UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10407
Master Portfolio Trust
(Exact name of registrant as specified in charter)
55 Water Street, New York, NY 10041
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
300 First Stamford Place, 4th Fl.
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: October 31
Date of reporting period: April 30, 2008
ITEM 1. REPORT TO STOCKHOLDERS.
The Semi-Annual Report to Stockholders is filed herewith.
|
April 30, 2008 |
|
SMASh SERIES EC PORTFOLIO |
|
|
|
|
|
|
|
|
| FACE |
| SECURITY |
|
| VALUE |
|
CORPORATE BONDS & NOTES — 68.7% |
|
|
|
| |||
|
|
| Aerospace & Defense — 0.9% |
|
|
|
|
$ | 170,000 |
| Hawker Beechcraft Acquisition Co., 8.875% due 4/1/15 (a)(b) |
| $ | 178,925 |
|
| 150,000 |
| L-3 Communications Corp., Senior Subordinated Notes, |
|
|
|
|
|
|
| 7.625% due 6/15/12 (a) |
|
| 154,500 |
|
|
|
| Total Aerospace & Defense |
|
| 333,425 |
|
|
|
| Airlines — 0.4% |
|
|
|
|
| 34,974 |
| Continental Airlines Inc., 8.388% due 5/1/22 (a) |
|
| 32,526 |
|
| 120,000 |
| DAE Aviation Holdings Inc., Senior Notes, 11.250% due 8/1/15 (c) |
|
| 122,550 |
|
|
|
| Total Airlines |
|
| 155,076 |
|
|
|
| Auto Components — 0.6% |
|
|
|
|
| 250,000 |
| Visteon Corp., Senior Notes, 8.250% due 8/1/10 (a) |
|
| 221,250 |
|
|
|
| Automobiles — 4.0% |
|
|
|
|
| 520,000 |
| Ford Motor Co., Notes, 7.450% due 7/16/31 (a) |
|
| 391,300 |
|
| 1,360,000 |
| General Motors Corp., Senior Debentures, 8.375% due 7/15/33 (a) |
|
| 1,042,100 |
|
|
|
| Total Automobiles |
|
| 1,433,400 |
|
|
|
| Beverages — 0.3% |
|
|
|
|
| 80,000 |
| Constellation Brands Inc., Senior Notes, 8.375% due 12/15/14 (a) |
|
| 85,200 |
|
|
|
| Building Products — 0.5% |
|
|
|
|
| 185,000 |
| Associated Materials Inc., Senior Subordinated Notes, |
|
| 185,000 |
|
|
|
| Chemicals — 0.3% |
|
|
|
|
| 70,000 |
| Georgia Gulf Corp., Senior Notes, 10.750% due 10/15/16 (a) |
|
| 51,100 |
|
| 50,000 |
| Methanex Corp., Senior Notes, 8.750% due 8/15/12 (a) |
|
| 53,875 |
|
|
|
| Total Chemicals |
|
| 104,975 |
|
|
|
| Commercial Banks — 7.9% |
|
|
|
|
| 151,880 |
| HSBC Bank PLC, 7.000% due 11/1/11 (a)(d) |
|
| 162,849 |
|
| 470,000 |
| HSBK Europe BV, 9.250% due 10/16/13 (c) |
|
| 472,937 |
|
|
|
| ICICI Bank Ltd., Subordinated Bonds: |
|
|
|
|
| 470,000 |
| 6.375% due 4/30/22 (c)(e) |
|
| 419,874 |
|
| 380,000 |
| 6.375% due 4/30/22 (a)(c)(e) |
|
| 339,481 |
|
|
|
| TuranAlem Finance BV, Bonds: |
|
|
|
|
| 1,400,000 |
| 8.250% due 1/22/37 (a)(c) |
|
| 1,142,750 |
|
| 330,000 |
| 8.250% due 1/22/37 (c) |
|
| 269,775 |
|
|
|
| Total Commercial Banks |
|
| 2,807,666 |
|
|
|
| Commercial Services & Supplies — 0.6% |
|
|
|
|
| 75,000 |
| Allied Security Escrow Corp., Senior Subordinated Notes, |
|
| 64,875 |
|
| 100,000 |
| DynCorp International LLC/DIV Capital Corp., Senior Subordinated Notes, |
|
| 103,125 |
|
| 60,000 |
| US Investigations Services Inc., Senior Notes, 10.500% due 11/1/15 (c) |
|
| 53,400 |
|
|
|
| Total Commercial Services & Supplies |
|
| 221,400 |
|
See Notes to Financial Statements.
14 | SMASh Series EC Portfolio 2008 Semi-Annual Report
|
SMASh SERIES EC PORTFOLIO |
|
|
|
|
|
|
|
|
| FACE |
|
|
|
|
|
|
| AMOUNT |
| SECURITY |
|
| VALUE |
|
|
|
| Consumer Finance — 15.4% |
|
|
|
|
|
|
| Ford Motor Credit Co.: |
|
|
|
|
$ | 55,000 |
| Notes, 7.375% due 10/28/09 (a) |
| $ | 52,963 |
|
|
|
| Senior Notes: |
|
|
|
|
| 330,000 |
| 9.875% due 8/10/11 (a) |
|
| 319,531 |
|
| 1,500,000 |
| 12.000% due 5/15/15 |
|
| 1,542,688 |
|
| 150,000 |
| 8.000% due 12/15/16 (a) |
|
| 131,474 |
|
| 1,550,000 |
| Ford Motor Credit Co. LLC, Notes, 7.800% due 6/1/12 (a) |
|
| 1,387,194 |
|
|
|
| General Motors Acceptance Corp.: |
|
|
|
|
| 950,000 |
| Bonds, 8.000% due 11/1/31 (a) |
|
| 720,342 |
|
|
|
| Notes: |
|
|
|
|
| 600,000 |
| 6.875% due 9/15/11 (a) |
|
| 500,349 |
|
| 200,000 |
| 6.625% due 5/15/12 (a) |
|
| 158,354 |
|
|
|
| GMAC LLC: |
|
|
|
|
| 200,000 |
| 6.000% due 4/1/11 (a) |
|
| 161,122 |
|
| 640,000 |
| Senior Notes, 6.000% due 12/15/11 (a) |
|
| 507,562 |
|
|
|
| Total Consumer Finance |
|
| 5,481,579 |
|
|
|
| Diversified Consumer Services — 0.2% |
|
|
|
|
| 100,000 |
| Education Management LLC/Education Management Finance Corp., |
|
|
|
|
|
|
| Senior Subordinated Notes, 10.250% due 6/1/16 (a) |
|
| 84,500 |
|
|
|
| Diversified Financial Services — 0.6% |
|
|
|
|
| 50,000 |
| AAC Group Holding Corp., Senior Discount Notes, |
|
|
|
|
|
|
| step bond to yield 11.622% due 10/1/12 (a) |
|
| 39,250 |
|
| 54,000 |
| El Paso Performance-Linked Trust Certificates, Senior Notes, |
|
|
|
|
|
|
| 7.750% due 7/15/11 (c) |
|
| 56,144 |
|
| 50,000 |
| Leucadia National Corp., Senior Notes, 7.125% due 3/15/17 (a) |
|
| 48,000 |
|
| 60,000 |
| Residential Capital LLC, Senior Notes, 8.000% due 2/22/11 (a) |
|
| 31,200 |
|
| 50,000 |
| Vanguard Health Holdings Co., I LLC, Senior Discount Notes, |
|
|
|
|
|
|
| step bond to yield 12.761% due 10/1/15 (a) |
|
| 42,250 |
|
|
|
| Total Diversified Financial Services |
|
| 216,844 |
|
|
|
| Diversified Telecommunication Services — 5.2% |
|
|
|
|
| 80,000 |
| Citizens Communications Co., Senior Notes, 7.875% due 1/15/27 (a) |
|
| 71,400 |
|
|
|
| Hawaiian Telcom Communications Inc.: |
|
|
|
|
| 30,000 |
| Senior Notes, 9.750% due 5/1/13 (a) |
|
| 13,350 |
|
| 90,000 |
| Senior Subordinated Notes, 12.500% due 5/1/15 (a) |
|
| 23,400 |
|
| 70,000 |
| Intelsat Bermuda Ltd., Senior Notes, 11.250% due 6/15/16 (a) |
|
| 71,313 |
|
| 120,000 |
| Level 3 Financing Inc., Senior Notes, 9.250% due 11/1/14 (a) |
|
| 109,800 |
|
| 75,000 |
| Nordic Telephone Co. Holdings, Senior Secured Bonds, 8.875% due 5/1/16 (c) |
|
| 77,063 |
|
| 225,000 |
| Qwest Communications International Inc., 7.250% due 2/15/11 |
|
| 224,437 |
|
| 900,000 |
| Vimpel Communications, 8.375% due 4/30/13 (c) |
|
| 900,701 |
|
| 150,000 |
| Virgin Media Finance PLC, Senior Notes, 9.125% due 8/15/16 (a) |
|
| 145,500 |
|
| 110,000 |
| Wind Acquisition Finance SA, Senior Bonds, 10.750% due 12/1/15 (c) |
|
| 119,075 |
|
|
|
| Windstream Corp.: |
|
|
|
|
| 65,000 |
| 8.125% due 8/1/13 (a) |
|
| 67,600 |
|
| 30,000 |
| Senior Notes, 8.625% due 8/1/16 (a) |
|
| 31,575 |
|
|
|
| Total Diversified Telecommunication Services |
|
| 1,855,214 |
|
See Notes to Financial Statements.
