ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
November 30, 2012
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Annual Report
Western Asset Investment Grade Defined Opportunity Trust Inc.
(IGI)
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INVESTMENT PRODUCTS: NOT FDIC INSURED
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NO BANK GUARANTEE
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MAY LOSE VALUE
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II
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Western Asset Investment Grade Defined Opportunity Trust Inc.
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Fund objectives
The Funds primary investment objective is to provide current income and then to liquidate and distribute substantially all of the Funds net assets to stockholders on or about December 2, 2024. As a secondary investment objective, the Fund will seek capital appreciation. There can be no assurance the Fund will achieve its investment objectives.
Whats inside
Letter from the chairman
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II
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Investment commentary
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III
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Fund overview
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1
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Fund at a glance
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6
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Spread duration
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7
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Effective duration
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8
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Schedule of investments
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9
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Statement of assets and liabilities
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20
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Statement of operations
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21
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Statements of changes in net assets
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22
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Financial highlights
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23
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Notes to financial statements
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24
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Report of independent registered public accounting firm
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39
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Board approval of management and subadvisory agreements
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41
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Additional information
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48
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Annual chief executive officer and principal financial officer certifications
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54
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Other shareholder communications regarding accounting matters
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55
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Dividend reinvestment plan
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56
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Important tax information
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58
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Letter from the chairman
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Dear Shareholder,
We are pleased to provide the annual report of Western Asset Investment Grade Defined Opportunity Trust Inc. for the twelve-month reporting period ended November 30, 2012. Please read on for a detailed look at prevailing economic and market conditions during the Funds reporting period and to learn how those conditions have affected Fund performance.
Recent regulations adopted by the Commodity Futures Trading Commission (the CFTC) require operators of registered investment companies, including closed-end funds, to register as commodity pool operators unless the fund limits its investments in commodity interests. Effective December 31, 2012, your Funds manager has claimed the exclusion from the definition of commodity pool operator. More information about the CFTC rules and their effect on the Fund is included later in this report on page 40.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.lmcef.com. Here you can gain immediate access to market and investment information, including:
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Fund prices and performance,
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Market insights and commentaries from our portfolio managers, and
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A host of educational resources.
We look forward to helping you meet your financial goals.
Sincerely,
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R. Jay Gerken, CFA
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Chairman, President and Chief Executive Officer
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December 28, 2012
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Western Asset Investment Grade Defined Opportunity Trust Inc.
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III
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Investment commentary
Economic review
While the U.S. economy continued to grow over the twelve months ended November 30, 2012, it did so at an uneven pace. U.S. gross domestic product (GDP)
i
growth, as reported by the U.S. Department of Commerce, was 4.1% in the fourth quarter of 2011. Economic growth in the U.S. then decelerated, as first quarter 2012 GDP growth was 2.0%. This was primarily due to less robust private inventory and non-residential fixed investments. The economy slowed further in the second quarter, as GDP growth was a tepid 1.3%. GDP growth then moved to 3.1% in the third quarter. The increase was partially due to increased private inventory and investment, higher federal government spending and a deceleration in imports.
The U.S. job market remained weak. While there was some improvement during the reporting period, unemployment remained elevated. When the reporting period began, unemployment, as reported by the U.S. Department of Labor, was 8.5%. Unemployment then generally declined and was 8.1% in April 2012, the lowest rate since January 2009, but still high by historical standards. The unemployment rate then rose to 8.3% in July, before falling to 7.8% in September and ending the reporting period at 7.7% in November. However, the number of longer-term unemployed remained high, as roughly 40% of the 12 million people without a job have been out of work for more than six months.
Meanwhile, the housing market brightened, as sales have started to improve of late and home prices continued to rebound. According to the National Association of Realtors (NAR), existing-home sales rose 5.9% on a seasonally adjusted basis in November 2012 versus the previous month and they were 14.5% higher than in November 2011. In addition, the NAR reported that the median existing-home price for all housing types was $180,600 in November 2012, up 10.1% from November 2011. This marked the ninth consecutive month that home prices rose compared to the same period a year earlier. Furthermore, the inventory of homes available for sale fell 3.8% in November, which represents a 4.8 month supply at the current sales pace. This represents the lowest inventory since September 2005.
The manufacturing sector appeared to overcome a soft patch that occurred in the summer of 2012 as it improved toward the end of the reporting period, only to experience another setback in November 2012. Based on the Institute for Supply Managements PMI (PMI)
ii
, after expanding 34 consecutive months, the PMI fell to 49.7 in June 2012, which represented the first contraction in the manufacturing sector since July 2009 (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). Manufacturing continued to contract in July and August before ticking up to 51.5 in September and 51.7 in October. However, the PMI fell back to contraction territory with a reading of 49.5 in November, its lowest level since July 2009.
The Federal Reserve Board (Fed)
iii
took a number of actions as it sought to meet its dual mandate of fostering maximum employment and price stability. As has been the case since December 2008, the Fed kept the federal funds rate
iv
at a historically low range between zero and 0.25%. In September 2011, prior to the beginning of the reporting period, the Fed announced its intention to purchase
IV
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Western Asset Investment Grade Defined Opportunity Trust Inc.
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Investment commentary (contd)
$400 billion of longer-term Treasury securities and to sell an equal amount of shorter-term Treasury securities by June 2012 (often referred to as Operation Twist). In January 2012, the Fed extended the period it expects to keep rates on hold until at least through late 2014. Operation Twist was then extended in June 2012 until the end of the year. In September the Fed announced a third round of quantitative easing, which involves purchasing $40 billion each month of agency mortgage-backed securities (MBS) on an open-end basis. In addition, the Fed said that Operation Twist would continue and that it will keep the federal funds rate on hold until at least mid-2015. Finally, at its meeting in December, after the reporting period ended, the Fed announced that it would continue purchasing $40 billion per month of agency MBS, as well as initially purchasing $45 billion a month of longer-term Treasuries. The Fed also said that it would keep the federal funds rate on hold ...as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committees 2.0% longer-run goal, and longer-term inflation expectations continue to be well anchored.
As always, thank you for your confidence in our stewardship of your assets.
Sincerely,
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R. Jay Gerken, CFA
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Chairman, President and Chief Executive Officer
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December 28, 2012
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All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results.
i
Gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time.
ii
The Institute for Supply Managements PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the manufacturing sector.
iii
The Federal Reserve Board (Fed) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.
iv
The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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1
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Fund overview
Q. What is the Funds investment strategy?
A.
The Funds primary investment objective is to provide current income and then to liquidate and distribute substantially all of the Funds net assets to stockholders on or about December 2, 2024. As a secondary investment objective, the Fund will seek capital appreciation. There can be no assurance the Fund will achieve its investment objectives.
The Fund seeks to achieve its investment objectives by investing, under normal market conditions, at least 80% of its net assets in investment grade corporate fixed-income securities of varying maturities. The Fund may invest up to 20% of its net assets in corporate fixed-income securities of below investment grade quality at the time of investment and other securities, including obligations of the U.S. government, its agencies or instrumentalities, common stocks, warrants and depositary receipts. While the Fund may invest up to 20% of its net assets in below investment grade securities, the Fund will, under normal market conditions, maintain a portfolio with an overall dollar-weighted average of investment grade credit quality. The Fund may invest up to 20% of its net assets in securities of foreign issuers located anywhere in the world, including issuers located in emerging market countries. Additionally, the Fund may invest up to 20% of its net assets in non-U.S. dollar denominated securities.
The Fund may invest in derivative instruments, such as options contracts, futures contracts, options on futures contracts, indexed securities, credit default swaps and other swap agreements, provided that the Funds exposure to derivative instruments, as measured by the total notional amount of all such instruments, will not exceed 20% of its net assets.
In purchasing securities and other investments for the Fund, we may take full advantage of the entire range of maturities and durations
i
offered by corporate fixed-income securities and may adjust the average maturity or duration of the Funds portfolio from time to time, depending on our assessment of the relative yields available on securities of different maturities and durations and our expectations of future changes in interest rates.
The Fund may take on leveraging risk by utilizing certain management techniques, whereby it will segregate liquid assets, enter into offsetting transactions or own positions covering its obligations. To the extent the Fund covers its commitment under such a portfolio management technique, such instrument will not be considered a senior security for the purposes of the Investment Company Act of 1940. However, as a fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such as preferred shares or debt instruments.
At Western Asset Management Company (Western Asset), the Funds subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Assets senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization.
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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Fund overview (contd)
The individuals responsible for development of investment strategy, day-to-day portfolio management, oversight and coordination of the Fund are Stephen A. Walsh, Michael C. Buchanan and Ryan K. Brist.
Q. What were the overall market conditions during the Funds reporting period?
A.
The spread sectors (non-Treasuries) experienced periods of volatility during the reporting period, but ultimately posted positive results. Demand for the spread sectors was generally robust during the first three months of the reporting period. This was due to several factors, including signs that the U.S. economy was gathering momentum and some progress in the European sovereign debt crisis. However, fears that the economy may be experiencing a soft patch and contagion fears from Europe led to periods of heightened risk aversion during portions of March, April and May 2012. The spread sectors then largely rallied from June through November as investor sentiment improved.
Short-term Treasury yields were unchanged, whereas long-term Treasury yields declined during the reporting period. When the period began, two-year Treasury yields were 0.25%. They moved as low as 0.21% on January 17, 2012 and as high as 0.41% on March 20, 2012. Ten-year Treasury yields were 2.08% at the beginning of the period and peaked at 2.39% on March 19, 2012. On July 25, 2012, ten-year Treasuries closed at an all-time low of 1.43%. Yields then edged higher due to some positive developments in Europe and hopes for additional Federal Reserve Board (Fed)
ii
actions to stimulate the economy. When the reporting period ended on November 30, 2012, two-year Treasury yields were 0.25% and ten-year Treasury yields were 1.62%.
All told, the Barclays U.S. Aggregate Index
iii
returned 5.51% for the twelve months ended November 30, 2012. Comparatively, the Barclays U.S. Credit Index
iv
(the Index) returned 11.59% over the same period.
Q. How did we respond to these changing market conditions?
A.
A number of adjustments were made to the Funds portfolio during the reporting period. We reduced the Funds exposure to high-yield bonds given their strong performance. From a sector perspective, we increased the Funds allocations to Capital Goods
1
, Consumer Cyclicals
2
and Consumer Non-Cyclicals
3
, while paring its allocation to Energy. Finally, we increased the Funds exposure to BBB-rated investment-grade corporate bonds.
During the reporting period, U.S. Treasury futures were used to manage the Funds duration and yield curve
v
positioning. As of the end of the period, the duration of the Fund was marginally shorter (less sensitive to changes in interest rates) than its benchmark. The use of Treasury futures to reduce the interest sensitivity of the Fund detracted from performance. However, we more than made up for
1
Capital Goods consists of the following industries: Aerospace & Defense, Building Materials, Diversified Manufacturing, Construction Machines, Packaging and Environmental.
2
Consumer Cyclicals consists of the following industries: Automotive, Entertainment, Gaming, Home Construction, Lodging, Retailers, Restaurants, Textiles and other consumer services.
3
Consumer Non-Cyclicals consists of the following industries: Consumer Products, Food/Beverage, Health Care, Pharmaceuticals, Supermarkets and Tobacco.
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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3
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the negative impact from our interest rate hedge with very strong credit sector and issuer selection during the period. The use of currency forwards to manage our currency exposure modestly contributed to results. Finally, credit default swaps, which were used to manage the Funds investment-grade bond exposure, slightly benefited performance during the reporting period.
Performance review
For the twelve months ended November 30, 2012, Western Asset Investment Grade Defined Opportunity Trust Inc. returned 17.12% based on its net asset value (NAV)
vi
and 17.28% based on its New York Stock Exchange (NYSE) market price per share. The Funds unmanaged benchmark, the Barclays U.S. Credit Index, returned 11.59% for the same period. The Lipper Corporate Debt BBB-Rated Closed-End Funds Category Average
vii
returned 11.94% over the same time frame. Please note that Lipper performance returns are based on each funds NAV.
During the twelve-month period, the Fund made distributions to shareholders totaling $1.39 per share. The performance table shows the Funds twelve-month total return based on its NAV and market price as of November 30, 2012.
Past performance is no guarantee of future results.
Performance Snapshot as of November 30, 2012
Price Per Share
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12-Month
Total Return*
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$22.67 (NAV)
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17.12%
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$23.69 (Market Price)
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17.28%
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All figures represent past performance and are not a guarantee of future results.
* Total returns are based on changes in NAV or market price, respectively.
Total return assumes the reinvestment of all distributions at NAV. Prior to January 1, 2012, total return assumed the reinvestment of all distributions in additional shares in accordance with the Funds Dividend Reinvestment Plan.
Total return assumes the reinvestment of all distributions in additional shares in accordance with the Funds Dividend Reinvestment Plan.
Q. What were the leading contributors to performance?
A.
The largest contributor to the Funds relative performance during the reporting period was its allocation to high-yield bonds (roughly 12.4% of the portfolio at period-end). This was rewarded given the high-yield markets outperformance versus higher quality corporate bonds. Overall, sector positioning was positive for performance. In particular, an overweight to the Financials sector was rewarded as it significantly outperformed the Index. Within the Financials sector, we favored the Banking subsector as we felt that structural changes in this area, including greater capital requirements, less leverage and more consistent fundamental performance would be beneficial to bondholders. Our outlook for Financials in general and Banking in particular, proved accurate and helped drive the Funds performance.
Issue selection also enhanced the Funds results. Many of the strongest performers were in the Banking subsector, such as our overweights in Citigroup Inc. and Bank of America Corp. Both companies benefited from continued balance sheet and capital ratio improvements and strong fundamental results. Also within the Financials sector, overweights in
4
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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Fund overview (contd)
Goldman Sachs Group Inc., American International Group Inc. and General Electric Capital Corp. contributed to performance as investor sentiment for these companies improved given strengthening fundamentals.
The Funds ratings biases were also additive for performance. In particular, an overweight to lower-rated BBB bonds was a positive, as they outperformed the Index. In addition, we underweighted bonds rated AAA and AA, which was beneficial given their underperformance versus the Index.
Q. What were the leading detractors from performance?
A.
The Fund significantly outperformed its benchmark during the reporting period. However, a few individual holdings detracted from the Funds relative performance, including our overweights in NewPage Corp. and Cengage Learning Acquisitions, Inc. NewPage Corp. is the largest North American maker of coated papers. When the period began, NewPage Corp. was in bankruptcy. However, we had a relatively constructive outlook for our small overweight position in its senior secured first-lien bonds, as we felt that we would negotiate a favorable recovery with the company. As the period progressed, the companys fundamental performance continued to deteriorate and our bonds traded lower. We exited the position at roughly 51% of face value toward the end of the reporting period and bonds have since migrated lower post our sale. Cengage Learning, a text book publisher, recently posted weak fundamental results. Our small overweight to senior secured Cengage Learning Term Loans was not beneficial during the period. We believe we are trading relatively close to the secured loan recovery value today, but feel there is upside potential if the current management team can stabilize the business.
