N-Q 1 d681366dnq.htm WESTERN ASSET PENNSYLVANIA MUNICIPALS FUND Western Asset Pennsylvania Municipals Fund

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-04254

Legg Mason Partners Income Trust

(Exact name of registrant as specified in charter)

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

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

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

Date of fiscal year end: March 31

Date of reporting period: December 31, 2018

 

 

 

 

ITEM 1.

SCHEDULE OF INVESTMENTS.

LEGG MASON PARTNERS INCOME TRUST

WESTERN ASSET PENNSYLVANIA MUNICIPALS FUND

FORM N-Q

DECEMBER 31, 2018

WESTERN ASSET PENNSYLVANIA MUNICIPALS FUND

 

Schedule of investments (unaudited)    December 31, 2018

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT		      VALUE  
MUNICIPAL BONDS - 99.0%           

Education - 11.3%

           

Northampton County, PA, General Purpose

           

Authority College Revenue, Lafayette College, Refunding

      5.000 %      11/1/47      $ 2,000,000      $ 2,237,320  

Pennsylvania State Higher EFA Revenue:

           

Drexel University, Refunding

      5.000 %      5/1/41        3,750,000        4,152,825  

Drexel University, Series A

      5.000 %      5/1/31        590,000        623,406  

La Salle University

      5.000 %      5/1/29        1,500,000        1,565,115  

La Salle University

      5.000 %      5/1/37        1,700,000        1,739,083  

La Salle University

      5.000 %      5/1/42        2,000,000        2,034,680  

Thomas Jefferson University, Refunding

      5.000 %      9/1/45        5,000,000        5,505,300  

Trustees University Pennsylvania, Series A

      5.000 %      2/15/48        1,000,000        1,150,710  

Philadelphia, PA, Authority for IDR Revenue:

           

Discovery Charter School Project

      5.875 %      4/1/32        450,000        452,124  

Performing Arts Charter School Project

      6.000 %      6/15/23        715,000        738,302 (a)  
          

 

 

  

Total Education

              20,198,865  
          

 

 

  

Health Care - 19.0%

           

Allegheny County, PA, Hospital Development Authority Revenue:

           

Health Center-UPMC Health, Series B, NATL

      6.000 %      7/1/24        1,000,000        1,185,980  

Health Center-UPMC Health, Series B, NATL

      6.000 %      7/1/26        2,250,000        2,773,058  

Berks County, PA, IDA, Healthcare Facilities Revenue:

           

Highlands at Wyomissing, Refunding

      5.000 %      5/15/42        500,000        522,205  

Highlands at Wyomissing, Refunding

      5.000 %      5/15/47        600,000        624,516  

Chester County, PA, HEFA Revenue, Jefferson Health System

      5.000 %      5/15/40        1,965,000        2,025,974  

Cumberland County, PA, Municipal Authority Revenue, Diakon Lutheran Ministries Project

      5.000 %      1/1/29        645,000        694,020  

Lancaster County, PA, Hospital Authority Revenue, Refunding, Health Center, Landis Homes Retirement Community Project

      5.000 %      7/1/45        3,000,000        3,073,470  

Monroe County, PA, Hospital Authority Revenue, Pocono Medical Center

      5.000 %      7/1/41        1,000,000        1,096,060  

Montgomery County, PA, IDA, Health Facilities Revenue, Jefferson Health System, Series A

      5.000 %      10/1/41        6,000,000        6,379,560  

Montgomery County, PA, IDA, Retirement Communities Revenue, Acts Retirement-Life Communities

      5.000 %      11/15/24        3,250,000        3,479,157  

 

See Notes to Schedule of Investments.

