Form N-CSR LEGG MASON PARTNERS INCO For: Jul 31

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-04254

 

 

Legg Mason Partners Income Trust

(Exact name of registrant as specified in charter)

 

 

620 Eighth Avenue, 47^th Floor, New York, NY 10018

(Address of principal executive offices) (Zip code)

 

 

Marc A. De Oliveira

Franklin Templeton

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 1-877-721-1926

Date of fiscal year end: July 31

Date of reporting period: July 31, 2021

 

 

 

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ITEM 1.

REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

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Annual Report		July 31, 2021

WESTERN ASSET

MUNICIPAL HIGH

INCOME FUND

 

 

 

 

 

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

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What’s inside
Letter from the president			II
Fund overview			1
Fund at a glance			6
Fund expenses			7
Fund performance			9
Schedule of investments			11
Statement of assets and liabilities			31
Statement of operations			32
Statements of changes in net assets			33
Financial highlights			34
Notes to financial statements			37
Report of independent registered public accounting firm			50
Additional information			51
Important tax information			58

 

Fund objective

The Fund seeks to maximize current income exempt from regular federal income tax*.

 

*	Certain investors may be subject to the federal alternative minimum tax (“AMT”), and state and local taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.

 

Letter from the president

 

 

Dear Shareholder,

We are pleased to provide the annual report of Western Asset Municipal High Income Fund for the twelve-month reporting period ended July 31, 2021. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.leggmason.com. Here you can gain immediate access to market and investment information, including:

 

•

Fund prices and performance,

 

•

Market insights and commentaries from our portfolio managers, and

 

•

A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

 

Jane Trust, CFA

President and Chief Executive Officer

August 31, 2021

 

II		Western Asset Municipal High Income Fund

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Fund overview

 

Q. What is the Fund’s investment strategy?

A. The Fund seeks to maximize current income exempt from regular federal income tax. We select securities primarily by identifying undervalued sectors and individual securities, while also selecting securities we believe will benefit from anticipated changes in market conditions. Under normal circumstances, the Fund invests at least 80% of its assets in “municipal securities”. Municipal securities are securities and other investments with similar economic characteristics the interest on which is exempt from regular federal income tax. Interest on municipal securities may be subject to the federal alternative minimum tax (“AMT”). Under normal market conditions, the Fund will invest primarily in municipal securities rated at the time of purchase in the lowest investment grade categories (that is, securities rated in the Baa/BBB categories) or rated below investment grade (that is, securities rated below the Baa/BBB categories) or, if unrated or deemed to be unrated, securities we determined to be of comparable credit quality. However, the Fund is permitted to invest in securities rated in any investment category. Below investment grade securities are commonly referred to as “high yield” or “junk” bonds.

Although the Fund may invest in securities of any maturity, the Fund focuses on intermediate- and long-term municipal securities. The Fund will normally invest in securities that have remaining maturities at the time of purchase ranging from one to more than thirty years. In purchasing debt obligations for the Fund, we may take full advantage of the full range of maturities and durationsⁱ of municipal securities, and may adjust the average maturity or duration of the investments held by the Fund from time to time, depending on our assessment of the relative yields of securities of different maturities and durations and our expectations of future changes in interest rates. Under normal circumstances, the Fund may invest up to 20% of its assets in fixed income securities and other investments whose interest may be subject to federal income tax, although for temporary or defensive purposes the Fund may invest an unlimited amount in such securities.

Instead of, and/or in addition to, investing directly in particular securities, the Fund may use instruments such as derivatives and other synthetic instruments that are intended to provide economic exposure to the securities or the issuer or to be used as a hedging technique. The Fund may use one or more of these instruments without limit, except that these instruments are taken into account when determining compliance with the Fund’s 80% policy. The Fund may also engage in a variety of transactions using derivatives in order to change the investment characteristics of its portfolio (such as shortening or lengthening duration) and for other purposes. The fund may leverage its assets by investing proceeds received through tender option bond transactions, which is considered a form of borrowing.

At Western Asset Management Company, LLC (“Western Asset”), the Fund’s subadviser, we utilize a fixed income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio management personnel, research analysts and an in-house

 

Western Asset Municipal High Income Fund 2021 Annual Report		1

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Fund overview (cont’d)

 

economist. Under this team approach, management of client fixed income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization.

Q. What were the overall market conditions during the Fund’s reporting period?

A. Fixed income markets experienced periods of volatility and, overall, modestly declined over the twelve-month reporting period ended July 31, 2021. Volatility was driven by a number of factors, including the repercussions from the COVID-19 pandemic, sharply falling and then rising global growth, trade conflicts, inflation concerns, and a number of geopolitical events. Most spread sectors (non-Treasuries) outperformed similar duration Treasuries. This was driven by continued monetary policy accommodation from the Federal Reserve Board (the “Fed”)ⁱⁱ and the rollout of several COVID-19 vaccines which triggered increased investor risk appetite.

Short-term U.S. Treasury yields moved higher as economic conditions improved. The yield for the two-year Treasury note began the reporting period at 0.11% and ended the period at 0.19%. The low of 0.09% occurred on February 5, 2021 and the high of 0.28% took place on June 25, 2021. Long-term U.S. Treasury yields moved sharply higher, as positive economic data triggered inflationary concerns and fears that the Fed may remove its monetary policy accommodations sooner than previously anticipated. The ten-year Treasury yield began the reporting period at 0.55%. The low of 0.52% occurred on August 4, 2020, and the high of 1.74% took place on March 19 and March 31, 2021. The ten-year Treasury yield then ended the period at 1.24%.

The municipal bond market posted a positive return and significantly outperformed its taxable bond counterpart during the twelve-month reporting period. Over that time, the Bloomberg Municipal Bond Indexⁱⁱⁱ (prior to August 24, 2021, known as Bloomberg Barclays Municipal Bond Index) and the Bloomberg U.S. Aggregate Index^iv (prior to August 24, 2021, known as Bloomberg Barclays U.S. Aggregate Index), returned 3.29% and -0.70%, respectively. Both the taxable and tax-free markets were initially supported by falling yields, but were then hurt as longer-term yields moved higher. While the municipal market generated positive absolute returns during nine of the twelve months of the reporting period, a portion of its gains were lost during the other three months.

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

A. A number of adjustments were made to the Fund’s portfolio during the reporting period. From a sector perspective, we increased the Fund’s allocations to State and Local General Obligation Bonds, while reducing its exposures to Industrial Revenue and Education. In terms of credit quality, we reduced our exposure to securities rated CCC and below-investment-grade securities and increased the Fund’s allocations to securities rated AA and A. Looking at allocations among individual states, we increased the Fund’s exposures in New York and California, while reducing its weightings in Illinois and Alabama.

The Fund employed the use of U.S. Treasury futures during the reporting period to tactically manage duration. This strategy contributed to performance.

 

2		Western Asset Municipal High Income Fund 2021 Annual Report

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Performance review

For the twelve months ended July 31, 2021, Class A shares of Western Asset Municipal High Income Fund, excluding sales charges, returned 7.98%. The Fund’s unmanaged benchmark, the Bloomberg Municipal Bond Index, returned 3.29% for the same period. The Lipper High Yield Municipal Debt Funds Category Average^v returned 9.84% over the same time frame.

Certain investors may be subject to the federal alternative minimum tax, and state and local taxes will apply. Capital gains, if any, are fully taxable. Please consult your personal tax or legal adviser.

 

Performance Snapshot as of July 31, 2021 (unaudited)
(excluding sales charges)		6 months				12 months
Western Asset Municipal High Income Fund:
Class A			2.92	%			7.98	%
Class C			2.66	%			7.34	%
Class I			3.02	%			8.18	%
Bloomberg Municipal Bond Index			1.25	%			3.29	%
Lipper High Yield Municipal Debt Funds Category Average			3.90	%			9.84	%

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value, investment returns and yields will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/mutualfunds.

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

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

The 30-Day SEC Yields for the period ended July 31, 2021 for Class A, Class C and Class I shares were 1.17%, 0.69% and 1.39%, respectively. Absent fee waivers and/or expense reimbursements, the 30-Day SEC Yield for Class I shares would have been 1.35%. The 30-Day SEC Yield, calculated pursuant to the standard SEC formula, is based on the Fund’s investments over an annualized trailing 30-day period, and not on the distributions paid by the Fund, which may differ.

 

Total Annual Operating Expenses (unaudited)

As of the Fund’s current prospectus dated November 25, 2020, the gross total annual fund operating expense ratios for Class A, Class C and Class I shares were 0.82%, 1.39% and 0.69%, respectively.

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

 

Western Asset Municipal High Income Fund 2021 Annual Report		3

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Fund overview (cont’d)

 

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets will not exceed 0.65% for Class I shares. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

The manager is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which the manager earned the fee or incurred the expense if the class’ total annual fund operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will the manager recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

Q. What were the leading contributors to performance?

A. The largest contributor to the Fund’s relative performance during the reporting period was its security selection. In particular, holdings in the Education, Industrial Revenue and Local General Obligation Bond sectors added the most value.

The Fund’s positioning in a number of sectors also contributed to results, with an overweight in Industrial Revenue and an underweight in State General Obligation Bonds being the most additive for results.

The Fund’s quality biases also contributed to returns. In particular, an overweight to securities rated BBB was rewarded. Finally, yield curve^vi positioning was positive for performance, driven by the Fund’s overweight to the 10-year and 20-year portions of the curve.

Q. What were the leading detractors from performance?

A. The largest detractor from the Fund’s relative performance during the reporting period was its duration positioning. We tactically adjusted the Fund’s duration which, overall, was a headwind for results. From a sector positioning perspective, an overweight to Education negatively impacted performance. There were no other meaningful detractors from returns over the reporting period.

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

Sincerely,

Western Asset Management Company, LLC

August 31, 2021

RISKS: The Fund’s investments are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the Fund’s share price. Municipal securities purchased by the Fund may be adversely affected by changes in the financial condition of municipal issuers and insurers, regulatory and political developments, uncertainties and public perceptions, and

 

4		Western Asset Municipal High Income Fund 2021 Annual Report

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other factors. A significant portion of portfolio holdings may be invested in lower quality securities, which present greater risk of loss of principal and interest than higher rated securities. Below investment grade securities (that is, securities rated below the Baa/BBB categories) or, if unrated, securities determined to be of comparable credit quality are commonly referred to as “junk bonds”. Investing in securities issued by investment companies, including exchange-traded funds(“ETFs”), involves risks similar to those of investing directly in the securities and other assets held by the investment company or ETF. The Fund will pay brokerage commissions in connection with the purchase and sale of shares of ETFs. In addition, the Fund will indirectly bear its pro rata share of the fees and expenses incurred by a fund it invests in, including advisory fees. These expenses are in addition to the advisory and other expenses that the Fund bears directly in connection with its own operations. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and may have a potentially large impact on Fund performance. Please see the Fund’s prospectus for a more complete discussion of these and other risks and the Fund’s investment strategies.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio managers’ current or future investments. The Fund’s portfolio composition is subject to change at any time.

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

The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

 

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

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

iii	The Bloomberg Municipal Bond Index (prior to August 24, 2021, known as Bloomberg Barclays Municipal Bond Index) is a market value weighted index of investment grade municipal bonds with maturities of one year or more.

iv	The Bloomberg U.S. Aggregate Index (prior to August 24, 2021, known as Bloomberg Barclays U.S. Aggregate Index) is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.

v

Lipper, Inc., a wholly-owned subsidiary of Refinitiv, provides independent insight on global collective investments. Returns are based on the period ended July 31, 2021, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 189 funds for the six-month period and among the 187 funds for the twelve-month period in the Fund’s Lipper category, and excluding sales charges, if any.

vi	The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different.

 

Western Asset Municipal High Income Fund 2021 Annual Report		5

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Fund at a glance^† (unaudited)

 

Investment breakdown (%) as a percent of total investments

 

 

 

†	The bar graph above represents the composition of the Fund’s investments as of July 31, 2021 and July 31, 2020 and does not include derivatives, such as futures contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

 

6		Western Asset Municipal High Income Fund 2021 Annual Report

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Fund expenses (unaudited)

 

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; service and/or distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested on February 1, 2021 and held for the six months ended July 31, 2021.

Actual expenses

The table below titled “Based on Actual Total Return” provides information about actual account values and actual expenses. You may use the information provided in this table, together with the amount you invested, to estimate the expenses that you paid over the period. To estimate the expenses you paid on your account, divide your ending account value by $1,000 (for example, an $8,600 ending account value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period”.

Hypothetical example for comparison purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

Based on actual total return1																										Based on hypothetical total return1
		Actual Total Return Without Sales Charge2				Beginning Account Value				Ending Account Value				Annualized Expense Ratio				Expenses Paid During the Period3										Hypothetical Annualized Total Return				Beginning Account Value				Ending Account Value				Annualized Expense Ratio				Expenses Paid During the Period3
Class A			2.92	%		$	1,000.00			$	1,029.20				0.82	%		$	4.13							Class A			5.00	%		$	1,000.00			$	1,020.73				0.82	%		$	4.11
Class C			2.66				1,000.00				1,026.60				1.36				6.83							Class C			5.00				1,000.00				1,018.05				1.36				6.80
Class I			3.02				1,000.00				1,030.20				0.65				3.27							Class I			5.00				1,000.00				1,021.57				0.65				3.26

 

Western Asset Municipal High Income Fund 2021 Annual Report		7

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Fund expenses (unaudited) (cont’d)

 

1	For the six months ended July 31, 2021.

 

2

Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

3

Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (181), then divided by 365.

 

8		Western Asset Municipal High Income Fund 2021 Annual Report

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Fund performance (unaudited)

 

Average annual total returns
Without sales charges1		Class A				Class C				Class I
Twelve Months Ended 7/31/21			7.98	%			7.34	%			8.18	%
Five Years Ended 7/31/21			3.78				3.17				3.94
Ten Years Ended 7/31/21			5.06				4.47				5.23
With sales charges2		Class A				Class C				Class I
Twelve Months Ended 7/31/21			3.42	%			6.34	%			8.18	%
Five Years Ended 7/31/21			2.89				3.17				3.94
Ten Years Ended 7/31/21			4.61				4.47				5.23

 

Cumulative total returns
Without sales charges1
Class A (7/31/11 through 7/31/21)							63.85	%
Class C (7/31/11 through 7/31/21)							54.81
Class I (7/31/11 through 7/31/21)							66.54

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

1	Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charge (“CDSC”) with respect to Class C shares.

 

2

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

 

Western Asset Municipal High Income Fund 2021 Annual Report		9

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Fund performance (unaudited) (cont’d)

 

Historical performance

Value of $10,000 invested in

Class A Shares of Western Asset Municipal High Income Fund vs. Bloomberg Municipal Bond Index†* — July 2011 - July 2021

 

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

 

†

Hypothetical illustration of $10,000 invested in Class A shares of Western Asset Municipal High Income Fund on July 31, 2011, assuming the deduction of the maximum initial sales charge of 4.25% at the time of investment for Class A shares and the reinvestment of all distributions, including returns of capital, if any, at net asset value through July 31, 2021. The hypothetical illustration also assumes a $10,000 investment in the Bloomberg Municipal Bond Index. The Bloomberg Municipal Bond Index (the “Index”) is a market value weighted index of investment grade municipal bonds with maturities of one year or more. The Index is unmanaged and is not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index. The performance of the Fund’s other classes may be greater or less than the Class A shares’ performance indicated on this chart, depending on whether greater or lesser sales charges and fees were incurred by shareholders investing in the classes.

 

*	Prior to August 24, 2021, known as Bloomberg Barclays Municipal Bond Index.