SMASh Series EC Portfolio 2008 Semi-Annual Report | 15
Schedule of investments (unaudited) continued
April 30, 2008
|
SMASh SERIES EC PORTFOLIO |
|
|
|
|
|
|
|
|
| FACE |
|
|
|
|
|
|
| AMOUNT |
| SECURITY |
|
| VALUE |
|
|
|
| Electric Utilities — 0.3% |
|
|
|
|
$ | 50,000 |
| Orion Power Holdings Inc., Senior Notes, 12.000% due 5/1/10 (a) |
| $ | 55,375 |
|
| 50,000 |
| VeraSun Energy Corp., Senior Notes, 9.375% due 6/1/17 (c) |
|
| 33,250 |
|
|
|
| Total Electric Utilities |
|
| 88,625 |
|
|
|
| Energy Equipment & Services — 0.6% |
|
|
|
|
| 150,000 |
| Complete Production Services Inc., Senior Notes, 8.000% due 12/15/16 (a) |
|
| 151,125 |
|
| 50,000 |
| Key Energy Services Inc., Senior Notes, 8.375% due 12/1/14 (c) |
|
| 52,000 |
|
|
|
| Total Energy Equipment & Services |
|
| 203,125 |
|
|
|
| Gas Utilities — 0.3% |
|
|
|
|
| 120,000 |
| Suburban Propane Partners LP/Suburban Energy Finance Corp., |
|
|
|
|
|
|
| Senior Notes, 6.875% due 12/15/13 (a) |
|
| 118,800 |
|
|
|
| Health Care Providers & Services — 1.8% |
|
|
|
|
|
|
| HCA Inc.: |
|
|
|
|
| 200,000 |
| Notes, 6.375% due 1/15/15 (a) |
|
| 179,000 |
|
| 7,000 |
| Senior Notes, 6.500% due 2/15/16 (a) |
|
| 6,300 |
|
|
|
| Senior Secured Notes: |
|
|
|
|
| 50,000 |
| 9.125% due 11/15/14 |
|
| 53,125 |
|
| 27,000 |
| 9.250% due 11/15/16 (a) |
|
| 29,093 |
|
| 146,000 |
| 9.625% due 11/15/16 (a)(b) |
|
| 157,132 |
|
| 73,000 |
| Tenet Healthcare Corp., Senior Notes, 9.875% due 7/1/14 (a) |
|
| 75,007 |
|
| 152,000 |
| US Oncology Holdings Inc., Senior Notes, 7.949% due 3/15/12 (a)(b)(e) |
|
| 123,120 |
|
|
|
| Total Health Care Providers & Services |
|
| 622,777 |
|
|
|
| Hotels, Restaurants & Leisure — 1.1% |
|
|
|
|
| 40,000 |
| Denny’s Holdings Inc., Senior Notes, 10.000% due 10/1/12 (a) |
|
| 38,350 |
|
| 50,000 |
| Sbarro Inc., Senior Notes, 10.375% due 2/1/15 (a) |
|
| 45,250 |
|
|
|
| Station Casinos Inc., Senior Notes: |
|
|
|
|
| 100,000 |
| 6.000% due 4/1/12 (a) |
|
| 84,875 |
|
| 260,000 |
| 7.750% due 8/15/16 (a) |
|
| 217,750 |
|
|
|
| Total Hotels, Restaurants & Leisure |
|
| 386,225 |
|
|
|
| Household Durables — 0.2% |
|
|
|
|
| 80,000 |
| Norcraft Cos. LP/Norcraft Finance Corp., Senior Subordinated Notes, |
|
|
|
|
|
|
| 9.000% due 11/1/11 (a) |
|
| 82,200 |
|
|
|
| Independent Power Producers & Energy Traders — 9.4% |
|
|
|
|
|
|
| AES Corp., Senior Notes: |
|
|
|
|
| 697,000 |
| 7.750% due 3/1/14 (a) |
|
| 717,910 |
|
| 80,000 |
| 7.750% due 10/15/15 (a) |
|
| 83,000 |
|
| 470,000 |
| 8.000% due 10/15/17 (a) |
|
| 492,325 |
|
| 80,000 |
| Dynegy Holdings Inc., Senior Notes, 7.750% due 6/1/19 (a) |
|
| 80,000 |
|
| 100,000 |
| Dynegy Inc., 7.670% due 11/8/16 (a) |
|
| 100,163 |
|
|
|
| Edison Mission Energy, Senior Notes: |
|
|
|
|
| 50,000 |
| 7.750% due 6/15/16 (a) |
|
| 52,625 |
|
| 10,000 |
| 7.000% due 5/15/17 (a) |
|
| 10,150 |
|
| 20,000 |
| 7.200% due 5/15/19 (a) |
|
| 20,250 |
|
| 10,000 |
| 7.625% due 5/15/27 (a) |
|
| 9,787 |
|
See Notes to Financial Statements.
