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 811-05812
Legg Mason Partners Premium Money Market Trust
(Exact name of registrant as specified in charter)
620 Eighth Avenue, 49th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area code: 1-877-721-1926
Date of fiscal year end: August 31
Date of reporting period: August 31, 2017
| ITEM 1. | REPORT TO STOCKHOLDERS. |
The Annual Report to Stockholders is filed herewith.
| | |
| Annual Report | | August 31, 2017 |
WESTERN ASSET
PREMIUM LIQUID
RESERVES
|
| INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
Fund objective
The Fund’s investment objective is to provide shareholders with liquidity and as high a level of current income as is consistent with preservation of capital.
Letter from the president
Dear Shareholder,
We are pleased to provide the annual report of Western Asset Premium Liquid Reserves for the twelve-month reporting period ended August 31, 2017. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.leggmason.com. Here you can gain immediate access to market and investment information, including:
| • | | Fund prices and performance, |
| • | | Market insights and commentaries from our portfolio managers, and |
| • | | A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
President and Chief Executive Officer
September 29, 2017
| | |
| II | | Western Asset Premium Liquid Reserves |
Investment commentary
Economic review
The pace of U.S. economic activity fluctuated during the twelve months ended August 31, 2017 (the “reporting period”). Looking back, the U.S. Department of Commerce reported that third quarter 2016 U.S. gross domestic product (“GDP”)i growth was revised to 2.8%. GDP growth then decelerated to 1.8% and 1.2%, as revised, for the fourth quarter of 2016 and the first quarter of 2017, respectively. Finally, the U.S. Department of Commerce reported that second quarter 2017 GDP growth — released after the reporting period ended — was 3.1%. The increase in GDP growth reflected an upturn in private inventory investment, an acceleration in personal consumption expenditures, a deceleration in imports and an increase in federal government spending.
Job growth in the U.S. was solid overall and a tailwind for the economy during the reporting period. When the reporting period ended on August 31, 2017, the unemployment rate was 4.4%, as reported by the U.S. Department of Labor. While this was an increase from 4.3% in the previous month, it was just shy of the lowest unemployment rate since May 2001. The percentage of longer-term unemployed declined over the period. In August 2017, 24.7% of Americans looking for a job had been out of work for more than six months, versus 24.9% when the period began.
Looking back, after an extended period of maintaining the federal funds rateii at a historically low range between zero and 0.25%, the Federal Reserve Board (the “Fed”)iii increased the rate at its meeting on December 16, 2015. In particular, the U.S. central bank raised the federal funds rate to a range between 0.25% and 0.50%. The Fed then kept rates on hold at each meeting prior to its meeting on December 14, 2016, at which time, the Fed raised rates to a range between 0.50% and 0.75%.
After holding rates steady at its meeting that concluded on February 1, 2017, the Fed raised rates to a range between 0.75% and 1.00% at its meeting that ended on March 15, 2017. At its meeting that concluded on June 14, 2017, the Fed raised rates to a range between 1.00% and 1.25%. At its meeting that concluded on July 26, 2017, the Fed kept rates on hold, as expected. Finally, at its meeting that concluded on September 20, 2017, after the reporting period ended, the Fed again kept rates on hold, but reiterated its intention to begin reducing its balance sheet, saying, “In October, the Committee will initiate the balance sheet normalization program….”
As always, thank you for your confidence in our stewardship of your assets.
Sincerely,
Jane Trust, CFA
President and Chief Executive Officer
September 29, 2017
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.
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| Western Asset Premium Liquid Reserves | | III |
Investment commentary (cont’d)
| i | Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time. |
| ii | The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day. |
| iii | The Federal Reserve Board (the “Fed”) is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
| | |
| IV | | Western Asset Premium Liquid Reserves |
Fund overview
Q. What is the Fund’s investment strategy?
A. The Fund seeks to provide shareholders with liquidity and as high a level of current income as is consistent with preservation of capital. The Fund is a money market fund that invests in securities through an underlying mutual fund, Liquid Reserves Portfolio (the “Portfolio”), which has the same investment objective and strategies as the Fund. The Portfolio invests in high-quality, U.S. dollar-denominated short-term debt securities that, at the time of purchase, are rated by one or more rating agencies in the highest short-term rating category or, if not rated, that we determined to be of equivalent quality.
The Portfolio may invest in all types of money market instruments, including bank obligations, commercial paper and asset-backed securities, structured investments, repurchase agreements and other short-term debt securities. These instruments may be issued or guaranteed by all types of issuers, including U.S. and foreign banks and other private issuers, the U.S. government or any of its agencies or instrumentalities, U.S. states and municipalities, or foreign governments. These securities may pay interest at fixed, floating or adjustable rates, or may be issued at a discount.
The Portfolio may invest without limit in bank obligations, such as certificates of deposit, fixed time deposits and bankers’ acceptances. The Portfolio generally limits its investments in foreign securities to U.S. dollar denominated obligations of issuers, including banks and foreign governments, located in the major industrialized countries, although with respect to bank obligations, the branches of the banks issuing the obligations may be located in The Bahamas or the Cayman Islands.
As a money market fund, the Fund must follow strict rules as to the credit quality, liquidity, diversification and maturity of its investments. Where required by these rules, the Fund’s and the Portfolio’s subadviser. Western Asset Management Company (“Western Asset”), or Board of Trustees will decide whether a security should be held or sold in the event of credit downgrades or certain other events occurring after purchase. The Fund sells and redeems its shares at prices based on the current market value of the securities it holds. Therefore, the share price of the Fund will fluctuate along with changes in the market-based value of fund assets. Because the share price of the Fund fluctuates, it has what is called a “floating net asset value” or “floating NAV”.
At Western Asset, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization.
Q. What were the overall market conditions during the Fund’s reporting period?
A. Both short- and long-term Treasury yields moved higher during the twelve-month reporting period ended August 31, 2017 as a whole. The yields for the two-year Treasury began the reporting period at 0.80% and ended the period at 1.33%. Their peak of 1.41% occurred on both July 3 and July 5, 2017, and they were as low as 0.73% on September 29, 2016. The yields for the
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| Western Asset Premium Liquid Reserves 2017 Annual Report | | 1 |
Fund overview (cont’d)
ten-year Treasury were 1.58% at the beginning of the reporting period and ended the period at 2.12%. Their peak of 2.62% occurred on March 13, 2017, and their low of 1.54% took place on September 7, 2016.
The Federal Reserve Board (the “Fed”)i raised the federal funds rateii on three separate occasions during the reporting period. In particular, the Fed raised rates to a range between 0.50% and 0.75% at its meeting that ended on December 14, 2016. The next rate hike occurred on March 15, 2017 — pushing the federal funds rate to a range between 0.75% and 1.00%. Finally, at its meeting that concluded on June 14, 2017, the Fed raised rates to a range between 1.00% and 1.25%. In addition, at its meeting that ended on July 26, 2017, the Fed indicated that it planned to reduce its balance sheet, saying, “The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated.”
Q. How did we respond to these changing market conditions?
A. A cautious maturity stance was maintained during the reporting period as the Fed continued to shift toward a less accommodative policy stance. When adding securities with maturities longer than six months to the Fund’s portfolio, floating rates securities were favored.
Performance review
As of August 31, 2017, the seven-day current yield for Western Asset Premium Liquid Reserves was 0.88% and the seven-day effective yield, which reflects compounding, was 0.88%.1
The Fund does not invest directly in securities but instead invests all of its investable assets in an underlying mutual fund, the Portfolio, which has the same investment objective and strategies, and substantially the same policies as the Fund. Unless otherwise indicated, references to the Fund include the underlying mutual fund, the Portfolio.
| | | | |
Western Asset Premium Liquid Reserves
Yields as of August 31, 2017 (unaudited) | |
| Seven-Day Current Yield1 | | | 0.88 | % |
| Seven-Day Effective Yield1 | | | 0.88 | % |
The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Yields will fluctuate. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/moneymarketfunds.
Absent fee waivers and/or expense reimbursements, the seven-day current yield and the seven-day effective yield would have been 0.09%.
The manager has voluntarily undertaken to limit Fund expenses. Such expense limitations may fluctuate daily and are voluntary and temporary and may be terminated by the manager at any time without notice.
You could lose money by investing in the Fund. Because the share price of the Fund fluctuates, when you sell your shares
| 1 | The seven-day current yield reflects the amount of income generated by the investment during that seven-day period and assumes that the income is generated each week over a 365-day period. The yield is shown as a percentage of the investment. The seven-day effective yield is calculated similarly to the seven-day current yield but, when annualized, the income earned by an investment in the Fund is assumed to be reinvested. The effective yield typically will be slightly higher than the current yield because of the compounding effect of the assumed reinvestment. |
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| 2 | | Western Asset Premium Liquid Reserves 2017 Annual Report |
they may be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Q. What were the most significant factors affecting Fund performance?
A. The maturity stance of the portfolio and the holdings of floating rate securities contributed positively to performance during the reporting period.
Thank you for your investment in Western Asset Premium Liquid Reserves. As always, we appreciate that you have chosen us to manage your assets and we remain focused on seeking to achieve the Fund’s investment goals.
Sincerely,
Western Asset Management Company
September 19, 2017
RISKS: You could lose money by investing in the Fund. Because the share price of the Fund fluctuates, when you sell your shares they may be worth more or less than what you originally paid for them. The Fund may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time. The Fund will be more susceptible to negative events affecting the worldwide financial services sector as a significant portion of its assets may be invested in obligations that are issued or backed by U.S. and non-U.S. banks and other financial services companies. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
| i | The Federal Reserve Board (the “Fed”) is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
| ii | The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day. |
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| Western Asset Premium Liquid Reserves 2017 Annual Report | | 3 |
Portfolio at a glance† (unaudited)
Liquid Reserves Portfolio
The Fund invests all of its investable assets in Liquid Reserves Portfolio, the investment breakdown of which is shown below.
Investment breakdown (%) as a percent of total investments
| † | The bar graph above represents the composition of the Portfolio’s investments as of August 31, 2017 and August 31, 2016. The Portfolio is actively managed. As a result, the composition of the Portfolio’s investments is subject to change at any time. |
| ‡ | Represents less than 0.1%. |
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| 4 | | Western Asset Premium Liquid Reserves 2017 Annual Report |
Fund expenses (unaudited)
Example
As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees, service and/or distribution (12b-1) fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
This example is based on an investment of $1,000 invested on March 1, 2017 and held for the six months ended August 31, 2017.
