Washington, D.C. 20549
Marc A. De Oliveira.
The Funds’ code of ethics (the “Code”)
for investment companies within the Legg Mason family of mutual funds (each a “Fund,” and collectively, the “Funds”)
applies to each Fund’s Principal Executive Officer, Principal Financial Officer, and Controller (the “Covered Officers”)
for the purpose of promoting:
Each Covered Officer should adhere to a high standard
of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
A “conflict of interest” occurs when a
Covered Officer’s private interest interferes with the interests of, or his or her service to, a Fund. For example, a conflict of
interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or
her position with a Fund.
Certain conflicts of interest arise out of the relationships
between Covered Officers and a Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (“Investment
Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). For example, Covered Officers may
not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Fund because of
their status as “affiliated persons” of the Fund. The Funds’ and the investment advisers’ compliance programs
and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended
to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.
Although typically not presenting an opportunity for
improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Fund and an investment adviser
of which Covered Officers are also officers or employees. As a result, this Code recognizes Covered Officers will, in the normal course
of their duties (whether formally for a Fund or for the adviser, or for both), be involved in establishing policies and
implementing decisions that will have different effects
on the adviser and the Funds. The participation of Covered Officers in such activities is inherent in the contractual relationship between
a Fund and an adviser and is consistent with the performance by Covered Officers of their duties as officers of the Funds. Thus, if performed
in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have
been handled ethically. In addition, it is recognized by the Funds’ Boards of Directors/Trustees (“Boards”) that Covered
Officers may also be officers or employees of one or more other investment companies covered by this or other codes and that such service,
by itself does not give rise to a conflict of interest.
Other conflicts of interest are covered by the Code,
even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following
list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind these examples are not exhaustive.
The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of a
Fund.
There are some actual or potential conflict of interest
situations that, if material, should always be discussed with the Chief Compliance Officer (“CCO”) or designate that has been
appointed by the Board of the Funds. Examples of these include:
It is the responsibility of each Covered Officer to
promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.
The CCO is responsible for applying this Code to specific
situations in which questions are presented and has the authority to interpret this Code in any particular situation. However, approvals
or waivers sought by a Covered Officer will be considered by the Compliance Committee or Audit Committee, (the “Committee”)
responsible for oversight of the Fund’s code of ethics under Rule 17j-1 under the Investment Company Act. If a Covered Officer seeking
an approval or waiver sits on the Committee, the Covered Person shall recuse him or herself from any such deliberations. Any approval
or waiver granted by the Committee will be reported promptly to the Chair of the Audit Committees of the Funds.
This Code shall be the sole code of ethics
adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered
investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds’ advisers, principal
underwriter, or other service providers govern or purport to govern the behavior or activities of Covered Officers subject to this
Code, they are superseded by this Code to the extent they overlap or conflict with the provisions of this Code. The Funds’ and
their investment advisers’ and principal underwriter’s codes of ethics under Rule 17j-1 under the Investment Company Act
are separate requirements applying to Covered Officers and others, and are not part of this Code.
All reports and records prepared or maintained pursuant
to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the appropriate Board and Fund counsel, and the board of Directors/Trustees
and fund counsel of any other investment company for whom a Covered Officer serves in a similar capacity.
No less than annually, the CCO shall provide the Board
with a written report describing any issues having arisen since the prior year’s report.
This Code is intended solely for the internal use by
the Funds and does not constitute an admission by or on behalf of any Fund, as to any fact, circumstance or legal consideration.
2. The information
contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
This certification is being furnished to the Securities and Exchange Commission
solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.
We hereby consent to the incorporation by reference in the Registration
Statement on Form N-2 (No. 333-276304) of Western Asset Global High Income Fund Inc. of our report dated July 19, 2024, relating to the
financial statements and financial highlights, which appears in Western Asset Global High Income Fund Inc.’s Annual Report on Form
N-CSR for the year ended May 31, 2024.
N-2 - USD ($)
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3 Months Ended |
12 Months Ended |
May 31, 2024 |
Feb. 29, 2024 |
Nov. 30, 2023 |
Aug. 31, 2023 |
May 31, 2023 |
Feb. 28, 2023 |
Nov. 30, 2022 |
Aug. 31, 2022 |
May 31, 2024 |
May 31, 2023 |
May 31, 2022 |
May 31, 2021 |
May 31, 2020 |
May 31, 2019 |
May 31, 2018 |
May 31, 2017 |
May 31, 2016 |
May 31, 2015 |
Cover [Abstract] |
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Entity Central Index Key |
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0001228509
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Amendment Flag |
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false
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Entity Inv Company Type |
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N-2
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Document Type |
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N-CSR
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Entity Registrant Name |
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Western Asset Global High Income Fund Inc.
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Fee Table [Abstract] |
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Shareholder Transaction Expenses [Table Text Block] |
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Summary of Fund Expenses
Sales Load (as a percentage of offering price)
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Offering Expense (as a percentage of offering price)(1)
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Dividend Reinvestment Plan Fees(2)
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(1) | | Costs incurred by
the Fund in connection with the shelf offering are recorded as a prepaid expense. These costs will be amortized on a pro-rata basis
as shares are sold and will be presented as a reduction to the net proceeds from the sale of shares. Any deferred charges remaining at
the end of the life of the shelf offering period will be expensed. For the period ended May 31, 2024, no shares were sold and no deferred
offering costs were amortized. |
(2) | | Common Stockholders
will pay brokerage charges if they direct the Plan Agent to sell shares of Common Stock held in a dividend reinvestment account. There
are no fees charged to stockholders for participating in the Fund’s dividend reinvestment plan. However, stockholders participating
in the Plan that elect to sell their shares obtained pursuant to the plan would pay $5.00 per transaction to sell shares. |
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Sales Load [Percent] |
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0.00%
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Dividend Reinvestment and Cash Purchase Fees |
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$ 5.00
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Other Transaction Expenses [Abstract] |
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Other Transaction Expenses [Percent] |
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0.00%
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Annual Expenses [Table Text Block] |
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Annual Operating Expenses
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Percentage of Net Assets Attributable
to Common Shares
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Interest Payments on Borrowed Funds(4)
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Total Annual Fund Operating Expenses
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(3) | | The Investment Manager
receives an annual fee, payable monthly, in an amount equal to 0.85% of the Fund’s average daily “Managed Assets”.
Managed Assets means net assets plus the amount of any borrowings (including loans from certain financial institutions, the use of reverse
repurchase agreements and/or the issuance of debt securities and preferred stock that may be outstanding, collectively “Borrowings”).
For the purposes of this table, we have assumed that the Fund has utilized Borrowings in an aggregate amount of 32% of its Managed Assets,
which equals the average level of Borrowings for the Fund’s fiscal year ended May 31, 2024. If the Fund were to use Borrowings
in excess of 32%, the amount of management fees paid to the Investment Manager would be higher because the fees paid are calculated on
the Fund’s Managed Assets, which include assets purchased with leverage. |
(4) | | The Fund has utilized
Borrowings in an aggregate amount of 32% of its Managed Assets, which equals the average level of Borrowings for the Fund’s fiscal
year ended May 31, 2024. The expenses and rates associated with Borrowings may vary. |
(5) | | “Other Expenses”
are estimated based on amounts incurred in the fiscal year ended May 31, 2024. |
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Management Fees [Percent] |
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1.25%
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Interest Expenses on Borrowings [Percent] |
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2.96%
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Other Annual Expenses [Abstract] |
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Other Annual Expenses [Percent] |
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0.25%
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Total Annual Expenses [Percent] |
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4.46%
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Expense Example [Table Text Block] |
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Examples
An investor would pay the following expenses on a $1,000 investment in the Fund, assuming a 5% annual return:
The above table and example are intended to assist investors in understanding the
various costs and expenses directly or indirectly associated with investing in Shares of the
Fund. The “Example” assumes that all dividends and other distributions are reinvested at net asset value and that the percentage amounts listed in the table above under Total
Annual Operating Expenses remain the same in the years shown. The above table and example
and the assumption in the example of a 5% annual return are required by regulations of
the SEC that are applicable to all investment companies; the assumed 5% annual return is not
a prediction of, and does not represent, the projected or actual performance of the Fund’s Common Shares. The example should not be considered a representation of past or future expenses, and the Fund’s actual expenses may be greater than or less than those shown. The Fund’s actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
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Expense Example, Year 01 |
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$ 45
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Expense Example, Years 1 to 3 |
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135
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Expense Example, Years 1 to 5 |
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226
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Expense Example, Years 1 to 10 |
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$ 458
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Purpose of Fee Table , Note [Text Block] |
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The following additional information is provided for the Fund as of the fiscal year
ended May 31, 2024.
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Basis of Transaction Fees, Note [Text Block] |
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as a percentage of offering price
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Other Transaction Fees, Note [Text Block] |
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Common Stockholders
will pay brokerage charges if they direct the Plan Agent to sell shares of Common Stock held in a dividend reinvestment account. There
are no fees charged to stockholders for participating in the Fund’s dividend reinvestment plan. However, stockholders participating
in the Plan that elect to sell their shares obtained pursuant to the plan would pay $5.00 per transaction to sell shares.
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Other Expenses, Note [Text Block] |
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“Other Expenses”
are estimated based on amounts incurred in the fiscal year ended May 31, 2024.
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Management Fee not based on Net Assets, Note [Text Block] |
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The Investment Manager
receives an annual fee, payable monthly, in an amount equal to 0.85% of the Fund’s average daily “Managed Assets”.
Managed Assets means net assets plus the amount of any borrowings (including loans from certain financial institutions, the use of reverse
repurchase agreements and/or the issuance of debt securities and preferred stock that may be outstanding, collectively “Borrowings”).
For the purposes of this table, we have assumed that the Fund has utilized Borrowings in an aggregate amount of 32% of its Managed Assets,
which equals the average level of Borrowings for the Fund’s fiscal year ended May 31, 2024. If the Fund were to use Borrowings
in excess of 32%, the amount of management fees paid to the Investment Manager would be higher because the fees paid are calculated on
the Fund’s Managed Assets, which include assets purchased with leverage.
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Financial Highlights [Abstract] |
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Senior Securities [Table Text Block] |
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Senior Securities Table
The Fund engaged in senior securities during the prior ten years as follows:
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Total
Amount
Outstanding(1)
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Asset
Coverage
per 1,000(2)
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Average
Market
Value
Per
Unit(3)
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Revolving Credit Facility:
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* |
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The Fund had open reverse repurchase
agreements at May 31, 2024, 2023, 2022, 2021, 2020, 2019 and 2015. |
(1) |
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Total amount of senior securities
outstanding at the end of the period presented. |
(2) |
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Asset coverage per $1,000 of indebtedness
is the value of net assets plus the senior securities outstanding at the end of the period divided by the senior securities outstanding
at the end of the period. |
(3) |
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Not applicable, as these senior securities
were not registered for public trading. |
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Senior Securities, Note [Text Block] |
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* |
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The Fund had open reverse repurchase
agreements at May 31, 2024, 2023, 2022, 2021, 2020, 2019 and 2015. |
(1) |
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Total amount of senior securities
outstanding at the end of the period presented. |
(2) |
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Asset coverage per $1,000 of indebtedness
is the value of net assets plus the senior securities outstanding at the end of the period divided by the senior securities outstanding
at the end of the period. |
(3) |
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Not applicable, as these senior securities
were not registered for public trading. |
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Senior Securities Averaging Method, Note [Text Block] |
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Not applicable, as these senior securities
were not registered for public trading.
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General Description of Registrant [Abstract] |
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Investment Objectives and Practices [Text Block] |
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Investment Objectives
The Fund’s primary investment objective is high current income and secondary investment objective is total return.
Principal Investment Policies and Strategies
Under normal market conditions, the Fund will invest at least 10% and up to 80% of
its total assets in (i) below investment grade (high yield) fixed income (debt) securities
issued by corporate issuers.
Under normal market conditions, the Fund will invest at least 10% and up to 80% of
its assets in emerging market fixed income securities.
Under normal market conditions, the Fund will invest at least 10% and up to 80% of
its assets in investment grade fixed income securities.
The Fund usually will attempt to maintain a portfolio with a weighted average credit
quality rated at least B3 by Moody’s or B- by S&P or an equivalent rating from any nationally recognized statistical rating organization. If a security is rated by multiple nationally
recognized statistical rating organizations (“NRSROs”) and receives different ratings, the Fund will treat the security as being rated in the lowest rating category received
from an NRSRO.
For temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment objectives and policies and invest some or all
of its assets in investments of non-corporate issuers, including high-quality, short-term
debt securities. In addition, in anticipation of or in response to adverse market conditions,
for cash management purposes, or for defensive purposes, the Fund may invest up to 100%
of its assets in U.S. government securities, certificates of deposit, repurchase agreements,
or short term commercial paper. The Fund may also invest in money market funds, including
funds affiliated with the Fund’s manager and subadvisers.
As a temporary defensive strategy, the Fund may employ alternative strategies, including
investment of all of the Fund’s assets in securities rated investment grade by any nationally recognized statistical rating organization, or in unrated securities of comparable
quality.
The Fund may invest up to 20% of its managed assets in all types of equity securities,
including common stocks traded on an exchange or in the over the counter market, preferred stocks, warrants, rights, convertible securities, depositary receipts, trust
certificates, limited partnership interests, shares of other investment companies
and REITs.
The Fund has no specific policy with regard to turnover.
The Fund may invest up to 15% of its managed assets in illiquid securities.
The Fund may invest up to 10% of its total assets in any combination of publicly or
privately traded mortgage REITs and hybrid REITs.
The Fund may invest in zero coupon securities, pay-in-kind bonds and deferred payment
securities.
The Fund may invest in certain bank obligations, including certificates of deposit, bankers’ acceptances, and fixed time deposits.
The Fund may invest in collateralized debt obligations, collateralized bond obligations
and collateralized loan obligations.