16 | SMASh Series EC Portfolio 2008 Semi-Annual Report
|
SMASh SERIES EC PORTFOLIO |
|
|
|
|
|
|
|
|
| FACE |
|
|
|
|
|
|
| AMOUNT |
| SECURITY |
|
| VALUE |
|
|
|
| Independent Power Producers & Energy Traders — 9.4% continued |
|
|
|
|
|
|
| Energy Future Holdings, Senior Notes: |
|
|
|
|
$ | 10,000 |
| 10.875% due 11/1/17 (c) |
| $ | 10,700 |
|
| 990,000 |
| 11.250% due 11/1/17 (b)(c) |
|
| 1,041,975 |
|
| 152,070 |
| Mirant Mid Atlantic LLC, Pass-Through Certificates, 9.125% due 6/30/17 (a) |
|
| 168,417 |
|
|
|
| NRG Energy Inc., Senior Notes: |
|
|
|
|
| 60,000 |
| 7.250% due 2/1/14 (a) |
|
| 61,800 |
|
| 150,000 |
| 7.375% due 2/1/16 (a) |
|
| 154,875 |
|
| 100,000 |
| 7.375% due 1/15/17 (a) |
|
| 103,250 |
|
|
|
| TXU Corp., Senior Notes: |
|
|
|
|
| 200,000 |
| 5.550% due 11/15/14 (a) |
|
| 164,382 |
|
| 30,000 |
| 6.500% due 11/15/24 (a) |
|
| 22,960 |
|
| 45,000 |
| 6.550% due 11/15/34 (a) |
|
| 34,227 |
|
|
|
| Total Independent Power Producers & Energy Traders |
|
| 3,328,796 |
|
|
|
| IT Services — 0.5% |
|
|
|
|
| 150,000 |
| SunGard Data Systems Inc., Senior Subordinated Notes, |
|
|
|
|
|
|
| 10.250% due 8/15/15 (a) |
|
| 160,125 |
|
|
|
| Leisure Equipment & Products — 1.9% |
|
|
|
|
| 680,000 |
| Eastman Kodak Co., 7.250% due 11/15/13 (a) |
|
| 663,000 |
|
|
|
| Machinery — 0.1% |
|
|
|
|
| 20,000 |
| Terex Corp., Senior Subordinated Notes, 7.375% due 1/15/14 (a) |
|
| 20,500 |
|
|
|
| Media — 2.2% |
|
|
|
|
| 50,000 |
| Affinion Group Inc., Senior Notes, 10.125% due 10/15/13 (a) |
|
| 50,750 |
|
| 130,000 |
| CCH I LLC/CCH I Capital Corp., Senior Secured Notes, |
|
|
|
|
|
|
| 11.000% due 10/1/15 (a) |
|
| 101,725 |
|
| 100,000 |
| Dex Media West LLC/Dex Media Finance Co., Senior Notes, |
|
|
|
|
|
|
| 8.500% due 8/15/10 (a) |
|
| 98,750 |
|
| 75,000 |
| DIRECTV Holdings LLC/DIRECTV Financing Co. Inc., Senior Notes, |
|
|
|
|
|
|
| 8.375% due 3/15/13 (a) |
|
| 77,437 |
|
| 150,000 |
| EchoStar DBS Corp., Senior Notes, 7.125% due 2/1/16 (a) |
|
| 148,125 |
|
| 210,000 |
| Idearc Inc., Senior Notes, 8.000% due 11/15/16 (a) |
|
| 137,550 |
|
| 85,000 |
| R.H. Donnelley Corp., Senior Notes, 8.875% due 10/15/17 (c) |
|
| 55,250 |
|
| 125,000 |
| TL Acquisitions Inc., Senior Notes, 10.500% due 1/15/15 (c) |
|
| 113,750 |
|
|
|
| Total Media |
|
| 783,337 |
|
|
|
| Metals & Mining — 4.2% |
|
|
|
|
| 850,000 |
| Evraz Group SA, Notes, 8.875% due 4/24/13 (a)(c) |
|
| 864,875 |
|
| 160,000 |
| Freeport-McMoRan Copper & Gold Inc., Senior Notes, 8.375% due 4/1/17 (a) |
|
| 177,200 |
|
| 50,000 |
| Metals USA Inc., Senior Secured Notes, 11.125% due 12/1/15 (a) |
|
| 51,750 |
|
| 50,000 |
| Noranda Aluminum Holding Corp., Senior Notes, |
|
|
|
|
|
|
| 10.488% due 11/15/14 (b)(c)(e) |
|
| 40,250 |
|
| 100,000 |
| Novelis Inc., Senior Notes, 7.250% due 2/15/15 (a) |
|
| 92,000 |
|
| 100,000 |
| Ryerson Inc., Senior Secured Notes, 12.000% due 11/1/15 (c) |
|
| 99,500 |
|
|
|
| Steel Dynamics Inc., Senior Notes: |
|
|
|
|
| 105,000 |
| 7.375% due 11/1/12 (c) |
|
| 107,362 |
|
| 35,000 |
| 7.750% due 4/15/16 (c) |
|
| 35,963 |
|
See Notes to Financial Statements.
SMASh Series EC Portfolio 2008 Semi-Annual Report | 17
Schedule of investments (unaudited) continued
April 30, 2008
|
SMASh SERIES EC PORTFOLIO |
|
|
|
|
|
|
|
|
| FACE |
| SECURITY |
| VALUE |
| |
|
|
| Metals & Mining — 4.2% continued |
|
|
|
|
$ | 35,000 |
| Tube City IMS Corp., Senior Subordinated Notes, 9.750% due 2/1/15 (a) |
| $ | 33,600 |
|
|
|
| Total Metals & Mining |
|
| 1,502,500 |
|
|
|
| Multiline Retail — 0.5% |
|
|
|
|
| 60,000 |
| Dollar General Corp., Senior Subordinated Notes, |
|
| 55,500 |
|
| 150,000 |
| Neiman Marcus Group Inc., 7.125% due 6/1/28 (a) |
|
| 135,000 |
|
|
|
| Total Multiline Retail |
|
| 190,500 |
|
|
|
| Oil, Gas & Consumable Fuels — 5.5% |
|
|
|
|
| 110,000 |
| Belden & Blake Corp., Secured Notes, 8.750% due 7/15/12 (a) |
|
| 113,300 |
|
| 130,000 |
| 7.750% due 1/15/15 (a) |
|
| 134,875 |
|
| 150,000 |
| Senior Notes, 6.875% due 1/15/16 (a) |
|
| 152,250 |
|
|
|
| El Paso Corp.: |
|
|
|
|
| 31,000 |
| Medium-Term Notes, 7.750% due 1/15/32 (a) |
|
| 32,780 |
|
| 600,000 |
| Senior Subordinated Notes, 7.000% due 6/15/17 (a) |
|
| 629,148 |
|
| 80,000 |
| Enterprise Products Operating LP, Junior Subordinated Notes, |
|
| 79,744 |
|
| 110,000 |
| EXCO Resources Inc., Senior Notes, 7.250% due 1/15/11 (a) |
|
| 110,000 |
|
| 520,000 |
| Intergas Finance BV, 6.375% due 5/14/17 (a)(c) |
|
| 453,700 |
|
| 75,000 |
| International Coal Group Inc., Senior Notes, 10.250% due 7/15/14 (a) |
|
| 76,125 |
|
| 70,000 |
| Petroplus Finance Ltd., Senior Note, 7.000% due 5/1/17 (c) |
|
| 65,450 |
|
| 50,000 |
| Whiting Petroleum Corp., Senior Subordinated Notes, |
|
| 50,375 |
|
|
|
| Williams Cos. Inc.: |
|
|
|
|
| 21,000 |
| Debentures, 7.500% due 1/15/31 (a) |
|
| 22,365 |
|
| 38,000 |
| Notes, 8.750% due 3/15/32 (a) |
|
| 45,125 |
|
|
|
| Total Oil, Gas & Consumable Fuels |
|
| 1,965,237 |
|
|
|
| Paper & Forest Products — 1.2% |
|
|
|
|
| 180,000 |
| Abitibi-Consolidated Co. of Canada, Senior Secured Notes, |
|
| 189,900 |
|
| 220,000 |
| NewPage Corp., 10.000% due 5/1/12 (c) |
|
| 235,950 |
|
|
|
| Total Paper & Forest Products |
|
| 425,850 |
|
|
|
| Pharmaceuticals — 0.0% |
|
|
|
|
| 50,000 |
| Leiner Health Products Inc., Senior Subordinated Notes, |
|
| 188 |
|
|
|
| Real Estate Management & Development — 0.3% |
|
|
|
|
| 170,000 |
| Realogy Corp., Senior Subordinated Notes, 12.375% due 4/15/15 (a) |
|
| 93,500 |
|
|
|
| Road & Rail — 0.8% |
|
|
|
|
| 270,000 |
| Hertz Corp., Senior Subordinated Notes, 10.500% due 1/1/16 (a) |
|
| 273,038 |
|
|
|
| Specialty Retail — 0.2% |
|
|
|
|
|
|
| Michaels Stores Inc.: |
|
|
|
|
| 50,000 |
| Senior Notes, 10.000% due 11/1/14 (a) |
|
| 48,750 |
|
| 20,000 |
| Senior Subordinated Bonds, 11.375% due 11/1/16 (a) |
|
| 18,050 |
|
|
|
| Total Specialty Retail |
|
| 66,800 |
|
See Notes to Financial Statements.