 

10		Western Asset Municipal High Income Fund 2021 Annual Report

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Schedule of investments

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Municipal Bonds — 95.0%
Alabama — 6.0%
Hoover, AL, IDA Revenue, United States Steel Corp. Project, Series 2019			5.750	%			10/1/49			$	450,000			$	543,679	(a)
Jefferson County, AL, Sewer Revenue:
Convertible CAB, Subordinated Lien, Warrants, Step bond, Series F, Refunding (0.000% to 10/1/23 then 7.900%)			0.000	%			10/1/50				11,020,000				11,386,047
Senior Lien, Warrants, Series A, Refunding, AGM			5.500	%			10/1/53				1,750,000				1,969,747
Subordinated Lien, Warrants, Series D, Refunding			6.000	%			10/1/42				4,880,000				5,669,820
Subordinated Lien, Warrants, Series D, Refunding			6.500	%			10/1/53				8,250,000				9,671,507
Total Alabama															29,240,800
Alaska — 0.7%
Anchorage, AK, Port Revenue, Series A			5.000	%			12/1/50				600,000				728,712	(a)
Northern Tobacco Securitization Corp., AK, Tobacco Settlement Revenue:
Asset Backed Senior Bonds, Class 1, Series A			4.000	%			6/1/36				1,200,000				1,466,863
Asset Backed Senior Bonds, Class 2, Series B-1			4.000	%			6/1/50				1,000,000				1,175,669
Total Alaska															3,371,244
Arizona — 3.6%
La Paz County, AZ, IDA Revenue:
Charter School Solutions, Harmony Public School Project, Series A			5.000	%			2/15/36				750,000				855,957	(b)
Charter School Solutions, Harmony Public School Project, Series A			5.000	%			2/15/46				3,175,000				3,583,061	(b)
Maricopa County, AZ, IDA Revenue, Legacy Traditional Schools Project, Series 2019, Refunding			5.000	%			7/1/49				1,500,000				1,765,273	(b)
Navajo Nation, AZ, Revenue, Series A, Refunding			5.500	%			12/1/30				850,000				964,093	(b)
Phoenix, AZ, IDA Revenue, Basis School Inc., Refunding			5.000	%			7/1/45				7,000,000				7,805,699	(b)
Tempe, AZ, IDA Revenue:
Mirabella at ASU Inc. Project, Series A			6.000	%			10/1/37				1,200,000				1,352,859	(b)
Mirabella at ASU Inc. Project, Series A			6.125	%			10/1/47				1,400,000				1,565,774	(b)
Total Arizona															17,892,716

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		11

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
California — 11.5%
California Public Finance Authority, CA, Senior Living Revenue:
Enso Village Project, Green Bond, Series A, Refunding			5.000	%			11/15/51			$	500,000			$	585,896
Enso Village Project, Green Bond, Series A, Refunding			5.000	%			11/15/56				750,000				873,996
California State Community Housing Agency, Essential Housing Revenue:
Fountains at Emerald Park, Series A			3.000	%			8/1/56				500,000				522,430
Stoneridge Apartments, Series A			4.000	%			2/1/56				1,500,000				1,668,998	(b)
California State CSCDA Community Improvement Authority, Essential Housing Revenue, Series A			4.000	%			8/1/56				1,500,000				1,679,578
California State MFA Revenue:
Senior Lien, LINXS APM Project, Series A			5.000	%			12/31/43				1,000,000				1,227,338	(a)
Senior Lien, LINXS APM Project, Series A			5.000	%			12/31/47				1,250,000				1,528,780	(a)
California State PCFA Water Furnishing Revenue, Poseidon Resources Desalination Project			5.000	%			11/21/45				7,500,000				7,903,437	(a)(b)
California State Public Finance Authority Revenue, ENSO Village Project, Green Bond, Series B-3			2.125	%			11/15/27				500,000				507,510	(b)
California State School Finance Authority, School Facilities Revenue:
KIPP LA Project, Series A			5.000	%			7/1/34				600,000				668,236
KIPP LA Project, Series A			5.125	%			7/1/44				750,000				831,066
California Statewide CDA Revenue:
Provident Group-Pomona Properties LLC, Series A			5.600	%			1/15/36				2,960,000				3,124,166	(b)
Provident Group-Pomona Properties LLC, Series A			5.750	%			1/15/45				2,230,000				2,346,930	(b)
Golden State, CA, Tobacco Securitization Corp. Revenue, Tobacco Settlement Funded, Series A-1, Refunding			5.250	%			6/1/47				2,000,000				2,070,884
Inland Valley, CA, Development Agency, Successor Agency Tax Allocation Revenue, Series A, Refunding			5.000	%			9/1/44				2,140,000				2,359,180
Mountain House Public Financing Authority, CA, Utility Systems Revenue, Green Bond, Series A, BAM			4.000	%			12/1/50				2,250,000				2,635,945

 

See Notes to Financial Statements.

 

12		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
California — continued
M-S-R Energy Authority, CA, Natural Gas Revenue, Series B			7.000	%			11/1/34			$	14,000,000			$	22,274,626
River Islands, CA, Public Financing Authority, Special Tax Revenue, Community Facilities District No. 2003-1, Refunding			5.500	%			9/1/45				2,740,000				2,888,433
Tobacco Securitization Authority of Southern California Revenue, Asset Backed Refunding, San Diego County Tobacco Asset Securitization Corporation, Class 1, Series A			5.000	%			6/1/48				700,000				887,354
Total California															56,584,783
Colorado — 4.4%
Arista Metropolitan District, CO, GO, Convertible Unlimited & Special Revenue, Series A, Refunding and Improvements			5.125	%			12/1/48				1,000,000				1,079,689
Clear Creek Station Metropolitan District #2, CO, GO, Subordinated, Series B			7.375	%			12/15/47				500,000				522,574
Colliers Hill Metropolitan District #2, CO, GO:
Senior Bonds, Series A			6.250	%			12/1/37				750,000				790,491
Senior Bonds, Series A			6.500	%			12/1/47				1,250,000				1,316,788
Colorado State Health Facilities Authority Revenue, Commonspirit Health Project, Series A-2			4.000	%			8/1/49				1,250,000				1,451,430
Colorado State High Performance Transportation Enterprise Revenue, C-470 Express Lanes			5.000	%			12/31/51				500,000				573,382
Dominion, CO, Water & Sanitation District Revenue, Series 2016			6.000	%			12/1/46				2,905,000				3,003,725
Leyden Rock, CO, Metropolitan District #10, GO, Senior Refunding and Improvement, Series A			5.000	%			12/1/45				1,250,000				1,296,041
North Range, CO, Metropolitan District #2, GO:
Series A, Refunding			5.625	%			12/1/37				500,000				533,383
Subordinated, Series B			7.750	%			12/15/47				1,000,000				1,050,177
Public Authority for Colorado Energy, Natural Gas Purchase Revenue			6.500	%			11/15/38				4,450,000				7,041,229
Solaris, CO, Metropolitan District #3, GO, Series A, Refunding			5.000	%			12/1/36				850,000				884,956

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		13

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Colorado — continued
Village Metropolitan District, CO:
Limited & Special Revenue, Series 2020, Refunding and Improvements			5.000	%			12/1/40			$	500,000			$	569,104
Limited & Special Revenue, Series 2020, Refunding and Improvements			5.000	%			12/1/49				1,200,000				1,357,818
Total Colorado															21,470,787
Connecticut — 0.3%
Connecticut State Special Tax Revenue, Transportation Infrastructure, Series A			5.000	%			1/1/37				1,000,000				1,242,685
District of Columbia — 0.7%
District of Columbia Revenue:
Friendship Public Charter School Inc.			5.000	%			6/1/32				2,130,000				2,266,679	(c)
Friendship Public Charter School Inc.			5.000	%			6/1/42				1,250,000				1,330,210	(c)
Total District of Columbia															3,596,889
Florida — 3.5%
Broward County, FL, Port Facilities Revenue:
Senior Bonds, Series B			4.000	%			9/1/44				3,750,000				4,356,248	(a)
Senior Bonds, Series B			4.000	%			9/1/49				1,500,000				1,733,069	(a)
Florida State Development Finance Corp., Educational Facilities Revenue:
Mater Academy Projects, Series A			5.000	%			6/15/35				1,000,000				1,189,296	(b)
Mater Academy Projects, Series A			5.000	%			6/15/40				1,000,000				1,178,863	(b)
Renaissance Charter School Inc. Projects, Series A			6.000	%			6/15/35				1,200,000				1,375,788	(b)
Renaissance Charter School Inc. Projects, Series A			6.125	%			6/15/46				990,000				1,124,305	(b)
Miami-Dade County, FL, Aviation Revenue, Series A, Refunding			5.000	%			10/1/49				2,000,000				2,503,583	(a)
Palm Beach County, FL, Health Facilities Authority Revenue:
Acts Retirement-Life Communities			5.000	%			11/15/45				750,000				873,076
Sinai Residences Boca Raton Project, Series A			7.500	%			6/1/49				1,600,000				1,702,884
Toby & Leon Cooperman Sinai Residences of Boca Raton Expansion, Series A			5.000	%			6/1/55				1,000,000				1,091,650
Reunion, FL, East Community Development District, Special Assessment Bond, Series A-2			7.375	%			5/1/33				355,000				3	*(d)
Total Florida															17,128,765

 

See Notes to Financial Statements.

 

14		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Georgia — 0.7%
Cobb County, GA, Kennestone Hospital Authority Revenue, Wellstar Health System, Inc. Project, Series A			5.000	%			4/1/50			$	500,000			$	633,872
Georgia State Municipal Electric Authority Revenue, Plant Vogtle Units 3 & 4 Project, Series B			5.000	%			1/1/59				1,200,000				1,466,234
Main Street Natural Gas Inc., GA, Gas Project Revenue, Series A			5.000	%			5/15/43				1,250,000				1,543,285
Total Georgia															3,643,391
Illinois — 13.7%
Chicago, IL, Board of Education, Dedicated Capital Improvement, Special Tax Revenue, Series 2018			5.000	%			4/1/42				1,000,000				1,223,704
Chicago, IL, Board of Education, GO:
Dedicated, Series A			5.000	%			12/1/38				2,500,000				3,228,477
Dedicated, Series G, Refunding			5.000	%			12/1/34				100,000				122,609
Dedicated, Series H			5.000	%			12/1/46				750,000				904,891
Series D			5.000	%			12/1/46				750,000				925,058
Chicago, IL, GO:
Series 2002B			5.500	%			1/1/37				2,000,000				2,292,353
Series 2005D, Refunding			5.500	%			1/1/37				3,500,000				4,011,617
Series A, Refunding			5.000	%			1/1/28				1,500,000				1,874,101
Series A, Refunding			6.000	%			1/1/38				1,250,000				1,567,271
Series C, Refunding			5.000	%			1/1/25				1,000,000				1,147,215
Chicago, IL, Motor Fuel Tax Revenue, Refunding, AGM			5.000	%			1/1/32				1,050,000				1,127,162
Chicago, IL, O’Hare International Airport Revenue:
Senior Lien, Series G			5.000	%			1/1/47				1,000,000				1,196,218	(a)
Senior Lien, Series G			5.000	%			1/1/52				1,000,000				1,196,969	(a)
Chicago, IL, Transit Authority, Sales Tax Receipts Revenue:
Second Lien			5.000	%			12/1/51				4,000,000				4,776,110
Second Lien, Series A, Refunding			4.000	%			12/1/55				300,000				344,906
Illinois State Development Finance Authority, Environmental Facilities Revenue, Citgo Petroleum Corp. Project			8.000	%			6/1/32				3,250,000				3,254,710	(a)
Illinois State Finance Authority Revenue, Franciscan Communities Inc, Series A, Unrefunded			5.125	%			5/15/43				2,360,000				2,480,841

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		15

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Illinois — continued
Illinois State Sports Facilities Authority Revenue, State Tax Supported, Series 2019, Refunding, BAM			5.000	%			6/15/30			$	750,000			$	953,137
Illinois State, GO:
Series 2016			5.000	%			1/1/41				5,020,000				5,748,012
Series 2016, Refunding			5.000	%			2/1/26				900,000				1,074,591
Series A			5.000	%			3/1/37				1,500,000				1,944,451
Series A			5.000	%			3/1/46				1,000,000				1,270,869
Series A, Refunding			5.000	%			10/1/29				2,900,000				3,654,000
Series A, Refunding			5.000	%			10/1/30				1,475,000				1,853,776
Series B, Refunding			5.000	%			9/1/27				1,600,000				1,980,966
Series D			5.000	%			11/1/27				1,000,000				1,243,176
Metropolitan Pier & Exposition Authority, IL, Revenue:
McCormick Place Expansion Project, Series A			5.000	%			6/15/57				1,150,000				1,381,284
McCormick Place Expansion Project, Series A, Refunding			4.000	%			6/15/50				2,750,000				3,171,739
McCormick Place Expansion Project, Series A, Refunding			5.000	%			6/15/50				750,000				938,246
McCormick Place Expansion Project, Series A, Refunding			4.000	%			6/15/52				2,000,000				2,295,912	(e)
McCormick Place Expansion Project, Series B, Refunding			5.000	%			6/15/42				3,250,000				4,178,200
Regional Transportation Authority, IL, GO, Series A, Refunding, NATL			6.000	%			7/1/29				2,780,000				3,595,627
Total Illinois															66,958,198
Indiana — 0.6%
Indiana State Finance Authority Revenue:
BHI Senior Living Inc., Series A, Refunding			4.000	%			11/15/41				1,250,000				1,471,724	(e)
Marion General Hospital, Series A			4.000	%			7/1/45				500,000				585,378
Valparaiso, IN, Exempt Facilities Revenue, Pratt Paper LLC Project			7.000	%			1/1/44				1,000,000				1,141,539	(a)
Total Indiana															3,198,641
Iowa — 0.3%
Iowa State Finance Authority, Midwestern Disaster Area Revenue, Iowa Fertilizer Company Project, Refunding			3.125	%			12/1/22				200,000				204,281

 

See Notes to Financial Statements.

