use of leverage will result in a higher yield on the common shares. When leverage is employed, the net asset value and market price of the common shares and the yield to Common Shareholders will be more volatile. The use of leverage will cause the Fund’s net asset value to fall more sharply in response to increases in interest rates than it would in the absence of the use of leverage. In addition, preferred shares, if issued, are expected to pay cumulative dividends, which may tend to increase leverage risk. Leverage creates two major types of risks for Common Shareholders: the likelihood of greater volatility of net asset value and market price of the common shares because changes in the value of the Fund’s assets, including investments bought with the proceeds from the use of leverage, are borne entirely by the Common Shareholders; and the possibility either that common share net investment income will fall if the interest and dividend rates on leverage rise or that common share net investment income will fluctuate because the interest and dividend rates on leverage vary. In addition, under certain circumstances, Common Shareholders may not receive dividends, but holders of preferred shares may, because preferred shares have priority of payment over common shares. The issuance of preferred shares will also alter the voting power of Common Shareholders. If the Fund has preferred shares outstanding, two of the Fund’s Trustees will be elected by the holders of preferred shares, voting separately as a class. The remaining Trustees of the Fund will be elected by holders of common shares and preferred shares voting together as a single class. In the unlikely event that the Fund fails to pay dividends on preferred shares for two years, holders of the preferred shares would be entitled to elect a majority of the Trustees of the Fund.
Issuer Risk. The value of a corporate debt instrument may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods and services.
Smaller Company Risk. The general risks associated with corporate debt obligations are particularly pronounced for securities issued by companies with smaller market capitalizations. These companies may have limited product lines, markets or financial resources, or may depend on a few key employees. As a result, they may be subject to greater levels of credit, interest rate and issuer risk. Securities of smaller companies may trade less frequently and in less 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.
Country Risk. Investments in securities of non-U.S. issuers (including those denominated in U.S. dollars) involve certain risks not typically associated with investments in domestic issuers. For example, the value of those investments may decline in response to unfavorable political and legal developments, unreliable or untimely information, or economic and financial instability. Settlement procedures outside the U.S. may also involve additional risks. The risks described in this paragraph will be greater to the extent the Fund invests in securities of issuers based in developing or ‘‘emerging market’’ countries.
Emerging Markets Risk. Investment in securities of issuers based in developing or ‘‘emerging market’’ countries entails all of the risks of investing in securities of non-U.S. issuers, as described above, but to a heightened degree. Among others, these types of investments can include not only ‘‘Brady Bonds’’ (bonds issued as a result of a debt restructuring plan), but also Eurobonds, domestic and international bonds issued under the laws of a developing country, emerging market loans and other debt instruments. Emerging market countries typically have economic and political systems that are less fully developed, and can be expected to be less stable than those of more developed countries. For example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. 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, or that prevent foreign investors from withdrawing their money at will. Because the Fund may invest in securities or instruments of emerging market issuers, investors should be able to tolerate sudden and sometimes substantial fluctuations in the value of their investments in the Fund.
Prepayment Risk. Many fixed income securities, especially those issued at high interest rates, provide that the issuer may repay them early. Issuers often exercise this right when interest rates decline. Accordingly, holders of securities that may be called or prepaid may not benefit fully from the increase in value that other fixed income securities experience when rates decline. Furthermore, the Fund reinvests the proceeds of the payoff at current yields, which are lower than those paid by the security that was paid off.
Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund reinvests the proceeds from matured, traded or called bonds at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the common shares’ market price or their overall returns.
Derivatives Risk. The Fund may invest in a variety of derivative instruments for investment or risk management purposes, such as options, futures contracts and swaps. Derivatives are subject to a number of risks described elsewhere in this prospectus, such as interest rate risk, leverage risk and management risk. The Fund will be subject to credit risk with respect to the counterparties to the derivatives contracts purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivatives contract, the Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. Derivative transactions also involve the risk of mispricing or improper valuation, the risk of ambiguous documentation and the risk that changes in the value of a derivative may not correlate perfectly with an underlying asset, interest rate or index. Suitable derivative transactions may not be available in all circumstances, and there can be no assurance that the Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial or that these transactions will be successful.
Inflation/Deflation Risk. Inflation risk is the risk that the Fund’s assets or income from the Fund’s investments may be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Fund’s portfolio could decline. Inflation risk is expected to be greater with respect to the Fund’s investments in securities or instruments other than U.S. TIPS. Deflation risk is the risk that prices throughout the economy may decline over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio. Because the principal amounts of U.S. TIPS would be adjusted downward during a period of deflation, the Fund will be subject to deflation risk with respect to its investments in such securities.
Turnover Risk. The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as ‘‘portfolio turnover.’’ As a result of the Fund’s investment policies, under certain market conditions the Fund’s turnover rate may be higher than that of other investment companies. Portfolio turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. These transactions may result in realization of taxable capital gains. Higher portfolio turnover rates, such as those above 100%, are likely to result in higher brokerage commissions or other transaction costs and could give rise to a greater amount of taxable capital gains.
Management Risk. The Fund is subject to management risk because it is an actively managed investment portfolio. Western Asset 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.
Market Disruption and Geopolitical Risks. The war with Iraq, its aftermath and the continuing occupation of the country by coalition forces are likely to have a substantial impact on the U.S. and world economies and securities markets. The duration and nature of the war and occupation and the potential costs of rebuilding the Iraqi infrastructure and political systems cannot be predicted with any certainty. Terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001 closed some of the U.S. securities markets for a four-day period, and the occurrence of similar events cannot be ruled out. The war and occupation, terrorism and related geopolitical risks have led, and may in the future lead, to increased short-term market volatility and may have adverse long-term effects on U.S. and world economies and markets generally. Those events could also have an acute effect on individual issuers or related groups of issuers. These risks could also adversely affect securities markets, interest rates, auctions, secondary trading, ratings, credit risk, inflation, deflation and other factors relating to the common shares.
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Investors should carefully consider the investment objectives and policies, risk considerations, charges and ongoing expenses of any investment
product before investing. For more information, please contact a securities representative or Claymore Securities, Inc., 2455 Corporate West Drive,
Lisle, Illinois 60532, 800-345-7999.
NOT FDIC-INSURED | NOT BANK-GUARANTEED | MAY LOSE VALUE
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