Edgar Filing: Western Asset Income Fund

WESTERN ASSET INCOME FUND

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 811-02351

Western Asset Income Fund

(Exact name of registrant as specified in charter)

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

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place,

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: (888) 777-0102

Date of fiscal year end: December 31

Date of reporting period: June 30, 2015

ITEM 1.

REPORT TO STOCKHOLDERS.

The Semi-Annual Report to Stockholders is filed herewith.

LOGO


Semi-Annual Report		June 30, 2015

WESTERN ASSET

INCOME FUND (PAI)

LOGO

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


What’s inside
Letter from the president			III
Investment commentary			IV
Fund at a glance			1
Spread duration			2
Effective duration			3
Schedule of investments			4
Statement of assets and liabilities			16
Statement of operations			17
Statements of changes in net assets			18
Financial highlights			19
Notes to financial statements			20
Additional shareholder information			28
Dividend reinvestment plan			29

Fund objectives

The Fund seeks a high level of current income, consistent with prudent investment risk. Capital appreciation is a secondary objective.

The Fund’s investment policies provide that its portfolio be invested as follows: at least 75% in debt securities rated within the four highest grades, and in government securities, bank debt, commercial paper, cash or cash equivalents; up to 25% in other fixed income securities, convertible bonds, convertible preferred and preferred stock; and not more than 25% in securities restricted as to resale. Trust preferred interests and capital securities are considered debt securities and not preferred stock for purposes of the foregoing guidelines.


II		Western Asset Income Fund

Letter from the president

LOGO

Dear Shareholder,

We are pleased to provide the semi-annual report of Western Asset Income Fund for the six-month reporting period ended June 30, 2015. Please read on for Fund performance information and a detailed look at prevailing economic and market conditions during the Fund’s reporting period.

I am pleased to introduce myself as the new President and Chief Executive Officer of the Fund, succeeding Kenneth D. Fuller. I am honored to have been appointed to my new role. During my 27 year career with Legg Mason, I have seen the investment management industry evolve and expand. Throughout these changes, maintaining an unwavering focus on our shareholders and their needs has remained paramount.

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.lmcef.com. Here you can gain immediate access to market and investment information, including:

•

Fund prices and performance,

•

Market insights and commentaries from our portfolio managers, and

•

A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

LOGO

Jane Trust, CFA

President and Chief Executive Officer

July 31, 2015


Western Asset Income Fund		III

Investment commentary

Economic review

After a tepid start, the pace of U.S. economic activity improved during the six months ended June 30, 2015 (the “reporting period”). Looking back, the U.S. Department of Commerce’s revised figures showed that fourth quarter 2014 U.S. gross domestic product (“GDP”)ⁱ growth was 2.1%. First quarter 2015 GDP growth then moderated to 0.6%. This was attributed to a number of factors, including a deceleration in personal consumption expenditures (“PCE”), along with negative contributions from exports, nonresidential fixed investment, and state and local government spending. However, the economy then gained some traction, as the U.S. Department of Commerce’s initial estimate for second quarter 2015 GDP growth — released after the reporting period ended — was 2.3%. The upturn was driven by an increase in exports, an acceleration in PCE, a deceleration in imports and increased state and local government spending.

Activity in the U.S. manufacturing sector initially moderated and then strengthened during the reporting period. Based on the Institute for Supply Management’s Purchasing Managers’ Index (“PMI”)ⁱⁱ, U.S. manufacturing expanded during all six months of the reporting period (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion).

The labor market was a tailwind for the economy during the reporting period. When the period began, unemployment was 5.7%, as reported by the U.S. Department of Labor. By June 2015, unemployment was 5.3%, its lowest level since April 2008.


IV		Western Asset Income Fund

Market review

Q. How did the Federal Reserve Board (“Fed”)ⁱⁱⁱ respond to the economic environment?

A. The Fed took a number of actions as it sought to meet its dual mandate of fostering maximum employment and price stability. As it has since December 2008, the Fed maintained the federal funds rate^iv at a historically low range between zero and 0.25%. However, in October 2014 the Fed ended its asset purchase program that was announced in December 2012. In December 2014, the Fed said that “it can be patient in beginning to normalize the stance of monetary policy.” At its meeting that ended on April 29, 2015, the Fed said, “…economic growth slowed during the winter months, in part reflecting transitory factors.” Finally, at its meeting that ended on July 29, 2015, after the reporting period ended, the Fed said, “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

Q. Did Treasury yields trend higher or lower during the six months ended June 30, 2015?

A. Short-term Treasury yields edged lower, whereas long-term Treasury yields increased during the reporting period. When the reporting period began, the yield on the two-year Treasury note was 0.67%. It peaked at 0.75% on June 10, 2015, and fell as low as 0.44% on January 15, 2015, before ending the period at 0.64%. The yield on the ten-year Treasury note began the period at 2.17% and its peak of 2.50% occurred on June 10, 2015. The yield on the ten-year Treasury note was as low as 1.68% in late January/early February 2015 and concluded the reporting period at 2.35%.

Q. What factors impacted the spread sectors (non-Treasuries) during the reporting period?

A. The spread sectors generally posted positive, albeit small gains, during the reporting period. Performance fluctuated with investor sentiment given the uncertainties regarding future Fed monetary policy, along with concerns over global growth and geopolitical issues. The broad U.S. bond market, as measured by the Barclays U.S. Aggregate Index^v, declined 0.10% during the six months ended June 30, 2015.

Q. How did the high-yield bond market perform over the six months ended June 30, 2015?

A. The U.S. high-yield bond market, as measured by the Barclays U.S. Corporate High Yield — 2% Issuer Cap Index^vi, returned 2.53% for the six months ended June 30, 2015. High yield bonds were volatile during the reporting period. While the underlying fundamentals in the high-yield market remained generally solid and default rates were well below their long-term average, the asset class posted negative returns in March and June 2015 when investor risk aversion increased.

Performance review

For the six months ended June 30, 2015, Western Asset Income Fund returned -0.14% based on its net asset value (“NAV”)^vii and -0.04% based on its New York Stock Exchange (“NYSE”) market price per share. The Fund’s unmanaged benchmarks, the Barclays U.S. Corporate High Yield Index^viii and the Barclays U.S. Credit Index^ix,


Western Asset Income Fund		V

Investment commentary (cont’d)

returned 2.53% and -0.78%, respectively, for the same period. The Lipper Corporate Debt Closed-End Funds BBB-Rated Category Average^x returned -0.17% over the same time frame. Please note that Lipper performance returns are based on each fund’s NAV.

During this six-month period, the Fund made distributions to shareholders totaling $0.35 per share. As of June 30, 2015, the Fund estimates that all of the distributions were sourced from net investment income.* The performance table shows the Fund’s six-month total return based on its NAV and market price as of June 30, 2015. Past performance is no guarantee of future results.


Performance Snapshot as of June 30, 2015 (unaudited)
Price Per Share	6-Month Total Return**
$14.48 (NAV)		-0.14	%†
$13.11 (Market Price)		-0.04	%‡

All figures represent past performance and are not a guarantee of future results. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

** Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses, including management fees, operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.

† Total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV.

‡ Total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.

Looking for additional information?

The Fund is traded under the symbol “PAI” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line under the symbol “XPAIX” on most financial websites. Barron’s and the Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.lmcef.com.

In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Fund’s current NAV, market price and other information.

Thank you for your investment in Western Asset 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,

LOGO

Jane Trust, CFA

President and Chief Executive Officer

July 31, 2015

This estimate is not for tax purposes. The Fund will issue a Form 1099 with final composition of the distributions for tax purposes after year-end. A return of capital is not taxable and results in a reduction in the tax basis of a shareholder’s investment. For more information about a distribution’s composition, please refer to the Fund’s distribution press release or, if applicable, the Section 19 notice located in the press release section of our website, www.lmcef.com.


VI		Western Asset Income Fund

RISKS: Bonds are subject to a variety of risks, including interest rate, credit and inflation risks. As interest rates rise, bond prices fall, reducing the value of a fixed-income investment’s price. The Fund may invest in high-yield bonds, which are rated below investment grade and carry more risk than higher-rated securities. To the extent that the Fund invests in asset-backed, mortgage-backed or mortgage related securities, its exposure to prepayment and extension risks may be greater than investments in other fixed-income securities. Leverage may result in greater volatility of NAV and the market price of common shares and increases a shareholder’s risk of loss. The Fund may invest, to a limited extent, in foreign securities, including emerging markets, which are subject to additional risks. The Fund may make significant investments in derivative instruments. Derivative instruments can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance.

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	Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.

ⁱⁱ	The Institute for Supply Management’s PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the U.S. manufacturing sector.

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

^iv	The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.

^v	The 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.