 

16		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Iowa — continued
Iowa State Tobacco Settlement Authority Revenue:
Asset Backed Senior Bonds, Class 1, Series A-2, Refunding			4.000	%			6/1/49			$	500,000			$	588,322
Asset Backed Senior Bonds, Class 2, Series B-1, Refunding			4.000	%			6/1/49				750,000				886,127
Total Iowa															1,678,730
Kentucky — 0.5%
Kentucky State PEA, Gas Supply Revenue, Series A			4.000	%			6/1/26				2,000,000				2,313,323	(f)(g)
Louisiana — 1.0%
Louisiana State PFA, Lease Revenue:
Provident Group, Flagship Properties			5.000	%			7/1/42				1,000,000				1,198,514
Provident Group, Flagship Properties, Series A			4.000	%			7/1/44				1,000,000				1,166,345
Provident Group, Flagship Properties, Series A			4.000	%			7/1/49				500,000				580,366
St. John the Baptist Parish, LA, State Revenue:
Marathon Oil Corp. Project, Refunding			2.200	%			7/1/26				750,000				789,333	(f)(g)
Marathon Oil Corp. Project, Series B-2, Refunding			2.375	%			7/1/26				1,000,000				1,060,788	(f)(g)
Total Louisiana															4,795,346
Maryland — 0.9%
Maryland State EDC Revenue:
Morgan State University Project			4.250	%			7/1/50				1,000,000				1,170,342
Seagirt Marine Terminal Project, Series A			5.000	%			6/1/44				300,000				365,459	(a)
Seagirt Marine Terminal Project, Series A			5.000	%			6/1/49				1,000,000				1,211,143	(a)
Maryland State Health & Higher EFA Revenue:
Frederick Health System, Refunding			4.000	%			7/1/45				500,000				589,415
Frederick Health System, Refunding			4.000	%			7/1/50				725,000				847,509
Total Maryland															4,183,868
Massachusetts — 0.9%
Massachusetts State DFA Revenue:
Wellforce Issue, Series A, Refunding			5.000	%			7/1/36				1,000,000				1,245,801
Wellforce Issue, Series A, Refunding			5.000	%			7/1/38				1,000,000				1,240,422
Wellforce Issue, Series A, Refunding			5.000	%			7/1/44				500,000				610,648
Worcester Polytechnic Institute			4.000	%			9/1/44				1,225,000				1,431,051
Total Massachusetts															4,527,922

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		17

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Michigan — 1.7%
Detroit, MI, Downtown Development Authority Revenue, Catalyst Development, Series A, Refunding, AGM			5.000	%			7/1/43			$	750,000			$	841,116
Detroit, MI, GO, Financial Recovery, Series B1			4.000	%			4/1/44				3,150,000				3,071,880	(g)
Michigan State Finance Authority Limited Obligation Revenue:
Higher Education, Thomas M Cooley Law School Project, Refunding			6.000	%			7/1/24				910,000				958,907	(b)
Higher Education, Thomas M Cooley Law School Project, Refunding			6.750	%			7/1/44				200,000				212,813	(b)
Michigan State Finance Authority Revenue:
Henry Ford Health System, Series A			4.000	%			11/15/50				1,250,000				1,456,011
Tobacco Settlement Asset Backed Senior Bonds, Series A, Refunding			4.000	%			6/1/49				250,000				293,278
Tobacco Settlement Asset Backed Senior Bonds, Series B-1, Refunding			5.000	%			6/1/49				250,000				308,021
Michigan State Strategic Fund Limited Obligation Revenue, I-75 Improvement Project			5.000	%			12/31/43				850,000				1,039,850	(a)
Total Michigan															8,181,876
Minnesota — 0.9%
Minneapolis & St. Paul, MN, Metropolitan Airports Commission Revenue, Subordinated, Series B, Refunding			5.000	%			1/1/49				3,500,000				4,364,858	(a)
Missouri — 1.2%
Missouri State HEFA Revenue, Senior Living Facilities, Lutheran Senior Services, Refunding			5.000	%			2/1/44				2,450,000				2,651,645
St. Louis County, MO, IDA, Senior Living Facilities Revenue, Friendship Village of Sunset Hills, Series A			5.875	%			9/1/43				3,000,000				3,248,171
Total Missouri															5,899,816
Nebraska — 1.0%
Central Plains Energy Project, NE, Gas Project Revenue, Project #3, Series A, Refunding			5.000	%			9/1/42				3,160,000				4,807,628
Nevada — 0.8%
State of Nevada Department of Business & Industry Revenue:
Charter School Lease Revenue, Somerset Academy, Series A			5.000	%			12/15/35				1,295,000				1,460,114	(b)
Charter School Lease Revenue, Somerset Academy, Series A			5.125	%			12/15/45				2,015,000				2,243,056	(b)
Total Nevada															3,703,170

 

See Notes to Financial Statements.

 

18		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
New Jersey — 9.3%
Gloucester County, NJ, PCFA Revenue, Keystone Urban Renewal, Logan Generating, Series A, Refunding			5.000	%			12/1/24			$	1,355,000			$	1,462,983	(a)
New Jersey State EDA Revenue:
Cranes Mill Project, Refunding			5.000	%			1/1/39				1,000,000				1,174,088
Provident Group - Rowan Properties LLC, Rowan University Housing Project			5.000	%			1/1/48				2,000,000				2,117,397
School Facilities Construction, Series I, Refunding, State Appropriations (SIFMA Municipal Swap Index Yield + 1.600%)			1.620	%			3/1/28				17,500,000				17,767,183	(g)
New Jersey State EDA, Special Facility Revenue, Port Newark Container Terminal LLC Project, Refunding			5.000	%			10/1/37				400,000				474,065	(a)
New Jersey State Health Care Facilities Financing Authority Revenue, Hackensack Meridian Health, Series A, Refunding			5.000	%			7/1/38				300,000				367,300
New Jersey State Higher Education, Student Assistance Authority Revenue, Subordinated, Series 1B			5.000	%			12/1/44				2,780,000				2,944,043	(a)
New Jersey State Transportation Trust Fund Authority Revenue:
Highway Reimbursement, Refunding			5.000	%			6/15/31				1,700,000				2,011,209
Transportation Program, Series AA			5.250	%			6/15/43				500,000				631,225
Transportation Program, Series AA			4.000	%			6/15/45				2,500,000				2,962,508
Transportation Program, Series BB			4.000	%			6/15/44				3,950,000				4,548,097
Transportation System, Series A, Refunding			5.000	%			12/15/27				175,000				219,325
Transportation System, Series A, Refunding			5.000	%			12/15/28				2,325,000				2,974,126
Transportation System, Series D			5.000	%			6/15/32				4,625,000				5,309,177
Tobacco Settlement Financing Corp., NJ, Revenue, Series A, Refunding			5.250	%			6/1/46				500,000				616,130
Total New Jersey															45,578,856
New Mexico — 0.4%
Santa Fe, NM, Retirement Facilities Revenue:
EL Castillo Retirement Residences Project, Series A			5.000	%			5/15/49				750,000				852,889
EL Castillo Retirement Residences Project, Series B			2.250	%			5/15/24				600,000				602,196
EL Castillo Retirement Residences Project, Series B			2.625	%			5/15/25				600,000				602,728
Total New Mexico															2,057,813

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		19

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
New York — 4.8%
Brookhaven Local Development Corp., NY, Revenue, Long Island Community Hospital Project, Series A, Refunding			5.000	%			10/1/50			$	2,250,000			$	2,802,392
MTA, NY, Transportation Revenue:
Green Bonds, Series A-2			5.000	%			11/15/24				250,000				287,365
Green Bonds, Series D-1			5.000	%			11/15/43				500,000				639,803
Green Bonds, Series D-3			4.000	%			11/15/49				500,000				583,277
Green Bonds, Series E, Refunding			5.000	%			11/15/30				1,000,000				1,341,809
Green Bonds, Series E, Refunding			4.000	%			11/15/45				500,000				586,642
Series A-2			5.000	%			5/15/30				1,000,000				1,316,841	(f)(g)
Series B, Refunding			5.000	%			11/15/37				500,000				596,411
Nassau County, NY, Industrial Development Agency, Continuing Care Retirement Community Revenue, Amsterdam at Harborside, Series C			2.000	%			1/1/49				641,999				6	*(d)
New York City, NY, GO, Series F-1			4.000	%			3/1/47				2,000,000				2,401,180
New York City, NY, Industrial Development Agency Revenue, Yankee Stadium Project, Refunding			4.000	%			3/1/45				750,000				864,724
New York State Thruway Authority General Revenue, Junior Indebtedness Obligations, Subordinated, Series B, Refunding			4.000	%			1/1/50				1,750,000				2,058,646
New York State Transportation Development Corp., Special Facilities Revenue:
Delta Air Lines Inc., LaGuardia Airport Terminals C and D Redevelopment Project			4.375	%			10/1/45				2,000,000				2,410,626	(a)
John F. Kennedy Terminal 4 International Airport Project, Series C, Refunding			4.000	%			12/1/42				1,300,000				1,557,338
LaGuardia Airport Terminal B Redevelopment Project, Series A			5.000	%			7/1/41				1,100,000				1,238,703	(a)
LaGuardia Airport Terminal B Redevelopment Project, Series A			5.000	%			7/1/46				200,000				224,993	(a)
LaGuardia Airport Terminal B Redevelopment Project, Series A			5.250	%			1/1/50				1,000,000				1,132,837	(a)
Port Authority of New York & New Jersey Revenue, Series 221			4.000	%			7/15/55				2,000,000				2,346,600	(a)
Troy Capital Resource Corp., NY, Revenue, Rensselaer Polytechnic Institute Project, Series A, Refunding			4.000	%			9/1/40				1,000,000				1,198,322
Total New York															23,588,515

 

See Notes to Financial Statements.

 

20		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
North Carolina — 0.4%
North Carolina State Turnpike Authority, Monroe Expressway Toll Revenue, Series A, Refunding			5.000	%			7/1/51			$	1,600,000			$	1,834,212
Ohio — 2.7%
Buckeye, OH, Tobacco Settlement Financing Authority Revenue:
Senior Bonds, Series A-2, Refunding			4.000	%			6/1/48				700,000				819,556
Senior Bonds, Series B-2, Refunding			5.000	%			6/1/55				1,300,000				1,530,047
Indian Creek, OH, Local School District, GO, Series A, State Credit Program			5.000	%			11/1/55				2,335,000				2,818,034
Ohio State Air Quality Development Authority Revenue, American Electric Company Project, Series B, Refunding			2.500	%			10/1/29				1,000,000				1,112,594	(a)(f)(g)
Ohio State Private Activity Revenue, Portsmouth Bypass Project			5.000	%			6/30/53				1,650,000				1,858,977	(a)
Ohio State Water Development Authority, U.S. Steel Corp. Project, Refunding			6.600	%			5/1/29				5,000,000				5,061,174
Total Ohio															13,200,382
Oklahoma — 0.4%
Tulsa County, OK, Industrial Authority, Senior Living Community Revenue:
Montereau Inc. Project, Refunding			5.250	%			11/15/37				500,000				585,502
Montereau Inc. Project, Refunding			5.250	%			11/15/45				1,000,000				1,160,555
Total Oklahoma															1,746,057
Oregon — 0.4%
Clackamas County, OR, Hospital Facility Authority Revenue, Senior Living, Willamette View Project, Refunding			5.000	%			11/15/47				1,250,000				1,389,411
Medford, OR, Hospital Facilities Authority Revenue, Asante Project, Series A, Refunding			5.000	%			8/15/45				500,000				645,999
Total Oregon															2,035,410
Pennsylvania — 2.4%
Allegheny County, PA, HDA Revenue, University Pittsburgh Medical Center, Series A, Refunding			4.000	%			7/15/38				1,000,000				1,192,233
Armstrong, PA, School District, GO, Series A, BAM, State Aid Withholding, Refunding			4.000	%			3/15/41				2,000,000				2,374,055
Commonwealth Financing Authority, PA, Tobacco Master Settlement Payment Revenue Bonds, Series 2018			5.000	%			6/1/33				550,000				684,235
Lancaster, PA, IDA Revenue, Willow Valley Communities Project			5.000	%			12/1/49				1,750,000				2,035,141

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		21

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Pennsylvania — continued
Pennsylvania State Turnpike Commission Revenue, Subordinated, Series B			5.000	%			12/1/50			$	2,000,000			$	2,589,617
Philadelphia, PA, Authority for IDR:
Charter School Revenue, Philadelphia Performing Arts: A String Theory Charter School Project, Series 2020, Refunding			5.000	%			6/15/50				1,200,000				1,410,657
Discovery Charter School Project			6.250	%			4/1/42				635,000				651,509
Philadelphia, PA, Authority for IDR, Lease Revenue, Series 2019, Refunding			5.000	%			10/1/30				750,000				988,842
Total Pennsylvania															11,926,289
Puerto Rico — 4.2%
Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, Senior Lien, Series A			5.250	%			7/1/42				2,500,000				2,613,682
Puerto Rico Commonwealth Public Improvement Bonds, GO, Series A, Refunding			5.000	%			7/1/41				1,250,000				1,079,687	*(d)
Puerto Rico Electric Power Authority Revenue:
Series A			5.000	%			7/1/42				1,350,000				1,324,687	*(d)
Series A			5.050	%			7/1/42				215,000				210,969	*(d)
Series XX			5.250	%			7/1/40				2,130,000				2,098,050	*(d)
Series ZZ, Refunding			5.250	%			7/1/18				350,000				340,375	*(h)
Puerto Rico Sales Tax Financing Corp., Sales Tax Revenue:
CAB, Restructured, Series A-1			0.000	%			7/1/27				760,000				697,789
CAB, Restructured, Series A-1			0.000	%			7/1/46				590,000				198,510
CAB, Restructured, Series A-1			0.000	%			7/1/51				5,600,000				1,363,159
Restructured, Series A-1			4.550	%			7/1/40				130,000				149,900
Restructured, Series A-1			5.000	%			7/1/58				8,190,000				9,570,261
Restructured, Series A-2			4.329	%			7/1/40				720,000				820,051
Total Puerto Rico															20,467,120
Rhode Island — 0.0%††
Central Falls, RI, Detention Facility Corp., Detention Facilities Revenue, Refunding			7.250	%			7/15/35				980,000				176,400	*(d)
Tennessee — 0.5%
Knox County, TN, Health, Educational & Housing Facility Board Revenue, University Health System Inc., Series A			5.000	%			9/1/30				750,000				939,526
Tennessee State Energy Acquisition Corp., Natural Gas Revenue, Series 2018			4.000	%			11/1/25				1,250,000				1,420,509	(f)(g)
Total Tennessee															2,360,035

 

See Notes to Financial Statements.

 

22		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Texas — 9.6%
Arlington, TX, Special Tax Revenue, Senior Lien, Series A, AGM			5.000	%			2/15/48			$	1,600,000			$	1,947,315
Austin, TX, Airport System Revenue, Series 2019B			5.000	%			11/15/44				1,250,000				1,582,094	(a)
Central Texas Regional Mobility Authority Revenue:
CAB			0.000	%			1/1/36				2,800,000				2,079,500
CAB			0.000	%			1/1/38				2,000,000				1,400,528
CAB			0.000	%			1/1/40				2,200,000				1,454,652
Gulf Coast, TX, IDA, Solid Waste Disposal Revenue, Citgo Petroleum Corp. Project			4.875	%			5/1/25				2,000,000				2,047,476	(a)
Houston, TX, Airport System Revenue:
Special Facilities, Continental Airlines Terminal Improvement Projects, Refunding			6.500	%			7/15/30				6,500,000				6,540,321	(a)
Special Facilities, Continental Airlines Terminal Improvement Projects, Refunding			6.625	%			7/15/38				5,000,000				5,030,235	(a)
Special Facilities, United Airlines Terminal Improvement Projects, Refunding			5.000	%			7/15/35				7,500,000				8,363,076	(a)
Subordinated Lien, Series A, Refunding			4.000	%			7/1/40				1,250,000				1,509,979	(a)
Love Field, TX, Airport Modernization Corp., General Airport Revenue:
Series 2017			5.000	%			11/1/33				110,000				133,075	(a)
Series 2017			5.000	%			11/1/36				110,000				133,019	(a)
New Hope Cultural Education Facilities Finance Corp., TX, Retirement Facility Revenue, Westminster Project			4.000	%			11/1/49				1,200,000				1,374,295
New Hope Cultural Education Facilities Finance Corp., TX, Senior Living Revenue:
Cardinal Bay Inc., Village on the Park Carriage Inn Project, Series A			5.000	%			7/1/46				500,000				524,577
Cardinal Bay Inc., Village on the Park Carriage Inn Project, Series A			5.000	%			7/1/51				650,000				680,471
Cardinal Bay Inc., Village on the Park Carriage Inn Project, Series B			5.000	%			7/1/46				650,000				507,844
New Hope Cultural Education Facilities Finance Corp., TX, Student Housing Revenue, Collegiate Housing College Station, AGM			5.000	%			4/1/46				500,000				554,635
Tarrant County, TX, Cultural Education Facilities Finance Corp., Retirement Facility Revenue:
Buckner Retirement Services Inc. Project, Refunding			5.000	%			11/15/37				1,000,000				1,212,263

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		23

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Texas — continued
Buckner Retirement Services Inc. Project, Refunding			5.000	%			11/15/46			$	1,200,000			$	1,434,323
Texas State, Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue, Senior Lien, Series D			6.250	%			12/15/26				4,940,000				5,825,083
Texas State Private Activity Bond Surface Transportation Corp. Revenue:
LBJ Infrastructure Group LLC I-635 Managed Lanes Project, Series A			4.000	%			12/31/39				500,000				597,963
Senior Lien, Blueridge Transportation Group LLC			5.000	%			12/31/50				1,500,000				1,697,403	(a)
Willacy County, TX, Jail Public Facilities Corp. Project Revenue			7.500	%			11/1/25				345,000				317,844
Woodloch, TX, Health Facilities Development Corp., Senior Housing Revenue:
Inspired Living at Lewisville Project, Series A-1			6.750	%			12/1/51				400,000				281,159	*(b)(d)
Subordinated, Inspired Living at Lewisville Project, Series B			10.000	%			12/1/51				150,000				75,126	*(d)
Total Texas															47,304,256
U.S. Virgin Islands — 1.3%
Virgin Islands Public Finance Authority Revenue:
Subordinated, Matching Fund Loan, Diageo Project, Series A			6.625	%			10/1/29				2,100,000				2,117,106
Subordinated, Matching Fund Loan, Diageo Project, Series A			6.750	%			10/1/37				4,475,000				4,511,453
Total U.S. Virgin Islands															6,628,559
Utah — 0.8%
Utah State Charter School Finance Authority, Charter School Revenue:
Summit Academy Inc., Series A, Refunding, UT CSCE			5.000	%			4/15/39				350,000				426,405
Summit Academy Inc., Series A, Refunding, UT CSCE			5.000	%			4/15/44				625,000				754,353
Syracuse Arts Academy Project, UT CSCE			5.000	%			4/15/42				750,000				862,224
Utah State Infrastructure Agency Telecommunication Revenue:
Series 2021			4.000	%			10/15/41				500,000				586,209
Series A			5.375	%			10/15/40				1,150,000				1,401,473
Total Utah															4,030,664

 

See Notes to Financial Statements.

