|
|
|
|
|
|
|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
21 |
|
Statement of assets and liabilities (unaudited)
June 30, 2022
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
| Investments in unaffiliated securities, at value (Cost — $127,579,806) |
|
|
$120,341,455 |
|
| Investments in affiliated securities, at value (Cost — $1,295,111) |
|
|
1,295,111 |
|
| Interest receivable |
|
|
1,577,739 |
|
| Deposits with brokers for open futures contracts |
|
|
214,298 |
|
| Dividends receivable from affiliated investments |
|
|
472 |
|
| Other assets |
|
|
13,944 |
|
| Prepaid expenses |
|
|
35,127 |
|
| Total Assets |
|
|
123,478,146 |
|
|
|
| Liabilities: |
|
|
|
|
| Distributions payable |
|
|
442,260 |
|
| Investment management fee payable |
|
|
53,909 |
|
| Fund accounting fees payable |
|
|
33,129 |
|
| Payable to brokers — net variation margin on open futures contracts |
|
|
14,828 |
|
| Accrued expenses |
|
|
57,518 |
|
| Total Liabilities |
|
|
601,644 |
|
| Total Net Assets |
|
|
$122,876,502 |
|
|
|
| Net Assets: |
|
|
|
|
| Par value ($0.01 par value; 9,510,962 shares issued and outstanding; 20,000,000 shares
authorized) |
|
|
$ 95,110 |
|
| Paid-in capital in excess of par value |
|
|
132,042,402 |
|
| Total distributable earnings (loss) |
|
|
(9,261,010) |
|
| Total Net Assets |
|
|
$122,876,502 |
|
|
|
| Shares Outstanding |
|
|
9,510,962 |
|
|
|
| Net Asset Value |
|
|
$12.92 |
|
See Notes to Financial
Statements.
|
|
|
|
|
| 22 |
|
|
|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
Statement of operations (unaudited)
For the Six Months Ended June 30, 2022
|
|
|
|
|
|
|
| Investment Income: |
|
|
|
|
| Interest |
|
$ |
3,211,454 |
|
| Dividends from unaffiliated investments |
|
|
2,546 |
|
| Dividends from affiliated investments |
|
|
814 |
|
| Less: Foreign taxes withheld |
|
|
(2,332) |
|
| Total Investment
Income |
|
|
3,212,482 |
|
|
|
| Expenses: |
|
|
|
|
| Investment management fee (Note 2) |
|
|
356,671 |
|
| Fund accounting fees |
|
|
33,124 |
|
| Franchise taxes |
|
|
31,004 |
|
| Transfer agent fees |
|
|
22,275 |
|
| Audit and tax fees |
|
|
21,489 |
|
| Legal fees |
|
|
16,822 |
|
| Directors’ fees |
|
|
15,411 |
|
| Stock exchange listing fees |
|
|
6,212 |
|
| Shareholder reports |
|
|
5,475 |
|
| Custody fees |
|
|
386 |
|
| Insurance |
|
|
117 |
|
| Miscellaneous expenses |
|
|
3,817 |
|
| Total Expenses |
|
|
512,803 |
|
| Less: Fee waivers and/or expense reimbursements (Note 2) |
|
|
(12,299) |
|
| Net Expenses |
|
|
500,504 |
|
| Net Investment Income |
|
|
2,711,978 |
|
|
|
| Realized and Unrealized Gain (Loss) on Investments and Futures Contracts (Notes 1, 3 and 4): |
|
|
|
|
| Net Realized Gain From: |
|
|
|
|
| Investment transactions in unaffiliated securities |
|
|
286,259 |
|
| Futures contracts |
|
|
473,174 |
|
| Net Realized Gain |
|
|
759,433 |
|
| Change in Net Unrealized Appreciation (Depreciation) From: |
|
|
|
|
| Investments in unaffiliated securities |
|
|
(27,033,634) |
|
| Futures contracts |
|
|
(146,071) |
|
| Change in Net Unrealized Appreciation
(Depreciation) |
|
|
(27,179,705) |
|
| Net Loss on Investments and Futures Contracts |
|
|
(26,420,272) |
|
| Decrease in Net Assets From Operations |
|
$ |
(23,708,294) |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
23 |
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
| For the Six Months Ended June 30, 2022 (unaudited)
and the Year Ended December 31, 2021 |
|
2022 |
|
|
2021 |
|
|
|
|
| Operations: |
|
|
|
|
|
|
|
|
| Net investment income |
|
$ |
2,711,978 |
|
|
$ |
5,502,935 |
|
| Net realized gain |
|
|
759,433 |
|
|
|
625,666 |
|
| Change in net unrealized appreciation (depreciation) |
|
|
(27,179,705) |
|
|
|
(5,899,007) |
|
| Increase (Decrease) in Net Assets From
Operations |
|
|
(23,708,294) |
|
|
|
229,594 |
|
|
|
|
| Distributions to Shareholders From (Note 1): |
|
|
|
|
|
|
|
|
| Total distributable earnings |
|
|
(2,653,558) |
|
|
|
(5,306,264) |
|
| Decrease in Net Assets From Distributions
to Shareholders |
|
|
(2,653,558) |
|
|
|
(5,306,264) |
|
|
|
|
| Fund Share Transactions: |
|
|
|
|
|
|
|
|
| Reinvestment of distributions (0 and 1,667 shares issued, respectively) |
|
|
— |
|
|
|
26,422 |
|
| Increase in Net Assets From Fund Share
Transactions |
|
|
— |
|
|
|
26,422 |
|
| Decrease in Net
Assets |
|
|
(26,361,852) |
|
|
|
(5,050,248) |
|
|
|
|
| Net Assets: |
|
|
|
|
|
|
|
|
| Beginning of period |
|
|
149,238,354 |
|
|
|
154,288,602 |
|
| End of period |
|
$ |
122,876,502 |
|
|
|
$149,238,354 |
|
See Notes to Financial
Statements.
