Hand Composite Employee Benefit Trust Western Asset Long Duration Credit CIF

Transcription

1 Western Asset Long Duration Credit CIF Independent Auditor's Report and Financial Statements

2 Contents Independent Auditor's Report... 1 Basic Financial Statements Statement of Assets and Liabilities Selected Fund... 3 Schedule of Investments Western Asset Long Duration Credit CIF... 4 Statement of Operations Selected Fund Statement of Changes in Net Assets Selected Fund Notes to Financial Statements Supplemental Information Schedule of Investment Purchases and Sales Selected Fund... 31

3 Independent Auditor's Report Board of Directors Hand Composite Employee Benefit Trust Houston, Texas We have audited the accompanying financial statements of the selected fund, Western Asset Long Duration Credit CIF, included in the Hand Composite Employee Benefit Trust ("Trust" or "Fund"), which comprise the statement of assets and liabilities, including the schedule of investments, as of December 31, 2016, the related statements of operations and changes in net assets for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

4 Board of Directors Hand Composite Employee Benefit Trust Page 2 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the selected fund, Western Asset Long Duration Credit CIF, as of December 31, 2016, and the results of its operations and the changes in its net assets for the year then ended, in accordance with accounting principles generally accepted in the United States of America. Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of investment purchases and sales listed in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Houston, Texas May 26, 2017

5 Statement of Assets and Liabilities Selected Fund Assets Western Asset Long Duration Credit CIF Investments, at cost $ 108,985,312 Investments, at fair value $ 111,536,731 Receivable from broker variation margin on open futures contracts 67,711 Deposits with brokers for open futures contracts 516,069 Deposits with brokers for centrally cleared swap contracts 124,000 Receivable for: Investment securities sold 567,369 Dividend and interest 1,322,683 Investment advisor waived fees 14,368 Liabilities Total assets $ 114,148,931 Management fee payable $ 11,868 Payable to broker variation margin on centrally cleared swap contracts 3,045 Accounts payable and accrued liabilities 27,481 Total liabilities $ 42,394 Net assets held for participants: Class R $ 86,092,741 Class R1 17,672,872 Class R-INT 10,340,924 Total net assets held for participants $ 114,106,537 Units outstanding: Class R 8,163,755 Class R1 1,675,550 Class R-INT 979,150 Total units outstanding 10,818,455 Net asset value per unit: Class R1 $ Class R-INT $ Class R-LM $ See Notes to Financial Statements 3

6 Schedule of Investments Western Asset Long Duration Credit CIF Number of Shares Cost Fair Value Short-Term Investment 5,969,573 State Street Institutional U.S. Government Money Market Fund, Premier Class.411% $ 5,969,573 $ 5,969,573 Total Short-Term Investment 5.35% 5,969,573 5,969,573 Preferred Stocks Consumer Discretionary 7,800Citigroup Capital XIII 204, ,396 Total Consumer Discretionary 0.18% 204, ,396 Industrials 3,200Delphi Financial Group, Inc. 79,968 67,200 Total Industrials 0.06% 79,968 67,200 Total Preferred Stocks 0.24% 284, ,596 Principal Amount Cost Fair Value Corporate Bonds Consumer Discretionary $ 460,000 21st Century Fox America, Inc. Company Guarantee 6.90% 08/15/ , , ,000 Baylor College of Medicine Secured 5.259% 11/15/ , , ,000 California Institute of Technology Sr Unsecured 4.70% 11/01/ , , ,000 Carlyle Holdings II Finance LLC Company Guarantee 144A 5.625% 03/30/ , , ,000 Citigroup Capital III Company Guarantee 7.625% 12/01/ , ,374 60,000 Cleveland Clinic Foundation Unsecured 4.858% 01/01/ ,000 56,915 70,000 Comcast Corp. Company Guarantee 6.95% 08/15/ ,446 95,474 50,000 Comcast Corp. Company Guarantee 4.65% 07/15/ ,759 52, ,000 Comcast Corp. Company Guarantee 6.40% 05/15/ , , ,000 Comcast Corp. Company Guarantee 6.40% 03/01/ , , ,000 Comcast Corp. Company Guarantee 6.45% 03/15/ , , ,000 Comcast Corp. Company Guarantee 7.05% 03/15/ , , ,000 Cooperative Rabobank UA Bank Guarantee 5.25% 08/04/ , , ,000 Deutsche Telekom International Finance BV Company Guarantee 8.75% 06/15/ , , ,000 Ford Motor Co. Sr Unsecured 4.75% 01/15/ , , ,000 Ford Motor Co. Sr Unsecured 7.45% 07/16/ , , ,000 General Motors Co. Sr Unsecured 6.25% 10/02/ , , ,000 General Motors Co. Sr Unsecured 5.20% 04/01/ , , ,000 General Motors Co. Sr Unsecured 6.60% 04/01/ , , ,000 General Motors Co. Sr Unsecured 6.75% 04/01/ , ,446 70,000 General Motors Financial Co., Inc. Company Guarantee 4.25% 05/15/ ,000 70,841 10,000 General Motors Financial Co., Inc. Company Guarantee 3.45% 04/10/2022 9,685 9, ,000 GLP Capital L.P. / GLP Financing II, Inc. Company Guarantee 5.375% 04/15/ , , ,000 Goodyear Tire & Rubber Co. Company Guarantee 5.125% 11/15/ , , ,000 Grupo Televisa S.A.B. Sr Unsecured 5.00% 05/13/ , ,718 60,000 Highmark, Inc. Sr Unsecured 144A 6.125% 05/15/ ,619 55, ,000 Home Depot, Inc. Sr Unsecured 4.40% 03/15/ , , ,000 L-3 Communications Corp. Company Guarantee 3.85% 12/15/ , , ,000 Liberty Mutual Insurance Co. Subordinated 144A 7.875% 10/15/ , ,843 10,000 Lowe's Cos., Inc. Sr Unsecured 4.65% 04/15/2042 9,960 10, ,000 Lowe's Cos., Inc. Sr Unsecured 5.80% 04/15/ , ,260 See Notes to Financial Statements 4