 

24		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Virginia — 0.4%
Virginia State Small Business Financing Authority Revenue:
Bon Secours Mercy Health, Series A, Refunding			4.000	%			12/1/49			$	1,000,000			$	1,181,082
National Senior Campuses, Inc., Series A, Refunding			5.000	%			1/1/34				500,000				617,094
Total Virginia															1,798,176
Washington — 0.6%
Washington State Health Care Facilities Authority Revenue:
Commonspirit Health, Series B, Refunding			5.000	%			8/1/26				1,000,000				1,195,584	(f)(g)
Seattle Cancer Care Alliance			5.000	%			12/1/31				270,000				364,675
Seattle Cancer Care Alliance, Refunding			5.000	%			9/1/50				1,000,000				1,291,380
Total Washington															2,851,639
West Virginia — 0.2%
West Virginia University Revenue, West Virginia Projects, Series B, Refunding			5.000	%			10/1/29				750,000				969,964	(f)(g)
Wisconsin — 1.7%
Public Finance Authority, WI, Limited Obligation Pilot Revenue, American Dream @ Meadowlands Project, Series 2017			7.000	%			12/1/50				750,000				877,833	(b)
Public Finance Authority, WI, Revenue:
Carmelite System Inc., Obligated Group, Series 2020			5.000	%			1/1/40				300,000				368,059
Church Home of Hartford Inc. Project, Refunding			5.000	%			9/1/38				1,250,000				1,357,474	(b)
Public Finance Authority, WI, Student Housing Revenue:
Beyond Boone LLC, Appalachian State University Project, AGM			4.000	%			7/1/50				700,000				795,407
CHF Wilmington LLC, University of North Carolina at Wilmington Project, AGM			5.000	%			7/1/53				2,470,000				2,982,081
Wisconsin HEFA Revenue:
Rogers Memorial Hospital, Inc., Series A, Refunding			5.000	%			7/1/44				200,000				236,588

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		25

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Wisconsin — continued
Rogers Memorial Hospital, Inc., Series A, Refunding			5.000	%			7/1/49			$	1,000,000			$	1,178,885
Rogers Memorial Hospital, Inc., Series B, Refunding			5.000	%			7/1/38				500,000				595,535
Total Wisconsin															8,391,862
Total Municipal Bonds (Cost — $414,175,893)															465,731,645
Municipal Bonds Deposited in Tender Option Bond Trust (i) —1.1%
New York — 1.1%
New York State Urban Development Corp. Revenue, State Personal Income Tax Revenue Bonds, Bidding Group 3, Series E, Refunding (Cost — $5,592,493)			4.000	%			3/15/41				4,755,000				5,662,463
Total Investments before Short-Term Investments (Cost — $419,768,386)															471,394,108
Short-Term Investments — 4.7%
Municipal Bonds — 4.7%
California — 0.2%
San Francisco, CA, City & County Airport Commission, International Airport Revenue, Second Series A, Refunding, LOC - Bank of America N.A.			0.030	%			5/1/30				795,000				795,000	(a)(j)(k)
Florida — 1.3%
Florida Gulf Coast University Finance Corp., Capital Improvement Revenue, Housing Projects, Series A, LOC - TD Bank N.A.			0.030	%			2/1/38				3,600,000				3,600,000	(j)(k)
St. Lucie County, FL, Solid Waste Disposal Revenue, Florida Power & Light Co. Project, Refunding			0.050	%			5/1/24				2,800,000				2,800,000	(a)(j)(k)
Total Florida															6,400,000
Georgia — 0.5%
Douglas County, GA, Development Authority, IDR, Pandosia LLC Project, Series A, LOC - Wells Fargo Bank N.A.			0.060	%			12/1/27				2,105,000				2,105,000	(a)(j)(k)
Mississippi — 0.1%
Mississippi State Business Finance Corp., Gulf Opportunity Zone, IDR:
Chevron USA Inc. Project, Series G			0.020	%			11/1/35				400,000				400,000	(j)(k)
Chevron USA Inc. Project, Series I			0.020	%			11/1/35				200,000				200,000	(j)(k)
Total Mississippi															600,000

 

See Notes to Financial Statements.

 

26		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
New Jersey — 0.3%
New Jersey State Health Care Facilities Financing Authority Revenue:
Meridian Health System Obligated Group Issue, Series A, LOC - TD Bank N.A.			0.030	%			7/1/33			$	1,000,000			$	1,000,000	(j)(k)
Series D, LOC - TD Bank N.A.			0.030	%			7/1/43				400,000				400,000	(j)(k)
New Jersey State Health Care Facilities Financing Authority Revenue, Virtua Health Inc., Series B, LOC - JPMorgan Chase & Co.			0.030	%			7/1/43				100,000				100,000	(j)(k)
Total New Jersey															1,500,000
New York — 1.7%
MTA, NY, Transportation Revenue, Subseries G-2, Refunding, LOC - TD Bank N.A.			0.030	%			11/1/32				200,000				200,000	(j)(k)
New York City, NY, GO, Subseries E-5, LOC - TD Bank N.A.			0.020	%			3/1/48				3,900,000				3,900,000	(j)(k)
New York City, NY, TFA Revenue Future Tax Secured:
Subseries A, Refunding, SPA - TD Bank N.A.			0.020	%			11/1/29				500,000				500,000	(j)(k)
Subseries D-3, SPA - Mizuho Bank Ltd.			0.040	%			2/1/44				200,000				200,000	(j)(k)
New York State Dormitory Authority Revenue, City University, Series D, Refunding, LOC - TD Bank N.A.			0.030	%			7/1/31				1,600,000				1,600,000	(j)(k)
New York State HFA Revenue, 455 West 37th Street Housing, Series A, LOC - Landesbank Hessen-Thueringen			0.040	%			5/1/41				1,700,000				1,700,000	(a)(j)(k)
Triborough Bridge & Tunnel Authority, NY, Revenue, Subseries B-3, Refunding, LOC - State Street Bank & Trust Co.			0.020	%			1/1/32				300,000				300,000	(j)(k)
Total New York															8,400,000
Oregon — 0.0%††
Oregon State Facilities Authority Revenue, Peacehealth, Series B, Refunding, LOC - TD Bank N.A.			0.020	%			8/1/34				100,000				100,000	(j)(k)
Pennsylvania — 0.0%††
Pennsylvania State Turnpike Commission Revenue, Second Series, Refunding, LOC - TD Bank N.A.			0.030	%			12/1/38				100,000				100,000	(j)(k)
Texas — 0.4%
Lower Neches Valley Authority, TX, Industrial Development Corp. Revenue:
ExxonMobil Corp., Series B, Refunding			0.030	%			11/1/29				800,000				800,000	(a)(j)(k)

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		27

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

(Percentages shown based on Fund net assets)

 

Security		Rate				Maturity Date				Face Amount				Value
Texas — continued
ExxonMobil Corp., Subordinated, Series B-2, Refunding			0.030	%			12/1/39			$	600,000			$	600,000	(a)(j)(k)
Lower Neches Valley, TX, IDA Revenue, Industrial Development Corp. Project, Refunding			0.030	%			5/1/46				600,000				600,000	(j)(k)
Total Texas															2,000,000
Utah — 0.2%
Utah County, UT, Hospital Revenue, IHC Health Services Inc., Series C, SPA - TD Bank N.A.			0.020	%			5/15/58				1,000,000				1,000,000	(j)(k)
Total Short-Term Investments (Cost — $23,000,000)															23,000,000
Total Investments — 100.8% (Cost — $442,768,386)															494,394,108
TOB Floating Rate Notes — (0.7)%															(3,565,000	)
Other Liabilities in Excess of Other Assets — (0.1)%															(514,891	)
Total Net Assets — 100.0%														$	490,314,217

 

See Notes to Financial Statements.

 

28		Western Asset Municipal High Income Fund 2021 Annual Report

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Western Asset Municipal High Income Fund

 

††	Represents less than 0.1%.

 

*	Non-income producing security.

 

(a)	Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (“AMT”).

 

(b)

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

 

(c)	Pre-Refunded bonds are generally escrowed with U.S. government obligations and/or U.S. government agency securities.

 

(d)	The coupon payment on this security is currently in default as of July 31, 2021.

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

 

(f)	Maturity date shown represents the mandatory tender date.

 

(g)

Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.

 

(h)	The maturity principal is currently in default as of July 31, 2021.

 

(i)	Represents securities deposited into a special purpose entity, referred to as a Tender Option Bond (“TOB”) trust (Note 1).

 

(j)

Variable rate demand obligations (“VRDOs”) have a demand feature under which the Fund can tender them back to the issuer or liquidity provider on no more than 7 days notice. The interest rate generally resets on a daily or weekly basis and is determined on the specific interest rate reset date by the remarketing agent, pursuant to a formula specified in official documents for the VRDO, or set at the highest rate allowable as specified in official documents for the VRDO. VRDOs are benchmarked to the Securities Industry and Financial Markets Association (“SIFMA”) Municipal Swap Index. The SIFMA Municipal Swap Index is compiled from weekly interest rate resets of tax-exempt VRDOs reported to the Municipal Securities Rulemaking Board’s Short-term Obligation Rate Transparency System.

 

(k)	Maturity date shown is the final maturity date. The security may be sold back to the issuer before final maturity.

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		29

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Schedule of investments (cont’d)

July 31, 2021

 

Western Asset Municipal High Income Fund

 

Abbreviation(s) used in this schedule:
AGM		— Assured Guaranty Municipal Corporation — Insured Bonds
BAM		— Build America Mutual — Insured Bonds
CAB		— Capital Appreciation Bonds
CDA		— Communities Development Authority
CSCE		— Charter School Credit Enhancement
DFA		— Development Finance Agency
EDA		— Economic Development Authority
EDC		— Economic Development Corporation
EFA		— Educational Facilities Authority
GO		— General Obligation
HDA		— Housing Development Authority
HEFA		— Health & Educational Facilities Authority
HFA		— Housing Finance Agency
IDA		— Industrial Development Authority
IDR		— Industrial Development Revenue
LOC		— Letter of Credit
MFA		— Municipal Finance Authority
MTA		— Metropolitan Transportation Authority
NATL		— National Public Finance Guarantee Corporation — Insured Bonds
PCFA		— Pollution Control Financing Authority
PEA		— Public Energy Authority
PFA		— Public Facilities Authority
SIFMA		— Securities Industry and Financial Markets Association
SPA		— Standby Bond Purchase Agreement — Insured Bonds
TFA		— Transitional Finance Authority

 

See Notes to Financial Statements.

 

30		Western Asset Municipal High Income Fund 2021 Annual Report

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Statement of assets and liabilities

July 31, 2021

 

Assets:
Investments, at value (Cost — $442,768,386)		$	494,394,108
Cash			96,219
Interest receivable			4,131,801
Receivable for Fund shares sold			298,714
Prepaid expenses			37,069
Total Assets			498,957,911
Liabilities:
Payable for securities purchased			3,739,850
TOB Floating Rate Notes (Note 1)			3,565,000
Payable for Fund shares repurchased			680,265
Distributions payable			250,159
Investment management fee payable			221,732
Service and/or distribution fees payable			50,296
Interest expense payable			8,291
Trustees’ fees payable			782
Accrued expenses			127,319
Total Liabilities			8,643,694
Total Net Assets		$	490,314,217
Net Assets:
Par value (Note 7)		$	334
Paid-in capital in excess of par value			457,050,548
Total distributable earnings (loss)			33,263,335
Total Net Assets		$	490,314,217
Net Assets:
Class A			$284,497,438
Class C			$23,249,690
Class I			$182,567,089
Shares Outstanding:
Class A			19,319,093
Class C			1,587,733
Class I			12,463,480
Net Asset Value:
Class A (and redemption price)			$14.73
Class C*			$14.64
Class I (and redemption price)			$14.65
Maximum Public Offering Price Per Share:
Class A (based on maximum initial sales charge of 4.25%)			$15.38

 

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

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		31

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Statement of operations

For the Year Ended July 31, 2021

 

Investment Income:
Interest		$	19,136,110
Expenses:
Investment management fee (Note 2)			2,625,781
Service and/or distribution fees (Notes 2 and 5)			604,647
Transfer agent fees (Note 5)			334,692
Registration fees			80,494
Fund accounting fees			72,738
Audit and tax fees			45,140
Legal fees			16,709
Shareholder reports			15,055
Interest expense (Note 1)			14,627
Trustees’ fees			8,041
Insurance			6,307
Commitment fees (Note 8)			4,785
Custody fees			3,995
Miscellaneous expenses			9,465
Total Expenses			3,842,476
Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)			(62,581)
Net Expenses			3,779,895
Net Investment Income			15,356,215
Realized and Unrealized Gain on Investments and Futures Contracts (Notes 1, 3 and 4):
Net Realized Gain From:
Investment transactions			6,554,515
Futures contracts			1,651,143
Net Realized Gain			8,205,658
Change in Net Unrealized Appreciation (Depreciation) From:
Investments			12,725,291
Futures contracts			461,054
Change in Net Unrealized Appreciation (Depreciation)			13,186,345
Net Gain on Investments and Futures Contracts			21,392,003
Increase in Net Assets From Operations		$	36,748,218

 

See Notes to Financial Statements.

