Western Asset Funds NCSR Certified annual shareholder report (management investment company)

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 811-06110

Western Asset Funds, Inc.

(Exact name of registrant as specified in charter)

620 Eighth Avenue, 49^th 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: May 31

Date of reporting period: May 31, 2020

ITEM 1.

REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

LOGO


Annual Report		May 31, 2020

WESTERN ASSET

HIGH YIELD FUND

Beginning in January 2021, as permitted by regulations adopted by the Securities and Exchange Commission, the Fund intends to no longer mail paper copies of the Fund’s shareholder reports like this one, unless you specifically request paper copies of the reports from the Fund or from your Service Agent or financial intermediary (such as a broker-dealer or bank). Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically (“e-delivery”), you will not be affected by this change and you need not take any action. If you have not already elected e-delivery, you may elect to receive shareholder reports and other communications from the Fund electronically by contacting your Service Agent or, if you are a direct shareholder with the Fund, by calling 1-877-721-1926.

You may elect to receive all future reports in paper free of charge. If you invest through a Service Agent, you can contact your Service Agent to request that you continue to receive paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account at that Service Agent. If you are a direct shareholder with the Fund, you can call the Fund at 1-877-721-1926, or write to the Fund by regular mail at Legg Mason Funds, P.O. Box 9699, Providence, RI 02940-9699 or by express, certified or registered mail to Legg Mason Funds, 4400 Computer Drive, Westborough, MA 01581 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account held directly with the fund complex.

LOGO

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


What’s inside
Letter from the president			II
Fund overview			1
Fund at a glance			7
Fund expenses			8
Fund performance			10
Schedule of investments			12
Statement of assets and liabilities			35
Statement of operations			37
Statements of changes in net assets			38
Financial highlights			39
Notes to financial statements			45
Report of independent registered public accounting firm			65
Board approval of new management and new subadvisory agreements			66
Additional information			76
Important tax information			83

Fund objective

The Fund seeks to maximize total return, consistent with prudent investment management.

Letter from the president

LOGO

Dear Shareholder,

We are pleased to provide the annual report of Western Asset High Yield Fund for the twelve-month reporting period ended May 31, 2020. 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,

LOGO

Jane Trust, CFA

President and Chief Executive Officer

June 30, 2020


II		Western Asset High Yield Fund

Fund overview

Q. What is the Fund’s investment strategy?

A. The Fund’s investment objective is to maximize total return, consistent with prudent investment management. Under normal market conditions, the Fund will invest at least 80% of its net assets in U.S. dollar denominated debt or fixed income securities that are rated below investment grade at the time of purchase by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”) or securities we determined to be of comparable quality. The Fund considers securities that are rated below the Baa or BBB categories to be rated below investment grade. Securities rated below investment grade are commonly known as “junk bonds” or “high yield securities”.

In deciding among the securities in which the Fund may invest, we take into account the credit quality, country of issue, interest rate, liquidity, maturity and yield of a security as well as other factors, including the Fund’s effective durationⁱ and prevailing and anticipated market conditions. The Fund is permitted to invest up to 20% of its total assets in non-U.S. dollar denominated non-U.S. securities.

The Fund may also enter into various exchange-traded and over-the-counter derivative transactions for both hedging and non-hedging purposes, including for purposes of enhancing returns. These derivative transactions include, but are not limited to, bond and interest rate futures, options on bond and interest rate futures, futures, swaps, foreign currency futures, forwards and options.

In particular, the Fund may use interest rate swaps, credit default swaps (including buying and selling credit default swaps on individual securities and/or baskets of securities), options (including options on credit default swaps) and/or futures contracts to a significant extent, although the amounts invested in these instruments may change from time to time. Other instruments may also be used to a significant extent from time to time.

The Fund may use currency related transactions involving futures contracts, options on futures contracts, indexed securities and other derivative instruments (collectively, “Financial Instruments”). These Financial Instruments may be used without limit, for either hedging purposes, or to implement a currency investment strategy.

At Western Asset Management Company, LLC (“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. Fixed income markets, in general, posted mixed results over the twelve month reporting period ended May 31, 2020. Most spread sectors (non-Treasuries) lagged equal duration Treasuries amid periods of heightened volatility. This was driven by a number of factors, including extreme risk aversion as the COVID-19 pandemic escalated, sharply falling global growth, aggressive monetary policy accommodation from the Federal Reserve Board (the “Fed”)ⁱⁱ, ongoing trade conflicts and a number of geopolitical issues.


Western Asset High Yield Fund 2020 Annual Report		1

Fund overview (cont’d)

Both short- and long-term U.S. Treasury yields moved sharply lower during the reporting period. The yield for the two-year Treasury note began the reporting period at 1.95% — the high for the period — and ended the period at 0.16%. The yield for the two-year Treasury note experienced a low of 0.13% for the period on May 17, 2020. The yield for the ten-year Treasury began the reporting period at 2.14% and ended the period at 0.65%. The yield for the ten-year Treasury peaked at 2.15% on June 10 and June 11, 2019, and the low for the period of 0.58% occurred on April 21, 2020.

The Bloomberg Barclays U.S. Aggregate Indexⁱⁱⁱ returned 9.42% for the twelve months ended May 31, 2020. Comparatively, riskier fixed income securities, including high-yield bonds, produced weaker results. Over the fiscal year, the Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index^iv returned 1.31%. Elsewhere, the JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)^v returned 1.65% for the twelve months ended May 31, 2020.

Q. How did we respond to these changing market conditions?

A. A number of adjustments were made to the Fund’s portfolio during the reporting period. We increased the overall quality of the portfolio by reducing the Fund’s allocations to lower rated CCC securities, as well as paring its emerging market exposure. Conversely, we increased the Fund’s opportunistic exposure to investment-grade corporate bonds, as well as added to its position in securities rated B. From an industry perspective, we increased the Fund’s allocations to technology and pharmaceuticals. In contrast, we reduced the Fund’s exposures to the Health Care and Consumer Non-Cyclicals sectors. While the Fund maintained a duration^vi that was longer than that of the benchmark, we trimmed duration as rates moved lower during the reporting period.

The Fund employed U.S. Treasury futures to manage its duration positioning. All told, these derivatives contributed to performance during the reporting period. Credit options, which were used to manage the Fund’s corporate bond exposure, detracted from performance.

Performance review

For the twelve months ended May 31, 2020, Class I shares of Western Asset High Yield Fund returned -0.14%. The Fund’s unmanaged benchmark, the Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index, returned 1.31% for the same period. The Lipper High Yield Funds Category Average^vii returned -0.25% over the same time frame.


2		Western Asset High Yield Fund 2020 Annual Report


Performance Snapshot as of May 31, 2020 (unaudited)
(excluding sales charges)	6 months†			12 months†
Western Asset High Yield Fund:
Class A		-3.93	%		-0.52	%
Class A2		-3.90	%		-0.47	%
Class C		-4.36	%		-1.32	%
Class R		-4.12	%		-0.73	%
Class I		-3.71	%		-0.14	%
Class IS		-3.84	%		-0.12	%
Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index		-2.84	%		1.31	%
Lipper High Yield Funds Category Average		-4.08	%		-0.25	%

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. Principal value, investment returns and yields will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/mutualfunds.

All share class returns assume the reinvestment of all distributions, at net asset value and the deduction of all Fund expenses. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. If sales charges were reflected, the performance quoted would be lower. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

Fund performance figures reflect fee waivers and/or expense reimbursements, without which the performance would have been lower.

The 30-Day SEC Yields for the period ended May 31, 2020 for Class A, Class A2, Class C, Class R, Class I and Class IS shares were 5.49%, 5.63%, 5.08%, 5.51%, 6.17% and 6.20%, respectively. Absent fee waivers and/or expense reimbursements, the 30-Day SEC Yields for Class A, Class A2, Class C, Class R, Class I and Class IS shares would have been 5.34%, 5.57%, 5.01%, 4.65%, 6.10% and 6.13%, respectively. The 30-Day SEC Yield, calculated pursuant to the standard SEC formula, is based on a Fund’s investments over an annualized trailing 30-day period, and not on the distributions paid by the Fund, which may differ.

Total Annual Operating Expenses (unaudited)

As of the Fund’s current prospectus dated September 30, 2019, the gross total annual fund operating expense ratios for Class A, Class A2, Class C, Class R, Class I and Class IS shares were 1.05%, 1.01%, 1.79%, 1.53%, 0.76% and 0.71%, respectively.

Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Fund expense ratios are more likely to increase when markets are volatile.

†

The total return includes gains from settlement of security litigations. Without these gains, the total return for the six months ended May 31, 2020 for Class A, Class A2, Class C, Class R, Class I and Class IS shares would have been -4.32%, -4.03%, -4.49%, -4.25%, -3.98% and -3.96%, respectively. Without these gains, the total return for the twelve months ended May 31, 2020 for Class A, Class A2, Class C, Class R, Class I and Class IS shares would have been -0.92%, -0.61%, -1.46%, -0.86%, -0.42% and -0.26%, respectively.


Western Asset High Yield Fund 2020 Annual Report		3

Fund overview (cont’d)

As a result of expense limitation arrangements, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets will not exceed 1.05% for Class A shares, 1.25% for Class A2 shares, 1.80% for Class C shares, 1.30% for Class R shares and 0.65% for Class IS shares. In addition, the ratio of total annual fund operating expenses for Class IS shares will not exceed the ratio of total annual fund operating expenses for Class I shares. Total annual fund operating expenses after waiving fees and/or reimbursing expenses exceed the expense cap for Class R and Class IS shares as a result of acquired fund fees and expenses and interest expense. These expense limitation arrangements cannot be terminated prior to December 31, 2021 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund. This management fee waiver is not subject to the recapture provision discussed below.

The manager is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which the manager earned the fee or incurred the expense if the class’ 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 the manager recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual operating expenses exceeding the expense cap or any other lower limit then in effect.

Q. What were the leading contributors to performance?

A. The largest contributor to the Fund’s relative performance during the reporting period was its quality biases. In particular, an underweight in securities rated CCC, coupled with an opportunistic allocation to investment-grade corporate bonds and an overweight to securities rated BB, were rewarded as higher quality corporate securities outperformed their lower-rated counterparts.

Having a duration that was longer than that of the benchmark was beneficial as rates moved sharply lower during the reporting period. In terms of security selection, underweights in Frontier Communications and Kraft Heinz Company were among the largest contributors to performance. Frontier Communications filed for Chapter 11 bankruptcy, which negatively impacted its large debt load. Fundamentals at Kraft Heinz Company weakened during the reporting period, dragging its securities lower. Finally, from a sector perspective, overweights to the Consumer Non-Cyclicals and Financials sectors were additive for returns.

Q. What were the leading detractors from performance?

A. The largest detractor from the Fund’s relative performance during the reporting period was sector allocation. In particular, an out-of-benchmark allocation to collateralized loan obligations (“CLOs”) was a meaningful headwind for results.

Looking at security selection, overweight positions to Berry Corp. and Occidental Petroleum were negative for returns. Investments in these oil and gas exploration and production companies detracted from performance due to the combined forces of the change in the production outlook globally for oil and the reduction in demand due to dramatically slower economic activity during the reporting period.


4		Western Asset High Yield Fund 2020 Annual Report

Thank you for your investment in Western Asset High Yield Fund. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,

Western Asset Management Company, LLC

June 30, 2020

RISKS: Fixed-income securities involve interest rate, credit, inflation and reinvestment risks. As interest rates rise, the value of fixed-income securities falls. Derivatives, such as options, futures and swaps, can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. International investments are subject to special risks including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Emerging market countries tend to have economic, political and legal systems that are less developed and are less stable than those of more developed countries. The use of leverage may increase volatility and possibility of loss. Securities rated below investment grade are commonly known as “junk bonds” or “high yield securities.” The risks of high yield securities include greater price volatility, illiquidity and possibility of default. Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.

Portfolio holdings and breakdowns are as of May 31, 2020 and are subject to change and may not be representative of the portfolio managers’ current or future investments. Please refer to pages 12 through 35 for a list and percentage breakdown of the Fund’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of May 31, 2020 were: Consumer Discretionary (18.1%), Communication Services (17.4%), Financials (10.4%), Energy (9.6%) and Health Care (9.5%). The Fund’s portfolio composition is subject to change at any time.

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

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.


Western Asset High Yield Fund 2020 Annual Report		5

Fund overview (cont’d)

ⁱ

Effective duration is a duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change. Please note, duration measures the sensitivity of price (the value of principal) of a fixed-income investment to a change in interest rates.

ⁱⁱ	The Federal Reserve Board (the “Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

ⁱⁱⁱ	The Bloomberg Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.

^iv	The Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

^v	The JPMorgan Emerging Markets Bond Index Global (“EMBI Global”) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments.

^vⁱ	Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

^vii

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended May 31, 2020, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 524 funds for the six-month period and among the 512 funds for the twelve-month period in the Fund’s Lipper category, and excluding sales charge, if any.


6		Western Asset High Yield Fund 2020 Annual Report

Fund at a glance^† (unaudited)

Investment breakdown (%) as a percent of total investments

LOGO

†

The bar graph above represents the composition of the Fund’s investments as of May 31, 2020 and May 31, 2019 and does not include derivatives, such as futures contracts, forward foreign currency contracts and swap contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

‡	Represents less than 0.1%.


Western Asset High Yield Fund 2020 Annual Report		7

Fund expenses (unaudited)

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments; 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 December 1, 2019 and held for the six months ended May 31, 2020.

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, such as front-end or back-end sales charges (loads). 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 Return Without Sales Charge^2,3			Beginning Account Value		Ending Account Value		Annualized Expense Ratio			Expenses Paid During the Period⁴			Hypothetical Annualized Total Return			Beginning Account Value		Ending Account Value		Annualized Expense Ratio			Expenses Paid During the Period⁴
Class A		-3.93	%	$	1,000.00	$	960.70		1.03	%	$	5.05	Class A		5.00	%	$	1,000.00	$	1,019.85		1.03	%	$	5.20
Class A2		-3.90			1,000.00		961.00		0.96			4.71	Class A2		5.00			1,000.00		1,020.20		0.96			4.85
Class C		-4.36			1,000.00		956.40		1.78			8.71	Class C		5.00			1,000.00		1,016.10		1.78			8.97
Class R		-4.12			1,000.00		958.80		1.30			6.37	Class R		5.00			1,000.00		1,018.50		1.30			6.56
Class I		-3.71			1,000.00		962.90		0.71			3.48	Class I		5.00			1,000.00		1,021.45		0.71			3.59
Class IS		-3.84			1,000.00		961.60		0.65			3.19	Class IS		5.00			1,000.00		1,021.75		0.65			3.29

¹	For the six months ended May 31, 2020.


8		Western Asset High Yield Fund 2020 Annual Report

²	The total return includes gains from settlement of security litigations. Without these gains, the total return would have been lower.

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A and Class A2 shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the year. 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.

⁴

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class’ respective 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 (183), then divided by 366.


Western Asset High Yield Fund 2020 Annual Report		9

Fund performance (unaudited)


Average annual total returns
Without sales charges¹	Class A†			Class A2†			Class C†			Class R†			Class I†			Class IS†
Twelve Months Ended 5/31/20		-0.52	%		-0.47	%		-1.32	%		-0.73	%		-0.14	%		-0.12	%
Five Years Ended 5/31/20		2.71			2.67			1.89			2.35			2.97			3.01
Ten Years Ended 5/31/20		N/A			N/A			N/A			N/A			5.73			5.78
Inception* through 5/31/20		4.25			2.30			3.35			3.83			—			—

With sales charges²	Class A			Class A2			Class C			Class R			Class I			Class IS
Twelve Months Ended 5/31/20		-4.77	%		-4.72	%		-2.27	%		-0.73	%		-0.14	%		-0.12	%
Five Years Ended 5/31/20		1.82			1.79			1.89			2.35			2.97			3.01
Ten Years Ended 5/31/20		N/A			N/A			N/A			N/A			5.73			5.78
Inception* through 5/31/20		3.70			1.54			3.35			3.83			—			—


Cumulative total returns
Without sales charges¹
Class A (Inception date of 4/30/12 through 5/31/20)	40.04	%
Class A2 (Inception date of 8/1/14 through 5/31/20)	14.15
Class C (Inception date of 4/30/12 through 5/31/20)	30.48
Class R (Inception date of 4/30/12 through 5/31/20)	35.46
Class I (5/31/10 through 5/31/20)	74.56
Class IS (5/31/10 through 5/31/20)	75.43

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 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.

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class A shares and Class A2 shares reflect the deduction of the maximum initial sales charge of 4.25%. Class C shares reflect the deduction of a 1.00% CDSC, which applies if shares are redeemed within one year from purchase payment.

†	The total return includes gains from settlement of security litigations. Without these gains, the total returns would have been lower.

*	Inception dates for Class A, A2, C, R, I and IS shares are April 30, 2012, August 1, 2014, April 30, 2012, April 30, 2012, September 28, 2001 and August 4, 2008, respectively.


10		Western Asset High Yield Fund 2020 Annual Report

Historical performance

Value of $1,000,000 invested in

Class I Shares of Western Asset High Yield Fund vs. Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index† — May 2010 - May 2020

LOGO

†

Hypothetical illustration of $1,000,000 invested in Class I shares of Western Asset High Yield Fund on May 31, 2010, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value through May 31, 2020. The hypothetical illustration also assumes a $1,000,000 investment in the Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index. The Bloomberg Barclays U.S. Corporate High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Bloomberg Barclays U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. The index is unmanaged and not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index. The performance of the Fund’s other classes may be greater or less than the performance of Class I shares indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the other classes.


Western Asset High Yield Fund 2020 Annual Report		11

Schedule of investments

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Corporate Bonds & Notes — 86.9%
Communication Services — 16.9%
Diversified Telecommunication Services — 3.4%
Altice France Holding SA, Senior Secured Notes		10.500	%		5/15/27		520,000	$	578,500	^(a)
Altice France SA, Senior Secured Notes		7.375	%		5/1/26		2,510,000		2,647,586	^(a)
Altice France SA, Senior Secured Notes		8.125	%		2/1/27		220,000		242,508	^(a)
CenturyLink Inc., Senior Secured Notes		4.000	%		2/15/27		380,000		380,124	^(a)
Cogent Communications Group Inc., Senior Secured Notes		5.375	%		3/1/22		200,000		206,703	^(a)
Intelsat Jackson Holdings SA, Senior Secured Notes		8.000	%		2/15/24		850,000		860,714	*^(a)(b)
Level 3 Financing Inc., Senior Notes		5.250	%		3/15/26		770,000		798,733
Telecom Italia SpA, Senior Notes		5.303	%		5/30/24		1,430,000		1,502,136	^(a)
Total Diversified Telecommunication Services									7,217,004
Entertainment — 1.9%
Allen Media LLC/Allen Media
Co-Issuer Inc., Senior Notes		10.500	%		2/15/28		910,000		693,734	^(a)
Netflix Inc., Senior Notes		4.375	%		11/15/26		57,000		60,644
Netflix Inc., Senior Notes		6.375	%		5/15/29		980,000		1,151,319
Netflix Inc., Senior Notes		5.375	%		11/15/29		710,000		789,811	^(a)
Netflix Inc., Senior Notes		4.875	%		6/15/30		720,000		778,979	^(a)
Speedway Motorsports LLC/Speedway Funding II Inc., Senior Notes		4.875	%		11/1/27		760,000		640,775	^(a)
Total Entertainment									4,115,262
Interactive Media & Services — 0.8%
Match Group Inc., Senior Notes		5.000	%		12/15/27		490,000		514,510	^(a)
Match Group Inc., Senior Notes		4.625	%		6/1/28		700,000		722,750	^(a)
Twitter Inc., Senior Notes		3.875	%		12/15/27		500,000		499,687	^(a)
Total Interactive Media & Services									1,736,947
Media — 6.9%
AMC Entertainment Holdings Inc., Senior Notes		6.125	%		5/15/27		440,000		113,300
American Media LLC, Secured Notes		10.500	%		12/31/26		880,000		944,209	^(a)
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes		5.750	%		2/15/26		190,000		198,549	^(a)
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes		5.125	%		5/1/27		1,320,000		1,389,082	^(a)
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes		4.500	%		8/15/30		1,670,000		1,736,541	^(a)

See Notes to Financial Statements.