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

^vii

Net asset value (“NAV”) is calculated by subtracting total liabilities and outstanding preferred stock (if any) from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Fund’s market price as determined by supply of and demand for the Fund’s shares.

^viii

The Barclays U.S. Corporate High Yield Index covers the universe of fixed-rate, non-investment grade debt, including corporate and non-corporate sectors. Pay-in-kind (“PIK”) bonds, Eurobonds and debt issues from countries designated as emerging markets are excluded, but Canadian and global bonds (SEC registered) of issuers in non-emerging market countries are included. Original issue zero coupon bonds, step-up coupon structures and 144-A securities are also included.

^ix	The Barclays U.S. Credit Index is an index composed of corporate and non-corporate debt issues that are investment grade (rated Baa3/BBB- or higher).

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the six-month period ended June 30, 2015, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 10 funds in the Fund’s Lipper category.


Western Asset Income Fund		VII

Fund at a glance^† (unaudited)

Investment breakdown (%) as a percent of total investments

LOGO

†	The bar graph above represents the Fund’s portfolio as of June 30, 2015 and December 31, 2014, and does not include derivatives such as futures contracts. The Fund’s portfolio is actively managed. As a result, the composition of its portfolio holdings and sectors is subject to change at any time.

‡	Represents less than 0.1%.


Western Asset Income Fund 2015 Semi-Annual Report		1

Spread duration (unaudited)

Economic exposure — June 30, 2015

LOGO


Total Spread Duration
PAI		— 7.82 years
Benchmark		— 7.14 years

Spread duration measures the sensitivity to changes in spreads. The spread over Treasuries is the annual risk-premium demanded by investors to hold non-Treasury securities. Spread duration is quantified as the % change in price resulting from a 100 basis points change in spreads. For a security with positive spread duration, an increase in spreads would result in a price decline and a decline in spreads would result in a price increase. This chart highlights the market sector exposure of the Fund’s sectors relative to the selected benchmark sectors as of the end of the reporting period.


ABS		— Asset-Backed Securities
Benchmark		— Barclays U.S. Credit Index
EM		— Emerging Markets
HY		— High Yield
IG Credit		— Investment Grade Credit
MBS		— Mortgage-Backed Securities
PAI		— Western Asset Income Fund


2		Western Asset Income Fund 2015 Semi-Annual Report

Effective duration (unaudited)

Interest rate exposure — June 30, 2015

LOGO


Total Effective Duration
PAI		— 6.91 years
Benchmark		— 7.23 years

Effective duration measures the sensitivity to changes in relevant interest rates. Effective duration is quantified as the % change in price resulting from a 100 basis points change in interest rates. For a security with positive effective duration, an increase in interest rates would result in a price decline and a decline in interest rates would result in a price increase. This chart highlights the interest rate exposure of the Fund’s sectors relative to the selected benchmark sectors as of the end of the reporting period.


Benchmark		— Barclays U.S. Credit Index
EM		— Emerging Markets
HY		— High Yield
IG Credit		— Investment Grade Credit
PAI		— Western Asset Income Fund


Western Asset Income Fund 2015 Semi-Annual Report		3

Schedule of investments (unaudited)

June 30, 2015

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Corporate Bonds & Notes — 92.1%
Consumer Discretionary — 7.7%
Automobiles — 0.6%
Ford Motor Credit Co., LLC, Senior Notes		8.125	%		1/15/20	$	410,000	$	500,685
General Motors Co., Senior Notes		5.200	%		4/1/45		310,000		307,036
Total Automobiles									807,721
Hotels, Restaurants & Leisure — 0.2%
Wynn Macau Ltd., Senior Notes		5.250	%		10/15/21		290,000		274,050	^(a)
Household Durables — 0.1%
Toll Brothers Finance Corp., Senior Notes		6.750	%		11/1/19		90,000		99,900
Media — 6.1%
21st Century Fox America Inc., Senior Debentures		7.750	%		12/1/45		130,000		177,004
21st Century Fox America Inc., Senior Notes		6.550	%		3/15/33		545,000		665,852
Comcast Corp., Bonds		6.400	%		5/15/38		950,000		1,155,989
Comcast Corp., Notes		6.450	%		3/15/37		220,000		271,875
Comcast Corp., Senior Notes		6.950	%		8/15/37		160,000		208,018
DISH DBS Corp., Senior Notes		5.875	%		7/15/22		500,000		490,000
TCI Communications Inc., Senior Debentures		8.750	%		8/1/15		160,000		161,002
Time Warner Cable Inc., Debentures		7.300	%		7/1/38		100,000		112,671
Time Warner Cable Inc., Senior Bonds		6.550	%		5/1/37		160,000		166,564
Time Warner Cable Inc., Senior Notes		8.750	%		2/14/19		690,000		819,480
Time Warner Cable Inc., Senior Notes		5.500	%		9/1/41		50,000		46,633
Time Warner Entertainment Co., LP, Senior Notes		8.375	%		7/15/33		410,000		503,242
Time Warner Inc., Senior Debentures		7.700	%		5/1/32		595,000		781,603
Time Warner Inc., Senior Notes		4.900	%		6/15/42		150,000		147,605
UBM PLC, Notes		5.750	%		11/3/20		570,000		615,085	^(a)
Virgin Media Finance PLC, Senior Notes		6.375	%		4/15/23		1,000,000		1,033,750	^(a)
WPP Finance 2010, Senior Notes		4.750	%		11/21/21		840,000		915,954
WPP Finance 2010, Senior Notes		5.625	%		11/15/43		150,000		161,884
Total Media									8,434,211
Specialty Retail — 0.7%
American Greetings Corp., Senior Notes		7.375	%		12/1/21		160,000		168,000
Gap Inc., Senior Notes		5.950	%		4/12/21		730,000		824,382
Total Specialty Retail									992,382
Total Consumer Discretionary									10,608,264
Consumer Staples — 4.2%
Beverages — 1.0%
Anheuser-Busch InBev Worldwide Inc., Senior Notes		5.375	%		1/15/20		260,000		293,256
Pernod-Ricard SA, Senior Bonds		5.750	%		4/7/21		350,000		394,057	^(a)
Pernod-Ricard SA, Senior Notes		5.500	%		1/15/42		670,000		712,425	^(a)
Total Beverages									1,399,738

See Notes to Financial Statements.


4		Western Asset Income Fund 2015 Semi-Annual Report

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Food Products — 0.4%
Kraft Foods Group Inc., Senior Notes		5.000	%		6/4/42	$	170,000	$	169,409
Kraft Heinz Foods Co., Senior Notes		5.000	%		7/15/35		70,000		70,842	^(a)
Kraft Heinz Foods Co., Senior Notes		5.200	%		7/15/45		340,000		348,439	^(a)
Total Food Products									588,690
Tobacco — 2.8%
Altria Group Inc., Senior Notes		9.950	%		11/10/38		680,000		1,094,960
Altria Group Inc., Senior Notes		10.200	%		2/6/39		230,000		378,748
Philip Morris International Inc., Senior Notes		4.500	%		3/20/42		260,000		253,340
R.J. Reynolds Tobacco Co., Senior Notes		8.125	%		6/23/19		330,000		390,944
R.J. Reynolds Tobacco Co., Senior Notes		8.125	%		5/1/40		270,000		340,788
R.J. Reynolds Tobacco Co., Senior Notes		7.000	%		8/4/41		320,000		370,163
Reynolds American Inc., Senior Notes		4.750	%		11/1/42		720,000		653,171
Reynolds American Inc., Senior Notes		5.850	%		8/15/45		320,000		335,646
Total Tobacco									3,817,760
Total Consumer Staples									5,806,188
Energy — 15.1%
Energy Equipment & Services — 0.7%
Baker Hughes Inc., Senior Notes		7.500	%		11/15/18		370,000		434,699
Ensco PLC, Senior Notes		5.200	%		3/15/25		480,000		475,231
Pride International Inc., Senior Notes		7.875	%		8/15/40		130,000		143,126
Total Energy Equipment & Services									1,053,056
Oil, Gas & Consumable Fuels — 14.4%
Anadarko Finance Co., Senior Notes		7.500	%		5/1/31		465,000		582,303
Apache Corp., Senior Notes		6.900	%		9/15/18		100,000		114,452
Apache Corp., Senior Notes		6.000	%		1/15/37		190,000		204,949
Apache Corp., Senior Notes		5.100	%		9/1/40		160,000		154,635
Apache Corp., Senior Notes		5.250	%		2/1/42		90,000		88,811
Columbia Pipeline Group Inc., Senior Notes		5.800	%		6/1/45		210,000		206,947	^(a)
Comstock Resources Inc., Senior Secured Notes		10.000	%		3/15/20		350,000		315,728	^(a)
ConocoPhillips, Notes		6.500	%		2/1/39		810,000		1,005,244
ConocoPhillips, Senior Notes		6.000	%		1/15/20		310,000		359,026
Devon Energy Corp., Senior Notes		5.600	%		7/15/41		310,000		324,556
Devon Energy Corp., Senior Notes		5.000	%		6/15/45		280,000		276,420
Devon Financing Corp. LLC, Debentures		7.875	%		9/30/31		380,000		489,820
Ecopetrol SA, Senior Notes		5.375	%		6/26/26		740,000		732,600
Ecopetrol SA, Senior Notes		5.875	%		5/28/45		176,000		155,320
Enbridge Energy Partners LP, Senior Notes		9.875	%		3/1/19		120,000		148,396
Energy Transfer Equity LP, Senior Notes		7.500	%		10/15/20		250,000		281,875