18 | SMASh Series EC Portfolio 2008 Semi-Annual Report
|
SMASh SERIES EC PORTFOLIO |
|
|
|
|
|
|
|
|
| FACE |
| SECURITY |
| VALUE |
| |
|
|
| Tobacco — 0.1% |
|
|
|
|
$ | 50,000 |
| Alliance One International Inc., Senior Notes, 8.500% due 5/15/12 (a) |
| $ | 47,750 |
|
|
|
| Trading Companies & Distributors — 0.3% |
|
|
|
|
| 40,000 |
| H&E Equipment Services Inc., Senior Notes, 8.375% due 7/15/16 (a) |
|
| 35,000 |
|
| 100,000 |
| Penhall International Corp., Senior Secured Notes, 12.000% due 8/1/14 (c) |
|
| 77,000 |
|
|
|
| Total Trading Companies & Distributors |
|
| 112,000 |
|
|
|
| Transportation Infrastructure — 0.1% |
|
|
|
|
| 75,000 |
| Saint Acquisition Corp., Senior Secured Notes, |
|
| 25,125 |
|
|
|
| Wireless Telecommunication Services — 0.2% |
|
|
|
|
| 100,000 |
| ALLTEL Communications Inc., Senior Notes, 10.375% due 12/1/17 (b)(c) |
|
| 79,500 |
|
|
|
| TOTAL CORPORATE BONDS & NOTES (Cost — $25,065,769) |
|
| 24,425,027 |
|
| COLLATERALIZED SENIOR LOANS — 3.4% |
|
|
|
| ||
|
|
| IT Services — 1.0% |
|
|
|
|
| 368,150 |
| First Data Corp., Term Loan, 5.355% due 10/15/14 (a)(e) |
|
| 346,877 |
|
|
|
| Media — 2.4% |
|
|
|
|
| 498,750 |
| Charter Communications Operating LLC, Term Loan B, |
|
| 441,809 |
|
| 500,000 |
| Univision Communications Inc., Term Loan B, 5.147% due 9/15/14 (a)(e) |
|
| 422,344 |
|
|
|
| Total Media |
|
| 864,153 |
|
|
|
| TOTAL COLLATERALIZED SENIOR LOANS (Cost — $1,292,393) |
|
| 1,211,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| FACE |
|
|
|
|
|
|
| SOVEREIGN BONDS — 10.2% |
|
|
|
| ||
|
|
| Brazil — 5.9% |
|
|
|
|
|
|
| Brazil Nota do Tesouro Nacional: |
|
|
|
|
| 2,377,000 | BRL | 10.000% due 7/1/10 (a) |
|
| 1,305,496 |
|
| 1,500,000 | BRL | Series F, 10.000% due 1/1/12 (a) |
|
| 788,855 |
|
|
|
| Total Brazil |
|
| 2,094,351 |
|
|
|
| Canada — 0.2% |
|
|
|
|
| 49,106 | CAD | Government of Canada, Bonds, 4.000% due 12/1/31 (a) |
|
| 69,835 |
|
|
|
| France — 3.1% |
|
|
|
|
| 740,000 | EUR | Government of France, Bonds, 3.750% due 4/25/17 (a) |
|
| 1,109,586 |
|
|
|
| Germany — 1.0% |
|
|
|
|
| 219,000 | EUR | Bundesrepublik Deutschland, Bonds, 3.750% due 1/4/15 (a) |
|
| 335,420 |
|
|
|
| TOTAL SOVEREIGN BONDS (Cost — $3,457,159) |
|
| 3,609,192 |
|
| SHARES |
|
|
|
|
|
|
| CONVERTIBLE PREFERRED STOCKS — 0.0% |
|
|
|
| ||
|
|
| Automobiles — 0.0% |
|
|
|
|
| 600 |
| General Motors Corp. (a) |
|
| 14,256 |
|
| PREFERRED STOCKS — 2.5% |
|
|
|
| ||
|
|
| Capital Markets — 2.5% |
|
|
|
|
| 730 |
| Lehman Brothers Holdings Inc., 7.250% (a) |
|
| 893,520 |
|
See Notes to Financial Statements.
SMASh Series EC Portfolio 2008 Semi-Annual Report | 19
Schedule of investments (unaudited) continued
April 30, 2008
|
SMASh SERIES EC PORTFOLIO |
|
|
|
|
|
|
|
|
| CONTRACTS |
| SECURITY |
| VALUE |
| |
| PURCHASED OPTION — 0.0% |
|
|
|
| ||
| 75 |
| U.S. Treasury 5-Year Notes Futures, Put @ $103, |
| $ | 586 |
|
|
|
| TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS |
|
| 30,153,611 |
|
|
|
|
|
|
|
|
|
| FACE |
|
|
|
|
|
|
| SHORT-TERM INVESTMENTS — 13.6% |
|
|
|
| ||
|
|
| Sovereign Bonds — 6.7% |
|
|
|
|
| 3,670,000 | MYR | Bank Negara Malaysia Monetary Notes, |
|
| 1,158,039 |
|
|
|
| Egypt Treasury Bills: |
|
|
|
|
| 3,875,000 | EGP | Zero coupon bond to yield 5.723% due 11/11/08 (a) |
|
| 695,840 |
|
| 3,000,000 | EGP | Zero coupon bond to yield 6.425% due 1/6/09 (a) |
|
| 532,598 |
|
|
|
| TOTAL SOVEREIGN BONDS (Cost — $2,308,531) |
|
| 2,386,477 |
|
|
|
| U.S. Government Agency — 1.5% |
|
|
|
|
| 539,000 |
| Federal National Mortgage Association (FNMA) Discount Notes, |
|
| 532,054 |
|
|
|
| Repurchase Agreement — 5.4% |
|
|
|
|
| 1,900,000 |
| Morgan Stanley repurchase agreement dated 04/30/08, 1.920% due 5/1/08; |
|
| 1,900,000 |
|
|
|
| TOTAL SHORT-TERM INVESTMENTS (Cost — $4,741,613) |
|
| 4,818,531 |
|
|
|
| TOTAL INVESTMENTS — 98.4% (Cost — $35,302,895#) |
|
| 34,972,142 |
|
|
|
| Other Assets in Excess of Liabilities — 1.6% |
|
| 583,962 |
|
|
|
| TOTAL NET ASSETS — 100.0% |
| $ | 35,556,104 |
|
|
|
* | Non-income producing security. |
|
|
† | Face amount denominated in U.S. dollars, unless otherwise noted. |
|
|
(a) | All or a portion of this security is segregated for open futures contracts, extended settlements, swap contracts, and foreign currency contracts. |
|
|
(b) | Payment-in-kind security for which part of the income earned may be paid as additional principal. |
|
|
(c) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees, unless otherwise noted. |
|
|
(d) | Security is valued in good faith at fair value by or under the direction of the Board of Trustees (See Note 1). |
|
|
(e) | Variable rate security. Interest rate disclosed is that which is in effect at April 30, 2008. |
|
|
(f) | Security is currently in default. |
|
|
(g) | Illiquid security. |
|
|
(h) | Rate shown represents yield-to-maturity. |
|
|
(i) | All or a portion of this security is held at the broker as collateral for open futures contracts. |
|
|
# | Aggregate cost for federal income tax purposes is substantially the same. |
|
|
|
|
Abbreviations used in this schedule: | |||
| |||
| |||
BRL | — | Brazilian Real | |
CAD | — | Canadian Dollar | |
EGP | — | Egyptian Pound | |
EUR | — | Euro | |
MYR | — | Malaysian Ringgit |
See Notes to Financial Statements.