The average portfolio duration of the Fund will normally be within one to seven years
based on the Investment Manager’s forecast for interest rates. Duration is a measure of the expected life of a debt security that is used to determine the sensitivity of a security’s price to changes in interest rates.
The Fund may not purchase or sell commodities or commodities contracts or oil, gas
or mineral programs, but may purchase, sell, or enter into futures contracts, options
on futures contracts, forward contracts, or interest rate, securities-related or other hedging
instruments, including swap agreements and other derivative instruments.
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Risk Factors [Table Text Block] |
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Principal Risk Factors
There is no assurance that the Fund will meet its investment objectives. You may lose
money on your investment in the Fund. The value of the Fund’s shares may go up or down, sometimes rapidly and unpredictably. Market conditions, financial conditions of issuers
represented in the Fund’s portfolio, investment strategies, portfolio management, and other factors affect the volatility of the Fund’s shares. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency.
The following section includes a summary of the principal risks of investing in the
Fund.
Fixed Income Securities Risk. In addition to the risks described elsewhere in this section with respect to valuations and liquidity, fixed income securities, including high-yield
securities, are also subject to certain risks, including:
• Issuer Risk. The value of fixed income securities may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage
and reduced demand for the issuer’s goods and services.
• Interest Rate Risk. The market price of the Fund’s investments will change in response to changes in interest rates and other factors. During periods of declining interest
rates, the market price of fixed income securities generally rises. Conversely, during periods
of rising interest rates, the market price of such securities generally declines. The
magnitude of these fluctuations in the market price of fixed income securities is
generally greater for securities with longer maturities. Fluctuations in the market price of the Fund’s securities will not affect interest income derived from securities already owned by
the Fund, but will be reflected in the Fund’s net asset value. The Fund may utilize certain strategies, including investments in structured notes or interest rate swap or cap
transactions, for the purpose of reducing the interest rate sensitivity of the portfolio
and decreasing the Fund’s exposure to interest rate risk, although there is no assurance that it will do so or that such strategies will be successful.
• Prepayment Risk. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to
reinvest the proceeds from such prepayment in lower yielding securities, which may result in
a decline in the Fund’s income and distributions to stockholders. This is known as prepayment or “call” risk. Debt securities frequently have call features that allow the issuer to redeem the security at dates prior to its stated maturity at a specified
price (typically greater than par) only if certain prescribed conditions are met. An issuer
may choose to redeem a debt security if, for example, the issuer can refinance the debt
at a lower cost due to declining interest rates or an improvement in the credit standing
of the issuer.
• Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called fixed
income securities at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the market price of Common Shares or overall
returns.
Below Investment Grade (High-Yield or Junk Bond) Securities Risk. The Fund may invest in high-yield debt securities. Debt securities rated below investment grade are commonly
referred to as “high-yield” securities or “junk bonds” and are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations and involve
major risk exposure to adverse conditions. Debt securities rated C or lower by Moody’s, CCC or lower by S&P or CC or lower by Fitch or comparably rated by another nationally
recognized statistical rating organization (“NRSRO”) or, if unrated, determined by Western Asset to be of comparable quality are considered to have extremely poor prospects
of ever attaining any real investment standing, to have a current identifiable vulnerability
to default, to be unlikely to have the capacity to pay interest and repay principal when
due in the event of adverse business, financial or economic conditions and/or to be in default
or not current in the payment of interest or principal. Ratings may not accurately reflect
the actual credit risk associated with a corporate security.
Debt securities rated below investment grade generally offer a higher current yield
than that available from higher grade issues, but typically involve greater risk. These
securities are especially sensitive to adverse changes in general economic conditions, to changes
in the financial condition of their issuers and to price fluctuation in response to changes
in interest rates. During periods of economic downturn or rising interest rates, issuers
of below investment grade instruments may experience financial stress that could adversely
affect their ability to make payments of principal and interest and increase the possibility
of default. The secondary market for high-yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an adverse
effect on the Fund’s ability to dispose of a particular security. There are fewer dealers in the market for high-yield securities than for investment grade obligations. The prices
quoted by different dealers may vary significantly, and the spread between the bid and asked
price is generally much larger for high-yield securities than for higher quality instruments.
Under continuing adverse market or economic conditions, the secondary market for high-yield
securities could contract further, independent of any specific adverse changes in
the condition of a particular issuer, and these securities may become illiquid. In addition,
adverse publicity and investor perceptions, whether or not based on fundamental analysis,
may also decrease the values and liquidity of below investment grade securities, especially
in a market characterized by a low volume of trading.
Foreign Securities and Emerging Markets Risk. The Fund’s investments in securities of foreign issuers or issuers with significant exposure to foreign markets involve additional
risk as compared to investment in U.S. securities or issuers with predominantly domestic
exposure, such as less liquid, less regulated, less transparent and more volatile
markets. The markets for some foreign securities are relatively new, and the rules and policies
relating to these markets are not fully developed and may change. The value of the Fund’s investments may decline because of factors affecting the particular issuer as well
as foreign markets and issuers generally, such as unfavorable or unsuccessful government
actions, tariffs and tax disputes, reduction of government or central bank support,
inadequate accounting standards, lack of information and political, economic, financial
or social instability. Foreign investments may also be adversely affected by U.S. government
or international economic sanctions, which could eliminate the value of an investment.
To the extent the Fund focuses its investments in a single country or only a few countries
in a particular geographic region, economic, political, regulatory or other conditions
affecting such country or region may have a greater impact on Fund performance relative to a
more geographically diversified fund.
The risks of foreign investment are greater for investments in emerging markets. “Emerging market country” is defined as any country which is, at the time of investment, it is (i) represented in the J.P. Morgan Emerging Markets Bond Index Global Diversified or the
J.P. Morgan Corporate Emerging Market Bond Index Broad or (ii) categorized by the World
Bank
in its annual categorization as middle- or low-income. Emerging market countries typically
have economic and political systems that are less fully developed, and that can be
expected to be less stable, than those of more advanced countries. Low trading volumes may
result in a lack of liquidity and in price volatility. Emerging market countries may have policies
that restrict investment by foreigners, that require governmental approval prior to investments
by foreign persons, or that prevent foreign investors from withdrawing their money
at will. An investment in emerging market securities should be considered speculative.
Non-U.S. Government, or Sovereign, Debt Securities Risk. The Fund invests in non-U.S. government, or sovereign, debt securities. The ability of a government issuer, especially
in an emerging market country, to make timely and complete payments on its debt obligations
will be strongly influenced by the government issuer’s balance of payments, including export performance, its access to international credits and investments, fluctuations
of interest rates and the extent of its foreign reserves. A country whose exports are
concentrated in a few commodities or whose economy depends on certain strategic imports
could be vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in currencies other
than U.S. dollars, its ability to make debt payments denominated in U.S. dollars could be adversely
affected. If a government issuer cannot generate sufficient earnings from foreign
trade to service its external debt, it may need to depend on continuing loans and aid from
foreign governments, commercial banks, and multinational organizations. There are no bankruptcy
proceedings similar to those in the United States by which defaulted non-U.S. government
debt may be collected. Additional factors that may influence a government issuer’s ability or willingness to service debt include, but are not limited to, a country’s cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, and the issuer’s policy towards the International Monetary Fund, the International Bank for Reconstruction and Development
and other international agencies to which a government debtor may be subject.
Foreign Currency Risk. The value of investments denominated in foreign currencies increases or decreases as the rates of exchange between those currencies and the U.S.
dollar change. Currency conversion costs and currency fluctuations could erase investment
gains or add to investment losses. Currency exchange rates can be volatile, and are
affected by factors such as general economic conditions, the actions of the U.S. and
foreign governments or central banks, the imposition of currency controls and speculation.
The Fund may be unable or may choose not to hedge its foreign currency exposure.
Liquidity Risk. The Fund may invest in illiquid securities. Illiquid securities are securities that
cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities. Liquidity risk
exists when particular investments are difficult to sell. Securities may become illiquid
after
purchase by the Fund, particularly during periods of market turmoil. When the Fund
holds illiquid investments, the portfolio may be harder to value, especially in changing
markets, and if the Fund is forced to sell these investments in order to segregate assets or
for other cash needs, the Fund may suffer a loss.
Common Stock Risk. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. In addition, the
prices of common stocks are sensitive to general movements in the stock market, and a drop in
the stock market may depress the prices of common stocks to which the Fund has exposure.
Common stock prices fluctuate for several reasons including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the
relevant stock market, or when political or economic events affecting an issuer occur. In addition,
common stock prices may be particularly sensitive to rising interest rates, as the
cost of capital rises and borrowing costs increase. The value of the common stocks in which
the Fund may invest will be affected by changes in the stock markets generally, which
may be the result of domestic or international political or economic news, changes in interest
rates or changing investor sentiment. At times, stock markets can be volatile and stock
prices can change substantially. The common stocks of smaller companies are more sensitive to
these changes than those of larger companies. Common stock risk will affect the Fund’s net asset value per share, which will fluctuate as the value of the securities held by the Fund
change.
Preferred Stock Risk. Generally, the Fund has a greater flexibility to invest in equity securities. Preferred stocks are unique securities that combine some of the characteristics
of both common stocks and bonds. Preferred stocks generally pay a fixed rate of return
and are sold on the basis of current yield, like bonds. However, because they are equity
securities, preferred stock provides equity ownership of a company, and the income
is paid in the form of dividends. Preferred stocks typically have a yield advantage over common
stocks as well as comparably-rated fixed income investments. Preferred stocks are
typically subordinated to bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject to greater credit risk
than those debt instruments. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer’s board of directors. Preferred stocks also may be subject to optional or mandatory redemption provisions.
Convertible Securities Risk. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer within a particular
period of time at a specified price or formula. Before conversion, convertible securities
have characteristics similar to nonconvertible income securities in that they ordinarily
provide a stable stream of income with generally higher yields than those of common stocks of
the same or similar issuers, but lower yields than comparable nonconvertible securities.
Similar
to traditional fixed income securities, the market values of convertible securities
tend to decline as interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a convertible security
exceeds the conversion price, the convertible security tends to reflect the market
price of the underlying common stock. As the market price of the underlying common stock declines,
the convertible security tends to trade increasingly on a yield basis and thus may
not decline in price to the same extent as the underlying common stock. The credit standing
of the issuer and other factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price established in
the convertible security’s governing instrument.
Risks of Warrants and Rights. Warrants and rights are subject to the same market risks as stocks, but may be more volatile in price. Warrants and rights do not carry the right
to dividends or voting rights with respect to their underlying securities, and they do
not represent any rights in the assets of the issuer. An investment in warrants or rights
may be considered speculative. In addition, the value of a warrant or right does not necessarily
change with the value of the underlying security and a warrant or right ceases to
have value if it is not exercised prior to its expiration date. The purchase of warrants or rights
involves the risk that the Fund could lose the purchase value of a warrant or right if the
right to subscribe to additional shares is not exercised prior to the warrants’ or rights’ expiration. Also, the purchase of warrants and rights involves the risk that the effective price
paid for the warrant or right added to the subscription price of the related security may exceed
the value of the subscribed security’s market price such as when there is no movement in the price of the underlying security.
REITs Risk. Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. An equity or hybrid
REIT may be affected by changes in the value of the underlying properties owned by the
REIT. A mortgage or hybrid REIT may be affected by changes in interest rates and the ability
of the issuers of its portfolio mortgages to repay their obligations. Mortgage and hybrid
REITs are subject to the risks of accelerated prepayments of mortgage pools or pass-through
securities, reliance on short-term financing and more highly leveraged capital structures.
REITs are dependent upon the skills of their managers and are not diversified.
REITs are generally dependent upon maintaining cash flows to repay borrowings and
to make distributions to stockholders and are subject to the risk of default by lessees
and borrowers. REITs whose underlying assets are concentrated in properties used by a
particular industry, such as healthcare, are also subject to industry related risks.
Certain “special purpose” REITs may invest their assets in specific real estate sectors, such as
hotels, nursing homes or warehouses, and are therefore subject to the risks associated
with adverse developments in any such sectors.
REITs are subject to management fees and other expenses. Therefore, investments in
REITs will cause CRO to bear its proportionate share of the costs of the REITs’ operations. At the same time, CRO will continue to pay its own management fees and expenses with respect
to all of its assets, including any portion invested in REITs.
Mortgage-Backed and Asset-Backed Securities Risks. Mortgage-backed securities include, among other things, participation interests in pools of residential mortgage loans
purchased from individual lenders by a federal agency or originated and issued by private lenders
and involve, among others, the following risks:
• Credit and Market Risks of Mortgage-Backed Securities. Investments by the Fund in fixed rate and floating rate mortgage-backed securities will entail credit risks (i.e.,
the risk of non-payment of interest and principal) and market risks (i.e., the risk that interest
rates and other factors could cause the value of the instrument to decline). Many issuers
or servicers of mortgage-backed securities may guarantee timely payment of interest and
principal on the securities, whether or not payments are made when due on the underlying mortgages. This kind of guarantee generally increases the quality of a
security, but does not mean that the security’s market value and yield will not change. The value of all mortgage-backed securities also may change because of changes in the market’s perception of the creditworthiness of the organization that issues or guarantees them.
In addition, an unexpectedly high rate of defaults on the mortgages held by a mortgage
pool may limit substantially the pool’s ability to make payments of principal or interest to the Fund as a holder of such securities, reducing the values of those securities or in
some cases rendering them worthless. The Fund also may purchase securities that are not
guaranteed or subject to any credit support.
Like bond investments, the value of fixed rate mortgage-backed securities will tend
to rise when interest rates fall, and fall when rates rise. Floating rate mortgage-backed
securities will generally tend to have more moderate changes in price when interest rates rise
or fall, but their current yield will be affected.
In addition, the mortgage-backed securities market in general may be adversely affected
by changes in governmental legislation or regulation. Factors that could affect the value
of a mortgage-backed security include, among other things, the types and amounts of insurance
which an individual mortgage or specific mortgage-backed security carries, the default
and delinquency rate of the mortgage pool, the amount of time the mortgage loan has been
outstanding, the loan-to-value ratio of each mortgage and the amount of overcollateralization or undercollateralization of the mortgage pool.
