Product Commentary: WIA - Western Asset Inflation-Linked Income Fund

2Q 2022

Product Commentary

WIA-WESTERNASSETINFLATION-LINKEDINCOMEFUND

Team-managed

Average annual total returns (%)

(%)as of June 30, 2022Average annual total returns and fund expenses

							Since
							Incept.
	3-mo	YTD	1-yr	3-yr	5-yr10-yr	(9/26/03)
NAV	-10.03	-15.06	-11.94	1.68	3.22	1.71	3.30
Market Price	-13.71	-21.93	-19.20	2.12	3.38	1.91	2.73
Bloomberg U.S.
Govt Inflation-	-3.44	-5.21	-2.09	3.39	3.26	1.76	3.50
Linked 1-10 Yrs
Bloomberg U.S.
Govt Inflation-	-6.57	-9.66	-5.73	2.97	3.21	1.74	3.98
Linked All

Maturities

Performance shown represents past performance and is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate, so shares, when sold, may be worth more or less than the original cost. Returns are based on Market Price or NAV and assume the reinvestment of all distributions at the Dividend Reinvestment Plan Price or NAV, respectively. All returns include the deduction of management fees, operating expenses and all other Fund expenses and do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares. Performance data of less than one year are cumulative figures and are not annualized. For current month-endperformance, visitwww.ftcef.com.

Executive summary

• Both two- and 10-year Treasury yields moved sharply higher over the second quarter.
• The Federal Reserve ("Fed") raised interest rates twice during the second quarter and is expected to continue aggressively raising rates given elevated inflation.
• The overall taxable bond market, as measured by the Bloomberg U.S. Aggregate Index, returned -4.69% during the second quarter of 2022.
• U.S. Treasury Inflation-Protected Securities (TIPS), as measured by the Bloomberg U.S. TIPS Index, returned - 6.08% during the second quarter.

• Western Asset feels the key to an improved tone and more stability in fixed-income markets is a moderation in inflation.

Market recap

The overall U.S. bond market continued its downward trajectory during the second quarter. While there were no shortage of headwinds facing the market, inflation took center stage. The Federal Reserve Board ("Fed") initially characterized inflation as being "transitory." However, inflation has remained elevated and persistent, with the Consumer Price Index reaching a 40-year high in May. This has caused the Fed to quickly pivot and raise interest rates in an accelerated manner in its battle to rein in rising prices. In addition to sharply higher yields, the bond market was impacted by the repercussions from the war in Ukraine, higher energy prices, supply chain bottlenecks, and nascent recessionary fears. All told, the Bloomberg U.S. Aggregative Index posted its worst mid-year return on record.

Looking at the U.S. economy, first quarter 2022 gross domestic product (GDP) was -1.6% annualized, versus a 6.9% expansion in the previous quarter. The economy's contraction was driven by "decreases in exports, federal government spending, private inventory investment, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased." The initial estimate for second quarter 2022 GDP will be released on July 28.

Unemployment in the U.S. remained low. The unemployment rate held steady at 3.6% throughout the second quarter. Meanwhile, the workforce participation rate began and ended the quarter at 62.2%.

The manufacturing sector continued to expand, albeit at a slower pace during the second quarter. According to the Institute for Supply Management's Purchasing Managers Index (PMI), the manufacturing sector had a reading of 55.4 in April and 56.1 in May. It was then 53.0 in June, the lowest reading in two years. (A reading below 50 indicates a contraction, while a

reading above 50 indicates an expansion.) 15 of the 18 industries measured by the PMI expanded in June.

The Fed met twice during the second quarter and raised interest rates on both occasions. In May, the Fed raised the federal funds rate 0.50% (50 basis points) to a range between 0.75% and 1.00%. With inflation continuing to surprise to the upside, the Fed then raised rates 75 basis points at its meeting in mid- June, the largest such increase since 1994. Later in the month, Fed Chair Jerome Powell said "It's not our intended outcome at all, but it's [a recession] certainly a possibility…We are not trying to provoke and do not think we will need to provoke a recession, but we do think it's absolutely essential" to bring down inflation.

Both short-andlong-term Treasury yield moved sharply higher during the quarter. Two-year yields began the period at 2.28%- their low for the quarter-and ended at 2.92%. Their peak of 3.45% occurred on June 14. Ten-year yields began the quarter at 2.32%-also their low for the period-and ended at 2.98%. Their peak of 3.49% took place on June 14.

The overall taxable bond market, as measured by the Bloomberg U.S. Aggregate Index (the "Index"), returned -4.69% during the second quarter. Treasury Inflation-Protected Securities ("TIPS"), as measured by the Bloomberg U.S. TIPS Index, returned -6.08% during the quarter.

Fund overview

The Fund generated a negative total return during the quarter and underperformed its benchmark. The Fund's tactical duration positioning detracted from results, as duration was increased as real yields rose over the quarter. The Fund's commodity exposures were a headwind for returns as the price of certain commodities, namely copper and gold, moved lower. Other exposures within corporate credit, emerging markets and, to a lesser extent, structured products also detracted from performance as spreads widened. In terms of contributors, the Fund's yield curve positioning was additive for results as the real yield curve flattened. Nominal fixed income securities held in the Fund contributed to returns as breakeven inflation rates, a measure of inflation expectations, decreased over the quarter.