20 | SMASh Series EC Portfolio 2008 Semi-Annual Report
Statement of assets and liabilities (unaudited)
SMASh Series EC Portfolio
April 30, 2008
|
|
|
|
|
ASSETS: |
|
|
|
|
Investments, at value (Cost — $35,302,895) |
| $ | 34,972,142 |
|
Foreign currency, at value (Cost — $208,352) |
|
| 211,356 |
|
Cash |
|
| 92,904 |
|
Deposits with brokers for open swap contracts |
|
| 2,000,000 |
|
Unrealized appreciation on swaps |
|
| 853,163 |
|
Interest receivable |
|
| 688,809 |
|
Receivable for securities sold |
|
| 592,974 |
|
Receivable from broker — variation margin on open futures contracts |
|
| 93,903 |
|
Interest receivable for open swap contracts |
|
| 90,560 |
|
Receivable for open forward currency contracts |
|
| 88,989 |
|
Receivable from investment manager |
|
| 5,404 |
|
Prepaid expenses |
|
| 46 |
|
Total Assets |
|
| 39,690,250 |
|
LIABILITIES: |
|
|
|
|
Premiums paid for open swaps |
|
| 1,931,661 |
|
Payable for securities purchased |
|
| 1,848,312 |
|
Payable for open forward currency contracts |
|
| 243,710 |
|
Unrealized depreciation on swaps |
|
| 90,191 |
|
Accrued expenses |
|
| 20,272 |
|
Total Liabilities |
|
| 4,134,146 |
|
TOTAL NET ASSETS |
| $ | 35,556,104 |
|
REPRESENTED BY: |
|
|
|
|
Capital |
| $ | 35,556,104 |
|
See Notes to Financial Statements.
SMASh Series EC Portfolio 2008 Semi-Annual Report | 21
Statement of operations (unaudited)
SMASh Series EC Portfolio
For the Six Months Ended April 30, 2008
|
|
|
|
|
INVESTMENT INCOME: |
|
|
|
|
Interest |
| $ | 1,136,111 |
|
Dividends |
|
| 113 |
|
Less: Foreign taxes withheld |
|
| (5,085 | ) |
Total Investment Income |
|
| 1,131,139 |
|
EXPENSES: |
|
|
|
|
Custody fees |
|
| 22,207 |
|
Audit and tax |
|
| 13,141 |
|
Legal fees |
|
| 3,471 |
|
Insurance |
|
| 396 |
|
Trustees’ fees |
|
| 153 |
|
Miscellaneous expenses |
|
| 2,433 |
|
Total Expenses |
|
| 41,801 |
|
Less: Expense reimbursements (Note 2) |
|
| (39,296 | ) |
Fees paid indirectly (Note 1) |
|
| (2,505 | ) |
NET INVESTMENT INCOME |
|
| 1,131,139 |
|
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS, OPTIONS WRITTEN, SWAP CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS (NOTES 1 AND 3): |
|
|
|
|
Net Realized Gain (Loss) From: |
|
|
|
|
Investment transactions |
|
| (16,670 | ) |
Futures contracts |
|
| 429,397 |
|
Options written |
|
| 27,529 |
|
Swap contracts |
|
| 212,291 |
|
Foreign currency transactions |
|
| (50,535 | ) |
Net Realized Gain |
|
| 602,012 |
|
Change in Net Unrealized Appreciation/Depreciation From: |
|
|
|
|
Investments |
|
| (413,923 | ) |
Futures contracts |
|
| (304,577 | ) |
Swap contracts |
|
| 779,197 |
|
Foreign currencies |
|
| (77,589 | ) |
Change in Net Unrealized Appreciation/Depreciation |
|
| (16,892 | ) |
NET GAIN ON INVESTMENTS, FUTURES CONTRACTS, OPTIONS WRITTEN, SWAP CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS |
|
| 585,120 |
|
INCREASE IN NET ASSETS FROM OPERATIONS |
| $ | 1,716,259 |
|
See Notes to Financial Statements.
22 | SMASh Series EC Portfolio 2008 Semi-Annual Report
Statements of changes in net assets
SMASh Series EC Portfolio
|
|
|
|
|
|
|
|
FOR THE SIX MONTHS ENDED APRIL 30, 2008 (unaudited) |
| 2008 |
| 2007 |
| ||
OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 1,131,139 |
| $ | 343,169 |
|
Net realized gain |
|
| 602,012 |
|
| 16,559 |
|
Change in net unrealized appreciation/depreciation |
|
| (16,892 | ) |
| (857 | ) |
Increase in Net Assets From Operations |
|
| 1,716,259 |
|
| 358,871 |
|
CAPITAL TRANSACTIONS: |
|
|
|
|
|
|
|
Proceeds from contributions |
|
| 25,259,162 |
|
| 16,672,248 |
|
Value of withdrawals |
|
| (7,952,877 | ) |
| (497,559 | ) |
Increase in Net Assets From Capital Transactions |
|
| 17,306,285 |
|
| 16,174,689 |
|
INCREASE IN NET ASSETS |
|
| 19,022,544 |
|
| 16,533,560 |
|
NET ASSETS: |
|
|
|
|
|
|
|
Beginning of period |
|
| 16,533,560 |
|
| — |
|
End of period |
| $ | 35,556,104 |
| $ | 16,533,560 |
|
| |||||||
† For the period December 27, 2006 (inception date) to October 31, 2007. |
|
|
|
|
|
|
|
See Notes to Financial Statements.
SMASh Series EC Portfolio 2008 Semi-Annual Report | 23
Financial highlights
SMASh Series EC Portfolio
|
|
|
|
|
|
|
|
FOR THE YEAR ENDED OCTOBER 31, UNLESS OTHERWISE NOTED: | |||||||
|
| 2008 | 1 | 2007 | 2 | ||
NET ASSETS, END OF PERIOD (000s) |
| $ | 35,556 |
| $ | 16,534 |
|
Total return3 |
|
| 4.07 | % |
| 0.43 | % |
RATIOS TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
|
Gross expenses4,5 |
|
| 0.29 | % |
| 1.12 | % |
Net expenses5,6,7 |
|
| 0.00 | %8 |
| 0.00 | % |
Net investment income5 |
|
| 7.77 |
|
| 6.61 |
|
PORTFOLIO TURNOVER RATE |
|
| 6 | % |
| 35 | % |
|
|
1 | For the six months ended April 30, 2008 (unaudited). |
|
|
2 | For the period December 27, 2006 (inception date) to October 31, 2007. |
|
|
3 | Performance figures do not reflect the effect of fees and expenses associated with a separately managed account, nor a management fee or other operating expenses of the Portfolio. Such management fees are paid directly or indirectly by separately managed account sponsor to the Portfolio’s manager or subadvisers. All operating expenses of the Portfolio were reimbursed by the manager, due to an expense reimbursement agreement between the Portfolio and the manager. If such fees were included, 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. |
|
|
4 | Gross expenses do not include management fees paid to the manager and subadvisers. Management fees are paid directly or indirectly by the separate managed account sponsor. |
|
|
5 | Annualized. |
|
|
6 | Reflects expense reimbursements. |
|
|
7 | As a result of a voluntary expense limitation, the ratio of expenses, other than interest, brokerage, taxes, and extraordinary expenses, to average net assets of the Portfolio will not exceed 0.00%. |
|
|
8 | There was no impact to the expense ratio as a result of fees paid indirectly. |
See Notes to Financial Statements.