 

1

WESTERN ASSET PENNSYLVANIA MUNICIPALS FUND

 

Schedule of investments (unaudited) (cont’d)    December 31, 2018

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT		      VALUE  

Health Care - (continued)

           

Pennsylvania State Higher EFA Revenue:

           

University of Pennsylvania Health Systems Revenue, Series A

      5.000 %      8/15/47      $ 3,500,000      $ 3,868,305  

University of Pittsburgh Medical Center, Series E

      5.000 %      5/15/31        8,000,000        8,309,680  
          

 

 

  

Total Health Care

              34,031,985  
          

 

 

  

Industrial Revenue - 1.9%

           

Allegheny County, PA, IDA Revenue, Environmental Improvement, US Steel Corp., Refunding

      6.750 %      11/1/24        2,000,000        2,038,280  

Commonwealth Financing Authority, PA, Tobacco Master Settlement Payment Revenue, Tobacco Master Settlement Payment Bonds

      5.000 %      6/1/35        1,000,000        1,122,770  

Delaware County, PA, IDA Revenue, Resources Recovery Facility, Series A, Refunding

      6.200 %      7/1/19        210,000        210,508  
          

 

 

  

Total Industrial Revenue

              3,371,558  
          

 

 

  

Leasing - 2.6%

           

Delaware Valley, PA, Regional Finance Authority, Local Government Revenue, Series A, AMBAC

      5.500 %      8/1/28        1,000,000        1,208,610  

Philadelphia, PA, Authority for Industrial Development City Service Agreement Revenue

      5.000 %      5/1/37        2,000,000        2,228,480  

State Public School Building Authority, PA, Lease Revenue:

           

Philadelphia School District Project, Refunding, AGM

      5.000 %      6/1/31        250,000        281,598  

Philadelphia School District Project, Refunding, AGM

      5.000 %      6/1/33        750,000        839,782  
          

 

 

  

Total Leasing

              4,558,470  
          

 

 

  

Local General Obligation - 12.5%

           

Dover, PA, Area School District, GO:

           

BAM

      5.000 %      4/1/36        1,000,000        1,125,850  

BAM

      5.000 %      4/1/37        875,000        980,884  

BAM

      5.000 %      4/1/38        1,000,000        1,117,580  

BAM

      5.000 %      4/1/39        575,000        641,424  

Erie County, PA, Convention Center Authority Gtd. Hotel Revenue, County GTD, Refunding

      5.000 %      1/15/36        4,000,000        4,457,160  

Lackawanna County, PA, GO:

           

Series B, AGC

      5.875 %      9/15/30        4,375,000        4,485,906  

Series B, AGC

      6.000 %      9/15/32        2,730,000        2,801,553  

Luzerne County, PA, GO, Series A, Refunding, AGM

      5.000 %      11/15/29        5,000,000        5,656,000  

York County, PA, GO, Refunding

      5.000 %      3/1/36        1,000,000        1,155,660  
          

 

 

  

Total Local General Obligation

              22,422,017  
          

 

 

  

 

See Notes to Schedule of Investments.

 

2

WESTERN ASSET PENNSYLVANIA MUNICIPALS FUND

 

Schedule of investments (unaudited) (cont’d)    December 31, 2018

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT		      VALUE  

Power - 2.3%

           

Philadelphia, PA, Gas Works Revenue:

           

1998 General Ordinance, Refunding

      5.000 %      8/1/31      $ 1,250,000      $ 1,402,162  

1998 General Ordinance, Refunding

      5.000 %      8/1/47        2,500,000        2,742,725  
          

 

 

  

Total Power

              4,144,887  
          

 

 

  

Pre-Refunded/Escrowed to Maturity - 14.2%

           

Delaware River Port Authority of Pennsylvania & New Jersey Revenue, Series D

      5.000 %      1/1/40        4,000,000        4,124,000 (b)  

Pennsylvania State Higher EFA Revenue:

           

Drexel University, Series A

      5.000 %      5/1/31        9,410,000        10,082,062 (b)  

University of Pennsylvania Health Systems, Series A

      5.750 %      8/15/41        2,000,000        2,197,220 (b)  

Pennsylvania State Turnpike Commission Revenue, Subordinated, Series B

      5.250 %      12/1/41        1,520,000        1,664,871 (b)  

