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: 811-21403
Name of Fund: Western Asset/Claymore U.S. Treasury Inflation Protected
Securities Fund
Fund Address: 100 Light Street
Baltimore, MD 21202
Name and address of agent for service:
Randolph L. Kohn, President
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
100 Light Street
Baltimore, MD 21202.
Registrant's telephone number, including area code: (410) 539-0000
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
Item 1 - Report to Shareholders
Annual Report to Shareholders
STATISTICAL HIGHLIGHTS
(Amounts in Thousands, except per share amounts)
December 31, 2003
---------------------------------------
Net Asset Value $413,210
Per Share $14.28
---------------------------------------
Net Investment Income $4,732
Per Share $0.16
---------------------------------------
Dividends Paid $4,656
Per Share $0.16
---------------------------------------
The Fund
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
("WIA" or the "Fund") is a closed-end, diversified management investment
company which seeks to provide current income for its shareholders. Capital
appreciation, when consistent with current income, is a secondary investment
objective. Substantially all of the net investment income is distributed to the
shareholders. A Dividend Reinvestment Plan is available to those shareholders
of record desiring it. The shares are listed on the New York Stock Exchange
where they are traded under the symbol WIA.
Investment Policies
The Fund's investment policies include, among others, that its portfolio be
invested as follows:
. At least 80% of total managed assets in U.S. Treasury Inflation Protected
Securities.
. Up to 20% of total managed assets in corporate bonds or other securities
and instruments.
. Preferred shares, together with other forms of leverage (including
reverse repurchase agreements and dollar roll transactions), will not
exceed 38% of the Fund's total managed assets.
Dividend Reinvestment Plan
The Fund and EquiServe Trust Company N.A. ("Agent"), as the Transfer Agent
and Registrar of WIA, offer a convenient way to add shares of WIA to your
account. WIA offers to all common shareholders a Dividend Reinvestment Plan
("Plan"). Under the Plan, cash distributions (e.g., dividends and capital
gains) on the common shares are automatically invested in shares of WIA unless
the shareholder elects otherwise.
As a participant in the Dividend Reinvestment Plan, you will automatically
receive your dividend or net capital gains distribution in newly issued shares
of WIA, if the market price of the shares on the date of the distribution is at
or above the net asset value ("NAV") of the shares, minus estimated brokerage
commissions that would be incurred upon the purchase of common shares on the
open market. 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, minus estimated brokerage
commissions that would be incurred upon the purchase of common shares on the
open market, the Agent will, as agent for the participants, buy shares of WIA
through a broker on the open market. All common shares acquired on your behalf
through the Plan will be automatically credited to an account maintained on the
books of the Agent.
Additional Information Regarding the Plan
WIA will pay all costs applicable to the Plan, with the exceptions noted
below. Brokerage commissions for open market purchases by the Agent under the
Plan will be charged to 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 Trustees may declare.
You may terminate participation in the Plan at any time by giving written
notice to the Agent. Such termination shall 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, 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. Fractional shares credited to a
terminating account will be paid for in cash at the current market price at the
time of termination.
1
Annual Report to Shareholders
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 (IRS) and only one
Form 1099-DIV will be sent to participants each year.
Inquiries regarding the Plan, as well as notices of termination, should be
directed to EquiServe Trust Company, N.A., P.O. Box 43011, Providence, Rhode
Island 02940-3011--Investor Relations telephone number (800) 426-5523.
Proxy Voting Policies and Procedures
You may request a free description of the policies and procedures that the
Fund uses to determine how proxies relating to the Fund's portfolio securities
are voted by calling 1-800-345-7999 or by writing to the Fund, or you may
obtain a copy of these policies and procedures (and other information relating
to the Fund) from the Securities and Exchange Commission's website
(http://www.sec.gov).
IMPORTANT TAX INFORMATION 2003
(Unaudited)
The portion of dividends attributable to interest earned on direct
obligations of the U.S. government is exempt from state income tax in many
states. The percentage of such interest earned by the Fund for each period
ended December 31, 2003, is 76.58%:
2
STATISTICAL HIGHLIGHTS--Continued
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
General Market Performance
The U.S. economy continued to display impressive signs of strength in the
fourth quarter of 2003. Although the pace of retail sales appears to have
cooled a bit since the third quarter, manufacturing and housing remained quite
strong and the labor market continued to firm. Good economic news, coupled with
strong productivity and improving earnings, helped drive equity prices higher.
Inflation pressures continued to increase in December as the dollar fell, gold
rose, commodities surged, and oil prices edged higher. Despite signs of
stronger economic activity and rising prices, headline and core CPI inflation
registered declines in November, and bond yields declined modestly.
With economic news still strong but not blazing strong, and with the Fed
continuing to insist that a tightening is far out on the horizon, intermediate
nominal yields fell 20 basis points/A/ ("bps") or so, while long-term yields
fell by only 5 bps. This same pattern--a modest steepening of the yield
curve--was repeated in the Treasury Inflation-Protected Securities ("TIPS")
market as real yields also declined. Breakeven spreads were little changed for
December, although they hovered near relatively high levels as inflation
concerns continued to manifest themselves. TIPS received a tiny negative
inflation adjustment for the month, repeating what appears to be a regular
seasonal pattern.
Fund Performance
The Fund recorded a total return, based on market value per share, of +1.58%
since its inception. During this time period, the stock price has remained
stable in a range from $14.92 to $15.70. Since the Fund began on September 30,
2003, there have been three common dividends declared and two paid. No
Preferred Dividends were recorded as of 12/31/03. The next common dividend pay
date is January 9, 2004.
--------
/A/100basis points = 1%.
3
Annual Report to Shareholders
PORTFOLIO DIVERSIFICATION
December 31, 2003
[CHART]
BY RATING*
(At Market Value)
AAA 85.7%
AA 0.5%
A 3.1%
BBB 10.7%
BY SECTOR*
(At Market Value)
YANKEE BONDS 1.9%
CORPORATE BONDS AND NOTES 13.6%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 84.5%
*EXPRESSED AS A PERCENTAGE OF THE PORTFOLIO
The pie chart above represents the Fund's portfolio as of December 31, 2003.
The Fund's portfolio is actively managed, and its portfolio composition, credit
quality breakdown, and other portfolio characteristics will vary from time to
time. U.S. Treasury Inflation Protected Securities are unrated, but are backed
by the full faith and credit of the United States and are therefore considered
by the Fund's investment adviser to be comparable to bonds rated AAA/Aaa.