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		5

Schedule of investments (unaudited) (cont’d)

June 30, 2015

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Oil, Gas & Consumable Fuels — continued
Enterprise Products Operating LLC, Senior Notes		6.125	%		10/15/39	$	320,000	$	350,988
EOG Resources Inc., Senior Notes		5.875	%		9/15/17		540,000		592,800
EXCO Resources Inc., Senior Notes		7.500	%		9/15/18		70,000		44,450
Freeport-McMoran Oil & Gas LLC/FCX Oil & Gas Inc., Senior Notes		6.875	%		2/15/23		267,000		286,358
Halcon Resources Corp., Secured Notes		8.625	%		2/1/20		180,000		177,750	^(a)
Hess Corp., Notes		7.875	%		10/1/29		1,180,000		1,486,152
Hess Corp., Senior Bonds		6.000	%		1/15/40		300,000		320,336
Kerr-McGee Corp., Notes		6.950	%		7/1/24		1,080,000		1,302,061
Kinder Morgan Inc., Medium-Term Notes		7.800	%		8/1/31		2,000,000		2,284,178
LUKOIL International Finance BV, Senior Notes		3.416	%		4/24/18		300,000		287,700	^(a)
LUKOIL International Finance BV, Senior Notes		4.563	%		4/24/23		200,000		178,000	^(a)
MEG Energy Corp., Senior Notes		6.375	%		1/30/23		600,000		555,000	^(a)
Noble Energy Inc., Senior Notes		6.000	%		3/1/41		390,000		412,874
Noble Energy Inc., Senior Notes		5.250	%		11/15/43		150,000		146,139
Petrobras Global Finance BV, Senior Notes		7.250	%		3/17/44		280,000		259,941
Petrobras Global Finance BV, Senior Notes		6.850	%		6/5/2115		120,000		98,443
Petroleos Mexicanos, Senior Bonds		6.625	%		6/15/35		2,635,000		2,812,862
Phillips 66, Senior Notes		5.875	%		5/1/42		160,000		174,328
Shell International Finance BV, Senior Notes		6.375	%		12/15/38		250,000		314,353
Transcontinental Gas Pipe Line Co., LLC, Senior Notes		5.400	%		8/15/41		310,000		298,917
Transcontinental Gas Pipe Line Co., LLC, Senior Notes		4.450	%		8/1/42		450,000		377,010
Williams Cos. Inc., Debentures		7.500	%		1/15/31		47,000		51,438
Williams Cos. Inc., Senior Notes		4.550	%		6/24/24		680,000		658,977
Williams Cos. Inc., Senior Notes		7.750	%		6/15/31		37,000		41,298
Williams Cos. Inc., Senior Notes		8.750	%		3/15/32		610,000		739,747
Total Oil, Gas & Consumable Fuels									19,693,182
Total Energy									20,746,238
Financials — 40.0%
Banks — 20.7%
Bank of America Corp., Junior Subordinated Notes		6.500	%		10/23/24		650,000		672,750	^(b)(c)
Bank of America Corp., Senior Notes		6.500	%		8/1/16		70,000		73,841
Bank of America Corp., Senior Notes		6.400	%		8/28/17		300,000		328,931
Bank of America Corp., Senior Notes		7.625	%		6/1/19		70,000		83,067
Bank of America Corp., Senior Notes		5.625	%		7/1/20		30,000		33,812
Bank of America Corp., Senior Notes		5.875	%		2/7/42		320,000		369,044
Bank of America Corp., Senior Notes		4.875	%		4/1/44		740,000		751,637
Bank of America Corp., Subordinated Notes		5.700	%		5/2/17		1,000,000		1,066,887

See Notes to Financial Statements.


6		Western Asset Income Fund 2015 Semi-Annual Report

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Banks — continued
Bank of America Corp., Subordinated Notes		6.110	%		1/29/37	$	320,000	$	358,662
Bank of America Corp., Subordinated Notes		7.750	%		5/14/38		900,000		1,198,337
Barclays Bank PLC, Subordinated Notes		10.179	%		6/12/21		240,000		317,976	^(a)
BPCE SA, Subordinated Notes		5.150	%		7/21/24		410,000		416,544	^(a)
Citigroup Inc., Junior Subordinated Bonds		6.300	%		5/15/24		280,000		273,350	^(b)(c)
Citigroup Inc., Junior Subordinated Bonds		5.950	%		5/15/25		540,000		521,208	^(b)(c)
Citigroup Inc., Junior Subordinated Notes		5.950	%		1/30/23		200,000		197,000	^(b)(c)
Citigroup Inc., Senior Notes		8.500	%		5/22/19		1,280,000		1,561,212
Citigroup Inc., Senior Notes		8.125	%		7/15/39		450,000		645,913
Citigroup Inc., Senior Notes		5.875	%		1/30/42		240,000		280,767
Citigroup Inc., Subordinated Notes		5.500	%		9/13/25		750,000		810,598
Citigroup Inc., Subordinated Notes		6.125	%		8/25/36		404,000		461,519
Citigroup Inc., Subordinated Notes		6.675	%		9/13/43		370,000		448,121
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA of Netherlands, Junior Subordinated Notes		11.000	%		6/30/19		708,000		897,390	^(a)(b)(c)
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA of Netherlands, Senior Notes		5.250	%		5/24/41		570,000		624,467
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA of Netherlands, Subordinated Notes		5.750	%		12/1/43		450,000		494,082
Credit Agricole SA, Junior Subordinated Notes		8.375	%		10/13/19		560,000		649,600	^(a)(b)(c)
HSBC Finance Capital Trust IX, Junior Subordinated Notes		5.911	%		11/30/35		1,350,000		1,357,493	^(c)
HSBC Holdings PLC, Junior Subordinated Bonds		6.375	%		9/17/24		1,430,000		1,433,575	^(b)(c)
HSBC Holdings PLC, Junior Subordinated Bonds		6.375	%		3/30/25		350,000		351,750	^(b)(c)
HSBC Holdings PLC, Subordinated Notes		5.250	%		3/14/44		410,000		425,281
ING Bank NV, Subordinated Notes		5.800	%		9/25/23		600,000		655,142	^(a)
Intesa Sanpaolo SpA, Senior Notes		3.625	%		8/12/15		1,240,000		1,243,073	^(a)
Intesa Sanpaolo SpA, Subordinated Bonds		5.017	%		6/26/24		250,000		242,886	^(a)
JPMorgan Chase & Co., Junior Subordinated Bonds		5.150	%		5/1/23		150,000		142,740	^(b)(c)
JPMorgan Chase & Co., Junior Subordinated Bonds		6.000	%		8/1/23		260,000		258,050	^(b)(c)
JPMorgan Chase & Co., Subordinated Notes		6.125	%		6/27/17		720,000		778,620
JPMorgan Chase & Co., Subordinated Notes		5.625	%		8/16/43		440,000		469,243
JPMorgan Chase & Co., Subordinated Notes		4.950	%		6/1/45		150,000		145,810
M&T Bank Corp., Junior Subordinated Bonds		6.875	%		6/15/16		880,000		897,600	^(b)
Royal Bank of Scotland Group PLC, Junior Subordinated Bonds		7.648	%		9/30/31		1,360,000		1,693,200	^(b)(c)
Royal Bank of Scotland Group PLC, Subordinated Notes		6.125	%		12/15/22		310,000		333,802
Royal Bank of Scotland Group PLC, Subordinated Notes		6.100	%		6/10/23		1,010,000		1,073,869
Royal Bank of Scotland Group PLC, Subordinated Notes		6.000	%		12/19/23		350,000		370,626
Royal Bank of Scotland NV, Subordinated Bonds		7.750	%		5/15/23		480,000		561,619

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		7

Schedule of investments (unaudited) (cont’d)