12		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Media — continued
CCO Holdings LLC/CCO Holdings Capital Corp., Senior Notes		4.500	%		5/1/32		350,000	$	362,304	^(a)
Charter Communications Operating LLC/ Charter Communications Operating Capital Corp., Senior Secured Notes		6.484	%		10/23/45		230,000		303,017
DISH DBS Corp., Senior Notes		5.875	%		11/15/24		1,110,000		1,098,783
DISH DBS Corp., Senior Notes		7.750	%		7/1/26		1,990,000		2,069,232
iHeartCommunications Inc., Senior Secured Notes		5.250	%		8/15/27		510,000		500,828	^(a)
iHeartCommunications Inc., Senior Secured Notes		4.750	%		1/15/28		680,000		654,021	^(a)
Sirius XM Radio Inc., Senior Notes		4.625	%		7/15/24		270,000		277,156	^(a)
TEGNA Inc., Senior Notes		5.000	%		9/15/29		480,000		453,151	^(a)
Time Warner Cable LLC, Senior Secured Notes		7.300	%		7/1/38		440,000		588,752
Univision Communications Inc., Senior Secured Notes		5.125	%		2/15/25		620,000		594,664	^(a)
Univision Communications Inc., Senior Secured Notes		9.500	%		5/1/25		680,000		731,000	^(a)
UPC Holding BV, Senior Secured Notes		5.500	%		1/15/28		410,000		396,751	^(a)
Virgin Media Secured Finance PLC, Senior Secured Notes		5.500	%		8/15/26		400,000		418,162	^(a)
Virgin Media Secured Finance PLC, Senior Secured Notes		5.500	%		5/15/29		1,640,000		1,725,797	^(a)
Total Media									14,555,299
Wireless Telecommunication Services — 3.9%
CSC Holdings LLC, Secured Notes		5.375	%		7/15/23		200,000		203,465	^(a)
CSC Holdings LLC, Senior Notes		6.500	%		2/1/29		1,750,000		1,936,034	^(a)
Sprint Capital Corp., Senior Notes		8.750	%		3/15/32		1,725,000		2,491,788
Sprint Communications Inc., Senior Notes		11.500	%		11/15/21		715,000		800,282
Sprint Corp., Senior Notes		7.250	%		9/15/21		130,000		136,542
Sprint Corp., Senior Notes		7.875	%		9/15/23		1,890,000		2,150,073
Sprint Corp., Senior Notes		7.625	%		2/15/25		420,000		491,579
Total Wireless Telecommunication Services									8,209,763
Total Communication Services									35,834,275
Consumer Discretionary — 16.9%
Auto Components — 0.5%
American Axle & Manufacturing Inc., Senior Notes		6.625	%		10/15/22		187,000		186,285

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		13

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Auto Components — continued
American Axle & Manufacturing Inc., Senior Notes		6.250	%		3/15/26		149,000	$	139,015
American Axle & Manufacturing Inc., Senior Notes		6.500	%		4/1/27		931,000		873,422
Total Auto Components									1,198,722
Automobiles — 1.6%
Ford Motor Co., Senior Notes		8.500	%		4/21/23		20,000		20,775
Ford Motor Co., Senior Notes		9.000	%		4/22/25		1,110,000		1,164,113
Ford Motor Credit Co. LLC, Senior Notes		3.087	%		1/9/23		1,270,000		1,213,091
Ford Motor Credit Co. LLC, Senior Notes		3.096	%		5/4/23		820,000		772,005
General Motors Co., Senior Notes		5.400	%		10/2/23		90,000		94,924
General Motors Co., Senior Notes		6.125	%		10/1/25		120,000		131,086
Total Automobiles									3,395,994
Diversified Consumer Services — 3.3%
AMN Healthcare Inc., Senior Notes		4.625	%		10/1/27		190,000		184,099	^(a)
Carriage Services Inc., Senior Notes		6.625	%		6/1/26		770,000		807,391	^(a)
Frontdoor Inc., Senior Notes		6.750	%		8/15/26		740,000		794,435	^(a)
Prime Security Services Borrower LLC/ Prime Finance Inc., Secured Notes		6.250	%		1/15/28		1,210,000		1,150,256	^(a)
Prime Security Services Borrower LLC/ Prime Finance Inc., Senior Secured Notes		5.250	%		4/15/24		30,000		31,353	^(a)
Prime Security Services Borrower LLC/ Prime Finance Inc., Senior Secured Notes		5.750	%		4/15/26		1,690,000		1,744,655	^(a)
Service Corp. International, Senior Notes		5.375	%		5/15/24		270,000		276,778
Service Corp. International, Senior Notes		7.500	%		4/1/27		387,000		430,948
Service Corp. International, Senior Notes		5.125	%		6/1/29		490,000		529,109
Weight Watchers International Inc., Senior Notes		8.625	%		12/1/25		972,000		1,016,853	^(a)
Total Diversified Consumer Services									6,965,877
Hotels, Restaurants & Leisure — 5.4%
Boyne USA Inc., Secured Notes		7.250	%		5/1/25		800,000		848,916	^(a)
Brinker International Inc., Senior Notes		5.000	%		10/1/24		350,000		314,526	^(a)
Golden Nugget Inc., Senior Notes		8.750	%		10/1/25		600,000		397,869	^(a)
Hilton Domestic Operating Co. Inc., Senior Notes		5.375	%		5/1/25		440,000		452,188	^(a)
Hilton Domestic Operating Co. Inc., Senior Notes		5.750	%		5/1/28		600,000		622,500	^(a)

See Notes to Financial Statements.


14		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Hotels, Restaurants & Leisure — continued
Hilton Worldwide Finance LLC/Hilton Worldwide Finance Corp., Senior Notes		4.875	%		4/1/27		260,000	$	258,652
IRB Holding Corp., Senior Secured Notes		7.000	%		6/15/25		390,000		405,600	^(a)
Melco Resorts Finance Ltd., Senior Notes		5.375	%		12/4/29		440,000		436,040	^(a)
Mohegan Gaming & Entertainment, Senior Notes		7.875	%		10/15/24		1,090,000		769,698	^(a)
NCL Corp. Ltd., Senior Notes		3.625	%		12/15/24		450,000		271,406	^(a)
NCL Corp. Ltd., Senior Secured Notes		12.250	%		5/15/24		840,000		905,100	^(a)
Royal Caribbean Cruises Ltd., Senior Secured Notes		11.500	%		6/1/25		450,000		477,464	^(a)
Scientific Games International Inc., Senior Notes		7.000	%		5/15/28		410,000		361,749	^(a)
Silversea Cruise Finance Ltd., Senior Secured Notes		7.250	%		2/1/25		542,000		511,282	^(a)
Sugarhouse HSP Gaming Prop Mezz LP/ Sugarhouse HSP Gaming Finance Corp., Senior Secured Notes		5.875	%		5/15/25		280,000		255,821	^(a)
Viking Cruises Ltd., Senior Notes		5.875	%		9/15/27		350,000		210,940	^(a)
Viking Cruises Ltd., Senior Secured Notes		13.000	%		5/15/25		1,060,000		1,150,100	^(a)
VOC Escrow Ltd., Senior Secured Notes		5.000	%		2/15/28		1,800,000		1,480,833	^(a)
Wynn Macau Ltd., Senior Notes		5.125	%		12/15/29		320,000		316,200	^(a)
Wynn Resorts Finance LLC/Wynn Resorts Capital Corp., Senior Notes		7.750	%		4/15/25		900,000		939,375	^(a)
Total Hotels, Restaurants & Leisure									11,386,259
Household Durables — 2.3%
Century Communities Inc., Senior Notes		5.875	%		7/15/25		1,190,000		1,203,262
Installed Building Products Inc., Senior Notes		5.750	%		2/1/28		480,000		485,309	^(a)
Lennar Corp., Senior Notes		5.875	%		11/15/24		310,000		336,705
Lennar Corp., Senior Notes		4.750	%		11/29/27		900,000		983,083
Newell Brands Inc., Senior Notes		4.875	%		6/1/25		380,000		395,124
Taylor Morrison Communities Inc., Senior Notes		6.000	%		9/1/23		400,000		402,124	^(a)
Taylor Morrison Communities Inc., Senior Notes		5.875	%		1/31/25		430,000		437,392	^(a)
TopBuild Corp., Senior Notes		5.625	%		5/1/26		580,000		592,215	^(a)
Total Household Durables									4,835,214

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		15

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Multiline Retail — 0.1%
Macy’s Inc., Senior Secured Notes		8.375	%		6/15/25		220,000	$	222,750	^(a)(c)
Specialty Retail — 1.9%
L Brands Inc., Senior Notes		5.250	%		2/1/28		1,590,000		1,349,218
L Brands Inc., Senior Notes		7.500	%		6/15/29		140,000		123,524
Michaels Stores Inc., Senior Notes		8.000	%		7/15/27		520,000		419,804	^(a)
Party City Holdings Inc., Senior Notes		6.625	%		8/1/26		780,000		127,725	^(a)
PetSmart Inc., Senior Notes		8.875	%		6/1/25		310,000		308,644	^(a)
Sally Holdings LLC/Sally Capital Inc., Senior Notes		5.625	%		12/1/25		780,000		762,532
ServiceMaster Co. LLC, Senior Notes		5.125	%		11/15/24		870,000		883,141	^(a)
ServiceMaster Co. LLC, Senior Notes		7.450	%		8/15/27		165,000		175,488
Total Specialty Retail									4,150,076
Textiles, Apparel & Luxury Goods — 1.8%
Hanesbrands Inc., Senior Notes		4.625	%		5/15/24		200,000		204,021	^(a)
Hanesbrands Inc., Senior Notes		5.375	%		5/15/25		200,000		205,500	^(a)
Hanesbrands Inc., Senior Notes		4.875	%		5/15/26		1,640,000		1,664,297	^(a)
Levi Strauss & Co., Senior Notes		5.000	%		5/1/25		780,000		798,443
William Carter Co., Senior Notes		5.500	%		5/15/25		470,000		485,275	^(a)
William Carter Co., Senior Notes		5.625	%		3/15/27		400,000		409,758	^(a)
Total Textiles, Apparel & Luxury Goods									3,767,294
Total Consumer Discretionary									35,922,186
Consumer Staples — 3.3%
Beverages — 0.4%
Cott Holdings Inc., Senior Notes		5.500	%		4/1/25		970,000		980,811	^(a)
Food Products — 2.5%
Kraft Heinz Foods Co., Secured Notes		4.875	%		2/15/25		1,530,000		1,567,256	^(a)
Kraft Heinz Foods Co., Senior Notes		3.875	%		5/15/27		40,000		42,055	^(a)
Kraft Heinz Foods Co., Senior Notes		4.250	%		3/1/31		180,000		191,571	^(a)
Kraft Heinz Foods Co., Senior Notes		5.200	%		7/15/45		520,000		535,561
Kraft Heinz Foods Co., Senior Notes		5.500	%		6/1/50		1,150,000		1,205,599	^(a)
Lamb Weston Holdings Inc., Senior Notes		4.875	%		11/1/26		760,000		788,359	^(a)
Lamb Weston Holdings Inc., Senior Notes		4.875	%		5/15/28		150,000		157,455	^(a)
Simmons Foods Inc., Secured Notes		5.750	%		11/1/24		920,000		862,596	^(a)
Total Food Products									5,350,452
Household Products — 0.4%
Energizer Holdings Inc., Senior Notes		6.375	%		7/15/26		180,000		190,317	^(a)

See Notes to Financial Statements.


16		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate				Maturity Date		Face Amount†		Value
Household Products — continued
Spectrum Brands Inc., Senior Notes		6.125	%			12/15/24		330,000	$	339,453
Spectrum Brands Inc., Senior Notes		5.000	%			10/1/29		250,000		244,952	^(a)
Total Household Products				��						774,722
Total Consumer Staples										7,105,985
Energy — 8.8%
Energy Equipment & Services — 0.2%
Precision Drilling Corp., Senior Notes		7.125	%			1/15/26		780,000		392,777	^(a)
Oil, Gas & Consumable Fuels — 8.6%
Antero Midstream Partners LP/Antero Midstream Finance Corp., Senior Notes		5.375	%			9/15/24		180,000		150,863
Apache Corp., Senior Notes		5.100	%			9/1/40		120,000		96,484
Berry Petroleum Co. LLC, Senior Notes		7.000	%			2/15/26		390,000		295,012	^(a)
Blue Racer Midstream LLC/Blue Racer Finance Corp., Senior Notes		6.125	%			11/15/22		1,250,000		1,222,719	^(a)
Blue Racer Midstream LLC/Blue Racer Finance Corp., Senior Notes		6.625	%			7/15/26		1,150,000		1,030,469	^(a)
Cenovus Energy Inc., Senior Notes		3.000	%			8/15/22		540,000		513,407
Cenovus Energy Inc., Senior Notes		6.750	%			11/15/39		150,000		134,419
Cenovus Energy Inc., Senior Notes		5.400	%			6/15/47		60,000		46,955
Comstock Resources Inc., Senior Notes		7.500	%			5/15/25		440,000		394,900	^(a)
Continental Resources Inc., Senior Notes		3.800	%			6/1/24		250,000		218,750
Continental Resources Inc., Senior Notes		4.375	%			1/15/28		1,030,000		872,616
DCP Midstream Operating LP, Senior Notes		6.450	%			11/3/36		210,000		173,102	^(a)
DCP Midstream Operating LP, Senior Notes		6.750	%			9/15/37		840,000		692,408	^(a)
Endeavor Energy Resources LP/EER Finance Inc., Senior Notes		5.500	%			1/30/26		220,000		214,668	^(a)
Endeavor Energy Resources LP/EER Finance Inc., Senior Notes		5.750	%			1/30/28		110,000		107,642	^(a)
EQM Midstream Partners LP, Senior Notes		4.000	%			8/1/24		140,000		133,569
EQM Midstream Partners LP, Senior Notes		5.500	%			7/15/28		660,000		611,520
EQM Midstream Partners LP, Senior Notes		6.500	%			7/15/48		260,000		224,007
EQT Corp., Senior Notes		6.125	%			2/1/25		730,000		748,392
MEG Energy Corp., Senior Notes		7.000	%			3/31/24		270,000		260,578	^(a)
MEG Energy Corp., Senior Notes		7.125	%			2/1/27		1,360,000		1,242,693	^(a)
Montage Resources Corp., Senior Notes		8.875	%			7/15/23		840,000		725,017

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		17

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†			Value
Oil, Gas & Consumable Fuels — continued
NGPL PipeCo LLC, Senior Notes		4.875	%		8/15/27		450,000		$	490,339	^(a)
NGPL PipeCo LLC, Senior Notes		7.768	%		12/15/37		230,000			276,619	^(a)
Oasis Petroleum Inc., Senior Notes		6.875	%		3/15/22		310,000			57,544
Oasis Petroleum Inc., Senior Notes		6.875	%		1/15/23		1,081,000			185,797
Occidental Petroleum Corp., Senior Notes		2.900	%		8/15/24		870,000			696,000
Occidental Petroleum Corp., Senior Notes (3 mo. USD LIBOR + 1.450%)		1.842	%		8/15/22		130,000			113,797	^(d)
Petrobras Global Finance BV, Senior Notes		7.375	%		1/17/27		470,000			510,037
Petrobras Global Finance BV, Senior Notes		5.750	%		2/1/29		150,000			150,860
Range Resources Corp., Senior Notes		5.000	%		3/15/23		480,000			435,698
Range Resources Corp., Senior Notes		9.250	%		2/1/26		260,000			243,790	^(a)
Shelf Drilling Holdings Ltd., Senior Notes		8.250	%		2/15/25		1,030,000			458,983	^(a)
Teine Energy Ltd., Senior Notes		6.875	%		9/30/22		500,000			490,507	^(a)
TransMontaigne Partners LP/TLP Finance Corp., Senior Notes		6.125	%		2/15/26		230,000			217,681
Viper Energy Partners LP, Senior Notes		5.375	%		11/1/27		250,000			248,704	^(a)
Western Midstream Operating LP, Senior Notes		4.000	%		7/1/22		590,000			582,991
Western Midstream Operating LP, Senior Notes		3.100	%		2/1/25		1,250,000			1,169,525
Western Midstream Operating LP, Senior Notes		3.950	%		6/1/25		120,000			112,164
Williams Cos. Inc., Senior Notes		7.500	%		1/15/31		330,000			403,561
WPX Energy Inc., Senior Notes		8.250	%		8/1/23		770,000			824,782
WPX Energy Inc., Senior Notes		5.250	%		10/15/27		430,000			417,020
Total Oil, Gas & Consumable Fuels										18,196,589
Total Energy										18,589,366
Financials — 9.7%
Banks — 4.0%
Bank of America Corp., Junior Subordinated Notes (5.875% to 3/15/28 then 3 mo. USD LIBOR + 2.931%)		5.875	%		3/15/28		350,000			357,065	^(d)(e)
Barclays PLC, Junior Subordinated Notes (8.000% to 12/15/20 then EUR 5 year Swap Rate + 6.750%)		8.000	%		12/15/20		520,000	^EUR		581,555	^(d)(e)

See Notes to Financial Statements.