Actual expenses
The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.
Hypothetical example for comparison purposes
The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Based on actual total return1 | | | | Based on hypothetical total return1 |
Actual
Total
Return2 | | Beginning
Account
Value | | Ending
Account
Value | | Annualized
Expense
Ratio3 | | Expenses
Paid During
the Period4 | | | | Hypothetical
Annualized
Total Return | | Beginning
Account
Value | | Ending
Account
Value | | Annualized
Expense
Ratio3 | | Expenses
Paid During
the Period4 |
| | | 0.37% | | | | $ | 1,000.00 | | | | $ | 1,003.70 | | | | | 0.45 | % | | | $ | 2.27 | | | | | | | 5.00 | % | | | | $1,000.00 | | | | $ | 1,022.94 | | | | | 0.45 | % | | | $ | 2.29 | |
| 1 | For the six months ended August 31, 2017. |
| 2 | Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| 3 | Includes the Fund’s share of Liquid Reserves Portfolio’s allocated expenses |
| 4 | Expenses (net of fee waivers and/or expense reimbursements) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (184), then divided by 365. |
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| Western Asset Premium Liquid Reserves 2017 Annual Report | | 5 |
Statement of assets and liabilities
August 31, 2017
| | | | |
|
| Assets: | |
Investment in Liquid Reserves Portfolio, at value | | $ | 24,326,142 | |
Receivable from investment manager | | | 8,042 | |
Prepaid expenses | | | 16,770 | |
Total Assets | | | 24,350,954 | |
|
| Liabilities: | |
Service and/or distribution fees payable | | | 1,031 | |
Distributions payable | | | 203 | |
Trustees’ fees payable | | | 59 | |
Accrued expenses | | | 58,382 | |
Total Liabilities | | | 59,675 | |
| Total Net Assets | | $ | 24,291,279 | |
|
| Net Assets: | |
Par value (Note 3) | | $ | 243 | |
Paid-in capital in excess of par value | | | 24,316,656 | |
Overdistributed net investment income | | | (2,073) | |
Accumulated net realized loss on investments allocated from Liquid Reserves Portfolio | | | (23,794) | |
Net unrealized appreciation on investments allocated from Liquid Reserves Portfolio | | | 247 | |
| Total Net Assets | | $ | 24,291,279 | |
| |
| Shares Outstanding | | | 24,279,596 | |
| |
| Net Asset Value | | | $1.0005 | |
See Notes to Financial Statements.
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| 6 | | Western Asset Premium Liquid Reserves 2017 Annual Report |
Statement of operations
For the Year Ended August 31, 2017
| | | | |
|
| Investment Income: | |
Income from Liquid Reserves Portfolio | | $ | 277,210 | |
Allocated expenses from Liquid Reserves Portfolio | | | (33,219) | |
Allocated waiver from Liquid Reserves Portfolio | | | 29,925 | |
Other income | | | 6,544 | |
Total Investment Income | | | 280,460 | |
|
| Expenses: | |
Investment management fee (Note 2) | | | 104,625 | |
Transfer agent fees | | | 65,836 | |
Shareholder reports | | | 42,732 | |
Legal fees | | | 33,825 | |
Service and/or distribution fees (Note 2) | | | 29,893 | |
Registration fees | | | 26,378 | |
Audit and tax fees | | | 18,126 | |
Fund accounting fees | | | 5,613 | |
Insurance | | | 1,918 | |
Trustees’ fees | | | 714 | |
Miscellaneous expenses | | | 1,723 | |
Total Expenses | | | 331,383 | |
Less: Fee waivers and/or expense reimbursements (Note 2) | | | (203,254) | |
Net Expenses | | | 128,129 | |
| Net Investment Income | | | 152,331 | |
| Net Realized Gain on Investments From Liquid Reserves Portfolio | | | 3,838 | |
Change in Net Unrealized Appreciation (Depreciation) From Investments in
Liquid Reserves Portfolio | | | 247 | |
| Increase in Net Assets From Operations | | $ | 156,416 | |
See Notes to Financial Statements.
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| Western Asset Premium Liquid Reserves 2017 Annual Report | | 7 |
Statements of changes in net assets
| | | | | | | | |
| For the Years Ended August 31, | | 2017 | | | 2016 | |
|
| Operations: | |
Net investment income | | $ | 152,331 | | | $ | 139,510 | |
Net realized gain (loss) | | | 3,838 | | | | (27,632) | |
Change in net unrealized appreciation (depreciation) | | | 247 | | | | — | |
Increase in Net Assets From Operations | | | 156,416 | | | | 111,878 | |
|
| Distributions to Shareholders From (Note 1): | |
Net investment income | | | (156,288) | | | | (139,474) | |
Decrease in Net Assets From Distributions to Shareholders | | | (156,288) | | | | (139,474) | |
|
| Fund Share Transactions (Note 3): | |
Net proceeds from sale of shares | | | 52,100,192 | | | | 687,371,582 | |
Reinvestment of distributions | | | 135,046 | | | | 99,520 | |
Cost of shares repurchased | | | (117,016,083) | | | | (916,770,530) | |
Decrease in Net Assets From Fund Share Transactions | | | (64,780,845) | | | | (229,299,428) | |
Decrease in Net Assets | | | (64,780,717) | | | | (229,327,024) | |
|
| Net Assets: | |
Beginning of year | | | 89,071,996 | | | | 318,399,020 | |
End of year* | | $ | 24,291,279 | | | $ | 89,071,996 | |
*Includes (overdistributed) undistributed net investment income, respectively, of: | | | $(2,073) | | | | $1,884 | |
See Notes to Financial Statements.
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| 8 | | Western Asset Premium Liquid Reserves 2017 Annual Report |
Financial highlights
| | | | | | | | | | | | | | | | | | | | |
| For a share of beneficial interest outstanding throughout each year ended August 31: | |
| | | 20171 | | | 20161 | | | 20151 | | | 20141 | | | 20131 | |
| | | | | |
| Net asset value, beginning of year | | | $1.0001 | | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | |
|
| Income (loss) from operations: | |
Net investment income | | | 0.0051 | | | | 0.001 | | | | 0.000 | 2 | | | 0.000 | 2 | | | 0.000 | 2 |
Net realized and unrealized gain (loss) | | | 0.0012 | | | | (0.000) | 2 | | | 0.000 | 2 | | | (0.000) | 2 | | | (0.000) | 2 |
Total income from operations | | | 0.0063 | | | | 0.001 | | | | 0.000 | 2 | | | 0.000 | 2 | | | 0.000 | 2 |
|
| Less distributions from: | |
Net investment income | | | (0.0059) | | | | (0.001) | | | | (0.000) | 2 | | | (0.000) | 2 | | | (0.000) | 2 |
Total distributions | | | (0.0059) | | | | (0.001) | | | | (0.000) | 2 | | | (0.000) | 2 | | | (0.000) | 2 |
| | | | | |
| Net asset value, end of year | | | $1.0005 | | | | $1.000 | | | | $1.000 | | | | $1.000 | | | | $1.000 | |
Total return3 | | | 0.64 | % | | | 0.13 | % | | | 0.01 | % | | | 0.01 | % | | | 0.01 | % |
| | | | | |
| Net assets, end of year (millions) | | | $24 | | | | $89 | | | | $318 | | | | $201 | | | | $419 | |
|
| Ratios to average net assets: | |
Gross expenses4,5 | | | 1.22 | % | | | 0.66 | % | | | 0.61 | % | | | 0.61 | % | | | 0.60 | % |
Net expenses4,6,7 | | | 0.44 | | | | 0.36 | | | | 0.21 | | | | 0.19 | | | | 0.26 | |
Net investment income | | | 0.51 | | | | 0.09 | | | | 0.01 | | | | 0.01 | | | | 0.01 | |
| 1 | Per share amounts have been calculated using the average shares method. |
| 2 | Amount represents less than $0.0005 per share. |
| 3 | Performance figures may reflect fee waivers and/or expense reimbursements. In the absence of fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| 4 | Includes the Fund’s share of Liquid Reserves Portfolio’s allocated expenses. |
| 5 | The gross expenses do not reflect the reduction of the Fund’s management fee, pursuant to the Fund’s investment management agreement, by the amount paid by the Fund for its allocable share of the management fee paid by Liquid Reserves Portfolio. |
| 6 | As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of the Fund did not exceed 0.45%. This expense limitation arrangement cannot be terminated prior to December 31, 2018 without the Board of Trustees’ consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time. |
| 7 | Reflects fee waivers and/or expense reimbursements. |
See Notes to Financial Statements.
| | |
| Western Asset Premium Liquid Reserves 2017 Annual Report | | 9 |
Notes to financial statements
1. Organization and significant accounting policies
Western Asset Premium Liquid Reserves (the “Fund”) is a separate diversified investment series of Legg Mason Partners Premium Money Market Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Fund invests all of its investable assets in Liquid Reserves Portfolio (the “Portfolio”), a separate investment series of Master Portfolio Trust, that has the same investment objective as the Fund.
The financial statements of the Portfolio, including the schedule of investments, are contained elsewhere in this report and should be read in conjunction with the Fund’s financial statements.
Effective October 11, 2016, the share price of the Fund fluctuates along with changes in the market-based value of fund assets. Because the share price of the Fund fluctuates, it has what is called a “floating net asset value” or “floating NAV”. Under Rule 2a-7 of the 1940 Act, the Fund must follow strict rules as to the credit quality, liquidity, diversification and maturity of its investments. Effective October 14, 2016, the Fund may impose fees upon the sale of shares or temporarily suspend the ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The Fund records its investment in the Portfolio at value. The value of such investment in the Portfolio reflects the Fund’s proportionate interest (0.11% at August 31, 2017) in the net assets of the Portfolio.
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. The disclosure and valuation of securities held by the Portfolio are discussed in Note 1(a) of the Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.