|
|
|
|
|
| 24 |
|
|
|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of common stock outstanding throughout each year ended December 31,
unless otherwise noted: |
|
| |
|
20221,2 |
|
|
20211 |
|
|
20201 |
|
|
20191 |
|
|
20181 |
|
|
20171 |
|
|
|
|
|
|
|
|
| Net asset value, beginning of period |
|
|
$15.69 |
|
|
|
$16.23 |
|
|
|
$15.48 |
|
|
|
$14.00 |
|
|
|
$15.39 |
|
|
|
$14.61 |
|
|
|
|
|
|
|
|
| Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income |
|
|
0.29 |
|
|
|
0.58 |
|
|
|
0.58 |
|
|
|
0.62 |
|
|
|
0.65 |
|
|
|
0.68 |
|
| Net realized and unrealized gain (loss) |
|
|
(2.78) |
|
|
|
(0.56) |
|
|
|
0.78 |
|
|
|
1.55 |
|
|
|
(1.35) |
|
|
|
0.79 |
|
| Total income (loss) from
operations |
|
|
(2.49) |
|
|
|
0.02 |
|
|
|
1.36 |
|
|
|
2.17 |
|
|
|
(0.70) |
|
|
|
1.47 |
|
|
|
|
|
|
|
|
| Less distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income |
|
|
(0.28) |
3 |
|
|
(0.56) |
|
|
|
(0.61) |
|
|
|
(0.69) |
|
|
|
(0.69) |
|
|
|
(0.69) |
|
| Total
distributions |
|
|
(0.28) |
|
|
|
(0.56) |
|
|
|
(0.61) |
|
|
|
(0.69) |
|
|
|
(0.69) |
|
|
|
(0.69) |
|
|
|
|
|
|
|
|
| Net asset value, end of period |
|
|
$12.92 |
|
|
|
$15.69 |
|
|
|
$16.23 |
|
|
|
$15.48 |
|
|
|
$14.00 |
|
|
|
$15.39 |
|
|
|
|
|
|
|
|
| Market price, end of period |
|
|
$12.07 |
|
|
|
$15.63 |
|
|
|
$15.90 |
|
|
|
$15.52 |
|
|
|
$13.20 |
|
|
|
$15.76 |
|
| Total return, based on NAV4,5 |
|
|
(16.00) |
% |
|
|
0.14 |
% |
|
|
9.11 |
% |
|
|
15.77 |
% |
|
|
(4.62) |
% |
|
|
10.27 |
% |
| Total return, based on Market Price6 |
|
|
(21.13) |
% |
|
|
1.88 |
% |
|
|
6.62 |
% |
|
|
23.05 |
% |
|
|
(11.96) |
% |
|
|
15.31 |
% |
|
|
|
|
|
|
|
| Net assets, end of period (millions) |
|
|
$123 |
|
|
|
$149 |
|
|
|
$154 |
|
|
|
$147 |
|
|
|
$133 |
|
|
|
$146 |
|
|
|
|
|
|
|
|
| Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross expenses |
|
|
0.77 |
%7 |
|
|
0.73 |
% |
|
|
0.81 |
% |
|
|
0.85 |
% |
|
|
0.82 |
% |
|
|
0.76 |
% |
| Net expenses8,9 |
|
|
0.75 |
7 |
|
|
0.71 |
|
|
|
0.79 |
|
|
|
0.83 |
|
|
|
0.80 |
|
|
|
0.74 |
|
| Net investment income |
|
|
4.06 |
7 |
|
|
3.66 |
|
|
|
3.80 |
|
|
|
4.12 |
|
|
|
4.47 |
|
|
|
4.53 |
|
|
|
|
|
|
|
|
| Portfolio turnover rate |
|
|
12 |
% |
|
|
18 |
% |
|
|
41 |
% |
|
|
66 |
% |
|
|
52 |
% |
|
|
50 |
% |
| 1 |
Per share amounts have been calculated using the average shares method. |
| 2 |
For the six months ended June 30, 2022 (unaudited). |
| 3 |
The actual source of the Fund’s current fiscal year distributions may be from net investment income, return of
capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year. |
| 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. 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 Fund’s dividend
reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized. |
| 8 |
Reflects fee waivers and/or expense reimbursements. |
| 9 |
The investment adviser has agreed to waive the Fund’s management fee to an extent sufficient to offset the net
management fee payable in connection with any investment in an affiliated money market fund. |
See Notes to Financial Statements.
|
|
|
|
|
|
|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
25 |
|
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
Western Asset Investment Grade Income Fund Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as
a closed-end diversified investment company. The Fund’s primary investment objective is to seek a high level of current income, consistent with prudent investment risk, through investment in a diversified
portfolio of debt securities. To a lesser extent, the Fund may also invest in privately placed debt securities and in certain equity securities. Capital appreciation is a secondary investment objective.
