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

3Q 2023

Product Commentary

WIA-WESTERNASSETINFLATION-LINKEDINCOMEFUND

Team-managed

AverageSeptemberannual total returns (%)

expensesas of (%) 30, 2023Average annual total returns and fund

							Since
							Incept.
	3-mo	YTD	1-yr	3-yr	5-yr	10-yr	(9/26/03)
NAV	-3.46	-0.83	3.07	-3.08	1.15	1.47	2.77
Market Price	-2.34	-0.75	-0.60	-2.71	1.33	2.06	2.26
Bloomberg U.S.
Govt Inflation-	-0.90	0.60	2.25	0.02	2.70	1.81	3.19
Linked 1-10 Yrs
Bloomberg U.S.
Govt Inflation-	-2.80	-0.87	1.24	-2.27	2.08	1.79	3.51
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, visitftcef.com.

Executive summary

• Both two- and 10-year Treasury yields rose over the third quarter of 2023.
• The Federal Reserve ("Fed") raised interest rates in July and then paused from raising rates at its meeting in September.
• The overall taxable bond market, as measured by the Bloomberg U.S. Aggregate Index, returned -3.23% during the third quarter.

• U.S. Treasury Inflation-Protected Securities (TIPS), as measured by the Bloomberg U.S. TIPS Index, also declined during the third quarter.
• In line with Western Asset's expectations, global growth has downshifted and inflation rates worldwide are generally receding.
• Major central banks are advocating for a prolonged period of restrictive monetary policy and this is expected to further dampen economic growth and inflation.

Market recap

The overall U.S. bond market experienced a setback during the third quarter, erasing its gain from the first half of the year. The market's initial ascent was driven by expectations for moderating inflation, less Federal Reserve ("Fed") rate hikes, and hopes for a soft economic landing. While inflation declined and the economy continued to expand, the Fed was steadfast in its resolve to fight inflation. A confluence of additional factors put further upward pressure on yields: Fitch's downgrade of long- term U.S. debt to AA+, a higher-than-expected U.S. Treasury issuance announcement, as well as a surge in energy prices that stoked inflation concerns. For the third quarter, both short- and long-term Treasury yields moved higher and their prices declined (bond yields and prices tend to move in the opposite direction). All told, the overall U.S. bond market, as measured by the Bloomberg U.S. Aggregate Index, fell 3.23% during the third quarter, bringing its year-to-date return to -1.21%.

The Fed hiked interest rates 0.25% (25 basis points) at its meeting in July-the eleventh increase since it first started raising rates in March 2022. This pushed the federal funds rate to 5.25%-5.50%-a22-year high. As expected, the Fed then paused from raising rates in September. However, the updated Summary of Economic Projections in September showed Fed officials anticipate less easing over the next two years compared to its projections from June. Given this, long-term U.S. Treasury

yields rose sharply in September, as the market priced in a "higher for longer" rate environment.

Despite the headwinds from higher interest rates, the U.S. economy was resilient and continued to expand. Second quarter 2023 annualized gross domestic product (GDP) growth was 2.1%, versus a revised 2.2% during the previous quarter. According to the Bureau of Economic Analysis, the economy's expansion was driven by "increases in nonresidential fixed investment, consumer spending, and state and local government spending that were partly offset by a decrease in exports. Imports decreased." The initial estimate for third quarter GDP will be released on October 26.

The U.S. unemployment rate fell from 3.6% in June to 3.5% in July, and then rose to 3.8% in August, the latter being the highest since February 2022. However, unemployment remained low from a historical perspective. In September, the unemployment rate was unchanged at 3.8%. Meanwhile, the workplace participation rate, which started the quarter at 62.6 was 62.8 in September.

Elsewhere, the manufacturing sector continued to contract, albeit to a lesser extent. According to the Institute for Supply Management's Purchasing Managers Index (PMI), the manufacturing sector had a reading of 46.4 in July. (A reading below 50 indicates a contraction, while a reading above 50 indicates an expansion.) The PMI was then 47.6 in August and

49.0 in September, the latter being the strongest reading since November 2022. Five of 16 industries measured by the PMI expanded in September.

Both short- and long-term Treasury yields rose during the quarter and the yield curve remained inverted. Two-year yields began the period at 4.87% and ended at 5.03%. Their low of 4.59% was on July 13 and their peak of 5.12% occurred on September 20 and 21. Ten-year yields began the period at 3.81% and ended at 4.59%. Their low of 3.75% was on July 19 and their peak of 4.61% occurred on September 27.

As mentioned, the Bloomberg U.S. Aggregate Index (the "Index") returned -3.23% during the third quarter. Treasury Inflation-Protected Securities ("TIPS"), as measured by the Bloomberg U.S. TIPS Index, returned -2.60% during the quarter. For the twelve months ended September 30, 2023 the seasonally unadjusted rate of inflation, as measured by the

1 The Consumer Price Index for All Urban Consumers ("CPI-U") is a measure of the average change in prices over time of goods and services purchased by households, which covers approximately 87% of the total population and includes, in addition to wage earners and clerical worker households, groups such as professional, managerial

Consumer Price Index for All Urban Consumers ("CPI-U")1, was 3.7%. The CPI-U less food and energy was 4.1% over the same time frame.

Fund overview

The Fund generated a negative total return but outperformed its benchmark during the third quarter on a net asset value (NAV) basis. Interest rate positioning detracted from performance, mainly due to an overweight duration as real yields ended the quarter higher. Tactical real yield curve positioning provided a partial offset as the real yield curve steepened. Emerging markets exposures also detracted from performance mainly due to select local rates and foreign exchange (FX) positions as the U.S. dollar appreciated during the quarter.

The largest contribution came from the Fund's commodity exposures, mainly due to price of oil, which surged during over the quarter. Spread sector positioning also contributed to performance, due to favorable subsector and issue selection within structured products and corporate credit as spreads were mixed. Nominal fixed income securities held in the portfolio slightly contributed despite an increase in breakeven inflation expectations.

Outlook

As we anticipated, global growth has downshifted and inflation rates worldwide are generally receding. Tightening financial conditions in the U.S. and Europe, weaker demand for manufacturing and services across a number of countries, and deflationary pressures in China are easing price pressures globally. These trends, coupled with the major central banks advocating for a prolonged period of restrictive monetary policy, are expected to further dampen economic growth and inflation which, in turn, should lead to lower developed market government bond yields and a modestly weaker U.S. dollar. That stated, concerns over a "higher-for-longer" rate environment, driven by factors such as stronger-than-expected growth in the U.S., increased U.S. Treasury supply to cover a growing fiscal deficit and inflation remaining above respective central bank targets, may lead to periods of heightened market volatility. Spread sectors such as emerging markets, high-yield, bank loans and select areas of the mortgage-backed security

and technical workers, the self-employed,short-term workers, the unemployed and retirees and others not in the labor force.

space offer attractive yield, but we acknowledge their vulnerability to unanticipated shifts in macro-related sentiment, geopolitical developments, and the ongoing risk of central bank overtightening.

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 10/13/2023 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, LLCor

any affiliate of Franklin Resources, Inc. Unlike open-endfunds, shares are not continually offered. Like other public companies, closed-endfunds have a onetime initial 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

1. 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 ftcef.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 involve risks, 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-incomesecurities 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 fund invests in commodity-linkedderivatives, 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, political and regulatory developments. To the extent that 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.

Franklin Distributors, LLC and Western Asset Management Company, LLC are Franklin Templeton affiliated companies.

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90296 QCPLT 09/23