(b) Investment transactions and investment income. Net investment income and net realized/unrealized gains and losses of the Portfolio are allocated pro rata, based on respective ownership interests, among the Fund and other investors in the Portfolio (the “Holders”) at the time of such determination. Prior to October 11, 2016, gross realized gains and/or losses of the Portfolio were allocated to the Holders in a manner such that, the net asset values per share of each Holder, after each such allocation was closer to the total of all Holders’ net asset values divided by the aggregate number of shares outstanding for all Holders. The Fund also pays certain other expenses which can be directly attributed to the Fund.
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| 10 | | Western Asset Premium Liquid Reserves 2017 Annual Report |
(c) Distributions to shareholders. Distributions from net investment income on the shares of the Fund are declared each business day and are paid monthly. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(d) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Fund’s financial statements.
Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of August 31, 2017, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
(e) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the following reclassifications have been made:
| | | | | | | | |
| | | Accumulated Net
Realized Loss | | | Paid-in
Capital | |
| (a) | | $ | 149,148 | | | $ | (149,148) | |
| (a) | Reclassifications are due to the expiration of a capital loss carryfoward. |
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s and the Portfolio’s investment manager and Western Asset Management Company (“Western Asset”) is the Fund’s and the Portfolio’s subadviser. LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).
Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.35% of the Fund’s average daily net assets.
Since the Fund invests all of its investable assets in Liquid Reserves Portfolio, the investment management fee of the Fund will be reduced by the investment management fee allocated to the Fund by Liquid Reserves Portfolio.
LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. For its services, LMPFA pays Western Asset monthly 70% of the net management fee it receives from the Fund.
| | |
| Western Asset Premium Liquid Reserves 2017 Annual Report | | 11 |
Notes to financial statements (cont’d)
As a result of an expense limitation arrangement between the Fund and LMPFA, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of the Fund did not exceed 0.45%. This expense limitation arrangement cannot be terminated prior to December 31, 2018 without the Board of Trustees’ consent. Additional amounts may be voluntarily waived and/or reimbursed from time to time.
During the year ended August 31, 2017, fees waived and/or expenses reimbursed amounted to $203,254.
LMPFA is permitted to recapture amounts waived and/or reimbursed to the Fund during the same fiscal year if the Fund’s total annual operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will LMPFA recapture any amount that would result, on any particular business day of the Fund, in the Fund’s total annual operating expenses exceeding the expense cap or any other lower limit then in effect.
Legg Mason Investor Services, LLC, a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Fund’s sole and exclusive distributor.
The Fund has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan the Fund pays service and/or distribution fees calculated at the annual rate not to exceed 0.10% of the Fund’s average daily net assets. Service and distribution fees are accrued daily and paid monthly. For the year ended August 31, 2017, the service and/or distribution fees paid amounted to $29,893, of which $14,946 was voluntarily waived. Such waiver is voluntary and may be reduced or terminated at any time.
All officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.
3. Shares of beneficial interest
At August 31, 2017, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share.
Transactions in shares of the Fund were as follows:
| | | | | | | | |
| | | Year Ended
August 31, 2017 | | | Year Ended
August 31, 2016 | |
| Shares sold | | | 52,088,075 | | | | 687,371,582 | |
| Shares issued on reinvestment | | | 144,868 | | | | 99,520 | |
| Shares repurchased | | | (117,013,388) | | | | (916,770,530) | |
| Net decrease | | | (64,780,445) | | | | (229,299,428) | |
| | |
| 12 | | Western Asset Premium Liquid Reserves 2017 Annual Report |
4. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended August 31, was as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
| Distributions paid from: | | | | | | | | |
| Ordinary income | | $ | 156,288 | | | $ | 139,474 | |
As of August 31, 2017, there were no significant differences between the book and tax components of net assets.
As of August 31, 2017, the Fund had capital losses of $23,794 that have been deferred in the current year as either short-term or long-term losses. These losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains.
5. Recent accounting pronouncement
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, the “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. The Fund has adopted the amendments to Regulation S-X and upon evaluation, has concluded that the amendments do not materially impact the financial statement amounts; however, as required, additional or enhanced disclosure has been included.
| | |
| Western Asset Premium Liquid Reserves 2017 Annual Report | | 13 |
Report of independent registered public accounting firm
The Board of Trustees and Shareholders
Legg Mason Partners Premium Money Market Trust:
We have audited the accompanying statement of assets and liabilities of Western Asset Premium Liquid Reserves (the “Fund”), a series of Legg Mason Partners Premium Money Market Trust, as of August 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2017, by examination of the underlying Liquid Reserves Portfolio. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Western Asset Premium Liquid Reserves as of August 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
October 16, 2017
| | |
| 14 | | Western Asset Premium Liquid Reserves 2017 Annual Report |
Additional information (unaudited)
Information about Trustees and Officers
The business and affairs of Western Asset Premium Liquid Reserves (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o Jane Trust, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Trustees and officers of the Fund is set forth below.
The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling the Fund at 1-877-721-1926 or 1-203-703-6002.
| | |
| Independent Trustees†: | | |
| Elliott J. Berv | | |
| Year of birth | | 1943 |
| Position(s) with Trust | | Trustee and Chairman |
| Term of office1 and length of time served2 | | Since 1989 (Chairman of the Board since 2016) |
| Principal occupation(s) during past five years | | President and Chief Executive Officer, Catalyst (consulting) (since 1984); formerly, Chief Executive Officer, Rocket City Enterprises (media) (2000 to 2005) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | None |
| |
| Jane F. Dasher | | |
| Year of birth | | 1949 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1999 |
| Principal occupation(s) during past five years | | Chief Financial Officer, Long Light Capital, LLC, formerly known as Korsant Partners, LLC (a family investment company) (since 1997) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | None |
| |
| Mark T. Finn | | |
| Year of birth | | 1943 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1989 |
| Principal occupation(s) during past five years | | Adjunct Professor, College of William & Mary (since 2002); Chairman, Chief Executive Officer and Owner, Vantage Consulting Group, Inc. (investment management) (since 1988); formerly, Principal/Member, Balvan Partners (investment management) (2002 to 2009) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | None |
| | |
| Western Asset Premium Liquid Reserves | | 15 |
Additional information (unaudited) (cont’d)
Information about Trustees and Officers
| | |
| Independent Trustees cont’d | | |
| Stephen R. Gross | | |
| Year of birth | | 1947 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1986 |
| Principal occupation(s) during past five years | | Chairman Emeritus (since 2011) and formerly, Chairman, HLB Gross Collins, P.C. (accounting and consulting firm) (1979 to 2011); Executive Director of Business Builders Team, LLC (since 2005); Principal, Gross Consulting Group, LLC (since 2011); CEO, Gross Capital Partners, LLC (since 2014); CEO, Trusted CFO Solutions, LLC (since 2011) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | None |
| |
| Richard E. Hanson, Jr. | | |
| Year of birth | | 1941 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1985 |
| Principal occupation(s) during past five years | | Retired; formerly, Headmaster, The New Atlanta Jewish Community High School, Atlanta, Georgia (1996 to 2000) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | None |
| |
| Diana R. Harrington | | |
| Year of birth | | 1940 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1992 |
| Principal occupation(s) during past five years | | Babson Distinguished Professor of Finance, Babson College (since 1992) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | None |
| |
| Susan M. Heilbron | | |
| Year of birth | | 1945 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1994 |
| Principal occupation(s) during past five years | | Retired; formerly, President, Lacey & Heilbron (communications consulting) (1990 to 2002); General Counsel and Executive Vice President, The Trump Organization (1986 to 1990); Senior Vice President, New York State Urban Development Corporation (1984 to 1986); Associate, Cravath, Swaine & Moore (1980 to 1984) and (1977 to 1979) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | Formerly, Director, Lincoln Savings Bank, FSB (1991 to 1994); Director, Trump Shuttle, Inc. (air transportation) (1989 to 1990); Director, Alexander’s Inc. (department store) (1987 to 1990) |
| | |
| 16 | | Western Asset Premium Liquid Reserves |
| | |
| Independent Trustees cont’d | | |
| Susan B. Kerley | | |
| Year of birth | | 1951 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1992 |
| Principal occupation(s) during past five years | | Investment Consulting Partner, Strategic Management Advisors, LLC (investment consulting) (since 1990) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | Director and Trustee (since 1990) and Chairman (since 2017 and 2005 to 2012) of various series of MainStay Family of Funds (66 funds); formerly Investment Company Institute (ICI) Board of Governors (2006 to 2014); ICI Executive Committee (2011 to 2014); Chairman of the Independent Directors Council (2012 to 2014) |
| |
| Alan G. Merten | | |
| Year of birth | | 1941 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1990 |
| Principal occupation(s) during past five years | | President Emeritus (since 2012) and formerly, President, George Mason University (1996 to 2012) |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | Director Emeritus (since 2012) and formerly, Director, Cardinal Financial Corporation (2006 to 2012); formerly, Trustee, First Potomac Realty Trust (2005 to 2017); Director, DeVry Inc. (educational services) (2012 to 2016); Director, Xybernaut Corporation (information technology) (2004 to 2006); Director, Digital Net Holdings, Inc. (2003 to 2004); Director, Comshare, Inc. (information technology) (1985 to 2003) |
| |
| R. Richardson Pettit | | |
| Year of birth | | 1942 |
| Position(s) with Trust | | Trustee |
| Term of office1 and length of time served2 | | Since 1990 |
| Principal occupation(s) during past five years | | Retired; Duncan Professor of Finance Emeritus, University of Houston (1977 to 2006); previous academic or management positions include: University of Washington, University of Pennsylvania and Purdue University |
| Number of funds in fund complex overseen by Trustee | | 45 |
| Other board memberships held by Trustee during past five years | | None |
| | |
| Western Asset Premium Liquid Reserves | | 17 |
Additional information (unaudited) (cont’d)
Information about Trustees and Officers
| | |
| Interested Trustee and Officer: |
| Jane Trust, CFA3 | | |
| Year of birth | | 1962 |