Modestly detracting from the Funds relative performance were its overweights to the Basic Industry
1
and Energy sectors as they underperformed the Index.
Looking for additional information?
The Fund is traded under the symbol IGI and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line under the symbol XIGIX on most financial websites.
Barrons
and the
Wall Street Journals
Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.lmcef.com.
In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Funds current NAV, market price and other information.
Thank you for your investment in Western Asset Investment Grade Defined Opportunity Trust Inc. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Funds investment goals.
Sincerely,
Western Asset Management Company
December 18, 2012
1
Basic Industry consists of the following industries: Chemicals, Metals & Mining and Paper.
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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5
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RISKS:
The Funds investments are subject to credit risk, inflation risk and interest rate risk. As interest rates rise, bond prices fall, reducing the value of the Funds holdings. The Fund may invest in lower-rated high-yield bonds which are subject to greater credit risk (risk of default) than higher-rated obligations. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses and have a potentially large impact on Fund performance. The Fund may invest in securities or engage in transactions that have the economic effects of leverage which can increase the risk and volatility of the Fund.
Portfolio holdings and breakdowns are as of November 30, 2012 and are subject to change and may not be representative of the portfolio managers current or future investments. Please refer to pages 9 through 19 for a list and percentage breakdown of the Funds holdings.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Funds top five sector holdings (as a percentage of net assets) as of November 30, 2012 were: Financials (36.7%), Energy (12.4%), Consumer Discretionary (10.7%), Telecommunication Services (8.0%) and Utilities (7.4%). The Funds portfolio composition is subject to change at any time.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
i
Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.
ii
The Federal Reserve Board (Fed) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.
iii
The Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.
iv
The Barclays U.S. Credit Index is an index composed of corporate and non-corporate debt issues that are investment grade (rated Baa3/BBB or higher).
v
The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.
vi
Net asset value (NAV) is calculated by subtracting total liabilities and outstanding preferred stock (if any) from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total investments) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Funds market price as determined by supply of and demand for the Funds shares.
vii
Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period ended November 30, 2012, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 12 funds in the Funds Lipper category.
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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Fund at a glance
(unaudited)
Investment breakdown
(%) as a percent of total investments
The bar graph above represents the composition of the Funds investments as of November 30, 2012 and November 30, 2011 and does not include derivatives, such as futures contracts, written options, swap contracts and forward foreign currency contracts. The Fund is actively managed. As a result, the composition of the Funds investments is subject to change at any time.
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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7
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Spread duration (unaudited)
Economic Exposure
November 30, 2012
Total Spread Duration
IGI
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7.66 years
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Benchmark
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6.89 years
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Spread duration measures the sensitivity to changes in spreads. The spread over Treasuries is the annual risk-premium demanded by investors to hold non-Treasury securities. Spread duration is quantified as the % change in price resulting from a 100 basis points change in spreads. For a security with positive spread duration, an increase in spreads would result in a price decline and a decline in spreads would result in a price increase. This chart highlights the market sector exposure of the Funds sectors relative to the selected benchmark sectors as of the end of the reporting period.
Benchmark
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Barclays U.S. Credit Index
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EM
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Emerging Markets
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HY
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High Yield
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IG Credit
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Investment Grade Credit
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IGI
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Western Asset Investment Grade Defined Opportunity Trust Inc.
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8
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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Effective duration (unaudited)
Interest Rate Exposure
November 30, 2012
Total Effective Duration
IGI
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7.00 years
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Benchmark
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7.10 years
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Effective duration measures the sensitivity to changes in relevant interest rates. Effective duration is quantified as the % change in price resulting from a 100 basis points change in interest rates. For a security with positive effective duration, an increase in interest rates would result in a price decline and a decline in interest rates would result in a price increase. This chart highlights the interest rate exposure of the Funds sectors relative to the selected benchmark sectors as of the end of the reporting period.
Benchmark
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Barclays U.S. Credit Index
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EM
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Emerging Markets
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HY
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High Yield
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IG Credit
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Investment Grade Credit
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IGI
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Western Asset Investment Grade Defined Opportunity Trust Inc.
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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9
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Schedule of investments
November 30, 2012
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
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Rate
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Maturity
Date
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Face
Amount
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Value
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Corporate Bonds & Notes 93.0%
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Consumer Discretionary 10.1%
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Automobiles 1.8%
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Eaton Corp., Senior Notes
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4.150
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%
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11/2/42
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$1,830,000
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$ 1,876,022
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(a)
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Ford Motor Credit Co., LLC, Senior Notes
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12.000
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%
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5/15/15
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1,000,000
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1,235,000
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Ford Motor Credit Co., LLC, Senior Notes
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8.125
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%
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1/15/20
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640,000
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815,750
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Ford Motor Credit Co., LLC, Senior Notes
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4.250
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%
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9/20/22
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380,000
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395,404
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Total Automobiles
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4,322,176
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Hotels, Restaurants & Leisure 0.7%
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Caesars Entertainment Operating Co. Inc., Senior Secured Notes
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11.250
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%
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6/1/17
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1,250,000
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1,349,219
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NCL Corp. Ltd., Senior Secured Notes
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11.750
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%
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11/15/16
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320,000
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364,800
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Total Hotels, Restaurants & Leisure
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1,714,019
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Household Durables 0.0%
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NVR Inc., Senior Notes
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3.950
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%
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9/15/22
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20,000
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20,705
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Media 6.5%
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Comcast Corp., Bonds
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6.400
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%
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5/15/38
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2,500,000
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3,263,112
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Comcast Corp., Senior Notes
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5.700
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%
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7/1/19
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1,500,000
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1,849,437
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DISH DBS Corp., Senior Notes
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7.875
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%
|
9/1/19
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1,250,000
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1,484,375
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Interpublic Group of Cos. Inc., Senior Notes
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2.250
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%
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11/15/17
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560,000
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553,314
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Interpublic Group of Cos. Inc., Senior Notes
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3.750
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%
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2/15/23
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250,000
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246,187
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News America Inc., Senior Notes
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6.650
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%
|
11/15/37
|
|
2,400,000
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3,097,870
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Time Warner Cable Inc., Debentures
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7.300
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%
|
7/1/38
|
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500,000
|
|
669,812
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|
Time Warner Cable Inc., Senior Notes
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8.750
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%
|
2/14/19
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1,100,000
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1,493,469
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Time Warner Inc., Senior Notes
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4.900
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%
|
6/15/42
|
|
250,000
|
|
267,740
|
|
UBM PLC, Notes
|
|
5.750
|
%
|
11/3/20
|
|
830,000
|
|
882,423
|
(a)
|
WPP Finance 2010, Senior Notes
|
|
4.750
|
%
|
11/21/21
|
|
870,000
|
|
962,824
|
|
WPP Finance UK, Senior Notes
|
|
8.000
|
%
|
9/15/14
|
|
1,000,000
|
|
1,109,730
|
|
Total Media
|
|
|
|
|
|
|
|
15,880,293
|
|
Specialty Retail 1.1%
|
|
|
|
|
|
|
|
|
|
American Greetings Corp., Senior Notes
|
|
7.375
|
%
|
12/1/21
|
|
280,000
|
|
292,950
|
|
Gap Inc., Senior Notes
|
|
5.950
|
%
|
4/12/21
|
|
1,240,000
|
|
1,416,716
|
|
QVC Inc., Senior Secured Notes
|
|
5.125
|
%
|
7/2/22
|
|
840,000
|
|
891,795
|
(a)
|
Total Specialty Retail
|
|
|
|
|
|
|
|
2,601,461
|
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
24,538,654
|
|
Consumer Staples 5.0%
|
|
|
|
|
|
|
|
|
|
Beverages 1.1%
|
|
|
|
|
|
|
|
|
|
Anheuser-Busch InBev Worldwide Inc., Senior Notes
|
|
7.750
|
%
|
1/15/19
|
|
450,000
|
|
605,484
|
|
Pernod-Ricard SA, Senior Bonds
|
|
5.750
|
%
|
4/7/21
|
|
890,000
|
|
1,063,471
|
(a)
|
See Notes to Financial Statements.
10
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Schedule of investments (contd)
November 30, 2012
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Beverages continued
|
|
|
|
|
|
|
|
|
|
Pernod-Ricard SA, Senior Notes
|
|
5.500
|
%
|
1/15/42
|
|
$ 960,000
|
|
$ 1,114,016
|
(a)
|
Total Beverages
|
|
|
|
|
|
|
|
2,782,971
|
|
Food & Staples Retailing 0.4%
|
|
|
|
|
|
|
|
|
|
CVS Caremark Corp., Senior Notes
|
|
6.600
|
%
|
3/15/19
|
|
600,000
|
|
783,458
|
|
Safeway Inc., Senior Notes
|
|
4.750
|
%
|
12/1/21
|
|
70,000
|
|
72,693
|
|
Total Food & Staples Retailing
|
|
|
|
|
|
|
|
856,151
|
|
Food Products 0.5%
|
|
|
|
|
|
|
|
|
|
Kraft Foods Group Inc., Senior Notes
|
|
5.000
|
%
|
6/4/42
|
|
540,000
|
|
608,222
|
(a)
|
Mondelez International Inc., Senior Notes
|
|
5.375
|
%
|
2/10/20
|
|
491,000
|
|
598,342
|
|
Total Food Products
|
|
|
|
|
|
|
|
1,206,564
|
|
Tobacco 3.0%
|
|
|
|
|
|
|
|
|
|
Altria Group Inc., Senior Notes
|
|
9.250
|
%
|
8/6/19
|
|
1,000,000
|
|
1,394,960
|
|
Altria Group Inc., Senior Notes
|
|
2.850
|
%
|
8/9/22
|
|
360,000
|
|
357,250
|
|
Lorillard Tobacco Co., Senior Notes
|
|
8.125
|
%
|
6/23/19
|
|
540,000
|
|
693,034
|
|
Lorillard Tobacco Co., Senior Notes
|
|
8.125
|
%
|
5/1/40
|
|
470,000
|
|
633,997
|
|
Lorillard Tobacco Co., Senior Notes
|
|
7.000
|
%
|
8/4/41
|
|
510,000
|
|
619,245
|
|
Reynolds American Inc., Senior Notes
|
|
4.750
|
%
|
11/1/42
|
|
1,220,000
|
|
1,242,530
|
|
Reynolds American Inc., Senior Secured Notes
|
|
7.625
|
%
|
6/1/16
|
|
2,000,000
|
|
2,401,416
|
|
Total Tobacco
|
|
|
|
|
|
|
|
7,342,432
|
|
Total Consumer Staples
|
|
|
|
|
|
|
|
12,188,118
|
|
Energy 12.4%
|
|
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 12.4%
|
|
|
|
|
|
|
|
|
|
Anadarko Petroleum Corp., Senior Notes
|
|
5.950
|
%
|
9/15/16
|
|
340,000
|
|
394,705
|
|
Apache Corp., Senior Notes
|
|
5.100
|
%
|
9/1/40
|
|
140,000
|
|
161,910
|
|
Apache Corp., Senior Notes
|
|
5.250
|
%
|
2/1/42
|
|
160,000
|
|
189,141
|
|
Arch Coal Inc., Senior Notes
|
|
7.000
|
%
|
6/15/19
|
|
440,000
|
|
397,100
|
|
ConocoPhillips, Notes
|
|
6.500
|
%
|
2/1/39
|
|
1,500,000
|
|
2,140,491
|
|
DCP Midstream LLC, Senior Notes
|
|
9.750
|
%
|
3/15/19
|
|
1,000,000
|
|
1,311,057
|
(a)
|
Devon Energy Corp., Senior Notes
|
|
3.250
|
%
|
5/15/22
|
|
20,000
|
|
20,939
|
|
Devon Financing Corp. ULC, Debentures
|
|
7.875
|
%
|
9/30/31
|
|
1,080,000
|
|
1,580,901
|
|
Enterprise Products Operating LP, Senior Notes
|
|
9.750
|
%
|
1/31/14
|
|
2,000,000
|
|
2,202,364
|
|
EOG Resources Inc., Senior Notes
|
|
6.875
|
%
|
10/1/18
|
|
800,000
|
|
1,027,112
|
|
Hess Corp., Notes
|
|
8.125
|
%
|
2/15/19
|
|
1,400,000
|
|
1,856,719
|
|
Hess Corp., Notes
|
|
7.875
|
%
|
10/1/29
|
|
440,000
|
|
619,373
|
|
Hess Corp., Senior Bonds
|
|
6.000
|
%
|
1/15/40
|
|
520,000
|
|
641,905
|
|
Kerr-McGee Corp., Notes
|
|
6.950
|
%
|
7/1/24
|
|
1,320,000
|
|
1,709,090
|
|
Kerr-McGee Corp., Notes
|
|
7.875
|
%
|
9/15/31
|
|
830,000
|
|
1,122,681
|
|
Kinder Morgan Energy Partners LP, Senior Notes
|
|
5.950
|
%
|
2/15/18
|
|
800,000
|
|
963,999
|
|
Noble Energy Inc., Senior Notes
|
|
6.000
|
%
|
3/1/41
|
|
660,000
|
|
795,096
|
|
See Notes to Financial Statements.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
11
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Oil, Gas & Consumable Fuels continued
|
|
|
|
|
|
|
|
|
|
Pemex Project Funding Master Trust, Senior Bonds
|
|
6.625
|
%
|
6/15/35
|
|
$1,000,000
|
|
$ 1,270,000
|
|
Petrobras International Finance Co., Senior Notes
|
|
5.750
|
%
|
1/20/20
|
|
1,109,000
|
|
1,272,448
|
|
Petrobras International Finance Co., Senior Notes
|
|
6.750
|
%
|
1/27/41
|
|
1,730,000
|
|
2,196,271
|
|
Petroleos Mexicanos, Senior Notes
|
|
5.500
|
%
|
1/21/21
|
|
250,000
|
|
293,750
|
|
Quicksilver Resources Inc., Senior Notes
|
|
11.750
|
%
|
1/1/16
|
|
1,000,000
|
|
997,500
|
|
Shell International Finance BV, Senior Notes
|
|
6.375
|
%
|
12/15/38
|
|
1,500,000
|
|
2,161,966
|
|
TNK-BP Finance SA, Senior Notes
|
|
7.500
|
%
|
3/13/13
|
|
870,000
|
|
885,834
|
(a)
|
Transcontinental Gas Pipe Line Co. LLC, Senior Notes
|
|
5.400
|
%
|
8/15/41
|
|
10,000
|
|
12,056
|
|
Transcontinental Gas Pipe Line Co. LLC, Senior Notes
|
|
4.450
|
%
|
8/1/42
|
|
860,000
|
|
904,482
|
(a)
|
Valero Energy Corp., Senior Notes
|
|
9.375
|
%
|
3/15/19
|
|
700,000
|
|
961,721
|
|
Williams Cos. Inc., Notes
|
|
7.875
|
%
|
9/1/21
|
|
952,000
|
|
1,231,435
|
|
Williams Cos. Inc., Senior Notes
|
|
7.750
|
%
|
6/15/31
|
|
62,000
|
|
78,375
|
|
Williams Cos. Inc., Senior Notes
|
|
8.750
|
%
|
3/15/32
|
|
148,000
|
|
202,196
|
|
Williams Partners LP, Senior Notes
|
|
5.250
|
%
|
3/15/20
|
|
460,000
|
|
535,990
|
|
Total Energy
|
|
|
|
|
|
|
|
30,138,607
|
|
Financials 34.3%
|
|
|
|
|
|
|
|
|
|
Capital Markets 8.8%
|
|
|
|
|
|
|
|
|
|
Bear Stearns Cos. LLC, Senior Notes
|
|
7.250
|
%
|
2/1/18
|
|
1,570,000
|
|
1,960,625
|
|
GFI Group Inc., Senior Notes
|
|
8.625
|
%
|
7/19/18
|
|
310,000
|
|
275,125
|
|
Goldman Sachs Group Inc., Senior Notes
|
|
5.950
|
%
|
1/18/18
|
|
4,250,000
|
|
4,924,216
|
|
Goldman Sachs Group Inc., Senior Notes
|
|
7.500
|
%
|
2/15/19
|
|
500,000
|
|
628,519
|
|
Goldman Sachs Group Inc., Senior Notes
|
|
5.375
|
%
|
3/15/20
|
|
470,000
|
|
539,130
|
|
Goldman Sachs Group Inc., Senior Notes
|
|
5.250
|
%
|
7/27/21
|
|
870,000
|
|
996,581
|
|
Goldman Sachs Group Inc., Senior Notes
|
|
6.250
|
%
|
2/1/41
|
|
2,550,000
|
|
3,110,697
|
|
Merrill Lynch & Co. Inc., Notes
|
|
6.875
|
%
|
4/25/18
|
|
990,000
|
|
1,192,214
|
|
Morgan Stanley, Medium-Term Notes
|
|
6.625
|
%
|
4/1/18
|
|
1,750,000
|
|
2,040,334
|
|
Morgan Stanley, Senior Notes
|
|
5.500
|
%
|
1/26/20
|
|
1,950,000
|
|
2,177,370
|
|
Morgan Stanley, Senior Notes
|
|
5.500
|
%
|
7/24/20
|
|
200,000
|
|
226,148
|
|
Morgan Stanley, Senior Notes
|
|
6.375
|
%
|
7/24/42
|
|
140,000
|
|
164,595
|
|
State Street Corp., Junior Subordinated Notes
|
|
4.956
|
%
|
3/15/18
|
|
1,330,000
|
|
1,510,377
|
|
UBS AG Stamford CT, Senior Notes
|
|
4.875
|
%
|
8/4/20
|
|
250,000
|
|
292,481
|
|
UBS AG Stamford CT, Subordinated Notes
|
|
7.625
|
%
|
8/17/22
|
|
650,000
|
|
715,135
|
|
Vesey Street Investment Trust I, Senior Notes
|
|
4.404
|
%
|
9/1/16
|
|
540,000
|
|
583,932
|
|
Total Capital Markets
|
|
|
|
|
|
|
|
21,337,479
|
|
See Notes to Financial Statements.