June 30, 2015

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Banks — continued
Standard Chartered PLC, Subordinated Notes		5.700	%		3/26/44	$	410,000	$	425,036	^(a)
Wachovia Capital Trust III, Junior Subordinated Bonds		5.570	%		8/14/15		1,190,000		1,176,613	^(b)(c)
Wells Fargo & Co., Junior Subordinated Bonds		5.900	%		6/15/24		270,000		270,675	^(b)(c)
Wells Fargo & Co., Subordinated Notes		5.375	%		11/2/43		430,000		459,120
Total Banks									28,302,538
Capital Markets — 5.5%
Credit Suisse Group AG, Junior Subordinated Notes		6.250	%		12/18/24		1,170,000		1,121,738	^(a)(b)(c)
Credit Suisse Group Funding Guernsey Ltd., Senior Notes		4.875	%		5/15/45		850,000		817,847	^(a)
Goldman Sachs Group Inc., Senior Notes		5.375	%		3/15/20		270,000		300,650
Goldman Sachs Group Inc., Senior Notes		5.250	%		7/27/21		510,000		566,364
Goldman Sachs Group Inc., Senior Notes		6.250	%		2/1/41		570,000		674,621
Goldman Sachs Group Inc., Subordinated Notes		6.750	%		10/1/37		640,000		750,687
Goldman Sachs Group Inc., Subordinated Notes		5.150	%		5/22/45		500,000		482,364
KKR Group Finance Co. III LLC, Senior Bonds		5.125	%		6/1/44		850,000		814,940	^(a)
Morgan Stanley, Medium-Term Notes		6.625	%		4/1/18		100,000		112,206
Morgan Stanley, Senior Notes		5.500	%		7/24/20		100,000		112,147
Morgan Stanley, Senior Notes		6.375	%		7/24/42		90,000		110,501
Morgan Stanley, Subordinated Notes		5.000	%		11/24/25		230,000		240,778
Pershing Square Holdings Ltd., Senior Notes		5.500	%		7/15/22		1,000,000		1,002,890	^(a)
UBS AG Stamford CT, Subordinated Notes		7.625	%		8/17/22		340,000		398,480
Total Capital Markets									7,506,213
Consumer Finance — 2.6%
Ally Financial Inc., Subordinated Notes		8.000	%		12/31/18		201,000		224,366
American Express Co., Subordinated Debentures		6.800	%		9/1/66		370,000		380,693	^(c)
Capital One Financial Corp., Senior Notes		6.750	%		9/15/17		230,000		254,536
HSBC Finance Corp., Senior Notes		6.676	%		1/15/21		1,300,000		1,503,975
Navient Corp., Senior Notes		7.250	%		1/25/22		830,000		875,650
Navient Corp., Senior Notes		6.125	%		3/25/24		290,000		277,675
Total Consumer Finance									3,516,895
Diversified Financial Services — 6.1%
Argos Merger Sub Inc., Senior Notes		7.125	%		3/15/23		150,000		157,125	^(a)
Beaver Valley Funding Corp., Senior Secured Bonds		9.000	%		6/1/17		11,000		11,880
Blackstone Holdings Finance Co., LLC, Senior Notes		4.450	%		7/15/45		190,000		174,258	^(a)
Carlyle Holdings II Finance LLC, Senior Secured Notes		5.625	%		3/30/43		220,000		228,562	^(a)
CME Group Inc., Senior Notes		5.300	%		9/15/43		440,000		485,465
General Electric Capital Corp., Junior Subordinated Bonds		6.250	%		12/15/22		600,000		656,250	^(b)(c)
General Electric Capital Corp., Senior Notes		6.875	%		1/10/39		440,000		590,777
General Electric Capital Corp., Subordinated Debentures		6.375	%		11/15/67		370,000		397,750	^(c)

See Notes to Financial Statements.


8		Western Asset Income Fund 2015 Semi-Annual Report

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Diversified Financial Services — continued
General Electric Capital Corp., Subordinated Notes		5.300	%		2/11/21	$	480,000	$	539,727
ILFC E-Capital Trust I, Junior Subordinated Notes		4.690	%		12/21/65		470,000		465,770	^(a)(c)
ILFC E-Capital Trust II, Bonds		6.250	%		12/21/65		790,000		774,200	^(a)(c)
International Lease Finance Corp., Senior Notes		8.750	%		3/15/17		190,000		207,881
International Lease Finance Corp., Senior Notes		8.875	%		9/1/17		470,000		525,225
International Lease Finance Corp., Senior Notes		6.250	%		5/15/19		130,000		140,563
International Lease Finance Corp., Senior Notes		8.250	%		12/15/20		190,000		225,625
International Lease Finance Corp., Senior Secured Notes		7.125	%		9/1/18		700,000		780,500	^(a)
Voya Financial Inc., Senior Notes		5.700	%		7/15/43		500,000		560,322
ZFS Finance USA Trust II, Bonds		6.450	%		12/15/65		1,440,000		1,472,789	^(a)(c)
Total Diversified Financial Services									8,394,669
Insurance — 4.1%
AIA Group Ltd., Senior Notes		4.875	%		3/11/44		400,000		415,874	^(a)
Allstate Corp., Junior Subordinated Debentures		6.500	%		5/15/57		480,000		537,600	^(c)
American Equity Investment Life Holding Co., Senior Notes		6.625	%		7/15/21		60,000		63,450
American International Group Inc., Junior Subordinated Debentures		6.250	%		3/15/37		80,000		88,103
American International Group Inc., Senior Notes		6.400	%		12/15/20		90,000		106,996
Aon PLC, Senior Notes		4.750	%		5/15/45		90,000		86,750
AXA SA, Subordinated Bonds		8.600	%		12/15/30		200,000		268,031
Delphi Financial Group Inc., Senior Notes		7.875	%		1/31/20		170,000		201,466
Fidelity & Guaranty Life Holdings Inc., Senior Notes		6.375	%		4/1/21		190,000		197,600	^(a)
Liberty Mutual Group Inc., Junior Subordinated Bonds		7.800	%		3/15/37		190,000		225,150	^(a)
Liberty Mutual Insurance Co., Subordinated Notes		7.875	%		10/15/26		490,000		592,683	^(a)
MetLife Inc., Junior Subordinated Bonds		5.250	%		6/15/20		700,000		693,875	^(b)(c)
MetLife Inc., Junior Subordinated Debentures		6.400	%		12/15/36		1,150,000		1,262,125
Prudential Financial Inc., Junior Subordinated Debentures		8.875	%		6/15/38		340,000		397,800	^(c)
Teachers Insurance & Annuity Association of America — College Retirement Equity Fund, Notes		6.850	%		12/16/39		400,000		500,861	^(a)
Total Insurance									5,638,364
Real Estate Management & Development — 0.7%
Caesars Entertainment Resort Properties LLC, Senior Secured Notes		8.000	%		10/1/20		500,000		470,940
Communications Sales & Leasing Inc., Senior Notes		8.250	%		10/15/23		120,000		117,900	^(a)
Communications Sales & Leasing Inc., Senior Secured Notes		6.000	%		4/15/23		50,000		48,901	^(a)
Security Capital Group Inc., Senior Notes		7.700	%		6/15/28		280,000		373,064
Total Real Estate Management & Development									1,010,805
Thrifts & Mortgage Finance — 0.3%
Quicken Loans Inc., Senior Notes		5.750	%		5/1/25		500,000		478,750	^(a)
Total Financials									54,848,234

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		9

Schedule of investments (unaudited) (cont’d)