4
PORTFOLIO OF INVESTMENTS
December 31, 2003
(Amounts in Thousands)
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
------------------------------------------------
Long-Term Securities 143.4%
U.S. Government and Agency Obligations 121.1%
Indexed Securities/A/ 121.1%
United States Treasury Inflation-Protected Security 3.375% 1/15/07 $ 8,174 $ 8,855
United States Treasury Inflation-Protected Security 3.500% 1/15/11 105,129 118,138/B/
United States Treasury Inflation-Protected Security 3.375% 1/15/12 105,754 118,337/B/
United States Treasury Inflation-Protected Security 3.000% 7/15/12 113,186 123,390
United States Treasury Inflation-Protected Security 1.875% 7/15/13 124,000 123,109
United States Treasury Inflation-Protected Security 3.875% 4/15/29 6,752 8,747
---------
Total U.S. Government and Agency Obligations
(Identified Cost--$498,290) 500,576
-----------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes 19.5%
Aerospace/Defense 0.3%
The Boeing Company 6.125% 2/15/33 1,150 1,154
---------
Automotive 2.4%
Ford Motor Company 7.450% 7/16/31 2,435 2,461
Ford Motor Company 8.900% 1/15/32 2,175 2,437
General Motors Corporation 8.375% 7/15/33 4,355 5,056
---------
9,954
---------
Banking and Finance 0.3%
Fuji Co., Ltd. 9.870% 12/31/49 1,025 1,158/C/
---------
Cable 0.9%
Comcast Corporation 6.500% 1/15/15 3,455 3,749
---------
Chemicals 0.7%
The Dow Chemical Company 7.375% 11/1/29 2,435 2,723
---------
Commercial Services and Supplies 0.2%
Cendant Corporation 7.375% 1/15/13 770 883
---------
Computer Services and Systems 1.0%
Electronic Data Systems Corporation 7.450% 10/15/29 4,225 4,225
---------
Diversified Financial Services 0.8%
General Electric Capital Corporation 6.750% 3/15/32 2,815 3,116
---------
Drug and Grocery Store Chains 0.2%
Safeway Inc. 7.250% 2/1/31 770 845
---------
5
Annual Report to Shareholders
PORTFOLIO OF INVESTMENTS--Continued
Western Asset/Claymore U.S. Treasury Inflation Protected Securities
Fund--Continued
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
-----------------------------------------------
Corporate Bonds and Notes--Continued
Electric 1.9%
CenterPoint Energy, Inc. 6.850% 6/1/15 $ 510 $ 524/C/
Dominion Resources, Inc. 6.250% 6/30/12 1,665 1,806
FirstEnergy Corp. 7.375% 11/15/31 5,375 5,499
----------
7,829
----------
Energy 0.3%
Duke Energy Corporation 6.450% 10/15/32 1,150 1,185
----------
Environmental Services 1.4%
Waste Management, Inc. 7.750% 5/15/32 4,995 5,886
----------
Food, Beverage and Tobacco 2.1%
Altria Group, Inc. 7.750% 1/15/27 3,455 3,728
Kraft Foods Inc. 6.500% 11/1/31 2,175 2,273
Sara Lee Corporation 6.125% 11/1/32 1,280 1,325
Tyson Foods, Inc. 7.000% 1/15/28 1,280 1,271
----------
8,597
----------
Media 2.2%
AOL Time Warner Inc. 7.700% 5/1/32 4,480 5,229
News America Holdings 7.750% 12/1/45 1,535 1,815
News America Incorporated 7.625% 11/30/28 1,790 2,073
----------
9,117
----------
Oil and Gas 0.4%
Amerada Hess Corporation 7.125% 3/15/33 895 909
Conoco Inc. 6.950% 4/15/29 770 873
----------
1,782
----------
Photo Equipment and Supplies 0.3%
Eastman Kodak Company 7.250% 11/15/13 1,200 1,259
----------
Special Purpose 3.1%
DaimlerChrysler NA Holding Corp. 8.500% 1/18/31 3,840 4,588
H.J. Heinz Finance Company 6.750% 3/15/32 770 859
Sprint Capital Corporation 8.750% 3/15/32 4,610 5,446
Verizon Global Funding Corp. 7.750% 6/15/32 1,665 1,957
----------
12,850
----------
6
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
---------------------------------------------------
Corporate Bonds and Notes--Continued
Telecommunications 0.6%
AT&T Corp. 8.750% 11/15/31 $2,305 $ 2,693
---------
Telecommunications (Cellular/Wireless) 0.4%
AT&T Wireless Services Inc. 8.750% 3/1/31 1,410 1,740
---------
Total Corporate Bonds and Notes
(Identified Cost--$79,658) 80,745
------------------------------------------------------------------------------------------------------
Yankee Bonds/D/ 2.8%
Manufacturing (Diversified) 1.8%
Tyco International Group SA 6.375% 10/15/11 3,455 3,692
Tyco International Group SA 6.875% 1/15/29 3,715 3,808
---------
7,500
---------
Special Purpose 1.0%
Deutsche Telekom International Finance BV 8.750% 6/15/30 2,175 2,779
UFJ Finance Aruba AEC 6.750% 7/15/13 1,025 1,093
---------
3,872
---------
Total Yankee Bonds (Identified Cost--$11,105) 11,372
---------
Total Long-Term Securities
(Identified Cost--$589,053) 592,693
------------------------------------------------------------------------------------------------------
Short-Term Securities 7.1%
U.S. Government Agency Obligations 0.5%
Fannie Mae 0.000% 3/24/04 2,150 2,145/E,F/
---------
Options Purchased/G/ 0.4%
U.S. Treasury Note Futures Put, March 2004,
Strike Price $110 2,000/H/ 531
U.S. Treasury Note Futures Put, March 2004,
Strike Price $108 1,750/H/ 547
U.S. Treasury Note Futures Put, March 2004,
Strike Price $109 2,400/H/ 338
---------
1,416
---------
7
Annual Report to Shareholders
PORTFOLIO OF INVESTMENTS--Continued
Western Asset/Claymore U.S. Treasury Inflation Protected Securities
Fund--Continued
% OF
NET ASSETS PAR VALUE
-----------------------------
Short-Term Securities--Continued
Repurchase Agreements 6.2%
Credit Suisse First Boston Corporation
0.97%, dated 12/31/03, to be repurchased at $25,809 on 1/2/04 (Collateral:
$26,160 Federal Home Loan Bank bonds, 2.25%, due 12/15/05, value $26,361) $25,808 $ 25,808
---------
Total Short-Term Securities
(Identified Cost--$31,961) 29,369
----------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost--$621,014) 150.5% 622,062
Other Assets Less Liabilities (0.9)% (3,852)
Liquidation Value of Preferred Shares (49.6)% (205,000)
---------
Net Assets Applicable to Common Shareholders 100.0% $ 413,210
=========
ACTUAL APPRECIATION/
EXPIRATION CONTRACTS (DEPRECIATION)
-----------------------------------
Option Written/G/
U.S. Treasury Note Futures Call, Strike Price $115 March 2004 1,500 $155
====
--------------------------------------------------------------------------------
/A/Treasury Inflation-Protected Security - Treasury security whose principal
value is adjusted daily in accordance with changes to the Consumer Price
Index for all urban consumers. Interest is calculated on the basis of the
current adjusted principal value.
/B/Collateral to cover reverse repurchase agreements./ /
/C/Rule 144a Security - A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to that rule except
to qualified institutional buyers. These securities represent 0.41% of net
assets.
/D/Yankee Bond - A dollar-denominated bond issued in the U.S. by foreign
entities.
/E/Zero coupon bond - A bond with no periodic interest payments which is sold
at such a discount as to produce a current yield to maturity.