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 typically use inputs that are observable such as issuer details, interest
rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each
fund on the day of valuation. 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 net asset value, the Fund values
these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.
|
|
|
|
|
| 26 |
|
|
|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
The Board of Directors is responsible for the
valuation process and has delegated the supervision of the daily valuation process to the Global 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 Fund’s 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 issuer’s
financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information
regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the
existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of
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.
|
|
|
|
|
|
|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
27 |
|
Notes to financial statements
(unaudited) (cont’d)
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used
to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| • |
|
Level 1 — quoted prices in active markets for identical investments |
| • |
|
Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates,
prepayment speeds, credit risk, etc.) |
| • |
|
Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair
value of investments) |
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing
in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS |
|
| Description |
|
Quoted Prices
(Level 1) |
|
|
Other Significant
Observable Inputs (Level 2) |
|
|
Significant
Unobservable Inputs (Level 3) |
|
|
Total |
|
| Long-Term Investments†: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate Bonds & Notes |
|
|
— |
|
|
$ |
113,652,981 |
|
|
|
— |
|
|
$ |
113,652,981 |
|
| Sovereign Bonds |
|
|
— |
|
|
|
4,971,568 |
|
|
|
— |
|
|
|
4,971,568 |
|
| Municipal Bonds |
|
|
— |
|
|
|
1,592,387 |
|
|
|
— |
|
|
|
1,592,387 |
|
| Preferred Stocks |
|
|
— |
|
|
|
124,519 |
|
|
|
— |
|
|
|
124,519 |
|
| Total Long-Term Investments |
|
|
— |
|
|
|
120,341,455 |
|
|
|
— |
|
|
|
120,341,455 |
|
| Short-Term Investments† |
|
$ |
1,295,111 |
|
|
|
— |
|
|
|
— |
|
|
|
1,295,111 |
|
| Total Investments |
|
$ |
1,295,111 |
|
|
$ |
120,341,455 |
|
|
|
— |
|
|
$ |
121,636,566 |
|
| Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Futures Contracts†† |
|
$ |
100,185 |
|
|
|
— |
|
|
|
— |
|
|
$ |
100,185 |
|
| Total |
|
$ |
1,395,296 |
|
|
$ |
120,341,455 |
|
|
|
— |
|
|
$ |
121,736,751 |
|
|
| LIABILITIES |
|
| Description |
|
Quoted Prices
(Level 1) |
|
|
Other Significant
Observable Inputs (Level 2) |
|
|
Significant
Unobservable Inputs (Level 3) |
|
|
Total |
|
| Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Futures Contracts†† |
|
$ |
108,010 |
|
|
|
— |
|
|
|
— |
|
|
$ |
108,010 |
|
| † |
See Schedule of Investments for additional detailed categorizations. |
| †† |
Reflects the unrealized appreciation (depreciation) of the instruments. |
(b) 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.
|
|
|
|
|
| 28 |
|
|
|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
Upon entering into a futures contract, the Fund is
required to deposit cash or securities 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. The daily changes in contract value are recorded as unrealized appreciation or depreciation 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.
(c) Credit and
market risk. The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among
other things, perceived credit and market risks. The Fund’s investments in securities rated below investment grade typically involve 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. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of
investments held by the Fund. The Fund’s investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
Investments in securities that are collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an
increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and
principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.
(d) Foreign investment risks. The Fund’s 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 may 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.
|
|
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|
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|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
29 |
|
Notes to financial statements
(unaudited) (cont’d)
(e) 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 Fund’s investment adviser 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 adviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such
instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law,
the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or
similar agreement, with certain of its derivative counterparties that govern over-the-counter (“OTC”) derivatives and provide for general obligations,
representations, agreements, collateral posting terms, netting provisions in the event 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 Fund’s net assets or net asset value per share 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.
Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’
payables and/or receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an
offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by
jurisdiction.
|
|
|
|
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| 30 |
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|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
Collateral requirements differ by type of
derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been pledged to cover
obligations of the Fund under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Schedule of Investments.
As of June 30, 2022, the Fund did not have any open OTC derivative transactions with credit related contingent features in a net liability position.
(f) Security transactions and investment income. Security transactions are
accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of
discount, is recorded on the accrual basis. Paydown gains and losses on mortgage- and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date
for dividends received in cash and/or securities. 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.
(g) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. The actual
source of the Fund’s monthly distributions may be from net investment income, return of capital or a combination of both. Shareholders will be informed of the tax characteristics of the distributions after the close of the fiscal year.