Asset-backed securities represent participation in, or are secured by and payable
from, assets such as installment sales or loan contracts, leases, credit card receivables,
and other categories of receivables. Certain debt instruments may only pay principal at maturity
or may only represent the right to receive payments of principal or payments of interest
on underlying pools or mortgages, assets, or government securities, but not both. The
value of these types of instruments may change more drastically than debt securities that pay
both principal and interest. The Fund may obtain a below market yield or incur a loss on
such instruments during periods of declining interest rates. Principal only and interest
only instruments are subject to extension risk. For mortgage derivatives and structured
securities that have imbedded leverage features, small changes in interest or prepayment rates
may cause large and sudden price movements. Mortgage derivatives can also become illiquid
and hard to value in declining markets.
• Prepayment, Extension and Redemption Risks of Mortgage-Backed Securities. Mortgage-backed securities may reflect an interest in monthly payments made by the borrowers who receive the underlying mortgage loans. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can, and historically
have, paid them off sooner. When a prepayment happens, a portion of the mortgage-backed security which represents an interest in the underlying mortgage loan will be prepaid. A borrower is more likely to prepay a mortgage which bears a relatively high
rate of interest. This means that in times of declining interest rates, a portion of the Fund’s higher yielding securities are likely to be redeemed and the Fund will probably be
unable to replace them with securities having as great a yield. Prepayments can result in
lower yields to stockholders. The increased likelihood of prepayment when interest rates
decline also limits market price appreciation of mortgage-backed securities. This
is known as prepayment risk. Mortgage-backed securities also are subject to extension
risk. Extension risk is the possibility that rising interest rates may cause prepayments
to occur at a slower than expected rate. This particular risk may effectively change a security
which was considered short or intermediate term into a long-term security. The values
of long-term securities generally fluctuate more widely in response to changes in interest
rates than short or intermediate-term securities. In addition, a mortgage-backed security
may be subject to redemption at the option of the issuer. If a mortgage-backed security
held by the Fund is called for redemption, the Fund will be required to permit the
issuer to redeem or “pay-off” the security, which could have an adverse effect on the Fund’s ability to achieve its investment objective.
• Liquidity Risk of Mortgage-Backed Securities. The liquidity of mortgage-backed securities varies by type of security; at certain times the Fund may encounter difficulty in
disposing of such investments. Because mortgage-backed securities have the potential to be less
liquid than other securities, the Fund may be more susceptible to liquidity risks
than funds
that invest in other securities. In the past, in stressed markets, certain types of
mortgage-backed securities suffered periods of illiquidity when disfavored by the market.
• Collateralized Mortgage Obligations. There are certain risks associated specifically with collateralized mortgage obligations (“CMOs”). CMOs are debt obligations collateralized by mortgage loans or mortgage pass-through securities. The average life of CMOs is
determined using mathematical models that incorporate prepayment assumptions and other factors that involve estimates of future economic and market conditions. These
estimates may vary from actual future results, particularly during periods of extreme
market volatility. Further, under certain market conditions, such as those that occurred
in 1994, 2007, 2008 and 2009, the average weighted life of certain CMOs may not accurately reflect the price volatility of such securities. For example, in periods
of supply and demand imbalances in the market for such securities and/or in periods of sharp
interest rate movements, the prices of CMOs may fluctuate to a greater extent than
would be expected from interest rate movements alone. CMOs issued by private entities
are not obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities or by any government agency, although the securities underlying
a CMO may be subject to a guarantee. Therefore, if the collateral securing the CMO,
as well as any third party credit support or guarantees, is insufficient to make payments
when due, the holder could sustain a loss.
• Adjustable Rate Mortgages. Adjustable Rate Mortgages (“ARMs”) contain maximum and minimum rates beyond which the mortgage interest rate may not vary over the lifetime
of the security. In addition, many ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single adjustment period.
Alternatively, certain ARMs contain limitations on changes in the required monthly
payment. In the event that a monthly payment is not sufficient to pay the interest
accruing on an ARM, any excess interest is added to the principal balance of the mortgage loan, which is repaid through future monthly payments. If the monthly payment
for such an instrument exceeds the sum of the interest accrued at the applicable mortgage interest rate and the principal payment required at such point to amortize
the outstanding principal balance over the remaining term of the loan, the excess is used
to reduce the then-outstanding principal balance of the ARM.
In addition, certain ARMs may provide for an initial fixed, below-market or “teaser” interest rate. During this initial fixed-rate period, the payment due from the related mortgagor
may be less than that of a traditional loan. However, after the “teaser” rate expires, the monthly payment required to be made by the mortgagor may increase dramatically when the interest
rate on the mortgage loan adjusts. This increased burden on the mortgagor may increase
the risk of delinquency or default on the mortgage loan and in turn, losses on the
mortgage-backed security into which that loan has been bundled.
• Interest and Principal Only Securities Risk. One type of stripped mortgage-backed security pays to one class all of the interest from the mortgage assets (the interest-only, or “IO” class), while the other class will receive all of the principal (the principal-only, or “PO” class). The yield to maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate
of principal payments may have a material adverse effect on the Fund’s yield to maturity from these securities. If the assets underlying the IO class experience greater than
anticipated prepayments of principal, the Fund may fail to recoup fully, or at all,
its initial investment in these securities. Conversely, PO class securities tend to decline in
value if prepayments are slower than anticipated.
Derivatives Risk. The Fund may utilize a variety of derivative instruments for investment or risk management purposes, such as options, futures contracts, swap agreements and
credit default swaps. Generally derivatives are financial contracts whose value depends on,
or is derived from, the value of an underlying asset, reference rate or index, and may relate
to individual debt or equity instruments, interest rates, currencies or currency exchange
rates and related indexes. Derivatives are subject to a number of risks, such as liquidity
risk, interest rate risk, credit risk and management risk. Derivatives are also subject
to counterparty risk, which is the risk that the other party in the transaction will
not fulfill its contractual obligation. Changes in the credit quality of the companies that serve
as the Fund’s counterparties with respect to its derivative transactions will affect the value of those instruments. By using derivatives that expose the Fund to counterparties, the
Fund assumes the risk that its counterparties could experience financial hardships that
could call into question their continued ability to perform their obligations. In addition, in
the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction
would typically be terminated at its fair market value. If the Fund is owed this fair
market value in the termination of the derivative transaction and its claim is unsecured,
the Fund will be treated as a general creditor of such counterparty, and will not have any
claim with respect to the underlying security. As a result, concentrations of such derivatives
in any one counterparty would subject the Fund to an additional degree of risk with respect to
defaults by such counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in the value of a derivative may not correlate perfectly
with an underlying asset, interest rate or index. Suitable derivative transactions may not
be available in all circumstances and there can be no assurance that the Fund will engage
in these transactions to reduce exposure to other risks when that would be beneficial.
If the Fund invests in a derivative instrument, it could lose more than the principal amount
invested. Derivative instruments can be illiquid, may disproportionately increase
losses and may have a potentially large impact on the Fund’s performance.
Registered investment companies are subject to regulatory limitations on their use
of derivative investments and certain financing transactions (e.g. reverse repurchase
agreements) by registered investment companies. Among other things, Rule 18f-4 requires
funds that invest in derivative instruments beyond a specified limited amount to apply
a value at risk (VaR) based limit to their use of certain derivative instruments and
financing transactions and to adopt and implement a derivatives risk management program. A fund
that uses derivative instruments in a limited amount is not subject to the full requirements
of Rule 18f-4. Compliance with Rule 18f-4 by the Fund could, among other things, make
derivatives more costly, limit their availability or utility, or otherwise adversely
affect their performance. Rule 18f-4 may limit the Fund’s ability to use derivatives as part of its investment strategy and may not work as intended to limit losses from derivatives.
Risks of Futures and Options on Futures. The use by the Fund of futures contracts and options on futures contracts to hedge interest rate risks involves special considerations
and risks, as described below.
• Successful use of hedging transactions depends upon Western Asset’s ability to correctly predict the direction of changes in interest rates. There can be no assurance that
any particular hedging strategy will succeed.
• There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates
being hedged. Such a lack of correlation might occur due to factors unrelated to the interest
rates being hedged, such as market liquidity and speculative or other pressures on
the markets in which the hedging instrument is traded.
• Hedging strategies, if successful, can reduce risk of loss by wholly or partially
offsetting the negative effect of unfavorable movements in the interest rates being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable movements in the hedged interest rates.
• There is no assurance that a liquid secondary market will exist for any particular
futures contract or option thereon at any particular time. If the Fund were unable to liquidate
a futures contract or an option on a futures contract position due to the absence of
a liquid secondary market or the imposition of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk with respect to the position.
• There is no assurance that the Fund will use hedging transactions. For example, if
the Fund determines that the cost of hedging will exceed the potential benefit to the
Fund, the Fund will not enter into such transactions.
Risks of Futures and Options on Futures. The use by the Fund of futures contracts and options on futures contracts to hedge interest rate risks involves special considerations
and risks, as described below.
• Successful use of hedging transactions depends upon Western Asset’s ability to correctly predict the direction of changes in interest rates. There can be no assurance that
any particular hedging strategy will succeed.
• There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates
being hedged. Such a lack of correlation might occur due to factors unrelated to the interest
rates being hedged, such as market liquidity and speculative or other pressures on
the markets in which the hedging instrument is traded.
• Hedging strategies, if successful, can reduce risk of loss by wholly or partially
offsetting the negative effect of unfavorable movements in the interest rates being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable movements in the hedged interest rates.
• There is no assurance that a liquid secondary market will exist for any particular
futures contract or option thereon at any particular time. If the Fund were unable to liquidate
a futures contract or an option on a futures contract position due to the absence of
a liquid secondary market or the imposition of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk with respect to the position.
• There is no assurance that the Fund will use hedging transactions. For example, if
the Fund determines that the cost of hedging will exceed the potential benefit to the
Fund, the Fund will not enter into such transactions.
Credit Default Swap Risk. The Fund may invest in credit default swap transactions for hedging or investment purposes. Credit default swap agreements involve greater risks
than if the Fund had invested in the reference obligation directly since, in addition to
general market risks, credit default swaps are subject to illiquidity risk, counterparty risk
and credit risk. The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract, provided that no event of default
on an underlying reference obligation has occurred. If an event of default occurs, the seller
must pay the buyer the full notional value, or “par value,” of the reference obligation through either physical settlement or cash settlement. The Fund may be either the buyer or
seller in a credit default swap transaction. If the Fund is a buyer and no event of default
occurs, the Fund will have made a series of periodic payments and recover nothing of monetary
value. However, if an event of default occurs, the Fund (if the buyer) will receive the full
notional value of the reference obligation either through a cash payment in exchange for the
asset or a cash payment in addition to owning the reference assets. As a seller, the Fund receives
a fixed rate of income throughout the term of the contract, which typically is between
six months and five years, provided that there is no event of default. The sale of a credit
default swap is a form of leverage. The Fund currently segregates assets on the Fund’s
records in the form of cash, cash equivalents or liquid securities in an amount equal
to the notional value of the credit default swaps of which it is the seller or otherwise
covers such obligations. If such assets are not fully segregated or otherwise covered by the Fund,
the use of credit default swap transactions could then be considered senior securities
for purposes of the 1940 Act. Recent market developments related to credit default swaps
have prompted increased scrutiny with respect to these instruments. As a result of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, credit default swaps may in the future be subject to increased regulation. Such regulation may limit the Fund’s ability to use credit default swaps. Although the Fund will seek to realize gains by writing credit
default swaps that increase in value, to realize gains on writing credit default swaps, an
active secondary market for such instruments must exist or the Fund must otherwise be able
to close out these transactions at advantageous times. If no such secondary market exists
or the Fund is otherwise unable to close out these transactions at advantageous times,
writing credit default swaps may not be profitable for the Fund.
The market for credit default swaps has become more volatile in recent years as the
creditworthiness of certain counterparties has been questioned and/or downgraded.
If a counterparty’s credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that the Fund may not receive adequate
collateral. The Fund may exit its obligations under a credit default swap only by
terminating the contract and paying applicable breakage fees, or by entering into an offsetting
credit default swap position, which may cause the Fund to incur more losses.
Repurchase Agreements Risk. Subject to its investment objective and policies, the Fund may invest in repurchase agreements for leverage or investment purposes. Repurchase
agreements typically involve the acquisition by the Fund of debt securities from a
selling financial institution such as a bank, savings and loan association or broker-dealer.
The agreement provides that the Fund will sell the securities back to the institution
at a fixed time in the future. The Fund does not bear the risk of a decline in the value of the
underlying security unless the seller defaults under its repurchase obligation. In the event
of the bankruptcy or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and losses, including
(1) possible decline in the value of the underlying security during the period in which
the Fund seeks to enforce its rights thereto; (2) possible lack of access to income on the
underlying security during this period; and (3) expenses of enforcing its rights. While repurchase
agreements involve certain risks not associated with direct investments in debt securities,
the Fund follows procedures approved by the Fund’s Board of Directors that are designed to minimize such risks. These procedures include effecting repurchase transactions only
with large, well-capitalized and well-established financial institutions whose financial
condition will be continually monitored by Western Asset. In addition, as described above, the
value of the collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase agreement.
In the event of a default or bankruptcy by a selling financial institution, the Fund
generally will seek to liquidate such collateral. However, the exercise of the Fund’s right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds
from any sale upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss.
Reverse Repurchase Agreements Risk. The Fund’s use of reverse repurchase agreements involves many of the same risks involved in the Fund’s use of leverage, as the proceeds from reverse repurchase agreements generally will be invested in additional securities.
There is a risk that the market value of the securities acquired in the reverse repurchase
agreement may decline below the price of the securities that the Fund has sold but remains obligated
to repurchase. In addition, there is a risk that the market value of the securities
retained by the Fund may decline. If the buyer of securities under a reverse repurchase agreement
were to file for bankruptcy or experience insolvency, the Fund may be adversely affected.