7 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Consumer Discretionary (continued) $ 80,000 LYB International Finance BV Company Guarantee 5.25% 07/15/2043 $ 77,672 $ 86, ,000 Massachusetts Institute of Technology Unsecured 4.678% 07/01/ , ,863 20,000 Massachusetts Institute of Technology Unsecured 5.60% 07/01/ ,127 24, ,000 McDonald's Corp. Sr Unsecured 4.70% 12/09/ , , ,000 McDonald's Corp. Sr Unsecured 4.875% 12/09/ , , ,000 Mohegan Tribal Gaming Authority Company Guarantee 144A 7.875% 10/15/ , , ,000 Monongahela Power Co. 144A 5.40% 12/15/ , ,829 Neuberger Berman Group LLC / Neuberger Berman Finance Corp. Sr Unsecured 144A 4.875% 04/15/ , , , ,000 Newell Brands, Inc. Sr Unsecured 5.50% 04/01/ , , ,000 Nordstrom, Inc. Sr Unsecured 5.00% 01/15/ , ,442 40,000 Nordstrom, Inc. Sr Unsecured 6.95% 03/15/ ,265 48,408 20,000 Northwestern University Unsecured 4.643% 12/01/ ,000 22,664 20,000 Orange S.A. Sr Unsecured 9.00% 03/01/ ,706 30, ,000 Target Corp. Sr Unsecured 4.00% 07/01/ , , ,000 Time Warner Cable LLC Sr Secured 5.50% 09/01/ , , ,000 Time Warner Cable LLC Sr Secured 5.875% 11/15/ , , ,000 Time Warner Cable LLC Sr Secured 7.30% 07/01/ , , ,000 Time Warner Cable, LLC Sr Secured 6.55% 05/01/ , , ,000 Time Warner Cable, LLC Sr Secured 6.75% 06/15/ , , ,000 Time Warner, Inc. Company Guarantee 3.80% 02/15/ , , ,000 Time Warner, Inc. Company Guarantee 3.875% 01/15/ , ,345 20,000 Toll Brothers Finance Corp. Company Guarantee 5.625% 01/15/ ,247 20, ,000 University of Chicago Unsecured 4.151% 10/01/ , , ,000 Viacom, Inc. Sr Unsecured 4.375% 03/15/ , ,345 70,000 Viacom, Inc. Sr Unsecured 4.85% 12/15/ ,610 62, ,000 Viacom, Inc. Sr Unsecured 5.25% 04/01/ , ,559 20,000 Walt Disney Co. Sr Unsecured 4.375% 08/16/ ,320 21,224 Total Consumer Discretionary 11.38% 12,311,424 12,692,156 Consumer Staples 360,000 Altria Group, Inc. Company Guarantee 3.875% 09/16/ , , ,000 Altria Group, Inc. Company Guarantee 4.25% 08/09/ ,241 98, ,000 Constellation Brands, Inc. Company Guarantee 3.70% 12/06/ , , ,000 CVS Health Corp. Sr Unsecured 5.125% 07/20/ , , ,000 CVS Health Corp. Sr Unsecured 5.30% 12/05/ , , ,000 Danone S.A. Sr Unsecured 144A 2.947% 11/02/ , , ,000 Kraft Heinz Foods Co. Company Guarantee 4.375% 06/01/ , ,474 20,000 Kraft Heinz Foods Co. Company Guarantee 5.00% 07/15/ ,818 20, ,000 Kraft Heinz Foods Co. Company Guarantee 5.00% 06/04/ , , ,000 Kraft Heinz Foods Co. Company Guarantee 5.20% 07/15/ , ,362 90,000 Kraft Heinz Foods Co. Company Guarantee 144A 7.125% 08/01/ , ,659 30,000 PepsiCo, Inc. Sr Unsecured 3.60% 08/13/ ,527 27, ,000 PepsiCo, Inc. Sr Unsecured 4.25% 10/22/ , , ,000 PepsiCo, Inc. Sr Unsecured 4.875% 11/01/ , , ,000 Pernod Ricard S.A. Sr Unsecured 144A 5.50% 01/15/ , , ,000 Philip Morris International, Inc. Sr Unsecured 3.875% 08/21/ , ,845 15,000 Procter & Gamble Co. Sr Unsecured 5.55% 03/05/ ,548 19, ,000 Reynolds American, Inc. Company Guarantee 5.85% 08/15/ , ,079 90,000 Reynolds American, Inc. Company Guarantee 7.25% 06/15/ , ,920 50,000 Reynolds American, Inc. Company Guarantee 8.125% 05/01/ ,476 66, ,000 Tyson Foods, Inc. Company Guarantee 5.15% 08/15/ , , ,000 Wal-Mart Stores, Inc. Sr Unsecured 4.00% 04/11/ , ,692 See Notes to Financial Statements 5