| Position(s) with Trust | | Trustee, President, and Chief Executive Officer |
| Term of office1 and length of time served2 | | Since 2015 |
| Principal occupation(s) during past five years | | Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2016); Officer and/or Trustee/Director of 149 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Vice President of LMPFA (2015); Director of ClearBridge, LLC (formerly, Legg Mason Capital Management, LLC) (2007 to 2014); Managing Director of Legg Mason Investment Counsel & Trust Co. (2000 to 2007) |
| Number of funds in fund complex overseen by Trustee | | 142 |
| Other board memberships held by Trustee during past five years | | None |
| | |
| Additional Officers: |
Ted P. Becker Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018 | | |
| Year of birth | | 1951 |
| Position(s) with Trust | | Chief Compliance Officer |
| Term of office1 and length of time served2 | | Since 2007 |
| Principal occupation(s) during past five years | | Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) |
| |
Susan Kerr
Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018 | | |
| Year of birth | | 1949 |
| Position(s) with Trust | | Chief Anti-Money Laundering Compliance Officer |
| Term of office1 and length of time served2 | | Since 2013 |
| Principal occupation(s) during past five years | | Assistant Vice President of Legg Mason & Co. and Legg Mason Investor Services, LLC (“LMIS”) (since 2010); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2013) and Anti-Money Laundering Compliance Officer of LMIS (since 2012); Senior Compliance Officer of LMIS (since 2011); formerly, AML Consultant, DTCC (2010); AML Consultant, Rabobank Netherlands, (2009); First Vice President, Director of Marketing & Advertising Compliance and Manager of Communications Review Group at Citigroup Inc. (1996 to 2008) |
| | |
| 18 | | Western Asset Premium Liquid Reserves |
| | |
| Additional Officers cont’d |
Jenna Bailey
Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902 | | |
| Year of birth | | 1978 |
| Position(s) with Trust | | Identity Theft Prevention Officer |
| Term of office1 and length of time served2 | | Since 2015 |
| Principal occupation(s) during past five years | | Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2015); Compliance Officer of Legg Mason & Co. (since 2013); Assistant Vice President of Legg Mason & Co. (since 2011); formerly, Associate Compliance Officer of Legg Mason & Co. (2011 to 2013) |
|
Robert I. Frenkel
Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902 |
| Year of birth | | 1954 |
| Position(s) with Trust | | Secretary and Chief Legal Officer |
| Term of office1 and length of time served2 | | Since 2007 |
| Principal occupation(s) during past five years | | Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel — U.S. Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006) |
| |
Thomas C. Mandia
Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902 | | |
| Year of birth | | 1962 |
| Position(s) with Trust | | Assistant Secretary |
| Term of office1 and length of time served2 | | Since 2007 |
| Principal occupation(s) during past five years | | Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary of LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers) |
| | |
| Western Asset Premium Liquid Reserves | | 19 |
Additional information (unaudited) (cont’d)
Information about Trustees and Officers
| | |
| Additional Officers cont’d |
Richard F. Sennett
Legg Mason 100 International Drive, 7th Floor, Baltimore, MD 21202 | | |
| Year of birth | | 1970 |
| Position(s) with Trust | | Principal Financial Officer and Treasurer |
| Term of office1 and length of time served2 | | Since 2011 and since 2017 |
| Principal occupation(s) during past five years | | Principal Financial Officer and Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011 and since 2013); Managing Director of Legg Mason & Co. and Senior Manager of the Treasury Policy group for Legg Mason & Co.’s Global Fiduciary Platform (since 2011); formerly, Chief Accountant within the SEC’s Division of Investment Management (2007 to 2011); Assistant Chief Accountant within the SEC’s Division of Investment Management (2002 to 2007) |
| |
Jeanne M. Kelly
Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018 | | |
| Year of birth | | 1951 |
| Position(s) with Trust | | Senior Vice President |
| Term of office1 and length of time served2 | | Since 2007 |
| Principal occupation(s) during past five years | | Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); formerly, Senior Vice President of LMFAM (2013 to 2015) |
| † | Trustees who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”). |
| 1 | Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal. |
| 2 | Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office. |
| 3 | Ms. Trust is an “interested person” of the Fund, as defined in the 1940 Act, because of her position with LMPFA and/or certain of its affiliates. |
| | |
| 20 | | Western Asset Premium Liquid Reserves |
Change in Independent Registered Public Accounting Firm
On August 14, 2017, KPMG LLP (“KPMG”) resigned, at the request of the Fund, as the independent registered public accounting firm to the Fund, upon completion of the audit of the Fund’s financial statements as of and for the fiscal period ended August 31, 2017 and the issuance of their report thereon, dated October 16, 2017. The Audit Committee of the Fund’s Board of Trustees participated in, and approved, the decision to change the independent registered public accounting firm. KPMG’s reports on the Fund’s financial statements for the fiscal periods ended August 31, 2017 and August 31, 2016 contained no adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principle. During the Fund’s fiscal periods ended August 31, 2017 and August 31, 2016 and the subsequent interim period through October 16, 2017, (i) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused them to make reference to the subject matter of the disagreements in connection with their reports on the Fund’s financial statements for such periods, and (ii) there were no “reportable events” of the kind described in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
The Audit Committee of the Fund’s Board of Trustees approved the engagement of PricewaterhouseCoopers LLP (“PwC”) as the Fund’s independent registered public accounting firm for the fiscal year ending August 31, 2018. The selection of PwC does not reflect any disagreements with or dissatisfaction by the Fund or the Board of Trustees with the performance of the Fund’s prior independent registered public accounting firm, KPMG. During the Fund’s fiscal periods ended August 31, 2017 and August 31, 2016, and the subsequent interim period through October 16, 2017, neither the Fund, nor anyone on its behalf, consulted with PwC on items which: (i) concerned the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Fund’s financial statements; or (ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K) or reportable events (as described in paragraph (a)(1)(v) of said Item 304).
| | |
| Western Asset Premium Liquid Reserves | | 21 |
Important tax information (unaudited)
The following information is provided with respect to the distributions paid during the taxable year ended August 31, 2017:
| | | | |
| Record Date: | | Daily | | Daily |
| Payable Date: | | September 2016 -
December 2016 | | January 2017 -
August 2017 |
| Interest from Federal Obligations | | 7.71% | | 1.20% |
The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is exempt from state income tax. We recommend that you consult with your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes.
The following information is applicable to non-U.S. resident shareholders:
| | | | |
| Record Date: | | Daily | | Daily |
| Payable Date: | | September 2016 -
December 2016 | | January 2017 -
August 2017 |
| Qualified Net Interest Income | | 62.00% | | 55.00% |
Please retain this information for your records.
The following information is applicable to non-U.S. resident shareholders:
The percentages indicated above represent the portion of the ordinary income distributions that are Qualified Net Interest Income and Qualified Short-Term Capital Gains and are eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.
Please retain this information for your records.
| | |
| 22 | | Western Asset Premium Liquid Reserves |
Schedule of investments
August 31, 2017
Liquid Reserves Portfolio
| | | | | | | | | | | | | | | | |
| Security | | Rate | | | Maturity
Date | | | Face
Amount | | | Value | |
| Short-Term Investments — 100.0% | | | | | | | | | | | | | | | | |
Certificates of Deposit — 33.3% | | | | | | | | | | | | | | | | |
Bank of Montreal | | | 1.300 | % | | | 10/6/17 | | | $ | 100,000,000 | | | $ | 100,006,743 | |
Bank of Montreal (1 mo. USD LIBOR + 0.520%) | | | 1.755 | % | | | 11/22/17 | | | | 22,000,000 | | | | 22,024,169 | (a) |
Bank of Montreal | | | 1.400 | % | | | 2/7/18 | | | | 160,000,000 | | | | 160,007,565 | |
Bank of Tokyo-Mitsubishi UFJ NY | | | 1.390 | % | | | 10/26/17 | | | | 248,000,000 | | | | 248,056,963 | |
BNP Paribas NY Branch | | | 1.390 | % | | | 11/17/17 | | | | 54,500,000 | | | | 54,515,175 | |
BNP Paribas NY Branch (1 mo. USD LIBOR + 0.620%) | | | 1.855 | % | | | 11/22/17 | | | | 22,000,000 | | | | 22,029,231 | (a) |
BNP Paribas NY Branch | | | 1.450 | % | | | 1/2/18 | | | | 100,000,000 | | | | 100,030,573 | |
BNP Paribas NY Branch | | | 1.450 | % | | | 1/16/18 | | | | 248,500,000 | | | | 248,563,802 | |
Canadian Imperial Bank of Commerce (3 mo. USD LIBOR + 0.130%) | | | 1.447 | % | | | 5/25/18 | | | | 160,000,000 | | | | 160,035,958 | (a) |
Citibank N.A. | | | 1.240 | % | | | 10/5/17 | | | | 149,000,000 | | | | 148,999,753 | |
Citibank N.A. | | | 1.240 | % | | | 10/6/17 | | | | 40,000,000 | | | | 39,999,853 | |
Citibank N.A. | | | 1.320 | % | | | 10/10/17 | | | | 290,000,000 | | | | 290,022,327 | |
Citibank N.A. | | | 1.400 | % | | | 1/25/18 | | | | 80,000,000 | | | | 79,997,394 | |
Credit Suisse NY | | | 1.690 | % | | | 9/28/17 | | | | 36,000,000 | | | | 36,012,410 | |
Credit Suisse NY (3 mo. USD LIBOR + 0.150%) | | | 1.467 | % | | | 10/27/17 | | | | 179,000,000 | | | | 179,065,231 | (a) |
Credit Suisse NY (1 mo. USD LIBOR + 0.230%) | | | 1.461 | % | | | 11/7/17 | | | | 82,000,000 | | | | 82,032,391 | (a) |
Credit Suisse NY (3 mo. USD LIBOR + 0.740%) | | | 2.057 | % | | | 11/17/17 | | | | 22,000,000 | | | | 22,037,503 | (a) |
Credit Suisse NY (1 mo. USD LIBOR + 0.190%) | | | 1.424 | % | | | 12/28/17 | | | | 239,000,000 | | | | 239,035,602 | (a) |
Credit Suisse NY | | | 1.500 | % | | | 1/4/18 | | | | 112,500,000 | | | | 112,535,523 | |
KBC Bank NV | | | 1.180 | % | | | 9/5/17 | | | | 114,165,000 | | | | 114,165,363 | |
KBC Bank NV | | | 1.300 | % | | | 10/10/17 | | | | 100,000,000 | | | | 100,009,401 | |
KBC Bank NV | | | 1.300 | % | | | 10/11/17 | | | | 100,000,000 | | | | 100,009,299 | |
KBC Bank NV | | | 1.300 | % | | | 11/7/17 | | | | 59,000,000 | | | | 59,002,879 | |
KBC Bank NV | | | 1.340 | % | | | 11/24/17 | | | | 92,000,000 | | | | 92,008,156 | |
KBC Bank NV | | | 1.340 | % | | | 11/28/17 | | | | 25,000,000 | | | | 25,001,963 | |
Landesbank Hessen-Thuringen | | | 1.170 | % | | | 9/6/17 | | | | 100,135,000 | | | | 100,134,599 | |
Landesbank Hessen-Thuringen | | | 1.300 | % | | | 10/6/17 | | | | 125,000,000 | | | | 125,010,681 | |
Lloyds Bank PLC (1 mo. USD LIBOR + 0.150%) | | | 1.384 | % | | | 10/26/17 | | | | 100,000,000 | | | | 100,023,549 | (a) |
Lloyds Bank PLC (1 mo. USD LIBOR + 0.180%) | | | 1.409 | % | | | 5/14/18 | | | | 59,000,000 | | | | 59,013,656 | (a) |
Mitsubishi UFJ Trust & Banking NY (1 mo. USD LIBOR + 0.280%) | | | 1.511 | % | | | 10/10/17 | | | | 118,000,000 | | | | 118,039,451 | (a) |
Mizuho Bank Ltd. (1 mo. USD LIBOR + 0.320%) | | | 1.551 | % | | | 9/21/17 | | | | 245,000,000 | | | | 245,052,731 | (a) |
Mizuho Bank Ltd. (1 mo. USD LIBOR + 0.230%) | | | 1.459 | % | | | 11/8/17 | | | | 165,000,000 | | | | 165,066,983 | (a) |
Mizuho Bank Ltd. | | | 1.350 | % | | | 11/17/17 | | | | 35,000,000 | | | | 35,006,884 | |
Mizuho Bank Ltd. (1 mo. USD LIBOR + 0.180%) | | | 1.409 | % | | | 1/9/18 | | | | 136,500,000 | | | | 136,498,312 | (a) |
National Australia Bank of NY (1 mo. USD LIBOR + 0.480%) | | | 1.709 | % | | | 12/5/17 | | | | 47,000,000 | | | | 47,052,216 | (a) |
See Notes to Financial Statements.