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.
(h) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.
(i) Federal and other taxes. It is the Fund’s 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 Fund’s financial statements.
|
|
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|
|
|
|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
31 |
|
Notes to financial statements
(unaudited) (cont’d)
Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax
years and has concluded that as of December 31, 2021, no provision for income tax is required in the Fund’s financial statements. The Fund’s 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.
Under the
applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(j) 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.
2. Investment management agreement and other
transactions with affiliates
The Fund has entered into an Investment Advisory Agreement with Western Asset Management Company, LLC (“Adviser”),
pursuant to which the Adviser provides investment advice and administrative services to the Fund. In return for its services, the Fund pays the Adviser a monthly fee at an annual rate of 0.70% of the average monthly net assets of the Fund up to
$60,000,000 and 0.40% of such net assets in excess of $60,000,000. If expenses (including the Adviser’s fee but excluding interest, taxes, brokerage fees, the expenses of any offering by the Fund of its securities, and extraordinary expenses
beyond the control of the Fund) borne by the Fund in any fiscal year exceed 1.5% of average net assets up to $30,000,000 and 1% of average net assets over $30,000,000, the Adviser has contractually agreed to reimburse the Fund for any excess. The
Adviser or its affiliates has also agreed to waive $24,000 annually in Fund operating expenses. This waiver is ongoing and will not be terminated without Board approval.
The Adviser has agreed to waive the Fund’s management fee to an extent sufficient to offset the net management fee payable in connection with any investment in an
affiliated money market fund (the “affiliated money market fund waiver”).
During the six months ended June 30, 2022, fees waived and/or expenses
reimbursed amounted to $12,299, which included an affiliated money market fund waiver of $399.
Western Asset Management Company Limited (“Western
London”), as subadviser to the Fund, provides the Fund with investment research, advice, management and supervision and a continuous investment program for the Fund’s portfolio of non-dollar
securities consistent with the Fund’s investment objectives and policies. As compensation, the Adviser pays Western London a fee based on the pro rata assets of the Fund managed by Western London during the month.
|
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|
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| 32 |
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|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
Under the terms of an administrative services
agreement among the Fund, the Adviser, and Legg Mason Partners Fund Advisor, LLC (“LMPFA”), the Adviser (not the Fund) pays LMPFA a monthly fee of $3,000 (an annual rate of $36,000).
The Adviser, LMPFA and Western London are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).
All officers and one Director of the Fund are employees of Franklin Resources or its affiliates and do not receive compensation from the Fund.
3. Investments
During the six months ended
June 30, 2022, 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 |
|
$ |
11,004,864 |
|
|
$ |
5,749,925 |
|
| Sales |
|
|
10,331,294 |
|
|
|
5,654,162 |
|
At June 30, 2022, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments
for federal income tax purposes were substantially as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost |
|
|
Gross
Unrealized Appreciation |
|
|
Gross
Unrealized Depreciation |
|
|
Net
Unrealized Depreciation |
|
| Securities |
|
$ |
128,874,917 |
|
|
$ |
2,758,643 |
|
|
$ |
(9,996,994) |
|
|
$ |
(7,238,351) |
|
| Futures contracts |
|
|
— |
|
|
|
100,185 |
|
|
|
(108,010) |
|
|
|
(7,825) |
|
4. Derivative instruments and hedging activities
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 June 30, 2022.
|
|
|
|
|
| ASSET DERIVATIVES1 |
| |
|
Interest
Rate Risk |
|
| Futures contracts2 |
|
$ |
100,185 |
|
|
|
|
|
|
| LIABILITY DERIVATIVES1 |
| |
|
Interest
Rate Risk |
|
| Futures contracts2 |
|
$ |
108,010 |
|
|
|
|
|
|
|
|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
33 |
|
Notes to financial statements
(unaudited) (cont’d)
| 1 |
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability
derivatives is payables/net unrealized depreciation. |
| 2 |
Includes cumulative unrealized appreciation (depreciation) of futures contracts as reported in the Schedule of
Investments. Only net variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities. |
The
following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the six months ended June 30, 2022. 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 Fund’s derivatives and hedging activities during
the period.
|
|
|
|
|
| AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED |
|
| |
|
Interest
Rate Risk |
|
| Futures contracts |
|
$ |
473,174 |
|
|
|
|
|
|
| CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED |
|
| |
|
Interest
Rate Risk |
|
| Futures contracts |
|
$ |
(146,071) |
|
During the six months ended June 30, 2022, the volume of derivative activity for the Fund was as follows:
|
|
|
|
|
| |
|
Average Market
Value |
|
| Futures contracts (to buy) |
|
$ |
19,871,037 |
|
| Futures contracts (to sell) |
|
|
15,926,627 |
|
5. Distributions subsequent to June 30, 2022
The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period end of this report:
|
|
|
|
|
|
|
|
|
| Record Date |
|
Payable Date |
|
|
Amount |
|
| 6/23/2022 |
|
|
7/1/2022 |
|
|
$ |
0.0465 |
|
| 7/22/2022 |
|
|
8/1/2022 |
|
|
$ |
0.0465 |
|
| 8/24/2022 |
|
|
9/1/2022 |
|
|
$ |
0.0465 |
|
| 9/23/2022 |
|
|
10/3/2022 |
|
|
$ |
0.0465 |
|
6. Stock repurchase program
On November 20, 2015, the Fund announced that the Fund’s Board of Directors (the “Board”) had authorized the Fund to repurchase in the open market up
to approximately 10% of the Fund’s outstanding common stock when the Fund’s shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of
|
|
|
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| 34 |
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|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
common stock at such times and in such amounts as
management reasonably believes may enhance shareholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the six months ended June 30, 2022 and the year ended
December 31, 2021, the Fund did not repurchase any shares.