18		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Banks — continued
Barclays PLC, Junior Subordinated Notes (8.000% to 6/15/24 then 5 year Treasury Constant Maturity Rate + 5.672%)		8.000	%		6/15/24		460,000	$	471,755	^(d)(e)
Barclays PLC, Subordinated Notes (5.088% to 6/20/29 then 3 mo. USD LIBOR + 3.054%)		5.088	%		6/20/30		1,220,000		1,362,269	^(d)
BNP Paribas SA, Junior Subordinated Notes (7.375% to 8/19/25 then USD 5 year ICE Swap Rate + 5.150%)		7.375	%		8/19/25		340,000		372,961	^(a)(d)(e)
CIT Group Inc., Senior Notes		5.250	%		3/7/25		140,000		140,715
CIT Group Inc., Subordinated Notes		6.125	%		3/9/28		200,000		207,712
Credit Agricole SA, Junior Subordinated Notes (8.125% to 12/23/25 then USD 5 year ICE Swap Rate + 6.185%)		8.125	%		12/23/25		1,020,000		1,172,674	^(a)(d)(e)
Intesa Sanpaolo SpA, Subordinated Notes		5.017	%		6/26/24		690,000		692,753	^(a)
Lions Gate Capital Holdings LLC, Senior Notes		5.875	%		11/1/24		1,030,000		1,005,429	^(a)
NatWest Markets NV, Subordinated Notes		7.750	%		5/15/23		450,000		505,031
Royal Bank of Scotland Group PLC, Junior Subordinated Notes (8.625% to 8/15/21 then USD 5 year ICE Swap Rate + 7.598%)		8.625	%		8/15/21		880,000		915,711	^(d)(e)
UniCredit SpA, Subordinated Notes (7.296% to 4/2/29 then USD 5 year ICE Swap Rate + 4.914%)		7.296	%		4/2/34		590,000		644,710	^(a)(d)
Total Banks									8,430,340
Capital Markets — 1.2%
Credit Suisse Group AG, Junior Subordinated Notes (6.375% to 8/21/26 then 5 year Treasury Constant Maturity Rate + 4.822%)		6.375	%		8/21/26		600,000		614,499	^(a)(d)(e)
Credit Suisse Group AG, Junior Subordinated Notes (7.250% to 9/12/25 then 5 year Treasury Constant Maturity Rate + 4.332%)		7.250	%		9/12/25		200,000		204,139	^(a)(d)(e)
Credit Suisse Group AG, Junior Subordinated Notes (7.500% to 7/17/23 then USD 5 year ICE Swap Rate + 4.600%)		7.500	%		7/17/23		210,000		216,068	^(a)(d)(e)

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		19

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Capital Markets — continued
Donnelley Financial Solutions Inc., Senior Notes		8.250	%		10/15/24		540,000	$	531,168
INTL. FCStone Inc., Secured Notes		8.625	%		6/15/25		310,000		316,200	^(a)(c)
UBS Group AG, Junior Subordinated Notes (7.000% to 1/31/24 then USD 5 year ICE Swap Rate + 4.344%)		7.000	%		1/31/24		570,000		587,325	^(a)(d)(e)
Total Capital Markets									2,469,399
Consumer Finance — 1.2%
Ally Financial Inc., Senior Notes		8.000	%		11/1/31		430,000		539,394
Ally Financial Inc., Subordinated Notes		5.750	%		11/20/25		750,000		782,344
FirstCash Inc., Senior Notes		5.375	%		6/1/24		640,000		644,067	^(a)
Navient Corp., Senior Notes		5.875	%		10/25/24		520,000		479,380
Navient Corp., Senior Notes		5.000	%		3/15/27		50,000		42,906
Total Consumer Finance									2,488,091
Diversified Financial Services — 2.3%
Alliance Data Systems Corp., Senior Notes		4.750	%		12/15/24		620,000		556,651	^(a)
Allied Universal Holdco LLC/Allied Universal Finance Corp., Senior Secured Notes		6.625	%		7/15/26		1,290,000		1,357,519	^(a)
ASP AMC Merger Sub Inc., Senior Notes		8.000	%		5/15/25		790,000		508,480	^(a)
DAE Funding LLC, Senior Notes		5.750	%		11/15/23		1,040,000		921,591	^(a)
Global Aircraft Leasing Co. Ltd., Senior Notes (6.500% Cash or 7.250% PIK)		6.500	%		9/15/24		2,310,000		1,264,043	^(a)(f)
Park Aerospace Holdings Ltd., Senior Notes		4.500	%		3/15/23		260,000		220,525	^(a)
Total Diversified Financial Services									4,828,809
Insurance — 0.4%
Fidelity & Guaranty Life Holdings Inc., Senior Notes		5.500	%		5/1/25		870,000		933,610	^(a)
Mortgage Real Estate Investment Trusts (REITs) — 0.2%
Ladder Capital Finance Holdings LLLP/ Ladder Capital Finance Corp., Senior Notes		4.250	%		2/1/27		550,000		460,969	^(a)
Thrifts & Mortgage Finance — 0.4%
Quicken Loans Inc., Senior Notes		5.250	%		1/15/28		870,000		880,523	^(a)
Total Financials									20,491,741
Health Care — 8.3%
Health Care Equipment & Supplies — 0.1%
Immucor Inc., Senior Notes		11.125	%		2/15/22		300,000		232,055	^(a)

See Notes to Financial Statements.


20		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Health Care Providers & Services — 5.0%
Centene Corp., Senior Notes		5.375	%		6/1/26		590,000	$	625,288	^(a)
Centene Corp., Senior Notes		4.625	%		12/15/29		450,000		486,499
Centene Corp., Senior Notes		3.375	%		2/15/30		260,000		263,657
CHS/Community Health Systems Inc., Senior Secured Notes		6.625	%		2/15/25		700,000		677,687	^(a)
CHS/Community Health Systems Inc., Senior Secured Notes		8.000	%		3/15/26		920,000		900,878	^(a)
DaVita Inc., Senior Notes		5.000	%		5/1/25		300,000		308,437
HCA Inc., Senior Notes		7.690	%		6/15/25		800,000		917,916
HCA Inc., Senior Notes		5.625	%		9/1/28		551,000		632,857
HCA Inc., Senior Notes		7.500	%		11/15/95		100,000		114,429
LifePoint Health Inc., Senior Secured Notes		4.375	%		2/15/27		510,000		493,744	^(a)
Polaris Intermediate Corp., Senior Notes (8.500% Cash or 9.250% PIK)		8.500	%		12/1/22		620,000		544,822	^(a)(f)
Radiology Partners Inc., Senior Notes		9.250	%		2/1/28		1,330,000		1,284,281	^(a)
RegionalCare Hospital Partners Holdings Inc./LifePoint Health Inc., Senior Notes		9.750	%		12/1/26		470,000		510,258	^(a)
Tenet Healthcare Corp., Senior Notes		8.125	%		4/1/22		10,000		10,472
Tenet Healthcare Corp., Senior Notes		6.750	%		6/15/23		1,130,000		1,186,619
Tenet Healthcare Corp., Senior Secured Notes		7.500	%		4/1/25		660,000		722,700	^(a)
US Renal Care Inc., Senior Notes		10.625	%		7/15/27		760,000		793,106	^(a)
Total Health Care Providers & Services									10,473,650
Pharmaceuticals — 3.2%
Bausch Health Americas Inc., Senior Notes		9.250	%		4/1/26		493,000		548,554	^(a)
Bausch Health Cos. Inc., Senior Notes		9.000	%		12/15/25		1,617,000		1,777,722	^(a)
Bausch Health Cos. Inc., Senior Notes		6.250	%		2/15/29		1,680,000		1,730,232	^(a)
Bausch Health Cos. Inc., Senior Secured Notes		5.500	%		11/1/25		340,000		352,113	^(a)
HLF Financing Sarl LLC/Herbalife International Inc., Senior Notes		7.250	%		8/15/26		500,000		497,032	^(a)
Par Pharmaceutical Inc., Senior Secured Notes		7.500	%		4/1/27		770,000		786,821	^(a)
Teva Pharmaceutical Finance Co. BV, Senior Notes		2.950	%		12/18/22		500,000		479,862
Teva Pharmaceutical Finance Netherlands III BV, Senior Notes		2.800	%		7/21/23		250,000		236,901

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		21

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Pharmaceuticals — continued
Teva Pharmaceutical Finance Netherlands III BV, Senior Notes		6.000	%		4/15/24		200,000	$	205,893
Teva Pharmaceutical Finance Netherlands III BV, Senior Notes		7.125	%		1/31/25		200,000		215,021	^(a)
Total Pharmaceuticals									6,830,151
Total Health Care									17,535,856
Industrials — 7.4%
Aerospace & Defense — 1.5%
Boeing Co., Senior Notes		5.150	%		5/1/30		860,000		923,322
BWX Technologies Inc., Senior Notes		5.375	%		7/15/26		460,000		474,462	^(a)
Signature Aviation US Holdings Inc., Senior Notes		5.375	%		5/1/26		760,000		731,018	^(a)
TransDigm Inc., Senior Secured Notes		8.000	%		12/15/25		430,000		466,550	^(a)
TransDigm Inc., Senior Secured Notes		6.250	%		3/15/26		630,000		645,649	^(a)
Total Aerospace & Defense									3,241,001
Air Freight & Logistics — 0.9%
XPO CNW Inc., Senior Notes		6.700	%		5/1/34		940,000		924,983
XPO Logistics Inc., Senior Notes		6.250	%		5/1/25		870,000		910,107	^(a)
Total Air Freight & Logistics									1,835,090
Airlines — 0.5%
Air Canada, Senior Notes		4.000	%		7/1/25		130,000		134,062	^(a)
Continental Airlines Pass-Through Trust		8.388	%		11/1/20		133		138
Delta Air Lines Inc., Senior Notes		3.625	%		3/15/22		590,000		535,926
United Airlines Pass-Through Trust		5.375	%		8/15/21		24,738		22,777
United Airlines Pass-Through Trust		4.750	%		4/11/22		517,772		417,885
Total Airlines									1,110,788
Building Products — 0.7%
AZEK Co. LLC, Senior Notes		9.500	%		5/15/25		340,000		362,950	^(a)
Builders FirstSource Inc., Senior Notes		5.000	%		3/1/30		220,000		204,016	^(a)
Builders FirstSource Inc., Senior Secured Notes		6.750	%		6/1/27		270,000		285,136	^(a)
Standard Industries Inc., Senior Notes		4.750	%		1/15/28		570,000		575,389	^(a)
Total Building Products									1,427,491
Commercial Services & Supplies — 1.5%
ADT Security Corp., Senior Secured Notes		4.125	%		6/15/23		660,000		663,369
Covanta Holding Corp., Senior Notes		5.875	%		7/1/25		720,000		713,776
GFL Environmental Inc., Senior Notes		7.000	%		6/1/26		240,000		253,454	^(a)
GFL Environmental Inc., Senior Notes		8.500	%		5/1/27		872,000		957,949	^(a)

See Notes to Financial Statements.


22		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Commercial Services & Supplies — continued
GFL Environmental Inc., Senior Secured Notes		5.125	%		12/15/26		170,000	$	177,331	^(a)
Waste Pro USA Inc., Senior Notes		5.500	%		2/15/26		440,000		436,227	^(a)
Total Commercial Services & Supplies									3,202,106
Electronic Equipment, Instruments & Components — 0.3%
WESCO Distribution Inc., Senior Notes		7.125	%		6/15/25		190,000		190,000	^(a)(c)
WESCO Distribution Inc., Senior Notes		7.250	%		6/15/28		360,000		357,278	^(a)(c)
Total Electronic Equipment, Instruments & Components									547,278
Machinery — 0.7%
Allison Transmission Inc., Senior Notes		5.000	%		10/1/24		570,000		576,048	^(a)
Clark Equipment Co., Senior Secured Notes		5.875	%		6/1/25		300,000		310,875	^(a)
Cleaver-Brooks Inc., Senior Secured Notes		7.875	%		3/1/23		230,000		193,512	^(a)
Park-Ohio Industries Inc., Senior Notes		6.625	%		4/15/27		489,000		379,679
Total Machinery									1,460,114
Marine — 0.1%
Navios Maritime Acquisition Corp./ Navios Acquisition Finance U.S. Inc., Senior Secured Notes		8.125	%		11/15/21		340,000		211,757	^(a)
Trading Companies & Distributors — 1.2%
Ahern Rentals Inc., Secured Notes		7.375	%		5/15/23		400,000		157,458	^(a)
United Rentals North America Inc., Secured Notes		3.875	%		11/15/27		180,000		180,867
United Rentals North America Inc., Senior Notes		5.500	%		5/15/27		600,000		638,589
United Rentals North America Inc., Senior Notes		4.875	%		1/15/28		610,000		629,895
United Rentals North America Inc., Senior Notes		5.250	%		1/15/30		930,000		969,353
Total Trading Companies & Distributors									2,576,162
Total Industrials									15,611,787
Information Technology — 3.8%
Communications Equipment — 0.9%
CommScope Inc., Senior Notes		8.250	%		3/1/27		1,380,000		1,441,845	^(a)
CommScope Technologies LLC, Senior Notes		6.000	%		6/15/25		390,000		380,385	^(a)
CommScope Technologies LLC, Senior Notes		5.000	%		3/15/27		190,000		174,449	^(a)
Total Communications Equipment									1,996,679

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		23

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
IT Services — 0.3%
CDW LLC/CDW Finance Corp., Senior Notes		4.250	%		4/1/28		660,000	$	671,425
Semiconductors & Semiconductor Equipment — 0.9%
Amkor Technology Inc., Senior Notes		6.625	%		9/15/27		670,000		710,076	^(a)
Entegris Inc., Senior Notes		4.375	%		4/15/28		730,000		749,725	^(a)
Microchip Technology Inc., Senior Notes		4.250	%		9/1/25		470,000		473,451	^(a)
Total Semiconductors & Semiconductor Equipment									1,933,252
Software — 1.4%
ACI Worldwide Inc., Senior Notes		5.750	%		8/15/26		150,000		155,409	^(a)
CDK Global Inc., Senior Notes		5.875	%		6/15/26		1,080,000		1,139,200
Fair Isaac Corp., Senior Notes		4.000	%		6/15/28		450,000		453,094	^(a)
j2 Cloud Services LLC/j2 Cloud Co-Obligor Inc., Senior Notes		6.000	%		7/15/25		680,000		709,821	^(a)
Open Text Corp., Senior Notes		3.875	%		2/15/28		300,000		296,954	^(a)
Open Text Holdings Inc., Senior Notes		4.125	%		2/15/30		240,000		237,563	^(a)
Total Software									2,992,041
Technology Hardware, Storage & Peripherals — 0.3%
Western Digital Corp., Senior Notes		4.750	%		2/15/26		540,000		569,616
Total Information Technology									8,163,013
Materials — 6.4%
Chemicals — 0.5%
FXI Holdings Inc., Senior Secured Notes		7.875	%		11/1/24		560,000		465,144	^(a)
Olin Corp., Senior Notes		5.000	%		2/1/30		630,000		543,259
Total Chemicals									1,008,403
Construction Materials — 0.1%
Summit Materials LLC/Summit Materials Finance Corp., Senior Notes		5.125	%		6/1/25		310,000		304,930	^(a)
Containers & Packaging — 2.6%
ARD Finance SA, Senior Secured Notes (6.500% Cash or 7.250% PIK)		6.500	%		6/30/27		650,000		643,620	^(a)(f)
Ardagh Packaging Finance PLC/Ardagh Holdings USA Inc., Senior Notes		6.000	%		2/15/25		1,380,000		1,424,436	^(a)
Ardagh Packaging Finance PLC/Ardagh Holdings USA Inc., Senior Notes		5.250	%		8/15/27		900,000		888,583	^(a)(c)
Cascades Inc./Cascades USA Inc., Senior Notes		5.125	%		1/15/26		10,000		10,281	^(a)
Cascades Inc./Cascades USA Inc., Senior Notes		5.375	%		1/15/28		630,000		641,419	^(a)
Flex Acquisition Co. Inc., Senior Notes		7.875	%		7/15/26		920,000		922,673	^(a)

See Notes to Financial Statements.


24		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Containers & Packaging — continued
Greif Inc., Senior Notes		6.500	%		3/1/27		1,000,000	$	1,004,815	^(a)
Pactiv LLC, Senior Notes		8.375	%		4/15/27		20,000		21,471
Total Containers & Packaging									5,557,298
Metals & Mining — 2.8%
First Quantum Minerals Ltd., Senior Notes		7.250	%		4/1/23		250,000		231,826	^(a)
First Quantum Minerals Ltd., Senior Notes		7.500	%		4/1/25		770,000		700,781	^(a)
First Quantum Minerals Ltd., Senior Notes		6.875	%		3/1/26		1,000,000		894,190	^(a)
Freeport-McMoRan Inc., Senior Notes		5.450	%		3/15/43		2,290,000		2,270,627
Hudbay Minerals Inc., Senior Notes		7.625	%		1/15/25		1,020,000		929,929	^(a)
Northwest Acquisitions ULC/Dominion Finco Inc., Secured Notes		7.125	%		11/1/22		1,150,000		12,937	^(a)
Teck Resources Ltd., Senior Notes		5.200	%		3/1/42		860,000		784,168
Total Metals & Mining									5,824,458
Paper & Forest Products — 0.4%
Mercer International Inc., Senior Notes		7.375	%		1/15/25		270,000		265,584
Mercer International Inc., Senior Notes		5.500	%		1/15/26		580,000		526,730
Total Paper & Forest Products									792,314
Total Materials									13,487,403
Real Estate — 4.8%
Equity Real Estate Investment Trusts (REITs) — 3.5%
CoreCivic Inc., Senior Notes		5.000	%		10/15/22		280,000		275,384
CoreCivic Inc., Senior Notes		4.625	%		5/1/23		430,000		418,444
CTR Partnership LP/CareTrust Capital Corp., Senior Notes		5.250	%		6/1/25		600,000		617,187
Diversified Healthcare Trust, Senior Notes		9.750	%		6/15/25		1,090,000		1,111,800
ESH Hospitality Inc., Senior Notes		4.625	%		10/1/27		860,000		815,766	^(a)
GEO Group Inc., Senior Notes		6.000	%		4/15/26		2,000,000		1,566,310
MGM Growth Properties Operating Partnership LP/MGP Finance Co-Issuer Inc., Senior Notes		5.625	%		5/1/24		850,000		886,214
MPT Operating Partnership LP/MPT Finance Corp., Senior Notes		4.625	%		8/1/29		760,000		754,182
VICI Properties LP/VICI Note Co. Inc., Senior Notes		4.625	%		12/1/29		1,130,000		1,129,972	^(a)
Total Equity Real Estate Investment Trusts (REITs)									7,575,259

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		25

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Real Estate Management & Development — 1.3%
Five Point Operating Co. LP/Five Point Capital Corp., Senior Notes		7.875	%		11/15/25		1,280,000	$	1,258,643	^(a)
Forestar Group Inc., Senior Notes		8.000	%		4/15/24		770,000		797,832	^(a)
Forestar Group Inc., Senior Notes		5.000	%		3/1/28		690,000		657,118	^(a)
Total Real Estate Management & Development									2,713,593
Total Real Estate									10,288,852
Utilities — 0.6%
Electric Utilities — 0.6%
Sensata Technologies Inc., Senior Notes		4.375	%		2/15/30		410,000		400,018	^(a)
Talen Energy Supply LLC, Senior Notes		10.500	%		1/15/26		400,000		317,162	^(a)
Talen Energy Supply LLC, Senior Secured Notes		6.625	%		1/15/28		470,000		462,452	^(a)
Total Utilities									1,179,632
Total Corporate Bonds & Notes (Cost — $185,497,726)									184,210,096
Senior Loans — 4.8%
Communication Services — 0.1%
Entertainment — 0.1%
Allen Media LLC, Initial Term Loan (3 mo. USD LIBOR + 5.500%)		5.823	%		2/10/27		310,000		297,600	^(d)(g)(h)(i)
Consumer Discretionary — 1.1%
Auto Components — 0.2%
Panther BF Aggregator 2 LP, First Lien Initial Dollar Term Loan (1 mo. USD LIBOR + 3.500%)		3.674	%		4/30/26		577,100		549,928	^(d)(g)(h)
Hotels, Restaurants & Leisure — 0.3%
Mohegan Tribal Gaming Authority, Term Loan B		5.375	%		10/13/23		738,041		552,839	^(d)(g)(h)
Specialty Retail — 0.6%
Michaels Stores Inc., 2018 New Replacement Term Loan B (1 mo. USD LIBOR + 2.500%)		3.500-3.568	%		1/30/23		249,287		217,752	^(d)(g)(h)
PetSmart Inc., Term Loan B2 (3 mo. USD LIBOR + 4.000%)		5.000	%		3/11/22		393,919		388,256	^(d)(g)(h)
Spencer Spirit IH LLC, Initial Term Loan		6.168-8.250	%		6/19/26		761,297		679,458	^(d)(g)(h)
Total Specialty Retail									1,285,466
Total Consumer Discretionary									2,388,233

See Notes to Financial Statements.