12
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Schedule of investments (contd)
November 30, 2012
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Commercial Banks 6.7%
|
|
|
|
|
|
|
|
|
|
Barclays Bank PLC, Subordinated Notes
|
|
7.625
|
%
|
11/21/22
|
|
$ 560,000
|
|
$ 555,800
|
|
BBVA US Senior SAU, Senior Notes
|
|
4.664
|
%
|
10/9/15
|
|
1,830,000
|
|
1,863,904
|
|
CIT Group Inc., Secured Notes
|
|
5.250
|
%
|
4/1/14
|
|
630,000
|
|
655,200
|
(a)
|
CIT Group Inc., Secured Notes
|
|
6.625
|
%
|
4/1/18
|
|
480,000
|
|
540,000
|
(a)
|
Cooperatieve Centrale Raiffeisen- Boerenleenbank BA, Senior Notes
|
|
5.250
|
%
|
5/24/41
|
|
310,000
|
|
368,685
|
|
Cooperatieve Centrale Raiffeisen- Boerenleenbank BA, Subordinated Notes
|
|
3.950
|
%
|
11/9/22
|
|
550,000
|
|
558,534
|
|
Credit Agricole SA, Subordinated Notes
|
|
8.375
|
%
|
10/13/19
|
|
500,000
|
|
520,625
|
(a)(b)(c)
|
Intesa Sanpaolo SpA, Senior Notes
|
|
3.625
|
%
|
8/12/15
|
|
2,140,000
|
|
2,131,442
|
(a)
|
Nordea Bank AB, Subordinated Notes
|
|
4.250
|
%
|
9/21/22
|
|
500,000
|
|
504,727
|
(a)
|
Royal Bank of Scotland Group PLC, Junior Subordinated Bonds
|
|
7.648
|
%
|
9/30/31
|
|
580,000
|
|
584,350
|
(b)(c)
|
Royal Bank of Scotland Group PLC, Senior Notes
|
|
6.400
|
%
|
10/21/19
|
|
1,170,000
|
|
1,386,669
|
|
Royal Bank of Scotland Group PLC, Subordinated Notes
|
|
5.000
|
%
|
10/1/14
|
|
790,000
|
|
816,030
|
|
Wachovia Capital Trust III, Junior Subordinated Bonds
|
|
5.570
|
%
|
1/11/13
|
|
410,000
|
|
410,000
|
(b)(c)
|
Wachovia Corp., Senior Notes
|
|
5.750
|
%
|
2/1/18
|
|
4,400,000
|
|
5,307,812
|
|
Total Commercial Banks
|
|
|
|
|
|
|
|
16,203,778
|
|
Consumer Finance 3.0%
|
|
|
|
|
|
|
|
|
|
American Express Co., Senior Notes
|
|
8.125
|
%
|
5/20/19
|
|
2,760,000
|
|
3,813,536
|
|
HSBC Finance Corp., Senior Notes
|
|
6.676
|
%
|
1/15/21
|
|
1,620,000
|
|
1,928,685
|
|
SLM Corp., Senior Notes
|
|
7.250
|
%
|
1/25/22
|
|
1,430,000
|
|
1,576,575
|
|
Total Consumer Finance
|
|
|
|
|
|
|
|
7,318,796
|
|
Diversified Financial Services 11.6%
|
|
|
|
|
|
|
|
|
|
Bank of America Corp., Senior Notes
|
|
7.625
|
%
|
6/1/19
|
|
2,760,000
|
|
3,533,645
|
|
Bank of America Corp., Senior Notes
|
|
5.625
|
%
|
7/1/20
|
|
180,000
|
|
212,846
|
|
Bank of America Corp., Senior Notes
|
|
5.875
|
%
|
2/7/42
|
|
1,340,000
|
|
1,700,702
|
|
Citigroup Inc., Junior Subordinated Notes
|
|
5.950
|
%
|
1/30/23
|
|
2,200,000
|
|
2,241,250
|
(b)(c)
|
Citigroup Inc., Senior Notes
|
|
6.375
|
%
|
8/12/14
|
|
300,000
|
|
325,171
|
|
Citigroup Inc., Senior Notes
|
|
6.000
|
%
|
8/15/17
|
|
2,250,000
|
|
2,649,292
|
|
Citigroup Inc., Senior Notes
|
|
8.500
|
%
|
5/22/19
|
|
500,000
|
|
669,853
|
|
Citigroup Inc., Senior Notes
|
|
6.875
|
%
|
3/5/38
|
|
2,000,000
|
|
2,688,086
|
|
Citigroup Inc., Senior Notes
|
|
8.125
|
%
|
7/15/39
|
|
1,350,000
|
|
2,046,519
|
|
General Electric Capital Corp., Junior Subordinated Bonds
|
|
7.125
|
%
|
6/15/22
|
|
100,000
|
|
113,079
|
(b)(c)
|
General Electric Capital Corp., Junior Subordinated Bonds
|
|
6.250
|
%
|
12/15/22
|
|
1,000,000
|
|
1,081,086
|
(b)(c)
|
General Electric Capital Corp., Notes
|
|
5.300
|
%
|
2/11/21
|
|
210,000
|
|
243,635
|
|
See Notes to Financial Statements.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
13
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Diversified Financial Services continued
|
|
|
|
|
|
|
|
|
|
General Electric Capital Corp., Senior Notes
|
|
6.875
|
%
|
1/10/39
|
|
$3,200,000
|
|
$ 4,356,915
|
|
General Electric Capital Corp., Subordinated Debentures
|
|
6.375
|
%
|
11/15/67
|
|
100,000
|
|
106,320
|
(b)
|
ILFC E-Capital Trust I
|
|
4.520
|
%
|
12/21/65
|
|
370,000
|
|
262,293
|
(a)(b)
|
International Lease Finance Corp., Senior Notes
|
|
8.875
|
%
|
9/1/17
|
|
810,000
|
|
943,650
|
|
International Lease Finance Corp., Senior Notes
|
|
6.250
|
%
|
5/15/19
|
|
220,000
|
|
233,750
|
|
International Lease Finance Corp., Senior Notes
|
|
8.250
|
%
|
12/15/20
|
|
330,000
|
|
384,979
|
|
International Lease Finance Corp., Senior Secured Notes
|
|
6.750
|
%
|
9/1/16
|
|
670,000
|
|
750,400
|
(a)
|
International Lease Finance Corp., Senior Secured Notes
|
|
7.125
|
%
|
9/1/18
|
|
1,030,000
|
|
1,197,375
|
(a)
|
JPMorgan Chase & Co., Senior Notes
|
|
6.400
|
%
|
5/15/38
|
|
1,500,000
|
|
2,031,588
|
|
ZFS Finance USA Trust II, Bonds
|
|
6.450
|
%
|
12/15/65
|
|
500,000
|
|
535,000
|
(a)(b)
|
Total Diversified Financial Services
|
|
|
|
|
|
|
|
28,307,434
|
|
Insurance 3.8%
|
|
|
|
|
|
|
|
|
|
American International Group Inc., Senior Notes
|
|
6.400
|
%
|
12/15/20
|
|
1,000,000
|
|
1,228,058
|
|
Delphi Financial Group Inc., Senior Notes
|
|
7.875
|
%
|
1/31/20
|
|
290,000
|
|
358,651
|
|
ING Capital Funding Trust III, Junior Subordinated Bonds
|
|
3.962
|
%
|
3/31/13
|
|
410,000
|
|
393,371
|
(b)(c)
|
ING US Inc., Senior Notes
|
|
5.500
|
%
|
7/15/22
|
|
1,350,000
|
|
1,470,712
|
(a)
|
Liberty Mutual Group Inc., Junior Subordinated Bonds
|
|
7.800
|
%
|
3/15/37
|
|
120,000
|
|
133,800
|
(a)
|
Liberty Mutual Insurance Co., Subordinated Notes
|
|
7.875
|
%
|
10/15/26
|
|
840,000
|
|
1,072,871
|
(a)
|
MetLife Inc., Senior Notes
|
|
6.817
|
%
|
8/15/18
|
|
1,300,000
|
|
1,641,158
|
|
MetLife Inc., Senior Notes
|
|
4.125
|
%
|
8/13/42
|
|
260,000
|
|
260,431
|
|
Nationwide Mutual Insurance Co., Notes
|
|
9.375
|
%
|
8/15/39
|
|
520,000
|
|
757,594
|
(a)
|
Teachers Insurance & Annuity Association of America College Retirement Equity Fund, Notes
|
|
6.850
|
%
|
12/16/39
|
|
1,050,000
|
|
1,457,488
|
(a)
|
Travelers Cos. Inc., Senior Notes
|
|
6.250
|
%
|
6/15/37
|
|
400,000
|
|
542,513
|
|
Total Insurance
|
|
|
|
|
|
|
|
9,316,647
|
|
Real Estate Investment Trusts (REITs) 0.3%
|
|
|
|
|
|
|
|
|
|
WEA Finance LLC/WT Finance Aust Pty. Ltd., Senior Notes
|
|
6.750
|
%
|
9/2/19
|
|
580,000
|
|
718,983
|
(a)
|
Thrifts & Mortgage Finance 0.1%
|
|
|
|
|
|
|
|
|
|
Santander Holdings USA Inc., Senior Notes
|
|
4.625
|
%
|
4/19/16
|
|
270,000
|
|
287,105
|
|
Total Financials
|
|
|
|
|
|
|
|
83,490,222
|
|
See Notes to Financial Statements.