/F/Collateral to cover option and futures contracts.
/G/Options are discussed in more detail in the notes to financial statements.
/H/Represents actual number of contracts.
See notes to financial statements.
8
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
(Amounts in Thousands)
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
Assets:
Investments, at value (cost $591,197) $594,838
Repurchase agreement, at cost 25,808
Options purchased (cost $4,009) 1,416
--------
$622,062
Cash 1
Interest and dividends receivable 8,858
--------
Total assets 630,921
--------
Liabilities:
Options written (proceeds $882) 727
Payable for:
Investments purchased 9,712
Offering expense 936
Investment management and administrative fees 215
Servicing agent fee 77
Income distribution 868
Accrued expenses and other liabilities 176
--------
Total liabilities 12,711
--------
Preferred Shares:
No par value, 8 shares authorized, issued and
outstanding, $25 liquidation value per share (Note 5) 205,000
--------
Net Assets Applicable to Common Shareholders $413,210
========
Capital:
Common shares, no par value, unlimited number of shares
authorized, 28,939 shares issued and outstanding (Note 4) 411,461
Under/(over) distributed net investment income 76
Accumulated net realized gain/(loss) on investments and
options 470
Net unrealized appreciation/(depreciation) on
investments and options 1,203
--------
Net Assets $413,210
========
Net asset value per share of common share ($413,210 /
28,939 common shares issued and outstanding) $ 14.28
========
--------------------------------------------------------------------------------
See notes to financial statements.
9
Annual Report to Shareholders
STATEMENT OF OPERATIONS
(Amounts in Thousands)
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
FOR THE
PERIOD ENDED
DECEMBER 31, 2003/A/
-----------------------------------------------------------------------------
Investment Income:
Interest income $6,109
------
Expenses:
Advisory and administration fees 587
Servicing agent fee 210
Custodian fees 53
Audit and legal fees 38
Trustee fees and expenses 30
Preferred share auction fees 45
Registration fees 9
Reports to shareholders 17
Transfer agent and shareholder serving expense 15
Other 2
------
Total operating expenses 1,006
Interest expense 371
------
Total expenses 1,377
------
Net Investment Income 4,732
------
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on investments 470
Unrealized appreciation/(depreciation) of investments 1,203
------
Net Realized and Unrealized Gain/(Loss) on Investments 1,673
------
Change in Net Assets Resulting From Operations $6,405
======
--------------------------------------------------------------------------------
/A/For the period September 30, 2003 (commencement of operations) to December
31, 2003.
See notes to financial statements.
10
STATEMENT OF CHANGES IN NET ASSETS
(Amounts in Thousands)
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
FOR THE
PERIOD ENDED
DECEMBER 31, 2003/A/
--------------------------------------------------------------------------------------------
Increase in Net Assets Applicable to Common Shareholders:
Net investment income $ 4,732
Net realized gain/(loss) on investments and options 470
Unrealized appreciation/(depreciation) of investments and options 1,203
--------
Increase in net assets resulting from operations 6,405
--------
Distributions to Common Shareholders:
From net investment income (4,656)
--------
Capital Transactions:
Net proceeds from initial offering 412,788
Offering costs related to common shares issuance (631)
Offering costs related to preferred shares issuance (305)
Sales load on issuance of preferred shares (2,050)
Reinvestment of dividends resulting in the issuance of common shares 1,559
--------
411,361
--------
Net increase in net assets applicable to common shareholders $413,110
--------
Net Assets:
Beginning of period 100
End of period $413,210
========
Under/(over) distributed net investment income $ 76
--------
--------------------------------------------------------------------------------
/A/For the period September 30, 2003 (commencement of operations) to December
31, 2003.
See notes to financial statements.
11
Annual Report to Shareholders
STATEMENT OF CASH FLOWS
(Amounts in Thousands)
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
FOR THE
PERIOD ENDED
DECEMBER 31, 2003/A/
-----------------------------------------------------------------------------------------------------------
Increase/(Decrease) in Cash:
Cash flows provided from/(used for) operating activities:
Purchased interest $ (3,216)/B/
Expenses paid (539)
Interest expense paid (1,311)
Purchase of long-term portfolio investments (596,254)
Proceeds from sale of long-term investments 14,779
Net purchases in excess of proceeds from sales of short-term portfolio transactions (116,450)
Net premiums received from written options transactions 883
---------
Net cash provided by/(used for) operating activities (702,108)
---------
Cash flows provided by/(used for) financing activities:
Net cash provided by initial public offering 412,788
Cash provided by reverse repurchase agreements 88,500
Net cash provided by preferred shares initial public offering 202,950
Cash distributions paid to common shareholders (2,229)
---------
Net cash provided by financing activities 702,009
---------
Net increase in cash:
Cash at beginning of period 100
---------
Cash at end of period $ 1
=========
Reconciliation of Net Decrease in Net Assets Resulting From Operations to Net Cash
Used for Operating Activities:
Net increase in net assets resulting from operations $ 6,405
---------
Increase in investments (709,837)
Net realized gain on investment transactions (772)
Net change in unrealized appreciation/(depreciation) on investments (1,203)
Increase in interest receivable (7,918)
Increase in interest expense payable 56
Increase in accrued expenses and other liabilities 11,161
---------
Total adjustments (708,513)
---------
Net cash provided by/(used for) operating activities $(702,108)
=========
--------------------------------------------------------------------------------
/A/For the period September 30, 2003 (commencement of operations) to December
31, 2003.
/B/Amount is negative due to purchased interest that, although receivable, is
not considered income.
See notes to financial statements.
12
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a common share
outstanding throughout the period, total investment return, ratios to average
net assets and other supplemental data. This information has been derived from
information in the financial statements.
FOR THE
PERIOD ENDED
DECEMBER 31, 2003/A/
---------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $14.33/B/
---------
Net investment income .16
Net realized and unrealized gain/(loss) on investments (.01)
---------
Total from investment operations .15
---------
Distributions paid to common shareholders from net investment income/C/ (.16)
---------
Offering costs charged to paid in capital (.04)
---------
Net asset value, end of period $14.28/D/
=========
Market value per share, end of period $15.10/D/
=========
Total return on NAV excluding offering costs 0.56%/E/
Total return on market value 1.58%/F/
Ratio of expenses to average weekly net assets (including interest expense)/G/ 0.97%/H/
Ratio of net investment income to average daily net assets 3.35%/H/
Portfolio turnover rate 2%/I/
Net assets, at end of period (in thousands) $ 413,210
--------------------------------------------------------------------------------
/A/For the period September 30, 2003 (commencement of operations) to December
31, 2003.
/B/Net of sales load of $0.675 on initial shares issued.
/C/No distributions were paid on Preferred Shares as of December 31, 2003.
/D/Net asset value and market value are published in The Wall Street Journal
each Monday.
/E/Not annualized. Total return on NAV including offering costs is 0.77%.
/F/Not annualized. Total investment return is calculated assuming a purchase of
a common share on the opening of the first day and a sale on the closing of
the last day of each period reported. Dividends and distributions are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Total investment
return is not annualized for periods of less than one year. Brokerage
commissions are not reflected.