Also, in entering into reverse repurchase agreements, the Fund would bear the risk of loss
to the extent that the proceeds of the reverse repurchase agreement are less than the value
of the underlying securities. In addition, due to the interest costs associated with reverse
repurchase agreements transactions, the Fund’s net asset value will decline, and, in some cases, the Fund may be worse off than if it had not used such instruments.
Senior Loans Risk. The Fund may invest in first lien senior secured loans (“Senior Loans”) issued by banks, other financial institutions, and other investors to corporations,
partnerships, limited liability companies and other entities to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings and,
to a lesser extent, for general operating and other purposes. An investment in Senior Loans
involves risk that the borrowers under Senior Loans may default on their obligations
to pay principal or interest when due. In the event a borrower fails to pay scheduled interest
or principal payments on a Senior Loan held by the Fund, the Fund will experience a reduction
in its income and a decline in the market value of the Senior Loan, which will likely
reduce dividends and lead to a decline in the net asset value of the Fund. If the Fund acquires
a Senior Loan from another lender, for example, by acquiring a participation, the Fund
may also be subject to credit risk with respect to that lender.
The Fund will generally invest in Senior Loans that are secured with specific collateral.
However, there can be no assurance that liquidation of collateral would satisfy the
borrower’s obligation in the event of non-payment or that such collateral could be readily liquidated. In the event of the bankruptcy of a borrower, the Fund could experience
delays and limitations on its ability to realize the benefits of the collateral securing
the Senior Loan. Senior Loans are typically structured as floating rate instruments in which
the interest rate payable on the obligation fluctuates with interest rate changes. As a result,
the yield
on Senior Loans will generally decline in a falling interest rate environment causing
the Fund to experience a reduction in the income it receives from a Senior Loan. Senior
Loans are generally of below investment grade quality and may be unrated at the time of
investment; are generally not registered with the SEC or state securities commissions;
and are generally not listed on any securities exchange. In addition, the amount of public
information available on Senior Loans is generally less extensive than that available
for other types of assets.
Second Lien Loans Risk. Second senior secured lien loans (“Second Lien Loans”) generally are subject to similar risks as those associated with investments in Senior Loans.
Because Second Lien Loans are subordinated or unsecured and thus lower in priority of payment
to Senior Loans, they are subject to the additional risk that the cash flow of the borrower
and property securing the loan or debt, if any, may be insufficient to meet scheduled
payments after giving effect to the senior secured obligations of the borrower. This risk is
generally higher for subordinated unsecured loans or debt, which are not backed by a security
interest in any specific collateral. Second Lien Loans generally have greater price volatility
than Senior Loans and may be less liquid. There is also a possibility that originators
will not be able to sell participations in Second Lien Loans, which would create greater credit
risk exposure for the holders of such loans. Second Lien Loans share the same risks as
other below investment grade securities.
Loan Participations and Assignments Risk. The Fund may invest in participations in loans or assignments of all or a portion of loans from third parties. In connection with purchasing
participations, the Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off
against the borrower, and the Fund may not directly benefit from any collateral supporting
the loan in which it has purchased the participation. As a result, the Fund may be subject
to the credit risk of both the borrower and the lender that is selling the participation.
In the event of the insolvency of the lender selling a participation, the Fund may be treated as
a general creditor of the lender and may not benefit from any set-off between the lender and
the borrower. Certain participations may be structured in a manner designed to avoid purchasers of participations being subject to the credit risk of the lender with respect
to the participation, but even under such a structure, in the event of the lender’s insolvency, the lender’s servicing of the participation may be delayed and the assignability of the participation impaired. The Fund will acquire participations only if the lender interpositioned
between the Fund and the borrower is determined by Western Asset to be creditworthy.
Smaller Company Risk. The general risks associated with income-producing securities are particularly pronounced for securities issued by companies with smaller market capitalizations. These companies may have limited product lines, markets or financial
resources or they may depend on a few key employees. As a result, they may be subject
to
greater levels of credit, market and issuer risk. Securities of smaller companies
may trade less frequently and in lesser volume than more widely held securities and their values
may fluctuate more sharply than other securities. Companies with medium-sized market capitalizations may have risks similar to those of smaller companies.
Management Risk. The Fund is subject to management risk because it is an actively managed investment portfolio. Western Asset, Western Asset Management Company Pte.
Ltd. in Singapore (“Western Singapore”) and Western Asset Management Company Limited in London (“Western Asset London”, together with Western Singapore, the “Non-U.S. Subadvisers” and individually, each a “Non-U.S. Subadviser”) and each individual investment professional may not be successful in selecting the best performing securities
or investment techniques, and the Fund’s performance may lag behind that of similar funds.
Potential Conflicts of Interest Risk. FTFA, Western Asset, the Non-U.S. Subadvisers (together with FTFA and Western Asset, the “Managers”) and the Fund’s investment professionals have interests which may conflict with the interests of the Fund. In
particular, FTFA also manages, and Western Asset serves as subadviser to, another closed-end investment company listed on the NYSE that has an investment objective and investment
strategies that are substantially similar to the Fund. Further, the Managers may at
some time in the future manage and/or advise other investment funds or accounts with the
same investment objective and strategies as the Fund. As a result, the Managers and the Fund’s investment professionals may devote unequal time and attention to the management of
the Fund and those other funds and accounts, and may not be able to formulate as complete
a strategy or identify equally attractive investment opportunities as might be the case
if they were to devote substantially more attention to the management of the Fund. The Managers
and the Fund’s investment professionals may identify a limited investment opportunity that may be suitable for multiple funds and accounts, and the opportunity may be allocated
among these several funds and accounts, which may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally, transaction orders may be aggregated for multiple accounts for purpose of execution, which may cause the price
or brokerage costs to be less favorable to the Fund than if similar transactions were
not being executed concurrently for other accounts. At times, an investment professional may
determine that an investment opportunity may be appropriate for only some accounts
for which he or she exercises investment responsibility, or may decide that certain accounts
should take differing positions with respect to a particular security. In these cases,
the investment professional may place separate transactions for one or more funds or accounts
which may affect the market price of the security or the execution of the transaction,
or both, to the detriment or benefit of one or more other funds and accounts. For example,
an investment professional may determine that it would be in the interest of another
account to sell a security that the Fund holds, potentially resulting in a decrease in the
market value of the security held by the Fund.
Rating Agency Risk. Credit ratings are issued by rating agencies which are private services that provide ratings of the credit quality of debt obligations, including convertible
securities. Ratings assigned by a rating agency are not absolute standards of credit quality and
do not evaluate market risks or the liquidity of securities. Rating agencies may fail to
make timely changes in credit ratings and an issuer’s current financial condition may be better or worse than a rating indicates. In addition, in recent years there have been instances in
which the initial rating assigned by a rating agency to a security failed to take account of
adverse economic developments which subsequently occurred, leading to losses that were not
anticipated based on the initial rating. To the extent that the issuer of a security
pays a rating agency for the analysis of its security, an inherent conflict of interest may
exist that could affect the reliability of the rating. The ratings of a debt security may change
over time. As a result, debt instruments held by the Fund could receive a higher rating
or a lower rating during the period in which they are held. The Fund will not necessarily sell
a security when its rating is reduced below its rating at the time of purchase.
Investments in mortgage-related securities may involve particularly high levels of
risk under current market conditions.
Inflation/Deflation Risk. Inflation risk is the risk that the value of certain assets or income from the Fund’s investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Common Stock and distributions
on the Common Stock can decline. In addition, during any periods of rising inflation,
the dividend rates or borrowing costs associated with the Fund’s use of leverage would likely increase, which would tend to further reduce returns to stockholders. Deflation risk
is the risk that prices throughout the economy decline over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make
issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.
Counterparty Risk. If an issuer or guarantor of a security held by the Fund or a counterparty to a financial contract with the Fund defaults or its credit is downgraded, or is
perceived to be less creditworthy, or if the value of the assets underlying a security declines,
the value of your investment will typically decline. Changes in actual or perceived creditworthiness
may occur quickly. The Fund could be delayed or hindered in its enforcement of rights
against an issuer, guarantor or counterparty. Subordinated securities are more likely to suffer
a credit loss than non-subordinated securities of the same issuer and will be disproportionately
affected by a default, downgrade or perceived decline in creditworthiness.
When-Issued and Delayed-Delivery Transactions Risk. The Fund may purchase fixed income securities on a when-issued basis, and may purchase or sell those securities for delayed
delivery. When-issued and delayed-delivery transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the future
to
secure an advantageous yield or price. Securities purchased on a when-issued or delayed-delivery basis may expose the Fund to counterparty risk of default as well as the risk that
securities may experience fluctuations in value prior to their actual delivery. The
Fund will not accrue income with respect to a when-issued or delayed-delivery security prior
to its stated delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the price or yield available in the market when the
delivery takes place may not be as favorable as that obtained in the transaction itself.
Leverage Risk. The Fund may use leverage through borrowings, including loans from certain financial institutions and/or the issuance of debt securities, and through the issuance
of preferred stock. The Fund may use leverage through borrowings in an aggregate amount
of up to approximately 33 1/3% of the Fund’s total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, “total net assets”) immediately after such borrowings. Furthermore, the Fund may use leverage through the issuance
of preferred stock in an aggregate amount of liquidation preference attributable to the
preferred stock combined with the aggregate amount of any borrowings of up to approximately 50% of the Fund’s total net assets immediately after such issuance. The value of your investment may be more volatile if the Fund borrows or uses instruments,
such as derivatives, that have a leveraging effect on the Fund’s portfolio. The Fund may also have to sell assets at inopportune times to satisfy its obligations created by the
use of leverage or derivatives. The use of leverage is considered to be a speculative investment
practice and may result in the loss of a substantial amount, and possibly all, of the Fund’s assets. In addition, the Fund’s portfolio will be leveraged if it exercises its right to delay payment on a redemption, and losses will result if the value of the Fund’s assets declines between the time a redemption request is deemed to be received by the Fund and the
time the Fund liquidates assets to meet redemption requests.
Portfolio Turnover Risk. The Fund’s annual portfolio turnover rate may vary greatly from year to year. Changes to the investments of the Fund may be made regardless of the length
of time particular investments have been held. A high portfolio turnover rate may result
in increased transaction costs for the Fund in the form of increased dealer spreads and
other transactional costs, which may have an adverse impact on the Fund’s performance. In addition, high portfolio turnover may result in the realization of net short-term
capital gains by the Fund which, when distributed to stockholders, will be taxable as ordinary income.
A high portfolio turnover may increase the Fund’s current and accumulated earnings and profits, resulting in a greater portion of the Fund’s distributions being treated as a dividend to the Fund’s stockholders. The portfolio turnover rate of the Fund will vary from year to year, as well as within a given year.
Temporary Defensive Strategies Risk. When Western Asset anticipates unusual market or other conditions, the Fund may temporarily depart from its principal investment strategies
as a defensive measure and invest all or a portion of its assets in obligations of
the U.S. government, its agencies or instrumentalities; other investment grade debt securities;
investment grade commercial paper; certificates of deposit and bankers’ acceptances; repurchase agreements with respect to any of the foregoing investments or any other
fixed income securities that Western Asset considers consistent with this strategy. To the
extent that the Fund invests defensively, it may not achieve its investment objectives.
Market Price Discount from Net Asset Value Risk. Shares of closed-end investment companies frequently trade at a discount from their net asset value. This risk is
separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment activities and may be a greater risk to investors expecting to sell their
Common Shares in a relatively short period. Whether investors will realize gains or losses
upon the sale of Common Shares will depend not upon the Fund’s net asset value but upon whether the market price of Common Shares at the time of sale is above or below the investor’s purchase price for Common Shares. Because the market price of Common Shares will be
determined by factors such as relative supply of and demand for Common Shares in the
market, general market and economic conditions and other factors beyond the control
of the Fund, the Fund cannot predict whether Common Shares will trade at, above or below
net asset value. The Common Shares are designed primarily for long-term investors and
you should not view the Fund as a vehicle for trading purposes.
Anti-Takeover Provisions. The Fund’s Charter and Bylaws include provisions that are designed to limit the ability of other entities or persons to acquire control of the
Fund for short-term objectives, including by converting the Fund to open-end status or changing
the composition of the Board, that may be detrimental to the Fund’s ability to achieve its primary investment objective. The Fund’s Bylaws also contains a provision providing that the Fund is subject to the provisions of the Maryland Control Share Acquisition Act. There
can be no assurance, however, that such provisions will be sufficient to deter professional
arbitrageurs that seek to cause the Fund to take actions that may not be consistent
with its investment objective or aligned with the interests of long-term shareholders, such
as liquidating debt investments prior to maturity, triggering taxable events for shareholders
and decreasing the size of the Fund. Such provisions may limit the ability of shareholders
to sell their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. There can be no assurance, however, that
such provisions will be sufficient to deter activist investors that seek to cause the Fund
to take actions that may not be aligned with the interests of long-term shareholders.
Market Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to factors such as economic events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or
foreign central banks, market disruptions caused by trade disputes, labor strikes or other
factors,
political developments, armed conflicts, economic sanctions and countermeasures in
response to sanctions, major cybersecurity events, the global and domestic effects
of widespread or local health, weather or climate events, and other factors that may
or may not be related to the issuer of the security or other asset. Economies and financial
markets throughout the world are increasingly interconnected. Economic, financial or political
events, trading and tariff arrangements, public health events, terrorism, wars, natural
disasters and other circumstances in one country or region could have profound impacts
on global economies or markets. As a result, whether or not the fund invests in securities
of issuers located in or with significant exposure to the countries or markets directly
affected, the value and liquidity of the fund’s investments may be negatively affected. Following Russia’s invasion of Ukraine in 2022, Russian stocks lost all, or nearly all, of their market value. Other securities or markets could be similarly affected by past or future geopolitical
or other events or conditions. Furthermore, events involving limited liquidity, defaults,
non-performance or other adverse developments that affect one industry, such as the financial services industry, or concerns or rumors about any events of these kinds, have in
the past and may in the future lead to market-wide liquidity problems, may spread to other
industries, and could negatively affect the value and liquidity of the fund’s investments.