7. Transactions with affiliated company
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities, or a company which is under common
ownership or control with the Fund. The following company was considered an affiliated company for all or some portion of the six months ended June 30, 2022. The following transactions were effected in such company for the six months ended
June 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Affiliate
Value
at
December 31,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Purchased |
|
|
Sold |
|
| |
|
Cost |
|
|
Shares |
|
|
Cost |
|
|
Shares |
|
| Western Asset Premier Institutional Government Reserves, Premium Shares |
|
$ |
1,065,374 |
|
|
$ |
12,462,673 |
|
|
|
12,462,673 |
|
|
$ |
12,232,936 |
|
|
|
12,232,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (cont’d) |
|
Realized
Gain (Loss) |
|
|
Dividend
Income |
|
|
Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation) |
|
|
Affiliate
Value at
June 30,
2022 |
|
| Western Asset Premier Institutional Government Reserves, Premium Shares |
|
|
— |
|
|
$ |
814 |
|
|
|
— |
|
|
$ |
1,295,111 |
|
8. Deferred capital losses
As of December 31, 2021, the Fund had deferred capital losses of $2,840,907, which have no expiration date, that will be available to offset future taxable capital
gains.
9. Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04,
Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, with further amendments to
Topic 848. The amendments in the ASUs provide optional temporary accounting recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other
interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has
reviewed the requirements and believes the adoption of these ASUs will not have a material impact on the financial statements.
|
|
|
|
|
|
|
| Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
|
|
|
|
35 |
|
Notes to financial statements
(unaudited) (cont’d)
10. Other matters
The outbreak of the respiratory illness COVID-19 (commonly referred to as “coronavirus”) has continued to rapidly
spread around the world, causing considerable uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not
known. The COVID-19 pandemic could adversely affect the value and liquidity of the Fund’s investments and negatively impact the Fund’s performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
***
The Fund’s investments,
payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or “LIBOR,” which is the offered rate for short-term Eurodollar deposits between major international banks. On
March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of the overnight and one-, three-, six- and
twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023. All other LIBOR settings, including the one-week and two-month
USD LIBOR settings, have ceased publication as of January 1, 2022. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Fund’s transactions and the financial markets
generally. As such, the potential effect of a transition away from LIBOR on the Fund or the Fund’s investments cannot yet be determined.
***
On February 24, 2022, Russia engaged in military actions in the sovereign territory of Ukraine. The current political and financial
uncertainty surrounding Russia and Ukraine may increase market volatility and the economic risk of investing in securities in these countries and may also cause uncertainty for the global economy and broader financial markets. The ultimate fallout
and long-term impact from these events are not known. The Fund will continue to assess the impact on valuations and liquidity and will take any potential actions needed in accordance with procedures approved by the Board of Directors.
|
|
|
|
|
| 36 |
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|
Western Asset Investment Grade Income Fund Inc. 2022 Semi-Annual Report |
Board approval of management and subadvisory agreements (unaudited)
The Executive and Contracts Committee of the Board of Directors (the “Executive and Contracts Committee”) considered the Investment Advisory Agreement (the
“Advisory Agreement”) between the Fund and Western Asset Management Company, LLC (“Western Asset”) and the Investment Subadvisory Agreement (together with the “Advisory Agreement,” the “Agreements”) between
Western Asset and Western Asset Management Company Limited (“WAML,” and together with Western Asset, the “Advisers”) with respect to the Fund at a meeting held on April 19, 2022. At an
in-person meeting held on May 12, 2022, the Executive and Contracts Committee reported to the full Board of Directors their considerations and recommendation with respect to the Agreements, and the Board
of Directors, including a majority of the Independent Directors, considered and approved renewal of the Agreements.
The Directors noted that although Western
Asset’s business is operated through separate legal entities, such as WAML, senior investment personnel at Western Asset have supervisory oversight responsibility over the investment decisions made by WAML. Therefore, in connection with their
deliberations noted below, the Directors primarily focused on the information provided by Western Asset when considering the approval of the Agreement between Western Asset and WAML.