/G/As a percentage of weekly net assets which includes any liabilities or
senior securities constituting indebtedness in connection with financial
leverage.
/H/Annualized.
/I/Not annualized.
See notes to financial statements.
13
Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS
(Amounts in Thousands)
1. Significant Accounting Policies:
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
(the "Fund") is registered under the Investment Company Act of 1940 ("1940
Act"), as amended, as a diversified, closed-end management investment company.
The Fund commenced operations on September 30, 2003.
The Fund's primary investment objective is to provide current income for its
shareholders. Capital appreciation, when consistent with current income, is a
secondary investment objective.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Security Valuation
Securities owned by the Fund for which market quotations are readily
available are valued at current market value. Current market value means the
last sale price of the day or, in the absence of any such sales, the bid price
obtained from quotation reporting systems, pricing services or other approved
methods. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith by the Board of
Trustees or persons acting under their supervision. The factors considered in
making such valuations are subject to change over time and are reviewed
periodically. The values assigned to fair valued investments are based on
available information and do not necessarily represent amounts that might
ultimately be realized, since such amounts depend on future developments
inherent in long-term investments. Further, because of the inherent uncertainty
of valuation, such estimated values may differ significantly from the values
that would have been used had a ready market for the investments existed, and
the differences could be material. Securities with remaining maturities of 60
days or less are generally valued at a readily available market price or, if a
market price is not readily available, fair valued at amortized cost.
Where a security is traded on more than one market, the securities are
generally valued on the market considered by the Fund's adviser to be the
primary market.
Security Transactions
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis for
both financial reporting and federal income tax purposes.
Purchases and sales of investment securities (excluding short-term
investments, U.S. government securities and U.S. government agencies)
aggregated $90,803 and $0, respectively, for the period ended December 31,
2003. Purchases and sales of U.S. government and government agency obligations
were $509,399 and $12,650, respectively, for the period December 31, 2003.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions. Under the terms of
a typical repurchase agreement, a fund takes possession of an underlying debt
obligation subject to an obligation of the seller to repurchase, and a fund to
resell, the obligation at an agreed-upon price and time, thereby determining
the yield during a fund's holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the fund's
holding period. The value of the collateral is at all times at least equal to
the total amount of the repurchase obligation, including interest. In the event
of counterparty default, a fund has the right to use the collateral to satisfy
the terms of the repurchase agreement. However, there could be potential loss
to the fund in the event the fund is delayed or prevented from exercising its
right to dispose of the collateral securities, including the risk of a possible
decline in the value of the collateral securities during the period in which
the fund seeks to assert its rights. The Fund's investment adviser reviews the
value of the collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
14
Options, Futures and Swap Agreements
The current market value of an exchange traded option is the last sale price
or, in the absence of a sale, the price obtained by reference to broker-dealer
quotations. Futures contracts are valued daily at the settlement price
established by the board of trade or exchange on which they are traded. Futures
contracts are marked-to-market on a daily basis. As the contract's value
fluctuates, payments known as variation margin are made to or received from the
futures commission merchant. Swap agreements are priced daily based upon
quotations from brokers and the change, if any, is recorded as unrealized
appreciation or depreciation.
Short Sales
The Fund may sell a security it does not own in anticipation of a decline in
the market price of that security. The Fund must then borrow the security sold
short and deliver it to the dealer that brokered the short sale. A gain,
limited to the price at which the security was sold short, or a loss,
potentially unlimited in size, will be recognized upon the termination of the
short sale. With respect to each short sale, the Fund must maintain collateral
in a segregated account consisting of liquid assets with a value at least equal
to the current market value of the shorted securities, marked-to-market daily,
or take other actions permitted by law to cover its obligations. Dividend
expenses and fees paid to brokers to borrow securities in connection with short
sales are considered part of the cost of short sale transactions.
Distributions to Common Shareholders
Net investment income for dividend purposes is recorded on the accrual basis
and consists of interest and dividends less expenses. All premiums and
discounts are amortized for financial reporting and tax purposes using the
effective interest method over the period to maturity of the security, and
serve to reduce or increase interest income. Dividend income is recorded on the
ex-dividend date. Dividends from net investment income are paid monthly.
Distributions are determined in accordance with income tax regulations, which
may differ from accounting principles generally accepted in the United States
of America; accordingly, periodic reclassifications are made within the Fund's
capital accounts to reflect income and gains available for distribution under
tax regulations.
Use of Estimates
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
these estimates.
2. Federal Income Taxes:
No provision for federal income or excise taxes is required since the Fund
intends to qualify as a regulated investment company and distribute
substantially all of its taxable income and capital gain to its shareholders.
Because federal income tax regulations differ from accounting principles
generally accepted in the United States of America, income and capital gain
distributions determined in accordance with tax regulations may differ from net
investment income and realized gains recognized for financial reporting
purposes. Accordingly, the character of distributions and composition of net
assets for tax purposes differs from those reflected in the accompanying
financial statements.
Distributions of $4,656 during the year ended December 31, 2003, were
characterized as ordinary income. No capital gain distributions were paid
during the year ended December 31, 2003.
Pursuant to federal income tax regulations applicable to investment
companies, the Fund has elected to treat net capital losses realized between
November 1 and December 31 of each year ("post-October loss") as occurring on
the first day of the following tax year. For the year ended December 31, 2003,
realized capital and currency losses reflected in the accompanying financial
statements, which will not be recognized for federal income tax purposes until
2004, are shown in the table below.
15
Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS--Continued
The tax basis components of net assets at December 31, 2003, were:
Unrealized appreciation $ 4,296
Unrealized depreciation (663)
--------
Net unrealized appreciation/(depreciation) 3,633
Undistributed ordinary income 943
Capital loss carryforwards (478)
Post-October loss push and other loss deferrals (1,482)
Paid-in capital 410,594
--------
Net assets $413,210
========
The difference between book and tax basis unrealized
appreciation/(depreciation) is primarily due to the tax deferral of wash sale
losses and tax treatment of market discount on certain debt instruments.
The Fund intends to retain realized capital gains that may be offset against
available capital loss carryforwards for federal income tax purposes. As of
December 31, 2003, the Fund had capital loss carryforwards of $478, expiring in
2011.
At December 31, 2003, the cost of investments for federal income tax
purposes was $621,022.
3. Financial Instruments:
Options Transactions
A call option gives the option holder the right to purchase the underlying
security at a specified price until a specified date. A put option gives the
option holder the right to sell the underlying security at a specified price
until a specified date. The risk in writing a covered call option is that the
Fund may forgo the opportunity for 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. In addition, there is a risk
that the Fund may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of the
counterparty's inability to perform. Activity in written call and put options
during the period was as follows:
Calls Puts
-------------------------------------
Actual Actual
Contracts Premiums Contracts Premiums
-------------------------------------
Options outstanding at September 30, 2003 -- $ -- -- $--
Options written 1,500 882 -- --
Options closed -- -- -- --
Options expired -- -- -- --
Options exercised -- -- -- --
----- ---- -- ---
Options outstanding at December 31, 2003 1,500 $882 -- $--
===== ==== == ===
Swap Agreements
The use of swaps involves risks that are different from those associated
with ordinary portfolio securities transactions. Swap agreements may be
considered to be illiquid. Although the Fund will not enter into any swap
agreement unless the Adviser believes that the other party to the transaction
is creditworthy, the Fund does bear the risk of loss of the amount expected to
be received under the swap agreement in the event of the default or bankruptcy
of the agreement counterparty. The Fund had no open swap agreements at December
31, 2003.