24 | SMASh Series EC Portfolio 2008 Semi-Annual Report
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
SMASh Series EC Portfolio (the “Portfolio”), is a separate investment series of the Master Portfolio Trust (the “Trust”). The Trust, a Maryland business trust, is registered under the Investment Company Act of 1940, as amended, (the “1940 Act”), as an open-end management investment company. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio.
The following are significant accounting policies consistently followed by the Portfolio and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.
(a) Investment valuation. Debt 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 debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the last quoted bid and asked prices as of the close of business of that market. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Portfolio calculates its net asset value, the Portfolio may value these securities at fair value as determined in accordance with the procedures approved by the Portfolio’s Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair value.
(b) Repurchase agreements. When entering into repurchase agreements, it is the Portfolio’s policy that its custodian or a third party custodian take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults, and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Portfolio may be delayed or limited.
(c) Financial futures contracts. The Portfolio may enter into financial futures contracts typically to hedge against the economic impact of adverse changes in the market value of portfolio securities because of changes in stock market
SMASh Series EC Portfolio 2008 Semi-Annual Report | 25
Notes to financial statements (unaudited) continued
prices, currency exchange rates or interest rates as a substitution for buying and selling securities and as a cash flow management technique. Upon entering into a financial futures contract, the Portfolio is required to deposit cash or securities as initial margin, equal to a certain percentage of the contract amount (initial margin deposit). Additional securities are also segregated up to the current market value of the financial futures contracts. Subsequent payments, known as “variation margin,” are made or received by the Portfolio each day, depending on the daily fluctuations in the value of the underlying financial instruments. For foreign currency denominated futures contracts, variation margins are not settled daily. The Portfolio recognizes an unrealized gain or loss equal to the fluctuation in the value. When the financial futures contracts are closed, a realized gain or loss is recognized equal to the difference between the proceeds from (or cost of) the closing transactions and the Portfolio’s basis in the contracts.
The risks associated with entering into financial futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying financial instruments. In addition, investing in financial futures contracts involves the risk that the Portfolio could lose more than the initial margin deposit and subsequent payments required for a futures transaction. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
(d) Written options. When the Portfolio writes an option, an amount equal to the premium received by the Portfolio is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the Portfolio realizes a gain from investments equal to the amount of the premium received. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Portfolio’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is treated as a realized gain or loss. When a written put option is exercised, the amount of the premium received is added to the cost of the security purchased by the Portfolio from the exercise of the written put option to form the Portfolio’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Portfolio.
The risk in writing a covered call option is that the Portfolio may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Portfolio may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing a call option is that the Portfolio is exposed to the risk of loss if the market price of the underlying security
26 | SMASh Series EC Portfolio 2008 Semi-Annual Report
increases. In addition, there is the risk that the Portfolio may not be able to enter into a closing transaction because of an illiquid secondary market.
(e) Forward foreign currency contracts. The Portfolio may enter into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Portfolio as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was closed.
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Portfolio bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
(f) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Portfolio does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities, at the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated
SMASh Series EC Portfolio 2008 Semi-Annual Report | 27
Notes to financial statements (unaudited) continued
transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(g) Credit default swaps. The Portfolio may enter into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate issuers or sovereign issuers of an emerging country, on a specified obligation. The Portfolio may use a CDS to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where a Portfolio has exposure to the sovereign issuer) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. As a seller of protection, the Portfolio generally receives an upfront payment or a fixed rate of income throughout the term of the swap provided that there is no credit event. If the Portfolio is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Portfolio will pay to the buyer of the protection an amount up to the notional value of the swap, and in certain instances take delivery of the security. As the seller, the Portfolio would be effectively add leverage to its portfolio because, in addition to its total net assets, the Portfolio would be subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Portfolio generally receives an amount up to the notional value of the swap if a credit event occurs.
Payments received or made at the beginning of the measurement period are reflected as such on the Statement of Assets and Liabilities. These upfront payments are recorded as realized gain or loss on the Statement of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss on the Statement of Operations.
Entering into a CDS swaps involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement and that there will be unfavorable changes in net interest rates.
(h) Credit and market risk. The Portfolio invests in high yield instruments that are subject to certain credit and market risks. The yields of high yield obligations reflect, among other things, perceived credit and market risks. The Portfolio’s investment in securities rated below investment grade typically involves risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on
28 | SMASh Series EC Portfolio 2008 Semi-Annual Report
the market prices of investments held by the Portfolio. The Portfolio’s investment in non-dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
(i) Foreign risk. The Portfolio’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay dividends in foreign currencies, change in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Portfolio. Foreign investments may also subject the Portfolio to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(j) Other risk. Consistent with its objective to seek high current income, the Portfolio may invest in instruments whose values and interest rates are linked to foreign currencies, interest rates, indices or some other financial indicator. The value at maturity or interest rates for these instruments will increase or decrease according to the change in the indicator to which they are indexed. These securities are generally more volatile in nature, and the risk of loss of principal is greater.
(k) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Portfolio determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults on an expected interest payment, the Portfolio’s policy is to generally halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default.
(l) Fees paid indirectly. The Portfolio’s custody fees are reduced according to a fee arrangement, which provides for a reduction based on the level of cash deposited with the custodian by the Portfolio. The amount is shown as a reduction of expenses on the Statement of Operations.
(m) Income taxes. The Portfolio is classified as a partnership for Federal income tax purposes. As such, each investor in the Portfolio is treated as owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Therefore, no Federal income tax provision is required. It is intended that the Portfolio’s assets will be managed so an investor in the Portfolio can satisfy the requirements of the subchapter M of the Internal Revenue Code.
SMASh Series EC Portfolio 2008 Semi-Annual Report | 29
Notes to financial statements (unaudited) continued
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Portfolio’s investment manager and Western Asset Management Company (“Western Asset”) and Western Asset Management Company Limited (“Western Asset Limited”) are the Portfolio’s subadvisers. LMPFA, Western Asset and Western Asset Limited are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).
The manager and subadvisers do not charge management fees to the Portfolio. However, the Portfolio is an integral part of the separately managed account program, and the Portfolio manager and subadvisers will be compensated directly or indirectly by separately managed account program sponsors. If the management fee was charged to the Portfolio a fee of 0.078% of the Portfolio’s daily average net assets could have been imputed. LMPFA provides administrative and certain oversight services to the Portfolio. LMPFA has delegated to the subadvisers the day-to-day portfolio management of the Portfolio.
During the period ended April 30, 2008, LMPFA reimbursed the Portfolio for expenses amounting to $39,296.
Certain officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.