June 30, 2015

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Health Care — 2.4%
Biotechnology — 0.7%
Amgen Inc., Senior Notes		5.150	%		11/15/41	$	420,000	$	431,318
Gilead Sciences Inc., Senior Notes		5.650	%		12/1/41		60,000		68,746
Gilead Sciences Inc., Senior Notes		4.500	%		2/1/45		450,000		448,266
Total Biotechnology									948,330
Health Care Providers & Services — 0.4%
Anthem Inc., Senior Notes		5.875	%		6/15/17		290,000		314,918
Catholic Health Initiatives, Secured Bonds		4.350	%		11/1/42		30,000		27,434
Humana Inc., Senior Notes		8.150	%		6/15/38		80,000		111,154
UnitedHealth Group Inc., Senior Notes		6.000	%		11/15/17		31,000		34,453
Total Health Care Providers & Services									487,959
Pharmaceuticals — 1.3%
AbbVie Inc., Senior Subordinated Notes		4.500	%		5/14/35		350,000		342,406
AbbVie Inc., Senior Subordinated Notes		4.700	%		5/14/45		420,000		413,126
Actavis Funding SCS, Senior Notes		4.550	%		3/15/35		480,000		456,371
Actavis Funding SCS, Senior Notes		4.750	%		3/15/45		500,000		476,027
Zoetis Inc., Senior Notes		4.700	%		2/1/43		160,000		152,546
Total Pharmaceuticals									1,840,476
Total Health Care									3,276,765
Industrials — 4.6%
Aerospace & Defense — 1.2%
Esterline Technologies Corp., Senior Notes		7.000	%		8/1/20		750,000		779,700
Exelis Inc., Senior Notes		5.550	%		10/1/21		520,000		572,162
United Technologies Corp., Senior Notes		6.125	%		2/1/19		200,000		228,513
Total Aerospace & Defense									1,580,375
Airlines — 1.2%
Air Canada, Pass-Through Trust, Secured Notes		6.625	%		5/15/18		280,000		293,272	^(a)
Continental Airlines Inc., Pass-Through Certificates, Secured Notes		9.250	%		5/10/17		108,278		119,106
Continental Airlines Inc., Pass-Through Certificates, Secured Notes		6.250	%		4/11/20		135,540		142,995
Continental Airlines Inc., Pass-Through Certificates, Senior Secured Notes		6.545	%		2/2/19		98,795		108,240
Continental Airlines Inc., Pass-Through Certificates, Senior Secured Notes		7.250	%		11/10/19		164,527		190,440
Continental Airlines Inc., Pass-Through Certificates, Senior Secured Notes		7.256	%		3/15/20		119,433		132,570
Delta Air Lines Inc., Pass-Through Certificates, Secured Notes		8.021	%		8/10/22		80,773		92,687
Delta Air Lines Inc., Pass-Through Certificates, Senior Secured Notes		7.750	%		12/17/19		160,460		183,325
United Airlines Inc., Pass-Through Certificates, Secured Notes		9.750	%		1/15/17		66,483		72,300
US Airways, Pass-Through Trust, Senior Secured Bonds		5.900	%		10/1/24		310,360		350,706
Total Airlines									1,685,641

See Notes to Financial Statements.


10		Western Asset Income Fund 2015 Semi-Annual Report

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Commercial Services & Supplies — 1.1%
Republic Services Inc., Senior Notes		5.500	%		9/15/19	$	130,000	$	145,204
Republic Services Inc., Senior Notes		5.250	%		11/15/21		330,000		369,820
Taylor Morrison Communities Inc./Monarch Communities Inc., Senior Notes		5.250	%		4/15/21		600,000		591,000	^(a)
Waste Management Inc., Senior Notes		7.750	%		5/15/32		250,000		334,616
Total Commercial Services & Supplies									1,440,640
Machinery — 0.8%
Caterpillar Inc., Senior Notes		4.750	%		5/15/64		220,000		215,348
Valmont Industries Inc., Senior Notes		6.625	%		4/20/20		790,000		911,647
Total Machinery									1,126,995
Road & Rail — 0.3%
Burlington Northern Santa Fe LLC, Senior Notes		4.900	%		4/1/44		460,000		476,248
Total Industrials									6,309,899
Information Technology — 1.8%
Communications Equipment — 0.4%
Harris Corp., Senior Notes		4.854	%		4/27/35		260,000		249,144
Harris Corp., Senior Notes		5.054	%		4/27/45		210,000		200,070
QUALCOMM Inc., Senior Subordinated Notes		4.800	%		5/20/45		100,000		95,960
Total Communications Equipment									545,174
Electronic Equipment, Instruments & Components — 0.2%
Interface Security Systems Holdings Inc./Interface Security Systems LLC, Senior Secured Notes		9.250	%		1/15/18		290,000		291,450
IT Services — 0.4%
HP Enterprise Services LLC, Notes		7.450	%		10/15/29		420,000		512,843
Semiconductors & Semiconductor Equipment — 0.6%
KLA-Tencor Corp., Senior Notes		4.650	%		11/1/24		680,000		679,629
National Semiconductor Corp., Senior Notes		6.600	%		6/15/17		110,000		121,472
Total Semiconductors & Semiconductor Equipment									801,101
Technology Hardware, Storage & Peripherals — 0.2%
Hewlett-Packard Co., Senior Notes		4.650	%		12/9/21		310,000		329,040
Total Information Technology									2,479,608
Materials — 5.5%
Chemicals — 0.8%
Dow Chemical Co., Debentures		7.375	%		11/1/29		800,000		1,008,483
Ecolab Inc., Senior Notes		5.500	%		12/8/41		140,000		152,951
Total Chemicals									1,161,434
Containers & Packaging — 0.2%
Rock-Tenn Co., Senior Notes		4.450	%		3/1/19		230,000		244,147

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		11

Schedule of investments (unaudited) (cont’d)

June 30, 2015

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Metals & Mining — 4.0%
Alcoa Inc., Senior Notes		5.125	%		10/1/24	$	320,000	$	324,000
Barrick Gold Corp., Senior Notes		4.100	%		5/1/23		790,000		769,755
BHP Billiton Finance USA Ltd., Senior Notes		5.000	%		9/30/43		100,000		103,803
Freeport-McMoRan Inc., Senior Notes		5.400	%		11/14/34		20,000		17,253
Freeport-McMoRan Inc., Senior Notes		5.450	%		3/15/43		120,000		100,183
Glencore Finance Canada Ltd., Senior Notes		6.900	%		11/15/37		430,000		463,193	^(a)
Rio Tinto Finance USA Ltd., Senior Notes		9.000	%		5/1/19		660,000		823,856
Southern Copper Corp., Senior Notes		5.375	%		4/16/20		150,000		163,830
Southern Copper Corp., Senior Notes		5.250	%		11/8/42		470,000		407,885
Steel Dynamics Inc., Senior Notes		6.125	%		8/15/19		140,000		147,350
Vale Overseas Ltd., Senior Notes		6.875	%		11/21/36		1,148,000		1,109,898
Vedanta Resources PLC, Senior Notes		6.750	%		6/7/16		310,000		317,363	^(a)
Vedanta Resources PLC, Senior Notes		6.000	%		1/31/19		350,000		338,625	^(a)
Yamana Gold Inc., Senior Notes		4.950	%		7/15/24		370,000		356,396
Total Metals & Mining									5,443,390
Paper & Forest Products — 0.5%
Fibria Overseas Finance Ltd., Senior Notes		5.250	%		5/12/24		310,000		310,775
Georgia-Pacific Corp., Senior Bonds		7.375	%		12/1/25		250,000		321,570
Total Paper & Forest Products									632,345
Total Materials									7,481,316
Telecommunication Services — 8.3%
Diversified Telecommunication Services — 6.9%
AT&T Inc., Senior Notes		4.500	%		5/15/35		360,000		330,943
AT&T Inc., Senior Notes		5.350	%		9/1/40		300,000		295,355
AT&T Inc., Senior Notes		5.550	%		8/15/41		300,000		307,371
AT&T Inc., Senior Notes		4.750	%		5/15/46		260,000		236,593
British Telecommunications PLC, Bonds		9.625	%		12/15/30		330,000		489,777
Deutsche Telekom International Finance BV, Senior Notes		5.750	%		3/23/16		160,000		165,395
Intelsat Jackson Holdings SA, Senior Bonds		5.500	%		8/1/23		750,000		664,125
Koninklijke KPN NV, Senior Notes		8.375	%		10/1/30		200,000		272,364
Qwest Corp., Debentures		6.875	%		9/15/33		1,000,000		988,790
Telecom Italia Capital SA, Senior Notes		7.175	%		6/18/19		360,000		404,550
Telecom Italia SpA, Senior Notes		5.303	%		5/30/24		450,000		448,312	^(a)
Telefonica Emisiones SAU, Senior Notes		7.045	%		6/20/36		60,000		73,689
Turk Telekomunikasyon AS, Senior Notes		4.875	%		6/19/24		330,000		329,086	^(a)
Verizon Communications Inc., Senior Notes		5.150	%		9/15/23		1,790,000		1,959,765
Verizon Communications Inc., Senior Notes		6.550	%		9/15/43		1,256,000		1,469,211
Verizon Communications Inc., Senior Notes		5.012	%		8/21/54		1,059,000		971,725
Total Diversified Telecommunication Services									9,407,051

See Notes to Financial Statements.