16
Futures
Upon entering into a futures contract, the Fund is required to deposit with
the broker an amount of cash or cash equivalents equal to a percentage of the
contract amount. This is known as the "initial margin." Subsequent payments
("variation margin") are made or received by the Fund each day, depending on
the daily fluctuation in the value of the contract. The daily changes in
contract value are recorded as unrealized gains or losses and the Fund
recognizes a gain or loss when the contract is closed.
The Fund may enter into futures contracts in connection with its interest
rate management strategy or for other purposes. Risks arise from the possible
illiquidity of the futures market and from the possibility that a change in the
value of a contract may not correlate with changes in interest rates, if
applicable. The Fund had no open futures positions at December 31, 2003.
Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements. Under the terms of a
typical reverse repurchase agreement, a fund sells a security subject to an
obligation to repurchase the security from the buyer at an agreed-upon time and
price, thereby determining the yield to the buyer during the buyer's holding
period. A reverse repurchase agreement involves the risk, among others, that
the market value of the collateral retained by the fund may decline below the
price of the securities the fund has sold but is obligated to repurchase under
the agreement. In the event the buyer of securities under a repurchase
agreement files for bankruptcy or becomes insolvent, the fund's use of the
proceeds of the agreement may be restricted pending a determination by the
party, or its trustee or receiver, whether to enforce the fund's obligation to
repurchase the securities. In entering into reverse repurchase agreements, the
fund will maintain cash, U.S. government securities or other liquid high grade
debt obligations at least equal in value to its obligations with respect to
reverse repurchase agreements or take other actions permitted by law to cover
its obligations.
At the time the Fund enters into a reverse repurchase agreement, it will
segregate, on its books, cash, U.S. government securities or other liquid high
grade debt obligations having a value at least equal to the repurchase price or
take other actions permitted by law to cover its obligations. For the period
ended December 31, 2003, the average amount of reverse repurchase agreements
outstanding was $148,153 and the daily weighted average interest rate was 1.03%.
As of December 31, 2003, the Fund entered into a reverse repurchase
agreement (the "Reverse Repurchase Agreement") with Lehman Brothers, Inc.
("Lehman") for $25,000, which was settled on January 6, 2004. The Reverse
Repurchase Agreement was recorded at cost and was fully collateralized by a
U.S. Treasury Inflation Protected Security with a market value of $30,019, and
a carrying value of $30,000 that matures on January 15, 2011. The implied
interest rate on the Reverse Repurchase Agreement was 0.98%. The Fund
immediately and subsequently invested the proceeds in a repurchase agreement
(the "Repurchase Agreement") with Lehman for $25,000, which agreement was
settled on January 6, 2004. The Repurchase Agreement was recorded at cost and
was fully collateralized by a U.S. Treasury Inflation Protected Security with a
fair value of $30,327, and a carrying value of $30,313 that matures on January
15, 2011. The implied interest rate on the Repurchase Agreement was 1.03%.
As of December 31, 2003, the Fund entered into another reverse repurchase
agreement (the "Reverse Repurchase Agreement") with Lehman for $50,000, which
was settled on January 6, 2004. The Reverse Repurchase Agreement was recorded
at cost and was fully collateralized by a U.S. Treasury Inflation Protected
Security with a fair value of $59,154, and a carrying value of $59,125 that
matures on January 15, 2012. The implied interest rate on the Reverse
Repurchase Agreement was 0.98%. The Fund immediately and subsequently invested
the proceeds in a repurchase agreement (the "Repurchase Agreement") with Lehman
for $50,000, which agreement was settled on January 6, 2004. The Repurchase
Agreement was recorded at cost and was fully collateralized by a U.S. Treasury
Inflation Protected Security with a fair value of $58,537, and a carrying value
of $58,500 that matures on January 15, 2011. The implied interest rate on the
Repurchase Agreement was 1.03%.
The net result of this transaction is presented, on the statement of Assets
and Liabilities as a component of interest and dividend receivable.
17
Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS--Continued
4. Common Shares:
On September 30, 2003, the Fund completed the initial public offering of
25,251 of common stock. Proceeds paid to the Fund amounted to $361,592 after
deduction of sales load of $17,044 and underwriting commissions of $114.
On October 27, 2003, the Fund's underwriters exercised an option to purchase
an additional 1,750 shares of common stock. Proceeds paid to the Fund amounted
to $25,061 after deduction of sales load of $1,181 and underwriting commissions
of $8.
On November 11, 2003, the Fund's underwriters exercised an option to
purchase an additional 1,825 shares of common stock. Proceeds paid to the Fund
amounted to $26,135 after deduction of sales load of $1,232 and underwriting
commissions of $8.
Of the 28,939 shares of common stock outstanding at December 31, 2003,
Western Asset Management Company owned 7 shares.
5. Preferred Shares (amounts are not in thousands):
There are 8,200 shares of Auction Market Preferred Shares ("Preferred
Shares") authorized. The Preferred Shares have rights as set forth in the
Fund's Agreement and Declaration of Trust, as amended to date, and its Bylaws,
as amended to date (the "Bylaws"), or as otherwise determined by the Trustees.
The 8,200 Preferred Shares outstanding consist of five series: 1,640 shares
each of Series M, Series T, Series W, Series TH, and Series F. The Preferred
Shares have a liquidation value of $25,000 per share, plus any accumulated but
unpaid dividends whether or not earned or declared.
Dividends on all series of Preferred Shares are cumulative and are paid at a
rate typically reset every seven days, based on the results of an auction.
Dividend rates were 1.30% for the initial period beginning on December 19,
2003. Under the Investment Company Act of 1940, the Fund may not declare
dividends or make other distributions on common shares or purchase any such
shares if, at the time of declaration, distribution or purchase, asset coverage
with respect to the outstanding Preferred Shares would be less than 200%.
The Preferred Shares are redeemable at the option of the Fund, in whole or
in part, on any dividend payment date at $25,000 per share plus any accumulated
but unpaid dividends. The Preferred Shares are also subject to mandatory
redemption at $25,000 per share plus any accumulated but unpaid dividends,
whether or not earned or declared, if certain requirements relating to the
composition of the assets and liabilities of the Fund as set forth in the
Bylaws are not satisfied.
Preferred shareholders, who are entitled to one vote per Preferred Share,
generally vote as a single class with the common shareholders, but will vote
separately as a class (and, in certain circumstances, vote separately by
series) with respect to certain matters set forth in the Bylaws. The preferred
shareholders are entitled to elect two Trustees of the Fund.