The long-term impact of the COVID-19 pandemic and its subsequent variants on economies,
markets, industries and individual issuers is not known. Some sectors of the economy
and individual issuers have experienced or may experience particularly large losses. Periods
of extreme volatility in the financial markets, reduced liquidity of many instruments,
increased government debt, inflation, and disruptions to supply chains, consumer demand and
employee availability, may continue for some time. The U.S. government and the Federal
Reserve, as well as certain foreign governments and central banks, took extraordinary
actions to support local and global economies and the financial markets in response
to the COVID-19 pandemic. This and other government intervention into the economy and financial
markets may not work as intended, and have resulted in a large expansion of government
deficits and debt, the long term consequences of which are not known. In addition,
the COVID-19 pandemic, and measures taken to mitigate its effects, could result in disruptions
to the services provided to the fund by its service providers.
Raising the ceiling on U.S. government debt has become increasingly politicized. Any
failure to increase the total amount that the U.S. government is authorized to borrow could
lead to a default on U.S. government obligations, with unpredictable consequences for economies
and markets in the U.S. and elsewhere. Recently, inflation and interest rates have
increased and may rise further. These circumstances 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.
The United States and other countries are periodically involved in disputes over trade
and other matters, which may result in tariffs, investment restrictions and adverse impacts
on affected companies and securities. For example, the United States has imposed tariffs
and other trade barriers on Chinese exports, has restricted sales of certain categories
of goods to China, and has established barriers to investments in China. Trade disputes may
adversely affect the economies of the United States and its trading partners, as well
as companies directly or indirectly affected and financial markets generally. The United
States government has prohibited U.S. persons from investing in Chinese companies designated
as related to the Chinese military. These and possible future restrictions could limit the fund’s opportunities for investment and require the sale of securities at a loss or make
them illiquid. Moreover, the Chinese government is involved in a longstanding dispute with
Taiwan that has included threats of invasion. If the political climate between the
United States and China does not improve or continues to deteriorate, if China were
to attempt unification of Taiwan by force, or if other geopolitical conflicts develop
or get worse, economies, markets and individual securities may be severely affected both
regionally and globally, and the value of the fund’s assets may go down.
Valuation Risk. The sales price the Fund could receive for any particular portfolio investment may differ from the Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair value methodology. These
differences may increase significantly and affect Fund investments more broadly during
periods of market volatility. The Fund’s ability to value its investments may be impacted by technological issues and/or errors by pricing services or other third party service
providers. The valuation of the Fund’s investments involves subjective judgment.
Operational Risk. The valuation of the Fund’s investments may be negatively impacted because of the operational risks arising from factors such as processing errors and
human errors, inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third party service providers
or trading counterparties. It is not possible to identify all of the operational risks
that may affect the Fund or to develop processes and controls that completely eliminate or
mitigate the occurrence of such failures. The Fund and its shareholders could be negatively
impacted as a result.
Cybersecurity Risk. Like other funds and business enterprises, the fund, the manager, the subadvisers, Authorized Participants, the relevant listing exchange and their service
providers are subject to the risk of cyber incidents occurring from time to time.
Cybersecurity incidents, whether intentionally caused by third parties or otherwise,
may allow an unauthorized party to gain access to fund assets, fund or customer data (including
private shareholder information) or proprietary information, cause the fund, the manager,
the subadvisers, Authorized Participants, the relevant listing exchange and/or their
service
providers (including, but not limited to, fund accountants, custodians, sub-custodians,
transfer agents and financial intermediaries) to suffer data breaches, data corruption
or loss of operational functionality, or prevent fund investors from purchasing, redeeming
or exchanging shares, receiving distributions or receiving timely information regarding
the fund or their investment in the fund. The fund, the manager, and the subadvisers have
limited ability to prevent or mitigate cybersecurity incidents affecting third party
service providers, and such third party service providers may have limited indemnification
obligations to the fund, the manager, and/or the subadvisers. Cybersecurity incidents
may result in financial losses to the fund and its shareholders, and substantial costs
may be incurred in order to prevent or mitigate any future cybersecurity incidents. Issuers
of securities in which the fund invests are also subject to cybersecurity risks, and
the value of these securities could decline if the issuers experience cybersecurity incidents.
New ways to carry out cyber attacks continue to develop. There is a chance that some
risks have not been identified or prepared for, or that an attack may not be detected, which
puts limitations on the fund’s ability to plan for or respond to a cyber attack.
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Share Price [Table Text Block] |
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Market Price and Net Asset Valuation (NAV) Information
The Fund’s Common Stock is traded on the NYSE under the symbol “EHI”. The below table details for the period indicated the high and low closing market prices, the NAV,
and premium to or discount from NAV, on the date of each of the high and low market prices.
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Quarterly Closing
Market Price
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Quarterly Closing
NAV Price per Common share
on Date of Market Price
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Quarterly Closing
Premium/(Discount)
on Date of Market Price
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Source of market prices: NYSE.
The NAV per Common Share on May 31, 2024 was $7.17 and the market price per Common
Stock at the close of business on May 31, 2024 was $6.96, representing a 2.93% discount
from such net asset value. As of May 31, 2024, the Fund has 22,724,807 outstanding
shares of Common Stock.
Shares of a closed-end investment company may frequently trade at prices lower than
NAV. The Fund’s Common Stock has traded in the market below, at and above net asset value since the commencement of the Fund’s operations. However, it has recently been the case that the Fund’s Common Stock has traded at a discount from NAV. The Fund cannot determine the reasons why the Fund’s Common Stock trades at a premium to or discount from NAV, nor can the Fund predict whether its Stock will trade in the future at a
premium to or discount from NAV, or the level of any premium or discount. The Board regularly
monitors the relationship between the market price and NAV of the Common Stock. If
the Common Stock were to trade at a substantial discount to NAV for an extended period
of time, the Board may consider the repurchase of the Fund’s Common Stock on the open market, the making of a tender offer for such shares or other programs intended to
reduce the discount. The Fund cannot assure you that its Board will decide to take or propose
any of these actions, or that share repurchases or tender offers will actually reduce
market discount.
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Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
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Document Period End Date |
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May 31, 2024
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Fixed Income Securities Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Fixed Income Securities Risk. In addition to the risks described elsewhere in this section with respect to valuations and liquidity, fixed income securities, including high-yield
securities, are also subject to certain risks, including:
• Issuer Risk. The value of fixed income securities may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage
and reduced demand for the issuer’s goods and services.
• Interest Rate Risk. The market price of the Fund’s investments will change in response to changes in interest rates and other factors. During periods of declining interest
rates, the market price of fixed income securities generally rises. Conversely, during periods
of rising interest rates, the market price of such securities generally declines. The
magnitude of these fluctuations in the market price of fixed income securities is
generally greater for securities with longer maturities. Fluctuations in the market price of the Fund’s securities will not affect interest income derived from securities already owned by
the Fund, but will be reflected in the Fund’s net asset value. The Fund may utilize certain strategies, including investments in structured notes or interest rate swap or cap
transactions, for the purpose of reducing the interest rate sensitivity of the portfolio
and decreasing the Fund’s exposure to interest rate risk, although there is no assurance that it will do so or that such strategies will be successful.
• Prepayment Risk. During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to
reinvest the proceeds from such prepayment in lower yielding securities, which may result in
a decline in the Fund’s income and distributions to stockholders. This is known as prepayment or “call” risk. Debt securities frequently have call features that allow the issuer to redeem the security at dates prior to its stated maturity at a specified
price (typically greater than par) only if certain prescribed conditions are met. An issuer
may choose to redeem a debt security if, for example, the issuer can refinance the debt
at a lower cost due to declining interest rates or an improvement in the credit standing
of the issuer.
• Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called fixed
income securities at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the market price of Common Shares or overall
returns.
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Below Investment Grade Securities Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Below Investment Grade (High-Yield or Junk Bond) Securities Risk. The Fund may invest in high-yield debt securities. Debt securities rated below investment grade are commonly
referred to as “high-yield” securities or “junk bonds” and are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations and involve
major risk exposure to adverse conditions. Debt securities rated C or lower by Moody’s, CCC or lower by S&P or CC or lower by Fitch or comparably rated by another nationally
recognized statistical rating organization (“NRSRO”) or, if unrated, determined by Western Asset to be of comparable quality are considered to have extremely poor prospects
of ever attaining any real investment standing, to have a current identifiable vulnerability
to default, to be unlikely to have the capacity to pay interest and repay principal when
due in the event of adverse business, financial or economic conditions and/or to be in default
or not current in the payment of interest or principal. Ratings may not accurately reflect
the actual credit risk associated with a corporate security. Debt securities rated below investment grade generally offer a higher current yield
than that available from higher grade issues, but typically involve greater risk. These
securities are especially sensitive to adverse changes in general economic conditions, to changes
in the financial condition of their issuers and to price fluctuation in response to changes
in interest rates. During periods of economic downturn or rising interest rates, issuers
of below investment grade instruments may experience financial stress that could adversely
affect their ability to make payments of principal and interest and increase the possibility
of default. The secondary market for high-yield securities may not be as liquid as the
secondary market for more highly rated securities, a factor which may have an adverse
effect on the Fund’s ability to dispose of a particular security. There are fewer dealers in the market for high-yield securities than for investment grade obligations. The prices
quoted by different dealers may vary significantly, and the spread between the bid and asked
price is generally much larger for high-yield securities than for higher quality instruments.
Under continuing adverse market or economic conditions, the secondary market for high-yield
securities could contract further, independent of any specific adverse changes in
the condition of a particular issuer, and these securities may become illiquid. In addition,
adverse publicity and investor perceptions, whether or not based on fundamental analysis,
may also decrease the values and liquidity of below investment grade securities, especially
in a market characterized by a low volume of trading.
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Foreign Securities and Emerging Markets Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Foreign Securities and Emerging Markets Risk. The Fund’s investments in securities of foreign issuers or issuers with significant exposure to foreign markets involve additional
risk as compared to investment in U.S. securities or issuers with predominantly domestic
exposure, such as less liquid, less regulated, less transparent and more volatile
markets. The markets for some foreign securities are relatively new, and the rules and policies
relating to these markets are not fully developed and may change. The value of the Fund’s investments may decline because of factors affecting the particular issuer as well
as foreign markets and issuers generally, such as unfavorable or unsuccessful government
actions, tariffs and tax disputes, reduction of government or central bank support,
inadequate accounting standards, lack of information and political, economic, financial
or social instability. Foreign investments may also be adversely affected by U.S. government
or international economic sanctions, which could eliminate the value of an investment.
To the extent the Fund focuses its investments in a single country or only a few countries
in a particular geographic region, economic, political, regulatory or other conditions
affecting such country or region may have a greater impact on Fund performance relative to a
more geographically diversified fund. The risks of foreign investment are greater for investments in emerging markets. “Emerging market country” is defined as any country which is, at the time of investment, it is (i) represented in the J.P. Morgan Emerging Markets Bond Index Global Diversified or the
J.P. Morgan Corporate Emerging Market Bond Index Broad or (ii) categorized by the World
Bank in its annual categorization as middle- or low-income. Emerging market countries typically
have economic and political systems that are less fully developed, and that can be
expected to be less stable, than those of more advanced countries. Low trading volumes may
result in a lack of liquidity and in price volatility. Emerging market countries may have policies
that restrict investment by foreigners, that require governmental approval prior to investments
by foreign persons, or that prevent foreign investors from withdrawing their money
at will. An investment in emerging market securities should be considered speculative.
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Non-U.S. Government or Sovereign Debt Securities Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Non-U.S. Government, or Sovereign, Debt Securities Risk. The Fund invests in non-U.S. government, or sovereign, debt securities. The ability of a government issuer, especially
in an emerging market country, to make timely and complete payments on its debt obligations
will be strongly influenced by the government issuer’s balance of payments, including export performance, its access to international credits and investments, fluctuations
of interest rates and the extent of its foreign reserves. A country whose exports are
concentrated in a few commodities or whose economy depends on certain strategic imports
could be vulnerable to fluctuations in international prices of these commodities or
imports. To the extent that a country receives payment for its exports in currencies other
than U.S. dollars, its ability to make debt payments denominated in U.S. dollars could be adversely
affected. If a government issuer cannot generate sufficient earnings from foreign
trade to service its external debt, it may need to depend on continuing loans and aid from
foreign governments, commercial banks, and multinational organizations. There are no bankruptcy
proceedings similar to those in the United States by which defaulted non-U.S. government
debt may be collected. Additional factors that may influence a government issuer’s ability or willingness to service debt include, but are not limited to, a country’s cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the
relative size of its debt service burden to the economy as a whole, and the issuer’s policy towards the International Monetary Fund, the International Bank for Reconstruction and Development
and other international agencies to which a government debtor may be subject.
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Foreign Currency Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Foreign Currency Risk. The value of investments denominated in foreign currencies increases or decreases as the rates of exchange between those currencies and the U.S.
dollar change. Currency conversion costs and currency fluctuations could erase investment
gains or add to investment losses. Currency exchange rates can be volatile, and are
affected by factors such as general economic conditions, the actions of the U.S. and
foreign governments or central banks, the imposition of currency controls and speculation.
The Fund may be unable or may choose not to hedge its foreign currency exposure.
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Liquidity Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Liquidity Risk. The Fund may invest in illiquid securities. Illiquid securities are securities that
cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities. Liquidity risk
exists when particular investments are difficult to sell. Securities may become illiquid
after purchase by the Fund, particularly during periods of market turmoil. When the Fund
holds illiquid investments, the portfolio may be harder to value, especially in changing
markets, and if the Fund is forced to sell these investments in order to segregate assets or
for other cash needs, the Fund may suffer a loss.
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Common Stock Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Common Stock Risk. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. In addition, the
prices of common stocks are sensitive to general movements in the stock market, and a drop in
the stock market may depress the prices of common stocks to which the Fund has exposure.