In arriving at their decision to approve the renewal of the Agreements, the Directors met with representatives of the Advisers, including relevant investment advisory
personnel; considered a variety of information prepared by the Advisers, materials provided by Broadridge and advice and materials provided by counsel to the Independent Directors; reviewed performance and expense information for peer groups of
comparable funds and certain other comparable products available from Western Asset or affiliates of Western Asset, including separate accounts managed by Western Asset; and requested and reviewed additional information as necessary. These reviews
were in addition to information obtained by the Directors at their regular quarterly meetings (and various committee meetings) with respect to the Fund’s performance and other relevant matters, such as information on public trading in the
Fund’s shares and differences between the Fund’s share price and net asset value per share, and related discussions with the Advisers’ personnel. The information received and considered by the Board both in conjunction with the May
meeting and at prior meetings was both written and oral.
As part of their review, the Directors examined the Advisers’ ability to provide high quality
investment management services to the Fund. The Directors considered the investment philosophy and research and decision-making processes of the Advisers; the experience of their key advisory personnel responsible for management of the Fund; the
ability of the Advisers to attract and retain capable research and advisory personnel; the risks to the Advisers associated with sponsoring the Fund (such as entrepreneurial, operational, reputational, litigation and regulatory risk), as well as the
Advisers’ risk management
|
|
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|
|
|
|
| Western Asset Investment Grade Income Fund Inc. |
|
|
|
|
37 |
|
Board approval of management and subadvisory agreements (unaudited) (cont’d)
processes); the capability and integrity of the Advisers’ senior management and staff; and the level of skill required to manage the Fund. In addition, the
Directors reviewed the quality of the Advisers’ services with respect to regulatory compliance and compliance with the investment policies of the Fund, and conditions that might affect the Advisers’ ability to provide high quality services
to the Fund in the future, including their business reputations, financial conditions and operational stabilities. Based on the foregoing, the Directors concluded that the Advisers’ investment process, research capabilities and philosophy were
well suited to the Fund given its investment objectives and policies, and that the Advisers would be able to meet any reasonably foreseeable obligations under the Agreements.
The Board reviewed the qualifications, backgrounds and responsibilities of the Advisers’ senior personnel and the team of investment professionals primarily
responsible for the day-to-day portfolio management of the Fund. The Board also considered, based on its knowledge of the Advisers and their affiliates, the financial
resources of Franklin Resources, Inc., the parent organization of the Advisers. The Board recognized the importance of having a fund manager with significant resources.
In reviewing the quality of the services provided to the Fund, the Directors also reviewed comparisons of the performance of the Fund to the performance of a group of non-leveraged, BBB-rated corporate debt closed-end funds and the Bloomberg U.S. Corporate High Yield Index (the “Index”). The
Directors noted that the Fund met its primary objective of seeking a high level of current income, and that the performance of the Fund was above the peer group median for the 1-, 3-, 5- and 10-year periods ended December 31, 2021. The Board noted that the Fund’s performance trailed that of the Index for
all relevant periods. The Directors considered the factors involved in the Fund’s performance relative to the performance of the Index and peer group. The Directors concluded that the Advisers’ management of the Fund would continue to be
in the best interests of the shareholders.
The Directors also considered the management fee and total expenses payable by the Fund. They reviewed information
concerning management fees paid to investment advisers of similarly managed funds as well as fees paid by Western Asset’s other clients, including separate accounts managed by Western Asset. The Directors also noted that the Fund does not pay
any management fees directly to WAML because Western Asset pays WAML for services provided to the Fund out of the management fee Western Asset receives from the Fund. The Directors noted that, when measured as a percentage of net assets for its most
recently completed fiscal year, the Fund’s advisory fee paid to Western Asset was above the median of the advisory fees paid by funds in its peer group and that the Fund’s total expenses was above the median in its peer group. They also
noted that the advisory fee paid by the Fund was lower than the advisory fee paid by the other client of the Advisers with a similar investment strategy, but that the administrative and operational responsibilities for the Advisers with respect to
the Fund were also relatively higher. The Directors concluded that the management fee paid by the Fund relative to the fees paid by the Advisers’ other clients was reasonable.
|
|
|
|
|
| 38 |
|
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|
Western Asset Investment Grade Income Fund Inc. |
The Directors further evaluated the benefits of the advisory relationship to the Advisers, including, among others, the
profitability of the relationship to the Advisers; the direct and indirect benefits that the Advisers may receive from their relationships with the Fund, including the “fallout benefits,” such as reputational value derived from serving as
investment adviser to the Fund; and the affiliation between the Advisers and Legg Mason Partners Funds Advisor, LLC, the Fund’s administrator, and certain other service providers for the Fund. In that connection, the Board considered that the
ancillary benefits that the Advisers receive were reasonable. The Directors noted that Western Asset does not have soft dollar arrangements.
Finally, the Directors
considered, in light of the profitability information provided by Western Asset, the extent to which economies of scale would be realized by the Advisers as the assets of the Fund grow. The Directors concluded that because the Fund is a closed-end fund and does not make a continuous offer of its securities, the Fund’s size was relatively fixed and it would be unlikely that the Advisers would realize economies of scale from the Fund’s
growth.