 

32		Western Asset Municipal High Income Fund 2021 Annual Report

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Statements of changes in net assets

 

 

For the Years Ended July 31,		2021				2020
Operations:
Net investment income		$	15,356,215			$	18,651,263
Net realized gain (loss)			8,205,658				(3,414,180)
Change in net unrealized appreciation (depreciation)			13,186,345				(6,707,233)
Increase in Net Assets From Operations			36,748,218				8,529,850
Distributions to Shareholders From (Notes 1 and 6):
Total distributable earnings			(15,204,638)				(18,698,152)
Decrease in Net Assets From Distributions to Shareholders			(15,204,638)				(18,698,152)
Fund Share Transactions (Note 7):
Net proceeds from sale of shares			79,723,827				128,532,779
Reinvestment of distributions			12,241,062				14,990,438
Cost of shares repurchased			(103,869,334)				(182,331,811)
Decrease in Net Assets From Fund Share Transactions			(11,904,445)				(38,808,594)
Increase (Decrease) in Net Assets			9,639,135				(48,976,896)
Net Assets:
Beginning of year			480,675,082				529,651,978
End of year		$	490,314,217			$	480,675,082

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		33

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Financial highlights

 

For a share of each class of beneficial interest outstanding throughout each year ended July 31:
Class A Shares1		2021				2020				2019				2018				20172
Net asset value, beginning of year			$14.07				$14.27				$14.05				$14.33				$14.88
Income (loss) from operations:
Net investment income			0.46				0.51				0.61				0.60				0.60
Net realized and unrealized gain (loss)			0.65				(0.20)				0.22				(0.28)				(0.55)
Total income from operations			1.11				0.31				0.83				0.32				0.05
Less distributions from:
Net investment income			(0.45)				(0.51)				(0.61)				(0.60)				(0.60)
Net realized gains			—				—				—				(0.00)	3			—
Total distributions			(0.45)				(0.51)				(0.61)				(0.60)				(0.60)
Net asset value, end of year			$14.73				$14.07				$14.27				$14.05				$14.33
Total return4			7.98	%			2.32	%			6.09	%			2.31	%			0.41	%
Net assets, end of year (millions)			$284				$274				$283				$262				$279
Ratios to average net assets:
Gross expenses			0.82	%			0.82	%			0.83	%			0.82	%			0.81	%5
Net expenses			0.82	6			0.82	6			0.83				0.82	6			0.80	5,6
Net investment income			3.19				3.66				4.36				4.23				4.15
Portfolio turnover rate			21	%			28	%			17	%			15	%			8	%

 

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

 

2	Prior to November 21, 2016, Western Asset Municipal High Income Fund invested, as a feeder fund, in Municipal High Income Portfolio. Per share data and ratios include Western Asset Municipal High Income Fund information as a stand-alone and feeder fund for the respective periods.

 

3	Amount represents less than $0.005 per share.

 

4

Performance figures, exclusive of sales charges, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

5	Includes the Fund’s share of Municipal High Income Portfolio’s allocated expenses.

 

6	Reflects fee waivers and/or expense reimbursements.

 

See Notes to Financial Statements.

 

34		Western Asset Municipal High Income Fund 2021 Annual Report

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For a share of each class of beneficial interest outstanding throughout each year ended July 31:
Class C Shares1		2021				2020				2019				2018				20172
Net asset value, beginning of year			$14.00				$14.19				$13.97				$14.25				$14.81
Income (loss) from operations:
Net investment income			0.38				0.44				0.53				0.52				0.51
Net realized and unrealized gain (loss)			0.63				(0.20)				0.22				(0.28)				(0.56)
Total income (loss) from operations			1.01				0.24				0.75				0.24				(0.05)
Less distributions from:
Net investment income			(0.37)				(0.43)				(0.53)				(0.52)				(0.51)
Net realized gains			—				—				—				(0.00)	3			—
Total distributions			(0.37)				(0.43)				(0.53)				(0.52)				(0.51)
Net asset value, end of year			$14.64				$14.00				$14.19				$13.97				$14.25
Total return4			7.34	%			1.74	%			5.50	%			1.73	%			(0.25)	%
Net assets, end of year (000s)			$23,250				$31,104				$50,857				$84,668				$97,922
Ratios to average net assets:
Gross expenses			1.38	%			1.39	%			1.40	%			1.38	%			1.38	%5
Net expenses			1.38				1.39	6			1.40				1.38	6			1.38	5,6
Net investment income			2.64				3.10				3.81				3.67				3.58
Portfolio turnover rate			21	%			28	%			17	%			15	%			8	%

 

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

 

2	Prior to November 21, 2016, Western Asset Municipal High Income Fund invested, as a feeder fund, in Municipal High Income Portfolio. Per share data and ratios include Western Asset Municipal High Income Fund information as a stand-alone and feeder fund for the respective periods.

 

3	Amount represents less than $0.005 per share.

 

4

Performance figures, exclusive of CDSC, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

5	Includes the Fund’s share of Municipal High Income Portfolio’s allocated expenses.

 

6	Reflects fee waivers and/or expense reimbursements.

 

See Notes to Financial Statements.

 

Western Asset Municipal High Income Fund 2021 Annual Report		35

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Financial highlights (cont’d)

 

For a share of each class of beneficial interest outstanding throughout each year ended July 31:
Class I Shares1		2021				2020				2019				2018				20172
Net asset value, beginning of year			$14.00				$14.19				$13.98				$14.26				$14.81
Income (loss) from operations:
Net investment income			0.48				0.54				0.63				0.62				0.61
Net realized and unrealized gain (loss)			0.65				(0.20)				0.21				(0.28)				(0.54)
Total income from operations			1.13				0.34				0.84				0.34				0.07
Less distributions from:
Net investment income			(0.48)				(0.53)				(0.63)				(0.62)				(0.62)
Net realized gains			—				—				—				(0.00)	3			—
Total distributions			(0.48)				(0.53)				(0.63)				(0.62)				(0.62)
Net asset value, end of year			$14.65				$14.00				$14.19				$13.98				$14.26
Total return4			8.18	%			2.49	%			6.21	%			2.48	%			0.54	%
Net assets, end of year (millions)			$183				$175				$196				$221				$242
Ratios to average net assets:
Gross expenses			0.69	%			0.69	%			0.70	%			0.69	%			0.72	%5
Net expenses6,7			0.65				0.65				0.65				0.65				0.65	5
Net investment income			3.35				3.83				4.54				4.41				4.28
Portfolio turnover rate			21	%			28	%			17	%			15	%			8	%

 

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

 

2	Prior to November 21, 2016, Western Asset Municipal High Income Fund invested, as a feeder fund, in Municipal High Income Portfolio. Per share data and ratios include Western Asset Municipal High Income Fund information as a stand-alone and feeder fund for the respective periods.

 

3	Amount represents less than $0.005 per share.

 

4	Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

 

5	Includes the Fund’s share of Municipal High Income Portfolio’s allocated expenses.

 

6

As a result of an expense limitation arrangement, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.65%. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

 

7	Reflects fee waivers and/or expense reimbursements.

 

See Notes to Financial Statements.

 

36		Western Asset Municipal High Income Fund 2021 Annual Report

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Notes to financial statements

 

1. Organization and significant accounting policies

Western Asset Municipal High Income Fund (the “Fund”) is a separate diversified investment series of Legg Mason Partners Income Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.

(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.

The Board of Trustees is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Global Fund Valuation Committee (formerly known as Legg Mason North Atlantic Fund Valuation Committee prior to March 1, 2021) (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Trustees. When determining the reliability of third party pricing information for investments owned by the

 

Western Asset Municipal High Income Fund 2021 Annual Report		37

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Notes to financial statements (cont’d)

 

Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Trustees, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Trustees quarterly.

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

 

•

Level 1 — quoted prices in active markets for identical investments

 

•

Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

•

Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

 

38		Western Asset Municipal High Income Fund 2021 Annual Report

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

 

ASSETS
Description		Quoted Prices (Level 1)				Other Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Long-Term Investments†:
Municipal Bonds			—			$	465,731,645				—			$	465,731,645
Municipal Bonds Deposited in Tender Option Bond Trust			—				5,662,463				—				5,662,463
Total Long-Term Investments			—				471,394,108				—				471,394,108
Short-Term Investments†			—				23,000,000				—				23,000,000
Total Investments			—			$	494,394,108				—			$	494,394,108

 

†	See Schedule of Investments for additional detailed categorizations.

(b) Tender option bonds. The Fund may enter into tender option bond (“TOB”) transactions and may invest in inverse floating rate instruments (“Inverse Floaters”) issued in TOB transactions. The Fund may participate either in structuring an Inverse Floater or purchasing an Inverse Floater in the secondary market. When structuring an Inverse Floater, the Fund deposits securities (typically municipal bonds or other municipal securities) (the “Underlying Bonds”) into a special purpose entity, referred to as a TOB trust. The TOB trust generally issues floating rate notes (“Floaters”) to third parties and residual interest, Inverse Floaters, to the Fund. The Floaters issued by the TOB trust have interest rates which reset weekly and provide the holders of the Floaters the option to tender their notes back to the TOB trust for redemption at par at each reset date. The net proceeds of the sale of the Floaters, after expenses, are received by the Fund and may be invested in additional securities. The Inverse Floaters are inverse floating rate debt instruments, as the return on those bonds is inversely related to changes in a specified interest rate. Distributions on any Inverse Floaters paid to the Fund will be reduced or, in the extreme, eliminated as short-term interest rates rise and will increase when such interest rates fall. Floaters issued by a TOB trust may be senior to the Inverse Floaters held by the Fund. The value and market for Inverse Floaters can be volatile, and Inverse Floaters can have limited liquidity.

An investment in an Inverse Floater structured by the Fund is accounted for as a secured borrowing. The Underlying Bonds deposited into the TOB trust are included in the Fund’s Schedule of Investments and a liability for Floaters (TOB floating rate notes) issued by the TOB trust is recognized in the Fund’s Statement of Assets and Liabilities. The carrying amount of the TOB trust’s floating rate note obligations as reported on the Statement of Assets and Liabilities approximates its fair value. Interest income, including amortization, on the Underlying Bonds is recognized in the Fund’s Statements of Operations. Interest paid to holders of the Floaters, as well as other expenses related to administration, liquidity, remarketing and trustee services of the TOB trust, are recognized in Interest expense in the Fund’s Statement of Operations.

 

Western Asset Municipal High Income Fund 2021 Annual Report		39

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Notes to financial statements (cont’d)

 

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

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

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

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

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

(e) Credit and market risk. The Fund invests in high-yield instruments that are subject to certain credit and market risks. The yields of high-yield reflect, among other things, perceived credit and market risks. The Fund’s investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading.

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

 

40		Western Asset Municipal High Income Fund 2021 Annual Report

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Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the subadviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.

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

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

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

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Schedule of Investments.

As of July 31, 2021, the Fund did not have any open OTC derivative transactions with credit related contingent features in a net liability position.

(g) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on

 

Western Asset Municipal High Income Fund 2021 Annual Report		41

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Notes to financial statements (cont’d)

 

the accrual basis. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.

(h) Distributions to shareholders. Distributions from net investment income of the Fund are declared each business day to shareholders of record and are paid monthly. The Fund intends to satisfy conditions that will enable interest from municipal securities, which is exempt from federal and certain state income taxes, to retain such tax-exempt status when distributed to the shareholders of the Fund. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

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

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

(k) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Fund’s financial statements.

Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of July 31, 2021, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.

(l) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the Fund had no reclassifications.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and Western Asset Management Company, LLC (“Western Asset”) is the Fund’s subadviser.

 

42		Western Asset Municipal High Income Fund 2021 Annual Report

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LMPFA and Western Asset are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).

Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, in accordance with the following breakpoint schedule:

 

Average Daily Net Assets		Annual Rate
First $1 billion			0.550	%
Next $1 billion			0.525
Next $3 billion			0.500
Next $5 billion			0.475
Over $10 billion			0.450

LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. For its services, LMPFA pays Western Asset a fee monthly, at an annual rate equal to 70% of the net management fee it receives from the Fund.

As a result of an expense limitation arrangement between the Fund and LMPFA, the ratio of total annual fund operating expenses, other than interest, brokerage, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.65%. This expense limitation arrangement cannot be terminated prior to December 31, 2022 without the Board of Trustees’ consent.

During the year ended July 31, 2021, fees waived and/or expenses reimbursed amounted to $62,581.

LMPFA is permitted to recapture amounts waived and/or reimbursed to a class within two years after the fiscal year in which LMPFA earned the fee or incurred the expense if the class’ total annual fund operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expenses incurred. In no case will LMPFA recapture any amount that would result, on any particular business day of the Fund, in the class’ total annual fund operating expenses exceeding the expense cap or any other lower limit then in effect.

Pursuant to these arrangements, at July 31, 2021, the Fund had remaining fee waivers and/or expense reimbursements subject to recapture by LMPFA and respective dates of expiration as follows:

 

		Class I
Expires July 31, 2023		$	62,579
Total fee waivers/expense reimbursements subject to recapture		$	62,579

For the year ended July 31, 2021, LMPFA did not recapture any fees.

 

Western Asset Municipal High Income Fund 2021 Annual Report		43

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Notes to financial statements (cont’d)

 

Franklin Distributors, LLC (formerly known as Legg Mason Investor Services, LLC prior to July 7, 2021) (“Franklin Distributors”) serves as the Fund’s sole and exclusive distributor. Franklin Distributors is an indirect, wholly-owned broker-dealer subsidiary of Franklin Resources.

There is a maximum initial sales charge of 4.25% for Class A shares. There is a contingent deferred sales charge (“CDSC”) of 1.00% on Class C shares, which applies if redemption occurs within 12 months from purchase payment. In certain cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs within 18 months from purchase payment. This CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of other shares of funds sold by Franklin Distributors, equal or exceed $250,000 in the aggregate. These purchases do not incur an initial sales charge.

For the year ended July 31, 2021, sales charges retained by and CDSCs paid to Franklin Distributors and its affiliates, if any, were as follows:

 

		Class A				Class C
Sales charges		$	(485)				—
CDSCs			6,324			$	167

All officers and one Trustee of the Trust are employees of Franklin Resources or its affiliates and do not receive compensation from the Trust.

The Fund is permitted to purchase or sell securities, typically short-term variable rate demand obligations, from or to certain other affiliated funds or portfolios under specified conditions outlined in procedures adopted by the Board of Trustees. The procedures have been designed to provide assurance that any purchase or sale of securities by the Fund from or to another fund or portfolio that is, or could be considered, an affiliate by virtue of having a common investment manager or subadviser (or affiliated investment manager or subadviser), common Trustees and/or common officers complies with Rule 17a-7 under the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. For the year ended July 31, 2021, such purchase and sale transactions (excluding accrued interest) were $46,175,000 and $79,870,000, respectively.

3. Investments

During the year ended July 31, 2021, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:

 

Purchases		$	100,623,965
Sales			114,401,795

 

44		Western Asset Municipal High Income Fund 2021 Annual Report

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At July 31, 2021, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

 

		Cost				Gross Unrealized Appreciation				Gross Unrealized Depreciation				Net Unrealized Appreciation
Securities		$	439,522,698			$	52,992,232			$	(1,685,822)			$	51,306,410

4. Derivative instruments and hedging activities

At July 31, 2021, the Fund did not have any derivative instruments outstanding.

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the year ended July 31, 2021. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during the period.

 

AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
		Interest Rate Risk
Futures contracts		$	1,651,143
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
		Interest Rate Risk
Futures contracts		$	461,054

During the year ended July 31, 2021, the volume of derivative activity for the Fund was as follows:

 

		Average Market Value
Futures contracts (to sell)†		$	6,312,678

 

†	At July 31, 2021, there were no open positions held in this derivative.

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

The Fund has adopted a Rule 12b-1 shareholder services and distribution plan and under that plan the Fund pays service and/or distribution fees with respect to its Class A and Class C shares calculated at the annual rate of 0.15% and 0.70% of the average daily net assets of each class, respectively. Service and/or distribution fees are accrued daily and paid monthly.