Philadelphia, PA, Gas Works Revenue, 1998 General Ordinance, Series B, NATL

      7.000 %      5/15/20        100,000        104,137 (c)  

St. Mary Hospital Authority, PA, Health System Revenue, Catholic Health East, Series A

      5.000 %      11/15/40        3,745,000        3,958,241 (b)  

Washington County, PA, IDA, College Revenue, Washington and Jefferson College

      5.000 %      11/1/36        3,200,000        3,334,976 (b)  
          

 

 

  

Total Pre-Refunded/Escrowed to Maturity

              25,465,507  
          

 

 

  

Special Tax Obligation - 1.6%

           

Pennsylvania State Turnpike Commission Revenue, Subordinated, Series B

      5.000 %      12/1/48        2,000,000        2,215,780  

Virgin Islands Public Finance Authority Revenue:

           

Matching Fund Loan, Cruzan Project, Series A

      6.000 %      10/1/39        385,000        386,790  

Matching Fund Loan, Diageo Project, Series A

      6.625 %      10/1/29        150,000        151,886  

Matching Fund Loan, Diageo Project, Series A

      6.750 %      10/1/37        100,000        101,257  

Matching Fund Loan, Senior Lien, Series A

      5.000 %      10/1/29        70,000        70,855  
          

 

 

  

Total Special Tax Obligation

              2,926,568  
          

 

 

  

Transportation - 15.1%

           

Delaware River Port Authority of Pennsylvania & New Jersey Revenue, Refunding, Port District Project

      5.000 %      1/1/25        2,715,000        2,972,572  

Delaware River Port Authority Revenue, Series A

      5.000 %      1/1/36        3,000,000        3,497,880  

Delaware River, PA, Joint Toll Bridge Commission Revenue, Bridge System Revenue Bonds

      5.000 %      7/1/42        2,000,000        2,253,240  

Pennsylvania State Turnpike Commission Revenue:

           

Refunding, Subordinated, Series B

      5.000 %      6/1/39        2,250,000        2,433,465  

Series A-2

      5.000 %      12/1/43        3,000,000        3,347,400  

Subordinated, Series B

      5.250 %      12/1/41        2,480,000        2,639,365  

 

See Notes to Schedule of Investments.

 

3

WESTERN ASSET PENNSYLVANIA MUNICIPALS FUND

 

Schedule of investments (unaudited) (cont’d)    December 31, 2018

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT		      VALUE  

Transportation - (continued)

           

Philadelphia, PA, Airport Revenue:

           

Series A, Refunding

      5.000 %      6/15/35      $ 3,300,000      $ 3,635,577 (d)  

Series B, Refunding

      5.000 %      7/1/42        3,000,000        3,302,730 (d)  

Pittsburgh & Allegheny County, PA, Sports & Exhibition Authority:

           

Parking System Revenue

      5.000 %      12/15/33        615,000        694,421  

Parking System Revenue

      5.000 %      12/15/34        1,000,000        1,124,200  

Parking System Revenue

      5.000 %      12/15/36        1,000,000        1,116,020  
          

 

 

  

Total Transportation

              27,016,870  
          

 

 

  

Water & Sewer - 18.5%

           

Capital Region Water, PA, Water Revenue, Series A, BAM, Refunding

      5.000 %      7/15/29        250,000        287,853  

Delaware County, PA, Regional Water Quality Control Authority Revenue

      5.000 %      11/1/46        5,000,000        5,611,250  

Erie, PA, Water Authority Revenue, Refunding

      5.000 %      12/1/43        2,250,000        2,491,223  

Pennsylvania Economic Development Financing Authority, Water Facility Revenue, American Water Co. Project

      6.200 %      4/1/39        9,000,000        9,088,110  

Philadelphia, PA, Water & Wastewater Revenue:

           

Series A

      5.000 %      10/1/43        3,335,000        3,756,577  

Series A

      5.000 %      7/1/45        2,000,000        2,183,220  

Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue, Senior Lien, Series A

      5.250 %      7/1/42        310,000        285,975  

Westmoreland County, PA, Municipal Authority Revenue:

           

Capital Appreciation, Series B, AGM

      0.000 %      8/15/30        8,830,000        6,078,660  

Refunding, BAM

      5.000 %      8/15/42        3,000,000        3,293,340  
          

 

 

  

Total Water & Sewer

              33,076,208  
          

 

 

  

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS

(Cost - $172,790,510)

              177,212,935  
          

 

 

  
SHORT-TERM INVESTMENTS - 0.1%           
MUNICIPAL BONDS - 0.1%           

Education - 0.1%

           

University of Texas System Revenue, Financing System Bonds, Taxable Series G-1 (Cost - $200,000)

      2.320 %      8/1/45        200,000        200,000 (e)(f)  
          

 

 

  

TOTAL INVESTMENTS - 99.1%

(Cost - $172,990,510)

              177,412,935  

Other Assets in Excess of Liabilities - 0.9%

              1,588,367  
          

 

 

  

TOTAL NET ASSETS - 100.0%

            $ 179,001,302  
          

 

 

  

 

See Notes to Schedule of Investments.

 

4

WESTERN ASSET PENNSYLVANIA MUNICIPALS FUND

 

Schedule of investments (unaudited) (cont’d)    December 31, 2018

 

 

(a)

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

 

(b)

Pre-Refunded bonds are escrowed with U.S. government obligations and/or U.S. government agency securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings.

 

(c)

Bonds are escrowed to maturity by government securities and/or U.S. government agency securities and are considered by the manager to be triple-A rated even if issuer has not applied for new ratings.

 

(d)

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

 

(e)

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

 

(f)

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

Abbreviations used in this schedule:

AGC    — Assured Guaranty Corporation - Insured Bonds
AGM    — Assured Guaranty Municipal Corporation - Insured Bonds
AMBAC    — American Municipal Bond Assurance Corporation - Insured Bonds
BAM    — Build America Mutual - Insured Bonds
EFA    — Educational Facilities Authority
GO    — General Obligation
GTD    — Guaranteed
HEFA    — Health & Educational Facilities Authority
IDA    — Industrial Development Authority
IDR    — Industrial Development Revenue
NATL    — National Public Finance Guarantee Corporation - Insured Bonds
UPMC    — University of Pittsburgh Medical Center

This Schedule of Investments is unaudited and is intended to provide information about the Fund’s investments as of the date of the schedule. Other information regarding the Fund is available in the Fund’s most recent annual or semi-annual shareholder report.

 

See Notes to Schedule of Investments.

 

5

Notes to Schedule of Investments (unaudited)

 

1. Organization and significant accounting policies

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

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

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

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

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and

 

6

Notes to Schedule of Investments (unaudited) (continued)

 

circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

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

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

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

 

  •  

Level 1 – quoted prices in active markets for identical investments

 

  •  

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

 

  •  

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

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

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

 

ASSETS

  

DESCRIPTION

    QUOTED PRICES
(LEVEL 1)		      OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)		      SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)		      TOTAL  

Municipal Bonds†

      —        $ 177,212,935        —        $ 177,212,935  

Short-Term Investments†

      —          200,000        —          200,000  
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Investments

      —        $ 177,412,935        —        $ 177,412,935  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

†

See Schedule of Investments for additional detailed categorizations.

 

7

 

ITEM 2.

CONTROLS AND PROCEDURES.

 

  (a)

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

 

  (b)

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

 

ITEM 3.

EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.

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.

Legg Mason Partners Income Trust

 

By   /s/    JANE TRUST        
  Jane Trust
  Chief Executive Officer

Date:

  

February 25, 2019

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

 

By   /s/    JANE TRUST        
  Jane Trust
  Chief Executive Officer

Date:

  

February 25, 2019

By   /s/    RICHARD F. SENNETT        
  Richard F. Sennett
  Principal Financial Officer

Date:

  

February 25, 2019