14
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Schedule of investments (contd)
November 30, 2012
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Health Care 4.6%
|
|
|
|
|
|
|
|
|
|
Biotechnology 0.7%
|
|
|
|
|
|
|
|
|
|
Amgen Inc., Senior Notes
|
|
5.150
|
%
|
11/15/41
|
|
$1,020,000
|
|
$ 1,167,903
|
|
Gilead Sciences Inc., Senior Notes
|
|
5.650
|
%
|
12/1/41
|
|
480,000
|
|
609,596
|
|
Total Biotechnology
|
|
|
|
|
|
|
|
1,777,499
|
|
Health Care Providers & Services 2.7%
|
|
|
|
|
|
|
|
|
|
Catholic Health Initiatives, Secured Bonds
|
|
1.600
|
%
|
11/1/17
|
|
110,000
|
|
111,694
|
|
Catholic Health Initiatives, Secured Bonds
|
|
2.950
|
%
|
11/1/22
|
|
320,000
|
|
327,889
|
|
Catholic Health Initiatives, Secured Bonds
|
|
4.350
|
%
|
11/1/42
|
|
60,000
|
|
61,960
|
|
Highmark Inc., Senior Notes
|
|
4.750
|
%
|
5/15/21
|
|
570,000
|
|
588,764
|
(a)
|
Humana Inc., Senior Notes
|
|
6.450
|
%
|
6/1/16
|
|
1,000,000
|
|
1,142,773
|
|
Humana Inc., Senior Notes
|
|
7.200
|
%
|
6/15/18
|
|
1,000,000
|
|
1,242,523
|
|
Tenet Healthcare Corp., Senior Secured Notes
|
|
10.000
|
%
|
5/1/18
|
|
1,000,000
|
|
1,145,000
|
|
Tenet Healthcare Corp., Senior Secured Notes
|
|
8.875
|
%
|
7/1/19
|
|
430,000
|
|
483,750
|
|
UnitedHealth Group Inc., Senior Notes
|
|
3.950
|
%
|
10/15/42
|
|
200,000
|
|
199,472
|
|
WellPoint Inc., Notes
|
|
5.250
|
%
|
1/15/16
|
|
1,200,000
|
|
1,346,081
|
|
Total Health Care Providers & Services
|
|
|
|
|
|
|
|
6,649,906
|
|
Pharmaceuticals 1.2%
|
|
|
|
|
|
|
|
|
|
AbbVie Inc., Senior Notes
|
|
4.400
|
%
|
11/6/42
|
|
450,000
|
|
479,189
|
(a)
|
Pfizer Inc., Senior Notes
|
|
7.200
|
%
|
3/15/39
|
|
560,000
|
|
875,312
|
|
Wyeth, Notes
|
|
5.950
|
%
|
4/1/37
|
|
1,100,000
|
|
1,480,631
|
|
Total Pharmaceuticals
|
|
|
|
|
|
|
|
2,835,132
|
|
Total Health Care
|
|
|
|
|
|
|
|
11,262,537
|
|
Industrials 4.4%
|
|
|
|
|
|
|
|
|
|
Aerospace & Defense 0.4%
|
|
|
|
|
|
|
|
|
|
Exelis Inc., Senior Notes
|
|
5.550
|
%
|
10/1/21
|
|
885,000
|
|
977,004
|
|
Air Freight & Logistics 0.4%
|
|
|
|
|
|
|
|
|
|
United Parcel Service Inc., Senior Notes
|
|
6.200
|
%
|
1/15/38
|
|
700,000
|
|
975,247
|
|
Airlines 1.9%
|
|
|
|
|
|
|
|
|
|
Continental Airlines Inc., Pass-Through Certificates
|
|
9.250
|
%
|
5/10/17
|
|
319,047
|
|
348,559
|
|
Continental Airlines Inc., Pass-Through Certificates
|
|
6.545
|
%
|
2/2/19
|
|
222,504
|
|
245,867
|
|
Continental Airlines Inc., Pass-Through Certificates, Senior Secured Notes
|
|
7.250
|
%
|
11/10/19
|
|
710,030
|
|
820,084
|
|
Continental Airlines Inc., Secured Notes
|
|
6.250
|
%
|
4/11/20
|
|
290,000
|
|
307,400
|
|
Delta Air Lines Inc., Pass-Through Certificates, Secured Notes
|
|
8.021
|
%
|
8/10/22
|
|
179,685
|
|
196,521
|
|
Delta Air Lines Inc., Pass-Through Trust, Senior Secured Notes
|
|
7.750
|
%
|
12/17/19
|
|
681,670
|
|
780,512
|
|
See Notes to Financial Statements.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
15
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Airlines continued
|
|
|
|
|
|
|
|
|
|
United Air Lines Inc., Pass-Through Trust, Pass-Through Certificates, Secured Notes
|
|
9.750
|
%
|
1/15/17
|
|
$ 199,333
|
|
$ 229,731
|
|
United Air Lines Inc., Pass-Through Trust, Senior Secured Notes
|
|
10.400
|
%
|
11/1/16
|
|
139,868
|
|
160,359
|
|
United Air Lines Inc., Senior Secured Notes
|
|
9.875
|
%
|
8/1/13
|
|
427,000
|
|
433,939
|
(a)
|
United Air Lines Inc., Senior Secured Notes
|
|
12.000
|
%
|
11/1/13
|
|
570,000
|
|
579,263
|
(a)
|
US Airways 2012-1 Pass-Through Trust, Senior Secured Bonds
|
|
5.900
|
%
|
10/1/24
|
|
610,000
|
|
664,900
|
|
Total Airlines
|
|
|
|
|
|
|
|
4,767,135
|
|
Building Products 0.1%
|
|
|
|
|
|
|
|
|
|
Owens Corning, Senior Notes
|
|
4.200
|
%
|
12/15/22
|
|
190,000
|
|
193,019
|
|
Commercial Services & Supplies 0.4%
|
|
|
|
|
|
|
|
|
|
Republic Services Inc., Senior Notes
|
|
5.500
|
%
|
9/15/19
|
|
220,000
|
|
262,706
|
|
Waste Management Inc., Senior Notes
|
|
7.750
|
%
|
5/15/32
|
|
500,000
|
|
719,430
|
|
Total Commercial Services & Supplies
|
|
|
|
|
|
|
|
982,136
|
|
Industrial Conglomerates 0.8%
|
|
|
|
|
|
|
|
|
|
General Electric Co., Senior Notes
|
|
4.125
|
%
|
10/9/42
|
|
1,840,000
|
|
1,927,560
|
|
Machinery 0.1%
|
|
|
|
|
|
|
|
|
|
Valmont Industries Inc., Senior Notes
|
|
6.625
|
%
|
4/20/20
|
|
180,000
|
|
214,329
|
|
Road & Rail 0.3%
|
|
|
|
|
|
|
|
|
|
Kansas City Southern de Mexico, Senior Notes
|
|
12.500
|
%
|
4/1/16
|
|
650,000
|
|
719,063
|
|
Total Industrials
|
|
|
|
|
|
|
|
10,755,493
|
|
Information Technology 1.0%
|
|
|
|
|
|
|
|
|
|
Computers & Peripherals 0.5%
|
|
|
|
|
|
|
|
|
|
Hewlett-Packard Co., Senior Notes
|
|
4.650
|
%
|
12/9/21
|
|
1,400,000
|
|
1,356,796
|
|
IT Services 0.3%
|
|
|
|
|
|
|
|
|
|
First Data Corp., Senior Secured Notes
|
|
6.750
|
%
|
11/1/20
|
|
140,000
|
|
141,750
|
(a)
|
Mantech International Corp., Senior Notes
|
|
7.250
|
%
|
4/15/18
|
|
540,000
|
|
572,400
|
|
Total IT Services
|
|
|
|
|
|
|
|
714,150
|
|
Semiconductors & Semiconductor Equipment 0.2%
|
|
|
|
|
|
|
|
|
|
National Semiconductor Corp., Senior Notes
|
|
6.600
|
%
|
6/15/17
|
|
360,000
|
|
447,796
|
|
Total Information Technology
|
|
|
|
|
|
|
|
2,518,742
|
|
Materials 6.0%
|
|
|
|
|
|
|
|
|
|
Chemicals 0.4%
|
|
|
|
|
|
|
|
|
|
Dow Chemical Co., Senior Notes
|
|
4.375
|
%
|
11/15/42
|
|
330,000
|
|
326,727
|
|
Ecolab Inc., Senior Notes
|
|
5.500
|
%
|
12/8/41
|
|
260,000
|
|
313,152
|
|
Potash Corp. of Saskatchewan Inc., Senior Notes
|
|
5.625
|
%
|
12/1/40
|
|
250,000
|
|
308,557
|
|
Total Chemicals
|
|
|
|
|
|
|
|
948,436
|
|
See Notes to Financial Statements.
16
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Schedule of investments (contd)
November 30, 2012
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Containers & Packaging 0.9%
|
|
|
|
|
|
|
|
|
|
Rock-Tenn Co., Senior Notes
|
|
3.500
|
%
|
3/1/20
|
|
$ 680,000
|
|
$ 705,506
|
(a)
|
Rock-Tenn Co., Senior Notes
|
|
4.900
|
%
|
3/1/22
|
|
790,000
|
|
864,800
|
(a)
|
Rock-Tenn Co., Senior Notes
|
|
4.000
|
%
|
3/1/23
|
|
560,000
|
|
570,121
|
(a)
|
Total Containers & Packaging
|
|
|
|
|
|
|
|
2,140,427
|
|
Metals & Mining 4.7%
|
|
|
|
|
|
|
|
|
|
Barrick Gold Corp., Senior Notes
|
|
5.250
|
%
|
4/1/42
|
|
1,380,000
|
|
1,553,619
|
|
Cliffs Natural Resources Inc., Senior Notes
|
|
4.875
|
%
|
4/1/21
|
|
820,000
|
|
808,594
|
|
FMG Resources (August 2006) Pty Ltd., Senior Notes
|
|
7.000
|
%
|
11/1/15
|
|
1,260,000
|
|
1,291,500
|
(a)
|
Freeport-McMoRan Copper & Gold Inc., Senior Notes
|
|
3.550
|
%
|
3/1/22
|
|
435,000
|
|
443,362
|
|
Rio Tinto Finance USA Ltd., Senior Notes
|
|
9.000
|
%
|
5/1/19
|
|
2,000,000
|
|
2,753,414
|
|
Southern Copper Corp., Senior Notes
|
|
5.375
|
%
|
4/16/20
|
|
260,000
|
|
301,150
|
|
Steel Dynamics Inc., Senior Notes
|
|
6.125
|
%
|
8/15/19
|
|
240,000
|
|
252,000
|
(a)
|
Vale Overseas Ltd., Notes
|
|
6.875
|
%
|
11/21/36
|
|
2,100,000
|
|
2,609,183
|
|
Xstrata Finance Canada Ltd., Senior Bonds
|
|
5.800
|
%
|
11/15/16
|
|
1,200,000
|
|
1,364,388
|
(a)
|
Total Metals & Mining
|
|
|
|
|
|
|
|
11,377,210
|
|
Total Materials
|
|
|
|
|
|
|
|
14,466,073
|
|
Telecommunication Services 8.0%
|
|
|
|
|
|
|
|
|
|
Diversified Telecommunication Services 5.3%
|
|
|
|
|
|
|
|
|
|
AT&T Inc., Global Notes
|
|
5.600
|
%
|
5/15/18
|
|
1,500,000
|
|
1,820,533
|
|
AT&T Inc., Global Notes
|
|
6.550
|
%
|
2/15/39
|
|
250,000
|
|
333,785
|
|
AT&T Inc., Senior Notes
|
|
5.550
|
%
|
8/15/41
|
|
1,330,000
|
|
1,601,234
|
|
British Telecommunications PLC, Bonds
|
|
9.625
|
%
|
12/15/30
|
|
2,000,000
|
|
3,220,670
|
|
Embarq Corp., Notes
|
|
7.995
|
%
|
6/1/36
|
|
1,500,000
|
|
1,640,485
|
|
Koninklijke KPN NV, Senior Notes
|
|
8.375
|
%
|
10/1/30
|
|
330,000
|
|
445,353
|
|
Telecom Italia Capital SA, Senior Notes
|
|
7.721
|
%
|
6/4/38
|
|
1,000,000
|
|
1,052,500
|
|
Telefonica Chile SA, Senior Notes
|
|
3.875
|
%
|
10/12/22
|
|
200,000
|
|
198,396
|
(a)
|
Telefonica Emisiones SAU, Senior Notes
|
|
3.729
|
%
|
4/27/15
|
|
390,000
|
|
396,825
|
|
Telefonica Emisiones SAU, Senior Notes
|
|
5.877
|
%
|
7/15/19
|
|
400,000
|
|
421,000
|
|
Telefonica Emisiones SAU, Senior Notes
|
|
7.045
|
%
|
6/20/36
|
|
210,000
|
|
215,775
|
|
Verizon Communications Inc., Senior Notes
|
|
3.850
|
%
|
11/1/42
|
|
1,460,000
|
|
1,469,434
|
|
Total Diversified Telecommunication Services
|
|
|
|
|
|
|
|
12,815,990
|
|
Wireless Telecommunication Services 2.7%
|
|
|
|
|
|
|
|
|
|
America Movil SAB de CV, Senior Notes
|
|
6.125
|
%
|
3/30/40
|
|
1,400,000
|
|
1,852,179
|
|
Cellco Partnership/Verizon Wireless Capital LLC, Senior Notes
|
|
8.500
|
%
|
11/15/18
|
|
2,000,000
|
|
2,771,564
|
|
Rogers Communications Inc., Senior Notes
|
|
6.800
|
%
|
8/15/18
|
|
1,000,000
|
|
1,261,510
|
|
See Notes to Financial Statements.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
17
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Wireless Telecommunication Services continued
|
|
|
|
|
|
|
|
|
|
Sprint Nextel Corp., Senior Notes
|
|
9.000
|
%
|
11/15/18
|
|
$ 280,000
|
|
$ 345,800
|
(a)
|
Telefonica Europe BV
|
|
8.250
|
%
|
9/15/30
|
|
390,000
|
|
439,725
|
|
Total Wireless Telecommunication Services
|
|
|
|
|
|
|
|
6,670,778
|
|
Total Telecommunication Services
|
|
|
|
|
|
|
|
19,486,768
|
|
Utilities 7.2%
|
|
|
|
|
|
|
|
|
|
Electric Utilities 5.3%
|
|
|
|
|
|
|
|
|
|
Commonwealth Edison Co., First Mortgage Bonds
|
|
5.800
|
%
|
3/15/18
|
|
600,000
|
|
731,180
|
|
Commonwealth Edison Co., First Mortgage Bonds
|
|
6.450
|
%
|
1/15/38
|
|
600,000
|
|
829,748
|
|
FirstEnergy Corp., Notes
|
|
7.375
|
%
|
11/15/31
|
|
2,230,000
|
|
2,934,149
|
|
GenOn REMA LLC, Pass-Through Certificates
|
|
9.681
|
%
|
7/2/26
|
|
2,000,000
|
|
2,140,000
|
|
IPALCO Enterprises Inc., Senior Secured Notes
|
|
7.250
|
%
|
4/1/16
|
|
1,030,000
|
|
1,145,875
|
(a)
|
MidAmerican Energy Holdings Co., Bonds
|
|
6.125
|
%
|
4/1/36
|
|
1,000,000
|
|
1,290,582
|
|
MidAmerican Energy Holdings Co., Senior Notes
|
|
5.750
|
%
|
4/1/18
|
|
1,000,000
|
|
1,212,147
|
|
Pacific Gas & Electric Co., Senior Notes
|
|
8.250
|
%
|
10/15/18
|
|
600,000
|
|
821,231
|
|
Pacific Gas & Electric Co., Senior Notes
|
|
5.800
|
%
|
3/1/37
|
|
820,000
|
|
1,037,973
|
|
Virginia Electric and Power Co., Senior Notes
|
|
8.875
|
%
|
11/15/38
|
|
500,000
|
|
883,346
|
|
Total Electric Utilities
|
|
|
|
|
|
|
|
13,026,231
|
|
Gas Utilities 0.9%
|
|
|
|
|
|
|
|
|
|
Southern Natural Gas Co., Senior Notes
|
|
8.000
|
%
|
3/1/32
|
|
1,500,000
|
|
2,221,075
|
|
Independent Power Producers & Energy Traders 0.7%
|
|
|
|
|
|
|
|
|
AES Corp., Senior Notes
|
|
8.000
|
%
|
6/1/20
|
|
1,100,000
|
|
1,276,000
|
|
Exelon Generation Co., LLC, Senior Notes
|
|
4.250
|
%
|
6/15/22
|
|
340,000
|
|
362,465
|
(a)
|
Total Independent Power Producers & Energy Traders
|
|
|
|
|
|
1,638,465
|
|
Multi-Utilities 0.3%
|
|
|
|
|
|
|
|
|
|
Dominion Resources Inc., Senior Notes
|
|
8.875
|
%
|
1/15/19
|
|
500,000
|
|
683,631
|
|
Total Utilities
|
|
|
|
|
|
|
|
17,569,402
|
|
Total Corporate Bonds & Notes (Cost $191,451,793)
|
|
|
|
|
|
|
226,414,616
|
|
Collateralized Senior Loans 1.8%
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 0.6%
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure 0.4%
|
|
|
|
|
|
|
|
|
|
CCM Merger Inc., New Term Loan B
|
|
6.000
|
%
|
3/1/17
|
|
853,843
|
|
857,579
|
(d)
|
Media 0.2%
|
|
|
|
|
|
|
|
|
|
Cengage Learning Acquisitions Inc., Extended Term Loan
|
|
5.710
|
%
|
7/5/17
|
|
676,845
|
|
504,371
|
(d)
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
1,361,950
|
|
See Notes to Financial Statements.