26		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Energy — 0.2%
Oil, Gas & Consumable Fuels — 0.2%
Chesapeake Energy Corp., Term Loan A (2 mo. USD LIBOR + 8.000%)		9.000	%		6/24/24		650,000	$	345,584	^(d)(g)(h)
Permian Production Partners LLC, Initial Term Loan (3 mo. USD LIBOR + 6.000%)		6.250	%		5/20/24		494,000		37,050	^(d)(g)(h)(i)
Total Energy									382,634
Financials — 0.8%
Diversified Financial Services — 0.5%
Deerfield Dakota Holding LLC, Second Lien Initial Term Loan (3 mo. USD LIBOR + 8.000%)		9.000	%		4/7/28		600,000		561,000	^(d)(g)(h)(i)
Jane Street Group LLC, Dollar Term Loan (1 mo. USD LIBOR + 3.000%)		3.174	%		1/31/25		396,990		388,554	^(d)(g)(h)
Total Diversified Financial Services									949,554
Insurance — 0.3%
Acrisure LLC, 2020 Term Loan B (3 mo. USD LIBOR + 3.500%)		3.765	%		2/15/27		560,000		526,808	^(d)(g)(h)
AmeriLife Holdings LLC, First Lien Delayed Draw Term Loan		—			3/18/27		19,318		17,869	^(i)(j)
AmeriLife Holdings LLC, First Lien Term Loan (1 mo. USD LIBOR + 4.000%)		4.370	%		3/18/27		150,682		139,381	^(d)(g)(h)(i)
Total Insurance									684,058
Total Financials									1,633,612
Health Care — 1.3%
Health Care Providers & Services — 1.3%
EyeCare Partners LLC, First Lien Initial Delayed Draw Term Loan		—			2/18/27		107,838		98,492	^(j)
EyeCare Partners LLC, First Lien Initial Term Loan (3 mo. USD LIBOR + 3.750%)		4.822	%		2/18/27		462,162		422,108	^(d)(g)(h)
EyeCare Partners LLC, Second Lien Initial Term Loan (3 mo. USD LIBOR + 8.250%)		9.139	%		2/4/28		410,000		374,467	^(d)(g)(h)
Option Care Health Inc., First Lien Term Loan B (1 mo. USD LIBOR + 4.500%)		4.674	%		8/6/26		748,125		725,681	^(d)(g)(h)
Radnet Management Inc., First Lien Term Loan B1 (6 mo. USD LIBOR + 3.500%)		4.500	%		6/30/23		580,452		551,338	^(d)(g)(h)
U.S. Renal Care Inc., First Lien Term Loan B (1 mo. USD LIBOR + 5.000%)		5.188	%		6/26/26		553,400		529,304	^(d)(g)(h)
Total Health Care									2,701,390

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		27

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Industrials — 0.4%
Airlines — 0.4%
Delta Air Lines Inc., Initial Term Loan (3 mo. USD LIBOR + 4.750%)		5.510	%		4/27/23		780,000	$	771,127	^(d)(g)(h)
Information Technology — 0.5%
Communications Equipment — 0.3%
Global Tel Link Corp., First Lien Term Loan (3 mo. USD LIBOR + 4.250%)		5.700	%		11/29/25		781,560		661,981	^(d)(g)(h)
IT Services — 0.2%
Science Applications International Corp., Term Loan B2 (1mo. USD LIBOR + 2.250%)		2.424	%		3/13/27		395,833		387,257	^(d)(g)(h)
Total Information Technology									1,049,238
Real Estate — 0.2%
Equity Real Estate Investment Trusts (REITs) — 0.2%
Corecivic Inc., Term Loan (1 mo. USD LIBOR + 4.500%)		5.500	%		12/12/24		533,250		506,588	^(d)(g)(h)(i)
Utilities — 0.2%
Electric Utilities — 0.2%
Panda Temple Power LLC, Second Lien Term Loan (1 mo. USD LIBOR +8.000% PIK)		9.000	%		2/7/23		402,770		402,770	^(d)(f)(g)(h)
Total Senior Loans (Cost — $11,517,134)									10,133,192
Asset-Backed Securities — 4.7%
Apidos CLO XVIII, 2018-18A E (3 mo. USD LIBOR + 5.700%)		6.798	%		10/22/30		590,000		472,984	^(a)(d)
Ares XLII CLO Ltd., 2017-42A D (3 mo. USD LIBOR + 3.450%)		4.548	%		1/22/28		890,000		812,303	^(a)(d)
Benefit Street Partners CLO XII Ltd., 2017-12A C (3 mo. USD LIBOR + 3.050%)		4.269	%		10/15/30		250,000		220,567	^(a)(d)
BlueMountain CLO Ltd., 2012-2A ER2 (3 mo. USD LIBOR + 5.750%)		6.127	%		11/20/28		350,000		257,799	^(a)(d)
BlueMountain CLO Ltd., 2015-2A ER (3 mo. USD LIBOR + 5.200%)		6.335	%		7/18/27		250,000		159,561	^(a)(d)
BlueMountain CLO Ltd., 2016-2A DR (3 mo. USD LIBOR + 7.790%)		8.167	%		8/20/32		350,000		285,053	^(a)(d)
Carlyle US CLO Ltd., 2017-2A C (3 mo. USD LIBOR + 3.700%)		4.835	%		7/20/31		500,000		454,407	^(a)(d)
Catskill Park CLO Ltd., 2017-1A D (3 mo. USD LIBOR + 6.000%)		7.135	%		4/20/29		600,000		502,844	^(a)(d)

See Notes to Financial Statements.


28		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Asset-Backed Securities — continued
Cent CLO 24 Ltd., 2015-24A CR (3 mo. USD LIBOR + 3.150%)		4.369	%		10/15/26		360,000	$	325,207	^(a)(d)
Cook Park CLO Ltd., 2018-1A E (3 mo. USD LIBOR + 5.400%)		6.535	%		4/17/30		250,000		201,923	^(a)(d)
Cumberland Park CLO Ltd., 2015-2A ER (3 mo. USD LIBOR + 5.650%)		6.785	%		7/20/28		750,000		637,995	^(a)(d)
CVP CLO Ltd., 2017-2A D (3 mo. USD LIBOR + 2.650%)		3.785	%		1/20/31		250,000		216,419	^(a)(d)
Dryden 72 CLO Ltd., 2019-72A E (3 mo. USD LIBOR + 6.800%)		7.192	%		5/15/32		600,000		498,234	^(a)(d)
Greenwood Park CLO Ltd., 2018-1A D (3 mo. USD LIBOR + 2.500%)		3.719	%		4/15/31		350,000		296,613	^(a)(d)
Greenwood Park CLO Ltd., 2018-1A E (3 mo. USD LIBOR + 4.950%)		6.169	%		4/15/31		250,000		198,826	^(a)(d)
Greywolf CLO IV Ltd., 2019-1A C (3 mo. USD LIBOR + 3.950%)		5.085	%		4/17/30		370,000		344,174	^(a)(d)
Halsey Point CLO I Ltd., 2019-1A E (3 mo. USD LIBOR + 7.700%)		9.607	%		1/20/33		600,000		481,272	^(a)(d)
Jackson Mill CLO Ltd., 2015-1A DR (3 mo. USD LIBOR + 2.800%)		4.019	%		4/15/27		600,000		542,482	^(a)(d)
LCM XXII Ltd., 22A DR (3 mo. USD LIBOR + 5.500%)		6.635	%		10/20/28		350,000		268,783	^(a)(d)
Oaktree CLO Ltd., 2015-1A DR (3 mo. USD LIBOR + 5.200%)		6.335	%		10/20/27		250,000		176,235	^(a)(d)
OZLM XIX Ltd., 2017-19A C (3 mo. USD LIBOR + 3.100%)		4.319	%		11/22/30		800,000		658,447	^(a)(d)
Saranac CLO III Ltd., 2014-3A DR (3 mo. USD LIBOR + 3.250%)		4.445	%		6/22/30		590,000		488,798	^(a)(d)
TICP CLO VI Ltd., 2016-6A DR (3 mo. USD LIBOR + 3.300%)		4.519	%		1/15/29		890,000		835,653	^(a)(d)
Venture XVII CLO Ltd., 2014-17A DRR (3 mo. USD LIBOR + 2.820%)		4.039	%		4/15/27		350,000		311,452	^(a)(d)
Venture XVII CLO Ltd., 2014-17A ERR (3 mo. USD LIBOR + 5.740%)		6.959	%		4/15/27		350,000		226,240	^(a)(d)
Total Asset-Backed Securities (Cost — $11,478,413)									9,874,271
Convertible Bonds & Notes — 0.6%
Communication Services — 0.4%
Diversified Telecommunication Services — 0.1%
Vonage Holdings Corp., Senior Notes		1.750	%		6/1/24		120,000		115,078	^(a)

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		29

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund

Security

Rate

Maturity
Date

Face
Amount†

Value

Entertainment — 0.1%

Live Nation Entertainment Inc., Senior Notes

2.000

2/15/25

300,000

251,554

^(a)

Media — 0.2%

DISH Network Corp., Senior Notes

2.375

3/15/24

410,000

354,394

DISH Network Corp., Senior Notes

3.375

8/15/26

110,000

97,201

Total Media

451,595

Total Communication Services

818,227

Energy — 0.0%

Oil, Gas & Consumable Fuels — 0.0%

Cheniere Energy Inc., Senior Notes

4.250

3/15/45

240,000

148,627

Information Technology — 0.2%

Electronic Equipment, Instruments & Components — 0.2%

Vishay Intertechnology Inc., Senior Notes

2.250

6/15/25

450,000

413,366

Total Convertible Bonds & Notes (Cost — $1,533,989)

1,380,220

Common Stocks — 0.6%

Communication Services — 0.0%

Media — 0.0%

New Cotai LLC/New Cotai Capital Corp., Class B Shares

*^(i)(k)(l)

Energy — 0.6%

Energy Equipment & Services — 0.0%

Hercules Offshore Inc. (Escrow)

54,577

48,287

*^(i)(k)

KCAD Holdings I Ltd.

424,046,710

*^(i)(k)(l)

Total Energy Equipment & Services

48,287

Oil, Gas & Consumable Fuels — 0.6%

Berry Corp.

230,726

978,278

Montage Resources Corp.

38,435

235,222

MWO Holdings LLC

621

47,600

*^(i)(k)

Total Oil, Gas & Consumable Fuels

1,261,100

Total Energy

1,309,387

Total Common Stocks (Cost — $12,374,726)

1,309,387

See Notes to Financial Statements.


30		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


Security	Rate			Maturity Date		Face Amount†		Value
Sovereign Bonds — 0.4%
Argentina — 0.4%
Argentine Republic Government International Bond, Senior Notes		6.875	%		4/22/21		160,000	$	66,180	*^(b)
Argentine Republic Government International Bond, Senior Notes		5.625	%		1/26/22		240,000		97,443	*^(b)
Argentine Republic Government International Bond, Senior Notes		7.500	%		4/22/26		250,000		96,800	*^(b)
Argentine Republic Government International Bond, Senior Notes		6.875	%		1/26/27		330,000		120,041	*^(b)
Provincia de Buenos Aires, Senior Notes		9.950	%		6/9/21		450,000		168,750	^(m)
Provincia de Buenos Aires, Senior Notes		7.875	%		6/15/27		680,000		249,900	^(m)
Total Sovereign Bonds (Cost — $2,040,182)									799,114

						Shares
Convertible Preferred Stocks — 0.1%
Industrials — 0.1%
Machinery — 0.1%
Stanley Black & Decker Inc. (Cost — $273,350)		5.000	%				270		282,150	^(d)


Preferred Stocks — 0.1%
Financials — 0.1%
Capital Markets — 0.1%
B Riley Financial Inc. (Cost — $230,000)		6.875	%				9,200		222,456
Total Investments before Short-Term Investments (Cost — $224,945,520)									208,210,886
Short-Term Investments — 0.3%
Western Asset Premier Institutional Government Reserves, Premium Shares (Cost — $745,581)		0.109	%				745,581		745,581	⁽ⁿ⁾
Total Investments — 98.5% (Cost — $225,691,101)									208,956,467
Other Assets in Excess of Liabilities — 1.5%									3,078,300
Total Net Assets — 100.0%								$	212,034,767

†	Face amount denominated in U.S. dollars, unless otherwise noted.

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		31

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund

*	Non-income producing security.

^(a)

Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors.

^(b)	The coupon payment on these securities is currently in default as of May 31, 2020.

^(c)	Securities traded on a when-issued or delayed delivery basis.

^(d)

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.

^(e)	Security has no maturity date. The date shown represents the next call date.

^(f)	Payment-in-kind security for which the issuer has the option at each interest payment date of making interest payments in cash or additional securities.

^(g)	Senior loans may be considered restricted in that the Fund ordinarily is contractually obligated to receive approval from the agent bank and/or borrower prior to the disposition of a senior loan.

^(h)	Interest rates disclosed represent the effective rates on collateralized and uncollateralized senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan.

⁽ⁱ⁾	Security is valued using significant unobservable inputs (Note 1).

^(j)	All or a portion of this loan is unfunded as of May 31, 2020. The interest rate for fully unfunded term loans is to be determined.

^(k)	Security is valued in good faith in accordance with procedures approved by the Board of Directors (Note 1).

^(l)	Value is less than $1.

^(m)

Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors.

⁽ⁿ⁾

In this instance, as defined in the Investment Company Act of 1940, an “Affiliated Company” represents Fund ownership of at least 5% of the outstanding voting securities of an issuer, or a company which is under common ownership or control. At May 31, 2020, the total market value of investments in Affiliated Companies was $745,581 and the cost was $745,581 (Note 8).


Abbreviation(s) used in this schedule:

CLO		— Collateralized Loan Obligation

EUR		— Euro

ICE		— Intercontinental Exchange

LIBOR		— London Interbank Offered Rate

PIK		— Payment-In-Kind

USD		— United States Dollar

At May 31, 2020, the Fund had the following open futures contracts:


	Number of Contracts		Expiration Date		Notional Amount		Market Value		Unrealized Appreciation (Depreciation)
Contracts to Buy:
U.S. Treasury 5-Year Notes		205		9/20	$	25,739,890	$	25,753,125	$	13,235

See Notes to Financial Statements.


32		Western Asset High Yield Fund 2020 Annual Report

Western Asset High Yield Fund


	Number of Contracts		Expiration Date		Notional Amount		Market Value		Unrealized Appreciation (Depreciation)
Contracts to Sell:
U.S. Treasury 10-Year Notes		74		9/20	$	10,266,602	$	10,290,625	$	(24,023)
U.S. Treasury Long-Term Bonds		14		9/20		2,496,452		2,497,250		(798)
										(24,821)
Net unrealized depreciation on open futures contracts									$	(11,586)

At May 31, 2020, the Fund had the following open forward foreign currency contracts:

Currency

Purchased

Currency

Sold

Counterparty

Settlement

Date

Unrealized

Depreciation

USD

10,932

EUR

10,000

BNP Paribas SA

7/16/20

(179)

USD

163,424

EUR

150,000

BNP Paribas SA

7/16/20

(3,249)

USD

341,086

EUR

312,000

BNP Paribas SA

7/16/20

(5,594)

USD

118,433

EUR

108,000

Citibank N.A.

7/16/20

(1,572)

USD

2,113,888

CAD

2,980,000

Morgan Stanley & Co. Inc.

7/16/20

(50,512)

Total

(61,106)


Abbreviation(s) used in this table:

CAD		— Canadian Dollar

EUR		— Euro

USD		— United States Dollar

At May 31, 2020, the Fund had the following open swap contract:


CENTRALLY CLEARED CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — SELL PROTECTION¹
Reference Entity	Notional Amount²		Termination Date		Implied Credit Spread at May 31, 2020³	Periodic Payments Received by the Fund†	Market Value		Upfront Premiums Paid (Received)		Unrealized Appreciation
Ford Motor Credit Co. LLC, 3.810%, due 1/9/24	$	647,000		6/20/23	4.251%	5.000% quarterly	$	13,547	$	(41,800)	$	55,347

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		33

Schedule of investments (cont’d)

May 31, 2020

Western Asset High Yield Fund

²	The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

Implied credit spreads, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end, serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation.

†	Percentage shown is an annual percentage rate.

See Notes to Financial Statements.


34		Western Asset High Yield Fund 2020 Annual Report

Statement of assets and liabilities

May 31, 2020



Assets:
Investments in unaffiliated securities, at value (Cost — $224,945,520)	$	208,210,886
Investments in affiliated securities, at value (Cost — $745,581)		745,581
Foreign currency, at value (Cost — $11,283)		11,545
Cash		999,976
Receivable for securities sold		3,992,556
Interest receivable		3,169,886
Deposits with brokers for centrally cleared swap contracts		491,000
Deposits with brokers for open futures contracts		120,320
Foreign currency collateral for centrally cleared swap contracts, at value (Cost — $50,873)		51,177
Receivable for Fund shares sold		45,044
Prepaid expenses		71,714
*Total Assets*		*217,909,685*

Liabilities:
Payable for securities purchased		5,530,468
Payable for Fund shares repurchased		101,793
Investment management fee payable		87,051
Unrealized depreciation on forward foreign currency contracts		61,106
Distributions payable		35,642
Service and/or distribution fees payable		10,312
Payable to broker — net variation margin on open futures contracts		1,993
Directors’ fees payable		1,576
Payable to broker — net variation margin on centrally cleared swap contracts		911
Accrued expenses		44,066
*Total Liabilities*		*5,874,918*
Total Net Assets	$	212,034,767

Net Assets:
Par value (Note 7)	$	28,633
Paid-in capital in excess of par value		275,291,893
Total distributable earnings (loss)		(63,285,759)
Total Net Assets	$	212,034,767

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		35

Statement of assets and liabilities (cont’d)

May 31, 2020



Net Assets:
Class A			$2,677,147
Class A2			$40,222,622
Class C			$1,964,221
Class R			$158,427
Class I			$64,507,022
Class IS			$102,505,328

Shares Outstanding:
Class A			362,013
Class A2			5,434,510
Class C			268,138
Class R			21,569
Class I			8,792,428
Class IS			13,754,321

Net Asset Value:
Class A (and redemption price)			$7.40
Class A2 (and redemption price)			$7.40
Class C*			$7.33
Class R (and redemption price)			$7.35
Class I (and redemption price)			$7.34
Class IS (and redemption price)			$7.45
Maximum Public Offering Price Per Share:
Class A (based on maximum initial sales charge of 4.25%)			$7.73
Class A2 (based on maximum initial sales charge of 4.25%)			$7.73

*	Redemption price per share is NAV of Class C shares reduced by a 1.00% CDSC if shares are redeemed within one year from purchase payment (Note 2).