6. Securities Loaned:
The Fund may lend its portfolio securities in order to earn income. The Fund
will receive collateral in cash or high quality securities at least equal to
the current value of the loaned securities. The Fund earns interest on the
securities it lends and income when it invests the collateral for the loaned
securities. As of December 31, 2003, there were no securities on loan.
7. Transactions With Affiliates and Certain Other Parties:
The Fund has entered into an Investment Advisory Agreement with Western
Asset Management Company ("Investment Adviser"), which provides for payment of
a monthly fee computed at the annual rate of 0.40% of the Fund's average weekly
assets. "Average weekly assets" means the average weekly value of the total
assets of the Fund (including any assets attributable to leverage) minus
accrued liabilities (other than liabilities representing leverage). For
purposes of calculating "average weekly assets," neither the liquidation
preference of any preferred shares outstanding nor any liabilities associated
with any instrument or transactions used by the Investment Adviser to leverage
the Fund's portfolio (whether or not such instruments or transactions are
"covered" as described in the prospectus) is considered a liability.
18
Claymore Securities, Inc. ("Servicing Agent") will act as servicing agent
for the Fund. For its services the Servicing Agent will receive an annual fee
from the Fund, payable monthly in arrears, which will be based on the Fund's
average weekly assets in a maximum amount equal to 0.15% of the Fund's average
weekly assets.
Under the administrative agreement with the Fund, Legg Mason Fund Adviser,
Inc. ("Administrator"), an affiliate of Western Asset, provides certain
administrative and accounting functions for the Fund. In consideration for
these services, the Fund will pay the Administrator a fee, paid monthly, at an
annual rate of $100.
8. Trustee Compensation (dollar amounts are not in thousands):
Each Trustee currently receives a fee of $8,000 annually for serving as a
Trustee of the Fund and a fee of $1,000 and related expenses for each meeting
of the Board of Trustees attended. The Chairman of the Board receives an
additional $1,500 per year for serving in that capacity. Audit Committee
members receive $500 for each meeting, and the Audit Committee Chairman
receives an additional $1,500 annually. Other committee members receive $500
per meeting.
19
Annual Report to Shareholders
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Trustees of Western Asset/Claymore U.S. Treasury
Inflation Protected Securities Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations, of changes in net assets, of cash flows and the financial
highlights present fairly, in all material respects, the financial position of
the Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
(hereafter referred to as the "Fund") at December 31, 2003, and the results of
its operations, the changes in its net assets and its cash flows, and the
financial highlights for the period presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 2003 by correspondence with the
custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 6, 2004
20
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund, their ages, and a description of their
principal occupations during the past five years are listed below. Except as
shown, each Trustee's and officer's principal occupation and business
experience for the last five years have been with the employer(s) indicated,
although in some cases the Trustee or officer may have held different positions
with such employer(s). A Statement of Additional Information for the Fund
includes additional information about the Fund's trustees. You may request a
free copy of the Statement of Additional Information by calling 1-800-345-7999.
Unless otherwise indicated, the business address of the persons listed below is
c/o Western Asset Management Company, 117 East Colorado Blvd., Pasadena, CA
91105.
Number of
Portfolios in
Position(s) Term of Office and Fund Complex Other
With the Length of Time Principal Occupation(s) Overseen by Directorships
Name and Age Fund Served During the Past Five Years Trustee Held by Trustee
--------------------- ----------- ------------------ ------------------------------- ------------- ------------------------------
Independent Trustees
---------------------------------------------------------------------------------------------------------------------------------
Peter Erichsen Trustee and Term expires in Vice President, General 2 Trustee of Western Asset/
Age 47 Chairman of 2005; served Counsel and Secretary of the J. Claymore U.S. Treasury
the Board since August Paul Getty Trust (2001 - Inflation Protected Securities
of Trustees 2003 present); Governor of the Fund 2 (2004 - present).
(1)(2) Philadelphia Stock Exchange
(1999 - present); Chairman of
the Philadelphia Stock
Exchange's Audit Committee
(1999 - present). Formerly:
Vice President and General
Counsel of the University of
Pennsylvania (1997 - 2001).
---------------------------------------------------------------------------------------------------------------------------------
Ronald A. Nyberg Trustee Term expires in Founding partner of Nyberg & 2 Trustee of MBIA/Claymore
Age 50 (1)(2) 2005; served Gustafson, a law firm Managed Duration Investment
since August specializing in corporate law, Grade Municipal Fund (2003 -
2003 estate planning and business present); Trustee of Advent
transactions (2000 - present). Claymore Convertible
Formerly: Executive Vice Securities & Income Fund
President, General Counsel (2003 - present); Trustee of
and Corporate Secretary of Dreman/Claymore Dividend &
Van Kampen Investments, an Income Fund (2003 - present);
investment advisory firm Trustee of Western Asset/
(1982 - 1999); Associate at Claymore U.S. Treasury
Querrey & Harrow, a law firm Inflation Protected Securities
(1978 - 1982). Fund 2 (2004 - present).
---------------------------------------------------------------------------------------------------------------------------------
Ronald E. Toupin, Jr. Trustee Term expires in Formerly: Vice President, 2 Trustee of MBIA/Claymore
Age 45 (1)(2) 2006; served Manager and Portfolio Managed Duration Investment
since August Manager of Nuveen Asset Grade Municipal Fund (2003 -
2003 Management, an investment present); Trustee of Advent
advisory firm (1998 - 1999), Claymore Convertible
Vice President and Portfolio Securities & Income Fund
Manager of Nuveen (2003 - present); Trustee of
Investment Advisory Dreman/Claymore Dividend &
Corporation, an investment Income Fund (2003 - present);
advisory firm (1992 - 1999), Trustee of Western Asset/
Vice President and Manager of Claymore U.S. Treasury
Nuveen Unit Investment Trusts Inflation Protected Securities
(1991 - 1998) and Assistant Fund 2 (2004 - present).
Vice President and Portfolio
Manager of Nuveen Unit
Trusts (1988 - 1990), each of
John Nuveen & Company, Inc.
(1982 - 1999).
---------------------------------------------------------------------------------------------------------------------------------
21
Annual Report to Shareholders
TRUSTEES AND OFFICERS--Continued
Number of
Portfolios in
Position(s) Term of Office and Fund Complex Other
With the Length of Time Principal Occupation(s) Overseen by Directorships
Name and Age Fund Served During the Past Five Years Trustee Held by Trustee
------------------- ----------- ------------------ ------------------------------- ------------- ------------------------------
Interested Trustees
-------------------------------------------------------------------------------------------------------------------------------
Nicholas Dalmaso Trustee Term expires in Senior Managing Director and 2 Trustee of MBIA/Claymore
Age 38 2004; served General Counsel of Claymore Managed Duration Investment
(3) since August Securities, Inc. (2001 - Grade Municipal Fund
2003 present) and Claymore (2003 - present); Director of
Advisors, LLC (2003 - present); F&C/Claymore Preferred
Vice President and Assistant Securities Income Fund, Inc.