8 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Consumer Staples (continued) $ 60,000 Wal-Mart Stores, Inc. Sr Unsecured 4.30% 04/22/2044 $ 60,054 $ 63,316 30,000 Wal-Mart Stores, Inc. Sr Unsecured 4.75% 10/02/ ,798 33, ,000 Walgreens Boots Alliance, Inc. Sr Unsecured 4.80% 11/18/ , ,171 Total Consumer Staples 3.95% 4,326,793 4,403,997 Energy 160,000 Anadarko Petroleum Corp. Sr Unsecured 4.50% 07/15/ , ,328 60,000 Anadarko Petroleum Corp. Sr Unsecured 6.20% 03/15/ ,387 68,717 50,000 Anadarko Petroleum Corp. Sr Unsecured 6.45% 09/15/ ,809 59, ,000 Anadarko Petroleum Corp. Sr Unsecured 6.60% 03/15/ , , ,000 Anadarko Petroleum Corp. Sr Unsecured 7.95% 06/15/ , ,470 50,000 Apache Corp. Sr Unsecured 6.00% 01/15/ ,780 57, ,000 Apache Corp. Sr Unsecured 4.25% 01/15/ , , ,000 Apache Corp. Sr Unsecured 4.75% 04/15/ , , ,000 Apache Corp. Sr Unsecured 5.10% 09/01/ , , ,000 Apache Corp. Sr Unsecured 5.25% 02/01/ , , ,000 Berkshire Hathaway Energy Co. Sr Unsecured 6.125% 04/01/ , , ,000 BHP Billiton Finance USA Ltd. Company Guarantee 5.00% 09/30/ , , ,000 BHP Billiton Finance USA Ltd. Company Guarantee 144A 6.75% 10/19/ , , ,000 BP Capital Markets PLC Company Guarantee 3.723% 11/28/ , ,467 70,000 Cenovus Energy, Inc. Sr Unsecured 4.45% 09/15/ ,853 60, ,000 Chevron Corp. Sr Unsecured 2.954% 05/16/ , ,428 50,000 ConocoPhillips Company Guarantee 6.50% 02/01/ ,182 63,296 50,000 Continental Resources, Inc. Company Guarantee 4.90% 06/01/ ,966 42, ,000 Devon Energy Corp. Sr Unsecured 7.95% 04/15/ , ,270 90,000 Devon Energy Corp. Sr Unsecured 4.75% 05/15/ ,079 85, ,000 Devon Energy Corp. Sr Unsecured 5.00% 06/15/ , , ,000 Devon Energy Corp. Sr Unsecured 5.60% 07/15/ , , ,000 Devon Energy Corp. Sr Unsecured 5.85% 12/15/ , , ,000 Diamond 1 Finance Corp. / Diamond 2 Finance Corp. Sr Secured 144A 8.35% 07/15/ , , ,000 Ecopetrol S.A. Sr Unsecured 5.875% 05/28/ , , ,000 Ecopetrol S.A. Sr Unsecured 5.375% 06/26/ , ,650 80,000 ENSCO International, Inc. Company Guarantee 7.20% 11/15/ ,933 73, ,000 Exxon Mobil Corp. Sr Unsecured 4.114% 03/01/ , , ,000 Halliburton Co. Sr Unsecured 4.75% 08/01/ , , ,000 Halliburton Co. Sr Unsecured 4.85% 11/15/ , , ,000 Halliburton Co. Sr Unsecured 5.00% 11/15/ , , ,000 Hess Corp. Sr Unsecured 4.30% 04/01/ , ,627 30,000 Hess Corp. Sr Unsecured 5.60% 02/15/ ,817 30, ,000 Kerr-McGee Corp. Company Guarantee 6.95% 07/01/ , ,503 60,000 Kerr-McGee Corp. Company Guarantee 7.875% 09/15/ ,578 76, ,000 Lukoil International Finance BV Company Guarantee 144A 4.563% 04/24/ , , ,000 Lukoil International Finance BV Company Guarantee 144A 4.75% 11/02/ , , ,000 Lukoil International Finance BV Company Guarantee 144A 6.125% 11/09/ , , ,000 Magellan Midstream Partners L.P. Sr Unsecured 4.25% 09/15/ , ,101 20,000 Memorial Sloan-Kettering Cancer Center Sr Unsecured Series % 07/01/ ,929 19,405 20,000 Nationwide Mutual Insurance Co. Subordinated 144A 9.375% 08/15/ ,291 30, ,000 Noble Energy, Inc. Sr Unsecured 5.25% 11/15/ , , ,000 Noble Energy, Inc. Sr Unsecured 6.00% 03/01/ , , ,000 Occidental Petroleum Corp. Sr Unsecured 4.10% 02/15/ , , ,000 Occidental Petroleum Corp. Sr Unsecured 4.40% 04/15/ , , ,000 Occidental Petroleum Corp. Sr Unsecured 4.625% 06/15/ , ,127 See Notes to Financial Statements 6

9 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Energy (continued) $ 95,000 Petrobras Global Finance BV Company Guarantee 6.875% 01/20/2040 $ 93,700 $ 81, ,000 Petroleos Mexicanos Company Guarantee 6.375% 01/23/ , , ,000 Petroleos Mexicanos Company Guarantee 5.50% 06/27/ , , ,000 Petroleos Mexicanos Company Guarantee 6.50% 06/02/ , , ,000 Petroleos Mexicanos Company Guarantee 144A 6.50% 03/13/ , , ,000 Petroleos Mexicanos Company Guarantee 144A 6.875% 08/04/ , ,100 50,000 Pride International, Inc. Company Guarantee 6.875% 08/15/ ,272 53,375 50,000 Pride International, Inc. Company Guarantee 7.875% 08/15/ ,488 44,750 30,000 Range Resources Corp. Company Guarantee 4.875% 05/15/ ,000 29, ,000 Schlumberger Holdings Corp. Sr Unsecured 144A 4.00% 12/21/ , ,957 80,000 Shell International Finance BV Company Guarantee 6.375% 12/15/ , , ,000 Shell International Finance BV Company Guarantee 4.00% 05/10/ , , ,000 Shell International Finance BV Company Guarantee 4.375% 05/11/ , ,748 30,000 Shell International Finance BV Company Guarantee 4.55% 08/12/ ,346 31, ,000 Southern Natural Gas Co. LLC Sr Unsecured 8.00% 03/01/ , ,817 80,000 Sunoco Logistics Partners Operations L.P. Company Guarantee 5.35% 05/15/ ,868 77, ,000 Vale Overseas Ltd. Company Guarantee 6.875% 11/21/ , , ,000 Western Gas Partners L.P. Sr Unsecured 4.65% 07/01/ , , ,000 Western Gas Partners L.P. Sr Unsecured 5.45% 04/01/ , , ,000 Williams Cos., Inc. Sr Unsecured 7.875% 09/01/ , , ,000 Williams Cos., Inc. Sr Unsecured 4.55% 06/24/ , ,950 70,000 Williams Cos., Inc. Sr Unsecured 7.75% 06/15/ ,554 79, ,000 Williams Cos., Inc. Sr Unsecured 8.75% 03/15/ , , ,000 YPF S.A. Sr Unsecured 144A 8.50% 03/23/ , ,150 Total Energy 15.67% 16,995,557 17,479,120 Financials 200,000 ABN AMRO Bank N.V. Subordinated 144A 4.75% 07/28/ , , ,000 Allstate Corp. Jr Subordinated 6.50% 05/15/ , , ,000 American International Group, Inc. Jr Subordinated 6.25% 03/15/ , ,625 60,000 American International Group, Inc. Sr Unsecured 4.50% 07/16/ ,640 59, ,000 Anthem, Inc. Sr Unsecured 6.375% 06/15/ , , ,000 Bank of America Corp. Sr Unsecured 5.00% 01/21/ , , ,000 Bank of America Corp. Subordinated 4.00% 01/22/ , , ,000 Bank of America Corp. Subordinated 4.20% 08/26/ , ,539 60,000 Bank of America Corp. Subordinated 4.25% 10/22/ ,733 60, ,000 BNP Paribas S.A. Jr Subordinated 144A 7.625% 03/30/ , , ,000 Citigroup, Inc. Sr Unsecured 8.125% 07/15/ , ,890 70,000 Citigroup, Inc. Subordinated 4.60% 03/09/ ,872 72, ,000 Citigroup, Inc. Subordinated 5.50% 09/13/ , ,377 10,000 Citigroup, Inc. Subordinated 6.625% 06/15/ ,581 12, ,000 Citigroup, Inc. Subordinated 4.125% 07/25/ , , ,000 Citigroup, Inc. Subordinated 4.45% 09/29/ , , ,000 Citigroup, Inc. Subordinated 6.125% 08/25/ , , ,000 City of Hope Sr Secured Series % 11/15/ , ,796 50,000 CoreCivic, Inc. Company Guarantee 4.625% 05/01/ ,598 49, ,000 CoreCivic, Inc. Company Guarantee 5.00% 10/15/ ,078 99, ,000 Credit Agricole S.A. Jr Subordinated 144A 8.125% 12/23/ , , ,000 Credit Suisse Group Funding Guernsey Ltd. Company Guarantee 4.55% 04/17/ , , ,000 Credit Suisse Group Funding Guernsey Ltd. Company Guarantee 4.875% 05/15/ , , ,000 Fibria Overseas Finance Ltd. Company Guarantee 5.25% 05/12/ , , ,000 Goldman Sachs Group, Inc. Sr Unsecured 3.50% 11/16/ , , ,000 Goldman Sachs Group, Inc. Sr Unsecured 6.25% 02/01/ , ,640 See Notes to Financial Statements 7