See Notes to Financial Statements.


36		Western Asset High Yield Fund 2020 Annual Report

Statement of operations

For the Year Ended May 31, 2020



Investment Income:
Interest from unaffiliated investments	$	14,443,782
Interest from affiliated investments		87,390
Dividends		199,381
*Total Investment Income*		*14,730,553*

Expenses:
Investment management fee (Note 2)		1,270,745
Service and/or distribution fees (Notes 2 and 5)		129,823
Registration fees		117,517
Transfer agent fees (Note 5)		76,270
Fund accounting fees		72,445
Audit and tax fees		65,486
Shareholder reports		19,492
Fees recaptured by investment manager (Note 2)		13,147
Custody fees		10,627
Legal fees		8,604
Directors’ fees		6,437
Insurance		3,731
Commitment fees (Note 9)		1,642
Miscellaneous expenses		5,533
*Total Expenses*		*1,801,499*
Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)		(92,949)
*Net Expenses*		*1,708,550*
Net Investment Income		13,022,003

Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
Net Realized Gain (Loss) From:
Investment transactions in unaffiliated securities		(6,285,777)
Futures contracts		681,755
Written options		(1,164,723)
Swap contracts		99,956
Forward foreign currency contracts		108,090
Foreign currency transactions		5,847
*Net Realized Loss*		*(6,554,852)*
Change in Net Unrealized Appreciation (Depreciation) From:
Investments in unaffiliated securities		(5,436,800)
Futures contracts		(197,470)
Swap contracts		80,725
Forward foreign currency contracts		(68,528)
Foreign currencies		12,715
*Change in Net Unrealized Appreciation (Depreciation)*		*(5,609,358)*
Net Loss on Investments, Futures Contracts, Written Options, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions		(12,164,210)
Increase in Net Assets From Operations	$	857,793

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		37

Statements of changes in net assets


For the Years Ended May 31,	2020		2019

Operations:
Net investment income	$	13,022,003	$	13,170,516
Net realized loss		(6,554,852)		(3,335,003)
Change in net unrealized appreciation (depreciation)		(5,609,358)		601,282
*Increase in Net Assets From Operations*		*857,793*		*10,436,795*

Distributions to Shareholders From (Notes 1 and 6):
Total distributable earnings		(12,246,394)		(13,303,083)
Return of capital		(690,785)		(75,736)
*Decrease in Net Assets From Distributions to Shareholders*		*(12,937,179)*		*(13,378,819)*

Fund Share Transactions (Note 7):
Net proceeds from sale of shares		58,132,846		68,328,366
Reinvestment of distributions		12,459,138		12,932,462
Cost of shares repurchased		(88,416,239)		(86,655,089)
*Decrease in Net Assets From Fund Share Transactions*		*(17,824,255)*		*(5,394,261)*
*Decrease in Net Assets*		*(29,903,641)*		*(8,336,285)*

Net Assets:
Beginning of year		241,938,408		250,274,693
End of year	$	212,034,767	$	241,938,408

See Notes to Financial Statements.


38		Western Asset High Yield Fund 2020 Annual Report

Financial highlights


For a share of each class of capital stock outstanding throughout each year ended May 31:
Class A Shares¹	2020			2019			2018			2017			2016

Net asset value, beginning of year		$7.85			$7.96			$8.13			$7.60			$8.60

Income (loss) from operations:
Net investment income		0.41			0.43			0.44			0.47			0.50
Net realized and unrealized gain (loss)		(0.44)			(0.10)			(0.18)			0.50			(1.00)
*Total income (loss) from operations*		*(0.03)*			*0.33*			*0.26*			*0.97*			*(0.50)*

Less distributions from:
Net investment income		(0.40)			(0.44)			(0.43)			(0.42)			(0.50)
Return of capital		(0.02)			(0.00)	²		—			(0.02)			—
*Total distributions*		*(0.42)*			*(0.44)*			*(0.43)*			*(0.44)*			*(0.50)*

Net asset value, end of year		$7.40			$7.85			$7.96			$8.13			$7.60
*Total return³*		*(0.52)*	%⁴		*4.25*	%		*3.27*	%		*13.07*	%		*(5.63)*	%

Net assets, end of year (000s)		$2,677			$2,386			$4,728			$6,137			$10,896

Ratios to average net assets:
Gross expenses		1.05	%⁵		1.06	%⁵		1.00	%		0.99	%		0.96	%
Net expenses⁶		1.02	^5,7		0.99	^5,7		0.99	⁷		0.99	⁷		0.96
Net investment income		5.30			5.43			5.43			5.96			6.58

Portfolio turnover rate		83	%		71	%		68	%		74	%		71	%

¹	Per share amounts have been calculated using the average shares method.

²	Amount represents less than $0.005 per share.

Performance figures, exclusive of sales charges, 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.

⁴	The total return includes gains from settlement of security litigations. Without these gains, the total return would have been (0.92)% for the year ended May 31, 2020.

⁵	Reflects recapture of expenses waived/reimbursed from prior fiscal years.

⁶

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class A shares did not exceed 1.05%. This expense limitation arrangement cannot be terminated prior to December 31, 2021 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund.

⁷	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		39

Financial highlights (cont’d)


For a share of each class of capital stock outstanding throughout each year ended May 31:
Class A2 Shares¹	2020			2019			2018			2017			2016

Net asset value, beginning of year		$7.85			$7.97			$8.14			$7.62			$8.63

Income (loss) from operations:
Net investment income		0.42			0.43			0.44			0.47			0.51
Net realized and unrealized gain (loss)		(0.45)			(0.11)			(0.18)			0.50			(1.01)
*Total income (loss) from operations*		*(0.03)*			*0.32*			*0.26*			*0.97*			*(0.50)*

Less distributions from:
Net investment income		(0.40)			(0.44)			(0.43)			(0.43)			(0.51)
Return of capital		(0.02)			(0.00)	²		—			(0.02)			—
*Total distributions*		*(0.42)*			*(0.44)*			*(0.43)*			*(0.45)*			*(0.51)*

Net asset value, end of year		$7.40			$7.85			$7.97			$8.14			$7.62
*Total return³*		*(0.47)*	%⁴		*4.16*	%		*3.30*	%		*12.97*	%		*(5.70)*	%

Net assets, end of year (000s)		$40,223			$35,053			$31,070			$27,875			$14,974

Ratios to average net assets:
Gross expenses		1.00	%⁵		1.00	%		0.98	%		0.96	%		0.98	%
Net expenses⁶		0.96	^5,7		0.95	⁷		0.96	⁷		0.96			0.98
Net investment income		5.44			5.52			5.47			5.90			6.62

Portfolio turnover rate		83	%		71	%		68	%		74	%		71	%

¹	Per share amounts have been calculated using the average shares method.

²	Amount represents less than $0.005 per share.

⁴	The total return includes gains from settlement of security litigations. Without these gains, the total return would have been (0.61)% for the year ended May 31, 2020.

⁵	Reflects recapture of expenses waived/reimbursed from prior fiscal years.

⁶

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class A2 shares did not exceed 1.25%. This expense limitation arrangement cannot be terminated prior to December 31, 2021 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund.

⁷	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


40		Western Asset High Yield Fund 2020 Annual Report


For a share of each class of capital stock outstanding throughout each year ended May 31:
Class C Shares¹	2020			2019			2018			2017			2016

Net asset value, beginning of year		$7.77			$7.89			$8.06			$7.54			$8.53

Income (loss) from operations:
Net investment income		0.35			0.37			0.38			0.41			0.44
Net realized and unrealized gain (loss)		(0.43)			(0.12)			(0.18)			0.49			(0.99)
*Total income (loss) from operations*		*(0.08)*			*0.25*			*0.20*			*0.90*			*(0.55)*

Less distributions from:
Net investment income		(0.34)			(0.37)			(0.37)			(0.36)			(0.44)
Return of capital		(0.02)			(0.00)	²		—			(0.02)			—
*Total distributions*		*(0.36)*			*(0.37)*			*(0.37)*			*(0.38)*			*(0.44)*

Net asset value, end of year		$7.33			$7.77			$7.89			$8.06			$7.54
*Total return³*		*(1.32)*	%⁴		*3.33*	%		*2.48*	%		*12.18*	%		*(6.32)*	%

Net assets, end of year (000s)		$1,964			$2,320			$2,779			$3,791			$2,828

Ratios to average net assets:
Gross expenses		1.82	%⁵		1.80	%⁵		1.75	%		1.72	%		1.76	%⁵
Net expenses⁶		1.78	^5,7		1.73	^5,7		1.74	⁷		1.72			1.76	⁵
Net investment income		4.61			4.74			4.70			5.17			5.78

Portfolio turnover rate		83	%		71	%		68	%		74	%		71	%

¹	Per share amounts have been calculated using the average shares method.

²	Amount represents less than $0.005 per share.

Performance figures, exclusive of CDSC, 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.

⁴	The total return includes gains from settlement of security litigations. Without these gains, the total return would have been (1.46)% for the year ended May 31, 2020.

⁵	Reflects recapture of expenses waived/reimbursed from prior fiscal years.

⁶

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class C shares did not exceed 1.80%. This expense limitation arrangement cannot be terminated prior to December 31, 2021 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund.

⁷	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		41

Financial highlights (cont’d)


For a share of each class of capital stock outstanding throughout each year ended May 31:
Class R Shares¹	2020			2019			2018			2017			2016

Net asset value, beginning of year		$7.78			$7.91			$8.08			$7.55			$8.54

Income (loss) from operations:
Net investment income		0.39			0.40			0.41			0.45			0.48
Net realized and unrealized gain (loss)		(0.43)			(0.12)			(0.18)			0.50			(0.99)
*Total income (loss) from operations*		*(0.04)*			*0.28*			*0.23*			*0.95*			*(0.51)*

Less distributions from:
Net investment income		(0.37)			(0.41)			(0.40)			(0.40)			(0.48)
Return of capital		(0.02)			(0.00)	²		—			(0.02)			—
*Total distributions*		*(0.39)*			*(0.41)*			*(0.40)*			*(0.42)*			*(0.48)*

Net asset value, end of year		$7.35			$7.78			$7.91			$8.08			$7.55
*Total return³*		*(0.73)*	%⁴		*3.64*	%		*2.95*	%		*12.80*	%		*(6.01)*	%

Net assets, end of year (000s)		$158			$282			$223			$187			$273

Ratios to average net assets:
Gross expenses⁵		1.69	%		1.53	%		1.50	%		1.83	%		1.53	%
Net expenses^5,6,7		1.30			1.30			1.30			1.30			1.30
Net investment income		5.07			5.14			5.14			5.65			6.28

Portfolio turnover rate		83	%		71	%		68	%		74	%		71	%

¹	Per share amounts have been calculated using the average shares method.

²	Amount represents less than $0.005 per share.

³	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.

⁴	The total return includes gains from settlement of security litigations. Without these gains, the total return would have been (0.86)% for the year ended May 31, 2020.

⁵	Reflects recapture of expenses waived/reimbursed from prior fiscal years.

⁶

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class R shares did not exceed 1.30%. This expense limitation arrangement cannot be terminated prior to December 31, 2021 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund.

⁷	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


42		Western Asset High Yield Fund 2020 Annual Report


For a share of each class of capital stock outstanding throughout each year ended May 31:
Class I Shares¹	2020			2019			2018			2017			2016

Net asset value, beginning of year		$7.78			$7.90			$8.07			$7.55			$8.54

Income (loss) from operations:
Net investment income		0.44			0.45			0.46			0.50			0.52
Net realized and unrealized gain (loss)		(0.44)			(0.11)			(0.18)			0.49			(0.99)
*Total income (loss) from operations*		*0.00*			*0.34*			*0.28*			*0.99*			*(0.47)*

Less distributions from:
Net investment income		(0.42)			(0.46)			(0.45)			(0.45)			(0.52)
Return of capital		(0.02)			(0.00)	²		—			(0.02)			—
*Total distributions*		*(0.44)*			*(0.46)*			*(0.45)*			*(0.47)*			*(0.52)*

Net asset value, end of year		$7.34			$7.78			$7.90			$8.07			$7.55
*Total return³*		*(0.14)*	%⁴		*4.40*	%		*3.53*	%		*13.33*	%		*(5.35)*	%

Net assets, end of year (000s)		$64,507			$84,953			$106,298			$102,389			$105,119

Ratios to average net assets:
Gross expenses		0.75	%		0.75	%		0.74	%		0.70	%		0.72	%
Net expenses⁵		0.71	⁶		0.70	⁶		0.72	⁶		0.70			0.72
Net investment income		5.66			5.74			5.70			6.26			6.83

Portfolio turnover rate		83	%		71	%		68	%		74	%		71	%

¹	Per share amounts have been calculated using the average shares method.

²	Amount represents less than $0.005 per share.

³	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.

⁴	The total return includes gains from settlement of security litigations. Without these gains, the total return would have been (0.42)% for the year ended May 31, 2020.

⁵	The manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund.

⁶	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


Western Asset High Yield Fund 2020 Annual Report		43

Financial highlights (cont’d)


For a share of each class of capital stock outstanding throughout each year ended May 31:
Class IS Shares¹	2020			2019			2018			2017			2016

Net asset value, beginning of year		$7.90			$8.03			$8.20			$7.67			$8.68

Income (loss) from operations:
Net investment income		0.45			0.46			0.47			0.51			0.54
Net realized and unrealized gain (loss)		(0.45)			(0.12)			(0.18)			0.50			(1.01)
*Total income (loss) from operations*		*0.00*			*0.34*			*0.29*			*1.01*			*(0.47)*

Less distributions from:
Net investment income		(0.43)			(0.47)			(0.46)			(0.46)			(0.54)
Return of capital		(0.02)			(0.00)	²		—			(0.02)			—
*Total distributions*		*(0.45)*			*(0.47)*			*(0.46)*			*(0.48)*			*(0.54)*

Net asset value, end of year		$7.45			$7.90			$8.03			$8.20			$7.67
*Total return³*		*(0.12)*	%⁴		*4.35*	%		*3.65*	%		*13.41*	%		*(5.32)*	%

Net assets, end of year (millions)		$103			$117			$105			$115			$168

Ratios to average net assets:
Gross expenses		0.69	%⁵		0.70	%⁵		0.68	%		0.65	%		0.64	%
Net expenses⁶		0.65	^5,7		0.65	^5,7		0.66	⁷		0.65			0.64
Net investment income		5.72			5.79			5.77			6.32			6.89

Portfolio turnover rate		83	%		71	%		68	%		74	%		71	%

¹	Per share amounts have been calculated using the average shares method.

²	Amount represents less than $0.005 per share.

³	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.

⁴	The total return includes gains from settlement of security litigations. Without these gains, the total return would have been (0.26)% for the year ended May 31, 2020.

⁵	Reflects recapture of expenses waived/reimbursed from prior fiscal years.

⁶

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class IS shares did not exceed 0.65%. In addition, the ratio of total annual fund operating expenses for Class IS shares did not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2021 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund.

⁷	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


44		Western Asset High Yield Fund 2020 Annual Report

Notes to financial statements

1. Organization and significant accounting policies

Western Asset High Yield Fund (the “Fund”) is a separate diversified investment series of Western Asset Funds, Inc. (the “Corporation”). The Corporation, a Maryland corporation, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

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 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) and certain derivative instruments 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. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund 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 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 Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.

The Board of Directors 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 Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, 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.


Western Asset High Yield Fund 2020 Annual Report		45

Notes to financial statements (cont’d)

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 Directors, 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 Directors quarterly.

The Fund 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.

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 Fund’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.


46		Western Asset High Yield Fund 2020 Annual Report

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities carried at fair value:


	ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total
Long-Term Investments†:
Corporate Bonds & Notes		—	$	184,210,096		—		$	184,210,096
Senior Loans:
Communication Services		—		—	$	297,600			297,600
Energy		—		345,584		37,050			382,634
Financials		—		915,362		718,250			1,633,612
Real Estate		—		—		506,588			506,588
Other Senior Loans		—		7,312,758		—			7,312,758
Asset-Backed Securities		—		9,874,271		—			9,874,271
Convertible Bonds & Notes		—		1,380,220		—			1,380,220
Common Stocks:
Communication Services		—		—		0	*		—
Energy	$	1,213,500		—		95,887			1,309,387
Sovereign Bonds		—		799,114		—			799,114
Convertible Preferred Stocks		282,150		—		—			282,150
Preferred Stocks		222,456		—		—			222,456
Total Long-Term Investments		1,718,106		204,837,405		1,655,375			208,210,886
Short-Term Investments†		745,581		—		—			745,581
Total Investments	$	2,463,687	$	204,837,405	$	1,655,375		$	208,956,467
Other Financial Instruments:
Futures Contracts	$	13,235		—		—		$	13,235
Centrally Cleared Credit Default Swaps on Corporate Issues — Sell Protection		—	$	55,347		—			55,347
Total Other Financial Instruments	$	13,235	$	55,347		—		$	68,582
Total	$	2,476,922	$	204,892,752	$	1,655,375		$	209,025,049

LIABILITIES
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total
Other Financial Instruments:
Futures Contracts	$	24,821		—		—		$	24,821
Forward Foreign Currency Contracts		—	$	61,106		—			61,106
Total	$	24,821	$	61,106		—		$	85,927

†	See Schedule of Investments for additional detailed categorizations.

*	Amount represents less than $1.

(b) Purchased options. When the Fund purchases an option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities, the value of which is marked-to-market to reflect the current market value of the option purchased. If the purchased option expires, the Fund realizes a loss equal to the amount of premium paid. When an instrument is purchased or sold through the exercise of


Western Asset High Yield Fund 2020 Annual Report		47

Notes to financial statements (cont’d)

an option, the related premium paid is added to the basis of the instrument acquired or deducted from the proceeds of the instrument sold. The risk associated with purchasing put and call options is limited to the premium paid.

(c) Written options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Fund’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Fund’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.

The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

(d) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain percentage of the contract amount. This is known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized gains or losses in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.

Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

(e) Forward foreign currency contracts. The Fund enters into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated


48		Western Asset High Yield Fund 2020 Annual Report

portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it is closed.

Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

(f) Swap agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes, including to increase the Fund’s return. The use of swaps involves risks that are different from those associated with other portfolio transactions. Swap agreements are privately negotiated in the over-the-counter market and may be entered into as a bilateral contract (“OTC Swaps”) or centrally cleared (“Centrally Cleared Swaps”). Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.