3. Investments
During the six months ended April 30, 2008, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
|
|
|
|
|
Purchases |
| $ | 19,231,908 |
|
Sales |
|
| 1,396,924 |
|
At April 30, 2008, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:
|
|
|
|
|
Gross unrealized appreciation |
| $ | 863,036 |
|
Gross unrealized depreciation |
|
| (1,193,789 | ) |
Net unrealized depreciation |
| $ | (330,753 | ) |
30 | SMASh Series EC Fund 2008 Semi-Annual Report
At April 30, 2008, the Portfolio had the following open futures contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NUMBER OF |
| EXPIRATION |
| BASIS |
| MARKET |
| UNREALIZED |
| |||||
Contracts to Buy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pound |
|
| 25 |
|
| 3/09 |
| $ | 5,883,318 |
| $ | 5,884,806 |
| $ | 1,488 |
|
Euribor |
|
| 8 |
|
| 6/08 |
|
| 2,978,246 |
|
| 2,964,796 |
|
| (13,450 | ) |
Federal Republic of Germany, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 Year Bonds |
|
| 25 |
|
| 6/08 |
|
| 4,564,558 |
|
| 4,439,178 |
|
| (125,380 | ) |
LIBOR |
|
| 5 |
|
| 9/08 |
|
| 1,171,553 |
|
| 1,174,170 |
|
| 2,617 |
|
LIBOR |
|
| 10 |
|
| 12/08 |
|
| 2,349,817 |
|
| 2,350,946 |
|
| 1,129 |
|
LIBOR |
|
| 8 |
|
| 6/09 |
|
| 1,892,914 |
|
| 1,883,832 |
|
| (9,082 | ) |
U.S. Treasury 5 Year Notes |
|
| 145 |
|
| 6/08 |
|
| 16,403,577 |
|
| 16,237,735 |
|
| (165,842 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (308,520 | ) |
Contracts to Sell: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pound |
|
| 1 |
|
| 6/08 |
| $ | 124,239 |
| $ | 123,931 |
| $ | 308 |
|
U.S. Treasury 10 Year Notes |
|
| 5 |
|
| 6/08 |
|
| 586,147 |
|
| 579,063 |
|
| 7,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,392 |
|
Net unrealized loss on open futures contracts |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (301,128 | ) |
At April 30, 2008, the Portfolio had open forward foreign currency contracts as described below. The unrealized gain (loss) on the open contracts reflected in the accompanying financial statements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN CURRENCY |
| LOCAL |
| MARKET |
| SETTLEMENT |
| UNREALIZED |
| ||||
Contracts to Buy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pound |
|
| 373,716 |
| $ | 741,311 |
|
| 5/7/08 |
| $ | 980 |
|
Canadian Dollar |
|
| 69,190 |
|
| 68,542 |
|
| 5/7/08 |
|
| (100 | ) |
Euro |
|
| 229,010 |
|
| 365,389 |
|
| 5/7/08 |
|
| (8,882 | ) |
Euro |
|
| 750,000 |
|
| 1,167,161 |
|
| 5/7/08 |
|
| (25,340 | ) |
Euro |
|
| 970,000 |
|
| 1,509,528 |
|
| 5/7/08 |
|
| (31,317 | ) |
Japanese Yen |
|
| 84,593,220 |
|
| 809,559 |
|
| 5/7/08 |
|
| 11,510 |
|
Japanese Yen |
|
| 84,593,220 |
|
| 813,846 |
|
| 8/5/08 |
|
| (11,051 | ) |
|
|
|
|
|
|
|
|
|
|
|
| (64,200 | ) |
SMASh Series EC Portfolio 2008 Semi-Annual Report | 31
Notes to financial statements (unaudited) continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOREIGN CURRENCY |
| LOCAL |
| MARKET |
| SETTLEMENT |
| UNREALIZED |
| ||||
Contracts to Sell: |
|
|
|
|
|
|
|
|
|
|
|
|
|
British Pound |
|
| 373,716 |
| $ | 741,311 |
|
| 5/7/08 |
| $ | (3,109 | ) |
British Pound |
|
| 373,716 |
|
| 736,595 |
|
| 8/5/08 |
|
| (898 | ) |
Canadian Dollar |
|
| 69,190 |
|
| 68,542 |
|
| 5/7/08 |
|
| 380 |
|
Canadian Dollar |
|
| 69,190 |
|
| 68,500 |
|
| 8/5/08 |
|
| 73 |
|
Euro |
|
| 229,010 |
|
| 356,389 |
|
| 5/7/08 |
|
| (19,286 | ) |
Euro |
|
| 750,000 |
|
| 1,167,161 |
|
| 5/7/08 |
|
| (62,621 | ) |
Euro |
|
| 970,000 |
|
| 1,509,528 |
|
| 5/7/08 |
|
| (81,106 | ) |
Euro |
|
| 229,010 |
|
| 354,921 |
|
| 8/5/08 |
|
| 8,804 |
|
Euro |
|
| 750,000 |
|
| 1,162,356 |
|
| 8/5/08 |
|
| 25,194 |
|
Euro |
|
| 970,000 |
|
| 1,503,313 |
|
| 8/5/08 |
|
| 31,110 |
|
Japanese Yen |
|
| 84,593,220 |
|
| 809,559 |
|
| 5/7/08 |
|
| 10,938 |
|
|
|
|
|
|
|
|
|
|
|
|
| (90,521 | ) |
Net unrealized loss on open forward foreign currency contracts |
|
|
|
|
|
| $ | (154,721 | ) | ||||
During the six months ended April 30, 2008, written option transactions for the Portfolio were as follows:
|
|
|
|
|
|
|
|
|
| NUMBER OF |
| PREMIUMS |
| ||
Options written, outstanding October 31, 2007 |
|
| — |
|
| — |
|
Options written |
|
| 1,400,024 |
| $ | 28,633 |
|
Options closed |
|
| (2 | ) |
| (2,990 | ) |
Options expired |
|
| (1,400,022 | ) |
| (25,643 | ) |
Options written, outstanding April 30, 2008 |
|
| — |
|
| — |
|
At April 30, 2008, the Portfolio held the following credit default swap contracts:
|
|
Swap Counterparty: | Barclays Capital Inc. |
Effective Date: | 8/15/07 |
Reference Entity: | CDX North America Crossover Index |
Notional Amount: | $594,000 |
Payments received by the Portfolio: | 2.75% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 6/20/12 |
Unrealized Appreciation: | $1,579 |
Swap Counterparty: | Barclays Capital Inc. |
Effective Date: | 8/15/07 |
Reference Entity: | GMAC |
Notional Amount: | $300,000 |
Payments received by the Portfolio: | 12.00% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 9/20/08 |
Unrealized Depreciation: | $(36,854) |
32 | SMASh Series EC Portfolio 2008 Semi-Annual Report
|
|
Swap Counterparty: | Barclays Capital Inc. |
Effective Date: | 3/27/07 |
Reference Entity: | CDX North America Crossover Index |
Notional Amount: | $891,000 |
Payments received by the Portfolio: | 2.75% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 6/20/12 |
Unrealized Depreciation: | $(51,319) |
Swap Counterparty: | Barclays Capital Inc. |
Effective Date: | 8/7/07 |
Reference Entity: | CDX North America Crossover Index |
Notional Amount: | $396,000 |
Payments received by the Portfolio: | 2.75% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 6/20/12 |
Unrealized Depreciation: | $(2,018) |
Swap Counterparty: | Barclays Capital Inc. |
Effective Date: | 2/15/0 |
Reference Entity: | CDX North America Crossover Index |
Notional Amount: | $3,762,000 |
Payments received by the Portfolio: | 3.75% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 12/20/12 |
Unrealized Appreciation: | $219,273 |
Swap Counterparty: | Barclays Capital Inc. |
Effective Date: | 2/7/0 |
Reference Entity: | CDX North America Crossover Index |
Notional Amount: | $6,000,000 |
Payments received by the Portfolio: | 2.25% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 12/20/12 |
Unrealized Appreciation: | $278,317 |
Swap Counterparty: | UBS Warburg LLC |
Effective Date: | 2/8/08 |
Reference Entity: | CDX North America Crossover Index |
Notional Amount: | $4,950,000 |
Payments received by the Portfolio: | 3.75% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 12/20/12 |
Unrealized Appreciation: | $249,937 |
Swap Counterparty: | Barclays Capital Inc. |
Effective Date: | 1/16/08 |
Reference Entity: | CDX North America Crossover Index |
Notional Amount: | $5,940,000 |
Payments received by the Portfolio: | 3.75% quarterly |
Payments made by the Portfolio: | Payment only if credit event occurs |
Termination Date: | 12/20/12 |
Unrealized Appreciation: | $104,057 |
At April 30, 2008, the Portfolio had a total appreciation of $762,972 from swap contracts.