10 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Financials (continued) $ 380,000 Goldman Sachs Group, Inc. Sr Unsecured 4.75% 10/21/2045 $ 405,493 $ 401, ,000 Goldman Sachs Group, Inc. Sr Unsecured 4.80% 07/08/ , , ,000 Goldman Sachs Group, Inc. Subordinated 6.75% 10/01/ , , ,000 Goldman Sachs Group, Inc. Subordinated 4.25% 10/21/ , , ,000 Goldman Sachs Group, Inc. Subordinated 5.15% 05/22/ , , ,000 HSBC Holdings PLC Subordinated 6.50% 09/15/ , , ,000 Intesa Sanpaolo S.p.A. Subordinated 144A 5.017% 06/26/ , , ,000 Intesa Sanpaolo S.p.A. Subordinated 144A 5.71% 01/15/ , ,741 30,000 JPMorgan Chase & Co. Sr Unsecured 5.40% 01/06/ ,952 35, ,000 JPMorgan Chase & Co. Subordinated 3.625% 12/01/ , , ,000 JPMorgan Chase & Co. Subordinated 4.95% 06/01/ , , ,000 Lloyds Banking Group PLC Jr Subordinated 7.50% 06/27/ , ,000 40,000 Mayo Clinic Series 2013 Unsecured 4.00% 11/15/ ,000 38, ,000 MetLife, Inc. Jr Subordinated 6.40% 12/15/ , , ,000 Morgan Stanley Sr Unsecured 7.25% 04/01/ , , ,000 Nationwide Building Society Subordinated 144A 4.00% 09/14/ , ,918 80,000 Raymond James Financial, Inc. Sr Unsecured 4.95% 07/15/ ,950 76, ,000 Royal Bank of Scotland Group PLC Jr Subordinated 8.625% 08/15/ , ,000 10,000 Royal Bank of Scotland Group PLC Subordinated 6.10% 06/10/ ,100 10, ,000 Royal Bank of Scotland N.V. Subordinated Series B 7.75% 05/15/ , , ,000 Santander Holdings USA, Inc. Sr Unsecured 4.50% 07/17/ , , ,000 Santander UK Group Holdings PLC Subordinated 144A 5.625% 09/15/ , , ,000 Security Capital Group, Inc. Sr Unsecured 7.70% 06/15/ , , ,000 Standard Chartered PLC Subordinated 144A 5.70% 03/26/ , , ,000 Teachers Insurance & Annuity Association of America Subordinated 144A 4.90% 09/15/ , ,142 60,000 Travelers Property Casualty Corp. Company Guarantee 7.75% 04/15/ ,170 78, ,000 Voya Financial, Inc. Company Guarantee 5.70% 07/15/ , , ,000 Wells Fargo & Co. Sr Unsecured 3.00% 10/23/ , , ,000 Wells Fargo & Co. Subordinated 4.10% 06/03/ , , ,000 Wells Fargo & Co. Subordinated 4.30% 07/22/ , , ,000 Wells Fargo & Co. Subordinated 4.40% 06/14/ , , ,000 Wells Fargo & Co. Subordinated 4.65% 11/04/ , , ,000 Wells Fargo & Co. Subordinated 4.75% 12/07/ , , ,000 Wells Fargo & Co. Subordinated 4.90% 11/17/ , , ,000 Wells Fargo & Co. Subordinated 5.375% 11/02/ , , ,000 Wells Fargo & Co. Subordinated 5.606% 01/15/ , ,281 Total Financials 16.17% 17,263,025 18,036,763 Health Care 180,000 Abbott Laboratories Sr Unsecured 4.75% 11/30/ , , ,000 Abbott Laboratories Sr Unsecured 4.90% 11/30/ , ,057 60,000 AbbVie, Inc. Sr Unsecured 4.50% 05/14/ ,395 58, ,000 AbbVie, Inc. Sr Unsecured 4.70% 05/14/ , , ,000 Aetna, Inc. Sr Unsecured 4.25% 06/15/ , , ,000 Aetna, Inc. Sr Unsecured 4.375% 06/15/ , , ,000 Amgen, Inc. Sr Unsecured 4.40% 05/01/ , , ,000 Amgen, Inc. Sr Unsecured 144A 4.663% 06/15/ , , ,000 Aon PLC Company Guarantee 4.75% 05/15/ , ,510 3,000 AT&T, Inc. Sr Unsecured 5.35% 09/01/2040 3,231 3, ,000 Becton Dickinson and Co. Sr Unsecured 4.685% 12/15/ , ,032 40,000 Becton Dickinson and Co. Sr Unsecured 4.875% 05/15/ ,808 41,647 90,000 Celgene Corp. Sr Unsecured 4.625% 05/15/ ,896 88,121 See Notes to Financial Statements 8