In a Centrally Cleared Swap, immediately following execution of the swap, the swap agreement is submitted to a clearinghouse or central counterparty (the “CCP”) and the CCP becomes the ultimate counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker, acting in an agency capacity. All payments are settled with the CCP through the broker. Upon entering into a Centrally Cleared Swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities.

Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is recorded as a receivable or payable for variation margin on the Statement of Assets and Liabilities. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.

OTC swap payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities. These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.


Western Asset High Yield Fund 2020 Annual Report		49

Notes to financial statements (cont’d)

The Fund’s maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of May 31, 2020, the total notional value of all credit default swaps to sell protection was $647,000. This amount would be offset by the value of the swap’s reference entity, upfront premiums received on the swap and any amounts received from the settlement of a credit default swap where the Fund bought protection for the same referenced security/entity.

For average notional amounts of swaps held during the year ended May 31, 2020, see Note 4.

Credit default swaps

The Fund enters into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.

Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Schedule of Investments and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.


50		Western Asset High Yield Fund 2020 Annual Report

The Fund’s maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty). As the protection seller, the Fund’s maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.

Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.

(g) Loan participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Fund’s investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.

The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.

(h) Unfunded loan commitments. The Fund may enter into certain credit agreements where all or a portion of the total amount committed may be unfunded. The Fund is obligated to fund these commitments at the borrower’s discretion. The commitments are disclosed in the accompanying Schedule of Investments. At May 31, 2020, the Fund had sufficient cash and/or securities to cover these commitments.

(i) Securities traded on a when-issued and delayed delivery basis. The Fund may trade securities on a when-issued or delayed delivery basis. In when-issued and delayed delivery transactions, the securities are purchased or sold by the Fund with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Fund at the time of entering into the transaction.

Purchasing such securities involves risk of loss if the value of the securities declines prior to settlement. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

(j) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.


Western Asset High Yield Fund 2020 Annual Report		51

Notes to financial statements (cont’d)

The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

(k) Credit and market risk. The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Fund’s investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.

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.

(l) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign


52		Western Asset High Yield Fund 2020 Annual Report

investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.

(m) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Fund’s subadviser attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the subadviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.

With exchange traded and centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.

The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement, with certain of its derivative counterparties that govern over-the-counter derivatives and provide for general obligations, representations, agreements, collateral posting terms, netting provisions in the event of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.

Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by jurisdiction.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral


Western Asset High Yield Fund 2020 Annual Report		53

Notes to financial statements (cont’d)

that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Schedule of Investments.

As of May 31, 2020, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $61,106. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.

(n) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Paydown gains and losses on mortgage- and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.

(o) Distributions to shareholders. Distributions from net investment income of the Fund are declared each business day to shareholders of record 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.

(p) Share class accounting. Investment income, common expenses and realized/ unrealized gains (losses) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.

(q) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.

(r) 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 May 31, 2020, 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.


54		Western Asset High Yield Fund 2020 Annual Report

Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.

(s) 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 Fund had no reclassifications.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company, LLC (“Western Asset”) and Western Asset Management Company Limited (“Western Asset Limited”) are the Fund’s subadvisers. LMPFA, Western Asset and Western Asset Limited are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

LMPFA provides administrative and certain oversight services to the Fund. The Fund pays LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.55% of the Fund’s average daily net assets. For their services, LMPFA pays Western Asset and Western Asset Limited monthly all of the management fee that it receives from the Fund.

As a result of expense limitation arrangements between the Fund and LMPFA, the ratio of total annual fund operating expenses, other than interest, brokerage commissions, taxes, extraordinary expenses, deferred organizational expenses and acquired fund fees and expenses, to average net assets of Class A, Class A2, Class C, Class R and Class IS shares did not exceed 1.05%, 1.25%, 1.80%, 1.30% and 0.65%, respectively. In addition, the ratio of total annual fund operating expenses for Class IS shares did not exceed the ratio of total annual fund operating expenses for Class I shares. These expense limitation arrangements cannot be terminated prior to December 31, 2021 without the Board of Directors’ consent. In addition, the manager has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an affiliated money market fund (the “affiliated money market fund waiver”). The affiliated money market fund waiver is not subject to the recapture provision discussed below.

During the year ended May 31, 2020, fees waived and/or expenses reimbursed amounted to $92,949, which included an affiliated money market fund waiver of $2,147.

LMPFA is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which LMPFA earned the fee or incurred the expense if the class’ 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 class’ total annual operating expenses exceeding the expense cap or any other lower limit then in effect.


Western Asset High Yield Fund 2020 Annual Report		55

Notes to financial statements (cont’d)

Pursuant to these arrangements, at May 31, 2020, the Fund had remaining fee waivers and/or expense reimbursements subject to recapture by LMPFA and respective dates of expiration as follows:


	Class A		Class A2		Class C		Class R		Class I		Class IS
Expires May 31, 2021	$	2,205	$	15,322	$	1,175	$	566	$	38,518	$	50,853
Expires May 31, 2022		1,608		12,994		758		1,068		24,643		49,398
Total fee waivers/expense reimbursements subject to recapture	$	3,813	$	28,316	$	1,933	$	1,634	$	63,161	$	100,251

For the year ended May 31, 2020, fee waivers and/or expense reimbursements recaptured by LMPFA, if any, were as follows:


	Class A		Class A2		Class C		Class R		Class IS
LMPFA recaptured	$	763	$	4,875	$	594	$	13	$	6,902

Legg Mason Investor Services, LLC (“LMIS”), a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Fund’s sole and exclusive distributor.

There is a maximum initial sales charge of 4.25% for Class A and Class A2 shares. There is a contingent deferred sales charge (“CDSC”) of 1.00% on Class C shares, which applies if redemption occurs within 12 months from purchase payment. In certain cases, Class A and Class A2 shares have a 1.00% CDSC, which applies if redemption occurs within 18 months from purchase payment. This CDSC only applies to those purchases of Class A and Class A2 shares, which, when combined with current holdings of other shares of funds sold by LMIS, equal or exceed $1,000,000 in the aggregate. These purchases do not incur an initial sales charge.

For the year ended May 31, 2020, sales charges retained by and CDSCs paid to LMIS and its affiliates, if any, were as follows:


	Class A		Class A2
Sales charges	$	119	$	27,143
CDSCs		—		139

As of May 31, 2020, Legg Mason and its affiliates owned 27% of the Fund.

All officers and one Director of the Corporation are employees of Legg Mason or its affiliates and do not receive compensation from the Corporation.

3. Investments

During the year ended May 31, 2020, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:


Purchases	$	184,833,191
Sales		202,822,655


56		Western Asset High Yield Fund 2020 Annual Report

At May 31, 2020, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:


	Cost/Premiums Paid (Received)		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation (Depreciation)
Securities	$	225,913,463	$	8,622,277	$	(25,579,273)	$	(16,956,996)
Swap contracts		(41,800)		55,347		—		55,347
Futures contracts		—		13,235		(24,821)		(11,586)
Forward foreign currency contracts		—		—		(61,106)		(61,106)

4. Derivative instruments and hedging activities

Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at May 31, 2020.


ASSET DERIVATIVES¹
	Interest Rate Risk		Credit Risk		Total
Futures contracts²	$	13,235		—	$	13,235
Centrally cleared swap contracts³		—	$	55,347		55,347
Total	$	13,235	$	55,347	$	68,582


LIABILITY DERIVATIVES¹
	Interest Rate Risk		Foreign Exchange Risk		Total
Futures contracts²	$	24,821		—	$	24,821
Forward foreign currency contracts		—	$	61,106		61,106
Total	$	24,821	$	61,106	$	85,927

¹	Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability derivatives is payables/net unrealized depreciation.

²	Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities.

³	Includes cumulative appreciation (depreciation) of centrally cleared swap contracts as reported in the Schedule of Investments. Only variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities.


Western Asset High Yield Fund 2020 Annual Report		57

Notes to financial statements (cont’d)

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the year ended May 31, 2020. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during the period.


AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk		Foreign Exchange Risk		Credit Risk		Equity Risk		Total
Purchased options¹		—		—		—	$	44,547	$	44,547
Written options		—		—		—		(1,164,723)		(1,164,723)
Futures contracts	$	681,755		—		—		—		681,755
Swap contracts		—		—	$	99,956		—		99,956
Forward foreign currency contracts		—	$	108,090		—		—		108,090
Total	$	681,755	$	108,090	$	99,956	$	(1,120,176)	$	(230,375)

¹	Net realized gain (loss) from purchased options is reported in Net Realized Gain (Loss) From Investment transactions in unaffiliated securities in the Statement of Operations.


CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk		Foreign Exchange Risk		Credit Risk		Equity Risk		Total
Purchased options¹		—		—		—	$	(16,316)	$	(16,316)
Futures contracts	$	(197,470)		—		—		—		(197,470)
Swap contracts		—		—	$	80,725		—		80,725
Forward foreign currency contracts		—	$	(68,528)		—		—		(68,528)
Total	$	(197,470)	$	(68,528)	$	80,725	$	(16,316)	$	(201,589)

¹	The change in unrealized appreciation (depreciation) from purchased options is reported in the Change in Net Unrealized Appreciation (Depreciation) From Investments in unaffiliated securities in the Statement of Operations.

During the year ended May 31, 2020, the volume of derivative activity for the Fund was as follows:


	Average Market Value
Purchased options†	$	20,672
Written options†		9,747
Futures contracts (to buy)		24,734,408
Futures contracts (to sell)		5,445,322
Forward foreign currency contracts (to sell)		1,138,972

	Average Notional Balance
Credit default swap contracts (to buy protection)†	$	1,090,137
Credit default swap contracts (to sell protection)		116,308

†	At May 31, 2020, there were no open positions held in this derivative.


58		Western Asset High Yield Fund 2020 Annual Report

The following table presents the Fund’s OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and net of the related collateral pledged (received) by the Fund as of May 31, 2020.


Counterparty	Gross Assets Subject to Master Agreements		Gross Liabilities Subject to Master Agreements¹		Net Assets (Liabilities) Subject to Master Agreements		Collateral Pledged (Received)		Net Amount²
BNP Paribas SA		—	$	(9,022)	$	(9,022)		—	$	(9,022)
Citibank N.A.		—		(1,572)		(1,572)		—		(1,572)
Morgan Stanley & Co. Inc.		—		(50,512)		(50,512)		—		(50,512)
Total		—	$	(61,106)	$	(61,106)		—	$	(61,106)

¹	Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in the Statement of Assets and Liabilities.

²	Represents the net amount receivable (payable) from (to) the counterparty in the event of default.

5. Class specific expenses, waivers and/or expense reimbursements

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 with respect to its Class A, Class A2, Class C and Class R shares calculated at the annual rate of 0.25%, 0.25%, 1.00% and 0.50% of the average daily net assets of each class, respectively. Service and/or distribution fees are accrued daily and paid monthly.

For the year ended May 31, 2020, class specific expenses were as follows:


	Service and/or Distribution Fees		Transfer Agent Fees
Class A	$	11,710	$	4,900
Class A2		94,664		19,056
Class C		22,075		2,369
Class R		1,374		1,372
Class I		—		45,278
Class IS		—		3,295
Total	$	129,823	$	76,270

For the year ended May 31, 2020, waivers and/or expense reimbursements by class were as follows:


	Waivers/Expense Reimbursements
Class A	$	1,662
Class A2		13,424
Class C		782
Class R		1,071
Class I		25,362
Class IS		50,648
Total	$	92,949


Western Asset High Yield Fund 2020 Annual Report		59

Notes to financial statements (cont’d)

6. Distributions to shareholders by class


	Year Ended May 31, 2020		Year Ended May 31, 2019
Net Investment Income:
Class A	$	235,701	$	238,196
Class A2		1,939,346		1,823,008
Class C		95,893		121,609
Class R		13,091		13,314
Class I		3,818,101		4,804,663
Class IS		6,144,262		6,302,293
Total	$	12,246,394	$	13,303,083

Return of Capital:
Class A	$	13,295	$	1,410
Class A2		109,393		10,243
Class C		5,409		620
Class R		739		68
Class I		215,368		26,278
Class IS		346,581		37,117
Total	$	690,785	$	75,736

7. Capital shares

At May 31, 2020, the Corporation had 42.7 billion shares of capital stock authorized with a par value of $0.001 per share. Transactions in shares of each class were as follows:


	Year Ended May 31, 2020				Year Ended May 31, 2019
	Shares		Amount		Shares		Amount
Class A
Shares sold		2,153,685	$	16,728,746		669,169	$	5,213,348
Shares issued on reinvestment		27,227		213,473		27,067		213,324
Shares repurchased		(2,122,991)		(16,474,784)		(986,414)		(7,782,941)
Net increase (decrease)		57,921	$	467,435		(290,178)	$	(2,356,269)

Class A2
Shares sold		1,226,049	$	9,520,439		935,127	$	7,394,580
Shares issued on reinvestment		265,492		2,048,739		233,461		1,833,251
Shares repurchased		(524,390)		(3,994,126)		(598,490)		(4,718,058)
Net increase		967,151	$	7,575,052		570,098	$	4,509,773

Class C
Shares sold		79,801	$	623,284		32,060	$	245,418
Shares issued on reinvestment		10,675		81,914		13,172		102,348
Shares repurchased		(120,976)		(890,115)		(98,798)		(763,762)
Net decrease		(30,500)	$	(184,917)		(53,566)	$	(415,996)


60		Western Asset High Yield Fund 2020 Annual Report


	Year Ended May 31, 2020				Year Ended May 31, 2019
	Shares		Amount		Shares		Amount
Class R
Shares sold		21,256	$	162,623		10,141	$	79,544
Shares issued on reinvestment		1,108		8,550		949		7,391
Shares repurchased		(36,977)		(267,038)		(3,048)		(23,668)
Net increase (decrease)		(14,613)	$	(95,865)		8,042	$	63,267

Class I
Shares sold		1,966,182	$	14,801,216		3,944,391	$	30,738,829
Shares issued on reinvestment		473,528		3,640,134		568,772		4,436,741
Shares repurchased		(4,572,024)		(35,428,405)		(7,045,232)		(55,580,645)
Net decrease		(2,132,314)	$	(16,987,055)		(2,532,069)	$	(20,405,075)

Class IS
Shares sold		2,059,953	$	16,296,538		3,129,379	$	24,656,647
Shares issued on reinvestment		828,501		6,466,328		801,100		6,339,407
Shares repurchased		(3,935,245)		(31,361,771)		(2,232,310)		(17,786,015)
Net increase (decrease)		(1,046,791)	$	(8,598,905)		1,698,169	$	13,210,039

8. Transactions with affiliated companies

As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities, or a company which is under common ownership or control. The Fund invested in Western Asset Premier Institutional Government Reserves, Premium Shares, an affiliated registered money market fund and Western Asset Government Cash Management Portfolio, LLC (“Cash Management Portfolio”), an affiliated private money market fund, both managed by Western Asset, the Fund’s subadviser. Cash Management Portfolio was available as a cash management vehicle for certain proprietary investment companies affiliated with Legg Mason. While Cash Management Portfolio was not a registered money market fund, it conducted all of its investment activities in accordance with the requirements of Rule 2a-7 under the 1940 Act. Based on the Fund’s relative ownership, the following companies were considered affiliated companies for all or some portion of the year ended May 31, 2020. The following transactions were effected in shares of such companies for the year ended May 31, 2020.


Western Asset High Yield Fund 2020 Annual Report		61

Notes to financial statements (cont’d)


	Affiliate Value at May 31, 2019

			Purchased				Sold
			Cost		Shares		Cost		Shares
Western Asset Government Cash Management Portfolio, LLC	$	701,771	$	54,453,379		54,453,379	$	55,155,150		55,155,150
Western Asset Premier Institutional Government Reserves, Premium Shares		—		54,306,937		54,306,937		53,561,356		53,561,356
	$	701,771	$	108,760,316			$	108,716,506


(cont’d)	Realized Gain (Loss)	Interest Income		Net Increase (Decrease) in Unrealized Appreciation (Depreciation)	Affiliate Value at May 31, 2020
Western Asset Government Cash Management Portfolio, LLC	—	$	60,951	—		—
Western Asset Premier Institutional Government Reserves, Premium Shares	—		26,439	—	$	745,581
	—	$	87,390	—	$	745,581

9. Redemption facility

The Fund and certain other participating funds within the Corporation (the “Participating Funds”) have available an unsecured revolving credit facility (the “Redemption Facility”) from the lenders and The Bank of New York Mellon (“BNY Mellon”), as administrative agent for the lenders. The Redemption Facility is to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of shares. Under the agreement, BNY Mellon provides a 364-day revolving credit facility, in the aggregate amount of $265 million. Unless renewed, the agreement will terminate on November 16, 2020. Any borrowings under the Redemption Facility will bear interest at current market rates as set forth in the credit agreement. The annual commitment fee to maintain the Redemption Facility is 0.15% and is incurred on the unused portion of the facility and is allocated to all Participating Funds pro rata based on net assets; there is no upfront fee. Prior to November 18, 2019, the Fund paid a commitment fee of 0.10% and an upfront fee of 0.05%. For the year ended May 31, 2020, the Fund incurred a commitment fee in the amount of $1,642. The Fund did not utilize the Redemption Facility during the year ended May 31, 2020.


62		Western Asset High Yield Fund 2020 Annual Report

10. Income tax information and distributions to shareholders

The tax character of distributions paid during the fiscal years ended May 31, was as follows:


	2020		2019
Distributions paid from:
Ordinary income	$	12,246,394	$	13,303,083
Tax return of capital		690,785		75,736
Total distributions paid	$	12,937,179	$	13,378,819

As of May 31, 2020, the components of distributable earnings (loss) on a tax basis were as follows:


Deferred capital losses*	$	(46,272,179)
Other book/tax temporary differences^(a)		(39,985)
Unrealized appreciation (depreciation)^(b)		(16,973,595)
Total distributable earnings (loss) — net	$	(63,285,759)

*	These capital losses have been deferred in the current year as either short-term or long-term losses. The 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.

^(a)

Other book/tax temporary differences are attributable to the realization for tax purposes of unrealized gains (losses) on certain futures and foreign currency contracts, book/tax differences in the accrual of interest income on securities in default, the difference between cash and accrual basis distributions paid and book/tax differences in the timing of the deductibility of various expenses.

^(b)	The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales and book/tax differences in the cost basis of partnership investments.

11. Other matters

On February 18, 2020, Franklin Resources, Inc. (“Franklin Resources”) and Legg Mason announced that they have entered into a definitive agreement for Franklin Resources to acquire Legg Mason in an all-cash transaction. As part of this transaction, LMPFA and the subadviser(s), each currently a subsidiary of Legg Mason, would become a subsidiary of Franklin Resources. The transaction is subject to approval by Legg Mason’s shareholders and customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of the other conditions, the transaction is expected to be consummated later this year.

Under the Investment Company Act of 1940, consummation of the transaction will result in the automatic termination of the Fund’s management contract, and any related subadvisory contract(s), where applicable. Therefore, the Fund’s Board has approved new management and subadvisory contracts, where applicable, that have been presented to the shareholders of the Fund for their approval.