Secretary of F&C/Claymore (2002 - present); Trustee of
Preferred Securities Income Advent Claymore Convertible
Fund, Inc. (2002 - present) Securities & Income Fund
and Flaherty & Crumrine/ (2003 - present); Trustee of
Claymore Total Return Fund, Western Asset/Claymore U.S.
Inc. (2003 - present); Manager Treasury Inflation Protected
of Claymore Fund Securities Fund 2
Management Company LLC (2004 - present).
(2002 - present); Vice
President of Boyar Value Fund
(2003 - present). Formerly:
Assistant General Counsel of
John Nuveen and Company,
Inc. (1999 - 2001); Vice
President and Associate
General Counsel of Van
Kampen Investments
(1992 - 1999).
-------------------------------------------------------------------------------------------------------------------------------
Randolph L. Kohn Trustee Term expires in President, Western Asset/ 2 Trustee of Western Asset/
Age 57 and 2006; served Claymore U.S. Treasury Claymore U.S. Treasury
(4) President since August Inflation Protected Securities Inflation Protected Securities
2003 Fund 2 (2004 - present). Fund 2.
(5) Formerly: Director, Global
Client Services and Marketing,
Western Asset Management
Company (1984 - 2002);
Director (1996 - 2001) and
Chairman (2000 - 2001),
Arroyo Seco, Inc.; Director of
Marketing, American Express
Asset Management (1982 -
1984); Director of Marketing,
First Asset Management
(1979 - 1982); Marketing
Executive, Kemper Financial
Services (1975 - 1979).
-------------------------------------------------------------------------------------------------------------------------------
22
Number of
Portfolios in
Position(s) Term of Office and Fund Complex Other
With the Length of Time Principal Occupation(s) Overseen by Directorships
Name and Age Fund Served During the Past Five Years Trustee Held by Trustee
------------------ ----------- ------------------ ------------------------------- ------------- ---------------
Officers
---------------------------------------------------------------------------------------------------------------
Gregory B. McShea Vice Served since Head of Compliance, Western N/A N/A
Age 37 President August 2003 Asset Management Company
(6) (5) (2003 - present); Vice
President, Western Asset/
Claymore U.S. Treasury
Inflation Protected Securities
Fund 2 (2004 - present).
Formerly: Associate General
Counsel and Compliance
Director, Private Client Group,
Legg Mason Wood Walker,
Incorporated, a brokerage firm
("LMWW"), and an affiliate of
Western Asset (1997 - 2003).
---------------------------------------------------------------------------------------------------------------
Marie K. Karpinski Treasurer Served since Vice President, LMWW (1992 - N/A N/A
Age 54 August 2003 present); Vice President and
100 Light Street (5) Treasurer of all Legg Mason
Baltimore, MD retail, open-end investment
21202 companies (1986 - present);
(6) Vice President and Treasurer
of Legg Mason Charles Street
Trust, Inc., an open-end
investment company (1998 -
present); Treasurer and
Principal Financial and
Accounting Officer of Pacific
American Income Shares, Inc.,
(closed-end investment
company) (2001 - present);
Western Asset Funds, Inc.
(1990 - present); Western
Asset Premier Bond Fund
(2001 -present) and Western
Asset/Claymore U.S. Treasury
Inflation Protected Securities
Fund 2 (2004 - present).
Formerly: Assistant Treasurer
of Pacific American Income
Shares, Inc. (1988 - 2001).
---------------------------------------------------------------------------------------------------------------
23
Annual Report to Shareholders
TRUSTEES AND OFFICERS--Continued
Number of
Portfolios in
Position(s) Term of Office and Fund Complex Other
With the Length of Time Principal Occupation(s) Overseen by Directorships
Name and Age Fund Served During the Past Five Years Trustee Held by Trustee
------------------ ----------- ------------------ ------------------------------------ ------------- ---------------
Officers
--------------------------------------------------------------------------------------------------------------------
Erin K. Morris Assistant Served since Assistant Vice President of N/A N/A
Age 37 Treasurer August 2003 LMWW (2002 - present);
100 Light Street (5) Assistant Treasurer of Legg
Baltimore, MD Mason Income Trust, Inc., Legg
21202 Mason Cash Reserve Trust, Legg
(6) Mason Tax Exempt Trust, Inc.,
Legg Mason Tax-Free Income
Fund, Pacific American Income
Shares, Inc., Western Asset
Funds, Inc. and Western Asset
Premier Bond Fund (2001 -
present) and Western Asset/
Claymore U.S. Treasury Inflation
Protected Securities Fund 2
(2004 - present); Manager, Fund
Accounting, LMWW
(2000 - present). Formerly:
Assistant Manager, Fund
Accounting, LMWW
(1993 - 2000).
--------------------------------------------------------------------------------------------------------------------
Anne S. Kochevar Secretary Served since Vice President, Compliance, N/A N/A
Age 40 August 2003 Claymore Securities, Inc. (2002 -
210 N. Hale Street (5) present) and Claymore Advisors,
Wheaton, IL LLC (2003 - present); Secretary,
60187 Western Asset/Claymore U.S.
(6) Treasury Inflation Protected
Securities Fund 2 (2004 - present);
Advertising Principal, Allstate
Financial Services (2001 - 2002);
Compliance Coordinator, John
Nuveen & Company, Inc. (2000 -
2001); Vice President &
Compliance Director of: Van
Kampen Management Inc., an
investment advisory firm (1999 -
2000); Van Kampen Investments
(1992 - 2000); Van Kampen
Investment Advisory Corp. (1999 -
2000); Van Kampen Funds Inc.
(1999 - 2000); Van Kampen Asset
Management Inc. (1999 - 2000);
Van Kampen Advisors Inc.
(1999 - 2000).
--------------------------------------------------------------------------------------------------------------------
/(1)/Member of the Audit Committee of the Board of Trustees.
/(2)/Member of the Governance and Nominating Committee of the Board of Trustees.
/(3)/Mr. Dalmaso may be deemed an "interested person" (as defined in section
2(a)(19) of the 1940 Act) of the Fund on the basis of his position as an
officer of Claymore Securities, Inc., the Fund's shareholder servicing
agent , and his ownership of an interest therein.
/(4)/Mr. Kohn is an "interested person" (as defined above) of the Fund on the
basis of his former employment with Western Asset and certain of its
affiliated entities (as disclosed above), as well as his ownership of
certain shares of common stock of Legg Mason, Inc., Western Asset's parent
company.
/(5)/Each officer shall hold office until his or her respective successor is
chosen and qualified, or in each case until he or she sooner dies, resigns,
is removed with or without cause or becomes disqualified.
/(6)/Officers of the Fund are interested persons (as defined in the 1940 Act).
24
Item 2 - Code of Ethics
Did the registrant adopt a code of ethics, as of the end of the period covered
by this report, which applies to the registrant's principal executive officer,
principal financial officer, principle accounting officer or controller, or
persons performing similar functions, regardless of whether these individuals
are employed by the registrant or a third party? If not, why not? Briefly
describe any amendments or waivers that occurred during the period. State if the
code of ethics, including amendments and waivers are on a website and provide
the website address. State if the registrant will send a copy of the code of
ethics to shareholders at no charge upon request.