11 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Health Care (continued) $ 260,000 Celgene Corp. Sr Unsecured 5.00% 08/15/2045 $ 266,610 $ 270, ,000 Chubb INA Holdings, Inc. Company Guarantee 4.35% 11/03/ , , ,000 Gilead Sciences, Inc. Sr Unsecured 4.00% 09/01/ , , ,000 Gilead Sciences, Inc. Sr Unsecured 4.50% 02/01/ , , ,000 Gilead Sciences, Inc. Sr Unsecured 4.75% 03/01/ , , ,000 Gilead Sciences, Inc. Sr Unsecured 4.80% 04/01/ , ,837 50,000 Gilead Sciences, Inc. Sr Unsecured 5.65% 12/01/ ,890 57, ,000 Humana, Inc. Sr Unsecured 4.625% 12/01/ , , ,000 Humana, Inc. Sr Unsecured 4.95% 10/01/ , ,702 40,000 Johns Hopkins University Sr Unsecured Series % 07/01/ ,000 40, ,000 Johnson & Johnson Sr Unsecured 3.70% 03/01/ , ,170 20,000 Johnson & Johnson Sr Unsecured 4.50% 09/01/ ,117 22,350 20,000 Johnson & Johnson Sr Unsecured 5.95% 08/15/ ,015 26,238 70,000 Medtronic, Inc. Company Guarantee 4.50% 03/15/ ,890 73,040 70,000 Medtronic, Inc. Company Guarantee 4.625% 03/15/ ,270 75,699 40,000 Medtronic, Inc. Company Guarantee 5.55% 03/15/ ,922 46, ,000 Pfizer, Inc. Sr Unsecured 4.125% 12/15/ , , ,000 Pfizer, Inc. Sr Unsecured 4.40% 05/15/ , ,001 50,000 Prudential Financial, Inc. Sr Unsecured 5.70% 12/14/ ,986 57,781 40,000 Texas Health Resources Secured 4.33% 11/15/ ,000 39,992 98,095 United Airlines Pass-Through Trust Series , Class B 5.375% 08/15/ , ,774 90,423 United Airlines Pass-Through Trust Series , Class B 4.625% 09/03/ ,423 92, ,000 UnitedHealth Group, Inc. Sr Unsecured 4.625% 07/15/ , ,506 80,000 UnitedHealth Group, Inc. Sr Unsecured 4.625% 11/15/ ,038 84, ,000 UnitedHealth Group, Inc. Sr Unsecured 6.50% 06/15/ , ,072 40,000 UnitedHealth Group, Inc. Sr Unsecured 6.875% 02/15/ ,146 54,432 70,000 Wyeth LLC Company Guarantee 5.95% 04/01/ ,093 88,091 30,000 Zoetis, Inc. Sr Unsecured 4.70% 02/01/ ,788 29,201 Total Health Care 5.13% 5,579,405 5,725,300 Industrials 80,000 Actavis Funding SCS Company Guarantee 4.55% 03/15/ ,667 79, ,000 Actavis Funding SCS Company Guarantee 4.75% 03/15/ , , ,000 Alcoa Nederland Holding BV Company Guarantee 144A 6.75% 09/30/ , , ,000 Alcoa Nederland Holding BV Company Guarantee 144A 7.00% 09/30/ , , ,147 American Airlines Pass-Through Trust Series Class B, 144A 5.60% 07/15/ , , ,000 Barrick North America Finance LLC Company Guarantee 5.70% 05/30/ , , ,000 Barrick North America Finance LLC Company Guarantee 5.75% 05/01/ , , ,000 Barrick PD Australia Finance Pty Ltd. Company Guarantee 5.95% 10/15/ , , ,000 Blackstone Holdings Finance Co. LLC Company Guarantee 144A 5.00% 06/15/ , ,687 50,000 Boeing Co. Sr Unsecured 5.875% 02/15/ ,605 63, ,000 Boeing Co. Sr Unsecured 6.125% 02/15/ , ,722 30,000 Burlington Northern Santa Fe LLC Sr Unsecured 4.55% 09/01/ ,847 31, ,000 Burlington Northern Santa Fe LLC Sr Unsecured 4.95% 09/15/ , , ,000 Caterpillar, Inc. Sr Unsecured 4.75% 05/15/ , , ,000 Catholic Health Initiatives Secured 4.35% 11/01/ , ,120 80,000 Catholic Health Initiatives Unsecured 4.20% 08/01/ ,849 82,599 Charter Communications Operating LLC / Charter Communications Operating Capital Sr Secured 6.484% 10/23/ , , ,000 70,000 CSX Corp. Sr Unsecured 3.95% 05/01/ ,383 62, ,000 CSX Corp. Sr Unsecured 4.75% 05/30/ , ,569 50,000 CSX Corp. Sr Unsecured 5.50% 04/15/ ,573 57,398 80,000 Delphi Financial Group, Inc. Sr Unsecured 7.875% 01/31/ ,997 89,876 See Notes to Financial Statements 9