| | |
| Liquid Reserves Portfolio 2017 Annual Report | | 23 |
Schedule of investments (cont’d)
August 31, 2017
Liquid Reserves Portfolio
| | | | | | | | | | | | | | | | |
| Security | | Rate | | | Maturity
Date | | | Face
Amount | | | Value | |
Certificates of Deposit — continued | | | | | | | | | | | | | | | | |
Natixis NY (1 mo. USD LIBOR + 0.260%) | | | 1.495 | % | | | 9/22/17 | | | $ | 45,000,000 | | | $ | 45,008,429 | (a) |
Norinchukin Bank (1 mo. USD LIBOR + 0.350%) | | | 1.582 | % | | | 9/1/17 | | | | 128,000,000 | | | | 128,001,528 | (a) |
Norinchukin Bank (1 mo. USD LIBOR + 0.330%) | | | 1.561 | % | | | 9/11/17 | | | | 95,000,000 | | | | 95,011,429 | (a) |
Norinchukin Bank | | | 1.340 | % | | | 9/5/17 | | | | 12,600,000 | | | | 12,600,322 | |
Norinchukin Bank (1 mo. USD LIBOR + 0.300%) | | | 1.534 | % | | | 9/25/17 | | | | 145,000,000 | | | | 145,034,936 | (a) |
Norinchukin Bank | | | 1.280 | % | | | 10/6/17 | | | | 139,000,000 | | | | 139,010,775 | |
Norinchukin Bank (1 mo. USD LIBOR + 0.270%) | | | 1.501 | % | | | 10/10/17 | | | | 100,000,000 | | | | 100,032,785 | (a) |
Oversea-Chinese Banking Corp. Ltd. | | | 1.310 | % | | | 10/11/17 | | | | 44,500,000 | | | | 44,502,057 | |
Oversea-Chinese Banking Corp. Ltd. | | | 1.320 | % | | | 11/16/17 | | | | 63,000,000 | | | | 63,001,522 | |
Oversea-Chinese Banking Corp. Ltd. | | | 1.320 | % | | | 11/27/17 | | | | 40,000,000 | | | | 39,999,304 | |
Rabobank Nederland NY (1 mo. USD LIBOR + 0.340%) | | | 1.569 | % | | | 9/11/17 | | | | 179,000,000 | | | | 179,021,983 | (a) |
Royal Bank of Canada (1 mo. USD LIBOR + 0.180%) | | | 1.411 | % | | | 9/20/17 | | | | 180,000,000 | | | | 180,023,110 | (a) |
Royal Bank of Canada (1 mo. USD LIBOR + 0.130%) | | | 1.364 | % | | | 3/1/18 | | | | 240,000,000 | | | | 240,000,713 | (a) |
Royal Bank of Canada (3 mo. USD LIBOR + 0.130%) | | | 1.358 | % | | | 6/12/18 | | | | 49,000,000 | | | | 49,007,648 | (a) |
Standard Chartered Bank (1 mo. USD LIBOR + 0.320%) | | | 1.555 | % | | | 9/22/17 | | | | 300,000,000 | | | | 300,068,094 | (a) |
Standard Chartered Bank | | | 1.419 | % | | | 1/10/18 | | | | 226,000,000 | | | | 226,035,959 | |
Sumitomo Mitsui Banking Corp. (1 mo. USD LIBOR + 0.270%) | | | 1.501 | % | | | 10/6/17 | | | | 50,000,000 | | | | 50,012,577 | (a) |
Sumitomo Mitsui Banking Corp. (1 mo. USD LIBOR + 0.160%) | | | 1.394 | % | | | 1/26/18 | | | | 50,000,000 | | | | 50,003,392 | (a) |
Sumitomo Mitsui Banking Corp. (1 mo. USD LIBOR + 0.160%) | | | 1.399 | % | | | 1/31/18 | | | | 6,000,000 | | | | 6,000,205 | (a) |
Sumitomo Mitsui Banking Corp. (1 mo. USD LIBOR + 0.200%) | | | 1.432 | % | | | 2/1/18 | | | | 150,000,000 | | | | 150,032,073 | (a) |
Sumitomo Mitsui Banking Corp. (1 mo. USD LIBOR + 0.200%) | | | 1.431 | % | | | 2/6/18 | | | | 38,540,000 | | | | 38,547,110 | (a) |
Sumitomo Mitsui Banking Corp. | | | 1.400 | % | | | 2/9/18 | | | | 84,000,000 | | | | 84,010,078 | |
Sumitomo Mitsui Trust & Banking Co., Ltd. (1 mo. USD LIBOR + 0.340%) | | | 1.571 | % | | | 9/7/17 | | | | 105,000,000 | | | | 105,007,344 | (a) |
Sumitomo Mitsui Trust & Banking Co., Ltd. | | | 1.230 | % | | | 10/30/17 | | | | 82,000,000 | | | | 81,994,527 | |
Sumitomo Mitsui Trust & Banking Co., Ltd. (1 mo. USD LIBOR + 0.170%) | | | 1.406 | % | | | 11/30/17 | | | | 73,000,000 | | | | 73,009,324 | (a) |
Sumitomo Mitsui Trust & Banking Co., Ltd. (1 mo. USD LIBOR + 0.170%) | | | 1.402 | % | | | 12/4/17 | | | | 184,000,000 | | | | 184,023,282 | (a) |
Sumitomo Mitsui Trust & Banking Co., Ltd. (1 mo. USD LIBOR + 0.200%) | | | 1.431 | % | | | 2/6/18 | | | | 185,350,000 | | | | 185,384,195 | (a) |
Svenska Handelsbanken NY | | | 1.315 | % | | | 12/11/17 | | | | 85,000,000 | | | | 85,003,348 | |
UBS AG (1 mo. USD LIBOR + 0.110%) | | | 1.341 | % | | | 10/20/17 | | | | 124,000,000 | | | | 124,019,970 | (a) |
Total Certificates of Deposit | | | | | | | | | | | | | | | 7,169,512,308 | |
See Notes to Financial Statements.