18
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Schedule of investments (contd)
November 30, 2012
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Health Care 0.4%
|
|
|
|
|
|
|
|
|
|
Health Care Equipment & Supplies 0.4%
|
|
|
|
|
|
|
|
|
|
Fenwal Inc., First Lien Term Loan
|
|
2.459
|
%
|
2/28/14
|
|
$ 933,082
|
|
$ 933,082
|
(d)
|
Industrials 0.4%
|
|
|
|
|
|
|
|
|
|
Commercial Services & Supplies 0.4%
|
|
|
|
|
|
|
|
|
|
Nielsen Finance LLC, Term Loan B
|
|
3.959
|
%
|
5/2/16
|
|
965,281
|
|
966,790
|
(d)
|
Information Technology 0.2%
|
|
|
|
|
|
|
|
|
|
IT Services 0.2%
|
|
|
|
|
|
|
|
|
|
First Data Corp., Extended Term Loan B
|
|
4.208
|
%
|
3/23/18
|
|
401,246
|
|
382,904
|
(d)
|
First Data Corp., Non-Extended Term Loan B2
|
|
2.958
|
%
|
9/24/14
|
|
21,593
|
|
21,616
|
(d)
|
Total Information Technology
|
|
|
|
|
|
|
|
404,520
|
|
Utilities 0.2%
|
|
|
|
|
|
|
|
|
|
Electric Utilities 0.2%
|
|
|
|
|
|
|
|
|
|
Texas Competitive Electric Holdings Co. LLC, Extended Term Loan
|
4.709 - 4.810
|
%
|
10/10/17
|
|
944,308
|
|
614,850
|
(d)
|
Total Collateralized Senior Loans (Cost $4,400,906)
|
|
|
|
|
|
|
4,281,192
|
|
Sovereign Bonds 0.8%
|
|
|
|
|
|
|
|
|
|
Russia 0.8%
|
|
|
|
|
|
|
|
|
|
RSHB Capital, Loan Participation Notes, Senior Secured Notes
|
|
9.000
|
%
|
6/11/14
|
|
1,000,000
|
|
1,098,690
|
(a)
|
Russian Foreign Bond-Eurobond, Senior Bonds
|
|
7.500
|
%
|
3/31/30
|
|
775,000
|
|
986,653
|
(a)
|
Total Sovereign Bonds (Cost $1,793,682)
|
|
|
|
|
|
|
|
2,085,343
|
|
U.S. Government & Agency Obligations 0.2%
|
|
|
|
|
|
|
|
|
|
U.S. Government Obligations 0.2%
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes
|
|
0.625
|
%
|
8/31/17
|
|
10,000
|
|
10,026
|
|
U.S. Treasury Notes
|
|
1.625
|
%
|
11/15/22
|
|
380,000
|
|
380,712
|
|
Total U.S. Government & Agency Obligations (Cost $389,534)
|
|
|
|
|
|
390,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Convertible Preferred Stocks 0.3%
|
|
|
|
|
|
|
|
|
|
Financials 0.3%
|
|
|
|
|
|
|
|
|
|
Diversified Financial Services 0.3%
|
|
|
|
|
|
|
|
|
|
Citigroup Inc. (Cost $888,750)
|
|
7.500
|
%
|
|
|
7,500
|
|
752,625
|
|
Preferred Stocks 2.1%
|
|
|
|
|
|
|
|
|
|
Financials 2.1%
|
|
|
|
|
|
|
|
|
|
Capital Markets 0.5%
|
|
|
|
|
|
|
|
|
|
Goldman Sachs Group Inc.
|
|
5.950
|
%
|
|
|
46,370
|
|
1,147,194
|
|
See Notes to Financial Statements.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
19
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
Security
|
|
Rate
|
|
|
|
Shares
|
|
Value
|
|
Consumer Finance 1.3%
|
|
|
|
|
|
|
|
|
|
Discover Financial Services
|
|
6.500
|
%
|
|
|
30,515
|
|
$ 768,368
|
|
GMAC Capital Trust I
|
|
8.125
|
%
|
|
|
98,600
|
|
2,568,530
|
(b)
|
Total Consumer Finance
|
|
|
|
|
|
|
|
3,336,898
|
|
Diversified Financial Services 0.3%
|
|
|
|
|
|
|
|
|
|
Citigroup Capital XIII
|
|
7.875
|
%
|
|
|
26,225
|
|
734,300
|
(b)
|
Total Preferred Stocks (Cost $4,981,598)
|
|
|
|
|
|
|
|
5,218,392
|
|
Total Investments 98.2% (Cost $203,906,263#)
|
|
|
|
|
|
|
|
239,142,906
|
|
Other Assets in Excess of Liabilities 1.8%
|
|
|
|
|
|
|
|
4,328,851
|
|
Total Net Assets 100.0%
|
|
|
|
|
|
|
|
$243,471,757
|
|
(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 Directors, unless otherwise noted.
(b)
Variable rate security. Interest rate disclosed is as of the most recent information available.
(c)
Security has no maturity date. The date shown represents the next call date.
(d)
Interest rates disclosed represent the effective rates on collateralized senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan.
#
Aggregate cost for federal income tax purposes is $205,225,671.
See Notes to Financial Statements.
20
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Statement of assets and liabilities
November 30, 2012
Assets:
|
|
|
|
Investments, at value (Cost $203,906,263)
|
|
$239,142,906
|
|
Cash
|
|
751,553
|
|
Interest and dividends receivable
|
|
3,376,194
|
|
Receivable for securities sold
|
|
459,264
|
|
Deposits with brokers for open futures contracts
|
|
381,008
|
|
Unrealized appreciation on forward foreign currency contracts
|
|
16,919
|
|
Prepaid expenses
|
|
15,111
|
|
Total Assets
|
|
244,142,955
|
|
|
|
|
|
Liabilities:
|
|
|
|
Payable for securities purchased
|
|
409,171
|
|
Investment management fee payable
|
|
129,972
|
|
Payable to broker variation margin on open futures contracts
|
|
22,062
|
|
Unrealized depreciation on forward foreign currency contracts
|
|
10,825
|
|
Accrued expenses
|
|
99,168
|
|
Total Liabilities
|
|
671,198
|
|
Total Net Assets
|
|
$243,471,757
|
|
|
|
|
|
Net Assets:
|
|
|
|
Par value ($0.001 par value; 10,740,411 shares issued and outstanding; 100,000,000 shares authorized)
|
|
$ 10,740
|
|
Paid-in capital in excess of par value
|
|
204,847,052
|
|
Undistributed net investment income
|
|
1,353,108
|
|
Accumulated net realized gain on investments, futures contracts, written options, swap contracts and foreign currency transactions
|
|
2,188,403
|
|
Net unrealized appreciation on investments, futures contracts and foreign currencies
|
|
35,072,454
|
|
Total Net Assets
|
|
$243,471,757
|
|
|
|
|
|
Shares Outstanding
|
|
10,740,411
|
|
|
|
|
|
Net Asset Value
|
|
$22.67
|
|
See Notes to Financial Statements.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
21
|
Statement of operations
For the Year Ended November 30, 2012
Investment Income:
|
|
|
|
Interest
|
|
$13,157,088
|
|
Dividends
|
|
366,627
|
|
Less: Foreign taxes withheld
|
|
(43)
|
|
Total Investment Income
|
|
13,523,672
|
|
|
|
|
|
Expenses:
|
|
|
|
Investment management fee (Note 2)
|
|
1,519,915
|
|
Excise tax (Note 1)
|
|
61,797
|
|
Audit and tax
|
|
56,866
|
|
Directors fees
|
|
35,099
|
|
Transfer agent fees
|
|
32,229
|
|
Shareholder reports
|
|
29,517
|
|
Fund accounting fees
|
|
23,069
|
|
Stock exchange listing fees
|
|
19,253
|
|
Legal fees
|
|
18,274
|
|
Insurance
|
|
5,833
|
|
Custody fees
|
|
5,204
|
|
Miscellaneous expenses
|
|
8,805
|
|
Total Expenses
|
|
1,815,861
|
|
Net Investment Income
|
|
11,707,811
|
|
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
|
|
|
|
Net Realized Gain (Loss) From:
|
|
|
|
Investment transactions
|
|
5,164,692
|
|
Futures contracts
|
|
(1,399,179)
|
|
Written options
|
|
1,923
|
|
Swap contracts
|
|
27,427
|
|
Foreign currency transactions
|
|
75,019
|
|
Net Realized Gain
|
|
3,869,882
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
|
Investments
|
|
21,508,359
|
|
Futures contracts
|
|
(350,835)
|
|
Foreign currencies
|
|
(45,882)
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
|
21,111,642
|
|
Net Gain on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions
|
|
24,981,524
|
|
Increase in Net Assets from Operations
|
|
$36,689,335
|
|
See Notes to Financial Statements.
22
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Statements of changes in net assets
For the years ended November 30,
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
Net investment income
|
|
$
|
11,707,811
|
|
$
|
12,279,329
|
|
Net realized gain
|
|
3,869,882
|
|
1,492,940
|
|
Change in net unrealized appreciation (depreciation)
|
|
21,111,642
|
|
(7,611,127)
|
|
Increase in Net Assets From Operations
|
|
36,689,335
|
|
6,161,142
|
|
|
|
|
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
|
|
Net investment income
|
|
(13,432,309)
|
|
(11,428,059)
|
|
Net realized gains
|
|
(1,512,836)
|
|
(2,329,225)
|
|
Decrease in Net Assets From Distributions to Shareholders
|
|
(14,945,145)
|
|
(13,757,284)
|
|
|
|
|
|
|
|
Fund Share Transactions:
|
|
|
|
|
|
Reinvestment of distributions (64,083 and 29,395 shares issued, respectively)
|
|
1,373,534
|
|
612,686
|
|
Increase in Net Assets From Fund Share Transactions
|
|
1,373,534
|
|
612,686
|
|
Increase (Decrease) in Net Assets
|
|
23,117,724
|
|
(6,983,456)
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
Beginning of year
|
|
220,354,033
|
|
227,337,489
|
|
End of year*
|
|
$243,471,757
|
|
$220,354,033
|
|
* Includes undistributed net investment income of:
|
|
$1,353,108
|
|
$2,410,064
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
23
|
Financial highlights
For a share of capital stock outstanding throughout each year ended November 30, unless otherwise noted:
|
|
2012
1
|
|
2011
1
|
|
2010
1
|
|
2009
1,2
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
$20.64
|
|
$21.35
|
|
$20.58
|
|
$19.06
|
3
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
1.09
|
|
1.15
|
|
1.17
|
|
0.44
|
|
Net realized and unrealized gain (loss)
|
|
2.33
|
|
(0.57)
|
|
0.85
|
|
1.50
|
|
Total income from operations
|
|
3.42
|
|
0.58
|
|
2.02
|
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(1.25)
|
|
(1.07)
|
|
(1.17)
|
|
(0.42)
|
|
Net realized gains
|
|
(0.14)
|
|
(0.22)
|
|
(0.08)
|
|
|
|
Total distributions
|
|
(1.39)
|
|
(1.29)
|
|
(1.25)
|
|
(0.42)
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$22.67
|
|
$20.64
|
|
$21.35
|
|
$20.58
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$23.69
|
|
$21.55
|
|
$20.79
|
|
$19.64
|
|
Total return, based on NAV
4,5
|
|
17.12
|
%
|
2.96
|
%
|
10.28
|
%
|
10.32
|
%
|
Total return, based on Market Price
6
|
|
17.28
|
%
|
10.40
|
%
|
12.52
|
%
|
0.33
|
%
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000s)
|
|
$243,472
|
|
$220,354
|
|
$227,337
|
|
$216,952
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
0.78
|
%
|
0.80
|
%
|
0.81
|
%
|
0.86
|
%
7
|
Net expenses
8
|
|
0.78
|
|
0.80
|
|
0.81
|
|
0.83
|
7,9
|
Net investment income
|
|
5.01
|
|
5.43
|
|
5.60
|
|
5.12
|
7
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
82
|
%
|
49
|
%
|
31
|
%
|
19
|
%
|
1
Per share amounts have been calculated using the average shares method.
2
For the period June 26, 2009 (commencement of operations) through November 30, 2009.
3
Initial public offering price of $20.00 per share less offering costs and sales load totaling $0.94 per share.
4
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
5
The total return calculation assumes that distributions are reinvested at NAV. Prior to January 1, 2012, the total return calculation assumed the reinvestment of all distributions in accordance with the Funds dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
6
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.
7
Annualized.
8
The impact of compensating balance arrangements, if any, was less than 0.01%.
9
The investment manager has agreed to reimburse all organizational expenses.
See Notes to Financial Statements.