12 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Industrials (continued) $ 450,000 Eaton Corp. Company Guarantee 4.15% 11/02/2042 $ 443,360 $ 439, ,000 Equate Petrochemical BV Company Guarantee 144A 4.25% 11/03/ , ,856 20,000 Flexi-Van Leasing, Inc. Company Guarantee 144A 7.875% 08/15/ ,697 18, ,000 GE Capital International Funding Co., Unlimited Co. Company Guarantee 4.418% 11/15/ , ,103 40,000 General Electric Co. Sr Unsecured 4.50% 03/11/ ,027 42, ,000 General Electric Co. Sr Unsecured 5.875% 01/14/ , , ,000 General Electric Co. Sr Unsecured 6.15% 08/07/ , , ,000 General Electric Co. Sr Unsecured 6.875% 01/10/ , ,276 30,000 Hess Corp. Sr Unsecured 7.30% 08/15/ ,680 34, ,000 Hess Corp. Sr Unsecured 7.875% 10/01/ , , ,000 ILFC E-Capital Trust I Limited Guarantee 144A 4.67% 12/21/ , , ,000 ILFC E-Capital Trust II Limited Guarantee 144A 4.92% 12/21/ ,483 96, ,000 International Lease Finance Corp. Sr Unsecured 8.625% 01/15/ , , ,000 Johnson Controls International PLC Sr Unsecured 4.625% 07/02/ , ,521 90,000 Johnson Controls International PLC Sr Unsecured 4.95% 07/02/ ,704 83, ,000 KKR Group Finance Co. III LLC Company Guarantee 144A 5.125% 06/01/ , ,574 20,000 Lockheed Martin Corp. Sr Unsecured 4.07% 12/15/ ,580 19,741 90,000 Lockheed Martin Corp. Sr Unsecured 4.50% 05/15/ ,368 95, ,000 Lockheed Martin Corp. Sr Unsecured 4.70% 05/15/ , , ,000 Mexico City Airport Trust Sr Secured 144A 5.50% 10/31/ , , ,000 Time Warner Cable LLC Sr Secured 4.50% 09/15/ , , ,000 Time Warner Entertainment Co. L.P. Sr Secured 8.375% 07/15/ , , ,000 Transcontinental Gas Pipe Line Co. LLC Sr Unsecured 4.45% 08/01/ , , ,000 Transcontinental Gas Pipe Line Co. LLC Sr Unsecured 5.40% 08/15/ , , ,000 Transcontinental Gas Pipe Line Co. LLC Sr Unsecured 144A 7.85% 02/01/ , , ,000 Union Pacific Corp. Sr Unsecured 4.375% 11/15/ , , ,000 United Technologies Corp. Sr Unsecured 4.50% 06/01/ , , ,000 Waste Management, Inc. Company Guarantee 7.75% 05/15/ , ,874 Total Industrials 10.52% 11,523,911 11,735,889 Information Technology 300,000 Analog Devices, Inc. Sr Unsecured 3.50% 12/05/ , ,223 50,000 Analog Devices, Inc. Sr Unsecured 4.50% 12/05/ ,675 50, ,000 Anheuser-Busch InBev Finance, Inc. Company Guarantee 4.70% 02/01/ , ,672 1,610,000 Anheuser-Busch InBev Finance, Inc. Company Guarantee 4.90% 02/01/2046 1,658,354 1,740, ,000 Anheuser-Busch InBev Worldwide, Inc. Company Guarantee 6.375% 01/15/ , , ,000 Apple, Inc. Sr Unsecured 3.85% 08/04/ , , ,000 ConocoPhillips Holding Co. Sr Unsecured 6.95% 04/15/ , ,418 40,000 Enterprise Products Operating LLC Company Guarantee 5.95% 02/01/ ,735 45, ,000 Enterprise Products Operating LLC Company Guarantee 6.125% 10/15/ , , ,000 Glencore Finance Canada Ltd. Company Guarantee 144A 6.00% 11/15/ , ,200 80,000 Glencore Finance Canada Ltd. Company Guarantee 144A 6.90% 11/15/ ,252 87, ,000 Harris Corp. Sr Unsecured 4.854% 04/27/ , , ,000 Harris Corp. Sr Unsecured 5.054% 04/27/ , ,862 20,000 Intel Corp. Sr Unsecured 4.90% 07/29/ ,985 22,374 1,200,000 Microsoft Corp. Sr Unsecured 3.70% 08/08/2046 1,198,589 1,129, ,000 Microsoft Corp. Sr Unsecured 4.45% 11/03/ , , ,000 NCL Corp. Ltd. Sr Unsecured144A 4.75% 12/15/ , , ,000 QUALCOMM, Inc. Sr Unsecured 4.80% 05/20/ , , ,000 Visa, Inc. Sr Unsecured 4.30% 12/14/ , ,206 See Notes to Financial Statements 10

13 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Information Technology (continued) $ 450,000 WEA Finance LLC / Westfield UK & Europe Finance PLC Company Guarantee 144A 4.75% 09/17/2044 $ 444,274 $ 444, ,000 ZF North America Capital, Inc. Company Guarantee 144A 4.75% 04/29/ , ,925 Total Information Technology 7.25% 7,892,085 8,090,062 Materials 160,000 Alcoa, Inc. Sr Unsecured 5.87% 02/23/ , , ,000 Arconic, Inc. Sr Unsecured 5.125% 10/01/ , , ,000 Barrick Gold Corp. Sr Unsecured 5.25% 04/01/ , ,140 60,000 Cox Communications, Inc. Sr Unsecured 144A 6.45% 12/01/ ,774 60,962 50,000 Ecolab, Inc. Sr Unsecured 5.50% 12/08/ ,259 58, ,000 Ensco PLC Sr Unsecured 4.70% 03/15/ , , ,000 Ensco PLC Sr Unsecured 5.75% 10/01/ , , ,000 Freeport-McMoRan, Inc. Company Guarantee 2.375% 03/15/ , ,100 60,000 GlaxoSmithKline Capital, Inc. Company Guarantee 6.375% 05/15/ ,823 78,915 30,000 Glencore Funding LLC Company Guarantee 144A 4.625% 04/29/ ,899 30,675 70,000 Monsanto Co. Sr Unsecured 3.60% 07/15/ ,902 58, ,000 Southern Copper Corp. Sr Unsecured 5.25% 11/08/ , , ,000 Southern Copper Corp. Sr Unsecured 6.75% 04/16/ , ,836 90,000 Teck Resources Ltd. Company Guarantee 6.25% 07/15/ ,803 86, ,000 Valeant Pharmaceuticals International, Inc. Company Guarantee 144A 6.75% 08/15/ , , ,000 Yamana Gold, Inc. Company Guarantee 4.95% 07/15/ , ,200 Total Materials 2.39% 2,720,049 2,669,312 Telecommunication Services 130,000 America Movil S.A.B. de C.V. Company Guarantee 6.125% 11/15/ , ,118 31,000 AT&T, Inc. Sr Unsecured 4.55% 03/09/ ,045 28, ,000 AT&T, Inc. Sr Unsecured 3.40% 05/15/ , ,615 40,000 AT&T, Inc. Sr Unsecured 4.35% 06/15/ ,706 35, ,000 AT&T, Inc. Sr Unsecured 4.50% 05/15/ , ,188 1,130,000 AT&T, Inc. Sr Unsecured 4.50% 03/09/2048 1,147,055 1,015, ,000 AT&T, Inc. Sr Unsecured 4.80% 06/15/ , ,229 20,000 AT&T, Inc. Sr Unsecured 5.15% 03/15/ ,507 19, ,000 AT&T, Inc. Sr Unsecured 5.65% 02/15/ , , ,000 BPCE S.A. Subordinated 144A 5.15% 07/21/ , , ,000 British Telecommunications PLC Sr Unsecured 9.125% 12/15/ , ,042 60,000 Partners Healthcare System, Inc. Company Guarantee Series % 07/01/ ,000 58, ,000 Rogers Communications, Inc. Company Guarantee 7.50% 08/15/ , ,668 Sprint Spectrum Co. LLC / Sprint Spectrum Co. II LLC / Sprint Spectrum Co. III LLC Sr Secured 144A 3.36% 09/20/ , , , ,000 Verizon Communications, Inc. Sr Unsecured 5.012% 08/21/ , , ,000 Verizon Communications, Inc. Sr Unsecured 5.05% 03/15/ , ,518 70,000 Verizon Communications, Inc. Sr Unsecured 6.00% 04/01/ ,174 80,400 1,485,000 Verizon Communications, Inc. Sr Unsecured 6.55% 09/15/2043 1,705,235 1,854,731 Total Telecommunication Services 5.65% 6,215,674 6,297,011 Utilities 260,000 CenterPoint Energy Houston Electric LLC 4.50% 04/01/ , ,458 40,000 Connecticut Light & Power Co. 4.30% 04/15/ ,000 41, ,000 Dominion Resources, Inc. Sr Unsecured Series B 5.95% 06/15/ , ,221 10,000 Duke Energy Carolinas LLC 4.00% 09/30/2042 9,923 9,931 See Notes to Financial Statements 11