| | |
| 24 | | Liquid Reserves Portfolio 2017 Annual Report |
Liquid Reserves Portfolio
| | | | | | | | | | | | | | | | |
| Security | | Rate | | | Maturity
Date | | | Face
Amount | | | Value | |
Commercial Paper — 25.5% | | | | | | | | | | | | | | | | |
Abbey National Treasury Services PLC | | | 1.080 | % | | | 9/1/17 | | | $ | 56,540,000 | | | $ | 56,538,161 | (b) |
ABN AMRO Funding USA LLC | | | 1.410 | % | | | 9/6/17 | | | | 71,875,000 | | | | 71,860,278 | (b)(c) |
ABN AMRO Funding USA LLC | | | 1.380 | % | | | 11/2/17 | | | | 45,000,000 | | | | 44,899,043 | (b)(c) |
ABN AMRO Funding USA LLC | | | 1.400 | % | | | 10/6/17 | | | | 135,000,000 | | | | 134,829,360 | (b)(c) |
ABN AMRO Funding USA LLC | | | 1.380 | % | | | 10/20/17 | | | | 50,000,000 | | | | 49,911,597 | (b)(c) |
ABN AMRO Funding USA LLC | | | 1.640 | % | | | 3/8/18 | | | | 27,700,000 | | | | 27,489,279 | (b)(c) |
ABN AMRO Funding USA LLC | | | 1.640 | % | | | 3/9/18 | | | | 174,750,000 | | | | 173,412,677 | (b)(c) |
American Honda Finance Corp. | | | 1.264 | % | | | 11/27/17 | | | | 38,000,000 | | | | 37,889,741 | (b) |
ANZ National International Ltd. | | | 1.400 | % | | | 1/24/18 | | | | 78,000,000 | | | | 77,583,705 | (b)(c) |
ANZ New Zealand International Ltd. (3 mo. USD LIBOR + 0.120%) | | | 1.437 | % | | | 5/29/18 | | | | 71,000,000 | | | | 71,019,397 | (a)(c) |
Bank Nederlandse Gemeenten NV | | | 1.170 | % | | | 9/5/17 | | | | 434,000,000 | | | | 433,926,580 | (b)(c) |
Bank of Nova Scotia | | | 1.615 | % | | | 11/22/17 | | | | 17,000,000 | | | | 17,013,262 | (a)(c) |
Bank of Nova Scotia | | | 1.390 | % | | | 1/16/18 | | | | 214,000,000 | | | | 212,938,489 | (b)(c) |
BNP Paribas NY Branch | | | 1.050 | % | | | 9/1/17 | | | | 8,540,000 | | | | 8,539,722 | (b) |
BPCE SA | | | 1.406 | % | | | 11/8/17 | | | | 99,000,000 | | | | 98,754,084 | (b)(c) |
Canadian Imperial Bank of Commerce | | | 1.400 | % | | | 2/9/18 | | | | 224,000,000 | | | | 222,651,296 | (b)(c) |
Commonwealth Bank of Australia (3 mo. USD LIBOR + 0.280%) | | | 1.490 | % | | | 11/27/17 | | | | 22,000,000 | | | | 22,016,712 | (a)(c) |
Credit Agricole Corporate and Investment Bank | | | 1.070 | % | | | 9/1/17 | | | | 39,903,000 | | | | 39,901,713 | (b) |
DBS Bank Ltd. | | | 1.294 | % | | | 9/18/17 | | | | 196,000,000 | | | | 195,878,088 | (b)(c) |
DBS Bank Ltd. | | | 1.304 | % | | | 9/27/17 | | | | 60,000,000 | | | | 59,943,480 | (b)(c) |
DBS Bank Ltd. | | | 1.304 | % | | | 9/29/17 | | | | 40,000,000 | | | | 39,959,432 | (b)(c) |
DBS Bank Ltd. | | | 1.314 | % | | | 10/12/17 | | | | 24,000,000 | | | | 23,964,496 | (b)(c) |
DBS Bank Ltd. | | | 1.314 | % | | | 10/13/17 | | | | 160,000,000 | | | | 159,757,480 | (b)(c) |
HSBC USA Inc. (1 mo. USD LIBOR + 0.160%) | | | 1.387 | % | | | 2/15/18 | | | | 125,000,000 | | | | 125,036,715 | (a)(c) |
HSBC USA Inc. | | | 1.364 | % | | | 2/16/18 | | | | 56,410,000 | | | | 56,038,731 | (b)(c) |
ING U.S. Funding LLC (1 mo. USD LIBOR + 0.150%) | | | 1.377 | % | | | 11/15/17 | | | | 147,570,000 | | | | 147,606,255 | (a) |
ING U.S. Funding LLC (1 mo. USD LIBOR + 0.150%) | | | 1.381 | % | | | 12/7/17 | | | | 163,875,000 | | | | 163,907,968 | (a) |
ING U.S. Funding LLC | | | 1.410 | % | | | 2/5/18 | | | | 185,000,000 | | | | 183,877,081 | (b) |
JPMorgan Securities LLC (1 mo. USD LIBOR + 0.130%) | | | 1.364 | % | | | 10/26/17 | | | | 450,000,000 | | | | 450,091,989 | (a)(c) |
JPMorgan Securities LLC | | | 1.336 | % | | | 11/1/17 | | | | 98,000,000 | | | | 97,787,171 | (b) |
JPMorgan Securities LLC | | | 1.406 | % | | | 12/18/17 | | | | 128,500,000 | | | | 127,992,264 | (b) |
Mitsubishi UFJ Trust & Banking NY | | | 1.390 | % | | | 12/6/17 | | | | 200,000,000 | | | | 199,289,206 | (b)(c) |
National Bank of Canada | | | 1.304 | % | | | 10/3/17 | | | | 112,000,000 | | | | 111,875,568 | (b)(c) |
NRW Bank | | | 1.274 | % | | | 9/21/17 | | | | 150,000,000 | | | | 149,895,000 | (b)(c) |
Oversea-Chinese Banking Corp. Ltd. | | | 1.304 | % | | | 9/21/17 | | | | 40,450,000 | | | | 40,420,411 | (b)(c) |
Oversea-Chinese Banking Corp. Ltd. | | | 1.325 | % | | | 10/13/17 | | | | 184,500,000 | | | | 184,220,344 | (b)(c) |
See Notes to Financial Statements.
| | |
| Liquid Reserves Portfolio 2017 Annual Report | | 25 |
Schedule of investments (cont’d)
August 31, 2017
Liquid Reserves Portfolio
| | | | | | | | | | | | | | | | |
| Security | | Rate | | | Maturity
Date | | | Face
Amount | | | Value | |
Commercial Paper — continued | | | | | | | | | | | | | | | | |
Societe Generale | | | 1.323-1.350 | % | | | 10/31/17 | | | $ | 270,171,000 | | | $ | 269,570,837 | (b)(c) |
Societe Generale | | | 1.420 | % | | | 1/31/18 | | | | 100,000,000 | | | | 99,399,900 | (b)(c) |
Swedish Export Credit | | | 1.358 | % | | | 11/28/17 | | | | 150,000,000 | | | | 149,570,204 | (b) |
Toronto Dominion Bank NY | | | 1.410 | % | | | 2/12/18 | | | | 199,000,000 | | | | 197,727,644 | (b)(c) |
UBS AG (3 mo. USD LIBOR + 0.200%) | | | 1.517 | % | | | 5/31/18 | | | | 144,750,000 | | | | 144,798,451 | (a)(c) |
United Overseas Bank Ltd. | | | 1.304 | % | | | 9/21/17 | | | | 126,000,000 | | | | 125,911,947 | (b)(c) |
United Overseas Bank Ltd. | | | 1.315 | % | | | 10/10/17 | | | | 25,000,000 | | | | 24,966,195 | (b)(c) |
United Overseas Bank Ltd. | | | 1.315 | % | | | 10/12/17 | | | | 121,500,000 | | | | 121,327,349 | (b)(c) |
Westpac Banking Corp. | | | 1.718 | % | | | 11/17/17 | | | | 22,000,000 | | | | 22,021,592 | (a)(c) |
Total Commercial Paper | | | | | | | | | | | | | | | 5,474,010,894 | |
Time Deposits — 34.9% | | | | | | | | | | | | | | | | |
ABN AMRO Bank NV | | | 1.150 | % | | | 9/1/17 | | | | 329,000,000 | | | | 329,000,000 | |
Abbey National Treasury Services PLC | | | 1.070 | % | | | 9/1/17 | | | | 582,762,000 | | | | 582,762,000 | |
Bank of Tokyo-Mitsubishi UFJ Ltd. | | | 1.080 | % | | | 9/1/17 | | | | 250,000,000 | | | | 250,000,000 | |
BNP Paribas NY Branch | | | 1.070 | % | | | 9/1/17 | | | | 408,000,000 | | | | 408,000,000 | |
Canadian Imperial Bank of Commerce | | | 1.080 | % | | | 9/1/17 | | | | 158,000,000 | | | | 158,000,000 | |
Credit Agricole Corporate and Investment Bank | | | 1.070 | % | | | 9/1/17 | | | | 777,370,000 | | | | 777,370,000 | |
DnB NOR Bank ASA | | | 1.070 | % | | | 9/1/17 | | | | 818,055,000 | | | | 818,055,000 | |
Mizuho Bank Ltd. | | | 1.170 | % | | | 9/1/17 | | | | 313,000,000 | | | | 313,000,000 | |
Natixis SA | | | 1.070 | % | | | 9/1/17 | | | | 688,000,000 | | | | 688,000,000 | |
Nordea Bank AB | | | 1.070 | % | | | 9/1/17 | | | | 873,850,000 | | | | 873,850,000 | |
Skandinaviska Enskilda Banken AB | | | 1.070 | % | | | 9/1/17 | | | | 832,000,000 | | | | 832,000,000 | |
Svenska Handelsbanken AB | | | 1.060 | % | | | 9/1/17 | | | | 645,000,000 | | | | 645,000,000 | |
Swedbank NY Branch | | | 1.070 | % | | | 9/1/17 | | | | 843,000,000 | | | | 843,000,000 | |
Total Time Deposits | | | | | | | | | | | | | | | 7,518,037,000 | |
Repurchase Agreements — 6.3% | | | | | | | | | | | | | | | | |
Bank of America Corp. tri-party repurchase agreement dated 10/17/16; Proceeds at maturity — $401,459,111; (Fully collateralized by various U.S. government agency obligations, 0.000% to 4.000% due 12/1/22 to 9/1/47; Market value — $408,000,000) | | | 1.340 | % | | | 12/7/17 | | | | 400,000,000 | | | | 400,000,000 | |
Bank of America Corp. tri-party repurchase agreement dated 8/9/17; Proceeds at maturity — $100,364,778; (Fully collateralized by various corporate bonds and notes 2.286% to 4.982% due 10/1/23 to 5/15/63; Market value — $105,000,001) | | | 1.340 | % | | | 12/7/17 | | | | 100,000,000 | | | | 100,000,000 | |
See Notes to Financial Statements.