In their deliberations with respect to these matters, the Independent Directors were advised by their independent counsel, who is independent, within the
meaning of the Securities and Exchange Commission rules regarding the independence of counsel, of the Advisers. The Independent Directors weighed the foregoing matters in light of the advice given to them by their independent counsel as to the law
applicable to the review of investment advisory contracts. In arriving at a decision, the Directors, including the Independent Directors, did not identify any single matter as all-important or controlling, and
each Director may have attributed different weight to the various factors in evaluating the Agreements. The foregoing summary does not detail all the matters considered. The Directors judged the terms and conditions of the Agreements, including the
investment advisory fees, in light of all of the surrounding circumstances.
Based upon their review, the Directors, including all of the Independent Directors,
determined, in the exercise of their business judgment, that they were satisfied with the quality of investment advisory services being provided by the Advisers; that the fees to be paid to the Advisers under the Agreements were fair and reasonable
given the scope and quality of the services rendered by the Advisers; and that approval of the Agreements was in the best interest of the Fund and its shareholders.
|
|
|
|
|
|
|
| Western Asset Investment Grade Income Fund Inc. |
|
|
|
|
39 |
|
Additional shareholder information (unaudited)
Results of annual meeting of shareholders
The
Annual Meeting of Shareholders of Western Asset Investment Grade Income Fund Inc. was held on May 16, 2022, for the purpose of considering and voting upon the proposal presented at the Meeting. The following table provides information
concerning the matters voted upon at the Meeting:
Election of Directors
|
|
|
|
|
|
|
|
|
| Nominees |
|
FOR |
|
|
WITHHELD |
|
| Robert Abeles, Jr. |
|
|
7,379,374 |
|
|
|
445,471 |
|
| Jane F. Dasher |
|
|
7,432,903 |
|
|
|
391,942 |
|
| Anita L. DeFrantz |
|
|
7,381,168 |
|
|
|
443,677 |
|
| Susan B. Kerley |
|
|
7,444,184 |
|
|
|
380,661 |
|
| Michael Larson |
|
|
7,441,721 |
|
|
|
383,124 |
|
| Ronald L. Olson |
|
|
7,430,093 |
|
|
|
394,752 |
|
| Avedick B. Poladian |
|
|
7,434,206 |
|
|
|
390,639 |
|
| William E.B. Siart |
|
|
7,347,765 |
|
|
|
477,080 |
|
| Jaynie Miller Studenmund |
|
|
7,425,987 |
|
|
|
398,858 |
|
| Peter J. Taylor |
|
|
7,389,425 |
|
|
|
435,420 |
|
| Jane Trust |
|
|
7,462,947 |
|
|
|
361,898 |
|
At June 30, 2022, the Directors of the Fund were Robert Abeles, Jr., Jane F. Dasher, Anita L. DeFrantz, Susan B. Kerley, Michael
Larson, Ronald L. Olson, Avedick B. Poladian, William E.B. Siart, Jaynie Miller Studenmund, Peter J. Taylor and Jane Trust.
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|
|
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| 40 |
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Western Asset Investment Grade Income Fund Inc. |
Dividend reinvestment plan (unaudited)
The Fund offers to all shareholders a Dividend Reinvestment Plan (“Plan”). For participants in the Plan, cash distributions (e.g., dividends and capital gains)
of registered shareholders (those who own shares in their own name on the Fund’s records) are automatically invested in shares of the Fund. Interested shareholders may obtain more information or sign up for the Plan by contacting the agent.
Shareholders who own shares in a brokerage, bank, or other financial institution account must contact the Company where their account is held in order to participate in the Plan.
If you elect to participate in the Plan you will automatically receive your dividend or net capital gains distribution in newly issued shares of the Fund if the market
price of a share on the date of the distribution is at or above the net asset value (“NAV”) of a Fund share. The number of shares to be issued to you will be determined by dividing the amount of the cash distribution to which you are
entitled (net of any applicable withholding taxes) by the greater of the NAV per share on such date or 95% of the market price of a share on such date. If the market price of a share on such distribution date is below the NAV the Agent will, as
agent for the participants, buy shares of the Fund’s stock through a broker on the open market or in a negotiated transaction (subject to price and other terms to which the agent may agree). The price per share of shares purchased for each
participant’s account with respect to a particular dividend or other distribution will be the average price (including brokerage commissions, transfer taxes and any other costs of purchase) of all shares purchased with respect to that dividend
or other distribution. All shares of common stock acquired on your behalf through the Plan will be automatically credited to an account maintained on the books of the Agent. Full and fractional shares will be voted by the Agent in accordance with
your instructions.
Additional information regarding the plan
The Fund will pay all costs applicable to the Plan, with the exceptions noted below. Brokerage commissions, transfer taxes and any other costs of purchase or sale by the
Agent under the Plan will be charged to participants. The commission participants pay for selling shares under the Plan is calculated as $2.50 plus $0.15 per share. Beneficial shareholders should contact the company holding their account for further
information concerning fees that may apply to selling shares under the Plan. In the event the Fund determines to no longer pay the costs applicable to the Plan, the Agent will terminate the Plan and may, but is not obligated to, offer a new plan
under which it would impose a direct service charge on participants.