THE REGISTRANT, WESTERN ASSET/CLAYMORE U.S. TREASURY INFLATION PROTECTED
SECURITIES FUND, HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO THE FUND
PRESIDENT AND TREASURER, A COPY OF WHICH IS ATTACHED AS AN EXHIBIT TO THIS
FORM N-CSR.
Item 3 - Audit Committee Financial Expert
Did the registrant's board of directors determine that the registrant either:
(a) has at least one audit committee financial expert serving on its audit
committee; or (b) does not have an audit committee financial expert serving on
its audit committee? If yes, disclose the name of the financial expert and
whether he/she is "independent." If no, explain why not.
THE TRUSTEES OF WESTERN ASSET/CLAYMORE U.S. TREASURY INFLATION PROTECTED
SECURITIES FUND DETERMINED THAT THE FUND HAS AT LEAST ONE AUDIT COMMITTEE
FINANCIAL EXPERT SERVING ON ITS AUDIT COMMITTEE.
MR. RONALD E. TOUPIN, JR. IS THE AUDIT COMMITTEE FINANCIAL EXPERT. HE IS
"INDEPENDENT."
Item 4 - Principal Accounting Fees and Services
(a) Audit Fees - Disclose the aggregate fees billed for each of the last two
fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements
or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for those fiscal
years.
FY 02 - $0
FY 03 - $59,000
(b) Audit-Related Fees - Disclose the aggregate fees billed in each of the
last two fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of
the registrant's financial statements and are not reported under paragraph
(a) of this Item. Describe the nature of the services comprising the fees
disclosed under this category.
FY 02 - $0
FY 03 - $14,000
REVIEW OF THE RATING AGENCY COMPLIANCE TESTING FOR THE REGISTRANT'S
AUCTION MARKET PREFERRED SHARES OUTSTANDING.
(c) Tax Fees - Disclose the aggregate fees billed in each of the last two
fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning. Describe the
nature of the services comprising the fees disclosed under this category.
FY 02 - $0
FY 03 - $4,200
SERVICES INCLUDE PREPARATION OF FEDERAL AND STATE INCOME TAX RETURNS,
REVIEW OF EXCISE TAX DISTRIBUTION REQUIREMENTS AND PREPARATION OF EXCISE
TAX RETURNS.
(d) All Other Fees - Disclose the aggregate fees billed in each of the last
two fiscal years for products or services provided by the principal
accountant, other than the services reporting in paragraphs (a) through
(c) of this Item. Describe the nature of the services comprising the fees
disclosed under this category.
NOT APPLICABLE.
(e) (1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
THE AUDIT COMMITTEE'S ONLY POLICY IS DELEGATION TO ITS CHAIRPERSON OF THE
AUTHORITY TO PRE-APPROVE ITEMS THAT REQUIRE A DECISION PRIOR TO THE NEXT
MEETING OF THE COMMITTEE.
(2) Disclose the percentage of services described in each of paragraphs
(a) through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
NONE.
(f) If greater than 50%, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial
statements for the most recent fiscal year that were attributed to work
performed by persons other than the principal accountant's full-time,
permanent employees.
NOT APPLICABLE.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant for each of the last two fiscal years of the registrant.
FY 02 - $542,653
FY 03 - $883,350
(h) Disclose whether the registrant's audit committee of the board of
directors has considered whether the provision of non-audit services that
were rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant that were not
pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
THE MEMBERS OF THE AUDIT COMMITTEE OF WESTERN ASSET/CLAYMORE U.S. TREASURY
INFLATION PROTECTED FUND HAVE CONSIDERED WHETHER THE NON-AUDIT SERVICES
THAT WERE RENDERED BY THE FUND'S PRINCIPAL ACCOUNTANT TO THE ENTITIES
SPECIFIED IN THIS ITEM AND THAT WERE NOT PRE-APPROVED BY THE AUDIT
COMMITTEE ARE COMPATIBLE WITH MAINTAINING THE PRINCIPAL ACCOUNTANT'S
INDEPENDENCE.
Item 5 - Reserved
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures
For closed-end management investment companies, describe the policies and
procedures that it uses to determine how to vote proxies relating to portfolio
securities, including the procedures that the company uses when a vote presents
a conflict between the interests of its shareholders, and those of the company's
investment adviser; principal underwriter; or any affiliated person of the
company, its investment adviser, or its principal underwriter.
A COPY OF THE PROXY VOTING POLICIES AND PROCEDURES IS ATTACHED AS AN
EXHIBIT TO THIS FORM N-CSR.
Item 8 - Reserved
Item 9 - Controls and Procedures
(a) Disclose the conclusions of the registrant's principal executive officer
or officers and principal financial officer or officers, or persons
performing similar functions, regarding the effectiveness of the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Act (17 CFR 270.30a-3(c))) as of a date within 90 days
of the filing date of the report that includes the disclosure required by
this paragraph, based on the evaluation of these controls and procedures
required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and Rules
13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240-13a-15(b) or
240.15d-15(b)).
WITHIN 90 DAYS OF THE FILING DATE OF THIS FORM N-CSR, THE REGISTRANT'S
PRESIDENT AND TREASURER REVIEWED THE REGISTRANT'S DISCLOSURE CONTROLS AND
PROCEDURES ("THE PROCEDURES") AND EVALUATED THEIR EFFECTIVENESS. BASED ON
THEIR REVIEW, SUCH OFFICERS DETERMINED THAT THE PROCEDURES ENSURE THAT
INFORMATION REQUIRED TO BE DISCLOSED BY THE REGISTRANT ON FORM N-CSR IS
RECORDED, PROCESSED, SUMMARIZED AND REPORTED WITHIN THE TIME PERIODS
REQUIRED BY THE SECURITIES AND EXCHANGE COMMISSION'S RULES AND
REGULATIONS.
(b) Disclose any change in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))
that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
THERE WERE NO CHANGES IN THE REGISTRANT'S INTERNAL CONTROL OVER FINANCIAL
REPORTING DURING THE REGISTRANT'S LAST HALF-YEAR THAT HAVE MATERIALLY
AFFECTED, OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, THE INTERNAL
CONTROL OVER FINANCIAL REPORTING.
Item 10 - Exhibits
(a) File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item requirements through filing of an exhibit.
(ATTACHED)
(a)(2) A separate certification for each principal execute officer and
principal financial officer of the registrant as required by Rule
30a-2(a) under the Act (17 CFR 270.30a-2(a)), exactly as set forth
bolow:
(ATTACHED)
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C.
78r), or other wise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Exchange Act, except to the
extent that the registrant specifically incorporates it by reference.
(ATTACHED)
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, thereunto duly authorized.
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
By: /s/ Randolph L. Kohn
--------------------
Randolph L. Kohn
President
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
Date: 2/20/04
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/ Randolph L. Kohn
--------------------
Randolph L. Kohn
President
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
Date: 2/20/04
By: /s/ Marie K. Karpinski
----------------------
Marie K. Karpinski
Treasurer and Principal Financial Accounting Officer
Western Asset/Claymore U.S. Treasury Inflation Protected Securities Fund
Date: 2/20/04