SMASh Series EC Portfolio 2008 Semi-Annual Report | 33
Notes to financial statements (unaudited) continued
4. Legal matters
Beginning in June 2004, class action lawsuits alleging violations of the federal securities laws were filed against Citigroup Global Markets Inc. (“CGM”), a former distributor of other affiliated funds (collectively, the “Funds”) and a number of its then affiliates, including Smith Barney Fund Management, LLC (“SBFM”) and Salomon Brothers Asset Management Inc. (“SBAM”), which were then investment adviser or manager to certain of the Funds (the “Managers”), substantially all of the mutual funds then managed by the Managers (the “Defendant Funds”), and Board members of the Defendant Funds (collectively, the “Defendants”). The complaints alleged, among other things, that CGM created various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Managers caused the Defendant Funds to pay excessive brokerage commissions to CGM for steering clients towards proprietary funds. The complaints also alleged that the Defendants breached their fiduciary duty to the Defendant Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions. The complaints also alleged that the Defendant Funds failed to adequately disclose certain of the allegedly wrongful conduct. The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Defendant Funds’ contracts with the Managers, recovery of all fees paid to the Managers pursuant to such contracts and an award of attorneys’ fees and litigation expenses. On December 15, 2004, a consolidated amended complaint (the “Complaint”) was filed alleging substantially similar causes of action. On May 27, 2005, all of the Defendants filed motions to dismiss the Complaint. On July 26, 2006, the court issued a decision and order (1) finding that plaintiffs lacked standing to sue on behalf of the shareholders of the Funds in which none of the plaintiffs had invested and dismissing those Funds from the case (although stating that they could be brought back into the case if standing as to them could be established), and (2) other than one stayed claim, dismissing all of the causes of action against the remaining Defendants, with prejudice, except for the cause of action under Section 36(b) of the 1940 Act, which the court granted plaintiffs leave to repeal as a derivative claim.
On October 16, 2006, plaintiffs filed their Second Consolidated Amended Complaint (“Second Amended Complaint”) which alleges derivative claims on behalf of nine funds identified in the Second Amended Complaint, under Section 36(b) of the 1940 Act, against Citigroup Asset Management (“CAM”), SBAM and SBFM as investment advisers to the identified funds, as well as CGM as a distributor for the identified funds (collectively, the “Second Amended Complaint Defendants”). The Fund was not identified in the Second Amended Complaint. The Second Amended Complaint alleges no claims against any of the funds or any of their Board Members. Under Section 36(b), the Second Amended Complaint alleges similar facts and seeks similar relief against the Second Amended Complaint Defendants as the Complaint.
34 | SMASh Series EC Portfolio 2008 Semi-Annual Report
On December 3, 2007, the court granted the Defendants’ motion to dismiss, with prejudice. On January 2, 2008, the plaintiffs filed a notice of appeal to the Second Circuit Court of Appeals.
Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed in the future
* * *
Beginning in August 2005, five class action lawsuits alleging violations of federal securities laws and state law were filed against CGM and SBFM, (collectively, the “Defendants”) based on the May 31, 2005 settlement order issued against the Defendants by the Securities and Exchange Commission (“SEC”) as previously described. The complaints seek injunctive relief and compensatory and punitive damages, removal of SBFM as the investment manager for the Smith Barney family of funds, rescission of the funds’ management and other contracts with SBFM, recovery of all fees paid to SBFM pursuant to such contracts, and an award of attorneys’ fees and litigation expenses. The five actions were subsequently consolidated, and a consolidated complaint was filed. On September 26, 2007, the United States District Court for the Southern District of New York issued an order dismissing the consolidated complaint, and judgment was later entered. An appeal has been filed and is pending before the U.S. Court of Appeals for the Second Circuit.
5. Other matters
On or about May 30, 2006, John Halebian, a purported shareholder of CitiSM New York Tax Free Reserves, a series of Legg Mason Partners Money Market Trust, formerly a series of CitiFunds Trust III (the “Subject Trust”), filed a complaint in the United States District Court for the Southern District of New York against the independent trustees of the Subject Trust (Elliott J. Berv, Donald M. Carlton, A. Benton Cocanougher, Mark T. Finn, Stephen Randolph Gross, Diana R. Harrington, Susan B. Kerley, Alan G. Merten and R. Richardson Pettit).
The Subject Trust is also named in the complaint as a nominal defendant. The complaint alleges both derivative claims on behalf of the Subject Trust and class claims on behalf of a putative class of shareholders of the Subject Trust in connection with the 2005 sale of Citigroup’s asset management business to Legg Mason and the related approval of new investment advisory agreements by the trustees and shareholders. In the derivative claim, the plaintiff alleges, among other things, that the independent trustees breached their fiduciary duty to the Subject Trust and its shareholders by failing to negotiate lower fees or seek competing bids from other qualified investment advisers in connection with Citigroup’s sale to Legg Mason. In the claims brought on behalf of the putative class of shareholders, the plaintiff alleges that the independent trustees violated the proxy solicitation requirements of the 1940 Act, and breached their fiduciary duty to shareholders, by virtue of the voting procedures, including “echo voting,”
SMASh Series EC Fund 2008 Semi-Annual Report | 35
Notes to financial statements (unaudited) continued
used to obtain approval of the new investment advisory agreements and statements made in a proxy statement regarding those voting procedures. The plaintiff alleges that the proxy statement was misleading because it failed to disclose that the voting procedures violated the 1940 Act. The relief sought includes an award of damages, rescission of the advisory agreement, and an award of costs and attorney fees.
In advance of filing the complaint, Mr. Halebian’s lawyers made written demand for relief on the Board of the Subject Trust, and the Board’s independent trustees formed a demand review committee to investigate the matters raised in the demand, and subsequently in the complaint, and recommend a course of action to the Board. The committee, after a thorough review, determined that the independent trustees did not breach their fiduciary duties as alleged by Mr. Halebian, and that the action demanded by Mr. Halebian would not be in the best interests of the Subject Trust. The Board of the Subject Trust (the trustee who is an “interested person” of the Subject Trust, within the meaning of the 1940 Act, having recused himself from the matter), after receiving and considering the committee’s report and based upon the findings of the committee, subsequently also determined and, adopting the recommendation of the committee, directed counsel to move to dismiss Mr. Halebian’s complaint. A motion to dismiss was filed on October 23, 2006. Opposition papers were filed on or about December 7, 2006. The complaint was dismissed on July 31, 2007. Mr. Halebian has filed an appeal in the U.S. Court of Appeals for the Second Circuit. The appeal is pending.
6. Recent accounting pronouncements
On September 20, 2006, the Financial Accounting Standards Board (“FASB”) released Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Management has determined that there is no material impact to the Portfolio’s valuation policies as a result of adopting FAS 157. The Portfolio will implement the disclosure requirements beginning with its January 31, 2009 Form N-Q.
* * *
In March 2008, FASB issued the Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Portfolio’s derivative and hedging activities, including how such activities are accounted for and their effect on the Portfolio’s financial position, performance and cash flows. Management is currently evaluating the impact the adoption of FAS 161 will have on the Portfolio’s financial statements and related disclosures.
36 | SMASh Series EC Fund 2008 Semi-Annual Report
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included herein under Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. |
(a) (1) Not applicable.
Exhibit 99.CODE ETH
(a)(2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Master Portfolio Trust | ||
By: | /s/ R. Jay Gerken | |
R. Jay Gerken | ||
Chief Executive Officer of | ||
Master Portfolio Trust | ||
Date: | June 27, 2008 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ R. Jay Gerken | |
R. Jay Gerken | ||
Chief Executive Officer of | ||
Master Portfolio Trust | ||
Date: | June 27, 2008 | |
By: | /s/ Frances M. Guggino | |
Frances M. Guggino | ||
Chief Financial Officer of | ||
Master Portfolio Trust | ||
Date: | June 27, 2008 |