| | |
| 26 | | Liquid Reserves Portfolio 2017 Annual Report |
Liquid Reserves Portfolio
| | | | | | | | | | | | | | | | |
| Security | | Rate | | | Maturity
Date | | | Face
Amount | | | Value | |
Repurchase Agreements — continued | | | | | | | | | | | | | | | | |
Mitsubishi UFJ Trust & Banking Corp. tri-party repurchase agreement dated 4/4/17; Proceeds at maturity — $200,778,556; (Fully collateralized by various corporate bonds and notes, 1.500% to 9.750% due 10/1/17 to 2/14/50; Market value — $213,853,446) | | | 1.430 | % | | | 12/7/17 | | | $ | 200,000,000 | | | $ | 200,000,000 | |
Mitsubishi UFJ Trust & Banking Corp. tri-party repurchase agreement dated 4/4/17; Proceeds at maturity — $100,389,278; (Fully collateralized by various municipal bonds, 0.770% to 7.672% due 11/1/22 to 8/15/57; Market value — $105,120,016) | | | 1.430 | % | | | 12/7/17 | | | | 100,000,000 | | | | 100,000,000 | |
RBC Capital Markets; tri-party repurchase agreement dated 2/8/17; Proceeds at maturity — $150,596,167; (Fully collateralized by various municipal bonds, 0.000% to 7.618% due 11/1/17 to 6/1/2111; Market value — $157,508,002) | | | 1.460 | % | | | 12/7/17 | | | | 150,000,000 | | | | 150,000,000 | |
RBC Capital Markets; tri-party repurchase agreement dated 4/4/17; Proceeds at maturity — $200,822,111; (Fully collateralized by various corporate bonds & notes 0.000% to 8.125% due 9/5/17 to 11/1/64; Market value — $213,685,123) | | | 1.510 | % | | | 12/7/17 | | | | 200,000,000 | | | | 200,000,000 | |
Wells Fargo Bank N.A. tri-party repurchase agreement dated 8/31/17; Proceeds at maturity — $200,007,000; (Fully collateralized by various corporate bonds & notes, 0.875% to 4.250% due 4/10/18 to 7/29/25; Market value — $204,000,737) | | | 1.260 | % | | | 9/1/17 | | | | 200,000,000 | | | | 200,000,000 | |
Total Repurchase Agreements | | | | | | | | 1,350,000,000 | |
Total Investments — 100.0% (Cost — $21,509,603,517) | | | | | | | | 21,511,560,202 | |
Other Assets in Excess of Liabilities — 0.0% | | | | | | | | 9,934,737 | |
Total Net Assets — 100.0% | | | | | | | $ | 21,521,494,939 | |
| (a) | Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
| (b) | Rate shown represents yield-to-maturity. |
| (c) | Commercial paper exempt from registration under Section 4(2) 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. |
See Notes to Financial Statements.
| | |
| Liquid Reserves Portfolio 2017 Annual Report | | 27 |
Statement of assets and liabilities
August 31, 2017
| | | | |
| |
| Assets: | | | | |
Investments, at value (Cost — $21,509,603,517) | | $ | 21,511,560,202 | |
Interest receivable | | | 10,631,852 | |
Receivable for securities sold | | | 825 | |
Total Assets | | | 21,522,192,879 | |
| |
| Liabilities: | | | | |
Trustees’ fees payable | | | 61,980 | |
Due to custodian | | | 81,291 | |
Accrued expenses | | | 554,669 | |
Total Liabilities | | | 697,940 | |
| Total Net Assets | | $ | 21,521,494,939 | |
| |
| Represented by: | | | | |
| Paid-in capital | | $ | 21,521,494,939 | |
See Notes to Financial Statements.
| | |
| 28 | | Liquid Reserves Portfolio 2017 Annual Report |
Statement of operations
For the Year Ended August 31, 2017
| | | | |
| |
| Investment Income: | | | | |
Interest | | $ | 271,772,551 | |
| |
| Expenses: | | | | |
Investment management fee (Note 2) | | | 28,694,160 | |
Fund accounting fees | | | 1,471,661 | |
Trustees’ fees | | | 728,298 | |
Legal fees | | | 552,020 | |
Custody fees | | | 246,892 | |
Audit and tax fees | | | 46,110 | |
Interest expense | | | 1,526 | |
Miscellaneous expenses | | | 114,519 | |
Total Expenses | | | 31,855,186 | |
Less: Fee waivers and/or expense reimbursements (Note 2) | | | (28,694,160) | |
Net Expenses | | | 3,161,026 | |
| Net Investment Income | | | 268,611,525 | |
| |
| Realized and Unrealized Gain (Loss) on Investments (Notes 1 and 4): | | | | |
Net Realized Gain From Investment Transactions | | | 5,124,653 | |
Change in Net Unrealized Appreciation (Depreciation) From Investments | | | 1,956,685 | |
| Net Gain on Investments | | | 7,081,338 | |
| Increase in Net Assets From Operations | | $ | 275,692,863 | |
See Notes to Financial Statements.
| | |
| Liquid Reserves Portfolio 2017 Annual Report | | 29 |
Statements of changes in net assets
| | | | | | | | |
| For the Years Ended August 31, | | 2017 | | | 2016 | |
| | |
| Operations: | | | | | | | | |
Net investment income | | $ | 268,611,525 | | | $ | 245,409,790 | |
Net realized gain | | | 5,124,653 | | | | 686,995 | |
Change in net unrealized appreciation (depreciation) | | | 1,956,685 | | | | — | |
Increase in Net Assets From Operations | | | 275,692,863 | | | | 246,096,785 | |
| | |
| Capital Transactions: | | | | | | | | |
Proceeds from contributions | | | 70,132,018,435 | | | | 114,933,457,934 | |
Value of withdrawals | | | (98,789,387,755) | | | | (138,942,587,255) | |
In-kind capital contributions (Note 3) | | | — | | | | 10,124,686,062 | |
Decrease in Net Assets From Capital Transaction | | | (28,657,369,320) | | | | (13,884,443,259) | |
Decrease in Net Assets | | | (28,381,676,457) | | | | (13,638,346,474) | |
| | |
| Net Assets: | | | | | | | | |
Beginning of year | | | 49,903,171,396 | | | | 63,541,517,870 | |
End of year | | $ | 21,521,494,939 | | | $ | 49,903,171,396 | |
See Notes to Financial Statements.
| | |
| 30 | | Liquid Reserves Portfolio 2017 Annual Report |
Financial highlights
| | | | | | | | | | | | | | | | | | | | |
| For the years ended August 31: | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | |
| Net assets, end of year (millions) | | | $21,521 | | | | $49,903 | | | | $63,542 | | | | $74,403 | | | | $73,576 | |
Total return1 | | | 1.02 | % | | | 0.48 | % | | | 0.22 | % | | | 0.10 | % | | | 0.17 | % |
| | | | | |
| Ratios to average net assets: | | | | | | | | | | | | | | | | | | | | |
Gross expenses | | | 0.11 | % | | | 0.11 | % | | | 0.11 | % | | | 0.11 | % | | | 0.11 | % |
Net expenses2,3 | | | 0.01 | | | | 0.01 | | | | 0.01 | | | | 0.10 | | | | 0.10 | |
Net investment income | | | 0.94 | | | | 0.46 | | | | 0.21 | | | | 0.10 | | | | 0.17 | |
| 1 | Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. |
| 2 | The investment manager pursuant to the terms of the feeder fund’s investment management agreement has contractually agreed to waive 0.10% of Portfolio expenses, attributable to the Portfolio’s investment management fee. Additional amounts may be voluntarily waived and/or reimbursed from time to time. Prior to August 18, 2014, as a result of a voluntary expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of the Portfolio did not exceed 0.10%. |
| 3 | Reflects fee waivers and/or expense reimbursements. |
See Notes to Financial Statements.
| | |
| Liquid Reserves Portfolio 2017 Annual Report | | 31 |
Notes to financial statements
1. Organization and significant accounting policies
Liquid Reserves Portfolio (the “Portfolio”) is a separate diversified investment series of Master Portfolio Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Declaration of Trust permits the Trustees to issue beneficial interests in the Portfolio. At August 31, 2017, all investors in the Portfolio were funds advised or administered by the manager of the Portfolio and/or its affiliates.
Effective October 11, 2016, the Portfolio sells and effects withdrawals of its interests at prices based on the current market value of the securities it holds. Therefore, the price of an interest in the Portfolio fluctuates along with changes in the market-based value of the holdings of the Portfolio. Because the price of an interest in the Portfolio fluctuates, it has what is called a “floating net asset value” or “floating NAV”. Under Rule 2a-7 of the 1940 Act (“Rule 2a-7”), the Portfolio must follow strict rules as to the credit quality, liquidity, diversification and maturity of its investments. Effective October 14, 2016, the Portfolio may impose a fee upon the withdrawal of investors’ interests or may temporarily suspend investors’ ability to withdraw interests if the Portfolio’s liquidity falls below required minimums because of market conditions or other factors.
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. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. Prior to October 11, 2016, in accordance with Rule 2a-7, money market instruments were valued at amortized cost, which approximated market value. This method involved valuing portfolio securities at their cost and thereafter assuming a constant amortization to maturity of any discount or premium. The Portfolio’s use of amortized cost was subject to its compliance with certain conditions as specified by Rule 2a-7.
Effective October 11, 2016, the valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. When the Portfolio holds securities or other assets that are denominated in a foreign currency, the Portfolio will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be
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| 32 | | Liquid Reserves Portfolio 2017 Annual Report |
unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Portfolio calculates its net asset value, the Portfolio values these securities as determined in accordance with procedures approved by the Portfolio’s Board of Trustees.
The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Portfolio’s pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the Portfolio, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.
The Portfolio uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
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| Liquid Reserves Portfolio 2017 Annual Report | | 33 |
Notes to financial statements (cont’d)
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| • | | Level 1 — quoted prices in active markets for identical investments |
| • | | Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| • | | Level 3 — significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Portfolio’s assets carried at fair value:
| | | | | | | | | | | | | | | | |
| ASSETS | |
| Description | | Quoted Prices
(Level 1) | | | Other Significant
Observable Inputs
(Level 2) | | | Significant
Unobservable
Inputs
(Level 3) | | | Total | |
| Short-term investments† | | | — | | | $ | 21,511,560,202 | | | | — | | | $ | 21,511,560,202 | |
| † | See Schedule of Investments for additional detailed categorizations. |
(b) Repurchase agreements. The Portfolio may enter into repurchase agreements with institutions that its subadviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Portfolio acquires a debt security subject to an obligation of the seller to repurchase, and of the Portfolio to resell, the security at an agreed-upon price and time, thereby determining the yield during the Portfolio’s holding period. When entering into repurchase agreements, it is the Portfolio’s policy that its custodian or a third party custodian, acting on the Portfolio’s behalf, 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 maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Portfolio generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Portfolio seeks to assert its rights 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) Interest income and expenses. Interest income (including interest income from payment-in-kind securities) consists of interest accrued and discount earned (including both original issue and market discount adjusted for amortization of premium) on the investments of the Portfolio. Expenses of the Portfolio are accrued daily. The Portfolio bears all costs of its operations other than expenses specifically assumed by the manager.