Common stock prices fluctuate for several reasons including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the
relevant stock market, or when political or economic events affecting an issuer occur. In addition,
common stock prices may be particularly sensitive to rising interest rates, as the
cost of capital rises and borrowing costs increase. The value of the common stocks in which
the Fund may invest will be affected by changes in the stock markets generally, which
may be the result of domestic or international political or economic news, changes in interest
rates or changing investor sentiment. At times, stock markets can be volatile and stock
prices can change substantially. The common stocks of smaller companies are more sensitive to
these changes than those of larger companies. Common stock risk will affect the Fund’s net asset value per share, which will fluctuate as the value of the securities held by the Fund
change.
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Preferred Stock Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Preferred Stock Risk. Generally, the Fund has a greater flexibility to invest in equity securities. Preferred stocks are unique securities that combine some of the characteristics
of both common stocks and bonds. Preferred stocks generally pay a fixed rate of return
and are sold on the basis of current yield, like bonds. However, because they are equity
securities, preferred stock provides equity ownership of a company, and the income
is paid in the form of dividends. Preferred stocks typically have a yield advantage over common
stocks as well as comparably-rated fixed income investments. Preferred stocks are
typically subordinated to bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject to greater credit risk
than those debt instruments. Unlike interest payments on debt securities, preferred stock
dividends are payable only if declared by the issuer’s board of directors. Preferred stocks also may be subject to optional or mandatory redemption provisions.
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Convertible Securities Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Convertible Securities Risk. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount
of common stock or other equity security of the same or a different issuer within a particular
period of time at a specified price or formula. Before conversion, convertible securities
have characteristics similar to nonconvertible income securities in that they ordinarily
provide a stable stream of income with generally higher yields than those of common stocks of
the same or similar issuers, but lower yields than comparable nonconvertible securities.
Similar to traditional fixed income securities, the market values of convertible securities
tend to decline as interest rates increase and, conversely, to increase as interest rates
decline. However, when the market price of the common stock underlying a convertible security
exceeds the conversion price, the convertible security tends to reflect the market
price of the underlying common stock. As the market price of the underlying common stock declines,
the convertible security tends to trade increasingly on a yield basis and thus may
not decline in price to the same extent as the underlying common stock. The credit standing
of the issuer and other factors also may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible
securities may be subject to redemption at the option of the issuer at a price established in
the convertible security’s governing instrument.
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Risks of Warrants and Rights [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Risks of Warrants and Rights. Warrants and rights are subject to the same market risks as stocks, but may be more volatile in price. Warrants and rights do not carry the right
to dividends or voting rights with respect to their underlying securities, and they do
not represent any rights in the assets of the issuer. An investment in warrants or rights
may be considered speculative. In addition, the value of a warrant or right does not necessarily
change with the value of the underlying security and a warrant or right ceases to
have value if it is not exercised prior to its expiration date. The purchase of warrants or rights
involves the risk that the Fund could lose the purchase value of a warrant or right if the
right to subscribe to additional shares is not exercised prior to the warrants’ or rights’ expiration. Also, the purchase of warrants and rights involves the risk that the effective price
paid for the warrant or right added to the subscription price of the related security may exceed
the value of the subscribed security’s market price such as when there is no movement in the price of the underlying security.
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REITs Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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REITs Risk. Investing in REITs involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. An equity or hybrid
REIT may be affected by changes in the value of the underlying properties owned by the
REIT. A mortgage or hybrid REIT may be affected by changes in interest rates and the ability
of the issuers of its portfolio mortgages to repay their obligations. Mortgage and hybrid
REITs are subject to the risks of accelerated prepayments of mortgage pools or pass-through
securities, reliance on short-term financing and more highly leveraged capital structures.
REITs are dependent upon the skills of their managers and are not diversified. REITs are generally dependent upon maintaining cash flows to repay borrowings and
to make distributions to stockholders and are subject to the risk of default by lessees
and borrowers. REITs whose underlying assets are concentrated in properties used by a
particular industry, such as healthcare, are also subject to industry related risks.
Certain “special purpose” REITs may invest their assets in specific real estate sectors, such as hotels, nursing homes or warehouses, and are therefore subject to the risks associated
with adverse developments in any such sectors. REITs are subject to management fees and other expenses. Therefore, investments in
REITs will cause CRO to bear its proportionate share of the costs of the REITs’ operations. At the same time, CRO will continue to pay its own management fees and expenses with respect
to all of its assets, including any portion invested in REITs.
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Mortgage-Backed and Asset-Backed Securities Risks [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Mortgage-Backed and Asset-Backed Securities Risks. Mortgage-backed securities include, among other things, participation interests in pools of residential mortgage loans
purchased from individual lenders by a federal agency or originated and issued by private lenders
and involve, among others, the following risks:
• Credit and Market Risks of Mortgage-Backed Securities. Investments by the Fund in fixed rate and floating rate mortgage-backed securities will entail credit risks (i.e.,
the risk of non-payment of interest and principal) and market risks (i.e., the risk that interest
rates and other factors could cause the value of the instrument to decline). Many issuers
or servicers of mortgage-backed securities may guarantee timely payment of interest and
principal on the securities, whether or not payments are made when due on the underlying mortgages. This kind of guarantee generally increases the quality of a
security, but does not mean that the security’s market value and yield will not change. The value of all mortgage-backed securities also may change because of changes in the market’s perception of the creditworthiness of the organization that issues or guarantees them.
In addition, an unexpectedly high rate of defaults on the mortgages held by a mortgage
pool may limit substantially the pool’s ability to make payments of principal or interest to the Fund as a holder of such securities, reducing the values of those securities or in
some cases rendering them worthless. The Fund also may purchase securities that are not
guaranteed or subject to any credit support.
Like bond investments, the value of fixed rate mortgage-backed securities will tend
to rise when interest rates fall, and fall when rates rise. Floating rate mortgage-backed
securities will generally tend to have more moderate changes in price when interest rates rise
or fall, but their current yield will be affected.
In addition, the mortgage-backed securities market in general may be adversely affected
by changes in governmental legislation or regulation. Factors that could affect the value
of a mortgage-backed security include, among other things, the types and amounts of insurance
which an individual mortgage or specific mortgage-backed security carries, the default
and delinquency rate of the mortgage pool, the amount of time the mortgage loan has been
outstanding, the loan-to-value ratio of each mortgage and the amount of overcollateralization or undercollateralization of the mortgage pool.
Asset-backed securities represent participation in, or are secured by and payable
from, assets such as installment sales or loan contracts, leases, credit card receivables,
and other categories of receivables. Certain debt instruments may only pay principal at maturity
or may only represent the right to receive payments of principal or payments of interest
on underlying pools or mortgages, assets, or government securities, but not both. The
value of these types of instruments may change more drastically than debt securities that pay
both principal and interest. The Fund may obtain a below market yield or incur a loss on
such instruments during periods of declining interest rates. Principal only and interest
only instruments are subject to extension risk. For mortgage derivatives and structured
securities that have imbedded leverage features, small changes in interest or prepayment rates
may cause large and sudden price movements. Mortgage derivatives can also become illiquid
and hard to value in declining markets.
• Prepayment, Extension and Redemption Risks of Mortgage-Backed Securities. Mortgage-backed securities may reflect an interest in monthly payments made by the borrowers who receive the underlying mortgage loans. Although the underlying mortgage loans
are for specified periods of time, such as 20 or 30 years, the borrowers can, and historically
have, paid them off sooner. When a prepayment happens, a portion of the mortgage-backed security which represents an interest in the underlying mortgage loan will be prepaid. A borrower is more likely to prepay a mortgage which bears a relatively high
rate of interest. This means that in times of declining interest rates, a portion of the Fund’s higher yielding securities are likely to be redeemed and the Fund will probably be
unable to replace them with securities having as great a yield. Prepayments can result in
lower yields to stockholders. The increased likelihood of prepayment when interest rates
decline also limits market price appreciation of mortgage-backed securities. This
is known as prepayment risk. Mortgage-backed securities also are subject to extension
risk. Extension risk is the possibility that rising interest rates may cause prepayments
to occur at a slower than expected rate. This particular risk may effectively change a security
which was considered short or intermediate term into a long-term security. The values
of long-term securities generally fluctuate more widely in response to changes in interest
rates than short or intermediate-term securities. In addition, a mortgage-backed security
may be subject to redemption at the option of the issuer. If a mortgage-backed security
held by the Fund is called for redemption, the Fund will be required to permit the
issuer to redeem or “pay-off” the security, which could have an adverse effect on the Fund’s ability to achieve its investment objective.
• Liquidity Risk of Mortgage-Backed Securities. The liquidity of mortgage-backed securities varies by type of security; at certain times the Fund may encounter difficulty in
disposing of such investments. Because mortgage-backed securities have the potential to be less
liquid than other securities, the Fund may be more susceptible to liquidity risks
than funds
that invest in other securities. In the past, in stressed markets, certain types of
mortgage-backed securities suffered periods of illiquidity when disfavored by the market.
• Collateralized Mortgage Obligations. There are certain risks associated specifically with collateralized mortgage obligations (“CMOs”). CMOs are debt obligations collateralized by mortgage loans or mortgage pass-through securities. The average life of CMOs is
determined using mathematical models that incorporate prepayment assumptions and other factors that involve estimates of future economic and market conditions. These
estimates may vary from actual future results, particularly during periods of extreme
market volatility. Further, under certain market conditions, such as those that occurred
in 1994, 2007, 2008 and 2009, the average weighted life of certain CMOs may not accurately reflect the price volatility of such securities. For example, in periods
of supply and demand imbalances in the market for such securities and/or in periods of sharp
interest rate movements, the prices of CMOs may fluctuate to a greater extent than
would be expected from interest rate movements alone. CMOs issued by private entities
are not obligations issued or guaranteed by the United States Government, its agencies
or instrumentalities or by any government agency, although the securities underlying
a CMO may be subject to a guarantee. Therefore, if the collateral securing the CMO,
as well as any third party credit support or guarantees, is insufficient to make payments
when due, the holder could sustain a loss.
• Adjustable Rate Mortgages. Adjustable Rate Mortgages (“ARMs”) contain maximum and minimum rates beyond which the mortgage interest rate may not vary over the lifetime
of the security. In addition, many ARMs provide for additional limitations on the maximum
amount by which the mortgage interest rate may adjust for any single adjustment period.
Alternatively, certain ARMs contain limitations on changes in the required monthly
payment. In the event that a monthly payment is not sufficient to pay the interest
accruing on an ARM, any excess interest is added to the principal balance of the mortgage loan, which is repaid through future monthly payments. If the monthly payment
for such an instrument exceeds the sum of the interest accrued at the applicable mortgage interest rate and the principal payment required at such point to amortize
the outstanding principal balance over the remaining term of the loan, the excess is used
to reduce the then-outstanding principal balance of the ARM.
In addition, certain ARMs may provide for an initial fixed, below-market or “teaser” interest rate. During this initial fixed-rate period, the payment due from the related mortgagor
may be less than that of a traditional loan. However, after the “teaser” rate expires, the monthly payment required to be made by the mortgagor may increase dramatically when the interest
rate on the mortgage loan adjusts. This increased burden on the mortgagor may increase
the risk of delinquency or default on the mortgage loan and in turn, losses on the
mortgage-backed security into which that loan has been bundled.
• Interest and Principal Only Securities Risk. One type of stripped mortgage-backed security pays to one class all of the interest from the mortgage assets (the interest-only, or “IO” class), while the other class will receive all of the principal (the principal-only, or “PO” class). The yield to maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate
of principal payments may have a material adverse effect on the Fund’s yield to maturity from these securities. If the assets underlying the IO class experience greater than
anticipated prepayments of principal, the Fund may fail to recoup fully, or at all,
its initial investment in these securities. Conversely, PO class securities tend to decline in
value if prepayments are slower than anticipated.
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Risks of Futures and Options on Futures [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Risks of Futures and Options on Futures. The use by the Fund of futures contracts and options on futures contracts to hedge interest rate risks involves special considerations
and risks, as described below.
• Successful use of hedging transactions depends upon Western Asset’s ability to correctly predict the direction of changes in interest rates. There can be no assurance that
any particular hedging strategy will succeed.
• There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates
being hedged. Such a lack of correlation might occur due to factors unrelated to the interest
rates being hedged, such as market liquidity and speculative or other pressures on
the markets in which the hedging instrument is traded.
• Hedging strategies, if successful, can reduce risk of loss by wholly or partially
offsetting the negative effect of unfavorable movements in the interest rates being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable movements in the hedged interest rates.
• There is no assurance that a liquid secondary market will exist for any particular
futures contract or option thereon at any particular time. If the Fund were unable to liquidate
a futures contract or an option on a futures contract position due to the absence of
a liquid secondary market or the imposition of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk with respect to the position.
• There is no assurance that the Fund will use hedging transactions. For example, if
the Fund determines that the cost of hedging will exceed the potential benefit to the
Fund, the Fund will not enter into such transactions.
Risks of Futures and Options on Futures. The use by the Fund of futures contracts and options on futures contracts to hedge interest rate risks involves special considerations
and risks, as described below.
• Successful use of hedging transactions depends upon Western Asset’s ability to correctly predict the direction of changes in interest rates. There can be no assurance that
any particular hedging strategy will succeed.
• There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates
being hedged. Such a lack of correlation might occur due to factors unrelated to the interest
rates being hedged, such as market liquidity and speculative or other pressures on
the markets in which the hedging instrument is traded.
• Hedging strategies, if successful, can reduce risk of loss by wholly or partially
offsetting the negative effect of unfavorable movements in the interest rates being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable movements in the hedged interest rates.
• There is no assurance that a liquid secondary market will exist for any particular
futures contract or option thereon at any particular time. If the Fund were unable to liquidate
a futures contract or an option on a futures contract position due to the absence of
a liquid secondary market or the imposition of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk with respect to the position.
• There is no assurance that the Fund will use hedging transactions. For example, if
the Fund determines that the cost of hedging will exceed the potential benefit to the
Fund, the Fund will not enter into such transactions.