14 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Corporate Bonds (continued) Utilities (continued) $ 340,000 Duke Energy Carolinas LLC Sr Unsecured 6.10% 06/01/2037 $ 419,857 $ 418, ,000 Duke Energy Corp. Sr Unsecured 2.65% 09/01/ , , ,000 Duke Energy Corp. Sr Unsecured 3.75% 09/01/ , , ,000 Duke Energy Indiana LLC Series UUU 4.20% 03/15/ , , ,000 Duke Energy Progress LLC 4.375% 03/30/ , ,884 50,000 Exelis, Inc. Sr Unsecured 5.55% 10/01/ ,136 55, ,000 Exelon Corp. Sr Unsecured 5.625% 06/15/ , , ,000 FirstEnergy Corp. Sr Unsecured Series C 7.375% 11/15/ , , ,000 MCE Finance Ltd. Company Guarantee 144A 5.00% 02/15/ , ,726 80,000 Ohio Edison Co. 8.25% 10/15/ , ,947 70,000 Pacific Gas & Electric Co. Sr Unsecured 4.00% 12/01/ ,717 69, ,000 Pacific Gas & Electric Co. Sr Unsecured 4.30% 03/15/ , , ,000 Pacific Gas & Electric Co. Sr Unsecured 4.50% 12/15/ , , ,000 Pacific Gas & Electric Co. Sr Unsecured 4.60% 06/15/ , ,865 70,000 Pacific Gas & Electric Co. Sr Unsecured 4.75% 02/15/ ,710 76, ,000 Pacific Gas & Electric Co. Sr Unsecured 5.80% 03/01/ , , ,000 Pacific Gas & Electric Co. Sr Unsecured 6.05% 03/01/ , , ,000 Pennsylvania Electric Co. Sr Unsecured 144A 4.15% 04/15/ , , ,000 San Diego Gas & Electric Co. 4.30% 04/01/ , , ,000 Southern California Edison Co. 4.05% 03/15/ , , ,000 Southern California Edison Co. 4.50% 09/01/ , , ,000 Southern California Edison Co. 4.65% 10/01/ , , ,000 Virginia Electric & Power Co. Sr Unsecured 8.875% 11/15/ , ,675 Total Utilities 5.71% 6,072,663 6,363,144 Total Corporate Bonds 83.82% 90,900,586 93,492,754 Floating Rate Loans Consumer Discretionary 230,000 Dollar Tree, Inc. Term Loan B2 Sr Secured 4.25% 07/06/ , ,869 Total Consumer Discretionary 0.21% 230, ,869 Total Floating Rate Loans 0.21% 230, ,869 Foreign Government Argentina 260,000 Argentine Government International Bond Sr Unsecured 144A 7.50% 04/22/ , , ,000 Provincia de Buenos Aires Sr Unsecured 144A 9.125% 03/16/ , , ,000 Provincia de Cordoba Sr Unsecured 144A 7.125% 06/10/ , ,775 Total Argentina 1.18% 1,246,050 1,315,655 Colombia 340,000 Colombia Government International Bond Sr Unsecured 6.125% 01/18/ , ,200 Total Colombia 0.33% 417, ,200 Costa Rica 200,000 Costa Rica Government International Bond Sr Unsecured 144A 7.00% 04/04/ , ,774 Total Costa Rica 0.16% 200, ,774 See Notes to Financial Statements 12