 

Western Asset Municipal High Income Fund 2021 Annual Report		45

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Notes to financial statements (cont’d)

 

For the year ended July 31, 2021, class specific expenses were as follows:

 

		Service and/or Distribution Fees				Transfer Agent Fees
Class A		$	415,669	†		$	175,849
Class C			188,978				18,226
Class I			—				140,617
Total		$	604,647			$	334,692

 

†	Amount shown is exclusive of expense reimbursements. For the year ended July 31, 2021, the service and/or distribution fees reimbursed amounted to $2 for Class A shares.

For the year ended July 31, 2021, waivers and/or expense reimbursements by class were as follows:

 

		Waivers/Expense Reimbursements
Class A		$	2
Class C			—
Class I			62,579
Total		$	62,581

6. Distributions to shareholders by class

 

		Year Ended July 31, 2021				Year Ended July 31, 2020
Net Investment Income:
Class A		$	8,744,190			$	10,200,060
Class C			704,336				1,353,445
Class I			5,756,112				7,144,647
Total		$	15,204,638			$	18,698,152

7. Shares of beneficial interest

At July 31, 2021, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Fund has the ability to issue multiple classes of shares. Each class of shares represents an identical interest and has the same rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares.

Transactions in shares of each class were as follows:

 

		Year Ended July 31, 2021								Year Ended July 31, 2020
		Shares				Amount				Shares				Amount
Class A
Shares sold			2,196,556			$	31,599,014				3,383,688			$	47,972,255
Shares issued on reinvestment			538,299				7,720,518				642,504				9,060,468
Shares repurchased			(2,911,899)				(41,741,477)				(4,347,305)				(59,823,307)
Net decrease			(177,044)			$	(2,421,945)				(321,113)			$	(2,790,584)

 

46		Western Asset Municipal High Income Fund 2021 Annual Report

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		Year Ended July 31, 2021								Year Ended July 31, 2020
		Shares				Amount				Shares				Amount
Class C
Shares sold			158,615			$	2,251,477				268,811			$	3,793,622
Shares issued on reinvestment			43,717				622,420				72,680				1,020,415
Shares repurchased			(836,843)				(11,951,575)				(1,703,526)				(23,728,128)
Net decrease			(634,511)			$	(9,077,678)				(1,362,035)			$	(18,914,091)
Class I
Shares sold			3,201,109			$	45,873,336				5,532,928			$	76,766,902
Shares issued on reinvestment			273,302				3,898,124				349,714				4,909,555
Shares repurchased			(3,522,604)				(50,176,282)				(7,181,387)				(98,780,376)
Net decrease			(48,193)			$	(404,822)				(1,298,745)			$	(17,103,919)

8. Redemption facility

Effective February 5, 2021, the Fund’s redemption facility (the “Redemption Facility”) was terminated and the Fund and certain other participating funds within the Trust, together with other U.S. registered and foreign investment funds (collectively, the “Borrowers”) managed by LMPFA or Franklin Resources, became borrowers in a joint syndicated senior unsecured credit facility totaling $2.675 billion (the “Global Credit Facility”). The Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests. Unless renewed, the Global Credit Facility will terminate on February 4, 2022.

Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all the Borrowers, including an annual commitment fee of 0.15% based upon the unused portion of the Global Credit Facility; there is no upfront fee. Under the Redemption Facility, the Fund had access to the aggregate amount of $485 million for the period November 16, 2020 to February 5, 2021 and $220 million prior to November 16, 2020, and the following terms were in effect: the annual commitment fee to maintain the Redemption Facility was 0.15% incurred on the unused portion of the facility and there was an annual upfront fee of 0.06% of the $485 million Redemption Facility; prior to November 16, 2020, there was no upfront fee. The aggregate commitment fees under the Global Credit Facility and Redemption Facility are reflected in the Statement of Operations. The Fund did not utilize the Global Credit Facility nor the Redemption Facility during the year ended July 31, 2021.

 

Western Asset Municipal High Income Fund 2021 Annual Report		47

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Notes to financial statements (cont’d)

 

9. Income tax information and distributions to shareholders

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

 

		2021				2020
Distributions paid from:
Tax-exempt income		$	15,018,750			$	18,698,152
Ordinary income			185,888				—
Total distributions paid		$	15,204,638			$	18,698,152

As of July 31, 2021, the components of distributable earnings (loss) on a tax basis were as follows:

 

Undistributed tax-exempt income — net		$	1,821,865
Deferred capital losses*			(19,712,298)
Other book/tax temporary differences(a)			(152,642)
Unrealized appreciation (depreciation)(b)			51,306,410
Total distributable earnings (loss) — net		$	33,263,335

 

*	These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains.

(a)	Other book/tax temporary differences are attributable to the accrual of interest income on securities in default and book/tax differences in the timing of the deductibility of various expenses.

(b)	The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax deferral of losses on wash sales and the difference between book and tax accretion methods for discount on fixed income securities.

10. Recent accounting pronouncement

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, with further amendments to Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.

11. Other matters

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

 

48		Western Asset Municipal High Income Fund 2021 Annual Report

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

*  *  *

The Fund’s investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or “LIBOR,” which is the offered rate for short-term Eurodollar deposits between major international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of (i) the overnight and one-, three-, six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023 and (ii) all other LIBOR settings, including the one-week and two-month USD LIBOR settings, immediately following the LIBOR publication on Friday, December 31, 2021. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Fund’s transactions and the financial markets generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Fund’s investments cannot yet be determined.

 

Western Asset Municipal High Income Fund 2021 Annual Report		49

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Report of independent registered public accounting firm

 

To the Board of Trustees of Legg Mason Partners Income Trust and Shareholders of Western Asset Municipal High Income Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Western Asset Municipal High Income Fund (one of the funds constituting Legg Mason Partners Income Trust, referred to hereafter as the “Fund”) as of July 31, 2021, the related statement of operations for the year ended July 31, 2021, the statement of changes in net assets for each of the two years in the period ended July 31, 2021, including the related notes, and the financial highlights for each of the four years in the period ended July 31, 2021 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of July 31, 2021, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended July 31, 2021 and the financial highlights for each of the four years in the period ended July 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

The financial statements of the Fund as of and for the year ended July 31, 2017 and the financial highlights for the year then ended (not presented herein, other than the financial highlights) were audited by other auditors whose report dated September 20, 2017 expressed an unqualified opinion on those financial statements and financial highlights.

Basis for Opinion

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

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

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2021 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Baltimore, Maryland

September 21, 2021

We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.

 

50		Western Asset Municipal High Income Fund 2021 Annual Report

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Additional information (unaudited)

Information about Trustees and Officers

 

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

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

 

Independent Trustees†
Robert Abeles, Jr.
Year of birth		1945
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 2013
Principal occupation(s) during the past five years		Board Member, Great Public Schools Now (since 2018); Senior Vice President Emeritus (since 2016) and formerly, Senior Vice President, Finance and Chief Financial Officer (2009 to 2016) at University of Southern California; Board Member, Excellent Education Development (since 2012)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		None
Jane F. Dasher
Year of birth		1949
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 1999
Principal occupation(s) during the past five years		Chief Financial Officer, Long Light Capital, LLC, formerly known as Korsant Partners, LLC (a family investment company) (since 1997)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Director, Visual Kinematics, Inc. (since 2018)
Anita L. DeFrantz
Year of birth		1952
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 1998
Principal occupation(s) during the past five years		President of Tubman Truth Corp. (since 2015); President Emeritus (since 2015) and formerly, President (1987 to 2015) and Director (1990 to 2015) of LA84 (formerly Amateur Athletic Foundation of Los Angeles); Member (since 1986), Member of the Executive Board (since 2013) and Vice President (since 2017) of the International Olympic Committee
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		None

 

Western Asset Municipal High Income Fund		51

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Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Independent Trustees† (cont’d)
Susan B. Kerley
Year of birth		1951
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 1992
Principal occupation(s) during the past five years		Investment Consulting Partner, Strategic Management Advisors, LLC (investment consulting) (since 1990)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Director and Trustee (since 1990) and Chairman (since 2017 and 2005 to 2012) of various series of MainStay Family of Funds (66 funds); formerly, Investment Company Institute (ICI) Board of Governors (2006 to 2014); ICI Executive Committee (2011 to 2014); Chairman of the Independent Directors Council (2012 to 2014)
Michael Larson
Year of birth		1959
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 2004
Principal occupation(s) during the past five years		Chief Investment Officer for William H. Gates III (since 1994)4
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Republic Services, Inc. (since 2009); Fomento Economico Mexicano, SAB (since 2011); Ecolab Inc. (since 2012); formerly, AutoNation, Inc. (2010 to 2018)
Avedick B. Poladian
Year of birth		1951
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 2007
Principal occupation(s) during the past five years		Director and Advisor (since 2017) and former Executive Vice President and Chief Operating Officer (2002 to 2016) of Lowe Enterprises, Inc. (privately held real estate and hospitality firm); formerly, Partner, Arthur Andersen, LLP (1974 to 2002)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Occidental Petroleum Corporation (since 2008); California Resources Corporation (since 2014); and Public Storage (since 2010)

 

52		Western Asset Municipal High Income Fund

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Independent Trustees† (cont’d)
William E.B. Siart
Year of birth		1946
Position(s) with Fund		Trustee and Chairman of the Board
Term of office1 and length of time served2		Since 1997 (Chairman of the Board since 2020)
Principal occupation(s) during the past five years		Chairman of Great Public Schools Now (since 2015); Chairman of Excellent Education Development (since 2000); formerly, Trustee of The Getty Trust (since 2005 to 2017); Chairman of Walt Disney Concert Hall, Inc. (1998 to 2006)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Member of Board of United States Golf Association, Executive Committee Member (since 2017); Trustee, University of Southern California (since 1994)
Jaynie Miller Studenmund
Year of birth		1954
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 2004
Principal occupation(s) during the past five years		Corporate Board Member and Advisor (since 2004); formerly, Chief Operating Officer of Overture Services, Inc. (publicly traded internet company that created search engine marketing) (2001 to 2004); President and Chief Operating Officer, PayMyBills (internet innovator in bill presentment/payment space) (1999 to 2001); Executive vice president for consumer and business banking for three national financial institutions (1984 to 1997)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Director of Pacific Premier Bancorp Inc. and Pacific Premier Bank (since 2019); Director of EXL (operations management and analytics company) (since 2018); Director of CoreLogic, Inc. (information, analytics and business services company) (since 2012); formerly, Director of Pinnacle Entertainment, Inc. (gaming and hospitality company) (2012 to 2018); Director of LifeLock, Inc. (identity theft protection company) (2015 to 2017); Director of Orbitz Worldwide, Inc. (online travel company) (2007 to 2014)
Peter J. Taylor
Year of birth		1958
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 2019
Principal occupation(s) during the past five years		President, ECMC Foundation (nonprofit organization) (since 2014); formerly, Executive Vice President and Chief Financial Officer for University of California system (2009 to 2014)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Director of Pacific Mutual Holding Company5 (since 2016); Member of the Board of Trustees of California State University system (since 2015); Ralph M. Parson Foundation (since 2015), Kaiser Family Foundation (since 2012), and Edison International (since 2011)

 

Western Asset Municipal High Income Fund		53

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Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Interested Trustee
Ronald L. Olson6
Year of birth		1941
Position(s) with Fund		Trustee
Term of office1 and length of time served2		Since 2005
Principal occupation(s) during the past five years		Partner of Munger, Tolles & Olson LLP (law partnership) (since 1968)
Number of funds in fund complex overseen by Trustee3		57
Other Trusteeships held by Trustee during the past five years		Berkshire Hathaway, Inc. (since 1997)
Interested Trustee and Officer
Jane Trust, CFA7
Year of birth		1962
Position(s) with Fund		Trustee, President and Chief Executive Officer
Term of office1 and length of time served2		Since 2015
Principal occupation(s) during the past five years		Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 138 funds associated with LMPFA or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (“Legg Mason & Co.”); Senior Vice President of LMPFA (2015)
Number of funds in fund complex overseen by Trustee3		136
Other Trusteeships held by Trustee during the past five years		None
Additional Officers
Ted P. Becker
Franklin Templeton 620 Eighth Avenue, 47th Floor, New York, NY 10018
Year of birth		1951
Position(s) with Fund		Chief Compliance Officer
Term of office1 and length of time served2		Since 2007
Principal occupation(s) during the past five years		Vice President, Global Compliance of Franklin Templeton (since 2020); Chief Compliance Officer of LMPFA (since 2006); Chief Compliance Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Director of Global Compliance at Legg Mason, Inc. (2006 to 2020); Managing Director of Compliance of Legg Mason & Co. (2005 to 2020)

 

54		Western Asset Municipal High Income Fund

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Additional Officers (cont’d)
Susan Kerr
Franklin Templeton
620 Eighth Avenue, 47th Floor, New York, NY 10018
Year of birth		1949
Position(s) with Fund		Chief Anti-Money Laundering Compliance Officer
Term of office1 and length of time served2		Since 2013
Principal occupation(s) during the past five years		Senior Compliance Analyst, Franklin Templeton (since 2020); Chief Anti-Money Laundering Compliance Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2013) and Anti-Money Laundering Compliance Officer (since 2012), Senior Compliance Officer (since 2011) and Assistant Vice President (since 2010) of Legg Mason Investor Services, LLC (“LMIS”); formerly, Assistant Vice President of Legg Mason & Co. (2010 to 2020)
Jenna Bailey
Franklin Templeton
100 First Stamford Place, 5th Floor, Stamford, CT 06902
Year of birth		1978
Position(s) with Fund		Identity Theft Prevention Officer
Term of office1 and length of time served2		Since 2015
Principal occupation(s) during the past five years		Senior Compliance Analyst of Franklin Templeton (since 2020); Identity Theft Prevention Officer of certain funds associated with Legg Mason & Co. or its affiliates (since 2015); formerly, Compliance Officer of Legg Mason & Co. (2013 to 2020); Assistant Vice President of Legg Mason & Co. (2011 to 2020)
Marc A. De Oliveira
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1971
Position(s) with Fund		Secretary and Chief Legal Officer
Term of office1 and length of time served2		Since 2020
Principal occupation(s) during the past five years		Associate General Counsel of Franklin Templeton (since 2020); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Managing Director (2016 to 2020) and Associate General Counsel of Legg Mason & Co. (2005 to 2020)

 

Western Asset Municipal High Income Fund		55

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Additional information (unaudited) (cont’d)

Information about Trustees and Officers

 

Additional Officers (cont’d)
Thomas C. Mandia
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1962
Position(s) with Fund		Senior Vice President
Term of office1 and length of time served2		Since 2020
Principal occupation(s) during the past five years		Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of LMPFA (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); Secretary of LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers); formerly, Managing Director and Deputy General Counsel of Legg Mason & Co. (2005 to 2020)
Christopher Berarducci
Franklin Templeton
620 Eighth Avenue, 47th Floor, New York, NY 10018
Year of birth		1974
Position(s) with Fund		Treasurer and Principal Financial Officer
Term of office1 and length of time served2		Since 2019
Principal occupation(s) during the past five years		Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co.
Jeanne M. Kelly
Franklin Templeton
620 Eighth Avenue, 47th Floor, New York, NY 10018
Year of birth		1951
Position(s) with Fund		Senior Vice President
Term of office1 and length of time served2		Since 2007
Principal occupation(s) during the past five years		U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM (2013 to 2015)

 

†	Trustees who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”).

 

1	Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal.

 

2	Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office.

 

56		Western Asset Municipal High Income Fund

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3

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

 

4

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

 

5

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

 

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

 

7	Ms. Trust is an “interested person” of the Fund, as defined in the 1940 Act, because of her position with LMPFA and/or certain of its affiliates.