* * *

The outbreak of the respiratory illness COVID-19 (commonly referred to as “coronavirus”) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not


Western Asset High Yield Fund 2020 Annual Report		63

Notes to financial statements (cont’d)

known. The COVID-19 pandemic could adversely affect the value and liquidity of the Fund’s investments, impair the Fund’s ability to satisfy redemption requests, and negatively impact the Fund’s performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.

* * *

The Fund’s investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or “LIBOR,” which is the offered rate for short-term Eurodollar deposits between major international banks. Plans are underway to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Fund’s transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Fund’s investments cannot yet be determined.


64		Western Asset High Yield Fund 2020 Annual Report

Report of independent registered public accounting firm

To the Board of Directors of Western Asset Funds, Inc. and Shareholders of Western Asset High Yield Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Western Asset High Yield Fund (one of the funds constituting Western Asset Funds, Inc., referred to hereafter as the “Fund”) as of May 31, 2020, the related statement of operations for the year ended May 31, 2020, the statement of changes in net assets for each of the two years in the period ended May 31, 2020, including the related notes, and the financial highlights for each of the five years in the period ended May 31, 2020 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of May 31, 2020, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended May 31, 2020 and the financial highlights for each of the five years in the period ended May 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of May 31, 2020 by correspondence with the custodian, agent banks and brokers; when replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Baltimore, Maryland

July 17, 2020

We have served as the auditor of one or more investment companies in Legg Mason investment company group since at least 1973. We have not been able to determine the specific year we began serving as auditor.


Western Asset High Yield Fund 2020 Annual Report		65

Board approval of new management and new subadvisory agreements (unaudited)

On February 18, 2020, Franklin Resources, Inc., a global investment management organization operating, together with its subsidiaries, as Franklin Templeton (“Franklin Templeton”), and Legg Mason, Inc. (“Legg Mason”) announced that they have entered into a definitive agreement (the “Transaction Agreement”) for Franklin Templeton to acquire Legg Mason in an all-cash transaction. As part of this transaction, the Fund’s manager, Legg Mason Partners Fund Advisor, LLC (the “Manager”), and the Fund’s subadvisers, Western Asset Management Company, LLC (“Western Asset”) and Western Asset Management Company Limited in London (“WAML” and, together with Western Asset, the “Subadvisers” and, collectively with the Manager, the “Advisers”), each currently a wholly owned subsidiary of Legg Mason, would become a wholly owned subsidiary of Franklin Templeton (the “Transaction”). The Transaction is subject to approval by Legg Mason’s shareholders and customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of the other conditions, the Transaction is expected to be consummated in the latter part of 2020. Under the Investment Company Act of 1940, as amended (the “1940 Act”), consummation of the Transaction will result in the automatic termination of the Fund’s current management agreement with the Manager (the “Current Management Agreement”) and the current Sub-advisory Agreements between the Manager and each of the Subadvisers (the “Current Sub-advisory Agreements” and, collectively, the “Current Agreements”).

Therefore, at a meeting of the Board of Directors of Western Asset Funds, Inc. (the “Corporation”) held on April 14, 20201, the Board, including the Directors who are not considered to be “interested persons” of the Corporation (the “Independent Directors”) under the 1940 Act, approved a new management agreement (the “New Management Agreement”) between the Corporation and the Manager with respect to the Fund, a series of the Corporation, and the new sub-advisory agreements (the “New Sub-Advisory Agreements”, collectively, the “New Agreements”) between the Manager and the Subadvisers with respect to the Fund. The Board also authorized the Fund’s officers to submit the New Agreements to Fund shareholders for their approval. Fund shareholders were sent notice of the shareholder meeting and a proxy statement in April, 2020. In the event the Fund’s shareholders do not approve the New Agreements and the Transaction is completed, the Directors have also approved an interim investment management agreement between the Manager and the Fund (the “Interim Management Agreement”) and interim sub-advisory agreements between the Manager and the Subadvisers (the “Interim Sub-advisory Agreements” and, collectively, the “Interim Agreements”) that will take effect upon

This meeting was held telephonically in reliance on an exemptive order issued by the Securities and Exchange Commission on March 25, 2020. Reliance on the exemptive order is necessary and appropriate due to circumstances related to current or potential effects of COVID-19. All Directors participating in the telephonic meeting were able to hear each other simultaneously during the meeting. Reliance on the exemptive order requires Directors, including a majority of the Independent Directors, to ratify actions taken pursuant to the exemptive order by vote cast at the next in-person meeting.


66		Western Asset High Yield Fund

the closing of the Transaction to enable the Manager and Subadvisers to serve as investment managers of the Fund following the termination of the Current Agreements and pending shareholder approval of the New Agreements.

On March 9, 2020, during a telephonic meeting, the Directors discussed with Legg Mason management and certain Franklin Templeton representatives the Transaction and Franklin Templeton’s plans and intentions regarding the Legg Mason funds and Legg Mason’s asset management business, including the preservation and continued investment autonomy of the investment advisory businesses conducted by the Subadvisers and the combination of Legg Mason’s and Franklin Templeton’s distribution resources.

On April 8, 2020, the Independent Directors met with representatives of Legg Mason to discuss the Transaction and the New Agreements. In addition, the Independent Directors met separately, with the assistance of their independent legal counsel, to discuss and evaluate the information provided and to consider what additional information was desired.

The Independent Directors considered, among other things, whether it would be in the best interests of the Fund and its shareholders to approve the New Agreements, and the anticipated impacts of the Transaction on the Fund and its shareholders. To assist the Directors in their consideration of the New Agreements, Franklin Templeton provided materials and information about Franklin Templeton, including its financial condition and asset management capabilities and organization, and Franklin Templeton and Legg Mason provided materials and information about the proposed Transaction between Legg Mason and Franklin Templeton.

Before or during the April 14, 2020 meeting, the Directors sought additional information as they deemed necessary and appropriate. In connection with the Directors’ consideration of the New Agreements, the Independent Directors worked with their independent legal counsel to prepare requests for information that were submitted to Franklin Templeton and Legg Mason. The Directors requested information relevant to the consideration of the New Agreements, distribution arrangements, and other anticipated impacts of the Transaction on the Fund and its shareholders. Franklin Templeton and Legg Mason provided documents and information in response to the request for information. Following their review of this information, the Independent Directors submitted supplemental due diligence requests for additional information to Franklin Templeton and Legg Mason. Franklin Templeton and Legg Mason provided further information in response to this supplemental diligence request, which the Directors reviewed. Senior management representatives from Franklin Templeton and Legg Mason participated in a portion of the meeting and addressed various questions raised by the Directors.

At the April 14, 2020 meeting, representatives of Legg Mason (including representatives of each Adviser) and Franklin Templeton made presentations to, and responded to questions


Western Asset High Yield Fund		67

Board approval of new management and new subadvisory agreements (unaudited) (cont’d)

from, the Directors. After the presentations and after reviewing the written materials provided, the Independent Directors met in executive session with their counsel to consider the New Agreements.

The Directors’ evaluation of the New Agreements reflected the information provided specifically in connection with their review of the New Agreements, as well as, where relevant, information that was previously furnished to the Board in connection with the most recent renewal of the Current Agreements at in-person meetings held in November 2019 and at other prior Board meetings.

Among other things, the Directors considered:

(i)	the reputation, experience, financial strength and resources of Franklin Templeton and its investment advisory subsidiaries;

(ii)	that Franklin Templeton has informed the Directors that it intends to maintain the investment autonomy of the Legg Mason investment advisory subsidiaries;

(iii)

that Franklin Templeton and Legg Mason have informed the Directors that, following the Transaction, there is not expected to be any diminution in the nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, and have represented that there are not expected to be any changes in the portfolio management personnel managing the Fund as a result of the Transaction;

(iv)

that Franklin Templeton and Legg Mason have informed the Directors regarding transition plans, including Legg Mason’s provision of retention incentives for certain Legg Mason corporate personnel until the transaction closes, and Franklin Templeton’s provision of long-term retention mechanisms for certain personnel following the closing;

(v)	that there are not expected to be any changes to the Fund’s custodian or other service providers as a result of the Transaction;

(vi)	that Franklin Templeton has informed the Directors that it has no present intention to alter currently effective expense waivers and reimbursements after their expiration, and, while it reserves the right to do so in the future, it would consult with the Directors before making any changes;

(vii)

that Franklin Templeton does not expect to propose any changes to the investment objective of the Fund or any changes to the principal investment strategies of the Fund as a result of the Transaction;

(viii)

the potential benefits to Fund shareholders from being part of a combined fund family with Franklin Templeton-sponsored funds and access to a broader array of investment opportunities;


68		Western Asset High Yield Fund

(ix)	that Franklin Templeton’s distribution capabilities, particularly with respect to retail investors, and significant network of intermediary relationships may provide additional opportunities for the Fund to grow assets and lower expense ratios by spreading expenses over a larger asset base;

(x)	that Franklin Templeton and Legg Mason will each derive benefits from the Transaction and that, as a result, they have a financial interest in the matters that were being considered;

(xi)	the fact that the Fund’s contractual management fee rates will remain the same and will not increase by virtue of the New Agreements;

(xii)

the terms and conditions of the New Agreements, including that each New Agreement is identical to its corresponding Current Agreement except for their respective dates of execution, effectiveness and termination;

(xiii)

the support expressed by the current senior management team at Legg Mason for the Transaction and Legg Mason’s recommendation that the Directors approve the New Agreements;

(xiv)

that the Current Agreements are the product of multiple years of review and negotiation and information received and considered by the Directors in the exercise of their business judgment during those years, and that within the past year the Directors had performed a full review of and approved the Current Agreements as required by the 1940 Act and had determined in the exercise of the Directors’ business judgment that each applicable Adviser had the capabilities, resources and personnel necessary to provide the services provided to the Fund, and that the management and subadvisory fees paid by or in respect of the Fund represented reasonable compensation to the Advisers in light of the services provided, the costs to the applicable Adviser of providing those services, the fees and other expenses paid by similar funds, and such other matters as the Directors considered relevant in the exercise of their business judgment, and represented an appropriate sharing between Fund shareholders and the Advisers of any economies of scale in the management of the Fund at current and anticipated asset levels;

(xv)	that the Current Agreements were considered and approved in November 2019;

(xvi)

that the Fund will not bear the costs of obtaining shareholder approval of the New Agreements, including proxy solicitation costs, legal fees and the costs of printing and mailing the proxy statement, regardless of whether the Transaction is consummated; and

(xvii)

that under the Transaction Agreement Franklin Templeton has acknowledged that Legg Mason had entered into the Transaction Agreement in reliance upon the benefits and


Western Asset High Yield Fund		69

Board approval of new management and new subadvisory agreements (unaudited) (cont’d)

protections provided by Section 15(f) of the 1940 Act, and that, in furtherance of the foregoing, Franklin Templeton represented to the Directors that it would conduct its business such that (a) for a period of not less than three years after the closing of the Transaction no more than 25% of the members of the Board shall be “interested persons” (as defined in the 1940 Act) of any investment adviser for a Fund, and (b) for a period of not less than two years after the closing, neither Franklin Templeton nor any of its affiliates shall impose an “unfair burden” (within the meaning of the 1940 Act, including any interpretations or no-action letters of the Securities and Exchange Commission) on the Fund as a result of the transactions contemplated by the Transaction Agreement or any express or implied terms, conditions or understandings applicable thereto.

Certain of these considerations are discussed in more detail below.

In their deliberations, the Directors considered information received in connection with the most recent Board approval/continuation of each Current Agreement in addition to information provided by Franklin Templeton and Legg Mason in connection with their evaluation of the terms and conditions of the New Agreements. The Directors noted that, although Western Asset’s business is operated through separate legal entities, such as WAML, its business is highly integrated and senior investment personnel at Western Asset have supervisory oversight responsibility over the investment decisions made by WAML. Therefore, in connection with their deliberations noted below, the Directors primarily focused on the information provided by Western Asset when considering the approval of the New Sub-Advisory Agreement between the Manager and WAML with respect to the Fund in addition to the information provided by Franklin Templeton in connection with their evaluation of the New Agreements. The Directors also noted that the Fund does not pay any management fees directly to Western Asset or to WAML because the Manager pays the Subadvisers for services provided to the Fund out of the management fee the Manager receives from the Fund. In connection with the most recent approval/continuation of each Current Agreement, and in connection with their review of each New Agreement, the Directors did not identify any particular information that was all-important or controlling, and each Director may have attributed different weights to the various factors.

The information provided and presentations made to the Directors encompassed the Fund and all other funds for which the Directors have responsibility. The discussion below covers both the advisory and the administrative functions rendered by the Manager, both of which functions are encompassed by the New Management Agreement, as well as the advisory functions rendered by the Subadvisers pursuant to the New Sub-Advisory Agreements.

The Independent Directors were advised by separate independent legal counsel throughout the process. Prior to voting, the Independent Directors received a memorandum from their independent legal counsel discussing the legal standards for their consideration of the


70		Western Asset High Yield Fund

proposed approval of the New Management Agreement and the New Sub-Advisory Agreements. The Independent Directors also reviewed the proposed approval of the New Management Agreement and the New Sub-Advisory Agreements in private sessions with their independent legal counsel at which no representatives of the Manager and Subadvisers were present. The Independent Directors considered the New Management Agreement and the New Sub-Advisory Agreements separately in the course of their review. In doing so, they noted the respective roles of the Manager and the Subadvisers in providing services to the Fund.

The Directors received and considered information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Subadvisers under the Current Agreements. In evaluating the nature, quality and extent of the services to be provided by the Advisers under the New Agreements, the Directors considered, among other things, the expected impact, if any, of the Transaction on the operations, facilities, organization and personnel of each Adviser, and that Franklin Templeton and Legg Mason have advised the Board that, following the Transaction, there is not expected to be any diminution in the nature, quality and extent of services provided to the Fund and its shareholders by the Advisers, including compliance and other non-advisory services, and that there are not expected to be any changes in portfolio management personnel as a result of the Transaction. The Directors have received information at regular meetings throughout the past year related to the services rendered by the Manager in its management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Fund’s other service providers. The Directors’ evaluation of the services provided by the Manager and the Subadvisers took into account the Directors’ knowledge gained as Directors of funds in the Legg Mason fund complex, including knowledge gained regarding the scope and quality of the investment management and other capabilities of the Manager and the Subadvisers, and the quality of the Manager’s administrative and shareholder support services. In addition, the Directors reviewed the quality of the Manager’s and the Subadvisers’ services with respect to compliance with the investment policies of the Fund and conditions that might affect the Manager’s or a Subadviser’s ability to provide high quality services to the Fund in the future under the New Agreements, including its business reputation, financial condition and operational stability. The Directors observed that the scope of services provided by the Manager and the Subadvisers, and the undertakings required of the Manager and Subadvisers in connection with those services, including maintaining and monitoring their own and the Fund’s compliance programs, liquidity management programs and cybersecurity programs, had expanded over time as a result of regulatory, market and other developments. The Directors also noted that on a regular basis they received and reviewed information from the Manager and the Subadvisers regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act, and took that information into account in their evaluation of the New Agreements. The


Western Asset High Yield Fund		71

Board approval of new management and new subadvisory agreements (unaudited) (cont’d)

Directors also considered the risks associated with the Fund borne by the Manager and its affiliates (such as entrepreneurial, operational, reputational, litigation and regulatory risk), as well as the Manager’s and the Subadvisers’ risk management processes.

The Directors considered information provided by Franklin Templeton regarding its business and operating structure, scale of operation, leadership and reputation, distribution capabilities, and financial condition.

The Directors also reviewed the qualifications, backgrounds and responsibilities of the Manager’s and the Subadvisers’ senior personnel and the team of investment professionals primarily responsible for the day-to-day portfolio management of the Fund. The Directors considered the experience of each Adviser’s personnel in providing the types of services that the Adviser is responsible for providing to the Fund; the ability of each Adviser to attract and retain capable personnel; the investment philosophy and research and decision-making processes of the Subadvisers; the capability and integrity of each Adviser’s senior management and staff; and the level of skill required to provide the applicable services to the Fund. The Directors also considered the financial resources of Legg Mason and Franklin Templeton and the importance of having a Fund manager with, or with access to, significant organizational and financial resources. The Directors considered the benefits to the Fund of being part of a larger combined organization with greater financial resources following the Transaction, particularly during periods of market disruptions and volatility. The Directors also considered the policies and practices of the Manager and the Subadvisers regarding the selection of brokers and dealers and the execution of portfolio transactions for the Fund. In addition, the Directors considered management’s periodic reports to the Directors on, among other things, its business plans and any organizational changes. Based on the foregoing, the Directors concluded that the Subadvisers’ investment process, research capabilities and philosophy were well suited to the Fund given the Fund’s investment objectives and policies, and that the Manager and each Subadviser would be able to meet any reasonably foreseeable obligations under the Agreements.

In reviewing the quality of the services provided to the Fund, the Directors received and considered performance information for the Fund as well as for a group of funds (the “Performance Universe”) selected by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent provider of investment company data, based on classifications provided by Thomson Reuters Lipper (“Lipper”). The Directors were provided with a description of the methodology used to determine the similarity of the Fund with the funds included in the Performance Universe. It was noted that while the Directors found the Broadridge data generally useful they recognized its limitations, including that the data may vary depending on the end date selected and that the results of the performance comparisons may vary depending on the selection of the peer group and its composition over time. The Directors also noted that they had received and discussed with management information throughout


72		Western Asset High Yield Fund

the year at periodic intervals comparing the Fund’s performance against its benchmark and against the Fund’s peers. In addition, the Directors considered the Fund’s performance in light of overall financial market conditions.

The Directors noted that the performance of the Fund exceeded its peer group’s average performance for the one-, three- and ten-year periods ended December 31, 2019 and was approximately the same as its peer group’s average performance for the five-year period ended December 31, 2019. With respect to the Fund, the Directors considered the factors involved in the Fund’s performance relative to the performance of its investment benchmark and peer group.

Based on their review of the materials provided and the assurances received from Franklin Templeton and Legg Mason, the Directors determined that the Transaction was not expected to affect adversely the nature, extent and quality of services provided by each Adviser and that the Transaction was not expected to have an adverse effect on the ability of the Manager and Subadvisers to provide those services, and the Directors concluded that, overall, the nature, extent and quality of services expected to be provided, including performance, under the New Agreements were sufficient for approval.

The Directors considered that they had reviewed the Fund’s management fee and total expense ratio at the 2019 contract renewal meetings. The Directors considered that the New Agreements do not change the Fund’s management fee rate or the computation method for calculating such fees, and that there is no present intention to alter expense waiver and reimbursement arrangements that are currently in effect.

The Directors also considered the management fee payable by the Fund to the Manager, the total expenses payable by the Fund and the fact that the Manager pays to the Subadvisers the entire management fee it receives from the Fund. They reviewed information concerning management fees paid to investment advisers of similarly managed funds, as well as fees paid by the Subadvisers’ other clients, including separate accounts managed by either Subadviser. The Directors observed that the management fee paid by the Fund to the Manager was lower than the average of the combined advisory and administration fees paid by funds in its peer group and that total expenses for the Fund were lower than the average of the funds in its peer group. The Directors noted that the management fee paid by the Fund was generally lower than the management fees paid by certain other clients of the Subadvisers for accounts with similar investment strategies and higher than others, and that the administrative and operational responsibilities for the Subadvisers with respect to the Fund were relatively higher as compared with the accounts that had lower fees. In light of the foregoing, the Directors concluded that the management fee paid by the Fund relative to the fees paid by the Subadvisers’ other clients was reasonable.