15 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Foreign Government (continued) Ecuador $ 230,000 Ecuador Government International Bond Sr Unsecured 144A 9.65% 12/13/2026 $ 230,000 $ 235, ,000 Ecuador Government International Bond Sr Unsecured 144A 10.75% 03/28/ , ,500 Total Ecuador 0.70% 730, ,675 Mexico 550,000 Mexico Government International Bond Sr Unsecured 4.35% 01/15/ , , ,000 Mexico Government International Bond Sr Unsecured 4.75% 03/08/ , , ,000 Mexico Government International Bond Sr Unsecured 5.55% 01/21/ , ,825 22,000 Mexico Government International Bond Sr Unsecured 6.05% 01/11/ ,115 23,793 Total Mexico 1.05% 1,308,507 1,174,814 Panama 630,000 Panama Government International Bond Sr Unsecured 4.30% 04/29/ , ,850 Total Panama 0.51% 572, ,850 Uruguay 80,000 Uruguay Government International Bond Sr Unsecured 5.10% 06/18/ ,733 72,000 Total Uruguay 0.06% 79,733 72,000 Total Foreign Government 3.99% 4,555,248 4,453,968 Asset-Backed Securities 63,066 SLM Student Loan Trust Series , Class B 1.062% 07/25/ ,138 54,041 Total Asset-Backed Securities 0.05% 55,138 54,041 Mortgage-Backed Securities 310,000 Colony Mortgage Capital Ltd. Series 2014-FL1, Class D, 144A 4.349% 04/08/ , ,999 JP Morgan Chase Commercial Mortgage Securities Trust Series 2006-LDP9, Class AM 5.372% 84,871 05/15/ ,177 84, ,000 JPMBB Commercial Mortgage Securities Trust Series 2015-C31, Class D 4.118% 08/15/ ,095 71, ,000 Wells Fargo Commercial Mortgage Trust Series 2015-SG1, Class D 4.47% 12/15/ ,683 78,466 Total Mortgage-Backed Securities 0.49% 565, ,858 Municipals 120,000 Alabama Economic Settlement Authority Series B 4.263% 09/15/ , , ,000 City of Chicago IL Series B 6.314% 01/01/ , ,099 60,000 Denver City & County School Dist. No 1 Series B, COPs 4.242% 12/15/ ,000 60,878 60,000 Grand Parkway Transportation Corp. Series E 5.184% 10/01/ ,000 69,985 30,000 JobsOhio Beverage System Series B 4.532% 01/01/ ,000 32,127 20,000 Los Angeles Department of Water & Power 6.574% 07/01/ ,000 27,536 70,000 Ohio State University Series A 4.80% 06/01/ ,296 68, ,000 Port Authority of New York & New Jersey 4.458% 10/01/ , , ,000 Port Authority of New York & New Jersey 4.823% 06/01/ , , ,000 San Diego County Water Authority Financing Corp % 05/01/ , , ,000 State of California 7.30% 10/01/ , , ,000 State of California 7.55% 04/01/ , ,319 See Notes to Financial Statements 13

16 Schedule of Investments (Continued) Western Asset Long Duration Credit CIF (Continued) Principal Amount Cost Fair Value Municipals (continued) $ 270,000 State of Illinois 5.10% 06/01/2033 $ 241,289 $ 238, ,000 State of Illinois 5.65% 12/01/ , ,630 20,000 State of Illinois 6.63% 02/01/ ,882 20,437 50,000 State of Illinois 7.35% 07/01/ ,273 54, ,000 Sumter Landing Community Development Dist % 10/01/ , , ,000 University of California Series AD 4.858% 05/15/ , ,623 80,000 University of California Series AG 4.062% 05/15/ ,814 81,056 20,000 University of California Series AN 4.765% 05/15/ ,000 21, ,000 University of California Series AQ 4.767% 05/15/ , ,288 70,000 University of California Series J 4.131% 05/15/ ,000 69,447 Total Municipals 2.83% 3,097,729 3,155,508 U.S. Government & Agency Obligations U.S. Government Obligations 320,000 United States Treasury Bond 3.625% 02/15/ , ,687 2,340,000 United States Treasury Bond 2.25% 08/15/2046 1,941,857 1,967, ,000 United States Treasury Note 2.00% 11/15/ , ,176 30,000 United States Treasury Note 1.75% 11/30/ ,595 29, ,000 United States Treasury Note 1.375% 10/31/ , ,406 Total U.S. Government Obligations 3.02% 3,326,515 3,365,564 Total U.S. Government & Agency Obligations 3.02% 3,326,515 3,365,564 Total Investments % $ 108,985,312 $ 111,536,731 See Notes to Financial Statements 14

17 Statement of Operations Selected Fund Year Ended Western Asset Core Plus Bond CIF Income Interest (net of foreign withholding taxes of $2,011) $ 4,807,575 Dividends 43,415 Total income 4,850,990 Expenses Trustee and administrative 83,034 Class R expenses 122,549 Class R1 expenses 14,756 Total expenses before reimbursement 220,339 Reimbursement of fees (69,754) Net expenses 150,585 Net Investment Income 4,700,405 Net Realized Gains (Losses) on Investments, Options Written, Futures Contracts and Swap Contracts Net realized gains on investments 2,251,328 Net realized gains on options written 7,038 Net realized losses on futures contracts (464,882) Net realized losses on swap contracts (64,008) Net realized and unrealized gains (losses) 1,729,476 Change in Net Unrealized Appreciation (Depreciation) on: Investments 2,453,913 Futures contracts (205,407) Swap contracts (72,291) Change in net unrealized appreciation (depreciation 2,176,215 Net realized and unrealized gains on Investments, Options Written, Futures Contracts, Swap Contracts, Investments Sold Short and Foreign Currency 3,905,691 Net Increase in Net Assets Resulting From Operations $ 8,606,096 See Notes to Financial Statements 15

18 Statement of Changes in Net Assets Selected Fund Year Ended Western Asset Long Duration Credit CIF Operations Net investment income $ 4,700,405 Net realized gains 1,729,476 Change in net unrealized appreciation (depreciation) 2,176,215 Net increase in net assets from operations 8,606,096 Net Decrease in Net Assets From Participant Unit Transactions 16,431,418 Decrease in Net Assets 25,037,514 Net Assets Beginning of year 89,069,023 End of year $ 114,106,537 See Notes to Financial Statements 16

19 Notes to Financial Statements Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Hand Composite Employee Benefit Trust ("HB&T" or "the Trust") was created in order to provide broad and uniform diversification programs for pension and profit sharing plans which, having complied with the requirements of the Internal Revenue Code (the IRC), are exempt from taxation under the provisions of the IRC. The Trust is comprised of 103 portfolios (the Funds); the financial statements of one of those funds, the Western Asset Long Duration Credit CIF (the Fund), are included in this report. Each class of the Fund has equal rights as to earnings and assets except that each class bears different distribution, shareholder servicing and transfer agent expenses. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments and foreign currency are allocated to each class of units based on its relative net assets. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of investment income and expenses during the reporting period. Actual results could differ from those estimates. Investment Valuation All investments in securities are recorded at their estimated fair value. Transfers in and out of Level 1 (quoted market prices), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) are recognized on the period ending date. Investment Transactions Investment transactions are accounted for on trade date. Realized gains and losses from investment transactions and unrealized appreciation or depreciation of investments are reported on the identified cost basis. 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. 17

20 Notes to Financial Statements 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. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. 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. Written Options When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Fund's basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Fund's basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund. The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market. Swap Agreements The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those associated with other portfolio transactions. Swap agreements are privately negotiated in the 18