 

Western Asset Municipal High Income Fund		57

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Important tax information (unaudited)

 

By mid-February, tax information related to a shareholder’s proportionate share of distributions paid during the preceding calendar year will be received, if applicable. Please also refer to www.leggmason.com for per share tax information related to any distributions paid during the preceding calendar year. Shareholders are advised to consult with their tax advisors for further information on the treatment of these amounts on their tax returns.

The following tax information for the Fund is required to be furnished to shareholders with respect to income earned and distributions paid during its fiscal year.

The Fund hereby reports the following amounts, or if subsequently determined to be different, the maximum allowable amounts, for the fiscal year ended July 31, 2021:

 

		Pursuant to:				Amount Reported
Exempt-Interest Dividends		§	852(b)(5)(A)				$15,018,750
Interest-Related Dividends		§	871(k)(1)(C)				$185,888

 

 

58		Western Asset Municipal High Income Fund

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Western Asset

Municipal High Income Fund

 

Trustees

Robert Abeles, Jr.

Jane F. Dasher

Anita L. DeFrantz

Susan B. Kerley

Michael Larson

Ronald L. Olson

Avedick B. Poladian

William E.B. Siart

Chairman

Jaynie M. Studenmund

Peter J. Taylor

Jane Trust

 

†	Effective July 7, 2021, LMIS was renamed Franklin Distributors, LLC.

 

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadviser

Western Asset Management Company, LLC

Distributor

Franklin Distributors, LLC†

Custodian

The Bank of New York Mellon

 

Transfer agent

BNY Mellon Investment

Servicing (US) Inc.

4400 Computer Drive

Westborough, MA 01581

Independent registered public accounting firm

PricewaterhouseCoopers LLP

Baltimore, MD

 

Western Asset Municipal High Income Fund

The Fund is a separate investment series of Legg Mason Partners Income Trust, a Maryland statutory trust.

Western Asset Municipal High Income Fund

Legg Mason Funds

620 Eighth Avenue, 47th Floor

New York, NY 10018

 

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at 1-877-721-1926.

 

Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling the Fund at 1-877-721-1926, (2) at www.leggmason.com/mutualfunds and (3) on the SEC’s website at www.sec.gov.

 

 

This report is submitted for the general information of the shareholders of Western Asset Municipal High Income Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.

Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.

www.leggmason.com

© 2021 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.

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Legg Mason Funds Privacy and Security Notice

 

Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds

This Privacy and Security Notice (the “Privacy Notice”) addresses the Legg Mason Funds’ privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds’ distributor, Franklin Distributors, LLC, as well as Legg Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.

The Type of Nonpublic Personal Information the Funds Collect About You

The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:

 

•

Personal information included on applications or other forms;

 

•

Account balances, transactions, and mutual fund holdings and positions;

 

•

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

 

•

Online account access user IDs, passwords, security challenge question responses; and

 

•

Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individual’s total debt, payment history, etc.).

How the Funds Use Nonpublic Personal Information About You

The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law.

The Funds may disclose information about you to:

 

•

Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

 

•

Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;

 

•

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

 

•

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

 

•

Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.

 

 

NOT PART OF THE ANNUAL REPORT

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Legg Mason Funds Privacy and Security Notice (cont’d)

 

Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform. The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.

Keeping You Informed of the Funds’ Privacy and Security Practices

The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.

The Funds’ Security Practices

The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds’ internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.

Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary, so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.

In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds’ website at www.leggmason.com, or contact the Fund at 1-877-721-1926.

Revised April 2018

Legg Mason California Consumer Privacy Act Policy

Although much of the personal information we collect is “nonpublic personal information” subject to federal law, residents of California may, in certain circumstances, have additional rights under the California Consumer Privacy Act (“CCPA”). For example, if you are a broker,

 

 

NOT PART OF THE ANNUAL REPORT

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Legg Mason Funds Privacy and Security Notice (cont’d)

 

dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal information (as defined by the CCPA).

 

•

In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces of personal information we have collected about you.

 

•

You also have the right to request the deletion of the personal information collected or maintained by the Funds.

If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.

We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if suitable and appropriate proof is not provided.

For the 12-month period prior to the date of this Privacy Policy, the Legg Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.

Contact Information

Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202

Email: [email protected]

Phone: 1-800-396-4748

Revised October 2020

 

 

NOT PART OF THE ANNUAL REPORT

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www.leggmason.com

© 2021 Franklin Distributors, LLC, Member FINRA/SIPC. All rights reserved.

FD0427 9/21 SR21-4236

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ITEM 2.

CODE OF ETHICS.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.

 

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

The Board of Trustees of the registrant has determined that Robert Abeles, Jr., possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify an “audit committee financial experts,” and has designated Mr. Abeles, Jr. as the Audit Committee’s financial experts. Mr. Abeles, Jr. is an “independent” Trustees pursuant to paragraph (a) (2) of Item 3 to Form N-CSR.

 

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

a) Audit Fees. The aggregate fees billed in the last two fiscal years ending July 31, 2020 and July 31, 2021 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $123,301 in July 31, 2020 and $118,117 in July 31, 2021.

b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in July 31, 2020 and $0 in July 31, 2021.

c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $0 in July 31, 2020 and $0 in July 31, 2021. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.

There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.

d) All Other Fees. The aggregate fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) for the Item 4 for the Legg Mason Partners Income Trust, were $0 in July 31, 2020 and $0 in July 31, 2021.

All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Legg Mason Partners Income Trust requiring pre-approval by the Audit Committee in the Reporting Period.

e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.

(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee July implement policies and procedures by which such services are approved other than by the full Committee.

The Committee shall not approve non-audit services that the Committee believes July impair the independence of the auditors. As of the date of the approval of this Audit Committee

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Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services July not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.

Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.

(2) For the Legg Mason Partners Income Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for July 31, 2020 and July 31, 2021; Tax Fees were 100% and 100% for July 31, 2020 and July 31, 2021; and Other Fees were 100% and 100% for July 31, 2020 and July 31, 2021.

f) N/A

g) Non-audit fees billed by the Auditor for services rendered to Legg Mason Partners Income Trust, LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Legg Mason Partners Income Trust during the reporting period were $457,301 in July 31, 2020 and $773,011 in July 31, 2021.

h) Yes. Legg Mason Partners Income Trust’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Legg Mason Partners Income Trust or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.

 

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS.

 

a)

The independent board members are acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) of the Exchange Act. The Audit Committee consists of the following Board members:

Robert Abeles, Jr.

Jane F. Dasher

Anita L. DeFrantz

Susan B. Kerley

Michael Larson

Ronald L. Olson

Avedick B. Poladian

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William E.B. Siart

Jaynie M. Studenmund

Peter J. Taylor

Jane Trust

 

b)

Not applicable

 

ITEM 6.

SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

 

ITEM 7.

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

Not applicable.

 

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 9.

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

Not applicable.

 

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

 

ITEM 11.

CONTROLS AND PROCEDURES.

 

(a)

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

 

(b)

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 12.

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

Not applicable.

 

ITEM 13.

EXHIBITS.

(a) (1) Code of Ethics attached hereto.

Exhibit  99.CODE ETH

(a) (2)  Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.CERT

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.906CERT

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.

 

Legg Mason Partners Income Trust
By:		/s/ Jane Trust
		Jane Trust
		Chief Executive Officer
Date:		September 24, 2021

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

 

By:		/s/ Jane Trust
		Jane Trust
		Chief Executive Officer
Date:		September 24, 2021

 

By:		/s/ Christopher Berarducci
		Christopher Berarducci
		Principal Financial Officer
Date:		September 24, 2021

CODE OF ETHICS

I. Introduction

A. Individuals Covered by the Code

This Code applies to all employees of Legg Mason & Co., LLC and interested directors of the Proprietary Funds who are not otherwise subject to another code of ethics adopted pursuant to either Rule 17j-1 under the Investment Company Act or Rule 204A-1 under the Investment Advisers Act (“Covered Persons”).

 

1.	Without limiting the generality of the foregoing, this Code covers all employees of Legg Mason & Co., LLC who perform services on behalf of the Proprietary Funds as part of the following regulated entities:

 

a.	Legg Mason Investor Services, LLC (“LMIS”).

 

b.	Legg Mason Partners Fund Advisor, LLC (“LMPFA”).

 

2.

For the avoidance of doubt, each of the Legg Mason Registered Advisers (other than LMPFA) have adopted their own codes of ethics, and employees of the Legg Mason Registered Advisers who are subject to the requirements of those codes of ethics (including any who may be registered representatives of LMIS) are not subject to the requirements of this Code.

B. Standards of Business Conduct

This Code is based on the principle that Legg Mason and its affiliates owe a fiduciary duty to Legg Mason’s clients, and that all Covered Persons must therefore avoid activities, interests and relationships that might (i) present a conflict of interest or the appearance of a conflict of interest, or (ii) otherwise interfere with Legg Mason’s ability to make decisions in the best interests of any of its clients. In particular, Covered Persons must at all times comply with the following standards of business conduct:

 

1.	Compliance with Applicable Law. All Covered Persons must comply with the Federal Securities Laws that apply to the business of Legg Mason.

 

2.

Clients Come First. Covered Persons must scrupulously avoid serving their personal interests ahead of the interests of clients. For example, a Covered Person may not induce or cause a client to take action, or not to take action, for the Covered Person’s personal benefit at the expense of the client’s best interests.

 

3.	Avoid Taking Advantage. Covered Persons may not use their knowledge of the Legg Mason Registered Advisers’ investment activities or client portfolio holdings to profit by the market effect of such activities or to engage in short-term or other abusive trading in Reportable Funds.

 

4.

Avoid Other Inappropriate Relationships or Activities. Covered Persons should avoid relationships or activities that could call into question the Covered Person’s ability to exercise independent judgment in the best interests of Legg Mason’s clients. In particular, Covered Persons should take note of the provisions of the Legg Mason Code of Conduct and the Legg Mason Employee Handbook that pertain to confidentiality, corporate opportunities, gifts and entertainment, insider trading and outside business activities. In addition, Covered Persons who are registered representatives of LMIS should also take note of LMIS’s policies and procedures pertaining to these activities.

 

1

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5.

Observe the Spirit of the Code. Doubtful situations should be resolved in favor of Legg Mason’s clients. Technical compliance with the Code’s procedures will not automatically insulate from scrutiny any personal Securities Transactions or other course of conduct that might indicate an abuse of these governing principles.

C. Duty to Report Violations

Covered Persons must promptly report all violations of this Code to the Compliance Department.

D. Fiduciary Duty / Political Contributions

Covered Persons are prohibited from making political contributions for the purpose of obtaining or retaining any Legg Mason Registered Adviser or its affiliates as investment advisers. Covered Persons are specifically prohibited from making political contributions to any person for the purpose of influencing the selection or retention of an investment adviser by a government entity. Covered Persons will be required to certify annually that they have and will comply with this provision.

II. Personal Securities Transactions

A. Prohibited Transactions in Individual Securities

Covered Persons are subject to the following restrictions on their personal trading activities in individual securities:

 

1.

Fraudulent Transactions. In connection with the purchase or sale, directly or indirectly, by a Covered Person of (A) a Reportable Security which, within the most recent fifteen (15) calendar days, (i) is or has been held by a Legg Mason client, or (ii) is being or has been considered by a Legg Mason Registered Adviser for purchase by a client, or (B) an Equivalent Security thereof, Covered Persons are prohibited from:

 

a.	Employing any device, scheme or artifice to defraud Legg Mason’s clients;

 

b.	Making any untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading;

 

c.	Engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on Legg Mason’s clients; or

 

d.	Engaging in any manipulative practice with respect to Legg Mason’s clients.

 

2.	Inside Information. Covered Persons are prohibited from engaging in any transaction in a Security (or Equivalent Security) at a time when the Covered Person is in possession of material non-public information regarding the Security or the issuer of the Security.

 

3.	Market Manipulation. Covered Persons are prohibited from engaging in any transactions in a Security (or Equivalent Security) intended to raise, lower or maintain the price of that Security or to create a false appearance of active trading in that Security.

 

4.

Trading on the Knowledge of Client Transactions. Covered Persons are prohibited from engaging in any transactions in a Security (or an Equivalent Security) on the basis of any information they may be in possession of to the effect that (i) a Legg Mason Registered Adviser is or may be considering an investment in or sale of such Security on behalf of its clients or (ii) has or may have an open order in such Security on behalf of its clients.

 

2

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5.

Legg Mason, Inc. Stock. Covered Persons are prohibited from engaging in any transaction in Legg Mason securities that is not in compliance with the “Legg Mason, Inc. Policies and Procedures Regarding Acquisitions and Dispositions of Legg Mason Securities,” as the same may be amended from time to time. A copy of this policy is available on the Legg Mason Legal and Compliance Website.

B. Prohibited Transactions in Reportable Funds

 

1.

Market Timing in Reportable Funds. No Covered Person may use his or her knowledge of the portfolio holdings or investment activities of a Reportable Fund to engage in any short-term or other abusive trading strategy involving such Fund that may conflict with the best interests of the Fund and its shareholders.

 

2.

60-Day Holding Period for Investments in Proprietary Funds. Subject to the exemptions set forth below, no Covered Person may sell (or exchange out of) shares of a Proprietary Fund in which the Covered Person has a Beneficial Interest if the Covered Person has not held the shares of the same Proprietary Fund for sixty (60) calendar days, including any individual retirement account or 401(k) participant account.

 

3.

Additionally, Proprietary Funds that are sold in the LM 401(k) account are also subject to a 60-day minimum waiting period. No Covered Person may buy (or exchange into) shares of a Proprietary Fund within sixty (60) calendar days of a sell of (or exchange out of) shares of the same Proprietary Fund within the same LM 401(k) account.

The following Securities Transactions involving Proprietary Funds are exempt from the 60-day minimum holding period requirement set forth in this Section II.B.2 and II.B.3:

 

a.	Money Market Funds and Other Short-Term Trading Vehicles. Purchases or redemptions of Proprietary Funds that are money market funds or that hold themselves out as short-term trading vehicles.

 

b.

Managed Accounts. Transactions in Proprietary Funds held in a Managed Account in connection with which the Covered Person has no direct or indirect influence or control over the account, is neither consulted nor advised of the trade before it is executed, and has no knowledge of specific management actions taken by a trustee or investment manager.

 

c.

Systematic Investment. Purchases or redemptions of Proprietary Funds pursuant to an Automatic Investment Plan where a prescribed purchase or sale is made automatically on a regular predetermined basis without affirmative action by the Covered Person or pursuant to a similar arrangement approved by the Compliance Department (for example, automated payroll deduction investments by 401(k) participants or automatic dividend reinvestment).

C. Pre-Approval of Investments in Initial Public Offerings and Private Placements

Covered Persons are prohibited from acquiring a Beneficial Interest in a Reportable Security through an initial public offering (other than a new offering of securities issued by a registered open-end investment company) or Private Placement without the prior written approval of the Compliance Department. Requests for such approval shall be submitted to the Compliance Department through Fidelity National Information Services, Inc. (“FIS”)/PTA using substantially the form of “Request for Approval to Invest in an Initial Public Offering or Private Placement” attached hereto as Appendix A.

 

3

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D. Reporting and Trading Requirements

 

1.	Acknowledgement of Receipt; Initial and Periodic Disclosure of Personal Holdings; Annual Certification.

 

a.	Within ten (10) calendar days of being identified as a Covered Person under this Code, each Covered Person must acknowledge that he or she has received and reviewed a copy of the Code, and has disclosed all Securities holdings in which such Covered Person has a Beneficial Interest..

 

b.	Thereafter, on an annual basis, each Covered Person shall give the same acknowledgements and, in addition, shall certify that he or she has complied with all applicable provisions of the Code.

 

c.	Such acknowledgments and certifications shall be provided through FIS/PTA using substantially the form of the “Acknowledgement of Receipt of Code of Ethics, Personal Holdings Report and Annual Certification” attached hereto as Appendix B.