12		Western Asset Income Fund 2015 Semi-Annual Report

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
Wireless Telecommunication Services — 1.4%
America Movil SAB de CV, Senior Notes		6.125	%		3/30/40	$	850,000	$	984,240
Sprint Capital Corp., Global Notes		6.900	%		5/1/19		330,000		336,600
Sprint Corp., Senior Notes		7.875	%		9/15/23		300,000		292,590
Telefonica Europe BV, Senior Notes		8.250	%		9/15/30		230,000		308,532
Total Wireless Telecommunication Services									1,921,962
Total Telecommunication Services									11,329,013
Utilities — 2.5%
Electric Utilities — 2.1%
CenterPoint Energy Houston Electric LLC, Senior Secured Bonds		4.500	%		4/1/44		210,000		216,002
Enersis SA, Notes		7.400	%		12/1/16		452,000		485,314
Exelon Corp., Senior Notes		5.100	%		6/15/45		270,000		271,079
FirstEnergy Corp., Notes		7.375	%		11/15/31		830,000		1,011,274
Pacific Gas & Electric Co., First Mortgage Bonds		6.050	%		3/1/34		140,000		168,310
PNPP II Funding Corp., Senior Bonds		9.120	%		5/30/16		158,000		162,093
Virginia Electric and Power Co., Senior Notes		8.875	%		11/15/38		390,000		600,998
Total Electric Utilities									2,915,070
Gas Utilities — 0.2%
Southern Natural Gas Co., Senior Notes		5.900	%		4/1/17		170,000		181,059	^(a)
Multi-Utilities — 0.2%
DTE Energy Co., Senior Notes		6.350	%		6/1/16		260,000		272,462
Total Utilities									3,368,591
Total Corporate Bonds & Notes (Cost — $117,226,463)									126,254,116
Asset-Backed Securities — 1.5%
Countrywide Asset-Backed Certificates, 2004-6 1A1		0.727	%		12/25/34		514,490		486,223	^(c)
Dryden Senior Loan Fund, 2014-31A C		3.125	%		4/18/26		250,000		250,325	^(a)(c)
GoldenTree Loan Opportunities Ltd., 2015-10A D		3.634	%		7/20/27		250,000		242,750	^(a)(c)(d)
Madison Park Funding Ltd., 2013-11A C		3.027	%		10/23/25		250,000		247,330	^(a)(c)
Morgan Stanley Capital Inc., 2005-WMC2 M2		0.832	%		2/25/35		218,724		213,637	^(c)
Regatta IV Funding Ltd., 2014-1A D		3.777	%		7/25/26		250,000		237,949	^(a)(c)
SLM Student Loan Trust, 2011-A A3		2.686	%		1/15/43		330,000		350,410	^(a)(c)
Total Asset-Backed Securities (Cost — $1,991,227)									2,028,624
Collateralized Mortgage Obligations — 0.1%
Thornburg Mortgage Securities Trust, 2007-04 3A1 (Cost — $66,226)		6.088	%		9/25/37		67,056		68,831	^(c)
Municipal Bonds — 1.1%
Alabama — 0.1%
Jefferson County, AL, Sewer Revenue, Subordinated Lien Warrants		6.000	%		10/1/42		190,000		212,470

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		13

Schedule of investments (unaudited) (cont’d)

June 30, 2015

Western Asset Income Fund


Security	Rate			Maturity Date		Face Amount		Value
California — 0.8%
Los Angeles County, CA, Public Works Financing Authority, Lease Revenue, Build America Bonds, Recovery Zone Economic Development		7.618	%		8/1/40	$	650,000	$	889,089
University of California Revenue		4.062	%		5/15/33		150,000		148,319
Total California									1,037,408
Illinois — 0.2%
Chicago, IL, GO, Taxable Project		7.781	%		1/1/35		10,000		10,460
Illinois State, GO, Build America Bonds-Taxable		6.725	%		4/1/35		310,000		328,541
Total Illinois									339,001
Total Municipal Bonds (Cost — $1,646,124)									1,588,879
Sovereign Bonds — 1.4%
Canada — 0.7%
Quebec Province, Notes		7.970	%		7/22/36		650,000		981,310
Mexico — 0.0%
United Mexican States, Senior Notes		4.750	%		3/8/44		30,000		28,500
Turkey — 0.7%
Republic of Turkey, Senior Bonds		4.250	%		4/14/26		620,000		590,960
Republic of Turkey, Senior Notes		4.875	%		4/16/43		420,000		382,183
Total Turkey									973,143
Total Sovereign Bonds (Cost — $1,747,045)									1,982,953
U.S. Government & Agency Obligations — 0.7%
U.S. Government Obligations — 0.7%
U.S. Treasury Bonds		2.500	%		2/15/45		260,000		228,821
U.S. Treasury Notes		1.500	%		5/31/20		700,000		696,171
Total U.S. Government & Agency Obligations (Cost — $921,644)									924,992

						Shares
Preferred Stocks — 1.9%
Financials — 1.9%
Banks — 0.0%
U.S. Bancorp		5.150	%				2,117		51,591
Capital Markets — 0.2%
State Street Corp.		5.900	%				10,107		259,447	^(c)
Consumer Finance — 1.3%
GMAC Capital Trust I		8.125	%				67,500		1,753,650	^(c)
Diversified Financial Services — 0.3%
Citigroup Capital XIII		7.875	%				15,253		395,968	^(c)

See Notes to Financial Statements.


14		Western Asset Income Fund 2015 Semi-Annual Report

Western Asset Income Fund

Security

Rate

Value

Insurance — 0.1%

Delphi Financial Group Inc.

7.376%

5,725

143,354

^(c)(d)

Total Preferred Stocks (Cost — $2,459,919)

2,604,010

Total Investments — 98.8% (Cost — $126,058,648#)

135,452,405

Other Assets in Excess of Liabilities — 1.2%

1,606,213

Total Net Assets — 100.0%

137,058,618

^(a)

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

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

^(c)	Variable rate security. Interest rate disclosed is as of the most recent information available.

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

#	Aggregate cost for federal income tax purposes is substantially the same.


Abbreviation used in this schedule:
GO		— General Obligation

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		15

Statement of assets and liabilities (unaudited)

June 30, 2015



Assets:
Investments, at value (Cost — $126,058,648)	$	135,452,405
Cash		724,967
Interest and dividends receivable		1,681,276
Deposits with brokers for open futures contracts		355,128
Receivable from broker — variation margin on open futures contracts		586
Prepaid expenses		46,446
Other assets		13,944
*Total Assets*		*138,274,752*

Liabilities:
Payable for securities purchased		1,105,302
Investment management fee payable		59,192
Directors’ fees payable		3,877
Accrued expenses		47,763
*Total Liabilities*		*1,216,134*
Total Net Assets	$	137,058,618

Net Assets:
Par value ($0.01 par value; 20,000,000 shares authorized, 9,462,123 shares issued and outstanding)	$	94,621
Paid-in capital in excess of par value		142,816,553
Undistributed net investment income		1,119,566
Accumulated net realized loss on investments and futures contracts		(16,425,350)
Net unrealized appreciation on investments and futures contracts		9,453,228
Total Net Assets	$	137,058,618

Shares Outstanding		9,462,123

Net Asset Value		$14.48

See Notes to Financial Statements.


16		Western Asset Income Fund 2015 Semi-Annual Report

Statement of operations (unaudited)

For the Six Months Ended June 30, 2015



Investment Income:
Interest	$	3,738,972
Dividends		92,387
*Total Investment Income*		*3,831,359*

Expenses:
Investment management fee (Note 2)		372,363
Franchise taxes		24,101
Transfer agent fees		23,905
Legal fees		21,732
Audit and tax fees		20,192
Shareholder reports		14,428
Directors’ fees		13,507
Fund accounting fees		12,911
Stock exchange listing fees		10,518
Custody fees		1,137
Miscellaneous expenses		4,569
*Total Expenses*		*519,363*
Less: Fee waivers and/or expense reimbursements (Note 2)		(12,000)
*Net Expenses*		*507,363*
Net Investment Income		3,323,996

Realized and Unrealized Gain (Loss) on Investments and Futures Contracts (Notes 1, 3 and 4):
Net Realized Gain From:
Investment transactions		308,488
Futures contracts		33,347
*Net Realized Gain*		*341,835*
Change in Net Unrealized Appreciation (Depreciation) From:
Investments		(4,647,935)
Futures contracts		865,398
*Change in Net Unrealized Appreciation (Depreciation)*		*(3,782,537)*
Net Loss on Investments and Futures Contracts		(3,440,702)
Decrease in Net Assets from Operations	$	(116,706)

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		17

Statements of changes in net assets


For the Six Months Ended June 30, 2015 (unaudited) and the Year Ended December 31, 2014	2015		2014

Operations:
Net investment income	$	3,323,996	$	6,872,085
Net realized gain (loss)		341,835		(688,812)
Change in net unrealized appreciation (depreciation)		(3,782,537)		4,101,931
*Increase (Decrease) in Net Assets from Operations*		*(116,706)*		*10,285,204*

Distributions to Shareholders From (Note 1):
Net investment income		(3,264,438)		(6,528,879)
*Decrease in Net Assets from Distributions to Shareholders*		*(3,264,438)*		*(6,528,879)*
*Increase (Decrease) in Net Assets*		*(3,381,144)*		*3,756,325*

Net Assets:
Beginning of period		140,439,762		136,683,437
End of period*	$	137,058,618	$	140,439,762
*Includes undistributed net investment income of:		$1,119,566		$1,060,008

See Notes to Financial Statements.