24
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements
1. Organization and significant accounting policies
Western Asset Investment Grade Defined Opportunity Trust Inc. (the Fund) was incorporated in Maryland on April 24, 2009 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the 1940 Act). The Funds primary investment objective is to provide current income and then to liquidate and distribute substantially all of the Funds net assets to stockholders on or about December 2, 2024. As a secondary investment objective, the Fund will seek capital appreciation. There can be no assurance the Fund will achieve its investment objectives.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(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. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investments fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). 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
|
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Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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|
25
|
net asset value, the Fund values these securities as determined in accordance with procedures approved by the Funds Board of Directors.
The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the Valuation Committee). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Funds pricing policies, and reporting to the Board of Directors. 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 circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuers 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 Directors, 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 Directors 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
26
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
·
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 Funds 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 Funds assets and liabilities carried at fair value:
Description
|
|
Quoted Prices
(Level 1)
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
Corporate bonds & notes
|
|
|
|
$226,414,616
|
|
|
|
$226,414,616
|
|
Collateralized senior loans
|
|
|
|
4,281,192
|
|
|
|
4,281,192
|
|
Sovereign bonds
|
|
|
|
2,085,343
|
|
|
|
2,085,343
|
|
U.S. government & agency obligations
|
|
|
|
390,738
|
|
|
|
390,738
|
|
Convertible preferred stocks
|
|
$752,625
|
|
|
|
|
|
752,625
|
|
Preferred stocks
|
|
5,218,392
|
|
|
|
|
|
5,218,392
|
|
Total long-term investments
|
|
$5,971,017
|
|
$233,171,889
|
|
|
|
$239,142,906
|
|
Other financial instruments:
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$ 5,302
|
|
|
|
|
|
$ 5,302
|
|
Forward foreign currency contracts
|
|
|
|
$ 16,919
|
|
|
|
16,919
|
|
Total other financial instruments
|
|
$ 5,302
|
|
$ 16,919
|
|
|
|
$ 22,221
|
|
Total
|
|
$5,976,319
|
|
$233,188,808
|
|
|
|
$239,165,127
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Other financial instruments:
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$175,585
|
|
|
|
|
|
$175,585
|
|
Forward foreign currency contracts
|
|
|
|
$10,825
|
|
|
|
10,825
|
|
Total
|
|
$175,585
|
|
$10,825
|
|
|
|
$186,410
|
|
See Schedule of Investments for additional detailed categorizations.
(b) Repurchase agreements.
The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Funds holding period. When entering into repurchase agreements, it is the Funds policy that its custodian or a third party custodian, acting on the
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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|
27
|
Funds behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(c) Futures contracts.
The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the initial margin and subsequent payments (variation margin) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. The daily changes in contract value are recorded as unrealized gains or losses in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(d) Written options.
When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Funds basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Funds basis in the
28
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity of 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. The risk in writing an uncovered call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(e) Forward foreign currency contracts.
The Fund enters into forward foreign currency contracts to hedge against, or manage exposure to, foreign issuers or markets. The Fund may also enter into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it is closed.
Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.
(f) Swap agreements.
The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes, including to increase the Funds return. The use of swaps involves risks that are different from those associated with other portfolio transactions.
Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Funds custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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|
29
|
of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts terms, and the possible lack of liquidity with respect to the swap agreements.
Payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities. These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.
The Funds maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of November 30, 2012, the Fund did not hold any credit default swaps to sell protection.
For average notional amounts of swaps held during the year ended November 30, 2012, see Note 4.
Credit default swaps
The Fund enters into credit default swap (CDS) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuers default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.
30
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entitys credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Notes to Financial Statements and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.
The Funds maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty). As the protection seller, the Funds maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.
(g) Loan participations.
The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Funds investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.
The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation,
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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|
31
|
the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.
(h) Credit and market risk.
The Fund invests in high-yield instruments that are subject to certain credit and market risks. The yields of high-yield obligations reflect, among other things, perceived credit and market risks. The Funds investments in securities rated below investment grade typically involves risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading.
(i) Foreign investment risks.
The Funds investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(j) Counterparty risk and credit-risk-related contingent features of derivative instruments.
The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Funds investment manager attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Funds net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
32
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
As of November 30, 2012, the Fund held forward foreign currency contracts with credit related contingent features which had a liability position of $10,825. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.
(k) Foreign currency translation.
Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(l) Security transactions and investment income.
Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existance of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
(m) Distributions to shareholders.
Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis.
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|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
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|
33
|
Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(n) Compensating balance arrangements.
The Fund has an arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
(o) Federal and other taxes.
It is the Funds policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the Code), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds financial statements. However, due to the timing of when distributions are made, the Fund may be subject to an excise tax of 4% of the amount by which 98% of the Funds annual taxable income and 98.2% of net realized gains exceed the distributions from such taxable income and realized gains for the calendar year. The Fund paid $86,055 of federal excise tax attributable to calendar year 2011 in March 2012. The Fund anticipates being subject to an excise tax for calendar year 2012 of approximately $151,000.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of November 30, 2012, no provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
(p) Reclassification.
GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the following reclassifications have been made:
|
|
Undistributed Net
Investment Income
|
|
Accumulated Net
Realized Gain
|
|
Paid-in Capital
|
|
(a)
|
|
$ 61,797
|
|
|
|
$(61,797)
|
|
(b)
|
|
605,745
|
|
$(605,745)
|
|
|
|
(a)
Reclassifications are primarily due to a non-deductible excise tax paid by the Fund.
(b)
Reclassifications are primarily due to foreign currency transactions treated as ordinary income for tax purposes, differences between book and tax amortization of premium on fixed income securities and book/tax differences in the treatment of swaps.
34
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager. Western Asset Management Company (Western Asset), Western Asset Management Company Pte. Ltd. (Western Singapore), Western Asset Management Company Ltd. (Western Japan) and Western Asset Management Company Limited (Western Asset Limited) are the Funds subadvisers. LMPFA, Western Asset, Western Singapore, Western Japan and Western Asset Limited are wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason).
LMPFA provides administrative and certain oversight services to the Fund. The Fund pays LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.65% of the Funds average daily net assets.
LMPFA delegates to Western Asset the day-to-day portfolio management of the Fund. Western Singapore, Western Japan and Western Asset Limited provide certain advisory services to the Fund relating to currency transactions and investment in non-U.S. dollar denominated debt securities. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Singapore, Western Japan and Western Asset Limited a fee for their services at no additional expense to the Fund. Each of Western Singapore, Western Japan and Western Asset Limited receives a fee from Western Asset, payable monthly, in an amount equal to 70% of the Funds fee paid to LMPFA by the Fund related to the Funds assets that Western Asset allocates to Western Singapore, Western Japan and Western Asset Limited, respectively, to manage.
All officers and one Director of the Fund are employees of Legg Mason or its affiliates and do not receive compensation from the Fund.
3. Investments
During the year ended November 30, 2012, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S Government & Agency Obligations were as follows:
|
|
Investments
|
|
U.S. Government &
Agency Obligations
|
|
Purchases
|
|
$137,326,976
|
|
$48,675,373
|
|
Sales
|
|
140,532,965
|
|
48,235,505
|
|
At November 30, 2012, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation
|
|
$34,686,644
|
|
|
|
Gross unrealized depreciation
|
|
(769,409
|
)
|
|
|
Net unrealized appreciation
|
|
$33,917,235
|
|
|
|
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
35
|
At November 30, 2012, the Fund had the following open futures contracts:
|
|
Number of
Contracts
|
|
Expiration
Date
|
|
Basis
Value
|
|
Market
Value
|
|
Unrealized
Gain (Loss)
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 5-Year Notes
|
|
32
|
|
3/13
|
|
$ 3,985,698
|
|
$ 3,991,000
|
|
$ 5,302
|
|
U.S. Treasury Ultra Long-Term Bonds
|
|
10
|
|
3/13
|
|
1,661,689
|
|
1,659,375
|
|
(2,314
|
)
|
|
|
|
|
|
|
|
|
|
|
2,988
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 2-Year Notes
|
|
4
|
|
3/13
|
|
881,425
|
|
881,813
|
|
(388
|
)
|
U.S. Treasury 10-Year Notes
|
|
81
|
|
3/13
|
|
10,783,995
|
|
10,824,891
|
|
(40,896
|
)
|
U.S. Treasury 30-Year Bonds
|
|
109
|
|
3/13
|
|
16,224,825
|
|
16,356,812
|
|
(131,987
|
)
|
|
|
|
|
|
|
|
|
|
|
(173,271
|
)
|
Net unrealized loss on open futures contracts
|
|
|
|
|
|
|
|
|
|
$(170,283
|
)
|
At November 30 2012, the Fund had the following open forward foreign currency contracts:
Foreign Currency
|
|
Counterparty
|
|
Local
Currency
|
|
Market
Value
|
|
Settlement
Date
|
|
Unrealized
Gain (Loss)
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
British Pound
|
|
Barclays Bank PLC
|
|
617,000
|
|
$ 988,419
|
|
1/25/13
|
|
$ (16)
|
|
Euro
|
|
Citibank, N.A.
|
|
1,822,145
|
|
2,371,063
|
|
1/25/13
|
|
5,925
|
|
Japanese Yen
|
|
Citibank, N.A.
|
|
99,590,000
|
|
1,208,769
|
|
1/25/13
|
|
10,994
|
|
Euro
|
|
Citibank, N.A.
|
|
404,000
|
|
525,813
|
|
2/15/13
|
|
(10,809)
|
|
Net unrealized gain on open forward foreign currency contracts
|
|
|
|
|
|
$ 6,094
|
|
During the year ended November 30, 2012, written option transactions for the Fund were as follows:
|
|
Number of Contracts
|
|
Premiums
|
|
Written options, outstanding as of November, 30, 2011
|
|
|
|
|
|
Options written
|
|
7
|
|
$2,165
|
|
Options closed
|
|
(7)
|
|
(2,165)
|
|
Options exercised
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
Written options, outstanding as of November 30, 2012
|
|
|
|
|
|
4. Derivative instruments and hedging activities
GAAP requires enhanced disclosure about an entitys derivative and hedging activities.
36
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at November 30, 2012.
|
|
Interest Rate
Risk
|
|
Foreign
Exchange Risk
|
|
Total
|
|
Futures contracts
2
|
|
$5,302
|
|
|
|
$ 5,302
|
|
Forward foreign currency contracts
|
|
|
|
$16,919
|
|
16,919
|
|
Total
|
|
$5,302
|
|
$16,919
|
|
$22,221
|
|
|
|
Interest Rate
Risk
|
|
Foreign
Exchange Risk
|
|
Total
|
|
Futures contracts
2
|
|
$175,585
|
|
|
|
$175,585
|
|
Forward foreign currency contracts
|
|
|
|
$10,825
|
|
10,825
|
|
Total
|
|
$175,585
|
|
$10,825
|
|
$186,410
|
|
1
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation (depreciation) and for liability derivatives is payables/net unrealized appreciation (depreciation).
2
Includes cumulative appreciation (depreciation) of futures contracts as reported in the footnotes. Only variation margin is reported within the receivables and/or payables of the Statement of Assets and Liabilities.
The following tables provide information about the effect of derivatives and hedging activities on the Funds Statement of Operations for the year ended November 30, 2012. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Funds derivatives and hedging activities during the period.
AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
|
|
Interest
Rate
Risk
|
|
Foreign
Exchange
Risk
|
|
Credit
Risk
|
|
Total
|
|
Written options
|
|
$ 1,923
|
|
|
|
|
|
$ 1,923
|
|
Futures contracts
|
|
(1,399,179
|
)
|
|
|
|
|
(1,399,179
|
)
|
Swap contracts
|
|
|
|
|
|
$27,427
|
|
27,427
|
|
Forward foreign currency contracts
|
|
|
|
$75,019
|
|
|
|
75,019
|
|
Total
|
|
$(1,397,256
|
)
|
$75,019
|
|
$27,427
|
|
$(1,294,810
|
)
|
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
37
|
CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|
Interest
Rate
Risk
|
|
Foreign
Exchange
Risk
|
|
Total
|
|
Futures contracts
|
|
$(350,835)
|
|
|
|
$(350,835)
|
|
Forward foreign currency contracts
|
|
|
|
$(45,882)
|
|
(45,882)
|
|
Total
|
|
$(350,835)
|
|
$(45,882)
|
|
$(396,717)
|
|
During the year ended November 30, 2012, the volume of derivative activity for the Fund was as follows:
|
|
Average Market
Value
|
|
Written options
|
|
$ 5
|
|
Futures contracts (to buy)
|
|
6,728,637
|
|
Futures contracts (to sell)
|
|
28,002,064
|
|
Forward foreign currency contracts (to buy)
|
|
276,210
|
|
Forward foreign currency contracts (to sell)
|
|
3,043,164
|
|
|
|
|
|
|
|
Average
Notional Balance
|
|
Credit default swap contracts (to sell protection)
|
|
$104,615
|
|
At November 30, 2012, there were no open positions held in this derivative.
5. Distributions subsequent to November 30, 2012
On November 8, 2012, the Funds Board of Directors declared a distribution in the amount of $0.1700 per share, payable on December 21, 2012 to shareholders of record on December 14, 2012, and two distributions, each in the amount of $0.1000 per share, payable on January 25, 2013 and February 22, 2013 to shareholders of record on January 18, 2013 and February 15, 2013, respectively.
6. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended November 30 was as follows:
|
|
2012
|
|
2011
|
|
Distributions Paid From:
|
|
|
|
|
|
Ordinary income
|
|
$13,432,309
|
|
$12,796,740
|
|
Net long-term capital gains
|
|
1,512,836
|
|
960,544
|
|
Total taxable distributions
|
|
$14,945,145
|
|
$13,757,284
|
|
38
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
|
Notes to financial statements (contd)
As of November 30, 2012, the components of accumulated earnings on a tax basis were as follows:
Undistributed ordinary income net
|
|
$ 3,417,726
|
|
Undistributed long-term capital gains net
|
|
1,533,928
|
|
Total undistributed earnings
|
|
$ 4,951,654
|
|
Other book/tax temporary differences
(a)
|
|
(90,735
|
)
|
Unrealized appreciation (depreciation)
(b)
|
|
33,753,046
|
|
Total accumulated earnings (losses) net
|
|
$38,613,965
|
|
(a)
Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized gains (losses) on certain futures and foreign currency contracts, qualified late year losses for tax purposes, the tax deferral of losses from straddles and book/tax differences in the timing of the deductibility of various expenses.
(b)
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the difference between book and tax amortization methods for premiums on fixed income securities.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc. 2012 Annual Report
|
|
39
|
Report of independent registered public accounting firm
The Board of Directors and Shareholders
Western Asset Investment Grade Defined Opportunity Trust Inc.:
We have audited the accompanying statement of assets and liabilities of Western Asset Investment Grade Defined Opportunity Trust Inc., including the schedule of investments, as of November 30, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended and the period from June 26, 2009 (commencement of operations) to November 30, 2009. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of November 30, 2012, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Western Asset Investment Grade Defined Opportunity Trust Inc. as of November 30, 2012, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended and the period from June 26, 2009 (commencement of operations) to November 30, 2009, in conformity with U.S. generally accepted accounting principles.