Outlook

The key to an improved tone and more stability in fixed-income markets is a moderation in inflation. Our base case is that the supply chains will slowly begin to normalize. This trend, combined with the Fed and other major central banks around the world tightening monetary policy, along with negative real

incomes slowing consumption, should see inflation moderate. In the U.S., there are signs that the housing market is beginning to slow as higher mortgage rates begin to bite. Anecdotal evidence from companies indicate inventories are normalizing and demand is softening. In Europe, higher energy costs and inflation are hampering consumption and negatively impacting business confidence. We anticipate inflationary pressures will peak in the third quarter and decline into 2023. While global central banks are expected to continue raising interest rates in the short term, we believe more aggressive action is already anticipated by the markets. Fundamental headwinds to global growth and inflation remain. These include the reduction of global fiscal stimulus, the withdrawal of monetary policy accommodation and the persistence of secular-related headwinds, such as global debt burdens, aging demographics and technology displacement. As growth and inflation moderate and the risks surrounding central bank policy become more balanced, so too should the market environment for fixed- income investors. Not only may the rise in government yields abate, but lower volatility could also lead investors to reengage in fixed-income spread sectors, especially given current valuations.

Yields and dividends represent past performance, they can fluctuate, and there is no guarantee they will continue to be paid. Past performance is no guarantee of future results.

Past performance is no guarantee of future results. Opinions shared in this commentary are current as of July 21, 2022 and are subject to change based on markets and other conditions. These opinions do not constitute, and should not be construed as, investment advice or recommendations. The opinions expressed are those of the portfolio managers indicated and may differ from the views of other managers or the firm as a whole. And they are not intended to be a forecast of future events or a guarantee of future results. Discussions of individual securities are intended to inform shareholders as to the basis (in whole or in part) for previously made decisions by a portfolio manager to buy, sell or hold a security in a portfolio. References to specific securities are not intended, and should not be relied upon, as the basis for anyone to buy, sell or hold any security. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional. Forecasts are inherently limited and should not be relied upon as an indication of actual or future performance.

The closed-end funds are not sold or distributed by Franklin Distributors, LLC or any affiliate of Franklin Resources, Inc. Unlike open-endfunds, shares are not continually offered. Like other public companies, closed-endfunds have a one-timeinitial public offering, and once their shares are first issued, they are generally bought and sold through non-affiliatedbroker/dealers and trade on nationally recognized stock exchanges. Share prices will fluctuate with market conditions and, at the time of sale, may be worth more or less than your original investment. Shares of exchange-traded closed-endfunds may trade at a discount or premium to their original offering price, and they often trade at a discount to their net asset value. Net asset value (NAV) is total

assets less total liabilities divided by the number of shares outstanding. Market price, which is determined by supply and demand, is the price at which an investor purchases or sells a fund. Investment return, market price and net asset value will fluctuate with changes in market conditions. The funds are subject to investment risks, including the possible loss of principal invested.

Any performance discussed is past performance, and past performance is no guarantee of future results. Unless otherwise stated, all yields and returns discussed are those of indexes or asset classes and are not those of the funds. For more information about any of our closed-end funds, including long-term performance, risks, expenses and fund objectives, please visit www.lmcef.com.

Glossary

Spread refers to the difference between Treasury securities and non-Treasury securities of similar maturity but different credit quality.

Duration is a measurement that signals how much the price of a bond is likely to

fluctuate when there is a change in interest rates. The higher the duration number, the more sensitive a bond will be to interest rate changes.

Gross domestic product (GDP) is an economic statistic that measures the market value of all final goods and services produced within a country in a given period of time.

U.S. Treasuries are direct debt obligations issued by the U.S. government and backed by its "full faith and credit." The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity.

The Bloomberg U.S. Government Inflation-Linked1-10 Year Index measures the performance of the intermediate U.S. TIPS market. Source: Bloomberg Indices.

The Bloomberg U.S. Government Inflation-Linked All Maturities Index measures the performance of the U.S. TIPS market. The Index includes TIPS with one or more years remaining maturity with total outstanding issue size of $500 million or more.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

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			What should I know before investing?
			All investments are subject to risk, including possible loss of principal. Fixed income
			securities involve interest rate, credit, inflation and reinvestment risks, and possible loss
			of principal. As interest rates rise, the value of fixed income securities falls. High-yield
			bonds are subject to greater price volatility, illiquidity and possibility of default. The
			Fund is subject to the additional risks associated with inflation-linked securities,
			including liquidity risk, prepayment risk, extension risk and deflation risk. International
			investments are subject to special risks, including currency fluctuations and social,
			economic and political uncertainties, which could increase volatility. These risks are
			magnified in emerging markets. Currency transactions are subject to price volatility,
			liquidity and counterparty risk. Derivatives, such as options and futures, can be illiquid,
			may disproportionately increase losses, and have a potentially large impact on Fund
			performance. To the extent that the Fund invests in commodity-linked derivatives,
			these investments are subject to additional risks, such as commodity index volatility,
			investor speculation, interest rates or factors such as drought, floods, weather, livestock
			disease, and political and regulatory developments. To the extent that the Fund invests
			in asset-backed,mortgage-backed or mortgage-related securities, these investments
			are subject to additional risks, such as prepayment and extension risks. Leverage may
			result in greater volatility of NAV and the market price of common shares and increases
			a shareholder's risk of loss.
			Diversification does not guarantee a profit or protect against market loss.

Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, a forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional. The information provided is intended solely to describe the managers' management style, investment strategies and securities selection process, and it does not have regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive it.

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