18		Western Asset Income Fund 2015 Semi-Annual Report

Financial highlights


For a share of capital stock outstanding throughout each year ended December 31, unless otherwise noted:
	2015^1,2			2014²			2013²			2012²			2011²			2010²

Net asset value, beginning of period		$14.84			$14.45			$15.04			$13.76			$13.82			$13.21

Income (loss) from operations:
Net investment income		0.35			0.73			0.73			0.73			0.77			0.79
Net realized and unrealized gain (loss)		(0.36)			0.35			(0.63)			1.27			(0.08)			0.61
*Total income (loss) from operations*		*(0.01)*			*1.08*			*0.10*			*2.00*			*0.69*			*1.40*

Less distributions from:
Net investment income		(0.35)	³		(0.69)			(0.69)			(0.72)			(0.75)			(0.79)
*Total distributions*		*(0.35)*			*(0.69)*			*(0.69)*			*(0.72)*			*(0.75)*			*(0.79)*

Net asset value, end of period		$14.48			$14.84			$14.45			$15.04			$13.76			$13.82

Market price, end of period		$13.11			$13.45			$13.17			$14.82			$13.81			$12.89
*Total return, based on NAV^4,5*		*(0.14)*	%		*7.57*	%		*0.73*	%		*14.84*	%		*5.04*	%		*10.86*	%
*Total return, based on Market Price⁶*		*(0.04)*	%		*7.44*	%		*(6.47)*	%		*12.76*	%		*13.32*	%		*7.28*	%

Net assets, end of period (000s)		$137,059			$140,440			$136,683			$142,322			$129,895			$130,458

Ratios to average net assets:
Gross expenses		0.74	%⁷		0.73	%		0.75	%		0.72	%		0.76	%		0.78	%
Net expenses⁸		0.72	⁷		0.71			0.73			0.70			0.74			0.76
Net investment income		4.75	⁷		4.87			5.02			5.06			5.55			5.78

Portfolio turnover rate		26	%		38	%		70	%		90	%		56	%		42	%

¹	For the six months ended June 30, 2015 (unaudited).

²	Per share amounts have been calculated using the average shares method.

³	The actual source of the Fund’s current fiscal year distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year.

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. Total returns for periods of less than one year are not annualized.

⁵	The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

⁶	The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

⁷	Annualized.

⁸	Reflects fee waivers and/or expense reimbursements.

See Notes to Financial Statements.


Western Asset Income Fund 2015 Semi-Annual Report		19

Notes to financial statements (unaudited)

1. Organization and significant accounting policies

Western Asset Income Fund (the “Fund”) is registered under the Investment Company Act of 1940, as amended (“1940 Act”), as a closed-end diversified investment company.

The Fund seeks high level of current income, consistent with prudent investment risk. Capital appreciation is a secondary investment objective.

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

(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.

The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (formerly, Legg Mason North American Fund Valuation Committee) (the


20		Western Asset Income Fund 2015 Semi-Annual Report

“Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

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

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

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

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

•

Level 1 — quoted prices in active markets for identical investments

•

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

•

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


Western Asset Income Fund 2015 Semi-Annual Report		21

Notes to financial statements (unaudited) (cont’d)

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

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


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Long-term investments†:
Corporate bonds & notes:
Industrials		—	$	6,084,642	$	225,257	$	6,309,899
Other corporate bonds & notes		—		119,944,217		—		119,944,217
Asset-backed securities		—		1,785,874		242,750		2,028,624
Collateralized mortgage obligations		—		68,831		—		68,831
Municipal bonds		—		1,588,879		—		1,588,879
Sovereign bonds		—		1,982,953		—		1,982,953
U.S. government & agency obligations		—		924,992		—		924,992
Preferred stocks	$	2,460,656		—		143,354		2,604,010
Total investments	$	2,460,656	$	132,380,388	$	611,361	$	135,452,405
Other financial instruments:
Futures contracts	$	84,016		—		—	$	84,016
Total	$	2,544,672	$	132,380,388	$	611,361	$	135,536,421

LIABILITIES
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Other financial instruments:
Futures contracts	$	24,545		—		—	$	24,545

†	See Schedule of Investments for additional detailed categorizations.

(b) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has


22		Western Asset Income Fund 2015 Semi-Annual Report

the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

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

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

(d) 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 obligations reflect, among other things, perceived credit and market risks. The Fund’s investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading.

Investments in securities that are collateralized by residential real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.

(e) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. 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.


Western Asset Income Fund 2015 Semi-Annual Report		23

Notes to financial statements (unaudited) (cont’d)

(f) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. The actual source of the Fund’s monthly distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year. 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.

(g) 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.

(h) 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 June 30, 2015, 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.

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

(i) 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.

2. Investment management agreement and other transactions with affiliates

The Fund has entered into an Investment Advisory Agreement with Western Asset Management Company (“Adviser”), which is a wholly owned subsidiary of Legg Mason, Inc., pursuant to which the Adviser provides investment advice and administrative services to the Fund. In return for its services, the Fund pays the Adviser a monthly fee at an annual rate of 0.70% of the average monthly net assets of the Fund up to $60,000,000 and 0.40% of such net assets in excess of $60,000,000. If expenses (including the Adviser’s fee but excluding interest, taxes, brokerage fees, the expenses of any offering by the Fund of its securities, and extraordinary expenses beyond the control of the Fund) borne by the Fund in any fiscal year exceed 1.5% of average net assets up to $30,000,000 and 1% of average net assets over $30,000,000, the Adviser has contractually agreed to reimburse the Fund for any excess.


24		Western Asset Income Fund 2015 Semi-Annual Report

During the six months ended June 30, 2015, fees waived and/or expenses reimbursed amounted to $12,000.

Western Asset Management Company Limited (“WAML”) provides the Fund with investment research, advice, management and supervision and a continuous investment program for the Fund’s portfolio of non-dollar securities consistent with the Fund’s investment objectives and policies. As compensation, the Adviser pays WAML a fee based on the pro rata assets of the Fund managed by WAML during the month.

Under the terms of an administrative services agreement among the Fund, the Adviser, and Legg Mason Partners Fund Advisor, LLC (“LMPFA”), Western Asset (not the Fund) pays LMPFA a monthly fee of $3,000 (an annual rate of $36,000).

LMPFA and WAML are wholly-owned subsidiaries of Legg Mason, Inc.

3. Investments

During the six months ended June 30, 2015, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:


	Investments		U.S. Government & Agency Obligations
Purchases	$	26,647,808	$	10,946,382
Sales		22,707,533		13,476,926

At June 30, 2015, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:


Gross unrealized appreciation	$	10,797,241
Gross unrealized depreciation		(1,403,484)
Net unrealized appreciation	$	9,393,757

At June 30, 2015, the Fund had the following open futures contracts:


	Number of Contracts		Expiration Date		Basis Value		Market Value		Unrealized Appreciation (Depreciation)
Contracts to Buy:
U.S. Treasury 2-Year Notes		17		9/15	$	3,717,446	$	3,721,938	$	4,492
U.S. Treasury 5-Year Notes		119		9/15		14,174,262		14,191,680		17,418
U.S. Treasury 10-Year Notes		31		9/15		3,929,445		3,911,328		(18,117)
U.S. Treasury Ultra Long-Term Bonds		2		9/15		314,553		308,125		(6,428)
										(2,635)
Contracts to Sell:
U.S. Treasury Long-Term Bonds		114		9/15		17,258,294		17,196,188		62,106
Net unrealized appreciation on open futures contracts									$	59,471


Western Asset Income Fund 2015 Semi-Annual Report		25

Notes to financial statements (unaudited) (cont’d)

4. Derivative instruments and hedging activities

Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at June 30, 2015.


ASSET DERIVATIVES¹
	Interest Rate Risk
Futures contracts²	$	84,016


LIABILITY DERIVATIVES¹
	Interest Rate Risk
Futures contracts²	$	24,545

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

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

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the six months ended June 30, 2015. 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	$	33,347


CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk
Futures contracts	$	865,398

During the six months ended June 30, 2015, the volume of derivative activity for the Fund was as follows:


	Average Market Value
Futures contracts (to buy)	$	21,336,102
Futures contracts (to sell)		20,880,679

The following table presents by financial instrument, the Fund’s derivative assets net of the related collateral received by the Fund at June 30, 2015:


	Gross Amount of Derivative Assets in the Statement of Assets and Liabilities¹		Collateral Received	Net Amount
Futures contracts²	$	586	—	$	586

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


26		Western Asset Income Fund 2015 Semi-Annual Report

²	Amount represents the current day’s variation margin as reported in the Statement of Assets and Liabilities. It differs from the cumulative appreciation (depreciation) presented in the previous table.