New York, New York
January 18, 2013
40
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Commodity exchange act regulation exclusion (unaudited)
The Fund is operated by persons who have claimed an exclusion, granted to operators of registered investment companies like the Fund, from registration as a commodity pool operator with respect to the Fund under the Commodity Exchange Act (the CEA), and, therefore, are not subject to registration or regulation with respect to the Fund under the CEA. As a result, effective December 31, 2012, the Fund is limited in its ability to use commodity futures (which include futures on broad-based securities indexes and interest rate futures) (collectively, commodity interests) or options on commodity futures, engage in certain swaps transactions or make certain other investments (whether directly or indirectly through investments in other investment vehicles) for purposes other than bona fide hedging, as defined in the rules of the Commodity Futures Trading Commission. With respect to transactions other than for bona fide hedging purposes, either: (1) the aggregate initial margin and premiums required to establish the Funds positions in such investments may not exceed 5% of the liquidation value of the Funds portfolio (after accounting for unrealized profits and unrealized losses on any such investments); or (2) the aggregate net notional value of such instruments, determined at the time the most recent position was established, may not exceed 100% of the liquidation value of the Funds portfolio (after accounting for unrealized profits and unrealized losses on any such positions). In addition to meeting one of the foregoing trading limitations, the Fund may not market itself as a commodity pool or otherwise as a vehicle for trading in the futures, options or swaps markets.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
41
|
Board approval of management and sub-advisory agreements (unaudited)
Background
The Investment Company Act of 1940, as amended (the 1940 Act), requires that the Board of Directors (the Board) of Western Asset Investment Grade Defined Opportunity Trust Inc. (the Fund), including a majority of its members that are not considered to be interested persons under the 1940 Act (the Independent Directors) voting separately, approve on an annual basis the continuation of the investment management contract (the Management Agreement) with the Funds manager, Legg Mason Partners Fund Advisor, LLC (the Manager), and the sub-advisory agreements (individually, a Sub-Advisory Agreement and, collectively, the Sub-Advisory Agreements) with the Managers affiliates, Western Asset Management Company (Western Asset), Western Asset Management Company Pte. Ltd. in Singapore (Western Asset Singapore), Western Asset Management Company Ltd in Japan (Western Asset Japan) and Western Asset Management Company Limited in London (Western Asset London). Western Asset, Western Asset Singapore, Western Asset Japan and Western Asset London collectively are hereinafter referred to as the Sub-Advisers, and Western Asset Singapore, Western Asset Japan and Western Asset London together are hereinafter referred to as the Non-U.S. Sub-Advisers. At a meeting (the Contract Renewal Meeting) held in-person on November 7 and 8, 2012, the Board, including the Independent Directors, considered and approved the continuation of each of the Management Agreement and the Sub-Advisory Agreements for an additional one-year term. To assist in its consideration of the renewals of the Management Agreement and the Sub-Advisory Agreements, the Board received and considered a variety of information (together with the information provided at the Contract Renewal Meeting, the Contract Renewal Information) about the Manager and the Sub-Advisers, as well as the management and sub-advisory arrangements for the Fund and the other closed-end funds in the same complex under the Boards supervision (collectively, the Legg Mason Closed-end Funds), certain portions of which are discussed below. A presentation made by the Manager and Western Asset to the Board at the Contract Renewal Meeting in connection with its evaluations of the Management Agreement and the Sub-Advisory Agreements encompassed the Fund and other Legg Mason Closed-end Funds. In addition to the Contract Renewal Information, the Board received performance and other information throughout the year related to the respective services rendered by the Manager and the Sub-Advisers to the Fund. The Boards evaluation took into account the information received throughout the year and also reflected the knowledge and familiarity gained as members of the Board of the Fund and other Legg Mason Closed-end Funds with respect to the services provided to the Fund by the Manager and the Sub-Advisers.
The Manager provides the Fund with investment advisory and administrative services pursuant to the Management Agreement and the Sub-Advisers provide, or in the case of the Non-U.S. Sub-Advisers help to provide, the Fund
42
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Board approval of management and sub-advisory agreements (unaudited) (contd)
with certain investment sub-advisory services pursuant to the Sub-Advisory Agreements. The discussion below covers both the advisory and administrative functions being rendered by the Manager, each such function being encompassed by the Management Agreement, and the investment sub-advisory functions being rendered by the Sub-Advisers.
Board approval of management agreement and sub-advisory agreements
In its deliberations regarding renewal of the Management Agreement and the Sub-Advisory Agreements, the Board, including the Independent Directors, considered the factors below.
Nature, extent and quality of the services under the management agreement and sub-advisory agreements
The Board received and considered Contract Renewal Information regarding the nature, extent and quality of services provided to the Fund by the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, during the past year. The Board also reviewed Contract Renewal Information regarding the Funds compliance policies and procedures established pursuant to the 1940 Act.
The Board reviewed the qualifications, backgrounds and responsibilities of the Funds senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered, based on its knowledge of the Manager and its affiliates, the Contract Renewal Information and the Boards discussions with the Manager and Western Asset at the Contract Renewal Meeting, the general reputation and investment performance records of the Manager, Western Asset and their affiliates and the financial resources available to the corporate parent of the Manager and the Sub-Advisers, Legg Mason, Inc. (Legg Mason), to support their activities in respect of the Fund and the other Legg Mason Closed-end Funds.
The Board considered the responsibilities of the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, including the Managers coordination and oversight of the services provided to the Fund by the Sub-Advisers and others and Western Assets coordination and oversight of services provided to the Fund by the Non-U.S. Sub-Advisers. The Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties thereunder, provided that the Manager, in each case, will supervise the activities of the delegee. Pursuant to this provision of the Management Agreement, the Manager does not provide day-to-day portfolio management services to the Fund. Rather, portfolio management services for the Fund are provided by Western Asset pursuant to the Sub-Advisory Agreement (the Western Asset Sub-Advisory Agreement) between the
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
43
|
Manager and Western Asset. The Western Asset Sub-Advisory Agreement permits Western Asset to delegate certain of its responsibilities, including its sub-advisory duties thereunder, provided that Western Asset, in each case, will supervise the activities of the delegee. Each Non-U.S. Sub-Adviser helps to provide certain sub-advisory services to the Fund pursuant to a separate Sub-Advisory Agreement with Western Asset.
In reaching its determinations regarding continuation of the Management Agreement and the Sub-Advisory Agreements, the Board took into account that Fund shareholders, in pursuing their investment goals and objectives, likely purchased their shares based upon the reputation and the investment style, philosophy and strategy of the Manager and Western Asset, as well as the resources available to the Manager and the Sub-Advisers.
In evaluating the nature, extent and quality of the investment advisory and other services provided, and which are expected to be provided, to the Fund pursuant to the Management Agreement and the Sub-Advisory Agreements, the Board inquired as to any impact on the Funds operations of significant changes in the senior management of the Manager and Legg Mason and other personnel providing services to the Fund during the past two years to the date of the Contract Renewal Meeting, including the resignation of Legg Masons Chief Executive Officer (CEO). At the Contract Renewal Meeting, the interim CEO and other senior representatives of Legg Mason and the Manager discussed these changes with the Board and assured the Board that such changes have not resulted, and are not expected in the future to result, in any diminution in the nature, extent or quality of services provided to the Fund and that the Board of Directors of Legg Mason had undertaken a search for a permanent CEO. In addition, the Board inquired as to published reports speculating that control of Legg Mason, the Manager or certain affiliates of Legg Mason, including the Sub-Advisers, might change. The senior representatives of Legg Mason discussed these published reports with the Board, confirming Legg Masons continuing commitment to its current business model and its affiliations with the Manager and the Sub-Advisers.
The Board concluded that, overall, the nature, extent and quality of the management and other services provided to the Fund under the Management Agreement and the Sub-Advisory Agreements have been satisfactory under the circumstances.
Fund performance
The Board received and considered performance information and analyses (the Lipper Performance Information) for the Fund, as well as for a group of funds (the Performance Universe) selected by Lipper, Inc. (Lipper), an independent provider of investment company data. The Board was provided with a description of the methodology Lipper used to determine the similarity of the Fund with the funds included in the Performance Universe. The
44
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Board approval of management and sub-advisory agreements (unaudited) (contd)
Performance Universe included the Fund and all non-leveraged BBB-rated corporate debt closed-end funds, as classified by Lipper, regardless of asset size. The Board noted that it had received and discussed with the Manager and Western Asset information throughout the year at periodic intervals comparing the Funds performance against its benchmarks and its peer funds as selected by Lipper.
The Lipper Performance Information comparing the Funds performance to that of the Performance Universe based on net asset value per share showed, among other things, that the Funds performance for the 1-year period ended June 30, 2012 was ranked fifth among the thirteen funds in the Performance Universe for that period and was better than the Performance Universe median. The Funds performance for the 3-year period ended June 30, 2012 was ranked seventh among the twelve funds in the Performance Universe for that period and was slightly worse than the Performance Universe median. The Board considered that the small number of funds in the Performance Universe made meaningful performance comparisons difficult. The Board also considered the Funds performance relative to its benchmarks and in absolute terms.
Based on its review of the Funds performance, the Board concluded that, under the circumstances, continuation of the Management Agreement and the Sub-Advisory Agreements for an additional period not to exceed one year would be in the interests of the Fund and its shareholders.
Management fees and expense ratios
The Board reviewed and considered the management fee (the Management Fee) payable by the Fund to the Manager under the Management Agreement and the sub-advisory fees (the Sub-Advisory Fees) payable to the Sub-Advisers under the Sub-Advisory Agreements in light of the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager and the Sub-Advisers. The Board noted that the Sub-Advisory Fees payable to Western Asset under the Western Asset Sub-Advisory Agreement are paid by the Manager, not the Fund, and accordingly, that the retention of Western Asset does not increase the fees or expenses otherwise incurred by the Funds shareholders. Similarly, the Board noted that the Sub-Advisory Fees payable to each of the Non-U.S. Sub-Advisers under its Sub-Advisory Agreement with Western Asset are paid by Western Asset, not the Fund, and, accordingly, that the retention of such Non-U.S. Sub-Advisers does not increase the fees or expenses otherwise incurred by the Funds shareholders.
Additionally, the Board received and considered information and analyses prepared by Lipper (the Lipper Expense Information) comparing the Management Fee and the Funds overall expenses with those of funds in an expense group (the Expense Group) selected and provided by Lipper. The
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
45
|
comparison was based upon the constituent funds latest fiscal years. The Expense Group consisted of the Fund and eight other non-leveraged BBB-rated corporate debt closed-end funds, as classified by Lipper. The Expense Group funds had net common share assets ranging from $140.0 million to $230.3 million. Two of the other funds in the Expense Group were larger than the Fund and six were smaller.
The Lipper Expense Information, comparing the Management Fee as well as the Funds actual total expenses to the Funds Expense Group, showed, among other things, that the Management Fee on both a contractual basis and on an actual basis (i.e., giving effect to any voluntary fee waivers implemented by the Manager with respect to the Fund and by the managers of the other Expense Group funds) was ranked eighth among the funds in the Expense Group and was worse than the Expense Group median and that the Funds actual total expenses were ranked seventh among the funds in the Expense Group and also were worse than the Expense Group average for that expense component. The Manager noted the small differential between the Funds actual total expenses and the Expense Group average. The Board noted that the small number of funds in the Expense Group made meaningful expense comparisons difficult.
The Board also reviewed Contract Renewal Information regarding fees charged by the Manager to other U.S. clients investing primarily in an asset class similar to that of the Fund, including, where applicable, institutional and separate accounts. The Board was advised that the fees paid by such institutional, separate account and other clients generally are lower, and may be significantly lower, than the Management Fee. The Contract Renewal Information discussed the significant differences in scope of services provided to the Fund and to these other clients, noting that the Fund is provided with administrative services, office facilities, Fund officers (including the Funds chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Contract Renewal Information included information regarding management fees paid by open-end mutual funds in the same complex (the Legg Mason Open-end Funds) and that such information indicated that the management fees paid by the Legg Mason Closed-end Funds generally were higher than those paid by the Legg Mason Open-end Funds. The Manager, in response to an inquiry by the Board as to the reasons for the fee differential, provided information as to differences between the services provided to the Fund and the other Legg Mason Closed-end Funds and services provided to the Legg Mason Open-end Funds. The Board considered the fee comparisons in light of the different services provided in managing these other types of clients and funds.
Taking all of the above into consideration, the Board determined that the Management Fee and the Sub-Advisory Fees were reasonable in light of the
46
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Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Board approval of management and sub-advisory agreements (unaudited) (contd)
nature, extent and overall quality of the management, investment advisory and other services provided to the Fund under the Management Agreement and the Sub-Advisory Agreements.
Manager profitability
The Board, as part of the Contract Renewal Information, received an analysis of the profitability to the Manager and its affiliates in providing services to the Fund for the Managers fiscal years ended March 31, 2012 and March 31, 2011. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received Contract Renewal Information with respect to the Managers revenue and cost allocation methodologies used in preparing such profitability data. The Board received a report from an outside consultant engaged by the Manager that had reviewed the Managers revenue and cost allocation methodologies. The profitability to each of the Sub-Advisers was not considered to be a material factor in the Boards considerations since Western Assets Sub-Advisory Fee is paid by the Manager and the Sub-Advisory Fees for the Non-U.S. Sub-Advisers, in each case, are paid by Western Asset. The profitability analysis presented to the Board as part of the Contract Renewal Information indicated that the Funds profitability increased by 6% during the period covered by the analysis but remained at a level which the Board believed to be reasonable in light of the nature, extent and overall quality of the investment advisory and other services provided to the Fund.
Economies of scale
The Board received and discussed Contract Renewal Information concerning whether the Manager realizes economies of scale if the Funds assets grow. The Board noted that because the Fund is a closed-end fund with no current plans to seek additional assets beyond maintaining its dividend reinvestment plan, any significant growth in its assets generally will occur through appreciation in the value of the Funds investment portfolio, rather than sales of additional shares in the Fund. The Board determined that the Management Fee structure, which incorporates no breakpoints reducing the Management Fee at specified increased asset levels, was appropriate under present circumstances.
Other benefits to the manager and the sub-advisers
The Board considered other benefits received by the Manager, the Sub-Advisers and their affiliates as a result of their relationship with the Fund and did not regard such benefits as excessive.