Western Asset High Yield Fund		73

Board approval of new management and new subadvisory agreements (unaudited) (cont’d)

In evaluating the costs of the services to be provided by the Manager and Subadvisers under the New Agreements, the Directors considered, among other things, whether management fees or other expenses would change as a result of the Transaction. Based on their review of the materials provided and the assurances they had received from Franklin Templeton and Legg Mason, the Directors determined that the Transaction would not increase the total fees payable by the Fund for management services.

Taking all of the above into consideration, as well as the factors identified below, the Directors determined that the management fee and the subadvisory fee for the Fund were reasonable in light of the nature, extent and quality of the services to be provided to the Fund under the New Agreements.

The Directors received and considered an analysis of the profitability of the Manager and its affiliates in providing services to the Fund. The Directors also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Directors received information with respect to the Manager’s allocation methodologies used in preparing this profitability data. It was noted that the allocation methodologies had been previously reviewed by an outside consultant. The profitability of the Manager and its affiliates was considered by the Directors not excessive in light of the nature, extent and quality of the services provided to the Fund. The Directors noted that Western Asset does not have soft dollar arrangements.

The Directors considered, in light of the profitability information provided by the Manager and Western Asset, the extent to which economies of scale would be realized by the Advisers as the assets of the Fund grow. The Directors determined that the lack of breakpoints was appropriate and that the management fee structure for the Fund is reasonable.

The Directors noted that Franklin Templeton and Legg Mason are expected to realize cost savings from the Transaction based on synergies of operations, as well as to benefit from possible growth of the Fund resulting from enhanced distribution capabilities. However, they noted that other factors could also affect profitability and potential economies of scale, and that it was not possible to predict with any degree of certainty how the Transaction would affect the Advisers’ profitability from their relationship with the Fund, nor to quantify at this time any possible future economies of scale. The Directors noted they will have the opportunity to periodically re-examine such profitability and any economies of scale going forward.

The Directors further evaluated the benefits of the advisory relationship to the Manager and the Subadvisers, including, among others, the profitability of the relationship to the Manager and the Subadvisers, the direct and indirect benefits that the Manager and each Subadviser may receive from its relationship with the Fund, including any “fallout benefits,”


74		Western Asset High Yield Fund

such as reputational value derived from serving as investment manager or adviser to the Fund; and the affiliations between the Manager, the Subadvisers and certain service providers for the Fund. The Directors considered other benefits received by the Manager, the Subadvisers and their affiliates as a result of the opportunity to offer additional products and services to Fund shareholders.

In light of the costs of providing investment management and other services to the Fund and the ongoing commitment of the Manager and the Subadvisers to the Fund, the Directors considered that the ancillary benefits that the Manager and its affiliates received are reasonable. In evaluating the fall-out benefits to be received by the Manager and Subadvisers under the New Agreements, the Directors considered whether the Transaction would have an impact on the fall-out benefits received by virtue of the Current Agreements. The Board considered that Franklin Templeton may derive reputational and other benefits from its ability to use the Legg Mason investment affiliates’ names in connection with operating and marketing the Fund. The Board also considered that the Transaction, if completed, would significantly increase Franklin Templeton’s assets under management and expand Franklin Templeton’s investment capabilities.

Based upon their review, the Directors, including all of the Independent Directors, determined, in the exercise of their business judgment that they were generally satisfied with the quality of services being provided by the Manager and the Subadvisers, but they would continue to closely monitor the performance of the Manager and the Subadvisers. After consideration of all the factors and information, and in the exercise of their business judgment, the Directors, including the Independent Directors, concluded that the New Agreements, including the fees payable thereunder, were fair and reasonable and that entering into the New Agreements for the Fund was in the best interests of the Fund’s shareholders and approved the New Agreements and recommended that shareholders approve the New Agreements.


Western Asset High Yield Fund		75

Additional information (unaudited)

Information about Directors and Officers

The business and affairs of Western Asset High Yield Fund (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c/o Jane Trust, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202.

Previously, two different boards, the Legg Mason Partners Fixed Income Funds Board and the Western Asset Funds Board, oversaw substantially all the mutual funds within the Legg Mason fund complex that are advised by Western Asset Management Company, LLC†.A joint proxy statement was mailed to solicit shareholder approval for the election of a unified board. On December 3, 2019, a joint special meeting of shareholders of the funds was held to elect the unified board members. During this meeting, shareholders approved these nominees for Board membership — resulting in one Board overseeing these funds effective January 1, 2020.

Information pertaining to the Directors and officers of the Board is set forth below. The Statement of Additional Information includes additional information about Directors and is available, without charge, upon request by calling the Fund at 1-877-721-1926.


Independent Directors††

Robert Abeles, Jr.

Year of birth		1945
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 2013
Principal occupation(s) during the past five years		Board Member, Great Public Schools Now (since 2018); Senior Vice President Emeritus (since 2016) and formerly, Senior Vice President, Finance and Chief Financial Officer (2009 to 2016) at University of Southern California; Board Member, Excellent Education Development (since 2012)
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		None

Jane F. Dasher

Year of birth		1949
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 1999
Principal occupation(s) during the 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 Director³		56
Other Directorships held by Director during the past five years		Director, Visual Kinematics, Inc. (since 2018)


76		Western Asset High Yield Fund


Independent Directors†† (cont’d)

Anita L. DeFrantz

Year of birth		1952
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 1998
Principal occupation(s) during the past five years		President of Tubman Truth Corp. (since 2015); President Emeritus (since 2015) and formerly, President (1987 to 2015) and Director (1990 to 2015) of LA84 (formerly Amateur Athletic Foundation of Los Angeles); Member (since 1986), Member of the Executive Board (since 2013) and Vice President (since 2017) of the International Olympic Committee
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		None

Susan B. Kerley

Year of birth		1951
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 1992
Principal occupation(s) during the past five years		Investment Consulting Partner, Strategic Management Advisors, LLC (investment consulting) (since 1990)
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the 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)

Michael Larson*

Year of birth		1959
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 2004
Principal occupation(s) during the past five years		Chief Investment Officer for William H. Gates III (since 1994)⁴
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		Republic Services, Inc. (since 2009); Fomento Economico Mexicano, SAB (since 2011); Ecolab Inc. (since 2012); formerly, AutoNation, Inc. (2010 to 2018)


Western Asset High Yield Fund		77

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Independent Directors††(cont’d)

Avedick B. Poladian

Year of birth		1951
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 2007
Principal occupation(s) during the past five years		Director and Advisor (since 2017) and former Executive Vice President and Chief Operating Officer (2002 to 2016) of Lowe Enterprises, Inc. (privately held real estate and hospitality firm); formerly, Partner, Arthur Andersen, LLP (1974 to 2002)
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		Occidental Petroleum Corporation (since 2008); California Resources Corporation (since 2014); and Public Storage (since 2010)

William E.B. Siart

Year of birth		1946
Position(s) with Fund		Director and Chairman of the Board
Term of office¹and length of time served²		Since 1997
Principal occupation(s) during the past five years		Chairman of Great Public Schools Now (since 2015); Chairman of Excellent Education Development (since 2000); formerly, Trustee of The Getty Trust (since 2005 to 2017); Chairman of Walt Disney Concert Hall, Inc. (1998 to 2006)
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		Member of Board of United States Golf Association, Executive Committee Member (since 2017); Trustee, University of Southern California (since 1994)

Jaynie Miller Studenmund

Year of birth		1954
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 2004
Principal occupation(s) during the past five years		Corporate Board Member and Advisor (since 2004); formerly, Chief Operating Officer of Overture Services, Inc. (publicly traded internet company that created search engine marketing) (2001 to 2004); President and Chief Operating Officer, PayMyBills (internet innovator in bill presentment/payment space) (1999 to 2001); Executive vice president for consumer and business banking for three national financial institutions (1984 to 1997)
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		Director of Pacific Premier Bancorp Inc. and Pacific Premier Bank (since 2019); Director of EXL (operations management and analytics company) (since 2018); Director of CoreLogic, Inc. (information, analytics and business services company) (since 2012); formerly, Director of Pinnacle Entertainment, Inc. (gaming and hospitality company) (2012 to 2018); Director of LifeLock, Inc. (identity theft protection company) (2015 to 2017); Director of Orbitz Worldwide, Inc. (online travel company) (2007 to 2014)


78		Western Asset High Yield Fund


Independent Directors††(cont’d)

Peter J. Taylor

Year of birth		1958
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 2019
Principal occupation(s) during the past five years		President, ECMC Foundation (nonprofit organization) (since 2014); formerly, Executive Vice President and Chief Financial Officer for University of California system (2009 to 2014)
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		Director of Pacific Mutual Holding Company⁵(since 2016); Member of the Board of Trustees of California State University system (since 2015); Ralph M. Parson Foundation (since 2015), Kaiser Family Foundation (since 2012), and Edison International (since 2011)

Interested Director

Ronald L. Olson⁶

Year of birth		1941
Position(s) with Fund		Director
Term of office¹and length of time served²		Since 2005
Principal occupation(s) during the past five years		Partner of Munger, Tolles & Olson LLP (law partnership) (since 1968)
Number of funds in fund complex overseen by Director³		56
Other Directorships held by Director during the past five years		Berkshire Hathaway, Inc. (since 1997)

Interested Director and Officer

Jane Trust, CFA⁷

Year of birth		1962
Position(s) with Fund		Director, President and Chief Executive Officer
Term of office¹and length of time served²		Since 2015
Principal occupation(s) during the past five years		Senior Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2018); Managing Director of Legg Mason & Co. (2016 to 2018); 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 Director³		148
Other Directorships held by Director during the past five years		None


Western Asset High Yield Fund		79

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Additional Officers

Ted P. Becker

Legg Mason

620 Eighth Avenue, 49th Floor, New York, NY 10018

Year of birth		1951
Position(s) with Fund		Chief Compliance Officer
Term of office¹and length of time served²		Since 2007
Principal occupation(s) during the past five years		Director of Global Compliance at Legg Mason, Inc. (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 Fund		Chief Anti-Money Laundering Compliance Officer
Term of office¹and length of time served²		Since 2013
Principal occupation(s) during the 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)

Jenna Bailey

Legg Mason

100 First Stamford Place, 5th Floor, Stamford, CT 06902

Year of birth		1978
Position(s) with Fund		Identity Theft Prevention Officer
Term of office¹and length of time served²		Since 2015
Principal occupation(s) during the 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)


80		Western Asset High Yield Fund


Additional Officers (cont’d)

Robert I. Frenkel

Legg Mason

100 First Stamford Place, 6th Floor, Stamford, CT 06902

Year of birth		1954
Position(s) with Fund		Secretary and Chief Legal Officer
Term of office¹and length of time served²		Since 2007
Principal occupation(s) during the past five years		Vice President and Deputy General Counsel of Legg Mason, Inc. (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 Fund		Assistant Secretary
Term of office¹and length of time served²		Since 2007
Principal occupation(s) during the 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)

Christopher Berarducci**

Legg Mason

620 Eighth Avenue, 49th Floor, New York, NY 10018

Year of birth		1974
Position(s) with Fund		Treasurer and Principal Financial Officer
Term of office¹and length of time served²		Since 2019
Principal occupation(s) during the past five years		Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain mutual funds associated with Legg Mason & Co. or its affiliates; Managing Director (since 2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co.; formerly, Assistant Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010)


Western Asset High Yield Fund		81

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Additional Officers (cont’d)

Jeanne M. Kelly

Legg Mason

620 Eighth Avenue, 49th Floor, New York, NY 10018

Year of birth		1951
Position(s) with Fund		Senior Vice President
Term of office¹and length of time served²		Since 2007
Principal occupation(s) during the 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)

†

Western Asset Management Company, LLC (“Western Asset”) is a subadviser to LMPFA with respect to the funds. Western Asset Management Company Limited (“Western Asset London”), Western Asset Management Company Ltd (“Western Asset Japan”) and Western Asset Management Company Pte. Ltd. (“Western Asset Singapore” and, collectively with Western Asset, Western Asset London and Western Asset Japan, the “subadvisers”), also serve as subadvisers to certain of the funds.

††	Directors 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”).

*	Effective March 6, 2020, Mr. Larson became a Director.

**	Effective September 23, 2019, Mr. Berarducci became Treasurer and Principal Financial Officer.

¹	Each Director 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 Director became a board member for a fund in the Legg Mason fund complex or the officer took such office.

Each board member also serves as a Director of Western Asset Investment Grade Income Fund Inc. and a Trustee of Western Asset Premier Bond Fund (closed-end investment companies), which are considered part of the same fund complex. Additionally, effective April 24, 2020, each board member serves as a Trustee of Western Asset Inflation-Linked Income Fund and Western Asset Inflation-Linked Opportunities & Income Fund, closed-end investment companies that are part of the same fund complex.

⁴

Mr. Larson is the chief investment officer for William H. Gates III and in that capacity oversees the investments of Mr. Gates and the investments of the Bill and Melinda Gates Foundation Trust (such combined investments are referred to as the “Accounts”). Since 1997, Western Asset has provided discretionary investment advice with respect to one or more Accounts.

⁵

Western Asset and its affiliates provide investment advisory services with respect to registered investment companies sponsored by an affiliate of Pacific Mutual Holding Company (“Pacific Holdings”). Affiliates of Pacific Holdings receive compensation from LMPFA or its affiliates for shareholder or distribution services provided with respect to registered investment companies for which Western Asset or its affiliates serve as investment adviser.

⁶	Mr. Olson is an “interested person” of the Fund, as defined in the 1940 Act, because his law firm has provided legal services to Western Asset.

⁷	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.


82		Western Asset High Yield Fund

Important tax information (unaudited)

The following information is provided with respect to the distributions paid during the taxable year ended May 31, 2020:


Record date:	Monthly	Monthly
Payable date:	June 2019 through December 2019	January 2020 through May 2020
Tax Return of Capital	—	13.27	%


Western Asset High Yield Fund		83

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Western Asset

High Yield Fund

Directors*

Robert Abeles, Jr.

Jane F. Dasher

Anita L. DeFrantz

Susan B. Kerley

Michael Larson**

Ronald L. Olson

Avedick B. Poladian

William E.B. Siart

Chairman

Jaynie M. Studenmund

Peter J. Taylor

Jane Trust

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadvisers

Western Asset Management Company, LLC

Western Asset Management Company Limited

Distributor

Legg Mason Investor Services, LLC

Custodian

The Bank of New York Mellon

Transfer agent

BNY Mellon Investment

Servicing (US) Inc.

4400 Computer Drive

Westborough, MA 01581

Independent registered public accounting firm

PricewaterhouseCoopers LLP

Baltimore, MD

*	During a December 3, 2019 special meeting of shareholders, a new group of board members was elected to oversee substantially all the mutual funds within the Legg Mason fund complex that are advised by Western Asset Management Company, LLC, effective January 1, 2020.

**	Effective March 6, 2020, Mr. Larson became a Director.

Western Asset High Yield Fund

The Fund is a separate investment series of Western Asset Funds, Inc.

Western Asset High Yield Fund

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 as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at 1-877-721-1926.

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, (2) at www.leggmason.com/mutualfunds 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 High Yield Fund. 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 objectives, 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

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. 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;

•

Bank account information, legal documents, and identity verification documentation;

•

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 to 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 statistical analysis, market research and marketing services solely for the Funds;

•

Permit access to transfer, whether in the United States or countries outside of the United States to such Funds’ employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

•

The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

•

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, including those outside the United States, 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, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, 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 Funds at 1-877-721-1926.

Revised April 2018

NOT PART OF THE ANNUAL REPORT

Western Asset Management Company, LLC

Legg Mason, Inc. Subsidiaries

www.leggmason.com

WASX013141 7/20 SR20-3926


ITEM 2.		CODE OF ETHICS.

		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 Directors of the registrant has determined that Mr. Robert Abeles, Jr., possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as “audit committee financial expert,” and have designated Mr. Abeles as the Audit Committee’s financial expert. Mr. Abeles is an “independent” Director 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 May 31, 2019 and May 31, 2020 (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 $228,275 in May 31, 2019 and in $173,112 in May 31, 2020.

		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 $9,000 in May 31, 2019 and $0 in May 31, 2020.

		In addition, there were no Audit-Related Fees billed in the Reporting Period for assurance and related services by the Auditor to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Western Asset Funds, Inc. (“service affiliates”), that were reasonably related to the performance of the annual audit of the service affiliates. Accordingly, there were no such fees that required pre-approval by the Audit Committee for the Reporting Period.

		(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 $0 in May 31, 2019 and $0 in May 31, 2020. 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 other fees billed in the Reporting Periods for products and services provided by the Auditor were $0 in May 31, 2019 and $0 in May 31, 2020, other than the services reported in paragraphs (a) through (c) for the Item for the Western Asset Funds, Inc.

		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 Western Asset Funds, Inc. 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 Western Asset Funds, Inc., the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for May 31, 2019 and May 31, 2020; Tax Fees were 100% and 100% for May 31, 2019 and May 31, 2020; and Other Fees were 100% and 100% for May 31, 2019 and May 31, 2020.

		(f) N/A

		(g) Non-audit fees billed by the Auditor for services rendered to Western Asset Funds, Inc., LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Western Asset Funds, Inc. during the reporting period were $678,000 in May 31, 2019 and $457,301 in May 31, 2020.

		(h) Yes. Western Asset Funds, Inc.’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 Western Asset Funds, Inc. 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:

		Robert Abeles, Jr.*

		Jane F. Dasher*

		Anita L. DeFrantz*

		Susan B. Kerley*

		Michael Larson**

		Ronald L. Olson*

		Avedick B. Poladian*

		William E.B. Siart*

		Jaynie M. Studenmund*

		Peter J. Taylor*

* During a December 3, 2019 special meeting of shareholders, a new group of board members was elected to oversee substantially all the mutual funds within the Legg Mason fund complex that are advised by Western Asset Management Company, LLC, effective January 1, 2020. ** Effective March 6, 2020, Mr. Larson became a Director.

		b) Not applicable.

ITEM 6.		SCHEDULE OF INVESTMENTS.

		Included herein under Item 1.

ITEM 7.		DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

		Not applicable.

ITEM 8.		PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

		Not applicable.

ITEM 9.		PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

		Not applicable.

ITEM 10.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

		Not applicable.



ITEM 11.		CONTROLS AND PROCEDURES.

		(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

		(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the 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.

ITEM 12.		DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

		Not applicable.

ITEM 13.		EXHIBITS.

		(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.


Western Asset Funds, Inc.

By:		/s/ Jane Trust
		Jane Trust
		Chief Executive Officer

Date: July 23, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By:		/s/ Jane Trust
		Jane Trust
		Chief Executive Officer

Date: July 23, 2020

By:		/s/ Christopher Berarducci
		Christopher Berarducci
		Principal Financial Officer

Date: July 23, 2020

Western Asset Funds N-CSRCertified annual shareholder report (management investment company)