Investment Approach

Investment Objectives

The Trust's investment objectives are to:

1. provide Unitholders with tax efficient monthly cash distributions that will be linked to the rate of inflation and

2. preserve and enhance the net asset value of the Fund.

Investment Strategy

Western Asset is a dedicated fixed income manager and one of the largest real return asset managers in the world. Western Asset’s inflation-linked portfolio investment style is value-oriented and emphasizes the use of multiple strategies, primarily duration management, yield curve positioning and issue selection. The most important factors in Western Asset’s management of real return bond portfolios are: (i) the shape of the real interest rate curve; (ii) the current level of real interest rates; (iii) the expected inflation rate implied by nominal treasury yields; (iv) expectations for monetary policy; and (v) the relative volatility and levels of real yields relative to nominal yields. Based on an analysis of these factors Western Asset develops a series of real return strategies which it employs on a global basis. Some of the most important investment strategies are the following:

Duration. Western Asset’s Investment Strategy Group sets a duration target for each of its portfolios based on a comprehensive analysis of domestic and international macroeconomic factors, the general political environment and the mandate for that portfolio. Western Asset believes that interest rates are primarily determined by the level and direction of inflation and that inflation is primarily a monetary phenomenon. Western Asset’s Investment Strategy Group weighs its views against market expectations in determining the appropriate duration for a given portfolio giving consideration to the asset mix, leverage and mandate. Western Asset’s objective is not to attempt to time the market, but rather to identify and stay with long-term trends. Western Asset believes that duration management is their primary tool for risk control.

Term Structure. Western Asset closely monitors shifts in the yield curve in the belief that the relationship between short-, intermediate- and long-maturity securities is essential to constructing a portfolio with a long-term investment horizon. Western Asset’s Investment Strategy Group analyses the shape of the yield curve, along with projections of Federal Reserve policy, market and inflation expectations, and formulates a yield curve strategy to be implemented by its portfolio managers. Western Asset believes its yield curve strategies have been an important source of value added to its portfolio in recent years.

Sector & Subsector Allocation. Western Asset will invest primarily in TIPS. However, should Western Asset determine that certain international inflation-linked issues are liquid enough and have a better risk return profile hedged back into US dollars than TIPS, it would invest in such issues on an opportunistic basis. From a global perspective, Western Asset analyzes the projected economic environment in a wide range of countries to determine how this will affect the market behaviour of the various sectors worldwide. Western Asset will choose securities which it believes will have a strong probability of exceeding US returns.