* * * * * *
In light of all of the foregoing and other relevant factors, the Board determined that, under the circumstances, continuation of the Management Agreement and the Sub-Advisory Agreements would be consistent with the
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Western Asset Investment Grade Defined Opportunity Trust Inc.
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47
|
interests of the Fund and its shareholders and unanimously voted to continue each Agreement for a period of one additional year.
No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve continuation of the Management Agreement and the Sub-Advisory Agreements, and each Board member attributed different weights to the various factors. The Independent Directors were advised by separate independent legal counsel throughout the process. Prior to the Contract Renewal Meeting, the Board received a memorandum prepared by the Manager discussing its responsibilities in connection with the proposed continuation of the Management Agreement and the Sub-Advisory Agreements as part of the Contract Renewal Information and the Independent Directors separately received a memorandum discussing such responsibilities from their independent counsel. Prior to voting, the Independent Directors also discussed the proposed continuation of the Management Agreement and the Sub-Advisory Agreements in private sessions with their independent legal counsel at which no representatives of the Manager were present.
48
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Western Asset Investment Grade Defined Opportunity Trust Inc.
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|
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Additional information (unaudited)
Information about Directors and Officers
The business and affairs of Western Asset Investment Grade Defined Opportunity Trust Inc. (the Fund) are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c/o R. Jay Gerken, 620 Eighth Avenue, 49th Floor, New York, New York 10018. Information pertaining to the Directors and officers of the Fund is set forth below.
Independent Directors:
Carol L. Colman
|
|
|
Year of birth
|
|
1946
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
President, Colman Consulting Company (consulting)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
28
|
Other board memberships held by Director
|
|
None
|
|
|
|
Daniel P. Cronin
|
|
|
Year of birth
|
|
1946
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
28
|
Other board memberships held by Director
|
|
None
|
|
|
|
Paolo M. Cucchi
|
|
|
Year of birth
|
|
1941
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Professor of French and Italian at Drew University; formerly, Vice President and Dean of College of Liberal Arts at Drew University (1984 to 2009)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
28
|
Other board memberships held by Director
|
|
None
|
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
49
|
Independent Directors contd
Leslie H. Gelb
|
|
|
Year of birth
|
|
1937
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class II
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
President Emeritus and Senior Board Fellow (since 2003), The Council on Foreign Relations; formerly, President, (prior to 2003), the Council on Foreign Relations; formerly, Columnist, Deputy Editorial Page Editor and Editor, Op-Ed Page, The New York Times
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
28
|
Other board memberships held by Director
|
|
Director of two registered investment companies advised by Aberdeen Asset Management Asia Limited (since 1994)
|
|
|
|
William R. Hutchinson
|
|
|
Year of birth
|
|
1942
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class II
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
President, W.R. Hutchinson & Associates Inc. (Consulting) (since 2001)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
28
|
Other board memberships held by Director
|
|
Director (Non-Executive Chairman of the Board (since December 1, 2009)), Associated Banc Corp. (banking) (since 1994)
|
|
|
|
Riordan Roett
|
|
|
Year of birth
|
|
1938
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class III
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
The Sarita and Don Johnston Professor of Political Science and Director of Western Hemisphere Studies, Paul H. Nitze School of Advanced International Studies, The John Hopkins University (since 1973)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
28
|
Other board memberships held by Director
|
|
None
|
50
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Additional information (unaudited) (contd)
Information about Directors and Officers
Independent Directors contd
Jeswald W. Salacuse
|
|
|
Year of birth
|
|
1938
|
Position(s) held with Fund
1
|
|
Director and Member of the Nominating and Audit Committees, Class III
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Henry J. Braker Professor of Commercial Law, The Fletcher School of Law and Diplomacy, Tufts University (since 1986); President and Member, Arbitration Tribunal, World Bank/ICSID (since 2004)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
28
|
Other board memberships held by Director
|
|
Director of two registered investment companies advised by Aberdeen Asset Management Asia Limited (since 1993)
|
|
|
|
Interested Director and Officer:
|
|
|
|
|
|
R. Jay Gerken
2
|
|
|
Year of birth
|
|
1951
|
Position(s) held with Fund
1
|
|
Director, Chairman, President and Chief Executive Officer, Class II
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Managing Director of Legg Mason & Co., LLC (Legg Mason & Co.) (since 2005); Officer and Trustee/Director of 157 funds associated with Legg Mason Partners Fund Advisor, LLC (LMPFA) or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); President and Chief Executive Officer (CEO) of LMPFA (since 2006); President and CEO of Smith Barney Fund Management LLC (SBFM) (formerly a registered investment adviser) (since 2002)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
157
|
Other board memberships held by Director
|
|
None
|
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
51
|
Additional Officers:
Ted P. Becker
|
|
|
Legg Mason
|
|
|
620 Eighth Avenue, New York, NY 10018
|
|
|
Year of birth
|
|
1951
|
Position(s) held with Fund
1
|
|
Chief Compliance Officer
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006)
|
|
|
|
Vanessa A. Williams
|
|
|
Legg Mason
|
|
|
100 First Stamford Place, Stamford, CT 06902
|
|
|
Year of birth
|
|
1979
|
Position(s) with Fund
1
|
|
Identity Theft Prevention Officer
|
Term of office
1
and length of time served
|
|
Since 2011
|
Principal occupation(s) during past five years
|
|
Vice President of Legg Mason & Co. (since 2012); Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); formerly, Senior Compliance Officer of Legg Mason & Co. (2008 to 2011); formerly, Compliance Analyst of Legg Mason & Co. (2006 to 2008) and Legg Mason & Co. predecessors (prior to 2006)
|
|
|
|
Robert I. Frenkel
|
|
|
Legg Mason
|
|
|
100 First Stamford Place, Stamford, CT 06902
|
|
|
Year of birth
|
|
1954
|
Position(s) held with Fund
1
|
|
Secretary and Chief Legal Officer
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel of Global Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)
|
52
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Additional information (unaudited) (contd)
Information about Directors and Officers
Additional Officers contd
Thomas C. Mandia
|
|
|
Legg Mason
|
|
|
100 First Stamford Place, Stamford, CT 06902
|
|
|
Year of birth
|
|
1962
|
Position(s) held with Fund
1
|
|
Assistant Secretary
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary of SBFM (since 2002)
|
|
|
|
Richard F. Sennett
|
|
|
Legg Mason
|
|
|
100 International Drive, Baltimore, MD 21202
|
|
|
Year of birth
|
|
1970
|
Position(s) held with Fund
1
|
|
Principal Financial Officer
|
Term of office
1
and length of time served
|
|
Since 2011
|
Principal occupation(s) during past five years
|
|
Principal Financial Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2011); Managing Director of Legg Mason & Co. and Senior Manager of the Treasury Policy group for Legg Mason & Co.s Global Fiduciary Platform (since 2011); formerly, Chief Accountant within the SECs Division of Investment Management (2007 to 2011); formerly, Assistant Chief Accountant within the SECs Division of Investment Management (2002 to 2007)
|
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
53
|
Additional Officers contd
Steven Frank
|
|
|
Legg Mason
|
|
|
55 Water Street, New York, NY 10041
|
|
|
Year of birth
|
|
1967
|
Position(s) held with Fund
1
|
|
Treasurer
|
Term of office
1
and length of time served
|
|
Since 2010
|
Principal occupation(s) during past five years
|
|
Vice President of Legg Mason & Co. and Legg Mason & Co. predecessors (since 2002); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010); formerly, Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010)
|
|
|
|
Jeanne M. Kelly
|
|
|
Legg Mason
|
|
|
620 Eighth Avenue, New York, NY 10018
|
|
|
Year of birth
|
|
1951
|
Position(s) with Fund
1
|
|
Senior Vice President
|
Term of office
1
and length of time served
|
|
Since 2009
|
Principal occupation(s) during past five years
|
|
Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005)
|
Directors who are not interested persons of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.
1
The Funds Board of Directors is divided into three classes: Class I, Class II and Class III. The terms of office of the Class I, II and III Directors expire at the Annual Meetings of Stockholders in the year 2013, year 2014 and year 2015, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Funds executive officers are chosen each year at the first meeting of the Funds Board of Directors following the Annual Meeting of Stockholders, to hold office until the meeting of the Board following the next Annual Meeting of Stockholders and until their successors are duly elected and qualified.
2
Mr. Gerken is an interested person of the Fund as defined in the 1940 Act because Mr. Gerken is an officer of LMPFA and certain of its affiliates.
54
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Annual chief executive officer and principal financial officer certifications (unaudited)
The Funds Chief Executive Officer (CEO) has submitted to the NYSE the required annual certification and the Fund also has included the certifications of the Funds CEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Funds Form N-CSR filed with the SEC for the period of this report.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
55
|
Other shareholder communications regarding accounting matters (unaudited)
The Funds Audit Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, Accounting Matters). Persons with complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (CCO). Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Funds Audit Committee Chair (together with the CCO, Complaint Officers). Complaints may be submitted on an anonymous basis.
The CCO may be contacted at:
Legg Mason & Co., LLC
Compliance Department
620 Eighth Avenue, 49th Floor
New York, New York 10018
Complaints may also be submitted by telephone at 1-800-742-5274. Complaints submitted through this number will be received by the CCO.
56
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|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends, on your Common Stock will be automatically reinvested by American Stock Transfer & Trust Company LLC, as agent for the stockholders (the Plan Agent), in additional shares of Common Stock under the Funds Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by American Stock Transfer & Trust Company LLC, as dividend paying agent.
If you participate in the Plan, the number of shares of Common Stock you will receive will be determined as follows:
(1) If the market price of the Common Stock on the record date (or, if the record date is not a NYSE trading day, the immediately preceding trading day) for determining stockholders eligible to receive the relevant dividend or distribution (the determination date) is equal to or exceeds 98% of the net asset value per share of the Common Stock, the Fund will issue new Common Stock at a price equal to the greater of (a) 98% of the net asset value per share at the close of trading on the NYSE on the determination date or (b) 95% of the market price per share of the Common Stock on the determination date.
(2) If 98% of the net asset value per share of the Common Stock exceeds the market price of the Common Stock on the determination date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day following the determination date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the record date for the next succeeding dividend or distribution to be made to the stockholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price rises so that it equals or exceeds 98% of the net asset value per share of the Common Stock at the close of trading on the NYSE on the determination date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) 98% of the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the then current market price per share.
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
57
|
Common Stock in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan.
You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent in writing at 59 Maiden Lane, New York, New York 10038 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on the Common Stock. The Plan may be terminated by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination is to be effective. Upon any termination, you will be sent a certificate or certificates for the full number of shares of Common Stock held for you under the Plan and cash for any fractional share of Common Stock. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Stock on your behalf. You will be charged a service charge and the Plan Agent is authorized to deduct brokerage charges actually incurred for this transaction from the proceeds.
There is no service charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common Stock, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Funds net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan and your account may be obtained from the Plan Agent at 1-888-888-0151.
58
|
|
Western Asset Investment Grade Defined Opportunity Trust Inc.
|
|
|
Important tax information (unaudited)
The following information is provided with respect to the distributions paid during the taxable year ended November 30, 2012:
Record date:
|
|
12/16/2011
|
|
Payable date:
|
|
12/23/2011
|
|
Long-term capital gain dividend
|
|
$0.14170
|
|
Please retain this information for your records.
Western Asset
Investment Grade Defined Opportunity Trust Inc.
Directors
|
|
Western Asset Investment Grade Defined Opportunity
|
|
Independent registered public accounting firm
|
Carol L. Colman
|
|
Trust Inc.
|
|
KPMG LLP
|
Daniel P. Cronin
|
|
620 Eighth Avenue
|
|
345 Park Avenue
|
Paolo M. Cucchi
|
|
49th Floor
|
|
New York, NY 10154
|
Leslie H. Gelb
|
|
New York, NY 10018
|
|
|
R. Jay Gerken
|
|
|
|
Legal counsel
|
Chairman
|
|
Investment manager
|
|
Simpson Thacher & Bartlett LLP
|
William R. Hutchinson
|
|
Legg Mason Partners Fund Advisor, LLC
|
|
425 Lexington Avenue
|
Riordan Roett
|
|
|
|
New York, NY 10017
|
Jeswald W. Salacuse
|
|
Subadvisers
|
|
|
|
|
Western Asset Management Company
|
|
New York Stock Exchange Symbol
|
Officers
|
|
Western Asset Management Company Limited
|
|
IGI
|
R. Jay Gerken
|
|
Western Asset Management Company Ltd
|
|
|
President and
|
|
Western Asset Management Company Pte. Ltd.
|
|
|
Chief Executive Officer
|
|
|
|
|
Richard F. Sennett
|
|
Custodian
|
|
|
Principal Financial Officer
|
|
State Street Bank and Trust Company
|
|
|
Ted P. Becker
|
|
1 Lincoln Street
|
|
|
Chief Compliance Officer
|
|
Boston, MA 02111
|
|
|
Vanessa A. Williams
|
|
|
|
|
Identity Theft Prevention Officer
|
|
Transfer agent
|
|
|
Robert I. Frenkel
|
|
American Stock Transfer & Trust Company
|
|
|
Secretary and
|
|
59 Maiden Lane
|
|
|
Chief Legal Officer
|
|
New York, NY 10038
|
|
|
Thomas C. Mandia
|
|
|
|
|
Assistant Secretary
|
|
|
|
|
Steven Frank
|
|
|
|
|
Treasurer
|
|
|
|
|
Jeanne M. Kelly
|
|
|
|
|
Senior Vice President
|
|
|
|
|
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end funds and certain closed-ends funds managed or sub-advised by Legg Mason or its affiliates. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not limited to:
·
Personal information included on applications or other forms;
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Account balances, transactions, and mutual fund holdings and positions;
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Online account access user IDs, passwords, security challenge question responses; and
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Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt, payment history, etc.).
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law. The Funds may disclose information about you to:
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Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business or comply with obligations to government regulators;
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Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform marketing services solely for the Funds;
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The Funds representatives such as legal counsel, accountants and auditors; and
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Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
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NOT PART OF THE ANNUAL REPORT
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Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds behalf are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, or if you have questions about the Funds privacy practices, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds website at www.leggmason.com, or contact the Fund at 1-888-777-0102.
Revised April 2011
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NOT PART OF THE ANNUAL REPORT
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Western Asset Investment Grade Defined Opportunity Trust Inc.
Western Asset Investment Grade Defined Opportunity Trust Inc.
620 Eighth Avenue
49th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase at market price shares of its common stock in the open market.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q are available on the SECs website at www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the SECs Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) on the Funds website at www.lmcef.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of Western Asset Investment Grade Defined Opportunity Trust Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
American Stock
Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
WASX012164 1/13 SR12-1825