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| 34 | | Liquid Reserves Portfolio 2017 Annual Report |
(d) Method of allocation. Net investment income and net realized/unrealized gains and/or losses of the Portfolio are allocated pro rata, based on respective ownership interests, among the Fund and other investors in the Portfolio (the “Holders”) at the time of such determination. Prior to October 11, 2016, gross realized gains and/or losses of the Portfolio were allocated to the Holders in a manner such that, the net asset values per share of each Holder, after each such allocation was closer to the total of all Holders’ net asset values divided by the aggregate number of shares outstanding for all Holders.
(e) Credit and market risk. Investments in securities that are collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.
(f) Compensating balance arrangements. The Portfolio has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Portfolio’s cash on deposit with the bank.
(g) 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 Subchapter M of the Internal Revenue Code.
Management has analyzed the Portfolio’s tax positions taken on income tax returns for all open tax years and has concluded that as of August 31, 2017, no provision for income tax is required in the Portfolio’s financial statements. The Portfolio’s federal and state income tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
(h) Other. Purchases, maturities and sales of money market instruments are accounted for on the date of the transaction. Realized gains and losses are calculated on the identified cost basis.
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”) is the Portfolio’s subadviser. LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).
Under the investment management agreement, the Portfolio pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.10% of the Portfolio’s average daily net assets.
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| Liquid Reserves Portfolio 2017 Annual Report | | 35 |
Notes to financial statements (cont’d)
LMPFA provides administrative and certain oversight services to the Portfolio. LMPFA delegates to the subadviser the day-to-day portfolio management of the Portfolio. For its services, LMPFA pays Western Asset monthly 70% of the net management fee it receives from the Portfolio.
As a result of the investment management agreement between LMPFA and the feeder fund, LMPFA has contractually agreed to waive 0.10% of Portfolio expenses, attributable to the Portfolio’s investment management fee. Additional amounts may be voluntarily waived and/or reimbursed from time to time.
During the year ended August 31, 2017, fees waived and/or expenses reimbursed amounted to $28,694,160.
LMPFA is permitted to recapture amounts waived and/or reimbursed to the Portfolio during the same fiscal year under certain circumstances.
All officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.
3. Investments
At August 31, 2017, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
| | | | | | | | | | | | | | | | |
| | | Cost | | | Gross
Unrealized
Appreciation | | | Gross
Unrealized
Depreciation | | | Net Unrealized
Appreciation | |
| Securities | | $ | 21,509,603,517 | | | $ | 2,016,126 | | | $ | (59,441) | | | $ | 1,956,685 | |
On August 29, 2016, Western Asset Institutional Cash Reserves Fund transferred all of its investable assets (including cash and receivables), with a value of $10,124,686,062, to the Portfolio in exchange for an interest in the Portfolio.
4. Derivative instruments and hedging activities
During the year ended August 31, 2017, the Portfolio did not invest in derivative instruments.
5. Recent accounting pronouncement
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, the “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X was August 1, 2017. The Portfolio has adopted the amendments to Regulation S-X and upon evaluation, has concluded that the amendments do not materially impact the financial statement amounts; however, as required, additional or enhanced disclosure has been included.
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| 36 | | Liquid Reserves Portfolio 2017 Annual Report |
Report of independent registered public accounting firm
The Board of Trustees and Investors
Master Portfolio Trust:
We have audited the accompanying statement of assets and liabilities of Liquid Reserves Portfolio (the “Portfolio”), a series of Master Portfolio Trust, including the schedule of investments, as of August 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2017, by correspondence with the custodian and broker or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Liquid Reserves Portfolio as of August 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
October 16, 2017
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| Liquid Reserves Portfolio 2017 Annual Report | | 37 |
Additional information (unaudited)
Information about Trustees and Officers
The Trustees and Officers of the Fund also serve as the Trustees and Officers of the Portfolio. Information about the Trustees and Officers of the Fund can be found on pages 15 through 20 of this report.
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| 38 | | Liquid Reserves Portfolio |
Change in Independent Registered Public Accounting Firm
On August 14, 2017, KPMG LLP (“KPMG”) resigned, at the request of the Portfolio, as the independent registered public accounting firm to the Portfolio, upon completion of the audit of the Portfolio’s financial statements as of and for the fiscal period ended August 31, 2017 and the issuance of their report thereon, dated October 16, 2017. The Audit Committee of the Portfolio’s Board of Trustees participated in, and approved, the decision to change the independent registered public accounting firm. KPMG’s reports on the Portfolio’s financial statements for the fiscal periods ended August 31, 2017 and August 31, 2016 contained no adverse opinion or disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope or accounting principle. During the Portfolio’s fiscal periods ended August 31, 2017 and August 31, 2016 and the subsequent interim period through October 16, 2017, (i) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused them to make reference to the subject matter of the disagreements in connection with their reports on the Portfolio’s financial statements for such periods, and (ii) there were no “reportable events” of the kind described in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, as amended.
The Audit Committee of the Portfolio’s Board of Trustees approved the engagement of PricewaterhouseCoopers LLP (“PwC”) as the Portfolio’s independent registered public accounting firm for the fiscal year ending August 31, 2018. The selection of PwC does not reflect any disagreements with or dissatisfaction by the Portfolio or the Board of Trustees with the performance of the Portfolio’s prior independent registered public accounting firm, KPMG. During the Portfolio’s fiscal periods ended August 31, 2017 and August 31, 2016, and the subsequent interim period through October 16, 2017, neither the Portfolio, nor anyone on its behalf, consulted with PwC on items which: (i) concerned the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Portfolio’s financial statements; or (ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K) or reportable events (as described in paragraph (a)(1)(v) of said Item 304).
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| Liquid Reserves Portfolio | | 39 |
Western Asset
Premium Liquid Reserves
Trustees
Elliott J. Berv
Chairman
Jane F. Dasher
Mark T. Finn
Stephen R. Gross
Richard E. Hanson, Jr.
Diana R. Harrington
Susan M. Heilbron
Susan B. Kerley
Alan G. Merten
R. Richardson Pettit
Jane Trust
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadviser
Western Asset Management Company
Distributor
Legg Mason Investor Services, LLC
Custodian
State Street Bank and Trust Company
Transfer agent
Boston Financial Data Services, Inc.
2000 Crown Colony Drive
Quincy, MA 02169
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Western Asset Premium Liquid Reserves
The Fund is a separate investment series of Legg Mason Partners Premium Money Market Trust, a Maryland statutory trust.
Western Asset Premium Liquid Reserves
Legg Mason Funds
620 Eighth Avenue, 49th Floor
New York, NY 10018
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q, shareholders can call the Fund at 1-877-721-1926 or 1-203-703-6002.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling the Fund at 1-877-721-1926 or 1-203-703-6002, (2) at www.leggmason.com/moneymarketfunds and (3) on the SEC’s website at www.sec.gov.
This report is submitted for the general information of the shareholders of Western Asset Premium Liquid Reserves. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.
Investors should consider the Fund’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.
www.leggmason.com
© 2017 Legg Mason Investor Services, LLC
Member FINRA, SIPC
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the “Privacy Notice”) addresses the Legg Mason Funds’ privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds’ distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end funds and certain closed-end fund managed or sub-advised by Legg Mason or its affiliates. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
| • | | Personal information included on applications or other forms; |
| • | | Account balances, transactions, and mutual fund holdings and positions; |
| • | | Online account access user IDs, passwords, security challenge question responses; and |
| • | | Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individual’s total debt, payment history, etc.). |
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law. The Funds may disclose information about you to:
| • | | Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business or comply with obligations to government regulators; |
| • | | Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform marketing services solely for the Funds; |
| • | | The Funds’ representatives such as legal counsel, accountants and auditors; and |
| • | | Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust. |
|
| NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds’ Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds’ Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds’ internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, or if you have questions about the Funds’ privacy practices, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds’ website at www.leggmason.com, or contact the Fund at 1-877-721-1926.
|
| NOT PART OF THE ANNUAL REPORT |
www.leggmason.com
© 2017 Legg Mason Investor Services, LLC Member FINRA, SIPC
FDXX010348 10/17 SR17-3165
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Trustees of the registrant has determined that Stephen R. Gross and Jane F. Dasher possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert,” and has designated Mr. Gross and Ms. Dasher as the Audit Committee’s financial experts. Mr. Gross and Ms. Dasher are “independent” Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
| ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
a) Audit Fees. The aggregate fees billed in the last two fiscal years ending August 31, 2016 and August 31, 2017 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $37,200 in August 31, 2016 and $55,510 in August 31, 2017.
b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in August 31, 2016 and $2,571 in August 31, 2017.
(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $7,140 in August 31, 2016 and $7,210 in August 31, 2017. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.
There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.
d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item for the Legg Mason Partners Premium Money Market Trust were $0 in 2016 and $0 in 2017.
All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Legg Mason Partners Premium Money Market Trust requiring pre-approval by the Audit Committee in the Reporting Period.
(e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.
(2) For the Legg Mason Partners Premium Money Market Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for 2016 and 2017; Tax Fees were 100% and 100% for 2016 and 2017; and Other Fees were 100% and 100% for 2016 and 2017.
(f) N/A
(g) Non-audit fees billed by the Auditor for services rendered to Legg Mason Partners Premium Money Market Trust, LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Legg Mason Partners Premium Money Market Trust during the reporting period were $0 in 2017.
(h) Yes. Legg Mason Partners Premium Money Market Trust’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Legg Mason Partners Premium Money Market Trust or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
| | a) | The independent board members are acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) of the Exchange Act. The Audit Committee consists of the following Board members: |
Elliott J. Berv
Jane F. Dasher
Mark T. Finn
Stephen R. Gross
Richard E. Hanson, Jr.
Diana R. Harrington
Susan M. Heilbron
Susan B. Kerley
Alan G. Merten
R. Richardson Pettit
| 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 second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. |
| | | | |
| | |
| | (a)(1) | | Code of Ethics attached hereto. Exhibit 99.CODE ETH |
| | |
| | (a)(2) | | Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto. Exhibit 99.CERT |
| | |
| | (b) | | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto. Exhibit 99.906CERT |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Legg Mason Partners Premium Money Market Trust
| | |
| | Jane Trust |
| | Chief Executive Officer |
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.
| | |
| | Jane Trust |
| | Chief Executive Officer |
| | |
| By: | | /s/ Richard F. Sennett |
| | |
| | Richard F. Sennett |
| | Principal Financial Officer |