5. Distributions subsequent to June 30, 2015

The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period end of this report:


Record Date	Payable Date		Amount
7/24/2015		7/31/2015	$	0.0575
8/21/2015		8/28/2015	$	0.0575
9/18/2015		9/25/2015	$	0.0575

6. Capital loss carryforward

As of December 31, 2014, the Fund had the following net capital loss carryforwards remaining:


Year of Expiration	Amount
12/31/2016	$	(676,492)
12/31/2017		(10,616,218)
12/31/2018		(227,490)
	$	(11,520,200)

These amounts will be available to offset any future taxable capital gains, except that under applicable tax rules, deferred capital losses of $5,924,364, which have no expiration date, must be used first to offset any such gains.


Western Asset Income Fund 2015 Semi-Annual Report		27

Additional shareholder information (unaudited)

Results of annual meeting of shareholders

The Fund’s annual meeting of shareholders was held on May 28, 2015. Of the 9,462,123 common shares outstanding, the following shares were voted in the meeting:


Election of Directors:	For		Withheld
Robert Abeles, Jr.		7,516,280		660,826
Anita L. DeFrantz		7,495,212		681,894
Ronald L. Olson		7,575,824		601,283
Avedick B. Poladian		7,558,315		618,791
William E. B. Siart		7,507,898		669,208
Jaynie M. Studenmund		7,526,257		650,208
Jane Trust*		7,547,980		629,126

*	Effective June 1, 2015, Jane Trust was appointed to the position of President and Chief Executive Officer.


28		Western Asset Income Fund

Dividend reinvestment plan (unaudited)

The Fund offers to all shareholders a Dividend Reinvestment Plan (“Plan”). For participants in the Plan, cash distributions (e.g., dividends and capital gains) of registered shareholders (those who own shares in their own name on the Fund’s records) are automatically invested in shares of the Fund. Interested shareholders may obtain more information or sign up for the Plan by contacting the agent. Shareholders who own shares in a brokerage, bank, or other financial institution account must contact the Company where their account is held in order to participate in the Plan.

If you elect to participate in the Plan you will automatically receive your dividend or net capital gains distribution in newly issued shares of the Fund if the market price of a share on the date of the distribution is at or above the net asset value (“NAV”) of a Fund share. The number of shares to be issued to you will be determined by dividing the amount of the cash distribution to which you are entitled (net of any applicable withholding taxes) by the greater of the NAV per share on such date or 95% of the market price of a share on such date. If the market price of a share on such distribution date is below the NAV the Agent will, as agent for the participants, buy shares of the Fund’s stock through a broker on the open market or in a negotiated transaction (subject to price and other terms to which the agent may agree). The price per share of shares purchased for each participant’s account with respect to a particular dividend or other distribution will be the average price (including brokerage commissions, transfer taxes and any other costs of purchase) of all shares purchased with respect to that dividend or other distribution. All shares of common stock acquired on your behalf through the Plan will be automatically credited to an account maintained on the books of the Agent. Full and fractional shares will be voted by the Agent in accordance with your instructions.

Additional information regarding the plan

The Fund will pay all costs applicable to the Plan, with the exceptions noted below. Brokerage commissions, transfer taxes and any other costs of purchase or sale by the Agent under the Plan will be charged to participants. The commission participants pay for selling shares under the Plan is calculated as $2.50 plus $0.15 per share. Beneficial shareholders should contact the company holding their account for further information concerning fees that may apply to selling shares under the Plan. In the event the Fund determines to no longer pay the costs applicable to the Plan, the Agent will terminate the Plan and may, but is not obligated to, offer a new plan under which it would impose a direct service charge on participants.

All shares acquired through the Plan receive voting rights and are eligible for any stock split, stock dividend, or other rights accruing to shareholders that the Board of Directors may declare. Distributions to Plan participants will be in the form of stock, unless the Agent is notified in writing 10 days prior to the record date fixed by the Board of Directors for the distribution that you wish to receive a cash payment. Beneficial shareholders should contact the company holding their account for further information regarding deadlines that might apply.


Western Asset Income Fund		29

Dividend reinvestment plan (unaudited) (cont’d)

You may terminate participation in the Plan at any time by giving written notice to the Agent. Such termination will be effective prior to the record date next succeeding the receipt of such instructions or by a later date of termination specified in such instructions.

Upon termination of the Plan, a participant may request a certificate for the full shares credited to his or her account or may request the sale of all or part of such shares. If the participant instructs the Agent to sell the shares credited to the participant’s account, the Agent may accumulate such shares and those of any other terminating participants for purposes of such sale. Brokerage charges, transfer taxes, and any other costs of sale will be allocated pro rata among the selling participants. Any such sale may be made on any securities exchange where such shares are traded, in the over-the counter market or in negotiated transactions, and may be subject to such terms of price, delivery, etc., as the Agent may agree to. Fractional shares credited to a terminating account will be paid for in cash at the current market price at the time of termination.

Dividends and other distributions invested in additional shares under the Plan are subject to income tax just as if they had been received in cash. After year end, dividends paid on the accumulated shares will be included in the Form 1099-DIV information return to the Internal Revenue Service and only one Form 1099-DIV will be sent to each participant each year.

Registered shareholders can make inquiries regarding the Plan, as well as sign up or terminate their participation in the Plan by contacting American Stock Transfer & Trust Company LLC, 6201 15th Avenue, Brooklyn, N.Y. 11219 — Investor Relations, telephone number 1-888-888-0151. Beneficial Shareholders can make inquiries regarding the Plan as well as sign up or terminate their participation in the Plan by contacting the company where their account is held.


30		Western Asset Income Fund

Western Asset

Income Fund

Directors

Robert Abeles, Jr

Anita L. DeFrantz

Ronald L. Olson

Avedick B. Poladian

William E. B. Siart

Chairman

Jaynie M. Studenmund

Jane Trust*

Officers

Jane Trust*

President and Chief Executive Officer

Richard F. Sennett

Principal Financial Officer and Treasurer

Todd F. Kuehl

Chief Compliance Officer

Robert I. Frenkel

Secretary and Chief Legal Officer

*	Effective June 1, 2015, Ms. Trust became a Director, President and Chief Executive Officer.

Western Asset Income Fund

620 Eighth Avenue

49^th Floor

New York, NY 10018

Investment advisers

Western Asset Management Company

Western Asset Management Company Limited

Custodian

State Street Bank and Trust Company

1 Lincoln Street

Boston, MA 02111

Independent registered public accounting firm

PricewaterhouseCoopers LLP

100 East Pratt Street

Baltimore, MD 21202

Legal counsel

Ropes & Gray LLP

1211 Avenue of the Americas

New York, NY 10036

Transfer agent

American Stock Transfer & Trust Company

5201 15^th Avenue

Brooklyn, NY 11219

New York Stock Exchange Symbol

PAI

Legg Mason Funds Privacy and Security Notice

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

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

The Type of Nonpublic Personal Information the Funds Collect About You

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

•

Personal information included on applications or other forms;

•

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

•

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

•

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

How the Funds Use Nonpublic Personal Information About You

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

•

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

•

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

•

The Funds’ representatives such as legal counsel, accountants and auditors; and

•

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

NOT PART OF THE SEMI-ANNUAL REPORT

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

Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.

The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.

Keeping You Informed of the Funds’ Privacy and Security Practices

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

The Funds’ Security Practices

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

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

In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, or if you have questions about the Funds’ privacy practices, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds’ website at www.leggmason.com, or contact the Fund at 1-888-777-0102.

NOT PART OF THE SEMI-ANNUAL REPORT

Western Asset Income Fund

620 Eighth Avenue

49th Floor

New York, NY 10018

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase at market prices, shares of its Common Stock in the open market.

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-888-777-0102.

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 1-888-777-0102, (2) on the Fund’s website at www.lmcef.com and (3) on the SEC’s website at www.sec.gov.

This report is transmitted to the shareholders of Western Asset Income Fund for their information. This is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or any securities mentioned in this report.

American Stock

Transfer & Trust Company

6201 15th Avenue

Brooklyn, NY 11219

WASX012841 8/15 SR15-2565

ITEM 2.

CODE OF ETHICS.

Not Applicable.

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT.

Not Applicable.

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not Applicable.

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not Applicable.

ITEM 6.

SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

ITEM 7.

DISCLOSURE OF PROXY VOTING POLOCIES 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.

EXHIBITS.

(a) (1) Not Applicable.

Exhibit 99.CODE ETH

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

Exhibit 99.CERT

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

Exhibit 99.906CERT

SIGNATURES

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

Western Asset Income Fund


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

Date:		August 21, 2015

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:		August 21, 2015


By:		/s/ Richard F. Sennett
		Richard F. Sennett
		Principal Financial Officer

Date:		August 21, 2015