 

2.	Execution of Personal Securities Transactions.

 

a.

Approved Accounts. Unless one of the following exceptions applies, Covered Persons must execute their personal securities transactions involving any Reportable Securities or Reportable Funds in which they have or acquire a Beneficial Interest through one of the following two types of accounts (“Approved Accounts”):

 

i.	Approved Securities Accounts. Securities accounts (including IRA accounts) with financial intermediaries that have been approved by the Compliance Department (an “Approved Securities Account”); or

 

ii.

Approved Retirement Accounts. Participant accounts in retirement plans approved by the Compliance Department on the grounds that either (i) automated feeds into FIS/PTA have been established, or (ii) sufficient policies and procedures are in place to protect any Reportable Funds that may be in the plan from the types of activities prohibited by Sections A and B above (an “Approved Retirement Account”).1

 

b.	Exceptions. The following types of accounts are exempt from the requirements of section 2.a above, subject to compliance with the conditions set forth below:

 

i.

Mutual Fund-Only and Managed Accounts. Covered Persons may have or acquire a Beneficial Interest in Mutual Fund-Only and Managed Accounts that are not Approved Securities Accounts, provided that the requirement set forth in this Code relating to a Managed Account or Mutual Fund-Only Account, as the case may be, are satisfied. To qualify for this exemption, a Covered Person must deliver to the Compliance Department through FIS/PTA a certification in substantially the form of the “Certificate for Managed Accounts or Mutual Fund-Only Accounts” attached hereto as Appendix D.

 

ii.

Outside Retirement Accounts. Covered Persons may have or acquire a Beneficial Interest in a retirement account other than an Approved Retirement Account (an “Outside Retirement Account”), provided that the Covered Person complies with the certification or reporting requirements set forth in Section 3.c below, and provided further that, for purposes of this Code, an IRA account shall be treated as a securities account and not as a retirement account.

 

1	A list of the approved financial intermediaries and retirement plans may by found on the Legal and Compliance home page on LMEX.

 

4

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iii.

Dividend Reinvestment Plans. Covered Person may have or acquire a Beneficial Interest in securities held in a dividend reinvestment plan account directly with the issuer of the securities or its transfer agent (a “Dividend Reinvestment Plan”), subject to compliance with the requirements of Section 3.a below.

 

c.

Outside Securities Accounts. Covered Persons that have or acquire a Beneficial Interest in a securities account (including an IRA account) other than an Approved Account, Mutual Fund-Only Account, Managed Account or Outside Retirement Account (an “Outside Securities Account”) must obtain the prior written approval to maintain such account from the Compliance Department.

 

i.	A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of “Request for Approval for an Outside Securities Account” attached hereto as Appendix C. Such approvals will only be granted in extraordinary circumstances.

 

ii.	If the Compliance Department does not approve such request, the Covered Person must arrange to transfer or convert such account into an Approved Account, Managed Account, Mutual Fund-Only Account or Outside Retirement Account as promptly as practicable.

 

6.	Transaction Reporting Requirements. Covered Persons shall report all Securities Transactions in which they have a Beneficial Interest to the Compliance Department in accordance with the following provisions:

 

a.

Approved Accounts, Managed Accounts, Mutual Fund Only and Dividend Reinvestment Plan Accounts. Covered Persons will not be required to arrange for the delivery of duplicate copies of confirmations or periodic statements for any Approved Accounts, Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans in which they have or acquire a Beneficial Interest. However, the existence of all such accounts must be disclosed to the Compliance Department pursuant to either Section II.D.1 above or II.D.4 below. In addition, copies of any statements for any Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans must be made available for review at the specific request of the Compliance Department.

 

b.

Outside Securities Accounts. For any Outside Securities Account approved by the Compliance Department, a Covered Person must arrange for the Compliance Department to receive, directly from the applicable broker-dealer, bank or other financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Securities Account.

 

i.	Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. Confirmations must be delivered to the Compliance Department contemporaneously with delivery to the applicable Covered Person.

 

ii.

A form of letter that may be used to request duplicate confirmations and periodic statements from financial intermediaries is attached as Appendix E. If a Covered Person is not able to arrange for duplicate confirmations and periodic statements to be sent, the Covered Person must immediately cease trading in such account and notify the Compliance Department.

 

iii.

It shall be the Covered Person’s responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Securities Account. and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account.

 

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d.	Outside Retirement Accounts. For any Outside Retirement Account in which a Covered Person has a Beneficial Interest, such Covered Person must either:

 

i.

Certify that such account does not hold any shares of a Reportable Fund or Reportable Security and that no Securities Transactions involving a Reportable Fund or Reportable Security have been executed in such account (such certifications shall be provided to the Compliance Department through FIS/PTA using substantially the form of the “Certificate for Outside Retirement Accounts” attached hereto as Appendix F); or.

 

ii.

If a Covered Person is unable to provide such certification with respect to an Outside Retirement Account, the Covered Person must notify the Compliance Department and provide the Compliance Department with duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Retirement Account.

 

(a)	Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter.

 

(b)

It shall be the Covered Person’s responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Retirement Account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account.

 

7.

New Reportable Accounts. If a Covered Person opens a new reportable account that has not previously been disclosed, the Covered Person must notify the Compliance Department in writing within ten (10) calendar days of the existence of the account and make arrangements to comply with the requirements set forth in Sections II.D.2 & 3 above.

 

8.

Disclaimers. Any report of a Securities Transaction for the benefit of a person other than the individual in whose account the transaction is placed may contain a statement that the report should not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the Security to which the report relates.

 

9.

Availability of Reports. All information supplied pursuant to this Code may be made available for inspection to the CCO of any affected Legg Mason Registered Adviser or Reportable Fund, the board of directors of each company employing the Covered Person, the board of directors of any affected Reportable Fund, the Compliance Department, the Covered Person’s department manager (or designee), any party to which any investigation is referred by any of the foregoing, the Securities and Exchange Commission, any self-regulatory organization of which Legg Mason is a member, any state securities commission, and any attorney or agent of the foregoing or of the Reportable Funds.

 

10.

Outside Business Activities. No Covered Person may engage in outside business activities or serve on the board of directors of a publicly-held company absent prior written authorization of (i) the Compliance Department, and (ii) in the case of service on the board of directors of a publicly-held company, the General Counsel of Legg Mason, Inc.

 

a.	A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of “Request for Approval of Outside Business Activities” attached hereto as Appendix G.

 

b.	Requests for approval to serve as a director of a publicly held company will rarely be approved.

 

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III. Personal Securities Transactions

A. Surveillance

The Compliance Department shall be responsible for maintaining a surveillance program reasonably designed to monitor the personal trading activities of all Covered Persons for compliance with the provisions of this Code and for investigating any suspected violation of the Code. Upon reaching the conclusion that a violation of the Code has occurred, the Compliance Department shall report the results of such investigation to the applicable Covered Person, the Covered Person’s department manager and to the CCOs of any affected Legg Mason Registered Adviser or Reportable Fund.

B. Remedies

 

1.

Authority. The Compliance Department has authority to determine the remedy for any violation of the Code, including appropriate disposition of any monies forfeited pursuant to this provision. Failure to promptly comply with any sanction directive may result in the imposition of additional sanctions..

 

2.

Sanctions. If the Compliance Department determines that a Covered Person has committed a violation of the Code, the Compliance Department may, in consultation with the Human Resources Department and the Covered Person’s supervisor, as appropriate, impose sanctions and take other actions as it deems appropriate, including a verbal warning, a letter of caution or warning, suspension of personal trading rights, suspension of employment (with or without compensation), fine, civil referral to the Securities and Exchange Commission, criminal referral, and termination of employment of the violator for cause. The Compliance Department may also require the Covered Person to reverse the transaction in question and forfeit any profit or absorb any loss associated or derived as a result. The amount of profit shall be calculated by the Compliance Department. No member of the Compliance Department may review his or her own transaction or those of his or her supervisors. If necessary, the General Counsel of Legg Mason or the CCO of the relevant Legg Mason Registered Adviser shall review these transactions..

C. Exceptions to the Code

Although exceptions to the Code will rarely be granted, the Compliance Department may grant exceptions to the requirements of the Code if the Compliance Department finds that the proposed conduct involves negligible opportunity for abuse. All such exceptions must be in writing..

IV. Definitions

When used in the Code, the following terms have the meanings set forth below:

A. General Defined Terms

“CCO” means the Chief Compliance Officer of any Reportable Fund, Legg Mason Registered Adviser or Legg Mason entity that is a principal underwriter of a Reportable Fund.

“Code” means this Code of Ethics, as the same may be amended from time to time.

“Compliance Department” means the Legal and Compliance Department of Legg Mason.

“Covered Person” means any employee of Legg Mason & Co., LLC who is covered by this Code in accordance with the provisions of Section I.A above.

 

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“Federal Securities Laws” means the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002, the Investment Company Act, the Investment Advisers Act, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to Legg Mason and any Reportable Funds, and any rule adopted thereunder by the Securities and Exchange Commission or the Department of the Treasury.

“Investment Advisers Act” means the Investment Advisers Act of 1940, as amended.

“Investment Company Act” means the Investment Company Act of 1940, as amended.

“Legg Mason” means Legg Mason, Inc. and its subsidiaries and affiliates.

“Legg Mason Registered Advisers” means those subsidiaries of Legg Mason that are registered as investment advisers under the Investment Advisers Act.

“FIS/PTA” means FIS Personal Trading Assistant, a web browser-based automated personal trading compliance platform used by the Compliance Department to administer this Code.

B. Terms Defining the Scope of a Beneficial Interest in a Security

“Beneficial Interest” means the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to profit, or share in any profit derived from, a transaction in the subject Securities.

A Covered Person is deemed to have a Beneficial Interest in the following:

 

1.	Any Security owned individually by the Covered Person.

 

2.	Any Security owned jointly by the Covered Person with others (for example, joint accounts, spousal accounts, partnerships, trusts and controlling interests in corporations).

 

3.	Any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if:

 

a.	The Security is held in an account over which the Covered Person has decision making authority (for example, the Covered Person acts as trustee, executor, or guardian); or

 

b.	The Security is held in an account for which the Covered Person acts as a broker or investment adviser representative.

A Covered Person is presumed to have a Beneficial Interest in any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if the Immediate Family member resides in the same household as the Covered Person.

Any uncertainty as to whether a Covered Person has a Beneficial Interest in a Security should be brought to the attention of the Compliance Department. Such questions will be resolved in accordance with, and this definition shall be subject to, the definition of “beneficial owner” found in Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of 1934, as amended.

 

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“Immediate Family” of a Covered Person means any of the following persons:

 

child		grandparent		son-in-law
stepchild		spouse		daughter-in-law
grandchild		sibling		brother-in-law
parent		mother-in-law		sister-in-law
stepparent		father-in-law

Immediate Family includes adoptive relationships, domestic partner relationships and other relationships (whether or not recognized by law) that the Compliance Department determines could lead to the possible conflicts of interest, diversions of corporate opportunity, or appearances of impropriety, which this Code is intended to prevent.

C. Terms Defining the Scope of a Reportable Transaction

“Automatic Investment Plan” means a program in which regular periodic purchases (or withdrawals) are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.

“Equivalent Security” means any Security issued by the same entity as the issuer of a subject Security, including options, rights, stock appreciation rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and other obligations of that company or Security otherwise convertible into that Security. Options on Securities are included even if, technically, they are issued by the Options Clearing Corporation or a similar entity.

“Managed Account” means an account where a Covered Person has no:

 

•

Direct or indirect influence or control over the account (for example, the trustee or investment manager simply summarizes, describes, or explains account activity without the Covered Person providing directions or suggestions);

 

•

Knowledge of the transaction before it is completed (for example, transactions effected for a Covered Person by a trustee of a blind trust, or discretionary trades made by an investment manager retained by the Covered Person, in connection with which the Covered Person is neither consulted nor advised of the trade before it is executed); and

 

•

Knowledge of the specific management actions taken by a trustee or investment manager and no right to intervene in the trustee’s or investment manager’s management (for example, the Covered Person is not consulted as to the allocation of investments for the account).

“Mutual Fund-Only Account” means a Securities account or account held directly with a mutual fund that holds only non-Reportable Funds and in which no other type of Securities may be held. For purposes of this Code, a Mutual Fund-Only Account includes a 529 plan or variable annuity life insurance account that holds only non-Reportable Funds and in which no other type of Securities may be held.

 

9

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“Private Placement” means a Securities offering that is exempt from registration pursuant to Section 4(2) or Section 4(6) of the Securities Act of 1933, as amended (the “Securities Act”), or pursuant to Rules 504, 505 or 506 of Regulation D under the Securities Act.

“Proprietary Fund” means an open-end investment company registered under the Investment Company Act (or any portfolio or series thereof, as the case may be) that is part of one of the fund families sponsored by Legg Mason or its affiliates.

“Reportable Fund” means (a) any fund registered under the Investment Company Act for which a Legg Mason Registered Adviser serves as an investment adviser, or (b) any fund registered under the Investment Company Act whose investment adviser or principal underwriter is controlled by or under common control with Legg Mason. For purposes of this definition, “investment adviser” has the same meaning as it does in section 2(a)(20) of the Investment Company Act, and “control” has the same meaning as it does in Section 2(a)(9) of the Investment Company Act.

“Reportable Security” means any Security (as defined herein) other than the following types of Securities:

 

1.	Direct obligations of the Government of the United States;

 

2.	Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and

 

3.	Shares of open-end mutual funds that are not Reportable Funds.

“Securities Transaction” means a purchase or sale of Securities in which a Covered Person has or acquires a Beneficial Interest.

“Security” includes stock, notes, bonds, debentures, and other evidences of indebtedness (including loan participations and assignments), limited partnership interests, investment contracts, closed-end investment companies, and all derivative instruments of the foregoing, such as options and warrants. “Security” does not include futures or options on futures, but the purchase and sale of such instruments are nevertheless subject to the reporting requirements of the Code.

 

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CERTIFICATIONS PURSUANT TO SECTION 302

EX-99.CERT

CERTIFICATIONS

I, Jane Trust, certify that:

 

1.	I have reviewed this report on Form N-CSR of Legg Mason Partners Income Trust – Western Asset Municipal High Income Fund;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:		September 24, 2021						/s/ Jane Trust
								Jane Trust
								Chief Executive Officer

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CERTIFICATIONS

I, Christopher Berarducci, certify that:

 

1.	I have reviewed this report on Form N-CSR of Legg Mason Partners Income Trust – Western Asset Municipal High Income Fund;

 

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial information included in this report, and the financial statements on which the financial information is based, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.	The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:		September 24, 2021						/s/ Christopher Berarducci
								Christopher Berarducci
								Principal Financial Officer

 

CERTIFICATIONS PURSUANT TO SECTION 906

EX-99.906CERT

CERTIFICATION

Jane Trust, Chief Executive Officer, and Christopher Berarducci, Principal Financial Officer of Legg Mason Partners Income Trust – Western Asset Municipal High Income Fund (the “Registrant”), each certify to the best of their knowledge that:

1. The Registrant’s periodic report on Form N-CSR for the period ended July 31, 2021 (the “Form N-CSR”) fully complies with the requirements of section 15(d) of the Securities Exchange Act of 1934, as amended; and

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.

 

Chief Executive Officer						Principal Financial Officer
Legg Mason Partners Income Trust -						Legg Mason Partners Income Trust -
Western Asset Municipal High Income Fund						Western Asset Municipal High Income Fund
/s/ Jane Trust						/s/ Christopher Berarducci
Jane Trust						Christopher Berarducci
Date: September 24, 2021						Date: September 24, 2021

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.