All shares acquired through the Plan receive voting rights and are eligible for any stock
split, stock dividend, or other rights accruing to shareholders that the Board of Directors may declare. Distributions to Plan participants will be in the form of stock, unless the Agent is notified in writing 10 days prior to the record date fixed
by the Board of Directors for the distribution that you wish to receive a cash payment. Beneficial shareholders should contact the company holding their account for further information regarding deadlines that might apply.
You may terminate participation in the Plan at any time by giving written notice to the Agent. Such termination will be effective prior to the record date next
succeeding the receipt of such instructions or by a later date of termination specified in such instructions.
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| Western Asset Investment Grade Income Fund Inc. |
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41 |
|
Dividend reinvestment plan
(unaudited) (cont’d)
Upon termination of the Plan, a participant may request a certificate for the full shares credited
to his or her account or may request the sale of all or part of such shares. If the participant instructs the Agent to sell the shares credited to the participant’s account, the Agent may accumulate such shares and those of any other
terminating participants for purposes of such sale. Brokerage charges, transfer taxes, and any other costs of sale will be allocated pro rata among the selling participants. Any such sale may be made on any securities exchange where such shares are
traded, in the over-the counter market or in negotiated transactions, and may be subject to such terms of price, delivery, etc., as the Agent may agree to. Fractional shares credited to a terminating account
will be paid for in cash at the current market price at the time of termination.
Dividends and other distributions invested in additional shares under the Plan are
subject to income tax just as if they had been received in cash. After year end, dividends paid on the accumulated shares will be included in the Form 1099-DIV information return to the Internal Revenue
Service and only one Form 1099-DIV will be sent to each participant each year.
Registered shareholders can make inquiries
regarding the Plan, as well as sign up or terminate their participation in the Plan by contacting Computershare Inc., 462 South 4th Street, Suite 1600, Louisville, KY 40202, telephone number 1-888-888-0151. Beneficial Shareholders can make inquiries regarding the Plan as well as sign up or terminate their participation in the Plan by contacting the company
where their account is held.
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| 42 |
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Western Asset Investment Grade Income Fund Inc. |
Western Asset
Investment Grade Income Fund Inc.
Directors
Robert Abeles, Jr
Jane F. Dasher
Anita L. DeFrantz
Susan B. Kerley
Michael Larson
Ronald L. Olson
Avedick B. Poladian
William E.B. Siart
Chairman
Jaynie M. Studenmund
Peter J. Taylor
Jane Trust
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Ted P. Becker
Chief Compliance Officer
Marc A. De Oliveira
Secretary and Chief Legal Officer
Thomas C. Mandia
Senior Vice President
Jeanne M. Kelly
Senior Vice President
Western Asset Investment Grade
Income Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment advisers
Western Asset Management Company, LLC
Western Asset Management Company Limited
Custodian
The Bank of New York Mellon
Independent registered public accounting firm
PricewaterhouseCoopers LLP
100 East Pratt Street
Baltimore, MD 21202
Legal counsel
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
New York Stock Exchange Symbol
PAI
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, Franklin Distributors, LLC, as well as Legg Mason-sponsored closed-end funds. 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:
| • |
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Personal information included on applications or other forms; |
| • |
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Account balances, transactions, and mutual fund holdings and positions; |
| • |
|
Bank account information, legal documents, and identity verification documentation; |
| • |
|
Online account access user IDs, passwords, security challenge question responses; and |
| • |
|
Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of
an individual’s 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:
| • |
|
Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business, or
to comply with obligations to government regulators; |
| • |
|
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 statistical analysis, market research and marketing services solely
for the Funds; |
| • |
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds’
employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators; |
| • |
|
The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary
business, or to comply with obligations to government regulators; |
| • |
|
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 SEMI-ANNUAL
REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf,
including those outside the United States, 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, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, 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.franklintempleton.com, or contact the Fund at
1-888-777-0102.
Revised April 2018
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is “nonpublic personal information” subject to federal law, residents of California may, in certain
circumstances, have additional rights under the California Consumer Privacy Act (“CCPA”). For example, if you are a broker,
|
| NOT PART OF THE SEMI-ANNUAL
REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any
other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal
information (as defined by the CCPA).
| • |
|
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the
categories and specific pieces of personal information we have collected about you. |
| • |
|
You also have the right to request the deletion of the personal information collected or maintained by the Funds.
|
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set
forth below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process
described below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request
on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other
applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if
suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg
Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2020
|
| NOT PART OF THE SEMI-ANNUAL
REPORT |
Western Asset Investment Grade Income Fund Inc.
Western Asset Investment Grade Income Fund Inc.
620 Eighth Avenue
47th 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
prices, shares of its stock.
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 as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov.
To obtain information on Form N-PORT, shareholders can call the Fund at 1-888-777-0102 or
visit the Fund’s website at www.franklintempleton.com.
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) at www.franklintempleton.com and (3) on the SEC’s website at
www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on Franklin
Templeton’s website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templeton’s website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not
intended to, incorporate Franklin Templeton’s website in this report.
This report is transmitted to the shareholders of Western Asset Investment Grade Income
Fund 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.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WASX012841 8/22 SR22-4485