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Derivatives Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Derivatives Risk. The Fund may utilize a variety of derivative instruments for investment or risk management purposes, such as options, futures contracts, swap agreements and
credit default swaps. Generally derivatives are financial contracts whose value depends on,
or is derived from, the value of an underlying asset, reference rate or index, and may relate
to individual debt or equity instruments, interest rates, currencies or currency exchange
rates and related indexes. Derivatives are subject to a number of risks, such as liquidity
risk, interest rate risk, credit risk and management risk. Derivatives are also subject
to counterparty risk, which is the risk that the other party in the transaction will
not fulfill its contractual obligation. Changes in the credit quality of the companies that serve
as the Fund’s counterparties with respect to its derivative transactions will affect the value of those instruments. By using derivatives that expose the Fund to counterparties, the
Fund assumes the risk that its counterparties could experience financial hardships that
could call into question their continued ability to perform their obligations. In addition, in
the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction
would typically be terminated at its fair market value. If the Fund is owed this fair
market value in the termination of the derivative transaction and its claim is unsecured,
the Fund will be treated as a general creditor of such counterparty, and will not have any
claim with respect to the underlying security. As a result, concentrations of such derivatives
in any one counterparty would subject the Fund to an additional degree of risk with respect to
defaults by such counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in the value of a derivative may not correlate perfectly
with an underlying asset, interest rate or index. Suitable derivative transactions may not
be available in all circumstances and there can be no assurance that the Fund will engage
in these transactions to reduce exposure to other risks when that would be beneficial.
If the Fund invests in a derivative instrument, it could lose more than the principal amount
invested. Derivative instruments can be illiquid, may disproportionately increase
losses and may have a potentially large impact on the Fund’s performance. Registered investment companies are subject to regulatory limitations on their use
of derivative investments and certain financing transactions (e.g. reverse repurchase
agreements) by registered investment companies. Among other things, Rule 18f-4 requires
funds that invest in derivative instruments beyond a specified limited amount to apply
a value at risk (VaR) based limit to their use of certain derivative instruments and
financing transactions and to adopt and implement a derivatives risk management program. A fund
that uses derivative instruments in a limited amount is not subject to the full requirements
of Rule 18f-4. Compliance with Rule 18f-4 by the Fund could, among other things, make
derivatives more costly, limit their availability or utility, or otherwise adversely
affect their performance. Rule 18f-4 may limit the Fund’s ability to use derivatives as part of its investment strategy and may not work as intended to limit losses from derivatives.
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Credit Default Swap Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Credit Default Swap Risk. The Fund may invest in credit default swap transactions for hedging or investment purposes. Credit default swap agreements involve greater risks
than if the Fund had invested in the reference obligation directly since, in addition to
general market risks, credit default swaps are subject to illiquidity risk, counterparty risk
and credit risk. The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract, provided that no event of default
on an underlying reference obligation has occurred. If an event of default occurs, the seller
must pay the buyer the full notional value, or “par value,” of the reference obligation through either physical settlement or cash settlement. The Fund may be either the buyer or
seller in a credit default swap transaction. If the Fund is a buyer and no event of default
occurs, the Fund will have made a series of periodic payments and recover nothing of monetary
value. However, if an event of default occurs, the Fund (if the buyer) will receive the full
notional value of the reference obligation either through a cash payment in exchange for the
asset or a cash payment in addition to owning the reference assets. As a seller, the Fund receives
a fixed rate of income throughout the term of the contract, which typically is between
six months and five years, provided that there is no event of default. The sale of a credit
default swap is a form of leverage. The Fund currently segregates assets on the Fund’s records in the form of cash, cash equivalents or liquid securities in an amount equal
to the notional value of the credit default swaps of which it is the seller or otherwise
covers such obligations. If such assets are not fully segregated or otherwise covered by the Fund,
the use of credit default swap transactions could then be considered senior securities
for purposes of the 1940 Act. Recent market developments related to credit default swaps
have prompted increased scrutiny with respect to these instruments. As a result of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, credit default swaps may in the future be subject to increased regulation. Such regulation may limit the Fund’s ability to use credit default swaps. Although the Fund will seek to realize gains by writing credit
default swaps that increase in value, to realize gains on writing credit default swaps, an
active secondary market for such instruments must exist or the Fund must otherwise be able
to close out these transactions at advantageous times. If no such secondary market exists
or the Fund is otherwise unable to close out these transactions at advantageous times,
writing credit default swaps may not be profitable for the Fund. The market for credit default swaps has become more volatile in recent years as the
creditworthiness of certain counterparties has been questioned and/or downgraded.
If a counterparty’s credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that the Fund may not receive adequate
collateral. The Fund may exit its obligations under a credit default swap only by
terminating the contract and paying applicable breakage fees, or by entering into an offsetting
credit default swap position, which may cause the Fund to incur more losses.
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Repurchase Agreements Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Repurchase Agreements Risk. Subject to its investment objective and policies, the Fund may invest in repurchase agreements for leverage or investment purposes. Repurchase
agreements typically involve the acquisition by the Fund of debt securities from a
selling financial institution such as a bank, savings and loan association or broker-dealer.
The agreement provides that the Fund will sell the securities back to the institution
at a fixed time in the future. The Fund does not bear the risk of a decline in the value of the
underlying security unless the seller defaults under its repurchase obligation. In the event
of the bankruptcy or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and losses, including
(1) possible decline in the value of the underlying security during the period in which
the Fund seeks to enforce its rights thereto; (2) possible lack of access to income on the
underlying security during this period; and (3) expenses of enforcing its rights. While repurchase
agreements involve certain risks not associated with direct investments in debt securities,
the Fund follows procedures approved by the Fund’s Board of Directors that are designed to minimize such risks. These procedures include effecting repurchase transactions only
with large, well-capitalized and well-established financial institutions whose financial
condition will be continually monitored by Western Asset. In addition, as described above, the
value of the collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase agreement.
In the event of a default or bankruptcy by a selling financial institution, the Fund
generally will seek to liquidate such collateral. However, the exercise of the Fund’s right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds
from any sale upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss.
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Reverse Repurchase Agreements Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Reverse Repurchase Agreements Risk. The Fund’s use of reverse repurchase agreements involves many of the same risks involved in the Fund’s use of leverage, as the proceeds from reverse repurchase agreements generally will be invested in additional securities.
There is a risk that the market value of the securities acquired in the reverse repurchase
agreement may decline below the price of the securities that the Fund has sold but remains obligated
to repurchase. In addition, there is a risk that the market value of the securities
retained by the Fund may decline. If the buyer of securities under a reverse repurchase agreement
were to file for bankruptcy or experience insolvency, the Fund may be adversely affected.
Also, in entering into reverse repurchase agreements, the Fund would bear the risk of loss
to the extent that the proceeds of the reverse repurchase agreement are less than the value
of the underlying securities. In addition, due to the interest costs associated with reverse
repurchase agreements transactions, the Fund’s net asset value will decline, and, in some cases, the Fund may be worse off than if it had not used such instruments.
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Senior Loans Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Senior Loans Risk. The Fund may invest in first lien senior secured loans (“Senior Loans”) issued by banks, other financial institutions, and other investors to corporations,
partnerships, limited liability companies and other entities to finance leveraged
buyouts, recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings and,
to a lesser extent, for general operating and other purposes. An investment in Senior Loans
involves risk that the borrowers under Senior Loans may default on their obligations
to pay principal or interest when due. In the event a borrower fails to pay scheduled interest
or principal payments on a Senior Loan held by the Fund, the Fund will experience a reduction
in its income and a decline in the market value of the Senior Loan, which will likely
reduce dividends and lead to a decline in the net asset value of the Fund. If the Fund acquires
a Senior Loan from another lender, for example, by acquiring a participation, the Fund
may also be subject to credit risk with respect to that lender. The Fund will generally invest in Senior Loans that are secured with specific collateral.
However, there can be no assurance that liquidation of collateral would satisfy the
borrower’s obligation in the event of non-payment or that such collateral could be readily liquidated. In the event of the bankruptcy of a borrower, the Fund could experience
delays and limitations on its ability to realize the benefits of the collateral securing
the Senior Loan. Senior Loans are typically structured as floating rate instruments in which
the interest rate payable on the obligation fluctuates with interest rate changes. As a result,
the yield on Senior Loans will generally decline in a falling interest rate environment causing
the Fund to experience a reduction in the income it receives from a Senior Loan. Senior
Loans are generally of below investment grade quality and may be unrated at the time of
investment; are generally not registered with the SEC or state securities commissions;
and are generally not listed on any securities exchange. In addition, the amount of public
information available on Senior Loans is generally less extensive than that available
for other types of assets.
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Second Lien Loans Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Second Lien Loans Risk. Second senior secured lien loans (“Second Lien Loans”) generally are subject to similar risks as those associated with investments in Senior Loans.
Because Second Lien Loans are subordinated or unsecured and thus lower in priority of payment
to Senior Loans, they are subject to the additional risk that the cash flow of the borrower
and property securing the loan or debt, if any, may be insufficient to meet scheduled
payments after giving effect to the senior secured obligations of the borrower. This risk is
generally higher for subordinated unsecured loans or debt, which are not backed by a security
interest in any specific collateral. Second Lien Loans generally have greater price volatility
than Senior Loans and may be less liquid. There is also a possibility that originators
will not be able to sell participations in Second Lien Loans, which would create greater credit
risk exposure for the holders of such loans. Second Lien Loans share the same risks as
other below investment grade securities.
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Loan Participations and Assignments Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Loan Participations and Assignments Risk. The Fund may invest in participations in loans or assignments of all or a portion of loans from third parties. In connection with purchasing
participations, the Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off
against the borrower, and the Fund may not directly benefit from any collateral supporting
the loan in which it has purchased the participation. As a result, the Fund may be subject
to the credit risk of both the borrower and the lender that is selling the participation.
In the event of the insolvency of the lender selling a participation, the Fund may be treated as
a general creditor of the lender and may not benefit from any set-off between the lender and
the borrower. Certain participations may be structured in a manner designed to avoid purchasers of participations being subject to the credit risk of the lender with respect
to the participation, but even under such a structure, in the event of the lender’s insolvency, the lender’s servicing of the participation may be delayed and the assignability of the participation impaired. The Fund will acquire participations only if the lender interpositioned
between the Fund and the borrower is determined by Western Asset to be creditworthy.
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Smaller Company Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Smaller Company Risk. The general risks associated with income-producing securities are particularly pronounced for securities issued by companies with smaller market capitalizations. These companies may have limited product lines, markets or financial
resources or they may depend on a few key employees. As a result, they may be subject
to greater levels of credit, market and issuer risk. Securities of smaller companies
may trade less frequently and in lesser volume than more widely held securities and their values
may fluctuate more sharply than other securities. Companies with medium-sized market capitalizations may have risks similar to those of smaller companies.
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Management Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Management Risk. The Fund is subject to management risk because it is an actively managed investment portfolio. Western Asset, Western Asset Management Company Pte.
Ltd. in Singapore (“Western Singapore”) and Western Asset Management Company Limited in London (“Western Asset London”, together with Western Singapore, the “Non-U.S. Subadvisers” and individually, each a “Non-U.S. Subadviser”) and each individual investment professional may not be successful in selecting the best performing securities
or investment techniques, and the Fund’s performance may lag behind that of similar funds.
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Potential Conflicts Of Interest Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Potential Conflicts of Interest Risk. FTFA, Western Asset, the Non-U.S. Subadvisers (together with FTFA and Western Asset, the “Managers”) and the Fund’s investment professionals have interests which may conflict with the interests of the Fund. In
particular, FTFA also manages, and Western Asset serves as subadviser to, another closed-end investment company listed on the NYSE that has an investment objective and investment
strategies that are substantially similar to the Fund. Further, the Managers may at
some time in the future manage and/or advise other investment funds or accounts with the
same investment objective and strategies as the Fund. As a result, the Managers and the Fund’s investment professionals may devote unequal time and attention to the management of
the Fund and those other funds and accounts, and may not be able to formulate as complete
a strategy or identify equally attractive investment opportunities as might be the case
if they were to devote substantially more attention to the management of the Fund. The Managers
and the Fund’s investment professionals may identify a limited investment opportunity that may be suitable for multiple funds and accounts, and the opportunity may be allocated
among these several funds and accounts, which may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally, transaction orders may be aggregated for multiple accounts for purpose of execution, which may cause the price
or brokerage costs to be less favorable to the Fund than if similar transactions were
not being executed concurrently for other accounts. At times, an investment professional may
determine that an investment opportunity may be appropriate for only some accounts
for which he or she exercises investment responsibility, or may decide that certain accounts
should take differing positions with respect to a particular security. In these cases,
the investment professional may place separate transactions for one or more funds or accounts
which may affect the market price of the security or the execution of the transaction,
or both, to the detriment or benefit of one or more other funds and accounts. For example,
an investment professional may determine that it would be in the interest of another
account to sell a security that the Fund holds, potentially resulting in a decrease in the
market value of the security held by the Fund.
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Rating Agency Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Rating Agency Risk. Credit ratings are issued by rating agencies which are private services that provide ratings of the credit quality of debt obligations, including convertible
securities. Ratings assigned by a rating agency are not absolute standards of credit quality and
do not evaluate market risks or the liquidity of securities. Rating agencies may fail to
make timely changes in credit ratings and an issuer’s current financial condition may be better or worse than a rating indicates. In addition, in recent years there have been instances in
which the initial rating assigned by a rating agency to a security failed to take account of
adverse economic developments which subsequently occurred, leading to losses that were not
anticipated based on the initial rating. To the extent that the issuer of a security
pays a rating agency for the analysis of its security, an inherent conflict of interest may
exist that could affect the reliability of the rating. The ratings of a debt security may change
over time. As a result, debt instruments held by the Fund could receive a higher rating
or a lower rating during the period in which they are held. The Fund will not necessarily sell
a security when its rating is reduced below its rating at the time of purchase. Investments in mortgage-related securities may involve particularly high levels of
risk under current market conditions.
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Inflation/Deflation Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Inflation/Deflation Risk. Inflation risk is the risk that the value of certain assets or income from the Fund’s investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Common Stock and distributions
on the Common Stock can decline. In addition, during any periods of rising inflation,
the dividend rates or borrowing costs associated with the Fund’s use of leverage would likely increase, which would tend to further reduce returns to stockholders. Deflation risk
is the risk that prices throughout the economy decline over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make
issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.
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Counterparty Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Counterparty Risk. If an issuer or guarantor of a security held by the Fund or a counterparty to a financial contract with the Fund defaults or its credit is downgraded, or is
perceived to be less creditworthy, or if the value of the assets underlying a security declines,
the value of your investment will typically decline. Changes in actual or perceived creditworthiness
may occur quickly. The Fund could be delayed or hindered in its enforcement of rights
against an issuer, guarantor or counterparty. Subordinated securities are more likely to suffer
a credit loss than non-subordinated securities of the same issuer and will be disproportionately
affected by a default, downgrade or perceived decline in creditworthiness.
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When Issued and Delayed Delivery Transactions Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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When-Issued and Delayed-Delivery Transactions Risk. The Fund may purchase fixed income securities on a when-issued basis, and may purchase or sell those securities for delayed
delivery. When-issued and delayed-delivery transactions occur when securities are
purchased or sold by the Fund with payment and delivery taking place in the future
to secure an advantageous yield or price. Securities purchased on a when-issued or delayed-delivery basis may expose the Fund to counterparty risk of default as well as the risk that
securities may experience fluctuations in value prior to their actual delivery. The
Fund will not accrue income with respect to a when-issued or delayed-delivery security prior
to its stated delivery date. Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the price or yield available in the market when the
delivery takes place may not be as favorable as that obtained in the transaction itself.
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Leverage Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Leverage Risk. The Fund may use leverage through borrowings, including loans from certain financial institutions and/or the issuance of debt securities, and through the issuance
of preferred stock. The Fund may use leverage through borrowings in an aggregate amount
of up to approximately 33 1/3% of the Fund’s total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, “total net assets”) immediately after such borrowings. Furthermore, the Fund may use leverage through the issuance
of preferred stock in an aggregate amount of liquidation preference attributable to the
preferred stock combined with the aggregate amount of any borrowings of up to approximately 50% of the Fund’s total net assets immediately after such issuance. The value of your investment may be more volatile if the Fund borrows or uses instruments,
such as derivatives, that have a leveraging effect on the Fund’s portfolio. The Fund may also have to sell assets at inopportune times to satisfy its obligations created by the
use of leverage or derivatives. The use of leverage is considered to be a speculative investment
practice and may result in the loss of a substantial amount, and possibly all, of the Fund’s assets. In addition, the Fund’s portfolio will be leveraged if it exercises its right to delay payment on a redemption, and losses will result if the value of the Fund’s assets declines between the time a redemption request is deemed to be received by the Fund and the
time the Fund liquidates assets to meet redemption requests.
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Portfolio Turnover Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Portfolio Turnover Risk. The Fund’s annual portfolio turnover rate may vary greatly from year to year. Changes to the investments of the Fund may be made regardless of the length
of time particular investments have been held. A high portfolio turnover rate may result
in increased transaction costs for the Fund in the form of increased dealer spreads and
other transactional costs, which may have an adverse impact on the Fund’s performance. In addition, high portfolio turnover may result in the realization of net short-term
capital gains by the Fund which, when distributed to stockholders, will be taxable as ordinary income.
A high portfolio turnover may increase the Fund’s current and accumulated earnings and profits, resulting in a greater portion of the Fund’s distributions being treated as a dividend to the Fund’s stockholders. The portfolio turnover rate of the Fund will vary from year to year, as well as within a given year.
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Temporary Defensive Strategies Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Temporary Defensive Strategies Risk. When Western Asset anticipates unusual market or other conditions, the Fund may temporarily depart from its principal investment strategies
as a defensive measure and invest all or a portion of its assets in obligations of
the U.S. government, its agencies or instrumentalities; other investment grade debt securities;
investment grade commercial paper; certificates of deposit and bankers’ acceptances; repurchase agreements with respect to any of the foregoing investments or any other
fixed income securities that Western Asset considers consistent with this strategy. To the
extent that the Fund invests defensively, it may not achieve its investment objectives.
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Market Price Discount From Net Asset Value Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Market Price Discount from Net Asset Value Risk. Shares of closed-end investment companies frequently trade at a discount from their net asset value. This risk is
separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment activities and may be a greater risk to investors expecting to sell their
Common Shares in a relatively short period. Whether investors will realize gains or losses
upon the sale of Common Shares will depend not upon the Fund’s net asset value but upon whether the market price of Common Shares at the time of sale is above or below the investor’s purchase price for Common Shares. Because the market price of Common Shares will be
determined by factors such as relative supply of and demand for Common Shares in the
market, general market and economic conditions and other factors beyond the control
of the Fund, the Fund cannot predict whether Common Shares will trade at, above or below
net asset value. The Common Shares are designed primarily for long-term investors and
you should not view the Fund as a vehicle for trading purposes.
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Anti-Takeover Provisions [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Anti-Takeover Provisions. The Fund’s Charter and Bylaws include provisions that are designed to limit the ability of other entities or persons to acquire control of the
Fund for short-term objectives, including by converting the Fund to open-end status or changing
the composition of the Board, that may be detrimental to the Fund’s ability to achieve its primary investment objective. The Fund’s Bylaws also contains a provision providing that the Fund is subject to the provisions of the Maryland Control Share Acquisition Act. There
can be no assurance, however, that such provisions will be sufficient to deter professional
arbitrageurs that seek to cause the Fund to take actions that may not be consistent
with its investment objective or aligned with the interests of long-term shareholders, such
as liquidating debt investments prior to maturity, triggering taxable events for shareholders
and decreasing the size of the Fund. Such provisions may limit the ability of shareholders
to sell their shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. There can be no assurance, however, that
such provisions will be sufficient to deter activist investors that seek to cause the Fund
to take actions that may not be aligned with the interests of long-term shareholders.
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Market Events Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Market Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to factors such as economic events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or
foreign central banks, market disruptions caused by trade disputes, labor strikes or other
factors, political developments, armed conflicts, economic sanctions and countermeasures in
response to sanctions, major cybersecurity events, the global and domestic effects
of widespread or local health, weather or climate events, and other factors that may
or may not be related to the issuer of the security or other asset. Economies and financial
markets throughout the world are increasingly interconnected. Economic, financial or political
events, trading and tariff arrangements, public health events, terrorism, wars, natural
disasters and other circumstances in one country or region could have profound impacts
on global economies or markets. As a result, whether or not the fund invests in securities
of issuers located in or with significant exposure to the countries or markets directly
affected, the value and liquidity of the fund’s investments may be negatively affected. Following Russia’s invasion of Ukraine in 2022, Russian stocks lost all, or nearly all, of their market value. Other securities or markets could be similarly affected by past or future geopolitical
or other events or conditions. Furthermore, events involving limited liquidity, defaults,
non-performance or other adverse developments that affect one industry, such as the financial services industry, or concerns or rumors about any events of these kinds, have in
the past and may in the future lead to market-wide liquidity problems, may spread to other
industries, and could negatively affect the value and liquidity of the fund’s investments.
The long-term impact of the COVID-19 pandemic and its subsequent variants on economies,
markets, industries and individual issuers is not known. Some sectors of the economy
and individual issuers have experienced or may experience particularly large losses. Periods
of extreme volatility in the financial markets, reduced liquidity of many instruments,
increased government debt, inflation, and disruptions to supply chains, consumer demand and
employee availability, may continue for some time. The U.S. government and the Federal
Reserve, as well as certain foreign governments and central banks, took extraordinary
actions to support local and global economies and the financial markets in response
to the COVID-19 pandemic. This and other government intervention into the economy and financial
markets may not work as intended, and have resulted in a large expansion of government
deficits and debt, the long term consequences of which are not known. In addition,
the COVID-19 pandemic, and measures taken to mitigate its effects, could result in disruptions
to the services provided to the fund by its service providers.
Raising the ceiling on U.S. government debt has become increasingly politicized. Any
failure to increase the total amount that the U.S. government is authorized to borrow could
lead to a default on U.S. government obligations, with unpredictable consequences for economies
and markets in the U.S. and elsewhere. Recently, inflation and interest rates have
increased and may rise further. These circumstances 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.
The United States and other countries are periodically involved in disputes over trade
and other matters, which may result in tariffs, investment restrictions and adverse impacts
on affected companies and securities. For example, the United States has imposed tariffs
and other trade barriers on Chinese exports, has restricted sales of certain categories
of goods to China, and has established barriers to investments in China. Trade disputes may
adversely affect the economies of the United States and its trading partners, as well
as companies directly or indirectly affected and financial markets generally. The United
States government has prohibited U.S. persons from investing in Chinese companies designated
as related to the Chinese military. These and possible future restrictions could limit the fund’s opportunities for investment and require the sale of securities at a loss or make
them illiquid. Moreover, the Chinese government is involved in a longstanding dispute with
Taiwan that has included threats of invasion. If the political climate between the
United States and China does not improve or continues to deteriorate, if China were
to attempt unification of Taiwan by force, or if other geopolitical conflicts develop
or get worse, economies, markets and individual securities may be severely affected both
regionally and globally, and the value of the fund’s assets may go down.
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Valuation Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Valuation Risk. The sales price the Fund could receive for any particular portfolio investment may differ from the Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair value methodology. These
differences may increase significantly and affect Fund investments more broadly during
periods of market volatility. The Fund’s ability to value its investments may be impacted by technological issues and/or errors by pricing services or other third party service
providers. The valuation of the Fund’s investments involves subjective judgment.
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Operational Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Operational Risk. The valuation of the Fund’s investments may be negatively impacted because of the operational risks arising from factors such as processing errors and
human errors, inadequate or failed internal or external processes, failures in systems and
technology, changes in personnel, and errors caused by third party service providers
or trading counterparties. It is not possible to identify all of the operational risks
that may affect the Fund or to develop processes and controls that completely eliminate or
mitigate the occurrence of such failures. The Fund and its shareholders could be negatively
impacted as a result.
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Cybersecurity Risk [Member] |
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General Description of Registrant [Abstract] |
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Risk [Text Block] |
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Cybersecurity Risk. Like other funds and business enterprises, the fund, the manager, the subadvisers, Authorized Participants, the relevant listing exchange and their service
providers are subject to the risk of cyber incidents occurring from time to time.
Cybersecurity incidents, whether intentionally caused by third parties or otherwise,
may allow an unauthorized party to gain access to fund assets, fund or customer data (including
private shareholder information) or proprietary information, cause the fund, the manager,
the subadvisers, Authorized Participants, the relevant listing exchange and/or their
service providers (including, but not limited to, fund accountants, custodians, sub-custodians,
transfer agents and financial intermediaries) to suffer data breaches, data corruption
or loss of operational functionality, or prevent fund investors from purchasing, redeeming
or exchanging shares, receiving distributions or receiving timely information regarding
the fund or their investment in the fund. The fund, the manager, and the subadvisers have
limited ability to prevent or mitigate cybersecurity incidents affecting third party
service providers, and such third party service providers may have limited indemnification
obligations to the fund, the manager, and/or the subadvisers. Cybersecurity incidents
may result in financial losses to the fund and its shareholders, and substantial costs
may be incurred in order to prevent or mitigate any future cybersecurity incidents. Issuers
of securities in which the fund invests are also subject to cybersecurity risks, and
the value of these securities could decline if the issuers experience cybersecurity incidents.
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Common Shares [Member] |
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Other Annual Expenses [Abstract] |
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Basis of Transaction Fees, Note [Text Block] |
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Percentage of Net Assets Attributable to Common Shares
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General Description of Registrant [Abstract] |
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Lowest Price or Bid |
$ 6.74
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$ 6.85
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$ 6.05
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$ 6.86
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$ 6.65
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$ 6.71
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$ 6.34
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$ 7.01
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Highest Price or Bid |
7.15
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7.37
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7.35
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7.72
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7.77
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7.72
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7.41
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7.82
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Lowest Price or Bid, NAV |
7.15
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7.21
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6.81
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7.16
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7.14
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7.61
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7.24
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7.69
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Highest Price or Bid, NAV |
$ 7.46
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$ 7.47
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$ 7.29
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$ 7.44
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$ 7.50
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$ 8.12
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$ 7.77
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$ 8.37
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Highest Price or Bid, Premium (Discount) to NAV [Percent] |
(4.16%)
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(1.34%)
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0.82%
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3.76%
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3.60%
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(4.93%)
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(4.63%)
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(6.57%)
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Lowest Price or Bid, Premium (Discount) to NAV [Percent] |
(5.73%)
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(4.99%)
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(11.16%)
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(4.19%)
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(6.86%)
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(11.83%)
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(12.43%)
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(8.84%)
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Share Price |
$ 6.96
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$ 6.96
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NAV Per Share |
$ 7.17
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$ 7.17
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Latest Premium (Discount) to NAV [Percent] |
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2.93%
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Capital Stock, Long-Term Debt, and Other Securities [Abstract] |
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Outstanding Security, Held [Shares] |
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22,724,807
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Senior Securities [Member] |
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Financial Highlights [Abstract] |
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Senior Securities Amount |
$ 70,000,000
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$ 70,000,000
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$ 70,000,000
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$ 70,000,000
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$ 77,000,000
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$ 85,500,000
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$ 158,000,000
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$ 180,000,000
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$ 168,000,000
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$ 171,000,000
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$ 120,000,000
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$ 125,000,000
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Senior Securities Coverage per Unit |
$ 3,328
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$ 3,315
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$ 3,328
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$ 3,315
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$ 3,505
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$ 3,829
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$ 3,706
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$ 3,583
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$ 3,829
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$ 3,992
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$ 3,729
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$ 4,062
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Senior Securities Average Market Value per Unit |
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